<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 4, 1996
REGISTRATION NO. 33-64473
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HERITAGE MEDIA CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
7319
4832
IOWA 4833 42-1299303
(State of (Primary Standard Industrial (I.R.S. employer
incorporation)
Classification Code) identification number)
</TABLE>
ONE GALLERIA TOWER
13355 NOEL ROAD, SUITE 1500
DALLAS, TEXAS 75240
214-702-7380
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
DAVID N. WALTHALL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HERITAGE MEDIA CORPORATION
ONE GALLERIA TOWER
13355 NOEL ROAD, SUITE 1500
DALLAS, TEXAS 75240
214-702-7380
(Name, address including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
BRUCE H. HALLETT, ESQ. WILLIAM F. WYNNE, JR., ESQ.
Crouch & Hallett, L.L.P. White & Case
717 N. Harwood St., Suite 1400 1155 Avenue of the Americas
Dallas, Texas 75201 New York, New York 10036
214-953-0053 212-819-8752
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
UPON THE CONSUMMATION OF THE MERGER REFERRED TO HEREIN.
------------------------
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. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Class A Common Stock,
$.01 par value............... 1,667,517 $26.81 $44,706,104 $15,416
</TABLE>
(1) Estimated solely for purposes of calculating the amount of the registration
fee pursuant to the provisions of Rule 457(f) under the Securities Act of
1933, as amended, based on the average of the high and low prices of the
common stock of DIMAC Corporation on November 17, 1995 as reported on the
American Stock Exchange, Inc.
------------------------
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>
HERITAGE MEDIA CORPORATION
CROSS-REFERENCE SHEET FOR REGISTRATION STATEMENT ON FORM S-4
<TABLE>
<CAPTION>
ITEM OF FORM S-4 PROSPECTUS CAPTION OR LOCATION
- ------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................... Facing Page of Registration Statement; Outside Front
Cover Page of Proxy Statement/ Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover Page of Proxy Statement/ Prospectus;
Available Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................ Inside Front Cover Page of Proxy Statement/ Prospectus;
Summary of Proxy Statement/ Prospectus; Appraisal
Rights of Dissenting Stockholders
4. Terms of the Transaction.......................... Summary of Proxy Statement/Prospectus; The Merger
5. Pro Forma Financial Information................... Pro Forma Financial Information
6. Material Contacts with the Company Being
Acquired......................................... Summary of Proxy Statement/ Prospectus; The Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters.... Not Applicable
8. Interests of Named Experts and Counsel............ Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants....... Documents Incorporated by Reference
11. Incorporation of Certain Information by
Reference........................................ Documents Incorporated by Reference
12. Information with Respect to S-2 or S-3
Registrants...................................... Not Applicable
13. Incorporation of Certain Information by
Reference........................................ Documents Incorporated by Reference
14. Information with Respect to Registrants Other than
S-3 or S-2 Registrants........................... Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies......... Documents Incorporated by Reference
16. Information with Respect to S-2 or S-3
Companies........................................ Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM S-4 PROSPECTUS CAPTION OR LOCATION
- ------------------------------------------------------------- --------------------------------------------------------
17. Information with Respect to Companies Other than
S-3 or S-2 Companies............................. Not Applicable
<C> <S> <C>
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
are to be Solicited.............................. Summary of Proxy Statement/Prospectus; Special Meeting
of DIMAC; The Merger; Appraisal Rights of Dissenting
Stockholders
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange
Offer............................................ Not Applicable
</TABLE>
<PAGE>
[DIMAC CORPORATION LETTERHEAD]
January , 1996
Dear Stockholder:
You are cordially invited to attend the Special Meeting of the stockholders
of DIMAC Corporation to be held at The Ritz-Carlton St. Louis, 100 Carondelet
Plaza, St. Louis, Missouri on February , 1996 at 10:00 a.m. (local time).
At this important meeting, you will be asked to consider and vote upon a
proposed merger of Arch Acquisition Corp., a wholly owned subsidiary of Heritage
Media Corporation, into DIMAC. In the proposed merger, DIMAC will become a
wholly owned subsidiary of Heritage and holders of DIMAC common stock will be
entitled to receive $28.00 in cash for each share of DIMAC common stock owned
(the "Merger Consideration"); provided that, at its option, Arch Acquisition
Corp. may elect, in its sole discretion to pay up to $7.00 of the Merger
Consideration in shares of the Class A Common Stock of Heritage. The common
stock of Heritage is listed on the American Stock Exchange. In the event that
Arch Acquisition Corp. elects to pay a portion of the Merger Consideration in
shares of the common stock of Heritage, the number of shares paid will be
determined by dividing (i) the portion of the Merger Consideration to be paid in
the common stock of Heritage by (ii) the average closing prices of the common
stock of Heritage, as reported on the American Stock Exchange as published by
The Wall Street Journal for the ten trading days ending on and including the
third trading day preceding, but not including, the effective date of the
merger.
The enclosed Proxy Statement/Prospectus provides a detailed description of
the matters to be considered at the Special Meeting and extensive information
concerning DIMAC and Heritage. Please carefully review and consider all of this
information.
After careful consideration, your Board of Directors has unanimously
approved the merger and unanimously recommends that you vote FOR the proposal
presented at the Special Meeting.
It is important that your shares be present at the Special Meeting,
regardless of the number you hold. Therefore, please sign, date and return your
proxy card as soon as possible, whether or not you plan to attend. This will not
prevent you from voting your shares in person if you subsequently choose to
attend.
As soon as practicable after the effectiveness of the merger we will send
you instructions for surrendering your DIMAC share certificates in exchange for
the Merger Consideration and a letter of transmittal to be used for this
purpose. You should not submit your share certificates for exchange until you
have received such instructions and the letter of transmittal.
Sincerely yours,
/s/ MICHAEL T. MCSWEENEY
--------------------------------------
Michael T. McSweeney
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
<PAGE>
DIMAC CORPORATION
One Corporate Woods Drive
Bridgeton, Missouri 63044
(314) 344-8000
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY , 1996
---------------------
To the Holders of the Common Stock
of DIMAC Corporation
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of DIMAC Corporation, a Delaware corporation ("DIMAC"), has been
called by the Board of Directors of DIMAC and will be held at The Ritz-Carlton
St. Louis, 100 Carondelet Plaza, St. Louis, Missouri on February , 1996 at
10:00 a.m. (local time) for the following purposes:
I. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated October 23, 1995, among Heritage Media
Corporation ("Heritage"), an Iowa corporation, Arch Acquisition Corp. (the
"Heritage Subsidiary"), a Delaware corporation and a wholly owned subsidiary
of Heritage, and DIMAC, a copy of which is attached as Appendix A to the
Proxy Statement/Prospectus accompanying this Notice, pursuant to which (i)
the Heritage Subsidiary will be merged into DIMAC and (ii) each share of
Common Stock of DIMAC, par value $.01 per share, will be converted
automatically into the right to receive $28.00 per share in cash (the
"Merger Consideration"); provided that, at its option, the Heritage
Subsidiary may elect, in its sole discretion, to pay up to $7.00 (the "Stock
Portion") of the Merger Consideration in shares of the Class A Common Stock,
par value $.01 per share of Heritage ("Heritage Common Stock"). In the event
that Heritage Subsidiary elects to pay a portion of the Merger Consideration
in shares of Heritage Common Stock, the number of shares of Heritage Common
Stock constituting the Stock Portion shall be the quotient determined by
dividing (i) the Stock Portion of the Merger Consideration by (ii) the
average closing prices of the Heritage Common Stock as reported on the
American Stock Exchange as published by The Wall Street Journal for the ten
trading days ending on and including the third trading day preceding, but
not including, the effective date of the merger.
II. To transact such other business as may properly come before the
Special Meeting or any adjournments thereof.
Notwithstanding stockholder approval of the foregoing proposals, DIMAC
reserves the right to abandon the merger at any time prior to completion of the
merger, subject to the terms and conditions of the Merger Agreement.
Holders of shares of DIMAC Common Stock have the right to dissent from the
merger and to demand appraisal of, and payment for, their shares of DIMAC Common
Stock by following the procedures set forth in Section 262 of the General
Corporation Law of the State of Delaware, a copy of which section is attached
hereto as Appendix C and summarized under "The Merger -- Appraisal Rights of
Dissenting Stockholders" in the accompanying Proxy Statement/Prospectus.
The Board of Directors has fixed the close of business on December 28, 1995
as the record date for the determination of stockholders entitled to receive
notice of, and vote at the Special Meeting and any adjournment thereof.
<PAGE>
A form of proxy and a Proxy Statement/Prospectus containing more detailed
information with respect to the matters to be considered at the Special Meeting
accompany and form a part of this notice.
By order of the Board of Directors,
Michael T. McSweeney,
Chairman of the Board and
Chief Executive Officer
January , 1996
Bridgeton, Missouri
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. TO ENSURE YOUR
REPRESENTATION AT THE MEETING, HOWEVER, YOU ARE URGED TO COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES. ANY STOCKHOLDER ATTENDING THE MEETING MAY VOTE IN PERSON,
EVEN IF THAT STOCKHOLDER HAS RETURNED A PROXY.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 4, 1996
PROXY STATEMENT/PROSPECTUS
PROXY STATEMENT
DIMAC CORPORATION
----------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY , 1996
---------------------
PROSPECTUS
HERITAGE MEDIA CORPORATION
SHARES OF CLASS A COMMON STOCK
---------------------
This Proxy Statement/Prospectus is being furnished to stockholders of DIMAC
Corporation, a Delaware corporation ("DIMAC"), in connection with the
solicitation of proxies by the Board of Directors of DIMAC for use at the
Special Meeting of Stockholders to be held at The Ritz-Carlton St. Louis, 100
Carondelet Plaza, St. Louis, Missouri on February , 1996 at 10:00 a.m. (local
time) (together with any adjournment or postponement thereof, the "Special
Meeting").
This document also constitutes a Prospectus of Heritage Media Corporation,
an Iowa corporation ("Heritage"), under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to 1,667,517 shares, subject to possible
adjustment, of the Class A Common Stock of Heritage, $.01 par value per share
(the "Heritage Common Stock"), that may be issued to the stockholders of DIMAC
in connection with the merger (the "Merger") of Arch Acquisition Corp., a wholly
owned subsidiary of Heritage (the "Heritage Subsidiary"), into DIMAC in
accordance with the Agreement and Plan of Merger, dated as of October 23, 1995
(the "Merger Agreement"), by and among Heritage, DIMAC and the Heritage
Subsidiary. As a result of the Merger, (i) all of the issued shares of common
stock of DIMAC, $.01 par value per share (the "DIMAC Common Stock") (other than
shares of DIMAC Common Stock held by dissenting shareholders, if any), will be
converted into the right to receive $28.00 per share in cash (the "Merger
Consideration"); provided, however, the Heritage Subsidiary may elect to pay up
to $7.00 of the Merger Consideration in shares of Heritage Common Stock; (ii)
the separate corporate existence of the Heritage Subsidiary will cease; and
(iii) DIMAC will continue its existence as a direct or indirect subsidiary of
Heritage.
The principal executive offices of Heritage are located at One Galleria
Tower, 13355 Noel Road, Suite 1500, Dallas, Texas 75240 and its telephone number
is (214) 702-7380. The principal executive offices of DIMAC are located at One
Corporate Woods Drive, Bridgeton, Missouri 63044 and its telephone number is
(314) 344-8000.
This Proxy Statement/Prospectus and the enclosed proxy card are first being
mailed to stockholders of DIMAC on or about January , 1996.
THE HERITAGE SHARES TO BE OFFERED IN CONNECTION WITH THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR
HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JANUARY , 1996.
<PAGE>
AVAILABLE INFORMATION
Heritage has filed a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") under
the Securities Act, with respect to the shares of Heritage Common Stock that may
be issued in the Merger. As permitted by the rules and regulations of the
Commission, this Proxy Statement/Prospectus omits certain information, exhibits
and undertakings contained in the Registration Statement. Reference is made to
the Registration Statement and to the exhibits thereto for further information,
which may be inspected without charge at the office of the Commission at 450
Fifth Street, Washington, D.C. 20549, and copies of which may be obtained from
the Commission at prescribed rates. Statements contained in this Proxy
Statement/ Prospectus relating to the contents of any contract or other document
referred to herein or therein are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement. Each such statement is qualified in its entirety by
such reference.
In addition, both Heritage and DIMAC 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 can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 or at the Regional Offices of the
Commission which are located as follows: Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can also
be obtained from the Commission at prescribed rates. Written requests for such
material should be addressed to the Public Reference Section, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. Each of the
Heritage Common Stock and the DIMAC Common Stock is listed on the American Stock
Exchange, Inc. ("AMEX") and such reports, proxy statements and other information
concerning Heritage and DIMAC can be inspected and copies can be obtained at the
offices of the AMEX, 86 Trinity Place, New York, New York 10006.
DOCUMENTS INCORPORATED BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS RELATING
TO HERITAGE AND DIMAC. DOCUMENTS RELATING TO HERITAGE (OTHER THAN EXHIBITS TO
SUCH DOCUMENT UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE)
ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST, WITHOUT CHARGE,
FROM HERITAGE MEDIA CORPORATION, ONE GALLERIA TOWER, 13355 NOEL ROAD, SUITE
1500, DALLAS, TEXAS 75240, ATTENTION: WAYNE KERN, SECRETARY, TELEPHONE
(214)702-7380. DOCUMENTS RELATING TO DIMAC (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE
AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST, WITHOUT CHARGE,
FROM DIMAC CORPORATION, ONE CORPORATE WOODS DRIVE, BRIDGETON, MISSOURI 63044,
ATTENTION: CAROL J. MYERS, ASSISTANT SECRETARY, TELEPHONE: (314)344-8000. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE
MADE BY JANUARY , 1996. COPIES OF DOCUMENTS SO REQUESTED WILL BE SENT BY FIRST
CLASS MAIL, POSTAGE PAID WITHIN ONE BUSINESS DAY OF THE RECEIPT OF SUCH REQUEST.
The following Heritage documents (File No. 1-10015) are incorporated by
reference herein:
1. Annual Report on Form 10-K for the year ended December 31, 1994,
Amendment No. 1 to such report on Form 10-K/A filed on December 15, 1995 and
Amendment No. 2 to such report on Form 10-K/A filed on January 4, 1996 (the
"1994 Heritage 10-K").
2. The portions of the Proxy Statement for the Annual Meeting of
Stockholders held May 25, 1995, that have been incorporated by reference in
the 1994 Heritage 10-K.
2
<PAGE>
3. Quarterly Reports on Form 10-Q for the interim periods ending March
31, 1995, June 30, 1995 and September 30, 1995 and Form 10-Q/A amending the
Form 10-Q for the period ended September 30, 1995, which such Form 10-Q/A
was filed on December 15, 1995.
4. Form 8-K, filed with the Commission on December 11, 1995 and
Amendment No. 1 to such report on Form 8-K/A filed on January 4, 1996.
The following DIMAC documents (File No. 1-13258) are incorporated by
reference herein:
1. Annual Report on Form 10-K for the year ended December 31, 1994 and
Form 10-K/A filed on January 4, 1996 (the "1994 DIMAC 10-K").
2. The portions of the Proxy Statement for the Annual Meeting of
Stockholders held May 16, 1995, that have been incorporated by reference in
the 1994 DIMAC 10-K.
3. Quarterly Reports on Form 10-Q for the interim periods ending March
31, 1995, June 30, 1995 and September 30, 1995, Form 10-Q/A amending the
Form 10-Q for the period ended September 30, 1995 which such Form 10-Q/A was
filed on November 17, 1995 and Forms 10-Q/A amending the Forms 10-Q for the
periods ended March 31, 1995, June 30, 1995 and September 30, 1995, which
such Forms 10-Q/A were filed on January 4, 1996.
4. Form 8-K, filed with the Commission on June 15, 1994.
5. Form 8-K, filed with the Commission on February 15, 1995.
6. Form 8-K, filed with the Commission on May 12, 1995.
7. Form 8-K, filed with the Commission on October 11, 1995.
8. Form 8-K, filed with the Commission on October 26, 1995.
All documents filed by Heritage or DIMAC with the Commission pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof
and prior to the date of the DIMAC stockholder meeting shall be deemed to be
incorporated by reference herein and shall be a part hereof from the date of
filing of such documents. Any statements contained in a document incorporated by
reference herein or contained in this Proxy Statement/Prospectus shall be deemed
to be modified or superseded for purposes hereof to the extent that a statement
contained herein (or in any other subsequently filed document which also is
incorporated by reference herein) modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed to constitute a part
hereof except as so modified or superseded.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION
WITH THE OFFERS MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HERITAGE OR
DIMAC. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH PERSON'S JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT, SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS,
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF HERITAGE OR DIMAC OR THAT ANY
INFORMATION THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO SUCH DATE.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information..................................................................................... 2
Documents Incorporated by Reference....................................................................... 2
Summary of Proxy Statement/Prospectus..................................................................... 5
The Special Meeting....................................................................................... 16
The Merger................................................................................................ 18
Appraisal Rights of Dissenting Stockholders............................................................... 38
Pro Forma Financial Information........................................................................... 40
Description of Capital Stock of Heritage.................................................................. 52
Comparison of Rights of Holders of Heritage Common Stock and DIMAC Common Stock........................... 54
Legal Matters............................................................................................. 59
Experts................................................................................................... 59
Appendix A Agreement and Plan of Merger................................................................... A-1
Appendix B Opinion of CS First Boston Corporation......................................................... B-1
Appendix C Section 262 of the Delaware General Corporate Law.............................................. C-1
</TABLE>
4
<PAGE>
SUMMARY OF PROXY STATEMENT/PROSPECTUS
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/ PROSPECTUS. THE SUMMARY IS NECESSARILY INCOMPLETE AND
SELECTIVE AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, INCLUDING THE APPENDICES HERETO.
THE TERMS "DIMAC" AND "HERITAGE" REFER RESPECTIVELY TO DIMAC CORPORATION AND ITS
SUBSIDIARIES AND PREDECESSORS AND HERITAGE MEDIA CORPORATION AND ITS
SUBSIDIARIES AND PREDECESSORS, UNLESS THE CONTEXT OTHERWISE REQUIRES.
HERITAGE
Heritage, through its Actmedia, Inc. subsidiary, is the world's largest
independent provider of in-store marketing products and services, primarily to
consumer packaged goods manufacturers. Heritage is also a participant in the
broadcast industry through its ownership of four network affiliated television
stations in small to mid-sized markets and 17 radio stations in seven major
markets.
Heritage's principal executive offices are located at One Galleria Tower,
13355 Noel Road, Suite 1500, Dallas, Texas 75240 and its telephone number is
(214) 702-7380.
DIMAC
DIMAC is the largest full service, vertically integrated direct marketing
services company in the United States. DIMAC creates and implements
comprehensive, custom-tailored marketing programs to enable clients nationwide
to focus their marketing expenditures on a highly targeted potential customer
base. As a full service, vertically integrated firm, DIMAC provides every
component of a complete direct marketing program, including customized market
research, strategic and creative planning, creation and management of relational
databases, telemarketing, media buying, production services, fulfillment
services and subsequent program analysis.
DIMAC's principal executive offices are located at One Corporate Woods
Drive, Bridgeton, Missouri 63044 and its telephone number is (314) 344-8000.
SPECIAL MEETING OF DIMAC STOCKHOLDERS
The Special Meeting of the stockholders of DIMAC will be held at The
Ritz-Carlton St. Louis, 100 Carondelet Plaza, St. Louis, Missouri on February
, 1996 at 10:00 a.m. (local time) to (i) consider and vote upon the approval
and adoption of the Merger Agreement incorporated by reference herein and
attached hereto as Appendix A and (ii) transact such other business as may
properly come before the Special Meeting or any adjournment thereof.
RECORD DATE; QUORUM. Only stockholders of record of DIMAC at the close of
business on December 28, 1995 (the "Record Date") will be entitled to notice of,
and to vote at, the Special Meeting. On the Record Date, there were 6,491,405
shares of DIMAC Common Stock outstanding and entitled to vote at the Special
Meeting. Each holder of shares of DIMAC Common Stock, outstanding on the Record
Date is entitled to one vote for each such share so held, exercisable in person
or by properly executed and delivered proxy, at the Special Meeting. The
presence of the holders of at least a majority of the shares of DIMAC Common
Stock outstanding on the Record Date, whether present in person or by properly
executed and delivered proxy, will constitute a quorum for purposes of the
Special Meeting.
VOTE REQUIRED. The affirmative vote of the holders of record of at least a
majority of the outstanding shares of DIMAC Common Stock entitled to vote at the
Special Meeting is necessary to approve and adopt the Merger Agreement and to
approve the Merger. Michael T. McSweeney, the Chairman of the DIMAC Board of
Directors, and certain affiliates of McCown De Leeuw & Co. (the "MDC Entities")
who collectively held, as of the Record Date, 2,112,881 shares of DIMAC Common
Stock, or approximately 32.6% of the shares of DIMAC Common Stock outstanding,
have agreed to vote such shares in favor of the approval and adoption of the
Merger Agreement. DIMAC's directors, executive officers and their affiliates
owned approximately 36.6% of the outstanding shares of DIMAC Common Stock as of
December 31, 1995.
5
<PAGE>
HERITAGE STOCKHOLDER VOTE NOT REQUIRED. The consummation of the Merger will
not require the vote of the stockholders of Heritage, and the Merger is not
being presented to the stockholders of Heritage for their approval. Heritage,
the sole stockholder of the Heritage Subsidiary, has also approved and adopted
the Merger on behalf of the Heritage Subsidiary.
MERGER
Pursuant to the proposed Merger, the Heritage Subsidiary will be merged into
DIMAC and DIMAC will become a subsidiary of Heritage. Upon completion of the
Merger, each share of DIMAC Common Stock will be converted into the right to
receive the Merger Consideration. The Heritage Subsidiary may elect to pay up to
$7.00 of the Merger Consideration in shares of Heritage Common Stock. Any
portion of the Merger Consideration not paid in shares of Heritage Common Stock
will be paid in cash. If the Heritage Subsidiary elects to pay up to $7.00 of
the Merger Consideration in shares of Heritage Common Stock, the number of
shares of Heritage Common Stock comprising the stock portion of the Merger
Consideration will be equal to the quotient determined by dividing the stock
portion of the Merger Consideration by the average closing price of the Heritage
Common Stock on the AMEX as published in The Wall Street Journal for the ten
trading days ending on and including the third trading day preceding, but not
including, the effective date of the Merger (the "Heritage Trading Price").
Heritage intends to issue a press release prior to the Special Meeting to
announce what portion, if any, of the Merger Consideration will be paid in
shares of Heritage Common Stock. Shares of DIMAC Common Stock held by
stockholders who perfect their appraisal rights under Delaware law (the
"Unconverted Shares") will not be converted into shares of Heritage Common Stock
upon completion of the Merger unless such demand is withdrawn or such
stockholder's right to an appraisal otherwise ceases. See "The Merger" and
"Appraisal Rights of Dissenting Stockholders."
REASONS FOR THE MERGER AND RECOMMENDATION OF THE DIMAC BOARD OF DIRECTORS
In reaching its determination to recommend the Merger, the DIMAC Board of
Directors consulted with DIMAC's management, as well as its legal and financial
advisors, and considered a number of factors. The factors that the DIMAC Board
of Directors considered in reaching its decision were (i) the belief that the
Merger provides the best means for DIMAC Stockholders to maximize the value of
their holdings; (ii) the increased ability of a strong combined entity to
compete and grow in the direct marketing services industry, which is rapidly
consolidating; (iii) information relating to the financial performance,
prospects and business operations of each of DIMAC and Heritage; (iv) the belief
that the Merger Agreement does not unreasonably preclude a third party from
proposing an alternative transaction; (v) the opinion of CS First Boston
Corporation ("CS First Boston"), dated October 22, 1995, that, as of such date,
the consideration to be received by holders of DIMAC Common Stock (other than
Heritage) is fair to such holders from a financial point of view; (vi) the
Merger Consideration represents a premium of approximately 47% over the closing
sales price of $19.00 for the DIMAC Common Stock on the day before DIMAC
initially became aware of Heritage's possible interest in pursuing the proposed
Merger and a premium of 180% over the offering price of the DIMAC Common Stock
in DIMAC's initial public offering, which offering was completed on August 10,
1994; and (vii) the prices paid in other recent comparable acquisition
transactions. The DIMAC Board of Directors believes that each of these factors
supports its recommendation that the DIMAC stockholders approve and adopt the
Merger Agreement and approve the terms of the Merger. See "The Merger -- Reasons
for the Merger and Recommendation of the DIMAC Board of Directors."
The DIMAC Board of Directors has determined that the terms of the Merger
Agreement, which were established through arm's-length bargaining with Heritage,
and the transactions contemplated thereby, including the Merger, are fair to,
and in the best interests of, DIMAC and its stockholders (other than Heritage).
ACCORDINGLY, THE DIMAC BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE DIMAC STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND TO APPROVE THE TERMS OF THE
MERGER.
6
<PAGE>
In the event that the DIMAC stockholders fail to approve the Merger, DIMAC
will seek alternate sources of financing and will continue to pursue its
business strategy, including its policy of seeking suitable acquisition
candidates that will provide DIMAC with access to new markets and offer
opportunities for DIMAC to broaden the range of services it offers.
OPINION OF FINANCIAL ADVISOR
CS First Boston has acted as financial advisor to DIMAC in connection with
the Merger and has assisted the DIMAC Board of Directors in its examination of
the fairness, from a financial point of view, of the Merger Consideration to be
received by the DIMAC stockholders (other than Heritage). DIMAC selected CS
First Boston as its financial advisor because of CS First Boston's experience
and expertise in transactions similar to the Merger and because of its
familiarity with DIMAC's business. CS First Boston previously had served as the
lead underwriter of DIMAC's initial public offering in August 1994 and, at the
time at which the Merger was proposed, was acting as lead underwriter for a
proposed public offering of additional shares of DIMAC Common Stock. No other
party was considered as financial advisor to DIMAC.
On October 22, 1995, CS First Boston delivered its written opinion to the
DIMAC Board of Directors to the effect that, as of the date of such opinion and
based upon and subject to certain matters stated therein, the consideration to
be received by the stockholders of DIMAC in the Merger is fair to such
stockholders (other than Heritage) from a financial point of view. A copy of CS
First Boston's written opinion dated October 22, 1995, which sets forth the
assumptions made, procedures followed, matters considered, limitations on and
scope of the review by CS First Boston is attached as Appendix B to this Proxy
Statement/Prospectus. DIMAC stockholders are encouraged to read such opinion in
its entirety. See "The Merger -- Opinion of Financial Advisor."
EFFECTIVE TIME OF THE MERGER
It is currently contemplated that the Merger will be consummated as soon as
practicable after the Special Meeting. The Merger will be effective upon the
filing of Certificate of Merger with the Secretary of State of Delaware (the
"Effective Time").
NO SOLICITATION
The Merger Agreement provides that DIMAC will not directly or indirectly (i)
solicit or initiate discussions with or (ii) enter into any negotiations or
agreements with, or furnish any information to, any third party concerning any
proposal for a merger, sale of substantial assets, sale of shares of stock or
securities or other takeover or business combination transaction (an
"Acquisition Proposal") involving DIMAC; provided, however, that DIMAC may take
the actions prohibited by clause (ii) above if such action is taken by, or upon
the authority of, the DIMAC Board of Directors in the exercise of its good faith
judgment as to its fiduciary duties to the DIMAC stockholders, which judgment is
based upon the advice of independent, outside legal counsel that a failure of
the DIMAC Board of Directors to take such action would be likely to constitute a
breach of its fiduciary duties to such stockholders. DIMAC has agreed to notify
Heritage promptly if DIMAC becomes aware that any inquiries or proposals are
received by, any information is requested from or any negotiations or
discussions are sought to be negotiated with, DIMAC with respect to an
Acquisition Proposal and to deliver to Heritage any written inquiries or
proposals received by DIMAC relating to an Acquisition Proposal, except, in each
case, to the extent that DIMAC receives advice from independent, outside counsel
that providing such information would be likely to result in a breach of the
fiduciary duties of the DIMAC Board of Directors to the DIMAC stockholders.
INTERESTED PERSONS
In considering the recommendations of the DIMAC Board of Directors, DIMAC
stockholders should be aware that certain members of management and of the DIMAC
Board of Directors have interests in the Merger that are in addition to the
interests of DIMAC stockholders generally and which may create potential
conflicts of interest.
7
<PAGE>
EMPLOYMENT AGREEMENTS. Simultaneously with the execution and delivery of
the Merger Agreement, each of Mr. McSweeney; Timothy G. Beffa, President and
Chief Operating Officer of DIMAC; Paul W. Middeke, Senior Vice President and
Chief Financial Officer of DIMAC; William K. Myers, Senior Vice President --
Marketing of DIMAC; and F. Eugene Kerr, Senior Vice President -- Operations of
DIMAC entered into three-year Retention and Non-Competition Agreements with
DIMAC and Heritage.
Pursuant to Mr. McSweeney's Retention and Non-Competition Agreement (the
"McSweeney Retention Agreement") and in consideration of his willingness to
continue his employment with DIMAC through December 31, 1998, DIMAC and Heritage
have agreed that the Merger will not result in any diminution or adverse change
in (i) Mr. McSweeney's duties and responsibilities to DIMAC, (ii) his
organizational position or reporting relationships or (iii) his base salary,
bonus or employee benefits. The McSweeney Retention Agreement provides that, as
of July 1, 1997, Mr. McSweeney will be required to devote only a portion of his
business time to DIMAC and will relinquish his title and responsibilities as
chief executive officer at such time. In further consideration of the benefits
received under the McSweeney Retention Agreement, Mr. McSweeney has agreed that,
without the prior written approval of the DIMAC Board of Directors, he will not
directly or indirectly, in any capacity, participate in, engage in, own or
invest in any business which is engaged in providing direct marketing services
in the United States for a period ending two years after the termination of the
McSweeney Retention Agreement.
Pursuant to the Retention and Non-Competition Agreements (the "Executive
Retention Agreements") entered into with each of Messrs. Beffa, Middeke, Myers
and Kerr (each an "Executive") and in consideration of the willingness of each
such Executive to continue his employment with DIMAC through December 31, 1998,
DIMAC and Heritage have agreed that the Merger will not result in any diminution
or adverse change in (i) such Executives' respective duties and responsibilities
to DIMAC, (ii) such Executives' respective organizational position or reporting
relationships or (iii) such Executives' respective base salary, bonus or
employee benefits; it being understood that, during the term of the Executive
Retention Agreements, DIMAC will increase each such Executive's base salary on
January 1 of each year by an amount equal to such Executive's base salary
multiplied by the percentage increase in the cost of living index over the past
twelve months. In addition to such benefits under his respective Executive
Retention Agreement, each Executive will also be entitled to receive from
Heritage at the Effective Time a number of options to purchase Heritage Common
Stock (the "Additional Options"), granted under terms identical to those of
options granted to other optionees of Heritage, equal to the quotient of 200% of
such Executive's base salary divided by the Heritage Trading Price. In further
consideration of the benefits received under his respective Executive Retention
Agreement, each of Messrs. Beffa, Middeke, Myers and Kerr has agreed that,
without the prior written approval of the DIMAC Board of Directors, he will not
directly or indirectly, in any capacity, participate in, engage in, own or
invest in any business which is engaged in providing direct marketing services
in the United States for a period ending two years after the termination of such
Executive's Executive Retention Agreement, other than in a capacity which does
not involve soliciting DIMAC's prospects or clients, soliciting or otherwise
inducing DIMAC's employees to leave DIMAC's employ or misappropriating
confidential or proprietary information of DIMAC. See "The Merger Interests of
Certain Persons in the Merger -- Employment Agreements."
DIMAC OPTION PLANS. The Merger will result in the acceleration of
exercisability and vesting of stock options granted under the DIMAC Corporation
1994 Stock Option and Stock Award Plan (the "DIMAC Plan") and the DIMAC
Non-Employee Director Stock Option Plan (the "Directors' Plan"). Pursuant to the
Merger Agreement, and to the extent such options have not been previously
exercised, holders of options under the DIMAC Plan will have such options
converted at the Effective Time into options to purchase shares of Heritage
Common Stock, exercisable for that number of shares of Heritage Common Stock
which is equal to the number of shares of DIMAC Common Stock for which
8
<PAGE>
such option is currently exercisable multiplied by the quotient obtained by
dividing $28.00 by the Heritage Trading Price (such quotient the "Conversion
Factor") at an exercise price equal to exercise price per share of DIMAC Common
Stock divided by the Conversion Factor.
Options granted pursuant to the Directors' Plan will be convertible,
pursuant to the terms of the Merger Agreement, into options to purchase shares
of Heritage Common Stock on the same basis as holders of options under the DIMAC
Plan, except that each holder of options under the Directors' Plan will have the
option to elect to receive cash in an amount equal to the product of the total
number of shares of DIMAC Common Stock for which such option was exercisable
multiplied by the excess of Merger Consideration over the exercise price per
share of the DIMAC Common Stock which is subject to such option (the "Converted
Option Consideration"). In the event that the Heritage Subsidiary elects to pay
a portion of the Merger Consideration in shares of Heritage Common Stock, the
same pro rata portion of the Converted Option Consideration will also be payable
in shares of Heritage Common Stock. See "The Merger -- Interests of Certain
Persons in the Merger -- DIMAC Option Plans."
The Merger Agreement also provides for certain indemnification and insurance
arrangements for the officers and directors of DIMAC. See "The Merger --
Interest of Certain Persons in the Merger -- Director and Officer
Indemnification and Insurance."
RIGHTS OF DISSENTING STOCKHOLDERS
Subject to certain other conditions, a stockholder of record of DIMAC who
does not vote his or her shares of DIMAC Common Stock in person or by proxy in
favor of the Merger and who files with DIMAC a written objection to the Merger
before the vote at the Special Meeting of stockholders of DIMAC, stating that
his or her right to dissent will be exercised if the Merger is effective and
giving his or her name and address, will be eligible to make a written demand on
DIMAC for appraisal rights following the consummation of the Merger. Neither a
proxy nor a vote opposing or abstaining from the Merger will constitute a
written objection to the Merger. A DIMAC stockholder who files a written
objection will not be entitled to appraisal rights unless such stockholder also
makes a written demand following the consummation of the Merger and takes
certain other steps in the manner required by Delaware law. A vote in favor of
the Merger, in person or by proxy, will constitute a waiver of appraisal rights.
See "Appraisal Rights of Dissenting Stockholders."
RISK FACTORS
If Heritage elects to pay a portion of the Merger Consideration in shares of
Heritage Common Stock, the receipt and continued ownership of such shares by a
DIMAC stockholder involves certain investment risks, including Heritage's
substantial indebtedness, the degree of competition which Heritage encounters in
the operation of its businesses and the existence of government regulation in
Heritage's broadcasting business. See "The Merger -- Risk Factors."
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash or shares of Heritage Common Stock by a DIMAC
stockholder in exchange for his or her shares of DIMAC Common Stock pursuant to
the Merger or the exercise of dissenters' rights will, in each case, constitute
a taxable transaction to such stockholder for United States federal income tax
purposes and may also be a taxable transaction under applicable state, local and
foreign tax laws. In general, a stockholder will recognize gain or loss equal to
the difference between (A) the sum of (i) the cash received and (ii) the fair
market value of any of the shares of Heritage Common Stock received in exchange
for the shares of DIMAC Common Stock in the Merger or pursuant to the exercise
of appraisal rights and (B) such stockholder's adjusted tax basis in the shares
of DIMAC Common Stock exchanged. A holder's initial tax basis for the shares of
Heritage Common Stock received in the Merger will be equal to its fair market
value on the date of the Merger.
All stockholders should read carefully the discussion in "The Merger --
Certain United States Federal Income Tax Consequences" and other sections of
this Proxy Statement/Prospectus. They are urged to consult their own tax
advisors as to the specific consequences to them of the Merger under United
States federal, state, local and any other applicable tax laws.
9
<PAGE>
CONDITIONS OF THE MERGER
In addition to approval by the stockholders of DIMAC, consummation of the
Merger is subject to the satisfaction or waiver of a number of conditions. Other
than approval of the Merger by the DIMAC stockholders, substantially all of the
conditions to the Merger may be waived, in whole or in part, by the parties for
whose benefit they have been created, without the approval of the DIMAC
stockholders. However, after approval by the stockholders of DIMAC, no amendment
or modification may be made which by law requires further approval by such
stockholders unless such approval is obtained. See "The Merger -- Conditions to
the Merger."
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned, at any time
prior to the Effective Time, whether before or after the approval by the DIMAC
stockholders, (i) by the mutual consent of Heritage and DIMAC; (ii) by Heritage
if there has been a material misrepresentation or breach of warranty in the
representations and warranties of DIMAC made in the Merger Agreement or there
has been a material failure by DIMAC to comply with its obligations under the
Merger Agreement; (iii) by DIMAC if there has been a material misrepresentation
or breach of warranty in the representations and warranties of Heritage made in
the Merger Agreement or there has been a material failure by Heritage to comply
with its obligations under the Merger Agreement; (iv) by either Heritage or
DIMAC if all conditions to that party's obligation to consummate the Merger have
not been satisfied or waived by March 31, 1996, unless such failure of
consummation is due to the failure of the terminating party to perform or
observe the covenants, agreements and conditions contained in the Merger
Agreement to be performed or observed by it; (v) by either Heritage or DIMAC if
the consummation of the Merger would violate any nonappealable final order,
decree or judgment of any court or governmental body or agency having competent
jurisdiction; (vi) by DIMAC if in the exercise of the good faith judgment of its
Board of Directors (which judgment is based upon the advice of independent,
outside legal counsel) as to its fiduciary duties to its stockholders such
termination is required by reason of an Acquisition Proposal or, if the DIMAC
Board of Directors withdraws or materially modifies or changes its
recommendation to its stockholders to approve the Merger Agreement and the
Merger if there exists at such time an Acquisition Proposal for DIMAC and such
change in recommendation is based upon the advice of independent, outside legal
counsel; or (vii) by Heritage if the DIMAC Board of Directors withdraws or
materially modifies or changes its recommendation to the stockholders of DIMAC
to approve the Merger Agreement and the Merger if there exists at such time an
Acquisition Proposal. In the event that the Merger is not approved by the DIMAC
stockholders, each of Heritage and DIMAC would expect to independently pursue
their respective strategies for growth.
TERMINATION FEE
If (a) DIMAC terminates the Merger Agreement because its Board of Directors,
in the exercise of its good faith judgment (which judgment is based upon advice
of independent, outside legal counsel) as to its fiduciary duties to its
stockholders determines such termination is required by reason of an Acquisition
Proposal or, if the DIMAC Board of Directors withdraws or materially modifies or
changes its recommendation to its stockholders to approve the Merger Agreement
and the Merger if there exists at such time an Acquisition Proposal for DIMAC
and such change in recommendation is based upon the advice of independent,
outside legal counsel; (b) the Merger Agreement is terminated by Heritage
because the DIMAC Board of Directors withdraws or materially modifies or changes
its recommendation to the stockholders of DIMAC to approve the Merger Agreement
and the Merger if there exists at such time an Acquisition Proposal; or (c) on
or before March 31, 1996 and while the Merger Agreement remains in effect, DIMAC
enters into a definitive agreement with respect to an Acquisition Proposal with
any corporation, partnership, person or other entity or group (other than
Heritage or any affiliate of Heritage), and such transaction (including any
revised transaction based upon the Acquisition Proposal) is thereafter
consummated (whether before or after March 31, 1996), then DIMAC shall pay to
Heritage a fee equal to the sum of (i) up to $1.0 million of documented fees,
costs and expenses, including legal and accounting fees and fees payable to
Heritage's financial
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<PAGE>
advisors, incurred by Heritage in connection with the transactions contemplated
by the Merger Agreement and (ii) $4.0 million. The amount in clause (ii) shall
be payable only upon completion of the transaction implementing the Acquisition
Proposal.
COMPARISON OF RIGHTS OF HERITAGE STOCKHOLDERS AND DIMAC STOCKHOLDERS
Heritage is incorporated under the laws of the State of Iowa, and DIMAC is
incorporated under the laws of the State of Delaware. Stockholders of DIMAC
will, upon consummation of the Merger and to the extent they receive shares of
Heritage Common Stock, become stockholders of Heritage and their rights as such
will be governed by Iowa law and Heritage's Restated Articles of Incorporation
and Bylaws. See "The Merger -- Comparison of Rights of Holders of Heritage
Common Stock and DIMAC Common Stock."
AMEX LISTING
The Heritage Common Stock is listed on AMEX. Heritage has agreed to use its
reasonable best efforts to cause the shares of Heritage Common Stock to be
issued in the Merger to be listed on AMEX at the Effective Time. A condition to
DIMAC's obligation to close is that prior to the Effective Time any shares of
Heritage Common Stock, to the extent applicable, to be issued in the Merger will
be approved for listing on AMEX.
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical, pro forma and equivalent
pro forma per share financial information for the Heritage Common Stock and
DIMAC Common Stock as of December 31, 1994 and for the year then ended and as of
September 30, 1995 and the nine months then ended. All such information is
presented on a per share basis. Neither Heritage nor DIMAC has paid any cash
dividends on its common shares. The following information should be read in
conjunction with and is qualified in its entirety by reference to the historical
consolidated financial statements and accompanying notes of Heritage and DIMAC
and "Pro Forma Financial Information" incorporated by reference or included
elsewhere in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
HERITAGE DIMAC
----------- ---------
<S> <C> <C>
Historical book value per share as of
December 31, 1994................................................................. $ 5.10 $ .01
September 30, 1995................................................................ 6.14 .43
Pro forma equivalent book value per share as of
September 30, 1995 (1)
assuming cash Merger Consideration................................................ 6.62 6.89
assuming cash and stock Merger Consideration...................................... 8.45 8.80
Historical net income (loss) per share
for the year ended December 31, 1994.............................................. .15 (.04)
for the nine months ended September 30, 1995...................................... .88 .41
Pro forma equivalent net loss per share (1)
for the year ended December 31, 1994
assuming cash Merger Consideration.............................................. .17 .18
assuming cash and stock Merger Consideration.................................... .38 .40
for the nine months ended September 30, 1995......................................
assuming cash Merger Consideration.............................................. .38 .40
assuming cash and stock Merger Consideration.................................... .37 .39
</TABLE>
(1) The pro forma information for DIMAC reflects an "equivalent" pro forma
adjustment determined by multiplying the pro forma information for Heritage
by the exchange ratio, assuming that (i) the Heritage Trading Price is $27
per share and (ii) the exchange ratio is one DIMAC share for 1.04 Heritage
shares, which is calculated by dividing the Merger Consideration per share
of $28 by the Heritage Trading Price.
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<PAGE>
COMPARATIVE MARKET PRICE DATA
Heritage Common Stock and DIMAC Common Stock are listed on the AMEX under
the symbols "HTG" and "DMC", respectively.
On October 20, 1995, the last full trading day preceding the public
announcement of the execution of the Merger, the closing sale price per share of
Heritage Common Stock was $28.75 and the closing sale price of DIMAC Common
Stock was $23.25. As of January , 1996, the closing sale price per share of
Heritage Common Stock was $ and the closing sale price per share of DIMAC
Common Stock was $ . Stockholders of Heritage and DIMAC are urged to obtain
current market quotations for Heritage and DIMAC Common Stock.
The following table sets forth the closing sale price per share of DIMAC
Common Stock and Heritage Common Stock as reported on the AMEX on October 20,
1995, the business date preceding public announcement of the Merger, and on
January , 1996.
<TABLE>
<CAPTION>
DIMAC HERITAGE
COMMON STOCK COMMON STOCK
-------------- --------------
<S> <C> <C>
October 20, 1995........................................................ $ 23.25 28.75
January , 1996........................................................
</TABLE>
SUMMARY OF SELECTED FINANCIAL INFORMATION
The following tables set forth selected financial information for Heritage
and DIMAC for each of the five fiscal years in the period ended December 31,
1994 and for the nine months ended September 30, 1994 and 1995. Such information
should be read in conjunction with the historical financial statements of
Heritage and DIMAC and the notes thereto which are incorporated herein by
reference. Selected financial information for Heritage and DIMAC as of and for
the nine months ended September 30, 1994 and 1995 has been derived from the
unaudited historical consolidated financial statements and, in the opinion of
their respective management, includes all adjustments (consisting only of normal
recurring adjustments) that are considered necessary for a fair presentation of
the operating results for such interim periods. Results for the interim periods
are not necessarily indicative of results for the full year.
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HERITAGE -- HISTORICAL
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................... $ 203,854 $ 222,360 $ 250,891 $ 291,205 $ 317,628 $ 210,826 $ 299,065
Operating income (1).............. 13,451 21,950 27,550 34,995 57,838 35,332 47,473
Interest expense, net............. (38,108) (38,640) (37,473) (31,515) (30,373) (22,196) (26,190)
Income (loss) before extraordinary
item............................. (26,009) (19,278) (14,966) 77 22,299 8,468 15,604
Net income (loss)................. (24,950) (14,958) (18,560) 512 22,299 8,468 15,604
Net income (loss) applicable to
common stock (2)................. (27,929) (20,435) (25,465) (4,810) 2,648 (11,183) 15,604
Earnings (loss) per share before
extraordinary item............... (2.82) (2.39) (1.51) (.32) .15 (.64) .88
Earnings (loss) per share......... $ (2.72) $ (1.97) $ (1.76) $ (.29) $ .15 $ (.64) $ .88
Equivalent shares (3)............. 10,279 10,369 14,449 16,314 17,381 17,339 17,666
BALANCE SHEET DATA (AT PERIOD END):
Property and equipment, net....... $ 52,144 $ 48,659 $ 55,832 $ 57,422 $ 54,799 $ 53,527 $ 58,374
Goodwill and other intangibles,
net.............................. 378,375 375,378 373,426 363,667 382,288 365,969 392,046
Total Assets...................... 497,358 481,147 496,296 492,849 514,147 492,467 551,143
Long-term debt (4)................ 352,791 345,916 319,385 314,989 351,525 348,008 350,380
Stockholders' equity.............. 66,339 62,022 91,213 86,642 89,246 74,889 108,725
OTHER DATA:
EBITDA (5)........................ 42,595 45,103 54,242 68,353 90,058 58,635 68,679
Depreciation, amortization and
nonrecurring charges............. 28,944 22,803 26,692 33,358 32,220 23,303 21,206
Capital expenditures (6).......... 9,884 11,421 15,531 18,534 13,271 8,804 13,073
</TABLE>
- ------------------------------
(1) Operating income contains certain nonrecurring expenses which represent
operating costs that are unusual or infrequent in nature and are not
expected to be incurred by the Company on a regular basis in future periods.
Such costs are comprised of the following: for the year ended December 31,
1990, $8.5 million relating to compensation expense in connection with the
POP Radio merger ($6.9 million) and the write-down of barter accounts ($1
million) and program rights ($.6 million), and for the year ended December
31, 1993, $4.7 million relating to restructuring charges ($3 million) and
the write-down of program rights ($1.7 million). In addition, operating
income contains compensation expense relating to stock appreciation rights
in the amounts of $200,000, $350,000, $500,000, $500,000, and $4.9 million
during the years ended December 31, 1990 through 1994, respectively, and
$3.1 million for the nine months ended September 30, 1994. Such rights were
retired in January 1995.
(2) Net income (loss) applicable to common stock and related per share data
includes the effect of preferred stock dividends and accretion of settlement
rights. Such preferred stock and settlement rights were redeemed or retired
in 1994.
(3) Equivalent shares exclude shares reserved for issuance upon exercise of
stock options or upon conversion of preferred stock, as the effect would be
antidilutive or immaterial.
(4) Includes current portion of long-term debt.
(5) EBITDA represents operating income excluding depreciation, amortization of
goodwill and other assets (as presented on the face of the income statement)
and nonrecurring charges. EBITDA is presented because management believes
that it is a widely accepted financial indicator of a company's ability to
service and/or incur indebtedness, maintain current operating levels of
fixed assets and acquire additional operations and businesses. Accordingly,
significant uses of EBITDA include, but are not limited to, interest and
principal payments on long-term debt, capital expenditures, and acquisitions
of new operations or businesses. However, EBITDA should not be considered as
an alternative to operating income or net income (loss) as a measure of
operating results in accordance with generally accepted accounting
principles or to cash flows from operating, investing or financing
activities as a measure of liquidity. Items excluded from EBITDA, such as
depreciation, amortization and nonrecurring charges, are significant
components of Heritage's operations and should be considered in evaluating
Heritage's financial performance. Nonrecurring charges are excluded from
EBITDA due to the fact that management does not expect to incur these
charges on a regular basis in the future and does not believe that these
charges should be considered in evaluating Heritage's ability to service
and/or incur indebtedness, maintain current operating levels of fixed assets
and acquire additional operations and businesses in the future. Investors
should be aware that EBITDA as described above may differ in the method of
calculation from EBITDA presented by other companies due to the exclusion of
nonrecurring charges. See footnote (1) above for a description of
nonrecurring charges.
(6) Capital expenditures represent expenditures for long-term fixed assets which
are necessary to grow or maintain existing products or services sold by
Heritage. Capital expenditures exclude cash outlays relating to acquisitions
of new operations or businesses of $37.7 million, $4.4 million, $11.9
million, $5.1 million and $6.9 million for the years ended December 31, 1990
through 1994, respectively, and $7.8 million and $16.6 million for the nine
months ended September 30, 1994 and 1995, respectively.
13
<PAGE>
DIMAC -- HISTORICAL
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1990 1991 1992 1993(1) 1994 1994 1995
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................... $ 44,894 $ 52,475 $ 57,810 $ 63,800 $ 100,012 $ 70,652 $ 89,030
Operating income....................... 4,901 5,027 6,290 5,109 10,919 7,883 11,878
Interest expense, net.................. (605) (1,092) (781) (1,417) (6,069) (4,993) (3,574)
Income (loss) before extraordinary
item(2)............................... 2,576 2,476 3,363 2,259 2,985 1,729 5,117
Net income (loss)...................... 2,576 2,476 3,363 2,259 (172) (1,018) 2,738
Earnings (loss) per share before
extraordinary item(2)(3).............. .22 .64 .43 .77
Earnings (loss) per share(3)........... $ .22 $ (.04) $ (.25) $ .41
Equivalent shares(3)................... 10,492 4,664 4,036 6,603
BALANCE SHEET DATA (AT PERIOD END):
Property and equipment, net............ $ 5,544 $ 7,571 $ 7,240 $ 8,124 $ 13,013 $ 13,233 $ 19,276
Goodwill and other intangibles, net.... 5,792 8,999 8,495 11,168 19,037 17,893 25,232
Total assets........................... 26,053 36,818 32,533 41,456 64,408 66,617 81,360
Long-term debt(4)...................... 6,122 10,187 6,817 49,068 36,303 34,211 51,462
Stockholders' equity (deficiency)(5)... 8,116 10,592 13,998 (27,573) 73 (680) 2,811
OTHER DATA:
EBITDA(6).............................. 6,233 6,965 8,539 8,862 14,019 10,099 15,004
Capital expenditures(7)................ 2,061 2,142 1,229 2,530 4,178 3,452 2,166
</TABLE>
- ------------------------------
(1) Includes certain nonrecurring compensation expenses of $1,091,000 related to
the DIMAC recapitalization and $325,000 of reserves related to the move of
the West Coast facility.
(2) The extraordinary item represents the impact of debt extinguishment in
September 1994 and April 1995.
(3) The historical earnings per share and equivalent shares data for 1990, 1991
and 1992 has not been presented because the capitalization of DIMAC
following the recapitalization and initial public offering is not indicative
of the capitalization prior to such events.
(4) Includes current portion of long-term debt.
(5) Represents the impact of the recapitalization in 1993 and the initial public
offering in 1994.
(6) EBITDA represents operating income excluding depreciation, amortization of
goodwill and other assets and nonrecurring charges. EBITDA is presented
because management believes that it is a widely accepted financial indicator
of a company's ability to service and/or incur indebtedness, maintain
current operating levels of fixed assets and acquire additional operations
and businesses. Accordingly, significant uses of EBITDA include, but are not
limited to, interest and principal payments on long-term debt, capital
expenditures, and acquisitions of new operations or businesses. However,
EBITDA should not be considered as an alternative to operating income or net
income (loss) as a measure of operating results in accordance with generally
accepted accounting principles or to cash flows from operating, investing or
financing activities as a measure of liquidity. Items excluded from EBITDA,
such as depreciation, amortization and nonrecurring charges, are significant
components of DIMAC's operations and should be considered in evaluating
DIMAC's financial performance. Nonrecurring charges are excluded from EBITDA
due to the fact that management does not expect these charges to be
recurring in the future and does not believe that these charges should be
considered in evaluating DIMAC's ability to service and/or incur
indebtedness, maintain current operating levels of fixed assets and acquire
additional operations and businesses in the future. Investors should be
aware that EBITDA as described above may differ in the method of calculation
from EBITDA presented by other companies due to the exclusion of
nonrecurring charges. See footnote (1) above for a description of
nonrecurring charges.
(7) Capital expenditures represent expenditures for long-term fixed assets which
are necessary to grow or maintain existing services sold by DIMAC. Capital
expenditures exclude cash outlays relating to acquisitions of new operations
or businesses of $1.2 million, $0.7 million and $11.9 million for the years
ended December 31, 1990, 1991 and 1994, respectively, and $11.6 million and
$11.3 million for the nine months ended September 30, 1994 and 1995.
14
<PAGE>
The unaudited pro forma combined information presented below provides
financial information giving effect to certain Heritage and DIMAC transactions
which have occurred or are probable to occur, the Merger on a purchase basis,
the issuance of $150 million of senior subordinated notes (the "Notes") and the
new DIMAC credit agreement, as if such transactions occurred on September 30,
1995, with regard to balance sheet information, and on January 1, 1994, with
regard to statements of operations information. The pro forma information is
provided for informational purposes only and is not necessarily indicative of
actual results that would have been achieved had the Merger been consummated at
the beginning of the periods presented or of future results. The pro forma
information is derived from the Pro Forma Financial Information appearing
elsewhere herein and should be read in conjunction with those statements. See
"Pro Forma Financial Information."
HERITAGE AND DIMAC -- UNAUDITED PRO FORMA COMBINED(1)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 1994 30, 1995
---------------------------- ----------------------------
MERGER MERGER
CONSIDERATION CONSIDERATION
MERGER PAID IN CASH MERGER PAID IN CASH
CONSIDERATION AND HERITAGE CONSIDERATION AND HERITAGE
PAID IN CASH STOCK PAID IN CASH STOCK
------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues....................................... $ 529,494 $ 529,494 $ 413,730 $ 413,730
Operating income................................... 65,805 65,805 56,379 56,379
Interest expense, net.............................. (58,573) (54,295) (44,450) (41,241)
Income before extraordinary item................... 2,971 7,249 6,729 7,276
Income per share before extraordinary item......... $ .17 $ .38 $ .38 $ .37
Equivalent shares(2)............................... 17,475 19,236 17,666 19,427
BALANCE SHEET DATA (AT PERIOD END):
Property and equipment, net........................ $ 77,163 $ 77,163
Goodwill and other intangibles, net................ 627,726 627,726
Total assets....................................... 850,575 850,575
Long-term debt(3).................................. 600,051 552,516
Stockholders' equity............................... 117,902 165,437
OTHER DATA:
EBITDA(4).......................................... $ 110,805 $ 110,805 $ 86,018 $ 86,018
<FN>
- ------------------------------
(1) The unaudited Pro Forma Combined Financial Information should be read in
conjunction with the unaudited Pro Forma Financial Statements included
elsewhere herein. See "Pro Forma Financial Information."
(2) Equivalent shares exclude shares reserved for issuance upon exercise of
stock options or upon conversion of preferred stock, as the effect would be
antidilutive or immaterial.
(3) Includes current portion of long-term debt.
(4) EBITDA represents operating income excluding depreciation, amortization of
goodwill and other assets and nonrecurring charges. EBITDA is presented
because management believes that it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness,
maintain current operating levels of fixed assets and acquire additional
operations and businesses. Accordingly, significant uses of EBITDA include,
but are not limited to, interest and principal payments on long-term debt,
capital expenditures, and acquisitions of new operations or businesses.
However, EBITDA should not be considered as an alternative to operating
income or net income (loss) as a measure of operating results in accordance
with generally accepted accounting principles or to cash flows from
operating, investing or financing activities as a measure of liquidity.
Items excluded from EBITDA, such as depreciation, amortization and
nonrecurring charges, are significant components of Heritage and DIMAC's
operations and should be considered in evaluating the combined company's
pro forma financial performance. Nonrecurring charges are excluded from
EBITDA due to the fact that management does not expect to incur these
charges on a regular basis in the future and does not believe that these
charges should be considered in evaluating the combined company's ability
to service and/or incur indebtedness, maintain current operating levels of
fixed assets and acquire additional operations and businesses in the
future. Investors should be aware that EBITDA as described above may differ
in the method of calculation from EBITDA presented by other companies due
to the exclusion of nonrecurring charges. Nonrecurring charges incurred by
Heritage of $4.9 million relating to compensation expense for stock
appreciation rights are excluded from EBITDA for the year ended December
31, 1994. No nonrecurring operating charges have been recorded by Heritage
or DIMAC during the nine months ended September 30, 1995.
</TABLE>
15
<PAGE>
THE SPECIAL MEETING
GENERAL
The Special Meeting of the Stockholders of DIMAC will be held at The
Ritz-Carlton St. Louis, 100 Carondelet Plaza, St. Louis, Missouri on February
, 1996 at 10:00 a.m. (local time) to (i) consider and vote upon the approval
and adoption of the Merger Agreement and (ii) transact such other business as
may properly come before the Special Meeting or any adjournment thereof.
The DIMAC Board of Directors has unanimously approved the Merger Agreement
and the Merger and the transactions contemplated thereby and has determined that
such transactions are in the best interests of DIMAC and its stockholders. The
DIMAC Board of Directors unanimously recommends that the DIMAC stockholders vote
for approval and adoption of the Merger Agreement and to approve the terms of
the Merger.
RECORD DATE; QUORUM
Only stockholders of record of DIMAC at the close of business on the Record
Date will be entitled to notice of, and to vote at, the Special Meeting. On the
Record Date, there were 6,491,405 shares of DIMAC Common Stock outstanding and
entitled to vote at the Special Meeting. Each holder of shares of DIMAC Common
Stock outstanding on the Record Date is entitled to one vote for each such share
so held, exercisable in person or by properly executed and delivered proxy, at
the Special Meeting. The presence of the holders of at least a majority of the
shares of DIMAC Common Stock outstanding on the Record Date, whether present in
person or by properly executed and delivered proxy, will constitute a quorum for
purposes of the Special Meeting.
VOTE REQUIRED
The affirmative vote of the holders of record of at least a majority of the
outstanding shares of DIMAC Common Stock entitled to vote at the Special Meeting
is necessary to approve and adopt the Merger Agreement and to approve the
Merger. Michael T. McSweeney and the MDC Entities who collectively held, as of
the Record Date, 2,112,881 shares of DIMAC Common Stock, or approximately 32.6%
of the shares of DIMAC Common Stock outstanding, have agreed to vote such shares
in favor of approving and adopting the Merger Agreement.
PROXIES
DIMAC stockholders are requested to complete, date and sign the accompanying
form of proxy and return it promptly to DIMAC in the enclosed postage-paid
envelope. When the accompanying form of proxy is returned properly executed, the
shares of DIMAC Common Stock represented thereby will be voted at the Special
Meeting in accordance with the instructions contained therein; however, a
properly executed proxy marked "ABSTAIN", including a proxy representing shares
held of record by a broker or nominee who has not been given voting instructions
by the beneficial owner, although counted for purposes of determining whether
there is a quorum at the Special Meeting, will not be voted on the approval and
adoption of the Merger Agreement and the terms of the Merger and will have the
same effect as a negative vote on the approval and adoption of the Merger
Agreement and the terms of the Merger. If a proxy is executed and returned
without an indication as to how the shares of DIMAC Common Stock represented
thereby are to be voted, such shares will be voted to approve and adopt the
Merger Agreement and to approve the Merger.
Any DIMAC stockholder giving a proxy pursuant to this solicitation has the
power to revoke it at any time before it is voted at the Special Meeting. A
later dated proxy or written notice of revocation given prior to the vote at the
Special Meeting to the Secretary of DIMAC will serve to revoke such proxy. Also,
a DIMAC stockholder who attends the Special Meeting in person may, if he or she
wishes, vote by ballot at the Special Meeting, thereby cancelling any proxy
previously given. Mere presence at such meeting will not serve to revoke any
proxy previously given.
16
<PAGE>
OTHER MATTERS TO BE CONSIDERED
The DIMAC Board of Directors is not aware of any other matter which will be
brought before the Special Meeting. If, however, other matters are presented,
proxies will be voted in accordance with the discretion of the holders of such
proxies.
SOLICITATION OF PROXIES
In addition to the use of mails, proxies may be solicited by persons
regularly employed by DIMAC, by personal interview, telephone and telegraph.
Such persons will receive no additional compensation for such services, but will
be reimbursed for any out-of-pocket expenses incurred by them in connection with
such services. Arrangements may also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of shares of DIMAC Common Stock held of
record by such persons, and DIMAC may reimburse such persons for reasonable
out-of-pocket expenses incurred by them in connection therewith.
17
<PAGE>
THE MERGER
GENERAL
The terms and conditions of the Merger are set forth in the Merger
Agreement, the text of which is attached to this Proxy Statement/Prospectus as
Appendix A. The summary of the Merger Agreement contained in this Proxy
Statement/Prospectus does not purport to be complete and is qualified in its
entirety by reference to the complete text of such document.
At the time the Merger becomes effective, the Heritage Subsidiary will be
merged with and into DIMAC in accordance with Delaware law. As a result of the
Merger, the separate corporate existence of the Heritage Subsidiary (which was
formed solely for the purposes of the Merger and has not engaged in any
operations or businesses) will cease, and DIMAC will continue its existence as a
separate subsidiary of Heritage.
Upon the consummation of the Merger, each share of DIMAC Common Stock (other
than the Unconverted Shares) will be converted into the right to receive the
Merger Consideration; provided, however, the Heritage Subsidiary may at its
option pay up to $7.00 of the Merger Consideration in shares of Heritage Common
Stock. If the Heritage Subsidiary elects to pay up to $7.00 of the Merger
Consideration in shares of Heritage Common Stock, the number of shares of
Heritage Common Stock comprising the stock portion of the Merger Consideration
will be equal to the quotient determined by dividing the portion of the Merger
Consideration by the Heritage Trading Price (which is the average closing price
of the Heritage Common Stock on the AMEX as published in The Wall Street Journal
for the ten trading days ending on and including the third trading day
preceding, but not including, the effective date of the Merger). To the extent
the Heritage Subsidiary elects to pay a portion of the Merger Consideration in
shares of Heritage Common Stock, any fractional shares resulting from the
conversion of shares of DIMAC Common Stock will entitle the holder to receive
cash. See "The Merger -- No Fractional Shares." Heritage intends to issue a
press release prior to the Special Meeting to announce what portion, if any, of
the Merger Consideration will be paid in Heritage Common Stock. The shares of
capital stock of Heritage outstanding immediately prior to the Merger will not
be affected as a result of the Merger.
BACKGROUND OF THE MERGER
DIMAC is the largest full service direct marketing company in the United
States. Prior to being approached by Heritage in connection with the Merger,
DIMAC had concentrated on expanding its business both internally and through
acquisitions. DIMAC built a broad client base and increased market penetration
by cross-selling services, creating new products and utilizing its business
development group to add new clients. Through acquisitions, DIMAC added clients
in new industries and expanded to provide new services such as television and
video creative services, media buying and telemarketing. This strategy resulted
in an increase in the price of DIMAC Common Stock from $10.00 on August 10,
1994, the date of completion of DIMAC's initial public offering, to $19.00 as of
September 14, 1995, the day before DIMAC became aware of Heritage's possible
interest in pursuing the proposed Merger. Recently, DIMAC completed two major
strategic acquisitions: the acquisition of substantially all of the assets of
Palm Coast Data, Ltd. ("Palm Coast") on May 1, 1995, and the acquisition of
substantially all of the assets of T.R. McClure and Company, Inc. and related
companies ("McClure") on October 2, 1995. The combined purchase price of these
acquisitions had exhausted the funds available for acquisitions under DIMAC's
existing loan agreement (the "Loan Agreement") with National Westminster Bank
Plc, as agent, and the banks signatory thereto.
To address its need for more acquisition financing, in August, 1995, DIMAC
commenced discussions with its lenders to increase and amend its bank facility
in a manner that would enable it to continue to aggressively pursue its
acquisition strategy. At the same time, DIMAC discussed the possibility of a
public offering of DIMAC Common Stock with several potential underwriters. By
early September, 1995, DIMAC had reached an agreement in principle with its
banks to increase its acquisition line of credit and to amend the terms of its
bank facility, subject to the successful
18
<PAGE>
completion of its proposed public offering of 2,000,000 shares of DIMAC Common
Stock and had engaged CS First Boston and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") as underwriters in connection with such offering.
On September 15, 1995, representatives of DLJ approached a director of DIMAC
who is also a partner in McCown De Leeuw & Co., an investment partnership which
indirectly controls approximately 24.8% of the outstanding DIMAC Common Stock,
and indicated that Heritage would be interested in discussing a transaction
whereby Heritage would acquire all of the outstanding DIMAC Common Stock for
cash consideration of between $22.00 and $24.00 per share. The DIMAC Board of
Directors was informed of this indication of interest at its regularly scheduled
quarterly meeting on September 19, 1995. After discussing the matter and
consulting with its legal advisors, the DIMAC Board of Directors concluded that
the consideration discussed was inadequate and not in the best interests of
DIMAC's stockholders. The DIMAC Board of Directors then communicated its
response to the proposal to DLJ.
After being informed of the DIMAC Board of Directors' position, Heritage
stated that for it to consider a possible transaction at a higher price it
required access to certain projections and other information concerning the
business of DIMAC. In light of this request, representatives of DIMAC were
authorized by the DIMAC Board of Directors to negotiate a confidentiality
agreement (the "Confidentiality Agreement") with Heritage which, among other
things, contained standstill provisions prohibiting Heritage or its affiliates
or representatives from acquiring any DIMAC Common Stock. On September 20, 1995,
DIMAC and Heritage entered into the Confidentiality Agreement and DIMAC began to
provide the requested information concerning its business to Heritage. In the
interim, DIMAC continued to (i) prepare its proposed public offering and (ii)
finalize negotiations with its banks to restructure its existing Loan Agreement
in light of its proposed public offering, thereby increasing the amounts
available for acquisitions.
During the period from September 20, 1995 through October 2, 1995,
representatives of Heritage and DLJ met with the management of DIMAC and visited
DIMAC's facilities. In addition, the parties and their legal and financial
advisors had numerous discussions to discuss the structure and the timing of a
potential transaction.
On September 25, 1995, an informal conference call among the directors of
DIMAC was convened, during which call the directors were updated on the current
status of the discussions between the parties. On October 2, 1995, Heritage made
an offer to DIMAC of $25.75 per share. After consulting its directors, DIMAC
rejected this offer as inadequate on October 3, 1995, and Heritage told its
Board of Directors that the transaction had been terminated. Upon the rejection
of this revised offer, David N. Walthall, President of Heritage, telephoned Mr.
McSweeney to indicate his disappointment that no agreement could be reached. On
October 4, 1995, an officer of Heritage telephoned Mr. Beffa to express his
disappointment that no agreement could be reached. In the course of this
conversation, Mr. Beffa indicated that although he did not speak for the Board
of Directors or management, he believed that an increased offer might have been
acceptable to DIMAC under certain conditions. On October 5, 1995,
representatives of DIMAC indicated to Heritage that DIMAC would consider
favorably an offer of $28.00 per share, provided that the other terms of the
offer were satisfactory to the DIMAC Board of Directors.
On October 10, 1995, Heritage agreed to offer $28.00 per share; provided
that Heritage, at its sole option, would have the right to pay up to $7.00 of
the Merger Consideration in Heritage Common Stock. Heritage's offer was subject
to the execution of definitive documentation and certain other conditions,
including an agreement by McCown De Leeuw & Co. and Mr. McSweeney to vote their
shares in favor of the transaction and the execution of employment agreements by
Mr. McSweeney and certain other members of the senior management of DIMAC. The
DIMAC Board of Directors viewed this offer as a sufficient basis on which to
commence negotiations concerning the terms of a merger agreement and to halt the
filing of the registration statement in respect of DIMAC's proposed public
offering.
19
<PAGE>
During the period from October 10 to October 17, 1995, Heritage and DIMAC
representatives met to discuss the structure of the transaction. On October 18,
1995, after individual discussions with members of its Board of Directors, DIMAC
informed Heritage that it would agree to a one-step merger (as opposed to a
tender offer followed by a merger), as requested by Heritage, subject to
Heritage's agreement to limit the termination fee which it had requested and to
make certain other concessions regarding the covenants and conditions in the
Merger Agreement.
On October 19, 1995, a telephonic meeting of the Board of Directors of DIMAC
was held. All directors were present. At this meeting, senior management of
DIMAC reviewed the current status of the proposed merger negotiations and all
other relevant events and developments as of that date. At the close of the
discussion concerning the terms of the Merger Agreement, the DIMAC Board of
Directors authorized its advisors to agree on DIMAC's behalf to a termination
fee not to exceed $4.0 million. Negotiations continued between DIMAC's and
Heritage's advisors, with DIMAC proposing a $2.0 million termination fee. On the
evening of October 20, 1995, negotiations between the parties broke down with
respect to certain unsolved issues, including Heritage's insistence on a $7.5
million termination fee.
On the morning of October 22, 1995, the parties' financial advisors
discussed the level of the termination fee by telephone. Later that morning Mr.
McSweeney and Mr. Walthall discussed the level of the termination fee directly
and agreed on a termination fee of $4.0 million. In addition, Mr. McSweeney
agreed, subject to the approval of the DIMAC Board of Directors that DIMAC would
amend the Confidentiality Agreement to allow Heritage, its affiliates and
representatives to purchase up to an aggregate of 10% of the issued and
outstanding shares of DIMAC Common Stock.
On the evening of October 22, 1995, the DIMAC Board of Directors met to
discuss the proposed transaction. Members of DIMAC's management updated the
DIMAC Board of Directors on the events of earlier that day, indicating the
resolutions of the issues. The DIMAC Board of Directors then engaged in a
lengthy discussion of the terms of the proposed transaction and its benefits and
costs to the DIMAC stockholders. After listening to an oral presentation from CS
First Boston and reviewing, analyzing and discussing the written fairness
opinion of CS First Boston, and after receiving word that the Heritage Board of
Directors had formally voted to extend an offer of the Merger on the terms
previously negotiated between the parties, the DIMAC Board of Directors voted
unanimously to approve the Merger Agreement and the amendment to the
Confidentiality Agreement and to recommend the approval of the Merger to the
DIMAC stockholders. On October 23, 1995, the chief executive officers of DIMAC,
Heritage and the Heritage Subsidiary executed the Merger Agreement and the
amendment to the Confidentiality Agreement.
REASONS FOR THE MERGER AND RECOMMENDATION OF THE DIMAC BOARD OF DIRECTORS
The DIMAC Board of Directors has determined that the terms of the Merger
Agreement, which were established through arm's-length bargaining with Heritage,
and the transactions contemplated thereby, are fair to, and in the best
interests of, DIMAC and its stockholders (other than Heritage). Accordingly, the
DIMAC Board of Directors has unanimously approved the Merger Agreement and
unanimously recommends that the DIMAC stockholders vote for approval and
adoption of the Merger Agreement and the approval of the terms of the Merger. In
reaching its determination, the DIMAC Board of Directors consulted with DIMAC's
management, as well as its legal and financial advisors, and considered and
weighed the following reasons and factors:
(i) An assessment of DIMAC's strategic alternatives, which include
remaining a publicly owned independent company. In this regard, the DIMAC
Board of Directors concluded, following extensive analysis and discussion
with its legal and financial advisors and among the directors, that the
terms of the Merger Agreement provide the best means for holders of DIMAC
Common Stock to maximize the value of their holdings;
20
<PAGE>
(ii) The belief that the Merger will result in a strong combined entity
with (a) complementary businesses, corporate goals and management
philosophies and (b) the financial resources necessary to compete and pursue
growth opportunities in the direct marketing services industry which is
consolidating as a result of increasing client demand for more sophisticated
and integrated marketing services;
(iii) Information relating to the financial performance, prospects and
business operations of each of DIMAC and Heritage (which information
included the historical financial information contained in the periodic
public reports of DIMAC and Heritage and the descriptions of their lines of
business contained in such reports), all of which provided background
information and support for the belief of the DIMAC Board of Directors
described in (ii) above;
(iv) The terms and conditions of the Merger Agreement, including:
(a) the provision requiring that the determination of the Heritage
Trading Price occur three business days before the Effective Time which
provides reasonable assurance to the stockholders that the value to be
received by holders of DIMAC Common Stock will approximate $28.00 per
share; and
(b) the right of DIMAC to negotiate and provide information to third
parties and terminate the Merger Agreement in the event of an unsolicited
Acquisition Proposal, if such action is required in the exercise of the
fiduciary duties of the DIMAC Board of Directors. If such fiduciary duty
termination provision is exercised, DIMAC would be obligated to pay
Heritage up to $1 million of documented fees and $4 million upon
completion of an alternative transaction. The DIMAC Board of Directors
did not view these obligations as unreasonably precluding any third party
from proposing an alternative transaction and concluded that entering
into the Merger Agreement was in the best interests of DIMAC, given the
available strategic alternatives;
(v) The presentation of DIMAC's financial advisor, CS First Boston, and
its written opinion to the effect that, as of October 22, 1995, and based
upon the assumptions made, matters considered and limits of review as set
forth in such opinion, the consideration to be received by the holders of
shares of DIMAC Common Stock (other than Heritage) pursuant to the Merger
Agreement is fair to such holders from a financial point of view; for a
summary of CS First Boston's written opinion, including the assumptions
made, matters considered and limits of review, see "The Merger -- Opinion of
Financial Advisors";
(vi) The trading price of the DIMAC Common Stock since completion of
DIMAC's initial public offering and that the Merger Consideration represents
a premium of approximately 47% over the closing sales price of $19.00 for
the DIMAC Common Stock on AMEX on September 14, 1995, the day before DIMAC
became aware of Heritage's possible interest in pursuing the proposed
Merger, and a premium of 180% over the offering price of the DIMAC Common
Stock in DIMAC's initial public offering, which offering was completed on
August 10, 1994; and
(vii) The prices paid in other recent comparable acquisition
transactions.
The DIMAC Board of Directors believes that each of these factors supports
its recommendation that the DIMAC stockholders approve and adopt the Merger
Agreement and approve the terms of the Merger.
In connection with its deliberations at its October 19 and 22, 1995
meetings, the DIMAC Board of Directors was aware of the potential benefits to be
received in the Merger by Mr. McSweeney and other members of DIMAC's senior
management, as described under "The Merger -- Interests of Certain Persons in
the Merger" other than the incentive plan described under "The Merger --
Interest of Certain Persons in the Merger -- Option Pool" which incentive plan
was agreed to by Heritage and certain executive officers of DIMAC subsequent to
the execution of the Merger Agreement.
21
<PAGE>
The DIMAC Board of Directors believes that DIMAC and the DIMAC stockholders
will receive reasonable protection from a change in circumstances relating to
Heritage between the date of the Proxy Statement/Prospectus and the Effective
Time through (a) the determination of the Heritage Trading Price three business
days before the Effective Time and (b) the inclusion in the Merger Agreement of
a condition to the closing of the Merger to the effect that since June 30, 1995,
no event shall have occurred which would have a material adverse effect on the
business, operations, assets or financial condition of Heritage or its
subsidiaries, taken as a whole.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the DIMAC Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination that
the terms of the Merger Agreement are fair to, and in the best interests of,
DIMAC and its stockholders.
THE DIMAC BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT DIMAC STOCKHOLDERS
VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
OPINION OF FINANCIAL ADVISOR
CS First Boston has acted as financial advisor to DIMAC in connection with
the Merger and has assisted the DIMAC Board of Directors in its examination of
the fairness, from a financial point of view, of the Merger Consideration to be
received by the DIMAC stockholders (other than Heritage).
On October 22, 1995, CS First Boston delivered its written opinion to the
DIMAC Board of Directors to the effect that, as of such date and based upon and
subject to certain matters stated therein, the consideration to be received by
the stockholders of DIMAC (other than Heritage) in the Merger is fair to such
stockholders from a financial point of view. The full text of CS First Boston's
written opinion dated October 22, 1995, which sets forth the assumptions made,
matters considered and limitations on the review undertaken, is attached as
Appendix B to this Proxy Statement/ Prospectus and is incorporated herein by
reference. Holders of DIMAC Common Stock are urged to read this opinion
carefully in its entirety. CS First Boston's opinion is directed to the DIMAC
Board of Directors and the fairness of the consideration to be received by the
stockholders of DIMAC (other than Heritage) in the Merger from a financial point
of view does not address any other aspect of the Merger and does not constitute
a recommendation to any stockholder as to how such stockholder should vote at
the Special Meeting. The summary of the opinion of CS First Boston set forth in
this Proxy Statement/Prospectus is qualified in its entirety by reference to the
full text of such opinion.
In connection with its opinion, CS First Boston (i) reviewed the Merger
Agreement and certain publicly available business and financial information
relating to DIMAC and Heritage; (ii) reviewed certain other information
including financial forecasts provided by DIMAC; (iii) met with the managements
of DIMAC and Heritage to discuss the business and prospects of DIMAC and
Heritage; (iv) considered certain financial and stock market data of DIMAC and
Heritage and compared such data with similar data for other publicly held
companies in businesses similar to those of DIMAC and Heritage; (v) considered
the financial terms of certain other similar transactions which have recently
been effected; and (vi) considered such other information, financial studies,
analyses and investigations and financial, economic and market criteria which CS
First Boston deemed relevant.
In connection with its review, CS First Boston did not assume responsibility
for independent verification of any of the information provided to or otherwise
reviewed by CS First Boston and relied upon its being complete and accurate in
all respects. With respect to the financial forecasts reviewed and discussed, CS
First Boston assumed that such forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective managements of DIMAC and Heritage as to the future financial
performance of DIMAC and Heritage. In addition, CS First Boston did not make an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of DIMAC or Heritage, nor was CS First Boston furnished with any such
evaluations or appraisals. CS First Boston's opinion is necessarily based on
financial, economic, market and
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other conditions as they existed and could be evaluated on the date of its
opinion. CS First Boston expressed no opinion as to what the value of the
Heritage Common Stock actually will be when and if issued to DIMAC's
stockholders pursuant to the Merger or the prices at which such Heritage Common
Stock will trade subsequent to the Merger. CS First Boston was not requested to,
and did not, solicit third party indications of interest in acquiring all or any
part of DIMAC.
In preparing its opinion for the DIMAC Board of Directors, CS First Boston
performed a variety of financial and comparative analyses and considered a
variety of factors, including those described below. The summary of such
analyses does not purport to be a complete description of the analyses
underlying CS First Boston's opinion. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances, and, therefore, such an opinion
is not readily susceptible to summary description.
In arriving at its opinion, CS First Boston did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, CS First Boston believes that its analyses must be considered as a
whole and that selecting portions of its analyses or portions of the factors
considered by it, without considering all analyses and factors, could create a
misleading or incomplete view of the processes underlying such analyses and its
opinion. In its analyses, CS First Boston made numerous assumptions with respect
to DIMAC, Heritage, industry performance, general business, regulatory,
economic, market and financial conditions and other matters, many of which are
beyond the control of DIMAC and Heritage. No company, transaction or business
used in such analyses as a comparison is identical to DIMAC, Heritage or the
Merger, nor is an evaluation of the results of such analyses entirely
mathematical; rather, it involves complex considerations and judgments
concerning financial and operating characteristics and other factors that could
affect the acquisition, public trading or other values of the companies,
business segments or transactions being analyzed. The estimates contained in
such analyses and the ranges of valuations resulting from any particular
analysis are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than those
suggested by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly,
because such estimates are inherently subject to substantial uncertainty, none
of DIMAC, Heritage, CS First Boston or any other person assumes responsibility
for their accuracy.
The following is a summary of the material analyses performed by CS First
Boston.
COMPARABLE COMPANY ANALYSIS. CS First Boston reviewed and compared certain
actual and forecasted financial, operating and stock market information of DIMAC
to selected publicly traded direct marketing and advertising companies
considered by CS First Boston to be reasonably comparable to DIMAC. These
companies included Acxiom Corporation, ADVO Inc., American Business Information
Inc., Catalina Marketing Corporation, DiMark Inc., Harte-Hanks Communications
Inc., and Heritage (the "Comparable Companies"). CS First Boston calculated a
range of market multiples for the Comparable Companies by dividing the market
capitalization (total common shares outstanding plus "in the money" exercisable
options multiplied by the closing market price per share on October 18, 1995
plus latest reported total debt, capitalized leases, preferred stock and
minority interest, minus cash and cash equivalents and option proceeds, the
"Market Capitalization") of each of the Comparable Companies by such company's
sales, earnings before interest, taxes, depreciation and amortization ("EBITDA")
and earnings before interest and taxes ("EBIT") for the latest four quarters as
reported in publicly available information and the 1995 and 1996 fiscal years on
the basis of estimates of selected investment banking firms. This analysis
indicated that the median fiscal 1995 multiples of sales, EBITDA and EBIT for
the Comparable Companies were 1.9x, 9.5x and 12.4x, respectively. CS First
Boston derived the appropriate valuation range for DIMAC by comparing DIMAC's
businesses and performance to those of the Comparable Companies (specifically
considering operating performance, services rendered and technology utilized).
CS First Boston determined that
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the relevant ranges of multiples derived from the Comparable Companies were: (i)
sales: 1.0x - 1.5x; (ii) EBITDA: 8.0x - 10.0x; and (iii) EBIT: 10.0x - 12.5x. CS
First Boston then calculated imputed valuation ranges of DIMAC by applying
forecasted results for DIMAC for fiscal year 1995 to the multiples derived from
its analysis of the Comparable Companies (multiples of net income and book value
were not deemed relevant in a valuation of DIMAC). This analysis resulted in a
reference range of values for DIMAC of $205.0 million to $260.0 million. This
reference range of values was then adjusted for non-operating assets and
liabilities including (i) total debt of $70.3 million as of June 30, 1995; (ii)
cash and cash equivalents of $0.2 million as of June 30, 1995; and (iii)
proceeds of $5.0 million from the assumed exercise of the options outstanding as
of June 30, 1995 (collectively the "Corporate Adjustments") to yield an equity
reference range of values which was then divided by 6,947,905 fully diluted
shares of DIMAC Common Stock (including 456,500 shares issuable upon exercise of
options) outstanding as of June 30, 1995 to yield a valuation reference range
for DIMAC of $20.15 to $28.07 per share.
COMPARABLE TRANSACTION ANALYSIS. CS First Boston analyzed the purchase
prices and multiples paid or proposed to be paid in selected merger or
acquisition transactions using publicly available information in the direct mail
and advertising industries which occurred between 1987 and 1995 including: Moore
Corporation Limited/Wallace Computer Services Inc.; DIMAC/Palm Coast Data; an
Investor Group which included DLJ Merchant Banking Partners/Katz Media Group;
DIMAC/The Direct Marketing Group, Inc.; McCown De Leeuw & Co./DIMAC; Neodata
Corp./Wiland Services; Heritage/ACTMEDIA Inc.; and Donnelly Acquisition
Corp./Metromail, Inc. (the "Comparable Transactions"). CS First Boston selected
these acquisitions based on the comparability of businesses conducted by the
acquired company to that of DIMAC. CS First Boston calculated the adjusted
purchase price (purchase price plus total assumed debt less assumed cash) as a
multiple of sales, EBITDA and EBIT of each acquired company for the four
quarters immediately preceding the announcement of the acquisition of such
company. CS First Boston determined that the relevant ranges of multiples
derived from the Comparable Transactions were: (i) sales: 1.2x - 1.6x; (ii)
EBITDA: 10.0x - 12.0x; and (iii) EBIT: 10.0x - 15.5x. CS First Boston then
calculated imputed valuation ranges of DIMAC by applying historical results for
the four quarters immediately preceding the announcement of the transaction to
the multiples derived from its analysis of the Comparable Transactions
(multiples of net income and book value were not deemed relevant in a valuation
of DIMAC). Using such information, CS First Boston derived a reference range of
values for DIMAC of $190.0 million to $260.0 million. This reference range of
values was then adjusted for the Corporate Adjustments and then divided by
6,947,905 fully diluted shares of DIMAC Common Stock (including 456,500 shares
issuable upon exercise of options) outstanding as of June 30, 1995 to yield a
valuation reference range for DIMAC of $17.99 to $28.07 per share.
DISCOUNTED CASH FLOW ANALYSIS. CS First Boston performed a discounted cash
flow analysis of the projected cash flow of DIMAC for the periods 1995 through
2005 based in part upon certain operating and financial assumptions, forecasts
and other information provided by the management of DIMAC. Using the financial
information set forth by management, CS First Boston calculated the estimated
free cash flow based on forecasted unleveraged net income (earnings before
interest and after taxes) adjusted for: (i) certain forecasted non-cash terms
(i.e., depreciation and amortization); (ii) forecasted capital expenditures; and
(iii) forecasted non-cash working capital investment. CS First Boston analyzed
the financial information provided by management and discounted the stream of
free cash flows provided in such forecast back to January 1, 1996 using discount
rates ranging from 11.5% to 12.5%. To estimate the residual value of DIMAC at
the end of the forecast, CS First Boston applied a range of terminal multipliers
of 7.0x to 8.0x to the forecasted fiscal year 2005 EBITDA and discounted such
value estimates back to January 1, 1996 using discount rates ranging from 11.5%
to 12.5%. The range of discount rates was selected based on a variety of factors
including analysis of the estimated cost of capital and capital structures for
companies operating in businesses similar to that in which DIMAC operates, and
the range of terminal year multiples was selected based on the trading multiples
for such companies. CS First Boston then summed the present values of the free
cash flows and the present values of the residual value to derive a reference
range of values for DIMAC of approximately
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$232.0 million to $269.0 million. This reference range of values was then
adjusted for the Corporate Adjustments and then divided by 6,947,905 fully
diluted shares of DIMAC Common Stock (including 456,500 shares issuable upon
exercise of options) outstanding as of June 30, 1995 to yield a valuation
reference range for DIMAC of $24.03 to $29.36 per share.
OTHER FACTORS AND ANALYSES. In the course of preparing its opinion, CS
First Boston performed certain other analyses and reviewed certain other
matters, including, among other things, (i) trading characteristics of DIMAC and
Heritage, (ii) financing considerations relating to the Merger and (iii) pro
forma capitalization of the combined company.
CS First Boston is a nationally recognized investment banking firm and as
part of its investment banking business, CS First Boston is regularly engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuation for estate, corporate and
other purposes. DIMAC selected CS First Boston as its financial advisor because
of CS First Boston's experience and expertise in transactions similar to the
Merger and because of its familiarity with DIMAC's business. CS First Boston
previously had served as the lead underwriter of DIMAC's initial public offering
in August 1994 and, at the time at which the Merger was proposed, was acting as
lead underwriter for a proposed public offering of additional shares of DIMAC
Common Stock.
For its services in connection with the Merger, CS First Boston will receive
an aggregate fee comprised of (i) an initial advisory fee of $150,000 plus (ii)
a transaction fee of $1,350,000, of which $600,000 became payable upon delivery
of CS First Boston's opinion of October 22, 1995 and the balance becomes payable
upon consummation of the Merger. DIMAC also has agreed to reimburse CS First
Boston for its out-of-pocket expenses, including the fees and expenses of legal
counsel and other advisors, and to indemnify CS First Boston and certain related
persons or entities against certain liabilities, including liabilities under the
federal securities laws, relating to or arising out of its engagement. In the
ordinary course of its business, CS First Boston and its affiliates may actively
trade the debt and equity securities of both DIMAC and Heritage for their own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities. CS First Boston has performed
certain investment banking services for DIMAC and for Heritage in the past and
received customary fees for such services.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of DIMAC's Board of Directors, DIMAC
stockholders should be aware that certain members of management and of the DIMAC
Board of Directors have interests in the Merger beyond the interests of DIMAC
stockholders generally which may create potential conflicts of interest.
EMPLOYMENT AGREEMENTS. Simultaneously with the execution and delivery of
the Merger Agreement, each of Messrs. McSweeney, Beffa, Middeke, Myers and Kerr
entered into three-year Retention and Non-Competition Agreements with DIMAC and
Heritage.
Pursuant to the McSweeney Retention Agreement and in consideration of Mr.
McSweeney's willingness to continue his employment with DIMAC through December
31, 1998, DIMAC and Heritage have agreed that the Merger will not result in any
diminution or adverse change in (i) Mr. McSweeney's duties and responsibilities
to DIMAC, (ii) his organizational position or reporting relationships or (iii)
his base salary, bonus or employee benefits. Mr. McSweeney will receive such
benefits until the earliest to occur of (i) DIMAC terminating the McSweeney
Retention Agreement for "cause", (ii) Mr. McSweeney's death or total disability,
(iii) the date Mr. McSweeney terminates such agreement for any reason other than
a breach of such agreement by DIMAC or (iv) December 31, 1998. The McSweeney
Retention Agreement provides that as of July 1, 1997 Mr. McSweeney will be
entitled to devote only a portion of his business time to DIMAC and will
relinquish his title and responsibilities as chief executive officer of DIMAC.
For purposes of the McSweeney Retention Agreement, "cause" shall mean (i)
conviction of a felony; (ii) willful and continued refusal to follow
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reasonable instructions of the DIMAC Board of Directors which are material to
the operations or prospects of DIMAC after notice of and an opportunity to cure
the deficiency; (iii) failure by Mr. McSweeney, prior to July 1, 1997 to devote
substantially all of his time during business hours to DIMAC after notice of and
opportunity to cure the deficiency; or (iv) failure by Mr. McSweeney, after July
1, 1997 to devote less than the scheduled amount of his time (not to exceed 10
days per month) to DIMAC, after notice of and an opportunity to cure the
deficiency. In further consideration of the benefits received under the
McSweeney Retention Agreement, Mr. McSweeney has agreed that, without the prior
written approval of the DIMAC Board of Directors, he will not directly or
indirectly, in any capacity participate in, engage in, own or invest in any
business which is engaged in providing direct marketing services in the United
States for a period ending two years after the termination of the McSweeney
Retention Agreement.
Pursuant to the terms of the Executive Retention Agreements and in
consideration of the willingness of each of Messrs. Beffa, Middeke, Myers and
Kerr to continue his employment with DIMAC through December 31, 1998, DIMAC and
Heritage have agreed that the Merger will not result in any diminution or
adverse change on (i) such Executives' respective duties and responsibilities to
DIMAC, (ii) such Executives' respective organizational position or reporting
relationships or (iii) such Executives' respective base salary, bonus or
employee benefits; it being understood that, during the term of the Executive
Retention Agreements, DIMAC will increase such Executive's base salary on
January 1 of each year by an amount equal to such Executive's base salary
multiplied by the percentage increase in the cost of living index over the past
twelve months. Each of Messrs. Beffa, Middeke, Myers and Kerr will continue to
receive benefits under their respective Executive Retention Agreement until the
earliest to occur of (i) the termination of such agreement by DIMAC for "cause",
(ii) the date on which such agreement is terminated by DIMAC other than for
"cause" and DIMAC pays such Executive 24 months base salary and medical/health
benefits, fully vests such Executive's stock options and releases such Executive
from the non-solicitation provisions of such Executive's Executive Retention
Agreement, (iii) the death or total disability of such Executive, (iv) the
termination of such agreement by such Executive for any reason other than breach
by DIMAC, or (v) December 31, 1998 (subject to automatic one year extensions
unless notice to the contrary is provided at least one year in advance). For
purposes of the Executive Retention Agreements, "cause" shall mean (i)
conviction of a felony, (ii) willful and continued refusal by any Executive to
follow reasonable instructions of the DIMAC Board of Directors which are
material to the operations or prospects of DIMAC after notice of and an
opportunity to cure the deficiency, or (iii) failure by such Executive to devote
less than substantially all of his time during business hours to DIMAC after
notice of and opportunity to cure the deficiency.
In addition to such benefits, under the Executive Retention Agreements, each
Executive will also be entitled to receive from Heritage on the effective Date a
number of Additional Options, granted under terms identical to those of options
granted to other optionees of Heritage, equal to the quotient of 200% of such
Executive's base salary divided by the Heritage Trading Price. Assuming a
Heritage Trading Price of $26.75 (the closing price of the Heritage Common Stock
in the AMEX for November 17, 1995, as reported in The Wall Street Journal),
Messrs. Beffa, Middeke, Myers and Kerr will be granted 14,953, 11,962, 13,084
and 10,766 options to purchase shares of Heritage Common Stock, respectively,
pursuant to the terms of their respective Executive Retention Agreements. The
Additional Options will be exercisable at the Heritage Trading Price and will be
in addition to any options to purchase shares of Heritage Common Stock received
as the result of the conversion of any DIMAC options to purchase DIMAC Common
Stock into options to purchase shares of Heritage Common Stock pursuant to the
terms of the Merger Agreement. See "-- DIMAC Option Plans". In further
consideration of the benefits received under the Executive Retention Agreements,
each of Messrs. Beffa, Middeke, Myers and Kerr has agreed that, without the
prior written approval of the DIMAC Board of Directors, he will not directly or
indirectly, in any capacity, participate in, engage in, own or invest in any
business which is engaged in providing direct marketing services in the United
States other than in a capacity which does not involve soliciting DIMAC's
costumers or prospects or
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soliciting or otherwise inducing DIMAC's employees to leave DIMAC's employ or
misappropriating confidential or proprietary information of DIMAC, for a period
ending two years after the termination of such Executive's Executive Retention
Agreement.
DIMAC OPTION PLANS. The Merger will result in the acceleration of
exercisability and vesting of stock options granted under the DIMAC Plan and the
Directors' Plan. If a holder of options granted under the DIMAC Plan wishes to
obtain the Merger Consideration in lieu of converting such option pursuant to
the terms of the Merger Agreement, such holder must exercise such options for
shares of DIMAC Common Stock pursuant to their terms and then surrender such
shares of DIMAC Common Stock in exchange for the Merger Consideration in
accordance with the terms of the Merger Agreement. Pursuant to the Merger
Agreement, and to the extent such options have not been previously exercised,
holders of options under the DIMAC Plan will have each such option converted at
the Effective Time into an option to purchase shares of Heritage Common Stock,
exercisable for that number of shares of Heritage Common Stock which is equal to
the number of shares of DIMAC Common Stock for which such option is currently
exercisable multiplied by the Conversion Factor at an exercise price equal to
the exercise price per share of DIMAC Common Stock applicable to such option
divided by the Conversion Factor.
Options granted pursuant to the Directors' Plan will be convertible,
pursuant to the terms of the Merger Agreement, into options to purchase shares
of Heritage Common Stock on the same basis as holders of options under the DIMAC
Plan, except that each holder of options under the Directors' Plan will have the
option to elect to receive cash, in an amount equal to the product of the total
number of shares of DIMAC Common Stock for which such option is currently
exercisable multiplied by the excess of Merger Consideration over the exercise
price per share of the DIMAC Common Stock which is subject to such option (the
"Converted Option Consideration"). In the event that Heritage elects to pay a
portion of the Merger Consideration in Heritage Common Stock, the same pro rata
portion of the Converted Option Consideration will also be payable in Heritage
Common Stock.
Pursuant to the foregoing treatment of awards under the DIMAC Plan and the
Directors' Plan, and assuming a Heritage Trading Price of $26.75, Mr. McSweeney,
who has expressed an intention not to exercise his options under the DIMAC Plan
prior to the Effective Time, would receive 162,242 immediately exercisable
options to purchase shares of Heritage Common Stock at an average exercise price
of $10.33. The other four senior officers of DIMAC would be entitled to receive
cash, or, in the event Heritage elects to pay a portion of the Merger
Consideration in shares of Heritage Common Stock, cash and Heritage Common
Stock, with an aggregate value of approximately $5,096,000, assuming that all
such senior officers elected to exercise all of their options under the DIMAC
Plan. In the event such officers elect to exercise none of their options under
the DIMAC Plan, then such officers would receive an aggregate of 190,504 options
to purchase shares of Heritage Common Stock at an average exercise price of
$11.79. Additionally, pursuant to the Merger Agreement, Messrs. Ingram and
Galloway, outside directors of DIMAC, would be entitled to receive an aggregate
of 7,850 immediately exercisable options to purchase shares of Heritage Common
Stock at an average exercise price of $8.06 in exchange for the options each
currently holds under the Directors' Plan. In the event that Messrs. Ingram and
Galloway elect to receive cash for their options granted under the Directors'
Plan, pursuant to the terms of the Merger Agreement, Messrs. Ingram and Galloway
will be entitled to receive cash or, in the event that Heritage elects to pay a
portion of the Merger Consideration in Heritage Common Stock, cash and shares of
Heritage Common Stock, with an aggregate value of approximately $210,000.
VOTING AGREEMENTS. On October 23, 1995, the Heritage Subsidiary entered
into agreements with the MDC Entities and with Mr. McSweeney, pursuant to which
such DIMAC stockholders agreed to vote all of their shares of DIMAC Common Stock
in favor of the Merger at the Special Meeting and to refrain from asserting any
appraisal rights. These agreements by such stockholders to vote their shares
will not apply if the DIMAC Board of Directors has withdrawn or materially
modified or changed its recommendation that the stockholders of DIMAC approve
the Merger Agreement and the
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Merger and as a result thereof the Merger Agreement has been terminated. As of
the Record Date, the MDC Entities and Mr. McSweeney owned, collectively,
2,112,881 shares of DIMAC Common Stock or approximately 32.6%, of the shares of
DIMAC Common Stock outstanding.
OPTION POOL. Subsequent to the execution of the Merger Agreement, Heritage
agreed to reserve shares of Heritage Common Stock for grant under its stock
option plan pursuant to an incentive plan for certain executive officers of
DIMAC. The options will be granted if DIMAC achieves certain specified levels of
EBITDA for the years ending December 31, 1996, 1997 and 1998. If DIMAC achieves
the targeted EBITDA level in the applicable year, Heritage will grant 200,000
options to purchase shares of Heritage Common Stock to certain executive
officers of DIMAC selected by the DIMAC chief executive officer with the
concurrence of the Heritage chief executive officer but excluding the DIMAC
chief executive officer as an optionee. If DIMAC achieves less than 100%, but at
least 90% of the targeted EBITDA level, Heritage will reduce the number of
options granted by a proportionate amount. No options will be granted if DIMAC
fails to achieve at least 90% of the targeted EBITDA level. If DIMAC exceeds the
targeted EBITDA level, Heritage will increase the number of options granted by a
proportionate amount, such that if DIMAC exceeds the targeted level by 10% or
more, a total of 400,000 options will be granted in such fiscal year. The
options will be granted when the audited financial statement of DIMAC are
available for the applicable fiscal year. The options will have an exercise
price equal to the closing price for Heritage Common Stock on the date of grant
and will vest over a two-year period.
DIRECTOR AND OFFICER INDEMNIFICATION AND INSURANCE. DIMAC and Heritage
agreed in the Merger Agreement to indemnify after the Effective Time DIMAC's and
any of its current subsidiaries' current and former officers and directors for
any losses, claims, damages and other liabilities and costs suffered by such
persons as a result of claims made against such persons because they were a
stockholder, director, officer, employee or agent of DIMAC or its subsidiaries
or serving at the request of DIMAC or any of its subsidiaries as a director,
officer, employee or agent of another entity to the fullest extent permitted by
applicable law; provided, however, that DIMAC and Heritage will have no such
indemnity obligation if a court of competent jurisdiction finally and
non-appealably determines that such indemnification is prohibited by applicable
law. In addition, the Merger Agreement provides that (i) all rights of
indemnification existing in favor of the officers and directors of DIMAC and its
subsidiaries shall survive the Merger, (ii) for six years after the Effective
Time, DIMAC will maintain its directors' and officers' liability insurance for
the benefit of its directors and officers or extend Heritages' directors' and
officers' liability insurance, if any, to cover the DIMAC officers and
directors, provided, that the coverage extended thereby shall be no less
advantageous to such officers and directors than the coverage afforded by the
DIMAC insurance policies, and (iii) Heritage will not amend or repeal any
provisions of the Certificate of Incorporation or Bylaws of DIMAC in any manner
which would adversely affect the indemnification or exculpatory provisions
contained therein.
EFFECTIVE TIME AND CONSEQUENCES OF THE MERGER
If approved by the requisite vote of the stockholders of DIMAC and if all
other conditions to the consummation of the Merger are satisfied or waived, the
Merger will become effective, unless the Merger Agreement is terminated as
provided therein, upon the making of certain filings with the Secretary of State
of the State of Delaware pursuant to the Delaware General Corporation Law
("DGCL"). At the Effective Time, the Heritage Subsidiary will be merged with and
into DIMAC, which will be the surviving corporation in the Merger, and the
separate corporate existence and identity of the Heritage Subsidiary will cease.
The corporate existence and identity of DIMAC will continue unaffected by the
Merger, although it will become a subsidiary of Heritage.
It is currently contemplated that the Effective Time of the Merger will
occur as promptly as practicable after the approval of the Merger by the DIMAC
stockholders at the Special Meeting of DIMAC, subject to the conditions
described under "Conditions to Merger."
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Upon completion of the Merger, each share of DIMAC Common Stock (other than
the Unconverted Shares) will be converted into the right to receive the Merger
Consideration; provided, however, the Heritage Subsidiary at its option (which
may be elected at any time prior to the Effective Time) may pay up to $7.00 of
the Merger Consideration in shares of Heritage Common Stock. If the Heritage
Subsidiary elects to pay up to $7.00 of the Merger Consideration in shares of
Heritage Common Stock, the number of shares of Heritage Common Stock comprising
the stock portion of the Merger Consideration will be equal to the quotient
determined by dividing the stock portion of the Merger Consideration by the
Heritage Trading Price.
The directors of the Heritage Subsidiary will be the directors of the
surviving corporation after the Effective Time. The officers of DIMAC will be
the officers of the surviving corporation after the Effective Time.
In the event that the DIMAC stockholders fail to approve the Merger, DIMAC
will seek alternate sources of financing and will continue to pursue its
business strategy, including its policy of seeking suitable acquisition
candidates that will provide DIMAC with access to new markets and offer
opportunities for DIMAC to broaden the range of services it offers.
EXCHANGE OF CERTIFICATES REPRESENTING DIMAC SHARES
Instructions with regard to the surrender of DIMAC stock certificates,
together with a letter of transmittal to be used for this purpose, will be
mailed to the DIMAC stockholders as promptly as practicable after the Effective
Time. In order to receive the Merger Consideration, the stockholders of DIMAC
will be required to surrender their stock certificates after the Effective Time,
together with a duly completed and executed letter of transmittal, to an
exchange agent (the "Exchange Agent") selected by Heritage. Promptly after the
Effective Time, Heritage will deposit in trust with the Exchange Agent the cash
amount of the Merger Consideration and, to the extent applicable, certificates
representing the number of whole shares of Heritage Common Stock to which the
holders of shares of DIMAC Common Stock (other than the holders of Unconverted
Shares) are entitled to receive in the Merger together with cash sufficient to
pay for fractional shares. Upon receipt of such stock certificates and letter of
transmittal (or, in the case of holders of options under the Directors' Plan,
notice of the making of the appropriate election pursuant to the terms of the
Merger Agreement), the Exchange Agent will deliver the Merger Consideration to
the registered holder or his transferee of the shares of DIMAC Common Stock. No
interest will be paid or accrued on the amounts payable upon the surrender of
DIMAC stock certificates.
STOCKHOLDERS OF DIMAC SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES FOR
EXCHANGE UNTIL THE INSTRUCTIONS AND LETTER OF TRANSMITTAL ARE RECEIVED.
If the Merger Consideration is to be delivered to a person other than the
person in whose name the certificate for the shares of DIMAC Common Stock
surrendered in exchange therefor is registered, it will be a condition of such
payment of such Merger Consideration that the stock certificate so surrendered
be properly endorsed and otherwise in proper form for transfer, and that the
person requesting such payment (i) pay in advance any transfer or other taxes
required by reason of the payment of the Merger Consideration to a person other
than the registered holder of the DIMAC stock certificate surrendered or (ii)
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not applicable.
After the Effective Time, there will be no further transfers on the stock
transfer books of DIMAC of the shares of DIMAC Common Stock that were
outstanding immediately prior to the Effective Time. If a certificate
representing such shares is presented for transfer, subject to compliance with
the requisite transmittal procedures, it will be cancelled and exchanged for the
Merger Consideration.
Each certificate representing shares of DIMAC Common Stock immediately prior
to the Effective Time (other than the Unconverted Shares) will, at the Effective
Time, be deemed for all purposes to represent only the right to receive the
Merger Consideration into which the shares of DIMAC Common Stock represented by
such certificate were converted in the Merger.
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Until a certificate which formerly represented shares of DIMAC Common Stock
is actually surrendered for exchange and received by the Exchange Agent and to
the extent shares of Heritage Common Stock are issued in the Merger, the holder
thereof will not be entitled to vote or receive any dividends or other
distributions with respect to the shares of Heritage Common Stock payable to
holders of record after the Effective Time. Subject to applicable law, upon such
surrender of DIMAC stock certificates such dividends or other distributions will
be remitted (without interest) to the record holder of certificates for the
shares of Heritage Common Stock issued in exchange therefor to the extent
applicable.
Any Merger Consideration delivered or made available to the Exchange Agent
and not exchanged for DIMAC stock certificates within six months after the
Effective Time will be returned by the Exchange Agent to Heritage, which will
thereafter act as Exchange Agent. None of Heritage, DIMAC or the Exchange Agent
will be liable to a holder of shares of DIMAC Common Stock for any of the Merger
Consideration delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
TREATMENT OF OUTSTANDING OPTIONS
The Merger Agreement provides that all options outstanding at the Effective
Time under the DIMAC Plan and the Directors' Plan shall remain outstanding
following such time and shall, by virtue of the Merger and without any further
action on the part of DIMAC or the holder of any such option, be assumed by
Heritage in accordance with their terms and conditions as in effect at the
Effective Time (and the terms and conditions of the DIMAC Plan and the option
award agreement associated with such option or the Directors' Plan, as the case
may be) except that each such option shall be immediately exercisable for that
whole number of shares of Heritage Common Stock (rounded to the nearest whole
share) equal to the number of shares of DIMAC Common Stock for which such option
is currently exercisable multiplied by the Conversion Factor at an exercise
price equal to the exercise price per share of DIMAC Common Stock applicable to
such option divided by the Conversion Factor. In lieu of such conversion, each
holder of options granted under the Directors' Plan may elect to have his
options no longer exercisable to purchase shares of DIMAC Common Stock (each
such option a "Converted Option") and, thereafter, be entitled, in cancellation
and settlement therefor, to receive consideration (the "Converted Option Price")
in cash at the Effective Time, in an amount equal to the product of the total
number of shares of DIMAC Common Stock and the excess of the Merger
Consideration over the exercise price per share of the DIMAC Common Stock
subject to such Converted Option. In the event that the Heritage Subsidiary
elects to pay a portion of the Merger Consideration in Heritage Common Stock,
the Heritage Subsidiary will also pay the same pro rata portion of the Converted
Option Price in Heritage Common Stock. If a holder of options granted under the
DIMAC Plan wishes to obtain the Merger Consideration in lieu of converting such
option pursuant to the terms of the Merger Agreement, such holder must exercise
such options for shares of DIMAC Common Stock pursuant to their terms and then
surrender such shares of DIMAC Common Stock in exchange for the Merger
Consideration in accordance with the terms of the Merger Agreement.
NO FRACTIONAL SHARES
To the extent the Heritage Subsidiary elects to pay a portion of the Merger
Consideration or the Converted Option Consideration with shares of Heritage
Common Stock, no fractional shares of Heritage Common Stock will be issued in
connection with the Merger. All fractional shares of Heritage Common Stock to
which a holder of shares of DIMAC Common Stock immediately prior to the
Effective Time or a holder of options granted under the Directors' Plan would
otherwise be entitled will be aggregated. If a factional share results from such
aggregation, the DIMAC stockholder will be entitled to receive an amount in cash
equal to the Heritage Trading Price multiplied by the fraction of a share of
Heritage Common Stock which the DIMAC stockholder would otherwise have received.
Except for such payment, no DIMAC stockholder will be entitled to any dividends
or other distributions or other rights of stockholders with respect to any
fractional interest.
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CONDITIONS TO THE MERGER
In addition to customary conditions, the obligations of Heritage, DIMAC and
the Heritage Subsidiary to consummate the Merger are subject to the satisfaction
or, where permitted, waiver of certain other conditions, including the absence
of any preliminary or permanent injunction or other order issued by any court or
by any governmental or regulatory agency or authority to prohibit the
consummation of the Merger.
In addition, Heritage's obligation to consummate the Merger is subject to
various additional conditions, including the absence of any material adverse
change in DIMAC.
DIMAC's obligation to consummate the Merger is subject to various additional
conditions, including (a) approval and adoption of the Merger Agreement by the
affirmative vote of a majority of the DIMAC Shares; (b) the authorization for
listing on the AMEX of the Heritage Shares to be issued in the Merger and upon
the exercise of the DIMAC options; and (c) the absence of any stop order
suspending the effectiveness of the Registration Statement or preventing the use
thereof or any related prospectus.
AMENDMENT OF THE MERGER AGREEMENT; WAIVER OF CONDITIONS
The respective Boards of Directors of Heritage, the Heritage Subsidiary and
DIMAC may, by written agreement, at any time before or after the approval of the
Merger Agreement by the DIMAC stockholders, amend the Merger Agreement, provided
that after such stockholder approval no amendment or modification may be made
that would materially adversely affect the rights of DIMAC stockholders without
the further approval of such stockholders. Each party may, to the extent legally
permitted, extend the time for the performance of any of the obligations of any
other party to the Merger Agreement, waive any inaccuracies in the
representations or warranties of any other party contained in the Merger
Agreement, waive compliance or performance by any other party with any
covenants, agreements or obligations contained in the Merger Agreement or waive
the satisfaction of any condition that is precedent to its performance under the
Merger Agreement.
FEES AND EXPENSES
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such costs or expenses, except as provided
under "-- Termination Fee." Heritage and DIMAC estimate that the total expenses
of the Merger, exclusive of costs associated with Heritage's financing of the
Merger, will aggregate approximately $5.6 million. These expenses include
financial advisor fees and expenses, legal and accounting fees and expenses,
printing and other costs related to the Special Meeting and exchange
agent/transfer agent fees and expenses.
CERTAIN COVENANTS
The Merger Agreement provides that DIMAC will not directly or indirectly (i)
solicit or initiate discussions with or (ii) enter into any negotiations or
agreements with, or furnish any information to, any third party concerning any
Acquisition Proposal involving DIMAC; provided, however, that DIMAC may take the
actions prohibited by (ii) above if such action is taken by, or upon the
authority of, the DIMAC Board of Directors in the exercise of its good faith
judgment as to its fiduciary duties to the DIMAC stockholders, which judgment is
based upon the advice of independent, outside legal counsel that a failure of
the DIMAC Board of Directors to take such action would be likely to constitute a
breach of its fiduciary duties to such stockholders. DIMAC has agreed to notify
Heritage promptly if DIMAC becomes aware that any inquiries or proposals are
received by, any information is requested from or any negotiations or
discussions are sought to be negotiated with, DIMAC with respect to an
Acquisition Proposal and to deliver to Heritage any written inquiries or
proposals received by DIMAC relating to an Acquisition Proposal, except, in each
case, to the extent that DIMAC receives advice from independent, outside counsel
that providing such information would be likely to result in a breach of the
fiduciary duties of the DIMAC Board of Directors to the DIMAC stockholders.
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Each of DIMAC and Heritage agreed (and agreed to cause its subsidiaries),
among other things, prior to the consummation of the Merger, unless required in
connection with Merger or previously disclosed to the other, (i) to carry on its
business in the ordinary and regular course in substantially the same manner as
conducted prior to the Merger Agreement and not engage in any new line of
business; (ii) not to amend its Certificate or Articles of Incorporation or
Bylaws; (iii) not to declare, pay or set aside for payment any dividend or other
distribution in respect of its capital stock and not redeem any shares of the
capital stock or other securities issued by it; (iv) to advise the other in
writing of any event or existence of fact that would make any of its
representations and warranties in the Merger Agreement to be untrue in any
material respect or would otherwise have a material adverse effect on it; (v) to
use its reasonable efforts to perform its obligations under the Merger Agreement
and to do all things reasonably necessary under applicable law to obtain all
regulatory approvals and to defend any proceeding which questions the validity
or legality of the Merger or the other transactions contemplated by the Merger
Agreement; and (vi) to promptly give written notice to the other of (A) the
occurrence of any event which would be likely to cause any representation or
warranty of it contained in the Merger Agreement to be untrue in any material
respect or that may result in the failure to satisfy any of the conditions to
the parties obligations to consummate the Merger and (B) any failure of it to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it under the Merger Agreement.
In addition, DIMAC agreed (and agreed to cause its subsidiaries), among
other things, prior to the consummation of the Merger, unless required in
connection with Merger or previously disclosed to Heritage, (i) not to enter
into any material agreement, transaction or activity or make any material
commitment except those in the ordinary and regular course of business and not
otherwise prohibited under the Merger Agreement; (ii) other than pursuant to the
exercise of the options outstanding on the date of the Merger Agreement, not
issue, sell or grant options, warrants or rights to purchase or subscribe to, or
enter into any arrangement or contract with respect to the issuance or sale of
any of the capital stock of DIMAC or its subsidiaries or rights or obligations
convertible into or exchangeable for any shares of the capital stock of DIMAC or
any of its subsidiaries and not alter the terms of any presently outstanding
options or the DIMAC Plan or the Directors' Plan (other than certain changes to
the Non-Qualified Stock Option Award Agreements under the DIMAC Plan to allow
the options granted pursuant to such agreements to vest and become immediately
exercisable upon the adoption and approval of the Merger Agreement by the DIMAC
stockholders) or make any changes (by split-up, combination, reorganization or
otherwise) in the capital structure of DIMAC or any of its subsidiaries; (iii)
not acquire or enter into any agreement to acquire, by merger, consolidation or
purchase of stock or assets, any business or entity; (iv) not (A) create, incur
or assume any debt (including obligations in respect of capital leases which
individually involve annual payments in excess of $250,000) or, except in the
ordinary course of business under existing lines of credit, create, incur or
assume any short-term debt for borrowed money, (B) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person other than its subsidiaries
except in the ordinary course of business, (C) make any loans or advances to any
other person other than its subsidiaries, except in the ordinary course of
business and consistent with past practice, or (D) make any capital
contributions to, or investments in, any person other than its subsidiaries
except in the ordinary course of business; provided, however, that the aggregate
amount of all of the liabilities, obligations, loans, contributions, investments
and other actions described in (A) through (D) above that would otherwise be
permitted shall not in the aggregate exceed $1,000,000 at the Effective Time;
(v) to confer in good faith and on a regular and frequent basis with one or more
representatives of Heritage on operational matters of materiality and the
general status of ongoing operations and to allow Heritage's employees and
agents to be present at DIMAC's locations to observe the business and operations
of DIMAC and its subsidiaries; (vi) not (A) enter into, modify or extend in any
manner the terms of any employment, severance or similar agreements with
officers and directors, (B) grant any increase in the compensation of officers
or directors, whether now or payable after the date of the Merger Agreement, or
(C) grant any increase in the compensation of any other employees except for
compensation increases in the ordinary course of business and consistent
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with past practice (including any increase pursuant to any option, bonus, stock
purchase, pension, profit-sharing, deferred compensation, retirement or other
plan, arrangement, contract or commitment); (vii) not make or incur (other than
in the ordinary course of business or those capital expenditures set forth made
pursuant to contracts entered into prior to the date of the Merger Agreement)
any individual capital expenditure in excess of $500,000 or capital expenditures
in the aggregate in excess of $2,000,000 without the prior approval of Heritage;
(viii) except in instances which would not have a material adverse effect on the
business, operations, assets or financial condition of DIMAC, perform all of its
material obligations under all material contracts (except those being contested
in good faith) and not enter into, assume or amend any material contract or
commitment other than contracts to provide services entered into in the ordinary
course of business; and (ix) except in instances which would not have a material
adverse effect on the business, operations, assets or financial condition of
DIMAC, prepare and file all federal, state, local and foreign returns for taxes
and other tax reports, filings and amendments thereto required to be filed by
it, and allow Heritage, at its request, to review all such returns, reports,
filings and amendments.
TERMINATION OF MERGER AGREEMENT
The Merger Agreement may be terminated and the Merger abandoned, at any time
prior to the Effective Time, whether before or after the approval by the DIMAC
stockholders, (i) by the mutual consent of Heritage and DIMAC; (ii) by Heritage
if there has been a material misrepresentation or breach of warranty in the
representations and warranties of DIMAC made in the Merger Agreement or there
has been a material failure by DIMAC to comply with its obligations under the
Merger Agreement; (iii) by DIMAC if there has been a material misrepresentation
or breach of warranty in the representations and warranties of Heritage made in
the Merger Agreement or there has been a material failure by Heritage to comply
with its obligations under the Merger Agreement; (iv) by either Heritage or
DIMAC if all conditions to that party's obligation to consummate the Merger have
not been satisfied or waived by March 31, 1996, unless such failure of
consummation is due to the failure of the terminating party to perform or
observe the covenants, agreements, and conditions of the Merger Agreement to be
performed or observed by it; (v) by either Heritage or DIMAC if the consummation
of the Merger would violate any nonappealable final order, decree or judgment of
any court or governmental body or agency having competent jurisdiction; (vi) by
DIMAC if in the exercise of the good faith judgment of its Board of Directors
(which judgment is based upon the advice of independent, outside legal counsel)
as to its fiduciary duties to its stockholders such termination is required by
reason of an Acquisition Proposal or, if the DIMAC Board of Directors of DIMAC
withdraws or materially modifies or changes its recommendation to its
stockholders to approve the Merger Agreement and the Merger if there exists at
such time an Acquisition Proposal for DIMAC and such change in recommendation is
based upon the advice of independent, outside legal counsel; or (vii) by
Heritage if the DIMAC Board of Directors withdraws or materially modifies or
changes its recommendation to the stockholders of DIMAC to approve the Merger
Agreement and the Merger if there exists at such time an Acquisition Proposal.
If Heritage or DIMAC terminates the Merger Agreement as provided above,
there will be no liability on the part of any party or its officers, directors
or stockholders, except as described in "Termination Fee" below. In the event
that the Merger is not approved by the DIMAC stockholders, each of Heritage and
DIMAC would expect to independently pursue their respective strategies for
growth.
TERMINATION FEE
If (a) DIMAC terminates the Merger Agreement because its Board of Directors,
in the exercise of its good faith judgment (which judgment is based upon advice
of independent, outside legal counsel) as to its fiduciary duties to its
stockholders determines such termination is required by reason of an Acquisition
Proposal or, if the DIMAC Board of Directors withdraws or materially modifies or
changes its recommendation to its stockholders to approve the Merger Agreement
and the Merger if there exists at such time an Acquisition Proposal for DIMAC
and such change in recommendation is based upon the advice of independent,
outside legal counsel; (b) the Merger Agreement is terminated by
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Heritage because the DIMAC Board of Directors withdraws or materially modifies
or changes its recommendation to the stockholders of DIMAC to approve the Merger
Agreement and the Merger if there exists at such time an Acquisition Proposal;
or (c) on or before March 31, 1996 and while the Merger Agreement remains in
effect, DIMAC enters into a definitive agreement with respect to an Acquisition
Proposal with any corporation, partnership, person or other entity or group
(other than Heritage or any affiliate of Heritage), and such transaction
(including any revised transaction based upon the Acquisition Proposal) is
thereafter consummated (whether before or after March 31, 1996), then DIMAC
shall pay to Heritage a fee equal to the sum of (i) up to $1.0 million of
documented fees, costs and expenses, including legal and accounting fees and
fees payable to Heritage's financial advisors, incurred by Heritage in
connection with the transactions contemplated by the Merger Agreement and (ii)
$4.0 million. The amount in clause (ii) shall be payable only upon completion of
the transaction implementing the Acquisition Proposal.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties
relating to, among other things: (a) the due organization, power and standing of
DIMAC and Heritage and similar corporate matters; (b) the authorization,
execution, delivery and enforceability of the Merger Agreement; (c) the capital
structure of DIMAC and Heritage; (d) subsidiaries of DIMAC; (e) conflicts under
charters or bylaws and violations of any instruments or law and required
consents or approvals; (f) certain documents filed by each of DIMAC and Heritage
with the Commission and the accuracy of information contained therein; (g)
conduct of business in the ordinary course and the absence of certain changes or
material adverse effects; (h) brokers' and finders' fees with respect to the
Merger; and (i) with respect to DIMAC, taxes, no undisclosed material
liabilities, material contracts, litigation, employee benefit plans, employee
relations and intellectual property.
CERTAIN REGULATORY MATTERS
Consummation of the Merger is conditioned upon receipt by Heritage and DIMAC
of such regulatory and other approvals as are required under applicable law,
including certain approvals from the Commission. Other than these approvals and
the matters described below, Heritage and DIMAC know of no such regulatory or
other approvals required by law.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), certain acquisition transactions, including the proposed Merger, may not
be consummated unless certain information has been furnished to the Federal
Trade Commission (the "FTC") and the Antitrust Division of the Justice
Department (the "Antitrust Division") and certain waiting period requirements
have expired or been terminated. In accordance with the HSR Act, Heritage and
DIMAC each filed Notification and Report Forms and certain supplementary
materials with the Antitrust Division and the FTC for review in connection with
the proposed Merger. The FTC granted early termination of the waiting period
under the HSR Act on November 14, 1995.
POTENTIAL RESALES OF SHARES RECEIVED IN THE MERGER
The shares of Heritage Common Stock to be issued to DIMAC stockholders in
connection with the Merger will be freely transferable under the Securities Act,
except for shares issued to any person who, at the time of the Special Meeting,
may be deemed to be an "affiliate" of DIMAC within the meaning of Rule 145 under
the Securities Act. In general, affiliates of DIMAC include any person or entity
who controls, is controlled by or is under common control with DIMAC. Rule 145,
among other things, imposes certain restrictions upon the resale of securities
received by affiliates in connection with certain reclassifications, mergers,
consolidations or asset transfers. The shares of Heritage Common Stock received
by affiliates of DIMAC in the Merger will be subject to the applicable resale
limitations of Rule 145; however, Heritage has agreed to maintain the
effectiveness of the Registration Statement to allow for resales by DIMAC
affiliates without the restrictions of Rule 145 being applicable.
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AMEX LISTING
The Heritage Common Stock is listed on AMEX. Heritage has agreed to use its
reasonable best efforts to cause the shares of Heritage Common Stock to be
issued in the Merger to be listed on AMEX at the Effective Time. A condition to
DIMAC's obligation to close is that prior to the Effective Time any shares of
Heritage Common Stock, to the extent applicable, to be issued in the Merger will
be approved for listing on AMEX.
ACCOUNTING TREATMENT
The Merger will be accounted for by Heritage as a purchase for financial
reporting purposes. The pro forma financial statements reflecting the Merger are
set forth herein under "Pro Forma Financial Information."
FINANCING OF THE MERGER
Heritage will require financing of approximately $195 million to fund the
purchase price of the outstanding shares of DIMAC Common Stock and related
transaction expenses and approximately $70 million to refinance DIMAC's
indebtedness. Under the Merger Agreement, Heritage has the option to fund
approximately $47 million of the DIMAC purchase price by issuing the shares of
Heritage Common Stock as part of the Merger Consideration.
Heritage has filed with the Commission a shelf registration statement
covering the issuance of up to $300 million of debt securities. Heritage
currently plans to issue $150 million of subordinated notes through underwriters
prior to the Effective Time. Although the terms of the Notes will be determined
at the time of issuance, Heritage expects that, based upon present market
conditions, the Notes would be ten year subordinated, unsecured obligations of
Heritage bearing interest at an annual rate of approximately 9.25%, net of
estimated financing costs. Heritage has not entered into any agreement, or
received any financing commitment, with respect to the issuance of the Notes.
At the Effective Time, Heritage will cause DIMAC to enter into a new credit
facility (the "new DIMAC credit agreement") to refinance the existing debt of
DIMAC and its subsidiaries, to provide a new working capital and acquisition
credit facility for DIMAC and to provide a portion of the Merger Consideration.
Heritage has received a commitment from a group of commercial banks (for which
NationsBank of Texas, N.A. and Citibank, N.A. will serve as agents) to provide
such financing in the maximum amount of $175 million. Assuming that Heritage
elects not to issue shares of Heritage Common Stock as part of the Merger
Consideration, Heritage intends for the new DIMAC credit agreement to provide a
portion of the Merger Consideration.
The commitment specifies that $125 million of the financing will be in the
form of a revolving credit facility in the initial amount of $125 million and
reducing in installments commencing March 31, 1998 through the final maturity
date of March 31, 2003. The commitment further specifies that $50 million of the
financing will be in the form of a 7 1/4 year term loan facility, payable in
quarterly installments commencing September 30, 1997. Advances under the new
DIMAC credit agreement will bear interest at fluctuating rates, initially
estimated to be Citibank's base rate plus .125%, or (at the option of the
borrower) LIBOR plus 1.375%. Heritage will guarantee DIMAC's obligations under
the new DIMAC credit facility and will pledge the stock of DIMAC to secure
advances thereunder. The new DIMAC credit facility is expected to contain
various restrictive covenants, including limitations on additional indebtedness,
sales of assets, acquisitions of assets and payment of dividends, and is also
expected to require DIMAC to maintain compliance with various financial ratios.
The exact terms of the new DIMAC credit agreement are subject to the
satisfactory negotiation of definitive documents prior to the Effective Time.
CONFIDENTIALITY AGREEMENT; STANDSTILL
Upon commencement of discussions regarding a possible transaction, DIMAC and
Heritage entered into the Confidentiality Agreement which, among other things,
contained standstill provisions prohibiting Heritage or its affiliates or
representatives from acquiring any DIMAC Common Stock. In connection with the
execution of the Merger Agreement, DIMAC and Heritage entered into
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an amendment to the Confidentiality Agreement, dated October 23, 1995, which
allows Heritage, its affiliates and representatives to purchase up to an
aggregate of 10.0% of the issued and outstanding DIMAC Common Stock, subject to
the restrictions of applicable law.
RISK FACTORS
If Heritage elects to pay a portion of the Merger Consideration in shares of
Heritage Common Stock, the receipt and continued ownership of such shares by a
DIMAC stockholder involves certain investment risks. These risks include the
following:
LEVERAGE. Heritage has incurred substantial indebtedness in connection with
acquisitions of its businesses and will incur significant additional
indebtedness in connection with the Merger. At September 30, 1995, Heritage had
indebtedness of approximately $355.4 million and stockholders' equity of
approximately $108.7 million, and accordingly, a consolidated debt-to-equity
ratio of approximately 3.3 to 1. Such leverage may adversely affect the ability
of Heritage to finance its future operations and capital needs and may limit its
ability to pursue other business opportunities which may be in its interest. As
a result of its leverage and in order to repay its indebtedness, Heritage will
be required to generate substantial operating cash flow. Heritage's ability to
meet these requirements will depend on, among other things, prevailing economic
conditions and financial, business and other factors, some of which are beyond
its control, and there can be no assurance that it will be able to meet such
requirements.
COMPETITION. Each of the business segments in which Heritage operates is
highly competitive. Several of these competitors and potential competitors in
each of these segments may have greater access to financial resources than
Heritage.
GOVERNMENT REGULATION. The broadcasting industry is highly regulated.
Heritage's operation of its broadcast stations is dependent upon the maintenance
and renewal of broadcast licenses issued by the Federal Communications
Commission and by the continued compliance by Heritage with applicable laws and
regulations. Significant changes in legislation affecting broadcasting companies
are anticipated to be enacted in 1996. There can be no assurance as to the
ultimate effect of any new legislation on Heritage's operations.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A GENERAL SUMMARY OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES TO A HOLDER OF SHARES OF DIMAC COMMON STOCK WHO IS A CITIZEN OR
RESIDENT OF THE UNITED STATES OR A CORPORATION CREATED OR ORGANIZED IN OR UNDER
THE LAWS OF THE UNITED STATES OR ANY POLITICAL SUBDIVISION THEREOF OR THEREIN,
OR AN ESTATE OR TRUST THE INCOME OF WHICH IS SUBJECT TO UNITED STATES FEDERAL
INCOME TAXATION REGARDLESS OF ITS SOURCE (A "U.S. HOLDER") AND IS NOT INTENDED
TO CONSTITUTE ADVICE REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
TO ANY SUCH HOLDER. THIS SUMMARY DOES NOT DISCUSS TAX CONSEQUENCES UNDER THE
LAWS OF STATES OR LOCAL GOVERNMENTS OR OF ANY OTHER JURISDICTION OR TAX
CONSEQUENCES TO CATEGORIES OF STOCKHOLDERS THAT MAY BE SUBJECT TO SPECIAL RULES,
SUCH AS FOREIGN PERSONS, TAX-EXEMPT ENTITIES, INSURANCE COMPANIES, FINANCIAL
INSTITUTIONS AND DEALERS IN STOCKS AND SECURITIES, TO U.S. HOLDERS THAT HOLDS
SHARES OF DIMAC COMMON STOCK AS PART OF A POSITION IN A "STRADDLE" OR AS PART OF
A "HEDGING" OR "CONVERSION" TRANSACTION FOR U.S. FEDERAL INCOME TAX PURPOSES OR
TO HOLDERS WITH A "FUNCTIONAL CURRENCY" OTHER THAN THE UNITED STATES DOLLAR. IN
ADDITION, THIS SUMMARY APPLIES ONLY TO SHARES OF DIMAC COMMON STOCK HELD AS
CAPITAL ASSETS. THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO A HOLDER WHO
ACQUIRED HIS SHARES OF DIMAC COMMON STOCK PURSUANT TO THE EXERCISE OF STOCK
OPTIONS OR OTHERWISE AS COMPENSATION. EACH HOLDER OF SHARES OF DIMAC COMMON
STOCK IS URGED TO OBTAIN, AND SHOULD RELY UPON, HIS OWN TAX ADVICE.
The following summary is based on the Internal Revenue Code of 1986, as
amended, United States Treasury Regulations and administrative and judicial
interpretations as of the date hereof, all of which are subject to change (which
change may be retroactive). A U.S. Holder who exchanges the shares of DIMAC
Common Stock for cash and shares of Heritage Common Stock, if applicable,
pursuant to the Merger or exercises appraisal rights will recognize gain or loss
equal to the difference between (A) the sum of (i) the cash received and (ii)
the fair market value, at the Effective Time, of any
36
<PAGE>
shares of Heritage Common Stock received in exchange for such shares of DIMAC
Common Stock in the Merger or pursuant to the exercise of appraisal rights and
(B) such holder's adjusted tax basis in the DIMAC Shares exchanged. A U.S.
Holder's initial tax basis for the shares of Heritage Common Stock, if
applicable, received in the Merger will be equal to its fair market value on the
date of the Merger. Gain or loss recognized will be treated as a long-term
capital gain or loss if the shares of DIMAC Common Stock are held as capital
assets and if the shares of DIMAC Common Stock exchanged have a holding period
of more than one year.
Generally, United States backup withholding tax and information reporting
requirements will apply to payments with respect to the Merger to non-corporate
holders of DIMAC Common Stock (other than "exempt recipients," including
corporations, non-U.S. Holders that provides an appropriate certification and
certain other persons). The payor will be required to withhold 31% of any such
payment if the holder fails to furnish its correct taxpayer identification
number or otherwise fails to comply with such backup withholding tax
requirements. The backup withholding tax and information reporting rules
currently are subject to Proposed United States Treasury Regulations and are
under review by the United States Treasury Department and, accordingly, their
application to the Merger could be changed.
37
<PAGE>
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
Holders of shares of DIMAC Common Stock are entitled to appraisal rights
under Section 262 of the DGCL ("Section 262"). Section 262 is reprinted in its
entirety as Appendix C to this Joint Proxy Statement/Prospectus. All references
in Section 262 and in this summary to a "stockholder" are to the record holder
of the shares of DIMAC Common Stock as to which appraisal rights are asserted. A
person having a beneficial interest in shares of DIMAC Common Stock that are
held of record in the name of another person, such as a broker or nominee, must
act promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner to perfect whatever appraisal rights the
beneficial owner may have.
The following discussion is not a complete statement of the law relating to
appraisal rights and is qualified in its entirety by reference to Appendix C.
THIS DISCUSSION AND APPENDIX C SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER WHO
WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE
RIGHT TO DO SO BECAUSE FAILURE STRICTLY TO COMPLY WITH THE PROCEDURES SET FORTH
HEREIN AND THEREIN WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS.
Each stockholder electing to demand the appraisal of his shares shall
deliver to DIMAC, before the taking of the vote on the Merger at the Special
Meeting, a written demand for appraisal of his shares of DIMAC Common Stock. The
demand must reasonably inform DIMAC of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares of DIMAC
Common Stock. This written demand for appraisal of the shares of DIMAC Common
Stock must be in addition to and separate from any proxy or vote against the
Merger. Voting against, abstaining from voting or failing to vote on the Merger
will not constitute a demand for appraisal within the meaning of Section 262.
Any stockholder electing to demand his appraisal rights will not be granted
appraisal rights under Section 262 if such stockholder has either voted in favor
of the Merger or consented thereto in writing (including by granting the proxy
solicited by this Joint Proxy Statement/Prospectus or by returning a signed
proxy without specifying a vote against the Merger or a direction to abstain
from such vote). Additionally, appraisal rights will not be granted under
Section 262 if the stockholder does not continuously hold through the Effective
Time his shares of DIMAC Common Stock with respect to which he demands
appraisal.
A demand for appraisal must be executed by or for the stockholder of record,
fully and correctly, as such stockholder's name appears on the certificate or
certificates representing shares of DIMAC Common Stock. If the shares of DIMAC
Common Stock are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, such demand must be executed by the fiduciary. If the
shares of DIMAC Common Stock are owned of record by more than one person, as in
a joint tenancy or tenancy in common, such demand must be executed by all joint
owners. An authorized agent, including an agent for two or more joint owners,
may execute the demand for appraisal for a stockholder of record; however, the
agent must identify the record owner and expressly disclose the fact that, in
exercising the demand, such person is acting as agent for the record owner.
A record owner, such as a broker, who holds shares of DIMAC Common Stock as
a nominee for others, may exercise appraisal rights with respect to the shares
of DIMAC Common Stock held for all or less than all beneficial owners of shares
of DIMAC Common Stock as to which such person is the record owner. In such case
the written demand must set forth the number of shares of DIMAC Common Stock
covered by such demand. Where the number of shares of DIMAC Common Stock is not
expressly stated, the demand will be presumed to cover all shares of DIMAC
Common Stock outstanding in the name of such record owner. Beneficial owners who
are not record owners and who intend to exercise appraisal rights should
instruct the record owner to comply strictly with the statutory requirements
with respect to the exercise of appraisal rights before the date of the Special
Meeting.
A stockholder who elects to exercise appraisal rights must mail or deliver
his or her written demand to the Secretary of DIMAC at One Corporate Woods
Drive, Bridgeton, Missouri 63044. The written demand for appraisal must specify
the stockholder's name and mailing address, the number of
38
<PAGE>
shares of DIMAC Common Stock owned, and that the stockholder is thereby
demanding appraisal of his or her shares of DIMAC Common Stock. Within ten days
after the Effective Time, DIMAC must provide notice to all stockholders who have
complied with Section 262 and have not voted for or consented to adoption of the
Merger Agreement.
Within 120 days after the Effective Time, either DIMAC or any stockholder
who has complied with the required conditions of Section 262 may file a petition
in the Delaware Court of Chancery (the "Delaware Chancery Court") demanding a
determination of the value of the shares of DIMAC Common Stock of the dissenting
stockholders. If a petition for an appraisal is timely filed, after a hearing on
such petition, the Delaware Chancery Court will determine which stockholders are
entitled to appraisal rights and will appraise the shares of DIMAC Common Stock
owned by such stockholders, determining the fair value of such shares of DIMAC
Common Stock, exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest to be paid,
if any, upon the amount determined to be the fair value. In determining such
fair value, the Delaware Chancery Court is to take into account all relevant
factors.
Stockholders considering seeking appraisal should have in mind that the
"fair value" of their shares of DIMAC Common Stock determined under Section 262
could be more than, the same as or less than the Merger Consideration to be
received by DIMAC stockholders in the Merger, and that opinions of investment
banking firms as to fairness, from a financial point of view, are not opinions
as to fair value under Section 262. The cost of the appraisal proceeding may be
determined by the Delaware Chancery Court and taxed against the parties as the
Delaware Chancery Court deems equitable in the circumstances. Upon application
of a dissenting stockholder, the Delaware Chancery Court may order that all or a
portion of the expenses incurred by any dissenting stockholder in connection
with the appraisal proceeding, including without limitation, reasonable
attorneys' fees and the fees and expenses of experts, be charged pro rata
against the value of all shares of DIMAC Common Stock entitled to appraisal.
Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, from and after the Effective Time, be entitled to vote for any
purpose the shares of DIMAC Common Stock subject to such demand or to receive
payment of dividends or other distributions on such shares of DIMAC Common
Stock, except for dividends or distributions payable to stockholders of record
at a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any stockholder shall
have the right to withdraw his or her demand for appraisal and to accept the
terms offered in the Merger; after this period, the stockholder may withdraw his
or her demand for appraisal only with the consent of DIMAC. If no petition for
appraisal is filed with the Delaware Chancery Court within 120 days after the
Effective Time, stockholders' rights to appraisal shall cease, and all holders
of shares of DIMAC Common Stock shall be entitled to receive the Merger
Consideration as provided for in the Merger Agreement. Inasmuch as DIMAC has no
obligation to file such a petition, and has no present intention to do so, any
stockholder who desires such a petition to be filed is advised to file it on a
timely basis. However, no petition timely filed in the Delaware Chancery Court
demanding appraisal shall be dismissed as to any stockholder without the
approval of the Delaware Chancery Court, and such approval may be conditioned
upon such terms as the Delaware Chancery Court deems just.
39
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
consists of an unaudited Pro Forma Condensed Combined Balance Sheet as of
September 30, 1995 and the related unaudited Pro Forma Condensed Combined
Statements of Operations for the year ended December 31, 1994 and the nine
months ended September 30, 1995 (collectively, the "Pro Forma Statements"). The
Pro Forma Statements reflect adjustments to the historical consolidated
financial statements of Heritage and DIMAC to give effect to certain
transactions which have either occurred or (in the case of the pending
disposition of television station KEVN by Heritage) are probable to occur. The
Pro Forma Statements have been further adjusted to give effect to the Merger,
the issuance of $150 million of the Notes and the new DIMAC credit agreement
under two possible scenarios -- (a) assuming the Merger is consummated entirely
for cash and (b) assuming the Merger is consummated for a combination of cash
and Heritage common stock -- both as discussed in more detail in the notes to
the Pro Forma Statements. See "Financing of the Merger" for a description of the
terms of the Notes and the new DIMAC credit agreement. The Pro Forma Condensed
Combined Balance Sheet has been prepared assuming the Merger, issuance of the
Notes and the new DIMAC credit agreement occurred at September 30, 1995, and the
Pro Forma Condensed Combined Statements of Operations have been prepared
assuming the Merger, issuance of the Notes and the new DIMAC credit agreement
occurred on January 1, 1994. The unaudited Pro Forma Condensed Combined
Statements of Operations do not include extraordinary losses of $3,157,000 and
$2,379,000 recognized by DIMAC during the year ended December 31, 1994 and the
nine months ended September 30, 1995, respectively, resulting from the
retirement of certain indebtedness, nor do they include an extraordinary loss of
approximately $2 million to be recognized upon retirement of DIMAC's existing
credit facility.
The Merger will be accounted for as a purchase. The purchase price has been
allocated in the Pro Forma Statements to the assets to be acquired and the
liabilities to be assumed on a preliminary basis based on management's estimates
of their fair values. The allocation of the purchase price is subject to change
based on the completion of an independent appraisal. Management does not believe
that the final allocation of the purchase price or the related useful lives
assigned to acquired assets will be materially different from the preliminary
amounts presented in the Pro Forma Statements.
As a result of the Merger, the amounts of Heritage's goodwill and other
intangible assets and indebtedness will substantially increase from historical
levels. Heritage continually reevaluates the propriety of the carrying amount of
goodwill and other intangibles as well as the related amortization period to
determine whether current events and circumstances warrant adjustments to the
carrying values and/or revised estimates of useful lives. This evaluation is
based on Heritage's projection of the undiscounted operating income before
depreciation, amortization and interest over the remaining lives of the
amortization periods of related goodwill and intangible assets. The projections
are based on the historical trend line of actual results since the commencement
of operations and adjusted for expected changes in operating results. To the
extent such projections indicate that the undiscounted operating income (as
defined above) is not expected to be adequate to recover the carrying amounts of
related intangibles, such carrying amounts are written down by charges to
expense in amounts equal to the excess of the carrying amount of intangible
assets over related undiscounted operating income. Based on undiscounted
operating income (as defined above) derived from current operating projections,
management does not believe that an impairment of goodwill and other intangibles
will exist on the effective date of the Merger.
The Pro Forma Statements and accompanying notes should be read in
conjunction with the consolidated financial statements and related notes of
Heritage, DIMAC and the financial statements of other companies acquired by
DIMAC incorporated by reference in the Joint Proxy Statement/ Prospectus. The
Pro Forma Statements do not purport to present what Heritage's results of
operations or financial position actually would have been had such transactions
or events occurred on the dates indicated, or to project Heritage's results of
operations or financial position for any future period or at any future date.
The pro forma adjustments are based upon available information and certain
adjustments that management believes are reasonable. In the opinion of
management, all adjustments have been made that are necessary to present fairly
the Pro Forma Statements.
40
<PAGE>
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS FOR ADJUSTMENTS FOR
HERITAGE OTHER HERITAGE HERITAGE AS DIMAC OTHER DIMAC DIMAC AS
ASSETS HISTORICAL TRANSACTIONS(A) ADJUSTED HISTORICAL TRANSACTIONS(B) ADJUSTED
- --------------------------------- ----------- --------------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents........ $ 1,788 $ (23) $ 1,765 $ -- $ 66 $ 66
Short-term investments........... 4,750 4,750 -- --
Trade receivables, net........... 66,308 (472) 65,836 26,552 3,391 29,943
Inventory........................ 6,201 6,201 8,737 8,737
Prepaid expenses and other....... 6,372 (66) 6,306 1,397 72 1,469
Deferred income taxes............ 5,385 5,385 166 166
----------- --------------- ----------- ----------- --------------- -----------
Total current assets........... 90,804 (561) 90,243 36,852 3,529 40,381
Property and equipment, net...... 58,374 (1,987) 56,387 19,276 1,500 20,776
Goodwill and other intangibles,
net............................. 392,046 (5,202) 386,844 25,232 13,227 38,459
Other assets..................... 9,919 (75) 9,844 --
----------- --------------- ----------- ----------- --------------- -----------
$ 551,143 $ (7,825) $ 543,318 $ 81,360 $ 18,256 $ 99,616
----------- --------------- ----------- ----------- --------------- -----------
----------- --------------- ----------- ----------- --------------- -----------
LIABILITIES AND EQUITY
- ---------------------------------
Current portion of long-term
debt............................ $ 3,278 $ (35) $ 3,243 $ 6,856 $ 3 $ 6,859
Accounts payable and accrued
expenses........................ 56,011 (171) 55,840 14,268 1,561 15,829
Other current liabilities........ 28,523 (54) 28,469 10,589 690 11,279
----------- --------------- ----------- ----------- --------------- -----------
Total current liabilities...... 87,812 (260) 87,552 31,713 2,254 33,967
Long-term debt, less current
portion......................... 347,102 (14,048) 333,054 44,606 16,002 60,608
Other long-term liabilities...... 2,503 (29) 2,474 2,230 2,230
Deferred income taxes............ 5,001 5,001 -- --
Stockholders' equity............. 108,725 6,512 115,237 2,811 2,811
----------- --------------- ----------- ----------- --------------- -----------
$ 551,143 $ (7,825) $ 543,318 $ 81,360 $ 18,256 $ 99,616
----------- --------------- ----------- ----------- --------------- -----------
----------- --------------- ----------- ----------- --------------- -----------
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS FOR ADJUSTMENTS FOR PRO FORMA
MERGER AND DEBT PRO FORMA OPTIONAL STOCK COMBINED AS
ASSETS OFFERING COMBINED CONSIDERATION ADJUSTED
- --------------------------------- ---------------- ----------- --------------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents........ $ 146,413(c) $ 1,831 $ $ 1,831
3,669(d)
(150,082)(f)
Short-term investments........... 4,750 4,750
Trade receivables, net........... 95,779 95,779
Inventory........................ 14,938 14,938
Prepaid expenses and other....... 7,775 7,775
Deferred income taxes............ 5,551 5,551
---------------- ----------- --------------- ------------
Total current assets........... -- 130,624 -- 130,624
Property and equipment, net...... 77,163 77,163
Goodwill and other intangibles,
net............................. 195,423(f) 627,726 627,726
7,000(h)
Other assets..................... 3,587(c) 15,062 15,062
1,631(g)
---------------- ----------- --------------- ------------
$ 207,641 $ 850,575 $ -- $ 850,575
---------------- ----------- --------------- ------------
---------------- ----------- --------------- ------------
LIABILITIES AND EQUITY
- ---------------------------------
Current portion of long-term
debt............................ $ (6,250)(e) $ 3,852 $ $ 3,852
Accounts payable and accrued
expenses........................ 4,500(f) 76,169 76,169
Other current liabilities........ 39,748 39,748
---------------- ----------- --------------- ------------
Total current liabilities...... (1,750) 119,769 -- 119,769
Long-term debt, less current
portion......................... 150,000(c) 596,199 (47,535)(i) 548,664
6,250(e)
44,656(f)
1,631(g)
Other long-term liabilities...... 4,704 4,704
Deferred income taxes............ 7,000(h) 12,001 12,001
Stockholders' equity............. 3,669(d) 117,902 47,535(i) 165,437
2,665(f)
(6,480)(f)
---------------- ----------- --------------- ------------
$ 207,641 $ 850,575 $ -- $ 850,575
---------------- ----------- --------------- ------------
---------------- ----------- --------------- ------------
</TABLE>
See accompanying notes to Pro Forma Statements.
41
<PAGE>
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS FOR ADJUSTMENTS FOR
HERITAGE OTHER HERITAGE HERITAGE AS DIMAC OTHER DIMAC DIMAC AS
HISTORICAL TRANSACTIONS (A) ADJUSTED HISTORICAL TRANSACTIONS (B) ADJUSTED
----------- ----------------- ----------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues................... $ 317,628 $ 64,859 $ 382,487 $ 100,012 $ 46,995 $ 147,007
----------- -------- ----------- ----------- -------- -----------
Cost of services............... 150,970 53,323 204,293 65,430 28,670 94,100
Selling, general and
administrative................ 76,600 11,392 87,992 20,629 11,844 32,473
Depreciation................... 14,676 (87) 14,589 2,155 1,413 3,568
Amortization................... 12,622 1,277 13,899 744 938 1,682
Other.......................... 4,922 4,922 135 42 177
----------- -------- ----------- ----------- -------- -----------
Total operating
expenses.................. 259,790 65,905 325,695 89,093 42,907 132,000
----------- -------- ----------- ----------- -------- -----------
Operating income........... 57,838 (1,046) 56,792 10,919 4,088 15,007
----------- -------- ----------- ----------- -------- -----------
Interest expense, net.......... (30,373) (3,503) (33,876) (6,069) (577) (6,646)
Other expense, net............. (2,424) 1,439 (985) -- --
----------- -------- ----------- ----------- -------- -----------
Income before income
taxes..................... 25,041 (3,110) 21,931 4,850 3,511 8,361
Income taxes................... 2,742 2,742 1,865 1,370 3,235
----------- -------- ----------- ----------- -------- -----------
Income (loss) before
extraordinary item........ 22,299 (3,110) 19,189 $ 2,985 $ 2,141 $ 5,126
----------- -------- -----------
----------- -------- -----------
Dividends and accretion........ (19,651) 19,651 --
----------- -------- -----------
Income applicable to common
stock before extraordinary
item.......................... $ 2,648 $ 16,541 $ 19,189
----------- -------- -----------
----------- -------- -----------
Income per share before
extraordinary item............ $ 0.15 $ 1.10 $ 0.64 $ 0.79
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares
outstanding................... 17,381 94 17,475
----------- -------- -----------
----------- -------- -----------
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS FOR ADJUSTMENTS FOR PRO FORMA
MERGER AND DEBT PRO FORMA OPTIONAL STOCK COMBINED AS
OFFERING COMBINED CONSIDERATION ADJUSTED
---------------- ----------- ---------------- ------------
<S> <C> <C> <C> <C>
Net revenues................... $ $ 529,494 $ $ 529,494
---------------- ----------- -------- ------------
Cost of services............... 298,393 298,393
Selling, general and
administrative................ (346)(j) 120,119 120,119
Depreciation................... 18,157 18,157
Amortization................... 6,340(k) 21,921 21,921
Other.......................... 5,099 5,099
---------------- ----------- -------- ------------
Total operating
expenses.................. 5,994 463,689 -- 463,689
---------------- ----------- -------- ------------
Operating income........... (5,994) 65,805 -- 65,805
---------------- ----------- -------- ------------
Interest expense, net.......... (18,051)(l) (58,573) 4,278(n) (54,295)
Other expense, net............. (985) (985)
---------------- ----------- -------- ------------
Income before income
taxes..................... (24,045) 6,247 4,278 10,525
Income taxes................... (2,701)(m) 3,276 3,276
---------------- ----------- -------- ------------
Income (loss) before
extraordinary item........ $ (21,344) 2,971 $ 4,278 $ 7,249
---------------- --------
---------------- --------
Dividends and accretion........ -- --
----------- ------------
Income applicable to common
stock before extraordinary
item.......................... $ 2,971 $ 7,249
----------- ------------
----------- ------------
Income per share before
extraordinary item............ $ .17 $ .38
----------- ------------
----------- ------------
Weighted average shares
outstanding................... 17,475 1,761(n) 19,236
----------- -------- ------------
----------- -------- ------------
</TABLE>
See accompanying notes to Pro Forma Statements.
42
<PAGE>
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS FOR ADJUSTMENTS FOR
HERITAGE OTHER HERITAGE HERITAGE AS DIMAC OTHER DIMAC DIMAC AS
HISTORICAL TRANSACTIONS(A) ADJUSTED HISTORICAL TRANSACTIONS(B) ADJUSTED
----------- --------------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues.................... $ 299,065 $ (1,574) $ 297,491 $ 89,030 $ 27,209 $ 116,239
----------- ------- ----------- ----------- --------------- -----------
Cost of services................ 170,995 (316) 170,679 55,865 17,133 72,998
Selling, general and
administrative................. 59,391 (16) 59,375 18,202 6,845 25,047
Depreciation.................... 11,081 (214) 10,867 2,056 286 2,342
Amortization.................... 10,125 289 10,414 956 490 1,446
Other........................... -- -- 73 73
----------- ------- ----------- ----------- --------------- -----------
Total operating expenses.... 251,592 (257) 251,335 77,152 24,754 101,906
----------- ------- ----------- ----------- --------------- -----------
Operating income............ 47,473 (1,317) 46,156 11,878 2,455 14,333
----------- ------- ----------- ----------- --------------- -----------
Interest expense, net........... (26,190) 262 (25,928) (3,574) (1,365) (4,939)
Other expense, net.............. (77) (77) --
----------- ------- ----------- ----------- --------------- -----------
Income (loss) before income
taxes...................... 21,206 (1,055) 20,151 8,304 1,090 9,394
Income taxes.................... 5,602 5,602 3,187 433 3,620
----------- ------- ----------- ----------- --------------- -----------
Income (loss) before
extraordinary item......... $ 15,604 $ (1,055) $ 14,549 $ 5,117 $ 657 $ 5,774
----------- ------- ----------- ----------- --------------- -----------
----------- ------- ----------- ----------- --------------- -----------
Income per share before
extraordinary item............. $ 0.88 $ 0.82 $ 0.77 $ 0.87
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares
outstanding.................... 17,666 17,666
----------- -----------
----------- -----------
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS FOR ADJUSTMENTS FOR PRO FORMA
MERGER AND DEBT PRO FORMA OPTIONAL STOCK COMBINED AS
OFFERING COMBINED CONSIDERATION ADJUSTED
---------------- ----------- ---------------- ------------
<S> <C> <C> <C> <C>
Net revenues.................... $ $ 413,730 $ $ 413,730
-------- ----------- ------- ------------
Cost of services................ 243,677 243,677
Selling, general and
administrative................. (460)(j) 83,962 83,962
Depreciation.................... 13,209 13,209
Amortization.................... 4,570(k) 16,430 16,430
Other........................... 73 73
-------- ----------- ------- ------------
Total operating expenses.... 4,110 357,351 -- 357,351
-------- ----------- ------- ------------
Operating income............ (4,110) 56,379 -- 56,379
-------- ----------- ------- ------------
Interest expense, net........... (13,583)(l) (44,450) 3,209(n) (41,241)
Other expense, net.............. (77) (77)
-------- ----------- ------- ------------
Income (loss) before income
taxes...................... (17,693) 11,852 3,209 15,061
Income taxes.................... (4,099)(m) 5,123 2,662(n) 7,785
-------- ----------- ------- ------------
Income (loss) before
extraordinary item......... $ (13,594) $ 6,729 $ 547 $ 7,276
-------- ----------- ------- ------------
-------- ----------- ------- ------------
Income per share before
extraordinary item............. $ 0.38 $ 0.37
----------- ------------
----------- ------------
Weighted average shares
outstanding.................... 17,666 1,761(n) 19,427
----------- ------- ------------
----------- ------- ------------
</TABLE>
See accompanying notes to Pro Forma Statements.
43
<PAGE>
NOTES TO PRO FORMA STATEMENTS
(a) Balance sheet adjustments for Other Heritage Transactions give effect to the
sale of television station KEVN in Rapid City, South Dakota for $14 million
(the KEVN sale), which sale is expected to be consummated in January 1996
and result in a $6.5 million gain, and the related elimination of historical
assets and liabilities of KEVN, as if such sale had occurred on September
30, 1995.
Statements of Operations adjustments for Other Heritage Transactions for the
year ended December 31, 1994 and the nine months ended September 30, 1995
are presented below in columnar form. The sale proceeds or fundings relating
to the transactions discussed in (1)-(6) below are assumed to be applied to
amounts outstanding under Heritage's credit agreement at Heritage's
historical weighted average interest rates of 7% and 9% for the year ended
December 31, 1994 and the nine months ended September 30, 1995,
respectively, assuming all such transactions were consummated as of January
1, 1994. The pro forma adjustments relating to the acquisition transactions
reflect the historical operating results of the respective businesses prior
to their acquisition by Heritage and include adjustments to amortization to
reflect amounts allocated to intangible assets as a result of the
acquisitions over periods of 40 and 15 years for in-store marketing and
radio station acquisitions, respectively.
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS
--------------------------------------------------------- FOR OTHER
STRATEGIUM OTHER PRO FORMA HERITAGE
POWERFORCE MEDIA ACQUISITIONS (1) DISPOSITIONS (2) ADJUSTMENTS TRANSACTIONS
----------- ----------- --------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues........................ $ 58,901 $ 8,092 $ 3,015 $ (5,149) $ -- $ 64,859
----------- ----------- ------- ------- ------------- ------------
Cost of services.................... 51,658 2,005 1,280 (1,620) 53,323
Selling, general and
administrative..................... 6,225 5,775 1,036 (1,644) 11,392
Depreciation........................ 329 215 191 (822) (87)
Amortization........................ 155 534 (224) 812(3) 1,277
Other............................... --
----------- ----------- ------- ------- ------------- ------------
Total operating expenses........ 58,367 7,995 3,041 (4,310) 812 65,905
----------- ----------- ------- ------- ------------- ------------
Operating income (loss)......... 534 97 (26) (839) (812) (1,046)
Interest expense, net............... (155) (143) (3,205)(4) (3,503)
Other expense, net.................. 1,439(5) 1,439
----------- ----------- ------- ------- ------------- ------------
Income (loss) before
extraordinary items............ 379 97 (169) (839) (2,578) (3,110)
Dividends and accretion............. 19,651(6) 19,651
----------- ----------- ------- ------- ------------- ------------
Net income applicable to common
stock.............................. $ 379 $ 97 $ (169) $ (839) $ 17,073 $ 16,541
----------- ----------- ------- ------- ------------- ------------
----------- ----------- ------- ------- ------------- ------------
Weighted average shares
outstanding........................ 94(6) 94
------------- ------------
------------- ------------
</TABLE>
44
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS
------------------------------ FOR OTHER
OTHER PRO FORMA HERITAGE
ACQUISITIONS (1) DISPOSITION (2) ADJUSTMENTS TRANSACTIONS
--------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net revenues.......................................... $ 869 $ (2,443) $ -- $ (1,574)
------- ------------- ------ ------------
Cost of services...................................... 309 (625) (316)
Selling, general and administrative................... 583 (599) (16)
Depreciation.......................................... 117 (331) (214)
Amortization.......................................... 166 (123) 246(6) 289
Other................................................. --
------- ------------- ------ ------------
Total operating expenses............................ 1,175 (1,678) 246 (257)
------- ------------- ------ ------------
Operating income.................................... (306) (765) (246) (1,317)
Interest expense, net................................. (293) 555(4) 262
Other expense, net.................................... --
------- ------------- ------ ------------
Income (loss) before extraordinary items.......... $ (599) $ (765) $ 309 $ (1,055)
------- ------------- ------ ------------
------- ------------- ------ ------------
</TABLE>
(1)Represents historical operating results of radio stations KIHT
(acquired March 1994), KKCJ (acquired April 1995) and KXYQ (acquired
June 1995) for the periods prior to their acquisition by Heritage.
(2)Represents historical operating results of KDLT (sold in October
1994) and KEVN (expected to be sold in January 1996) for the periods
prior to their sale or anticipated sale by Heritage.
(3)Represents net additional amortization expense resulting from
Heritage's acquisitions and dispositions as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER
1994 30, 1995
------------- ---------------
<S> <C> <C>
Eliminate historical amortization expense of acquirees.......... $ (689) $ (43)
Add amortization expense relating to new intangible balances for
periods prior to acquisition
Powerforce ($5.7 million over 40 years)........................ 143 --
Strategium Media ($18.4 million over 40 years)................. 384 --
Radio station acquisitions ($19.9 million over 15 years)....... 974 289
------ -----
Pro forma adjustment........................................ $ 812 $ 246
------ -----
------ -----
</TABLE>
45
<PAGE>
(4)Represents net additional interest expense resulting from Heritage's
acquisitions and dispositions as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER
1994 30, 1995
------------ ---------------
<S> <C> <C>
Eliminate historical interest expense of acquirees.............. $ 298 $ 293
Add interest expense relating to new amounts of debt outstanding
for periods prior to acquisition
Powerforce ($7.3 million of additional debt)................... (511) --
Strategium Media ($17.8 million of additional debt)............ (1,410) --
Radio station acquisitions ($22.7 million and $14.9 million of
additional debt in 1994 and 1995, respectively)................ (1,179) (683)
Add interest expense for additional debt used to retire the
settlement rights ($39 million)................................ (1,593) --
Deduct interest expense for net proceeds from dispositions...... 1,190 945
------------ ------
Pro forma adjustment........................................ $ (3,205) $ 555
------------ ------
------------ ------
</TABLE>
(5)Represents the elimination of the historical loss on the sale of KDLT
in October 1994 of $1.4 million.
(6)Represents the elimination of historical dividends on Heritage's
preferred stock which was converted to common stock in January 1994
and accretion on Heritage's settlement rights which were retired in
July 1994. Assuming the conversion of preferred stock occurred on
January 1, 1994 also results in an increase of 94,000 shares in the
weighted average shares outstanding for the year ended December 31,
1994.
(b) The unaudited pro forma condensed combined balance sheet as of September 30,
1995 and the unaudited pro forma consolidated statements of income for the
year ended December 31, 1994 and the nine months ended September 30, 1995
give pro forma effect for other DIMAC Transactions which include the
acquisitions of The Direct Marketing Group, Inc. (May 31, 1994), Palm Coast
Data, Ltd. (May 1, 1995), and T.R. McClure and Company, Inc. and Related
Companies (October 2, 1995), as well as the initial public offering of
DIMAC's common stock (August 3, 1994), as follows:
46
<PAGE>
SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
MCCLURE PRO FORMA
HISTORICAL ADJUSTMENTS FOR
AS OF PRO FORMA OTHER DIMAC
9/30/95 ADJUSTMENTS TRANSACTIONS
----------- ------------- ---------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................................... $ 270 $ (204)(1) $ 66
Trade receivables, net.............................................. 3,391 -- 3,391
Prepaid expenses and other.......................................... 72 -- 72
----------- ------------- ---------------
Total current assets............................................ 3,733 (204) 3,529
Property and equipment, net......................................... 922 578(2) 1,500
Goodwill and other intangibles, net................................. -- 13,227(2) 13,227
Other assets........................................................ 182 (182)(1) --
----------- ------------- ---------------
$ 4,837 $ 13,419 $ 18,256
----------- ------------- ---------------
----------- ------------- ---------------
LIABILITIES AND EQUITY
Current portion of long-term debt................................... $ 1,446 $ (1,443)(3) $ 3
Accounts payable and accrued expenses............................... 1,601 (40)(3) 1,561
Other current liabilities........................................... 756 (66)(3) 690
----------- ------------- ---------------
Total current liabilities....................................... 3,803 (1,549) 2,254
Long-term debt, less current portion................................ 463 15,539(4) 16,002
Stockholders' equity................................................ 571 (571)(5) --
----------- ------------- ---------------
$ 4,837 $ 13,419 $ 18,256
----------- ------------- ---------------
----------- ------------- ---------------
</TABLE>
(1) Reflects assets not acquired by DIMAC.
(2) Reflects the preliminary allocation of the purchase price paid to
McClure stockholders over the net historical cost of assets acquired. The
preliminary allocation of the purchase price does not include amounts
payable under certain contingent payment obligations. Such payments are
based on the attainment by the newly formed McClure Group subsidiary of
certain financial and operations performance targets over the next four
years. The contingent payment obligations, if any, will be accounted for
as additional goodwill as the payments are made.
(3) Reflects elimination of debt not assumed by DIMAC.
(4) Reflects the recording of net additional debt incurred by DIMAC to
acquire McClure.
(5) Reflects the elimination of all McClure equity balances as a result of
the acquisition.
47
<PAGE>
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR OTHER
DMG PALM COAST MCCLURE PRO FORMA DIMAC
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS TRANSACTIONS
----------- ----------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues................................... $ 6,937 $ 12,916 $ 27,142 $ -- $ 46,995
Cost of services............................... 4,455 7,372 16,843 -- 28,670
Selling, general and administrative............ 2,022 3,040 9,482 (2,700)(6) 11,844
Depreciation................................... 171 875 225 142(7) 1,413
Amortization................................... 32 33 -- 873(8) 938
Other.......................................... -- 42 -- -- 42
----------- ----------- --------- -------------- ------------
Total operating expenses................... 6,680 11,362 26,550 (1,685) 42,907
----------- ----------- --------- -------------- ------------
Operating income............................... 257 1,554 592 1,685 4,088
Interest expense, net.......................... (267) (314) (22) 26(9) (577)
----------- ----------- --------- -------------- ------------
Income (loss) before income taxes.............. (10) 1,240 570 1,711 3,511
Income taxes................................... 3 -- 20 1,347 (10 1,370
----------- ----------- --------- -------------- ------------
Income (loss) before extraordinary
item.......................................... $ (13) $ 1,240 $ 550 $ 364 $ 2,141
----------- ----------- --------- -------------- ------------
----------- ----------- --------- -------------- ------------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR OTHER
PALM COAST MCCLURE PRO FORMA DIMAC
HISTORICAL HISTORICAL ADJUSTMENTS TRANSACTIONS
----------- --------- -------------- ------------
<S> <C> <C> <C> <C>
Net revenues............................................... $ 5,198 $ 22,011 $ -- $ 27,209
Cost of services........................................... 2,874 14,259 -- 17,133
Selling, general and administrative........................ 1,023 7,289 (1,467)(6) 6,845
Depreciation............................................... 26 218 42(7) 286
Amortization............................................... 127 -- 363(8) 490
----------- --------- ------- ------------
Total operating expenses............................... 4,050 21,766 (1,062) 24,754
----------- --------- ------- ------------
Operating income........................................... 1,148 245 1,062 2,455
Interest expense, net...................................... (89) (44) (1,232)(9) (1,365)
Other expense, net......................................... (349) -- 349 (11 --
----------- --------- ------- ------------
Income (loss) before income taxes.......................... 710 201 179 1,090
Income taxes............................................... -- 48 385 (10 433
----------- --------- ------- ------------
Income (loss) before extraordinary item.................... $ 710 $ 153 $ (206) $ 657
----------- --------- ------- ------------
----------- --------- ------- ------------
</TABLE>
(6) The selling, general and administrative expense adjustment is as follows
(in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Elimination of costs associated with management positions
eliminated in connection with the sale of DMG to DIMAC and
certian professional fees incurred by DMG and McClure in
anticipation of each sale...................................... $ (400) $ (100)
Elimination of discretionary bonuses related to subchapter S
status......................................................... (2,300) (1,367)
------------ -------------
$ (2,700) $ (1,467)
------------ -------------
------------ -------------
</TABLE>
48
<PAGE>
(7) The depreciation adjustment (based on preliminary purchase price
allocation) is as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------- -------------
<S> <C> <C>
Increase in depreciation........................................ $ 142 $ 42
------------- -------------
------------- -------------
</TABLE>
(8) The amortization expense adjustment (based on preliminary purchase price
allocation) is as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------- -------------
<S> <C> <C>
Increase in amortization of goodwill (based on a preliminary
weighted average life of 25 years)............................. $ 848 $ 490
Increase in amortization of non-compete agreements (based on a
life of 4 years)............................................... 49 --
Increase in amortization of customer list (based on preliminary
life of 10 years).............................................. 41 --
Elimination of historical amortization on assets not acquired... (65) (127)
------------- -------------
$ 873 $ 363
------------- -------------
------------- -------------
</TABLE>
(9) The interest expense adjustment is as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------- -------------
<S> <C> <C>
Elimination of historical interest expense on debt not
assumed........................................................ $ (481) $ (125)
Increase in interest expense on debt incurred by DIMAC for the
various acquisitions (based on the average effective interest
rate of the acquisition debt).................................. 2,694 1,357
Amortization of debt issuance costs relating to debt incurred by
DIMAC for the various acquisitions............................. 111 --
Elimination of interest expense on redemption of $25,000
principal of debt retired from proceeds of the initial public
offering....................................................... (2,066) --
Elimination of pro rata portion of interest expense on debt
incurred by DIMAC for the DMG acquisition repaid from proceeds
of the initial public offering................................. (140) --
Elimination of amortization of debt issuance costs and original
issue discount on debt retired from proceeds of the initial
public offering................................................ (144) --
------------- -------------
$ (26) $ 1,232
------------- -------------
------------- -------------
</TABLE>
(10) Reflects the tax effects of the various transactions based on DIMAC's
estimated marginal tax rate of 39.0%.
(11) Elimination of historical expense as a result of the Palm Coast
write-offs prior to acquisition.
(c) Reflects the issuance of $150 million of Notes at an interest rate of 9.25%
and receipt of related proceeds, net of estimated financing costs of
$3,587,000.
(d) Reflects the exercise of options by DIMAC management to purchase 299,250
shares of DIMAC common stock at various exercise prices and the resultant
receipt of cash. Management believes that these optionholders will exercise
such options prior to consummation of the Merger.
49
<PAGE>
(e) Reflects the reclassification of the current portion of DIMAC's credit
agreement to long-term as the new DIMAC credit agreement will not require
principal payments until 1997.
(f) Reflects consummation of the Merger for total consideration as follows (in
thousands):
<TABLE>
<CAPTION>
ASSUMES CASH
ASSUMES CASH AND STOCK
MERGER MERGER
CONSIDERATION CONSIDERATION
------------- -------------
<S> <C> <C>
Consideration paid to DIMAC shareholders
Cash (6,790,655 shares outstanding x $28).............................. $ 190,138 --
Cash (6,790,655 shares outstanding x $21).............................. -- 142,603
Heritage stock (6,790,655 shares x $7)................................. -- 47,535
Consideration paid to remaining DIMAC optionholder....................... 2,665 2,665
Acquisition fees paid to advisors........................................ 4,600 4,600
------------- -------------
Total consideration paid............................................. $ 197,403 197,403
------------- -------------
------------- -------------
</TABLE>
For purposes of the Pro Forma Statements, the Heritage Trading Price is
assumed to be $27 per share, resulting in the issuance of 1,761,000 shares
of Heritage Common Stock. Consideration paid to the remaining DIMAC
optionholder results from the exchange of "in-the-money" options to purchase
155,000 shares of DIMAC Common Stock for options to purchase the same number
of shares of Heritage Common Stock with equivalent exercise prices,
resulting in the issuance of Heritage "in-the-money" options with a market
value of $2,665,000 assuming a Heritage Trading Price of $27 per share. See
(d) for pro forma treatment of remaining DIMAC options.
The purchase price has been allocated as follows (in thousands):
<TABLE>
<S> <C> <C>
Purchase price $ 197,403
Historical book values of DIMAC assets and liabilities
Cash ($66 plus $3,669 (see (d) above)).................... 3,735
Trade receivables, net.................................... 29,943
Inventory................................................. 8,737
Prepaid expenses and other................................ 1,469
Deferred income taxes..................................... 166
Property and equipment, net............................... 20,776
Goodwill and other intangibles............................ 38,459
Accounts payable and accrued expenses..................... (15,829)
Other current liabilities................................. (11,279)
Debt...................................................... (67,467)
Other long-term liabilities............................... (2,230) 6,480
--------- ---------
Total remaining to be allocated......................... 190,923
Accrued liabilities resulting from the Merger............... 4,500
---------
Adjustment to goodwill and other intangibles................ $ 195,423
---------
---------
Source of Merger consideration
Cash...................................................... $ 150,082
Additional borrowings under new credit facility........... 44,656
Equity, relating to Heritage options (see (d) above)...... 2,665
---------
Total................................................... $ 197,403
---------
---------
Elimination of pro forma DIMAC equity (historical
equity of $2,811 plus $3,669 (see (d) above)).............. $ 6,480
---------
---------
</TABLE>
The purchase price has been allocated on a preliminary basis to assets
acquired and liabilities assumed based on their estimated fair values. Book
values of DIMAC's working capital accounts, property and equipment and
long-term debt are assumed to approximate their fair value. The fair value
of identifiable intangible assets, such as customer lists and trained work
force, is estimated to be $20 million and will be amortized over an
estimated weighted average life of 8 years. Amounts allocated to customer
lists and trained work force represents management's estimates
50
<PAGE>
of the fair values of such assets considering previous services provided and
anticipated future services to be provided to such customers and estimated
costs of hiring and training employees of DIMAC. The excess of purchase
price over identifiable net assets will be amortized over an estimated life
of 40 years.
(g) Reflects capitalization of financing costs of $1,631,000 relating to DIMAC's
new credit agreement. Such costs are assumed to be paid with borrowings
under the agreement.
(h) Reflects the recognition of deferred income taxes at an estimated effective
rate of 35% on the excess of book value over tax bases relating to the DIMAC
net assets to be acquired.
(i) Adjusts pro forma amounts previously recorded to reflect the payment of $7
of the Merger Consideration in shares of Heritage Common Stock. See (f) for
calculation of the pro forma adjustment.
(j) Reflects the elimination of certain corporate expenses of DIMAC which will
not be incurred by the combined entities. Such expenses represent
duplicative costs or management fees which will not be paid by DIMAC
subsequent to the Merger and are comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER NINE MONTHS ENDED
31, 1994 SEPTEMBER 30, 1995
------------------- -------------------
<S> <C> <C>
Directors and officers insurance....................... $ 96 $ 173
Public company expenses................................ -- 100
Management fees........................................ 250 187
----- -----
Pro forma adjustment................................. $ 346 $ 460
----- -----
----- -----
</TABLE>
(k) Reflects incremental amortization of intangible assets acquired in the
Merger.
(l) Reflects incremental interest and amortization of deferred finance costs
relating to the $150 million of Notes at 9.25% and DIMAC's new credit
agreement, assuming a weighted average interest rate of 9% on borrowings
under such credit agreement for the year ended December 31, 1994 and the
nine months ended September 30, 1995 as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1994 SEPTEMBER 30, 1995
----------------- ------------------
<S> <C> <C>
Interest on $150 million Notes......................... $ 13,875 $ 10,406
Interest on borrowings of $112 million under the new
DIMAC credit agreement................................ 10,238 7,678
Amortization of debt issuance costs.................... 584 438
Less: DIMAC interest as adjusted....................... (6,646) (4,939)
-------- --------
Pro forma adjustment................................. $ 18,051 $ 13,583
-------- --------
-------- --------
</TABLE>
(m) Reflects the incremental adjustment necessary to present income tax expense
of the combined entities, assuming the other transactions of Heritage and
DIMAC, the Merger and the issuance of the Notes occurred on January 1, 1994.
Deferred tax assets have been recognized to the extent that they offset
deferred tax liabilities that will reverse in the carryforward period. For
the year ended December 31, 1994, pro forma federal tax was offset by
previously unrecognized deferred tax assets of $5.2 million ($6.3 million
assuming the Merger Consideration is comprised of cash and stock). For the
nine months ended September 30, 1995, pro forma tax was partially offset by
previously unrecognized deferred tax assets of $2.2 million ($1.1 million
assuming the Merger Consideration is comprised of cash and stock).
(n) Reflects the reduction in interest and increase in estimated income tax
expense resulting from the payment of $7 of the Merger Consideration in
shares of Heritage Common Stock, assuming a Heritage Trading Price of $27
per share for the Heritage Common Stock. Such adjustment is calculated by
multiplying the amount of Merger Consideration to be paid in Heritage Common
Stock of $47,535,000 times the assumed weighted average interest rate under
the new DIMAC credit agreement of 9% for the respective periods.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF HERITAGE
Heritage's Restated Articles of Incorporation authorize the issuance of (i)
up to 40,000,000 shares of Class A Common Stock, par value $.01 per share; (ii)
up to 10,000,000 shares of Class C Common Stock, par value $.01 per share; and
(iii) 60,000,000 shares of Preferred Stock, no par value per share. A total of
17,710,531 shares of Class A Common Stock and no shares of Class C Common Stock
or Preferred Stock were issued and outstanding as of December 31, 1995. A total
of 1,500,000 shares of Class A Common Stock have been reserved for issuance upon
the exercise of outstanding stock options. An additional 1,185,364 shares of
Class A Common Stock have been reserved for issuance upon Heritage's periodic
contribution to its Retirement Savings Plan. All of Heritage's outstanding
shares of Class A Common Stock are fully paid, nonassessable and listed on AMEX.
CLASS A COMMON STOCK; CLASS C COMMON STOCK
The holders of Class A Common Stock are entitled to one vote per share.
Although Heritage has no outstanding shares of Class C Common Stock and has no
current plans to issue any shares of the Class C Common Stock, Heritage's
Restated Articles of Incorporation allow Heritage to issue shares of Class C
Common Stock at any time. The holders of Class C Common Stock have no voting
rights except (1) to the extent such shares are entitled under Iowa law to vote
as a class on specified matters directly affecting such class and (2) with
respect to any amendments to Heritage's Restated Articles of Incorporation which
alter or amend dividend or distribution rights, voting rights, rights upon
liquidation and/or merger, transfer rights or preemptive rights. Such matters
include amendments of Heritage's Restated Articles of Incorporation to change
the number or authorized shares of a class, to change the par value of the
shares of such class or to alter or change the powers, preferences or special
rights of the shares of such class so as to affect them adversely. Each share of
Class C Common Stock is convertible at the holder's option into one share of
Class A Common Stock at any time.
Subject to the rights of the holders of any then outstanding Preferred
Stock, the holders of common stock are entitled to receive such dividends as may
be declared by the Heritage Board of Directors. If dividends are paid to one
class of common stock, whether in cash or in property (including shares of
Preferred Stock but not including shares of common stock of Heritage), then the
holders of the other class of common stock are entitled to receive an Equivalent
Proportionate Dividend per share. An "Equivalent Proportionate Dividend" shall
mean a dividend in which the amount payable per share of Class A Common Stock
shall equal the amount payable per share of Class C Common Stock. If a
distribution is to be paid in any class of common stock to the holders of Class
A or Class C Common Stock, Heritage shall also pay to the holders of the other
class of common stock a distribution per share of such number of shares (the
"Distributed Shares") as is equal to the number of shares of common stock per
share distributed to such holders of Class A Common Stock or Class C Common
Stock, as the case may be, provided that the Distributed Shares shall be of the
same class as the class of common stock in respect of which such distribution is
made. Heritage may not reclassify, subdivide or combine one class of common
stock without reclassifying, subdividing or combining each other clasp of common
stock on an equal proportionate pre share basis.
Upon liquidation, dissolution or winding up of the affairs of Heritage,
whether voluntary or involuntary, and in the event of any reorganization of
Heritage or merger or consolidation of Heritage into another entity or the sale,
lease, exchange, transfer or other disposition of all or substantially all of
Heritage's assets or the recapitalization or reclassification of Heritage's
capital stock, subject to the rights of the holders of any preferred stock, each
holder of either the Class A Common Stock or Class C Common Stock shall be
entitled to receive the same form of consideration per share, in each case in
the Equivalent Proportionate Distribution, whether such consideration is in the
form of cash, property or securities or any combination thereof. An "Equivalent
Proportionate Distribution" shall mean a distribution in which the amount
distributable per share of Class C Common Stock shall equal the amount
distributable per share of Class A Common Stock.
The Bank of New York serves as the registrar and transfer agent for the
Class A Common Stock.
52
<PAGE>
PREFERRED STOCK. The Board of Directors of Heritage is authorized to issue,
by resolution and without any action by stockholders, shares of Preferred Stock
and may establish the designations, dividend rights, dividend rate, conversion
rights, voting rights, terms of redemption, liquidation preference, sinking fund
terms and all other preferences and rights of any series of Preferred Stock. The
issuance of shares of Preferred Stock may adversely affect the rights (including
voting rights) of the holders of the Class A Common Stock.
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK. In August 1994, Heritage
adopted a rights plan which provided for the distribution of one right for each
outstanding share of Heritage's Class A or Class C common stock. The rights,
which were distributed on August 29, 1994, entitle the holder to buy one
one-hundredth of a share of Series A Junior Participating Preferred Stock
("Series A Preferred Stock") for $70 per share. Each share of Series A Preferred
Stock entitles the holder to, among other things, 100 votes on all matters
submitted to a vote of Heritage's stockholders. The rights are exercisable only
if a person or group, other than Heritage and certain related entities, acquires
15% or more of Heritage Common Stock or announces a tender offer, the
consummation of which would result in ownership by such person or group of 15%
or more of Heritage's common stock.
BUSINESS COMBINATIONS. Heritage's Restated Articles of Incorporation
provide that the Board of Directors of Heritage, when evaluating a tender or
exchange offer by another party for any equity security of Heritage, a merger or
consolidation of Heritage with another corporation or the purchase of all or
substantially all of the assets of Heritage, may give due consideration to all
relevant factors including (1) the anticipated social and economic effects of
the transaction upon Heritage's employees, customers and the communities in
which Heritage operates; (2) the consideration proposed in relation to the then
market price of Heritage's equity securities, the future value of Heritage as an
independent entity and the then current value of Heritage in a freely negotiated
transaction, as determined by the Board of Directors; and (3) relevant aspects
of other acquisitions made by such party and their course of dealing with
acquired businesses including the effect thereof on the business and reputation
of the acquired businesses and their products and services and the effect of
such acquisitions on employees, creditors, customers and other persons affected
by the acquired businesses and on the communities involved. These provisions
could have the effect of delaying, deferring or preventing a change in control
of Heritage and adversely affecting the market price of Heritage's securities.
LIABILITY OF DIRECTORS. Heritage's Restated Articles of Incorporation
provide that a director of Heritage shall not be liable to Heritage or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (1) for any breach of the director's duty of loyalty to
Heritage or its stockholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (3) for
a transaction from which the director derives an improper personal benefit or
(4) in respect of certain unlawful dividend payments or stock redemptions or
repurchases. These provisions further provide that, if the Iowa Business
Corporation Act is amended to authorize corporate action further eliminating or
limiting personal liability of directors, then the liability of a director of
Heritage shall be eliminated or limited to the fullest extent permitted by the
Iowa Business Corporation Act as so amended. The effect of these provisions will
be to eliminate the rights of Heritage and its stockholders (through
stockholders' derivative suits on behalf of Heritage) to recover monetary
damages against a director for breach of fiduciary duty as a director (including
breaches resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (1)-(4) above. These provisions are not expected
to alter the liability of directors under federal securities laws or in respect
of equitable remedies that may be available under state law.
COMPLIANCE WITH FCC REGULATIONS. So long as Heritage or any of its
subsidiaries holds authority from the Federal Communications Commission (the
"FCC") (or any successor thereto) to operate any television or radio
broadcasting station, if Heritage has reason to believe that the ownership, or
proposed ownership, of shares of capital stock of Heritage by any stockholder or
any person presenting any shares of capital stock of Heritage for transfer into
his or her name (a "Proposed Transferee") may be inconsistent with, or in
violation of, any provision of the Federal Communication Laws (as defined in
Heritage's Restated Articles of Incorporation) such stockholder or Proposed
Transferee,
53
<PAGE>
upon request of Heritage, is required to furnish promptly to Heritage such
information (including, without limitation, information with respect to
citizenship, other ownership interests and affiliations) as Heritage shall
reasonably request to determine whether the ownership of, or the exercise of any
rights with respect to, shares of capital stock of Heritage by such stockholder
or Proposed Transferee is inconsistent with, or in violation of, the Federal
Communication Laws. Heritage may refuse to permit the transfer of shares of
capital stock of Heritage to such Proposed Transferee or may suspend those
rights of stock ownership the exercise of which would result in any
inconsistency with, or violation of, the Federal Communication Laws (including
the right to vote and the payment of dividends or other distributions).
COMPARISON OF RIGHTS OF HOLDERS OF
HERITAGE COMMON STOCK AND DIMAC COMMON STOCK
Heritage is incorporated under the laws of the State of Iowa, and DIMAC is
incorporated under the laws of the State of Delaware. The DIMAC stockholders,
whose rights as stockholders are currently governed by Delaware law and DIMAC's
Certificate of Incorporation and Bylaws, will become, upon consummation of the
Merger and to the extent they receive shares of Heritage Common Stock,
stockholders of Heritage, and their rights will be governed by Iowa law and
Heritage's Restated Articles of Incorporation and Bylaws. Certain differences
between the rights of holders of Heritage Common Stock and the DIMAC Common
Stock are set forth below.
The following summary does not purport to be a complete statement of the
rights of Heritage stockholders under applicable Iowa law and Heritage's
Restated Articles of Incorporation and Bylaws as compared with the rights of
DIMAC stockholders under applicable Delaware law and DIMAC's Certificate of
Incorporation and Bylaws. The summary is qualified in its entirety by the DGCL
and the Iowa Business Corporation Act ("IBCA") to which stockholders are
referred.
AUTHORIZED CAPITAL STOCK
DIMAC's authorized capital stock consists of 20,000,000 shares of Common
Stock, $0.01 par value per share and 10,000,000 shares of Series Preferred
Stock, $0.01 par value per share (the "DIMAC Series Preferred Stock").
The DIMAC Board of Directors has the authority, without any further vote or
action by the stockholders, to provide for the issuance of up to 10,000,000
shares of DIMAC Series Preferred Stock from time to time in one or more series,
to establish the number of shares to be included in each such series, to fix the
designations, preferences, limitations and relative, participating, optional or
other special rights and qualifications or restrictions of the shares of each
series, and to determine the voting powers, if any, of such shares. No shares of
the DIMAC Preferred Stock are issued and outstanding.
Heritage's Restated Articles of Incorporation authorize the issuance of (i)
up to 40,000,000 shares of Class A Common Stock, par value $.01 per share; (ii)
up to 10,000,000 shares of Class C Common Stock, par value $.01 per share; and
(iii) 60,000,000 shares of Preferred Stock, no par value per share. A total of
shares of Class A Common Stock and no shares of Class C Common Stock
or Preferred Stock were issued and outstanding as of December , 1995. In
addition, Heritage has a rights plan that entitles the holders of such rights to
buy one one-hundredth of a share of Series A Preferred Stock. These rights are
exercisable upon the acquisition of 15% or more of Heritage Common Stock in
certain circumstances. See "Description of Capital Stock of Heritage."
VOTING RIGHTS
The shares of DIMAC Common Stock are the only shares of capital stock of
DIMAC outstanding, and the holders thereof are entitled to one vote per share on
all matters on which stockholders of DIMAC are entitled to vote or consent.
The shares of Heritage Common Stock are the only shares of capital stock of
Heritage outstanding, and the holders thereof are entitled to one vote per
share, on all matters on which stockholders of
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Heritage are entitled to vote or consent. Generally, Class C Common Stock has no
voting rights, although Class C Common Stock may be converted into Heritage
Common Stock on a share for share basis. Shares of Series A Preferred Stock, to
the extent issued upon the exercise of rights granted under Heritage's rights
plan, entitle the holder to 100 votes per share. Moreover, any additional class
or series of Preferred Stock which may be created, issued or sold by the Board
of Directors of Heritage in the future will have such voting rights as the
Heritage Board of Directors may determine.
CERTAIN PROVISIONS RELATING TO COMPLIANCE WITH FCC REGULATIONS
So long as Heritage or any of its subsidiaries holds authority from the FCC
(or any successor thereto) to operate any television or radio broadcasting
station, if Heritage has reason to believe that the ownership, or proposed
ownership, of shares of capital stock of Heritage by any stockholder or any
person presenting any shares of capital stock of Heritage for transfer into his
or her name may be inconsistent with, or in violation of, any provision of the
Federal Communication Laws (as defined in Heritage's Restated Articles of
Incorporation) such stockholder or Proposed Transferee, upon request of
Heritage, is required to furnish promptly to Heritage such information
(including, without limitation, information with respect to citizenship, other
ownership interests and affiliations) as Heritage shall reasonably request to
determine whether the ownership of, or the exercise of any rights with respect
to, shares of capital stock of Heritage by such stockholder or Proposed
Transferee is inconsistent with, or in violation of, Federal Communication Laws.
Heritage may refuse to permit the transfer of shares of capital stock of
Heritage to such Proposed Transferee or may suspend those rights of stock
ownership the exercise of which would result in any inconsistency with, or
violation of, the Federal Communication Laws (including the right to vote and
the payment of dividends or other distributions).
AMENDMENT TO CHARTER AND BYLAWS
Amendments to the DIMAC Certificate of Incorporation require the approval of
the holders of a majority of all outstanding shares of DIMAC Common Stock (with,
in each case, each stockholder being entitled to one vote for each share so
held). The Bylaws of DIMAC may be amended by the stockholders of DIMAC and by
the Board of Directors of DIMAC, subject to the rights of the stockholders to
amend such Bylaws.
Amendments to Heritage's Restated Articles of Incorporation generally
require the approval of a majority of the outstanding shares of Heritage Common
Stock. However, in the case of amendments to the Heritage Articles that alter or
change the powers, preferences or special rights of a class of stock so as to
adversely affect the holders thereof, on certain matters related to the specific
rights of a class or series of capital stock, and on all matters where a
separate class vote is required by Iowa law, and the holders of the Heritage
Common Stock and the Class C Common Stock, as the case may be, are entitled to
vote as a class, with the result that no such amendment may be effected without
the affirmative vote of the holders of a majority of the total shares of such
class entitled to vote thereon. Matters on which a class vote is required
include amendments to change the authorized number of shares of such class and
to change the par value per share of such class. Heritage's Bylaws may be
amended by the stockholders or by the Board of Directors of Heritage.
APPROVAL OF, AND SPECIAL RIGHTS WITH RESPECT TO, MERGERS OR CONSOLIDATIONS AND
CERTAIN OTHER TRANSACTIONS
Under Delaware law and the DIMAC Certificate, the approval of the holders of
a majority of the outstanding shares of DIMAC Common Stock is required to
authorize mergers, consolidations, dissolutions or the sale of all or
substantially all of the property or assets of DIMAC.
Under Iowa law, a merger or consolidation generally requires the affirmative
vote of a majority of all outstanding shares of Heritage (whether or not such
shares would otherwise have voting rights), and the affirmative vote of a
majority of Heritage's outstanding shares generally would be required to approve
a sale of all or substantially all of Heritage's property or assets or a
dissolution, or partial dissolution, of Heritage. However, under Iowa law, no
vote of stockholders of Heritage will be necessary to authorize a merger if (1)
the plan of merger does not affect any amendments to the articles of
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incorporation of the surviving corporation, and (2) the number of authorized
unissued shares or treasury shares of any class of the surviving corporation to
be issued or delivered under the plan of merger does not exceed 20% of the
shares of the surviving corporation of the same class outstanding immediately
prior to the effective date of the merger.
Further, Heritage's Restated Articles of Incorporation provide that the
Board of Directors of Heritage, when evaluating a tender or exchange offer by
another party for any equity security of Heritage, a merger or consolidation of
Heritage with another corporation or the purchase of all or substantially all of
the assets of Heritage, may give due consideration to all relevant factors
including (1) the anticipated social and economic effects of the transaction
upon Heritage's employees, customers and the communities in which Heritage
operates; (2) the consideration proposed in relation to the then market price of
Heritage's equity securities, the future value of Heritage as an independent
entity and the then current value of Heritage in a freely negotiated
transaction, as determined by the Board of Directors; and (3) relevant aspects
of other acquisitions made by such party and their course of dealing with
acquired businesses including the effect thereof on the business and reputation
of the acquired businesses and their products and services and the effect of
such acquisitions on employees, creditors, customers and other persons affected
by the acquired businesses and on the communities involved. These provisions
could have the effect of delaying, deferring or preventing a change in control
of Heritage and adversely affecting the market price of Heritage's securities.
CERTAIN ANTI-TAKEOVER PROVISIONS
DIMAC is subject to the provisions of Section 203 of DGCL. That section
provides, with certain exceptions, that a Delaware corporation may not engage in
any of a broad range of business combinations with a person or affiliate, or
associate of such person, who is an "interested stockholder" for a period of
three years from the date that such person became an interested stockholder
unless: (i) the transaction resulting in a person becoming an interested
stockholder, or the business combination, is approved by the board of directions
of the corporation before the person becomes an interested stockholder; (ii) the
interested stockholder acquires 85% or more of the outstanding voting stock of
the corporation in the same transaction that makes it an interested stockholder
(excluding shares owned by persons who are both officers and directors of the
corporation, and shares held by certain employee stock ownership plans); or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and by
the holders of at least 66 2/3% of the corporation's outstanding voting stock at
an annual or special meeting, excluding shares owned by the interested
stockholder. An "interested stockholder" is defined as any person that is (i)
the owner of 15% or more of the outstanding voting stock of the corporation or
(ii) an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
Heritage, as an Iowa corporation, is not subject to Section 203 of DGCL. In
addition, Iowa does not have an anti-takeover statute comparable to Section 203
of DGCL. However, in August 1994, Heritage adopted a rights plan which provided
for the distribution of one right for each outstanding share of Heritage's Class
A or Class C common stock. The rights, which were distributed on August 29,
1994, entitle the holder to buy one one-hundredth of a share of Series A
Preferred Stock for $70 per share. Each share of Series A Preferred Stock
entitles the holder to, among other things, 100 votes on all matters submitted
to a vote of Heritage's stockholders. The rights are exercisable only if a
person or group, other than Heritage and certain related entities, acquires 15%
or more of Heritage's common stock or announces a tender offer, the consummation
of which would result in ownership by such person or group of 15% or more of
Heritage's common stock.
The IBCA allows a director, in determining what is in the best interest of a
corporation when considering a tender offer or proposal, to consider the
following community interest factors in addition to consideration of the effects
of any action on stockholders: the effects of the action on the corporation's
employees, suppliers, creditors and customers; the effects of the action on the
communities in
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which the corporation operates; and the long-term as well as short-term
interests of the corporation and its stockholders, including the possibility
that these interests may be served by the continued independence of the
corporation. If on the basis of these community interest factors the Heritage
Board of Directors determines that the proposal or action is not in the best
interests of Heritage, the Heritage Board may reject the proposal or offer. If
the Heritage Board of Directors rejects such proposal or offer, the Board is not
obligated to facilitate, to remove any barriers to, or refrain from impeding,
the proposal or offer. Consideration of any or all of the community interest
factors is not a violation of the business judgment rule or of any duty of the
director to the stockholders, or a group of stockholders, even if the director
reasonably determines that a community interest factor outweighs the financial
or other benefits to the corporation or a stockholder or group of stockholders.
See also "Description of Capital Stock of Heritage -- Business Combinations" and
"-- Approval of, and Special Rights with Respect to, Mergers or Consolidations
and Certain Other Transactions" for a discussion of a similar provision in
Heritage's Restated Articles of Incorporation.
APPRAISAL RIGHTS
Under Delaware law, appraisal rights are generally available for the shares
of any class or series of stock of DIMAC in a merger or consolidation, provided
that no appraisal rights are available for the shares of any class or series of
stock which, at the record date for the meeting held to approve such
transaction, were either (i) listed on a national security exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. ("NASD") or (ii)
held of record by more than 2,000 stockholders. Even if the shares of any class
or series of stock meet the requirements of clause (i) or (ii) above, appraisal
rights are available for such class or series if the holders thereof receive in
the merger or consolidation anything except: (i) shares of stock of the
corporation surviving or resulting from such merger or consolidation; (ii)
shares of stock of any other corporation which at the effective date of the
merger or consolidation is either listed on a national securities exchange, or
designated as a natural market system security on an interdealer quotation
system by the NASD or held of record by more than 2,000 stockholders; (iii) cash
in lieu of fractional shares; or (iv) any combination of the foregoing. No
appraisal rights are available to stockholders of the surviving corporation if
the merger did not require their approval.
Under Iowa law, the holders of Heritage capital stock have appraisal rights
in any merger or consolidation, any sale or exchange of all or substantially all
of the property and assets of Heritage otherwise than in the usual and regular
course of its business or any amendment to the articles of incorporation that
materially and adversely affects rights in respect to the dissenter's shares.
Such rights do not apply to stockholders of the surviving corporation in a
merger if (i) articles or incorporation of the surviving corporation will not
differ except in certain minor instances; (ii) each stockholder of the surviving
corporation where shares were outstanding immediately before the effective date
of the merger will hold the same number of shares with identical designations,
preferences, limitations and relative rights immediately after the merger; (iii)
the number of voting shares immediately after the merger, plus the number of
voting shares issuable as a result of the merger, either by conversion of
securities issued pursuant to the merger or the exercise of rights and options
issued pursuant to the merger, will not exceed by more than 20% the total number
of voting shares of the surviving corporation outstanding immediately before the
merger; or (iv) the number of shares that entitle their holders to participate
without limitation in dividends plus the number of such participating shares
issued pursuant to the merger, either by conversion of securities issued
pursuant to the merger or the exercise of rights and warrants issued pursuant to
the merger will not exceed by more than 20% of the total number of participating
shares outstanding before the merger.
DIVIDEND SOURCES
Under Delaware law, dividends may be paid by DIMAC out of either (1) surplus
or (2) in case there is no surplus, out of its net profits for the fiscal year
in which the dividend is declared and/or the preceding fiscal year, except when
the capital is diminished to an amount less than the aggregate amount of the
capital represented by issued and outstanding stock having a preference on the
distribution of assets.
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Under Iowa law, dividends may be paid by Heritage, except when Heritage is
insolvent or if Heritage's total assets would be less than the sum of its total
liabilities plus the amount that would be needed, if Heritage were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of stockholders where preferential rights are superior to those
receiving the distribution. In addition, Heritage's Bylaws prohibit payment of
dividends based on unrealized appreciation in value or revaluation of Heritage's
assets.
SPECIAL MEETINGS OF STOCKHOLDER; STOCKHOLDER ACTION BY WRITTEN CONSENT
Under Delaware law, special meetings of the stockholders may be called by
the Board of Directors of such other person as may be authorized by the
certificate of incorporation or the bylaws. DIMAC's Certificate of Incorporation
provides that special meetings may only be called by the Chairman of the Board
or the President and not by DIMAC stockholders. Under Iowa law, special meetings
of stockholder may be called by the president, the board of directors, the
holders of not less than 10% of all shares entitled to vote at the meeting, or
such other officers or persons as may be provided in the articles of
incorporation or the bylaws. Heritage's Bylaws provide that a special meeting
may also be called by Heritage's Secretary and by the holders of not less than
10% of all the outstanding shares of Heritage (measured by their respective
number of votes).
Under Delaware law, unless otherwise provided in the certificate of
incorporation, any action which may be taken or is required to be taken at any
annual or special meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, is signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. The DIMAC Certificate of Incorporation prohibits the DIMAC
stockholders from taking actions by written consent.
Under Iowa law, actions by stockholders of Heritage may be taken without a
meeting only if a consent in writing is signed by holders of outstanding shares
having not less than 90% of the votes entitled to be cast at a meeting at which
all shares entitled to vote on the action were present and voted.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
DIMAC's Bylaws provide that DIMAC, subject to limited exceptions, will
indemnify its directors and executive officers and may indemnify its other
officers, employees and other agents to the fullest extent permitted by Delaware
law.
In addition, DIMAC's Certificate of Incorporation provides that, to the
fullest extent permitted by Delaware Law, DIMAC's directors will not be liable
for monetary damages for breach of the directors' fiduciary duty of care to
DIMAC and its stockholders. The provision in DIMAC's Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under the DGCL. Each director is
subject to liability for breach of the directors' duty of loyalty to DIMAC for
acts or omissions not in good faith or involving intentional misconduct or
knowing violations of law, for acts or omissions that the director believes to
be contrary to the best interests of DIMAC or its stockholders, for any
transaction from which the director derived an improper personal benefit, for
acts or omissions involving a reckless disregard for the directors' duty to
DIMAC or its stockholders when the director was aware or should have been aware
of a risk of serious injury to DIMAC or its stockholders, for acts or omissions
that constitute an unexcused pattern of inattention that amounts to be
abdication of the director's duty to DIMAC or its stockholders, for improper
transactions between the director and DIMAC, and for improper distributions to
stockholders and loans to directors and officers.
Heritage's Restated Articles of Incorporation provide that a director of
Heritage shall not be liable to Heritage or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (1) for
any breach of the director's duty of loyalty to Heritage or its stockholders,
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(2) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law, (3) for a transaction from which
the director derives an improper personal benefit or (4) in respect of certain
unlawful dividend payments or stock redemptions or repurchases. These provisions
further provide that, if the IBCA is amended to authorize corporate action
further eliminating or limiting personal liability of directors, then the
liability of a director of Heritage shall be eliminated or limited to the
fullest extent permitted by the IBCA as so amended. These provisions are not
expected to alter the liability of directors under federal securities laws or in
respect to equitable remedies that may be available under state law.
LEGAL MATTERS
The validity of the shares of Heritage Common Stock to be issued in
connection with the Merger is being passed upon for Heritage by Crouch &
Hallett, L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements and schedules of Heritage as of
December 31, 1993 and 1994, and for each of the years in the three-year period
ended December 31, 1994 have been incorporated by reference herein in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of DIMAC at December 31, 1993 and
1994, and for each of the three years in the period ended December 31, 1994
appearing in DIMAC's Annual Report (Form 10-K) for the year ended December 31,
1994, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The combined financial statements of T. R. McClure and Company, Inc. and
related companies at December 31, 1993 and 1994 and for the years then ended
have been incorporated by reference herein in reliance upon the report of
Mortenson and Associates, P.C. (formerly La Vecchia & Zarro), independent
auditors, incorporated by reference herein, upon the authority of such firm as
experts in accounting and auditing.
The financial statements of Palm Coast Data Ltd. at December 31, 1993 and
1994 and for the years then ended have been incorporated by reference herein in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, incorporated by reference herein, given upon the authority of such
firm as experts in accounting and auditing.
The combined financial statements of The Direct Marketing Group, Inc. and
related companies at December 31, 1992 and 1993 and for the years then ended
have been incorporated by reference herein in reliance upon the report of Leslie
Sufrin and Company, P.C., independent auditors, incorporated by reference
herein, and upon the authority of such firm as experts in accounting and
auditing.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
HERITAGE MEDIA CORPORATION
(AN IOWA CORPORATION)
ARCH ACQUISITION CORP.
(A DELAWARE CORPORATION)
AND
DIMAC CORPORATION
(A DELAWARE CORPORATION)
DATED: OCTOBER 23, 1995
<PAGE>
This Agreement and Plan of Merger (the "Agreement") is made as of the 23rd
day of October, 1995, among Heritage Media Corporation, an Iowa corporation
("Parent"); Arch Acquisition Corp., a Delaware corporation ("Purchaser"), which
is wholly owned by Parent; and DIMAC Corporation, a Delaware corporation (the
"Company").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Purchaser and Company
each have determined that it is in the best interests of their respective
stockholders for Parent and Purchaser to acquire Company upon the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and certain other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto covenant and
agree as follows:
ARTICLE 1.
THE MERGER
1.1. MERGER. In accordance with the provisions of the business corporation
laws of the State of Delaware, at the Effective Date (as hereinafter defined),
Purchaser shall be merged (the "Merger") into Company, as soon as practicable
following the satisfaction or waiver, if permissible, of the conditions set
forth in Articles 6 and 7. Following the Merger, Company shall continue as the
surviving corporation (the "Surviving Corporation") and shall continue to be
governed by the laws of the State of Delaware.
1.2. CONTINUING OF CORPORATE EXISTENCE. Except as may otherwise be set
forth herein, the corporate existence and identity of Company, with all its
purposes, powers, franchises, privileges, rights and immunities, shall continue
unaffected and unimpaired by the Merger, and the corporate existence and
identity of Purchaser, with all its purposes, powers, franchises, privileges,
rights and immunities, at the Effective Date shall be merged with and into that
of Company, and the Surviving Corporation shall be vested fully therewith and
the separate corporate existence and identity of Purchaser shall thereafter
cease except to the extent continued by statute.
1.3. EFFECTIVE DATE. The Merger shall become effective upon the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
pursuant to the provisions of the Delaware General Corporation Law (the "DGCL").
The date and time when the Merger shall become effective is hereinafter referred
to as the "Effective Date".
1.4. CORPORATE GOVERNMENT.
(a) The Certificate of Incorporation of Company, as in effect on the
Effective Date, shall continue in full force and effect and shall be the
Certificate of Incorporation of the Surviving Corporation.
(b) The Bylaws of Company, as in effect as of the Effective Date, shall
continue in full force and effect and shall be the Bylaws of the Surviving
Corporation.
(c) The members of the Board of Directors of the Surviving Corporation
shall be the persons holding such office in Purchaser as of the Effective
Date.
(d) The officers of the Surviving Corporation shall be the persons
holding such offices in Company as of the Effective Date.
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1.5. RIGHTS AND LIABILITIES OF THE SURVIVING CORPORATION. The Surviving
Corporation shall have the following rights and obligations:
(a) The Surviving Corporation shall have all the rights, privileges
immunities and powers and shall be subject to all the duties and liabilities
of a corporation organized under the laws of the State of Delaware.
(b) The Surviving Corporation shall possess all of the rights,
privileges immunities and franchises, of either a public or private nature,
of Company and Purchaser and all property, real, personal and mixed, and all
debts due on whatever account, including subscription to shares, and all
other choses in action, and every other interest of or belonging or due to
Company and Purchaser shall be taken and deemed to be transferred or
invested in the Surviving Corporation without further act or deed.
(c) At the Effective Date, the Surviving Corporation shall thenceforth
be responsible and liable for all liabilities and obligations of Company and
Purchaser and any claim existing or action or proceeding pending by or
against Purchaser or Company may be prosecuted as if the Merger had not
occurred, or the Surviving Corporation may be substituted in its place.
Neither the rights of creditors nor any liens upon the property of Purchaser
or Company shall be impaired by the Merger.
1.6. CLOSING. Consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Parent in Dallas,
Texas commencing at 10:00 a.m., local time, on the date (i) on which the Special
Meeting of Company's stockholders occurs or (ii) as soon as possible thereafter
when each of the other conditions set forth in Articles 6 and 7 have been
satisfied or waived, and shall proceed promptly to conclusion, or at such other
place, time and date as shall be fixed by mutual agreement between Parent and
Company. The day on which the Closing shall occur is referred to herein as the
"Closing Date." Each party will cause to be prepared, executed and delivered the
Certificate of Merger to be filed with the Secretary of State of Delaware and
all other appropriate and customary documents as any party or its counsel may
reasonably request for the purpose of consummating the transactions contemplated
by this Agreement. All actions taken at the Closing shall be deemed to have been
taken simultaneously at the time the last of any such actions is taken or
completed.
ARTICLE 2.
CONVERSION OF SHARES; TREATMENT OF OPTIONS
2.1. CONVERSION OF SHARES. At the Effective Date, by virtue of the Merger
and without any action on the part of the holder thereof:
(a) Each share of common stock, $.01 par value per share, of the Company
("Company Common Stock"), which shall be outstanding immediately prior to
the Effective Date (other than shares owned by Parent or Company or any of
their respective subsidiaries, all of which shall be cancelled, and
Dissenting Shares, as defined in Section 2.3 below) (the "Converted Shares")
shall at the Effective Date, by virtue of the Merger and without any action
on the part of the holder thereof, be converted into and represent the right
to receive $28 per share (the "Merger Price") in cash without any interest
thereon. Notwithstanding the foregoing, Purchaser may elect in its sole
discretion to pay up to $7 of the Merger Price in shares of Class A Common
Stock, $.01 par value, of Parent (the "Parent Common Stock"). If Purchaser
elects to pay a portion of the Merger Price (but not more than $7 per share)
by the issuance of shares of Parent Common Stock (the "Stock Portion"), the
amount of shares of Parent Common Stock constituting the Stock Portion for
each Converted Share shall be the quotient determined by dividing (I) the
Stock Portion of the Merger Price by (II) the average of the closing prices
for the Parent Common Stock as reported on the stock exchange on which the
shares of Parent Common Stock are then traded (the "Stock
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Exchange") as published by The Wall Street Journal (the "Average Closing
Price") for the 10 trading days ending on and including the third trading
day preceding but not including the Effective Date.
(b) Each share of Common Stock, $.01 par value, of Purchaser which shall
be outstanding immediately prior to the Effective Date shall at the
Effective Date, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into one share of newly issued Company
Common Stock.
2.2. FRACTIONAL SHARES. No scrip or fractional shares of Parent Common
Stock shall be issued in the Merger. All fractional shares of Parent Common
Stock to which a holder of Company Common Stock immediately prior to the
Effective Date would otherwise be entitled at the Effective Date shall be
aggregated. If a fractional share results from such aggregation, such
stockholder shall be entitled, after the later of (a) the Effective Date or (b)
the surrender of such stockholder's "Certificate" (as defined in Section 2.5) or
Certificates that represent such shares of Company Common Stock, to receive from
Parent an amount in cash in lieu of such fractional share. The amount of such
cash payment shall be equal to such fractional proportion of the Average Closing
Price of the Parent Common Stock. Parent will make available to the "Exchange
Agent" (as defined in Section 2.5) the cash necessary for the purpose of paying
cash for fractional shares.
2.3. DISSENTING SHARES. Shares of Company Common Stock that are issued and
outstanding immediately prior to the Effective Date and that have not been voted
for adoption of the Merger and with respect of which appraisal rights have been
properly demanded in accordance with the applicable provisions of the DGCL
("Dissenting Shares") shall not be converted into the right to receive the
consideration provided for in Sections 2.1 and 2.2 at or after the Effective
Date unless and until the holder of such shares withdraws his demand for such
appraisal (in accordance with the applicable provisions of the DGCL) or becomes
ineligible for such appraisal. If a holder of Dissenting Shares withdraws his
demand for such appraisal (in accordance with the applicable provisions of the
DGCL) or becomes ineligible for such appraisal, then, as of the Effective Date
or the occurrence of such event, whichever later occurs, such holder's
Dissenting Shares shall cease to be Dissenting Shares and shall be converted
into and represent the right to receive the consideration provided for in
Sections 2.1 and 2.2. If any holder of Company Common Stock shall assert the
right to be paid the fair value of such Company Common Stock as described above,
Company shall give Parent notice thereof and Parent shall have the right to
participate in all negotiations and proceedings with respect to any such
demands. Company shall not, except with the prior written consent of Parent,
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for payment. After the Effective Date, Parent will cause the
Surviving Corporation to pay its statutory obligations to holders of Dissenting
Shares.
2.4. STOCK OPTIONS.
(a) Subject to Section 2.4(c) hereof, at the Effective Date, (i) all
options (the "Options") then outstanding under Company's 1994 Stock Option
and Stock Award Plan (the "Option Plan") and Company's Non-Employee
Directors' Stock Option Plan (the "Directors' Plan") shall remain
outstanding following the Effective Date and (ii) such Options shall, by
virtue of the Merger and without any further action on the part of Company
or the holder of any such Option, be assumed by Parent in accordance with
their terms and conditions as in effect at the Effective Date (and the terms
and conditions of the Option Plan and the Option Award Agreement associated
with such Option Plan or the Directors' Plan, as the case may be), except
that (A) each such Option shall be immediately exercisable for that whole
number of shares of Parent Common Stock (rounded to the nearest whole share)
equal to the quotient obtained by dividing $28.00 by the Average Closing
Price (such quotient being referred to as the "Conversion Factor") at an
exercise price per share of Parent Common Stock (rounded to the nearest
cent) equal to the exercise price per share of Company Common Stock
applicable to such Option divided by the Conversion Factor, (B) all actions
to be taken thereunder by the Board of Directors of Company or a committee
thereof shall
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be taken by the Board of Directors of Parent or a committee thereof and (C)
no payment shall be made for fractional interests. From and after the date
of this Agreement, except as provided in Section 5.1, no additional options
shall be granted by Company under the Option Plan, the Directors' Plan or
otherwise.
(b) It is intended that the assumed Options, as set forth herein, shall
not give to any holder thereof any benefits in addition to those which such
holder had prior to the assumption of the Option. Parent shall take all
necessary corporate action necessary to reserve for issuance a sufficient
number of shares of Parent Common Stock for delivery upon exercise of the
Options. As soon as practicable after the Effective Date, Parent shall file
a registration statement, or an amendment to an existing registration
statement, under the Securities Act of 1933, as amended (the "Securities
Act"), on Form S-8 (or other successor form) with respect to the shares of
Parent Common Stock subject to such Options and shall use its best efforts
to maintain the effectiveness of such registration statement for so long as
such Options remain outstanding. In addition, Parent will cause such shares
to be listed on the Stock Exchange.
(c) Notwithstanding anything to the contrary contained in this Section
2.4, immediately prior to the Effective Date, each holder of an Option
awarded under the Directors' Plan may elect to (i) have his or her Option no
longer exercisable for the purchase of shares of Company Common Stock (each
such Option, a "Converted Option") and (ii) be entitled, in cancellation and
settlement therefor, to receive consideration (the "Converted Option Price")
in cash (subject to any applicable withholding taxes) at the Effective Date,
in an amount equal to the product of (x) the total number of shares of
Company Common Stock subject to such Converted Option and (y) the excess of
the Merger Price over the exercise price per share of Company Common Stock
subject to such Converted Option; PROVIDED that, in the event that, pursuant
to Section 2.1(a) hereof, Purchaser exercises its right to elect to pay a
portion of the Merger Price in Parent Common Stock, the Purchaser shall also
pay the same PRO RATA portion of the Converted Option Price in Parent Common
Stock.
2.5. EXCHANGE AGENT.
(a) Parent shall authorize The Bank of New York, or such other firm as
is reasonably acceptable to Company, to serve as exchange agent hereunder
(the "Exchange Agent"). Promptly after the Effective Date, Parent shall
deposit or shall cause to be deposited in trust with the Exchange Agent the
aggregate of the following: (i) the cash amount of the Merger Price and
Converted Option Price with respect to each Converted Share and Converted
Option, as the case may be; (ii) certificates representing the number of
whole shares of Parent Common Stock to which the holders of Company Common
Stock and/or Options (other than holders of Dissenting Shares) are entitled
pursuant to Section 2.1(a) and/or 2.4(c), if applicable; and (iii) cash
sufficient to pay for fractional shares then known to Parent, if applicable
(such cash amounts and certificates being hereinafter referred to as the
"Exchange Fund"). Such portion of the Exchange Fund as is delivered to the
Exchange Agent in cash may be invested by the Exchange Agent as directed by
Parent only in direct obligations of the United States, obligations for
which the full faith and credit of the United States is pledged to provide
for the payment of principal and interest, commercial paper rated of the
highest quality by Moody's Investors Services, Inc. or Standard & Poor's
Corporation or certificates of deposit, bank repurchase agreements or
bankers' acceptances of a commercial bank having at least $100,000,000 in
assets (collectively, "Permitted Investments") or in money market funds
which are invested in Permitted Investments, and any net earnings with
respect thereto shall be paid to Parent as and when requested by Parent. The
Exchange Agent shall, pursuant to irrevocable instructions received from
Parent, pay the Merger Price and Converted Option Price with respect to such
Converted Share and Converted Option, as the case may be, as provided for in
this Article 2 out of the Exchange Fund. Additional amounts of cash, if any,
needed from time to time by the Exchange Agent to make payments for
fractional
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shares shall be provided by Parent and shall become part of the Exchange
Fund. The Exchange Fund shall not be used for any other purpose, except as
provided in this Agreement, or as otherwise agreed to by Parent, Purchaser
and Company prior to the Effective Date.
(b) As soon as practicable after the Effective Date, the Exchange Agent
shall mail and otherwise make available to each record holder (other than
holders of Dissenting Shares) who, as of the Effective Date, was a holder of
an outstanding certificate or certificates which immediately prior to the
Effective Date represented shares of Company Common Stock (the
"Certificates") and to each holder of Options under the Directors' Plan
recorded on Company's books a form of letter of transmittal and instructions
for use in effecting the surrender of the Certificates and Converted Options
for payment therefor and conversion thereof, which letter of transmittal
shall comply with all applicable rules of the Stock Exchange.
(c) Delivery of Certificates shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent and the form of letter of transmittal
shall so reflect. Upon surrender to the Exchange Agent of a Certificate,
together with such letter of transmittal duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor (i) a check
representing the cash consideration to which such holder shall have become
entitled pursuant to this Article 2 and (ii) if applicable, one or more
certificates as requested by the holder (properly issued, executed and
countersigned, as appropriate) representing that number of whole shares of
Parent Common Stock to which such holder of Company Common Stock shall have
become entitled pursuant to the provisions of this Article 2, and the
Certificate so surrendered shall forthwith be cancelled. No interest will be
paid or accrued on the cash payable upon surrender of the Certificates.
(d) Converted Options shall be cancelled as of the Effective Date and
upon the occurrence of the Effective Date the holder of each Converted
Option shall be entitled to receive in exchange therefor (i) a check
representing the cash consideration to which such holder will have become
entitled pursuant to this Article 2 and (ii), if applicable, one or more
certificates as requested by the holder (properly issued, executed and
countersigned as appropriate) reflecting the number of shares of Parent
Common Stock to which such holder of Converted Options shall have become
entitled pursuant to this Article 2. No interest will be paid or accrued on
the cash payable upon the cancellation of Converted Options.
(e) Parent shall pay any transfer or other taxes required by reason of
the issuance of a certificate representing shares of Parent Common Stock;
provided, however, that such certificate is issued in the name of the person
in whose name the Certificate surrendered in exchange therefor is
registered. If any portion of the consideration to be received pursuant to
this Article 2 upon exchange of a Certificate (whether a certificate
representing shares of Parent Common Stock or a check representing cash for
a fractional share) is to be issued or paid to a person other than the
person in whose name the Certificate surrendered in exchange therefor is
registered, it shall be a condition of such issuance and payment that the
Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such exchange shall pay in
advance any transfer or other taxes required by reason of the issuance of a
check representing cash or a certificate representing shares of Parent
Common Stock to such other person, or establish to the satisfaction of the
Exchange Agent that such tax has been paid or that no such tax is
applicable. From the Effective Date until surrender in accordance with the
provisions of this Section 2.5, each Certificate (other than Certificates
representing treasury shares of Company and Certificates representing
Dissenting Shares) shall represent for all purposes only the right to
receive the consideration provided in Sections 2.1 and 2.2. No dividends
that are otherwise payable on Parent Common Stock will be paid to persons
entitled to receive Parent Common Stock until such persons surrender their
Certificates. After such surrender, there shall be paid to the person in
whose name Parent Common Stock shall be issued any dividends on such Parent
Common Stock that shall have a record date on or after the Effective Date
and prior to such surrender. If the payment date for any such dividend is
after the date of
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such surrender, such payment shall be made on such payment date. In no event
shall the persons entitled to receive such dividends be entitled to receive
interest on such dividends. All payments in respect of shares of Company
Common Stock that are made in accordance with the terms hereof shall be
deemed to have been made in full satisfaction of all rights pertaining to
such securities.
(f) In the case of any lost, mislaid, stolen or destroyed Certificates,
the holder thereof may be required, as a condition precedent to the delivery
to such holder of the consideration described in this Article 2, to deliver
to Parent a bond in such reasonable sum as Parent may direct as indemnity
against any claim that may be made against the Exchange Agent, Parent or the
Surviving Corporation with respect to the Certificate alleged to have been
lost, mislaid, stolen or destroyed.
(g) After the Effective Date, there shall be no transfers on the stock
transfer books of the Surviving Corporation of the shares of Company Common
Stock that were outstanding immediately prior to the Effective Date. If,
after the Effective Date, Certificates are presented to the Surviving
Corporation for transfer, they shall be cancelled and exchanged for the
consideration described in this Article 2.
(h) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Company for six months after the Effective Date shall be
returned to Parent, upon demand, and any holder of Company Common Stock who
has not theretofore complied with Section 2.5(c) shall thereafter look only
to Parent for issuance of the number of shares of Parent Common Stock and
other consideration to which such holder has become entitled pursuant to
this Article 2; provided, however, that neither the Exchange Agent nor any
party hereto shall be liable to a holder of shares of Company Common Stock
for any amount required to be paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
2.6. ADJUSTMENT. If, between the date of this Agreement and the Closing
Date or the Effective Date, as the case may be, the outstanding shares of
Company Common Stock or Parent Common Stock shall have been changed into a
different number of shares or a different class by reason of any classification,
recapitalization, split-up, combination, exchange of shares, or readjustment or
a stock dividend thereon shall be declared with a record date within such
period, then the consideration to be received pursuant to Section 2.1(a) or
2.4(c) hereof by the holders of shares of Company Common Stock and/or Options
shall be adjusted to accurately reflect such change.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to Parent and Purchaser as follows:
3.1. ORGANIZATION AND GOOD STANDING OF COMPANY. Each of Company and the
"Company Subsidiaries" (as defined in Section 3.2) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation.
3.2. CAPITAL STOCK OF COMPANY SUBSIDIARIES AND OTHER OWNERSHIP
INTERESTS. Schedule 3.2 sets forth a true and complete list of all
corporations, partnerships and other entities in which Company owns any equity
interest (the "Company Subsidiaries"), the jurisdiction in which each Company
Subsidiary is incorporated or organized, and all shares of capital stock or
other ownership interests authorized, issued and outstanding of each Company
Subsidiary. The shares of capital stock or other equity interests of each
Company Subsidiary have been duly authorized and are validly issued, fully paid
and nonassessable. All shares of capital stock or other equity interests of each
Company Subsidiary owned by Company or any of its subsidiaries are set forth on
Schedule 3.2 and, except as set forth on Schedule 3.2, are owned by Company,
either directly or indirectly, free and clear of all liens, encumbrances,
equities or claims.
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3.3. FOREIGN QUALIFICATION. Company and each of the Company Subsidiaries
are duly qualified or licensed to do business and are in good standing as a
foreign corporation in every jurisdiction where the failure so to qualify would
have a material adverse effect on (a) the business, operations, assets or
financial condition of Company and the Company Subsidiaries taken as a whole (a
"Company Material Adverse Effect") or (b) the validity or enforceability of, or
the ability of Company to perform its obligations under, this Agreement.
3.4. CORPORATE POWER AND AUTHORITY. Each of Company and the Company
Subsidiaries has the corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as currently being conducted.
Company has the corporate power and authority to execute and deliver this
Agreement and, subject to the approval of this Agreement and the Merger by its
stockholders, to perform its obligations under this Agreement and to consummate
the Merger. The execution, delivery and performance by Company of this Agreement
has been duly authorized by all necessary corporate action (other than the
approval of this Agreement and the Merger by its stockholders).
3.5. BINDING EFFECT. This Agreement has been duly executed and delivered
by Company and is the legal, valid and binding obligation of Company enforceable
in accordance with its terms except that:
(a) enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
(c) rights to indemnification may be limited by considerations of public
policy.
3.6. ABSENCE OF RESTRICTIONS AND CONFLICTS. Subject only to the approval
of the adoption of this Agreement and the Merger by Company's stockholders and
except as set forth on Schedule 3.6, the execution, delivery and performance of
this Agreement and the consummation of the Merger and the fulfillment of and
compliance with the terms and conditions of this Agreement do not and will not,
with the passing of time or the giving of notice or both, violate or conflict
with, constitute a breach of or default under, result in the loss of any
material benefit under, or permit the acceleration of any obligation under, (i)
any term or provision of the Articles or Certificate of Incorporation or Bylaws
of Company or any Company Subsidiary, (ii) any "Material Contract" (as defined
in Section 3.13), (iii) any judgment, decree or order of any court or
governmental authority or agency to which Company or any Company Subsidiary is a
party or by which Company, any Company Subsidiary or any of their respective
properties is bound, or (iv) any statute, law, regulation or rule applicable to
Company or any Company Subsidiary other than such violations, conflicts,
breaches or defaults which would not have a Company Material Adverse Effect.
Except for the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware, compliance with the applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the
Securities Act, Securities Exchange Act of 1934, as amended (the "Exchange Act")
and applicable state securities laws, no consent, approval, order or
authorization of, or registration, declaration or filing with, any governmental
agency or public or regulatory unit, agency, body or authority with respect to
Company or any of the Company Subsidiaries is required in connection with the
execution, delivery or performance of this Agreement by Company or the
consummation of the transactions contemplated hereby.
3.7. CAPITALIZATION OF COMPANY.
(a) The authorized capital stock of Company consists of 20,000,000
shares of common stock, $.01 par value, and 10,000,000 shares of preferred
stock, $.01 par value. As of the date hereof, there were (i) 6,491,405
shares of Company Common Stock issued and outstanding, (ii) no shares of
Company's preferred stock outstanding, (iii) 454,250 shares of Company
Common Stock reserved for issuance upon the exercise of outstanding options
granted under the Option Plan and the Directors' Plan, and (iv) 5,631,418
shares of Company Common Stock held as treasury shares.
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(b) All of the issued and outstanding shares of Company Common Stock
have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights.
(c) To Company's knowledge, other than as set forth on Schedule 3.7(c),
there are no voting trusts, stockholder agreements or other voting
arrangements by the stockholders of Company.
(d) Except as set forth in subsection (a) above, there is no outstanding
subscription, contract, convertible or exchangeable security, option,
warrant, call or other right obligating Company or any of Company
Subsidiaries to issue, sell, exchange, or otherwise dispose of, or to
purchase, redeem or otherwise acquire, shares of, or securities convertible
into or exchangeable for, capital stock of Company or Company Subsidiaries.
3.8. COMPANY SEC REPORTS. Company has made available to Parent and
Purchaser (i) Company's Annual Report on Form 10-K, including all exhibits filed
thereto and items incorporated therein by reference, (ii) Company's Quarterly
Reports on Form 10-Q, including all exhibits thereto and items incorporated
therein by reference, (iii) proxy statements relating to Company's meetings of
stockholders and (iv) all other reports or registration statements (as amended
or supplemented prior to the date hereof), filed by Company with the Securities
and Exchange Commission (the "SEC") since August 4, 1994, including all exhibits
thereto and items incorporated therein by reference (items (i) through (iv)
being referred to as the "Company SEC Reports"). As of their respective dates,
the Company SEC Reports did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Since August 4, 1994, Company has filed all material
forms, reports and documents with the SEC required to be filed by it pursuant to
the federal securities laws and the SEC rules and regulations thereunder, each
of which complied as to form, at the time such form, report or document was
filed, in all material respects with the applicable requirements of the
Securities Act and the Exchange Act and the applicable rules and regulations
thereunder.
3.9. FINANCIAL STATEMENTS AND RECORDS OF COMPANY. Company has made
available to Parent and Purchaser true, correct and complete copies of the
following financial statements (the "Company Financial Statements"):
(a) the consolidated financial statements of Company and its
subsidiaries as of December 31, 1993 and 1994 and for the years then ended,
including the notes thereto, in each case examined by and accompanied by the
report of Ernst & Young LLP (collectively, the "Company Year-End
Statements");
(b) the unaudited consolidated balance sheet of Company and its
subsidiaries as of June 30, 1995 (the "Company Balance Sheet"), with any
notes thereto, and the related unaudited consolidated statement of income
for the six months then ended (collectively, the "Company Quarterly
Statements");
(c) the financial statements of Palm Coast Data Ltd. as of December 31,
1993 and 1994 and for the years then ended, including the notes thereto, in
each case examined by and accompanied by the report of Deloitte & Touche
L.L.P. (collectively, the "Palm Coast Statements"); and
(d) the consolidated financial statements of T.R. McClure and Company,
Inc. and related companies as of December 31, 1993 and 1994 and for the
years then ended, including the notes thereto, in each case examined by and
accompanied by the report of La Vecchia & Zarro, and the unaudited
consolidated financial statements of T.R. McClure and Company, Inc. and
related companies as of June 30, 1995 and for the six months then ended
(collectively, the "McClure Statements").
The Company Year-End Statements and the Company Quarterly Statements present
fairly, in all material respects, the financial position of Company and its
subsidiaries, as the case may be, as of the dates thereof and the results of
operations and cash flows thereof for the periods then ended, in each
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case in conformity with generally accepted accounting principles, consistently
applied, except as noted therein. The Palm Coast Statements present fairly, in
all material respects, the financial position of Palm Coast Data Ltd. and the
results of its operations and cash flows for the periods then ended, in each
case in conformity with generally accepted accounting principles, consistently
applied, except as noted therein. The McClure Statements present fairly, in all
material respects, the financial position of T. R. McClure and Company, Inc. and
its related companies and the results of its operations and cash flows for the
periods then ended, in each case in conformity with generally accepted
accounting principles, consistently applied, except as noted therein. Since
December 31, 1994, there has been no change in accounting principles applicable
to, or methods of accounting utilized by, Company and/or such Company
Subsidiaries, as the case may be, except as noted in the Company Financial
Statements. The books and records of Company have been and are being maintained
in accordance with good business practice, reflect only valid transactions and
are complete and correct in all material respects.
3.10. ABSENCE OF CERTAIN CHANGES. Since December 31, 1994, Company and the
Company Subsidiaries have not, except as otherwise set forth in the Company SEC
Reports or on Schedule 3.10:
(a) suffered any adverse change in the business, operations, assets, or
financial condition, except as reflected on the Company Quarterly Statements
and except for such changes that would not result in a Company Material
Adverse Effect;
(b) suffered any material damage or destruction to or loss of the assets
of Company or any Company Subsidiary, whether or not covered by insurance,
which property or assets are material to the operations or business of
Company and Company Subsidiaries taken as a whole;
(c) settled, forgiven, compromised, canceled, released, waived or
permitted to lapse any material rights or claims other than in the ordinary
course of business;
(d) entered into or terminated any material agreement, commitment or
transaction, or agreed or made any changes in material leases or agreements,
other than renewals or extensions thereof and leases, agreements,
transactions and commitments entered into or terminated in the ordinary
course of business;
(e) written up, written down or written off the book value of any
material amount of assets other than in the ordinary course of business;
(f) declared, paid or set aside for payment any dividend or distribution
with respect to Company's capital stock;
(g) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of Company's capital
stock or securities (other than shares issued upon exercise of the Options)
or any rights to acquire such capital stock or securities, or agreed to
changes in the terms and conditions of any such rights outstanding as of the
date of this Agreement;
(h) increased the compensation of or paid any bonuses to any employees
or contributed to any employee benefit plan, other than in accordance with
established policies, practices or requirements and as provided in Section
5.1 hereof;
(i) entered into any employment, consulting or compensation agreement
with any person or group, except for agreements which would not have a
Company Material Adverse Effect;
(j) entered into any collective bargaining agreement with any person or
group;
(k) entered into, adopted or amended any employee benefit plan; or
(l) entered into any agreement to do any of the foregoing.
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3.11. NO MATERIAL UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of Company or the Company Subsidiaries of any nature, whether
absolute, accrued, contingent, or otherwise, other than:
(a) the liabilities and obligations that are reflected, accrued or
reserved against on Company Balance Sheet or the unaudited consolidated
balance sheet of T. R. McClure and Company, Inc. and related companies, as
of June 30, 1995 (the "McClure Balance Sheet"), or referred to in the
footnotes to the Company Balance Sheet or the McClure Balance Sheet, or
incurred in the ordinary course of business and consistent with past
practices since June 30, 1995; or
(b) liabilities and obligations incurred in connection with the
acquisition of certain of the assets of T. R. McClure and Company, Inc. and
certain related companies; or
(c) liabilities and obligations which in the aggregate would not result
in a Company Material Adverse Effect.
3.12. TAX RETURNS; TAXES. Each of Company and the Company Subsidiaries
have duly filed all U.S. federal and material state, county, local and foreign
tax returns and reports required to be filed by it, including those with respect
to income, payroll, property, withholding, social security, unemployment,
franchise, excise and sales taxes and all such returns and reports are correct
in all material respects; have either paid in full all taxes that have become
due as reflected on any return or report and any interest and penalties with
respect thereto or have fully accrued on its books or have established adequate
reserves for all taxes payable but not yet due; and have made cash deposits with
appropriate governmental authorities representing estimated payments of taxes,
including income taxes and employee withholding tax obligations. No extension or
waiver of any statute of limitations or time within which to file any return has
been granted to or requested by Company or the Company Subsidiaries with respect
to any tax. No unsatisfied deficiency, delinquency or default for any tax,
assessment or governmental charge has been claimed, proposed or assessed against
Company or the Company Subsidiaries, nor has Company or the Company Subsidiaries
received notice of any such deficiency, delinquency or default. Company and the
Company Subsidiaries have no material tax liabilities other than those reflected
on Company Balance Sheet and those arising in the ordinary course of business
since the date thereof. Company will make available to Parent true, complete and
correct copies of Company's consolidated U.S. federal tax returns for the last
five years and make available such other tax returns requested by Parent. The
U.S. federal income tax liabilities of Company and the Company Subsidiaries have
been determined by the Internal Revenue Service and paid for all fiscal years up
to and including the year ended December 31, 1993.
3.13. MATERIAL CONTRACTS. Company has furnished or made available to
Parent accurate and complete copies of the Material Contracts (as defined
herein) applicable to Company or any of the Company Subsidiaries. Except as set
forth on Schedule 3.13, there is not under any of the Material Contracts any
existing breach, default or event of default by Company or any of the Company
Subsidiaries nor event that with notice or lapse of time or both would
constitute a breach, default or event of default by Company or any of the
Company Subsidiaries other than breaches, defaults or events of default which
would not have a Company Material Adverse Effect nor does Company know of, and
Company has not received notice of, or made a claim with respect to, any breach
or default by any other party thereto which would, severally or in the
aggregate, have a Company Material Adverse Effect. As used herein, the term
"Material Contracts" shall mean all contracts and agreements filed, or required
to be filed, as exhibits to Company's Annual Report on Form 10-K for the year
ended December 31, 1994 and any contracts and agreements entered into since
December 31, 1994 which would be required to be filed as an exhibit to Company's
Annual Report on Form 10-K for the year ending December 31, 1995.
3.14. LITIGATION AND GOVERNMENT CLAIMS. Except as disclosed in the Company
SEC Reports, there is no pending suit, claim, action or litigation, or
administrative, arbitration or other proceeding or governmental investigation or
inquiry against Company or the Company Subsidiaries to which their businesses or
assets are subject which would, severally or in the aggregate, reasonably be
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expected to result in a Company Material Adverse Effect. To the knowledge of
Company, there are no such proceedings threatened or contemplated which would,
severally or in the aggregate, have a Company Material Adverse Effect. Neither
Company nor any Company Subsidiary is subject to any judgment, decree,
injunction, rule or order of any court, or, to the knowledge of Company, any
governmental restriction applicable to Company or any Company Subsidiary which
is reasonably likely (i) to have a Company Material Adverse Effect or (ii) to
cause a material limitation on Parent's ability to operate the business of
Company (as it is currently operated) after the Closing.
3.15. COMPLIANCE WITH LAWS. Company and the Company Subsidiaries each have
all material authorizations, approvals, licenses and orders to carry on their
respective businesses as they are now being conducted, to own or hold under
lease the properties and assets they own or hold under lease and to perform all
of their obligations under the agreements to which they are a party, except for
instances which would not have a Company Material Adverse Effect. Company and
the Company Subsidiaries have been and are, to the knowledge of Company, in
compliance with all applicable laws (including the Foreign Corrupt Practices
Act), regulations and administrative orders of any country, state or
municipality or of any subdivision of any thereof to which their respective
businesses and their employment of labor or their use or occupancy of properties
or any part hereof are subject, the violation of which would have a Company
Material Adverse Effect.
3.16. EMPLOYEE BENEFIT PLANS. Each employee benefit plan, as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), of Company or the Company Subsidiaries (collectively the
"Employee Plans") complies in all material respects with all applicable
requirements of ERISA and the Internal Revenue Code of 1986, as amended (the
"Code"), and other applicable laws. None of the Employee Plans is an employee
pension benefit plan or a multiemployer plan, as such terms are defined in
ERISA. Neither Company nor any Company Subsidiary, nor any of their respective
directors, officers, employees or agents has, with respect to any Employee Plan,
engaged in any "prohibited transaction," as such term is defined in the Code or
ERISA, nor has any Employee Plan engaged in such prohibited transaction which
could result in any taxes or penalties or other prohibited transactions, which
in the aggregate could have a Company Material Adverse Effect.
3.17. EMPLOYMENT AGREEMENTS; LABOR RELATIONS.
(a) Schedule 3.17 sets forth a complete and accurate list of all
material employee benefit or compensation plans, agreements and arrangements
to which Company or any Company Subsidiary is a party and which is not
disclosed in the Company SEC Reports, including without limitation (i) all
severance, employment, consulting or similar contracts, (ii) all material
agreements and contracts with "change of control" provisions or similar
provisions and (iii) all indemnification agreements or arrangements with
directors or officers.
(b) Each of Company and the Company Subsidiaries is in compliance in all
material respects with all laws (including Federal and state laws)
respecting employment and employment practices, terms and conditions of
employment, wages and hours, and is not engaged in any unfair labor or
unlawful employment practice. There is no unlawful employment practice
discrimination charge pending before the EEOC or EEOC recognized state
"referral agency." Except as set forth on Schedule 3.17 or as would not have
a Company Material Adverse Effect, there is no unfair labor practice charge
or complaint against Company or any of the Company Subsidiaries pending
before the National Labor Review Board. There is no labor strike, dispute,
slowdown or stoppage actually pending or, to the knowledge of Company,
threatened against or involving or affecting Company or any of the Company
Subsidiaries and no National Labor Review Board representation question
exists respecting their respective employees. Except as set forth on
Schedule 3.17 or as would not have a Company Material Adverse Effect, no
grievances or arbitration proceeding is pending and no written claim
therefor exists. Except as set forth on Schedule 3.17, there is no
collective bargaining agreement that is binding on Company or any of the
Company Subsidiaries.
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3.18. INTELLECTUAL PROPERTY. Company and the Company Subsidiaries own or
have valid, binding and enforceable rights to use all material patents,
trademarks, trade names, service marks, service names, copyrights, applications
therefor and licenses or other rights in respect thereof ("Intellectual
Property") used or held for use in connection with the business of Company or
the Company Subsidiaries, without any known conflict with the rights of others,
except for such conflicts as do not have a Company Material Adverse Effect.
Neither Company nor any of the Company Subsidiaries has received any notice from
any other person pertaining to or challenging the right of Company or any of the
Company Subsidiaries to use any Intellectual Property or any trade secrets,
proprietary information, inventions, know-how, processes and procedures owned or
used or licensed to Company or the Company Subsidiaries, except with respect to
rights the loss of which, individually or in the aggregate, would not have a
Company Material Adverse Effect.
3.19. BROKERS AND FINDERS. None of Company, the Company Subsidiaries or,
to Company's knowledge, any of their respective officers, directors and
employees has employed any broker, finder or investment bank or incurred any
liability for any investment banking fees, financial advisory fees, brokerage
fees or finders' fees in connection with the transactions contemplated hereby,
except that Company has engaged CS First Boston as its financial advisor. Other
than the foregoing arrangements, Company is not aware of any claim for payment
of any finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby. Company has delivered to Parent a copy
of the engagement letter between Company and CS First Boston.
3.20. OPINION OF FINANCIAL ADVISOR. Company has received the opinion of
its financial advisor to the effect that, as of the date hereof, the
consideration to be received by the holders of Company Common Stock pursuant to
the Merger is fair from a financial point of view to the holders of Company
Common Stock.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby represent and warrant to Company as follows:
4.1. ORGANIZATION AND GOOD STANDING. Each of Parent and Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation.
4.2. CORPORATE POWER AND AUTHORITY. Parent and its subsidiaries have the
corporate power and authority to own, lease and operate their respective
properties and assets and to carry on their respective businesses as currently
being conducted. Each of Parent and Purchaser has the corporate power and
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement and to consummate the Merger. The execution, delivery and
performance by Parent and Purchaser of this Agreement has been duly authorized
by all necessary corporate action.
4.3. BINDING EFFECT. This Agreement has been duly executed and delivered
by Parent and Purchaser and is the legal, valid and binding obligations of
Parent and Purchaser, enforceable in accordance with its terms except that:
(a) enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
(c) rights to indemnification may be limited by considerations of public
policy.
4.4. ABSENCE OF RESTRICTIONS AND CONFLICTS. The execution, delivery and
performance of this Agreement and the consummation of the Merger and the
fulfillment of and compliance with the terms and conditions of this Agreement do
not and will not, with the passing of time or the giving of notice or
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both, violate or conflict with, constitute a breach of or default under, result
in the loss of any material benefit under, or permit the acceleration of any
obligation under, (i) any term or provision of the Articles or Certificate of
Incorporation or Bylaws of Parent or Purchaser, (ii) any "Parent Material
Contract" (as defined herein), (iii) any judgment, decree or order of any court
or governmental authority or agency to which Parent or its subsidiaries is a
party or by which Parent or its subsidiaries or any of their respective
properties is bound, or (iv) any statute, law, regulation or rule applicable to
Parent or its subsidiaries other than such violations, conflicts, breaches or
defaults as would not have a material adverse effect on (a) the business,
operations, assets or financial condition of Parent or its subsidiaries, taken
as a whole (a "Parent Material Adverse Effect"), or (b) the validity or
enforceability of, or the ability of Parent or Purchaser to perform its
obligations under, this Agreement. Except for the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, compliance with the
applicable requirements of the HSR Act, the Securities Act, the Exchange Act and
applicable state securities laws, no consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental agency or
public or regulatory unit, agency, body or authority with respect to Parent or
its subsidiaries is required in connection with the execution, delivery or
performance of this Agreement by Parent or the consummation of the transactions
contemplated hereby. As used herein, the term "Parent Material Contracts" shall
mean all of contracts and agreements filed, or required to be filed, as exhibits
to Parent's Annual Report on Form 10-K for the year ended December 31, 1994 and
any contract or agreement entered into since December 31, 1994 which would be
required to be filed as an exhibit to Parent's Annual Report on Form 10-K for
the year ending December 31, 1995.
4.5. CAPITALIZATION OF PARENT.
(a) The authorized capital stock of Parent consists of 40,000,000 shares
of Parent Common Stock, $.01 par value; 10,000,000 shares of Class C Common
Stock, $.01 par value; and 60,000,000 shares of preferred stock, no par
value. As of the date hereof, there are (i) 17,703,531 shares of Parent
Common Stock outstanding, (ii) no shares of the Class C Common Stock
outstanding, (iii) no shares of the Preferred Stock outstanding, and (iv)
906,472 shares reserved for issuance upon the exercise of outstanding
options (the "Parent Options") granted under Parent's Amended and Restated
Option Plan. All of the issued and outstanding shares of Parent Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable.
(b) All of the issued and outstanding shares of Parent Common Stock have
been duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights.
(c) To Parent's knowledge, there are no voting trusts, stockholder
agreements or other voting arrangements by the stockholders of Parent.
(d) Except as set forth in subsection (a) above, there is no outstanding
subscription, contract, convertible or exchangeable security, option,
warrant, call or other right obligating Parent or its subsidiaries to issue,
sell, exchange, or otherwise dispose of, or to purchase, redeem or otherwise
acquire, shares of, or securities convertible into or exchangeable for,
capital stock of Parent.
4.6. PARENT SEC REPORTS. Parent has made available to Company (i) Parent's
Annual Reports on Form 10-K, including all exhibits filed thereto and items
incorporated therein by reference, (ii) Parent's Quarterly Reports on Form 10-Q,
including all exhibits thereto and items incorporated therein by reference,
(iii) proxy statements relating to Parent's meetings of stockholders and (iv)
all other reports or registration statements (as amended or supplemented prior
to the date hereof), filed by Parent with the SEC since December 31, 1993,
including all exhibits thereto and items incorporated therein by reference
(items (i) through (iv) being referred to as the "Parent SEC Reports"). As of
their respective dates, Parent SEC Reports did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Since December 31,
1993, Parent has filed all material forms, reports and documents with the SEC
required to be filed by it
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pursuant to the federal securities laws and the SEC rules and regulations
thereunder, each of which complied as to form, at the time such form, report or
document was filed, in all material respects with the applicable requirements of
the Securities Act and the Exchange Act and the applicable rules and regulations
thereunder.
4.7. FINANCIAL STATEMENTS AND RECORDS OF PARENT. Parent has made available
to Company true, correct and complete copies of the following financial
statements (the "Parent Financial Statements"):
(a) the consolidated balance sheets of Parent and its consolidated
subsidiaries as of December 31, 1993 and 1994 and the consolidated
statements of income, stockholders' equity and cash flows for the fiscal
years then ended, including the notes thereto, in each case examined by and
accompanied by the report of KPMG Peat Marwick LLP; and
(b) the unaudited balance sheet of Parent as of June 30, 1995 (the
"Parent Balance Sheet"), with any notes thereto, and the related unaudited
statement of income for the six months then ended (collectively, the "Parent
Quarterly Statements").
The Parent Financial Statements present fairly, in all material respects,
the financial position of Parent as of the dates thereof and the results of
operations and changes in financial position thereof for the periods then ended,
in each case in conformity with generally accepted accounting principles,
consistently applied, except as noted therein. Since December 31, 1994, there
has been no change in accounting principles applicable to, or methods of
accounting utilized by, Parent, except as noted in Parent Financial Statements.
The books and records of Parent have been and are being maintained in accordance
with good business practice, reflect only valid transactions, are complete and
correct in all material respects, and present fairly in all material respects
the basis for the financial position and results of operations of Parent set
forth in Parent Financial Statements.
4.8. ABSENCE OF CERTAIN CHANGES. Since December 31, 1994, Parent has not,
except as otherwise set forth in the Parent SEC Reports or on Schedule 4.8:
(a) suffered any adverse change in the business, operations, assets, or
financial condition except for such changes that would not have a Parent
Material Adverse Effect;
(b) suffered any material damage or destruction to or loss of the assets
of Parent or its subsidiaries, whether or not covered by insurance, which
property or assets are material to the operations or business of Parent and
its subsidiaries taken as a whole;
(c) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of Parent's capital stock
or securities (other than shares issued upon exercise of the Parent Options)
or any rights to acquire such capital stock or securities, or agreed to
changes in the terms and conditions of any such rights outstanding as of the
date of this Agreement; or
(d) entered into any agreement to do any of the foregoing.
4.9. NO MATERIAL UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of Parent and its consolidated subsidiaries of any nature, whether
absolute, accrued, contingent, or otherwise, other than:
(a) liabilities and obligations that are reflected, accrued or reserved
against on Parent Balance Sheet or referred to in the footnotes to the
Parent Balance Sheet, or incurred in the ordinary course of business and
consistent with past practices since June 30, 1995; or
(b) liabilities and obligations which in the aggregate would not result
in a Parent Material Effect.
4.10. COMPLIANCE WITH LAWS. Parent and its subsidiaries each have all
material authorizations, approvals, licenses and orders to carry on their
respective businesses as they are now being
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conducted, to own or hold under lease the properties or assets they own or hold
under lease and to perform all of their obligations under the agreements to
which they are a party, except for instances which would not have a Parent
Material Adverse Effect. Parent and its subsidiaries have been and are, to the
knowledge of Parent, in compliance with all applicable laws (including the
Foreign Corrupt Practices Act), regulations and administrative orders of any
country, state or municipality or any subdivision of any thereof to which their
respective businesses and their employment of labor or their use or occupancy of
properties or any part hereof are subject, the violation of which would have a
Parent Material Adverse Effect.
4.11. BROKERS AND FINDERS. None of Parent, Purchaser or, to Parent's
knowledge, any of their respective officers, directors and employees has
employed any broker, finder or investment bank or incurred any liability for any
investment banking fees, financial advisory fees, brokerage fees or finders'
fees in connection with the transactions contemplated hereby, except that Parent
has engaged Donaldson, Lufkin & Jenrette Securities Corporation as a financial
advisor. Other than the foregoing arrangements and other than certain fees that
may be paid to Company's financial advisors as contemplated by Section 3.20
hereof, Parent is not aware of any claim for payment of any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby.
4.12. OPINION OF FINANCIAL ADVISOR. Parent has received the opinion of
Donaldson, Lufkin & Jenrette Securities Corporation to the effect that, as of
the date hereof, the consideration to be paid by Parent to the holders of
Company Common Stock pursuant to the Merger is fair to Parent from a financial
point of view.
ARTICLE 5.
CERTAIN COVENANTS AND AGREEMENTS
5.1. CONDUCT OF BUSINESS BY COMPANY. From the date hereof to the Effective
Date, Company will, and will cause each Company Subsidiary to, except as
required in connection with the Merger and the other transactions contemplated
by this Agreement and except as otherwise disclosed on the schedules hereto or
consented to in writing by Parent:
(a) carry on its business in the ordinary and regular course in
substantially the same manner as heretofore conducted and not engage in any
new line of business or enter into any material agreement, transaction or
activity or make any material commitment except those in the ordinary and
regular course of business and not otherwise prohibited under this Section
5.1;
(b) neither change nor amend its Certificate or Articles of
Incorporation or Bylaws;
(c) other than pursuant to the exercise of the Options outstanding on
the date hereof, not issue, sell or grant options, warrants or rights to
purchase or subscribe to, or enter into any arrangement or contract with
respect to the issuance or sale of any of the capital stock of Company or
any of Company's Subsidiaries or rights or obligations convertible into or
exchangeable for any shares of the capital stock of Company or any of
Company's subsidiaries and not alter the terms of any presently outstanding
options or the Option Plan or the Directors' Plan or make any changes (by
split-up, combination, reorganization or otherwise) in the capital structure
of Company or any of Company's Subsidiaries; PROVIDED, HOWEVER, Company may
amend all Stock Option Award Agreements with respect to the Option Plan to
provide for the immediate exercisability of all Options covered by such
Award Agreements upon the approval and adoption of this Agreement by the
affirmative vote of the holders of a majority of all of the outstanding
shares (as of the "Record Date" set forth in the Proxy Statement) of Company
Common Stock;
(d) not declare, pay or set aside for payment any dividend or other
distribution in respect of the capital stock or other equity securities of
Company and not redeem, purchase or otherwise acquire any shares of the
capital stock or other securities of Company or any of the Company
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Subsidiaries or rights or obligations convertible into or exchangeable for
any shares of the capital stock or other securities of Company or any of the
Company Subsidiaries or obligations convertible into such, or any options,
warrants or other rights to purchase or subscribe to any of the foregoing;
(e) not acquire or enter into any agreement to acquire, by merger,
consolidation or purchase of stock or assets, any business or entity;
(f) use its reasonable efforts to preserve intact the corporate
existence, goodwill and business organization of Company and the Company
Subsidiaries, to keep the officers and employees of Company and the Company
Subsidiaries available to Company and to preserve the relationships of
Company and the Company Subsidiaries with suppliers, customers and others
having business relations with any of them, except for such instances which
would not have a Company Material Adverse Effect;
(g) not (i) create, incur or assume any debt (including obligations in
respect of capital leases which individually involve annual payments in
excess of $250,000) or, except in the ordinary course of business under
existing lines of credit, create, incur or assume any short-term debt for
borrowed money, (ii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the
obligations of any other person other than Company Subsidiaries except in
the ordinary course of business, (iii) make any loans or advances to any
other person other than the Company Subsidiaries, except in the ordinary
course of business and consistent with past practice, or (iv) make any
capital contributions to, or investments in, any person other than the
Company Subsidiaries except in the ordinary course of business; provided,
however, that the aggregate amount of all of the liabilities, obligations,
loans, contributions, investments and other actions described in (i) through
(iv) above that would otherwise be permitted hereunder shall not in the
aggregate exceed $1,000,000 at the time of the Closing;
(h) not (i) enter into, modify or extend in any manner the terms of any
employment, severance or similar agreements with officers and directors,
(ii) grant any increase in the compensation of officers or directors,
whether now or hereafter payable, or (iii) grant any increase in the
compensation of any other employees except for compensation increases in the
ordinary course of business and consistent with past practice (it being
understood by the parties hereto that for the purposes of (ii) and (iii)
above increases in compensation shall include any increase pursuant to any
option, bonus, stock purchase, pension, profit-sharing, deferred
compensation, retirement or other plan, arrangement, contract or
commitment);
(i) not make or incur (other than in the ordinary course of business or
those capital expenditures set forth on Schedule 5.1(a) hereto made pursuant
to contracts entered into prior to the date of this Agreement) any
individual capital expenditure in excess of $500,000 or capital expenditures
in the aggregate in excess of $2,000,000 without the prior approval of
Parent (as used herein, "capital expenditure" shall mean all payments in
respect of the cost of any fixed asset or improvement or replacement,
substitution or addition thereto which has a useful life of more than one
year, including those costs arising in connection with the acquisition of
such assets by way of increased product or service charges or offset items
or in connection with capital leases);
(j) except in instances which would not have a Company Material Adverse
Effect, perform all of its obligations under all Material Contracts (except
those being contested in good faith) and not enter into, assume or amend any
contract or commitment that would be a Material Contract other than
contracts to provide services entered into in the ordinary course of
business; and
(k) except in instances which would not have a Company Material Adverse
Effect, prepare and file all federal, state, local and foreign returns for
taxes and other tax reports, filings and
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amendments thereto required to be filed by it, and allow Parent, at its
request, to review all such returns, reports, filings and amendments at
Company's offices prior to the filing thereof, which review shall not
interfere with the timely filing of such returns.
In connection with the continued operation of the business of Company and
the Company Subsidiaries between the date of this Agreement and the Effective
Date, Company shall confer in good faith and on a regular and frequent basis
with one or more representatives of Parent designated in writing to report
operational matters of materiality and the general status of ongoing operations.
In addition, Company will allow Parent employees and agents to be present at
Company's business locations to observe the business and operations of Company
and the Company Subsidiaries. Company acknowledges that Parent does not and will
not waive any rights it may have under this Agreement as a result of such
consultations nor shall Parent be responsible for any decisions made by
Company's officers and directors with respect to matters which are the subject
of such consultation.
5.2. CONDUCT OF BUSINESS BY PARENT. From the date hereof to the Effective
Date, Parent will, and will cause Purchaser and each of Parent's subsidiaries
to, except as required in connection with the Merger and the other transactions
contemplated by this Agreement and except as otherwise disclosed in the
schedules hereto or consented to in writing by Company:
(a) carry on its businesses in the ordinary and regular course in
substantially the same manner as heretofore conducted and not engage in any
new line of business;
(b) neither change nor amend its Certificate or Articles of
Incorporation or Bylaws;
(c) not declare, pay or set aside for payment any dividend or other
distribution in respect of the capital stock or other equity securities of
Parent and not redeem, purchase or otherwise acquire any shares of the
capital stock or other securities of Parent or Purchaser, or rights or
obligations convertible into or exchangeable for any shares of the capital
stock or other securities of Parent or Purchaser or obligations convertible
into such, or any options, warrants or other rights to purchase or subscribe
to any of the foregoing; and
(d) not bid for or purchase Parent Common Stock for the 30 trading days
immediately preceding the Effective Date unless such purchases are required
to be made pursuant to any employee benefit plan of Parent.
5.3. NOTICE OF ANY MATERIAL CHANGE. Each of Company and Parent shall,
promptly after the first notice or occurrence thereof but not later than the
Closing Date, advise the other in writing of any event or the existence of any
state of facts that:
(a) would make any of its representations and warranties in this
Agreement untrue in any material respect; or
(b) would otherwise constitute either a Company Material Adverse Effect
or a Parent Material Adverse Effect.
5.4. INSPECTION AND ACCESS TO INFORMATION.
(a) Between the date of this Agreement and the Effective Date, Company
will, and will cause each of the Company Subsidiaries to, provide to
Purchaser and Parent and their accountants, counsel and other authorized
representatives reasonable access, during normal business hours to its
premises, properties, contracts, commitments, books, records and other
information (including tax returns filed and those in preparation) and will
cause its officers to furnish to Parent and Purchaser and their authorized
representatives such financial, technical and operating data and other
information pertaining to its business, as Purchaser and Parent shall from
time to time reasonably request.
(b) Information obtained by Parent, any of its subsidiaries or any of
its Representatives (as such term is defined in the Confidentiality
Agreement (the "Confidentiality Agreement")
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between Parent and Company dated September 19, 1995 and as amended on the
date hereof) pursuant to Section 5.4(a) shall be treated as Material (as
such term is defined in the Confidentiality Agreement) and shall be subject
to the provisions of the Confidentiality Agreement.
(c) The Company and its respective representatives shall maintain the
confidentiality of all information (other than information which is
generally available to the public) concerning Parent and its subsidiaries
acquired pursuant to the transactions contemplated hereby in the event that
the Merger is not consummated. All files, records, documents, information,
data and similar items relating to the confidential information of Parent,
whether prepared by Company or otherwise coming into Company's possession
(other than information which (a) is or becomes generally available to the
public other than as a result of a disclosure by the Company or its
representatives, (b) is or becomes available to the Company from a source
other than Parent, its subsidiaries or Parent's representatives, provided
that such source is not, and was not, bound by a confidentiality agreement
with Parent or any of its affiliates or representatives or (c) Parent agrees
in writing was available to the Company on a nonconfidential basis prior to
disclosure), shall remain the exclusive property of Parent and shall be
promptly delivered to Parent upon termination of this Agreement.
5.5. ANTITRUST LAWS. As soon as practicable but in no event later than 15
days from the date hereof, each of Parent and Company shall make any and all
filings which are required under the HSR Act. Each of Parent and Company will
assist the other as may be reasonably requested in connection with the
preparation of such filings.
5.6. REGISTRATION STATEMENT AND PROXY STATEMENT.
(a) As promptly as practicable but in no event later than 15 days after
the execution of this Agreement, Parent and Company shall promptly prepare
and file a registration statement on Form S-4 (which registration statement,
in the form it is declared effective by the SEC, together with any and all
amendments and supplements thereto and all information incorporated by
reference therein, is referred to herein as the "Registration Statement")
under and pursuant to the provisions of the Securities Act for the purpose
of registering Parent Common Stock to be issued in the Merger. Parent will
use its best efforts to receive and respond to the comments of the SEC and
to have the Registration Statement declared effective as promptly as
practicable, and Company shall promptly mail to its stockholders the proxy
statement in its definitive form contained in the Registration Statement
(the "Proxy Statement"). Such Proxy Statement shall also serve as the
prospectus to be included in the Registration Statement.
(b) Each of Parent and Company agrees to provide as promptly as
practicable to the other such information concerning its business and
financial statements and affairs as, in the reasonable judgment of the other
party, may be required or appropriate for inclusion in the Registration
Statement and the Proxy Statement or in any amendments or supplements
thereto, and to cause its counsel and auditors to cooperate with the other's
counsel and auditors in the preparation of the Registration Statement and
the Proxy Statement.
(c) At the time the Registration Statement becomes effective and at the
Effective Date, as such Registration Statement is then amended or
supplemented, at the time the Proxy Statement is mailed to each of Parent's
and Company's stockholders and at all times Parent is required to maintain
the effectiveness of the Registration Statement pursuant to Section 5.9
hereof, such Registration Statement and Proxy Statement will (i) not contain
any untrue statement of a material fact, or omit to state any material fact
required to be stated therein as necessary, in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading or necessary and (ii) comply in all material respects with the
provisions of the Securities Act and Exchange Act, as applicable, and the
rules and regulations thereunder; provided, however, no representation is
made by Parent or Company with respect to statements
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made in the Registration Statement and Proxy Statement based on information
supplied by the other party expressly for inclusion or incorporation by
reference in the Proxy Statement or Registration Statement or information
omitted with respect to the other party.
5.7. STOCKHOLDERS' MEETING.
(a) Company shall call a meeting of its stockholders to be held as soon
as practicable after the date hereof for the purpose of voting upon the
Merger and this Agreement.
(b) Company will use its reasonable efforts to hold its stockholders'
meeting as promptly as practicable and will, through its Board of Directors,
recommend to its stockholders approval of the Merger and this Agreement at
the stockholders' meeting; provided, however, that such recommendation is
subject to any action taken by, or upon the authority of, the Board of
Directors of Company in a response to an Acquisition Proposal (as defined in
Section 5.12 hereof) and in the exercise of its good faith judgment as to
its fiduciary duties to the stockholders of Company, which such judgment is
based upon the advice of independent, outside legal counsel that a failure
of the Board to withdraw, modify or change its recommendation due to an
Acquisition Proposal would be likely to constitute a breach of its fiduciary
duties to such stockholders; provided, further, that Company acknowledges
that any such change in the recommendation of Company's Board of Directors
is subject to the provisions of Section 9.1(f) and 9.1(g) hereof.
5.8. LISTING APPLICATION. Parent will file a listing application with the
Stock Exchange to approve for listing, subject to official notice of issuance,
the shares of Parent Common Stock to be issued in the Merger. Parent shall use
its reasonable efforts to cause the shares of Parent Common Stock to be issued
in the Merger to be approved for listing on the Stock Exchange, subject to
official notice of issuance, prior to the Effective Date.
5.9. AFFILIATES. At least 30 days prior to the Closing Date, Company shall
deliver to Parent a letter identifying all persons who are, at the time the
Merger is submitted to a vote to the stockholders of Company, "affiliates" of
Company for purposes of Rule 145 under the Securities Act. Company shall use its
reasonable efforts to cause each person who is identified as an "affiliate" in
such letter to deliver to Parent on or prior to the Effective Date a written
statement, in form satisfactory to Parent and Company, that such person will not
offer to sell, transfer or otherwise dispose of any of the shares of Parent
Common Stock issued to such person pursuant to the Merger, except in accordance
with the applicable provisions of the Securities Act and the rules and
regulations thereunder. Parent agrees to maintain the effectiveness of the
Registration Statement under the Securities Act for the purposes of resales of
Parent Common Stock by any such affiliates.
5.10. REASONABLE EFFORTS; FURTHER ASSURANCES; CO-OPERATION. Subject to the
other provisions of this Agreement, the parties hereby shall each use their
reasonable efforts to perform their obligations herein and to take, or cause to
be taken or do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable law to obtain all regulatory approvals and satisfy
all conditions to the obligations of the parties under this Agreement and to
cause the Merger and the other transactions contemplated herein to be carried
out promptly in accordance with the terms hereof and shall cooperate fully with
each other and their respective officers, directors, employees, agents, counsel,
accountants and other designees in connection with any steps required to be
taken as a part of their respective obligations under this Agreement, including
without limitation:
(a) Company and Parent shall promptly make their respective filings and
submissions and shall take, or cause to be taken, all actions and do, or
cause to be done, all things reasonably necessary, proper or advisable under
applicable laws and regulations to (i) comply with the provisions of the HSR
Act, and (ii) obtain any other required approval of any other federal, state
or local governmental agency or regulatory body with jurisdiction over the
transactions contemplated by this Agreement.
(b) In the event any claim, action, suit, investigation or other
proceeding by any governmental body or other person is commenced which
questions the validity or legality of the Merger or
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any of the other transactions contemplated hereby or seeks damages in
connection therewith, the parties agree to cooperate and use all reasonable
efforts to defend against such claim, action, suit, investigation or other
proceeding and, if an injunction or other order is issued in any such
action, suit or other proceeding, to use all reasonable efforts to have such
injunction or other order lifted, and to cooperate reasonably regarding any
other impediment to the consummation of the transactions contemplated by
this Agreement.
(c) Each party shall give prompt written notice to the other of (i) the
occurrence, or failure to occur, of any event which occurrence or failure
would be likely to cause any representation or warranty of Company or
Parent, as the case may be, contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Date or that will or may result in the failure to satisfy any of
the conditions specified in Article 6 or 7 and (ii) any failure of Company
or Parent, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder.
5.11. PUBLIC ANNOUNCEMENTS. The timing and content of all announcements
regarding any aspect of this Agreement or the Merger to the financial community,
government agencies, employees or the general public shall be mutually agreed
upon in advance (unless Parent or Company is advised by counsel that any such
announcement or other disclosure not mutually agreed upon in advance is required
to be made by law or applicable stock exchange rule and then only after making a
reasonable attempt to comply with the provisions of this Section).
5.12. NO SOLICITATIONS. From the date hereof until the Effective Date or
until this Agreement is terminated or abandoned as provided in this Agreement,
neither Company nor any of the Company Subsidiaries shall directly or indirectly
(i) solicit or initiate discussion with or (ii) enter into negotiations or
agreements with, or furnish any information to, any corporation, partnership,
person or other entity or group (other than Parent, an affiliate of Parent or
their authorized representatives pursuant to this Agreement) concerning any
proposal for a merger, sale of substantial assets, sale of shares of stock or
securities or other takeover or business combination transaction (the
"Acquisition Proposal") involving Company or any of the Company Subsidiaries,
and Company will instruct its officers, directors, advisors and its financial
and legal representatives and consultants not to take any action contrary to the
foregoing provisions of this sentence; provided, however, that Company, its
officers, directors, advisors and its financial and legal representatives and
consultants shall not be prohibited from taking any action described in (ii)
above to the extent such action is taken by, or upon the authority of, the Board
of Directors of Company in the exercise of good faith judgment as to its
fiduciary duties to the stockholders of Company, which judgment is based upon
the advice of independent, outside legal counsel that a failure of the Board of
Directors of Company to take such action would be likely to constitute a breach
of its fiduciary duties to such stockholders, PROVIDED FURTHER, that nothing in
this Section 5.12 shall prevent the Company or the Board of Directors from
taking, and disclosing to the Company's stockholders, a position contemplated by
Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any
tender offer or from making such disclosure to the Company's stockholders which,
upon the advice of independent outside counsel, is required under applicable
law. Company will notify Parent promptly if Company becomes aware that any
inquiries or proposals are received by, any information is requested from or any
negotiations or discussions are sought to be initiated with, Company with
respect to an Acquisition Proposal, and Company shall promptly deliver to Parent
any written inquiries or proposals received by Company relating to an
Acquisition Proposal, except, in each case, where the Company has been advised
by independent outside counsel for the Company that providing such information
to Parent would be likely to result in a breach of the fiduciary duties of the
Company's Board of Directors to the Company's stockholders. Each time, if any,
that the Board of Directors of Company determines, upon advice of such legal
counsel and in the exercise of its good faith judgment as to its fiduciary
duties to stockholders, that it must enter into negotiations with, or furnish
any information to, any corporation, partnership, person or other entity or
group (other than Parent, an affiliate of Parent or their authorized
representatives) concerning any Acquisition Proposal, Company will give Parent
prompt notice of such determination,
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except in instances where Company receives the advice of independent, outside
legal counsel for Company that providing such information to Parent would be a
breach of the fiduciary duties of Company's Board of Directors).
ARTICLE 6.
CONDITIONS PRECEDENT TO OBLIGATIONS OF COMPANY
Except as may be waived by Company, the obligations of Company to consummate
the transactions contemplated by this Agreement shall be subject to the
satisfaction on or before the Closing Date of each of the following conditions:
6.1. COMPLIANCE. Parent shall have, or shall have caused to be, satisfied
or complied with and performed in all material respects all terms, covenants and
conditions of this Agreement to be complied with or performed by Parent on or
before the Closing Date.
6.2. REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by Parent in this Agreement shall be true and correct in all
material respects at and as of the Closing Date with the same force and effect
as if such representations and warranties had been made at and as of the Closing
Date, except for changes permitted or contemplated by this Agreement and except
that if information which would constitute a breach of the representations and
warranties of Parent made in this Agreement is disclosed in the Proxy Statement
and if Company has consented to such disclosure, then Company shall be deemed to
have waived this condition to the performance of its obligations hereunder.
6.3. MATERIAL ADVERSE CHANGES. Subsequent to June 30, 1995, there shall
have occurred no Parent Material Adverse Effect; provided, however, if such
change is disclosed in the Proxy Statement (to the extent Company consented to
such disclosure) on the date such Proxy Statement is mailed to Company's
stockholders, then Company shall be deemed to have waived this condition to the
performance of its obligations hereunder.
6.4. STOCK EXCHANGE LISTING. Parent Common Stock issuable pursuant to the
Merger and pursuant to the exercise of the Options after the Effective Date
shall have been authorized for listing on the Stock Exchange.
6.5. CERTIFICATES. Company shall have received a certificate or
certificates, executed on behalf of Parent by an executive officer of Parent, to
the effect that the conditions contained in Sections 6.1, 6.2 and 6.3 hereof
have been satisfied.
6.6. STOCKHOLDER APPROVAL. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of all of the
outstanding shares (as of the "record date" set forth in the Proxy Statement) of
Company Common Stock.
6.7. EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
shall have become effective and no stop order shall been issued by the SEC or
any other governmental authority suspending the effectiveness of the
Registration Statement or preventing or suspending the use thereof or any
related prospectus.
6.8. CONSENTS; LITIGATION. Other than the filing of Certificate of Merger
as described in Article 1, all authorizations, consents, orders or approvals of,
or declarations or filings with, or expirations or terminations of waiting
periods (including the waiting period under the HSR Act) imposed by any
governmental entity, and all required third-party consents, the failure to
obtain which would have a Parent Material Adverse Effect, shall have been
obtained. In addition, no preliminary or permanent injunction or other order
shall have been issued by any court or by any governmental or regulatory agency,
body or authority which prohibits the consummation of the Merger and the
transactions contemplated by this Agreement and which is in effect at the
Effective Date.
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ARTICLE 7.
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND PURCHASER
Except as may be waived by Parent and Purchaser, the obligations of Parent
and Purchaser to consummate the transactions contemplated by this Agreement
shall be subject to the satisfaction, on or before the Closing Date, of each of
the following conditions:
7.1. COMPLIANCE. Company shall have, or shall have caused to be, satisfied
or complied with and performed in all material respects all terms, covenants,
and conditions of this Agreement to be complied with or performed by it on or
before the Closing Date.
7.2. REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by Company in this Agreement shall be true and correct in all
material respects at and as of the Closing Date with the same force and effect
as if such representations and warranties had been made at and as of the Closing
Date, except for changes permitted or contemplated by this Agreement and except
that if information which would constitute a breach of the representations and
warranties of Company made in this Agreement is disclosed in the Proxy Statement
and if Parent has consented to such disclosure, then Parent shall be deemed to
have waived this condition to the performance of its obligations hereunder.
7.3. MATERIAL ADVERSE CHANGES. Since June 30, 1995, except as set forth in
this Agreement or on the schedules hereto, there shall have occurred no Company
Material Adverse Effect; provided, however, if such change is disclosed in the
Proxy Statement (to the extent Parent consented to such disclosure) on the date
such Proxy Statement is mailed to Parent's stockholders, then Parent shall be
deemed to have waived this condition to the performance of its obligations
hereunder.
7.4. CERTIFICATES. Parent shall have received a certificate or
certificates, executed on behalf of Company by an executive officer of Company,
to the effect that the conditions in Sections 7.1, 7.2 and 7.3 hereof have been
satisfied.
7.5. CONSENTS; LITIGATION. Other than the filing of the Certificate of
Merger as described in Article 1, all authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations or terminations of
waiting periods (including the waiting period under the HSR Act) imposed by, any
governmental entity, and all required third-party consents, the failure to
obtain which would have a Company Material Adverse Effect or a Parent Material
Effect, shall have been obtained. In addition, no preliminary or permanent
injunction or other order shall have been issued by any court or by any
governmental or regulatory agency, body or authority which prohibits the
consummation of the Merger and the transactions contemplated by this Agreement
and which is in effect at the Effective Date.
ARTICLE 8.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
8.1 INDEMNIFICATION. In the event of any threatened or actual claim,
action, suit, proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action, suit,
proceeding or investigation in which any of the present or former officers or
directors (the "Managers") of Company or any of the Company Subsidiaries is, or
is threatened to be, made a party by reason of the fact that he or she is or was
a stockholder, director, officer, employee or agent of Company or any of the
Company Subsidiaries, or is or was serving at the request of Company or any of
the Company Subsidiaries as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, whether
before or after the Effective Date, Company shall indemnify and hold harmless,
and from and after the Effective Date each of the Surviving Corporation and
Parent shall indemnify and hold harmless, as and to the fullest extent permitted
by applicable law (including by advancing expenses promptly as statements
therefor are received), each such Manager against any losses, claims, damages,
liabilities, costs, expenses (including attorneys' fees), judgments,
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fines and amounts paid in settlement in connection with any such claim, action,
suit, proceeding or investigation, and in the event of any such claim, action,
suit proceeding or investigation (whether arising before or after the Effective
Date), (i) if Company (prior to the Effective Date) or Parent or the Surviving
Corporation (after the Effective Date) have not promptly assumed the defense of
such matter, the Managers may retain counsel satisfactory to them, and Company,
or the Surviving Corporation and Parent after the Effective Date, shall pay all
fees and expenses of such counsel for the Managers promptly, as statements
therefor are received, and (ii) Company, or the Surviving Corporation and Parent
after the Effective Date, will use their respective best efforts to assist in
the vigorous defense of any such matter; provided that neither Company nor the
Surviving Corporation or Parent shall be liable for any settlement effected
without its prior written consent (which consent shall not be unreasonably
withheld); and provided further that the Surviving Corporation and Parent shall
have no obligation under the foregoing provisions of this Section 8.1 to any
Manager when and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and non-appealable,
that indemnification of such Manager in the manner contemplated hereby is
prohibited by applicable law. Upon the finality of any such determination that
the Surviving Corporation or Parent is not liable for any such indemnification
claims, the Manager will reimburse Parent and the Surviving Corporation for any
fees, expenses and costs incurred by Parent or the Surviving Corporation in
connection with the defense of such claims. Any Manager wishing to claim
indemnification under this Section 8.1, upon learning of any such claim, action,
suit, proceeding or investigation, shall notify Company and, after the Effective
Date, the Surviving Corporation and Parent, thereof (provided that the failure
to give such notice shall not affect any obligations hereunder, except to the
extent that the indemnifying party is actually and materially prejudiced
thereby). Parent and Purchaser agree that all rights to indemnification existing
in favor of the Managers as provided in Company's Certificate of Incorporation
or Bylaws as in effect as of the date hereof, and in any agreement between
Company and any Manager with respect to matters occurring prior to the Effective
Date shall survive the Merger. Parent further covenants not to amend or repeal
any provisions of the Certificate of Incorporation or Bylaws of Company in any
manner which would adversely affect the indemnification or exculpatory
provisions contained therein. The provisions of this Section 8.1 are intended to
be for the benefit of, and shall be enforceable by, each indemnified party and
his or her heirs and representatives.
8.2. DIRECTORS' AND OFFICERS' INSURANCE. For six years from the Effective
Date, the Surviving Corporation shall either (x) maintain in effect the
Company's current directors' and officers' liability insurance covering those
Managers who are currently covered on the date of this Agreement by the
Company's directors' and officers' liability insurance policy (a copy of which
has been heretofore delivered to Parent) the "Indemnified Parties"); PROVIDED
HOWEVER, that the Surviving Corporation may substitute for such Company
policies, policies with at least the same coverage containing terms and
conditions which are no less advantageous to the Manager and provided that said
substitution does not result in any gaps or lapses in coverage with respect to
matters occurring prior to the Effective Date or (y) to the extent applicable,
cause the Parent's directors' and officers' liability insurance, if any, then in
effect to cover those persons who are covered on the date of this Agreement by
the Company's directors' and officers' liability insurance policy with respect
to those matters covered by the Company's directors' and officers' liability
insurance policy. The provisions of this Section 8.2 are intended to be for the
benefit of, and shall be enforceable by, each Manager and his or her heirs and
representatives.
ARTICLE 9.
MISCELLANEOUS
9.1. TERMINATION. In addition to the provisions regarding termination set
forth elsewhere herein, this Agreement and the transactions contemplated hereby
may be terminated at any time on or before the Closing Date:
(a) by mutual consent of Company and Parent;
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(b) by Parent if there has been a material misrepresentation or breach
of warranty in the representations and warranties of Company set forth
herein or a failure to perform in any material respect a covenant on the
part of Company with respect to its representations, warranties and
covenants set forth in this Agreement, except for any such
misrepresentation, breach or failure to perform which was disclosed in the
Proxy Statement only if and to the extent that Parent has agreed to such
disclosure;
(c) by Company if there has been a material misrepresentation or breach
of warranty in the representations and warranties of Parent set forth herein
or a failure to perform in any material respect a covenant on the part of
Parent with respect to its representations, warranties and covenants set
forth in this Agreement, except for any such misrepresentation, breach or
failure to perform which was disclosed in the Proxy Statement only if and to
the extent that Company has agreed to such disclosure;
(d) by either Parent or Company if the transactions contemplated by this
Agreement have not been consummated by March 31, 1996, unless such failure
of consummation is due to the failure of the terminating party to perform or
observe the covenants, agreements, and conditions hereof to be performed or
observed by it at or before the Closing Date;
(e) by either Company or Parent if the transactions contemplated hereby
violate any nonappealable final order, decree, or judgment of any court or
governmental body or agency having competent jurisdiction;
(f) by Company if in the exercise of the good faith judgment of its
Board of Directors (which judgment is based upon the advice of independent,
outside legal counsel) as to its fiduciary duties to its stockholders such
termination is required by reason of an Acquisition Proposal or, if the
Board of Directors of Company withdraws or materially modifies or changes
its recommendation to its stockholders to approve this Agreement and the
Merger if there exists at such time an Acquisition Proposal for Company and
such change in recommendation is based upon the advice of independent,
outside legal counsel; and
(g) by Parent if the Company Board of Directors withdraws or materially
modifies or changes its recommendation to the stockholders of Company to
approve this Agreement and the Merger if there exists at such time an
Acquisition Proposal.
9.2. EXPENSES.
(a) Except as provided in (b) below, if the transactions contemplated by
this Agreement are not consummated, each party hereto shall pay its own
expenses incurred in connection with this Agreement and the transactions
contemplated hereby.
(b) If, (i) this Agreement is terminated by Company pursuant to Section
9.1(f) hereof, (ii) this Agreement is terminated by Parent pursuant to
Section 9.1(g) hereof or (iii) on or before March 31, 1996 and while this
Agreement remains in effect, Company enters into a definitive agreement with
respect to an Acquisition Proposal with any corporation, partnership, person
or other entity or group (other than Parent or any affiliate of Parent), and
such transaction (including any revised transaction based upon the
Acquisition Proposal) is thereafter consummated (whether before or after
March 31, 1996), then Company shall pay to Parent a fee equal to the sum of
(i) up to $1.0 million of documented fees, costs and expenses, including
legal and accounting fees and fees payable to Parent's financial advisors,
incurred by Parent in connection with the transactions contemplated by this
Agreement and (ii) $4.0 million, which such amounts shall be payable in same
day funds to an account specified by Parent. The amount in clause (ii) shall
be payable only upon completion of the transaction implementing the
Acquisition Proposal.
9.3. ENTIRE AGREEMENT. This Agreement, the Confidentiality Agreement and
the exhibits hereto contain the complete agreement among the parties with
respect to the transactions contemplated hereby and supersede all prior
agreements and understandings among the parties (other than
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the Confidentiality Agreement) with respect to such transactions. The parties
hereto acknowledge that, in the event that this Agreement is terminated pursuant
to Section 9.1, the Confidentiality Agreement shall continue in full force and
effect. Section and other headings are for reference purposes only and shall not
affect the interpretation or construction of this Agreement. The parties hereto
have not made any representation or warranty except as expressly set forth in
this Agreement or in any certificate or schedule delivered pursuant hereto. The
obligations of any party under any agreement executed pursuant to this Agreement
shall not be affected by this section.
9.4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each party contained herein or in any exhibit, certificate,
document or instrument delivered pursuant to this Agreement shall not survive
the Closing.
9.5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute only one original.
9.6. NOTICES. All notices, demands, requests, or other communications that
may be or are required to be given, served, or sent by any party to any other
party pursuant to this Agreement shall be in writing and shall be sent by
facsimile transmission, next-day courier or mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, or transmitted by
hand delivery, addressed as follows:
(i) If to Company:
DIMAC Corporation
One Corporate Woods Drive
Bridgeton, Missouri 63044
Attention: President
Telephone: (314) 344-8000
Fax: (314) 344-1337
with a copy (which shall not constitute notice) to:
White & Case
1155 Avenue of the Americas
New York, New York 10036-2787
Attention: William F. Wynne, Jr.
Telephone: (212) 819-8200
Fax: (212) 354-8113
(ii) If to Parent or Purchaser:
Heritage Media Corporation
One Galleria Tower
13355 Noel Road
Suite 1500
Dallas, Texas 75240
Attention: President
Telephone: (214) 702-7380
Fax: (214) 702-7382
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with a copy (which shall not constitute notice) to:
Crouch & Hallett, L.L.P.
717 North Harwood Street
Suite 1400
Dallas, Texas 75201
Attention: Bruce H. Hallett
Telephone: (214) 922-4120
Fax: (214) 953-0576
Each party may designate by notice in writing a new address to which any notice,
demand, request, or communication may thereafter be so given, served, or sent.
Each notice, demand, request, or communication that is mailed, delivered, or
transmitted in the manner described above shall be deemed sufficiently given,
served, sent, and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt or the affidavit of
messenger being deemed conclusive evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
9.7. SUCCESSORS; ASSIGNMENTS. This Agreement and the rights, interests,
and obligations hereunder shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned, by operation of law or otherwise, by any of the parties hereto without
the prior written consent of the other.
9.8. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware (except the choice of law
rules thereof).
9.9. WAIVER AND OTHER ACTION. This Agreement may be amended, modified, or
supplemented only by a written instrument executed by the parties against which
enforcement of the amendment, modification or supplement is sought.
9.10. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully severable, and
this Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision were never a part hereof; the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance; and in lieu of
such illegal, invalid, or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid, and enforceable.
9.11. NO THIRD PARTY BENEFICIARIES. Article 8 is intended for the benefit
of each "Manager" (as defined in Article 8) and may be enforced by such persons,
their heirs and representatives. Other than as expressly set forth in this
Section 9.11, nothing expressed or implied in this Agreement is intended, or
shall be construed, to confer upon or give any person, firm or corporation other
than the parties hereto and their stockholders, any rights, remedies,
obligations or liabilities under or by reason of this Agreement or result in
such person, firm or corporation being deemed a third party beneficiary of this
Agreement.
9.12. MUTUAL CONTRIBUTION. The parties to this Agreement and their counsel
have mutually contributed to its drafting. Consequently, no provision of this
Agreement shall be construed against any party on the ground that such party
drafted the provision or caused it to be drafted or the provision contains a
covenant of such party.
9.13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more
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counterparts have been signed by each of the parties hereto and delivered to
each of the other parties hereto. IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the day and year first above written.
HERITAGE MEDIA CORPORATION
By: /s/ DAVID N. WALTHALL
--------------------------------------
David N. Walthall, President
ARCH ACQUISITION CORP.
By: /s/ DAVID N. WALTHALL
--------------------------------------
David N. Walthall, President
DIMAC CORPORATION
By: /s/ MICHAEL T. MCSWEENEY
--------------------------------------
Michael T. McSweeney,
Chairman of the Board and
Chief Executive Officer
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APPENDIX B
[LETTERHEAD]
October 22, 1995
Board of Directors
DIMAC Corporation
One Corporate Woods Drive
Bridgeton, MO 63044
Dear Sirs:
You have asked us to advise you with respect to the fairness to the
stockholders of DIMAC Corporation (the "Company"), other than Heritage Media
Corporation (the "Acquiror"), from a financial point of view of the
consideration to be received by such stockholders pursuant to the terms of the
Agreement and Plan of Merger dated as of October 22, 1995 (the "Merger
Agreement"), among the Company, the Acquiror and Arch Acquisition Corp., a
wholly owned subsidiary of the Acquiror (the "Sub"). The Merger Agreement
provides for the merger (the "Merger") of the Sub with and into the Company
pursuant to which the Company will become a wholly owned subsidiary of the
Acquiror and each outstanding share of common stock, par value $0.01 per share,
of the Company (the "Company Common Stock") will be converted into the right to
receive $28.00 per share (the "Merger Consideration") in cash; provided, that
the Acquiror may elect in its sole discretion to pay up to $7.00 of the Merger
Consideration in shares of Class A Common Stock, par value $0.01 per share, of
the Acquiror (the "Acquiror Common Stock"). If the Acquiror elects to pay a
portion of the Merger Consideration in shares of Acquiror Common Stock (the
"Stock Portion"), the amount of shares of Acquiror Common Stock constituting the
Stock Portion shall be the quotient determined by dividing (i) the Stock Portion
by (ii) the average of the closing prices for the Acquiror Common Stock as
reported on the stock exchange on which shares of Acquiror Common Stock are then
traded as published by The Wall Street Journal for the 10 trading days ending on
and including the third trading day preceding but not including the effective
date of the Merger.
In arriving at our opinion we have reviewed the Merger Agreement and certain
publicly available business and financial information relating to the Company
and the Acquiror. We have also reviewed certain other information including
financial forecasts provided to us by the Company and have met with the
Company's and the Acquiror's managements to discuss the business and prospects
of the Company and the Acquiror.
We have also considered certain financial and stock market data of the
Company and the Acquiror and we have compared that data with similar data for
other publicly held companies in businesses similar to those of the Company and
the Acquiror and we have considered the financial terms of certain other
business combinations and other transactions which have recently been effected.
We also considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all respects. With respect to the financial
forecasts, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgements of the
Company's and the Acquiror's managements as to the future financial performance
of the Company and the Acquiror. In addition, we have not made an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of the Company or the Acquiror nor have we been furnished with any such
evaluations or appraisals. Our opinion is necessarily based upon financial,
economic, market
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and other conditions as they exist and can be evaluated on the date hereof. We
are not expressing any opinion as to what the value of the Acquiror Common Stock
actually will be when and if issued to the Company's stockholders pursuant to
the Merger or the prices at which such Acquiror Common Stock will trade
subsequent to Merger. We were not requested to, and did not, solicit third party
indications of interest in acquiring all or any part of the Company.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger. We will also receive a fee
for rendering this opinion. In the past, we have performed certain investment
banking services for the Company and the Acquiror and have received customary
fees for such services.
In the ordinary course of our business CS First Boston and its affiliates
may actively trade the debt and equity securities of both the Company and the
Acquiror for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors in connection with its consideration of the Merger, does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on the proposed Merger and is not to be quoted or referred to, in whole or
in part, in any registration statement, prospectus or proxy statement or in any
other document used in connection with the offering or sale of securities nor
shall this letter be used for any other purposes without CS First Boston's prior
written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be received by the stockholders of the Company
in the Merger is fair to such stockholders, other than the Acquiror, from a
financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
B-2
<PAGE>
APPENDIX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation, and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the holders of the surviving corporation as provided in
subsections (f) or (g) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) and (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it appears
on the records of the corporation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of the notice, demand
in writing from the surviving or resulting corporation the appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after
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<PAGE>
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
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<PAGE>
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 851 and 856 of the Iowa Business Corporation Act provide that a
corporation has the power to indemnify its directors and officers against
liabilities and expenses incurred by reason of such person serving in the
capacity of director or officer, if such person has acted in good faith and in a
manner reasonably believed by the individual to be in or not opposed to the best
interests of the corporation, and in any criminal proceeding if such person had
no reasonable cause to believe the individual's conduct was unlawful. The
foregoing indemnity provisions notwithstanding, in the case of actions brought
by or in the right of the corporation, no indemnification shall be made to such
director or officer with respect to any matter as to which such individual has
been adjudged to be liable to the corporation unless, and only to the extent
that, the adjudicating court determines that indemnification is proper under the
circumstances.
Article XIII, Section 1 of the registrant's Amended and Restated Articles of
Incorporation and Article III, Section 13, Subsection 1 of the registrant's
By-laws provide that no director shall be liable to the registrant or its
shareholders for monetary damages for breach of fiduciary duty as a director,
provided that the liability of a director is not eliminated or limited (i) for
any breach of the director's duty of loyalty to the registrant or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, (iii) any transaction from
which such director derived an improper personal benefit, and (iv) under Section
490.833 of the Iowa Business Corporation Act.
Article XIII, Section 2 of the registrant's Amended and Restated Articles of
Incorporation and Article III, Section 13, Subsection 2 of the registrant's
By-laws provide, in general, that the registrant shall indemnify its directors
and officers under the circumstances defined in Sections 851 and 856 of the Iowa
Business Corporation Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <C> <S>
2.1 -- Agreement and Plan of Merger, dated October 23, 1995, by and among the
registrant, Arch Acquisition Corp. and DIMAC Corporation (included as
Appendix A to the Prospectus)(1)
2.2 -- Agreement, dated October 23, 1995, by and among McCown De Leeuw & Co.,
L.L.P.; McCown De Leeuw Associates, L.P.; McCown De Leeuw & Co. Offshore
(Europe), L.P.; McCown De Leeuw & Co. Offshore (Asia), L.P.; and Arch
Acquisition Corp.(1)
2.3 -- Agreement, dated October 23, 1995, by and between Michael T. McSweeney and
Arch Acquisition Corp.(1)
5.1 -- Opinion of Crouch & Hallett, L.L.P.(1)
23.1 -- Consent of Crouch & Hallett, L.L.P. (included in opinion filed as Exhibits
5.1 hereto)
23.2 -- Consent of KPMG Peat Marwick LLP(2)
23.3 -- Consent of Ernst & Young LLP(2)
23.4 -- Consent of Mortenson & Associates, P.C., formerly La Vecchia & Zarro(2)
23.5 -- Consent of Deloitte & Touche LLP(2)
23.6 -- Consent of Leslie Sufrin and Company, P.C.(2)
24.1 -- Power of Attorney(1)
99.1 -- Retention and Non-Competition Agreement by and among Michael T. McSweeney,
DIMAC Corporation and Heritage Media Corporation(1)
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <C> <S>
99.2 -- Form of Retention and Non-Competition Agreement by and among DIMAC
Corporation, Heritage Media Corporation and each of Timothy G. Beffa, Paul
W. Middeke, William K. Myers and F. Eugene Kerr(1)
99.3 -- Form of proxy card for Special Meeting of DIMAC Corporation(2)
</TABLE>
- ------------------------
(1) Previously filed.
(2) Filed herewith.
(b) Financial Statement Schedules
Not Applicable.
ITEM 22. UNDERTAKINGS.
(a) The registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement 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.
(b) 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.
(c) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(d) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(e) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-
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<PAGE>
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.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 in 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.
(g) 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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
Texas on January 4, 1996.
HERITAGE MEDIA CORPORATION
By: /s/ DOUGLAS N. WOODRUM
-----------------------------------
Douglas N. Woodrum
EXECUTIVE VICE PRESIDENT --
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1933, this
amendment to this registration statement has been signed below by the following
persons on behalf of the registrant and in the capacities on January 4, 1996.
<TABLE>
<C> <S>
*
- ---------------------------------------- Chairman of the Board and Director
James M. Hoak, Jr.
* President and Director
- ---------------------------------------- (Principal Executive Officer)
David N. Walthall
* Senior Vice President and Controller
- ---------------------------------------- (Principal Accounting Officer)
James P. Lehr
/s/ DOUGLAS N. WOODRUM Executive Vice President --
- ---------------------------------------- Chief Financial Officer
Douglas N. Woodrum (Principal Financial Officer)
*
- ---------------------------------------- Director
James S. Cownie
*
- ---------------------------------------- Director
Joseph M. Grant
- ---------------------------------------- Director
Clark A. Johnson
- ---------------------------------------- Director
Alan R. Kahn
*By: /s/ DOUGLAS N. WOODRUM
-----------------------------------
Douglas N. Woodrum
ATTORNEY-IN-FACT
</TABLE>
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<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------- ---------------
<C> <C> <S> <C>
2.1 -- Agreement and Plan of Merger, dated October 23, 1995, by and among the
registrant, Arch Acquisition Corp. and DIMAC Corporation (included as Appendix
A to the Prospectus)(1)
2.2 -- Agreement, dated October 23, 1995, by and among McCown De Leeuw & Co., L.L.P.;
McCown De Leeuw Associates, L.P.; McCown De Leeuw & Co. Offshore (Europe),
L.P.; McCown De Leeuw & Co. Offshore (Asia), L.P.; and Arch Acquisition
Corp.(1)
2.3 -- Agreement, dated October 23, 1995, by and between Michael T. McSweeney and Arch
Acquisition Corp.(1)
5.1 -- Opinion of Crouch & Hallett, L.L.P.(1)
23.1 -- Consent of Crouch & Hallett, L.L.P. (included in opinion filed as Exhibits 5.1
hereto)
23.2 -- Consent of KPMG Peat Marwick LLP(2)
23.3 -- Consent of Ernst & Young LLP(2)
23.4 -- Consent of Mortenson and Associates, P.C., formerly La Vecchia & Zarro(2)
23.5 -- Consent of Deloitte & Touche LLP(2)
23.6 -- Consent of Leslie Sufrin and Company, P.C.(2)
24.1 -- Power of Attorney(1)
99.1 -- Retention and Non-Competition Agreement by and among Michael T. McSweeney,
DIMAC Corporation and Heritage Media Corporation(1)
99.2 -- Form of Retention and Non-Competition Agreement by and among DIMAC Corporation,
Heritage Media Corporation and each of Timothy G. Beffa, Paul W. Middeke,
William K. Myers and F. Eugene Kerr(1)
99.3 -- Form of proxy card for Special Meeting of DIMAC Corporation(2)
</TABLE>
- ------------------------
(1) Previously filed.
(2) Filed herewith.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Heritage Media Corporation:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the proxy
statement/prospectus.
KPMG Peat Marwick LLP
Dallas, Texas
January 3, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Amendment No. 1 to Registration Statement (Form S-4) and related Prospectus of
Heritage Media Corporation for the registration of its common stock relating to
the acquisition of DIMAC Corporation and to the incorporation by reference
therein of our report dated February 24, 1995, with respect to the consolidated
financial statements of DIMAC Corporation included in its Annual Report, as
amended (Form 10-K/A) for the year ended December 31, 1994, filed with the
Securities and Exchange Commission.
Ernst & Young LLP
St. Louis, Missouri
January 2, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement on
Form S-4 (File No. 33-64473) of our report dated February 1, 1995, on our audits
of the combined financial statements of T. R. McClure and Company, Inc. and
Related Companies. We also consent to the reference to our firm under the
caption "Experts."
Mortenson and Associates, P.C.
Formerly La Vecchia & Zarro
Nutley, New Jersey
January 2, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 33-64473 of Heritage Media Corporation on Form S-4 of
our report dated March 23, 1995 on the financial statements of Palm Coast Data,
Ltd. as of December 31, 1993 and 1994 and for the years then ended, incorporated
by reference in the Proxy Statement/Prospectus, which is a part of such
Registration Statement, and to the reference to us under the heading "EXPERTS"
in such Proxy Statement/ Prospectus.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
January 2, 1996
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" with respect
to the financial statements of The Direct Marketing Group, Inc. at December 31,
1992 and 1993, and for the years then ended, incorporated by reference in the
Registration Statement (Form S-4 No. 33-64473) and related Prospectus of
Heritage Media Corporation for the registration of its common stock relating to
the acquisition of DIMAC Corporation.
Leslie Sufrin and Company, P.C.
New York, New York
January 2, 1996
<PAGE>
EXHIBIT 99.3
DIMAC CORPORATION
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
The undersigned stockholder of DIMAC Corporation, a Delaware corporation
("DIMAC"), hereby constitutes and appoints Michael T. McSweeney and Timothy G.
Beffa, and each of them, the attorneys and proxies of the undersigned, each with
the power of substitution, to act for the undersigned at the special meeting
(the "Special Meeting") of the Stockholders of DIMAC to be held at The
Ritz-Carlton St. Louis, 100 Carondelet Plaza, St. Louis, Missouri on ,
1996 at 10:00 a.m. (local time), and at any adjournments or postponements
thereof and in connection therewith to vote and represent all of the shares of
the common stock, par value $.01 per share of DIMAC ("Common Stock") held of
record by the undersigned on , 1996, as follows on the reverse side of
this proxy.
Said attorneys and proxies, and each of them shall have all the powers which
the undersigned have if acting in person. The undersigned hereby revokes any
other proxy to vote at the Special Meeting which the undersigned has previously
granted and hereby ratifies and confirms all that said attorneys and proxies and
each of them, may lawfully do by virtue hereof. Said proxies, without hereby
limiting their general authority, are specifically authorized to vote in
accordance with their best judgment with respect to all matters incident to the
conduct of the Special Meeting and all matters presented at the Special Meeting
but which are not known to the DIMAC Board of Directors at the time of the
solicitation of this proxy.
PLEASE SIGN AND DATE YOUR PROXY ON THE REVERSE SIDE AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE. NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED
STATES.
SEE REVERSE SIDE
<PAGE>
PLEASE MARK YOUR CHOICE LIKE /X/
THIS IN BLUE OR BLACK INK
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF DIMAC
The DIMAC Board of Directors recommends a vote FOR the following proposal:
A proposal to approve and adopt an Agreement and Plan of Merger, dated
October 23, 1995, among Heritage Media Corporation ("Heritage"), an Iowa
corporation, Arch Acquisition Corp. (the "Heritage Subsidiary"), a Delaware
corporation and a wholly owned subsidiary of Heritage, and DIMAC, a copy of
which is attached as Appendix A to the Proxy Statement/Prospectus accompanying
this proxy, pursuant to which (i) the Heritage Subsidiary will be merged into
DIMAC and (ii) each share of Common Stock will be converted automatically into
the right to receive $28.00 per share in cash (the "Merger Consideration");
PROVIDED that, at its option, the Heritage Subsidiary may elect, in its sole
discretion, to pay up to $7.00 (the "Stock Portion") of the Merger Consideration
in shares of the Class A Common Stock, par value $.01 per share of Heritage
("Heritage Common Stock"). In the event that the Heritage Subsidiary elects to
pay a portion of the Merger Consideration in shares of Heritage Common Stock,
the number of shares of Heritage Common Stock constituting the Stock Portion
shall be the quotient determined by dividing (i) the Stock Portion of the Merger
Consideration by (ii) the average closing prices of Heritage Common Stock as
reported on the American Stock Exchange as published by The Wall Street Journal
for the ten trading days ending on and including the third trading day
preceding, but not including, the effective date of the merger.
/ / FOR / / AGAINST / / ABSTAIN
Each of the above-named proxies present at the Special Meeting, either in
person or by substitute shall have and exercise all the powers of said proxies
hereunder. This proxy will be voted in accordance with the choices specified by
the undersigned on this proxy. In their discretion, each of the above-named
proxies is authorized to vote upon such other business incident to the conduct
of the Special Meeting and all such other matters as may properly come before
the Special Meeting or any post-ponement or adjournment thereof. IF NO
INSTRUCTIONS TO THE CONTRARY ARE INDICATED HEREON, THIS PROXY WILL BE TREATED AS
A GRANT OF AUTHORITY TO VOTE FOR THE PROPOSAL AND ON ANY OTHER MATTERS TO BE
VOTED UPON.
The undersigned acknowledges receipt of a copy of the Notice of Special
Meeting of Stockholders and Proxy Statement/Prospectus relating to the Special
Meeting.
IMPORTANT: In signing this proxy, please sign exactly as your name(s) is
(are) shown on the share certificate to which the proxy applies. When signing as
attorney, executor, trustee or guardian, please give your full title as such. If
a corporation, please sign in full corporate name by an authorized officer. If a
partnership, please sign in partnership name by an authorized person. EACH JOINT
TENANT MUST SIGN.
<TABLE>
<S> <C>
- --------------------------------------------
Signature
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(Additional signature if held jointly)
Dated: -------------------------------------
</TABLE>
