<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
Scanforms, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement (if other than the Registrant))
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2)) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01 per share
-----------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
3,708,538
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$5.67(1)
-----------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$21,027,410.46
-----------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
$4,252.26 paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form of Schedule and the date of its filing.
1) Amount Previously Paid: N/A
------------------------------------------
2) Form, Schedule or Registration Statement No.: N/A
--------------------
3) Filing Party: N/A
----------------------------------------------------
4) Date Filed: N/A
------------------------------------------------------
- ---------------
(1) Pursuant to Rule 0-11(c)(1), the filing fee is $4,252.26, representing
1/50th of one percent of the aggregate value of the transaction. This
figure is based upon 3,751,648 outstanding shares, on a fully diluted
basis (as of the date the Preliminary Proxy Statement was filed with the
Commission), multiplied by the product of 0.4423, the maximum conversion
ratio, and $12.813, the average of the reported high and low sales prices
of a share of common stock of Big Flower Press Holdings, Inc. on the
New York Stock Exchange Composite Tape on August 5, 1996.
<PAGE>
[LOGO]
September 6, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Scanforms, Inc. to be held on Friday, October 4, 1996, at 181 Rittenhouse
Circle, Keystone Park, Bristol, Pennsylvania, at 10:00 a.m., local time. Notice
of the Meeting, a Proxy Statement/Prospectus and a form of proxy are enclosed
with this letter.
At this important meeting, you will be asked to consider and to vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of July
31, 1996, among Scanforms, Big Flower Press Holdings, Inc. and a wholly owned
subsidiary of Big Flower, pursuant to which Big Flower's subsidiary will be
merged into Scanforms. In the merger, each outstanding share of Scanforms Common
Stock will be converted into the right to receive a fraction of a share of Big
Flower Common Stock, determined by dividing $5.75 by the average closing price
of Big Flower Common Stock on the New York Stock Exchange during the ten trading
day period ending three trading days prior to the Special Meeting, provided that
in no event will such fraction be more than 0.4423 or less than 0.3833.
Details of the proposed merger and other important information concerning
Scanforms and Big Flower, including certain pro forma financial information, are
set forth in the accompanying Proxy Statement/Prospectus, which you are urged to
read. Also enclosed for your information are copies of Scanforms' Annual Report
on Form 10-K for the year ended October 1, 1995 and Quarterly Report on Form
10-Q for the quarter ended June 30, 1996.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the proposed merger and has received the opinion of its financial
advisor, Janney Montgomery Scott Inc., as to the fairness, from a financial
point of view, of the consideration to be paid to Scanforms stockholders in the
merger.
YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AND RECOMMENDS THAT YOU VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
The merger will be consummated only if it is approved by the holders of a
majority of the outstanding shares of Scanforms Common Stock. Whether or not you
plan to attend the Special Meeting and regardless of the number of shares you
own, we urge you to complete, sign, date and return the enclosed proxy card
promptly in the accompanying prepaid envelope. You may, of course, attend the
Special Meeting and vote in person, even if you have previously returned your
proxy card.
Sincerely,
[SIG]
Robert A. Samans
PRESIDENT AND CHAIRMAN OF THE BOARD
<PAGE>
[LOGO]
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
SEPTEMBER 6, 1996
------------------------
A Special Meeting of Stockholders of Scanforms, Inc. ("Scanforms") will be
held on Friday, October 4, 1996, at 10:00 a.m., local time, at the offices of
Scanforms, 181 Rittenhouse Circle, Keystone Park, Bristol, Pennsylvania, for the
following purposes:
1. To consider and vote upon a proposal to adopt an Agreement and Plan
of Merger, dated as of July 31, 1996 (the "Merger Agreement"), among
Scanforms, Big Flower Press Holdings, Inc. ("Big Flower") and Scanforms
Acquisition Corp., an indirect, wholly owned subsidiary of Big Flower
("Merger Sub"), a copy of which is attached as Annex I to the Proxy
Statement/Prospectus accompanying this Notice, pursuant to which (i) Merger
Sub will be merged with and into Scanforms (the "Merger") and (ii) each
outstanding share of Scanforms Common Stock, par value $.01 per share
("Scanforms Common Stock"), other than shares held by Big Flower, Merger Sub
or any other subsidiary of Big Flower, shares held in the treasury of
Scanforms and shares held by stockholders who perfect their dissenters'
rights under Delaware law, will be converted into the right to receive a
fraction of a share of Big Flower Common Stock, par value $.01 per share
("Big Flower Common Stock"), determined by dividing $5.75 by the average
closing price of Big Flower Common Stock as reported on the New York Stock
Exchange during the ten trading day period ending three trading days prior
to the Special Meeting, provided that in no event will such fraction be more
than 0.4423 or less than 0.3833; and
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
Only holders of record of Scanforms Common Stock at the close of business on
August 29, 1996 will be entitled to notice of and to vote at the Special
Meeting.
All stockholders, whether or not they plan to attend the Special Meeting,
are asked to complete, date and sign the enclosed proxy card and return it
promptly in the enclosed return envelope, which requires no postage if mailed in
the United States. A proxy may be revoked in the manner described in the
accompanying Proxy Statement/Prospectus at any time before it has been voted at
the Special Meeting.
By Order of the Board of Directors,
[SIG]
Emma Marie Cocci
SECRETARY
BRISTOL, PENNSYLVANIA
SEPTEMBER 6, 1996
<PAGE>
PROXY STATEMENT/PROSPECTUS
<TABLE>
<S> <C>
SCANFORMS, INC. BIG FLOWER PRESS HOLDINGS, INC.
181 RITTENHOUSE CIRCLE 3 EAST 54TH STREET
KEYSTONE PARK NEW YORK, NY 10022
BRISTOL, PENNSYLVANIA 19007 (212) 521-1600
(215) 785-0101
</TABLE>
PROXY STATEMENT RELATING TO THE
SPECIAL MEETING OF STOCKHOLDERS OF SCANFORMS, INC.
TO BE HELD ON OCTOBER 4, 1996
PROSPECTUS RELATING TO 1,640,286 SHARES OF BIG FLOWER
PRESS HOLDINGS, INC.
COMMON STOCK, $.01 PAR VALUE
This Proxy Statement/Prospectus is being furnished to the holders of shares
of common stock, $.01 par value ("Scanforms Common Stock"), of Scanforms, Inc.,
a Delaware corporation ("Scanforms"), in connection with the solicitation of
proxies by the Board of Directors of Scanforms for use at a Special Meeting of
Stockholders of Scanforms, to be held at the offices of Scanforms, 181
Rittenhouse Circle, Keystone Park, Bristol, Pennsylvania on October 4, 1996,
convening at 10:00 a.m., local time, and at any and all adjournments or
postponements thereof (the "Special Meeting"). This Proxy Statement/Prospectus
is accompanied by Scanforms' Annual Report on Form 10-K for the fiscal year
ended October 1, 1995 (the "Scanforms 10K") and Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996 (the "Scanforms 10Q").
This Proxy Statement/Prospectus relates to the Agreement and Plan of Merger,
dated as of July 31, 1996 (the "Merger Agreement"), by and among Scanforms, Big
Flower Press Holdings, Inc., a Delaware corporation ("Big Flower"), and
Scanforms Acquisition Corp., a Delaware corporation and an indirect, wholly
owned Subsidiary (as hereinafter defined) of Big Flower ("Merger Sub"), which
provides for the merger (the "Merger") of Merger Sub with and into Scanforms,
with Scanforms surviving as an indirect, wholly owned subsidiary of Big Flower.
Subject to the terms and conditions of the Merger Agreement, each share of
Scanforms Common Stock outstanding immediately prior to the Effective Time (as
defined in the Merger Agreement) of the Merger (the "Effective Time") (other
than shares of Scanforms Common Stock held in the treasury of Scanforms or
shares owned by Big Flower, Merger Sub or any other Subsidiary of Big Flower or
shares of Scanforms Common Stock as to which dissenters' rights of appraisal
have been duly asserted and perfected under the Delaware General Corporation Law
(the "DGCL")) will be converted into the right to receive that number of shares
of common stock, $.01 par value, of Big Flower ("Big Flower Common Stock") equal
to the quotient obtained by dividing $5.75 by the average closing price per
share of Big Flower Common Stock on the New York Stock Exchange, Inc. ("NYSE")
as reported on the NYSE Composite Tape during the 10 consecutive trading day
period (the "Measurement Period") ending with (and including) the third trading
day prior to the Special Meeting (the "Average Stock Price"); provided that if
the Average Stock Price is $ 13.00 or less, the Conversion Number (as
hereinafter defined) will be 0.4423, and if the Average Stock Price is $15.00 or
more, the Conversion Number will be 0.3833, all as more fully described in this
Proxy Statement/Prospectus and as set forth in the Merger Agreement attached
hereto as Annex I and incorporated by reference herein (which Merger Agreement
should be read carefully in its entirety). The fraction of a share of Big Flower
Common Stock into which each share of Scanforms Common Stock will be converted
in the Merger is hereinafter referred to as the "Conversion Number". Cash will
be paid in lieu of any fractional shares of Big Flower Common Stock. As used in
the Merger Agreement and this Proxy Statement/Prospectus, "Subsidiary" means,
with respect to any Person (as hereinafter defined), any corporation or other
legal entity of which such Person owns, directly or indirectly, more than 50% of
the outstanding stock or other equity interests, the holders of which are
entitled to vote for the election of the board of directors or other governing
body of such corporation or other legal entity. See "OTHER TERMS OF THE MERGER
AGREEMENT: Conversion of Shares; No Fractional Shares."
(CONTINUED ON PAGE TWO)
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES 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 SEPTEMBER 6, 1996.
<PAGE>
(CONTINUED FROM PAGE ONE)
The consummation of the Merger is subject, among other things, to: (i) the
approval and adoption of the Merger Agreement by a majority of the outstanding
shares of Scanforms Common Stock entitled to vote thereon at the Special Meeting
and (ii) the meeting of certain financial conditions by Scanforms. SEE THE
DISCUSSION UNDER THE CAPTION "RISK FACTORS" FOR A DESCRIPTION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY STOCKHOLDERS OF SCANFORMS BEFORE VOTING. THE
DESCRIPTION OF THE TERMS AND CONDITIONS OF THE MERGER AND THE MERGER AGREEMENT
INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE MERGER AGREEMENT, A CONFORMED COPY OF WHICH IS ATTACHED HERETO
AS ANNEX I.
The market price of shares of Big Flower Common Stock is inherently subject
to fluctuation. Accordingly, the value of the shares of Big Flower Common Stock
that holders of shares of Scanforms Common Stock will receive in the Merger may
increase or decrease prior to the Effective Time. In addition, the Merger
Agreement is subject to termination by Big Flower or Scanforms if, without fault
of the terminating party, the Merger is not consummated by January 31, 1997, and
is subject to termination prior to such date upon the occurrence of certain
events. Upon termination of the Merger Agreement under certain circumstances,
Scanforms may be required to pay Big Flower a fee of $750,000. See "OTHER TERMS
OF THE MERGER AGREEMENT: Termination Fee and Expenses."
Big Flower Common Stock is traded on the NYSE. The closing sale price of Big
Flower Common Stock was $13 7/8 on June 14, 1996 (the last trading day preceding
the public announcement that Big Flower and Scanforms had agreed in principle to
the acquisition of Scanforms by Big Flower) and was $13 on September 5, 1996
(the last trading date preceding the mailing of this Proxy Statement/ Prospectus
for which such price was available). Scanforms Common Stock is included in the
Nasdaq Small Cap Issues of the Nasdaq Stock Market (the "Nasdaq Small Cap
Market"). The high ask and low bid price of Scanforms Common Stock was $3 9/16
on June 14, 1996 (the last trading day preceding the public announcement that
Big Flower and Scanforms had agreed in principle to the acquisition of Scanforms
by Big Flower) and was $5 on September 5, 1996 (the last trading date preceding
the mailing of this Proxy Statement/Prospectus for which such price was
available).
This Proxy Statement/Prospectus, in addition to constituting the Company's
Proxy Statement relating to the Special Meeting, also includes and constitutes
the Prospectus of Big Flower filed as part of a Registration Statement on Form
S-4 (together with all amendments thereto, the "Registration Statement") with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), relating to the shares of Big
Flower Common Stock issuable in the Merger to holders of outstanding shares of
Scanforms Common Stock. All information concerning Big Flower contained (or, as
permitted by applicable rules and regulations of the Commission, incorporated by
reference with respect to Big Flower) in this Proxy Statement/Prospectus has
been furnished or prepared by Big Flower and all information concerning
Scanforms contained (or, as permitted by applicable rules and regulations of the
Commission, incorporated by reference with respect to Scanforms) in this Proxy
Statement/Prospectus has been furnished or prepared by Scanforms.
This Proxy Statement/Prospectus and the accompanying form of proxy, together
with the Scanforms 10K and Scanforms 10Q, are first being mailed to holders of
record of Scanforms Common Stock on or about September 6, 1996.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AVAILABLE INFORMATION...................................................................................... 5
INCORPORATION OF DOCUMENTS BY REFERENCE.................................................................... 5
SUMMARY.................................................................................................... 7
The Companies............................................................................................ 7
Risk Factors............................................................................................. 8
Scanforms Special Meeting................................................................................ 8
The Merger and the Merger Agreement...................................................................... 9
Big Flower Press Holdings, Inc.
Selected Financial Data; Selected Pro Forma Financial Data.............................................. 13
Scanforms, Inc.
Selected Financial Data................................................................................. 15
Market Prices and Dividend Policy........................................................................ 16
RISK FACTORS............................................................................................... 17
RECENT DEVELOPMENTS........................................................................................ 18
Printco Acquisition...................................................................................... 18
SCANFORMS SPECIAL MEETING.................................................................................. 19
Purpose.................................................................................................. 19
Record Date; Voting Rights............................................................................... 19
Share Ownership of Management............................................................................ 20
Proxies.................................................................................................. 20
Solicitation of Proxies.................................................................................. 20
THE MERGER................................................................................................. 20
General.................................................................................................. 20
Background of the Merger................................................................................. 21
Stock Option Agreement and Voting Proxy.................................................................. 29
Big Flower's Reasons for the Merger...................................................................... 30
Scanforms' Reasons for the Merger; Recommendation of its Board of Directors.............................. 30
Opinion of Scanforms' Financial Advisor.................................................................. 31
Conflicts of Interest.................................................................................... 38
Certain Federal Income Tax Considerations................................................................ 39
Regulatory Approvals..................................................................................... 40
Anticipated Accounting Treatment......................................................................... 41
Percentage Ownership Interest of Scanforms Stockholders After the Merger................................. 41
Appraisal Rights......................................................................................... 41
Stock Exchange Listing................................................................................... 44
Deregistration of Scanforms Common Stock................................................................. 44
Resales of Big Flower Common Stock....................................................................... 44
OTHER TERMS OF THE MERGER AGREEMENT........................................................................ 45
Conversion of Shares in the Merger....................................................................... 45
No Fractional Shares..................................................................................... 45
Adjustment of Conversion Number.......................................................................... 45
Exchange Agent; Procedures for Exchange of Certificates.................................................. 46
Representations and Warranties........................................................................... 46
Conduct of Business Pending the Merger................................................................... 47
No Solicitation.......................................................................................... 47
Conditions Precedent to the Merger....................................................................... 47
Stock Options............................................................................................ 49
Indemnification.......................................................................................... 50
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Termination.............................................................................................. 50
Termination Fee and Expenses............................................................................. 51
Amendment; Waiver........................................................................................ 51
OWNERSHIP OF SCANFORMS COMMON STOCK........................................................................ 52
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION......................................................... 53
DESCRIPTION OF BIG FLOWER COMMON STOCK..................................................................... 66
General.................................................................................................. 66
Common Stock............................................................................................. 66
Class B Stock............................................................................................ 66
Preferred Stock.......................................................................................... 66
Anti-Takeover Effects of Provisions of the Big Flower Charter and Big Flower By-Laws..................... 67
Section 203 of the DGCL.................................................................................. 68
Certain Effects of Authorized But Unissued Stock......................................................... 68
Stockholder Rights Plan.................................................................................. 69
Limitation of Directors' Liability....................................................................... 70
Registrar and Transfer Agent............................................................................. 70
COMPARISON OF THE RIGHTS OF HOLDERS OF BIG FLOWER COMMON STOCK AND SCANFORMS COMMON STOCK.................. 70
Dividend Rights.......................................................................................... 70
Voting Rights............................................................................................ 71
Directors................................................................................................ 71
Call of Special Meetings................................................................................. 71
Action by Stockholders Without a Meeting................................................................. 71
Stockholder Proposals.................................................................................... 72
Amendment of Certificate of Incorporation................................................................ 72
Amendment of By-Laws..................................................................................... 72
Approvals of Mergers and Assets Sales.................................................................... 72
Rights of Appraisal...................................................................................... 73
Indemnification of Directors and Officers................................................................ 73
Anti-Takeover Provisions................................................................................. 73
Big Flower Rights........................................................................................ 73
BUSINESS OF BIG FLOWER..................................................................................... 74
General.................................................................................................. 74
Treasure Chest........................................................................................... 74
Laser Tech............................................................................................... 75
Webcraft................................................................................................. 75
BUSINESS OF SCANFORMS...................................................................................... 75
EXPERTS.................................................................................................... 76
LEGAL OPINIONS............................................................................................. 76
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
ANNEXES
ANNEX I MERGER AGREEMENT
ANNEX II OPINION OF SCANFORMS INVESTMENT ADVISOR
ANNEX III SECTION 262 OF THE DGCL
</TABLE>
4
<PAGE>
AVAILABLE INFORMATION
Big Flower and Scanforms are subject to the information 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 may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following Regional Offices of the Commission: Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7
World Trade Center, 13th Floor, New York, New York 10048. The Commission
maintains a Web site at http://www.sec.gov that contains reports, proxy
statements and other information regarding Big Flower and Scanforms. Copies of
such materials relating to Big Flower should also be available for inspection at
the NYSE, 20 Broad Street, New York, New York 10005. Copies of such materials
relating to Scanforms should also be available for inspection at the National
Association of Securities Dealers, Inc., 1735 K Street, Washington, D.C. 20006.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Reference is made
to the Registration Statement and the exhibits thereto for further information.
Statements contained or incorporated by reference herein concerning the
provisions of any agreement or other document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete and reference is hereby made to the copy thereof so filed
for more detailed information, each such statement being qualified in its
entirety by such reference.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS THAT ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS (OTHER THAN
EXHIBITS THERETO WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE HEREIN)
ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF
SHARES OF SCANFORMS COMMON STOCK TO WHOM THIS PROXY STATE MENT/PROSPECTUS IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST TO, IN THE CASE OF DOCUMENTS RELATING TO
BIG FLOWER, MARK A. ANGELSON, BIG FLOWER PRESS HOLDINGS, INC., 3 EAST 54TH
STREET, NEW YORK, NEW YORK 10022, TELEPHONE NUMBER (212) 521-1600 AND, IN THE
CASE OF DOCUMENTS RELATING TO SCANFORMS, EMMA MARIE COCCI, SCANFORMS, INC., 181
RITTENHOUSE CIRCLE, KEYSTONE PARK, BRISTOL, PENNSYLVANIA 19007, TELEPHONE NUMBER
(215) 785-0101. IN ORDER TO ENSURE DELIVERY OF DOCUMENTS PRIOR TO THE APPLICABLE
SPECIAL MEETING, ANY REQUEST THEREFOR SHOULD BE MADE NOT LATER THAN SEPTEMBER
19, 1996.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission pursuant to the
Exchange Act are incorporated herein by reference:
1. Big Flower's Transition Report on Form 10-K for the transition
period from July 1, 1995 to December 31, 1995, Big Flower's report on Form
10-K/A filed on June 24, 1996 with the Commission and Big Flower's report on
Form 10-K/A filed on August 27, 1996 with the Commission (the "Big Flower
10K").
2. Big Flower's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996 and Big Flower's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 (the "Big Flower 10Q").
5
<PAGE>
3. The description of the Big Flower Rights contained in the
Registration Statement on Form 8-A filed by Big Flower with the Commission
on November 14, 1995, including any amendment for the purpose of updating
such description.
4. Big Flower's Current Report on Form 8-K reporting events on February
1, 1996 and Big Flower's Current Reports on Form 8-K and Form 8-K/A
reporting events on March 14, 1996.
5. Scanforms' Annual Report on Form 10-K for the fiscal year ended
October 1, 1995.
6. Scanforms' Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1995, March 31, 1996 and June 30, 1996.
The information relating to Scanforms and to Big Flower contained in this
Proxy Statement/ Prospectus does not purport to be comprehensive and should be
read together with the information in the documents incorporated by reference
herein.
All reports and other documents filed by either Big Flower or Scanforms
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Proxy Statement/ Prospectus and prior to the date of the
Scanforms Special Meeting shall be deemed to be incorporated by reference herein
and to be a part hereof from the date of filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document which also is incorporated or deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement/Prospectus.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE
HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY EITHER BIG FLOWER OR SCANFORMS. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES, NOR DOES IT CONSTITUTE THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROXY STATEMENT/ PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF BIG FLOWER OR SCANFORMS SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
As used herein, unless the context otherwise clearly requires: "Big Flower"
refers to Big Flower Press Holdings, Inc. and its consolidated Subsidiaries and
"Scanforms" refers to Scanforms, Inc. and its consolidated Subsidiary. See
"Business of Big Flower" and "Business of Scanforms," respectively. Capitalized
terms not defined in this Proxy Statement/Prospectus have the respective
meanings specified in the Merger Agreement.
All information contained in this Proxy Statement/Prospectus with respect to
Big Flower and Merger Sub has been provided by Big Flower. All information
contained in this Proxy Statement/ Prospectus with respect to Scanforms has been
provided by Scanforms.
6
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere or
incorporated by reference in this Proxy Statement/Prospectus. Reference is made
to, and this summary is qualified in its entirety by, the more detailed
information contained or incorporated by reference in this Proxy
Statement/Prospectus and the Annexes hereto.
STOCKHOLDERS OF SCANFORMS ARE URGED TO READ THIS PROXY STATEMENT/PROSPECTUS
AND THE ANNEXES HERETO IN THEIR ENTIRETY AND SHOULD CONSIDER CAREFULLY THE
INFORMATION SET FORTH BELOW UNDER THE HEADING "RISK FACTORS."
THE COMPANIES
BIG FLOWER. Big Flower has three principal operating units: Treasure Chest
Advertising Company, Inc. ("Treasure Chest"), Laser Tech Color, Inc. ("Laser
Tech"), and Webcraft Technologies, Inc. ("Webcraft"). Treasure Chest is a
leading producer and marketer of advertising circulars for many large United
States retailers and publishes TV listing guides, Sunday comics, Sunday
magazines and/ or special supplements for many widely circulated United States
newspapers. Laser Tech is a leading provider of high quality electronic
pre-media and conventional graphics services. Webcraft is a market leader in
producing and marketing highly customized direct mail and other advertising
products, and Big Flower believes Webcraft is the largest in-line, direct mail
producer in the United States. Although each of Big Flower's operating units
provides a variety of services to its customers, the majority of each operating
unit's business is comprised of providing advertising and marketing related
information services. Consolidated net sales of Big Flower's products and
services totalled approximately $972.4 million and $514.6 million for the twelve
months ended December 31, 1995 and the six months ended June 30, 1996,
respectively. Big Flower was incorporated in Delaware in 1993. Its principal
executive offices are located at 3 East 54th Street, New York, New York 10022
and its telephone number is (212) 521-1600. For further information concerning
the business and properties of Big Flower, see the descriptions thereof set
forth in the Big Flower 10K, which is incorporated herein by reference,
"SUMMARY: Big Flower Press Holdings, Inc. Selected Financial Data; Selected Pro
Forma Financial Data;" "BUSINESS OF BIG FLOWER;" "AVAILABLE INFORMATION;"
"INCORPORATION OF DOCUMENTS BY REFERENCE" and "PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION."
SCANFORMS. Scanforms is a full-service provider of direct mail advertising
with in-house forms manufacturing, laser and impact computer personalization,
bindery and mailing services. Scanforms' special capabilities include up to ten
color web heatset four color process printing, hot foil stamping and embossing,
die cutting, pressure sensitive labeling, tipped on plastic and paper cards and
remoist gluing. Scanforms' sales staff markets Scanforms' services and products
to advertising agencies for use by the agencies' clients and directly to end
user clients. Scanforms' marketing efforts also include direct mail advertising,
attendance at monthly direct mail industry meetings in various cities,
attendance at major trade shows and direct telephone contacts. The market for
Scanforms' services and products is located principally on the East Coast,
although Scanforms also serves customers in the Midwest and is making efforts to
develop markets nationally. Net sales of Scanforms' products and services
totalled approximately $24.5 million and $16.1 million for the fiscal year ended
October 1, 1995 and the six months ended June 30, 1996, respectively. Scanforms
was incorporated in Delaware on January 21, 1969. Scanforms' principal executive
offices are located at 181 Rittenhouse Circle, Keystone Park, Bristol,
Pennsylvania 19007 and its telephone number is (215) 785-0101. For further
information concerning the business and properties of Scanforms, see the
descriptions thereof set forth in the Scanforms 10K, which is incorporated
herein by reference, "SUMMARY; Scanforms, Inc. Selected Financial Data;"
"BUSINESS OF SCANFORMS;" "AVAILABLE INFORMATION" and "INCORPORATION OF DOCUMENTS
BY REFERENCE."
7
<PAGE>
MERGER SUB. Merger Sub was incorporated in Delaware on July 10, 1996 solely
for the purpose of consummating the Merger and the other transactions
contemplated by the Merger Agreement. Merger Sub has minimal assets. Its
principal executive offices are located at 3 East 54th Street, New York, New
York 10022 and its telephone number is (212) 521-1600.
RISK FACTORS
In considering whether to approve and adopt the Merger Agreement, the
stockholders of Scanforms should consider the following matters: (i) the
Conversion Number is expressed in the Merger Agreement as a floating ratio and
will be adjusted in the event of any increase or decrease in the price of Big
Flower Common Stock within a band of $13 to $15; (ii) certain executive officers
of Scanforms may be deemed to have conflicts of interest with respect to the
Merger; and (iii) the cost of paper used in Big Flower's operations and the
level of indebtedness of Big Flower may affect Big Flower's results of
operations. See "RISK FACTORS."
SCANFORMS SPECIAL MEETING
PURPOSE. The Special Meeting will be held at the offices of Scanforms, 181
Rittenhouse Circle, Keystone Park, Bristol, Pennsylvania, on October 4, 1996, at
10:00 a.m., local time, to consider and vote upon a proposal to approve and
adopt the Merger Agreement, which provides for the Merger of Merger Sub with and
into Scanforms, with Scanforms surviving as an indirect, wholly owned subsidiary
of Big Flower. The stockholders of Scanforms will also consider and take action
upon any other business which may properly be brought before the Special
Meeting. See "SCANFORMS SPECIAL MEETING: Purpose."
RECORD DATE. Only holders of record of Scanforms Common Stock at the close
of business on August 29, 1996 (the "Record Date") are entitled to receive
notice of and to vote at the Special Meeting. At the close of business on the
Record Date, there were 3,503,538 shares of Scanforms Common Stock outstanding,
each of which entitles the registered holder thereof to one vote, which shares
were held by 277 holders of record. See "SCANFORMS SPECIAL MEETING: Record Date;
Voting Rights."
SHARE OWNERSHIP OF MANAGEMENT. At the close of business on the Record Date,
directors and executive officers of Scanforms (6 as a group) were the beneficial
owners of an aggregate of 1,769,488 shares (approximately 48.8%) of the
Scanforms Common Stock then outstanding (including the 125,000 shares of
Scanforms Common Stock subject to outstanding options owned by Scanforms'
directors and executive officers which are presently exercisable).
QUORUM; REQUIRED VOTE. The presence, in person or by proxy, of the holders
of a majority of the issued and outstanding shares of Scanforms Common Stock
entitled to vote at the Special Meeting will constitute a quorum for the
transaction of business at the Special Meeting. Approval and adoption of the
Merger Agreement will require the affirmative vote of a majority of the
outstanding shares of Scanforms Common Stock entitled to vote thereon at the
Special Meeting. An abstention will not be counted as a vote cast. Brokers who
hold Scanforms Common Stock as nominees will not have discretionary authority to
vote such shares in the absence of instructions from the beneficial owners
thereof. Broker non-votes will not be counted as votes cast. Robert A. Samans
("Mr. Samans"), President and Chairman of the Board of Directors of Scanforms,
and Sebastian A. Carcioppolo ("Mr. Carcioppolo"), a director of Scanforms, have
agreed to vote the shares of Scanforms Common Stock they beneficially own,
representing approximately 44% of outstanding Scanforms Common Stock, in favor
of approval and adoption of the Merger Agreement. Accordingly, the affirmative
vote of the holders of approximately 10% of the outstanding shares of Scanforms
Common Stock not owned by Mr. Samans and Mr. Carcioppolo is required to approve
and adopt the Merger Agreement. See "SCANFORMS SPECIAL MEETING: Record Date;
Voting Rights."
8
<PAGE>
THE MERGER AND THE MERGER AGREEMENT
GENERAL. At the Effective Time, (i) Merger Sub will be merged with and into
Scanforms, with Scanforms continuing as the surviving corporation (the
"Surviving Corporation") and an indirect, wholly owned subsidiary of Big Flower.
As a result of the Merger, the separate corporate existence of Merger Sub will
cease, and Scanforms will succeed to all the rights and be responsible for all
the obligations of Merger Sub in accordance with the DGCL. Subject to the terms
and conditions of the Merger Agreement, each share of Scanforms Common Stock
outstanding immediately prior to the Effective Time (other than shares of
Scanforms Common Stock held in the treasury of Scanforms, shares of Scanforms
Common Stock as to which dissenters' rights of appraisal have been duly asserted
and perfected under the DGCL or shares owned by Big Flower, Merger Sub or any
other Subsidiary of Big Flower) will be converted into the right to receive a
fraction of a share of Big Flower Common Stock equal to the quotient obtained by
dividing $5.75 by the Average Stock Price; provided that if the Average Stock
Price is $13.00 or less, the Conversion Number will be 0.4423, and if the
Average Stock Price is $15.00 or more, the Conversion Number will be 0.3833.
Cash will be paid in lieu of any fractional shares of Big Flower Common Stock.
See "OTHER TERMS OF THE MERGER AGREEMENT: Conversion of Shares in the Merger; No
Fractional Shares."
The Merger will become effective on the date that a Certificate of Merger is
filed with the Secretary of State of the State of Delaware or at such time
thereafter as is agreed between the parties and specified in the Certificate of
Merger. Big Flower and Scanforms currently intend that the Effective Time will
occur promptly after approval and adoption of the Merger Agreement at the
Special Meeting.
RECOMMENDATION OF THE SCANFORMS BOARD. THE SCANFORMS BOARD OF DIRECTORS HAS
UNANIMOUSLY DETERMINED THAT THE MERGER IS ADVISABLE AND FAIR TO AND IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF SCANFORMS AND HAS APPROVED THE MERGER
AGREEMENT. THE SCANFORMS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF SCANFORMS VOTE IN FAVOR OF THE MERGER AT THE SPECIAL MEETING.
SEE "THE MERGER: SCANFORMS' REASONS FOR THE MERGER; RECOMMENDATION OF ITS BOARD
OF DIRECTORS."
OPINION OF SCANFORMS' FINANCIAL ADVISOR. Janney Montgomery Scott Inc.
("Janney Montgomery") has acted as financial advisor to Scanforms in connection
with the Merger and has delivered its written opinion dated July 31, 1996 to the
Scanforms Board of Directors to the effect that, based upon and subject to
certain matters stated therein, as of the date of such opinion, the Conversion
Number is fair to Scanforms and its stockholders from a financial point of view.
The full text of the Janney Montgomery written opinion, which sets forth a
description of the assumptions made, matters considered and limitations on the
review undertaken, is attached hereto as Annex II and should be read carefully
in its entirety. See "THE MERGER: Opinion of Scanforms' Financial Advisor."
EXCHANGE OF CERTIFICATES. Promptly after the Effective Time, the Bank of
New York (the "Exchange Agent") will mail to each Scanforms holder of record of
a certificate (or certificates) which immediately prior to the Effective Time
represented outstanding shares of Scanforms Common Stock, written instructions
and letters of transmittal for exchanging certificates evidencing shares of
Scanforms Common Stock for certificates evidencing the number of whole shares of
Big Flower Common Stock that such holder is entitled to receive in the Merger
based upon the Conversion Number. Holders of Scanforms Common Stock should not
surrender their certificates until they receive such instructions and letters of
transmittal after the Effective Time. See "OTHER TERMS OF THE MERGER AGREEMENT:
Exchange Agent; Procedures for Exchange of Certificates."
In the event that a certificate evidencing shares of Scanforms Common Stock
has been lost, stolen, destroyed or is not properly registered, the holder
thereof is urged, in order to avoid delays and
9
<PAGE>
additional expense, to notify Scanforms' registrar and transfer agent, Registrar
and Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016, Attention:
Diane Sayek, of such fact to arrange for the issuance of replacement
certificates.
CERTAIN CONSEQUENCES OF THE MERGER. Upon consummation of the Merger,
Scanforms will become an indirect, wholly owned Subsidiary of Big Flower,
holders of Scanforms Common Stock will become holders of Big Flower Common
Stock, shares of Scanforms Common Stock will cease to be included in the Nasdaq
Small Cap Market and application promptly will be made to deregister such shares
under the Exchange Act. At the Effective Time, the Certificate of Incorporation
of Merger Sub in effect immediately prior to such time will become the
Certificate of Incorporation of the Surviving Corporation, and the by-laws of
Merger Sub in effect immediately prior to such time will become the by-laws of
the Surviving Corporation, in each case until thereafter amended or restated.
See "THE MERGER: General; Stock Exchange Listing; Deregistration of Scanforms
Common Stock."
PERCENTAGE OWNERSHIP INTEREST OF SCANFORMS STOCKHOLDERS AFTER THE
MERGER. Based on the number of shares of Scanforms Common Stock outstanding on
the Record Date and assuming the issuance of approximately 1,549,614 shares of
Big Flower Common Stock based on a Conversion Number of 0.4423, upon
consummation of the Merger there will be approximately 16,265,359 shares of Big
Flower Common Stock outstanding at the Effective Time, of which the former
stockholders of Scanforms will own approximately 9.5% (approximately 9.0% on a
fully diluted basis assuming (i) the exercise of all currently outstanding
options to purchase shares of Big Flower Common Stock immediately following the
Effective Time, (ii) the exchange of all outstanding options to purchase
Scanforms Common Stock for options to purchase Big Flower Common Stock and (iii)
the exercise of such options immediately following the Effective Time). See
"OTHER TERMS OF THE MERGER AGREEMENT: Stock Options."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS. It is a condition to
consummation of the Merger that Scanforms receive an opinion from its tax
counsel to the effect that, among other things, the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and no gain or loss will be recognized by the
stockholders of Scanforms upon the exchange of their shares of Scanforms Common
Stock solely for shares of Big Flower Common Stock pursuant to the Merger,
except with respect to cash, if any, received in lieu of fractional shares of
Big Flower Common Stock. See "THE MERGER: Certain Federal Income Tax
Considerations" and "OTHER TERMS OF THE MERGER AGREEMENT: Conditions Precedent
to the Merger."
ANTICIPATED ACCOUNTING TREATMENT. The Merger is expected to qualify as a
pooling of interests for accounting and financial reporting purposes. It is a
condition to the consummation of the Merger that Big Flower receive an opinion
of Deloitte & Touche LLP, Big Flower's independent auditors, that the Merger
will qualify for pooling of interests accounting treatment. See "THE MERGER:
Anticipated Accounting Treatment" and "OTHER TERMS OF THE MERGER: Conditions
Precedent to the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER. In considering the
recommendation of Scanforms' Board of Directors, holders of Scanforms Common
Stock should consider that certain of Scanforms' executive officers and
directors have certain interests in the Merger that are in addition to their
interests as stockholders of Scanforms. See "THE MERGER: Conflicts of Interest."
CONDITIONS TO THE MERGER. The obligations of Big Flower, Merger Sub and
Scanforms to consummate the Merger are subject to the satisfaction of certain
conditions, including approval and adoption of the Merger Agreement by the
requisite vote of the holders of Scanforms Common Stock; approval for listing on
the NYSE of the shares of Big Flower Common Stock issuable in the Merger; any
required governmental approvals having been obtained; there not having been
issued or in effect any provision of any applicable law or regulation or any
judgment, injunction, order or decree prohibiting
10
<PAGE>
consummation of the Merger (or any of the transactions contemplated by the
Merger Agreement); and the Registration Statement (of which this Proxy
Statement/Prospectus is a part) having become effective under the Securities Act
and no order suspending such effectiveness having been issued and remaining in
effect.
The obligations of Big Flower and Merger Sub to consummate the Merger are
subject to the satisfaction of certain conditions, including, among others, the
accuracy in all material respects of the representations and warranties of
Scanforms and the performance in all material respects of the covenants and
obligations of Scanforms under the Merger Agreement; the receipt of a letter
agreeing to certain matters to ensure the pooling treatment of the Merger from
affiliates of the Company; there having been no event or occurrence which has
caused, or would reasonably be expected to have, a material adverse effect on
Scanforms, including with respect to revenues from its largest customer and
earnings for its 1996 fiscal year; certain specified financial conditions having
been met; appraisal rights not having been perfected by holders of more than
225,000 shares of Scanforms Common Stock; the receipt of an opinion of counsel
to Scanforms; certain consents having been received under agreements to which
Scanforms is a party and from holders of options to purchase Scanforms Common
Stock to exchange such options for options to purchase Big Flower Common Stock;
Big Flower being satisfied that Scanforms' relationship with its largest
customer will continue on favorable terms after the Merger; and the entry into
employment and non-competition agreements by certain officers and employees of
Scanforms. See "OTHER TERMS OF THE MERGER AGREEMENT: Conditions Precedent to the
Merger."
The obligations of Scanforms to consummate the Merger are subject to the
satisfaction of certain conditions, including, among others, the accuracy in all
material respects of the representations and warranties of Big Flower and Merger
Sub and the performance in all material respects of the covenants and
obligations of Big Flower and Merger Sub under the Merger Agreement; the receipt
by Scanforms of the tax opinion described above; the receipt of a letter from
affiliates of Big Flower agreeing to certain matters to ensure pooling treatment
of the Merger; and the receipt of an opinion from counsel to Big Flower as to
certain matters.
The foregoing conditions to the Merger, except those conditions which cannot
be waived as a practical matter to permit consummation of the Merger or cannot
be waived under applicable law, are subject to waiver by Big Flower, Merger Sub
and Scanforms, as applicable, at any time prior to the Effective Time.
TERMINATION OF THE MERGER AGREEMENT; FEES AND EXPENSES. The Merger
Agreement may be terminated and the Merger may be abandoned at any time prior to
the Effective Time (i) by the mutual written consent of Scanforms and Big
Flower; (ii) by either Scanforms or Big Flower if the Merger has not been
consummated on or prior to January 31, 1997 (the "Outside Termination Date"),
subject to certain limitations; (iii) by either Scanforms or Big Flower if any
law or regulation that makes consummation of the Merger illegal is in effect or
if there is entered a final non-appealable judgment, injunction, order or decree
enjoining Big Flower or Scanforms from consummating the Merger; (iv) by Big
Flower or Scanforms, if there has been a breach of any representation, warranty,
covenant or agreement by the other and such breach has not been cured within
specified time periods; (v) by Big Flower, if (A) the Board of Directors of
Scanforms shall not have recommended the Merger to Scanforms' stockholders or
(B) the Board of Directors of Scanforms has withdrawn or modified in a manner
adverse to Big Flower its recommendation of the Merger or approval of the Merger
Agreement; (vi) by Big Flower or Scanforms, if Scanforms' Board of Directors
determines that an Acquisition Proposal (as hereinafter defined) is a Superior
Proposal (as hereinafter defined) provided that Scanforms complies with certain
notification and procedural requirements and requirements regarding
non-solicitation of an Acquisition Proposal; (vii) by Big Flower or Scanforms,
if following the receipt of an Acquisition Proposal, Scanforms' stockholders do
not approve and adopt the Merger Agreement at the Special Meeting even though
Big Flower has delivered to Scanforms its proxy to vote
11
<PAGE>
the Optioned Shares (as hereinafter defined) in favor of approval and adoption
of the Merger Agreement; (vii) by Big Flower, if the Average Stock Price is more
than $16.50 or (viii) by Scanforms, if the Average Stock Price is less than
$11.50. If the Merger Agreement is terminated for the reasons specified in
clause (v)(A) or (vi) above, Scanforms will be obligated to make a payment of
$750,000 to Big Flower simultaneously with such termination. See "OTHER TERMS OF
THE MERGER AGREEMENT: Termination; Termination Fees and Expenses."
APPRAISAL RIGHTS. Holders of Scanforms Common Stock are entitled to
dissenters' rights of appraisal, if duly asserted and perfected, under the DGCL,
in connection with the Merger. See "THE MERGER: Appraisal Rights."
NO SOLICITATION. Pursuant to the Merger Agreement, Scanforms has agreed
that neither Scanforms nor any of its representatives will (i) solicit, initiate
or encourage any Acquisition Proposal, (ii) engage in or continue negotiations
or discussions with, or provide any information to, any third party who has made
or indicates any intention to make an Acquisition Proposal, or (iii) take any
steps in furtherance of the transactions referred to in the SCFM Agreement (as
hereinafter defined); provided that if Scanforms' Board of Directors determines,
based upon the advice of outside legal counsel to Scanforms, that the failure to
engage in such negotiations or discussions or to provide such information access
would violate the fiduciary duties of Scanforms' Board of Directors under
applicable law, Scanforms may, in response to an unsolicited Acquisition
Proposal and subject to compliance with certain conditions, furnish information
with respect to Scanforms and participate in negotiations regarding such
Acquisition Proposal.
COMPARISON OF STOCKHOLDERS' RIGHTS. Upon consummation of the Merger,
holders of Scanforms Common Stock will become stockholders of Big Flower. Big
Flower and Scanforms are both Delaware corporations. Accordingly, the
differences between the rights of holders of shares of Big Flower Common Stock
and the rights of holders of shares of Scanforms Common Stock arise solely from
distinctions between the respective certificates of incorporation and by-laws of
Big Flower and Scanforms and issuance of Rights (as hereinafter defined) to
holders of shares of Big Flower Common Stock. See "COMPARISON OF THE RIGHTS OF
HOLDERS OF BIG FLOWER COMMON STOCK AND SCANFORMS COMMON STOCK" for a description
of such differences.
12
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
SELECTED FINANCIAL DATA; SELECTED PRO FORMA FINANCIAL DATA
The following tables set forth selected historical financial data of
Treasure Chest and its Subsidiaries prior to their acquisition by Big Flower
("Predecessor Treasure Chest") (which occurred on August 12, 1993) and of Big
Flower and its Subsidiaries (including Treasure Chest following Big Flower's
acquisition of Treasure Chest) and pro forma financial data of Big Flower as
adjusted for the transactions described and using the procedures set forth in
"PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION", including the proposed
acquisition of PrintCo., Inc. as described under "RECENT DEVELOPMENTS."
The selected historical operating and balance sheet data as of and for the
fiscal year ended June 30, 1993 and for the 42 days ended August 11, 1993 were
derived from the audited consolidated financial statements of Predecessor
Treasure Chest. The selected historical financial data of Big Flower as of and
for the 323 days ended June 30, 1994, for the fiscal year ended June 30, 1995
and for the six months ended December 31, 1995 were derived from the audited
consolidated financial statements of Big Flower. The selected historical
financial data of Big Flower for the six months ended June 30, 1995 and 1996 was
derived from the unaudited consolidated financial statements of Big Flower,
which in the opinion of management, include all adjustments (consisting only of
normal recurring accruals) necessary for the fair presentation of financial data
for such periods. The results of the interim periods are not necessarily
indicative of the results to be expected for the full fiscal year. Such data has
been derived from, and should be read in conjunction with, the audited
consolidated financial statements and other financial information contained in
the Big Flower 10K and the unaudited consolidated interim financial statements
contained in the Big Flower 10Q, including the notes thereto, incorporated by
reference herein. The selected historical financial information should also be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the Big Flower 10K and the Big
Flower 10Q, incorporated by reference herein. See "AVAILABLE INFORMATION" and
"INCORPORATION OF DOCUMENTS BY REFERENCE."
The pro forma balance sheet data as of June 30, 1996 and the pro forma
operating data of Big Flower for the years ended June 30, 1993, 1994 and 1995,
the six months ended December 31, 1995 and the six months ended June 30, 1996
present the selected historical financial data of Big Flower as adjusted for the
transactions described, using the procedures set forth in and should be read in
conjunction with the "PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION"
included within this Proxy Statement/Prospectus.
13
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
SELECTED FINANCIAL DATA; SELECTED PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
Big Flower
------------------------------------------------------------------------------------
Predecessor Pro Forma
Treasure Chest ------------------------------ ----------------------------------
------------------ Year Ended
YEAR 42 DAYS 323 DAYS YEAR Six Months Ended ----------------------------------
ENDED ENDED ENDED ENDED ---------------------------- June 30,
JUNE 30, AUG. 11, JUNE 30, JUNE 30, DEC. 31, June 30, June 30, June 30, 1994 June 30,
1993 1993 1994 1995 1995 (d) 1995 1996 1993 (b) (b,c) 1995
-------- -------- -------- -------- -------- -------- -------- --------- --------- ----------
(in thousands, except for per share data)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement
Data:
Net sales.......... $555,013 $59,584 $565,046 $896,595 $532,352 $440,068 $514,580 $ 22,050 $587,630 $1,263,858
Income (loss)
before income
taxes and
extraordinary
item.............. 10,204 (228) (2,678 ) 2,793 10,385 (842 ) (6,945 ) 1,111 (550) 19,210
Provision (benefit)
for income
taxes............. 5,519 (89) 1,764 5,839 5,329 3,247 (3,473 ) 479 2,466 12,542
Income (loss)
before
extraordinary
item.............. 4,685 (139) (4,442 ) (3,046 ) 5,056 (4,089 ) (3,472 ) 632 (3,016) 6,668
Extraordinary item,
net of income
taxes (a)......... (19,248 ) (1,892 )
Net income
(loss)............ 4,685 (139) (4,442 ) (3,046 ) (14,192 ) (4,089 ) (5,364 )
Net income (loss)
available to
common
stockholders...... 4,685 (139) (4,442 ) (3,046 ) (15,874 ) (4,089 ) (5,364 )
Balance Sheet Data (at end of period):
Total assets....... $160,356 $505,127 $486,502 $554,088 $486,502 $650,715
Total long-term
debt.............. 34,485 328,788 297,976 270,442 297,976 383,084
Other long-term
liabilities....... 24,935 26,060 25,304 26,060 37,706
Redeemable
preferred stock of
a subsidiary...... 16,913 19,357 19,357
Common
stockholders'
equity............ 32,663 15,773 11,483 77,931 11,483 77,159
Common stock
subject to
redemption........ 1,648 2,782 1,011 2,782 1,064
Per Share Data(e):
Income (loss)
before
extraordinary item
per common and
common share
equivalent........ $ (0.46 ) $ (0.28 ) $ 0.28 $ (0.38 ) $ (0.21 ) $ 0.39 $ (0.27) $ 0.37
Net income (loss)
per common and
common share
equivalent........ (0.46 ) (0.28 ) (1.29 ) (0.38 ) (0.32 )
Book value (at end
of
period)(a)(f)..... 1.63 1.06 6.34 1.06 4.63
<CAPTION>
Six Months Ended
---------------------
Dec. 31, June 30,
1995 (d) 1996
--------- ---------
<S> <C> <C>
Income Statement
Data:
Net sales.......... $764,422 $635,953
Income (loss)
before income
taxes and
extraordinary
item.............. 27,157 3,197
Provision (benefit)
for income
taxes............. 11,964 1,225
Income (loss)
before
extraordinary
item.............. 15,193 1,972
Extraordinary item,
net of income
taxes (a).........
Net income
(loss)............
Net income (loss)
available to
common
stockholders......
Balance Sheet Data (at end of period):
Total assets....... $734,893
Total long-term
debt.............. 442,342
Other long-term
liabilities....... 39,964
Redeemable
preferred stock of
a subsidiary......
Common
stockholders'
equity............ 83,626
Common stock
subject to
redemption........ 1,064
Per Share Data(e):
Income (loss)
before
extraordinary item
per common and
common share
equivalent........ $ 0.82 $ 0.11
Net income (loss)
per common and
common share
equivalent........
Book value (at end
of
period)(a)(f)..... 4.57
</TABLE>
- ----------------------------------------
(a) Big Flower's historical net loss for the six months ended December 31, 1995
includes a $19,248,000 extraordinary loss on extinguishment of debt and
termination of swap agreement. Big Flower's historical net loss for the six
months ended June 30, 1996 includes a $1,892,000 extraordinary loss on
extinguishment of debt.
(b) The pro forma operating data for the year ended June 30, 1993 reflect only
the operations of Scanforms because Big Flower was not formed until August
12, 1993. The pro forma operating data for the year ended June 30, 1994
include the results of operations of Big Flower for the 323 days since its
formation on August 12, 1993. See "PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION".
(c) The pro forma net loss for the year ended June 30, 1994 is presented prior
to a $261,000 cumulative effect of an accounting change recorded by
Scanforms.
(d) Net income (loss) available to common stockholders for the six months ended
December 31, 1995 includes the effect of a $1,682,000 premium on redemption
of preferred stock of a subsidiary.
(e) Big Flower and Predecessor Treasure Chest did not pay any dividends during
the periods presented.
(f) Book value calculated as common stockholders' equity at end of period
divided by weighted average common shares outstanding during the period.
14
<PAGE>
SCANFORMS, INC.
SELECTED FINANCIAL DATA
The following is a summary of selected historical financial data for
Scanforms. The selected historical financial data for the fiscal years ended
September 29, 1991; October 4, 1992; October 3, 1993; October 2, 1994 and
October 1, 1995 were derived from the audited consolidated financial statements
of Scanforms. The selected historical financial data of Scanforms for the
thirty-nine weeks ended July 2, 1995 and June 30, 1996 were derived from the
unaudited financial statements of Scanforms, which, in the opinion of Scanforms
management, include all adjustments (consisting only of normal recurring
accruals) necessary for the fair presentation of the financial data for such
periods. The results of the interim periods are not necessarily indicative of
the results to be expected for the full fiscal year. Such data has been derived
from, and should be read in conjunction with, the audited consolidated financial
statements and other financial information contained in the Scanforms 10K and
the unaudited consolidated interim financial statements contained in the
Scanforms 10Q, including the notes thereto, incorporated by reference herein and
delivered to Scanforms stockholders herewith. The selected historical financial
information should also be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in the
Scanforms 10K and the Scanforms 10Q, incorporated by reference herein and
delivered to Scanforms stockholders herewith. See "AVAILABLE INFORMATION" and
"INCORPORATION OF DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
FISCAL YEAR ENDED ENDED
----------------------------------------------------- ----------------------
SEPT. 29 OCT. 4, OCT. 3, OCT. 2, OCT. 1, JULY 2, JUNE 30,
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales.................... $ 19,322 $ 19,302 $ 22,488 $ 22,236 $ 24,519 $ 18,596 $ 24,671
Income (loss) before
cumulative effect of
accounting change........... (1,108) 304 775 1,424 1,571 1,116 2,585
Net income (loss)............ (1,108) 304 775 1,164 1,571 1,116 2,585
Balance Sheet Data (at end of period):
Total assets................. $ 14,942 $ 13,826 $ 13,618 $ 16,334 $ 16,693 $ 16,437 $ 23,590
Total long-term debt......... 7,210 6,043 3,568 3,152 3,901 3,959 4,188
Stockholders' equity......... 1,401 1,687 2,698 3,985 5,565 5,109 8,152
Per Share Data:(1)
Income per common and common
share equivalent before
cumulative effect of
accounting change........... $ (0.36) $ 0.10 $ 0.22 $ 0.39 $ 0.43 $ 0.30 $ 0.70
Cumulative effect of
accounting change........... (0.07 (2)
Net income (loss) per common
and common share equivalent
(3)......................... (0.36) 0.10 0.22 0.32 0.43 0.30 0.70
Book value (at end of
period) (4)................. 0.45 0.56 0.78 1.10 1.52 1.40 2.20
</TABLE>
(1) Scanforms did not pay any dividends during the periods presented.
(2) Resulting from adoption of Statement of Financial Accounting Standards No.
109.
(3) Presented on a fully diluted basis. Primary earnings per common and common
equivalent share are equivalent to the fully diluted amounts presented
except for the year ended October 3, 1993, for which primary earnings per
common and common equivalent share is $0.23.
(4) Book value calculated as stockholders' equity at end of period divided by
weighted average common shares outstanding during the period.
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<PAGE>
MARKET PRICES AND DIVIDEND POLICY
Big Flower Common Stock is traded on the NYSE under the symbol "BGF".
Scanforms Common Stock is traded in the Nasdaq Small Cap Market under the symbol
"SCFM". Big Flower Common Stock first traded on the NYSE on November 22, 1995
following the initial public offering of Big Flower Common Stock. Prior to
November 22, 1995, there was no established trading market for Big Flower Common
Stock. The following table sets forth, for the calendar quarters indicated, the
range of the high and low sales prices of Big Flower Common Stock and high ask
and low bid prices for Scanforms Common Stock, as reported on the NYSE Composite
Transactions Tape and on the Nasdaq Small Cap Market, respectively.
<TABLE>
<CAPTION>
SCANFORMS BIG FLOWER
COMMON STOCK COMMON STOCK
------------------ ------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
1994
First Quarter......................... $ 2 7/16 $ 1 9/16 -- --
Second Quarter........................ 2 3/16 1 3/4 -- --
Third Quarter......................... 1 13/16 1 1/2 -- --
Fourth Quarter........................ 2 1 1/2 -- --
1995
First Quarter......................... $ 2 7/8 $ 1 11/16 -- --
Second Quarter........................ 2 3/4 2 3/16 -- --
Third Quarter......................... 2 5/8 2 -- --
Fourth Quarter........................ 2 13/16 2 1/8 $15 3/4 $15
1996
First Quarter......................... $ 3 15/32 $ 2 11/16 $19 1/4 $10 5/8
Second Quarter........................ 5 1/8 3 3/8 14 5/8 11 5/8
Third Quarter (through September 5,
1996)................................ 5 1/2 4 1/2 14 1/8 12 3/8
</TABLE>
Big Flower has never paid cash dividends on Big Flower Common Stock. Big
Flower intends to continue this policy for the foreseeable future in order to
retain earnings for repayment of indebtedness, investment in its business and
acquisitions. The Board of Directors of Scanforms has not declared a dividend
for several years.
Set forth below are the last reported sale prices of Big Flower Common Stock
and last reported high ask and low bid prices for Scanforms Common Stock on June
14, 1996, the last trading day prior to the announcement that Big Flower and
Scanforms had agreed in principle to the acquisition of Scanforms by Big Flower,
and on July 31, 1996, the last trading day prior to the execution of the Merger
Agreement, respectively, as reported on the NYSE Composite Transactions Tape and
in the Nasdaq Small Cap Market, respectively, and the equivalent pro forma high
bid price of Scanforms Common Stock on such dates, as determined by multiplying
such last reported sale prices of Big Flower Common Stock on such dates,
respectively, by an assumed Conversion Number of 0.4144 for June 14, 1996 and
0.4423 for July 31, 1996.
<TABLE>
<CAPTION>
JUNE 14, 1996 JULY 31, 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
Big Flower Common Stock........................ $ 13 7/8 $ 12 3/4
Scanforms Common Stock......................... $ 3 9/16 $ 3 9/16 $ 5 1/4 $ 4 7/8
Scanforms Equivalent........................... $ 5.75 $ 5.64
</TABLE>
On September 5, 1996, the last trading day prior to the date of this Proxy
Statement/Prospectus, the last reported sales price of Big Flower Common Stock
and last reported high ask and low bid prices of Scanforms Common Stock, as
reported on the NYSE Composite Transactions Tape and the Nasdaq Small Cap
Market, respectively, were $13 per share and $5 per share.
The market price of shares of Big Flower Common Stock is inherently subject
to fluctuation. Accordingly, the value of the shares of Big Flower Common Stock
that holders of shares of Scanforms Common Stock will receive in the Merger may
increase or decrease prior to the Effective Time. Scanforms stockholders are
urged to obtain current market quotations for Big Flower Common Stock.
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<PAGE>
RISK FACTORS
In addition to the other information set forth or incorporated by reference
in this Proxy Statement/Prospectus, in considering whether to vote in favor of
the approval and adoption of the Merger Agreement, the stockholders of Scanforms
should consider the following matters.
FLUCTUATION OF RELATIVE STOCK PRICES. Adjustments to the number of shares
to be received by Scanforms stockholders in the Merger are limited in that such
number is subject to a maximum of 0.4423 shares, which would be payable if the
Average Stock Price were $13.00 or less, and a minimum of 0.3833 shares, which
would be payable if the Average Stock Price were $15.00 or more, subject to the
right of Big Flower to terminate the Merger Agreement if the Average Stock Price
is more than $16.50 and the right of Scanforms to terminate the Merger Agreement
if the Average Stock Price is less than $11.50. In either event, however, the
value of the Merger consideration at the Effective Time would reflect the market
price of Big Flower Common Stock at the Effective Time and could be higher or
lower than the value based upon the Average Stock Price. Such variations may be
the result of changes in the business, operations or prospects of Big Flower or
Scanforms, market assessments of the likelihood that the Merger will be
consummated and the timing thereof, general market and economic conditions and
other factors. Because the Effective Time may occur at a date later than the
Special Meeting, there can be no assurance that the price of Big Flower Common
Stock on the date of the Special Meeting will be indicative of its price at the
Effective Time. The Effective Time will occur as soon as practicable following
the Special Meeting and the satisfaction or waiver of the other conditions set
forth in the Merger Agreement. Stockholders of Scanforms are urged to obtain
current market quotations for Big Flower Common Stock. See "OTHER TERMS OF THE
MERGER AGREEMENT: Conditions Precedent to the Merger; Termination."
CONFLICTS OF INTEREST. In considering the recommendation of the Merger by
the Scanforms Board of Directors, the stockholders of Scanforms should be aware
that certain executive officers of Scanforms may be deemed to have conflicts of
interest with respect to the Merger. Such interests, together with other
relevant factors, were considered by the Scanforms Board of Directors in
recommending the Merger to the stockholders of Scanforms and in approving the
Merger Agreement. See "THE MERGER: Conflicts of Interest."
RAW MATERIALS -- PAPER. Big Flower's results of operations are
significantly impacted by the cost of paper, and the ability of Big Flower to
pass along any increases in the cost of paper to its customers. During the
twelve months ended June 30, 1995, Big Flower experienced substantial increases
in the cost of its paper but was able to effectively pass on the paper cost
increases to it customers. In early 1996, reduced demand has made certain grades
of paper more readily available, which has resulted in paper price decreases
with respect to such grades. To the extent that there are future paper cost
increases, and Big Flower is not able to pass such increases to its customers or
its customers reduce the size of their print advertising programs, Big Flower's
results of operations could be materially adversely affected.
Moreover, any loss of the sources for paper supply or any disruption in such
sources' business or failure by them to meet Big Flower's product needs on a
timely basis could cause, at a minimum, temporary shortages in needed materials
which could have a material adverse effect on Big Flower's results of
operations. Although Big Flower actively manages its paper supply and has
established strong relationships with its suppliers, which include many of the
leading paper companies in North America, there can be no assurance that Big
Flower's sources of supply for its paper will be adequate or, in the event that
such sources are not adequate, that alternative sources can be developed in a
timely manner.
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<PAGE>
LEVEL OF INDEBTEDNESS. In connection with the acquisitions of Treasure
Chest, Laser Tech, Webcraft and related companies, Big Flower has incurred a
significant amount of indebtedness. At June 30, 1996 Big Flower's indebtedness
was approximately $384.6 million and its total stockholders' equity was
approximately $77.2 million. In addition, Big Flower presently has significant
commitments under operating leases and approximately $75 million was outstanding
under the A/R Securitization as hereinafter defined. At June 30, 1996, Big
Flower had approximately $149.5 million of borrowing capacity for acquisitions,
working capital and capital expenditures under its loan agreements. In addition,
Big Flower could incur additional indebtedness, which amounts could be
significant, in connection with any future acquisitions. The level of Big
Flower's indebtedness could have important consequences to stockholders,
including: (i) a substantial portion of Big Flower's cash flow from operations
must be dedicated to debt service and will not be available for other purposes;
(ii) Big Flower's ability to obtain additional debt financing in the future for
working capital, capital expenditures or acquisitions may be limited; (iii) Big
Flower's level of indebtedness could limit its flexibility in reacting to
changes in the printing industry and economic conditions generally; and (iv) Big
Flower is subject to restrictions on its ability to pay dividends. Certain of
Big Flower's competitors currently operate on a less leveraged basis, and have
significantly greater operating and financing flexibility, than Big Flower.
RECENT DEVELOPMENTS
PRINTCO ACQUISITION
On June 6, 1996, Big Flower entered into a letter of intent (the "Letter of
Intent"), pursuant to which Big Flower intends to purchase (the "Printco
Acquisition") all of the capital stock of PrintCo., Inc., a Michigan corporation
("Printco"), and certain real estate assets of an affiliated Printco entity
("Park Properties") which are used in Printco's business.
Headquartered in Greenville, Michigan, Printco is a leading producer of
newspaper advertising inserts and other newspaper products in the Midwest.
Printco was founded in 1968 by Mr. John Stafford and currently operates two
printing facilities located in each of Greenville and Niles, Michigan. Printco
is a closely held corporation, led by a seasoned management team. Big Flower
believes that the Printco Acquisition would complement the business of Treasure
Chest.
The aggregate purchase price for the Printco Acquisition is $22.5 million in
cash plus the assumption and/or repayment of $27.1 million of debt and Big
Flower's repayment of up to $3.1 million of the outstanding balance under an
existing mortgage with respect to such real estate assets. In connection with
the Printco Acquisition, the existing Printco management team will enter into
employment agreements with Treasure Chest.
The consummation of the Printco Acquisition is subject to a number of
conditions set forth in the Letter of Intent, including satisfactory completion
of Big Flower's due diligence review of Printco, the negotiation and execution
of definitive purchase documentation, approval by the Board of Directors of Big
Flower, and Printco's achieving certain financial and performance goals. For
certain financial and pro forma information regarding Printco and the Printco
Acquisition, see "SUMMARY: Big Flower Press Holdings, Inc. Selected Financial
Data; Selected Pro Forma Financial Data" and "PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION."
18
<PAGE>
WHILE BIG FLOWER CURRENTLY INTENDS TO CONSUMMATE THE PRINTCO ACQUISITION IN
THE THIRD QUARTER OF 1996, THERE CAN BE NO ASSURANCE THAT THE PRINTCO
ACQUISITION WILL BE CONSUMMATED, WHEN IT WILL BE CONSUMMATED, AND IF
CONSUMMATED, THAT THE FINAL TERMS OF THE PRINTCO ACQUISITION WILL NOT DIFFER
FROM THOSE SUMMARIZED ABOVE.
SCANFORMS SPECIAL MEETING
PURPOSE
The Special Meeting will be held on Friday, October 4, 1996, at 10:00 a.m.,
local time, to consider and vote upon a proposal to approve and adopt the Merger
Agreement which provides for the merger of an indirect, wholly owned subsidiary
of Big Flower with and into Scanforms. The stockholders of Scanforms will also
consider and take action upon any other business which may properly be brought
before the Special Meeting. The Special Meeting will be held at the offices of
Scanforms located at 181 Rittenhouse Circle, Keystone Park, Bristol,
Pennsylvania.
RECORD DATE; VOTING RIGHTS
The Board of Directors of Scanforms has fixed the close of business on
August 29, 1996 as the Record Date for the determination of holders of
outstanding shares of Scanforms Common Stock entitled to notice of and to vote
at the Special Meeting. On the Record Date, there were 3,503,538 outstanding
shares of Scanforms Common Stock, each of which entitles the holder thereof to
one vote. Under Delaware law, the presence, either in person or by duly executed
proxy, of the holders of a majority of the outstanding shares of Scanforms
Common Stock entitled to vote is necessary to constitute a quorum. Delaware law
requires the affirmative vote of the holders of a majority of the outstanding
shares to approve the Merger Agreement. Scanforms intends to count shares whose
holders either (i) are present in person at the Special Meeting but not voting
or (ii) for which it has received proxies but with respect to which authority
has been withheld to vote on any matter, as present at the Special Meeting only
for purposes of determining the presence or absence of a quorum. Scanforms will
treat broker non-votes in a similar manner.
Mr. Samans owns 1,006,268 shares of Scanforms Common Stock, or approximately
29% of the issued and outstanding shares, and Mr. Carcioppolo owns 550,620
shares, or approximately 16% of the issued and outstanding shares. Each of
Messrs. Samans and Carcioppolo has agreed to vote or cause to be voted all such
shares of Scanforms Common Stock in favor of the Merger Agreement. Accordingly,
the affirmative vote of the holders of an additional 194,882 shares, or
approximately 10% of the outstanding shares not owned by Mr. Samans or Mr.
Carcioppolo, is required to approve and adopt the Merger Agreement.
Holders of shares of Scanforms Common Stock who do not vote in favor of, or
who abstain from voting on, the Merger Agreement and who comply with the
provisions of Section 262 of the DGCL will have the right to receive cash
payment for the "fair value" of their shares. Any stockholder contemplating the
exercise of such appraisal rights should carefully review Section 262 of the
DGCL, particularly the procedural steps required to perfect appraisal rights, a
description of which is provided herein under "THE MERGER: Appraisal Rights." A
stockholder who fails to comply with such procedural requirements may lose such
stockholder's appraisal rights and be entitled to receive the number of whole
shares of Big Flower Common Stock equal to the product of the Conversion Number
and the number of shares of Scanforms Common Stock held by such stockholder, and
cash in lieu of
19
<PAGE>
fractional shares (without interest thereon), for the shares of Scanforms Common
Stock held by such stockholder. See "THE MERGER: Appraisal Rights" and "Section
262 of the Delaware General Corporation Law," attached to this Proxy
Statement/Prospectus as Annex III.
SHARE OWNERSHIP OF MANAGEMENT
At the close of business on the Record Date, the directors and executive
officers of Scanforms (6 as a group) were the beneficial owners of an aggregate
of 1,769,488 shares of Scanforms Common Stock (including 125,000 shares of
Scanforms Common Stock subject to outstanding options, all of which are
presently exercisable), or approximately 48.8% of the issued and outstanding
shares of Scanforms Common Stock (including the 125,000 shares subject to
outstanding options).
PROXIES
All shares of Scanforms Common Stock represented at the Special Meeting by
properly executed proxies received prior to or at the Special Meeting, and not
revoked, will be voted at the Special Meeting in accordance with the
instructions thereon. If no instructions are marked thereon, proxies will be
voted FOR approval of the Merger Agreement except as otherwise set forth in this
Proxy Statement/Prospectus. Such proxies are solicited on behalf of the Board of
Directors of Scanforms.
A proxy given pursuant to this solicitation may be revoked at any time
before it is voted. Proxies may be revoked by (i) delivering to the Secretary of
Scanforms at or before the Special Meeting a written notice of revocation
bearing a later date than the proxy, (ii) duly executing a subsequent proxy
relating to the same shares and delivering it to the Secretary of Scanforms at
or before the Special Meeting or (iii) attending the Special Meeting and voting
in person (although attendance at the Special Meeting will not in and of itself
constitute revocation of a proxy). Any written notice revoking a proxy should be
delivered to Scanforms, Inc., 181 Rittenhouse Circle, Keystone Park, Bristol,
Pennsylvania 19007-0602, Attention: Emma Marie Cocci, Corporate Secretary.
SOLICITATION OF PROXIES
Scanforms will bear the entire cost of solicitation of proxies from holders
of shares of Scanforms Common Stock. Copies of solicitation materials will be
furnished to brokerage houses, fiduciaries and custodians holding in their names
shares of Scanforms Common Stock beneficially owned by others to forward to such
beneficial owners. Scanforms will reimburse persons representing beneficial
owners of shares of Scanforms Common Stock for their expenses in forwarding
solicitation material to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone or personal solicitations by
directors, officers or other regular employees of Scanforms. No additional
compensation will be paid to directors or officers or other regular employees
for such services.
THE MERGER
THE DESCRIPTION OF THE MERGER AND 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 MERGER AGREEMENT, A CONFORMED COPY OF WHICH IS
ATTACHED HERETO AS ANNEX I AND INCORPORATED HEREIN BY REFERENCE.
GENERAL
At the Effective Time, Merger Sub will be merged with and into Scanforms,
with Scanforms continuing as the Surviving Corporation and an indirect, wholly
owned subsidiary of Big Flower. As a
20
<PAGE>
result of the Merger, the separate corporate existence of Merger Sub will cease
and Scanforms will succeed to all the rights and be responsible for all the
obligations of Merger Sub in accordance with the DGCL. Subject to the terms and
conditions of the Merger Agreement, each share of Scanforms Common Stock
outstanding immediately prior to the Effective Time (other than shares of
Scanforms Common Stock held in the treasury of Scanforms, shares of Scanforms
Common Stock as to which dissenters' rights of appraisal have been duly asserted
and perfected under the DGCL and shares owned by Big Flower, Merger Sub or by
any other Subsidiary of Big Flower) will be converted into (i) the right to
receive that number of shares of Big Flower Common Stock equal to the quotient
obtained by dividing $5.75 by the Average Stock Price, provided that if the
Average Stock Price is $13.00 or less, the Conversion Number will be 0.4423, and
if the Average Stock Price is $15.00 or more, the Conversion Number will be
0.3833; and (ii) cash payable in lieu of fractional share interests. At the
Effective Time, all shares of Scanforms Common Stock converted into Big Flower
Common Stock shall be cancelled and retired and cease to exist and each holder
of a certificate representing shares of Scanforms Common Stock will cease to
have any rights with respect to such shares, except the right to receive the
number of shares of Big Flower Common Stock specified above into which the
shares of Scanforms Common Stock have been converted in the Merger, certain
dividend payments, if applicable, and cash in lieu of fractional shares. See
"OTHER TERMS OF THE MERGER AGREEMENT: Conversion of Shares in the Merger; No
Fractional Shares."
BACKGROUND OF THE MERGER
During the latter part of January 1995, Scanforms' Chairman, Robert A.
Samans, had informal conversations with the president of a publicly held company
engaged in the printing industry ("Company A") concerning their respective
businesses. Mr. Samans and the Board of Directors were concerned, at that time,
that Scanforms seemed to be too small, and its market capitalization and market
following seemed to be too modest, for its stock to command the type of
attention and multiples in the market that they felt were warranted for a
quality competitor in the direct mail advertising business. The representative
bid price of the shares of Scanforms on the Nasdaq Small Cap Market during the
last five trading days of January 1995 ranged from $1.69 (on 2,300 shares
traded) to $2.00 per share (on 300 shares traded); moreover, at that time the
stock had a 52-week high/low bid price of $2.38 and $1.50, respectively, and
fewer than 50,000 shares had traded in all but three of the previous 52 weeks.
Scanforms net sales had risen from $19.3 million for fiscal year 1992 to $22.5
million for fiscal 1993 and totaled $22.2 million in 1994; however, net income
had risen almost fourfold (from $.10 to $.39 per share) over that period of
time. The first quarter of fiscal 1995 reflected an increase in net sales, from
approximately $6.5 million for the 1994 first quarter to approximately $7
million in the 1995 period, with an increase in net income of approximately 50%.
The president of Company A advised Mr. Samans in January 1995 that Company A
might be interested in making a merger proposal to Scanforms. On February 2,
1995, a letter of intent was submitted by Company A contemplating a merger of
Scanforms into Company A, with all stockholders of Scanforms receiving the
equivalent of $3.00 value per share in the form of Company A stock valued on the
date of the proposed merger. The proposal sought an option on all shares owned
by Mr. Samans and all of Scanforms' directors and officers and required
exclusive transactional rights through June 30, 1995. It was also a condition of
Company A's proposal that satisfactory agreements be reached for the continued
employment of Mr. Samans, as well as other unnamed employees.
On February 16, 1995, Scanforms received an unsolicited preliminary
discussion point memorandum from a privately held company engaged in the
printing industry ("Company B") suggesting a merger with Scanforms which, in
effect, would cause the stockholders of Scanforms to be continuing stockholders
in the merged entity along with the few existing stockholders of Company B. The
21
<PAGE>
proposal also envisioned a significantly disproportionate (I.E., higher)
multiple of earnings for valuation of the stock of Company B than for the shares
of Scanforms Common Stock and contained special provisions relating to Mr.
Samans, including an option to sell his shares in the resulting entity back to
that entity. This preliminary discussion memorandum, though considered by the
Board of Directors of Scanforms, did not result in any subsequent proposal or
offer.
A special meeting of the Board of Directors was held on February 20, 1995 to
discuss the above developments. The Board of Directors' consensus was that
Scanforms' prospects for the future were favorable and that, while the Board of
Directors was willing to explore a sale or change of control transaction, the
Board of Directors would approve such a transaction only if it resulted in a
price or value to Scanforms' stockholders which was fair from a financial point
of view and sufficiently attractive to justify Scanforms in changing from its
current course of operating and growing on an independent basis. Mr. Samans
advised the Board of Directors that Company A appeared to be willing to increase
its per share valuation of Scanforms Common Stock to $3.25 in value of Company A
stock, but insisted on a $500,000 fee in the event the transaction did not occur
("break-up fee") and an agreement by Scanforms not to solicit other offers ("no
solicitation agreement"). At that meeting, in light of Company A's interest in
acquiring an option on Mr. Samans' shares and the condition to Company A's
proposal that a satisfactory employment and non-competition agreement be
negotiated with Mr. Samans, the Board of Directors was advised that it was
appropriate for it to create a committee of independent Board of Directors
members and that a qualified financial advisor should be retained to assist in
evaluating Scanforms and other companies which may express an interest in
acquiring Scanforms, to advise the independent directors and the Board of
Directors, and to render a fairness opinion, if a transaction occurred. Joel R.
Jacks ("Mr. Jacks") and Mr. Carcioppolo were appointed to serve as the members
of a committee of independent directors ("Special Committee"), with Mr. Jacks
serving as Chairman. The Special Committee was asked to recommend to the Board
of Directors from time to time whether Scanforms should pursue any currently
proposed or other sale or change of control transactions or, alternatively,
whether Scanforms should maintain its independent status. In addition, the
Special Committee was authorized to recommend the retention of financial
advisors. It was the expressed sense of the Board of Directors at that meeting
that Scanforms not commit to a change in its independent status, but merely
entertain proposals that may be forthcoming and attempt to avoid the necessity
of entering into any peremptory lock-up or option agreements.
On March 1, 1995, Company A revised its proposed letter of intent, and
reduced the amount of the proposed break-up fee to $100,000 or $350,000,
depending on the circumstances of the termination. On March 2, 1995, Scanforms
issued a press release to the effect that the Board of Directors had received
and was evaluating two merger proposals (I.E., the two proposals referred to
above) and that each contemplated that Scanforms stockholders would own stock in
a merged entity having a market value representing a premium over the closing
price on the date of the press release of $2.25 per share. The release stated
that the Board of Directors was continuing to evaluate the proposals, and any
others that may be presented, but had not determined whether the most desirable
course of action would be to engage in such a transaction or to remain
independent. The release also advised that the Board of Directors had appointed
a Special Committee and that the Special Committee expected to retain a
financial advisory firm.
The Special Committee, as directed at the February 20, 1995 Board of
Directors meeting, conducted a search for a financial advisor, which eventually
resulted in interviews with three investment banking firms. The Special
Committee selected Janney Montgomery primarily on the basis of Janney
Montgomery's presentation, experience and knowledge of the industry in which
Scanforms competes, the quality of the team of personnel that Janney Montgomery
committed to the assignment and its fee structure. On March 2, 1995, the Special
Committee executed an agreement, pursuant to authority of
22
<PAGE>
the Board of Directors, retaining Janney Montgomery as financial advisor to the
Board of Directors. Scanforms issued a press release on March 6, 1995, stating
that Janney Montgomery had been retained to provide assistance to Scanforms in
connection with consideration of any proposals. At a March 14, 1995 meeting of
the Special Committee, a representative of Janney Montgomery advised that, based
on a preliminary review, the $3.25 per share revised proposal from Company A
would appear to be at the bottom end of the range of fairness.
Janney Montgomery, on March 20, 1995, met with and made a presentation to
Company A in response to Company A's March 1, 1995 revision of its proposed
letter of intent. This resulted in a further revision of Company A's letter of
intent on March 28, 1995, which increased to $3.50 the proposed value of each
Company A share which would be issued to Scanforms stockholders, with certain
provisions which would adjust that value if the price of Company A stock varied
within a 30% price range. The proposed break-up fee was again increased to
$500,000.
At a combined meeting of the Board of Directors and the Special Committee on
April 5, 1995, it was reported that discussions with Company A had been
proceeding on two levels; first, on the proposal to merge and, secondly, on a
proposal by Company A to Mr. Samans which would provide various benefits to Mr.
Samans, such as a continuing equity interest and an employment agreement, as an
inducement for him to remain with Company A after the merger, since it was a
condition to Company A's proposal that Mr. Samans stay on with Company A after
the merger and operate the acquired assets as well as certain assets of Company
A. Mr. Samans advised the Special Committee members at that meeting, and at a
subsequent meeting on April 7, 1995, that Company A had reduced the proposals
concerning his personal involvement from those originally suggested by Company A
and that, while he would consider some reduction in the terms originally
proposed, he would not be interested if he concluded that the proposal to him
were to be materially reduced.
The Board of Directors and the Special Committee met again on May 1, 1995,
at which time Mr. Samans advised that he was unable to reach agreement with
Company A with respect to his personal situation. The Special Committee
determined that, in light of the fact that satisfactory arrangements with Mr.
Samans were a predicate to Company A's proposal, an impasse had developed and
Scanforms should proceed to test the market to determine whether other proposals
for a transaction were forthcoming, again without committing Scanforms to a path
whereby it would lose its independence.
Scanforms, on May 3, 1995, issued its second quarter press release, which
included disclosure that Scanforms was considering two proposals, one of which
had reached an impasse and one for which no offer had yet been received. Similar
language was contained in the Form 10-Q for the second quarter filed with the
Commission in early May 1995.
On August 31, 1995 and October 23, 1995, two additional indications of
interest were received by the Board of Directors, which the Special Committee
considered at meetings held on September 18, 1995 and November 7, 1995,
respectively. The Special Committee determined that neither of these proposals
was in the best interests of Scanforms or its stockholders in light of its
determination that (i) one proposal indicated an interest in engaging in a
merger transaction which would be accompanied by a proposed private placement of
equity securities which would provide cash and stock in the merged entity to the
"inside" stockholders of Scanforms and the owner of the other merging company,
but which would neither provide cash to Scanforms public stockholders nor be
likely to result in the enhancement of the liquidity of the shares in the
marketplace and (ii) the second proposal constituted a proposal to acquire only
two blocks of shares of Scanforms Common Stock: (a) those held by a significant
investor for $2.25 per share, which shares, apparently without the knowledge of
the
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proposing party, were no longer owned by the investor, and (b) the shares of Mr.
Samans and other employees for $3.25 per share; however, the proposal did not
contemplate the acquisition of the shares held by Scanforms public stockholders.
At the September 28, 1995 meeting, the Board of Directors and Special
Committee discussed Janney Montgomery's progress to date. Mr. Jacks reported
that Janney Montgomery had contacted all of the parties identified in the market
test, which consisted of twenty potential merger or acquisition partners.
At the Board of Directors meeting held on November 7, 1995, it was reported
that, on October 24, 1995, Mr. Samans received a proposed term sheet from a
subsidiary of a large financial institution ("Company C"), which had been
contacted by Janney Montgomery. This party indicated an interest in joining with
Mr. Samans and other members of existing management to acquire Scanforms in a
leveraged buyout, whereby (a) Company C would obtain a 57.5% ownership position
in Scanforms' equity in exchange for an investment of $4.8 million in
convertible preferred stock and subordinated debt with stock purchase warrants,
and (b) management (principally Mr. Samans, whose continued employment and
agreement not to compete were required) would receive a 42.5% interest, after
receiving an aggregate of $3.25 per share for 50% of their shares. The proposal
contemplated a cash price to be paid to Scanforms public stockholders (and
management, to the extent noted above) of $3.25 per share. It was the sense of
the Special Committee members at that meeting that the Special Committee would
be interested in further pursuing Company C's proposal provided Mr. Samans
reached agreement on terms with Company C as to his personal involvement with
Company C, as a financial partner, and Mr. Samans' continued management of
Scanforms in the event Company C's proposal were implemented.
Janney Montgomery made a presentation to the Special Committee on November
27, 1995, summarizing its activities to date with respect to all of the twenty
potential merger or acquisition partners which had been approved by Scanforms,
most of whom were strategic buyers. Janney Montgomery stated that five companies
had expressed an interest in receiving additional information. Janney Montgomery
reported that, in the process, it had been advised of several reasons for the
lack of interest by various of the parties that had been approached, such as
that Scanforms was not a good business fit; that Scanforms had experienced
limited growth over the last five years; that there were concerns about the
value and productivity of Scanforms' press equipment; that significant capital
investment would be required to grow Scanforms beyond $30 million of sales; that
there was limited growth potential in Scanforms' present facility; that there
was an expectation of limited internal growth and too much reliance on
acquisitions to expand more rapidly; that there were limited cost savings
resulting from a merger or acquisition; that there were concerns about the
stability of revenues and profit margins; and that there was a concern that the
acquisition price was too high based on preliminary discussions.
On December 1, 1995, Mr. Jacks, as Chairman of the Special Committee, and
Mr. Samans met with two representatives of Company C (Mr. Carcioppolo was
unavailable for health reasons). Mr. Samans advised that the transaction
proposed by Company C, which would involve a joint transaction with Mr. Samans
and members of management, was progressing well and that he believed he could
reach an understanding with Company C on his personal arrangement. Mr. Samans
was then excused from the meeting and Mr. Jacks sought to encourage the
representatives of Company C to attempt to increase the price to stockholders
above the $3.25 per share price which had been previously communicated to him.
During that meeting, Company C's representatives first increased their proposal
to support a cash payment by Scanforms of $3.50 cash per share to the public
stockholders and, after further negotiations, to $3.60 cash per share. Mr. Jacks
advised that he would be satisfied to
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recommend the $3.60 per share price to the Special Committee for approval if it
were also satisfactory, in terms of fairness from a financial point of view, to
Janney Montgomery and, further, if Mr. Samans (and other members of management)
could reach satisfactory terms concerning compensation and an agreement not to
compete.
Shortly after the meeting, Mr. Samans advised members of the Special
Committee, counsel to the Special Committee and Janney Montgomery that one of
Scanforms' largest customers had inquired about the possibility of substantially
increasing its purchase orders for 1996, and perhaps into the first six months
of 1997. Mr. Samans also stated that Mellon Bank, N.A. ("Mellon"), which had
been providing Scanforms current bank financing needs, had advised him that it
was preparing a proposal pursuant to which it would lend to Scanforms all of the
funds needed to permit Scanforms to acquire all of the shares owned by its
stockholders, other than Messrs. Samans and Carcioppolo (together, the
"Management Group"), at $3.60 cash per share, in a management buyout. Mr. Samans
further informed the Special Committee that, in addition to interest payable on
loans to Scanforms, Mellon would require a 7.5% equity interest in Scanforms in
the form of a nominally priced stock purchase warrant, for the purchase of
common stock of the surviving corporation, with the option, after the sixth
anniversary of the issuance of the stock purchase warrant, to sell the stock
purchase warrant to the surviving corporation for the greater of $750,000 or the
fair market value of the stock purchase warrant. Mr. Jacks, in turn, asked
Janney Montgomery to study the financial impact of the new information
concerning the possibility of increased orders, the likely range of change in
the value of the shares of Scanforms Common Stock and what the relative
relationship of the $3.60 proposal from Company C, and possibly from Mellon,
would be to that range.
A meeting of the Board of Directors was held on December 21, 1995, at which
an outline of terms supplied by Mellon was reviewed. Mellon's outline stated an
interest in providing up to $9.5 million to Scanforms, in the form of term,
reducing revolver and existing revolver financing, which would permit the
purchase, through the term loan and reducing revolver loan portion, of
approximately 2.4 million shares of Scanforms Common Stock at $3.60 per share to
facilitate a management buyout pursuant to which Messrs. Samans and Carcioppolo
would own all of the equity of Scanforms, with the revolver to be available to
finance working capital needs. All of these loans were to be on a five-year
basis, with different amortization provisions. The Mellon proposal provided for
a stock purchase warrant to be issued to Mellon for 7.5% of Scanforms' equity,
priced on a nominal basis, for a ten-year term, with a put option after year
five at a value to be determined by the fair market value as determined by an
independent third party valuation. The proposal provided that all public
stockholders of Scanforms would receive $3.60 cash per share, and that Messrs.
Samans and Carcioppolo would each be able to include in the transaction a value
of $500,000 of his shares (approximately 138,888 shares each at the $3.60
price). Mr. Jacks stated that a ten-month search for potential acquirors or
merger partners conducted by Scanforms, its Special Committee and Janney
Montgomery had resulted in only two current viable proposals at $3.60 cash per
share, the highest price yet offered, which, by their nature, constituted
management buyout proposals funded with cash by third parties; as such, he
noted, the two proposals were addressed to Mr. Samans (and management and/or Mr.
Carcioppolo). Mr. Jacks stated that either such proposal would, by definition,
require those persons who are to participate in a leveraged buyout to determine
which proposal they wished to embrace and to develop that proposal to the point
where it is appropriate to bring to the Special Committee. Since the Mellon
proposal involved Mr. Carcioppolo as a continuing owner of Scanforms, Mr.
Carcioppolo would no longer be independent. Accordingly, Mr. Carcioppolo
resigned as a member of the Special Committee and from that point forward, Mr.
Jacks has served as the sole member of the Special Committee.
At a January 21, 1996 Board of Directors meeting, the Board of Directors
discussed the status of the business opportunity concerning the possible order
increase from a major customer. Mr. Jacks
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instructed that both Company C and Mellon be given equal access to information
concerning the possible increase in orders from the major customer and current
financial information about Scanforms' first quarter results.
On January 29, 1996, Scanforms announced by press release a 14.9% increase
in net sales and a 42% increase in net income (from $.19 to $.27 per share) for
the first quarter ended December 31, 1995. The results were attributed in part
to increased customer demand, more efficient productivity and declining paper
prices.
The Special Committee was advised during the last week of January 1996 that
the Management Group intended to present a proposal, financed by Mellon, which
would result in Scanforms being privately held. Accordingly, the Special
Committee determined that it would be prudent for Scanforms to issue a press
release so notifying the public. The release, dated February 1, 1996, stated
that Scanforms had been advised that it would be receiving a management buyout
proposal from Messrs. Samans and Carcioppolo based on the $3.60 price, subject
to the ability of the Management Group to finalize financing arrangements with
Mellon, receipt of a fairness opinion, and approval by the Special Committee and
the Board of Directors of a formal proposal presented by the Management Group
and, further, subject to stockholder approval.
The Board of Directors met again on February 12, 1996 to consider the
proposal submitted on February 9, 1996 by Messrs. Samans and Carcioppolo (the
"Management Proposal") based on the proposed Mellon financing terms. At this
meeting, Mr. Jacks asked Messrs. Samans and Carcioppolo, and their counsel, to
provide full details and explanations with respect to their proposal. Extensive
discussion ensued concerning the proposed financing by Mellon; the likelihood of
the transaction closing; the amount of stock that Messrs. Samans and Carcioppolo
intended to sell for cash in connection with the transaction; the possibility of
the payment by Scanforms of break-up fees in the event of a more attractive
offer; Scanforms' willingness to pay or reimburse expenses incurred by or on
behalf of the Management Group or SCFM Corp., a company incorporated by the
Management Group for the purpose of effecting the Management Proposal ("SCFM"),
in connection with the transaction; and the terms of the Management Proposal.
The proposed merger agreement was reviewed in detail. After discussion, Mr.
Jacks advised that he was opposed to a break-up fee but agreeable to having
Scanforms facilitate a transaction which is in the best interests of the
stockholders by paying the bank commitment fee of $85,000, as well as the legal
fees of Mellon and the Management Group and other professional fees which it
might be necessary for the Management Group to incur. Mr. Jacks stated that the
absence of a break-up or topping fee provision in the merger agreement beyond
such an expense reimbursement provision would create an atmosphere which he felt
would encourage other parties who desired to submit bids to acquire Scanforms
during the entire period leading up to the proposed merger.
Mr. Jacks next requested Janney Montgomery to make a presentation on the
fairness of the Management Proposal. Janney Montgomery, consistent with its
written report delivered at the meeting, advised that the range of fairness, in
their view, was between $3.40 and $4.50 per share. Janney Montgomery noted that
the fact that the $3.60 per share price was at the lower end of that range was
countered by (a) Scanforms' projected dependence on a single customer, (b)
Scanforms' modest projected growth in earnings, (c) significant capital
expenditures required to expand Scanforms' production capability, and (d)
Scanforms' relatively small size in the printing industry. Moreover, Janney
Montgomery noted that $3.60 was more than a 15.2% increase over the high price
of $3.13 per share on two days of the 52-week period preceding Scanforms
announcement on February 1, 1996 of the $3.60 per share price which Messrs.
Samans and Carcioppolo had proposed to offer for Scanforms. Janney Montgomery
also stated that it was significant that Scanforms had publicly announced its
plans to consider its strategic options, including a potential sale of
Scanforms; that Janney Montgomery had solicited proposals to merge or acquire
Scanforms from 20 companies; and that the Management Proposal was announced to
the public with no superior offer having emerged.
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Continuing to explore the fairness of the $3.60 price at the February 12,
1996 meeting, Mr. Jacks stated his concern that, while it was basically Mr.
Samans' decision as to which entity (Mellon or Company C) he chose to join with
in making a proposal, Mr. Jacks wanted to be sure that those parties possessed
similar information, including information concerning the proposed increase in
1996 orders from a substantial customer. Accordingly, the meeting was continued
to February 15, 1996.
The adjourned Board of Directors meeting resumed on February 15, 1996. The
Board of Directors was advised that Company C had been fully informed of recent
information concerning Scanforms. Messrs. Samans and Carcioppolo reiterated
their desire to proceed with the Management Proposal to be financed by Mellon.
Mr. Jacks advised that, as a result of additional negotiations between counsel
for the Special Committee and counsel for Messrs. Samans and Carcioppolo, the
termination provisions of the proposed merger agreement had been revised to
provide that Scanforms may terminate the proposed merger agreement under
specified conditions where a superior offer is received. Mr. Jacks then
requested that Messrs. Samans and Carcioppolo increase their offer. Messrs.
Samans and Carcioppolo responded that they were unwilling and unable to do so
because the financing provided by Mellon would not so permit, the price was the
highest offered to date and represented fair value to the stockholders and the
absence of a break-up or topping fee beyond the limited expense reimbursement
provision in the proposed merger agreement would permit the Board of Directors
to consider superior proposals. Thereafter, Janney Montgomery advised the
Special Committee orally that it remained of the view that the range of fairness
was between $3.40 and $4.50 per share and that $3.60 per share was a fair price.
Janney Montgomery delivered a written opinion to that effect to the Special
Committee on February 15, 1996. Mr. Jacks then advised the Board of Directors of
the factors on which the Special Committee had based its determination to
recommend the Management Proposal. At that point, the Board of Directors, upon
the recommendation of the Special Committee, accepted the Management Proposal of
Messrs. Samans and Carcioppolo dated February 9, 1996, as amended at the meeting
of February 15, 1996, and authorized the execution of an agreement and plan of
merger between Scanforms and SCFM (the "SCFM Merger Agreement"). The Board of
Directors and the Special Committee determined that the merger contemplated by
the SCFM Merger Agreement was a proper conclusion to the process, commenced by
the Board of Directors in early 1995, of considering whether to explore a
possible change of control or other transaction in order to address issues
arising from the small size of Scanforms and its modest market capitalization,
particularly where such process demonstrated to the Special Committee the
necessity of the continued participation of Mr. Samans, Scanforms' principal
stockholder and chief executive officer, in Scanforms' future operation. On
February 16, 1996, a press release was issued to the effect that a merger
agreement had been entered into with a management group consisting of Messrs.
Samans and Carcioppolo which would provide $3.60 per share to the public
stockholders, with financing to be provided by Mellon.
At a meeting of the Board of Directors on February 21, 1996, Janney
Montgomery reported that, in the previous week, two additional companies had
indicated a potential interest in acquiring Scanforms on a friendly basis. One
of those companies ("Company D"), was a privately held company which had been
discussed previously at the February 15, 1996 meeting of the Board of Directors.
The other company ("Company E") also was a privately held company. Janney
Montgomery advised that both companies were interested only in a transaction on
a friendly basis in combination with Mr. Samans. Mr. Jacks concluded that, under
such circumstances, those companies should deal directly with Mr. Samans (and
perhaps Mr. Carcioppolo), before coming to the Special Committee if they
intended to proceed further.
On March 22, 1996, the Chairman of the Board of Directors and Chief
Executive Officer of American Banknote Corporation ("ABN") sent a letter to Mr.
Samans advising him that ABN was filing a Schedule 13D with the Commission
announcing that it had acquired approximately 5.32% of the outstanding shares of
Scanforms Common Stock and describing ABN's potential interest in Scanforms,
including the possibility of ABN making a proposal relating to a merger
transaction between ABN and Scanforms. The letter further stated that based upon
ABN's preliminary valuation of Scanforms, stockholders of Scanforms would
receive greater value in a transaction with ABN than
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they would pursuant to the Management Proposal. On April 8, 1996, Scanforms and
ABN entered into a confidentiality agreement. Certain of Scanforms' proprietary
information was delivered to ABN under the terms of that agreement. On April 10,
1996, ABN filed Amendment No. 1 to its Schedule 13D announcing that it then
owned approximately 5.5% of the outstanding shares of Scanforms Common Stock.
Scanforms subsequently had discussions with ABN in which ABN indicated that any
interest in merging with or acquiring Scanforms would be conditioned upon ABN's
ability to reach agreement with Mr. Samans regarding his continued employment
and other matters. Mr. Samans advised Scanforms that he had not entered into any
agreement with ABN and intended to proceed with the transactions contemplated by
the SCFM Merger Agreement.
On May 28, 1996, Janney Montgomery recommended to the Special Committee
that, based on a 19.1% increase in net sales and a 69.9% increase in net income
during the first half of fiscal 1996 compared to the first half of fiscal 1995,
as reported by Scanforms in its Report on Form 10-Q filed with the Commission
for the twenty-six weeks ended March 31, 1996, the Special Committee seek an
increase in the $3.60 per share price offered by the Management Group. On May
28, 1996, the Special Committee informed the Management Group that the price per
share must be increased or Scanforms would elect to terminate the SCFM Merger
Agreement. After further negotiation, the Management Group advised the Special
Committee that it was prepared to increase the price per share to $3.80. On June
7, 1996, Scanforms issued a press release announcing that the Management Group
had increased the price it would offer for the outstanding shares of Scanforms
Common Stock to $3.80 per share.
During the last week of May, 1996, a representative of Big Flower,
telephoned Mr. Samans to request a meeting to discuss a possible transaction
between the companies. At a meeting on May 29, 1996, the Big Flower
representative asked Mr. Samans whether there was any interest in discussing a
possible acquisition of Scanforms by Big Flower. Mr. Samans advised the
representative that the Special Committee had indicated that it would be
interested in pursuing any transaction which brought greater value to the
stockholders of Scanforms than the Management Proposal and had a high likelihood
of successful completion. The representative indicated that he believed Big
Flower was prepared to make an offer for Scanforms with a value of approximately
$4.10 per share. Mr. Samans indicated that he believed such an offer would not
be acceptable to the Special Committee. During the following week, Mr. Samans
had several conversations with representatives of Big Flower and provided
certain information concerning Scanforms to Big Flower. On June 5, 1996, Mr. R.
Theodore Ammon, Chairman of the Board of Directors and Chief Executive Officer
of Big Flower, called Mr. Samans and advised him that, subject to successful due
diligence regarding Scanforms, he would propose that Big Flower offer to acquire
all of the outstanding shares of Scanforms Common Stock in exchange for Big
Flower Common Stock valued at up to $5.75 per share. Mr. Ammon told Mr. Samans
that any such offer would be contingent on reaching agreement with Mr. Samans
regarding his continued employment by Scanforms. On June 6, 1996, Mr. Samans met
with Mr. Thomas Cochill, President of Webcraft, to discuss the issues relating
to the structure of a working relationship between Scanforms and Webcraft. On
June 7, 1996, Mr. Samans told Mr. Ammon that he would recommend that the Special
Committee accept a proposal from Big Flower of $5.75 per share in a stock for
stock transaction. Following Mr. Samans' report of his conversations with Mr.
Ammon to the Special Committee, Mr. Jacks authorized Scanforms to enter into a
confidentiality agreement with Big Flower and provide Big Flower with certain
nonpublic information regarding Scanforms. Big Flower and Scanforms entered into
a confidentiality agreement on June 10, 1996. Thereafter representatives of the
two companies held a number of meetings to discuss the proposed transaction and
to negotiate the terms of an agreement in principle and an option agreement with
respect to the shares of Scanforms Common Stock held by Messrs. Samans and
Carcioppolo. On June 14, 1996, after consulting with Janney Montgomery, the
Special Committee and Board of Directors of Scanforms approved a non-binding
agreement in principle which set forth the basic terms of a transaction between
Big Flower and Scanforms, pursuant to which a wholly owned subsidiary of Big
Flower would be merged with Scanforms and all outstanding shares of Scanforms
Common Stock would be converted into the right to receive a fraction of a share
of Big Flower Common Stock with a market value of $5.75 per share, subject to
certain limitations on the number of shares of Big Flower Common Stock which
would be issued in the Merger. The Board of Directors also approved the option
agreement between Big Flower and Messrs. Samans and Carcioppolo
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pursuant to which Big Flower was granted an option to purchase, for a limited
period of time and under certain conditions, all of the shares of Scanforms
Common Stock owned by Messrs. Samans and Carcioppolo for a cash purchase price
of $5.75 per share and waived the applicability of Section 203 of the DGCL to
the acquisition of Scanforms Common Stock in the Merger by Big Flower. At that
meeting, the Board also terminated the SCFM Merger Agreement in accordance with
its terms. The option agreement and the agreement in principle were executed by
the parties on June 14, 1996 and a joint press release was issued by Big Flower
and Scanforms announcing the proposed transaction promptly thereafter. Following
the execution of the agreement in principle, Big Flower performed extensive due
diligence regarding the business and operations of Scanforms while
representatives of Big Flower and Scanforms negotiated the definitive terms of
the Merger Agreement and the employment agreement and non-competition agreement
with Mr. Samans. On July 31, 1996, a meeting of the Board of Directors of
Scanforms was held to review the terms and conditions of the Merger Agreement.
Janney Montgomery reported to the Board of Directors the results of its analysis
of Big Flower Common Stock and the Board of Directors discussed, among other
things, the implications of the decrease in the market price of Big Flower
Common Stock since the date of the agreement in principle and Scanforms'
excellent financial performance during the same period. At that meeting Janney
Montgomery rendered to the Board of Directors its written opinion that the terms
of the Merger Agreement were fair to the stockholders of Scanforms from a
financial point of view. The Board of Directors, on the recommendation of the
Special Committee, approved the Merger Agreement subject to receiving certain
additional assurances concerning the number of shares of Big Flower Stock to be
issued in the Merger (which were subsequently obtained).
The parties executed the Merger Agreement on the evening of July 31, 1996,
and issued a joint press release announcing such execution.
STOCK OPTION AGREEMENT AND VOTING PROXY
The following is a brief summary of the Option Agreement (the "Option
Agreement"), dated as of June 14, 1996, by and among Big Flower and Messrs.
Samans and Carcioppolo (individually a "Stockholder" and together the
"Stockholders"):
Pursuant to the Option Agreement, each Stockholder granted to Big Flower an
irrevocable option (an "Option") to purchase or vote all of the shares of
Scanforms Common Stock owned by him (respectively, 1,006,268 shares (owned by
Samans) and 550,620 shares (owned by Carcioppolo)) (collectively, the "Optioned
Shares") at a price, in cash, of $5.75 per share (the "Purchase Price").
Big Flower may exercise the Option, in whole but not in part, or may vote
the Optioned Shares at any time, until January 31, 1997, unless extended in
certain events (such period being the "Term" of the Option Agreement), upon the
occurrence of the following events (the "Triggering Events"): if after the date
of the Option Agreement (i) a Takeover Proposal (as hereinafter defined) has
been made on terms which, in the opinion of Big Flower, in its reasonable good
faith judgment, is for consideration of a higher value than the Purchase Price
and (x) Big Flower and Scanforms are proceeding to negotiate in good faith and
execute a definitive merger agreement or Scanforms has ceased to negotiate a
merger agreement or (y) a merger agreement has been entered into by Big Flower
and Scanforms and the Takeover Proposal is made prior to the termination of the
merger agreement or (ii) a Takeover Proposal has been made by any person who is
a director or officer of Scanforms on June 14, 1996 or by an entity in which any
such person has an equity interest of 10% or more or a "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) in which any such person is a
participant. "Takeover Proposal" means, with respect to Scanforms, any proposal
or offer for, any tender or exchange offer for 20% or more of the equity of
Scanforms, any merger, consolidation or other business combination involving
Scanforms, any acquisition in any manner of 20% or more of the equity of, or 20%
or more of the assets of, Scanforms.
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No Triggering Event has occurred as of the date of this Proxy
Statement/Prospectus.
BIG FLOWER'S REASONS FOR THE MERGER
The Big Flower Board of Directors believes that the acquisition of Scanforms
will add high-impact direct mail products and services to Big Flower's
advertising and marketing services portfolio and expand Big Flower's customer
base. In addition, the Big Flower Board of Directors believes that Scanforms'
advanced direct mail technology, complimentary operational capabilities and
national customer base will complement and help grow the business conducted by
Big Flower's Webcraft subsidiary and help to implement Big Flower's strategy of
building a comprehensive portfolio of broad-based advertising services.
SCANFORMS' REASONS FOR THE MERGER; RECOMMENDATION OF ITS BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF SCANFORMS BELIEVES THAT THE MERGER IS FAIR TO AND
IN THE BEST INTERESTS OF SCANFORMS AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE
STOCKHOLDERS OF SCANFORMS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT.
On July 31, 1996, the Board of Directors of Scanforms held a meeting at
which it considered the Merger Agreement and the transactions contemplated
thereby. In unanimously approving the Merger Agreement and the transactions
contemplated thereby, the Board of Directors considered a number of factors,
including:
(i) the fact that the consideration to be paid in the Merger exceeds the
consideration offered by all other parties, including the Management Group;
(ii) the trading history of the shares of Scanforms Common Stock, with
particular emphasis on the relationship between the price to be paid
pursuant to the Merger (even considering the limitation on the number of
shares which could be issued) and the trading history of the shares,
including the fact that the nominal consideration of $5.75 of Big Flower
Common Stock to be received pursuant to the Merger represents (a) a premium
of approximately 96% over the $2.93 average closing prices on the Nasdaq
Small Cap Market for the ten days preceding the February 1, 1996 public
announcement that a proposal to acquire Scanforms was to be received from
the Management Group at a cash price of $3.60, and (b) a premium of
approximately 126% over the $2.54 average closing price for the 52-week
period preceding the February 1, 1996 press release;
(iii) the opinion of Scanforms' financial advisor, Janney Montgomery, to
the effect that the Merger is fair, from a financial point of view, to the
stockholders of Scanforms;
(iv) the existing assets, financial condition, results of operations,
business and prospects of Scanforms, including its relatively small size and
market capitalization, and Scanforms' relatively narrow market niche,
coupled with the Board of Directors' judgment that, in light of these
factors and the historical and projected levels of corporate overhead, the
future growth prospects of Scanforms' business were limited if Scanforms
continued to operate on a stand-alone basis;
(v) the fact that the Merger will afford stockholders of Scanforms the
opportunity to exchange their shares of Scanforms Common Stock for an
ownership interest in a combined enterprise which is larger and has greater
financial resources than Scanforms;
(vi) the risk that the value of the shares of Scanforms could be severely
affected by the loss or disability of only one person, Mr. Samans;
(vii) the fact that the terms of the Merger Agreement provide meaningful
protection against significant fluctuations in the market price of Big
Flower Common Stock (I.E., as finally negotiated, no pricing change would
occur to the detriment of Scanforms stockholders so long as the Average
Stock Price was $13.00 or more, with a similar protection for Big Flower up
to $15.00 per
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share) in the context of the current stock market climate, and would permit
Scanforms to terminate the Merger Agreement if the Average Stock Price is
less than $11.50 per share (which would correspond to a value of less than
$5.09 per share of Scanforms Common Stock);
(viii) the fact that the consideration be paid in the Merger was
determined through arms' length negotiations between representatives of Big
Flower, on the one hand, and Scanforms and the Special Committee, on the
other; and that as a result of these negotiations, and those that preceded
them from the beginning of the process in February 1995, the price to be
received by Scanforms public stockholders was increased from $3.00 per share
to a nominal value of $5.75 per share;
(ix) the fact that Mr. Samans' continued employment with Scanforms was a
condition of every indication of interest that had been brought to the
attention of the Special Committee from the beginning of the process in
February of 1995 until the time of the July 31, 1996 Board of Directors
meeting; and
(x) the significant, open and publicly announced solicitation for
proposals for an acquisition or merger of Scanforms, as evidenced by
numerous press releases, references in Scanforms' Reports on Form 10-Q and
other filings.
The foregoing discussion of the information and factors considered and given
weight by the Board of Directors is not intended to be exhaustive. In view of
the wide variety of factors considered in connection with its evaluation of the
Merger Agreement, the Board of Directors did not find it practicable to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered in making its determination nor did it evaluate whether such factors
were of equal weight. In addition, individual members of the Board of Directors
may have given different weight to different factors.
A copy of the written opinion of Janney Montgomery delivered to the Board of
Directors, which sets forth certain assumptions made, matters considered and
limits of the review by Janney Montgomery in rendering its opinion, is attached
as Annex II hereto. STOCKHOLDERS ARE URGED TO READ THE FOLLOWING SECTION
ENTITLED "OPINION OF SCANFORMS' FINANCIAL ADVISOR" OF THIS PROXY
STATEMENT/PROSPECTUS AND THE OPINION CAREFULLY IN ITS ENTIRETY.
OPINION OF SCANFORMS' FINANCIAL ADVISOR
The Board of Directors retained Janney Montgomery as its financial advisor
to review the merger with SCFM (the "SCFM Merger") and to render an opinion as
to the fairness, from a financial point of view, of the consideration to be
received by Scanforms stockholders not affiliated with the Management Group in
connection with the SCFM Merger. Following the offer by Big Flower to acquire
Scanforms pursuant to the Merger, the Board of Directors requested that Janney
Montgomery render an opinion as to the fairness, from a financial point of view,
of the consideration to be received by Scanforms' stockholders in connection
with the Merger.
At the February 12, 1996 meeting of the Special Committee, Janney Montgomery
rendered its oral opinion and subsequently confirmed to the Board of Directors
on February 15, 1996 in writing that, as of such date, the consideration to be
received by the stockholders of Scanforms in the SCFM Merger was fair to such
stockholders from a financial point of view (the "February 15, 1996 Opinion").
Janney Montgomery was not requested to and did not make any recommendations to
the Board of Directors as to the form or amount of consideration to be received
by Scanforms stockholders, which was determined by negotiation between Scanforms
and the Management Group. No limitations were imposed on Janney Montgomery by
the Board of Directors with respect to the investigations made or the procedures
followed by it in rendering its opinion.
In rendering the February 15, 1996 Opinion, Janney Montgomery reviewed,
among other things: (a) the SCFM Merger Agreement; (b) publicly available
business and historical financial information
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relating to Scanforms, including the 1995 Annual Report of Scanforms and
Scanforms' Form 10-Q for the thirteen weeks ended December 31, 1995; (c) certain
financial and other data provided to Janney Montgomery by Scanforms that is not
publicly available relating to the business and prospects of Scanforms,
including financial projections prepared by the management of Scanforms; (d) the
reported historical market prices and trading volume of Scanforms Common Stock;
(e) selected financial and stock market data for certain other publicly traded
companies in lines of business comparable to Scanforms; and (f) the financial
terms of certain other recent mergers and acquisitions of direct mail and
commercial printing companies. In addition, Janney Montgomery held discussions
with the management of Scanforms regarding Scanforms' business, operating
results, financial condition, and prospects, and undertook other analyses,
studies and investigations as it considered appropriate.
In connection with its review, Janney Montgomery relied, without independent
verification, upon the accuracy and completeness of the financial and other
information used by it in arriving at its opinion. Janney Montgomery also relied
upon the assessment by the management of Scanforms regarding its business and
prospects and also assumed that the financial projections of Scanforms were
reasonably prepared by management on bases reflecting the best currently
available estimates and good faith judgments of the future financial performance
of Scanforms. Janney Montgomery did not undertake any independent valuations or
appraisals of the real properties or other assets of Scanforms, nor was it
furnished with any such valuations or appraisals. Janney Montgomery also did not
undertake any analyses of the liquidation valuation of Scanforms Common Stock
since Scanforms intends to continue to operate as a going concern. Janney
Montgomery's opinion was necessarily based upon economic, market and other
conditions as they existed, and could have been evaluated, on the date of its
opinion.
The following summary is a general description of Janney Montgomery's
presentation to the Special Committee on February 12, 1996 and does not purport
to be a complete description of the analyses performed or matters considered by
Janney Montgomery in rendering its February 15, 1996 Opinion. The preparation of
a fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. Furthermore, Janney Montgomery believes
that its analyses must be considered as a whole and that selecting portions of
such analyses and the matters considered, without considering all matters and
analyses, could lead to inappropriate conclusions. In its analyses, Janney
Montgomery made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Scanforms. Any estimates of value derived from Janney
Montgomery's analyses are not necessarily indicative of future results or actual
values, which may be more or less favorable than such estimates. In addition,
estimates relating to the value of businesses do not purport to be appraisals
nor necessarily reflect the prices at which such businesses may actually be
sold. Consequently, since such estimates are inherently subject to uncertainty,
neither Janney Montgomery, Scanforms nor any other Person assumes any
responsibility for their accuracy.
ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION. Janney Montgomery
reviewed with the Board of Directors the historical and projected operating
performance and financial condition of Scanforms. Scanforms' net sales increased
from $19.9 million in fiscal 1991 to $24.5 million in fiscal 1995, a 6.1%
compounded annual growth rate. Net sales increased $1.1 million, or 14.9%, in
the first quarter of fiscal 1996 compared to the same quarter a year ago and
were projected to grow almost 30.0% in fiscal year 1996 to $31.7 million due to
an increase in business with one customer. This customer was projected to
account for approximately one-third of Scanforms' total net sales in 1996.
Scanforms projected net sales to increase from $31.7 million in fiscal 1996 to
$38.2 million in fiscal 2000, or a 4.7% compounded annual growth rate.
Scanforms incurred a net loss of $1.1 million in fiscal 1991 but undertook
cost containment measures, analyzed the profitability by customer and instituted
total quality management practices to reverse the 1991 loss. Consequently,
profits were restored in fiscal 1992 and net income grew from
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$300,000 to $1.6 million, or 6.5% of net sales, in fiscal year 1995 and $980,000
or 11.4% of net sales in the first quarter of fiscal 1996, traditionally
Scanforms' strongest quarter. Net income increased 42.4% in the first quarter of
1996 from $688,000 in the same quarter a year ago due to the increase in
business with one customer (as described above in the discussion of increased
revenues for the first quarter of fiscal 1996) and a special order from a
different customer. Declining paper prices further contributed to the
improvement in net income in fiscal 1995 and the first quarter of fiscal 1996.
Net income was projected to increase almost 58.0% to $2.5 million in fiscal
1996, or 7.9% of net sales, as a result of the strong first quarter and expected
business from one customer, and was projected to grow to $2.6 million, or 6.9%
of net sales, in fiscal 2000.
Scanforms' cash, long-term debt and equity were $4.6 million, $4.5 million
and $6.5 million, respectively, as of December 31, 1995. Cash balances were
primarily attributable to advanced payments by customers for postage of $4.3
million. Capital expenditures totaled $2.1 million from fiscal 1991 to fiscal
1995, and Scanforms projected total capital expenditures of $8.4 million from
fiscal 1996 to fiscal 2000, of which $4.7 million was projected to be expended
in fiscal years 1996 and 1997 to increase production capacity.
ANALYSIS OF COMPARABLE PUBLICLY TRADED COMPANIES. Janney Montgomery
reviewed and analyzed publicly available financial information and stock market
data for twelve publicly traded direct mail and commercial printing companies:
Advo, Inc., Banta Corp., Cadmus Communications, Dimac Corp., DiMark Corp., R.R.
Donnelley & Sons, Graphic Industries, LCS Industries, Mail-Well Inc., Merrill
Corp., Moore Corp. and Standard Register and compared the data to Scanforms. In
Janney Montgomery's opinion Cadmus, Dimac, DiMark, R.R. Donnelley & Sons and
Moore are not directly comparable to Scanforms for purposes of this analysis.
Cadmus, Dimac and DiMark are more vertically integrated, providing creative
development and database management services not offered by Scanforms and are
expected to grow faster than Scanforms in the next five years. Furthermore, on
February 6, 1996, DiMark agreed to be acquired in a merger with Harte-Hanks
Communications, Inc. Additionally, R.R. Donnelley & Sons and Moore are much
larger, diversified printing companies with considerably greater financial and
other resources than Scanforms. Janney Montgomery considered the remaining
publicly traded companies, Advo, Banta, Graphic Industries, LCS Industries,
Mail-Well, Merrill and Standard Register to be more directly comparable to
Scanforms and advised the Board of Directors to consider these public companies
as comparable to Scanforms for purposes of this analysis. Accordingly,
references to the comparable companies refer to these seven public companies.
The financial information and stock market data reviewed by Janney
Montgomery included (a) stock price multiples to historical and estimated
earnings; (b) enterprise value (total stock market value adjusted for debt and
cash) to latest twelve months revenues, operating cash flow (earnings before
interest, taxes, depreciation and amortization) and operating profits (earnings
before interest and taxes); (c) profit margins and returns on assets and equity;
(d) historical and estimated growth rates; and (e) the capitalization of the
comparable companies and Scanforms. Janney Montgomery noted that stock price
multiples of the comparable companies ranged from 8.7 to 16.4 times 1995
estimated earnings, 6.4 to 16.0 times 1996 estimated earnings and 1.4 to 3.5
times current book value. Enterprise value multiples ranged from 0.4 to 1.0
times latest twelve months revenues, 4.7 to 8.3 times latest twelve months
operating cash flow and 6.6 to 10.3 times latest twelve months operating
profits. Applying the range of multiples of the comparable companies to the
appropriate financial information for Scanforms results in a range of estimated
values per share of Scanforms Common Stock of approximately $2.30 to $7.15.
Janney Montgomery noted that the range of estimated values is quite broad and,
therefore, subject to interpretation. Janney Montgomery concluded that the
appropriate range of values per share was between $3.40 and $4.50 based on
Scanforms historical operating results, projected growth and dependence on a
single customer projected to represent as much as one-third of total net sales
in fiscal 1996.
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DISCOUNTED CASH FLOW ANALYSIS. Janney Montgomery prepared a discounted cash
flow analysis to estimate the present value of the unleveraged free cash flows
as projected by the management of Scanforms. Unleveraged free cash flows of
Scanforms are projected to average $2.1 million annually for the five year
projected period but are expected to fluctuate from a low of $800,000 to a high
of $3.2 million as a result of total projected capital expenditures of $8.4
million, of which $4.7 million is expected to be expended in fiscal years 1996
and 1997. Janney Montgomery considered a range of terminal exit values from
$28.5 million to $37.9 million, which represented enterprise values of 4.5 to
6.0 times projected operating cash flows in fiscal year 2000. Janney Montgomery
discounted the unlevered free cash flows for the five year period and terminal
exit values to present values using a range of discount rates from 19.0% to
22.0% and deducted debt of $4.5 million to arrive at a range of estimated values
per share of between $3.30 and $4.90.
ANALYSIS OF MERGERS AND ACQUISITIONS IN THE PRINTING INDUSTRY. Janney
Montgomery identified 28 pending and completed mergers and acquisitions of
direct mail advertising and printing companies since January 1991 but advised
the Board of Directors that there was insufficient information to estimate the
value of Scanforms based on these transactions. Most of the acquired companies
were private and, consequently, the business and operating performance of the
acquired company or the financial terms of the transaction were not publicly
available for 24 of the 28 transactions. The enterprise value to sales multiple
was the valuation information most often available but it ranged (excluding the
single highest and lowest multiples) from 0.33 to 1.02 times net sales.
Furthermore, in Janney Montgomery's judgment, four of the mergers and
acquisitions, the pending acquisition of DiMark, Inc. by Harte-Hanks
Communications, the pending acquisition of Dimac Corp. by Heritage Media Corp.,
the pending acquisition of Wallace Computer Services, Inc. by Moore Corp. Ltd.,
and the November 1993 acquisition of Dimac Corporation by McCowan De Leeuw & Co.
were not comparable for purposes of this analysis. DiMark, Dimac and Wallace
Computer are more vertically integrated, substantially larger, equally or more
profitable and are expected to grow faster in the next five year period than is
Scanforms.
COMPARISON OF SCFM MERGER CONSIDERATION TO HISTORICAL STOCK PRICE. Janney
Montgomery reviewed the reported historical market prices and trading volume of
the Scanforms Common Stock for the 52 weeks and five-year period ended February
9, 1996. The Scanforms Common Stock traded to a then all time high price of
$3.38 per share upon the announcement of the SCFM Merger. Janney Montgomery
noted that prior to the announcement of the SCFM Merger, the Scanforms Common
Stock traded to a high of $3.13 per share on two days in the preceding 52-week
period and that the average trading price was $2.54 per share. Thus, the $3.60
per share price represented a 15.2% premium over the high price of the Scanforms
Common Stock prior to the announcement of the SCFM Merger and a 41.7% premium to
the average trading price for the preceding 52-week period.
SUBSEQUENT EVENTS. Upon receipt of Scanforms' Form 10-Q for the thirteen
and twenty-six week periods ended March 31, 1996, Janney Montgomery reviewed the
Form 10-Q and financial and stock market data for the public companies included
in the Analysis of Comparable Publicly Traded Companies for Scanforms.
Thereupon, Janney Montgomery advised the Special Committee to seek a higher
price than the $3.60 offer. The Management Group responded to the Special
Committee's request with an offer to increase the price paid to the Scanforms
stockholders to $3.80 per share of Scanforms Common Stock.
Janney Montgomery noted that Scanforms' net sales increased $2.6 million, or
19.1%, in the first half of fiscal 1996 compared to the same period a year ago,
due to increased net sales of $4.4 million to Scanforms' five largest accounts
which were partially offset by a decrease in net sales of $1.8 million to other
customers. Net sales to Scanforms' largest customer accounted for 30.7% of total
net sales in the first half of fiscal 1996 compared to 22.5% in the same period
a year ago. Additionally, Scanforms experienced an increase in concentration of
net sales from its five largest accounts in the first half of fiscal 1996 to
70.9% compared to 51.4% in the same period a year ago. Scanforms' net income
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increased approximately $651,000, or 69.9%, to $1.6 million in the first half of
fiscal 1996 compared to the same period a year ago, but more than half of the
increase in net income was attributable to two unusually profitable projects
with Scanforms' two largest customers and favorable inventory positions during a
period of rising paper prices in the first quarter of fiscal 1996. Janney
Montgomery updated the analysis of comparable publicly traded companies and
noted a decline in all multiples. Janney Montgomery noted that there currently
has been a general decrease in profitability during the latest twelve months
among the comparable publicly traded companies, which can be mainly attributable
to R.R. Donnelley & Sons and Moore Corp.
BIG FLOWER MERGER PROPOSAL. On June 14, 1996, Scanforms informed Janney
Montgomery of the Big Flower offer. Janney Montgomery was not requested to and
did not make any recommendations to the Board of Directors as to the form or
amount of consideration to be received by Scanforms stockholders, which was
determined by negotiation between Scanforms and Big Flower. In addition to the
materials relating to Scanforms that Janney Montgomery had previously reviewed,
Janney Montgomery also reviewed: (a) the Merger Agreement; (b) a preliminary
draft of the Scanforms 10Q for the third quarter ended June 30, 1996; (c) the
reported historical market prices and trading volume of the Scanforms Common
Stock; (d) publicly available business and historical financial information
relating to Big Flower, including the offering prospectus dated November 21,
1995, the Big Flower 10K, and the Big Flower 10Q for the quarter ended March 31,
1996; and (e) selected financial and stock market data for certain other
publicly traded companies in lines of business comparable to Scanforms and Big
Flower. In addition, Janney Montgomery held discussions with the management of
Scanforms and Big Flower regarding their respective businesses, operating
results, financial condition and prospects and the Merger, and undertook other
analyses, studies and investigations as Janney Montgomery considered
appropriate. Janney Montgomery also relied upon the assessment by the management
of Big Flower regarding its business, prospects and the Merger. Big Flower
declined to furnish internally prepared budgets or financial projections as a
matter of corporate policy. Janney Montgomery did not undertake any independent
valuations or appraisals of the real properties or other assets of Big Flower,
nor was it furnished with any such valuations or appraisals. Janney Montgomery's
opinion was necessarily based upon economic, market and other conditions as they
existed on, and could have been evaluated, on the date of the opinion.
ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION FOR SCANFORMS. Janney
Montgomery reviewed the historical and projected operating performance and
financial condition of Scanforms with the Board of Directors. Based on a
preliminary estimate of Scanforms' results of operations for its 1996 third
quarter which were provided to Janney Montgomery, net sales increased $6.1
million, or 32.7%, to $24.7 million for the thirty-nine weeks ending June 30,
1996 compared to the same period a year ago and are projected to grow by
approximately $7.0 million, or 28.3%, for the final 13-week period in fiscal
year 1996 to $31.7 million primarily due to an increase in business with a
single customer. This customer was projected to account for approximately
one-third of Scanforms' total net sales in 1996.
Based on the preliminary estimate, net income increased $1.5 million, or
130.8%, to $2.6 million in the thirty-nine weeks ending June 30, 1996 versus the
same period a year ago due primarily to an increase in business with the one
major customer, two unusually profitable projects and lower paper prices. Janney
Montgomery noted that Scanforms had not revised its financial projections even
though net income of $2.6 million for the thirty-nine weeks ended June 30, 1996
exceeded projected net income of $2.5 million for fiscal 1996. Scanforms does
not expect projected sales and income to materially exceed, if at all, projected
operating results for the five years ending September 30, 2000. Management
emphasized that the growth in sales and income for the thirty-nine weeks ended
June 30, 1996 was primarily attributable to an increase in business from one
major customer, two unusually profitable projects and declining paper prices
which have stabilized.
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Based on the preliminary estimated third quarter results, Scanforms' cash,
long-term debt and equity were, $8.9 million, $4.2 million and $8.2 million,
respectively, as of June 30, 1996. Cash balances primarily constituted $6.4
million of advanced payments by customers for postage. Capital expenditures
amounted to $389,000 for the 39-week period versus $1.1 million for the same
period a year ago.
ANALYSIS OF COMPARABLE PUBLICLY TRADED COMPANIES FOR SCANFORMS. Janney
Montgomery updated its analysis of publicly available financial information and
stock market data for the comparable companies.
Janney Montgomery noted that stock price multiples of the comparable
companies ranged from 6.6 to 15.7 times 1996 estimated earnings, 5.2 to 13.8
times 1997 estimated earnings and 1.0 to 2.9 current book value. Enterprise
value multiples ranged from 0.2 to 1.0 times latest twelve months revenues, 2.3
to 7.0 times latest twelve months operating cash flow and 2.6 to 12.5 latest
twelve months operating profits. Janney Montgomery concluded that the
appropriate range of values per share of Scanforms Common Stock was between
$4.00 and $5.00 based on Scanforms' current operating results, projected growth
and dependence on a single customer projected to represent as much as one-third
of total net sales in fiscal 1996.
ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION FOR BIG
FLOWER. Janney Montgomery reviewed the historical and projected operating
performance and financial condition of Big Flower. Net sales increased by $272.0
million, or 43.5%, to $896.6 million for the fiscal year ended June 30, 1995
from pro forma sales for the same period a year ago. The facilities acquired
from KTB and Retail Graphics in April 1994 accounted for $189.7 million of the
increase. On March 21, 1996, Big Flower changed its fiscal year from a 12-month
period ending June 30 to a calendar year and subsequently filed a Form 10-K for
the transition six months ended December 31, 1995. Big Flower reported a $75.9
million, or 16.6%, increase in net sales to $532.4 million for the six months
ended December 31, 1995 from the same period a year ago. The increase was
partially attributed to an increase in volume of business, as measured by
standard hours of press activity, and to an increase in paper costs which are
passed through to the customers. For the three months ending March 31, 1996, net
sales increased by $14.7 million, or 7.1%, to $221.4 million from the same
period in the prior year, primarily due to the addition of Laser Tech for the
full three months ended March 31, 1996 and Webcraft from mid-March 1996.
However, net sales were impacted by a slow retail advertising market as
evidenced by the lower volume reported by Treasure Chest for the quarter ended
March 31, 1996.
Big Flower reported a $1.4 million decrease in net losses to $3.0 million
for the year ended June 30, 1995 versus the prior fiscal year loss of $4.4
million. Income taxes of $5.8 million, representing an excess over federal
statutory rates to account for the amortization of goodwill, preferred dividends
of a subsidiary and state income taxes, contributed to the loss reported for the
fiscal year ending June 30, 1995. For the six months ended December 31, 1995,
Big Flower reported a net loss of $14.2 million versus net income of $1.0
million for the same six month period the year before. The net loss was due to a
$19.2 million extraordinary charge from the early extinguishment of debt. Big
Flower reported a $6.9 million loss for the three months ending March 31, 1996
versus a $1.8 million loss for the same three-month period in the prior fiscal
year. The loss was attributed to the lower sales volume of Treasure Chest, an
increase in paper prices and a $5.0 million non-recurring charge for the
acquisition of Webcraft and related financing transactions. Big Flower did not
disclose its expectations for net income for fiscal 1996 and fiscal 1997, but
Janney Montgomery reviewed at that time estimates by research analysts
projecting net income of $12 million to $13 million, or $0.73 to $0.80 per
share, for fiscal 1996 and $23 million to $24 million, or $1.40 to $1.45 per
share, for fiscal 1997.
Big Flower's cash, long-term debt and equity at March 31, 1996 were $3.9
million, $200.9 million and $75.5 million, respectively. Since the acquisition
of Treasure Chest, Big Flower's principal use of
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cash has been debt service and capital expenditures. Capital expenditures have
amounted to $9.4 million for the three months ending March 31, 1996. Net cash
provided by operating activities for the three months ending March 31, 1996 was
$83.5 million, an increase of $77.5 million for the comparable period in the
prior year. The increase was primarily due to the net impact of account
receivables securitization and a reduction in paper inventories.
ANALYSIS OF COMPARABLE PUBLICLY TRADED COMPANIES FOR BIG FLOWER. Janney
Montgomery reviewed and analyzed publicly available financial information and
stock market data for seven publicly traded commercial printing companies: Banta
Corp., R.R. Donnelley & Sons, Moore Corp. Ltd., Quebecor Inc., Standard
Register, Valassis Inc. and World Color Press and compared the data to Big
Flower. The financial information and stock market data reviewed by Janney
Montgomery included (a) stock price multiples to historical and estimated
earnings; (b) enterprise value (total stock market value adjusted for debt and
cash) to latest twelve months revenues, operating cash flow (earnings before
interest, taxes, depreciation and amortization) and operating profits (earnings
before interest and taxes); (c) profit margins and returns on assets and equity;
(d) historical and estimated growth rates; and (e) the capitalization of the
comparable companies and Big Flower. Janney Montgomery noted that the Big Flower
Common Stock traded at 17.5 and 9.1 times estimated earnings per share for 1996
and 1997, respectively, compared to the price/earnings multiples of the
comparable companies of 10.4 to 19.2 times 1996 estimated earnings and 9.1 to
13.2 times 1997 estimated earnings. Big Flower's enterprise value to latest
twelve months revenues, operating cash flow and operating profits were 0.6, 6.1
and 9.8, respectively, compared to enterprise value multiples of 0.4 to 1.8
times latest twelve months revenues, 5.1 to 12.3 times latest twelve months
operating cash flow and 4.1 to 14.8 times latest twelve months operating
profits. Average enterprise value multiples to latest twelve months earnings,
operating cash flow and operating profits were 0.7, 6.0 and 10.1, respectively.
Janney Montgomery noted that the range of estimated values are quite broad and,
therefore, subject to interpretation, but concluded that the current stock price
for Big Flower fairly represented the intrinsic value of Big Flower based on its
current operating results, financial condition and projected growth.
Holders of shares of Scanforms Common Stock are urged to read carefully the
full text of Janney Montgomery's opinion, a copy of which is attached to this
Proxy Statement/Prospectus as Annex II, for a description of the assumptions
made, factors considered and limitations on the review undertaken by Janney
Montgomery. Janney Montgomery's opinion does not constitute a recommendation to
any stockholder of Scanforms as to how such stockholder should vote shares of
Scanforms Common Stock at the Special Meeting.
Janney Montgomery is a nationally recognized investment banking firm and, as
part of its investment banking activities, is regularly engaged in the valuation
of businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and valuations for corporate and other purposes. In the ordinary
course of its trading and brokerage activities, Janney Montgomery makes a market
in the stock of Scanforms. Janney Montgomery has not provided investment banking
services to Scanforms prior to this current engagement, which commenced in March
1995.
Pursuant to an engagement letter dated March 2, 1995, and amended May 8,
1995, between Janney Montgomery and Scanforms, Scanforms engaged Janney
Montgomery to solicit and evaluate merger and acquisition opportunities and to
render a fairness opinion in connection with a merger or acquisition. Scanforms
agreed to pay Janney Montgomery a financial advisory fee of $130,000. Scanforms
also agreed to pay Janney Montgomery a contingency fee if the Merger
consideration exceeded $13.2 million, to reimburse Janney Montgomery for the
reasonable expenses incurred by it and to indemnify Janney Montgomery against
certain liabilities, including liabilities under federal securities law. On July
29, 1996, Janney Montgomery and Scanforms signed an amendment to the engagement
letter to confirm the extension of the engagement letter beyond its then
termination date
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so that Janney Montgomery would provide financial advisory services related to
the Merger Agreement. In addition, Janney Montgomery and Scanforms agreed to cap
Janney Montgomery's compensation related to the Merger at $300,000, for which
Janney Montgomery has received $105,000 to date in connection with the SCFM
Merger. Janney Montgomery agreed that it will not be reimbursed for expenses
beyond those which had been reimbursed prior to July 29, 1996. All other terms
and conditions of the engagement letter, including indemnification, were
extended.
CONFLICTS OF INTEREST
In considering the recommendation of the Board of Directors of Scanforms
with respect to the Merger Agreement, the stockholders of Scanforms should be
aware that certain persons who are executive officers of Scanforms, including
Mr. Samans, have interests in the Merger in addition to their interests as
stockholders of Scanforms.
At the same time that Scanforms entered into the Merger Agreement, Mr.
Samans entered into an employment agreement with Scanforms and a non-competition
agreement with Big Flower. The execution of the employment agreement and the
non-competition agreement were a condition to Big Flower's obligation to
consummate the Merger. The employment agreement provides that Mr. Samans will be
employed by the Surviving Company for a three-year period following the
Effective Time and will serve as its President. The employment agreement further
provides that Mr. Samans' initial annual base salary will be $450,000. Mr.
Samans will also be eligible to receive bonuses based on the performance of the
Surviving Corporation and to participate in Big Flower's Restated 1993 Stock
Award and Incentive Plan and will have certain other benefits, including the
payment by the Surviving Company of up to $50,000 per annum in life insurance
premiums. If Mr. Samans' employment with the Surviving Corporation is terminated
prior to the first anniversary of the Effective Time without cause (as defined
in the employment agreement) or by reason of his death or disability or after
the first anniversary of the Effective Time for any reason, Mr. Samans will be
paid $1 million at the time of such termination.
Under the terms of the non-competition agreement, during the period
commencing on the date Mr. Samans is no longer employed by Big Flower or any of
its subsidiaries or affiliates and expiring five years thereafter, except for
his ownership, operation and management of Graphic Forms, Inc. (to the extent of
its operations as of March 31, 1996), Mr. Samans will not, among other things,
directly or indirectly or by action in concert with others, own, manage,
operate, join, control, finance or participate in the ownership, management,
operation, control or financing of, or be connected as a principal, agent,
representative, consultant, investor, owner, partner, employee, manager, joint
venturer or otherwise with, or permit his name to be used by or in connection
with, any business, enterprise or other entity engaged anywhere in the United
States, Canada or Mexico in, or in competition with, any business or operations
of Big Flower or any of its subsidiaries or affiliates. In consideration of his
entering into the non-competition agreement, Mr. Samans will receive a
promissory note of Big Flower in the amount of $1.5 million. The promissory note
shall bear interest at a competitive rate per annum to be determined prior to
the Effective Time, and the principal amount of the note shall be paid in equal
installments on the first through fifth anniversaries of the termination of Mr.
Samans' employment with the Surviving Corporation.
Under the terms of the non-competition agreement, Mr. Samans may continue
with his ownership, operation and management of Graphic Forms, Inc. (to the
extent of its operations as of March 31, 1996). Scanforms purchased
approximately $5,500, $2,300, $83,700 of supplies from Graphic Forms, Inc. in
fiscal years 1993, 1994 and 1995, respectively. Purchases to date in fiscal year
1996 amount to approximately $1,900. The 1995 purchases were primarily related
to a single large contract. As of the date of this Proxy Statement/Prospectus,
Scanforms has an account receivable from Graphic Forms, Inc. of approximately
$24,900 which arose in prior periods for services that Scanforms rendered to
Graphic Forms, Inc.
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As of July 31, 1996, Mr. Samans was indebted to Scanforms in the aggregate
principal amount of $404,750 under a note, dated as of January 1, 1994, issued
by Mr. Samans to Scanforms. The note is being repaid in monthly installments
which commenced on January 31, 1994, in accordance with a 30 year amortization
schedule with interest on the outstanding principal balance payable at the rate
of 5.58% per annum. At the Effective Time, the terms of the note will be amended
to eliminate the existing maturity date of January 1, 1999 and provide that,
upon termination of Mr. Samans' employment with the Surviving Corporation,
interest will be paid monthly and the principal amount remaining unpaid upon the
termination of his employment with the Surviving Corporation shall be payable in
equal annual installments on each of the five anniversaries of such termination.
It is a condition to Big Flower's obligation to consummate the Merger that
certain executive officers and employees of Scanforms enter into employment
agreements with Scanforms.
Certain executive officers of Scanforms are the holders of options to
purchase shares of Scanforms Common Stock under the Scanforms 1992 Stock Option
Plan ("Stock Option Plan"). Each of these options, to the extent not exercised
prior to the Effective Time, together with all other then outstanding employee
stock options, will become an option to purchase the number of shares of Big
Flower Common Stock (rounded down to the nearest whole share) determined by
multiplying the number of shares of Scanforms Common Stock subject to such
option by the Conversion Number, at an exercise price per share of Big Flower
Common Stock (rounded up to the nearest whole cent) equal to the exercise price
per share of such option immediately prior to the Effective Time divided by the
Conversion Number. As of July 31, 1996, three executive officers (Messrs.
O'Leary, Crawford and Carey) of Scanforms as a group held options to purchase an
aggregate of 125,000 shares of Scanforms Common Stock at exercise prices ranging
between $0.30 and $1.69 per share, at a weighted average exercise price of $1.08
per share. See "OTHER TERMS OF THE MERGER AGREEMENT: Stock Options."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING IS A GENERAL DESCRIPTION OF CERTAIN OF THE FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. IT IS BASED (AND THE OPINION REFERRED TO THEREIN
WILL BE BASED) UPON THE CODE, ITS LEGISLATIVE HISTORY, EXISTING AND PROPOSED
REGULATIONS THEREUNDER, PUBLISHED RULINGS AND COURT DECISIONS, ALL AS IN EFFECT
AS OF THE DATE HEREOF (OR AS OF THE TIME SUCH OPINION IS ISSUED), AND ALL OF
WHICH ARE SUBJECT TO CHANGE, INCLUDING CHANGE TO A TAXPAYER'S DETRIMENT WITH
RETROACTIVE EFFECT. THE DESCRIPTION DOES NOT (AND SUCH OPINION WILL NOT) ADDRESS
THE PARTICULAR FACTS AND CIRCUMSTANCES OF THE TAX SITUATION OF EACH SCANFORMS
STOCKHOLDER, AND MAY NOT APPLY TO STOCKHOLDERS SUBJECT TO SPECIALIZED FEDERAL
INCOME TAX TREATMENT (SUCH AS INSURANCE COMPANIES, SECURITIES DEALERS, PERSONS
WHO ACQUIRED THEIR SCANFORMS STOCK UPON EXERCISE OF EMPLOYEE STOCK OPTIONS, OR
STOCKHOLDERS WHO HAVE ENTERED INTO HEDGING TRANSACTIONS WITH RESPECT TO THEIR
SCANFORMS COMMON STOCK). STOCKHOLDERS OF SCANFORMS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO
THEM, AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES.
Consummation of the Merger is conditioned upon the issuance of an opinion by
Wolf, Block, Schorr and Solis-Cohen, special counsel to Scanforms, that the
Merger will be treated as a "reorganization" pursuant to Section 368(a)(1)(B) of
the Code, and that for Federal income tax purposes (a) no gain or loss will be
recognized by Scanforms, Big Flower or Merger Sub as a result of the Merger; (b)
no gain or loss will be recognized by the stockholders of Scanforms whose shares
of Scanforms Common Stock are exchanged solely for Big Flower Common Stock
pursuant to the Merger (except with respect to cash received in lieu of a
fractional share interest in Big Flower Common Stock); (c) the tax basis of the
Big Flower Common Stock received by holders of shares of Scanforms Common Stock
in the Merger will be the same as the tax basis of the shares surrendered in
exchange therefor (reduced by any amount allocable to a fractional share
interest in Big Flower Common Stock for which cash is received); and (d) the
holding period of the shares of Big Flower Common Stock received by holders of
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shares of Scanforms Common Stock in the Merger will include the period during
which such shares surrendered in exchange therefor were held, provided that such
shares were held as capital assets at the Effective Time.
Scanforms stockholders receiving cash in lieu of fractional interests in Big
Flower Common Stock or in respect of shares of Scanforms Common Stock as to
which dissenters' appraisal rights have been perfected in connection with the
Merger will recognize gain or loss in an amount equal to the difference between
the amount of cash received (other than interest awarded by a court) and the
portion of the basis of the Scanforms Common Stock allocable to such fractional
interests or the basis of such dissenting shares. Such gain or loss generally
will be capital gain or loss, provided that such Scanforms Common Stock was held
as a capital asset at the Effective Time, and will be long-term capital gain or
loss if such Scanforms Common Stock was held for more than one year at the
Effective Time. Interest, if any, awarded by a court to a dissenting stockholder
will be includible in such stockholder's income as ordinary income for U.S.
federal income tax purposes.
The foregoing summary is based, and the opinion of Wolf, Block, Schorr and
Solis-Cohen will be based, on the terms of the Merger Agreement and on
representations of Big Flower, Scanforms, Webcraft and certain principal
stockholders of Scanforms. Certain of these representations are to the effect
that the stockholders of Scanforms have no plan or intent to transfer or dispose
of their Scanforms Common Stock prior to the Merger or the Big Flower Common
Stock received in the Merger. Pursuant to a "continuity of interest" requirement
applicable under Federal income tax law, the Merger will not qualify as a
reorganization unless the historic stockholders of Scanforms retain a meaningful
equity interest in Scanforms subsequent to the Merger, taking into account all
planned transfers or dispositions of Scanforms Common Stock in anticipation of
the Merger and planned transfers or dispositions of Big Flower Common Stock
subsequent to the Merger. The law is unclear as to what constitutes a meaningful
equity interest; nonbinding Internal Revenue Service guidelines indicate that
the continuity of interest requirement will generally be met if the Big Flower
Common Stock issued in the Merger and retained by the historic stockholders of
Scanforms as a group represents at least 50% of all consideration received by
Scanforms stockholders in the Merger. No assurance can be given that the
continuity of interest requirement will in fact be satisfied in the event
Scanforms stockholders as a group transfer or dispose of a substantial portion
of their Scanforms Common Stock or Big Flower Common Stock pursuant to a plan or
intent existing prior to or at the time of the Merger. If such requirement is
not satisfied, the Merger will not be treated as a reorganization under the
Code.
If the Merger fails to qualify as a "reorganization" (as a result of the
failure of the "continuity of interest" requirement or otherwise), Scanforms
stockholders would recognize gain or loss equal to the difference between the
fair market value, as of the Effective Time, of the Big Flower Common Stock
received in the Merger and the tax basis of the Scanforms Common Stock
surrendered in exchange therefor. In such event, a stockholder's aggregate basis
in the Big Flower Common Stock so received would equal its fair market value and
the stockholder's tax holding period for such stock would begin the day after
the Effective Time.
The Internal Revenue Service is not being requested to issue a ruling as to
the tax consequences of the Merger.
REGULATORY APPROVALS
ANTITRUST MATTERS. The Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and the regulations thereunder require that
certain acquisition transactions not be consummated until certain information
has been furnished to the Antitrust Division of the United States Department of
Justice (the "Antitrust Division") and the Federal Trade Commission ("FTC") and
certain waiting period requirements have been satisfied. Pursuant to the HSR
Act, on June 21, 1996, Big Flower and Scanforms each filed Notification and
Report Forms with the Antitrust Division
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and the FTC for review in connection with the Merger. On July 2, 1996, Big
Flower and Scanforms were notified by the Antitrust Division and the FTC that
early termination of the applicable waiting period had been granted.
OTHER GOVERNMENTAL APPROVALS. Big Flower and Scanforms are not aware of any
other material regulatory requirements or approvals which have not been complied
with or obtained or which are not expected to be complied with or obtained prior
to consummation of the Merger.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a pooling of interests in
accordance with generally accepted accounting principles. Under this accounting
method, the recorded assets and liabilities of Big Flower and Scanforms will be
carried forward at their recorded amounts to the combined enterprise, income of
the combined enterprise will include income of Big Flower and Scanforms for the
entire fiscal year in which the Merger occurs and the reported income of Big
Flower and Scanforms for prior periods will be combined and restated as income
of the combined enterprise. See "OTHER TERMS OF THE MERGER AGREEMENT: Conditions
Precedent to the Merger."
PERCENTAGE OWNERSHIP INTEREST OF SCANFORMS STOCKHOLDERS AFTER THE MERGER
Based on the number of shares of Big Flower Common Stock outstanding on the
Record Date and assuming the issuance of approximately 1,549,614 shares of Big
Flower Common Stock, based on a Conversion Number of 0.4423, upon the
consummation of the Merger, there will be approximately 16,265,359 shares of Big
Flower Common Stock outstanding at the Effective Time, of which the former
stockholders of Scanforms will own approximately 9.5% (approximately 9.0% on a
fully diluted basis assuming (i) the exercise of all currently outstanding
options to purchase shares of Big Flower Common Stock immediately following the
Effective Time, (ii) the exchange of all outstanding options to purchase
Scanforms Common Stock for options to purchase Big Flower Common Stock and (iii)
the exercise of such options immediately following the Effective Time).
APPRAISAL RIGHTS
In the event the Merger is consummated, holders of Scanforms Common Stock as
of the Record Date who have not voted in favor of the Merger will be entitled to
appraisal rights under Section 262 of the DGCL because such persons hold stock
which is neither listed on a national securities exchange, designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. nor held of record by more than
2,000 holders. Holders of Scanforms Common Stock will have the right to obtain a
cash payment for the "fair value" of their shares (excluding any element of
value arising from the accomplishment or expectation of the Merger). Such "fair
value" would be determined in judicial proceedings, the result of which cannot
be predicted. In order to exercise appraisal rights, dissenting stockholders
must comply with the procedural requirements of Section 262 of the DGCL, a
description of which is provided immediately below and the full text of which is
attached to this Proxy Statement/Prospectus as Annex III and is incorporated
herein by reference. Failure to take any of the steps required under Section 262
of the DGCL on a timely basis may result in the loss of appraisal rights. Except
as set forth below, stockholders of Scanforms will have no appraisal rights in
connection with the Merger.
The appraisal rights described below are available to holders of Scanforms
Common Stock as of the Record Date. A Person having a beneficial interest in
shares of Scanforms Common Stock held of record in the name of another person,
such as a broker or nominee, must act promptly to cause the record holder to
follow the steps summarized below properly and in a timely manner to perfect
whatever appraisal rights the beneficial owner may have.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL
TEXT OF SECTION 262 OF THE DGCL WHICH IS REPRINTED IN ITS
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ENTIRETY AS ANNEX III TO THIS PROXY STATEMENT/PROSPECTUS. ALL REFERENCES IN
SECTION 262 OF THE DGCL AND IN THIS SUMMARY TO A "STOCKHOLDER" ARE TO THE RECORD
HOLDER OF THE SHARES OF SCANFORMS COMMON STOCK AS TO WHICH APPRAISAL RIGHTS ARE
ASSERTED.
Under the DGCL, holders of shares of Scanforms Common Stock who follow the
procedures set forth in Section 262 will be entitled to have their shares of
Scanforms Common Stock appraised by the Delaware Court of Chancery and to
receive payment of the "fair value" of such shares, exclusive of any element of
value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, as determined by such court.
Under Section 262, a corporation, not less than 20 days prior to the meeting
at which a proposed merger is to be voted on, must notify each of its
stockholders entitled to appraisal rights as of the record date of the meeting
that such appraisal rights are available and include in such notice a copy of
Section 262. This Proxy Statement/Prospectus shall constitute such notice to the
holders of shares of Scanforms Common Stock and a copy of Section 262 is
attached to this Proxy Statement/Prospectus as Annex III. Any stockholder who
wishes to exercise such appraisal rights or who wishes to preserve his right to
do so, should review the following discussion and Annex III carefully because
failure to comply timely and properly with the procedures specified may result
in the loss of appraisal rights under the DGCL.
A holder of shares of Scanforms Common Stock wishing to exercise his
appraisal rights must deliver to Scanforms, as the Surviving Corporation in the
Merger, prior to September 26, 1996 (being 20 days after the date of the mailing
of this Proxy Statement/Prospectus), a written demand for appraisal of his
shares of Scanforms Common Stock. A proxy or vote against the Merger shall not
constitute such a demand. In addition, a holder of shares of Scanforms Common
Stock wishing to exercise his appraisal rights must hold of record such shares
on the date the written demand for appraisal is made and must continue to hold
such shares until the Effective Time.
Only a holder of record of shares of Scanforms Common Stock is entitled to
assert appraisal rights for the shares of Scanforms Common Stock registered in
that holder's name. A demand for appraisal should be executed by or on behalf of
the holder of record, fully and correctly, as his name appears on his stock
certificates. If the shares of Scanforms Common Stock are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand should be made in that capacity, and if the shares of Scanforms
Common Stock are owned of record by more than one person, as in a joint tenancy
and tenancy in common, the demand should be executed by or on behalf of all
joint owners. An authorized agent, including one or more joint owners, may
execute a demand for appraisal on behalf of a holder of record; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is agent for such owner or owners. A
record holder, such as a broker, who holds shares of Scanforms Common Stock as
nominee for several beneficial owners may exercise appraisal rights with respect
to the shares of Scanforms Common Stock held for one or more beneficial owners
while not exercising such rights with respect to the shares of Scanforms Common
Stock held for other beneficial owners; in such case, the written demand should
set forth the number of shares of Scanforms Common Stock as to which appraisal
is sought and where no number of shares of Scanforms Common Stock is expressly
mentioned the demand will be presumed to cover all shares of Scanforms Common
Stock held in the name of the record owner. Stockholders who hold their shares
of Scanforms Common Stock in brokerage accounts or other nominee forms and who
wish to exercise appraisal rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal by
such a nominee. All written demands for appraisal should be sent or delivered to
Scanforms at 181 Rittenhouse Circle, Keystone Park, Bristol, Pennsylvania
19007-0602, Attention: Emma Marie Cocci, Corporate Secretary.
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Within 120 days after the Effective Time, but not thereafter, Scanforms or
any stockholder entitled to appraisal rights under Section 262 may file a
petition in the Delaware Court of Chancery demanding a determination of the
"fair value" of the shares of Scanforms Common Stock held by any such
stockholders. Scanforms is under no obligation to and has no present intention
to file a petition with respect to the appraisal of the fair value of the shares
of Scanforms Common Stock. Accordingly, it is the obligation of the holders of
the Scanforms Common Stock to initiate all necessary action to perfect their
appraisal rights within the time prescribed in Section 262.
Within 120 days after the Effective Time, any holders of the Scanforms
Common Stock who have complied with the requirements for exercise of appraisal
rights will be entitled, upon written request, to receive from Scanforms a
statement setting forth the aggregate number of shares of Scanforms Common Stock
not voted in favor of the Merger and with respect to which demands for appraisal
have been received and the aggregate number of holders of such shares. Such
statement must be mailed to such holders of the Scanforms Common Stock within
ten days after a written request therefor has been received by Scanforms or
within ten days after the expiration of the 20-day period for delivery of
demands for appraisal by holders of the Scanforms Common Stock outlined above,
whichever is later.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the stockholders
entitled to appraisal rights and will appraise the "fair value" of their shares
of Scanforms Common Stock, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the "fair value."
Stockholders considering seeking appraisal should be aware that the "fair value"
of their shares of Scanforms Common Stock as determined under Section 262 could
be more than, the same as or less than the consideration they would receive
pursuant to the Merger Agreement if they did not seek appraisal of their shares
of Scanforms Common Stock. The Delaware Supreme Court has stated that "proof of
value by any techniques or methods which are generally considered acceptable in
the financial community and otherwise admissible in court" should be considered
in the appraisal proceedings. In addition, Delaware courts have decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a dissenter's exclusive remedy. The costs of the action may be determined by
the court and taxed upon the parties as the court deems equitable. The court may
also order, upon application of a stockholder, that all or a portion of the
expenses incurred by any stockholder in connection with an appraisal, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts utilized in the appraisal proceeding, be charged pro rata against the
value of all of the shares of Scanforms Common Stock entitled to appraisal.
Any holder of shares of Scanforms Common Stock who has duly demanded an
appraisal in compliance with Section 262 will not, after the Effective Time, be
entitled to vote the shares of Scanforms Common Stock subject to such demand for
any purpose or be entitled to the payment of dividends or other distributions on
those shares (except dividends or other distributions payable to holders of
record of shares of Scanforms Common Stock as of a date on or prior to the
Effective Time).
If any stockholder who demands appraisal of his shares of Scanforms Common
Stock under Section 262 fails to perfect, or effectively withdraws or loses, his
right to appraisal, as provided in the DGCL, the shares of Scanforms Common
Stock of such stockholder will be converted into the right to receive shares of
Big Flower Common Stock in accordance with the Merger Agreement. A stockholder
will fail to perfect, or effectively lose or withdraw, his right to appraisal if
no petition for appraisal is filed within 120 days after the Effective Time, or
if the stockholder delivers to Scanforms a written withdrawal of his demand for
appraisal and acceptance of the Merger, except that any such attempt to withdraw
made more than 60 days after the Effective Time will require the written
approval of Scanforms.
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Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights.
STOCK EXCHANGE LISTING
It is a condition to the consummation of the Merger that the shares of Big
Flower Common Stock to be issued in connection with the Merger be authorized for
listing on the NYSE, upon official notice of issuance. Big Flower has filed an
application to list such shares on the NYSE, subject to official notice of
issuance.
DEREGISTRATION OF SCANFORMS COMMON STOCK
If the Merger is consummated, the Scanforms Common Stock will be
deregistered under the Exchange Act.
RESALES OF BIG FLOWER COMMON STOCK
All shares of Big Flower to be issued in connection with the Merger will
have been registered under the Securities Act. Such shares will be freely
transferable, except that shares received by any person who may be deemed to be
an affiliate, within the meaning of Rule 145 of the rules and regulations
promulgated under the Securities Act (each such person being an "Affiliate"), of
Scanforms may not be resold except in transactions permitted by such Rule 145 or
as otherwise permitted under the Securities Act.
Scanforms has agreed to deliver to Big Flower prior to the Effective Time a
list identifying each individual, corporation, limited liability company,
partnership, association, trust or any other entity or organization, including a
government or political subdivision or any agency or instrumentality thereof
(each, a "Person") who, at the time of the Special Meeting, may be deemed to be
an Affiliate of Scanforms. Scanforms has agreed to use its reasonable efforts to
cause each Person who is identified as an Affiliate to deliver to Big Flower, on
or prior to the Effective Time, a written agreement (the "Affiliate Letter"),
that such Affiliate will not (i) sell, pledge, transfer or otherwise dispose of,
or in any other way reduce such Affiliate's risk relative to, any shares of
Scanforms Common Stock or any shares of Big Flower Common Stock issued to such
Affiliate in connection with the Merger, except pursuant to an effective
registration statement or in compliance with Rule 145 or another exemption from
the registration requirements of the Securities Act or (ii) sell or in any other
way reduce such Affiliate's risk relative to any shares of Scanforms Common
Stock or any shares of Big Flower Common Stock received in the Merger (within
the meaning of Section 201.01 of the Commission's Financial Reporting Release
No. 1) during the period (the "Resale Period") commencing 30 days prior to the
Effective Time and ending at such time as financial results (including combined
sales and net income) covering at least 30 days of post-Merger operations have
been published by Big Flower, except as permitted by Staff Accounting Bulletin
No. 76 issued by the Commission.
Big Flower has agreed to deliver to Scanforms prior to the Effective Time a
list identifying each Person who, at the time of the Special Meeting, may be
deemed to be an Affiliate of Big Flower and to use its reasonable efforts to
cause each Person so identified to deliver to Scanforms, on or prior to the
Effective Time, an Affiliate Letter providing that such Person will not sell,
pledge, transfer or otherwise dispose of, or in any other way reduce such
Person's risk relative to, any shares of Big Flower Common Stock or any
Scanforms Common Stock during the Resale Period, except as permitted by such
Staff Accounting Bulletin No. 76.
Big Flower has agreed, as soon as reasonably practicable, but in no event
later than 90 days after the end of the first full fiscal quarter of Big Flower
which includes results covering at least 30 days of post-Merger combined
operations of Big Flower and Scanforms, that it will publish its results of
operations for such fiscal quarter.
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OTHER TERMS OF THE MERGER AGREEMENT
CONVERSION OF SHARES IN THE MERGER
At the Effective Time, by virtue of the Merger and without any further
action on the part of any holder of Scanforms Common Stock:
(i) each share of Scanforms Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares as to which
dissenters' rights to appraisal have been properly demanded, shares held by
Scanforms as treasury stock or owned by Big Flower, Merger Sub or any other
Subsidiary of Big Flower) shall be converted into the right to receive that
fraction of a share of Big Flower Common Stock (rounded to the nearest
ten-thousandth of a share) of Big Flower Common Stock obtained by dividing
$5.75 by the Average Stock Price; provided, that if the Average Stock Price
is $13.00 or less, the Conversion Number shall be 0.4423 or if the Average
Stock Price is $15.00 or more, the Conversion Number shall be 0.3833; and
(ii) each share of Scanforms Common Stock held by Scanforms as treasury
stock or owned by Big Flower, Merger Sub or any other Subsidiary of Big
Flower immediately prior to the Effective Time shall automatically be
canceled and retired and cease to exist, and no payment shall be made with
respect thereto. All shares of Scanforms Common Stock to be converted into
Big Flower Common Stock as provided in the preceding subparagraph shall
cease to be outstanding, shall be cancelled and retired and shall cease to
exist; and each holder of a certificate representing any such shares prior
to the Effective Time shall thereafter cease to have any rights with respect
to such shares, except the right to receive (a) certificates representing
shares of Big Flower Common Stock into which such shares have been
converted, (b) any dividends and other distributions (without interest) in
accordance with the Merger Agreement and (iii) any cash (without interest)
to be paid in lieu of any fractional share of Big Flower Common Stock in
accordance with the Merger Agreement.
Accordingly, if the Average Stock Price were to equal the $12 7/8 closing
price of Big Flower Common Stock on the NYSE on July 31, 1996 (the date the
Board of Directors of Scanforms approved the Merger), Scanforms stockholders
would receive Big Flower Common Stock in the Merger with a value of $5.69 per
share.
NO FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Big Flower Common
Stock shall be issued upon the surrender for exchange of Scanforms share
certificates; no dividend or other distribution by Big Flower and no stock
split, combination or reclassification shall relate to any such fractional
share; and no such fractional share shall entitle the record or beneficial owner
thereof to vote or to any other rights of a stockholder of Big Flower. In lieu
of any such fractional share, each holder of shares of Scanforms Common Stock
who would otherwise have been entitled thereto upon the surrender of Scanforms
share certificates for exchange will be paid an amount in cash (without
interest) rounded to the nearest whole cent, determined by multiplying (i) the
Average Stock Price by (ii) the fractional share to which such holder would
otherwise be entitled.
ADJUSTMENT OF CONVERSION NUMBER
In the event of any stock split, combination, reclassification or stock
dividend with respect to Big Flower Common Stock, any change or conversion of
Big Flower Common Stock into other securities or any other dividend or
distribution with respect to Big Flower Common Stock (other than quarterly cash
dividends issued in the ordinary course consistent with past practice) and any
distribution by Big Flower of shares of capital stock to any of its affiliates,
or if a record date with respect to any of the foregoing should occur, prior to
the Effective Time, appropriate and proportionate adjustments will be made to
the Conversion Number for purposes of determining the amount of Big Flower
Common Stock to be issued in the Merger in respect of each share of Scanforms
Common Stock.
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Based upon the equity capitalization of Big Flower and Scanforms,
respectively, as of the Record Date, and giving effect to the Merger, based on a
Conversion Number of 0.4423, the total number of shares of Big Flower Common
Stock outstanding immediately following the Effective Time will be 16,265,359
and the stockholders of Scanforms immediately prior to the Effective Time will
own, in the aggregate, approximately 1,549,614 shares of the Big Flower Common
Stock outstanding immediately after the Effective Time. See "THE MERGER:
Percentage Ownership Interest of Scanforms Stockholders After the Merger" and
"PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION."
EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF CERTIFICATES
Promptly after the Effective Time, the Exchange Agent, will mail to each
holder of record of a certificate (or certificates) which immediately prior to
the Effective Time represented outstanding shares of Scanforms Common Stock,
written instructions and letters of transmittal for exchanging certificates
evidencing shares of Scanforms Common Stock for certificates evidencing the
number of whole shares of Big Flower Common Stock that such holder is entitled
to receive in the Merger based upon the Conversion Number. Holders of Scanforms
Common Stock should not surrender their certificates until they receive such
instructions and letters of transmittal after the Effective Time.
In the event that a certificate evidencing shares of Scanforms Common Stock
has been lost, stolen, destroyed or is not properly registered, the holder
thereof is urged, in order to avoid delays and
additional expense, to notify Scanforms' registrar and transfer agent, Registrar
and Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016, Attention:
Diane Sayek, of such fact to arrange for the issuance of replacement
certificates.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Scanforms, Big Flower, and Merger Sub relating, among other things, to: (i)
their respective incorporation, existence, good standing, corporate power and
similar corporate matters; (ii) their respective capitalization; (iii) their
respective authorization, execution, delivery and performance and the
enforceability of the Merger Agreement and related matters; (iv) required
governmental authorizations and approvals; (v) the absence of conflicts,
violations and defaults under their respective charters and by-laws and certain
other agreements and documents with respect to the entry into and performance of
the transactions contemplated in the Merger Agreement; (vi) certain documents
and reports filed with the Commission and the accuracy and completeness of the
information contained therein; (vii) the financial statements of Scanforms and
Big Flower and the absence of undisclosed liabilities; (viii) the Registration
Statement and this Proxy Statement/Prospectus and the accuracy and completeness
of the information contained therein and herein; (ix) the absence of certain
changes, including a change, event, occurrence or development with respect to
Scanforms, on the one hand, or Big Flower and its Subsidiaries, on the other
hand, which has had or reasonably would be expected to have a material adverse
effect on the condition (financial or otherwise), business, properties, assets
(including intangible assets), liabilities (fixed or contingent) or results of
operations of Scanforms or Big Flower, its Subsidiaries and Merger Subsidiary,
as the case may be, in each case, taken as a whole (a "Material Adverse
Effect"); (x) liability for finder's fees; (xi) disclosure matters; and (xii)
the absence of actions which would affect the availability of pooling of
interests accounting treatment or treatment of the Merger as a tax-free merger
under the Code. In addition, Scanforms has made representations and warranties
as to: (i) the absence of certain violations or defaults; (ii) its licenses and
permits; (iii) environmental and tax matters; (iv) pending or threatened
litigation; (v) labor matters; (vi) material contracts; (vii) employee benefit
matters; (viii) intellectual property; (ix) insurance; (x) waiver of takeover
defense provisions of the DGCL; (xi) its customers and suppliers; (xii) its
accounts receivable and inventory; (xiii) the existence of transactions with
affiliates; (xiv) worker's compensation; and (xv) certain other matters. All
representations and warranties of Scanforms, Big Flower, and Merger Sub expire
at the Effective Time.
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CONDUCT OF BUSINESS PENDING THE MERGER
Scanforms has agreed that from the date of the Merger Agreement until the
Effective Time, Scanforms shall conduct its business only in the ordinary course
and shall use its reasonable efforts to preserve intact its business
organizations and relationships with suppliers, customers, employees, creditors
and other third parties and to keep available the services of its present
officers and employees.
Scanforms has also agreed to certain customary limitations on its actions
pending the consummation of the Merger.
NO SOLICITATION
From and after the date of the Merger Agreement, Scanforms has agreed that
neither it nor any of its affiliates, directors, officers, employees, agents,
attorneys, accountants, financial advisors or other representatives
(collectively, "Representatives") will, directly or indirectly, solicit,
initiate or encourage any Acquisition Proposal from any Third Party (as
hereinafter defined), or engage in or continue discussions or negotiations with,
or provide any information to, any Third Party which has made or indicated an
intention (whether or not conditional) to make an Acquisition Proposal, or take
any steps in furtherance of the transactions referred to in the SCFM Merger
Agreement; PROVIDED, HOWEVER, that Scanforms may engage in discussions or
negotiations with, or provide information to, a Person which makes a Superior
Proposal if the Board of Directors of Scanforms determines in good faith, on the
basis of advice from its outside legal counsel, that the failure to take such
action would violate the fiduciary obligations of such Board of Directors under
applicable law. Scanforms has agreed to promptly notify Big Flower of any
Acquisition Proposal, including the price and other significant terms and
conditions of and the identify of the Third Party making such Acquisition
Proposal, and the names and affiliations of all Persons to whom Scanforms has
furnished information pursuant to the foregoing proviso and the nature of such
information. As used in the Merger Agreement and this Proxy
Statement/Prospectus: (i) "Acquisition Proposal" means any proposal or offer, or
any expression of interest or intention (whether or not conditional and whether
by public announcement or regulatory filing or otherwise), by a Third Party with
respect to any acquisition (by tender or exchange offer or otherwise) of 20% or
more of the equity securities or assets of Scanforms, or any merger,
consolidation or other business combination involving Scanforms, or any inquiry
by a Third Party (or any of its Representatives) with respect to the willingness
or ability of Scanforms to receive or discuss any of the foregoing; (ii) "Third
Party" means any Person or group of Persons, including any individual which, at
any time since June 14, 1996, is or was a director or officer of Scanforms, and
any Person in which one or more such individuals has a 10% or greater equity
interest, and any group of which any such individual is a member, but does not
include Big Flower or any of its Subsidiaries; and (iii) "Superior Proposal"
means a bona fide, written and unsolicited proposal or offer made by a Third
Party to acquire 100% of the equity interests in Scanforms or all or
substantially all of Scanforms' assets which the Board of Directors of Scanforms
determines in good faith and in the exercise of reasonable judgment (based on
the advice of financial advisors of nationally recognized reputation as to
financial matters and on the advise of outside legal counsel as to legal and
regulatory matters) is more favorable to all Scanforms stockholders than the
Merger, and can be consummated without any significant legal or regulatory
impediments and with respect to which the Board of Directors has determined,
based on the advice of its investment bankers, that such Third Party is
financially capable of consummating.
CONDITIONS PRECEDENT TO THE MERGER
The respective obligations of Big Flower, Scanforms and Merger Sub to effect
the Merger are subject, among other things, to the fulfillment of the following
conditions at or prior to the Effective Time: (i) the approval and adoption of
the Merger Agreement by the majority of the outstanding shares of Scanforms
Common Stock entitled to vote thereon; (ii) the listing on the NYSE, subject to
official notice of issuance, of the shares of Big Flower Common Stock issuable
in connection with the
47
<PAGE>
Merger; (iii) the effectiveness of the Registration Statement under the
Securities Act and the absence of any stop order suspending the effectiveness of
the Registration Statement; (iv) the making and obtaining of all authorizations,
consents, orders, declarations or approvals of, or filings with, or terminations
or expirations of waiting periods imposed by, any governmental body, agency,
official or authority (each, a "Governmental Entity"); (iv) the absence of any
provision of any applicable law or regulation or judgment, injunction, order or
decree making illegal or otherwise restricting the consummation of the Merger or
any transactions contemplated thereby and the absence of any instituted, pending
or threatened suit, action or proceeding by (x) any Governmental Entity to
restrain, prohibit or invalidate the Merger or (y) by any other third party
which is more likely than not to have such effect.
The obligation of Scanforms to effect the Merger is also subject to the
fulfillment of the following additional conditions: (i) each of Big Flower and
Merger Sub having performed in all material respects its agreements and
covenants contained in or contemplated by the Merger Agreement which are
required to be performed by it at or prior to the Effective Time; (ii) the
representations and warranties of Big Flower and Merger Sub set forth in the
Merger Agreement being true and correct in all material respects on and as of
the date of the Merger Agreement and on and as of the date specified by Big
Flower, Merger Sub and Scanforms for the closing of the Merger to take place
(the "Closing Date") with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except for
representations and warranties that expressly speak only as of a specific date
or time which need only be true and correct as of such date and time); (iii)
Scanforms having received a certificate signed by the Chief Executive Officer or
Chief Operating Officer of Big Flower, dated the Closing Date, to the effect
that, the conditions set forth in the foregoing clauses (i) and (ii) have been
satisfied; (iv) Scanforms having received an opinion of Wolf, Block, Schorr and
Solis-Cohen, Scanforms' special counsel, dated as of the Effective Time, to the
effect that on the basis of facts, representations and assumptions set forth in
such opinion which are consistent with the state of facts then existing, the
Merger will be treated as a reorganization within the meaning of Section 368(a)
of the Code, and, accordingly, for United States federal income tax purposes,
that, (A) no gain or loss will be recognized by Scanforms, Big Flower or Merger
Sub as a result of the Merger, (B) no gain or loss will be recognized by any
stockholder of Scanforms whose shares are exchanged solely for Big Flower Common
Stock pursuant to the Merger (except with respect to cash received in lieu of a
fractional share interest in Big Flower Common Stock), (C) the tax basis of the
Big Flower Common Stock received by a holder of Scanforms Common Stock in the
Merger will be the same as the tax basis of the Scanforms Common Stock
surrendered in exchange therefor (reduced by any amount allocable to a
fractional share interest in Big Flower Common Stock for which cash is
received), and (D) the holding period of the shares of Big Flower Common Stock
received by a holder of Scanforms Common Stock in the Merger will include the
period during which such Scanforms Common Stock surrendered in exchange therefor
was held, provided that such Scanforms Common Stock was held as capital assets
at the Effective Time; (v) Scanforms having received the Affiliate Letters from
Big Flower Affiliates described under "THE MERGER: Resales of Big Flower Common
Stock"; and (vi) Scanforms having received the opinion of Skadden, Arps, Slate,
Meagher & Flom, Big Flower's special counsel, substantially in the form set
forth in Annex A to the Merger Agreement.
The respective obligations of Big Flower and Merger Sub to consummate the
Merger are also subject to the fulfillment at or prior to the Effective Time of
the following additional conditions: (i) Scanforms having performed in all
material respects its agreements and covenants contained in or contemplated by
the Merger Agreement which are required to be performed by it at or prior to the
Effective Time; (ii) the representations and warranties of Scanforms set forth
in the Merger Agreement being true and correct in all material respects on and
as of the date of the Merger Agreement and on and as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of the Closing Date (except for representations and warranties that
expressly speak only as of a specific date or time which need only be true and
correct as of such date and time);
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<PAGE>
(iii) Big Flower and Merger Sub having received a certificate signed by the
President or Treasurer of Scanforms, dated the Closing Date, to the effect that
the conditions set forth in the foregoing clauses (i) and (ii) and clause (vi)
below have been satisfied; (iv) there not having been, since the date of the
Merger Agreement, any event, occurrence or facts which have had or would
reasonably be expected to have a Material Adverse Effect with respect to
Scanforms or result in any significant reduction in revenues from its largest
customer and Scanforms shall reasonably expect, as of the Closing Date, to
generate net income, before net interest expense, income depreciation and
amortization, for its fiscal year ended September 30, 1996 in an amount not
materially less than the amount specified in the Scanforms' budget which was
previously provided to Big Flower; (v) Big Flower having received the Affiliate
Letters from Scanforms Affiliates; (vi) Scanforms having (a) outstanding
Indebtedness (as defined in the Merger Agreement) of no more than $5,100,000;
(b)(1) net working capital, including Cash (as defined in the Merger Agreement),
of at least $4,800,000 (excluding the current portion of outstanding
Indebtedness and notes receivable), which minimum requirement shall be increased
by any proceeds received by Scanforms from any exercise of any options and (2)
cash and cash equivalents, less excess cash (as defined in the Merger Agreement)
in excess of outstanding customer advances; (c) book equity of at least
$7,200,000; and (d) collected any receivables owing to Scanforms from affiliates
and have no payables accrued, unaccrued or contingent owing to affiliates other
than payables in the ordinary course of business consistent with past practice
for compensation owing to directors, officers or employees and certain permitted
receivables; PROVIDED, HOWEVER, that in the event that as of or prior to the
Effective Time (A) Scanforms has purchased, received delivery of and installed a
new printing press, with a fully installed cost of no more than $1,300,000 and
on terms (other than dollar amount) reasonably satisfactory to Big Flower,
and/or (B) Scanforms has made a loan to a supplier, in an amount of not more
than $200,000 and on terms (other than dollar amount) reasonably satisfactory to
the Big Flower; and/or (C) Scanforms has purchased two duplex imagers and
related equipment for not more than $970,000 and on terms (other than the dollar
amount) reasonably satisfactory to Big Flower, the amount of Indebtedness in
clause (a) above and the amount of net working capital in clause (b) above shall
be adjusted as provided in the Merger Agreement; (vii) appraisal rights not
having been perfected by Scanforms stockholders with respect to more than
225,000 shares; (viii) the consent or approval of each Person (other than
Governmental Entities) whose consent or approval shall be required in connection
with the transactions contemplated in the Merger Agreement under any indenture,
mortgage, evidence of indebtedness, lease or other agreement or instrument,
except where the failure to obtain the same would not reasonably be expected to
have a Material Adverse Effect on Scanforms (or the Surviving Corporation
following the Merger), or on the consummation of the transactions contemplated
in the Merger Agreement, having been obtained; (ix) Big Flower having received a
letter from Deloitte & Touche LLP to the effect that pooling of interests
accounting (under Accounting Principles Board Opinion No. 16) is appropriate for
the Merger, provided that the Merger is consummated in accordance with the terms
of the Merger Agreement; (x) Scanforms having delivered to Big Flower all
consents relating to the treatment of outstanding Options; (xi) Big Flower and
Merger Sub having received the opinion of Wolf, Block, Schorr and Solis-Cohen
substantially to the effect set forth in Annex B to the Merger Agreement; and
(xii) Big Flower being reasonably satisfied that Scanforms' relationship with
the largest customer will continue for the foreseeable future following the
Merger on terms at least as favorable to Scanforms as those in effect during the
eight-month period prior to May 31, 1996.
STOCK OPTIONS
At or immediately prior to the Effective Time, each then outstanding option
to purchase shares of Scanforms Common Stock (a "Plan Option") granted under
Scanforms' 1992 Stock Option Plan (the "Stock Option Plan"), whether or not
vested or exercisable, will become and represent an option (a "Substitute
Option") to purchase the number of shares of Big Flower Common Stock (rounded
down to the nearest whole share) determined by multiplying the number of shares
of Scanforms Common Stock subject to such Plan Option immediately prior to the
Effective Time by the Conversion Number,
49
<PAGE>
at an exercise price per share of Big Flower Common Stock (rounded up to the
nearest whole cent) equal to the exercise price per share of such Plan Option
immediately prior to the Effective Time divided by the Conversion Number. After
the Effective Time, subject to any adjustment necessary to conform the
Substitute Options to the requirements of Section 424(a) of the Code, each
Substitute Option will be exercisable upon substantially the same terms and
conditions as were applicable to the related Plan Option immediately prior to
the Effective Time, and, at or prior to the Effective Time, Big Flower shall
take all corporate action necessary to reserve for issuance a sufficient number
of shares of Big Flower Common Stock for delivery upon exercise of the
Substitute Options. If and to the extent required by, or deemed necessary or
desirable under, the terms of the Stock Option Plan and stock option agreements
relating to the Plan Options, prior to the Effective Time, Scanforms has agreed
that it will use its reasonable efforts to obtain the written consent of each
Plan Option holder, in form reasonably satisfactory to Big Flower, to the
foregoing treatment of such Plan Options.
INDEMNIFICATION
Big Flower has agreed that all rights to indemnification and limitation of
liability existing in favor of the employees, agents, directors or officers of
Scanforms as provided in the Scanforms Charter or Scanforms By-laws will survive
the Merger and will continue in full force and effect for three years after the
Effective Time. Any permissive provision therein relating to rights of
indemnification shall be deemed mandatory to the maximum extent permitted by
law.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time (notwithstanding any approval of the Merger
Agreement by the stockholders of Scanforms): (i) by mutual written consent of
Scanforms and Big Flower; (ii) by either Scanforms or Big Flower, if the Merger
has not been consummated by the Outside Termination Date; PROVIDED, HOWEVER,
that neither Big Flower nor Scanforms shall have the right to terminate the
Merger Agreement if their failure to fulfill any obligation under the Merger
Agreement has been the cause of, or has resulted in, the failure to consummate
the Merger by the Outside Termination Date; (iii) by either Scanforms or Big
Flower, if there shall be any law or regulation that makes consummation of the
Merger illegal or if any judgment, injunction, order or decree enjoining Big
Flower or Scanforms from consummating the Merger is entered and such judgment,
injunction, order or decree shall become final and nonappealable; (iv) by
Scanforms, if (a) there shall have been a breach of any representation or
warranty on the part of Big Flower or Merger Sub set forth in the Merger
Agreement, or if any representation or warranty of Big Flower or Merger Sub
shall have become untrue, in either case such that Big Flower is incapable of
delivering a certificate that all of such representations and warranties are
true and correct in all material respects by the Outside Termination Date or (b)
there shall have been a breach by Big Flower or Merger Sub of any of their
respective covenants or agreements hereunder having a Material Adverse Effect on
Big Flower or materially adversely affecting (or materially delaying) the
consummation of the Merger, and Big Flower or Merger Sub, as the case may be,
has not cured such breach within 30 business days after notice by Scanforms
thereof; (v) by Big Flower, if (a) there shall have been a breach of any
representation or warranty on the part of Scanforms set forth in the Merger
Agreement, or if any representation or warranty of Scanforms shall have become
untrue, in either case such that Scanforms is incapable of delivering a
certificate that all of such representations and warranties are true and correct
in all material respects by the Outside Termination Date or (b) there shall have
been a breach by Scanforms of its covenants or agreements hereunder having a
Material Adverse Effect on Scanforms or materially adversely affecting (or
materially delaying) the consummation of the Merger, and Scanforms has not cured
such breach within 30 business days after notice by Big Flower or Merger Sub
thereof; (vi) by Big Flower, if the Board of Directors of Scanforms shall not
have recommended the Merger to Scanforms stockholders, or shall have withdrawn
or modified such recommendation, or shall have withdrawn or modified its
approval of the Merger Agreement, or shall have resolved to do any of the
foregoing; (vii) by either Big
50
<PAGE>
Flower or Scanforms, if the Board of Directors of Scanforms determines that an
Acquisition Proposal is a Superior Proposal; PROVIDED, HOWEVER, that Scanforms
may not terminate the Merger Agreement unless (a) Scanforms has complied with
its obligations in the Merger Agreement with respect to an Acquisition Proposal
(see "No Solicitation" above), (b) ten business days shall have elapsed after
delivery by Scanforms to Big Flower of a notice of such determination by its
Board of Directors and during such time Scanforms shall have fully cooperated
with Big Flower with the objective of enabling Big Flower to modify the terms of
the Merger so that the Merger may be consummated, and (c) at the end of such
ten-day period the Scanforms Board of Directors shall have again made a
determination that such Acquisition Proposal is a Superior Proposal and promptly
thereafter Scanforms and the Third Party which made such Acquisition Proposal
enter into a definitive agreement to effect such Acquisition Proposal; (viii) by
Big Flower or Scanforms, if, at any time following the receipt by Scanforms of
an Acquisition Proposal or the taking by Scanforms of any action with respect to
a Superior Proposal in the exercise of the Scanforms Board of Directors'
fiduciary duties, the Special Meeting is held and Scanforms' stockholders fail
to approve the Merger by the requisite vote; provided that Big Flower's right to
terminate in the event of the foregoing is subject to it having executed and
delivered (and not revoked) a proxy to Scanforms with respect to the Optioned
Shares and voting such Optioned Shares in favor of the approval and adoption of
the Merger Agreement; (ix) by Big Flower, if the Average Stock Price is more
than $16.50; and (x) by Scanforms, if the Average Stock Price is less than
$11.50.
TERMINATION FEE AND EXPENSES
All fees and expenses incurred in connection with the Merger, the Merger
Agreement and the transactions contemplated by the Merger Agreement will be paid
by the party incurring such fees or expenses, whether or not the Merger is
consummated. Notwithstanding any other provision of the Merger Agreement, in the
event the Merger Agreement is terminated by Big Flower for the reasons described
in clause (vi) above under "Termination" or by Big Flower or Scanforms for the
reasons described in clause (vii) under "Termination" above, Scanforms is
obligated to immediately pay Big Flower, in same day funds, a cash termination
fee of $750,000.
The cost of printing the Registration Statement (of which this Proxy
Statement/Prospectus is a part) will be borne equally by Scanforms and Big
Flower.
AMENDMENT; WAIVER
Except as may otherwise be provided in the Merger Agreement, any provision
of the Merger Agreement may be amended or waived prior to the Effective Time if
such amendment or waiver is in writing and signed, in the case of an amendment,
by Scanforms, Big Flower and Merger Sub or in the case of a waiver, by the party
against whom the waiver is to be effective; PROVIDED that after the adoption of
the Merger Agreement by the stockholders of Scanforms, no such amendment or
waiver shall, without the further approval of such stockholders, alter or change
(i) the amount or kind of consideration to be received in exchange for any
shares of capital stock of Scanforms or (ii) any of the terms or conditions of
the Merger Agreement if such alteration or change could adversely affect the
holders of any shares of capital stock of Scanforms. No failure or delay by any
party in exercising any right, power or privilege under the Merger Agreement
will operate as a waiver thereof nor will any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
51
<PAGE>
OWNERSHIP OF SCANFORMS COMMON STOCK
Based upon information contained in the ABN Schedule 13D and information
furnished by directors and executive officers of Scanforms, their respective
ownership of shares of Scanforms Common Stock as of the Record Date and their
rights to acquire such ownership within 60 days of such date are reflected in
the following table:
<TABLE>
<CAPTION>
AMOUNT AND PERCENT
NAME AND ADDRESS OF 5% NATURE OF OF
BENEFICIAL OWNERS OWNERSHIP (1) CLASS
- -------------------------------------------------- ---------------- --------
<S> <C> <C>
Robert A. Samans 1,006,268(2) 28.7
c/o Scanforms, Inc.
181 Rittenhouse Circle
Bristol, PA 19007-0602
Sebastian A. Carcioppolo 550,620(2) 15.7
c/o Scanforms, Inc.
181 Rittenhouse Circle
Bristol, PA 19007-0602
American Banknote Corporation 196,800 5.6
200 Park Avenue
New York, NY 10166
Robert W. O'Leary 152,600(3) 4.3
Gary S. Crawford 35,000(4) *
William P. Carey 25,000(5) *
Joel R. Jacks 0 *
Executive officers and directors of Scanforms as a 1,769,488(2)(6) 48.8
group (6 persons)
</TABLE>
- ------------------------
* Less than one percent
(1) Unless otherwise indicated, each person listed holds sole voting and
investment power with respect to the shares listed above.
(2) Includes all shares of Scanforms Common Stock subject to the Option
Agreement.
(3) Includes 65,000 shares of Scanforms Common Stock subject to outstanding
options exercisable within 60 days after the Record Date.
(4) Represents 35,000 shares of Scanforms Common Stock subject to outstanding
options exercisable within 60 days after the Record Date.
(5) Represents 25,000 shares of Scanforms Common Stock subject to outstanding
options exercisable within 60 days after the Record Date.
(6) Includes 125,000 shares of Scanforms Common Stock subject to outstanding
options exercisable within 60 days after the Record Date.
No pension, profit sharing or similar plan of Scanforms is the beneficial
owner, or has the right to acquire any equity securities of Scanforms.
52
<PAGE>
PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The following pro forma condensed combined financial information (the "Pro
Forma Financial Information") has been derived by the application of pro forma
adjustments to the historical financial statements of Big Flower, Scanforms,
Printco, Webcraft and Laser Tech. The pro forma adjustments to the balance sheet
reflect the Merger, which will be accounted for as a pooling of interests, and
certain related transactions (the "Merger Transactions") and the Printco
Acquisition and related transactions (the "Printco Transactions") as if they had
occurred as of June 30, 1996. The pro forma condensed combined statements of
operations reflect the Merger Transactions as if they had occurred as of July 1,
1992, the Printco Transactions and the Prior Transactions (as hereinafter
defined) as if they had occurred as of July 1, 1994. Prior to its acquisition of
Treasure Chest on August 12, 1993, Big Flower did not have any significant
assets or liabilities nor had it engaged in any activities other than those
incident to its formation and its acquisition of Treasure Chest. As the Treasure
Chest acquisition was accounted for as a purchase, the operations of Treasure
Chest have been included in the financial statements of Big Flower since August
12, 1993. Accordingly, the pro forma condensed combined statements of operations
for the year ended June 30, 1993 and for the period from July 1, 1993 through
August 11, 1993 reflect only the operations of Scanforms.
On November 27, 1995, Big Flower acquired Laser Tech (the "LT Acquisition")
for a purchase price comprised of (i) $3 million paid at closing, (ii) a $13.6
million note which matured in January 1996 and (iii) a $4.5 million note which
converted into 281,250 shares of Big Flower Common Stock in January 1996.
Additionally, Big Flower repaid certain indebtedness and other obligations of
Laser Tech. The LT Acquisition was accounted for using the purchase method of
accounting. On November 28, 1995, Big Flower refinanced certain of its debt (the
"Refinancing") with $80.3 million of net proceeds from an initial public
offering of 5,500,000 shares of its common stock (the "IPO") and borrowings
under a six-year $350 million revolving credit agreement (the "New Credit
Agreement"). The refinanced debt included all of the 13 1/2% Senior Discount
Notes due 2004, all of the 11% debentures due August 12, 2005, a portion of the
10 3/4% Senior Subordinated Notes due 2003, all amounts owed under an earlier
credit agreement, and all shares of the outstanding redeemable preferred stock
of one of Big Flower's subsidiaries. On March 19, 1996, Big Flower acquired
Webcraft and financed the acquisition and related transactions with (i) an
amendment and restatement of the New Credit Agreement, including the existing
revolver of $350 million (the "Existing Revolver") and a new term loan facility
of an additional $75 million (the "Tranche B Term Loan" and together with the
Existing Revolver, the "Credit Facilities") and (ii) proceeds from an Accounts
Receivable Securitization Facility (the "A/R Securitization") (collectively the
"WTI Acquisition"). The WTI Acquisition was accounted for using the purchase
method of accounting. The LT Acquisition, the IPO and borrowings under the New
Credit Agreement, the Refinancing, and the WTI Acquisition are collectively
referred to as the "Prior Transactions."
Each of Scanforms, Printco, Webcraft and Laser Tech uses a year end which
differs from Big Flower's prior year end of June 30. Printco, Webcraft and Laser
Tech historically used year ends which ended on December 31. Therefore, the
historical results for Printco, Webcraft and Laser Tech for the year ended June
30, 1995 have been derived by adding the results of the six-month periods ended
June 30, 1995 and subtracting the results of the six-month periods ended June
30, 1994 from the respective December 31, 1994 historical statements of
operations of Printco, Webcraft and Laser Tech. Scanforms' fiscal year ends on
the Sunday after the Friday closest to September 30. Scanforms' historical
results for the years ended June 30, 1995, 1994 and 1993 have been derived by
adding the results of Scanforms' last fiscal quarter in the fiscal years ended
October 2, 1994, October 3, 1993 and October 4, 1992, respectively, to the
results for the subsequent fiscal years, such years ended October 1, 1995,
October 2, 1994 and October 3, 1993, respectively, and subtracting the last
fiscal quarter results of such subsequent year from the historical statements of
operations.
The Pro Forma Financial Information has been prepared using the assumptions
set forth in the Notes to the Pro Forma Financial Information. The Pro Forma
Financial Information does not purport to represent what Big Flower's results of
operations actually would have been if the Merger Transactions, the Printco
Transactions and the Prior Transactions had been consummated on the date or for
the periods indicated, or what such results will be for any future date or for
any future period.
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<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
BIG PRO FORMA
FLOWER SCANFORMS PRINTCO ADJUSTMENTS PRO FORMA
-------- --------- ------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................................................. $ 2,538 $ 8,961 $ 1,943 $ 382(e) $ 13,824
Accounts receivable, net of allowance..................................... 35,136 4,897 6,546 (110)(a)(e) 46,469
Inventories............................................................... 29,630 1,040 2,228 1,580(f) 34,478
Income tax receivable and deferred income taxes........................... 30,767 216 -- 280(h) 31,263
Other..................................................................... 5,833 362 207 (87)(e) 6,315
-------- --------- ------- ------------ ---------
Total current assets................................................ 103,904 15,476 10,924 2,045 132,349
Property, plant and equipment, net of accumulated depreciation and
amortization............................................................. 234,092 8,046 34,199 5,346(f) 281,683
Intangibles, net of accumulated amortization.............................. 260,669 -- 101 -- 260,770
Other, net of accumulated amortization.................................... 52,050 68 275 1,225(b)(e) 53,618
Excess purchase cost over the net book value of assets acquired........... -- -- -- 6,473(f) 6,473
-------- --------- ------- ------------ ---------
Total assets........................................................ $650,715 $23,590 $45,499 $ 15,089 $ 734,893
-------- --------- ------- ---------
-------- --------- ------- ------------ ---------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.......................................................... $ 90,629 $ 1,489 $ 4,441 $ 96,559
Accrued liabilities....................................................... 59,523 7,483 1,383 $ (45)(e) 68,344
Current portion of long-term debt......................................... 1,550 884 2,700 (2,776)(c)(g) 2,358
Income taxes.............................................................. -- 636 -- -- 636
-------- --------- ------- ------------ ---------
Total current liabilities........................................... 151,702 10,492 8,524 (2,821) 167,897
Long-term debt, net of current portion.................................... 383,084 4,188 24,364 1,935(c) 442,342
28,771(f)(g)
Deferred income taxes..................................................... 20,662 758 -- -- 21,420
Other liabilities......................................................... 17,044 -- -- 1,500(b) 18,544
-------- --------- ------- ------------ ---------
Total liabilities................................................... 572,492 15,438 32,888 29,385 650,203
-------- --------- ------- ------------ ---------
Common stock subject to redemption........................................ 1,064 -- -- -- 1,064
-------- --------- ------- ------------ ---------
Stockholders' equity:
Common stock and additional paid-in capital............................... 105,497 1,424 899 (899)(f) 106,921
Accumulated earnings (deficit)............................................ (27,044) 7,133 11,712 (11,712)(f) (21,596)
(1,459)(d)(h)
(226)(a)
Note receivable from stockholder.......................................... -- (405) -- -- (405)
Other..................................................................... (1,294) -- -- -- (1,294)
-------- --------- ------- ------------ ---------
Total stockholders' equity.......................................... 77,159 8,152 12,611 (14,296) 83,626
-------- --------- ------- ------------ ---------
Total liabilities and stockholders' equity.......................... $650,715 $23,590 $45,499 $ 15,089 $ 734,893
-------- --------- ------- ------------ ---------
-------- --------- ------- ------------ ---------
</TABLE>
See Notes to Pro Forma Condensed Combined Balance Sheet.
54
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
MERGER TRANSACTIONS
As the Merger will be accounted for as a pooling of interests, the
historical balances of the assets and liabilities of Big Flower and Scanforms
will be combined for financial statement purposes in accordance with Accounting
Principles Board Opinion ("APB") No. 16. The following pro forma adjustments
reflect the Merger Transactions as if they had occurred as of June 30, 1996.
(a) Reflects reduction in delinquent account receivable of $56,000 upon
retirement to treasury of 43,110 outstanding shares of Scanforms Common
Stock, which were pledged as collateral for such delinquent account
receivable, and assumes that the market price per share of Scanforms Common
Stock for this transaction is $5.25. Such transaction is required pursuant
to the Merger Agreement.
(b) Reflects the issuance by Big Flower to Mr. Samans of a promissory note in
the original principal amount of $1,500,000 in connection with his entering
into a non-competition agreement. See "THE MERGER: Conflicts of Interest."
(c) Reflects the following (in thousands):
<TABLE>
<S> <C>
Prepayment penalties and Merger fees and expenses................. $ 1,209
Scanforms debt refinanced -- current portion...................... 726
long term portion...................... 3,482
---------
Additional borrowings on Existing Revolver........................ 5,417
Less long term portion of Scanforms debt refinanced............... (3,482)
---------
Net increase in long term debt.................................... $ 1,935
---------
---------
</TABLE>
(d) Reflects the following:
(i) payment of $133,000 debt prepayment penalties associated with
refinancing of certain Scanforms debt,
(ii) payment of $1,076,000 fees and expenses related to the Merger (in
addition to amounts already reflected in the historical financial
statements), and
(iii) $170,000 gain upon settlement of a delinquent account receivable by the
retirement of outstanding Scanforms Common Stock collateralizing such
receivable (note a).
PRINTCO TRANSACTIONS
The Printco Acquisition will be accounted for as a purchase, applying the
provisions of APB No. 16. The purchase cost will be allocated to the acquired
assets and liabilities of Printco and to the property, plant and equipment and
related debt to be purchased from Park Properties, based on their relative fair
values as of the closing date of the Printco Acquisition, as determined by
valuations and studies which are not yet complete. Accordingly, the excess of
purchase cost over historical book value of the net assets acquired has not yet
been allocated to the individual assets and liabilities of Printco and the
acquired assets and assumed liabilities of Park Properties. However, Big Flower
believes that a portion of the excess will be allocated to property, plant and
equipment and identifiable intangibles and the balance to goodwill.
(e) Pursuant to the terms of the Letter of Intent, certain receivables due to
Printco from Printco officers and Printco affiliated entities will be
collected on or prior to the closing of the Printco
55
<PAGE>
Acquisition. Additionally, certain existing assets and liabilities of
Printco will be disposed of prior to the closing of the Printco Acquisition.
These items are eliminated from the condensed historical balance sheet as
follows (in thousands):
<TABLE>
<S> <C> <C>
Cash received from receivable payments......................... $ 382
Receivables paid:
Accounts receivable.......................................... (54)
Other current assets -- notes receivable paid................ (53)
Other non-current assets -- notes receivable paid and cash
surrender value of officers' life insurance collected....... (275)
Other current assets disposed of............................... (34)
Accrued liabilities disposed of................................ 45
------
Net assets and liabilities disposed of......................... $ 11
------
------
</TABLE>
(f) The pro forma purchase cost of Printco and the determination of the excess
purchase cost over the book value of net assets acquired is as follows (in
thousands):
<TABLE>
<S> <C> <C>
Purchase cost:
Purchase of Printco stock............................... $ 20,175
Property, plant and equipment purchased from Park
Properties............................................. 5,346
Long-term debt of Park Properties assumed............... (3,021)
Fees and expenses....................................... 500
--------------
Total purchase cost 23,000
--------------
Pro forma book value of net assets acquired
Common stock and additional paid in capital............. 899
Retained earnings....................................... 11,712
--------------
Printco book value per historical financial
statements............................................. 12,611
Net assets and liabilities disposed of (See note (e)
above)................................................. 11
--------------
Total pro forma book value of assets acquired............. 12,622
--------------
Excess of purchase cost over net book value of assets
acquired................................................. 10,378
Allocated to:
Property, plant and equipment purchased from Park
Properties............................................. 5,346
Long-term debt of Park Properties assumed............... (3,021)
LIFO inventory reserve.................................. 1,580
--------------
Remaining excess of purchase cost over net book value of
net assets acquired...................................... $ 6,473
--------------
--------------
</TABLE>
(g) The pro forma adjustments which reflect financing of Printco Acquisition and
the repayment of certain long-term debt of Printco and Park Properties are
as follows (in thousands):
<TABLE>
<S> <C> <C>
Current portion of long-term debt--repayment of existing
Printco debt.............................................. $ (2,050)
--------------
--------------
Long-term debt:
Borrowings under existing revolver...................... $ 38,542
Repayment of existing Printco debt...................... (9,771)
Repayment of existing Park Properties debt.............. (3,021)
--------------
Total..................................................... $ 25,750
--------------
--------------
</TABLE>
(h) Reflects $700,000 in fees and expenses paid to amend the bank credit
facilities to permit the Printco Transactions, net of tax benefit of
$280,000.
56
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
MERGER
WTI TRANSACTIONS
ACQUISITION & PRINTCO
BIG PRO FORMA BIG FLOWER TRANSACTIONS
FLOWER WEBCRAFT(b) ADJUSTMENTS & WEBCRAFT SCANFORMS(i) PRINTCO ADJUSTMENTS PRO FORMA
-------- ----------- ----------- ----------- ------------ ------- ------------ -------------
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $514,580 $64,450 $579,030 $16,105 $40,818 $ 635,953
Cost of production..... 447,879 51,863 499,742 10,473 37,173 $ (266)(k) 547,122
-------- ----------- ----------- ------------ ------- ------------ -------------
Gross profit......... 66,701 12,587 79,288 5,632 3,645 266 88,831
-------- ----------- ----------- ------------ ------- ------------ -------------
Selling, general and
administrative
expenses.............. 48,274 8,735 $ 473(c) 57,482 2,412 2,367 (183)(k) 62,078
Interest expense,
net................... 17,642 1,924 (9)(d) 19,557 (30) 881 969(l) 21,377
Other (income) expense,
net................... 7,730 4,205 (10,125)(e) 1,810 542(j) (65) (108)(m) 2,179
-------- ----------- ----------- ----------- ------------ ------- ------------ -------------
(Loss) income before
income taxes........ (6,945) (2,277) 9,661 439 2,708 462 (412) 3,197
(Benefit) provision for
income taxes.......... (3,473) (911) 4,486(g) 102 1,103 -- 20(n) 1,225
-------- ----------- ----------- ----------- ------------ ------- ------------ -------------
Income before
extraordinary item
(a)................. $ (3,472) $(1,366) $ 5,175 $ 337 $ 1,605 $ 462 $ (432) $ 1,972
-------- ----------- ----------- ----------- ------------ ------- ------------ -------------
-------- ----------- ----------- ----------- ------------ ------- ------------ -------------
Income before
extraordinary item per
common and common
share equivalent
(o)................... $0.11
Weighted average shares
outstanding........... 18,303,182(p)
</TABLE>
See Notes to Pro Forma Condensed Combined Statements of Operations.
57
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRIOR BIG FLOWER
TRANSACTIONS ADJUSTED FOR PRINTCO
BIG LASER TECH & PRO FORMA PRIOR PRO FORMA
FLOWER WEBCRAFT (b) ADJUSTMENTS TRANSACTIONS SCANFORMS (i) PRINTCO ADJUSTMENTS PRO FORMA
-------- ------------ ------------ ------------ ------------- ------- ----------- ----------
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $532,352 $172,868 $705,220 $14,489 $44,713 $764,422
Cost of production.... 459,843 134,178 594,021 9,900 40,943 $(1,039)(k) 643,825
-------- ------------ ------------ ------------- ------- ----------- ----------
Gross profit........ 72,509 38,690 111,199 4,589 3,770 1,039 120,597
-------- ------------ ------------ ------------- ------- ----------- ----------
Selling, general and
administrative
expenses............. 34,920 23,563 $ 1,294(c) 59,777 2,188 2,279 (185)(k) 64,059
Interest expense,
net.................. 20,136 4,904 (5,572)(d) 19,468 92 632 914(l) 21,106
Other (income)
expense, net......... 6,000 (45) 2,375(e) 8,330 -- (55) -- 8,275
Preferred dividends of
a subsidiary......... 1,068 -- (1,068)(f) -- -- -- -- --
-------- ------------ ------------ ------------ ------------- ------- ----------- ----------
Income before income
taxes.............. 10,385 10,268 2,971 23,624 2,309 914 310 27,157
Provision for income
taxes................ 5,329 1,916 3,355(g) 10,600 874 -- 490(n) 11,964
-------- ------------ ------------ ------------ ------------- ------- ----------- ----------
Income before
extraordinary
item (a)........... $ 5,056 $ 8,352 $ (384) $ 13,024 $ 1,435 $ 914 $ (180) $ 15,193
-------- ------------ ------------ ------------ ------------- ------- ----------- ----------
-------- ------------ ------------ ------------ ------------- ------- ----------- ----------
Income before
extraordinary item
per common and common
share equivalent..... $0.82
Weighted average
shares outstanding... 18,501,477(p)
</TABLE>
See Notes to Pro Forma Condensed Combined Statements of Operations.
58
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
PRIOR BIG FLOWER
TRANSACTIONS ADJUSTED PRINTCO
LASER TECH & PRO FORMA FOR PRIOR PRO FORMA
BIG FLOWER WEBCRAFT (b) ADJUSTMENTS TRANSACTIONS SCANFORMS (i) PRINTCO ADJUSTMENTS PRO FORMA
---------- ------------ ------------ ------------ ------------- ------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........ $896,595 $277,498 $1,174,093 $23,554 $66,211 $1,263,858
Cost of
production...... 777,728 219,678 997,406 16,987 58,315 $(1,098)(k) 1,071,610
---------- ------------ ------------ ------------- ------- ------------ ----------
Gross profit... 118,867 57,820 176,687 6,567 7,896 1,098 192,248
---------- ------------ ------------ ------------- ------- ------------ ----------
Selling, general
and ad-
ministrative
expenses........ 70,587 40,078 $ 2,698(c) 113,363 3,689 4,530 (181)(k) 121,401
Interest expense,
net............. 40,207 9,248 (9,881)(d) 39,574 404 1,024 1,881(l) 42,883
Other (income)
expense, net.... 2,836 1,275 4,750(e) 8,861 -- (107) -- 8,754
Preferred
dividends of a
subsidiary...... 2,444 -- (2,444)(f) -- -- -- -- --
---------- ------------ ------------ ------------ ------------- ------- ------------ ----------
Income before
income
taxes......... 2,793 7,219 4,877 14,889 2,474 2,449 (602) 19,210
Provision for
income taxes.... 5,839 2,028 2,895(g) 10,762 1,041 -- 739(n) 12,542
---------- ------------ ------------ ------------ ------------- ------- ------------ ----------
Net income
(loss)........ $ (3,046) $ 5,191 $ 1,982 $ 4,127 $ 1,433 $ 2,449 $(1,341) $ 6,668
---------- ------------ ------------ ------------ ------------- ------- ------------ ----------
---------- ------------ ------------ ------------ ------------- ------- ------------ ----------
Net income (loss)
per common and
common share
equivalent...... $0.37
Weighted average
shares
outstanding..... 18,235,990(p)
</TABLE>
See Notes to Pro Forma Condensed Combined Statements of Operations.
59
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
BIG
FLOWER (h) SCANFORMS (i) PRO FORMA
---------- ------------- -----------
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<S> <C> <C> <C>
Net sales............................................................................... $ 565,046 $22,584 $ 587,630
Cost of production...................................................................... 493,075 16,615 509,690
---------- ------------- -----------
Gross profit.......................................................................... 71,971 5,969 77,940
---------- ------------- -----------
Selling, general and administrative expenses............................................ 48,777 3,456 52,233
Interest expense, net................................................................... 21,233 385 21,618
Other expense, net...................................................................... 2,726 -- 2,726
Preferred dividends of a subsidiary..................................................... 1,913 -- 1,913
---------- ------------- -----------
Income (loss) before income taxes and accounting change............................... (2,678) 2,128 (550)
Provision for income taxes.............................................................. 1,764 702 2,466
---------- ------------- -----------
(Loss) income before cumulative effect of accounting change (a)....................... $ (4,442) $ 1,426 $ (3,016)
---------- ------------- -----------
---------- ------------- -----------
(Loss) income before cumulative effect of accounting change per common and common share
equivalent............................................................................. $(0.27)
Weighted average shares outstanding..................................................... 11,217,725
</TABLE>
See Notes to Pro Forma Condensed Combined Statements of Operations.
60
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1993
<TABLE>
<CAPTION>
BIG
FLOWER (h) SCANFORMS (i) PRO FORMA
---------- ------------- -----------
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<S> <C> <C> <C>
Net sales............................................................................... $ $22,050 $ 22,050
Cost of production...................................................................... 15,970 15,970
---------- ------------- -----------
Gross profit.......................................................................... 6,080 6,080
---------- ------------- -----------
Selling, general and administrative expenses............................................ 4,113 4,113
Interest expense, net................................................................... 856 856
---------- ------------- -----------
Income before income taxes............................................................ 1,111 1,111
Provision for income taxes.............................................................. 479 479
---------- ------------- -----------
Net income............................................................................ $ $ 632 $ 632
---------- ------------- -----------
---------- ------------- -----------
Net income per common and common share equivalent....................................... $0.39
Weighted average shares outstanding..................................................... 1,622,782
</TABLE>
See Notes to Pro Forma Condensed Combined Statements of Operations.
61
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
PRIOR TRANSACTIONS
(a) The data with respect to the six months ended June 30, 1996 are presented
prior to the Big Flower extraordinary loss of $1.9 million on extinguishment
of debt. The data with respect to the six months ended December 31, 1995 are
presented prior to the Big Flower extraordinary loss of $19.2 million on
extinguishment of debt and termination of the swap agreement and prior to
payment of a premium on redemption of preferred stock of a subsidiary of
$1.6 million. Scanforms' results of operations presented for the year ended
June 30, 1994 are prior to the cumulative effect of an accounting change for
adoption of Statement of Financial Accounting Standards No. 109 of $261,000.
(b) Represents the historical statements of operations of Laser Tech and
Webcraft for the applicable periods prior to their respective acquisition by
Big Flower. Laser Tech was acquired on November 27, 1995 and Webcraft was
acquired on March 19, 1996. Therefore, the historical statements of
operations for the year ended June 30, 1995 include twelve months of
operations for Laser Tech and Webcraft and the historical statements of
operations for the six months ended December 31, 1995 include historical
statements of operations for the 150 days ended November 27, 1995 of Laser
Tech and the six months ended December 31, 1995 of Webcraft. The historical
statements of operations for the six months ended June 30, 1996 include 79
days of operations for Webcraft prior to its acquisition by Big Flower. The
Laser Tech historical statements of operations for the 150 days ended
November 27, 1995 have been adjusted to exclude certain non-recurring
charges related to the LT Acquisition of $52,000.
(c) The pro forma adjustments to selling, general and administrative expense
include the amortization of the excess purchase cost over book value of net
assets acquired in the LT Acquisition and WTI Acquisition, the amortization
of the Laser Tech non-compete agreement and the elimination of expenses not
expected to recur which include related party compensation. Such amounts are
as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED ----------------------------------
JUNE 30, 1995 DECEMBER 31, 1995 JUNE 30, 1996
------------- ----------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Elimination of Laser Tech related party
compensation........................................ $ (308) $ (128)
Amortization of the excess purchase price over book
value (30 years)*
Webcraft........................................... 2,181 1,091 $ 473
Laser Tech......................................... 775 311
Amortization of Laser Tech non-compete agreement (5
years).............................................. 50 20 --
------------- ------- -----
$ 2,698 $ 1,294 $ 473
------------- ------- -----
------------- ------- -----
</TABLE>
- ------------------------
* The excess purchase cost over the book value of net assets acquired has not
been fully allocated to individual assets or liabilities acquired. However,
Big Flower believes a portion will be allocated to property, plant and
equipment and identifiable intangibles and the remainder, representing
goodwill, will be amortized over 40 years. Accordingly, a composite life of
30 years has been used.
62
<PAGE>
(d) The pro forma adjustments to interest expense and amortization of deferred
financing fees reflect the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED --------------------------------
JUNE 30, 1995 DECEMBER 31, 1995 JUNE 30, 1996
------------- ----------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Eliminate interest expense on:
Big Flower debt repaid in the Refinancing...................... $ (21,690) $ (9,942)
Laser Tech debt repaid in the LT Acquisition................... (291) (224)
Webcraft debt repaid in the WTI Acquisition.................... (9,373) (4,541) $ (2,061)
Interest expense on additional Existing Revolver borrowings, at a
composite interest rate of 7.44%, in connection with:
Refinancing.................................................... 11,751 4,720 --
LT Acquisition................................................. 1,934 777 --
WTI Acquisition................................................ 2,678 1,339 581
Interest expense on the Tranche B Term Loan, at a composite
interest rate of 7.94%, in connection with the WTI
Acquisition..................................................... 5,953 2,977 1,292
Elimination of amortization of deferred financing costs on
refinanced debt of:
Big Flower, in connection with the Refinancing................. (2,700) (1,214) --
Webcraft....................................................... (656) (328) (125)
Amortization of deferred financing costs attributable to Existing
Revolver borrowings in connection with the Refinancing.......... 750 301 --
Amortization of deferred financing costs attributable to the
Tranche B Term Loan borrowings in connection with the WTI
Acquisition..................................................... 219 110 47
Elimination of interest income on Webcraft cash and cash
equivalents and certain Webcraft notes receivable and Laser
Tech............................................................ 1,544 453 257
------------- ------- -------------
$ (9,881) $ (5,572) $ (9)
------------- ------- -------------
------------- ------- -------------
</TABLE>
(e) For the year ended June 30, 1995 and the six months ended December 31, 1995,
the adjustments reflect losses on the sale of receivables pursuant to the
A/R Securitization. The pro forma adjustment for the six months ended June
30, 1996 (i) adjusts the historical loss on the sale of receivables pursuant
to the A/R Securitization for such period as if the A/R Securitization had
occurred as of July 1, 1994; (ii) eliminates non-recurring fees and expenses
(including the settlement of stock options) reflected in Webcraft's and Big
Flower's historical results for the periods ended June 30, 1996 attributable
to the WTI Acquisition of $14.0 million and (iii) eliminates $4 million of a
$5.7 million litigation settlement gain included in Webcraft's historical
results. The WTI Acquisition agreements provided that if the litigation
proceeds were received by Webcraft prior to the close of the WTI
Acquisition, the purchase price would increase by 70% of such proceeds;
however, if the proceeds were received after the WTI Acquisition closed, Big
Flower would retain 30% of the amount and the remaining 70% would be
distributed to Webcraft's former stockholders. On a pro forma basis, $1.7
million of the litigation settlement gain has been included in Big Flower's
income and $4 million has been remitted to Webcraft's stockholders. The
effect of such settlement, which Webcraft management believes is
non-recurring, results in $0.06 of earnings per share.
(f) Reflects the elimination of preferred dividends on the redeemable preferred
stock redeemed in connection with the Refinancing.
(g) Reflects the effect of the pro forma adjustments on the provision for income
taxes at a 46% tax rate for the six months ended June 30, 1996, and a 40%
tax rate for the six months ended December 31, 1995 and the twelve months
ended June 30, 1995 (excluding adjustments for the amortization of goodwill
and preferred dividends on the redeemable preferred stock). Webcraft's
historical tax provisions include recognition of net operating loss
carryforwards ("NOL"). The pro forma adjustment to the tax provision
includes elimination of such benefit, because in the purchase transaction,
the benefit of the acquired NOL is included in deferred taxes on the balance
sheet.
63
<PAGE>
MERGER TRANSACTIONS AND PRINTCO TRANSACTIONS
(h) The historical statement of operations for the year ended June 30, 1994
includes the results of operations of Big Flower for the 323-day period
since its formation on August 12, 1993. There are no historical operating
results for Big Flower for the year ended June 30, 1993 because Big Flower
was not formed until August 12, 1993.
(i) Big Flower currently anticipates refinancing approximately $4.3 million of
Scanforms debt with Big Flower's Credit Facilities to reduce the combined
entity's net interest expense. The estimated impact of this pro forma
adjustment to the pro forma condensed combined statements of operations
presented is insignificant.
(j) During the six months ended June 30, 1996, Scanforms incurred approximately
$434,000 of legal and other fees related to the Management Proposal. See
"THE MERGER: Background of the Merger." Such expense is reflected in other
expenses.
(k) As a result of the Printco Transactions, certain costs and expenses and
arrangements with Printco affiliates included in the historical results of
Printco will be eliminated. The following table summarizes pro forma
adjustments to reflect such changes as well as the amortization of excess of
purchase cost over the book value of net assets acquired resulting from the
Printco Transactions.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED --------------------------------
JUNE 30, 1995 DECEMBER 31, 1995 JUNE 30, 1996
------------- ----------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
COST OF PRODUCTION:
Eliminate:
Building rent expense (1)...................................... $ (815) $ (414) $ (424)
LIFO adjustment (2)............................................ (438) (703) 80
Building depreciation (1)...................................... 155 78 78
------------- -------- -------------
$ (1,098) $ (1,039) $ (266)
------------- -------- -------------
------------- -------- -------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Eliminate:
Building rent expense (1)...................................... $ (110) $ (57) $ (58)
Management and Directors fees and expenses and revenues from
affiliates (3)................................................ (308) (247) (244)
Building depreciation (1) 21 11 11
Amortization of excess purchase cost over book value (4)......... 216 108 108
------------- -------- -------------
$ (181) $ (185) $ (183)
------------- -------- -------------
------------- -------- -------------
</TABLE>
- ------------------------
(1) Printco leased a building from Park Properties. The building is being
purchased by Treasure Chest pursuant to the Printco Acquisition.
Therefore, the related rental expense is eliminated from cost of
production and selling, general and administrative expenses. Furthermore
related depreciation on the purchased building, over a 30-year life, has
been included in the cost of production and selling, general and
administrative expenses.
(2) Printco valued its inventories using the last-in, first-out ("LIFO")
cost method. This adjustment eliminates the effects of accounting for
inventories costs using the LIFO cost method, to conform with Big
Flower's inventory accounting method.
(3) Reflects the elimination of Printco's director and professional fees as
well as certain management expenses which will no longer be incurred as a
result of the Printco Acquisition. Also eliminated are fees Printco
received from an affiliate for providing accounting services.
(4) The excess of purchase cost over the book value of net assets acquired
has not been fully allocated to individual assets or liabilities
acquired. However, Printco believes a portion will be allocated to
inventory, property, plant and equipment and identifiable intangibles
having average lives of approximately 1-5 years and the remainder,
representing goodwill, will be amortized over 40 years. Accordingly, a
composite life of 30 years has been used.
64
<PAGE>
(l) The pro forma adjustments which reflect the financing of the Printco
Acquisition are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED --------------------------------
JUNE 30, 1995 DECEMBER 31, 1995 JUNE 30, 1996
------------- ----------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest expense on revolving line of credit........... $ 2,867 $ 1,434 $ 1,434
Eliminate interest expense on refinanced debt.......... (1,028) (547) (465)
Eliminate interest income on notes receivable.......... 42 27 --
------------- -------- -------------
$ 1,881 $ 914 $ 969
------------- -------- -------------
------------- -------- -------------
</TABLE>
(m) The pro forma adjustment for the six months ended June 30, 1996 eliminates
non-recurring expenses reflected in Scanforms' historical results for the
six months ended June 30, 1996 attributable to the Merger Transactions of
$108,000. Total non-recurring transaction expenses for the Merger
Transactions and the Printco Transactions, which have been excluded from the
statement of operations for the six months ended June 30, 1996, are
estimated to be $2.0 million.
(n) Reflects the effect of the Merger Transactions and the Printco Transactions
on the provision for income taxes at a tax rate of 40%.
(o) The pro forma income per share before extraordinary item of $0.11 for the
six months ended June 30, 1996 includes a one-item litigation settlement
gain of $1.7 million in conjunction with the WTI Acquisition (see Note (e)).
(p) Reflects a 2-for-1 stock split and the issuance of 5,500,000 shares of Big
Flower Common Stock as a result of the IPO and 281,250 shares of Big Flower
Common Stock as a result of the LT Acquisition and assumes the issuance of
1,549,614 shares of Big Flower Common Stock in the Merger (based on the
assumed Conversion Number of 0.4423). In periods in which the pro forma
combined operations result in income, the weighted average number of shares
additionally include 73,169 shares assumed for the exercise of Scanforms
options which are converted to Big Flower options at the time of the Merger.
Such shares are excluded from loss year calculations due to their
antidilutive effect. Subject to the terms and conditions of the Merger
Agreement, each share of Scanforms Common Stock outstanding immediately
prior to the Effective Time will be converted into the right to receive a
fraction of a share of Big Flower Common Stock equal to the quotient
obtained by dividing $5.75 by the Average Stock Price. The Average Stock
Price used in such calculation is subject to a maximum of $15.00 and a
minimum of $13.00. See "SUMMARY: The Merger and the Merger Agreement." The
shares issued upon the Merger are assumed to be issued based on a Conversion
Number of 0.4423. If the Average Stock Price was $15.00, pro forma amounts
per common and common equivalent share for all periods presented, except the
year ended June 30, 1993, would change by $0.01 or less from such amounts
calculated using an Average Stock Price of $13.00. Pro forma net income per
common and common equivalent share for the year ended June 30, 1993 would be
$0.45 based on an assumed Average Stock Price of $15.00.
65
<PAGE>
DESCRIPTION OF BIG FLOWER COMMON STOCK
The statements set forth under this heading with respect to the DGCL, Big
Flower's Restated Certificate of Incorporation (the "Big Flower Charter"), Big
Flower's Amended and Restated By-laws (the "Big Flower By-laws") and Rights
Agreement, dated November 28, 1995 (the "Rights Agreement"), with The Bank of
New York, as Rights Agent, are brief summaries thereof and do not purport to be
complete; such statements are subject to the detailed provisions of the DGCL,
the Big Flower Charter, the Big Flower By-laws and the Rights Agreement. See
"AVAILABLE INFORMATION."
GENERAL
The authorized capital stock of Big Flower consists of 50,000,000 shares of
Big Flower Common Stock; 2,500,000 authorized shares of Class B common stock,
par value $.01 per share ("Class B Stock"); and 10,000,000 authorized shares of
preferred stock, par value $.01 per share ("Preferred Stock"). As of the close
of business on the Record Date, there were 14,715,745 shares of Big Flower
Common Stock outstanding; 2,561,769 shares of Big Flower Common Stock reserved
for issuance upon exercise of options (both vested and unvested) to purchase
shares of Big Flower Common Stock; 1,738,692 shares of Class B Stock
outstanding; and 250,000 shares of Preferred Stock, designated as Series A
Junior Preferred Stock ("Series A Junior Preferred"), which are reserved for
issuance pursuant to the Company's Rights Plan. See "Stockholder Rights Plan"
below.
COMMON STOCK
The holders of outstanding shares of Big Flower Common Stock are entitled to
receive dividends out of assets legally available therefor at such times and in
such amounts as the Board of Directors of Big Flower may from time to time
determine. The shares of Big Flower Common Stock are neither redeemable nor
convertible, and the holders thereof have no preemptive or subscription rights
to purchase any securities of Big Flower. Upon liquidation, dissolution or
winding up of Big Flower, the holders of Big Flower Common Stock are entitled to
receive, pro rata with the holder of the Class B Stock, the assets of Big Flower
which are legally available for distribution, after payment of all debts, other
liabilities and any liquidation preference of outstanding Preferred Stock. Each
outstanding share of Big Flower Common Stock is entitled to one vote on all
matters submitted to a vote of stockholders. There is no cumulative voting.
CLASS B STOCK
BT Investment Partners, Inc. ("BTIP") is the only holder of the Class B
Stock, which is not entitled to vote except as required by law. BTIP, an
affiliate of a bank holding company, is subject to certain banking laws and
regulations ("Banking Laws") which limit its ability to hold voting capital
stock. Except with respect to the potential issuance of stock dividends as
described below, Big Flower does not intend to issue any additional shares of
Class B Stock. The Class B Stock has rights identical to the Big Flower Common
Stock with respect to dividends and distributions, provided that if dividends
are declared which are payable in Big Flower Common Stock, Big Flower will make
available to each holder of Class B Stock, at such holder's request, dividends
consisting of Class B Stock. The Class B Stock is convertible into Big Flower
Common Stock on a share-for-share basis in certain circumstances, subject to
Banking Laws.
PREFERRED STOCK
The Board of Directors is authorized to issue preferred stock in classes or
series and to fix the designations, preferences, qualifications, limitations, or
restrictions of any class or series with respect to the rate and nature of
dividends, the price and terms and conditions on which shares may be redeemed,
the amount payable in the event of voluntary or involuntary liquidation, the
terms and conditions for conversion or exchange into any other class or series
of stock, the voting rights, if any,
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and other terms. Cumulative dividends, dividend preferences and conversion,
exchange and redemption provisions, to the extent that some or all of these
features may be present when shares of Preferred Stock are issued, could have an
adverse effect on the availability of earnings for distribution to the holders
of Big Flower Common Stock or for other corporate purposes.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE BIG FLOWER CHARTER AND BIG FLOWER
BY-LAWS
The Big Flower Charter and Big Flower By-laws contain certain provisions
that may be deemed to have an anti-takeover effect and may delay, deter or
prevent a tender offer or takeover attempt that a stockholder of Big Flower
might consider in the stockholder's best interest, including attempts which
might result in a premium over the market price for shares of Big Flower Common
Stock.
Pursuant to the Big Flower Charter, the Board of Directors is divided into
three classes serving staggered three-year terms. Directors of Big Flower can be
removed from office only for cause and only by the affirmative vote of the
holders of 85% of the Big Flower Common Stock. Vacancies and newly created
directorships on the Board of Directors may be filled only by the remaining
directors or by the affirmative vote of the holders of 85% of the outstanding
shares of Big Flower Common Stock.
The Big Flower Charter provides that any action required or permitted to be
taken by the holders of Big Flower Common Stock may be effected only at an
annual or special meeting of such holders, and prohibits stockholder action by
written consent in lieu of a meeting. The Big Flower By-laws provide that
special meetings of holders of Big Flower Common Stock may be called only by the
Chairman or the President of Big Flower and shall be called by the Chairman,
President or the Secretary of Big Flower at the request in writing of a majority
of the Board of Directors. Holders of Big Flower Common Stock are not permitted
to call a special meeting or to require that the Board of Directors call a
special meeting of stockholders.
The Big Flower By-laws may be amended or changed or new By-laws adopted only
by the Board of Directors or the affirmative vote of the holders of 85% of the
outstanding shares of Big Flower Common Stock.
The Big Flower By-laws establish an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors as well as for other stockholder proposals
to be considered at annual meetings of stockholders. In general, notice of
intent to nominate a director or for consideration of a stockholder proposal at
such meetings must be received by Big Flower not less than 60 nor more than 90
days prior to the date of the annual meeting, and must contain certain specified
information concerning the person to be nominated or the matters to be brought
before the meeting and concerning the stockholder submitting the proposal.
Article FIFTH of the Big Flower Charter provides for, among other things,
(i) classification of the Big Flower Board of Directors, (ii) removal of Big
Flower directors from office only for cause, (iii) amendment of the Big Flower
By-laws by stockholders of Big Flower to require an affirmative vote of the
holders of 85% of the outstanding shares of Big Flower Common Stock, (iv)
prohibition of action by written consent of the stockholders of Big Flower, (v)
elimination of Big Flower director liability to the maximum extent permitted by
the DGCL and (vi) amendment of the Rights Agreement to require action by a
majority of Continuing Directors.
A Continuing Director is defined as a person serving as a member of the Big
Flower Board of Directors on November 28, 1995 and any person who subsequently
becomes a member of the Board of Directors if such person was elected by, or
such person's nomination for election was recommended or approved by, a majority
of the Continuing Directors then in office. The Big Flower Charter also provides
that the provisions of Article FIFTH of the Big Flower Charter may only be
altered, amended or replaced by either the affirmative vote of the holders of
85% of the outstanding shares of Big Flower Common Stock or by a majority of
Continuing Directors.
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See also "Certain Effects of Authorized But Unissued Stock" and
"Stockholders Rights Plan" below.
SECTION 203 OF THE DGCL
Section 203 of the DGCL prohibits a publicly held Delaware corporation,
including Big Flower, from engaging in a "business combination" with any
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an "interested stockholder," unless (i)
such transaction is approved by the board of directors of such corporation prior
to the date the interested stockholder obtains such status, (ii) upon
consummation of such transaction, the "interested stockholder" beneficially
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the number
of shares outstanding those shares owned by (a) persons who are directors and
also officers of such corporation and (b) employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer, or
(iii) the "business combination" is approved by the board of directors of such
corporation and authorized at an annual or special meeting of stockholders of
such corporation by the affirmative note of at least 66% of the outstanding
voting stock of such corporation which is not owned by the "interested
stockholder." A "business combination" includes mergers, asset sales and other
transactions resulting in financial benefit to the "interested stockholder". An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) beneficially 15% or more of a
corporation's voting stock. The statute could prohibit or delay mergers or other
takeover or change in control attempts with respect to Big Flower and,
accordingly, may discourage attempts to acquire Big Flower.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Upon consummation of the Merger and the issuance of Big Flower Common Stock
pursuant thereto to stockholders of Scanforms, based on the Conversion Number of
0.4423, there will be 31,134,180 shares of Big Flower Common Stock authorized
but unissued (and not reserved for issuance upon conversion of the Class B Stock
or exercise of outstanding options to purchase Big Flower Common Stock,
including substitute options to purchase Big Flower Common Stock for all
presently outstanding options to purchase Scanforms Common Stock), and 9,750,000
shares of Preferred Stock authorized but unissued, for future issuance without
additional stockholder approval. These additional shares may be utilized for a
variety of corporate purposes, including future offerings to raise additional
capital or to facilitate corporate acquisitions.
The issuance of Preferred Stock could have the effect of delaying or
preventing a change in control of Big Flower. The issuance of Preferred Stock
could decrease the amount of earnings and assets available for distribution to
the holders of Big Flower Common Stock or could adversely affect the rights and
powers, including voting rights, of the holders of the Big Flower Common Stock.
In certain circumstances, such issuance could have the effect of decreasing the
market price of the Big Flower Common Stock.
One of the effects of the existence of unissued and unreserved Big Flower
Common Stock or Preferred Stock may be to enable the Board of Directors of Big
Flower to issue shares to persons friendly to current management which could
render more difficult or discourage an attempt to obtain control of Big Flower
by means of a merger, tender offer, proxy contest or otherwise, and thereby
protect the continuity of management. Such additional shares also could be used
to dilute the stock ownership of persons seeking to obtain control of Big
Flower.
Big Flower does not currently have any plans to issue additional shares of
Big Flower Common Stock or Preferred Stock other than shares of Big Flower
Common Stock which may be issued upon the exercise of options which have been
granted or which may be granted in the future to directors, officers and
employees of Big Flower.
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STOCKHOLDER RIGHTS PLAN
Pursuant to the Rights Agreement, each holder of an outstanding share of Big
Flower Common Stock has received, and each stockholder of Scanforms receiving a
share of Big Flower Common Stock in the Merger will receive, one right (a
"Right"), which entitles the registered holder to purchase from Big Flower a
unit consisting of one one-hundredth of a share of Series A Junior Preferred at
an exercise price of $55 per unit. The following summary outlines certain
provisions of the Rights Agreement and is qualified by reference to the full
text of the Rights Agreement.
Initially, the Rights will be attached to all Big Flower Big Flower Common
Stock certificates representing shares then outstanding, and no separate rights
certificates (the "Rights Certificates") will be distributed. The Rights will
separate from the Big Flower Common Stock, separate Rights Certificates will be
issued and a distribution date (the "Distribution Date") will occur upon the
earlier to occur of (i) ten days following the date of a public announcement
that there is an Acquiring Person (as defined below) (such date, the "Stock
Acquisition Date"), or (ii) ten days following commencement of a tender or
exchange offer that would result in the offeror beneficially owning 15% or more
of the outstanding shares of Big Flower Common Stock.
The term "Acquiring Person" means, any person who, together with affiliates
and associates either (a) acquires beneficial ownership of shares of Big Flower
Common Stock representing 15% or more of the outstanding shares of Big Flower
Common Stock or (b) is the beneficial owner of 30% or more of the outstanding
shares of Big Flower Common Stock and the Class B Stock. However, shares of Big
Flower Common Stock and options to purchase Big Flower Common Stock issued or
granted by Big Flower to a director, officer or employee pursuant to, or upon
exercise of options or rights granted pursuant to, any benefit plan of Big
Flower shall not be deemed to be beneficially owned by such person for purposes
of determining such person's percentage beneficial ownership of Big Flower
Common Stock.
In the event that a Person becomes an Acquiring Person (except pursuant to
an offer for all outstanding shares of Big Flower Common Stock which the
independent directors determine to be fair to and otherwise in the best
interests of Big Flower and its stockholders), each holder of a Right will
thereafter have the right to receive, upon exercise, Big Flower Common Stock
(or, in certain circumstances, cash, property or other securities of Big Flower)
having a calculated value equal to two times the exercise price of the Right.
Notwithstanding the foregoing, following the occurrence of such event, all
Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by an Acquiring Person and certain related
Persons and transferees will be null and void. However, Rights are not
exercisable following the occurrence of such event until such time as the Rights
are no longer redeemable as set forth below.
The Rights are not exercisable until the Distribution Date and will expire
on November 28, 2005, the tenth anniversary of their issuance, unless redeemed
earlier by the Board of Directors.
At any time prior to the tenth day following the Stock Acquisition Date, Big
Flower may redeem the Rights, in whole, but not in part, at a price of $.01 per
Right, upon approval of a majority of Continuing Directors.
In general, the Rights Agreement may be amended upon approval of a majority
of Continuing Directors (i) prior to the Distribution Date in any manner, and
(ii) on or after the Distribution Date in certain respects including (a) to
shorten or lengthen any time period and (b) in a manner not adverse to the
interests of Rights holders. However, amendments extending the redemption period
must be made while the Rights are still redeemable.
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The Rights have certain anti-takeover effects and will cause substantial
dilution to a person or group that attempts to acquire Big Flower on terms not
approved by the Continuing Directors. The Rights should not interfere with any
merger or other business combination approved by a majority of the Continuing
Directors since the Continuing Directors may redeem the Rights as provided
above.
LIMITATION OF DIRECTORS' LIABILITY
The Big Flower Charter contains a provision that limits the liability of Big
Flower's directors for monetary damages for breach of fiduciary duty as a
director to the fullest extent permitted by the DGCL. Such limitation does not,
however, affect the liability of a director (i) for any breach of the director's
duty of loyalty to Big Flower or its stockholders, (ii) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law, (iii) in respect of certain unlawful dividend payments or stock
redemptions or purchases and (iv) for any transaction from which the director
derives an improper personal benefit. The effect of this provision is to
eliminate the rights of Big Flower and its stockholders (through stockholder's
derivative suits on behalf of Big Flower) to recover monetary damages against a
director of Big Flower for breach of the fiduciary duty of care as a director
(including breaches resulting from negligent or grossly negligent behavior)
except in the situations described in clauses (i) through (iv) above. This
provision does not limit or eliminate the rights of Big Flower or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. In addition, the directors
and officers of Big Flower have directors' and officers' liability insurance.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Big Flower Common Stock is The Bank
of New York.
COMPARISON OF THE RIGHTS OF HOLDERS OF
BIG FLOWER COMMON STOCK AND SCANFORMS COMMON STOCK
The statements set forth under this heading with respect to the DGCL, the
Restated Certificate of Incorporation of Scanforms (the "Scanforms Charter"),
the By-laws of Scanforms (the "Scanforms By-laws"), the Big Flower Charter, the
Big Flower By-laws and the Rights Agreement are brief summaries thereof and do
not purport to be complete; such statements are subject to the detailed
provisions of the DGCL, the Big Flower Charter, the Big Flower By-laws, the
Rights Agreement, the Scanforms Charter and the Scanforms By-laws. See
"AVAILABLE INFORMATION."
The following summary compares certain rights of the holders of Scanforms
Common Stock to the rights of the holders of Big Flower Common Stock. The rights
of Scanforms stockholders are governed principally by the DGCL, the Scanforms
Charter and the Scanforms By-laws. Upon consummation of the Merger, such
stockholders will become holders of Big Flower Common Stock and their rights
will be governed principally by the DGCL, the Big Flower Charter, the Big Flower
By-laws and the Rights Agreement.
DIVIDEND RIGHTS
The rights of the holders of Scanforms Common Stock and the holders of Big
Flower Common Stock with respect to the receipt of dividends are the same. See
"DESCRIPTION OF BIG FLOWER COMMON STOCK: Common Stock." Under the DGCL, a
corporation may pay dividends out of surplus (defined as the excess, if any, of
net assets over capital) or, if no such surplus exists, out of its net profits
for the fiscal year in which such dividends are declared and/or for its
preceding fiscal year, provided that dividends may not be paid out of net
profits if the capital of such corporation is less than the aggregate amount of
capital represented by the outstanding stock of all classes having a preference
upon the distribution of assets.
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VOTING RIGHTS
Each share of Scanforms Common Stock and each share of Big Flower Common
Stock is entitled to one vote on each matter submitted to a vote of
stockholders. Directors of Scanforms and Big Flower are elected by a plurality
of votes cast for each director being elected. Except as otherwise provided by
the DGCL, any other corporate action to be taken by vote of the stockholders of
Scanforms must be authorized by a majority of the total votes cast by the
stockholders entitled to vote thereon at a duly organized meeting of
stockholders. Except as otherwise provided by the DGCL and the Big Flower
Charter, any other corporate action to be taken by a vote of the stockholders of
Big Flower must be authorized by a majority of the total votes cast and entitled
to vote thereon at a duly organized meeting of stockholders. See "DESCRIPTION OF
BIG FLOWER COMMON STOCK: Anti-takeover Effects of Provisions of the Big Flower
Charter and Big Flower By-laws" for a description of certain matters requiring a
higher vote for approval by holders of Big Flower Common Stock.
DIRECTORS
The Scanforms By-laws provide that the Board of Directors of Scanforms shall
consist of no fewer than 2 nor more than 11 directors, as determined by the
Scanforms Board of Directors, and be elected for a one-year term at the annual
meeting of Scanforms stockholders. The Big Flower By-laws provide that the Board
of Directors of Big Flower shall consist of no fewer than 3 nor more than 12
members as determined by the Big Flower Board of Directors, such number of
directors to be divided into three classes (Class I, Class II and Class III),
each class having a three-year term and consisting, as nearly as possible, of
one-third of the total number of directors. The term of the initial Class I,
Class II and Class III directors will terminate at the 1996, 1997 and 1998
annual meetings of stockholders of Big Flower, respectively, and at each annual
meeting of stockholders beginning in 1996, successors to the class of directors
whose terms expire shall be elected for a three-year term of office, with the
three-year term of each class of the directors expiring at successive annual
meetings of the stockholders, so that one class shall be elected each year. The
Big Flower By-laws provide that nominations for directors can only be made by a
stockholder of record on the record date for the determination of stockholders
entitled to vote at the annual meeting of stockholders and at the time of giving
of a written notice of such stockholder's intent to make such nominations at
such meeting to the Secretary of Big Flower which, generally, must be given not
less than 60 days nor more than 90 days prior to the date of the annual meeting.
Each of the directors of Scanforms may be removed, with or without cause, at
any time, by the affirmative vote of the holders of the majority of the
outstanding shares of Scanforms Common Stock. Each of the directors of Big
Flower may be removed from office at any time only for cause and only by
affirmative vote of the holders of not less than 85% of the outstanding shares
of Big Flower Common Stock.
CALL OF SPECIAL MEETINGS
Special meetings of the stockholders of Scanforms may be called for any
purpose at any time by the Scanforms Board of Directors or the Chairman of the
Board of Directors or the President of Scanforms, or at the request in writing
of stockholders owning not less than a majority of the entire issued and
outstanding capital stock of Scanforms entitled to vote at a meeting of
stockholders. Special meetings of the stockholders of Big Flower may be called
for any purpose by the Chairman or the President of Big Flower and shall be
called by the Chairman, the President or the Secretary of Big Flower at the
request in writing of a majority of the Board of Directors.
ACTION BY STOCKHOLDERS WITHOUT A MEETING
The DGCL permits the stockholders of a corporation to consent in writing to
any action without a meeting, unless the certificate of incorporation of such
corporation provides otherwise, provided such consent is signed by stockholders
having at least the minimum number of votes required to authorize such action at
a meeting of stockholders at which all shares entitled to vote thereon were
present and
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voted. The Scanforms By-laws provide that whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken for or in connection with
any corporate action, the meeting and vote of stockholders can be dispensed with
if all of the stockholders who would have been entitled to vote upon the action
consent in writing to such corporate action being taken or, unless the Scanforms
Charter provides otherwise (which it presently does not), with the written
consent of the holders of not less than the minimum percentage of the total vote
required by statute for the proposed corporate action, and provided that prompt
notice is given to all stockholders who have not so consented in writing of the
taking of such corporate action without a meeting and by less than unanimous
written consent. The Big Flower Charter does not allow action to be taken by
stockholders of Big Flower by written consent in lieu of a special or annual
meeting.
STOCKHOLDER PROPOSALS
None of the DGCL, the Scanforms Charter or the Scanforms By-laws limit the
ability of Scanforms stockholders to bring other business before a meeting of
stockholders. The Big Flower By-laws set forth certain requirements that must be
satisfied by a stockholder in order to bring business before an annual meeting
of Big Flower stockholders which requirements are similar to those for
nominating a director to serve on the Big Flower Board of Directors. See
"Directors" above.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Under the DGCL, a certificate of incorporation of a Delaware corporation may
be amended by approval of the amendment by the Board of Directors of such
corporation and the affirmative vote of the holders of a majority of the
outstanding shares of stock entitled to vote thereon unless the certificate of
incorporation prescribes a higher requirement. The Scanforms Charter does not
prescribe a higher requirement. The Big Flower Charter requires the affirmative
vote of either the holders of not less than 85% of the outstanding shares of Big
Flower Common Stock or a majority of Continuing Directors to alter, amend or
repeal Article FIFTH thereof. See "DESCRIPTION OF BIG FLOWER COMMON STOCK:
Antitakeover Effects of Provisions of the Big Flower Charter and Big Flower
By-laws" for a description of the matters contained in Article FIFTH.
AMENDMENT OF BY-LAWS
The Scanforms By-laws may be altered, amended or repealed or new by-laws may
be adopted (i) by the stockholders of Scanforms or by the Scanforms Board of
Directors at any regular meeting of the stockholders or of the Board of
Directors or (ii) at any special meeting of the stockholders of Scanforms or of
the Board of Directors of Scanforms if notice of such alteration, amendment,
repeal or adoption or new By-laws be contained on the notice of such special
meeting. The Big Flower By-laws may be altered, amended or repealed, in whole or
in part, or new by-laws may be adopted by the Big Flower stockholders or by the
Big Flower Board of Directors, provided that notice of such alteration,
amendment, repeal or adoption of new By-laws is contained in the notice of such
meeting of stockholders or Board of Directors and such amendments are approved
by either a majority of the Continuing Directors or the affirmative vote of the
holders of not less than 85% of the outstanding shares of Big Flower Common
Stock.
APPROVALS OF MERGERS AND ASSETS SALES
Under the DGCL, unless required by its certificate of incorporation, no vote
of the stockholders of a constituent corporation surviving a merger is necessary
to authorize such merger if: (i) the agreement of merger does not amend the
certificate of incorporation of such constituent corporation; (ii) each share of
stock of such constituent corporation outstanding prior to such merger is to be
an identical outstanding or treasury share of the surviving corporation after
such merger; (iii) either no shares of common stock of the surviving corporation
and no shares, securities or obligations convertible into such common stock are
to be issued under such agreement of merger, or the number of shares of common
stock issued or so issuable does not exceed 20% of the number thereof
outstanding immediately prior to such merger; and (iv) certain other conditions
are satisfied. In addition, the
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DGCL provides that a parent corporation that is the record holder of at least
90% of the outstanding shares of each class of stock of a subsidiary may merge
such subsidiary into such parent corporation or other subsidiary owned by it
without the approval of such subsidiary's stockholders or board of directors.
Whenever the approval of the stockholders of a corporation is required for an
agreement of merger or consolidation or for a sale, lease or exchange of all or
substantially all of its assets, such agreement, sale, lease or exchange must be
approved by the affirmative vote of the holders of a majority of outstanding
shares of such corporation entitled to vote thereon.
None of the Big Flower Charter, the Big Flower By-laws, the Scanforms
Charter or the Scanforms By-laws contain supermajority voting provisions
relating to the approval of business combinations by stockholders.
RIGHTS OF APPRAISAL
The DGCL provides for appraisal rights only in the case of certain mergers
or consolidations and not (unless the certificate of incorporation of a
corporation so provides, which neither the Big Flower Charter nor Scanforms
Charter does) in the case of other mergers, a sale or transfer of all or
substantially all of its assets or an amendment to its certificate of
incorporation. Moreover, the DGCL does not provide appraisal rights in
connection with a merger or consolidation (unless the certificate of
incorporation so provides, which neither the Big Flower Charter nor Scanforms
Charter does) to the holders of shares of a constituent corporation listed on a
national securities exchange or designated as a national market system security
by the National Association of Securities Dealers, Inc. or held of record by
more than 2,000 stockholders, unless the applicable agreement of merger or
consolidation requires the holders of such shares to receive, in exchange for
such shares, any property other than shares of stock of the resulting or
surviving corporation, shares of stock of any other corporation listed on a
national securities exchange (or designated as described above) or held of
record by more than 2,000 holders, cash in lieu of fractional shares or any
combination of the foregoing. See "Approval of Mergers and Asset Sales." In the
event the Merger is consummated, record holders of Scanforms Common Stock who
have not voted in favor of the Merger and who have otherwise perfected their
right to appraisal will be entitled to appraisal rights under Section 262 of the
DGCL because such persons hold stock which is neither listed on a national
securities exchange, designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. nor held of record by more than 2,000 holders. See "THE MERGER: Appraisal
Rights."
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The DGCL permits a corporation to include in its certificate of
incorporation a provision limiting or eliminating the liability of its directors
and officers to such corporation or its stockholders for monetary damages
arising from a breach of fiduciary duty, except for: (i) a breach of the duty of
loyalty to the corporation or its stockholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) a declaration of a dividend or the authorization of the repurchase or
redemption of stock in violation of the DGCL or (iv) any transaction from which
the director derived an improper personal benefit. Both the Scanforms Charter
and the Big Flower Charter eliminate director liability to the maximum extent
permitted by the DGCL.
ANTI-TAKEOVER PROVISIONS
For information on certain anti-takeover provisions of the Big Flower
Charter, the Big Flower By-laws and the DGCL, see "DESCRIPTION OF BIG FLOWER
COMMON STOCK: Anti-Takeover Effects of Provisions of the Big Flower Charter and
Big Flower By-laws; Section 203 of DGCL."
BIG FLOWER RIGHTS
Pursuant to the Rights Agreement adopted by Big Flower, holders of Big
Flower Common Stock have a Right attached to each share entitling the holder to
purchase from Big Flower a unit consisting
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of one one-hundredth of a share of Series A Junior Preferred. Scanforms has not
adopted any agreement providing for any rights to holder of Scanforms Common
Stock. For information on Big Flower Rights, see "DESCRIPTION OF BIG FLOWER
COMMON STOCK: Stockholder Rights Plan."
BUSINESS OF BIG FLOWER
GENERAL
Big Flower has three principal operating units: Treasure Chest, Laser Tech
and Webcraft. Treasure Chest is a leading producer and marketer of advertising
circulars for many large United States retailers and publishes TV listing
guides, Sunday comics, Sunday magazines and/or special supplements for many
widely circulated United States newspapers. Laser Tech is a leading provider of
high quality electronic pre-media and conventional graphics services. Webcraft
is a market leader in producing and marketing highly customized direct mail and
other advertising products, and Big Flower believes Webcraft is the largest
in-line direct mail producer in the United States. Although each of Big Flower's
operating units provides a variety of services to its customers, the majority of
each operating unit's business is comprised of providing advertising and
marketing related information services.
TREASURE CHEST
Treasure Chest, established in 1967, was one of the first companies to
produce and market advertising circulars in the United States. In 1982, Treasure
Chest expanded its business with the introduction of newspaper TV listing guides
and Sunday comics. Treasure Chest was acquired by Big Flower in August 1993. In
April 1994, Treasure Chest acquired KTB Associates, Inc. ("KTB") and Retail
Graphics Holdings Company ("Retail Graphics"), increasing its net sales in its
fiscal year ended June 30, 1994 by more than 36% on a pro forma basis. In
calendar 1995, Big Flower produced more than 22.4 billion advertising circulars,
1.5 billion Sunday comics and 616 million newspaper TV listing guides.
Treasure Chest's mix of printing capabilities, which include both heatset
and cold web offset presses, enables it to provide a variety of formats and
designs to meet the diverse needs of its retailing customer base. Treasure Chest
produces advertising circulars for many leading U.S. retailers such as American
Drug Stores, Circuit City, Home Depot, J.C. Penney, Kmart, Lowes, Montgomery
Ward, Safeway, Sears, Walgreens and Wal-Mart. Big Flower believes Treasure Chest
is the largest producer of advertising circulars in the United States.
Treasure Chest publishes TV listing guides, Sunday comics, Sunday magazines
and/or special supplements for approximately two-thirds of the 50 most widely
circulated newspapers in the United States. Treasure Chest is the largest
producer of newspaper TV listing guides in the United States. Some of Treasure
Chest's significant customers include the San Francisco Examiner, The Baltimore
Sun, The Boston Globe, The Los Angeles Times, The Newark Star-Ledger, Newsday,
The New York Times and The Philadelphia Inquirer.
Treasure Chest began producing Sunday comics in the western United States in
1983 and in the eastern United States in 1985 and is the largest producer of
Sunday comics nationwide. As of December 31, 1995, the Company produced Sunday
comics for approximately 280 newspapers, including the Atlanta Journal, Miami
Herald, the San Francisco Examiner, The Baltimore Sun, The Denver Post, The Los
Angeles Times, The Newark Star-Ledger and The Philadelphia Inquirer.
Treasure Chest also publishes general publications for various federal and
state governmental agencies, religious organizations and other associations.
74
<PAGE>
LASER TECH
In November 1995, Big Flower acquired Laser Tech, a leading provider of
electronic pre-media services to advertising agencies, retailers, magazine
publishers, and consumer products companies. Laser Tech provides a full range of
electronic pre-media services and digital advertising services including
illustration, design, digital photographic capture, data warehousing and
retrieval and on-site facilities management.
WEBCRAFT
In March 1996, Big Flower acquired Webcraft, which has leading market
positions in such specialty product markets as highly customized direct mail,
fragrance samplers, promotional stamps and scratch-off lottery tickets.
Webcraft's non-specialty products include enhanced envelopes and government
forms. The primary users of Webcraft's personalized direct mail products are
consumer products and financial services companies and non-profit institutions.
Major customers include RJ Reynolds Tobacco Co., Chrysler Corp., Publishers
Clearing House, Reader's Digest Association, Inc. and Discover Credit Corp.
Big Flower was incorporated under the laws of the State of Delaware in July,
1993. The executive offices of Big Flower are located at 3 East 54th Street, New
York, New York 10022 and the telephone number for Big Flower is (212) 521-1600.
BUSINESS OF SCANFORMS
Scanforms is a full-service provider of direct mail advertising with
in-house forms manufacturing, laser and impact computer personalization, bindery
and mailing services. Scanforms' special capabilities include up to ten color
web heatset four color process printing, hot foil stamping and embossing, die
cutting, pressure sensitive labeling, tipped on plastic and paper cards and
remoist gluing.
Scanforms' sales staff markets Scanforms services and products to
advertising agencies for use by the agencies' clients and directly to end user
clients, including clients in the financial services and publishing industries.
Scanforms marketing efforts also include direct mail advertising, attendance at
monthly direct mail industry meetings in various cities, attendance at major
trade shows and direct telephone contacts.
The market for Scanforms' services and products is located principally on
the east coast, although Scanforms also serves customers in the Midwest and is
making efforts to develop markets nationally.
The primary raw material used by Scanforms is paper. Scanforms also uses
ink, film and metal plates. These products are available from numerous sources.
Generally, Scanforms maintains a six week supply of raw materials.
Sales to Scanforms' largest customer, MBNA America, accounted for 22.8% and
36.1% of Scanforms' revenues during the fiscal year ended October 1, 1995 and
the 39 weeks ended June 30, 1996, respectively. The loss of this customer would
have a material adverse effect on Scanforms' sales and income.
The total amount of the backlog of orders believed to be firm as of October
1, 1995 and October 2, 1994 was approximately $7.5 million and $7.7 million,
respectively. Scanforms usually fills its backlog within 12 months. Scanforms'
business is not significantly seasonal although the first quarter of the fiscal
year is traditionally Scanforms' strongest quarter.
The direct mail production business in which Scanforms is engaged is
intensely competitive. Scanforms believes that there are at least ten companies
with which it competes in its principal market area. Some of these companies
have greater financial resources than Scanforms and larger sales forces and
advertising budgets than Scanforms. Scanforms attempts to compete with such
companies by stressing the quality of its services. Scanforms believes that it
is able to react quickly to
75
<PAGE>
customer requirements and to give its customers individualized attention.
Further, although its competitors do significant business in the Philadelphia
and New York metropolitan areas, Scanforms' principal markets, Scanforms
believes that it has one of the largest plants in the Washington to New York
corridor.
As of August 2, 1996, Scanforms had 162 employees, of whom 123 were plant
employees, 6 were executive and key administrative employees, 19 were sales and
sales service employees and 14 were clerical employees.
Scanforms was incorporated under the laws of the State of Delaware on
January 21, 1969. The executive offices of Scanforms are located at 181
Rittenhouse Circle, Keystone Park, Bristol, Pennsylvania 19007-0602 and the
telephone number for Scanforms is (215) 785-0101.
EXPERTS
The consolidated financial statements and consolidated financial statement
schedules of Big Flower for the transition period ended December 31, 1995
incorporated into this Proxy Statement/ Prospectus by reference have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports which are incorporated herein by reference (which reports express an
unqualified opinion). Such consolidated financial statements and schedules are
incorporated herein by reference and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements of Webcraft at December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995
included in the Big Flower Current Report on Form 8-K reporting an event on
March 14, 1996 which is referred to and made a part of this Proxy
Statement/Prospectus have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
therein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements and consolidated financial statement
schedule of Scanforms for the year ended October 1, 1995 appearing in the
Scanforms 10K have been audited by Grant Thornton LLP, independent auditors, as
set forth in their reports thereon included therein and incorporated herein by
reference (which reports express an unqualified opinion). Such consolidated
financial statements and schedule are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of PrintCo., Inc. as of December 31, 1995 and 1994
and for the years then ended appearing in this Proxy Statement/Prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as set
forth in their report thereon appearing elsewhere herein, and have been so
included in reliance upon the authority of said firm as experts in accounting
and auditing in giving said reports.
Representatives of Grant Thornton LLP are expected to be present at the
Scanforms Special Meeting, will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
LEGAL OPINIONS
The validity of the shares of Big Flower Common Stock being offered hereby
is being passed upon for Big Flower by Skadden, Arps, Slate, Meagher & Flom,
counsel to Big Flower. Wolf, Block, Schorr and Solis-Cohen, counsel to
Scanforms, has delivered an opinion concerning certain federal income tax
consequences of the Merger. See "OTHER TERMS OF THE MERGER AGREEMENT: Conditions
Precedent to the Merger" and "THE MERGER: Certain Federal Income Tax
Considerations" above.
76
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PRINTCO., INC.
Interim Balance Sheets as of June 30, 1996 and 1995 (unaudited).......................................... F-2
Interim Statements of Income for the Six Months Ended June 30, 1996
and 1995 (unaudited)..................................................................................... F-3
Interim Statements of Cash Flow for the Six Months Ended June 30, 1996
and 1995 (unaudited)..................................................................................... F-4
Notes to Interim Financial Statements (unaudited)........................................................ F-5
Report of Independent Public Accountants................................................................. F-6
Balance Sheets as of December 31, 1995 and 1994.......................................................... F-7
Statements of Income for the Years Ended December 31, 1995 and 1994...................................... F-8
Statements of Shareholders' Investment for the Years Ended December 31, 1995, 1994 and 1993.............. F-9
Statements of Cash Flows for the Years Ended December 31, 1995 and 1994.................................. F-10
Notes to Financial Statements............................................................................ F-11
</TABLE>
F-1
<PAGE>
PRINTCO., INC.
INTERIM BALANCE SHEETS
AS OF JUNE 30,
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
- ---------------------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents.................................................................. $ 1,943 $ 632
Accounts receivable, less allowance for doubtful accounts of $350 and $371, as of June 30,
1996 and 1995, respectively............................................................... 6,546 7,538
Inventories, less LIFO reserves of $1,580 and $957, as of June 30, 1996 and 1995,
respectively.............................................................................. 2,228 2,687
Prepaid expenses and other................................................................. 154 102
Current portion of notes receivable from officers and affiliates........................... 53 154
--------- ---------
TOTAL.................................................................................... 10,924 11,113
PROPERTY AND EQUIPMENT:
Land....................................................................................... 26 26
Buildings and leasehold improvements....................................................... 4,703 2,315
Machinery and equipment.................................................................... 48,015 38,556
Furniture and fixtures..................................................................... 711 669
--------- ---------
53,455 41,566
Less -- Accumulated depreciation........................................................... 19,256 15,806
--------- ---------
34,199 25,760
--------- ---------
Cash surrender value of life insurance....................................................... 59 46
Intangible costs, net........................................................................ 101 51
Notes receivable from officers and affiliates................................................ 216 216
--------- ---------
$ 45,499 $ 37,186
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- ---------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Notes payable.............................................................................. $ 2,865
Current portion of long-term debt.......................................................... $ 2,700 2,000
Accounts payable........................................................................... 4,441 4,676
Accrued liabilities........................................................................ 1,383 1,432
--------- ---------
Total current liabilities................................................................ 8,524 10,973
LONG-TERM DEBT, less current portion......................................................... 24,364 14,425
DEFERRED SINGLE BUSINESS TAX................................................................. -- 56
--------- ---------
Total Liabilities........................................................................ 32,888 25,454
--------- ---------
COMMITMENTS (NOTE 3)
- ---------------------------------------------------------------------------------------------
SHAREHOLDERS' INVESTMENT:
Common stock............................................................................... 899 731
--------- ---------
Retained earnings -- beginning............................................................. 11,609 10,488
Net income................................................................................. 462 962
Distributions to shareholders.............................................................. (359) (449)
--------- ---------
Retained earnings -- ending................................................................ 11,712 11,001
--------- ---------
Total shareholders' investment........................................................... 12,611 11,732
--------- ---------
$ 45,499 $ 37,186
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these interim financial
statements.
F-2
<PAGE>
PRINTCO., INC.
INTERIM STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR EARNINGS PER SHARE INFORMATION)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
NET SALES.................................................................................. $ 40,818 $ 32,885
COST OF SALES.............................................................................. 37,173 29,260
--------- ---------
Gross profit........................................................................... 3,645 3,625
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............................................... 2,367 2,205
--------- ---------
Income from operations................................................................. 1,278 1,420
OTHER (INCOME) EXPENSE:
Interest expense......................................................................... 881 484
Other (income), net...................................................................... (65) (26)
--------- ---------
816 458
--------- ---------
NET INCOME................................................................................. $ 462 $ 962
--------- ---------
--------- ---------
EARNINGS PER SHARE......................................................................... $ 198.80 $ 413.94
--------- ---------
--------- ---------
Average number of shares outstanding..................................................... 2,324 2,324
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these interim financial
statements.
F-3
<PAGE>
PRINTCO., INC.
INTERIM STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income................................................................................ $ 462 $ 962
Adjustments to reconcile net income to net cash provided by (used for) operating
activities-
Depreciation and amortization........................................................... 2,110 1,434
Changes in assets and liabilities
Accounts receivable..................................................................... 7,262 2,525
Inventories............................................................................. 134 (950)
Prepaid expenses and other.............................................................. 188 131
Accounts payable........................................................................ (3,703) (536)
Other accrued liabilities............................................................... (908) (948)
--------- ---------
Net cash provided by operating activities............................................. 5,545 2,618
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in notes receivable from officers and affiliates...................... 114 (103)
Additions to property and equipment, net.................................................. (1,957) (4,084)
--------- ---------
Net cash used for investing activities................................................ (1,843) (4,187)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................................................. 1,700 500
Payments on long-term debt................................................................ (1,249) (984)
Proceeds from (Payments on) note payable.................................................. (2,744) 2,764
Cash dividends paid....................................................................... (359) (449)
--------- ---------
Net cash provided by financing activities............................................. (2,652) 1,831
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................................... 1,050 262
CASH AND CASH EQUIVALENTS, beginning of period.............................................. 893 370
--------- ---------
CASH AND CASH EQUIVALENTS, end of period.................................................... $ 1,943 $ 632
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these interim financial
statements.
F-4
<PAGE>
PRINTCO, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL INFORMATION
The interim financial statements included herein have been prepared by
Printco, Inc. (the "Company") without audit, in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Registration S-X. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is suggested that
these interim financial statements be read in conjunction with the annual
financial statements and notes hereto for the years ended December 31, 1995 and
1994, included elsewhere in this registration statement. There have been no
significant changes in such information since December 31, 1995.
In the opinion of management, the accompanying unaudited interim financial
statements contain all adjustments, consisting of only a normal and recurring
nature, necessary to present fairly (a) the financial position of the Company as
of June 30, 1996 and 1995; (b) the results of its operations for the six months
ended June 30, 1996 and 1995, and (c) its cash flows for the six months ended
June 30, 1996 and 1995.
2. INVENTORIES
Inventories as of June 30, 1996 and 1995 are summarized as follows (in
thousands):
<TABLE>
<S> <C> <C>
Paper...................................................... $ 3,590 $ 3,434
Ink........................................................ 28 21
Other...................................................... 190 189
--------- ---------
3,808 3,644
Less LIFO reserve.......................................... 1,580 957
--------- ---------
$ 2,228 $ 2,687
--------- ---------
--------- ---------
</TABLE>
3. COMMITMENTS
As previously described in the Company's annual financial statements, during
1995 the company had committed to purchase a new press and building addition for
approximately $8,700,000, of which approximately $2,300,000 was paid during
1995. Through June 30, 1996, the Company has expanded approximately $8,500,000
related to this commitment, which has been financed primarily with additional
long-term debt.
F-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PrintCo., Inc.:
We have audited the accompanying balance sheets of PRINTCO., INC. (a
Michigan corporation) as of December 31, 1995 and 1994, and the related
statements of income, shareholders' investment and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PrintCo., Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Grand Rapids, Michigan,
February 23, 1996
(except with respect to the matter discussed in Note 10, as to which the
date is June 6, 1996)
F-6
<PAGE>
PRINTCO., INC.
BALANCE SHEETS AS OF DECEMBER 31,
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 893,072 $ 370,482
Accounts receivable, less allowance for doubtful accounts of $350,000 and
$300,000 in 1995 and 1994................................................... 13,808,320 10,063,943
Inventories, less LIFO reserves of $1,660,000 and $466,000 in 1995 and
1994........................................................................ 2,361,989 1,737,119
Prepaid expenses and other................................................... 342,729 232,824
Current portion of notes receivable from affiliates.......................... 130,000 --
--------------- ---------------
Total current assets..................................................... 17,536,110 12,404,368
--------------- ---------------
PROPERTY AND EQUIPMENT:
Land......................................................................... 25,911 25,911
Buildings and leasehold improvements......................................... 3,553,784 2,195,051
Machinery and equipment...................................................... 42,433,836 30,325,940
Furniture and fixtures....................................................... 779,080 668,921
--------------- ---------------
46,792,611 33,215,823
Less--Accumulated depreciation............................................... (17,163,287) (14,371,750)
29,629,324 18,844,073
--------------- ---------------
NOTES RECEIVABLE FROM OFFICERS AND AFFILIATE................................... 251,289 263,566
OTHER ASSETS, net.............................................................. 177,240 90,025
--------------- ---------------
$ 47,593,963 $ 31,602,032
--------------- ---------------
--------------- ---------------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- -------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable................................................................ $ 2,744,001 $ 100,000
Current portion of long-term debt............................................ 2,700,000 2,000,000
Accounts payable............................................................. 8,143,509 5,212,034
Accrued bonuses and profit-sharing........................................... 858,691 789,458
Other accrued liabilities.................................................... 1,432,538 1,645,924
--------------- ---------------
Total current liabilities................................................ 15,878,739 9,747,416
--------------- ---------------
LONG-TERM DEBT, less current portion........................................... 19,206,823 10,635,965
--------------- ---------------
Total liabilities........................................................ 35,085,562 20,383,381
COMMITMENTS (Note 7)
SHAREHOLDERS' INVESTMENT:
Common stock, no par value;
50,000 shares authorized, 2,378 and 2,324 shares issued and outstanding in
1995 and 1994............................................................... 899,536 731,056
Retained earnings............................................................ 11,608,865 10,487,595
--------------- ---------------
Total shareholders' investment........................................... 12,508,401 11,218,651
--------------- ---------------
$ 47,593,963 $ 31,602,032
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-7
<PAGE>
PRINTCO., INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
NET SALES........................................................................ $ 77,598,336 $ 60,038,577
COST OF SALES.................................................................... 70,204,641 53,305,771
-------------- --------------
Gross profit................................................................. 7,393,695 6,732,806
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..................................... 4,484,106 4,215,028
-------------- --------------
Income from operations....................................................... 2,909,589 2,517,778
-------------- --------------
OTHER INCOME (EXPENSE):
Interest expense............................................................... (1,180,689) (913,606)
Purchase discounts and interest income......................................... 106,970 146,000
Other.......................................................................... 40,700 6,045
-------------- --------------
(1,033,019) (761,561)
-------------- --------------
NET INCOME....................................................................... $ 1,876,570 $ 1,756,217
-------------- --------------
-------------- --------------
EARNINGS PER SHARE............................................................... $ 807.47 $ 755.69
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
PRINTCO., INC.
STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS INVESTMENT
--------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993............................... $ 2,324 $ 731,056 $ 9,178,647 $ 9,909,703
Net income............................................. -- -- 1,756,217 1,756,217
Dividends.............................................. -- -- (447,269) (447,269)
--------- ----------- -------------- --------------
BALANCE, December 31, 1994............................... 2,324 731,056 10,487,595 11,218,651
Issuance of common stock............................... 54 168,480 -- 168,480
Net income............................................. -- -- 1,876,570 1,876,570
Dividends.............................................. -- -- (755,300) (755,300)
--------- ----------- -------------- --------------
BALANCE, December 31, 1995............................... $ 2,378 $ 899,536 $ 11,608,865 $ 12,508,401
--------- ----------- -------------- --------------
--------- ----------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
PRINTCO., INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 1,876,570 $ 1,756,217
Adjustments to reconcile net income to net cash provided by operating
activities-
Depreciation and amortization................................................ 3,125,268 2,851,597
Loss on sale of fixed assets................................................. -- 1,230
Changes in assets and liabilities-
Accounts receivable........................................................ (3,744,377) (2,899,722)
Inventories................................................................ (624,870) 155,552
Prepaid expenses and other................................................. (109,905) (36,519)
Accounts payable........................................................... 2,931,475 685,778
Accrued bonuses and profit-sharing......................................... 69,233 789,458
Other accrued liabilities.................................................. 101,614 443,376
--------------- --------------
Net cash provided by operating activities................................ 3,625,008 3,746,967
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net....................................... (2,467,444) (769,091)
Increase in other assets....................................................... (113,952) (17,162)
Decrease (Increase) in notes receivable from officers and affiliate............ (117,723) 298,189
--------------- --------------
Net cash used for investing activities................................... (2,699,119) (488,064)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt..................................................... (2,145,480) (2,464,463)
Proceeds from (Payments on) note payable....................................... 2,644,001 (568,718)
Cash dividends paid............................................................ (1,070,300) (132,269)
Proceeds from exercise of stock options........................................ 168,480 --
--------------- --------------
Net cash provided by (used for) financing activities..................... (403,299) (3,165,450)
--------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS.......................................... 522,590 93,453
CASH AND CASH EQUIVALENTS, beginning of year..................................... 370,482 277,029
--------------- --------------
CASH AND CASH EQUIVALENTS, end of year........................................... $ 893,072 $ 370,482
--------------- --------------
--------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
PRINTCO., INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Printco., Inc. (the "Company") is a printer of newspaper inserts primarily
for the retail industry. The Company's customers operate primarily in the
midwest region of the United States.
Cash and Cash Equivalents
Cash and cash equivalents includes approximately $868,000 and $370,000 held
in an interest bearing liquid asset account at December 31, 1995 and 1994,
respectively.
Inventories
The majority of the Company's inventories are valued using the last-in,
first-out ("LIFO") cost method, not in excess of market. If the first-in,
first-out method had been used, inventories would have been approximately
$1,660,000 and $466,000 greater at December 31, 1995 and 1994, respectively.
Property and Equipment
For financial statement purposes, the Company uses the straight-line method
for depreciating the cost of property and equipment including equipment under
capital leases. The estimated useful lives of property and equipment are as
follows:
<TABLE>
<S> <C>
Buildings and leasehold improvements 10-31 years
Machinery and equipment 5-11 years
Furniture and fixtures 6-10 years
</TABLE>
Earnings Per Share
Earnings per share is computed based upon the weighted average number of
shares outstanding during the year. The weighted average number of shares
outstanding is 2,324 for both 1995 and 1994.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant Customers
The Company has two customers which accounted for 10% or more of net sales
as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Customer Number 1.............................................................. 37% 30%
Customer Number 2.............................................................. 12% 13%
</TABLE>
Additionally, the Company had accounts receivable from these two customers
totaling approximately $8,060,000 and $3,786,000 as of December 31, 1995 and
1994.
2. RELATED PARTY TRANSACTIONS
The Company engages in various transactions with certain related parties.
Related parties to the Company primarily include Greenville News, Inc. and Park
Properties, which are affiliates owned by the officers and shareholders of the
Company. T.V. Update, Inc. is also a related party, however, the officers and
shareholders of the Company who owned T.V. Update sold substantially all of the
assets of this related company during 1994.
F-11
<PAGE>
PRINTCO., INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
2. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company paid management fees to Greenville News, Inc. of approximately
$242,000 during each of the years ended December 31, 1995 and 1994.
Additionally, the Company provides accounting and management services to
Greenville News, Inc. and T.V. Update, Inc. on a fixed fee basis. These fees
totaled approximately $26,000 and $30,000 for the years ended December 31, 1995
and 1994, respectively.
At December 31, 1995 and 1994, the Company had notes receivable from certain
officers of the Company totaling $216,000. These notes were issued in connection
with the officers' purchase of T.V. Update, Inc. These notes bear interest at
prime which is payable annually with the balance of the notes due on December
31, 2000. In addition, prior to the sale of T.V. Update, the Company had a
revolving note receivable from T.V. Update, Inc., which provided for maximum
borrowings of $700,000 and bears interest at 1% above the prime rate. This note
receivable had an outstanding balance of approximately $125,000 and $48,000 at
December 31, 1995 and 1994, respectively. Management believes that the proceeds
to the shareholders from the sale of T.V. Update, which are payable in the
future, will provide sufficient funds to realize the remaining T.V. Update
receivables and officer receivables.
Other related party receivables recorded as trade receivables from
Greenville News, Inc. were approximately $49,000 and $109,000 at December 31,
1995 and 1994, respectively.
The Company leases its production facilities and office space in Greenville,
Michigan from Park Properties. In addition, certain automobiles are leased from
a related party. Approximately $993,000 and $969,000 of the Company's rent
expense for 1995 and 1994, respectively, represented payments to related
parties.
The Greenville facility is leased to the Company from Park Properties under
an operating lease which provides for monthly rentals of $76,200 plus
inflationary increases, through August of 2000. In connection with the lease
transaction the Company has also guaranteed Park Properties debt up to a maximum
of approximately $3,240,000.
3. INCOME TAXES
The Company has elected Subchapter S status under the Internal Revenue Code.
As an S Corporation, the Company is not liable as an entity for federal income
taxes. The income generated by the Company is taxable to its shareholders.
4. LINES OF CREDIT
The Company has three unsecured lines of credit of $4,000,000, $3,000,000
and $2,000,000, which bear interest at LIBOR plus 1.65%, prime and LIBOR plus
1.5%, respectively (7.3%, 8.5% and 7.2%, respectively, at December 31, 1995).
There were total borrowings outstanding under the lines of $2,744,001 as of
December 31, 1995 and none as of December 31, 1994.
5. BENEFIT PLANS
The Company has a profit-sharing and 401(k) plan covering its employees. The
Plan provides for discretionary employer contributions as well as employer
matching contributions. The annual Company contribution is determined by the
Board of Directors. Total contributions of approximately $437,000 and $288,000
were made during the years ended December 31, 1995 and 1994, respectively.
Employees retiring from or otherwise leaving the Company are not generally
entitled to postretirement or postemployment benefits.
F-12
<PAGE>
PRINTCO., INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Capital lease obligation, 6.3% payable in monthly
installments of $90,047 including interest through September
2005, secured by related equipment.......................... $ 9,033,490 $ --
Notes payable, interest at rates ranging from 7.0% to 8.5%,
payable in monthly installments ranging from $83,257 to
$88,404 including interest, through October 2003, secured by
equipment................................................... 6,006,913 6,532,659
Capital lease obligation, 6.5% payable in monthly
installments of $68,453 including interest through April
2006, secured by related equipment.......................... 1,716,567 --
Note payable to bank, interest at prime (8.5% at December 31,
1995), payable in quarterly installments of $100,000 plus
interest, with final payment due July 1997, secured by
equipment................................................... 1,500,000 1,400,000
Capital lease obligations, 10%, payable in monthly
installments of $33,622 including interest through December
1997, secured by related equipment.......................... 1,298,795 1,567,020
Note payable to bank, 7.95%, payable in monthly installments
of $14,850 including interest, through July 1997, secured by
building and associated real estate and equipment........... 1,031,810 1,122,765
Note payable, 7.91%, payable in monthly installments of
$37,742 plus interest, through December 1997, secured by
equipment................................................... 893,992 1,351,538
Other........................................................ 425,256 661,983
-------------- --------------
21,906,823 12,635,965
Less -- Current portion...................................... (2,700,000) (2,000,000)
-------------- --------------
$ 19,206,823 $ 10,635,965
-------------- --------------
-------------- --------------
</TABLE>
F-13
<PAGE>
PRINTCO., INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
Annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1996.......................................................... $2,700,000
1997.......................................................... 4,862,466
1998.......................................................... 1,470,814
1999.......................................................... 1,479,518
2000.......................................................... 1,592,328
Thereafter.................................................... 9,801,697
-----------
$21,906,823
-----------
-----------
</TABLE>
In connection with certain of the notes payable and lease obligations, the
Company has entered into agreements which contain certain restrictive covenants.
Under the most restrictive provisions of these agreements the Company is
required to, among other things: (1) maintain tangible net worth, as defined, of
at least $12,000,000, (2) maintain a ratio of total liabilities to tangible net
worth, as defined, not to exceed 3 to 1, and (3) maintain a working capital
ratio of not less than 1.1 to 1. The Company was in compliance with these
covenants at December 31, 1995.
During 1995, the Company entered into capital lease transactions for the
acquisition of equipment totaling approximately $11,400,000. These non-cash
transactions have been excluded from the accompanying statement of cash flows.
Total cash expended for interest was approximately $1,287,059 and $912,000
for the years ended December 31, 1995 and 1994, respectively.
As of December 31, 1995 and 1994, the total net book value of the Company's
equipment held under capital lease obligations approximated $11,816,000 and
$1,355,000, respectively.
The fair value of the Company's long-term debt, estimated by discounting the
future cash flows using current interest rates available to the Company for debt
of similar terms and remaining maturities, was approximately $22,500,000 at
December 31, 1995.
7. COMMITMENTS
Leases
The Company leases facilities, vehicles and equipment under various
operating lease agreements which require it to pay monthly rentals as well as
operating expenses of the property leased. Future minimum rental payments at
December 31, 1995, under noncancellable operating leases with initial or
remaining terms of one year or more are as follows:
<TABLE>
<CAPTION>
MINIMUM RENTALS
--------------------------------------------------------------------------
FISCAL YEAR RELATED PARTIES THIRD PARTIES
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
1996 $983,000 $175,828
1997 950,000 68,405
1998 941,000 --
1999 941,000 --
2000 627,000 --
Thereafter.......................... -- --
</TABLE>
F-14
<PAGE>
PRINTCO., INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
7. COMMITMENTS (CONTINUED)
Total rent expense in connection with all leases was approximately
$1,207,000 and $1,108,000 for the years ended December 31, 1995 and 1994,
respectively. See Note 2 for discussion of related party lease transactions.
Other
As of December 31, 1995, the Company had committed to purchase a new press
and building addition for approximately $8,700,000. During 1995, the Company
made payments of approximately $2,300,000 related to this commitment.
8. STOCK OPTION AGREEMENT
At December 31, 1995, there were options outstanding for certain key
employees to purchase 60 shares of common stock. These options were fully vested
as of their grant date. The exercise price is $500 per share plus any increase
in the Company's book value, as defined, per share since June 30, 1994. During
1995, 54 options were exercised at an average option price of $3,120.
9. STOCK REPURCHASE AGREEMENT
The Company has a stock repurchase agreement with its minority shareholders
which gives the Company and the then remaining shareholders the right to
repurchase a shareholder's stock upon termination of employment, disability or
death. The agreement provides for the stock to be repurchased at a price of $500
per share, increased or decreased by the change in the Company's book value, as
defined, per share since June 30, 1978. There were no repurchases under this
agreement during 1995 or 1994. As of December 31, 1995, there were 378 shares of
stock outstanding which were covered by the agreement.
10. SUBSEQUENT EVENT
On June 6, 1996, the Company entered into a letter of intent with Big Flower
Press Holdings, Inc. ("Big Flower"), whereby Big Flower intends to acquire all
of the capital stock of the Company for approximately $20,175,000 in cash. Big
Flower is a publicly traded company, and leading producer and marketer of
advertising circulars, T.V. listing guides, Sunday comics, and other printed
supplements.
F-15
<PAGE>
ANNEXES TO THE PROXY STATEMENT/PROSPECTUS
ANNEX I MERGER AGREEMENT
ANNEX II OPINION OF SCANFORMS' INVESTMENT ADVISOR
ANNEX III SECTION 262 OF THE DGCL
<PAGE>
ANNEX I
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 31, 1996 (this "Agreement"),
by and among SCANFORMS, INC., a Delaware corporation (the "Company"), BIG FLOWER
PRESS HOLDINGS, INC., a Delaware corporation ("Buyer"), and SCANFORMS
ACQUISITION CORP., a Delaware corporation and a wholly owned, indirect
subsidiary of Buyer ("Merger Subsidiary").
WHEREAS, the respective Boards of Directors of Buyer, Merger Subsidiary and
the Company have determined that it is fair to and in the best interests of
their respective stockholders to consummate the acquisition of the Company by
Buyer upon the terms and subject to the conditions set forth herein; and
WHEREAS, the respective Boards of Directors of the Company, Buyer and Merger
Subsidiary have approved and declared advisable this Agreement and the merger of
Merger Subsidiary with and into the Company (the "Merger"), upon the terms and
subject to the conditions set forth herein, whereby each of the issued and
outstanding shares of common stock, par value $.01 per share, of the Company
(the "Shares"), will be converted into shares of common stock, par value $.01
per share, of Buyer ("Buyer Common Stock") and Buyer has caused its wholly owned
subsidiary, Webcraft Technologies, Inc., a Delaware corporation ("WTI"), as the
sole stockholder of Merger Subsidiary, to approve this Agreement and the Merger;
and
WHEREAS, it is intended that the Merger shall be recorded for accounting
purposes as a pooling-of-interests; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, intending to be legally
bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. (a) Upon the terms and subject to the conditions
of this Agreement, and in accordance with the Delaware General Corporation Law
(the "DGCL"), at the Effective Time (as defined in Section 1.1(b) hereof),
Merger Subsidiary shall be merged (the "Merger") with and into the Company,
whereupon the separate existence of Merger Subsidiary shall cease, and the
Company shall be the surviving corporation (the "Surviving Corporation") in the
Merger and shall continue to be governed by the laws of the State of Delaware.
(b) Subject to the fulfillment of the conditions of this Agreement, on the
Closing Date (as defined in Section 2.1 hereof) the Surviving Corporation will
cause a certificate of merger (the "Certificate of Merger") with respect to the
Merger to be executed and filed with the Secretary of State of the State of
Delaware (the "Secretary of State") as provided in the DGCL. The Merger shall
become effective at the time the Certificate of Merger is duly filed with the
Secretary of State or at such other time as is agreed between the parties and
specified in the Certificate of Merger, and such time is herein referred to as
the "Effective Time."
(c) The Merger shall have the effects set forth in Section 259 of DGCL and
from and after the Effective Time, the Surviving Corporation shall possess all
the rights, privileges, powers and franchises and be subject to all of the
restrictions, disabilities, liabilities and duties of the Company and Merger
Subsidiary.
I-1
<PAGE>
SECTION 1.2 EFFECT ON SHARES. At the Effective Time:
(a) CONVERSION OF SHARES; MERGER CONSIDERATION. Subject to the
provisions of Section 1.5 and Section 1.7 hereof, each Share issued and
outstanding immediately prior to the Effective Time (other than Dissenting
Shares (as defined in Section 1.11 hereof), Shares held by the Company as
treasury stock or owned by Buyer, Merger Subsidiary or any other Subsidiary
(as defined in Section 4.6) of Buyer) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive that fraction of a share (rounded to the nearest
ten-thousandth of a share) of duly authorized, validly issued, fully paid
and nonassessable shares of Buyer Common Stock (the "Merger
Consideration")(such applicable number of shares of Buyer Common Stock being
hereinafter referred to as the "Conversion Number"), equal to the quotient
obtained by dividing (x) $5.75 by (y) the Average Stock Price (as
hereinafter defined); PROVIDED, HOWEVER, that if the Average Stock Price is
$13.00 or less, the Conversion Number shall be .4423 or if the Average Stock
Price is $15.00 or more, the Conversion Number shall be .3833. The "Average
Stock Price" shall mean the average closing price per share of Buyer Common
Stock on the New York Stock Exchange (the "NYSE") as reported on the NYSE
Composite Tape during the ten consecutive trading day period (the
"Measurement Period") ending with (and including) the third trading day
prior to the Company Stockholder Meeting (as defined in Section 6.2 hereof).
(b) CANCELLATION OF SHARES. Each Share held by the Company as treasury
stock or owned by Buyer, Merger Subsidiary or any other Subsidiary of Buyer
immediately prior to the Effective Time shall automatically be canceled and
retired and cease to exist, and no payment shall be made with respect
thereto. All Shares to be converted into Buyer Common Stock pursuant to this
Section 1.2 shall, by virtue of the Merger and without any action on the
part of the holders thereof, cease to be outstanding, be canceled and
retired and cease to exist; and each holder of a certificate representing
prior to the Effective Time any such Shares shall thereafter cease to have
any rights with respect to such Shares, except the right to receive (i)
certificates representing shares of Buyer Common Stock into which such
Shares have been converted, (ii) any dividends and other distributions
(without interest) in accordance with Section 1.4 hereof and (iii) any cash
(without interest), to be paid in lieu of any fractional share of Buyer
Common Stock in accordance with Section 1.5 hereof.
(c) CAPITAL STOCK OF MERGER SUBSIDIARY. Each share of common stock of
Merger Subsidiary issued and outstanding immediately prior to the Effective
Time shall be converted into and become one share of common stock, par value
$0.01, of the Surviving Corporation with the same rights, powers and
privileges as the shares so converted and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation.
SECTION 1.3 EXCHANGE OF CERTIFICATES. (a) Prior to the Effective Time,
Buyer shall appoint Bank of New York to act as exchange agent hereunder (the
"Exchange Agent"). At the Effective Time, Buyer shall deposit with the Exchange
Agent, certificates (the "Buyer Certificates") representing the number of shares
of Buyer Common Stock required to be issued pursuant to Section 1.2(a) in
exchange for the outstanding Shares (together with cash as required to (i) pay
any dividends or distributions with respect thereto in accordance with Section
1.4 hereof and (ii) make payments in lieu of fractional shares of Buyer Common
Stock pursuant to Section 1.5 hereof, being hereinafter referred to as the
"Exchange Fund").
(b) Promptly after the Effective Time, Buyer shall cause the Exchange Agent
to mail or deliver to each holder of record of a certificate or certificates
which immediately prior to the Effective Time represented outstanding Shares
(the "Share Certificates") (i) a letter of transmittal (which shall specify,
among other things, that delivery shall be effected, and risk of loss and title
to the Share Certificates shall pass, only upon actual delivery thereof to the
Exchange Agent) and (ii) instructions
I-2
<PAGE>
for use in effecting the surrender of the Share Certificates in exchange for the
property described in the next sentence. Upon surrender for cancellation to the
Exchange Agent of Share Certificate(s) held by any record holder of a Share
Certificate, together with such letter of transmittal duly executed, such holder
shall be entitled to receive in exchange therefor (x) a Buyer Certificate
representing the number of whole shares of Buyer Common Stock into which the
Shares represented by the surrendered Share Certificate(s) shall have been
converted at the Effective Time pursuant to this Article I, (y) cash in lieu of
any fractional share of Buyer Common Stock (without interest) in accordance with
Section 1.5 hereof and (z) certain dividends and other distributions (without
interest) in accordance with Section 1.4 hereof; and the Share Certificate(s) so
surrendered shall forthwith be cancelled.
(c) Subject to the provisions of Section 1.4 and Section 1.5 hereof, each
Share Certificate which immediately prior to the Effective Time represented
Shares to be converted in the Merger shall, from and after the Effective Time
until surrendered in exchange for Buyer Certificate(s) in accordance with this
Section 1.3, be deemed for all purposes to represent only the ownership of the
number of whole shares of Buyer Common Stock into which such Shares shall have
been so converted, the right to receive cash in lieu of fractional share
interests pursuant to Section 1.5 hereof and the right to receive certain
dividends and other distributions pursuant to Section 1.4 hereof.
SECTION 1.4 DIVIDENDS; TRANSFER TAXES. No dividends or other distributions
that are declared on or after the Effective Time on Buyer Common Stock, or are
payable to the holders of record thereof who became such on or after the
Effective Time, shall be paid to any Person (as defined below in this Section
1.4) entitled by reason of the Merger to receive Buyer Certificates representing
Buyer Common Stock, and no cash payment in lieu of any fractional share of Buyer
Common Stock shall be paid to any such Person pursuant to Section 1.5 hereof,
until such Person shall have surrendered such Person's Share Certificate(s) as
provided in Section 1.3 hereof. Subject to applicable law, there shall be paid
to each Person receiving a Buyer Certificate representing shares of Buyer Common
Stock: (i) at the time of such surrender or as promptly as practicable
thereafter, the amount of any dividends or other distributions theretofore paid
with respect to the shares of Buyer Common Stock represented by such Buyer
Certificate and having a record date on or after the Effective Time and a
payment date prior to such surrender, and (ii) at the appropriate payment date
or as promptly as practicable thereafter, the amount of any dividends or other
distributions payable with respect to such shares of Buyer Common Stock and
having a record date on or after the Effective Time but prior to such surrender
and a payment date on or subsequent to such surrender. In no event shall the
Person entitled to receive such dividends or other distributions be entitled to
receive interest on such dividends or other distributions. Buyer shall make
available to the Exchange Agent the cash necessary for this purpose at the later
of (i) the Effective Time or (ii) the appropriate payment date with respect to
the applicable dividend or distribution. If any cash or Buyer Certificate
representing shares of Buyer Common Stock is to be paid to or issued in a name
other than that in which the Share Certificate surrendered in exchange therefor
is registered, it shall be a condition of such exchange that the Share
Certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer and that the Person requesting such exchange shall pay to the
Exchange Agent any transfer or other taxes required by reason of the issuance of
such Buyer Certificate and the distribution of such cash payment in a name other
than that of the registered holder of the Share Certificate so surrendered, or
shall establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not applicable. "Person" means an individual, a corporation, a
limited liability company, a partnership, an association, a trust or any other
entity or organization, including a government or political subdivision or any
agency or instrumentality thereof.
SECTION 1.5 NO FRACTIONAL SHARES. No certificates or scrip representing
fractional shares of Buyer Common Stock shall be issued upon the surrender for
exchange of Share Certificates pursuant to this Article I; no dividend or other
distribution by Buyer and no stock split, combination or reclassification shall
relate to any such fractional share; and no such fractional share shall entitle
the
I-3
<PAGE>
record or beneficial owner thereof to vote or to any other rights of a
stockholder of Buyer. In lieu of any such fractional share, each holder of
Shares who would otherwise have been entitled thereto upon the surrender of
Share Certificate(s) for exchange pursuant to this Article I will be paid an
amount in cash (without interest) rounded to the nearest whole cent, determined
by multiplying (i) the Average Stock Price by (ii) the fractional share to which
such holder would otherwise be entitled. Buyer shall make available to the
Exchange Agent the cash necessary for this purpose at the Effective Time.
SECTION 1.6 RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund
which remains undistributed to the former holders of the Shares for nine months
after the Effective Time shall be delivered to Buyer, upon its request, and any
such former holders who have not theretofore surrendered to the Exchange Agent
their Share Certificate(s) in compliance with this Article I shall thereafter
look only to Buyer for payment of their claim for shares of Buyer Common Stock,
any cash in lieu of fractional shares (without interest) of Buyer Common Stock
and any dividends or distributions (without interest) with respect to such
shares of Buyer Common Stock. Neither Buyer nor the Company shall be liable to
any former holder of Shares for any such shares of Buyer Common Stock held in
the Exchange Fund (and any cash, dividends and distributions payable in respect
thereof), or cash in lieu of fractional share interests which is delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
SECTION 1.7 ADJUSTMENT OF CONVERSION NUMBER. In the event of any stock
split, combination, reclassification or stock dividend with respect to Buyer
Common Stock, any change or conversion of Buyer Common Stock into other
securities or any other dividend or distribution with respect to Buyer Common
Stock (other than quarterly cash dividends issued in the ordinary course
consistent with past practice), including, without limitation, any distribution
by Buyer of shares of capital stock of any of its Affiliates (as defined in
Article XI), or if a record date with respect to any of the foregoing should
occur, prior to the Effective Time, appropriate adjustments shall be made to the
Conversion Number, and thereafter all references in this Agreement to the
Conversion Number shall be deemed to be the Conversion Number as so adjusted.
SECTION 1.8 NO FURTHER OWNERSHIP RIGHTS IN SHARES. All certificates
representing shares of Buyer Common Stock delivered upon the surrender for
exchange of any Share Certificate in accordance with the terms hereof (together
with any cash paid pursuant to Section 1.4 or Section 1.5 hereof) shall be
deemed to have been delivered (and paid) in full satisfaction of all rights
pertaining to the Shares previously represented by such Share Certificate.
SECTION 1.9 CLOSING OF COMPANY TRANSFER BOOKS. At the Effective Time, the
stock transfer books of the Company shall be closed, and no transfer of Shares
on the stock transfer books of the Surviving Corporation shall thereafter be
made. Subject to the last sentence of Section 1.6 hereof, if after the Effective
Time, Share Certificates are presented to the Surviving Corporation, they shall
be cancelled and exchanged as provided in this Article I.
SECTION 1.10 STOCK OPTIONS. At or immediately prior to the Effective Time,
each then outstanding stock option (an "Option") to purchase Shares granted
under the Company's 1992 Stock Option Plan (the "Stock Option Plan"), whether or
not then vested or exercisable, shall become and represent an option (a
"Substitute Option") to purchase the number of shares of Buyer Common Stock
(rounded down to the nearest whole share) determined by multiplying the number
of Shares subject to such Option immediately prior to the Effective Time by the
Conversion Number, at an exercise price per share of Buyer Common Stock (rounded
up to the nearest whole cent) equal to the exercise price per Share of such
Option immediately prior to the Effective Time divided by the Conversion Number.
After the Effective Time, subject to any adjustment necessary to conform the
Substitute Options to the requirements of Section 424 (a) of the Code, each
Substitute Option shall be exercisable upon substantially the same terms and
conditions as were applicable to the related Option immediately prior to the
Effective Time, and, at or prior to the Effective Time, Buyer shall take all
I-4
<PAGE>
corporate action necessary to reserve for issuance a sufficient number of shares
of Buyer Common Stock for delivery upon exercise of the Substitute Options. If
and to the extent required by, or deemed necessary or desirable under, the terms
of the Stock Option Plan and stock option agreements relating to the Options,
prior to the Effective Time, the Company shall use its reasonable efforts to
obtain the written consent of each Option holder, in form reasonably
satisfactory to Buyer, to the foregoing treatment of such Options.
SECTION 1.11 DISSENTING SHARES.
(a) NOT ENTITLED TO MERGER CONSIDERATION. Any Share outstanding
immediately prior to the Effective Time held by a holder, if any, who is
entitled to demand, and who properly demands, appraisal for such shares in
accordance with Section 262 of the DGCL ("Dissenting Shares") shall not be
converted into a right to receive the Merger Consideration unless such
holder fails to perfect or otherwise loses such holder's right to appraisal,
if any. Holders of Dissenting Shares will be entitled only to the rights of
a dissenting stockholder under Section 262 of the DGCL, and such Shares will
be cancelled and retired and will cease to exist.
(b) TERMINATION OF RIGHTS AS DISSENTING STOCKHOLDER. If, after the
Effective Time, any holder who has made a demand for dissenters' rights
under Section 262 of the DGCL fails to perfect or loses such right or such
rights are terminated for any reason other than the purchase by the Company
of the Shares subject to the demand, such Shares shall be treated as if they
had been converted, as of the Effective Time, into and represent only the
right to receive the Merger Consideration, without interest thereon, upon
surrender of the Share Certificates representing the Shares.
(c) NOTICE OF DEMANDS; PAYMENTS. The Company shall give prompt notice
to Buyer of any demands received by the Company for appraisal of Shares, and
Buyer shall have the right to participate in and, after the Effective Time,
direct all negotiations and proceedings with respect to such demands. The
Company shall not, except with the prior written consent of Buyer, make any
payment with respect to, or settle or offer to settle, any such demands,
but, in any event, all payments made with respect to demands for appraisal
or settlement thereof shall be made solely by the Company and, following the
Merger, the Surviving Corporation.
ARTICLE II
CLOSING
SECTION 2.1 CLOSING. The closing of the Merger and the other transactions
referred to in this Agreement (the "Closing") will take place as soon as
practicable after the Company Stockholder Meeting, which shall be no later than
the first business day after satisfaction or waiver of all of the conditions set
forth in Article IX hereof (the "Closing Date"), at a time specified by the
parties, at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third
Avenue, New York, New York 10022 unless another time, date or place is agreed to
in writing by the parties hereto.
SECTION 2.2 DELIVERIES BY THE COMPANY. At the Closing, the Company will
deliver or cause to be delivered to Buyer and Merger Subsidiary, unless
previously delivered, the following:
(a) an officer's certificate, signed by the President of the Company, dated
the Closing Date, relating to the accuracy of representations and warranties of
the Company and the performance of agreements and covenants by the Company
referred to in Section 9.3(iii) hereof.
(b) an officer's certificate, signed by the President or Treasurer of the
Company, relating to:
(i) the requisite approval of this Agreement by the Company's
stockholders, referred to in Section 9.1(i) hereof;
I-5
<PAGE>
(ii) the absence of a Material Adverse Effect (as defined in Section 4.1
hereof) and the other matters referred to in Section 9.3(iv) hereof;
(iii) the financial conditions referred to in Section 9.3(vi) hereof;
and
(iv) the perfection of appraisal rights referred to in Section 9.3(vii)
hereof.
(c) the opinion of counsel to the Company referred to in Section 9.3(xii)
hereof.
(d) a certificate of the Secretary of the Company certifying as to (i) true
and complete copies attached thereto of the certificate of incorporation of the
Company (the "Company Certificate of Incorporation"), the by-laws of the Company
(the "Company By-laws"), and the resolutions adopted by the Board of Directors
and the stockholders of the Company as to the approval of the Merger and this
Agreement and (ii) the incumbency of certain officers of the Company who
executed this Agreement and other documents in connection with the Merger and
the transactions contemplated hereby.
(e) certificates of good standing and payment of taxes by the Company from
its state of incorporation and each jurisdiction in which it is qualified to do
business.
(f) the written agreements from each Company Rule 145 Affiliate as defined
and referred to in Section 8.11(a) hereof.
(g) the review letter referred to in Section 8.12(a) hereof.
(h) the consents and/or approvals referred to in Section 9.3(viii) hereof.
(i) the consents, if any, referred to in Section 1.10 above.
(j) pay-off letters for all outstanding Indebtedness (as defined in Article
XI hereof) of the Company.
(k) such other documents required to be delivered by the Company at or prior
to the Closing pursuant to this Agreement or in connection herewith.
SECTION 2.3 DELIVERIES BY BUYER. At the Closing, Buyer will deliver, or
cause to be delivered to the Company, unless previously delivered, the
following:
(a) an officer's certificate signed by the Chief Executive Officer or Chief
Operating Officer of Buyer, dated the Closing Date, as to the accuracy of the
representations and warranties of Buyer and Merger Subsidiary and the
performance of agreements and covenants by the Company and Merger Subsidiary
referred to in Section 9.2(iii) hereof.
(b) the opinion of counsel to Buyer referred to in Section 9.2(vi) hereof.
(c) a certificate of the Secretary of the Company as to (i) true and
complete copies being attached thereto of the certificate of incorporation of
Buyer and of Merger Subsidiary, the by-laws of Buyer and of Merger Subsidiary
and the resolutions adopted by the Board of Directors of Buyer, WTI, as the sole
stockholder of Merger Subsidiary, and Merger Subsidiary as to the approval of
the Merger and this Agreement and (ii) the incumbency of certain officers of
Buyer and Merger Subsidiary who executed this Agreement and other documents in
connection with the Merger and the transactions contemplated hereby.
(d) a certificate of good standing for Buyer and Merger Subsidiary from the
Secretary of State of the State of Delaware.
(e) the written agreements from each Buyer Rule 145 Affiliate as defined and
referred to in Section 8.11(c) hereof.
(f) the review letter referred to in Section 8.12(b) hereof.
(g) such other documents required to be delivered by Buyer or Merger
Subsidiary at or prior to the Closing pursuant to this Agreement or in
connection herewith.
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SECTION 2.4 OTHER DELIVERIES AND ACTIONS AT CLOSING. At the Closing, the
following other deliveries and actions will be made or taken by the following
Persons, if not previously made or taken:
(a) (i) the Samans Employment Agreement referred to in Section 8.4 hereof
will be entered into by the Company and Mr. Robert Samans, President of the
Company ("Samans"), (ii) the Employment Agreements referred to in Section 8.4
hereof will be entered into by the Company and the other individuals identified
pursuant to Section 8.4 hereof, (iii) the Non-Competition Agreement referred to
in Section 8.4 hereof will be entered into by Buyer and Samans, and (iv) Buyer
will deliver to Samans the Buyer Promissory Note referred to in Section 8.4
hereof.
(b) the tax opinion referred to in Section 9.2(iv) hereof will be delivered
to the Company, with a copy to Buyer.
(c) the letter regarding pooling referred to in Section 9.3(ix) hereof will
be delivered to Buyer, with a copy to the Company.
(d) Samans will execute the Amended Samans Promissory Note referred to in
Section 8.5 hereof and deliver such note to the Company.
ARTICLE III
THE SURVIVING CORPORATION
SECTION 3.1 CERTIFICATE OF INCORPORATION. The certificate of incorporation
of Merger Subsidiary in effect at the Effective Time shall be the certificate of
incorporation of the Surviving Corporation until amended in accordance with
applicable law, except that Article First shall be amended in its entirety to
read as follows: "The name of the corporation shall be "Scanforms, Inc." (the
"Corporation")."
SECTION 3.2 BYLAWS. The by-laws of Merger Subsidiary in effect at the
Effective Time shall be the by-laws of the Surviving Corporation until amended
in accordance with applicable law.
SECTION 3.3 DIRECTORS AND OFFICERS. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, the directors of Merger Subsidiary at the Effective Time shall
be the initial directors of the Surviving Corporation and the officers of the
Company, who are listed on Schedule 3.3 hereof and who are officers of the
Company at the Effective Time, shall be the initial officers of the Surviving
Corporation, in each case until their respective successors are duly elected and
appointed or qualified.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer and Merger Subsidiary that:
SECTION 4.1 CORPORATE EXISTENCE AND POWER. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, and except as set forth on Schedule 4.1 of the disclosure
schedule delivered by the Company in connection herewith (the "Company
Disclosure Schedule"), has all corporate power and authority required to carry
on its business as now conducted. The Company is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary except for such failures to be so qualified
and in good standing which would not individually or in the aggregate have a
Material Adverse Effect (as defined below) with respect to the Company. The
Company has heretofore delivered or made available to Buyer true and complete
copies of the Company Certificate of Incorporation and the Company By-laws as
currently in effect. As used herein, the term "Material Adverse Effect" with
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respect to the Company, on the one hand, or Buyer and its Subsidiaries, on the
other hand, means a material adverse effect on the condition (financial or
otherwise), business, properties, assets (including intangible assets),
liabilities (fixed or contingent) or results of operations of the Company or
Buyer, its Subsidiaries and Merger Subsidiary, as the case may be, in each case
taken as a whole.
SECTION 4.2 CORPORATE AUTHORIZATION. The execution, delivery and
performance by the Company of this Agreement and, subject to approval and
adoption of this Agreement by the holders of a majority of the outstanding
Shares, the consummation by the Company of the transactions contemplated hereby
are within the Company's corporate powers and, except for the approval by the
affirmative vote of the holders of a majority of the outstanding Shares, have
been duly authorized by all necessary corporate and stockholder action. The
Board of Directors of the Company has determined that it is advisable and fair
to and in the best interests of the stockholders of the Company for the Company
to enter into this Agreement. This Agreement, assuming due and valid
authorization, execution and delivery by Buyer and Merger Subsidiary,
constitutes a valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, except that (i) enforcement may be subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws, now or hereafter in effect, affecting creditors' rights generally,
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
SECTION 4.3 GOVERNMENTAL AUTHORIZATION. Except as set forth in Schedule
4.3 of the Company Disclosure Schedule, the execution, delivery and performance
by the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not require any action by or in respect of,
or filing with, any governmental body, agency, official or authority (each, a
"Governmental Entity") other than: (i) the filing of a Certificate of Merger in
accordance with the DGCL; (ii) compliance with any applicable requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), which has been so complied with; (iii) compliance with any applicable
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"); (iv)
compliance with the applicable requirements of state blue sky laws and (v) such
other actions by or in respect of, or filings with, any Governmental Entity
which if not obtained or made would not, individually or in the aggregate, have
a Material Adverse Effect with respect to the Company and would not impair or
materially delay the ability of the Company to consummate the transactions
contemplated hereby.
SECTION 4.4 NON-CONTRAVENTION. The execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) contravene or conflict
with the Company Certificate of Incorporation or the Company By-laws, (ii)
except as set forth in Schedule 4.4 of the Company Disclosure Schedule and
assuming compliance with the matters referred to in Section 4.3 hereof,
contravene or conflict with or constitute a violation of any provision of any
law, judgment, injunction, order, decree or pronouncement having the effect of
any of the foregoing binding upon or applicable to the Company or its business,
(iii) except as set forth in Schedule 4.4 of the Company Disclosure Schedule,
with or without the giving of notice or passage of time or both, constitute a
default under or give rise to a right of termination, cancellation, acceleration
or modification of any right or obligation of the Company or to a loss of any
benefit to which the Company is entitled under any provision of any material
agreement, contract or other instrument binding upon the Company or any material
license, franchise, permit or other similar authorization held by the Company,
(iv) result in the creation or imposition of any Lien (as defined below) on any
asset of the Company or (v), except as set forth in Schedule 4.4 of the Company
Disclosure Schedule, result in or give to any Person any additional rights or
entitle any Person to increased, additional, accelerated or guaranteed payments
under any Material Contract (as defined in Section 4.23(b) hereof). For purposes
of this Agreement, "Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset other than a "Permitted Lien" (as defined in Article XI hereof).
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SECTION 4.5 CAPITALIZATION. The authorized capital stock of the Company
consists of 6,000,000 Shares and 500,000 shares of preferred stock (the
"Preferred Stock"), par value $1.00 per share. As of the date hereof, there are
(i) 3,546,648 Shares issued and outstanding (including the 50,000 Shares
referred to in Section 9.3(vi) hereof); (ii) no Shares held in the Company's
treasury; and (iii) no shares of Preferred Stock issued and outstanding. As of
the date hereof, there are 205,000 outstanding Options pursuant to the Stock
Option Plan with an average exercise price of $1.11 per Share; Schedule 4.5 of
the Company Disclosure Schedule accurately sets forth information regarding the
exercise price, date of grant, vesting status and number of Options granted for
each holder of Options as of the date hereof. All outstanding shares of capital
stock of the Company have been duly authorized and validly issued and are fully
paid and nonassessable. Except as set forth in this Section 4.5, there are
outstanding (i) no shares of capital stock or other voting securities of the
Company, (ii) no securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company, (iii) except as set
forth on Schedule 4.5 of the Company Disclosure Schedule, no options, warrants,
rights (including "phantom" stock rights), preemptive rights or other rights to
acquire from the Company, and no obligation of the Company to issue, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of the Company and (iv) except for certain
employee bonus plans listed on Schedule 4.5 of the Company Disclosure Schedule,
no right granted by the Company or contractual commitment of the Company
(whether written or oral) that gives any Person any right to receive or exercise
any benefits or rights similar to any rights enjoyed by or accruing to a holder
of shares of capital stock of the Company, including without limitation any
right to participate in the equity or income of the Company or to participate in
or direct the election of any directors of the Company or the manner in which
any shares of capital stock of the Company are voted (the items in clause (i),
(ii), (iii) or (iv) being referred to collectively as the "Company Securities")
and the Company does not have any obligation to issue or deliver any Company
Securities. All Options are intended to qualify as incentive stock options
within the meaning of Section 422(b) of the Code. There are no outstanding
obligations of the Company to repurchase, redeem or otherwise acquire any
Company Securities. Except as set forth on Schedule 4.5 of the Company
Disclosure Schedule, there are no stockholder agreements, voting trusts or
understandings to which the Company is a party or by which the Company is bound
relating to the voting or registration of any shares of capital stock of the
Company. As of the date of this Agreement, all outstanding Options are vested in
their entirety.
SECTION 4.6 SUBSIDIARIES. The Company has no Subsidiaries. For purposes of
this Agreement, "Subsidiary" means with respect to any Person, any corporation
or other legal entity of which such Person owns, directly or indirectly, more
than 50% of the outstanding stock or other equity interests, the holders of
which are entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
SECTION 4.7 SEC DOCUMENTS. The Company has timely filed all reports,
registration statements, proxy statements, forms and other documents with the
Securities and Exchange Commission (the "SEC") required to be filed by it since
October 1, 1994 and prior to the date of this Agreement ("Company SEC
Documents"). As of their respective dates, the Company SEC Documents complied in
all material respects with the requirements of the Securities Act, or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Company SEC Documents (including Rule
10b-5 under the Exchange Act and the applicable accounting rules and regulations
of the SEC).
SECTION 4.8 FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. The audited
and unaudited interim consolidated financial statements of the Company included
in the Company SEC Documents (the "Company Financial Statements") (i) have been
prepared in conformity with generally accepted accounting principles ("GAAP"),
applied on a consistent basis during the periods involved (except as may be
indicated in the related notes and schedules thereto) and (ii) are true, correct
and complete and fairly present in all material respects the consolidated
financial position of the Company and each
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of its then existing Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments, which
in the aggregate were not and will not be materially adverse to the Company and
its Subsidiaries taken as a whole). Except as set forth in Schedule 4.8 of the
Company Disclosure Schedule and except as set forth in the Company SEC Documents
filed and publicly available prior to the date of this Agreement, and except for
liabilities and obligations reflected or reserved against in the Company
Financial Statements, the Company does not have any liabilities or obligations
of any nature (whether accrued, absolute, contingent or otherwise or whether due
or to become due) or commitments which would reasonably be expected, either
individually or in the aggregate, to have a Material Adverse Effect on the
Company.
SECTION 4.9 COMPANY PROXY STATEMENT/PROSPECTUS. The Company Proxy Statement
(as defined in Section 6.2 hereof) and all amendments and supplements thereto
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations promulgated thereunder. Neither the
Company Proxy Statement, nor any amendments thereof or supplements thereto,
will, on the date the Company Proxy Statement is first mailed to stockholders of
the Company, at the time of the Company Stockholder Meeting or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
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, provided, however, that the Company makes no representation or
warranty with respect to any information furnished to it by Buyer or Merger
Subsidiary or any of their accountants, counsel or other authorized
representatives in writing specifically for inclusion in the Company Proxy
Statement. None of the information with respect to the Company or any Affiliate
of the Company that has been supplied by the Company or any of its accountants,
counsel or other authorized representatives in writing specifically for use in
the Form S-4 Registration Statement (as defined in Section 7.2 hereof) will, at
the time the Form S-4 Registration Statement becomes effective and at the
Effective Time, 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 not misleading. If at any time prior to the Effective Time
any event with respect to the Company, its officers and directors should occur
which is required to be described in a supplement to the Company Proxy
Statement, such event shall be so described, and such supplement shall be
promptly filed with the SEC and, as required by law, disseminated to the
stockholders of the Company.
SECTION 4.10 BOARD OPTION APPROVAL; STATE TAKEOVER LAWS. The Board of
Directors of the Company has approved the grant by Samans and Sebastian
Carcioppolo ("Carcioppolo") to Buyer of the option referred to in the Option
Agreement among Buyer, Samans and Carcioppolo dated June 14, 1996 (the "Option
Agreement") and the exercise of such option by Buyer on the terms provided
therein; Section 203 of the DGCL will not apply to the Merger; and no state
takeover law of the Commonwealth of Pennsylvania is applicable to the Option
Agreement, this Agreement, the Merger, or the consummation of the transactions
contemplated thereby or hereby.
SECTION 4.11 SCFM AGREEMENT. The Amended and Restated Agreement and Plan of
Merger between SCFM Corp. and the Company, dated April 4, 1996 (the "SCFM
Agreement"), and all related agreements including with potential financing
sources, except for the agreements with Janney Montgomery Scott Inc. ("Janney"),
have been terminated, except as provided in the final sentence of this
paragraph, without any further liability or obligation on the part of the
Company, with all costs and expenses paid or payable by the Company with respect
to the transactions referred to in or contemplated by the SCFM Agreement and the
financing thereof already paid and expensed and accurately reflected in the
Company Financial Statements as of March 31, 1996, except for certain costs and
expenses which were not yet paid (and whether or not expensed), as of March 31,
1996 which are listed in Schedule 4.11 of the Company Disclosure Schedule. The
Company will send notice to Mellon Bank
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N.A., within one business day following the date of this Agreement, terminating
the agreements it has with Mellon Bank N.A. relating to financing the
transactions contemplated by the SCFM Agreement, and such termination shall not
result in any costs in addition to those listed in Schedule 4.11.
SECTION 4.12 ELITE. The Company has provided Buyer with an unaudited
balance sheet and statement of income of Elite Mailing and Fulfillment Services,
Inc. ("Elite") as at and for the year ended December 31, 1995, which was
compiled by Frank Dzera, C.P.A. To the knowledge of the Company, there are no
existing circumstances which would cause Elite not to continue in business as a
going concern other than economic conditions generally affecting the business
segment in which Elite operates which are not unique to Elite.
SECTION 4.13 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Company
SEC Documents filed by the Company or as set forth in Schedule 4.13 of the
Company Disclosure Schedule, the Company has conducted its business in the
ordinary course of business consistent with past practice and there has not been
since September 30, 1995:
(a) any change, event, occurrence, development or facts which has had or
reasonably would be expected to have a Material Adverse Effect or to result
in any significant reduction in revenues from each of the Company's two
largest customers;
(b) any change in the outstanding Company Securities (except for the
issuance of Shares pursuant to Options) or any declaration, setting aside or
payment of any dividend (other than regular quarterly dividends) or other
distribution with respect to any shares of capital stock of the Company or,
except as provided in Section 9.3(vi) hereof or the cancellation of
outstanding Options, any repurchase, redemption or other acquisition by the
Company of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Company;
(c) except for the Samans Promissory Note, any amendment of any term of
any outstanding security issued by the Company;
(d) any incurrence or assumption by the Company of any Indebtedness (as
defined in Article XI hereof) which Indebtedness is presently outstanding;
(e) any creation or assumption by the Company of any material Lien on
any asset;
(f) any making of any loan, advance or capital contributions to or
investment in any Person other than expense account advances to employees in
the ordinary course of business;
(g) any damage, destruction or other casualty loss (whether or not
covered by insurance) in an amount of $10,000 or more affecting the business
or assets of the Company;
(h) any commitment made, or any contract or agreement entered into, by
the Company relating to its assets or business (including the acquisition or
disposition of any assets) or any relinquishment by the Company of any
contract or other right, other than capital expenditures (as defined by the
Company's accounting practices and in accordance with GAAP) indicated in the
capital expenditure budget set forth in Section 4.13(h) of the Company
Disclosure Schedule (the "Cap-Ex Budget") and purchases and sales of
inventory and supplies in the ordinary course of business and consistent
with past practice;
(i) any change, or any application or request to the SEC for any change,
in any method of accounting or accounting practice by the Company;
(j) (A) any change in the amount of compensation payable or to become
payable to any of the executive officers or directors of the Company or any
of its agents or consultants, (B) any general increase in base compensation
payable to the employees of the Company, or (C) the entering into or
amendment by the Company of any employment, severance, termination or other
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similar agreement, or (D) any establishment of any borrowing or lending
program by the Company for its officers, directors, employees, agents or
consultants or any loans thereto which are presently outstanding except for
those which are listed in Section 4.13(j) of the Company Disclosure
Schedule.
(k) (A) any payment or agreement to pay or any accrual or arrangement
for payment of any pension, retirement allowance or other employee benefit
pursuant to any existing plan, agreement or arrangement to any executive
officer, director, employee, agent or consultant of the Company except in
the ordinary course of business and consistent with past practice, (B) any
payment, agreement to pay or any accrual (other than as required by GAAP) or
arrangement for payment to any executive officer of the Company of any
amount relating to unused vacation days, (C) any commitment to adopt or pay,
grant, issue, accelerate or accrue salary or other payments or benefits
pursuant to any pension, profit-sharing, bonus, extra compensation,
incentive, deferred compensation, group insurance, severance pay, retirement
or other employee benefit plan, agreement or arrangement, or any employment
or consulting agreement with or for the benefit of any director, officer,
employee, agent or consultant of the Company other than pursuant to plans,
agreements and commitments in effect on September 30, 1995 which are listed
in Schedule 4.16(a) of the Company Disclosure Schedule or (D) any amendment
in any material respect of any of the foregoing plans, agreements or
arrangements;
(l) any capital expenditures (as defined by the Company's accounting
practices and in accordance with GAAP) in excess of the amount set forth in
the Company's Cap-Ex Budget or made any changes in the capital expenditure
budget for the Company's 1997 fiscal year, which is set forth as Schedule
4.13(l) to the Company Disclosure Schedule, other than a decrease in the
amount of $970,000 (which amount shall be calculated in accordance with
GAAP) which may be paid as the principal amount under a capital lease
(having an effective interest rate, as calculated in accordance with GAAP,
of no more than 8.3%) for two Siemens duplex imagers which are now included
in the Cap-Ex Budget for the Company's 1996 fiscal year; or
(m) any authorization of any of, or commitment or agreement to take any
of, the foregoing actions except as otherwise expressly permitted by this
Agreement.
SECTION 4.14 LITIGATION. Except as set forth in Schedule 4.14 of the
Company Disclosure Schedule or the Company SEC Documents, there is no action,
suit, investigation, arbitration or proceeding pending against, or to the
Knowledge (as defined in Article XI hereof) of the Company, threatened against,
relating to or affecting the Company or any of its properties or assets before
any court or arbitrator or any Governmental Entity, which, (a) if determined or
resolved adversely to the Company, would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect with respect to the
Company or (b) as of the date hereof, questions the validity of this Agreement
or any action to be taken by the Company in connection with the consummation of
the transactions contemplated by this Agreement. There are no facts, to the
Knowledge of the Company, which would reasonably be expected to give rise to any
such action, suit, investigation, arbitration or proceeding. Except as set forth
in the Company SEC Documents, the Company is not subject to any outstanding
order, writ, injunction or decree which, more likely than not, would have a
Material Adverse Effect on the Company or prevent, impair or materially delay
the consummation of the transactions contemplated hereby. Except as set forth in
Schedule 4.14 of the Company Disclosure Schedule, to the Knowledge of the
Company, there are no actions, suits, investigations or proceedings pending or
threatened against any former or current director or officer of the Company
based on, or arising out of the fact that, such person is or was a director,
officer or employee, as the case may be, of the Company. There are no facts, to
the Knowledge of the Company, which reasonably would be expected to give rise to
any such action, suit, investigation or proceeding.
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SECTION 4.15 TAXES. (a) Except as set forth on Schedule 4.15 of the
Company Disclosure Schedule:
(i) the Company and each of its Subsidiaries, which for the purposes of
this Section 4.15 shall include all Subsidiaries of the Company existing
prior to the date hereof, on or prior to the date hereof has filed or has
had filed on its behalf, and will have filed or have had filed on its behalf
prior to the Closing Date, in a timely manner (within any applicable
extension periods) with the appropriate Governmental Entity all income and
other material Tax Returns (as defined herein) required to be filed with
respect to Taxes (as defined herein) of the Company and each of its
Subsidiaries, and such Tax Returns are true, correct and complete in all
material respects;
(ii) all material Taxes with respect to the Company and its Subsidiaries
have been paid in full or have been provided for in accordance with GAAP on
the Company's most recent balance sheet which is part of the Company SEC
Documents (except for taxes accrued in accordance with GAAP subsequent to
the date of such balance sheet);
(iii) there are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any federal, state, local or
foreign income or other material Tax Returns required to be filed by or with
respect to the Company and its Subsidiaries;
(iv) none of the Tax Returns of or with respect to the Company or any of
its Subsidiaries is currently being audited or, to the Knowledge of the
Company, examined by any Governmental Entity, except that the Company may be
subject to audits of its Tax Returns to the extent such Tax Returns have not
been audited to date;
(v) no deficiency, delinquency or default for any Tax has been claimed,
proposed or assessed against the Company or any of its Subsidiaries which
has not been abated or paid in full, and the Company has not received
written notice of any such deficiency, delinquency or default nor does the
Company otherwise have Knowledge of any threat of any Governmental Entity to
assert such deficiency, delinquency or default or any facts or circumstances
that may form a basis of such threat;
(vi) there are no Liens for Taxes upon the assets of the Company except
statutory liens for current Taxes not yet due;
(vii) the Company has not filed as of or on the Closing Date a consent
pursuant to Section 341(f) of the Code or agreed to have Section 341(f)
apply to any disposition of a subsection (f) asset (as defined in Section
341(f) of the Code) owned by the Company;
(viii) no power of attorney has been executed by, or on behalf of, the
Company with respect to any matter relating to Taxes which is currently in
force, except those granted in the ordinary course of business to attorneys,
accountants or other professionals representing the Company;
(ix) the federal income and state and local income and franchise Tax
Returns for or including the Company and any of its Subsidiaries have been
audited by the relevant taxing authority or are closed under the applicable
statute of limitations for all taxable periods set forth in Schedule
4.15(ix) of the Company Disclosure Schedule; and
(x) the Company is not a party to or bound by or has any obligation
under any written or unwritten tax sharing or similar agreement or
arrangement.
(b) For purposes of this Agreement, (i) "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, sales, use, AD VALOREM, goods and services, capital,
transfer, franchise, profits, license, withholding, payroll, employment,
employer health, excise, estimated, severance, stamp, occupation, property or
other taxes, customs duties, fees,
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assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any taxing
authority and (ii) "Tax Return" shall mean any report, return, documents,
declaration or other information or filing required to be supplied to any taxing
authority or jurisdiction with respect to Taxes.
SECTION 4.16 EMPLOYEE MATTERS. (a) Schedule 4.16(a) of the Company
Disclosure Schedule contains a true and complete list of each employment, bonus,
deferred compensation, incentive compensation, stock purchase, stock option,
stock appreciation right, severance or termination pay, hospitalization or other
medical, life or other insurance, supplemental unemployment benefits, profit-
sharing, pension, or retirement plan, program, agreement or arrangement, and
each other employee benefit plan, program, agreement or arrangement, sponsored,
maintained or contributed to or required to be contributed to by the Company or
by any trade or business, whether or not incorporated (an "ERISA Affiliate"),
that together with the Company would be deemed a "single employer" within the
meaning of Section 4001(b)(1) of the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder
("ERISA"), for the benefit of any employee or former employee of the Company,
whether formal or informal and whether legally binding or not (the "Plans").
Schedule 4.16(a) of the Company Disclosure Schedule identifies each of the Plans
that is an "employee welfare benefit plan," or "employee pension benefit plan"
as such terms are defined in Sections 3(1) and 3(2) of ERISA (such plans being
hereinafter referred to collectively as the "ERISA Plans"). Neither the Company
nor any ERISA Affiliate has any formal plan or commitment, or any informal
understanding, whether legally binding or not, to create any additional Plan or
modify or change any existing Plan that would affect any employee or terminated
employee of the Company or any ERISA Affiliate, except as may be required by
law.
(b) With respect to each of the Plans, the Company has heretofore delivered
or made available to Buyer true and complete copies of each of the following
documents:
(i) a copy of the Plan or a description of all material terms thereof
(including all amendments thereto);
(ii) a copy of the annual report and actuarial report, if required under
ERISA, with respect to each such Plan for the last three years;
(iii) a copy of the most recent Summary Plan Description ("SPD") required
under ERISA with respect thereto, together with all Summaries of Material
Modification issued with respect to such SPD, if required under ERISA with
respect to such Plan;
(iv) if the Plan is funded through a trust or any other funding vehicle,
a copy of the trust or other funding agreement (including all amendments
thereto) and the latest financial statements thereof;
(v) all contracts relating to the Plans with respect to which the
Company or any ERISA Affiliate may have any liability, including without
limitation insurance contracts, investment management agreements,
subscription and participation agreements and record keeping arrangements;
and
(vi) the most recent determination letter received from the Internal
Revenue Service with respect to each Plan that is intended to be qualified
under Section 401(a) of the Code.
(c) Neither the Company nor any ERISA Affiliate currently sponsors,
maintains or is required to make contributions to, or has ever sponsored,
maintained or been required to make contributions to any employee benefit plan
subject to Title IV of ERISA or any "multiemployer plan" (as defined in Section
3(37) of ERISA).
(d) Neither the Company, any ERISA Affiliate, any of the ERISA Plans, any
trust created thereunder nor any trustee or administrator thereof has engaged in
a transaction or has taken or
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failed to take any action in connection with which the Company, any ERISA
Affiliate, any of the ERISA Plans, any such trust, any trustee or administrator
thereof, or any party dealing with the ERISA Plans or any such trust would be
subject to either a civil penalty assessed pursuant to Section 409 or Section
502(i) of ERISA or a tax imposed pursuant to Section 4975, Section 4976 or
Section 4980B of the Code.
(e) Each of the Plans has been operated and administered in all material
respects in accordance with its terms and applicable laws, including but not
limited to ERISA and the Code.
(f) Each ERISA Plan that is intended to be "qualified" within the meaning
of Section 401(a) of the Code has been determined by the Internal Revenue
Service to be so qualified on a current basis as of the date of the
determination letter received from the Internal Revenue Service with respect to
such Plan and within the limitations set forth therein.
(g) No Plan provides benefits, including without limitation death or
medical benefits (whether or not insured), with respect to current or former
employees of the Company or any ERISA Affiliate beyond their retirement or other
termination of service (other than (i) coverage mandated by applicable law, (ii)
death benefits or retirement benefits under any "employee pension benefit plan",
as that term is defined in section 3(2) of ERISA, (iii) deferred compensation
benefits accrued as liabilities on the books of the Company or the ERISA
Affiliates or (iv) benefits the full cost of which is borne by the current or
former employee (or his or her beneficiary)).
(h) The consummation of the transactions contemplated by this Agreement
will not (i) entitle any current or former employee or officer of the Company or
any ERISA Affiliate to severance pay, unemployment compensation or any other
payment or other right or (ii) accelerate the time of payment or vesting, or
increase the amount of any compensation due any such employee or officer.
(i) There are no pending or, to the Knowledge of the Company, threatened
claims by or on behalf of any Plan, by any employee or beneficiary covered under
any such Plan, or otherwise involving any such Plan (other than routine claims
for benefits). There are no facts, to the Knowledge of the Company, which may
form the basis of any such claim.
(j) No amounts payable under any Plan or any other agreement or arrangement
to which the Company or any ERISA Affiliate is a party will fail to be
deductible for federal income tax purposes, including without limitation, by
virtue of Section 280G of the Code.
(k) Each of the ERISA Plans that is intended to satisfy the requirements of
section 501(c)(9) of the Code has so satisfied such requirements.
(l) No "leased employee," as that term is defined in section 414(n) of the
Code, performs services for the Company or any ERISA Affiliate.
(m) With respect to each Plan that is funded wholly or partially through an
insurance policy, there will be no liability of the Company or an ERISA
Affiliate, as of the Effective Time, under any such insurance policy or
ancillary agreement with respect to such insurance policy in the nature of a
retroactive rate adjustment, loss sharing arrangement or other actual or
contingent liability arising wholly or partially out of events occurring prior
to the Effective Time.
SECTION 4.17 LABOR MATTERS. Except to the extent set forth in Schedule 4.14
of the Company Disclosure Schedule or Schedule 4.16(a) of the Company Disclosure
Schedule or Schedule 4.17 of the Company Disclosure Schedule, (i) there is no
labor strike, dispute, slowdown, stoppage or lockout actually pending or, to the
Knowledge of the Company, threatened against the Company and during the past
three years there has not been any such action against the Company; (ii) to the
Knowledge of the Company, there is no current union organizing activities among
the Company's employees nor does any question concerning representation exist
concerning such employees; (iii) there is no unfair labor practice charge or
complaint pending against the Company or, to the Knowledge of the Company,
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threatened against the Company before the National Labor Relations Board or any
similar state or foreign agency and there are no facts, to the Knowledge of the
Company, which would form the basis thereof; (iv) there is no grievance pending
against the Company relating to any collective bargaining agreement or other
grievance procedure and there are no facts, to the Knowledge of the Company,
which could form the basis thereof; (v) no charges with respect to or relating
to the Company or any Subsidiary of the Company (which was in existence prior to
the date hereof) are pending before the Equal Employment Opportunity Commission
or any other agency responsible for the prevention of unlawful employment
practices and there are no facts, to the Knowledge of the Company, which would
form the basis thereof, (vi) the Company has complied, other than with respect
to the transactions contemplated by this Agreement as to which the Company makes
no representation, with the Worker Adjustment and Retraining Notification Act
("WARN Act"), and other state or local laws substantially similar in effect to
the WARN Act, where the failure to be in compliance with such state or local
laws would, individually or in the aggregate have a Material Adverse Effect on
the Company; and (vii) there are no collective bargaining agreements, employment
contracts or severance agreements with any union which represents any employees
of the Company.
SECTION 4.18 NO EXISTING VIOLATION; COMPLIANCE. The Company is not in
violation of (i) the Company Certificate of Incorporation or Company By-laws or
(ii) any order, decree or judgment of any Governmental Entity having
jurisdiction over the Company or its assets. Except as set forth in Schedule
4.14 (as applicable) or Schedule 4.18 of the Company Disclosure Schedule, (i)
neither the Company nor any Subsidiary has received any notice since January 1,
1995 that they are not in compliance with, and (ii) the Company and its business
and operations, are presently in substantial compliance with, all laws,
statutes, ordinances or regulations, except that this representation does not
apply to Environmental Laws.
SECTION 4.19 FINDERS' FEES. Except for Janney, Wolf, Block, Schorr and
Solis-Cohen, the Company's special counsel, Lamb & Bouchard, and Grant Thornton,
L.L.P., the Company's independent accountants, (each, other than Janney, a
"Representative") there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of the
Company who would be entitled to any fee or commission from the Company or any
Affiliate of the Company, Buyer or any of Buyer's Affiliates upon consummation
of and in connection with the transactions contemplated by this Agreement. The
Representatives are being paid by the Company solely for providing legal and
accounting services to the Company, to Robert Samans in the case of Lamb &
Bouchard, and certain employees of the Company who are executing Employment
Agreements. An executed, true and complete copy of the engagement letter with
Janney, as amended and currently in effect, has been delivered to Buyer. In
connection with the Janney engagement (exclusive of indemnity of Janney for
certain matters as provided therein), the only amounts, which were or are
payable at any time to Janney, total no more than $300,000 in the aggregate,
plus the out-of-pocket expenses of Janney, and the only amounts which are
payable to Janney after the date of this Agreement total no more than $195,000,
including the out-of-pocket expenses of Janney.
SECTION 4.20 ENVIRONMENTAL MATTERS. (a) As used in this Agreement, the
following definitions shall have the following meanings:
(i) "Environmental Claim" means any written notice or, to the Knowledge
of the Company, oral notice, by any Person alleging potential liability
(including, without limitation, potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries, or penalties) with respect to the
business and operations of the Company or its Subsidiaries arising out of,
based on or resulting from (a) the presence, or release into the
environment, including, without limitation, into ambient air, soil, surface
water, ground water, land surface or subsurface strata, of any Materials of
Environmental
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Concern (as defined in subsection (iii) below) at any location, whether or
not owned by the Company or any Subsidiary of the Company, or (b)
circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law.
(ii) "Environmental Laws" means all federal, state, local and foreign
laws and regulations relating to pollution or protection of human health,
safety or the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata), including
without limitation, the Occupational Health and Safety Act of 1970, as
amended, and the rules and regulations thereunder, laws and regulations
relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern.
(iii) "Materials of Environmental Concern" means chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products.
(b) Except as set forth in the Company SEC Documents or Schedule 4.20(b) of
the Company Disclosure Schedule, to the Knowledge of the Company the Company is
in substantial compliance with all Environmental Laws applicable to the business
and operations of the Company, including, without limitation, through the
holding of all permits and authorizations required by such laws and in
compliance with terms and conditions thereof and, to the Knowledge of the
Company, there are no circumstances that may prevent or interfere with such full
compliance in the future. All material permits and other governmental
authorizations currently held by Company pursuant to the Environmental Laws in
connection with its businesses and operations are identified in Schedule 4.20(b)
of the Company Disclosure Schedule.
(c) Except as set forth in the Company SEC Documents or Schedule 4.20(c) of
the Company Disclosure Schedule, since June 30, 1991, the Company has not
received, nor had any of its then existing Subsidiaries received, any written
or, to the Knowledge of the Company, oral communication from any Person stating
that it or its Subsidiaries may be a potentially responsible party under any
Environmental Law with respect to any actual or alleged environmental
contamination; neither the Company nor its Subsidiaries nor, to the Knowledge of
the Company, any Governmental Entity is conducting or has conducted any
environmental remediation or environmental investigation which would reasonably
be expected to result in any liability for the Company under any Environmental
Law; and neither the Company nor its Subsidiaries has received any written or,
to the Knowledge of the Company, oral request for information from any
Governmental Entity with respect to any actual or alleged environmental
contamination; and since June 30, 1991, neither the Company nor its Subsidiaries
have received any written communication from any Person stating or alleging that
the Company or its Subsidiaries may have violated any Environmental Law, that
the Company or its Subsidiaries has caused or contributed to any environmental
contamination that has caused any property damage or personal injury under any
Environmental Law or made or suffered on any of their respective properties any
release of any Materials of Environmental Concern.
(d) Except as set forth in Schedule 4.20(d) of the Company Disclosure
Schedule or the Company SEC Documents, to the Knowledge of the Company there are
no past or present actions, activities, circumstances, conditions, events or
incidents in connection with the business and operations of the Company and its
Subsidiaries, including, without limitation, the release, emission, discharge or
disposal of any Materials of Environmental Concern, that would reasonably be
expected to form the basis of any Environmental Claim against the Company or
against any Person whose liability for any Environmental Claim the Company or
any Subsidiary of the Company existing prior to the date hereof has or may have
retained or assumed either contractually or by operation of law or otherwise.
Except as set forth in the Company SEC Documents or Section 4.20(d) of the
Company Disclosure Schedule, there is no Environmental Claim pending or, to the
Knowledge of the Company, threatened against
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the Company, or to the Knowledge of the Company, against any Person whose
liability for any Environmental Claim the Company (or any of its Subsidiaries
existing prior to the date hereof) has or may have retained or assumed either
contractually or by operation of law.
(e) Without in any way limiting the generality of the foregoing, (i) to the
Knowledge of the Company, all on-site and off-site locations where the Company
or its Subsidiaries has stored, disposed or arranged for the disposal of
Materials of Environmental Concern since June 30, 1991 are identified in
Schedule 4.20(e) of the Company Disclosure Schedule or the Company SEC
Documents, (ii) to the Knowledge of the Company, all underground storage tanks,
and the capacity and contents of such tanks, located on property owned or leased
by the Company or any Subsidiary of the Company since June 30, 1991 are
identified in Schedule 4.20(e) of the Company Disclosure Schedule or the Company
SEC Documents, (iii) to the Knowledge of the Company, except as set forth in
Schedule 4.20(e) of the Company Disclosure Schedule or the Company SEC
Documents, no asbestos has been contained in or formed part of any building,
building component, structure or office space owned or leased by the Company or
any Subsidiary of the Company since June 30, 1991 and (iv) to the Knowledge of
the Company, except as set forth in Schedule 4.20(e) of the Company Disclosure
Schedule or the Company SEC Documents, no polychlorinated biphenyls are
presently stored at any property owned or leased by the Company or any
Subsidiary of the Company.
(f) (i) The Company has made available to Buyer each material environmental
investigation, study, audit, test, review and other analysis in the possession
of the Company prepared in the last five years conducted in relation to the
business of the Company or its Subsidiaries or any property or facility now or
previously owned, operated or leased by the Company or any Subsidiary of the
Company; and (ii) the Company has made available to Buyer each consent decree,
consent order or similar document entered into since June 30, 1991, and to which
it is a party relating to any property owned, leased or operated by the Company
or its Subsidiaries since June 30, 1991.
(g) Except to the extent set forth in Section 4.20(g) of the Company
Disclosure Schedule, following the installation of the new printing press
contemplated to be installed by the Company, the Company will not be required to
make any additional capital expenditures (as defined by the Company's accounting
practices) to be in compliance with any Environmental Law in connection with the
operation of such press.
SECTION 4.21 PROPERTY. (a) The Company has good and valid title to, or in
the case of leased property, has valid leasehold interests in, all properties
and assets used in or necessary to conduct the business of the Company as
currently conducted free and clear of all Liens except as set forth in Section
4.21 of the Company Disclosure Schedule.
(b) There are no developments, including but not limited to, with respect
to condemnation, affecting any of such properties or assets pending or, to the
Knowledge of the Company, threatened, which would reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect with respect to
the Company.
(c) The buildings, structures, facilities and printing and converting
equipment owned or used by the Company in the conduct of its business are
structurally sound with no known material defects and are in good operating
condition and repair (subject to normal wear and tear) so as to permit the
operation by the Company of its business as presently conducted.
(d) Except as set forth in Section 4.21 of the Company Disclosure Schedule,
no written notice from any Governmental Entity has been received by the Company
requiring or calling attention to the need for any work, repair, construction,
alteration or installation, or in connection with, any buildings, structures,
facilities or printing and converting equipment located thereon which will
involve any expenditure other than as set forth in the Company's Budget.
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SECTION 4.22 INTANGIBLE PROPERTY. (a) The Company owns or possesses
adequate licenses or other valid and enforceable rights to use all trademarks,
trademark rights, trade names, trade name rights, copyrights, service marks,
service mark rights, service mark names, trade secrets, other intellectual
property and applications therefor, which, individually or in the aggregate, are
material to the Company's business and operations (collectively, "Intangible
Property") and which are used or held for use in connection with the business of
the Company as currently conducted, and such Intangible Property (and any
application which has been filed relating thereto) is listed in Section 4.22 of
the Company Disclosure Schedule. The Company is in substantial compliance with
all licenses relating to Intangible Property listed in Section 4.22 of the
Company Disclosure Schedule. The Company has no registered trademarks.
(b) To the Knowledge of the Company, except as set forth in Schedule
4.22(b) of the Company Disclosure Schedule, there has not been asserted any
claim challenging the validity of the Company's use of any Intangible Property.
To the Knowledge of the Company, except as set forth in Schedule 4.22(b) of the
Company Disclosure Schedule, the conduct of the business of the Company as
currently conducted does not conflict with any trademark, trademark right, trade
name or trade name right of any Person in a manner that could reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect
with respect to the Company. To the Knowledge of the Company, there are no
material infringements of any Intangible Property by any Person.
SECTION 4.23 MATERIAL CONTRACTS. (a) Except as set forth on Schedule
4.16(a) or Schedule 4.23 of the Company Disclosure Schedule, the Company SEC
Documents list all Material Contracts (as defined below) of the Company (and all
material amendments thereto) and all agreements or commitments to enter into a
Material Contract, and except as set forth on Schedule 4.23 of the Company
Disclosure Schedule or in the Company SEC Documents, each Material Contract is
valid, binding and enforceable against the Company and in full force and effect
in all material respects and, to the Knowledge of the Company, each Material
Contract is valid, binding and enforceable against each other party thereto and
in full force and effect in all material respects against each other party
thereto, and there are no material defaults by the Company thereunder and there
is no event which is reasonably likely to have such effect and, to the Knowledge
of the Company, there are no material defaults by any other party to a Material
Contract. True and complete copies of all Material Contracts have been delivered
or made available to Buyer.
(b) For purposes of this Agreement, "Material Contracts" shall mean (i) any
contract, agreement or understanding with any customer or supplier of the
Company, which accounted during the Company's last fiscal year or which are
expected to account during the Company's present fiscal year, for more than
$100,000 of the annual revenues or payables, as the case may be, of the Company,
(ii) all acquisition, merger, asset purchase or sale agreements entered into by
the Company in the last two fiscal years with a transaction value in excess of
$100,000, other than purchase or sale orders for inventory or supplies; (iii)
all indemnification, termination, employment, severance, or "golden parachute"
agreements; (iv) credit agreements, notes, bonds, mortgages, indentures with
respect to, or other evidence of, Indebtedness of the Company or guarantees of
Indebtedness of any other Person and (v) any other agreement within the meaning
set forth in Item 601(b)(10) Regulation S-K of Title 17, Part 229 of the Code of
Federal Regulations (assuming for such purposes that the date of filing of the
Registration Statement is deemed to be the date of this Agreement).
(c) Except as set forth on Schedule 4.23 of the Company Disclosure
Schedule, no party to any such Material Contract has (i) given written notice to
the Company of or made a claim in writing against the Company or any Subsidiary
of the Company existing prior to the date hereof with respect to any breach or
default thereunder, or (ii) given written or, to the Knowledge of the Company,
oral notice to the Company or any Subsidiary of the Company existing prior to
the date hereof that it does
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not intend to renew (where renewal is appropriate) or it intends to modify in
any significant way which is adverse to the Company or terminate a significant
portion of its business relationships with the Company or any Subsidiary of the
Company existing prior to the date hereof.
(d) Except as set forth in Schedule 4.16(a) of the Company Disclosure
Schedule or Schedule 4.23 of the Company Disclosure Schedule, the Company is not
a party to or bound by any non-competition agreement or any other agreement,
understanding or obligation which purports to limit in any material respect the
manner in which, or the localities in which, the Company is entitled to conduct
all or any material portion of the business of the Company.
(e) Schedule 4.23(e) of the Company Disclosure Schedule sets forth the
following with respect to each item of Indebtedness of the Company: (i) its
principal amount and (ii) any prepayment or other penalties which would be
payable if the Indebtedness is paid at anytime prior to or as of October 1,
1996. All Indebtedness may be prepaid by the Company prior to its scheduled
maturity subject only to the payment of the scheduled prepayment or other
scheduled penalties.
SECTION 4.24 ACCOUNTING MATTERS; REORGANIZATION. To the Knowledge of the
Company, neither the Company nor any of its Affiliates has taken or agreed to
take any action or failed to take any action that would prevent Buyer from
accounting for the transactions to be effected pursuant to this Agreement as a
pooling of interests in accordance with GAAP and applicable SEC regulations;
provided, however, that the Company makes no representation or warranty with
respect to any actions which would prevent Buyer from accounting for such
transactions as a pooling of interests because of actions or failures to take
any action by Buyer or any of its Affiliates. Neither the Company nor any of its
Affiliates has taken or agreed to take any action or failed to take any action
which action or failure would be reasonably likely to cause the Merger not to
qualify as a reorganization under Section 368(a) of the Code.
SECTION 4.25 FAIRNESS OPINION. The Board of Directors of the Company has
received the written opinion of Janney, to the effect that, as of the date of
this Agreement, the consideration to be received by holders of Shares pursuant
to the Merger is fair from a financial point of view to such holders and such
opinion has not been withdrawn. An executed, true and complete copy of such
opinion has been delivered to Buyer.
SECTION 4.26 LICENSES AND PERMITS. Except as regards environmental matters
(which are addressed in Section 4.20), the Company has received such
certificates, permits, licenses, variances, exemptions, franchises, consents,
approvals, orders, authorizations and clearances from appropriate Governmental
Entities ("Licenses") as are necessary to own or lease and operate their
respective properties and to conduct its business substantially in the manner
described in the Company SEC Documents and as currently owned or leased and
conducted, and all such Licenses are valid and in full force and effect in all
material respects except where the failure to obtain any such License or the
failure of such License to be valid and in full force and effect would not
subject the Company to significant penalties. Schedule 4.26 of the Company
Disclosure Schedule contains a listing of all material Licenses. The Company is
in compliance in all material respects with their respective obligations under
the Licenses and, to the Knowledge of the Company, no event has occurred that
allows, or after notice or lapse of time, or both, would allow, revocation or
termination of any material License. Each such License will continue to be in
full force and effect following the Merger and unaffected thereby without the
payment of any fee or other consideration or the posting of any additional bond
except where the failure of such License to remain in full force and effect
results from actions or failures to act on the part of Buyer or its Affiliates
or on facts specific to Buyer and its Affiliates.
SECTION 4.27 OWNERSHIP OF BUYER CAPITAL STOCK. The Company does not own any
shares of the capital stock of Buyer.
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SECTION 4.28 INSURANCE. The Company maintains customary and appropriate
insurance policies with reputable insurers in such amounts as are customary in
the commercial printing industry and all required worker's compensation
insurance policies. True and complete copies of such insurance policies, and of
any directors and officers liability insurance policies, have been delivered or
made available to Buyer. All of such policies of insurance are in full force and
effect and are sufficient for compliance with all requirements of law and
contracts to which the Company is a party or otherwise bound. Prior to the
Effective Time, the Company will maintain all such insurance policies (or
appropriate replacement policies) in full force and effect and the Company will
not take any action to terminate or cancel any policy prior to the end of its
policy period.
SECTION 4.29 CUSTOMERS AND SUPPLIERS. Schedule 4.29 of the Company
Disclosure Schedule sets forth a listing of the names and amount of annual
revenues or expenses paid, as the case may be, of the (a) ten largest customers
of the Company in terms of sales during the Company's last fiscal year and (b)
ten largest suppliers to the Company in terms of purchases during the Company's
last fiscal year. Except as set forth in Schedule 4.29 of the Company Disclosure
Schedule, since September 30, 1995, there has not been any significant and
adverse change in the business relationship of the Company with any of such
customers or suppliers nor has the Company changed the terms in any material way
of doing business with such customers or suppliers (including, but not limited
to, any change in payment terms or pricing). All customer advances to the
Company are cash deposits made by such customers with the Company solely for the
purpose of paying postage and advance billings (which advance billings are
listed in Section 4.29 of the Company Disclosure Schedule by customer and
amount) in connection with services to be performed by the Company. The amount
to be paid for services to be provided by the Company with respect to such
advance billings is not on terms more favorable than if the customer had not
paid in advance. The Company does not expect the customer advance in the amount
of $700,000 which has been outstanding for the five years prior to the date of
this Agreement to be utilized prior to the Effective Time.
SECTION 4.30 ACCOUNTS RECEIVABLE. Except as set forth in Schedule 4.30 of
the Company Disclosure Schedule, the accounts and notes receivable and all other
receivables shown on the Company Financial Statements (subject to reserves for
non-collectibility as reflected therein), and all receivables acquired or
generated by the Company since March 31, 1996 (subject to reasonable reserves
for non-collectibility, consistent with past practice and in accordance with
GAAP), are bona fide receivables and represent amounts due with respect to
actual, arm's length transactions entered into in the ordinary course of
business consistent with past practice and are collectible at their recorded
amounts (net of reserves for non-collectibility). Reserves for
non-collectibility have been reflected on the Company Financial Statements in
accordance with GAAP and the Company's historical practice and are adequate. No
such account has been assigned or pledged to any other Person and, to the
Knowledge of the Company, no defense or set-off or similar right to any such
account has been asserted by the account obligor.
SECTION 4.31 INVENTORY. The inventories on the Company Financial Statements
are stated at the lower of cost (first in, first out) or market in accordance
with GAAP. Substantially all of the inventories used in or relating to the
conduct of the business of the Company are usable or saleable in the ordinary
course of business consistent with past practice (subject to reserves as
reflected on the Company Financial Statements) and are owned by the Company free
and clear of any Lien. Reserves with respect to inventories have been reflected
on the Company Financial Statements in accordance with GAAP and the Company's
historical practice and are adequate.
SECTION 4.32 RELATIONSHIPS WITH AFFILIATES. Except as set forth in Schedule
4.23(b), Schedule 4.13, Schedule 4.16(a) or Schedule 4.32 of the Company
Disclosure Schedule and except as reflected on the Company Financial Statements
or incurred in the ordinary course of business consistent with past practice in
connection with compensation owed to a director, officer or employee, the
Company does not have any outstanding liabilities, obligations or other
Indebtedness for amounts owing to, or notes
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or accounts receivable from, or leases, contracts or other commitments or
arrangements with, any of their respective Affiliates, directors, officers or
employees and no officer or director of the Company or any Affiliate thereof has
any ownership or stock interest in any Person that is a customer of or supplier
to the Company or purchases or leases any property or equipment from, or sells
or leases any property or equipment to, the Company. For purposes of this
representation, ownership of not more than five percent of the voting stock of
any publicly held company whose stock is listed on any recognized securities
exchange or traded over the counter shall be disregarded. Notwithstanding the
requirements of Section 4.23(b), Section 4.13 or Section 4.16(a), all
disclosures required to be made with respect to Samans in the Company Disclosure
Schedule shall be made in Schedule 4.32 thereof.
SECTION 4.33 WORKMEN'S COMPENSATION. There shall be no cost to the Company
for withdrawal from the Graphic Arts Workers Compensation Self-Insurance Trust
(the "Trust") if withdrawal occurs as of December 31, 1996, provided at least
120-day prior written notice is given in accordance with Section 6.9 hereof. To
the Knowledge of the Company, such notice may be withdrawn without penalty at
any time prior to December 31, 1996.
SECTION 4.34 FLEET CREDIT. As of the date of this Agreement, the Company
has no financing arrangements or other facilities with Fleet Credit Corporation
("Fleet") and has no outstanding obligations or liabilities of any kind owing to
Fleet, all such financing arrangements or facilities having been terminated and
all obligations and liabilities owing by the Company to Fleet having been
fulfilled. Fleet is not entitled to any Lien on the assets or properties of the
Company. The Company agrees it will use its reasonable efforts to have Fleet
file, in the appropriate jurisdictions in which it has filed UCC-1s, UCC-3
termination statements within 15 business days following the date of this
Agreement.
SECTION 4.35 DISCLOSURE. No representation or warranty by the Company
contained in this Agreement and no statement contained in any certificate
delivered by the Company to Buyer or Merger Subsidiary pursuant to this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein and therein not
misleading when taken together in light of the circumstances in which they were
made.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF BUYER AND MERGER SUBSIDIARY
Buyer and Merger Subsidiary represent and warrant to the Company that:
SECTION 5.1 CORPORATE EXISTENCE AND POWER. Each of Buyer and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
corporate power and authority required to carry on its business as now
conducted. Each of Buyer and Merger Subsidiary is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified and in good standing would not have a Material
Adverse Effect with respect to Buyer or Merger Subsidiary. Each of Buyer and
Merger Subsidiary has heretofore delivered or made available to the Company true
and complete copies of Buyer's and Merger Subsidiary's certificate of
incorporation and by-laws as currently in effect.
SECTION 5.2 CORPORATE AUTHORIZATION. The execution, delivery and
performance by Buyer and Merger Subsidiary of this Agreement and the
consummation by Buyer and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of Buyer and Merger Subsidiary and have
been duly authorized by all necessary corporate action. This Agreement, assuming
due and valid authorization, execution and delivery by the Company, constitutes
a valid and binding agreement of each of Buyer and Merger Subsidiary enforceable
against Buyer and Merger Subsidiary in
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accordance with its terms, except that (i) enforcement may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws, now or hereafter in effect, affecting creditors' rights generally and (ii)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
SECTION 5.3 GOVERNMENTAL AUTHORIZATION. Assuming the accuracy of the
Company's representations set forth in Section 4.10, the execution, delivery and
performance by Buyer and Merger Subsidiary of this Agreement and the
consummation by Buyer and Merger Subsidiary of the transactions contemplated
hereby require no action by or in respect of, or filing with, any Governmental
Entity other than: (i) the filing of a Certificate of Merger in accordance with
the DGCL; (ii) compliance with any applicable requirements of the HSR Act, which
has been so complied with; (iii) compliance with any applicable requirements of
the Securities Act and Exchange Act; (iv) compliance with the applicable
requirements of state blue-sky laws; and (v) such other actions by or in respect
of, or filings with, any Governmental Entity which if not obtained or made would
not, individually or in the aggregate, have a Material Adverse Effect with
respect to Buyer and its Subsidiaries and would not impair or materially delay
the ability of Buyer or Merger Subsidiary to consummate the transactions
contemplated hereby.
SECTION 5.4 NON-CONTRAVENTION. The execution, delivery and performance by
Buyer and Merger Subsidiary of this Agreement and the consummation by Buyer and
Merger Subsidiary of the transactions contemplated hereby do not and will not
(i) contravene or conflict with the Certificate of Incorporation or By-laws of
Buyer or Merger Subsidiary, (ii) assuming the accuracy of the Company's
representations set forth in Section 4.10, and assuming compliance with the
matters referred to in Section 5.3 hereof, contravene or conflict with or
constitute a violation of any provision of law, judgment, injunction, order or
decree binding upon or applicable to Buyer or Merger Subsidiary, (iii) provided
that an amendment to Buyer Credit Agreement (as defined in Article XI) has been
obtained prior to Closing, with or without the giving of notice or passage of
time or both, constitute a default under or give rise to a right of termination,
cancellation or acceleration of any right or obligation of Buyer or Merger
Subsidiary or to a loss of any benefit to which Buyer or Merger Subsidiary is
entitled under any provision of any material agreement, contract or other
instrument binding upon Buyer or Merger Subsidiary or any material license,
franchise, permit or other similar authorization held by Buyer or Merger
Subsidiary, or (iv) result in the creation or imposition of any Lien on any
asset of Buyer or Merger Subsidiary.
SECTION 5.5 CAPITALIZATION. The authorized capital stock of Buyer consists
of 50,000,000 shares of Buyer Common Stock, 2,500,000 shares of Class B common
stock, par value $.01 per share ("Buyer Class B Common Stock"), and 10,000,000
shares of preferred stock ("Buyer Preferred Stock"), par value $0.01 per share.
As of July 15, 1996, there were issued and outstanding (i) 14,715,745 shares of
Buyer Common Stock, (ii) 1,738,692 shares of Buyer Class B Common Stock, and
(iii) no shares of Buyer Preferred Stock. All of the outstanding shares of
capital stock of Buyer have been duly authorized and validly issued and are
fully paid and nonassessable. Except as set forth in this Section 5.5 or in
Buyer SEC Documents, and except for 2,561,769 shares of Buyer Common Stock
reserved for issuance pursuant to outstanding and future awards under Buyer's
Restated 1993 Stock Award and Incentive Plan, as amended, as of the date of this
Agreement, there are outstanding (i) no other shares of capital stock or other
voting securities of Buyer, (ii) no other securities of Buyer or of any
Subsidiary of Buyer convertible into or exchangeable for shares of capital stock
or voting securities of Buyer, and (iii) no options or other rights to acquire
from Buyer, and no obligation of Buyer to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of Buyer (the items in clauses (i), (ii) and (iii) being
referred to collectively as the "Buyer Securities").
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SECTION 5.6 OWNERSHIP OF MERGER SUBSIDIARY; NO PRIOR ACTIVITIES; ASSETS OF
MERGER SUBSIDIARY.
(a) Merger Subsidiary was formed solely for the purpose of the Merger and
engaging in the transactions contemplated hereby.
(b) As of the date hereof and the Effective Time, all of outstanding shares
of capital stock of Merger Subsidiary are and will be directly owned by WTI and
all of the outstanding shares of capital stock of WTI are and will be directly
owned by Buyer and there are not as of the date hereof and there will not be at
the Effective Time any outstanding or authorized options, warrants, calls,
rights, commitments or any other agreements of any character which Merger
Subsidiary or WTI is a party to, or may be bound by, requiring it to issue,
transfer, sell, purchase, redeem or acquire any shares of capital stock or any
securities or rights convertible into, exchangeable for, or evidencing the right
to subscribe for or acquire, any shares of capital stock of Merger Subsidiary or
WTI.
(c) As of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated hereby, Merger Subsidiary has not and will not
have incurred, directly or indirectly through any Subsidiary or Affiliate, any
obligations or liabilities or engaged in any business or activities of any type
or kind whatsoever or entered into any agreements or arrangements with any
Person.
SECTION 5.7 SEC DOCUMENTS. Buyer has filed all reports, proxy statements,
forms and other documents required to be filed with the SEC since November 28,
1995 and prior to the date of this Agreement ("Buyer SEC Documents"). As of
their respective dates, Buyer SEC Documents complied in all material respects
with the requirements of the Securities Act, or the Exchange Act, as the case
may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Buyer SEC Documents (including Rule 10b-5 under the Exchange
Act and the applicable accounting rules and regulations of the SEC).
SECTION 5.8 FINANCIAL STATEMENTS. The consolidated financial statements of
Buyer included in the Buyer SEC Documents (i) have been prepared in conformity
with GAAP applied on a consistent basis during the periods involved (except as
may be indicated in the related notes and schedules thereto) and (ii) fairly
present in all material respects the consolidated financial position of Buyer
and its consolidated subsidiaries as of the dates thereof, and the results of
its operations and its cash flows for the periods then ended (subject, in the
case of the unaudited statements, to normal year-end audit adjustments, none of
which was material and that, in the case of financial statements included
therein which reflect an acquisition accounted for as a purchase, the financial
statements for the period succeeding the acquisition are presented on a
different basis of accounting than the period prior to the acquisition and are
not directly comparable.)
SECTION 5.9 FORM S-4 REGISTRATION STATEMENT. The Form S-4 Registration
Statement and all amendments thereto will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
promulgated thereunder. Neither the Form S-4 Registration Statement, nor any
amendments thereof, will, on the date the Company Proxy Statement is first
mailed to stockholders of the Company, at the time of the Company Stockholder
Meeting, at the Effective Time or at the time it becomes effective, contain any
untrue statement of a material fact or omit to state any 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, provided, however,
that Buyer makes no representation or warranty with respect to any information
furnished to it by the Company or any of its accountants, counsel or other
authorized representatives in writing specifically for inclusion in the Form S-4
Registration Statement. None of the information with respect to Buyer or any
Affiliate of Buyer that has been supplied by Buyer or any of its accountants,
counsel or other authorized representatives in writing specifically for use in
the Company Proxy Statement will, on the date that the Company Proxy Statement
is first mailed to stockholders of the
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Company, at the time of the Company Stockholder Meeting or at the Effective
Time, 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 not misleading.
SECTION 5.10 NO VOTE REQUIRED. No vote or special meeting of the
stockholders of Buyer, WTI or Merger Subsidiary, which has not been obtained, is
necessary or required by this Agreement or under applicable law or rule of any
national securities exchange to approve the Merger, this Agreement or the
transactions contemplated hereby.
SECTION 5.11 SHARE OWNERSHIP. As of the date hereof, neither Buyer nor any
of its Subsidiaries owns any Company Securities or have any option or right to
acquire any Company Securities except pursuant to the Option Agreement.
SECTION 5.12 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Buyer SEC Documents, since the date of the most recent consolidated balance
sheet included in the Buyer SEC Documents, there has not been a Material Adverse
Effect with respect to Buyer.
SECTION 5.13 AUTHORIZATION FOR BUYER COMMON STOCK. Buyer will take all
necessary action prior to the Closing Date to permit it to issue the number of
shares of Buyer Common Stock required to be issued pursuant to this Agreement.
All shares of Buyer Common Stock issued pursuant to this Agreement will, when
issued, be validly issued, fully paid and nonassessable and no Person will have
any preemptive right of subscription or purchase in respect thereof. All shares
of Buyer Common Stock will, when issued, be registered under the Securities Act
and the Exchange Act and registered or exempt from registration under any
applicable state securities laws and will, when issued, be listed on the NYSE,
subject to official notice of issuance.
SECTION 5.14 RELATIONSHIPS. To the Knowledge of Buyer, neither Buyer nor
any of its Affiliates has taken or failed to take any action that would
reasonably be expected to cause the largest customer of the Company not to
continue its present relationship with the Company for the foreseeable future
following the Merger on terms at least as favorable to the Company as those in
effect during the eight-month period prior to May 31, 1996.
SECTION 5.15 FINDERS' FEES. There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of Buyer or any Affiliate of Buyer who would be entitled to any finder's
fee or similar commission from Buyer, any Affiliate of Buyer, the Company or any
of Company's Affiliates upon consummation of the transactions contemplated by
this Agreement.
SECTION 5.16 ACCOUNTING MATTERS; REORGANIZATION. To the Knowledge of
Buyer, neither Buyer nor any of its Affiliates has taken or agreed to take any
action or failed to take any action that would prevent Buyer from accounting for
the transactions to be effected pursuant to this Agreement as a pooling of
interests in accordance with GAAP and applicable SEC regulations; provided,
however, that Buyer makes no representation or warranty with respect to any
actions which would prevent Buyer from accounting for such transactions as a
pooling of interests because of actions or failures to take any action by the
Company or any of its Affiliates. Neither Buyer nor any of its Affiliates has
taken or agreed to take any action or failed to take any action which action or
failure would be reasonably likely to cause the Merger not to qualify as a
reorganization under Section 368(a) of the Code.
SECTION 5.17 DISCLOSURE. No representation or warranty by Buyer contained
in this Agreement and no statement contained in any certificate delivered by
Buyer pursuant to this Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
contained herein and therein not misleading when taken together in light of the
circumstances in which they were made.
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ARTICLE VI
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 6.1 CONDUCT OF THE COMPANY. Except as contemplated by this
Agreement, and except as set forth in Schedule 6.1 of the Company Disclosure
Schedule, from the date hereof until the Effective Time, the Company shall
conduct its business only in the ordinary course and shall use its reasonable
efforts to preserve intact its business organizations and relationships with
suppliers, customers, employees, creditors and other third parties and to keep
available the services of its present officers and employees. Without limiting
the generality of the foregoing, except as contemplated by this Agreement, and
except as set forth in Schedule 6.1 of the Company Disclosure Schedule, other
than with the prior written consent of Buyer (which consent shall not be
unreasonably withheld), from the date hereof until the Effective Time, the
Company will not:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, or otherwise make any
payments to its stockholders in their capacity as such; (B) split, combine
or reclassify any of its capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for shares
of its capital stock; or (C) purchase, redeem or otherwise acquire any
shares of its capital stock or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge, dispose of or otherwise encumber any
Company Securities (other than the issuance of Shares upon the exercise of
Options outstanding on the date of this Agreement in accordance with their
current terms) or incorporate or organize any Subsidiary;
(iii) amend or propose to amend the Company Certificate of Incorporation
or Company By-Laws;
(iv) adopt a plan of merger, complete or partial liquidation or
reorganization, acquire or agree to acquire, by merging or consolidating
with, by purchasing a substantial portion of the assets of or equity in or
by any other manner, any other Person, or otherwise acquire or agree to
acquire any assets except (x) as provided in the Cap-Ex Budget or (y) for
consideration in the amount of $50,000 in the aggregate for all such
acquisitions and except for inventory and supplies in the ordinary course of
business consistent with past practice;
(v) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets, other than transactions that are in
the ordinary course of business and consistent with past practice and not in
an amount, individually or in the aggregate, greater than $50,000;
(vi) incur any Indebtedness, or make any loans, advances or capital
contributions to, or other investments in, any other Person (other than (i)
expense account advances in the ordinary course of business consistent with
past practice, (ii) endorsement of checks made payable to the Company or
(iii) the acceptance of advances in respect of postage and cash advances for
services to be rendered by the Company, each of which shall be in the
ordinary course of business and consistent with past practice and, with
respect to cash advances for services, shall be for services to be rendered
on terms not different from customers not making cash advances for such
services), or retire any outstanding Indebtedness before its maturity date;
(vii) enter into or adopt any Plan, or amend any existing Plan, other
than as required by law;
(viii) (A) make any change in the compensation payable or to become
payable to any of the executive officers, directors, agents or consultants
of the Company, (B) grant any general increase in base compensation payable
to the employees of the Company, (C) enter into or amend any employment,
severance, termination or other similar agreement, (D) make any loans to any
of the
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officers, directors, employees, agents or consultants of the Company (other
than expense advances in the ordinary course of business consistent with
past practice) or (E) except as provided above, make any change in the
existing borrowing or lending arrangements of the Company for or on behalf
of any of such persons, whether contingent on consummation of the Merger or
otherwise.
(ix) (A) pay, agree to pay or make any accrual or arrangement for payment
of any pension, retirement allowance or other employee benefit pursuant to
any plan, agreement or arrangement other than pursuant to those existing at
the date hereof which has been disclosed to Buyer in the Company Disclosure
Schedule to any executive officer, director, employee, agent or consultant
of the Company except in the ordinary course of business and consistent with
past practice, (B) pay or agree to pay or make any arrangement for payment
to any executive officer of the Company of any amount relating to unused
vacation days, (C) except for commitments existing on the date of this
Agreement which have been disclosed to Buyer in the Company Disclosure
Schedule, and except for bonus payments in the ordinary course of business
consistent with past practice which have been disclosed to Buyer in the
Company Disclosure Schedule, commit to adopt or pay, grant, issue,
accelerate or accrue salary or other payments or benefits pursuant to any
pension, profit-sharing, bonus, extra compensation, incentive, deferred
compensation, group insurance, severance pay, retirement or other employee
benefit plan, agreement or arrangement, or any employment or consulting
agreement with or for the benefit of any director, officer, employee, agent
or consultant of the Company, or (D) amend in any material respect any of
the foregoing plans, agreements or arrangements;
(x) violate or fail to perform any material obligation or duty imposed
upon the Company by any applicable federal, state, local, foreign or
provincial law, rule, regulation, guideline or ordinance;
(xi) make or revoke any Tax election or settle or compromise any disputed
Tax liability, in each case, material to the Company or change except as
required by law (or make a request to any taxing authority to change) any
material aspect of its method of accounting for Tax purposes;
(xii) acquire any shares of capital stock of Buyer;
(xiii) amend any term of any outstanding security of the Company;
(xiv) create, assume or suffer to exist any Lien on any asset, other than
in the ordinary course of business and consistent with past practice;
(xv) except as may be required pursuant to GAAP, revalue in any material
respect any of its assets, including, without limitation, writing down the
value of inventory or writing-off notes or accounts receivable other than in
the ordinary course of business;
(xvi) enter into any new Material Contract, amend in a material adverse
manner including, but not limited to, terminate or modify in a material
adverse manner (including, but not limited to, any change in payment terms
or pricing), any Material Contract in effect as of the date of this
Agreement or grant or consent to any waiver of any material provision
thereunder which would be materially adverse;
(xvii) make any capital expenditures (as defined by the Company's
accounting procedures in accordance with GAAP) except for those listed in
the Company's Cap-Ex Budget;
(xviii) except to the extent required by applicable law, make any material
change in pricing, marketing, purchasing, investment, accounting (including
policies and procedures), financial reporting, inventory, credit allowance
or Tax practice or policy, including with respect to the method of
calculating bad debt, contingency or other reserve;
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(xix) enter into any new line of business;
(xx) enter into any transactions with an Affiliate other than as
disclosed in the Company Disclosure Schedule relating to (I) the payment of
compensation to a director, officer or employee or (II) with Graphic Forms,
Inc., in each case, on arms-length terms and for business in the amount no
greater than $15,000 per annum; or
(xxi) authorize, recommend, propose or announce an intention to do any of
the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
SECTION 6.2 STOCKHOLDER MEETING; PROXY MATERIAL. (a) The Company shall
cause a meeting of its stockholders (including any postponements or adjournments
thereto, the "Company Stockholder Meeting") to be duly called and held as soon
as reasonably practicable, but in any event within 20 business days after the
mailing of the Company Proxy Statement, for the purpose of voting on the
approval and adoption of this Agreement and the Merger. As promptly as
practicable following the date of this Agreement, the Company and Buyer shall
prepare a proxy statement with respect to the Company Stockholder Meeting (which
proxy statement will also constitute the prospectus of Buyer to be included in
the Form S-4 Registration Statement to be filed by Buyer pursuant to Section 7.2
hereof) (such proxy statement, together with any amendments thereof or
supplements thereto, in each case in the form or forms mailed to the Company's
stockholders, is herein called the "Company Proxy Statement"). The Company will
(i) as promptly as practicable following the preparation of the proxy statement
file the proxy statement with the SEC, and use its reasonable efforts to have it
cleared by the SEC and thereafter mail the Company Proxy Statement to its
stockholders; (ii) use its reasonable efforts to obtain the necessary approvals
by its stockholders of this Agreement and the Merger and (iii) otherwise comply
with all legal requirements applicable to such meeting. The Company agrees to
provide Buyer with all comments or correspondence received from the SEC as to
the Company Proxy Statement and the Company and Buyer shall prepare responses to
any such comments or correspondence as required to have the Company Proxy
Statement cleared by the SEC. The Company may, if it withdraws, modifies or
changes its recommendation in accordance with this Section 6.2, delay the filing
or mailing, as the case may be, of the Company Proxy Statement or the holding of
the Company Stockholder Meeting, in each case only to the extent necessary to
revise the Company Proxy Statement to reflect such withdrawal, modification or
change and, in the case of the Company Stockholder Meeting, to provide the
minimum notice thereof required under applicable law, the Company Certificate of
Incorporation and the Company By-laws. The Company will promptly provide Buyer
with all financial and other data regarding the Company as may be reasonably
requested by Buyer in connection with the Form S-4 Registration Statement.
(b) The Board of Directors of the Company shall recommend approval of the
Merger by the Company's stockholders; PROVIDED, HOWEVER, that such Board shall
not be required to make such recommendation, or may withdraw or modify such
recommendation, if the Company receives a Superior Proposal (as defined in
Section 6.4) or if such Board determines in good faith, on the basis of advice
from its outside legal counsel, that facts and circumstances unrelated to any
Acquisition Proposal (as defined in Section 6.4) have arisen which may require
such Board, in the exercise of its fiduciary duties under applicable law, to
take such action.
SECTION 6.3 ACCESS TO INFORMATION; CONFIDENTIALITY AGREEMENT. From the
date hereof until the Effective Time, the Company will give Buyer, its counsel,
financial advisors, auditors and other authorized representatives reasonable
access during normal business hours to the offices, properties, books and
records of the Company will furnish to Buyer, its counsel, financial advisors,
auditors and other authorized representatives such financial and operating data
and other information as such Persons may reasonably request and will instruct
the Company's employees, counsel and financial advisors to cooperate with Buyer
in its investigation of the business of the Company; PROVIDED that all requests
for access to or to interview the Company's customers, suppliers, lenders or key
employees
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will be directed to and coordinated with the President of the Company or other
senior executive of the Company designated by the President; and PROVIDED
FURTHER that no investigation pursuant to this Section 6.3 shall affect any
representation or warranty given by the Company to Buyer hereunder (although
Buyer agrees to advise the Company of any information which, to the knowledge of
Buyer, it obtains during such investigation which indicates that any of the
representations and warranties made by the Company to Buyer hereunder are not
true and correct in all material respects) and any information received by Buyer
or its representatives shall remain subject to the Confidentiality Agreement
dated June 10, 1996 between Buyer and the Company (the "Confidentiality
Agreement").
SECTION 6.4 NO SOLICITATION. From and after the date hereof, neither the
Company nor any Affiliates, directors, officers, employees, agents, attorneys,
accountants, financial advisors or other representatives (collectively,
"Representatives") of the Company shall, directly or indirectly, solicit,
initiate or encourage any Acquisition Proposal (as hereinafter defined) from any
Third Party (as hereinafter defined), or engage in or continue discussions or
negotiations with, or provide any information to, any Third Party which has made
or indicated an intention (whether or not conditional) to make an Acquisition
Proposal (or any Representatives of such Third Party), or take any steps in
furtherance of the transactions referred to in the SCFM Agreement; PROVIDED,
HOWEVER, that the Company may engage in discussions or negotiations with, or
provide information to, a Person which makes a Superior Proposal if the Board of
Directors of the Company determines in good faith, on the basis of advice from
its outside legal counsel, that the failure to take such action would violate
the fiduciary obligations of such Board of Directors under applicable law. The
Company shall promptly notify Buyer of any Acquisition Proposal received since
June 14, 1996, including the price and other significant terms and conditions of
and the identity of the Third Party making such Acquisition Proposal and the
names and affiliations of all Persons to whom the Company has furnished
information pursuant to the foregoing proviso and the nature of such
information. As used herein: (i) "Acquisition Proposal" means any proposal or
offer, or any expression of interest or intention (whether or not conditional
and whether by public announcement or regulatory filing or otherwise), by a
Third Party with respect to any acquisition (by tender or exchange offer or
otherwise) of 20% or more of the equity securities or assets of the Company or
any merger, consolidation or other business combination involving the Company or
any inquiry by a Third Party (or any of its Representatives) with respect to the
willingness or ability of the Company to receive or discuss any of the
foregoing; (ii) "Third Party" means any Person or group of Persons (including,
without limitation, any individual which, at any time since June 14, 1996, is or
was a director or officer of the Company, and any Person in which one or more
such individuals has a 10% or greater equity interest, and any group of which
any such individual is a member), but does not include Buyer or any of its
Subsidiaries; and (iii) "Superior Proposal" means a bona fide, written and
unsolicited (since June 14, 1996) proposal or offer made by a Third Party to
acquire 100% of the equity interests in the Company or all or substantially all
of the Company's assets which the Board of Directors of the Company determines
in good faith and in the exercise of reasonable judgment (based on the advice of
financial advisors of nationally recognized reputation as to financial matters
and on the advise of outside legal counsel as to legal and regulatory matters)
is more favorable to all the Company's stockholders than the Merger, and can be
consummated without any significant legal or regulatory impediments and with
respect to which the Board has determined, based on the advice of its investment
bankers, that such Third Party is financially capable of consummating.
SECTION 6.5 CONVEYANCE TAXES. The Company shall timely pay any real
property transfer or gains, sales, use, transfer, value added, stock transfer
and stamp taxes, any transfer, recording, registration and other fees, and any
similar Taxes (collectively, the "Conveyance Taxes") which become payable by the
Company prior to or as of the Effective Time in connection with the transactions
contemplated hereunder or that are required to be paid by the Company in
connection therewith. Buyer shall cooperate with the Company in the preparation,
execution and filing of all Tax Returns regarding any such Conveyance Taxes.
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SECTION 6.6 MONTHLY FINANCIAL STATEMENTS. The Company shall provide Buyer,
within 10 days following the end of each month, with an unaudited balance sheet
and income and cash flow statement of the Company for each month during the
period from the date of this Agreement until the Effective Time which shall be
certified to by the Company's Treasurer.
SECTION 6.7 PAYMENT OF RECEIVABLES AND PAYABLES. The Company shall
collect, as of the Closing Date, all receivables owed to the Company by any
director, officer, employee or Affiliate of the Company and the Company shall
pay to the foregoing all payables owing to them other than (i) the loan in the
amount of $3,000 listed in item (1) of Schedule 4.13(f) and items 2 and 4 of
Schedule 4.32 of the Company Disclosure Schedule and (ii) with respect to the
matters expressly permitted by Section 6.1 (xx) hereof).
SECTION 6.8 DATA COMMAND. No later than ten business days following the
date of this Agreement, the Company shall purchase at no cash cost and hold in
its treasury not less than 39,304 of the 50,000 Shares (which Shares are
presently held by the Company as collateral against accounts receivable for
print orders placed by Data Command Ltd. ("Data Command")) with a market value
equal to the outstanding principal and interest of Data Command's payment
obligation to the Company and shall issue to Gene Schecter, the registered
holder of such collateral, a new stock certificate representing not more than
10,696 Shares, with a market value equal to the amount by which the market value
of the collateral exceeds such obligation. The interest claim is based upon
monthly account statements including a monthly 1.5% service charge (18% per
year) on amounts due over 60 days. The Company estimates the amount of principal
and unpaid interest in respect of the obligation of Data Command to be
approximately $226,000 as of the date of this Agreement.
SECTION 6.9 NOTICE OF WITHDRAWAL. The Company shall deliver, within five
business days after the date of this Agreement, proper written notice to the
Trust of its intention to withdraw from the Trust as of December 31, 1996.
SECTION 6.10 EXCESS CASH. The Company shall deliver to Buyer, within five
business days prior to the Company Stockholder Meeting, a certificate signed by
its President or Treasurer specifying the amount of Excess Cash which the
Company will have available on the Closing Date, which amount may be used to
pre-pay Indebtedness on the Closing Date, which prepayment shall still permit
the Company to meet its obligations set forth in Section 9.3 (vi) hereof. For
purposes of this Agreement, Excess Cash means the amount of cash so specified in
such certificate.
SECTION 6.11 NEW YORK QUALIFICATION. Within five business days from the
date of this Agreement, the Company shall file an application with all
appropriate Governmental Entities in the State of New York to qualify the
Company to transact business in the State of New York and shall use its
reasonable efforts to otherwise cause the Company to qualify to transact
business in the State of New York prior to the Effective Time.
ARTICLE VII
COVENANTS OF BUYER
Buyer and Merger Subsidiary agree that:
SECTION 7.1 VOTING OF SHARES. Except as otherwise permitted by the Option
Agreement, at the Company Stockholder Meeting, Buyer and Merger Subsidiary shall
vote all Shares, if any, which they have the right to vote in favor of adoption
and approval of this Agreement at the Company Stockholder Meeting.
SECTION 7.2 REGISTRATION STATEMENT AND COMPANY PROXY STATEMENT. Buyer
will, as promptly as practicable following the date of this Agreement, prepare
and, following receipt of notification from the SEC that it has no further
comments on the Company Proxy Statement, file with the SEC a
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registration statement on Form S-4 (the "Form S-4 Registration Statement"),
containing the Company Proxy Statement, and the prospectus in connection with
the registration under the Securities Act of Buyer Common Shares issuable upon
conversion of the Shares and the other transactions contemplated hereby and will
use its reasonable efforts to have the Form S-4 Registration Statement declared
effective by the SEC as promptly as practicable. Buyer will cooperate with the
Company in the preparation and filing of the Company Proxy Statement and will
provide the Company with all financial and other data concerning Buyer
(including, if required, pro forma financial statements and financial and other
data regarding the other parties to the transactions described in Schedule 7.2
of Buyer Disclosure Schedule) as is necessary in order for the Company to
prepare the Company Proxy Statement.
SECTION 7.3 BLUE SKY PERMITS. Buyer shall use its reasonable efforts to
obtain, prior to the effective date of the Form S-4 Registration Statement, all
necessary state securities laws or "blue sky" permits and approvals required to
carry out the transactions contemplated by this Agreement and the Merger, and
will pay all expenses incident thereto; provided, however, that the foregoing
shall not require Buyer to submit to jurisdiction or require it to qualify to do
business in any jurisdiction where it is not presently required to submit to
jurisdiction or be qualified to do business.
SECTION 7.4 NYSE LISTING. Buyer shall use its reasonable efforts to cause
the shares of Buyer Common Stock constituting the Merger Consideration to be
listed on the NYSE, subject to notice of official issuance thereof.
SECTION 7.5 INDEMNIFICATION. Buyer agrees that all rights to
indemnification and limitation of liability now existing in favor of the
employees, agents, directors or officers of the Company as provided in the
Company Certificate of Incorporation and Company Bylaws shall survive the Merger
and shall continue in full force and effect for three years after the Effective
Time. Any permissive provision therein relating to rights of indemnification
shall be deemed mandatory to the maximum extent permitted by law.
SECTION 7.6 EMPLOYEE BENEFITS. For a period of at least one year following
the Effective Time, Buyer shall cause the Surviving Corporation to maintain
pension and welfare benefit plans for the employees of the Company providing
benefits in the aggregate at least substantially equivalent to benefit plans for
such employees in place immediately prior to the Effective Time and, following
the expiration of such one-year period, the Surviving Corporation shall, at its
sole option, continue to provide benefits to such employees which are either (x)
comparable to those provided pursuant to such pension and welfare benefit plans
as were maintained by the Company at March 31, 1996 or (y) comparable to those
provided to employees of WTI from time-to-time.
ARTICLE VIII
COVENANTS OF BUYER, MERGER SUBSIDIARY
AND THE COMPANY
The parties hereto agree that:
SECTION 8.1 REASONABLE EFFORTS; COOPERATION; POOLING OF INTERESTS. (a)
Upon the terms and subject to the conditions set forth in this Agreement, each
of Buyer, Merger Subsidiary and the Company agrees to use its reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable, to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including, but not limited to: (i) the obtaining of all necessary
actions or non-actions, waivers, consents and approvals from all Governmental
Entities and the making of all necessary registrations and filings with, and the
taking of all other reasonable steps as may be necessary to obtain an approval
or waiver from, or to avoid an
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action or proceeding by, any Governmental Entity; (ii) the obtaining of all
necessary consents, approvals or waivers from Persons other than Governmental
Entities, including under Material Contracts; (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed; and (iv)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by this Agreement.
(b) Each of Buyer, Merger Subsidiary and the Company shall cooperate and
work together, with its respective accountants, with the objective that the
Merger will qualify as a pooling of interests under GAAP.
(c) Each of Buyer, Merger Subsidiary and the Company shall use its
reasonable efforts not to take any action, or to enter into any transaction,
which would cause any of its representations or warranties contained in this
Agreement to be untrue in any material respect or to result in a material breach
of any of its covenants in this Agreement.
SECTION 8.2 PUBLIC ANNOUNCEMENTS. Buyer and the Company will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby, and afford
each other a reasonable opportunity to review and comment on the foregoing and,
except as may be required by applicable law or any listing agreement with any
national securities exchange or National Association of Securities Dealers, Inc.
as determined by Buyer, Merger Subsidiary or the Company, as the case may be,
will not issue any such press release or make any such public statement prior to
such consultation and opportunity to review and comment.
SECTION 8.3 FURTHER ASSURANCES. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger.
SECTION 8.4 SAMANS AND OTHER EMPLOYMENT AGREEMENTS. At the Effective Time,
the Company and Samans shall enter into an employment agreement (the "Samans
Employment Agreement") and Buyer and Mr. Samans shall enter into the
Non-Competition Agreement in the form of Exhibits 1 and 2 hereto, respectively,
Buyer shall deliver to Samans a promissory note in form of Exhibit 3 hereto (the
"Buyer Promissory Note"), and the Company shall enter into employment agreements
with certain members of management specified by Buyer and reasonably agreed to
by Samans (the "Employment Agreements").
SECTION 8.5 AMENDMENT OF SAMANS PROMISSORY NOTE. At the Effective Time,
the promissory note, dated January 1, 1994, the outstanding principal balance of
which will be no more than $406,000, evidencing loans made by the Company to
Samans (the "Samans Promissory Note") will be replaced by an amended and
restated promissory note in the terms set forth on Exhibit 4 hereto (the
"Amended Samans Promissory Note").
SECTION 8.6 EFFECTIVE REGISTRATION STATEMENT. Buyer and the Company will,
and will cause their accountants and lawyers to, use their reasonable efforts to
have or cause the Form S-4 Registration Statement declared effective as promptly
as practicable, including, without limitation, causing their accountants to
deliver necessary or required instruments such as opinions and certificates, and
will take any other action required or necessary to be taken under federal or
state securities laws or otherwise in connection with the registration process.
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SECTION 8.7 TAX-FREE REORGANIZATION TREATMENT. The Company and Buyer and
Merger Subsidiary shall execute and deliver to Wolf, Block, Schorr and
Solis-Cohen, special counsel to the Company, certificates substantially in the
form attached hereto as Exhibit 5 and Exhibit 6 (the "Company Tax Certificate"
and the "Buyer Tax Certificate", respectively) at such time or times as
reasonably requested by such law firm in connection with its delivery of an
opinion with respect to the transactions contemplated hereby, and shall provide
a copy thereof to Buyer and the Company. Prior to the Effective Time, none of
the Company, Buyer and Merger Subsidiary shall take or cause to be taken any
action which would cause to be untrue (or fail to take or cause not to be taken
any action which would cause to be untrue) any of the information,
representations or covenants in Exhibit 5 or Exhibit 6, as the case may be.
SECTION 8.8 NOTIFICATION OF CERTAIN MATTERS. (a) The Company shall give
prompt notice to Buyer, and Buyer shall give prompt notice to the Company, of
(i) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence
of which would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at or prior to
the Effective Time, (ii) any material failure of the Company, Buyer or Merger
Subsidiary, as the case may be, to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it hereunder, (iii) any notice of, or other communication relating to, a default
or event which, with notice or lapse of time or both, would become a default,
received by it or any of its Subsidiaries subsequent to the date of this
Agreement and prior to the Effective Time, under any material contract or
agreement, (iv) any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection with
the transactions contemplated by this Agreement, or (v) any Material Adverse
Effect; PROVIDED, HOWEVER, that the delivery of any notice pursuant to this
Section 8.8 shall not cure such breach or noncompliance or limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
(b) Advice of Changes. The Company shall confer on a regular and frequent
basis with Buyer with respect to the Company's business and operations and other
matters relevant to the Merger, and Buyer and the Company shall promptly advise
the other, orally and in writing, of any change or event, including, without
limitation, any complaint, investigation or hearing by any Governmental Entity
(or communication indicating the same may be contemplated) or the institution or
threat of litigation, having, or which, insofar as can be reasonably foreseen,
would have, a Material Adverse Effect on the Company or Buyer or on the ability
of the Company or Buyer to consummate the transactions contemplated hereby.
SECTION 8.9 POOLING. The Company and Buyer each agrees that it will not,
to its Knowledge, take any action which could prevent the Merger from being
accounted for as a pooling of interests for accounting purposes (under
Accounting Principles Board Opinion No. 16) and the Company will bring to the
attention of Buyer, and Buyer will bring to the attention of the Company, any
actions, or agreements or understandings, whether written or oral, that would be
reasonably likely to prevent Buyer from accounting for the Merger as a pooling
of interests. Each of the Company and Buyer will use its reasonable efforts to
inform all of its Affiliates and other relevant employees as to those actions
that should or should not be taken by such Persons so that the Merger will be
accounted for as a pooling of interests.
SECTION 8.10 SEC FILINGS. Each of Buyer and the Company shall promptly
provide the other party (or its counsel) with copies of all filings made by the
other party or its Affiliates with the SEC or any other state or federal
Governmental Entity in connection with this Agreement and the transactions
contemplated hereby and to provide each other with all of its SEC filings under
the Securities Act or Exchange Act after the date of this Agreement.
SECTION 8.11 AFFILIATES. (a) Prior to the Effective Time, the Company
shall cause to be prepared and delivered to Buyer a list (reasonably
satisfactory to counsel for Buyer) identifying each
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Person who, at the time of the Company Stockholder Meeting, may be deemed to be
an "affiliate" of the Company, as such term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act (the "Company Rule 145 Affiliates"). The
Company shall use its reasonable efforts to cause each Person who is identified
as a Company Rule 145 Affiliate in such list to deliver to Buyer on or prior to
the Effective Time a written agreement, in form previously approved by the
parties hereto (the "Affiliate Letter"), that such Company Rule 145 Affiliate
will not (i) sell, pledge, transfer or otherwise dispose of, or in any other way
reduce such Company Rule 145 Affiliate's risk relative to, any Shares or any
shares of Buyer Common Stock issued to such Company's Rule 145 Affiliate in
connection with the Merger, except pursuant to an effective registration
statement or in compliance with such Rule 145 or another exemption from the
registration requirements of the Securities Act or (ii) sell or in any other way
reduce such Company Rule 145 Affiliate's risk relative to any Shares or any
shares of Buyer Common Stock received in the Merger (within the meaning of
Section 201.01 of the SEC's Financial Reporting Release No. 1) during the period
commencing 30 days prior to the Effective Time and ending at such time as
financial results (including combined sales and net income) covering at least 30
days of post-Merger operations have been published by Buyer except as permitted
by Staff Accounting Bulletin No. 76 issued by the SEC.
(b) Promptly upon the Company obtaining Knowledge of Persons who, to the
Knowledge of the Company, following the date of this Agreement until the
Effective Time, become "affiliates" of the Company for purposes of Rule 145 of
the Securities Act, the Company shall identify any such Person in writing to
Buyer, and will use its reasonable efforts to cause such Persons prior to the
mailing of the Company Proxy Statement, or if thereafter as soon as reasonably
practicable, to deliver to Buyer an Affiliate Letter; PROVIDED, HOWEVER, that
the Company will not affirmatively, without the prior written consent of Buyer,
take any action, by hiring or appointing a new officer or director or otherwise,
so as to cause any Person to become an "affiliate" unless such Person executes
an Affiliate Letter prior thereto.
(c) Prior to the Effective Time, Buyer shall cause to be prepared and
delivered to the Company a list (reasonably satisfactory to counsel for the
Company) identifying each Person who, at the time of the Company Stockholder
Meeting, may be deemed to be an "affiliate" of Buyer, as such term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act (the "Buyer Rule 145
Affiliates"). Buyer shall use its reasonable efforts to cause each Person who is
identified as a Buyer Rule 145 Affiliate in such list to deliver to the Company
on or prior to the Effective Time an Affiliate Letter that such Buyer Rule 145
Affiliate will not sell, pledge, transfer or otherwise dispose of, or in any
other way reduce such Buyer Rule 145 Affiliate's risk relative to, any Shares or
any shares of Buyer Common Stock during the period commencing 30 days prior to
the Effective Time and ending at such time as the financial results (including
combined sales and net income) covering at least 30 days of post-Merger
operations have been published by Buyer except as permitted by Staff Accounting
Bulletin No. 76 issued by the SEC. As soon as reasonably practicable, but in no
event later than 45 days after the end of the first full fiscal quarter of Buyer
which includes results covering at least 30 days of post-Merger combined
operations of Buyer and the Company, Buyer shall publish its results of
operations for such fiscal quarter.
SECTION 8.12 REVIEW LETTERS. (a) The Company shall use its reasonable
efforts to cause to be delivered to Buyer "review" letters of Grant Thornton
LLP, the Company's independent public accountants, dated the date on which the
Form S-4 Registration Statement shall become effective and as of the date of the
Company Stockholder Meeting, and addressed to Buyer and the Company, in the form
and substance reasonably satisfactory to Buyer and as is reasonably customary in
scope and substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Agreement.
(b) Buyer shall use its reasonable efforts to cause to be delivered to the
Company "review" letters of Deloitte & Touche LLP, Buyer's independent public
accountants, dated the date on which the Form
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S-4 Registration Statement shall become effective and as of the date of the
Company Stockholder Meeting, and addressed to the Company and Buyer, in form and
substance reasonably satisfactory to the Company and as is reasonably customary
in scope and substance for letters delivered by independent public accountants
in connection with transactions such as those contemplated by this Agreement.
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations
of the Company, Buyer and Merger Subsidiary to consummate the Merger are subject
to the satisfaction on or prior to the Effective Time of the following
conditions, subject, to the extent permitted by applicable law, that such
conditions may be waived by the Company and Buyer:
(i) STOCKHOLDER APPROVAL. The Merger shall have been duly approved by
a majority of the outstanding Shares entitled to vote thereon in accordance
with applicable law.
(ii) LISTING OF BUYER COMMON STOCK. The shares of Buyer Common Stock
issuable in accordance with the Merger shall have been approved for listing
on the NYSE, subject to official notice of issuance.
(iii) REGISTRATION STATEMENT. The Form S-4 Registration Statement
shall have become effective in accordance with the provisions of the
Securities Act, and no order suspending such effectiveness shall have been
issued and remain in effect.
(iv) APPROVALS. All authorizations, consents, orders, declarations or
approvals of, or filings with, or terminations or expirations of waiting
periods imposed by, any Governmental Entity, shall have been obtained, shall
have been made or shall have occurred.
(v) NO INJUNCTION OR LITIGATION. (A) No provision of any applicable
law or regulation and no judgment, injunction, order or decree shall make
illegal or otherwise restrict, prevent or prohibit the consummation of the
Merger or any transactions contemplated hereby and (B) there shall not have
been instituted or be pending, or threatened, any suit, action or proceeding
by (x) any Governmental Entity to restrain, prohibit or invalidate the
Merger or (y) by any other Person which is more likely than not to have such
effect.
SECTION 9.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate the Merger are subject to the satisfaction on or
prior to the Effective Time of the following conditions, subject, to the extent
permitted by applicable law, that such conditions may be waived by the Company:
(i) PERFORMANCE OF OBLIGATIONS OF BUYER AND MERGER SUBSIDIARY. Each of
Buyer and Merger Subsidiary will have performed in all material respects its
agreements and covenants contained in or contemplated by this Agreement
which are required to be performed by it at or prior to the Effective Time.
(ii) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer and Merger Subsidiary set forth in this Agreement shall
be true and correct in all material respects (i) on and as of the date
hereof and (ii) on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of the Closing
Date (except for representations and warranties that expressly speak only as
of a specific date or time which need only be true and correct as of such
date and time).
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(iii) CLOSING CERTIFICATE. The Company shall have received a
certificate signed by the Chief Executive Officer or Chief Operating Officer
of Buyer, dated the Closing Date, to the effect that, the conditions set
forth in Section 9.2(i) and 9.2(ii) hereof have been satisfied.
(iv) TAX OPINION. The Company shall have received an opinion of Wolf,
Block, Schorr and Solis-Cohen, counsel to the Company, in form and substance
reasonably satisfactory to the Company, dated as of the Effective Time,
substantially to the effect that on the basis of facts, representations and
assumptions set forth in such opinion which are consistent with the state of
facts then existing, the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Code, and, accordingly, for United
States federal income tax purposes, that:
(A) no gain or loss will be recognized by the Company, Buyer or Merger
Subsidiary as a result of the Merger;
(B) no gain or loss will be recognized by any stockholder of the Company
whose Shares are exchanged solely for Buyer Common Stock pursuant to
the Merger (except with respect to cash received by a holder of
Shares in lieu of a fractional share interest in Buyer Common Stock);
(C) the tax basis of Buyer Common Stock received by a holder of Shares
in the Merger will be the same as the tax basis of the Shares
surrendered in exchange therefor (reduced by any amount allocable to
a fractional share interest in Buyer Common Stock for which cash is
received); and
(D) the holding period of the shares of Buyer Common Stock received by a
holder of Shares in the Merger will include the period during which
such Shares surrendered in exchange therefor were held, provided that
such Shares were held as capital assets at the Effective Time.
In rendering such opinion, such firm may require and rely upon
representations contained in the Buyer Tax Certificate, the Company Tax
Certificate and such other certificates from such other Persons as such firm may
reasonably require. Such an opinion may contain such further assumptions and
qualifications as are customary in legal opinions concerning federal income
taxation.
(v) BUYER RULE 145 AFFILIATE AGREEMENTS. The Company shall have
received the Affiliate Letters specified in Section 8.11(c) from Buyer Rule
145 Affiliates.
(vi) OPINION OF BUYER'S AND MERGER SUBSIDIARY'S COUNSEL. The Company
shall have received the opinion of Skadden, Arps, Slate, Meagher & Flom,
counsel to the Buyer and Merger Subsidiary, in a form reasonably
satisfactory to counsel to the Company, substantially to the effect set
forth in Annex A hereto.
SECTION 9.3 CONDITIONS TO THE OBLIGATIONS OF BUYER AND MERGER
SUBSIDIARY. The obligations of Buyer and Merger Subsidiary to consummate the
Merger are subject to the satisfaction on or prior to the Effective Time of the
following conditions, subject, to the extent permitted by applicable law, that
such conditions may be waived by Buyer:
(i) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company will have
performed in all material respects its agreements and covenants contained in
or contemplated by this Agreement which are required to be performed by it
at or prior to the Effective Time.
(ii) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company set forth in this Agreement shall be true and
correct in all material respects (i) on and as of the
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date hereof and (ii) on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of the
Closing Date (except for representations and warranties that expressly speak
only as of a specific date or time which need only be true and correct as of
such date and time).
(iii) CLOSING CERTIFICATE. Buyer and Merger Subsidiary shall have
received a certificate signed by the President or Treasurer of the Company,
dated the Closing Date, to the effect that, the conditions set forth in
Section 9.3(i), 9.3(ii) and 9.3(vi) hereof have been satisfied.
(iv) MATERIAL ADVERSE EFFECT, ETC. Since the date of this Agreement,
there shall have been no event, occurrence or facts which have or would
reasonably be expected to have a Material Adverse Effect with respect to the
Company or result in any material reduction in revenues from its largest
customer and (ii) the Company shall reasonably expect, as of the Closing
Date, to generate net income, before net interest expense, income taxes,
depreciation and amortization, for its fiscal year ended September 30, 1996
in an amount not materially less than the amount specified in the Company's
budget dated as of June 21, 1996 which has previously been provided to
Buyer; and Buyer shall have received a certificate, dated the Closing Date,
signed on behalf of Company by its President or its Treasurer to such
effect.
(v) AFFILIATE AGREEMENTS. Buyer shall have received the Affiliate
Letters specified in Section 8.12(a) from Company Rule 145 Affiliates.
(vi) FINANCIAL CONDITIONS. As shown on the most recent monthly
financial statements of the Company delivered pursuant to Section 6.6 hereof
prior to the Effective Time, in each case, to the extent applicable, as
determined in accordance with GAAP and utilizing the same accounting
principles and practices as set forth in the audited Company Financial
Statements, the Company shall have (a) outstanding Indebtedness of no more
than $5,100,000, (b)(1) net working capital, including Cash ("Cash" for this
purpose meaning all cash and cash equivalents of the Company, less all costs
and expenses incurred or to be incurred or payable by the Company relating
to the Merger, whether or not accrued, and not yet paid as the date of such
balance sheet (but the calculation of net working capital shall exclude (i)
any such amounts reflected as current liabilities which have been already
accrued and (ii) any such amounts reflected in current assets as prepaid
expenses which have not yet been expensed)), of at least $4,800,000
(excluding the current portion of outstanding Indebtedness and notes
receivable), which minimum requirement shall be increased by any proceeds
received by the Company from any exercise of any Options and (2) cash and
cash equivalents (less Excess Cash) in excess of outstanding customer
advances; (c) book equity of at least $7,200,000; and (d) collected any
receivables owing to the Company from Affiliates and have no payables
accrued, unaccrued or contingent owing to Affiliates other than payables in
the ordinary course of business consistent with past practice for
compensation owing to directors, officers or employees or payables and
receivables which are permitted to be outstanding by Section 6.7 hereof;
PROVIDED, HOWEVER, that in the event that as of or prior to the Effective
Time (A) the Company has purchased, received delivery of and installed a new
printing press, with a fully installed cost of no more than $1,300,000 and
on terms (other than dollar amount) reasonably satisfactory to Buyer, and/or
(B) the Company has made a loan to Elite, in an amount of not more than
$200,000 and on terms (other than dollar amount) reasonably satisfactory to
Buyer, and/or (C) the Company has purchased two Siemens duplex imagers and
related equipment for not more than $970,000 and on terms other than the
dollar amount reasonably satisfactory to Buyer, the amount of Indebtedness
in clause (a) above and the amount of net working capital in clause (b)
above shall be adjusted as follows: (x) to the extent that the total cash
utilized for such transactions is $700,000 or less, the amount of net
working capital specified in the foregoing clauses shall be decreased by the
amount of cash so utilized and (y) to the extent that the total cash
utilized for such transactions is greater than $700,000, the amount of net
working capital specified shall be decreased by the amount of cash so
utilized and the amount of
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Indebtedness specified shall be increased by the amount of Indebtedness
incurred in connection with such transactions but, in any event, (i) the
amount of Indebtedness shall be increased by no more than $1,000,000 and
(ii) the sum of the absolute value of the decrease in net working capital
and the increase in the amount of Indebtedness pursuant to this clause (y)
shall not exceed the amount by which total cash utilized for such
transactions is greater than $700,000.
(vii) DISSENTING SHARES. Appraisal rights pursuant to Section 262 of
the DGCL shall not have been perfected by holders of Shares with respect to
more than 225,000 Shares.
(viii) CONSENTS UNDER AGREEMENTS. The consent or approval of each
Person (other than Governmental Entities) whose consent or approval shall be
required in connection with the transactions contemplated hereby under any
indenture, mortgage, evidence of indebtedness, lease or other agreement or
instrument, except where the failure to obtain the same would not reasonably
be expected to have a Material Adverse Effect on the Company (or the
Surviving Corporation following the Merger), or the consummation of the
transactions contemplated hereby shall have been obtained.
(ix) POOLING. Buyer shall have received a letter from Deloitte &
Touche LLP to the effect that pooling of interests accounting (under
Accounting Principles Board Opinion No. 16) is appropriate for the Merger,
provided that the Merger is consummated in accordance with the terms of this
Agreement.
(x) EMPLOYMENT AND NON-COMPETITION AGREEMENTS. The Company and Samans
shall have entered into the Samans Employment Agreement; Samans shall have
entered into the Non-Competition Agreement with Buyer; and the other
individuals identified by Buyer pursuant to Section 8.4 hereof shall have
entered into the Employment Agreements with the Company.
(xi) EMPLOYEE STOCK OPTION CONSENTS. The Company shall have delivered
to Buyer all consents, if any, referenced in the last sentence of Section
1.10 relating to the treatment of outstanding Options.
(xii) OPINION OF COMPANY'S COUNSEL. Buyer and Merger Subsidiary shall
have received the opinion of Wolf, Block, Schorr and Solis-Cohen, counsel to
the Company, in a form reasonably satisfactory to counsel to Buyer and
Merger Subsidiary, substantially to the effect set forth in Annex B hereto.
(xiii) CONTINUED RELATIONSHIPS. Buyer shall be reasonably satisfied
that the Company's relationship with its largest customer will continue for
the foreseeable future following the Merger on terms at least as favorable
to the Company as those in effect during the eight-month period prior to May
31, 1996.
ARTICLE X
TERMINATION
SECTION 10.1 TERMINATION. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the stockholders of the Company):
(i) by mutual written consent of the Company and Buyer;
(ii) by either the Company or Buyer, if the Merger has not been
consummated by January 31, 1997 (as such date may be extended by mutual
agreement or pursuant to the proviso to this sentence, the "Outside
Termination Date"); PROVIDED, HOWEVER, that the right to terminate
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this Agreement under this paragraph shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure to consummate the Merger by the
Outside Termination Date;
(iii) by either the Company or Buyer, if there shall be any law or
regulation that makes consummation of the Merger illegal or if any judgment,
injunction, order or decree enjoining Buyer or the Company from consummating
the Merger is entered and such judgment, injunction, order or decree shall
become final and nonappealable;
(iv) by the Company if (A) there shall have been a breach of any
representation or warranty on the part of Buyer or Merger Subsidiary set
forth in this Agreement, or if any representation or warranty of Buyer or
Merger Subsidiary shall have become untrue, in either case such that the
condition set forth in Section 9.2(ii) would be incapable of being satisfied
by the Outside Termination Date or (B) there shall have been a breach by
Buyer or Merger Subsidiary of any of their respective covenants or
agreements hereunder having a Material Adverse Effect on Buyer or materially
adversely affecting (or materially delaying) the consummation of the Merger,
and Buyer or Merger Subsidiary, as the case may be, has not cured such
breach within 30 business days after notice by the Company thereof;
(v) by Buyer if (A) there shall have been a breach of any representation
or warranty on the part of the Company set forth in this Agreement, or if
any representation or warranty of the Company shall have become untrue, in
either case such that the condition set forth in Section 9.3(ii) would be
incapable of being satisfied by the Outside Termination Date or (B) there
shall have been a breach by the Company of its covenants or agreements
hereunder having a Material Adverse Effect on the Company or materially
adversely affecting (or materially delaying) the consummation of the Merger,
and the Company has not cured such breach within 30 business days after
notice by Buyer or Merger Subsidiary thereof;
(vi) by Buyer if the Board of Directors of the Company shall not have
recommended the Merger to the Company's stockholders, or shall have
withdrawn or modified in a manner adverse to Buyer such recommendation, or
shall have withdrawn or modified its approval of this Agreement, or shall
have resolved to do any of the foregoing;
(vii) by either Buyer or the Company if the Board of Directors of the
Company determines that an Acquisition Proposal is a Superior Proposal;
PROVIDED, HOWEVER, that the Company may not terminate this Agreement
pursuant to this clause (vii) unless (x) the Company has complied with its
obligations under Section 6.4, (y) ten business days (the "Period") shall
have elapsed after delivery by the Company to Buyer of a notice of such
determination by its Board of Directors and during the Period the Company
shall have fully cooperated with Buyer with the objective of enabling Buyer
to modify the terms of the Merger so that the Merger may be consummated, and
(z) at the end of the Period the Board of Directors shall have again made a
determination that such Acquisition Proposal is a Superior Proposal and
promptly thereafter the Company and the Third Party (as defined in Section
6.4) which made such Acquisition Proposal enter into a definitive agreement
to effect such Acquisition Proposal;
(viii) by either Buyer or the Company, if, at any time following the
receipt by the Company of an Acquisition Proposal (as defined in Section
6.4) or the taking by the Company of any action pursuant to the proviso to
Section 6.4, the Company Stockholder Meeting is held and the Company's
stockholders fail to approve the Merger by the requisite vote; PROVIDED,
HOWEVER, that Buyer may not terminate this Agreement under this subsection
unless Buyer shall have executed and delivered to the Company a proxy (which
it has not revoked) with respect to the Shares subject to the Option
Agreement voting such Shares in favor of the approval and adoption of this
Agreement;
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(ix) by Buyer, if the Average Stock Price is greater than $16.50; or
(x) by the Company, if the Average Stock Price is less than $11.50.
The party desiring to terminate this Agreement pursuant to this Section 10.1
(other than with respect to Section 10.1 (i)) shall give written notice of such
termination to the other party.
SECTION 10.2 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 10.1 hereof, this Agreement shall become void and of no
effect with no liability on the part of any party hereto; PROVIDED that (i) the
agreement contained in Sections 8.2 and 12.4 hereof shall survive the
termination hereof; (ii) the Confidentiality Agreement and provisions in Section
6.3 hereof with respect thereto shall remain in full force and effect and (iii)
nothing contained in this Section 10.2 shall relieve any party from liability
for any breach of this Agreement.
ARTICLE XI
DEFINED TERMS
For the purposes of this Agreement, the following terms shall have the
following respective meanings:
"Acquisition Proposal" shall have the meaning set forth in Section 6.4. (a).
"Affiliate" shall have the meaning set forth in Rule 12b-2 under the
Exchange Act.
"Affiliate Letter" shall have the meaning set forth in Section 8.12 (a)
hereof.
"Agreement" shall have the meaning set forth in the Introduction.
"Amended Samans Promissory Note" shall have the meaning set forth in Section
8.5.
"Average Stock Price" shall have the meaning set forth in Section 1.2 (a).
"blue sky" shall have the meaning set forth in Section 7.3.
"Buyer" shall have the meaning set forth in the Introduction.
"Buyer Certificates" shall have the meaning set forth in Section 1.3 (a).
"Buyer Class B Common Stock" shall have the meaning set forth in Section
5.5.
"Buyer Common Stock" shall have the meaning set forth in the Introduction.
"Buyer Credit Agreement" shall mean the Credit Agreement, dated as of
November 28, 1995 and as amended and restated as of March 19, 1996, among Buyer,
Treasure Chest Advertising Company, Inc., various banks, Bank of America NT &
SA, The Industrial Bank of Japan Limited and Nationsbank, N.A. , as co-agents,
Credit Suisse, as Documentation Agent and Bankers Trust Company, as
Administrative Agent.
"Buyer Preferred Stock" shall have the meaning set forth in Section 5.5.
"Buyer Promissory Note" shall have the meaning set forth in Section 8.4.
"Buyer Rule 145 Affiliates" shall have the meaning set forth in Section 8.11
(c).
"Buyer SEC Documents" shall have the meaning set forth in Section 5.7.
"Buyer Securities" shall have the meaning set forth in Section 5.5.
"Buyer Tax Certificate" shall have the meaning set forth in Section 8.7.
"Cap-Ex Budget" shall have the meaning set forth in Section 4.13 (h).
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"Carcioppolo" shall have the meaning set forth in Section 4.10.
"Cash" shall have the meaning set forth in Section 9.3 (vi).
"Certificate of Merger" shall have the meaning set forth in Section 1.1 (b).
"Closing" shall have the meaning set forth in Section 2.1.
"Closing Date" shall have the meaning set forth in Section 2.1.
"Code" shall have the meaning set forth in the Introduction.
"Company" shall have the meaning set forth in the Introduction.
"Company By-laws" shall have the meaning set forth Section 2.2 (d).
"Company Certificate of Incorporation" shall have the meaning set forth in
Section 2.2 (d).
"Company Disclosure Schedule" shall have the meaning set forth in Section
4.1.
"Company Financial Statements" shall have the meaning set forth in Section
4.8.
"Company Proxy Statement" shall have the meaning set forth in Section 6.2
(a).
"Company Rule 145 Affiliate" shall have the meaning set forth in Section
8.11 (a).
"Company SEC Documents" shall have the meaning set forth in Section 4.7.
"Company Securities" shall have the meaning set forth in Section 4.5.
"Company Stockholder Meeting" shall have the meaning set forth in Section
6.2.
"Company Tax Certificate" shall have the meaning set forth in Section 8.7.
"Confidentiality Agreement" shall have the meaning set forth in Section 6.3.
"Conversion Number" shall have the meaning set forth in Section 1.2 (a).
"Conveyance Taxes" shall have the meaning set forth in Section 6.5.
"Data Command" shall have the meaning set forth in Section 6.8 hereof.
"Dissenting Shares" shall have the meaning set forth in Section 1.11 (a).
"DGCL" shall have the meaning set forth in Section 1.1 (a).
"Effective Time" shall have the meaning set forth in Section 1.1 (b).
"Elite" shall have the meaning set forth in Section 4.12.
"employee pension benefit plan" shall have the meaning set forth in Section
4.16 (a).
"employee welfare benefit plan" shall have the meaning set forth in Section
4.16 (a).
"Employment Agreements" shall have the meaning set forth in Section 8.4
hereof.
"Environmental Claim" shall have the meaning set forth in Section 4.20 (a).
"Environmental Laws" shall have the meaning set forth in Section 4.20 (a).
"ERISA" shall have the meaning set forth in Section 4.16 (a).
"ERISA Affiliate" shall have the meaning set forth in Section 4.16 (a).
"ERISA Plans" shall have the meaning set forth in Section 4.16 (a).
"Excess Cash" shall have the meaning set forth in Section 6.10 hereof.
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"Exchange Act" shall have the meaning set forth in Section 4.3.
"Exchange Agent" shall have the meaning set forth in Section 1.3 (a).
"Exchange Fund" shall have the meaning set forth in Section 1.3 (a).
"Fleet" shall have the meaning set forth in Section 4.34.
"Form S-4 Registration Statement" shall have the meaning set forth in
Section 7.2
"GAAP" shall have the meaning set forth in Section 4.8.
"Governmental Entity" shall have the meaning set forth in Section 4.3.
"HSR Act" shall have the meaning set forth in Section 4.3.
"Indebtedness" as applied to any Person, shall mean: (a) all indebtedness
for borrowed money; (b) that portion of obligations with respect to capital
leases that is properly classified as a liability on a balance sheet in
conformity with GAAP; (c) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money;
(d) any obligation owed for all or any part of the deferred purchase price of
property or services if the purchase price is due more than six (6) months from
the date the obligation is incurred or is evidenced by a note or similar written
instrument; (e) all indebtedness secured by any Lien on any property or asset
owned or held by that Person regardless of whether the indebtedness secured
thereby shall have been assumed by that Person or is nonrecourse to the credit
of that Person and (f) any guarantee of any of the above. For purposes of
Section 9.3 (vi), Indebtedness shall also include any amounts due, including
premiums and penalties, upon prepayment of outstanding Indebtedness and any
negative cash balance.
"Intangible Property" shall have the meaning set forth in Section 4.22 (a).
"Janney" shall have the meaning set forth in Section 4.11.
"Knowledge" shall mean, with respect to the Company, the actual knowledge,
after due inquiry, of any officer of the Company (and shall include for purposes
of the representation and warranties made pursuant to Section 4.20 hereof, the
person in charge of risk management or environmental matters for the Company)
and shall mean, with respect to Buyer, the executive officers of Buyer.
"Licenses" shall have the meaning set forth in Section 4.26.
"Lien" shall have the meaning set forth in Section 4.4.
"Material Adverse Effect" shall have the meaning set forth in Section 4.1.
"Material Contracts" shall have the meaning set forth in Section 4.23 (b).
"Materials of Environmental Concern" shall have the meaning set forth in
Section 4.20 (a).
"Measurement Period" shall have the meaning set forth in Section 1.2 (a).
"Merger" shall have the meaning set forth in the Introduction.
"Merger Consideration" shall have the meaning set forth in Section 1.2 (a).
"Merger Subsidiary" shall have the meaning set forth in the Introduction.
"multiemployer plan" shall have the meaning set forth in Section 4.16 (c).
"Non-Competition Agreement" set forth in Section 8.4.
"NYSE" shall have the meaning set forth in Section 1.2 (a).
"Option" shall have the meaning set forth in Section 1.10.
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"Option Agreement" shall have the meaning set forth in Section 4.10.
"Outside Termination Date" shall have the meaning set forth in Section 10.1
(ii).
"Period" shall have the meaning set forth in Section 10.1 (vii).
"Permitted Lien" shall mean, as to any Person: (a) Liens for Taxes,
assessments and governmental charges or levies not yet due and payable; (b)
Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's
and repairmen's Liens and other similar Liens arising in the ordinary course of
business securing obligations that (i) are not overdue for a period of more than
30 days or (ii) are being contested in good faith (and for which adequate
reserves have been provided); and (c) with respect to real property to the
extent the same do not (x) render title to the property encumbered thereby
unmarketable and (y) individually or in the aggregate, materially adversely
affect the value or use of such property for its current purposes, (i) survey
exceptions, (ii) reciprocal easement agreements, and (iii) other customary
non-monetary encumbrances on title to real property; provided, however, that
none of the foregoing in clauses (a) through (c) shall have a Material Adverse
Effect on the Company.
"Person" shall have the meaning set forth in Section 1.4.
"Phase I Study Conclusions and Recommendations" shall have the meaning set
forth in Section 4.20 (b).
"Plans" shall have the meaning set forth in Section 4.16 (a)
"Preferred Stock" shall have the meaning set forth in Section 4.5.
"Representative" shall have the meaning set forth in Section 4.19.
"Representatives" shall have the meaning set forth in Section 6.4.
"Samans" shall have the meaning set forth in Section 2.4 (a).
"Samans Employment Agreement" shall have the meaning set forth in Section
8.4.
"Samans Promissory Note" shall have the meaning set forth in Section 8.5.
"SCFM Agreement" shall have the meaning set forth in Section 4.11
"SEC" shall have the meaning set forth in Section 4.7.
"Secretary of State" shall have the meaning set forth in Section 1.1 (b).
"Securities Act" shall have the meaning set forth in Section 4.3.
"Share Certificates" shall have the meaning set forth in Section 1.3 (b).
"Shares" shall have the meaning set forth in the Introduction.
"single employer" shall have the meaning set forth in Section 4.16 (a).
"SPD" shall have the meaning set forth in Section 4.16(b)
"Stock Option Plan" shall have the meaning set forth in Section 1.10.
"Subsidiary" shall have the meaning set forth in Section 4.6 (a).
"Substitute Option" shall have the meaning set forth in Section 1.10.
"Superior Proposal" shall have the meaning set forth in Section 6.4.
"Surviving Corporation" shall have the meaning set forth in Section 1.1 (a).
"Tax Return" shall have the meaning set forth in Section 4.15 (b) (ii).
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"Taxes" shall have the meaning set forth in Section 4.15(b)(i).
"Termination Fee" shall have the meaning set forth in Section 12.4 (b).
"Third Party" shall have the meaning set forth in Section 6.4.
"Trust" shall have the meaning set forth in Section 4.33.
"WARN Act" shall have the meaning set forth in Section 4.17.
"WTI" shall have the meaning set forth in the Introduction.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile or similar writing)
and shall be given,
if to Buyer or Merger Subsidiary, to:
Big Flower Press Holdings, Inc.
3 East 54th Street
New York, New York 10022
Facsimile: (212) 223-4074
Attention: Associate General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Facsimile: (212) 735-2000
Attention: Blaine V. Fogg, Esq.
if to the Company, to:
Scanforms, Inc.
181 Rittenhouse Circle
Keystone Park
Bristol, Pennsylvania 19007
Facsimile: (215) 785-1501
Attention: Robert A. Samans
Chairman and President
with a copy to:
Wolf, Block, Schorr and Solis-Cohen
S.E. Corner 15th and Chestnut Streets
Philadelphia, Pennsylvania 19102-2678
Facsimile: (215) 977-2334
Attention: Mark K. Kessler, Esq.
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective (i) if
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given by facsimile, when such facsimile is transmitted to the telecopy number
specified in this Section 12.1 and the appropriate facsimile confirmation is
received or (ii) if given by any other means, when delivered at the address
specified in this Section 12.1.
SECTION 12.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective Time. All
covenants and agreements contained herein which by their terms are to be
performed in whole or in part subsequent to the Effective Time shall survive the
Merger in accordance with their terms.
SECTION 12.3 AMENDMENTS; NO WAIVERS. (a) Except as may otherwise be
provided herein, any provision of this Agreement may be amended or waived prior
to the Effective Time if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by the Company, Buyer and Merger
Subsidiary or in the case of a waiver, by the party against whom the waiver is
to be effective; PROVIDED that after the adoption of this Agreement by the
stockholders of the Company, no such amendment or waiver shall, without the
further approval of such stockholders, alter or change (i) the amount or kind of
consideration to be received in exchange for any shares of capital stock of the
Company or (ii) any of the terms or conditions of this Agreement if such
alteration or change could adversely affect the holders of any shares of capital
stock of the Company.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 12.4 EXPENSES AND TERMINATION FEE. (a) All fees and expenses
incurred in connection with the Merger, this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring such fees or
expenses, whether or not the Merger is consummated.
(b) Notwithstanding any other provision of this Agreement, in the event this
Agreement is terminated pursuant to Section 10.1 (vi) or Section 10.1 (vii), the
Company shall immediately pay Buyer, in same day funds, a cash termination fee
of $750,000 (the "Termination Fee").
(c) The cost of printing the Form S-4 Registration Statement and the Company
Proxy Statement relating to the Merger shall be borne equally by the Company and
Buyer.
SECTION 12.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, PROVIDED that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto.
SECTION 12.6 GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the law of the State of Delaware without regard
to conflicts of laws.
SECTION 12.7 SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect against a party hereto, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby and such invalidity, illegality or unenforceability shall only
apply as to such party in the specific jurisdiction where such judgment shall be
made.
SECTION 12.8 NO THIRD PARTY BENEFICIARIES. Except for Section 7.5 hereof,
no provision of this Agreement is intended to confer upon any Person other than
the parties hereto any rights or remedies hereunder.
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SECTION 12.9 ENTIRE AGREEMENT. This Agreement, including any exhibits or
schedules hereto and the Confidentiality Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof and
supersede all other prior agreements or undertaking with respect thereto, both
written and oral.
SECTION 12.10 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in
any number of counterparts, all of which shall be an original, with the same
effect as if considered one and the same instrument. This Agreement shall become
effective when each party hereto shall have received counterparts hereof signed
by all of the other parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
SCANFORMS, INC.
By: _________/s/_JOEL R. JACKS________
Name: Joel R. Jacks
Title: Director
BIG FLOWER PRESS HOLDINGS, INC.
By: _______/s/_MARK A. ANGELSON_______
Name: Mark A. Angelson
Title: Executive Vice President
SCANFORMS ACQUISITION CORP.
By: _______/s/_MARK A. ANGELSON_______
Name: Mark A. Angelson
Title: Treasurer and Secretary
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ANNEX II
[LOGO]
July 31, 1996
Board of Directors
Attention: Special Committee
Scanforms, Inc.
181 Rittenhouse Circle
Bristol, PA 19007
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, of the consideration to be received by the stockholders of Scanforms, Inc.
(the "Company") in connection with the merger (the "Merger") of the Company with
and into Scanforms Acquisition Corp. (the "Merger Subsidiary"), a wholly owned,
indirect subsidiary of Big Flower Press Holdings, Inc. (the "Buyer"), a Delaware
corporation. Upon the consummation of the Merger, holders of the Company's
common stock will receive for each of their shares a fraction of a share of the
Buyer's Common Stock equal to $5.75 divided by the average closing price of the
Buyer's Common Stock on the New York Stock Exchange during the ten-day trading
period ending three trading days prior to the Company's stockholder meeting to
vote on the Merger, but not more than .4423 shares of Buyer's Common Stock if
the average closing price of Buyer's Common Stock is less than $13.00 and not
less than .3833 shares of Buyer's Common Stock if the average closing price of
Buyer's Common Stock is greater than $15.00 (the "Merger Consideration")
pursuant to the Agreement and Plan of Merger, dated as of July 31, 1996, among
the Company, the Merger Subsidiary and the Buyer (the "Merger Agreement").
In rendering our opinion, we have reviewed, among other things: (a) the
Merger Agreement; (b) publicly available business and historical financial
information relating to the Company, including the 1995 Annual Report of the
Company and a preliminary draft of the Form 10-Q for the third quarter ended
June 30, 1996; (c) certain financial information and other data provided to us
by the Company, that is not publicly available, relating to the business and
prospects of the Company, including financial projections prepared by the
management of the Company; (d) the reported historical market prices and trading
volume of the common stock of the Company; (e) publicly available business and
historical financial information relating to the Buyer, including the offering
prospectus dated November 21, 1995, the Form 10-K for the transition period from
July 1, 1995 to December 31, 1995, and the Form 10-Q for the first quarter ended
March 31, 1996 ; (f) selected financial and stock market data for certain other
publicly traded companies in lines of business comparable to the Company and the
Buyer; and (g) the financial terms of certain other recent business
combinations. In addition we held discussions with the management of the Company
and the Buyer regarding their respective businesses, operating results,
financial condition, prospects and the Merger, and undertook other analyses,
studies and investigations as we considered appropriate.
[LOGO]
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[LOGO]
In connection with our review, we have relied, without independent
verification, upon the accuracy and completeness of the financial and other
information used by us in arriving at our opinion. We have also relied upon the
assessment of the management of the Company regarding its business, prospects
and the Merger and also assumed that the budgets and financial projections of
the Company were reasonably prepared by management on bases reflecting the best
currently available estimates and good faith judgments of the future financial
performance of the Company. The Buyer declined to furnish internally prepared
budgets or financial projections as a matter of corporate policy. We did not
undertake any independent valuations or appraisals of the real properties or
other assets of the Company, nor were we furnished with any such valuations or
appraisals. Our opinion is necessarily based upon economic, market and other
conditions as they exist on, and can be reasonably evaluated as of, the date of
this letter.
Janney Montgomery Scott is acting as the financial advisor to the Company in
connection with soliciting and evaluating merger and acquisition opportunities
and will receive customary fees upon the completion of the Merger. In addition,
in the ordinary course of our securities business we trade the equity securities
of the Company for our own account and the accounts of our customers and,
therefore, we may from time to time hold a long or short position in such
securities.
We are of the opinion, as of the date of this letter and subject to the
foregoing, that the Merger Consideration to be received by the Company's
stockholders in connection with the Merger is fair, from a financial point of
view, to such stockholders.
Very truly yours,
JANNEY MONTGOMERY SCOTT INC.
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ANNEX III
SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of 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 Section 251 (other than a merger effected pursuant to
subsection (g) of Section 251), Section 252, Section 254, Section 257, Section
258, Section 263, or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the holders of the surviving corporation as provided in
subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts 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
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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.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section, provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or series
of stock of such
III-2
<PAGE>
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on
or within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall
be not more than 10 days prior to the date the notice is given; provided
that, if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after the 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.
III-3
<PAGE>
(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.
(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.
III-4
<PAGE>
PROXY
SCANFORMS, INC.
181 RITTENHOUSE CIRCLE
BRISTOL, PENNSYLVANIA 19007-0602
The undersigned stockholder of SCANFORMS, INC. hereby constitutes and
appoints Robert A. Samans and Joel R. Jacks, and each of them acting
individually, as the attorney and proxy of the undersigned, with full power of
substitution, for and in the name and stead of the undersigned to attend the
Special Meeting of Stockholders to be held at Scanforms, Inc., 181 Rittenhouse
Circle, Bristol, Pennsylvania, on Friday, October 4, 1996, at 10:00 a.m., local
time, and any adjournment or postponement thereof, and thereat to vote all
shares of Common Stock of SCANFORMS, INC. held by the undersigned which the
undersigned would be entitled to vote if personally present with respect to the
following matters:
1. Approval and adoption of the Agreement and Plan of Merger, dated as of
July 31, 1996, among Scanforms, Inc., Big Flower Press Holdings, Inc. and
Scanforms Acquisition Corp.
/ / FOR / / AGAINST / / ABSTAIN
2. Upon such other matters as may properly come before the meeting or any
adjournment(s) or postponement(s) thereof.
(CONTINUED, AND TO BE SIGNED, ON OTHER SIDE)
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THE SHARES WILL BE VOTED "FOR" THE
PROPOSAL. THIS PROXY ALSO DELEGATES DISCRETIONARY AUTHORITY TO VOTE WITH RESPECT
TO ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING
AND PROXY STATEMENT/PROSPECTUS.
Dated: , 1996
_________________________________
Signature of Stockholder
___________________________________
Signature of Stockholder
Please sign your name exactly as it
appears hereon. When signing as
attorney-in-fact, executor,
administrator, trustee or guardian,
please add your title as such. When
signing as joint tenants, all
parties in the joint tenancy must
sign. If signer is a corporation,
please sign in full corporate name
by duly authorized officer or
officers and affix the corporate
seal.
PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 1, 1995
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____________
Commission file number 0-6004
SCANFORMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-1704876
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
181 Rittenhouse Circle
Keystone Park, Bristol, Pennsylvania 19007
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 785-0101
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- -------
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of December 20, 1995, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately 5,230,940.*
As of December 20, 1995, 3,546,648 shares of common stock, $.01 par value,
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement with respect to the
Registrant's 1996 Annual Meeting of Stockholders, to be filed not later than 120
days after the close of the Registrant's fiscal year, are incorporated by
reference into Part III of this Form 10-K.
_______________________
* Calculated by excluding all shares that may be deemed to be beneficially
owned by executive officers and directors of the Registrant, without
conceding that all such persons are "affiliates" of the Registrant for
purposes of the federal securities laws.
2
<PAGE>
PART I
Item 1. Business
Scanforms, Inc. ("Scanforms" or the "Company")is a full-service
manufacturer of direct mail advertising with in-house forms manufacturing, laser
and impact computer personalization, bindery and mailing services.
Scanforms special capabilities include up to ten color web heatset
four color process printing, hot foil stamping and embossing, die cutting,
pressure sensitive labeling, tipped on plastic and paper cards and remoist
gluing.
The Company's sales staff markets the Company's services and products
to advertising agencies for use by the agencies' clients and directly to end
user clients.
The Company's marketing efforts also include direct mail advertising,
attendance at monthly direct mail industry meetings in various cities,
attendance at major trade shows and direct telephone contacts.
The market for the Company's services and products is located
principally on the east coast, although the Company also serves customers in the
midwest and is making efforts to develop markets nationally.
The primary raw material used by the Company is paper. The Company
also uses ink, film and metal plates. These products are available from
numerous sources. Generally, the Company maintains a six week supply of raw
materials.
Sales to the Company's largest customer, MBNA America accounted for
22.8% of the Company's revenues during the fiscal year ended October 1, 1995.
The loss of this customer would have a material adverse effect on the Company's
sales and income.
The total amount of the backlog of orders believed to be firm as of
October 1, 1995 and October 2, 1994 was approximately $7,497,000 and $7,696,000,
respectively. The Company usually fills its backlog within 12 months. The
Company's business is not significantly seasonal.
The direct mail production business in which the Company is engaged is
intensely competitive. The Company believes that there are at least ten
companies with which it
1
<PAGE>
competes in its principal market area. Some of these companies have greater
financial resources than the Company and larger sales forces and advertising
budgets than the Company. The Company attempts to compete with such companies by
stressing the quality of its services. The Company believes that it is able to
react quickly to customer requirements and to give its customers individualized
attention. Further, although its competitors do significant business in the
Philadelphia and New York metropolitan areas, the Company's principal markets,
the Company believes that it has one of the largest plants in the Washington to
New York corridor.
As of October 1, 1995, the Company had 166 employees, of whom 127 were
plant employees, 6 were executive and key administrative employees, 18 were
sales and sales service employees and 15 were clerical employees.
Repayment of Subordinated Indebtedness
See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" for
information regarding the repayment by the Company of its subordinated
indebtedness.
Item 2. Properties
The Company owns a 123,489 square foot, one-story office and plant at
181 Rittenhouse Circle, Keystone Park, Bristol, Pennsylvania. The property is
currently financed through the Company's bank credit facility. See Notes 5 and
6 to the Company's financial statements for further information.
The Company believes that its facilities are suitable for its business
needs at the present time and for the immediate future.
Item 3. Legal Proceedings
In May 1993, the Company received a notice from the U.S. Environmental
Protection Agency ("EPA") that it had been named as a potentially responsible
party ("PRP") under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA" or "Superfund") relative to the Frontier Chemicals
Superfund Site in Niagara Falls, New York (the "Site"). The Company joined
groups of PRPs that entered into a Consent Order with the EPA addressing drums
located at the Site (the "Drum Activities") and an Administrative Order on
Consent addressing tanks located at the Site (the "Tank Activities"). As a
result
2
<PAGE>
of its participation in these Orders, the Company has no further obligations
with respect to the Drum and Tank Activities, except as noted below.
In October 1994, the Company received a letter from the Drum
Activities PRP group stating that the remediation consultant initially retained
for those activities and subsequently terminated had filed a civil action in the
New York State Supreme Court, Monroe County, for breach of contract against the
PRP group and for defamation against certain individuals who may have the right
to be indemnified by the PRP group relative to those claims. The total damages
sought in the action, excluding punitive damages, which are requested but for
which no dollar amounts are specified are approximately $2.8 million, of which
approximately $240,000 relate to the breach of contract claim. For the initial
phase of this litigation, the Company, as part of the PRP group, paid an
assessment of $200.
Management has been advised by counsel to the PRP group that five of
the six counts of the complaint have been dismissed, leaving only the breach of
contract claim, and that the plaintiff did not respond to a counterclaim made by
the PRP group, so is in default regarding that claim. To date, the plaintiff
has not prosecuted the claim and it has been removed from the trial calendar.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 4A. Executive Officers of the Company
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Robert A. Samans 63 Chairman of the Board and President
Robert W. O'Leary 49 Vice President, Sales and Marketing
Gary Crawford 54 Vice President, Operations
William P. Carey 54 Treasurer
</TABLE>
Robert A. Samans has served as the President and a director of the
Company since its formation in January 1969 and as Chairman of the Board since
September 1990.
3
<PAGE>
Robert W. O'Leary has served as Vice President, Sales and Marketing,
of the Company since January 1987. He has served as the Company's Sales Manager
since 1983.
Gary Crawford has served as Vice President, Operations of the Company
since October 1993. He was the Company's Director of Operations from June 1992
to October 1993. From November 1989 to June 1992, Mr. Crawford was General
Manager of Champion Envelope Corporation of Union, N.J., an envelope
manufacturer. From June 1987 to November 1989, he was the New York Sales
Manager for the Company. From March 1986 to June 1987 Mr. Crawford was
Executive Vice President and General Manager of Boston Envelope Incorporated, an
envelope manufacturer.
William P. Carey has served as Treasurer of the Company since February
1992. He has been employed by the Company in various capacities since 1984.
4
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information
The Company's Common Stock is included in The Nasdaq Stock Market
("Nasdaq"). The following table sets forth, for the calendar quarters
indicated, the quarterly high and low bid quotations for the Common Stock as
reported on Nasdaq. The quotations listed below reflect inter-dealer prices,
without retail mark-ups, mark-downs or commissions, and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Quarter Ended High Low
- ------------- -------- -------
<S> <C> <C>
September 30, 1995 $2 5/8 $ 2
June 30, 1995 2 3/4 2 3/16
March 31, 1995 2 7/8 1 11/16
December 31, 1994 2 1 1/2
September 30, 1994 1 13/16 1 1/2
June 30, 1994 2 3/16 1 3/4
March 31, 1994 2 7/16 1 9/16
December 31, 1993 1 13/16 1 11/16
</TABLE>
Holders of Common Stock
On December 20, 1995, 3,546,648 shares of the Company's Common Stock
were outstanding. On such date, there were 298 holders of record.
Dividend Policy
The Board of Directors of the Company has not declared a dividend for
several years. Under the terms of the Company's loan agreement with its
principal lending bank, the maximum dividends the Company can pay is 50% of the
net income of the Company during the year. The Company is restricted from
redeeming any of its outstanding capital stock for so long as the Company has
any existing obligations to the Bank under the loan agreement or any documents
ancillary to the agreement. See Notes 5 and 6 to the Financial Statements for
further information.
5
<PAGE>
Item 6. Selected Financial Data
The following is a summary of selected financial data of the Company
for each of the five years ended on the dates set forth below, which should be
read in conjunction with the financial statements of the Company and the notes
thereto:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------------------
October 1 October 2 October 3 October 4 September 30
1995 1994 1993 1992 1991
------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales $24,518,878 $22,235,890 $22,488,184 $19,302,992 $19,321,779
----------- ----------- ----------- ----------- -----------
Income before cumulative
effect of accounting change $1,570,540 $ 1,424,207 $ 774,932 $ 303,818 $(1,108,136)
Cumulative effect of
accounting change -- 260,686a -- -- --
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $1,570,540 $ 1,163,521 $ 774,932 $ 303,818 $(1,108,136)
----------- ----------- ----------- ----------- -----------
Income (Loss) per share of
common stock before
cumulative effect of
accounting change $ .43 $ .39 $ .22 $ .10 $ (.36)
Cumulative effect of
accounting change $ -- .07a -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) per share
of common stock $ .43 $ .32 $ .22 $ .10 $ (.36)
----------- ----------- ----------- ----------- -----------
October 1 October 2 October 3 October 4 September 29
1995 1994 1993 1992 1991
------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total Assets $16,693,206 $16,334,385 $13,618,380 $13,825,881 $14,942,300
----------- ----------- ----------- ----------- -----------
Long-term Obligations $3,900,535 $ 3,152,091 $ 3,567,668 $ 6,042,660 $ 7,209,661
----------- ----------- ----------- ----------- -----------
Stockholders' Equity $5,564,774 $ 3,984,552 $ 2,698,228 $ 1,687,471 $ 1,400,542
----------- ----------- ----------- ----------- -----------
</TABLE>
a - Cumulative effect of change in accounting for income taxes under FASB 109.
Note: The Company has not paid cash dividends during the five year period
presented.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations: Fiscal 1995 vs. Fiscal 1994
The Company's net sales increased by 10.3% from $22,235,890 in fiscal 1994 to
$24,518,878 in fiscal 1995, reflecting an expansion of the customer base. Gross
profit increased by 15.1% from $6,061,019 to $6,973,733. The increase in gross
profit was
6
<PAGE>
primarily the result of increased sales volume and an improvement in product
mix, net of a retroactive workmen's compensation insurance premium assessment.
Operating expenses were $3,999,945 and 3,450,986 in fiscal 1995 and fiscal
1994, respectively. The increase of 15.9% was primarily due to various factors
including increased compensation expense, the payment of performance bonuses,
consulting fees and additional employees.
Interest costs decreased by 8.6% from $436,120 to $398,665, due to the
retirement of certain indebtedness and the decreased borrowings needed to
provide working capital as a result of increased cash generated from operations.
The increase in the Company's effective tax rate in fiscal year 1995 from
fiscal 1994 is primarily the result of the reinstatement of the corporate net
operating loss deduction by the State of Pennsylvania as more fully described in
the "Results of Operations 1994 vs. 1993".
Competition in the direct mail industry continues to be strong, and some
pricing remains depressed. More pressure has been put on the margins due to
increases in paper prices. As disclosed under "Liquidity and Capital
Resources," the Company has purchased additional production equipment in order
to service its expanded customer base and resulting increased volume.
Results of Operations: Fiscal 1994 vs. Fiscal 1993
The Company's net sales for fiscal 1994 declined by 1.1% from fiscal 1993.
Gross profit increased by 3.4% from $5,858,550 to $6,061,019. The increase in
gross profit was the result of cost reductions relating to increased production
efficiencies.
Operating expenses were $3,450,986 and $3,890,250 in fiscal 1994 and fiscal
1993, respectively. The decrease of 11.3% reflects the Company's determination
to pass through a larger portion of shipping costs to customers, and also
reflects reduction of outside consulting costs and bank service charges. In
addition, during fiscal 1993, operating expenses were increased as a result of a
$288,199 write off of a note receivable from the former Chairman of the Company,
after the Company concluded that he would not be able to make additional
payments under the note. Moreover, the reduction in operating expenses gives
effect to the reversal of $67,083 of the amount previously written off in
connection with the note receivable from the Company's former Chairman of the
Board. A court order garnishing consulting fees payable to the former Chairman
was
7
<PAGE>
reversed on appeal. As a result, the Company was able to apply those consulting
fees to payment of a portion of the amounts due under the note.
Interest costs decreased by 31.7% from $638,942 to $436,120, due to the
retirement of certain indebtedness and the decreased borrowings needed to
provide working capital as a result of increased cash generated from operations.
As more fully described in Note 8 to the financial statements, the Company
adopted FASB Statement No. 109 in the first thirteen weeks of 1994. The
cumulative effect of the change in the method of accounting for income taxes
resulting from the Company's adoption of FASB Statement No. 109 was to decrease
the Company's net income by $260,686, or $0.07 per share, for fiscal 1994. The
$260,686 decrease constitutes a non-cash item and is a one time charge. The
deferred tax assets and expenses will be recognized when the temporary
differences as described in Note 8 to the financial statements are reversed.
The reduction in the Company's effective tax rate in fiscal 1994 is
primarily the result of the reinstatement of the corporate net operating loss
deduction by the State of Pennsylvania effective for the fiscal years beginning
in 1995. The Company had losses, for Pennsylvania income tax purpose, in fiscal
1989 and 1991 of $654,637 and $361,854, respectively. Because applicable
regulations limit to $500,000 the amount of loss in any single fiscal year that
may be utilized, the Company will not realize a benefit with respect to $154,637
of the $654,637 operating loss of 1989. Management estimates that the available
loss carry forward will be utilized to offset the taxes otherwise due on
$861,854 in income during the 1995, 1996 and 1997 fiscal years, and therefore,
the Company has recorded a deferred state income tax asset of $93,849 in fiscal
1994.
Liquidity and Capital Resources
On June 21, 1995, the Company received a revolving line of credit with a new
lending institution in the amount of $2.5 million which is limited to 80% of
eligible accounts receivable less 80% of customer advances plus 50% of raw
material inventories up to $500,000. Borrowings under this line are
collateralized by all accounts receivable, inventories and other personal
property and bear interest at the bank's prime lending rate plus an annual
commitment fee of 0.125% on the unused portion. The agreement with the lender
also provides for mortgage note financing in the amount of $2.5 million with a
principal payment of $13,889 per month plus interest at 0.25% above the bank's
prime lending rate and a final payment of the
8
<PAGE>
unpaid principal and accrued interest then due, payable at the maturity of the
note. The proceeds of the mortgage note were used to retire the existing
mortgage note of the former lending institution in the amount of $2,375,000 and
the remainder was used for working capital and deferred finance fees. The
revolving line of credit and the mortgage note are due on June 21, 2000 and July
1, 2000 respectively.
Under the terms of the revolving line of credit and mortgage note agreement
with the bank, the Company's ability to pay dividends is limited to 50% of the
Company's net income during the year. The Company is also subject to certain
covenants and restrictions related to increased debt, granting liens, tangible
net worth, earnings before interest and taxes and the ratio of liabilities to
tangible net worth and other items. The agreement prohibits the Company from
making capital expenditures in excess of $500,000 in the aggregate in any one
fiscal year which are not financed with permitted indebtedness.
The Company's working capital increased to $2,571,511 as of October 1, 1995,
an increase of $1,946,131 or 311.2% from $625,380 on October 2, 1994. The
increase was the result of net income for fiscal year 1995, the refinancing of
the mortgage note with the new primary lending institution and the refinancing
of the balloon payment of a press as described below.
Equipment purchased during October 1994 for an aggregate purchase price of
$795,114, was financed with five year term loans in the amount of $794,310. A
new water system for one of the presses was purchased for $209,999. This system
is being financed over three years along with the remainder of a note which was
due on the press in the amount of $346,428. The new note is in the amount of
$556,427. Additionally, a $91,791 camera monitoring system and additional
folding equipment for the finishing department have been purchased and financed
over five years in the aggregate amount of $255,300.
Certain other significant balance sheet changes during the fifty two weeks
ended October 1, 1995 included decreases in customer advances of $1,063,810
accounts receivable net of allowance of $125,611 and income taxes payable of
$240,060 and increases in accounts payable of $262,192 and inventories of
$831,016. The reduction in customer advances resulted from the utilization of
customer deposits to cover postage costs as the Company delivered direct mail
materials to the post office for shipment. The decrease in accounts receivable
reflects the timing of customer invoices and the reduction in income taxes
payable is the result of the payment of current year taxes based on requirements
of the federal and state agencies. The increase
9
<PAGE>
in accounts payable reflects the timing of vendors invoices as a result of
purchases relating to the fourth quarter production. The increase in inventories
is the result of the build up of paper inventory in anticipation of paper price
increases and spot shortages.
During the fifty two weeks of fiscal 1995, the Company did not utilize its
working capital line of credit with its principal lending banks. The Company
believes that the cash flow generated from operations and the amount available
under its working capital line of credit ($1,174,902 as of October 1, 1995) will
enable the Company to meet its currently anticipated operating requirements.
Item 8. Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements on page F-1.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable.
10
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of Big Flower as of May 31, 1996 are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
R. Theodore Ammon. . . . . 46 Chairman of the Board and Chief
Executive Officer
Donald E. Roland. . . . 53 Director
Sanford G. Scheller . . 64 Vice Chairman of the Board
Leon D. Black . . . . . 43 Director
Edward M. Yorke . . . . 36 Director
Peter G. Diamandis. . . 63 Director
Joan Daniels Manley . . 62 Director
Edward T. Reilly. . . . 49 President and Chief Operating Officer
Mark A. Angelson. . . . 45 Executive Vice President and General
Counsel and Secretary of the Board
</TABLE>
R. Theodore Ammon has been the Chairman of the Board and Chief Executive
Officer of Big Flower since its inception. Mr. Ammon has also been the Chairman
of the Board of Treasure Chest since 1993. Mr. Ammon was a General Partner of
Kohlberg Kravis Roberts & Co. (a New York and San Francisco-based investment
firm) from 1990 to 1992, and an executive of such firm prior to 1990. Mr. Ammon
is also a member of the Board of Directors of Host Marriott Corporation,
Foodbrands America, Inc., Culligan Water Technologies, Inc. and Samsonite
Corporation. In addition, Mr. Ammon serves on the Board of Directors of the New
York YMCA and on the Board of Trustees of Bucknell University.
Donald E. Roland has been a Director of Big Flower since June 1995 and has
been the Chief Executive Officer of Treasure Chest since June 1995, President of
Treasure Chest since March 1995 and Chief Operating Officer of Treasure Chest
since 1994. Mr. Roland served as the Executive Vice President of Treasure Chest
from 1993 to 1994 and Senior Vice President, Operations of Treasure Chest from
1984 to 1993. From 1983 to 1984, Mr. Roland served as Group Vice President of
Treasure Chest's Mid-American Operations. Prior to joining Treasure Chest in
1983, Mr. Roland held numerous positions at Times Mirror Press, most recently as
Vice President, Operations.
Sanford G. Scheller has been Vice Chairman of Big Flower since June 1995
and has been a Director of Big Flower since 1993. Mr. Scheller was the Chief
Executive Officer of Treasure Chest from 1986 to June 1995 and was the President
of Treasure Chest from 1986 to March 1995. From 1985 to 1986, Mr. Scheller was
a Vice President and General Manager of Champion International. From 1979 to
1985, Mr. Scheller served as a Vice President and General Manager at St. Regis
Paper Company, in the bag packaging/consumer products division.
Leon D. Black has been a Director of Big Flower since 1993. Mr. Black is
one of the founding principals of Apollo Advisors, L.P. which, together with its
affiliates, serves as
11
<PAGE>
managing general partner of Apollo Investment Fund, L.P., AIF II, L.P. and
Apollo Investment Fund III, L.P., private securities investment funds, and of
Lion Advisors, L.P., which acts as financial advisor to and representative for
certain institutional investors with respect to securities investments. Prior
to 1990, Mr. Black was a managing director and senior executive of Drexel
Burnham Lambert Incorporated. Mr. Black is a director of Converse, Inc.,
Culligan Water Technologies, Inc., Interco, Incorporated, Gillette Holdings,
Inc., New York Law Publishing Company, Samsonite Corporation and Telemundo Group
Inc.
Edward M. Yorke has been a Director of Big Flower since 1993. Mr. Yorke
has been an officer since 1992 of Apollo Capital Management, Inc. and Lion
Capital Management, Inc. which respectively act as general partners of Apollo
Advisors, L.P. and Lion Advisors, L.P. Mr. Yorke also is a limited partner of
Apollo Advisors, L.P. which, together with its affiliates, acts as managing
general partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo
Investment Fund III, L.P., private securities investment funds, and a limited
partner of Lion Advisors, L.P., which acts as financial advisor to and
representative for certain institutional investors with respect to securities
investments. From 1990 to 1992, Mr. Yorke was a vice president in the high
yield capital markets group of BT Securities Corp. Prior to 1989, Mr. Yorke was
a member of the mergers and acquisitions group of Drexel Burnham Lambert
Incorporated. Mr. Yorke is a director of Aris Industries, Inc., Salant
Corporation and Telemundo Group, Inc.
Peter G. Diamandis has been a Director of Big Flower since September
1994. Mr. Diamandis has been Vice Chairman of Donnelley Marketing, Inc. since
1991 and has been the Chairman of TVSM, Inc. since 1991. From 1988 to 1991,
Mr. Diamandis served as President and Chief Executive Officer of Hachette
Publications, which purchased Diamandis Communications Inc. in 1988. From
1987 to 1988, Mr. Diamandis served as Chairman, President and Chief Executive
Officer of Diamandis Communications Inc., a publisher of special interest
magazines. From 1983 to 1987, Mr. Diamandis was president of CBS Magazines
("CBS"). In 1982, Mr. Diamandis joined CBS as Vice President, Group
Publisher, Women's Day, and served as President of CBS from September 1983 to
1987. Mr. Diamandis serves on the Board of Trustees of Bucknell University
and the Board of Directors of the Publishers Information Bureau.
Joan Daniels Manley has been a Director of Big Flower since September 1994.
Ms. Manley retired from Time Incorporated in 1984, where she had held numerous
positions since 1960. At the time of her retirement, Ms. Manley was Group Vice
President and a director of Time Incorporated. Ms. Manley serves on the Board
of Directors of Aon Corporation, Sara Lee Corporation, Scholastic, Inc. and
Viking Office Products, Inc. and is a Trustee of the Keystone Center.
Edward T. Reilly has been President and Chief Operating Officer of Big
Flower since March 1996. Prior to joining Big Flower, Mr. Reilly held a variety
of executive positions with McGraw-Hill, Inc. in their Broadcast and Publication
groups from 1968 to 1996, and served as President of McGraw-Hill Broadcasting
from 1987 to 1996. Mr. Reilly has been active in television industry affairs,
having served as the Chairman of the Television Bureau of Advertising and as a
member of the Board of Directors of the National Association of Broadcasters.
12
<PAGE>
Mark A. Angelson has been Executive Vice President and General Counsel and
Secretary of the Board of Big Flower since March 1996. Prior to joining Big
Flower, Mr. Angelson was a partner of the law firm Sidley & Austin from 1982 to
1996. Mr. Angelson was Co-Chair of Sidley's international operations, founder
of the firm's English law practice and manager of the firm's offices in
Singapore, New York and London. Mr. Angelson is admitted to practice law in the
State of New York and admitted to practice law in England and Wales.
The directors are divided into three classes, designated Class I, Class
II and Class III. Each class consists of one third of the total number of
directors constituting the entire Board of Directors. Currently, the Class I
directors are Messrs. Scheller and Yorke; the Class II directors are Ms. Manley
and Mr. Diamandis; and the Class III directors are Messrs. Ammon, Black
and Roland. The term of the initial Class I directors shall terminate on the
date of the Company's 1996 annual meeting of stockholders; the term of the
initial Class II directors shall terminate on the date of the 1997 annual
meeting of stockholders; and the term of the initial Class III directors
shall terminate on the date of the 1998 annual meeting of stockholders. At
each annual meeting of stockholders beginning in 1996, successors to the
class of directors whose term expires at that annual meeting shall be elected
for a three-year term. If the number of directors is changed, any increase
or decrease shall be apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as possible, and any
additional directors of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with
the remaining term of that class, but in no case will a decrease in the
number of directors shorten the term of any incumbent director. A Class I,
II or III director shall hold office until the annual meeting for the year in
which such director's term expires and until such director's successor shall
be elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. Any director elected to
fill a vacancy shall hold office for a term that shall coincide with the term
of the class to which such director shall have been elected.
DIRECTOR COMPENSATION
Directors of Big Flower who are also executive officers of Big Flower or
its subsidiaries do not receive any additional compensation for service as a
member of the Board of Big Flower or any of its committees. All other directors
of Big Flower are paid an annual fee of $25,000.
LATE FILINGS
On one occasion, BTIP failed to file on a timely basis a statement of a
change in beneficial ownership as required by Form 3 pursuant to Section
16(a) of the Securities Exchange Act of 1934. Immediately following BTIP's
oversight, it corrected this matter.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid for the transition
period from July 1, 1995 to December 31, 1995 ("TP95") and for the fiscal years
ended June 30, 1993, June 30, 1994 and June 30, 1995, to Theodore Ammon, the
Chief Executive Officer of Big Flower, Donald E. Roland, the Chief Executive
Officer of Treasure Chest, and each of the four other most highly paid executive
officers of Treasure Chest who were serving as executive officers as of the end
of TP95 (the "Named Executive Officers"). With the March 1996 acquisition of
13
<PAGE>
Webcraft and the recent hiring of Messrs. Reilly and Angelson as executive
officers of Big Flower, the executive officers of Big Flower are Messrs. Ammon,
Reilly, Angelson and Scheller.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's Annual Meeting of Stockholders, to be
filed with the Securities and Exchange Commission within 120 days following the
end of the Company's fiscal year, and is hereby incorporated by reference
thereto.
Item 13. Certain Relationships and Related Transactions
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's Annual Meeting of Stockholders, to be
filed with the Securities and Exchange Commission within 120 days following the
end of the Company's fiscal year, and is hereby incorporated by reference
thereto.
14
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Report.
1. Consolidated Financial Statements:
Index to Consolidated Financial Statements and Schedule
Report of Independent Certified Public Accountants
Consolidated Balance Sheets - as of
October 1, 1995 and October 2, 1994
Consolidated Statements of Income - Years
ended October 1, 1995, October 2, 1994 and
October 3, 1993
Consolidated Statement of Stockholders' Equity -
Years ended October 1, 1995, October 2, 1994 and October 3,
1993
Consolidated Statements of Cash Flows - Years
ended October 1, 1995, October 2, 1994 and October 3, 1993
Notes to Consolidated Financial Statements
2. Financial Statement Schedule:
Valuation and Qualifying Accounts and Reserves (Schedule II)
Schedules other than those listed above have been omitted because they
are not applicable or the required information is shown in the financial
statements or notes thereto.
3. Exhibits:
Exhibit
Number Description of Exhibits.
3.1 Restated Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3(a) to the Company's Form 10-K for the fiscal
year ended October 2, 1994)
3.2 By-laws of the Company, as amended (Incorporated by reference to
Exhibit 3(b) to the Company's Form 10-K for the fiscal year ended
September 29, 1991)
15
<PAGE>
10.1 Loan Agreement dated as of June 21, 1995, by and between the Company
and Mellon Bank, N.A. (Incorporated by reference to Exhibit 10.1 to
the Company's Form 10-Q for the fiscal quarter ended July 2, 1995)
10.2 Note Agreement dated as of January 1, 1994, issued by Robert A. Samans
to the Company (Incorporated by reference to Exhibit 10(e) to the
Company's Form 10-K for the fiscal year ended October 2, 1994)
10.3 Scanforms, Inc. Profit Sharing 401-K Plan (Incorporated by reference to
Exhibit 10(g) to the Company's Form 10-K for the fiscal year ended
October 2, 1994)
10.4 Scanforms, Inc. 1992 Stock Option Plan, as amended (Incorporated by
reference to Exhibit 4 to the Company's Registration Statement on
Form S-8 (File No. 33-81720), filed with the Commission on July 19,
1994
11 Computation of Earnings Per Common Share
23.1 Consent of Grant Thornton LLP
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports were filed on Form 8-K during the last quarter of the fiscal year
covered by this report.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, in Bristol,
Pennsylvania, on December 22, 1995.
SCANFORMS, INC.
By:/s/ Robert A. Samans
----------------------------
Robert A. Samans
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated:
Signature Title Date
/s/ Robert A. Samans Principal Executive December 22, 1995
- ----------------------------- Officer and Director
Robert A. Samans
/s/ Sebastian A. Carcioppollo Director December 22, 1995
- -----------------------------
Sebastian A. Carcioppollo
/s/ Joel Jacks Director December 22, 1995
- -----------------------------
Joel Jacks
/s/ William P. Carey Principal Financial December 22, 1995
- ----------------------------- and Accounting Officer
William P. Carey
17
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES FILED WITH THE ANNUAL
REPORT OF THE REGISTRANT ON FORM 10-K
FOR THE YEAR ENDED OCTOBER 1, 1995
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements:
Balance sheets F-3
Statements of income F-4
Statement of stockholders' equity F-5
Statements of cash flows F-6-7
Notes to consolidated financial statements F-8-19
Financial Statement Schedule:
Valuation and qualifying accounts and reserves II F-20
Schedules other than those listed above have been omitted because they are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Scanforms, Inc.
Bristol, Pennsylvania
We have audited the accompanying consolidated balance sheets of Scanforms, Inc.
and Subsidiary as of October 1, 1995 and October 2, 1994 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended October 1, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Scanforms, Inc. and Subsidiary as of October 1, 1995 and October 2, 1994 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended October 1, 1995, in conformity with generally
accepted accounting principles.
We have also audited Schedule II of Scanforms, Inc. and Subsidiary for each of
the three years in the period ended October 1, 1995. In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.
GRANT THORNTON LLP
Philadelphia, Pennsylvania
November 24, 1995
F-2
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
OCTOBER 1, 1995 and OCTOBER 2, 1994
<TABLE>
<CAPTION>
ASSETS
1995 1994
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,910,264 $ 3,522,546
Note receivable - current portion 7,747 -
Accounts receivable, net of allowance for
doubtful accounts of $410,000 - 1995;
$390,000 - 1994 (Notes 5 and 6) 3,673,623 3,819,234
Inventories (Notes 2, 5 and 6) 1,665,313 834,297
Other current assets 316,012 250,100
Deferred income taxes (Note 8) 266,030 268,138
----------- -----------
Total current assets 8,838,989 8,694,315
----------- -----------
Property, plant and equipment - at cost, net of
accumulated depreciation and amortization
(Notes 4 and 6) 7,768,880 7,568,548
----------- -----------
Other assets:
Note receivable - long-term portion 12,201 -
Other 73,136 71,522
----------- -----------
Total other assets 85,337 71,522
----------- -----------
$16,693,206 $16,334,385
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 6) $ 730,692 $ 1,492,524
Accounts payable 1,738,699 1,476,507
Customer advances 3,045,342 4,109,152
Income taxes payable (Note 8) 189,549 429,609
Other current liabilities 563,196 561,143
----------- -----------
Total current liabilities 6,267,478 8,068,935
----------- -----------
Long-term debt, net of current maturities (Note 6) 3,900,535 3,152,091
----------- -----------
Deferred income taxes (Note 8) 960,419 1,128,807
----------- -----------
Commitments and contingencies (Note 9)
Stockholders' equity (Notes 3 and 7):
Preferred stock, $1 par;
500,000 shares authorized; none issued
Common stock, $0.01 par; - -
6,000,000 shares authorized; issued and
outstanding 3,546,648 in 1995 and
3,663,460 in 1994 35,467 36,635
Capital in excess of par 1,388,461 1,509,471
Retained earnings 4,548,827 2,978,287
Less:
Note receivable from stockholder (407,981) (411,663)
Treasury stock - 136,812 shares, at cost - (128,178)
----------- -----------
Total stockholders' equity 5,564,774 3,984,552
----------- -----------
$16,693,206 $16,334,385
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED OCTOBER 1, 1995, OCTOBER 2, 1994 AND OCTOBER 3, 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
Net sales $24,518,878 $22,235,890 $22,488,184
Cost of sales 17,545,145 16,174,871 16,629,634
----------- ----------- -----------
Gross profit 6,973,733 6,061,019 5,858,550
----------- ----------- -----------
Operating expenses:
Selling, general and administrative 3,979,945 3,459,836 3,535,944
Provision for losses on accounts
receivable 20,000 58,233 66,107
Write-off of stockholder's note
receivable (Notes 3 and 7) - - 288,199
Other - ( 67,083) -
----------- ----------- -----------
3,999,945 3,450,986 3,890,250
----------- ----------- -----------
Income from operations 2,973,788 2,610,033 1,968,300
Other expense:
Interest cost 398,665 436,120 638,942
----------- ----------- -----------
Income before income taxes and cumulative
effect of accounting change 2,575,123 2,173,913 1,329,358
Income taxes (Note 8) 1,004,583 749,706 554,426
----------- ----------- -----------
Income before cumulative effect
of accounting change 1,570,540 1,424,207 774,932
Cumulative effect of accounting
change (Note 8) - 260,686 -
----------- ----------- -----------
Net income $ 1,570,540 $ 1,163,521 $ 774,932
=========== =========== ===========
Earnings per common share:
Primary
Income before cumulative effect of
accounting change $ .43 $ .39 $ .23
Cumulative effect of accounting change - (.07) -
---------- ---------- ----------
Net primary $ .43 $ .32 $ .23
========== ========== ==========
Fully diluted
Income before cumulative effect of
accounting change $ .43 $ .39 $ .22
Cumulative effect of accounting change - (.07) -
---------- ---------- ----------
Net fully diluted $ .43 $ .32 $ .22
========== ========== ==========
Weighted average number of shares:
Primary 3,644,187 3,613,651 3,302,352
========== ========== ==========
Fully diluted 3,652,069 3,614,249 3,479,047
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 1, 1995, OCTOBER 2, 1994 AND OCTOBER 3, 1993
<TABLE>
<CAPTION>
Common Stock
--------------------- Capital Stockholders'
Shares in excess Retained notes Treasury
issued Amount of par earnings receivable stock
--------- -------- --------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 4, 1992 3,163,460 $31,635 $1,389,471 $1,039,834 $(645,291) $(128,178)
--------- ------- ---------- ---------- --------- ---------
Decrease in notes from
stockholders (Note 7) 235,825
Net income for the year 774,932
--------- ------- ---------- ---------- --------- ---------
Balance, October 3, 1993 3,163,460 31,635 1,389,471 1,814,766 (409,466) (128,178)
Issuance of warrants
from the subordinated
debtholders (Note 7) 500,000 5,000 120,000
Increase in notes from
stockholder (Note 7) (2,197)
Net income for the year 1,163,521
--------- ------- ---------- ---------- --------- ---------
Balance, October 2, 1994 3,663,460 36,635 1,509,471 2,978,287 (411,663) (128,178)
Issuance of stock under
the incentive stock
option plan (Note 7) 20,000 200 5,800
Retirement of
treasury stock (136,812) (1,368) (126,810) 128,178
Decrease in notes from
stockholder (Note 7) 3,682
Net income for the year 1,570,540
--------- ------- ---------- ---------- --------- ---------
Balance, October 1, 1995 3,546,648 $35,467 $1,388,461 $4,548,827 $(407,981) $ -
========= ======= ========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 1, 1995, OCTOBER 2, 1994 AND OCTOBER 3, 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $24,020,668 $24,189,043 $23,043,930
Cash paid to suppliers and
employees (21,581,397) (18,971,641) (19,299,049)
Interest received 184,411 66,865 4,252
Interest paid (526,901) (583,979) (765,131)
Income taxes paid (1,410,924) (435,961) (255,180)
----------- ----------- -----------
Net cash provided by
operating activities 685,857 4,264,327 2,728,822
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of equipment 1,552 1,030 -
Purchase of plant and equipment (1,295,985) (672,524) (200,863)
Repayment of stockholder loans 3,682 2,644 11,955
----------- ----------- -----------
Net cash used in investing
activities (1,290,751) (668,850) (188,908)
----------- ----------- -----------
Cash flows from financing activities:
Issuance of common shares 200 5,000 -
Paid-in surplus on issuance of
common shares of capital stock 5,800 120,000 -
Net repayments under revolving
credit facility - - (537,105)
Proceeds from long-term debt 4,106,038 1,070,952 123,591
Repayment of long-term debt (4,100,249) (2,039,173) (1,179,485)
Principal payments under capital
lease obligations (19,177) (59,956) (118,542)
----------- ----------- -----------
Net cash used in financing
activities (7,388) (903,177) (1,711,541)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents (612,282) 2,692,300 828,373
Cash and cash equivalents -
beginning of year 3,522,546 830,246 1,873
----------- ----------- -----------
Cash and cash equivalents -
end of year $ 2,910,264 $ 3,522,546 $ 830,246
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED OCTOBER 1, 1995, OCTOBER 2, 1994 AND OCTOBER 3, 1993
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Net income $ 1,570,540 $1,163,521 $ 774,932
----------- ---------- ----------
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 1,093,962 961,667 994,023
Loss on sale and abandonment
of equipment (19,809) 39,574 7,234
Accrued interest-officers - (4,841) (29,329)
Allowance for doubtful accounts 20,000 58,233 66,107
Write-off of note receivable - (67,083) 288,199
Amortization of finance charges 53,066 23,846 24,013
Amortization of warrants interest - - 7,421
Decrease (increase) in assets:
Accounts receivable 125,611 (186,805) (357,664)
Inventories (831,016) 112,184 580,639
Other current assets ( 65,912) 18,968 (73,087)
Deferred income taxes 2,108 (268,138) -
Other assets ( 54,680) (44,657) (4,528)
Increase (decrease) in
liabilities:
Accounts payable 262,192 4,964 (832,526)
Customer advances (1,063,810) 1,956,926 799,932
Other current liabilities 2,053 (346,602) 184,210
Income taxes payable (240,060) 220,070 58,394
Deferred income taxes (168,388) 622,500 240,852
----------- ---------- ----------
Total adjustments (884,683) 3,100,806 1,953,890
----------- ---------- ----------
Net cash provided by
operating activities $ 685,857 $4,264,327 $2,728,822
=========== ========== ==========
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Retirement of treasury stock $ 128,178 - -
Reduction in common stock $ (1,368) - -
Reduction in paid-in surplus $ (126,810) - -
Sale of fixed asset for a note
receivable $ (21,500) - -
Increase in notes receivable from
stockholders from interest income - $ 2,197 $ 29,329
Increase in subordinated debt from
amortization of warrants - - $ 7,421
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 1, 1995, OCTOBER 2, 1994 AND OCTOBER 3, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Scanforms, Inc. and subsidiary (the "Company") consist of one operating segment,
a full-service direct mail organization. A summary of the significant
accounting policies consistently applied in the preparation of the accompanying
consolidated financial statements follows.
Basis of presentation
The consolidated financial statements include the accounts of Scanforms, Inc.
and its wholly-owned inactive subsidiary which was dissolved as of June 29,
1995. All intercompany balances and transactions have been eliminated.
Fiscal year
The Company's fiscal year ends on the Sunday after the Friday closest to
September 30. The fiscal years 1995, 1994 and 1993 ended October 1, 1995,
October 2, 1994 and October 3, 1993, respectively. The fiscal years 1995, 1994
and 1993 are comprised of 52 weeks.
Cash equivalents
Cash equivalents are short-term, highly liquid investments purchased with
maturities of three months or less.
Concentration of credit risk
The Company provides direct mail advertising materials to customers primarily in
the direct mail marketing industry. Customers are primarily on the East Coast.
The Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral from its customers.
The Company maintains cash balances in financial institutions located in Rhode
Island, Massachusetts and Pennsylvania. These balances are insured by the
Federal Deposit Insurance Corporation up to $100,000. At October 1, 1995, the
uninsured amount held at these financial institutions totalled $3,660,261.
Although these amounts were uninsured at year-end, the Company reinvests the
excess cash on a daily basis to maximize yield and is able to monitor current
trends to minimize investment risk.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
F-8
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 1, 1995, OCTOBER 2, 1994 AND OCTOBER 3, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation and amortization
Depreciation and amortization are provided for in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated service lives,
principally on a straight-line basis. The estimated useful lives of depreciable
assets range from 3 to 50 years. Capitalized leased assets are amortized over
the estimated useful life of the asset. Amortization periods range from 5 to 12
years. Depreciation and amortization expense was $1,093,962, $961,667 and
$994,023 for 1995, 1994 and 1993, respectively.
Income taxes
The Company adopted, effective October 4, 1993, Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," issued in
February 1992. Under the liability method specified by SFAS No. 109, deferred
tax assets and liabilities are determined based on the difference between
financial statement and tax basis of assets and liabilities as measured by the
enacted tax rates which will be in effect when the differences reverse.
Deferred tax expense is the result of changes in deferred tax assets and
liabilities. The principal types of differences between assets and liabilities
for financial statement and tax return purposes are accumulated depreciation,
state net operating loss carryovers, investment tax credits, allowance for
doubtful accounts and capitalization of certain inventory costs.
The deferred method, used in the years prior to 1994, required the Company to
provide for deferred tax expense based on certain items of income and expense
which were reported in different years in the financial statements and the tax
returns as measured by the tax rate in effect for the year the differences
occurred.
The cumulative effect of the change in accounting for income taxes resulted in a
decrease in net earnings for 1994 of $260,686 or $0.07 per share. Years prior
to 1994 were not restated. This decrease primarily occurred because of the
method under Accounting Principles Board Opinion No. 11 of accounting for
investment tax credit carryforwards and tax rates.
Earnings per common share
Primary and fully dilutive earnings per common share are based on the weighted
average number of common shares outstanding, including common stock equivalents
(stock options and warrants).
F-9
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 1, 1995, OCTOBER 2, 1994 AND OCTOBER 3, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred financing costs
Financing costs, included in other assets, incurred in connection with the
refinancing of debt, have been capitalized and are being amortized over the life
of the related debt.
Financial instruments
In December 1991, the Financial Accounting Standards Board issued SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," which requires all
entities to disclose the estimated fair value of their financial instrument
assets and liabilities. The Company will be required to implement this standard
in its 1996 fiscal year.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Raw materials $1,288,936 $464,377
Work-in-process 376,377 369,920
---------- --------
$1,665,313 $834,297
========== ========
</TABLE>
The Company wrote off $175,553, $95,000 and $175,000 for obsolete paper and
carton inventory in 1995, 1994 and 1993, respectively.
3. NOTE RECEIVABLE FROM STOCKHOLDER
The unsecured balance of a note due from Robert A. Samans, Chairman and
President, plus accrued interest as of October 3, 1993 (Note 7) was amended,
effective January 1, 1994, to provide that the principal and accrued interest as
of that date be repaid monthly, commencing on January 31, 1994, in accordance
with a 30-year amortization schedule. Interest is payable at 8% per annum. On
January 1, 1999, any outstanding principal and interest is payable in full.
Interest income on the notes was $32,798, $24,716 and $29,330 in
1995, 1994 and 1993, respectively.
F-10
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 1, 1995, OCTOBER 2, 1994 AND OCTOBER 3, 1993
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land $ 208,837 $ 208,837
Buildings and improvements 5,239,966 5,239,966
Production equipment 13,709,333 12,436,845
Office furniture and equipment 413,900 398,720
Automobiles 21,200 21,200
----------- -----------
19,593,236 18,305,568
Less accumulated depreciation
and amortization 11,824,356 10,737,020
----------- -----------
$ 7,768,880 $ 7,568,548
=========== ===========
</TABLE>
Production equipment includes capitalized leased assets of $0 in 1995 and
$95,460 in 1994 before accumulated amortization of $40,780 in 1994.
5. BANK REVOLVING CREDIT FACILITY
On June 21, 1995, the Company received a revolving line of credit with a new
lending institution in the amount of $2.5 million which is limited to 80% of
eligible accounts receivable less 80% of customer advances plus 50% of raw
material inventories up to $500,000. Borrowings under this line are
collateralized by all accounts receivable, inventories and other personal
property and bear interest at the bank's prime lending rate plus an annual
commitment fee of 1/8% on the unused portion. The agreement with the lender
also provides for mortgage note financing in the amount of $2.5 million with a
principal payment of $13,889 per month plus interest at 1/4% above the bank's
prime lending rate (effective rate was 9 1/4% at October 1, 1995) and a final
payment of the unpaid principal then due, payable at the maturity of the note.
The proceeds of the mortgage note were used to retire the existing mortgage note
of the former lending institution in the amount of $2,375,000 and the remainder
was used for working capital and deferred finance fees. The revolving line of
credit and the mortgage note are due on June 21, 2000 and July 1, 2000,
respectively.
F-11
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 1, 1995, OCTOBER 2, 1994 AND OCTOBER 3,1993
5. BANK REVOLVING CREDIT FACILITY (CONTINUED)
Under the terms of the revolving line of credit and mortgage note agreement with
the bank, the Company is limited on payment of dividends to 50% of the Company's
net income during the year. The Company is also subject to certain covenants
and restrictions related to increased debt, granting liens, tangible net worth,
earnings before interest and taxes, and the ratio of liabilities to tangible net
worth and other items. The agreement prohibits the Company in making capital
expenditures in excess of $500,000 in the aggregate in any one fiscal year which
are not financed with permitted indebtedness.
At October 1, 1995, there were no borrowings against the revolving credit
facility and approximately $1,174,000 of borrowing under the revolving credit
facility of $2,500,000 was available for use by the Company. The line of credit
expires on June 21, 2000.
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Mortgage notes:
Payable in monthly installments of
$13,889 plus interest of 1/4% over
prime effective June 1995 with a
final payment of $1,680,556 due on
July 1, 2000 (effective rate at
year-end 9%) $2,472,222 $ -
Payable in monthly installments of
$23,750 plus interest at 2-1/4%
over prime effective November 1993
with a final payment of $1,448,750
due October 1998 - 2,588,750
Installment notes payable in monthly
installments of:
$6,423 including interest at
10.1% through November 2000 261,158 -
$6,423 including interest at
10.1% through November 2000 265,375 -
$4,075 including interest at
10.1% through December 2000 170,942 -
</TABLE>
F-12
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 1, 1995, OCTOBER 2, 1994 AND OCTOBER 3,1993
6. LONG-TERM DEBT (CONTINUED)
<TABLE>
<S> <C> <C>
$17,790 including interest at
9.4% through April 1998 488,271 -
$5,156 including interest at
7.8% through September 2000 255,301 -
$3,530 including interest at
9.0% through April 1999 130,910 160,053
$5,232 including interest at
9.9% through July 1999 199,635 240,485
$7,138 including interest at
10.0% through July 1999 280,986 335,968
$17,675 including interest at
14.195% through June 1995
with final payment of $375,000 17,675 489,254
$9,255 including interest at
14.26% through September 1995 9,255 104,073
$353 including interest at 9.75%
through May 1998 9,937 13,048
$2,215 including interest at
8.95% through August 1998 69,560 89,098
$9,290 including interest at
13.38% through May 1995 - 71,446
$2,810 including interest at
12.5% through November 1994 - 8,263
$29,762 plus interest at 1%
over prime - 525,000
---------- ----------
4,631,227 4,625,438
---------- ----------
Capitalized lease obligations
Payable in monthly installments of
$1,520 including interest at
12.75% through July 1995 - 15,200
Other - 5,800
---------- ----------
- 21,000
Less amounts representing interest - 1,823
---------- ----------
Present value of capitalized lease
obligations - 19,177
---------- ----------
4,631,227 4,644,615
Less current maturities 730,692 1,492,524
---------- ----------
Long-term debt $3,900,535 $3,152,091
========== ==========
</TABLE>
F-13
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 1, 1995, OCTOBER 2, 1994 AND OCTOBER 3, 1993
6. LONG-TERM DEBT (CONTINUED)
Long-term debt, excluding capitalized lease obligations and the bank revolving
credit facility, matures as follows:
1996 $ 730,692
1997 739,651
1998 704,381
1999 554,058
2000 1,902,445
----------
$4,631,227
==========
Long-term debt is collateralized by substantially all assets of the Company.
The Company is subject to certain covenants and restric-tions relating to
working capital, minimum capital base and certain other matters with its lender
(Note 5).
7. STOCKHOLDERS' EQUITY
Warrants
On October 8, 1993, the warrants to purchase the 500,000 shares were exercised
at $.25 per share. The exercise amount of $125,000 was satisfied by reduction
in the amount due on the subordinated notes.
Stock Options
In December 1992, the Company authorized a 1992 Stock Option Plan. The plan
authorizes the granting of both incentive stock options and non-qualified stock
options to employees, consultants and advisors of the Company to purchase up to
a total of 300,000 shares of the Company's common stock. The exercise price of
incentive stock options may not be less than 100% of the fair market value on
the date of the grant. Non-qualified options may be granted at less than the
fair market value of the Company's common stock. For those individuals who own
more than 10% of the total combined voting power of all classes of stock of the
Company, options must be granted at an exercise price per share of not less than
110% of the fair market value of a share of the Company's common stock on the
date of the grant and expire in five years. All options outstanding under the
plan are currently exercisable. The plan will terminate on December 22, 2002.
F-14
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 1, 1995, OCTOBER 2, 1994 AND OCTOBER 3, 1993
7. STOCKHOLDERS' EQUITY (CONTINUED)
Stock option transactions for the years ended October 1, 1995, October 2, 1994
and October 3, 1993 are summarized below:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Outstanding-beginning of year 225,000 115,000 36,000
Granted - 120,000 105,000
Exercised (20,000) - -
Canceled - (10,000) (26,000)
--------- --------- ---------
Outstanding-end of year 205,000 225,000 115,000
========= ========= =========
Exercise price $.30-1.69 $.30-1.69 $.30-2.50
========= ========= =========
</TABLE>
Activity in notes receivable from stockholders for the fiscal years ended 1995,
1994 and 1993 is as follows:
<TABLE>
<CAPTION>
Robert J. Roy Sebastian
Total Samans Morris Carcioppolo
---------- -------- -------- -----------
<S> <C> <C> <C> <C>
Balance, October 4, 1992 $ 645,291 $390,460 $ 243,349 $ 11,482
Accrued interest 29,330 19,006 9,850 474
Return of payment due to
cancellation of contract 35,000 - 35,000 -
Write-off to bad debts (288,199) - (288,199) -
Payments by stockholder (11,956) - - (11,956)
--------- -------- --------- ---------
Balance, October 3, 1993 409,466 409,466 - -
Accrued interest 29,556 29,556 - -
Payments by stockholder (27,359) (27,359) - -
--------- -------- --------- ---------
Balance, October 2, 1994 411,663 411,663 - -
Accrued interest 32,798 32,798 - -
Payments by stockholder (36,480) (36,480) - -
--------- --------- --------- ---------
Balance, October 1, 1995 $ 407,981 $ 407,981 $ - $ -
========= ========= ========= =========
</TABLE>
F-15
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 1, 1995, OCTOBER 2, 1994 AND OCTOBER 3, 1993
7. STOCKHOLDERS' EQUITY (CONTINUED)
During 1993, a note due from the former Chairman of the Board was deemed
uncollectible. The Company was applying amounts due to the former Chairman under
a consulting agreement (which provided for payments of $35,000 annually through
October 1992) towards payment of the note; however, a bank that held a personal
note of the former Chairman obtained a court order, garnishing the consulting
fees. In March 1994, the court order was reversed and the bank's appeal was
denied. Accordingly, the Company reversed the 1993 accrual of the $67,083 that
remained payable under the consulting agreement.
8. INCOME TAXES
Effective October 4, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method (Note 1). The
income tax provision for 1993 has not been restated. The Company's pretax income
for fiscal years 1995, 1994 and 1993 was $2,575,123, $2,173,913 and $1,329,358,
respectively. The components of income tax expense were as follows:
<TABLE>
<CAPTION>
Liability Liability Deferred
Method Method Method
----------- ---------- ----------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ 903,964 $ 424,939 $168,925
State 266,899 231,092 144,649
---------- --------- --------
Total current 1,170,863 656,031 313,574
---------- --------- --------
Deferred:
Federal (97,914) 212,135 248,943
State (68,366) (118,460) ( 8,091)
---------- --------- --------
Total deferred (166,280) 93,675 240,852
---------- --------- --------
Total $1,004,583 $ 749,706 $554,426
========== ========= ========
</TABLE>
The difference between the Company's effective tax rate and the U.S. federal
statutory tax rates for fiscal years 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ -----
<S> <C> <C> <C>
Statutory federal income
tax rate 34.0% 34.0% 34.0%
State income tax, net of
federal income tax effect 5.1 3.4 10.3
Other (.1) (3.0) (2.6)
----- ----- ----
Effective tax rate 39.0% 34.4% 41.7%
===== ===== ====
</TABLE>
F-16
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 1, 1995, OCTOBER 2, 1994 AND OCTOBER 3, 1993
8. INCOME TAXES (CONTINUED)
Pennsylvania Act 48 of 1994 was signed into law on June 16, 1994, effective on
July 1, 1994. Pursuant to Pennsylvania Act 48 of 1994, for taxable years
beginning in 1995 and thereafter, a net operating loss deduction of up to
$500,000 is allowable for each taxable year. Losses from previous taxable years
can be carried forward and utilized, earliest year first, beginning with 1988
under a predetermined schedule. The amount of deferred state income tax credit
as a result of the provisions of the act is $91,099.
The components of deferred income tax expense for 1993 includes:
<TABLE>
<CAPTION>
1993
--------
<S> <C>
Net operating loss carryover $345,217
Depreciation (99,064)
Alternative minimum tax credit -
Allowance for doubtful accounts not
deductible until written off (22,440)
Investment tax credit 19,598
Capitalized inventory costs (2,124)
Miscellaneous (334)
--------
Total $240,852
========
</TABLE>
Deferred tax assets and liability at October 1, 1995 and October 2, 1994 consist
of the following:
<TABLE>
<CAPTION>
1995 1994
-------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts not
deductible until written off $172,364 $ 171,288
State of Pennsylvania net operating
loss benefit 91,099 93,849
Capitalized inventory costs 2,567 3,001
-------- ----------
Total deferred tax assets $266,030 $ 268,138
======== ==========
Deferred tax liability:
Depreciation $960,419 $1,128,807
======== ==========
</TABLE>
The net deferred tax liability in the balance sheets at October 1, 1995 and
October 2, 1994 includes the following:
<TABLE>
<CAPTION>
1995 1994
-------- ----------
<S> <C> <C>
Deferred tax liability $960,419 $1,128,807
Deferred tax asset 266,030 268,138
-------- ----------
Net deferred tax liability $694,389 $ 860,669
======== ==========
</TABLE>
F-17
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 1, 1995, OCTOBER 2, 1994 AND OCTOBER 3, 1993
9. COMMITMENTS AND CONTINGENCIES
The Company leases automotive, data processing and office equipment under
operating leases.
Total minimum rentals under noncancellable operating leases as of October 1,
1995 are as follows:
1996 $233,803
1997 181,181
1998 124,467
--------
Total $539,451
========
Rent expense incurred under these lease agreements was $299,997, $140,581 and
$134,412 in 1995, 1994 and 1993, respectively.
In May 1993, the Company received a notice from the U.S. Environmental
Protection Agency ("EPA") that it had been named as a potentially responsible
party ("PRP") under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA" or "Superfund") relative to the Frontier Chemicals
Superfund Site in Niagara Falls, New York (the "Site"). The Company joined
groups of PRPs that entered into a Consent Order with the EPA addressing drums
located at the Site (the "Drum Activities") and an Administrative Order on
Consent addressing tanks located at the Site (the "Tank Activities"). As a
result of its participation in these Orders, the Company has no further
obligations with respect to the Drum and Tank Activities, except as noted below.
In October 1994, the Company received a letter from the Drum Activities PRP
group stating that the remediation consultant initially retained for those
activities and subsequently terminated had filed a civil action in the New York
State Supreme Court, Monroe County, for breach of contract against the PRP group
and for defamation against certain individuals who may have the right to be
indemnified by the PRP group relative to those claims. The total damages sought
in the action, excluding punitive damages, which are requested but for which no
dollar amounts are specified are approximately $2.8 million, of which
approximately $240,000 relate to the breach of contract claim. For the initial
phase of this litigation, the Company, as part of the PRP group, paid an
assessment of $200.
F-18
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 1, 1995, OCTOBER 2, 1994 AND OCTOBER 3, 1993
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Management has been advised by counsel to the PRP group that five of the six
counts of the complaint have been dismissed, leaving only the breach of contract
claim, and that the plaintiff did not respond to a counterclaim made by the PRP
group, so is in default regarding that claim. To date, the plaintiff has not
prosecuted the claim and it has been removed from the trial calendar.
10. EMPLOYEE BENEFIT PLAN
The Company has a qualified profit-sharing plan with a 401(k) feature covering
substantially all of its full-time employees. Company contributions for the
profit-sharing portion are discretionary and are determined by the Company's
Board of Directors.
Eligible employees may contribute up to 15% of their compensation and the
Company matches the lesser of $500 or 25% of those voluntary contributions.
Total expense under this plan was $79,390 in 1995, $77,945 in 1994 and $70,437
in 1993.
11. MAJOR CUSTOMERS
In 1995, one customer accounted for 22.8% of the Company's sales.
Two customers accounted for 11.5% and 10.4% of the Company's sales in 1994 and
no customer accounted for 10% of sales during 1993.
F-19
<PAGE>
SCANFORMS, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
===========================================================================================
Column A Column B Column C Column D Column E Column F
- -------------------------------------------------------------------------------------------
Additions
----------------------
Balance at Charged to Balance
beginning costs and Charged to at end of
Description of period expenses other accounts Deductions of period
- ----------- ---------- ---------- -------------- ---------- ---------
(a)
<S> <C> <C> <C> <C> <C>
Year ended October 1, 1995:
Allowance for doubtful
accounts $ 390,000 $ 20,000 $ - $ 410,000
=========== ========= ========== =========
Year ended October 2, 1994:
Allowance for doubtful
accounts $ 458,000 $ (8,850) $ 59,150 $ 390,000
=========== ========= ========= =========
Year ended October 3, 1993:
Allowance for doubtful
accounts $ 392,000 $ 66,107 $ 107 $ 458,000
=========== ========= ========= =========
</TABLE>
(a) Write-offs of accounts receivable, net of recoveries.
F-20
<PAGE>
Exhibit Index
Exhibit
Number Description of Exhibits.
- -------- -----------------------
3.1 Restated Certificate of Incorporation of the Company (Incorporated
by reference to Exhibit 3(a) to the Company's Form 10-K for the
fiscal year ended October 2, 1994)
3.2 By-laws of the Company, as amended (Incorporated by reference to
Exhibit 3(b) to the Company's Form 10-K for the fiscal year ended
September 29, 1991)
10.1 Loan Agreement dated as of June 21, 1995, by and between the Company
and Mellon Bank, N.A. (Incorporated by reference to Exhibit 10.1 to
the Company's Form 10-Q for the fiscal quarter ended July 2, 1995)
10.2 Note Agreement dated as of January 1, 1994, issued by Robert A.
Samans to the Company (Incorporated by reference to Exhibit 10(e) to
the Company's Form 10-K for the fiscal year ended October 2, 1994)
10.3 Scanforms, Inc. Profit Sharing 401-K Plan (Incorporated by reference
to Exhibit 10(g) to the Company's Form 10-K for the fiscal year
ended October 2, 1994)
10.4 Scanforms, Inc. 1992 Stock Option Plan, as amended (Incorporated by
reference to Exhibit 4 to the Company's Registration Statement on
Form S-8 (File No. 33-81720), filed with the Commission on July 19,
1994
11 Computation of Earnings Per Common Share
23.1 Consent of Grant Thornton LLP
27 Financial Data Schedule
<PAGE>
EXHIBIT 11
SCANFORMS, INC. AND SUBSIDIARY
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Fiscal Year Ended
October 1, October 2, October 3,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Primary Earnings Per Share
Net Earnings $1,570,540 $1,163,521 $ 774,932
========== ========== ==========
Weighted average number of common
shares outstanding during year 3,546,648 3,526,648 3,026,648
Add common equivalent shares (as
determined by the application of
the treasury stock method)
representing shares issuable upon
assumed exercise of stock options 97,539 87,001 275,704
---------- ---------- ----------
Weighted average number of common
shares used in calculation of
primary earnings per share 3,644,187 3,613,649 3,302,352
========== ========== ==========
Earnings per common share assuming
no dilution $ .43 $ .32 $ .23
========== ========== ==========
Fully Diluted Earnings Per Share
Net Earnings $1,570,540 $1,163,521 $ 774,932
========== ========== ==========
Weighted average number of common
shares outstanding during year 3,546,648 3,526,648 3,026,648
Add common equivalent shares (as
determined by the application of
the treasury stock method)
representing shares issuable upon
assumed exercise of stock options 105,421 87,598 452,399
---------- ---------- ----------
Weighted average number of common
shares used in calculation of
primary earnings per share 3,652,069 3,614,246 3,479,047
========== ========== ==========
</TABLE>
Earnings per common share assuming
dilution $ .43 $ .32 $ .22
========== ========== ==========
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated November 24, 1995 accompanying the
consolidated financial statements included in the Annual Report of Scanforms,
Inc. and subsidiary on Form 10-K for the year ended October 1, 1995. We hereby
consent to the incorporation by reference of said report in the Registration
Statement of Scanforms, Inc. and subsidiary on Form S-8 (File No. 33-81720,
effective July 19, 1994).
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-6004
------
Scanforms, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-1704876
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
181 Rittenhouse Circle
Keystone Park, Bristol, Pa. 19007
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(215) 785-0101
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __ X__ No _____
At May 13, 1996, 3,546,648 shares of common stock, $0.01 par value, were
outstanding.
Page 1 of 13
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
SCANFORMS, INC.
BALANCE SHEET
ASSETS MARCH 31, OCTOBER 1,
1996 1995
------------ -----------
(Unaudited)
Current assets:
Cash and cash equivalents $10,826,504 $ 2,910,264
Note receivable - current portion 7,024 7,747
Accounts receivable, net of allowance for
doubtful accounts of $432,602 - March 31,
1996 and $410,000 - October 1, 1995 4,658,398 3,673,623
Inventories (Note 2) 1,216,590 1,665,313
Other current assets 532,341 316,012
Deferred income taxes 232,874 266,030
----------- -----------
Total current assets 17,473,731 8,838,989
----------- -----------
Property, plant and equipment - at cost, net of
accumulated depreciation of $12,436,054
March 31, 1996 and $11,824,356 - October 1,
1995 8,106,219 7,768,880
----------- -----------
Other assets:
Note receivable - long-term portion 9,138 12,201
Other 195,390 73,136
----------- -----------
Total other assets 251,528 85,337
----------- -----------
$25,784,478 $16,693,206
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 839,959 $ 730,692
Accounts payable 1,791,900 1,738,699
Customer advances 9,706,128 3,045,342
Income taxes payable 254,393 189,549
Other current liabilities 915,866 563,196
----------- -----------
Total current liabilities 13,508,246 6,267,478
----------- -----------
Long-term debt, net of current maturities 4,278,802 3,900,535
----------- -----------
Deferred income taxes 849,821 960,419
----------- -----------
Stockholders' equity:
Preferred stock, $1 par;
500,000 shares authorized; none issued
Common stock, $0.01 par; - -
6,000,000 shares authorized; issued and
outstanding 3,546,648 35,467 35,467
Capital in excess of par 1,388,462 1,388,462
Retained earnings 6,129,697 4,548,826
Less: Note receivable from stockholder (406,017) (407,981)
----------- -----------
Total stockholders' equity 7,147,609 5,564,774
----------- -----------
$25,784,478 $16,693,206
=========== ===========
See accompanying notes to financial statements.
Page 2 of 13
<PAGE>
Unaudited
---------
SCANFORMS, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
Twenty Six Weeks Ended Thirteen Weeks Ended
March 31 April 2 March 31 April 2
1996 1995 1996 1995
----------- ----------- ---------- ----------
Net sales $16,076,498 $13,498,055 $7,510,368 $6,039,953
Cost of sales 10,818,084 9,670,393 5,077,166 4,550,361
----------- ----------- ---------- ----------
Gross profit on sales 5,258,414 3,827,662 2,433,202 1,489,592
Operating expense 2,347,501 2,058,927 1,154,523 972,559
----------- ----------- ---------- ----------
Income from operations 2,910,913 1,768,735 1,278,679 517,033
Other expenses:
Merger and acquisition
costs 277,000 - 277,000 -
Interest cost 6,913 198,329 176 110,963
----------- ----------- ---------- ----------
Income before income taxes 2,627,000 1,570,406 1,001,503 406,070
Income taxes 1,046,129 640,197 400,366 163,999
----------- ----------- ---------- ----------
Net income 1,580,871 930,209 601,137 242,071
Retained earnings-beginning 4,548,826 2,978,287 5,528,560 3,666,427
----------- ----------- ---------- ----------
Retained earnings-ending $ 6,129,697 $ 3,908,496 $6,129,697 $3,908,496
=========== =========== ========== ==========
Weighted average number of
common shares fully diluted 3,688,280 3,632,845 3,688,280 3,632,845
=========== ========== ========== ==========
Net earnings per common
share fully diluted $ 0.43 $ 0.25 $ 0.16 $ 0.07
=========== ========== ========== ==========
See accompanying notes to financial statements.
Page 3 of 13
<PAGE>
Unaudited
---------
SCANFORMS, INC.
STATEMENT OF CASH FLOWS
Thirteen Weeks Ended
March 31 April 2
1996 1995
-------- -------
Cash flows from operating activities:
Cash received from customers $21,828,351 $11,815,230
Cash paid to suppliers and employees (12,377,200) (11,728,383)
Interest received 213,997 84,960
Interest paid (215,119) (284,252)
Income taxes paid (1,058,725) (869,111)
----------- -----------
Net cash (used in) operating
activities 8,391,304 (981,556)
----------- -----------
Cash flows from investing activities:
Purchases of plant and equipment (158,517) (814,612)
Additional CSV on life insurance (1,811) -
Payment of vendor note receivable 3,786 -
Payment of note from stockholder 1,964 1,841
----------- -----------
Net cash (used in) investing
activities (154,578) (812,612)
----------- -----------
Cash flows from financing activities:
Issuance of common shares of
capital stock - 100
Paid in surplus on issuance of
common shares of capital stock - 2,900
Proceeds from long-term debt 35,537 1,350,737
Repayment of long-term debt (347,846) (965,934)
Principle payments under capital
lease obligations (8,177) (11,556)
----------- -----------
Net cash from (used in) financing
activities (320,486) 376,247
----------- -----------
Net increase(decrease) in cash 7,916,240 (1,418,080)
Cash:
Beginning 2,910,264 3,522,546
----------- -----------
Ending $10,826,504 $ 2,104,466
=========== ===========
See accompanying notes to financial statements.
Page 4 of 13
<PAGE>
Unaudited
---------
SCANFORMS, INC.
STATEMENT OF CASH FLOWS
RECONCILIATION OF NET INCOME TO NET CASH FLOWS FROM
OPERATING ACTIVITIES
Twenty Six Weeks Ended
March 31 April 2
1996 1995
-------- -------
Net Income $ 1,580,871 $ 930,210
Adjustments to reconcile net income
to net cash (used in) operating
activities:
Depreciation and amortization 629,198 531,392
Deferred finance charges 4,399 11,894
Increase in allowance for doubtful
accounts 30,004 30,004
Decrease(Increase) in assets:
Accounts receivable (1,014,779) 82,034
Inventories 448,723 (371,313)
Other current assets (216,329) (253,300)
Deferred income taxes 33,156 (666)
Other assets (124,842) (227,896)
Increase(decrease) in liabilities:
Accounts payable 53,201 307,779
Customer advances 6,660,786 (1,878,183)
Other current liabilities 352,670 84,738
Income taxes payable 64,844 (147,255)
Deferred income taxes (110,598) (80,994)
----------- -----------
Net cash (used in) operating activities $ 8,391,304 $ (981,556)
=========== ===========
SCHEDULE OF NONCASH INVESTING AND FINANCIAL ACTIVITIES
Property acquired under capital leases $ 808,020 $ -
See accompanying notes to financial statements.
Page 5 of 13
<PAGE>
Unaudited
---------
SCANFORMS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Basis of Presentation:
Accounting Period:
The registrant employs a fifty-two, fifty-three week year for financial
accounting purposes. Accordingly, these quarterly financial statements are for
the twenty six week and thirteen week periods ended March 31, 1996 and April 2,
1995. The fiscal year ending September 29, 1996 will consist of fifty-two weeks.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of the
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the twenty six weeks and thirteen weeks
ended March 31, 1996 are not necessarily indicative of the results that may be
expected for the fiscal year ending September 29, 1996. For further information,
refer to the financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended October 1, 1995.
Note 2 - Inventories:
Inventories consisted of the following:
March 31 October 1
1996 1995
---------- ----------
Raw materials $ 956,082 $1,288,936
Work in process 260,508 376,377
---------- ----------
$1,216,590 $1,665,313
========== ==========
Note 3 - Subsequent events:
The Board of Directors of the Company has entered into an Agreement and
Plan of Merger, dated as of February 15, 1996, as amended as of April 4, 1996
(the "Merger Agreement"), between the Company and SCFM Corp. ("SCFM"), a
Delaware corporation which is wholly owned by the President and Chairman of the
Board of Directors of the Company and a director of the Company (together, the
"Management Group"). Pursuant to the Merger Agreement, SCFM will merge with and
into the Company (the "Merger"), with the Company being the surviving
Page 6 of 13
<PAGE>
Unaudited
---------
SCANFORMS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 3 - Subsequent events (continued):
corporation. Each outstanding share of the common stock, par value $.01 per
share, of the Company (the "Shares"), including an aggregate of approximately
277,778 Shares held by the Management Group, will be converted into the right to
receive $3.60 in cash, without interest. Each of the shares of common stock of
SCFM outstanding immediately prior to the effective time of the Merger will be
converted into one share of common stock of the surviving corporation. As a
result of the Merger, stockholders of the Company who are not members of the
Management Group will no longer have any equity interest in the Company and the
Company will be privately held by the members of the Management Group. The
Merger is conditioned upon, among other things, the approval and adoption of the
Merger Agreement by the holders of at least a majority of the Shares.
On March 22, 1996, the Chairman of the Board of Directors and Chief
Executive Officer of American Banknote Corporation ("ABN") sent a letter to the
Company's President advising him that ABN was filing a Schedule 13D with the
Securities and Exchange Commission (the "Commission") announcing that it had
acquired approximately 5.32% of the outstanding Shares and describing ABN's
potential interest in the Company, including the possibility of ABN making a
proposal relating to a merger transaction between ABN and the Company. The
letter further stated that based upon ABN's preliminary valuation of the
Company, stockholders of the Company would receive greater value in a
transaction with ABN than they would pursuant to the Merger. On April 8, 1996,
the Company and ABN entered into a confidentiality agreement. Certain of the
Company's proprietary information has been delivered to ABN under the terms of
that Agreement. The Company has had subsequent discussions with ABN in which ABN
has indicated that its interest in merging with or acquiring the Company is
conditioned upon ABN's ability to reach agreement with the Company's President
regarding his continued employment and other matters. The Company's President
has advised the Company that he has not entered into any agreement with ABN and
intends to proceed with the transactions contemplated by the Merger Agreement.
Page 7 of 13
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: TWENTY SIX WEEKS ENDED MARCH 31, 1996 VS. TWENTY SIX
WEEKS ENDED APRIL 2, 1995
The Company's net sales increased from $13,498,055 during the twenty
six weeks ended April 2, 1995 to $16,076,498 during the twenty six weeks ended
March 31, 1996, a 19.1% increase, principally reflecting an increase in customer
demand. Gross profit increased by 37.4% from $3,827,662 to $5,258,414 in the
period. The increase in gross profit was primarily the result of the higher
sales volume and the resultant increase in production efficiency.
Operating expense was $2,347,501 and $2,058,927 for the first twenty
six weeks of fiscal 1996 and fiscal 1995, respectively. The increase of 14.0%
was due to various factors, including increased sales compensation on higher
sales volumes, other compensation expense, the payment of performance bonuses,
consulting fees and the preparation of the annual report, which factors were
offset by more delivery service charges being passed on to customers.
Merger and acquisition costs for the twenty six weeks ended March 31,
1996 are fees incurred by the Company in connection with the evaluation,
registration and preparation of proposals presented to the Company relating to
a sale or merger and costs incurred by the Management Group in connection with
the Merger which costs the Company has agreed to pay pursuant to the Merger
Agreement. These fees are primarily for evaluation and a fairness opinion by
the Company's financial advisor, together with legal and accounting fees.
Interest cost decreased from $198,329 to $6,913 during the first twenty
six weeks of fiscal 1996 as compared to the same period in fiscal 1995. The
decrease was due primarily to the reduction of interest rates under the loan
agreements with the new lending institution which were entered into in July of
1995, and the additional interest income earned as a result of higher cash
balances.
RESULTS OF OPERATIONS: THIRTEEN WEEKS ENDED MARCH 31, 1996 VS. THIRTEEN WEEKS
ENDED APRIL 2, 1995
The Company's net sales increased from $6,039,953 during the thirteen
weeks ended April 2, 1995 to $7,510,368 during the thirteen weeks ended March
31, 1996, a 24.3% increase, principally reflecting an increase in orders by a
major customer. Gross profit increased by 63.3% from $1,489,592 to $2,433,202.
The increase in gross profit was primarily the result of the higher sales
volume, and the resultant increase in production efficiency and utilization of
plant facilities.
Page 8 of 13
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (continued)
RESULTS OF OPERATIONS: THIRTEEN WEEKS ENDED MARCH 31, 1996 VS.
THIRTEEN WEEKS ENDED APRIL 2, 1995 (continued)
Operating expense was $1,154,523 and $972,559 for the second thirteen
weeks of fiscal 1996 and fiscal 1995, respectively. The increase of 18.7% was
due to increased sales compensation on the higher sales volume, advertising and
trade shows and performance bonus compensation expense, offset by the passing of
more delivery service charges on to customers.
Merger and acquisition costs for the thirteen weeks ended March 31,
1996 are fees incurred by the Company in connection with the evaluation,
registration and preparation of proposals presented to the Company relating to
a sale or merger and costs incurred by the Management Group in connection with
the Merger which costs the Company has agreed to pay pursuant to the Merger
Agreement. These fees are primarily for evaluation and a fairness opinion by
the Company's financial advisor, together with legal and accounting fees.
Interest cost decreased from $110,963 to $176 during the second
thirteen weeks of fiscal 1996 as compared to the same period in fiscal 1995. The
decrease was due primarily to the reduction of interest rates under the loan
agreements with the new lending institution which were entered into in July of
1995, and the additional interest income earned as a result of higher cash
balances.
GENERAL:
Competition in the direct mail industry continues to be strong, and
overall pricing remains somewhat depressed in selected segments of the business.
The Company, because of its investment in upgrading its press quality
performance and with the acquisition of additional personalization equipment, is
in a good position to compete.
On February 15, 1996, the Company entered into the Merger Agreement
with SCFM, a company which is wholly owned by the members of the Management
Group. The Merger Agreement provides, among other things, that the public
stockholders of the Company would receive a cash payment of $3.60 per Share in
exchange for their Shares. As a result of the Merger, the Company will be
privately held by the Management Group. The Merger is conditioned upon, among
other things, approval and adoption of the Merger Agreement by the holders of a
majority of the Shares. See Item 5 of this report and Note 3 of the financial
statements.
Page 9 of 13
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (continued)
LIQUIDITY AND CAPITAL RESOURCES:
The Company's working capital increased to $4,072,026 as of March 31,
1996, an increase of $1,500,515 or 58.4% from $2,571,511 on October 1, 1995. The
increase was the result of an increase in net income for the twenty six week
period.
Certain other significant balance sheet changes during the twenty six
weeks ended March 31, 1996 included an increase in customer advances of
$6,660,786 which will be used in the future for the purchase of postage as the
customers' mailings are delivered to the post office and for the payment of
invoices as the services are billed. An increase in accounts receivable of
$1,014,780 was due to higher billings in the second quarter of 1996, reflected
in the increased sales and decrease of $448,723 in inventories.
The Company has entered into lease agreements for computer and printing
equipment in the amount of $808,020 to be used in the personalization of the
direct mail. These leases are for five years with a fair market value purchase
price at the end of the leases. The leases will be treated as capitalized leases
and amortized over the estimated useful lives of the equipment of 5 years.
Equipment in the amount of $170,265 of which $84,460 is included in the
equipment purchases has been financed for 5 years by a term note of $169,665.
Upon delivery of the final piece of equipment in the amount of $85,805 in May of
1996, the Company will receive $81,647 in cash for reimbursement of the deposits
that were paid for the equipment purchases.
The Company is in the process of expanding the shop area for its
computer production. The anticipated cost will be $120,000 which will be paid
from working capital.
During the first twenty six weeks of 1996, the Company did not utilize
its working capital line of credit with its principal lending bank. The Company
believes that the cash flow generated from operations and the amount available
under its working capital line of credit (as of March 31, 1996, the availability
was zero due to extraordinary high customer deposits) will enable the Company to
meet its currently anticipated operating requirements during the fiscal year
1996.
Page 10 of 13
<PAGE>
PART II OTHER INFORMATION
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on February 27,
1996. At the meeting, the Stockholders voted on the following matter:
Election of Directors - The stockholders cast 2,690,581 votes for, and
withheld authority to cast 47,034 votes for, the election of Sebastian A.
Carcioppollo. The stockholders cast 2,690,581 votes for, and withheld
authority to cast 47,034 votes for, the election of Joel R. Jacks. The
stockholders cast 2,691,281 votes for, and withheld authority to cast 46,334
votes for, the election of Robert A. Samans.
Item 5: OTHER INFORMATION
The Board of Directors of the Company has entered into an Agreement and
Plan of Merger, dated as of February 15, 1996, as amended as of April 4, 1996
(the "Merger Agreement"), between the Company and SCFM Corp. ("SCFM"), a
Delaware corporation which is wholly owned by the President and Chairman of the
Board of Directors of the Company and a director of the Company (together, the
"Management Group"). Pursuant to the Merger Agreement, SCFM will merge with and
into the Company (the "Merger"), with the Company being the surviving
corporation. Each outstanding share of the common stock, par value $.01 per
share, of the Company (the "Shares"), including an aggregate of approximately
277,778 Shares held by the Management Group, will be converted into the right to
receive $3.60 in cash, without interest. Each of the shares of common stock of
SCFM outstanding immediately prior to the effective time of the Merger will be
converted into one share of common stock of the surviving corporation. As a
result of the Merger, stockholders of the Company who are not members of the
Management Group will no longer have any equity interest in the Company and the
Company will be privately held by the members of the Management Group. The
Merger is conditioned upon, among other things, the approval and adoption of the
Merger Agreement by the holders of at least a majority of the Shares.
On March 22, 1996, the Chairman of the Board of Directors and Chief
Executive Officer of American Banknote Corporation ("ABN") sent a letter to the
Company's President advising him that ABN was filing a Schedule 13D with the
Securities and Exchange Commission (the "Commission") announcing that it had
acquired approximately 5.32% of the outstanding Shares and describing ABN's
Page 11 of 13
<PAGE>
PART II OTHER INFORMATION (continued):
Item 5: OTHER INFORMATION (continued)
potential interest in the Company, including the possibility of ABN making a
proposal relating to a merger transaction between ABN and the Company. The
letter further stated that based upon ABN's preliminary valuation of the
Company, stockholders of the Company would receive greater value in a
transaction with ABN than they would pursuant to the Merger. On April 8, 1996,
the Company and ABN entered into a confidentiality agreement. Certain of the
Company's proprietary information has been delivered to ABN under the terms of
that Agreement. The Company has had subsequent discussions with ABN in which ABN
has indicated that its interest in merging with or acquiring the Company is
conditioned upon ABN's ability to reach agreement with the Company's President
regarding his continued employment and other matters. The Company's President
has advised the Company that he has not entered into any agreement with ABN and
intends to proceed with the transactions contemplated by the Merger Agreement.
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS:
2 (a) Agreement and Plan of Merger dated as of February 15, 1996, as
amended as of April 4, 1996, between SCFM Corp. and the Company
27 Financial Data Schedule
b. REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter for which this
report is filed.
Page 12 of 13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCANFORMS, INC.
DATE: May 13, 1996
/s/ Robert A. Samans
----------------------------------------
Robert A. Samans, President
/s/ William P. Carey
----------------------------------------
William P. Carey, Treasurer
(Principle Financial and
Accounting Officer)
Page 13 of 13
