<PAGE>
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PUBCO CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 3955 53-0246410
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) I.D. Number)
3830 Kelley Avenue, Cleveland, Ohio 44114 (216) 881-5300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Jay Goldblatt, Pubco Corporation
3830 Kelley Avenue, Cleveland, Ohio 44114 (216) 881-5300 Ext. 3206
(Name, address, including zip code, and telephone number, including area code,
of Agent for service)
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
: : : : : :
: Title of Each Class : Amount : Proposed Maximum : Proposed Maximum : Amount of :
: of Securities to be : to be : Offering Price : Aggregate Offering : Registration :
: Registered : Registered : Per Unit : Price : Fee :
: : : : : :
: Common Stock : 295,994 : (2) : (2) : $631 (3) :
: par value $.01 : Shares (1) : : : :
<FN>
(1) Based upon the maximum number of shares that may be issued in the Transactions described
herein.
(2) Pursuant to Rule 457(f)(1), based on 1/29 of 1% of the product of the average of the
high and low prices reported by NASDAQ on the last day of trading through April 25, 1996
for Bobbie Brooks, Incorporated ($1.312) and Aspen Imaging International, Inc. ($.797)
multiplied by the number of shares of those companies (465,760 Brooks and 1,528,568
Aspen) exchanged for Pubco shares registered hereby.
(3) A fee of $440 was paid on October 26, 1995 with respect to these transactions pursuant
to a filing of preliminary Schedule 14C material. Pursuant to Rule 457(b), only an
additional $191 is required to be paid with this Registration Statement.
</TABLE>
<PAGE>
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
Pubco Corporation
Cross Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
Form S-4
Item Number and Headings Location in Prospectus
1. Forepart of Registration Statement Outside Front Cover Page
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back AVAILABLE INFORMATION;
Cover Pages of Prospectus TABLE OF CONTENTS
3. Risk Factors, Ratio of Earnings SUMMARY; SPECIAL CONSIDERATION
to Fixed Charges and Other
Information
4. Terms of the Transactions SUMMARY; INTRODUCTION; THE
TRANSACTIONS; DIFFERENCES AMONG THE
RIGHTS OF ASPEN STOCKHOLDERS,
BROOKS STOCKHOLDERS AND PUBCO
STOCKHOLDERS
5. Pro Forma Financial Information PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION (UNAUDITED)
OF PUBCO
6. Material Contacts with Company THE TRANSACTIONS - Background of the
Being Acquired Transactions; RELATIONSHIP BETWEEN
ASPEN AND BROOKS AND OTHER
TRANSACTIONS
7. Additional Information Required *
for Re-offering by Persons and
Parties Deemed to be Underwriters
*Indicates that Item is not applicable or answer is in the negative.
<PAGE>
Pubco Corporation
Cross Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
Page 2
Form S-4
Item Number and Headings Location in Prospectus
8. Interests of Named Experts and SPECIAL CONSIDERATION; SECURITY
Counsel OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF BROOKS;
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF
PUBCO; DIRECTORS AND EXECUTIVE
OFFICERS OF PUBCO; MANAGEMENT
COMPENSATION OF PUBCO
9. Disclosure of Commission Position *
on Indemnification For Securities
Act Liabilities
10. Information With Respect to *
S-3 Registrants
11. Incorporation of Certain *
Information by Reference
12. Information With Respect to *
S-2 or S-3 Registrants
13. Incorporation of Certain *
Information by Reference
14. Information With Respect to DESCRIPTION OF BUSINESS OF PUBCO;
Registrants Other Than PROPERTIES OF PUBCO; LEGAL
S-3 or S-2 Registrants PROCEEDINGS; MARKET FOR PUBCO
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS; SELECTED
FINANCIAL DATA OF PUBCO;
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF PUBCO;
FINANCIAL STATEMENTS
*Indicates that Item is not applicable or answer is in the negative.
<PAGE>
Pubco Corporation
Cross Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
Page 3
Form S-4
Item Number and Headings Location in Prospectus
15. Information With Respect to *
S-3 Companies
16. Information With Respect to *
S-2 or S-3 Companies
17. Information With Respect to DESCRIPTION OF BUSINESS OF ASPEN;
Companies Other Than DESCRIPTION OF BUSINESS OF BROOKS;
S-2 or S-3 Companies PROPERTIES OF ASPEN; LEGAL
PROCEEDINGS OF ASPEN; LEGAL
PROCEEDINGS OF BROOKS; MARKET FOR
ASPEN COMMON STOCK AND RELATED
STOCKHOLDER MATTERS; MARKET FOR
BROOKS COMMON STOCK AND RELATED
STOCKHOLDER MATTERS; FINANCIAL
STATEMENTS; SELECTED FINANCIAL DATA
OF ASPEN; SELECTED FINANCIAL DATA
OF BROOKS; MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ASPEN;
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF BROOKS
18. Information if Proxies, Consents INTRODUCTION; VOTING SECURITIES;
or Authorizations Are to be SPECIAL CONSIDERATION; SECURITY
Solicited OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF ASPEN;
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF
BROOKS; SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF PUBCO; DIRECTORS AND
OFFICERS OF PUBCO; MANAGEMENT
COMPENSATION OF PUBCO; COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION; RELATIONSHIP BETWEEN
ASPEN AND BROOKS AND OTHER
TRANSACTIONS
*Indicates that Item is not applicable or answer is in the negative.
<PAGE>
Pubco Corporation
Cross Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
Page 4
Form S-4
Item Number and Headings Location in Prospectus
19. Information if Proxies, Consents Outside Front Cover Page;
or Authorizations Are Not to be INTRODUCTION; SECURITY OWNERSHIP OF
Solicited, or in an Exchange Offer CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF ASPEN; SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF BROOKS;
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF
PUBCO; DIRECTORS AND OFFICERS OF
PUBCO; MANAGEMENT COMPENSATION OF
PUBCO; COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER
PARTICIPATION; RELATIONSHIP BETWEEN
ASPEN AND BROOKS AND OTHER
TRANSACTIONS
*Indicates that Item is not applicable or answer is in the negative.
<PAGE>
PUBCO CORPORATION
3830 Kelley Avenue
Cleveland, OH 44114
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held
June 27, 1996
To the Stockholders of Pubco Corporation:
Notice is hereby given that a Special Meeting of Stockholders
of Pubco Corporation (the "Company") will be held at the Ramada Inn,
I-295 and Route 13 North, New Castle, Delaware 19720 at 10:30 a.m.
Eastern Time on June 27, 1996 or at any postponement or adjournment
thereof for the purpose of considering and acting upon the following
matters:
1. A proposal to amend the Company's Certificate of Incorporation
to increase the number of authorized shares of Common Stock to
5,000,000.
2. A proposal to approve and adopt the Agreement and Plan of Merger
between the Company and Bobbie Brooks, Incorporated ("Brooks")
pursuant to which Brooks will be merged with and into the
Company and each six outstanding shares of the Brooks Common
Stock will be converted into the right to receive one share of
the Company's Common Stock.
3. A proposal to acquire all of the assets of Aspen Imaging
International, Inc. in exchange for Common Stock of the Company.
4. Any other business that properly may come before the meeting.
Additional information relating to these matters is set forth in
the attached Proxy Statement/Information Statement-Prospectus. All
stockholders of record of the Company as of the close of business on
May 6, 1996 will be entitled to notice of and to vote at such meeting
or at any adjournment thereof.
By Order of the Board of Directors
Stephen R. Kalette
Secretary
<PAGE>
ASPEN IMAGING INTERNATIONAL, INC.
3830 Kelley Avenue
Cleveland, OH 44114
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held
June 27, 1996
To the Stockholders of Aspen Imaging International, Inc.:
Notice is hereby given that a Special Meeting of Stockholders of
Aspen Imaging International, Inc. (the "Company") will be held at the
Ramada Inn, I-295 and Route 13 North, New Castle, Delaware 19720 at
11:30 a.m. Eastern Time on June 27, 1996 or at any postponement or
adjournment thereof for the purpose of considering and acting upon the
following matters:
1. A proposal to approve the sale of all of the assets of the
Company to a subsidiary of Pubco Corporation ("Pubco") pursuant
to Section 271 of the Delaware General Corporation Law in
exchange for Common Stock of Pubco, and the liquidation and
dissolution of the Company, resulting in the Company ceasing to
exist and each stockholder of the Company receiving one share of
Pubco Common Stock for each seven shares of the Company's Common
Stock.
2. Any other business that properly may come before the meeting.
Additional information relating to these matters is set forth in
the attached Proxy Statement/Information Statement-Prospectus. All
stockholders of record of the Company as of the close of business on
May 6, 1996 will be entitled to notice of and to vote at such meeting
or at any adjournment thereof.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. IN ANY
EVENT, YOU ARE URGED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY AS SOON
AS POSSIBLE. A BUSINESS REPLY ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. THE GIVING OF A PROXY WILL NOT PREVENT YOU FROM REVOKING
THE PROXY AND VOTING YOUR SHARES IN PERSON IF YOU ATTEND THE MEETING.
By Order of the Board of Directors
Stephen R. Kalette
Secretary
<PAGE>
BOBBIE BROOKS, INCORPORATED
3830 Kelley Avenue
Cleveland, OH 44114
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held
June 27, 1996
To the Stockholders of Bobbie Brooks, Incorporated:
Notice is hereby given that a Special Meeting of Stockholders of
Bobbie Brooks, Incorporated (the "Company") will be held at the Ramada
Inn, I-295 and Route 13 North, New Castle, Delaware 19720 at 11:00 a.m.
Eastern Time on June 27, 1996 or at any postponement or adjournment
thereof for the purpose of considering and acting upon the following
matters:
1. A proposal to approve and adopt the Agreement and Plan of Merger
between the Company and Pubco Corporation ("Pubco") pursuant to
which the Company will be merged with and into Pubco and each
six outstanding shares of the Company's Common Stock will be
converted into the right to receive one share of Pubco's Common
Stock.
2. Any other business that properly may come before the meeting.
Additional information relating to these matters is set forth in
the attached Proxy Statement/Information Statement-Prospectus. All
stockholders of record of the Company as of the close of business on
May 6, 1996 will be entitled to notice of and to vote at such meeting
or at any adjournment thereof.
By Order of the Board of Directors
Stephen R. Kalette
Secretary
<PAGE>
Aspen Imaging Pubco Corporation Bobbie Brooks,
International, Inc. 3830 Kelley Avenue Incorporated
3830 Kelley Avenue Cleveland, OH 44114 3830 Kelley Avenue
Cleveland, OH 44114 Cleveland, OH 44114
Special Meeting of Special Meeting of Special Meeting of
Stockholders Stockholders Stockholders
June 27, 1996 June 27, 1996 June 27, 1996
295,994 Shares of Common Stock,
par value $.01 per share
PROXY STATEMENT/INFORMATION STATEMENT-PROSPECTUS
This Proxy Statement/Information Statement-Prospectus is being furnished
(i) to the stockholders of Aspen Imaging International, Inc., a Delaware
corporation ("Aspen"), in connection with a solicitation of proxies by the
Board of Directors of Aspen from holders of outstanding shares of Common
Stock, par value $.001 per share ("Aspen Common Stock"), for use at a Special
Meeting of Stockholders of Aspen to be held on June 27, 1996 (the "Aspen
Special Meeting"), called to consider and vote upon a proposal to approve the
sale of all of the assets of Aspen to a wholly-owned subsidiary ("Pubco Sub")
of Pubco Corporation ("Pubco") and the subsequent liquidation and dissolution
of Aspen (the "Sale and Liquidation"); (ii) to the stockholders of Bobbie
Brooks, Incorporated, a Delaware corporation ("Brooks") in connection with a
Special Meeting of Stockholders of Brooks to be held on June 27, 1996 (the
"Brooks Special Meeting"), called to consider and vote upon a proposal to
approve and adopt an Agreement and Plan of Merger between Brooks and Pubco by
which Brooks will be merged into Pubco (the "Merger Agreement"); and (iii) to
the stockholders of Pubco in connection with a Special Meeting of Stockholders
of Pubco to be held on June 27, 1996 (the "Pubco Special Meeting"), called to
consider and vote upon a proposal to increase the number of authorized shares
of Pubco Common Stock to 5,000,000, a proposal to approve and adopt the Merger
Agreement, and a proposal to approve the transaction with Aspen.
Pursuant to the terms of the Merger Agreement, Brooks will be merged with
and into Pubco (the "Merger"). Each six outstanding shares of Brooks Common
Stock will be converted into and exchanged for one share of Pubco Common Stock.
As a result of the Sale and Liquidation of Aspen, Aspen will cease to exist
and each stockholder of Aspen will receive one share of Pubco Common Stock for
each seven shares of Aspen Common Stock currently held.
Pubco has filed a Registration Statement (the "Registration Statement") on
Form S-4 with the Securities and Exchange Commission (the "Commission") pur-
suant to the Securities Act of 1933, as amended (the "Securities Act"), cover-
ing the shares of Pubco Common Stock to be issued pursuant to these trans-
actions. This Proxy Statement/Information Statement-Prospectus also constitut-
es the Prospectus of Pubco filed as part of the Registration Statement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Information Statement-Prospectus is
May 7, 1996. This Proxy Statement/Information Statement-Prospectus is first
being mailed to stockholders on or about May 9, 1996.
TO BROOKS STOCKHOLDERS AND PUBCO STOCKHOLDERS: WE ARE NOT ASKING YOU
FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
<PAGE>
AVAILABLE INFORMATION
Aspen, Brooks and Pubco are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and, in accordance therewith, file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and
other information filed with the Commission by Aspen, Brooks and Pubco
are available for inspection and copying at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, DC 20549, and should also be
available for inspection and copying at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such materials can also be
obtained from the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549 at
prescribed rates.
As noted above, Pubco has filed with the Commission, pursuant to the
Securities Act, a Registration Statement on Form S-4 with respect to the
shares of Pubco Common Stock issuable pursuant to these transactions.
This Proxy Statement/Information Statement-Prospectus does not contain
all the information set forth in such Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations
of the Commission. Such Registration Statement and any amendments
thereto, including exhibits filed as a part thereof, are available for
inspection and copying as set forth above.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Control of the Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Effect of the Sale and Liquidation of Aspen . . . . . . . . . . . . . . . . . . . 2
Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Conditions to the Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Reasons for the Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Financial Advisors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Recommendations of the Boards of Directors. . . . . . . . . . . . . . . . . . . . 5
Market Prices of Aspen Common Stock, Brooks Common Stock and Pubco Common Stock . 5
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . 5
Comparative Per Share Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SPECIAL CONSIDERATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
VOTING SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
- i -
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS - CONTINUED
<S> <C>
Page
THE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Merger Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Sale Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Background of the Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . 14
Pubco's Reasons for the Transactions. . . . . . . . . . . . . . . . . . . . . . . 15
Material Considered by Pubco Board. . . . . . . . . . . . . . . . . . . . . . . . 15
Pubco Board of Directors Fairness Determination . . . . . . . . . . . . . . . . . 15
Aspen's Reasons for the Sale and Liquidation. . . . . . . . . . . . . . . . . . . 19
Material Considered by Aspen Board. . . . . . . . . . . . . . . . . . . . . . . . 20
Aspen Board of Directors Fairness Determination . . . . . . . . . . . . . . . . . 20
Brooks Reasons for the Transactions . . . . . . . . . . . . . . . . . . . . . . . 20
Material Considered by Brooks Board . . . . . . . . . . . . . . . . . . . . . . . 21
Brooks Board of Directors Fairness Determination. . . . . . . . . . . . . . . . . 21
Opinions of Financial Advisors. . . . . . . . . . . . . . . . . . . . . . . . . . 22
Increase in Pubco Authorized Capital Stock. . . . . . . . . . . . . . . . . . . . 25
Recommendations of the Boards of Directors. . . . . . . . . . . . . . . . . . . . 25
Description of Pubco Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . 25
Pubco Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Accounting Treatment of the Transactions. . . . . . . . . . . . . . . . . . . . . 27
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . 27
Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
MARKET FOR ASPEN COMMON STOCK AND RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . . 30
Market Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
MARKET FOR BROOKS COMMON STOCK AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . 31
Market Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
MARKET FOR PUBCO COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . 32
Market Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED) OF PUBCO. . . . . . . 33
SELECTED FINANCIAL DATA OF ASPEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Selected Statement of Operations Data of Aspen. . . . . . . . . . . . . . . . . . 43
Selected Balance Sheet Data of Aspen. . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
- ii -
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS - CONTINUED
<S> <C>
Page
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF ASPEN . . . . . . . . . . . . . . . . . . . . . . 44
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Comparison of the Three and Six Months Ended
December 31, 1995 and 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Comparison of the Fiscal Years Ended June 30, 1995 and 1994 . . . . . . . . . . . 44
Comparison of the Fiscal Years Ended June 30, 1994 and 1993 . . . . . . . . . . . 45
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . 46
New Accounting Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SELECTED FINANCIAL DATA OF BROOKS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Selected Statement of Operations Data of Brooks . . . . . . . . . . . . . . . . . 47
Selected Balance Sheet Data of Brooks . . . . . . . . . . . . . . . . . . . . . . 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF BROOKS. . . . . . . . . . . . . . . . . . . . . . 48
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Comparison of 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Comparison of 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . 50
New Accounting Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SELECTED FINANCIAL DATA OF PUBCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Selected Statement of Operations Data of Pubco. . . . . . . . . . . . . . . . . . 51
Selected Balance Sheet Data of Pubco. . . . . . . . . . . . . . . . . . . . . . . 51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF PUBCO . . . . . . . . . . . . . . . . . . . . . . 52
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Comparison of 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Comparison of 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . 54
New Accounting Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
DESCRIPTION OF BUSINESS OF ASPEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
PROPERTIES OF ASPEN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
LEGAL PROCEEDINGS OF ASPEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
RELATIONSHIP BETWEEN ASPEN AND BROOKS AND OTHER TRANSACTIONS . . . . . . . . . . . . . . 56
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ASPEN. . . . . . . . . 58
- iii -
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS - CONTINUED
<S> <C>
Page
DESCRIPTION OF BUSINESS OF BROOKS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Financial Information About Industry Segments . . . . . . . . . . . . . . . . . . 59
PROPERTIES OF BROOKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
LEGAL PROCEEDINGS OF BROOKS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BROOKS . . . . . . . . 62
DESCRIPTION OF BUSINESS OF PUBCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Financial Information About Industry Segments . . . . . . . . . . . . . . . . . . 64
PROPERTIES OF PUBCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PUBCO. . . . . . . . . 65
DIRECTORS AND EXECUTIVE OFFICERS OF PUBCO. . . . . . . . . . . . . . . . . . . . . . . . 66
Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Committees of the Board of Directors. . . . . . . . . . . . . . . . . . . . . . . 66
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Other Executive Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
MANAGEMENT COMPENSATION OF PUBCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Summary Compensation Table. . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. . . . . . . . . . . . . . . 70
DIFFERENCES AMONG THE RIGHTS OF ASPEN STOCKHOLDERS,
BROOKS STOCKHOLDERS AND PUBCO STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 71
Authorized Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Amendments to Certificate of Incorporation. . . . . . . . . . . . . . . . . . . . 72
Amendment to By-Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Number of Directors/Removal of Officers . . . . . . . . . . . . . . . . . . . . . 72
Action by Written Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
ACCOUNTANTS' REPRESENTATIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
COST OF MAILING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
- iv -
<PAGE>
SUMMARY
The following is a summary of certain important terms of these
transactions and related information. Reference is made to, and this
summary is qualified in its entirety by, the more detailed information
contained elsewhere herein and in the accompanying Appendices.
The Companies
Pubco is a holding company which owns over 90% of the Common Stock
and 100% of the Preferred Stock of Brooks. The principal executive
offices of Pubco are located at 3830 Kelley Avenue, Cleveland, Ohio
44114 / Telephone: (216) 881-5300.
Brooks owns Buckeye Business Products, Inc. ("Buckeye"), which
manufactures and markets computer and data processing supplies, and
Brooks owns 85% of Allied Construction Products, Inc. ("Allied"), a
manufacturer and distributor of products for the construction and related
industries. Brooks also licenses the use by others of certain apparel
related and printing related trademarks.
The principal executive offices of Brooks are located at 3830 Kelley
Avenue, Cleveland, Ohio 44114 / Telephone: (216) 881-5300.
Aspen manufactures and markets computer and data processing supplies.
The principal executive offices of Aspen are located at 3830 Kelley
Avenue, Cleveland, Ohio 44114 / Telephone: (216) 881-5300, with a sales
office at 1500 Cherry Street, Suite B, Louisville, Colorado 80026 /
Telephone: (303) 666-5750.
Control of the Companies
Robert H. Kanner controls Pubco, Brooks and Aspen through his
ownership of Pubco stock, Pubco's ownership of Brooks stock and Brooks'
ownership of Aspen stock. See "Special Consideration."
The Special Meetings
The principal purpose of the Pubco and Brooks Special Meetings is to
consider and act upon proposals to approve and adopt the Merger Agreement
pursuant to which Brooks will be merged into Pubco. A copy of the Merger
Agreement is attached to this Proxy Statement/Information
Statement-Prospectus as Appendix A. See "The Transactions - The Merger
Agreement."
Pubco stockholders will also act on a proposal to increase the number
of authorized shares of Pubco Common Stock to 5,000,000 and on a proposal
to approve the transaction with Aspen.
1.
<PAGE>
The principal purpose of the Aspen Special Meeting is to consider and
act on proposals (the "Proposals") to approve the sale of Aspen's assets,
subject to Aspen's liabilities, to Pubco Sub in exchange for Pubco Common
Stock and the subsequent distribution of the Pubco Common Stock to Aspen
stockholders in liquidation of Aspen. A copy of the Sale and Liquidation
Agreement (the "Sale Agreement") is attached to this Proxy
Statement/Information Statement-Prospectus as Appendix B. See "The
Transactions - The Sale Agreement."
Only holders of record of Aspen Common Stock at the close of business
on May 6, 1996 (the "Aspen Record Date") will be entitled to notice of
and to vote at the Aspen Special Meeting. Under the Delaware General
Corporation Law and Aspen's Certificate of Incorporation, the affirmative
vote of the holders of a majority of the shares of Aspen Common Stock
outstanding on the Aspen Record Date is required for approval and
adoption of the Proposals. On the Aspen Record Date, there were
3,988,756 shares of Aspen Common Stock issued and outstanding. See
"Voting Securities."
Only holders of record of Brooks Common Stock at the close of
business on May 6, 1996 (the "Brooks Record Date") will be entitled to
notice of and to vote at the Brooks Special Meeting. Under the Delaware
General Corporation Law and Brooks' Certificate of Incorporation, the
affirmative vote of the holders of a majority of the shares of Brooks
Common Stock outstanding on the Brooks Record Date is required for
approval and adoption of the Merger Agreement. On the Brooks Record
Date, there were 4,932,400 shares of Brooks Common Stock issued and
outstanding. See "Voting Securities."
Only holders of record of Pubco Common Stock at the close of business
on May 6, 1996 (the "Pubco Record Date") will be entitled to notice of
and to vote at the Pubco Special Meeting. Under the Delaware General
Corporation Law and Pubco's Certificate of Incorporation, the affirmative
vote of the holders of a majority of the voting power of the shares of
Pubco Common Stock and Pubco Class B Stock (voting as classes)
outstanding on the Pubco Record Date is required for approval and
adoption of the Merger Agreement. On December 31, 1995, there were
2,904,697 shares of Pubco Common Stock issued and outstanding each
entitled to one vote, and 557,030 shares of Pubco Class B Stock
outstanding, each entitled to 10 votes. See "Voting Securities."
The Sale and Liquidation of Aspen and the Merger are referred to
herein as the "Transactions."
Effect of the Sale and Liquidation of Aspen
As a result of the sale of all of the assets of Aspen to Pubco Sub
and the liquidation and dissolution of Aspen that will follow, the
existence of Aspen will cease and Aspen stockholders will receive one
share of Pubco Common Stock for each seven shares of Aspen Common Stock.
2.
<PAGE>
Effect of the Merger
Upon consummation of the Merger, the separate existence of Brooks
will cease and Pubco will be the surviving corporation (the "Surviving
Corporation"). The directors and officers of Pubco immediately prior to
the Effective Date will continue as the directors and officers of Pubco
as the Surviving Corporation. Each six shares of Brooks Common Stock
issued and outstanding immediately prior to the Effective Date will be
converted into one share of Pubco Common Stock. Each outstanding share
of Pubco Common Stock will remain outstanding after the Merger and
continue to represent one share of Common Stock of Pubco and each
outstanding share of Pubco Class B Stock will remain outstanding after
the Merger and continue to represent one share of Class B Stock of Pubco.
Effective Date
The Merger will become effective on the first date on which the
Certificate of Merger has been filed in the office of the Secretary of
State of Delaware (the "Effective Date"). If the Merger Agreement is
approved and adopted at the Special Meetings, such filing will be made as
soon as practicable after the Special Meetings and the satisfaction or
waiver of all conditions to the respective obligations of the parties
under the Merger Agreement, provided that the Merger Agreement is not
earlier terminated or abandoned in accordance with its terms. See "The
Transactions - The Merger Agreement."
If the Proposals are approved at the Aspen Special Meeting, the sale
of the assets of Aspen to Pubco Sub will be consummated as soon as is
practicable following the Special Meetings, provided that it is not
terminated in accordance with its terms. The liquidation of Aspen,
distribution of its remaining assets (Pubco Common Stock) to Aspen
stockholders and the dissolution of Aspen will take place shortly
thereafter.
Conditions to the Transactions
The obligations of Aspen, Brooks and Pubco to consummate the
Transactions are subject to certain conditions, including, but not
limited to, (i) the vote of the stockholders of each of Aspen, Brooks and
Pubco in favor of approval and adoption of the Transactions; (ii) the
receipt of all necessary consents to, and approvals of, the Transactions
from all appropriate federal and state departments and agencies; (iii)
unless waived by the parties, the absence of any suit, action or other
proceeding, pending or threatened, before any court or governmental
agency in which it will be or it is sought to restrain or prohibit, or to
obtain damages or other relief in connection with, the Transactions or
any part thereof; and, (iv) unless waived by the party or parties to whom
the representations and warranties were given, the accuracy in all
material respects, as of the closings of the Transactions, of the
respective representations and warranties of Aspen, Brooks and Pubco. On
agreement of the respective parties, or in the event a failure to satisfy
a condition involves only one part of the Transactions (e.g. the merger
of Brooks into Pubco) but not the other part (e.g. the sale of assets of
Aspen to Pubco Sub), then the part not involved would proceed and the
third company would remain a separate company. See "The Transactions -
The Merger Agreement" and "The Transactions - The Sale Agreement."
3.
<PAGE>
Amendment and Termination
The Merger Agreement may be amended by a written instrument approved
by the Boards of Directors of Brooks and Pubco; the Merger Agreement,
however, may not be amended in any manner which (i) alters or changes
theamount or kind of shares to be received by holders of either party's
shares; (ii) alters or changes any term of the Certificate of
Incorporation of the Surviving Corporation; or (iii) adveresely affects
holders of either party's shares, unless such amendment is approved by
the holders of such shares.
The Merger Agreement may be terminated at any time prior to the
Effective Date by the mutual written consent of Pubco and Brooks, duly
authorized by their respective Boards of Directors.
The Sale Agreement may be terminated or amended by a written
instrument approved by the Boards of Directors of Aspen, Pubco and Pubco
Sub.
Reasons for the Transactions
In making its decision to approve the Transactions, the Boards of
Directors of each of Aspen, Brooks and Pubco considered the following,
among other things, as the most important positive factors: (i) the cost
efficiencies to be realized by combining the operations of Aspen and
Brooks' Buckeye Business Products division, (ii) the apparent
compatibility of the respective businesses of Aspen and Brooks, (iii) the
opportunity, upon consummation of the Transactions, for current
stockholders to participate in a larger, more diversified company having
greater combined resources and a more simplified ownership and capital
structure, and (iv) the cost efficiencies to be realized by combining
three publicly-held companies into one. See "The Transactions - Pubco's
Reasons for the Transactions", "The Transactions - Aspen's Reasons for
the Transactions" and "The Transactions - Brooks' Reasons for the
Transactions."
Financial Advisors
The Board of Directors of Aspen has received the opinion of its
independent financial advisor, Maxus Consultants, Inc., that the
consideration of one share of Pubco Common Stock for each seven shares
of Aspen Common Stock is fair to the stockholders of Aspen. See "The
Transactions - Opinions of Financial Advisors."
The Board of Directors of Brooks has received the opinion of its
independent financial advisor, Loveman-Curtiss, Inc., that the Merger is
fair from a financial point of view to the Common Stockholders of Brooks.
See "The Transactions - Opinions of Financial Advisors."
The Board of Directors of Pubco has received the opinion of its
independent financial advisor, Bruml Capital Corporation, that the
consideration to be provided by Pubco to the Brooks and Aspen
shareholders pursuant to the Merger Agreement and the Sale Agreement is
fair to the shareholders of Pubco from a financial point of view. See
"The Transactions - Opinions of Financial Advisors."
4.
<PAGE>
Recommendations of the Boards of Directors
The Board of Directors of Aspen unanimously recommends that the Aspen
stockholders vote FOR the approval and adoption of the Proposals.
The Board of Directors of Brooks unanimously recommends that the
Brooks stockholders vote FOR the approval and adoption of the Merger
Agreement.
The Board of Directors of Pubco unanimously recommends that the Pubco
stockholders vote FOR the increase in authorized capital stock, FOR the
approval and adoption of the Merger Agreement and FOR the transaction
with Aspen.
Market Prices of Aspen Common Stock, Brooks Common Stock and Pubco Common
Stock
Each of Aspen Common Stock, Brooks Common Stock and Pubco Common
Stock is traded in the over-the-counter market and is quoted on the
NASDAQ Small Cap Market. On October 24, 1995, the last business day
preceding the date of the public announcement of the Transactions, the
closing bid prices of Aspen Common Stock was $.66, Brooks Common Stock
was $1.125 and Pubco Common Stock was $5.25 per share ($.75 per
equivalent Aspen share) and ($.875 per equivalent Brooks share). On
April 24, 1996, the closing bid prices of Aspen Common Stock was $.78,
Brooks Common Stock was $1.06 and Pubco Common Stock was $6.50 ($.93 per
equivalent Aspen share) and ($1.08 per equivalent Brooks share). See
"Market for Brooks Common Stock and Related Stockholder Matters",
"Market for Aspen Common Stock and Related Stockholder Matters" and
"Market for Pubco Common Stock and Related Stockholder Matters."
Federal Income Tax Consequences
It is anticipated that (except for cash received in lieu of
fractional shares) (i) Aspen, Brooks, Pubco or their respective
stockholders will not recognize gain or loss as a result of the
Transactions, and (ii) the tax basis of the Pubco Common Stock received
by the Aspen or Brooks stockholders will be the same as the tax basis of
the Aspen Common Stock or the Brooks Common Stock surrendered. See "The
Transactions - Federal Income Tax Consequences."
Stockholders are urged to consult their own tax advisors to determine
the particular tax consequences to them of the Transactions, including
the application and effect of state, local and other tax laws.
5.
<PAGE>
Comparative Per Share Data
The following table sets forth (i) historical per share data for each of
Aspen, Brooks and Pubco, and (ii) unaudited pro forma combined per share data
for Aspen, Brooks and Pubco after giving effect to the Transactions as if they
had occurred at the beginning of the period presented. Equivalent income per
share amounts for Aspen and Brooks have been calculated by multiplying the
Pubco pro forma combined income per share by the exchange ratios (.166667 of a
share of Pubco Common Stock for each outstanding share of Brooks and .142857
of a share of Pubco Common Stock for each outstanding share of Aspen). There
were no cash dividends for any period presented for any of the companies.
This per share data has been derived from, and should be read in conjunction
with, the financial statements and related notes of Aspen, Brooks and Pubco
and the pro forma combined financial information appearing elsewhere in this
Proxy Statement/Information Statement-Prospectus.
<TABLE>
<CAPTION>
Pro Forma
Equivalent Historical
Twelve Twelve
Months(1) Months(1)
Ended Ended Years Ended June 30,
12/31/95 12/31/95 1995 1994 1993 1992 1991
Per Aspen Share:
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)* $ 0.12 $(0.01) $(0.17) $(0.43) $(0.32) $(0.41) $ 0.00
Book value at
end of period $ 0.66 $ 1.60 $ 1.54 $ 1.68 $ 2.25 $ 2.56 $ 2.98
Pro Forma
Equivalent Historical
Year Ended Years Ended December 31,
12/31/95 1995 1994 1993 1992 1991
Per Brooks Share:
Net income (loss)* $ 0.14 $ 0.07 $ 0.04 $(0.11) $(0.41) $(2.40)
Book value at
end of period(2) $ 0.77 $ -- $ -- $ -- $ -- $ 1.73
Pro Forma
Combined Historical
Year Ended Years Ended December 31,
12/31/95 1995 1994 1993 1992 1991
Per Pubco Share:
Net income (loss)* $ 0.84 $ 0.89 $ 0.77 $ 0.49 $ 0.05 $(0.13)
Book value at
end of period(2) $ 4.64 $ 4.19 $ 2.76 $ 5.91 $ 6.98 $10.56
<FN>
*Net income (loss) from continuing operations applicable to Common Stockholders.
(1) Aspen's fiscal year ends on June 30. The unaudited twelve month period ending December
31, 1995 is shown to correspond to Pubco's calendar fiscal year.
(2) Computed net of face value of Preferred Stock. If amounts applicable to Preferred
stockholders are in excess of stockholders' equity, then no value is reflected above.
</TABLE>
6.
<PAGE>
SPECIAL CONSIDERATION
Pubco, Brooks and Aspen are related parties under common control.
Pubco owns over 90% of the Common Stock and all of the Preferred
Stock of Brooks. The three persons serving as Directors of Pubco also
serve as Directors of Brooks.
Brooks owns approximately 62% of the Common Stock of Aspen. Two of
the five Aspen Directors are also Directors of Pubco and Brooks and two
of the remaining three Aspen Directors are affiliated with Pubco and
Brooks.
Mr. Kanner owns approximately 75% of the common equity of Pubco and
his shares are entitled to approximately 85% of the votes of Pubco voting
stock. In addition, Mr. Kanner owns all of the outstanding Pubco
Preferred Stock, which is non-voting, and is the Chief Executive Officer
and a Director of each of Pubco, Brooks and Aspen.
Therefore, Mr. Kanner controls Pubco, Brooks and Aspen and the terms
of the Transactions were not the subject of arms length negotiation.
Pubco's proposals to Brooks and Aspen were based on an analysis prepared
by Pubco's financial advisor. The approval of the Transactions by the
Brooks Board of Directors and the Aspen Board of Directors was based
primarily on their receipt of opinions of their respective independent
financial advisors that the terms are fair from a financial point of view
to their respective stockholders.
Other than as set forth above, the personal interest of the officers
and directors in the Transactions is as follows. Mr. Kanner's 2,066,894
shares of Pubco Common Stock, 514,044 shares of Pubco Class B Stock and
70,000 shares of Pubco Preferred Stock, Mr. Kalette's 13,759 shares of
Pubco Class B Stock, Mr. Browne's 1,538 shares of Pubco Class B Stock and
Mr. Dillingham's 3,500 shares of Pubco Common Stock will remain
outstanding after consummation of the Transactions. Mr. Kalette's 1,000
shares of Brooks Common Stock will convert into approximately 166 shares
of Pubco Common Stock as a result of the Merger. Mr. Inlow's 9,000
shares of Brooks Common Stock will convert into approximately 1,500
shares of Pubco Common Stock in the Merger. Mr. Dillingham's 500 shares
of Brooks Common Stock and 1,000 shares of Aspen Common Stock will
convert into approximately 225 shares of Pubco Common Stock as a result
of the Transactions.
See "The Transactions - Pubco Board of Directors Fairness
Determination", "The Transactions - Aspen Board of Directors Fairness
Determination", "The Transactions - Brooks Board of Directors Fairness
Determination" and "The Transactions - Opinions of Financial Advisors."
7.
<PAGE>
The following charts present the current ownership structure of
Pubco, Brooks and Aspen and the proposed structure following closing of
the Transactions.
Current Structure
---------------------- --------------------
: Robert H. Kanner : : Other Stockholders :
: 71% Common Stock : : 29% Common Stock :
: 92% Class B Stock : : 8% Class B Stock :
: 100% Preferred Stock : --------------------
---------------------- :
: :
: :
-----------------------
: Pubco Corporation :
-----------------------
:
: 100%
:
-----------------------
: Century Wholesale :
: Company :
-----------------------
:
: 100%
:
-----------------------
: Pubco Industries, :
: Inc. :
-----------------------
: --------------------
: 90% Common Stock : Other Stockholders :
: 100% Preferred Stock : 10% :
: --------------------
: :
----------------------- :
: Bobbie Brooks, : : :
: Incorporated :
-----------------------
: : :
: 100% : 62% : 85%
: : :
: : -------------- : --------------
: : : Other : : : Other :
: : : Stockholders : : : Stockholders :
: : : 38% : : : 15% :
: : -------------- : --------------
: : : : :
------------------------- --------------------- ---------------------
: Buckeye Business : : Aspen Imaging : : Allied Construction :
: Products, Inc. Division : : International, Inc. : : Products, Inc. :
------------------------- --------------------- ---------------------
:
: 100%
:
---------------------
: Aspen Toner Corp. :
---------------------
8.
<PAGE>
Proposed Structure
----------------------
: Robert H. Kanner :
: 65% Common Stock :
: 92% Class B Stock :
: 100% Preferred Stock :
---------------------- --------------------
: : Other Stockholders :
: : 35% Common Stock :
: : 8% Class B Stock :
: --------------------
: :
: :
-----------------------
: :
: Pubco Corporation :
: :
-----------------------
: : :
: : :
: 100% : 100% : 85%
: : :
: : :
: : : --------------
: : : : Other :
: : : : Stockholders :
: : : : 15% :
: : : --------------
: : : :
------------------------- ---------------------- ---------------------
: : : Pubco Sub : : :
: Buckeye Business : : (Aspen Imaging : : Allied Construction :
: Products, Inc. Division : : International, Inc.) : : Products, Inc. :
------------------------- ---------------------- ---------------------
:
: 100%
:
-----------------------
: :
: Aspen Toner Corp. :
: :
-----------------------
9.
<PAGE>
INTRODUCTION
This Proxy Statement/Information Statement-Prospectus is furnished to
stockholders of Aspen in connection with the solicitation of proxies by
the Board of Directors of Aspen for use at the Aspen Special Meeting to
be held on June 27, 1996 or at any postponement or adjournment thereof
and is furnished to stockholders of Brooks and stockholders of Pubco in
connection with Special Meetings of each of those companies to be held on
June 27, 1996. The purpose the the Aspen Special Meeting is to consider
and act on proposals to approve the Sale and Liquidation. The purpose of
each of the Brooks and Pubco Special Meetings is to consider and act upon
a proposal to approve and adopt the Merger Agreement. At the Pubco
Special Meeting, stockholders will also consider a proposal to increase
the number of authorized shares of Pubco Common Stock and to approve the
transaction with Aspen.
The Merger Agreement provides for, among other things, the (i) merger
of Brooks with and into Pubco, and (ii) cancellation of each outstanding
share of Brooks Common Stock and conversion of such shares into Pubco
Common Stock.
The Sale and Liquidation contemplates the sale of all of the assets
of Aspen to Pubco Sub, subject to all of the liabilities of Aspen, in
exchange for shares of Pubco Common Stock, pursuant to Section 271 of the
Delaware General Corporation Law. This would be followed by the
liquidation and dissolution of Aspen. As a result, the shares of Pubco
Common Stock would be distributed by Aspen to its stockholders and Aspen
would cease to exist.
The Proxy for Aspen stockholders is solicited on behalf of the Board
of Directors of Aspen and is subject to revocation, at any time prior to
the voting of the Proxy, by notice in writing to the Secretary of Aspen
or the secretary of the meeting. Unless otherwise indicated, or unless
previously revoked as provided above, all duly executed proxies received
will be voted in favor of the approval and adoption of the Sale and
Liquidation. If any other matters are properly brought before the Aspen
Special Meeting and submitted to a vote, all proxies will be voted in
accordance with the judgment of the persons voting the proxies.
The respective Board of Directors of each company knows of no other
business that will be presented for consideration at the Special Meeting
of such company.
Each of the Special Meetings will be held at the Ramada Inn,
I-295 and Route 13 North, New Castle, Delaware 19720 on June 27, 1996;
the Pubco Special Meeting is scheduled for 10:30 a.m. Eastern Time, the
Brooks Special Meeting is scheduled for 11:00 a.m. Eastern Time and the
Aspen Special Meeting is scheduled for 11:30 a.m. Eastern Time.
10.
<PAGE>
VOTING SECURITIES
Only holders of record of Aspen Common Stock at the close of business
on the Aspen Record Date will be entitled to notice of and to vote at the
Aspen Special Meeting. At the Aspen Record Date, there were 3,988,756
shares of Aspen Common Stock outstanding. Each share of Aspen Common
Stock is entitled to one vote per share. The affirmative vote of the
holders of a majority of the outstanding shares of Aspen Common Stock is
required to approve and adopt the Sale and Liquidation. As of the Aspen
Record Date, Brooks owned 2,460,188 shares of Aspen Common Stock and has
announced its intention to vote for the Sale and Liquidation thereby
assuring its approval.
Only holders of record of Brooks Common Stock at the close of
business on the Brooks Record Date will be entitled to notice of and to
vote at the Brooks Special Meeting. At the Brooks Record Date, there
were 4,932,400 shares of Brooks Common Stock outstanding. All shares of
Brooks Common Stock are entitled to one vote per share. The affirmative
vote of the holders of a majority of the outstanding shares of Brooks
Common Stock is required to approve and adopt the Merger Agreement. As
of the Brooks Record Date, Pubco owned 4,466,640 shares of Brooks Common
Stock thereby assuring approval and adoption of the Merger Agreement.
Only holders of record of Pubco Common Stock and Pubco Class B Stock
at the close of business on the Pubco Record Date will be entitled to
notice of and to vote at the Pubco Special Meeting. At December 31, 1995
there were 2,904,697 shares of Pubco Common Stock outstanding and 557,030
shares of Pubco Class B Stock outstanding. Each share of Pubco Common
Stock is entitled to one vote per share and each share of Pubco Class B
Stock is entitled to 10 votes per share. The affirmative vote of the
holders of a majority of the voting power of each of Pubco Common Stock
and Pubco Class B Stock is required to increase the number of authorized
shares and the affirmative vote of a majority of the voting power of
Pubco is required to approve and adopt the Merger Agreement and approve
the transaction with Aspen. Mr. Kanner, who owns shares entitled to
approximately 85% of the voting power of Pubco, has announced his
intention to vote for these proposals, thereby assuring their approval.
See "Special Consideration."
Pursuant to Delaware law, there are no dissenters rights of appraisal
available to stockholders of Aspen, Brooks or Pubco in connection with
the Transactions.
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THE TRANSACTIONS
General
The information contained in this Proxy Statement/Information
Statement-Prospectus with respect to the Merger is qualified in its
entirety by reference to the Merger Agreement, a copy of which is
attached to this Proxy Statement/Information Statement-Prospectus as
Appendix A, and with respect to the Sale and Liquidation is qualified in
its entirety by reference to the Sale Agreement, a copy of which is
attached to this Proxy Statement/Information Statement-Prospectus as
Appendix B.
The Merger Agreement
The Merger Agreement provides for the merger of Brooks with and into
Pubco. The Effective Date of the Merger will be the first date on which
the Certificate of Merger has been filed with the Secretary of State of
Delaware. If the Merger Agreement is approved and adopted at the Brooks
and Pubco Special Meetings, such filing will be made as soon as
practicable after the Special Meetings and the satisfaction or waiver of
all conditions to the respective obligations of the parties under the
Merger Agreement, provided that the Merger Agreement is not earlier
terminated or abandoned in accordance with its terms. On the Effective
Date, the separate existence of Brooks will cease.
On the Effective Date, each six outstanding shares of Brooks Common
Stock will be cancelled and converted into one share of Pubco Common
Stock. No fractional shares of Pubco Common Stock will be issued.
Rather, stockholders who would otherwise be entitled to receive a
fraction of a share will instead receive cash based on the average of the
closing bid prices of Pubco Common Stock for the five business days
preceding consummation of the Merger.
The directors and officers of Pubco immediately prior to the
Effective Date will continue as directors and officers of Pubco after the
Merger.
The Sale Agreement
The Sale Agreement provides for the sale by Aspen to Pubco Sub of all
of the assets of Aspen, subject to all of the liabilities of Aspen, in
exchange for shares of Pubco Common Stock, pursuant to Section 271 of the
Delaware General Corporation Law. If the Sale and Liquidation are
approved at the Aspen Special Meeting, the Sale Agreement would be
consummated as soon as practicable thereafter, subject to the
satisfaction or waiver of all conditions to the respective obligations of
Aspen, Pubco Sub and Pubco.
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The sale of assets to Pubco Sub would be followed by the liquidation
and dissolution of Aspen. As a result, the shares of Pubco Common Stock
issued to Aspen would be distributed by Aspen to its stockholders and
Aspen would cease to exist.
Aspen would distribute one share of Pubco Common Stock for each seven
outstanding shares of Aspen Common Stock. No fractional shares of Pubco
Common Stock will be issued. Rather, stockholders who would otherwise be
entitled to receive a fraction of a share will instead receive cash based
on the average of the closing bid prices of Pubco Common Stock for the
five business days preceding consummation of the Sale Agreement.
Conditions
The obligations of Aspen, Brooks and Pubco to consummate the
Transactions are subject to certain conditions, including, but not
limited to, (i) the vote of the stockholders of each of Aspen, Brooks and
Pubco in favor of approval and adoption of the Transactions, (ii) the
receipt of any necessary consents to, and approvals of, the Transactions
from all appropriate federal and state departments and agencies, (iii)
unless waived by parties, the absence of any suit, action or other
proceeding, pending or threatened, before any court or governmental
agency in which it will be or it is sought to restrain or prohibit, or to
obtain damages or other relief in connection with, the Transactions or
any part thereof; and (iv) unless waived by the party or parties to whom
the representations and warranties were given, the accuracy in all
material respects, as of the closings of the respective representations
and warranties of Aspen, Brooks and Pubco. On agreement of the
respective parties, or in the event a failure to satisfy a condition
involves only one part of the Transactions (e.g. the merger of Brooks
into Pubco) but not the other part (e.g. the sale of assets of Aspen to
Pubco Sub), then the part not involved would proceed and the third
company would remain a separate company.
Amendment and Termination
The Merger Agreement may be amended by a written instrument approved
by the Boards of Directors of Brooks and Pubco but the Merger Agreement
may not be amended in any manner which (i) alters or changes the amount
or kind of shares to be received by holders of either party's shares;
(ii) alters or changes any term of the Certificate of Incorporation of
the Surviving Corporation; (iii) adversely affects holders of either
party's shares unless, in any such case, such amendment is approved by
the holders of such shares.
The Merger Agreement may be terminated at any time prior to the
Effective Date by the mutual written agreement of Pubco and Brooks, duly
adopted by their respective Boards of Directors.
The Sale Agreement may be terminated or amended by a written
instrument approved by the Boards of Directors of Aspen, Pubco and Pubco
Sub.
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Background of the Transactions
Pubco first acquired an interest in and control of Brooks in 1985.
Since that time, the persons who serve as officers and directors of those
companies have on occasion informally considered transactions between the
companies that could enhance shareholder value for both companies.
During 1995, the Boards of Directors began discussing such possible
transactions and determined that there were several benefits to be
derived from combining the two companies. See "The Transactions -
Pubco's Reasons for the Transactions" and "The Transactions - Brooks'
Reasons for the Transactions."
Buckeye (now a division of Brooks) first acquired an interest in and
control of Aspen in mid-1993. It was initially the goal of Aspen's then
officers and directors who approved the sale of stock to Buckeye (none of
whom were affiliated with Pubco, Brooks or Buckeye) for Aspen to
consummate a merger or other business combination through which Aspen
would not remain independent. Buckeye was not interested in such a
transaction at that time because it desired to learn more about Aspen and
any possible risks associated with a complete purchase or other
transaction and corporate integration of the companies.
By February, 1994, Buckeye had become a division of Brooks and Brooks
had engaged Bruml Capital Corporation to evaluate Aspen for a possible
combination of Aspen and Brooks.
After studying Aspen and its business, Bruml Capital Corporation
reported that its valuation of Aspen would be negatively impacted by
Aspen's lack of earnings history and that it could not give Aspen full
value for the possible benefits of its strategic alliance with Buckeye
until such benefits were actually realized. These benefits were
projected to include strengthening Aspen's balance sheet through sale of
its building, excess inventory and other assets and paying off its debt
and making Aspen's operations more efficient through personnel and
expense reductions and utilization of Buckeye's manufacturing
capabilities.
After many of these benefits were actually realized, and the possible
benefits of a business combination became more apparent, Pubco engaged
Bruml Capital Corporation in May, 1995 to evaluate Pubco, Brooks and
Aspen and provide relative values of these companies for use in a
proposed business combination. See "The Transactions - Pubco's Reasons
for the Transactions" and "The Transactions - Aspen's Reasons for the
Sale and Liquidation."
The terms of the Transactions were not the subject of negotiation
among Pubco, Brooks and Aspen. Pubco relied on Bruml Capital Corporation
to set the values of each of the three companies and the Board proposed
the terms of the Transactions based upon Bruml Capital's evaluation. In
approving the Transactions, each of Brooks and Aspen is relying on its
financial advisor's opinion as to the fairness of the Transactions. See
"Special Consideration", "The Transactions - Pubco Board of Directors
Fairness Determination", "The Transactions - Aspen Board of Directors
Fairness Determination", "The Transactions - Brooks Board of Directors
Fairness Determination" and "The Transactions - Opinions of Financial
Advisors."
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Pubco's Reasons for the Transactions
When considering the merits of business combinations with Brooks and
Aspen, the Board of Directors of Pubco considered the following, among
other things, as the most important reasons: (i) the possible reduction
in costs and other efficiencies to be realized by more fully combining
the operations of Aspen and Brooks' Buckeye Business Products division;
(ii) the compatibility of the respective businesses of Aspen and Buckeye;
(iii) the opportunity for the current Pubco stockholders to participate
in a larger company having greater combined resources and a more
simplified ownership and capital structure; and (iv) the cost
efficiencies to be realized by combining three publicly-held companies
into one.
Pubco estimates annual cost savings of approximately $200,000
following the consummation of the Transactions for audit and tax return
preparation fees, NASDAQ fees, securities manual fees, director fees,
personnel costs and other items.
Material Considered by Pubco Board
In considering the Transactions, the directors of Pubco considered
the following material:
1. A Valuation Analysis by Bruml Capital Corporation analyzing the
values of Aspen, Brooks and Pubco, including the separate values
of Buckeye, Allied, Aspen and all non-operating assets and
liabilities;
2. The historical consolidated financial statements of Aspen,
Brooks and Pubco;
3. Separate historical financial information of Allied and Buckeye;
4. The Pro Forma financial information contained elsewhere in this
Proxy Statement-Information Statement/Prospectus;
5. The respective market prices per share of Aspen Common Stock,
Brooks Common Stock and Pubco Common Stock;
6. The relative book values per share of Aspen shares, Brooks
shares and Pubco shares; and
7. Projected operating results of Aspen, Allied and Buckeye.
Pubco Board of Directors Fairness Determination
The directors of Pubco, in reaching their determination that the
Transactions are fair to the stockholders of Pubco, considered the
following factors:
1. The fact that the relative values of Pubco (and Pubco shares)
and Aspen (and Aspen shares) as determined by Bruml Capital
Corporation was the basis for establishing the amount of Pubco
stock to be issued in the Sale and Liquidation;
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2. The fact that the market value of the Pubco stock to be received
by Brooks stockholders approximates the market value of the
Brooks stock held by such stockholders and that the market value
of the Pubco stock to be received by Aspen stockholders
approximates the market value of the Aspen stock held by such
stockholders (plus, as of the date prior to announcing the
Transactions, a premium);
3. The fact that Pubco would not proceed with the Transactions
without receipt of an opinion of the financial advisor the Board
selected (Bruml Capital Corporation) stating that the terms of
the Transactions are fair to the stockholders of Pubco from a
financial point of view; and
4. The potential benefits to Pubco from the Transactions as set
forth in "Pubco's Reasons for the Transactions" above.
The Pubco directors found it impractical to, and did not, quantify or
otherwise assign specific relative weights to the specific factors
considered in reaching its determination, although on balance, regarding
the Aspen Sale and Liquidation, it viewed the matters set forth in 1 and
3 above as the most important positive factors and the matters set forth
in 2 and 4 above as other positive factors and regarding the Brooks
Merger, it viewed the matters set forth in 2, 3 and 4 above as the most
important positive factors.
The reason that the Pubco board viewed the matters set forth in 1 and
3 above as the most important positive factors in its fairness
determination for the Aspen Transaction and 3 above as an important
factor for the Brooks Merger relates to the scope of Bruml Capital's
engagement. After determining that there were several reasons for the
Transactions, but prior to establishing any proposed terms of the
Transactions, the Pubco board engaged Bruml Capital to do a detailed
valuation analysis of Pubco, Brooks and Aspen. Bruml Capital issued such
a valuation analysis in October, 1995 in which it determined that the
value of each Pubco share was between $8.72 and $12.10 ($10.48 as the
"middle" value), that Brooks Common Stock had no intrinsic value and that
the value of each Aspen share was between $1.48 and $1.53 ($1.50 as the
"middle" value).
In determining these values, Bruml Capital established a value for
Buckeye of approximately $15,000,000 to $19,000,000 based on the
capitalization of income, discounted cash flow and market comparable
methodologies. Bruml Capital used capitalization rates of between 14%
and 16% in its capitalization of income analysis, resulting in a value
for Buckeye of between approximately $15,190,000 and $17,350,000 using
this methodology. Bruml Capital used discount rates of between 14% and
16% in its discounted cash flow analysis, resulting in a value for
Buckeye of between approximately $15,540,000 and $17,650,000 using this
methodology. Bruml Capital valued Buckeye at between $13,820,000 and
$22,750,000 using the market comparable valuation methodology. This
analysis started with the EBIT multiple valuations and price earnings
valuations given to a number of publicly-traded manufacturers of business
forms and supplies, office products, ribbons and toner. Bruml Capital
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adjusted these multiples downward by 40% based on comparability resulting
in a range of adjusted EBIT multiples of 4.68 to 7.86 and a range of
adjusted P/E ratios of 7.32 to 11.88. This adjusted EBIT multiple range
was applied to Buckeye's trailing 12 months ending June 30, 1995 EBIT and
the adjusted P/E ratio range was applied to Buckeye's net income for the
12 months ending June 30, 1995.
The averages of the results of applying the three methodologies at
the low, middle and high for each methodology resulted in the $15,000,000
to $19,000,000 range of values for Buckeye described above.
Bruml Capital established a value for Allied in October, 1995 of
between $4,000,000 and $5,000,000 based on the capitalization of income,
discounted cash flow and market comparable methodologies. It used
capitalization rates of between 14% and 16% in its capitalization of
income analysis, resulting in a value for Allied of approximately
$3,950,000 and $4,520,000 using this methodology. Bruml Capital used
discount rates of between 14% and 16% in its discounted cash flow
analysis, resulting in a value for Allied of between approximately
$4,730,000 and $5,670,000 using this methodology. Bruml Capital also
valued Allied using the market comparable valuation methodology. This
analysis applied a range of multiples of 6.2 to 8.3 derived from the
market value of publicly traded firms in the industry to Allied's planned
1995 operating profit. This methodology resulted in a range of values of
between approximately $3,170,000 and $4,750,000 after subtracting
$1,500,000 of normalized debt.
The averages of the results of applying the three methodologies at
the low, middle and high for each methodology resulted in the $4,000,000
to $5,000,000 range of values for Allied described above. Brooks'
proportionate share of this value based upon its investment in Allied was
included in the overall Brooks valuation.
Bruml Capital established a value of Aspen of between $5,920,000 and
$6,085,000 by adding Aspen's cash and equivalents to values resulting
from applying the discounted cash flow and market balance sheet
methodologies. It used discount rates of between 13% and 15% in its
discounted cash flow analysis resulting in a value for the Aspen business
of between $1,625,000 and $1,731,000 using this methodology. In the
market value balance sheet analysis, Bruml Capital estimated the value of
Aspen's net assets other than cash and equivalents at between $1,191,000
and $1,415,000.
The averages of the results of applying the two methodologies at the
low, middle and high for each methodology was added to the amount of
Aspen's cash and equivalents, resulting in the $5,920,000 to $6,085,000
range of values for Aspen described above. Brooks' proportionate share
of this value based upon its investment in Aspen was included in the
overall Brooks valuation.
Bruml Capital valued Brooks' tradename licensing income arrangements
at between approximately $2,150,000 and $2,870,000 by applying discount
rates of between 10% and 17.5% to projected future royalties.
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Other assets owned by Brooks and Pubco such as cash and marketable
securities not otherwise provided for above were valued at actual
amounts, remaining retail house charge receivables at projected
collectable amounts and real estate based on offers received, option
rights of the tenant and the like, less liabilities associated with these
non-operating assets.
Inasmuch as Bruml Capital's value calculations were made on an after
tax basis, Bruml Capital included in its Pubco and Brooks valuations a
value for the federal income tax net operating loss carryforward. The
range of net present values for this item was between approximately
$6,480,000 and $7,820,000 derived by applying discount rates of 12.5% to
17.5% to projected tax savings.
In its Pubco and Brooks valuations, Bruml Capital also provided for
administrative expenses not otherwise accounted for in its analysis by
applying discount rates of 10% to 15% to projected expenses. This
resulted in a deduction in the Brooks valuation of between $7,840,000 and
$11,502,000 and an additional deduction in the Pubco valuation of between
approximately $1,330,000 and $1,950,000.
Based on the foregoing, Bruml Capital established a net business
value of Brooks of between approximately $36,640,000 and $47,000,000.
Given that the face value and unpaid dividends on Brooks Preferred Stock
exceeded these amounts, Bruml Capital found that there was no intrinsic
value to the Brooks Common Stock.
Based on the foregoing, including Pubco's ownership of the Brooks
Preferred Stock, Bruml Capital established a net business value of Pubco
of between approximately $37,210,000 and $48,900,000 or $8.72 to $12.10
per share.
Based on its valuation of Aspen described above at $5,920,000 to
$6,085,000, Bruml Capital valued Aspen at between $1.48 and $1.53 per
share.
Based upon Bruml Capital's Valuation Report and the relative values
reflected therein, Pubco proposed the Merger in which Brooks stockholders
would receive 1 share of Pubco Common Stock for each 6 shares of Brooks
Common Stock. Although Bruml Capital had found that Brooks Common Stock
had no intrinsic value, Bruml Capital acknowledged that giving value to
Brooks' stockholders of 1 Pubco share for each 5 to 7 Brooks shares would
not be materially dilutive to Pubco stockholders and is a realistic cost
to consummate the Merger. The lack of Common Stockholders equity and an
intrinsic value to Brooks Common Stock results in Pubco recognizing
$466,000 of goodwill as a result of the Merger and there is, therefore,
no equity dilution to Pubco stockholders as a result of the Merger.
Proceeding with the Merger dilutes Net Income from Continuing Operations
Per Common Share of Pubco for 1995 on a pro forma basis by $.03 per share
($.89 historical and $.86 pro forma). See Note 1 and Note 4 to "Pro
Forma Condensed Consolidated Financial Information (Unaudited) of Pubco."
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The Pubco Board determined to proceed with the Brooks Merger because that
was the only way to achieve the benefits described above in "Pubco's
Reasons for the Transactions." The Board made the proposal to Brooks on
the 1 share for 6 shares basis because that was within the range deemed
not materially dilutive by Bruml Capital. In addition, given that the
market was placing a value on Brooks Common Stock, it was unlikely that
the Brooks Board and financial advisor would find any transaction to be
fair that did not also provide a comparable market value for the Brooks
stockholders.
Based upon Bruml Capital Corporation's Valuation Report and the
"middle" values it showed for Pubco stock ($10.48) and Aspen stock
($1.50), Pubco proposed the Sale and Liquidation at the exact 1 for 7
ratio of the two values.
In January, 1996, Bruml Capital supplemented its Valuation Report,
updating its range of values for Pubco Common Stock to $9.88 to $13.50
per share ($11.76 as the "middle" value), its range of values for Brooks
Common Stock to 0 to $.37 per share and its range of values for Aspen
Common Stock to $1.58 to $1.62 per share ($1.60 as the "middle" value).
The changes reflected therein included increases in liquid asset balances
at Aspen and Brooks, the increase in Brooks' ownership of Aspen and a
change to one of Brooks' trademark licensing arrangements.
Aspen's Reasons for the Sale and Liquidation
When considering the merits of a business combination with Pubco and
Brooks, the Board of Directors of Aspen considered the following, among
other things, as the most important reasons: (i) the need to continue to
strengthen Aspen's relationship with its strategic partner, Buckeye,
given the continuing deterioration in Aspen's sales; (ii) the possible
reduction in costs and other efficiencies to be realized by more fully
combining the operations of Aspen and Buckeye; (iii) the compatibility of
the respective businesses of Aspen and Buckeye; (iv) the opportunity for
current stockholders to participate in a larger, more diversified company
having greater combined resources; and (v) the lower costs of public
company maintenance on a proportionate basis relative to total assets and
total sales.
Inasmuch as the proposal made to it was for the Sale and Liquidation
and not any other transaction, and the stockholders were not likely to
approve any other transaction, the Aspen Board considered approving the
Sale and Liquidation or not approving it and remaining independent, but
no other alternative.
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Material Considered by Aspen Board
In considering the Sale and Liquidation, the directors of Aspen
considered the following material:
1. The historical consolidated financial statements of Aspen,
Brooks and Pubco;
2. Separate historical financial information of Allied and Buckeye;
3. The Pro Forma financial information contained elsewhere in this
Proxy Statement-Information Statement/Prospectus;
4. The respective market prices per share of Aspen Common Stock,
Brooks Common Stock and Pubco Common Stock;
5. The relative book values per share of Aspen shares, Brooks
shares and Pubco shares; and
6. Projected operating results of Aspen, Allied and Buckeye.
Aspen Board of Directors Fairness Determination
The directors of Aspen, in reaching their determination that the Sale
and Liquidation is fair to the stockholders of Aspen, considered the
following factors:
1. The fact that Aspen would not proceed with the Sale and
Liquidation without receipt of an opinion of the financial
advisor the Board selected (Maxus Consultants, Inc.) stating
that the terms of the Sale and Liquidation are fair to the
stockholders of Aspen from a financial point of view;
2. The potential benefits to Aspen stockholders from the Sale and
Liquidation as set forth in "Aspen's Reasons for the Sale and
Liquidation" above; and
3. The fact that as of the day prior to the announcement of the
possible Transactions, the market value of the Pubco stock to be
received by Aspen stockholders was at least equal to the market
value of the Aspen stock held by such stockholders (and, in
fact, as of that date, provided a premium to the Aspen
stockholders).
The Aspen directors found it impractical to, and did not, quantify or
otherwise assign specific relative weights to the specific factors
considered.
Brooks' Reasons for the Transactions
When considering the merits of business combinations with Aspen and
Pubco, the Board of Directors of Brooks considered the following, among
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other reasons, as the most important reasons: (i) the possible reduction
in costs and other efficiencies to be realized by more fully combining
the operations of Brooks' Buckeye division and Aspen; (ii) the
compatibility of the respective businesses of Buckeye and Aspen; (iii)
the opportunity for the current stockholders to participate in a larger
company having greater combined resources and a more simplified ownership
and capital structure, and (iv) the cost efficiencies to be realized by
combining the two publicly-held companies (Brooks and Aspen) into one.
Material Considered by Brooks Board
In considering the Transactions, the directors of Brooks considered
the following material:
1. The historical consolidated financial statements of Aspen,
Brooks and Pubco;
2. Separate historical financial information of Allied and Buckeye;
3. The Pro Forma financial information contained elsewhere in this
Proxy Statement-Information Statement/Prospectus;
4. The respective market prices per share of Aspen Common Stock,
Brooks Common Stock and Pubco Common Stock;
5. The relative book values per share of Aspen shares, Brooks
shares and Pubco shares; and
6. Projected operating results of Aspen, Allied and Buckeye.
Brooks Board of Directors Fairness Determination
The directors of Brooks, in reaching their determination that the
Merger is fair to the stockholders of Brooks, considered the following
factors:
1. The fact that Brooks would not proceed with the Merger without
receipt of an opinion of the financial advisor the Board
selected (Loveman-Curtiss, Inc.) stating that the terms of the
Merger are fair to the stockholders of Brooks from a financial
point of view;
2. The potential benefits to Brooks stockholders from the Merger as
set forth in "Brooks' Reasons for the Transactions" above; and
3. The fact that the market value of the Pubco stock to be received
by Brooks stockholders approximates the market value of the
Brooks stock held by such stockholders.
The Brooks directors found it impractical to, and did not, quantify
or otherwise assign specific relative weights to the specific factors
considered.
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Opinions of Financial Advisors
The Aspen Board of Directors engaged Maxus Consultants, Inc. as its
financial advisor in connection with the Sale and Liquidation.
In addition to financial advisory work, Maxus Consultants, Inc. is
part of the Maxus Investment Group, an investment management company
founded over 20 years ago. The Maxus Investment Group includes a venture
capital fund investing in both private and small cap public companies as
well as three proprietary mutual funds and private portfolio management.
On May 1, 1996, Maxus Consultants, Inc. rendered its opinion to the
Aspen Board of Directors that the consideration of one share of Pubco for
each seven shares of Aspen is fair to the stockholders of Aspen. A copy
of the opinion is set forth as Appendix C to this Proxy
Statement/Information Statement-Prospectus. In arriving at its opinion,
Maxus Consultants, Inc. considered a number of matters including SEC
filings as well as the pro forma financial and other information
contained in this Proxy Statement/Information Statement-Prospectus, the
valuation analysis prepared for Pubco by Bruml Capital Corporation and
the opportunity to meet with management and discuss financial results and
prospects.
The entire Maxus Consultants, Inc. report is summarized above. Maxus
Consultants, Inc. was not required to and did not provide to the Board of
Directors of Aspen a detailed analysis of each component of value of
Aspen and Pubco and its specific methodology and computations used. The
Aspen Board engaged Maxus Consultants, Inc. based on its expertise and
experience and is relying on the conclusions stated by Maxus Consultants,
Inc. and not on its specific methodology or a report containing its
detailed analysis.
Maxus Consultants, Inc. had no prior investment banking relationship
with Aspen, Brooks or Pubco, except for financial advisory services
rendered to Brooks in connection with the acquisition of Allied and in
connection with a possible acquisition that did not occur. In addition,
a deferred compensation trust benefiting Mr. Kanner and an investment
partnership formed by the Maxus Investment Group and in which its
principals are participants are both investors in an operating business.
The deferred compensation trust owns a 25% interest in, and the Maxus
partnership owns a 20% interest in, a limited liability company that
itself is a 40% owner of and lender to the operating business. The
limited liability company was formed solely for this investment. The
Aspen Board of Directors was fully aware of these relationships at the
time it engaged Maxus Consultants and when the Board approved the Sale
and Liquidation.
In connection with its engagement to render an opinion to the Aspen
Board of Directors, Maxus Consultants, Inc. will be paid a fee of
$15,000, no portion of which was related to the outcome of its evaluation
of the Transactions or the opinion it rendered.
The Brooks Board of Directors engaged Loveman-Curtiss, Inc. as its
financial advisor in connection with the Merger.
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Loveman-Curtiss, Inc. values businesses and advises on strategic
transactions. It was founded in 1986 and has rendered over 200 valuation
opinions since then. It has advised buyers and sellers on transactions,
financings, recapitalizations and buyouts. The principal of
Loveman-Curtiss, Inc. who handled the Brooks engagement, Rand M. Curtiss,
holds the designation of Certified Business Appraiser from the Institute
of Business Appraisers and is a candidate member of The American Society
of Appraisers.
On April 30, 1996, Loveman-Curtiss, Inc. rendered its opinion to the
Common Stock Shareholders and Board of Directors of Brooks that the
Merger is fair from a financial point of view to the Common Stockholders
of Brooks. The opinion concludes that the Merger offers holders of
Brooks Common Stock a premium over and above the intrinsic value of their
shares. It also states that the Merger may also provide other real but
non-quantifiable benefits to the Brooks stockholders which will increase
their upside potential and reduce their downside risk. A copy of the
opinion is set forth as Appendix D to this Proxy Statement/Information
Statement-Prospectus.
The opinion states that Loveman-Curtiss, Inc. reviewed SEC filings as
well as other information and noted the transformation of Brooks'
business during the past few years. The financial advisor assessed
Brooks' ownership and capital structure, present financial condition and
the trading market for Brooks Common Stock. Loveman-Curtiss, Inc. also
states in its opinion that it reviewed in detail the valuation analysis
prepared for Pubco by Bruml Capital Corporation. Loveman-Curtiss, Inc.
did not appraise the assets or businesses of Pubco, Brooks or Aspen as
such. Rather, it analyzed the proposed terms of the Merger as set forth
by Bruml Capital Corporation and proposed by Pubco through review of
extensive material including the Bruml Capital Corporation Valuation
Report.
Loveman-Curtiss, Inc. reported supplementally that it used the fair
market value standard for purposes of evaluating the Merger and that it
assumed a "financial" rather than a "strategic" buyer. It reported that
the value of Brooks' preferred stock exceeds Brooks' book value so that
there is no intrinsic value attributable to the Brooks Common Stock.
Loveman-Curtiss, Inc. also noted that, based on relative market values,
the Merger is fair to Brooks stockholders.
Loveman-Curtiss, Inc. reported supplementally that the "real but
non-quantifiable benefits" to the Brooks stockholders referred to in its
opinion include the market for Pubco stock being deeper and more liquid
than the market for Brooks stock, the administrative cost savings likely
to result from the Merger, possible greater coverage by the financial
community after the Merger and that, after the Merger, current Brooks
stockholders will have equity in a company with greater revenues,
earnings, resources and diversification.
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The entire Loveman-Curtiss, Inc. report is summarized above.
Loveman-Curtiss, Inc. was not required to and did not provide to the
Board of Directors of Brooks a detailed analysis of each component of
value of Pubco and Brooks and its specific methodology and computations
used. The Board engaged Loveman-Curtiss, Inc. based on its expertise and
experience and is relying on the conclusions stated by Loveman-Curtiss,
Inc. and not on its specific methodology or a report containing its
detailed analysis.
Loveman-Curtiss, Inc. had no prior investment banking relationship
with Aspen, Brooks or Pubco.
In connection with its engagement to render an opinion to the Brooks
Board of Directors, Loveman-Curtiss, Inc. was paid a fee of $7,500, no
portion of which was related to the outcome of its evaluation of the
Transactions or the opinion it rendered.
The Pubco Board of Directors engaged Bruml Capital Corporation as its
financial advisor in connection with the Transactions. Bruml Capital
Corporation is a specialized investment banking firm offering investment
banking and financial advisory services and manages a pool of capital.
On May 7, 1996, Bruml Capital Corporation rendered its opinion to the
Pubco Board of Directors that the consideration to be provided by Pubco
to the Brooks and Aspen shareholders pursuant to the Merger Agreement and
the Sale Agreement is fair to the shareholders of Pubco from a financial
point of view. A copy of the opinion is set forth as Appendix E to this
Proxy Statement/Information Statement-Prospectus. In arriving at its
opinion, Bruml Capital Corporation considered a number of factors. See
"The Transactions-Pubco Board of Directors Fairness Determination."
Bruml Capital Corporation had previously provided financial advisory
services to Pubco in connection with the business combination with
Buckeye for Pubco stock as of January 1, 1994 and the exchange of the
Buckeye business to Brooks for Brooks stock and was engaged by Brooks in
February, 1994 to evaluate a possible combination of Aspen and Brooks. A
deferred compensation trust benefiting Mr. Kanner is a limited partner
with a 12.7% interest in a business in which principals of Bruml Capital
Corporation are indirect minority investors. Mr. Kanner and one
principal of Bruml Capital Corporation are members of the five person
management committee of such business. The deferred compensation trust
has also made a financial commitment as a 12.5% limited partner in a
currently unfunded private investment partnership that has made no
investments to date and that includes Bruml Capital Corporation as the
general partner. Mr. Kanner serves on the five person investment
committee of the private investment partnership. The Pubco Board of
Directors was fully aware of these relationships at the time it engaged
Bruml Capital Corporation and when it approved the transactions.
In connection with its engagement to evaluate in detail the values of
Pubco, Brooks and Aspen and to render an opinion to the Pubco Board of
Directors, Bruml Capital Corporation will be paid a fee of $38,000, no
portion of which was related to the outcome of its evaluation of the
Transactions or the opinion it rendered.
24.
<PAGE>
Increase in Pubco Authorized Capital Stock
The authorized capital of Pubco includes 3,500,000 shares of Pubco
Common Stock of which 2,904,697 were issued and outstanding at December
31, 1995. At the Pubco Special Meeting, Pubco stockholders will consider
a proposal to increase the number of authorized shares of Pubco Common
Stock to 5,000,000. The reason for the increase is to have available
enough shares of Common Stock to issue to Aspen pursuant to the Sale
Agreement, to issue to stockholders of Brooks in the Merger and to issue
to holders of Pubco Class B Stock, which is convertible into Pubco Common
Stock on a share for share basis. The additional shares of Pubco Common
Stock would also be available for issuance by Pubco's Board of Directors
without further action of the stockholders in connection with (i)
employee and officer benefit plans and arrangements and (ii) possible
acquisitions, although no specific acquisition is pending other than the
Transactions.
Recommendations of the Boards of Directors
The Board of Directors of Aspen unanimously recommends that the Aspen
stockholders vote FOR the approval and adoption of the Sale and
Liquidation.
In considering such recommendation, Aspen stockholders should note
that four of the five Aspen directors are associated with Pubco.
The Board of Directors of Brooks unanimously recommends that the
Brooks stockholders vote FOR the approval and adoption of the Merger
Agreement.
In considering such recommendation, Brooks stockholders should note
that all of the Brooks directors are also directors of Pubco.
The Board of Directors of Pubco unanimously recommends that the Pubco
stockholders vote FOR the increase in authorized capital, FOR the
approval and adoption of the Merger Agreement and FOR the approval of the
Transaction with Aspen.
In considering such recommendation, Pubco stockholders should note
that all of the Pubco directors are also directors of Brooks and two of
the Pubco directors are also directors of Aspen.
See "Special Consideration."
Description of Pubco Capital Stock
The authorized capital stock of Pubco consists of 3,500,000 shares of
Common Stock having a par value of $.01 per share, 2,000,000 shares of
Class B Stock having a par value of $.01 per share, 2,000,000 shares of
preferred stock having a par value $.01 per share (the "Pubco Preferred
Stock"), and 20,000 shares of Convertible Preferred Stock having a par
value of $1.00 per share. As of December 31, 1995, 2,904,697 shares of
Pubco Common Stock, 557,030 shares of Pubco Class B Stock and 70,000
shares of Pubco Preferred Stock designated as Series A (with a
liquidation preference of $7,000,000) were issued and outstanding.
25.
<PAGE>
Subject to the provisions of the Certificate of Incorporation and the
By-laws of Pubco and of the statutes of the State of Delaware relating to
the fixing of a record date and other matters, the holders of Pubco
Common Stock are entitled to one vote and the holders of Pubco Class B
Stock are entitled to 10 votes for each share of Pubco Common Stock and
Class B Stock held by them, respectively, for the election of directors
and for all other purposes.
Subject to the express terms of any Pubco Preferred Stock, cash
dividends may be paid on Pubco Common Stock and Class B Stock out of any
funds lawfully available for dividends under the laws of the State of
Delaware, if, when, and as declared by the Board of Directors of Pubco in
its discretion. In the event any cash dividend is paid on the Common
Stock, a cash dividend will also be paid on the Class B Stock in an
amount per share equal to 90% of the amount paid on each share of Common
Stock; in the event any cash dividend is paid on the Class B Stock, a
cash dividend will also be paid on the Common Stock in an amount per
share equal to 111.11% of the amount paid on each share of Class B Stock.
In the event of liquidation, dissolution or winding up of Pubco,
whether voluntary or involuntary, after there shall have been paid or set
apart for the holders of shares of the Pubco Preferred Stock and
Convertible Preferred Stock, the full preferential amounts to which they
are entitled, the holders of Pubco Common Stock and Class B Stock will be
entitled to receive, pro rata, the assets of Pubco remaining for
distribution to its stockholders. The holders of Pubco Series A
Preferred Stock are entitled to a liquidation preference equal to the
face value thereof and any unpaid cumulative dividends thereon.
Holders of Pubco Common Stock and Class B Stock do not have
preemptive or cumulative voting rights. All the issued and outstanding
shares of Pubco Common Stock and Class B Stock are fully paid and
nonassessable.
The Board of Directors, without further action by the stockholders,
is authorized to issue shares of the Pubco Preferred Stock in one or more
series and to fix as to any such series the designations,
classifications, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption. Issuances of Pubco Preferred Stock or
Convertible Preferred Stock may limit the rights of holder of Pubco
Common Stock.
The transfer agent and registrar for Pubco Common Stock and Class B
Stock is American Stock Transfer & Trust Company, New York, New York.
Pubco Preferred Stock
As of December 31, 1995, the outstanding shares of Pubco Series A
Preferred Stock were entitled to an aggregate liquidation preference of
$7,000,000 with no cumulative dividend arrearage.
26.
<PAGE>
Accounting Treatment of the Transactions
The Transactions will be accounted for under the purchase method of
accounting. See "Pro Forma Condensed Consolidated Financial Information
(Unaudited) of Pubco".
Federal Income Tax Consequences
The following discussion relates to certain Federal income tax
consequences of the Transactions. THE PRECISE FEDERAL, STATE AND LOCAL
EFFECT ON THE STOCKHOLDERS MAY VARY DEPENDING ON THE STOCKHOLDER'S
RESPECTIVE FACTUAL CIRCUMSTANCES. FOR THESE REASONS, EACH STOCKHOLDER IS
STRONGLY URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR.
Aspen, Brooks and Pubco have not sought nor do they plan to seek a
tax ruling from the Internal Revenue Service as to the Federal income tax
consequences discussed below.
Ernst & Young LLP, tax adviser to Pubco, Brooks and Aspen, has
provided a written opinion, a copy of which is included in Appendix F.
The opinion provides, based on certain representations, qualifications
and assumptions contained therein, that the material federal income tax
consequences of the Merger, under currently applicable law, are as
follows:
1. The merger will constitute a reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986
(the "Code"). Brooks and Pubco will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized to Pubco, Brooks or their
respective shareholders upon the exchange of their Brooks Common
Stock solely for the Pubco Common Stock.
3. The basis of the Pubco Common Stock to be received by the
shareholders of Brooks will be the same as the basis of the Brooks
Common Stock surrendered in exchange reduced by the amount of cash
received and increased by the amount of gain, or decreased by the
amount of the loss, recognized on the receipt of cash for any
fractional share.
4. The holding period of the Pubco Common Stock to be received
by the shareholders of Brooks will include the holding period of the
Brooks Common Stock exchanged therefor, provided that the exchanged
stock was held as a capital asset on the date of the exchange.
5. When cash is received by exchanging shareholders of Brooks
in lieu of fractional shares of Pubco Common Stock, the cash will be
treated as received by the shareholder of Brooks as a distribution in
redemption of the fractional share interest, subject to the
provisions and limitations of Section 302 of the Code.
27.
<PAGE>
The Ernst & Young LLP opinion provides, based on certain
representations, qualifications and assumptions contained therein, that
the material federal income tax consequences of the Sale and Liquidation,
under currently applicable law, are as follows:
1. The Sale and Liquidation will constitute a reorganization
within the meaning of Section 368(a)(1)(C) of the Code. Pubco, Pubco
Sub and Aspen will each be a "party to a reorganization" within the
meaning of Section 368(b).
2. No gain or loss will be recognized by Aspen, Pubco, Pubco
Sub or their respective stockholders upon the Sale and Liquidation.
3. The basis of the Pubco voting Common Stock to be received by
the Aspen shareholders will be the same as the basis of the Aspen
stock surrendered in exchange therefor.
4. The holding period of the Pubco voting Common Stock to be
received by Aspen shareholders will include the period during which
the Aspen stock surrendered in exchange therefor was held, provided
the Aspen stock is held as a capital asset on the date of the
exchange.
5. The payment of cash in lieu of fractional share interests in
Pubco voting Common Stock will be treated as if the fractional shares
were distributed as part of the exchange and then were redeemed by
Pubco. These cash payments will be treated as having been received
as distributions in full payment in exchange for the stock redeemed
as provided in Section 302(a).
Stockholders are urged to consult with their own tax
advisors to determine the particular tax consequences to them,
including the application and effect of state, local and other tax
laws.
Certificates
Pursuant to the Merger Agreement, shares of Brooks Common Stock will
be deemed to have been converted into shares of Pubco Common Stock as of
the Effective Date. At the Effective Date, holders of certificates
formerly representing Brooks Common Stock which are so converted into
Pubco Common Stock will cease to have any rights as stockholders of
Brooks, except as otherwise provided by law, and will be entitled only to
exercise the rights of holders of shares of Pubco Common Stock. Brooks
stockholders will be asked to exchange their stock certificates for Pubco
Common Stock certificates. After the Effective Date, Pubco will mail a
letter of transmittal (the "Letter of Transmittal") to stockholders of
Brooks for use in submitting their stock certificates in exchange for
certificates representing shares of Pubco Common Stock (and cash for
fractional shares).
Stockholders of Brooks should not submit their stock certificates
until they have received the Letter of Transmittal.
28.
<PAGE>
Upon liquidation of Aspen, Aspen will send to its stockholders
certificates for Pubco Common Stock pro rata in the amount to which the
stockholder is entitled (along with cash for any fractions of shares) or
a Letter of Transmittal to stockholders of Aspen for use in submitting
their stock certificates in exchange for certificates representing shares
of Pubco Common Stock (and cash for fractional shares).
Stockholders of Aspen should not submit their stock certificates
unless and until they have received the Letter of Transmittal.
29.
<PAGE>
MARKET FOR ASPEN COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market Information
Aspen Common Stock is traded over-the-counter and quoted on NASDAQ
Small Cap Market under the symbol ARIB. The following table presents for
fiscal year ended June 30, 1994 and fiscal year ended June 30, 1995 the
high and low bid prices of Aspen Common Stock as reported by NASDAQ.
Quotations are interdealer prices which do not include retail markups,
markdowns or commissions and do not necessarily represent actual
transactions.
1994 High Low
First Quarter $ 1 5/8 $ 1
Second Quarter 1 1/4 7/8
Third Quarter 1 5/16 1 1/16
Fourth Quarter 1 3/32 3/8
1995
First Quarter $ 13/16 $ 5/8
Second Quarter 1 1/8 5/8
Third Quarter 30/32 5/8
Fourth Quarter 13/16 11/16
Holders
There were approximately 500 stockholders of record as of February
23, 1996.
Dividends
Aspen has not paid cash dividends on its Common Stock and does not
anticipate paying dividends on its Common Stock in the foreseeable future.
30.
<PAGE>
MARKET FOR BROOKS COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market Information
Brooks Common Stock is traded over-the-counter and quoted on NASDAQ
Small Cap Market under the symbol BBKS. The following table presents for
1994 and 1995 the high and low bid prices of Brooks Common Stock as
reported by NASDAQ. Quotations are interdealer prices which do not
include retail markups, markdowns or commissions and do not necessarily
represent actual transactions.
1994 High Low
First Quarter $ 1 5/8 $ 1 5/8
Second Quarter 1 5/8 1 3/8
Third Quarter 1 5/8 1 3/8
Fourth Quarter 1 1/2 1 1/8
1995
First Quarter $ 1 1/8 $ 1
Second Quarter 1 1/4 1
Third Quarter 1 1/8 1
Fourth Quarter 1 1/8 3/4
Holders
There were approximately 4,100 stockholders of record as of April 19,
1996.
Dividends
Brooks has not paid dividends on its Common Stock in recent years and
does not anticipate paying dividends on its Common Stock in the
forseeable future. In addition, no dividends may be paid on the Brooks
Common Stock while there is any unpaid dividend on the Brooks Preferred
Stock. Subject to the foregoing, the payment of dividends on Common
Stock will depend, among other factors, on earnings, capital requirements
and the operating and financial condition of Brooks. At December 31,
1995, $13,552,000 of dividends had not been declared or paid on the
cumulative Brooks Preferred Stock.
31.
<PAGE>
MARKET FOR PUBCO COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Pubco's Common Stock is traded over-the-counter and quoted on NASDAQ
Small Cap Market under the symbol PUBO. The following table presents for
1994 and 1995 the high and low bid prices of Pubco's Common Stock as
reported by NASDAQ. Quotations are interdealer prices which do not
include retail markups, markdowns or commissions and do not necessarily
represent actual transactions.
1994 High Low
First Quarter $ 5 1/2 $ 5
Second Quarter 5 1/4 4 3/4
Third Quarter 5 4 7/8
Fourth Quarter 5 3/4 5
1995
First Quarter $ 5 $ 4 1/2
Second Quarter 5 4
Third Quarter 5 1/4 4
Fourth Quarter 6 1/2 5 1/4
Transferability of Class B Stock is restricted to certain family
members and others who are "Permitted Transferees" (as defined) and
accordingly there is no market for Class B Stock. However, Class B Stock
is convertible into Common Stock on a share-for-share basis.
Holders
There were approximately 7,500 holders of Common Stock of record and
approximately 400 holders of Class B Stock of record, as of March 1, 1996.
Dividends
Pubco has never paid cash dividends on its Common Stock and Class B
Stock and does not anticipate paying dividends on its Common Stock or
Class B Stock in the forseeable future. In addition, no dividends may be
paid on the Common Stock or Class B Stock while there is any unpaid
dividend arrearage on the Pubco Preferred Stock. As of September 30,
1995, there is no dividend arrearage on the Pubco Preferred Stock.
Subject to the foregoing, the payment of dividends will depend, among
other factors, on earnings, capital requirements and the operating and
financial condition of Pubco.
32.
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED) OF
PUBCO
Introduction
The accompanying unaudited condensed consolidated financial
information of Pubco Corporation gives effect to the Merger of Brooks
into Pubco, the sale of the net assets of Aspen to Pubco Sub and the
liquidation of Aspen (the "Transactions").
The pro forma balance sheet was prepared as if such Transactions had
occurred on December 31, 1995. The pro forma statement of operations was
prepared as if such Transactions had occurred at January 1, 1995.
The pro forma condensed consolidated balance sheet and statement of
operations are not necessarily indicative of the consolidated financial
position or results of operations as they might have been had the
Transactions actually occurred on the dates indicated. The pro forma
condensed consolidated balance sheet and statement of operations should
be read in conjunction with the financial statements of Aspen, Brooks and
Pubco elsewhere in this Proxy Statement/Information Statement-Prospectus
beginning on page F-1.
33.
<PAGE>
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
PUBCO CORPORATION AND SUBSIDIARIES
($000's)
<CAPTION>
December 31, 1995
Aspen Imaging
Pubco International Bobbie Brooks, Pro Forma Pro Forma
Corporation Inc. Incorporated Adjustments Consolidated
(As Reported) (As Reported) (As Reported)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,919 $ 4,359 $ 7,878 $ (7,878)(a) $ 7,919
(4,359)(b)
Marketable securities
and other investments
available for sale 11,836 560 11,836 (11,836)(a) 11,836
(560)(b)
Trade receivables 5,058 542 5,058 (5,058)(a) 5,058
(542)(b)
Inventories 7,447 680 7,447 (7,447)(a) 7,447
(680)(b)
Prepaid expenses and
other current assets 756 27 730 (730)(a) 756
(27)(b)
Due from parent - - 2,236 (2,236)(a) -
--------- --------- --------- ---------
TOTAL CURRENT ASSETS 33,016 6,168 35,185 33,016
PROPERTY AND EQUIPMENT 8,492 1,078 6,985 (6,985)(a) 8,492
(1,078)(b)
INTANGIBLE ASSETS 676 - 627 (627)(a) 1,142
466 (c)
OTHER ASSETS 2,920 129 2,210 (2,210)(a) 2,920
(129)(b)
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 45,104 $ 7,375 $ 45,007 $(51,916) $ 45,570
========= ========= ========= ========= =========
<FN>
See accompanying notes.
</TABLE>
34.
<PAGE>
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
PUBCO CORPORATION AND SUBSIDIARIES
<CAPTION>
($000's) December 31, 1995
Aspen Imaging
Pubco International Bobbie Brooks, Pro Forma Pro Forma
Corporation Inc. Incorporated Adjustments Consolidated
(As Reported) (As Reported) (As Reported)
<S> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,738 $ 351 $ 4,733 $ (4,733)(a) $ 4,738
(351)(b)
Accrued liabilities 9,287 638 7,642 (7,642)(a) 9,287
(638)(b)
Loans payable--related party 289 - 289 (289)(a) 289
Current portion of long-term debt 218 - 58 (58)(a) 218
--------- --------- --------- ---------
TOTAL CURRENT LIABILITIES 14,532 989 12,722 14,532
LONG-TERM DEBT 2,407 - 1,742 (1,742)(a) 2,407
DEFERRED CREDITS AND
NONCURRENT LIABILITIES 3,628 - 2,772 (2,772)(a) 3,628
MINORITY INTEREST 3,022 - 3,022 (3,022)(a) 574
(2,448)(d)
STOCKHOLDERS' EQUITY
Preferred Stock 1 - 1 (1)(a) 1
Common Stock 35 4 5 (5)(a) 41
(4)(b)
1 (c)
5 (d)
Additional paid in capital 30,082 4,807 52,392 (52,392)(a) 36,928
(4,807)(b)
465 (c)
6,381 (d)
Unrealized gains on
investments available
for sale 801 150 801 (801)(a) 801
(150)(b)
Retained earnings (deficit) (9,392) 1,589 (28,450) 28,450 (a) (9,392)
(1,589)(b)
--------- --------- --------- ---------
21,527 6,550 24,749 28,379
Less cost of treasury stock (12) (164) - 164 (b) (3,950)
(3,938)(d)
--------- --------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY 21,515 6,386 24,749 24,429
--------- --------- --------- --------- ---------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 45,104 $ 7,375 $ 45,007 $(51,916) $ 45,570
========= ========= ========= =========
<FN>
See accompanying notes.
</TABLE>
35.
<PAGE>
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
PUBCO CORPORATION AND SUBSIDIARIES
<CAPTION>
($000's) Twelve Months Ended December 31, 1995
Aspen Imaging
Pubco International Bobbie Brooks, Pro Forma Pro Forma
Corporation Inc.(*) Incorporated Adjustments Consolidated
(As Reported) (As Reported) (As Reported)
<S> <C> <C> <C> <C> <C>
Net sales $ 47,590 $ 5,818 $ 47,590 $(47,590)(a) $ 52,260
(1,148)(e)
Cost of sales 34,844 4,594 34,844 (34,844)(a) 38,141
(149)(c)
(1,148)(e)
---------- --------- --------- --------- ----------
GROSS PROFIT 12,746 1,224 12,746 (12,597) 14,119
Selling, general and
administrative expenses 8,835 1,577 7,989 (7,989)(a) 10,412
Depreciation and amortization 1,121 85 1,037 (1,037)(a) 1,237
31 (b)
Interest, net (911) (273) (998) 998 (a) (1,184)
---------- --------- --------- --------- ----------
9,045 1,389 8,028 (7,997) 10,465
Other income (expense), net 335 (14) 336 (336)(a) 345
24 (d)
---------- --------- --------- --------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES AND MINORITY INTEREST 4,036 (179) 5,054 (4,912) 3,999
Provision (benefit) for income taxes 53 (128) 104 (104)(a) (75)
Minority interest 30 - 30 (30)(a) 30
---------- --------- --------- --------- ----------
NET INCOME (LOSS)
FROM CONTINUING OPERATIONS 3,953 (51) 4,920 (4,778) 4,044
Preferred stock dividend requirements 875 - 4,587 (4,587)(a) 875
---------- --------- --------- --------- ----------
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS
APPLICABLE TO
COMMON STOCKHOLDERS $ 3,078 $ (51) $ 333 $ (191) $ 3,169
========== ========= ========= ========= ==========
NET INCOME FROM
CONTINUING OPERATIONS
PER COMMON SHARE $ 0.89 $ 0.84
========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 3,463,387 3,759,381
========== ==========
<FN>
See accompanying notes.
(*) Aspen's fiscal year ends on June 30. The above income statement for
Aspen has been restated to reflect the 12 months ended December 31,
1995 to correspond to Pubco's calendar fiscal year.
</TABLE>
36.
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PUBCO CORPORATION AND SUBSIDIARIES
Note 1--Basis of Presentation
Prior to the transactions, Pubco owned approximately 90% of Brooks and
Brooks owned approximately 62% of Aspen. Therefore, only the portion of
the transactions resulting in Pubco acquiring the remaining interests of
Brooks and Aspen will be accounted for under the purchase method of
accounting. Pubco has estimated the adjustments required to allocate the
aggregate purchase price over the book value of the minority shares of
Brooks and over the net assets to be acquired of Aspen. Such allocations
are subject to final determinations based on independent appraisals and
other evaluations of fair value as of the date of the transactions.
Therefore, the allocations reflected in the pro forma condensed
consolidated financial information may differ from the amounts ultimately
determined. Differences between the amounts included herein and the final
allocations are not expected to have a material effect on the pro forma
financial statements.
Note 2--Pro Forma Condensed Consolidated Balance Sheet Adjustments
(Unaudited)
The quoted market value of Pubco Common Stock at December 31, 1995 is
used to value the Brooks transaction.
The $466,000 of goodwill represents the excess of the market value of
Pubco Common Stock to be issued for the Brooks minority shares over Pubco
book value of the minority interest, which is zero because there is no
stockholders' equity available to the Brooks Common stockholders.
The fair value of Aspen's net assets at December 31, 1995 is used to
value the Aspen transaction, because the fair value of the net assets
acquired is more clearly evident.
37.
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PUBCO CORPORATION AND SUBSIDIARIES
Note 2--Pro Forma Condensed Consolidated Balance Sheet Adjustments
(Unaudited)--Continued
The following table describes the allocation of the purchase price to the
individual categories of assets and liabilities in the Aspen transaction:
($000's)
Fair
Value
Current assets $ 6,169
Long term assets 621
Deferred tax asset (1) -
Current liabilities (989)
--------
5,801
Less basis in investment
owned prior to transaction 3,354
--------
Fair value of net assets to be
exchanged in the transaction $ 2,447
========
(1) Aspen has not generated pretax income in recent years and,
therefore, the potential future tax benefits of the deferred tax
assets of approximately $500,000, primarily net operating loss
carryforwards, may not be realized. Accordingly, a valuation
allowance has been provided in the allocation of the purchase
price equal to the net deferred tax assets related to these
potential future tax benefits.
Adjustments to the Pro Forma Condensed Consolidated Balance Sheet
(Unaudited) were made to:
(a) Eliminate duplicate Balance Sheet amounts since Brooks is 90%
owned by Pubco, and is already consolidated and included in
Pubco's Statement above. Also eliminated in a Pubco Brooks
Merger is all of the Brooks Preferred Stock which is wholly-owned
by Pubco;
(b) Eliminate duplicate Balance Sheet amounts since Aspen is 62%
owned by Pubco (through Brooks), and is already consolidated and
included in Pubco's Statement above;
(c) Issue approximately 77,627 shares of Pubco stock for the Brooks
shares held by the Brooks minority stockholders, resulting in the
recognition of $466 of goodwill; and
(d) Aspen sells to Pubco Sub all of its assets, subject to its
liabilities, in exchange for approximately 569,822 shares of
Pubco stock. Aspen is then liquidated, and treasury stock of
approximately 351,455 shares is recorded by Pubco.
38.
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PUBCO CORPORATION AND SUBSIDIARIES
Note 3--Pro Forma Condensed Consolidated Statement of Operations
Adjustments (Unaudited)
Adjustments to the Pro Forma Condensed Consolidated Statement of
Operations (Unaudited) were made to:
(a) Eliminate duplicate Income Statement amounts since Brooks is 90%
owned by Pubco, and is already consolidated and included in
Pubco's Statements above. The Brooks Preferred Stock Dividend
Requirement is also eliminated as part of the Pubco-Brooks Merger;
(b) Record amortization of goodwill resulting from the Brooks
transaction over 15 years;
(c) Remove depreciation and amortization resulting from the
write-down of the fixed assets of Aspen, based on the purchase of
an additional 19% ownership of Aspen by Brooks in the fourth
quarter of 1995 (and prior to the Aspen transaction);
(d) Eliminate the equity earnings (loss) adjustments pertaining to
Aspen, since all of Aspen will then be owned by Pubco and
included in the Pro Forma Combined Statements; and
(e) Eliminate the intercompany sales and cost of sales attributable
to Aspen and Buckeye.
Note 4--Summary Pro Forma Condensed Consolidated Statements and
Comparative Per Share Data, Assuming That Only One Transaction
Is Consummated
Summary Pro Forma Statement and Comparative Per Share Data is provided
here, assuming that only one transaction is consummated. See "The
Transactions-Conditions."
Pubco Corporation and Subsidiaries
Summary Pro Forma Condensed Consolidated Balance Sheet as of
December 31, 1995 As If Only the Aspen Sale and Liquidation
Transactions Were Consummated
($000's)
Current assets $ 33,016
Property and equipment 8,492
Other long term assets 3,596
---------
Total Assets $ 45,104
=========
Current liabilities $ 14,532
Long term liabilities 6,035
Minority interest 574
Stockholders' equity 23,963
---------
Total Liabilities and
Stockholders' Equity $ 45,104
=========
39.
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PUBCO CORPORATION AND SUBSIDIARIES
Note 4--Summary Pro Forma Condensed Consolidated Statements and
Comparative Per Share Data, Assuming That Only One Transaction
Is Consummated--Continued
Pubco Corporation and Subsidiaries
Summary Pro Forma Condensed Consolidated Statement of Operations
As If Only the Aspen Sale and Liquidation Transactions Were Consummated
($000's)
Twelve Months Ended
December 31, 1995
Net sales $ 52,260
Gross profit 14,119
Income from continuing operations before
income taxes and minority interest 4,030
Net income from continuing operations 4,075
Net income from continuing operations
applicable to Common Stockholders 3,200
Net income from continuing operations
per Common Share $ .87
Weighted average number
of Common Shares 3,681,754
Pubco Corporation and Subsidiaries
Summary Comparative Pro Forma Per Share Data
As If Only the Aspen Sale and Liquidation Transactions Were Consummated
Twelve Months Ended
December 31, 1995
Per Pubco Share:
Net income from continuing operations
applicable to Common Stockholders $ .87
Cash dividends --
Book value as of December 31, 1995 $ 4.61
Per Aspen Equivalent Share:
Net income from continuing operations
applicable to Common Stockholders $ .12
Cash dividends --
Book value as of December 31, 1995 $ .66
40.
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PUBCO CORPORATION AND SUBSIDIARIES
Note 4--Summary Pro Forma Condensed Consolidated Statements and
Comparative Per Share Data, Assuming That Only One Transaction
Is Consummated--Continued
Pubco Corporation and Subsidiaries
Summary Pro Forma Condensed Consolidated Balance Sheet as of
December 31, 1995 As If Only the Merger With Brooks Was Consummated
($000's)
Current assets $ 33,016
Property and equipment 8,492
Other long term assets 4,062
---------
Total Assets $ 45,570
=========
Current liabilities $ 14,532
Long term liabilities 6,035
Minority interest 3,022
Stockholders' equity 21,981
---------
Total Liabilities and
Stockholders' Equity $ 45,570
=========
Pubco Corporation and Subsidiaries
Summary Pro Forma Condensed Consolidated Statement of Operations
As If Only the Merger With Brooks Was Consummated
($000's)
Twelve Months Ended
December 31, 1995
Net sales $ 47,590
Gross profit 12,746
Income from continuing operations before
income taxes and minority interest 4,005
Net income from continuing operations 3,922
Net income from continuing operations
applicable to Common Stockholders 3,047
Net income from continuing operations
per Common Share $ .86
Weighted average number
of Common Shares 3,541,014
41.
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PUBCO CORPORATION AND SUBSIDIARIES
Note 4--Summary Pro Forma Condensed Consolidated Statements and
Comparative Per Share Data, Assuming That Only One Transaction
Is Consummated--Continued
Pubco Corporation and Subsidiaries
Summary Comparative Pro Forma Per Share Data
As If Only the Merger With Brooks Was Consummated
Twelve Months Ended
December 31, 1995
Per Pubco Share:
Net income from continuing operations
applicable to Common Stockholders $ .86
Cash dividends --
Book value as of December 31, 1995 $ 4.23
Per Brooks Equivalent Share:
Net income from continuing operations
applicable to Common Stockholders $ .14
Cash dividends --
Book value as of December 31, 1995 $ .71
42.
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA OF ASPEN
(All numbers shown in 000's except share data and ratios)
Selected Statement of Operations Data of Aspen
<CAPTION>
Unaudited
12 Months
Ended
December 31 Years Ended June 30
1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Net Revenues $ 5,818 $ 7,270 $ 11,875 $ 13,997 $ 17,127 $ 17,620
Net income (loss) (51) (721) (1,768) (1,013) (1,318) 12
Net income (loss)
per Common Share $ (.01) $ (.17) $ (.43) $ (.32) $ (.41) $ .00
Weighted average
number of shares 4,080,381 4,168,104 4,159,479 3,192,356 3,192,356 3,480,210
</TABLE>
<TABLE>
<CAPTION>
Selected Balance Sheet Data of Aspen
Unaudited
December 31 June 30
1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Total Assets $ 7,375 $ 7,389 $ 8,964 $ 11,568 $ 14,100 $ 14,858
Long-Term Debt - - 852 1,367 1,350 1,854
Stockholders' Equity 6,386 6,290 7,027 7,171 8,184 9,502
Per Common Share $ 1.60 $ 1.54 $ 1.68 $ 2.25 $ 2.56 $ 2.98
Shares Outstanding
at year end 3,988,756 4,075,356 4,192,356 3,192,356 3,192,356 3,192,356
</TABLE>
Aspen's fiscal year ends on June 30. The twelve month period ending
December 31, 1995 is shown to correspond to Pubco's calendar fiscal year.
43.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ASPEN
Results of Operations
Comparison of the Three and Six Months Ended December 31, 1995 and 1994
As reported in Aspen's Form 10-K for the year ended June 30, 1995 and
in Aspen's Form 10-Q for the quarter ended September 30, 1995, Aspen
reduced its product offerings in order to focus on its traditional ribbon
business for impact printers, particularly ribbons for which Aspen has
molds, and on its toner products line for laser printers. The reduction
in sales and the reduction in inventory levels in the three and six month
periods ended December 31, 1995 from the same periods in 1994, are
primarily the result of the elimination of unprofitable products from
Aspen's product line and a continuing deterioration in the sales of
Aspen's core products. In addition, inventory levels are lower at
December 31, 1995 compared to December 31, 1994 by approximately $584,000.
Aspen has reduced its manufacturing overhead to be more in line with
its current rate of sales, which is predominantly responsible for the
increase in gross profit percentage for the three and six months period
compared to the same periods in 1994.
Aspen reduced its selling, general and administrative costs by
approximately $205,000 for the three months and approximately $350,000
for the six months, ended December, 1995, compared to the same periods in
1994, to be more in line with Aspen's current rate of sales. Selling,
general and administrative costs for the three months ended December 31,
1995 also represented a decrease of approximately $50,000 from the three
months ended September 30, 1995.
There was no interest expense in the three or six month periods ended
December 31, 1995 due to the elimination of debt.
Comparison of the Fiscal Years Ended June 30, 1995 and 1994
Aspen continues to reduce its product offerings and focus on its
traditional ribbon business for impact printers, particularly ribbons for
which the company has molds, and on its toner product lines for laser
printers. The reduction in sales and the reduction in inventory levels
from 1994 to 1995 are primarily the result of the elimination of
unprofitable products from the company's product line and a continuing
deterioration in the sale of the company's core products.
Because Aspen no longer required its 85,000 square foot facility in
Colorado, the facility was sold during fiscal 1995 for an amount
approximating net book value and the proceeds used to retire debt. Cash
and cash equivalents, short term investments and marketable securities
increased from 1994 to 1995 primarily as the result of the sale of the
facility and further reduction in inventory levels. Receivables
decreased as a result of the reduction in sales.
44.
<PAGE>
Gross profit decreased slightly from 21.5% for the year ended June
30, 1994 to 20.8% for the year ended June 30, 1995 primarily due to the
expensing of approximately $144,000 to cost of sales for variances
resulting from the underabsorption of overhead. These variances from the
company's standard costs were the result of the company's efforts to
reduce inventory levels to those more appropriate to its current rate of
sales and sales dropping below levels which could fully absorb the
company's normal overhead costs. Although the company continues to
reduce its cost of sales, underabsorbed overhead will continue until the
company achieves sufficient sales to fully absorb overhead.
Aspen has reduced its ongoing selling, general and administrative
costs by $930,000 from 1994 to 1995 in an attempt to bring such costs in
line with the company's current rate of sales.
Interest expense decreased in 1995 due to the elimination of debt.
In the year ended June 30, 1995, Aspen recorded severence and post
employment costs resulting from the elimination of four administrative
employees, including the company's former President, who retired in
December, 1994, but will continue to receive compensation through 1996.
Comparison of the Fiscal Years Ended June 30, 1994 and 1993
In July, 1993, Aspen sold Buckeye 1,000,000 newly issued shares of
Common Stock for $1.65 per share, aggregate $1,650,000. During the year
ended June 30, 1994, the company made decisions to utilize its assets in
a more productive manner in an effort to return the company to
profitability. As a result of this change in direction, the company
eliminated unprofitable products (primarily organic photoconductors - OPC
drums) from the company's product lines, sold unused and under-utilized
assets, entered into an agreement to sell the company's building, and
made further reductions in the company's staffing levels. This resulted
in an approximately $1,500,000 charge in the year ended June 30, 1994.
Aspen's employee levels were reduced from approximately 150 at June
30, 1993 to approximately 45 at June 30, 1994. The company no longer
required its approximately 85,000 square foot facility in Colorado, the
sale of which was completed in October, 1994, reducing occupancy costs.
The company reduced its bank debt to approximately $1,000,000 at June 30,
1994, from approximately $2,800,000 at June 30, 1993. The company
increased its cash to approximately $1,785,000 from approximately
$110,000 at June 30, 1993. The proceeds from the sale of the building
were used to eliminate all outstanding bank debt.
Although sales were down by over $2,000,000 in the year ended
June 30, 1994 from the year ended June 30, 1993, gross profit percentage
increased from 12.5% at June 30, 1993 to 21.5% at June 30, 1994 as a
result of the foregoing factors as well as the decrease in research &
development costs brought about by the decreased need for research &
development in ribbon products.
45.
<PAGE>
Selling, general and administrative costs decreased by approximately
$340,000 in the year ended June 30, 1994 from the year ended June 30,
1993, as a result of lower staffing levels and decreased sales, but this
decrease was offset by the write-off of an uncollectible note receivable
of approximately $527,000 due from an insolvent unaffiliated third party.
Interest expense decreased due to lower debt levels.
Liquidity and Capital Resources
The investment in Aspen by Buckeye in 1993 allowed the company to
utilize its assets in a more productive manner in an effort to return the
company to profitability.
Aspen used Buckeye's investment to eliminate the company's working
capital debt and the relationship with Buckeye allowed the company to
sell its building, eliminate all long-term debt, and substantially reduce
staffing levels. This has resulted in a reduction in the company's
losses and cash requirements, notwithstanding the continuing sales
deterioration that began several years ago.
On February 15, 1995, Aspen announced that it would purchase, from
time to time in the open market, up to 750,000 shares of its stock.
Through February 12, 1996, Aspen has repurchased 203,600 of its shares at
an aggregate purchase price of $164,187.
Aspen's current ratio was 6.2 to 1 at December 31, 1995 compared to
5.4 to 1 at June 30, 1995. The company has approximately $5,000,000 in
cash and cash equivalents, marketable securities and other short-term
investments and no long-term debt at December 31, 1995. Accordingly, the
company believes that its capital resources are more than sufficient to
support its current and planned levels of operations and its announced
stock repurchase.
Aspen has not generated pretax income in recent years and, therefore,
the potential future tax benefits of the deferred tax assets, primarily
net operating loss carryforwards, may not be realized. Accordingly, a
valuation allowance has been provided equal to the net deferred tax
assets related to these potential future tax benefits, which totaled
approximately $500,000 at December 31, 1995. Should the company generate
pretax income in future years, the tax benefits of the net operating loss
carryforwards and other items will be realized, which will have a
positive impact on the future cash flows, liquidity and capital resources
of the company.
New Accounting Standards
In 1995, the Financial Accounting Standards Board issued a new
accounting standard effective for 1996 that will be applicable to Aspen.
SFAS No. 121-"Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of", establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles
and goodwill related to those assets to be held and used, and for
long-lived assets and certain identifiable intangibles to be disposed
of. Aspen has determined the effect upon its adoption to be immaterial
to results of operations.
46.
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA OF BROOKS
(All numbers shown in 000's except share data and ratios)
Selected Statement of Operations Data of Brooks
<CAPTION>
Years Ended December 31
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Sales (A),(B) $ 47,590 $ 46,016 $ 42,084 $ 25,030 $ 26,787
Net income (loss): (A)
Continuing operations 4,920 4,036 3,207 2,078 1,808
Discontinued operations 1,100 (17,894) (2,637) (11,119) (2,997)
Net income (loss) 6,020 (13,858) 570 (9,041) (1,189)
Net income (loss)
applicable to Common
Stockholders (D) 1,433 (17,713) (3,190) (13,163) (6,339)
Income (loss)
per share: (A)
Continuing operations (D) $ .07 .04 (.11) (.41) (2.40)
Discontinued operations .22 (3.63) (.54) (2.26) (2.15)
Net income (loss)
per Common Share $ .29 $ (3.59) $ (.65) $ (2.67) $ (4.55)
Weighted average
number of shares 4,932,400 4,932,400 4,932,400 4,932,400 1,392,400
</TABLE>
<TABLE>
Selected Balance Sheet Data of Brooks
<CAPTION>
December 31
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Working Capital Ratio 2.8 to 1 1.4 to 1 1.6 to 1 2.1 to 1 2.2 to 1
Total Assets $ 45,007 $ 41,490 $ 67,959 $ 72,532 $ 97,160
Long-Term Debt 1,742 124 5,177 9,750 7,675
Stockholders' Equity 24,749 18,578 33,136 36,177 55,971
Common Stockholders' Equity (C) - - - - 8,530
Per Common Share $ - $ - $ - $ - $ 1.73
Shares Outstanding
at year end (E) 4,932,400 4,932,400 4,932,400 4,932,400 4,932,400
<FN>
(A) The information contained in the above table has been restated to give effect to the Buckeye
business combination and the discontinuance of the commercial printing segment in 1993 and
the discontinuance of the apparel and retail segments in 1994. Refer to Notes B and C of
the Consolidated Financial Statements.
(B) The increase in sales in 1993 is primarily due to the Allied acquisition.
(C) Common Stockholders' Equity and Stockholders' Equity Per Common Share are computed net of
the face value of the Series A and B Preferred Stocks, its redemption premium and unpaid
cumulative dividends thereon. If the amounts applicable to preferred stockholders are in
excess of Common stockholders' equity, then no value is reflected above. As discussed in
Note E of Notes to Consolidated Financial Statements, the unpaid cumulative Preferred Stock
dividend was $13,552,000 at December 31, 1995.
(D) Net of Preferred Stock dividend requirements.
</TABLE>
47.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF BROOKS
Results of Operations
Comparison of 1995 and 1994
Brooks has completed its transformation from a company with
predominantly retail and apparel operations into a company which
manufactures and distributes business to business products. The closure
of the company's retail department store chain in 1994 and discontinuance
of its apparel manufacturing operations in 1994 have been accounted for
as discontinued operations. Income from discontinued operations, net of
taxes, for 1995 is the result of actual results being more favorable than
anticipated when the accrual was established during 1994.
The company's continuing operations primarily consist of Buckeye and
Allied. Each of these operations is located at the company's
manufacturing facility in Cleveland, Ohio.
The increase in sales from 1994 to 1995 is primarily due to an
increase in sales at Allied resulting from the introduction of a grapple
product line in late 1994, as well as increased sales of pedestal boom
systems and trench shoring equipment.
The decrease in gross profit percentage in 1995 from 1994 is
primarily due to a lower gross profit percentage at Allied. Because
Allied purchases components from a German manufacturer, the lower value
of the Dollar versus the Deutsche Mark in 1995 compared with 1994
resulted in increased cost of sales and lower gross profits at Allied.
Lower borrowing levels at Allied and Buckeye in 1995 compared to 1994
resulted in a decrease in interest expense in 1995. The 1995 results of
operations include interest income from the proceeds of the discontinued
operations. These factors caused the change in net interest from 1994 to
1995. The company will continue to generate interest and other income on
its available funds until used to make an acquisition of other operating
businesses. While no particular acquisition is pending or has been
identified, the company routinely reviews acquisition opportunities.
The dividend requirements for the two classes of preferred stock
adjust annually, in January and August, respectively, based on changes in
the prime rate. The increases at those dates in 1995 from 1994 caused
the increase in preferred stock dividend requirements.
Due to the increase in Brooks' ownership of Aspen to approximately
62% at the end of 1995, the company's Consolidated Statement of
Operations will include Aspen beginning in 1996. In 1995, 1994 and 1993,
the company accounted for Aspen's results of operations using the equity
method which were not significant and were included in other income in
the company's Consolidated Statements of Operations.
48.
<PAGE>
Comparison of 1994 and 1993
All of the financial statement information has been restated to give
effect to the business combination with Buckeye and the discontinued
operations described below.
Brooks has completed its transformation from a company with
predominantly retail and apparel operations into a company which
manufactures and distributes business to business products.
During 1994, Brooks closed its remaining retail stores and
discontinued its apparel manufacturing operations (other than trademark
licensing), which apparel manufacturing operations did not represent any
material amount of its business. These actions have been accounted for
as discontinued operations. Continuing operations primarily consist of
Buckeye and Allied. Each of these operations is located at Brooks'
manufacturing facility in Cleveland, Ohio.
Buckeye contributed approximately $23,356,000 of sales and
approximately $3,966,000 of pretax income in 1994 and approximately
$23,391,000 of sales and approximately $3,729,000 of pretax income in
1993. Without Buckeye's operations, Brooks would have reported a net
income from continuing operations of approximately $69,000 in 1994. Had
the financial statements included herein not been retroactively restated
to include Buckeye, Brooks would have reported net losses from continuing
operations of approximately $442,000 in 1993. Therefore, Buckeye has
made a positive contribution in each of the years reported.
Allied's sales increased from 1993 to 1994 primarily because of the
inclusion of Allied's operations for the entire 1994 year. The decrease
in Allied's income from 1993 to 1994 is primarily the result of a decline
in gross margins due to increased sales of lower margin products,
unfavorable currency fluctuations which adversely affected raw material
cost, and the liquidation of inventory from phased-out product lines.
The increase in sales from 1993 to 1994 is the result of the
inclusion of Allied in the entire 1994 period.
The change in cost of sales from 1993 to 1994 is predominantly due to
the same factors. Gross margins decreased from 1993 to 1994 primarily
because Allied's products are sold at lower gross margins than Buckeye's.
Selling, general and administrative expenses decreased from 1993 to
1994 because of cost reductions at Buckeye.
As a result of the discontinuance of the retail and apparel
businesses in 1994 and the discontinuance of the commercial printing
business in 1993, Brooks reported a loss from discontinued operations in
each year. Losses from discontinued operations represent the company's
best estimate of the costs incurred and to be incurred from the
discontinuance of such operations.
49.
<PAGE>
Liquidity and Capital Resources
As a result of the increase in Brooks' ownership of Aspen at year-end
1995 from approximately 41% to approximately 62%, the company's
consolidated balance sheet at December 31, 1995 includes the accounts of
Aspen, whereas the company's consolidated balance sheet at December 31,
1994 accounted for its investment in Aspen using the equity method of
accounting.
At December 31, 1995, the company had almost $20,000,000 of cash,
cash equivalents, marketable securities and other short-term investments,
including approximately $5,000,000 owned by Aspen, and approximately
$1,742,000 of long-term debt.
Accounts payable and accrued liabilities decreased from December 31,
1994 to December 31, 1995, notwithstanding the consolidation with Aspen
at December 31, 1995, primarily as the result of the payment of certain
obligations related to the closing of the retail department store chain.
Although there was stockholders' equity of $24,749,000 at December
31, 1995, the Preferred Stock is entitled to a liquidation preference
equal to its $37,605,000 face value, a $544,000 premium in the event
Brooks calls the Preferred Stock for redemption and $13,552,000 of unpaid
cumulative Preferred Stock dividends. As a result, there is no
stockholders' equity available to the Common Stock.
The company has not consistently generated pretax income and the
potential future tax benefits of the deferred tax assets, primarily net
operating loss carryforwards, may not be realized. Accordingly, a
valuation allowance has been provided equal to the net deferred tax
assets related to these potential future tax benefits, which totaled
approximately $14,000,000 at December 31, 1995. Should the company
generate pretax income in future years, the tax benefits of the net
operating loss carryforwards and other items will be realized, which will
have a positive impact on the future cash flows, liquidity and capital
resources of the company.
New Accounting Standards
In 1995, the Financial Accounting Standards Board issued a new
accounting standard effective for 1996 that will be applicable to the
company. SFAS No. 121-"Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed Of", establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held
and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The company has determined the effect upon its
adoption to be immaterial to results of operations.
50.
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA OF PUBCO
(All numbers shown in 000's except share data and ratios)
Selected Statement of Operations Data of Pubco
<CAPTION>
Unaudited
Twelve Months Ended
December 31, 1995 Years Ended December 31
Pro Forma
1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Net Sales (A),(B) $ 52,260 $ 47,590 $ 46,016 $ 42,084 $ 25,030 $ 26,787
Net income (loss): (A)
Continuing operations 4,044 3,953 3,380 2,386 925 521
Discontinued
operations (E) N/A 1,100 (13,588) (2,511) (8,555) (1,162)
Net income (loss) (E) 4,044 5,053 (10,208) (125) (7,630) (641)
Net income (loss)
applicable to Common
Stockholders (D) (E) 3,169 4,178 (10,908) (825) (8,365) (1,621)
Income (loss)
per share: (A)
Continuing
operations (D) $ .84 $ .89 .77 .49 .05 (.13)
Discontinued operations N/A .32 (3.92) (.73) (2.47) (.34)
Net income (loss)
per Common Share $ .84 $ 1.21 $ (3.15) $ (.24) $ (2.42) $ (.47)
Weighted average
number of shares 3,759,381 3,463,387 3,463,727 3,463,727 3,463,727 3,463,727
</TABLE>
<TABLE>
Selected Balance Sheet Data of Pubco
<CAPTION>
Unaudited
December 31 December 31
Pro Forma
1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Working Capital Ratio 2.3 to 1 2.3 to 1 1.3 to 1 1.5 to 1 2.0 to 1 1.8 to 1
Total Assets $ 45,570 $ 45,104 $ 42,876 $ 65,945 $ 71,090 $ 94,767
Long-Term Debt 2,407 2,407 949 6,057 10,695 8,685
Stockholders' Equity 24,429 21,515 16,548 27,456 31,192 43,575
Common Stockholders' Equity (C) 17,429 14,515 9,548 20,456 24,192 36,575
Per Common Share (C) $ 4.64 $ 4.19 $ 2.76 $ 5.91 $ 6.98 $ 10.56
Shares Outstanding
at year end (E) 3,757,721 3,461,727 3,463,727 3,463,727 3,463,727 3,463,727
<FN>
(A) The information contained in the above table has been restated to give effect to the Buckeye business
combination and the discontinuance of the commercial printing segment in 1993 and the discontinuance of
the apparel and retail segments in 1994. Refer to Notes B and C of the Consolidated Financial Statements.
(B) The increase in sales in 1993 is primarily due to the Allied acquisition.
(C) Common Stockholders' Equity and Stockholders' Equity Per Common Share are computed net of the face value
of Preferred Stock.
(D) Net of Preferred Stock dividend requirements.
(E) Pro forma net income (loss) and Pro forma net income (loss) applicable to Common Stockholders are
calculated without regard to discontinued operations.
</TABLE>
51.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF PUBCO
Results of Operations
Comparison of 1995 and 1994
The company has completed its transformation from a company with
predominantly retail and apparel operations into a company which
manufactures and distributes business to business products. The closure
of the company's retail department store chain in 1994 and discontinuance
of its apparel manufacturing operations in 1994 have been accounted for
as discontinued operations. Income from discontinued operations, net of
taxes, for 1995 is the result of actual results being more favorable than
anticipated when the accrual was established during 1994.
The company's continuing operations primarily consist of Buckeye and
Allied. Each of these operations is located at the company's
manufacturing facility in Cleveland, Ohio.
The increase in sales from 1994 to 1995 is primarily due to an
increase in sales at Allied resulting from the introduction of a grapple
product line in late 1994, as well as increased sales of pedestal boom
systems and trench shoring equipment.
The decrease in gross profit percentage in 1995 from 1994 is
primarily due to a lower gross profit percentage at Allied. Because
Allied purchases components from a German manufacturer, the lower value
of the Dollar versus the Deutsche Mark in 1995 compared with 1994
resulted in increased cost of sales and lower gross profits at Allied.
Lower borrowing levels at Allied and Buckeye in 1995 compared to 1994
resulted in a decrease in interest expense in 1995. The 1995 results of
operations include interest income from the proceeds of the discontinued
operations. These factors caused the change in net interest from 1994 to
1995. The company will continue to generate interest and other income on
its available funds until used to make an acquisition of other operating
businesses. While no particular acquisition is pending or has been
identified, the company routinely reviews acquisition opportunities.
The dividend requirements for the preferred stock adjust annually, in
January, based on changes in the prime rate. The increase at January,
1995 caused the increase in preferred stock dividend requirements.
Due to the increase in Brooks' ownership of Aspen to approximately
62% at the end of 1995, the company's Consolidated Statement of
Operations will include Aspen beginning in 1996. In 1995, 1994 and 1993,
the company accounted for Aspen's results of operations using the equity
method which were not significant and were included in other income in
the company's Consolidated Statements of Operations.
52.
<PAGE>
Comparison of 1994 and 1993
All of the financial statement information has been restated to give
effect to the business combination with Buckeye and the discontinued
operations described below.
Pubco has completed its transformation from a company with
predominantly retail and apparel operations into a company which
manufactures and distributes business to business products.
During 1994, Brooks closed its remaining retail stores and
discontinued its apparel manufacturing operations (other than trademark
licensing), which apparel manufacturing operations did not represent any
material amount of the company's business. These actions have been
accounted for as discontinued operations. The company's continuing
operations primarily consist of Buckeye and Allied. Each of these
operations is located at Brooks' manufacturing facility in Cleveland,
Ohio.
Buckeye contributed approximately $23,356,000 of sales and
approximately $3,966,000 of pretax income in 1994 and approximately
$23,391,000 of sales and approximately $3,729,000 of pretax income in
1993. Without Buckeye's operations, the company would have reported a
net loss from continuing operations of approximately $586,000 in 1994.
Had the financial statements included herein not been retroactively
restated to include Buckeye, the company would have reported net losses
from continuing operations of approximately $1,263,000 in 1993.
Therefore, Buckeye has made a positive contribution in each of the years
reported.
Allied's sales increased from 1993 to 1994 primarily because of the
inclusion of Allied's operations for the entire 1994 year. The decrease
in Allied's income from 1993 to 1994 is primarily the result of a decline
in gross margins due to increased sales of lower margin products,
unfavorable currency fluctuations which adversely affected raw material
cost, and the liquidation of inventory from phased-out product lines.
The increase in sales from 1993 to 1994 is the result of the
inclusion of Allied in the entire 1994 period.
The changes in cost of sales from 1993 to 1994 are predominantly due
to the same factors. Gross margins decreased from 1993 to 1994 primarily
because Allied's products are sold at lower gross margins than Buckeye's.
Selling, general and administrative expenses decreased from 1993 to
1994 because of cost reductions at Buckeye.
As a result of the discontinuance of Brooks' retail and apparel
businesses in 1994 and the discontinuance of the commercial printing
business in 1993, the company reported a loss from discontinued
operations in each year. Losses from discontinued operations represent
the company's best estimate of the costs incurred and to be incurred from
the discontinuance of such operations.
53.
<PAGE>
Liquidity and Capital Resources
As a result of the increase in Brooks' ownership of Aspen at year-end
1995 from approximately 41% to approximately 62%, the company's consolidated
balance sheet at December 31, 1995 includes the accounts of Aspen, whereas
the company's consolidated balance sheet at December 31, 1994 accounted for
its investment in Aspen using the equity method of accounting.
At December 31, 1995, the company had almost $20,000,000 of cash, cash
equivalents, marketable securities and other short-term investments,
including approximately $5,000,000 owned by Aspen, and approximately
$2,407,000 of long-term debt.
Accounts payable and accrued liabilities decreased from December 31,
1994 to December 31, 1995, notwithstanding the consolidation with Aspen at
December 31, 1995, primarily as the result of the payment of certain
obligations related to the closing of the retail department store chain.
Stockholders' equity of $21,515,000 at December 31, 1995 includes Common
and Preferred stockholders' equity. In order to calculate Common
stockholders' equity at December 31, 1995, the face value of the Preferred
Stock ($7,000,000) and any unpaid cumulative dividends on the Preferred
Stock must be subtracted from total stockholders' equity. There were no
unpaid cumulative preferred stock dividends outstanding at December 31, 1995.
The company has not consistently generated pretax income and the
potential future tax benefits of the deferred tax assets, primarily net
operating loss carryforwards, may not be realized. Accordingly, a valuation
allowance has been provided equal to the net deferred tax assets related to
these potential future tax benefits, which totaled approximately $16,000,000
at December 31, 1995. Should the company generate pretax income in future
years, the tax benefits of the net operating loss carryforwards and other
items will be realized, which will have a positive impact on the future cash
flows, liquidity and capital resources of the company.
New Accounting Standards
In 1995, the Financial Accounting Standards Board issued a new
accounting standard effective for 1996 that will be applicable to the
company. SFAS No. 121-"Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed Of", establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used, and
for long-lived assets and certain identifiable intangibles to be disposed
of. The company has determined the effect upon its adoption to be
immaterial to results of operations.
54.
<PAGE>
DESCRIPTION OF BUSINESS OF ASPEN
Aspen manufactures and markets disposable inked cartridge and spool
ribbons for impact printing devices, toner for laser toner cartridges and
laser engine printers, and bulk toner for laser printers. Additionally,
Aspen markets various other supply items including print bands and its
AspenGuideR, the definitive computer printer industry compatibility guide
which provides cross-reference information concerning ribbons, fax, laser
and other related supplies.
Aspen's administrative offices are located at 3830 Kelley Avenue,
Cleveland, Ohio 44114, telephone (216) 881-5300, and its sales office is
located at 1500 Cherry Street, Suite B, Louisville, Colorado 80027,
telephone (303) 666-5750.
Aspen manufactures toner and purchases from suppliers, including
Buckeye, ribbon products and other supplies for printing devices. Some
of Aspen's contractors produce component parts on molds owned by Aspen.
Toner products are manufactured by the Aspen Toner manufacturing
subsidiary located in Tullytown, Pennsylvania, approximately 25 miles
north of Philadelphia, and are sold as bulk toner or in kits.
Aspen's products are sold primarily through dealers located in the
United States who resell the products to end-users sometimes utilizing
their own labeling. Ribbon products constitute approximately 50% of
Aspen's business, with toner products constituting approximately 35% and
the remaining 15% derived from the purchase and resale of other supply
items. Aspen has approximately 2,000 accounts, none of which represents
5% of its business.
Aspen's business is not seasonal and it does not rely on patents or
trademarks for any material part of its business. Backlog is not
important to Aspen which depends on sales to dealers who purchase product
when needed. Aspen generally maintains a one to two month's supply of
inventory.
Nylon impression fabric used in ribbon manufacture is readily
available from a number of sources as are plastic cartridge components
and toner manufacturing chemicals.
There are no dominant suppliers of product in the computer printing
supplies market which has numerous manufacturers and resellers.
As of February 24, 1996, Aspen had approximately 20 employees.
Because of declining sales and gross margins and the impending
expiration of Aspen's bank line of credit, the company's independent
auditor's report for the year ended June 30, 1992 included a modification
with respect to the ability of Aspen to continue operating as a going
concern. Aspen's Board of Directors determined that the company might
not be able to remain independent and began seeking a strategic partner.
55.
<PAGE>
Aspen also sought ways to reduce expenses to become more competitive.
Until November, 1991, Aspen had designed and manufactured most of its
products in-house and employed approximately 375 persons. In November,
1991, Aspen shifted production of some of its ribbon products to a
Mexican contractor and down-sized its internal production. By June 30,
1993, Aspen was producing approximately 60% of its ribbons in Mexico. In
April, 1993, the company also began importing ribbon products produced in
China. During the fiscal year ended June 30, 1994, Aspen shifted
production of its ribbons from its Mexican contractor to domestic
contractors.
In July, 1993, Aspen entered into a strategic alliance with Buckeye,
which made a cash investment in Aspen, allowing Aspen to substantially
eliminate its working capital loans. Buckeye began working with Aspen's
management to continue efforts already underway aimed at returning the
company to profitability. These efforts resulted in the elimination of
unprofitable products (primarily organic photoconductors - OPC drums)
from Aspen's product lines, the sale of unused and under-utilized assets,
the sale of Aspen's building, and substantial additional reduction in
Aspen's staffing requirements.
PROPERTIES OF ASPEN
Aspen leases approximately 9,100 square feet of office space in
Louisville, Colorado and approximately 5,000 square feet of factory,
distribution and office space in Brooks' Cleveland, Ohio facility.
Aspen Toner leases approximately 12,000 square feet of leased
manufacturing/warehousing space in a small industrial park in Tullytown,
PA.
LEGAL PROCEEDINGS OF ASPEN
Aspen is not involved in any material pending legal proceedings.
RELATIONSHIP BETWEEN ASPEN AND BROOKS AND OTHER TRANSACTIONS
On July 12, 1993, Aspen issued 1,000,000 shares of Aspen's
authorized, but unissued, Common Stock to Buckeye in exchange for
$1,650,000 in cash ($1.65 per share). By a separate agreement, Buckeye
also acquired 732,388 shares of Aspen's Common Stock owned by Peter C.
Williams, Aspen's then President, a director and a principal stockholder.
Mr. Williams received $1,208,440 in cash ($1.65 per share) from Buckeye
for his shares. The source of cash for these transactions was from the
working capital of Buckeye and from a loan to Buckeye from Robert H.
Kanner, the Chairman and Chief Executive Officer of Buckeye and its then
sole stockholder.
56.
<PAGE>
During the fiscal years ended June 30, 1995 and 1994, Aspen used
Buckeye as a contractor, purchased ribbons and other supply products from
Buckeye for resale to its customers, and utilized Buckeye and affiliated
personnel to perform shipping, administrative, and other functions. The
amount of these charges billed to Aspen during the fiscal years ended
June 30, 1995 and 1994 approximated $1,365,000 and $1,139,000,
respectively. In addition, effective January 1, 1995, Aspen rented
warehouse, manufacturing and office space from Buckeye for $18,000 per
year. At June 30, 1995, Aspen had a related payable to Buckeye and its
affiliates of approximately $160,000.
During the fiscal years ended June 30, 1995 and 1994, Aspen sold
plastics and certain ribbon and toner products to Buckeye. The plastics,
ribbons and toner products billed to Buckeye by Aspen during the fiscal
years ended June 30, 1995 and 1994 approximated $151,600 and $211,200,
respectively. At June 30, 1995, Aspen had a related receivable from
Buckeye of approximately $32,100.
Pubco and Brooks lease a general purpose 312,000 square foot building
in Cleveland, Ohio (the "Building") on a triple net basis. The premises
are used for executive and administrative facilities, Buckeye's
manufacturing and administrative operations and Allied's manufacturing
and administrative operations. Brooks subleases a portion of the
building to an unrelated party. The annual rental for the Building is
approximately $548,700. The Partnership that owns the Building is 80%
owned and controlled by Mr. Kanner. Mr. Dillingham, Mr. Kalette and five
other individuals have a minority interest in the Partnership.
Mr. Kanner made loans to Buckeye attributable to pre-1994
operations. The company repaid $1,911,000 of these loans during 1995.
At December 31, 1995, the company still owed Mr. Kanner $289,000. Until
repaid, these loans bear interest at 2% above the base lending rate
charged by the company's lending bank.
57.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ASPEN
The following table sets forth the number and percentage of shares of
Aspen's Common Stock owned beneficially, as of March 31, 1996, by any
person who is known to Aspen to be the beneficial owner of 5% or more of
such Common Stock and, in addition, by each Director of Aspen and by all
Directors and Officers of Aspen as a group.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership (1) of Class
Bobbie Brooks, Incorporated 2,460,188 61.7%
3830 Kelley Avenue
Cleveland, OH 44114
Robert H. Kanner -0- (2) --
3830 Kelley Avenue
Cleveland, OH 44114
less than
William A. Dillingham 1,000 1.0%
3830 Kelley Avenue
Cleveland, OH 44114
Stephen R. Kalette -0- --
3830 Kelley Avenue
Cleveland, OH 44114
Harold L. Inlow -0- --
3830 Kelley Avenue
Cleveland, OH 44114
Glenn E. Corlett -0- --
825 Eighth Avenue
New York, NY 10019
All Directors and Executive 2,461,188 (2) 61.8%
Officers as a Group (5 Persons)
Peter C. Williams 200,000 (3) 5.0%
12006 North 91st Way
Scottsdale, AZ 85260
(1) Each person has sole voting and investment power with respect to
the shares shown, except as noted.
(2) Mr. Kanner is indirectly the controlling stockholder of Aspen
through his ownership of Pubco stock entitled to approximately
85% of the voting power of Pubco and Pubco's ownership of
appoximately 90% of the Common Stock of Brooks and therefore may
be deemded the beneficial owner of the 2,460,188 shares owned by
Brooks.
(3) Represents 200,000 shares of Aspen stock which may be acquired
for $1.65 per share under currently exercisable stock options
held by Mr. Williams.
58.
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DESCRIPTION OF BUSINESS OF BROOKS
Brooks owns Buckeye which manufactures and markets computer and data
processing supplies, and Brooks owns 85% of Allied, a manufacturer and
distributor of products for the construction and related industries.
Brooks also licenses the use by others of certain apparel related and
printing related trademarks. As of December 31, 1995, Brooks and its
wholly-owned and majority-owned subsidiaries employed approximately 220
persons.
Brooks acquired Allied on March 1, 1993 and acquired Buckeye on
January 1, 1994. Buckeye acquired approximately 41% of Aspen on July 1,
1993 and increased its ownership to approximately 62% during 1995. The
increase in Brooks' ownership of Aspen occurred as a result of purchases
by Aspen of its stock as well as purchases by Brooks of outstanding Aspen
stock. Between February 1995 and September 1995, Aspen repurchased
203,600 of its shares in the open market at prices ranging from $.75 to
$.81 per share. On December 1, 1995, Brooks purchased a total of 120,000
shares of Aspen stock in three privately negotiated transactions at $.857
per share. On December 6, 1995, Brooks purchased 115,000 shares of Aspen
stock in a privately negotiated transaction at $.857 per share. Between
December 6, 1995 and December 11, 1995, Brooks purchased 19,300 shares of
Aspen stock in the open market at $.719 per share. On December 12, 1995,
Brooks purchased 473,500 shares of Aspen stock in a privately negotiated
transaction at $1.00 per share.
Brooks' commercial printing subsidiary ceased its printing operations
near the end of the 1994 first quarter and liquidated its assets. The
decision to discontinue this segment was made in the third quarter of
1993. Brooks' retail subsidiary closed or sold its stores near the end of
1994. The apparel manufacturing operations (other than trademark
licensing), which operations did not represent any material amount of
Brooks' business, completed their final season during 1994.
Financial Information About Industry Segments
For purposes of industry segment reporting, Brooks deems that its
operations are conducted in two segments: computer printer supplies and
construction products. See Note K of Notes to Brooks' Consolidated
Financial Statements for further information on industry segment
reporting.
Computer Printer Supplies Segment
Buckeye, which operates as a division of Brooks, manufactures and
markets computer ribbons, cartridge ribbons, computer paper, laser toner,
remanufactured toner cartridges and thermal transfer ribbons, and Buckeye
also re-markets ink-jet supplies, magnetic media and copy paper. Ribbons
constitute approximately 65% of Buckeye's business with paper and toner
products representing 25% and 10%, respectively. At December 31, 1995,
Buckeye employed approximately 100 persons.
59.
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Buckeye markets its products exclusively through an in-house
telemarketing organization primarily to end-users in the United States.
Buckeye also produces products for the original equipment manufacturer
market.
Buckeye has approximately 12,000 accounts, none of which represents
5% of its business.
Principal raw materials used by Buckeye are nylon impression fabric
which is primarily purchased from one weaving mill, but is readily
available from other sources, uncoated free sheet paper, which is
purchased primarily from two suppliers, but is also readily available
from numerous sources, and plastic cartridge components, which are
purchased from numerous suppliers.
Buckeye's business is not seasonal and it does not rely on patents or
trademarks for any material part of its business.
Backlog is not important to Buckeye's business which depends on sales
to end users who purchase product when needed or on scheduled
deliveries. Buckeye generally maintains a one to two month's supply of
inventory.
There are no dominant suppliers of product in the computer printing
supplies market which has numerous manufacturers and resellers.
Construction Products Segment
Allied designs, manufactures, assembles and distributes products for
the construction, utility and mining industries. Primary product lines
are divided into (A) products which are mounted on excavators, industrial
tractors, loaders and other equipment, including (i) hydraulic hammers
used for breaking rock, concrete and similar materials, (ii) hydraulic
mounted compactors used for soil compaction and pile and sheeting driving
applications, (iii) grapples used for material handling and demolition,
(iv) asphalt cutters, and (v) hydraulic pedestal boom systems used for
breaking oversize material at rock crushing operations and for waste
handling operations, and (B) underground products, including (i)
pneumatic piercing tools used to make horizontal holes for placement or
repair of underground utility lines, and (ii) aluminum trench supports
used to support the walls of open construction trenches. During the last
three fiscal years, mounted products represented approximately 80-85% of
Allied's sales while underground products represented the balance.
Allied maintains a contractual relationship with Krupp
Maschinentechnik GmbH, a German manufacturer of hammers and the component
parts thereof under which these component parts are purchased by Allied,
assembled by Allied and exclusively sold and distributed in the United
States and Canada under Allied's own tradenames. These purchases have
represented approximately 50% of Allied's total component and material
purchases during the past three fiscal years.
60.
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Other sources of components and materials for Allied's products
include various metal products manufacturers, hydraulic system component
suppliers, and steel and aluminum suppliers, principally located in the
United States. No other supplier represents more than 5% of Allied's
component and material purchases. Raw materials used in the manufacture
of Allied's products are available from a variety of sources.
Allied's business is seasonal with approximately 60% of its annual
sales generated during the first half of the calendar year.
Allied actively sells to over 200 customers, none of which represents
more than 5% of Allied's annual sales.
Firm order backlog totalled approximately $4,286,000 as of February
23, 1996 compared to approximately $4,103,000 at February 24, 1995.
Average backlog ranges from a high of $5,000,000 to a low of less than
$1,000,000. Backlog represents orders expected to be filled within the
current fiscal year.
Allied markets its products principally through distributors. Allied
competes with approximately 15 other foreign and domestic manufacturers
in the mounted product market and approximately 10 other foreign and
domestic manufacturers in the underground product market. None of
Allied's competitors are believed to hold a dominant position although
some have greater financial resources than Allied.
At December 31, 1995, Allied employed approximately 75 persons.
Trademark Licensing
Since 1986, Garan, Incorporated, a New York City based AMEX company,
has been using the "Bobbie Brooks", "New Expressions by Bobbie Brooks"
and "Present Co. by Bobbie Brooks" registered trademarks under a license
agreement with Brooks. Garan and its sublicensees sell sportswear under
these labels exclusively at Wal-Mart Stores. While the license agreement
allows sales throughout the United States, Canada, Puerto Rico and
Mexico, sales are actually occurring only where Wal-Mart operates retail
stores. Through December 31, 1995, the license agreement provided for a
quarterly licensing fee based upon sales of garments bearing these
trademarks. Effective for the three year period commencing January 1,
1996, Brooks will receive a set annual licensing fee of $475,000, payable
quarterly. Under separate licensing agreements with two unaffiliated
commercial printers, Brooks has been licensing the use of its
"Tabard/Copley" tradename in the cities of New York and Atlanta in
exchange for monthly licensing fees based upon sales of printing services
by such printers using this tradename. All licensing fees are recorded
within the Corporate segment in Industry Segment Information at Note K.
61.
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PROPERTIES OF BROOKS
Brooks owns or leases the following properties:
Owned or Square
Location Leased Footage Use
St. Louis, MO Owned 100,000 Commercial printing/offices;
leased through 2001
Cleveland, OH Leased 312,000 Buckeye's/Allied's/Aspen's
operations; executive/
administrative facilities;
portion subleased to third
party
Dixon, IL Owned 22,000 Retail; for sale
LEGAL PROCEEDINGS OF BROOKS
Brooks is not involved in any material pending legal proceedings.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF BROOKS
The following table sets forth as of March 31, 1996 (a) the number of
shares of Brooks Common Stock owned, directly or indirectly, by each
Director of Brooks and by all Directors and officers as a group, and (b)
the number of shares of Brooks Common Stock held by each person who was
known by Brooks to beneficially own more than 5% of Brooks Common Stock:
Amount and Nature Percent of
Name of Holder(1) of Beneficial Ownership(2) Outstanding Shares
Robert H. Kanner 4,480,086 (3) 90.8
Stephen R. Kalette 1,000 (3) Less than 1%
Stanley R. Browne -- (3) --
William A. Dillingham 500 (4) Less than 1%
Leo L. Matthews -- (5) --
Harold L. Inlow 9,000 Less than 1%
All Directors and officers
as a group (6 in number) 4,490,586 (3) 91.0
(1) Addresses are 3830 Kelley Avenue, Cleveland, Ohio 44114 for all named
persons.
(2) Each owner has sole voting and investment power with respect to the
shares beneficially owned by him unless otherwise stated.
62.
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(3) Pubco owns 4,466,640 shares of Common Stock of record. Mr. Browne,
Mr. Kanner and Mr. Kalette are Directors and Mr. Kanner and Mr.
Kalette are executive officers of Pubco and by such positions may be
deemed to affect control of Brooks. Mr. Kanner is Pubco's largest
stockholder and is entitled to exercise approximately 85% of the
voting power of all Pubco common shares. As a consequence, Mr.
Kanner may be deemed to have shared voting power with Pubco over
4,466,640 shares of Common Stock of Brooks. In addition, the number
shown in the above table includes 13,446 shares owned by Mr. Kanner
as custodian for his children and as to which shares he disclaims
beneficial ownership.
(4) Mr. Dillingham owns 1,000 shares (less than 1%) of the Common Stock
of Aspen.
(5) Mr. Matthews owns approximately 3.6% of the Common Stock of Allied.
63.
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DESCRIPTION OF BUSINESS OF PUBCO
Pubco is a holding company which owns over 90% of the Common Stock
and 100% of the Preferred Stock of Brooks.
Financial Information About Industry Segments
For purposes of industry segment reporting, Pubco deems that its
operations are conducted in two segments: computer printer supplies and
construction products. See Note K of Pubco's Notes to Consolidated
Financial Statements for further information on industry segment
reporting.
See "Description of Business of Brooks."
PROPERTIES OF PUBCO
In addition to property owned or leased by Brooks, Pubco owns or
leases the following properties:
Owned or Square
Location Leased Footage Use
Elk Grove Village, IL Owned 84,000 Manufacturing/warehouse for
short term tenants; for sale
Havana, IL Owned 25,000 Retail; leased through 2000
See "Properties of Brooks."
LEGAL PROCEEDINGS
Pubco is not involved in any material pending legal proceedings.
64.
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<TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF PUBCO
The following table sets forth as of December 31, 1995 (i) the number
of shares of Pubco's stock owned, directly or indirectly, by each
Director of Pubco and by all Directors and officers as a group, and (ii)
the number of shares of Pubco's stock held by each person who was known
by Pubco to beneficially own more than 5% of Pubco's stock:
<CAPTION>
Common Stock Class B Stock Aggregate
Amount and Nature Amount and Nature Percent of
of Beneficial Percent of of Beneficial Percent of Voting
Name of Holder Ownership (1)(2) Class Ownership (1)(2) Class Power
<S> <C> <C> <C> <C> <C>
Stanley R. Browne -- -- 1,538 * *
Stephen R. Kalette -- -- 13,759 2.5 1.6
Robert H. Kanner 2,066,894 71.2 514,044 92.3 85.0
William A. Dillingham 3,500 * -- -- --
Leo L. Matthews -- -- -- -- --
Harold L. Inlow -- -- -- -- --
3830 Kelley Avenue
Cleveland, OH 44114
All Directors and
officers as a group 2,070,394 71.3 529,441 95.0 86.9
(7 persons)
<FN>
* indicates less than 1%.
(1) Each owner has sole voting and investment power with respect to the
shares beneficially owned by him.
(2) Class B Stock is convertible into Common Stock on a share for share
basis. Therefore, ownership of Class B Stock may also be deemed to
be beneficial ownership of the same number of shares of Common Stock.
</TABLE>
65.
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DIRECTORS AND EXECUTIVE OFFICERS OF PUBCO
Name, Age and Position Principal Occupation
with the Company During Last Five Years
Stanley R. Browne Independent business consultant since April, 1985;
72, Director since for more than five years prior to that date,
1979, Member of the Washington (DC) Counsel, Legal Department, of E. I.
Audit Committee duPont de Nemours & Company, Inc., Wilmington,
Delaware; Director of Brooks since March, 1987.
Stephen R. Kalette Executive officer of Pubco since April, 1984;
45, Director since Director and executive officer of Brooks since
1983, Vice President, October, 1985, currently serving as its Vice
Administration, President, Administration, General Counsel and
General Counsel, Secretary. Also a Director and executive officer
Secretary of Aspen.
Robert H. Kanner Executive officer of Pubco since December,
48, Director since 1983; Director and executive officer of Brooks
1983, Chairman, since October, 1985, currently serving as its
President & CEO, Chairman, President & CEO, Chief Financial
Chief Financial Officer. Also a Director and executive officer of
Officer Aspen, and a Director of Riser Foods, Inc., a
grocery wholesaler and retailer, and CleveTrust
Realty Investors, which invests in real estate.
Board of Directors
The Board of Directors establishes broad corporate policies which are
carried out by the officers of Pubco who are responsible for day-to-day
operations. In 1995, the Board held four meetings and took action by
unanimous written consent on 14 other occasions. No Director was absent
during the year from any of the meetings of the Board of Directors or of any
of the committees of the Board on which he served.
Committees of the Board of Directors
The Company has a standing Audit Committee. The Audit Committee, which
met once in 1995, consists of the Director not otherwise employed by Pubco.
The Audit Committee (i) reviews the internal controls of the company and its
financial reporting; (ii) meets with the Treasurer and such other officers as
it, from time to time, deems necessary; (iii) meets with the independent
public accountants and reviews the scope and results of auditing procedures,
the degree of such auditors' independence, audit and non-audit fees charged by
such accountants, and the adequacy of Pubco's internal accounting controls;
and (iv) recommends to the Board the appointment of the independent
accountants.
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Compensation of Directors
Pubco pays its outside Directors an annual fee of $15,000, payable
monthly. Pubco also reimburses its Directors for any expense reasonably
incurred while performing services for the company. Directors who are
employees of Pubco or otherwise receive compensation from the company do not
receive any fee for acting as Directors of the company.
Other Executive Officers
William A. Dillingham, age 52, has been President of Buckeye for more than
the past five years.
Leo L. Matthews, age 56, has been President of Allied since it was
acquired in March, 1993. Between 1987 and 1993, Mr. Matthews provided
consulting services in strategic planning, marketing, management and finance.
Harold L. Inlow, age 62, had been the President and Chief Operating
Officer of the former retail subsidiary until its closure in 1994.
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<TABLE>
MANAGEMENT COMPENSATION OF PUBCO
Summary Compensation Table
The following table discloses compensation paid or accrued, during each of Pubco's last three
fiscal years, to Pubco's Chief Executive Officer and to its other executive officers.
<CAPTION>
Long-Term Compensation
Annual Compensation Awards Payouts
Name and Other Annual Restricted LTIP All Other
Principal Bonus Compensation Stock Options Payouts Compensation
Position Year Salary($) ($) ($) Awards ($) SARs(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert H. Kanner(1)(2)
Chairman, CEO, 1995 $525,000 --- $59,836(3) --- --- --- $188,973(4,5)
President & 1994 525,000 --- 56,145 --- --- --- 190,420
CFO 1993 525,000 --- 49,987 --- --- --- 92,108
Stephen R. Kalette(6)
VP-Admin., 1995 $330,000 --- $25,776(7) --- --- --- $ 35,815(5)
General Counsel 1994 330,000 --- 22,958 --- --- --- 35,640
& Secretary 1993 330,000 --- 23,761 --- --- --- 35,492
William A. Dillingham(8)
President of 1995 $450,000 --- $ 5,946(8) --- --- --- $ 30,000(9)
Buckeye Division 1994 450,000 --- 6,105 --- --- --- 30,000
1993 450,000 --- 6,504 --- --- --- 30,000
Leo L. Matthews(10)
President of 1995 $120,000 $ 10,000 $ 4,817(11) --- --- --- $ 7,200(12)
Allied 1994 120,000 22,000 6,314 --- --- --- 3,600
1993 100,000 20,000 912 --- --- ---
Harold L. Inlow(13)
President & COO 1995 $225,000 $ 0 $ 7,235(14) --- --- --- ---
of Former Retail 1994 225,000 123,333 29,642 --- --- --- ---
Subsidiary 1993 225,000 120,140 26,624 --- --- --- ---
68.
<PAGE>
<FN>
(1) Of the amounts reported each year as salary for Mr. Kanner, $100,000 was paid
directly by Pubco and $425,000 was paid by Brooks.
(2) Mr. Kanner deferred his entire Salary for each of the years reported under the terms
of deferred compensation plans established for his benefit. The amounts reported
for each year are the amounts deferred for that year. As compensation is earned by
Mr. Kanner, it is paid by Pubco to deferred compensation trusts. These amounts will
be distributed to Mr. Kanner by the trusts in accordance with the terms of the
deferred compensation plans. The assets and corresponding liabilities of the trusts
are not carried on the company's balance sheet.
(3) Of the amount shown in the table, $55,870 in 1995, $50,870 in 1994 and $45,870 in
1993 represents the premiums on life insurance paid for by the company on Mr.
Kanner's life, and for which the company is not a beneficiary; and $3,966 in 1995,
$5,275 in 1994 and $4,117 in 1993 represents the cost of providing Mr. Kanner with
use of an automobile during the year.
(4) Of the amount reflected, $130,100 in 1995, $132,100 in 1994 and $34,100 in 1993
represents an advance by the company toward the payment of the premium on life
insurance on Mr. Kanner's life and for which the company is not the beneficiary.
The advance will be repaid to the company out of the death proceeds from such policy.
(5) In 1988, the Brooks adopted a non-qualified plan to provide retirement benefits for
executive officers and other key employees. The plan provides benefits upon
retirement, death or disability of the participant and benefits are subject to a
restrictive vesting schedule. $58,873 in 1995, $58,320 in 1994 and $58,008 in 1993
of the amounts shown in the table for Mr. Kanner and all of the amounts shown in the
table for Mr. Kalette are amounts contributed to such plan for the benefit of such
executive officers with respect to the years noted. Vesting of benefits under the
plan is phased in over 20 years and only a portion of the amount contributed for
each year has fully vested.
(6) Of the amounts reported each year as salary for Mr. Kalette, $60,000 was paid
directly by Pubco and $270,000 was paid by Brooks.
(7) Of the amount shown in the table, $20,546 in 1995, $19,076 in 1994 and $19,649 in
1993 represents the premiums on life insurance paid for by the company on Mr.
Kalette's life, and for which the company is not a beneficiary; and $4,023 in 1995,
$3,883 in 1994 and $2,808 in 1993 represents the cost of providing Mr. Kalette with
use of an automobile during the year
(8) All of the amounts shown as paid to or for Mr. Dillingham were paid by Buckeye. Of
the amount shown in the table, $3,205 in 1995, $2,955 in 1994 and $2,695 in 1993
represents the premiums on life insurance paid for by Buckeye on Mr. Dillingham's
life, and for which Buckeye is not a beneficiary; and $2,741 in 1995, $3,150 in 1994
and $3,809 in 1993 represents the cost of providing Mr. Dillingham with use of an
automobile during the year.
69.
<PAGE>
(9) In 1988, Buckeye adopted a non-qualified plan to provide retirement benefits for
executive officers and other key employees. The plan provides benefits upon
retirement, death or disability of the participant and benefits are subject to a
restrictive vesting schedule. All of the amount shown in the table for Mr.
Dillingham are amounts contributed to such plan for the benefit of such executive
officer with respect to the years noted. Vesting of benefits under the plan is
phased in over 20 years and only a portion of the amount contributed for each year
has fully vested.
(10) All of the amounts shown as paid to or for Mr. Matthews were paid by Allied. Mr.
Matthews has an employment agreement with Allied providing for a minimum $120,000
per year base salary; a share of Allied's earnings in excess of its operating plan
earnings, if any, and discretionary bonuses (as were paid in 1995, 1994 and 1993).
(11) Of the amount shown in the table, $1,710 in 1995, $1,710 in 1994 and $912 in 1993
represents the premiums on life insurance paid for by Allied on Mr. Matthew's life,
and for which Allied is not a beneficiary; and $3,107 in 1995 and $4,604 in 1994
represents the cost of providing Mr. Matthews with use of an automobile during that
year.
(12) In 1993, Allied adopted a 401-K plan to provide retirement benefits for Allied's
employees, including officers. Participating employees make voluntary contributions
to the Plan, a portion of which Allied matches. All of the amount shown in the
table for Mr. Matthews was contributed by Allied to such plan. Vesting of benefits
under the plan is phased in over three years.
(13) All of the amounts shown as paid to or for Mr. Inlow were paid by the retail
subsidiary. Mr. Inlow's salary and bonus compensation were paid pursuant to the
terms of an employment agreement between Mr. Inlow and the retail subsidiary.
Following the December, 1994 closing of the retail subsidiary, Mr. Inlow is entitled
to a 3-year salary continuation.
(14) Of the amount shown in the table, $1,763 in 1995, $12,290 in 1994 and $10,833 in
1993 represents the premiums on life insurance paid for by the company on Mr.
Inlow's life, and for which the company is not a beneficiary; $5,472 in 1995, $5,434
in 1994 and $3,873 in 1993 represents the cost of providing Mr. Inlow with use of an
automobile during the year; and $11,918 in each of the years 1994 and 1993
represents deferred compensation.
Unless covered by an employment agreement with the company, officers serve for one year
terms or until their respective successors are duly elected and qualified.
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As Directors of Pubco, Mr. Kanner and Mr. Kalette participate in
Board of Directors' deliberations and decisions concerning executive
officer compensation. Mr. Kanner and Mr. Kalette are executive officers
of Pubco.
70.
<PAGE>
DIFFERENCES AMONG THE RIGHTS OF
ASPEN STOCKHOLDERS, BROOKS STOCKHOLDERS AND PUBCO STOCKHOLDERS
The rights of a holder of shares of Aspen Common Stock are governed
by the laws of the State of Delaware, the state of incorporation of
Aspen, and by Aspen's Certificate of Incorporation and By-laws. The
rights of a holder of shares of Brooks Common Stock are governed by the
laws of the State of Delaware, the state of incorporation of Brooks, and
by Brooks' Certificate of Incorporation and By-laws. The rights of a
holder of shares of Pubco Common Stock are also governed by the laws of
the State of Delaware, the state in which Pubco is incorporated, and by
Pubco's Certificate of Incorporation and By-laws.
In the Sale and Liquidation of Aspen, Aspen stockholders will receive
Pubco Common Stock and their rights as Pubco stockholders will be
governed by Pubco's Certificate of Incorporation and By-laws.
Upon conversion of shares of Brooks Common Stock into the right to
receive Pubco Common Stock in the Merger, the rights of former
stockholders of Brooks will be governed by Pubco's Certificate of
Incorporation and By-laws.
The Certificate of Incorporation and By-laws of each of Aspen, Brooks
and Pubco are similar to one another. Reference is made to those
documents for a complete statement of their provisions. The more
significant differences are the following:
Authorized Capital
The authorized capital stock of Aspen consists of 8,000,000 shares of
Common Stock, par value $.001 per share and 1,000,000 shares of Preferred
Stock, par value $.001 per share. The authorized capital stock of Brooks
consists of 50,000,000 shares of Common Stock, par value $.001 per share,
and 2,000,000 shares of Preferred Stock, par value $.001 per share. The
authorized capital stock of Pubco consists of 3,500,000 shares of Common
Stock, par value $.01 per share, 2,000,000 shares of Class B Stock, par
value $.01 per share, 20,000 shares of Convertible Preferred Stock, par
value $1.00 per share and 2,000,000 shares of Preferred Stock, par value
$.01 per share. The Pubco Common Stock is entitled to one vote per share
and the Pubco Class B Stock is entitled to 10 votes per share. Each of
the Aspen Board, the Brooks Board and the Pubco Board is authorized to
establish Series Preferred Stock and to establish the voting, dividend
and other rights of each Series. The Brooks Board is also authorized to
issue debt instruments with voting rights but the Brooks Board has not
done so and there are no present plans to do so.
At the Pubco Special Meeting, stockholders will consider a proposal
to increase the number of authorized shares of Pubco Common Stock to
5,000,000.
71.
<PAGE>
Amendments to Certificate of Incorporation
The Brooks Certificate of Incorporation contains a provision
requiring a vote of 70% of the voting power of Brooks to amend any
provision in the Certificate of Incorporation requiring a specified
percentage of the voting power of Brooks to approve any action. There is
no such provision in the Aspen certificate or the Pubco certificate.
Amendment to By-laws
Amendments to Brooks' By-laws require the approval of 75% of the
whole Board of Directors or 70% of the voting power of Brooks. There is
no such super-majority requirement concerning the Aspen By-laws or the
Pubco By-laws.
Number of Directors/Removal of Officers
Increases in the number of Brooks' Directors and removal from office
of any Brooks officer require the vote of 75% of the whole Brooks Board.
There are no corresponding provisions at Aspen or Pubco.
Action by Written Consent
Action of Aspen, Brooks or Pubco stockholders without a meeting
requires the written consent of stockholders possessing at least the
number of votes that would have been sufficient to approve such action at
a meeting attended by all stockholders. There is the additional
requirement at Brooks that such action be taken by no less than 65% of
the voting power of Brooks.
Special Meetings
Special stockholder meetings of Aspen may be called by the Board of
Directors or 30% of the voting power of Aspen. There is no provision
allowing Brooks stockholders or Pubco stockholders to call a special
meeting.
Fiscal Year
The fiscal year of Aspen ends on June 30 of each year. The fiscal
year of Brooks and Pubco is the calendar year.
72.
<PAGE>
ACCOUNTANTS' REPRESENTATIVES
It is not expected that representatives of Ernst & Young LLP, Aspen's
independent public accountants, Brooks' independent public accountants
and Pubco's independent public accountants, will be present at the
Special Meetings.
EXPERTS
The consolidated statements of operations, stockholders' equity and
cash flows of Aspen for the year ended June 30, 1993 included in this
Proxy Statement/Information Statement-Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Aspen for the years ended June
30, 1995 and 1994 included in this Proxy Statement/Information
Statement-Prospectus have been audited by Ernst & Young LLP, independent
auditors, and are included herein in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Brooks for the three years
ended December 31, 1995 included in this Proxy Statement/Information
Statement-Prospectus have been audited by Ernst & Young LLP, independent
auditors, and are included herein in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Pubco for the three years
ended December 31, 1995 included in this Proxy Statement/Information
Statement-Prospectus have been audited by Ernst & Young LLP, independent
auditors, and are included herein in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the issuance of the Pubco Common Stock to be issued
in connection with the Transactions is being passed upon for Pubco by its
general counsel, Stephen R. Kalette.
COST OF MAILING
The cost of this mailing will be borne by Aspen, Brooks and Pubco,
respectively. In addition to the use of the mails, proxy solicitation
for Aspen may be made via telephone, telegraph and personal interviews
conducted by regular employees of Aspen. Aspen, Brooks and Pubco will
also reimburse brokerage houses and others for forwarding material to the
beneficial owners of their respective stock.
73.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
FINANCIAL STATEMENTS OF ASPEN
Reports of Independent Auditors . . . . . . . . . . . . . . . F-3
Consolidated Balance Sheets as of
June 30, 1995 and June 30, 1994 . . . . . . . . . . . . . . F-5
Consolidated Statements of Operations
for Years Ended June 30, 1995, 1994 and 1993. . . . . . . . F-7
Consolidated Statements of Stockholders' Equity
for Years Ended June 30, 1995, 1994 and 1993. . . . . . . . F-8
Consolidated Statements of Cash Flows
for Years Ended June 30, 1995, 1994 and 1993. . . . . . . . F-9
Notes to Consolidated Financial Statements. . . . . . . . . . F-10
Consolidated Balance Sheets as of
December 31, 1995 (Unaudited) and June 30, 1995 . . . . . . F-19
Consolidated Statements of Operations
for the Six Months Ended
December 31, 1995 and 1994 (Unaudited). . . . . . . . . . . F-21
Consolidated Statements of Cash Flows
for the Six Months Ended
December 31, 1995 and 1994 (Unaudited). . . . . . . . . . . F-22
Notes to Consolidated Financial Statements
for the Six Months Ended
December 31, 1995 (Unaudited) . . . . . . . . . . . . . . . F-23
FINANCIAL STATEMENTS OF BROOKS
Report of Independent Auditors. . . . . . . . . . . . . . . . F-25
Consolidated Balance Sheets as of
December 31, 1995 and December 31, 1994 . . . . . . . . . . F-26
Consolidated Statements of Operations
for Years Ended December 31, 1995, 1994 and 1993. . . . . . F-28
Consolidated Statements of Stockholders' Equity
for Years Ended December 31, 1995, 1994 and 1993. . . . . . F-29
Consolidated Statements of Cash Flows
for Years Ended December 31, 1995, 1994 and 1993. . . . . . F-30
Notes to Consolidated Financial Statements. . . . . . . . . . F-31
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS-CONTINUED
Page
FINANCIAL STATEMENTS OF PUBCO
Report of Independent Auditors. . . . . . . . . . . . . . . . . F-47
Consolidated Balance Sheets as of
December 31, 1995 and December 31, 1994 . . . . . . . . . . . F-48
Consolidated Statements of Operations
for Years Ended December 31, 1995, 1994 and 1993. . . . . . . F-50
Consolidated Statements of Stockholders' Equity
for Years Ended December 31, 1995, 1994 and 1993. . . . . . . F-51
Consolidated Statements of Cash Flows
for Years Ended December 31, 1995, 1994 and 1993. . . . . . . F-52
Notes to Consolidated Financial Statements. . . . . . . . . . . F-53
F-2
<PAGE>
Ernst & Young LLP
One Cascade Plaza
Akron, Ohio 44308
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Aspen Imaging International, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Aspen
Imaging International, Inc. and subsidiaries as of June 30, 1995 and 1994
and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the two years in the period ended
June 30, 1995. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Aspen Imaging International, Inc. and subsidiaries at
June 30, 1995 and 1994, and the consolidated results of their operations
and their cash flows for each of the two years in the period ended
June 30, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
September 8, 1995
F-3
<PAGE>
DELOITTE & TOUCHE LLP
555 17TH STREET, SUITE 3600
DENVER, CO 80202
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Aspen Imaging International, Inc.
and subsidiaries for the year ended June 30, 1993. 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 audit.
We conducted our audit 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 audit
provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows of Aspen
Imaging International, Inc. and subsidiaries for the year ended June 30,
1993 in conformity with generally accepted accounting principles.
As discussed in Note B to the consolidated financial statements, the
Company changed its method of accounting for income taxes for fiscal 1993.
DELOITTE & TOUCHE LLP
September 24, 1993
Denver, Colorado
F-4
<PAGE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, June 30,
1995 1994
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,870,575 $ 1,784,846
Short-term investments 526,213 --
Marketable securities
available for sale--Note C 987,900 --
Receivables (less allowances of $25,000
and $75,000 for doubtful accounts) 747,644 1,201,544
Inventories -- Note D 725,703 1,798,115
Prepaid expenses and other current assets 44,385 21,873
------------ ------------
TOTAL CURRENT ASSETS 5,902,420 4,806,378
PROPERTY AND EQUIPMENT
Leasehold improvements 140,457 80,724
Machinery and equipment 1,091,902 1,951,718
Molds 2,994,750 3,028,555
Office equipment and vehicles 322,261 1,282,297
------------ ------------
4,549,370 6,343,294
Less accumulated depreciation
and amortization 3,218,863 4,594,799
------------ ------------
1,330,507 1,748,495
BUILDING AND LAND HELD FOR SALE -- 2,155,000
NOTES RECEIVABLE 18,800 60,209
OTHER ASSETS, NET -- Note B 137,764 194,110
------------ ------------
TOTAL ASSETS $ 7,389,491 $ 8,964,192
============ ============
See notes to consolidated financial statements.
F-5
<PAGE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--CONTINUED
June 30, June 30,
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 671,163 $ 696,828
Accrued salaries and payroll expenses 428,379 244,116
Current maturities of long-term debt -- 144,065
------------ ------------
TOTAL CURRENT LIABILITIES 1,099,542 1,085,009
LONG-TERM DEBT -- Note E -- 852,305
STOCKHOLDERS' EQUITY -- Note F
Preferred Stock, $.001 Par Value;
authorized, 1,000,000 shares;
no shares issued -- --
Common Stock, $.001 par value;
4,192,756 issued and 4,075,356
outstanding at June 30, 1995 and
4,192,356 shares outstanding
at June 30, 1994 4,192 4,192
Capital in excess of par value 4,807,151 4,807,151
Unrealized gains on investments
available for sale 78,809 --
Retained earnings 1,494,140 2,215,535
------------ ------------
6,384,292 7,026,878
Treasury stock at cost,
117,000 shares at June 30, 1995 (94,343) --
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 6,289,949 7,026,878
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 7,389,491 $ 8,964,192
============ ============
See notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended June 30,
1995 1994 1993
<S> <C> <C> <C>
REVENUE
Net sales $ 7,018,498 $ 11,742,366 $ 13,969,839
Other 251,485 132,528 27,448
------------- ------------- -------------
7,269,983 11,874,894 13,997,287
COST AND EXPENSES:
Cost of products sold 5,558,588 9,220,426 12,223,605
Selling, general and
administrative 2,010,427 2,940,078 2,755,447
Interest 16,535 116,703 270,554
Restructuring costs -- -- 365,000
Severance post-employment costs
from the elimination of
administrative personnel 533,576 -- --
Charge related to elimination
of products and product lines -- 1,505,607 --
------------- ------------- -------------
8,119,126 13,782,814 15,614,606
LOSS BEFORE INCOME TAX BENEFIT (849,143) (1,907,920) (1,617,319)
INCOME TAX BENEFIT -- Note G (127,748) (140,000) (604,000)
------------- ------------- -------------
NET LOSS $ (721,395) $ (1,767,920) $ (1,013,319)
============= ============= =============
NET LOSS PER COMMON SHARE $ (.17) $ (0.43) $ (0.32)
============= ============= =============
WEIGHTED AVERAGE SHARES 4,168,104 4,159,479 3,192,356
============= ============= =============
<FN>
See notes to consolidated financial statements.
</TABLE>
F-7
<PAGE>
<TABLE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Year Ended June 30,
1995 1994 1993
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of year $ 4,192 $ 3,187,334 $ 4,245,796
Retirement of treasury stock -- -- (1,058,462)
Sale of stock, net -- 1,624,009 --
Change from shares with no par value
to par value of $.001 per share -- (4,807,151) --
------------ ------------ ------------
BALANCE AT END OF YEAR 4,192 4,192 3,187,334
------------ ------------ ------------
CAPITAL IN EXCESS OF PAR VALUE
Balance at beginning of year 4,807,151 -- --
Change from shares with no par value
to par value of $.001 per share -- 4,807,151 --
------------ ------------ ------------
BALANCE AT END OF YEAR 4,807,151 4,807,151 --
------------ ------------ ------------
TREASURY STOCK
Balance at beginning of year -- -- (1,058,462)
Purchase of treasury stock (94,343) -- --
Retirement of treasury stock -- -- 1,058,462
------------ ------------ ------------
BALANCE AT END OF YEAR (94,343) -- --
------------ ------------ ------------
RETAINED EARNINGS
Balance at beginning of year 2,215,535 3,983,455 4,996,774
Net loss (721,395) (1,767,920) (1,013,319)
------------ ------------ ------------
BALANCE AT END OF YEAR 1,494,140 2,215,535 3,983,455
------------ ------------ ------------
UNREALIZED GAINS ON INVESTMENTS
AVAILABLE FOR SALE 78,809 -- --
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 6,289,949 $ 7,026,878 $ 7,170,789
============ ============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
F-8
<PAGE>
<TABLE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended June 30,
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (721,395) $(1,767,920) $(1,013,319)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 593,992 684,388 1,087,526
Provision for doubtful accounts 86,240 65,000 71,000
(Gain) loss on disposal of assets (40,488) (60,112) 17,295
Deferred income tax benefit -- (140,000) (604,000)
Charge related to elimination
of products and product lines -- 1,505,607 --
Changes in assets and liabilities:
Receivables 367,660 252,718 139,675
Inventories 1,072,412 1,078,861 915,343
Prepaid expenses and other current assets (22,512) 139,879 24,760
Accounts payable and accrued expenses (25,666) (256,491) (317,989)
Accrued salaries and payroll expenses 184,263 (235,250) 53,685
Refundable income tax -- -- 388,707
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,494,506 1,266,680 762,683
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment 2,259,101 141,373 20,230
Additions to property, plant and equipment (187,955) (86,473) (181,186)
Change in notes receivable 41,409 546,259 (8,807)
Purchase of investments (1,435,304) -- --
Change in other assets 4,685 18,683 27,332
NET CASH PROVIDED BY (USED IN) INVESTING ------------ ------------ ------------
ACTIVITIES 681,936 619,842 (142,431)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under line of credit agreement -- (981,806) (759,694)
Sale of common stock, net -- 1,624,009 --
Purchase of Treasury Stock (94,343) -- --
Proceeds from long-term debt -- -- 337,734
Payment of long-term debt (996,370) (854,176) (336,376)
------------ ------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (1,090,713) (211,973) (758,336)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,085,729 1,674,549 (138,084)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 1,784,846 110,297 248,381
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,870,575 $ 1,784,846 $ 110,297
============ ============ ============
SUPPLEMENTAL INFORMATION:
Interest Paid $ 16,535 $ 113,265 $ 309,483
============ ============ ============
Taxes Paid $ -- $ -- $ --
============ ============ ============
<FN>
See notes to consolidated financial statements.
F-9
<PAGE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE A--ORGANIZATION AND STRATEGIC ALLIANCE WITH BUCKEYE
Aspen Imaging International, Inc. (the "Company") manufactures and markets
imaging supplies for impact and non-impact printing devices. The consolidated
financial statements include the accounts of the Company and its wholly-owned
subsidiaries, Aspen Toner Corp., a manufacturer of laser toner, and Aspen
Ribbons International, Inc., an interest-charge Domestic International Sales
Corporation ("DISC"). All material intercompany accounts and transactions
have been eliminated.
During the last several years, increased competition in the Company's
primary product lines, ribbons and laser toner, and lack of new product
opportunities led to the decline in sales and gross margins. The Company had
also unsuccessfully attempted to enter several new markets with computer
printer-related product lines. In an effort to reduce expenses to become more
competitive, the Company shifted production of some of its ribbon product to a
Mexican contractor and down-sized its internal production. The Company also
began importing ribbon products from China.
In July, 1993, the Company entered into a strategic alliance with Buckeye
Business Products, Inc., a Division of Bobbie Brooks, Incorporated ("Buckeye")
a manufacturer and distributor of computer data processing supplies. Buckeye
purchased 1,000,000 newly-issued shares of the Company's common stock at $1.65
per share (aggregate $1,650,000), allowing the Company to substantially
eliminate its working capital loans.
The Company's management began working with Buckeye's to continue efforts
already underway aimed at returning the Company to profitability. The Company
shifted production of its ribbons from its Mexican contractor to Buckeye,
eliminated unprofitable products from the Company's product lines, sold unused
and under-utilized assets, entered into an agreement to sell the Company's
building, and further reduced its staffing levels. As a result of these
items, the Company recorded a charge in the year ended June 30, 1994 of
$1,505,000 (approximately $1,355,000 related to the write-down of assets to
net realizable value and approximately $150,000 related to severance). In
addition, in the year ended June 30, 1994, the Company wrote off approximately
$527,000 related to a note receivable from an insolvent third party. The
Company had advanced amounts to this party for the development of a new
product line which the Company had intended to sell.
On February 24, 1994, the Company changed its state of incorporation from
Colorado to Delaware and changed its common stock from one without par value
to one with a par value of $.001 per share.
In the year ended June 30, 1995, the Company recorded severance and post
employment costs of $533,576 resulting from the elimination of administrative
personnel.
F-10
<PAGE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--ORGANIZATION AND STRATEGIC ALLIANCE WITH BUCKEYE--CONTINUED
The Company continues to explore the possibility of a merger, sale of
assets, or other similar transaction with its strategic partner.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
For purposes of cash flows, the Company considers all highly liquid
instruments purchased with a maturity of three months or less to be cash
equivalents.
The Company grants credit to its customers generally in the form of
short-term trade accounts receivable. The credit worthiness of customers
is evaluated prior to the shipment of inventory, and management believes
there is no significant concentration of credit risk.
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets which
range from 3 to 10 years.
Other assets include $123,871 and $170,300 at June 30, 1995 and 1994,
respectively, of formulas for the production of toner, net of accumulated
amortization of $201,129 and $154,700, respectively. Formulas are
amortized using the straight-line method over seven years.
The Company recognizes sales when product is shipped.
The Company adopted Statement of Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS No. 109) effective July 1, 1992. At
the date of adoption of SFAS No. 109, there was no material effect on the
results of operations.
Loss per common share is computed on the weighted average number of
shares outstanding during the respective years. The effect of outstanding
options was antidilutive to the weighted average shares calculation for
1995, 1994 and 1993.
Certain prior amounts have been reclassified to conform with the
current year presentation.
F-11
<PAGE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C--MARKETABLE SECURITIES
The following is a summary of marketable securities available for sale
at June 30, 1995:
Gross Estimated
Unrealized Fair
Cost Gains Value
Equity securities $ 499,488 $ 16,412 $ 515,900
Foreign government securities 409,603 62,397 472,000
---------- ---------- ----------
$ 909,091 $ 78,809 $ 987,900
========== ========== ==========
The cost and estimated fair value of debt securities at June 30, 1995,
by estimated maturity, are shown below. Expected maturities will differ
from contractual maturities because the issuers of the securities may have
the right to prepay obligations without prepayment penalties.
Estimated
Fair
Cost Value
Due after five years $ 409,603 $ 472,000
Equity securities 499,488 515,900
---------- ----------
$ 909,091 $ 987,900
========== ==========
NOTE D--INVENTORIES
June 30,
1995 1994
Raw materials and
component parts $ 324,703 $ 737,282
Finished goods, including
goods purchased for resale 401,000 1,060,833
------------ ------------
$ 725,703 $ 1,798,115
============ ============
Because of the nature of the manufacturing process, work in process is
not significant.
F-12
<PAGE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E--LONG-TERM DEBT
Long-term debt at June 30, 1994 consisted entirely of Industrial
Development Revenue Bonds ("IDRB"). The Company financed its original
manufacturing facility in 1984 and its expansion in 1986 through two IDRBs
issued by the City of Lafayette. The 1984 IDRB, $1,250,000 original
principal, bearing interest at 10% and maturing in 1999, and the 1986 IDRB,
$600,000 original principal, bearing interest at 104.5% of prime and
maturing in 2001, were both discharged upon the sale of the building on
October 3, 1994. The proceeds of the sale of the building were used to
retire all outstanding debt.
F-13
<PAGE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F--STOCKHOLDERS' EQUITY
The Company has three stock option plans. Under an incentive plan
adopted in 1984, there were 10,000 shares of common stock reserved for
exercise at June 30, 1995. Under a non-qualified plan adopted in 1985,
there were 37,500 shares of common stock reserved for exercise at June 30,
1995. Under a non-qualified plan adopted in 1988, there were 145,400
shares of common stock reserved for exercise at June 30, 1995.
Additionally, in the year ended June 30, 1994, an option to purchase
200,000 shares at $1.65 was granted to the President in connection with an
employment agreement.
Under the terms of all plans, options are granted at a price not less
than the fair market value of the Company's common stock at the date of
grant. Options outstanding under the 1988 plan are exercisable at a rate
of one-twelfth per quarter over three years, beginning at date of grant.
Stock option activity under the plans is summarized as follows:
Number of Option Price
Shares Per Share
Outstanding at July 1, 1992 810,105 $1.38 - $2.27
Granted 35,000 1.38
Cancelled/forfeited/expired (75,335) 1.38 - 2.06
--------- --------------
Outstanding at July 1, 1993 769,770 $1.38 - $2.27
Granted 410,000 1.38 - 2.06
Cancelled/forfeited/expired (307,470) 1.38 - 2.27
--------- --------------
Outstanding at June 30, 1994 872,300 $1.38 - $2.27
Granted 0 0
Cancelled/forfeited/expired (479,400) $1.38 - $2.27
--------- --------------
Outstanding at June 30, 1995 392,900 $1.38 - $2.06
========= ==============
All of the options outstanding at June 30, 1995 are currently
exercisable and no additional options may be granted under the 1984, 1985
or 1988 plans.
F-14
<PAGE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G--INCOME TAXES
The Company adopted SFAS No. 109 effective July 1, 1992. SFAS No. 109
is an asset and liability approach that, among other provisions, requires
the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the
Company's financial statements and tax returns. In estimating future tax
consequences, SFAS No. 109 generally considers all expected future events
other than enactments or changes in the tax law or rules.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities, for
financial reporting purposes, and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets and
liabilities as of June 30 are as follows:
Federal Deferred Taxes
1995 1994
Deferred tax assets:
Net operating loss carryforwards
and credits $ 653,600 $1,037,500
Difference between book and tax
assets -- 206,000
Inventory and accounts receivable
reserves 59,300 71,500
Nondeductable accruals 332,300 45,600
----------- -----------
Total deferred tax assets 1,045,200 1,360,600
Deferred tax liabilities:
Tax over book depreciation 313,800 695,600
Deferral of DISC income 88,100 166,000
Other 13,000 9,900
----------- -----------
Total deferred tax liabilities 414,900 871,500
----------- -----------
Net deferred tax assets 630,300 489,100
Valuation allowance for deferred
tax assets (630,300) (489,100)
----------- -----------
Net deferred taxes $ -- $ --
=========== ===========
F-15
<PAGE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G--INCOME TAXES--CONTINUED
State & Local Deferred Taxes
1995 1994
Deferred tax assets:
Net operating loss carryforwards
and credits $ 111,200 $ 55,800
Difference between book and tax
assets -- 20,000
Inventory and accounts receivable
reserves 5,800 6,900
Nondeductable accruals 32,300 4,400
----------- -----------
Total deferred tax assets 149,300 87,100
Deferred tax liabilities:
Tax over book depreciation 30,500 67,500
Deferral of DISC income 8,600 16,100
Other 1,300 1,000
----------- -----------
Total deferred tax liabilities 40,400 84,600
----------- -----------
Net deferred tax assets 108,900 2,500
Valuation allowance for deferred
tax assets (108,900) (2,500)
----------- -----------
Net deferred taxes $ -- $ --
=========== ===========
Management does not believe that the realization of these future tax
benefits for net operating loss carryforwards, investment tax credit
carryforwards, and alternative minimum tax credit carryforwards is "more
likely than not" and therefore the Company has provided a valuation allowance
equal to the net deferred tax assets.
At June 30, 1995, the Company had available, net operating loss
carryforwards of approximately $1,773,000 for Federal income tax purposes.
Utilization by the Company is subject to limitations based upon the Company's
future income. The loss carryforwards, if not used, will expire as follows:
$1,472,000 in 2008, and $301,000 in 2009.
F-16
<PAGE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G--INCOME TAXES--CONTINUED
The income tax provision (benefit) is as follows:
1995 1994 1993
Income taxes currently
payable (refundable):
Federal $ (127,748) $ -- $ --
State -- -- --
----------- ----------- -----------
(127,748) -- --
Deferred income taxes -- (140,000) (604,000)
----------- ----------- -----------
Total income tax (benefit) $ (127,748) $ (140,000) $ (604,000)
=========== =========== ===========
The provision for income taxes varies from the statutory federal income
tax rate as follows:
Year Ended June 30,
1995 1994 1993
Expected federal income tax
(benefit) rate (34.0)% (34.0)% (34.0)%
State taxes, net of federal
tax benefit (3.3) (3.3) (3.3)
Net losses without tax benefit 22.3 30.0 --
-------- ------- --------
(15.0)% (7.3)% (37.3)%
======== ======= ========
NOTE H--COMMITMENTS AND OTHER
Future minimum payments for operating leases as of June 30, 1995 are
approximately $70,570 due during 1996. The Company entered into an
operating lease for its new corporate offices during August, 1994. Future
minimum payments for that lease during fiscal 1996 are approximately
$70,570, and during fiscal 1997 are approximately $11,762.
Rent expense on operating leases for the years ended June 30, 1995,
1994 and 1993 was approximately $98,243, $104,500 and $181,900,
respectively.
Revenues from export sales were approximately $1,490,491, $1,512,600
and $1,326,600 for the years ended June 30, 1995, 1994 and 1993,
respectively.
F-17
<PAGE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H--COMMITMENTS AND OTHER--CONTINUED
Amounts charged to bad debts expense were approximately $86,000,
$65,000 and $71,000 for the years ended June 30, 1995, 1994 and 1993,
respectively.
NOTE I--RELATED PARTY TRANSACTIONS
As described above, on July 12, 1993, the Company sold 1,000,000 newly
issued shares of its common stock to Buckeye for $1.65 per share
(aggregate, $1,650,000). In addition, the President of the Company also
sold all 732,388 shares of his stock in the Company to Buckeye for $1.65
per share (aggregate, $1,208,440). These transactions gave Buckeye an
interest of approximately 41% in the Company which has increased to
approximately 43% as the result of the repurchase of stock by the Company.
During the fiscal years ended June 30, 1995 and 1994, the Company used
Buckeye as a contractor, purchased ribbons and other supply products from
Buckeye for resale to its customers, and utilized Buckeye and affiliated
personnel to perform shipping, administrative, and other functions. The
amount of these charges billed to the Company during the fiscal years ended
June 30, 1995 and 1994 approximated $1,365,000 and $1,139,000,
respectively. In addition, effective January 1, 1995, the Company rented
warehouse, manufacturing and office space from Buckeye for $18,000 per
year. At June 30, 1995, the Company had a related payable to Buckeye and
its affiliates of approximately $160,000.
During the fiscal years ended June 30, 1995 and 1994, the Company sold
plastics and certain ribbon and toner products to Buckeye. The plastics,
ribbons and toner products billed to Buckeye by the Company during the
fiscal years ended June 30, 1995 and 1994 approximated $151,600 and
$211,200, respectively. At June 30, 1995, the Company had a related
receivable from Buckeye of approximately $32,100.
F-18
<PAGE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1995 1995
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,814,195 $ 2,870,575
Short-term investments 545,100 526,213
Marketable securities available for sale 560,000 987,900
Receivables (less allowances of $65,881
and $25,000 for doubtful accounts) --
Note C 542,486 747,644
Inventories -- Note B 679,861 725,703
Prepaid expenses and other current assets 27,333 44,385
------------ ------------
TOTAL CURRENT ASSETS 6,168,975 5,902,420
PROPERTY AND EQUIPMENT
Leasehold improvements 140,457 140,457
Machinery and equipment 1,091,902 1,091,902
Molds 2,994,750 2,994,750
Office equipment and vehicles 307,203 322,261
------------ ------------
4,534,312 4,549,370
Less accumulated depreciation
and amortization 3,456,509 3,218,863
------------ ------------
1,077,803 1,330,507
NOTES RECEIVABLE 16,550 18,800
OTHER ASSETS, NET -- Note A 111,935 137,764
------------ ------------
TOTAL ASSETS $ 7,375,263 $ 7,389,491
============ ============
See notes to consolidated financial statements.
F-19
<PAGE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--CONTINUED
December 31, June 30,
1995 1995
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
-- Note C $ 713,596 $ 671,163
Accrued salaries and payroll expenses 275,048 428,379
------------ ------------
TOTAL CURRENT LIABILITIES 988,644 1,099,542
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 Par Value;
authorized, 1,000,000 shares;
no shares issued -- --
Common Stock, $.001 par value;
4,192,356 shares issued and 3,988,756
shares outstanding at December 31,
1995 and 4,192,356 shares issued and
4,075,356 shares outstanding at
June 30, 1995 4,192 4,192
Capital in excess of par value 4,807,151 4,807,151
Unrealized gains on investments
available for sale 150,397 78,809
Retained earnings 1,589,066 1,494,140
------------ ------------
6,550,806 6,384,292
Treasury stock at cost, 203,600 shares
at December 31, 1995 and 117,000
shares at June 30, 1995 (164,187) (94,343)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 6,386,619 6,289,949
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 7,375,263 $ 7,389,491
============ ============
See notes to consolidated financial statements.
F-20
<PAGE>
</TABLE>
<TABLE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
l995 l994 1995 1994
<S> <C> <C> <C> <C>
REVENUE
Net sales -- Note C $ 1,210,414 $ 1,706,978 $ 2,698,797 $ 3,899,301
Other 81,279 54,906 189,865 127,890
------------ ------------ ------------ ------------
1,291,693 1,761,884 2,888,662 4,027,191
COST AND EXPENSES:
Cost of products sold -- Note C 883,357 1,381,134 2,040,730 3,005,811
Selling, general and
administrative -- Note C 349,452 556,126 753,006 1,101,770
Interest -- -- -- 16,483
Severance and post-employment
costs from the elimination
of administrative personnel -- 479,083 -- 479,083
------------ ------------ ------------ ------------
1,232,808 2,416,343 2,793,736 4,603,147
INCOME (LOSS) BEFORE INCOME TAXES 58,884 (654,459) 94,926 (575,956)
PROVISION FOR INCOME TAXES -- -- -- --
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 58,884 $ (654,459) $ 94,926 $ (575,956)
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE $ 0.01 $ (0.16) $ 0.02 $ (0.14)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES 3,988,756 4,192,356 4,013,191 4,192,356
============ ============ ============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
F-21
<PAGE>
<TABLE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
December 31
l995 l994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 94,926 $ (575,956)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 278,535 303,401
Provision for doubtful accounts 55,000 2,743
(Gain) from sale of investments (35,881) --
(Gain) on disposal of assets (4,076) (40,535)
Changes in operating assets and liabilities:
Receivables 150,158 126,347
Inventories 45,842 534,950
Prepaid expenses and other current assets (1,835) (22,996)
Accounts payable and accrued expenses 42,431 188,346
Accrued salaries and payroll expenses (153,331) 335,166
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 471,769 851,466
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 4,076 2,259,077
Additions to property and equipment -- (187,965)
Change in notes receivable 2,250 21,489
Change in other assets -- 4,685
Proceeds from sale of investments 535,369 --
------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 541,695 2,097,286
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt -- (996,370)
Purchase of treasury stock (69,844) --
------------ ------------
NET CASH (USED IN) FINANCING ACTIVITIES (69,844) (996,370)
NET INCREASE IN CASH AND CASH EQUIVALENTS 943,620 1,952,382
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 2,870,575 1,784,846
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,814,195 $ 3,737,228
============ ============
SUPPLEMENTAL INFORMATION:
Interest Paid $ -- $ 16,483
============ ============
Taxes Paid $ -- $ --
============ ============
<FN>
See notes to consolidated financial statements.
F-22
<PAGE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED
DECEMBER 31, 1995
NOTE A -- Basis Of Presentation
The accompanying consolidated condensed financial statements include the
accounts of Aspen Imaging International, Inc. (the "Company") and its
wholly-owned subsidiaries, Aspen Ribbons International, Inc., a Domestic
International Sales Corporation, and Aspen Toner Corporation, a manufacturer
of laser toner. The financial statements have been prepared without audit
and reflect, in the opinion of management, all adjustments necessary for
fair statement of the results of the Company's operations for the periods
presented. These include only normal recurring adjustments. It is
recommended that these financial statements be read in conjunction with the
Company's annual report for the year ended June 30, 1995.
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," for investments. Management determines the appropriate
classification of marketable securities at the time of purchase and
reevaluates such designation as of each balance sheet date. Marketable
securities held as available for sale are carried at fair value with any
unrealized gains or losses reported as a separate component of shareholders'
equity. Realized gains and losses on marketable securities held as
available for sale are included in other income. Interest and dividends on
securities classified as available for sale are included in other income.
Other assets include $100,598 of formulas for the production of toner,
net of $224,402 accumulated amortization.
The Company recognizes sales when product is shipped.
Certain prior amounts have been reclassified to conform with the current
year presentation.
NOTE B -- Inventories
Inventories consisted of:
December 31 June 30
1995 1995
Raw materials and component parts $ 292,914 $ 324,703
Finished goods, including goods
purchased for resale 386,947 401,000
---------- ----------
$ 679,861 $ 725,703
========== ==========
F-23
<PAGE>
ASPEN IMAGING INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED
NOTE C -- CERTAIN RELATED PARTY TRANSACTIONS
Of the amounts shown in the accompanying Consolidated Statements of
Operations, the following relate to transactions (all of which were
consummated at cost) with Bobbie Brooks, Incorporated, which owns
approximately 62% of the Company's Common Stock, and its affiliates,
including its Buckeye Business Products, Inc. Division (collectively,
"Buckeye"):
Three Months Ended Six Months Ended
December 31 December 31
1995 1994 1995 1994
Net sales
Includes product sales by the
Company to Buckeye at the
Company's cost of: $ 27,262 $ 50,904 $ 57,691 $117,747
========= ========= ========= =========
Cost of products sold
Includes product purchased from
Buckeye at Buckeye's cost of: $257,736 $313,571 $506,390 $637,602
========= ========= ========= =========
Includes personnel costs for
shipping and purchasing, and
rental for space, utilized by
the Company and provided by
Buckeye at Buckeye's cost of: $ 21,028 $ 56,581 $ 44,015 $ 59,818
========= ========= ========= =========
Selling, general and administrative
Includes personnel costs for
order entry, billing, legal
and accounting, utilized by the
Company and provided by
Buckeye at Buckeye's cost of: $ 16,223 $ 30,127 $ 42,600 $ 76,219
========= ========= ========= =========
Of the amounts shown on the accompanying Consolidated Balance Sheets, the
following relate to the above transactions:
December 31, 1995 June 30, 1995
Receivables
Includes receivables due
from Buckeye of: $19,880 $ 32,119
======== =========
Accounts payable and
accrued expenses
Includes accounts payable
to Buckeye of: $52,303 $159,983
======== =========
F-24
<PAGE>
Ernst & Young LLP
One Cascade Plaza
Akron, Ohio 44308
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Bobbie Brooks, Incorporated
We have audited the accompanying consolidated balance sheets of Bobbie
Brooks, Incorporated and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1995. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Bobbie Brooks, Incorporated and subsidiaries at December 31,
1995 and 1994, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
March 8, 1996
F-24
<PAGE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
December 31
1995 1994
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,878 $ 12,502
Marketable securities and other
investments available for sale--Note D 11,836 -
Trade receivables (less allowances
of $279 in 1995 and $1,250 in 1994) 5,058 5,808
Inventories--Note H 7,447 7,258
Prepaid expenses and other current assets 730 553
Due from parent 2,236 1,167
--------- ---------
TOTAL CURRENT ASSETS 35,185 27,288
PROPERTY AND EQUIPMENT--Notes G and H 6,985 8,728
INTANGIBLE ASSETS ARISING FROM ACQUISITIONS
(at cost less accumulated amortization of
$490 in 1995 and $324 in 1994)-- Note A 627 793
EQUITY INVESTMENT--Note B - 2,689
OTHER ASSETS 2,210 1,992
--------- ---------
TOTAL ASSETS $ 45,007 $ 41,490
========= =========
See notes to consolidated financial statements.
F-26
<PAGE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--CONTINUED
(In thousands, except share amounts)
December 31
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,733 $ 6,507
Accrued liabilities--Note H 7,642 8,724
Loans payable-related party--Note G 289 1,911
Current portion of long-term debt--Note G 58 1,680
--------- ---------
TOTAL CURRENT LIABILITIES 12,722 18,822
LONG-TERM DEBT--Note G 1,742 124
DEFERRED CREDITS AND NONCURRENT LIABILITIES 2,772 3,336
MINORITY INTEREST 3,022 630
STOCKHOLDERS' EQUITY--Notes A and E
Preferred Stock-Series A - $.001 par value;
authorized 2,000,000 shares, issued and
outstanding 907,250 shares in 1995 and 1994
(aggregate liquidation preference and unpaid
dividend is $29,212 in 1995 and $27,239 in
1994) 1 1
Preferred Stock-Series B - $.001 par value;
authorized 300,000 shares, issued and
outstanding 194,600 shares in 1995 (aggregate
liquidation preference and unpaid dividend
is $22,489 in 1995 and $20,706 in 1994) - -
Common Stock - $.00l par value;
authorized 50,000,000 shares, 4,932,400
issued and outstanding in 1995 and 1994 5 5
Capital in excess of par value 52,392 53,042
Unrealized gains on investments available
for sale 801 -
Retained (deficit) (28,450) (34,470)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 24,749 18,578
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 45,007 $ 41,490
========= =========
See notes to consolidated financial statements.
F-27
<PAGE>
</TABLE>
<TABLE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share amounts)
<CAPTION>
Year Ended December 3l
1995 1994 1993
<S> <C> <C> <C>
Net sales $ 47,590 $ 46,016 $ 42,084
Cost of sales 34,844 32,402 28,662
---------- ---------- ----------
GROSS PROFIT 12,746 13,614 13,422
Cost and expenses:
Selling, general and administrative expenses 7,989 8,081 8,643
Depreciation and amortization 1,037 1,212 1,027
Interest, net (998) 379 588
---------- ---------- ----------
8,028 9,672 10,258
Other income, net 336 148 144
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST 5,054 4,090 3,308
Provision for income taxes--Note I 104 18 7
---------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS BEFORE MINORITY INTEREST 4,950 4,072 3,301
Minority interest (30) (36) (94)
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS 4,920 4,036 3,207
Income (loss) from discontinued operations,
net of taxes--Note C 1,100 (17,894) (2,637)
---------- ---------- ----------
NET INCOME (LOSS) 6,020 (13,858) 570
Preferred Stock dividend requirements 4,587 3,855 3,760
---------- ---------- ----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ 1,433 $ (17,713) $ (3,190)
========== ========== ==========
Earnings (loss) per share--Note A:
CONTINUING OPERATIONS (NET OF PREFERRED
STOCK DIVIDEND REQUIREMENTS) $ .07 $ .04 $ (.11)
DISCONTINUED OPERATIONS .22 (3.63) (.54)
---------- ---------- ----------
NET INCOME (LOSS) $ .29 $ (3.59) $ (.65)
========== ========== ==========
Weighted average number of common
shares outstanding--Notes A and E 4,932,400 4,932,400 4,932,400
========== ========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
F-28
<PAGE>
<TABLE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
Three Years Ended December 3l, l995
<CAPTION>
Series A Pre- Series B
ferred Stock Preferred Stock Common Stock Additional Retained
Par Par Par Paid In Earnings
Shares Value Shares Value Shares Value Capital (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 907,250 $ 1 194,600 $ - 4,932,400 $ 5 $53,742 $(17,571)
Subchapter S distribution to
shareholder of Buckeye--Note B - - - - - - - (3,611)
Net income for 1993 - - - - - - - 570
------- --- ------- --- --------- ---- -------- ---------
Balance at December 31, 1993 907,250 $ 1 194,600 $ - 4,932,400 $ 5 $53,742 $(20,612)
Preferred Stock dividends paid
(paid at $3.60 per share)--
Note E - - - - - - (700) -
Net (loss) for l994 - - - - - - - (13,858)
------- --- ------- --- --------- ---- -------- ---------
Balance at December 31, 1994 907,250 $ 1 194,600 $ - 4,932,400 $ 5 $53,042 $(34,470)
Preferred Stock dividends paid
(paid at $3.34 per share)--
Note E - - - - - - (650) -
Net income for l995 - - - - - - - 6,020
------- --- ------- --- --------- ---- -------- ---------
Balance at December 31, 1995 907,250 $ 1 194,600 $ - 4,932,400 $ 5 $52,392 $(28,450)
======= === ======= === ========= ==== ======== =========
<FN>
See notes to consolidated financial statements.
</TABLE>
F-29
<PAGE>
<TABLE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share amounts)
<CAPTION>
Year Ended December 3l
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income from continuing operations $ 4,920 $ 4,036 $ 3,207
Adjustments to reconcile net income to net
cash provided by operating activities:
Income (loss) from discontinued operations 1,100 (17,894) (2,637)
Write-down of assets of discontinued segments - 8,049 2,572
Depreciation and amortization 1,296 2,259 2,306
Net (gain) on sales of securities (75) - (25)
Net (gain) loss on disposal of fixed assets (279) 199 (9)
Minority interest (55) 36 94
Changes in operating assets and liabilities
net of acquisitions and divestitures:
Trade receivables 1,292 6,919 4,027
Inventories 491 19,938 9,469
Other assets (1,310) 733 796
Accounts payable (2,124) (4,385) (1,446)
Other current liabilities (2,629) (739) (5,253)
Deferred credits and noncurrent liabilities (564) 739 (38)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,063 19,890 13,063
INVESTING ACTIVITIES
Purchase of marketable securities (11,764) - -
Proceeds from sale of marketable securities 1,364 - 25
Purchases of fixed assets (327) (3,801) (1,204)
Proceeds from the sale of fixed assets 2,622 3,769 29
Purchase of Aspen stock (665) - (2,858)
Cash acquired in Aspen investment 4,359 - -
Acquisition of construction products business - - (3,000)
--------- --------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES (4,411) (32) (7,008)
FINANCING ACTIVITIES
Net borrowings (repayments) on loans payable (1,622) (300) 2,211
Net borrowings (repayments) on other facilities - (1,577) 1,110
Proceeds from long-term debt 32,614 33,565 37,960
Principal payments on long-term debt (32,618) (39,444) (45,981)
Dividends paid (650) (700) -
Distribution to shareholder of Buckeye - - (3,611)
--------- --------- ---------
NET CASH (USED IN) FINANCING ACTIVITIES (2,276) (8,456) (8,311)
--------- --------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,624) 11,402 (2,256)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,502 1,100 3,356
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,878 $ 12,502 $ 1,100
========= ========= =========
<FN>
See notes to consolidated financial statements.
</TABLE>
F-30
<PAGE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share amounts)
DECEMBER 31, 1995
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements of Bobbie
Brooks, Incorporated ("Company") include the accounts of the Company and its
wholly-owned and majority-owned subsidiaries. Investments of 20%-50% owned
affiliates are accounted for using the equity method. Intercompany balances
and transactions have been eliminated upon consolidation.
Brooks provides its parent, Pubco Corporation ("Pubco"), with certain
corporate services. The parent paid to the Company for these services $648 in
each of the years ended December 31, 1995, 1994 and 1993.
Cash and Cash Equivalents: Cash equivalents are composed of all highly liquid
investments generally with a maturity of three months or less at the time of
purchase.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out) or market.
Financial Instruments: The Company's financial instruments recorded on the
balance sheet include cash and cash equivalents and long-term debt. Because
of their short maturity, the carrying amount of cash and cash equivalents
approximates fair value. Because the majority of long-term debt is at market
rates of interest that adjust frequently, the carrying amount of long-term
debt approximates fair value.
Off balance sheet financial instruments include foreign currency exchange
agreements. In the normal course of business, the Company's construction
products subsidiary purchases components from a German supplier and from time
to time, enters into foreign currency exchange contracts with banks in order
to fix its trade payables denominated in the Deutsche Mark. The contract
amounts outstanding and the net deferred gains or losses were not significant
at December 31, 1995 and 1994.
Long-lived Assets: Property and equipment are recorded at cost with
depreciation and amortization principally computed by the straight-line method.
Intangible assets ("goodwill") represents the excess of the purchase price
over the fair value of the net assets of acquired businesses and is being
amortized by the straight-line method, in most cases up to 10 years. The
carrying amount of goodwill is reviewed if facts and circumstances suggest
that it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the estimated undiscounted cash flows of
the entity acquired over the remaining amortization period, the carrying
amount of the goodwill is reduced by the estimated shortfall of cash flows.
F-31
<PAGE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Impairment of long-lived assets is recognized when events or changes in
circumstances indicate that the carrying amount of the asset or related groups
of assets, may not be recoverable. Measurement of the amount of impairment
may be based on appraisal, market values of similar assets, or estimated
undiscounted future cash flows resulting from use and ultimate disposition of
the asset.
Research and Development Costs: The Company's construction products
subsidiary performs research and development on present and future products
and all costs are expensed as incurred. Total expenditures amounted to $489
and $647 for the years ended December 31, 1995 and 1994, and $363 for the 10
months ended December 31, 1993.
Per Common Share Amounts: Per common share amounts are computed after
preferred dividend requirements on the basis of the weighted average number of
shares of Common Stock outstanding.
Use of 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.
Recently Issued Accounting Standards: In March 1995, the Financial Accounting
Standards Board issued SFAS No. 121 - "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of." SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The Company is required to adopt the provisions of SFAS
No. 121 for 1996, and the Company has determined the effect upon its adoption
to be immaterial to results of operations.
Reclassifications: Certain prior year amounts have been reclassified to
conform to the 1995 presentation.
F-32
<PAGE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B--BUSINESS COMBINATIONS
Business Combination with Buckeye. Buckeye Business Products, Inc.
("Buckeye") manufactures and nationally markets, primarily to end users,
computer data processing supplies, including computer ribbons, laser toner,
ink jet cartridges, magnetic media, and computer paper, using an in-house
telemarketing staff. On January 1, 1994, the business of Buckeye was
transferred to the Company by Pubco. Buckeye had merged (the "Merger") with
and into a wholly-owned Pubco subsidiary immediately prior to the transfer of
Buckeye's business to the Company. As consideration for Buckeye, Robert H.
Kanner, Buckeye's sole stockholder who is also Pubco's and the Company's
Chairman, President and CEO and Pubco's controlling stockholder, received
1,820,724 newly issued shares of Pubco's Common Stock and 70,000 shares of a
newly-created Preferred Stock of Pubco with a face value of $100 per share.
In consideration for the Buckeye business, Pubco received 194,600 shares of a
newly-created Preferred Stock of the Company with a face value of $100 per
share. The Buckeye business is being operated as a division of the Company.
Acquisition of Aspen. On July 12, 1993, the Company purchased an
approximately 41% ownership interest in Aspen Imaging International, Inc.
("Aspen"), a publicly-held (NASDAQ Small Cap) corporation headquartered in
Boulder, Colorado. Aspen manufactures ribbons, toner and other supplies for
impact and non-impact printing devices. The Company paid approximately $2,858
for its equity interest and accounted for its investment in Aspen on the
equity method through year-end 1995. The Company's Statements of Operations
include its share of the earnings or losses of Aspen from July 12, 1993
through year-end 1995, which are insignificant and are included in "Other
Income, Net" in the Consolidated Statements of Operations.
At year-end 1995, the Company acquired additional shares in Aspen bringing its
interest to approximately 62% at December 31, 1995. The total purchase price,
which is comprised of the $665 additional investment made in 1995 and the
equity investment account balance of approximately $2,689, was allocated based
upon the fair values of the assets and liabilities acquired. Summarized below
are the unaudited consolidated results of operations of the Company, including
Aspen on a pro forma basis, assuming the acquisition of 62% of Aspen's stock
had occurred at the beginning of each respective year. These results include
certain adjustments, principally depreciation and amortization expense, and
are not necessarily indicative of what the results would have been had the
Company owned Aspen's business during these periods.
Year Ended December 3l
1995 1994
Net sales $ 52,260 $ 53,323
========= =========
Income from continuing operations $ 5,024 $ 4,047
========= =========
Net income (loss) from continuing
operations per common share (net of
Preferred Stock dividend requirements) $ .09 $ .04
========= =========
F-33
<PAGE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B--BUSINESS COMBINATIONS--CONTINUED
The Company's financial statements include transactions with Aspen prior to
year-end 1995. Product sales to and purchases from Aspen approximated $1,001
and $147, respectively, for the year ended December 31, 1995, $1,486 and $296,
respectively, for the year ended December 31, 1994, and $270 and $70,
respectively, for the six months ended December 31, 1993. All such
transactions were at cost. In addition, during 1994, to replace Aspen's toner
filling operation which was eliminated when Aspen sold its Colorado building,
the Company constructed a toner filling room for Aspen's use at the Company's
facility costing approximately $40, which amount was reimbursed to the Company
by Aspen. Company personnel performed a variety of manufacturing, accounting,
shipping and other support services for Aspen at the Company's cost. During
1995 and 1994, these costs approximated $157 and $136, respectively, which
amounts were reimbursed to the Company by Aspen.
Acquisition of Allied. On March 1, 1993, Allied Construction Products, Inc.
("Allied"), an 85% owned subsidiary of the Company, purchased the assets and
business of a fabricator, assembler and distributor of construction products
for the construction and related industries. The Company paid $3,000 for its
equity interest in the subsidiary. The purchase price was allocated based
upon the fair values of the assets and liabilities acquired. The results of
operations of Allied have been included in the consolidated financial
statements of the Company since the date of acquisition.
F-34
<PAGE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C--DISCONTINUED OPERATIONS
At September 30, 1994, the Company discontinued the operations of its retail
and apparel manufacturing segments. Accordingly, a charge was made in 1994
for such discontinued operations related to the write-down of net assets to
their net realizable value and to provide for operating losses during the
phaseout period. Operations of the retail and apparel manufacturing segment
in 1994 resulted in a loss of approximately $2,914 through the measurement
date. Operations of the retail and apparel manufacturing segment for the
fourth quarter of 1994 resulted in a loss of approximately $2,124 which was
charged against the reserve for discontinued operations. In 1995, the Company
reduced the reserve by $1,100 primarily related to actual results being more
favorable than anticipated when the accrual was established in 1994. The
remaining reserve balance of $1,805 at December 31, 1995, is believed to be
sufficient to provide primarily for the costs of future lease, employee and
other liabilities.
During 1993, the Company discontinued the operations of its commercial
printing segment. Accordingly, a charge was made in 1993 for such
discontinued operations relating to the write-down of net assets to their net
realizable value and to provide for operating losses during the phaseout
period. The Company ceased its printing operations at the end of the 1994
first quarter and liquidated most of its commercial printing assets by early
1995.
Results of these discontinued operations include:
Year Ended December 3l
1995 1994 1993
Sales $ - $ 40,702 $84,293
========== ========= ========
(Loss) income from operations - $ (2,901) $ 1,344
Income tax expense (benefit) - 13 (19)
---------- --------- --------
(Loss) income from operations - (2,914) 1,363
Income (loss) on disposals
(no tax effect) 1,100 (14,980) (4,000)
---------- --------- --------
Income (loss) from discontinued
operations $ 1,100 $(17,894) $(2,637)
========== ========= ========
F-35
<PAGE>
<TABLE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D--MARKETABLE SECURITIES
The following is a summary of marketable securities available for sale at
December 31, 1995:
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains (Loss) Value
<S> <C> <C> <C> <C>
US Corporate Equity
Securities $ 4,425 $ 176 $ (140) $ 4,461
US Corporate Debt Securities 3,056 30 - 3,086
Foreign Government
Debt Securities 3,554 735 - 4,289
---------- ---------- ---------- ----------
$ 11,035 $ 941 $ (140) $ 11,836
========== ========== ========== ==========
</TABLE>
The gross realized gains on sales of securities available for sale totaled
$75. The net adjustment to unrealized holding gains on securities
available for sale included as a separate component of stockholders' equity
totaled $801 in 1995.
The cost and estimated fair value of debt securities at December 31, 1995,
by estimated maturity, are shown below. Expected maturities may differ
from contractual maturities because the issuers of the securities may have
the right to prepay obligations without prepayment penalties.
Estimated
Fair
Cost Value
Due after one year through three years $ 1,083 $ 1,089
Due after three years 5,527 6,286
---------- ----------
$ 6,610 $ 7,375
========== ==========
F-36
<PAGE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E--STOCKHOLDERS' EQUITY
Pubco owns approximately 90% of the Company's Common Stock and all of the
Company's Preferred Stock.
The Company issued a newly created class of Preferred Stock Series B to
Pubco on January 1, 1994 in connection with the transfer of the business of
Buckeye Business Products, Inc. ("Buckeye") to the Company. See Note B.
The Company's Preferred Stock Series A is subject to redemption, in whole
or in part, at the Company's option. In addition to any unpaid cumulative
dividends, the redemption price includes a premium of three percent of face
value during 1995, reducing to face value during 1998 and thereafter.
The Company's Preferred Stock Series B is subject to redemption, in whole
or in part, at the Company's option. The redemption price includes the
face value plus any unpaid cumulative dividends.
In the event of the liquidation of the Company, holders of Preferred Stock
are entitled to a distribution equal to the face value of the Preferred
Stock (and any unpaid cumulative dividends) before any amount may be paid
on Common Stock.
The Company's non-voting Preferred Stock Series A requires cumulative
annual dividends on the $20 face value per share at four percent above the
averaged base lending rate of three large commercial banks. The Company's
non-voting Preferred Stock Series B required cumulative annual dividends on
the $100 face value per share at four percent above the average base
lending rate of three large commercial banks. No dividend may be paid on
Common Stock while there is any dividend arrearage on the Preferred Stock.
In 1994, the Company paid $700 ($3.60 per share) of Series B preferred
stock dividends, which were treated as a return of capital. In 1995, the
Company paid $650 ($3.34 per share) of Series B preferred stock dividends,
which were treated as a return of capital. As of December 31, 1995,
$10,523 of cumulative dividends ($11.60 per share) on the Series A and
$3,029 of cumulative dividends ($15.57 per share) on the Series B were
undeclared and unpaid on the Preferred Stock.
Stockholders' equity of $24,749 at December 31, 1995 includes Common and
Preferred stockholders' equity. In order to calculate Common stockholders'
equity, the following amounts applicable to Preferred stockholders must be
subtracted from total stockholders' equity: (i) face value of the Series A
Preferred Stock ($18,145), (ii) the face value of the Series B Preferred
Stock ($19,460), (iii) Series A Preferred Stock redemption premium ($544 at
December 31, 1995) and (iv) unpaid cumulative Series A and Series B
Preferred Stock dividends ($13,552 at December 31, 1995).
F-37
<PAGE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E--STOCKHOLDERS' EQUITY--CONTINUED
The Company has an Incentive Plan that allows the granting of stock options
and stock awards to officers and key employees of the Company. Up to
67,500 shares of Common Stock are available under the Incentive Plan.
Stock options are generally not exercisable until five years after grant
and then vest over time. The exercise price per share must generally be at
least equal to the fair market value per share on the date of the
respective grant. All shares subject to a stock award are deemed
Restricted Stock until the fifth anniversary of the date of the award and
then lose such restricted qualification over time. Shares of Restricted
Stock are subject to forfeiture following termination of employment and
other events. No options or stock awards have been granted under such plan.
NOTE F--RETIREMENT PLANS
The Company maintains two discretionary non-qualified profit sharing plans
to provide retirement benefits for certain of its key employees. The
assets are segregated, but are included in Other Assets. The liabilities
associated with these plans are included in Other Liabilities. In 1993,
Allied adopted a 401(k) plan, with discretionary Company contributions.
Expenses under the foregoing plans aggregated approximately $346, $322 and
$316 for the years ended December 3l, 1995, l994 and l993, respectively.
The Company makes contributions to union-sponsored, collectively-bargained,
multiemployer defined benefit pension plans. The Company contributed and
charged to expense $8, $151 and $327 for the years ended December 3l, l995,
l994 and 1993, respectively, for such plans. These contributions are
determined in accordance with the provisions of negotiated labor contracts
and generally are based on the amount of time worked. Information as to
the Company's portion of the accumulated plan benefits, plan net assets and
unfunded vested benefits, if any, is not determinable. In the event of a
withdrawal from one or more of the plans, the Company may be subject to a
withdrawal liability under the provisions of the Multiemployer Pension Plan
Amendments Act of 1980. The discontinuance of the commercial printing
segment has triggered withdrawal liability which was provided for in the
charge for discontinued operations in 1993. Management does not intend to
take any action which would subject the Company to any such liability under
any other multiemployer pension plans.
The Company maintains a noncontributory defined benefit pension plan
covering employees who are under a collective bargaining agreement and
sponsors a pension plan for terminated employees of a former operation of a
predecessor company. The excess actuarial present value of accumulated
plan benefits over net assets available for benefits under these plans was
approximately $365 and $370 at December 31, 1995 and 1994, respectively,
F-38
<PAGE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F--RETIREMENT PLANS--CONTINUED
which amounts have been reflected in the accompanying balance sheets.
Expenses under these plans were approximately $50, $48 and $54 for 1995, 1994
and 1993, respectively.
The Company provides life insurance benefits and/or contributes to the cost of
medical insurance for certain retired salaried and commission basis
employees. The accumulated postretirement benefit obligation and related
expense recorded for each year are not material to the balance sheet or the
results of operations.
NOTE G--FINANCING ARRANGEMENTS
The Company had a demand note payable to Robert H. Kanner, the Company's
Chairman, President & CEO, with a balance of $289 and $1,911 at December 31,
1995 and 1994, respectively. Interest on the unpaid balance is payable
monthly at rates up to 2% above Society National Bank's base lending rate
("BLR"). Interest expense for the Company was $51, $177 and $127 in the years
ended December 31, 1995, December 31, 1994, and December 31, 1993,
respectively.
The Company has a $2,500 demand credit facility at BLR plus .5% with no
outstanding balance at December 31, 1995. The Company has a $3,000 revolving
credit facility at LIBOR plus 2.5% or BLR, at the option of the Company,
expiring in 1997, with $1,677 outstanding at December 31, 1995. The Company
has a term note at BLR plus 1% due in 1996 with $36 outstanding at December
31, 1995. A portion of the debt is collateralized by assets with aggregate
carrying values of $13,734 at December 31, 1995.
Debt maturities for the years l996 through l999 are $58, $1,705, $28 and $9,
respectively.
Interest payments by the Company were $233, $834 and $1,122 for the years
ended December 31, 1995, 1994 and 1993, respectively.
Interest expense was $137, $439 and $628 for the years ended December 31,
1995, 1994 and 1993, respectively.
F-39
<PAGE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H--OTHER INFORMATION
December 31
l995 1994
Allowance for doubtful accounts $ 279 $ 1,250
========= =========
Amounts charged to bad debts expense were approximately $44, $794 and $543
for the years ended December 31, 1995, 1994 and 1993, respectively.
Inventories:
Raw materials and supplies $ 4,532 $ 4,912
Work-in-process 484 622
Finished goods and merchandise 2,431 1,724
--------- ---------
$ 7,447 $ 7,258
========= =========
Property and equipment:
Land and buildings $ 1,170 $ 3,234
Machinery, equipment and fixtures 11,865 13,731
Leasehold improvements 3,096 3,128
Construction in progress 97 38
--------- ---------
16,228 20,131
Less accumulated depreciation,
amortization and allowance to
reduce fixed assets to net
realizable value (9,243) (11,403)
--------- ---------
$ 6,985 $ 8,728
Accrued liabilities: ========= =========
Payroll and other employee benefits $ 2,207 $ 2,243
Accrued taxes 529 776
Accrual for discontinued businesses 1,717 2,766
Other 3,189 2,939
--------- ---------
$ 7,642 $ 8,724
========= =========
F-40
<PAGE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I--INCOME TAXES
Since 1992, the Company has been included in Pubco's consolidated federal
income tax return. The Company has recorded its share of the respective
consolidated groups' tax liability for each year based upon a tax sharing
agreement.
The provision for income taxes for continuing operations consists of the
following:
Year Ended December 3l
1995 1994 1993
Federal currently payable $ 90 $ - $ (77)
State and local currently payable 14 18 84
------- ------- -------
$ 104 $ 18 $ 7
======= ======= =======
Income taxes paid by (refunded to) the Company were $80, $(77) and $37 for
1995, 1994 and 1993, respectively.
A reconciliation of the statutory federal income tax rate to the effective
rate for continuing operations is as follows:
Year Ended December 3l
1995 1994 1993
Statutory federal rate 34.0% 34.0% 34.0%
State and local taxes .2 .3 1.7
Write-off of intangible - - 10.9
Utilization of net operating
loss carryforwards (33.5) (34.1) (10.0)
Subchapter S corporation income
(not subject to tax) - - (37.4)
Other 1.4 .2 1.0
------- ------- -------
2.1% .4% .2%
======= ======= =======
At December 31, 1995, the Company had available net operating loss
carryforwards of approximately $21,500 for federal income tax purposes.
Utilization by the Company is subject to limitations based on the Company's
future income. The loss carryforwards, if not used, will expire as follows:
$1,100 in 1996, $3,800 in 1997, $1,200 in 1998, $2,000 in 1999, $4,100 in
2000, $300 in 2002, $1,200 in 2006, $1,800 in 2007, $1,400 in 2008, and $4,600
in 2009.
F-41
<PAGE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I--INCOME TAXES--CONTINUED
In addition, for tax purposes, the Company has investment tax credit
carryforwards of approximately $100 which expire between 1996 and 2001 and
alternative minimum tax credit carryforwards of approximately $400.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities, for financial
reporting purposes, and the amounts used for income tax purposes. Significant
components of the Company's federal and state deferred tax assets and
liabilities are as follows:
1995 1994
Deferred tax assets:
Net operating loss carryforwards
and credits $ 8,600 $ 10,400
Accrual for discontinued operations 600 1,000
Deferred compensation 2,500 2,000
Other 2,900 3,400
--------- ---------
Total deferred tax assets 14,600 16,800
Deferred tax liabilities:
Tax over book depreciation 600 900
Other 100 -
--------- ---------
Total deferred tax liabilities 700 900
--------- ---------
Net deferred tax assets 13,900 15,900
Valuation allowance for
deferred tax assets (13,900) (15,900)
--------- ---------
Net deferred taxes $ - $ -
========= =========
The Company has not consistently generated pretax income and the potential
future tax benefits of the deferred tax assets, primarily net operating loss
carryforwards, may not be realized. Accordingly, a valuation allowance has
been provided equal to the net deferred tax assets related to these potential
future tax benefits.
F-42
<PAGE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J--LEASING ARRANGEMENTS
As Lessee:
Brooks and Buckeye are parties to separate leasing arrangements for office and
factory space in an approximately 312,000 square foot building owned and
operated by a partnership that is controlled by the majority stockholder of
Pubco. Buckeye and Allied conduct substantially all of their business
activities from this building. Brooks has its corporate offices at this
building. The leases expire in 2005. The leases require annual payments
aggregating $538. Rent expense associated with these leases was $538 for each
of the years ended December 31, 1995, 1994 and 1993.
The Company and its subsidiaries lease certain facilities and equipment under
non-cancellable leases for periods ranging from l to 10 years. Total rental
expense from continuing operations under all operating leases is summarized
below:
Year Ended December 3l
1995 1994 1993
Minimum rentals $ 721 $ 696 $ 612
Sublease rental income (61) (60) (61)
------- ------- -------
$ 660 $ 636 $ 551
======= ======= =======
At December 3l, l995, the commitments under non-cancellable operating leases
are as follows:
Operating
Leases
l996 $ 639
l997 555
l998 554
1999 548
2000 542
Thereafter 1,882
-------
$4,720
=======
Future minimum sublease rentals to be received on facilities under
non-cancellable operating leases approximate $144 at December 3l, l995.
F-43
<PAGE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J--LEASING ARRANGEMENTS--CONTINUED
As Lessor:
The Company leases certain land, building, equipment and a trade name asset
with an aggregate total net book value of $2,259 at December 31, 1995, under
an operating lease expiring in 2000. Upon expiration of the initial term, the
lessee has options to renew for periods up to 10 years.
At December 31, 1995, future minimum rentals to be received under the
operating lease follow:
1996 $ 741
1997 741
1998 741
1999 741
2000 741
Thereafter -
-------
$3,705
=======
F-44
<PAGE>
<TABLE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K--INDUSTRY SEGMENT INFORMATION
Summarized industry segment information is as follows:
<CAPTION>
Computer
Printer Construction
Supplies Products Corporate Consolidated
<S> <C> <C> <C> <C>
1995
Net sales $ 22,735 $ 24,855 $ - $ 47,590
Trade receivables 2,603 2,433 22 5,058
Income from continuing operations before
income taxes and minority interest 4,127 101 826 5,054
Identifiable assets 13,223 8,998 22,786 45,007
Capital expenditures 51 141 135 327
Depreciation and amortization 192 374 730 1,296
1994
Net sales $ 23,356 $ 22,660 $ - $ 46,016
Trade receivables 2,170 2,321 1,317 5,808
Income (loss) from continuing operations
before income taxes and minority
interest 3,966 632 (508) 4,090
Identifiable assets 6,124 9,551 25,815 41,490
Capital expenditures 245 663 2,893 3,801
Depreciation and amortization 215 352 803 1,370
1993
Net sales $ 23,391 $ 18,693 $ - $ 42,084
Trade receivables 2,120 2,162 8,445 12,727
Income (loss) from continuing operations
before income taxes and minority
interest 3,729 1,095 (1,516) 3,308
Identifiable assets 6,114 11,518 50,327 67,959
Capital expenditures 256 25 923 1,204
Depreciation and amortization 166 252 758 1,176
</TABLE>
Aspen was consolidated as part of the computer printer supplies segment
beginning December 31, 1995, and is included in the 1995 trade receivables and
identifiable asset amounts above. Corporate includes certain amounts related
to the previously discontinued segments.
F-45
<PAGE>
<TABLE>
BOBBIE BROOKS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's unaudited quarterly results of operations in 1995 and 1994 are
set forth below.
<CAPTION>
1995
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Net sales $ 13,459 $ 13,304 $ 10,759 $ 10,068
========= ========= ========= =========
Gross profit $ 3,572 $ 3,729 $ 2,769 $ 2,676
========= ========= ========= =========
Income from:
Continuing operations $ 1,537 $ 1,493 $ 1,469 $ 421
Discontinued operations - - 1,100 -
--------- --------- --------- ---------
Net income $ 1,537 $ 1,493 $ 2,569 $ 421
========= ========= ========= =========
Income (loss) applicable
to Common Stockholders $ 419 $ 374 $ 1,405 $ (765)
========= ========= ========= =========
Net income (loss) per common share from:
Continuing operations $ .08 $ .08 $ .06 $ (.15)
Discontinued operations - - .22 -
--------- --------- --------- ---------
Net income (loss) $ .08 $ .08 $ .28 $ (.15)
========= ========= ========= =========
1994
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Net sales $ 12,256 $ 12,425 $ 11,165 $ 10,170
========= ========= ========= =========
Gross profit $ 3,517 $ 3,768 $ 3,368 $ 2,961
========= ========= ========= =========
Income (loss) from:
Continuing operations $ 1,528 $ 1,500 $ 1,349 $ (341)
Discontinued operations (1,736) 170 (17,613) 1,285
--------- --------- --------- ---------
Net income (loss) $ (208) $ 1,670 $(16,264) $ 944
========= ========= ========= =========
Income (loss) applicable
to Common Stockholders $ (1,148) $ 730 $(17,242) $ (53)
========= ========= ========= =========
Net income (loss) per common share from:
Continuing operations $ .12 $ .11 $ .07 $ (.26)
Discontinued operations (.35) .04 (3.57) .25
--------- --------- --------- ---------
Net income (loss) $ (.23) $ .15 $ (3.50) $ (.01)
========= ========= ========= =========
<FN>
During the third quarter of 1994, the Company discontinued its apparel and retail segments
resulting in a reclassification of all prior 1994 quarters, as presented above.
</TABLE>
F-46
<PAGE>
Ernst & Young LLP
One Cascade Plaza
Akron, Ohio 44308
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Pubco Corporation
We have audited the accompanying consolidated balance sheets of Pubco
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1995. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Pubco Corporation and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
March 8, 1996
F-47
<PAGE>
<TABLE>
PUBCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<CAPTION>
December 3l
1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,919 $ 12,583
Marketable securities and other
investments available for sale--Note D 11,836 -
Trade receivables (less allowances of
$279 in 1995 and $1,250 in 1994) 5,058 5,808
Inventories--Note H 7,447 7,258
Prepaid expenses and other current assets 756 589
--------- --------
TOTAL CURRENT ASSETS 33,016 26,238
PROPERTY AND EQUIPMENT--Notes G and H 8,492 10,446
INTANGIBLE ASSETS ARISING FROM ACQUISITIONS
(at cost less accumulated amortization of
$490 in 1995 and $324 in 1994)--Note A 676 842
EQUITY INVESTMENT--Note B - 2,689
OTHER ASSETS 2,920 2,661
--------- ---------
TOTAL ASSETS $ 45,104 $ 42,876
========= =========
<FN>
See notes to consolidated financial statements.
</TABLE>
F-48
<PAGE>
<TABLE>
PUBCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--CONTINUED
(In thousands, except share amounts)
<CAPTION>
December 3l
1995 l994
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,738 $ 6,509
Accrued liabilities--Note H 9,287 10,211
Loans payable-related party--Note G 289 1,911
Current portion of long-term debt--Note G 218 1,740
--------- ---------
TOTAL CURRENT LIABILITIES 14,532 20,371
LONG-TERM DEBT--Note G 2,407 949
DEFERRED CREDITS AND NONCURRENT LIABILITIES 3,628 4,378
MINORITY INTERESTS 3,022 630
STOCKHOLDERS' EQUITY--Notes A and E
Preferred Stock:
Preferred Stock-par value $.01; 2,000,000
shares authorized, 70,000 shares issued and
outstanding in 1994 ($7,000 aggregate
liquidation preference in 1995 and 1994) 1 1
Convertible preferred stock-par value $1;
20,000 shares authorized, none issued - -
Common Stock:
Common Stock-par value $.01; 3,500,000
shares authorized; 2,906,697 issued
and 2,904,697 outstanding in 1995 and
2,905,225 issued and outstanding in 1994 29 29
Class B Stock-par value $.01; 2,000,000
shares authorized; 557,030 issued and
outstanding in 1995 and 558,502 issued
and outstanding in 1994 6 6
Additional paid in capital 30,082 30,957
Unrealized gains on investments available for sale 801 -
Retained (deficit) (9,392) (14,445)
--------- ---------
21,527 16,548
Treasury stock at cost, 2000 shares in 1995 (12) -
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 21,515 16,548
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 45,104 $ 42,876
========= =========
<FN>
See notes to consolidated financial statements.
</TABLE>
F-49
<PAGE>
<TABLE>
PUBCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share amounts)
<CAPTION>
Year Ended December 3l
1995 1994 1993
<S> <C> <C> <C>
Net sales $ 47,590 $ 46,016 $ 42,084
Cost of sales 34,844 32,402 28,662
--------- --------- ---------
GROSS PROFIT 12,746 13,614 13,422
Costs and expenses:
Selling, general and administrative expenses 8,835 8,829 9,592
Depreciation and amortization 1,121 1,303 1,118
Interest, net (911) 398 601
--------- --------- ---------
9,045 10,530 11,311
Other income, net 335 370 376
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST 4,036 3,454 2,487
Provision for income taxes--Note I 53 38 7
--------- --------- ---------
INCOME FROM CONTINUING
OPERATIONS BEFORE MINORITY INTEREST 3,983 3,416 2,480
Minority interest (30) (36) (94)
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 3,953 3,380 2,386
Income (loss) from discontinued operations,
net of taxes--Note C 1,100 (13,588) (2,511)
--------- --------- ---------
NET INCOME (LOSS) 5,053 (10,208) (125)
Preferred stock dividend requirements 875 700 700
--------- --------- ---------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ 4,178 $(10,908) $ (825)
========= ========= =========
Earnings (loss) per share--Note A:
CONTINUING OPERATIONS (NET OF PREFERRED
STOCK DIVIDEND REQUIREMENTS) $ .89 $ .77 $ .49
DISCONTINUED OPERATIONS .32 (3.92) (.73)
--------- --------- ---------
NET INCOME (LOSS) $ 1.21 $ (3.15) $ (.24)
========= ========= =========
Weighted average number of shares
outstanding--Notes A and E 3,463,387 3,463,727 3,463,727
========== ========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
F-50
<PAGE>
<TABLE>
PUBCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
Three Years Ended December 3l, l995
<CAPTION>
Preferred Stock Common Stock Class B Stock Additional Retained
Par Par Par Paid In Earnings
Shares Value Shares Value Shares Value Capital (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 70,000 $ 1 2,903,079 $29 560,648 $ 6 $31,657 $ (501)
Conversion of Class B
Stock to Common Stock--Note E - - 1,214 - (1,214) - - -
Subchapter S distribution to
shareholder of Buckeye--Note B - - - - - - - (3,611)
Net (loss) for 1993 - - - - - - - (125)
------- ---- ---------- ---- -------- ---- -------- ---------
Balance at December 31, 1993 70,000 $ 1 2,904,293 $29 559,434 $ 6 $31,657 $ (4,237)
Conversion of Class B
Stock to Common Stock--Note E - - 932 - (932) - -
Preferred Stock dividends paid
(paid at $10.00 per share)
--Note E - - - - - - (700) -
Net (loss) for l994 - - - - - - - (10,208)
------- ---- ---------- ---- -------- ---- -------- ---------
Balance at December 31, 1994 70,000 $ 1 2,905,225 $29 558,502 $ 6 $30,957 $(14,445)
Conversion of Class B
Stock to Common Stock--Note E 1,472 (1,472)
Shares purchased to Treasury (2,000)
Preferred Stock dividends paid
(paid at $12.50 per share)
--Note E (875)
Net income for l995 5,053
------- ---- ---------- ---- -------- ---- -------- ---------
Balance at December 31, 1995 70,000 $ 1 2,904,697 $29 557,030 $ 6 30,082 (9,392)
======= ==== ========== ==== ======== ==== ======== =========
<FN>
See notes to consolidated financial statements.
</TABLE>
F-51
<PAGE>
<TABLE>
PUBCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share amounts)
<CAPTION>
Year Ended December 3l
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income from continuing operations $ 3,953 $ 3,380 $ 2,386
Adjustments to reconcile net income to net
cash provided by operating activities:
Income (loss) from discontinued operations 1,100 (13,588) (2,511)
Write-down of assets of discontinued segments - 3,836 2,572
Depreciation and amortization 1,379 2,255 2,272
Net (gain) loss on sales of securities (75) (133) (488)
Net (gain) loss on disposal of fixed assets (256) 199 (45)
Minority interest (55) 36 94
Changes in operating assets and liabilities
net of acquisitions and divestitures:
Trade receivables 1,292 6,919 4,027
Inventories 491 19,938 9,469
Other assets (272) 1,006 1,736
Accounts payable (2,121) (4,401) (1,435)
Other current liabilities (2,471) (929) (5,429)
Deferred credits and noncurrent liabilities (750) 750 136
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,215 19,268 12,784
INVESTING ACTIVITIES
Distributions from partnership and trust investments - 25 79
Purchase of marketable securities (11,764) - -
Proceeds from sale of marketable securities 1,364 723 53
Purchases of fixed assets (327) (3,808) (1,204)
Proceeds from the sale of fixed assets 2,727 3,769 236
Purchase of Aspen stock (665) - (2,858)
Cash acquired in Aspen investment 4,359 - -
Acquisition of construction products business - - (3,000)
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (4,306) 709 (6,694)
FINANCING ACTIVITIES
Net borrowings (repayments) on loans payable (1,622) (300) 2,211
Net borrowings (repayments) on other facilities - (1,577) 1,110
Proceeds from long-term debt 32,614 34,465 37,960
Principal payments on long-term debt (32,678) (40,404) (46,045)
Dividends paid (875) (700) -
Purchase of treasury stock (12) - -
Distribution to shareholder of Buckeye - - (3,611)
--------- --------- ---------
NET CASH (USED IN) FINANCING ACTIVITIES (2,573) (8,516) (8,375)
--------- --------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,664) 11,461 (2,285)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,583 1,122 3,407
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,919 $ 12,583 $ 1,122
========= ========= =========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share amounts)
DECEMBER 3l, l995
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements of Pubco
Corporation ("Company" or "Pubco") include the accounts of the Company and its
wholly-owned and majority-owned subsidiaries, including Bobbie Brooks,
Incorporated ("Brooks"), an approximately 90% owned subsidiary. Investments
of 20%-50% owned affiliates are accounted for using the equity method.
Intercompany balances and transactions have been eliminated upon consolidation.
Cash and Cash Equivalents: Cash equivalents are composed of all highly liquid
investments generally with a maturity of three months or less at the time of
purchase.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out) or market.
Financial Instruments: The Company's financial instruments recorded on the
balance sheet include cash and cash equivalents and long-term debt. Because
of their short maturity, the carrying amount of cash and cash equivalents
approximates fair value. Because the majority of long-term debt is at market
rates of interest that adjust frequently, the carrying amount of long-term
debt approximates fair value.
Off balance sheet financial instruments include foreign currency exchange
agreements. In the normal course of business, the Company's construction
products subsidiary purchases components from a German supplier and from time
to time, enters into foreign currency exchange contracts with banks in order
to fix its trade payables denominated in the Deutsche Mark. The contract
amounts outstanding and the net deferred gains or losses were not significant
at December 31, 1995 and 1994.
Long-lived Assets: Property and equipment are recorded at cost with
depreciation and amortization principally computed by the straight-line method.
Intangible assets ("goodwill") represents the excess of the purchase price
over the fair value of the net assets of acquired businesses and is being
amortized by the straight-line method, in most cases over 10 years. The
carrying amount in goodwill is reviewed if facts and circumstances suggest
that it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the estimated undiscounted cash flows of
the entity acquired over the remaining amortization period, the carrying
amount of the goodwill is reduced by the estimated shortfall of cash flows.
F-53
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Impairment of long-lived assets is recognized when events or changes in
circumstances indicate that the carrying amount of the asset or related groups
of assets, may not be recoverable. Measurement of the amount of impairment
may be based on appraisal, market values of similar assets or estimated
undiscounted future cash flows resulting from use and ultimate disposition of
the asset.
Research and Development Costs: The Company's construction products
subsidiary performs research and development on present and future products
and all costs are expensed as incurred. Total expenditures amounted to $489
and $647 for the years ended December 31, 1995 and 1994 and $363 for the 10
months ended December 31, 1993.
Per Common Share Amounts: Per common share amounts are computed after
preferred dividend requirements on the basis of the weighted average number of
shares of Common Stock outstanding.
Use of 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.
Recently Issued Accounting Standards: In March 1995, the Financial Accounting
Standards Board issued SFAS No. 121 - "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of." SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The Company is required to adopt the provisions of SFAS
No. 121 for 1996, and the Company has determined the effect upon its adoption
to be immaterial to results of operations.
Reclassifications: Certain prior year amounts have been reclassified to
conform to the 1995 presentation.
F-54
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B--BUSINESS COMBINATIONS
Business Combination with Buckeye. Buckeye Business Products, Inc.
("Buckeye") manufactures and nationally markets, primarily to end users,
computer data processing supplies, including computer ribbons, laser toner,
ink jet cartridges, magnetic media, and computer paper, using an in-house
telemarketing staff. On January 1, 1994, the business of Buckeye was
transferred by the Company to Brooks. Buckeye had merged (the "Merger") with
and into a wholly-owned subsidiary of the Company immediately prior to the
transfer of Buckeye's business to Brooks. As consideration for Buckeye,
Robert H. Kanner, Buckeye's sole stockholder who is also the Company's and
Brooks' Chairman, President and CEO and the Company's controlling stockholder,
received 1,820,724 newly issued shares of the Company's Common Stock and
70,000 shares of a newly-created Preferred Stock of the Company with a face
value of $100 per share. In consideration for the Buckeye business, the
Company received 194,600 shares of a newly-created Preferred Stock of Brooks
with a face value of $100 per share. The Buckeye business is being operated
as a division of Brooks.
Acquisition of Aspen. On July 12, 1993, Brooks purchased an approximately 41%
ownership interest in Aspen Imaging International, Inc. ("Aspen"), a
publicly-held (NASDAQ Small Cap) corporation headquartered in Boulder,
Colorado. Aspen manufactures ribbons, toner and other supplies for impact and
non-impact printing devices. Brooks paid approximately $2,858 for its equity
interest and accounted for its investment in Aspen on the equity method
through year-end 1995. The Company's Statements of Operations include its
share of the earnings or losses of Aspen from July 12, 1993 through year-end
1995, which are insignificant and are included in "Other Income, Net" in the
Consolidated Statements of Operations.
At year-end 1995, Brooks acquired additional shares in Aspen bringing its
interest to approximately 62% at December 31, 1995. The total purchase price,
which is comprised of the $665 additional investment made in 1995 and the
equity investment account balance of approximately $2,689, was allocated based
upon the fair values of the assets and liabilities acquired. Summarized below
are the unaudited consolidated results of operations of the Company, including
Aspen on a pro forma basis, assuming the acquisition of 62% of Aspen's stock
had occurred at the beginning of each respective year. These results include
certain adjustments, principally depreciation and amortization expense, and
are not necessarily indicative of what the results would have been had the
Company owned Aspen's business during these periods.
Year Ended December 3l
1995 1994
Net sales $ 52,260 $ 53,323
========= =========
Income from continuing operations $ 4,057 $ 3,391
========= =========
Net income from continuing
operations per common share (net of
Preferred Stock dividend requirements) $ .92 $ .78
========= =========
F-55
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B--BUSINESS COMBINATIONS--CONTINUED
The Company's financial statements include transactions with Aspen prior to
year-end 1995. Product sales to and purchases from Aspen approximated $1,001
and $147, respectively, for the year ended December 31, 1995, $1,486 and $296,
respectively, for the year ended December 31, 1994, and $270 and $70,
respectively, for the six months ended December 31, 1993. All such
transactions were at cost. In addition, during 1994, to replace Aspen's toner
filling operation which was eliminated when Aspen sold its Colorado building,
the Company constructed a toner filling room for Aspen's use at the Company's
facility costing approximately $40, which amount was reimbursed to the Company
by Aspen. Company personnel performed a variety of manufacturing, accounting,
shipping and other support services for Aspen at the Company's cost. During
1995 and 1994, these costs approximated $157 and $136, respectively which
amounts were reimbursed to the Company by Aspen.
Acquisition of Allied. On March 1, 1993, Allied Construction Products, Inc.
("Allied"), an 85% owned subsidiary of Brooks, purchased the assets and
business of a fabricator, assembler and distributor of construction products
for the construction and related industries. Brooks paid $3,000 for its
equity interest in the subsidiary. The purchase price was allocated based
upon the fair values of the assets and liabilities acquired. The results of
operations of Allied have been included in the consolidated financial
statements of the Company since the date of acquisition.
F-56
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C--DISCONTINUED OPERATIONS
At September 30, 1994, the Company discontinued the operations of its retail
and apparel manufacturing segments. Accordingly, a charge was made in 1994
for such discontinued operations related to the write-down of net assets to
their net realizable value and to provide for operating losses during the
phaseout period. Operations of the retail and apparel manufacturing segment
in 1994 resulted in a loss of approximately $2,821 through the measurement
date. Operations of the retail and apparel manufacturing segment for the
fourth quarter of 1994 resulted in a loss of approximately $2,124 which was
charged against the reserve for discontinued operations. In 1995, the Company
reduced the reserve by $1,100 primarily related to actual results being more
favorable than anticipated when the accrual was established in 1994. The
remaining reserve balance of $1,805 at December 31, 1995, is believed to be
sufficient to provide primarily for the costs of future lease, employee and
other liabilities.
During 1993, the Company discontinued the operations of its commercial
printing segment. Accordingly, a charge was made in 1993 for such
discontinued operations relating to the write-down of net assets to their net
realizable value and to provide for operating losses during the phaseout
period. The Company ceased its printing operations at the end of the 1994
first quarter and liquidated most of its commercial printing assets by early
1995.
Results of these discontinued operations include:
Year Ended December 3l
1995 1994 1993
Sales $ - $ 40,702 $84,293
========== ========= ========
(Loss) income from operations - $ (2,808) $ 1,470
Income tax expense (benefit) - 13 (19)
---------- --------- --------
(Loss) income from operations - (2,821) 1,489
Income (loss) on disposals
(no tax effect) 1,100 (10,767) (4,000)
---------- --------- -------
Income (loss) from discontinued
operations $ 1,100 $(13,588) $(2,511)
========== ========= ========
F-57
<PAGE>
<TABLE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D--MARKETABLE SECURITIES
The following is a summary of marketable securities available for sale at
December 31, 1995:
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains (Loss) Value
<S> <C> <C> <C> <C>
US Corporate Equity
Securities $ 4,425 $ 176 $ (140) $ 4,461
US Corporate Debt Securities 3,056 30 - 3,086
Foreign Government
Debt Securities 3,554 735 - 4,289
---------- ---------- ---------- ----------
$ 11,035 $ 941 $ (140) $ 11,836
========== ========== ========== ==========
</TABLE>
The gross realized gains on sales of securities available for sale totaled
$75. The net adjustment to unrealized holding gains on securities
available for sale included as a separate component of stockholders' equity
totaled $801 in 1995.
The cost and estimated fair value of debt securities at December 31, 1995,
by estimated maturity, are shown below. Expected maturities may differ
from contractual maturities because the issuers of the securities may have
the right to prepay obligations without prepayment penalties.
Estimated
Fair
Cost Value
Due after one year through three years $ 1,083 $ 1,089
Due after three years 5,527 6,286
---------- ----------
$ 6,610 $ 7,375
========== ==========
F-58
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E--CORPORATE ORGANIZATION AND STOCKHOLDERS' EQUITY
The Company owns approximately 90% of the outstanding Common Stock of
Brooks and all of the Brooks Preferred Stock.
The Brooks Preferred Stock, which is made up of non-voting Series A and B
issues, although eliminated in consolidation, provides certain preferences
to the holders thereof. In the event of the liquidation of Brooks, Pubco
is entitled to a distribution equal to the face value of the Preferred
Stock (and any unpaid cumulative dividends) before any amount may be paid
on Brooks' Common Stock.
Brooks' Preferred Stock Series A is subject to redemption, in whole or in
part, at Brooks' option. In addition to any unpaid cumulative dividends,
($10,523 at December 31, 1995), the redemption price includes a premium of
three percent of face value during 1995, reducing to face value during 1998
and thereafter.
Brooks Preferred Stock Series B is subject to redemption, in whole or in
part, at Brooks' option. There are no unpaid cumulative dividends at year
end, and the redemption price is equal to face value. In 1995 and 1994,
Brooks declared and paid $650 and $700, respectively, of Preferred Stock
dividends. As of December 31, 1995, $3,029 of cumulative dividends were
undeclared and unpaid on the Preferred Stock.
The Company's Common Stock has one vote per share and Class B Stock has ten
votes per share. Transferability of Class B Stock is restricted and,
accordingly, there is no market for Class B Stock. However, Class B Stock
is convertible into Common Stock on a share-for-share basis.
The Company issued a newly-created class of Preferred Stock Series A on
January 1, 1994 in connection with the merger of Buckeye. See Note B.
The Company's Preferred Stock is subject to redemption, in whole or in
part, at the Company's option at any time after December 31, 1994. In the
event of a redemption of the Preferred Stock or a liquidation of the
Company, holders of Preferred Stock are entitled to a distribution equal to
the face value of the Preferred Stock (and any unpaid cumulative dividends)
before any amount may be paid on Common Stock.
The Company's non-voting Preferred Stock Series A requires cumulative
annual dividends on the $100 face value per share at four percent above the
averaged base lending rate of three large commercial banks. No dividend
may be paid on Common Stock while there is any dividend arrearage on the
Preferred Stock. In 1995, the Company paid $875 ($12.50 per share) of
Preferred Stock Series A dividends which were treated as a return of
capital. As of December 31, 1995, there were no undeclared and unpaid
dividends on the Preferred Stock.
F-59
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E--CORPORATE ORGANIZATION AND STOCKHOLDERS' EQUITY--CONTINUED
Stockholders' equity of $21,515 at December 31, 1995 includes Common and
Preferred stockholders' equity. In order to calculate Common stockholders'
equity at December 31, 1995, the face value of the Preferred Stock ($7,000)
and any unpaid cumulative dividends on the Preferred Stock must be subtracted
from total stockholders' equity. There were no unpaid cumulative Preferred
Stock dividends outstanding at December 31, 1995.
The Company has an Incentive Plan that allows the granting of stock options
and stock awards to officers and key employees of the Company. Up to 80,000
shares of Common Stock are available under the Incentive Plan. Stock options
are generally not exercisable until five years after grant and then vest over
time. The exercise price per share must generally be at least equal to the
fair market value per share on the date of the respective grant. All shares
subject to a stock award are deemed Restricted Stock until the fifth
anniversary of the date of the award and then lose such restricted
qualification over time. Shares of Restricted Stock are subject to forfeiture
following termination of employment and other events. No options or stock
awards have been granted under such plan.
F-60
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F--RETIREMENT PLANS
The Company maintains two discretionary non-qualified profit sharing plans to
provide retirement benefits for certain of its key employees. The assets are
segregated, but are included in Other Assets. The liabilities associated with
these plans are included in Other Liabilities. In 1993, Allied adopted a
401(k) plan, with discretionary Company contributions. Expenses under the
foregoing plans aggregated approximately $346, $322 and $316 for the years
ended December 3l, 1995, l994 and l993, respectively.
The Company makes contributions to union-sponsored, collectively-bargained,
multiemployer defined benefit pension plans. The Company contributed and
charged to expense $8, $151 and $327 for the years ended December 3l, l995,
l994 and 1993, respectively, for such plans. These contributions are
determined in accordance with the provisions of negotiated labor contracts and
generally are based on the amount of time worked. Information as to the
Company's portion of the accumulated plan benefits, plan net assets and
unfunded vested benefits, if any, is not determinable. In the event of a
withdrawal from one or more of the plans, the Company may be subject to a
withdrawal liability under the provisions of the Multiemployer Pension Plan
Amendments Act of 1980. The discontinuance of the commercial printing segment
has triggered withdrawal liability which was provided for in the charge for
discontinued operations in 1993. Management does not intend to take any
action which would subject the Company to any such liability under any other
multiemployer pension plans.
The Company maintains a noncontributory defined benefit pension plan covering
employees who are under a collective bargaining agreement and sponsors a
pension plan for terminated employees of a former operation of a predecessor
company. The excess actuarial present value of accumulated plan benefits over
net assets available for benefits under these plans was approximately $365 and
$370 at December 31, 1995 and 1994, respectively, which amounts have been
reflected in the accompanying balance sheets. Expenses under these plans were
approximately $50, $48 and $54 for 1995, 1994 and 1993, respectively.
The Company provides life insurance benefits and/or contributes to the cost of
medical insurance for certain retired salaried and commission basis
employees. The accumulated postretirement benefit obligation and related
expense recorded for each year are not material to the balance sheet or the
results of operations.
F-61
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G--FINANCING ARRANGEMENTS
The Company had a demand note payable to Robert H. Kanner, the Company's
Chairman, President & CEO, with a balance of $289 and $1,911 at December 31,
1995 and 1994, respectively. Interest on the unpaid balance is payable
monthly at rates up to 2% above Society National Bank's base lending rate
("BLR"). Interest expense for the Company was $51, $177 and $127 in the years
ended December 31, 1995, December 31, 1994, and December 31, 1993,
respectively.
The Company has a $2,500 demand credit facility at BLR plus .5% with no
outstanding balance at December 31, 1995. The Company has a $3,000 revolving
credit facility at LIBOR plus 2.5% or BLR, at the Company's options, expiring
in 1997, with $1,677 outstanding at December 31, 1995. The Company has a term
note at BLR plus 1% due through 1996 with $36 outstanding at December 31,
1995. The Company has a mortgage note at BLR due through 1997 with $825
outstanding at December 31, 1995. A portion of the debt is collateralized by
assets with aggregate carrying values of $14,569 at December 31, 1995.
Debt maturities for the years l996 through 1999 are $218, $2,370, $28 and $9,
respectively.
Interest payments by the Company were $244, $846 and $1,137 for the years
ended December 31, 1995, 1994 and 1993, respectively.
Interest expense was $280, $512 and $696 for the years ended December 31,
1995, 1994 and 1993, respectively.
F-62
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H--OTHER INFORMATION
December 31
1995 1994
Allowance for doubtful accounts $ 279 $ 1,250
========= =========
Amounts charged to bad debts expense were approximately $44, $794 and $543
for the years ended December 31, 1995, 1994 and 1993, respectively.
Inventories:
Raw materials and supplies $ 4,532 $ 4,912
Work in process 484 622
Finished goods and merchandise 2,431 1,724
--------- ---------
$ 7,447 $ 7,258
========= =========
Property and equipment:
Land and buildings $ 3,773 $ 5,968
Machinery, equipment and fixtures 12,004 13,870
Leasehold improvements 3,115 3,147
Construction in progress 97 37
--------- ---------
18,989 23,022
Less accumulated depreciation,
amortization and allowance to
reduce fixed assets to net
realizable value (10,497) (12,576)
--------- ---------
$ 8,492 $ 10,446
========= =========
Accrued liabilities:
Payroll and other employee benefits $ 2,207 $ 2,243
Accrued taxes 1,867 2,105
Accrual for discontinued businesses 1,717 2,766
Other 3,496 3,097
--------- ---------
$ 9,287 $ 10,211
========= =========
F-63
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I--INCOME TAXES
Pubco and its consolidated subsidiaries file a consolidated federal income tax
return. The provision for income taxes for continuing operations consists of
the following components:
Year Ended December 3l
1995 1994 1993
Federal currently payable $ 39 $ 20 $ (77)
State and local currently payable 14 18 84
------- ------- -------
$ 53 $ 38 $ 7
======= ======= =======
Income taxes paid by (refunded to) the Company were $30, $(57) and $37 for the
years ended December 31, 1995, 1994 and 1993, respectively.
A reconciliation of the statutory federal income tax rate to the effective
rate for continuing operations is as follows:
Year Ended December 3l
1995 1994 1993
Statutory federal rate 34.0% 34.0% 34.0%
State and local taxes .2 0.3 2.2
Write-off of intangibles - - 14.6
Utilization of net operating loss
carryforwards (34.6) (33.4) (2.2)
Subchapter S corporation income
(not subject to tax) - - (49.7)
Other 1.7 0.2 1.4
------ ------ ------
1.3% 1.1% 0.3%
====== ======= ======
At December 31, 1995, the Company had available net operating loss
carryforwards of approximately $23,500 for federal income tax purposes.
Approximately $17,600 are subject to limitations based on certain
subsidiaries' ability to generate future taxable income. The loss
carryforwards, if not used, will expire as follows: $1,100 in 1996, $3,800 in
1997, $1,200 in 1998, $2,000 in 1999, $4,100 in 2000, $300 in 2002, $200 in
2004, $1,200 in 2006, $2,100 in 2007, $1,600 in 2008 and $5,900 in 2009.
In addition, for tax purposes, the Company has investment tax credit
carryforwards of approximately $100 which expire between 1996 and 2000 and
alternative minimum tax credit carryforwards of approximately $500.
F-64
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I--INCOME TAXES--CONTINUED
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities, for financial
reporting purposes, and the amounts used for income tax purposes. Significant
components of the Company's federal and state deferred tax assets and
liabilities are as follows:
1995 1994
Deferred tax assets:
Net operating loss carryforwards
and credits $ 9,500 $ 11,200
Accrual for discontinued operations 600 1,000
Deferred compensation 3,300 2,500
Other 3,700 4,200
--------- ---------
Total deferred tax assets 17,100 18,900
Deferred tax liabilities:
Tax over book depreciation 700 1,000
Other 100 -
--------- ---------
Total deferred tax liabilities 800 1,000
--------- ---------
Net deferred tax assets 16,300 17,900
Valuation allowance for
deferred tax assets (16,300) (17,900)
--------- ---------
Net deferred taxes $ - $ -
========= =========
The Company has not consistently generated pretax income and the potential
future tax benefits of the deferred tax assets, primarily net operating loss
carryforwards, may not be realized. Accordingly, a valuation allowance has
been provided equal to the net deferred tax assets related to these potential
future tax benefits.
F-65
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J--LEASING ARRANGEMENTS
As Lessee:
Pubco, Brooks and Buckeye are parties to separate leasing arrangements for
office and factory space in an approximately 312,000 square foot building
owned and operated by a partnership that is controlled by the majority
stockholder of the Company. Buckeye and Allied conduct substantially all of
their business activities from this building. Pubco and Brooks have their
corporate offices at this building. The leases expire in 2005. The leases
require annual payments aggregating $549. Rent expense associated with these
leases was $549 for each of the years ended December 31, 1995, 1994 and 1993.
The Company and its subsidiaries lease certain facilities and equipment under
non-cancellable leases for periods ranging from 1 to 10 years. Total rental
expense from continuing operations under all operating leases is summarized
below:
Year Ended December 31
1995 1994 1993
Minimum rentals $ 732 $ 707 $ 623
Sublease rental income (61) (60) (61)
-------- -------- --------
$ 671 $ 647 $ 562
======== ======== ========
At December 3l, l995, the commitments under non-cancellable operating leases
are as follows:
Operating
Leases
l996 $ 650
l997 566
l998 565
1999 559
2000 553
Thereafter 1,920
--------
$ 4,813
========
Future minimum sublease rentals to be received on facilities under
non-cancellable operating leases approximate $144 at December 3l, l995.
F-66
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J--LEASING ARRANGEMENTS--CONTINUED
As Lessor:
The Company leases certain land, buildings, equipment and a trade name asset
with an aggregate net book value of $3,757 at December 3l, l995, under
operating leases expiring between 1996 and 2000. Upon expiration of the
initial terms, the lessees have options to renew for periods up to 10 years.
At December 3l, l995, future minimum rentals to be received under operating
leases are as follows:
l996 $ 860
l997 822
l998 822
1999 822
2000 755
Thereafter -
--------
$ 4,081
========
F-67
<PAGE>
<TABLE>
<CAPTION>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K--INDUSTRY SEGMENT INFORMATION
Summarized industry segment information is as follows:
Computer
Printer Construction
Supplies Products Corporate Consolidated
<S> <C> <C> <C> <C>
1995
Net sales $ 22,735 $ 24,855 $ - $ 47,590
Trade receivables 2,603 2,433 22 5,058
Income (loss) from continuing operations
before income taxes and minority
interest 4,127 101 (192) 4,036
Identifiable assets 13,223 8,998 22,883 45,104
Capital expenditures 51 141 135 327
Depreciation and amortization 192 374 813 1,379
1994
Net sales $ 23,356 $ 22,660 $ - $ 46,016
Trade receivables 2,170 2,321 1,317 5,808
Income (loss) from continuing operations
before income taxes and minority
interest 3,966 632 (1,144) 3,454
Identifiable assets 6,124 9,551 27,201 42,876
Capital expenditures 245 663 2,900 3,808
Depreciation and amortization 215 352 895 1,462
1993
Net sales $ 23,391 $ 18,693 $ - $ 42,084
Trade receivables 2,120 2,162 8,445 12,727
Income (loss) from continuing operations
before income taxes and minority
interest 3,729 1,095 (2,337) 2,487
Identifiable assets 6,114 11,518 48,313 65,945
Capital expenditures 256 25 923 1,204
Depreciation and amortization 166 252 848 1,266
<FN>
Aspen was consolidated as part of the computer printer supplies segment
beginning December 31, 1995, and is included in the 1995 trade receivables and
identifiable asset amounts above. Corporate includes certain amounts related
to the previously discontinued segments.
</TABLE>
F-68
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's unaudited quarterly results of operations in 1995 and 1994 are
set forth below.
1995
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Net sales $ 13,459 $ 13,304 $ 10,759 $ 10,068
========= ========= ========= =========
Gross profit $ 3,572 $ 3,729 $ 2,769 $ 2,676
========= ========= ========= =========
Income from:
Continuing operations $ 1,369 $ 1,261 $ 1,191 $ 132
Discontinued operations - - 1,100 -
--------- --------- --------- ---------
Net income $ 1,369 $ 1,261 $ 2,291 $ 132
========= ========= ========= =========
Income (loss) applicable to
Common Stockholders $ 1,150 $ 1,042 $ 2,073 $ (87)
========= ========= ========= =========
Net income (loss) per common
share from:
Continuing operations $ .33 $ .30 $ .28 $ (.02)
Discontinued operations - - .32 -
--------- --------- --------- ---------
Net income (loss) $ .33 $ .30 $ .60 $ (.02)
========= ========= ========= =========
1994
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Net sales $ 12,256 $ 12,425 $ 11,165 $ 10,170
========= ========= ========= =========
Gross profit $ 3,517 $ 3,768 $ 3,368 $ 2,961
========= ========= ========= =========
Income (loss) from:
Continuing operations $ 1,318 $ 1,389 $ 1,159 $ (486)
Discontinued operations (1,705) 201 (13,369) 1,285
--------- --------- --------- ---------
Net income (loss) $ (387) $ 1,590 $(12,210) $ 799
========= ========= ========= =========
Income (loss) applicable to
Common Stockholders $ (562) $ 1,415 $(12,385) $ 624
========= ========= ========= =========
Net income (loss) per common
share from:
Continuing operations $ .33 $ .35 $ .28 $ (.19)
Discontinued operations (.49) .06 (3.86) .37
--------- --------- --------- ---------
Net income (loss) $ (.16) $ .41 $ (3.58) $ .18
========= ========= ========= =========
During the third quarter of 1994, the Company discontinued its apparel and
retail segments resulting in a reclassification of all prior 1994 quarters, as
presented above.
F-69
<PAGE>
Appendix A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (sometimes referred to herein as
the "Merger Agreement"), is made this 26th day of April, 1996, by and
between Bobbie Brooks, Incorporated ("Brooks"), a Delaware corporation,
and Pubco Corporation ("Pubco"), a Delaware corporation.
RECITALS
Pubco is the owner of approximately 90% of the issued and outstanding
Common Stock and all of the issued and outstanding Preferred Stock of
Brooks.
The respective Boards of Directors of Pubco and Brooks each have
deemed it advisable and in the best interests of their respective
corporations and stockholders that Brooks be merged with and into Pubco
so that Pubco would be the surviving corporation, Brooks would cease to
have a separate corporate existence, and the persons presently holding
shares of Brooks stock (other than Pubco) would receive shares of Pubco
Common Stock in substitution for such Brooks shares.
It is intended that the merger contemplated herein shall qualify as a
reorganization, for federal income tax purposes, within the meaning of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended
(the "Code"), and for financial accounting purposes shall be accounted
for as a purchase.
Pubco and Brooks have each received a preliminary fairness opinion
from their respective financial advisors relating to the transactions
contemplated herein and the respective Boards of Directors of Pubco and
Brooks each have concluded that such a merger would allow their
respective corporations to achieve long-term strategic and financial
benefits.
Accordingly, the respective Boards of Directors of Pubco and Brooks
have each approved this Merger Agreement by resolutions adopted by them.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and provisions contained herein, it is agreed that the terms and
conditions of the merger (the "Merger") and the mode of carrying the
Merger into effect, shall be as follows:
Section 1. Merger, Effective Date. The Merger shall be effective
upon the date (the "Effective Date") on which a Certificate of Merger has
been filed with the Secretary of State of Delaware. If the Merger
Agreement is approved and adopted at special meetings of stockholders of
each of Pubco and Brooks ("Special Meetings"), such filing will be made
as soon as practicable after such Special Meetings and the satisfaction
or waiver of all conditions to the respective obligations of Pubco and
Brooks under this Merger Agreement, provided that this Merger Agreement
is not earlier terminated or abandoned in accordance with its terms. At
the Effective Date, Brooks will merge with and into Pubco, which will be
the surviving corporation in the Merger. Brooks will cease to exist
1.
<PAGE>
after the Effective Date, but Pubco will continue its separate corporate
existence after the Effective Date. The term "Surviving Corporation"
refers to Pubco on and after the Effective Date.
Section 2. Name. The name of the Surviving Corporation shall be
Pubco Corporation.
Section 3. Certificate of Incorporation. The Certificate of
Incorporation of Pubco in effect at the Effective Date shall be the
Certificate of Incorporation of the Surviving Corppration until amended
in accordance with Delaware law.
Section 4. By-Laws. The By-Laws of Pubco in effect at the Effective
Date shall be the By-Laws of the Surviving Corppration until amended by
appropriate action.
Section 5. Directors. The directors of Pubco immediately prior to
the Effective Date shall become the directors of the Surviving
Corporation and will hold office in accordance with the By-Laws of the
Surviving Corporation until their successors are duly appointed or
elected and qualified. The initial terms of the directors of the
Surviving Corporation shall expire at the same time their terms as
directors of Pubco would otherwise have expired.
Section 6. Officers. The officers of Pubco at the Effective Date
shall be the officers of the Surviving Corporation and will hold office
in accordance with the By-Laws of the Surviving Corporation until their
successors are duly appointed or elected and qualified.
Section 7. Principal Delaware Office. The principal office of the
Surviving Corporation in the State of Delaware shall be at 1209 Orange
Street in the City of Wilmington, County of New Castle, and the name of
its registered agent at such address is The Corporation Trust Company.
Section 8. Distributions to Stockholders. Each share of Pubco
Common Stock having a par value of $.01 per share ("Common Stock")
outstanding at the Effective Date, each share of Pubco Class B Stock
having a par value of $.01 per share ("Class B Stock") outstanding at the
Effective Date and each share of Series A Preferred Stock, $.01 par value
per share ("Series A Preferred Stock") shall remain outstanding and shall
represent one share of the Common Stock, one share of Class B Stock, or
one share of Series A Preferred Stock, respectively, of the Surviving
Corporation. At the Effective Date, each six issued and outstanding
shares of Brooks Common Stock owned by minority stockholders of Brooks
shall automatically and without further act of either Brooks or Pubco or
the holders of such shares, be extinguished and converted into one share
of Common Stock of the Surviving Corporation. No fractional shares of
the Surviving Corporation's Common Stock will be issued in the Merger.
Rather, Brooks stockholders who would otherwise be entitled to receive a
fraction of a share will instead receive cash based on the average of the
closing bid prices of Pubco Common Stock for the five business days
preceeding the Effective Date. The record holder of each Brooks Common
Share so extinguished and converted shall be recorded on the books of the
2.
<PAGE>
Surviving Corporation as the holder of the number of shares of Common
Stock of the Surviving Corporation which he is entitled to receive under
the provisions of this Section and each certificate representing six or
more shares of Brooks Common Stock shall be deemed, for all corporate
purposes, to evidence ownership of Common Stock in the Surviving
Corporation which the holder is entitled to receive under this Section.
Each share of Brooks Common Stock issued and held in treasury at the
Effective Date, if any, shall cease to be outstanding and shall be
cancelled and retired and shall cease to exist and no payment of any
consderation shall be made with respect thereto.
Section 9. Exchange of Shares. The Surviving Corporation shall
deposit or cause to be deposited with the Surviving Corporation's
exchange agent (the "Exchange Agent"), certificates representing shares
of the Surviving Corporation's Common Stock and cash in lieu of
fractional shares to be issued pursuant to this Merger Agreement.
Promptly after the Effective Date, the Surviving Corporation shall cause
the Exchange Agent to mail to each holder of record of Brooks Common
Stock, other than Pubco, a letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to certificates
shall pass, only upon delivery of the certificates evidencing Brooks
Common Stock to the Exchange Agent, and shall be in the form and shall
contain such other provisions as the Surviving Corporation shall specify
and instructions for use in effecting the surrender and exchange of
Brooks Common Stock. Each person who holds one or more certificates
which represented, in the aggregate, six or more shares of Brooks Commmon
Stock, may surrender such cerfiticates to the Exchange Agent, and upon
such surrender, the Exchange Agent shall, within a reasonable time,
deliver to such person in substitution and exchange therefore, one or
more certificates evidencing the number of shares of Common Stock of the
Surviving Corporation which such person is entitled to receive in
accordance with the terms of this Merger Agreement and any cash in lieu
of fractional shares as provided herein, after giving effect to any
required withholding tax, in substitution for the number of Brooks Common
Shares surrendered. The surrendered certificates shall be thereafter
cancelled. No interest will be paid or accrued on the cash in lieu of
fractional shares, if any, payable to holders of Brooks Common Stock.
Notwithstanding the foregoing, holders of Brooks Common Stock shall not
be required to surrender any such cerficates until such certificates
would normally be surrendered for transfer on the books of the issuing
corporation in the ordinary course of business.
Section 10. Brooks Shares owned by Pubco. In order to avoid the
expense and inconvenience of issuing shares of the Surviving Corporation
to itself, the shares of Brooks Common Stock and Brooks Preferred Stock
owned by Pubco as of the Effective Date will be cancelled without
conversion into stock of the Surviving Corporation.
Section 11. Lost Shares. If there is delivered to the Surviving
Corporation (or to an agent designated for such purpose by it) by any
person who is unable to produce a certificate for surrender in accordance
with Section 9 of this Merger Agreement: (i) evidence to the satisfaction
of the Surviving Corporation that such certificate has been lost,
3.
<PAGE>
wrongfully taken, or destroyed, (ii) such security indemnity as may be
requested by the Surviving Corporation to save it harmless, and (iii)
evidence to the satisfaction of the Surviving Corporation that such
person was the owner of the shares previously represented by each
certificate claimed by him to be lost, wrongfully taken or destroyed and
that he is the person who would be entitled to present such cerificate
for exchange pursuant to this Merger Agreement, then the Surviving
Corporation, in the absence of actual notice to it that any shares of
Brooks Common Stock represented by any such certificate have been
acquired by a bona fide purchaser, shall deliver to such person one or
more certificates evidencing the shares of the Surviving Corporation that
such person would have been entitled to receive upon surrender of each
such lost, wrongfully taken or destroyed certificate.
Section 12. Transfers. If one or more shares of the Surviving
Corporation issuable as provided in this Merger Agreement upon surrender
of a certificate formerly representing shares of Brooks Common Stock are
to be issued to a person other than the person in whose name such
surrendered certificate was registered on the books of Brooks at the
Effective Date, it shall be a condition precedent to the issuance of each
such share of the Surviving Corporation that such surrendered certificate
shall be properly endorsed and otherwise in proper from for transfer and
accompanied by such documents as may be required by the Surviving
Corporation (or by any agent designated for such purpose by it), in its
discretion, and that the person surrendering such certificate pay to the
Surviving Corporation (or to any agency designated for such purpose by
it) any transfer or other taxes required by reason of such issuance of
one or more shares of the Surviving Corporation to a person other than
the registered holder of such surrendered certificate, or establish to
the satisfaction of the Surviving Corporation (or of such agent) that
such tax has been paid or is not payable.
Section 13. Termination and Abandonment; Amendment. The Merger
contemplated by this Merger Agreement may be terminated and abandoned by
the Board of Directors of either Brooks or Pubco at any time prior to the
Effective Date and for any reason, without notice of such action to the
other, notwithstanding the approval of this Merger Agreement by the
stockholders of Brooks and/or Pubco. From time to time and at any time
prior to the Effective Date, this Merger Agreement may be amended by an
agreement in writing executed in the same manner as this Merger
Agreement, after authorization of such action by the Boards of Directors
of Pubco and Brooks, but no such amendment made subsequent to the
adoption of the Merger Agreement by the stockholders of either Pubco or
Brooks shall (i) alter or change the amount or kind of shares or other
consideration to be received by the stockholders in the Merger, (ii)
alter or change any term of the Certificate of Incorporation of the
Surviving Corporation to be be effected by the Merger, or (iii) alter or
change any of the terms and conditions of this Merger Agreement if such
alteration or change would adversely affect the holders of any class or
series of stock of either Brooks or Pubco.
Section 14. Representations and Warranties of Brooks. Brooks
represents and warrants to Pubco that except as set forth in a disclosure
4.
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letter (the "Brooks Disclosure Letter") to be delivered to Pubco at or
prior to the execution of this Merger Agreement:
a. Existence, Good Standing, Authority. Brooks is a
corporation duly incorporated, validly existing and in good standing
under the laws of the State of Delaware and is duly licensed or
qualified to do business as a foreign corporation and is in good
standing under the laws of any other State in which it does business
or owns property. Each of Brooks' subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of
its jurisdiction of incorporation, has the power and authority to own
its property and conduct its business as it is now being conducted,
and is duly qualified to do business and is in good standing in each
jurisdiction in which it owns property or conducts business.
b. Authorization. This Merger Agreement has been duly adopted
by the Board of Directors of Brooks and recommended to its
Stockholders at the Special Meeting to be held for the purpose of
approving such Merger Agreement. Subject only to approval by its
Stockholders, this Merger Agreement has been duly authorized by all
requisite corporate action and constitutes the legal and binding
obligation of Brooks.
c. Capitalization. The authorized capital of Brooks consists
of 50,000,000 shares of Common Stock, $.001 par value and 2,000,000
shares of Preferred Stock, $.001 par value of which 1,500,000 are
designated as Series A Preferred Stock and 300,000 are designated as
Series B Preferred Stock. As of the date of this Merger Agreement,
there are issued and outstanding 4,932,400 shares of Brooks Common
Stock, 907,250 shares of Brooks Series A Preferred Stock, and 194,600
shares of Brooks Series B Preferred Stock. There are no issued or
outstanding warrants or options to purchase Brooks Common Stock or
Brooks Series A or Series B Preferred Stock.
d. Subsidiaries. Brooks owns directly or indirectly each of
the outstanding shares of capital stock of its subsidiaries, free and
clear of all liens, pledges, security interests, claims or other
encumbrances.
e. Violations. Neither the execution of this Merger Agreement
nor the consummation of the transactions contemplated herein will
conflict with or represent a breach of any provision of the
Certificate of Incorporation or By-Laws of Brooks or result or create
a default in any other Agreement to which Brooks is bound, or, except
for the stockholder approval contemplated hereby, require any consent
or approval or authorization of any third person.
f. Securities Reports. Brooks has timely filed all reports
and other documents required to be filed by it with the Securities
and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended, the Exchange Act of 1934, as amended, and applicable state
securities and Blue Sky laws.
5.
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g. Litigation. There is no material litigation pending or
threatened against Brooks or its subsidiaries or affecting any of its
properties or assets or the properties or assets of its subsidiaries.
h. Taxes. Brooks and each of its subsidiaries has paid or
caused to be paid all federal, state, local and other taxes and all
deficiencies or other additions to tax owed by it or them through the
date hereof and there are no actions threatened or pending against
Brooks or its subsidiaries for additional taxes.
i. Books and Records. The books of account and other
financial records of Brooks and its subsidiaries are true and
complete and correct in all material respects and have been
maintained in accordance with good business practices and accurately
reflect, in all material respects, the financial condition of Brooks
and its subsidiaries.
j. Properties. Brooks and its subsidiaries own their
respective properties free and clear of all liens and encumbrances.
Section 15. Representations and Warranties of Pubco. Pubco
represents and warrants to Brooks that except as set forth in a
disclosure letter (the "Pubco Disclosure Letter") to be delivered to
Brooks at or prior to the execution of this Merger Agreement:
a. Existence, Good Standing, Authority. Pubco is a
corporation duly incorporated, validly existing and in good standing
under the laws of the State of Delaware and is duly licensed or
qualified to do business as a foreign corporation and is in good
standing under the laws of any other State in which it does business
or owns property. Each of Pubco's subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of
its jurisdication of incorporation, has the power and authority to
own its property and conduct its business as it is now being
conducted, and is duly qualified to do business and is in good
standing in each jurisdiction in which it owns property or conducts
business.
b. Authorization. This Merger Agreement has been duly adopted
by the Board of Directors of Pubco and recommended to its
Stockholders at the Special Meeting to be held for the purpose of
approving such Merger Agreement. Subject only to approval by its
Stockholders, this Merger Agreement has been duly authorized by all
requisite corporate action and constitutes the legal and binding
obligation of Pubco.
c. Capitalization. The authorized capital of Pubco consists
of 3,500,000 shares of Common Stock, $.01 par value, 2,000,000 shares
of Class B Stock, $.01 par value, 2,000,000 shares of Preferred
Stock, $.01 par value and 20,000 shares of convertible preferred
stock, par value $1.00. As of the date of this Merger Agreement,
there are issued and outstanding 2,906,697 shares of Pubco Common
Stock, 557,030 shares of Pubco Class B Stock, and 70,000 shares of
6.
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Series A Preferred Stock. No Convertible Preferred Stock is issued
or outstanding. There are no issued or outstanding warrants or
options to purchase Pubco Common Stock, Pubco Class B Stock or Pubco
Preferred Stock.
d. Subsidiaries. Pubco owns directly or indirectly each of
the outstanding shares of capital stock of its subsidiaries, free and
clear of all liens, pledges, security interests, claims or other
encumbrances.
e. Violations. Neither the execution of this Merger Agreement
nor the consummation of the transactions contemplated herein will
conflict with or represent a breach of any provision of the
Certificate of Incorporation or By-Laws of Pubco or result or create
a default in any other Agreement to which Pubco is bound, or, except
for the stockholder approval contemplated hereby, require any consent
or approval or authorization of any third person.
f. Securities Reports. Pubco has timely filed all reports and
other documents required to be filed by it with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933, as
amended, the Exchange Act of 1934, as amended, and applicable state
securities and Blue Sky laws.
g. Litigation. There is no material litigation pending or
threatened against Pubco or its subsidiaries or affecting any of its
properties or assets or the properties or assets of its subsidiaries.
h. Taxes. Pubco and each of its subsidiaries has paid or
caused to be paid all federal, state, local and other taxes and all
deficiencies or other additions to tax owed by it or them through the
date hereof and there are no actions threatened or pending against
Pubco or its subsidiaries for additional taxes.
i. Books and Records. The books of account and other
financial records of Pubco and its subsidiaries are true and complete
and correct in all material respects and have been maintained in
accordance with good business practices and accurately reflect, in
all material respects, the financial condition of Pubco and its
subsidiaries.
j. Properties. Pubco and its subsidiaries own their
respective properties free and clear of all liens and encumbrances.
Section 16. Conditions Precedent. The obligation of Brooks and
Pubco to complete the Merger is subject to the satisfaction, on or before
the Effective Date, of the following conditions, and until all of such
conditions have been satisfied, (or if waivable, waived by Brooks and
Pubco), this Merger Agreement may be abandoned by either party:
a. Stockholder Approval. The stockholders of both Brooks and
Pubco must have approved this Merger Agreement by requisite vote.
7.
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b. Absence of Adverse Changes. Except for such changes as are
contemplated by the Merger Agreement, changes in the ordinary course
of Brooks' and Pubco's businesses, and damage, destruction or loss
which is covered by insurance, there shall have been no material
adverse changes in the financial condition of Brooks or Pubco or any
of their respective material subsidiaries.
c. Absence of Suits. No action, suit or proceeding shall have
been instituted or threatened against Brooks or Pubco or any
subsidiary, to restrain, prohibit or otherwise challenge the legality
of the Merger or seeking monetary or other damages should it proceed.
d. Favorable Tax Opinion. Brooks and Pubco shall have received
a favorable opinion of Ernst & Young LLP, in form and substance
satisfactory to Brooks, Pubco and their respective counsel, to the
effect that the Merger with respect to stockholders other than Pubco
will constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"); Brooks and Pubco will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code; other than with
respect to cash received in lieu of fractional shares, no gain or
loss will be recognized to Brooks, Pubco or their respective
stockholders upon the exchange of Brooks Common Stock for Pubco
Common Stock in the Merger; and the tax basis of Pubco Common Stock
to be received by Brooks Stockholders in the Merger will be the same
as the tax basis of the Brooks Common Stock previously owned.
e. Financial Advisors' Opinions. Each of Pubco and Brooks
shall have received final written opinions of their respective
financial advisors, which are consistent with the preliminary reports
made by such advisors, that from a financial point of view, the
Merger of Brooks with and into Pubco in accordance with the terms of
this Merger Agreement is fair to Pubco's and Brooks stockholders,
respectively.
f. Stockholder Approval. The stockholders of Brooks and Pubco
must have approved this Merger Agreement by requisite vote.
Section 17. Effective Time of Merger. After this Merger Agreement
shall have been duly adopted by the Board of Directors and stockholders
of each of Pubco and Brooks, each of Pubco and Brooks shall cause this
Merger Agreement, or in lieu thereof, a Certificate of Merger or a
Certificate of Ownership and Merger, to be executed, acknowledges and
filed with the Secretary of State of Delaware as contemplated by Sections
103, 251, 252 and/or 253 of the General Corporation law of Delaware.
Section 18. Effect of Merger. Upon the Merger becoming effective,
all the property, rights, privileges, franchises, patents, trademarks,
licenses, registrations and other assets of every kind and description of
Brooks and Pubco shall be transferred to, vested in and devolve upon the
Surviving Corporation without further act or deed, and all property,
rights and every other interest of Pubco and Brooks shall be as
effectively the property of the Surviving Corporation as they were of the
8.
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Pubco and Brooks, respectively, prior to the Merger. Brooks hereby
agrees from time to time, as and when requested by the Surviving
Corporation or by its successors or assigns, to execute and deliver or
cause to be executed and delivered all such deeds and instruments and to
take or cause to be taken such further or other action as the surviving
corporation may deem necessary or desirable in order to vest in and
confirm to the Surviving Corporation title to and possession of any
property of Brooks acquired or to be acquired by reason or as a result of
the Merger and otherwise to carry out the intent and purposes hereof, and
the proper officers and directors of Brooks and the proper officers and
directors of the Surviving Corporation are fully authorized in the name
of Brooks, Pubco or otherwise to take any and all such action.
Section 19. Conduct of Business. Prior to the Effective Date,
except as specifically permitted by this Merger Agreement, unless the
other party has consented in writing, Pubco and Brooks shall use their
reasonable best efforts and shall cause their respective subsidiaries to
use their reasonable best efforts to preserve intact their business
organizations and good will and to conduct their operations according to
their usual, regular and ordinary course in substantially the same manner
as heretofore conducted.
Section 20. Stockholders Meetings. Each of Pubco and Brooks will
take all action necessary in accordance with applicable law and its
Certificate of Incorporation and By-Laws to convene a meeting of its
stockholders as promptly as practicable to consider and vote upon the
approval of the Merger Agreement and the transactions contemplated
hereby. The Board of Directors of each of Pubco and Brooks shall
recommend that its stockholders approve the Merger Agreement and the
transactions contemplated hereby.
Section 21. Other Actions. Brooks and Pubco agree to promptly make
their respective filings and use their respective best efforts to obtain
all approvals, permits or authorizations which are required to be
obtained prior to the Effective Date to carry out the intent and purposes
of this Merger Agreement. Each also agrees to take such other action and
deliver such other documents, both before and after the Effective Date,
to effectuate the consummation of the transactions described in this
Merger Agreement.
Section 22. Expenses. Each of the parties shall bear its own
expenses in connection with this Merger Agreement and the transactions
contemplated hereby whether or not the Merger is consummated.
Section 23. Counterparts. This Merger Agreement may be executed in
one or more counterparts, each of which shall be deemed to be a duplicate
original, but all of which taken together shall be deemed to be a single
instrument.
Section 24. Captions. The captions contained in this Merger
Agreement are included only for convenience of reference and do not
define, limit, explain or modify this Merger Agreement or its
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interpretation, construction or meaning and are in no way to be construed
as a part of this Merger Agreement.
Section 25. Entire Agreement, Amendments. This Merger Agreement and
all exhibits hereto, the Brooks Disclosure Letter and the Pubco
Disclosure Letter, and any documents delivered by the parties in
connection with this Merger Agreement, shall constitute the entire
agreement between the parties and supercedes all prior agreements and
understandings between the parites. No modification of this Merger
Agreement shall be binding upon any party unless made in writing and
signed by all parties to this Merger Agreement.
Section 26. Binding Effect and Governing Law. This Merger Agreement
shall be binding upon the parties hereto and their respective successors
and assigns and shall be governed by and construed under the laws of the
State of Delaware.
IN WITNESS WHEREOF, the parties have caused this Merger Agreement to
be executed in Cleveland, Ohio, by their duly authorized officers, as of
the date and year first above written.
BOBBIE BROOKS, INCORPORATED
Attest:
By /s/ Robert H. Kanner, President
--------------------------------
Robert H. Kanner, President
By /s/ Stephen R. Kalette, Secretary
----------------------------------
Stephen R. Kalette, Secretary
PUBCO CORPORATION
Attest:
By /s/ Robert H. Kanner, President
--------------------------------
Robert H. Kanner, President
By /s/ Stephen R. Kalette, Secretary
----------------------------------
Stephen R. Kalette, Secretary
10.
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Appendix B
SALE AND LIQUIDATION AGREEMENT
THIS SALE AND LIQUIDATION AGREEMENT (the "Agreement"), is made this
26th day of April, 1996, by and among Aspen Imaging International, Inc.
("Aspen"), a Delaware corporation, Pubco Corporation ("Pubco"), a
Delaware corporation and PSI, Inc. ("PSI"), a Delaware corporation.
RECITALS
Pubco is the owner of 100% of the issued and outstanding Common Stock
of PSI, a newly formed corporation, and will be, at the Closing, the
owner of approximately 62% of the issued and outstanding Common Stock of
Aspen.
The parties desire that PSI acquire all of the assets, properties,
business and goodwill of Aspen and assume all of Aspen's liabilities and
obligations (the "Asset Sale") in exchange for up to 218,366 shares of
Pubco Common Stock, par value $0.01 per share (the "Pubco Shares").
Immediately following the Sale, Aspen will liquidate (the "Liquidation")
and the Pubco Shares will be distributed to Aspen's stockholders, other
than Pubco, in complete cancellation and redemption of their Aspen Common
Stock. Fractional shares of Pubco Common Stock will not be distributed
and Aspen will redeem fractional shares for cash.
The parties intend that the Sale and Liquidation contemplated herein
shall qualify as a tax free reorganization under Section 368(a)(1)(C) of
the Internal Revenue Code of 1986, as amended (the "Code") and shall
qualify as a sale of assets under Section 271 of the Delaware General
Corporation Law.
Pubco and Aspen have each received a fairness opinion from their
respective financial advisors relating to the transactions contemplated
herein and the respective Boards of Directors of Pubco and Aspen each
have concluded that the Sale and Liquidation would allow their respective
corporations to achieve long-term strategic and financial benefits.
Accordingly, the respective Boards of Directors of Pubco, PSI and
Aspen have each approved this Sale and Liquidation Agreement by
resolutions adopted by them.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and provisions contained herein, it is agreed that the terms and
conditions of the Sale and Liquidation and the mode of carrying the Sale
and Liquidation into effect, shall be as follows:
Section 1. Sale and Purchase of Assets. On the terms and subject to
the conditions contained herein, Aspen hereby agrees to convey, transfer,
assign and deliver to PSI and PSI hereby agrees to acquire and accept, as
hereinafter provided, all of the assets, properties, business and
goodwill of Aspen of every kind and description, wherever located,
including without limitation, all property, tangible and intangible,
1.
<PAGE>
real, personal or mixed, accounts receivable, bank accounts, cash and
securities, claims and rights under contracts, if any, right to use the
names "Aspen", "Aspen Imaging", "Aspen Toner", "Aspen Guide", and all
variations thereof, and all other names and slogans used by Aspen in
connection with its business and products, and all books and records of
Aspen relating to its business, all as the same shall exist at the time
of closing referred to herein (the "Closing Date"). The assets and
properties to be conveyed, transferred, assigned and delivered to PSI on
the Closing Date shall, without limitation, include all assets and
property of Aspen shown on its audited balance sheet for the year ended
June 30, 1995 and all assets and property thereafter acquird by Aspen
prior to the Closing Date, except those assets and properties of Aspen as
may be disposed of prior to the Closing Date in the ordinary course of
Aspen's business or in the payment and discharge of Aspen's liabilities
on or before the Closing Date.
Section 2. Assumption of Liabilities. Subject to the conditions set
forth herein, from and after the Closing Date, PSI shall assume and
agrees to pay, perform and discharge all debts, obligations, contracts
and liabilities of Aspen of any kind, character or description, whether
accrued, absolute, contingent or otherwise, and whether or not reflected
or reserved against on Aspen's balance sheets, books of account and
records, all as the same shall exist at the Closing Date, and all debts,
obligations and liabilities of Aspen arising thereafter in connection
with the distribution to Aspen's stockholders of the Pubco Shares to be
issued and delivered to Aspen hereunder and in connnection with the
liquidation and dissolution of Aspen, other than the obligation of Aspen
to distribute to its Stockholders the Pubco Shares.
Section 3. Documentation. The conveyance, transfer, assignment and
delivery of the assets and property of Aspen to PSI, provided for herein,
shall be effected by deeds, bills of sale, endorsements, assignments,
checks, drafts and other instruments of transfer and conveyance, in such
form as PSI shall reasonably request. Aspen agrees that it will, at any
time and from time to time after the Closing Date, at the request of PSI,
do, execute, acknowledge and deliver or will cause to be done, executed
acknowledged and delivered, all such further acts and all such further
documents as may be required to convey, transfer, assign and deliver all
of such assets and property to PSI.
Section 4. Pubco Shares. On or before the Closing Date, Pubco will
issue the Pubco Shares and make a capital contribution of such Pubco
Shares to PSI. At the Closing (as hereinafter defined) on the Closing
Date, PSI will deliver to Aspen definitive stock certificates, in such
authorized denominations and registered in the name of Aspen or its
nominee or such other names as Aspen shall specify in writing.
Section 5. Due Diligence. From and after the date of this
Agreement, each of Aspen, Pubco and PSI shall permit the other parties to
conduct such investigations as they shall deem necessary and or
appropriate concerning the properties, obligations and affairs of their
respective businesses.
2.
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Section 6. Closing. The Closing of this Agreement (the "Closing")
shall take place in Cleveland, Ohio at 3830 Kelley Avenue as soon as
practicable after all conditions to this Agreement have been satisfied.
Section 7. Assignments, Consents and Collection of Receivables. To
the extent that the assignment of any contract, license, lease,
commitment, sales order or purchase order to be assigned to PSI by Aspen
hereunder shall require the consent of another party thereto, this
Agreement shall not constitute an agreement to assign the same if an
attempted assignment would constitute a breach thereof. Aspen agrees
that it will use its best efforts to obtain the consent of the other
parties to all such contracts, licenses, leases commitments, sales orders
and purchase orders, to the assignment thereof to PSI in any reasonable
arrangement designed to provide for PSI the benefits under such contracts,
licenses, leases commitments, sales orders and purchase orders, including
enforcement of any and all rights of Aspen against the other party
thereto arising out of the breach or cancellation or otherwise. Aspen
agrees that on and after the Closing Date, PSI shall have the right and
authority to collect, for PSI's account, all receivables and other items
which shall be transferred to PSI herein, and to endorse with the name of
Aspen any checks received on account of any such receivables and other
items and Aspen agrees to transfer all cash and other property which it
may receive in respect of such receivables or other items.
Section 8. Distributions to Aspen's Stockholders. As soon as
practicable after the Closing, Aspen will cease to conduct any business
or activity, the Pubco Shares received by Aspen from PSI will be
distributed by Aspen to its Stockholders, other than Pubco, and Aspen
will be liquidated and dissolved. Aspen Stockholders, other than Pubco,
will receive a liquidating distribution from Aspen of one share of Pubco
Common Stock for each 7 shares of Aspen Common Stock owned by them. No
fractional shares of Pubco Common Stock will be issued. Rather, Aspen
stockholders who would otherwise be entitled to receive a fraction of a
share will instead receive cash based on the average of the closing bid
prices of Pubco Common Stock for the five business days preceeding the
Closing Date. Each share of Aspen Common Stock issued and held in
treasury at the Closing Date, if any, shall cease to be outstanding and
shall be canceled and retired and shall cease to exist and no payment of
any consideration shall be made with respect thereto.
Section 9. Mechanics of Distribution of Pubco Shares. Promptly upon
receipt of the Pubco Shares, Aspen shall cause its exchange agent (the
"Exchange Agent") to mail to each holder of record of Aspen Common Stock,
other than Pubco, a letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to certificates
shall pass, only upon delivery of certificates evidencing Aspen Common
Stock to the Exchange Agent, and shall be in the form and shall contain
such other provisions as Aspen shall specify and instructions for use in
effecting the surrender and exchange of Aspen Common Stock. Each person
who holds one or more certificates which represented, in the aggregate,
seven or more shares of Aspen Commmon Stock, may surrender such
certificates to the Exchange Agent, and upon such surrender, the Exchange
Agent shall, within a reasonable time, deliver to such person in
3.
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substitution and exchange therefore, one or more certificates evidencing
the number of shares of Pubco Common Stock which such person is entitled
to receive in accordance with the terms of this Agreement and any cash in
lieu of fractional shares as provided herein, after giving effect to any
required withholding tax, in substitution for the number of Aspen Common
Shares surrendered. The surrendered certificates shall be thereafter
canceled. No interest will be paid or accrued on the cash in lieu of
fractional shares, if any, payable to holders of Aspen Common Stock. In
the alternative, with the prior written permission of Pubco and PSI,
Aspen may deliver to each Aspen Stockholder one or more certificates
evidencing the number of shares of Pubco Common Stock which such person
is entitled to receive in accordance with the terms of this Agreement and
any cash in lieu of fractional shares as provided herein, after giving
effect to any required withholding tax. From time to time after the
Closing, Pubco and PSI agree to cooperate with Aspen and the Exchange
Agent in the issuance and distribution of Pubco Shares, in such
demominations as Aspen may require to satisfy its obligations to its
stockholders hereunder.
Section 10. Aspen Shares owned by Pubco. In order to avoid the
expense and inconvenience of issuing shares of Pubco Common Stock to
itself, Pubco will not issue to itself any shares of Pubco Common Stock
otherwise distributable to Pubco on account of any shares of Aspen Common
Stock owned by Pubco on the Closing Date.
Section 11. Lost Shares. If there is delivered to Aspen (or to an
agent designated for such purpose by it) by any person who is unable to
produce a certificate for surrender in accordance with Section 9 of this
Agreement: (i) evidence to the satisfaction of Aspen that such
certificate has been lost, wrongfully taken, or destroyed, (ii) such
security indemnity as may be requested by Aspen to save it harmless, and
(iii) evidence to the satisfaction of Aspen that such person was the
owner of the shares previously represented by each certificate claimed by
him to be lost, wrongfully taken or destroyed and that he is the person
who would be entitled to present such cerificate for exchange pursuant to
this Agreement, then Aspen, in the absence of actual notice to it that
any shares of Aspen Common Stock represented by any such certificate have
been acquired by a bona fide purchaser, shall deliver to such person one
or more certificates evidencing Pubco Shares that such person would have
been entitled to receive upon surrender of each such lost, wrongfully
taken or destroyed certificate.
Section 12. Transfers. If one or more Pubco Shares distributable by
Aspen as provided in this Agreement upon surrender of a certificate
formerly representing shares of Aspen Common Stock are to be distributed
to a person other than the person in whose name such surrendered
certificate was registered on the books of Aspen at the Closing Date, it
shall be a condition precedent to the issuance of each such Pubco Share
that such surrendered certificate shall be properly endorsed and
otherwise in proper from for transfer and accompanied by such documents
as may be required by Aspen (or by any agent designated for such purpose
by it), in its discretion, and that the person surrendering such
certificate pay to Aspen (or to any ageny designated for such purpose by
4.
<PAGE>
it) any transfer or other taxes required by reason of such issuance of
one or more Pubco Shares to a person other than the registered holder of
such surrendered certificate, or establish to the satisfaction of Aspen
(or of such agent) that such tax has been paid or is not payable.
Section 13. Termination and Abandonment; Amendment. The Sale and
Liquidation contemplated by this Agreement may be terminated and
abandoned by the Board of Directors of Pubco, PSI or Aspen at any time
prior to the Closing Date and for any reason, without notice of such
action to the other, notwithstanding the approval of this Agreement by
the Aspen stockholders. From time to time and at any time prior to the
Closing Date, this Agreement may be amended by an agreement in writing
executed in the same manner as this Agreement, after authorization of
such action by the Boards of Directors of Pubco, PSI and Aspen, but no
such amendment made subsequent to the adoption of this Agreement by the
Aspen Stockholders shall (i) alter or change the amount or kind of shares
or other consideration to be received by the stockholders in the Sale and
Liquidation, or (ii) alter or change any of the terms and conditions of
this Agreement if such alteration or change would adversely affect the
Aspen Stockholders.
Section 14. Representations and Warranties of Aspen. Aspen
represents and warrants to Pubco and PSI that except as set forth in a
disclosure letter (the "Aspen Disclosure Letter") to be delivered to
Pubco and PSI at or prior to the execution of this Agreement:
a. Existence, Good Standing, Authority. Aspen is a
corporation duly incorporated, validly existing and in good standing
under the laws of the State of Delaware and is duly licensed or
qualified to do business as a foreign corporation and is in good
standing under the laws of any other State in which it does business
or owns property. Each of Aspen's subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of
its jurisdication of incorporation, has the power and authority to
own its property and conduct its business as it is now being
conducted, and is duly qualified to do business and is in good
standing in each jurisdiction in which it owns property or conducts
business.
b. Authorization. This Agreement has been duly adopted by the
Board of Directors of Aspen and recommended to its Stockholders at
the Special Meeting to be held for the purpose of approving the Sale
and Liquidation pursuant to this Agreement. Subject only to approval
by its Stockholders, this Agreement has been duly authorized by all
requisite corporate action and constitutes the legal and binding
obligation of Aspen.
c. No Violation. The execution, delivery, performance and
compliance by Aspen of this Agreement will not result in the
violation of or be in conflict with or constitute a default under any
term or provision of Aspen's Certificate of Incorporation or By-laws,
or any mortgage, indenture, contract, agreement, instrument,
judgment, decree, order, statute, rule or regulation by which it is
5.
<PAGE>
bound, or result in the creation of any mortgage, lien, encumbrance,
or charge upon any of its assets or properties.
d. Capitalization. The authorized capital of Aspen consists
of 8,000,000 shares of Common Stock, $.001 par value and 1,000,000
shares of Preferred Stock, $.001 par value. As of the date of this
Agreement, there are issued and outstanding 3,988,756 shares of
Common Stock and no shares of Preferred Stock. Options to purchase
200,000 shares of Common Stock at $1.65 and 10,000 shares of Common
Stock at $1.38 remain outstanding.
e. Financial Statements. The Audited Consolidated Financial
Statements of Aspen for the year ended June 30, 1995 and the
Unaudited Consolidated Financial Statements of Aspen for the six
months ended December 31, 1995, which have previously been furnished
to Pubco and PSI by Aspen and are incorporated herein by reference,
present fairly the financial position of Aspen as of the respective
balance sheet dates and the results of Aspen's operations for the
periods indicated in said consolidated statements of operations,
subject in the case of the unaudited consolidated balance sheet and
related consolidated statements of operations to audit and usual
year-end adjustments. All such statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis.
f. Absence of Material Changes In Condition, Undisclosed
Liabilities. Since December 31, 1995, there has not been any change
in the business, results of operations, assets or financial condition
of Aspen, other than changes in the ordinary course of its business,
none of which have had a materially adverse effect on Aspen's
business, results of operation, assets, or financial position. To
the best of Aspen's knowledge, all of Aspen's material liabilities,
absolute or contingent, are reflected on or provided for on the
December 31, 1995 unaudited consolidated balance sheet.
g. Title. Aspen has good, absolute, and marketable title to
all of its assets and properties, held in each case, subject to no
lease, mortgage, pledge, lien, charge, security interest,
encumbrance, or restriction whatsoever.
h. Contracts, Permits and Licenses. Aspen is not in breach of
any of its material contracts or agreements and has all material
permits, licenses, franchises and other authorizations necessary for
the conduct its businesses as presently conducted. Aspen has engaged
in no activity which would cause revocation or suspension of any such
permits, licenses, franchises or authorizations and no action or
proceeding looking to or contemplating the revocation or suspension
of any thereof is pending or threatened.
i. Subsidiaries. Aspens owns directly or indirectly each of
the outstanding shares of capital stock of its Aspen Toner
Corporation and Aspen Ribbons International, Inc. subsidiaries, free
6.
<PAGE>
and clear of all liens, pledges, security interests, claims or other
encumbrances.
j. Securities Reports. Aspen has timely filed all reports and
other documents required to be filed by it with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933, as
amended, the Exchange Act of 1934, as amended, and applicable state
securities and Blue Sky laws.
k. Litigation. There is no material litigation pending or
threatened against Aspen or its subsidiaries or affecting any of its
properties or assets or the properties or assets of its subsidiaries.
l. Taxes. Aspen has filed all income, sales, franchise and
other tax returns and reports required to be filed by it, accurately
reflecting all taxes owing, and has paid in full or made provision
for all taxes (including penalties and interest thereon) for which it
has liability and there are no actions threatened or pending against
Aspen or its subsidiaries for additional taxes.
m. Employee Benefits and Labor Matters. Aspen has no
individual or group bonus, deferred compensation, pension,
profit-sharing, retirement, stock option or purchase,
hospitalization, insurance, vacation, severance or other employee
benefit plan relating to its employees.
Section 15. Representations and Warranties of Pubco. Pubco
represents and warrants to Aspen that except as set forth in a disclosure
letter (the "Pubco Disclosure Letter") to be delivered to Aspen at or
prior to the execution of this Agreement:
a. Existence, Good Standing, Authority. Pubco is a
corporation duly incorporated, validly existing and in good standing
under the laws of the State of Delaware and is duly licensed or
qualified to do business as a foreign corporation and is in good
standing under the laws of any other State in which it does business
or owns property. Each of Pubco's subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of
its jurisdication of incorporation, has the power and authority to
own its property and conduct its business as it is now being
conducted, and is duly qualified to do business and is in good
standing in each jurisdiction in which it owns property or conducts
business.
b. Authorization. This Agreement has been duly adopted by the
Board of Directors of Pubco and recommended to its stockholders at
the Special Meeting to be held for the purpose of approving this
Agreement. Subject only to approval by its Stockholders, this
Agreement has been duly authorized by all requisite corporate action
and constitutes the legal and binding obligation of Pubco.
c. No Violation. The execution, delivery, performance and
compliance by Pubco of this Agreement will not result in the
7.
<PAGE>
violation of or be in conflict with or constitute a default under any
term or provision of its Certificate of Incorporation or By-laws, or
any mortgage, indenture, contract, agreement, instrument, judgment,
decree, order, statute, rule or regulation by which it is bound, or
result in the creation of any mortgage, lien, encumbrance, or charge
upon any of its assets or properties.
d. Capitalization. The authorized capital of Pubco consists
of 3,500,000 shares of Common Stock, $.01 par value, 2,000,000 shares
of Class B Stock, $.01 par value, 2,000,000 shares of Preferred
Stock, $.01 par value and 20,000 shares of convertible preferred
stock, par value $1.00. A proposal to increase Pubco's authorized
Common Stock to 5,000,000 shares is pending and is expected to be
approved. As of December 31, 1995, there are issued and outstanding
2,906,697 shares of Pubco Common Stock, 557,030 shares of Pubco Class
B Stock, and 70,000 shares of Series A Preferred Stock. No
Convertible Preferred Stock is issued or outstanding. There are no
issued or outstanding warrants or options to purchase Pubco Common
Stock, Pubco Class B Stock or Pubco Preferred Stock.
e. Financial Statements. The Audited Consolidated Financial
Statements of Pubco for the year ended December 31, 1995 which have
previously been furnished to Aspen by Pubco and are incorporated
herein by reference, present fairly the financial position of Pubco
as of such date and the results of Pubco's operations for the periods
indicated in said consolidated statements of operations. Such
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis.
f. Absence of Material Changes In Condition, Undisclosed
Liabilities. Since December 31, 1995, there has not been any change
in the business, results of operations, assets or financial condition
of Pubco, other than changes in the ordinary course of its business,
none of which have had a materially adverse effect on Pubco's
business, results of operation, assets, or financial position. To
the best of Pubco's knowledge, all of Pubco's material liabilities,
absolute or contingent, are reflected on or provided for on the
December 31, 1995 audited consolidated balance sheet.
g. Title. Pubco has good, absolute, and marketable title to
all of its assets and properties, held in each case, subject to no
lease, mortgage, pledge, lien, charge, security interest,
encumbrance, or restriction whatsoever.
h. Contracts, Permits and Licenses. Pubco is not in breach of
any of its material contracts or agreements and has all material
permits, licenses, franchises and other authorizations necessary for
the conduct its businesses as presently conducted. Pubco has engaged
in no activity which would cause revocation or suspension of any such
permits, licenses, franchises or authorizations and no action or
proceeding looking to or contemplating the revocation or suspension
of any thereof is pending or threatened.
8.
<PAGE>
i. Subsidiaries. Pubco owns directly or indirectly each of
the outstanding shares of capital stock of its subsidiaries, free and
clear of all liens, pledges, security interests, claims or other
encumbrances.
j. Securities Reports. Pubco has timely filed all reports and
other documents required to be filed by it with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933, as
amended, the Exchange Act of 1934, as amended, and applicable state
securities and Blue Sky laws.
k. Litigation. There is no material litigation pending or
threatened against Pubco or its subsidiaries or affecting any of its
properties or assets or the properties or assets of its subsidiaries.
l. Taxes. Pubco has filed all income, sales, franchise and
other tax returns and reports required to be filed by it, accurately
reflecting all taxes owing, and has paid in full or made provision
for all taxes (including penalties and interest thereon) for which it
has liability and there are no actions threatened or pending against
Pubco or its subsidiaries for additional taxes.
Section 16. Representations and Warranties of PSI. PSI represents
and warrants to Aspen that except as set forth in a disclosure letter
(the "PSI Disclosure Letter") to be delivered to Aspen at or prior to the
execution of this Agreement:
a. Existence, Good Standing, Authority. PSI is a corporation
duly incorporated, validly existing and in good standing under the
laws of the State of Delaware.
b. Authorization. This Agreement has been duly adopted by the
Board of Directors of PSI and constitutes its legal and binding
obligation.
c. No Violation. The execution, delivery, performance and
compliance by PSI of this Agreement will not result in the violation
of or be in conflict with or constitute a default under any term or
provision of its Certificate of Incorporation or By-laws, or any
mortgage, indenture, contract, agreement, instrument, judgment,
decree, order, statute, rule or regulation by which it is bound, or
result in the creation of any mortgage, lien, encumbrance, or charge
upon any of its assets or properties.
Section 17. Conditions Precedent. The obligation of Pubco, PSI and
Aspen to complete the Sale and Liquidation is subject to the
satisfaction, on or before the Closing Date, of the following conditions,
and until all of such conditions have been satisfied, (or if waivable,
waived by Pubco, PSI and Aspen), this Agreement may be abandoned by any
party:
a. Stockholder Approval. The stockholders of Aspen and Pubco
must have approved this Agreement by requisite vote.
9.
<PAGE>
b. Absence of Adverse Changes. Except for such changes as are
contemplated by this Agreement, changes in the ordinary course of
Aspen's and Pubco's businesses, and damage, destruction or loss which
is covered by insurance, there shall have been no material adverse
changes in the financial condition of Aspen or Pubco or any of their
respective material subsidiaries.
c. Absence of Suits. No action, suit or proceeding shall have
been instituted or threatened against Aspen or Pubco or any
subidiary, to restrain, prohibit or otherwise challenge the legality
of the Sale and Liquidation or seeking monetary or other damages
should it proceed.
d. Favorable Tax Opinion. Aspen and Pubco shall have received
a favorable opinion of Ernst & Young LLP, in form and substance
satisfactory to Aspen, Pubco and their respective counsel, to the
effect that the acquisition by PSI of all of the assets and
properties of Aspen solely in exchange for Pubco Common Stock and the
assumption by PSI of Aspen's liabilities, including any liabilities
to which Aspen's assets might be subject, will constitute a
reorganization within the meaning of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended (the "Code"); no gain or
loss will be recognized by Aspen upon the transfer of its assets to
PSI in exchange for Pubco Common Stock and the assumption by PSI of
Aspen's liabilities; no gain or loss will be recognized by Pubco or
PSI on the receipt of Aspen's assets in exchange for Pubco Common
Stock and the assumption by PSI of Aspen's liabilities; other than
with respect to cash distributed in lieu of fractional shares, no
gain or loss will be recognized to Aspen's stockholders who receive
Pubco Common Stock on account of their Aspen Common Stock; and the
payment of cash in lieu of fractional share interests will be treated
as if the fractional shares were distributed and then were redeemed
by Pubco.
e. Financial Advisors' Opinions. Each of Pubco and Aspen shall
have received final written opinions of their respective financial
advisors, which are consistent with the preliminary reports made by
such advisors, that from a financial point of view, the sale of
Aspen's assets to Pubco in exchange for Pubco Common Stock in
accordance with the terms of this Agreement is fair to that Company's
stockholders.
Section 18. Waiver of Bulk Sales Requirements by PSI. PSI hereby
waives compliance by Aspen with the provisions of any applicable Bulk
Sales law.
Section 19. Further Assurance. Aspen hereby agrees from time to
time, as and when requested by PSI, to execute and deliver or cause to be
executed and delivered all such deeds and instruments and to take or
cause to be taken such further or other action as PSI may deem necessary
or desirable in order to vest in and confirm to PSI title to and
possession of any property of Aspen acquired or to be acquired by reason
or as a result of this Agreement and otherwise to carry out the intent
10.
<PAGE>
and purposes hereof, and the proper officers and directors of Aspen and
the proper officers and directors of PSI are fully authorized in the name
of PSI, Aspen, or otherwise to take any and all such action.
Section 20. Conduct of Business. Prior to the Closing Date, except
as specifically permitted by this Agreement, unless the other party has
consented in writing, Pubco and Aspen shall use their reasonable best
efforts and shall cause their respective subsidiaries to use their
reasonable best efforts to preserve intact their business organizations
and good will and to conduct their operations according to their usual,
regular and ordinary course in substantially the same manner as
heretofore conducted.
Section 21. Stockholders' Meetings. Aspen will take all action
necessary in accordance with applicable law and its Certificate of
Incorporation and By-Laws to convene a meeting of its stockholders as
promptly as practicable to consider and vote upon the approval of (i) the
sale of all of Aspen's assets to PSI pursuant to the terms of this
Agreement and (ii) the liquidation and dissolution of Aspen.
Pubco will take all action necessary in accordance with applicable law
and its Certificate of Incorporation and By-Laws to convene a meeting of
its stockholders as promptly as practicable to consider and vote upon the
approval of the purchase of all of Aspen's assets by PSI in exchange for
Pubco Common Stock pursuant to the terms of this Agreement.
Section 22. Other Actions. Pubco, PSI and Aspen agree to promptly
make their respective filings and use their respective best efforts to
obtain all approvals, permits or authorizations which are required to be
obtained prior to the Closing Date to carry out the intent and purposes
of this Agreement. Each also agrees to take such other action and
deliver such other documents, both before and after the Closing Date, to
effectuate the consummation of the transactions described in this
Agreement.
Section 23. Expenses. Each of the parties shall bear its own
expenses in connection with this Agreement and the transactions
contemplated hereby whether or not the Sale and Liquidation is
consummated.
Section 24. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be a duplicate
original, but all of which taken together shall be deemed to be a single
instrument.
Section 25. Captions. The captions contained in this Agreement are
included only for convenience of reference and do not define, limit,
explain or modify this Agreement or its interpretation, construction or
meaning and are in no way to be construed as a part of this Agreement.
Section 26. Entire Agreement, Amendments. This Agreement and all
exhibits hereto, the Aspen Disclosure Letter and the Pubco Disclosure
Letter, and any documents delivered by the parties in connection with
11.
<PAGE>
this Agreement, shall constitute the entire agreement between the parties
and supercedes all prior agreements and understandings between the
parites. No modification of this Agreement shall be binding upon any
party unless made in writing and signed by all parties to this Agreement.
Section 27. Binding Effect and Governing Law. This Agreement shall
be binding upon the parties hereto and their respective successors and
assigns and shall be governed by and construed under the laws of the
State of Delaware.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in Cleveland, Ohio, by their duly authorized officers, as of the
date and year first above written.
ASPEN IMAGING INTERNATIONAL, INC.
Attest:
By /s/ William A. Dillingham, Pres.
---------------------------------
William A. Dillingham, President
By /s/ Stephen R. Kalette, Secretary
----------------------------------
Stephen R. Kalette, Secretary
PUBCO CORPORATION
Attest:
By /s/ Robert H. Kanner, President
--------------------------------
Robert H. Kanner, President
By /s/ Stephen R. Kalette, Secretary
----------------------------------
Stephen R. Kalette, Secretary
PSI, INC.
Attest:
By /s/ Robert H. Kanner, President
--------------------------------
Robert H. Kanner, President
By /s/ Stephen R. Kalette, Secretary
----------------------------------
Stephen R. Kalette, Secretary
12.
<PAGE>
Appendix C
MAXUS INVESTMENT GROUP
28601 CHAGRIN BOULEVARD, SUITE 500
CLEVELAND, OHIO 44122
May 1, 1996
Board of Directors
Aspen Imaging International, Inc.
3830 Kelley Avenue
Cleveland, OH 44114
Gentlemen:
We have been retained by you to advise you and to express an opinion as
to the fairness of the transaction of Aspen Imaging International, Inc.
("Aspen" or the "Company") selling its assets, subject to all of its
liabilities, to a subsidiary of Pubco Corporation ("Pubco") in exchange
for Pubco Common Stock. Simultaneous with this transaction, Bobbie
Brooks, Incorporated will merge into Pubco and Bobbie Brooks stockholders
will be receiving Pubco shares as consideration. After all of the
transactions are completed, Brooks and Aspen will no longer exist.
In order to render this opinion, we have done the following:
1. We have reviewed the Proxy Statement prepared to be sent to
shareholders of Brooks, Pubco and Aspen to be dated May 7, 1996.
This document gives full disclosure to the above transactions,
including the rational and historical and proforma information;
2. We have reviewed Aspen's 10-K filings for the years ended
June 30, 1994 and 1995. This document also includes the financial
information for the year ended June 30, 1993;
3. We have reviewed the Company's 10-Q for each quarter in the years
ended June 30, 1994 and 1995 and the quarters ended September 30,
1995 and December 31, 1995;
4. We have reviewed the 10-K's for Bobbie Brooks, Incorporated for the
years ended December 31, 1993 through December 31, 1995;
5. We have reviewed the 10-K's for Pubco Corporation for the years ended
December 31, 1993 through December 31, 1995;
6. We were given the Evaluation Document for Aspen, Brooks and Pubco
prepared by Bruml Capital Corporation and had the opportunity to meet
with them to discuss their methodology and valuation techniques; and
7. We had the opportunity to meet with management of the various
operating companies and discussed the prior financial results and the
prospects of the companies both from an earnings and cash flow
perspective.
<PAGE>
MAXUS INVESTMENT GROUP
Board of Directors
Aspen Imaging International, Inc.
May 1, 1996
Page 2
In preparing our opinion, we relied on the accuracy and the completeness
of all information supplied and made available to us and have not
independently verified the information supplied. We have relied on the
assurance of management of the various entities that they are not aware
of any facts that would make the information provided to us misleading or
incomplete. In addition, we have not made an independent appraisal of
the assets of the various entities.
Maxus Consultants Inc. has no prior investment banking relationship with
Aspen, Brooks or Pubco except for the financial advisory service rendered
to Brooks in connection with the acquisition of Allied Construction
Products, Inc., and in connection with an acquisition that did not
occur. In addition, Mr. Kanner holds a minority position investment in a
business which includes principals who are officers of Maxus Consultants
Inc. and also hold a minority position.
Based on the present economic conditions and the above findings, it is
our opinion that the consideration of one share of Pubco Corporation for
each seven shares of Aspen is fair to the stockholders of Aspen.
If you should have any questions, we would be pleased to meet with you
and discuss our opinion at your convenience.
Very truly yours,
MAXUS CONSULTANTS, INC.
Alan R. Schwartz
President
<PAGE>
Appendix D
LOVEMAN-CURTISS, INC.
3550 LANDER ROAD, SUITE 160
PEPPER PIKE, OHIO 44124
April 30, 1996
FAIRNESS OPINION CONCERNING PUBCO CORPORATION MERGER
Common Stock Shareholders and Board of Directors
Bobbie Brooks, Incorporated
3830 Kelley Avenue
Cleveland, OH 44114
This report is submitted per Loveman-Curtiss, Inc.'s ("LCI"'s) engagement
letter dated January 11, 1996 and signed by Robert H. Kanner, President
of Bobbie Brooks, Incorporated (the "Company") on January 18 which
authorized LCI to express an opinion as to the fairness from a financial
point of view to Company common stockholders of the proposed merger of
the Company with Pubco Corporation via the exchange of six shares of
Company common stock for one share of Pubco Corporation common stock.
FAIRNESS OPINION
The proposed merger transaction is fair from a financial point of view to
the common stockholders of Bobbie Brooks, Incorporated.
LCI reviewed the fairness of the proposed exchange of six Company common
shares for one common share of Pubco Corporation, which owns over 90
percent of the Company's common equity and controls it. The Company has
investments in businesses providing computer printer supplies and
construction products, as well as in non-operating and other
income-producing assets.
LCI obtained information from the Company, its regular SEC filings as
well as those prepared pursuant to the proposed transaction.
As a qualified business appraiser, the signer of this report used his
best efforts to comply with all applicable governmental regulations and
professional business appraisal standards.
The opinion was developed by reviewing the significant transformation of
the Company's business focus which has occurred during the past few years
and by assessing its ownership and capital structure, present financial
condition and the trading market for its common stock.
<PAGE>
LOVEMAN-CURTISS, INC.
Common Stock Shareholders and Board of Directors
Bobbie Brooks, Incorporated
April 30, 1996
Page 2
Another appraiser recommended the proposed transaction terms. This
appraiser's work was reviewed in detail for its reasonableness as well as
its compliance with a quality control checklist. Based on this review,
LCI concurred with the recommended exchange ratio.
In summary, the proposed transaction is fair on a market value basis to
Company shareholders. It offers them a premium on the basis of the
intrinsic value of their shares. It may also provide other real but
non-quantifiable benefits which will increase their upside potential and
reduce their downside risk.
Very truly yours,
Rand M. Curtiss, CBA
Certified Business Appraiser, The Institute of Business Appraisers, Inc.
Candidate Member, Business Valuation, The American Society of Appraisers
President, Loveman-Curtiss, Inc.
<PAGE>
Appendix E
BRUML CAPITAL CORPORATION
OHIO SAVINGS PLAZA, SUITE 720
1801 EAST NINTH STREET
CLEVELAND, OHIO 44114
May 7, 1996
Board of Directors
Pubco Corporation
3830 Kelley Avenue
Cleveland, OH 44114
Gentlemen:
You have asked Bruml Capital Corporation ("BCC") to advise you with
respect to the fairness to the shareholders of Pubco Corporation ("Pubco"
or the "Company"), from a financial point of view, of the consideration
provided to the shareholders of Bobbie Brooks, Incorporated ("Brooks")
and Aspen Imaging International, Inc. ("Aspen") by Pubco in connection
with (1) the merger of Brooks with and into Pubco and (2) the acquisition
by a wholly owned subsidiary of Pubco ("Pubco-Sub") of the assets subject
to the liabilities, of Aspen, in exchange for shares of Pubco Common
Stock.
Pubco and Brooks propose to merge pursuant to the Merger Agreement which
provides for the merger of Brooks with and into Pubco. Upon approval and
filing of the Certificate of Merger with the Secretary of State of
Delaware, Brooks will cease to exist.
Brooks has 4,932,400 outstanding shares of common stock of which Pubco
owns 4,466,640 (90.56%). In addition, Pubco owns both classes of
outstanding preferred stock which have a combined value as of December
31, 1995 of $50,532,000 including accrued dividends. The public
shareholders own 465,760 common shares of Brooks. Upon approval and
filing of the Certificate of Merger with the Secretary of State of
Delaware, each six outstanding shares of Brooks Common Stock will be
canceled and converted into one share of Pubco Common Stock ("Brooks
Exchange Ratio"). Up to 77,627 shares of Pubco Common Stock will be
issued in connection with the Merger Agreement.
Pubco-Sub proposes, pursuant to the Sale Agreement, to acquire all of the
assets, subject to all of the liabilities of Aspen, in exchange for
shares of Pubco Common Stock. The sale of assets to Pubco-Sub would be
followed by the liquidation and dissolution of Aspen. As a result, the
shares of Pubco Common Stock would be distributed by Aspen to its
stockholders and Aspen would cease to exist.
<PAGE>
BRUML CAPITAL CORPORATION
Board of Directors
Pubco Corporation
May 7, 1996
Page 2
Aspen has 3,988,756 outstanding shares of common stock of which Brooks
(Pubco subsequent to the Merger) owns 2,460,188 (61.68%). The public
shareholders own 1,528,568 common shares of Aspen. Aspen would
distribute one share of Pubco Common Stock for each seven shares of
outstanding Aspen Common Stock ("Aspen Exchange Ratio"). Up to 218,367
shares of Pubco Common Stock will be issued in connection with the Sale
Agreement.
You have asked us whether, in our opinion, the consideration to be
provided by Pubco to the Brooks and Aspen shareholders pursuant to the
Merger Agreement and the Sale Agreement is fair to the shareholders of
Pubco, from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
1. Reviewed the Company's annual reports on Form 10-K and related
financial information for the six fiscal years ending December 31,
1990 to 1995;
2. Reviewed the annual reports on Form 10-K and related financial
information for the six fiscal years ending December 31, 1990 to 1995
of Bobbie Brooks, Incorporated, a 90.56% owned subsidiary of Pubco;
3. Reviewed the annual reports on Form 10-K and related financial
information for the five fiscal years ending June 30, 1991 to 1995
and the quarterly Reports on Form 10-Q and the related unaudited
information for each of the first two quarters of the fiscal year
ending June 30, 1996 of Aspen Imaging International, Inc., a 61.68%
owned subsidiary of Brooks;
4. Reviewed various business, financial, and market information with
respect to Buckeye Business Products, Inc. ("Buckeye") and Allied
Construction Products, Inc. ("Allied"), 100% and 85% owned
subsidiaries of Brooks, respectively;
5. Reviewed certain information including financial forecasts and
projections, relating to the business, earnings, cash flow, assets,
and prospects of Pubco, Brooks, Buckeye, Allied, and Aspen furnished
to us by Pubco, Brooks, Buckeye, Allied, and Aspen, respectively;
6. Conducted discussions with senior management of Pubco, Brooks,
Buckeye, Allied, and Aspen concerning their respective businesses and
prospects;
7. Reviewed the historical market prices and trading activity for the
common shares of Pubco, Brooks, and Aspen.
<PAGE>
BRUML CAPITAL CORPORATION
Board of Directors
Pubco Corporation
May 7, 1996
Page 3
8. Compared the results of operations of Buckeye, Allied, and Aspen with
those of certain companies which we deemed to be reasonably similar
to Buckeye, Allied, and Aspen, respectively;
9. Reviewed the Proxy Statement/Information Statement-Prospectus, dated
May 7, 1996;
10. Reviewed such other financial studies and analyses and performed such
other investigations and took into account such matters as we deemed
necessary.
In preparing our opinion we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by Pubco,
Brooks, Buckeye, Allied, and Aspen, have not independently verified the
same, and have relied upon the assurance of management of Pubco, Brooks,
Buckeye, Allied, and Aspen that they are unaware of any facts that would
make the information provided to us incomplete or misleading. Moreover,
we have not undertaken an independent appraisal of the assets of Pubco,
Brooks, Allied, or Aspen.
BCC has no financial interest in Pubco, Brooks, Buckeye, Allied, or Aspen
other than its engagement by Pubco with respect to the performance of its
services described in this letter. Bruml Capital Corporation has in the
past provided, and continues to provide on an ongoing basis, financial
consulting services to Pubco. Mr. Robert Kanner, Chairman, Chief
Executive Officer, President, and Treasurer of Pubco, holds an interest
in a business in which officers and shareholders of BCC hold interests
and act as principals.
Based on, and subject to the foregoing, as well as the general economic
conditions and the industries in which Pubco, Brooks, Buckeye, Allied,
and Aspen participate, we are of the opinion that the consideration to be
provided by Pubco to the Brooks and Aspen shareholders pursuant to the
Merger Agreement and the Sale Agreement is fair to the shareholders of
Pubco, from a financial point of view.
Very truly yours,
BRUML CAPITAL CORPORATION
<PAGE>
Appendix F
ERNST & YOUNG LLP
ONE CASCADE PLAZA
AKRON, OH 44308
May 7, 1996
Pubco Corporation
Bobbie Brooks, Incorporated
Aspen Imaging International, Inc.
Those Directors and Officers
Specified on pages 58, 62, and 65 of the Notice of
Special Meeting of Stockholders dated as of May 7, 1996
3830 Kelley Avenue
Cleveland, Ohio 44114
Dear Sir or Madam:
This letter sets forth our opinion concerning certain Federal income tax
consequences which would arise from consummation of the statutory merger
of Bobbie Brooks, Incorporated ("Brooks") with and into Pubco Corporation
(the "Merger"), and the sale of assets by Aspen Imaging International,
Inc. ("Aspen") to PSI, Inc. ("PSI") (the "Sale and Liquidation"). The
transactions are to occur on or about June 30, 1996.
In rendering this opinion, we have relied upon the facts, summarized
below, as they have been presented to us in the following documents (the
"Documents"):
1. The Notice of Special Meeting of Stockholders provided by the
management of Pubco Corporation ("Pubco") dated May 7, 1996, provided
by the management of Aspen dated May 7, 1996, and provided by the
management of Brooks dated May 7, 1996.
2. The Proxy Statement/Information Statement-Prospectus of Pubco, Aspen
and Brooks, dated May 7, 1996.
3. The Merger Agreement of Pubco and Brooks dated April 26, 1996
("Merger Agreement").
4. The Sale and Liquidation Agreement of Pubco, PSI and Aspen dated
April 26, 1996 ("Sale and Liquidation Agreement").
5. The Statement of Representations dated May 1, 1996 from the
management of Pubco, Brooks, Aspen and PSI with respect to the Merger
and the Sale and Liquidation ("Management Representations").
<PAGE>
ERNST & YOUNG LLP
Pubco Corporation
Bobbie Brooks, Incorporated
Aspen Imaging International, Inc.
Those Directors and Officers
Specified on pages 58, 62, and 65 of the Notice of
Special Meeting of Stockholders dated as of May 7, 1996
May 7, 1996
Page 2
You have represented to us that the facts contained in the Documents
provide an accurate and complete description of the facts and
circumstances concerning the proposed transaction. We have made no
independent determination regarding such facts and circumstances and,
therefore, have relied upon the Documents for purposes of this letter.
Any changes to the Documents may affect the conclusions stated herein.
We understand that you will include a reference to Ernst & Young LLP and
our opinion in the final Proxy Statement-Prospectus. We consent to such
reference in the final Proxy Statement-Prospectus under the caption
"Federal Income Tax Consequences". We also understand that this letter
will be Appendix F to the Proxy Statment-Prospectus. We consent to such
inclusion.
Based solely on the Documents, it is our opinion that the following
Federal income tax consequences should result with respect to the Merger:
(1) Provided that the proposed merger of Brooks with and into Pubco
qualifies as a statutory merger under the applicable Delaware laws,
such merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A) of the Code. Brooks and Pubco will each be a
"party to a reorganization" within the meaning of Section 368(b) of
the Code.
(2) No gain or loss will be recognized to the minority shareholders of
Brooks upon the exchange of their Brooks Common Stock solely for
the Pubco Common Stock (Section 354(a)(1)).
(3) The basis of the Pubco Common Stock to be received by the minority
shareholders of Brooks will be the same as the basis of the Brooks
Common Stock surrendered in exchange therefor (Section 358(a)(1)).
(4) The holding period of the Pubco Common Stock to be received by the
minority shareholders of Brooks will include the holding period of
the Brooks Common Stock exchanged therefor, provided that the
exchanged stock was held as a capital asset on the date of the
exchange (Section 1223(1)).
<PAGE>
ERNST & YOUNG LLP
Pubco Corporation
Bobbie Brooks, Incorporated
Aspen Imaging International, Inc.
Those Directors and Officers
Specified on pages 58, 62, and 65 of the Notice of
Special Meeting of Stockholders dated as of May 7, 1996
May 7, 1996
Page 3
(5) When cash is received by exchanging shareholders of Brooks in lieu
of fractional shares of Pubco Common Stock, the cash will be
treated as received by the shareholder of Brooks as a distribution
in redemption of the fractional share interest, subject to the
provisions and limitations of Section 302 of the Code (Rev. Rul.
66-365, 1966-2 C.B. 116).
(6) The Merger will also qualify as a liquidation described in Section
332 of the Code. No gain or loss will be recognized by Pubco on
the receipt of the property of Brooks in the Merger (Section
332(a)).
(7) No gain or loss will be recognized to Brooks upon the transfer of
its assets to Pubco in the Merger (Sections 337(a) and 361(a)).
(8) The basis of the assets of Brooks to be acquired by Pubco will be
the same as the basis of such assets in the hands of Brooks
immediately prior to the Merger. (Sections 334(b)(1) and 362(a)).
(9) The holding period of the assets of Brooks to be received by Pubco
will include the period during which the assets were held by Brooks
(Section 1223(2)).
(10) As provided by Section 381(c)(2) of the Code and Section
1.381(c)(2)-1 of the Regulations, Pubco will succeed to and take
into account the earnings and profits, or deficit in earnings and
profits, of Brooks as of the date or dates of the transfer. Any
deficit in earnings and profits of Brooks will be used only to
offset earnings and profits accumulated after the date or dates of
transfer.
Based solely on the Documents, it is our opinion that the following
Federal income tax consequences should result with respect to the Sale
and Liquidation:
<PAGE>
ERNST & YOUNG LLP
Pubco Corporation
Bobbie Brooks, Incorporated
Aspen Imaging International, Inc.
Those Directors and Officers
Specified on pages 58, 62, and 65 of the Notice of
Special Meeting of Stockholders dated as of May 7, 1996
May 7, 1996
Page 4
(1) The acquisition by PSI of substantially all of the assets held by
Aspen immediately preceding the transfer solely in exchange for
shares of Pubco voting Common Stock and the assumption by PSI of
the liabilities of Aspen plus the liabilities to which Aspen's
assets may be subject, as described above, will constitute a
reorganization within the meaning of Section 368(a)(1)(C) of the
Code. For purposes of this opinion, "substantially all" means at
least 90 percent of the fair market value of the net assets and at
least 70 percent of the fair market value of the gross assets of
Aspen immediately preceding the transfer. Pubco, PSI, and Aspen
will each be a "party to a reorganization" within the meaning of
Section 368(b).
(2) No gain or loss will be recognized by Aspen upon the transfer of
substantially all of its assets to PSI in exchange for shares of
Pubco voting Common Stock and the assumption of the liabilities of
Aspen by PSI (Sections 361(a) and 357(a)).
(3) No gain or loss will be recognized by Pubco or PSI on the receipt
of the assets of Aspen by PSI in exchange for Pubco stock and the
assumption of the liabilities of Aspen by PSI (Section 1032;
Regulation Section 1.1032-2).
(4) The basis of the respective assets of Aspen in the hands of PSI
will be the same as the basis of those assets in the hands of Aspen
immediately prior to the proposed transaction (Section 362(b)).
(5) The holding period of the assets of Aspen in the hands of PSI will
include the period during which such assets were held by Aspen
(Section 1223(2)).
(6) No gain or loss will be recognized to the Aspen shareholders who
receive solely shares of Pubco voting Common Stock in exchange for
Aspen stock (Section 354(a)(1)).
<PAGE>
ERNST & YOUNG LLP
Pubco Corporation
Bobbie Brooks, Incorporated
Aspen Imaging International, Inc.
Those Directors and Officers
Specified on pages 58, 62, and 65 of the Notice of
Special Meeting of Stockholders dated as of May 7, 1996
May 7, 1996
Page 5
(7) The basis of the Pubco voting Common Stock to be received by the
Aspen shareholders will be the same as the basis of the Aspen stock
surrendered in exchange therefor (Section 358(a)(1)).
(8) The holding period of the Pubco voting Common Stock to be received
by Aspen shareholders will include the period during which the
Aspen stock surrendered in exchange therefor was held, provided the
Aspen stock is held as a capital asset on the date of the exchange
(Section 1223(1)).
(9) As provided by Section 381(c)(2) of the Code and Section
1.381(c)(2)-1 of the Regulations, PSI will succeed to and take into
account the earnings and profits or deficit in earnings and profits
of Aspen as of the date of the proposed transaction. Any deficit
in earnings and profits of PSI or Aspen will be used only to offset
earnings and profits accumulated after the date of the transfer.
(10) The payment of cash in lieu of fractional share interests in Pubco
voting Common Stock will be treated as if the fractional shares
were distributed as part of the exchange and then were redeemed by
Pubco. These cash payments will be treated as having been received
as distributions in full payment in exchange for the stock redeemed
as provided in Section 302(a) (Rev. Proc. 77-41, 1977-2 C.B. 574;
Rev. Rul. 66-365, 1966-2 C.B. 116).
(11) The basis of the PSI Common Stock in the hands of Pubco immediately
before the reorganization will be increased by the bases of the
assets of Aspen to be transferred to PSI, and decreased by the sum
of the liabilities of Aspen that are assumed by PSI plus the amount
of liabilities, if any, to which the assets of Aspen are subject.
(Regulation Section 1.358-6).
<PAGE>
ERNST & YOUNG LLP
Pubco Corporation
Bobbie Brooks, Incorporated
Aspen Imaging International, Inc.
Those Directors and Officers
Specified on pages 58, 62, and 65 of the Notice of
Special Meeting of Stockholders dated as of May 7, 1996
May 7, 1996
Page 6
SCOPE OF OPINION
The scope of this opinion is expressly limited to the Federal income tax
issues specifically addressed herein. Our opinion is being furnished to
the addressees and is solely for their benefit. This opinion may not be
relied upon by any other person or used for any other purpose without our
written consent. We have made no determination nor expressed any opinion
as to any limitations, including those which may be imposed under Section
382, on the availability of net operating loss carryovers (or built-in
losses), if any, after the Merger, the application (if any) of the
alternative minimum tax to this transaction, or on any consolidated
return or employee benefit issues which may arise as a result of the
Merger and Sale and Liquidation. We have made no determination nor
expressed any opinion as to the fair market value of any of the assets
being transferred in the transactions nor the common shares being
exchanged in the transactions. Furthermore, our opinion has not been
requested, and none is expressed, with respect to any foreign, state or
local tax consequences to Pubco, Brooks, Aspen, or PSI or their
respective shareholders.
Our opinion, as stated above, is based upon the analysis of the Code, the
Regulations thereunder, current case law, and published rulings. The
foregoing are subject to change, and such change may be retroactively
effective. If so, our views, as set forth above, may be affected and may
not be relied upon. Further, any variation or differences in the facts
or representations recited herein, for any reason, might affect our
conclusions, perhaps in an adverse manner, and make them inapplicable.
In addition, we have undertaken no obligation to update this opinion for
changes in facts or law occurring subsequent to the date thereof.
This letter is an opinion of our firm as to the interpretation of
existing law and, as such, is not binding on the Service or the courts.
Very truly yours,
ERNST & YOUNG LLP
<PAGE>
PROXY
ASPEN IMAGING INTERNATIONAL, INC.
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Stephen R. Kalette with the power to
appoint his substitute, and hereby authorizes him to represent and to vote as
designated below, all the shares of Common Stock of Aspen Imaging
International, Inc. (the "Company") held of record by the undersigned on May
6, 1996 at the Special Meeting of Stockholders to be held on June 27, 1996, or
any adjournment thereof.
1. The proposal to approve the Sale of all of the assets of the Company to a
subsidiary of Pubco Corporation in exchange for Common Stock of Pubco
Corporation pursuant to Section 271 of the Delaware General Corporation
Law.
/ / FOR / / AGAINST / / ABSTAIN
2. The proposal to liquidate and dissolve the Company in the event the sale
referred to in Proposal 1 is consummated.
/ / FOR / / AGAINST / / ABSTAIN
3. To transact such other business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1 AND FOR PROPOSAL 2.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING IN
ACCORDANCE WITH THE STOCKHOLDER'S SPECIFICATIONS ABOVE. THIS PROXY CONFERS
DISCRETIONARY AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE
TIME OF THE MAILING OF THE NOTICE OF THE SPECIAL MEETING OF STOCKHOLDERS TO
THE UNDERSIGNED.
The undersigned also hereby acknowledges receipt of the Notice of Special
Meeting of Stockholders, Proxy Statement/Information Statement-Prospectus.
Dated: , 1996
--------------------------------
--------------------------------
--------------------------------
Signature(s) of Stockholder(s)
Signature(s) should agree with the name(s)
stenciled hereon. Executors, administrators,
trustees, guardians and attorneys should so
indicate when signing. Attorneys should submit
powers of attorney.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ASPEN
IMAGING INTERNATIONAL, INC. PLEASE SIGN AND RETURN THIS PROXY IN THE ENCLOSED
PRE-ADDRESSED ENVELOPE. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO
VOTE IN PERSON IF YOU ATTEND THE MEETING.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Article 11 of the Registrant's Certificate of Incorporation reads as
follows:
"SECTION 1
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which
the director derived any improper personal benefit. If the Delaware
General Corporation Law is amended after approval by the stockholders of
this article to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a
director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such
repeal or modification.
SECTION 2
(a) Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he
or she is or was a director, officer or employee of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to
employee benefit plans (hereinafter an "indemnitee"), whether the basis
of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while
serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the corporation to the fullest extent authorized by
the Delaware General Corporation Law, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the corporation to provide broader
indemnification rights than such law permitted the corporation to provide
prior to such amendment), against all expense, liability and loss
<PAGE>
(including attorney's fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered
by such indemnitee in connection therewith and such indemnification shall
continue as to an indemnitee who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the indemnitee's
heirs, executors and administrators; provided, however, that, except as
provided in paragraph (b) hereof with respect to proceedings to enforce
rights to indemnification, the corporation shall indemnify any such
indemnitee in connnection with a proceeding (or part thereof) initiated
by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the corporation. The right to
indemnification conferred in this Section shall be a contract right and
shall include the right to be paid by the corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided,
however, that, if the Delaware General Corporation Law requires, an
advancement of expenses incurred by an indemnitee in his or her capacity
as a director or officer (and not in any other capacity in which service
was or is rendered by such indemnitee, including without limitation,
service to an employee benefit plan) shall be made only upon delivery to
the corporation of an undertaking, by or on behalf of such indemnitee, to
repay all amounts so advanced if it shall ultimately be determined by
final judicial decision from which there is no further right to appeal
that such indemnitee is not entitled to be indemnified for such expenses
under this Section or otherwise (hereinafter an "undertaking").
(b) Right of Indemnitee to Bring Suit. If a claim under paragraph
(a) of this Section is not paid in full by the corporation within sixty
days after a written claim has been received by the corporation, except
in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty days, the indemnitee may at any time
thereafter bring suit against the corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such suit
or in a suit brought by the corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such
suit. In (i) any suit brought by the indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) it shall be a defense
that, and (ii) any suit by the corporation to recover an advancement of
expenses pursuant to the terms of an undertaking the corporation shall be
entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met the applicable standard of conduct set forth in
the Delaware General Corporation Law. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel,
or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the Delaware General Corporation Law,
nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the
indemnitee has not met such applicable standard of conduct, shall create
2.
<PAGE>
a presumption that the indemnitee has not met the applicable standard of
conduct or, in the case of such a suit brought by the indemnitee, be a
defense to such suit. In any suit brought by the indemnitee to enforce a
right hereunder, or by the corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving
that the indemnitee is not entitled to be indemnified or to such
advancement of expenses under this Section or otherwise shall be on the
corporation.
(c) Non-Exclusivity of Rights. The rights to indemnification and to
the advancement of expenses conferred in this Section shall not be
exclusive of any other right which any person may have or hereafter
acquire under any statute, this Certificate of Incorporation, by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
(d) Insurance. The corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent
of the corporation or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether
or not the corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General
Corporation Law.
(e) Indemnification of Agents of the Corporation. The corporation
may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of
expenses, to any agent of the corporation to the fullest extent of the
provisions of this Section with respect to the indemnification and
advancement of expenses of directors, officers and employees of the
corporation."
The effect of Section 1 is to eliminate the liability of Directors
for the breach of their fiduciary duty of care. This provision will
absolve a Director for negligence and gross negligence and might protect
a Director from reckless acts. This provision does not eliminate or
limit a Director's liability for breach of the duty of loyalty, for acts
not in good faith, for intentional misconduct, for knowing violation of
law, for willful or negligent conduct in paying dividends or repurchasing
stock out of other than lawfully available funds or for any transaction
from which the Director derives an improper personal benefit.
Section 2 along with the Delaware General Corporation Law provides
indemnification of officers, directors, employees or agents for
attorneys' fees and other expenses as well as judgments or amounts paid
in settlement in civil cases. The person seeking indemnification must
have acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation. In criminal
cases, the indemnitee is indemnified for fines and costs provided that,
in addition to the foregoing standard of conduct, he did not have
reasonable cause to believe his conduct was unlawful. These provisions
also provide for advancement of expenses of officers and directors in
defending lawsuits. These indemnification provisions are contractual in
nature and require the corporation to indemnify an officer or director
when the applicable standards of conduct are met.
3.
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits. A list of exhibits included as part of this
Registration Statement is set forth in the Exhibit Index which
immediately precedes such exhibits and is hereby incorporated by
reference herein.
(b) Financial Statement Schedules. Schedules have been omitted since
the required information is not present, or not present in amounts
sufficient to require submission of the schedule, or because the
information is included in the financial statements or notes thereto.
Item 22. Undertakings
The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business
day of receipt of such request and to send the incorporated documents by
first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date
of the registration statement through the date of responding to the
request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
4.
<PAGE>
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
5.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly casued this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Cleveland, State of Ohio, on the 29th day of April, 1996.
PUBCO CORPORATION
By: /s/ Robert H. Kanner
------------------------------------
Robert H. Kanner,
President, Chief Executive Officer,
Chief Financial Officer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert H. Kanner and Stephen R.
Kalette, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact, agent or
their substitute, may lawfully do, or cause to be done, by virtue
hereof. This Power of Attorney may be signed in multiple identical
counterparts, all of which taken together shall constitute a single
document.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
/s/ Robert H. Kanner President, Chief Executive April 29, 1996
- ---------------------- Officer, Chief Financial
Robert H. Kanner Officer and Director
/s/ Stanley R. Browne Director April 29, 1996
- -----------------------
Stanley R. Browne
/s/ Stephen R. Kalette Director April 29, 1996
- ------------------------
Stephen R. Kalette
6.
<PAGE>
EXHIBIT INDEX
Where bracketed references [] appear, the document is incorporated by
reference to the prior filing.
Exhibit
No. Description
2.1 Merger Agreement [Included as Appendix A in the
Prospectus forming a part of this Registration
Statement].
2.2 Sale Agreement [Included as Appendix B in the
Prospectus forming a part of this Registration
Statement].
3.1 Certificate of Incorporation of Pubco, as amended
[Form 10-K for year ended December 31, 1987,
Exhibit 3.1 and Information Statement dated June
27, 1990 for August 14, 1990 Annual Meeting of
Stockholders, Appendix I].
3.2 By-Laws of Pubco, as amended [Form 10-K for year
ended December 31, 1986, Exhibit 3.2(a)].
4.1 Specimen Certificate of Security Being Registered.
4.5 Rights Agreement dated as of March 19, 1987
between Pubco and American Stock Transfer
Company, as Successor Rights Agent, as amended
[Form 10-K for year ended December 31, 1987,
Exhibit 4.5].
5.1 Opinion of Stephen R. Kalette, Esq. on legality
of Securities being registered.
8.1 Opinion of Ernst & Young LLP on tax matters
[Included as Appendix F in the Prospectus forming
a part of this Registration Statement].
10.1 Security Agreement dated February 24, 1986
between Bobbie Brooks, Incorporated and
AmeriTrust Company National Association, as
amended [Bobbie Brooks, Incorporated Form 10-K
for year ended December 31, 1987, Exhibit 10.10].
10.3 Term Note Agreement dated August 2, 1988 between
Buxton & Skinner Printing Company and AmeriTrust
Company National Association, as amended [Bobbie
Brooks, Incorporated Form 10-K for year ended
December 31, 1988, Exhibit 10.3].
<PAGE>
Exhibit
No. Description
10.5 Security Agreements dated August 2, 1988 between
Buxton & Skinner Printing Company and AmeriTrust
Company National Association [Bobbie Brooks,
Incorporated Form 10-K for year ended December
31, 1988, Exhibit 10.5].
10.13 Lease dated April 18, 1986 by and between Pubco
Corporation and Kelley Avenue Partnership, as
amended [Form 10-K for year ended December 31,
1987, Exhibit 10.14].
10.14 Lease Agreement dated November 29, 1985 between
Bobbie Brooks, Incorporated and Kelley Avenue
Partnership, as amended [Bobbie Brooks,
Incorporated Form 10-K for year ended December
31, 1988, Exhibit 10.12].
10.18 Term Note Agreement dated April 26, 1989 between
Buxton & Skinner Printing Company and AmeriTrust
Comany National Association [Bobbie Brooks,
Incorporated Form 10-K for year ended December
31, 1989, Exhibit 10.16].
10.19 Credit Facility and Security Agreement dated
March 1, 1993 between Allied Construction
Products, Inc. and Society National Bank [Form
10-K for year ended December 31, 1993, Exhibit
10.19].
10.20 Amendments to Credit Facility and Security
Agreement dated March 1, 1993 between Allied
Construction Products, Inc. and Society National
Bank [Form 10-K for year ended December 31, 1994,
Exhibit 10.20].
10.21 June 30, 1995 (Fifth) Amendment to Credit
Facility and Security Agreement dated March 1,
1993 between Allied Construction Products, Inc.
and Society National Bank. [Form 10-K for year
ended December 31, 1995, Exhibit 10.21].
21 Subsidiaries of the Registrant. [Form 10-K for
year ended December 31, 1995, Exhibit 21].
23.1 Consent of Ernst & Young LLP.
<PAGE>
Exhibit
No. Description
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Ernst & Young LLP [Included as part of
Exhibit 8.1].
23.4 Consent of Stephen R. Kalette, Esq. [Included as
part of Exhibit 5.1].
<PAGE>
EXHIBIT 4.1
Sample of Common Stock Certificate
[Symbol of an Eagle]
NUMBER SHARES
RP
COMMON STOCK
PUBCO CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 744378 60 5
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES that
SAMPLE
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK
PAR VALUE $.01 PER SHARE OF
PUBCO CORPORATION
(herein called the "Corporation") transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this certificate properly endorsed. This certificate
and the shares represented hereby are subject to all of the terms,
conditions and limitations of the Certificate of Incorporation and all
amendments thereto and the By-laws of the Corporation, to all of which
the holder of this certificate assents by acceptance hereof. This
certificate is not valid unless countersigned by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
PUBCO CORPORATION
Corporate
Seal
Delaware
/s/ Stephen R. Kalette /s/ Robert H. Kanner
- ----------------------- ---------------------
SECRETARY PRESIDENT AND C.E.O.
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
(New York, N.Y.)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants, with right of under Uniform Gifts to Minors
survivorship and not as tenants Act
in common --------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign and transfer unto
-----------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------------------------------------------------
(PLEASE PRINT OR TYPE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ----------------------------------------------------------------------- Shares
of the capital stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
-------------------------------------------
- -------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-------------------------------------
X
----------------------------------------------------------
NOTICE: The Signature to this assignment must correspond
with the name as written upon the face of the Certificate in
every particular, without alteration or enlargement, or any
change whatever.
<PAGE>
Exhibit 5.1
PUBCO CORPORATION
3830 Kelley Avenue
Cleveland, Ohio 44114
(216) 881-5300 x 3200
FAX (216) 881-8380
April 29, 1996
Board of Directors
Pubco Corporation
3830 Kelley Avenue
Cleveland, Ohio 44114
Re: Pubco Corporation
Registration Statement on Form S-4
Gentlemen:
Pubco Corporation, a Delaware corporation (the "Company"), is filing with
the Securities and Exchange Commission under the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder, a
Registration Statement (the "Registration Statement") on Form S-4
relating to 295,994 shares of the Company's Common Stock, par value $.01
per share (the "Securities"). The Securities are being registered in
connection with (a) a proposed merger of Bobbie Brooks, Incorporated, a
Delaware Corporation ("Brooks"), into the Company pursuant to an Agreement
and Plan of Merger (the "Merger Agreement") between the Company and
Brooks under which Brooks stockholders will receive one share of the
Company's Common Stock in exchange for each six shares of Brooks Common
Stock owned by them, and (b) the purchase pursuant to Section 271 of the
Delaware General Corporation Law, by PSI, Inc., a wholly-owned subsidiary
of the Company ("PSI"), of substantially all of the assets of Aspen
Imaging International, Inc., a Delaware corporation ("Aspen"), in
exchange for Common Stock of the Company and the assumption of
substantially all of the liabilities of Aspen by such subsidiary promptly
followed by the liquidation of Aspen, the distribution to Aspen
stockholders of one share of the Company's Common Stock for each seven
shares of Aspen Common Stock owned by them, and the dissolution of
Aspen. Fractional shares of the Company's Common Stock will not be
issued in either transaction. Rather, Brooks and Aspen Stockholders who
would otherwise be entitled to receive a fraction of a share will instead
receive cash.
In connection with the foregoing, you have requested that I, in my
capacity as General Counsel to the Company, furnish my opinion with
respect to the Securities. In this connection, I have reviewed:
<PAGE>
Board of Directors
Pubco Corporation
April 29, 1996
Page 2
(a) The Registration Statement, including the Joint Proxy Statement/
Information Statement-Prospectus contained therein;
(b) The Certificate of Incorporation and the By-Laws of the Company,
Brooks and Aspen; and
(c) Such other documents and instruments as I have deemed necessary
in connection with rendering this opinion.
Based on the foregoing, I am of the opinion that the Securities, when
issued in the manner described in the Registration Statement, upon the
merger of Brooks and upon the purchase by PSI of the assets of Aspen,
will be legally issued, fully paid and non-assessable.
I hereby consent to the use of my name in the Registration Statement and
Joint Proxy Statement/Information Statement-Prospectus, as the same
appears in the caption "Legal Matters" therein, and to the use of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
Stephen R. Kalette
General Counsel
<PAGE>
Exhibit 23.1
ERNST & YOUNG LLP
ONE CASCADE PLAZA
AKRON, OH 44308
Independent Auditors' Consent
We consent to the reference to our firm under the caption "Experts" and
to the use of our reports dated March 8, 1996 with respect to the
consolidated financial statements of Pubco Corporation and Bobbie Brooks,
Incorporated, and our report dated September 8, 1995 with respect to the
consolidated financial statements of Aspen Imaging International, Inc.,
included in the Proxy Statement/Information Statement-Prospectus of Pubco
Corporation that is made a part of the Registration Statement (Form S-4,
No. 333-00000) and related Prospectus of Pubco Corporation for the
registration of 295,994 shares of its common stock.
Ernst & Young LLP
Akron, Ohio
April 17, 1996
<PAGE>
Exhibit 23.2
DELOITTE & TOUCHE LLP
555 17TH STREET, SUITE 3600
DENVER, CO 80202
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Pubco Corporation
on Form S-4 of our report dated September 24, 1993 relating to the
financial statements of Aspen Imaging International, Inc. and
subsidiaries, appearing in the Proxy Statement/Information
Statement-Prospectus, which is a part of this Registration Statement, and
to the reference to us under the heading "Experts" in such Proxy
Statement/Information Statement-Prospectus.
DELOITTE & TOUCHE LLP
April 18, 1996
Denver, Colorado
