<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1997
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
PLASTI-LINE, INC.
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(Name of Issuer)
PLASTI-LINE, INC.
PL HOLDING CORP.
PL ACQUISITION CORP.
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(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.001 PER SHARE
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(Title of Class of Securities)
727540106
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(CUSIP Number of Class of Securities)
<TABLE>
<S> <C> <C>
JAMES R. MARTIN JAMES R. MARTIN JAMES R. MARTIN
PLASTI-LINE, INC. PL HOLDING CORP. PL ACQUISITION CORP.
623 E. EMORY ROAD 623 E. EMORY ROAD 623 E. EMORY ROAD
KNOXVILLE, TENNESSEE 37950 KNOXVILLE, TENNESSEE 37950 KNOXVILLE, TENNESSEE 37950
(423) 938-1511 (423) 938-1511 (423) 938-1511
</TABLE>
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS AUTHORIZED TO RECEIVE NOTICES AND
COMMUNICATIONS ON BEHALF OF THE PERSON(S) FLING STATEMENT)
THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:
SUSAN J. WILSON, ESQ. ROBERT F. THOMPSON, ESQ.
ALSTON & BIRD LLP BASS, BERRY & SIMS PLC
ONE ATLANTIC CENTER 2700 FIRST AMERICAN CENTER
1201 WEST PEACHTREE STREET NASHVILLE, TENNESSEE 37238-2700
ATLANTA, GEORGIA 30309-3424 (615) 742-6200
(404) 881-7000
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies. [X]
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
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TRANSACTION VALUATION* AMOUNT OF FILING FEE
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<S> <C>
$56,055,463 $11,215
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</TABLE>
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form or
schedule and the date of its filing.
<PAGE> 2
Amount previously paid: $11,215 Filing party: Plasti-Line, Inc.
Form or Registration no.: Schedule 14A Date filed: November 5, 1997
*For purposes of calculation of the filing fee only. This transaction relates to
the proposed merger (the "Merger") of PL Acquisition Corp. with and into
Plasti-Line, Inc. (the "Company"). The "Transaction Valuation" amount referenced
above is based upon the purchase of 3,865,894 shares of Common Stock, par value
$.001 per share (the "Common Stock"), of the Company at $14.50, the cash price
per share of Common Stock to be paid in the Merger. In accordance with Rule
0-11(c)(1) under the Securities Exchange Act of 1934, the filing fee is
determined by multiplying the amount calculated pursuant to the preceding
sentence by 1/50th of one percent.
This Rule 13E-3 Transaction Statement (the "Statement") of
Plasti-Line, Inc., a Tennessee corporation (the "Company"), PL Holding Corp., a
Tennessee corporation ("Parent"), and PL Acquisition Corp., a Tennessee
corporation and wholly owned subsidiary of Parent ("Merger Sub"), relates to an
Agreement and Plan of Merger (the "Merger Agreement"), dated as of November 3,
1997, among the Company, Parent, Merger Sub and James R. Martin, pursuant to
which, among other things, (a) Merger Sub will be merged with and into the
Company (the "Merger" or the "Transaction"), with the Company being the
surviving corporation (the "Surviving Corporation"), (b) each outstanding share
of Common Stock (except those shares of Common Stock held by the Company as
treasury stock or owned by Parent or its affiliates) will be converted into the
right to receive $14.50 without interest, (c) each outstanding share of Common
Stock held by Parent or its affiliates will be canceled without consideration
and (d) each outstanding share of Merger Sub common stock will be converted into
one share of common stock of the Surviving Corporation. The Merger Agreement and
the Merger have already been approved by the board of directors of each of the
corporations that are parties to the Merger Agreement and are subject to the
approval of the shareholders of the Company at a Special Meeting of Shareholders
to be held on ________, 1997. This Statement is intended to satisfy the
reporting requirements of Section 13(e) of the Securities Exchange Act of 1933,
as amended (the "Act"). A copy of the Merger Agreement is filed by the Company
as Exhibit A to the Company's Proxy Statement (the "Proxy Statement") and
incorporated by reference in Item 17(c) to this Statement.
The cross-reference sheet below is being supplied pursuant to
General Instruction F to the Schedule 13E-3 and shows the location in the Proxy
Statement of the information required to be included in response to the items of
this Statement. The information in the Proxy Statement, including all exhibits
thereto, is hereby expressly incorporated herein by reference and the responses
to each item in this Statement are qualified in their entirety by the
information contained in the Proxy Statement and the exhibits thereto.
<PAGE> 3
CROSS REFERENCE SHEET
SCHEDULE 13E-3 ITEM: LOCATION IN THE PROXY STATEMENT:
Item 1(a) *
Item 1(b) "INTRODUCTION" and "MARKET PRICES FOR THE
COMMON STOCK"
Item 1(c) "MARKET PRICES FOR THE COMMON STOCK"
Item 1(d) "DIVIDENDS"
Item 1(e) **
Item 1(f) "PURCHASES OF COMMON STOCK BY CERTAIN
PERSONS"
Item 2(a)--(d) and (g) "INTRODUCTION", ""BUSINESS OF THE COMPANY",
"CERTAIN INFORMATION CONCERNING PARENT AND
MERGER SUB" and "DIRECTORS AND EXECUTIVE
OFFICERS OF THE COMPANY, PARENT, MERGER SUB
AND THE SURVIVING CORPORATION"
Item 2(e)--(f) *
Item 3(a)(1) "SPECIAL FACTORS--Conflicts of Interest;
Certain Relationships"
Item 3(a)(2) "INTRODUCTION--Proposal to be Considered at
the Special Meeting,"
"SUMMARY--GENERAL--Structure of the Merger,"
"SUMMARY--THE MERGER AGREEMENT," "SPECIAL
FACTORS--Background of the Merger," "SPECIAL
FACTORS--Purpose and Structure of the
Merger; Certain Effects of the Merger," "THE
MERGER AGREEMENT" and EXHIBIT A--"MERGER
AGREEMENT"
Item 3(b) "INTRODUCTION--Proposal to be Considered at
the Special Meeting," "INTRODUCTION--Voting
Rights; Vote Required for Approval,"
"SUMMARY--GENERAL--Purpose of the Special
Meeting; Quorum; Vote Required,"
"SUMMARY--GENERAL--Structure of the Merger,"
"SUMMARY--GENERAL--Conflicts of Interest,"
"SPECIAL FACTORS--Background of the Merger,"
"SPECIAL FACTORS--Purpose and Structure of
the Merger; Certain Effects of the Merger,"
"SPECIAL FACTORS--Conflicts of Interest;
Certain Relationships," "CERTAIN INFORMATION
CONCERNING PARENT AND MERGER SUB" and
"SECURITY OWNERSHIP OF THE COMPANY"
Item 4(a) "INTRODUCTION--Proposal to be Considered at
the Special Meeting,"
"SUMMARY--GENERAL--Structure of the Merger,"
"SUMMARY--THE MERGER AGREEMENT," "SPECIAL
FACTORS--Purpose and Structure of the
Merger; Certain Effects of the Merger," "THE
MERGER AGREEMENT" and EXHIBIT A--"MERGER
AGREEMENT"
<PAGE> 4
Item 4(b) "INTRODUCTION--Proposal to be Considered at
the Special Meeting," "SUMMARY--GENERAL--
Structure of the Merger," "SUMMARY--
GENERAL--Certain Effects of the Merger,"
"SUMMARY--GENERAL--Conflicts of Interest,"
"SPECIAL FACTORS--Background of the Merger,"
"SPECIAL FACTORS--Purpose and Structure of
the Merger; Certain Effects of the Merger,"
"SPECIAL FACTORS--Conflicts of Interest;
Certain Relationships," "THE MERGER
AGREEMENT--General," "THE MERGER AGREEMENT--
Consideration to be Received by Shareholders
of the Company," "CERTAIN INFORMATION
CONCERNING PARENT AND MERGER SUB," "SECURITY
OWNERSHIP OF THE COMPANY" and EXHIBIT A--
"MERGER AGREEMENT"
Item 5(a)--(g) "SUMMARY--GENERAL--Plans for the Company
After the Merger," "SUMMARY--GENERAL--
Certain Effects of the Merger," "SUMMARY--
SOURCE OF FUNDS FOR THE MERGER," "SPECIAL
FACTORS--Background of the Merger," "SPECIAL
FACTORS--Plans for the Company After the
Merger," "SPECIAL FACTORS--Purpose and
Structure of the Merger; Certain Effects of
the Merger," "THE MERGER AGREEMENT--The
Surviving Corporation," "DIRECTORS AND
EXECUTIVE OFFICERS OF THE COMPANY, PARENT,
MERGER SUB AND THE SURVIVING CORPORATION--
Information Concerning Directors and
Executive Officers of the Surviving
Corporation" and EXHIBIT A--"MERGER
AGREEMENT"
Item 6(a)--(c) "SOURCE OF FUNDS FOR THE MERGER"
Item 6(d) **
Item 7(a) and (c) "SUMMARY--GENERAL--Certain Effects of the
Merger," "SPECIAL FACTORS--Background of the
Merger" and "SPECIAL FACTORS--Purpose and
Structure of the Merger; Certain Effects of
the Merger"
Item 7(b) "SPECIAL FACTORS--Background of the Merger"
and "SPECIAL FACTORS--Purpose and Structure
of the Merger; Certain Effects of the
Merger"
Item 7(d) "INTRODUCTION--Proposal to be Considered at
the Special Meeting," "SUMMARY--GENERAL--
Structure of the Merger," "SUMMARY-GENERAL--
Plans for the Company After the Merger,"
"SUMMARY--GENERAL--Certain Effects of the
Merger," "SUMMARY--GENERAL--Conflicts of
Interest," "SUMMARY--GENERAL--Federal Income
Tax Consequences," "SPECIAL FACTORS--
Background of the Merger," "SPECIAL
FACTORS--Purpose and Structure of the
Merger; Certain Effects of the Merger,"
"SPECIAL FACTORS--Plans for the Company
After the Merger," "SPECIAL FACTORS--
Conflicts of Interest; Certain
Relationships," "SPECIAL FACTORS--Certain
Federal Income Tax Consequences of the
Merger," "THE MERGER AGREEMENT--General,"
"THE MERGER AGREEMENT--The Surviving
Corporation," "THE MERGER AGREEMENT--
Consideration to be Received by Shareholders
of the Company," "SOURCE OF FUNDS FOR THE
MERGER," "SECURITY OWNERSHIP OF THE
COMPANY," "DIRECTORS AND OFFICERS OF THE
COMPANY, PARENT, MERGER SUB AND THE
SURVIVING CORPORATION--Information
Concerning Directors and Executive Officers
of the Surviving Corporation" and EXHIBIT
A--"MERGER AGREEMENT"
Item 8(a)-(b) "SUMMARY--GENERAL--Determination of Special
Committee; Recommendation of the Company's
Board of Directors" and "SPECIAL FACTORS--
Recommendations of the Special Committee,
the Board and Parent"
<PAGE> 5
Item 8(c) "INTRODUCTION--Voting Rights; Vote Required
for Approval," "SUMMARY--GENERAL--Purpose of
the Special Meeting; Quorum; Vote Required,"
"SUMMARY--THE MERGER AGREEMENT--Conditions
to Consummation of the Merger," "SPECIAL
FACTORS--Purpose and Structure of the
Merger; Certain Effects of the Merger," "THE
MERGER AGREEMENT--Conditions to Consummation
of the Merger" and EXHIBIT A--"MERGER
AGREEMENT"
Item 8(d) "SUMMARY--GENERAL--Opinion of Financial
Advisor to Special Committee," "SPECIAL
FACTORS--Background of the Merger," "SPECIAL
FACTORS--Opinion of Special Committee's
Financial Advisor" and EXHIBIT C--"OPINION
OF J.C BRADFORD & CO."
Item 8(e) "SUMMARY--GENERAL--Determination of Special
Committee; Recommendation of Company's Board
of Directors," "SPECIAL FACTORS--Background
of the Merger" and "SPECIAL FACTORS--
Recommendations of the Special Committee,
the Board and Parent"
Item 8(f) **
Item 9(a)-(c) "SUMMARY--GENERAL--Opinion of Financial
Advisor to Special Committee," "SPECIAL
FACTORS--Background of the Merger," "SPECIAL
FACTORS--Opinion of Special Committee's
Financial Advisor" and EXHIBIT C--"OPINION
OF J.C. BRADFORD & CO."
Item 10(a) "INTRODUCTION--Proposal to be Considered at
the Special Meeting," "INTRODUCTION--Voting
Rights; Vote Required for Approval,"
"SUMMARY--GENERAL--Purpose of the Special
Meeting; Quorum; Vote Required," "SUMMARY--
GENERAL--Structure of the Merger,"
"SUMMARY--GENERAL--Conflicts of Interest,"
"SPECIAL FACTORS--Background of the Merger,"
"SPECIAL FACTORS--Purpose and Structure of
the Merger; Certain Effects of the Merger,"
"SPECIAL FACTORS--Conflicts of Interest;
Certain Relationships," "CERTAIN INFORMATION
CONCERNING PARENT AND MERGER SUB" and
"SECURITY OWNERSHIP OF THE COMPANY"
Item 10(b) "PURCHASES OF COMMON STOCK BY CERTAIN
PERSONS"
Item 11 "INTRODUCTION--Proposal to be Considered at
the Special Meeting," "INTRODUCTION--Voting
Rights; Vote Required for Approval,"
"SUMMARY--GENERAL--Purpose of the Special
Meeting; Quorum; Vote Required," "SUMMARY--
GENERAL--Structure of the Merger,"
"SUMMARY--GENERAL--Plans for the Company
After the Merger," "SUMMARY--GENERAL--
Conflicts of Interest," "SPECIAL FACTORS--
Background of the Merger," "SPECIAL
FACTORS--Purpose and Structure of the
Merger; Certain Effects of the Merger,"
"SPECIAL FACTORS--Plans for the Company
After the Merger," "SPECIAL FACTORS--
Conflicts of Interest; Certain
Relationships," "CERTAIN INFORMATION
CONCERNING PARENT AND MERGER SUB" and
"SECURITY OWNERSHIP OF THE COMPANY"
<PAGE> 6
Item 12(a) "INTRODUCTION--Proposal to be Considered at
the Special Meeting," "INTRODUCTION--Voting
Rights; Vote Required for Approval,"
"SUMMARY--GENERAL--Purpose of the Special
Meeting; Quorum; Vote Required," "SUMMARY--
GENERAL--Structure of the Merger,"
"SUMMARY--GENERAL--Conflicts of Interest,"
"SPECIAL FACTORS--Background of the Merger,"
"SPECIAL FACTORS--Purpose and Structure of
the Merger; Certain Effects of the Merger,"
"SPECIAL FACTORS--Conflicts of Interest;
Certain Relationships," "THE MERGER
AGREEMENT--Consideration to be Received by
Shareholders of the Company," "CERTAIN
INFORMATION CONCERNING PARENT AND MERGER
SUB," "SECURITY OWNERSHIP OF THE COMPANY"
and EXHIBIT A--"MERGER AGREEMENT"
Item 12(b) "SUMMARY--GENERAL--Determination of Special
Committee; Recommendation of Company's Board
of Directors," "SPECIAL FACTORS--
Recommendations of the Special Committee,
the Board and Parent" and "SECURITY
OWNERSHIP OF THE COMPANY"
Item 13(a) "INTRODUCTION--Voting Rights; Vote Required
for Approval," "SUMMARY--THE MERGER
AGREEMENT--Dissenters' Rights," "SPECIAL
FACTORS--Purpose and Structure of the
Merger; Certain Effects of the Merger,"
"DISSENTERS' RIGHTS" and EXHIBIT B--"CHAPTER
23 OF THE TENNESSEE BUSINESS CORPORATION
ACT"
Item 13(b)-(c) **
Item 14(a) "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE," "SELECTED HISTORICAL FINANCIAL
INFORMATION OF THE COMPANY," "INDEPENDENT
AUDITORS" and "INDEX TO FINANCIAL
STATEMENTS"
Item 14(b) **
Item 15(a) "SUMMARY--GENERAL--Plans for the Company
After the Merger" and "SPECIAL FACTORS--
Plans for the Company After the Merger"
Item 16 "INTRODUCTION--Proxies"
Item 17 *
- ---------------------------------------
* Information is contained in this Statement
** Not applicable
<PAGE> 7
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The issuer of the class of equity securities which is the
subject of the Rule 13e-3 transaction is the Company. The address of the
Company's principal executive offices is 623 E. Emory Road, Knoxville, Tennessee
37950.
(b) The information set forth in "INTRODUCTION" and "MARKET
PRICES FOR THE COMMON STOCK" in the Proxy Statement is incorporated herein by
reference.
(c) The information set forth in "MARKET PRICES FOR THE COMMON
STOCK" in the Proxy Statement is incorporated herein by reference.
(d) The information set forth in "DIVIDENDS" in the Proxy
Statement is incorporated herein by reference.
(e) Not applicable.
(f) The information set forth in "PURCHASE OF COMMON STOCK BY
CERTAIN PERSONS" in the Proxy Statement is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) This statement is being filed by the Company,
the issuer of the class of equity securities which is the subject of the Rule
13e-3 transaction, by Parent and by Merger Sub. The information set forth in
"INTRODUCTION," "BUSINESS OF THE COMPANY," "CERTAIN INFORMATION CONCERNING
PARENT AND MERGER SUB" and "DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY,
PARENT, MERGER SUB AND THE SURVIVING CORPORATION" in the Proxy Statement is
incorporated herein by reference.
(e)-(f) None of the Company, Parent and Merger Sub or, to the
best of their knowledge, any of the persons listed under "DIRECTORS AND
EXECUTIVE OFFICERS OF THE COMPANY, PARENT, MERGER SUB AND THE SURVIVING
CORPORATION" in the Proxy Statement, has during the last five years (i) been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining further
violations of, or prohibiting activities subject to, federal or state securities
laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1) The information set forth in "SPECIAL
FACTORS--Conflicts of Interest; Certain Relationships" of the Proxy Statement is
incorporated herein by reference.
(a)(2) The information set forth in "INTRODUCTION--Proposal to
be Considered at the Special Meeting," "SUMMARY--GENERAL--Structure of the
Merger," "SUMMARY--THE MERGER AGREEMENT," "SPECIAL FACTORS--Background of the
Merger," "SPECIAL FACTORS--Purpose and Structure of the Merger; Certain Effects
of the Merger," "THE MERGER AGREEMENT" and EXHIBIT A--"MERGER AGREEMENT" of the
Proxy Statement is incorporated herein by reference.
(b) The information set forth in "INTRODUCTION--Proposal to be
Considered at the Special Meeting," "INTRODUCTION--Voting Rights; Vote Required
for Approval," "SUMMARY--GENERAL--Purpose of the Special Meeting; Quorum; Vote
Required," "SUMMARY--GENERAL--Structure of the Merger," "SUMMARY--GENERAL--
Conflicts of Interest," "SPECIAL FACTORS--Background of the Merger, "SPECIAL
<PAGE> 8
FACTORS--Purpose and Structure of the Merger; Certain Effects of the Merger,"
"SPECIAL FACTORS--Conflicts of Interest; Certain Relationships," "CERTAIN
INFORMATION CONCERNING PARENT AND MERGER SUB" and "SECURITY OWNERSHIP OF THE
COMPANY" of the Proxy Statement is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in "INTRODUCTION--Proposal to be
Considered at the Special Meeting," "SUMMARY--GENERAL--Structure of the Merger,"
"SUMMARY--THE MERGER AGREEMENT," "SPECIAL FACTORS--Purpose and Structure of the
Merger; Certain Effects of the Merger," "THE MERGER AGREEMENT" and EXHIBIT A--
"MERGER AGREEMENT" of the Proxy Statement is incorporated herein by reference.
(b) The information set forth in "INTRODUCTION--Proposal to be
Considered at the Special Meeting," "SUMMARY--GENERAL--Structure of the Merger,"
"SUMMARY--GENERAL--Certain Effects of the Merger," "SUMMARY--GENERAL--Conflicts
of Interest", "SPECIAL FACTORS--Background of the Merger," "SPECIAL FACTORS--
Purpose and Structure of the Merger; Certain Effects of the Merger," "SPECIAL
FACTORS--Conflicts of Interest; Certain Relationships," "THE MERGER AGREEMENT--
General," "THE MERGER AGREEMENT--Consideration to be Received by Shareholders of
the Company," "CERTAIN INFORMATION CONCERNING PARENT AND MERGER SUB," "SECURITY
OWNERSHIP OF THE COMPANY" and EXHIBIT A--"MERGER AGREEMENT" of the Proxy
Statement is incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(g) The information set forth in "SUMMARY--GENERAL--
Certain Effects of the Merger," "SUMMARY--GENERAL--Plans for the Company After
the Merger," "SUMMARY--THE MERGER AGREEMENT--Source Of Funds," "SPECIAL
FACTORS--Background of the Merger," "SPECIAL FACTORS--Purpose and Structure of
the Merger; Certain Effects of the Merger," "SPECIAL FACTORS--Plans for the
Company After the Merger," "THE MERGER AGREEMENT--The Surviving Corporation,"
"DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY, PARENT, MERGER SUB AND THE
SURVIVING CORPORATION--Information Concerning Directors and Executive Officers
of the Surviving Corporation" and EXHIBIT A--"MERGER AGREEMENT" of the Proxy
Statement is incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(c) The information set forth in "THE MERGER AGREEMENT--
Expenses" and "SOURCE OF FUNDS OF THE MERGER" of the Proxy Statement is
incorporated herein by reference.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) and (c) The information set forth in "SUMMARY--GENERAL--
Certain Effects of the Merger," "SPECIAL FACTORS--Background of the Merger" and
"SPECIAL FACTORS--Purpose and Structure of the Merger; Certain Effects of the
Merger" of the Proxy Statement is incorporated herein by reference.
(b) The information set forth in "SPECIAL FACTORS--Background
of the Merger" and "SPECIAL FACTORS--Purpose and Structure of the Merger;
Certain Effects of the Merger" of the Proxy Statement is incorporated herein by
reference.
<PAGE> 9
(d) The information set forth in "INTRODUCTION--Proposal to be
Considered at the Special Meeting," "SUMMARY--GENERAL--Structure of the Merger,"
"SUMMARY--GENERAL--Plans for the Company After the Merger," "SUMMARY--GENERAL--
Certain Effects of the Merger," "SUMMARY--GENERAL--Conflicts of Interest,"
"SUMMARY--GENERAL--Federal Income Tax Consequences," "SPECIAL FACTORS--
Background of the Merger," "SPECIAL FACTORS--Purpose and Structure of the
Merger; Certain Effects of the Merger," "SPECIAL FACTORS--Plans for the Company
After the Merger," "SPECIAL FACTORS--Conflicts of Interest; Certain
Relationships," "SPECIAL FACTORS--Certain Federal Income Tax Consequences of the
Merger," "THE MERGER AGREEMENT--General," "THE MERGER AGREEMENT--The Surviving
Corporation," "THE MERGER AGREEMENT--Consideration to be Received by
Shareholders of the Company," "SOURCE OF FUNDS FOR THE MERGER," "SECURITY
OWNERSHIP OF THE COMPANY," "DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY,
PARENT, MERGER SUB AND THE SURVIVING CORPORATION--Information Concerning
Directors and Executive Officers of the Surviving Corporation" and EXHIBIT A--
"MERGER AGREEMENT" of the Proxy Statement is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)--(b) The information set forth in "SUMMARY--GENERAL--
Determination of Special Committee; Recommendation of the Company's Board of
Directors" and "SPECIAL FACTORS--Recommendations of the Special Committee, the
Board and Parent" of the Proxy Statement is incorporated herein by reference.
(c) The information set forth in "INTRODUCTION--Voting Rights;
Vote Required for Approval," "SUMMARY--GENERAL--Purpose of the Special Meeting;
Quorum; Vote Required," "SUMMARY--THE MERGER AGREEMENT--Conditions to
Consummation of the Merger," "SPECIAL FACTORS--Purpose and Structure of the
Merger; Certain Effects of the Merger," "THE MERGER AGREEMENT--Conditions to
Consummation of the Merger" and EXHIBIT A--"MERGER AGREEMENT" of the Proxy
Statement is incorporated herein by reference.
(d) The information set forth in "SUMMARY--GENERAL--Opinion of
Financial Advisor to Special Committee," "SPECIAL FACTORS--Background of the
Merger," "SPECIAL FACTORS--Opinion of Special Committee's Financial Advisor" and
EXHIBIT C--"OPINION OF J.C. BRADFORD & CO." of the Proxy Statement is
incorporated herein by reference.
(e) The information set forth in "SUMMARY--GENERAL--
Determination of Special Committee; Recommendation of Company's Board of
Directors," "SPECIAL FACTORS--Background of the Merger" and "SPECIAL FACTORS--
Recommendations of the Special Committee, the Board and Parent" of the Proxy
Statement is incorporated herein by reference.
(f) Not applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)--(c) The information set forth in "SUMMARY--GENERAL--
Opinion of Financial Advisor to Special Committee," "SPECIAL FACTORS--Background
of the Merger," "SPECIAL FACTORS--Opinion of Special Committee's Financial
Advisor," EXHIBIT C--"OPINION OF J.C. BRADFORD & CO." and EXHIBIT D--"FORM OF
TAX OPINION OF ALSTON & BIRD LLP" of the Proxy Statement is incorporated herein
by reference.
<PAGE> 10
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth in "INTRODUCTION--Proposal to be
Considered at the Special Meeting," "INTRODUCTION--Voting Rights; Vote Required
for Approval," "SUMMARY--GENERAL--Purpose of the Special Meeting; Quorum; Vote
Required," "SUMMARY--GENERAL--Structure of the Merger," "SUMMARY--GENERAL--
Conflicts of Interest," "SPECIAL FACTORS--Background of the Merger," "SPECIAL
FACTORS--Purpose and Structure of the Merger; Certain Effects of the Merger,"
"SPECIAL FACTORS--Conflicts of Interest; Certain Relationships," "CERTAIN
INFORMATION CONCERNING PARENT AND MERGER SUB" and "SECURITY OWNERSHIP OF THE
COMPANY" of the Proxy Statement is incorporated herein by reference.
(b) The information set forth in "PURCHASES OF COMMON STOCK BY
CERTAIN PERSONS" of the Proxy Statement is incorporated herein by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The information set forth in "INTRODUCTION--Proposal to be
Considered at the Special Meeting," "INTRODUCTION--Voting Rights; Vote Required
for Approval," "SUMMARY--GENERAL--Purpose of the Special Meeting; Quorum; Vote
Required," "SUMMARY--GENERAL--Structure of the Merger," "SUMMARY--GENERAL--Plans
for the Company After the Merger," "SUMMARY--GENERAL--Conflicts of Interest,"
"SPECIAL FACTORS--Background of the Merger," "SPECIAL FACTORS--Purpose and
Structure of the Merger; Certain Effects of the Merger," "SPECIAL FACTORS--Plans
for the Company After the Merger," "SPECIAL FACTORS--Conflicts of Interest;
Certain Relationships," "CERTAIN INFORMATION CONCERNING PARENT AND MERGER SUB"
and "SECURITY OWNERSHIP OF THE COMPANY" of the Proxy Statement is incorporated
herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a) The information set forth in "INTRODUCTION--Proposal to be
Considered at the Special Meeting," "INTRODUCTION--Voting Rights; Vote Required
for Approval," "SUMMARY--GENERAL--Purpose of the Special Meeting; Quorum; Vote
Required," "SUMMARY--GENERAL--Structure of the Merger," "SUMMARY--GENERAL--
Conflicts of Interest," "SPECIAL FACTORS--Background of the Merger," "SPECIAL
FACTORS--Purpose and Structure of the Merger; Certain Effects of the Merger,"
"SPECIAL FACTORS--Conflicts of Interest; Certain Relationships," "THE MERGER
AGREEMENT--Consideration to be Received by Shareholders of the Company,"
"CERTAIN INFORMATION CONCERNING PARENT AND MERGER SUB," "SECURITY OWNERSHIP OF
THE COMPANY" and EXHIBIT A--"MERGER AGREEMENT" of the Proxy Statement is
incorporated herein by reference.
(b) The information set forth in "SUMMARY--GENERAL--
Determination of Special Committee; Recommendation of Company's Board of
Directors," "SPECIAL FACTORS--Recommendations of the Special Committee, the
Board and Parent" and "SECURITY OWNERSHIP OF THE COMPANY" of the Proxy Statement
is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in "INTRODUCTION--Voting Rights;
Vote Required for Approval," "SUMMARY--THE MERGER AGREEMENT--Dissenters'
Rights," "SPECIAL FACTORS--Purpose and Structure of the Merger; Certain Effects
of the Merger," "DISSENTERS' RIGHTS" and EXHIBIT B--"CHAPTER 23 OF THE TENNESSEE
BUSINESS CORPORATION ACT" of the Proxy Statement is incorporated herein by
reference.
(b)--(c) Not applicable.
<PAGE> 11
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE," "SELECTED HISTORICAL FINANCIAL INFORMATION OF THE
COMPANY," "INDEPENDENT AUDITORS" AND "INDEX TO FINANCIAL STATEMENTS" of the
Proxy Statement is incorporated herein by reference.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth in "SUMMARY--GENERAL--Plans for
the Company After the Merger" and "SPECIAL FACTORS--Plans for the Company After
the Merger" of the Proxy Statement is incorporated herein by reference.
(b) The information set forth in "INTRODUCTION--Proxies" of
the Proxy Statement is incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
The information set forth in the Proxy Statement is
incorporated herein by reference in its entirety.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Commitment Letter with Key Corporate Capital, Inc.
dated October 31, 1997.
(a)(2) Commitment Letter with KeyCorp Real Estate Capital
Markets, Inc. dated November 3, 1997.
(a)(3) Commitment Letter with KeyCorp Real Estate Capital
Markets, Inc. dated November 3, 1997.
(a)(4) Commitment Letter with RSTW Partners III, L.P. dated
November 5, 1997.
(b)(1) Opinion of J.C. Bradford & Co. (attached as Exhibit C
to the Proxy Statement).
(b)(2) J.C. Bradford & Co. Presentation to the Board of
Directors of the Company, dated October 31, 1997.
(c) Agreement and Plan of Merger dated as of November 3,
1997 among the Company, Parent and Merger Sub
(attached as Exhibit A to the Proxy Statement).
(d)(1) Preliminary Proxy Statement dated November 5, 1997.
(d)(2) Notice of Special Meeting of Shareholders (included
in Proxy Statement).
(d)(3) Proxy Card.
<PAGE> 12
(d)(4) Press Release issued by the Company on July 30, 1997.
(d)(5) Press Release issued by the Company on November 4,
1997.
(d)(6) President's Letter to Shareholders (included in Proxy
Statement).
(e) Text of Chapter 23 of the Tennessee Business
Corporation Act (attached as Exhibit B to the Proxy
Statement).
(f) Not Applicable.
<PAGE> 13
SIGNATURE
After due inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this Statement is true, complete and
correct.
PLASTI-LINE, INC.
By: /s/ JAMES R. MARTIN
----------------------------------------
Name: James R. Martin
Title: Chairman of the Board and
Chief Executive Officer
November 3, 1997
<PAGE> 14
SIGNATURE
After due inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this Statement is true, complete and
correct.
PL HOLDING CORP.
By: /s/ JAMES R. MARTIN
----------------------------------------
Name: James R. Martin
Title: Chairman of the Board and
President
November 3, 1997
<PAGE> 15
SIGNATURE
After due inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this Statement is true, complete and
correct.
PL ACQUISITION CORP.
By: /s/ JAMES R. MARTIN
----------------------------------------
Name: James R. Martin
Title: Chairman of the Board and
President
November 3, 1997
<PAGE> 16
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
(a)(1) Commitment Letter with Key Corporate Capital, Inc. dated
October 31, 1997.
(a)(2) Commitment Letter with KeyCorp Real Estate Capital Markets,
Inc. dated November 3, 1997.
(a)(3) Commitment Letter with KeyCorp Real Estate Capital Markets,
Inc. dated November 3, 1997.
(a)(4) Commitment Letter with RSTW Partners III, L.P. dated November
5, 1997.
(b)(1) Opinion of J.C. Bradford & Co. (attached as Exhibit C to the
Proxy Statement).
(b)(2) J.C. Bradford & Co. Presentation to the Board of Directors of
the Company, dated October 31, 1997.
(c)(1) Agreement and Plan of Merger dated as of November 3, 1997
among the Company, Parent and Merger Sub (attached as Exhibit
A to the Proxy Statement).
(d)(1) Preliminary Proxy Statement dated November 5, 1997.
(d)(2) Notice of Special Meeting of Shareholders (included in Proxy
Statement).
(d)(3) Proxy Card.
(d)(4) Press Release issued by the Company on July 30, 1997.
(d)(5) Press Release issued by the Company on November 3, 1997.
(d)(6) President's letter to Shareholders (included in Proxy
Statement).
(e) Text of Chapter 23 of the Tennessee Business Corporation Act
(attached as Exhibit B to the Proxy Statement).
<PAGE> 1
EXHIBIT (a)(1)
October 31, 1997
PL Acquisition Corp.
Plasti-Line, Inc.
623 East Emory Drive
P.O. Box 59043
Knoxville, Tennessee 37950-9043
Attention: James R. Martin
Dear Mr. Martin:
You have advised Key Corporate Capital Inc. ("KCCI") that (i)
you have formed a corporation ("Holding Company") and a wholly-owned subsidiary
of Holding Company ("Acquisition Company") for the purpose of acquiring the
stock of Plasti-Line, Inc. (the "Company"), (ii) to that end, Acquisition
Company and the Company intend to participate in a cash-out merger (the
"Merger") pursuant to which Acquisition Company will merge with and into the
Company, and (iii) upon consummation of the Merger, the Company, Plasti-Line
Columbia, Inc., a wholly-owned subsidiary of the Company ("Columbia"), and
American Sign and Marketing Services, Inc., a wholly-owned subsidiary of the
Company ("American Sign," and, together with Columbia and the Company, the
"Operating Companies") and Holding Company (collectively, Holding Company and
the Operating Companies are herein sometimes referred to as the "Borrowers")
desire to establish "Credit Facilities" (as defined in the attached Summary of
Terms and Conditions) in an aggregate principal amount of up to $57,500,000
(which amount may under certain circumstances increase by no more than
$2,000,000, as outlined in the attached Summary of Terms and Conditions). You
have requested that KCCI provide the Operating Companies and the Holding
Company with an underwritten commitment for the entire amount of the Credit
Facilities with the understanding that KCCI intends to syndicate the Credit
Facilities prior to and/or following the closing of the Credit Facilities.
KCCI is pleased to confirm its commitment to provide the
entire principal amount of the Credit Facilities upon and subject to the terms
set forth herein and in the Summary of Terms and Conditions attached hereto
(collectively, this "Commitment Letter"). KCCI's commitment is intended to be
a fully underwritten commitment and is not contingent on the syndication
referred to herein. Nevertheless, the syndication of the Credit Facilities is
an integral part of this transaction. KCCI will act as syndication agent on
behalf of the Borrowers in arranging commitments of other mutually acceptable
lenders (the "Lenders") to participate in the Credit Facilities. In that
capacity, KCCI, in consultation with the Borrowers, will manage all aspects of
the syndication, including selection of Lenders, determination of when KCCI
will
<PAGE> 2
PL Acquisition Corp.
Plasti-Line, Inc.
October 31, 1997
Page 2
approach potential Lenders, any naming rights and the final allocation of the
commitments among the Lenders, all as further described on the attached Summary
of Terms and Conditions.
KCCI will also act as administrative agent and collateral
agent in connection with the Credit Facilities. As such, KCCI will negotiate
with the Borrowers, act as the primary contact for the Borrowers, and perform
all other necessary and customary functions associated with its role as agent.
No other agents or co-agents may be appointed unless mutually agreed upon by
KCCI and the Borrowers.
Neither you, the Borrowers nor KCCI will make any payment or
offer on behalf of the Borrowers to any prospective Lender to pay any
compensation outside the terms contained in this Commitment Letter in order to
obtain such prospective Lender's commitment to participate in the Credit
Facilities, unless the same is agreed to by KCCI and the Borrowers and
adequately reflected in the definitive documentation.
The Borrowers will not become obligated by virtue of any
syndication to pay any additional Closing Fee or similar fees beyond those
payable as indicated in this Commitment Letter in order to obtain commitments
and/or closings from Lenders participating in such syndication. If any Lender
becomes a party to the credit agreement for the Credit Facilities after the
initial closing by means of an assignment by KCCI of a portion of its interest
therein in connection with the syndication, the financial arrangements between
KCCI and such Lender with respect thereto shall be solely for the account of
KCCI. In the event definitive documentation for the Credit Facilities is
executed and delivered and the syndication referred to herein has not at such
time been successfully completed, the syndication provisions of this Commitment
Letter will survive such execution and delivery.
You and the Borrowers agree to take all such action as KCCI
may reasonably request to assist KCCI in forming a syndicate acceptable to KCCI
and the Borrowers. Such assistance shall include, but not be limited to, (a)
providing KCCI, promptly upon request, with all information that is available
to you and/or the Borrowers and reasonably deemed necessary by KCCI to complete
successfully the syndication, including but not limited to information and
projections prepared by you and/or the Borrowers or their advisors relating to
the transactions contemplated hereby, and (b) assisting KCCI upon request in
the preparation of a confidential information memorandum and other marketing
materials to be used in connection with the syndication. The Borrowers' and
your participation shall include, at the request of KCCI, direct contact during
the syndication process between you and/or the Borrowers' senior officers and
representatives on the one hand and the proposed Lenders on the other hand, at
such times and places as KCCI may reasonably request. Any confidential
information provided to KCCI for delivery to proposed Lenders shall be
delivered to them on a confidential basis subject to normal restrictions.
<PAGE> 3
PL Acquisition Corp.
Plasti-Line, Inc.
October 31, 1997
Page 3
To ensure an orderly and effective syndication of the Credit
Facilities, until the termination of the syndication (as determined by KCCI)
within the period hereafter set forth, the Borrowers will not, and will not
permit any of their affiliates to, syndicate or issue, attempt to syndicate or
issue, announce or authorize the announcement of the syndication or issuance
of, or engage in discussions concerning the syndication or issuance of, any
debt or credit facility or debt security (including any renewals thereof) in
the commercial bank, private placement or public securities markets (other than
leases for specific pieces of equipment), except as may be described in or
contemplated by this Commitment Letter or as may be done with the prior written
consent of KCCI; provided, however, that the foregoing shall not limit the
Borrowers' ability to access the Credit Facilities or other short-term debt
programs, lines of credit or other credit facilities which are currently in
place.
By executing this Commitment Letter, you hereby represent and
covenant that (a) this Commitment Letter has been duly executed, delivered and
authorized by all requisite corporate action of each of PL Acquisition Corp.
and the Company, and that this Commitment Letter constitutes the legal, valid
and binding obligation of each of them, enforceable in accordance with its
terms, (b) no information or data (excluding financial projections) concerning
any Borrower or its subsidiaries (collectively, the "Information") that has
been or will be made available to KCCI and the Lenders by you, a Borrower or
any of its or your representatives in connection with the transactions
contemplated hereby will contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein not materially misleading in light of the circumstances under
which such statements are made, and (c) all financial projections concerning
the Borrowers and their subsidiaries (the "Projections") that have been
prepared by you or any Borrower or on its or your behalf by any of its
representatives and that have been or will be made available to KCCI and the
Lenders in connection with the transactions contemplated hereby have been and
will be prepared in good faith based upon assumptions which the preparer
believes to be reasonable. You and the Borrowers will supplement the
Information and the Projections from time to time until the closing of the
Credit Facilities so that the representations and covenants in this paragraph
remain true and correct in all material respects. In issuing this Commitment
Letter and arranging and syndicating the Credit Facilities, KCCI will be using
and relying primarily on the Information and the Projections without
independent verification thereof.
KCCI's commitment is subject to: (i) the negotiation,
preparation, execution and delivery of mutually acceptable documentation for
the Credit Facilities, including a credit agreement and related documents
reflecting the terms and conditions outlined in this Commitment Letter; (ii)
the absence of a material adverse change in the business, condition (financial
or otherwise), operations, properties or prospects of any Borrower since the
date of the most recent audited consolidated financial statements furnished to
KCCI; (iii) the accuracy of all representations which you or any Borrower (or
any of its or your representatives) has made or will make to KCCI and all
information furnished to KCCI in connection herewith by you, any Borrower or
any of its or your representatives, and the Borrowers' and your compliance with
the
<PAGE> 4
PL Acquisition Corp.
Plasti-Line, Inc.
October 31, 1997
Page 4
terms of this Commitment Letter (for the avoidance of doubt, it is noted that
the receipt of commitments from other Lenders is not a condition to KCCI's
commitment hereunder); (iv) the payment in full of all fees, expenses and other
amounts payable hereunder; and (v) all other terms and conditions otherwise set
forth in this Commitment Letter.
The commitment of KCCI set forth in this Commitment Letter
will terminate on January 30, 1998, unless the definitive documentation for the
Credit Facilities is executed and delivered on or before such date. Prior to
the January 30, 1998, the commitment of KCCI set forth in this Commitment
Letter may be terminated: (i) by you at any time at your option upon payment of
all fees, expenses or other amounts then payable hereunder, or (ii) by KCCI if
any event occurs or information has become available which results or is
reasonably likely to result in the failure to satisfy any condition set forth
in the preceding paragraph.
The agreements and undertakings of KCCI, you and the Borrowers
in respect of the syndication which are set forth in this Commitment Letter
will terminate on the January 30, 1998, or the date of earlier termination of
the commitment of KCCI hereunder as provided in the preceding paragraph, unless
in any such case the definitive documentation for the Credit Facilities is
executed and delivered on or before such date, in which event such agreements
and undertakings in respect of syndication shall continue in full force and
effect for 180 days following such execution and delivery unless sooner
terminated by KCCI upon written notice of termination of such syndication
(which KCCI will give upon successful completion of syndication).
KCCI's commitment, as outlined in this Commitment Letter, is
made exclusively to you and is not assignable nor transferable voluntarily or
involuntarily by you and any such assignment or transfer or attempted
assignment, or transfer shall be null and void and shall result in KCCI's
commitment being automatically and simultaneously terminated.
This Commitment Letter may not be amended or any provision
hereof waived or modified except by an instrument in writing signed by the
party against whom enforcement of the same is sought. This Commitment Letter
may be executed in any number of counterparts, each of which shall be an
original and all of which, when taken together, shall constitute one agreement.
Delivery of an executed counterpart of a signature page of this Commitment
Letter by facsimile transmission shall be effective as delivery of a manually
executed counterpart of this Commitment Letter. This Commitment Letter is
intended to be solely for the benefit of the parties hereto and is not intended
to confer any benefits upon, or create any rights in favor of, any person other
than the parties hereto.
By executing this Commitment Letter, each of you acknowledge
that this Commitment Letter is the only agreement between you and KCCI with
respect to the Credit Facilities and sets forth the entire understanding of the
parties with respect to the subject matter thereof. NEVERTHELESS, THE
CONDITIONS OF THE FUNDING OF THE CREDIT FACILITIES ARE NOT LIMITED TO THOSE
MATTERS SET FORTH IN THIS COMMITMENT LETTER; THOSE MATTERS NOT ADDRESSED OR
MADE
<PAGE> 5
PL Acquisition Corp.
Plasti-Line, Inc.
October 31, 1997
Page 5
CLEAR IN THIS COMMITMENT LETTER ARE SUBJECT TO THE MUTUAL AGREEMENT OF THE
PARTIES IN THE DEFINITIVE DOCUMENTATION OF THE CREDIT FACILITIES.
By executing this Commitment Letter, you also agree to
reimburse KCCI from time to time for all reasonable out-of-pocket expenses
(reasonable fees and expenses of KCCI for services provided by third parties,
including, reasonable fees, charges and disbursements of KCCI's outside
counsel) incurred in connection with the Credit Facilities, the preparation,
negotiation and closing of the commitment embodied in this Commitment Letter,
the definitive documentation for the Credit Facilities, and the transactions
contemplated hereby.
By executing this Commitment Letter, you also agree to
indemnify and hold harmless KCCI and the officers, directors, employees,
affiliates, agents and controlling persons of KCCI from and against any and all
losses, claims, damages and liabilities to which any such person may become
subject arising out of or in connection with this Commitment Letter or KCCI's
commitment hereunder, the Merger, or any claim, litigation, investigation or
proceeding relating to any of the foregoing, and to reimburse each of such
indemnified parties from time to time upon demand for any reasonable legal or
other expenses incurred in connection with investigating or defending any of
the foregoing; provided, however, that the foregoing indemnity will not, as to
any indemnified party, apply to losses, claims, damages, liabilities or related
expenses to the extent they arise from the willful misconduct or gross
negligence of such indemnified party, and provided that you will be given a
reasonable opportunity to participate in the defense of any such matter.
It is agreed that you will not disclose the existence or
contents of this Commitment Letter or KCCI's activities pursuant hereto to any
person without the prior approval of KCCI, except that (a) such disclosure may
be made (i) to the officers, employees, attorneys and advisors of the Borrowers
on a confidential and need-to-know basis, and (ii) as required by applicable
law or compulsory legal process, including without limitation in any proxy
statement, registration statement or similar document issued in connection with
the transactions contemplated by the Credit Facilities, provided that you agree
to allow KCCI the opportunity to review and approve any such disclosures
regarding this Commitment Letter or the Credit Facilities prior to publication
of the same. The provisions contained in this paragraph and the two
immediately preceding paragraphs shall remain in full force and effect
regardless of whether definitive financing documentation shall be executed and
delivered and notwithstanding the termination of this commitment letter.
This Commitment Letter shall be governed by, and construed in
accordance with, the laws of the State of Ohio, without regard to the conflicts
of law principles thereof.
This Commitment Letter shall not be binding upon KCCI unless
it is accepted in writing by you as provided herein and delivered, along with
the non-refundable commitment fee (the terms of delivery for which are set
forth below) of Two Hundred Eighty-Seven Thousand
<PAGE> 6
PL Acquisition Corp.
Plasti-Line, Inc.
October 31, 1997
Page 6
Five Hundred Dollars ($287,500) (which, in the event that the transactions
contemplated by this Commitment Letter are consummated, shall be applied
together with the Good Faith Deposit of $50,000 (which has already been
received by KCCI) to the Closing Fee and other expenses set forth in this
Commitment Letter); provided, however, that, in the event that the transactions
contemplated by this Commitment Letter do not close by reason of a default by
KCCI of its obligations hereunder, such fee shall be returned net of all
reasonable out-of-pocket expenses (reasonable fees and expenses of KCCI for
services provided by third parties, including reasonable fees, charges and
disbursements of KCCI's counsel) incurred in connection with the Credit
Facilities, the preparation, negotiation and closing of this Commitment Letter,
the definitive documentation for the Credit Facilities, and the transactions
contemplated hereby. The non-refundable commitment fee shall be delivered to
KCCI not later than November 5, 1997, at 127 Public Square, Cleveland, Ohio
44114.
If the foregoing is acceptable, please indicate your
acceptance of and agreement to the terms hereof and of the Summary Terms and
Conditions by signing in the appropriate space below and returning to KCCI the
enclosed duplicate original of this letter no later than 5:00 p.m. on November
4, 1997 (the "Commitment Expiration Date"). KCCI's commitment under this
Commitment Letter will expire on the Commitment Expiration Date unless accepted
by you and received by KCCI prior to such date. In addition, KCCI's commitment
under this Commitment Letter will terminate in the event that definitive
documentation with respect thereto is not executed, the Merger is not
consummated, and the financing contemplated by this Commitment Letter is not
funded on or before January 30, 1998, unless KCCI, in its sole discretion,
agrees to an extension, but in any event the indemnification provision set
forth herein shall survive any termination of KCCI's commitment as outlined in
this Commitment Letter.
EACH PARTY HERETO IRREVOCABLY WAIVES ALL RIGHTS TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS COMMITMENT
LETTER OR THE TRANSACTIONS CONTEMPLATED HEREBY.
KCCI is pleased to have been given the opportunity to assist
you in this important transaction.
Very truly yours,
KEY CORPORATE CAPITAL INC.
/s/ ERNEST G. HAYNES
------------------------------------
Name: Ernest G. Haynes
-------------------------------
Title: Closing Manager
------------------------------
<PAGE> 7
PL Acquisition Corp.
Plasti-Line, Inc.
October 31, 1997
Page 7
ACCEPTED AND AGREED THIS
3RD DAY OF NOVEMBER, 1997:
PL ACQUISITION CORP.
- --------------------------------------------
- --------------------, ----------------------
PLASTI-LINE, INC.
- --------------------------------------------
- --------------------, ----------------------
<PAGE> 8
SUMMARY OF TERMS AND CONDITIONS OF COMMITMENT PLASTI-LINE, INC.
CREDIT FACILITIES: Advances in the aggregate amount of up to
$57,500,000 (as such amount may be increased
pursuant to the terms set forth below) (the
"Credit Facilities"), to be fully
underwritten by Key Corporate Capital Inc.
("KCCI"), provided however, that if the real
estate funding outlined in the letter from
Key Real Estate Capital Markets, Inc.
("KRECM") dated as of the date of this
Commitment Letter (the "Conduit Facility") is
in an amount less than $10,000,000 (it is a
condition hereto that such amount shall not
in any event be less than $8,000,000), then
the revolving credit component of the Credit
Facilities shall be increased as set forth
below. The Conduit Facility is not one of
the "Credit Facilities," as that term is used
in this Commitment Letter, and does not
constitute any part of KCCI's commitment
hereunder.
BORROWER A: Upon consummation of the Merger (as defined
below), (i) Plasti-Line, Inc. (the
"Company"), as survivor of a merger (the
"Merger") with a wholly-owned subsidiary of
Holding Company (as hereinafter defined)
("Acquisition Company"); (ii) the Company's
wholly-owned subsidiaries, Plasti-Line
Columbia, Inc., and American Sign and
Marketing Services, Inc. (collectively, the
"Co-Borrowers" or the "Operating Companies").
1. A $29,500,000 Revolving Credit
Facility (the "Revolver") to mature
fifty-nine months from closing; provided
however, that if the Conduit Facility is in
an amount less than $10,000,000 (it is a
condition hereto that such amount shall not
in any event be less than $8,000,000), then
the Revolver shall be increased by the lesser
of (a) such shortfall or (b) $2,000,000.
Each Co-Borrower's Availability under the
Revolver will be determined individually
(with intercompany loans among the
Co-Borrowers restricted to the extent agreed
to in the definitive documentation), and
shall be equal to the sum of:
(i) Up to 85%* of such
Co-Borrower's Eligible Accounts
Receivable, plus
(ii) Up to 25% of such Co-Borrower's
Eligible Raw Material Inventory (FIFO
basis), plus
(iii) Up to 50% of such Co-Borrower's
Eligible Work In Process Inventory (FIFO
basis), plus
(iv) Up to 65% of such Co-Borrower's
Eligible Finished Good Inventory (FIFO
basis) (including, but not by way of
limitation, Eligible Finished Goods
Inventory designated as "Shipped Not
Invoiced"), plus
- 1 -
<PAGE> 9
SUMMARY OF TERMS AND CONDITIONS OF COMMITMENT PLASTI-LINE, INC.
(v) The portion of the Acquisition
Availability applicable to such
Co-Borrower, less
(vi) Reserves, the Special Reserve
and outstanding Letters of Credit
applicable to such Co-Borrower
(excluding the IRB Letter of Credit),
less
(vii) such Co-Borrower's Deposits
and Deferred Revenue, but only up to the
total amount of availability associated
with Accounts Receivable and Inventory
attributable to the customer(s) of such
Co-Borrower from which such Deposits and
Deferred Revenue have been received by
such Co-Borrower.
* Based on only one month's
dilution data. This advance rate is
subject to the KCCI's satisfaction that
a review of at least six month's
dilution data (yet to be provided to the
KCCI by the Co-Borrowers) produces
dilution results no worse in the KCCI's
discretion than the dilution results
calculated using the one month's data
supplied to the KCCI thus far.
The total inventory sublimit under the Revolver will
be $17,000,000. The Revolver will include a
$3,000,000 sublimit for Letters of Credit (exclusive
of the IRB Letter of Credit), or such other amount to
be mutually agreed to by the Co-Borrowers and the
Agent.
2. A $20,000,000 Term Loan (the "Operating
Companies Term Loan") maturing seven years from
closing and allocated among the Operating Companies as
shall be set forth in the definitive documentation.
The Operating Companies Term Loan shall amortize in
quarterly principal payments, as indicated below, plus
interest:
<TABLE>
<CAPTION>
Annual Payment Quarterly Payment
-------------- -----------------
<S> <C> <C> <C>
Year 1 None None
Year 2 500,000 125,000
Year 3 2,375,000 593,750
Year 4 3,250,000 812,500
Year 5 4,500,000 1,125,000
Year 6 4,500,000 1,125,000
Year 7 4,875,000 1,218,750
-----------
$20,000,000
</TABLE>
- 2 -
<PAGE> 10
SUMMARY OF TERMS AND CONDITIONS OF COMMITMENT PLASTI-LINE, INC.
3. A $5,000,000 IRB Letter of Credit for the
account of Plasti-Line Columbia, Inc., plus the
required interest component (the "IRB Letter of
Credit," and, together with the Operating Companies
Term Loan and the Revolver, the "Operating Companies
Facilities") to mature fifty- nine months from
closing.
The IRB Letter of Credit shall amortize according to
the amortization schedule of the underlying IRB
issued in connection with the Operating Company's
Columbia, South Carolina facility.
BORROWER B: A "C Corporation" (the "Holding Company"),
established for the purpose of holding the stock of
Acquisition Company. The only substantial asset of
Holding Company shall be the stock of Acquisition
Company (and, after the Merger, the Company), and the
activities of Holding Company will be limited to
holding such stock, managing the Operating Companies
and servicing the debt under the facilities set forth
below and under the Subordinated Notes.
A $3,000,000 Term Loan (the "Holding Company's Term
Loan") to mature two years
from closing.
The Holding Company's Term Loan shall amortize in
quarterly principal payments of $375,000, plus
interest.
PURPOSE: The Credit Facilities shall be used as follows: (i)
the Holding Company Term Loan shall be used to
facilitate the Merger; (ii) the Operating Companies
Facilities shall be used to (A) acquire the stock of
Plasti-Line, Inc., (B) refinance existing bank debt
and pay-off the IRB's for the Knoxville, Tennessee
and Florence, Kentucky facilities, (C) provide a
direct pay standby letter of credit for the Columbia,
South Carolina facility, (D) provide for a portion of
the financing of future acquisitions by the
Co-Borrowers, (E) fund the Co-Borrowers' working
capital requirements, including fees and expenses
associated with this transaction, and (F) for other
general corporate purposes.
ADMINISTRATIVE Upon consummation of the syndication, KCCI shall act
AGENT: as administrative and collateral agent (the "Agent").
KCCI shall negotiate with the Co-Borrowers, act as
the primary contact for the Co-Borrowers, and
perform all other necessary functions associated with
the role as Agent. No other agents or co-agents may
be appointed unless mutually agreed upon by KCCI and
the Co-Borrowers
- 3 -
<PAGE> 11
SUMMARY OF TERMS AND CONDITIONS OF COMMITMENT PLASTI-LINE, INC.
LENDERS' It is the intention of KCCI to arrange mutually
ALLOCATIONS: acceptable participants to share in the Credit
Facilities contemplated herein. KCCI is proposing
that three participants share the Credit Facilities,
as set forth below. It is the intention of KCCI to
create a Bank Group that would have substantial
capacity available to support the Co- Borrowers'
capital needs created by internal growth or growth
through acquisitions.
<TABLE>
<CAPTION>
Institution Share Commitment
----------- -----------------
<S> <C> <C>
KCCI 34.8 % $20,000,000
Participant A 23.5 % 13,500,000
Participant B 20.85% 12,000,000
Participant C 20.85% 12,000,000
------ -----------
Total 100.0% $57,500,000
</TABLE>
Majority Banks will be defined as those holding
66-2/3% of the Credit Facilities.
The allocations set forth above are for illustration
purposes only and are not binding on KCCI. Each
participant (other than KCCI, as Agent) will be
responsible for its own costs and expenses associated
with joining the syndicate. The Co-Borrowers will
not be responsible for any such costs.
INTEREST RATES:
The following table outlines the Incentive Pricing matrices to be used as a
basis for calculating the interest rates, subject to the terms listed herein.
Incentive Pricing would be reset quarterly, beginning with the first quarter
following receipt of the audited 1998 financial statements, and quarterly
thereafter.
Revolver: The Revolver shall initially accrue interest, monthly, at a rate
equal to (i) KCCI's Prime Rate or (ii) LIBOR plus 225 basis points. The
following table outlines the number of levels, performance thresholds, and
applicable pricing for the Revolver:
<TABLE>
<CAPTION>
Senior Debt to Applicable Pricing Applicable Pricing
Level EBITDA Prime plus LIBOR plus
- ----- -------------- ---------- ----------
<S> <C> <C> <C> <C>
1. > 4.25 to 1 25 b.p. 250 b.p.
2. > 3.5 to 1 but # 4.25 to 1 0 b.p. 225 b.p. Opening Rate
3. > 3.0 to 1 but # 3.5 to 1 0 b.p. 200 b.p.
4. < 3.0 to 1 0 b.p. 175 b.p.
-
</TABLE>
- 4 -
<PAGE> 12
SUMMARY OF TERMS AND CONDITIONS OF COMMITMENT PLASTI-LINE, INC.
Operating Companies Term Loan: The Operating Companies Term Loan shall
initially accrue interest, monthly, at a rate equal to (i) KCCI's Prime Rate
plus 50 basis points or (ii) LIBOR plus 275 basis points. The following table
outlines the number of levels, performance thresholds, and applicable pricing
for the Operating Companies Term Loan:
<TABLE>
<CAPTION>
Senior Debt to Applicable Pricing Applicable Pricing
Level EBITDA Prime plus LIBOR plus
- ----- -------------- ---------- ----------
<S> <C> <C> <C> <C>
1. > 4.25 to 1 75 b.p. 300 b.p.
2. > 3.5 to 1 but # 4.25 to 1 50 b.p. 275 b.p. Opening Rate
3. > 3.0 to 1 but # 3.5 to 1 25 b.p. 250 b.p.
4. < 3.0 to 1 0 b.p. 225 b.p.
-
</TABLE>
Holding Company's Term Loan: The Holding Company's Term Loan shall initially
accrue interest, monthly, at a rate equal to (i) KCCI's Prime Rate plus 50
basis points or (ii) LIBOR plus 275 basis points. The following table outlines
the number of levels, performance thresholds, and applicable pricing:
<TABLE>
<CAPTION>
Senior Debt to Applicable Pricing Applicable Pricing
Level EBITDA Prime plus LIBOR plus
- ----- -------------- --------------- ----------
<S> <C> <C> <C>
1. > 4.25 to 1 75 b.p. 300 b.p.
2. > 3.5 to 1 but # 4.25 to 1 50 b.p. 275 b.p. Opening Rate
3. > 3.0 to 1 but # 3.5 to 1 25 b.p. 250 b.p.
4. < 3.0 to 1 0 b.p. 225 b.p.
-
</TABLE>
Advances under the Acquisition Availability shall initially accrue interest,
monthly, at a rate equal to (i) KCCI's Prime Rate plus 75 basis points or (ii)
LIBOR plus 300 basis points. The following table outlines the number of
levels, performance thresholds, and applicable pricing for the Acquisition
Availability:
<TABLE>
<CAPTION>
Senior Debt to Applicable Pricing Applicable Pricing
Level EBITDA Prime plus LIBOR plus
- ----- ------ ---------- ----------
<S> <C> <C> <C>
1. > 4.25 to 1 100 b.p. 325 b.p.
2. > 3.5 to 1 but # 4.25 to 1 75 b.p. 300 b.p. Opening Rate
3. > 3.0 to 1 but # 3.5 to 1 50 b.p. 275 b.p.
4. < 3.0 to 1 25 b.p. 250 b.p.
-
</TABLE>
INTEREST RATE
PROTECTION: The Co-Borrowers shall enter into interest rate protection
with KCCI or its affiliates in an amount equal to 50% of the
Senior Debt, for a period of no less than three years and
otherwise upon terms to be agreed to in the definitive
documentation.
- 5 -
<PAGE> 13
SUMMARY OF TERMS AND CONDITIONS OF COMMITMENT PLASTI-LINE, INC.
MANDATORY
PREPAYMENTS: The Co-Borrowers shall make prepayments against
principal in the following amounts: (a) all net
proceeds of any sale or other disposition of any
assets of a Co-Borrower or any of its subsidiaries
(other than the sale of inventory in the ordinary
course of business and such other exceptions as may
be mutually agreed to in the definitive
documentation), (b) 100% of the net cash proceeds
from the sale or issuance of equity or debt
securities of the Operating Companies or the Holding
Company pursuant to any public or private offering
(excluding sales to employees), and (c) annually, 50%
of consolidated Excess Cash Flow.
All such prepayments shall be applied in inverse
order of maturity against principal installments due
on the Operating Companies Term Loan until such loan
is paid in full, second against advances under the
Acquisition Availability until such Acquisition
Availability is eliminated, and last, against the
Revolver, without reduction in availability.
COLLATERAL: The Operating Companies Credit Facilities shall be
secured by a first and best lien on substantially all
of the Operating Companies' real property, personal
property, and intangible assets, including accounts
receivable, inventory, machinery and equipment, a
mortgage interest in all real property (other than
that property mortgaged under the Conduit Facility),
a pledge of stock of all subsidiaries of Plasti-Line,
Inc., contract rights, patents, trademarks, and
licenses. Unless otherwise agreed to pursuant to the
terms of the credit agreement, there shall be no
other security interests granted by the Co-Borrowers.
The Agent and the Co- Borrowers shall agree upon a
carve out for purchase money interests and liens.
The Holding Company Term Loan shall be secured by a
first and best lien on all of the Holding Company's
real property, personal property, and intangible
assets, including accounts receivable, inventory,
machinery and equipment, a mortgage interest in all
real property, a pledge of stock of all subsidiaries,
contract rights, patents, trademarks, and licenses.
The stock pledge will be released, however, upon
payment in full of the Holding Company Term Loan.
Unless otherwise agreed to pursuant to the terms of
the credit agreement, there shall be no other
security interests granted by the Holding Company.
- 6 -
<PAGE> 14
SUMMARY OF TERMS AND CONDITIONS OF COMMITMENT PLASTI-LINE, INC.
Each Operating Companies Credit Facility shall be
cross-collateralized with and cross-defaulted to all
other Operating Companies Credit Facilities. The
Operating Companies Credit Facilities will also be
cross-defaulted to the Conduit Facility. The Holding
Company Term Loan and the Operating Companies Credit
Facilities will be cross-defaulted to each other but
not cross- collateralized. If the Revolver is
terminated, the Operating Company Term Loan, the
Acquisition Availability, the IRB Letter of Credit
and the Holding Company Term Loan will become
immediately due and payable in full.
LOAN FEES
Agent Fee/Closing Fee:
The Co-Borrowers shall pay, to KCCI, an Agent Fee/Closing Fee equal to
one percent (1.0%) of the Credit Facilities, to facilitate the
underwriting and closing of the transaction. Upon acceptance of this
Commitment Letter, $287,500 of the Agent Fee/Closing Fee shall be
earned, and such amount shall be paid in accordance with the delivery
terms set forth elsewhere in this Commitment Letter; the remaining
portion of the Agent Fee/Closing Fee will be due and payable at
closing.
To the extent that you or William Blair & Company provide institutions
that commit to participate in the Credit Facilities, the Agent Fee /
Closing Fee will be reduced up to the lesser of (i) $75,000 or (ii)
0.20% for every $1,000,000 of commitment, irrespective of whether or
not such lender(s) are selected by the Agent and the Co- Borrowers to
participate.
Agent's Servicing Fee:
The Co-Borrowers shall collectively pay KCCI a monthly Agent's
Servicing Fee of $2,000, payable monthly in advance.
Commitment Fees:
The Revolver shall be subject to a 1/2% per annum Commitment Fee on
the average unused portion of the Revolver, payable monthly in
arrears. The Commitment Fee will be adjusted quarterly, beginning
with the first fiscal quarter following receipt by KCCI of the 1998
audited financial statements of the Co-Borrower, based on the
following incentive pricing matrix:
<TABLE>
<CAPTION>
Senior Debt to EBITDA Commitment Fee
--------------------- --------------
<S> <C>
> 3.5 to 1 1/2%
< 3.5 to 1 3/8%
-
</TABLE>
- 7 -
<PAGE> 15
SUMMARY OF TERMS AND CONDITIONS OF COMMITMENT PLASTI-LINE, INC.
Field Examination Fees:
The Co-Borrowers shall pay the standard costs of periodic Field
Examinations, currently $600 per examiner, per day, plus all
out-of-pocket costs, including travel and meals. Examination costs
include both on-site visits and subsequent analysis performed at KCCI.
The cost of the initial, pre-loan Field Examination shall be applied
against the Good Faith Deposit.
IRB Letter of Credit Fee
The IRB Letter of Credit Fee shall be paid quarterly, in advance, at
an initial rate equal to 275 basis points. The IRB Letter of Credit
Fee will be adjusted quarterly, beginning with the first fiscal
quarter following receipt by KCCI of the 1998 audited financial
statements of the Co-Borrower, based on the following incentive
pricing matrix:
<TABLE>
<CAPTION>
Senior Debt to Applicable Pricing
Level EBITDA
----- ------
<S> <C> <C>
1. > 4.25 to 1 300 b.p.
2. > 3.5 to 1 but # 4.25 to 1 275 b.p. Opening Rate
3. > 3.0 to 1 but # 3.5 to 1 250 b.p.
4. < 3.0 to 1 225 b.p.
-
</TABLE>
Legal Fees / Transaction Expenses:
All of KCCI's outside counsel fees (billed at the customary rates of
such outside counsel, with no premium) shall be paid by the
Co-Borrowers upon presentation of a fee bill for such services to the
Co-Borrower and KCCI. All of KCCI's other out-of-pocket costs and
closing costs incurred shall be paid or reimbursed by the Co-Borrower
at the closing date. KCCI has previously provided an estimate of the
legal fees; the estimated amount applies to billable hours only and
not to expenses, and is based upon the outline of required documents
and the process. You agree that the Good Faith Deposit in the amount
of $50,000 already received by KCCI will serve, to the extent not used
to cover costs and expenses of KCCI in connection herewith, as a
deposit with respect to the costs of counsel.
Letter of Credit Fees:
Letter of Credit Fee shall be paid quarterly, in advance, at an
initial rate of 225 basis points. The Letter of Credit Fee will be
adjusted quarterly, beginning with the first fiscal quarter following
receipt by KCCI of the 1998 audited financial statements of the
Co-Borrower, based on the following incentive pricing matrix:
Senior Debt to Applicable Pricing
- 8 -
<PAGE> 16
SUMMARY OF TERMS AND CONDITIONS OF COMMITMENT PLASTI-LINE, INC.
<TABLE>
<CAPTION>
Level EBITDA
----- ------
<S> <C> <C>
1. > 4.25 to 1 250 b.p.
2. > 3.5 to 1 but # 4.25 to 1 225 b.p. Opening Rate
3. > 3.0 to 1 but # 3.5 to 1 200 b.p.
4. < 3.0 to 1 175 b.p.
-
</TABLE>
Termination Fee:
Payable to KCCI, for its account, upon the complete termination of all
Credit Facilities, in an amount equal to the appropriate percentage
set forth below times the average amount of the commitment under the
total amount of the Credit Facilities, during the prior twelve months:
Year 1 - 3.0%
Year 2 - 2.0%
Year 3 - 1.0%
LOAN COVENANTS
The financial covenants shall be calculated based upon the consolidated
financial results of Plasti-Line, Inc./Holding Company, and its subsidiaries
(the definitions used in the calculation of these financial covenants are set
forth in the Definitions section of this Commitment Letter).
The financial covenants for the Credit Facilities will be, subject only to
review by the Agent of the covenants and terms of the Subordinated Notes and
related documents, as follows:
1. Minimum EBITDA
<TABLE>
<CAPTION>
Period Minimum EBITDA
------ --------------
<S> <C>
1998 $9,500,000
1999 $10,500,000
2000 $11,000,000
2001 $12,000,000
2002 $13,000,000
</TABLE>
Calculated monthly (with such monthly
interim levels, consistent with the levels set forth
above, as the parties shall agree to in the
definitive documentation), on a rolling twelve month
basis.
2. Minimum Cash Flow Coverage Ratio
Minimum
Cash Flow Coverage
--------
Period Ratio
------ -----
- 9 -
<PAGE> 17
SUMMARY OF TERMS AND CONDITIONS OF COMMITMENT PLASTI-LINE, INC.
<TABLE>
<S> <C>
1998 1.10 to 1
1999 1.10 to 1
2000 1.10 to 1
2001 1.15 to 1
2002 1.15 to 1
</TABLE>
Calculated quarterly (with such quarterly
interim levels, consistent with the levels set forth above, as
the parties shall agree to in the definitive documentation),
on a rolling four- quarter basis.
3. Senior Debt to EBITDA
<TABLE>
<CAPTION>
Senior Debt
Period to EBITDA Ratio
------ ---------------
<S> <C>
1998 5.0 to 1
1999 4.5 to 1
2000 4.0 to 1
2001 3.5 to 1
2002 3.0 to 1
</TABLE>
Calculated quarterly (with such quarterly interim
levels, consistent with the levels set forth above,
as the parties shall agree to in the definitive
documentation), using a rolling twelve month EBITDA.
4. Maximum Capital Expenditures (excluding acquisitions)
Fiscal Year 1998 $3,000,000
In each subsequent fiscal year, the maximum amount of
capital expenditures may not exceed $3,000,000 plus
the amount, if any, by which $3,000,000 exceeds the
amount actually spent on capital expenditures in the
immediately preceding Fiscal Year
The Terms and Conditions of the Credit Facilities will be those usual and
customary for transactions of this type (including without limitation voting
rights among the bank group).
There will be limitations on mergers, acquisitions, dividends, distributions,
the amount of additional debt, and the pledge or encumbrance of any assets, as
well as other covenants, representations and warranties, and events of default
usual and customary for transactions of this type. There will be limitations
on changes in the ownership of Holding Company and Plasti-Line, Inc. Covenants
relating to the placement of the Holding Company's Term Loan
The Operating Companies Credit Facilities will be cross-defaulted to the
Holding Company Term Loan, the Subordinated Notes, and any other obligations of
the Holding Company.
- 10 -
<PAGE> 18
SUMMARY OF TERMS AND CONDITIONS OF COMMITMENT PLASTI-LINE, INC.
With respect to dividends, management fees and loans from the Operating
Companies to the Holding Company, such payments would normally be restricted in
a financing of this type. Given that the Holding Company's Term Loan and the
Subordinated Notes will be structurally subordinated, it will be necessary to
permit, even during the occurrence and continuance of an event of default, the
payment of dividends and management fees by the Operating Companies to the
Holding Company, or the issuance of intercompany loans by the Operating
Companies to the Holding Company, in order to service the interest and
principal payments under the Holding Company's Term Loan and the Subordinated
Notes of the Holding Company. The payment of dividends and/or management fees
and/or the issuance of intercompany loans by the Operating Companies to the
Holding Company would be limited only by the intercreditor agreement between
the Agent and the Subordinated Note Holders, with the prohibition to occur only
during the occurrence of traditional standstill or prepayment blockage events.
Terms of Subordination/Terms of Intercreditor Agreement
The Subordinated Note Holder and the Agent shall enter into an intercreditor
agreement which shall include the following provisions, unless otherwise agreed
among the parties thereto:
1. The Agent shall have a priority interest in the stock of Plasti-Line,
Inc., as well as in any dividends, management fees or loan proceeds,
so long as the Holding Company's Term Loan is outstanding;
2. We envision that the financial covenants in the Subordinated Notes
would be defined in the same manner as the financial covenants in the
Credit Facilities, but the thresholds would be set at lower levels
(generally 70-75% of the plan);
3. The payment of interest, principal, and amounts under a put would be
prohibited upon the occurrence of a payment default under the Credit
Facilities;
4. The Agent could invoke a 180 day standstill upon the occurrence of a
principal financial covenant default, and the Agent and the
Subordinated Note Holder will mutually agree upon a limitation on the
number of standstills that can be invoked during any 360 day period;
5. Senior debt, for purposes of the subordination or intercreditor
agreement, would be limited to a principal amount to be mutually
agreed upon by KCCI, the Co-Borrowers and the Subordinated Note Holder
("Permitted Senior Debt"); any fees, interest, and other amounts owing
the Agent and the participant banks under the Credit Facilities would
not count against the Permitted Senior Debt limit; and
6. The Intercreditor Agreement shall provide for normal successor,
assign, and refinance language when references are made to the "Senior
Lender".
- 11 -
<PAGE> 19
SUMMARY OF TERMS AND CONDITIONS OF COMMITMENT PLASTI-LINE, INC.
LOAN ADMINISTRATION
Holding Company and the Co-Borrowers shall provide annual audited financial
statements within 120 days after the fiscal year end and monthly consolidated
and consolidating internal statements within 30 days after month end. In
addition, the Co-Borrowers shall provide a monthly accounts receivable aging,
inventory listing and accounts payable aging. Covenant compliance calculations
and a certificate of no default shall be provided on a monthly basis.
Monthly borrowing certificates shall be submitted by the Co-Borrowers.
Field examinations shall be performed by KCCI's examiners periodically. KCCI
shall review the frequency of audits each year and would envision three to four
field examinations during the first year.
The Co-Borrowers shall subscribe to KeyBank National Association's automated
reporting system (Access).
All cash proceeds received by the Co-Borrowers shall be directed to a lockbox
at KeyBank National Association for deposit into a cash collateral account.
All deposits into the cash collateral account shall be transferred and applied
against the Revolver two business days following receipt of such deposits in
the lockbox. Notwithstanding the above, proceeds from wire transfers received
shall be applied against the Revolver on the same day.
CONDITIONS OF FUNDING
1. Execution and satisfactory review of all appropriate documentation
contemplated herewith or other documentation which may be required by
KCCI or the bank group. Completion of legal diligence with respect to
the Co- Borrowers and the transactions contemplated hereby, the
results of which shall be satisfactory to KCCI and its counsel.
2. Establishment and maintenance by each Co-Borrower of a lockbox, a cash
collateral account, control disbursement account(s), and subscription
to KeyBank National Association's financial reporting system (Access)
and all necessary operating accounts at KeyBank National Association.
3. Evidence satisfactory to KCCI that there has been no substantial
change to the facts and/or circumstances of the Co-Borrowers'
operations, collateral or financial condition upon which KCCI has
based its credit decision.
- 12 -
<PAGE> 20
SUMMARY OF TERMS AND CONDITIONS OF COMMITMENT PLASTI-LINE, INC.
4. Receipt and satisfactory review of the following: (a) evidence
satisfactory to the Agent that no material claims or litigation (other
than such as are insured by an insurer acceptable to the Agent and
that has acknowledged liability for such claim or litigation) with
respect to any aspect of the Co-Borrowers' business affairs exist as
of the closing date; (b) evidence satisfactory to the Agent that no
material contingencies, including, but not limited to, pension or
other employee benefit liabilities exist at the closing date and (c)
any information, financial or otherwise, which may be requested by the
Agent in our sole discretion.
5. Receipt and satisfactory review of the study done to determine
liability, if any, for EPA violations and/or clean-up on the real
estate located at the Co-Borrowers' facilities.
6. Evidence satisfactory to the Bank that a minimum of $5,000,000 of
excess aggregate availability exists under the Revolver at closing.
7. No material change in the projection assumptions used as a basis for
this Commitment Letter.
8. The Co-Borrowers will enter into an interest rate hedge agreement, in
an amount equal to 50% of the Senior Debt, upon terms described above,
at closing. The hedge will be in various maturities which will be
mutually agreed upon by the Co-Borrowers and the Agent.
9. Final determination of the ownership structure of Holding Company and
the legal structure of the Co-Borrowers relative to their lending
relationship with KCCI.
10. Contribution of $10,000,000 of Plasti-Line, Inc.'s common stock to
Holding Company by James R. Martin and management.
11. Funding of $10,000,000 of Subordinated Debt to Holding Company, in
form and substance satisfactory to the Agent. Such funding shall be
downstreamed into Acquisition Company as a capital contribution. The
interest rate on 40% of the Subordinated Debt shall be deferred and
compounded for the first five years, and such deferred amount shall be
payable on the fifth anniversary of the closing.
12. Completion of the Merger in accordance with applicable laws and on
terms satisfactory to KCCI, including without limitation (i) a total
cash consideration not to exceed $55,000,000, and (ii) acquisition of
100% of the outstanding shares of capital stock of the Company, or
such lesser amount as is acceptable to KCCI.
13. The Co-Borrowers' counsel shall deliver an opinion, in form and
substance acceptable to Agent and its counsel, addressing (i) matters
customary to transactions of this type, (ii) that the merger
contemplated herein is effective and in compliance with Tennessee
state law (including the dividend and distribution requirements
thereof), and (iii) stating the
- 13 -
<PAGE> 21
SUMMARY OF TERMS AND CONDITIONS OF COMMITMENT PLASTI-LINE, INC.
legal requirements to be satisfied in order for the Company (after
consummation of the Merger) to make distributions to Holding Company.
14. Payment by the Co-Borrowers of all UCC, mortgage and other filing
taxes in all states, including, but not limited to, the State of
Tennessee.
15. Receipt of a Fairness Opinion satisfying applicable laws and
satisfactory to KCCI.
16. Establishment of the Special Reserve.
17. Receipt by the Co-Borrowers of the proceeds of the Conduit Facility in
an amount of at least $8,000,000.
18. Satisfaction of KCCI with the capacity of the capital surplus and
initial E&P (at the time of closing) of the Co-Borrowers to fund the
debt service of the Holding Company through dividends (or such other
means as is acceptable to KCCI).
19. Such other information and deliveries as KCCI may reasonably require.
The conditions to each Acquisition Availability draw shall include, without
limitation:
a. The Target company would be a domestic
company engaged in the same or similar business as
the Operating Companies;
b. Acquisition financing would not exceed 75% of
the cash purchase price needed to acquire the Target
company, with such purchase price to include fees and
expenses associated with the acquisition. The
balance of the cash purchase price would be funded
through advances under the Revolver;
c. After giving effect to the acquisition
funded, the ratio of proforma consolidated senior
debt to actual trailing 12-month consolidated EBITDA
(defined in a manner consistent with the defined
terms appearing herein) would not exceed 4:1
(including the senior acquisition debt and the actual
12-month trailing EBITDA of the Target acquisition);
d. There would be acceptable financial
performance by the Co-Borrowers prior to the
acquisition (consistent, at a minimum, with the
Financial Covenants) and there would be acceptable
proforma financial performance of the consolidated
Co-Borrowers, including the Target acquisition, with
respect to (a) minimum cash flow
- 14 -
<PAGE> 22
SUMMARY OF TERMS AND CONDITIONS OF COMMITMENT PLASTI-LINE, INC.
coverage ratio, (b) minimum EBITDA, (c) maximum
senior debt to EBITDA, and (d) minimum availability
under the Revolver.
DEFINITIONS
Adjusted Debt:
Total Liabilities less Subordinated Debt.
Acquisition Availability:
An amount equal to $3,000,000 which shall be available for three years
following the closing. It shall be available in multiple drawings
from time to time following the Closing Date, in order to fund the
acquisition(s) of the assets or stock of a company. Conditions to
each draw under the Acquisition Availability are set forth on Page 15
of this Summary of Terms and Conditions.
Each advance under the Acquisition Availability would be repaid based
on a five year amortization, with equal quarterly principal payments
commencing in the first full month after such draw. Any unamortized
amount would be due and payable on the date that the Operating
Companies Term Loan matures. Reborrowings would not be permitted.
Cash Flow Coverage Ratio:
The sum of Net Income after tax distributions plus Depreciation plus
Amortization plus Interest Expense to the sum of Scheduled Senior Term
Debt Payments (but excluding any Excess Cash Flow Recapture Payments)
plus Subordinated Debt Payments plus Payments Under Capitalized Leases
plus Interest Expense plus Capital Expenditures plus Dividends plus
Treasury Stock Purchases. For the purposes of this calculations,
Capital Expenditures for the Columbia, SC facility, to the extent
funded from IRB proceeds, will be excluded.
Eligible Accounts Receivable:
Typically includes accounts owed by domestic customers and certain
Canadian customers that are aged no more than 90 days from the invoice
date. Typical ineligibles include related party receivables, deposit
billings, contras, certain foreign accounts receivable (not supported
by a letter of credit), government accounts and tainted accounts at
50%. Standards of eligibility to be determined by KCCI, in its sole
discretion.
Eligible Inventory:
Typically includes finished goods and raw materials in the Holding
Company's or the Operating Companies' possession. Customary
ineligibles (including but not limited to slow moving or obsolete
inventory) will be excluded. Based upon field examination results,
work in process may be considered Eligible Inventory. Inventory will
be valued on a FIFO basis. Standards of eligibility to be determined
by KCCI, in its sole discretion.
Excess Cash Flow:
- 15 -
<PAGE> 23
SUMMARY OF TERMS AND CONDITIONS OF COMMITMENT PLASTI-LINE, INC.
The sum of Net Income after tax distributions plus Depreciation plus
Amortization less the sum of Scheduled Senior Term Debt Payments plus
Subordinated Debt Payments plus Payments Under Capitalized Leases plus
Capital Expenditures (but excluding Capital Expenditures for the
Columbia, South Carolina facility to the extent funded from IRB
proceeds) plus Dividends plus Treasury Stock Purchases.
LIBOR Rate:
The rate per annum equal to the quotient of (a) the rate per annum at
which deposits in United States dollars are offered by prime banks in
the London interbank eurodollar market, divided by (b) 1.00 minus the
aggregate of the rates of the LIBOR Reserve Requirements described by
the Board of Governors of the Federal Reserve System.
Prime Rate:
The rate established from time to time by KCCI as KCCI's Prime Rate,
whether or not such rate is publicly announced. The Prime Rate may not
be the lowest interest rate charged by KCCI for commercial or other
extensions of credit.
Senior Debt:
Debt funded by KCCI or members of the bank group; amounts outstanding
under capitalized leases; and outstanding letters of credit. This
calculation will include any amounts outstanding under the Holding
Company Term Loan and amounts funded and/or serviced by KRECM, but
will specifically exclude amounts on deposit in the bond proceeds
escrow account related to the Columbia, SC industrial development bond
project currently underway.
EBITDA:
The sum of Earnings before Interest Expense and Income Taxes plus
Depreciation plus Amortization.
Special Reserve:
A reserve, in addition to any discretionary reserves KCCI may have, in
an amount equal to $2,000,000, which shall be in effect from the date
of the closing through June 30, 1998, as the same may, in the Agent's
sole discretion, be reduced or eliminated before June 30, 1998.
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<PAGE> 1
EXHIBIT (A)(2)
KEYCORP REAL ESTATE CAPITAL MARKETS, INC.
127 PUBLIC SQUARE
CLEVELAND, OHIO 44114
November 3, 1997
Mr. Mark J. Deuschle
Chief Financial Officer
Plasti-Line, Inc.
623 East Emory Drive
Knoxville, TN
Re: Premises: American Sign Building
7430 Industrial Road
Florence, KY
Dear Mr. Deuschle:
KEYCORP REAL ESTATE CAPITAL MARKETS, INC. ("Lender"), hereby agrees to
make a permanent first fee mortgage loan (the "Loan") subject to the terms and
conditions set forth below and in the attached General Conditions and Special
Conditions, if any:
ARTICLE A: BORROWER
NAME: TBD single-asset, special purpose entity
PRINCIPAL PLACE OF BUSINESS ADDRESS: 623 East Emory Drive
Knoxville, TN
TYPE OF ENTITY
[ ] Corporation [ ] Generral Partnership [ ] Joint Venture
[ ] Limited Partnership [ ] Business Trust [ ] Limited Liability
Company
[ ] Other
TAXPAYER IDENTIFICATION NUMBER:
STATE OF ORGANIZATION:
<PAGE> 2
WARRANTY OF NON-FOREIGN BORROWER
Borrower represents and warrants to Lender that Borrower is not a
"foreign person" within the meaning of Section 1445(f)(3) of the
Internal Revenue Code of 1986.
SINGLE PURPOSE, BANKRUPTCY REMOTE ENTITY
Borrower shall be a "single purpose, bankruptcy remote entity" as
described in Subsection 7(p) of the General Conditions at closing and
throughout the term of the Loan.
ARTICLE B: LOAN TERMS
AMOUNT
The principal amount of the Loan shall not exceed $ SEE EXHIBIT A: TERM
SHEET, ITEM 1. (the "Loan Amount"). The Loan Amount may be decreased as provided
in the Section of this Commitment entitled INTEREST RATE.
INTEREST RATE
This loan request is being underwritten using an assumed rate per annum
equal to SEE EXHIBIT A: TERM SHEET, ITEM 2. (the "Assumed Rate") as the
projected interest rate on the Loan. Upon satisfaction of the conditions set
forth in the Commitment for setting the interest rate on the Loan, the actual
interest rate (the "Applicable Rate") will be set (the "Rate Lock") on a date
(the "Rate Lock Date") between now and the closing date of the Loan (the
"Closing Date").
Depending upon market conditions on the Rate Lock Date, the Applicable
Rate may be different from the Assumed Rate used in approving the application.
In the event the Applicable Rate established on the Rate Lock Date is higher
than the Assumed Rate, Lender reserves the right to reduce the Loan Amount to
reflect the ability of the Property to carry the debt at the debt service
coverage ratios of SEE EXHIBIT A: TERM SHEET, ITEM 3.. The debt service coverage
ratio will be based on the actual loan constant at time of closing as determined
by Lender in its sole and absolute discretion.
Assuming the Loan satisfies the debt service ratios set forth in the
preceding paragraph, the rate of interest will be calculated on the Rate Lock
Date by adding SEE EXHIBIT A: TERM SHEET, ITEM 4. basis points over the yield to
maturity for the nearest U.S. Treasury bonds or other obligations having the
nearest equivalent maturity of SEE
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<PAGE> 3
EXHIBIT A: TERM SHEET, ITEM 5. years (rounded up to the nearest one-eighth of
one percent) as determined by Lender on the Rate Lock Date in accordance with
the provisions of the Section of this Commitment entitled RATE LOCK.
PAYMENTS
Interest only shall be due on the Closing Date for interest from the
Closing Date to and including the last day of the month in which the Closing
Date occurs. Thereafter, combined monthly payments of principal and interest
shall be due and payable commencing on the first day of the second full calendar
month following the Closing Date and on the first day of each calendar month
thereafter. The amount of the monthly payment of principal and interest will be
determined by Lender on the Rate Lock Date. The monthly payments of principal
and interest will be based on a schedule which would fully amortize the Loan
over a SEE EXHIBIT A: TERM SHEET, ITEM 6.
year term.
MATURITY DATE
The unpaid principal balance of the Loan together with all accrued but
unpaid interest thereon, additional interest, if any, and all other sums due
under the Loan Documents (defined in Article E of this Commitment), shall be due
and payable on the SEE EXHIBIT A: TERM SHEET, ITEM 7. anniversary of the first
day of the full calendar month following the Closing Date or (ii) the Closing
Date if the closing occurs on first day of the calendar month (the "Maturity
Date").
PREPAYMENT
The principal balance of the Loan may not be prepaid in whole or in
part prior to the SEE EXHIBIT A: TERM SHEET, ITEM 8. Loan Year (defined in
Section 5 of the General Conditions). During the SEE EXHIBIT A: TERM SHEET, ITEM
8. Loan Year or any time thereafter, the principal balance of the Loan may be
prepaid in whole, but not in part, upon not less than sixty (60) days prior
written notice to Lender specifying the date on which prepayment is to be made
(the "Prepayment Date") which date must be a Payment Date and upon the payment
of:
(i) all accrued interest to and including the Prepayment Date;
(ii) all other sums due under the Note (defined in Article E of
this Commitment), the Security Instrument (defined in Article E of this
Commitment) and all other Loan Documents; and
(iii) the Prepayment Consideration (defined in Section 5 of the
General Conditions).
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<PAGE> 4
The principal balance specified in any such irrevocable notice of
prepayment shall be absolutely and unconditionally due and payable on the
Prepayment Date. Lender shall not be obligated to accept any prepayment of the
principal balance of the Loan unless it is accompanied by the sums referenced in
(i), (ii) and (iii) above.
Notwithstanding anything to the contrary herein, provided no Event of
Default (defined in Subsection 7(e) of the General Conditions) exists under the
Note, the Security Instrument or the other Loan Documents, in the event of any
prepayment (i) in connection with or as a result of a casualty or condemnation
or (ii) which occurs during the last three (3) months of the Loan Year, no
Prepayment Consideration shall be due in connection therewith.
ARTICLE C: RATE LOCK
Not less than seven (7) Business Days (defined in Section 5 of the
General Conditions) after compliance with all of the requirements of this
Commitment (provided such compliance occurs at least ten (10) Business Days
prior to the expiration date of the Commitment), Borrower shall be entitled to
request Rate Lock from Lender. Such request must be in writing and must be sent
by facsimile transmission to Lender to the attention of Michael Haynes, KeyCorp
Real Estate Capital Markets, Inc. Not later than the next Business Day, Lender
shall send by facsimile transaction a Rate Lock confirmation (the "Rate Lock
Confirmation"). THE NEXT BUSINESS DAY LENDER WILL LOCK THE INTEREST RATE VIA
TELEPHONE WITH THE BORROWER. THE BORROWER WILL THEN COMPLETE THE RATE LOCK
CONFIRMATION BY FILLING IN THE INTEREST RATE, INITIALING THE INTEREST RATE, AND
RETURNING THE RATE LOCK CONFIRMATION TO LENDER VIA FACSIMILE. In the event
Borrower does not (i) meet the requirements to request Rate Lock, (ii) request
Rate Lock, (iii) sign AND INITIAL the Rate Lock Confirmation, or (iv) confirm by
telephone the receipt by Lender of such Rate Lock Confirmation, within the above
time periods, Lender's obligation to fund the Loan pursuant to this Commitment
shall terminate. The closing of the Loan must take place within three (3)
Business Days of the Rate Lock Date.
Notwithstanding anything to the contrary contained in this Commitment,
Borrower shall not be entitled to Rate Lock unless Lender shall have received
the entire Origination Fee (defined in the Section of this Commitment entitled
ORIGINATION FEES under Article b) in immediately available funds, prior to
Borrower's request for Rate Lock.
ARTICLE D: COLLATERAL
PROPERTY TO BE MORTGAGED
Approximately 230,000 sf industrial property located at 7430 Industrial
Road, Florence, KY, (the "Premises"),more particularly described in Borrower's
application and other information submitted to Lender by Borrower, together with
the
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<PAGE> 5
improvements (the "Improvements") constructed or to be constructed on the
Premises and all fixtures, equipment and articles of personal property now or
hereafter affixed to or used in the management, maintenance or operation of the
Property (defined below), including any replacements and additions thereto, and
such other security as may be required by Lender (collectively, the "Property").
ARTICLE E: LOAN DOCUMENTS
The Loan shall be evidenced by the promissory note of Borrower made
payable to the order of Lender (the "Note") and shall be secured by the Loan
Documents (as defined below), including, but not limited to, the following:
SECURITY INSTRUMENT
A duly recorded mortgage, mortgage deed, deed of trust, trust deed,
security deed, deed to secure debt or other real estate security instrument
customary in the jurisdiction in which the Premises are located (the "Security
Instrument") given by Borrower to Lender, constituting a valid first mortgage
lien, subject to no other liens or encumbrances, on the good and marketable fee
simple absolute title to the Property, subject only to such exceptions as shall
be approved by Lender and its counsel.
ASSIGNMENT OF LEASES AND RENTS
A first-priority present assignment (the "Assignment of Leases and
Rents") given by Borrower to Lender of all present and future leases of all or
any part of the Property and all renewals thereof (the "Leases") and all rents,
additional rents, revenues, issues and profits derived from the Property (the
"Rents").
SECURITY AGREEMENT
A security agreement between Borrower and Lender constituting a valid
first priority security interest, free of chattel mortgages, security
agreements, conditional sales contracts and other liens or title retention
arrangements, shall be granted by Borrower on all fixtures, equipment and
articles of personal property now or hereafter affixed to or used in the
management, maintenance and operation of the Property (other than trade fixtures
or personal property of space tenants owned by such tenants at the expiration of
their lease term). Such security interest shall be granted in the Security
Instrument or in a separate agreement if Lender's counsel requires such an
agreement. Borrower shall also execute and deliver such UCC Financing Statements
as Lender's counsel may request.
OTHER ASSIGNMENTS
Present assignments to Lender, at its option, of (a) Borrower's
interest in any other contracts and agreements or of any other rights of
Borrower relating to the
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<PAGE> 6
Property, including, but not limited to, any and all operating leases or
agreements, management agreements, service contracts and maintenance contracts,
(b) the final plans and specifications for Improvements with the preparing
architect's consent to Lender's use and any assignable rights with respect to
any permits, approvals or variances relating to such Improvements, (c) all
refunds, rebates, or credits in connection with a reduction in real estate taxes
and assessments charged against the Property as a result of tax certiorari or
any proceeding for reduction, and (d) all proceeds received by Borrower in
connection with any buy-out, termination or other modification of any of the
Leases.
ENVIRONMENTAL INDEMNITY
An Environmental Indemnity Agreement from Borrower and PLASTI-LINE,
INC..("Indemnitor(s)"), who shall agree to indemnify Lender (i) for all costs
incurred by Lender in connection with the removal of hazardous substances from
the Property, regardless of whether or not Borrower caused the presence of such
hazardous substance; and (ii) against any loss, cost, damage or expense that
Lender may incur, directly or indirectly, as a result of or in connection with
the assertion against Lender of any claim relating to the presence or removal of
any hazardous substance on the Property. The indemnities contained in the
Environmental Indemnity Agreement shall survive the satisfaction, termination or
assignment of the Note, the Security Instrument and any other Loan Documents.
OTHER DOCUMENTS
Such other documentation as Lender may require in order to adequately
protect and perfect Lender's security interest.
The documents referred to in this Section, together with such other
documents executed in connection with the Loan, are sometimes collectively
referred to as the "Loan Documents".
ARTICLE F: EXCULPATION
Subject to the Limitations on Exculpation set forth in Subsection 7(n)
of the General Conditions and the Special Conditions, if any, the Security
Instrument shall provide that Lender's sources of satisfaction of the Loan shall
be the Property and the Rents, and other collateral given to Lender to secure
the Loan, and that Lender shall not seek to enforce any judgment out of any
other assets of Borrower, for any sums which shall be payable under the Note,
the Security Instrument or any other Loan Documents or for any deficiency
remaining after a foreclosure of the Security Instrument.
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<PAGE> 7
ARTICLE G: REQUIRED PROPERTY INFORMATION
APPRAISAL, ENVIRONMENTAL SITE
ASSESSMENT AND BUILDING CONDITION REPORTS
Lender shall receive at Borrower's sole cost and expense (i) an
appraisal of the Property stating an appraised value of $ 4,670,000
(satisfactory to Lender in its sole discretion), (ii) written reports with
respect to certain environmental conditions at the Property and (iii) a Building
Condition Report (defined in the General Conditions), each in form and substance
satisfactory to Lender and in accordance with the provisions set forth in the
General Conditions and Special Conditions, if any. The appraisal, environmental,
and engineering professionals, their qualifications, the scope and methodology
of their investigations, their reports and the recommendations set forth therein
and the form, scope and substance of their certifications to Lender shall be
acceptable to Lender in all respects.
SITE INSPECTION
Representatives or agents of Lender may conduct site inspections of the
Property on behalf of Lender. All fees and expenses in connection with such
inspections shall be paid by Borrower.
ESTOPPEL LETTERS
At Lender's option, Estoppel letters satisfactory in form, scope and
substance to Lender shall be delivered from all of the commercial tenants at the
Property.
ARTICLE H: RESERVE REQUIREMENTS
COMPLETION/REPAIR RESERVE
Borrower shall, at closing, deposit an amount TO BE DETERMINED BY
LENDER IN ITS SOLE DISCRETION BASED ON ITS REVIEW OF THE BUILDING CONDITION
REPORT (the "Repair Deposit") into a non-interest bearing escrow account with
Lender for the completion or renovation of certain capital improvements to the
Property identified and recommended in the Building Condition Report, which
items shall be completed as required by Lender to Lender's satisfaction not
later than six (6) months after the Closing Date. The Repair Deposit shall
represent 125% of the estimated cost to complete all the repairs and
replacements to the capital improvements required by Lender and recommended by
Lender's consulting engineer. Lender shall disburse amounts from the Repair
Deposit to reimburse Borrower for the costs incurred in connection with the
foregoing repairs and replacements upon satisfaction by Borrower of certain
conditions and the delivery of certain items required by Lender.
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<PAGE> 8
REPLACEMENT RESERVE
Lender shall require Borrower to deposit an amount TO BE DETERMINED BY
LENDER IN ITS SOLE DISCRETION BASED ON ITS REVIEW OF THE BUILDING CONDITION
REPORT (the "Replacement Reserve") at the closing of the Loan into an interest
bearing escrow account with Lender to cover the estimated costs of periodic
repairs, replacements and improvements of certain specified portions of the
Property including, but not limited to, the replacement or maintenance of
building system components and items that have been identified by the Building
Condition Report. Lender shall be entitled to adjust the monthly deposits into
the Replacement Reserve in order to cover additional costs of such periodic
repairs, replacements and improvements throughout the term of the Loan. Lender
shall disburse amounts from the Replacement Reserve to reimburse Borrower for
the costs incurred in connection with the foregoing periodic repairs,
replacements and improvements upon satisfaction by Borrower of certain
conditions and the delivery of certain items required by Lender.
ARTICLE I: FEES
Borrower agrees to pay to Lender the fees set forth below in connection
with this Commitment for the Loan. All fees paid to Lender hereunder shall be in
immediately available funds at Lender's office at 127 Public Square, Cleveland,
Ohio 44114
APPLICATION FEE
Lender acknowledges receipt of the amount of SEE EXHIBIT A: TERM SHEET,
ITEM 9. (the "Application Fee") from Borrower as a non-refundable application
fee to cover Lender's cost with respect to Borrower's application for the Loan.
PROCESSING DEPOSIT
Lender acknowledges receipt of the amount of SEE EXHIBIT A: TERM SHEET,
ITEM 10. (the "Processing Deposit") to be held by Lender without interest. The
Processing Deposit shall be applied by Lender against any fees and expenses
incurred or paid by Lender in connection with the processing, underwriting or
closing of the Loan, including without limitation, property inspection fees,
appraisal fees, travel expenses of Lender's personnel, environmental site
assessment fees, loan closing fees, costs of tax lien searches, Building
Condition Report fees, Lender's counsel's fees and disbursements and other loan
fees. Any portion of the Processing Deposit not applied by Lender toward
expenses as set forth herein shall be returned by Lender to Borrower within
thirty (30) days after the closing of the Loan or in the case where the Loan
does not close and is not funded, within thirty (30) days after written request
for same by Borrower. All expenses incurred by Lender in connection with the
processing, underwriting or closing of the Loan shall be the responsibility of
Borrower and to the extent the Processing Deposit is insufficient to cover all
such expenses, Borrower shall
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<PAGE> 9
deliver such additional amounts as required by Lender at the closing of the Loan
or if the Loan does not close, within five (5) Business Days after written
demand by Lender.
GOOD FAITH DEPOSIT
Lender acknowledges receipt of SEE EXHIBIT A: TERM SHEET, ITEM 11. as a
good faith deposit (the "Good Faith Deposit") which shall be held by Lender
without interest. If Borrower fails to close or accept funding of the Loan for
any reason on or before the expiration date of this conditional Commitment, the
Good Faith Deposit shall be retained by Lender as liquidated damages (and not as
a penalty) in full compensation of Lender's damages in view of the difficulty of
establishing Lender's damages for loss of investment income resulting from
Borrower's failure to close the Loan. Notwithstanding the foregoing, if (i)
Lender fails to fund the Loan for reasons other than (A) Borrower's failure to
comply with the conditions to closing as set forth in Section 6 of the General
Conditions or the Special Conditions, if any, or (B) the occurrence of any of
the events set forth in Section 21 of the General Conditions, or (ii) Borrower
fails to sign the Rate Lock Confirmation solely because the Applicable Rate
determined by Lender at Rate Lock exceeds the Assumed Rate and the Loan Amount
is substantially reduced below the Loan Amount set forth under the Section of
this Commitment entitled AMOUNT, as determined by Lender in its sole discretion,
in either case the Good Faith Deposit shall be returned to Borrower within five
(5) Business Days following written request by Borrower. If the Loan shall close
in accordance with this conditional Commitment, the Good Faith Deposit shall be
applied by Lender toward the balance of the Origination Fee (defined in the
Section of this Commitment entitled ORIGINATION FEES) due it at Rate Lock.
ORIGINATION FEES
Borrower shall pay Lender an origination fee in the amount of SEE
EXHIBIT A: TERM SHEET, ITEM 12. (the "Origination Fee"). The Origination Fee
shall be deemed fully earned upon acceptance of the Commitment and shall cover
Lender's cost for the origination of the Loan. The Origination Fee shall be paid
by Borrower as follows:
(i) Upon Borrower's acceptance of this Conditional
Commitment, a portion of the Origination Fee equal to SEE EXHIBIT A:
TERM SHEET, ITEM 13. (the "Commitment Fee") shall be due and payable
from Borrower. The Commitment Fee shall be deemed earned on receipt and
shall be non-refundable unless (A) Lender fails to fund the Loan for
reasons other than (1) Borrower's failure to comply with the conditions
to closing as set forth in Section 6 of the General Conditions or the
Special Conditions, if any, or (2) the occurrence of any of the events
set forth in Section 20 of the General Conditions, or (B) Borrower
fails to sign the Rate Lock Confirmation solely because the Applicable
Rate determined by Lender at Rate Lock exceeds the Assumed Rate and the
Loan Amount is substantially reduced below the amount set forth under
the Section of this Commitment entitled AMOUNT, as determined by Lender
in its
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<PAGE> 10
sole discretion, in which case the Commitment Fee paid by Borrower
shall be refunded to Borrower within five (5) Business Days following
written request by Borrower.
Application Fees, Property inspection fees, appraisal fees,
environmental site assessment fees, title insurance and survey fees,
Lender's counsel's fees and disbursements, loan closing fees and other
loan fees are non-refundable and are not included as part of the
Origination Fee but are separate obligations of Borrower. The $10,000
processing deposit will be returned, except for costs Lender has
already incurred.
(ii) At the time Borrower intends to request Rate Lock,
Borrower shall pay to Lender in immediately available funds prior to
making its request for Rate Lock, the balance of the Origination Fee.
Such additional amount .shall be deemed earned in full upon receipt by
Lender.
(iii) Notwithstanding anything contained in this Commitment
to the contrary, upon the closing of the Loan, in accordance with this
Commitment, Lender shall refund to Borrower that portion of the
Origination Fee collected that exceeds SEE EXHIBIT A: TERM SHEET, ITEM
12. of the actual Loan Amount.
ARTICLE J: TERM OF COMMITMENT
This Commitment is effective upon Lender's issuance of this letter to
Borrower. This Commitment expires on the earlier of (i) January 30, 1998 and
(ii) the date set forth for the closing of the Loan at the time of Rate Lock, by
which time ALL THE CONDITIONS OF THIS COMMITMENT MUST BE SATISFIED AND the Loan
must have closed and funded or this Commitment shall be of no further force and
effect.
ARTICLE K: CONDITION TO ACCEPTANCE
If this Conditional Commitment is acceptable to you, please sign at the
place indicated on the following page on the enclosed duplicate hereof and
return the same together with a check in the amount of SEE EXHIBIT A: TERM
SHEET, ITEM 14. on account of the Commitment Fee to Lender at Lender's offices
at 127 Public Square, Cleveland, Ohio 44114 within seven (7) days of the date
hereof. If this Commitment and the Commitment Fee are not received by Lender
within this seven (7) day period, this Commitment shall terminate and shall be
of no further force and effect.
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KEYCORP REAL ESTATE CAPITAL
MARKETS, INC.
By: /s/ ERNEST M. HAYNES
---------------------------------
Name: Ernest M. Haynes
-------------------------------
Title: Closing Manager
------------------------------
cc:
------------------------
------------------------
------------------------
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<PAGE> 12
BORROWER'S ACCEPTANCE
Borrower hereby unconditionally accepts the foregoing Conditional
Commitment and the attached General Conditions and Special Conditions if any, in
accordance with their terms and conditions and agrees to be bound thereby. This
acceptance shall be deemed effective when received together with the Commitment
Fee by Lender.
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
Borrower's Counsel:
-------------------------
-------------------------
[ADDRESS] -------------------------
[TELEPHONE]-------------------------
<PAGE> 13
GENERAL CONDITIONS TO COMMITMENT
1. INTEREST.
(a) Interest on the Loan shall be computed on the basis
of the actual number of days elapsed over a 360-day year. Such interest shall be
paid, in arrears, on the first day of each calendar month during the term of the
Loan.
(b) It is not intended by any provision of this
Commitment to charge interest at a rate in excess of the maximum rate of
interest permitted to be charged to Borrower under applicable law, but if,
nevertheless, interest in excess of said maximum rate shall be paid on the Loan,
the excess amount shall be returned or, to the extent permitted by applicable
law, be applied in reduction of the principal amount of the Loan, in Lender's
sole discretion.
2. EXPENSES. Borrower shall pay all expenses in connection with
the Loan contemplated hereby including, but not limited to, all fees and
disbursements of Lender's counsel (and, if outside the State of Ohio, of
Lender's local counsel in the jurisdiction where Borrower is organized or where
the Property is located) including fees and disbursements incurred in connection
with the preparation and delivery of releases from the lien of the Security
Instrument, travel expenses of Lender's personnel related to the making of the
Loan, appraisal fees, engineering fees, title insurance premiums, survey
charges, mortgage and documentary stamp taxes, if any, note intangible taxes, if
any, recording charges and brokerage fees and commissions, costs of tax lien
searches and other loan fees. To the extent incurred, the foregoing expenses
shall be paid by Borrower whether or not the Loan shall close or be funded.
Wherever it is provided for herein that Borrower pay the costs and expenses in
connection with a particular item, such costs and expenses shall include, but
not be limited to, all legal fees and disbursements of Lender, whether with
respect to retained firms, the reimbursement for the expenses of in-house staff
or otherwise.
3. COUNSEL. Messrs. JONES, DAY, REAVIS, & POGUE attn: TO BE
DETERMINED, will act as Lender's counsel in this transaction and Borrower or its
counsel is requested to contact said firm promptly after accepting this
Commitment to confirm their closing requirements and to arrange for the closing
of the Loan. The entire closing of the Loan shall take place at Lender's
counsel's offices in New York or as otherwise determined by Lender on a date
mutually agreed upon by the respective counsel after all closing requirements
are satisfied. No broker, agent, or other person is authorized to represent
Lender in any way in connection with this transaction, except Lender's
authorized officers and such counsel acting in the State of Ohio.
4. APPROVAL. All mortgage and title documents executed and
delivered in connection with the closing of the Loan, all title policies and
surveys, all Borrower organizational documents, all legal opinions, all
insurance policies and coverage and
<PAGE> 14
insurance companies, all required evidence of compliance with all applicable
laws and regulations, and all other evidence, information and material required
by Lender or its counsel, shall be in form, scope and substance satisfactory to
Lender's counsel who must approve title to the Property, the legality, validity
and enforceability of all documents pertaining to the Loan, all proceedings in
connection therewith and all other matters relating to the Loan and the closing.
5. PREPAYMENT CONSIDERATION
(a) "Business Day" shall mean a day on which commercial
banks are not authorized or required by law to close in New York, New York.
(b) "Loan Year" shall mean each 365 or 366, as
applicable, day period after the first day of the first calendar month after the
Closing Date (or the Closing Date if the Loan closes on the first day of a
calendar month).
(c) "Prepayment Consideration" shall mean an amount equal
to the greater of (i) one percent (1%) of the principal balance of this Note
being prepaid, or (ii) the product of (A) the ratio of the amount of the
principal balance of this Note being prepaid over the outstanding principal
balance of this Note on the Prepayment Date (after subtracting the scheduled
principal payment on such Prepayment Date), multiplied by (B) the present value
as of the Prepayment Date of the remaining scheduled payments of principal and
interest from the Prepayment Date through the Maturity Date (including any
balloon payment) determined by discounting such payments at the Discount Rate
(as hereinafter defined) less the amount of the outstanding principal balance of
this Note on the Prepayment Date (after subtracting the scheduled principal
payment on such Prepayment Date). The "Discount Rate" is the rate which, when
compounded monthly, is equivalent to the Treasury Rate (as hereinafter defined),
when compounded semiannually. The "Treasury Rate" is the yield calculated by the
linear interpolation of the yields, as reported in Federal Reserve Statistical
Release H.15-Selected Interest Rate under the heading U.S. government
securities/Treasury constant maturities with maturities with maturity dates (one
longer and one shorter) most nearly approximating the Maturity Date. (In the
event Release H.15 is no longer published, Lender shall select a comparable
publication to determine the Treasury Rate.) Lender shall notify Borrower of the
amount and the basis of determination of the required prepayment consideration.
(d) "Treasury Rate" shall mean the yield calculated by
the linear interpolation of the yields, as reported in the Federal Reserve
Statistical Release H. 15-Selected Interest Rates under the heading U. S.
Government Securities/Treasury constant maturities for the week ending prior to
the Prepayment Date, of U.S. Treasury constant maturities with maturity dates
(one longer and one shorter) most nearly approximating the Maturity Date. In the
event Release H. 15 is no longer published, Lender shall select a comparable
publication to determine the Treasury Rate. Lender shall notify Borrower of the
amount and the basis of determination of the required
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<PAGE> 15
Prepayment Consideration which shall be conclusive and binding on Borrower
absent manifest error
6. CONDITIONS TO CLOSING. Not less than ten (10) Business Days
prior to the Closing Date Lender shall have received the following:
(a) Debt Service Coverage. Satisfactory evidence to
Lender, including, without limitation, the Leases, an appraisal, and a rent
roll, which supports, in Lender's determination, the projected debt service
coverages (after deducting all required reserves, determined by Lender, from net
operating income) as required by Article B of this Commitment.
(b) Appraisal. An appraisal of the Property prepared by
an independent appraiser holding an M.A.I. designation who shall be designated
and engaged by Lender and licensed in the state where the Property is located.
Such appraisal shall be addressed to Lender and (i) shall be prepared in
accordance with current federal regulatory requirements, (ii) shall support the
projected debt service coverages (after deducting all required reserves,
determined by Lender, from net operating income) as required by Article B of
this Commitment, (iii) shall note any readily visible environmental conditions;
and (iv) shall be satisfactory to Lender in all other respects. The fee for said
appraisal shall be paid by Borrower. The appraisal shall also indicate the basis
of and the assumptions used in calculating the appraised value.
(c) Title Policy. An ALTA title insurance policy with a
liability limit of not less than the principal amount of the Loan insuring the
Security Instrument to Lender as a first lien on the good and marketable fee
simple absolute title to the Property and issued by a title insurance company
(with co-insurance or re-insurance with direct access agreements as Lender may
require) in such forms, amounts and by such title insurance company(ies) as
shall be satisfactory to Lender and its counsel. The title insurance policy
shall be subject only to such exceptions as shall be approved by, and shall
contain such endorsements as may be required by, Lender's counsel.
(d) Survey. A current title survey of the Premises. The
survey shall be prepared by a licensed or registered land surveyor acceptable to
Lender, certified to Lender and the title insurance company and containing the
current ALTA/ACSM certification, which shall show a state of facts in form,
scope and substance acceptable to Lender including, but not limited to, an
adequate and accurate legal description, interior lot lines, if any, the
location of all adjoining streets and roads, the distance to and names of the
nearest intersecting streets, the location of all recorded and all physical
boundary lines, all strips, gores and overlaps with adjacent properties, the
location of all Improvements on the Premises, locations of utilities,
elevations, high water marks, easements and rights-of-way, whether of record or
apparent, ingress and egress to and from the Property and natural and
constructed objects affecting the Premises and showing any encroachments and/or
discrepancies with any recorded instruments or existing boundary markers.
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<PAGE> 16
(e) Metes/Bounds Description. A metes and bounds
description of the Property acceptable to Lender.
(f) Opinion of Counsel. An opinion of counsel in form,
scope and substance satisfactory to Lender and Lender's counsel. Said opinion
shall cover such matters as Lender's counsel may request including, but not be
limited to, the following: that Borrower, each general partner or managing
member of Borrower, as applicable, any guarantors of Borrower's obligations
under the Loan Documents (the "Guarantors") and any Indemnitor(s), are duly
organized, validly existing and in good standing (if applicable) under the laws
of the State of their formation or incorporation and in the State where the
Property is located; that the execution and delivery of the Loan Documents have
been duly authorized; that the Loan Documents are not usurious and that the same
are valid, binding and enforceable in accordance with their terms and do not
violate or contravene any statute or contractual restriction binding on
Borrower, each general partner or managing member of Borrower, as applicable,
any Guarantors or any Indemnitor(s).
(g) Organizational Documents. If Borrower, any general
partner of Borrower or any Guarantor or Indemnitor is a corporation, a
certificate of incorporation certified by the Secretary of State of the State of
incorporation, a Certificate of Good Standing issued by the .Secretaries of
State of the State of incorporation and the State where the Property is located,
a copy of the by-laws certified by an officer of the corporation and a certified
copy of the corporate resolution authorizing the transaction in form
satisfactory to Lender and its counsel. If Borrower, any general partner of
Borrower or any Guarantor or Indemnitor is a partnership, a copy of the
partnership agreement with all amendments thereto certified by each general
partner of Borrower, a filed partnership certificate certified by the Secretary
of State of the State of formation, and any other such evidence of partnership
authority as Lender's counsel may require shall be submitted to Lender in form
satisfactory to Lender and its counsel. If Borrower, any general partner of
Borrower, any Guarantor or Indemnitor is a limited liability company, a copy of
the articles of organization certified by the Secretary of State of the State of
organization, a copy of the operating agreement with all amendments thereto
certified by each managing member, and such other evidence of company authority
as Lender's counsel may require shall be submitted to Lender in form
satisfactory to Lender and its counsel. If Borrower, any general partner or
member of Borrower or any Guarantor or Indemnitor is a legal entity other than a
corporation, a partnership or a limited liability company, all organizational
documentation of such entity as Lender's counsel shall require shall be
delivered to Lender and its counsel in form satisfactory to Lender and its
counsel.
(h) Legal Compliance. Evidence, in form and substance
satisfactory to Lender and Lender's counsel, confirming that the Improvements on
the Property and the use thereof are in full compliance with the applicable
zoning, subdivision, environmental protection, toxic waste, asbestos and all
other applicable federal, state or
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<PAGE> 17
local laws and ordinances, and all rules, regulations and requirements of any
and all governmental or quasi-governmental authorities having jurisdiction over
the Property with respect to the foregoing. The evidence shall include any and
all certificates, licenses, permits, approvals or consents therefor, including
certificates of occupancy or their legal equivalents permitting the use and
occupancy of the Property for the then present use and as intended by this
Commitment, a violations search of all applicable municipal agencies and
departments and, in addition, if required by Lender's counsel an opinion of
Borrower's counsel or architect as to the foregoing. Such evidence shall be
based on the ownership of the Property without reference to easements or other
interests in real property. If Lender determines that the Property is not in
compliance with applicable access laws, Lender may impose additional conditions,
require monetary reserves, change the Loan Amount or decline to make the Loan.
(i) Leases. Leases and related documentation satisfactory
to Lender in all respects. If the Leases shall be written on a standard form of
lease, Borrower shall, prior to the closing of the Loan, submit such standard
forms of residential and commercial leases to Lender for Lender's approval. True
and complete copies of all existing Leases, and any amendments or modifications
thereto, and all Leases executed between the date of execution of this
Commitment and the closing of the Loan shall be delivered to Lender. If the
Property is used for multifamily housing, Borrower shall deliver and certify to
Lender a rent roll as set forth in Subsection (m) below in lieu of copies of all
Leases. Notwithstanding the foregoing, Lender reserves the right to receive and
approve any and all Leases affecting the Property.
(j) Service Contracts. Any and all management, operating
and/or service agreements covering the Property. Such agreements shall be
satisfactory in form and substance to Lender and shall be in full force and
effect and free from default by either party on the date of closing. All such
agreements shall be assigned to Lender. Lender, at its option, may require the
parties to any such agreement to enter into an agreement with Lender which shall
provide as follows:
(i) copies of all notices given or received under any
such agreement shall he sent to Lender:
(ii) Lender shall have the right but not the obligation to
perform any term, condition or agreement of Borrower under any such
agreement and to cure any default of Borrower under any such agreement
within specified additional time periods: and
(iii) such other provisions as Lender may require.
(k) Financial Statements. Certified financial statements
of Borrower, each principal of Borrower and each of the Guarantors and the
Indemnitor(s) for the prior fiscal year prepared and certified by a nationally
recognized firm of certified public accountants, which financial statements
shall be in form and substance
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<PAGE> 18
acceptable to Lender. If audited financial statements are not available for a
Borrower, Guarantor or Indemnitor, then Borrower, Guarantor or Indemnitor, as
applicable, shall furnish financial statements acceptable to Lender including a
statement by such party's accountant, managing general partner, managing member
or chief financial officer, certified by the managing general partner, managing
member or the chief financial officer, whichever the case may be, describing the
basis of the presentation and certifying the financial statement as being true
and correct. Borrower, Guarantor and the Indemnitor(s) shall also deliver to
Lender federal and state income tax returns for the last two (2) calendar years
prepared by an independent certified public accountant, satisfactory to Lender.
At closing, Borrower, each principal, managing member and general partner of
Borrower, each Guarantor and each Indemnitor shall certify to Lender that there
has been no material adverse change since the audit and certification of the
most recent financial statement delivered to Lender.
(1) Insurance. Insurance policies or certificates
satisfactory to Lender as to amounts, types of coverage and the companies by
whom such policies are underwritten.
(i) Policies of insurance issued by carriers and
containing terms satisfactory to Lender in its sole discretion shall be
delivered to Lender in accordance with the following requirements:
(A) Property Insurance. Insurance with respect
to the Improvements and building equipment insuring against
any peril now or hereafter included within the classification
"All Risks of Physical Loss" in amounts at all times
sufficient to prevent Lender from becoming a co-insurer within
the terms of the applicable policies and under applicable law,
but in any event such insurance shall be maintained in an
amount which, after application of deductible, shall be equal
to the full insurable value of the Improvements and building
equipment, the term "full insurable value" to mean the actual
replacement cost of the Improvements and building equipment
(without taking into account any depreciation, and exclusive
of excavations, footings and foundations, landscaping and
paving) determined annually by an insurer, a recognized
independent insurance broker or an independent appraiser
selected and paid by Borrower and in no event less than the
coverage required pursuant to the terms of any Lease:
(B) Liability Insurance. Comprehensive general
liability insurance, including bodily injury, death and
property damage liability, insurance against any and all
claims, including all legal liability to the extent insurable
and imposed upon Lender and all court costs and attorneys'
fees and expenses, arising out of or connected with the
possession, use, leasing, operation, maintenance or condition
of the Property in such amounts as are generally available at
commercially
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<PAGE> 19
reasonable premiums and are generally required by
institutional lenders for properties comparable to the
Property but in any event for a combined single limit of at
least $6,000,000 ;
(C) Workers' Compensation Insurance. Statutory
workers' compensation insurance with respect to any work on or
about the Property;
(D) Business Interruption Insurance. Business
interruption and/or loss of "rental income" insurance in an
amount sufficient to avoid any co-insurance penalty and to
provide proceeds which will cover a period of not less than
one (1) year from the date of casualty or loss, the term
"rental income" to mean the sum of (A) the total then
ascertainable Rents payable under the Leases and (B) the total
ascertainable amount of all other amounts to be received by
Borrower from third parties which are the legal obligation of
the tenants, reduced to the extent such amounts would not be
received because of operating expenses not incurred during a
period of non-occupancy of that portion of the Property then
not being occupied:
(E) Boiler and Machinery Insurance. Broad form
boiler and machinery insurance (without exclusion for
explosion) covering all boilers or other pressure vessels,
machinery, and equipment located in, on or about the Property
and insurance against loss of occupancy or use arising from
any breakdown in such amounts as are generally required by
institutional lenders for properties comparable to the
Property;
(F) Flood Insurance. If required by Lender,
flood insurance in an amount at least equal to the lesser of
(A) the principal balance of the Note, or (B) the maximum
limit of coverage available for the Property under the
National Flood Insurance Act of 1968, The Flood Disaster
Protection Act of 1973 or the National Flood Insurance Reform
Act of 1994, as each may be amended;
(G) Builder's Risk Insurance. At all times
during which structural construction, repairs or alterations
are being made with respect to the Improvements (A) owner's
contingent or protective liability insurance covering claims
not covered by or under the terms or provisions of the above
mentioned commercial general liability insurance policy; and
(B) the insurance provided for in Subsection 6(1)(i)(A)
written in a so-called builder's risk completed value form (1)
on a non-reporting basis, (2) against all risks insured
against pursuant to Subsection 6(1)(i)(A), (3) including
permission to occupy the Property, and (4) with an agreed
amount endorsement waiving co-insurance provisions; and
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<PAGE> 20
(H) Other Insurance. Such other insurance with
respect to the Property against loss or damage of the kinds
from time to time customarily insured against and in such
amounts as are required by institutional lenders for
properties comparable to the Property.
(i) All insurance provided for in
herein shall be obtained from a similar or successor
service) (each such insurer shall be referred to
below as a "Qualified Insurer"). All insurers
providing insurance required by this Commitment shall
be authorized to issue insurance in the state in
which the Property is located. The Policy referred to
in Subsection 6(1)(i)(B) above shall name Lender as
an additional named insured and the Policies referred
to in Subsection 6(1)(i)(A), (D), (E), (F) and (G),
and as applicable (H), above shall provide that all
proceeds be payable to Lender. The Policies referred
to in Subsections 6(1)(i)(A), (E), (F) and (G) shall
also contain: (i) a standard "non-contributory
mortgagee" endorsement or its equivalent relating,
inter alia, to recovery by Lender notwithstanding the
negligent or willful acts or omission of Lender; (ii)
to the extent available at commercially reasonable
rates, a waiver of subrogation endorsement as to
Lender; and (iii) an endorsement providing for a
deductible per loss of an amount not more than that
which is customarily maintained by prudent owners of
similar properties in the general vicinity of the
Property, but in no event in excess of $10,000. The
Policy referred to in Subsection 6(1)(i)(A) above
shall provide coverage for contingent liability from
Operation of Building Laws, Demolition Costs and
Increased Cost of Construction Endorsements together
with an "Ordinance or Law Coverage" or "Enforcement"
endorsement if any of the Improvements or the use of
the Property shall at any time constitute legal
non-conforming structures or uses. All Policies shall
contain (i) a provision that such Policies shall not
be cancelled or terminated, nor shall they expire,
without at least thirty (30) days' prior written
notice to Lender in each instance; and (ii) include
effective waivers by the insurer of all claims for
Insurance Premiums (defined below) against any loss
payees, additional insureds and named insureds (other
than Borrower). Certificates of insurance with
respect to all renewal and replacement Policies shall
be delivered to Lender not less than ten (10) days
prior to the expiration date of any of the Policies
required to be maintained hereunder, which
certificates shall bear notations evidencing payment
of applicable premiums (the "Insurance Premiums").
Originals or certificates of such replacement
Policies shall be delivered to Lender promptly after
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<PAGE> 21
Borrower's receipt thereof but in any case within
thirty (30) days after the effective date thereof. If
Borrower fails to maintain and deliver to Lender the
original Policies or certificates of insurance
required by this Security Instrument, upon ten (10)
days' prior notice to Borrower, Lender may procure
such insurance at Borrower's sole cost and expense.
(ii) Borrower shall comply with all
insurance requirements and shall not bring or keep or
permit to be brought or kept any article upon any of
the Property or cause or permit any condition to
exist thereon which would be prohibited by an
insurance requirement, or would invalidate the
insurance coverage required hereunder to be
maintained by Borrower on or with respect to any part
of the Property pursuant to this Subsection 6(1).
(m) Rent Roll and Operating Statement. A recent
operating statement and a current rent roll listing each and
every Lease, identifying the leased premises, names of all
tenants, square footage or other identification of space
leased, monthly rental and all other charges payable under the
Lease, date to which paid, term of Lease, date of occupancy,
date of expiration, rent arrears, amounts taken in settlement
of outstanding arrears, collections of rent for more than one
(1) month in advance, any and every special provision,
concession or inducement granted to tenants and such other
information as is reasonably requested by Lender. Borrower
shall sign. date, and certify the operating statement and the
rent roll as true and accurate. For multifamily properties,
the rent roll shall indicate which units are governed by rent
regulations, and Borrower shall certify that the rents do not
exceed the legal rent permitted to be collected under the
applicable rent regulations.
(n) Estoppel Letters. The estoppel letters
described in the Section of the Commitment entitled ESTOPPEL
LETTERS, if any. The estoppel letters delivered to Lender
shall provide, among other things, that:
(i) the Lease constitutes the entire
agreement between the landlord and the tenant;
(ii) the Lease has not been modified or
amended, except as specifically set forth in the
estoppel letter;
(iii) the Lease is in full force and
effect and the term is as per the Lease;
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<PAGE> 22
(iv) the premises demised under the
Lease have been completed and the tenant has taken
possession of the same on a rent-paying basis;
(v) neither the tenant nor the landlord
under the Lease is in default under any of the terms,
covenants or provisions of the Lease and the tenant
knows of no event which, but for the passage of time
or the giving of notice, or both, would constitute an
event of default under the Lease by tenant or the
landlord thereunder;
(vi) neither the tenant nor the landlord
under the Lease has commenced any action or given or
received any notice for the purpose of terminating
the Lease;
(vii) all rents, additional rents and
other sums due and payable under the Lease have been
paid in full and no rents, additional rents or other
sums payable under the Lease have been paid for more
than one (1) month in advance of the due dates
thereof;
(viii) there are no offsets or defenses to
the payment of the rents, additional rents, or other
sums payable under the Lease;
(ix) the tenant has no option or right
of refusal to purchase any portion of the Property;
and
(x) the tenant has deposited the
security deposit set forth in the Lease with
landlord.
To the extent that estoppel letters are not delivered
for certain tenants, Lender may, in its sole discretion,
accept an estoppel letter from Borrower with respect to such
tenant's occupancy at the Property certified by Borrower as
being true and correct.
(o) U.C.C. Searches. U.C.C. Searches
against such parties as Lender may require showing that the
Property to the extent appropriate is owned by Borrower free
from any liens and encumbrances.
(p) Environmental Site Assessment. The
Environmental Site Assessment described in the Section of the
Commitment entitled APPRAISAL, ENVIRONMENTAL SITE ASSESSMENT
AND BUILDING CONDITION REPORTS. Such environmental site
assessment shall include an analysis with respect to the
following
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<PAGE> 23
environmental conditions at the Property, which shall be
prepared by independent qualified environmental professionals
selected and engaged by Lender:
(i) a Phase I environmental site
assessment assessing the presence of environmental
contaminants, PCBs or storage tanks at the Property
conducted in accordance with ASTM Standard E 1527-93,
or any successor thereto published by ASTM;
(ii) an asbestos survey of the Property
which shall include random sampling of materials and
air quality testing;
(iii) if the Property is used for
residential housing, an assessment of the presence of
lead based paint, lead in water and radon in the
Improvements; and
(iv) such further site assessments as
Lender may require due to the results obtained in
(i), (ii) or (iii) above.
Borrower shall obtain permission for such
environmental professional to enter upon the Property for
purposes of conducting such environmental assessment. At least
twelve Business Days prior to the closing of the Loan, the
environmental professional shall telephone Lender's
environmental technical staff to provide an oral report, prior
to submitting the written Environmental Report.
The Environmental Report shall be accompanied by
Lender's standard Letter of Understanding Regarding
Environmental Assessment of Property providing that the
environmental assessment and the Environmental Report meet
Lender's requirements and that Lender and its successors and
assigns are entitled to rely on such environmental assessment
and such Environmental Report.
Borrower acknowledges and agrees that, based on any
information in such Environmental Report or any uncertainties
raised thereby, Lender reserves the absolute right, in its
sole and exclusive discretion, to decline to fund the Loan, to
impose additional conditions that must be met prior to or
after the closing of the Loan (including but not limited to
requiring additional investigation into environmental
conditions in connection with the Property, testing and
sampling of soil, water, air, building materials, or other
substances or materials), and/or to change any terms and
conditions of the Loan, including but not limited to the
principal amount thereof, the interest rate, representations
and warranties, covenants, guaranties, indemnities, and/or
other terms
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<PAGE> 24
and conditions of the Loan. If Lender declines to fund the
Loan, the Commitment Fee, the Origination Fee, and the
Processing Deposit paid by Borrower shall be applied by Lender
in accordance with the terms of this Commitment.
(q) Building Condition Reports. An engineer's
building condition report in form and substance satisfactory
to Lender, prepared by a consulting engineer selected and
engaged by Lender, and any additional or supplemental reports
that may be required by Lender. The reports shall evaluate the
physical condition of the Property, identifying conditions
requiring immediate or near term attention and estimate the
approximate cost of remediation (the "Building Condition
Report"). A remediation program and budget satisfactory to
Lender and Lender's consulting engineer must be agreed upon
with Borrower prior to closing. All fees and expenses in
connection with the Building Condition Report shall be paid by
Borrower.
(r) Property Matters. Evidence satisfactory to
Lender of the following:
(i) that the Property is served by all
utilities required for the current or contemplated
use thereof. All utility service is provided by
public utilities and the Property has accepted or is
equipped to accept such utility service;
(ii) that all public roads and streets
necessary for service of and access to the Property
for the current or contemplated use thereof have been
completed, are serviceable and all-weather and are
physically and legally open for use by the public;
and
(iii) that the Property is served by
public water and sewer systems.
(s) Termite Inspection Report. [FOR MULTIFAMILY
PROPERTIES ONLY] A termite inspection report of the Property
in form and substance satisfactory to Lender.
7. SECURITY INSTRUMENT PROVISIONS. The Security Instrument shall
contain, among other things, the following provisions:
(a) Tax Escrow. Lender shall require Borrower to deposit
monthly in escrow, without interest, 1/12th of the annual real estate taxes,
water and sewer charges and assessments, as estimated by Lender. An initial
escrow deposit with respect to the foregoing taxes, charges and assessments will
be collected from Borrower at
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<PAGE> 25
closing in order to establish an escrow to enable Lender to make such payments
to the appropriate taxing authority when due.
(b) Insurance Escrow. Lender shall require Borrower to
deposit monthly in escrow, without interest, 1/12th of the annual fire and other
hazard insurance premiums, as estimated by Lender. An initial escrow deposit for
the foregoing insurance premiums will be collected from Borrower at closing to
establish an escrow to enable Lender to make such payments of premiums to the
appropriate insurance company when due
(c) Late Payment. In the event any payment is not made
prior to the fifth (5th) day after its due date, a late charge of five percent
(5%) of the total payment due will be charged for the late payment.
(d) Due on Sale/Encumbrance. Any sale, assignment,
encumbrance, including, without limitation, subordinate financing or other
transfer of any portion of the Property, and any sale, transfer or hypothecation
of any interest in Borrower, or any partner, member or shareholder of Borrower
without Lender's prior written consent, shall be a default under the Security
Instrument. Lender may condition the consent required upon (i) the modification
of the Security Instrument, (ii) the assumption of the Security Instrument and
the other Loan Documents as modified, by the proposed transferee, (iii) the
payment of a transfer fee by Borrower, (iv) the payment by Borrower of all
Lender's out-of-pocket expenses, including, without limitation, all of Lender's
attorneys' fees, (v) the approval by a Rating Agency of the proposed transferee,
(vi) the proposed transferee's continued compliance with the single purpose
entity requirements set forth in Subsection (p) below and (vii) such other
conditions as Lender may reasonably require at the time such consent is sought.
The fee referred to in (iv) above shall be payable by Borrower whether or not
Lender consents to the transfer.
(e) Default Rate. Borrower will pay, from the date an
event of default occurs under the Security Instrument, the Note or any of the
other Loan Documents (an "Event of Default") through the earlier of the date
upon which the Event of Default is cured or the date upon which the Loan is paid
in full, interest on the unpaid principal balance of the Note at a per annum
rate equal to the lesser of (a) five percent (5%) plus the Applicable Rate and
(b) the maximum interest rate which Borrower may by law pay or Lender may charge
and collect (the "Default Rate").
(f) Security Deposits. Upon the occurrence of an Event of
Default, to the extent permitted by law, Borrower will transfer to Lender all
security deposit accounts (the "Security Deposits") with respect to Leases
relating to the Property, which will be held by Lender in accordance with the
terms of each respective Lease. In the event Lender is not permitted by law to
hold the Security Deposits, Borrower shall deposit the Security Deposits into an
account with a federally insured institution as
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<PAGE> 26
approved by Lender. To the extent required by law, Lender shall hold the
Security Deposits in an interest bearing account selected by Lender in its sole
discretion.
(g) Default Prepayment. If a Default Prepayment (defined
below) occurs, Borrower shall pay to Lender the entire principal amount of the
Loan and all accrued interest thereon. including. without limitation, the
following amounts:
(i) if the Default Prepayment occurs prior to the time
when prepayment of the principal balance of the Loan is permitted, an
amount equal to the sum of (A) the present value of the interest
payments which would have accrued on the principal balance of the Loan
(outstanding as of the date of such Default Prepayment) at the
Applicable Rate from the date of such Default Prepayment to the first
date prepayment is permitted pursuant to the Commitment discounted at a
rate equal to the Treasury Rate except that such Treasury Rate shall be
based on the U. S. Treasury constant maturity most nearly approximating
the date upon which prepayment is first permitted pursuant to the
Commitment, and (B) the Prepayment Consideration calculated as of the
first date prepayment is permitted pursuant to the Commitment; and
(ii) if the Default Prepayment occurs at a time when
prepayment of the principal balance of the Loan is permitted, the
Prepayment Consideration.
For purposes of the Commitment, the term "Default Prepayment" shall mean a
prepayment of the principal amount of the Loan made after the occurrence of any
Event of Default or an acceleration of the Maturity Date under any
circumstances, including, without limitation, a prepayment occurring in
connection with reinstatement of the Security Instrument provided by statute
under foreclosure proceedings or exercise of a power of sale, any statutory
right of redemption exercised by Borrower or any other party having a statutory
right to redeem or prevent foreclosure. any sale in foreclosure or under
exercise of a power of sale or otherwise.
(h) Leases. (i) Borrower may enter into a proposed Lease
(including the renewal or extension of an existing Lease ("a Renewal Lease"))
without the prior written consent of Lender, provided such proposed Lease or
Renewal Lease (A) provides for rental rates and terms comparable to existing
local market rates and terms (taking into account the type and quality of the
tenant) as of the date such Lease is executed by Borrower (unless, in the case
of a Renewal Lease, the rent payable during such renewal, or a formula or other
method to compute such rent, is provided for in the original Lease), (B) is an
arms-length transaction with a bona fide, independent third party tenant, (C)
does not have a materially adverse effect on the value of the Property taken as
a whole, (D) is subject and subordinate to the Security Instrument and the
lessee thereunder agrees to attorn to Lender, and (E) is written on the standard
form of lease approved by Lender. All proposed Leases which do not satisfy the
requirements set forth in this Commitment shall be subject to the prior approval
of Lender and its counsel, at Borrower's expense. Borrower shall promptly
deliver to Lender copies of
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<PAGE> 27
all Leases which are entered into pursuant to this Subsection together with
Borrower's certification that it has satisfied all of the conditions of this
Subsection.
(ii) Borrower (A) shall observe and perform all
the obligations imposed upon the lessor under the Leases and shall not do or
permit to be done anything to impair the value of any of the Leases as security
for the Debt; (B) upon request, shall promptly send copies to Lender of all
notices of default which Borrower shall send or receive thereunder; (C) shall
enforce all of the material terms, covenants and conditions contained in the
Leases upon the part of the tenant thereunder to be observed or performed, (D)
shall not collect any of the Rents more than one (1) month in advance (except
security deposits shall not be deemed Rents collected in advance); (E) shall not
execute any other assignment of the lessor's interest in any of the Leases or
the Rents; and (F) shall not consent to any assignment of or subletting under
any Leases not in accordance with their terms, without the prior written consent
of Lender.
(iii) Borrower may, without the consent of Lender,
amend, modify or waive the provisions of any Lease or terminate, reduce rents
under, accept a surrender of space under, or shorten the term of, any Lease
(including any guaranty, letter of credit or other credit support with respect
thereto) provided that such action (taking into account, in the case of a
termination, reduction in rent, surrender of space or shortening of term, the
planned alternative use of the affected space) does not have a materially
adverse effect on the value of the Property taken as a whole, and provided that
such Lease, as amended, modified or waived, is otherwise in compliance with the
requirements of this Security Instrument and any subordinate agreement binding
upon Lender with respect to such Lease. A termination of a Lease with a tenant
who is in default beyond applicable notice and grace periods shall not be
considered an action which has a materially adverse effect on the value of the
Property taken as a whole. Any amendment, modification, waiver, termination,
rent reduction, space surrender or term shortening which does not satisfy the
requirements set forth in this Subsection shall be subject to the prior approval
of Lender and its counsel, at Borrower's expense. Borrower shall promptly
deliver to Lender copies of amendments, modifications and waivers which are
entered into pursuant to this Subsection together with Borrower's certification
that it has satisfied all of the conditions of this Subsection.
(iv) Notwithstanding anything contained herein to
the contrary, Borrower shall not, without the prior written consent of Lender,
enter into, renew, extend, amend, modify, waive any provisions of, terminate,
reduce rents under, accept a surrender of space under, or shorten the term of,
any Major Lease. The term "Major Lease" shall mean any lease of space more than
50,000 sf, including the current lease at closing to Plasti-Line, Inc..
(i) Estoppel Certificates. At Lender's request, Borrower
shall deliver, from time to time, estoppel certificates in form and substance
satisfactory to
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<PAGE> 28
Lender from Borrower and all commercial tenants under then existing Leases which
Lender in its discretion designates.
(j) Right of Redemption. If the statutes of the
jurisdiction in which the Property is located provide for a right of redemption
but permit Borrower to waive that right, such provisions shall be incorporated
in the Security Instrument. All parties necessary to join in the Security
Instrument or other Loan Documents to release any marital interest(s) in the
Property shall do so.
(k) Financial Statements.
(A) Borrower, Indemnitor(s) and Guarantors, if
any, shall keep adequate books and records of account in accordance with
generally accepted accounting principles ("GAAP"), or in accordance with other
methods acceptable to Lender, consistently applied and furnish to Lender: (i)
monthly certified rent rolls signed and dated by Borrower, detailing the names
of all tenants of the Improvements, the portion of Improvements occupied by each
tenant, the base rent and any other charges payable under each Lease and the
term of each Lease, including the expiration date, the extent to which any
tenant is in default under any Lease, and any other information as is reasonably
required by Lender, within twenty (20) days after the end of each calendar
month; (ii) quarterly operating statements of the Property, prepared and
certified by Borrower in the form required by Lender, detailing the revenues
received, the expenses incurred and the net operating income before and after
debt service (principal and interest) and major capital improvements for that
quarter and containing appropriate year to date information, within thirty (30)
days after the end of each fiscal quarter; (iii) an annual operating statement
of the Property detailing the total revenues received, total expenses incurred,
total cost of all capital improvements, total debt service and total cash flow,
to be prepared and certified by Borrower in the form required by Lender, or if
required by Lender, an audited annual operating statement prepared and certified
by an independent certified public accountant acceptable to Lender, within sixty
(60) days after the close of each fiscal year of Borrower; (iv) an annual
balance sheet and profit and loss statement of Borrower, any Guarantors and any
Indemnitor(s) in the form required by Lender, prepared and certified by the
respective Borrower, Guarantors and/or Indemnitor(s), or if required by Lender,
audited financial statements prepared by an independent certified public
accountant acceptable to Lender, within sixty (60) days after the close of each
fiscal year of Borrower, Guarantors and Indemnitor(s), as the case may be; and
(v) an annual operating budget presented on a monthly basis consistent with the
annual operating statement described above for the Property, including cash flow
projections for the upcoming year, and all proposed capital replacements and
improvements at least fifteen (15) days prior to the start of each fiscal year
(B) Upon request from Lender, Borrower, any
Guarantor and any Indemnitor shall furnish in a timely manner to Lender: (i) a
property management report for the Property, showing the number of inquiries
made and/or rental
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<PAGE> 29
applications received from tenants or prospective tenants and deposits received
from tenants and any other information requested by Lender, in reasonable detail
and certified by Borrower (or an officer, general partner, member or principal
of Borrower if Borrower is not an individual) under penalty of perjury to be
true and complete, but no more frequently than quarterly; and (ii) an accounting
of all security deposits held in connection with any Lease of any part of the
Property, including the name and identification number of the accounts in which
such security deposits are held, the name and address of the financial
institutions in which such security deposits are held and the name of the person
to contact at such financial institution, along with any authority or release
necessary for Lender to obtain information regarding such accounts directly from
such financial institutions.
(C) Borrower, any Guarantor and any Indemnitor
shall furnish Lender with such other additional financial or management
information (including State and Federal tax returns) as may, from time to time,
be reasonably required by Lender in form and substance satisfactory to Lender.
(D) Borrower, any Guarantor and any Indemnitor
shall furnish to Lender and its agents convenient facilities for the examination
and audit of any such books and records.
(1) Environmental Matters. Borrower shall represent,
warrant and covenant with respect to the items set forth in Subsections 9(a)-(c)
of these General Conditions and shall additionally represent, warrant and
covenant that:
(i) there are no hazardous or toxic substances in, on or
under the Property, except those that are in compliance with applicable
federal, state and local environmental laws;
(ii) there are no environmental permits required for
current or anticipated uses of the Property; and
(iii) Borrower shall, at its cost and expense, comply with
all written requests of Lender to effectuate remediation of any
condition in, on, under or from the Property or any directive from any
governmental authority.
(m) Indemnification. Borrower and Indemnitor(s), if any,
shall indemnify Lender for all costs incurred by Lender in connection with the
removal of hazardous wastes from the Property, regardless of whether Borrower
caused the presence of such hazardous substance; and shall indemnify Lender
against any loss, cost, damage or expense that Lender may incur, directly or
indirectly, as a result of or in connection with the assertion against Lender of
any claim relating to the presence or removal of any hazardous substance on the
Property. The Security Instrument shall also contain an indemnity from Borrower
with respect to its obligations under certain provisions of ERISA (defined
below). In addition, Borrower shall indemnify Lender
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<PAGE> 30
against any loss, costs, damage, or expense that Lender may incur arising out of
the following: (i) its ownership of the Security Instrument or the Property;
(ii) the Loan Documents or any enforcement action taken by Lender in connection
therewith; (iii) any accident or injury occurring on the Property; (iv) any
claims asserted against Lender by reason of its alleged obligations under any
Lease; (v) the payment of any brokerage commission to anyone in connection with
funding the Loan; or (vi) any misrepresentation made by Borrower to Lender in
the Security Instrument or the other Loan Documents. The indemnifications
contained in the Security Instrument with respect to the presence of hazardous
substances at the Property and Borrower's obligations with respect to ERISA
shall survive the satisfaction, termination or assignment of the Security
Instrument, the Note and the other Loan Documents.
(n) Limitations on Exculpation.
(i) The exculpation provided for in Article F of this
Commitment shall not: (A) constitute a waiver, release or impairment of
any obligation evidenced or secured by the Note or the Security
Instrument; (B) impair the right of Lender to name Borrower as a party
defendant in any action or suit for judicial foreclosure and sale under
the Security Instrument; (C) affect the validity or enforceability of
any indemnity, guaranty, master Lease or similar instrument made in
connection with the Note or the Security Instrument, including without
limitation, the Environmental Indemnity Agreement; (D) impair the right
of Lender to obtain the appointment of a receiver; (E) impair the
enforcement of the Assignment of Leases and Rents; or (F) impair the
right of Lender to enforce Borrower's obligations and liabilities under
certain indemnities relating to (1) certain taxes relating to the
making and/or recording of the Security Instrument or the Note, (2) the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")
or (3) certain asbestos, toxic waste or other hazardous substances
affecting the Property, including without limitation, the Environmental
Indemnity Agreement.
(ii) Notwithstanding the provisions of this Subsection (i)
to the contrary, Borrower shall be personally liable to Lender for the
losses it incurs due to: (i) fraud or intentional misrepresentation by
Borrower or any other person or entity in connection with the execution
and the delivery of this Note, the Security Instrument or the Other
Security Documents or any documents or certificate now or at any time
during the term of the Loan evidenced by the Note; (ii) Borrower's
misapplication or misappropriation of Rents received by Borrower after
the occurrence of and during the continuance of an Event of Default;
(iii) Borrower's misapplication or misappropriation of tenant security
deposits or Rents collected in advance; (iv) the misapplication or the
misappropriation of insurance proceeds or condemnation awards; (v)
personal property taken from the Property by or on behalf of Borrower
and not replaced with personal property of the same utility and of the
same or greater value; (vi) any act of arson by Borrower; or (vii) any
fees or commissions paid by
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<PAGE> 31
Borrower after the occurrence of and during the continuance of an Event
of Default to any principal, affiliate, member or general partner of
Borrower or Guarantor in violation of the terms of the Note, the
Security Instrument or the Other Security Documents.
(iii) Notwithstanding the foregoing, the agreement of
Lender not to pursue recourse liability as set forth in subsection (i)
above SHALL BECOME NULL AND VOID and shall be of no further force and
effect in the event of a sale, transfer or encumbrance by Borrower
without Lender's prior consent or if the Property or any part thereof
shall become an asset in (i) a voluntary bankruptcy or insolvency
proceeding, or (ii) an involuntary bankruptcy or insolvency proceeding
(other than one filed by Lender) which is not dismissed within ninety
(90) days of filing.
(o) Representations and Warranties.
(i) Borrower shall make representations and warranties
including, without limitation, the following:
(A) that Borrower has good title to the Property
and the Property is free and clear of all liens, encumbrances,
servitudes and easements, recorded or unrecorded except as set
forth in the marked-up commitment for title insurance to be
delivered and approved by Lender;
(B) that all fixtures and articles of personally
attached to the Property or used or usable in connection with
the operation of the Property are owned by Borrower and not
subject to any conditional bills of sale, chattel mortgages or
any other liens except as approved by Lender;
(C) that no petition in bankruptcy has ever been
filed by or against Borrower, Guarantor, Indemnitor or any
related entity, or any principal thereof, in the last seven
(7) years, and neither Borrower, Guarantor, Indemnitor nor any
related entity, or any principal thereof, in the last seven
(7) years has ever made any assignment for the benefit of
creditors or taken advantage of any insolvency act or any act
for the benefit of debtors;
(D) that the Property complies with all
applicable federal, state and local laws, ordinances, rules
and regulations including, without limitation, building codes,
zoning ordinances, land use and environmental laws, access
laws, rules, regulations, orders and requirements;
(E) that a true and complete rent roll has been
delivered;
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<PAGE> 32
(F) that all of such Leases are arms-length
agreements with bona fide, independent third parties, there
are no prior assignments of any Lease or any portion of Rents,
additional Rents, charges, issues or profits due and payable
or to become due and payable thereunder which are outstanding
and have priority to the Assignment of Leases and Rents, the
Leases have not been modified or amended except as
specifically stated, each Lease is in full force and effect,
each Lease is subordinate in lien and payment to the Security
Instrument, no party under the Lease is in default, all Rents
due have been paid in full and no Rent has been paid more than
one month in advance, no tenant under any Lease has an option
to purchase the Property or any portion thereof and there are
no defenses or offsets against the enforcement of any Lease;
(G) that there is no litigation, pending or
threatened, against Borrower, any Guarantor or any Indemnitor
of the Loan;
(H) that any and all construction work,
alterations and repairs with respect to the Property have been
paid for in full and no notice of any mechanics' or
materialmen's liens or of any claims of right to any such
liens have been received;
(I) that all financial data and documentation
furnished on behalf of Borrower is true, complete and correct
as of the date of the closing of the Loan;
(J) that Borrower has not defaulted under its
obligations with respect to any other outstanding
indebtedness;
(K) that the Property is assessed for real
estate tax purposes as one or more wholly independent tax lot
or lots, separate from any adjoining land or improvements not
constituting a part of such lot or lots, and no other land or
improvements is assessed and taxed together with the Property
or any portion thereof;
(L) that the Loan is solely for the business
purpose of Borrower, and is not for personal, family,
household, or agricultural purposes; and
(M) that the relationship between Borrower and
Lender is solely that of debtor and creditor, and Lender has
no fiduciary or other special relationship with Borrower, and
no term or condition of this Commitment, the Security
Instrument, the Note or the other Loan Documents shall be
construed so as to deem the relationship of Borrower and
Lender to be other than that of debtor and creditor.
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<PAGE> 33
(ii) Borrower shall represent and warrant in the Security
Instrument with respect to its compliance with certain ERISA
provisions.
(p) Special Covenants. Borrower shall covenant and agree
that it has not and shall not:
(i) engage in any business or activity other
than the ownership, operation and maintenance of the Property,
and activities incidental thereto;
(ii) acquire or own any material asset other than
(i) the Property, and (ii) such incidental personal property
as may be necessary for the operation of the Property;
(iii) merge into or consolidate with any person or
entity or dissolve, terminate or liquidate in whole or in
part, transfer or otherwise dispose of all or substantially
all of its assets or change its legal structure, without in
each case Lender's consent;
(iv) fail to preserve its existence as an entity
duly organized, validly existing and in good standing (if
applicable) under the laws of the jurisdiction of its
organization or formation, and qualification to do business in
the state where the Property is located, if applicable, or
without the prior written consent of Lender, amend, modify,
terminate or fail to comply with the provisions of Borrower's
Partnership Agreement, Articles or Certificate of
Incorporation, Articles of Organization or similar
organizational documents, as the case may be;
(v) own any subsidiary or make any investment
in, any person or entity without the consent of Lender;
(vi) commingle its assets with the assets of any
of its general partners, members, affiliates, principals or of
any other person or entity;
(vii) incur any debt, secured or unsecured, direct
or contingent (including guaranteeing any obligation), other
than the Loan, except for trade payables in the ordinary
course of its business of owning and operating the Property
provided that such debt is not evidenced by a note and paid
when due;
(viii) become insolvent and fail to pay its debts
and liabilities from its assets as the same shall become due;
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<PAGE> 34
(ix) fail to maintain its records, books of
account and bank accounts separate and apart from those of the
partners, members, principals and affiliates of Borrower, the
affiliates of a partner, member or principal of Borrower and
any other person or entity;
(x) enter into any contract or agreement with
any general partner, member, principal or affiliate of
Borrower, Guarantor or Indemnitor, or any general partner,
member, principal or affiliate thereof, except upon terms and
conditions that are intrinsically fair and substantially
similar to those that would be available on an arms-length
basis with third parties other than any general partner,
member, principal or affiliate of Borrower, Guarantor or
Indemnitor, or any general partner, member, principal or
affiliate thereof;
(xi) seek the dissolution or winding up in whole,
or in part, of Borrower;
(xii) fail to correct any known misunderstandings
regarding the separate identity of Borrower;
(xiii) hold itself out to be responsible for the
debts of another person;
(xiv) make any loans or advances to any third
party (including any general partner, member, principal or
affiliate of Borrower or any general partner, member,
principal or affiliate thereof);
(xv) fail to file its own tax returns;
(xvi) agree to, enter into or consummate any
transaction which would render Borrower unable to furnish any
ERISA certification required pursuant to the Security
Instrument;
(xvii) fail either to hold itself out to the public
as a legal entity separate and distinct from any other entity
or person or to conduct its business solely in its own name in
order not (i) to mislead others as to the identity with which
such other party is transacting business, or (ii) to suggest
that Borrower is responsible for the debts of any third party
(including any general partner, member, principal or affiliate
of Borrower or any general partner, member, principal or
affiliate thereof;
(xviii) fail to maintain adequate capital for the
normal obligations reasonably foreseeable in a business of its
size and character and in light of its contemplated business
operations;
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<PAGE> 35
(xix) file or consent to the filing of any
petition, either voluntary or involuntary, to take advantage
of any applicable insolvency, bankruptcy, liquidation or
reorganization statute, or make an assignment for the benefit
of creditors; [or]
(xx) share any common logo with or hold itself
out as or be considered as a department or division of (i) any
general partner, principal, member or affiliate of Borrower,
(ii) any affiliate of a general partner, principal or member
of Borrower, or (iii) any other person or entity.[; or]
8. SECONDARY MARKET. Lender may, at any time, sell, transfer or
assign the Loan, the Loan Documents, and any or all servicing rights with
respect to the Loan, grant participations in the Loan or issue mortgage
pass-through certificates or other securities evidencing a beneficial interest
in the Loan in a rated or unrated public offering or private placement (the
"Securities"), and may forward to each purchaser, transferee, assignee,
servicer, participant, investor in such Securities, or any Rating Agency rating
such Securities (collectively, the "Investor"), or prospective Investor all
documents and information Lender has with respect to the Loan as Lender deems
necessary or desirable. Borrower, the Guarantors and Indemnitor(s), if any,
shall furnish and consent to Lender furnishing to such Investors or such
prospective Investors all information concerning the Loan, the Property, the
Leases and the financial condition of Borrower, any Guarantor, any Indemnitor,
and the Property in such form, substance and detail as Lender, such Investor or
such prospective Investor may request. Upon any such transfer, Borrower, the
Guarantors and the Indemnitor(s) shall provide an estoppel certificate to the
Investor or any prospective Investor in form and content satisfactory to Lender,
such Investor or such prospective Investor together with such other documents as
Lender may reasonably require.
9. ENVIRONMENTAL REPRESENTATIONS. Borrower represents, warrants
and covenants as of the date of this Commitment and as of the date of the
Borrower's acceptance of this Commitment, that:
(a) the Property is not currently used in a manner, and
to the best of Borrower's knowledge no prior use (by Borrower or any prior
owner) has occurred, which violates applicable federal, state or local
environmental laws;
(b) neither Borrower nor any tenant has received any
notice from a government agency for a violation of such laws and if such notice
is received, Borrower shall immediately notify Lender;
(c) Borrower shall not cause nor permit any tenant to
cause a violation of any applicable federal, state or local environmental laws,
nor permit any environmental liens to be placed on the Property;
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<PAGE> 36
(d) Borrower and Indemnitor(s) shall indemnify Lender for
all costs incurred by Lender in connection with the removal of hazardous wastes
from the Property, regardless of whether Borrower caused the presence of such
hazardous waste; and
(e) Borrower and Indemnitor(s) shall indemnify Lender
against any loss, costs, damage or expense that Lender may incur, directly or
indirectly, as a result of or in connection with the assertion against Lender of
any claim relating to the presence or removal of any hazardous waste on the
Property.
10. OTHER DOCUMENTATION. Borrower shall provide Lender with such
other evidence, information and material as Lender or its counsel may reasonably
require.
11. NO ORAL CHANGE. The Commitment may not be modified, amended,
waived, extended, changed, discharged or terminated orally, or by any act or
failure to act on the part of Lender or Borrower, but only by an agreement in
writing signed by the party against whom the enforcement of any modification,
amendment, waiver, extension, change, discharge or termination is sought.
12. NOTICES. All notices or other written communications hereunder
shall be deemed to have been properly given (i) upon delivery, if delivered in
person or by facsimile transmission with receipt acknowledged by the recipient
thereof and confirmed by telephone by sender, (ii) one (1) Business Day after
having been deposited for overnight delivery with any reputable overnight
courier service, or (iii) three (3) Business Days after having been deposited in
any post office or mail depository regularly maintained by the U.S. Postal
Service and sent by registered or certified mail, postage prepaid, return
receipt requested, addressed to Borrower or Lender, as the case may be, at the
addresses set forth on the first page of this Commitment or addressed as such
Party may from time to time designate by written notice to the other parties.
EITHER PARTY BY NOTICE TO THE OTHER MAY DESIGNATE ADDITIONAL OR DIFFERENT
ADDRESSES FOR SUBSEQUENT NOTICES OR COMMUNICATIONS.
13. GOVERNING LAW. This Commitment has been issued by Lender in
Cleveland, Ohio from where all advances of the Loan, closing of the Loan,
delivery of any additional security and all matters incidental to the Loan or
this Commitment shall take place. This Commitment and all other Loan Documents
shall be governed by and construed in accordance with the laws of the State of
Ohio and the applicable laws of the United States of America. Notwithstanding
the foregoing, however, the laws of the State where the Property is located
shall apply with respect to (a) the creation, perfection, priority and
enforcement of the lien or the pledge, as the case may be, of (i) the Security
Instrument, (ii) the Assignment of Leases and Rents and (iii) to the extent the
escrow accounts created pursuant to the Completion/Repair and Security Agreement
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<PAGE> 37
and the Replacement Reserve and Security Agreement are located in the State
where the Property is located, the Completion/Repair and Security Agreement and
the Replacement Reserve and Security Agreement, and (b) the determination of
deficiency judgments.
14. WAIVER/SURVIVAL. The provisions of this Commitment cannot be
waived or modified unless such waiver or modification be in writing and signed
by both Borrower and Lender. The terms of this Commitment which are not
incorporated in the formal Loan Documents shall, to the extent applicable,
survive the closing of the Loan and remain binding on the parties. This
Commitment is for the benefit only of the parties thereto and no third party
shall have any interest therein or in the proceeds of the Loan. This Commitment
sets forth the entire agreement between Borrower and Lender, and all other
agreements shall be deemed to have merged herewith. Where terms and conditions
of this Commitment differ from the terms and conditions of the Loan as applied
for, this Commitment shall prevail. Borrower acknowledges that Lender has made
no representations or warranties to Borrower except those as set forth herein.
15. NON-ASSIGNABILITY. This Commitment is issued in response to
Borrower's application for a loan and in reliance upon the representations made
in such application. This Commitment and the proceeds thereof are not assignable
by Borrower to any other person, corporation, partnership or limited liability
company without Lender's consent in writing. For the purposes of this Section,
an assignment shall be deemed to include (i) if Borrower is a corporation, the
voluntary or involuntary sale, conveyance or transfer of Borrower's stock (or
the stock of any corporation directly or indirectly controlling Borrower by
operation of law or otherwise) or the creation or issuance of a new stock by
which an aggregate of more than 10% of Borrower's stock shall be vested in a
party or parties who are not now stockholders, (ii) if Borrower is a
partnership, the change, removal or resignation of a general partner or managing
partner, or (iii) if Borrower is a limited liability company, the change,
removal or resignation of a managing member.
16. PUBLICITY. In the event the Loan contemplated herein is made,
Lender shall have the right to issue press releases, advertisements and other
promotional materials describing in general terms or in detail, Lender's
participation in such transaction.
17. CONFIDENTIALITY. This Commitment is being furnished to
Borrower on a confidential basis and may not be reproduced, used, distributed or
disclosed to third parties prior to acceptance, except with Lender's prior
written consent.
18. CLOSING FUNDS. All funds required to be paid by Borrower to
Lender at closing must be in the form of certified funds or made by wire
transfer of immediately available federal funds.
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<PAGE> 38
19. OBLIGATIONS TO FUND. If, on or before the Closing Date, any of
the following shall have occurred, Lender shall have no obligation to close and
fund the Loan under this Commitment:
(a) Casualty/Damage. Any of the Property shall have been
damaged and not repaired to Lender's satisfaction or been taken in condemnation
or other similar proceeding, or any such proceeding shall be pending;
(b) Structural Damage. If there shall have been a
structural change in the physical condition of any portion of the Property;
(c) Violations. Any notice of violations of any municipal
ordinances shall have been filed against the Property by any municipal
department;
(d) Bankruptcy. If Borrower, any Guarantor or Indemnitor
or any partners, members or principal shareholders or officers of any of them,
or any tenant under any lease deemed by Lender to be material to Lender's
security or any guarantor of any such lease shall be the subject of any
bankruptcy, reorganization or insolvency proceeding;
(e) Environmental. Discovery of any environmental
conditions at the Property unacceptable to Lender;
(f) Site Inspection. An unsatisfactory Engineer's Report
or site inspection conducted by Lender or any engineering firm retained by
Lender;
(g) Adverse Financial Change. The income and expenses of
the Property, the Leases, the occupancy of the Property and all other features
of the transaction, including the financial condition of Borrower, any Guarantor
or Indemnitor, as represented in this Commitment, in any loan application or in
any other documents and communications presented to Lender in order to induce
Lender to make the Loan shall have materially changed;
(h) General Legal Compliance. Any action, suit or
proceeding, judicial, administrative or otherwise is pending against or
affecting Borrower or the Property;
(i) Representations and Warranties. If the
representations and warranties contained herein are false or incorrect in any
respect; or
(j) Default. If any condition occurs or shall have
occurred which would be deemed an Event of Default under the Loan Documents if
they were in effect.
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<PAGE> 39
20. BROKER INDEMNIFICATION. Borrower represents that it shall pay
any and all brokerage commissions owed to any broker in this transaction. It is
understood and agreed that any broker is the agent for Borrower and that no
statement, acts or representations on the part of it or its agents shall be
considered binding upon Lender. It is further understood and agreed that by
Lender's issuance of the Commitment it shall be under no obligation for payment
of any brokerage commission or fee of any kind with respect to the Commitment
and that by Lender's issuance of the Commitment to the Borrower, Borrower agrees
to pay the fee and commission of any broker and to indemnify, save harmless and
defend Lender from and against any and all claims asserted by any broker for
brokers' or finders' fees and commissions in connection with the negotiation,
execution and consummation of the Loan, the Commitment, such indemnity to
include Lender's counsel fees.
21. REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by Borrower herein shall also be deemed made as of the Closing
Date.
22. SOLE DISCRETION OF LENDER. Wherever pursuant to this
Commitment (a) Lender exercises any right given to it to approve or disapprove,
(b) any arrangement or term is to be satisfactory to Lender, or (c) any other
decision or determination is to be made by Lender, the decision of Lender to
approve or disapprove, all decisions that arrangements or terms are satisfactory
or not satisfactory and all other decisions and determinations made by Lender,
shall be in the sole and absolute discretion of Lender and shall be final and
conclusive, except as may be otherwise expressly and specifically provided
herein
SPECIAL CONDITIONS TO COMMITMENT
Borrower must enter in to a twenty-five (25) year lease with
Plasti-Line, Inc. at rental rates at least 5% above market rents, as determined
by an independent appraisal. The lease must be an absolute net lease with CPI
increase at least every five (5) years, and must be satisfactory to Lender in
its sole and absolute discretion.
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<PAGE> 40
EXHIBIT A: TERM SHEET
<TABLE>
<S> <C>
1. Loan Amount: $3,500,000
2. Assumed Interest Rate: 9.25%
3. Debt Service Coverage Ratio: 125%
4. Basis Points over the applicable U.S.
Treasury Bonds: 300
5. Maturity Date of U.S. Treasury Bonds: 10 Year U.S. Treasury
6. Amortization Period: 25 Years
7. Maturity Date of Loan: tenth (10th)
8. Prepayment Lockout Period: sixth (6th)
9. Application Fee: $2,500
10. Processing Deposit: $10,000
11. Good Faith Deposit: Not Applicable
12. Origination Fee: 1.0% of the Loan Amount
13. Portion of Origination Fee due with
Commitment: 1/2% of the Loan Amount
14. Check Amount to be Returned with
Commitment: $30,000.00
15. [Miscellaneous]:
---------------
16. [Miscellaneous]:
---------------
17. [Miscellaneous]:
---------------
</TABLE>
KeyCorp Real Estate Capital Markets, Inc. Closer:
------------------------
1. Date:
------------------------
<PAGE> 1
EXHIBIT (A)(3)
KEYCORP REAL ESTATE CAPITAL MARKETS, INC.
127 PUBLIC SQUARE
CLEVELAND, OHIO 44114
November 3, 1997
Mr. Mark J. Deuschle
Chief Financial Officer
Plasti-Line, Inc.
623 East Emory Drive
Knoxville, TN
Re: Premises: Plasti-Line, Inc. Company Headquarters
623 East Emory Drive
Knoxville, TN
Dear Mr. Deuschle:
KEYCORP REAL ESTATE CAPITAL MARKETS, INC. ("Lender"), hereby agrees to
make a permanent first fee mortgage loan (the "Loan") subject to the terms and
conditions set forth below and in the attached General Conditions and Special
Conditions, if any:
ARTICLE A: BORROWER
NAME: TBD single-asset, special purpose entity
PRINCIPAL PLACE OF BUSINESS ADDRESS: 623 East Emory Drive
Knoxville, TN
TYPE OF ENTITY
[] Corporation [] General Partnership [] Joint Venture
Limited Partnership Business Trust Limited Liability
Company [] Other
TAXPAYER IDENTIFICATION NUMBER:
STATE OF ORGANIZATION:
<PAGE> 2
WARRANTY OF NON-FOREIGN BORROWER
Borrower represents and warrants to Lender that Borrower is not a
"foreign person" within the meaning of Section 1445(f)(3) of the
Internal Revenue Code of 1986.
SINGLE PURPOSE, BANKRUPTCY REMOTE ENTITY
Borrower shall be a "single purpose, bankruptcy remote entity" as
described in Subsection 7(p) of the General Conditions at closing and
throughout the term of the Loan.
ARTICLE B: LOAN TERMS
AMOUNT
The principal amount of the Loan shall not exceed $ SEE EXHIBIT A:
TERM SHEET, ITEM 1. (the "Loan Amount"). The Loan Amount may be decreased as
provided in the Section of this Commitment entitled INTEREST RATE.
INTEREST RATE
This loan request is being underwritten using an assumed rate per
annum equal to SEE EXHIBIT A: TERM SHEET, ITEM 2. (the "Assumed Rate") as the
projected interest rate on the Loan. Upon satisfaction of the conditions set
forth in the Commitment for setting the interest rate on the Loan, the actual
interest rate (the "Applicable Rate") will be set (the "Rate Lock") on a date
(the "Rate Lock Date") between now and the closing date of the Loan (the
"Closing Date").
Depending upon market conditions on the Rate Lock Date, the Applicable
Rate may be different from the Assumed Rate used in approving the application.
In the event the Applicable Rate established on the Rate Lock Date is higher
than the Assumed Rate, Lender reserves the right to reduce the Loan Amount to
reflect the ability of the Property to carry the debt at the debt service
coverage ratios of SEE EXHIBIT A: TERM SHEET, ITEM 3.. The debt service
coverage ratio will be based on the actual loan constant at time of closing as
determined by Lender in its sole and absolute discretion.
Assuming the Loan satisfies the debt service ratios set forth in the
preceding paragraph, the rate of interest will be calculated on the Rate Lock
Date by adding SEE EXHIBIT A: TERM SHEET, ITEM 4. basis points over the yield
to maturity for the nearest U.S. Treasury bonds or other obligations having the
nearest equivalent maturity of SEE EXHIBIT A: TERM SHEET, ITEM 5. years
(rounded up to the nearest one-eighth of one percent) as determined by Lender
on the Rate Lock Date in accordance with the provisions of the Section of this
Commitment entitled RATE LOCK.
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<PAGE> 3
PAYMENTS
Interest only shall be due on the Closing Date for interest from the Closing
Date to and including the last day of the month in which the Closing Date
occurs. Thereafter, combined monthly payments of principal and interest shall
be due and payable commencing on the first day of the second full calendar
month following the Closing Date and on the first day of each calendar month
thereafter. The amount of the monthly payment of principal and interest will be
determined by Lender on the Rate Lock Date. The monthly payments of principal
and interest will be based on a schedule which would fully amortize the Loan
over a SEE EXHIBIT A: TERM SHEET, ITEM 6. year term.
MATURITY DATE
The unpaid principal balance of the Loan together with all accrued
but unpaid interest thereon, additional interest, if any, and all other sums
due under the Loan Documents (defined in Article E of this Commitment), shall
be due and payable on the SEE EXHIBIT A: TERM SHEET, ITEM 7, anniversary of the
first day of the full calendar month following the Closing Date or (ii) the
Closing Date if the closing occurs on first day of the calendar month (the
"Maturity Date").
PREPAYMENT
The principal balance of the Loan may not be prepaid in whole or in part prior
to the SEE EXHIBIT A: TERM SHEET, ITEM 8. Loan Year (defined in Section 5 of
the General Conditions). During the SEE EXHIBIT A: TERM SHEET, ITEM 8. Loan
Year or any time thereafter, the principal balance of the Loan may be prepaid
in whole, but not in part, upon not less than sixty (60) days prior written
notice to Lender specifying the date on which prepayment is to be made (the
"Prepayment Date") which date must be a Payment Date and upon the payment of:
(i) all accrued interest to and including the Prepayment Date;
(ii) all other sums due under the Note (defined in Article E of this
Commitment), the Security Instrument (defined in Article E of this Commitment)
and all other Loan Documents; and
(iii) the Prepayment Consideration (defined in Section 5 of the
General Conditions).
The principal balance specified in any such irrevocable notice of
prepayment shall be absolutely and unconditionally due and payable on the
Prepayment Date. Lender shall not be obligated to accept any prepayment of the
principal balance of the Loan unless it is accompanied by the sums referenced
in (i), (ii) and (iii) above.
Notwithstanding anything to the contrary herein, provided no Event of
Default (defined in Subsection 7(e) of the General Conditions) exists under the
Note, the Security Instrument or the other Loan Documents, in the event of any
prepayment (i) in connection with or as a result of a casualty or condemnation
or (ii) which occurs during the last three (3) months of the Loan Year, no
Prepayment Consideration shall be due in connection therewith.
3 -
<PAGE> 4
ARTICLE C: RATE LOCK
Not less than seven (7) Business Days (defined in Section 5 of the
General Conditions) after compliance with all of the requirements of this
Commitment (provided such compliance occurs at least ten (10) Business Days
prior to the expiration date of the Commitment), Borrower shall be entitled to
request Rate Lock from Lender. Such request must be in writing and must be sent
by facsimile transmission to Lender to the attention of Michael Haynes, KeyCorp
Real Estate Capital Markets, Inc. Not later than the next Business Day, Lender
shall send by facsimile transaction a Rate Lock confirmation (the "Rate Lock
Confirmation"). THE NEXT BUSINESS DAY LENDER WILL LOCK THE INTEREST RATE VIA
TELEPHONE WITH THE BORROWER. THE BORROWER WILL THEN COMPLETE THE RATE LOCK
CONFIRMATION BY FILLING IN THE INTEREST RATE, INITIALING THE INTEREST RATE, AND
RETURNING THE RATE LOCK CONFIRMATION TO LENDER VIA FACSIMILE. In the event
Borrower does not (i) meet the requirements to request Rate Lock, (ii) request
Rate Lock, (iii) sign AND INITIAL the Rate Lock Confirmation, or (iv) confirm
by telephone the receipt by Lender of such Rate Lock Confirmation, within the
above time periods, Lender's obligation to fund the Loan pursuant to this
Commitment shall terminate. The closing of the Loan must take place within
three (3) Business Days of the Rate Lock Date.
Notwithstanding anything to the contrary contained in this Commitment,
Borrower shall not be entitled to Rate Lock unless Lender shall have received
the entire Origination Fee (defined in the Section of this Commitment entitled
ORIGINATION FEES under Article b) in immediately available funds, prior to
Borrower's request for Rate Lock.
ARTICLE D: COLLATERAL
PROPERTY TO BE MORTGAGED
Approximately 348,000 sf industrial property located at 623 East Emory Drive,
Knoxville, TN, (the "Premises"),more particularly described in Borrower's
application and other information submitted to Lender by Borrower, together
with the improvements (the "Improvements") constructed or to be constructed on
the Premises and all fixtures, equipment and articles of personal property now
or hereafter affixed to or used in the management, maintenance or operation of
the Property (defined below), including any replacements and additions thereto,
and such other security as may be required by Lender (collectively, the
"Property").
ARTICLE E: LOAN DOCUMENTS
The Loan shall be evidenced by the promissory note of Borrower made
payable to the order of Lender (the "Note") and shall be secured by the Loan
Documents (as defined below), including, but not limited to, the following:
SECURITY INSTRUMENT
4 -
<PAGE> 5
A duly recorded mortgage, mortgage deed, deed of trust, trust deed,
security deed, deed to secure debt or other real estate security instrument
customary in the jurisdiction in which the Premises are located (the "Security
Instrument") given by Borrower to Lender, constituting a valid first mortgage
lien, subject to no other liens or encumbrances, on the good and marketable fee
simple absolute title to the Property, subject only to such exceptions as shall
be approved by Lender and its counsel.
ASSIGNMENT OF LEASES AND RENTS
A first-priority present assignment (the "Assignment of Leases and
Rents") given by Borrower to Lender of all present and future leases of all or
any part of the Property and all renewals thereof (the "Leases") and all rents,
additional rents, revenues, issues and profits derived from the Property (the
"Rents").
SECURITY AGREEMENT
A security agreement between Borrower and Lender constituting a valid
first priority security interest, free of chattel mortgages, security
agreements, conditional sales contracts and other liens or title retention
arrangements, shall be granted by Borrower on all fixtures, equipment and
articles of personal property now or hereafter affixed to or used in the
management, maintenance and operation of the Property (other than trade
fixtures or personal property of space tenants owned by such tenants at the
expiration of their lease term). Such security interest shall be granted in the
Security Instrument or in a separate agreement if Lender's counsel requires
such an agreement. Borrower shall also execute and deliver such UCC Financing
Statements as Lender's counsel may request.
OTHER ASSIGNMENTS
Present assignments to Lender, at its option, of (a) Borrower's
interest in any other contracts and agreements or of any other rights of
Borrower relating to the Property, including, but not limited to, any and all
operating leases or agreements, management agreements, service contracts and
maintenance contracts, (b) the final plans and specifications for Improvements
with the preparing architect's consent to Lender's use and any assignable
rights with respect to any permits, approvals or variances relating to such
Improvements, (c) all refunds, rebates, or credits in connection with a
reduction in real estate taxes and assessments charged against the Property as
a result of tax certiorari or any proceeding for reduction, and (d) all
proceeds received by Borrower in connection with any buy-out, termination or
other modification of any of the Leases.
ENVIRONMENTAL INDEMNITY
An Environmental Indemnity Agreement from Borrower and PLASTI-LINE,
INC..("Indemnitor(s)"), who shall agree to indemnify Lender (i) for all costs
incurred by Lender in connection with the removal of hazardous substances from
the Property, regardless of whether or not Borrower caused the presence of such
hazardous substance; and (ii) against any loss, cost, damage or expense that
Lender may incur, directly or indirectly, as a result of or in connection
5 -
<PAGE> 6
with the assertion against Lender of any claim relating to the presence or
removal of any hazardous substance on the Property. The indemnities contained
in the Environmental Indemnity Agreement shall survive the satisfaction,
termination or assignment of the Note, the Security Instrument and any other
Loan Documents.
OTHER DOCUMENTS
Such other documentation as Lender may require in order to adequately
protect and perfect Lender's security interest.
The documents referred to in this Section, together with such other
documents executed in connection with the Loan, are sometimes collectively
referred to as the "Loan Documents".
ARTICLE F: EXCULPATION
Subject to the Limitations on Exculpation set forth in Subsection 7(n)
of the General Conditions and the Special Conditions, if any, the Security
Instrument shall provide that Lender's sources of satisfaction of the Loan
shall be the Property and the Rents, and other collateral given to Lender to
secure the Loan, and that Lender shall not seek to enforce any judgment out of
any other assets of Borrower, for any sums which shall be payable under the
Note, the Security Instrument or any other Loan Documents or for any deficiency
remaining after a foreclosure of the Security Instrument.
ARTICLE G: REQUIRED PROPERTY INFORMATION
APPRAISAL, ENVIRONMENTAL SITE
ASSESSMENT AND BUILDING CONDITION REPORTS
Lender shall receive at Borrower's sole cost and expense (i) an
appraisal of the Property stating an appraised value of $ 8,670,000
(satisfactory to Lender in its sole discretion), (ii) written reports with
respect to certain environmental conditions at the Property and (iii) a
Building Condition Report (defined in the General Conditions), each in form and
substance satisfactory to Lender and in accordance with the provisions set
forth in the General Conditions and Special Conditions, if any. The appraisal,
environmental, and engineering professionals, their qualifications, the scope
and methodology of their investigations, their reports and the recommendations
set forth therein and the form, scope and substance of their certifications to
Lender shall be acceptable to Lender in all respects.
SITE INSPECTION
Representatives or agents of Lender may conduct site inspections of the
Property on behalf of Lender. All fees and expenses in connection with such
inspections shall be paid by Borrower.
6 -
<PAGE> 7
ESTOPPEL LETTERS
At Lender's option, Estoppel letters satisfactory in form, scope and
substance to Lender shall be delivered from all of the commercial tenants at
the Property.
ARTICLE H: RESERVE REQUIREMENTS
COMPLETION/REPAIR RESERVE
Borrower shall, at closing, deposit an amount TO BE DETERMINED BY
LENDER IN ITS SOLE DISCRETION BASED ON ITS REVIEW OF THE BUILDING CONDITION
REPORT (the "Repair Deposit") into a non-interest bearing escrow account with
Lender for the completion or renovation of certain capital improvements to the
Property identified and recommended in the Building Condition Report, which
items shall be completed as required by Lender to Lender's satisfaction not
later than six (6) months after the Closing Date. The Repair Deposit shall
represent 125% of the estimated cost to complete all the repairs and
replacements to the capital improvements required by Lender and recommended by
Lender's consulting engineer. Lender shall disburse amounts from the Repair
Deposit to reimburse Borrower for the costs incurred in connection with the
foregoing repairs and replacements upon satisfaction by Borrower of certain
conditions and the delivery of certain items required by Lender.
REPLACEMENT RESERVE
Lender shall require Borrower to deposit an amount TO BE DETERMINED BY
LENDER IN ITS SOLE DISCRETION BASED ON ITS REVIEW OF THE BUILDING CONDITION
REPORT (the "Replacement Reserve") at the closing of the Loan into an interest
bearing escrow account with Lender to cover the estimated costs of periodic
repairs, replacements and improvements of certain specified portions of the
Property including, but not limited to, the replacement or maintenance of
building system components and items that have been identified by the Building
Condition Report. Lender shall be entitled to adjust the monthly deposits into
the Replacement Reserve in order to cover additional costs of such periodic
repairs, replacements and improvements throughout the term of the Loan. Lender
shall disburse amounts from the Replacement Reserve to reimburse Borrower for
the costs incurred in connection with the foregoing periodic repairs,
replacements and improvements upon satisfaction by Borrower of certain
conditions and the delivery of certain items required by Lender.
ARTICLE I: FEES
Borrower agrees to pay to Lender the fees set forth below in
connection with this Commitment for the Loan. All fees paid to Lender hereunder
shall be in immediately available funds at Lender's office at 127 Public
Square, Cleveland, Ohio 44114.
7 -
<PAGE> 8
APPLICATION FEE
Lender acknowledges receipt of the amount of SEE EXHIBIT A: TERM
SHEET, ITEM 9. (the "Application Fee") from Borrower as a non-refundable
application fee to cover Lender's cost with respect to Borrower's application
for the Loan.
PROCESSING DEPOSIT
Lender acknowledges receipt of the amount of SEE EXHIBIT A: TERM SHEET, ITEM
10. (the "Processing Deposit") to be held by Lender without interest. The
Processing Deposit shall be applied by Lender against any fees and expenses
incurred or paid by Lender in connection with the processing, underwriting or
closing of the Loan, including without limitation, property inspection fees,
appraisal fees, travel expenses of Lender's personnel, environmental site
assessment fees, loan closing fees, costs of tax lien searches, Building
Condition Report fees, Lender's counsel's fees and disbursements and other loan
fees. Any portion of the Processing Deposit not applied by Lender toward
expenses as set forth herein shall be returned by Lender to Borrower within
thirty (30) days after the closing of the Loan or in the case where the Loan
does not close and is not funded, within thirty (30) days after written request
for same by Borrower. All expenses incurred by Lender in connection with the
processing, underwriting or closing of the Loan shall be the responsibility of
Borrower and to the extent the Processing Deposit is insufficient to cover all
such expenses, Borrower shall deliver such additional amounts as required by
Lender at the closing of the Loan or if the Loan does not close, within five
(5) Business Days after written demand by Lender.
GOOD FAITH DEPOSIT
Lender acknowledges receipt of SEE EXHIBIT A: TERM SHEET, ITEM 11. as a good
faith deposit (the "Good Faith Deposit") which shall be held by Lender without
interest. If Borrower fails to close or accept funding of the Loan for any
reason on or before the expiration date of this conditional Commitment, the
Good Faith Deposit shall be retained by Lender as liquidated damages (and not
as a penalty) in full compensation of Lender's damages in view of the
difficulty of establishing Lender's damages for loss of investment income
resulting from Borrower's failure to close the Loan. Notwithstanding the
foregoing, if (i) Lender fails to fund the Loan for reasons other than (A)
Borrower's failure to comply with the conditions to closing as set forth in
Section 6 of the General Conditions or the Special Conditions, if any, or (B)
the occurrence of any of the events set forth in Section 21 of the General
Conditions, or (ii) Borrower fails to sign the Rate Lock Confirmation solely
because the Applicable Rate determined by Lender at Rate Lock exceeds the
Assumed Rate and the Loan Amount is substantially reduced below the Loan Amount
set forth under the Section of this Commitment entitled AMOUNT, as determined
by Lender in its sole discretion, in either case the Good Faith Deposit shall
be returned to Borrower within five (5) Business Days following written request
by Borrower. If the Loan shall close in accordance with this conditional
Commitment, the Good Faith Deposit shall be applied by Lender toward the
balance of the Origination Fee (defined in the Section of this Commitment
entitled ORIGINATION FEES) due it at Rate Lock.
8 -
<PAGE> 9
ORIGINATION FEES
Borrower shall pay Lender an origination fee in the amount of SEE
EXHIBIT A: TERM SHEET, ITEM 12. (the "Origination Fee"). The Origination Fee
shall be deemed fully earned upon acceptance of the Commitment and shall cover
Lender's cost for the origination of the Loan. The Origination Fee shall be
paid by Borrower as follows:
(i) Upon Borrower's acceptance of this Conditional
Commitment, a portion of the Origination Fee equal to SEE
EXHIBIT A: TERM SHEET, ITEM 13. (the "Commitment Fee") shall
be due and payable from Borrower. The Commitment Fee shall be
deemed earned on receipt and shall be non-refundable unless
(A) Lender fails to fund the Loan for reasons other than (1)
Borrower's failure to comply with the conditions to closing
as set forth in Section 6 of the General Conditions or the
Special Conditions, if any, or (2) the occurrence of any of
the events set forth in Section 20 of the General Conditions,
or (B) Borrower fails to sign the Rate Lock Confirmation
solely because the Applicable Rate determined by Lender at
Rate Lock exceeds the Assumed Rate and the Loan Amount is
substantially reduced below the amount set forth under the
Section of this Commitment entitled AMOUNT, as determined by
Lender in its sole discretion, in which case the Commitment
Fee paid by Borrower shall be refunded to Borrower within
five (5) Business Days following written request by Borrower.
Application Fees, Property inspection fees, appraisal fees, environmental site
assessment fees, title insurance and survey fees, Lender's counsel's fees and
disbursements, loan closing fees and other loan fees are non-refundable and are
not included as part of the Origination Fee but are separate obligations of
Borrower. The $10,000 processing Deposit will be refunded, except for costs
Lender has already incurred.
(ii) At the time Borrower intends to request Rate Lock,
Borrower shall pay to Lender in immediately
available funds prior to making its request for Rate
Lock, the balance of the Origination Fee. Such
additional amount .shall be deemed earned in full
upon receipt by Lender.
(iii) Notwithstanding anything contained in this
Commitment to the contrary, upon the closing of the
Loan, in accordance with this Commitment, Lender
shall refund to Borrower that portion of the
Origination Fee collected that exceeds SEE EXHIBIT
A: TERM SHEET, ITEM 12. of the actual Loan Amount.
ARTICLE J: TERM OF COMMITMENT
This Commitment is effective upon Lender's issuance of this letter to
Borrower. This Commitment expires on the earlier of (i) JANUARY 30, 1998 and
(ii) the date set forth for the closing of the Loan at the time of Rate Lock,
by which time ALL THE CONDITIONS OF THIS
9 -
<PAGE> 10
COMMITMENT MUST BE SATISFIED AND the Loan must have closed and funded or this
Commitment shall be of no further force and effect.
[NO FURTHER TEXT ON THIS PAGE]
10 -
<PAGE> 11
ARTICLE K: CONDITION TO ACCEPTANCE
[THIS COMMITMENT SHALL NOT BE BINDING UPON LENDER UNTIL, AND SHALL REMAIN
SUBJECT IN ALL RESPECTS TO, THE COMPLETION OF LENDER'S UNDERWRITING OF THE LOAN
TO LENDER'S SOLE AND ABSOLUTE SATISFACTION AND THE APPROVAL OF THE LOAN BY
LENDER'S INTERNAL CREDIT COMMITTEE.]
If this Conditional Commitment is acceptable to you, please sign at
the place indicated on the following page on the enclosed duplicate hereof and
return the same together with a check in the amount of SEE EXHIBIT A: TERM
SHEET, ITEM 14. on account of the Commitment Fee to Lender at Lender's offices
at 127 Public Square, Cleveland, Ohio 44114 within seven (7) days of the date
hereof. If this Commitment and the Commitment Fee are not received by Lender
within this seven (7) day period, this Commitment shall terminate and shall be
of no further force and effect.
KEYCORP REAL ESTATE CAPITAL
MARKETS, INC.
By: /s/ ERNEST M. HAYNES
----------------------------------
Name: Ernest M. Haynes
----------------------------------
Title: Closing Manager
----------------------------------
cc:
-----------------------------
-----------------------------
-----------------------------
11 -
<PAGE> 12
BORROWER'S ACCEPTANCE
Borrower hereby unconditionally accepts the foregoing Conditional
Commitment and the attached General Conditions and Special Conditions if any,
in accordance with their terms and conditions and agrees to be bound thereby.
Borrower further agrees that in the event that the Loan is approved by Lender's
internal credit committee, the Loan will be accepted by Borrower on the terms
and conditions set forth therein. This acceptance shall be deemed effective
when received together with the Commitment Fee by Lender.
[BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT THIS COMMITMENT SHALL NOT BE
BINDING UPON LENDER UNTIL, AND SHALL REMAIN SUBJECT IN ALL RESPECTS TO, THE
COMPLETION OF LENDER'S UNDERWRITING OF THE LOAN TO LENDER'S SOLE AND ABSOLUTE
SATISFACTION AND THE APPROVAL OF THE LOAN BY LENDER'S INTERNAL CREDIT
COMMITTEE.]
By:
---------------------------
Name:
--------------------
Title:
--------------------
Borrower's Counsel:
---------------------------
---------------------------
[ADDRESS]
---------------------------
[TELEPHONE]
---------------------------
12 -
<PAGE> 13
GENERAL CONDITIONS TO COMMITMENT
1. INTEREST.
(a) Interest on the Loan shall be computed on the basis of
the actual number of days elapsed over a 360-day year. Such interest shall be
paid, in arrears, on the first day of each calendar month during the term of
the Loan.
(b) It is not intended by any provision of this Commitment to
charge interest at a rate in excess of the maximum rate of interest permitted
to be charged to Borrower under applicable law, but if, nevertheless, interest
in excess of said maximum rate shall be paid on the Loan, the excess amount
shall be returned or, to the extent permitted by applicable law, be applied in
reduction of the principal amount of the Loan, in Lender's sole discretion.
2. EXPENSES. Borrower shall pay all expenses in connection with the
Loan contemplated hereby including, but not limited to, all fees and
disbursements of Lender's counsel (and, if outside the State of Ohio, of
Lender's local counsel in the jurisdiction where Borrower is organized or where
the Property is located) including fees and disbursements incurred in
connection with the preparation and delivery of releases from the lien of the
Security Instrument, travel expenses of Lender's personnel related to the
making of the Loan, appraisal fees, engineering fees, title insurance premiums,
survey charges, mortgage and documentary stamp taxes, if any, note intangible
taxes, if any, recording charges and brokerage fees and commissions, costs of
tax lien searches and other loan fees. To the extent incurred, the foregoing
expenses shall be paid by Borrower whether or not the Loan shall close or be
funded. Wherever it is provided for herein that Borrower pay the costs and
expenses in connection with a particular item, such costs and expenses shall
include, but not be limited to, all legal fees and disbursements of Lender,
whether with respect to retained firms, the reimbursement for the expenses of
in-house staff or otherwise.
3. COUNSEL. Messrs. Jones, Day, Reavis & Pogue attn: TO BE DETERMINED,
will act as Lender's counsel in this transaction and Borrower or its counsel is
requested to contact said firm promptly after accepting this Commitment to
confirm their closing requirements and to arrange for the closing of the Loan.
The entire closing of the Loan shall take place at Lender's counsel's offices
in New York or as otherwise determined by Lender on a date mutually agreed upon
by the respective counsel after all closing requirements are satisfied. No
broker, agent, or other person is authorized to represent Lender in any way in
connection with this transaction, except Lender's authorized officers and such
counsel acting in the State of Ohio.
4. APPROVAL. All mortgage and title documents executed and delivered
in connection with the closing of the Loan, all title policies and surveys, all
Borrower organizational documents, all legal opinions, all insurance policies
and coverage and insurance companies, all required evidence of compliance with
all applicable laws and regulations, and all other evidence, information and
material required by Lender or its counsel, shall be in form, scope and
substance
13 -
<PAGE> 14
satisfactory to Lender's counsel who must approve title to the
Property, the legality, validity and enforceability of all documents pertaining
to the Loan, all proceedings in connection therewith and all other matters
relating to the Loan and the closing.
5. PREPAYMENT CONSIDERATION
(a) "Business Day" shall mean a day on which commercial banks
are not authorized or required by law to close in New York, New York.
(b) "Loan Year" shall mean each 365 or 366, as applicable,
day period after the first day of the first calendar month after the Closing
Date (or the Closing Date if the Loan closes on the first day of a calendar
month).
(c) "Prepayment Consideration" shall mean an amount equal to
the greater of (i) one percent (1%) of the principal balance of this Note being
prepaid, or (ii) the product of (A) the ratio of the amount of the principal
balance of this Note being prepaid over the outstanding principal balance of
this Note on the Prepayment Date (after subtracting the scheduled principal
payment on such Prepayment Date), multiplied by (B) the present value as of the
Prepayment Date of the remaining scheduled payments of principal and interest
from the Prepayment Date through the Maturity Date (including any balloon
payment) determined by discounting such payments at the Discount Rate (as
hereinafter defined) less the amount of the outstanding principal balance of
this Note on the Prepayment Date (after subtracting the scheduled principal
payment on such Prepayment Date). The "Discount Rate" is the rate which, when
compounded monthly, is equivalent to the Treasury Rate (as hereinafter
defined), when compounded semiannually. The "Treasury Rate" is the yield
calculated by the linear interpolation of the yields, as reported in Federal
Reserve Statistical Release H.15-Selected Interest Rate under the heading U.S.
government securities/Treasury constant maturities with maturities with
maturity dates (one longer and one shorter) most nearly approximating the
Maturity Date. (In the event Release H.15 is no longer published, Lender shall
select a comparable publication to determine the Treasury Rate.) Lender shall
notify Borrower of the amount and the basis of determination of the required
prepayment consideration.
(d) "Treasury Rate" shall mean the yield calculated by the
linear interpolation of the yields, as reported in the Federal Reserve
Statistical Release H. 15-Selected Interest Rates under the heading U. S.
Government Securities/Treasury constant maturities for the week ending prior to
the Prepayment Date, of U.S. Treasury constant maturities with maturity dates
(one longer and one shorter) most nearly approximating the Maturity Date. In
the event Release H. 15 is no longer published, Lender shall select a
comparable publication to determine the Treasury Rate. Lender shall notify
Borrower of the amount and the basis of determination of the required
Prepayment Consideration which shall be conclusive and binding on Borrower
absent manifest error
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6. CONDITIONS TO CLOSING. Not less than ten (10) Business Days prior
to the Closing Date Lender shall have received the following:
(a) Debt Service Coverage. Satisfactory evidence to Lender,
including, without limitation, the Leases, an appraisal, and a rent roll, which
supports, in Lender's determination, the projected debt service coverages
(after deducting all required reserves, determined by Lender, from net
operating income) as required by Article B of this Commitment.
(b) Appraisal. An appraisal of the Property prepared by an
independent appraiser holding an M.A.I. designation who shall be designated and
engaged by Lender and licensed in the state where the Property is located. Such
appraisal shall be addressed to Lender and (i) shall be prepared in accordance
with current federal regulatory requirements, (ii) shall support the projected
debt service coverages (after deducting all required reserves, determined by
Lender, from net operating income) as required by Article B of this Commitment,
(iii) shall note any readily visible environmental conditions; and (iv) shall
be satisfactory to Lender in all other respects. The fee for said appraisal
shall be paid by Borrower. The appraisal shall also indicate the basis of and
the assumptions used in calculating the appraised value.
(c) Title Policy. An ALTA title insurance policy with a liability
limit of not less than the principal amount of the Loan insuring the Security
Instrument to Lender as a first lien on the good and marketable fee simple
absolute title to the Property and issued by a title insurance company (with
co-insurance or re-insurance with direct access agreements as Lender may
require) in such forms, amounts and by such title insurance company(ies) as
shall be satisfactory to Lender and its counsel. The title insurance policy
shall be subject only to such exceptions as shall be approved by, and shall
contain such endorsements as may be required by, Lender's counsel.
(d) Survey. A current title survey of the Premises. The survey
shall be prepared by a licensed or registered land surveyor acceptable to
Lender, certified to Lender and the title insurance company and containing the
current ALTA/ACSM certification, which shall show a state of facts in form,
scope and substance acceptable to Lender including, but not limited to, an
adequate and accurate legal description, interior lot lines, if any, the
location of all adjoining streets and roads, the distance to and names of the
nearest intersecting streets, the location of all recorded and all physical
boundary lines, all strips, gores and overlaps with adjacent properties, the
location of all Improvements on the Premises, locations of utilities,
elevations, high water marks, easements and rights-of-way, whether of record or
apparent, ingress and egress to and from the Property and natural and
constructed objects affecting the Premises and showing any encroachments and/or
discrepancies with any recorded instruments or existing boundary markers.
(e) Metes/Bounds Description. A metes and bounds description of the
Property acceptable to Lender.
(f) Opinion of Counsel. An opinion of counsel in form, scope and
substance satisfactory to Lender and Lender's counsel. Said opinion shall cover
such matters as Lender's counsel may request including, but not be limited to,
the following: that Borrower, each general
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<PAGE> 16
partner or managing member of Borrower, as applicable, any guarantors of
Borrower's obligations under the Loan Documents (the "Guarantors") and any
Indemnitor(s), are duly organized, validly existing and in good standing (if
applicable) under the laws of the State of their formation or incorporation and
in the State where the Property is located; that the execution and delivery of
the Loan Documents have been duly authorized; that the Loan Documents are not
usurious and that the same are valid, binding and enforceable in accordance
with their terms and do not violate or contravene any statute or contractual
restriction binding on Borrower, each general partner or managing member of
Borrower, as applicable, any Guarantors or any Indemnitor(s).
(g) Organizational Documents. If Borrower, any general partner of
Borrower or any Guarantor or Indemnitor is a corporation, a certificate of
incorporation certified by the Secretary of State of the State of
incorporation, a Certificate of Good Standing issued by the .Secretaries of
State of the State of incorporation and the State where the Property is
located, a copy of the by-laws certified by an officer of the corporation and a
certified copy of the corporate resolution authorizing the transaction in form
satisfactory to Lender and its counsel. If Borrower, any general partner of
Borrower or any Guarantor or Indemnitor is a partnership, a copy of the
partnership agreement with all amendments thereto certified by each general
partner of Borrower, a filed partnership certificate certified by the Secretary
of State of the State of formation, and any other such evidence of partnership
authority as Lender's counsel may require shall be submitted to Lender in form
satisfactory to Lender and its counsel. If Borrower, any general partner of
Borrower, any Guarantor or Indemnitor is a limited liability company, a copy of
the articles of organization certified by the Secretary of State of the State
of organization, a copy of the operating agreement with all amendments thereto
certified by each managing member, and such other evidence of company authority
as Lender's counsel may require shall be submitted to Lender in form
satisfactory to Lender and its counsel. If Borrower, any general partner or
member of Borrower or any Guarantor or Indemnitor is a legal entity other than
a corporation, a partnership or a limited liability company, all organizational
documentation of such entity as Lender's counsel shall require shall be
delivered to Lender and its counsel in form satisfactory to Lender and its
counsel.
(h) Legal Compliance. Evidence, in form and substance satisfactory
to Lender and Lender's counsel, confirming that the Improvements on the
Property and the use thereof are in full compliance with the applicable zoning,
subdivision, environmental protection, toxic waste, asbestos and all other
applicable federal, state or local laws and ordinances, and all rules,
regulations and requirements of any and all governmental or quasi-governmental
authorities having jurisdiction over the Property with respect to the
foregoing. The evidence shall include any and all certificates, licenses,
permits, approvals or consents therefor, including certificates of occupancy or
their legal equivalents permitting the use and occupancy of the Property for
the then present use and as intended by this Commitment, a violations search of
all applicable municipal agencies and departments and, in addition, if required
by Lender's counsel an opinion of Borrower's counsel or architect as to the
foregoing. Such evidence shall be based on the ownership of the Property
without reference to easements or other interests in real property. If Lender
determines that the Property is not in compliance with applicable access laws,
Lender may
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impose additional conditions, require monetary reserves, change the Loan Amount
or decline to make the Loan.
(i) Leases. Leases and related documentation satisfactory to Lender
in all respects. If the Leases shall be written on a standard form of lease,
Borrower shall, prior to the closing of the Loan, submit such standard forms of
residential and commercial leases to Lender for Lender's approval. True and
complete copies of all existing Leases, and any amendments or modifications
thereto, and all Leases executed between the date of execution of this
Commitment and the closing of the Loan shall be delivered to Lender. If the
Property is used for multifamily housing, Borrower shall deliver and certify to
Lender a rent roll as set forth in Subsection (m) below in lieu of copies of
all Leases. Notwithstanding the foregoing, Lender reserves the right to receive
and approve any and all Leases affecting the Property.
(j) Service Contracts. Any and all management, operating and/or
service agreements covering the Property. Such agreements shall be satisfactory
in form and substance to Lender and shall be in full force and effect and free
from default by either party on the date of closing. All such agreements shall
be assigned to Lender. Lender, at its option, may require the parties to any
such agreement to enter into an agreement with Lender which shall provide as
follows:
(i) copies of all notices given or received under any such
agreement shall he sent to Lender:
(ii) Lender shall have the right but not the obligation to
perform any term, condition or agreement of Borrower
under any such agreement and to cure any default of
Borrower under any such agreement within specified
additional time periods: and
(iii) such other provisions as Lender may require.
(k) Financial Statements. Certified financial statements of
Borrower, each principal of Borrower and each of the Guarantors and the
Indemnitor(s) for the prior fiscal year prepared and certified by a nationally
recognized firm of certified public accountants, which financial statements
shall be in form and substance acceptable to Lender. If audited financial
statements are not available for a Borrower, Guarantor or Indemnitor, then
Borrower, Guarantor or Indemnitor, as applicable, shall furnish financial
statements acceptable to Lender including a statement by such party's
accountant, managing general partner, managing member or chief financial
officer, certified by the managing general partner, managing member or the
chief financial officer, whichever the case may be, describing the basis of the
presentation and certifying the financial statement as being true and correct.
Borrower, Guarantor and the Indemnitor(s) shall also deliver to Lender federal
and state income tax returns for the last two (2) calendar years prepared by an
independent certified public accountant, satisfactory to Lender. At closing,
Borrower, each principal, managing member and general partner of Borrower, each
Guarantor and each Indemnitor shall certify to Lender that there has been no
material adverse change since the audit and certification of the most recent
financial statement delivered to Lender.
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<PAGE> 18
(1) Insurance. Insurance policies or certificates satisfactory to
Lender as to amounts, types of coverage and the companies by whom such policies
are underwritten.
(i) Policies of insurance issued by carriers and containing
terms satisfactory to Lender in its sole discretion shall be
delivered to Lender in accordance with the following
requirements:
(A) Property Insurance. Insurance with respect to the
Improvements and building equipment insuring against any
peril now or hereafter included within the classification
"All Risks of Physical Loss" in amounts at all times
sufficient to prevent Lender from becoming a co-insurer
within the terms of the applicable policies and under
applicable law, but in any event such insurance shall be
maintained in an amount which, after application of
deductible, shall be equal to the full insurable value of
the Improvements and building equipment, the term "full
insurable value" to mean the actual replacement cost of the
Improvements and building equipment (without taking into
account any depreciation, and exclusive of excavations,
footings and foundations, landscaping and paving)
determined annually by an insurer, a recognized independent
insurance broker or an independent appraiser selected and
paid by Borrower and in no event less than the coverage
required pursuant to the terms of any Lease:
(B) Liability Insurance. Comprehensive general
liability insurance, including bodily injury, death and
property damage liability, insurance against any and all
claims, including all legal liability to the extent
insurable and imposed upon Lender and all court costs and
attorneys' fees and expenses, arising out of or connected
with the possession, use, leasing, operation, maintenance
or condition of the Property in such amounts as are
generally available at commercially reasonable premiums and
are generally required by institutional lenders for
properties comparable to the Property but in any event for
a combined single limit of at least $6,000,000 ;
(C) Workers' Compensation Insurance. Statutory
workers' compensation insurance with respect to any work on
or about the Property;
(D) Business Interruption Insurance. Business
interruption and/or loss of "rental income" insurance in an
amount sufficient to avoid any co-insurance penalty and to
provide
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<PAGE> 19
proceeds which will cover a period of not less than one (1)
year from the date of casualty or loss, the term "rental
income" to mean the sum of (A) the total then ascertainable
Rents payable under the Leases and (B) the total
ascertainable amount of all other amounts to be received by
Borrower from third parties which are the legal obligation
of the tenants, reduced to the extent such amounts would
not be received because of operating expenses not incurred
during a period of non-occupancy of that portion of the
Property then not being occupied:
(E) Boiler and Machinery Insurance. Broad form boiler
and machinery insurance (without exclusion for explosion)
covering all boilers or other pressure vessels, machinery,
and equipment located in, on or about the Property and
insurance against loss of occupancy or use arising from any
breakdown in such amounts as are generally required by
institutional lenders for properties comparable to the
Property;
(F) Flood Insurance. If required by Lender, flood
insurance in an amount at least equal to the lesser of (A)
the principal balance of the Note, or (B) the maximum limit
of coverage available for the Property under the National
Flood Insurance Act of 1968, The Flood Disaster Protection
Act of 1973 or the National Flood Insurance Reform Act of
1994, as each may be amended;
(G) Builder's Risk Insurance. At all times during
which structural construction, repairs or alterations are
being made with respect to the Improvements (A) owner's
contingent or protective liability insurance covering
claims not covered by or under the terms or provisions of
the above mentioned commercial general liability insurance
policy; and (B) the insurance provided for in Subsection
6(1)(i)(A) written in a so-called builder's risk completed
value form (1) on a non-reporting basis, (2) against all
risks insured against pursuant to Subsection 6(1)(i)(A),
(3) including permission to occupy the Property, and (4)
with an agreed amount endorsement waiving co-insurance
provisions; and
(H) Other Insurance. Such other insurance with respect
to the Property against loss or damage of the kinds from
time to time customarily insured against and in such
amounts as are required by institutional lenders for
properties comparable to the Property.
(i) All insurance provided for in herein shall be
obtained from a similar or successor service) (each such
insurer
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<PAGE> 20
shall be referred to below as a "Qualified Insurer"). All
insurers providing insurance required by this Commitment
shall be authorized to issue insurance in the state in
which the Property is located. The Policy referred to in
Subsection 6(1)(i)(B) above shall name Lender as an
additional named insured and the Policies referred to in
Subsection 6(1)(i)(A), (D), (E), (F) and (G), and as
applicable (H), above shall provide that all proceeds be
payable to Lender. The Policies referred to in Subsections
6(1)(i)(A), (E), (F) and (G) shall also contain: (i) a
standard "non-contributory mortgagee" endorsement or its
equivalent relating, inter alia, to recovery by Lender
notwithstanding the negligent or willful acts or omission
of Lender; (ii) to the extent available at commercially
reasonable rates, a waiver of subrogation endorsement as to
Lender; and (iii) an endorsement providing for a deductible
per loss of an amount not more than that which is
customarily maintained by prudent owners of similar
properties in the general vicinity of the Property, but in
no event in excess of $10,000. The Policy referred to in
Subsection 6(1)(i)(A) above shall provide coverage for
contingent liability from Operation of Building Laws,
Demolition Costs and Increased Cost of Construction
Endorsements together with an "Ordinance or Law Coverage"
or "Enforcement" endorsement if any of the Improvements or
the use of the Property shall at any time constitute legal
non-conforming structures or uses. All Policies shall
contain (i) a provision that such Policies shall not be
canceled or terminated, nor shall they expire, without at
least thirty (30) days' prior written notice to Lender in
each instance; and (ii) include effective waivers by the
insurer of all claims for Insurance Premiums (defined
below) against any loss payees, additional insureds and
named insureds (other than Borrower). Certificates of
insurance with respect to all renewal and replacement
Policies shall be delivered to Lender not less than ten
(10) days prior to the expiration date of any of the
Policies required to be maintained hereunder, which
certificates shall bear notations evidencing payment of
applicable premiums (the "Insurance Premiums"). Originals
or certificates of such replacement Policies shall be
delivered to Lender promptly after Borrower's receipt
thereof but in any case within thirty (30) days after the
effective date thereof. If Borrower fails to maintain and
deliver to Lender the original Policies or certificates of
insurance required by this Security Instrument, upon ten
(10) days' prior notice to Borrower, Lender may procure
such insurance at Borrower's sole cost and expense.
(ii) Borrower shall comply with all
insurance requirements and shall not bring or keep or
permit to be brought or
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<PAGE> 21
kept any article upon any of the Property or cause or
permit any condition to exist thereon which would be
prohibited by an insurance requirement, or would invalidate
the insurance coverage required hereunder to be maintained
by Borrower on or with respect to any part of the Property
pursuant to this Subsection 6(1).
(m) Rent Roll and Operating Statement. A recent operating
statement and a current rent roll listing each and every Lease, identifying the
leased premises, names of all tenants, square footage or other identification
of space leased, monthly rental and all other charges payable under the Lease,
date to which paid, term of Lease, date of occupancy, date of expiration, rent
arrears, amounts taken in settlement of outstanding arrears, collections of
rent for more than one (1) month in advance, any and every special provision,
concession or inducement granted to tenants and such other information as is
reasonably requested by Lender. Borrower shall sign. date, and certify the
operating statement and the rent roll as true and accurate. For multifamily
properties, the rent roll shall indicate which units are governed by rent
regulations, and Borrower shall certify that the rents do not exceed the legal
rent permitted to be collected under the applicable rent regulations.
(n) Estoppel Letters. The estoppel letters described in the
Section of the Commitment entitled ESTOPPEL LETTERS, if any. The estoppel
letters delivered to Lender shall provide, among other things, that:
(i) the Lease constitutes the entire agreement between
the landlord and the tenant;
(ii) the Lease has not been modified or amended, except
as specifically set forth in the estoppel letter;
(iii) the Lease is in full force and effect and the term
is as per the Lease;
(iv) the premises demised under the Lease have been
completed and the tenant has taken possession of
the same on a rent-paying basis;
(v) neither the tenant nor the landlord under the Lease
is in default under any of the terms, covenants or
provisions of the Lease and the tenant knows of no
event which, but for the passage of time or the
giving of notice, or both, would constitute an
event of default under the Lease by tenant or the
landlord thereunder;
(vi) neither the tenant nor the landlord under the Lease
has commenced any action or given or received any
notice for the purpose of terminating the Lease;
(vii) all rents, additional rents and other sums due and
payable under the Lease have been paid in full and
no rents, additional rents or other
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<PAGE> 22
sums payable under the Lease have been paid for
more than one (1) month in advance of the due dates
thereof;
(viii) there are no offsets or defenses to the payment of
the rents, additional rents, or other sums payable
under the Lease;
(ix) the tenant has no option or right of refusal to
purchase any portion of the Property; and
(x) the tenant has deposited the security deposit set
forth in the Lease with landlord.
To the extent that estoppel letters are not delivered for
certain Tenants, Lender may, in its sole discretion, accept an estoppel letter
from Borrower with respect to such tenant's occupancy at the Property certified
by Borrower as being true and correct.
(o) U.C.C. Searches. U.C.C. Searches against such parties as
Lender may require showing that the Property to the extent appropriate is owned
by Borrower free from any liens and encumbrances.
(p) Environmental Site Assessment. The Environmental Site
Assessment described in the Section of the Commitment entitled APPRAISAL,
ENVIRONMENTAL SITE ASSESSMENT AND BUILDING CONDITION REPORTS. Such
environmental site assessment shall include an analysis with respect to the
following environmental conditions at the Property, which shall be prepared by
independent qualified environmental professionals selected and engaged by
Lender:
(i) a Phase I environmental site assessment assessing
the presence of environmental contaminants, PCBs or
storage tanks at the Property conducted in
accordance with ASTM Standard E 1527-93, or any
successor thereto published by ASTM;
(ii) an asbestos survey of the Property which shall
include random sampling of materials and air
quality testing;
(iii) if the Property is used for residential housing, an
assessment of the presence of lead based paint,
lead in water and radon in the Improvements; and
(iv) such further site assessments as Lender may require
due to the results obtained in (i), (ii) or (iii)
above.
Borrower shall obtain permission for such environmental professional
to enter upon the Property for purposes of conducting such environmental
assessment. At least twelve Business Days prior to the closing of the Loan, the
environmental professional shall telephone Lender's
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<PAGE> 23
environmental technical staff to provide an oral report, prior to submitting
the written Environmental Report.
The Environmental Report shall be accompanied by Lender's standard
Letter of Understanding Regarding Environmental Assessment of Property
providing that the environmental assessment and the Environmental Report meet
Lender's requirements and that Lender and its successors and assigns are
entitled to rely on such environmental assessment and such Environmental
Report.
Borrower acknowledges and agrees that, based on any information in
such Environmental Report or any uncertainties raised thereby, Lender reserves
the absolute right, in its sole and exclusive discretion, to decline to fund
the Loan, to impose additional conditions that must be met prior to or after
the closing of the Loan (including but not limited to requiring additional
investigation into environmental conditions in connection with the Property,
testing and sampling of soil, water, air, building materials, or other
substances or materials), and/or to change any terms and conditions of the
Loan, including but not limited to the principal amount thereof, the interest
rate, representations and warranties, covenants, guaranties, indemnities,
and/or other terms and conditions of the Loan. If Lender declines to fund the
Loan, the Commitment Fee, the Origination Fee, and the Processing Deposit paid
by Borrower shall be applied by Lender in accordance with the terms of this
Commitment.
(q) Building Condition Reports. An engineer's building condition
report in form and substance satisfactory to Lender, prepared by a consulting
engineer selected and engaged by Lender, and any additional or supplemental
reports that may be required by Lender. The reports shall evaluate the physical
condition of the Property, identifying conditions requiring immediate or near
term attention and estimate the approximate cost of remediation (the "Building
Condition Report"). A remediation program and budget satisfactory to Lender and
Lender's consulting engineer must be agreed upon with Borrower prior to
closing. All fees and expenses in connection with the Building Condition Report
shall be paid by Borrower.
(r) Property Matters. Evidence satisfactory to Lender of the
following:
(i) that the Property is served by all utilities required for
the current or contemplated use thereof. All utility
service is provided by public utilities and the Property
has accepted or is equipped to accept such utility
service;
(ii) that all public roads and streets necessary for service of
and access to the Property for the current or contemplated
use thereof have been completed, are serviceable and
all-weather and are physically and legally open for use by
the public; and
(iii) that the Property is served by public water and sewer
systems.
(s) Termite Inspection Report. [FOR MULTIFAMILY PROPERTIES ONLY]
A termite
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<PAGE> 24
inspection report of the Property in form and substance satisfactory to Lender.
7. SECURITY INSTRUMENT PROVISIONS. The Security Instrument shall
contain, among other things, the following provisions:
(a) Tax Escrow. Lender shall require Borrower to deposit monthly in
escrow, without interest, 1/12th of the annual real estate taxes, water and
sewer charges and assessments, as estimated by Lender. An initial escrow
deposit with respect to the foregoing taxes, charges and assessments will be
collected from Borrower at closing in order to establish an escrow to enable
Lender to make such payments to the appropriate taxing authority when due.
(b) Insurance Escrow. Lender shall require Borrower to deposit
monthly in escrow, without interest, 1/12th of the annual fire and other hazard
insurance premiums, as estimated by Lender. An initial escrow deposit for the
foregoing insurance premiums will be collected from Borrower at closing to
establish an escrow to enable Lender to make such payments of premiums to the
appropriate insurance company when due
(c) Late Payment. In the event any payment is not made prior to the
fifth (5th) day after its due date, a late charge of five percent (5%) of the
total payment due will be charged for the late payment.
(d) Due on Sale/Encumbrance. Any sale, assignment, encumbrance,
including, without limitation, subordinate financing or other transfer of any
portion of the Property, and any sale, transfer or hypothecation of any
interest in Borrower, or any partner, member or shareholder of Borrower without
Lender's prior written consent, shall be a default under the Security
Instrument. Lender may condition the consent required upon (i) the modification
of the Security Instrument, (ii) the assumption of the Security Instrument and
the other Loan Documents as modified, by the proposed transferee, (iii) the
payment of a transfer fee by Borrower, (iv) the payment by Borrower of all
Lender's out-of-pocket expenses, including, without limitation, all of Lender's
attorneys' fees, (v) the approval by a Rating Agency of the proposed
transferee, (vi) the proposed transferee's continued compliance with the single
purpose entity requirements set forth in Subsection (p) below and (vii) such
other conditions as Lender may reasonably require at the time such consent is
sought. The fee referred to in (iv) above shall be payable by Borrower whether
or not Lender consents to the transfer.
(e) Default Rate. Borrower will pay, from the date an event of
default occurs under the Security Instrument, the Note or any of the other Loan
Documents (an "Event of Default") through the earlier of the date upon which
the Event of Default is cured or the date upon which the Loan is paid in full,
interest on the unpaid principal balance of the Note at a per annum rate equal
to the lesser of (a) five percent (5%) plus the Applicable Rate and (b) the
maximum interest rate which Borrower may by law pay or Lender may charge and
collect (the "Default Rate").
(f) Security Deposits. Upon the occurrence of an Event of
Default, to the extent permitted by law, Borrower will transfer to Lender all
security deposit accounts (the
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<PAGE> 25
"Security Deposits") with respect to Leases relating to the Property, which
will be held by Lender in accordance with the terms of each respective Lease.
In the event Lender is not permitted by law to hold the Security Deposits,
Borrower shall deposit the Security Deposits into an account with a federally
insured institution as approved by Lender. To the extent required by law,
Lender shall hold the Security Deposits in an interest bearing account selected
by Lender in its sole discretion.
(g) Default Prepayment. If a Default Prepayment (defined below)
occurs, Borrower shall pay to Lender the entire principal amount of the Loan
and all accrued interest thereon. including. without limitation, the following
amounts:
(i) if the Default Prepayment occurs prior to the time when
prepayment of the principal balance of the Loan is
permitted, an amount equal to the sum of (A) the
present value of the interest payments which would have
accrued on the principal balance of the Loan
(outstanding as of the date of such Default Prepayment)
at the Applicable Rate from the date of such Default
Prepayment to the first date prepayment is permitted
pursuant to the Commitment discounted at a rate equal
to the Treasury Rate except that such Treasury Rate
shall be based on the U. S. Treasury constant maturity
most nearly approximating the date upon which
prepayment is first permitted pursuant to the
Commitment, and (B) the Prepayment Consideration
calculated as of the first date prepayment is permitted
pursuant to the Commitment; and
(ii) if the Default Prepayment occurs at a time when
prepayment of the principal balance of the Loan is
permitted, the Prepayment Consideration.
For purposes of the Commitment, the term "Default Prepayment" shall mean a
prepayment of the principal amount of the Loan made after the occurrence of any
Event of Default or an acceleration of the Maturity Date under any
circumstances, including, without limitation, a prepayment occurring in
connection with reinstatement of the Security Instrument provided by statute
under foreclosure proceedings or exercise of a power of sale, any statutory
right of redemption exercised by Borrower or any other party having a statutory
right to redeem or prevent foreclosure. any sale in foreclosure or under
exercise of a power of sale or otherwise.
(h) Leases.
(i) Borrower may enter into a proposed Lease (including the
renewal or extension of an existing Lease ("a Renewal
Lease")) without the prior written consent of Lender,
provided such proposed Lease or Renewal Lease (A)
provides for rental rates and terms comparable to
existing local market rates and terms (taking into
account the type and quality of the tenant) as of the
date such Lease is executed by Borrower (unless, in the
case of a Renewal Lease, the rent
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<PAGE> 26
payable during such renewal, or a formula or other
method to compute such rent, is provided for in the
original Lease), (B) is an arms-length transaction with
a bona fide, independent third party tenant, (C) does
not have a materially adverse effect on the value of
the Property taken as a whole, (D) is subject and
subordinate to the Security Instrument and the lessee
thereunder agrees to attorn to Lender, and (E) is
written on the standard form of lease approved by
Lender. All proposed Leases which do not satisfy the
requirements set forth in this Commitment shall be
subject to the prior approval of Lender and its
counsel, at Borrower's expense. Borrower shall promptly
deliver to Lender copies of all Leases which are
entered into pursuant to this Subsection together with
Borrower's certification that it has satisfied all of
the conditions of this Subsection.
(ii) Borrower (A) shall observe and perform all the
obligations imposed upon the lessor under the Leases
and shall not do or permit to be done anything to
impair the value of any of the Leases as security for
the Debt; (B) upon request, shall promptly send copies
to Lender of all notices of default which Borrower
shall send or receive thereunder; (C) shall enforce all
of the material terms, covenants and conditions
contained in the Leases upon the part of the tenant
thereunder to be observed or performed, (D) shall not
collect any of the Rents more than one (1) month in
advance (except security deposits shall not be deemed
Rents collected in advance); (E) shall not execute any
other assignment of the lessor's interest in any of the
Leases or the Rents; and (F) shall not consent to any
assignment of or subletting under any Leases not in
accordance with their terms, without the prior written
consent of Lender.
(iii) Borrower may, without the consent of Lender, amend,
modify or waive the provisions of any Lease or
terminate, reduce rents under, accept a surrender of
space under, or shorten the term of, any Lease
(including any guaranty, letter of credit or other
credit support with respect thereto) provided that such
action (taking into account, in the case of a
termination, reduction in rent, surrender of space or
shortening of term, the planned alternative use of the
affected space) does not have a materially adverse
effect on the value of the Property taken as a whole,
and provided that such Lease, as amended, modified or
waived, is otherwise in compliance with the
requirements of this Security Instrument and any
subordinate agreement binding upon Lender with respect
to such Lease. A termination of a Lease with a tenant
who is in default beyond applicable notice and grace
periods shall not be considered
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<PAGE> 27
an action which has a materially adverse effect on the
value of the Property taken as a whole. Any amendment,
modification, waiver, termination, rent reduction,
space surrender or term shortening which does not
satisfy the requirements set forth in this Subsection
shall be subject to the prior approval of Lender and
its counsel, at Borrower's expense. Borrower shall
promptly deliver to Lender copies of amendments,
modifications and waivers which are entered into
pursuant to this Subsection together with Borrower's
certification that it has satisfied all of the
conditions of this Subsection.
(iv) Notwithstanding anything contained herein to the
contrary, Borrower shall not, without the prior written
consent of Lender, enter into, renew, extend, amend,
modify, waive any provisions of, terminate, reduce
rents under, accept a surrender of space under, or
shorten the term of, any Major Lease. The term "Major
Lease" shall mean any lease of space more than 50,000
sf, including the current lease at closing to
Plasti-Line, Inc..
(i) Estoppel Certificates. At Lender's request,
Borrower shall deliver, from time to time,
estoppel certificates in form and substance
satisfactory to Lender from Borrower and all
commercial tenants under then existing Leases
which Lender in its discretion designates.
(j) Right of Redemption. If the statutes of the
jurisdiction in which the Property is located
provide for a right of redemption but permit
Borrower to waive that right, such provisions
shall be incorporated in the Security Instrument.
All parties necessary to join in the Security
Instrument or other Loan Documents to release any
marital interest(s) in the Property shall do so.
(k) Financial Statements.
(A) Borrower, Indemnitor(s) and Guarantors, if any, shall keep
adequate books and records of account in accordance with generally accepted
accounting principles ("GAAP"), or in accordance with other methods acceptable
to Lender, consistently applied and furnish to Lender: (i) monthly certified
rent rolls signed and dated by Borrower, detailing the names of all tenants of
the Improvements, the portion of Improvements occupied by each tenant, the base
rent and any other charges payable under each Lease and the term of each Lease,
including the expiration date, the extent to which any tenant is in default
under any Lease, and any other information as is reasonably required by Lender,
within twenty (20) days after the end of each calendar month; (ii) quarterly
operating statements of the Property, prepared and certified by Borrower in the
form required by Lender, detailing the revenues received, the
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<PAGE> 28
expenses incurred and the net operating income before and after debt service
(principal and interest) and major capital improvements for that quarter and
containing appropriate year to date information, within thirty (30) days after
the end of each fiscal quarter; (iii) an annual operating statement of the
Property detailing the total revenues received, total expenses incurred, total
cost of all capital improvements, total debt service and total cash flow, to be
prepared and certified by Borrower in the form required by Lender, or if
required by Lender, an audited annual operating statement prepared and
certified by an independent certified public accountant acceptable to Lender,
within sixty (60) days after the close of each fiscal year of Borrower; (iv) an
annual balance sheet and profit and loss statement of Borrower, any Guarantors
and any Indemnitor(s) in the form required by Lender, prepared and certified by
the respective Borrower, Guarantors and/or Indemnitor(s), or if required by
Lender, audited financial statements prepared by an independent certified
public accountant acceptable to Lender, within sixty (60) days after the close
of each fiscal year of Borrower, Guarantors and Indemnitor(s), as the case may
be; and (v) an annual operating budget presented on a monthly basis consistent
with the annual operating statement described above for the Property, including
cash flow projections for the upcoming year, and all proposed capital
replacements and improvements at least fifteen (15) days prior to the start of
each fiscal year
(B) Upon request from Lender, Borrower, any Guarantor and any
Indemnitor shall furnish in a timely manner to Lender: (i) a property
management report for the Property, showing the number of inquiries made and/or
rental applications received from tenants or prospective tenants and deposits
received from tenants and any other information requested by Lender, in
reasonable detail and certified by Borrower (or an officer, general partner,
member or principal of Borrower if Borrower is not an individual) under penalty
of perjury to be true and complete, but no more frequently than quarterly; and
(ii) an accounting of all security deposits held in connection with any Lease
of any part of the Property, including the name and identification number of
the accounts in which such security deposits are held, the name and address of
the financial institutions in which such security deposits are held and the
name of the person to contact at such financial institution, along with any
authority or release necessary for Lender to obtain information regarding such
accounts directly from such financial institutions.
(C) Borrower, any Guarantor and any Indemnitor shall furnish Lender
with such other additional financial or management information (including State
and Federal tax returns) as may, from time to time, be reasonably required by
Lender in form and substance satisfactory to Lender.
(D) Borrower, any Guarantor and any Indemnitor shall furnish to
Lender and its agents convenient facilities for the examination and audit of
any such books and records.
(1) Environmental Matters. Borrower shall represent, warrant and covenant
with respect to the items set forth in Subsections 9(a)-(c) of these General
Conditions and shall additionally represent, warrant and covenant that:
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<PAGE> 29
(i) there are no hazardous or toxic substances in, on
or under the Property, except those that are in
compliance with applicable federal, state and
local environmental laws;
(ii) there are no environmental permits required for
current or anticipated uses of the Property; and
(iii) Borrower shall, at its cost and expense, comply
with all written requests of Lender to effectuate
remediation of any condition in, on, under or
from the Property or any directive from any
governmental authority.
(m) Indemnification. Borrower and Indemnitor(s), if any, shall indemnify
Lender for all costs incurred by Lender in connection with the removal of
hazardous wastes from the Property, regardless of whether Borrower caused the
presence of such hazardous substance; and shall indemnify Lender against any
loss, cost, damage or expense that Lender may incur, directly or indirectly, as
a result of or in connection with the assertion against Lender of any claim
relating to the presence or removal of any hazardous substance on the Property.
The Security Instrument shall also contain an indemnity from Borrower with
respect to its obligations under certain provisions of ERISA (defined below).
In addition, Borrower shall indemnify Lender against any loss, costs, damage,
or expense that Lender may incur arising out of the following: (i) its
ownership of the Security Instrument or the Property; (ii) the Loan Documents
or any enforcement action taken by Lender in connection therewith; (iii) any
accident or injury occurring on the Property; (iv) any claims asserted against
Lender by reason of its alleged obligations under any Lease; (v) the payment of
any brokerage commission to anyone in connection with funding the Loan; or (vi)
any misrepresentation made by Borrower to Lender in the Security Instrument or
the other Loan Documents. The indemnifications contained in the Security
Instrument with respect to the presence of hazardous substances at the Property
and Borrower's obligations with respect to ERISA shall survive the
satisfaction, termination or assignment of the Security Instrument, the Note
and the other Loan Documents.
(n) Limitations on Exculpation.
(i) The exculpation provided for in Article F of this Commitment
shall not: (A) constitute a waiver, release or impairment of
any obligation evidenced or secured by the Note or the
Security Instrument; (B) impair the right of Lender to name
Borrower as a party defendant in any action or suit for
judicial foreclosure and sale under the Security Instrument;
(C) affect the validity or enforceability of any indemnity,
guaranty, master Lease or similar instrument made in
connection with the Note or the Security Instrument,
including without limitation, the Environmental Indemnity
Agreement; (D) impair the right of Lender to obtain the
appointment of a receiver; (E) impair the enforcement of the
Assignment of Leases and Rents; or (F) impair the right of
Lender to
29 -
<PAGE> 30
enforce Borrower's obligations and liabilities under certain
indemnities relating to (1) certain taxes relating to the
making and/or recording of the Security Instrument or the
Note, (2) the Employee Retirement Income Security Act of
1974, as amended("ERISA") or (3) certain asbestos, toxic
waste or other hazardous substances affecting the Property,
including without limitation, the Environmental Indemnity
Agreement.
(ii) Notwithstanding the provisions of this Subsection (i) to the
contrary, Borrower shall be personally liable to Lender for
the losses it incurs due to: (i) fraud or intentional
misrepresentation by Borrower or any other person or entity
in connection with the execution and the delivery of this
Note, the Security Instrument or the Other Security Documents
or any documents or certificate now or at any time during the
term of the Loan evidenced by the Note; (ii) Borrower's
misapplication or misappropriation of Rents received by
Borrower after the occurrence of and during the continuance
of an Event of Default; (iii) Borrower's misapplication or
misappropriation of tenant security deposits or Rents
collected in advance; (iv) the misapplication or the
misappropriation of insurance proceeds or condemnation
awards; (v) personal property taken from the Property by or
on behalf of Borrower and not replaced with personal property
of the same utility and of the same or greater value; (vi)
any act of arson by Borrower; or (vii) any fees or
commissions paid by Borrower after the occurrence of and
during the continuance of an Event of Default to any
principal, affiliate, member or general partner of Borrower
or Guarantor in violation of the terms of the Note, the
Security Instrument or the Other Security Documents.
(iii) Notwithstanding the foregoing, the agreement of Lender not to
pursue recourse liability as set forth in subsection (i)
above SHALL BECOME NULL AND VOID and shall be of no further
force and effect in the event of a sale, transfer or
encumbrance by Borrower without Lender's prior consent or if
the Property or any part thereof shall become an asset in (i)
a voluntary bankruptcy or insolvency proceeding, or (ii) an
involuntary bankruptcy or insolvency proceeding (other than
one filed by Lender) which is not dismissed within ninety
(90) days of filing.
(o) Representations and Warranties.
(i) Borrower shall make representations and warranties
including, without limitation, the following:
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<PAGE> 31
(A) that Borrower has good title to the Property and
the Property is free and clear of all liens,
encumbrances, servitudes and easements, recorded
or unrecorded except as set forth in the
marked-up commitment for title insurance to be
delivered and approved by Lender;
(B) that all fixtures and articles of personally
attached to the Property or used or usable in
connection with the operation of the Property are
owned by Borrower and not subject to any
conditional bills of sale, chattel mortgages or
any other liens except as approved by Lender;
(C) that no petition in bankruptcy has ever been
filed by or against Borrower, Guarantor,
Indemnitor or any related entity, or any
principal thereof, in the last seven (7) years,
and neither Borrower, Guarantor, Indemnitor nor
any related entity, or any principal thereof, in
the last seven (7) years has ever made any
assignment for the benefit of creditors or taken
advantage of any insolvency act or any act for
the benefit of debtors;
(D) that the Property complies with all applicable
federal, state and local laws, ordinances, rules
and regulations including, without limitation,
building codes, zoning ordinances, land use and
environmental laws, access laws, rules,
regulations, orders and requirements;
(E) that a true and complete rent roll has been
delivered;
(F) that all of such Leases are arms-length
agreements with bona fide, independent third
parties, there are no prior assignments of any
Lease or any portion of Rents, additional Rents,
charges, issues or profits due and payable or to
become due and payable thereunder which are
outstanding and have priority to the Assignment
of Leases and Rents, the Leases have not been
modified or amended except as specifically
stated, each Lease is in full force and effect,
each Lease is subordinate in lien and payment to
the Security Instrument, no party under the Lease
is in default, all Rents due have been paid in
full and
31 -
<PAGE> 32
no Rent has been paid more than one month in
advance, no tenant under any Lease has an option
to purchase the Property or any portion thereof
and there are no defenses or offsets against the
enforcement of any Lease;
(G) that there is no litigation, pending or
threatened, against Borrower, any Guarantor or
any Indemnitor of the Loan;
(H) that any and all construction work, alterations
and repairs with respect to the Property have
been paid for in full and no notice of any
mechanics' or materialmen's liens or of any
claims of right to any such liens have been
received;
(I) that all financial data and documentation
furnished on behalf of Borrower is true, complete
and correct as of the date of the closing of the
Loan;
(J) that Borrower has not defaulted under its
obligations with respect to any other outstanding
indebtedness;
(K) that the Property is assessed for real estate tax
purposes as one or more wholly independent tax
lot or lots, separate from any adjoining land or
improvements not constituting a part of such lot
or lots, and no other land or improvements is
assessed and taxed together with the Property or
any portion thereof;
(L) that the Loan is solely for the business purpose
of Borrower, and is not for personal, family,
household, or agricultural purposes; and
(M) that the relationship between Borrower and Lender
is solely that of debtor and creditor, and Lender
has no fiduciary or other special relationship
with Borrower, and no term or condition of this
Commitment, the Security Instrument, the Note or
the other Loan Documents shall be construed so as
to deem the relationship of Borrower and Lender
to be other than that of debtor and creditor.
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<PAGE> 33
(ii) Borrower shall represent and warrant in
the Security Instrument with respect to
its compliance with certain ERISA
provisions.
(p) Special Covenants. Borrower shall covenant and agree that it has not
and shall not:
(i) engage in any business or activity other than the ownership,
operation and maintenance of the Property, and activities
incidental thereto;
(ii) acquire or own any material asset other than (i) the
Property, and (ii) such incidental personal property as may
be necessary for the operation of the Property;
(iii) merge into or consolidate with any person or entity or
dissolve, terminate or liquidate in whole or in part,
transfer or otherwise dispose of all or substantially all of
its assets or change its legal structure, without in each
case Lender's consent;
(iv) fail to preserve its existence as an entity duly organized,
validly existing and in good standing (if applicable) under
the laws of the jurisdiction of its organization or
formation, and qualification to do business in the state
where the Property is located, if applicable, or without the
prior written consent of Lender, amend, modify, terminate or
fail to comply with the provisions of Borrower's Partnership
Agreement, Articles or Certificate of Incorporation, Articles
of Organization or similar organizational documents, as the
case may be;
(v) own any subsidiary or make any investment in, any person or
entity without the consent of Lender;
(vi) commingle its assets with the assets of any of its general
partners, members, affiliates, principals or of any other
person or entity;
(vii) incur any debt, secured or unsecured, direct or contingent
(including guaranteeing any obligation), other than the Loan,
except for trade payables in the ordinary course of its
business of owning and operating the Property provided that
such debt is not evidenced by a note and paid when due;
(viii) become insolvent and fail to pay its debts and liabilities
from its assets as the same shall become due;
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<PAGE> 34
(ix) fail to maintain its records, books of account and bank
accounts separate and apart from those of the partners,
members, principals and affiliates of Borrower, the
affiliates of a partner, member or principal of Borrower and
any other person or entity;
(x) enter into any contract or agreement with any general
partner, member, principal or affiliate of Borrower,
Guarantor or Indemnitor, or any general partner, member,
principal or affiliate thereof, except upon terms and
conditions that are intrinsically fair and substantially
similar to those that would be available on an arms-length
basis with third parties other than any general partner,
member, principal or affiliate of Borrower, Guarantor or
Indemnitor, or any general partner, member, principal or
affiliate thereof;
(xi) seek the dissolution or winding up in whole, or in part, of
Borrower;
(xii) fail to correct any known misunderstandings regarding the
separate identity of Borrower;
(xiii) hold itself out to be responsible for the debts of another
person;
(xiv) make any loans or advances to any third party (including any
general partner, member, principal or affiliate of Borrower
or any general partner, member, principal or affiliate
thereof);
(xv) fail to file its own tax returns;
(xvi) agree to, enter into or consummate any transaction which
would render Borrower unable to furnish any ERISA
certification required pursuant to the Security Instrument;
(xvii) fail either to hold itself out to the public as a legal
entity separate and distinct from any other entity or person
or to conduct its business solely in its own name in order
not (i) to mislead others as to the identity with which such
other party is transacting business, or (ii) to suggest that
Borrower is responsible for the debts of any third party
(including any general partner, member, principal or
affiliate of Borrower or any general partner, member,
principal or affiliate thereof;
(xviii) fail to maintain adequate capital for the normal
obligations reasonably foreseeable in a business of its size
and character and in light of its contemplated business
operations;
34 -
<PAGE> 35
(xix) file or consent to the filing of any petition, either
voluntary or involuntary, to take advantage of any applicable
insolvency, bankruptcy, liquidation or reorganization
statute, or make an assignment for the benefit of creditors;
[or]
(xx) share any common logo with or hold itself out as or be
considered as a department or division of (i) any general
partner, principal, member or affiliate of Borrower, (ii) any
affiliate of a general partner, principal or member of
Borrower, or (iii) any other person or entity.[; or]
8. SECONDARY MARKET. Lender may, at any time, sell, transfer or assign
the Loan, the Loan Documents, and any or all servicing rights with respect to
the Loan, grant participations in the Loan or issue mortgage pass-through
certificates or other securities evidencing a beneficial interest in the Loan
in a rated or unrated public offering or private placement (the "Securities"),
and may forward to each purchaser, transferee, assignee, servicer, participant,
investor in such Securities, or any Rating Agency rating such Securities
(collectively, the "Investor"), or prospective Investor all documents and
information Lender has with respect to the Loan as Lender deems necessary or
desirable. Borrower, the Guarantors and Indemnitor(s), if any, shall furnish
and consent to Lender furnishing to such Investors or such prospective
Investors all information concerning the Loan, the Property, the Leases and the
financial condition of Borrower, any Guarantor, any Indemnitor, and the
Property in such form, substance and detail as Lender, such Investor or such
prospective Investor may request. Upon any such transfer, Borrower, the
Guarantors and the Indemnitor(s) shall provide an estoppel certificate to the
Investor or any prospective Investor in form and content satisfactory to
Lender, such Investor or such prospective Investor together with such other
documents as Lender may reasonably require.
9. ENVIRONMENTAL REPRESENTATIONS. Borrower represents, warrants and
covenants as of the date of this Commitment and as of the date of the
Borrower's acceptance of this Commitment, that:
(a) the Property is not currently used in a manner, and to the best
of Borrower's knowledge no prior use (by Borrower or any prior owner) has
occurred, which violates applicable federal, state or local environmental laws;
(b) neither Borrower nor any tenant has received any notice
from a government agency for a violation of such laws and if such notice is
received, Borrower shall immediately notify Lender;
(c) Borrower shall not cause nor permit any tenant to cause a
violation of any applicable federal, state or local environmental laws, nor
permit any environmental liens to be placed on the Property;
35 -
<PAGE> 36
(d) Borrower and Indemnitor(s) shall indemnify Lender for all
costs incurred by Lender in connection with the removal of hazardous wastes
from the Property, regardless of whether Borrower caused the presence of such
hazardous waste; and
(e) Borrower and Indemnitor(s) shall indemnify Lender against
any loss, costs, damage or expense that Lender may incur, directly or
indirectly, as a result of or in connection with the assertion against Lender
of any claim relating to the presence or removal of any hazardous waste on the
Property.
10. OTHER DOCUMENTATION. Borrower shall provide Lender with such other
evidence, information and material as Lender or its counsel may reasonably
require.
11. NO ORAL CHANGE. The Commitment may not be modified, amended,
waived, extended, changed, discharged or terminated orally, or by any act or
failure to act on the part of Lender or Borrower, but only by an agreement in
writing signed by the party against whom the enforcement of any modification,
amendment, waiver, extension, change, discharge or termination is sought.
12. NOTICES. All notices or other written communications hereunder
shall be deemed to have been properly given (i) upon delivery, if delivered in
person or by facsimile transmission with receipt acknowledged by the recipient
thereof and confirmed by telephone by sender, (ii) one (1) Business Day after
having been deposited for overnight delivery with any reputable overnight
courier service, or (iii) three (3) Business Days after having been deposited
in any post office or mail depository regularly maintained by the U.S. Postal
Service and sent by registered or certified mail, postage prepaid, return
receipt requested, addressed to Borrower or Lender, as the case may be, at the
addresses set forth on the first page of this Commitment or addressed as such
Party may from time to time designate by written notice to the other parties.
EITHER PARTY BY NOTICE TO THE OTHER MAY DESIGNATE ADDITIONAL OR DIFFERENT
ADDRESSES FOR SUBSEQUENT NOTICES OR COMMUNICATIONS.
13. GOVERNING LAW. This Commitment has been issued by Lender in
Cleveland, Ohio from where all advances of the Loan, closing of the Loan,
delivery of any additional security and all matters incidental to the Loan or
this Commitment shall take place. This Commitment and all other Loan Documents
shall be governed by and construed in accordance with the laws of the State of
Ohio and the applicable laws of the United States of America. Notwithstanding
the foregoing, however, the laws of the State where the Property is located
shall apply with respect to (a) the creation, perfection, priority and
enforcement of the lien or the pledge, as the case may be, of (i) the Security
Instrument, (ii) the Assignment of Leases and Rents and (iii) to the extent the
escrow accounts created pursuant to the Completion/Repair and Security
Agreement and the Replacement Reserve and Security Agreement are located in the
State where the Property is located, the Completion/Repair and Security
Agreement and the Replacement Reserve and Security Agreement, and (b) the
determination of deficiency judgments.
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<PAGE> 37
14. WAIVER/SURVIVAL. The provisions of this Commitment cannot be
waived or modified unless such waiver or modification be in writing and signed
by both Borrower and Lender. The terms of this Commitment which are not
incorporated in the formal Loan Documents shall, to the extent applicable,
survive the closing of the Loan and remain binding on the parties. This
Commitment is for the benefit only of the parties thereto and no third party
shall have any interest therein or in the proceeds of the Loan. This Commitment
sets forth the entire agreement between Borrower and Lender, and all other
agreements shall be deemed to have merged herewith. Where terms and conditions
of this Commitment differ from the terms and conditions of the Loan as applied
for, this Commitment shall prevail. Borrower acknowledges that Lender has made
no representations or warranties to Borrower except those as set forth herein.
15. NON-ASSIGNABILITY. This Commitment is issued in response to
Borrower's application for a loan and in reliance upon the representations made
in such application. This Commitment and the proceeds thereof are not
assignable by Borrower to any other person, corporation, partnership or limited
liability company without Lender's consent in writing. For the purposes of this
Section, an assignment shall be deemed to include (i) if Borrower is a
corporation, the voluntary or involuntary sale, conveyance or transfer of
Borrower's stock (or the stock of any corporation directly or indirectly
controlling Borrower by operation of law or otherwise) or the creation or
issuance of a new stock by which an aggregate of more than 10% of Borrower's
stock shall be vested in a party or parties who are not now stockholders, (ii)
if Borrower is a partnership, the change, removal or resignation of a general
partner or managing partner, or (iii) if Borrower is a limited liability
company, the change, removal or resignation of a managing member.
16. PUBLICITY. In the event the Loan contemplated herein is made,
Lender shall have the right to issue press releases, advertisements and other
promotional materials describing in general terms or in detail, Lender's
participation in such transaction.
17. CONFIDENTIALITY. This Commitment is being furnished to Borrower on
a confidential basis and may not be reproduced, used, distributed or disclosed
to third parties prior to acceptance, except with Lender's prior written
consent.
18. CLOSING FUNDS. All funds required to be paid by Borrower to Lender
at closing must be in the form of certified funds or made by wire transfer of
immediately available federal funds.
19. OBLIGATIONS TO FUND. If, on or before the Closing Date, any of the
following shall have occurred, Lender shall have no obligation to close and
fund the Loan under this Commitment:
(a) Casualty/Damage. Any of the Property shall have been
damaged and not repaired to Lender's satisfaction or been taken in condemnation
or other similar proceeding, or any such proceeding shall be pending;
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<PAGE> 38
(b) Structural Damage. If there shall have been a structural
change in the physical condition of any portion of the Property;
(c) Violations. Any notice of violations of any municipal
ordinances shall have been filed against the Property by any municipal
department;
(d) Bankruptcy. If Borrower, any Guarantor or Indemnitor or
any partners, members or principal shareholders or officers of any of them, or
any tenant under any lease deemed by Lender to be material to Lender's security
or any guarantor of any such lease shall be the subject of any bankruptcy,
reorganization or insolvency proceeding;
(e) Environmental. Discovery of any environmental conditions
at the Property unacceptable to Lender;
(f) Site Inspection. An unsatisfactory Engineer's Report or
site inspection conducted by Lender or any engineering firm retained by Lender;
(g) Adverse Financial Change. The income and expenses of the
Property, the Leases, the occupancy of the Property and all other features of
the transaction, including the financial condition of Borrower, any Guarantor
or Indemnitor, as represented in this Commitment, in any loan application or in
any other documents and communications presented to Lender in order to induce
Lender to make the Loan shall have materially changed;
(h) General Legal Compliance. Any action, suit or proceeding,
judicial, administrative or otherwise is pending against or affecting Borrower
or the Property;
(i) Representations and Warranties. If the representations
and warranties contained herein are false or incorrect in any respect; or
(j) Default. If any condition occurs or shall have occurred
which would be deemed an Event of Default under the Loan Documents if they were
in effect.
20. BROKER INDEMNIFICATION. Borrower represents that it shall pay any
and all brokerage commissions owed to any broker in this transaction. It is
understood and agreed that any broker is the agent for Borrower and that no
statement, acts or representations on the part of it or its agents shall be
considered binding upon Lender. It is further understood and agreed that by
Lender's issuance of the Commitment it shall be under no obligation for payment
of any brokerage commission or fee of any kind with respect to the Commitment
and that by Lender's issuance of the Commitment to the Borrower, Borrower
agrees to pay the fee and commission of any broker and to indemnify, save
harmless and defend Lender from and against any and all claims asserted by any
broker for brokers' or finders' fees and commissions in connection with the
negotiation, execution and consummation of the Loan, the Commitment, such
indemnity to include Lender's counsel fees.
38 -
<PAGE> 39
21. REPRESENTATIONS AND WARRANTIES. All representations and warranties
made by Borrower herein shall also be deemed made as of the Closing Date.
22. SOLE DISCRETION OF LENDER. Wherever pursuant to this Commitment
(a) Lender exercises any right given to it to approve or disapprove, (b) any
arrangement or term is to be satisfactory to Lender, or (c) any other decision
or determination is to be made by Lender, the decision of Lender to approve or
disapprove, all decisions that arrangements or terms are satisfactory or not
satisfactory and all other decisions and determinations made by Lender, shall
be in the sole and absolute discretion of Lender and shall be final and
conclusive, except as may be otherwise expressly and specifically provided
herein
SPECIAL CONDITIONS TO COMMITMENT
Borrower must enter in to a twenty-five (25) year lease with Plasti-Line, Inc.
at rental rates at least 5% above market rents, as determined by an independent
appraisal. The lease must be an absolute net lease with CPI increase at least
every five (5) years, and must be satisfactory to Lender in its sole and
absolute discretion.
<TABLE>
<CAPTION>
EXHIBIT A: TERM SHEET
<S> <C> <C>
1. Loan Amount: $ 6,500,000
2. Assumed Interest Rate: 9.25%
3. Debt Service Coverage Ratio: 125%
4. Basis Points over the applicable U.S.
Treasury Bonds: 300
5. Maturity Date of U.S. Treasury Bonds: 10 Year U.S. Treasury
6. Amortization Period: 25 Years
7. Maturity Date of Loan: tenth (10th)
8. Prepayment Lockout Period: sixth (6th)
9. Application Fee: $2,500
10. Processing Deposit: $10,000
11. Good Faith Deposit: Not Applicable
12. Origination Fee: 1.0% of the Loan Amount
</TABLE>
39 -
<PAGE> 40
<TABLE>
<S> <C> <C>
13. Portion of Origination Fee due with
Commitment: 1/2% of the Loan Amount
14. Check Amount to be Returned with
Commitment: $ 45,000.00
15. [Miscellaneous]:
-----------------
16. [Miscellaneous]:
-----------------
17. [Miscellaneous]:
</TABLE>
-----------------
KeyCorp Real Estate Capital Markets, Inc. Closer:
-----------------
1. Date:
-----------------
40 -
<PAGE> 1
EXHIBIT (A)(4)
VIA FACSIMILE
November 5, 1997
Mr. James R. Martin
Chairman and Chief Executive Officer
Plasti-Line, Inc.
c/o Ms. Christine N. Evans Kelly
Principal
William Blair & Company, L.L.C.
222 West Adams Street
Chicago, IL 60606
Re: Financing Commitment By RSTW Partners III, L.P. ("RSTW") for PL
Holding Corp. ("Plasti-Line" or the "Company").
Dear Mr. Martin:
RSTW Partners III, L.P. ("RSTW") is pleased to set forth in this letter its
commitment (the "Commitment") to establish certain credit facilities (the
"Credit Facilities") for the Company. The basic terms of the proposed
financing are set forth in Exhibit A (the "Term Sheet") attached hereto. As
used herein, the term "Commitment" includes the terms contained in this letter
and in the Term Sheet which is incorporated herein by reference. This letter
supersedes all prior communications between RSTW and the Company and/or William
Blair & Company.
RSTW will not be under any obligation to consummate the proposed financing
until such time as (a) each of the terms and conditions outlined in this letter
and in the financing documents have been satisfied to RSTW's satisfaction, and
(b) financing documents, in form and substance satisfactory to RSTW, have been
executed by the parties.
Expenses
By accepting this Commitment, Plasti-Line agrees to pay all reasonable and
customary out-of-pocket costs and expenses heretofore or hereafter incurred by
RSTW (including its fees and disbursements of its counsel), whether or not any
financing by RSTW is consummated, in connection with the following: this
Commitment, all due diligence by RSTW and its representatives (including any
independent consultants retained by RSTW) concerning the Commitment, all
financing documentation, and the closing of the proposed financing. As a
deposit against such costs and expenses, the Company has previously delivered
to RSTW $50,000. In the event out of pocket costs are less than $50,000, RSTW
will return the excess amount, if any. The obligations of Plasti-Line under
this paragraph will survive any expiration or termination of this Commitment.
Break-Up Fee
Plasti-Line and Plasti-Line, Inc. (the existing operating company) agrees that
if Plasti-Line, or any of its related entities, finances the transaction
contemplated herein or a similar transaction with any other institution within
180 days from the Commitment Date, Plasti-Line and Plasti-Line, Inc. (the
existing operating company) shall pay to RSTW a fee of $500,000 as liquidated
damages to RSTW (the "Break-Up Fee").
<PAGE> 2
Mr. James R. Martin
November 5, 1997
Page -2-
Confidentiality of Commitment
The terms of this Commitment are confidential, and neither the contents of this
letter nor the details of this Commitment may be shown or disclosed by
Plasti-Line or William Blair & Company except to those individuals at Plasti-
Line or William Blair & Company or others who have a need to know as a result
of being involved in the proposed transaction (such as the senior lenders and
their attorneys).
Successors and Assigns
As used herein, the terms "RSTW" and "Plasti-Line" include the successors or
assigns of those parties, except that Plasti-Line does not have the right to
assign its rights hereunder or any interest herein.
Modification
No modification, rescission, waiver, release, or amendment of any provision of
this Commitment may be made, except by a written agreement signed by
Plasti-Line and a duly authorized officer of RSTW.
Entire Agreement; Headings
This Commitment constitutes the entire agreement and understanding between the
parties hereto with respect to the proposed financing and supersedes all prior
negotiations, understandings, and agreements between such parties with respect
to the proposed financing, including, without limitation, those expressed in
any prior communication between RSTW, William Blair & Company, Plasti-Line or
Plasti-Line, Inc. (existing operating company). Headings used in this letter
are for convenience only and do not affect the construction of this Commitment.
APPLICABLE LAW
THIS COMMITMENT, AND THE TRANSACTION EVIDENCED HEREBY, WILL BE GOVERNED BY, AND
CONSTRUED UNDER, THE INTERNAL LAWS OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW, AS THE SAME MAY FROM TIME TO TIME BE IN EFFECT.
JURY TRIAL WAIVER
PLASTI-LINE AND RSTW HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY
RIGHT TO TRIAL BY JURY PLASTI-LINE OR RSTW MAY HAVE IN ANY ACTION OR
PROCEEDING, IN LAW OR IN EQUITY IN CONNECTION WITH THIS COMMITMENT OR THE
TRANSACTIONS RELATED HERETO. PLASTI-LINE REPRESENTS AND WARRANTS THAT NO
REPRESENTATIVE OR AGENT OF RSTW HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
RSTW WILL NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS RIGHT TO JURY
TRIAL WAIVER. PLASTI-LINE ACKNOWLEDGES THAT RSTW HAS BEEN INDUCED TO ENTER
INTO THIS COMMITMENT BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS SECTION.
<PAGE> 3
Mr. James R. Martin
November 5, 1997
Page -3-
Expiration of Commitment
This Commitment will automatically expire, and be of no further force or
effect, if (1) RSTW has not received from the Company a copy of this letter
acknowledged and agreed to by the Company in the space provided on or before
5:00 p.m. CST on November 6, 1997, or (2) prior to any such receipt, RSTW,
orally or in writing, gives notice of the withdrawal hereof. If this letter is
duly executed and delivered to RSTW by November 6, 1997, and RSTW has not
previously withdrawn the same, the Commitment will automatically expire on
January 30, 1998, unless extended by RSTW in its sole discretion. Company
agrees to provide RSTW eleven (11) business days notice (the "Closing Notice
Period") prior to the anticipated Closing Date, to facilitate RSTW's drawdown
of funds. RSTW and Plasti-Line agree to use good faith efforts to close the
proposed transaction as outlined in this Commitment as soon as reasonably
possible after the effective date of the Closing Notice Period.
Very truly yours,
RSTW PARTNERS III, L.P.
By: RSTW Management, L.P.,
its general partner
By: Rice Mezzanine Corporation,
its general partner
By:/S/ DON K. RICE
--------------------------
Don K. Rice
Its: Vice President &
Managing Director
Acknowledged and agreed to: Guaranty of obligations of PL Holding
to pay expenses hereunder prior to
PL HOLDING CORP. closing and acknowledgement and
agreement of Plasti-Line Inc. (the
operating company) to pay the Break-up
Fee
By:
-------------------------
Its: PLASTI-LINE, INC.
------------------------- By:
--------------------------------
Date: , 1997 Its:
------------------------- --------------------------------
Date:
--------------------------------
<PAGE> 4
THIS IS A SUMMARY OF TERMS OF A FINANCING COMMITMENT, AND IS SUBJECT TO THE
TERMS OF A COMMITMENT LETTER DATED THE DATE HEREOF.
EXHIBIT A
TERM SHEET
BASIC TERMS OF COMMITMENT
November 5, 1997
Words contained in this Term Sheet with their initial letter capitalized that
are not otherwise defined shall have the meaning set forth in the Proposal
letter of which this Term Sheet is a part.
I. Senior Subordinated Debt
Lender: RSTW Partners III, L.P., a
Delaware Limited partnership
("RSTW").
Borrower: PL Holding Corp. (the
holding company).
Principal Amount: $6,000,000.
Use of Proceeds: To provide a portion of the
financing for the purchase of
James Martin's shares of
Plasti-Line, Inc.
Interest: 12.5% per annum, payable
quarterly in arrears;
interest calculated on the
basis of a 360 day year and
for the actual number of days
elapsed.
Fees: 2.0% ($120,000) of the total
facility due and payable on
the closing date.
Prepayment Penalty: A premium equal to the
percentage of the principal
amount so prepaid which is
applicable in accordance with
the following based on the
date on which such prepayment
is made:
<TABLE>
<CAPTION>
Prepayment Date Premium
--------------- -------
<S> <C>
Year 1 12.50%
Year 2 10.71%
Year 3 8.92%
Year 4 7.14%
Year 5 5.36%
Year 6 0.00%
Year 7 0.00%
</TABLE>
1
<PAGE> 5
Term: 8 years.
Amortization: Years 1-6: Interest only,
payable quarterly.
Years 7-8: Interest payments
due quarterly,
principal due in
equal quarterly
payments during
years seven and
eight.
Security: For the first two years, the
Credit Facilities will be
secured by a security
interest, lien, mortgage or
assignment, as the case may
be, in and on all properties
and assets of the Borrower
and its subsidiaries
whatsoever, now owned or
existing or hereafter arising
or acquired and all proceeds
of the foregoing. RSTW
acknowledges that it is not
likely that it will be able
to secure a second lien
position on the Knoxville,
TN, Columbia, SC and
Florence, KY real properties.
RSTW also acknowledges that
such liens will be subject to
the intercreditor/
subordination agreement
described in the immediately
following 3 paragraphs.
RSTW's lien/security
interest will terminate
automatically on the second
anniversary of funding.
Key Corporate Capital, Inc.
(KCCI) would serve as
collateral agent for the
Senior Lenders and the RSTW.
RSTW's interest in the
collateral would be
subordinated in full to the
prior interest of KCCI and the
Senior Lenders, and any right
of RSTW against any Operating
Company would be subordinated
in full to the prior rights to
payment and action of KCCI and
the Senior Lenders. RSTW,
Borrower, KCCI and the Senior
Lenders would agree that RSTW
would be entitled, in the
event of a liquidation, to any
collateral remaining after
KCCI and the Senior Lenders
are paid in full.
KCCI would have no other
obligations or duties to RSTW
with respect to the
Collateral. The Collateral
Agent would be entitled to
exercise complete discretion,
in its sole judgement, with
respect to the Collateral,
including the release of all
Collateral with respect to
KCCI, the Senior Lenders and
RSTW. Moreover, until the
Senior Lenders are paid in
full and their commitments
are terminated, (i) except as
provided herein and under the
Subordination Agreement, RSTW
would have no rights with
respect to the Collateral,
and (ii) RSTW would have no
rights or remedies against
any of the Operating
Companies except as
2
<PAGE> 6
provided herein with respect
to proceeds of the Collateral
and under the Subordination
Agreement.
If at any time, the Company
and the Operating Company
shall merge, the second lien
position will be released.
On and after the second
anniversary of the
funding of the Credit
Facilities, RSTW will have
the right to require a merger
of the Company and the
Operating Company at any time
after the occurrence of an
event of default under the
Credit Facilities as a result
of a breach of one or more of
the financial covenants
(i.e., ratios, not capex) of
the Credit Facilities.
Board of Directors Rights: The Company agrees that two
representatives of RSTW (in
total for its obligations to
RSTW under both the current
pay and PIK notes) will have
the right to attend and
observe all meetings of the
Company's Board of Directors
and all committees thereof.
RSTW will retain such
visitation rights until the
full principal amount owing
to RSTW is repaid and/or
RSTW's equity ownership
position is liquidated,
whichever occurs at the
latest date. The Company
agrees to reimburse RSTW for
all reasonable out-of-pocket
expenses incurred by any RSTW
representative in connection
with his or her attendance at
Board of Directors meetings.
Board of Directors meetings
will be required to be held
no less than quarterly.
In addition, the Company
agrees that RSTW will
have the right, but not the
obligation, to appoint one
representative (in total for
its obligations to RSTW under
both the current pay and PIK
notes) to the Company's Board
of Directors and all
committees thereof (in lieu
of one of the representative
positions). RSTW will retain
such appointment right until
the full principal amount
owing to RSTW is repaid
and/or RSTW's equity
ownership position is
liquidated, whichever occurs
at the latest date. It is
anticipated that the Board of
Directors will consist of no
more than eight members. The
Company agrees to reimburse
RSTW for all reasonable
out-of-pocket expenses
incurred by any RSTW director
in connection with his or her
attendance at Board of
Directors meetings. Board of
Directors meetings will be
required to be held no less
than quarterly.
Common Stock: Basic Terms. RSTW shall
receive shares of the common
stock of the Company (the
"RSTW Common Stock")
representing 6.5% as of
closing date of the Common
Stock on a fully-diluted
basis. The purchase price of
the RSTW Commn Stock will be a
nominal value not to exceed
$100.00
3
<PAGE> 7
Registration Rights.
Upon the initiation of an
initial public offering, the
shareholders agreement shall
provide the holder(s) of the
RSTW Common Stock with
unlimited piggyback
registration rights for the
RSTW Common Stock at the
option of such holders(s)
with all registration
expenses being paid by the
Company. In addition,
following successful
completion of an initial
public offering, the
holder(s) shall have the
right, at any time, but
exercisable on no more than
two (2) occasions (in total
for its obligations to RSTW
under both the current pay
and PIK notes), to have all
or a portion of the RSTW
Common Stock registered at
the expense of the Company
under the Securities Act of
1933, with all such
registration expenses being
paid by the Company. The
RSTW Common Stock shall be
transferable to other
institutions or accredited
investors without the consent
of the Company. If the
Company is so eligible, any
holder may request that the
Company register the RSTW
Common Stock on Form S-3 (or
any successor form), to the
extent practicable. Upon the
request of any holder or a
prospective purchaser of the
RSTW Common Stock, the Company
shall provide the information
necessary for compliance with
Rule 144A. If the Company
should initiate an
underwritten public offering,
the holder(s) will, if so
required, "hold back" for 180
days. If the holder(s) or any
other security holder
initiates an underwritten
public offering, the Company
and the shareholders of the
Company other than the
holder(s) will "hold back" for
180 days.
Anti-Dilution Protection. The
holder(s) of the RSTW Common
Stock will be protected from
the dilutive effect of certain
events, including capital
restructurings, mergers,
acquisitions, consolidations,
dividends, distributions,
stock splits, stock dividends,
reverse stock splits,
reclassifications of equity,
or issuances or sales of
capital stock of the Company
for less than the Fair Market
Value of such stock.
Put Provision of the RSTW
Common Stock. The holder(s)
of the RSTW Common Stock will
be able to put the RSTW
Common Stock to the Company at
any time after the earlier to
occur of either (1) the fifth
anniversary of the Closing
Date; (2) prepayment of the
Credit Facility in full, (3)
a material change in the
ownership of the Company; (4)
a merger greater than $1.0
million, provided that
4
<PAGE> 8
any such merger that is less
than or equal to $1.0
million and in a similar line
of business as defined in the
loan documentation does not
cause an adverse impact on
the financial covenants or
sale of all or a majority of
the Company's assets; or (5)
the Company's failure to
perform certain other
covenants contained in the
Loan Documents.
The put price shall be equal
to the greater of (1) the
value determined by an
independent appraiser; (2)
book value; or (3) market
value. The put price will be
the fair market value of such
securities without premium
for control or discount for
minority interests,
illiquidity, or restrictions
on transfer. The put price
will be paid in cash at the
time of exercise.
Co-Sale Provision of
the RSTW Common Stock. The
holder(s) of the RSTW Common
Stock will have the right to
participate in any sale by a
shareholder of the Company of
the Company's Common Stock on
a pro-rata basis. However,
certain significant inside
shareholders will be limited
in their ability to sell
most, if not all, of its
shares while RSTW's Credit
Facility and equity position
remains outstanding.
II. Junior Subordinated Debt
Lender: RSTW Partners III, L.P., a
Delaware Limited Partnership\
("RSTW")
Borrower: PL Holding Corp. (the
holding company).
Principal Amount: $4,000,000
5
<PAGE> 9
Use of Proceeds: To provide a portion of the
financing for the purchase of
James Martin's shares of
Plasti-Line, Inc.
Interest: 12.5% per annum, payable
quarterly in kind ("PIK")
during years one through five
on the basis of a 360 day
year for the actual number of
days elapsed. Borrower will
execute and deliver notes
payable in accordance with
the terms and rates hereof.
Interest in years six through
eight is payable in cash,
quarterly in arrears, and is
calculated on the basis of a
360 day year and for the
actual number of days
elapsed.
Fees: 2.0% ($80,000) of the total
facility due and payable on
the closing date.
Prepayment Penalty: A premium equal to the
percentage of the principal
amount so prepaid which is
applicable in accordance with
the following based on the
date on which such prepayment
is made:
<TABLE>
<CAPTION>
Prepayment Date Premium
--------------- -------
<S> <C>
Year 1 12.50%
Year 2 10.71%
Year 3 8.92%
Year 4 7.14%
Year 5 5.36%
Year 6 0.00%
Year 7 0.00%
</TABLE>
Term: 8 years.
Amortization: Year 5: Accrued PIK
interest notes due
in full on the
final day of Year
5.
Years 7-8: Principal payments
due in equal
quarterly payments
of $500,000 during
years seven and
eight.
Security: For the first two years, the
Credit Facilities will be
secured by a security
interest, lien, mortgage or
assignment, as the case may
be, in and on all properties
and assets of the Borrower
and its subsidiaries
whatsoever, now owned or
existing or hereafter arising
or acquired and all proceeds
of the foregoing. RSTW
acknowledges that it is not
likely that it will be able
to secure a second lien
position
6
<PAGE> 10
on the Knoxville, TN,
Columbia, SC and Florence, KY
real properties. RSTW also
acknowledges that such liens
will be subject to the
intercreditor/subordination
agreement described in the
immediately following 3
paragraphs. RSTW's
lien/security interest will
terminate automatically on
the second anniversary of
funding.
Key Corporate Capital,
Inc. (KCCI) would serve as
collateral agent for the
Senior Lenders and the RSTW.
RSTW's interest in the
collateral would be
subordinated in full to the
prior interest of KCCI and
the Senior Lenders, and any
right of RSTW against any
Operating Company would be
subordinated in full to the
prior rights to payment and
action of KCCI and the Senior
Lenders. RSTW, Borrower,
KCCI and the Senior Lenders
would agree that RSTW would
be entitled, in the event of
a liquidation, to any
collateral remaining after
KCCI and the Senior Lenders
are paid in full.
KCCI would have no
other obligations or duties
to RSTW with respect to the
Collateral. The Collateral
Agent would be entitled to
exercise complete discretion,
in its sole judgement, with
respect to the Collateral,
including the release of all
Collateral with respect to
KCCI, the Senior Lenders and
RSTW. Moreover, until the
Senior Lenders are paid in
full and their commitments
are terminated, (i)except as
provided herein and under the
Subordination Agreement, RSTW
would have no rights with
respect to the Collateral,
and (ii) RSTW would have no
rights or remedies against
any of the Operating
Companies except as provided
herein with respect to
proceeds of the Collateral
and under the Subordination
Agreement.
If at any time, the
Company and the Operating
Company shall merge, the
second lien position will be
released.
On and after the second
anniversary of the funding of
the Credit Facilities, RSTW
will have the right to
require a merger of the
Company and the Operating
Company at any time after the
occurrence of an event of
default under the Credit
Facilities as a result of a
breach of one or more of the
financial covenants (i.e.,
ratios, not capex) of the
Credit Facilities.
Board of Directors Rights: The Company agrees that two
representatives of RSTW (in
total for its obligations to
RSTW under both the current
pay and PIK notes) will have
the right to attend and
observe all meetings of the
Company's Board of Directors
and all committees
7
<PAGE> 11
thereof. RSTW will retain such
visitation rights until the
full principal amount owing to
to RSTW is repaid and/or
RSTW's equity ownership
position is liquidated,
whichever occurs at the latest
date. The Company agrees to
reimburse RSTW for all
reasonable out-of-pocket
expenses incurred by any RSTW
representative in connection
with his or her attendance at
Board of Directors meetings.
Board of Directors meetings
will be required to be held
no less than quarterly.
In addition, the Company
agrees that RSTW will have the
right, but not the obligation,
to appoint one representative
(in total for its obligations
to RSTW under both the current
pay and PIK notes)to the
Company's Board of Directors
and all committees thereof
(in lieu of one of the
representative positions).
RSTW will retain such
appointment right until
the full principal amount
owing to RSTW is repaid and/or
RSTW's equity ownership
position is liquidated,
whichever occurs at the latest
date. It is anticipated that
the Board of Directors will
consist of no more than eight
members. The Company agrees to
reimburse RSTW for all
reasonable out-of-pocket
expenses incurred by any RSTW
director in connection with
his or her attendance at Board
of Directors meetings. Board
of Directors meetings will be
required to be held no less
than quarterly.
Common Stock: Basic Terms. RSTW shall
receive shares of the common
stock of the Company (the
"RSTW Common Stock")
representing 8.5% as if the
closing date of the Common
Stock on a fully-diluted
basis. The purchase price
of the RSTW Common Stock will
be a nominal value not to
exceed $100.00.
Registration Rights. Upon the
initiation of an initial
offering, the shareholders
agreement shall provide the
holder(s) of the RSTW Common
Stock with unlimited piggyback
registration rights for the
RSTW Common Stock at the
option of such holder(s) with
all registration expenses
being paid by the Company. In
addition, following successful
completion of an initial
public offering, the holder(s)
shall have the right, at any
time, but exercisable on no
more than two (2) occasions
(in total for its obligations
to RSTW under both the current
pay and PIK notes), to have
all or a portion of the RSTW
Common Stock registered at the
expense of the Company under
the Securities Act of 1933,
with all such
8
<PAGE> 12
registration expenses being
paid by the Company. The
RSTW Common Stock shall be
transferable to other
institutions or accredited
investors without the consent
of the Company. If the
Company is so eligible, any
holder may request that the
Company register the RSTW
Common Stock on Form S-3
(or any successor form), to
the extent practicable. Upon
the request of any holder or
a prospective purchaser of
the RSTW Common Stock, the
Company shall provide the
information necessary for
compliance with Rule 144A. If
the Company should initiate
an underwritten public
offering, the holder(s) will,
if so required, "hold back"
for 180 days. If the
holder(s) or any other
security holder initiates an
underwritten public offering,
the Company and the
shareholders of the Company
other than the holder(s) will
"hold back" for 180 days.
Anti-Dilution Protection.
The holder(s) of the RSTW
Common Stock will be
protected from the dilutive
effect of certain events,
including capital
restructurings, mergers,
acquisitions, consolidations,
dividends, stock dividends,
reverse stock splits,
reclassifications of
equity, or issuances or sales
of capital stock of the
Company for less than the
Fair Market Value of such
stock.
Put Provision of the RSTW
Common Stock. The holder(s)
of the RSTW Common Stock will
be able to put the RSTW
Common Stock to the Company
at any time after the earlier
to occur of either (1) the
fifth anniversary of the
Closing Date; (2) prepayment
of the Credit Facility in
full, (3) a material change in
the ownership of the Company;
(4) a merger greater than $1.0
million, provided that any
such merger that is less than
or equal to $1.0 million and
in a similar line of business
as defined in the loan
documentation does not cause
an adverse impact on the
financial covenants or sale of
all or a majority of the
Company's assets; or (5) the
Company's failure to perform
certain other covenants
contained in the Loan
Documents.
The put price shall be equal
to the greater of (1) the
value determined by an
independent appraiser; (2)
book value; or (3) market
value. The put price will be
the fair market value of such
securities without premium
for control or discount for
minority interests,
illiquidity, or restrictions
on transfer. The put price
will be paid in cash at the
time of exercise.
9
<PAGE> 13
Co-Sale Provision of the
RSTW Common Stock. The
holder(s) of the RSTW Common
Stock will have the right to
participate in any sale by a
shareholder of the Company
of the Company's Common Stock
on a pro-rata basis. However,
certain significant inside
shareholders will be limited
in their ability to sell
most, if not all, of its
shares while RSTW's Credit
Facility and equity position
remains outstanding.
Certain Conditions Precedent:
Funding of the Credit Facilities is subject to certain conditions
precedent, including without limitation, the following:
A. Review and satisfaction in full, in RSTW's sole discretion, of
the final acquisition and transaction documents, including
structure and terms.
B. Minimum excess cash or availability through committed and
unused lines of credit, at the Closing Date, after taking into
account all debt repayments, shareholder distributions, and
all fees and expenses related to the transaction, to be
greater than $5.0 million at closing.
C. James Martin and Mark Deuschle will enter into employment of
at least 2 year's duration and noncompete agreements on terms
acceptable to RSTW in its sole discretion.
D. No material change from Commitment Date to anticipated Closing
Date, in RSTW's reasonable determination, of the Company's
ability to meet management's estimated 1997 Earnings Before
Interest, Taxes, Depreciation and Amortization ("EBITDA") of
$10.9 million.
E. Minimum total net Common Stock investment of $10.0 million,
which will consist of a minimum $9.0 million from James R.
Martin and $1.0 million from other Plasti-Line management.
10
<PAGE> 14
F. Loan Documents
There shall be delivered to RSTW such loan documentation
evidencing, securing and relating to the proposed
Credit Facilities as RSTW shall request, each such document to
be in form and substance satisfactory to RSTW and its counsel
(collectively, the "Loan Documents"), containing such
representations, warranties, conditions, covenants, defaults,
and remedies as RSTW, in its sole discretion, deems
appropriate. While the following does not purport to be a
full statement of the terms and conditions to be contained in
the Loan Documents, and the Loan Documents will provide for
additional terms and conditions, such documents will, among
other things, include:
1. Reporting. Covenants requiring the Company to
provide, on a mont hly basis, internally
prepared financial statements consisting of a balance
sheet and related statements of income, stockholders'
equity and cash flows; on an annual basis, certified
financial statements prepared by and bearing the
unqualified opinion of a public accounting firm
acceptable to RSTW, and an annual budget for each
fiscal year that includes projected financial
statements and any underlying assumptions; and, at
intervals to be set forth in such covenants, such
other information as specified by RSTW.
2. Financial Covenants. Certain financial covenants
that are consistent with but less restrictive
than those of the senior lender, including, without
limitation, the following: minimum EBITDA,
Debt/EBITDA limitations, fixed charge coverage,
capital expenditure limitations, and lease
limitations.
3. Jury Trial Waiver and Other Waivers. A waiver of
injury trial, a consent to Texas jurisdiction,
and other standard waiver provisions.
4. Environmental Matters. Such representations,
warranties, and covenants as RSTW shall require
in order to assure present and future compliance with
applicable environmental laws, and provisions by
which the Company indemnifies RSTW against liability
in connection with environmental matters.
5. Other Debt and Liens. Provisions restricting the
Company's ability to incur additional
indebtedness that are consistent with senior lender's
provisions.
6. Executive Compensation; Affiliate Transactions.
Provisions regarding compensation of the
Company's officers and directors, and provisions
regarding the Company's ability to make loans,
advances and distributions to its affiliates and to
enter into transactions with its affiliates.
7. Insurance and Taxes. Timely evidence of appropriate
insurance and adequate reservation for taxes.
8. Negative Covenants. Negative covenants will include,
but are not limited to, limitations on debt,
changes in nature of the business, disposition of
assets, encumbrances, liens, loans and advances,
dividends, acquisitions or mergers, investments,
compensation, formation of new corporations, capital
expenditures, and transactions with affiliates.
11
<PAGE> 15
G. Evidence of Corporate Authorization, etc.
There shall be delivered to RSTW such good standing
certificates, officers' certificates, board resolutions,
organizational documentation and other certificates and
documents as are requested by RSTW or its counsel or as
otherwise may be necessary to evidence or establish the
corporate, governmental, and other actions, approvals, and
authorizations necessary to the Company's execution of and
performance under the Loan Documents and the validity and
enforceability of the Loan Documents.
H. Evidence of Compliance with Laws
There shall be delivered to RSTW evidence reasonably
satisfactory to RSTW and its counsel that the Company is in
material compliance with all laws applicable to the Company in
the operation of its business and in the use and occupancy of
the Company's property.
I. Opinions of Counsel
There shall be delivered to RSTW an opinion or opinions of the
Company's counsel as to such matters as the due authorization
and execution of the Loan Documents by the Company, the
validity and enforceability of the Loan Documents, the absence
of material litigation or liability claims with respect to the
Company, compliance with material applicable laws and
agreements by the Company, and as to such other matters as
RSTW or its counsel shall reasonably request.
J. Adverse Change; Other Adverse Events
As of the Closing Date, there shall not exist, in RSTW's
reasonable judgment, (1) any material adverse change in the
financial condition of the Company, (2) any law or regulation
which, in the opinion of RSTW's counsel, prevents or prohibits
RSTW from funding or maintaining the proposed Credit
Facilities, and (3) any other matter which will be reasonable
likely to have a material adverse affect on the Company, taken
as a whole.
K. Conduct of Business
RSTW and its counsel shall have received satisfactory evidence
that the Company possesses all necessary or appropriate
licenses, permits and authorities to conduct its business.
L. Litigation and Settlements
RSTW shall have received satisfactory information,
documentation or certifications regarding the status and scope
of all pending or threatened litigation and liability claims
against the Company.
M. Legal Review
RSTW shall have received copies of all material agreements of
the Company, including, without limitation, shareholder and
employee agreements and all loan and collateral documents
relating to indebtedness and liens which will be permitted to
remain outstanding after the Closing Date and RSTW shall be
satisfied, in its sole discretion, with the terms of such
agreements and indebtedness.
12
<PAGE> 1
EXHIBIT (b)(2)
- --------------------------------------------------------------------------------
INFORMATION FOR
THE BOARD OF DIRECTORS OF
[PLASTI-LINE, INC. LOGO]
J.C. Bradford & Co.
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
I. Summary Analysis
II. Comparable Company Analysis
III. Discounted Cash Flow Analysis
IV. LBO Analysis
V. Comparable Transaction Analysis
VI. Premium Analysis
VII. Stock Price and Ownership Profiles
VIII. Operating Margin Comparison with Zimmerman
IX. Appendices
A. Company Projection Model
B. 10-Year Historical Financial Information
<PAGE> 3
INVESTMENT BANKING GROUP
PLASTI-LINE, INC. -- COMPANY PROJECTIONS
SUMMARY VALUATION MULTIPLES AT PROPOSED $14.50 OFFER
(in thousands)
<TABLE>
<S> <C>
Proposed Offer Price: $ 14.50
Current Shares Outstanding: 3,869
-------
Equity Value $56,099
Add: Debt, Net of Cash 5,211
-------
Market Capitalization $61,310
</TABLE>
<TABLE>
<CAPTION>
PRICE TO TRAILING EARNINGS MULTIPLE
<S> <C>
Equity Value $ 56,099
LTM Earnings Ended 9/30/97 3,658
--------
Multiple 15.3x
<CAPTION>
PRICE TO 1997 EARNINGS MULTIPLE
<S> <C>
Equity Value $ 56,099
Estimated Earnings Ended 12/31/97 4,802
--------
Multiple 11.7x
<CAPTION>
PRICE TO 1998 EARNINGS MULTIPLE
<S> <C>
Equity Value $ 56,099
Estimated Earnings Ended 12/31/98 5,265
--------
Multiple 10.7x
<CAPTION>
PRICE TO BOOK VALUE MULTIPLE
<S> <C>
Equity Value $ 56,099
Current Book Value 9/30/97 28,178
--------
Multiple 2.0x
<CAPTION>
PRICE TO LTM EBITDA MULTIPLE
<S> <C>
Equity Value plus Debt, Net of Cash $ 61,310
LTM EBITDA 9/30/97 9,160
--------
Multiple 6.7x
<CAPTION>
PRICE TO 1997 EBITDA MULTIPLE
<S> <C>
Equity Value plus Debt, Net of Cash(1) $ 71,257
Estimated EBITDA 12/31/97 10,948
--------
Multiple 6.5x
<CAPTION>
PRICE TO LTM REVENUE MULTIPLE
<S> <C>
Equity Value plus Debt, Net of Cash $ 61,310
LTM Revenue Ended 9/30/97 129,128
--------
Multiple 0.47x
</TABLE>
(1) Total debt, net of cash at 12/31/97 is projected to be $15,158.
1
<PAGE> 4
INVESTMENT BANKING GROUP
SUMMARY OF PROJECTIONS PROVIDED BY MANAGEMENT
<TABLE>
<CAPTION>
(Numbers in Thousands)
(Fiscal Year Ended December)
PROJECTED SUMMARY INCOME STATEMENT
1997 1998 1999 2000 2001 2002 CAGR%
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 142,000 $ 157,140 $ 163,020 $ 174,000 $ 186,180 $ 199,213 7.0%
Operating Income 8,848 9,922 10,885 12,629 14,768 16,870 13.8%
Pre-tax Income 8,004 8,775 9,869 12,023 14,556 17,035 16.3%
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL SUMMARY INCOME STATEMENT
1991 1992 1993 1994 1995 1996 CAGR%
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 72,422 $ 84,334 $ 91,113 $ 78,162 $ 103,818 $ 131,179 12.6%
Operating Income 2,708 4,638 5,327 (4,649) 3,242 6,522 19.2%
Pre-tax Income 1,739 4,006 4,643 (5,361) 2,202 4,929 23.2%
</TABLE>
2
<PAGE> 5
INVESTMENT BANKING GROUP
SUMMARY VALUATION FOR PLASTI-LINE, INC.
(in thousands, except per share)
- ------------------------------------
PROPOSED MARKET VALUATION:
<TABLE>
<CAPTION>
SIGN
-------
<S> <C>
Proposed offer price $ 14.50
Shares outstanding 3,869
---------------------------------
EQUITY MKT CAP OF OFFER: $56,099
---------------------------------
</TABLE>
- -----------------------------------
- --------------------------------------------------------------------------------
COMPARABLE COMPANY VALUATION
<TABLE>
<CAPTION>
----------------
IMPLIED PRICES
LOW HIGH ----------------
FINANCIALS MULT. MULT. LOW HIGH
---------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Trailing Earnings (3)(4) $ 3,779 9.6x 18.9x $ 9.41 $18.50
Est. Cal. '97 Earnings 4,802 12.6x 19.8x 15.65 24.57
Est. Cal. '98 Earnings 5,265 9.6x 16.2x 13.12 22.73
Trailing EBITDA multiple (3)(4)(5) 9,160 4.7x 16.1x 9.75 36.82
Trailing Revenues (3)(4)(5) 129,128 0.35x 1.31x 10.45 42.54
Book Value (4) 28,178 0.8x 3.8x 5.80 27.92
----------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LBO ANALYSIS:
<TABLE>
<CAPTION>
ASSUMPTIONS: RESULTS:
------------ --------
<S> <C>
31% Senior debt 56.1 million ($14.50 per share) purchase price yields:
------------------------------------------------------
13% Sub-debt 22.7% return to sub debt holders.
21% Revolver 36.4% return to equity holders.
7% Columbia Industrial Bonds/LOC ------------------------------------------------------
13% Mortgage-backed debt
14% Management equity - Common Stock
6.0x EBITDA exit multiple
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET PREMIUMS VALUATION:
<TABLE>
<CAPTION>
ONE DAY ONE WEEK ONE MONTH
PRIOR TO PRIOR TO PRIOR TO
100% CONTROL OF COMPANY AFTER ACQUISITION ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
- ----------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
All Cash Deals Since 1/1/95
Actual Low $ 1.73 $ 1.62 $ 1.18
Actual High 48.96 50.23 42.04
Adjusted Average 13.23 13.80 14.52
Median 13.76 14.38 14.78
Low Middle Quartiles 11.86 12.30 12.63
High Middle Quartiles 15.18 15.94 16.57
</TABLE>
- --------------------------------------------------------------------------------
(1) Based on comparable company adjusted average multiples.
(2) Numbers may vary slightly from calculation due to rounding.
(3) LTM results as of September 1997.
(4) Adjusted high and low.
(5) At 9/30/97, SIGN's total debt, net of cash was $5,211.
3
<PAGE> 6
INVESTMENT BANKING GROUP
SUMMARY VALUATION FOR PLASTI-LINE, INC.
(in thousands, except per share)
<TABLE>
<CAPTION>
PROPOSED MARKET VALUATION:
SIGN
--------
<S> <C>
Proposed offer price $ 14.50
Shares outstanding 3,869
EQUITY MKT CAP OF OFFER: $ 56,099
</TABLE>
DISCOUNTED CASH FLOW VALUATION:
COMPANY PROJECTION MODEL
<TABLE>
<CAPTION>
EBITDA AVERAGE
Operating Cash Flow Method DISCOUNT MULTIPLES EQUITY
RATE APPLIED LOW HIGH VALUE
----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
16.0% 5.0x-8.0x $ 11.61 $ 18.65 $ 15.13
18.0% 5.0x-8.0x 10.42 16.89 13.66
20.0% 5.0x-8.0x 9.35 15.30 12.32
22.0% 5.0x-8.0x 8.38 13.85 11.11
24.0% 5.0x-8.0x 7.49 12.54 10.02
<CAPTION>
NET INCOME AVERAGE
DISCOUNT MULTIPLES EQUITY
Free Cash Flow Method RATE APPLIED LOW HIGH VALUE
----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
16.0% 13.0x-15.0X $ 16.75 $ 19.26 $ 18.01
18.0% 13.0x-15.0x 15.32 17.63 16.48
20.0% 13.0x-15.0x 14.04 16.16 15.10
22.0% 13.0x-15.0x 12.88 14.83 13.86
24.0% 13.0x-15.0x 11.83 13.63 12.73
</TABLE>
4
<PAGE> 7
INVESTMENT BANKING GROUP
HISTORICAL ACTUAL VS. BUDGETED FINANCIAL RESULTS FOR PLASTI-LINE, INC.
<TABLE>
<CAPTION>
1994 1995 1996
--------------------------- --------------------------- ------------------------------
BUDGET ACTUAL VARIANCE BUDGET ACTUAL VARIANCE BUDGET ACTUAL VARIANCE
--------------------------- --------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenue $101,891 $ 78,162 - 23.3% $ 97,697 $ 103,818 6.3% $ 123,404 $ 131,179 6.3%
Cost of Sales 82,015 62,936 78,722 85,114 101,206 107,956
------------------ ------------------- ---------------------
Gross Profit 19,876 15,226 - 23.4% 18,975 18,704 - 1.4% 22,198 23,223 4.6%
% of Total Rev. 19.5% 19.5% 19.4% 18.0% 18.0% 17.7%
S,G&A 14,125 13,349 14,459 15,461 16,238 16,701
------------------ ------------------- ---------------------
Operating Profit 5,751 1,877 - 67.4% 4,516 3,243 -28.2% 5,960 6,522 9.4%
% of Total Rev. 5.6% 2.4% 4.6% 3.1% 4.8% 5.0%
Pre-Tax 6,302 (5,361) -185.1% 4,502 2,202 -51.1% 4,922 4,930 0.2%
Net Income 3,711 (4,837) -230.3% 2,701 1,397 -48.3% 2,953 3,148 6.6%
EPS $ 0.73 $ 0.38 -47.9% $ 0.78 $ 0.83 6.4%
</TABLE>
<TABLE>
<CAPTION>
YTD SEPTEMBER 30, 1997
-----------------------------------------------
FORECAST BUDGET ACTUAL VARIANCE(1)
-----------------------------------------------
<S> <C> <C> <C> <C>
Total Revenue $ 96,011 $ 123,384 $ 94,361 - 23.5%
Cost of Sales 78,390 99,462 77,212
---------------------------------
Gross Profit 17,621 23,922 17,149 - 28.3%
% of Total Rev. 18.4% 19.4% 18.2%
S,G&A 12,909 15,639 12,465
---------------------------------
Operating Profit 4,712 8,283 4,684 - 43.5%
% of Total Rev. 4.9% 6.7% 5.0%
Pre-Tax 4,513 7,328 4,675 - 36.2%
Net Income 2,693 4,397 2,805 - 36.2%
EPS $ 0.70 $ 1.15 $ 0.73 - 36.5%
</TABLE>
(1) Variance for 1997 YTD is expressed as the difference between actual and
budget.
5
<PAGE> 8
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING COMPANIES
COMPARABLE COMPANY MARKET MULTIPLES
<TABLE>
<CAPTION>
5-YEAR
LTM CAL. 1997 CAL. 1998 PROJECTED 52 WEEK
COMPANY TICKER LTM END EPS EST. EPS EST. EPS(1) GROWTH RATE HIGH LOW
- ------------------------ -------- -------- ------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Plasti-Line, Inc. SIGN Sep 97 $0.99(2) $1.25(2) $1.38(2) 18.7% $13.75 $7.50
Daktronics, Inc. DAKT Jul 97 0.27 0.42 0.61 NA 6.75 3.50
E A C Industries EACI Jul 97 (0.05) NA NA NA 0.44 0.13
Falcon Products, Inc. FCP Jul 97 0.83 (3) 0.79 0.94 18.5% 16.00 12.75
H M G Worldwide Corp. HMGC Jun 97 (0.53) NA NA NA 2.00 0.88
Holophane Corp. HLPH Jun 97 1.52 1.57 1.74 11.3% 25.75 17.75
La-Man Corp. LAMN Jun 97 0.36 (4) NA NA NA 3.13 1.00
Lancer Corp. LAN Jun 97 0.67 0.78 1.08 NA 17.63 9.67
L S I Industries, Inc. LYTS Jun 97 0.97 1.07 1.26 15.0% 18.13 9.50
Marlton Technologies MTY Jun 97 0.33 NA NA NA 7.75 3.13
Specialty Equipment Cos, Inc. SPEQ Jul 97 1.70 NA NA NA 17.50 11.00
Standex International Corp SXI Jun 97 2.00 2.20 2.55 10.0% 36.50 24.50
Trans-Industries, Inc. TRNI Sep 97 0.80 NA NA NA 13.25 4.69
Trans-Lux Corp. TLX Jun 97 0.89 1.15 1.25 15.0% 16.00 10.75
Zimmerman Sign Co. ZSCO Jun 97 0.70 (5) NA NA NA 4.50 2.25
<CAPTION>
BASED ON CLOSING STOCK PRICE AS OF 10/28/97
------------------------------------------------
PRICE/ PRICE/ CAL. 1997 CAL. 1998
PRICE PRICE/ CAL. 1997 CAL. 1998 PE / PE / PRICE/
PER SHARE LTM EPS EST. EPS EST. EPS GROWTH RATE GROWTH RATE BOOK VALUE
--------- ---------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Plasti-Line, Inc. $14.50 14.6 x 11.6 x 10.5x 62.2% 56.3% 2.0
Daktronics, Inc. 5.88 21.8 14.0 9.6 NM NM 1.2
E A C Industries 0.25 NM NA NA NM NM 0.3
Falcon Products, Inc. 15.69 18.9 19.8 16.7 107.0% 90.3% 2.1
H M G Worldwide Corp. 1.19 NM NA NA NM NM 1.8
Holophane Corp. 22.88 15.0 14.6 13.1 128.6% 116.0% 3.6
La-Man Corp. 2.50 6.9 NA NA NM NM 1.9
Lancer Corp. 13.69 20.5 17.5 12.7 NM NM 4.3
L S I Industries, Inc. 17.13 17.7 16.0 13.6 106.8% 90.6% 2.6
Marlton Technologies 6.25 18.9 NA NA NM NM 2.0
Specialty Equipment Cos, Inc. 16.38 9.6 NA NA NM NM NM
Standex International Corp 33.88 16.9 15.4 13.3 153.9% 132.8% 3.1
Trans-Industries, Inc. 11.00 13.8 NA NA NM NM 3.8
Trans-Lux Corp. 14.50 16.3 12.6 11.6 84.1% 77.3% 0.8
Zimmerman Sign Co. 3.65 5.2 NA NA NM NM NM
Median (excluding SIGN): 16.6 x 15.4 x 13.1 x 107.0% 90.6% 2.1 x
Average (excluding SIGN): 15.1 15.1 12.9 116.1% 101.4% 2.3
Adjusted Average (excluding SIGN and high and low): 15.5 15.5 12.9 114.1% 99.0% 2.3
</TABLE>
(1) When calendar 1998 EPS Multiple is not available it is approximated using
company's 5-year projected growth rate.
(2) SIGN earnings estimates are based on company's projections.
(3) FCP LTM earnings exclude $0.04 income from discontinued operations.
(4) LAMN LTM earnings exclude $0.13 loss from discontinued operations.
(5) ZSCO LTM earnings exclude a $1,105 stock distribution charge.
<PAGE> 9
INVESTEMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING COMPANIES
COMPARABLE COMPANY MARKET CAPITALIZATION MULTIPLES
<TABLE>
<CAPTION>
TOTAL TOTAL LTM
10/28/97 NUMBER OF TOTAL DEBT, MARKET TOTAL LTM
COMPANY TICKER PRICE SHARES EQUITY NET OF CASH CAPITAL REVENUES EBITDA
- -------------------------- --------- -------- --------- --------- ----------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Plasti-Line, Inc. SIGN $14.50 3,819 $55,382 $5,211 $60,593 $129,128 $9,160
Daktronics, Inc. DAKT 5.88 4,306 25,322 4,976 30,298 61,386 4,487 (1)
E A C Industries EACI 0.25 2,312 578 0 578 5,712 22 (2)
Falcon Products, Inc. FCP 15.69 9,567 150,078 0 150,078 121,460 17,612
H M G Worldwide Corp. HMGC 1.19 8,664 10,289 5,207 15,496 43,856 (2,683)
Holophane Corp. HLPH 22.88 11,322 258,996 8,300 267,296 203,293 37,223 (3)
La-Man Corp. LAMN 2.50 3,405 8,513 1,890 10,403 15,946 1,511
Lancer Corp. LAN 13.69 13,344 182,642 41,739 224,380 115,721 13,920
L S I Industries, Inc. LYTS 17.13 9,020 154,468 0 154,468 144,742 16,897
Marlton Technologies MTY 6.25 4,756 29,724 0 29,724 43,474 3,549
Specialty Equipment Cos, Inc. SPEQ 16.38 18,280 299,342 118,929 418,271 413,283 68,182
Standex International Corp. SXI 33.88 13,110 444,096 108,228 552,324 564,623 64,790
Trans-Industries, Inc. TRNI 11.00 3,072 33,792 6,327 40,119 34,822 4,576 (4)
Trans-Lux Corp. TLX 14.50 1,284 18,615 37,065 55,680 48,808 12,169
Zimmerman Sign Co. ZSCO 3.65 1,855 6,770 14,952 21,722 43,104 4,636 (5)
<CAPTION>
(IN THOUSANDS)
MARKET MARKET
CAP./ CAP./
EBITDA REVENUES
------------ ------------
<S> <C> <C>
Plasti-Line, Inc. 6.6 x 0.47 x
Daktronics, Inc. 6.8 0.49
E A C Industries 26.3 0.10
Falcon Products, Inc. 8.5 1.24
H M G Worldwide Corp. NM 0.35
Holophane Corp. 7.2 1.31
La-Man Corp. 6.9 0.65
Lancer Corp. 16.1 1.94
L S I Industries, Inc. 9.1 1.07
Marlton Technologies 8.4 0.68
Specialty Equipment Cos, Inc. 6.1 1.01
Standex International Corp. 8.5 0.98
Trans-Industries, Inc. 8.8 1.15
Trans-Lux Corp. 4.6 1.14
Zimmerman Sign Co. 4.7 0.50
Median (excluding SIGN): 8.4 x 1.00 x
Average (excluding SIGN): 9.4 0.90
Adjusted Average (excluding SIGN and high
and low): 8.3 0.88
</TABLE>
(1) DAKT LTM EBITDA figure is approximated based on fiscal 1996 margins due to
lack of disclosure in the press release.
(2) EACI LTM EBITDA figure is approximated based on fiscal 1996 margins due to
lack of disclosure in the press release.
(3) HLPH LTM EBITDA figure is approximated based on fiscal 1996 margins due to
lack of disclosure in the press release.
(4) TRNI LTM EBITDA figure is approximated based on fiscal 1996 margins due to
lack of disclosure in the press release.
(5) ZSCO LTM EBITDA exlcudes a $1,105 stock distribution charge.
<PAGE> 10
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING COMPANIES
COMPARABLE COMPANY ANALYSIS -- SIDE-BY-SIDE COMPARISON
<TABLE>
<CAPTION>
PLASTI-LINE, INC. DAKTRONICS, INC. E A C INDUSTRIES
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
A. Revenues
Latest Twelve Months $129,128 $61,386 $ 5,712
Fiscal 1996/97 131,179 62,640 5,988
Fiscal 1995/96 103,818 52,507 7,660
Fiscal 1994/95 78,162 41,947 6,428
Fiscal 1993/94 91,113 41,102 7,188
Fiscal 1992/93 84,334 30,697 8,678
CAGR (No. of Years) 9.4% (4.7 yrs.) 17.7% (4.3 yrs.) -8.9% (4.5 yrs.)
B. EBITDA
Latest Twelve Months $ 9,160 7.1% $ 4,487 7.3% $ 22 0.4%
Fiscal 1996/97 8,784 6.7% 4,579 7.3% 23 0.4%
Fiscal 1995/96 5,435 5.2% 1,511 2.9% 259 3.4%
Fiscal 1994/95 3,628 4.6% 2,781 6.6% 332 5.2%
Fiscal 1993/94 6,969 7.6% 4,843 11.8% 988 13.7%
Fiscal 1992/93 6,509 7.7% 3,734 12.2%
CAGR (No. of Years) 7.5% (4.7 yrs.) 4.4% (4.3 yrs.) -66.3% (3.5 yrs.)
Average EBITDA Margin 6.4% 8.2% 5.7%
C. Net Income
Latest Twelve Months $ 3,779 2.9% $ 1,137 1.9% $ (118) -2.1%
Fiscal 1996/97 3,148 2.4% 1,508 2.4% (161) -2.7%
Fiscal 1995/96 1,880 1.8% (215) -0.4% 129 1.7%
Fiscal 1994/95 1,565(1) 2.0% 967 2.3% 704 11.0%
Fiscal 1993/94 2,854 3.1% 1,976 4.8% 504 7.0%
Fiscal 1992/93 2,385 2.8% 1,107 3.6% 686 7.9%
CAGR (No. of Years) 10.2% (4.7 yrs.) 0.6% (4.3 yrs.) NM
Average Net Margin 2.4% 2.5% 5.0%
D. Capitalization
As of: 9/30/97 4/30/97 7/31/97
Short-Term Debt $ 745 2.0% $ 3,388 12.6% $ 35 1.8%
Long-Term Debt 8,791 23.3% 1,706 6.4% 92 4.8%
Shareholders' Equity 28,178 74.7% 21,750 81.0% 1,771 93.3%
-------- ------- -------
Total Capital $ 37,714 100.0% $26,844 100.0% $ 1,897 100.0%
======== ======= =======
<CAPTION>
(IN THOUSANDS)
FALCON PRODUCTS, INC. HMG WORLDWIDE CORP.
--------------------- -------------------
<S> <C> <C> <C> <C>
A. Revenues
Latest Twelve Months $121,460 $ 43,856
Fiscal 1996/97 111,040 45,552
Fiscal 1995/96 90,036 47,641
Fiscal 1994/95 77,834 55,578
Fiscal 1993/94 62,957 20,375
Fiscal 1992/93 48,990 3,750
CAGR (No. of Years) 21.1% (4.7 yrs.) 72.8% (4.5 yrs.)
B. EBITDA
Latest Twelve Months $ 17,612 14.5% $ (2,683) -6.1%
Fiscal 1996/97 17,315 15.6% (4,184) -9.2%
Fiscal 1995/96 15,243 16.9% (5,551) -11.7%
Fiscal 1994/95 12,423 16.0% 461 0.8%
Fiscal 1993/94 8,200 13.0% 154 0.8%
Fiscal 1992/93 6,750 13.8% (891) -23.8%
CAGR (No. of Years) 22.4% (4.7 yrs.) NM
Average EBITDA Margin 15.1% -8.6%
C. Net Income
Latest Twelve Months $ 8,497 7.0% $ (3,935) -9.0%
Fiscal 1996/97 8,433 7.6% (5,535) -12.2%
Fiscal 1995/96 7,457 8.3% (10,118) -21.2%
Fiscal 1994/95 6,176 7.9% (963) -1.7%
Fiscal 1993/94 4,447 7.1% (528) -2.6%
Fiscal 1992/93 3,735 7.6% (1,083) -28.9%
CAGR (No. of Years) 18.9% (4.7 yrs.) NM
Average Net Margin 7.7% -13.3%
D. Capitalization
As of: 7/31/9 6/30/97
Short-Term Debt $ 871 1.2% $12,120 67.5%
Long-Term Debt 507 0.7% 0 0.0%
Shareholders' Equity 69,981 98.1% 5,831 32.5%
-------- ---------- -----
Total Capital $ 71,359 100.0% $ 17,951 100.0%
======== ========== =====
</TABLE>
(1) Excludes $3,986 for goodwill write off and $2,416 for restructuring cost.
<PAGE> 11
INVESTMENT BANKING GROUP
SIGNATE-RELATED MANUFACTURING COMPANIES
COMPARABLE COMPANY ANALYSIS--SIDE-BY-SIDE COMPARISON
(In thousands)
<TABLE>
<CAPTION>
PLASTI-LINE, INC. HOLOPHANE CORP. LA-MAN CORP.
----------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
A. REVENUES
Latest Twelve Months $129,128 $203,293 $15,946
Fiscal 1996/97 131,179 190,939 15,946
Fiscal 1995/96 103,818 181,069 13,697
Fiscal 1994/95 78,162 150,997 6,908
Fiscal 1993/94 91,113 138,818 4,805
Fiscal 1992/93 84,334 129,863 2,689
CAGR (No. of Years) 9.4% (4.7 yrs.) 10.5% (4.5 yrs.) 56.0% (4.0 yrs.)
B. EBITDA
Latest Twelve Months $ 9,160 7.1% $ 37,223 18.3% $ 1,511 9.5%
Fiscal 1996/97 8,784 6.7% 34,504 18.1% 1,511 9.5%
Fiscal 1995/96 5,435 5.2% 34,829 19.2% 1,016 7.4%
Fiscal 1994/95 3,628 4.6% 25,383 16.8% 565 8.2%
Fiscal 1993/94 6,969 7.6% 21,325 15.4% (376) -7.8%
Fiscal 1992/93 6,509 7.7% 19,050 14.7% (406) -15.1%
CAGR (No. of Years) 7.5% (4.7 yrs.) 16.1% (4.5 yrs.) NM
Average EBITDA Margin 6.4% 16.8% 0.4%
C. NET INCOME
Latest Twelve Months $ 3,779 2.9% $ 17,903 8.8% $ 206 1.3%
Fiscal 1996/97 3,148 2.4% 16,468 8.6% 206 1.3%
Fiscal 1995/96 1,880 1.8% 16,042 8.9% 626 4.6%
Fiscal 1994/95 1,565(1) 2.0% 9,488 6.3% 251 3.6%
Fiscal 1993/94 2,854 3.1% 4,575 3.3% (548) -11.4%
Fiscal 1992/93 2,385 2.8% 3,154 2.4% (459) -17.1%
CAGR (No. of Years) 10.2% (4.7 yrs.) 47.1% (4.5 yrs.) NM
Average Net Margin 2.4% 5.9% -3.8%
D. CAPITALIZATION
As of: 9/30/97 6/30/97 6/30/97
Short-Term Debt $ 745 2.0% $ 6,390 6.9% $ 135 2.1%
Long-Term Debt 8,791 23.3% 15,671 16.8% 1,868 28.5%
Shareholders' Equity 28,178 74.7% 70,979 76.3% 4,560 69.5%
-------- -------- -------
Total Capital $ 37,714 100.0% $ 93,040 100.0% $ 6,563 100.0%
======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
LANCER CORP. LSI INDUSTRIES, INC.
------------ --------------------
<S> <C> <C> <C> <C>
A. REVENUES
Latest Twelve Months $115,721 $144,742
Fiscal 1996/97 102,308 144,742
Fiscal 1995/96 75,912 152,733
Fiscal 1994/95 70,900 119,927
Fiscal 1993/94 56,661 93,535
Fiscal 1992/93 44,729 72,563
CAGR (No. of Years) 23.5% (4.5 yrs.) 18.8% (4.0 yrs.)
B. EBITDA
Latest Twelve Months $ 13,920 12.0% $ 16,897 11.7%
Fiscal 1996/97 12,565 12.3% 16,897 11.7%
Fiscal 1995/96 8,347 11.0% 15,867 10.4%
Fiscal 1994/95 6,798 9.6% 12,296 10.3%
Fiscal 1993/94 4,938 8.7% 8,934 9.6%
Fiscal 1992/93 3,954 8.8% 4,349 6.0%
CAGR (No. of Years) 32.3% (4.5 yrs.) 40.4% (4.0 yrs.)
Average EBITDA Margin 10.1% 9.6%
C. NET INCOME
Latest Twelve Months $ 6,458 5.6% $ 8,872 6.1%
Fiscal 1996/97 5,733 5.6% 8,872 6.1%
Fiscal 1995/96 4,091 5.4% 8,270 5.4%
Fiscal 1994/95 2,951 4.2% 6,174 5.1%
Fiscal 1993/94 2,174 3.8% 4,190 4.5%
Fiscal 1992/93 1,058 2.4% 1,669 2.3%
CAGR (No. of Years) 49.5% (4.5 yrs.) 51.8% (4.0 yrs.)
Average Net Margin 4.3% 4.7%
D. CAPITALIZATION
As of: 6/30/97 6/30/97
Short-Term Debt $ 22,370 25.8% $317 0.5%
Long-Term Debt 22,104 25.5% 1,226 2.0%
Shareholders' Equity 42,159 48.7% 59,149 97.5%
-------- --------
Total Capital $ 86,633 100.0% $ 60,692 100.0%
======== ========
</TABLE>
(1) Excludes $3,986 for goodwill write off and $2,416 for restructuring cost.
<PAGE> 12
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING COMPANIES
COMPARABLE COMPANY ANALYSIS -- SIDE-BY-SIDE COMPARISON
<TABLE>
<CAPTION>
(In thousands)
PLASTI-LINE, MARLTON SPECIALTY EQUIPMENT STANDEX INTERNATIONAL TRANS-INDUSTRIES,
INC. TECHNOLOGIES COS, INC. CORP. INC.
------------------ ------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C> <C>
A. REVENUES
Latest Twelve Months $129,128 $43,474 $413,283 $564,623 $34,822
Fiscal 1996/97 131,179 38,316 401,230 564,623 29,920
Fiscal 1995/96 103,818 27,672 392,512 562,679 24,934
Fiscal 1994/95 78,162 24,613 371,730 569,293 23,202
Fiscal 1993/94 91,113 19,172 320,873 529,399 25,572
Fiscal 1992/93 84,334 17,510 267,388 506,312 26,023
CAGR (No. of Years) 9.4% (4.7 yrs.) 22.4% (4.5 yrs.) 10.2% (4.5 yrs.) 2.8% (4.0 yrs.) 6.3% (4.7 yrs.)
B. EBITDA
Latest Twelve Months $ 9,160 7.1% $ 3,549 8.2% $ 68,182 16.5% $ 64,790 11.5% $ 4,576 13.1%
Fiscal 1996/97 8,784 6.7% 2,983 7.8% 67,642 16.9% 64,790 11.5% 3,932 13.1%
Fiscal 1995/96 5,435 5.2% 1,849 6.7% 66,102 16.8% 69,669 12.4% 2,593 10.4%
Fiscal 1994/95 3,628 4.6% 1,507 6.1% 60,629 16.3% 78,526 13.8% 1,181 5.1%
Fiscal 1993/94 6,969 7.6% 549 2.9% (29,701) -9.3% 60,638 11.5% 813 3.2%
Fiscal 1992/93 6,509 7.7% 919 5.2% 24,143 9.0% 55,193 10.9% 1,807 6.9%
CAGR (No. of Years) 7.5% (4.7 yrs.) 35.1% (4.5 yrs.) 26.0% (4.5 yrs.) 4.1% (4.0 yrs.) 21.6% (4.7 yrs.)
Average EBITDA Margin 6.5% 5.7% 10.0% 12.0% 7.8%
C. NET INCOME
Latest Twelve Months $ 3,779 2.9% $ 1,831 4.2% $ 36,452 8.8% $ 26,919 4.8% $ 2,538 7.3%
Fiscal 1996/97 3,148 2.4% 2,340 6.1% 34,122 8.5% 26,919 4.8% 1,723 5.8%
Fiscal 1995/96 1,880 1.8% 1,253 4.5% 8,911 2.3% 30,714 5.5% 824 3.3%
Fiscal 1994/95 1,565(1) 2.0% 487 2.0% (53,996) -14.5% 38,320 6.7% (481) -2.1%
Fiscal 1993/94 2,854 3.1% (133) -0.7% (58,420) -18.2% 27,147 5.1% (588) -2.3%
Fiscal 1992/93 2,385 2.8% 108 0.6% (56,732) -21.2% 24,012 4.7% 127 0.5%
CAGR (No. of Years) 10.2% 87.7% (4.5 yrs.) NM 2.9% (4.0 yrs.) 87.9% (4.7 yrs.)
Average Net Margin 2.5% 2.5% -8.6% 5.4% 1.0%
D. CAPITALIZATION
As of: 9/30/97 6/30/97 7/31/97 6/30/97 9/30/97
Short-Term Debt $745 2.0% $55 0.4% $47 0.0% $2,030 0.8% $ 2,607 16.9%
Long-Term Debt 8,791 23.3% 126 0.8% 155,440 155.7% 112,347 44.0% 3,961 25.7%
Shareholders' Equity 28,178 74.7% 14,701 98.8% (55,626) -55.7% 141,185 55.2% 8,816 57.3%
-------- ------- -------- -------- -------
Total Capital $ 37,714 100.0% $14,882 100.0% $ 99,861 100.0% $255,562 100.0% $15,383 100.0%
======== ======= ======== ======== =======
</TABLE>
(1) Excludes $3,986 for goodwill write off and $2,416 for restructuring cost.
<PAGE> 13
INVESTMENT BANKING GROUP
SIGNATE-RELATED MANUFACTURING COMPANIES
COMPARABLE COMPANY ANALYSIS--SIDE-BY-SIDE COMPARISON
(In thousands)
<TABLE>
<CAPTION>
PLASTI-LINE, INC. TRANS-LUX CORP. ZIMMERMAN SIGN CO.
----------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
A. REVENUES
Latest Twelve Months $129,128 $48,808 $43,104
Fiscal 1996/97 131,179 45,285 41,275
Fiscal 1995/96 103,818 37,791 41,667
Fiscal 1994/95 78,162 33,742 36,427
Fiscal 1993/94 91,113 35,799 33,001
Fiscal 1992/93 84,334 24,130 23,941
CAGR (No. of Years) 9.4% (4.7 yrs.) 17.0% (4.5 yrs.) 14.0% (4.5 yrs.)
B. EBITDA
Latest Twelve Months $ 9,160 7.1% $12,169 24.9% $4,636 10.8%
Fiscal 1996/97 8,784 6.7% 11,700 25.8% 4,359 10.6%
Fiscal 1995/96 5,435 5.2% 10,792 28.6% 2,717 6.5%
Fiscal 1994/95 3,628 4.6% 9,819 29.1% 4,561 12.5%
Fiscal 1993/94 6,969 7.6% 10,385 29.0%
Fiscal 1992/93 6,509 7.7% 6,517 27.0%
CAGR (No. of Years) 7.5% (4.7 yrs.) 14.9% (4.5 yrs.) 0.7% (2.5 yrs.)
Average EBITDA Margin 6.4% 27.9% 9.9%
C. NET INCOME
Latest Twelve Months $ 3,779 2.9% $1,312 2.7% $1,310 3.0%
Fiscal 1996/97 3,148 2.4% 1,250 2.8% 1,806 4.4%
Fiscal 1995/96 1,880 1.8% 1,066 2.8% 2,377 5.7%
Fiscal 1994/95 1,565(1) 2.0% 1,314 3.9% 2,074 5.7%
Fiscal 1993/94 2,854 3.1% 489 1.4% 1,478 4.5%
Fiscal 1992/93 2,385 2.8% 345 1.4% (176) -0.7%
CAGR (No. of Years) 10.2% (4.7 yrs.) 34.6% (4.5 yrs.) NM
Average Net Margin 2.4% 2.5% 3.9%
D. CAPITALIZATION
As of: 9/30/97 6/30/97 6/30/97
Short-Term Debt $ 745 2.0% $ 1,055 1.4% $1,518 8.7%
Long-Term Debt 8,791 23.3% 49,791 67.1% 24,883 142.4%
Shareholders' Equity 28,178 74.7% 23,393 31.5% (8,926) -51.1%
-------- ------- -------
Total Capital $ 37,714 100.0% $74,239 100.0% $17,475 100.0%
======== ======= =======
</TABLE>
(1) Excludes $3,986 for goodwill write off and $2,416 for restructuring cost.
<PAGE> 14
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING COMPANIES
COMPARABLE COMPANY ANALYSIS -- SIDE-BY-SIDE COMPARISON
<TABLE>
<CAPTION>
(In thousands)
HMG
PLASTI-LINE, INC. DAKTRONICS, INC. E A C INDUSTRIES FALCON PRODUCTS, INC. WORLDWIDE CORP.
----------------- ----------------- ----------------- --------------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A. Total Capital / ROC
Fiscal 1996/97 $40,167 7.0% $29,416 5.2% $ 2,483 - 6.3% $69,881 13.0% $15,234 -33.0%
Fiscal 1995/96 49,189 4.5% 28,477 -0.9% 2,622 5.0% 60,196 13.3% 18,347 -46.2%
Fiscal 1994/95 35,102 4.5% 21,535 4.6% 2,497 40.3% 52,343 12.6% 25,459 - 5.0%
Fiscal 1993/94 34,362 8.5% 20,964 11.3% 997 -32.4% 45,416 11.3% 13,232 - 7.0%
Fiscal 1992/93 32,789 13,857 (4,112) 33,063 1,904
B. Total Assets / ROA
Fiscal 1996/97 $67,244 4.4% $37,136 4.0% $ 3,315 -4.7% $84,989 10.5% $28,755 -18.0%
Fiscal 1995/96 77,150 2.9% 37,767 -0.7% 3,523 3.5% 74,884 10.7% 32,648 -29.2%
Fiscal 1994/95 51,450 3.1% 28,262 3.5% 3,824 21.0% 64,905 10.5% 36,718 -2.8%
Fiscal 1993/94 49,522 5.5% 27,370 8.2% 2,878 14.4% 52,820 9.6% 33,022 -2.9%
Fiscal 1992/93 53,424 20,772 4,099 40,147 3,637
C. Total Equity / ROE
Fiscal 1996/97 $27,202 12.3% $21,750 7.2% $ 1,819 -8.5% $68,476 13.3% $ 5,191 -72.5%
Fiscal 1995/96 23,891 8.1% 19,861 -1.1% 1,980 6.7% 58,307 13.7% 10,076 -66.8%
Fiscal 1994/95 22,353 6.3% 20,076 4.9% 1,851 49.4% 50,556 13.0% 20,223 -8.2%
Fiscal 1993/94 27,081 11.2% 19,109 14.8% 997 -22.7% 44,556 13.0% 3,191 -23.2%
Fiscal 1992/93 24,084 7,535 (5,440) 23,813 1,352
</TABLE>
<PAGE> 15
INVESTMENT BANIKING GROUP
SIGNAGE-RELATED MANUFACUTIRNG COMPANIES
COMPARABLE COMPANY ANALYSIS - SIDE-BY-SIDE COMPARISION
<TABLE>
<CAPTION>
(In thousands)
L S I
PLASTI-LINE, INC. HOLOPHANE CORP. LA-MAN CORP. LANCER CORP. INDUSTRIES, INC.
------------------ ---------------- --------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A. TOTAL CAPITAL / ROC
Fiscal 1996/97 $40,167 7.0% $ 92,400 18.9% $6,563 3.1% $66,048 10.3% $60,692 15.2%
Fiscal 1995/96 49,189 4.5% 81,799 20.8% 6,563 13.3% 44,911 9.9% 56,299 17.6%
Fiscal 1994/95 35,102 4.5% 72,444 13.1% 2,842 9.0% 37,725 8.7% 37,552 19.0%
Fiscal 1993/94 34,362 8.5% 72,872 6.4% 2,763 -30.9% 30,059 7.5% 27,581 16.0%
Fiscal 1992/93 32,789 70,074 781 28,034 24,924
B. TOTAL ASSETS / ROA
Fiscal 1996/97 $67,244 4.4% $123,967 14.0% $9,384 2.2% $82,009 8.2% $79,626 11.2%
Fiscal 1995/96 77,150 2.9% 110,779 15.3% 9,384 9.3% 57,944 7.8% 79,496 11.6%
Fiscal 1994/95 51,450 3.1% 99,352 9.7% 4,059 6.5% 46,896 6.9% 62,553 11.3%
Fiscal 1993/94 49,522 5.5% 95,915 5.0% 3,691 -21.9% 38,902 5.7% 46,287 9.9%
Fiscal 1992/93 53,424 88,014 1,308 37,762 38,051
C. TOTAL EQUITY / ROE
Fiscal 1996/97 $27,202 12.3% $ 67,144 28.0% $4,560 4.5% $37,036 16.8% $59,149 15.6%
Fiscal 1995/96 23,891 8.1% 50,389 37.7% 4,560 17.1% 31,065 14.1% 54,737 19.6%
Fiscal 1994/95 22,353 6.3% 34,722 30.6% 2,754 9.8% 26,919 12.5% 29,453 23.1%
Fiscal 1993/94 27,081 11.2% 27,201 27.3% 2,386 -38.5% 20,325 11.4% 23,981 19.2%
Fiscal 1992/93 24,084 6,297 461 17,923 19,655
</TABLE>
<PAGE> 16
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING COMPANIES
COMPARABLE COMPANY ANALYSIS-SIDE-BY-SIDE COMPARISON
<TABLE>
<CAPTION>
(In thousands)
MARLTON SPECIALTY EQUIPMENT STANDEX INTERNATIONAL
PLASTI-LINE, INC. TECHNOLOGIES COS, INC. CORP.
------------------ ----------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
A. TOTAL CAPITAL / ROC
Fiscal 1996/97 $40,167 7.0% $14,688 17.6% $ 84,350 40.2% $255,562 10.6%
Fiscal 1995/96 49,189 4.5% 11,833 11.2% 85,594 10.9% 253,800 12.3%
Fiscal 1994/95 35,102 4.5% 10,515 4.6% 78,384 -46.8% 247,517 15.7%
Fiscal 1993/94 34,362 8.5% 10,475 -1.4% 152,175 -31.2% 241,362 11.6%
Fiscal 1992/93 32,789 8,562 222,620 226,654
B. TOTAL ASSETS / ROA
Fiscal 1996/97 $67,244 4.4% $22,191 12.1% 176,916 19.1% $341,038 8.0%
Fiscal 1995/96 77,150 2.9% 16,608 7.7% 180,235 5.1% 335,333 9.1%
Fiscal 1994/95 51,450 3.1% 16,145 3.3% 168,576 -27.0% 342,702 11.5%
Fiscal 1993/94 49,522 5.5% 13,780 -1.1% 231,630 -22.0% 323,721 8.6%
Fiscal 1992/93 53,424 10,754 299,183 308,569
C. TOTAL EQUITY / ROE
Fiscal 1996/97 $27,202 12.3% $13,576 19.6% $ (71,231) -38.2% $141,185 19.5%
Fiscal 1995/96 23,891 8.1% 10,316 13.0% (107,621) -7.8% 134,691 23.0%
Fiscal 1994/95 22,353 6.3% 9,026 5.6% (120,795) 57.4% 132,352 30.5%
Fiscal 1993/94 27,081 11.2% 8,478 -1.8% (67,241) 154.0% 118,932 22.6%
Fiscal 1992/93 24,084 6,569 (8,623) 121,524
<CAPTION>
PLASTI-LINE, INC. TRANS-INDUSTRIES, INC.
------------------ ----------------------
<S> <C> <C>
A. TOTAL CAPITAL / ROC
Fiscal 1996/97 $40,167 7.0% $13,704 12.9%
Fiscal 1995/96 49,189 4.5% 13,019 6.6%
Fiscal 1994/95 35,102 4.5% 12,087 3.8%
Fiscal 1993/94 34,362 8.5% 13,209 4.5%
Fiscal 1992/93 32,789 12,912
B. TOTAL ASSETS / ROA
Fiscal 1996/97 $67,244 4.4% $18,515 9.4%
Fiscal 1995/96 77,150 2.9% 18,148 4.8%
Fiscal 1994/95 51,450 3.1% 15,996 -2.9%
Fiscal 1993/94 49,522 5.5% 17,683 -3.3%
Fiscal 1992/93 53,424 17,631
C. TOTAL EQUITY / ROE
Fiscal 1996/97 $27,202 12.3% $ 6,922 28.7%
Fiscal 1995/96 23,891 8.1% 5,086 18.2%
Fiscal 1994/95 22,353 6.3% 3,991 -11.5%
Fiscal 1993/94 27,081 11.2% 4,403 -12.7%
Fiscal 1992/93 24,084 4,884
</TABLE>
<PAGE> 17
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING COMPANIES
COMPARABLE COMPANY ANALYSIS-SIDE-BY-SIDE COMPARISON
<TABLE>
<CAPTION>
(In thousands)
PLASTI-LINE, INC. TRANS-LUX CORP. ZIMMERMAN SIGN CO.
------------------ ------------------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
A. TOTAL CAPITAL / ROC
Fiscal 1996/97 $40,167 7.0% $70,977 2.1%
Fiscal 1995/96 49,189 4.5% 46,298 2.4%
Fiscal 1994/95 35,102 4.5% 42,877 3.1%
Fiscal 1993/94 34,362 8.5% 42,777 1.1%
Fiscal 1992/93 32,789 42,697
B. TOTAL ASSETS / ROA
Fiscal 1996/97 $67,244 4.4%
Fiscal 1995/96 77,150 2.9% $84,031 1.8% $28,154 6.7%
Fiscal 1994/95 51,450 3.1% 57,460 1.9% 25,957 9.9%
Fiscal 1993/94 49,522 5.5% 53,307 2.5% 22,287 10.3%
Fiscal 1992/93 53,424 52,138 1.0% 18,097 9.3%
50,435 13,578
C. TOTAL EQUITY / ROE
Fiscal 1996/97 $27,202 12.3% $22,662 5.7% $(9,863) -309.4%
Fiscal 1995/96 23,891 8.1% 21,499 5.1% 8,696 31.7%
Fiscal 1994/95 22,353 6.3% 20,524 6.6% 6,319 30.9%
Fiscal 1993/94 27,081 11.2% 19,484 2.5% 7,095 23.3%
Fiscal 1992/93 24,084 19,200 5,618
</TABLE>
<PAGE> 18
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING COMPANY DESCRIPTIONS
DAKTRONICS, INC. manufactures and sells computer-programmable information
display systems. Products include scoreboards and animation displays for sports
facilities, commercial displays for businesses and data displays for airports,
financial exchanges and casinos. The Company sells its products worldwide by
direct sales and through independent resellers.
EAC INDUSTRIES, INC. operates through two subsidiaries. Goodren Products
Corporation manufactures point-of-purchase advertising material and wall
decorations on semi-durable plastic. Products include signs, posters and product
identifiers. Flexible Printed Products, Inc. makes heat transfer labels for
identifying and decorating rubber and silicone hoses, belts and tire patches.
FALCON PRODUCTS, INC. manufactures furniture and equipment for the foodservice,
furniture and material handling markets. The Company produces table tops, metal
chairs, millwork, pedestal table bases, wire shelving, wood chairs and iron
castings. The products are marketed to customers through direct factory sales
and independent manufacturer's representatives.
HMG WORLDWIDE CORP. develops and markets computer-based point-of-purchase
merchandising systems. The systems interact directly with customers and include
display and touchscreen systems. Product services include market research data,
product information and advertising and customer assistance. Sales are directed
toward large consumer companies and mass marketing concerns.
HOLOPHANE CORPORATION manufactures and markets lighting fixtures and systems.
The Company produces fixtures for interiors and exteriors, including warehouses,
retail stores, shopping centers, schools, parking lots and streets. Holophane
sells its products to industrial and commercial markets in North America,
Europe, Latin America and Asia/Pacific.
LA-MAN CORPORATION manufactures and sells a line of products which reduce or
eliminate water and condensate problems and most foreign contaminants in
compressed air lines. The Company also manufactures and sells custom made signs
to a variety of industries.
LANCER CORPORATION designs, manufactures and markets fountain soft drink
dispensing systems, citrus beverage dispensing systems and other equipment for
use in the food service and beverage industry. The Company makes mechanically
cooled and ice cooled soft drink dispensing systems, syrup pumps, carbonators
and other related equipment.
<PAGE> 19
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING COMPANY DESCRIPTIONS
L S I INDUSTRIES, INC. supplies outdoor, indoor and landscape lighting for the
commercial and industrial markets. The Company also designs and manufactures
lighting and graphics products for visual image programs for the
petroleum/convenience store and multi-site retail operations markets. Products
are sold throughout the United States, Canada and Europe.
MARLTON TECHNOLOGIES, INC., through its subsidiaries, designs and produces
exhibits, displays and graphics used in trade shows and museum exhibitions. The
Company also provides trade show services and produces and sells portable
exhibits.
SPECIALTY EQUIPMENT COMPANIES, INC. manufactures a variety of commercial cooking
and refrigeration equipment for the foodservice industry. The Company's
operating divisions are "Beverage Air," "Taylor Company," "Wells/Bloomfield" and
"World Dryer." Specialty Equipment's products are sold to major fast food
restaurant and convenience store chains, soft drink bottlers and others
worldwide.
STANDEX INTERNATIONAL CORPORATION is a diversified manufacturer with operations
in the institutional system products segment, the graphics/mail order segment
for business products and the industrial products segment. The Company has
operations in the United States, western Europe, Canada, Australia, Singapore
and Mexico.
TRANS-INDUSTRIES, INC. manufactures and markets proprietary electronic
information, lighting and environmental systems for transit vehicles, highways
and commercial applications in North America and overseas. The Company's
subsidiaries produce electronic information displays, transit vehicle lighting
and interior cleaning systems and sign curtain systems for transportation and
commercial use.
TRANS-LUX CORPORATION manufactures, distributes and services real-time
electronic information displays for both indoor and outdoor use. These displays
are used primarily in the financial, banking, gaming, corporate, entertainment,
sports and transportation markets. The Company also operates a chain of motion
picture theaters in the southwestern United States.
ZIMMERMAN SIGN COMPANY operates as a manufacturer of site identification
products with a primary focus on serving large, national and regional retailers.
The Company manufactures and sells a variety of signage products which range
from large highway to medium brand and product signs and other items.
Zimmerman's customers are primarily in the petroleum marketing industry.
<PAGE> 20
INVESTMENT BANKING GROUP
[Graph comparing growth of Plasti-Line, Inc. Common Stock with the
Signage-Related Manufacturing Index* and NASDAQ Composite Index since 12/29/95]
<PAGE> 21
INVESTMENT BANKING GROUP
Daktronics, Inc. EAC Industries
Falcon Products, Inc. HMG Worldwide Corp.
[Graphic depicting Daktronics, Inc. [Graphic depicting EAC Industries
weekly price and volume trading weekly price and volume trading
statistics since 12/29/95 ] statistics since 12/29/95 ]
[Graphic depicting Falcon Products, Inc. [Graph depicting HMG Worldwide Corp.
weekly price and volume trading weekly price and volume trading
statistics since 12/29/95 ] statistics since 12/29/95 ]
<PAGE> 22
INVESTMENT BANKING GROUP
Holophone Corp. La-Man Corp.
Lancer Corp./TX LSI Industries, Inc.
[Graphic depicting Homophone Corp. [Graphic depicting La-Man Corp.
weekly price and volume trading weekly price and volume trading
statistics since 12/29/95 ] statistics since 12/29/95 ]
[Graphic depicting Lancer Corp./TX [Graphic depicting LSI Industries, Inc.
weekly price and volume trading weekly price and volume trading
statistics since 12/29/95 ] statistics since 12/29/95 ]
<PAGE> 23
INVESTMENT BANKING GROUP
Marlton Technologies Specialty Equipment Cos., Inc.
Standex International Corp. Trans-Industries, Inc.
<TABLE>
<S> <C>
[Graphic depicting Marlton Technologies [Graphic depicting Specialty Equipment Cos., Inc.
weekly price and volume trading weekly price and volume trading
statistics since 12/29/95 ] statistics since 12/29/95 ]
[Graphic depicting Standex International Corp. [Graphic depicting Trans-Industries, Inc.
weekly price and volume trading weekly price and volume trading
statistics since 12/29/95 ] statistics since 12/29/95 ]
</TABLE>
<PAGE> 24
INVESTMENT BANKING GROUP
Trans-Lux Corp. Zimmerman Sign Co.
[Graphic depicting Trans-Lux Corp. [Graphic depicting Zimmerman Sign Co.
weekly price and volume trading weekly price and volume trading
statistics since 12/29/95 ] statistics since 12/29/95 ]
<PAGE> 25
INVESTMENT BANKING GROUP
PLASTI-LINE, INC. - COMPANY PROJECTION MODEL
DISCOUNTED CASH FLOW ANALYSIS -- OPERATING CASH FLOW EBITDA EXIT MULTIPLE METHOD
<TABLE>
<CAPTION>
(Numbers in Thousands)
(Fiscal Year Ended December) 1998 1999 2000 2001 2002
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EBITDA $ 12,122 $ 13,085 $ 14,829 $ 16,968 $ 19,070
Depreciation and amortization 2,200 2,200 2,200 2,200 2,200
Interest expenses 1,159 1,029 618 330 240
Other expenses (13) (13) (13) (118) (405)
---------------------------------------------------------------------------
Pre-tax income 8,775 9,869 12,023 14,556 17,035
Provision for income taxes 3,510 3,948 4,809 5,822 6,814
---------------------------------------------------------------------------
Net income 5,265 5,921 7,214 8,733 10,221
===========================================================================
Add: Depreciation & amortization 2,200 2,200 2,200 2,200 2,200
Add: After-tax interest expense 696 617 371 198 144
Less: Net additions to working capital (1) (6,907) (251) (2,336) (2,591) (2,773)
Less: Capital expenditures (2,100) (2,100) (2,100) (2,100) (2,100)
---------------------------------------------------------------------------
Operating cash flow $ (846) $ 6,388 $ 5,349 $ 6,440 $ 7,692
===========================================================================
Cash flow growth -855.0% -16.3% 20.4% 19.4%
</TABLE>
<TABLE>
<CAPTION>
EQUITY VALUATION MATRIX (2)
---------------------------------------------------------------------------
Discount YEAR 2002 EBITDA Exit Multiple
Rate (3) 5.0x 6.0x 7.0x 8.0x
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
16.0% $ 44,903 $ 53,983 $ 63,062 $ 72,141
18.0% 40,330 48,666 57,002 65,337
20.0% 36,184 43,848 51,512 59,176
22.0% 32,418 39,474 46,530 53,586
24.0% 28,992 35,497 42,002 48,507
---------------------------------------------------------------------------
</TABLE>
- -----------------------------------------------------
(1) Excluding cash and short-term debt.
(2) less total capital liab. (net of cash) of $15,158
(3) Discount rates are near estimates of WACC.
<PAGE> 26
Investment Banking Group
PLASTI-LINE, INC. -- COMPANY PROJECTION MODEL
DISCOUNTED CASH FLOW ANALYSIS -- OPERATING CASH FLOW EBITDA EXIT MULTIPLE
METHOD
<TABLE>
<CAPTION>
(Numbers in Thousands)
(Fiscal Year Ended December)
10/14/97 7:09 PM
1988 1999 2000 2001 2002
------------ ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Operating Cash Flow $ (846) $ 6,388 $ 5,349 $ 6,440 $ 7,692
------------ ---------- -------- -------- ---------
Present Value of Oper. Cash Flows at 22.0% Discount (693) 4,292 2,946 2,907 2,846
<CAPTION>
Year 2002 Terminal Value
Based on EBITDA Exit Multiple
-----------------------------
<S> <C> <C> <C> <C>
EBITDA $ 19,070
Exit Multiple 7.0x
--------
Terminal Value in 2002 133,490
PV of Terminal Value 49,391
---------- --------- -------- -------- --------
Present Value of All Cash Flow $ (693) $ (4,292) $ 2,946 $ 2,907 $ 52,237
========== ========= ======== ======== ========
Sum of All PV of Cash Flow equals $ 61,688
Firm Value to Both Equity & Debt holders
----------
Less Current Total Debt, Net to Cash (15,158)
----------
Valuation of Equity $ 46,530
----------
Equity Per Share $ 12.03
----------
</TABLE>
<PAGE> 27
Investment Banking Group
PLASTI-LINE -- COMPANY PROJECTION MODEL
DISCOUNTED CASH FLOW ANALYSIS - FREE CASH FLOW NET INCOME EXIT MULTIPLE METHOD
<TABLE>
<CAPTION>
(Numbers in Thousands)
(Fiscal Year Ended December)
1998 1999 2000 2001 2002
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
EBITDA $ 12,122 $ 13,085 $ 14,829 $ 16,968 $ 19,070
Depreciation and amortization 2,220 2,200 2,200 2,200 2,200
Interest expense 1,159 1,029 618 330 240
Other expenses (13) (13) (13) (118) (405)
---------- ---------- ---------- ---------- -----------
Pre-tax income 8,775 9,869 12,023 14,556 17,035
Provision for income taxes 3,510 3,948 4,809 5,822 6,814
---------- ---------- ---------- ---------- -----------
Net Income $ 5,265 $ 5,921 $ 7,214 $ 8,733 $ 10,221
========== ========== ========== ========== ===========
Add: Depreciation & amortization 2,200 2,200 2,200 2,200 2,200
Less: Mandatory debt repayments (680) (8,678) (5,256) (2,035) (278)
Less: Net addiations to working capital (1) (6,907) (251) (2,336) (2,591) (2,773)
Less: Capital expenditures (2,100) (2,100) (2,100) (2,100) (2,100)
---------- ---------- ---------- ---------- -----------
Free cash flow $ (2,222) $ (2,908) (278) 4,208 $ 7,271
========== ========== ========== ========== ===========
Cash flow growth 30.9% -90.4% -1614.7% 72.8%
</TABLE>
EQUITY VALUATION MATRIX(2)
<TABLE>
<CAPTION>
Discount Year 2002 Net Income Exit Multiple
Rate(3) 13.0X 14.0x 15.0x
----- ----- ----- -----
<S> <C> <S> <C>
16.0% $ 64,794 $ 69,660 $ 74,527
18.0% 59,288 63,756 68,224
20.0% 54,318 58,426 62,534
22.0% 49,825 53,607 57,388
24.0% 45,755 49,242 52,728
</TABLE>
(1) Excluding cash and short-term debt.
(2) Less Total Capital Liab. (net of cash) of $15,158
(3) Discount rates are near estimates of WACC.
<PAGE> 28
INVESTMENT BANKING GROUP
PLASTI-LINE, INC. -- COMPANY PROJECTION MODEL
DISCOUNTED CASH FLOW ANALYSIS -- FREE CASH FLOW NET INCOME EXIT MULTIPLE
METHOD
<TABLE>
<CAPTION>
(Numbers in Thousands)
(Fiscal Year Ended December)
10/14/97 7:09 PM
1998 1999 2000 2001 2002
------------ ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Free Cash Flow $ (2,222) $ (2,908) $ (278) $ 4,208 $ 7,271
------------ ---------- -------- -------- ---------
Present Value of Free Cash Flows at 22.0% Discount (1,821) (1,954) (153) 1,899 2,690
<CAPTION>
Year Terminal Value
Based on Net Income Exit Multiple
---------------------------------
<S> <C> <C> <C>
Net Income $ 10,221
Exit Multiple 15.0x
--------
Terminal Value in 2002 153,315
PV of Terminal Value 56,726
---------- --------- ------- -------- --------
Present Value of All Cash Flow $ (1,821) $ (1,954) $ (153) $ 1,899 $ 59,417
========== ========= ======= ======== ========
Sum of All PV of Cash Flow equals $ 57,388
----------
Valuation of Equity $ 57,388
----------
Equity Per Share $ 14.83
----------
</TABLE>
<PAGE> 29
J.C. BRADFORD & CO.
PLASTI-LINE, INC. -- LEVERAGED BUYOUT ANALYSIS--COMPANY PROJECTION MODEL
TRANSACTION SUMMARY
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
% OF OFFER PRICE
USES OF FUNDS: AMOUNT CAPITAL PER SHARE
-------------------------------- ------------- --------- ------------
<S> <C> <C> <C> <C>
Offer for 100% of equity (a) $56,099 75.3% $ 14.50
Debt to be refinanced 15,408 20.7%
Management notes 500 0.7%
Transaction fees & expenses 2,500 3.4%
------------- ---------
Total Uses of Funds $74,507 100.0%
============= =========
INTEREST % OF
SOURCES OF FUNDS: RATE AMOUNT CAPITAL
-------------------------------- -------- ------------- ---------
Revolver 8.22% $16,007 21.5%
Senior debt 8.72% 23,000 30.9%
Columbia Industrial Bonds/LOC 8.95% 5,000 (b) 6.7%
Sub-debt 12.50% 10,000 13.4%
Mortgage-backed debt 9.09% 10,000 13.4%
Management equity - Common Stock 10,500 14.1%
------------- ---------
Total Sources of Funds $74,507 100.0%
============= =========
TRANSACTION SUMMARY STATISTICS GOODWILL CALCULATION
- ----------------------------------------------------------------- --------------------
Purchase price of equity $56,099
Transaction value $74,507 Plus: Transaction fees 0
Fiscal Year End Dec.: 1997 1998 Less: Book value acquired 30,104
- --------------------- ---- ---- Less: Assumed asset write-up 0
Transaction value/EBIT 8.4x 9.4x Less: Deferred income taxes 0
-------
Transaction value/EBITDA 6.8x 6.1x
Transaction value/Sales .52x .47x Book goodwill $25,995(c)
=======
</TABLE>
- ------------------------------------------------
a) Based on 3,869 shares outstanding.
b) Columbia IRB is required to be backed by LOC in the event that the company
goes private, which increases the interest rate by 300 basis points.
c) Transaction fees are amortized separately and therefore are excluded from
book goodwill.
<PAGE> 30
J.C. BRADFORD & CO.
PLASTI-LINE, INC. -- LEVERAGED BUYOUT ANALYSIS--COMPANY PROJECTION MODEL
ASSUMPTIONS SUMMARY, KEY RATIOS AND AMORTIZATION SCHEDULE
- --------------------------------------------------------------------------------
($s in 000s)
Transaction Assumptions
$ 74,507 Transaction value
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED DEC.
PROFORMA ---------------------------------
1997(1) 1998 1999
----------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Key Ratios:
- -----------
EBIT / interest expense 1.5x 1.3x 1.4x
(EBIT - cap ex)/interest expense 1.2x 1.0x 1.1x
EBITDA / interest expense 1.8x 2.0x 2.1x
(EBITDA - cap ex) / interest expense 1.6x 1.6x 1.8x
(EBITDA - change in working cap-cap ex)/interest expense 0.3x 1.6x
Senior debt/ EBITDA 3.6x 3.4x 3.2x
Total debt/ EBITDA 5.8x 5.5x 5.1x
Capitalization:
Senior debt 39,007 52% $43,268 55% $40,285 52%
Other debt 25,000 34% 25,100 32% 25,263 33%
-------- ------- --- ------- ---
Total debt 64,007 86% 68,368 86% 65,548 85%
Equity 10,500 14% 10,926 14% 11,878 15%
-------- ------- --- ------- ---
Total capitalization $ 74,507 100% $79,294 100% $77,426 100%
Amortization:
-------------
Senior debt retired annually 1,500 2,000
Columbia Industrial Bonds/LOC retired annually -- --
Sub-debt retired annually -- --
Mortgage-backed debt retired annually 400 400
Goodwill amortization over 15 years $ 1,820 $ 1,820
Fee amortization over 10 years $ 250 $ 250
</TABLE>
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED DEC.
-----------------------------------------
2000 2001 2002
------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Key Ratios:
- -----------
EBIT / interest expense 1.8x 2.2x 2.7x
(EBIT - cap ex)/interest expense 1.4x 1.9x 2.3x
EBITDA / interest expense 2.5x 2.9x 3.4x
(EBITDA - cap ex) / interest expense 2.1x 2.6x 3.0x
(EBITDA - change in working cap-cap ex)/interest expense 1.7x 2.1x 2.5x
Senior debt/ EBITDA 2.7x 2.2x 1.8x
Total debt/ EBITDA 4.4x 3.7x 3.1x
Senior debt $38,438 50% $35,367 45% $34,239 43%
Other debt 25,218 32% 25,252 32% 22,167 28%
------- -- ------- -- ------- --
Total debt 63,656 82% 60,619 78% 56,406 72%
Equity 13,986 18% 17,495 22% 22,360 28%
------- --- ------- --- ------- ---
Total capitalization $77,642 100% $78,113 100% $78,766 100%
Amortization:
-------------
Senior debt retired annually 2,375 3,250 4,500
Columbia Industrial Bonds/LOC retired annually 278 278 278
Sub-debt retired annually -- -- 3,208
Mortgage-backed debt retired annually 400 400 400
Goodwill amortization over 15 years $ 1,820 $ 1,820 $ 1,820
Fee amortization over 10 years $ 250 $ 250 $ 250
</TABLE>
(1) Adjusted to show historical operating results with proforma interest
expense and proforma capitalization.
<PAGE> 31
J.C. BRADFORD & CO.
PLASTI-LINE, INC. -- LEVERAGED BUYOUT ANALYSIS--COMPANY PROJECTION MODEL
PROJECTED INCOME STATEMENTS
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
HISTORICAL PROJECTED FISCAL YEAR ENDED DEC.
---------- --------------------------------------------------------
1996 1997 1998 1999 2000 2001 2002
-------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $131,179 $142,000 $157,140 $163,020 $174,000 $186,180 $199,213
% growth 8.2% 10.7% 3.7% 6.7% 7.0% 7.0%
Cost of sales, net dep $105,694 $113,380 $127,261 $131,514 $139,509 $148,360 $157,831
% of revenue 80.6% 79.8% 81.0% 80.7% 80.2% 79.7% 79.2%
-------- -------- -------- -------- -------- -------- --------
Gross profit $ 25,485 $ 28,620 $ 29,879 $ 31,506 $ 34,491 $ 37,820 $ 41,382
gross margin 19.4% 20.2% 19.0% 19.3% 19.8% 20.3% 20.8%
General and administrative $ 16,701 $ 10,488 $ 10,686 $ 11,085 $ 11,832 $ 12,474 $ 13,347
% of revenue 12.7% 7.4% 6.8% 6.8% 6.8% 6.7% 6.7%
Selling -- 7,184 7,071 7,336 7,830 8,378 8,965
% of revenue 5.1% 4.5% 4.5% 4.5% 4.5% 4.5%
-------- -------- -------- -------- -------- -------- --------
Total operating expenses $ 16,701 $ 17,672 $ 17,757 $ 18,421 $ 19,662 $ 20,852 $ 22,312
% of revenue 12.7% 12.4% 11.3% 11.3% 11.3% 11.2% 11.2%
EBITDA $ 8,784 $ 10,948 $ 12,122 $ 13,085 $ 14,829 $ 16,968 $ 19,070
% of revenue 6.7% 7.7% 7.7% 8.0% 8.5% 9.1% 9.6%
Depreciation $ 2,262 $ 2,000 $ 2,100 $ 2,100 $ 2,100 $ 2,100 $ 2,100
Goodwill amortization -- 100 1,820 1,820 1,820 1,820 1,820
Transaction fee amortization -- -- 250 250 250 250 250
-------- -------- -------- -------- -------- -------- --------
Total depreciation & amortization $ 2,262 $ 2,100 $ 4,170 $ 4,170 $ 4,170 $ 4,170 $ 4,170
% of revenue 1.7% 1.5% 2.7% 2.6% 2.4% 2.2% 2.1%
-------- -------- -------- -------- -------- -------- --------
EBIT $ 6,522 $ 8,848 $ 7,952 $ 8,915 $ 10,659 $ 12,798 $ 14,900
% of revenue 5.0% 6.2% 5.1% 5.5% 6.1% 6.9% 7.5%
Capital expenditures $ 2,755 $ 1,514 $ 2,100 $ 2,100 $ 2,100 $ 2,100 $ 2,100
% of revenue 1.1% 1.3% 1.3% 1.2% 1.1% 1.1%
</TABLE>
<PAGE> 32
J.C. BRADFORD & CO.
PLASTI-LINE, INC. -- LEVERAGED BUYOUT ANALYSIS--COMPANY PROJECTION MODEL
PROJECTED INCOME STATEMENTS
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
HISTORICAL PROJECTED FISCAL YEAR ENDED DEC.
------------------ --------------------------------------------------------------
1996 1997 1998 1999 2000 2001 2002
------ ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
EBIT $6,522 $ 8,848 $ 7,952 $ 8,915 $ 10,659 $ 12,798 $ 14,900
Interest expense:
Revolver -- -- 1,553 1,749 1,730 1,759 1,905
Senior debt -- -- 1,940 1,788 1,597 1,352 1,014
Columbia Industrial Bonds/LOC -- -- 448 448 435 410 385
Sub-debt -- -- 1,250 1,313 1,383 1,462 1,551
Mortgage-backed debt -- -- 891 854 818 782 745
Knox County Industrial Bonds -- -- -- -- -- -- --
------ ------- ------- ------- -------- -------- --------
Total interest expense 1,593 851 6,081 6,151 5,963 5,765 5,600
Interest (income) -- (7) (13)
Loan (income) -- -- (39) (35) (31) (27) (23)
------ ------- ------- ------- -------- -------- --------
Other expenses (income) 1,593 (7) (52) (35) (31) (27) (23)
Pre-tax income 4,929 8,004 1,923 2,799 4,727 7,061 9,323
Provision (benefit) for income taxes 1,781 3,202 1,497 1,848 2,619 3,552 4,457
------ ------- ------- ------- -------- -------- --------
Net income $3,148 $ 4,802 $ 426 $ 952 $ 2,108 $ 3,508 $ 4,866
====== ======= ======= ======= ======== ======== ========
</TABLE>
<PAGE> 33
J.C. BRADFORD & CO.
PLASTI-LINE, INC. -- LEVERAGED BUYOUT ANALYSIS--COMPANY PROJECTION MODEL
PROJECTED BALANCE SHEETS
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
Estimated Proforma
Dec. 1997 Adjustments Dec. 1997
---------- ------------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents $ 250 $ 0 $ 0 $ 250
Management notes -- -- 500 500
Accounts receivable 23,430 -- -- 23,430
Inventory 28,400 -- -- 28,400
Prepaid expenses 816 -- -- 816
Deferred income taxes 1,447 -- -- 1,447
-------- -------- -------- ---------
Total current assets 54,343 -- 500 54,843
Land -- -- -- --
Gross plant and equip 37,493 -- -- 37,493
Accumulated depreciation (21,055) -- -- (21,055)
-------- -------- -------- ---------
Net P,P&E 16,438 -- -- 16,438
Goodwill, net of accumulated amortization 1,303 -- 25,995 27,297
Transaction fee & expenses -- -- 2,500 2,500
Other fixed assets 302 -- -- 302
Columbia Industrial Bond Trust 2,000 -- -- 2,000
-------- -------- -------- ---------
Total assets $ 74,387 $ 0 $ 28,995 $ 103,381
======== ======== ======== =========
LIABILITIES & EQUITY
--------------------
Current maturities & short-term debt $ 0 $ 0 $ 0 $ 0
Accounts payable 8,520 -- -- 8,520
Accrued liabilities 6,390 -- -- 6,390
Income taxes currently payable 90 -- -- 90
Customer deposits and deferred revenue 12,496 -- -- 12,496
-------- -------- -------- ---------
Total current liabilities 27,496 -- -- 27,496
Long term debt
Revolver 7,098 (7,098) 16,007 16,007
Senior debt -- -- 23,000 23,000
Columbia Industrial Bonds/LOC 5,000 (5,000) 5,000 5,000
Sub-debt -- -- 10,000 10,000
Mortgage-backed debt -- -- 10,000 10,000
Knox County Industrial Bonds 3,310 (3,310) -- --
-------- -------- -------- ---------
Total debt 15,408 (15,408) 64,007 64,007
Less current portion -- -- -- --
-------- -------- -------- ---------
Total long-term debt 15,408 (15,408) 64,007 64,007
-------- -------- -------- ---------
Deferred income taxes 1,295 -- -- 1,295
Deferred liabilities 83 -- -- 83
======== ======== ======== =========
Total liabilities 44,282 (15,408) 64,007 92,881
Preferred stock -- -- -- --
Common stock 4 (4) -- --
Additional paid-in capital 2,723 (2,723) 10,500 10,500
Retained earnings 27,377 (27,377) -- --
-------- -------- -------- ---------
Total stockholders' equity 30,104 (30,104) 10,500 10,500
-------- -------- -------- ---------
Total liabilities & equity $ 74,387 $(45,513) $ 74,507 $ 103,381
======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
Projected Fiscal Year Ended Dec.
--------------------------------------------------------
1998 1999 2000 2001 2002
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents $ 250 $ 250 $ 250 $ 250 $ 250
Management notes 450 400 350 300 250
Accounts receivable 25,928 26,898 28,710 30,720 32,870
Inventory 31,428 32,604 34,800 37,236 39,843
Prepaid expenses 903 937 1,000 1,070 1,145
Deferred income taxes 1,602 1,662 1,773 1,898 2,030
--------- --------- --------- --------- --------
Total current assets 60,561 62,751 66,884 71,473 76,388
Land -- -- -- -- --
Gross plant and equip 39,593 41,693 43,793 45,893 47,993
Accumulated depreciation (23,155) (25,254) (27,354) (29,454) (31,554)
--------- --------- --------- --------- --------
Net P,P&E 16,438 16,439 16,439 16,439 16,439
Goodwill, net of accumulated amortization 25,478 23,658 21,838 20,018 18,198
Transaction fee & expenses 2,250 2,000 1,750 1,500 1,250
Other fixed assets 334 347 370 396 424
Columbia Industrial Bond Trust 1,000 -- -- -- --
--------- --------- --------- --------- --------
Total assets $ 106,061 $ 105,194 $ 107,280 $ 109,827 $112,699
========= ========= ========= ========= ========
Current maturities & short-term debt $ 0 $ 0 $ 0 $ 0 $ 0
Accounts payable 9,428 9,781 10,440 11,171 11,953
Accrued liabilities 7,071 7,336 7,830 8,378 8,965
Income taxes currently payable 99 103 110 118 126
Customer deposits and deferred revenue 8,643 8,966 9,570 10,240 10,957
--------- --------- --------- --------- --------
Total current liabilities 25,242 26,186 27,950 29,907 32,000
Long term debt
Revolver 21,768 20,785 21,313 21,492 24,864
Senior debt 21,500 19,500 17,125 13,875 9,375
Columbia Industrial Bonds/LOC 5,000 5,000 4,722 4,444 4,167
Sub-debt 10,500 11,063 11,695 12,407 10,000
Mortgage-backed debt 9,600 9,200 8,800 8,400 8,000
Knox County Industrial Bonds -- -- -- -- --
--------- --------- --------- --------- --------
Total debt 68,368 65,548 63,656 60,619 56,406
Less current portion -- -- -- -- --
--------- --------- --------- --------- --------
Total long-term debt 68,368 65,548 63,656 60,619 56,406
--------- --------- --------- --------- --------
Deferred income taxes 1,433 1,486 1,586 1,697 1,816
Deferred liabilities 92 96 102 109 117
--------- --------- --------- --------- --------
Total liabilities 95,135 93,316 93,294 92,332 90,339
Preferred stock -- -- -- -- --
Common stock -- -- -- -- --
Additional paid-in capital 10,500 10,500 10,500 10,500 10,500
Retained earnings 426 1,378 3,486 6,995 11,860
--------- --------- --------- --------- --------
Total stockholders' equity 10,926 11,878 13,986 17,495 22,360
--------- --------- --------- --------- --------
Total liabilities & equity $ 106,061 $ 105,194 $ 107,280 $ 109,827 $112,699
========= ========= ========= ========= ========
</TABLE>
<PAGE> 34
J.C. BRADFORD & CO.
PLASTI-LINE, INC. -- LEVERAGED BUYOUT ANALYSIS--COMPANY PROJECTION MODEL
CASH FLOW
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED DEC.
----------------------------------------------------------------------
1998 1999 2000 2001 2002
<S> <C> <C> <C> <C> <C>
Net Income $ 426 $ 952 $ 2,108 $ 3,508 $ 4,866
Add: Depreciation & amortization 2,100 2,100 2,100 2,100 2,100
Add: Goodwill amortization 1,820 1,820 1,820 1,820 1,820
Add: Fee amortization 250 250 250 250 250
Add: Minority interest - - - - -
Add: Sub-debt PIK 500 563 633 712 801
Add: Dividend - - - - -
------- ------- ------- ------- -------
Total Sources $ 5,095 $ 5,684 $ 6,911 $ 8,390 $ 9,836
Less: Changes in other long-term assets & liabilities 1,115 1,045 83 92 99
Less: Change in working capital (7,971) (1,245) (2,369) (2,633) (2,821)
Less: Capital expenditures (Net of dispos.) (2,100) (2,100) (2,100) (2,100) (2,100)
------- ------- ------- ------- -------
Total Uses $(8,957) $(2,301) $(4,386) $(4,641) $(4,823)
------- ------- ------- ------- -------
TOTAL FREE CASH FLOW BEFORE FINANCING $(3,861) $ 3,383 $ 2,525 $ 3,749 $ 5,014
REPAYMENT/ BORROWING OF DEBT
Revolver 5,761 (983) 528 179 3,372
Senior debt (1,500) (2,000) (2,375) (3,250) (4,500)
Columbia Industrial Bonds/LOC - - (278) (278) (278)
Sub-debt (Includes PIK payment in year 5) - - - - (3,208)
Mortgage-backed debt (400) (400) (400) (400) (400)
Knox County Industrial Bonds - - - - -
------- ------- ------- ------- -------
Total Debt (Repayments)/ Borrowing $ 3,861 $(3,383) $(2,525) $(3,749) $(5,014)
CHANGE IN CASH BALANCE $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
<PAGE> 35
J.C. BRADFORD & CO.
PLASTI-LINE, INC.--LEVERAGED BUYOUT ANALYSIS--COMPANY PROJECTION MODEL
RETURNS ANALYSIS
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
PROJECTED RETURNS ON SUB-DEBT
YEAR ENDING DEC.
---------------------------------------------------------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
TOTAL CAPITALIZATION AS A
MULTIPLE OF EBITDA
5 x $60,610 $ 65,425 $ 74,145 $ 84,840 $ 95,350
6 x 72,732 78,510 88,974 101,808 114,420
7 x 84,854 91,595 103,803 118,776 133,490
8 x 96,976 104,680 118,632 135,744 152,560
LESS: TOTAL DEBT (NET OF CASH) $68,118 $ 65,298 $ 63,406 $ 60,369 $ 56,156
VALUE OF EQUITY
5 x $(7,508) $ 127 $ 10,739 $ 24,471 $ 39,194
6 x 4,614 13,212 25,568 41,439 58,264
7 x 16,736 26,297 40,397 58,407 77,334
8 x 28,858 39,382 55,226 75,375 96,404
RETURNS ANALYSIS
OWNERSHIP PERCENTAGE (INPUT) 15.0% 15.0% 15.0% 15.0% 15.0%
IRR ASSUMING EBITDA
MULTIPLES OF :
5 x 1.2% 12.6% 16.9% 19.0% 19.8%
6 x 19.4% 21.3% 22.4% 22.9% 22.7%
7 x 37.6% 29.3% 27.4% 26.5% 25.4%
8 x 55.8% 36.9% 32.1% 29.7% 27.9%
</TABLE>
<PAGE> 36
J.C. BRADFORD & CO.
PLASTI-LINE, INC.--LEVERAGED BUYOUT ANALYSIS--COMPANY PROJECTION MODEL
RETURNS ANALYSIS
- -------------------------------------------------------------------------------
($0s in 000s)
<TABLE>
<CAPTION>
PROJECTED RETURNS ON MANAGEMENT EQUITY
YEAR ENDING DEC.
--------------------------------------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
TOTAL CAPITALIZATION AS A
MULTIPLE OF EBITDA
5 x $ 60,610 $ 65,425 $ 74,145 $ 84,840 $ 95,350
6 x 72,732 78,510 88,974 101,808 114,420
7 x 84,854 91,595 103,803 118,776 133,490
8 x 96,976 104,680 118,632 135,744 152,560
LESS: TOTAL DEBT (NET OF CASH) 68,118 65,298 63,406 60,369 56,156
VALUE OF EQUITY
5 x $ (7,508) $ 127 $ 10,739 $ 24,471 $ 39,194
6 x 4,614 13,212 25,568 41,439 58,264
7 x 16,736 26,297 40,397 58,407 77,334
8 x 28,858 39,382 55,226 75,375 96,404
RETURNS ANALYSIS
OWNERSHIP PERCENTAGE 85.0% 85.0% 85.0% 85.0% 85.0%
IRR ASSUMING EBITDA
MULTIPLES OF :
5 x (4.6%) 18.6% 26.0%
6 x 3.4% 27.4% 35.3% 36.4%
7 x 35.5% 45.9% 48.4% 47.5% 44.3%
8 x 133.6% 78.6% 64.7% 57.2% 50.8%
</TABLE>
<PAGE> 37
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING* (DOLLARS IN MILLIONS)
ANALYSIS OF M&A TRANSACTION MULTIPLES SINCE 1/1/92 FOR ACQUISITIONS OVER 30%
<TABLE>
<CAPTION>
AGGREG. EQUITY CONSID. LEVERED AGGREGATE CONSIDERATION
AS A MULTIPLE OF: AS A MULTIPLE OF:
AGGREGATE LEVERED ------------------------------------------------------
DATE EQUITY AGGREGATE LTM NET BOOK LTM LTM LTM PERCENT
ANNOUNCED ACQUIROR / TARGET CONSIDERATION CONSIDERATION(2) INCOME VALUE REVENUE EBITDA EBIT ACQUIRED
- --------- ----------------- ------------- ---------------- ------- ----- ------- ------ ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
07/31/97 Spandex PLC $ 1.1 $ 1.1 NA NA 0.2 NA 3.7 100.0%
Clarke Sign Systems Inc
10/25/96 Undisclosed Acquiror $12.0 $12.0 NA NA NA NA NA 100.0%
Interstate Highway Sign
04/29/96 Netter Digital Entertainment $ 1.6 $ 1.6 NA NA NA NA NA 100.0%
Videssence Inc
02/20/96 Investor Group $ 5.5 $ 5.5 NA NA NA NA NA 100.0%
Bright Star Indus(Publicker)
11/29/95 Astronics Corp $ 6.5 $ 6.5 NA NA NA NA NA 100.0%
Loctite Luminescent Systems
09/14/95 Dial Corp $62.0 $62.0 NA NA NA NA NA 100.0%
Giltspur Inc(Unigate PLC)
09/08/95 Stonebridge Partners $10.0 $10.0 NA NA NA NA NA 100.0%
Four Star Lighting
07/27/95 La-Man Corp $ 2.2 $ 2.2 NM NM 0.4 NA NA 100.0%
Don Bell Industries Inc
11/08/94 Undisclosed Acquiror $ 2.1 $ 2.1 NA NA NA NA NA 100.0%
Oak Crystal-Carpenter Emerg
09/09/94 Airport Systems International $ 3.1 $ 3.1 NA NA 1.0 NA NA 100.0%
Vomar International-VomaGlow
06/02/94 Tosco Corp $82.0 $82.0 NA NA NA NA NA 100.0%
BP America-California
</TABLE>
<PAGE> 38
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING* (DOLLARS IN MILLIONS)
ANALYSIS OF M&A TRANSACTION MULTIPLES SINCE 1/1/92 FOR ACQUISITIONS OVER 30%
<TABLE>
<CAPTION>
AGGREG. EQUITY CONSID. LEVERED AGGREGATE CONSIDERATION
AS A MULTIPLE OF: AS A MULTIPLE OF:
AGGREGATE LEVERED ------------------------------------------------------
DATE EQUITY AGGREGATE LTM NET BOOK LTM LTM LTM PERCENT
ANNOUNCED ACQUIROR / TARGET CONSIDERATION CONSIDERATION(2) INCOME VALUE REVENUE EBITDA EBIT ACQUIRED
- --------- ----------------- ------------- ---------------- ------- ----- ------- ------ ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
03/29/94 Norwood Promotional Products $13.0 $13.0 NA NA NA NA NA 100.0%
ArtMold Products Corp
03/10/94 Tri-Lite Corp $ 3.3 $ 3.3 NM NM 0.3 NM NM 100.0%
NL Corp
02/22/94 Norwood Promotional Products $ 9.5 $ 9.5 NA NA NA NA NA 100.0%
Key Industries Inc
07/01/93 Helionetics Inc $ 0.4 $ 0.4 NA NA NA NA NA 100.0%
Self Powered Lighting Inc
05/03/93 MarkitStar Inc $18.2 $18.2 NM 2.8 0.2 NM NM 100.0%
Marlboro Marketing,2 Others
09/17/92 Tridex Corp $ 6.6 $ 6.6 6.0 3.9 0.7 5.5 6.0 100.0%
Ultimate Technology Corp
05/21/92 Norwood Products Inc $ 7.8 $ 7.8 NA NA NA NA NA 100.0%
Barlow Specialty Advertising
02/13/92 Alpha Solarco Inc $ 2.2 $ 4.3 NM NM 0.9 NM NM 100.0%
State Machine Products
</TABLE>
* Covers industries with SIC Codes of 3646, 3648 and 3993. Source: Securities
Data Company, Inc. (201)622-3100. As of 10/14/97.
(2) Leveraged aggregate consideration is defined as aggregate equity
consideration plus total debt, net of cash and equivalents.
<PAGE> 39
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING*
MERGERS & ACQUISITION TRANSACTIONS SINCE 1/1/92 FOR ACQUISITIONS OVER 30%
<TABLE>
<CAPTION>
TARGET TARGET
VALUE SHARE- NET
EQUITY OF PRICE HOLDERS SALES
DATE DATE VALUE DEAL PER SHARES EQUITY LTM
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- -------------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7/31/97 7/31/97 Spandex PLC Clarke Sign Systems Inc $ 1.1 $1.1 - - - $5.4
Advisor - -
-------
Company Status Public Priv.
---------------
Deal Description
----------------
Spandex acquired Clarke Sign Systems for $1.1 mil in cash.
Target Business Description
---------------------------
Manufacture and wholesale signs
Acquiror Business Description
-----------------------------
Manufacture and wholesale equipment and supplies,
including adhesives, sealants and signs, to
the sign and graphics industries; holding company
10/25/96 10/25/96 Undisclosed Acquiror Interstate Highway Sign $12.0 $12.0 - - - -
Advisor - -
-------
Company Status Unk. Sub.
-----------------
Deal Description
----------------
Mark IV Industries divested its Interstate Highway Sign unit
to an undisclosed acquiror for approximately $12 mil in cash.
Target Business Description
---------------------------
Manufacture outdoor signs
Acquiror Business Description
-----------------------------
Unknown
</TABLE>
<TABLE>
<CAPTION>
TARGET
NET TARGET TARGET %
INCOME EBIT EBITDA TOTAL % OF STATUS/ OWNED
DATE LTM LTM LTM DEBT, NE TOTAL SHARES FORM/ AFTER
ANNOUNCED ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE TRANSACTION
- --------- ------ ------ ------ ------- ------ ------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7/31/97 - $0.3 - - - 100 Completed 100
Acq. of Assets
Friendly
10/25/96 - - - - - 100 Completed 100
Acq. of Assets
Friendly
</TABLE>
* Covers industries with SIC Codes of 3646, 3648 and 3993. Source: Securities
Data Company, Inc. (201) 622-3100. As of 10/14/97.
<PAGE> 40
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING*
MERGERS & ACQUISITION TRANSACTIONS SINCE 1/1/92 FOR ACQUISITIONS OVER 30%
<TABLE>
<CAPTION>
TARGET TARGET
VALUE SHARE- NET
EQUITY OF PRICE HOLDERS SALES
DATE DATE VALUE DEAL PER SHARES EQUITY LTM
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- -------------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
4/29/96 1/9/97 Netter Digital Entertainment Videssence Inc $1.6 $1.6 - - - -
Advisor - -
-------
Company Status Public Priv.
- --------------
Deal Description
----------------
Netter Digital Entertainment (NET) acquired all the
outstanding stock of Videssence in a stock swap
transaction valued at approximately $3.72 mil. The
consideration consisted of .522 mil NET common
shares valued at $3.72 mil and up to .788 mil
common shares in profit-related payments.
The shares were valued based on NET's closing stock price of
$7.125 on Apr 26, the last full trading day prior to the
announcement.
Target Business Description
---------------------------
Manufacture lighting equipment
Acquiror Business Description
-----------------------------
Provide motion picture services
2/20/96 2/20/96 Investor Group Bright Star Indus(Publicker) $5.5 $5.5 - - - - -
Advisor - -
-------
Company Status Priv. Sub.
- --------------
Deal Description
----------------
An investor group, including BancBoston Capital, a unit of
Bank of Boston, acquired Bright Star Industries, a unit of
Publicker Industries, for $5.5 mil.
Target Business Description
---------------------------
Manufacture flashlights, lanterns and batteries
Acquiror Business Description
-----------------------------
Investor group
</TABLE>
<TABLE>
TARGET
NET TARGET TARGET %
INCOME EBIT EBITDA TOTAL % OF STATUS/ OWNED
DATE LTM LTM LTM DEBT, NE TOTAL SHARES FORM/ AFTER
ANNOUNCED ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE TRANSACTION
- --------- ------ ------ ------ ------- ------ ------ ---------- -----------
<S> <S> <C> <C> <C> <C> <C> <C> <C>
4/29/96 - - - - - 100 Completed 100
Merger
Friendly
2/20/96 - - - - - 100 Completed 100
Acq. of Assets
Friendly
</TABLE>
* Covers industries with SIC Codes of 3646, 3648 and 3993. Source: Securities
Data Company, Inc. (201) 622-3100. As of 10/14/97.
<PAGE> 41
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING*
MERGERS & ACQUISITION TRANSACTIONS SINCE 1/1/92 FOR ACQUISITIONS OVER 30%
<TABLE>
<CAPTION>
TARGET TARGET
VALUE SHARE- NET
EQUITY OF PRICE HOLDERS SALES
DATE DATE VALUE DEAL PER SHARES EQUITY LTM
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- -------------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
11/29/95 11/29/95 Astronics Corp Loctite Luminescent Systems $6.5 $6.5 - - - -
Advisor - -
------
Company Status Public Sub.
- --------------
Deal Description
----------------
Astronics acquired Loctite Luminescent Systems, a unit of
Loctite, for approximately $6.5 mil.
Target Business Description
---------------------------
Manufacture lighting equipment
Acquiror Business Description
-----------------------------
Manufacture folding paperboard boxes
9/14/95 10/3/95 Dial Corp Giltspur Inc(Unigate PLC) $62.0 $62.0 - - - -
Advisor Merrill Lynch & Co. SBC Warburg
-------
Company Status Public Sub.
- --------------
Deal Description
----------------
Dial acquired Giltspur, a unit of Unigate, for $62 mil in
cash. The transaction had been subject to regulatory
approval.
Target Business Description
---------------------------
Manufacture advertising exhibition equipment
Acquiror Business Description
-----------------------------
Provide transportation, financial credit, computer leasing,
airport and terminal services; manufacture motor vechicles,
soaps and other detergents, and perfumes and cosmetics; own
and operate restaurant
</TABLE>
<TABLE>
TARGET
NET TARGET TARGET %
INCOME EBIT EBITDA TOTAL % OF STATUS/ OWNED
DATE LTM LTM LTM DEBT, NE TOTAL SHARES FORM/ AFTER
ANNOUNCE ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE TRANSACTION
- -------- ------ ------ ------ ------- ------ ------ ------------ -----------
<S> <S> <C> <C> <C> <C> <C> <C> <C>
11/29/95 - - - - - 100 Completed 100
Acq. of Assets
Friendly
9/14/95 - - - - - 100 Completed 100
Acq. of Assets
Friendly
</TABLE>
* Covers industries with SIC Codes of 3646, 3648 and 3993. Source: Securities
Data Company, Inc. (201) 622-3100. As of 10/14/97.
<PAGE> 42
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING*
MERGERS & ACQUISITION TRANSACTIONS SINCE 1/1/92 FOR ACQUISITIONS OVER 30%
<TABLE>
<CAPTION>
TARGET TARGET
VALUE SHARE- NET
EQUITY OF PRICE HOLDERS SALES
DATE DATE VALUE DEAL PER SHARES EQUITY LTM
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- -------------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
9/8/95 9/8/95 Stonebridge Partners Four Star Lighting $10.0 $10.0 - - - -
Advisor - -
------
Company Status Priv. Priv.
- ---------------
Deal Description
----------------
Stonebridge Partners acquired Four Star Lighting
for $10 mil in leveraged-buyout transaction.
Target Business Description
---------------------------
Manufacture lighting equipment for theaters
Acquiror Business Description
-----------------------------
Securities brokerage firm
7/27/95 9/11/95 La-Man Corp Don Bell Industries Inc $ 2.2 $ 2.2 - - $(0.4) $6.2
Advisor - -
-------
Company Status Public Priv.
- --------------
Deal Description
----------------
La-Man acquired Don Bell Industries for approximately $ 2.2
mil in a combination of cash, common shares and debt.
Target Business Description
---------------------------
Manufacture commercial signs
Acquiror Business Description
-----------------------------
Manufacture electronic institutional and commercial signs
</TABLE>
<TABLE>
NET TARGET TARGET %
INCOME EBIT EBITDA TOTAL % OF STATUS/ OWNED
DATE LTM LTM LTM DEBT, NE TOTAL SHARES FORM/ AFTER
ANNOUNCED ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE TRANSACTION
- --------- ------ ------ ------ ------- ------ ------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9/8/95 - - - - - 100 Completed 100
Acq. of Assets
Friendly
7/27/95 $(0.1) - $2.0 $2.9 100 Completed 100
Acq. of Assets
Friendly
</TABLE>
* Covers industries with SIC Codes of 3646, 3648 and 3993. Source: Securities
Data Company, Inc. (201) 622-3100. As of 10/14/97.
<PAGE> 43
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING*
MERGERS & ACQUISITION TRANSACTIONS SINCE 1/1/92 FOR ACQUISITIONS OVER 30%
<TABLE>
<CAPTION>
TARGET TARGET
VALUE SHARE- NET
EQUITY OF PRICE HOLDERS SALES
DATE DATE VALUE DEAL PER SHARES EQUITY LTM
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- -------------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
11/8/94 11/8/94 Undisclosed Acquiror Oak Crystal-Carpenter Emerg $ 2.1 $ 2.1 - - - -
Advisor - -
-------
Company Status Unk. Sub.
- --------------
Deal Description
----------------
Oak Crystal, a unit of Oak Industries, divested its
Carpenter Emergency Lighting Business to an
undisclosed acquiror.
Target Business Description
---------------------------
Manufacture emergency lights, exit signs,
and portable lights for the use in industrial,
commercial and office locations
Acquiror Business Description
-----------------------------
Unknown
9/9/94 9/9/94 Airport Systems Internat Vomar International-Vom GLOW $ 3.1 $ 3.1 - - - $ 3.0
Advisor - -
------
Company Status Public Sub.
Deal Description
----------------
Airport Systems International acquired the VomaGlow
airfield signage line from Vomar International for
$3.1 mil. Consideration consisted of $1 mil in cash
and $2.1 mil in profit-related payments.
Target Business Description
---------------------------
Manufacture airfield signs
Acquiror Business Description
-----------------------------
Manufacture and wholesale aircraft radio navigation
equipment
</TABLE>
<TABLE>
TARGET
NET TARGET TARGET %
INCOME EBIT EBITDA TOTAL % OF STATUS/ OWNED
DATE LTM LTM LTM DEBT, NE TOTAL SHARES FORM/ AFTER
ANNOUNCED ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE TRANSACTION
- --------- ------ ------ ------ ------- ------ ------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11/8/94 - - - - - 100 Completed 100
Acq. of Assets
Friendly
9/9/94 - - - - - 100 Completed 100
Acq. of Assets
Friendly
</TABLE>
* Covers industries with SIC Codes of 3646, 3648 and 3993. Source: Securities
Data Company, Inc. (201) 622-3100. As of 10/14/97.
<PAGE> 44
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING*
MERGERS & ACQUISITION TRANSACTIONS SINCE 1/1/92 FOR ACQUISITIONS OVER 30%
<TABLE>
<CAPTION>
TARGET TARGET
VALUE SHARE- NET
EQUITY OF PRICE HOLDERS SALES
DATE DATE VALUE DEAL PER SHARES EQUITY LTM
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- -------------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
6/2/94 8/1/94 Tosco Corp BP America-California $82.0 $82.0 - - - -
Advisor - -
-------
Company Status Public Sub.
- ---------------
Deal Description
----------------
Tosco acquired the California Marketing assets of BP
America, a unit of British Petroleum, for $82 mil.
The consideration offered comprised of $72 mil and
a $10 mil partial prepayment of future royalties.
Target Business Description
---------------------------
Marketing assets
Acquiror Business Description
-----------------------------
Provide petroleum refining services; wholesale
petroleum products; oil and gas exploration and
production coal an lignite mining
3/29/94 7/31/94 Norwood Promotional ProdArtMold Products Corp $13.0 $13.0 - - - - -
Advisor - -
Company Status Public Priv.
- --------------
Deal Description
----------------
Norwood Promotional Products acquired all the
outstanding stock of ArtMold Products for $13
mil in cash.
Target Business Description
---------------------------
Manufacture promotional products, including key
holders, golf tees, hats and writing instruments
Acquiror Business Description
-----------------------------
Manufacture hats, caps, tee- shirts, gravure
printing roducts and other promotional products
</TABLE>
<TABLE>
TARGET
NET TARGET TARGET %
INCOME EBIT EBITDA TOTAL % OF STATUS/ OWNED
DATE LTM LTM LTM DEBT, NE TOTAL SHARES FORM/ AFTER
ANNOUNCED ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE TRANSACTION
- --------- ------ ------ ------ ------- ------ ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6/2/94 - - - - - 100 Completed 100
Acq. of Assets
Friendly
3/29/94 - - - - - 100 Completed 100
Merger
Friendly
</TABLE>
* Covers industries with SIC Codes of 3646, 3648 and 3993. Source: Securities
Data Company, Inc. (201) 622-3100. As of 10/14/97.
<PAGE> 45
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING*
MERGERS & ACQUISITION TRANSACTIONS SINCE 1/1/92 FOR ACQUISITIONS OVER 30%
<TABLE>
<CAPTION>
TARGET TARGET
VALUE SHARE- NET
EQUITY OF PRICE HOLDERS SALES
DATE DATE VALUE DEAL PER SHARES EQUITY LTM
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- -------------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
3/10/94 3/14/94 Tri-Lite Corp NL Corp $3.3 $3.3 - - $(0.9) $10.3
Advisor - -
-------
Company Status Public Priv.
- --------------
Deal Description
----------------
Tri-Lite acquired NL for a revised $3.3 mil. The
consideration consisted of 300,000 common shares
and up to an additional 300,000 common shares in
earnout. Originally Tri-Lite had offered 400,000
common shares in profit-related payments. The
common shares were valued based on Tri-Lite closing
stock price of $5.5 on Mar 11, the last full trading
day prior to the announcement of the revised terms.
Target Business Description
---------------------------
Manufacture commercial lighting fixtures
Acquiror Business Description
-----------------------------
Manufacture light bulbs
2/22/94 5/6/94 Norwood Promotional ProdKeysIndustries Inc $9.5 $9.5 - - - -
Advisor - -
-------
Company Status Public Priv.
- --------------
Deal Description
----------------
Norwood Promotional Products acquired Key
Industries in a $9.5 mil transaction. The
consideration offered comprised $6.125 mil
in cash, a $1.125 mil promissory note, and
a $2.25 mil subordinated promissory note
convertible into shares at $17 per share.
Target Business Description
---------------------------
Manufacture promotional and advertising products
Acquiror Business Description
-----------------------------
Manufacture hats, caps, tee- shirts, gravure printing products and other promotional
products
</TABLE>
<TABLE>
TARGET
NET TARGET TARGET %
INCOME EBIT EBITDA TOTAL % OF STATUS/ OWNED
DATE LTM LTM LTM DEBT, NE TOTAL SHARES FORM/ AFTER
ANNOUNCED ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE TRANSACTION
- --------- ------ ------ ------ -------- ------ ------ ------------- -------------
<S> <S> <C> <C> <C> <C> <C> <C> <C>
3/10/94 $(1.5) $(0.9) $(0.9) $ 3.2 $ 3.3 100 Completed 100
Acq. of Assets
Friendly
2/22/94 - - - - - 100 Completed 100
Acq. of Assets
Friendly
</TABLE>
* Covers industries with SIC Codes of 3646, 3648 and 3993. Source: Securities
Data Company, Inc. (201) 622-3100. As of 10/14/97.
<PAGE> 46
INVESTMENT BANKING GROUP
SIGNATE-RELATED MANUFACTURING*
MERGER & ACQUISITION TRANSACTION SINCE 1/1/92 FOR ACQUISITIONS OVER 30%
<TABLE>
<CAPTION>
TARGET TARGET
VALUE SHARE- NET
EQUITY OF PRICE HOLDERS SALES
DATE DATE VALUE DEAL PER SHARES EQUITY LTM
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL) ($MIL)
- --------- --------- ---------------- ------------------------ ------ ------ ----- -------------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
7/1/93 7/1/93 Helionetics Inc Self Powered Lighting Inc $ 0.4 $ 0.4 - - - -
Advisor - -
-------
Company Status Public Sub.
- --------------
Deal Description
----------------
Helionetics acquired Self Powered Lighting, a unit of TH
Lehman, for $.4 mil. Consideration consisted of a $.4 mil 6%
unsecured promissory note payable Dec 31, 1996, convertible
into Helionetics common stock at $4 per share, and warrants
to purchase 100,000 Helionetics common shares at $6 per
share.
Target Business Description
---------------------------
Manufacture commercial lighting fixtures and
luminescent signage
Acquiror Business Description
-----------------------------
Manufacture and wholesale electronic converters
and lasers
5/3/93 10/4/93 MarkitStar Inc Marlboro Marketing,2 Others $18.2 $18.2 - - $6.4 $83.1
Advisor - -
-------
Company Status Public Sub.
- --------------
Deal Description
----------------
MarkitStar acquired Marlboro Marketing, Creative Displays and
HMG Europe from Saatchi & Saatchi for $16.82 mil. The
consideration offered consisted of $3.3 mil in cash and an
$11.5 mil secured note and the issue 490,000 common shares
valued at $2.02 mil. The shares were valued based on
MarkitStar's closing stock price of $4.125 on Apr 29, 1993,
the last full trading day prior to the announcement. In
February 1993, MarkitStar disclosed that it was negotiating
to acquire an undisclosed marketing firm.
Target Business Description
---------------------------
Manufacture window and lobby displays and cutouts; wholesale
electrical apparatus and equipment; provide electrical work
and marketing consulting services
Acquiror Business Description
-----------------------------
Manufacture computer-based point-of-purchase merchandising
systems; organize in-house product promotion meetings
</TABLE>
<TABLE>
TARGET
NET TARGET TARGET %
INCOME EBIT EBITDA TOTAL % OF STATUS/ OWNED
DATE LTM LTM LTM DEBT, NE TOTAL SHARES FORM/ AFTER
ANNOUNCED ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE TRANSACTION
- --------- ------ ------ ------ ------- ------ ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7/1/93 - - - - - 100 Completed 100
Merger
Friendly
5/3/93 $(41.2) $(39.9) $(36.6) - $28.9 100 Completed 100
Merger
Friendly
</TABLE>
* Covers industries with SIC Codes of 3646, 3648 and 3993. Source: Securities
Data Company, Inc. (201) 622-3100. As of 10/14/97.
<PAGE> 47
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING*
MERGERS & ACQUISITION TRANSACTIONS SINCE 1/1/92 FOR ACQUISITIONS OVER 30%
<TABLE>
<CAPTION>
TARGET TARGET
VALUE SHARE- NET
EQUITY OF PRICE HOLDERS SALES
DATE DATE VALUE DEAL PER SHARES EQUITY LTM
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- -------------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
9/17/92 1/20/93 Tridex Corp Ultimate Technology Corp $ 6.6 $ 6.6 - - $ 1.7 $ 9.4
Advisor - -
-------
Company Status Public Priv.
- --------------
Deal Description
----------------
Tridex acquired all the common stock of Ultimate Technology
for a total of $6.645 mil. Consideration was comprised of
$3.645 mil in cash and $3 mil in 8% five-year promissory
notes, which were convertible into Tridex common shares at
$12 per share. The transaction had been subject to certain
conditions. Tridex financed the acquisition through a private
placement of debentures and warrants.
Target Business Description
---------------------------
Manufacture point-of-sale displays and hardware platforms
Acquiror Business Description
-----------------------------
Manufacture dot-matrix printheads, printers, printer
elements, radio frequency coaxial connectors and
electromechanical components; holding company
5/21/92 5/21/92 Norwood Products Inc Barlow Specialty Advertising $7.8 $7.8 - - - -
Advisor Merrill Lynch & Co. Kidder, Peabody
-------
Company Status Priv. Sub.
- --------------
Deal Description
----------------
Norwood Products acquired Talley Industries' Barlow Specialty
Advertising subsidiary for $7.8 mil in cash. Talley announced
in May 1990 that it had retained Kidder Peabody to help seek
a buyer for certain assets. Merrill Lynch advised Norwood
Products.
Target Business Description
---------------------------
Manufacture advertising novelities
Acquiror Business Description
-----------------------------
Manufacture hats, caps and gravure printing products
</TABLE>
<TABLE>
TARGET
NET TARGET TARGET %
INCOME EBIT EBITDA TOTAL % OF STATUS/ OWNED
DATE LTM LTM LTM DEBT, NE TOTAL SHARES FORM/ AFTER
ANNOUNCED ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE TRANSACTION
- --------- ------ ------ ------ ------- ------ ------ ---------- -----------
<S> <S> <C> <C> <C> <C> <C> <C> <C>
9/17/92 $1.1 $ 1.1 $ 1.2 - $ 2.2 100 Completed 100
Merger
Friendly
5/21/92 - - - - - 100 Completed 100
Acq. of Assets
Friendly
</TABLE>
* Covers industries with SIC Codes of 3646, 3648 and 3993. Source: Securities
Data Company, Inc. (201) 622-3100. As of 10/14/97.
<PAGE> 48
INVESTMENT BANKING GROUP
SIGNAGE-RELATED MANUFACTURING
MERGERS & ACQUISITION TRANSACTIONS SINCE 1/1/92 FOR ACQUISITIONS OVER 30%
<TABLE>
<CAPTION>
TARGET TARGET
VALUE SHARE- NET
EQUITY OF PRICE HOLDERS SALES
DATE DATE VALUE DEAL PER SHARES EQUITY LTM
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- -------------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2/13/92 3/27/92 Alpha Solarco Inc State Machine Products $ 2.2 $ 4.3 - - $(0.6) $4.6
Advisor - -
-------
Company Status Public Priv.
- --------------
Deal Description
----------------
Alpha Solarco acquired State Machine Products for $4.653 mil.
The consideration consisted of 4,039,111 Alpha common shares,
$2.1 mil in assumed liabilities, and $.786 mil in forgiveness
of debt. The common share portion was valued at $1.767 mil
based on Alpha's closing price on Feb 12, the last full
trading day prior to the announcement of the transaction.
Target Business Description
---------------------------
Manufacture stoves, gas lamps and other personal field
equipment for defense markets such as the US Army
Acquiror Business Description
-----------------------------
Manufacture solar energy equipment
</TABLE>
<TABLE>
TARGET
NET TARGET TARGET %
INCOME EBIT EBITDA TOTAL % OF STATUS/ OWNED
DATE LTM LTM LTM DEBT, NE TOTAL SHARES FORM/ AFTER
ANNOUNCED ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE TRANSACTION
- --------- ------ ------ ------ ------- ------ ------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2/13/92 $(0.7) $(0.2) $(0.1) $ 1.9 $1.4 100 Completed 100
Acq. of Assets
Friendly
</TABLE>
* Covers industries with SIC Codes of 3646, 3648 and 3993. Source: Securities
Data Company, Inc. (201) 622-3100. As of 10/14/97.
<PAGE> 49
INVESTMENT BANKING GROUP
SUMMARY VALUATION FOR PLASTI-LINE, INC.
(in thousands, except per share)
<TABLE>
<CAPTION>
Market Premium Valuation:
ONE DAY PRIOR ONE WEEK PRIOR ONE MONTH PRIOR
PREMIUMS TO ANNOUNCEMENT TO ANNOUNCEMENT TO ANNOUNCEMENT
- -------- --------------- --------------- ---------------
All Cash Deals
<S> <C> <C> <C>
1996
Actual Low (64.8)% (60.9)% (64.1)%
Actual High 134.8% 157.1% 148.3%
Adjusted Average 24.7% 28.5% 35.8%
Median 28.2% 34.9% 39.2%
Low of Middle Quartiles 11.7% 15.4% 16.6%
High of Middle Quartiles 38.1% 51.4% 56.9%
1997
Actual Low (65.7)% (63.1)% (60.0)%
Actual High 108.7% 106.5% 108.0%
Adjusted Average 12.6% 18.5% 24.7%
Median 16.5% 21.4% 27.5%
Low of Middle Quartiles 0.7% 2.0% 8.1%
High of Middle Quartiles 27.7% 37.6% 44.9%
</TABLE>
<PAGE> 50
INVESTMENT BANKING GROUP
SUMMARY VALUATION FOR PLASTI-LINE, INC.
<TABLE>
<CAPTION>
Market Premium Valuation:
ONE DAY PRIOR ONE WEEK PRIOR ONE MONTH PRIOR
PREMIUM VALUATION TO ANNOUNCEMENT TO ANNOUNCEMENT TO ANNOUNCEMENT
- ----------------- --------------- --------------- ---------------
All Cash Deals
<S> <C> <C> <C>
1996
Actual Low $ 3.74 $ 4.16 $ 3.82
Actual High 24.96 27.33 26.39
Adjusted Average 13.26 13.65 14.44
Median 13.63 14.34 14.80
Low of Middle Quartiles 11.87 12.26 12.39
High of Middle Quartiles 14.68 16.09 16.68
1997
Actual Low $ 3.64 $ 3.92 $ 4.25
Actual High 22.18 21.95 22.11
Adjusted Average 11.97 12.60 13.25
Median 12.38 12.91 13.55
Low of Middle Quartiles 10.70 10.84 11.49
High of Middle Quartiles 13.57 14.63 15.40
</TABLE>
<PAGE> 51
INVESTMENT BANKING GROUP
AVERAGE PERCENTAGE PREMIUMS FOR CASH PUBLIC ACQUISITIONS
100% CONTROL OF COMPANY AFTER ACQUISITION
<TABLE>
<CAPTION>
Premiums Since 1/1/95
---------------------------------------------------------------
One Day Prior One Week Prior One Month Prior
to Announcement to Announcement to Announcement
--------------- --------------- ---------------
<S> <C> <C> <C>
Actual Low (83.7%) (84.8%) (88.9%)
Actual High 360.8% 372.7% 295.7%
Median 24.5% 29.9% 36.7%
Adjusted Average 29.5% 35.4% 39.1%
Low of Middle Quartiles 11.6% 15.7% 18.9%
High of Middle Quartiles 42.9% 50.0% 56.0%
</TABLE>
100% CONTROL OF COMPANY AFTER ACQUISITION
ACQUISITIONS OF LESS THAN 50%
<TABLE>
<CAPTION>
Premiums Since 1/1/95
---------------------------------------------------------------
One Day Prior One Week Prior One Month Prior
to Announcement to Announcement to Announcement
--------------- --------------- ---------------
<S> <C> <C> <C>
Actual Low 2.6% (4.3%) (29.7%)
Actual High 62.0% 69.6% 77.8%
Median 18.8% 23.3% 26.8%
Adjusted Average 18.9% 22.7% 27.7%
Low of Middle Quartiles 9.7% 16.0% 17.0%
High of Middle Quartiles 27.0% 36.5% 45.4%
</TABLE>
<PAGE> 52
INVESTMENT BANKING GROUP
IMPLIED PLASTI-LINE ACQUISITION
100% CONTROL OF COMPANY AFTER ACQUISITION
<TABLE>
<CAPTION>
VALUATIONS BASED ON PREMIUMS SINCE 1/1/95
---------------------------------------------------------------
One Day Prior One Week Prior One Month Prior
To Announcement To Announcement To Announcement
--------------- --------------- ---------------
<S> <C> <C> <C>
Actual Low $ 1.73 $ 1.62 $ 1.18
Actual High 48.96 50.23 42.04
Median 13.23 13.80 14.52
Adjusted Average 13.76 14.38 14.78
Low of Middle Quartiles 11.86 12.30 12.63
High of Middle Quartiles 15.18 15.94 16.57
</TABLE>
100% CONTROL OF COMPANY AFTER ACQUISTION
ACQUISITION OF LESS THAN 50%
<TABLE>
<CAPTION>
VALUATIONS BASED ON PREMIUMS SINCE 1/1/95
---------------------------------------------------------------
One Day Prior One Week Prior One Month Prior
To Announcement To Announcement To Announcement
--------------- --------------- ---------------
<S> <C> <C> <C>
Actual Low $ 10.90 $ 10.17 $ 7.47
Actual High 17.22 18.02 18.89
Median 12.62 13.10 13.47
Adjusted Average 12.63 13.04 13.57
Low of Middle Quartiles 11.66 12.33 12.43
High of Middle Quartiles 13.49 14.50 15.45
</TABLE>
<PAGE> 53
INVESTMENT BANKING GROUP
AVERAGE PERCENTAGE PREMIUMS FOR ACQUIRED PUBLIC COMPANIES
<TABLE>
<CAPTION>
CONSIDERATION AVERAGE PERCENTAGE PREMIUMS
- ------------- --------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997-YTD 1991-YTD
---- ---- ---- ---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
All Cash
1 Day Prior 39.0 44.6 42.6 50.7 41.9 28.9 30.2 38.9
1 Week Prior 56.1 46.4 46.0 57.1 46.3 35.8 36.0 44.6
1 Month Prior 66.8 51.1 48.2 62.2 54.7 40.1 40.2 50.0
All Stock (1)
1 Day Prior 34.1 42.1 38.2 29.5 29.2 23.4 15.6 28.0
1 Week Prior 41.4 46.9 37.3 33.7 32.6 30.9 17.9 32.6
1 Month Prior 53.4 49.7 44.9 35.2 36.0 36.4 24.3 37.2
All Deals (1)
1 Day Prior 29.2 45.8 39.2 43.0 39.9 27.8 27.4 34.6
1 Week Prior 35.4 50.4 42.3 46.2 44.4 34.1 33.0 39.5
1 Month Prior 45.8 53.0 44.0 49.4 50.1 41.4 37.4 44.8
</TABLE>
(1) Excludes all pooling of interest combinations.
<PAGE> 54
INVESTMENT BANKING GROUP
[Graph depicting Plasti-line, Inc.'s
weekly price & volume trading statistics since 1/3/92]
<PAGE> 55
INVESTMENT BANKING GROUP
[Graph depicting Plasti-line, Inc.'s
weekly price & volume trading statistics since 12/29/95]
<PAGE> 56
INVESTMENT BANKING GROUP
[Graph depicting Plasti-line, Inc.'s
daily price & volume trading statistics since 9/26/97]
<PAGE> 57
INVESTMENT BANKING GROUP
PLASTI-LINE, INC.
SHARES TRADED AT VARIOUS PRICES FROM 1/1/96 TO 10/27/97
<TABLE>
<CAPTION>
CUMULATIVE
------------------------------------------------
DAYS % OF TOTAL % OF TOTAL DAYS % OF TOTAL % OF TOTAL
TRADING DAILY AVG. DAYS TRADING TRADING DAILY AVG. DAYS TRADING TRADING
RANGE(1) IN RANGE TRADED VOLUME VOLUME IN RANGE TRADED VOLUME VOLUME
- ---------------------------- ---------- ---------- --------- ---------- ---------- ---------- --------- ----------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
<$6.50 0 0.0% -- 0.0% 0 0.0% -- 0.0%
$6.50-$7.25 9 1.9% 24,000 1.6% 9 1.9% 24,000 1.6%
$7.25-$8.00 19 4.0% 119,100 7.9% 28 5.9% 143,100 9.4%
$8.00-$8.75 134 28.2% 237,500 15.7% 162 34.0% 380,600 25.1%
$8.75-$9.50 70 14.7% 143,700 9.5% 232 48.7% 524,300 34.6%
$9.50-$10.25 63 13.2% 203,800 13.4% 295 62.0% 728,100 48.0%
$10.25-$11.00 76 16.0% 218,300 14.4% 371 77.9% 946,400 62.4%
$11.00-$11.75 30 6.3% 134,400 8.9% 401 84.2% 1,080,800 71.3%
$11.75-$12.50 39 8.2% 117,100 7.7% 440 92.4% 1,197,900 79.0%
$12.50-$13.25 33 6.9% 176,500 11.6% 473 99.4% 1,374,400 90.7%
$13.25-$14.00 3 0.6% 141,300 9.3% 476 100.0% 1,515,700 100.0%
>=$14.00 0 0.0% -- 0.0% 476 100.0% 1,515,700 100.0%
TOTAL: 476 100.0% 1,515,700 100.0%
</TABLE>
[Graph depicting Plasti-Line, Inc. Shares
Traded at various
prices from 1/1/96 to 10/27/97]
(1) Price ranges include low range price and exclude high range price.
(2) The average daily trading volume has been 3,184 shares or $33,105.73 and the
average daily close has been $9.77.
<PAGE> 58
INVESTMENT BANKING GROUP
PLASTI-LINE, INC.
SHARES TRADED AT VARIOUS PRICES FROM 1/2/97 TO 10/27/97
<TABLE>
<CAPTION>
CUMULATIVE
------------------------------------------------
DAYS % OF TOTAL % OF TOTAL DAYS % OF TOTAL % OF TOTAL
TRADING DAILY AVG. DAYS TRADING TRADING DAILY AVG. DAYS TRADING TRADING
RANGE(1) IN RANGE TRADED VOLUME VOLUME IN RANGE TRADED VOLUME VOLUME
- ---------------------------- ---------- ---------- --------- ---------- ---------- ---------- --------- ----------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
<$8.00 0 0.0% -- 0.0% 0 0.0% -- 0.0%
$8.00-$8.55 8 3.8% 31,100 5.7% 8 3.8% 31,100 5.7%
$8.55-$9.10 23 11.1% 21,800 4.0% 31 14.9% 52,900 9.7%
$9.10-$9.65 22 10.6% 98,300 18.0% 53 25.5% 151,200 27.7%
$9.65-$10.20 25 12.0% 110,900 20.3% 78 37.5% 262,100 48.0%
$10.20-$10.75 55 26.4% 160,200 29.3% 133 63.9% 422,300 77.4%
$10.75-$11.30 10 4.8% 12,900 2.4% 143 68.8% 435,200 79.7%
$11.30-$11.85 7 3.4% 24,100 4.4% 150 72.1% 459,300 84.1%
$11.85-$12.40 28 13.5% 25,500 4.7% 178 85.6% 484,800 88.8%
$12.40-$12.95 24 11.5% 50,500 9.3% 202 97.1% 535,300 98.1%
$12.95-$13.50 6 2.9% 10,600 1.9% 208 100.0% 545,900 100.0%
>=$13.50 0 0.0% -- 0.0% 208 100.0% 545,900 100.0%
TOTAL: 208 100.0% 545,900 100.0%
</TABLE>
[Graph depicting Plasti-Line, Inc. Shares
Traded at various prices from
1/2/97 to 10/27/97]
(1) Price ranges include low range price and exclude high range price.
(2) The average daily trading volume has been 2,625 shares or $27,248.83 and the
average daily close has been $10.69.
<PAGE> 59
INVESTMENT BANKING GROUP
PLASTI-LINE, INC. OWNERSHIP PROFILE
<TABLE>
<CAPTION>
CHANGE FROM
SHAREHOLDERS SHARES HELD PRIOR PERIOD % OWNERSHIP
<S> <C> <C> <C>
JAMES R. MARTIN(1) 1,766,269 46.31%
OTHER OFFICERS AND DIRECTORS(1) 475,286 12.46%
INSTITUTIONAL INVESTORS(2)
Salem Investment 216,000 1,000 5.66%
Societe Generale 200,000 0 5.24%
Kennedy Capital Management 164,800 0 4.32%
Dimensional Fund Advisors 77,500 0 2.03%
Swiss Reinsurance 75,000 0 1.97%
BZW Barclays 73,675 0 1.93%
Rosenberg Institutional 22,330 4,200 0.59%
ANB Investment Management 15,900 0 0.42%
Mellon Bank 15,281 0 0.40%
David Babson & Co. 11,200 0 0.29%
Brandywine Assets 11,200 2,600 0.29%
The Travelers Group 1,000 1,000 0.03%
RCB Trust Co. 500 0 0.01%
Painewebber Group 0 (37,753) 0.00%
--------- ------- -------
TOTAL INSTITUTIONAL INVESTORS 884,386 (28,953) 23.19%
IMPLIED RETAIL HOLDINGS 687,856 18.04%
--------- -------
TOTAL SHARES OUTSTANDING(3) 3,813,797 53.69%
========= =======
</TABLE>
[Pie Chart depicting ownership profile
of Plasti-line, Inc.]
(1) Source: Proxy Statement, March 18, 1997.
(2) Source: Bloomberg as of October 10, 1997.
(3) Source: 10-Q for quarter ending June 30, 1997.
<PAGE> 60
INVESTMENT BANKING GROUP
OPERATING MARGIN COMPARISON
<TABLE>
<CAPTION>
PLASTI-LINE, INC. ZIMMERMAN SIGN COMPANY
----------------- ----------------------
Fiscal Years Ended
(in thousands) 1992 1993 1994 1995 1996 1992 1993 1994 1995 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Net Sales $83,220 $90,362 $77,309 $103,247 $130,876 $23,941 $33,001 $36,427 $41,667 $41,275
Other Income 1,114 751 853 571 303
- -----------------------------------------------------------------------------------------------------------------------------------
Total Revenue 84,334 91,113 78,162 103,818 131,179 23,941 33,001 36,427 41,667 41,275
Cost and Expenses
Cost of Sales 68,493 74,433 63,060 85,114 107,956 19,949 26,143 28,227 32,529 32,415
Selling, general and administrative 11,203 11,353 13,349 14,979 16,701 3,294 3,721 4,024 4,155 4,428
Interest Expense 632 684 712 1,040 1,593 365 291 433 782 996
Goodwill Write-Off 3,986
Provision for Restructuring Costs 2,416
Provision for Pension Curtailmen 483
Management Fees 600 600 600 600 600
Stock Distribution Costs 1,106
- -----------------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 80,328 86,470 83,523 101,616 126,250 24,208 30,755 33,284 38,066 39,545
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Taxes and Accounting 4,006 4,643 (5,361) 2,202 4,929 (267) 2,246 3,143 3,601 1,730
Income Tax Benefit (Provision) (1,621) (1,789) 524 (805) (1,781) 91 (768) (1,069) (1,224) (588)
Cumulative Effect of Accounting Change (648)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) 1,737 2,854 (4,837) 1,397 3,148 (176) 1,478 2,074 2,377 1,142
===================================================================================================================================
Earnings Before Interest and Taxes 4,638 5,327 (4,649) 3,242 6,522 98 2,537 3,576 4,383 2,726
</TABLE>
<PAGE> 61
INVESTMENT BANKING GROUP
OPERATING Margin Comparison
<TABLE>
<CAPTION>
PLASTI-LINE, INC. ZIMMERMAN SIGN COMPANY
----------------- ----------------------
Fiscal Years Ended
(in thousands) 1992 1993 1994 1995 1996 1992 1993 1994 1995 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Net Sales 98.7% 99.2% 98.9% 99.4% 99.8% 100.0% 100.0% 100.0% 100.0% 100.0%
Other Income 1.3% 0.8% 1.1% 0.6% 0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Total Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost and Expenses
Cost of Sales 81.2% 81.7% 80.7% 82.0% 82.3% 83.3% 79.2% 77.5% 78.1% 78.5%
Selling, General and Administrative 13.3% 12.5% 17.1% 14.4% 12.7% 13.8% 11.3% 11.0% 10.0% 10.7%
Interest Expense 0.7% 0.8% 0.9% 1.0% 1.2% 1.5% 0.9% 1.2% 1.9% 2.4%
Goodwill Write-Off 5.1%
Provision for Restructuring Costs 3.1%
Provision for Pension Curtailment 0.5%
Management Fees 2.5% 1.8% 1.6% 1.4% 1.5%
Stock Distribution Costs 2.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 95.2% 94.9% 106.9% 97.9% 96.2% 101.1% 93.2% 91.4% 91.4% 95.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Taxes and
Accounting Change 4.8% 5.1% (6.9%) 2.1% 3.8% (1.1%) 6.8% 8.6% 8.6% 4.2%
Income Tax Benefit (Provision) (1.9%) (2.0%) 0.7% (0.8%) (1.4%) 0.4% (2.3%) (2.9%) (2.9%) (1.4%)
Cumulative Effect of Accounting Change (0.8%)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) 2.1% 3.1% (6.2%) 1.3% 2.4% (0.7%) 4.5% 5.7% 5.7% 2.8%
===================================================================================================================================
Earnings Before Interest and Taxes 5.6% 5.9% (6.0%) 3.1% 5.0% 0.4% 7.7% 9.8% 10.5% 6.6%
</TABLE>
<PAGE> 62
INVESTMENT BANKING GROUP
MARGIN AVERAGES OVER FOUR YEAR PERIOD (1992-1996)
<TABLE>
<CAPTION>
PLASTI-LINE, INC. ZIMMERMAN SIGN COMPANY
----------------- ----------------------
<S> <C> <C> <C>
Cost of Goods Sold 81.6% Cost of Goods Sold 79.3%
Earnings Before Interest and Taxes 2.7%(1) Earnings Before Interest and Taxes 7.0%
Earnings Before Taxes 1.8% Earnings Before Taxes 5.4%
Net Income 0.5% Net Income 3.6%
</TABLE>
COMPOUND ANNUAL GROWTH RATES OVER FOUR YEAR PERIOD (1992-1996)(2)
<TABLE>
<CAPTION>
PLASTI-LINE, INC. ZIMMERMAN SIGN COMPANY
----------------- ----------------------
<S> <C> <C> <C>
Revenue 12.0% Revenue 14.6%
Earnings Before Interest and Taxes 8.9% Earnings Before Interest and Taxes 129.7%
Pretax 2.0% Pretax (3) 8.1%
Net Income 3.3% Net Income (4) 6.9%
</TABLE>
(1) Would be 4.9% with the exclusion of loss in 1994.
(2) PreTax and Net Income growth rates are from 1993 to 1996 due to losses
in 1992 for Zimmerman.
(3) Excludes $1.1 million of stock distribution costs in 1996.
(4) Excludes $1.1 million of stock distribution costs, net taxes at 40%.
<PAGE> 63
INVESTMENT BANKING GROUP
PLASTI-LINE, INC. -- COMPANY PROJECTION MODEL
PROJECTED INCOME STATEMENTS
(Numbers in Thousands)
(Fiscal Year Ended December)
10/29/97 12:03 PM
<TABLE>
<CAPTION>
HISTORICAL PROJECTED
1994 1995 1996 1997 1998 1999 2000 2001 2002
------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $78,162 $103,818 $131,179 $142,000 $157,140 $163,020 $174,000 $186,180 $199,213
Cost of sales, net dep. 61,185 83,404 105,694 113,380 127,261 131,514 139,509 148,360 157,831
------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit 16,977 20,414 25,485 28,620 29,879 31,506 34,491 37,820 41,382
General and administrative 13,349 14,979 16,701 10,488 10,686 11,085 11,832 12,474 13,347
Selling -- -- -- 7,184 7,071 7,336 7,830 8,378 8,965
Provision for restructuring
costs 2,416 -- -- -- -- -- -- -- --
Provision for pension
curtailment -- 483 -- -- -- -- -- -- --
------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses 15,765 15,462 16,701 17,672 17,757 18,421 19,662 20,852 22,312
EBITDA 1,212 4,952 8,784 10,948 12,122 13,085 14,829 16,968 19,070
Depreciation 1,875 1,710 2,262 2,000 2,100 2,100 2,100 2,100 2,100
Goodwill
write-off/amortization 3,986 -- -- 100 100 100 100 100 100
------- -------- -------- -------- -------- -------- -------- -------- --------
Total depreciation &
amortization 5,861 1,710 2,262 2,100 2,200 2,200 2,200 2,200 2,200
Total operating income (4,649) 3,242 6,522 8,848 9,922 10,885 12,629 14,768 16,870
Interest expense 712 1,040 1,593 851 1,159 1,029 618 330 240
Interest (income) -- -- -- (7) (13) (13) (13) (118) (405)
------- -------- -------- -------- -------- -------- -------- -------- --------
Other expenses (income) 712 1,040 1,593 844 1,147 1,016 606 212 (165)
Pre-tax income (5,361) 2,202 4,929 8,004 8,775 9,869 12,023 14,556 17,035
Provision (benefit) for income
taxes (524) 805 1,781 3,202 3,510 3,948 4,809 5,822 6,814
------- -------- -------- -------- -------- -------- -------- -------- --------
Net income $(4,837) $ 1,397 $ 3,148 $ 4,802 $ 5,265 $ 5,921 $ 7,214 $ 8,733 $ 10,221
======= ======== ======== ======== ======== ======== ======== ======== ========
Preferred dividends -- -- -- -- -- -- -- -- --
------- -------- -------- -------- -------- -------- -------- -------- --------
Net income to common $(4,837) $ 1,397 $ 3,148 $ 4,802 $ 5,265 $ 5,921 $ 7,214 $ 8,733 $ 10,221
======= ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE> 64
INVESTMENT BANKING GROUP
PLASTI-LINE, INC. -- COMPANY PROJECTION MODEL
PROJECTED BALANCE SHEETS
(Numbers in Thousands)
(Fiscal Year Ended December)
10/29/97 12:03 PM
<TABLE>
<CAPTION>
HISTORICAL PROJECTED
1994 1995 1996 1997 1998 1999 2000 2001 2002
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash $ 10 $ 10 $ 10 $ 250 $ 250 $ 250 $ 250 $ 4,458 $ 11,728
Short-term investments 599 -- -- -- -- -- -- -- --
Accounts receivable 16,010 27,050 22,870 23,430 25,928 26,898 28,710 30,720 32,870
Inventory 19,213 31,564 27,331 28,400 31,428 32,604 34,800 37,236 39,843
Prepaid expenses 1,679 1,080 754 816 903 937 1,000 1,070 1,145
Deferred income taxes 1,869 1,876 1,337 1,447 1,602 1,662 1,773 1,898 2,030
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total current assets 39,380 61,580 52,302 54,343 60,111 62,351 66,534 75,381 87,617
Gross plant and equip. 28,493 30,807 32,315 37,493 39,593 41,693 43,793 45,893 47,993
Accumulated depreciation (16,546) (16,953) (19,055) (21,055) (23,155) (25,254) (27,354) (29,454) (31,554)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net P,P&E 11,947 13,854 13,260 16,438 16,438 16,439 16,439 16,439 16,439
Goodwill, net of accumulated
amortization -- 1,508 1,403 1,303 1,203 1,102 1,002 902 802
Other fixed assets 123 208 279 302 334 347 370 396 424
Columbia Industrial Bond
Trust -- -- -- 2,000 1,000 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total assets $ 51,450 $ 77,150 $ 67,244 $ 74,387 $ 79,086 $ 80,239 $ 84,345 $ 93,118 $105,281
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE> 65
INVESTMENT BANKING GROUP
PLASTI-LINE, INC. -- COMPANY PROJECTION MODEL
PROJECTED BALANCE SHEETS
(Numbers in Thousands)
(Fiscal Year Ended December)
10/29/97 12:03 PM
<TABLE>
<CAPTION>
HISTORICAL PROJECTED
1994 1995 1996 1997 1998 1999 2000 2001 2002
------- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES & EQUITY
Current maturities & short-term debt $ 745 $ 1,723 $ 745 $ -- $ -- $ -- $ -- $ -- $ --
Accounts payable 6,750 14,660 8,096 8,520 9,428 9,781 10,440 11,171 11,953
Accrued liabilities 4,078 5,704 6,116 6,390 7,071 7,336 7,830 8,378 8,965
Income taxes currently payable (46) 708 83 90 99 103 110 118 126
Customer deposits and deferred
revenue 4,504 5,673 11,509 12,496 8,643 8,966 9,570 10,240 10,957
------- ------- ------- ------- ------- ------- ------- ------- --------
Total current liabilities 16,031 28,468 26,549 27,496 25,242 26,816 27,950 29,907 32,000
Long term debt
Revolver -- -- -- 7,098 9,320 6,457 1,757 -- --
Credit facility/long-term debt 7,399 20,628 8,975 -- -- -- -- -- --
Knox County Industrial Bonds 5,350 4,670 3,990 3,310 2,630 -- -- -- --
Columbia Industrial Bonds -- -- -- 5,000 5,000 4,722 4,444 4,167 3,889
------- ------- ------- ------- ------- ------- ------- ------- --------
Total debt 12,749 25,298 12,965 15,408 16,950 11,180 6,201 4,167 3,889
Less current portion (745) (1,723) (745) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- --------
Total long-term debt 12,004 23,575 12,220 15,408 16,950 11,180 6,201 4,167 3,889
Deferred income taxes 987 1,123 1,196 1,295 1,433 1,486 1,586 1,697 1,816
Deferred liabilities 75 93 77 83 92 96 102 109 117
------- ------- ------- ------- ------- ------- ------- ------- --------
Total liabilities 29,097 53,259 40,042 44,282 43,717 38,948 35,840 35,880 37,822
Common stock 4 4 4 4 4 4 4 4 4
Additional paid-in-capital 2,419 2,560 2,723 2,723 2,723 2,723 2,723 2,723 2,723
Retained earnings 19,930 21,327 24,475 27,377 32,642 38,564 45,778 54,511 64,732
------- ------- ------- ------- ------- ------- ------- ------- --------
Total stockholders' equity 22,353 23,891 27,202 30,104 35,369 41,291 48,505 57,238 67,459
------- ------- ------- ------- ------- ------- ------- ------- --------
Total liabilities & equity $51,450 $77,150 $67,244 $74,387 $79,086 $80,239 $84,345 $93,118 $105,281
======= ======= ======= ======= ======= ======= ======= ======= ========
</TABLE>
<PAGE> 66
INVESTMENT BANKING GROUP
PLASTI-LINE, INC -- COMPANY PROJECTION MODEL
PROJECTED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
(Numbers in Thousands)
(Fiscal Year Ended December) PROJECTED
10/29/97 12:03 PM 1997 1998 1999 2000 2001 2002
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,802 $ 5,265 $ 5,921 $ 7,214 $ 8,733 $ 10,221
Depreciation 2,000 2,100 2,100 2,100 2,100 2,100
Amortization of goodwill 100 100 100 100 100 100
Amortization of intangibles - - - - - -
Minority interest - - - - - -
Other non-cash - - - - - -
Changes in current assets (1,801) (5,767) (2,240) (4,183) (4,640) (4,965)
Changes in current liabilities 1,692 (2,254) 945 1,764 1,957 2,094
-------- -------- -------- -------- -------- ---------
Net cash provided by operating activities 6,793 (556) 6,826 6,995 8,250 9,550
Cash flows from investing activities
Capital expenditures (net of dispositions) (5,178) (2,100) (2,100) (2,100) (2,100) (2,100)
Investments in new goodwill 0 0 0 (0) (0) (0)
Acquisition of additional intangibles - - - - - -
Changes in other long-term assets & liabilities (1,918) 1,115 1,045 83 92 99
-------- -------- -------- -------- -------- ---------
Net cash provided by investing activities (7,096) (985) (1,055) (2,017) (2,008) (2,001)
Cash flows from financing activities
Dividends paid (1,900) - - - - -
Proceeds from sale of stock - - - - - -
Proceeds from debt issue 5,000 - - - - -
Cash inflow (outflow) from other equity - - - - - -
Repayment of debt (9,655) (680) (8,678) (5,256) (2,035) (278)
Repurchase of stock - - - - - -
Drawdown on revolver 7,098 2,222 2,908 278 - -
-------- -------- -------- -------- -------- ---------
Net cash provided by financing activities 543 1,542 (5,770) (4,978) (2,035) (278)
-------- -------- -------- -------- -------- ---------
Net additions to cash $ 240 $ 0 $ 0 $ 0 $ 4,208 $ 7,271
======== ======== ======== ======== ======== =========
Beginning cash balance 10 250 250 250 205 4,458
Ending cash balance 250 250 250 250 4,458 11,728
</TABLE>
<PAGE> 67
INVESTMENT BANKING GROUP
PLASTI-LINE, INC. -- Company Projection Model
Historical and Projected Income Statement Ratios (Percent of Sales)
<TABLE>
<CAPTION>
(Fiscal Year Ended December)
10/29/97 12:03 PM HISTORICAL
1994 1995 1996 AVERAGE
------ ------- ------- ----------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales, net dep. 78.3% 80.3% 80.6% 79.7%
------ ------ ------ ---------
Gross profit 21.7% 19.7% 19.4% 20.3%
General and administrative 17.1% 14.4% 12.7% 14.7%
Selling 0.0% 0.0% 0.0% 0.0%
Provision for restructuring costs 3.1% 0.0% 0.0% 1.0%
Provision for pension curtailment 0.0% 0.5% 0.0% 0.2%
------ ------ ------ ---------
Total operating expenses 20.2% 14.9% 12.7% 15.9%
EBITDA 1.6% 4.8% 6.7% 4.3%
Depreciation 2.4% 1.6% 1.7% 1.9%
Goodwill write-off/amortization 5.1% 0.0% 0.0% 1.7%
------ ------ ------ ---------
Total depreciation & amortization 7.5% 1.6% 1.7% 3.6%
Total operating income (5.9%) 3.1% 5.0% 0.7%
Interest expense 0.9% 1.0% 1.2% 1.0%
Interest (income) 0.0% 0.0% 0.0% 0.0%
------ ------ ------ ---------
Other expenses (income) 0.9% 1.0% 1.2% 1.0%
Pre-tax income (6.9%) 2.1% 3.8% (0.3%)
Provision (benefit) for income taxes 9.8% 36.6% 36.1% 27.5%
------ ------ ------ ---------
Net income (6.2%) 1.3% 2.4% (0.8%)
====== ====== ====== =========
<CAPTION>
PROJECTED
1997 1998 1999 2000 2001 2002
------ ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales, net dep. 79.8% 81.0% 80.7% 80.2% 79.7% 79.2%
------ ------ ------ --------- ------ ------
Gross profit 20.2% 19.0% 19.3% 19.8% 20.3% 20.8%
General and administrative 7.4% 6.8% 6.8% 6.8% 6.7% 6.7%
Selling 5.1% 4.5% 4.5% 4.5% 4.5% 4.5%
Provision for restructuring costs 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Provision for pension curtailment 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
------ ------ ------ --------- ------ ------
Total operating expenses 12.4% 11.3% 11.3% 11.3% 11.2% 11.2%
EBITDA 7.7% 7.7% 8.0% 8.5% 9.1% 9.6%
Depreciation 1.4% 1.3% 1.3% 1.2% 1.1% 1.1%
Goodwill write-off/amortization 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%
------ ------ ------ --------- ------ ------
Total depreciation & amortization 1.5% 1.4% 1.3% 1.3% 1.2% 1.1%
Total operating income 6.2% 6.3% 6.7% 7.3% 7.9% 8.5%
Interest expense 0.6% 0.7% 0.6% 0.4% 0.2% 0.1%
Interest (income) (0.0%) (0.0%) (0.0%) (0.0%) (0.1%) (0.2%)
------ ------ ------ --------- ------ ------
Other expenses (income) 0.6% 0.7% 0.6% 0.3% 0.1% (0.1%)
Pre-tax income 5.6% 5.6% 6.1% 6.9% 7.8% 8.6%
Provision (benefit) for income taxes 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%
------ ------ ------ --------- ------ ------
Net income 3.4% 3.4% 3.6% 4.1% 4.7% 5.1%
====== ====== ====== ========= ====== ======
</TABLE>
<PAGE> 68
INVESTMENT BANKING GROUP
PLASTI-LINE, INC. -- COMPANY PROJECTION MODEL
HISTORICAL AND PROJECTED INCOME STATEMENT RATIOS (PERCENT OF SALES)
<TABLE>
<CAPTION>
(Fiscal Year Ended December)
10/29/97 12:03 PM HISTORICAL
1994 1995 1996 AVERAGE
------- ------- ------- ----------
<S> <C> <C> <C> <C>
ASSETS
------
Cash 0.0% 0.0% 0.0% 0.0%
Short-term investments 0.8% 0.0% 0.0% 0.3%
Accounts receivable 20.5% 26.1% 17.4% 21.3%
Inventory 24.6% 30.4% 20.8% 25.3%
Prepaid expenses 2.1% 1.0% 0.6% 1.3%
Deferred income taxes 2.4% 1.8% 1.0% 1.7%
------- ------- ------- ----------
Total current assets 50.4% 59.3% 39.9% 49.9%
Gross plant and equip. 36.5% 29.7% 24.6% 30.3%
Accumulated depreciation (21.2%) (16.3%) (14.5%) (17.3%)
------- ------- ------- ----------
Net P,P&E 15.3% 13.3% 10.1% 12.9%
Goodwill, net of accumulated amortization 0.0% 1.5% 1.1% 0.8%
Other fixed assets 0.2% 0.2% 0.2% 0.2%
Columbia Industrial Bond Trust 0.0% 0.0% 0.0% 0.0%
------- ------- ------- ----------
Total assets 65.8% 74.3% 51.3% 63.8%
======= ======= ======= ==========
<CAPTION>
PROJECTED
1997 1998 1999 2000 2001 2002
------- ------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
------
Cash 0.2% 0.2% 0.2% 0.1% 2.4% 5.9%
Short-term investments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Accounts receivable 16.5% 16.5% 16.5% 16.5% 16.5% 16.5%
Inventory 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%
Prepaid expenses 0.6% 0.6% 0.6% 0.6% 0.6% 0.6%
Deferred income taxes 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
------- ------- ------- ---------- ------- -------
Total current assets 38.3% 38.3% 38.2% 38.3% 40.5% 44.0%
Gross plant and equip. 26.4% 25.2% 25.6% 25.2% 24.6% 24.1%
Accumulated depreciation (14.8%) (14.7%) (15.5%) (15.7%) (15.8%) (15.8%)
------- ------- ------- ---------- ------- -------
Net P,P&E 11.6% 10.5% 10.1% 9.4% 8.8% 8.3%
Goodwill, net of accumulated amortization 0.9% 0.8% 0.7% 0.6% 0.5% 0.4%
Other fixed assets 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
Columbia Industrial Bond Trust 1.4% 0.6% 0.0% 0.0% 0.0% 0.0%
------- ------- ------- ---------- ------- -------
Total assets 52.4% 50.3% 49.2% 48.5% 50.0% 52.8%
======= ======= ======= ========== ======= =======
</TABLE>
<PAGE> 69
INVESTMENT BANKING GROUP
PLASTI-LINE, INC. -- COMPANY PROJECTION MODEL
HISTORICAL AND PROJECTED BALANCE SHEET RATIOS (PERCENT OF SALES)
(Fiscal Year Ended December)
<TABLE>
<CAPTION>
HISTORICAL PROJECTED
1994 1995 1996 AVERAGE 1997 1998 1999 2000 2001 2002
---- ---- ---- ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES & EQUITY
- --------------------
Current maturities & short-term debt 1.0% 1.7% 0.6% 1.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Accounts payable 8.6% 14.1% 6.2% 9.6% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
Accrued liabilities 5.2% 5.5% 4.7% 5.1% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5%
Income taxes currently payable (0.1)% 0.7% 0.1% 0.2% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%
Customer deposits and deferred revenue 5.8% 5.5% 8.8% 6.7% 8.8% 5.5% 5.5% 5.5% 5.5% 5.5%
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total current liabilities 20.5% 27.4% 20.2% 22.7% 19.4% 16.1% 16.1% 16.1% 16.1% 16.1%
Long term debt
Revolver 0.0% 0.0% 0.0% 0.0% 5.0% 5.9% 4.0% 1.0% 0.0% 0.0%
Credit facility/long-term debt 9.5% 19.9% 6.8% 12.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Knox County Industrial Bonds 6.8% 4.5% 3.0% 4.8% 2.3% 1.7% 0.0% 0.0% 0.0% 0.0%
Columbia Industrial Bonds 0.0% 0.0% 0.0% 0.0% 3.5% 3.2% 2.9% 2.6% 2.2% 2.0%
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total debt 16.3% 24.4% 9.9% 16.9% 10.9% 10.8% 6.9% 3.6% 2.2% 2.0%
Less current portion (1.0)% (1.7)% (0.6)% (1.1)% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total long-term debt 15.4% 22.7% 9.3% 15.8% 10.9% 10.8% 6.9% 3.6% 2.2% 2.0%
Deferred income taxes 1.3% 1.1% 0.9% 1.1% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9%
Deferred liabilities 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total liabilities 37.2% 51.3% 30.5% 39.7% 31.2% 27.8% 23.9% 20.6% 19.3% 19.0%
Common stock 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Additional paid-in-capital 3.1% 2.5% 2.1% 2.5% 1.9% 1.7% 1.7% 1.6% 1.5% 1.4%
Retained earnings 25.5% 20.5% 18.7% 21.6% 19.3% 20.8% 23.7% 26.3% 29.3% 32.5%
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total stockholders' equity 28.6% 23.0% 20.7% 24.1% 21.2% 22.5% 25.3% 27.9% 30.7% 33.9%
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total liabilities & equity 65.8% 74.3% 51.3% 63.8% 52.4% 50.3% 49.2% 48.5% 50.0% 52.8%
==== ==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<PAGE> 70
INVESTMENT BANKING GROUP
PLASTI-LINE, INC. HISTORICAL INCOME STATEMENTS
<TABLE>
<CAPTION>
(in thousands)
FISCAL YEARS ENDED
---------------------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Net Sales $66,503 $76,552 $89,464 $85,864 $71,548 $83,220 $90,362 $77,309 $103,247 $130,876
Other Income 203 155 709 552 874 1,114 751 853 571 303
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total Revenue 66,706 76,707 90,173 86,416 72,422 84,334 91,113 78,162 103,818 131,179
Cost and Expenses
Cost of Sales 51,970 60,495 71,248 73,135 60,567 68,493 74,433 63,060 85,114 107,956
Selling, general and
administrative 9,316 9,097 10,717 10,495 9,147 11,203 11,353 13,349 14,979 16,701
Interest Expense 1,760 2,599 2,145 1,787 969 632 684 712 1,040 1,593
Goodwill Write-Off 3,986
Provision for
Restructuring Costs 2,416
Provision for Pension
Curtailment 483
Other Expense
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total Costs and
Expenses 63,046 72,191 84,110 85,417 70,683 80,328 86,470 83,523 101,616 126,250
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Income (Loss) Before
Taxes and
Accounting 3,660 4,516 6,063 999 1,739 4,006 4,643 (5,361) 2,202 4,929
Income Tax Benefit
(Provision) (2,104) (1,979) (2,341) (296) (838) (1,621) (1,789) 524 (805) (1,781)
Cumulative Effect of
Accounting Change (648)
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Net Income (Loss) 1,556 2,537 3,722 703 901 1,737 2,854 (4,837) 1,397 3,148
======= ======= ======= ======= ======= ======= ======= ======= ======== ========
Earnings Before
Interest and Taxes 5,420 7,115 8,208 2,786 2,708 4,638 5,327 (4,649) 3,242 6,522
<CAPTION>
NINE MONTHS
ENDED
-----------------
9/30/96 9/30/97
------- -------
<S> <C> <C>
Revenue
Net Sales $96,413 $94,361
Other Income 7 579
------- -------
Total Revenue 96,420 94,940
Cost and Expenses
Cost of Sales 79,929 77,212
Selling, general and
administrative 11,615 12,276
Interest Expense 1,320 588
Goodwill Write-Off
Provision for
Restructuring Costs
Provision for Pension
Curtailment
Other Expense 51 189
------- -------
Total Costs and
Expenses 92,915 90,265
------- -------
Income (Loss) Before
Taxes and
Accounting 3,505 4,675
Income Tax Benefit
(Provision) (1,332) (1,870)
Cumulative Effect of
Accounting Change
------- -------
Net Income (Loss) 2,173 2,805
======= =======
Earnings Before
Interest and Taxes 4,825 5,263
</TABLE>
<PAGE> 1
PLASTI-LINE, INC.
623 E. EMORY ROAD
KNOXVILLE, TENNESSEE 37849
, 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
(including any adjournment or postponement thereof, the "Special Meeting") of
Plasti-Line, Inc. (the "Company") to be held at the principal executive offices
of the Company, 623 E. Emory Road, Knoxville, Tennessee, on the day of
, 1997, at 10:00 a.m. local time.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of November 3, 1997, among the Company, PL Holding Corp.
("Parent"), PL Acquisition Corp., a wholly owned subsidiary of Parent ("Merger
Sub"), and James R. Martin, Chairman of the Board and Chief Executive Officer of
the Company and beneficial owner of approximately 47% of the outstanding voting
power of the Company's common stock ("Martin"). Pursuant to the Merger
Agreement, Merger Sub will be merged with and into the Company (the "Merger"),
with the Company being the surviving corporation and becoming a wholly owned
subsidiary of Parent. Merger Sub was organized by Parent solely to facilitate
the Merger.
Pursuant to the terms of the Merger Agreement, all shareholders of the
Company, other than Parent and those shareholders who perfect their dissenters'
rights under applicable Tennessee law, will be entitled to receive $14.50 per
share in cash in exchange for each share of the Company's common stock, par
value $.001 per share (the "Common Stock"), held by them at the effective time
of the Merger (the "Effective Time"). The receipt of cash for Common Stock
pursuant to the Merger will be a taxable transaction for federal income tax
purposes and also may be a taxable transaction under applicable state, local,
foreign and other tax laws. See "SPECIAL FACTORS -- Certain Federal Income Tax
Consequences." Shareholders seeking to perfect their dissenters' rights must
submit written notice of such intent to demand payment for their shares of
Common Stock prior to the vote at the Special Meeting.
Following the Merger, all of the capital stock of the Company will be
beneficially owned by Parent. The present holders of Common Stock (other than
Parent) will no longer have any equity interest in the Company.
Parent has entered into agreements with certain members of the Company's
management, including Martin (the "Management Group"), who currently
beneficially own an aggregate of approximately 48.7% of the total issued and
outstanding shares of the Common Stock. Pursuant to such agreements, each member
of the Management Group has agreed to transfer to Parent immediately prior to
the Effective Time, all of such person's shares of Common Stock, if any, along
with certain cash and promissory notes, and each member of the Management Group
will receive shares of Parent's common stock. At the Effective Time, the
Management Group will own in the aggregate 85% of Parent's total issued and
outstanding common stock, and Parent will own approximately 48.7% of the total
issued and outstanding Common Stock. See "SPECIAL FACTORS -- Conflicts of
Interest; Certain Relationships" in the accompanying Proxy Statement.
The Company's Board of Directors appointed a Special Committee on July 18,
1997, consisting of three directors of the Company who are not employees of the
Company, its subsidiaries or affiliates (the "Special Committee"). The Special
Committee has, among other things, reviewed and considered the proposed Merger
and negotiated its terms with Martin and Parent. In connection therewith, the
Special Committee retained J.C. Bradford & Co., L.L.C. to act as its financial
advisor. THE COMPANY'S BOARD OF DIRECTORS (WITH MARTIN ABSTAINING), ACTING ON
THE RECOMMENDATION OF THE SPECIAL COMMITTEE, HAS APPROVED THE MERGER AS BEING IN
THE BEST INTERESTS OF THE COMPANY AND THE SHAREHOLDERS OF THE COMPANY OTHER THAN
THE MANAGEMENT GROUP (THE "PUBLIC SHAREHOLDERS"). ACCORDINGLY, THE COMPANY'S
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER
AGREEMENT. See "SPECIAL FACTORS -- Recommendations of the
<PAGE> 2
Special Committee, the Board and Parent" and "-- Conflicts of Interest; Certain
Relationships" in the accompanying Proxy Statement.
Attached is a Notice of Special Meeting of Shareholders and a Proxy
Statement containing a discussion of the Merger. We urge you to read this
material carefully. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT IN THE
ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE. If you attend the Special
Meeting, you may vote in person if you wish, even if you have previously
returned your proxy card.
YOUR VOTE IS IMPORTANT FOR THE APPROVAL OF THE MERGER. A MAJORITY OF THE
SHARES OF COMMON STOCK HELD BY ALL SHAREHOLDERS, AS WELL AS A MAJORITY OF THE
SHARES HELD BY THE PUBLIC SHAREHOLDERS, MUST BE PRESENT AT THE SPECIAL MEETING,
IN PERSON OR BY PROXY, IN ORDER FOR A QUORUM TO BE PRESENT. IF A QUORUM IS
PRESENT, TWO VOTING REQUIREMENTS MUST BE SATISFIED IN ORDER FOR THE MERGER
AGREEMENT TO BE APPROVED. FIRST, TENNESSEE LAW REQUIRES THE AFFIRMATIVE APPROVAL
OF THE MERGER AGREEMENT BY A MAJORITY OF ALL SHARES OF COMMON STOCK ENTITLED TO
VOTE AT THE SPECIAL MEETING. THE MEMBERS OF THE MANAGEMENT GROUP, WHO (INCLUDING
MARTIN) BENEFICIALLY OWN AN AGGREGATE OF 48.7% OF THE COMMON STOCK, AND ALL
DIRECTORS OF THE COMPANY, WHO (EXCLUDING MARTIN) BENEFICIALLY OWN AN AGGREGATE
OF 8.5% OF THE COMMON STOCK, HAVE AGREED TO VOTE THEIR SHARES IN FAVOR OF THE
MERGER AGREEMENT, THUS ASSURING THAT THIS VOTE WILL BE OBTAINED. HOWEVER,
PURSUANT TO THE MERGER AGREEMENT, THE AFFIRMATIVE VOTE OF A MAJORITY OF THE
SHARES OF COMMON STOCK HELD BY THE PUBLIC SHAREHOLDERS IS ALSO REQUIRED.
YOUR PROMPT COOPERATION WILL BE GREATLY APPRECIATED.
Sincerely,
James R. Martin
Chairman of the Board and
Chief Executive Officer
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
<PAGE> 3
PLASTI-LINE, INC.
623 E. EMORY ROAD
KNOXVILLE, TENNESSEE 37849
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
, 1997
TO THE SHAREHOLDERS OF PLASTI-LINE, INC.:
A Special Meeting of Shareholders (the "Special Meeting") of Plasti-Line,
Inc. (the "Company"), will be held at the principal executive offices of the
Company, 623 E. Emory Road, Knoxville, Tennessee, on the day of , 1997, at
10:00 a.m. local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of November 3, 1997 (the "Merger
Agreement"), among the Company, PL Holding Corp. ("Parent"), PL Acquisition
Corp., a wholly owned subsidiary of Parent ("Merger Sub"), and James R.
Martin, Chairman of the Board and Chief Executive Officer of the Company
and beneficial owner of approximately 47% of the outstanding voting power
of the Company's common stock ("Martin"), pursuant to which, among other
things, (a) Merger Sub will be merged with and into the Company (the
"Merger") with the Company being the surviving corporation (the "Surviving
Corporation") and pursuant to which the separate existence of Merger Sub
will cease, (b) each outstanding share of the Company's common stock, par
value $.001 per share (the "Common Stock"), except Common Stock held by the
Company as treasury stock or beneficially owned by Parent or by persons who
perfect their dissenters' rights under applicable Tennessee law, will be
converted into the right to receive $14.50 in cash, without interest, (c)
each outstanding share of Common Stock beneficially owned by Parent or held
by the Company as treasury stock will be canceled without consideration,
and (d) each outstanding share of Merger Sub common stock will be converted
into one share of common stock of the Surviving Corporation.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
A copy of the Merger Agreement is included as Exhibit A to the accompanying
Proxy Statement. Only shareholders of record of Common Stock at the close of
business on , 1997 (the "Record Date") will be entitled to notice of
and to vote at the Special Meeting (the "Voting Shares"). The Special Meeting
may be adjourned from time to time without notice other than announcement at the
Special Meeting, and any business for which notice of the Special Meeting is
hereby given may be transacted at any such adjournment. A complete list of
shareholders entitled to vote at the meeting will be available for inspection by
shareholders at the offices of the Company immediately prior to the Special
Meeting.
Parent has entered into agreements with certain members of the Company's
management, including Martin (the "Management Group"), who currently
beneficially own an aggregate of approximately 48.7% of the total issued and
outstanding shares of the Common Stock. Pursuant to such agreements, each member
of the Management Group has agreed to transfer to Parent immediately prior to
the Effective Time, all of such person's shares of Common Stock, if any, along
with certain cash and promissory notes, and each member of the Management Group
will receive shares of Parent's common stock. At the Effective Time, the
Management Group will own in the aggregate 85% of Parent's total issued and
outstanding common stock, and Parent will own approximately 48.7% of the total
issued and outstanding Common Stock. See "SPECIAL FACTORS -- Conflicts of
Interest; Certain Relationships."
The presence at the Special Meeting, in person or by proxy, of a majority
of the Voting Shares held by all shareholders of the Company, as well as a
majority of the Voting Shares held by the shareholders of the Company other than
the Management Group (the "Public Shareholders"), are necessary for a quorum to
exist at the Special Meeting. If a quorum is present, then two voting
requirements must be satisfied in order for the Merger Agreement to be approved.
First, pursuant to the Tennessee Business Corporation Act (the "TBCA"), approval
of the Merger Agreement requires the affirmative vote of the holders of a
majority of the
<PAGE> 4
outstanding Voting Shares. The members of the Management Group, who (including
Martin) as of the Record Date beneficially owned an aggregate of 48.7% of the
Common Stock, and all directors of the Company, who (excluding Martin) as of the
Record Date beneficially owned an aggregate of 8.5% of the Common Stock, have
agreed to vote their shares in favor of the Merger Agreement, thus assuring that
this vote will be obtained. However, as a second vote requirement, the Merger
Agreement requires the affirmative vote of a majority of the shares of Common
Stock held by the Public Shareholders.
If the Merger is consummated, holders of Common Stock who do not vote in
favor of the Merger Agreement and who perfect their statutory dissenters' rights
under Chapter 23 of the TBCA will have the right to seek payment for their
shares of Common Stock. Section 48-23-102 of the TBCA provides that no
dissenters' rights are available with respect to the merger of a corporation
whose securities are "national market system securities," which includes
securities traded on the Nasdaq National Market. The Common Stock is currently
traded on the Nasdaq National Market; however, pursuant to the Merger Agreement,
the Company has agreed to terminate such listing effective one business day
prior to the effective time of the Merger. See "DISSENTERS' RIGHTS" in the
accompanying Proxy Statement for a statement of the rights of dissenting
shareholders and a description of the procedures required to be followed by
shareholders to obtain appraisal of their Common Stock. A copy of Chapter 23 of
the TBCA is included as Exhibit B to the accompanying Proxy Statement.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
By order of the Board of Directors,
MARK J. DEUSCHLE,
Secretary
Knoxville, Tennessee
, 1997
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL MEETING IN PERSON,
PLEASE VOTE, SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED
BUSINESS REPLY ENVELOPE. IF YOU DO ATTEND THE MEETING, YOU MAY, IF YOU WISH,
WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THE COMPANY'S BOARD OF DIRECTORS (WITH MARTIN ABSTAINING), ACTING ON THE
RECOMMENDATION OF THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS (CONSISTING OF
THREE DIRECTORS OF THE COMPANY WHO ARE NOT EMPLOYEES OF THE COMPANY), RECOMMENDS
THAT YOU VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT. IN ADDITION TO THE VOTE
REQUIRED BY THE TBCA, THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE
VOTING SHARES HELD BY THE PUBLIC SHAREHOLDERS IS NECESSARY TO APPROVE THE MERGER
AGREEMENT AND THE MERGER.
2
<PAGE> 5
PLASTI-LINE, INC.
623 E. EMORY ROAD
KNOXVILLE, TENNESSEE 37849
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1997
---------------------
INTRODUCTION
This Proxy Statement is being furnished to the holders of common stock, par
value $.001 per share (the "Common Stock"), of Plasti-Line, Inc., a Tennessee
corporation (the "Company"), in connection with the solicitation of proxies by
the Board of Directors of the Company for use at a special meeting of the
shareholders of the Company (including any adjournment or postponement thereof,
the "Special Meeting") to be held at the principal executive offices of the
Company, 623 E. Emory Road, Knoxville, Tennessee, on , ,
1997, at 10:00 a.m. local time. This Proxy Statement and the attached Notice of
Special Meeting of Shareholders and the proxy card are first being mailed to
shareholders of the Company on or about , 1997.
PROPOSAL TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the shareholders of the Company will consider and
vote upon a proposal to approve and adopt an Agreement and Plan of Merger (the
"Merger Agreement"), dated as of November , 1997, among the Company, PL
Holding Corp., a Tennessee corporation ("Parent"), PL Acquisition Corp., a
Tennessee corporation and a wholly owned subsidiary of Parent ("Merger Sub"),
and James R. Martin, Chairman of the Board and Chief Executive Officer of the
Company and beneficial owner of approximately 47% of the outstanding voting
power of the Company's Common Stock ("Martin"). Merger Sub was organized by
Parent solely to facilitate the proposed transaction.
The Merger Agreement provides, subject to approval of the shareholders at
the Special Meeting, for the merger of Merger Sub with and into the Company (the
"Merger"), with the Company being the surviving corporation (the "Surviving
Corporation"). Following the Merger, the Company will be a direct wholly owned
subsidiary of Parent. Pursuant to the Merger, (i) each outstanding share of
Common Stock (other than shares held by the Company as treasury stock or shares
beneficially owned by Parent or by shareholders who do not vote in favor of the
Merger Agreement and who perfect their dissenters' rights under Chapter 23 of
the Tennessee Business Corporation Act ("TBCA")) will receive $14.50 per share
in cash, without interest (the "Merger Consideration"), (ii) each outstanding
share of Common Stock beneficially owned by Parent or held by the Company as
treasury stock will be canceled without consideration, and (iii) each
outstanding share of Merger Sub common stock, par value $.001 per share, will be
converted into one share of common stock of the Surviving Corporation. As a
result of the Merger, current shareholders of the Company (other than Parent)
will no longer have any equity interest in the Company. A copy of the Merger
Agreement is included as Exhibit A to this Proxy Statement.
THE COMPANY'S BOARD OF DIRECTORS (WITH MARTIN ABSTAINING), ACTING ON THE
RECOMMENDATION OF THE SPECIAL COMMITTEE, RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Parent has entered into agreements (the "Shareholder Agreements") with
certain members of the Company's management, including Martin (the "Management
Group"), who currently own an aggregate of approximately 48.7% of the total
issued and outstanding shares of the Common Stock. Pursuant to such agreements,
each member of the Management Group has agreed to transfer to Parent,
immediately prior to the effective time of the Merger (the "Effective Time"),
all of such person's shares of Common Stock, if any, along with certain cash and
promissory notes, and each member of the Member Group will receive shares of
<PAGE> 6
Parent's common stock. At the Effective Time, the Management Group will not own
any shares of Common Stock. At such time, the Management Group will own in the
aggregate 85% of Parent's total issued and outstanding common stock, and Parent
will own approximately 48.7% of the total issued and outstanding Common Stock.
See "SPECIAL FACTORS -- Conflicts of Interest; Certain Relationships."
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
The Board of Directors of the Company has fixed the close of business on
, 1997 (the "Record Date") as the date for the determination of
shareholders entitled to notice of and to vote at the Special Meeting.
Accordingly, only holders of record of Common Stock at the close of business on
that date will be entitled to notice of and to vote at the Special Meeting (the
"Voting Shares"). At the close of business on the Record Date, there were
shares of Common Stock (held by shareholders of record)
outstanding and entitled to vote at the Special Meeting.
Each holder of record of Voting Shares on the Record Date is entitled to
cast one vote per share in person or by proxy at the Special Meeting and any
adjournment or postponement thereof. The presence, in person or by proxy, at the
Special Meeting of the holders of a majority of (i) the Voting Shares entitled
to vote and held by all shareholders of the Company, and (ii) the Voting Shares
entitled to vote and held by shareholders of the Company other than the
Management Group (the "Public Shareholders"), are necessary for a quorum to
exist at the Special Meeting. Abstentions and broker non-votes (which occur when
shares held by brokers or nominees for beneficial owners are voted on some
matters but not on others) will be counted as shares present for purposes of
determining the presence of a quorum.
Pursuant to the TBCA, the Merger Agreement must be approved by the holders
of at least a majority of the outstanding Voting Shares. Pursuant to the
Shareholder Agreements, each member of the Management Group has agreed to vote
all of his Voting Shares in favor of the Merger Agreement, representing an
aggregate of approximately 48.7% of the total outstanding Voting Shares. In
addition, all of the directors of the Company have agreed to vote their Voting
Shares in favor of the Merger Agreement, representing (excluding Martin's Voting
Shares which have been counted in the shares held by the Management Group), an
aggregate of approximately 8.5% of the total Voting Shares. This assures that
the approval required pursuant to the TBCA will be obtained.
However, pursuant to the terms of the Merger Agreement, the affirmative
vote of a majority of the Voting Shares held by the Public Shareholders is also
required to approve the Merger Agreement. See "THE MERGER AGREEMENT --
Conditions to Consummation of the Merger."
Holders of Common Stock who do not want to accept the Merger Consideration
of $14.50 per share, who do not vote in favor of (or who abstain from voting on)
the Merger Agreement, and who perfect their dissenters' rights by complying with
the provisions of Chapter 23 of the TBCA, will have the right to receive cash
payment for the "fair value" of their Common Stock. Section 48-23-102 of the
TBCA provides that no dissenters' rights are available with respect to the
merger of a corporation whose securities are "national market system
securities," which includes securities traded on the Nasdaq National Market. The
Common Stock is currently traded on the Nasdaq National Market; however,
pursuant to the Merger Agreement, the Company has agreed to terminate such
listing effective one business day prior to the Effective Time, so that the
Company's shareholders will be entitled to dissenters' rights in connection with
the Merger. Any shareholder contemplating the exercise of dissenters' rights
should carefully review Chapter 23 of the TBCA, particularly the procedural
steps required to perfect dissenters' rights, a description of which is provided
herein under "DISSENTERS' RIGHTS." A shareholder who fails to comply with such
procedural requirements will forfeit such holder's dissenters' rights and, upon
consummation of the Merger, such holder's shares of Common Stock will be
converted into the right to receive the Merger Consideration of $14.50 per share
in cash without interest. See "DISSENTERS' RIGHTS" and Exhibit B -- "Chapter 23
of the Tennessee Business Corporation Act."
2
<PAGE> 7
PROXIES
All Voting Shares represented by properly executed proxies received prior
to or at the Special Meeting and not revoked will be voted in accordance with
the instructions indicated in such proxies. If no instructions are indicated,
such proxies will be voted FOR the proposal to approve and adopt the Merger
Agreement, and in the discretion of the persons named in the proxy on such other
matters as may properly be presented at the Special Meeting. For purposes of
determining whether a proposal has received sufficient votes for adoption,
abstentions and broker non-votes will have no effect on the vote for the Merger
Agreement.
A shareholder may revoke his or her proxy at any time prior to its use by
delivering to the Secretary of the Company a signed notice of revocation or a
later dated and signed proxy or by attending the Special Meeting and voting in
person. Attendance at the Special Meeting will not in itself constitute the
revocation of a proxy.
The cost of solicitation of proxies will be paid by the Company. In
addition to solicitation by mail, directors, officers and regular employees of
the Company may solicit proxies by telephone, telegram or by personal
interviews. Such persons will receive no additional compensation for such
services. The Company has retained Morrow & Co. Inc. to assist in the
solicitation of proxies at a cost of approximately $7,000. The Company will
reimburse brokers, fiduciaries, custodians and other nominees for their charges
and expenses in forwarding proxy material to the beneficial owners of Voting
Shares held of record by such persons.
This Proxy Statement and the accompanying Notice of Special Meeting are
first being mailed to shareholders on or about , 1997.
The date of this Proxy Statement is , 1997.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Schedule 13E-3 Transaction Statement (including any amendments
thereto, the "Schedule 13E-3") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), with respect to the Merger. This Proxy Statement
does not contain all the information set forth in the Schedule 13E-3 and the
exhibits thereto, certain parts of which are omitted in accordance with the
rules and regulations of the Commission.
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Commission.
The Schedule 13E-3 and the respective exhibits thereto, as well as such
reports, proxy statements and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549; and at the Commission's Northeast Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048, and Midwest Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can also be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants such as the Company that file electronically with the Commission.
The address of such site is http://www.sec.gov. The Common Stock is traded on
the Nasdaq National Market and certain of the Company's reports, proxy materials
and other information are available at the offices of the Nasdaq National
Market, 1735 K Street, N.W., Washington, D.C. 20006.
3
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................ 1
Proposal to be Considered at the Special Meeting.......... 1
Voting Rights; Votes Required for Approval................ 2
Proxies................................................... 3
AVAILABLE INFORMATION....................................... 3
SUMMARY..................................................... 6
SPECIAL FACTORS............................................. 13
Background of the Merger.................................. 13
Recommendations of the Special Committee, the Board and
Parent................................................. 19
Opinion of the Special Committee's Financial Advisor...... 22
Purpose and Structure of the Merger; Certain Effects of
the Merger............................................. 25
Plans for the Company After the Merger.................... 26
Conflicts of Interest; Certain Relationships.............. 27
Certain Federal Income Tax Consequences of the Merger..... 29
Accounting Treatment of the Merger........................ 30
Certain Litigation........................................ 30
Regulatory Approvals...................................... 30
THE MERGER AGREEMENT........................................ 31
General................................................... 31
Effective Time of the Merger.............................. 31
The Surviving Corporation................................. 31
Consideration to be Received by Shareholders of the
Company................................................ 31
Options and Restricted Shares............................. 32
Representations and Warranties............................ 32
Covenants................................................. 33
Other Potential Bidders................................... 34
Voting of Shares.......................................... 34
Conditions to Consummation of the Merger.................. 34
Termination............................................... 35
Expenses.................................................. 35
Amendments................................................ 35
DISSENTERS' RIGHTS.......................................... 36
SOURCE OF FUNDS FOR THE MERGER.............................. 37
Source of Funds........................................... 37
Estimated Fees and Expenses............................... 41
BUSINESS OF THE COMPANY..................................... 42
General................................................... 42
Products.................................................. 42
Customers................................................. 43
Marketing................................................. 43
Production and Raw Materials.............................. 43
Competition............................................... 44
Employees................................................. 44
Product Backlog........................................... 44
Seasonality............................................... 44
SELECTED HISTORICAL FINANCIAL INFORMATION OF THE COMPANY.... 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 46
MARKET PRICES FOR THE COMMON STOCK.......................... 49
DIVIDENDS................................................... 49
</TABLE>
4
<PAGE> 9
CERTAIN INFORMATION CONCERNING PARENT AND MERGER SUB........ 49
Parent.................................................... 49
Merger Sub................................................ 50
General................................................... 50
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY, PARENT,
MERGER SUB AND THE SURVIVING CORPORATION.................. 50
Information Concerning Directors and Executive Officers of
the Company............................................ 50
Information Concerning Directors and Executive Officers of
Parent and Merger Sub.................................. 51
Information Concerning Directors and Executive Officers of
the Surviving Corporation.............................. 52
SECURITY OWNERSHIP OF THE COMPANY........................... 52
PURCHASES OF COMMON STOCK BY CERTAIN PERSONS................ 53
TRANSACTION OF OTHER BUSINESS............................... 55
INDEPENDENT AUDITORS........................................ 55
SHAREHOLDER PROPOSALS....................................... 55
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 55
INDEX TO FINANCIAL STATEMENTS............................... F-1
EXHIBIT A: AGREEMENT AND PLAN OF MERGER
EXHIBIT B: CHAPTER 23 OF THE TENNESSEE BUSINESS CORPORATION
ACT
EXHIBIT C: OPINION OF J.C. BRADFORD & CO., L.L.C.
EXHIBIT D: TAX OPINION OF ALSTON & BIRD LLP
5
<PAGE> 10
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. The following summary is not intended to be a complete
description of the matters covered in this Proxy Statement and is subject to and
qualified in its entirety by reference to the more detailed information
contained elsewhere in this Proxy Statement, including the Exhibits hereto.
Shareholders are urged to read carefully the entire Proxy Statement, including
the Exhibits.
GENERAL
Time, Place and Date of the
Special Meeting.......... The Special Meeting of shareholders of the Company
will be held at the principal executive offices
of the Company, 623 E. Emory Road, Knoxville,
Tennessee, on , , 1997,
at 10:00 a.m. local time.
Record Date................ Any holders of record of Common Stock at the close
of business on , 1997 are entitled to
notice of and to vote at the Special Meeting. On
such Record Date, there were shares of
Common Stock outstanding, with each such Voting
Share entitled to cast one vote with respect to
the Merger Agreement at the Special Meeting. See
"INTRODUCTION -- Voting Rights; Votes Required
for Approval."
Purpose of the Special
Meeting; Quorum; Vote
Required................. At the Special Meeting, shareholders will consider
and vote upon a proposal to approve and adopt the
Merger Agreement, a copy of which is included as
Exhibit A to this Proxy Statement. See
"INTRODUCTION -- Proposal to be Considered at the
Special Meeting." The presence at the Special
Meeting, in person or by proxy, of a majority of
the Voting Shares held by all shareholders of the
Company, as well as a majority of the Voting
Shares held by the Public Shareholders, is
necessary for a quorum to exist at the Special
Meeting. If a quorum is present, then two voting
requirements must be satisfied in order for the
Merger Agreement to be approved. First, pursuant
to the TBCA, approval of the Merger Agreement
requires the affirmative vote of the holders of a
majority of the outstanding Voting Shares. The
Management Group, who (including Martin) as of
the Record Date beneficially owned an aggregate
of approximately 48.7% of the Voting Shares, and
all directors of the Company, who (excluding
Martin) as of the Record Date beneficially owned
an aggregate of 8.5% of the Voting Shares, have
agreed to vote their shares in favor of the
Merger Agreement, thus assuring that this vote
will be obtained. However, as a second vote
requirement, the Merger Agreement requires the
affirmative vote of a majority of the Voting
Shares held by the Public Shareholders. See
"INTRODUCTION -- Voting Rights; Votes Required
for Approval" and "THE MERGER
AGREEMENT -- Conditions to Consummation of the
Merger."
Structure of the Merger.... Pursuant to the Merger Agreement, Merger Sub will
merge with and into the Company, with the Company
being the Surviving Corporation and becoming a
wholly owned subsidiary of Parent. Each
outstanding share of Common Stock (except those
shares of Common Stock held by the Company as
treasury stock or beneficially owned by Parent or
by shareholders who perfect their dissenters'
rights under the TBCA)
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<PAGE> 11
will be converted into the right to receive
$14.50 in cash, without interest. Each
outstanding share of Common Stock beneficially
owned by Parent or held by the Company as
treasury stock will be canceled without
consideration. Each outstanding share of common
stock, par value $.001 per share, of Merger Sub
will be converted into one share of common stock
of the Surviving Corporation. See "SPECIAL
FACTORS -- Purpose and Structure of the Merger;
Certain Effects of the Merger," "-- Conflicts of
Interest; Certain Relationships," and "THE MERGER
AGREEMENT."
Plans for the Company After
the Merger............... After the Merger, the Company will become a wholly
owned subsidiary of Parent. Except as indicated
in this Proxy with respect to the Merger, Parent
does not have any present plans regarding any
extraordinary corporate transaction, such as a
merger, reorganization, sale of substantially all
the assets, or liquidation, involving the Company
or any of its subsidiaries. Upon consummation of
the Merger, Parent intends to continue to review
the Company and its assets, businesses,
operations, properties, policies, corporate
structure, capitalization and management and
consider if any changes would be desirable in
light of the circumstances then existing. The
Board of Directors of Parent has not formulated
any specific plans in the event the Merger is not
consummated. See "SPECIAL FACTORS -- Plans for
the Company After the Merger."
Surrender of Stock
Certificates............. Promptly after the Effective Time, each Public
Shareholder (other than those Public Shareholders
as to which dissenters' rights have been
perfected) will be mailed a transmittal letter
(with instructions) to use in effecting the
surrender and cancellation of certificates or
other documents evidencing Common Stock in
exchange for the Merger Consideration. The
Company shall not be obligated to deliver the
consideration to which any former holder of such
Common Stock is entitled until such holder
surrenders such holder's certificate or
certificates or other documents representing such
holder's shares for exchange. The certificate or
certificates or other documents so surrendered
shall be duly endorsed by the Paying Agent, as
such term is defined in the Merger Agreement, may
require. See "THE MERGER AGREEMENT --
Consideration to be Received by Shareholders of
the Company." Failure by a Public Shareholder to
respond to the instructions set forth in the
transmittal letter within twelve months after the
Effective Time may result in such Public
Shareholder not receiving the Merger
Consideration. For a more detailed description of
the rights of the parties to the Merger Agreement
to any amount of the Merger Consideration which
remains unclaimed, see Exhibit A -- "The Merger
Agreement."
Certain Effects of the
Merger................... As a result of the Merger, the entire equity
interest in the Company will be beneficially
owned by Parent. Therefore, following the Merger,
the present holders of Common Stock (other than
Parent) will no longer have an equity interest in
the Company. Instead, each such holder of Common
Stock will have only the right to receive the
Merger Consideration for each share of Common
Stock held or to seek dissenters" rights as
described under the caption "DISSENTERS' RIGHTS."
To cause dissenters' rights to be available to
the Public
7
<PAGE> 12
Shareholders under the TBCA, the Company has
agreed to terminate its listing on the Nasdaq
National Market effective one business day prior
to the Effective Time. In addition, if the Merger
is consummated, Parent intends to apply to the
Commission for the deregistration of the Common
Stock under the Exchange Act and, upon
deregistration, the Company will be relieved of
its obligation to file reports, proxy statements
and other information with the Commission. See
"SPECIAL FACTORS -- Purpose and Structure of the
Merger, Certain Effects of the Merger."
Following the Merger, the sole director of Merger
Sub will be the sole director of the Surviving
Corporation. The officers of the Company will
continue to serve as officers of the Surviving
Corporation. See "DIRECTORS AND EXECUTIVE
OFFICERS OF THE COMPANY, PARENT, MERGER SUB AND
THE SURVIVING CORPORATION -- Information
Concerning Directors and Executive Officers of
the Surviving Corporation."
Opinion of Financial
Advisor to
Special Committee........ J.C. Bradford & Co., L.L.C. ("J.C. Bradford"), a
nationally recognized investment banking firm,
has delivered its written opinion to the Special
Committee of the Company's Board of Directors to
the effect that, as of such date, the Merger
Consideration is fair to the Public Shareholders
from a financial point of view. In conducting its
analysis and delivering its opinions, J.C.
Bradford considered such financial and other
factors as it deemed appropriate and feasible
under the circumstances including, among other
things, (i) the Merger Agreement; (ii) the
historical and current financial position and
results of operations of the Company; (iii)
certain internal financial analyses and forecasts
of the Company for the years beginning January 1,
1997 and ending December 31, 2002, prepared for
the Company by its senior management; (iv)
certain financial and securities data of certain
other companies, the securities of which are
publicly traded and that J.C. Bradford believed
to be comparable to the Company; (v) prices and
premiums paid in certain other acquisitions and
transactions that J.C. Bradford believed to be
relevant; (vi) historical and current price and
trading activity for the Common Stock; and (vii)
such other financial studies, analyses and
investigations as J.C. Bradford deemed
appropriate for purposes of its opinion. J.C.
Bradford also held discussions with members of
the senior management of the Company regarding
the past and current business operations,
financial condition and future prospects of the
Company. The full text of J.C. Bradford's written
opinion, which sets forth the assumptions made,
procedures followed, matters considered and
limits of its review undertaken in connection
with the opinion, is included as Exhibit C and is
incorporated by reference herein. HOLDERS OF
COMMON STOCK ARE URGED TO AND SHOULD READ SUCH
OPINION IN ITS ENTIRETY. For additional
information relating to the opinion of J.C.
Bradford, see "SPECIAL FACTORS -- Opinion of the
Special Committee's Financial Advisor."
8
<PAGE> 13
Determination of Special
Committee; Recommendation
of Company's Board
of Directors............. A special committee of the Board of Directors,
consisting of three directors of the Company who
are not employed by or affiliated with the
Company (except in their capacity as directors),
Parent, Merger Sub, Martin or any of their
subsidiaries or affiliates (other than the
Company), and who do not hold and will not
acquire any equity interest in Parent or Merger
Sub (the "Special Committee"), has determined,
based in part upon the opinion of J.C. Bradford,
that the Merger and Merger Consideration are fair
to, and in the best interests of, the Public
Shareholders and has recommended approval of the
Merger Agreement by the Board of Directors and
shareholders of the Company. After considering
the recommendation of the Special Committee, the
Board of Directors (with Martin abstaining) has
approved the Merger Agreement and recommends that
shareholders vote FOR the proposal to approve and
adopt the Merger Agreement. The Board of
Directors' recommendation is based upon the
following factors, among others: (i) the
analyses, conclusions and recommendations of the
Special Committee; (ii) the opinion of J.C.
Bradford; and (iii) the fact that the Merger
Consideration was the result of arms' length
negotiations between the Special Committee and
members of the Board of Directors of Parent and
their respective legal and financial advisors.
See "SPECIAL FACTORS -- Background of the
Merger," "-- Recommendations of the Special
Committee, the Board and Parent" and
"-- Conflicts of Interest; Certain
Relationships."
Conflicts of Interest...... Martin, who is the Chairman of the Board and Chief
Executive Officer of the Company, beneficially
owns approximately 47% of the Common Stock. The
other members of the Management Group
beneficially own an aggregate of approximately
1.7% of the Common Stock. The members of the
Management Group have agreed to transfer to
Parent, immediately prior to the Effective Time,
all of their shares of Common Stock, if any,
along with certain cash and promissory notes, and
each member of the Management Group will receive
shares of Parent's common stock. At the Effective
Time, the Management Group will not own any
shares of Common Stock, but will own in the
aggregate 85% of Parent's common stock. See
"SPECIAL FACTORS -- Conflicts of Interest;
Certain Relationships."
The directors of the Company (excluding Martin)
beneficially own an aggregate of approximately
8.5% of the outstanding Common Stock. If the
Merger is consummated, such persons will be
entitled to receive the Merger Consideration for
their shares. See "SPECIAL FACTORS -- Conflicts
of Interest; Certain Relationships."
In accordance with the terms of the Merger
Agreement, the sole director of the Surviving
Corporation will be Martin, currently the sole
director of Merger Sub. See "DIRECTORS AND
EXECUTIVE OFFICERS OF THE COMPANY, PARENT, MERGER
SUB AND THE SURVIVING CORPORATION -- Information
Concerning Directors and Executive Officers of
the Surviving Corporation."
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<PAGE> 14
Parent has agreed that all rights to
indemnification arising at or prior to the
effectiveness of the Merger in favor of the
directors or officers of the Company (including
the members of the Special Committee) as provided
in the Company's Charter and Bylaws, as in effect
on the date of the Merger Agreement, and in
contractual indemnification agreements and
director and officer liability insurance
currently in effect and covering directors and
officers of the Company, will, for a period of
six years survive the Merger and continue in full
force and effect. See "SPECIALFACTORS --
Conflicts of Interest; Certain Relationships" and
"THE MERGER AGREEMENT -- Covenants."
Federal Income Tax
Consequences............. The Company has received an opinion of Alston &
Bird LLP, tax counsel to the Company, to the
effect that the receipt of cash for Common Stock
pursuant to the Merger will be a taxable
transaction for federal income tax purposes under
the Internal Revenue Code of 1986, as amended
(the "Code"). A copy of such opinion is attached
hereto as Exhibit D. See "SPECIAL
FACTORS -- Certain Federal Income Tax
Consequences."
THE MERGER AGREEMENT
Effective Time of the
Merger................... The Merger will become effective upon the filing of
a certificate of merger with the Secretary of
State of the State of Tennessee or at such later
time as is agreed to by the parties to the Merger
Agreement and specified in such certificate of
merger. The filing will occur after all
conditions to the Merger contained in the Merger
Agreement have been satisfied or waived. The
Company and Parent anticipate that the Merger
will be consummated as promptly as practicable
following the Special Meeting. See "THE MERGER
AGREEMENT -- General" and "-- Effective Time of
the Merger."
Conditions to Consummation
of the Merger............ The respective obligations of the Company, on the
one hand, and Parent and Merger Sub, on the other
hand, to consummate the Merger are subject to the
satisfaction or waiver at or prior to the
Effective Time of the following conditions, among
others: (i) approval and adoption of the Merger
Agreement by a majority of the outstanding Voting
Shares at the Special Meeting; (ii) approval and
adoption of the Merger Agreement by a majority of
Voting Shares held by the Public Shareholders;
(iii) the absence of any statute, rule,
injunction or similar order prohibiting or
restricting the consummation of the Merger; (iv)
the receipt of all other required authorizations,
consents and approvals of governmental
authorities; (v) the material compliance by all
parties with their obligations under the Merger
Agreement; (vi) the material truth and
correctness of all representations and warranties
of the parties to the Merger Agreement; and (vii)
J.C. Bradford shall not have withdrawn its
written fairness opinion. The obligations of
Parent and Merger Sub are further subject to: (i)
there not having occurred any material adverse
change in the business, condition (financial or
otherwise) or results of operations of the
Company, and (ii) Parent having obtained proper
financing for the
10
<PAGE> 15
Merger. See "THE MERGER AGREEMENT -- Conditions
to Consummation of the Merger."
Termination of the
Merger................... The Merger Agreement may be terminated and the
Merger abandoned at any time prior to the
Effective Time, notwithstanding approval of the
Merger Agreement by the shareholders of the
Company: (i) by mutual written consent of the
Parent and the Company (such determination to be
made on behalf of the Company by the Special
Committee); (ii) by either Parent or the Company
(such determination to be made on behalf of the
Company by the Special Committee) if the Merger
has not been consummated by January 30, 1998, so
long as the failure to consummate the Merger is
not the result of the terminating party's having
failed to fulfill a covenant or obligation under
the Merger Agreement; (iii) by either Parent or
the Company, if there shall be any law that makes
consummation of the Merger illegal or if any
judgment or injunction enjoining Parent or the
Company from consummating the Merger is entered
and becomes final and nonappealable; (iv) by
either Parent or the Company if the Merger
Agreement fails to receive the requisite
shareholder approval; or (v) by Parent or the
Company if the Board of Directors of the Company
withdraws, modifies or changes its recommendation
of the Merger Agreement or the Merger in a manner
adverse to Parent or Merger Sub or resolves to do
any of the foregoing or the Board of Directors of
the Company recommends to the shareholders of the
Company any Competing Transaction, as defined
herein under "THE MERGER AGREEMENT -- Other
Potential Bidders," or resolves to do so. See
"THE MERGER AGREEMENT -- Termination."
Expenses................... All fees, costs and expenses incurred by all
parties in connection with the Merger Agreement
and the transactions contemplated thereby shall
be paid by the Company if the Merger is
consummated. If the Merger is not consummated,
Parent shall pay the first $100,000 of its
expenses and the Company shall pay any additional
expenses incurred by Parent in connection with
the Merger Agreement and the transactions
contemplated thereby, provided that the Company
has retained the right to negotiate directly any
of Parent's expenses with the third parties that
must be paid by the Company. Parent has agreed
not to take any action to change the Lenders (as
that term is defined below) so as to increase
materially the expenses payable by the Company
without the prior consent of the Company. See
"THE MERGER AGREEMENT -- Expenses."
Amendments to the Merger
Agreement................ The Merger Agreement may not be amended prior to
the Effective Time except by action of the
Company, Parent, Merger Sub and Martin set forth
in a written instrument signed on behalf of each
of the parties; provided that any such amendment
by the Company must be approved by the Board of
Directors of the Company, acting on the
recommendation of the Special Committee. After
approval of the Merger Agreement by the
shareholders of the Company at the Special
Meeting and without the further approval of such
shareholders, no amendment to the Merger
Agreement may be made which will change (i) the
Merger Consideration or (ii) any other terms and
conditions of the Merger Agreement if any of such
changes would
11
<PAGE> 16
adversely affect the shareholders of the Company.
See "THE MERGER AGREEMENT -- Amendments."
Dissenters' Rights......... Holders of Common Stock entitled to vote on
approval of the Merger Agreement who do not wish
to accept the Merger Consideration of $14.50 per
share will have the right to dissent from the
Merger and, upon consummation of the Merger and
the satisfaction of certain specified procedures
and conditions, to receive the "fair value" of
such holders' shares of Common Stock in
accordance with the applicable provisions of the
TBCA. Shareholders seeking to perfect such rights
must submit written notice of such intent to
demand payment for their shares of Common Stock
prior to the vote at the Special Meeting. The
procedures to be followed by dissenting
shareholders are summarized under "DISSENTERS'
RIGHTS"and the applicable provisions of the TBCA
are reproduced as Exhibit -- "Chapter 23 of the
Tennessee Business Corporation Act."
Source of Funds............ It is estimated that the total funds required to
pay the Merger Consideration of $14.50 per share
to all Public Shareholders, consummate the other
transactions contemplated by the Merger
Agreement, refinance certain of the Company's
current indebtedness, fund the Surviving
Corporation's working capital needs after the
Merger, and pay all related fees, costs and
expenses will be approximately $88 million.
Approximately $10.5 million of such funds will be
obtained from the Management Group as equity
contributions made to Parent. The remaining $77.5
million will be obtained by means of borrowings
including (i) an aggregate of up to $57.5 million
in credit facilities obtained from Key Corporate
Capital, Inc. ("KCCI") or a syndicate of lenders
arranged thereby, (ii) term loans in the
aggregate amount of up to $10 million obtained
from KeyCorp Real Estate Capital Markets, Inc.
("KeyCorp") and secured by certain parcels of the
Company's real property, and (iii) an aggregate
of $10 million of subordinated term loans
obtained from RSTW Partners III, L.P. ("RSTW")
(KCCI, KeyCorp and RSTW are collectively the
"Lenders"). All of such borrowings will become
effective at the Effective Time, and will not
become effective if the Merger is not consummated
for any reason. The terms of and the
documentation for such borrowings have not yet
been finalized and are still being negotiated.
Accordingly, the description of the material
terms and conditions of the intended borrowings
contained in "SOURCE OF FUNDS FOR THE MERGER"
herein is preliminary and necessarily incomplete.
In any event, the final documentation for such
borrowings might contain terms that are more or
less onerous than currently contemplated. See
"SOURCE OF FUNDS FOR THE MERGER."
12
<PAGE> 17
SPECIAL FACTORS
BACKGROUND OF THE MERGER
The Company was initially founded in 1944 as a privately owned company. In
1980, Martin and other officers acquired the business presently conducted by the
Company in a leveraged buy-out and, in 1986, the Company conducted an initial
public offering. Following such public offering, Martin was the Company's
largest shareholder and, as of the Record Date, he continued to be the largest
shareholder, beneficially owning approximately 47% of the Common Stock.
On May 21, 1997, the Board of Directors of the Company held a special
meeting by telephone, at which all directors were present. At this meeting,
which Martin had requested, Martin informed the Board that he was interested in
recapitalizing the Company for the purpose of increasing shareholder value.
Martin said that he was interested in creating a transaction whereby a newly
formed holding company would purchase 100% of the Common Stock in a leveraged
purchase and the Company would then be privately held. Martin told the Board
that it was his intent to retain his equity interest in the Company by owning
equity of the newly formed holding company, and that he would expect management
of the Company as a group to own at least 50% of the holding company's equity.
Martin requested the Board's approval to begin preliminary discussions with
potential financiers and investors, and the Board approved such discussions and
agreed to permit them to perform due diligence with respect to the Company,
subject to appropriate confidentiality agreements being executed.
Following this May 21, 1997 Board meeting, Martin engaged in discussions
with potential financiers and investors. On or about July 9, 1997, Martin began
negotiating with William Blair & Company ("Blair") to engage Blair to assist in
negotiating the potential transaction with the Board and to assist in obtaining
the necessary financing for any such transaction. Martin executed a letter
agreement with Blair on July 27, 1997. Blair was not engaged to render any
opinion as to the fairness of any offer that might be made by Martin, even
though it was contemplated that, as part of its negotiation assistance, Blair
might perform some valuation analyses of the Company as part of its negotiation
assistance.
In the meanwhile, at a regular quarterly Board of Directors meeting held on
July 18, 1997 at which all directors were present, Martin expressed to the Board
of Directors of the Company his continued interest in obtaining total ownership
of the Company. Martin also indicated that he had no interest in selling his
shares of Common Stock to a third party. So that it could respond to Martin's
initiatives, the Board formed the Special Committee, comprised of James F.
Smith, Jr., as Chairman, James A. Haslam III and H. Mitchell Watson, Jr. The
Special Committee's stated purpose was to evaluate, make recommendations
regarding and negotiate any proposed direct or indirect acquisition by Martin.
At this meeting, Martin told the Board that he would like to use the law firm of
Alston & Bird LLP ("Alston & Bird") to advise him in connection with any
proposed transaction, and the Board approved such representation, waiving any
potential or actual conflict of interest that might arise as a result of Alston
& Bird having represented the Company since 1990.
Shortly after its formation, the Special Committee retained Bass, Berry &
Sims PLC ("BBS") as its legal counsel, and also began negotiating with J.C.
Bradford regarding J.C. Bradford's retention as the Special Committee's
independent financial advisor. J.C. Bradford acted as the Special Committee's
financial advisor, and was formally engaged as such on August 25, 1997.
13
<PAGE> 18
At a special meeting of the Board of Directors held on July 30, 1997,
Martin offered to purchase the outstanding Common Stock of the Company for
$13.50 per share (the "Initial Proposal") by delivering to the Board the
following letter:
July 30, 1997
Special Committee
Board of Directors
Plasti-Line, Inc.
Gentlemen:
Through an acquisition corporation to be formed by me, and
subject to a definitive agreement, I intend to acquire all of the
outstanding shares of common stock (the "Shares") of Plasti-Line, Inc.
("Plasti-Line").
In connection with such proposed transaction, I have engaged
William Blair & Company ("Blair") to serve as my investment banker and
have obtained their advice as to the value of the Shares. Having
obtained that advice, I am willing to pay $13.50 per Share, which I
believe is a full and fair price that will provide the public
shareholders of Plasti-Line a premium in excess of 40% over the
current bid price of the Shares. In addition, Blair has advised me
that if it had been engaged by the Special Committee of the Board of
Directors, it would be able to give a fairness opinion to the Special
Committee at such price.
I want to confirm my ability and desire to carry out this
proposal. Blair has advised me that it is highly confident of its
ability to obtain the necessary funds on my behalf to complete the
proposed acquisition of the Shares. I want also to advise you that I
am not willing to sell my Shares to a third party.
I intend to include certain key management employees of
Plasti-Line as equity participants in the newly-formed acquisition
corporation, but I have not yet discussed my proposal with any
management employees other than Mark Deuschle.
Please note, that this proposal is subject to my obtaining the
necessary funds and entering into a definitive agreement with
Plasti-Line pursuant to negotiations with you, including provisions
dealing with the costs of proceeding with this proposal and other
customary terms. I am willing to discuss with you the relative
advantages of proceeding with a tender offer followed by a merger or
with an initial merger.
I understand that you are engaging independent lawyers to
represent you and the public shareholders and an investment banker to
assist you in the negotiations and to provide a fairness opinion with
respect to the proposed transaction. We are prepared to meet with your
advisors as soon as possible to provide them with any information they
may need. Thank you for your consideration of this proposal. I ask
that you respond as soon as possible so that we can proceed with this
transaction.
Sincerely,
James R. Martin
Following delivery of this letter, the Board discussed with representatives
of Blair, by telephone, the anticipated capital structure of the entity that
would acquire the Company. The representatives of Blair stated that they were
highly confident that the transaction described in Martin's July 30 letter could
be financed.
14
<PAGE> 19
Immediately following the July 30 meeting, the Company and Martin then
issued the following press release:
PLASTI-LINE TO BEGIN GOING-PRIVATE DISCUSSIONS
Knoxville, Tennessee
July 30, 1997
PLASTI-LINE, INC. ("SIGN") announced today that its Board of
Directors has received a merger proposal from James R. Martin,
Chairman of the Board and Chief Executive Officer of Plasti-Line.
Under the terms of this proposal, Mr. Martin intends to form a new
corporation, which may include as shareholders certain key management
personnel of Plasti-Line, which intends to acquire all of the
outstanding common stock of Plasti-Line not owned by such corporation
at a price of $13.50 per share in cash.
The Board of Directors of Plasti-Line has authorized a special
committee of independent directors to negotiate with the proposed
acquiring corporation and to determine whether to approve any such
acquisition on behalf of the Board. Plasti-Line said that there can be
no assurance at this time as to whether or not any transaction will
occur or as to the timing or terms of any transaction.
Mr. Martin, who currently beneficially owns 46.4% of
Plasti-Line's outstanding common stock, including shares issuable upon
the exercise of certain stock options, has stated to the Board that he
has no current intent to sell his shares of Plasti-Line common stock
to a third party.
Plasti-Line designs, markets, produces and installs interior and
exterior brand identity and point of purchase marketing products and
systems for retailers and manufacturers.
In response to Martin's offer, on August 7, 1997, the Special Committee met
with representatives of BBS and J.C. Bradford. The Special Committee reviewed
and discussed with such representatives alternative transactions that could be
used by Martin to acquire the entire equity interest in the Company. The Special
Committee also reviewed and discussed at this time the alternative of not
entering into any transaction with Martin and having the Company remain public.
The Special Committee also discussed with representatives of BBS the fiduciary
duties and legal standards applicable to the Special Committee. The Special
Committee was advised that its purpose was to negotiate at arm's length with
Martin in order to protect the interests of the Public Shareholders, and that it
was under no obligation to reach any agreement with Martin unless it determined
that such an agreement was in the best interests of the Public Shareholders. The
Special Committee believed, however, that taking the Company private and
pursuing an offer from Martin was in the best interests of the Company's
shareholders due to several factors that could have a negative effect on the
value of the Common Stock, including (i) the fact that public companies (like
the Company) that are considered small-cap companies without significant growth
potential often fail to realize a satisfactory increase in the price of their
publicly traded stock, (ii) the low volume of trading in the Company's stock
that results primarily from Martin owning such a large block of shares, (iii)
the fact that the Company's current line of business is generally not perceived
to be an exciting growth industry by analysts, and (iv) the periodic past
failures of the Company to meet forecasted financial goals. J.C. Bradford
discussed the progress of its preliminary analyses of the Company and Martin's
Initial Proposal. Following the meeting, on August 7 and 8, 1997,
representatives of J.C. Bradford and BBS met with, and received information
from, various officers of the Company as part of their review of the Company and
its business.
On August 18, 1997, the Special Committee met again, and representatives of
J.C. Bradford made a presentation with respect to the Initial Proposal and the
$13.50 per share to be received by the Company's shareholders under such
proposal. J.C. Bradford compared the $13.50 offer from Martin to implied per
share valuations derived from a variety of preliminary analyses it conducted
based on different assumptions regarding the Company's forecast. These analyses
included comparable company analysis, discounted cash flow analysis, leveraged
buyout analysis and acquisition premiums analysis. See "SPECIAL FACTORS --
Opinion of the Special Committee's Financial Advisor." The Special Committee
also discussed conversations
15
<PAGE> 20
that it had held with certain Public Shareholders, including Kennedy Capital
Management, Inc. ("Kennedy Capital") and PaineWebber, each of whom expressed
disapproval of the $13.50 per share price offered by Martin. The Special
Committee then concluded that the $13.50 per share price as proposed by Martin
was not a fair or adequate price, and that representatives of J.C. Bradford
should convey this conclusion to representatives of Blair.
Following the Special Committee's meeting on August 18, 1997,
representatives of J.C. Bradford told representatives of Blair that the Special
Committee had concluded that $13.50 per share was not a fair or adequate price.
They also discussed whether a transaction could reasonably be financed at a
price greater than $13.50 per share and when commitment letters relating to such
financing might be available.
On August 19, 1997, Martin received a letter from Charles W. Schweizer on
behalf of Kennedy Capital stating that Kennedy Capital had obtained an
independent valuation of the Company from Holt Value Associates, L.P. ("Holt")
using only publicly available information, which indicated a valuation of the
Company's stock between $13.75 and $22.76 per share, with the best estimate of
$17.71 per share. Mr. Schweizer also stated that Kennedy Capital intended to
share this valuation with selected institutional investors and, in that regard,
wanted the Company to provide Kennedy Capital with a list of the names and
addresses of the Company's shareholders. Alston & Bird on behalf of the Company
responded to Mr. Schweizer in a letter dated August 22, 1997 stating that the
Special Committee had been formed to negotiate on behalf of the public
shareholders of the Company and that a copy of his request had been delivered to
the Special Committee.
On August 22, 1997, the Special Committee met with representatives of J.C.
Bradford and BBS to review J.C. Bradford's August 18 discussions with Blair, the
letter from Charles Schweizer which was forwarded to BBS on August 22, 1997, and
various other matters. In addition, on August 22, 1997, Alston & Bird provided
BBS with a draft merger agreement with respect to a proposed merger transaction.
Following this August 22 meeting, Martin orally expressed to Mr. Smith an
unwillingness to raise the price above $13.50. The Special Committee then met
again and, after conferring with representatives of J.C. Bradford and BBS,
remained unwilling to recommend any transaction that valued the Company at a
price of $13.50 per share, and the Special Committee concluded that it would be
inappropriate to respond with a specific price counteroffer. Mr. Smith then
conveyed to Martin that $13.50 was still unacceptable. Mr. Smith also told
Martin that if Martin did not raise his offer above $13.50, the Special
Committee would formally disapprove the Initial Proposal. In response, Martin
suggested that a meeting between himself, the Special Committee and each of
their financial and legal advisors take place before such a formal action.
On September 8, 1997, Martin, the Special Committee (with Mr. Watson, who
was out of the country, being absent), and each of their financial and legal
advisors met in Nashville, Tennessee with the main purpose of determining
whether the negotiations should continue. Blair first discussed its methodology
for valuing the Company, and then J.C. Bradford gave an overview of its
analysis. There was also a discussion of the status of Martin's and Blair's
efforts to obtain financing for the transaction. Following these discussions,
the Special Committee reiterated its unwillingness to approve any transaction
that valued the Company's stock at $13.50 per share. The Special Committee also
expressed its conclusion that it should disapprove formally the Initial Proposal
and issue a press release announcing such disapproval if Martin was still
unwilling to raise his offer above $13.50 per share. Martin then responded by
offering $14.00 per share. The Special Committee requested the opportunity to
discuss this new offer with the full Committee, including Mr. Watson, and the
meeting was adjourned.
After updating Mr. Watson on the events of the September 8, 1997 meeting,
the Special Committee met with representatives of J.C. Bradford and BBS by
telephone on September 9, 1997 to discuss Martin's most recent offer of $14.00
per share. J.C. Bradford informed the Special Committee that it did not believe
it could give a fairness opinion at $14.00 per share, and the Special Committee
concluded that $14.00 per share was neither fair nor adequate. The Special
Committee also concluded that it should convey to Martin (i) that it believed a
price of $15.50 per share would be both fair and adequate and at such a price it
would not require that the transaction be approved by a majority of the Public
Shareholders, and (ii) that the Special
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Committee would consider proposals below $15.50 per share, so long as they were
fair, but approval of any such price would require that the transaction be
approved by a majority of the Public Shareholders.
At a meeting on September 13, 1997 between the Special Committee (minus Mr.
Watson), a representative of BBS and Martin, Messrs. Smith and Haslam conveyed
to Martin the Special Committee's response as described above. Martin then
orally proposed an offer of $14.50 per share and stated that he was unwilling to
consider any price higher than $14.50 per share.
On September 16, 1997, the Special Committee met with its financial and
legal advisors to consider Martin's offer of $14.50 per share. Representatives
of J.C. Bradford informed the Special Committee that they believed they could
give a fairness opinion at that price, subject to their review of the Company's
recent operating results. The Special Committee then determined that it would
consider recommending that the Company's Board of Directors approve a
transaction at $14.50 per share, provided that approval of the transaction by a
majority of the Public Shareholders was a condition to the Company's obligation
to consummate the transaction, and provided further that the other outstanding
issues relating to the merger agreement, particularly in connection with the
payment of expenses, could be resolved satisfactorily.
Also on September 16, 1997, representatives of BBS forwarded to Alston &
Bird their comments to the proposed draft merger agreement. The principal issues
arising out of these comments were (i) whether the agreement should be approved
by a majority of the Public Shareholders; (ii) whether Martin's obtaining
financing should be a condition to closing the merger and whether the Company
should enter into the merger agreement prior to Martin's having obtained a
binding commitment for financing; (iii) whether the Company should pay Martin's
expenses or a portion thereof if the transaction does not close; and (iv) the
amount that the Company would be obligated to pay to continue director liability
insurance coverage.
Between September 16 and 24, 1997, BBS, Alston & Bird, Mr. Smith and Martin
attempted to resolve the remaining issues relating to the merger agreement,
particularly as they related to the payment of Martin's expenses if no
transaction were consummated. Martin expressed an unwillingness to bear the risk
that he would have to pay the expenses if the transaction were not consummated
subsequent to execution of a definitive merger agreement by the parties.
On September 24, 1997, the Special Committee, along with representatives of
BBS and J.C. Bradford, met with the other members of the Board of Directors of
the Company (except for Messrs. Hanes and Martin). Representatives of BBS
summarized the status of the negotiations with Martin and the remaining issues,
with particular emphasis on the question regarding payment of expenses. The
Special Committee and those members of the Board present expressed a willingness
to accept $14.50 per share and also determined to propose to Martin that each
party pay its own expenses in connection with the transaction, provided that (i)
in the event the merger agreement were terminated due to breach by one party,
such breaching party would pay the non-breaching party's expenses and (ii) if
the Company were to terminate the merger agreement because the Board withdrew
its approval of the transaction, the Company would pay all of Martin's expenses.
On that same day, September 24, 1997, Mr. Smith and a representative of BBS met
with Martin and Mark Deuschle, the Company's Vice President -- Finance, to
convey the Special Committee's current position on the $14.50 per share price
and the proposal relating to expenses described in the preceding sentence.
Martin reiterated his unwillingness to bear the risk that he would have to pay
the expenses if the transaction was not consummated subsequent to execution of a
definitive merger agreement. The next day, September 25, 1997, Martin proposed
at a regularly scheduled quarterly meeting of the full Board, that he would pay
the first $100,000 of his expenses if the Merger were not consummated, and the
Company would pay the rest.
On October 13, 1997, BBS forwarded to Alston & Bird comments to a revised
draft of the merger agreement. On October 14, 1997, representatives of Alston &
Bird reiterated to representatives of BBS Martin's willingness to pay the first
$100,000 of his expenses if the merger agreement were executed but not
consummated. On October 15, 1997, the Special Committee met with representatives
of BBS and J.C. Bradford to discuss the expenses issue and the status of
Martin's and Blair's efforts to obtain financing for the transaction at $14.50
per share. Prior to such meeting, representatives of Alston & Bird had conveyed
Martin's desire that the transaction go to the full Board for approval as soon
as possible. The Special Committee determined that it was unwilling to make a
recommendation regarding the transaction to the Board until
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<PAGE> 22
Martin had obtained more definitive commitment letters from potential lenders.
In addition, the Special Committee determined that it would be willing to
approve the Company's payment of all reasonable transaction expenses incurred by
Martin exceeding $100,000, in the event the transaction is not consummated for
any reason, if (i) the Board received copies of written commitment letters from
Martin's lenders such that the Board would be better able to determine the risk
of the transaction not closing, (ii) the Board received a more definitive
schedule than had been previously provided to the Board showing the expenses
that would be borne by the Company if the transaction does not close, and (iii)
the Board retained the right to negotiate directly any of such expenses with the
third parties expected to seek payment therefor. Following this determination by
the Special Committee, the full Board convened by telephone, and the Special
Committee, together with its advisors, summarized the current status of
negotiations for the Board. The Board informally approved the Special
Committee's proposed resolution of the expenses issue. The Special Committee
then telephoned Martin to convey this latest proposal on expenses, which Martin
accepted.
On October 24, 1997, Martin forwarded to BBS and the Special Committee
copies of the commitment letters from KCCI and KeyCorp, and the proposal from
RSTW, relating to the financing of the Transaction. Following the review of such
letters and proposal, on October 31, 1997, the Special Committee met with
representatives of BBS and discussed the status of the negotiations, including
obtaining the financing. Immediately following that meeting, on October 31, the
Special Committee met with the full Board of Directors of the Company. At that
meeting, the Special Committee and the Board received a presentation from J.C.
Bradford that, as of the date of such presentation and based upon and subject to
a certain matters stated in such presentation, the Merger Consideration was fair
from a financial point of view to the Public Shareholders. After further
discussion, the Special Committee concluded, based to a significant degree on
the opinion of J.C. Bradford and the other factors described below under
"-- Recommendations of the Special Committee, the Board and Parent," that the
terms of the Merger were fair to, and in the best interest of, the Public
Shareholders and recommended that the Company's Board of Directors (i) approve
and adopt the Merger Agreement in the form presented to the Special Committee;
(ii) determine that the Merger is fair to and in the best interest of the Public
Shareholders; and (iii) recommend that the Shareholders approve the Merger
Agreement. The Board of Directors took such actions, and each of the Directors
agreed to vote their shares in favor of the Merger, subject to receipt of the
final commitment letter from RSTW relating to the financing. The Board
instructed representatives of BBS to review such letter upon receipt and notify
Mr. Smith as to whether such letter is substantially the same as the RSTW
proposal delivered to the Special Committee on October 24. The Board authorized
Mr. Smith to execute and deliver the Merger Agreement on behalf of the Company
upon such notification from BBS. The form of RSTW letter was received on
November 3, 1997, BBS concluded that it was substantially the same as the
previously delivered proposal, and Mr. Smith executed and delivered the Merger
Agreement on November 3, 1997. Following the taking of such actions, on November
4, 1997, the Company and Parent issued the following joint press release:
PLASTI-LINE SPECIAL COMMITTEE
ACCEPTS $14.50 PER SHARE OFFER AND
ENTERS INTO MERGER AGREEMENT
Knoxville, Tennessee
November 4, 1997
PLASTI-LINE, INC. ("SIGN") announced today that it has entered
into a definitive Agreement and Plan of Merger (the "Merger
Agreement") with PL Holding Corp., PL Acquisition Corp. (a wholly
owned subsidiary of PL Holding Corp.), and James R. Martin, Chairman
of the Board and Chief Executive Officer of Plasti-Line. Mr. Martin,
who beneficially owns approximately 47% of Plasti-Line's outstanding
common stock, formed PL Holding Corp. for the purposes of this
transaction. Certain other members of Plasti-Line's management will
become stockholders of PL Holding Corp., along with Mr. Martin, on or
before closing. The Merger Agreement is expected to result in the
purchase by PL Holding Corp. of the shares of Plasti-Line common stock
not currently owned by Mr. Martin or such management group. At the
time of the merger, PL Acquisition Corp.
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will be merged into Plasti-Line, and Plasti-Line will become a wholly
owned subsidiary of PL Holding Corp.
A special committee of independent directors of the Board of
Plasti-Line has negotiated with Mr. Martin, who acted on behalf of PL
Holding Corp. They have agreed that the merger price for the
Plasti-Line common stock will be $14.50 in cash per share
Negotiations regarding the merger began in July 1997. The merger
is subject to approval of the definitive Merger Agreement by a
majority of the owners of the Plasti-Line shares not owned by Mr.
Martin, the management group or their affiliates. The merger is also
subject to PL Holding Corp. obtaining the financing necessary to pay
the merger price and consummate the other transactions involved in the
merger.
Plasti-Line designs, markets, produces and installs interior and
exterior brand identity and point of purchase marketing products and
systems for retailers and manufacturers.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE, THE BOARD AND PARENT
The Special Committee. The Company's Board of Directors created the
Special Committee, which consists of three of the Company's directors who are
not employed by or affiliated with the Company, Parent, Merger Sub, Martin or
any of their subsidiaries of affiliates (except in their capacity as directors
of the Company), to act solely on behalf of the Public Shareholders for purposes
of negotiating the Merger. The Special Committee retained BBS as its independent
legal counsel and J.C. Bradford as its independent financial advisor, to assist
it in negotiating and determining the fairness of the Merger on behalf of the
Public Shareholders. At a meeting of the Special Committee on October 31, 1997,
the Special Committee approved the Merger price of $14.50 in cash per share.
Also on October 31, 1997, following a presentation by J.C. Bradford to the full
Board of Directors as to its opinion that the offered price of $14.50 per share,
on the terms set forth in the Merger Agreement, was fair to the Public
Shareholders from a financial point of view, the Special Committee concluded the
Merger and the Merger Consideration are fair to, and in the best interests of,
the Public Shareholders and recommended to the Board of Directors that it
approve the Merger Agreement. Based in part on the recommendation of the Special
Committee and considering the written fairness opinion received from J.C.
Bradford, the Board of Directors of the Company (with Martin abstaining):
(i) determined that the Merger is fair to, and in the best interests
of, the Public Shareholders;
(ii) approved and adopted the Merger Agreement and the transactions
contemplated thereby and authorized the execution, delivery and performance
thereof by the Company; and
(iii) resolved to recommend that the shareholders of the Company
approve the Merger Agreement and the transactions contemplated thereby.
The Board of the Directors of the Company believes that the terms of the
Merger Agreement are fair to, and in the best interests of, the Company and the
Public Shareholders. In reaching its conclusion, the Board of Directors of the
Company adopted the recommendation of the Special Committee as set forth below.
See "-- Conflicts of Interest; Certain Relationships."
The Special Committee, in reaching its conclusion that the Merger is fair
to, and in the best interests of, the Public Shareholders, and in determining to
recommend approval of the Merger Agreement and the Merger to the Board of
Directors of the Company, considered a number of factors, including, without
limitation:
1. The oral and written presentations of J.C. Bradford to the Special
Committee and the full Board of Directors of the Company on October 31,
1997, and the written opinion of J.C. Bradford dated November 3, 1997 to
the effect that, as of the date of such opinion and based upon and subject
to certain matters stated in such opinion, the Merger Consideration was
fair, from a financial point of view, to the Public Shareholders. See
"-- Opinion of the Special Committee's Financial Advisor." The opinion of
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<PAGE> 24
J.C. Bradford is attached hereto as Exhibit C. The Special Committee has
accepted the analysis of J.C. Bradford as set forth in its opinion dated
November 3, 1997 and accompanying presentation materials. The shareholders
of the Company are urged to read such opinion carefully in its entirety.
2. The Special Committee's conclusion that the Merger Consideration
represented the highest price that Parent would be willing to pay in
acquiring the Common Stock held by the Public Shareholders. This
determination was the result of the Special Committee's substantial
negotiations with Parent in an attempt to obtain the highest possible
price.
3. The terms of the Merger Agreement, including without limitation,
the amount and form of consideration; the nature of the parties'
representations, warranties, covenants and agreements; and the conditions
to the obligations of Parent and the Company. In this regard, the Special
Committee considered significant the requirement that the Merger Agreement
be approved by a majority of the shares held by the Public Shareholders as
a condition to the Company's obligation to consummate the Merger. The
Special Committee also viewed favorably the fact that the Merger Agreement
contained a limited number of representations and warranties by the Company
and a limited number of conditions to consummation of the Merger, thus
making consummation of the transaction more likely than one in the which
the agreement imposed more significant conditions to consummation. The
Special Committee also considered favorable to its determination the fact
that the Merger Agreement could be terminated without making any payment to
Parent (other than payment for fees and expenses) if the Special Committee
withdrew its recommendation of the Merger Agreement or the Merger.
4. The possibility that, in the absence of a Merger Agreement, Parent
could increase its ownership of the Common Stock in a transaction not
approved by the Company or the Special Committee.
5. The fact that the Merger Consideration represented (i) a 36.5%
premium over the last reported sales price ($10.625) of the Common Stock on
July 29, 1997, the day immediately preceding the public announcement of
negotiations between Parent and the Company with respect to a possible
merger of the Company with a subsidiary of Parent; (ii) a 36.5% premium
over the last reported sales price ($10.625) of the Common Stock on July
22, 1997, the day one week preceding the announcement of the negotiations;
and (iii) a 75.8% premium over the last reported sales price ($8.25) of the
Common Stock on July 24, 1996, the last day that the Common Stock traded
one year prior to the announcement of the negotiations. The Special
Committee also noted that the Merger Consideration represented a 20.8%
premium over the last reported sales price ($12.00) of the Common Stock on
November 3, 1997, the last business day immediately preceding the
announcement of the $14.50 price agreed to by the Special Committee and
Parent.
6. The Special Committee's knowledge of the business, financial
condition, results of operations and prospects of the Company. The members
of the Special Committee were generally familiar with and knowledgeable
about the Company's affairs, including the present and possible future
economic and competitive environment in which the Company operates its sign
design and production business. The Special Committee also noted that the
Company's status as a publicly held company imposed additional regulatory
burdens and expenses on the Company, as well as potential liability
associated with public disclosure requirements applicable to publicly held
companies generally.
7. The historical trading prices of the Common Stock and the limited
trading volume and market for the Common Stock, resulting in limited
liquidity for the Public Shareholders. Also, the Board considered that
Martin had indicated that he had no interest in selling his shares of
Common Stock to a third party, and that, since the public announcement of
Martin's offer on July 30, 1997, no third party had expressed any interest
in acquiring, or making an offer to acquire, the Company. The Board also
considered the periodic past failures of the Company to meet forecasted
financial goals.
8. The requirement of the Merger Agreement that the Company terminate
its listing on the Nasdaq National Market effective one business day prior
the Effective Time, so that dissenters' rights will be available to the
Public Shareholders who do not vote in favor of the Merger Agreement and
who perfect such rights under the applicable provisions of the TBCA. See
"DISSENTERS' RIGHTS."
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<PAGE> 25
In view of the number and disparate nature of the factors considered by the
Special Committee, the Special Committee did not assign relative weights to the
factors considered in reaching its conclusions. The Special Committee did,
however, rely significantly on the presentations and opinion of J.C. Bradford
described in paragraph 1 above.
The members of the Special Committee (as well as the other directors of the
Company) are indemnified by the Company under the Company's Charter and the
applicable provisions of the TBCA, and are exculpated from certain liabilities
under the Company's Charter, with respect to their actions in connection with
the Merger. The members of the Special Committee are also covered by directors
liability insurance maintained by the Company. As compensation for service on
the Special Committee, each member of the Special Committee will receive from
the Company $300 for each meeting of the Special Committee attended by such
member. Such compensation is in addition to the compensation payable to all
directors of the Company, including the directors comprising the Special
Committee.
The Board of Directors. The Board of Directors of the Company (with Martin
abstaining) has concluded that the Merger and the Merger Consideration are fair
to the Public Shareholders and recommends that the shareholders vote in favor of
the Merger Agreement based upon the following factors: (i) the conclusions of
the Special Committee; (ii) the opinion of the Special Committee's financial
advisor, J.C. Bradford, to the effect that the $14.50 per share of Common Stock
to be received in the Merger is fair from a financial point of view to the
Public Shareholders; and (iii) the factors referred to above as having been
taken into account by the Special Committee. In view of the wide variety of
factors considered in connection with its evaluation of the Merger and the
Merger Consideration, the Board of Directors did not find it practicable to
assign relative weights to the factors considered in reaching its decision and,
therefore, the Board of Directors did not quantify or otherwise attach relative
weights to the specific factors considered by the Board.
In its analysis, the Board of Directors recognized that the interests of
Parent and the Management Group in the Merger are not the same as the interests
of the other holders of Common Stock in the Merger. As a result of such
differing interests, the Special Committee recognized the importance of seeking
the approval of the majority of Voting Shares held by the Public Shareholders,
and the Board of Directors considered this an important element in approving the
Merger Agreement. See "-- Conflicts of Interest; Certain Relationships" and
"-- Opinion of the Special Committee's Financial Advisor."
Parent. The Board of Directors of Parent has concluded that the Merger and
the Merger Consideration are fair to the Public Shareholders and to the
shareholders of Parent based upon the following factors: (i) the conclusions and
recommendations of the Special Committee and the Company's Board of Directors;
(ii) the fact that the Merger Consideration and the other terms and conditions
of the Merger Agreement were the result of arms' length good faith negotiations
between the Special Committee and its advisors and the representatives of Parent
and its advisors; (iii) the fact that J. C. Bradford issued a fairness opinion
to the Special Committee to the effect that the Merger is fair from a financial
point of view to the Public Shareholders; and (iv) the other factors referred to
above as having been taken into account by the Special Committee and the
Company's Board of Directors. See "-- Background of the Merger."
In view of the wide variety of factors considered in connection with its
evaluation of the Merger and the Merger Consideration, Parent's Board of
Directors did not find it practicable to assign relative weights to the factors
considered in reaching its decision and, therefore, the members of such Board
did not quantify or otherwise attach relative weights to the specific factors
considered by the Special Committee and the Company's Board of Directors. See
"-- Conflicts of Interest; Certain Relationships."
Parent engaged Blair to provide advice regarding, and to assist Parent in
negotiating, the Merger Agreement, and to assist Parent in obtaining the
financing necessary to consummate the transactions contemplated by the Merger
Agreement and the Shareholder Agreements. Blair was not engaged to, and did not,
render any opinion as to the fairness of the Merger Consideration. If the Merger
is consummated, Blair will be paid a fee of $1.05 million. In addition, if
Parent obtains equity and debt financing upon terms at least as favorable as
those agreed upon by Parent and Blair in the engagement agreement, Blair will be
paid an additional fee of $250,000. Regardless of whether the Merger is
consummated, Blair will be reimbursed for all
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<PAGE> 26
out-of-pocket expenses. All amounts owed to Blair will be paid by the Company
pursuant to its agreement to pay all expenses of the transaction.
OPINION OF THE SPECIAL COMMITTEE'S FINANCIAL ADVISOR
J.C. Bradford was retained by the Special Committee to deliver its opinion
regarding whether the Merger Consideration was, as of the date of such opinion,
fair to the Public Shareholders from a financial point of view. J.C. Bradford is
a nationally recognized investment banking firm that engages in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwriting, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. J.C. Bradford was selected as the Special Committee's financial
advisor based upon such expertise.
On October 31, 1997, J.C. Bradford delivered its oral opinion to the
Special Committee to the effect that, as of such date, the Merger Consideration
was fair to the Public Shareholders from a financial point of view. J.C.
Bradford subsequently confirmed its oral opinion by delivery of its written
opinion dated November 3, 1997. That opinion was reaffirmed as of the date of
this Proxy Statement. J.C. Bradford's opinion is directed only to the fairness
from a financial point of view of the Merger Consideration to be received by the
Public Shareholders in the Merger and does not constitute a recommendation to
any shareholder as to how such Shareholder should vote. J.C. Bradford conducted
valuation analyses of the Common Stock and evaluated the Merger Consideration,
but was not asked to and did not recommend a specific per share price to be paid
by Parent for the Common Stock. J.C. Bradford's opinion does not address the
likely tax consequences of the Merger to any Public Shareholder. In addition,
J.C. Bradford was not asked to consider and its opinion does not address the
relative merits of the proposed Merger as compared to any alternative business
strategies that might exist for the Company or the effect of any other
transactions in which the Company might engage. J.C. Bradford did not make an
independent evaluation or appraisal of the assets and liabilities of the Company
or any of its subsidiaries or affiliates. The summary of the opinion of J.C.
Bradford set forth in this Proxy Statement is qualified in its entirety by
reference to the full text of such opinion. The full text of J.C. Bradford's
written opinion, which sets forth the assumptions made, procedures followed,
matters considered and limits of its review undertaken in connection with the
opinion, is included as Exhibit C and is incorporated by reference herein.
Shareholders are urged to and should read such opinion in its entirety.
A copy of the full text of the written materials used in connection with
J.C. Bradford's October 31, 1997 presentation has been filed as an exhibit to
the Schedule 13E-3 filed with the Commission with respect to the Merger (the
"Schedule 13E-3"), may be inspected and copied, and obtained by mail, from the
Commission as set forth in "Available Information," and will be made available
for inspection and copying at the principal executive offices of the Company
during regular business hours by any interested Shareholder of the Company or
his or her representative who has been so designated in writing.
In conducting its analysis and arriving at its opinions, J.C. Bradford
considered such financial and other information as it deemed appropriate and
feasible under the circumstances including, among other things, (i) the Merger
Agreement, (ii) the historical and current financial position and results of
operations of the Company, (iii) certain internal financial analyses and
forecasts of the Company for the fiscal years beginning January 1, 1997 and
ending December 31, 2002, prepared for the Company by its senior management;
(iv) certain financial and securities data of certain other companies, the
securities of which are publicly traded and that J.C. Bradford believed to be
comparable to the Company; (v) prices and premiums paid in certain other
acquisitions and transactions that J.C. Bradford believed to be relevant; (vi)
historical and current price and trading activity for the Common Stock; and
(vii) such other financial studies, analyses and investigations as J.C. Bradford
deemed appropriate for purposes of its opinion. J.C. Bradford also held
discussions with members of the senior management of the Company regarding the
past and current business operations, financial condition, and future prospects
of the Company. In addition, J.C. Bradford took into account its assessment of
general economic, market and financial conditions and its experience in other
transactions as well as its experience in securities valuation and its knowledge
of the industries in which the Company operates generally. With the permission
of the Special Committee, J.C. Bradford assumed that financing for the Merger
had been irrevocably obtained on terms reviewed by J.C. Bradford, prior to the
date of its opinion, in commitment letters from lenders, and that the Merger
Agreement had been executed and delivered by the
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<PAGE> 27
parties thereto, prior to the date of its opinion, on terms substantially
similar to those contained in the most recent draft thereof supplied to and
reviewed by J.C. Bradford.
J.C. Bradford's opinion is necessarily based upon general economic, market,
financial and other conditions as they existed on the date thereof and the
information made available to J.C. Bradford and conditions as they existed and
could be evaluated on the date thereof. For purposes of the opinion, J.C.
Bradford relied upon the accuracy and completeness of all the financial and
other information received by it and did not assume responsibility for, nor
undertake an independent verification of, such information. J.C. Bradford
assumed that the internal operating data and financial analyses and forecasts
provided by the Company had a reasonable basis and reflected the best currently
available estimates and judgments of the Company's senior management as to the
recent and likely future performance of the Company. J.C. Bradford relied upon
the assurances of the Company's management that they were not aware of any
information or fact that would make the information provided to J.C. Bradford
incomplete or misleading. J.C. Bradford was not authorized by the Special
Committee, the Company or the Parent to solicit, and did not solicit, other
entities for purposes of a possible business combination. No limitations were
imposed by the Special Committee, the Company or the Parent on the scope of J.C.
Bradford's investigation or the procedures to be followed in rendering its
opinion. Events occurring after the date of such opinion could materially affect
the assumptions used in preparing the opinion and J.C. Bradford has no duty or
obligation to update or amend its opinion, or otherwise advise the special
Committee or any other party or person, of the occurrence of any such events.
In preparing its report to the Special Committee, J.C. Bradford performed a
variety of financial and comparative analyses and considered a variety of
factors, including (i) comparable company analysis; (ii) discounted cash flow
analysis; (iii) leveraged buyout analysis; (iv) premium analysis; and (v) stock
trading analysis. The summary of J.C. Bradford's analyses set forth below does
not purport to be a complete description of the analyses underlying J.C.
Bradford's opinion. The preparation of a fairness opinion is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analysis or summary description. In arriving at its opinion, J.C. Bradford did
not attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, J.C. Bradford believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
the factors considered by it, without considering all analyses and factors,
could create a misleading or incomplete view of the processes underlying such
analyses and its opinion. With respect to the comparable company analysis and
acquisitions premium analysis summarized below, no company or single acquisition
utilized as a comparison is identical to the Company or the Merger and such
analyses necessarily involve complex considerations and judgments concerning the
differences in financial and operating characteristics of the companies and
other factors that could affect the acquisition or public trading values of the
companies concerned. In performing its analyses, J.C. Bradford made numerous
assumptions with respect to industry performance, general business, economic,
market, and financial conditions, and other matters. The analyses performed by
J.C. Bradford are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses. Because such analyses are inherently subject to uncertainty, being
based upon numerous factors or events beyond the control of the parties or their
respective advisors, none of the Company, Parent, J.C. Bradford or any other
person assumes responsibility if future results are materially different from
those forecast.
The following is a summary of the report presented by J.C. Bradford to the
Special Committee on October 31, 1997:
(a) Comparable Company Analysis. Using publicly available
information, J.C. Bradford reviewed selected financial data, including
revenues, historical and projected earnings and earnings before interest,
depreciation, and taxes ("EBITDA") for several publicly traded companies
engaged in businesses with characteristics similar to the Company's
including one signage-related manufacturing company (the "Comparable
Company Group"). J.C. Bradford calculated the current market price of each
company as a multiple of estimated 1997 earnings ("1997 P/E"), which ranged
from 12.6x to 19.8x; current market price as a multiple of estimated 1998
earnings ("1998 P/E"), which ranged from 9.6x to 16.7x; current market
price as a multiple of book value ("Book Value Multiple"), which ranged,
excluding the high and
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<PAGE> 28
the low, from 0.8x to 3.8x; total firm value (defined as equity market
value plus net debt) as a multiple of last twelve months ("LTM") revenues
("Revenue Multiple"), which ranged, excluding the high and the low, from
0.4x to 1.3x; and total firm value as a multiple of LTM EBITDA ("EBITDA
Multiple"), which ranged, excluding the high and the low, from 4.7x to
16.1x. J.C. Bradford compared the Comparable Company Group multiples to the
corresponding multiples in the Merger, including 11.7x 1997 P/E, 10.7x 1998
P/E, 2.0x Book Value Multiple, 0.5x Revenue Multiple, and 6.7x EBITDA
Multiple.
(b) Discounted Cash Flow Analysis. Using discounted cash flow
analysis, based on information obtained from the senior management of the
Company, J.C. Bradford discounted to present value the future cash flows
that the Company is projected to generate through 2002, under various
circumstances, assuming the Company performed in accordance with the
earnings forecast of management. J.C. Bradford calculated terminal values
for the Company (i.e., the values at the 2002 year-end) by applying
multiples of EBITDA and earnings in the year 2002. The cash flow streams
and terminal values were then discounted to present values using different
discount rates chosen to reflect different assumptions regarding the
Company's cost of capital and the periodic, past failures of the Company to
meet forecasted financial goals. Based on the above described analysis, the
implied value per share ranged from $7.49 to $19.26 as compared to the
closing stock price of the Common Stock on July 29, 1997 (the date before
the public announcement of the proposed Merger) ($10.625) and to the value
to be received per share in the Merger ($14.50).
(c) Leveraged Buyout Analysis. J.C. Bradford utilized the projections
provided by senior management to analyze the value of the Company as a
stand alone entity in a leveraged transaction. Based on the structure of
the proposed recapitalization and the proposed offer of $14.50 per share of
Common Stock in the Merger, J.C. Bradford calculated the five-year internal
rates of return ("IRRs") to the subordinated debt holders and the equity
investors, and analyzed the total indebtedness to be incurred as a result
of the transaction. J.C. Bradford calculated terminal values for the
Company (i.e., the values at the 2002 year end) by applying multiples of
EBITDA in the year 2002. J.C. Bradford noted that, based on the foregoing,
the subordinated debt holders are projected to achieve an IRR of between
19.8% and 27.9% over the five-year period, and that the equity investors
are projected to achieve an IRR of between 26.0% and 50.8% over the
five-year period. J.C. Bradford also noted that upon completion of the
transaction, the Company's total indebtedness to LTM EBITDA ratio will be
approximately 5.8x. Based upon its experience in leveraged transactions,
J.C. Bradford noted that these return levels are consistent with those
required in such transactions.
(d) Premium Analysis. For the time period occurring since January
1995, J.C. Bradford prepared an analysis of the premiums paid in 305
completed cash acquisitions of public companies where 100% of the target's
shares were controlled by the acquiror following the acquisition. J.C.
Bradford considered, among other factors, the type of consideration used in
the acquisition and the premiums paid based on the closing price of the
target's shares at one day, one week and four weeks prior to the
announcement of such acquisition. For all cash acquisitions where 100% of
the target's shares were controlled by the acquiror following the
acquisition, J.C. Bradford calculated the low premiums for the middle
quartiles of 11.6%, 15.7% and 18.9% at one day, one week, and four weeks
prior to the announcement, respectively. These premiums, based upon the
announcement date of July 30, 1997, imply per share equity values for the
Company of $11.86, $12.30, and $12.63, respectively. J.C. Bradford
calculated the high premiums for the middle quartiles of 42.9%, 50.0% and
56.01% at one day, one week and four weeks prior to the announcement,
respectively. These premiums, based upon the announcement date of July 30,
1997, imply per share equity values for the Company of $15.18, $15.94 and
$16.57, respectively.
(e) Stock Trading Analysis. J.C. Bradford reviewed and analyzed the
historical trading volume and prices at which the Common Stock has traded
since January 1, 1996. J.C. Bradford noted that trading activity was
limited and that the trading market was relatively illiquid. J.C. Bradford
also noted that the highest traded price was $14.50, which occurred in
October 1996, and the lowest traded price was $6.50, which occurred in
February 1996.
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<PAGE> 29
Pursuant to the terms of an engagement letter dated August 25, 1997, the
Company agreed to pay J.C. Bradford a non-refundable retainer of $50,000 and
$175,000 at the time of delivery of its opinion. The fees payable to J.C.
Bradford were not contingent upon the consummation of the Merger. In addition,
the Company has agreed to reimburse J.C. Bradford for its reasonable and direct
out-of-pocket expenses, including the fees and disbursements of its counsel and
to indemnify J.C. Bradford and certain related persons against certain
liabilities relating to or arising out of its engagement, including certain
liabilities under the federal securities laws. In the ordinary course of its
business, J.C. Bradford has traded, and may in the future trade, securities of
the Company for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
PURPOSE AND STRUCTURE OF THE MERGER; CERTAIN EFFECTS OF THE MERGER
The Company was initially founded in 1944 as a privately owned company. In
1980, Martin and other officers acquired the business presently conducted by the
Company in a leveraged buy-out and, in 1986, the Company conducted an initial
public offering. Following such public offering, Martin was the Company's
largest shareholder and, as of the Record Date, he continued to be the largest
shareholder, beneficially owning approximately 47% of the Common Stock.
Throughout the Company's history as a publicly held entity, the Board of
Directors has believed that a key component to the Company's success was to
maximize shareholder value. In connection with this goal, it is believed that
the Merger will enable the Company's shareholders to achieve such objective.
The Merger has been structured so as to enable Parent to acquire the entire
equity interest in the Company not already beneficially owned by Parent
(pursuant to the Shareholder Agreements) while maximizing shareholder value for
the Company's Public Shareholders. The Merger will terminate all equity
interests in the Company of the Company's current shareholders, other than
Parent. Accordingly, the Company's Public Shareholders will share in neither
future earnings and growth of the Company nor the risks associated with
achieving such earnings and growth following the Merger, and the Company's
shareholders who are members of the Management Group will share in such
earnings, growth and risks only indirectly to the extent they continue to own
shares of the common stock of Parent. The Merger will enable the Company's
Public Shareholders to receive a cash payment of $14.50 per share of Common
Stock pursuant to a transaction which has been determined by the Boards of
Directors of the Company and Parent, as discussed above, to be fair to such
Public Shareholders, or to seek dissenters' rights as described under
"DISSENTERS' RIGHTS." The Merger Consideration was the result of arms' length
negotiations between representatives of Parent and the Special Committee and
their respective advisors following a proposal by Parent. See "-- Opinion of the
Special Committee's Financial Advisor." Following the Merger, Parent will be the
sole direct beneficiary of any future earnings and growth of the Company and
will have the ability to benefit from any corporate opportunities that may be
pursued by the Company in the future.
Pursuant to the Merger Agreement, upon consummation of the Merger, Merger
Sub will merge into the Company, with the Company being the Surviving
Corporation. Each outstanding share of Common Stock (except those shares of
Common Stock held by the Company as treasury shares or beneficially owned by
Parent or by shareholders who perfect their dissenters' rights under the TBCA)
will be converted into the right to receive $14.50 in cash, without interest.
Each outstanding share of Common Stock beneficially owned by Parent or held by
the Company as treasury shares will be canceled without consideration. Each
outstanding share of Merger Sub common stock (all of which shares are
beneficially owned by Parent) will be converted into one share of common stock
of the Surviving Corporation.
Pursuant to the TBCA, approval of the Merger Agreement and the transactions
contemplated thereby requires the approval of the Board of Directors of each of
the Company, Parent and Merger Sub, and all of such Boards have granted such
approvals. Also pursuant to the TBCA, approval of the Merger Agreement requires
the affirmative vote of the holders of a majority of the outstanding Voting
Shares. As of the Record Date, the Management Group beneficially owned an
aggregate of 1,835,527 Voting Shares (representing approximately 48.7% of the
Voting Shares outstanding) and has agreed to vote all of such shares in favor of
the Merger Agreement. In addition, the directors of the Company (excluding
Martin) beneficially owned as of the Record Date an aggregate of 321,820 Voting
Shares (representing approximately 8.5% of the Voting
25
<PAGE> 30
Shares outstanding), and they have agreed to vote all of such shares in favor of
the Merger Agreement. As a result, it is assured that the approval required
pursuant to the TBCA will be satisfied. However, pursuant to the Merger
Agreement, approval also requires the affirmative vote of a majority of the
outstanding Voting Shares held by the Public Shareholders. See
"INTRODUCTION -- Voting Rights; Vote Required for Approval."
Holders of Common Stock who do not want to accept the Merger Consideration
of $14.50 per share, who do not vote in favor of (or who abstain from voting on)
the Merger Agreement, and who perfect their dissenters' rights by complying with
the provisions of Chapter 23 of the TBCA, will have the right to receive cash
payment for the "fair value" of their Common Stock. Section 48-23-102 of the
TBCA provides that no dissenters' rights are available with respect to the
merger of a corporation whose securities are "national market system
securities," which includes securities traded on the Nasdaq National Market. The
Common Stock is currently traded on the Nasdaq National Market; however,
pursuant to the Merger Agreement, the Company has agreed to terminate such
listing effective one business day prior to the Effective Time, so that the
Company's shareholders will be entitled to dissenters' rights in connection with
the Merger. Any shareholder contemplating the exercise of dissenters' rights
should carefully review Chapter 23 of the TBCA, particularly the procedural
steps required to perfect dissenters' rights, a description of which is provided
herein under "DISSENTERS' RIGHTS." A shareholder who fails to comply with such
procedural requirements will forfeit such holder's dissenters' rights and, upon
consummation of the Merger, such holder's shares of Common Stock will be
converted into the right to receive the Merger Consideration of $14.50 per share
in cash. See "DISSENTERS' RIGHTS" and Exhibit B -- "Chapter 23 of the Tennessee
Business Corporation Act."
Upon consummation of the Merger, each share of Common Stock, other than
shares held by the Company as treasury shares or beneficially owned by Parent or
by shareholders who perfect their dissenters' rights under the TBCA, will be
converted into the right to receive the Merger Consideration. As a result, the
present holders of the Common Stock, including officers and directors of the
Company who are beneficial owners of Common Stock, will cease to have any direct
ownership interest in the Company. The Company will, as a result of the Merger,
become a wholly owned subsidiary of Parent and there will cease to be any public
market for the Common Stock. Upon such event, the Surviving Corporation is
expected to apply to the Commission for the deregistration of the Common Stock
under the Exchange Act and, upon deregistration, the Company will be relieved of
the obligation to comply with the proxy rules of Regulation 14A under Section 14
of the Exchange Act, and its officers, directors and beneficial owners of more
than 10% of the Common Stock will be relieved of the reporting requirements and
restrictions on insider trading under Section 16 of the Exchange Act. Further,
the Company will no longer be subject to the periodic reporting requirements of
the Exchange Act, and will not be required to file, among other things,
quarterly reports on Form 10-Q and annual reports on Form 10-K. Accordingly,
substantially less information will be required to be made publicly available
about the Company than is currently the case.
Immediately after the Merger, all of the then outstanding Common Stock will
be beneficially owned by Parent. See "-- Purpose and Structure of the Merger;
Certain Effects of the Merger" which describes certain other effects of the
Merger. The Merger will be a taxable transaction to the holders of the Common
Stock who receive Merger Consideration or cash pursuant to the exercise of
dissenters' rights for federal income tax purposes and may be taxable for state,
local, foreign and other tax purposes. See "-- Certain Federal Income Tax
Consequences of the Merger."
PLANS FOR THE COMPANY AFTER THE MERGER
Pursuant to the terms of the Merger Agreement, the sole director of Merger
Sub at the Effective Time of the Merger shall be the sole director of the
Surviving Corporation, and the officers of the Company at the Effective Time
shall be the officers of the Surviving Corporation after the Merger. See
"DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY, PARENT, MERGER SUB AND THE
SURVIVING CORPORATION -- Information Concerning Directors and Executive Officers
of the Surviving Corporation." The Merger Agreement also provides that the
Charter of the Company and the bylaws of the Merger Sub shall remain as the
Charter and bylaws, respectfully, of the Surviving Corporation.
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<PAGE> 31
Except as indicated in this Proxy with respect to the Merger, Parent does
not have any present plan or proposals which relate to or would result in an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving the Company or any of its subsidiaries, a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries or any material change in the Company's capitalization or any other
material changes in the Company's corporate structure or business or the
composition of the Board of Directors or management. Upon consummation of the
Merger, Parent intends to continue to review the Company and its assets,
businesses, operations, properties, policies, corporate structure,
capitalization and management and consider if any changes would be desirable in
light of the circumstances then existing.
CONFLICTS OF INTEREST; CERTAIN RELATIONSHIPS
Ownership of Parent and Merger Sub; Shareholder Agreements. Parent owns
100% of the common stock of Merger Sub, which was organized by Parent solely for
the purpose of enabling Parent to acquire, pursuant to the Merger Agreement, the
entire equity interest in the Company. On the date of this Proxy Statement,
Martin is the sole shareholder of Parent, having paid $100 for one share of
Parent's common stock. However, Parent has entered into a Shareholder Agreement
with each of the members of the Company's management listed below, who
beneficially owns the number of shares of Common Stock indicated below:
<TABLE>
<CAPTION>
NO. OF SHARES OF
COMMON STOCK PERCENTAGE OF COMMON
BENEFICIALLY OWNED AS OF STOCK BENEFICIALLY OWNED
NAME OF MANAGEMENT GROUP MEMBER THE RECORD DATE(1) AS OF THE RECORD DATE(2)
- ------------------------------- ------------------------ ------------------------
<S> <C> <C>
James R. Martin............................. 1,766,169 47.16%
Dennis Alexander............................ 4,250 --
Thomas Alford............................... 1,750 --
Raleigh Bacon............................... 500 --
F. Joseph Brang............................. 13,383 --
Cecilia Calcaterra.......................... 500 --
Edward Davis................................ 875 --
Mark J. Deuschle............................ 23,500 --
Robert Holdsworth........................... 3,500 --
Jay Levyne.................................. 0 --
Doug Malo................................... 0 --
Ralph Price................................. 0 --
Stuart Ries................................. 0 --
Craig F. Rohde.............................. 2,250 --
James Stamps................................ 3,750 --
Thomas Tobin................................ 500 --
Kathryn Coleman Wood........................ 14,600 --
------------ ------
Total............................. 1,835,527 48.66%
============ ======
</TABLE>
- ---------------
(1) Includes options to purchase an aggregate of 52,375 shares of Common Stock
which are immediately exercisable, as follows: Martin -- 25,000;
Alexander -- 2,250; Alford -- 1,750; Bacon -- 500; Calcaterra -- 500;
Davis -- 875; Holdsworth -- 3,500; Rohde -- 1,750; Stamps -- 3,750; and
Tobin -- 500. See "-- Options and Restricted Shares" and "THE MERGER
AGREEMENT -- Options and Restricted Shares."
(2) Percentages less than 1% not shown.
Pursuant to the Shareholder Agreements, the members of the Management Group
who own shares of Common Stock that were issued and outstanding as of the Record
Date have each agreed to transfer to Parent, immediately prior to the Effective
Time, such shares of Common Stock as full or partial consideration for receipt
of shares of Parent's common stock. The members of the Management Group who own
no such issued and outstanding shares of Common Stock, or who own a relatively
small number of such shares of
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<PAGE> 32
Common Stock, will also pay cash or a combination of cash and promissory notes
to complete the consideration owed to Parent. Martin will transfer to Parent
shares of Common Stock beneficially owned by him having an aggregate value of
approximately $22.5 million, in consideration of approximately 75% of Parent's
common stock and approximately $13 million in cash. The other members of the
Management Group will transfer to Parent a combination of Common Stock, cash and
promissory notes having an aggregate value of approximately $1 million, in
consideration of approximately 10% of Parent's common stock. The remaining 15%
of Parent's common stock will be owned by RSTW. See "SOURCES OF FUNDS." At the
Effective Time, Parent will have total equity of approximately $10.5 million.
Each share of Company Common Stock that will be contributed to Parent has been
valued at $14.50 per share, and each share of Parent common stock that will be
issued to the Management Group has been valued at approximately $2.60.
Certain members of the Management Group holds options to purchase shares of
Common Stock which are either already vested or will vest at the Effective Time
pursuant to the terms of the Company's 1991 Incentive Program (the "Incentive
Program"). See "--Options and Restricted Shares" and "THE MERGER
AGREEMENT -- Options and Restricted Shares." Pursuant to the Shareholder
Agreements, each member of the Management Group has agreed not to exercise such
options and instead, pursuant to the terms of the Merger Agreement, each such
person will receive from the Company at the Effective Time an amount of cash for
each option equal to the difference between $14.50 and the applicable option
exercise price. See "THE MERGER AGREEMENT -- Options and Restricted Shares."
Because Martin will be the controlling shareholder of Parent, the
Shareholder Agreement with Martin does not place any restrictions on Martin,
including with respect to subsequent disposition of his shares of Parent stock.
All of the Shareholder Agreements entered into by Parent with the other members
of the Management Group are substantially identical, except for the number of
shares of Common Stock and other consideration that each person will contribute
to Parent and the number of shares of Parent common stock to be acquired by each
person. The Shareholder Agreement with each member of the Management Group other
than Martin grants to Parent customary rights of first refusal and call rights
to purchase such person's shares of Parent stock, and also provides for such
person to be able to put the stock to Parent in certain circumstances.
As a result of the transactions contemplated by the Shareholder Agreements,
at the Effective Time the Management Group will own in the aggregate 85% of
Parent's total issued and outstanding common stock, and Parent will own
approximately 48.7% of the total issued and outstanding Common Stock. At the
Effective Time, Martin will own approximately 75% of Parent's issued and
outstanding common stock, and the other members of the Management Group will
own, in the aggregate, approximately 10%. Following the Merger, the Management
Group will continue to share in the future earnings and growth of the Company,
and the risks associated with achieving such earnings and growth, indirectly to
the extent they continue to own shares of Parent's common stock.
Options and Restricted Shares. As of the date hereof, Martin owns options
to purchase 25,000 shares of common Stock issuable pursuant to options that are
immediately exercisable. Certain other members of the Management Group own in
the aggregate options to purchase 27,375 shares of Common Stock issuable
pursuant to options that are immediately exercisable, and options to purchase
45,625 shares of Common Stock pursuant to options that are not currently
exercisable but that will be vested immediately prior to the Effective Time
pursuant to the terms of the Incentive Program. Pursuant to the terms of the
Merger Agreement, each such person will receive from the Company at the
Effective Time an amount of cash for each option equal to the difference between
$14.50 and the applicable option exercise price. See "THE MERGER
AGREEMENT -- Options and Restricted Shares."
Also, as of the date hereof, three members of the Management Group own
shares of Common Stock issued as restricted stock awards pursuant to the
Incentive Program. Mr. Brang owns 8,383 shares of such restricted stock, Mr.
Deuschle owns 9,000 shares, and Ms. Wood owns 8,100 shares. Pursuant to the
terms of the Incentive Program and the applicable restricted stock award
agreements, it is expected that such shares will vest fully at or before the
Effective Time.
Indemnification of Directors and Officers. Parent has agreed that all
rights to indemnification arising at or prior to the effectiveness of the Merger
in favor of the directors or officers of the Company (including the
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<PAGE> 33
members of the Special Committee) as provided in the Company's Charter and
bylaws, as in effect on the date of the Merger Agreement, and in contractual
indemnification agreements and director and officer liability insurance
currently in effect and covering directors and officers of the Company, will,
for a period of six years survive the Merger and continue in full force and
effect. See "THE MERGER AGREEMENT -- Covenants."
Fees to Members of the Special Committee. As compensation for service on
the Special Committee, each member of the Special Committee will receive from
the Company $300 for each meeting of the Special Committee attended by such
member. Such compensation is in addition to the compensation payable to all
directors of the Company, including the directors comprising the Special
Committee.
Other. The Company pays service charges to First American National Bank of
Knoxville, Tennessee, which is a subsidiary of First American Corporation, of
which Mr. Smith and Martin are directors. In fiscal 1996, the Company paid
approximately $22,000 in service charges, and for the first nine months of 1997
the Company paid approximately $5,700.
Also, beginning in May 1997, the Company engaged Donald F. Johnstone, a
member of the Company's Board of Directors, to provide consulting services
relating to the Company's strategic marketing issues. Mr. Johnstone performs the
services on an as-requested basis at the rate of $2,000 per day and, since May
1997, Mr. Johnstone has earned approximately $60,000 for such services.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
In the opinion of Alston & Bird, tax counsel to the Company, the Merger
will be treated as a sale of the Common Stock by the Public Shareholders and
will be a taxable event for federal income tax purposes under the Code. In
addition, in the opinion of such tax counsel, a shareholder will recognize a
gain or loss equal to the difference between the tax basis for the Common Stock
held by such shareholder and the amount of cash received in exchange therefor,
and such gain or loss will be a capital gain or loss if the shares of Common
Stock are capital assets in the hands of the shareholder. The complete text of
the tax opinion of Alston & Bird is attached hereto as Exhibit D (the "Tax
Opinion").
The shareholders of the Company should be aware that the recently enacted
Taxpayer Relief Act of 1997 (the "1997 Act") contains significant changes to the
taxation of capital gains of individuals, trusts and estates. For gains realized
after July 28, 1997, and subject to certain exceptions, the maximum rate of tax
on net capital gains on individuals, trusts and estates from the sale or
exchange of assets held for more than 18 months has been reduced to 20% (as
compared with a maximum rate of 39.6% on ordinary income). For 15% bracket
taxpayers, the maximum rate on net capital gains is reduced to 10%. The maximum
rate of capital gains tax for capital assets held more than one year but not
more than 18 months remains at 28%. The taxation of capital gains of
corporations was not changed by the 1997 Act and, therefore, corporations
generally are subject to tax at a maximum rate of 35% on both capital gains and
ordinary income. The distinction between capital gain and ordinary income may be
relevant for certain other purposes, including the taxpayer's ability to utilize
capital loss carryovers to offset any gain recognized.
The foregoing discussion is based on current law. The foregoing discussion
does not purport to consider all aspects of U.S. federal income taxation that
may be relevant to particular shareholders, some of whom may be subject to
special rules not discussed (e.g., tax-exempt entities), and the foregoing
discussion may not be applicable to shareholders who acquired their Common Stock
pursuant to the exercise of options or other compensation arrangements or who
are not citizens or residents of the U.S. In addition, neither the Tax Opinion
nor the foregoing discussion considers the effect of any applicable foreign,
state, local or other tax laws.
The Tax Opinion is based on current law, certain assumptions set forth
therein, certain representations from the Company and certain other information,
data, documentation and materials. Neither this description nor the Tax Opinion
is binding on the IRS and no ruling from the IRS has been sought or will be
sought with respect to such tax consequences.
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<PAGE> 34
THE TAX OPINION AND FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER IS BASED ON EXISTING TAX LAW AS OF THE DATE OF THIS
PROXY STATEMENT, WHICH MAY DIFFER ON THE DATE OF THE CONSUMMATION OF THE MERGER
OR AT THE EFFECTIVE TIME. EACH SHAREHOLDER IS URGED TO CONSULT SUCH
SHAREHOLDER'S OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO
SUCH SHAREHOLDER OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for as a recapitalization under generally
accepted accounting principles for accounting and financial reporting purposes.
Accordingly, the historical basis of the Company's assets and liabilities will
not be impacted by the transaction.
CERTAIN LITIGATION
The Company is party to various legal and administrative proceedings, all
of which management believes constitute ordinary routine litigation incident to
the business conducted by the Company, or are not material in amount.
REGULATORY APPROVALS
No federal or state regulatory approvals are required to be obtained, nor
any regulatory requirements complied with, in connection with consummation of
the Merger by any party to the Merger Agreement, except for the requirements of
the TBCA in connection with shareholder approvals and consummation of the
Merger, and the requirements of federal securities law.
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<PAGE> 35
THE MERGER AGREEMENT
GENERAL
The Merger Agreement provides for the merger of Merger Sub into the
Company. The Company will be the Surviving Corporation of the Merger and, as a
result of the Merger, Parent will own all of the Surviving Corporation's common
stock. In the Merger, the shareholders of the Company will receive the Merger
Consideration described below. See "SPECIAL FACTORS -- Purpose and Structure of
the Merger; Certain Effects of the Merger."
EFFECTIVE TIME OF THE MERGER
The Effective Time of the Merger will occur upon the filing of a
certificate of merger with the Secretary of State of the State of Tennessee as
required by the TBCA or at such later time as is agreed by the parties to the
Merger Agreement and specified in the certificate of merger. It is anticipated
that the certificate of merger will be filed as promptly as practicable after
approval of the Merger Agreement by the Public Shareholders of the Company at
the Special Meeting. Such filing will be made, however, only upon satisfaction
or waiver of all conditions to the Merger contained in the Merger Agreement. The
following discussion of the Merger Agreement is qualified in its entirety by
reference to the complete text of the Merger Agreement, which is included in
this Proxy Statement as Exhibit A and is incorporated herein by reference.
THE SURVIVING CORPORATION
The Merger Agreement provides that, at the Effective Time, the persons
identified herein under "DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY,
PARENT, MERGER SUB AND THE SURVIVING CORPORATION -- Information Concerning
Directors and Executive Officers of the Surviving Corporation" will become
officers and directors of the Surviving Corporation, and the Surviving
Corporation will adopt as its charter the Charter of the Company and as its
bylaws the bylaws of Merger Sub.
CONSIDERATION TO BE RECEIVED BY SHAREHOLDERS OF THE COMPANY
As a result of the Merger, each outstanding share of Common Stock (except
shares held by the Company as treasury stock or beneficially owned by Parent or
by shareholders who perfect their dissenters' rights under the TBCA) will be
converted into the right to receive the Merger Consideration of $14.50 in cash,
without interest. Each share of Common Stock owned by Parent or held by the
Company as treasury stock will be canceled without consideration.
Each of the outstanding shares of common stock, par value $.001 per share,
of Merger Sub will automatically be converted into one share of common stock,
par value $.001 per share, of the Surviving Corporation.
If the Merger is consummated, instructions with regard to the surrender of
certificates formerly representing shares of Common Stock, together with the
letter of transmittal to be used for that purpose, will be mailed to
shareholders as soon as practicable after the Effective Time. The Paying Agent
(as defined in the Merger Agreement), as soon as practicable following receipt
from a shareholder of a duly executed letter of transmittal, together with
certificates formerly representing Common Stock and any other items required by
the letter of transmittal, shall pay to such shareholder the Merger
Consideration. If payment is to be made to a person other than the person in
whose name the certificate surrendered is registered, it will be a condition of
payment that the certificate so surrendered be properly endorsed or otherwise in
proper form for transfer and that the person requesting such payment pay to the
Paying Agent any transfer or other taxes required by reason of such payment or
establish to the satisfaction of the Paying Agent that such taxes have been paid
or are not applicable.
SHAREHOLDERS SHOULD NOT SUBMIT ANY STOCK CERTIFICATES FOR COMMON STOCK AT
THE PRESENT TIME.
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<PAGE> 36
If the Merger is consummated, after the Effective Time a holder of a
certificate formerly representing Common Stock shall cease to have any rights as
a shareholder of the Company, and such holder's sole right will be to receive
the Merger Consideration to which such holder is entitled, or in the case of a
shareholder exercising dissenters' rights under Chapter 23 of the TBCA, the
"fair value" of such shareholder's shares determined in accordance with the
provisions of the TBCA.
In no event will holders of Common Stock be entitled to receive any
interest on the Merger Consideration to be distributed to them in connection
with the Merger.
Any funds remaining with the Paying Agent twelve months following the
Effective Time shall be delivered to Parent within one week after the end of
such twelve-month period, without further action or request, and any holder who
has not exchanged Common Stock for the Merger Consideration prior to that time
shall thereafter look only to Parent for payment of the Merger Consideration in
respect of such holder's Common Stock. Notwithstanding the foregoing, neither
Parent nor the Surviving Corporation shall be liable to any holder of Common
Stock for any amount paid to a public official pursuant to applicable abandoned
property laws. Any amounts remaining unclaimed by holders of Common Stock two
years after the Effective Time (or such earlier date immediately prior to such
time as such amounts would otherwise escheat to or become property of any
governmental entity) shall, to the extent permitted by applicable law, become
the property of Parent free and clear of any claims or interest of any person
previously entitled thereto.
No transfer of shares outstanding immediately prior to the Effective Time
will be made on the stock transfer books of the Surviving Corporation after the
Effective Time. Certificates formerly representing Common Stock presented to the
Surviving Corporation after the Effective Time will be canceled in exchange for
the Merger Consideration.
OPTIONS AND RESTRICTED SHARES
The Company and Parent have agreed to take all steps necessary such that
each holder of an outstanding exercisable option to purchase Common Stock (an
"Option"), that was granted pursuant to the Incentive Program, shall receive
from Parent an amount in cash determined by multiplying (i) the excess, if any,
of the Merger Consideration over the applicable exercise price per share of the
Option by (ii) the number of shares of Common Stock such holder could have
purchased had such holder exercised such Option in full immediately prior to the
Effective Time, and each such Option shall thereafter be canceled. In addition,
the Company shall take all steps necessary to acquire at the Effective Time for
nominal consideration the restricted shares of Common Stock held by certain
officers of the Company pursuant to restrictive agreements that provided for
vesting of such shares upon the Company's achieving sales of $200 million and
profits of $20 million. See "SPECIAL FACTORS -- Conflicts of Interest; Certain
Relationships."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
Company, Parent and Merger Sub relating to, among other things, the following
matters (which representations and warranties are subject, in certain cases, to
specified exceptions and, generally, apply only to facts and circumstances
existing as of the date of the Merger Agreement): (i) due incorporation,
corporate existence, good standing and similar corporate matters with respect to
each of the Company, Parent and Merger Sub; (ii) corporate power and authority
to enter into, and the valid and binding execution and delivery of, the Merger
Agreement by each such party; (iii) the absence of any governmental
authorization, consent or approval required to consummate the Merger, except as
disclosed; (iv) the Merger Agreement and the Merger not resulting in
contraventions or conflicts with respect to the charter or bylaws and violations
of laws, regulations, judgments, injunctions, orders or decrees relating to the
Company and its subsidiaries, Parent or Merger Sub; and (v) the accuracy of
information supplied by the Company and Parent included in this Proxy Statement
and the Schedule 13E-3.
In addition, Parent has made certain representations and warranties to the
Company relating to the following matters: (i) Parent's having obtained written
commitments from the Lenders, pursuant to which the Lenders have committed to
provide sufficient funds to consummate the transactions contemplated by the
32
<PAGE> 37
Merger Agreement; (ii) the solvency of the Company immediately following the
Effective Time; and (iii) the absence of any investment banking, brokerage,
finder's or other similar fee or commission due by or on behalf of Parent in
connection with the Merger (except for fees payable to Blair, as described under
"SPECIAL FACTORS -- Background of the Merger").
COVENANTS
The Company has agreed in the Merger Agreement that, until consummation of
the Merger, the Company and its subsidiaries will conduct their businesses in
the ordinary course consistent with past practice (except for acts in connection
with the Merger) and will use their best efforts to preserve their business
organization and relationships with third parties and to keep available the
services of their present officers and employees. Without limiting the
generality of the foregoing, the Company has agreed that, without the consent of
Parent, the Company will not, and except for clause (i), will not permit any of
its subsidiaries to: (i) amend its Charter or bylaws; (ii) issue, sell, transfer
or pledge any capital stock or securities convertible into capital stock; (iii)
split, combine or reclassify the Common Stock or any other capital stock; (iv)
declare or pay any dividends; (v) transfer, lease, license, sell, mortgage or
otherwise dispose of or encumber any assets other than in the ordinary course of
business; (vi) redeem or purchase any of its capital stock; (vii) grant any
increase in the compensation payable to any executive officer; (viii) adopt or
amend or otherwise increase, or accelerate the payment or vesting of amounts
payable under, any bonus, profit sharing, compensation, severance, stock option,
stock purchase, insurance, pension, retirement or other employee benefit plan,
arrangement or agreement; (ix) enter into any employment or severance agreement
with or, except in accordance with the Company's existing written policies,
grant any severance pay to, any officer, director or employee; (x) permit any
insurance policy naming it as beneficiary or loss payee to be canceled or
terminated, except in the ordinary course of business and consistent with past
practices; (xi) enter into any contract relating to the purchase of assets other
than in the ordinary course of business and consistent with past practices;
(xii) change any accounting or tax methods except as required by generally
accepted accounting principles or applicable law; (xii) incur or assume
long-term debt or, except in the ordinary course of business, any short-term
debt; (xiv) make loans to or guarantee the obligations of any other person; or
(xv) agree or commit to do any of the foregoing.
The Company has agreed to give Parent and its authorized representatives
full access to the offices, properties, books and records of the Company and its
subsidiaries and will furnish to Parent and its authorized representatives such
financial and operating data and other information as Parent and its authorized
representatives may reasonably request and will instruct the Company's
employees, counsel, financial advisors and auditors to cooperate with Parent in
its investigation of the business of the Company and its subsidiaries.
Each of Parent, Merger Sub, the Company and Martin have agreed to use its
or his best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate the
transactions contemplated by the Merger Agreement. Specifically, and without
limiting the generality of the foregoing, the Company has agreed that it and its
subsidiaries will assist Parent and Merger Sub in obtaining financing necessary
or desirable to complete the transactions contemplated by the Merger Agreement,
including, without limitation, executing on or after the Effective Time such
loan agreements, notes, guarantees, security agreements, certificates or other
documents as may be reasonably requested by Parent, Merger Sub or their lenders.
Notwithstanding Martin's agreement to use his best efforts to consummate the
Merger, the Merger Agreement provides that Martin and the other shareholders of
Parent shall not be required to provide in the aggregate more than $10 million
of equity for Parent.
Parent and the Company have agreed to cooperate (i) in determining whether
any action by or in respect of, or filing with, any governmental body, agency or
official, or authority is required, or any actions, consents, approvals or
waivers are required to be obtained from parties to any material contracts, in
connection with the Merger and the transactions contemplated by the Merger
Agreement and (ii) in seeking any such actions, consents, approvals or waivers
or making any such filings, furnishing information required in connection
therewith or with this Proxy Statement or the Schedule 13E-3 and seeking to
obtain timely any such actions, consents, approvals or waivers.
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<PAGE> 38
Parent and the Company have agreed to consult with each other before
issuing any press release or otherwise making any public statements with respect
to the Merger Agreement and the transactions contemplated thereby.
Parent has agreed that for six years after the Effective Time, Parent will
or will cause the Surviving Corporation to indemnify and hold harmless the
present and former officers and directors of the Company in respect of acts or
omissions occurring at or prior to the Effective Time to the extent provided
under the Company's Charter and bylaws in effect on the date of the Merger
Agreement. Parent has further agreed that for such six years after the Effective
Time, Parent will use all commercially reasonable efforts to provide, or to
cause the Surviving Corporation to provide, officers' and directors' liability
insurance in respect of acts or omissions occurring prior to the Effective Time
covering each such person currently covered by the Company's officers' and
directors' liability insurance policy on terms with respect to coverage and
amount no less favorable than those of such policy in effect on the date of the
Merger Agreement, provided that if such coverage is not obtainable at a cost
less than or equal to two times the amount per annum the Company paid in its
last full fiscal year, Parent will or will cause the Surviving Corporation to
purchase such lesser amount of coverage, on terms as similar in coverage as
practicable to such coverage in effect on the date of the Merger Agreement, as
may be obtained having a cost per annum not to exceed two times the amount per
annum the Company paid in its last full fiscal year.
OTHER POTENTIAL BIDDERS
The Merger Agreement provides that the Company shall, directly or
indirectly, furnish information and access, in each case in response to
unsolicited requests therefor, received prior to or after the date of the Merger
Agreement, to any corporation, partnership, person or other entity or group
pursuant to appropriate confidentiality agreements, and may participate in
discussions and negotiate with any such entity or group concerning any merger,
sale of assets, sale of shares of capital stock or similar transaction involving
the Company or any subsidiary or division of the Company (any such transaction
being referred to herein as a "Competing Transaction"), only if the Special
Committee determines after consultation with counsel that such action is
necessary in light of its fiduciary obligations to the Public Shareholders. In
addition, the Company shall direct its officers and other appropriate personnel
to cooperate with and be reasonably available to consult with any such entity or
group. Except as set forth above, the Company has agreed that it will not
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 or Merger Sub) concerning any merger, sale of assets,
sale of shares of capital stock or similar transaction involving the Company or
any subsidiary or division of the Company.
VOTING OF SHARES
Pursuant to the Merger Agreement, Martin and Parent agreed to vote all
shares of Common Stock beneficially owned by each of them in favor of the Merger
Agreement. In addition, all directors of the Company have agreed with the
Company that they will vote all shares beneficially by each of them in favor of
the Merger Agreement.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of the Company, on the one hand, and Parent and
Merger Sub, on the other hand, to consummate the Merger are subject to the
satisfaction or waiver, at or prior to the Effective Time, of the following
conditions, among others: (i) approval and adoption of the Merger Agreement by
the holders of a majority of the outstanding Voting Shares at the Special
Meeting, (ii) approval and adoption of the Merger Agreement by a majority of the
Voting Shares held by the Public Shareholders; (iii) the absence of any statute,
rule, regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) enacted, issued, promulgated, enforced or
entered prohibiting the consummation of the Merger, (iv) the receipt of all
other required authorizations, consents and approvals of governmental
authorities; (v) the performance of and compliance with, in all material
respects, all agreements and obligations contained in the Merger Agreement and
required to be performed or complied with at or prior to the Effective Time by
34
<PAGE> 39
the respective parties to the Merger Agreement; (vi) the material truth and
correctness of all representations and warranties of the parties to the Merger
Agreement; and (vii) J.C. Bradford shall have reaffirmed in writing its fairness
opinion as of the date of mailing of this Proxy Statement and again at the time
of the Special Meeting and shall not have withdrawn its written fairness
opinion.
The obligations of Parent and Merger Sub to consummate the Merger are
further subject to the satisfaction or waiver of certain conditions including,
among others: (i) there not having occurred any material adverse change in the
business, condition (financial or otherwise) or results of operations of the
Company, and (ii) Parent shall have obtained equity and debt funds necessary to
finance the transactions contemplated by the Merger Agreement.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, notwithstanding approval of the Merger Agreement by
the shareholders of the Company: (i) by mutual written consent of Parent and the
Company (such determination to be made on behalf of the Company by the Special
Committee); (ii) by either Parent or the Company (such determination to be made
on behalf of the Company by the Special Committee) if the Merger has not been
consummated by January 30, 1998, so long as the failure to consummate the Merger
is not the result of the terminating party's having failed to fulfill a covenant
or obligation under the Merger Agreement; (iii) by either Parent or the Company
(such determination to be made on behalf of the Company by the Special
Committee), if there shall be any law or regulation that makes consummation of
the Merger illegal or otherwise prohibited or if any judgment, injunction, order
or decree enjoining Parent or the Company from consummating the Merger is
entered and becomes final and nonappealable; (iv) by either the Company or
Parent if the Merger Agreement fails to receive the requisite vote for approval
by a majority of the Voting Shares held by the Public Shareholders; or (v) by
Parent or the Company if the Board of Directors of the Company or the Special
Committee withdraws, modifies or changes its recommendation of the Merger
Agreement or the Merger in a manner adverse to Parent or Merger Sub or resolves
to do any of the foregoing or the Board of Directors of the Company recommends
to the shareholders of the Company any Competing Transaction or resolves to do
so.
EXPENSES
The Merger Agreement provides that all fees, costs and expenses incurred by
all parties in connection with the Merger Agreement and the transactions
contemplated thereby shall be paid by the Company if the Merger is consummated.
If the Merger is not consummated, Parent shall pay the first $100,000 of its
expenses and the Company shall pay any additional expenses incurred by Parent in
connection with the Merger Agreement and the transactions contemplated thereby,
provided that the Company has retained the right to negotiate directly any of
Parent's expenses with the third parties that must be paid by the Company.
Parent has agreed not to take any action to change the Lenders so as to increase
materially the expenses payable by the Company without the prior consent of the
Company.
AMENDMENTS
The Merger Agreement may not be amended prior to the Effective Time except
by action of the Company, Parent, Merger Sub and Martin set forth in a written
instrument signed on behalf of each of the parties; provided that any such
amendment by the Company must be approved by the Board of Directors of the
Company, acting on the recommendation of the Special Committee. After approval
of the Merger Agreement by the shareholders of the Company at the Special
Meeting and without the further approval of such shareholders, no amendment to
the Merger Agreement may be made which will change (i) the Merger Consideration
or (ii) any of the other terms and conditions of the Merger Agreement if such
change would adversely affect the shareholders of the Company.
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<PAGE> 40
DISSENTERS' RIGHTS
Holders of Common Stock who do not want to accept the Merger Consideration
of $14.50 per share, who do not vote in favor of (or who abstain from voting on)
the Merger Agreement, and who perfect their dissenters' rights by complying with
the provisions of Chapter 23 of the TBCA, will have the right to receive cash
payment for the "fair value" of their Common Stock.
Section 48-23-102 of the TBCA provides that no dissenters' rights are
available with respect to the merger of a corporation whose securities are
"national market system securities," which includes securities traded on the
Nasdaq National Market. The Common Stock is currently traded on the Nasdaq
National Market; however, pursuant to the Merger Agreement, the Company has
agreed to terminate such listing effective one business day prior to the
Effective Time, so that the Company's shareholders will be entitled to
dissenters' rights in connection with the Merger.
In order to be eligible to exercise the right to dissent, a shareholder
must file with the Company a written objection to the Merger, stating that he
intends to dissent if the Merger is effected. Such statement must be filed
before the vote is taken at the Special Meeting, and it must be addressed as
follows: Plasti-Line, Inc., 623 E. Emory Road, Knoxville, Tennessee 37849,
Attention: Corporate Secretary. It is not necessary for a dissenting shareholder
to vote against the Merger to preserve dissenters' rights; however, such rights
will be lost if the shareholder votes in favor of the Merger.
If the Merger is approved, the Company will deliver a written notice to
dissenting shareholders (a "Company Notice") no later than ten days after
approval of the Merger, unless the Merger is terminated and abandoned. The
Company Notice will set forth where the dissenting shareholders' payment demands
must be sent and where and when stock certificates must be deposited. The
Company Notice will also supply a form for dissenting shareholders to use in
demanding payment. A dissenting shareholder must deliver his payment demand to
the Company no later than the date set forth in the Company Notice, which may
not be fewer than one nor more than two months after the written notice is
delivered (the "Demand Period"). Merely abstaining from or voting against the
Merger will not satisfy the two requirements that the shareholder (i) object in
writing to the Merger and (ii) file a written demand for payment within the
Demand Period. Failure of a shareholder to take the required action during the
Demand Period binds such shareholder to the terms of the Merger and precludes
exercise of dissenters' rights.
Within the Demand Period, a dissenting shareholder must submit his stock
certificates representing his shares of Common Stock to the Company in
accordance with the terms of the Company Notice. As soon as practicable after
the Merger is effected, or upon receipt of a dissenting shareholder's payment
demand, whichever is later, the Company shall pay each dissenting shareholder
the fair value of his shares, plus accrued interest.
If a dissenting shareholder believes that the amount paid by the Company is
less than the fair value of this shares or that interest due was incorrectly
calculated, the dissenting shareholder must, within one month after the Company
has made payment to the dissenting shareholder, demand payment of his estimate
of the fair value. If a demand for payment remains unsettled, the Company must
commence a suit in a court having equity jurisdiction located in Knox County,
Tennessee, within two months after receiving the dissenting shareholder's
payment demand. The court shall determine the dissenting shareholder's right to
receive payment or the fair value of his shares or both. The costs and expenses
of such proceedings shall be assessed against the Company unless the court shall
find the actions of a dissenting shareholder who is party to the suit to be
arbitrary, vexatious or not in good faith. If the Company fails to bring such a
suit within such time, it shall pay each dissenting shareholder whose demand
remains unsettled the amount demanded.
Section 48-23-101 of the TBCA provides that the "fair value" of shares
shall be determined immediately before the effectuation of the Merger,
"excluding any appreciation or depreciation of shares in anticipation of such
corporate action." The value so determined could be more or less than the value
of the Merger consideration into which shares of the Common Stock are to be
converted pursuant to the Merger. Any dissenting shareholder who perfects such
holder's rights to be paid for the fair value of such holder's shares
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<PAGE> 41
will recognize taxable gain or loss upon receipt of cash for such shares for
federal income tax purposes. See "SPECIAL FACTORS -- Certain Federal Income Tax
Consequences of the Merger."
Any shareholder contemplating the exercise of dissenters' rights should
carefully review Chapter 23 of the TBCA, a copy of which is included herein as
Exhibit B. A shareholder who fails to comply with all requirements of such
Chapter 23 will forfeit such holder's dissenters' rights and, upon consummation
of the Merger, such holder's shares of Common Stock will be converted into the
right to receive the Merger Consideration of $14.50 per share in cash, without
interest.
IN VIEW OF THE COMPLEXITIES OF CHAPTER 23 OF THE TBCA, THE MATERIAL
PROVISIONS OF WHICH ARE BRIEFLY SUMMARIZED ABOVE, SHAREHOLDERS OF THE COMPANY
WHO CONSIDER PURSUING DISSENTERS' RIGHTS ARE URGED TO CONSULT WITH LEGAL
COUNSEL. THE ABOVE SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO CHAPTER
23 OF THE TBCA, INCLUDED AS EXHIBIT B TO THIS PROXY STATEMENT.
SOURCE OF FUNDS FOR THE MERGER
SOURCE OF FUNDS
The total funds required to pay the Merger Consideration of $14.50 per
share to all Public Shareholders, consummate the other transactions contemplated
by the Merger Agreement, refinance certain of the Company's current
indebtedness, fund the Surviving Corporation's working capital needs after the
Merger, and pay all related fees, costs and expenses is estimated to be
approximately $88 million. Approximately $10.5 million of such funds will be
obtained from the Management Group as equity contributions made to Parent. The
remaining $77.5 million will be obtained by means of borrowings as described
below. All of such equity contributions and borrowings will become effective
immediately prior to or at the Effective Time, and will not become effective if
the Merger is not consummated for any reason. The terms of and the documentation
for the intended borrowings have not yet been finalized and are still being
negotiated. Accordingly, the description below of such borrowings is preliminary
and necessarily incomplete. In any event, the final documentation for such
borrowings might contain terms that are more or less restrictive than currently
contemplated.
Equity Contributions. Parent has entered into a Shareholder Agreement with
each member of the Management Group pursuant to which each such person has
agreed to contribute to Parent, immediately prior to the Effective Time, certain
shares of Common Stock beneficially owned by such person, along with, in some
instances cash and promissory notes payable to Parent. The net aggregate amount
of all such contributions to be made pursuant to all such Shareholder Agreements
is approximately $10.5 million, of which no more than $500,000 will be in the
form of promissory notes. In exchange for such equity contributions to Parent,
the Management Group will receive in the aggregate 85% of Parent's issued and
outstanding common stock. More specificially, Martin will transfer to Parent
shares of Common Stock having an aggregate value (based on $14.50 per share) of
approximately $22.5 million, and he will receive from Parent shares of common
stock representing approximately 75% of Parent's equity and approximately $13
million in cash. The other members of the Management Group will contribute a
combination of Common Stock, cash and promissory notes having an aggregate value
of $1 million and receive in the aggregate common stock representing
approximately 10% of Parent's equity. See "SPECIAL FACTORS -- Conflicts of
Interest; Certain Relationships."
Senior Debt. Merger Sub and the Company have executed a commitment letter
dated October 31, 1997 (the "KCCI Commitment") with Key Corporate Capital, Inc.
("KCCI"), pursuant to which KCCI has committed to provide funding to Parent, the
Company and the Company's subsidiaries in the aggregate amount of up to $57.5
million (the "Senior Debt"), subject to certain conditions. This aggregate
amount may be increased by up to $2 million if the Real Estate Loans are less
than $10 million in the aggregate. See "-- Real Estate Loans" below. KCCI
intends to syndicate the Senior Debt, and will act as syndication agent. At the
Effective Time, the Company will be required to pay KCCI a closing fee based on
the total amount of the Senior Debt. The Company has already made a
nonrefundable payment of approximately half the fee, and
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<PAGE> 42
the balance will be due at the Effective Time. If the Company or Blair provides
institutions that agree to participate in the syndication, the closing fee will
be reduced. In addition, the Company will reimburse KCCI for all reasonable
out-of-pocket expenses incurred by KCCI in connection with the Senior Debt and,
during the term of the Senior Debt, the Company will pay KCCI a monthly agent's
servicing fee.
Other material terms and conditions of the Senior Debt are as follows:
1. Revolving Credit Facility. At the Effective Time, KCCI will make
available to the Company and its subsidiaries, American Sign & Marketing,
Inc. ("American Sign") and Plasti-Line Columbia, Inc. ("Columbia")
(together, the "Subsidiaries"), a $29.5 million revolving credit facility
that will mature 59 months after the Effective Time (the "Revolving Credit
Facility"). In the event that the aggregate principal amount of the Real
Estate Loans (as defined below) is less than $10 million, the amount of the
Revolving Credit Facility will be increased by the lesser of $2 million or
the difference between $10 million and the amount of the Real Estate Loans.
The borrowing availability of the Company and each Subsidiary under the
Revolving Credit Facility will generally be limited to an amount determined
under a formula that takes into account the amount of such company's
accounts receivable, inventories and other factors. The annual interest
rate on the Revolving Credit Facility will be either (i) KCCI's prime rate,
or (ii) LIBOR plus a basis point spread. This spread is subject to
adjustment based upon the Company's achieving (or failing to achieve)
certain financial ratios. Initially, the spread will be 225 basis points
for all but $3 million of the Revolving Credit Facility. On such $3
million, which will be available only for certain acquisitions, the initial
spread will be 300 basis points. The Revolving Credit Facility will be
subject to a 0.5% per annum commitment fee on the average unused portion of
the commitment, which percentage is subject to adjustment in certain
circumstances.
2. Operating Companies Term Loan. At the Effective Time, KCCI will
loan to the Company and the Subsidiaries $20 million in the form of a term
loan, maturing 7 years from the Effective Time (the "Operating Companies
Term Loan"). This loan will amortize in quarterly principal payments, as
indicated below, plus interest:
<TABLE>
<CAPTION>
ANNUAL PAYMENT QUARTERLY PAYMENT
YEAR AMOUNT AMOUNT
- ---- -------------- -----------------
<S> <C> <C>
1...................................................... None None
2...................................................... $ 500,000 $ 125,000
3...................................................... 2,375,000 593,750
4...................................................... 3,250,000 812,500
5...................................................... 4,500,000 1,125,000
6...................................................... 4,500,000 1,125,000
7...................................................... 4,875,000 1,218,750
-----------
Total........................................ $20,000,000
===========
</TABLE>
The annual interest rate on the Operating Companies Term Loan will be
either (i) KCCI's prime rate or (ii) LIBOR plus a basis point spread. This
spread is subject to adjustment based upon the Company's achieving (or
failing to achieve) certain financial ratios and, initially, the spread
will be 275 basis points.
3. IRB Letter of Credit. At the Effective Time, KCCI will provide a
letter of credit for the account of Columbia (the "IRB Letter of Credit")
in connection with certain industrial revenue bonds that Columbia has
issued to finance certain real property developments. The IRB Letter of
Credit will be a direct pay standby letter of credit in the amount of $5
million plus an amount designed to cover a portion of the interest on the
bonds, and it will mature 59 months from the Effective Time. There will be
an annual fee paid in quarterly installments for such IRB Letter of Credit
equal to 275 basis points per annum, subject to adjustment based upon the
Company's achieving (or failing to achieve) certain financial ratios.
4. Parent Term Loan. At the Effective Time, KCCI will loan to Parent
$3 million in the form of a term loan, maturing 2 years from the Effective
Time (the "Parent Term Loan"). This loan will amortize
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<PAGE> 43
in quarterly principal payments of $375,000 each, plus interest. The annual
interest rate on the Parent Term Loan will be either (i) KCCI's prime rate
plus a basis point spread or (ii) LIBOR plus a basis point spread. These
spreads are subject to adjustment based upon Parent's achieving (or failing
to achieve) certain financial ratios and, initially, these spreads will be
50 basis points added to prime rate, and 275 basis points added to LIBOR.
All of the Senior Debt will be secured by a first lien on all tangible and
intangible assets of the Company and the Subsidiaries (including, without
limitation, intellectual property rights and the stock of the Subsidiaries that
is owned by the Company, but not including the real property that secures the
Real Estate Loans). In addition, the Parent Term Loan will be secured by all
tangible and intangible assets of Parent, including, without limitation, the
stock of the Company that is owned by Parent.
KCCI's commitment to fund the Senior Debt is conditioned upon, among other
things, (i) consummation of the Merger no later than January 30, 1998, unless
that date is extended in KCCI's discretion, (ii) the execution of documents
(which will contain financial and other restrictive covenants) satisfactory to
KCCI, and (iii) the contribution by the Management Group of at least $10 million
to Parent.
Real Estate Loans. The Company and American Sign have executed two
commitment letters dated November 3, 1997 (the "KeyCorp Commitments") with
KeyCorp Real Estate Capital Markets, Inc. ("KeyCorp"), pursuant to which KeyCorp
has committed to loan to newly formed subsidiaries of the Company the aggregate
sum of up to $10 million (the "Real Estate Loans") at the Effective Time,
subject to certain conditions. The aggregate amount will be divided into two
term loans, one in the principal amount of up to $6.5 million secured by a
mortgage on the Company's real property located in Knoxville, Tennessee (the
"Knoxville Property"), and one in the principal amount of up to $3.5 million
secured by a mortgage on the Company's real property located in Florence,
Kentucky (the "Florence Property"). The actual amount of each Real Estate Loan
will be the lesser of (i) an amount such that the debt service coverage ratio at
funding is a minimum of 1.25x; or (ii) 75% of the appraised value of the
Knoxville Property and the Florence Property, respectively. Each Real Estate
Loan will bear interest at an annual rate of 300 basis points over the 10-year
U.S. Treasury rate fixed as of the Effective Time. Principal and interest will
be paid in level payments sufficient to amortize each loan in 25 years, subject
to a balloon payment at the end of 10 years equal to the remaining principal
plus accrued interest. The Real Estate Loans may not be prepaid during the first
5 years of their terms; thereafter, they may be prepaid subject to a prepayment
fee equal to the greater of 1% of the original principal amount or a yield
maintenance premium which is a function of changes in the applicable U.S.
Treasury rate. No prepayment fee will apply during the final three months of the
term of each loan.
The Company has paid KeyCorp nonrefundable commitment and application fees,
and the Company will reimburse KeyCorp for any additional out-of-pocket fees in
connection with the Real Estate Loans. The Company will also pay KeyCorp at the
Effective Time an additional fee equal to 0.5% of the principal amount of the
Real Estate Loans actually funded. Before funding the Real Estate Loans, the
Company will form two new subsidiaries and transfer to one such subsidiary title
to the Knoxville Property, and to the other such subsidiary title to the
Florence Property. These subsidiaries will be the borrowers for purposes of the
Real Estate Loans. Each such subsidiary will enter into a lease with the
Company, pursuant to which the Company will lease the Knoxville Property and the
Florence Property, respectively, for 25 years at rental rates that are 5% above
market rents, as determined by an independent appraisal, with increases at least
every 5 years based on the Consumer Price Index.
Subordinated Debt. Parent and the Company have executed a commitment
letter dated November 5, 1997 (the "RSTW Commitment") with RSTW Partners III,
L.P. ("RSTW"), pursuant to which RSTW committed to lend $10 million to Parent
(the "Subordinated Debt") in the form of a senior subordinated loan and a junior
subordinated loan, subject to certain conditions. Material terms and conditions
of the Subordinated Debt are described below.
1. Senior Subordinated Loan. At the Effective Time, RSTW will lend
Parent $6 million. This loan will bear interest at the rate of 12.5% per
annum and will have a term of 8 years. During the first 6 years, interest
only will be payable on a quarterly basis. In years 7 and 8 of the term,
interest payments will continue to be due quarterly and the principal will
be due in eight equal quarterly installments.
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<PAGE> 44
2. Junior Subordinated Loan. At the Effective Time, RSTW will lend
Parent $4 million. This loan will bear interest at the rate of 12.5% per
annum and will have a term of 8 years. Interest will be payable quarterly.
During the first 5 years of the term, Parent will pay accrued interest by
delivering to RSTW notes payable (the "PIK Notes"), and thereafter interest
will be paid in cash. The PIK Notes will be due and payable at the end of
the fifth year of the term; principal payments will be due in equal
quarterly installments of $500,000 each during years 7 and 8.
For the first two years of the term, the Subordinated Debt will be secured
by a subordinated lien on all properties and assets of Parent, the Company and
all of the Company's subsidiaries (other than the real property that secures the
Real Estate Loans), with such position being subordinate to the interests of the
lenders of the Senior Debt.
At the Effective Time, RSTW will receive shares constituting 15% of
Parent's total issued and outstanding common stock. Such warrants will be
exercisable at any time for a term of not less than 10 years, for a nominal
exercise price. The shares will be transferable, and the holder shall have
customary registration rights. In addition, the holder of the shares shall be
entitled to put the shares to Parent upon the occurrence of certain specified
events.
Parent has agreed that RSTW may have two representatives attend and observe
all meetings of Parent's Board of Directors and all committees thereof, until
all Subordinated Debt is repaid or RSTW's equity position is liquidated,
whichever occurs later. RSTW will also have the right, but not the obligation,
to appoint one member of Parent's Board in lieu of one of the representatives
described above. Parent will reimburse RSTW for all out-of-pocket expenses
incurred by such representatives in attending such meetings. It is anticipated
that Parent's Board will consist of not more than eight directors, and Parent
will hold Board meetings no less often than quarterly.
At the Effective Time, upon funding of the Subordinated Debt the Company
will pay RSTW a closing fee equal to 2% of the total amount of the Subordinated
Debt. The Company has also agreed to reimburse RSTW for all reasonable
out-of-pocket expenses incurred by it in connection with the Subordinated Debt,
and the Company has paid to RSTW a deposit against such costs. In the event that
RSTW is willing to consummate the terms of the Commitment Letter but the Company
or any of its related entities finances the Merger or a similar transaction with
any other institution (other than the loans contemplated to be made by KCCI, as
described above) within 180 days from November 5, 1997, the Company shall pay to
RSTW a break-up fee of $500,000.
RSTW's obligations under the RSTW Commitment are conditioned upon, among
other things, the Management Group's having contributed at least $10 million to
Parent, and Messrs. Martin and Deuschle entering into employment and noncompete
agreements with the Company for terms of at least two years each.
40
<PAGE> 45
ESTIMATED FEES AND EXPENSES
Estimated fees, costs and expenses incurred or to be incurred by the
Company, Parent and Merger Sub in connection with the Merger are approximately
as follows:
<TABLE>
<S> <C>
Payment of Merger Consideration(l).......................... $
Advisory fees(2)............................................
Legal fees and expenses(3)..................................
Accounting fees and expenses................................
Securities and Exchange Commission filing fee............... 11,215
Printing and mailing expenses...............................
Paying Agent fees and expenses..............................
Proxy solicitation fees and expenses........................ 7,000
Miscellaneous expenses......................................
-----------
Total............................................. $
===========
</TABLE>
- ---------------
(1) Includes payment for all outstanding shares of Common Stock other than those
that will be owned by Parent at the Effective Time, and includes payments in
settlement of outstanding employee stock options in accordance with the
Merger Agreement.
(2) Includes the fees and estimated expenses of J.C. Bradford and Blair.
(3) Includes the estimated fees and expenses of counsel for the Company, the
Special Committee, Parent and Merger Sub.
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<PAGE> 46
BUSINESS OF THE COMPANY
GENERAL
The Company began operations in 1944. Together with its subsidiaries,
American Sign and Columbia, the Company provides a complete range of retail
communication products and services to customers in the automotive, food
service, petroleum, financial services and other retailing markets. The
Company's expertise is the design, manufacture, installation and maintenance of
exterior, interior and on-premise signage and point-of-purchase products,
integrated by a systematized product management capability. The Company designs,
engineers and manufactures substantially all of its products in Knoxville,
Tennessee; Florence, Kentucky; Columbia, South Carolina; and Fontana,
California.
PRODUCTS
The Company's basic sign product is composed of two rigid plastic faces
that are molded and decorated to reflect the customer's name and logo. These
faces are mounted in a steel or aluminum frame and generally placed on a steel
column to permit visibility. Typically, the signs are internally illuminated to
make them visible at night. The sign faces range in size from two square feet to
245 square feet.
The Company's products are used by its customers primarily for brand
identification of their retail outlets. For high-volume customers in the
automotive, retail and food service markets and, to a lesser extent for
petroleum customers, the Company produces a full package of signs used to
identify a particular retail location with the customer's corporate image that
is known to consumers. A package may consist of many sign elements, including:
(i) road signs decorated with the customer's logo and colors and often built in
a distinctive shape; (ii) high rise signs typically used for locations adjacent
to interstate highways or in high traffic areas; (iii) menuboards with
changeable copy areas and price mechanisms that enable the Company's fast food
customers to change their menus and prices; (iv) signs typically used by
petroleum customers to provide on-site advertising of the prices of various
products; (v) specialty lighting products that provide accent or decorative
lighting, typically at fast food restaurants and gasoline stations; and (vi)
illuminated fascia signage that is mounted on buildings for decoration and
identification. For high-volume customers in the financial services market, in
addition to the basic signage products, the Company focuses on all aspects of
the customer's communication needs, from in-store merchandising kiosks to
creative ATM surround solutions.
The Company concentrates on high-volume, standardized products, but also
produces customized signage as an accommodation to its regular customers. Custom
signs typically require special fabrication techniques and tend to generate
low-volume production runs with longer lead times.
The Company provides at least a one-year limited warranty on all signs for
defects in materials and workmanship, with the Company being obligated to repair
or replace any defective product. In addition to production, the Company offers
a complete spectrum of sign services, including design, site analysis, graphic
analysis, installation and maintenance. Working with the customer or a design
consultant retained by the customer, the Company assists in developing designs
that meet the customer's goals. Upon customer request, the Company coordinates
the sign package with local ordinances and regulatory requirements, assists in
determining where to place the signs for maximum visibility and assists in
obtaining necessary permits and variances. In cases where the Company has a
contract for the installation of a sign, the Company utilizes the services of a
subcontractor in the area in which the sign is to be installed. Maintenance
service, regular cleaning, inspection and replacement of lights and other parts
when needed or on a predetermined schedule are also provided through local
subcontractors.
"Design Performance Group," the Company's retail design and merchandising
services division, offers turnkey retail design solutions with programs that
include market research, graphic and environmental design, production, and
installation.
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<PAGE> 47
CUSTOMERS
The Company, for internal purposes, separates its business by customers
into the following groupings: automotive, food services, financial services,
petroleum, merchandising design and general retail. For its automotive,
financial services, retail and food services customers, the Company typically
provides a full range of products and services, including most or all of those
described above. For the petroleum industry, the Company typically manufactures
signs to the customer's specifications and ships them for installation by the
customer's own subcontractors. Customer commitments vary by market segment and
specific account. Commitments range from multi-year contracts with firm prices
for all products and services, to specific orders for specific quantities at
firm prices. From time to time, the Company is awarded large, one-time contracts
by customers who are changing their name or image. These programs can create
concentrated surges in volume.
Since 1969, the Company's principal customers have been subsidiaries of
General Motors Corporation ("General Motors"). On February 25, 1997, the Company
announced the execution of a new contract for the supply of internally
illuminated outdoor signs for the General Motors dealership sign program, as
well as the administration of the sign program for over 8,000 car dealerships in
the United States. This program accounted for approximately 11% of the Company's
sales in 1996. The Company furnishes all services associated with the
manufacture and installation of signs and replacement parts ordered by General
Motors. The contract is terminable on 30 days' notice by General Motors and is
non-exclusive; however, the term of the contract extends through January 1, 2004
and the Company believes that it is currently the sole supplier for the General
Motors dealership sign program. Signs are supplied for new dealerships, as
replacements of signs at existing dealerships and in connection with moves to
new locations. The Company provides General Motors with a 10-year limited
warranty for defects in materials and workmanship, with the Company being
obligated to repair or replace any defective product. General Motors accounted
for approximately 22% of the Company's net sales in fiscal 1996. The loss of
General Motors as a customer would have a material adverse effect on the Company
if it were unable to compensate promptly for that loss by generating new
business.
In 1996, 11% of the Company's sales were to McDonald's Corporation and its
franchises. The Company is not the sole supplier to this customer.
MARKETING
Products and services are marketed on a direct basis and through sales
representatives throughout the United States. The Company's principal marketing
focus is on companies with many retail outlets requiring substantial numbers of
signs. This type of business enables the Company to maintain economic production
runs and increases the opportunity to provide a full range of services.
Marketing opportunities are generated by the construction of new
facilities, acquisition of existing locations requiring re-identification,
addition of signage at existing locations, design of a new image requiring
re-identification of all facilities and replacement of parts damaged by storms,
vandalism and accidents.
The Company is also investing in improving its research and development
functions in an effort to develop marketing opportunities and better serve
customer needs. This initiative is focused on developing a new generation of
products that are distinctive, customer-focused and add to the Company's total
offering of products.
PRODUCTION AND RAW MATERIALS
Production of the Company's products is a labor intensive process. The
typical sign consists of large acrylic or polycarbonate faces mounted in a metal
frame and internally illuminated. The shapes of the faces are formed using
vacuum or press forming after the face material has been heated. Letters or
logos that are not molded into the faces are either glued or silk-screened on
the faces. During the production process, signs move through the plants on an
overhead monorail system. After the signs are manufactured, they are crated and
shipped from the Company's facilities principally by commercial trucking
companies.
The practice of the Company is to start producing finished goods only after
receipt of a firm order from a customer. However, for customers with long-term
programs, the Company produces finished goods in
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<PAGE> 48
anticipation of customer needs. Credit terms are generally net 30 days from the
date of sale. Occasionally, the Company engages the services of subcontractors
for special manufacturing work to assist during peak production periods.
The Company designs and engineers its products to customer specifications.
The Company's manufacturing operations include machining, welding, plastic
molding and fabrication, painting, assembly and packaging. The principal raw
materials and purchased components used in the Company's manufacturing process
are steel shapes and sheet, aluminum shapes and sheet, electrical components
(wire, sockets, ballasts and lamps) and acrylic and polycarbonate sheets. The
Company does not hold any material patents or trademarks.
COMPETITION
The Company defines its principal market as the volume production sign
industry. Competition varies depending on the market segment and the size of the
project. Larger projects require a more comprehensive service capability which
limits the number of competitors. Smaller, less complex projects attract a
larger number of competitors.
Although no authoritative ranking of the Company's industry is published,
the Company believes that in 1996 it was a leading supplier of volume production
signs and related services in the United States. Most of the Company's
competition is from other suppliers, rather than from other products.
Competition for national accounts, the principal source of the Company's
business, is intense. The Company believes it has adequate financial resources
with which to compete. In general, the Company believes that its products,
contract conditions, terms, and warranty provisions are consistent with those
prevailing in the industry. The Company believes that its principal advantage is
its ability to provide a complete range of products and services to customers on
a competitive basis.
EMPLOYEES
The Company had a total of 1,003 full-time employees as of December 29,
1996, of which approximately 51.8% were employed under union contract.
PRODUCT BACKLOG
At December 29, 1996, booked product orders amounted to approximately $19.0
million as compared with approximately $18.3 million at December 31, 1995.
Products are shipped by the Company against customer delivery schedules, which
generally call for delivery one month after the order is placed. The Company
believes that substantially all of its product backlog at December 29, 1996 will
be shipped before the end of fiscal year 1997. In addition to firm product
backlog, the Company has open commitments from a number of customers to supply
products as required to meet their construction schedules. At the time such a
customer gives the Company a release to ship signs to a particular location, the
Company includes the products covered by the release in backlog and commences
production or ships the items from inventory.
SEASONALITY
The Company's sales in fiscal 1996 exhibited some limited seasonality, with
sales in the first quarter being the lowest and those in the fourth quarter the
highest. First quarter sales tend to be relatively lower because of weather
constraints which slow down customers' construction schedules and their pattern
of sign purchases. Sales normally accelerate in the second, third and fourth
quarters corresponding with accelerating construction schedules.
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<PAGE> 49
SELECTED HISTORICAL FINANCIAL INFORMATION OF THE COMPANY
The following table sets forth selected historical financial information
for the Company and its subsidiaries as of and for the nine months ended
September 29, 1996 and September 28, 1997 and as of and for each of the prior
five fiscal years in the period ended December 29, 1996. The following financial
information should be read in conjunction with "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION" and the Consolidated
Financial Statements and related Notes included elsewhere in this Proxy
Statement. The interim unaudited information for the Company and its
subsidiaries for the nine months ended September 29, 1996 and September 28, 1997
reflect, in the opinion of management of the Company, all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the information provided for such interim periods. The results of operations
of such interim periods are not necessarily indicative of results which may be
expected for any other interim period or the for the year as a whole.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------------------------------------ -----------------------------
JANUARY 3, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 29, SEPTEMBER 29, SEPTEMBER 28,
1993 1994 1995 1995 1996 1996 1997
---------- ---------- ---------- ------------ ------------ ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............ $83,220 $90,362 $77,309 $103,247 $130,876 $96,412 $94,361
Income (loss) before
taxes and
cumulative effect
of accounting
change............. 4,006 4,643 (5,361)(2) 2,202 4,929 3,504 4,675
Income (loss) before
cumulative effect
of accounting
change............. 2,385 2,854 (4,837) 1,397 3,148 2,173 2,805
Cumulative effect of
accounting
change(1).......... (648) -- -- -- -- -- --
Net income (loss).... 1,737 2,854 (4,837) 1,397 3,148 2,173 2,805
Income (loss) per
share before
cumulative effect
of accounting
change............. .65 .77 (1.31) .38 .83 .57 .73
Cumulative effect of
accounting change.. (.18) -- -- -- -- -- --
Net income (loss) per
share.............. $ .47 $ .77 $ (1.31) $ .38 $ .83 $ .57 $ .73
BALANCE SHEET DATA:
Working capital...... $17,554 $18,713 $23,349 $ 33,112 $ 25,753 $28,755 $18,398
Total assets......... 53,424 49,522 51,450 77,150 67,244 69,515 70,576
Long-term debt less
current
maturities......... 7,960 6,536 12,004 23,575 12,220 16,218 8,791
Stockholders'
equity............. 24,084 27,081 22,353 23,891 27,202 26,170 28,178
</TABLE>
- ---------------
(1) In fiscal 1992, the Company adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes.
(2) Includes $3.9 million write-off of goodwill and $2.4 million restructuring
charge.
45
<PAGE> 50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal Year 1996 Compared to Fiscal Year 1995
Total revenue in fiscal year 1996 increased by $27.4 million (26.4%), from
$103.8 million in 1995 to $131.2 million in 1996, due to higher sales volumes
across all business units. Fiscal year 1996 also included twelve months of
revenue for Columbia, whereas fiscal year 1995 included only two months since
Columbia was acquired in the last quarter of 1995. Contributing to the increased
volume were higher sales at "Plasti-Line East," which includes the Company's
Knoxville and Florence locations servicing primarily automotive and fast food
customers, representing a $13.5 million increase over 1995 sales for that
division. In addition, sales increased in 1996 at "Plasti-Line West," the
Company's California operations, by $2.3 million, at the Design Performance
Group by $2.1 million, and at Columbia by $9.5 million. Although the annual
sales for 1996 were higher than for 1995, sales in just the fourth quarter of
1996 were $3.8 million lower than in the fourth quarter of 1995. The primary
reason for this decline is that fourth quarter 1995 sales included $11.3 million
for a major sign re-image that was completed for one of Plasti-Line East's bank
customers.
Income before taxes and interest for 1996 was $6.5 million, as compared to
$3.2 million for 1995. The improvement in income was due to a $4.8 million
increase in gross profit, resulting from the higher sales. Gross profit as a
percentage of sales was relatively flat at 17.5% and 17.6% in 1996 and 1995,
respectively. Partially offsetting the higher gross profit in 1996 was a $1.7
million increase in selling, general and administrative expenses, caused
primarily by the increased volumes. Selling, general and administrative expenses
as a percentage of sales improved from 15.0% in 1995 to 12.8% in 1996, partially
due to the benefits of reduced costs and improved efficiency resulting from the
business re-engineering completed in 1995, as well as increased sales volumes.
Selling, general and administrative expenses in 1995 also included $1.5 million
in costs associated with the Company's business re-engineering initiative, which
was completed in the fourth quarter of 1995. Interest expense of $1.6 million in
1996 was $553,000 higher than in 1995, caused by the higher working capital
needed to support the increased sales volumes.
Fiscal Year 1995 Compared to Fiscal Year 1994
Net sales in 1995 increased by $25.9 million (33.6%) over net sales in 1994
due to higher volumes across all business units. Contributing to the increased
volume were higher sales to automotive and bank customers at Plasti-Line East
(increases of $5.8 million and $7.1 million, respectively), as well as increased
sales at Plasti-Line West ($4.7 million) and the Design Performance Group ($2.9
million). Also, Columbia was acquired in 1995, with net sales of $1.1 million.
Sales for the fourth quarter of 1995 showed a $14.3 million (59.7%) increase
over sales for the same period of 1994, due to an increase in volume at all
locations. Fourth quarter sales included $11.3 million for a major sign re-image
that was completed for one of Plasti-Line East's bank customers.
Income before taxes and interest for 1995 was $3.2 million, as compared to
$1.8 million in 1994 (excluding the goodwill write-off described below and the
provision for restructuring charges). The improvement in income was due to a
$3.6 million increase in gross profit, resulting from higher sales. Partially
offsetting the higher gross profit was a $1.6 million increase in selling,
general and administrative expenses, which was related to the increased volumes.
Selling, general and administrative expenses in each of 1995 and 1994 included
approximately $1.5 million in costs associated with the Company's business
re-engineering initiative, which was completed during the fourth quarter of
1995. Also partially offsetting the favorable impact of the gross profit
improvement was a one-time charge of $483,000 related to the curtailment of a
defined benefit pension plan. This plan, for the benefit of the union employees
of the Knoxville facility, was frozen on December 31, 1995. Future retirement
benefits for this employee group will be earned in a newly established defined
contribution plan. The impact of this curtailment was a one-time non-cash charge
for unrecognized prior service costs that otherwise would have been expensed
over future years.
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<PAGE> 51
During 1994, the Company wrote-off approximately $4.98 million of goodwill
attributed to the Company's acquisition of American Sign in 1986. As a result of
increased competitive pressures, unsuccessful efforts to replace an aging
product line and management turnover, the Company believed that such acquisition
had not achieved the sales and earnings estimated at the time of the purchase.
The Company believed that the projected operating results of American Sign would
not support the future amortization of the remaining goodwill and accordingly
wrote off the unamortized portion of such goodwill .
Interest expense of $1.04 million in 1995 increased by $328,000 from the
prior year. Higher average interest rates, increased borrowings related to the
purchase of the Columbia assets, and higher working capital needs related to
fourth quarter volumes, were responsible for the increase.
Nine Months Ended September 28, 1997 Compared to Nine Months Ended September
29, 1996
Net sales were $94.3 million for the first nine months of 1997, compared to
$96.4 million for the first nine months of 1996. The principal reason for the
decrease was delays in new program start-ups and re-images for automotive and
retail customers, which resulted in lower sales for Plasti-Line West and with
respect to automotive and food service customers throughout the Company.
Cumulative gross profit as a percentage of sales at the end of the third
quarter of 1997 was 18.2%, which was higher than the margin of 17.1% for the
same period in 1996. The margin improvement is due to manufacturing cost
reductions as well as a favorable sales mix.
Selling, general and administrative expenses for the first nine months of
1997 were $12.0 million as compared to $11.7 million for the same period in
1996, an increase of 3.0%. Selling, general and administrative expenses as a
percentage of sales for the first nine months of 1997 were 12.7%, as compared to
12.1% during the same period of 1996. This slight increase in expenses as a
percentage of sales is primarily due to increased spending on new business
development, as well as the costs of implementing the Company's manufacturing
software at Columbia and Plasti-Line West.
Operating income for the first nine months of 1997 was $5.1 million, as
compared to $4.8 million during the same period in 1996, a 6.5% increase. The
increase was due to improved margins.
As a result of the improved margins and decreased interest expense (from
lower working capital), the Company's pre-tax income for the first nine months
of 1997 increased to $4.6 million, from $3.5 million for the first nine months
of 1996, a 33.4% increase.
Net income for the first nine months of 1997 was $2.8 million as compared
to $2.2 million for the first nine months of 1996, a 29.1% increase. Net income
per share was $0.73 for the first nine months of 1997, compared to $0.57 for the
comparable period of the preceding year.
LIQUIDITY AND CAPITAL RESOURCES
Excluding cash and cash equivalents of $4.3 million, the Company had
operating working capital at September 28, 1997 of $14.1 million, a decrease of
$11.6 million from the amount of working capital at December 31, 1996. This
reduction was primarily due to decreases in net receivables and inventories and
an increase in customer deposits.
During the first nine months of 1997, the Company completed the financing
of a new manufacturing facility in Columbia, through the issuance of $5.0
million of industrial revenue bonds. In July 1997, the Company requisitioned
$1.259 million of these bonds to finance the facility's construction, and the
balance of the bonds remains in trust.
The Company's long-term debt includes the following:
Revolving Credit Facility: The Company has available up to $20
million under this line of credit through June 30, 1998. The outstanding
balance was approximately $8.4 million and $0 as of December 31, 1996 and
September 28, 1997, respectively. The annual interest rate varies and was
8.413%
47
<PAGE> 52
and 6.902% as of December 31, 1996 and September 28, 1997, respectively.
The loan is secured by the Company's accounts receivable and inventory.
Knox County, Tennessee Industrial Revenue Bonds: The total
outstanding principal balance as of December 31, 1996 and September 28,
1997 was approximately $4 million and $4 million, respectively. The annual
interest rate on $2.15 million of this balance varies, and was 4.15% and
4.25% at December 31, 1996 and September 28, 1997, respectively. The annual
interest rate on the remaining balance is 7.65%. Interest is payable
quarterly, and $680,000 of principal is payable annually, with a balloon
payment of $2.63 million payable on November 1, 1999. The bonds are
collateralized by the Knoxville, Tennessee real property.
Florence, Kentucky Industrial Revenue Bonds: The total outstanding
principal balance as of December 31, 1996 and September 28, 1997 was
approximately $584,000 and $553,000, respectively. The annual interest rate
varies, and was 7.4% and 7.4% at December 31, 1996 and September 28, 1997,
respectively. Principal payments of $16,250 plus accrued interest are
payable quarterly through December 1, 2005. The bonds are collateralized by
the Florence, Kentucky real property.
Columbia, South Carolina Industrial Revenue Development Bonds: As
discussed above, the Company obtained this financing in July 1997 for the
development of a building on the Columbia, South Carolina property. The
principal balance is $5 million and bears interest at an annual average
coupon rate of 5.96%. Interest is payable semi-annually, and principal
payments will begin in July 2000, with the final payment being due in July
2017. The bonds are secured by the Columbia, South Carolina real property.
Cash flow provided from operations during the first nine months of 1997 was
$16.2 million, resulting primarily from income from operations and working
capital reductions. Investing activities in 1997 have used $2.9 million,
primarily for capital expenditures. Financing activities in 1997 have used $9.0
million, primarily for payments on the Company's line of credit.
The Company's only current plans for capital expenditures, not including
the Merger and the other transactions contemplated by the Merger Agreement.
relate to the acquisition of new machinery, equipment, furniture and fixtures
designed to increase productivity and factory efficiency. The Company believes
its cash generated from operations and the funds available to it under its
existing line of credit and the industrial revenue bonds are sufficient for
these operating and capital requirements.
SEASONALITY
The Company's sales exhibit limited seasonality, with sales in the first
quarter of each fiscal year generally being the lowest and fourth quarter sales
the highest. First quarter sales tend to be relatively lower because of weather
conditions that delay or extend customers' construction schedules and,
therefore, their pattern of sign purchases. Sales have normally accelerated in
the second, third and fourth quarters, corresponding with accelerating
construction schedules.
48
<PAGE> 53
MARKET PRICES FOR THE COMMON STOCK
The Company's Common Stock is listed and traded on the Nasdaq National
Market under the symbol "SIGN." The following table sets forth the high and low
bid price per share of Common Stock, as reported by the Nasdaq National Market
for the fiscal periods indicated:
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ------ ------- -------
<S> <C> <C>
Fiscal 1995
First Quarter............................................. $ 7.000 $ 4.750
Second Quarter............................................ 7.500 5.500
Third Quarter............................................. 9.125 7.000
Fourth Quarter............................................ 8.750 7.750
Fiscal 1996
First Quarter............................................. $ 8.750 $ 6.750
Second Quarter............................................ 9.000 8.000
Third Quarter............................................. 10.000 7.500
Fourth Quarter............................................ 14.500 9.000
Fiscal 1997
First Quarter............................................. $11.500 $ 7.500
Second Quarter............................................ 11.125 8.500
Third Quarter............................................. 13.750 10.125
</TABLE>
On July 29, 1997, the date before the public announcement that Parent and
the Special Committee were beginning merger discussions, the high and low bid
prices per share for the Common Stock were $10.625 and $10.125, respectively.
On November 3, 1997, the date before the public announcement of the
agreement in principle as to the Merger price of $14.50 per share, the high and
low bid prices per share for the Common Stock were $12.00 and $11.875,
respectively.
On , 1997, the most recent practicable date before the printing of this
Proxy Statement the high and low bid prices per share for the Common Stock were
$ and $ , respectively, and shares of Common Stock
were issued and outstanding among record holders.
HOLDERS OF COMMON STOCK ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR
THE COMMON STOCK.
DIVIDENDS
The Company has never paid regular cash dividends on the Common Stock, and
the Board of Directors plans to continue this policy, retaining future earnings
to support growth and expansion of the Company's business. The Company has in
the past paid special one-time dividends, such as the aggregate $1.9 million
cash dividend paid to shareholders in 1996, but there can be no assurance that
the Company will pay any other such dividends in the future.
CERTAIN INFORMATION CONCERNING PARENT AND MERGER SUB
PARENT
Pursuant to the Subscription Agreements, Parent is the beneficial owner of
shares of Common Stock of the Company, all of which will be
transferred to Parent by the Management Group immediately prior to the Effective
Time. Parent is the owner of all of the issued and outstanding capital stock of
Merger Sub. As of the date of this Proxy Statement, the directors and officers
of Parent are as set forth under "DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY, PARENT, MERGER SUB AND THE SUR-
49
<PAGE> 54
VIVING CORPORATION -- Information Concerning Directors and Executive Officers of
Parent and Merger Sub." The directors of Parent have approved the Merger
Agreement.
MERGER SUB
Merger Sub, a wholly owned subsidiary of Parent, is a Tennessee corporation
organized for the sole purpose of effectuating the Merger. As of the date of
this Proxy Statement, the directors and officers of Merger Sub are as set forth
under "DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY, PARENT, MERGER SUB AND
THE SURVIVING CORPORATION -- Information Concerning Directors and Executive
Officers of Parent and Merger Sub." The directors and sole shareholder of Merger
Sub have approved the Merger Agreement. Until the consummation of the Merger, it
is not anticipated that Merger Sub will have any significant assets or
liabilities (other than those arising under the Merger Agreement or in
connection with the Merger and the transactions contemplated thereby) or engage
in any activities other than those incident to its formation and capitalization
and the Merger.
GENERAL
The business address of Parent and Merger Sub is 623 E. Emory Road,
Knoxville, Tennessee 37849. The telephone number of Parent and Merger Sub is
(423) 938-1511.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY,
PARENT, MERGER SUB AND THE SURVIVING CORPORATION
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors. The following table sets forth the name of each director and a
description of his positions and offices with the Company, if any; a brief
description of his principal occupation and business experience during at least
the last five years; certain directorships presently held by him in companies
other than the Company; and certain other information including his age. Unless
otherwise indicated, the address of each director and executive officer of the
Company is that of the Company at 623 E. Emory Road, Knoxville, Tennessee 37849.
Each person listed below is a citizen of the United States.
<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR NAME AGE SINCE
- ------------- --- --------
<S> <C> <C>
Howard L. Clark, Jr......................................... 53 1993
James G. Hanes, III......................................... 53 1980
James A. Haslam, III........................................ 43 1991
Donald F. Johnstone......................................... 66 1995
James R. Martin............................................. 54 1980
J. Hoyle Rymer.............................................. 52 1987
James F. Smith, Jr.......................................... 67 1983
H. Mitchell Watson, Jr...................................... 59 1994
</TABLE>
The following is a summary of the principal business associations of the
Company's directors.
HOWARD L. CLARK, JR. has been the Vice Chairman of Lehman Brothers, Inc.
since January 1993. From January 1990 to January 1993, he was Chairman and Chief
Executive Officer of Shearson Lehman Brothers Holdings, Inc. He was Executive
Vice President and Chief Financial Officer of American Express Company from
September 1985 to January 1990. Mr. Clark also serves as a director of Lehman
Brothers, Inc., Fund American Enterprises Holdings, Inc., Maytag Corporation,
and Walter Industries, Inc.
JAMES G. HANES, III is a private investor.
JAMES A. HASLAM, III has been the Chief Executive Officer and Chief
Operating Officer of Pilot Corporation since July 1996. He has been employed in
various capacities by Pilot Corporation for over 15 years. Pilot, founded in
1958 by James A. Haslam, II, is a national chain of 140 convenience stores and
50
<PAGE> 55
"Travel Centers" located in 34 states, operated from its headquarters in
Knoxville, Tennessee. Mr. Haslam also served as a director of First American
National Bank of Knoxville from 1985 to January 1996. He presently serves as a
director of First Tennessee National Corporation.
DONALD F. JOHNSTONE has been the President and Chief Executive Officer of
Whittle Communications L.P., a media-placed advertising and communications
company since March 1994. Prior to this position, for eleven years, he was
President and Chief Executive Officer of Philips Consumer Electronics Company, a
manufacturer and marketer of consumer electronics products. Mr. Johnstone also
served in sales and marketing capacities and as a division general manager for
General Electric.
JAMES R. MARTIN has been the Chairman of the Board and Chief Executive
Officer of the Company since June 1992. He was President of the Company from
1980 to June 1992 and has been the Company's principal shareholder since 1980.
He is director of First American Corporation, a bank holding company in
Nashville, Tennessee.
J. HOYLE RYMER is a director of Dorsey Trailers, Inc. Mr. Rymer is also a
director of First American Bank of Cleveland, a wholly owned subsidiary of First
American Corporation. Since July 1989, he has been the President of JHR Co., an
investment company. For the previous five years, until his retirement in October
1988, he was President of Magic Chef, a division of Maytag Corporation.
JAMES F. SMITH, JR. is a director of First American Corporation. In this
capacity, he also serves as Chairman of the Development and Executive Committees
and as a Member of the Asset Policy Committee. From 1991 through 1994, Mr. Smith
served as Chairman of the Board of First American Corporation and First American
National Bank. From February 1991 until November 1991, Mr. Smith also served as
President and Chief Executive Officer of First American Corporation and First
American National Bank. Mr. Smith also serves as a director of Pilot Corporation
and Computational Systems, Inc.
H. MITCHELL WATSON, JR. has been the President of Sigma Group of America, a
consulting company, since June 1992. From 1989 to June 1992, Mr. Watson was
President and Chief Executive Officer of Rolm Co., a joint venture between
International Business Machines, Inc. and Siemen's AG. Mr. Watson is a retired
Vice President of International Business Machines, Inc. Mr. Watson also serves
as a director of Praxair Inc. and Caliber Systems, Inc.
Executive Officers. The following sets forth the name of each executive
officer of the Company other than Mr. Martin and a description of such person's
positions and offices with the Company; a brief description of such person's
business experience during at least the last five years; and certain other
information including such person's age. Each person listed below is a citizen
of the United States.
MARK J. DEUSCHLE, age 38, has been Vice President -- Finance, Treasurer and
Chief Financial Officer of the Company since April 1993 and Secretary of the
Company since September 1994. From April 1989 to April 1993 he held various
positions in the Company's financial operations. Before joining the Company,
from 1985 to 1989 he served in various financial roles with FMC Corp., Chicago,
Illinois.
FRANCIS JOSEPH BRANG, age 57, has been Vice President -- Operations of the
Company since December 1996. Before joining the Company he held various
managerial positions with Philips Consumer Electronics Company, a manufacturer
and marketer of consumer electronics products, most recently as General Manger
of U.S. Operations.
KATHRYN COLEMAN WOOD, age 42, has been Vice President -- Human Resources of
the Company since August 1994. She was Vice President, Human Resources and
Support Services for CTI, Inc., a developer and manufacturer of medical imaging
equipment, from July 1988 to August 1994.
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND MERGER SUB
Set forth below is the name of each director and executive officer of
Parent and Merger Sub and, unless disclosed elsewhere in this Proxy Statement,
the present principal occupation or employment of each such person and a brief
description of his principal occupation and business experience during at least
the last five years. Each person listed below is a citizen of the United States.
51
<PAGE> 56
Parent. The sole director of Parent is James R. Martin, whose background
is described above at "-- Information Concerning Directors and Executive
Officers of the Company." The executive officers of Parent are Martin, who
serves as Chairman of the Board and President, and Mr. Deuschle, who serves as
Vice President and Secretary.
Merger Sub. The sole director of Merger Sub is Martin. The current
executive officers of Merger Sub are Martin, who serves as Chairman of the Board
and President, and Mr. Deuschle, who serves as Vice President and Secretary.
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING
CORPORATION
In accordance with the terms of the Merger Agreement, the directors of the
Surviving Corporation will be the current directors of Merger Sub. The officers
of the Company will continue to serve as officers of the Surviving Corporation.
SECURITY OWNERSHIP OF THE COMPANY
The following table sets forth information as of October 31, 1997, with
respect to the beneficial ownership of each person who is known by the Company
to be the beneficial owner of more than 5% of the outstanding shares of the
Company's Common Stock, each director, the Company's Chief Executive Officer,
its other four most highly compensated executive officers whose salary and bonus
for the fiscal year ended December 29, 1996, exceeded $100,000 and all of the
Company's directors and executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT
OF STOCK PERCENT OF
BENEFICIALLY COMMON
NAME OWNED(1) STOCK(2)
- ---- ------------ ----------
<S> <C> <C>
James R. Martin (3)........................................ 1,766,169(4) 47.16%
James G. Hanes, III (5).................................... 218,650(6)(7) 5.87
James F. Smith, Jr......................................... 29,532(6) --
J. Hoyle Rymer............................................. 26,803(8) --
Mark J. Deuschle........................................... 23,500(9) --
James A. Haslam, III....................................... 20,528(6) --
Kathryn Coleman Wood....................................... 14,600(10) --
Howard L. Clark, Jr........................................ 13,303(6) --
H. Mitchell Watson, Jr..................................... 6,527(10) --
Donald F. Johnstone........................................ 5,937(11) --
F. Joseph Brang............................................ 13,383 --
All directors and executive officers as a group (11
persons)................................................. 2,138,932(12) 56.45%
SoGen International Fund, Inc./Societe Generale Asset
Management Corp.......................................... 200,000(13) 5.38%
</TABLE>
- ---------------
(1) Except as provided below, the person named has sole voting and investment
power with respect to all shares shown.
(2) Percentages less than 1% not shown.
(3) Business address of beneficial owner: P.O. Box 9043, Knoxville, Tennessee
37950-9043.
(4) Includes 167,086 shares held in Martin Children's Trust of which Mr.
Martin, as sole trustee, has sole investment and voting power. Also
includes options to purchase 25,000 shares subject to immediately
exercisable stock options. Excluded from the shares indicated as being
owned by Mr. Martin are 150,800 shares in which Mr. Martin disclaims
beneficial ownership. Of such 150,800 shares, 113,500 shares are owned by
the Martin Family Trust, 8,900 are shares owned by Julia Martin's Trust,
and 8,900 are shares owned by Justin Martin's Trust, (James G. Hanes, III
is trustee of each of the foregoing trusts), and 19,500 shares are owned in
equal parts by Mr. Martin's children, Julia A. and Justin J. Martin. Mr.
Martin does not have any voting or investment power with respect to such
150,800 shares.
52
<PAGE> 57
(5) Business address of beneficial owner: 480 Shepherd Street, Winston-Salem,
North Carolina 27103.
(6) Includes options to purchase 5,000 shares of Common Stock which are
immediately exercisable.
(7) Includes 113,500 shares held in Martin Family Trust, 8,900 shares held in
Julia Martin's Trust and 8,900 shares held in Justin Martin's Trust over
which Mr. Hanes, as sole trustee of each of the foregoing trusts, has sole
investment and voting power. Also includes 36,798 shares held indirectly
for Mr. Hanes' children.
(8) Includes options to purchase 1,500 shares of Common Stock which are
immediately exercisable.
(9) Includes options to purchase 7,500 shares of Common Stock which are
immediately exercisable.
(10) Includes options to purchase 4,500 shares of Common Stock which are
immediately exercisable.
(11) Includes options to purchase 4,000 shares of Common Stock which are
immediately exercisable.
(12) Includes options to purchase 67,000 shares of Common Stock which are
immediately exercisable.
(13) SoGen International Fund, Inc. (the "Fund") beneficially owns 200,000
shares of Common Stock. Societe Generale Asset Management Corp., in its
role as "Advisor" to the Fund, may be deemed to be a beneficial owner of
such shares. The principal business offices of the Fund and the Advisor are
located at 50 Rockefeller Plaza, New York, New York 10020. The Company has
relied solely on Schedule 13G filed on by the Fund with the Commission on
February 14, 1997 for the information above. The Company makes no
representation as to the accuracy or completeness of the information
reported regarding the Fund and the Advisor.
PURCHASES OF COMMON STOCK BY CERTAIN PERSONS
The following table sets forth certain information concerning purchases of
Common Stock since January 1, 1995 by the Company, its subsidiaries, Parent, and
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NUMBER OF PRICE WHERE AND HOW
NAME DATE SHARES PURCHASED PER SHARE TRANSACTION EFFECTED
- ---- -------- ---------------- --------- -----------------------
<S> <C> <C> <C> <C>
F. Joseph Brang........... 12/17/96 5,000 $ 0.001 (1)
12/17/96 6,383 7.00 (1)
3/6/97 2,000 9.25 Nasdaq National Market
Howard L. Clark, Jr....... 4/24/95 269 $ 6.50 (2)
8/18/95 233 7.50 (2)
11/4/96 454 8.25 (2)
11/4/96 209 8.375 (2)
11/4/96 222 9.00 (2)
10/20/97 167 12.00 (2)
10/20/97 178 11.25 (2)
10/20/97 222 9.00 (2)
10/20/97 182 11.00 (2)
Mark J. Deuschle.......... 1/25/96 2,000 $ 5.00 (3)
12/17/96 5,000 0.001 (1)
James G. Hanes, III....... 4/24/95 192 $ 6.50 (2)
8/18/95 167 7.50 (2)
11/4/96 334 8.25 (2)
11/4/96 149 8.375 (2)
11/4/96 167 9.00 (2)
4/7/97 1,000 5.00 (4)
10/20/97 125 12.00 (2)
10/20/97 133 11.25 (2)
10/20/97 167 9.00 (2)
10/20/97 136 11.00 (2)
</TABLE>
53
<PAGE> 58
<TABLE>
<CAPTION>
NUMBER OF PRICE WHERE AND HOW
NAME DATE SHARES PURCHASED PER SHARE TRANSACTION EFFECTED
- ---- -------- ---------------- --------- -----------------------
<S> <C> <C> <C> <C>
James A. Haslam, III...... 4/24/95 192 $ 6.50 (2)
8/18/95 233 7.50 (2)
11/4/96 455 8.25 (2)
11/4/96 149 8.375 (2)
11/4/96 222 9.00 (2)
2/26/97 1,000 10.25 Nasdaq National Market
3/20/97 500 5.00 (4)
4/18/97 5,000 9.750 Nasdaq National Market
10/20/97 125 12.00 (2)
10/20/97 178 11.25 (2)
10/20/97 167 9.00 (2)
10/20/97 182 11.00 (2)
Donald F. Johnstone....... 8/18/95 167 $ 7.50 (2)
11/4/96 394 8.25 (2)
11/4/96 149 8.375 (2)
11/4/96 222 9.00 (2)
J. Hoyle Rymer............ 4/24/95 269 $ 6.50 (2)
8/18/95 233 7.50 (2)
11/4/96 454 8.25 (2)
11/4/96 209 8.375 (2)
11/4/96 222 9.00 (2)
3/25/97 2,500 5.00 (4)
3/25/97 500 5.50 (4)
3/25/97 500 8.00 (4)
3/25/97 500 6.50 (4)
3/25/97 500 8.25 (4)
10/20/97 167 12.00 (2)
10/20/97 178 11.25 (2)
10/20/97 222 9.00 (2)
10/20/97 182 11.00 (2)
James F. Smith, Jr. ...... 4/24/95 308 $ 6.50 (2)
8/18/95 433 7.50 (2)
11/4/96 727 8.25 (2)
11/4/96 388 8.375 (2)
11/4/96 306 9.00 (2)
4/7/97 1,000 5.00 (4)
10/20/97 188 12.00 (2)
10/20/97 244 11.25 (2)
10/20/97 250 9.00 (2)
10/20/97 250 11.00 (2)
</TABLE>
54
<PAGE> 59
<TABLE>
<CAPTION>
NUMBER OF PRICE WHERE AND HOW
NAME DATE SHARES PURCHASED PER SHARE TRANSACTION EFFECTED
- ---- -------- ---------------- --------- -----------------------
<S> <C> <C> <C> <C>
H. Mitchell Watson,
Jr. .................... 4/24/95 192 $ 6.50 (2)
8/18/95 233 7.50 (2)
11/4/96 394 8.25 (2)
11/4/96 209 8.375 (2)
11/4/96 222 9.00 (2)
3/14/97 800 8.50 Nasdaq National Market
3/17/97 1,200 8.50 Nasdaq National Market
10/20/97 125 12.00 (2)
10/20/97 178 11.25 (2)
10/20/97 167 9.00 (2)
10/20/97 182 11.00 (2)
Kathryn Coleman Wood...... 12/17/96 2,000 $ 0.001 (1)
</TABLE>
- ---------------
(1) Acquired pursuant to restricted stock awards granted pursuant to the terms
of the Incentive Program with respect to key employees.
(2) Acquired as compensation paid to directors pursuant to the 1995 Plasti-Line,
Inc. Equity Compensation Plan for Non-Employee Directors.
(3) Acquired through the exercise of stock options granted pursuant to the
Incentive Program with respect to key employees.
(4) Acquired through the exercise of stock options granted pursuant to the
Incentive Program with respect to non-employee directors.
TRANSACTION OF OTHER BUSINESS
The Board of Directors of the Company knows of no other matters which may
be presented at the Special Meeting, but if other matters do properly come
before the meeting, it is intended that the persons named in the proxy will
vote, pursuant to their discretionary authority, according to their best
judgment in the interest of the Company.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company as of December 31,
1995 and December 29, 1996, and for years ended January 1, 1995, December 31,
1995 and December 29, 1996, included herein have been audited by Coopers &
Lybrand L.L.P., independent auditors, as indicated in their report with respect
thereto.
SHAREHOLDER PROPOSALS
If the Merger is not consummated for any reason, proposals of shareholders
intended to be presented at the 1998 Annual Meeting of Shareholders must be
received by the Company at its principal executive offices on or prior to
, 1998 to be eligible for inclusion in the Company's Proxy Statement
and form of proxy relating to that meeting. Shareholders should mail any
proposals by certified mail, return receipt requested.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company (File No.
0-15214) pursuant to the Exchange Act are incorporated by reference in this
Proxy Statement:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1996; and
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 30, 1997, and June 29, 1997.
55
<PAGE> 60
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference into this Proxy Statement and to be a part hereof from
the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes hereof to the extent that a statement
contained herein (or in any other subsequently filed document that is or is
deemed to be incorporated by reference herein) modifies or supersedes such
previous statement. Any statement so modified or superseded shall not be deemed
to constitute a part hereof except as so modified or superseded. All information
appearing in this Proxy Statement is qualified in its entirety by the
information and financial statements (including the notes thereto) appearing in
the documents incorporated by reference.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN CERTAIN
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE TO SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT IS DELIVERED, ON
WRITTEN OR ORAL REQUEST, IN THE CASE OF DOCUMENTS RELATING TO THE COMPANY, FROM
PLASTI-LINE, INC., 623 E. EMORY ROAD, KNOXVILLE, TENNESSEE 37849, ATTENTION:
CORPORATE SECRETARY, TELEPHONE: (423) 938-1511. IN ORDER TO ENSURE DELIVERY OF
THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, REQUESTS MUST BE RECEIVED BY
, 1997.
By order of the Board of Directors,
MARK J. DEUSCHLE,
Secretary
Knoxville, Tennessee
, 1997
PLEASE COMPLETE AND RETURN YOUR PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
56
<PAGE> 61
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets as of December 29, 1996 and
December 31, 1995...................................... F-3
Consolidated Statements of Operations for the fiscal years
ended December 29, 1996,
December 31, 1995 and January 1, 1995.................. F-4
Consolidated Statements of Stockholders' Equity for the
fiscal years ended December 29, 1996, December 31, 1995
and January 1, 1995.................................... F-5
Consolidated Statements of Cash Flows for the fiscal years
ended December 29, 1996, December 31, 1995 and January
1, 1995................................................ F-6
Notes to Consolidated Financial Statements................ F-7
UNAUDITED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of September 28,
1997 and December 29, 1996............................. F-16
Condensed Consolidated Statements of Operations for the
three months ended
September 28, 1997 and September 29, 1996 and for the
nine months ended September 28, 1997 and September 29,
1996................................................... F-17
Condensed Consolidated Statements of Cash Flows for the
nine months ended
September 28, 1997 and September 29, 1996.............. F-18
Notes to Condensed Consolidated Financial Statements...... F-19
</TABLE>
F-1
<PAGE> 62
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Plasti-Line, Inc.
We have audited the accompanying consolidated balance sheets of
Plasti-Line, Inc. and Subsidiaries as of December 29, 1996 and December 31,
1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
29, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Plasti-Line,
Inc. and Subsidiaries as of December 29, 1996 and December 31, 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 29, 1996 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
February 18, 1997
F-2
<PAGE> 63
PLASTI-LINE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS, EXCEPT
PAR VALUES)
<S> <C> <C>
ASSETS
Current assets
Cash...................................................... $ 10 $ 10
Accounts receivable, net.................................. 22,870 27,050
Inventories............................................... 27,331 31,564
Prepaid expenses.......................................... 754 1,080
Deferred income taxes..................................... 1,337 1,876
------- -------
Total current assets.............................. 52,302 61,580
Property and equipment, net............................... 13,260 13,854
Goodwill.................................................. 1,403 1,508
Other assets.............................................. 279 208
------- -------
Total assets...................................... $67,244 $77,150
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt......................... $ 745 $ 1,723
Accounts payable.......................................... 8,096 14,660
Accrued liabilities....................................... 6,116 5,704
Income taxes currently payable............................ 83 708
Customer deposits and deferred revenue.................... 11,509 5,673
------- -------
Total current liabilities......................... 26,549 28,468
Long-term debt............................................ 12,220 23,575
Deferred income taxes..................................... 1,196 1,123
Deferred liabilities...................................... 77 93
Commitments and contingencies (Notes 7 and 12)
Stockholders' equity
Preferred stock -- $.001 par value, 5,000,000 shares
authorized, none issued and outstanding................ -- --
Common stock -- $.001 par value, 20,000,000 shares
authorized, issued and outstanding:
1996: 3,803,414; 1995: 3,779,157....................... 4 4
Additional paid-in-capital................................ 2,859 2,729
Notes receivable, common stock............................ (136) (169)
Retained earnings......................................... 24,475 21,327
------- -------
Total stockholders' equity........................ 27,202 23,891
------- -------
Total liabilities and stockholders' equity........ $67,244 $77,150
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE> 64
PLASTI-LINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Revenue
Net sales................................................. $130,876 $103,247 $77,309
Other income.............................................. 303 571 853
-------- -------- -------
Total revenue..................................... 131,179 103,818 78,162
Cost and expenses
Cost of sales............................................. 107,956 85,114 63,060
Selling, general and administrative....................... 16,701 14,979 13,349
Interest expense, net..................................... 1,593 1,040 712
Goodwill write-off........................................ -- -- 3,986
Provision for restructuring costs......................... -- -- 2,416
Provision for pension curtailment......................... -- 483 --
-------- -------- -------
Total cost and expenses........................... 126,250 101,616 83,523
-------- -------- -------
Income (loss) before benefit (provision) for income
taxes.................................................. 4,929 2,202 (5,361)
Benefit (provision) for income taxes...................... (1,781) (805) 524
-------- -------- -------
Net income (loss)................................. $ 3,148 $ 1,397 $(4,837)
======== ======== =======
Net income (loss) per share................................. $ .83 $ .38 $ (1.31)
======== ======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE> 65
PLASTI-LINE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of year.............................. $ 4 $ 4 $ 4
Sales of common stock to employees and directors.......... -- -- --
------- ------- -------
Balance at end of year............................ $ 4 $ 4 $ 4
======= ======= =======
ADDITIONAL PAID-IN-CAPITAL
Balance at beginning of year.............................. $ 2,729 $ 2,571 $ 2,484
Sale of common stock to employees and directors........... 130 158 87
1996: 6,000 shares
1995: 30,000 shares
1994: 11,000 shares
------- ------- -------
Balance at end of year............................ $ 2,859 $ 2,729 $ 2,571
======= ======= =======
Notes receivable, common stock
Balance at beginning of year.............................. $ (169) $ (152) $ (174)
Issuance of notes receivable, common stock................ -- (99) (28)
Payments of notes receivable, common stock................ 33 82 50
------- ------- -------
Balance at end of year............................ $ (136) $ (169) $ (152)
======= ======= =======
Retained earnings
Balance at beginning of year.............................. $21,327 $19,930 $24,767
Net income (loss)......................................... 3,148 1,397 (4,837)
------- ------- -------
Balance at end of year............................ $24,475 $21,327 $19,930
======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE> 66
PLASTI-LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 3,148 $ 1,397 $(4,837)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization............................. 2,262 1,710 1,875
Loss on disposal of fixed assets.......................... -- 82 138
Provision for losses on accounts receivable............... 332 206 121
Deferred tax provision (benefit).......................... 612 129 (694)
Goodwill write-off........................................ -- -- 3,986
Provision for restructuring costs......................... -- -- 2,416
Provision for pension curtailment......................... -- 483 --
Changes in assets and liabilities, net of acquisition:
Receivables............................................... 3,848 (10,058) (2,497)
Inventories............................................... 4,233 (9,959) (2,637)
Prepaid expenses and other assets......................... 206 161 (756)
Accounts payable.......................................... (6,564) 7,579 1,696
Accrued liabilities....................................... 412 1,202 (519)
Income taxes payable...................................... (625) 754 (473)
Deferred liabilities...................................... 5,820 313 (838)
-------- -------- -------
Net cash provided by (used in) operating activities......... 13,684 (6,001) (3,019)
-------- -------- -------
Cash flows from investing activities:
Proceeds from sales of fixed assets....................... -- 23 1
Proceeds from sales of investments........................ -- 593 400
Investment in marketable securities....................... -- -- (499)
Capital expenditures...................................... (1,514) (2,755) (2,460)
Purchase of Plasti-Line Columbia, Inc. assets............. -- (4,550) --
-------- -------- -------
Net cash used by investing activities....................... (1,514) (6,689) (2,558)
-------- -------- -------
Cash flows from financing activities:
Net borrowings (payments) under line of credit............ (11,586) 13,295 6,213
Repayments of long-term debt.............................. (747) (746) (745)
Sale of common stock...................................... 130 59 59
Payments of notes receivable, common stock................ 33 82 50
-------- -------- -------
Net cash provided by (used in) financing activities......... (12,170) 12,690 5,577
-------- -------- -------
Net increase (decrease) in cash............................. -- -- --
Cash, beginning of year..................................... 10 10 10
-------- -------- -------
Cash, end of year........................................... $ 10 $ 10 $ 10
======== ======== =======
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 1,639 $ 937 $ 799
-------- -------- -------
Income taxes paid......................................... $ 1,894 $ 53 $ 786
======== ======== =======
Non-cash transactions:
Amortization of compensation from restricted stock........ $ 54 $ 1 $ 35
Issuance of notes receivable -- common stock.............. -- (99) (28)
-------- -------- -------
Acquisition liabilities assumed........................... $ -- $ 1,630 $ --
======== ======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE> 67
PLASTI-LINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Plasti-Line, Inc. (the "Company") is a publicly held company whose
principal business is designing, marketing, producing, and installing interior
and exterior brand identity and point-of-purchase marketing products and systems
for retailers and manufacturers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, American Sign & Marketing Services, Inc.
("American Sign") and Plasti-Line Columbia, Inc. ("Columbia"), formerly known as
Carter-Miot, Inc. All significant intercompany accounts and transactions have
been eliminated.
Fiscal Year
The Company's fiscal year consists of four quarters of thirteen weeks
ending on the last Sunday of the quarter. Each quarter's first two months
consist of four weeks with the last month of the quarter consisting of five
weeks.
Inventories
Inventories are stated at lower of cost or market. Cost is determined by
the last-in, first-out ("LIFO") method.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
The provision for depreciation has been calculated using the straight-line
method. The following represent the useful lives over which the assets are
depreciated:
<TABLE>
<S> <C>
Buildings and improvements.................................. 15 - 40 years
Machinery and equipment..................................... 3 - 7 years
</TABLE>
Major renewals and improvements are capitalized, while replacements,
maintenance, and repairs which do not improve or extend the life of the
respective assets are expensed currently. When depreciable assets are sold or
retired, the cost and related accumulated depreciation are removed from the
accounts, and any gain or loss is included in the earnings for the period.
Income Taxes
Income taxes are computed in accordance with Statement Financial Accounting
Standard ("SFAS") No. 109 "Accounting for Income Taxes." The statement applies
an asset and liability approach that requires the recognition of deferred tax
assets and liabilities using enacted rates in effect for the year in which the
differences are expected to reverse.
Revenue Recognition
The Company recognizes revenue and cost upon completion of sign
installation. If the Company is not installing the signage, revenue is
recognized upon shipment.
F-7
<PAGE> 68
PLASTI-LINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Per Share Data
Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares and dilutive common
equivalent shares outstanding during each period. For purposes of computing
common stock equivalent shares outstanding, shares relating to options have been
calculated using the treasury stock method for the portion of each period for
which the options were outstanding and using the fair value of the Company's
common stock for each of the respective periods. The weighted average number of
common shares and dilutive common equivalent shares outstanding were 3,812,000,
3,714,000 and 3,695,000 for December 29, 1996, December 31, 1995 and January 1,
1995, respectively.
Preferred Stock
The Company's authorized preferred stock may be issued from time to time in
series having such designated preferences and rights, qualifications and
limitations as the Board of Directors may determine.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unless indicated otherwise, the book value of the Company's financial
instruments approximates fair value.
3. ACQUISITION
On November 2, 1995, the Company purchased, through Columbia, certain
operating assets of a corporation located in Columbia, South Carolina. The total
purchase price was approximately $4.55 million in cash, including estimated
professional fees and other acquisition-related costs. In addition, the Company
has paid certain obligations totaling approximately $1.63 million This
transaction has been accounted for using the purchase method of accounting, and
accordingly, the purchase price has been allocated to the separately
identifiable assets of Columbia, principally accounts receivable, inventory and
machinery and equipment. The consideration paid exceeded the underlying fair
values of the separately identifiable assets of Columbia by approximately $1.521
million. This amount has been reflected in the accompanying balance sheet as
goodwill and is being amortized using the straight-line method over 15 years.
Pro-forma unaudited results of operations for 1995 and 1994 assuming that
Columbia had been acquired at the beginning of the respective periods are as
follows:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues.................................................... $117,225 $97,616
======== =======
Net income (loss)........................................... $ 1,427 $(4,009)
======== =======
Net income (loss) per share................................. $ .39 $ (1.08)
======== =======
</TABLE>
The pro-forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would have
occurred had the acquisition been consummated as of the above dates, nor are
they necessarily indicative of future operating results.
F-8
<PAGE> 69
PLASTI-LINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. GOODWILL
Goodwill, as of December 29, 1996, is composed of $1.403 million relating
to the 1995 purchase of Columbia, net of accumulated amortization of $118,000.
Prior to 1995, goodwill represented the excess of acquisition costs over
fair market value of net assets acquired in the purchase of American Sign in
1986. In 1994, the Company determined that projected results would not support
the future amortization of American Sign's remaining goodwill balance of $4
million. Accordingly, the Company wrote off the unamortized balance of goodwill
in the fourth quarter of 1994.
5. PROVISION FOR RESTRUCTURING COSTS
The 1994 operating results include a pre-tax charge for restructuring of
$2.4 million. This charge primarily consisted of a $1.7 million charge for
inventory and related costs associated with a fast food restaurant drive-through
order verification product ("Horizon") at the Company's American Sign
subsidiary. In addition to the Horizon provision, the restructuring charge
included $367,000 for a loss on abandonment of certain equipment in Knoxville,
$167,000 for severance and outplacement costs related to the business re-
engineering project, and $162,000 for costs relating to disposal of the
Centerville facility (Note 12).
6. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT DATA
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
ACCOUNTS RECEIVABLE, NET CONSISTS OF:
Accounts receivable....................................... $ 23,144 $ 27,769
Less: allowances for doubtful accounts.................... (274) (719)
-------- --------
Total accounts receivable, net............................ $ 22,870 $ 27,050
======== ========
INVENTORIES CONSIST OF:
Raw materials............................................. $ 6,314 $ 7,330
Work-in-process........................................... 4,397 4,289
Finished goods............................................ 20,006 22,008
-------- --------
Total inventory (FIFO)............................ 30,717 33,627
LIFO reserve................................................ (3,386) (2,063)
-------- --------
Total inventory (LIFO)............................ $ 27,331 $ 31,564
======== ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
PROPERTY AND EQUIPMENT CONSISTS OF:
Land...................................................... $ 1,177 $ 1,177
Buildings and improvements................................ 12,690 12,492
Machinery and equipment................................... 18,448 17,138
-------- --------
Total property and equipment, gross............... 32,315 30,807
Less: accumulated depreciation.............................. (19,055) (16,953)
-------- --------
Total property and equipment, net ................ $ 13,260 $ 13,854
======== ========
</TABLE>
F-9
<PAGE> 70
PLASTI-LINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
KNOX COUNTY INDUSTRIAL REVENUE BONDS:
$2.15 million bearing interest at a variable rate (4.15% at
December 29, 1996 and 5.05% at December 31, 1995) and the
balance at a fixed rate of 7.65%. Interest is payable
quarterly and $680 thousand of principal payable annually
with $2.63 million payable on November 1, 1999,
collateralized by Knoxville, Tennessee real and fixed
assets...................................................... $ 3,990 $ 4,670
REVOLVING CREDIT FACILITY:
Up to the amount of $19 million expiring on June 30, 1998.
The line bears interest at a variable rate (8.413% at
December 29, 1996 and 7.935% at December 31, 1995),
collateralized by accounts receivable and inventory......... 8,391 16,000
TERM NOTE:
Up to the amount of $5 million. The line bears interest at a
variable rate (7.935% at December 31, 1995), collateralized
by accounts receivable and inventory. Expired February 29,
1996........................................................ -- 3,978
INDUSTRIAL REVENUE BONDS OF AMERICAN SIGN:
Interest payable quarterly, at a variable rate (7.4% at
December 29, 1996 and 7.9% at December 31, 1995). Principal
of $16.25 thousand payable quarterly through December 1,
2005, collateralized by Florence, Kentucky real property.... 584 650
Less current maturities..................................... (745) (1,723)
------- -------
Total long-term debt........................................ $12,220 $23,575
======= =======
</TABLE>
The Revolving Credit Facility contains various covenants including
restricting other borrowings, the payment of dividends, the sales of certain
assets and the Company's ability to acquire other businesses without written
consent. The covenants also require the Company to maintain liability to net
worth, interest coverage and cash flow ratios, as well as a minimum net worth.
Maturities of long-term debt in each of the next five years are as follows
(in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 745
1998........................................................ 9,136
1999........................................................ 2,695
2000........................................................ 65
2001........................................................ 65
Thereafter.................................................. 259
-------
$12,965
=======
</TABLE>
F-10
<PAGE> 71
PLASTI-LINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule of future minimum rental payments for certain
manufacturing and data processing equipment which are required under operating
leases that have initial or remaining noncancelable lease terms in excess of one
year (in thousands of dollars):
<TABLE>
<S> <C>
1997........................................................ $ 371
1998........................................................ 371
1999........................................................ 213
2000........................................................ 73
2001........................................................ 6
------
$1,034
======
</TABLE>
Operating lease rental expense was $1.088 million, $828,000 and $658,000
for 1996, 1995 and 1994, respectively.
8. INCOME TAXES
Components of income tax provisions (benefit) are:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT TAX PROVISIONS:
Federal......................................... $1,011 $ 608 $ 136
State........................................... 158 68 34
------ ------ -----
1,169 676 170
DEFERRED INCOME TAXES RELATED TO:
Depreciation.................................... 73 161 (54)
Recognition of bad debts........................ (3) (48) (34)
Horizon write-off............................... 270 369 (640)
Financial reserves.............................. 212 (86) (129)
Maintenance revenue recognition................. (12) (1) 31
Pension liability............................... 28 (238) --
Other items..................................... 44 (28) 132
------ ------ -----
Total................................... $1,781 $ 805 $(524)
====== ====== =====
</TABLE>
F-11
<PAGE> 72
PLASTI-LINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the deferred tax assets and (liabilities)
are:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
CURRENT:
Inventory valuation....................................... $ 389 $ 479
Workers' compensation and other financial reserves........ 149 232
Vacation reserve.......................................... 196 238
Deferred sales............................................ 94 126
Plant close reserve....................................... 64 64
Environmental reserve..................................... -- 36
Horizon write-off......................................... -- 271
Other financial reserves.................................. 463 420
Pension asset (liability)................................. (18) 10
------- -------
Total current..................................... $ 1,337 $ 1,876
======= =======
LONG-TERM:
Property and equipment...................................... $(1,196) $(1,123)
======= =======
</TABLE>
The differences between the U.S. federal statutory tax rate and the
Company's effective rate are:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Marginal federal tax rate........................... 34.0% 34.0% (34.0)%
State income taxes net of federal................... 3.4 2.7 (.6)
Non-deductible expenses of acquired companies....... -- -- 26.7
Other............................................... (1.3) (.1) (1.9)
---- ---- -----
Effective rate...................................... 36.1% 36.6% (9.8)%
==== ==== =====
</TABLE>
9. STOCK OPTION PLANS
The Company has a Stock Incentive Program consisting of a Key Employee Plan
and a Director Plan under which options to purchase up to 550,000 shares of
common stock may be granted. Under the terms of the Key Employee Plan, the
Company may grant options to certain employees of the Company. The option price
is equal to the published bid price of the stock on the date of the grant. The
options become exercisable ratably over four years beginning one year after the
date of the grant and expire in five to ten years. Also included in the Key
Employee Plan are shares awarded to certain key managers. These shares are
restricted for ten years from the date of the grant unless earned earlier. The
shares can be earned in years three to ten if certain earnings per share
measures are met. In addition, 15,000 restricted shares of stock were purchased
by certain key managers in 1995. These shares, purchased at $6.60 per share,
vest two years from the date of purchase. The Company has accepted notes from
these individuals in payment for this stock with interest paid monthly and
principal paid annually for ten years. The notes receivable for these shares are
shown as a reduction of Stockholders' Equity. Compensation expense of $54,000,
$1,000 and $35,000 was recognized for restricted shares awarded and purchased in
1996, 1995 and 1994 respectively.
Under the Director Plan, the Company has granted non-qualified options to
purchase shares to members of its Board of Directors. These options are priced
from $5.00 to $11.00 per share, vest as soon as the director has completed two
years of service, and expire ten years from the date of grant.
F-12
<PAGE> 73
PLASTI-LINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Activity and price information regarding the Stock Incentive Program during
the last three fiscal years is as follows:
<TABLE>
<CAPTION>
SHARES PRICE PER SHARE
------- ---------------
<S> <C> <C>
Outstanding as of January 2, 1994........................... 160,300 $4.50 - 12.00
Granted................................................... 39,000 5.25 - 8.00
Exercised................................................. (4,900) 4.50 - 5.00
Canceled.................................................. (16,350) 4.50 - 12.00
------- -------------
Outstanding as of January 1, 1995........................... 178,050 4.75 - 12.00
Granted................................................... 107,500 6.50 - 8.38
Exercised................................................. (11,250) 5.00 - 5.75
Canceled.................................................. (57,300) 5.00 - 12.00
------- -------------
Outstanding as of December 31, 1995......................... 217,000 4.75 - 14.50
Granted................................................... 52,000 8.25 - 12.00
Exercised................................................. (6,000) 5.00 - 8.00
Canceled.................................................. (25,500) 5.25 - 14.50
------- -------------
Outstanding as of December 29, 1996......................... 237,500 $4.75 - 14.50
======= =============
</TABLE>
In addition, on January 1, 1995, the Company implemented the 1995 Equity
Compensation Plan for Non-Employee Directors. Under this plan, 150,000 shares of
common stock are available for issue. In 1996, directors of the Company earned
awards of 5,621 shares of common stock which represented 50% of the value of
their director fees for the year.
10. STATEMENT 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION"
Plasti-Line, Inc. has elected to continue following Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees (APB 25) and
related Interpretations in accounting for its 1991 Stock Incentive Program (Key
Employees and Directors) rather than the alternative fair value accounting
provided for under SFAS No. 123, "Accounting for Stock-Based Compensation."
Under APB 25, because the exercise price of the Company's stock options equals
the market price of the underlying stock on the date of the grant, no
compensation expense is recognized in the accompanying financial statements.
Pro-forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
stock options under the fair value method of that Statement. The Company has
determined that the difference between historical results and such pro-forma
information is inconsequential.
11. EMPLOYEE BENEFIT PLANS
The Company maintains a profit sharing plan for salaried employees. The
Company is required to contribute at least three percent of current period net
income. Total contributions were $100,000 in 1996, $45,000 in 1995 and $0 in
1994.
Additionally, the Company maintains a savings plan available to all
salaried and certain non-union employees. Each participant may elect to defer up
to 12% of their annual compensation. The Company makes an annual contribution
equal to one quarter of the participants' contributions up to a maximum Company
contribution equal to 6% of the participant's compensation. The total
contributions were $100,000 in 1996, $75,000 in 1995 and $79,000 in 1994.
The Company also maintains a savings plan available to union employees at
the Florence location. Each participant may elect to defer up to ten percent of
their annual compensation. The Company makes quarterly contributions equal to
one half of the participant's contributions up to a maximum Company contribution
F-13
<PAGE> 74
PLASTI-LINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
equal to 6% of the participant's compensation. The total contributions were
$16,000 in 1996, $15,000 in 1995 and $14,000 in 1994.
Additionally, the Company has a non-contributory defined benefit pension
plan that covers substantially all hourly employees at the Knoxville location.
Benefits are based on a fixed amount for each year of service.
In December of 1995, the Board of Directors approved an amendment to the
pension plan which resulted in the freezing of all future benefits under the
plan as of December 31, 1995. As a result, the Company recognized a curtailment
loss of $483,000 which included $467,000 of unrecognized prior service cost and
a $16,000 unrecognized transitional liability.
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5% as of December 29,
1996 and 7.0% at December 31, 1995. The expected long-term rate of return on
assets was 7.5% at December 29, 1996 and 7.0% at December 31, 1995. Net pension
cost included the following components:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost........................................ $ -- $ 87 $ 91
Interest cost....................................... 274 262 251
Actual return on plan assets........................ (604) (1,042) 3
Net amortization and deferral....................... 257 837 (189)
----- ------- -----
Net pension cost.......................... $ (73) $ 144 $ 156
===== ======= =====
</TABLE>
The following table sets forth the pension plan's funded status and amount
recognized in the Company's balance sheet.
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested.................................................... $ 3,745 $3,792
Non-vested................................................ 158 221
------- ------
Accumulated and projected................................... 3,903 4,013
Plan assets at fair value, primarily listed stocks and
bonds..................................................... 5,029 4,593
------- ------
Plan assets above accumulated benefit obligation............ 1,126 580
Unrecognized net gain from past experience different from
that assumed and effects of changes in assumptions........ (1,079) (607)
------- ------
Total pension asset (liability)................... $ 47 $ (27)
======= ======
</TABLE>
On January 1, 1996, the Company provided hourly workers at the Knoxville
location with a defined contribution plan, the Knoxville Union 401(k) Plan.
Under this plan the Company contributes 10 cents an hour for each hour worked up
to a maximum of 2,080 hours per year. The Company contributed $90,000 to this
plan in 1996.
12. CONTINGENCIES AND OTHER LIABILITIES
The Company has become subject to various lawsuits, claims and other legal
matters in the course of conducting business. The Company, based in part upon
opinions of counsel, believes the outcome of such lawsuits, claims and other
legal matters will not have a material impact on the Company's future
consolidated financial position, results of operations and cash flows.
F-14
<PAGE> 75
PLASTI-LINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is contingently liable for a $700,000 letter of credit issued
pursuant to certain debt obligations. The Company also has irrevocable letters
of credit in the amount of $1.566 million pursuant to the Company's
self-insurance with regard to workmens' compensation. There are no outstanding
balances on these letters of credit.
Sales to one automotive customer were 22%, 19% and 16% of the Company's
sales in 1996, 1995 and 1994, respectively. Sales to a fast food customer were
11% of sales in 1996. Sales to a bank customer were 11% of sales in 1995.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's base and their
dispersion across a number of different industries, principally automotive,
petroleum, banking and fast foods.
At December 31, 1995, a long-term contract with a customer that accounted
for 11% of the Company's 1996 sales expired. The Company has since been awarded
a new long-term contract with this customer which extends through January 1,
2004.
In order to alleviate excess manufacturing capacity, the Company closed its
Centerville, Tennessee, manufacturing facility in 1992. The December 29, 1996
and December 31, 1995, balance sheets include an accrual of $392,000 and
$405,000, respectively, which reflects the remaining disposal costs of the
Centerville facility.
F-15
<PAGE> 76
PLASTI-LINE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 29,
1997 1996
------------- ------------
(UNAUDITED) (AUDITED)
(IN THOUSANDS, EXCEPT
PAR VALUES)
<S> <C> <C>
ASSETS
Current assets
Cash...................................................... $ 4,325 $ 10
Accounts receivable, net.................................. 18,185 22,870
Inventories............................................... 25,788 27,331
Prepaid expenses.......................................... 966 754
Deferred income taxes..................................... 1,337 1,337
------- -------
Total current assets.............................. 50,601 52,302
Property and equipment, net............................... 14,489 13,260
Goodwill.................................................. 1,327 1,403
Funds held by trustee..................................... 3,724 --
Other assets.............................................. 435 279
------- -------
Total assets...................................... $70,576 $67,244
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt......................... $ 745 $ 745
Accounts payable.......................................... 7,721 8,096
Accrued liabilities....................................... 6,950 6,116
Income taxes currently payable............................ 600 83
Customer deposits and deferred revenue.................... 16,187 11,509
------- -------
Total current liabilities......................... 32,203 26,549
Long-term debt, excluding current portion................. 8,791 12,220
Deferred income taxes..................................... 1,196 1,196
Deferred liabilities...................................... 208 77
Commitments and contingencies (Notes 7 and 12)
Stockholders' equity
Preferred stock -- $.001 par value, 5,000,000 shares
authorized, none issued and outstanding................ -- --
Common stock -- $.001 par value, 20,000,000 shares
authorized, issued and outstanding: 1996: 3,803,414;
1995: 3,779,157........................................ 4 4
Additional paid-in-capital................................ 2,922 2,859
Notes receivable, common stock............................ (124) (136)
Retained earnings......................................... 25,376 24,475
------- -------
Total stockholders' equity........................ 28,178 27,202
------- -------
Total liabilities and stockholders' equity........ $70,576 $67,244
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
F-16
<PAGE> 77
PLASTI-LINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29,
1997 1996 1997 1996
------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue
Net sales.................................. $32,363 $33,960 $94,361 $96,412
Cost of sales.............................. 26,254 27,797 77,212 79,929
------- ------- ------- -------
Gross profit....................... 6,009 6,163 17,149 16,483
------- ------- ------- -------
Selling, general and administrative.......... 3,989 4,074 12,019 11,666
------- ------- ------- -------
Operating income........................... 2,020 2,089 5,130 4,817
------- ------- ------- -------
Interest income.............................. (129) (3) (133) (7)
Interest expense............................. 215 419 588 1,320
------- ------- ------- -------
Income before income taxes................. 1,934 1,673 4,675 3,504
------- ------- ------- -------
Income taxes................................. 773 636 1,870 1,331
------- ------- ------- -------
Net income................................. $ 1,161 $ 1,037 $ 2,805 $ 2,173
======= ======= ======= =======
Net income per share......................... $ .30 $ .27 $ .73 $ .57
======= ======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
F-17
<PAGE> 78
PLASTI-LINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 2,805 $ 2,173
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization............................. 1,879 1,616
Loss on disposal of fixed assets.......................... 3 --
Provision for losses on accounts receivable............... 41 169
Decrease in net receivables............................... 4,644 3,525
Decrease in inventories................................... 1,543 3,088
Decrease (increase) in prepaid expenses................... (212) 132
Increase in other assets.................................. (249) (41)
Decrease in accounts payable.............................. (375) (4,324)
Increase in accrued liabilities........................... 834 691
Increase in income taxes payable.......................... 517 188
Increase in deferred liabilities.......................... 131 --
Increase in customer deposits and deferred revenue........ 4,678 1,866
------- -------
Net cash provided by investing activities......... 16,239 9,083
------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (2,925) (854)
------- -------
Net cash used by investing activities............. (2,925) (854)
------- -------
Cash flows from financing activities:
Net payments on line of credit............................ (8,391) (8,289)
Principal payments on long-term debt...................... (39) (46)
Industrial revenue bonds, net of funds held by trustee.... 1,259 --
Payment of dividends...................................... (1,906) --
Sale of common stock...................................... 65 70
Payments of notes receivable, common stock................ 13 36
------- -------
Net cash used in financing activities............. (8,999) (8,229)
------- -------
Net increase in cash and cash equivalents................... 4,315 --
Cash and cash equivalents, beginning of year.............. 10 10
------- -------
Cash and cash equivalents, end of period.................. $ 4,325 $ 10
======= =======
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 429 $ 1,344
------- -------
Income taxes paid......................................... $ 1,354 $ 1,109
======= =======
Non-cash transactions:
Amortization of compensation from restricted stock........ $ 6 $ 5
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
F-18
<PAGE> 79
PLASTI-LINE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of September 28, 1997, and the
condensed consolidated statements of operations and cash flows for the three
months and the nine months ended September 28, 1997 and September 29, 1996,
respectively, have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
changes in cash flows at September 28, 1997, and for all periods presented have
been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's 1996 Annual Report to
Stockholders. The results of operations for the period ended September 28, 1997,
are not necessarily indicative of the operating results for the full year.
2. PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its wholly
owned subsidiaries, American Sign & Marketing Services, Inc., Plasti-Line
Services Company, Inc. and Plasti-Line Columbia, Inc. All significant
intercompany accounts and transactions have been eliminated.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 29,
1995 1994
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Finished goods.............................................. $20,606 $20,006
Work-in-process............................................. 3,177 4,397
Raw materials............................................... 5,391 6,314
------- -------
29,174 30,717
Less: LIFO inventory reserve................................ (3,386) (3,386)
------- -------
Total net inventory............................... $25,788 $27,331
======= =======
</TABLE>
Inventories are stated at the lower-of-cost or market. Cost is determined
by the last-in, first-out method (LIFO). The Company reports interim LIFO
reserves based on projected year-end calculations. Historically, these interim
calculations, based on the LIFO layers which can be reasonably estimated, have
not yielded material interim differences; therefore, no adjustment has been
made.
4. EARNINGS PER SHARE
Net income per common share is based on the weighted average number of
common and common equivalent shares outstanding in each period. For purposes of
computing common equivalent shares outstanding, shares relating to options have
been calculated using the treasury stock method for the portion of each period
for which the options were outstanding and using the fair value of the Company's
stock for each of the respective periods.
The weighted average number of common and common stock equivalent shares
outstanding for the three and nine month periods ended September 28, 1997 were
3,847,000 and 3,842,000, respectively.
F-19
<PAGE> 80
EXHIBIT A
---------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF
NOVEMBER 3, 1997
AMONG
PLASTI-LINE, INC.,
PL HOLDING CORP.,
PL ACQUISITION CORP.,
AND
JAMES R. MARTIN
---------------------------------------------------------------------------
<PAGE> 81
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of November
3, 1997, by and among PLASTI-LINE, INC., a Tennessee corporation (the
"Company"), PL HOLDING CORP., a Tennessee corporation (the "Parent"), PL
ACQUISITION CORP., a Tennessee corporation and a wholly owned subsidiary of
Parent (the "Purchaser") and James R. Martin ("Martin").
WHEREAS, the Board of Directors of each of the Company, the Parent and the
Purchaser has approved, and deems its advisable and in the best interests of its
respective shareholders to consummate, the acquisition of the Company by the
Parent upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
Section 1.1 Company Actions. The Company represents that the
disinterested members of its Board of Directors, at a meeting duly called and
held and acting, in part, on the unanimous recommendation of a Special Committee
of the Board appointed on July 18, 1997 and comprised entirely of directors who
are neither members of management of the Company nor affiliated with Martin,
Parent or the Purchaser or any Affiliate thereof (the "Special Committee"), has
(i) unanimously determined that this Agreement and the transactions contemplated
hereby, including the Merger, are fair to and in the best interests of the
shareholders of the Company other than Martin, Parent or Purchaser or their
affiliates (the "Public Shareholders"), (ii) unanimously approved and adopted
this Agreement and the transactions contemplated hereby, including the Merger
(collectively, the "Transactions"), and such approval, to the extent necessary,
constitutes approval of the Transactions for purposes of Section 48-103-205 of
the Combination Act, such that Section 48-103-205 of the Combination Act will
not apply to the Transactions, and (iii) unanimously resolved to recommend
approval and adoption of this Agreement and the Transactions by the Company's
shareholders (the "Shareholders"), provided, that such recommendation may be
withdrawn, modified or amended by the Board of Directors of the Company if the
Board deems such withdrawal, modification or amendment necessary in light of its
fiduciary obligation to the Shareholders after consultation with counsel.
Section 1.2 The Merger. Subject to the terms and conditions of this
Agreement, and in accordance with Tennessee law, at the Effective Time, the
Company and the Purchaser shall consummate a merger (the "Merger") pursuant to
which (a) the Purchaser shall be merged with and into the Company and the
separate corporate existence of the Purchaser shall thereupon cease; (b) the
Company shall be the successor or surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue to be
governed by the laws of the State of Tennessee; and (c) the separate corporate
existence of the Company with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger, except as set forth in this
Section 1.2. Pursuant to the Merger, (i) the Company's Amended and Restated
Charter ("Charter") shall be amended in its entirety to read as the Charter of
the Purchaser, in effect immediately prior to the Effective Time, except that
Article FIRST thereof shall promptly be amended to read as follows: "FIRST: The
name of the corporation is Plasti-Line, Inc." and, as so amended, shall be the
Charter of the Surviving Corporation until thereafter amended as provided by
applicable Law and such Charter; and (ii) the Bylaws of the Purchaser (the
"Bylaws"), as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation until thereafter amended as provided by
applicable Law, by such Charter or by such Bylaws. The Merger shall have the
effects specified in the TBCA.
Section 1.3 Effective Time. Subject to the terms and conditions of this
Agreement, the Parent, the Purchaser and the Company will cause Articles of
Merger to be executed and filed on the Closing Date (or on such other date as
the Parent and the Company may agree) with the Secretary of State of the State
of Tennessee as provided in the TBCA. The Merger shall become effective on the
date on which the Articles of Merger are duly filed with the Secretary of State
of the State of Tennessee or such time as is agreed upon by
A-2
<PAGE> 82
the parties and specified in the Articles of Merger, and such time is
hereinafter referred to as the "Effective Time."
Section 1.4 Closing. The closing of the Merger (the "Closing") shall take
place at 10:00 a.m. on a date to be specified by the parties, which shall be no
later than the second Business Day after satisfaction or waiver of all of the
conditions set forth in Article 6 hereof (the "Closing Date"), at the corporate
offices of the Company, unless another date or place is agreed to in writing by
the parties hereto.
Section 1.5 Directors and Officers of the Surviving Corporation. The
directors of the Purchaser and the officers of the Company at the Effective Time
shall, from and after the Effective Time, be the directors and officers,
respectively, of the Surviving Corporation until their successors shall have
been duly elected or appointed or qualified or until their earlier death,
resignation or removal in accordance with applicable law, the Charter and the
Bylaws.
ARTICLE 2
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
shares of the Company Common Stock (the "Shares") or holders of any shares of
the Purchaser Common Stock:
(a) Purchaser Common Stock. Each issued and outstanding share of the
Purchaser Common Stock shall be converted into and become one fully paid
and nonassessable share of common stock of the Surviving Corporation.
(b) No Effect on Parent-Owned Stock. All Shares that are owned by the
Parent shall continue to remain issued and outstanding and shall not be
converted into the right to receive the Merger Consideration.
(c) Cancellation of Treasury Stock. All Shares that are owned by the
Company as treasury stock immediately prior to the Effective Time shall be
canceled and retired and shall cease to exist and no consideration shall be
delivered in exchange therefor.
(d) Exchange of Shares. Each issued and outstanding Share, and all
Shares subject to outstanding options that remain outstanding at the
Effective Time and not theretofore canceled as provided in Section 2.4
hereof (other than Shares held by the Parent as described in Section
2.1(b), Shares to be canceled in accordance with Section 2.1(c) and any
Shares which are held by shareholders exercising dissenters' rights
pursuant to Chapter 23 of the TBCA ("Dissenting Shareholders")) shall be
converted into the right to receive $14.50 in cash, payable to the holder
thereof, without interest (the "Merger Consideration"), upon surrender of
the certificate formerly representing such Share in the manner provided in
Section 2.2. All such Shares, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such Shares
shall cease to have any rights with respect thereto, except the right to
receive the Merger Consideration therefor upon the surrender of such
certificate in accordance with Section 2.2, without interest, or the right,
if any, to receive payment from the Surviving Corporation of the "fair
value" of such Shares as determined in accordance with Chapter 23 of the
TBCA.
Section 2.2 Exchange of Certificates. (a) Paying Agent. At or prior to
the Effective Time, the Parent shall designate a bank reasonably acceptable to
the Company to act as agent for the holders of the Shares in connection with the
Merger (the "Paying Agent"), and the Parent shall, or shall cause the Surviving
Corporation to, make available to the Paying Agent the funds to which holders of
the Shares shall become entitled pursuant to Section 2.1(d). Such funds shall be
invested by the Paying Agent as directed by the Parent or the Surviving
Corporation.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a stock
certificate or certificates, which immediately prior to the
A-3
<PAGE> 83
Effective Time represented outstanding Shares (the "Certificates"), whose Shares
were converted pursuant to Section 2.1 into the right to receive the Merger
Consideration: (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Paying Agent and shall be in such
form and have such other provisions as the Parent and the Company may reasonably
specify), and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for payment of the Merger Consideration. Upon surrender
of a Certificate for cancellation to the Paying Agent, together with such letter
of transmittal, duly executed, the holder of such Certificate shall be entitled
to promptly receive in exchange therefor the Merger Consideration for each Share
formerly represented by such Certificate and the Certificate so surrendered
shall forthwith be canceled. If payment of the Merger Consideration is to be
made to a Person other than the Person in whose name the surrendered Certificate
is registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or shall be otherwise in proper form for
transfer and that the Person requesting such payment shall have paid any
transfer and other taxes required by reason of the payment of the Merger
Consideration to a Person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such tax either has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration in cash as contemplated by this Section 2.2.
(c) Transfer Books; No Further Ownership Rights in the Shares. At the
Effective Time, the stock transfer books of the Company shall be closed and
thereafter there shall be no further registration of transfers of the Shares on
the records of the Company. From and after the Effective Time, the holders of
Certificates evidencing ownership of the Shares outstanding immediately prior to
the Effective Time shall cease to have any rights with respect to such Shares,
except as otherwise provided for herein or by applicable Law. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged for the Merger Consideration as
provided in this Article 2.
(d) Termination of Fund; No Liability. At any time following twelve months
after the Effective Time, the Surviving Corporation shall be entitled to require
the Paying Agent to deliver to it any funds (including any interest received
with respect thereto) which had been made available to the Paying Agent and
which have not been disbursed to holders of Certificates, and thereafter such
holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar Laws) with respect to the Merger
Consideration payable upon due surrender of their Certificates, without any
interest thereon. Notwithstanding the foregoing, neither the Surviving
Corporation nor the Paying Agent shall be liable to any holder of a Certificate
for Merger Consideration delivered to a public official pursuant to any
applicable abandoned property, escheat or similar Law.
(e) Lost, Stolen or Destroyed Certificates. In the event any Certificate
for Shares shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and, if required by the Parent, the posting by such Person
of a bond in customary amount as indemnity against any claim that may be made
against it with respect to such Certificate, the Paying Agent will issue in
exchange for such lost, stolen or destroyed Certificate the Merger Consideration
pursuant to Section 2.2(b).
Section 2.3 Dissenters' Rights. The Company shall notify NASDAQ National
Market System that the shares will not be listed on the National Market System
effective the day prior to the Effective Time, so that at the Effective Time
dissenting Shareholders shall be entitled to be paid the fair value of such
holder's Shares, as provided in Chapter 23 of the TBCA. The Company shall give
the Parent notice thereof and the Parent shall have the right to participate in
all negotiations and proceedings with respect to any such demands. Neither the
Company nor the Surviving Corporation shall, except with the prior written
consent of the Parent, voluntarily make any payment with respect to, or settle
or offer to settle, any such demand for payment. If any Dissenting Shareholder
shall fail to perfect or shall have effectively withdrawn or lost the right to
dissent, the Shares held by such Dissenting Shareholder shall thereupon be
treated as though such Shares had been converted into the right to receive, as
of the Effective Time, the Merger Consideration pursuant to Section 2.1.
A-4
<PAGE> 84
Section 2.4 Options and Other Stock Incentive Plans. At the Effective
Time, each holder of a then outstanding, immediately exercisable option to
purchase Company Common Stock under the Company's 1991 Stock Incentive Program
shall, in settlement thereof, receive from the Company for each share of Company
Common Stock subject to such option an amount (subject to any applicable
withholding tax) in cash equal to the excess of the Merger Consideration over
the per share exercise price of such option (such amount being hereinafter
referred to as the "Option Consideration"); provided, however, that with respect
to any person subject to Section 16(a) of the Exchange Act, any such amount
shall be paid as soon as practicable after the first date payment can be made
without liability to such person under Section 16(b) of the Exchange Act. Upon
receipt of the Option Consideration, the option shall be canceled. The surrender
of an option shall be deemed a release of any and all rights the holder had or
may have had in respect of such option. The Company shall take such steps as may
be necessary to acquire on the Effective Date for a nominal consideration the
shares of Common Stock held by certain officers of the Company pursuant to
restrictive agreements and subject to vesting upon achieving sales of $200
million and profits of $20 million.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent that
Section 3.1 Corporate Existence and Power. The Company and each of the
Company Subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the Laws of the state of its incorporation, and has all
corporate powers and approvals required to carry on its business as now
conducted.
Section 3.2 Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the Transactions are within the Company's corporate powers and, except for
any required approval by the Shareholders and the Public Shareholders in
connection with the consummation of the Transactions, this Agreement will have
been duly authorized by all necessary corporate action. This Agreement
constitutes a valid and binding agreement of the Company.
Section 3.3 Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation of the
Transactions by the Company require no action by or in respect of, or filing
with, any Governmental Authority other than (i) the filing of Articles of Merger
in accordance with the TBCA; (ii) compliance with applicable requirements of the
Exchange Act; and (iii) filing under the HSR Act.
Section 3.4 Non-Contravention. The execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
Transactions do not and will not (i) contravene or conflict with the Charter or
Bylaws of the Company, or (ii) assuming compliance with the matters referred to
in Section 3.3, contravene or conflict with or constitute a violation of any
provision of any Law or Order binding upon or applicable to the Company or any
Company Subsidiary.
Section 3.5 Capitalization. The authorized capital stock of the Company
consists of 20,000,000 authorized Shares of Company Common Stock and 5,000,000
authorized shares of Preferred Stock. As of the date hereof, (a) 3,720,092
Shares of Company Common Stock were issued and outstanding, (b) no Shares of
Company Common Stock were held in the treasury of the Company, (c) 144,500
Shares of Company Common Stock were reserved for future issuance pursuant to
outstanding employee stock options granted pursuant to the 1991 Stock Incentive
Program ("Option Plans"), (d) no shares of Preferred Stock were issued and
outstanding, and (e) no shares of Preferred Stock were held in the treasury of
the Company. Since August 1, 1997, the Company has not issued or granted
additional options or restricted stock under the Option Plans. All outstanding
Shares of Company Common Stock are, and all Shares that may be issued pursuant
to the exercise of outstanding options under the Option Plans will be, when
issued in accordance with the respective terms thereof, duly authorized, validly
issued, fully paid and nonassessable. There are no bonds, debentures, notes or
other indebtedness having general voting rights (or convertible into securities
having such rights) ("Voting Debt") of the Company outstanding. Except as set
forth in this Section, as of the date hereof there are (i) no shares of capital
stock or other voting securities of the Company authorized, issued or
A-5
<PAGE> 85
outstanding, (ii) no existing options, warrants, calls, pre-emptive rights,
subscriptions or other rights, agreements, arrangements or commitments of any
character, relating to the issued or unissued capital stock of the Company or
any of the Company Subsidiaries, obligating the Company or any of the Company
Subsidiaries to issue, transfer or sell or cause to be issued, transferred or
sold any shares of capital stock or Voting Debt of, or other equity interest in,
the Company or any of the Company Subsidiaries or securities convertible into or
exchangeable for such shares or equity interests, or obligating the Company or
any of the Company Subsidiaries to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement, arrangement or commitment
and (iii) no outstanding contractual obligations of the Company or any of the
Company Subsidiaries to repurchase, redeem or otherwise acquire any Shares, or
the capital stock of the Company, or any Company Subsidiary or other Affiliate
of the Company or to provide funds to make any investment (in the form of a
loan, capital contribution or otherwise) in any Company Subsidiary or any other
entity other than loans to Company Subsidiaries in the ordinary course of
business.
Section 3.6 Company Subsidiaries. Other than the Company Subsidiaries,
the Company does not own any equity interest in any corporation or other entity
or any marketable securities where the Company's equity interest in any entity
exceeds five percent of the outstanding equity of such entity on the date
hereof. All of the outstanding capital stock of, or other ownership interest in,
each Company Subsidiary is owned by the Company and is owned free and clear of
any Lien and free of any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests). There are no outstanding (i) securities of
the Company or any Company Subsidiary convertible into or exchangeable for
shares of capital stock or other voting securities or ownership interests in any
Company Subsidiary, or (ii) options or other rights to acquire from the Company
or any Company Subsidiary, and no other obligation of the Company or, to the
knowledge of the Company, any Company Subsidiary to issue, any capital stock,
voting securities or other ownership interests in, or any securities convertible
into or exchangeable for any capital stock, voting securities or ownership
interests in, any Company Subsidiary (the items in clauses (i) and (ii) being
referred to collectively as the "Subsidiary Securities"). There are no
outstanding obligations of the Company or, to the knowledge of the Company, any
Company Subsidiary to repurchase, redeem or otherwise acquire any outstanding
Subsidiary Securities.
Section 3.7 Disclosure Documents. (a) Each document required to be filed
by the Company with the SEC in connection with the Transactions contemplated by
this Agreement (the "Company Disclosure Documents"), including, without
limitation, the Proxy Statement will, when filed, comply as to form in all
material respects with the applicable requirements of the Exchange Act.
(b) At the time the Proxy Statement or any amendment or supplement thereto
is first mailed to Shareholders, at the time such Shareholders vote on adoption
of this Agreement, and at the Effective Time, the Proxy Statement, as
supplemented or amended, if applicable, will not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading. At the time of the filing of any Company Disclosure
Document other than the Proxy Statement and at the time of any distribution
thereof, such Company Disclosure Document will not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading.
(c) The representations and warranties contained in this Section 3.7 will
not apply to statements or omissions included in any Company Disclosure
Documents (including, without limitation, the Proxy Statement) based upon
information furnished to the Company by the Parent or the Purchaser specifically
for use therein.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE PURCHASER
The Parent and the Purchaser represent and warrant to the Company that:
Section 4.1 Corporate Existence and Power. Each of the Parent and the
Purchaser is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Tennessee, and each has all corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to consummate the transactions contemplated by this
Agreement. Since the date of its incorporation, the Purchaser has not engaged in
any material activities other than in connection with or as contemplated by this
Agreement.
Section 4.2 Capitalization. The authorized capital stock of Purchaser
consists of 1,000 shares of common stock, par value $.001 per share, of which
1,000 shares are outstanding as of the Effective Time and are owned,
beneficially or of record, by Parent. All of the issued and outstanding shares
of capital stock of the Purchaser are validly issued, fully paid, nonassesable
and free of preemptive rights and all liens.
Section 4.3 Corporate Authorization. The execution, delivery and
performance by the Parent and the Purchaser of this Agreement and the
consummation by the Parent and the Purchaser of the Transactions contemplated
hereby are within the corporate powers of the Parent and the Purchaser and have
been duly authorized by all necessary corporate action. This Agreement
constitutes a valid and binding agreement of the Parent and the Purchaser.
Section 4.4 Governmental Authorization. The execution, delivery and
performance by the Parent and the Purchaser of this Agreement and the
consummation by the Parent and the Purchaser of the Transactions contemplated by
this Agreement require no action by or in respect of, or filing with, any
Governmental Authority other than (i) the filing of Articles of Merger in
accordance with the TBCA, (ii) compliance with any applicable requirements of
the Exchange Act, and (iii) filing under the HSR Act.
Section 4.5 Non-Contravention. The execution, delivery and performance by
the Parent and the Purchaser of this Agreement and the consummation by the
Parent and the Purchaser of the Transactions contemplated hereby do not and will
not (i) contravene or conflict with the charter or bylaws of the Parent or the
Purchaser, or (ii) assuming compliance with the matters referred to in Section
4.4, contravene or conflict with any material provision of Law or Order binding
upon or applicable to the Parent or the Purchaser.
Section 4.6 Disclosure Documents. The information with respect to the
Parent and its Affiliates that the Parent furnishes to the Company for use in
any Company Disclosure Document will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading (i) in the case of the Proxy Statement at the time the
Proxy Statement or any amendment or supplement thereto is first mailed to the
Shareholders, at the time the Shareholders vote on adoption of this Agreement
and at the Effective Time, and (ii) in the case of any Company Disclosure
Document other than the Proxy Statement, at the time of the filing thereof and
at the time of any distribution thereof.
Section 4.7 Finders' and Bankers' Fees. Except for William Blair & Co.,
there is no investment banker, broker, finder or other intermediary which has
been retained by or is authorized to act on behalf of the Parent or the
Purchaser who might be entitled to any fee or commission from the Parent and/or
the Purchaser in connection with the Transactions.
Section 4.8 Financing: Solvency Matters. (a) The Parent or Purchaser (as
the case may be) has engaged William Blair & Company to assist it and Company in
raising funds. Blair has obtained written commitments from Key Corporate Capital
Inc., KeyCorp Real Estate Capital Markets, Inc. (collectively the "Senior
Lenders")and RSTW Partners III, L.P. ("Subordinated Lender"), copies of which
have been provided to the Company and the Special Committee. The funds provided
by such commitments are sufficient to complete the merger contemplated
hereunder. Company and Parent shall use their reasonable business efforts to
close the loans reflected in the written commitments. Any material change in the
terms of the
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commitment or any new commitment must be approved by the Company and Parent,
which approval will not be unreasonable withheld by either party.
(b) Upon consummation of the Transactions, (i) the fair value of the
Surviving Corporation's assets will exceed the Surviving corporation's stated
liabilities and identified contingent liabilities, (ii) the Surviving
Corporation will be able to pay its debts as they become absolute and become due
in the usual course of business, and (iii) the capital remaining in the
Surviving Corporation after consummation of the Transactions will not be
unreasonably small for the business in which the Surviving corporation is
engaged and is proposed to be engaged following consummation of the
Transactions.
ARTICLE 5
COVENANTS
Section 5.1 Interim Operations of the Company. From the date hereof until
the Effective Time, the Company and the Company Subsidiaries shall conduct their
business in the ordinary course consistent with past practice and (except in
connection with the Merger) shall use all commercially reasonable efforts to
preserve intact their business organizations and relationships with third
parties and to keep available the services of their present officers and
employees. Without limiting the generality of the foregoing, from the date
hereof until the Effective Time, without the prior written consent of the
Parent:
(a) the Company will not, directly or indirectly, (i) except upon
exercise of employee stock options outstanding on the date hereof, issue,
sell, transfer or pledge or agree to sell, transfer or pledge any treasury
stock of the Company or any capital stock of any of the Company
Subsidiaries beneficially owned by it; (ii) amend its Charter or Bylaws or
similar organizational documents; or (iii) split, combine or reclassify the
outstanding Shares or Preferred Stock or any outstanding capital stock of
any of the Company Subsidiaries;
(b) neither the Company nor any of the Company Subsidiaries shall: (i)
declare, set aside or pay any dividend or other distribution payable in
cash, stock or property with respect to its capital stock, other than
dividends paid by Company Subsidiaries to the Company in the ordinary
course of business; (ii) issue, sell, pledge, dispose of or encumber any
additional shares of, or securities convertible into or exchangeable for,
or options, warrants, calls, commitments or rights of any kind to acquire,
any shares of capital stock of any class of the Company or the Company
Subsidiaries, other than Shares reserved for issuance on the date hereof
pursuant to the exercise of Company Options outstanding on the date hereof;
(iii) transfer, lease, license, sell, mortgage, pledge, dispose of, or
encumber any assets other than in the ordinary and usual course of business
and consistent with past practice, or incur or modify any indebtedness or
other liability, other than in the ordinary and usual course of business
and consistent with past practice; or (iv) redeem, purchase or otherwise
acquire directly or indirectly any of its capital stock;
(c) neither the Company nor any of the Company Subsidiaries shall: (i)
grant any increase in the compensation payable or to become payable by the
Company or any of the Company Subsidiaries to any of its executive
officers; or (ii) adopt any new, or amend or otherwise increase, or
accelerate the payment or vesting of the amounts payable or to become
payable under, any existing bonus, incentive compensation, deferred
compensation, severance, profit sharing, stock option, stock purchase,
insurance, pension, retirement or other employee benefit plan, agreement or
arrangement; or (iii) enter into any employment or severance agreement with
or, except in accordance with the existing written policies of the Company,
grant any severance or termination pay to any officer, director or employee
of the Company or any of the Company Subsidiaries;
(d) neither the Company nor any of the Company Subsidiaries shall
permit any insurance policy naming it as a beneficiary or a loss payable
payee to be canceled or terminated without notice to the Parent, except in
the ordinary course of business and consistent with past practice;
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(e) neither the Company nor any of the Company Subsidiaries shall
enter into any contract or transaction relating to the purchase of assets
other than in the ordinary course of business consistent with prior
practice;
(f) neither the Company nor any of the Company Subsidiaries shall
change any of the accounting methods used by it unless required by GAAP,
neither the Company nor any of the Company Subsidiaries shall make any
material tax election except in the ordinary course of business consistent
with past practice, change any material tax election already made, adopt
any material tax accounting method except in the ordinary course of
business consistent with past practice, change any material tax accounting
method unless required by GAAP, enter into any closing agreement, settle
any tax claim or assessment or consent to any tax claim or assessment or
any waiver of the statute of limitations for any such claim or assessment;
(g) neither the Company nor any of the Company Subsidiaries shall: (i)
incur or assume any long-term debt; (ii) except in the ordinary course of
business and consistent with past practice, incur or assume any short-term
indebtedness; (iii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the
obligations of any other Person; (iv) make any loans, advances or capital
contributions to, or investment in, any other Person (other than to Company
Subsidiaries or customary loans or advances to employees in accordance with
past practice); or (v) enter into any material commitment or transaction
(including, but not limited to, any borrowing, capital expenditure or
purchase, sale or lease of assets);
(h) neither the Company nor any of the Company Subsidiaries shall
settle or compromise any material claim, lawsuit, liability or obligation,
and neither the Company nor any of the Company Subsidiaries shall pay,
discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction of any such claims, liabilities or
obligation, (x) to the extent reflected or reserved against in, or
contemplated by, the consolidated financial statements (or the notes
thereto) of the Company and the Company Subsidiaries on a consolidated
basis, (y) incurred in the ordinary course of business and consistent with
past practice or (z) which are legally required to be paid, discharged or
satisfied;
(i) neither the Company nor any of the Company Subsidiaries will take,
or agree to commit to take, any action that would make any representation
or warranty of the Company contained herein inaccurate in any respect at,
or as of any time prior to, the Effective Time;
(j) neither the Company nor any of the Company Subsidiaries will enter
into an agreement, contract, commitment or arrangement to do any of the
foregoing, or to authorize, recommend, propose or announce an intention to
do any of the foregoing.
Section 5.2 Access to Information. From the date hereof until the
Effective Time, the Company will give the Parent and the Purchaser, and their
respective counsel, financial advisors, prospective lenders, auditors and other
authorized representatives full access to the offices, properties, books and
records of the Company and the Company Subsidiaries, will furnish to the Parent
and the Purchaser and their respective counsel, financial advisors, prospective
lenders, auditors and other authorized representatives such financial and
operating data and other information as such Persons may reasonably request and
will instruct the Company's employees, counsel, financial advisors and auditors
to cooperate with the Parent and the Purchaser in their investigation of the
business of the Company and the Company Subsidiaries; provided that no
investigation pursuant to this Section shall affect any representation or
warranty given by the Company to the Parent hereunder.
Section 5.3 Other Potential Bidders. The Company shall, directly or
indirectly, furnish information and access, in each case in response to
unsolicited requests therefor, received prior to or after the date of this
Agreement, to the same extent permitted by Section 5.2 hereof, to any Person
pursuant to appropriate confidentiality agreements, and may participate in
discussions and negotiate with any such Person concerning any merger, sale of
assets, sale of shares of capital stock or similar transaction involving the
Company or any Company Subsidiary or division of the Company (any such
transaction being referred to herein as a
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"Competing Transaction"), only if the Special Committee determines, that such
action is necessary in light of the fiduciary obligations of the Board of
Directors to the Public Shareholders after consultation with counsel. In such
event, the Company shall direct its officers and other appropriate personnel to
cooperate with and be reasonably available to consult with any such Person.
Except as set forth above, the Company shall not solicit, participate in or
initiate discussions or negotiations with, or provide any information to, any
Person (other than the Parent or the Purchaser) concerning any merger, sale of
assets, sale of shares of capital stock or similar transaction involving the
Company or any Company Subsidiary or division of the Company.
Section 5.4 Notices of Certain Events. Each party shall promptly notify
the other parties of:
(a) any notice or other communication received by such party from any
Person alleging that the consent of such Person is or may be required in
connection with the Transactions;
(b) any occurrence or non-occurrence of any event that would cause any
representation or warranty of such party contained in this Agreement to be
untrue or inaccurate in any material respect at or prior to the Effective
Time;
(c) any material failure of such party to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; and
(d) any notice or other communication from any Governmental Authority
in connection with the Transactions; provided, however, that the delivery
of any notice pursuant to this Section 5.4 shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
Section 5.5 Voting of Shares. (a) In any vote of the Shareholders with
respect to this Agreement and the Transactions, Martin, the Parent and the
Purchaser shall vote or cause to be voted all of the shares of Company Common
Stock beneficially owned by each such party in favor of the approval and
adoption of this Agreement and the Transactions.
(b) All Directors of the Company have agreed with the Company that they
will also vote all shares in favor of the approval and adoption of this
Agreement and the Transactions.
Section 5.6 Director and Officer Liability. For six years from and after
the Effective Time, the Parent will or will cause the Surviving Corporation to
indemnify and hold harmless the present and former officers and directors of the
Company and the Company Subsidiaries ("Indemnified Persons") in respect of acts
or omissions occurring at or prior to the Effective Time to the fullest extent
provided under the TBCA or under the Company's Charter and Bylaws in effect on
the date hereof. For such six years from and after the Effective Time, the
Parent will use all commercially reasonable efforts to provide, or to cause the
Surviving Corporation to provide, officers' and directors' liability insurance
in respect of acts or omissions occurring at or prior to the Effective Time
covering each such Person currently covered by the Company's officers' and
directors' liability insurance policy on terms with respect to coverage and
amount no less favorable than those of such policy in effect on the date hereof,
provided that if such coverage is not obtainable at an aggregate amount per
annum less than or equal to two times the aggregate amount per annum the Company
paid in its last full fiscal year, the Parent will purchase, or cause the
Surviving Corporation to purchase, such lesser amount of coverage, on terms as
similar in coverage as practicable to such coverage in effect on the date
hereof, as may be obtained having an aggregate per annum cost not to exceed two
times the aggregate amount per annum the Company paid in its last full fiscal
year, which amount has been disclosed to the Parent. Notwithstanding any
provision herein to the contrary, the covenants contained in this Section 5.6
shall survive the Effective Time and the consummation of the Transactions, are
intended to benefit the Indemnified Persons, and shall be binding on all
successors and assigns of the Parent and the Surviving Corporation.
Section 5.7 Best Efforts. Subject to the terms and conditions of this
Agreement, each party will use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done all things necessary, proper or
advisable under applicable Laws to consummate the Transactions contemplated by
this Agreement. Without limiting the generality of the foregoing, the Company
shall, and shall cause the Company Subsidiaries to, assist the Parent and the
Purchaser in obtaining financing necessary or desirable to complete the
Transactions, including, without limitation, executing on or after the Effective
Date such loan agreements,
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notes, guarantees, security agreements, certificates of representations and
warranties and other documents, and obtaining such opinions of counsel and
accountants' comfort letters, as may be reasonably requested by the Parent, the
Purchaser or their prospective lenders in connection with the receipt of the
financing necessary or desirable to complete the Transactions. Martin will use
his best efforts to take, or cause to be taken, all actions and to do, or cause
to be done, all things necessary, proper, or advisable under applicable laws to
consummate the Transactions contemplated by this Agreement, provided, however,
he (and the other stockholders of Parent) shall not be required to provide in
the aggregate more than $10 million of equity for the Parent. Martin shall keep
the Company informed of the progress in raising the necessary funds and shall
obtain binding commitments from reputable lenders for the necessary funds before
the Proxy Statement referred to in Section 5.11 is mailed.
Section 5.8 Certain Filings. The Company, the Parent and the Purchaser
shall cooperate with each other (a) in connection with the preparation of the
Company Disclosure Documents, (b) in determining whether any action by or in
respect of, or filing with, any Governmental Authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement, and (c) in seeking any such
actions, consents, approvals or waivers or making any such filings, furnishing
information required in connection therewith or with the Company Disclosure
Documents and seeking timely to obtain any such actions, consents, approvals or
waivers.
Section 5.9 Public Announcements. The Parent and the Company will consult
with each other before issuing any press release or making any public statement
with respect to this Agreement or the Transactions and, except as may be
required by applicable Law or any listing agreement with any national securities
exchange, will not issue any such press release or make any such public
statement prior to such consultation.
Section 5.10 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or the Purchaser,
any deeds, bills of sale, assignments or assurances and to take and do, in the
name and on behalf of the Company or the Purchaser, any other actions and things
they may deem desirable to vest, perfect or confirm of record or otherwise in
the Surviving Corporation any and all right, title and interest in, to and under
any of the rights, properties or assets of the Company acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger.
Section 5.11 Shareholders' Meeting. The Company shall, in accordance with
applicable Law:
(a) duly call, give notice of, convene and hold a special meeting of
the Shareholders (the "Special Meeting") as soon as reasonably practicable
for the purpose of considering and voting upon the approval of the
Transactions and the adoption of this Agreement, and comply with all legal
requirements applicable to such meeting;
(b) in connection with such meeting, promptly prepare and file with
the SEC a preliminary proxy or information statement, and a Schedule 13E-3
Transaction Statement required pursuant to Section 13(e) of the Exchange
Act (the "Schedule 13E-3"), relating to the Transactions and this Agreement
and use its best efforts (x) to obtain and furnish the information required
to be included by the SEC in such preliminary proxy statement and Schedule
13E-3 and, after consultation with the Parent, to respond promptly to any
comments made by the SEC with respect to the preliminary proxy or Schedule
13E-3 and cause a definitive proxy or information statement, including any
amendment or supplement thereto (the "Proxy Statement") to be mailed to the
Shareholders, provided that no amendment or supplement to the Proxy
Statement will be made by the Company without consultation with the Parent
and its counsel, and (y) to obtain the necessary approvals of the
Transactions and this Agreement by the Shareholders; and
(c) include in the Proxy Statement the recommendation of the Board
that the Shareholders vote in favor of the approval of the Transactions and
the adoption of this Agreement.
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ARTICLE 6
CONDITIONS TO THE MERGER
Section 6.1 Conditions to the Obligations of Each Party. The obligations
of the Company, the Parent and the Purchaser to consummate the Transactions are
subject to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived, in whole or in part, by each of
the parties intended to benefit therefrom, to the extent permitted by applicable
Law:
(a) this Agreement and the Transactions shall have been approved and
adopted by a majority of all Shares of the Company Common Stock entitled to
vote thereon, in accordance with Section 48-21-104 of the TBCA; and by a
majority of the shares of Company Common Stock entitled to vote thereon
held by the Public Shareholders.
(b) no Governmental Authority shall have enacted, issued, promulgated,
enforced or entered any Law or Order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the
Transactions illegal or otherwise prohibiting consummation of the
Transactions;
(c) all actions by or in respect of or filings with any Governmental
Authority required to permit the consummation of the Transactions shall
have been obtained, other than the filing of the requisite Articles of
Merger with the Secretary of State of Tennessee;
(d) at the time of mailing of the Proxy Statement, at the time of the
Special Meeting, and at the Effective Time, J. C. Bradford & Co. shall have
reaffirmed in writing the fairness opinion previously prepared and
delivered by it to the Special Committee and shall not have withdrawn such
opinion; and
Section 6.2 Additional Conditions to the Obligations of the Parent and the
Purchaser. The obligations of the Parent and the Purchaser to consummate the
Merger are also subject to the satisfaction at or prior to the Effective Time of
the following further conditions, any or all of which may be waived, in whole or
in part, by each of the parties intended to benefit therefrom, to the extent
permitted by applicable Law:
(a) the Company shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time, the representations and warranties of the Company contained
in this Agreement and in any certificate delivered by the Company pursuant
hereto shall be true and correct in all respects, except where the breach
or inaccuracy thereof would not, individually or in the aggregate, have a
Material Adverse Effect, at and as of the Effective Time as if made at and
as of such time, except that those representations and warranties which
address matters only as of a particular date shall remain true and correct
as of such date, and the Parent shall have received a certificate signed by
the principal financial officer of the Company to the foregoing effect;
(b) no Material Adverse Effect shall have occurred;
(c) the Parent shall have received or be satisfied that it will
receive all consents and approvals contemplated by Section 3.3 and any
other consents of third parties necessary in connection with the
consummation of the Merger if the failure to obtain any such consent would
have a Material Adverse Effect;
(d) the Parent and the Purchaser shall have obtained equity and debt
funds necessary to finance the Transactions, either through direct
obligations or through obligations entered into by the Company; and
(e) the Parent shall have received all documents it may reasonably
request relating to the existence of the Company and the authority of the
Company to enter into this Agreement, all in form and substance reasonably
satisfactory to the Parent.
Section 6.3 Additional Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are also subject to the
satisfaction at or prior to the Effective Time of
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the following further conditions, any or all of which may be waived, in whole or
in part, by the Company to the extent permitted by applicable Law:
(a) the Parent and the Purchaser shall have performed in all material
respects all of their respective obligations hereunder required to be
performed by them at or prior to the Effective Time, the representations
and warranties of the Parent and the Purchaser contained in this Agreement
and in any certificate delivered by the Parent or the Purchaser pursuant
hereto shall be true and correct in all material respects at and as of the
Effective Time as if made at and as of such time, except that those
representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date, and the
Company shall have received a certificate signed by the President or any
Vice President of each of the Parent and the Purchaser to the foregoing
effect;
(b) the Company shall have received all documents it may reasonably
request relating to the existence of the Parent or the Purchaser and the
authority of the Parent or the Purchaser to enter into this Agreement, all
in form and substance reasonably satisfactory to the Company.
ARTICLE 7
TERMINATION
Section 7.1 Termination. This Agreement may be terminated and the
Transactions may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the Shareholders):
(a) by mutual written consent of the Company (such determination to be
made on behalf of the Company by the Special Committee in its sole
discretion) and the Parent;
(b) by either the Parent or the Company (such determination to be made
on behalf of the Company by the Special Committee in its sole discretion),
if the Merger has not been consummated by January 30, 1998; provided,
however, that the right to terminate this Agreement under this Section
7.1(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date;
(c) by either the Parent or the Company (such determination to be made
on behalf of the Company by the Special Committee in its sole discretion),
if there shall be any Law that makes consummation of the Transactions
illegal or otherwise prohibited or if any Order enjoining the Parent or the
Company from consummating the Transactions is entered and such Order shall
become final and nonappealable;
(d) by either the Parent or the Company if this Agreement and the
Transactions shall fail to be approved and adopted by the required vote of
the Shareholders and the Public Shareholders of the Company at the Special
Meeting called for such purpose, as set forth in Section 6.1(a) above;
(e) by either the Parent or the Company (such determination to be made
on behalf of the Company by the Special Committee in its sole discretion),
if, consistent with the terms of this Agreement, the Board of Directors of
the Company withdraws, modifies or changes its recommendation of this
Agreement or the Transactions in a manner adverse to the Parent or the
Purchaser or shall have resolved to do any of the foregoing or the Board of
Directors of the Company shall have recommended to the Shareholders of the
Company any Competing Transaction or resolved to do so.
Section 7.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 7.1, this Agreement shall become void and of no effect with
no liability on the part of any party hereto, except that the agreements
contained in Section 8.6 shall survive the termination hereof; provided,
however, that, except as specifically provided herein, nothing herein shall
relieve any party hereto of liability for any breach of this Agreement.
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ARTICLE 8
MISCELLANEOUS
Section 8.1 Definitions. As used herein, the following terms have the
following respective meanings (such meanings to be equally applicable to both
the singular and plural forms of the terms defined):
"Affiliate" means, with respect to a Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such given Person.
"Agreement" means this Agreement and Plan of Merger, as the same may be
supplemented, modified or amended from time to time.
"Combination Act" means the Tennessee Business Combination Act, as amended.
"Company Common Stock" means the common stock, $.001 par value per share,
of the Company.
"Company Subsidiaries" means American Sign & Marketing Services, Inc. and
Plasti-Line Columbia, Inc.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Expenses" means all reasonable out-of-pocket expenses (including, without
limitation, all fees and expenses of counsel, accountants, investment bankers,
experts and consultants and commitment fees and other financing fees and
expenses) incurred by the Parent, the Purchaser or the Company or on behalf of
any such party in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement, the preparation,
printing, filing and mailing of the Proxy Statement and Schedule 13E-3, the
solicitation of the shareholder approvals and all other matters related to the
consummation of the transactions contemplated hereby.
"GAAP" means United States generally accepted accounting principles
consistently applied.
"Governmental Authority" means any federal, state, county, local, foreign
or other governmental or public agency, instrumentality, commission, authority,
board or body, and any court, arbitrator, mediator or tribunal.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and all regulations promulgated thereunder.
"Law" means any code, law, ordinance, regulation, rule or statute of any
Governmental Authority.
"Lien" means any security interest, lien, mortgage, deed to secure debt,
deed of trust, pledge, charge, conditional sale or other title retention
agreement, or other encumbrance of any kind.
"Material Adverse Effect" means any matter that would reasonably be
expected to affect materially and adversely the business, condition (financial
or otherwise) or results of operations of the Company and the Company
Subsidiaries considered as a whole.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or writ
of any federal, state, local or foreign or other court, arbitrator, mediator,
tribunal, administrative agency or other Governmental Authority.
"Person" means an individual, a corporation, a partnership, an association,
a trust, a limited liability company or any other entity or organization,
including a government or political subdivision or any agency or instrumentality
thereof.
"Preferred Stock" means the preferred stock, $.001 par value per share, of
the Company.
"Purchaser Common Stock" means the common stock, $.001 par value per share,
of the Purchaser.
"SEC" means the Securities and Exchange Commission.
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"Surviving Corporation" means the Company as the surviving corporation
resulting from the Merger.
"TBCA" means the Tennessee Business Corporation Act, as amended.
The following terms are defined in the following Sections of this
Agreement:
<TABLE>
<CAPTION>
TERM SECTION
- -------------------------------- -----------------
<S> <C>
"Bylaws" 1.2
"Certificates" 2.2(b)
"Charter" 1.2
"Closing" 1.4
"Closing Date" 1.4
"Company" Opening Paragraph
"Company Disclosure Documents" 3.9(a)
"Company 10-K" 3.7
"Company 10-Qs" 3.8
"Competing Transaction" 5.3
"Dissenting Shareholders" 2.1(d)
"Effective Time" 1.3
"Merger" 1.2
"Merger Consideration" 2.1(d)
"Parent" Opening Paragraph
"Paying Agent" 2.2(a)
"Proxy Statement" 1.6(b)
"Purchaser" Opening Paragraph
"Schedule 13E-3" 1.6(b)
"Share" 2.1
"Shareholders" 1.1
"Special Committee" 1.1
"Special Meeting" 1.6(a)
"Subsidiary Securities" 3.6
"Surviving Corporation" 1.2
"Transactions" 1.1
"Voting Debt" 3.5
</TABLE>
Section 8.2 Notices. Unless otherwise specifically provided herein, any
notice, demand, request or other communication herein requested or permitted to
be given shall be in writing and may be personally served, sent by overnight
courier service, or sent by telecopy with a confirming copy sent by United
States first-class mail, each with any postage or delivery charge prepaid. For
the purposes hereof, the addresses of the parties hereto (until notice of a
change thereof is delivered as provided in this Section) shall be as follows:
If to the Company: Plasti-Line, Inc.
c/o James F. Smith, Jr.
5508 Heathrow Drive
Knoxville, Tennessee 37919
Telephone: (423) 588-2878
Telecopy: (423) 584-4971
With a copy (which shall
not constitute notice) to: Bass, Berry & Sims, L.L.P.
2700 First American Center
Nashville Tennessee 37238-2700
Attn: Bob F. Thompson
Telephone: (615) 742-6200
Telecopy: (615) 742-6293
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If to the Parent or the
Purchaser: PL Acquisition Corp.
P.O. Box 59043
Knoxville, Tennessee 37950-9043
Attn: James Martin
Telephone: (423) 947-8464
Telecopy: (423) 947-8565
With a copy (which shall
not constitute notice) to: Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309
Attn: B. Harvey Hill, Jr.
Telephone: (404) 881-7446
Telecopy: (404) 881-777
Any notice provided hereunder shall be deemed to have been given on the
date delivered in person, or on the next business day after deposit with an
overnight courier service, or on the date received by telecopy transmissions.
Section 8.3 Survival of Representations and Warranties. The
representations and warranties contained herein and in any certificate delivered
pursuant hereto shall not survive the Effective Time or the termination of this
Agreement. Nothing in this Section 8.3 shall relieve any party for any breach of
any representation, warranty or agreement in this Agreement occurring prior to
termination, except that the Agreements in Article 2 and Section 5.6 hereof and
this Section 8.3 shall survive the Effective Time indefinitely and those set
forth in Section 8.6 hereof shall survive termination indefinitely.
Section 8.4 Enforcement of Agreement. Until the Effective Time, the
Special Committee shall continue in existence and shall have the right to cause
the Company to take any action necessary to enforce the rights of the Company
and the obligations of Martin, the Parent and the Purchaser under this
Agreement.
Section 8.5 Amendments; No Waivers. (a) Any provision of this Agreement
may be amended or waived prior to the Effective Time if, and only if, such
amendment or waiver is in writing and signed by all parties hereto, or in the
case of a waiver, by the party against whom the waiver is to be effective;
provided that any such amendment and any such waiver by the Company shall have
been approved by the Board of Directors of the Company, acting on the
recommendation of the Special Committee; and provided, further, that after the
adoption of this Agreement by the Shareholders and the Public Shareholders, no
such amendment or waiver shall, without the further approval of such
Shareholders and such Public Shareholders, alter or change (i) the amount or
kind of consideration to be received in exchange for any shares of capital stock
of the Company or (ii) any of the terms or conditions of this Agreement if such
alteration or change would adversely affect the holders of any shares of capital
stock of the Company.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 8.6 Expenses. All reasonable Expenses incurred by all parties in
connection with this Agreement and the consummation of the Transactions shall be
paid by the Company if the transaction is consummated. If the transaction is not
consummated, Parent shall pay its expenses related to the transaction of up to
$100,000 and the Company shall pay all other expenses, provided that Company
shall retain its rights, if any, under Section 7.2. Parent will not take any
action to change the Senior Lenders or Subordinated Lender so as to materially
increase the expenses payable by the Company without the prior consent of the
Company. The Company retains the right to negotiate directly any of the expenses
with the third parties that must be paid by the Company pursuant to this Section
8.6.
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Section 8.7 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto except that the Parent may
transfer or assign, in whole or from time to time in part, to one or more of its
Affiliates, its rights under this Agreement, but any such transfer or assignment
will not relieve the Parent of its obligations under this Agreement or prejudice
the rights of shareholders to receive the Merger Consideration for Shares
properly surrendered in accordance with Section 2.2. This Agreement shall not be
construed so as to confer any right or benefit upon any Person other than the
parties to this Agreement, and their respective successors and assigns.
Section 8.8 Governing Law. Regardless of the place or places where this
Agreement may be executed, delivered or consummated, this Agreement shall be
governed by and construed in accordance with the Laws of the State of Tennessee,
without regard to any applicable conflicts of Laws.
Section 8.9 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
Section 8.10 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
Section 8.11 Interpretations. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against any party, whether
under any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated and accepted by all parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of all parties
hereto.
Section 8.12 Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures were upon the same instrument. This Agreement shall
become effective when each party hereto shall have received counterparts hereof
signed by all of the other parties hereto.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf as of the day and year first above written.
<TABLE>
<S> <C>
PLASTI-LINE, INC.
Attest:
By: /s/ JAMES F. SMITH, JR.
/s/ MARK J. DEUSCHLE -----------------------------------------
- -------------------------------------------- James F. Smith, Jr.
Mark J. Deuschle, Secretary Chairman of the Special Committee
of the Board of Directors
PL HOLDING CORP.
Attest:
By: /s/ JAMES R. MARTIN
/s/ MARK J. DEUSCHLE, -----------------------------------------
- -------------------------------------------- James R. Martin
Mark J. Deuschle, Secretary Chairman of the Board
and President
</TABLE>
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EXHIBIT B
CHAPTER 23 OF THE TENNESSEE BUSINESS CORPORATION ACT
RELATING TO DISSENTING SHAREHOLDERS
TITLE 48, CHAPTER 23.
DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
48-23-101. DEFINITIONS
As used in this chapter, unless the context otherwise requires:
(1) "Beneficial shareholder" means the person who is a beneficial
owner of shares held by a nominee as the record shareholder;
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer;
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 48-23-102 and who exercises that right when
and in the manner required by part 2 of this chapter;
(4) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action;
(5) "Interest" means interest from the effective date of the corporate
action that gave rise to the shareholder's right to dissent until the date
of payment, at the average auction rate paid on United States treasury
bills with a maturity of six (6) months (or the closest maturity thereto)
as of the auction date for such treasury bills closest to such effective
date;
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation; and
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
48-23-102. RIGHT TO DISSENT
(a) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If shareholder approval is required for the merger by Section
48-21-104 or the charter and the shareholder is entitled to vote on the
merger; or
(B) If the corporation is a subsidiary that is merged with its
parent under Section 48-21-105;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one (1) year after the date of sale;
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(4) An amendment of the charter that materially and adversely affects
rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights; or
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share, if the fractional share is to be acquired for cash
under Section 48-16-104; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the charter, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(c) Notwithstanding the provisions of subsection (a), no shareholder may
dissent as to any shares of a security which, as of the date of the effectuation
of the transaction which would otherwise give rise to dissenters' rights, is
listed on an exchange registered under Section 6 of the Securities Exchange Act
of 1934, as amended, or is a "national market system security," as defined in
rules promulgated pursuant to the Securities Exchange Act of 1934, as amended.
48-23-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
(1) person and notifies the corporation in writing of the name and address of
each person on whose behalf the record shareholder asserts dissenters' rights.
The rights of a partial dissenter under this subsection are determined as if the
shares as to which the partial dissenter dissents and the partial dissenter's
other shares were registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares of
any one (1) or more classes held on the beneficial shareholder's behalf only if
the beneficial shareholder:
(1) Submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(2) Does so with respect to all shares of the same class of which the
person is the beneficial shareholder or over which the person has power to
direct the vote.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
48-23-201. NOTICE OF DISSENTERS' RIGHTS
(a) If proposed corporate action creating dissenters' rights under Section
48-23-102 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.
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(b) If corporate action creating dissenters' rights under Section 48-23-102
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in Section 48-23-203.
(c) A corporation's failure to give notice pursuant to this section will
not invalidate the corporate action.
48-23-202. NOTICE OF INTENT TO DEMAND PAYMENT
(a) If proposed corporate action creating dissenters' rights under Section
48-23-102 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights must:
(1) Deliver to the corporation, before the vote is taken, written
notice of the shareholder's intent to demand payment for the shareholder's
shares if the proposed action is effectuated; and
(2) Not vote the shareholder's shares in favor of the proposed action.
No such written notice of intent to demand payment is required of any
shareholder to whom the corporation failed to provide the notice required
by Section 48-23-201.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for the shareholder's shares under this chapter.
48-23-203. DISSENTERS' NOTICE
(a) If proposed corporate action creating dissenters' rights under Section
48-23-102 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Section 48-23-202.
(b) The dissenters' notice must be sent no later than ten (10) days after
the corporate action was authorized by the shareholders or effectuated,
whichever is the first to occur, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the principal terms
of the proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person asserting dissenters'
rights acquired beneficial ownership of the shares before that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than one (1) nor more than two (2)
months after the date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this chapter if the corporation has
not previously sent a copy of this chapter to the shareholder pursuant to
Section 48-23-201.
48-23-204. DUTY TO DEMAND PAYMENT
(a) A shareholder sent a dissenters' notice described in Section 48-23-203
must demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to Section 48-23-203(b)(3), and deposit the
shareholder's certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (a) retains all other rights of a
shareholder until these rights are canceled or modified by the effectuation of
the proposed corporate action.
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(c) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
(d) A demand for payment filed by a shareholder may not be withdrawn unless
the corporation with which it was filed, or the surviving corporation, consents
thereto.
48-23-205. SHARE RESTRICTIONS
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is effectuated or the restrictions released under Section 48-23-207.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the effectuation of the proposed corporate
action.
48-23-206. PAYMENT
(a) Except as provided in Section 48-23-208, as soon as the proposed
corporate action is effectuated, or upon receipt of a payment demand, whichever
is later, the corporation shall pay each dissenter who complied with Section
48-23-204 the amount the corporation estimates to be the fair value of each
dissenter's shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial
statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under
Section 48-23-209; and
(5) A copy of this chapter if the corporation has not previously sent
a copy of this chapter to the shareholder pursuant to Section 48-23-201 or
Section 48-23-203.
48-23-207. FAILURE TO TAKE ACTION
(a) If the corporation does not effectuate the proposed action that gave
rise to the dissenters' rights within two (2) months after the date set for
demanding payment and depositing share certificates, the corporation shall
return the deposited certificates and release the transfer restrictions imposed
on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation effectuates the proposed action, it must send a
new dissenters' notice under Section 48-23-203 and repeat the payment demand
procedure.
48-23-208. AFTER-ACQUIRED SHARES
(a) A corporation may elect to withhold payment required by Section
48-23-206 from a dissenter unless the dissenter was the beneficial owner of the
shares before the date set forth in the dissenters' notice as the date of the
first announcement to news media or to shareholders of the principal terms of
the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after effectuating the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full satisfaction of the
dissenter's demand. The corporation
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<PAGE> 101
shall send with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a statement of
the dissenter's right to demand payment under Section 48-23-209.
48-23-209. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
(a) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate (less any payment under
Section 48-23-206), or reject the corporation's offer under Section 48-23-208
and demand payment of the fair value of the dissenter's shares and interest due,
if:
(1) The dissenter believes that the amount paid under Section
48-23-206 or offered under Section 48-23-208 is less than the fair value of
the dissenter's shares or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under Section 48-23-206
within two (2) months after the date set for demanding payment; or
(3) The corporation, having failed to effectuate the proposed action,
does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within two (2) months after
the date set for demanding payment.
(b) A dissenter waives the dissenter's right to demand payment under this
section unless the dissenter notifies the corporation of the dissenter's demand
in writing under subsection (a) within one (1) month after the corporation made
or offered payment for the dissenter's shares.
PART 3. JUDICIAL APPRAISAL OF SHARES
48-23-301. COURT ACTION
(a) If a demand for payment under Section 48-23-209 remains unsettled, the
corporation shall commence a proceeding within two (2) months after receiving
the payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the proceeding
within the two-month period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(b) The corporation shall commence the proceeding in a court of record
having equity jurisdiction in the county where the corporation's principal
office (or, if none in this state, its registered office) is located. If the
corporation is a foreign corporation without a registered office in this state,
it shall commence the proceeding in the county in this state where the
registered office of the domestic corporation merged with or whose shares were
acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one (1) or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment:
(1) For the amount, if any, by which the court finds the fair value of
the dissenter's shares, plus accrued interest, exceeds the amount paid by
the corporation; or
(2) For the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under Section 48-23-208.
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48-23-302. COURT COSTS AND COUNSEL FEES
(a) The court in an appraisal proceeding commenced under Section 48-23-301
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under Section 48-23-209.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable against:
(1) The corporation and in favor of any or all dissenters if the court
finds the corporation did not substantially comply with the requirements of
part 2 of this chapter; or
(2) Either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefited.
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EXHIBIT C
November 3, 1997
Special Committee of the Board of Directors
Plasti-Line, Inc.
623 E. Emory Road
Knoxville, Tennessee 37950
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the Public Shareholders of the outstanding common stock, par value
$0.001 per share (the "Common Stock") of Plasti-Line, Inc. (the "Company"), of
the Merger Consideration proposed to be received by such holders pursuant to the
Agreement and Plan of Merger, (the "Merger Agreement"), dated as of November 3,
1997 among the Company, PL Holding Corp., a Tennessee corporation ("Parent"), PL
Acquisition Corp., a Tennessee corporation and a wholly owned subsidiary of
Parent ("Merger Sub"), and James R. Martin, Chairman of the Board and Chief
Executive Officer of the Company and beneficial owner of approximately 47% of
the outstanding voting power of the Company's Common Stock ("Martin").
Capitalized terms used herein, if not otherwise defined herein, shall have the
respective meanings set forth in the Merger Agreement.
The Merger Agreement provides for the merger of Merger Sub with and into
the Company (the "Merger"), with the Company being the surviving corporation
(the "Surviving Corporation"). Following the Merger, the Company will be a
direct wholly owned subsidiary of Parent. Pursuant to the Merger, (i) each
outstanding share of Common Stock (other than shares held by the Company as
treasury stock or shares beneficially owned by Parent or by shareholders who do
not vote in favor of the Merger Agreement and who perfect their dissenters'
rights under Chapter 23 of the Tennessee Business Corporation Act ("TBCA")),
will receive $14.50 per share in cash, without interest (the "Merger
Consideration"), (ii) each outstanding share of Common Stock beneficially, owned
by Parent or held by the Company as treasury stock will be canceled without
consideration, and (iii) each outstanding share of Merger Sub common stock, par
value $.001 per share, will be converted into one share of common stock of the
Surviving Corporation. As a result of the Merger, current shareholders of the
Company (other than Parent) will no longer have any equity interest in the
Company. The terms and conditions of the Merger are more fully set forth in the
Merger Agreement.
J.C. Bradford & Co., L.L.C., as part of its investment banking business,
engages in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements and valuations for estate, corporate
and other purposes. We have acted as financial advisor to the Special Committee
of the Board of Directors of the Company in connection with the proposed Merger
and will receive a fee from the Company for our services.
In conducting our analysis and arriving at our opinion, we have considered
such financial and other information as we deemed appropriate including, among
other things, the following: (i) the Merger Agreement; (ii) the historical and
current financial position and results of operations of the Company; (iii)
certain internal financial analyses and forecasts of the Company for the fiscal
years beginning January 1, 1997 and ending December 31, 2002, prepared for the
Company by its senior management; (iv) certain financial and securities data of
certain other companies, the securities of which are publicly traded and that we
believed to be comparable to the Company; (v) prices and premiums paid in
certain other acquisitions and transactions that we believed to be relevant;
(vi) historical and current price and trading activity for the Common Stock; and
(vii) such other financial studies, analyses and investigations as we deemed
appropriate for purposes of our opinion. We also have held discussions with
members of the senior management of the Company regarding the past and current
business operations, financial condition and future prospects of the Company.
With your permission, we have assumed that financing for the Merger has been
irrevocably obtained on terms previously reviewed by us in commitment letters
from lenders, and that the Merger Agreement has been executed and delivered by
the parties thereto on terms substantially similar to those contained in the
most recent draft of the Merger Agreement supplied to and reviewed by us.
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We have taken into account our assessment of general economic, market and
financial and other conditions and our experience in other transactions, as well
as our experience in securities valuation and our knowledge of the industries in
which the Company operates generally. Our opinion is necessarily based upon the
information made available to us and conditions as they currently exist and can
be evaluated as of the date hereof. We have relied upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of our opinion and have not assumed any responsibility for, nor
undertaken an independent verification of, such information. With respect to the
internal operating data and financial analyses and forecasts supplied to us, we
have assumed that such data, analyses and forecasts were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's senior management as to the recent and likely future performance of
the Company. Accordingly, we express no opinion with respect to such analyses or
forecasts or the assumptions on which they are based.
We were not asked to consider and our opinion does not address the relative
merits of the proposed Merger as compared to any alternative business strategies
that might exist for the Company or the effect of any other transactions in
which the Company might engage, which alternatives we were asked not to
consider. Furthermore, we were not asked to propose, nor did we propose, the
consideration to be received by the Public Shareholders in the Merger, nor have
we made an independent evaluation or appraisal of the assets and liabilities of
the Company or any of its subsidiaries or affiliates.
The Company is entitled to reproduce this opinion, in whole but not in
part, in the Merger documents, the Schedule 13E-3 and Proxy Statement as
required by applicable law or appropriate; provided, that any excerpt from or
reference to this opinion (including any summary thereof) in such documents must
be approved by us in advance in writing. Notwithstanding the foregoing, this
opinion does not constitute a recommendation to any holder of Common Stock to
vote in favor of the Merger.
Based upon and subject to the foregoing, and based upon such other matters
as we consider relevant, it is our opinion that, as of the date hereof, the
Merger Consideration to be received by the Public Shareholders in the Merger is
fair to such holders from a financial point of view.
Very truly yours,
J. C. BRADFORD & CO., L.L.C.
By: /s/ D. BRECK WALKER
------------------------------------
D. Breck Walker
Managing Director
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EXHIBIT D
[ALSTON & BIRD LETTERHEAD TO COME]
November 4, 1997
Board of Directors
Plasti-Line, Inc.
623 E. Emory Road
Knoxville, Tennessee 37849
Re: Tax Opinion Regarding the Agreement and Plan of Merger Among Plasti-Line,
Inc., PL Holding Corp., PL Acquisition Corp., and James R. Martin
Dear Gentlemen:
We have acted as tax counsel for Plasti-Line, Inc. ("Plasti-Line") in
connection with that certain Agreement and Plan of Merger dated as of November
3, 1997 ("Agreement") among Plasti-Line, PL Holding Corp., PL Acquisition Corp.
("Merger Sub"), and James R. Martin, which provides for the merger ("Merger") of
Merger Sub with and into Plasti-Line. In our capacity as counsel to Plasti-Line,
our opinion has been requested with respect to certain of the federal income tax
consequences of the Merger.
In rendering this opinion, we have examined (i) the Internal Revenue Code
of 1986, as amended (the "Code"), and Treasury Regulations, (ii) the legislative
history of applicable sections of the Code, and (iii) appropriate Internal
Revenue Service and court decisional authority. In addition, we have relied upon
certain assumptions as more fully described below. All terms used herein without
definition shall have the respective meanings specified in the Agreement and,
unless otherwise specified, all section references herein are to the Code.
INFORMATION RELIED UPON
In rendering the opinions expressed herein, we have examined such documents
as we have deemed appropriate, including:
(1) The Agreement;
(2) Preliminary Proxy Materials of Plasti-Line relating to a Special
Meeting of Plasti-Line's shareholders, whereby such shareholders will vote
upon a proposal to approve and adopt the Agreement and related transaction
(the "Proxy Materials"); and
(3) Such additional documents as we have considered relevant.
In our examination of the documents, we have assumed with your consent that
all documents submitted to us as photocopies faithfully reproduce the originals
thereof, that such originals are authentic, that all such documents have been or
will be duly executed to the extent required, and that all statements set forth
in such documents are accurate.
We have also obtained such additional information and representations as we
have deemed relevant and necessary through consultation with various officers
and representatives of Plasti-Line and PL Holding Corp.
As we understand the transaction, pursuant to the Agreement, Merger Sub
will merge into Plasti-Line. Pursuant to the Merger, each outstanding share of
Plasti-Line common stock, $.001 par value per share ("Common Stock"), other than
shares beneficially owned by PL Holding Corp. or shares owned by Plasti-Line as
treasury stock (the "Public Shares"), will receive $14.50 per share in cash,
without interest, with the exception of any Public Shares held by shareholders
who perfect their dissenters' rights in accordance with Tennessee law. After the
Merger, Plasti-Line will be the surviving corporation and will be a wholly owned
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<PAGE> 106
subsidiary of PL Holding Corp. As a result of the Merger, the holders of the
Public Shares (the "Public Shareholders") will no longer have any equity
interest in Plasti-Line.
OPINION
Based upon and subject to the foregoing, it is our opinion that:
1. The Merger, in which the Public Shareholders will receive cash for
their Common Stock, will be treated as a sale of the Common Stock by the
Public Shareholders and will be a taxable event for federal income tax
purposes. Rev. Rul. 73-427, 1973-2 C.B. 301; Rev. Rul. 79-273, 1979-2 C.B.
125.
2. The Public Shareholders will recognize a capital gain or a capital
loss assuming the Common Stock is a capital asset in the hands of the
Public Shareholders. I.R.C. Section 1001.
3. Assuming the Common Stock is a capital asset, the amount of capital
gain or loss recognized by each Public Shareholder will be equal to the
difference between the amount of cash received pursuant to the Merger and
the tax basis of the Common Stock held by such Public Shareholder. I.R.C.
Section 1001.
4. Any capital gain or loss will be a long-term capital gain or loss
assuming that the Public Shareholder has held the Common Stock for more
than 12 months. I.R.C. Section 1222. The maximum rate of capital gains tax
for corporations is 35%. The maximum rate of tax on net capital gains of
individuals, trusts, and estates, however, will depend upon the length of
the period that the Common Stock was held. If the Common Stock was held for
more than 18 months, the maximum rate of capital gains tax is 20% (for
fifteen percent bracket taxpayers, such maximum rate is reduced to 10%).
I.R.C. Section 1, as amended. If the Common Stock was held for more than
one year but not more than 18 months, the maximum rate of capital gains tax
remains at 28%. I.R.C. Section 1, as amended.
5. The description of tax consequences of the Merger contained in the
Proxy Materials is an accurate description of the material federal income
tax consequences thereof.
CONCLUSION
The opinions expressed herein are based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time with
retroactive effect. In addition, our opinions are based solely on the documents
that we have examined, the additional information that we have obtained, and the
statements set out herein, which we have assumed are true on the date hereof and
will be true on the date on which the Merger is consummated. Our opinions cannot
be relied upon if any of the facts pertinent to the federal income tax treatment
of the Merger stated in such documents or in such additional information is, or
later becomes, inaccurate, or if any of the statements set out herein are, or
later become, inaccurate. Finally, our opinions are limited to the tax matters
specifically covered thereby, and we have not been asked to address, nor have we
addressed, any other tax consequences of the Merger.
We hereby consent to the use of this opinion and to the references made to
the firm under the captions "Summary -- Federal Income Tax Consequences" and
"Special Factors -- Certain Federal Income Tax Consequences of the Merger" in
the Proxy Materials.
Very truly yours,
Alston & Bird LLP
By: /s/ PINNEY L. ALLEN
------------------------------------
Pinney L. Allen
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<PAGE> 1
EXHIBIT (d)(3)
PROXY CARD
REVOCABLE PROXY-SOLICITED BY THE BOARD OF DIRECTORS
OF
PLASTI-LINE, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR A
SPECIAL MEETING OF SHAREHOLDERS.
The undersigned hereby appoints _____________, ______________ and
____________ and each of them, proxies, with full power of substitution, to vote
for and in the name of the undersigned at a Special Meeting of Shareholders (the
"Special Meeting") of Plasti-Line, Inc. (the "Company"), to be held at the
Company's corporate offices, 623 East Emory Road, Knoxville, Tennessee on
__________, ______________ ___, 1997 at 10:00 a.m., local time, and at any and
all adjournments thereof, as indicated on the reverse.
THIS PROXY CARD WILL BE VOTED AS DIRECTED. IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY CARD WILL BE VOTED IN THE DISCRETION OF THE PROXIES "FOR"
THE PROPOSAL.
If the undersigned elects to withdraw this proxy card at or before the
time of the Special Meeting or any adjournments thereof and notifies an
authorized representative of the Company at or prior to the Special Meeting of
the decision of the undersigned to withdraw this proxy card, then the power of
said proxies shall be deemed terminated and of no further force and effect. If
the undersigned withdraws this proxy card in the manner described above and
prior to the Special Meeting does not submit a duly executed and subsequently
dated proxy card to the Company, the undersigned may vote in person at the
Special Meeting.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENCLOSED
PREPAID ENVELOPE.
(CONTINUED, AND TO BE SIGNED AND DATED, ON THE REVERSE SIDE)
FOR AGAINST ABSTAIN THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THE FOLLOWING PROPOSAL
[ ] [ ] [ ]
Approval and adoption of the Agreement and Plan of
Merger (the "Merger Agreement") among the Company, PL
Holding Corp., PL Acquisition Corp., a wholly owned
subsidiary of PL Holding Corp. ("Merger Sub"), and
James R. Martin, pursuant to which, among other
things, (a) Merger Sub will be merged into the
Company (the "Merger") with the Company being the
surviving corporation (the "Surviving Corporation")
and pursuant to which the separate existence of
Merger Sub will cease, (b) each outstanding share of
the Company's common stock, $.001 par value per share
(the "Common Stock"), except Common Stock held by the
Company as treasury stock or beneficially owned by PL
Holding Corp. or by persons who perfect their
dissenters' rights under Tennessee law, will be
converted into the right to receive $14.50 in cash,
without interest, (c) each outstanding share of
Common Stock beneficially owned by PL Holding Corp.
or held by the Company as treasury stock will be
canceled without consideration, and (d) each
outstanding share of Merger Sub common stock will be
converted into one share of common stock of the
Surviving Corporation.
Signature________________________ Signature_____________________ Date___________
Please sign exactly as your name appears above. If a corporation, please sign by
the president or other authorized officer and include title. If a partnership,
please sign by an authorized person and include title.
Please mark, sign, date and mail this proxy card promptly, using the enclosed
envelope.
<PAGE> 1
EXHIBIT (d)(4)
PLASTI-LINE TO BEGIN GOING-PRIVATE DISCUSSIONS
Knoxville, Tennessee
July 30, 1997
PLASTI-LINE, INC. ("SIGN") announced today that its Board of Directors
has received a merger proposal from James R. Martin, Chairman of the Board and
Chief Executive Officer of Plasti-Line. Under the terms of this proposal, Mr.
Martin intends to form a new corporation, which may include as shareholders
certain key management personnel of Plasti-Line, which intends to acquire all of
the outstanding common stock of Plasti-Line not owned by such corporation at a
price of $13.50 per share in cash.
The Board of Directors of Plasti-Line has authorized a special
committee of independent directors to negotiate with the proposed acquiring
corporation and to determine whether to approve any such acquisition on behalf
of the Board. Plasti-Line said that there can be no assurance at this time as to
whether or not any transaction will occur or as to the timing or terms of any
transaction.
Mr. Martin, who currently beneficially owns 46.4% of Plasti-Line's
outstanding common stock, including shares issuable upon the exercise of certain
stock options, has stated to the Board that he has no current intent to sell his
shares of Plasti-Line common stock to a third party.
Plasti-Line designs, markets, produces and installs interior and
exterior brand identity and point of purchase marketing products and systems for
retailers and manufacturers.
<PAGE> 1
EXHIBIT (d)(5)
PLASTI-LINE SPECIAL COMMITTEE
ACCEPTS $14.50 PER SHARE OFFER AND
ENTERS INTO MERGER AGREEMENT
Knoxville, Tennessee
November 4, 1997
PLASTI-LINE, INC. ("SIGN") announced today that it has entered into a
definitive Agreement and Plan of Merger (the "Merger Agreement") with PL
Holding Corp., PL Acquisition Corp. (a wholly owned subsidiary of PL Holding
Corp.), and James R. Martin, Chairman of the Board and Chief Executive Officer
of Plasti-Line. Mr. Martin, who beneficially owns approximately 47% of
Plasti-Line's outstanding common stock, formed PL Holding Corp. for the
purposes of this transaction. Certain other members of Plasti-Line's
management will become stockholders of PL Holding Corp., along with Mr. Martin,
on or before closing. The Merger Agreement is expected to result in the
purchase by PL Holding Corp. of the shares of Plasti-Line common stock not
currently owned by Mr. Martin or such management group. At the time of the
merger, PL Acquisition Corp. will be merged into Plasti-Line, and Plasti-Line
will become a wholly owned subsidiary of PL Holding Corp.
A special committee of independent directors of the Board of
Plasti-Line has negotiated with Mr. Martin, who acted on behalf of PL Holding
Corp. They have agreed that the merger price for the Plasti-Line common stock
will be $14.50 in cash per share
Negotiations regarding the merger began in July 1997. The merger is
subject to approval of the definitive Merger Agreement by a majority of the
owners of the Plasti-Line shares not owned by Mr. Martin, the management group
or their affiliates. The merger is also subject to PL Holding Corp. obtaining
the financing necessary to pay the merger price and consummate the other
transactions involved in the merger.
Plasti-Line designs, markets, produces and installs interior and
exterior brand identity and point of purchase marketing products and systems for
retailers and manufacturers.
