<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
SCHEDULE 13E-3/A
(AMENDMENT NO. 1)
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
-------------------------
NORWOOD PROMOTIONAL PRODUCTS, INC.
(Name of the Issuer)
NORWOOD PROMOTIONAL PRODUCTS, INC.
FPK, LLC
FRANK P. KRASOVEC
JAMES P. GUNNING, JR.
JOHN H. JOSEPHSON
(Names of Persons Filing Statement)
-------------------------
COMMON STOCK, NO PAR VALUE PER SHARE
(Title of Class of Securities)
669729-10-5
-------------------------------------
(CUSIP Number of Class of Securities)
Richard J. McMahon, Esquire William R. Volk, Esquire
Blank Rome Comisky & McCauley LLP Hughes & Luce, L.L.P.
One Logan Square 111 Congress Avenue, Suite 900
Philadelphia, PA 19103 Austin, TX 78701
(215) 569-5500 (512) 482-6800
(Name, Address and Telephone Number of Persons Authorized to Receive
Notices and Communications on Behalf of Persons filing Statement)
This statement is filed in connection with (check the appropriate box):
a. [x] The filing of solicitation materials or an
information statement subject to Regulation 14A,
Regulation 14C or Rule 13e-3(c) under the Securities
Exchange Act of 1934.
b. [ ] The filing of a registration statement under the
Securities Act of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. [x]
CALCULATION OF FILING FEE
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TRANSACTION VALUATION* AMOUNT OF FILING FEE
- --------------------------------------------------------------------------------
$84,855,634 $16,971
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</TABLE>
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* For purposes of calculating fee only. The "Transaction Valuation" amount
is based upon the purchase of 4,099,306 shares of common stock, no par
value ("Common Stock"), of Norwood Promotional Products, Inc. at $20.70,
the cash price per share of Common Stock to be paid in the Merger (the
"Merger Consideration"). The payment of the filing fee, calculated in
accordance with Regulation 240.0-11 under the Securities Exchange Act of
1934, as amended, equals one-fiftieth of one percent of the value of the
Common Stock for which the Merger Consideration will be paid.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing:
Amount Previously Paid: $16,971
Form or Registration No.: Schedule 13E-3
Filing Party: Norwood Promotional Products, Inc.
Date Filed: April 29, 1998
<PAGE> 2
INTRODUCTION
This Rule 13e-3 Transaction Statement on Schedule 13E-3 is being filed
by Norwood Promotional Products, Inc., a Texas corporation (the "Company"),
FPK, LLC, a Delaware limited liability company ("LLC"), Frank P. Krasovec,
the Chairman, President and Chief Executive Officer of the Company and the sole
member and manager of LLC ("Krasovec"), James P. Gunning, Jr., Chief Financial
Officer, Treasurer and Secretary of the Company ("Gunning") and John H.
Josephson, a director of the Company ("Josephson"), in connection with the
proposed merger (the "Merger") of Newco, a Texas corporation to be formed as a
wholly-owned subsidiary of LLC ("Newco"), with and into the Company pursuant to
an Agreement and Plan of Merger, dated March 15, 1998, as amended (the "Merger
Agreement"), by and between the Company and LLC.
The Merger Agreement provides for the Merger of Newco with and into
the Company, with the Company being the surviving corporation (the "Surviving
Corporation"). Upon the effectiveness of the Merger (the "Effective Time"),
each share of common stock, no par value per share, of the Company (the "Common
Stock"), issued and outstanding immediately prior to the Effective Time (other
than shares held by the Company or any of its subsidiaries as treasury stock,
shares held by the members of the Buyout Group (as defined in the Proxy
Statement as defined below) and shares held by dissenting shareholders who have
validly exercised and perfected their dissenters' rights under Texas law) will
be converted into the right to receive $20.70 in cash, without interest,
subject to applicable back-up withholding of taxes (the "Merger
Consideration"). Each share of common stock of Newco issued and outstanding
immediately prior to the Effective Time will automatically be cancelled.
This Schedule 13E-3 is being filed with the Securities and Exchange
Commission concurrently with a preliminary proxy statement filed by the Company
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Proxy Statement"). A copy of the Proxy Statement is attached
hereto as Exhibit (d)(1). The following cross reference sheet is being supplied
pursuant to General Instruction F to Schedule 13E-3 and shows the location in
the Proxy Statement of the information required to be included in this Schedule
13E-3. The information contained in the Proxy Statement, including all the
exhibits thereto, is expressly incorporated herein by reference and the
responses to each item are qualified in their entirety by reference to the
information contained in the Proxy Statement and the exhibits thereto.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed to such terms in the Proxy Statement.
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION
IN SCHEDULE 13E-3 LOCATION IN THE PROXY STATEMENT
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<S> <C> <C>
1. ISSUER AND CLASS OF SECURITY
SUBJECT TO THE TRANSACTION
(a) "The Parties"
(b) "Summary" and "Market Information"
(c) "Market Information"
(d) "Market Information"
(e) "Market Information"
(f) "Purchases of Common Stock By and Other
Transactions With Certain Persons"
2. IDENTITY AND BACKGROUND "The Parties"
</TABLE>
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<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION
IN SCHEDULE 13E-3 LOCATION IN THE PROXY STATEMENT
- ---------------------------------- -----------------------------------------
<S> <C> <C>
3. PAST CONTACTS, TRANSACTIONS
OR NEGOTIATIONS
(a) (1) Not Applicable
(a) (2) "Special Factors -- Background of the Merger"
"Special Factors -- Purpose of and Reasons
for the Merger; Certain Effects of the
Merger" and "The Merger Agreement"
(b) "Special Factors -- Background of the Merger"
4. TERMS OF THE TRANSACTION
(a) "Summary;" "Special Factors -- Purpose of and
Reasons for the Merger; Certain Effects of the
Merger" and "The Merger Agreement"
(b) "Summary;" "Special Factors -- Purpose of and
Reasons for the Merger; Certain Effects of the
Merger;" and "The Merger Agreement"
5. PLANS OR PROPOSALS OF THE
ISSUER OR AFFILIATE
(a)-(g) "Special Factors -- Purpose of and Reasons for the
Merger; Certain Effects of the Merger;" and
"Special Factors -- Future Plans of the Company"
6. SOURCE AND AMOUNTS OF FUNDS
OR OTHER CONSIDERATION
(a)-(c) "Summary;" "Special Factors -- Estimated Fees and
Expenses; Sources of Funds" and "Special Factors --
Expenses"
(d) Not Applicable
7. PURPOSE(S), ALTERNATIVES,
REASONS AND EFFECTS
(a)-(c) "Special Factors -- Background of the Merger" and
"Special Factors -- Purpose of and Reasons for the
Merger; Certain Effects of the Merger"
</TABLE>
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<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION
IN SCHEDULE 13E-3 LOCATION IN THE PROXY STATEMENT
- ---------------------------------- -----------------------------------------
<S> <C> <C>
(d) "Special Factors -- Purpose of and Reasons for the
Merger; Certain Effects of the Merger;" "Special
Factors -- Conflicts of Interest;" "Special Factors
-- Future Plans of the Company;" "The Merger
Agreement -- Material U.S. Federal Income Tax
Consequences of the Merger;" "The Merger Agreement --
Accounting Treatment of the Merger" and Appendix A
(the Merger Agreement)
8. FAIRNESS OF THE TRANSACTION
(a)-(e) "The Meeting -- Required Vote;" "Special Factors --
Background of the Merger;" "Special Factors --
Purpose of and Reasons for the Merger; Certain
Effects of the Merger;" "Special Factors --
Determination of Fairness of the Merger by the
Special Committee and the Board of Directors;"
"Special Factors -- Opinion of the Special
Committee's Financial Advisor;" "Special Factors --
Position of Krasovec, Gunning and Josephson as to
Fairness;" "Special Factors --Materials Prepared by
Krasovec's Advisor;" "Special Factors -- Certain
Projections;" and "Special Factors -- Conflicts of
Interest "
(f) Not Applicable
9. REPORTS, OPINIONS, APPRAISALS
AND CERTAIN NEGOTIATIONS
(a)-(c) "Special Factors -- Background of the Merger;"
"Special Factors -- Determination of Fairness of the
Merger by the Special Independent Committee and the
Board of Directors;" "Special Factors -- Opinion of
the Special Committee's Financial Advisor;" "Special
Factors -- Position of Krasovec, Gunning and
Josephson as to Fairness;" "Special Factors --
Material Prepared by Krasovec's Advisor;" "Special
Factors -- Certain Projections;" "Special Factors --
Estimated Fees and Expenses; Sources of Funds" and
Appendix B (J.C. Bradford Opinion)
10. INTEREST IN SECURITIES OF THE
ISSUER
(a) "Security Ownership of Certain Beneficial Owners
and Management"
(b) "Purchases of Common Stock by and Other
Transactions with Certain Persons"
</TABLE>
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<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION
IN SCHEDULE 13E-3 LOCATION IN THE PROXY STATEMENT
- ---------------------------------- -----------------------------------------
<S> <C> <C>
11. CONTRACTS, ARRANGEMENTS OR "Summary;" "The Meeting -- Voting Rights;" "The
UNDERSTANDINGS WITH RESPECT Meeting -- Required Vote; "Special Factors --
TO THE ISSUER'S SECURITIES Background of the Merger;" "The Merger Agreement --
Conversion of Securities in the Merger; Treatment
of Derivatives;" "The Merger Agreement -- Payment
for and Surrender of Company Common Shares" and
"Security Ownership of Certain Beneficial Owners
and Management"
12. PRESENT INTENTION AND
RECOMMENDATION OF CERTAIN
PERSONS WITH REGARD TO THE
TRANSACTION
(a)-(b) "Summary;" "The Meeting -- Required Vote;"
"Special Factors -- Determination of Fairness of the
Merger by the Special Independent Committee and the
Board of Directors" and "Special Factors -- Position
of Krasovec, Gunning and Josephson as to Fairness"
13. OTHER PROVISIONS OF THE
TRANSACTION
(a) "Summary" and "Special Factors -- Rights of
Dissenting Shareholders"
(b) Not Applicable
(c) Not Applicable
14. FINANCIAL INFORMATION
(a) "Selected Financial Data"
(b) Not Applicable
15. PERSONS AND ASSETS EMPLOYED,
RETAINED OR UTILIZED
(a) "Special Factors -- Future Plans of the Company;"
and "Special Factors -- Estimated Fees and
Expenses; Sources of Funds"
(b) Not Applicable
</TABLE>
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The information set forth in "The Parties" in the Proxy
Statement is hereby incorporated herein by reference.
(b) The information set forth in "Summary" and "Market
Information" in the Proxy Statement is hereby incorporated herein by reference.
(c) The information set forth in "Market Information" in the Proxy
Statement is hereby incorporated herein by reference.
(d) The information set forth in "Market Information" in the Proxy
Statement is hereby incorporated herein by reference.
(e) The information set forth in "Market Information" in the Proxy
Statement is hereby incorporated herein by reference.
(f) The information set forth in "Purchases of Common Stock By and
Other Transactions With Certain Persons" in the Proxy Statement is hereby
incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) This Statement is being filed by the Company, LLC,
Krasovec, Gunning and Josephson. The Company is the issuer of the Common Stock
which is the subject of the Rule 13e-3 transaction. The information set forth
in "The Parties" in the Proxy Statement is hereby incorporated herein by
reference.
The following is certain information regarding Krasovec, Gunning and
Josephson, each an affiliate of the Company:
Frank P. Krasovec, a United States citizen, is the Chairman, President
and Chief Executive Officer of the Company and beneficially owns 660,917 shares
of Common Stock of the Company. Krasovec is also the sole member and manager of
LLC. His business address is c/o the Company, 106 E. Sixth Street, Suite 300,
Austin, Texas 78701.
James P. Gunning, Jr., a United States citizen, is the Chief Financial
Officer, Treasurer and Secretary of the Company and beneficially owns 500 shares
of Common Stock of the Company. His business address is c/o the Company 106 E.
Sixth Street, Suite 300, Austin, Texas 78701.
John H. Josephson, a United States Citizen, has served as a director
of the Company since June 1993 and has been employed by Allen & Company
Incorporated ("Allen") since August 1987 and has been a Director of that firm
since February 1995. Allen has been retained by Krasovec as one of his financial
advisors to provide financial advice in connection with the proposed Merger.
Josephson beneficially owns 29,228 shares of Common Stock of the Company. His
business address is Allen & Company Incorporated, 711 Fifth Avenue, New York,
New York 10022.
(e)-(f) During the last five years, none of the Company, LLC Krasovec,
Gunning or Josephson nor, to the best of their knowledge, any of the other
officers or directors of the Company or LLC has been convicted in a criminal
proceeding or has been party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining further
violations of, or prohibiting activities, subject to, federal or state
securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1) Not Applicable.
(a)(2) The information set forth in "Special Factors -- Background of
the Merger;" "Special Factors -- Purpose of and Reasons for the Merger; Certain
Effects of the Merger" and "The Merger Agreement" in the Proxy Statement is
hereby incorporated herein by reference.
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(b) The information set forth in "Special Factors -- Background of
the Merger" in the Proxy Statement is hereby incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in "Summary;" "Special Factors --
Purpose of and Reasons for the Merger; Certain Effects of the Merger" and "The
Merger Agreement" in the Proxy Statement is hereby incorporated herein by
reference.
(b) The information set forth in "Summary;" "Special Factors --
Purpose of and Reasons for the Merger; Certain Effects of the Merger" and "The
Merger Agreement" in the Proxy Statement is hereby incorporated herein by
reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(g) The information set forth in "Special Factors -- Purpose of
and Reasons for the Merger; Certain Effects of the Merger" and "Special Factors
- -- Future Plans of the Company" in the Proxy Statement is hereby incorporated
herein by reference.
ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.
(a)-(c) The information set forth in "Summary;" "Special Factors --
Estimated Fees and Expenses; Sources of Funds" and "Special Factors --
Expenses" in the Proxy Statement is hereby incorporated herein by reference.
(d) Not Applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(c) The information set forth in "Special Factors -- Background of
the Merger" and "Special Factors -- Purpose of and Reasons for the Merger;
Certain Effects of the Merger" in the Proxy Statement is hereby incorporated
herein by reference.
(d) The information set forth in "Special Factors -- Purpose of
and Reasons for the Merger; Certain Effects of the Merger;" "Special Factors --
Conflicts of Interest;" "Special Factors -- Future Plans of the Company;" "The
Merger Agreement -- Material U.S. Federal Income Tax Consequences of the
Merger;" "The Merger Agreement -- Accounting Treatment of the Merger" and
Appendix A (the Merger Agreement) in the Proxy Statement is hereby incorporated
herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(e) The information set forth in "The Meeting -- Required Vote;"
"Special Factors -- Background of the Merger;" "Special Factors -- Purpose of
and Reasons for the Merger; Certain Effects of the Merger;" "Special Factors --
Determination of Fairness of the Merger by the Special Committee and the Board
of Directors;" "Special Factors -- Opinion of the Special Committee's Financial
Advisor;" "Special Factors -- Position of Krasovec, Gunning and Josephson as to
Fairness;" "Special Factors -- Material Prepared by Krasovec's
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<PAGE> 8
Advisor;" "Special Factors -- Certain Projections" and "Special Factors --
Conflicts of Interest" in the Proxy Statement is hereby incorporated herein by
reference.
(f) Not Applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(b) The information set forth in "Special Factors -- Background
of the Merger;" "Special Factors -- Determination of Fairness of the Merger by
the Special Committee and the Board of Directors;" "Special Factors -- Opinion
of the Special Committee's Financial Advisor;" "Special Factors -- Position of
Krasovec, Gunning and Josephson as to Fairness;" "Special Factors -- Material
Prepared by Krasovec's Advisor;" "Special Factors -- Certain Projections;"
"Special Factors -- Estimated Fees and Expenses; Sources of Funds" and Appendix
B (J.C. Bradford Opinion) in the Proxy Statement is hereby incorporated herein
by reference.
(c) The Opinion of J.C. Bradford, financial advisor to the Special
Committee, is included in the information to be circulated to Shareholders and
shall also be made available for inspection and copying at the principal
executive offices of the Company during its regular business hours by any
interested Shareholder of the Company or his or its representative who has been
designated in writing. At the written request of such Shareholder, a copy of
such opinion will be sent, at the Shareholder's expense, to such Shareholder or
his or its representative. The information set forth in Exhibit (b)(2), (b)(3),
b(4) and (b)(5) to this Statement will be made available for inspection and
copying at the principal executive offices of the Company by any interested
Shareholder of the Company or his or its representative who has been designated
in writing. At the written request of such a Shareholder, a copy of each such
Exhibit will be sent, at the Shareholder's expense, to such Shareholder or his
or its representatives.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth in "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is hereby incorporated
herein by reference.
(b) The information set forth in "Purchases of Common Stock by and
Other Transactions with Certain Persons" in the Proxy Statement is hereby
incorporated herein by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
The information set forth in "Summary;" The Meeting -- Voting Rights;"
"The Meeting -- Required Vote;" "Special Factors -- Background of the Merger;"
"The Merger Agreement -- Conversion of Securities in the Merger; Treatment of
Derivatives;" "The Merger Agreement -- Payment for and Surrender of Company
Common Shares" and "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement is hereby incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH
REGARD TO THE TRANSACTION.
(a)-(b) The information set forth in "Summary;" The Meeting --
Required Vote;" "Special Factors -- Determination of Fairness of the Merger by
the Special Committee and the Board of Directors" and
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<PAGE> 9
"Special Factors -- Position of Krasovec, Gunning and Josephson as to Fairness"
in the Proxy Statement is hereby incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in "Summary" and "Special Factors --
Rights of Dissenting Shareholders" in the Proxy Statement is hereby
incorporated by reference.
(b) Not Applicable.
(c) Not Applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in "Selected Financial Data" in the
Proxy Statement is hereby incorporated herein by reference.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth in "Special Factors -- Future Plans
of the Company" and "Estimated Fees and Expenses; Sources of Funds" in the
Proxy Statement is hereby incorporated herein by reference.
(b) Not applicable.
ITEM 16. ADDITIONAL INFORMATION.
The information set forth in the Proxy Statement and the Appendices
thereto is incorporated herein by reference in its entirety.
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ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
99.(a)(1)(A) Commitment Letter dated March 15, 1998 by and between
FPK, LLC, Merrill Lynch Capital Corporation,
NationsBank, N.A. and NationsBanc Montgomery
Securities, LLC.
99.(a)(2)(A) Term Sheet regarding Bank Facilities.
99.(a)(3)(A) Highly Confident Letter dated March 15, 1998 by and
between FPK, LLC and Merrill Lynch, Pierce, Fenner &
Smith Incorporated.
99.(a)(4)(A) Commitment Letter dated March 14, 1998 by and between
FPK, LLC and Ares Leveraged Investment Fund, L.P.
99.(a)(5)(A) Term Sheet regarding Preferred Stock.
99.(b)(1)(B) Opinion of J.C. Bradford, financial advisor to the
Special Independent Committee of the Board of
Directors of the Company.
99.(b)(2) Written materials prepared by J.C. Bradford for the
Special Independent Committee of the Board of
Directors dated March 7, 1998.
99.(b)(3) Preliminary written materials prepared by J.C. Bradford for
the Special Independent Committee of the Board of Directors
dated February 26, 1998.
99.(b)(4) Written materials prepared by Merrill Lynch for Frank P.
Krasovec dated November 14, 1997.
99.(b)(5) Written materials prepared by Merrill Lynch for Frank P.
Krosevec dated December 5, 1997.
99.(c)(1)(B) Agreement and Plan of Merger, dated as of March 15,
1998, by and between the Company and FPK, LLC.
99.(d)(1) Preliminary Proxy Statement.
99.(d)(2)(B) Notice of Special Meeting of Shareholders of the
Company.
99.(d)(3)(B) Letter to Shareholders from James P. Gunning, Jr.,
Secretary of the Company.
99.(d)(4)(B) Proxy Card.
99.(e)(B) Text of Articles 5.12 and 5.13 of the Texas Business
Corporation Act.
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(A) Incorporated by reference from Schedule 13D filed March 25,
1998.
(B) Incorporated by reference from the Proxy Statement, a copy of
which is attached hereto as Exhibit (d)(1).
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SIGNATURE
After due inquiry and to the best of the undersigned's knowledge, each
of the undersigned certifies that the information set forth in this statement
is true, complete and correct.
NORWOOD PROMOTIONAL PRODUCTS, INC.
By: /s/ FRANK P. KRASOVEC
-------------------------------------
Frank P. Krasovec
Chairman, President and Chief
Executive Officer
FPK, LLC
By: /s/ FRANK P. KRASOVEC
-------------------------------------
Frank P. Krasovec
President
/s/ FRANK P. KRASOVEC
------------------------------------------
FRANK P. KRASOVEC
/s/ JOHN H. JOSEPHSON
------------------------------------------
JOHN H. JOSEPHSON
/s/ JAMES P. GUNNING, JR.
------------------------------------------
JAMES P. GUNNING, JR.
Dated: June 23, 1998
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
99.(a)(1)(A) Commitment Letter dated March 15, 1998 by and between
FPK, LLC, Merrill Lynch Capital Corporation,
NationsBank, N.A. and NationsBanc Montgomery
Securities, LLC.
99.(a)(2)(A) Term Sheet regarding Bank Facilities.
99.(a)(3)(A) Highly Confident Letter dated March 15, 1998 by and
between FPK, LLC and Merrill Lynch, Pierce, Fenner &
Smith Incorporated.
99.(a)(4)(A) Commitment Letter dated March 14, 1998 by and between
FPK, LLC and Ares Leveraged Investment Fund, L.P.
99.(a)(5)(A) Term Sheet regarding Preferred Stock.
99.(b)(1)(B) Opinion of J.C. Bradford, financial advisor to the
Special Independent Committee of the Board of
Directors of the Company.
99.(b)(2) Written materials prepared by J.C. Bradford for the
Special Independent Committee of the Board of
Directors dated March 7, 1998.
99.(b)(3) Preliminary written materials prepared by J.C. Bradford for
the Special Independent Committee of the Board of Directors
dated February 26, 1998.
99.(b)(4) Written materials prepared by Merrill Lynch for Frank P.
Krasovec dated November 14, 1997.
99.(b)(5) Written materials prepared by Merrill Lynch for Frank P.
Krosevec dated December 5, 1997.
99.(c)(1)(B) Agreement and Plan of Merger, dated as of March 15,
1998, by and between the Company and FPK, LLC.
99.(d)(1) Preliminary Proxy Statement.
99.(d)(2)(B) Notice of Special Meeting of Shareholders of the
Company.
99.(d)(3)(B) Letter to Shareholders from James P. Gunning, Jr.,
Secretary of the Company.
99.(d)(4)(B) Proxy Card.
99.(e)(B) Text of Articles 5.12 and 5.13 of the Texas Business
Corporation Act.
</TABLE>
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(A) Incorporated by reference from Schedule 13D filed March 25,
1998.
(B) Incorporated by reference from the Proxy Statement, a copy of
which is attached hereto as Exhibit (d)(1).
<PAGE> 1
EXHIBIT 99(b)(2)
INFORMATION FOR
THE BOARD OF DIRECTORS OF
NORWOOD PROMOTIONAL
PRODUCTS
[J.C. BRADFORD & CO. LOGO]
MARCH 7, 1998
<PAGE> 2
INVESTMENT BANKING GROUP
<TABLE>
<S> <C> <C>
I. Summary Analysis
II. Comparable Company Analysis
III. Discounted Cash Flow Analysis
IV. LBO Analysis
V. Comparable Transaction Analysis
VI. Premium Analysis
VII. Stock Price and Ownership Profiles
VIII. Company Projections
</TABLE>
(i)
<PAGE> 3
INVESTMENT BANKING GROUP
AUSTIN -- COMPANY PROJECTIONS
SUMMARY VALUATION MULTIPLES AT PROPOSED $20.70 OFFER
(IN THOUSANDS)
<TABLE>
<S> <C>
Proposed Offer Price:....................................... $ 20.70
Current Shares Outstanding:................................. 5,311
--------
Equity Value........................................... $109,929
Add: Debt, Net of Cash...................................... 56,495
Market Capitalization.................................. $166,424
PRICE TO TRAILING EARNINGS MULTIPLE
Equity Value................................................ $109,929
LTM Earnings Ended 11/30/97................................. 6,008
--------
Multiple.................................................... 18.3x
PRICE TO 1998 EARNINGS MULTIPLE
Equity Value................................................ $109,929
Estimated Earnings Ended 12/31/98........................... 8,729
--------
Multiple.................................................... 12.6x
PRICE TO 1999 EARNINGS MULTIPLE
Equity Value................................................ $109,929
Estimated Earnings Ended 12/31/99........................... 10,707
--------
Multiple.................................................... 10.3x
PRICE TO BOOK VALUE MULTIPLE
Equity Value................................................ $109,929
Current Book Value 11/30/97................................. 53,204
--------
Multiple.................................................... 2.1x
PRICE TO LTM EBITDA MULTIPLE
Equity Value................................................ $166,424
LTM EBITDA 11/30/97......................................... 23,267
--------
Multiple.................................................... 7.2x
PRICE TO 1998 EBITDA MULTIPLE
Equity Value plus Debt, Net of Cash(1)...................... $163,627
Estimated EBITDA 8/31/98.................................... 25,975
--------
Multiple.................................................... 6.3x
PRICE TO LTM REVENUE MULTIPLE
Equity Value plus Debt, Net of Cash......................... $166,424
LTM Revenue Ended 11/30/97.................................. 182,981
--------
Multiple.................................................... 0.91x
</TABLE>
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(1) Total debt, net of cash at 8/31/98 is projected to be $53,698
1
<PAGE> 4
INVESTMENT BANKING GROUP
SUMMARY OF PROJECTIONS PROVIDED BY MANAGEMENT
(NUMBERS IN THOUSANDS)
(FISCAL YEAR ENDED AUGUST)
PROJECTED SUMMARY INCOME STATEMENT
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 CAGR%
-------- -------- -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $193,391 $207,846 $223,500 $239,900 $257,562 $276,160 7.4%
EBITDA............... 25,976 29,318 32,169 35,366 38,508 42,510 10.4%
Pre-tax Income....... 13,695 16,998 20,448 24,444 28,885 33,886 19.9%
</TABLE>
HISTORICAL SUMMARY INCOME STATEMENT
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 CAGR%
------- ------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... $49,300 $62,385 $103,860 $144,048 $175,833 37.4%
EDITDA(1)........................ 6,485 8,526 14,476 16,841 12,878 14.7%
Pre-tax Income(1)................ 2,678 5,308 6,832 6,922 1,721 (8.5%)
</TABLE>
- ---------------
(1) Includes extraordinary losses before taxes of 40%.
2
<PAGE> 5
INVESTMENT BANKING GROUP
SUMMARY VALUATION FOR AUSTIN
(IN THOUSANDS, EXCEPT PER SHARE)
PROPOSED MARKET VALUATION:
<TABLE>
<CAPTION>
AUSTIN
--------
<S> <C>
Proposed offer price........................................ $ 20.70
Shares outstanding.......................................... 5,311
--------
Equity Mkt Cap of Offer:.................................. $109,929
========
</TABLE>
COMPARABLE COMPANY VALUATION:
<TABLE>
<CAPTION>
IMPLIED PRICES
AUSTIN ADJ. AVG. --------------
FINANCIALS MULT. MULT. ADJ. AVG.
---------- ------ --------- --------------
<S> <C> <C> <C> <C>
Trailing Earnings(1).................... $ 6,008 18.3x 15.4x $ 17.45
Est. '98 Earnings....................... 8,729 12.6x 13.1x 21.54
Est. '99 Earnings....................... 10,707 10.3x 11.2x 22.61
Trailing EDITDA multiple(1)(2).......... 23,267 7.2x 7.4x 21.95
Trailing Revenues(1)(2)................. 182,981 0.91x 0.93x 21.54
Book Value.............................. 53,204 2.1x 1.7x 17.40
Relevant Range:....................... $17.40-$22.61
</TABLE>
LBO ANALYSIS:
<TABLE>
<CAPTION>
ASSUMPTIONS RESULTS
----------- -------
<S> <C>
0% Revolver
57% Senior sub-debt $111.6 million ($21.00 per share) purchase price yields:
14% Senior term loan 25.0% return to convertible preferred equity holders.
11% Preferred Stock 35.3% return to equity holders.
17% Management equity -- Common
Stock
6.25x EBITDA exit multiple
</TABLE>
<TABLE>
<CAPTION>
ASSUMPTIONS RESULTS
----------- -------
<S> <C>
0% Revolver
58% Senior sub-debt $109.9 million ($20.70 per share) purchase price yields:
14% Senior term loan 25.0% return to convertible preferred equity holders.
12% Preferred Stock 36.9% return to equity holders.
16% Management equity -- Common
Stock
6.25x EBITDA exit multiple
Relevant Range: $20.50 - $21.50
</TABLE>
3
<PAGE> 6
MARKET PREMIUMS VALUATION:
<TABLE>
<CAPTION>
ONE DAY ONE WEEK ONE MONTH
PRIOR TO PRIOR TO PRIOR TO
ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
ALL CASH DEALS SINCE 1/1/95 ------------ ------------- ------------
<S> <C> <C> <C>
Actual Stock Prices:.................... $17.38 $16.38 $15.88
30 Day Average Price:................... 16.12 16.12 16.12
Median Premium.......................... 24.0% 27.5% 33.6%
Implied Stock Price:
Actual Stock Prices:.................... $21.54 $20.88 $21.21
30 Day Average Price:................... 19.98 20.55 21.54
Relevant Range:......................... $20.00-$21.50
</TABLE>
- ---------------
(1) LTM results as of November 1997.
(2) At 11/30/97, Austin's total debt, net of cash was $56,495.
4
<PAGE> 7
INVESTMENT BANKING GROUP
SUMMARY VALUATION FOR AUSTIN
(IN THOUSANDS, EXCEPT PER SHARE)
PROPOSED MARKET VALUATION:
<TABLE>
<CAPTION>
AUSTIN
--------
<S> <C>
Proposed offer price........................................ $ 20.70
Shares Outstanding.......................................... 5,311
--------
Equity Mkt Cap of Offer: $109,929
========
</TABLE>
DISCOUNTED CASH FLOW VALUATION:
COMPANY PROJECTION MODEL
<TABLE>
<CAPTION>
EBITDA AVERAGE
DISCOUNT MULTIPLES EQUITY
RATE APPLIED LOW HIGH VALUE RELEVANT RANGE
-------- ----------- ------ ------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Operating Cash Flow
Method.................. 16.5% 5.50x-6.25x $20.38 $23.17
17.0% 5.50x-6.25x 19.82 22.56 $21.19 $19.27 - $23.17
17.5% 5.50x-6.25x 19.27 21.96
</TABLE>
<TABLE>
<CAPTION>
NET INCOME AVERAGE
DISCOUNT MULTIPLES EQUITY
RATE APPLIED LOW HIGH VALUE RELEVANT RANGE
-------- ----------- ------ ------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Free Cash Flow Method..... 19.0% 12.0x-13.0x $20.79 $22.37
19.5% 12.0x-13.0x 20.36 21.91 $21.14 $19.94 - $22.37
20.0% 12.0x-13.0x 19.94 21.45
</TABLE>
<TABLE>
<CAPTION>
NET INCOME
DISCOUNT MULTIPLES
RATE APPLIED RANGE RELEVANT RANGE
-------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Discounted Future Stock Price
2003 Net Income............ 19%-20% 12.0x-13.0x $18.16 - $20.51
2002 Net Income............ 19%-20% 12.0x-13.0x 18.57 - 20.80
2001 Net Income............ 19%-20% 12.0x-13.0x 18.86 - 20.95 $18.16 - $20.95
2000 Net Income............ 19%-20% 12.0x-13.0x 18.93 - 20.85
1999 Net Income............ 19%-20% 12.0x-13.0x 18.88 - 20.63
</TABLE>
5
<PAGE> 8
INVESTMENT BANKING GROUP
HISTORICAL ACTUAL VS. BUDGETED FINANCIAL RESULTS FOR AUSTIN
<TABLE>
<CAPTION>
1995 1996 1997
BUDGET ACTUAL VARIANCE BUDGET ACTUAL VARIANCE BUDGET ACTUAL VARIANCE
------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenue......... $88,142 $103,860 17.8% $135,119 $151,962 12.5% $183,683 $175,835 (4.3)%
Cost of Sales......... 60,566 70,963 91,558 106,992 129,008 125,732
------- -------- -------- -------- -------- --------
Gross Profit.......... 27,576 32,897 19.3% 43,561 44,970 3.2% 54,675 50,103 (8.4)%
% of Total Rev........ 31.3% 31.7% 32.2% 29.6% 29.8% 28.5%
S,G&A................. 18,579 22,446 29,590 34,583 37,253 36,945
------- -------- -------- -------- -------- --------
Operating Profit...... 8,997 10,451 16.2% 13,971 10,387 (25.7)% 17,422 13,158 (24.5)%
% of Total Rev........ 10.2% 10.1% 10.3% 6.8% 9.5% 7.5%
Pre-Tax(1)............ 6,446 6,832 6.0% 8,771 6,922 (21.1)% 14,022 1,721 (87.7)%
Net Income............ 3,836 4,032 5.1% 5,175 4,155 (19.7)% 8,274 1,004 (87.9)%
EPS................... $ 1.07 $ 1.11 3.7% $ 1.40 $ 0.82 (41.4)% $ 1.41 $ 0.18 (87.2)%
</TABLE>
- ---------------
(1) Includes extraordinary losses before taxes of 40%.
6
<PAGE> 9
INVESTMENT BANKING GROUP
PROJECT AUSTIN -- PROJECTION MODEL
PROJECTED INCOME STATEMENTS -- ADJUSTED FOR CALENDAR YEAR END
(NUMBERS IN THOUSANDS)
(FISCAL YEAR ENDED AUGUST) 3/5/98 6:13 PM
<TABLE>
<CAPTION>
YEAR END AUGUST 31,
--------------------------------------
1997 1998 1999 2000
------ ------ ------- -------
<S> <C> <C> <C> <C>
Net income........................................... $1,004 $8,079 $10,029 $12,064
</TABLE>
<TABLE>
<CAPTION>
PROJECTED, YEAR END DECEMBER 31,
- ---------------------------------------------------------------------------
1998 1999
- ---------------------------------- -----------------------------------
<S> <C>
(8/12 X $8,079) + (4/12 X $10,029) (8/12 X $10,029) + (4/12 X $12,064)
$8,729 $10,707
</TABLE>
7
<PAGE> 10
INVESTMENT BANKING GROUP
AUSTIN COMPARABLE COMPANIES
COMPARABLE COMPANY MARKET MULTIPLES
<TABLE>
<CAPTION>
CAL. 1999 5-YEAR 52 WEEK
LTM LTM CAL. 1998 EST. PROJECTED ---------------
COMPANY TICKER END EPS EST. EPS EPS(1) GROWTH RATE HIGH LOW
- ------- ------ ------ ------ --------- --------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AUSTIN....................................... AUSTIN NOV 97(2) $ 1.13 $1.64 $2.02 18.0% $18.00 $12.00
C S S Industries, Inc........................ CSS Dec 97 2.23 2.55 2.86 12.0% 39.25 26.38
Equity Marketing, Inc........................ EMAK Sep 97 1.37 1.85 2.25 25.0% 30.75 16.25
Lillian Vernon Corp.......................... LVC Nov 97 0.97 1.27 1.46 15.0% 18.63 12.50
Racing Champions Corp........................ RACN Dec 97 0.73 0.86 1.07 25.0% 18.50 6.50
Swiss Army Brands, Inc....................... SABI Dec 97 (0.49) 0.45 0.52 15.0% 13.50 9.13
Median (excluding NPPI):..............
Average (excluding NPPI):.............
Adjusted Average (excludes high and
low and NPPI):.......................
<CAPTION>
BASED ON CLOSING STOCK PRICE AS OF 3/3/98
-------------------------------------------
PRICE/ PRICE/ CAL. 1998 CAL. 1999 PRICE/
PRICE PRICE/ CAL. 1998 CAL. 1999 PE/ PE/ BOOK
COMPANY PER SHARE LTM EPS EST. EPS EST. EPS GROWTH RATE GROWTH RATE VALUE
- ------- --------- ------- --------- --------- ----------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
AUSTIN....................................... $20.70 18.3x 12.6x 10.3x 70.0% 57.0% 2.1x
C S S Industries, Inc........................ 34.81 15.6 13.7 12.2 113.8% 101.6% 2.0
Equity Marketing, Inc........................ 20.88 15.2 11.3 9.3 45.1% 37.1% 2.6
Lillian Vernon Corp.......................... 17.06 17.6 13.4 11.6 89.3% 77.7% 1.4
Racing Champions Corp........................ 10.50 14.4 12.3 9.8 49.0% 39.2% 1.8
Swiss Army Brands, Inc....................... 11.50 NM 25.6 22.2 170.4% 148.1% 1.2
Median (excluding NPPI):.............. 15.4x 13.4x 11.6x 89.3% 77.7% 1.8x
Average (excluding NPPI):............. 15.7 15.2 13.0 93.5% 80.7% 1.8
Adjusted Average (excludes high and
low and NPPI):....................... 15.4 13.1 11.2 84.0% 72.8% 1.7
</TABLE>
- ---------------
(1) When calendar 1999 EPS Multiple is not available it is approximated using
company's 5-year projected growth rate.
(2) Austin's EPS figures are calculated from company projected net income
figures, adjusted for calendar year ends and divided by current fully
diluted shares outstanding.
8
<PAGE> 11
INVESTMENT BANKING GROUP
AUSTIN COMPARABLE COMPANIES
COMPARABLE COMPANY MARKET CAPITALIZATION MULTIPLES
<TABLE>
<CAPTION>
TOTAL TOTAL LTM MARKET MARKET
3/3/98 NUMBER OF TOTAL DEBT, NET MARKET TOTAL LTM CAP./ CAP./
TICKER PRICE SHARES EQUITY OF CASH CAPITAL REVENUES EBITDA EBITDA REVENUES
------ ------ --------- -------- --------- -------- -------- ------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AUSTIN.................... AUSTIN $20.70 5,311 $109,929 $ 56,495 $166,424 $182,981 $23,267 7.2x 0.91x
C S S Industries, Inc. ... CSS 34.81 10,875 378,586 106,546 485,132 357,720 59,944 8.1 1.36
Equity Marketing, Inc. ... EMAK 20.88 4,079 85,149 0 85,149 130,946 15,036 5.7 0.65
Lillian Vernon Corp. ..... LVC 17.06 9,482 161,787 0 161,787 251,736 17,898 9.0 0.64
Racing Champions Corp. ... RACN 10.50 13,242 139,041 22,661 161,702 76,562 23,838 6.8 2.11
Swiss Army Brands, SABI
Inc. ................... 11.50 8,210 94,415 0 94,415 118,744 (3,230) NM 0.80
Median (excluding
NPPI):.......... 7.4x 0.80x
Average (excluding
NPPI):.......... 7.4 1.11
Adjusted Average
(excludes high
and low and
NPPI):.......... 7.4 0.93
</TABLE>
9
<PAGE> 12
INVESTMENT BANKING GROUP
AUSTIN COMPARABLE COMPANIES
COMPARABLE COMPANY SUMMARY VALUATION
OVERALL ADJUSTED AVERAGE MULTIPLES
(IN THOUSANDS)
<TABLE>
<S> <C>
PRICE TO TRAILING EARNINGS MULTIPLE BASIS:
LTM earnings ended November 30, 1997...................... $ 6,008
Adjusted Average Multiple................................... 15.42x
--------
$ 92,668
Implied Share Price:........................................ $ 17.45
PRICE TO CALENDAR 1998 EARNINGS MULTIPLE BASIS:
Estimated earnings ended December 31, 1998.................. $ 8,729
Adjusted Average Multiple................................... 13.10x
--------
$114,365
Implied Share Price:........................................ $ 21.54
PRICE TO CALENDAR 1999 EARNINGS MULTIPLE BASIS:
Estimated earnings ended December 31, 1999.................. $ 10,707
Adjusted Average Multiple................................... 11.21
--------
$120,073
Implied Share Price:........................................ $ 22.61
LTM EBITDA MULTIPLE BASIS:
LTM EBITDA ended November 30, 1997.......................... $ 23,267
Adjusted Average Multiple................................... 7.44x
--------
173,066
Less total debt, net of cash on November 30, 1997........... 56,495
--------
$116,571
Implied Share Price:........................................ $ 21.95
LTM REVENUES MULTIPLE BASIS:
LTM Revenues ended November 30, 1997........................ $182,981
Adjusted Average Multiple................................... 0.93x
--------
170,877
Less total debt, net of cash on November 30, 1997........... 56,495
--------
$114,382
Implied Share Price:........................................ $ 21.54
</TABLE>
10
<PAGE> 13
INVESTMENT BANKING GROUP
AUSTIN COMPARABLE COMPANIES
COMPARABLE COMPANY SUMMARY VALUATION
MEDIAN MULTIPLES
(IN THOUSANDS)
<TABLE>
<S> <C>
PRICE TO TRAILING EARNINGS MULTIPLE BASIS:
LTM earnings ended 11/30/97................................. $ 6,008
Median Multiple............................................. 15.42x
--------
$ 92,668
Implied Share Price:........................................ $ 17.45
PRICE TO CALENDAR 1998 EARNINGS MULTIPLE BASIS:
Estimated earnings ended 12/31/98........................... $ 8,729
Median Multiple............................................. 13.40x
--------
$116,931
Implied Share Price:........................................ $ 22.02
PRICE TO CALENDAR 1999 EARNINGS MULTIPLE BASIS:
Estimated earnings ended 12/31/99........................... $ 10,707
Median Multiple............................................. 11.65
$124,718
--------
Implied Share Price:........................................ $ 23.48
LTM EBITDA MULTIPLE BASIS:
LTM EBITDA ended 11/30/97................................... $ 23,267
Median Multiple............................................. 7.44x
--------
173,066
Less total debt, net of cash on 11/30/97.................... 56,495
--------
$116,571
Implied Share Price:........................................ $ 21.95
LTM REVENUES MULTIPLE BASIS:
LTM Revenues ended 11/30/97................................. $182,981
Median Multiple............................................. 0.80x
--------
145,491
Less total debt, net of cash on 11/30/97.................... 56,495
--------
$ 88,996
Implied Share Price:........................................ $ 16.76
</TABLE>
11
<PAGE> 14
INVESTMENT BANKING GROUP
AUSTIN VS. PROMOTIONAL COMPANY INDEX* AND NASDAQ COMPOSITE INDEX AND S&P 400
INDUSTRIALS SINCE 12/29/95
[Chart depicting the performance of Norwood Promotional Products, Inc. Common
Stock versus the S&P 400 Industrial Index, the Nasdaq Composite Index, and the
Promotional Company Index. Promotional Company Index includes CSS, EMAK, LVC,
RACN and SABI.]
12
<PAGE> 15
INVESTMENT BANKING GROUP
PROMOTIONAL COMPANIES
WEEKLY PRICE & VOLUME TRADING STATISTICS SINCE 12/29/95
<TABLE>
<S> <C>
CSS INDUSTRIES, INC. EQUITY MARKETING, INC.
[Chart depicting the weekly price and volume [Chart depicting the weekly price and volume
trading statistics since December 29, 1995 trading statistics since December 29, 1995 for
for CSS Industries, Inc.] Equity Marketing, Inc.]
LILLIAN VERNON CORP. AUSTIN
[Chart depicting the weekly price and volume [Chart depicting the weekly price and volume
trading statistics since December 29, 1995 trading statistics since December 29, 1995 for
for Lillian Vernon Corp.] Norwood Promotional Products, Inc.]
</TABLE>
13
<PAGE> 16
INVESTMENT BANKING GROUP
PROMOTIONAL COMPANIES
WEEKLY PRICE & VOLUME TRADING STATISTICS SINCE 12/29/95
<TABLE>
<S> <C>
RACING CHAMPIONS CORP. SWISS ARMY BRANDS, INC.
[Chart depicting the weekly price and volume [Chart depicting the weekly price and volume
trading statistics since December 29, 1995 trading statistics since December 29, 1995
for Racing Champions Corp.] for Swiss Army Brands, Inc.]
</TABLE>
14
<PAGE> 17
INVESTMENT BANKING GROUP
DESCRIPTION OF COMPARABLE COMPANIES
CSS INDUSTRIES, INC. is a diversified company involved in the sale of
consumer and business products. The Company's subsidiaries, The Paper Magic
Group, Inc. and Berwick Industries, Inc., designs, manufactures and sells gift
wrap, gift bags, boxed greeting cards, decorative products and many others. CSS,
through Rapidforms, Inc., designs and sells business forms and supplies.
EQUITY MARKETING INC., designs, develops, produces and markets custom made
toy, gift and other products based on entertainment properties licensed by
television and motion pictures studios. The products include figurines, action
vehicles, plush toys, dolls and other novelty items. The Company sells its
products worldwide to restaurant chains, consumer product companies and toy/gift
distributors.
LILLIAN VERNON CORPORATION retails gift, household, gardening, kitchen,
Christmas and children's products. The Company publishes eight catalog titles;
"Lillian Vernon," "Lilly's Kids," "Christmas Memories," "Neat Ideas For An
Organized Life," "Lillian Vernon's Kitchen," "Personalized Gifts," "Private
Sale" and "Welcome To The Best of Lillian Vernon."
RACING CHAMPIONS CORPORATION produces and markets collectible scaled die
cast vehicle replicas. The Company's product lines include and extensive line of
officially licensed collectible replicas of actual race cars and related
vehicles from the five most popular US professional racing series, including
NASCAR. Racing Champions also produces non-racing vehicle replicas and pewter
figures.
SWISS ARMY BRANDS, INC. markets the "Victorinox Original Swiss Army" Knife
in the United States, Canada and the Caribbean. The Company also markets "Swiss
Army" brand watches, sunglasses and writing instruments; "Swiss Air Force"
watches; "Victorinox" watches and "R.H. Forschner" professional cutlery.
15
<PAGE> 18
INVESTMENT BANKING GROUP
PROJECT AUSTIN -- PROJECTION MODEL
DISCOUNTED CASH FLOW ANALYSIS -- OPERATING CASH FLOW EBITDA EXIT MULTIPLE METHOD
(NUMBERS IN THOUSANDS)
(Fiscal Year Ended August)
March 5, 1998 5:32 PM
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
EBITDA....................................... $29,318 $32,168 $35,366 $38,508 $42,510
Depreciation and amortization................ 8,120 8,121 8,122 8,123 8,124
Interest expense............................. 4,200 3,600 2,800 1,500 500
Other expenses............................... -- -- -- -- --
------- ------- ------- ------- -------
Pre-tax income............................. 16,998 20,447 24,444 28,885 33,886
Provision for income taxes................... 6,969 8,383 10,022 11,843 13,893
------- ------- ------- ------- -------
Net income................................... 10,029 12,064 14,422 17,042 19,993
======= ======= ======= ======= =======
Add: Depreciation & amortization........... 8,120 8,121 8,122 8,123 8,124
Add: After-tax interest expense............ 2,478 2,124 1,652 885 295
Less: Net additions to working
capital(1).............................. (3,200) (3,300) (3,400) (3,900) (3,800)
Less: Capital expenditures................. (3,834) (3,935) (3,936) (3,937) (3,938)
------- ------- ------- ------- -------
Operating cash flow..................... $13,593 $15,074 $16,860 $18,213 $20,674
======= ======= ======= ======= =======
Cash flow growth...................... 10.9% 11.8% 8.0% 13.5%
</TABLE>
EQUITY VALUATION MATRIX(2)
<TABLE>
<CAPTION>
YEAR 2003 EBITDA EXIT MULTIPLE
DISCOUNT -----------------------------------------
RATE(3) 5.50X 5.75X 6.00X 6.25X
- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
16.5% $108,210 $113,162 $118,114 $123,066
17.0% 105,249 110,096 114,943 119,791
17.5% 102,359 107,104 111,849 116,594
--------
AVERAGE .................................
$112,545
========
</TABLE>
EQUITY VALUATION MATRIX PER SHARE
<TABLE>
<CAPTION>
YEAR 2003 EBITDA EXIT MULTIPLE
DISCOUNT ---------------------------------
RATE(3) 5.5X 5.75X 6.0X 6.25X
- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
16.5% $20.38 $21.31 $22.24 $23.17
17.0% 19.82 20.73 21.64 22.56
17.5% 19.27 20.17 21.06 21.96
------
AVERAGE VALUATION OF EQUITY PER
SHARE(4)........................... $21.19
======
</TABLE>
- ---------------
(1) Excluding cash and short-term debt.
(2) Less total capital liab. (net of cash) of $53,698
(3) Discount rates are near estimates of WACC.
(4) Based on 5,311 shares outstanding.
16
<PAGE> 19
INVESTMENT BANKING GROUP
PROJECT AUSTIN -- PROJECTION MODEL
DISCOUNTED CASH FLOW ANALYSIS -- OPERATING CASH FLOW EBITDA EXIT MULTIPLE METHOD
(NUMBERS IN THOUSANDS)
(Fiscal Year Ended August)
3/5/98 5:32 PM
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Operating Cash Flow... $13,593 $15,074 $16,860 $18,213 $20,674
------- ------- ------- ------- -------
Present Value of
Oper. Cash Flows
at 17.50%
Discount.......... 11,568 10,918 10,393 9,555 9,231
Formula........... CF(1)/(1+R)(1) CF(2)/(1+R)(2) CF(3)/(1+R)(3) CF(4)/(1+R)(4) CF(5)/(1+R)(5)
</TABLE>
<TABLE>
<CAPTION>
YEAR 2003
TERMINAL VALUE
BASED ON EBITDA
EXIT MULTIPLE
---------------
<S> <C>
EBITDA...................................................... $ 42,510
Exit Multiple............................................... 5.5x
-------------
Terminal Value in 2003...................................... 233,805
PV of Terminal Value........................................ 104,391
TV/(1+R)(5)
-------------
Present Value of All
Cash Flow............. $ 11,568 $10,918 $10,393 $9,555 $113,622
======== ======= ======= ====== ========
Sum of All PV of Cash Flow
equals Firm Value to
Both Equity & Debt
holders................. $156,056
-------- ------- ------- ------ --------
Less: Current Total Debt,
Net of Cash............. (53,698)
-------- ------- ------- ------ --------
Valuation of
Equity.......... $102,359
-------- ------- ------- ------ --------
Per Share......... $ 19.27
-------- ------- ------- ------ --------
</TABLE>
17
<PAGE> 20
INVESTMENT BANKING GROUP
PROJECT AUSTIN -- PROJECTION MODEL
DISCOUNTED CASH FLOW ANALYSIS -- FREE CASH FLOW NET INCOME EXIT MULTIPLE METHOD
(NUMBERS IN THOUSANDS)
(Fiscal Year Ended August)
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
EBITDA................................... $ 29,318 $ 32,168 $ 35,366 $ 38,508 $42,510
Depreciation and amortization............ 8,120 8,121 8,122 8,123 8,124
Interest expense......................... 4,200 3,600 2,800 1,500 500
Other expenses........................... -- -- -- -- --
-------- -------- -------- -------- -------
Pre-tax income......................... 16,998 20,447 24,444 28,885 33,886
Provision for income taxes............... 6,969 8,383 10,022 11,843 13,893
-------- -------- -------- -------- -------
Net income............................... $ 10,029 $ 12,064 $ 14,422 $ 17,042 $19,993
======== ======== ======== ======== =======
Add: Depreciation & amortization....... 8,120 8,121 8,122 8,123 8,124
Less: Mandatory debt repayments........ (11,298) (12,983) (15,033) (13,900) (700)
Less: Net additions to working
capital(1).......................... (3,200) (3,300) (3,400) (3,900) (3,800)
Less: Capital expenditures............. (3,834) (3,935) (3,936) (3,937) (3,938)
-------- -------- -------- -------- -------
Free cash flow...................... $ (183) $ (33) $ 175 $ 3,428 $19,679
======== ======== ======== ======== =======
Cash flow growth............... (81.9)% (630.4)% 1859.3% 474.0%
</TABLE>
EQUITY VALUATION MATRIX
<TABLE>
<CAPTION>
YEAR 2003 NET INCOME EXIT MULTIPLE
DISCOUNT -----------------------------------
RATE(2) 12.0X 12.5X 13.0X
-------- --------- --------- ---------
<S> <C> <C> <C>
19.0% $110,418 $114,607 $118,796
19.5% 108,133 112,235 116,337
20.0% 105,903 109,921 113,938
--------
AVERAGE VALUATION OF EQUITY................................................ $112,254
--------
</TABLE>
EQUITY VALUATION MATRIX PER SHARE
<TABLE>
<CAPTION>
YEAR 2003 NET INCOME EXIT MULTIPLE
DISCOUNT -----------------------------------
RATE(2) 12.0X 12.5X 13.0X
-------- --------- --------- ---------
<S> <C> <C> <C>
19.0% $ 20.79 $ 21.58 $ 22.37
19.5% $ 20.36 $ 21.13 $ 21.91
20.0% $ 19.94 $ 20.70 $ 21.45
--------
AVERAGE VALUATION OF EQUITY PER SHARE(3)................................... $ 21.14
--------
</TABLE>
- ---------------
(1) Excluding cash and short-term debt.
(2) Discount rates are near estimates of the cost of equity.
(3) Based on 5,311 shares outstanding.
18
<PAGE> 21
INVESTMENT BANKING GROUP
PROJECT AUSTIN -- PROJECTION MODEL
DISCOUNTED CASH FLOW ANALYSIS -- FREE CASH FLOW NET INCOME EXIT MULTIPLE METHOD
(NUMBERS IN THOUSANDS)
(Fiscal Year Ended August)
3/5/98 10:23 AM
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Free Cash Flow........ $ (183) $ (33) $ 175 $ 3,428 $ 19,679
--------------- --------------- --------------- --------------- ---------------
Present Value of
Free Cash Flows at
20.0% Discount.... (152) (23) 101 1,653 7,908
Formula........... CF(1)/(1+R)(1) CF(2)/(1+R)(2) CF(3)/(1+R)(3) CF(4)/(1+R)(4) CF(5)/(1+R)(5)
</TABLE>
<TABLE>
<CAPTION>
YEAR TERMINAL
VALUE
BASED ON NET
INCOME EXIT
MULTIPLE
---------------
<S> <C> <C> <C> <C> <C>
Net Income............ $ 19,993
Exit Multiple......... 12.0x
---------------
Terminal Value in
2003................ 239,913
PV of Terminal
Value............... 96,416
TV/(1+R)(5)
--------------- --------------- --------------- --------------- ---------------
Present Value of All
Cash Flow......... $ (152) $ (23) $ 101 $ 1,653 $ 104,324
=============== =============== =============== =============== ===============
Sum of All PV of Cash
Flow equals......... $ 105,903
---------------
Valuation of
Equity...... $ 105,903
---------------
Per Share..... $ 19.94
---------------
</TABLE>
19
<PAGE> 22
INVESTMENT BANKING GROUP
PROJECT AUSTIN -- PROJECTION MODEL
DISCOUNTED FUTURE STOCK PRICE ANALYSIS -- NET INCOME EXIT MULTIPLE METHOD
(NUMBERS IN THOUSANDS)
(Fiscal Year Ended August)
March 5, 1998 10:23 AM
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net income.................................... 10,029 12,064 14,422 17,042 19,993
====== ====== ====== ====== ======
</TABLE>
EQUITY VALUATION MATRIX
<TABLE>
<CAPTION>
2003 NET INCOME
MULTIPLE ASSUMED 2003 NET INCOME EQUITY VALUE
- ---------------- --------------- ------------
<S> <C> <C> <C> <C>
11.0x X $19,993 = $219,920
13.0x X 19,993 = 259,906
15.0x X 19,993 = 299,891
17.0x X 19,993 = 339,877
</TABLE>
<TABLE>
<CAPTION>
YEAR 2003 NET INCOME EXIT MULTIPLE
DISCOUNT ------------------------------------
RATE(1) 12.0X 12.5X 13.0X
- -------- ---------- ---------- ----------
<S> <C> <C> <C>
19.0% $100,535 $104,724 $108,913
19.5% $ 98,450 $102,552 $106,654
20.0% $ 96,416 $100,433 $104,450
--------
AVERAGE VALUATION OF EQUITY......... $102,570
========
</TABLE>
EQUITY VALUATION MATRIX PER SHARE
<TABLE>
<CAPTION>
YEAR ASSUMPTIONS NET INCOME EXIT MULTIPLE
DISCOUNT ------------------------------------------
RATE 12.0X 12.5X 13.0X
- -------- ------------ ------------ ------------
<S> <C> <C> <C>
19.0% $18.93 $19.72 $20.51
19.5% $18.54 $19.31 $20.08
20.0% $18.16 $18.91 $19.67
------
AVERAGE ..............................
SHARE(2) $19.31
======
</TABLE>
- ---------------
(1) Discounted rates are near estimates of the cost of equity.
(2) Based on 5,311 shares outstanding.
20
<PAGE> 23
INVESTMENT BANKING GROUP
PROJECT AUSTIN -- PROJECTION MODEL
DISCOUNTED FUTURE STOCK PRICE ANALYSIS -- NET INCOME EXIT MULTIPLE METHOD
(NUMBERS IN THOUSANDS)
(Fiscal Year Ended August)
March 5, 1998 10:23 AM
<TABLE>
<CAPTION>
1999 2000 2001 2002
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income.............................................. 10,029 12,064 14,422 17,042
====== ====== ====== ======
</TABLE>
EQUITY VALUATION MATRIX
<TABLE>
<CAPTION>
2002 NET INCOME
MULTIPLE ASSUMED 2002 NET INCOME EQUITY VALUE
- ---------------- --------------- ------------
<S> <C> <C> <C> <C>
11.0x X $17,042 = $187,464
13.0x X 17,042 = 221,548
15.0x X 17,042 = 255,632
17.0x X 17,042 = 289,717
</TABLE>
<TABLE>
<CAPTION>
YEAR 2002 NET INCOME EXIT MULTIPLE
DISCOUNT ------------------------------------
RATE(1) 12.0X 12.5X 13.0X
- -------- ---------- ---------- ----------
<S> <C> <C> <C>
19.0% $101,981 $106,230 $110,479
19.5% $100,285 $104,463 $108,642
20.0% $ 98,624 $102,733 $106,842
--------
AVERAGE VALUATION OF EQUITY......... $104,475
========
</TABLE>
EQUITY VALUATION MATRIX PER SHARE
<TABLE>
<CAPTION>
YEAR 2002 NET INCOME EXIT MULTIPLE
DISCOUNT ------------------------------------
RATE 12.0X 12.5X 13.0X
- -------- ---------- ---------- ----------
<S> <C> <C> <C>
19.0% $19.20 $20.00 $20.80
19.5% $18.88 $19.67 $20.46
20.0% $18.57 $19.34 $20.12
------
AVERAGE VALUATION OF EQUITY PER
SHARE(2) $19.67
======
</TABLE>
- ---------------
(1) Discounted rates are near estimates of the cost of equity.
(2) Based on 5,311 shares outstanding.
21
<PAGE> 24
INVESTMENT BANKING GROUP
PROJECT AUSTIN -- PROJECTION MODEL
DISCOUNTED FUTURE STOCK PRICE ANALYSIS -- NET INCOME EXIT MULTIPLE METHOD
(NUMBERS IN THOUSANDS)
(Fiscal Year Ended August)
3/5/98 10:23 AM
<TABLE>
<CAPTION>
1999 2000 2001
------ ------ ------
<S> <C> <C> <C>
Net income............................................... 10,029 12,064 14,422
====== ====== ======
</TABLE>
EQUITY VALUATION MATRIX
<TABLE>
<CAPTION>
2001 NET INCOME
MULTIPLE ASSUMED 2001 NET INCOME EQUITY VALUE
- ---------------- --------------- ------------
<C> <S> <C> <C> <C>
11.0x X $14,422 = $158,642
13.0x X 14,422 = 187,485
15.0x X 14,422 = 216,329
17.0x X 14,422 = 245,173
</TABLE>
<TABLE>
<CAPTION>
YEAR 2001 NET INCOME EXIT MULTIPLE
DISCOUNT ------------------------------------
RATE(1) 12.0X 12.5X 13.0X
- -------- ---------- ---------- ----------
<S> <C> <C> <C>
19.0% $102,699 $106,978 $111,257
19.5% $101,415 $105,641 $109,866
20.0% $100,153 $104,326 $108,499
--------
AVERAGE VALUATION OF EQUITY...... $105,648
========
</TABLE>
EQUITY VALUATION MATRIX PER SHARE
<TABLE>
<CAPTION>
YEAR ASSUMPTIONS NET INCOME EXIT MULTIPLE
DISCOUNT ------------------------------------------
RATE 12.0X 12.5X 13.0X
- -------- ------------ ------------ ------------
<S> <C> <C> <C>
19.0% $19.34 $20.14 $20.95
19.5% $19.10 $19.89 $20.69
20.0% $18.86 $19.64 $20.43
------
AVERAGE VALUATION OF EQUITY PER
SHARE(2)............................. $19.89
======
</TABLE>
- ---------------
(1) Discounted rates are near estimates of the cost of equity.
(2) Based on 5,311 shares outstanding.
22
<PAGE> 25
INVESTMENT BANKING GROUP
PROJECT AUSTIN -- PROJECTION MODEL
DISCOUNTED FUTURE STOCK PRICE ANALYSIS -- NET INCOME EXIT MULTIPLE METHOD
(NUMBERS IN THOUSANDS)
(Fiscal Year Ended August)
3/5/98 10:23 AM
<TABLE>
<CAPTION>
1999 2000
------ ------
<S> <C> <C>
Net income.................................................. 10,029 12,064
====== ======
</TABLE>
EQUITY VALUATION MATRIX
<TABLE>
<CAPTION>
2000 NET INCOME
MULTIPLE ASSUMED 2000 NET INCOME EQUITY VALUE
- ---------------- --------------- ------------
<S> <C> <C> <C> <C>
11.0x X $12,064 = $132,701
13.0x X 12,064 = 156,828
15.0x X 12,064 = 180,956
17.0x X 12,064 = 205,082
</TABLE>
<TABLE>
<CAPTION>
YEAR 2000 NET INCOME EXIT MULTIPLE
DISCOUNT ------------------------------------
RATE(1) 12.0X 12.5X 13.0X
- -------- ---------- ---------- ----------
<S> <C> <C> <C>
19.0% $102,228 $106,487 $110,747
19.5% $101,374 $105,598 $109,822
20.0% $100,531 $104,720 $108,909
--------
AVERAGE VALUATION OF EQUITY...... $105,602
========
</TABLE>
EQUITY VALUATION MATRIX PER SHARE
<TABLE>
<CAPTION>
YEAR ASSUMPTIONS NET INCOME EXIT MULTIPLE
DISCOUNT ------------------------------------------
RATE(1) 12.0X 12.5X 13.0X
- -------- ------------ ------------ ------------
<S> <C> <C> <C>
19.0% $19.25 $20.05 $20.85
19.5% $19.09 $19.88 $20.68
20.0% $18.93 $19.72 $20.51
------
AVERAGE VALUATION OF EQUITY PER
SHARE(2).............................. $19.89
======
</TABLE>
- ---------------
(1) Discounted rates are near estimates of the cost of equity.
(2) Based on 5,311 shares outstanding.
23
<PAGE> 26
INVESTMENT BANKING GROUP
PROJECT AUSTIN -- PROJECTION MODEL
DISCOUNTED FUTURE STOCK PRICE ANALYSIS -- NET INCOME EXIT MULTIPLE METHOD
(NUMBERS IN THOUSANDS)
(Fiscal Year Ended August)
3/5/98 10:23 AM
<TABLE>
<CAPTION>
1999
-------
<S> <C>
Net income.................................................. $10,029
=======
</TABLE>
EQUITY VALUATION MATRIX
<TABLE>
<CAPTION>
1999 NET INCOME
MULTIPLE ASSUMED 1999 NET INCOME EQUITY VALUE
- ---------------- --------------- ------------
<S> <C> <C> <C> <C>
11.0x X $10,029 = $110,317
13.0x X 10,029 = 130,375
15.0x X 10,029 = 150,432
17.0x X 10,029 = 170,490
</TABLE>
<TABLE>
<CAPTION>
YEAR 1999 NET INCOME EXIT MULTIPLE
DISCOUNT ----------------------------------
RATE(1) 12.0X 12.5X 13.0X
- -------- ---------- ---------- ----------
<S> <C> <C> <C>
19.0% $101,131 $105,345 $109,559
19.5% $100,708 $104,904 $109,100
20.0% $100,288 $104,467 $108,646
--------
AVERAGE VALUATION OF EQUITY....... $104,905
--------
</TABLE>
EQUITY VALUATION MATRIX PER SHARE
<TABLE>
<CAPTION>
YEAR ASSUMPTIONS NET INCOME EXIT MULTIPLE
DISCOUNT -------------------------------------------
RATE 12.0X 12.5X 13.0X
- -------- ------------- ------------- -------------
<S> <C> <C> <C>
19.0% $19.04 $19.84 $20.63
19.5% $18.96 $19.75 $20.54
20.0% $18.88 $19.67 $20.46
------
AVERAGE VALUATION OF EQUITY PER SHARE(2).. $19.75
------
</TABLE>
- ---------------
(1) Discounted rates are near estimates of the cost of equity.
(2) Based on 5,311 shares outstanding.
24
<PAGE> 27
INVESTMENT BANKING GROUP
AUSTIN
CALCULATION OF WEIGHTED AVERAGE COST OF CAPITAL
(IN 000'S EXCEPT PER SHARE)
Weighted Average Cost of Capital (WACC) = (Equity % of Capitalization)(Cost of
Equity)
+ (Debt % of Capitalization)(Cost of Debt)
85.0% Equity (18.99%) + 15.0% Debt (4.36%)
16.79%
<TABLE>
<CAPTION>
COST OF EQUITY DATA USED
-------------- ---------
<C> <S> <C> <C>
Capital Asset
Cost of Equity = R(l) + B (R(m) - R(l)) Pricing Model (a)
5 Year Treasury
Risk Free Rate = R(l) Yield = 5.70%(b)
Beta of Common Stock = B Austin Beta = 1.10(c)
Common Stock
Returns over
Int.-term Gov't
Market Risk Premium = (R(m) - R(l)) Bonds = 8.90%(d)
Micro-Cap Stock
Cost of Equity = 5.7% + 1.10*(8.9%) + 3.5% Premium = 3.50%
Cost of Debt = (1-T)*R(l)(e)
COST OF EQUITY = 18.99% COST OF DEBT = 4.36%
</TABLE>
Capitalization(f) = $104,973 of Market Equity + $18,503 of Long Term Debt =
$123,476
= 85.01% Equity + 14.99% Debt
- ---------------
(a) The Capital Asset Pricing Model states that the return on an asset or
security is equal to the risk free return (i.e., Treasury Bonds) plus a
risk premium.
(b) 5 Year Treasury as of 3/4/98.
(c) Beta of 1.1 is based on monthly volatility for two years as compared to the
S&P 500.
(d) Intermediate horizon risk premium of 8.9%, as calculated by Ibbotson &
Sinquefield, 1995. Includes an additional Micro-Cap Stock Premium of 3.5%.
(e) Interest cost of 7.27%, tax adjusted at 40.00%.
(f) Austin's debt balance represents the average total debt over the life of
the Company's five-year forecast.
25
<PAGE> 28
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS
TRANSACTION SUMMARY
($S IN 000S)
<TABLE>
<CAPTION>
% OF
USES OF FUNDS: AMOUNT CAPITAL
- -------------- -------- -------
<S> <C> <C>
Offer for equity (to cash out owner)........................ $109,929 63.3%
Debt to be refinanced....................................... 54,698 31.5%
Cash........................................................ 3,000 1.7%
Transaction fees & expenses................................. 6,000 3.5%
-------- -----
Total Uses of Funds....................................... $173,627 100.0%
======== =====
</TABLE>
PROPOSED OFFER PRICE
$20.70
<TABLE>
<CAPTION>
INTEREST % OF
SOURCES OF FUNDS: RATE AMOUNT CAPITAL
- ----------------- -------- -------- -------
<S> <C> <C> <C>
Revolver................................................. 8.80% $ 0 0.0%
Senior sub-debt.......................................... 10.00% 100,000 57.6%
Senior term loan......................................... 8.80% 25,000 14.4%
Preferred Stock.......................................... 12.00% 20,000 11.5%
Management equity -- Common Stock........................ 28,627 16.5%
-------- -----
Total Sources of Funds......................... $173,627 100.0%
======== =====
</TABLE>
FIVE YEAR IRR @ 6.25X EBITDA
<TABLE>
<CAPTION>
OWNERSHIP % RETURN
----------- ------
<S> <C> <C>
Preferred Stock............................................. 16% 25.0%
Management equity -- Common Stock........................... 84% 36.9%
</TABLE>
TRANSACTION SUMMARY STATISTICS
Transaction value
<TABLE>
<CAPTION>
FISCAL YEAR END AUG.: 1998
- --------------------- -----
<S> <C>
Transaction value/EBIT...................................... 9.70x
Transaction value/EBITDA.................................... 6.68x
Transaction value/Sales..................................... .90x
</TABLE>
GOODWILL CALCULATION
<TABLE>
<S> <C>
Purchase price of equity.................................... $109,929
Plus: Transaction fees...................................... 0
Less: Book value acquired................................... 59,355
Less: Assumed asset write-up
Less: Deferred income taxes................................. 0
--------
Book goodwill............................................... $ 50,574(a)
========
</TABLE>
- ---------------
(a) Based on 5,310,579 shares outstanding as of 1/6/98.
(b) Transaction fees are amortized separately and therefore are excluded from
book goodwill.
26
<PAGE> 29
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS
ASSUMPTIONS SUMMARY, KEY RATIOS AND AMORTIZATION SCHEDULE
($S IN 000S)
Transaction Assumptions
$173,627 Transaction value
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUGUST
PROFORMA --------------------------------------------
1998(1) 1999 2000 2001
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Key Ratios:
EBIT/interest expense................ 1.5x 1.8x 2.2x 2.7x
(EBIT -- cap ex)/interest expense.... 1.5x 1.4x 1.8x 2.3x
EBITDA/interest expense.............. 2.2x 2.5x 3.0x 3.6x
(EBITDA -- cap ex)/interest
expense............................ 2.2x 2.2x 2.6x 3.2x
(EBITDA -- change in working cap-cap
ex)/interest expense............... 1.9x 2.3x 2.9x
Senior debt/EBITDA................... 3.8x 3.3x 2.7x 2.2x
-------- -------- -------- --------
Total debt/EBITDA.................... 4.8x 4.1x 3.5x 2.9x
Capitalization:
Senior debt........................ $100,000 58% $ 90,677 53% $ 82,364 49% $ 71,704
Other debt......................... 25,000 14% 25,000 15% 25,000 15% 25,000
-------- -------- -------- --------
Total debt......................... 125,000 72% 115,677 68% 107,364 64% 96,704
Equity............................. 48,627 28% 53,874 32% 61,362 36% 71,329
-------- -------- -------- --------
Total capitalization............... $173,627 100% $169,551 100% $168,726 100% $168,033
Amortization:
Senior sub-debt retired annually..... 14,286 14,286 14,286
Senior term loan retired annually.... -- -- --
Sub-debt retired annually............ -- -- --
Other notes retired annually......... -- -- --
Goodwill amortization over 15
years.............................. $ 4,186 $ 4,186 $ 4,186
Fee amortization over 10 years....... $ 600 $ 600 $ 600
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUGUST
----------------------------------------
2002 2003
-------- --------
<S> <C> <C> <C> <C> <C>
Key Ratios:
EBIT/interest expense................ 3.5x 4.7x
(EBIT -- cap ex)/interest expense.... 3.0x 4.2x
EBITDA/interest expense.............. 4.5x 6.0x
(EBITDA -- cap ex)/interest
expense............................ 4.0x 5.4x
(EBITDA -- change in working cap-cap
ex)/interest expense............... 3.6x 4.9x
Senior debt/EBITDA................... 1.7x 1.2x
-------- --------
Total debt/EBITDA.................... 2.3x 1.8x
Capitalization:
Senior debt........................ 43% $ 59,036 35% $ 43,104 26%
Other debt......................... 15% 25,000 15% 25,000 15%
-------- --------
Total debt......................... 58% 84,036 50% 68,104 41%
Equity............................. 42% 83,856 50% 99,587 59%
-------- --------
Total capitalization............... 100% $167,892 100% $167,692 100%
Amortization:
Senior sub-debt retired annually..... 14,286 14,286
Senior term loan retired annually.... -- --
Sub-debt retired annually............ -- --
Other notes retired annually......... -- --
Goodwill amortization over 15
years.............................. $ 4,186 $ 4,186
Fee amortization over 10 years....... $ 600 $ 600
</TABLE>
- ---------------
(1) Adjusted to show historical operating results with proforma interest expense
and proforma capitalization.
27
<PAGE> 30
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS
PROJECTED INCOME STATEMENTS
($S IN 000S)
<TABLE>
<CAPTION>
HISTORICAL ESTIMATED PROJECTED FISCAL YEAR ENDED AUGUST
---------- --------- ----------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
---------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues..................................... $175,835 $193,391 $207,846 $223,500 $239,900 $257,562 $276,160
% growth................................... 10.0% 7.5% 7.5% 7.3% 7.4% 7.2%
Cost of sales................................ $125,732 $138,952 $149,319 $160,546 $172,085 $184,850 $197,826
% of revenue............................... 71.5% 71.9% 71.8% 71.8% 71.7% 71.8% 71.6%
-------- -------- -------- -------- -------- -------- --------
Gross profit................................. $ 50,103 $ 54,439 $ 58,527 $ 62,954 $ 67,815 $ 72,712 $ 78,334
gross margin............................... 28.5% 28.1% 28.2% 28.2% 28.3% 28.2% 28.4%
General and administrative................... $ 8,855 $ 10,513 $ 10,477 $ 11,003 $ 11,549 $ 12,116 $ 12,661
% of revenue............................... 5.0% 5.4% 5.0% 4.9% 4.8% 4.7% 4.6%
Sales and marketing.......................... 18,119 17,951 18,732 19,783 20,900 22,088 23,163
% of revenue............................... 10.3% 9.3% 9.0% 8.9% 8.7% 8.6% 8.4%
Restructuring and unusual charges............ 1,816 -- -- -- -- -- --
% of revenue............................... 1.0%
Other operating expenses..................... -- -- -- -- -- -- --
% of revenue...............................
-------- -------- -------- -------- -------- -------- --------
Total operating expenses................. $ 28,790 $ 28,464 $ 29,209 $ 30,786 $ 32,449 $ 34,204 $ 35,824
% of revenue............................... 16.4% 14.7% 14.1% 13.8% 13.5% 13.3% 13.0%
EBITDA..................................... $ 21,313 $ 25,975 $ 29,318 $ 32,168 $ 35,366 $ 38,508 $ 42,510
% of revenue............................... 12.1% 13.4% 14.1% 14.4% 14.7% 15.0% 15.4%
Depreciation................................. $ 4,270 $ 3,960 $ 3,934 $ 3,935 $ 3,936 $ 3,937 $ 3,938
Goodwill amortization........................ 3,885 4,121 4,186 4,186 4,186 4,186 4,186
Transaction fee amortization................. -- -- 600 600 600 600 600
-------- -------- -------- -------- -------- -------- --------
Total depreciation & amortization........ $ 8,155 $ 8,081 $ 8,720 $ 8,721 $ 8,722 $ 8,723 $ 8,724
% of revenue............................... 4.6% 4.2% 4.2% 3.9% 3.6% 3.4% 3.2%
-------- -------- -------- -------- -------- -------- --------
EBIT....................................... $ 13,158 $ 17,894 $ 20,598 $ 23,447 $ 26,644 $ 29,785 $ 33,786
% of revenue............................... 7.5% 9.3% 9.9% 10.5% 11.1% 11.6% 12.2%
Capital expenditures....................... $ 3,834 $ 3,935 $ 3,936 $ 3,937 $ 3,938
% of revenue............................... 1.8% 1.8% 1.6% 1.5% 1.4%
</TABLE>
28
<PAGE> 31
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS
PROJECTED BALANCE SHEETS
($S IN 000S)
<TABLE>
<CAPTION>
HISTORICAL ESTIMATED PROJECTED FISCAL YEAR ENDED AUG.
--------------------- -----------------------------------------------
1997 1998 1999 2000 2001 2002 2003
--------- --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
EBIT..................................... $13,158 $17,894 $20,598 $23,447 $26,644 $29,785 $33,786
Interest expense:
Revolver............................... -- -- 218 700 1,122 1,353 1,351
Senior sub-debt........................ -- -- 9,286 7,857 6,429 5,000 3,571
Sub-debt............................... -- -- -- -- -- -- --
Cap. lease oblg........................ -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total interest expense................... 3,002 4,200 11,704 10,757 9,750 8,553 7,123
Home office expense...................... -- -- -- -- -- -- --
Discontinued operations expenses......... 4,820 -- -- -- -- -- --
Extraordinary loss from debt
extinguishment......................... 241 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Other expenses (income).................. 8,063 --
Minority interest........................ -- -- -- -- -- -- --
Pre-tax income........................... 5,095 13,694 8,894 12,690 16,894 21,232 26,663
Provision (benefit) for income taxes..... 4,091 5,615 3,647 5,203 6,926 8,705 10,932
------- ------- ------- ------- ------- ------- -------
Net income............................... $ 1,004 $ 8,079 $ 5,247 $ 7,487 $ 9,967 $12,527 $15,731
======= ======= ======= ======= ======= ======= =======
Preferred dividends...................... -- -- 2,400 2,688 3,011 3,372 3,776
------- ------- ------- ------- ------- ------- -------
Net income to common..................... $ 1,004 $ 8,079 $ 2,847 $ 4,799 $ 6,957 $ 9,155 $11,955
------- ------- ------- ------- ------- ------- -------
</TABLE>
29
<PAGE> 32
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS
PROJECTED BALANCE SHEETS
($S IN 000S)
<TABLE>
<CAPTION>
ESTIMATED PROFORMA
AUG. 1998 ADJUSTMENTS AUG. 1998
----------- -------------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents.................... $ 1,000 $ 0 $ 3,000 $ 4,000
Short-term investments.................. -- -- -- --
Accounts receivable..................... 26,336 -- -- 26,336
Inventories............................. 34,821 -- -- 34,821
Income taxes receivable................. 598 -- -- 598
Other receivables....................... 773 -- -- 773
Prepaid expenses and other current
assets................................ 2,672 -- -- 2,672
-------- --------- -------- --------
Total current assets.................... 66,200 -- 3,000 69,200
Land.................................... 478 -- -- 478
Gross plant and equip................... 37,971 -- -- 37,971
Accumulated depreciation................ (16,849) -- -- (16,849)
-------- --------- -------- --------
Net P,P&E............................... 21,600 -- -- 21,600
Goodwill, net of accumulated
amortization.......................... 34,888 -- 50,574 85,462
Transaction fee & expenses.............. -- -- 6,000 6,000
Other intangible assets................. 8,165 -- -- 8,165
Deferred income taxes and other
assets................................ 4,200 -- -- 4,200
-------- --------- -------- --------
Total assets.......................... $135,053 $ 0 $ 59,574 $194,627
======== ========= ======== ========
LIABILITIES & EQUITY
Current maturities & short-term debt.... $ 0 $ 0 $ 0 $ 0
Trade accounts payable.................. 10,442 -- -- 10,442
Accrued liabilities..................... 10,347 -- -- 10,347
Current portion of lease obligation..... 211 -- -- 211
-------- --------- -------- --------
Total current liabilities............... 21,000 -- -- 21,000
Long term debt
Revolver.............................. 2,098 (2,098) -- --
Senior sub-debt....................... 39,600 (39,600) 100,000 100,000
Senior term loan...................... 13,000 (13,000) 25,000 25,000
Sub-debt.............................. -- -- -- --
Other notes........................... -- -- -- --
Cap. lease oblg....................... -- -- -- --
-------- --------- -------- --------
Total debt.......................... 54,698 (54,698) 125,000 125,000
Less current portion................ -- -- -- --
-------- --------- -------- --------
Total long-term debt.................. 54,698 (54,698) 125,000 125,000
-------- --------- -------- --------
Total liabilities....................... 75,698 (54,698) 125,000 146,000
Preferred stock......................... -- -- 20,000 20,000
Common stock............................ 22,858 (22,858) 28,627 28,627
Unrealized gain (loss) on marketable
securities............................ 21,949 (21,949) -- --
Retained earnings....................... 14,548 (14,548) -- --
-------- --------- -------- --------
Total stockholders' equity.............. 59,355 (59,355) 48,627 48,627
-------- --------- -------- --------
Total liabilities & equity............ $135,053 ($114,053) $173,627 $194,627
======== ========= ======== ========
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUGUST
----------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents.................... $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Short-term investments.................. -- -- -- -- --
Accounts receivable..................... 28,032 29,931 31,910 34,051 36,232
Inventories............................. 37,064 39,574 42,191 45,021 47,905
Income taxes receivable................. 636 679 724 773 822
Other receivables....................... 823 879 937 1,000 1,064
Prepaid expenses and other current
assets................................ 2,845 3,037 3,238 3,455 3,677
-------- -------- -------- -------- --------
Total current assets.................... 70,400 75,100 80,000 85,300 90,700
Land.................................... 478 478 478 478 478
Gross plant and equip................... 41,805 45,740 49,676 53,613 57,551
Accumulated depreciation................ (20,783) (24,718) (28,654) (32,591) (36,529)
-------- -------- -------- -------- --------
Net P,P&E............................... 21,500 21,500 21,500 21,500 21,500
Goodwill, net of accumulated
amortization.......................... 81,276 77,090 72,904 68,718 64,532
Transaction fee & expenses.............. 5,400 4,800 4,200 3,600 3,000
Other intangible assets................. 8,775 9,436 10,129 10,874 11,660
Deferred income taxes and other
assets................................ 4,200 4,200 4,200 4,200 4,200
-------- -------- -------- -------- --------
Total assets.......................... $191,551 $192,126 $192,933 $194,192 $195,592
======== ======== ======== ======== ========
LIABILITIES & EQUITY
Current maturities & short-term debt.... $ 0 $ 0 $ 0 $ 0 $ 0
Trade accounts payable.................. 11,050 11,753 12,506 13,210 14,013
Accrued liabilities..................... 10,950 11,647 12,394 13,090 13,887
Current portion of lease obligation..... -- -- -- -- --
-------- -------- -------- -------- --------
Total current liabilities............... 22,000 23,400 24,900 26,300 27,900
Long term debt
Revolver.............................. 4,963 10,936 14,561 16,179 14,533
Senior sub-debt....................... 85,714 71,429 57,143 42,857 28,571
Senior term loan...................... 25,000 25,000 25,000 25,000 25,000
Sub-debt.............................. -- -- -- -- --
Other notes........................... -- -- -- -- --
Cap. lease oblg....................... -- -- -- -- --
-------- -------- -------- -------- --------
Total debt.......................... 115,677 107,364 96,704 84,036 68,104
Less current portion................ -- -- -- -- --
-------- -------- -------- -------- --------
Total long-term debt.................. 115,677 107,364 96,704 84,036 68,104
-------- -------- -------- -------- --------
Total liabilities....................... 137,677 130,764 121,604 110,336 96,004
Preferred stock......................... 22,400 25,088 28,099 31,470 35,247
Common stock............................ 28,627 28,627 28,627 28,627 28,627
Unrealized gain (loss) on marketable
securities............................ -- -- -- -- --
Retained earnings....................... 2,847 7,647 14,603 23,759 35,714
-------- -------- -------- -------- --------
Total stockholders' equity.............. 53,874 61,362 71,329 83,856 99,587
-------- -------- -------- -------- --------
Total liabilities & equity............ $191,551 $192,126 $192,933 $194,192 $195,592
======== ======== ======== ======== ========
</TABLE>
30
<PAGE> 33
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS
CASH FLOW
($'S IN 000S)
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUGUST
----------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Income.................................. $ 5,247 $ 7,487 $ 9,967 $ 12,527 $ 15,731
Add: Depreciation & amortization.......... 3,934 3,935 3,936 3,937 3,938
Add: Goodwill amortization................ 4,186 4,186 4,186 4,186 4,186
Add: Fee amortization..................... 600 600 600 600 600
Add: Minority interest.................... -- -- -- -- --
Add: PIK Dividend......................... 2,400 2,688 3,011 3,372 3,776
Add: Dividend............................. (2,400) (2,688) (3,011) (3,372) (3,776)
-------- -------- -------- -------- --------
Total Sources............................... $ 13,967 $ 16,208 $ 18,689 $ 21,250 $ 24,455
Less: Changes in other long-term assets &
liabilities............................ (610) (661) (692) (746) (785)
Less: Change in working capital........... (3,200) (3,300) (3,400) (3,900) (3,800)
Less: Capital expenditures (Net of
dispos.)............................... (3,834) (3,935) (3,936) (3,937) (3,938)
-------- -------- -------- -------- --------
Total Uses.................................. ($ 7,644) ($ 7,896) ($ 8,028) ($ 8,583) ($ 8,523)
-------- -------- -------- -------- --------
TOTAL FREE CASH FLOW BEFORE FINANCING....... $ 6,323 $ 8,312 $ 10,661 $ 12,667 $ 15,932
REPAYMENT/ BORROWING OF DEBT
Revolver.................................... 4,963 5,973 3,625 1,618 (1,646)
Senior sub-debt............................. (14,286) (14,286) (14,286) (14,286) (14,286)
Senior term loan............................ -- -- -- -- --
Sub-debt.................................... -- -- -- -- --
Other notes................................. -- -- -- -- --
Cap. lease oblg............................. -- -- -- -- --
-------- -------- -------- -------- --------
Total Debt (Repayments)/ Borrowing.......... ($ 9,323) ($ 8,312) ($10,661) ($12,667) ($15,932)
CHANGE IN CASH BALANCE...................... ($ 3,000) $ 0 $ 0 $ 0 $ 0
</TABLE>
31
<PAGE> 34
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS
WORKING CAPITAL ASSUMPTIONS
($'S IN 000S)
<TABLE>
<CAPTION>
ESTIMATED PROFORMA PROJECTED FISCAL YEAR ENDED AUGUST
----------------- AUGUST -----------------------------------------------
1997 1998 ADJUSTMENTS 1998 1999 2000 2001 2002 2003
------- ------- ----------------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accounts receivable......... $24,282 $26,336 -- -- $26,336 $28,032 $29,931 $31,910 $34,051 $36,232
% of sales................ 13.8% 13.6% 13.6% 13.5% 13.4% 13.3% 13.2% 13.1%
Inventories................. $32,105 $34,821 -- -- $34,821 $37,064 $39,574 $42,191 $45,021 $47,905
% of sales................ 18.3% 18.0% 18.0% 17.8% 17.7% 17.6% 17.5% 17.3%
Income taxes receivable..... $ 551 $ 598 -- -- $ 598 $ 636 $ 679 $ 724 $ 773 $ 822
% of sales................ 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%
Other receivables........... $ 713 $ 773 -- -- $ 773 $ 823 $ 879 $ 937 $ 1,000 $ 1,064
% of sales................ 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%
Prepaid expenses and other
current assets............ $ 2,464 $ 2,672 -- -- $ 2,672 $ 2,845 $ 3,037 $ 3,238 $ 3,455 $ 3,677
% of sales................ 1.4% 1.4% 1.4% 1.4% 1.4% 1.3% 1.3% 1.3%
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL CURRENT ASSETS,
EXCLUDING CASH............ $65,200 -- -- $65,200 $69,400 $74,100 $79,000 $84,300 $89,700
% of sales................ 0.0% 33.7% 33.7% 33.4% 33.2% 32.9% 32.7% 32.5%
Trade accounts payable...... $11,299 $10,442 -- -- $10,442 $11,050 $11,753 $12,506 $13,210 $14,013
% of sales................ 6.4% 5.4% 5.4% 5.3% 5.3% 5.2% 5.1% 5.1%
Accrued liabilities......... $11,197 $10,347 -- -- $10,347 $10,950 $11,647 $12,394 $13,090 $13,887
% of sales................ 6.4% 5.4% 5.4% 5.3% 5.2% 5.2% 5.1% 5.0%
Current portion of lease
obligation................ $ 481 $ 211 -- -- $ 211 $ 0 $ 0 $ 0 $ 0 $ 0
% of sales................ 0.3% 0.1% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL CURRENT LIABILITIES
EXCLUDING S-T DEBT........ $21,000 -- -- $21,000 $22,000 $23,400 $24,900 $26,300 $27,900
% of sales................ 0.0% 10.9% 10.9% 10.6% 10.5% 10.4% 10.2% 10.1%
Net non-cash working
capital................... $44,200 $44,200 $47,400 $50,700 $54,100 $58,000 $61,800
% of sales................ 0.0% 22.9% 22.9% 22.8% 22.7% 22.6% 22.5% 22.4%
Change in non-cash working
capital................... $ 3,200 $ 3,300 $ 3,400 $ 3,900 $ 3,800
</TABLE>
32
<PAGE> 35
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS
RETURNS ANALYSIS
($0S IN 000S)
<TABLE>
<CAPTION>
PROJECTED RETURNS ON MANAGEMENT EQUITY
----------------------------------------------------
YEAR ENDING AUGUST
----------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
TOTAL CAPITALIZATION AS A MULTIPLE OF EBITDA
5.50x......................................... $161,249 $176,924 $194,513 $211,794 $233,805
5.75x......................................... 168,579 184,966 203,355 221,421 244,433
6.00x......................................... 175,908 193,008 212,196 231,048 255,060
6.25x......................................... 183,238 201,050 221,038 240,675 265,688
LESS: TOTAL DEBT (NET OF CASH)(1)................. 137,077 131,452 123,802 114,507 102,351
VALUE OF EQUITY
5.50x......................................... $ 24,172 $ 45,472 $ 70,711 $ 97,287 $131,454
5.75x......................................... 31,502 53,514 79,552 106,914 142,082
6.00x......................................... 38,831 61,556 88,394 116,541 152,709
6.25x......................................... 46,161 69,598 97,235 126,168 163,337
RETURNS ANALYSIS
28,627
OWNERSHIP PERCENTAGE.............................. 84.2% 84.2% 84.2% 84.2% 84.2%
IRR ASSUMING EBITDA MULTIPLES OF:
5.50x......................................... (28.9%) 15.6% 27.6% 30.1% 31.1%
5.75x......................................... (7.3%) 25.5% 32.8% 33.2% 33.1%
7.1x 6.00x.................................... 14.2% 34.6% 37.5% 36.1% 35.0%
6.25x......................................... 35.8% 43.1% 41.9% 38.8% 36.9%
</TABLE>
- ---------------
(1) Includes the repayment of preferred stock.
33
<PAGE> 36
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS
RETURNS ANALYSIS
($0S IN 000S)
<TABLE>
<CAPTION>
PROJECTED RETURNS ON PREFERRED EQUITY
----------------------------------------------------
YEAR ENDING AUGUST
----------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
TOTAL CAPITALIZATION AS A MULTIPLE OF
EBITDA
5.50x.............................. $161,249 $176,924 $194,513 $211,794 $233,805
5.75x.............................. 168,579 184,966 203,355 221,421 244,433
6.00x.............................. 175,908 193,008 212,196 231,048 255,060
6.25x.............................. 183,238 201,050 221,038 240,675 265,688
LESS: TOTAL DEBT (NET OF CASH)(1)....... 137,077 131,452 123,802 114,507 102,351
VALUE OF EQUITY
5.50x.............................. $ 24,172 $ 45,472 $ 70,711 $ 97,287 $131,454
5.75x.............................. 31,502 53,514 79,552 106,914 142,082
6.00x.............................. 38,831 61,556 88,394 116,541 152,709
6.25x.............................. 46,161 69,598 97,235 126,168 163,337
BALANCE AT YEAR END:(2)
----------------------------------------------------
RETURNS ANALYSIS
20,000............................. 22,400 25,088 28,099 31,470 35,247
OWNERSHIP PERCENTAGE.................... 15.8% 15.8% 15.8% 15.8% 15.8%
IRR ASSUMING EBITDA MULTIPLES OF:
5.50x.............................. 31.1% 27.0% 25.2% 23.7% 22.9%
5.75x.............................. 36.9% 29.5% 26.7% 24.7% 23.6%
6.00x.............................. 42.7% 31.9% 28.1% 25.7% 24.3%
6.25x.............................. 48.5% 34.3% 29.5% 26.6% 25.0%
</TABLE>
- ---------------
(1) Includes the repayment of preferred stock.
(2) Includes PIK Dividends
34
<PAGE> 37
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS -- MAXIMIZED PRICE
TRANSACTION SUMMARY
($S IN 000S)
<TABLE>
<CAPTION>
% OF
USES OF FUNDS: AMOUNT CAPITAL
-------------- -------- -------
<S> <C> <C>
Offer for equity (to cash out owner)........................ $111,645 63.7%
Debt to be refinanced....................................... 54,698 31.2%
Cash........................................................ 3,000 1.7%
Transaction fees & expenses................................. 6,000 3.4%
-------- -----
Total Uses of Funds............................... $175,343 100.0%
======== =====
</TABLE>
PROPOSED OFFER PRICE
$21.00
<TABLE>
<CAPTION>
INTEREST % OF
SOURCES OF FUNDS: RATE AMOUNT CAPITAL
----------------- -------- -------- -------
<S> <C> <C> <C>
Revolver................................................ 8.80% $ 0 0.0%
Senior sub-debt......................................... 10.00% 100,000 57.0%
Senior term loan........................................ 8.80% 25,000 14.3%
Preferred Stock......................................... 12.00% 20,000 11.4%
Management equity -- Common Stock................................. 30,343 17.3%
-------- -----
Total Sources of Funds.................................. $175,343 100.0%
======== =====
</TABLE>
FIVE YEAR IRR @ 6.25X EBITDA
<TABLE>
<CAPTION>
OWNERSHIP % RETURN
----------- ------
<S> <C> <C>
Preferred Stock............................................. 16% 25.0%
Management equity -- Common Stock........................... 84% 35.3%
</TABLE>
TRANSACTION SUMMARY STATISTICS
<TABLE>
<CAPTION>
TRANSACTION VALUE
FISCAL YEAR END AUGUST 1998
---------------------- -----
<S> <C>
Transaction value/EBIT...................................... 9.80x
Transaction value/EBITDA.................................... 6.75x
Transaction value/Sales..................................... .91x
</TABLE>
GOODWILL CALCULATION
<TABLE>
<S> <C>
Purchase price of equity.................................... 111,645
Plus: Transaction fees...................................... 0
Less: Book value acquired................................... 59,355
Less: Assumed asset write-up
Less: Deferred income taxes................................. 0
--------
Book goodwill............................................... $ 52,290(a)
========
</TABLE>
- ---------------
(a) Based on 5,316,446 shares outstanding as of 1/6/98.
(b) Transaction fees are amortized separately and therefore are excluded from
book goodwill.
35
<PAGE> 38
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS -- MAXIMIZED PRICE
ASSUMPTIONS SUMMARY, KEY RATIOS AND AMORTIZATION SCHEDULE
($S IN 000S)
Transaction Assumptions
$175,343 Transaction value
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUGUST
PROFORMA --------------------------------------------
1998(1) 1999 2000 2001
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Key Ratios:
EBIT/interest expense.............. 1.5x 1.8x 2.2x 2.7x
(EBIT -- cap ex)/interest
expense.......................... 1.5x 1.4x 1.8x 2.3x
EBITDA/interest expense............ 2.2x 2.5x 3.0x 3.6x
(EBITDA -- cap ex)/interest
expense.......................... 2.2x 2.2x 2.6x 3.2x
(EBITDA -- change in working cap --
cap ex)/interest expense......... 1.9x 2.3x 2.9x
Senior debt/EBITDA................. 3.8x 3.3x 2.7x 2.2x
Total debt/EBITDA.................. 4.8x 4.1x 3.5x 2.9x
Capitalization:
Senior debt........................ $100,000 57% $ 90,677 53% $ 82,364 48% $ 71,704
Other debt......................... 25,000 14% 25,000 15% 25,000 15% 25,000
-------- ---- -------- ---- -------- ---- --------
Total debt......................... 125,000 71% 115,677 68% 107,364 63% 96,704
Equity............................. 50,343 29% 55,591 32% 63,078 37% 73,045
-------- ---- -------- ---- -------- ---- --------
Total capitalization............... $175,343 100% $171,268 100% $170,443 100% $169,749
Amortization:
Senior sub-debt retired annually... 14,286 14,286 14,286
Senior term loan retired
annually......................... -- -- --
Sub-debt retired annually.......... -- -- --
Other notes retired annually....... -- -- --
Goodwill amortization over 15
years.............................. $ 4,186 $ 4,186 $ 4,186
Fee amortization over 10 years....... $ 600 $ 600 $ 600
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUGUST
----------------------------------------
2002 2003
-------- --------
<S> <C> <C> <C> <C> <C>
Key Ratios:
EBIT/interest expense.............. 3.5x 4.7x
(EBIT -- cap ex)/interest
expense.......................... 3.0x 4.2x
EBITDA/interest expense............ 4.5x 6.0x
(EBITDA -- cap ex)/interest
expense.......................... 4.0x 5.4x
(EBITDA -- change in working cap --
cap ex)/interest expense......... 3.6x 4.9x
Senior debt/EBITDA................. 1.7x 1.2x
Total debt/EBITDA.................. 2.3x 1.8x
Capitalization:
Senior debt........................ 42% $ 59,036 35% $ 43,104 25%
Other debt......................... 15% 25,000 15% 25,000 15%
---- -------- ---- -------- ----
Total debt......................... 57% 84,036 50% 68,104 40%
Equity............................. 43% 85,572 50% 01,304 60%
---- -------- ---- -------- ----
Total capitalization............... 100% $169,609 100% $169,408 100%
Amortization:
Senior sub-debt retired annually... 14,286 14,286
Senior term loan retired
annually......................... -- --
Sub-debt retired annually.......... -- --
Other notes retired annually....... -- --
Goodwill amortization over 15
years.............................. $ 4,186 $ 4,186
Fee amortization over 10 years....... $ 600 $ 600
</TABLE>
- ---------------
(1) Adjusted to show historical operating results with proforma interest expense
and proforma capitalization.
36
<PAGE> 39
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS -- MAXIMIZED PRICE
PROJECTED INCOME STATEMENTS
($S IN 000S)
<TABLE>
<CAPTION>
HISTORICAL ESTIMATED PROJECTED FISCAL YEAR ENDED AUGUST
---------- --------- ----------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
---------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................................... $175,835 $193,391 $207,846 $223,500 $239,900 $257,562 $276,160
% growth........................................ 10.0% 7.5% 7.5% 7.3% 7.4% 7.2%
Cost of sales..................................... $125,732 $138,952 $149,319 $160,546 $172,085 $184,850 $197,826
% of revenue.................................... 71.5% 71.9% 71.8% 71.8% 71.7% 71.8% 71.6%
-------- -------- -------- -------- -------- -------- --------
Gross profit...................................... $ 50,103 $ 54,439 $ 58,527 $ 62,954 $ 67,815 $ 72,712 $ 78,334
Gross margin.................................... 28.5% 28.1% 28.2% 28.2% 28.3% 28.2% 28.4%
General and administrative........................ $ 8,855 $ 10,513 $ 10,477 $ 11,003 $ 11,549 $ 12,116 $ 12,661
% of revenue.................................... 5.0% 5.4% 5.0% 4.9% 4.8% 4.7% 4.6%
Sales and marketing............................... 18,119 17,951 18,732 19,783 20,900 22,088 23,163
% of revenue.................................... 10.3% 9.3% 9.0% 8.9% 8.7% 8.6% 8.4%
Restructuring and unusual charges................. 1,816 -- -- -- -- -- --
% of revenue.................................... 1.0% --
Other operating expenses.......................... -- -- -- -- -- -- --
% of revenue....................................
-------- -------- -------- -------- -------- -------- --------
Total operating expenses........................ $ 28,790 $ 28,464 $ 29,209 $ 30,786 $ 32,449 $ 34,204 $ 35,824
% of revenue.................................. 16.4% 14.7% 14.1% 13.8% 13.5% 13.3% 13.0%
EBITDA............................................ $ 21,313 $ 25,975 $ 29,318 $ 32,168 $ 35,366 $ 38,508 $ 42,510
% of revenue.................................... 12.1% 13.4% 14.1% 14.4% 14.7% 15.0% 15.4%
Depreciation...................................... $ 4,270 $ 3,960 $ 3,934 $ 3,935 $ 3,936 $ 3,937 $ 3,938
Goodwill amortization............................. 3,885 4,121 4,186 4,186 4,186 4,186 4,186
Transaction fee amortization...................... -- -- 600 600 600 600 600
-------- -------- -------- -------- -------- -------- --------
Total depreciation & amortization............... $ 8,155 $ 8,081 $ 8,720 $ 8,721 $ 8,722 $ 8,723 $ 8,724
% of revenue.................................. 4.6% 4.2% 4.2% 3.9% 3.6% 3.4% 3.2%
-------- -------- -------- -------- -------- -------- --------
EBIT.............................................. $ 13,158 $ 17,894 $ 20,598 $ 23,447 $ 26,644 $ 29,785 $ 33,786
% of revenue.................................... 7.5% 9.3% 9.9% 10.5% 11.1% 11.6% 12.2%
Capital expenditures.............................. $ 3,834 $ 3,935 $ 3,936 $ 3,937 $ 3,938
% of revenue.................................... 1.8% 1.8% 1.6% 1.5% 1.4%
</TABLE>
37
<PAGE> 40
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS -- MAXIMIZED PRICE
PROJECTED INCOME STATEMENTS
($S IN 000S)
<TABLE>
<CAPTION>
HISTORICAL ESTIMATED PROJECTED FISCAL YEAR ENDED AUGUST
-------------------- ---------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
-------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
EBIT............................. $13,158 $17,894 $20,598 $23,447 $26,644 $29,785 $33,786
Interest expense:
Revolver......................... -- -- 218 700 1,122 1,353 1,351
Senior sub-debt.................. -- -- 9,286 7,857 6,429 5,000 3,571
Sub-debt......................... -- -- -- -- -- -- --
Cap. lease oblg.................. -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total interest expense............. 3,002 4,200 11,704 10,757 9,750 8,553 7,123
Home office expense................ -- -- -- -- -- -- --
Discontinued operations expenses... 4,820 -- -- -- -- -- --
Extraordinary loss from debt
extinguishment................... 241 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Other expenses (income)............ 8,063 --
Minority interest.................. -- -- -- -- -- -- --
Pre-tax income..................... 5,095 13,694 8,894 12,690 16,894 21,232 26,663
Provision (benefit) for income
taxes............................ 4,091 5,615 3,647 5,203 6,926 8,705 10,932
------- ------- ------- ------- ------- ------- -------
Net income....................... $ 1,004 $ 8,079 $ 5,247 $ 7,487 $ 9,967 $12,527 $15,731
======= ======= ======= ======= ======= ======= =======
Preferred dividends................ -- -- 2,400 2,688 3,011 3,372 3,776
------- ------- ------- ------- ------- ------- -------
Net income to common............... $ 1,004 $ 8,079 $ 2,847 $ 4,799 $ 6,957 $ 9,155 $11,955
------- ------- ------- ------- ------- ------- -------
</TABLE>
38
<PAGE> 41
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS -- MAXIMIZED PRICE
PROJECTED BALANCE SHEETS
($S IN 000S)
ASSETS
<TABLE>
<CAPTION>
ESTIMATED PROFORMA
AUGUST 1998 ADJUSTMENTS AUGUST 1998
----------- -------------------- -----------
<S> <C> <C> <C> <C>
Cash and equivalents.................... $ 1,000 $ 0 $ 3,000 $ 4,000
Short-term investments.................. -- -- -- --
Accounts receivable..................... 26,336 -- -- 26,336
Inventories............................. 34,821 -- -- 34,821
Income taxes receivable................. 598 -- -- 598
Other receivables....................... 773 -- -- 773
Prepaid expenses and other current
assets................................ 2,672 -- -- 2,672
-------- --------- -------- --------
Total current assets.................... 66,200 -- 3,000 69,200
Land.................................... 478 -- -- 478
Gross plant and equip................... 37,971 -- -- 37,971
Accumulated depreciation................ (16,849) -- -- (16,849)
-------- --------- -------- --------
Net P, P&E.............................. 21,600 -- -- 21,600
Goodwill, net of accumulated
amortization.......................... 34,888 -- 52,290 87,178
Transaction fee & expenses.............. -- -- 6,000 6,000
Other intangible assets................. 8,165 -- -- 8,165
Deferred income taxes and other
assets................................ 4,200 -- -- 4,200
-------- --------- -------- --------
Total assets.......................... $135,053 $ 0 $ 61,290 $196,343
======== ========= ======== ========
LIABILITIES & EQUITY
Current maturities & short-term debt.... $ 0 $ 0 $ 0 $ 0
Trade accounts payable.................. 10,442 -- -- 10,442
Accrued liabilities..................... 10,347 -- -- 10,347
Current portion of lease obligation..... 211 -- -- 211
-------- --------- -------- --------
Total current liabilities............... 21,000 -- -- 21,000
Long term debt
Revolver.............................. 2,098 (2,098) -- --
Senior sub-debt....................... 39,600 (39,600) 100,000 100,000
Senior term loan...................... 13,000 (13,000) 25,000 25,000
Sub-debt.............................. -- -- -- --
Other notes........................... -- -- -- --
Cap. lease oblg....................... -- -- -- --
-------- --------- -------- --------
Total debt............................ 54,698 (54,698) 125,000 125,000
Less current portion.................. -- -- -- --
-------- --------- -------- --------
Total long-term debt.................. 54,698 (54,698) 125,000 125,000
Total liabilities....................... 75,698 (54,698) 125,000 146,000
Preferred stock......................... -- -- 20,000 20,000
Common stock............................ 22,858 (22,858) 30,343 30,343
Unrealized gain (loss) on marketable
securities............................ 21,949 (21,949) -- --
Retained earnings....................... 14,548 (14,548) -- --
-------- --------- -------- --------
Total stockholders' equity.............. 59,355 (59,355) 50,343 50,343
-------- --------- -------- --------
Total liabilities & equity...... $135,053 $(114,053) $175,343 $196,343
======== ========= ======== ========
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUGUST
----------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash and equivalents.................... $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Short-term investments.................. -- -- -- -- --
Accounts receivable..................... 28,032 29,931 31,910 34,051 36,232
Inventories............................. 37,064 39,574 42,191 45,021 47,905
Income taxes receivable................. 636 679 724 773 822
Other receivables....................... 823 879 937 1,000 1,064
Prepaid expenses and other current
assets................................ 2,845 3,037 3,238 3,455 3,677
-------- -------- -------- -------- --------
Total current assets.................... 70,400 75,100 80,000 85,300 90,700
Land.................................... 478 478 478 478 478
Gross plant and equip................... 41,805 45,740 49,676 53,613 57,551
Accumulated depreciation................ (20,783) (24,718) (28,654) (32,591) (36,529)
-------- -------- -------- -------- --------
Net P, P&E.............................. 21,500 21,500 21,500 21,500 21,500
Goodwill, net of accumulated
amortization.......................... 82,992 78,806 74,620 70,434 66,248
Transaction fee & expenses.............. 5,400 4,800 4,200 3,600 3,000
Other intangible assets................. 8,775 9,436 10,129 10,874 11,660
Deferred income taxes and other
assets................................ 4,200 4,200 4,200 4,200 4,200
-------- -------- -------- -------- --------
Total assets.......................... $193,268 $193,843 $194,649 $195,909 $197,308
======== ======== ======== ======== ========
LIABILITIES & EQUITY
Current maturities & short-term debt.... $ 0 $ 0 $ 0 $ 0 $ 0
Trade accounts payable.................. 11,050 11,753 12,506 13,210 14,013
Accrued liabilities..................... 10,950 11,647 12,394 13,090 13,887
Current portion of lease obligation..... -- -- -- -- --
-------- -------- -------- -------- --------
Total current liabilities............... 22,000 23,400 24,900 26,300 27,900
Long term debt
Revolver.............................. 4,963 10,936 14,561 16,179 14,533
Senior sub-debt....................... 85,714 71,429 57,143 42,857 28,571
Senior term loan...................... 25,000 25,000 25,000 25,000 25,000
Sub-debt.............................. -- -- -- -- --
Other notes........................... -- -- -- -- --
Cap. lease oblg....................... -- -- -- -- --
-------- -------- -------- -------- --------
Total debt............................ 115,677 107,364 96,704 84,036 68,104
Less current portion.................. -- -- -- -- --
-------- -------- -------- -------- --------
Total long-term debt.................. 115,677 107,364 96,704 84,036 68,104
Total liabilities....................... 137,677 130,764 121,604 110,336 96,004
Preferred stock......................... 22,400 25,088 28,099 31,470 35,247
Common stock............................ 30,343 30,343 30,343 30,343 30,343
Unrealized gain (loss) on marketable
securities............................ -- -- -- -- --
Retained earnings....................... 2,847 7,647 14,603 23,759 35,714
-------- -------- -------- -------- --------
Total stockholders' equity.............. 55,591 63,078 73,045 85,572 101,304
-------- -------- -------- -------- --------
Total liabilities & equity...... $193,268 $193,843 $194,649 $195,909 $197,308
======== ======== ======== ======== ========
</TABLE>
39
<PAGE> 42
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS -- MAXIMIZED PRICE
CASH FLOW
($S IN 000S)
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUGUST
----------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Income.............................. $ 5,247 $ 7,487 $ 9,967 $ 12,527 $ 15,731
Add: Depreciation & amortization...... 3,934 3,935 3,936 3,937 3,938
Add: Goodwill amortization............ 4,186 4,186 4,186 4,186 4,186
Add: Fee amortization................. 600 600 600 600 600
Add: Minority interest................ -- -- -- -- --
Add: PIK Dividend..................... 2,400 2,688 3,011 3,372 3,776
Add: Dividend......................... (2,400) (2,688) (3,011) (3,372) (3,776)
-------- -------- -------- -------- --------
Total Sources........................... $ 13,967 $ 16,208 $ 18,689 $ 21,250 $ 24,455
Less: Changes in other long-term
assets & liabilities............... (610) (661) (692) (746) (785)
Less: Change in working capital....... (3,200) (3,300) (3,400) (3,900) (3,800)
Less: Capital expenditures (Net of
dispos.)........................... (3,834) (3,935) (3,936) (3,937) (3,938)
-------- -------- -------- -------- --------
Total Uses.............................. $ (7,644) $ (7,896) $ (8,028) $ (8,583) $ (8,523)
-------- -------- -------- -------- --------
TOTAL FREE CASH FLOW BEFORE FINANCING... $ 6,323 $ 8,312 $ 10,661 $ 12,667 $ 15,932
REPAYMENT/ BORROWING OF DEBT
Revolver................................ 4,963 5,973 3,625 1,618 (1,646)
Senior sub-debt......................... (14,286) (14,286) (14,286) (14,286) (14,286)
Senior term loan........................ -- -- -- -- --
Sub-debt................................ -- -- -- -- --
Other notes............................. -- -- -- -- --
Cap. lease oblg......................... -- -- -- -- --
-------- -------- -------- -------- --------
Total Debt (Repayments)/ Borrowing...... $ (9,323) $ (8,312) $(10,661) $(12,667) $(15,932)
CHANGE IN CASH BALANCE.................. $ (3,000) $ 0 $ 0 $ 0 $ 0
</TABLE>
40
<PAGE> 43
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS -- MAXIMIZED PRICE
WORKING CAPITAL ASSUMPTIONS
($'S IN 000S)
<TABLE>
<CAPTION>
ESTIMATED PROFORMA PROJECTED FISCAL YEAR ENDED AUGUST
----------------- AUGUST -----------------------------------------------
1997 1998 ADJUSTMENTS 1998 1999 2000 2001 2002 2003
------- ------- ----------------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accounts receivable.......... $24,282 $26,336 -- -- $26,336 $28,032 $29,931 $31,910 $34,051 $36,232
% of sales................. 13.8% 13.6% 13.6% 13.5% 13.4% 13.3% 13.2% 13.1%
Inventories.................. $32,105 $34,821 -- -- $34,821 $37,064 $39,574 $42,191 $45,021 $47,905
% of sales................. 18.3% 18.0% 18.0% 17.8% 17.7% 17.6% 17.5% 17.3%
Income taxes receivable...... $ 551 $ 598 -- -- $ 598 $ 636 $ 679 $ 724 $ 773 $ 822
% of sales................. 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%
Other receivables............ $ 713 $ 773 -- -- $ 773 $ 823 $ 879 $ 937 $ 1,000 $ 1,064
% of sales................. 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%
Prepaid expenses and other
current assets............. $ 2,464 $ 2,672 -- -- $ 2,672 $ 2,845 $ 3,037 $ 3,238 $ 3,455 $ 3,677
% of sales................. 1.4% 1.4% 1.4% 1.4% 1.4% 1.3% 1.3% 1.3%
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL CURRENT ASSETS,
EXCLUDING CASH............. $65,200 -- -- $65,200 $69,400 $74,100 $79,000 $84,300 $89,700
% of sales................. 0.0% 33.7% 33.7% 33.4% 33.2% 32.9% 32.7% 32.5%
Trade accounts payable....... $11,299 $10,442 -- -- $10,442 $11,050 $11,753 $12,506 $13,210 $14,013
% of sales................. 6.4% 5.4% 5.4% 5.3% 5.3% 5.2% 5.1% 5.1%
Accrued liabilities.......... $11,197 $10,347 -- -- $10,347 $10,950 $11,647 $12,394 $13,090 $13,887
% of sales................. 6.4% 5.4% 5.4% 5.3% 5.2% 5.2% 5.1% 5.0%
Current portion of lease
obligation................. $ 481 $ 211 -- -- $ 211 $ 0 $ 0 $ 0 $ 0 $ 0
% of sales................. 0.3% 0.1% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL CURRENT LIABILITIES
EXCLUDING S-T DEBT......... $21,000 -- -- $21,000 $22,000 $23,400 $24,900 $26,300 $27,900
% of sales................. 0.0% 10.9% 10.9% 10.6% 10.5% 10.4% 10.2% 10.1%
Net non-cash working
capital.................... $44,200 $44,200 $47,400 $50,700 $54,100 $58,000 $61,800
% of sales................. 0.0% 22.9% 22.9% 22.8% 22.7% 22.6% 22.5% 22.4%
Change in non-cash working
capital.................... $ 3,200 $ 3,300 $ 3,400 $ 3,900 $ 3,800
</TABLE>
41
<PAGE> 44
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS -- MAXIMIZED PRICE
RETURNS ANALYSIS
($0S IN 000S)
<TABLE>
<CAPTION>
PROJECTED RETURNS ON MANAGEMENT EQUITY
----------------------------------------------------
YEAR ENDING AUGUST
----------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
TOTAL CAPITALIZATION AS A MULTIPLE OF
EBITDA
5.50 x............................. $161,249 $176,924 $194,513 $211,794 $233,805
5.75 x............................. 168,579 184,966 203,355 221,421 244,433
6.00 x............................. 175,908 193,008 212,196 231,048 255,060
6.25 x............................. 183,238 201,050 221,038 240,675 265,688
LESS: TOTAL DEBT (NET OF CASH)(1)....... 137,077 131,452 123,802 114,507 102,351
VALUE OF EQUITY
5.50 x............................. $ 24,172 $ 45,472 $ 70,711 $ 97,287 $131,454
5.75 x............................. 31,502 53,514 79,552 106,914 142,082
6.00 x............................. 38,831 61,556 88,394 116,541 152,709
6.25 x............................. 46,161 69,598 97,235 126,168 163,337
RETURNS ANALYSIS
30,343
OWNERSHIP PERCENTAGE.................... 84.2% 84.2% 84.2% 84.2% 84.2%
IRR ASSUMING EBITDA MULTIPLES OF:
5.50 x............................. (32.9%) 12.3% 25.2% 28.2% 29.5%
5.75 x............................. (12.6%) 21.9% 30.2% 31.2% 31.6%
6.00 x............................. 7.8% 30.7% 34.9% 34.1% 33.5%
--------
6.25 x............................. 28.1% 39.0% 39.2% 36.8% 35.3%
--------
</TABLE>
- ---------------
(1) Includes the repayment of preferred stock.
42
<PAGE> 45
INVESTMENT BANKING GROUP
AUSTIN -- LEVERAGED BUYOUT ANALYSIS -- MAXIMIZED PRICE
RETURNS ANALYSIS
($0S IN 000S)
<TABLE>
<CAPTION>
PROJECTED RETURNS ON PREFERRED EQUITY
----------------------------------------------------
YEAR ENDING AUGUST
----------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
TOTAL CAPITALIZATION AS A MULTIPLE OF
EBITDA
5.50 x............................. $161,249 $176,924 $194,513 $211,794 $233,805
5.75 x............................. 168,579 184,966 203,355 221,421 244,433
6.00 x............................. 175,908 193,008 212,196 231,048 255,060
6.25 x............................. 183,238 201,050 221,038 240,675 265,688
LESS: TOTAL DEBT (NET OF CASH)(1)....... 137,077 131,452 123,802 114,507 102,351
VALUE OF EQUITY
5.50 x............................. $ 24,172 $ 45,472 $ 70,711 $ 97,287 $131,454
5.75 x............................. 31,502 53,514 79,552 106,914 142,082
6.00 x............................. 38,831 61,556 88,394 116,541 152,709
6.25 x............................. 46,161 69,598 97,235 126,168 163,337
BALANCE AT YEAR END:(2)
----------------------------------------------------
RETURNS ANALYSIS
20,000............................. 22,400 25,088 28,099 31,470 35,247
OWNERSHIP PERCENTAGE.................... 15.8% 15.8% 15.8% 15.8% 15.8%
IRR ASSUMING EBITDA MULTIPLES OF:
5.50 x............................. 31.1% 27.0% 25.2% 23.7% 22.9%
5.75 x............................. 36.9% 29.5% 26.7% 24.7% 23.6%
6.00 x............................. 42.7% 31.9% 28.1% 25.7% 24.3%
--------
6.25 x............................. 48.5% 34.3% 29.5% 26.6% 25.0%
--------
</TABLE>
- ---------------
(1) Includes the repayment of preferred stock.
(2) Includes PIK Dividends
43
<PAGE> 46
INVESTMENT BANKING GROUP
PROMOTIONAL PRODUCTS INDUSTRY*
ANALYSIS OF M&A TRANSACTION MULTIPLES SINCE 1/1/95
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
AGGREG. EQUITY LEVERED AGGREGATE
CONSID. AS A CONSIDERATION AS A
MULTIPLE OF: MULTIPLE OF:
AGGREGATE LEVERED --------------- -----------------------
DATE EQUITY AGGREGATE LTM NET BOOK LTM LTM LTM PERCENT
ANNOUNCED ACQUIROR / TARGET CONSIDERATION CONSIDERATION(2) INCOME VALUE REVENUE EBITDA EBIT ACQUIRED
- --------- ----------------- ------------- ---------------- ------- ----- ------- ------ ---- --------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
03/17/95 Devon Group Inc $ 17.2 $ 17.2 NA NA NA NA NA NA
Devon Group Inc
02/01/96 Arctco Inc $ 16.5 $ 16.5 NA NA NA NA NA NA
Arctco Inc
07/25/96 RR Donnelley & Sons $250.0 $250.0 NA NA NA NA NA NA
Co
RR Donnelley & Sons
Co
11/01/96 Social Expressions $ 2.5 $ 8.5 NA NA NA NA NA NA
Acquisition
TMC Group Inc (AGP &
Co Inc)
01/29/97 Agritherm Corp NA NA NA NA NA NA NA 100.0%
Fieldsheer Inc
04/14/97 Katz Digital $ 0.8 $ 0.8 NA 2.7 0.3 NA NA 100.0%
Technologies Inc
Advanced Digital
Services Inc
05/19/97 LSI Industries Inc $ 17.9 $ 17.9 NA NA 1.2 NA NA 100.0%
Grady McCauley Inc
06/26/97 CYRK Inc NA NA NA NA NA NA NA 100.0%
Champion Awards &
Advertising
07/10/97 Mail-Well Inc NA NA NA NA NA NA NA NA
Allied Printers
07/15/97 Applied Graphics NA NA NA NA NA NA NA 100.0%
Technologies
MBA Graphics Inc
10/14/97 Big Flower Press NA NA NA NA NA NA NA NA
Holdings Inc
Gamma One Inc
AVERAGE: NA 2.7 0.8 NA NA
ADJUSTED
AVERAGE NA 2.7 0.8 NA NA
</TABLE>
- ---------------
* Covers industries with SIC Codes of 5090 and 7336. Source: Securities Data
Company, Inc. (201) 622-3100. As of 4/18/98.
(2) Levered aggregate consideration is defined as aggregate equity consideration
plus total debt, net of cash and equivalents.
44
<PAGE> 47
INVESTMENT BANKING GROUP
PROMOTIONAL PRODUCTS INDUSTRY*
MERGERS & ACQUISITION TRANSACTIONS SINCE JANUARY 1, 1995
<TABLE>
<CAPTION>
TARGET
VALUE SHARE-
EQUITY OF PRICE HOLDERS
DATE DATE VALUE DEAL PER SHARES EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3/17/1995 -- Devon Group Inc Devon Group Inc $17.2 $17.2 $24.50 7.4 $ 81.6
Advisor -- --
Company Status Public Public
<CAPTION>
TARGET TARGET
NET NET TARGET TARGET
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/
DATE LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/
ANNOUNCED ($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE
- --------- -------- ------- ------ ------ --------- -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3/17/1995 $ 219.6 $ 18.8 $32.2 $42.2 $ 2.2 $ 128.5 -- Intended
Advisor Buyback
Not Appl.
</TABLE>
Deal Description In March 1995, Devon Group's (DG) board
authorized the repurchase of up to .700 mil common shares, or
about 9.5% of the company's common stock outstanding, in open
market transactions. Based on DG closing stock price of $24.50
on Mar 16, the last full trading day prior to the announcement
of the board's approval, the buyback had an indicated value of
up to $17.15 mil in cash.
Target Business Description Provide pre-press computer
typesetting, composition and color separation services;
Typesetting, printing services distribute posters, art
reproductions and note cards
Acquiror Business Description Provide pre-press computer
typesetting, composition and color separation services;
Typesetting, printing services distribute posters, art
reproductions and note cards
<TABLE>
<CAPTION>
TARGET
VALUE SHARE-
EQUITY OF PRICE HOLDERS
DATE DATE VALUE DEAL PER SHARES EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2/1/1996 -- Arctco Inc Arctco Inc $16.5 $16.5 $11.00 29.7 $ 157.3
Advisor -- --
Company Status Public Public
<CAPTION>
TARGET TARGET
NET NET TARGET TARGET
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/
DATE LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/
ANNOUNCED ($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE
- --------- -------- ------- ------ ------ --------- -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2/1/1996 $ 389.8 $ 24.5 $35.9 $42.4 -- $ 224.8 -- Intended
Advisor
Not Appl.
</TABLE>
Deal Description In February 1996, Arctco's (AR) board
authorized the repurchase of up to 1.5 mil common shares, or
about 5% of the company's common stock outstanding, in open
market transactions. Based on AR's closing stock price of $11
on Jan 31, the last full trading day prior to the announcement
of the board's approval, the buyback had an indicated value of
up to $16.5 mil in cash.
Target Business Description Manufacture and wholesale
snowmobiles and related parts, garments and accessories
Acquiror Business Description Manufacture and wholesale
snowmobiles and related parts, garments and accessories
- ---------------
* Covers industries with SIC Codes of 5090 and 7336. Source: Securities Data
Company, Inc. (201) 622-3100. As of April 18, 1998.
45
<PAGE> 48
<TABLE>
<CAPTION>
INVESTMENT BANKING GROUP
PROMOTIONAL PRODUCTS INDUSTRY*
MERGERS & ACQUISITION TRANSACTIONS SINCE JANUARY 1, 1995
TARGET
VALUE SHARE-
EQUITY OF PRICE SHARES HOLDERS
DATE DATE VALUE DEAL PER OUT. EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7/25/96 -- RR Donnelley & Sons Co RR Donnelley & Sons Co $250.0 $250.0 -- 154.1 $1,790.8
Advisor -- --
Company Status Public Public
<CAPTION>
TARGET TARGET
NET NET TARGET TARGET
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/
DATE LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/
ANNOUNCED ($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE
- --------- -------- ------- ------ ------ --------- -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7/25/96 $6,827.6 $(135.2) $(50.9) $281.5 $1,247.6 $4,499.9 -- Intended
Buyback
Advisor
Not Appl.
</TABLE>
Deal Description RR Donnelley & Sons' board authorized the
repurchase of up to $250 mil of the company's common stock
outstanding in open market and privately negotiated
transactions.
Target Business Description Provide books, reports, catalogs,
documents and business forms printing as well as book binding
and graphic arts services for the publishing, retailing,
merchandising and information technology markets worldwide.
Acquiror Business Description Provide books, reports,
catalogs, documents and business forms printing as well as
book binding and graphic arts services for the publishing,
retailing, merchandising and information technology markets
worldwide.
<TABLE>
<CAPTION>
INVESTMENT BANKING GROUP
PROMOTIONAL PRODUCTS INDUSTRY*
MERGERS & ACQUISITION TRANSACTIONS SINCE JANUARY 1, 1995
TARGET
VALUE SHARE-
EQUITY OF PRICE SHARES HOLDERS
DATE DATE VALUE DEAL PER OUT. EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11/1/96 -- Social Expressions Acquisition TMC Group Inc $ 2.5 $ 8.5 -- -- --
(AGP & Co Inc)
Advisor -- --
Company Status Priv. Sub.
<CAPTION>
TARGET TARGET
NET NET TARGET TARGET
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/
DATE LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/
ANNOUNCED ($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE
- --------- -------- ------- ------ ------ --------- -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11/1/96 $ 13.2 -- -- -- -- -- -- Pending Acq.
of Asset
Advisor
Friendly
</TABLE>
Deal Description Social Expression Acquisition (SEA) agreed to
acquire TMC, a unit of AGP, for approximately $8.5 mil.
Consideration was to consist of $2.5 mil in common stock, the
assumption of approximately $6 mil in liabilities and profit
related payments. Additionally, AGP was to receive a $2.5 mil
10-year promissory note convertible into SEA voting stock. The
receipt of the promissory note was contingent on SEA being a
privately held company at the time of closing of the
transaction.
Target Business Description manufacture and wholesale wedding
related accessories.
Acquiror Business Description Manufacture and wholesale
wedding accessories and gifts.
- --------
* Covers industries with SIC Codes of 5090 and 7336. Source: Securities Data
Company, Inc. (201) 622-3100. As of April 18, 1998.
46
<PAGE> 49
<TABLE>
<CAPTION>
INVESTMENT BANKING GROUP
PROMOTIONAL PRODUCTS INDUSTRY*
MERGERS & ACQUISITION TRANSACTIONS SINCE JANUARY 1, 1995
TARGET
VALUE SHARE-
EQUITY OF PRICE SHARES HOLDERS
DATE DATE VALUE DEAL PER OUT. EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1/29/97 1/29/97 Agritherm Corp Fieldsheer Inc -- -- -- -- --
Advisor -- --
Company Status Public Priv.
<CAPTION>
TARGET TARGET
NET NET TARGET TARGET
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/
DATE LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/
ANNOUNCED ($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE
- --------- -------- ------- ------ ------ --------- -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1/29/97 $ 3.8 -- -- -- -- -- 100 Completed
Merger
Friendly
</TABLE>
Deal Description
Agritherm acquired Fieldsheer in a stock swap transaction.
Target Business Description
Manufacture athletic clothing and accessories
Acquiror Business Description
Manufacture clothing
<TABLE>
<CAPTION>
TARGET
VALUE SHARE-
EQUITY OF PRICE SHARES HOLDERS
DATE DATE VALUE DEAL PER OUT. EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4/14/97 8/4/97 Katz Digital Advanced Digital $ 0.8 $ 0.8 -- -- $ 0.3
Technologies Inc Services Inc
Advisor -- --
Company Status Public Priv.
<CAPTION>
TARGET TARGET
NET NET TARGET TARGET
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/
DATE LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/
ANNOUNCED ($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE
- --------- -------- ------- ------ ------ --------- -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4/14/97 $ 2.5 $ 0.0- -- -- -- $ 1.1 100 Completed
Acq. of
Friendly
</TABLE>
Deal Description
Katz Digital Technologies acquired Advanced Digital Services
for approximately $.75 mil in cash plus 301,800 restricted
common shares.
Target Business Description
Provide commercial graphic design services
Acquiror Business Description
Print plates and related products
- --------
* Covers industries with SIC Codes of 5090 and 7336. Source: Securities Data
Company, Inc. (201) 622-3100. As of April 18, 1998.
47
<PAGE> 50
<TABLE>
<CAPTION>
INVESTMENT BANKING GROUP
PROMOTIONAL PRODUCTS INDUSTRY*
MERGERS & ACQUISITION TRANSACTIONS SINCE JANUARY 1, 1995
TARGET
VALUE SHARE-
EQUITY OF PRICE SHARES HOLDERS
DATE DATE VALUE DEAL PER OUT. EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5/19/97 7/1/97 LSI Industries Inc. Grady McCauley Inc. $17.9 $17.9 -- -- --
Advisor -- --
Company Status Public Priv.
<CAPTION>
INVESTMENT BANKING GROUP
PROMOTIONAL PRODUCTS INDUSTRY*
MERGERS & ACQUISITION TRANSACTIONS SINCE JANUARY 1, 1995
TARGET TARGET
NET NET TARGET TARGET
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/
DATE LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/
ANNOUNCED ($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE
- --------- -------- ------- ------ ------ --------- -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5/19/97 $ 14.5 -- -- -- -- -- 100 Completed
Acq. of
Assets
Friendly
</TABLE>
Deal Description LSI Industries (LSI) acquired Grady McCauley
for approximately $17.9 mil. The consideration consisted of
$11.5 mil in cash, 475,700 LSI common shares valued at $6.4
mil, and the assumption of an undisclosed amount in
liabilities. The shares were valued based on LSI's closing
stock price of $13.5 on June 30, the last full trading day
prior to the announcement.
Target Business Description Provide custom graphics services
for retail industry
Acquiror Business Description Manufactures & designs lighting
and graphics products
<TABLE>
<CAPTION>
TARGET
VALUE SHARE-
EQUITY OF PRICE SHARES HOLDERS
DATE DATE VALUE DEAL PER OUT. EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6/26/97 6/26/97 Cyrk Inc Champion Awards & -- -- -- -- --
Advertising
Advisor -- --
Company Status Public Priv.
<CAPTION>
TARGET TARGET
NET NET TARGET TARGET
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/
DATE LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/
ANNOUNCED ($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE
- --------- -------- ------- ------ ------ --------- -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6/26/97 $ 4.5 -- -- -- -- -- 100 Completed
Acq. of
Friendly
</TABLE>
Deal Description Cyrk acquired Champion Awards & Advertising.
Terms were not disclosed.
Target Business Description Manufacture promotional products
Acquiror Business Description Manufacture high quality
products for promotional programs and custom-designed sports
apparel and accessories including T-shirts, fleece pullovers,
jackets, sports bags, caps and watches that bear a brand or
company name or logo
- --------
* Covers industries with SIC Codes of 5090 and 7336. Source: Securities Data
Company, Inc. (201) 622-3100. As of April 18, 1998.
48
<PAGE> 51
<TABLE>
<CAPTION>
INVESTMENT BANKING GROUP
PROMOTIONAL PRODUCTS INDUSTRY*
MERGERS & ACQUISITION TRANSACTIONS SINCE JANUARY 1, 1995
TARGET
VALUE SHARE-
EQUITY OF PRICE SHARES HOLDERS
DATE DATE VALUE DEAL PER OUT. EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7/10/97 -- Mail-Well Inc. Allied Printers -- -- -- -- --
Advisor -- --
Company Status Public Priv.
<CAPTION>
INVESTMENT BANKING GROUP
PROMOTIONAL PRODUCTS INDUSTRY*
MERGERS & ACQUISITION TRANSACTIONS SINCE JANUARY 1, 1995
TARGET TARGET
NET NET TARGET TARGET
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/
DATE LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/
ANNOUNCED ($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE
- --------- -------- ------- ------ ------ --------- -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7/10/97 $ 17.0 -- -- -- -- -- -- Pending Acq.
of Assets
Advisor
Friendly
</TABLE>
Deal Description Mail-Well, a majority-owned unit of Mail-Well
Holdings, agreed to acquire Allied Printers for an undisclosed
amount in a combination of cash and Mail-Well common stock.
Target Business Description Provide high-ended commercial
printing, service corporate clients
Acquiror Business Description Manufacture envelopes in the
United States and Canada; provide high-impact color printing
services
<TABLE>
<CAPTION>
TARGET
VALUE SHARE-
EQUITY OF PRICE SHARES HOLDERS
DATE DATE VALUE DEAL PER OUT. EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7/15/97 7/15/97 Applied Graphics MBA Graphics Inc -- -- -- -- --
Technologies
Advisor -- --
Company Status Public Priv.
<CAPTION>
TARGET TARGET
NET NET TARGET TARGET
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/
DATE LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/
ANNOUNCED ($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE
- --------- -------- ------- ------ ------ --------- -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7/15/97 $ 5.5 -- -- -- -- -- 100 Completed
Acq. of
Advisor
Friendly
</TABLE>
Deal Description Applied Graphics Technologies acquired MBA
Graphics. Terms were not disclosed.
Target Business Description Provide commercial graphic design
services
Acquiror Business Description Provide digital prepress
services to magazine publishers, advertising agencies,
entertainment companies, automobile manufacturers and
retailers
- --------
* Covers industries with SIC Codes of 5090 and 7336. Source: Securities Data
Company, Inc. (201) 622-3100. As of April 18, 1998.
49
<PAGE> 52
<TABLE>
<CAPTION>
INVESTMENT BANKING GROUP
PROMOTIONAL PRODUCTS INDUSTRY*
MERGERS & ACQUISITION TRANSACTIONS SINCE JANUARY 1, 1995
TARGET
VALUE SHARE-
EQUITY OF PRICE SHARES HOLDERS
DATE DATE VALUE DEAL PER OUT. EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10/14/97 11/4/97 Big Flower Press Gamma One Inc -- -- -- -- --
Holdings Inc
Advisor -- --
Company Status Public Sub.
<CAPTION>
TARGET TARGET
NET NET TARGET TARGET
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/
DATE LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/
ANNOUNCED ($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE
- --------- -------- ------- ------ ------ --------- -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10/14/97 $ 19.0 -- -- -- -- -- -- Complete
Acq. of
Assets
Friendly
</TABLE>
Deal Description Big Flower Press Holdings acquired Gamma One.
Terms were not disclosed.
Target Business Description Provide digital premedia services
including digital photography, digital prepress and content
management.
Acquiror Business Description Provide integrated advertising
and marketing services, including direct marketing and digital
media services; print newspaper advertisement inserts.
- --------
* Covers industries with SIC Codes of 5090 and 7336. Source: Securities Data
Company, Inc. (201) 622-3100. As of April 18, 1998.
50
<PAGE> 53
INVESTMENT BANKING GROUP
MARKET PREMIUM SUMMARY VALUATION
MERGER & ACQUISITION ACTIVITY
SINCE 1/1/95
MARKET PREMIUMS
<TABLE>
<CAPTION>
MEDIAN PREMIUMS
TRANS. --------------------------------------------
STRUCTURE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
- --------- ----------- ------------ -------------
<S> <C> <C> <C>
All Cash..................................... 24.0% 27.5% 33.6%
</TABLE>
IMPLIED AUSTIN SHARE PRICE
<TABLE>
<CAPTION>
IMPLIED SHARE PRICES
TRANS. --------------------------------------------
STRUCTURE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
- --------- ----------- ------------ -------------
<S> <C> <C> <C>
All Cash..................................... $21.54 $20.88 $21.21
------ ------ ------
Actual Stock Prices:......................... $17.38 $16.38 $15.88
------ ------ ------
</TABLE>
51
<PAGE> 54
INVESTMENT BANKING GROUP
MARKET PREMIUM SUMMARY VALUATION
MERGER & ACQUISITION ACTIVITY
SINCE 1/1/95
MARKET PREMIUMS
<TABLE>
<CAPTION>
MEDIAN PREMIUMS
TRANS. ------------------------------------------
STRUCTURE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
--------- ----------- ------------ -------------
<S> <C> <C> <C>
All Cash.......................................... 24.0% 27.5% 33.6%
</TABLE>
IMPLIED AUSTIN SHARE PRICE
<TABLE>
<CAPTION>
IMPLIED SHARE PRICES
TRANS. -------------------------------------------
STRUCTURE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
--------- ----------- ------------ --------------
<S> <C> <C> <C>
All Cash......................................... $19.98 $20.55 $21.54
------ ------ ------
30 Day Weighted Average Price.................... $16.12 $16.12 $16.12
------ ------ ------
</TABLE>
52
<PAGE> 55
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME ACQUIROR BUSINESS DESCRIPTION
- --------- -------- ------------- ----------- -----------------------------
<C> <C> <S> <C> <C>
01/03/95 06/01/95 First Union Natl Bk of Florida Coral Gables Fedcorp Inc Commercial bank
01/05/95 06/30/95 Minnesota Power & Light Co ADESA Corp Electric utility
01/06/95 07/12/95 Eridania Beghin-Say(Montediso) American Maize-Products Co Produce sugar
01/06/95 01/19/95 V'Power Corp Vector Aeromotive Corp Investment firm
01/09/95 03/07/95 Siemens Nixdorf Info AG Pyramid Technology Corp Mnfr wiring devices, computers
01/09/95 05/17/95 Investor Group Standard Brands Paint Co Investor group
01/10/95 03/31/95 Laidlaw Inc Mayflower Group Inc Pvd busing, waste mgmt svcs
01/13/95 07/13/95 ADAC Laboratories Community Health Computing Mnfr diagnostic imaging sys
01/13/95 08/18/95 Staten Island Savings Bank Gateway Bancorp, New York Savings bank
01/19/95 03/16/95 ALC Communications Corp ConferTech International Pvd long distance commun svcs
01/30/95 11/30/95 First Banks Inc, Clayton, MO QCB Bancorp Commercial bank holding co
02/03/95 03/17/95 Clark Equipment Co Club Car Inc Mnfr, whl construction equip
02/03/95 11/02/95 National Australia Bank Ltd Michigan National Corp Bank, insurance co
02/07/95 07/12/95 WMX Technologies Inc Rust International Inc Pvd chemical waste mgmt svcs
02/15/95 03/31/95 Hollywood Entertainment Corp Title Wave Stores Inc Own op video rental stores
02/27/95 08/31/95 Conseco Inc CCP Insurance Inc Insurance holding company
02/28/95 07/18/95 Hoechst AG Marion Merrell Dow Inc Mnfr chemicals and fibers
03/02/95 08/30/95 Trans Union (Marmon Holdings) DATEQ Information Network Pvd credit reporting svcs
03/02/95 05/26/95 Luxottica Group SpA US Shoe Corp (Luxottica Group) Manufacture eyeglass frames
03/06/95 08/01/95 Mothers Work Inc A Pea in the Pod Inc Own, operate maternity stores
03/08/95 04/26/95 Marvel Entertainment Group Inc SkyBox International Publish comic books
03/08/95 07/06/95 ENSERCH Corp Sunrise Energy Services Inc Gas transmission, distribution
03/14/95 04/25/95 Penske Truck Leasing Co LP Leaseway Transportation Corp Provide truck leasing services
03/15/95 06/16/95 LinPac Mouldings Ltd Ropak Corp Mfr plastic-injected mouldings
03/15/95 03/15/95 Remy Capital Partners III LP UTI Energy Corp Investment partnership
03/17/95 05/01/95 Waste Management Inc Resource Recycling Techs Inc Solid, chemical waste mgmt svc
03/24/95 04/26/95 West Co Inc Paco Pharmaceutical Services Mnfr packaging components
03/27/95 12/01/95 BayBanks, Boston, Massachusetts Cornerstone Financial Corp Bank holding company
03/28/95 05/25/95 Ingersoll-Rand Co Clark Equipment Co Mnfr industrial machinery
04/03/95 05/08/95 Raytheon Co E-Systems Inc Mnfr radar equipment, aircrafts
04/04/95 06/26/95 FMC Corp Moorco International Mnfr petro equip, chemicals
04/05/95 08/02/95 Club Mediterranee SA Club Med Inc Op travel agency, hotel resorts
04/05/95 04/05/95 Coinmach Corp Solon Automated Services Inc Mnfr, whl laundry equipment
04/06/95 08/31/95 Apollo Holding Inc Intermetrics Inc Investor group
04/07/95 10/03/95 McCaw Cellular Commun(AT&T) LIN Bdcstg (McCaw Cellular) Pvd cellular commun services
04/10/95 01/04/96 Investor Group Kemper Corp Investor group
<CAPTION>
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED TARGET BUSINESS DESCRIPTION ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- --------------------------- ----------- ------ ------- ------- -------
<C> <C> <C> <C> <C> <C> <C>
01/03/95 Bank holding company 515.7 26.59 23.7% 26.6% 43.7%
01/05/95 Wholesale automobiles 165.3 17.00 19.3% 25.9% 38.8%
01/06/95 Produce corn; mnfr tobacco prod 434.0 40.00 49.5% 56.9% 66.7%
01/06/95 Manufacture exotic sports cars 5.5 --
01/09/95 Manufacture, whl computers 205.1 16.00 30.6% 23.1% 43.8%
01/09/95 Mnfr paints, varnishes 18.0 --
01/10/95 Trucking and bussing services 158.4 12.39
01/13/95 Manufacture medical equipment 16.5 --
01/13/95 Bank holding co 56.8 12.61 20.1% 26.1% 9.7%
01/19/95 Mnfr teleconferencing systems 66.0 8.00 45.5% 28.0% 85.5%
01/30/95 Bank holding company 5.0 --
02/03/95 Manufacture golf cars 243.0 25.00 50.4% 47.1% 57.5%
02/03/95 Bank holding company 1713.3 110.00 25.7% 26.4% 44.5%
02/07/95 Provide engineering services 56.9 16.35 27.0% 39.1% 39.1%
02/15/95 Own, op record & tape stores 8.5 2.00 33.3% 77.8% 34.7%
02/27/95 Insurance company 273.7 23.25 20.0% 30.1% 23.2%
02/28/95 Manufacture pharmaceuticals 7264.6 25.75 8.4% 14.4% 11.4%
03/02/95 Provide info retrieval svcs 19.1 5.41 27.3% 27.3% 27.3%
03/02/95 Manufacture shoes 1326.4 28.00 45.5% 45.5% 43.6%
03/06/95 Own, op women's clothing stores 22.5 5.50 37.5% 83.3% 57.1%
03/08/95 Print trading cards 136.6 16.00 29.3% 33.3% 31.3%
03/08/95 Pvd natural gas distn services 8.5 --
03/14/95 Trucking company, related svcs 199.8 20.00 54.6% 55.3% 60.0%
03/15/95 Manufacture plastic containers 28.5 11.00 4.8% 6.0% 4.8%
03/15/95 Pvd oil, nat gas drilling svcs 7.8 4.50 28.6% 20.0% 12.5%
03/17/95 Waste mgmt, recycling services 33.5 11.50 37.3% 50.8% 46.0%
03/24/95 Pharmaceutical packaging prod 50.5 12.25 66.1% 66.1% 58.1%
03/27/95 Bank holding company 21.3 8.80 8.3% 35.4% 32.8%
03/28/95 Mnfr, whl construction equip 1467.4 86.00 63.4% 69.9% 60.7%
04/03/95 Mnfr defense electronics 2255.2 64.00 41.0% 43.0% 46.3%
04/04/95 Mnfr totalizing fluid meters 316.5 28.00 105.5% 111.3% 91.5%
04/05/95 Operate vacation resorts 153.4 32.00 41.4% 39.9% 44.6%
04/05/95 Operate coin laundries 11.5 --
04/06/95 Pvd computer programming svcs 27.9 6.80 60.0% 60.0% 43.2%
04/07/95 Pvd cellular commun services 3209.4 129.90 18.2% 19.7% 19.7%
04/10/95 Life insurance company 1872.4 49.80 20.7% 24.5% 21.5%
</TABLE>
53
<PAGE> 56
<TABLE>
<CAPTION>
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY -- (CONTINUED)
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME ACQUIROR BUSINESS DESCRIPTION
- --------- -------- ------------- ----------- -----------------------------
<C> <C> <S> <C> <C>
04/12/95 04/12/95 Loral Conic (Loral Corp) Microcom Inc Mnfr radio, tv commun equip
04/12/95 10/20/95 Roosevelt Finl Group, Missouri WSB Bancorp Inc Bank holding company
04/18/95 06/30/95 California Bancshares Inc First Community Bankshares, CA Commercial bank
04/26/95 08/11/95 Stonington Partners Inc Dictaphone Corp Investment firm
04/28/95 06/16/95 ICI PLC Grow Group Inc Manufacture petrochemicals
04/28/95 06/02/95 American Vision Centers Inc NuVision Inc Operate retail optical stores
05/03/95 10/24/95 Manor Healthcare Corp In Home Health Inc Nursing homes
05/04/95 06/08/95 Douglas & Lomason Co Bestop Inc Wholesale motor vehicles
05/10/95 06/14/95 General Signal Corp Best Power Technology Inc Mnfr electric control equip
05/15/95 09/20/95 Entex Information Svcs Random Access Inc Pvd computer integrated svcs
05/15/95 11/14/95 DMB Property Ventures LP UDC Homes Inc RE investment, dvlp firm
05/16/95 01/05/96 Independence Community Bank Bay Ridge Bancorp Inc Mutual savings bank holding co
05/16/95 05/16/95 Philips Electronics North Regina Co Inc Mnfr home entertainment prod
05/17/95 07/27/95 American Tractebel Corp CRSS Inc (American Tractebel) Mnfr semiconductors
05/19/95 12/06/95 BIC SA Bic Corp (BIC SA) Manufacture pens and lighters
05/22/95 09/21/95 MCI Communications Corp Nationwide Cellular Services Pvd telecommunication services
05/25/95 11/08/95 Computer Associates Intl Inc Legent Corp Develop applications software
05/30/95 05/30/95 First Interstate Bancorp, CA MNB Bancshares Inc Bank holding company
05/30/95 09/01/95 Schein Pharmaceutical Inc Marsam Pharmaceuticals Inc Manufacture pharmaceuticals
06/05/95 09/01/95 Dyson Dyson & Dunn Inc Designatronics Inc Wholesale lumber, plywood
06/05/95 07/05/95 IBM Corp Lotus Development Corp Mnfr computers, office equip
06/09/95 08/30/95 Thermo Electron Corp Bird Medical Technologies Inc Mnfr cogeneration systems
06/19/95 12/20/95 HVB Ltd BioSafety Systems Inc Investment firm
06/19/95 10/03/95 Unitrin Inc Milwaukee Insurance Group Inc Insurance company
06/20/95 01/03/96 ALBANK FSB (ALBANK Financial) Marble Financial Corp Savings and loan
06/20/95 03/08/96 Investor Group Marietta Corp Investor group
06/22/95 12/06/95 Genetics Institute Inc SciGenics Inc Pharmaceutical prods, R&D
07/04/95 04/01/96 Johnston Industries Inc Jupiter National Inc (Johnston) Mnfr woven indl textile prod
07/05/95 01/10/96 NationsBank Corp, Charlotte, NC CSF Holdings Inc Bank hldg co; pvd finl svcs
07/06/95 08/04/95 United Acquisition Co Arcus Inc (Armored Transport) Investment firm
07/10/95 01/03/96 THORN Americas Inc (Thorn EMI) Advantage Companies Inc Provide rental equipment svcs
07/10/95 08/11/95 Sandoz AG Genetic Therapy Inc Manufacture dyestuffs
07/10/95 09/05/95 Danaher Corp Joslyn Corp Mnfr auto parts, main equip
07/14/95 12/11/95 COBE Laboratories (Gambro AB) REN Corp-USA (COBE Labs Inc) Mnfr medical equipment
<CAPTION>
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY -- (CONTINUED)
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED TARGET BUSINESS DESCRIPTION ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- --------------------------- ----------- ------ ------- ------- -------
<C> <C> <C> <C> <C> <C> <C>
04/12/95 Mnfr data comm products 7.0 --
04/12/95 Commercial bank 26.2 22.75 15.2% 12.3% 30.0%
04/18/95 Bank holding company 16.3 --
04/26/95 Dictating mach, office equip 450.0 --
04/28/95 Mnfr paints, chemicals 353.5 22.00 30.4% 38.6% 37.5%
04/28/95 Eye care products stores 21.7 7.60 32.2% 38.2% 35.1%
05/03/95 Pvd home health care services 20.0 --
05/04/95 Manufacture automobile parts 44.1 12.75 22.0% 18.6% 27.5%
05/10/95 Mnfr power protection equip 201.1 21.00 61.5% 68.0% 75.0%
05/15/95 Own, operate computer stores 22.1 3.25 6.1% 26.8% 23.8%
05/15/95 Construct homes; RE development 109.2 9.47 0.0% 0.0% 741.8%
05/16/95 Savings and loan 133.2 22.06 24.3% 20.9% 35.8%
05/16/95 Mnfr vacuum cleaners, products 17.5 --
05/17/95 Provide engineering services 191.6 14.50 45.0% 56.8% 56.8%
05/19/95 Mnfr writing instruments 212.6 40.50 13.3% 12.5% 28.6%
05/22/95 Pvd cellular telephone svcs 174.3 18.50 5.7% 8.0% 18.4%
05/25/95 Develop software 1799.0 47.95 53.4% 65.3% 76.0%
05/30/95 Savings and loan 5.0 --
05/30/95 Mnfr generic drug products 239.0 21.00 29.2% 47.4% 55.6%
06/05/95 Mnfr speed changers 17.4 6.00 45.5% 29.7% 29.7%
06/05/95 Develop applications software 3263.8 64.00 96.9% 100.8% 103.2%
06/09/95 Mnfr respiratory care prod 61.4 9.25 39.6% 57.4% 72.1%
06/19/95 Mnfr healthcare gloves, masks 10.6 3.16 40.4% 40.4% 44.5%
06/19/95 Insurance holding company 92.7 22.00 63.0% 63.0% 77.8%
06/20/95 Bank holding company 62.6 18.00 37.1% 35.8% 46.9%
06/20/95 Mnfr, wholesale toiletries 33.8 10.25 6.5% 24.2% 36.7%
06/22/95 Manufacture biological prod 29.3 14.00 (1.8%) 7.7% (1.8%)
07/04/95 Venture capital firm 30.5 33.97 0.0% 25.8% 47.7%
07/05/95 Bank holding company 401.1 39.50 26.9% 19.7% 30.0%
07/06/95 Provide security services 50.1 6.33 1.3% 1.3% 1.3%
07/10/95 Telecomm services, magazines 77.7 18.50
07/10/95 Dvlp delivery sys; Pvd research 283.4 21.00 37.7% 38.8% 84.6%
07/10/95 Electrical transmission equip 227.1 34.00 37.4% 34.7% 29.5%
07/14/95 Own, op kidney dialysis centers 182.1 20.00 27.0% 20.3% 26.0%
</TABLE>
54
<PAGE> 57
<TABLE>
<CAPTION>
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY -- (CONTINUED)
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME ACQUIROR BUSINESS DESCRIPTION
- --------- -------- ------------- ----------- -----------------------------
<C> <C> <S> <C> <C>
07/17/95 08/22/95 Lear Seating Corp Automotive Industries Holding Mnfr automobile seats
07/17/95 11/08/95 LG Electronics Co Ltd. (LG Grp) Zenith Electronics Corp Mnfr electronic components
07/31/95 01/11/96 Reliance Bancorp Inc, New York Sunrise Bancorp Inc Bank holding company
08/01/95 11/24/95 Westinghouse Electric Corp CBS Inc Mnfr elec defense electn equip
08/04/95 09/12/95 Advance Publications Inc American City Business Journal Publish newspapers, magazines
08/04/95 02/29/96 Trigon Blue Cross Blue Shield Mid-South Insurance Co Pvd hospital, med service plans
08/09/95 09/30/95 Loewen Group Inc MHI Group Inc Own, operate funeral homes
08/10/95 10/13/95 Humana Inc Emphesys Financial Group Inc Own and operate HMOs
08/10/95 11/15/95 Agrium Inc Nu-West Industries Inc Manufacture fertilizers
08/11/95 02/01/96 Life Bancorp Inc Seaboard Bancorp Inc Bank holding company
08/15/95 10/06/95 Johnson Matthey PLC Advance Circuits Inc Mnfr dyes, pigments, paints
08/16/95 08/16/95 Investor Abigail Adams National Bancorp Investor
08/17/95 01/15/96 Standard Fed Bancorp, Troy, MI FSB Financial Corp Commercial bank
08/22/95 12/29/95 First Midwest Finl, Iowa Iowa Bancorp Inc Bank holding company
08/23/95 10/04/95 Schering Berlin Inc Medrad Inc Manufacture pharmaceuticals
08/25/95 01/02/96 Berkshire Hathaway Inc GEICO Corp (Berkshire Hathaway) Property, casualty insurance co
08/28/95 02/01/96 First Nationwide Bank, TX SFFed Corp Savings bank
08/29/95 09/29/95 Vista 2000 Inc American Consumer Products Inc Develop security systems
08/30/95 01/03/96 Michigan Physicians Mutual Kentucky Medical Insurance Co Surety insurance co
08/31/95 02/01/96 Ace Cash Express Inc Check Express Inc Provide check cashing services
08/31/95 04/01/96 Western Ohio Financial Corp Mayflower Financial Corp Investment firm
09/07/95 03/06/96 Principal Health Care Inc Admar Group Inc Own and operate HMO's
09/08/95 12/26/95 Pelican Cos Inc Sunbelt Cos Inc Wholesale lumber
09/12/95 10/20/95 Textron Inc Elco Industries Inc Mnfr aircraft engines, parts
09/13/95 01/19/96 Barnett Banks, Jacksonville, FL First Financial Bancshares Commercial bank
09/14/95 11/11/95 Thomas Nelson Inc CR Gibson Co Publish books
09/15/95 01/11/96 Measurex Corp Data Measurement Corp Mnfr comptr process cntrl sys
09/18/95 09/23/96 Shinhan Bank Marine National Bank, Irvine, CA Foreign bank
09/19/95 10/31/95 Breuners Home Furnishings Corp Huffman Koos (SGH/JG Inds Inc) Own, operate furniture store
09/22/95 03/01/96 Republic New York Corp, NY, NY Brooklyn Bancorp Inc Bank holding company
09/25/95 09/25/95 CD Spangler National Gypsum Co (Delcor) Investment firm
09/25/95 11/06/95 Mallinckrodt Veterinary Inc Syntro Corp Manufacture animal food
09/26/95 12/21/95 SCOR SCOR US Corp (SCOR SA) Insurance holding company
09/29/95 10/02/95 Investors Prudential Reinsurance Hldgs Investors
10/04/95 12/22/95 Westcorp Hammond Co Bank holding company
10/09/95 10/09/95 Investors Personnel Group of America Inc Investors
<CAPTION>
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY -- (CONTINUED)
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED TARGET BUSINESS DESCRIPTION ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- --------------------------- ----------- ------ ------- ------- -------
<C> <C> <C> <C> <C> <C> <C>
07/17/95 Mnfr autoparts 613.1 33.50 3.9% 10.7% 45.7%
07/17/95 Mnfr consumer electronics 186.2 10.00 17.6% 29.0% 29.0%
07/31/95 Bank holding company 116.8 32.00 9.9% 11.3% 11.3%
08/01/95 Own, op TV, radio stations 5122.3 82.07 24.8% 22.5% 18.9%
08/04/95 Publish journals and magazines 205.4 28.00 28.7% 23.1% 28.0%
08/04/95 Health, accident, life ins co 85.5 15.67 56.7% 56.7% 45.8%
08/09/95 Pvd funeral, crematory svcs 69.9 10.25 15.5% 34.4% 46.4%
08/10/95 Insurance holding company 642.8 37.50 13.6% (3.8%) 1.4%
08/10/95 Manufacture fertilizers 87.7 10.50 (12.5%) (12.5%) (8.7%)
08/11/95 Bank holding company 8.2 1.65 10.0% 20.0% 32.0%
08/15/95 Mnfr printed circuit boards 171.0 22.50 39.5% 36.4% 37.4%
08/16/95 Bank holding company 5.1 --
08/17/95 Savings bank 27.2 23.50 19.0% 27.0% 32.4%
08/22/95 Commercial bank 9.0 --
08/23/95 Mnfr medical instruments 181.2 28.00 25.8% 25.8% 28.7%
08/25/95 Insurance and financial svcs 2349.2 70.00 25.6% 23.1% 25.3%
08/28/95 Savings and loan 264.0 32.00 21.9% 36.9% 43.4%
08/29/95 Mnfr consumer hardware prods 13.0 5.30 17.8% 28.5% 41.3%
08/30/95 Insurance company 25.0 12.37 45.5% 37.4% 76.7%
08/31/95 Provide check cashing services 6.3 1.20 37.1% 37.1% 37.1%
08/31/95 Savings and loan holding co 10.0 28.50
09/07/95 Provide health care mgmt svcs 19.8 2.25 60.0% 84.6% 75.6%
09/08/95 Wholesale lumber 18.0 7.95 32.5% 27.2% 44.5%
09/12/95 Mnfr fasteners, hardware 182.2 36.00 93.3% 97.3% 100.0%
09/13/95 Savings bank 20.0 15.51 8.8% 8.8% 17.1%
09/14/95 Mnfr, publish memory books 67.5 9.00 2.9% 1.4% 5.9%
09/15/95 Mnfr quality control instr 32.2 18.63 2.4% 18.3% 11.2%
09/18/95 Commercial bank 21.9 --
09/19/95 Own, operate furniture stores 37.6 9.38 50.0% 38.9% 33.9%
09/22/95 Commercial bank 508.8 41.50 9.2% 9.6% 15.7%
09/25/95 Mnfr gypsum, wallboard prods 1134.9 54.00 0.0% 0.9% 0.9%
09/25/95 Manufacture vaccines 41.5 3.55 42.0% 42.0% 49.5%
09/26/95 Reinsurance holding company 59.9 15.25 37.1% 35.6% 38.6%
09/29/95 Insurance holding company 837.5 --
10/04/95 Mortgage bank; holding co 5.4 --
10/09/95 Pvd temporary staffing svcs 105.0 13.13
</TABLE>
55
<PAGE> 58
<TABLE>
<CAPTION>
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY -- (CONTINUED)
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME ACQUIROR BUSINESS DESCRIPTION
- --------- -------- ------------- ----------- -----------------------------
<C> <C> <S> <C> <C>
10/09/95 03/13/96 Pioneer Financial Services Universal Fidelity Life Ins Co Life, health, accident ins svcs
10/10/95 05/07/96 Pacific Bank NA, CA Burlingame Bancorp Commercial bank
10/13/95 11/13/95 Twentieth Century Fox Film Carolco Pictures Inc Radio, TV stations; movie prod
10/13/95 03/08/96 Chelton Communications Systems Kevlin Corp Mnfr electronic components
10/18/95 11/28/95 Rhone-Poulenc Rorer Inc Applied Immune Sciences Inc Manufacture pharmaceuticals
10/18/95 03/29/96 Logicon Inc Geodynamics Corp Pvd computer svcs to military
10/20/95 10/20/95 Roosevelt Bank, Chesterfield, MO Washington Savings Bank FSB Savings bank
10/23/95 12/07/95 Diebold Inc Griffin Technology Inc Mnfr ATMs, security equip
10/26/95 01/17/96 Hyundai Electronics Industries Maxtor Corp Mnfr computers, semiconductors
10/30/95 12/28/95 SoftKey International Inc Learning Co Develops consumer software
10/30/95 06/07/96 Great Financial Corp, Kentucky LFS Bancorp Bank holding company
10/31/95 02/06/96 Alberto-Culver Co St Ives Laboratories Mnfr and whl consumer products
11/02/95 06/20/96 Riverside Group Inc Wickes Lumber Co Fire, marine casualty ins co
11/03/95 06/26/96 Dime Savings Bk, Williamsburgh Conestoga Bancorp Inc Savings bank
11/06/95 01/10/96 Marquette Electronics Inc USA E For M Corp Mnfr electromedical apparatus
11/06/95 02/01/96 Airline Investors Partnership Hawaiian Airlines Inc (HAL Inc) Investment firm
11/06/95 01/08/96 Compaq Computer Corp NetWorth Inc (Ungermann-Bass) Manufacture personal computers
11/06/95 01/10/96 Sherwin-Williams Co Pratt & Lambert United Inc Mnfr and retail paint products
11/08/95 02/15/96 ADT Ltd Alert Centre Inc (ADT Ltd) Provide security, cleaning svcs
11/08/95 04/23/96 MA Hanna Co CIMCO Inc Mnfr rubber, plastic polymers
11/08/95 02/23/96 Packaging Acq (MST Part, MST Of) Dolco Packaging Corp Investment firm
11/10/95 04/29/96 Bank of the West Northbay Financial Corp, CA Commercial bank
11/13/95 04/22/96 Harris Savings Assn, Harrisburg First Harrisburg Bancor Inc Savings bank
11/13/95 12/19/95 S.O.C. Corp (Blount/Blount Int) Simmons Outdoor Corp Whl professional equipment
11/14/95 12/29/95 Main Line Fed Svgs Bk (MLF Ban) Suburban Federal Savings Bk, PA Savings bank
11/15/95 05/02/96 ERD Waste Corp Environmental Services of Amer Pvd waste mgmt, business svcs
11/22/95 01/31/96 Baxter Healthcare Corp PSICOR Inc Manufacture pharmaceuticals
11/27/95 01/11/96 Wolters Kluwer NV Commerce Clearing House Inc Publish newspapers, books
11/29/95 02/16/96 Kuhlman Corp Communication Cable Inc Mnfr transformers, indl springs
12/07/95 02/16/96 Syratech Corp Rauch Industries Inc Manufacture silver flatware
12/11/95 01/19/96 Tyco International Ltd Earth Technology Corp USA Mnfr fire protection systems
12/11/95 07/01/96 Capital City Bank Group, FL First Financial Bancorp Inc Commercial state bank
12/11/95 06/28/96 Union Safe Deposit Bank Great Valley Bank, Ceres, CA Commercial bank
12/11/95 01/22/96 Newell Co Holson Burnes Group Inc Mnfr food serving, storage prod
<CAPTION>
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY -- (CONTINUED)
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED TARGET BUSINESS DESCRIPTION ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- --------------------------- ----------- ------ ------- ------- -------
<C> <C> <C> <C> <C> <C> <C>
10/09/95 Insurance co 26.0 28.00
10/10/95 Commercial bank 7.5 12.00
10/13/95 Motion picture prodn svcs 50.0 --
10/13/95 Mnfr microwave components 15.9 4.54 0.0% 11.8% 17.2%
10/18/95 Mnfr blood therapeutic systems 84.6 11.75 67.9% 51.6% 38.2%
10/18/95 Provide info engineering svcs 31.2 10.76 13.3% 13.3% 23.0%
10/20/95 Savings bank 103.7 22.75 360.8% 372.7% 295.7%
10/23/95 Mnfr, whl computers 18.0 7.75 (8.8%) 0.0% (6.1%)
10/26/95 Mnfr computer disk drives 228.2 6.70 42.9% 64.9% 44.9%
10/30/95 Develop educational software 579.6 67.50 80.0% 95.7% 84.9%
10/30/95 Commercial bank 68.5 19.50 16.4% 7.2% 6.8%
10/31/95 Manufacture personal care prod 110.4 15.00 20.0% 50.0% 55.8%
11/02/95 Whl, ret lumber; wood millwork 10.0 5.00 (36.5%) (39.4%) (47.0%)
11/03/95 Commercial bank; holding co 105.3 21.25 11.8% 13.3% 18.9%
11/06/95 Manufacture HDTVs 88.9 12.00 29.7% 37.1% 31.5%
11/06/95 Passenger airline 20.0 1.10 (64.8%) (60.9%) (64.1%)
11/06/95 Mnfr networking equipment 342.5 42.00 21.7% 48.7% 111.3%
11/06/95 Mnfr, whl paints, adhesives 405.2 35.00 68.7% 60.9% 49.7%
11/08/95 Pvd alarm maintenance svcs 93.1 9.25 94.7% 117.6% 120.9%
11/08/95 Thermoplastic products 31.8 10.50 104.9% 147.1% 133.3%
11/08/95 Mnfr packaging, shipping prods 31.8 21.00 (9.7%) (15.2%) (12.5%)
11/10/95 Svgs bk; provide credit svcs 45.9 15.75 21.2% 21.2% 16.7%
11/13/95 Savings and loan 35.2 14.77 31.3% 24.4% 15.8%
11/13/95 Whl professional equipment 34.2 10.40 66.4% 73.3% 77.0%
11/14/95 Savings bank 5.7 10.25
11/15/95 Provide disposal services 7.5 1.66 39.8% 66.0% 39.8%
11/22/95 Provide health services 81.3 17.50 14.8% 25.0% 48.9%
11/27/95 Publish books and law reports 1901.0 55.50 100.0% 115.5% 131.3%
11/29/95 Mnfr, whl electronic cable 51.7 14.00 55.6% 55.6% 47.4%
12/07/95 Manufacture glass products 48.2 13.00 35.1% 31.6% 32.5%
12/11/95 Hazardous waste consulting svc 69.6 8.00 36.2% 33.3% 73.0%
12/11/95 Bank holding co; savings bank 11.0 22.00 11.4% 14.3% 20.5%
12/11/95 Commercial bank 12.2 8.75
12/11/95 Manufacture photo albums 34.0 5.50 4.8% 41.9% 46.7%
</TABLE>
56
<PAGE> 59
<TABLE>
<CAPTION>
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY -- (CONTINUED)
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME ACQUIROR BUSINESS DESCRIPTION
- --------- -------- ------------- ----------- -----------------------------
<C> <C> <S> <C> <C>
12/14/95 06/10/96 Standard Federal Bank, Troy, MI Bell Bancorp Inc, Chicago, IL Savings bank
12/18/95 01/29/96 American Brands Inc Cobra Golf Inc Mnfr cigarettes, cigars
12/19/95 05/31/96 First Nationwide Bank, CA Home Fed Finl, San Francisco, CA Savings and loan
12/20/95 02/05/96 Thomson US Holdings Inc SCS/Compute Inc Publish newspapers
01/02/96 01/02/96 Investor Auto Parts Club Inc Investor
01/03/96 08/28/96 Recoton Corp International Jensen Inc Mnfr audio, video equipment
01/05/96 09/09/96 Investor Group Finl Institutions Ins Grp Ltd Investor group
01/05/96 02/15/96 GreenGrass Holdings Swing-N-Slide Corp Investment holding company
01/09/96 04/30/96 CompuWare Corp Technalysis Corp Dvlp, whl software systems
01/16/96 02/26/96 Multicare Cos Inc Concord Health Group Own, op nursing care facilities
01/16/96 04/10/96 Depuy Inc (Corange Ltd) Orthopedic Technology Inc Mnfr orthopedic devices
01/18/96 07/02/96 Pfizer Inc Corvita Corp Manufacture pharmaceuticals
01/23/96 05/09/96 Spartech Corp Portage Industries Corp Manufacture plastic products
01/24/96 07/16/96 First Maryland Bancorp, MD 1st Washington Bancorp Inc Bank holding company
01/24/96 08/08/96 Chartwell Leisure Associates National Lodging Corp Own and operate hotels
01/26/96 05/15/96 Charter Financial Inc, Illinois Community Savings Bk, Marion, IL Savings bank; holding co
01/29/96 04/08/96 WH Brady Co Varitronic Systems Inc Mnfr indl labeling machines
01/31/96 03/04/96 IBM Corp Tivoli Systems Inc Mnfr computers, office equip
02/05/96 06/19/96 Bay View Capital, San Mateo, CA CTL Credit Inc Bank holding company
02/08/96 07/31/96 Meridian Insurance Group Citizens Security Group Inc Insurance holding company
02/12/96 05/03/96 Essilor of America Inc Benson Eyecare Corp Mnfr, whl ophthalmic goods
02/12/96 05/01/96 Honeywell Inc Duracraft Corp Mnfr automation, control sys
02/13/96 07/12/96 Horizon/CMS Healthcare Corp Medical Innovations Inc Pvd nursing care services
02/13/96 08/02/96 American Federal Savings Bk, MN Northwestern Financial Corp Savings bank
02/14/96 03/20/96 Unilever NV Helene Curtis Industries Inc Produce foods; holding company
02/15/96 05/14/96 Genstar Capital Partners II LP Andros Inc Investment firm
02/15/96 04/29/96 NationsBank Corp, Charlotte, NC LDI Corp Bank hldg co; pvd finl svcs
02/21/96 03/29/96 Welsh Carson Anderson & Stowe Aurora Electronics Inc Venture capital firm
02/29/96 07/10/96 TBC Corp Big O Tires Inc Whl tires, automobile parts
02/29/96 09/30/96 Trenton Savings Bank, NJ Burlington County Bank, NJ Savings and loan
03/04/96 04/08/96 Lilly Industries Inc Guardsman Products Inc Mnfr industrial finishings
03/07/96 07/03/96 Danaher Corp Acme-Cleveland Corp Mnfr auto parts, main equip
03/13/96 04/18/96 Eaton Corp CAPCO Automotive Products Corp Manufacture automotive parts
03/21/96 10/01/96 Monarch Bancorp, California Western Bank, Los Angeles, CA Bank holding co
03/29/96 04/26/96 Equity Holdings, Chicago, IL Great American Mgmt & Invt Inc Investment firm
03/29/96 10/21/96 ISB Financial, New Iberia, LA Jefferson Bancorp, Gretna, LA Savings bank; bank holding co
<CAPTION>
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY -- (CONTINUED)
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED TARGET BUSINESS DESCRIPTION ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- --------------------------- ----------- ------ ------- ------- -------
<C> <C> <C> <C> <C> <C> <C>
12/14/95 Bank holding company 361.2 37.50 13.6% 10.3% 23.0%
12/18/95 Mnfr sporting, athletic goods 670.4 36.00 30.3% 32.1% 32.7%
12/19/95 Bank holding company 69.1 18.50 8.8% 2.8% 15.6%
12/20/95 Pvd income tax processing svcs 17.8 6.75 134.8% 157.1% 145.5%
01/02/96 Mnfr, whl auto parts 5.1 --
01/03/96 Mnfr radios and televisions 109.1 11.00 29.4% 57.1% 49.2%
01/05/96 Investment holding company 53.0 16.00 9.4% (1.5%) (4.1%)
01/05/96 Mnfr backyard swings, slides 22.8 6.50 (25.7%) (29.7%) (36.6%)
01/09/96 Develop software 32.6 14.00 12.0% 16.7% 16.7%
01/16/96 Pvd healthcare mgmt services 126.9 7.35 25.1% 43.4% 58.9%
01/16/96 Manufacture surgical supplies 45.2 10.43 26.4% 43.9% 49.0%
01/18/96 Manufacture medical equipment 78.5 10.25 (2.4%) 2.5% (2.4%)
01/23/96 Mnfr extruded plastic sheets 15.8 6.60 46.7% 79.0% 79.0%
01/24/96 Bank holding company 81.9 8.13 27.5% 51.2% 44.4%
01/24/96 Own and operate casinos 57.0 14.25 34.1% 26.7% 0.0%
01/26/96 Savings bank 7.5 50.00
01/29/96 Mnfr typewriters 42.5 17.50 79.5% 79.5% 62.8%
01/31/96 Dvlp systems mgmt software 709.8 47.50 25.8% 25.0% 41.8%
02/05/96 Bank holding company 65.0 18.00 53.2% 82.3% 69.4%
02/08/96 Insurance holding company 22.6 12.50 88.7% 108.3% 117.4%
02/12/96 Wholesale ophthalmic goods 210.3 6.60 (26.7%) (30.5%) (17.5%)
02/12/96 Mnfr electric housewares 286.7 43.50 58.2% 50.0% 68.1%
02/13/96 Pvd home health care services 30.3 1.85 13.8% 18.4% 5.7%
02/13/96 Bank holding co; coml bank 12.5 23.25
02/14/96 Mnfr perfumes, cosmetics 737.4 70.00 18.6% 30.2% 71.8%
02/15/96 Mnfr infrared gas analyzers 92.6 18.00 16.1% 24.1% 35.8%
02/15/96 Computer equip leasing svcs 28.1 4.10 31.2% 21.5% 49.1%
02/21/96 Recycle integrated circuits 50.0 --
02/29/96 Own, operate tire stores 56.6 16.50 5.6% 7.3% 12.8%
02/29/96 Commercial bank 12.5 77.00
03/04/96 Mnfr coatings, cleaning prod 227.8 23.00 32.4% 32.4% 57.3%
03/07/96 Mnfr metal cutting tools 204.4 30.00 50.0% 55.8% 56.9%
03/13/96 Mnfr automobile parts 128.9 12.50 66.7% 72.4% 78.6%
03/21/96 Savings and loan 61.0 --
03/29/96 Invt advice and financial svcs 63.3 50.00 2.6% 4.2% 3.6%
03/29/96 Savings bank; bank holding co 52.0 23.00 15.0% 16.5% 18.7%
</TABLE>
57
<PAGE> 60
<TABLE>
<CAPTION>
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY -- (CONTINUED)
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME ACQUIROR BUSINESS DESCRIPTION
- --------- -------- ------------- ----------- -----------------------------
<C> <C> <S> <C> <C>
03/29/96 08/07/96 Abbott Laboratories MediSense Inc Mnfr pharmaceuticals, med equip
04/02/96 08/26/96 Hibernia National Bank, LA CM Bank Holding Co Commercial bank
04/22/96 06/03/96 K-III Communications Corp Westcott Communications Inc Publish magazines
04/23/96 10/21/96 Security Banc Corp, OH Third Financial Corp, Piqua, OH Bank holding co; coml bank
04/26/96 07/03/96 Movie Gallery Inc Home Vision Entertainment Inc Own, op video stores
04/29/96 09/03/96 Hubco Inc, Mahwah, New Jersey Hometown Bancorporation Inc, CT Bank holding company
05/07/96 07/03/96 Orion Capital Corp Guaranty National Corp Insurance company; holding co
05/10/96 10/01/96 HF Bancorp Inc, Hemet, CA Palm Springs Savings Bank, CA Bank holding co; savings bank
05/13/96 08/15/96 Northern Telecom Ltd (BCE Inc) MICOM Communications Corp Mnfr telephone apparatus
05/15/96 06/21/96 Heritage Fund I Klearfold Inc Investment firm
<CAPTION>
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY -- (CONTINUED)
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED TARGET BUSINESS DESCRIPTION ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- --------------------------- ----------- ------ ------- ------- -------
<C> <C> <C> <C> <C> <C> <C>
03/29/96 Mnfr blood monitoring systems 821.6 45.00 48.8% 48.8% 39.0%
04/02/96 Bank holding company 201.7 193.52
04/22/96 Pvd motion picture prodn svcs 438.9 21.50 43.3% 57.8% 56.4%
04/23/96 Bank holding company 43.9 33.41 11.4% 13.7% 14.2%
04/26/96 Pvd video tape rental svcs 32.0 --
04/29/96 Bank holding company 31.9 17.75 20.3% 29.1% 29.1%
05/07/96 Insurance company 85.1 18.50 15.6% 15.6% 22.3%
05/10/96 Savings bank 17.3 14.38 36.9% 43.8% 43.8%
05/13/96 Mnfr communications equipment 138.3 12.00 (14.3%) 9.1% 58.4%
05/15/96 Mnfr paperboard packaging prod 45.8 --
</TABLE>
58
<PAGE> 61
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME ACQUIROR BUSINESS DESCRIPTION
- --------- -------- ------------- ----------- -----------------------------
<C> <C> <S> <C> <C>
05/16/96 10/31/96 Markel Corp Investors Insurance Group Insurance firm,agency
05/20/96 07/23/96 General Electric Capital Svcs AmeriData Technologies Inc Pvd financing services
Financing for Science Intl
05/20/96 08/29/96 Finova Group Inc Inc Pvd financial services
Collective Bancorp, New
05/21/96 10/01/96 Jersey Continental Bancorporation Bank holding company
05/24/96 09/04/96 Joint Energy Development Clinton Gas Systems Inc Oil and gas exploration,prodn
05/24/96 07/02/96 Lear Corp Masland Corp Mnfr automobile seats
05/27/96 02/16/97 Novartis AG SyStemix Inc (Novartis AG) Manufacture pharmaceuticals
05/29/96 01/28/97 Regions Finl, Birmingham, AL Florida First Bancorp Inc, FL Bank holding company
06/03/96 09/30/96 Pakhoed Holding NV Univar Corp Pvd freight transp services
06/06/96 10/01/96 Investor Group AT&T Capital Corp (AT&T Corp) Investor group
Whl industrial machinery
06/06/96 07/09/96 Lacy Distribution Inc Finish Master Inc(Maxco Inc) equip
06/10/96 08/23/96 Vemco Acquisition Corp Bailey Corp Investment holding company
06/10/96 07/22/96 Merck-Medco Managed Care Inc SysteMed Inc Health insurance company
06/11/96 07/23/96 Forstmann Little & Co Community Health Systems Inc Investment company
06/11/96 11/30/96 TDI Financial, Chicago, IL Security Chicago, Chicago, IL Commercial bank; holding co
06/13/96 11/07/96 Citizens Financial Group, RI Farmers & Mechanics Bank, CT Savings bank; holding co
06/14/96 08/23/96 Varlen Corp Brenco Inc Mnfr custom tubular products
06/14/96 07/12/96 Falcon Holding Group LP Falcon Cable Systems Co Own and operate cable TV sys
06/14/96 11/14/96 Western Ohio Financial Corp Seven Hills Financial Investment firm
06/20/96 09/16/96 Public Storage Inc Public Storage Properties X Real estate investment trust
06/20/96 09/16/96 Public Storage Inc Public Storage Properties XII Real estate investment trust
06/21/96 08/23/96 United Communications Group Computer Petroleum Corp Publish newsletters
Sunrise Bancorp, Roseville,
06/24/96 11/01/96 First Banks America Inc CA Savings bank
06/27/96 02/21/97 Northwest Svgs Bk, Warre, PA Bridgeville Savings Bank Savings and loan
06/28/96 09/27/96 Investor Group Salem Corp Investor group
Mnfr aircraft, defense
07/01/96 09/25/96 Rockwell International Corp Brooktree Corp systems
Publish newspaper; cable TV
07/01/96 03/25/97 Tribune Co Renaissance Commun Corp sys
07/03/96 09/05/97 Gold Kist Inc Golden Poultry Co Inc Produce, wholesale poultry
07/12/96 10/10/96 Astor Chemicals ADCO Technologies Inc Mnfr specialty chemicals
07/22/96 10/25/96 cisco Systems Inc Telebit Corp Mnfr inter-networking systems
07/23/96 02/19/97 Capstar Broadcasting Partners Osborn Communications Corp Own, operate radio stations
<CAPTION>
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED TARGET BUSINESS DESCRIPTION ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- --------------------------- ----------- ----- ------- ------- -------
<C> <C> <C> <C> <C> <C> <C>
05/16/96 Insurance company; holding co 38.0 --
05/20/96 Whl computers, peripherals 454.8 16.00 4.1% 25.5% 47.1%
05/20/96 Pvd business credit services 39.2 6.40 4.5% 6.7% 12.5%
05/21/96 Bank holding company 28.7 5.00
Oil and gas exploration,
05/24/96 prodn 38.4 6.75 3.8% 14.9% 31.7%
05/24/96 Mnfr motor vehicle parts 413.5 26.00 6.1% 18.2% 30.0%
05/27/96 Mnfr, dvlp cellular processes 107.6 19.50 4.7% 69.6% 59.2%
05/29/96 Savings and loan; holding co 40.9 11.65 21.0% 19.5% 33.1%
06/03/96 Whl chemicals, pesticides 331.8 19.45 57.2% 54.1% 58.8%
Pvd leasing, financing
06/06/96 services 2128.6 45.00 37.4% 38.5% 42.3%
Whl automotive paint,
06/06/96 coatings 62.6 15.65 30.4% 27.8% 42.3%
06/10/96 Manufacture rubber products 47.8 8.75 5.5% 6.1% 11.1%
06/10/96 Pvd medical services 64.8 3.00 (4.0%) 4.3% 9.1%
06/11/96 Operate medical clinics 1080.0 52.00 20.2% 19.9% 18.9%
06/11/96 Commercial bank; holding co 12.5 60.00
06/13/96 Commercial bank 52.9 32.00 58.0% 62.0% 62.0%
06/14/96 Ball and roller bearings 161.4 16.13 31.0% 30.3% 20.6%
06/14/96 Own, operate cable TV systems 247.4 --
06/14/96 Savings and loan 11.0 19.70 19.4% 19.4% 19.4%
06/20/96 Pvd warehousing, storage svcs 50.2 20.92 13.9% 13.1% 10.8%
06/20/96 Rent storage space 55.2 22.34 14.6% 14.6% 15.3%
06/21/96 Information retrieval svcs 12.0 3.85 28.3% 46.7% 71.1%
06/24/96 Commercial bank 18.7 4.00 39.1% 52.4% 45.5%
06/27/96 Savings bank 18.3 16.00 10.3% 10.3% 8.5%
06/28/96 Whl industrial mach and equip 46.6 25.00 22.0% 23.5% 11.7%
07/01/96 Manufacture semiconductors 261.8 15.00 42.9% 64.4% 16.5%
07/01/96 Own and operate TV stations 1094.4 36.00 11.6% 19.0% 20.5%
07/03/96 Produce, wholesale poultry 52.1 14.25 52.0% 50.0% 39.0%
07/12/96 Mnfr adhesives and sealants 53.8 10.25 28.1% 51.9% 57.7%
07/22/96 Mnfr data transmission equip 196.3 13.35 22.8% 22.8% 4.7%
07/23/96 Own, op radio and TV stations 89.9 15.38 28.1% 50.0% 38.2%
</TABLE>
59
<PAGE> 62
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME ACQUIROR BUSINESS DESCRIPTION
- --------- -------- ------------- ----------- -----------------------------
<C> <C> <S> <C> <C>
07/29/96 01/03/97 First Nationwide Bank, CA Cal Fed Bancorp, Savings and loan
Los Angeles, CA
07/31/96 11/13/96 Monsanto Co Calgene Inc Mnfr agro chems, manmade
fibers
07/31/96 09/17/96 Investor Group Grand Union Co Investor group
08/02/96 11/29/96 General Electric Capital Corp First Colony Corp Pvd consumer financing svcs
08/07/96 10/03/96 Magna International Inc Douglas & Lomason Co Mnfr auto parts, accessories
08/07/96 08/26/97 Bank SinoPac Far East National Bank, CA Bank (Foreign)
08/08/96 09/17/96 Chemed Corp Roto-Rooter Inc (Chemed Corp) Mnfr chems, janitorial equip
08/16/96 07/31/96 Pengo Industries Inc Inland Resources Inc Provide oil field services
08/21/96 11/22/96 Golden Technologies (ACX Photocomm Inc Produce corn related products
Tech)
08/29/96 11/14/96 Cypress Group LLC Amtrol Inc Investment bank
09/09/96 09/23/96 Highwoods Properties Inc Crocker Realty Trust Inc Real estate investment trust
09/11/96 03/04/97 American Eco Corp Chempower Inc Pvd engineering services
09/16/96 03/31/97 Mutual Savings Bk, Milwaukee, First Fed Bancshares of Eau Savings Bank
WI Cl
09/16/96 04/11/97 Superior National Ins Group Pac Rim Holding Corp Pvd workers' compensation
svcs
09/16/96 12/06/96 Schnitzer Steel Industries Proler International Corp Manufacture steel products
Inc
09/20/96 11/01/96 Sanmina Corp Comptronix Corp Mnfr printed circuit boards
09/24/96 01/02/97 Oracle Corp Datalogix International Develop database software
09/30/96 02/28/97 Cullen/Frost Bankers Inc, Corpus Christi Bancshares, TX Bank holding company
Texas
10/07/96 12/02/96 Computer Associates Intl Inc Cheyenne Software Inc Develop applications software
10/07/96 12/05/96 Southwide Life Insurance Corp Southland National Insurance Life insurance company
10/08/96 11/22/96 Nash Finch Co Super Food Services Inc Wholesale groceries
10/10/96 11/27/96 Renco Group Inc WCI Steel Inc (Renco Group Mnfr steel products
Inc)
10/15/96 06/03/97 Investor Group Conrail Inc Investor group
10/17/96 12/03/96 LF Strategic Investors RF&P Corp Investment company
10/17/96 02/27/97 Investor Group Triad Systems Corp Investor group
10/21/96 03/31/97 Investor Group Detroit & Canada Tunnel Corp Investor group
10/21/96 04/10/97 Newnan Holdings Inc, Tara Bankshares Corp,Georgia Bank holding company
Newnan,GA
10/28/96 01/15/97 Henkel KGaA Loctite Corp Mnfr, whl chemicals,
detergents
11/04/96 03/05/97 Citizens Bank of Grove Banks,Chesnut Hill, MA Commercial savings and loan
Massachusetts
11/04/96 05/19/97 Glendale Fed Bk, Glendale, CA TransWorld Bancorp, Savings and loan
California
11/05/96 03/14/97 Harbour Group Ltd Panatech Research & Mnfr steel cutting tools
Development
<CAPTION>
VALUE OF SHARE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED TARGET BUSINESS DESCRIPTION ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- --------------------------- ----------- ----- ------- ------- -------
<C> <C> <C> <C> <C> <C> <C>
07/29/96 Bank holding company
1287.8 23.50 18.2% 32.4% 31.5%
07/31/96 Own and operate greenhouse
50.0 8.00 64.1% 80.3% 39.1%
07/31/96 Own and operate supermarkets 100.0 --
08/02/96 Insurance holding company 1799.2 36.15 37.7% 32.7% 39.0%
08/07/96 Wholesale motor vehicles 134.6 31.00 39.3% 90.8% 103.3%
08/07/96 Savings and loan 94.0 --
08/08/96 Provide plumbing services,
prod 93.6 41.00 12.3% 12.3% 11.2%
08/16/96 Oil and gas field exploration 9.5 --
08/21/96 Mnfr, whl solar electric
prods 16.8 --
08/29/96 Mnfr plumbing, heating
systems 227.2 28.25 71.2% 56.9% 56.9%
09/09/96 REIT 76.1 11.88 18.8% 20.3% 21.8%
09/11/96 Insulation, asbestos
abatement 50.0 6.20 48.1% 48.1% 45.9%
09/16/96 Commercial bank
132.7 18.85 23.1% 25.7% 25.7%
09/16/96 Pvd workers' compensation
svcs 42.0 --
09/16/96 Whl scrap metals & metals
42.5 9.00 132.3% 125.0% 148.3%
09/20/96 Mnfr printed circuit boards 22.0 --
09/24/96 Develop business software 80.0 8.00 28.0% 42.2% 56.1%
09/30/96 Bank holding company
32.4 18.84 17.8% 17.8% 17.8%
10/07/96 Develop computer software 1247.6 30.50 32.6% 34.8% 30.5%
10/07/96 Pvd funeral insurance svcs 9.5 38.00
10/08/96 Wholesale food products 164.2 15.50 37.8% 36.3% 29.2%
10/10/96 Manufacture steel
56.5 10.00 17.6% 29.0% 77.8%
10/15/96 Own, op freight railroad
lines 10435.9 115.00 62.0% 60.3% 60.3%
10/17/96 Real estate development firm 570.0 --
10/17/96 Develop turnkey computer sys 193.1 9.25 68.2% 60.9% 89.7%
10/21/96 Pvd tunnel operation services 36.5 54.00 64.9% 74.2% 54.3%
10/21/96 Commercial bank; holding co
10.5 15.00
10/28/96 Mnfr adhesives & sealants
1289.1 61.00 31.9% 36.7% 34.8%
11/04/96 Savings bank
78.7 51.00 37.8% 46.8% 50.0%
11/04/96 Bank holding company
63.2 18.25 10.6% 12.3% 30.4%
11/05/96 Manufacture semiconductors
29.2 7.00 55.6% 55.6% 51.4%
</TABLE>
60
<PAGE> 63
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME ACQUIROR BUSINESS DESCRIPTION
- --------- -------- ------------- ----------- -----------------------------
<C> <C> <S> <C> <C>
11/06/96 03/07/97 Progressive Corp Midland Financial Group Inc Insurance holding company
11/07/96 06/13/97 Shoreline Financial Corp, MI SJS Bancorp Inc, St Joseph,
MI Commercial bank; holding co
11/12/96 06/12/97 Investor Group Leslie's Poolmart Investor group
11/13/96 12/17/96 IBM Corp Edmark Corp Mnfr computers, office equip
11/13/96 01/20/97 FCY Inc Medex Inc Mnfr engineered polymer prods
11/18/96 01/02/97 Intermet Corp Sudbury Inc Ductile, gray iron castings
11/22/96 05/01/97 ABN-AMRO Holding NV Standard Fed Bancorp, Troy,
MI Bank holding company
11/25/96 01/09/97 Applied Materials Inc Mnfr wafer fabrication
Opal Inc systems
11/26/96 12/30/96 Clorox Co Armor All Products (McKesson) Manufacture household bleach
11/26/96 11/27/96 Software Acquisition Co NeoStar Retail Group Inc Leverage buyout company
11/27/96 12/27/96 JW Childs Equity Partners LP Central Tractor Farm &
Country Investment company
11/27/96 03/27/97 JW Childs Equity Partners LP Central Tractor Farm &
Country Investment company
11/27/96 01/16/97 Bell Industries Inc Mnfr electronic, computer
Milgray Electronics Inc prods
11/29/96 01/06/97 Tyco International Ltd ElectroStar Inc Mnfr fire protection systems
12/03/96 05/01/97 Dime Bancorp Inc, New York, Savings, mortgage bank hldg
NY BFS Bankorp Inc, New York, NY co
12/04/96 12/04/96 DowElanco
(Dow Chem, Eli Lilly) Mycogen Corp (DowElanco/Dow) Manufacture insecticides
12/05/96 03/27/97 Centex Corp Cavco Industries Inc Construct bldgs, RE dvlp firm
12/05/96 01/10/97 Hadco Corp Zycon Corp Mnfr computer circuit boards
12/06/96 03/18/97 Sears Roebuck & Co
MaxServ Inc (Sears Roebuck) Department stores; finl svcs
12/11/96 02/21/97 Aon Corp Alexander & Alexander
Services Insurance holding company
12/12/96 01/22/97 Forcenergy Inc Oil, gas exploration and
Great Western Resources Inc prodn
12/16/96 01/27/97 Zurn Industries Inc Eljer Industries Inc Mnfr enviromental equipment
12/24/96 03/11/97 DENTSPLY International Inc New Image Industries Inc Mnfr dental, med X-ray equip
12/26/96 06/09/97 Commerce Security Bancorp, CA Eldorado Bancorp, Tustin, CA Commercial bank; holding co
12/27/96 05/01/97 US Bancorp, Portland, Oregon Business & Professional Bk, Commercial bank; trust
CA facility
01/02/97 01/20/97 Thermo Trilogy Corp biosys Mnfr biochemical products
01/07/97 02/25/97 MedTrans Inc (Laidlaw Inc) American Medical Response Inc Pvd ambulance svcs
01/07/97 02/10/97 DLB Oil & Gas Inc Oil and gas exploration,
Bonray Drilling Corp prodn
01/13/97 09/02/97 Zurich Versicherungs GmbH Zurich Reinsurance Centre Insurance holding company
01/15/97 08/06/97 Columbia/HCA Healthcare Corp Value Health Inc Own, operate hospitals
01/21/97 07/09/97 Mafco Holdings Inc Mafco Consolidated Grp
(Mafco) Mnfr toilet preparations
<CAPTION>
VALUE OF SHARE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED TARGET BUSINESS DESCRIPTION ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- --------------------------- ----------- ----- ------- ------- -------
<C> <C> <C> <C> <C> <C> <C>
11/06/96 Fire, marine, casualty ins co 47.2 9.00 30.9% 24.1% 0.0%
11/07/96
Commercial bank; holding co 26.5 27.00 18.7% 13.7% 24.1%
11/12/96 Own, op swimming pool stores 112.8 14.50 26.1% 31.8% 31.8%
11/13/96 Develop educational software 123.8 15.50 35.5% 63.2% 31.9%
11/13/96 Mnfr drug infusion products 150.6 23.50 54.1% 58.0% 66.7%
11/18/96 Mnfr automotive parts 155.4 12.50 19.0% 25.0% 9.9%
11/22/96
Commercial bank 1971.1 59.00 1.7% 6.8% 15.4%
11/25/96
Mnfr special industry equip 189.6 18.50 52.6% 64.4% 105.6%
11/26/96 Mnfr cleaners and waxes 410.1 19.09 9.1% 14.0% 14.0%
11/26/96 Wholesale computer software 58.5 -- 0.0% 0.0% 0.0%
11/27/96 Own, op tractor, hardware
stores 81.0 14.00 15.5% 15.5% 16.7%
11/27/96 Own, op tractor, hardware
stores 56.7 14.25 17.5% 17.5% 18.8%
11/27/96
Whl electronic equip 100.0 14.77 8.4% 17.0% 20.6%
11/29/96 Mnfr printed circuit boards 111.0 14.00 7.7% 27.3% 16.7%
12/03/96
Bank holding company 91.5 52.00 11.8% 16.9% 22.4%
12/04/96
Develop biological pesticides 16.8 16.75 (1.5%) 0.0% 4.7%
12/05/96 Mnfr mobile homes 76.2 26.75 13.2% 20.2% 30.5%
12/05/96 Mnfr printed circuit boards 211.7 18.00 12.5% 46.9% 94.6%
12/06/96 Pvd technical info support
svc 46.0 7.75 19.2% 67.6% 55.0%
12/11/96
Pvd insurance brokerage svcs 1227.4 17.50 6.1% 8.5% 9.4%
12/12/96
Oil and gas production 48.3 --
12/16/96 Manufacture plumbing fixtures 175.6 24.00 77.8% 84.6% 90.1%
12/24/96 Dev computer imaging software 11.4 2.00 0.0% 0.0% 77.8%
12/26/96 Bank holding company 91.7 23.00 12.9% 14.3% 12.9%
12/27/96
Commercial bank 33.5 18.00 14.3% 20.0% 30.9%
01/02/97 Mnfr pharmaceutical products 11.0 --
01/07/97 Provide ambulance services 1011.1 40.00 21.2% 23.1% 36.8%
01/07/97
On-shore oil and gas drilling 12.7 30.00 11.1% 11.1% 30.4%
01/13/97 Insurance agency 319.0 36.00 17.1% 18.5% 11.6%
01/15/97 Provide health plan services 1132.3 20.50 1.2% 0.6% 0.0%
01/21/97 Mnfr cosmetics,beauty
products 116.8 33.50 23.5% 23.5% 27.6%
</TABLE>
61
<PAGE> 64
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME ACQUIROR BUSINESS DESCRIPTION
- --------- -------- ------------- ----------- -----------------------------
<C> <C> <S> <C> <C>
01/27/97 03/07/97 Honeywell Inc Measurex Corp Mnfr automation, control sys
01/28/97 05/21/97 Monsanto Co Calgene Inc (Monsanto Co) Mnfr agro chems, manmade
fibers
02/10/97 03/31/97 Vencor Inc TheraTx Inc Provide healthcare services
02/13/97 02/13/97 Resources Corp (Uniwide) Contour Medical (Retirement) Pvd construction services
02/13/97 05/20/97 British Aerospace Holdings Reflectone Inc Whl aircraft, aircraft equip
02/18/97 06/27/97 NGC Corp Destec Energy Inc Wholesale natural gas
products
02/18/97 05/09/97 Tracy Bankshares, Denver, CO Tracy Federal Bk FSB, Tracy,
CA Commercial bank; holding co
02/19/97 08/06/97 United Bankshares Inc, WV First Patriot Bankshares, VA Bank holding company
03/06/97 08/13/97 Fireman's Fund Insurance Co Crop Growers Corp Insurance company
03/14/97 10/01/97 Berlin City National Bank PEMI Bancorp Inc, Plymouth,
NH State bank
03/21/97 05/02/97 Health Systems International FOHP Inc Own, op HMO's; holding
company
03/24/97 04/28/97 Elsevier Science MDL Information Systems Publish scientific journals
03/26/97 08/01/97 Deposit Guaranty, Jackson, MS CitiSave Finl, Baton Rouge,
LA Bank holding co
03/27/97 03/27/97 Hamilton Acquisition LLC Strober Organization Inc Investment company
03/28/97 06/04/97 R-B Capital Corp Peerless Industrial Group Inc Investment company
03/31/97 06/03/97 Moore Corp Ltd Peak Technologies Group Inc Mnfr manifold business forms
04/08/97 08/28/97 Citizens Financial Group, RI BNH Bancshares, New Haven, CT Savings bank; holding co
04/10/97 06/26/97 Compaq Computer Corp Microcom Inc Manufacture personal
computers
04/14/97 11/12/97 Neptune Orient Lines Ltd APL Ltd Pvd deep sea oil transp svcs
04/16/97 01/30/98 Harcourt General Inc Steck-Vaughn Publishing Corp Operate movie theaters,
stores
04/18/97 04/21/97 Manor Care Inc Vitalink Pharmacy Services
Inc Own, op nursing homes, hotels
04/21/97 06/10/97 Harcourt General Inc National Education Corp Operate movie theaters,
stores
04/25/97 04/25/97 U-C Holdings LLC UC Television Network Corp investment company
04/30/97 07/25/97 Park-Ohio Industries Inc Arden Industrial Products Inc Mnfr forged and machined
parts
04/30/97 09/26/97 SunTrust Banks Inc, Atlanta,
GA Union Planters Corp, Memphis,
TN Commercial bank
05/01/97 10/01/97 Area Bancshares Corp,
Kentucky Cardinal Bancshares, Kentucky Bank holding co
05/01/97 07/30/97 Choucroute Partners David White Inc Investment company
05/02/97 06/30/97 Investor Group WRT Energy Corp Investor group
05/05/97 06/13/97 Incentive AB Vivra Inc Mnfr medical instr, ind equip
05/06/97 01/05/98 Foundation Health Systems Inc Physicians Health Services
Inc Own, op HMO's; holding
company
05/06/97 07/25/97 Riddell Sports Inc Varsity Spirit Manufacture football
equipment
<CAPTION>
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED TARGET BUSINESS DESCRIPTION ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- --------------------------- ----------- ----- ------- ------- -------
<C> <C> <C> <C> <C> <C> <C>
01/27/97 Mnfr comptr process cntrl sys 597.0 35.00 44.3% 42.1% 45.8%
01/28/97
Own and operate greenhouse 242.6 8.00 62.0% 60.0% 60.0%
02/10/97 Own, op nursing care
facilities 378.2 17.10 30.3% 35.4% 59.1%
02/13/97 Mnfr surgical supplies 9.8 5.00 (14.0%) (18.4%) (2.4%)
02/13/97 Manufacture flight simulators 41.1 24.00 20.0% 18.5% 25.5%
02/18/97
Electric utility 1222.4 21.65 82.3% 80.4% 63.4%
02/18/97
Savings bank 5.7 2.40
02/19/97 Bank holding company 35.4 17.00 15.3% 9.7% 4.6%
03/06/97 Insurance agency 82.1 10.25 20.6% 15.5% 41.4%
03/14/97
Bank holding company 19.3 28.00
03/21/97
Pvd healthcare management
svcs 51.7 --
03/24/97 Pvd scientific info svcs 310.7 32.00 85.5% 43.8% 54.2%
03/26/97
Bank holding co 20.3 20.50 46.4% 50.5% 46.4%
03/27/97 Wholesale building materials 33.4 6.00 0.0% 3.2% 2.1%
03/28/97 Mnfr chain and wire 10.5 1.67
03/31/97 Whl integrated systems 169.8 18.00 108.7% 97.3% 65.5%
04/08/97 Bank holding company 58.0 15.50 14.8% 26.5% 19.2%
04/10/97
Mnfr data comm products 267.6 16.25 54.8% 91.2% 35.4%
04/14/97 Shipping, trucking company 878.5 33.50 55.8% 65.4% 42.6%
04/16/97
Publish books, magazines 40.3 14.75 21.6% 32.6% 24.2%
04/18/97
Pvd health and allied svcs 30.0 20.00 14.3% 8.1% (4.2%)
04/21/97
Vocational training services 776.1 21.00 22.6% 54.1% 40.0%
04/25/97 Own, op interactive TV
network 16.2 --
04/30/97
Whl fasteners 42.0 6.00 41.2% 50.0% 37.1%
04/30/97
Commercial bank holding co 10.8 --
05/01/97
Bank holding co 96.0 60.26 26.9% 33.9% 31.0%
05/01/97 Mnfr, whl surveying
instruments 5.9 12.00 11.6% 14.3% 18.5%
05/02/97 Oil and gas exploration,
prodn 30.0 --
05/05/97 Provide home health care svcs 1660.5 35.62 26.1% 41.8% 35.7%
05/06/97
Own and operate HMO's 268.2 28.25 23.5% 27.0% 51.7%
05/06/97
Pvd cheerleading training
svcs 91.0 18.90 30.3% 28.1% 23.9%
</TABLE>
62
<PAGE> 65
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME ACQUIROR BUSINESS DESCRIPTION
- --------- -------- ------------- ----------- -----------------------------
<C> <C> <S> <C> <C>
05/08/97 09/10/97 Nicolet Biomedical Inc Imex Medical Systems Inc Investment company
05/30/97 07/09/97 Whitehall Street Real Estate Integrated Living Communities Real estate development firm
06/02/97 07/15/97 Anthem Inc Acordia Inc (Anthem Inc) Insurance company
06/03/97 09/30/97 Santa Barbara Bancorp, CA Citizens State Bank, CA Bank holding co
06/05/97 10/20/97 Humana Inc ChoiceCare Corp Own and operate HMOs
06/05/97 07/14/97 Intermedia Communications Inc DIGEX Inc Pvd telecommunications svcs
06/09/97 10/01/97 SAFECO Corp American States Financial Provide insurance services
Corp
06/10/97 08/28/97 Micron Electronics Inc NetFrame Systems Inc Mnfr electronic components
06/12/97 07/31/97 Fahnestock Viner Holdings Inc First of Michigan Capital Securities brokerage firm
Corp
06/12/97 10/01/97 Thyssen AG Giddings & Lewis Inc Manufacture malleable iron
06/16/97 08/29/97 United Dominion Industries Core Industries Inc Mnfr structural metal
Ltd
06/16/97 09/30/97 Investor Group Frederick's of Hollywood, Investor group
Inc.
06/16/97 10/10/97 Genesis Eldercare Acquisition Multicare Cos Inc Own, op geriatric facilities
06/16/97 08/07/97 BT Industries AB Raymond Corp Mnfr fork lift trucks
06/17/97 09/25/97 Leonard Green & Partners LP Hechinger Co Merchant banking firm
06/17/97 07/24/97 Monterey Resources Inc McFarland Energy Inc Oil and gas exploration,
prodn
06/17/97 07/25/97 CCL Industries Inc Seda Specialty Packaging Corp Mnfr, pvd specialty packaging
06/19/97 08/15/97 Gateway 2000 Inc Advanced Logic Research Inc Mnfr personal computers
06/23/97 10/17/97 General Motors Acceptance(GM) Integon Corp Provide business finance svcs
06/24/97 09/29/97 Three Rivers Holding Corp SMT Health Services Inc Investment company
06/26/97 11/26/97 Rhone-Poulenc SA (France) Rhone-Poulenc Rorer Inc Mnfr chemicals and cosmetics
06/30/97 10/09/97 Eaton Corp Fusion Systems Corp Manufacture automotive parts
07/02/97 09/23/97 Bunzl PLC American Filtrona Corp Whl, mnfr paper,constn
material
07/02/97 10/28/97 Summa Industries Inc Calnetics Corp Mnfr plastic conveyor parts
07/08/97 09/30/97 Jitney-Jungle Stores of Amer Delchamps Inc Own and operate grocery
stores
07/09/97 09/23/97 CDSI Holding Corp Control Data Systems Inc Investment holding company
07/09/97 12/23/97 Investor Group Seaman Furniture Co Investor group
07/10/97 11/18/97 Investor Group Kinetic Concepts Inc Investor group
07/15/97 10/02/97 Axiohm SA DH Technology Inc Mnfr,whl computer printers
07/17/97 09/29/97 Lucent Technologies Inc Octel Communications Corp Mnfr telecommun sys, software
07/23/97 12/18/97 Newport Investment LLC Alliance Imaging Inc Investment company
07/23/97 12/02/97 Benihana Inc Rudy's Restaurant Group Own and operate restaurants
<CAPTION>
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED TARGET BUSINESS DESCRIPTION ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- --------------------------- ----------- ----- ------- ------- -------
<C> <C> <C> <C> <C> <C> <C>
05/08/97 Mnfr fetal diagnostic instr 9.3 1.35 7.9% 2.8% 2.8%
05/30/97 Pvd nursing, personal care 79.7 11.50 26.9% 21.1% 50.8%
svcs
06/02/97 Pvd insurance brokerage svcs 193.2 40.00 12.7% 11.5% 26.0%
06/03/97 Commercial bank 16.2 1925.00
06/05/97 Own, operate HMOs 243.3 16.38
06/05/97 Develop Internet software 171.6 13.00 19.5% 35.9% 31.6%
06/09/97 Fire and marine insurance co 3127.1 47.00 45.7% 48.6% 57.3%
06/10/97 Manufacture electn computers 14.0 1.00 (23.8%) (15.8%) (20.0%)
06/12/97 Securities brokerage firm 38.4 15.00
06/12/97 Mnfr automated machine tools 703.0 21.00 10.5% 9.8% 0.6%
06/16/97 Manufacture electronic equip 275.2 25.00 26.6% 37.9% 49.3%
06/16/97 Women's clothing stores 69.4 7.75 48.8% 44.5% 25.9%
06/16/97 Own, op nursing care 1249.1 28.00 9.3% 13.7% 34.9%
facilities
06/16/97 Mnfr industrial lift trucks 360.4 33.00 (6.1%) (1.5%) 6.5%
06/17/97 Own, op retail home centers 127.0 3.00 (14.3%) (7.7%) (11.1%)
06/17/97 Oil and gas exploration, 111.2 18.55 11.6% 41.3% 44.8%
prodn
06/17/97 Mnfr specialty packaging 182.6 29.00 31.8% 36.5% 52.6%
prods
06/19/97 Mnfr microcomputer systems 206.8 15.50 29.2% 30.5% 34.8%
06/23/97 Insurance holding company 517.1 26.00 173.7% 92.6% 74.8%
06/24/97 Operate outpatient facilities 75.6 11.75 4.4% 2.2% 8.0%
06/26/97 Manufacture pharmaceuticals 4831.6 97.00 22.1% 22.8% 29.3%
06/30/97 Mnfr curing sys, 308.6 39.00 11.4% 9.9% 24.3%
semiconductors
07/02/97 Mnfr bonded fiber 183.5 46.52 8.8% 2.2% 3.4%
07/02/97 Manufacture plastic products 23.4 7.35 30.7% 33.6% 25.1%
07/08/97 Own and operate supermarkets 213.6 30.00 (2.4%) (0.8%) 6.7%
07/09/97 Mnfr computers, peripherals 273.9 20.25 29.1% 30.6% 35.0%
07/09/97 Own, op ret furniture stores 31.6 25.05 21.5% 25.3% 21.5%
07/10/97 Mnfr medical treatment tables 776.7 19.25 6.9% 7.7% 9.2%
07/15/97 Mnfr, whl computer printers 169.5 25.00 57.5% 56.3% 57.5%
07/17/97 Mnfr voice processing systems 1824.8 31.00 15.9% 37.4% 41.3%
07/23/97 Pvd diagnostic imaging svcs 114.2 11.00 7.3% 3.5% 14.3%
07/23/97 Own and operate restaurants 18.8 5.00 50.9% 70.2% 72.0%
</TABLE>
63
<PAGE> 66
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME ACQUIROR BUSINESS DESCRIPTION
- --------- -------- ------------- ----------- -----------------------------
<C> <C> <S> <C> <C>
07/24/97 09/15/97 Mallinckrodt Inc Nellcor Puritan-Bennett Mnfr diagnostic products
07/25/97 07/25/97 McCown de Leeuw & Co Healthcare America Inc Venture capital firm
07/25/97 08/28/97 Constellation Capital Imo Industries Inc Investment company
Partners
07/28/97 02/02/98 Intel Corp Chips and Technologies Inc Mnfr, whl microprocessors
07/30/97 09/18/97 Fujitsu Ltd Amdahl Corp Mnfr computers, telecommn
equip
07/30/97 02/02/98 PL Holdings Corp Plasti-Line Inc Investor group formed by mgmt
08/04/97 12/23/97 Restaurant Co Perkins Family Restaurant LP Own, operate restaurants
08/07/97 12/02/97 SPS Technologies Inc Magnetic Technologies Corp Mnfr industrial fasteners
08/07/97 09/30/97 Investor Group Outboard Marine Corp Investor group
08/12/97 09/17/97 Steris Corp Isomedix Inc Mnfr sterile processing sys
08/14/97 09/16/97 Omnicare Inc American Medserve Corp Whl, retail pharmaceuticals
08/14/97 10/01/97 Counsel Corp Health Management Inc Own, op pharmacy;
whl pharm prod
08/14/97 09/24/97 MedPartners Inc Talbert Medical Management Pvd medical services to HMO's
08/14/97 12/29/97 Madison Dearborn Partners Tuesday Morning Corp Investors
08/15/97 10/09/97 VS&A Communications Partners T/SF Communications Corp Investment firm
08/25/97 10/03/97 Cambrex Corp Bio Whittaker Inc Mnfr specialty chemicals
08/28/97 10/10/97 Applied Power Inc Versa Technologies Inc Mnfr tool, equip, consumables
08/29/97 12/29/97 Rexel SA(Pinault-Printemps) Rexel Inc Whl radios, televisions
09/02/97 12/03/97 GRR Holdings LLC Ground Round Restaurants Investment company
09/04/97 12/30/97 Investor Group Cinergi Pictures Investor group
Entertainment
09/05/97 11/26/97 Misys PLC Medic Computer Systems Inc Manufacture computers
09/22/97 12/05/97 Conseco Inc Washington National Corp Insurance holding company
09/23/97 01/22/98 Investor Group El Chico Restaurants Inc Investor group
09/26/97 09/26/97 Birmingham Steel Corp Laclede Steel Co Manufacture steel, steel prod
10/01/97 12/05/97 Land O' Lakes Inc Alpine Lace Brands Inc Produce butter, milk and
meats
10/02/97 10/02/97 Investor Biomagnetic Technologies Inc Investor
10/09/97 12/23/97 Borden Chemical Inc(Borden) Melamine Chemicals Inc Mnfr formaldehyde, resins
10/15/97 11/21/97 Finish Master Inc(Lacey Thompson PBE Inc Whl automotive paint,
Distn) coatings
10/16/97 02/12/98 Hartford Financial Services Omni Insurance Group Inc Provide insurance services
10/25/97 11/04/97 Blackstone Group Clark USA Inc Investment bank
<CAPTION>
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED TARGET BUSINESS DESCRIPTION ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- --------------------------- ----------- ----- ------- ------- -------
<C> <C> <C> <C> <C> <C> <C>
07/24/97 Mnfr electn patient monitors 1858.4 28.50 36.1% 43.4% 57.2%
07/25/97 Own, operate hospitals 85.0 --
07/25/97 Mnfr industrial controls,
pumps 112.1 7.05 18.7% 20.0% 22.6%
07/28/97 Design, whl integrated
circuit 422.9 17.50 25.0% 32.1% 68.7%
07/30/97
Develop computer sys,
software 924.8 12.40 5.0% 22.5% 25.6%
07/30/97 Mnfr illuminated outdoor
signs 30.7 14.50 36.5% 36.5% 30.3%
08/04/97 Own, op franchised
restaurants 76.3 14.00 28.7% 26.6% 31.8%
08/07/97 Manufacture copiers, printers 16.8 5.00 25.0% 25.0% 33.3%
08/07/97 Manufacture marine products 330.9 18.00 (7.7%) (2.4%) 20.0%
08/12/97 Pvd contract sterilization
svc 139.8 20.50 5.8% 15.5% 13.9%
08/14/97 Wholesale pharmaceuticals 233.2 18.00 2.5% 16.1% 25.8%
08/14/97
Pvd prescription distn svcs 40.0 --
08/14/97 Own, op medical, dental
clinics 189.0 63.00 10.5% 18.9% 37.0%
08/14/97 Own, operate giftware stores 298.6 25.00 22.7% 25.8% 11.1%
08/15/97 Publish newspapers, magazines 115.2 --
08/25/97 Mnfr, whl medical testing
prods 130.5 11.63 17.8% 38.9% 47.7%
08/28/97 Mnfr rubber components, molds 141.9 24.63 36.8% 33.1% 31.3%
08/29/97 Whl electrical components 302.0 22.50 19.2% 26.3% 21.6%
09/02/97 Own and operate restaurants 17.5 1.65 10.0% 10.0% (5.7%)
09/04/97 Pvd motion picture prodn svcs
16.3 2.52 26.9% 24.7% 56.6%
09/05/97 Pvd mgmt info sys design svcs 915.8 35.00 7.7% 12.0% 25.0%
09/22/97 Insurance company 424.0 33.25 2.7% 4.1% 12.2%
09/23/97 Own and operate restaurant 49.2 12.75 64.5% 75.9% 104.0%
09/26/97 Own, operate steel works 15.0 8.00 106.5% 106.5% 106.5%
10/01/97 Whl dairy products, cheese
48.4 9.13 15.9% 49.0% 46.0%
10/02/97 Mnfr medical imaging
equipment 31.3 1.25
10/09/97 Manufacture melamine crystal 119.7 20.50 70.8% 72.6% 70.8%
10/15/97 Whl automotive paint,
supplies 69.3 8.00 25.5% 33.3% 42.2%
10/16/97 Insurance company 184.7 31.75 78.9% 75.8% 130.9%
10/25/97 Mnfr petroleum products 135.0 --
</TABLE>
64
<PAGE> 67
INVESTMENT BANKING GROUP
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 -- MARCH 3, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME ACQUIROR BUSINESS DESCRIPTION
- --------- -------- ------------- ----------- -----------------------------
<C> <C> <S> <C> <C>
10/27/97 02/10/98 National Australia Bank Ltd HomeSide Inc Bank, insurance co
11/13/97 12/02/97 Thiokol Corp Howmet International Inc Mnfr chemicals, propulsion
sys
11/18/97 01/08/98 Cendant Corp Jackson Hewitt Provide discount club svcs
11/21/97 01/28/97 TRW Inc BDM International Inc Elect equip, credit reporting
11/24/97 02/03/98 Davel Communications Group
Inc Communications Central Inc Pvd pay telephone commun svcs
11/24/97 11/24/97 Sinophil Corp MagiNet Corp Own, operate resorts
12/11/97 01/20/98 MascoTech Inc TriMas Corp Mnfr motor vehicle components
12/11/97 01/07/98 Harvard Private Capital Group White River Corp Investment company
12/12/97 02/13/98 Voith Sulzer Paper Technology Impact Systems Inc Provide paper tech dvlp svcs
12/17/97 01/23/98 Invacare Corp Suburban Ostomy Supply Co Inc Mnfr surgical, medical
supplies
12/22/97 02/02/98 OM Group Inc Auric Corp Mnfr chemicals; holding co
12/23/97 01/27/98 O'Reilly Automotive Inc Hi-Lo Automotive Inc Own, op auto supply stores
01/29/98 01/29/98 Flowers Industries Inc Keebler Foods Co Produce baked foods
02/04/98 02/04/98 Investor Group Tremont Corp Investor group
Median
Average
Adj. Avg.
Low Middle Quartile
High Middle Quartile
<CAPTION>
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED TARGET BUSINESS DESCRIPTION ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- --------------------------- ----------- ----- ------- ------- -------
<C> <C> <C> <C> <C> <C> <C>
10/27/97 Mortgage bank 1230.1 27.83 14.7% 12.1% 7.3%
11/13/97 Mnfr steel invest foundries
183.8 --
11/18/97 Pvd tax preparation services 468.2 68.00 26.5% 21.7% 47.8%
11/21/97 Pvd comp info technology svcs 888.0 29.50 31.1% 43.5% 38.0%
11/24/97
Pvd telecommunications svcs 102.4 10.50 30.2% 25.4% 12.0%
11/24/97 Pvd cable, pay television
svcs 15.0 --
12/11/97 Mnfr specialty closures, caps 911.7 34.50 12.7% 10.0% 19.0%
12/11/97 Insurance agency; holding co 400.0 --
12/12/97 Paper prodn control systems 28.6 2.75 57.1% 49.2% 44.3%
12/17/97 Whl medical and hospital
equip 130.8 11.75 8.0% 13.3% 13.3%
12/22/97 Mnfr electroless nickel 80.0 203.00
12/23/97 Own, op auto parts stores 42.5 4.35 (14.1%) 12.3% 24.3%
01/29/98 Produce bread, cookies; hldg
co 309.1 27.60
02/04/98 Mnfr drilling lubricants 5.6 54.00 (6.4%) (4.4%) 0.5%
24.0% 27.5% 33.6%
29.5% 34.7% 40.2%
28.7% 33.9% 38.3%
11.5% 14.5% 18.5%
39.7% 48.8% 51.4%
</TABLE>
65
<PAGE> 68
INVESTMENT BANKING GROUP
AUSTIN
DAILY PRICE & VOLUME TRADING STATISTICS SINCE 2/4/98
[Chart depicting the daily price and volume trading statistics since February 4,
1998 for Norwood Promotional Products, Inc.]
66
<PAGE> 69
INVESTMENT BANKING GROUP
AUSTIN
DAILY PRICE & VOLUME TRADING STATISTICS SINCE 9/4/97
[Chart depicting the daily price and volume trading statistics since September
4, 1997 for Norwood Promotional Products, Inc.]
67
<PAGE> 70
INVESTMENT BANKING GROUP
AUSTIN
WEEKLY PRICE & VOLUME TRADING STATISTICS SINCE 3/7/97
[Chart depicting the weekly price and volume trading statistics since March 7,
1997 for Norwood Promotional Products, Inc.]
68
<PAGE> 71
INVESTMENT BANKING GROUP
AUSTIN
WEEKLY PRICE & VOLUME TRADING STATISTICS SINCE 6/18/93
[Chart depicting the weekly price and volume trading statistics since June 18,
1993 for Norwood Promotional Products, Inc.]
69
<PAGE> 72
INVESTMENT BANKING GROUP
AUSTIN
SHARES TRADED AT VARIOUS PRICES FROM 2/4/98 TO 3/4/98
<TABLE>
<CAPTION>
CUMULATIVE
----------------------------------------------
DAYS % OF TOTAL % OF TOTAL DAYS % OF TOTAL % OF TOTAL
TRADING DAILY AVG. DAYS TRADING TRADING DAILY AVG. DAYS TRADING TRADING
RANGE(1) IN RANGE TRADED VOLUME VOLUME IN RANGE TRADED VOLUME VOLUME
-------- ----------- ---------- ------- ---------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<$15.75............... 0 0.0% -- 0.0% 0 0.0% -- 0.0%
$15.75-$15.87......... 2 10.0% 11,300 11.3% 2 10.0% 11,300 11.3%
$15.87-$15.99......... 3 15.0% 5,600 5.6% 5 25.0% 16,900 16.9%
$15.99-$16.11......... 2 10.0% 19,500 19.5% 7 35.0% 36,400 36.4%
$16.11-$16.23......... 0 0.0% -- 0.0% 7 35.0% 36,400 36.4%
$16.23-$16.35......... 1 5.0% 9,500 9.5% 8 40.0% 45,900 45.9%
$16.35-$16.47......... 0 0.0% -- 0.0% 8 40.0% 45,900 45.9%
$16.47-$16.59......... 1 5.0% -- 0.0% 9 45.0% 45,900 45.9%
$16.59-$16.71......... 2 10.0% 16,100 16.1% 11 55.0% 62,000 62.1%
$16.71-$16.83......... 4 20.0% 20,200 20.2% 15 75.0% 82,200 82.3%
$16.83-$16.95......... 5 25.0% 17,700 17.7% 20 100.0% 99,900 100.0%
> or = to $16.95...... 0 0.0% -- 0.0% 20 100.0% 99,900 100.0%
TOTAL:................ 20 100.0% 99,900 100.0%
</TABLE>
[Chart depicting the number of shares of Norwood Promotional Products, Inc.
Common Stock that traded in specific price ranges from February 4, 1998 through
March 4, 1998.]
- ---------------
(1) Price ranges include low range price and exclude high range price.
(2) The average daily trading volume has been 4,995 shares or $82,035.31 and the
average daily close has been $16.51.
70
<PAGE> 73
INVESTMENT BANKING GROUP
AUSTIN
SHARES TRADED AT VARIOUS PRICES FROM 9/4/97 TO 3/4/98
<TABLE>
<CAPTION>
CUMULATIVE
------------------------------------------------
DAYS % OF TOTAL % OF TOTAL DAYS % OF TOTAL % OF TOTAL
TRADING DAILY AVG. DAYS TRADING TRADING DAILY AVG. DAYS TRADING TRADING
RANGE(1) IN RANGE TRADED VOLUME VOLUME IN RANGE TRADED VOLUME VOLUME
-------- ---------- ---------- --------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<$14.00.............. 0 0.0% -- 0.0% 0 0.0% -- 0.0%
$14.00-$14.35........ 3 2.4% 15,200 0.9% 3 2.4% 15,200 0.9%
$14.35-$14.70........ 1 0.8% 29,600 1.7% 4 3.2% 44,800 2.6%
$14.70-$15.05........ 7 5.6% 39,800 2.4% 11 8.8% 84,600 5.0%
$15.05-$15.40........ 21 16.8% 191,300 11.3% 32 25.6% 275,900 16.3%
$15.40-$15.75........ 26 20.8% 183,200 10.8% 58 46.4% 459,100 27.1%
$15.75-$16.10........ 37 29.6% 577,400 34.1% 95 76.0% 1,036,500 61.2%
$16.10-$16.45........ 11 8.8% 400,900 23.7% 106 84.8% 1,437,400 84.9%
$16.45-$16.80........ 12 9.6% 211,500 12.5% 118 94.4% 1,648,900 97.4%
$16.80-$17.15........ 7 5.6% 44,000 2.6% 125 100.0% 1,692,900 100.0%
> or = to $17.15..... 0 0.0% -- 0.0% 125 100.0% 1,692,900 100.0%
TOTAL:............... 125 100.0% 1,692,900 100.0%
</TABLE>
[Chart depicting the number of shares of Norwood Promotional Products, Inc.
common stock that traded in specific price ranges from September 4, 1997 through
March 4, 1998.]
- ---------------
(1) Price ranges include low range price and exclude high range price.
(2) The average daily trading volume has been 13,543 shares or $215,777.80 and
the average daily close has been $15.78.
71
<PAGE> 74
INVESTMENT BANKING GROUP
AUSTIN
SHARES TRADED AT VARIOUS PRICES FROM 3/4/97 TO 3/4/98
<TABLE>
<CAPTION>
CUMULATIVE
------------------------------------------------
DAYS % OF TOTAL % OF TOTAL DAYS % OF TOTAL % OF TOTAL
TRADING DAILY AVG. DAYS TRADING TRADING DAILY AVG. DAYS TRADING TRADING
RANGE(1) IN RANGE TRADED VOLUME VOLUME IN RANGE TRADED VOLUME VOLUME
-------- ---------- ---------- --------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<$12.60 0 0.0% -- 0.0% 0 0.0% -- 0.0%
$12.60-$13.20 6 2.3% 731,900 12.7% 6 2.3% 731,900 12.7%
$13.20-$13.80 29 11.1% 1,407,000 24.5% 35 13.4% 2,138,900 37.2%
$13.80-$14.40 49 18.7% 1,342,100 23.4% 84 32.1% 3,481,000 60.6%
$14.40-$15.00 39 14.9% 341,000 5.9% 123 46.9% 3,822,000 66.6%
$15.00-$15.60 44 16.8% 438,100 7.6% 167 63.7% 4,260,100 74.2%
$15.60-$16.20 59 22.5% 842,800 14.7% 226 86.3% 5,102,900 88.9%
$16.20-$16.80 21 8.0% 551,200 9.6% 247 94.3% 5,654,100 98.5%
$16.80-$17.40 14 5.3% 87,400 1.5% 261 99.6% 5,741,500 100.0%
$17.40-$18.00 1 0.4% 600 0.0% 262 100.0% 5,742,100 100.0%
> or = to $18.00 0 0.0% -- 0.0% 262 100.0% 5,742,100 100.0%
TOTAL: 262 100.0% 5,742,100 100.0%
</TABLE>
[Chart depicting the number of shares of Norwood Promotional Products, Inc.
Common Stock that traded in specific price ranges from March 4, 1997 through
March 4, 1998.]
- ---------------
(1) Price ranges include low range price and exclude high range price.
(2) The average daily trading volume has been 21,916 shares or $318,348.90 and
the average daily close has been $15.06.
72
<PAGE> 75
INVESTMENT BANKING GROUP
AUSTIN OWNERSHIP PROFILE
<TABLE>
<CAPTION>
CHANGE
SHARES FROM
SHAREHOLDERS HELD PRIOR PERIOD % OWNERSHIP
------------ --------- ------------ -----------
<S> <C> <C> <C>
OFFICERS AND DIRECTORS(1)................................... 880,006 17.35%
INSTITUTIONAL INVESTORS(2)..................................
Neuberger & Berman.......................................... 706,500 304,900 13.93%
Heartland Investors......................................... 486,000 286,000 9.58%
TCW Group................................................... 472,400 (3,100) 9.32%
Thomson Horstman............................................ 442,700 (17,300) 8.73%
Tweedy Browne............................................... 160,000 160,000 3.16%
Dimensional Fund............................................ 156,500 20,300 3.09%
Hathaway & Assoc............................................ 150,000 (77,500) 2.96%
Neuberger & Berman.......................................... 142,200 35,000 2.80%
Glickenhaus & Co............................................ 140,100 0 2.76%
Putnam Management........................................... 112,300 0 2.21%
Franklin Mutual............................................. 94,900 94,900 1.87%
AGF Management Ltd.......................................... 75,000 0 1.48%
BZW Barclays................................................ 81,812 700 1.61%
Jenswold, Roger H. & Co..................................... 37,500 (31,050) 0.74%
Luther King Capital......................................... 20,000 0 0.39%
Goldman Sachs............................................... 20,000 0 0.39%
Clover Capital.............................................. 14,700 14,700 0.29%
Merrill Lynch & Co.......................................... 2,397 2,397 0.05%
Bank of NY.................................................. 970 970 0.02%
Travelers Group............................................. 300 (300) 0.01%
Legg Mason Wood Walker...................................... 200 200 0.00%
GHS Management.............................................. 0 (128,000) 0.00%
T Rowe Price................................................ 0 (300,000) 0.00%
TOTAL INSTITUTIONAL INVESTORS............................... 3,316,479 362,817 65.40%
IMPLIED RETAIL HOLDINGS..................................... 874,684 17.25%
--------- ------
TOTAL SHARES OUTSTANDING(3)....................... 5,071,169 100.00%
========= ======
</TABLE>
- ---------------
(1) Source: 10-K/A as of 9/30/97 with updated information from company.
(2) Source: Bloomberg as of February 16, 1998.
(3) Source: 10-Q dated November 29, 1997.
[Chart depicting the percentage of the outstanding Common Stock of Norwood
Promotional Products, Inc. owned by Institutions, Retail and Officers and
Directors.]
73
<PAGE> 76
INVESTMENT BANKING GROUP
PROJECT AUSTIN -- PROJECTION MODEL
PROJECTED INCOME STATEMENTS
(NUMBERS IN THOUSANDS)
(Fiscal Year Ended August)
3/5/98 12:51 PM
<TABLE>
<CAPTION>
PROJECTED
HISTORICAL ESTIMATED ---------------------------------------------------
1997 1998 1999 2000 2001
---------- --------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues...................................... $175,835 $193,391 $207,846 $223,500 $239,900
Cost of sales................................. 125,732 138,952 149,319 160,546 172,085
Gross profit.................................. 50,103 54,439 58,527 62,954 67,815
General and administrative, net dep........... 8,855 10,513 10,477 11,003 11,549
Sales and marketing........................... 18,119 17,951 18,732 19,783 20,900
Restructuring and unusual charges............. 1,816 -- -- -- --
Other operating expenses...................... -- -- -- -- --
-------- -------- -------- -------- --------
Total operating expenses...................... 28,790 28,464 29,209 30,786 32,449
EBITDA........................................ 21,313 25,975 29,318 32,168 35,366
Depreciation.................................. 4,270 3,960 3,934 3,935 3,936
Amortization.................................. 3,885 4,121 4,186 4,186 4,186
-------- -------- -------- -------- --------
Total depreciation & amortization............. 8,155 8,081 8,120 8,121 8,122
Total operating income........................ 13,158 17,894 21,198 24,047 27,244
Interest expense.............................. 3,002 4,200 4,200 3,600 2,800
Interest (income)............................. -- -- -- -- --
Home office expense........................... -- -- -- -- --
Discontinued operations expense............... 4,820 -- -- -- --
Extraordinary loss from debt extinguishment... 241 -- -- -- --
-------- -------- -------- -------- --------
Other expenses (income)....................... 8,063 4,200 4,200 3,600 2,800
Pre-tax income................................ 5,095 13,694 16,998 20,447 24,444
Provision for income taxes.................... 4,091 5,615 6,969 8,383 10,022
-------- -------- -------- -------- --------
Net income.................................... $ 1,004 $ 8,079 $ 10,029 $ 12,064 $ 14,422
======== ======== ======== ======== ========
<CAPTION>
PROJECTED
---------------------------------
2002 2003
--------------- ---------------
<S> <C> <C>
Revenues...................................... $257,562 $276,160
Cost of sales................................. 184,850 197,826
Gross profit.................................. 72,712 78,334
General and administrative, net dep........... 12,116 12,661
Sales and marketing........................... 22,088 23,163
Restructuring and unusual charges............. -- --
Other operating expenses...................... -- --
-------- --------
Total operating expenses...................... 34,204 35,824
EBITDA........................................ 38,508 42,510
Depreciation.................................. 3,937 3,938
Amortization.................................. 4,186 4,186
-------- --------
Total depreciation & amortization............. 8,123 8,124
Total operating income........................ 30,385 34,386
Interest expense.............................. 1,500 500
Interest (income)............................. -- --
Home office expense........................... -- --
Discontinued operations expense............... -- --
Extraordinary loss from debt extinguishment... -- --
-------- --------
Other expenses (income)....................... 1,500 500
Pre-tax income................................ 28,885 33,886
Provision for income taxes.................... 11,843 13,893
-------- --------
Net income.................................... $ 17,042 $ 19,993
======== ========
</TABLE>
74
<PAGE> 77
INVESTMENT BANKING GROUP
PROJECT AUSTIN -- PROJECTION MODEL
PROJECTED BALANCE SHEETS
(NUMBERS IN THOUSANDS)
(Fiscal Year Ended August)
3/5/98 12:51 PM
<TABLE>
<CAPTION>
PROJECTED
HISTORICAL ---------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.................................... $ 2,609 $ 1,000 $ 1,000 $ 1,000 $ 1,175 $ 4,603 $ 24,282
Accounts receivable..................... 24,282 26,336 28,032 29,931 31,910 34,051 36,232
Inventories............................. 32,105 34,821 37,064 39,574 42,191 45,021 47,905
Income taxes receivable................. 551 598 636 679 724 773 822
Other receivables....................... 713 773 823 879 937 1,000 1,064
Prepaid expenses and other current
assets................................ 2,464 2,672 2,845 3,037 3,238 3,455 3,677
-------- -------- -------- -------- -------- -------- --------
Total current assets.................... 62,724 66,200 70,400 75,100 80,175 88,903 113,982
Land.................................... 478 478 478 478 478 478 478
Gross plant and equip................... 34,877 37,971 41,805 45,740 49,676 53,613 57,551
Accumulated depreciation................ (14,214) (16,849) (20,783) (24,718) (28,654) (32,591) (36,529)
-------- -------- -------- -------- -------- -------- --------
Net P, P&E.............................. 21,141 21,600 21,500 21,500 21,500 21,500 21,500
Goodwill, net of accumulated
amortization.......................... 39,009 34,888 30,702 26,516 22,330 18,144 13,958
Other intangible assets................. 8,165 8,165 8,165 8,165 8,165 8,165 8,165
Other fixed assets...................... -- -- -- -- -- -- --
Deferred income taxes and other
assets................................ 4,155 4,200 4,200 4,200 4,200 4,200 4,200
Other assets............................ -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total assets............................ $135,194 $135,053 $134,967 $135,481 $136,370 $140,912 $161,805
======== ======== ======== ======== ======== ======== ========
</TABLE>
75
<PAGE> 78
INVESTMENT BANKING GROUP
PROJECT AUSTIN -- PROJECTION MODEL
PROJECTED BALANCE SHEETS
(Numbers in Thousands)
(Fiscal Year Ended August)
3/5/98 12:51 PM
<TABLE>
<CAPTION>
PROJECTED
HISTORICAL ---------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES & EQUITY
Current maturities & short-term
debt............................. $ 1,871 $ -- $ -- $ -- $ -- $ -- $ --
Trade accounts payable............. 11,299 10,442 11,050 11,753 12,506 13,210 14,013
Accrued liabilities................ 11,197 10,347 10,950 11,647 12,394 13,090 13,887
Current portion of lease
obligation....................... 481 211 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total current liabilities.......... 24,848 21,000 22,000 23,400 24,900 26,300 27,900
Long term debt
Revolver......................... -- -- 183 33 -- -- --
Senior term note................. 40,000 39,600 34,200 26,000 13,200 -- --
Notes payable.................... 13,740 13,000 9,200 4,600 2,400 1,700 1,000
Existing revolver................ 6,990 2,098 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total debt....................... 60,730 54,698 43,583 30,633 15,600 1,700 1,000
Less current portion............. (1,871) -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total long-term debt............. 58,859 54,698 43,583 30,633 15,600 1,700 1,000
Capitalized lease obligations...... 211 -- -- -- -- -- --
Other.............................. -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total liabilities.................. 83,918 75,698 65,583 54,033 40,500 28,000 28,900
Common stock....................... 22,858 22,858 22,858 22,858 22,858 22,858 22,858
Additional paid-in-capital......... 21,949 21,949 21,949 21,949 21,949 21,949 21,949
Retained earnings.................. 6,469 14,548 24,577 36,641 51,063 68,105 88,098
--------- --------- --------- --------- --------- --------- ---------
Total stockholders' equity......... 51,276 59,355 69,384 81,448 95,870 112,912 132,905
--------- --------- --------- --------- --------- --------- ---------
Total liabilities & equity......... $ 135,194 $ 135,053 $ 134,967 $ 135,481 $ 136,370 $ 140,912 $ 161,805
========= ========= ========= ========= ========= ========= =========
</TABLE>
76
<PAGE> 79
INVESTMENT BANKING GROUP
PROJECT AUSTIN -- PROJECTION MODEL
PROJECTED CASH FLOW STATEMENTS
(NUMBERS IN THOUSANDS)
(Fiscal Year Ended August)
3/5/98 12:51 PM
<TABLE>
<CAPTION>
PROJECTED
-----------------------------------------------
1999 2000 2001 2002 2003
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $10,029 $12,064 $14,422 $17,042 $19,993
Depreciation................................... 3,934 3,935 3,936 3,937 3,938
Amortization of goodwill....................... 4,186 4,186 4,186 4,186 4,186
Amortization of intangibles.................... -- -- -- -- --
Minority interest.............................. -- -- -- -- --
Other non-cash................................. -- -- -- -- --
Changes in current assets...................... (4,200) (4,700) (4,900) (5,300) (5,400)
Changes in current liabilities................. 1,000 1,400 1,500 1,400 1,600
------- ------- ------- ------- -------
Net cash provided by operating activities........ 14,949 16,885 19,144 21,265 24,317
Cash flows from investing activities
Capital expenditures (net of dispositions)..... (3,834) (3,935) (3,936) (3,937) (3,938)
Investments in new goodwill.................... -- -- -- -- --
Acquisition of additional intangibles.......... -- -- -- -- --
Changes in other long-term assets &
liabilities................................. -- -- -- -- --
------- ------- ------- ------- -------
Net cash provided by investing activities........ (3,834) (3,935) (3,936) (3,937) (3,938)
Cash flows from financing activities
Dividends paid................................. -- -- -- -- --
Proceeds from sale of stock.................... -- -- -- -- --
Proceeds from debt issue....................... -- -- -- -- --
Cash inflow (outflow) from other equity........ -- -- -- -- --
Repayment of debt.............................. (11,298) (12,983) (15,033) (13,900) (700)
Repurchase of stock............................ -- -- -- -- --
Drawdown on revolver........................... 183 33 -- -- --
------- ------- ------- ------- -------
Net cash provided by financing activities........ (11,115) (12,950) (15,033) (13,900) (700)
------- ------- ------- ------- -------
Net additions to cash............................ $ -- $ -- $ 175 $ 3,428 $19,679
======= ======= ======= ======= =======
Beginning cash balance........................... 1,000 1,000 1,000 1,175 4,603
Ending cash balance.............................. 1,000 1,000 1,175 4,603 24,282
</TABLE>
77
<PAGE> 80
INVESTMENT BANKING GROUP
PROJECT AUSTIN -- PROJECTION MODEL
HISTORICAL AND PROJECTED INCOME STATEMENT RATIOS (PERCENT OF SALES)
(Fiscal Year Ended August)
3/5/98 12:51 PM
<TABLE>
<CAPTION>
PROJECTED
HISTORICAL ---------------------------------------------
1997 1998 AVERAGE 1999 2000 2001 2002 2003
---------- ------ ------- ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............. 71.5% 71.9% 71.7% 71.8% 71.8% 71.7% 71.8% 71.6%
------ ------ ------ ------ ------ ------ ------ ------
Gross profit.............. 28.5% 28.1% 28.3% 28.2% 28.2% 28.3% 28.2% 28.4%
General and
administrative, net
dep..................... 5.0% 5.4% 5.2% 5.0% 4.9% 4.8% 4.7% 4.6%
Sales and marketing....... 10.3% 9.3% 9.8% 9.0% 8.9% 8.7% 8.6% 8.4%
Restructuring and unusual
charges................. 1.0% 0.0% 0.5% 0.0% 0.0% 0.0% 0.0% 0.0%
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses................ 16.4% 14.7% 15.5% 14.1% 13.8% 13.5% 13.3% 13.0%
EBITDA.................... 12.1% 13.4% 12.8% 14.1% 14.4% 14.7% 15.0% 15.4%
Depreciation.............. 2.4% 2.0% 2.2% 1.9% 1.8% 1.6% 1.5% 1.4%
Amortization.............. 2.2% 2.1% 2.2% 2.0% 1.9% 1.7% 1.6% 1.5%
------ ------ ------ ------ ------ ------ ------ ------
Total depreciation &
amortization............ 4.6% 4.2% 4.4% 3.9% 3.6% 3.4% 3.2% 2.9%
Total operating income.... 7.5% 9.3% 8.4% 10.2% 10.8% 11.4% 11.8% 12.5%
Interest expense.......... 1.7% 2.2% 1.9% 2.0% 1.6% 1.2% 0.6% 0.2%
Interest (income)......... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Home office expense....... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Discontinued operations
expense................. 2.7% 0.0% 1.4% 0.0% 0.0% 0.0% 0.0% 0.0%
Extraordinary loss from
debt extinguishment..... 0.1% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%
------ ------ ------ ------ ------ ------ ------ ------
Other expenses (income)... 4.6% 2.2% 3.4% 2.0% 1.6% 1.2% 0.6% 0.2%
Pre-tax income............ 2.9% 7.1% 5.0% 8.2% 9.1% 10.2% 11.2% 12.3%
Provision for income
taxes................... 80.3% 41.0% 60.6% 41.0% 41.0% 41.0% 41.0% 41.0%
------ ------ ------ ------ ------ ------ ------ ------
Net income................ 0.6% 4.2% 2.4% 4.8% 5.4% 6.0% 6.6% 7.2%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
78
<PAGE> 81
INVESTMENT BANKING GROUP
PROJECT AUSTIN -- PROJECTION MODEL
HISTORICAL AND PROJECTED BALANCE SHEET RATIOS (PERCENT OF SALES)
(Fiscal Year Ended August)
3/5/98 12:51 PM
<TABLE>
<CAPTION>
PROJECTED
HISTORICAL ------------------------------------------
1997 1998 AVERAGE 1999 2000 2001 2002 2003
---------- ------ ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash................................... 1.5% 0.5% 1.0% 0.5% 0.4% 0.5% 1.8% 8.8%
Accounts receivable.................... 13.8% 13.6% 13.7% 13.5% 13.4% 13.3% 13.2% 13.1%
Inventories............................ 18.3% 18.0% 18.1% 17.8% 17.7% 17.6% 17.5% 17.3%
Income taxes receivable................ 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%
Other receivables...................... 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%
Prepaid expenses and other current
assets............................... 1.4% 1.4% 1.4% 1.4% 1.4% 1.3% 1.3% 1.3%
------ ------ ------ ------ ------ ------ ------ ------
Total current assets................... 35.7% 34.2% 35.0% 33.9% 33.6% 33.4% 34.5% 41.3%
Land................................... 0.3% 0.2% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2%
Gross plant and equip.................. 19.8% 19.6% 19.7% 20.1% 20.5% 20.7% 20.8% 20.8%
Accumulated depreciation............... (8.1%) (8.7%) (8.4%) (10.0%) (11.1%) (11.9%) (12.7%) (13.2%)
------ ------ ------ ------ ------ ------ ------ ------
Net P,P&E.............................. 12.0% 11.2% 11.6% 10.3% 9.6% 9.0% 8.3% 7.8%
Goodwill, net of accumulated
amortization......................... 22.2% 18.0% 20.1% 14.8% 11.9% 9.3% 7.0% 5.1%
Deferred income taxes and other
assets............................... 2.4% 2.2% 2.3% 2.0% 1.9% 1.8% 1.6% 1.5%
Other assets........................... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
------ ------ ------ ------ ------ ------ ------ ------
Total assets........................... 76.9% 69.8% 73.4% 64.9% 60.6% 56.8% 54.7% 58.6%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
79
<PAGE> 82
INVESTMENT BANKING GROUP
PROJECT AUSTIN -- PROJECTION MODEL
HISTORICAL AND PROJECTED BALANCE SHEET RATIOS (PERCENT OF SALES)
(Fiscal Year Ended August)
3/5/98 12:51 PM
<TABLE>
<CAPTION>
PROJECTED
HISTORICAL -------------------------------------
1997 1998 AVERAGE 1999 2000 2001 2002 2003
---------- ----- ------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES & EQUITY
Current maturities &
short-term debt............ 1.1% 0.0% 0.5% 0.0% 0.0% 0.0% 0.0% 0.0%
Trade accounts payable....... 6.4% 5.4% 5.9% 5.3% 5.3% 5.2% 5.1% 5.1%
Accrued liabilities.......... 6.4% 5.4% 5.9% 5.3% 5.2% 5.2% 5.1% 5.0%
Current portion of lease
obligation................. 0.3% 0.1% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0%
----- ----- ----- ----- ----- ----- ----- -----
Total current liabilities.... 14.1% 10.9% 12.5% 10.6% 10.5% 10.4% 10.2% 10.1%
Long term debt Revolver...... 0.0% 0.0% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0%
Senior term note........... 22.7% 20.5% 21.6% 16.5% 11.6% 5.5% 0.0% 0.0%
Notes payable.............. 7.8% 6.7% 7.3% 4.4% 2.1% 1.0% 0.7% 0.4%
Existing revolver.......... 4.0% 1.1% 2.5% 0.0% 0.0% 0.0% 0.0% 0.0%
----- ----- ----- ----- ----- ----- ----- -----
Total debt................. 34.5% 28.3% 31.4% 21.0% 13.7% 6.5% 0.7% 0.4%
Less current portion....... (1.1%) 0.0% (0.5%) 0.0% 0.0% 0.0% 0.0% 0.0%
----- ----- ----- ----- ----- ----- ----- -----
Total long-term debt....... 33.5% 28.3% 30.9% 21.0% 13.7% 6.5% 0.7% 0.4%
Capitalized lease
obligations................ 0.1% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%
----- ----- ----- ----- ----- ----- ----- -----
Total liabilities............ 47.7% 39.1% 43.4% 31.6% 24.2% 16.9% 10.9% 10.5%
Common stock................. 13.0% 11.8% 12.4% 11.0% 10.2% 9.5% 8.9% 8.3%
Additional paid-in-capital... 12.5% 11.3% 11.9% 10.6% 9.8% 9.1% 8.5% 7.9%
Retained earnings............ 3.7% 7.5% 5.6% 11.8% 16.4% 21.3% 26.4% 31.9%
----- ----- ----- ----- ----- ----- ----- -----
Total stockholders' equity... 29.2% 30.7% 29.9% 33.4% 36.4% 40.0% 43.8% 48.1%
----- ----- ----- ----- ----- ----- ----- -----
Total liabilities & equity... 76.9% 69.8% 73.4% 64.9% 60.6% 56.8% 54.7% 58.6%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
80
<PAGE> 1
EXHIBIT 99(b)(3)
INFORMATION FOR
THE SPECIAL COMMITTEE OF
Norwood Promotional
Products, Inc
[J. C. BRADFORD & CO. LOGO]
FEBRUARY 26, 1998
<PAGE> 2
I. SUMMARY ANALYSIS
II. COMPARABLE COMPANY ANALYSIS
III. DISCOUNTED CASH FLOW ANALYSIS
IV. LBO ANALYSIS
V. COMPARABLE TRANSACTIONS
VI. PREMIUM ANALYSIS
VII. STOCK PRICE AND OWNERSHIP PROFILES
VIII. COMPANY PROJECTION MODEL
<PAGE> 3
SUMMARY ANALYSIS
I.
<PAGE> 4
AUSTIN--COMPANY PROJECTIONS
SUMMARY VALUATION MULTIPLES AT PROPOSED $19.50 OFFER
(In thousands)
<TABLE>
<S> <C>
Proposed Offer Price: $ 19.50
Current Shares Outstanding: 5,285
----------
Equity Value $ 103,063
Add: Debt, Net of Cash 57,497
----------
Market Capitalization $ 160,560
</TABLE>
PRICE TO TRAILING EARNINGS MULTIPLE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Equity Value $ 103,063
LTM Earnings Ended 11/30/97 6,008
----------
Multiple 17.2x
</TABLE>
PRICE TO 1998 EARNINGS MULTIPLE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Equity Value $ 103,063
Estimated Earnings Ended 12/31/98 8,729
---------
Multiple 11.8x
</TABLE>
PRICE TO 1999 EARNINGS MULTIPLE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Equity Value 103,063
Estimated Earnings Ended 12/31/99 10,707
----------
Multiple 9.6x
</TABLE>
PRICE TO BOOK VALUE MULTIPLE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Equity Value $ 103,063
Current Book Value 11/30/97 53,204
----------
Multiple 1.9x
</TABLE>
PRICE TO LTM EBITDA MULTIPLE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Equity Value plus Debt, Net of Cash $ 160,560
LTM EBITDA 11/30/97 23,267
----------
Multiple 6.9x
</TABLE>
PRICE TO 1998 EBITDA MULTIPLE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Equity Value plus Debt, Net of Cash(1) $ 156,761
Estimated EBITDA 8/31/98 25,975
----------
Multiple 6.0x
</TABLE>
PRICE TO LTM REVENUE MULTIPLE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Equity Value plus Debt, Net of Cash $ 160,560
LTM Revenue Ended 11/30/97 182,981
----------
Multiple 0.88x
</TABLE>
(1) Total debt, net of cash at 8/31/98 is projected to be $53,698
<PAGE> 5
SUMMARY OF PROJECTIONS PROVIDED BY MANAGEMENT
(Numbers in Thousands)
(Fiscal Year Ended August)
PROJECTED SUMMARY INCOME STATEMENT
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 CAGR %
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $193,391 $207,846 $223,500 $239,900 $257,562 $276,160 7.4%
EBITDA 25,976 29,318 32,169 35,366 38,508 42,510 10.4%
Pre-tax Income 13,695 16,998 20,448 24,444 28,885 33,886 19.9%
</TABLE>
HISTORICAL SUMMARY INCOME STATEMENT
<TABLE>
<CAPTION>
1995 1996 1997 CAGR %
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 103,860 $ 144,048 $ 175,833 30.1%
EBITDA 14,476 18,326 23,129 26.4%
Pre-tax Income 6,832 8,407 11,972 32.4%
</TABLE>
<PAGE> 6
SUMMARY VALUATION FOR AUSTIN
(in thousands, except per share)
PROPOSED MARKET VALUATION:
<TABLE>
<CAPTION>
Austin
----------
<S> <C>
Proposed offer price $19.50
Shares outstanding 5,285
Equity Mkt Cap of Offer: $ 103,063
</TABLE>
<TABLE>
<CAPTION>
COMPARABLE COMPANY VALUATION: MEDIAN ADJ. AVG. IMPLIED PRICES(1)
FINANCIALS MULT. MULT. MEDIAN
-------- -------- -------- ------------------
<S> <C> <C> <C> <C>
Trailing Earnings(2) $ 6,008 18.1x 22.0x $ 21.42
Est. '98 Earnings 8,729 13.6x 15.7x 23.48
Est. '99 Earnings 10,707 11.9x 13.3x 25.04
Trailing EBITDA multiple(2)(3) 23,267 8.9x 11.2x 29.73
Trailing Revenues(2)(3) 182,981 0.78x 0.87K 16.96
Book Value 53,204 1.8x 1.9x 18.91
RANGE OF VALUES: $16.96 - $29.73
REFINED RANGE: $21.00 - $25.00
</TABLE>
LBO ANALYSIS:
<TABLE>
<S> <C>
ASSUMPTIONS: RESULTS:
- ------------ --------
0% Revolver
56% Senior sub-debt $114.5 million ($21.50 per share) purchase price yields:
14% Senior term loan 25.0% return to convertible preferred equity holders.
11% Preferred Stock 34.9% return to equity holders.
19% Management equity - Common Stock
6.5x EBITDA exit multiple
ASSUMPTIONS: RESULTS:
- ------------ --------
0% Revolver $108.8 million ($20.50 per share) purchase price yields:
58%, Senior sub-debt 25.0% return to convertible preferred equity holders.
14%, Senior term loan 40.1 % return to equity holders.
12% Preferred Stock
16% Management equity - Common Stock
6.5x EBITDA exit multiple RANGE: $20.50 - $21.50
</TABLE>
MARKET PREMIUMS VALUATION:
<TABLE>
<CAPTION>
ONE DAY ONE WEEK ONE MONTH
PRIOR TO PRIOR TO PRIOR TO
All Cash Deals Since 1/1/95 ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
------------ ------------ ------------
<S> <C> <C> <C>
Current Stock Price: $ 17.06 $ 17.06 $ 17.06
Median Premium 24.0% 27.5% 33.6%
Adj. Avg. Premium 28.7% 33.9% 38.3%
Implied Stock Price:
-------------------
Median Premium $ 21.15 $ 21.76 $ 22.80
Adj. Avg. Premium 21.97 22.85 23.60
REFINED RANGE: $21.00 - $23.00
</TABLE>
(1) Based on 5,071,000 shares outstanding, which excludes options and
warrants outstanding.
(2) LTM results as of November 1997.
(3) At 11/30/97, Austin's total debt, net of cash was $56,495.
<PAGE> 7
SUMMARY VALUATION FOR AUSTIN
(in thousands, except per share)
PROPOSED MARKET VALUATION:
<TABLE>
<CAPTION>
Austin
----------
<S> <C>
Proposed offer price $ 19.50
Shares outstanding 5,285
--------
Equity Mkt Cap of Offer: $103,063
</TABLE>
DISCOUNTED CASH FLOW VALUATION:
COMPANY PROJECTION MODEL
<TABLE>
<CAPTION>
EBITDA AVERAGE
Operating Cash Flow Method DISCOUNT MULTIPLES EQUITY REFINED
RATE APPLIED LOW HIGH VALUE RANGE
-------- --------- -------- --------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
13.0% 5.0x-6.5x $22.62 $ 29.17 $25.90
14.0% 5.0x-6.5x 21.40 27.67 24.54 $23.00 - $26.00
15.0% 5.0x-6.5x 20.24 26.24 23.24
</TABLE>
<TABLE>
<CAPTION>
NET INCOME AVERAGE
DISCOUNT MULTIPLES EQUITY REFINED
RATE APPLIED LOW HIGH VALUE RANGE
-------- --------- -------- --------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Free Cash Flow Method 18.0% 11.0x-15.0x $20.59 $ 27.21 $23.90
19.0% 11.0x-15.0x 19.74 26.08 22.91 $22.00 - $24.00
20.0% 11.0x-15.0x 18.93 25.01 21.97
</TABLE>
<TABLE>
<CAPTION>
NET INCOME AVERAGE
DISCOUNT MULTIPLES EQUITY REFINED
RATE APPLIED LOW HIGH VALUE RANGE
-------- --------- -------- --------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Discounted Future Stock Price 18.0% 11.0x-15.0x $18.19 $ 24.80 $21.49
19.0% 11.0x-15.0x 17.44 23.78 20.61 $19.75 - $21.50
20.0% 11.0x-15.0x 16.72 22.80 19.76
</TABLE>
<PAGE> 8
HISTORICAL ACTUAL VS. BUDGETED FINANCIAL RESULTS FOR AUSTIN
<TABLE>
<CAPTION>
1995 1996 1997
Budget Actual Variance Budget Actual Variance Budget Actual Variance
-------------------------------- ----------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenue $ 88,142 $ 103,860 17.8% $ 135,119 $ 151,962 12.5% $ 183,683 $ 175,835 -4.3%
Cost of Sales 60,566 70,963 91,558 106,992 129,008 125,732
---------- --------- ---------- --------- --------- ---------
Gross Profit 27,576 32,897 19.3% 43,561 44,970 3.2% 54,675 50,103 -8.4%
% of Total Rev. 31.3% 31.7% 32.2% 29.6% 29.8% 28.5%
S,G&A 18,579 22,446 29,590 34,583 37,253 36,945
---------- --------- ---------- --------- --------- ---------
Operating Profit 8,997 10,451 16.2% 13,971 10,387 -25.7% 17,422 13,158 -24.5%
% of Total Rev. 10.2% 10.1% 10.3% 6.8% 9.5% 7.5%
Pre-Tax 6,446 6,832 6.0% 8,771 6,925 -21.0% 14,022 10,156 -27.6%
Net Income 3,836 4,032 5.1% 5,175 4,155 -19.7% 8,274 1,004 -87.9%
EPS $ 1.07 $ 1.11 3.7% $ 1.40 $ 0.82 -41.4% $ 1.41 $ 0.18 -87.2%
</TABLE>
<PAGE> 9
COMPARABLE COMPANY ANALYSIS
II
<PAGE> 10
AUSTIN COMPARABLE COMPANIES
COMPARABLE COMPANY MARKET MULTIPLES
BASED ON CLOSING STOCK PRICE AS OF 2/19/98
<TABLE>
<CAPTION>
5-YEAR
LTM CAL. 1998 CAL. 1999 PROJECTED 52 WEEK
COMPANY TICKER LTM END EPS EST. EPS EST. EPS(1) GROWTH RATE HIGH LOW
- ------------------------ ------ ------- ---------- --------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AUSTIN AUSTIN NOV 97 $ 1.12 $ 1.51 $ 1.86 18.0% $ 18.25 $ 12.00
C S S Industries, Inc. CSS Dec 97 2.23 2.55 2.86 12.0% 39.25 26.38
Cyrk, Inc. CYRK Dec 97 0.30 NA NA 25.0% 13.50 9.50
Equity Marketing, Inc. EMAK Sep 97 1.37 1.85 2.25 25.0% 30.75 16.25
Ha-Lo Inds, Inc. HMK Dec 97 0.75 1.05 1.33 26.7% 29.38 12.50
Lillian Vernon Corp. LVC Nov 97 0.97 1.27 1.46 15.0% 18.00 12.50
Racing Champions Corp. RACN Sep 97 NA 0.86 1.07 25.0% 18.50 6.50
Swiss Army Brands, Inc. SABI Dec 97 (0.49) 0.45 0.52 15.0% 13.50 9.13
Tandy Brands Accessories, Inc. TBAC Dec 97 1.14 1.16 1.36 18.0% 18.25 8.00
<CAPTION>
PRICE/ PRICE/ CAL. 1998 CAL. 1999 PRICE/
PRICE PRICE/ CAL. 1998 CAL. 1999 PE/ PE/ BOOK
COMPANY PER SHARE LTM EPS EST. EPS EST. EPS GROWTH RATE GROWTH RATE VALUE
- ------------------------ ---------- ---------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
AUSTIN $ 16.63 14.8 X 11.0 X 8.9 X 61.3% 49.7% 1.6 X
C S S Industries, Inc. 29.75 13.3 11.7 10.4 97.2% 86.8% 1.7
Cyrk, Inc. 13.06 43.5 NA NA NM NM 1.1
Equity Marketing, Inc. 25.00 18.2 13.5 11.1 54.1% 44.4% 3.2
Ha-Lo Inds, Inc. 27.44 36.6 26.2 20.6 98.2% 77.4% 7.4
Lillian Vernon Corp. 17.38 17.9 13.6 11.9 90.9% 79.1% 1.4
Racing Champions Corp. 10.94 NA 12.8 10.2 51.1% 40.9% 1.9
Swiss Army Brands, Inc. 10.63 NM 23.6 20.5 157.4% 136.9% 1.2
Tandy Brands Accessories, Inc. 17.38 15.2 15.0 12.8 83.2% 71.0% 2.0
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Median (excluding NPPI): 18.1 X 13.6 X 11.9 X 90.9% 77.4% 1.8 X
Average (excluding NPPI): 24.1 16.6 13.9 90.3% 76.6% 2.5
Adjusted Average (excludes high and low and NPPI): 22.0 15.7 13.3 84.7% 71.7% 1.9
</TABLE>
(1) When calendar 1999 EPS Multiple is not available it is approximated
using company's 5-year projected growth rate.
<PAGE> 11
AUSTIN COMPARABLE COMPANIES
COMPARABLE COMPANY MARKET CAPITALIZATION MULTIPLES
(In thousands)
<TABLE>
<CAPTION>
TOTAL TOTAL LTM
2/19/98 NUMBER OF TOTAL DEBT, MARKET TOTAL
COMPANY TICKER PRICE SHARES EQUITY NET OF CASH CAPITAL REVENUES
- ------------------------------- ------ ------- --------- ------ ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
AUSTIN AUSTIN $16.63 5,071 $84,308 $56,495 $140,803 $182,981
C S S Industries, Inc. CSS 29.75 10,875 323,531 106,546 430,077 357,720
Cyrk, Inc. CYRK 13.06 13,682 178,721 1,191 179,912 558,623
Equity Marketing, Inc. EMAK 25.00 4,079 101,975 0 101,975 130,946
Ha-Lo Inds, Inc. HMK 27.44 20,672 567,188 35,704 602,892 413,791
Lillian Vernon Corp. LVC 17.38 9,482 164,750 0 164,750 251,736
Racing Champions Corp. RACN 10.94 13,242 144,834 22,661 167,495 NA
Swiss Army Brands, Inc. SABI 10.63 8,210 87,231 0 87,231 118,744
Tandy Brands Accessories, Inc. TBAC 17.38 5,543 96,310 19,688 115,998 116,717
<CAPTION>
MARKET MARKET
LTM CAP./ CAP./
COMPANY EBITDA EBITDA REVENUES
- ------------------------------- ------ ------ --------
<S> <C> <C> <C>
AUSTIN $23,267 6.1 X 0.77 X
C S S Industries, Inc. 59,944 7.2 1.20
Cyrk, Inc. 6,292 28.6 0.32
Equity Marketing, Inc. 15,036 6.8 0.78
Ha-Lo Inds, Inc. 30,509 19.8 1.46
Lillian Vernon Corp. 17,898 9.2 0.65
Racing Champions Corp. NA NA NA
Swiss Army Brands, Inc. (3,230) NM 0.73
Tandy Brands Accessories, Inc. 13,469 8.6 0.99
</TABLE>
<TABLE>
<S> <C> <C>
Median (excluding NPPI): 8.9 x 0.78 X
Average (excluding NPPI): 13.4 0.88
Adjusted Average (excludes high and low and NPPI): 11.2 0.87
</TABLE>
<PAGE> 12
AUSTIN COMPARABLE COMPANIES
COMPARABLE COMPANY SUMMARY VALUATION
OVERALL ADJUSTED AVERAGE MULTIPLES
(In thousands)
<TABLE>
<CAPTION>
PRICE TO TRAILING EARNINGS MULTIPLE BASIS:
- --------------------------------------------------------------------------------
<S> <C> <C>
LTM earnings ended 11/30/97 $ 6,008
Adjusted Average Multiple 22.00 x
$ 132,154
---------
Implied Share Price: $ 26.06
</TABLE>
<TABLE>
<CAPTION>
PRICE TO CALENDAR 1998 EARNINGS MULTIPLE BASIS:
- --------------------------------------------------------------------------------
<S> <C> <C>
Estimated earnings ended 12/31/98 $ 8,729
Adjusted Average Multiple 15.70 x
---------
$ 137,063
Implied Share Price: $ 27.03
</TABLE>
<TABLE>
<CAPTION>
PRICE TO CALENDAR 1999 EARNINGS MULTIPLE BASIS:
- --------------------------------------------------------------------------------
<S> <C> <C>
Estimated earnings ended 12/31/99 $ 10,707
Adjusted Average Multiple 13.34 x
---------
$ 142,850
Implied Share Price: $ 28.17
</TABLE>
<TABLE>
<CAPTION>
LTM EBITDA MULTIPLE BASIS:
- --------------------------------------------------------------------------------
<S> <C> <C>
LTM EBITDA ended 11/30/97 $ 23,267
Adjusted Average Multiple 11.19 x
---------
260,317
Less total debt, net of cash on 11/30/97 56,495
---------
$ 203,822
Implied Share Price: $ 40.19
</TABLE>
<TABLE>
<CAPTION>
LTM REVENUES MULTIPLE BASIS:
- --------------------------------------------------------------------------------
<S> <C> <C>
LTM Revenues ended 11/30/97 $ 182,981
Adjusted Average Multiple 0.87 x
---------
159,703
Less total debt, net of cash on 11/30/97 56,495
---------
$ 103,208
Implied Share Price: $ 20.35
</TABLE>
<PAGE> 13
AUSTIN COMPARABLE COMPANIES
COMPARABLE COMPANY SUMMARY VALUATION
MEDIAN MULTIPLES
(In thousands)
<TABLE>
<CAPTION>
PRICE TO TRAILING EARNINGS MULTIPLE BASIS:
- --------------------------------------------------------------------------------
<S> <C> <C>
LTM earnings ended 11/30/97 $ 6,008
Median Multiple 18.08 x
---------
$ 108,626
Implied Share Price: $ 21.42
</TABLE>
<TABLE>
<CAPTION>
PRICE TO CALENDAR 1998 EARNINGS MULTIPLE BASIS:
- --------------------------------------------------------------------------------
<S> <C> <C>
Estimated earnings ended 12/31/98 $ 8,729
Median Multiple 13.64 x
---------
$ 119,073
Implied Share Price: $ 23.48
</TABLE>
<TABLE>
<CAPTION>
PRICE TO CALENDAR 1999 EARNINGS MULTIPLE BASIS:
- --------------------------------------------------------------------------------
<S> <C> <C>
Estimated earnings ended 12/31/99 $ 10,707
Median Multiple 11.86 x
---------
$ 127,002
Implied Share Price: $ 25.04
</TABLE>
<TABLE>
<CAPTION>
LTM EBITDA MULTIPLE BASIS:
- --------------------------------------------------------------------------------
<S> <C> <C>
LTM EBITDA ended 11/30/97 $ 23,267
Median Multiple 8.91 x
---------
207,275
Less total debt, net of cash on 11/30/97 56,495
---------
$ 150,780
Implied Share Price: $ 29.73
</TABLE>
<TABLE>
<CAPTION>
LTM REVENUES MULTIPLE BASIS:
- --------------------------------------------------------------------------------
<S> <C> <C>
LTM Revenues ended 11/30/97 $ 182,981
Median Multiple 0.78 x
---------
142,498
Less total debt, net of cash on 11/30/97 56,495
---------
$ 86,003
Implied Share Price: $ 16.96
</TABLE>
<PAGE> 14
PROMOTIONAL COMPANIES
WEEKLY PRICE & VOLUME TRADING STATISTICS SINCE 12/29/95
Graphs depicting the weekly price and volume trading statistics since
December 29, 1995, for CSS Industries, Inc., Cyrk, Inc., Equity Marketing, Inc.,
and HA-LO Industries, Inc.
<PAGE> 15
PROMOTIONAL COMPANIES
WEEKLY PRICE & VOLUME TRADING STATISTICS SINCE 12/29/95
Graphs depicting the weekly price and volume trading statistics since December
29, 1995 for Lillian Vernon Corp., Racing Champions Corp., Swiss Army Brands,
Inc., and Norwood Promotional Products, Inc.
<PAGE> 16
PROMOTIONAL COMPANIES
WEEKLY PRICE & VOLUME TRADING STATISTICS SINCE 12/29/95
Graph depicting the weekly price and volume trading statistics since December
29, 1995 for TANDY BRANDS ACCESSORIES, INC.
<PAGE> 17
COMPARABLE COMPANY ANALYSIS
- --------------------------------------------------------------------------------
[ ] DESCRIPTION OF COMPARABLE COMPANIES
CSS INDUSTRIES, INC. is a diversified company involved in the sale of consumer
and business products. The Company's subsidiaries, The Paper Magic Group,
Inc. and Berwick Industries, Inc., designs, manufactures and sells gift
wrap, gift bags, boxed greeting cards, decorative products and many others.
CSS, through Rapidforms, Inc., designs and sells business forms and
supplies.
CYRK, INC. provides integrated marketing solutions and promotional programs to
corporate marketers. The Company has worldwide operations in New York,
London, Frankfurt, Munich, Hong Kong, Taiwan and South Korea.
EQUITY MARKETING INC., designs, develops, produces and markets custom made toy,
gift and other products based on entertainment properties licensed by
television and motion pictures studios. The products include figurines,
action vehicles, plush toys, dolls and other novelty items. The Company
sells its products worldwide to restaurant chains, consumer product
companies and toy/gift distributors.
HA-LO INDUSTRIES, INC. distributes advertising products to Fortune 500
companies, professional sports teams and other organizations. The Company
also provides telemarketing and customer management services,
sportsmarketing, event planning and advertising agency services to its
clients.
[J.C. BRADFORD & CO. LOGO]
<PAGE> 18
COMPARABLE COMPANY ANALYSIS
- --------------------------------------------------------------------------------
[ ] DESCRIPTION OF COMPARABLE COMPANIES
LILLIAN VERNON CORPORATION retails gift, household, gardening, kitchen,
Christmas and children's products. The Company publishes eight catalog
titles; "Lillian Vernon," " Lilly's Kids," "Christmas Memories," "Neat
Ideas For An Organized Life," "Lillian Vernon's Kitchen," "Personalized
Gifts," "Private Sale" and "Welcome To The Best of Lillian Vernon."
RACING CHAMPIONS CORPORATION produces and markets collectible scaled die cast
vehicle replicas. The Company's product lines include an extensive line of
officially licensed collectible replicas of actual race cars and related
vehicles from the five most popular US professional racing series,
including NASCAR. Racing Champions also produces non-racing vehicle
replicas and pewter figures.
SWISS ARMY BRANDS, INC. markets the "Victorinox Original Swiss Army" Knife in
the United States, Canada and the Caribbean. The Company also markets
"Swiss Army" brand watches, sunglasses and writing instruments; "Swiss Air
Force" watches; "Victorinox" watches and "R.H. Forschner" professional
cutlery.
TANDY BRANDS ACCESSORIES, INC. designs, manufactures and markets fashion
accessories for men and women. The Company's products include belts,
personal leather goods, neckwear, suspenders, handbags, fashion socks, and
scarves. Tandy's products are sold under the "Jones New York," "Greg Norman
Collection," "Haggar," "Canterbury," and other national brand names, as
well as private labels.
[J.C. BRADFORD & CO. LOGO]
<PAGE> 19
DISCOUNTED CASH FLOWS
III
<PAGE> 20
PROJECT AUSTIN -- PROJECTION MODEL
DISCOUNTED CASH FLOW ANALYSIS -- OPERATING CASH FLOW EBITDA EXIT MULTIPLE METHOD
(Numbers in Thousands)
(Fiscal Year Ended August)
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
EBITDA $ 29,318 $ 32,168 $ 35,366 $38,508 $ 42,510
-------- -------- -------- ------- --------
Depreciation and amortization 8,120 8,121 8,122 8,123 8,124
Interest expense 4,200 3,600 2,800 1,500 500
Other expenses -- -- -- -- --
-------- -------- -------- ------- --------
Pre-tax income 16,998 20,447 24,444 28,885 33,886
Provision for income taxes 6,969 8,383 10,022 11,843 13,893
-------- -------- -------- ------- --------
Net income 10,029 12,064 14,422 17,042 19,993
======== ======== ======== ======= ========
Add: Depreciation & amortization 8,120 8,121 8,122 8,123 8,124
Add: After-tax interest expense 2,478 2,124 1,652 885 295
Less: Net additions to working capital(1) (3,200) (3,300) (3,400) (3,900) (3,800)
Less: Capital expenditures (3,834) (3,935) (3,936) (3,937) (3,938)
-------- -------- -------- ------- --------
Operating cash flow $ 13,593 $ 15,074 $ 16,860 $18,213 $ 20,674
======== ======== ======== ======= ========
Cash flow growth 10.9% 11.8% 8.0% 13.5%
</TABLE>
EQUITY VALUATION MATRIX(2)
<TABLE>
<CAPTION>
DISCOUNT YEAR 2003 EBITDA EXIT MULTIPLE
RATE(3) 5.0x 5.5x 6.0x 6.5x
------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
13.0% $119,576 $131,113 $142,649 $154,185
14.0% 113,117 124,157 135,196 146,235
15.0% 106,973 117,540 128,108 138,675
--------
AVERAGE VALUATION OF EQUITY $129,794
--------
</TABLE>
EQUITY VALUATION MATRIX PER SHARE
<TABLE>
<CAPTION>
DISCOUNT YEAR 2003 EBITDA EXIT MULTIPLE
RATE(3) 5.0x 5.5x 6.0x 6.5x
------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
13.0% $ 22.62 $ 24.81 $ 26.99 $ 29.17
14.0% 21.40 23.49 25.58 27.67
15.0% 20.24 22.24 24.24 26.24
--------
AVERAGE VALUATION OF EQUITY PER SHARE(4) $ 24.56
--------
</TABLE>
- ----------
(1) Excluding cash and short-term debt.
(2) Less total capital liab. (net of cash) of $53,698
(3) Discount rates are near estimates of WACC.
(4) Based on 5,285 shares outstanding.
<PAGE> 21
PROJECT AUSTIN -- PROJECTION MODEL
DISCOUNTED CASH FLOW ANALYSIS -- FREE CASH FLOW NET INCOME EXIT MULTIPLE METHOD
(Numbers in Thousands)
(Fiscal Year Ended August)
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
EBITDA $ 29,318 $ 32,168 $ 35,366 $ 38,508 $ 42,510
Depreciation and amortization 8,120 8,121 8,122 8,123 8,124
Interest expense 4,200 3,600 2,800 1,500 500
Other expenses -- -- --
-------- -------- -------- -------- --------
Pre-tax income 16,998 20,447 24,444 28,885 33,886
Provision for income taxes 6,969 8,383 10,022 11,843 13,893
-------- -------- -------- -------- --------
Net income $ 10,029 $ 12,064 $ 14,422 $ 17,042 $ 19,993
======== ======== ======== ======== ========
Add: Depreciation & amortization 8,120 8,121 8,122 8,123 8,124
Less: Mandatory debt repayments (11,298) (12,983) (15,033) (13,900) (700)
Less: Net additions to working capital (1) (3,200) (3,300) (3,400) (3,900) (3,800)
Less: Capital expenditures (3,834) (3,935) (3,936) (3,937) (3,938)
-------- -------- -------- -------- --------
Free cash flow $ (183) $ (33) $ 175 $ 3,428 $ 19,679
======== ======== ======== ======== ========
Cash flow growth -81.9% -630.4% 1859.3% 474.0%
</TABLE>
EQUITY VALUATION MATRIX(2)
<TABLE>
<CAPTION>
DISCOUNT YEAR 2003 NET INCOME EXIT MULTIPLE
RATE(3) 11.0x 13.0x 15.0x
------- ----- ----- -----
<S> <C> <C> <C>
18.0% $108,846 $126,324 $143,802
19.0% 104,340 121,096 137,852
20.0% 100,056 116,125 132,195
--------
AVERAGE VALUATION OF EQUITY $121,182
--------
</TABLE>
EQUITY VALUATION MATRIX PER SHARE
<TABLE>
<CAPTION>
DISCOUNT YEAR 2003 NET INCOME EXIT MULTIPLE
RATE (3) 11.0x 13.0x 15.0x
------- ----- ----- -----
<S> <C> <C> <C>
18.0% $ 20.59 $ 23.90 $ 27.21
19.0% $ 19.74 $ 22.91 $ 26.08
20.0% $ 18.93 $ 21.97 $ 25.01
--------
AVERAGE VALUATION OF EQUITY PER SHARE(4) $ 22.93
--------
</TABLE>
(1) Excluding cash and short-term debt.
(2) Less Total Capital Liab. (net of cash) of $53,698
(3) Discount rates are near estimates of the cost of equity.
(4) Based on 5,285 shares outstanding.
<PAGE> 22
PROJECT AUSTIN -- PROJECTION MODEL
DISCOUNTED CASH FLOW ANALYSIS -- NET INCOME EXIT MULTIPLE METHOD
(Numbers in Thousands)
(Fiscal Year Ended August)
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 CAGR
------ ------ ------ ------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
Net income 10,029 12,064 14,422 17,042 19,993 18.8%
====== ====== ====== ====== ====== ====
</TABLE>
EQUITY VALUATION MATRIX
<TABLE>
<CAPTION>
2003 Net Income
Multiple Assumed 2003 Net Income Equity Value
---------------- --------------- ------------
<S> <C> <C>
11.0x X $ 19,993 = $ 219,920
13.0x X 19,993 = 259,906
15.0x X 19,993 = 299,891
17.0x X 19,993 = 339,877
</TABLE>
<TABLE>
<CAPTION>
DISCOUNT YEAR 2003 NET INCOME EXIT MULTIPLE
RATE(1) 11.0x 13.0x 15.0x
-------- ----- ----- -----
<S> <C> <C> <C>
18.0% $ 96,129 $ 113,607 $ 131,085
19.0% $ 92,157 $ 108,913 $ 125,669
20.0% $ 88,381 $ 104,450 $ 120,520
---------
AVERAGE VALUATION OF EQUITY $ 108,990
---------
</TABLE>
EQUITY VALUATION MATRIX PER SHARE
<TABLE>
<CAPTION>
DISCOUNT YEAR ASSUMPTIONS NET INCOME EXIT MULTIPLE
RATE 11.0x 13.0x 15.0x
-------- ----- ----- -----
<S> <C> <C> <C>
18.0% $ 18.19 $ 21.49 $ 24.80
19.0% $ 17.44 $ 20.61 $ 23.78
20.0% $ 16.72 $ 19.76 $ 22.80
---------
AVERAGE VALUATION OF EQUITY PER SHARE(2) $ 20.62
---------
</TABLE>
- ----------
(1) Discounted rates are near estimates of the cost of equity.
(2) Based on 5,285 shares outstanding.
<PAGE> 23
AUSTIN
CALCULATION OF WEIGHTED AVERAGE COST OF CAPITAL
(in 000's except per share)
Weighted Average Cost of Capital (WACC)
= (Equity % of Capitalization)(Cost of Equity)
+ (Debt % of Capitalization)(Cost of Debt)
89.4% Equity (18.77%) + 10.6% Debt (4.36%)
-----
12.93%
-----
<TABLE>
<CAPTION>
COST OF EQUITY DATA USED
-------------- ---------
<S> <C>
Cost of Equity = R(f) + B (R(m) - R(f)) Capital Asset Pricing Model (a)
Risk Free Rate = R(f) 7 Year Treasury Yield = 5.48% (b)
Beta of Common Stock = B Austin Beta = 1.10 (c)
Market Risk Premium = (R(m) - R(f)) Common Stock Returns
over Int.-term Gov't Bonds 8.90% (d)
Cost of Equity = 5.5% + 1. 10*(8.9%) + 3.5% Micro-Cap Stock Premium 3.50%
Cost of Debt = (1-T)*R(i) (e)
----- ----
COST OF EQUITY = 18.77% COST OF DEBT = 4.36%
----- ----
Capitalization(f) = $84,308 of Market Equity + $57,497 of Long Term Debt = $141,805
= 89.41% Equity + 10.59% Debt
</TABLE>
(a) The Capital Asset Pricing Model states that the return on an asset or
security is equal to the risk free return (i.e., Treasury Bonds) plus a
risk premium.
(b) 7 Year Treasury as of 2/19/98.
(c) Beta estimate assumed to be 1.1.
(d) Intermediate horizon risk premium of 8.9%, as calculated by Ibbotson &
Sinquefield, 1995. Includes an additional Micro-Cap Stock Premium of 3.5%.
(e) Interest cost of 7.27%, tax adjusted at 40.00%.
(f) Assumes Austin has a targeted capital structure of 89.4% equity and 10.6%
debt, which represents the average of the comparable group selected.
<PAGE> 24
LBO ANALYSIS
IV
<PAGE> 25
J.C. BRADFORD & CO.
AUSTIN--LEVERAGED BUYOUT ANALYSIS--MAXIMIZED PRICE
TRANSACTION SUMMARY
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
% OF
USES OF FUNDS: AMOUNT CAPITAL
- ------------------------- ---------- -------
<S> <C> <C>
Offer for equity (to cash out owner) $ 114,506 64.3%
Debt to be refinanced 54,698 30.7%
Cash 3,000 1.7%
Transaction fees & expenses 6,000 3.4%
---------- -----
Total Uses of Funds $ 178,204 100.0%
========== =====
</TABLE>
<TABLE>
<CAPTION>
INTEREST % OF
SOURCES OF FUNDS: RATE AMOUNT CAPITAL
- ------------------------- ------ ---------- -------
<S> <C> <C> <C>
Revolver 8.80% $ 0 0.0%
Senior sub-debt 10.00% 100,000 56.1%
Senior term loan 8.80% 25,000 14.0%
Preferred Stock 12.00% 20,000 11.2%
Management equity - Common Stock 33,204 18.6%
---------- -----
Total Sources of Funds $ 178,204 100.0%
========== =====
</TABLE>
PROPOSED OFFER PRICE
-----------------------------
$21.50
FIVE YEAR IRR @ 6.5X EBITDA
<TABLE>
<CAPTION>
Ownership % Return
----------- ------
<S> <C> <C>
Preferred Stock 15% 25.0%
Management equity - Common Stock 85% 34.9%
</TABLE>
TRANSACTION SUMMARY STATISTICS
Transaction value
<TABLE>
<CAPTION>
Fiscal Year End Aug.: 1998
- --------------------- ------
<S> <C>
Transaction value/EBIT 9.96x
Transaction value/EBITDA 6.86x
Transaction value/Sales .92x
</TABLE>
GOODWILL CALCULATION
<TABLE>
<S> <C>
Purchase price of equity $ 114,506
Plus: Transaction fees 0
Less: Book value acquired 59,355
Less: Assumed asset write-up
Less: Deferred income taxes 0
----------
Book goodwill $ 55,151 (a)
==========
</TABLE>
(a) Based on 5,325,860 shares outstanding as of 1/6/98.
(b) Transaction fees are amortized separately and therefore are excluded from
book goodwill.
<PAGE> 26
J.C. Bradford & Co.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS--MAXIMIZED PRICE
ASSUMPTIONS SUMMARY, KEY RATIOS AND AMORTIZATION SCHEDULE
- --------------------------------------------------------------------------------
($s IN 000S)
Transaction Assumptions
$ 178,204 Transaction value
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUG.
PROFORMA -------------------------------------------------------------------
1998 (1) 1999 2000 2001
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Key Ratios:
EBIT / interest expense 1.5 x 1.8 x 2.2 x 2.7 x
(EBIT - cap ex)/interest expense 1.5 x 1.4 x 1.8 x 2.3 x
EBITDA / interest expense 2.2 x 2.5 x 3.0 x 3.6 x
(EBITDA - cap ex) / interest expense 2.2 x 2.2 x 2.6 x 3.2 x
(EBITDA - change in working cap-cap ex)/interest expense 1.9 x 2.3 x 2.9 x
Senior debt/ EBITDA 3.8 x 3.3 x 2.7 x 2.2 x
Total debt/ EBITDA 4.8 x 4.1 x 3.5 x 2.9 x
Capitalization:
Senior debt $100,000 56% $ 90,677 52% $ 82,364 48% $ 71,704 42%
Other debt 25,000 14% 25,000 14% 25,000 14% 25,000 14%
-------- -------- --- -------- --- -------- ---
Total debt 125,000 70% 115,677 66% 107,364 62% 96,704 56%
Equity 53,204 30% 58,451 34% 65,939 38% 75,906 44%
-------- -------- --- -------- --- -------- ---
Total capitalization $178,204 100% $174,128 100% $173,303 100% $172,610 100%
Amortization:
Senior sub-debt retired annually 14,286 14,286 14,286
Senior term loan retired annually -- -- --
Sub-debt retired annually -- -- --
Other notes retired annually -- -- --
Goodwill amortization over 15 years $ 4,186 $ 4,186 $ 4,186
Fee amortization over 10 years $ 600 $ 600 $ 600
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUG.
--------------------------------------------------
2002 2003
-------- --------
<S> <C> <C> <C> <C>
Key Ratios:
EBIT / interest expense 3.5 x 4.7 x
(EBIT - cap ex)/interest expense 3.0 x 4.2 x
EBITDA / interest expense 4.5 x 6.0 x
(EBITDA - cap ex) / interest expense 4.0 x 5.4 x
(EBITDA - change in working cap-cap ex)/interest expense 3.6 x 4.9 x
Senior debt/ EBITDA 1.7 x 1.2 x
Total debt/ EBITDA 2.3 x 1.8 x
Capitalization:
Senior debt $ 59,036 34% $ 43,104 25%
Other debt 25,000 14% 25,000 15%
-------- -------- ---
Total debt 84,036 49% 68,104 40%
Equity 88,433 51% 104,164 60%
-------- -------- ---
Total capitalization $172,469 100% $172,269 100%
Amortization:
Senior sub-debt retired annually 14,286 14,286
Senior term loan retired annually -- --
Sub-debt retired annually -- --
Other notes retired annually -- --
Goodwill amortization over 15 years $ 4,186 $ 4,186
Fee amortization over 10 years $ 600 $ 600
</TABLE>
(1) Adjusted to show historical operating results with proforma interest expense
and proforma capitalization.
<PAGE> 27
J.C. BRADFORD & CO.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS--MAXIMIZED PRICE
PROJECTED INCOME STATEMENTS
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
HISTORICAL ESTIMATED PROJECTED FISCAL YEAR ENDED AUG.
---------------------- ----------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $175,835 $193,391 $207,846 $223,500 $239,900 $257,562 $276,160
% growth 10.0% 7.5% 7.5% 7.3% 7.4% 7.2%
Cost of sales $125,732 $138,952 $149,319 $160,546 $172,085 $184,850 $197,826
% of revenue 71.5% 71.9% 71.8% 71.8% 71.7% 71.8% 71.6%
-------- -------- -------- -------- -------- -------- --------
Gross profit $ 50,103 $ 54,439 $ 58,527 $ 62,954 $ 67,815 $ 72,712 $ 78,334
gross margin 28.5% 28.1% 28.2% 28.2% 28.3% 28.2% 28.4%
General and administrative $ 8,855 $ 10,513 $ 10,477 $ 11,003 $ 11,549 $ 12,116 $ 12,661
% of revenue 5.0% 5.4% 5.0% 4.9% 4.8% 4.7% 4.6%
Sales and marketing 18,119 17,951 18,732 19,783 20,900 22,088 23,163
% of revenue 10.3% 9.3% 9.0% 8.9% 8.7% 8.6% 8.4%
Restructuring and unusual charges 1,816 -- -- -- -- -- --
% of revenue 1.0%
Other operating expenses -- -- -- -- -- -- --
% of revenue
-------- -------- -------- -------- -------- -------- --------
Total operating expenses $ 28,790 $ 28,464 $ 29,209 $ 30,786 $ 32,449 $ 34,204 $ 35,824
% of revenue 16.4% 14.7% 14.1% 13.8% 13.5% 13.3% 13.0%
EBITDA $ 21,313 $ 25,975 $ 29,318 $ 32,168 $ 35,366 $ 38,508 $ 42,510
% of revenue 12.1% 13.4% 14.1% 14.4% 14.7% 15.0% 15.4%
Depreciation $ 4,270 $ 3,960 $ 3,934 $ 3,935 $ 3,936 $ 3,937 $ 3,938
Goodwill amortization 3,885 4,121 4,186 4,186 4,186 4,186 4,186
Transaction fee amortization -- -- 600 600 600 600 600
-------- -------- -------- -------- -------- -------- --------
Total depreciation & amortization $ 8,155 $ 8,081 $ 8,720 $ 8,721 $ 8,722 $ 8,723 $ 8,724
% of revenue 4.6% 4.2% 4.2% 3.9% 3.6% 3.4% 3.2%
-------- -------- -------- -------- -------- -------- --------
EBIT $ 13,158 $ 17,894 $ 20,598 $ 23,447 $ 26,644 $ 29,785 $ 33,786
% of revenue 7.5% 9.3% 9.9% 10.5% 11.1% 11.6% 12.2%
Capital expenditures $ 3,834 $ 3,935 $ 3,936 $ 3,937 $ 3,938
% of revenue 1.8% 1.8% 1.6% 1.5% 1.4%
</TABLE>
<PAGE> 28
J.C. BRADFORD & CO.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS--MAXIMIZED PRICE
PROJECTED INCOME STATEMENTS
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
HISTORICAL ESTIMATED PROJECTED FISCAL YEAR ENDED AUG.
---------- --------- -------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
EBIT $13,158 $17,894 $20,598 $23,447 $26,644 $29,785 $33,786
Interest expense:
Revolver -- -- 218 700 1,122 1,353 1,351
Senior sub-debt -- -- 9,286 7,857 6,429 5,000 3,571
Sub-debt -- -- -- -- -- -- --
Cap. lease oblg. -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total interest expense 3,002 4,200 11,704 10,757 9,750 8,553 7,123
Home office expense -- -- -- -- -- -- --
Discontinued operations expenses 4,820 -- -- -- -- -- --
Extraordinary loss from debt extinguishment 241 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Other expenses (income) 8,063 --
Minority interest -- -- -- -- -- -- --
Pre-tax income 5,095 13,694 8,894 12,690 16,894 21,232 26,663
Provision (benefit) for income taxes 4,091 5,615 3,647 5,203 6,926 8,705 10,932
------- ------- ------- ------- ------- ------- -------
Net income $ 1,004 $ 8,079 $ 5,247 $ 7,487 $ 9,967 $12,527 $15,731
======= ======= ======= ======= ======= ======= =======
Preferred dividends -- -- 2,400 2,688 3,011 3,372 3,776
------- ------- ------- ------- ------- ------- -------
Net income to common $ 1,004 $ 8,079 $ 2,847 $ 4,799 $ 6,957 $ 9,155 $11,955
------- ------- ------- ------- ------- ------- -------
</TABLE>
<PAGE> 29
J.C. BRADFORD & CO.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS--MAXIMIZED PRICE
PROJECTED BALANCE SHEETS
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
ESTIMATED PROFORMA
AUG. 1998 ADJUSTMENTS AUG. 1998
--------- ------------------------ ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents $ 1,000 $ 0 $ 3,000 $ 4,000
Short-term investments -- -- -- --
Accounts receivable 26,336 -- -- 26,336
Inventories 34,821 -- -- 34,821
Income taxes receivable 598 -- -- 598
Other receivables 773 -- -- 773
Prepaid expenses and other current assets 2,672 -- -- 2,672
--------- --------- --------- ---------
Total current assets 66,200 -- 3,000 69,200
Land 478 -- -- 478
Gross plant and equip 37,971 -- -- 37,971
Accumulated depreciation (16,849) -- -- (16,849)
--------- --------- --------- ---------
Net P,P&E 21,600 -- -- 21,600
Goodwill, net of accumulated amortization 34,888 -- 55,151 90,039
Transaction fee & expenses -- -- 6,000 6,000
Other intangible assets 8,165 -- -- 8,165
Deferred income taxes and other assets 4,200 -- -- 4,200
--------- --------- --------- ---------
Total assets $ 135,053 $ 0 $ 64,151 $ 199,204
========= ========= ========= =========
LIABILITIES & EQUITY
Current maturities & short-term debt $ 0 $ 0 $ 0 $ 0
Trade accounts payable 10,442 -- -- 10,442
Accrued liabilities 10,347 -- -- 10,347
Current portion of lease obligation 211 -- -- 211
--------- --------- --------- ---------
Total current liabilities 21,000 -- -- 21,000
Long term debt
Revolver 2,098 (2,098) -- --
Senior sub-debt 39,600 (39,600) 100,000 100,000
Senior term loan 13,000 (13,000) 25,000 25,000
Sub-debt -- -- -- --
Other notes -- -- -- --
Cap. lease oblg. -- -- -- --
--------- --------- --------- ---------
Total debt 54,698 (54,698) 125,000 125,000
Less current portion -- -- -- --
--------- --------- --------- ---------
Total long-term debt 54,698 (54,698) 125,000 125,000
--------- --------- --------- ---------
Total liabilities 75,698 (54,698) 125,000 146,000
Preferred stock -- -- 20,000 20,000
Common stock 22,858 (22,858) 33,204 33,204
Unrealized gain (loss) on marketable securities 21,949 (21,949) -- --
Retained earnings 14,548 (14,548) -- --
--------- --------- --------- ---------
Total stockholders' equity 59,355 (59,355) 53,204 53,204
--------- --------- --------- ---------
Total liabilities & equity $ 135,053 $(114,053) $ 178,204 $ 199,204
========= ========= ========= =========
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUG.
--------------------------------------------------------------------
1999 2000 2001 2002 2003
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Short-term investments -- -- -- -- --
Accounts receivable 28,032 29,931 31,910 34,051 36,232
Inventories 37,064 39,574 42,191 45,021 47,905
Income taxes receivable 636 679 724 773 822
Other receivables 823 879 937 1,000 1,064
Prepaid expenses and other current assets 2,845 3,037 3,238 3,455 3,677
--------- --------- --------- --------- ---------
Total current assets 70,400 75,100 80,000 85,300 90,700
Land 478 478 478 478 478
Gross plant and equip 41,805 45,740 49,676 53,613 57,551
Accumulated depreciation (20,783) (24,718) (28,654) (32,591) (36,529)
--------- --------- --------- --------- ---------
Net P,P&E 21,500 21,500 21,500 21,500 21,500
Goodwill, net of accumulated amortization 85,853 81,667 77,481 73,295 69,109
Transaction fee & expenses 5,400 4,800 4,200 3,600 3,000
Other intangible assets 8,775 9,436 10,129 10,874 11,660
Deferred income taxes and other assets 4,200 4,200 4,200 4,200 4,200
--------- --------- --------- --------- ---------
Total assets $ 196,128 $ 196,703 $ 197,510 $ 198,769 $ 200,169
========= ========= ========= ========= =========
LIABILITIES & EQUITY
Current maturities & short-term debt $ 0 $ 0 $ 0 $ 0 $ 0
Trade accounts payable 11,050 11,753 12,506 13,210 14,013
Accrued liabilities 10,950 11,647 12,394 13,090 13,887
Current portion of lease obligation -- -- -- -- --
--------- --------- --------- --------- ---------
Total current liabilities 22,000 23,400 24,900 26,300 27,900
Long term debt
Revolver 4,963 10,936 14,561 16,179 14,533
Senior sub-debt 85,714 71,429 57,143 42,857 28,571
Senior term loan 25,000 25,000 25,000 25,000 25,000
Sub-debt -- -- -- -- --
Other notes -- -- -- -- --
Cap. lease oblg. -- -- -- -- --
--------- --------- --------- --------- ---------
Total debt 115,677 107,364 96,704 84,036 68,104
Less current portion -- -- -- -- --
--------- --------- --------- --------- ---------
Total long-term debt 115,677 107,364 96,704 84,036 68,104
--------- --------- --------- --------- ---------
Total liabilities 137,677 130,764 121,604 110,336 96,004
Preferred stock 22,400 25,088 28,099 31,470 35,247
Common stock 33,204 33,204 33,204 33,204 33,204
Unrealized gain (loss) on marketable securities -- -- -- -- --
Retained earnings 2,847 7,647 14,603 23,759 35,714
--------- --------- --------- --------- ---------
Total stockholders' equity 58,451 65,939 75,906 88,433 104,164
--------- --------- --------- --------- ---------
Total liabilities & equity $ 196,128 $ 196,703 $ 197,510 $ 198,769 $ 200,169
========= ========= ========= ========= =========
</TABLE>
<PAGE> 30
J.C. BRADFORD & CO.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS--MAXIMIZED PRICE
CASH FLOW
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUG.
----------------------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Income $ 5,247 $ 7,487 $ 9,967 $ 12,527 $ 15,731
Add: Depreciation & amortization 3,934 3,935 3,936 3,937 3,938
Add: Goodwill amortization 4,186 4,186 4,186 4,186 4,186
Add: Fee amortization 600 600 600 600 600
Add: Minority interest -- -- -- -- --
Add: PIK Dividend 2,400 2,688 3,011 3,372 3,776
Add: Dividend (2,400) (2,688) (3,011) (3,372) (3,776)
-------- -------- -------- -------- --------
Total Sources $ 13,967 $ 16,208 $ 18,689 $ 21,250 $ 24,455
Less: Changes in other long-term assets & liabilities (610) (661) (692) (746) (785)
Less: Change in working capital (3,200) (3,300) (3,400) (3,900) (3,800)
Less: Capital expenditures (Net of dispos.) (3,834) (3,935) (3,936) (3,937) (3,938)
-------- -------- -------- -------- --------
Total Uses ($ 7,644) ($ 7,896) ($ 8,028) ($ 8,583) ($ 8,523)
-------- -------- -------- -------- --------
TOTAL FREE CASH FLOW BEFORE FINANCING $ 6,323 $ 8,312 $ 10,661 $ 12,667 $ 15,932
REPAYMENT/BORROWING OF DEBT
Revolver 4,963 5,973 3,625 1,618 (1,646)
Senior sub-debt (14,286) (14,286) (14,286) (14,286) (14,286)
Senior term loan -- -- -- -- --
Sub-debt -- -- -- -- --
Other notes -- -- -- -- --
Cap. lease oblg. -- -- -- -- --
-------- -------- -------- -------- --------
Total Debt (Repayments)/Borrowing ($ 9,323) ($ 8,312) ($10,661) ($12,667) ($15,932)
CHANGE IN CASH BALANCE ($ 3,000) $ 0 $ 0 $ 0 $ 0
</TABLE>
<PAGE> 31
J.C. BRADFORD & CO.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS--MAXIMIZED PRICE
WORKING CAPITAL ASSUMPTIONS
- --------------------------------------------------------------------------------
($'s in 000s)
<TABLE>
<CAPTION>
ESTIMATED PROFORMA
------------------------ AUG.
1997 1998 ADJUSTMENTS 1998
--------- --------- ----------------------- ---------
<S> <C> <C> <C> <C> <C>
Accounts receivable $ 24,282 $ 26,336 -- -- $ 26,336
% of sales 13.8% 13.6% 13.6%
Inventories $ 32,105 $ 34,821 -- -- $ 34,821
% of sales 18.3% 18.0% 18.0%
Income taxes receivable $ 551 $ 598 -- -- $ 598
% of sales 0.3% 0.3% 0.3%
Other receivables $ 713 $ 773 -- -- $ 773
% of sales 0.4% 0.4% 0.4%
Prepaid expenses and other current assets $ 2,464 $ 2,672 -- -- $ 2,672
% of sales 1.4% 1.4% 1.4%
--------- --------- --------- --------- ---------
TOTAL CURRENT ASSETS, EXCLUDING CASH $ 65,200 -- -- $ 65,200
% of sales 0.0% 33.7% 33.7%
Trade accounts payable $ 11,299 $ 10,442 -- -- $ 10,442
% of sales 6.4% 5.4% 5.4%
Accrued liabilities $ 11,197 $ 10,347 -- -- $ 10,347
% of sales 6.4% 5.4% 5.4%
Current portion of lease obligation $ 481 $ 211 -- -- $ 211
% of sales 0.3% 0.1% 0.1%
--------- --------- --------- --------- ---------
TOTAL CURRENT LIABILITIES EXCLUDING S-T DEBT $ 21,000 -- -- $ 21,000
% of sales 0.0% 10.9% 10.9%
Net non-cash working capital $ 44,200 -- -- $ 44,200
% of sales 0.0% 22.9% 22.9%
Change in non-cash working capital
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUG.
---------------------------------------------------------------------
1999 2000 2001 2002 2003
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Accounts receivable $ 28,032 $ 29,931 $ 31,910 $ 34,051 $ 36,232
% of sales 13.5% 13.4% 13.3% 13.2% 13.1%
Inventories $ 37,064 $ 39,574 $ 42,191 $ 45,021 $ 47,905
% of sales 17.8% 17.7% 17.6% 17.5% 17.3%
Income taxes receivable $ 636 $ 679 $ 724 $ 773 $ 822
% of sales 0.3% 0.3% 0.3% 0.3% 0.3%
Other receivables $ 823 $ 879 $ 937 $ 1,000 $ 1,064
% of sales 0.4% 0.4% 0.4% 0.4% 0.4%
Prepaid expenses and other current assets $ 2,845 $ 3,037 $ 3,238 $ 3,455 $ 3,677
% of sales 1.4% 1.4% 1.3% 1.3% 1.3%
--------- --------- --------- --------- ---------
TOTAL CURRENT ASSETS, EXCLUDING CASH $ 69,400 $ 74,100 $ 79,000 $ 84,300 $ 89,700
% of sales 33.4% 33.2% 32.9% 32.7% 32.5%
Trade accounts payable $ 11,050 $ 11,753 $ 12,506 $ 13,210 $ 14,013
% of sales 5.3% 5.3% 5.2% 5.1% 5.1%
Accrued liabilities $ 10,950 $ 11,647 $ 12,394 $ 13,090 $ 13,887
% of sales 5.3% 5.2% 5.2% 5.1% 5.0%
Current portion of lease obligation $ 0 $ 0 $ 0 $ 0 $ 0
% of sales 0.0% 0.0% 0.0% 0.0% 0.0%
--------- --------- --------- --------- ---------
TOTAL CURRENT LIABILITIES EXCLUDING S-T DEBT $ 22,000 $ 23,400 $ 24,900 $ 26,300 $ 27,900
% of sales 10.6% 10.5% 10.4% 10.2% 10.1%
Net non-cash working capital $ 47,400 $ 50,700 $ 54,100 $ 58,000 $ 61,800
% of sales 22.8% 22.7% 22.6% 22.5% 22.4%
Change in non-cash working capital $ 3,200 $ 3,300 $ 3,400 $ 3,900 $ 3,800
</TABLE>
<PAGE> 32
J.C. BRADFORD & CO.
AUSTIN--LEVERAGED BUYOUT ANALYSIS -- MAXIMIZED PRICE
RETURNS ANALYSIS
- --------------------------------------------------------------------------------
($'s in 000s)
<TABLE>
<CAPTION>
PROJECTED RETURNS ON MANAGEMENT EQUITY
YEAR ENDING AUG.
-----------------------------------------------------------------------
1999 2000 2001 2002 2003
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
TOTAL CAPITALIZATION AS A
MULTIPLE OF EBITDA
5.0 X $ 146,590 $ 160,840 $ 176,830 $ 192,540 $ 212,550
5.5 X 161,249 176,924 194,513 211,794 233,805
6.0 X 175,908 193,008 212,196 231,048 255,060
6.5 X 190,567 209,092 229,879 250,302 276,315
LESS: TOTAL DEBT (NET OF CASH)(1) 137,077 131,452 123,802 114,507 102,351
VALUE OF EQUITY
5.0 X $ 9,513 $ 29,388 $ 53,028 $ 78,033 $ 110,199
5.5 X 24,172 45,472 70,711 97,287 131,454
6.0 X 38,831 61,556 88,394 116,541 152,709
6.5 X 53,490 77,640 106,077 135,795 173,964
RETURNS ANALYSIS
33,204
OWNERSHIP PERCENTAGE 85.2% 85.2% 85.2% 85.2% 85.2%
IRR ASSUMING EBITDA
MULTIPLES OF :
5.0 X NM (13.2%) 10.8% 18.9% 23.1%
5.5 X (38.0%) 8.0% 22.0% 25.7% 27.5%
7.3 X 6.0 X (0.4%) 25.7% 31.4% 31.5% 31.4%
6.5 X 37.2% 41.1% 39.6% 36.6% 34.9%
</TABLE>
(1) Includes the repayment of preferred stock.
<PAGE> 33
J.C. BRADFORD & CO.
AUSTIN--LEVERAGED BUYOUT ANALYSIS--MAXIMIZED PRICE
RETURNS ANALYSIS
- --------------------------------------------------------------------------------
($0s in 000s)
PROJECTED RETURNS ON PREFERRED EQUITY
<TABLE>
<CAPTION>
YEAR ENDING AUG.
----------------------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
TOTAL CAPITALIZATION AS A
MULTIPLE OF EBITDA
5.0 X $146,590 $160,840 $176,830 $192,540 $212,550
5.5 X 161,249 176,924 194,513 211,794 233,805
6.0 X 175,908 193,008 212,196 231,048 255,060
6.5 X 190,567 209,092 229,879 250,302 276,315
LESS: TOTAL DEBT (NET OF CASH)(1) 137,077 131,452 123,802 114,507 102,351
VALUE OF EQUITY
5.0 X $ 9,513 $ 29,388 $ 53,028 $ 78,033 $110,199
5.5 X 24,172 45,472 70,711 97,287 131,454
6.0 X 38,831 61,556 88,394 116,541 152,709
6.5 X 53,490 77,640 106,077 135,795 173,964
RETURNS ANALYSIS Balance at Year End:(2)
----------------------------------------------------------------
20,000 22,400 25,088 28,099 31,470 35,247
OWNERSHIP PERCENTAGE 14.8% 14.8% 14.8% 14.8% 14.8%
IRR ASSUMING EBITDA
MULTIPLES OF:
5.0 x 19.1% 21.3% 21.6% 21.1% 20.9%
5.5 x 29.9% 26.2% 24.5% 23.1% 22.3%
6.0 x 40.8% 30.8% 27.2% 24.9% 23.7%
----------
6.5 x 51.6% 35.3% 29.9% 26.7% 25.0%
----------
</TABLE>
(1) Includes the repayment of preferred stock.
(2) Includes PIK Dividends
<PAGE> 34
J.C. BRADFORD & CO.
AUSTIN LEVERAGED BUYOUT ANALYSIS--MAXIMIZED PRICE
TRANSACTION SUMMARY
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
% OF
USES OF FUNDS: AMOUNT CAPITAL
- --------------- ---------- -------
<S> <C> <C>
Offer for equity (to cash out owner) $ 108,785 63.1%
Debt to be refinanced 54,698 31.7%
Cash 3,000 1.7%
Transaction fees & expenses 6,000 3.5%
---------- -----
Total Uses of Funds $ 172,483 100.0%
========== =====
</TABLE>
<TABLE>
<CAPTION>
INTEREST % OF
SOURCES OF FUNDS: RATE AMOUNT CAPITAL
- ------------------- -------- ------ -------
<S> <C> <C> <C>
Revolver 8.80% $ 0 0.0%
Senior sub-debt 10.00% 100,000 58.0%
Senior term loan 8.80% 25,000 14.5%
Preferred Stock 12.00% 20,000 11.6%
- -------------------------------------------------------------------------------------
Management equity - Common Stock 27,483 15.9%
---------- -----
Total Sources of Funds $ 172,483 100.0%
========== =====
</TABLE>
PROPOSED OFFER PRICE
------------------------
$20.50
FIVE YEAR IRR @ 6.5X EBITDA
<TABLE>
<CAPTION>
Ownership % Return
----------- ------
<S> <C> <C>
Preferred Stock 15% 25.0%
Management equity, - Common Stock 85% 40.1%
</TABLE>
TRANSACTION SUMMARY STATISTICS
Transaction value
<TABLE>
<CAPTION>
Fiscal Year End Aug: 1998
----------
<S> <C>
Transaction value/EBIT 9.64x
Transaction value/EBITDA 6.64x
Transaction value/Sales .89x
</TABLE>
GOODWILL CALCULATION
<TABLE>
<S> <C>
Purchase price of equity $ 108,785
Plus: Transaction fees 0
Less: Book value acquired 59,355
Less: Assumed asset write-up
Less: Deferred income taxes 0
----------
Book goodwill $ 49,430 (a)
==========
</TABLE>
(a) Based on 5,306,572 shares outstanding as of 1/6/98.
(b) Transaction fees are amortized separately and therefore are excluded from
book goodwill.
<PAGE> 35
J.C. Bradford & Co.
AUSTIN--LEVERAGED BUYOUT ANALYSIS--MAXIMIZED PRICE
ASSUMPTIONS SUMMARY, KEY RATIOS AND AMORTIZATION SCHEDULE
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
Transaction Assumptions
$ 172,483 Transaction value
PROJECTED FISCAL YEAR ENDED AUG.
PROFORMA ----------------------------------------------------------------------------
1998 (1) 1999 2000 2001 2002 2003
--------- --------- -------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Key Ratios:
EBIT / interest expense 1.5 x 1.8 x 2.2 x 2.7 x 3.5 x 4.7 x
(EBIT - cap ex) / interest expense 1.5 x 1.4 x 1.8 x 2.3 x 3.0 x 4.2 x
EBITDA / interest expense 2.2 x 2.5 x 3.0 x 3.6 x 4.5 x 6.0 x
(EBITDA - cap ex) / interest expense 2.2 x 2.2 x 2.6 x 3.2 x 4.0 x 5.4 x
(EBITDA - change in working cap-cap ex) /
interest expense 1.9 x 2.3 x 2.9 x 3.6 x 4.9 x
Senior debt / EBITDA 3.8 x 3.3 x 2.7 x 2.2 x 1.7 x 1.2 x
Total debt / EBITDA 4.8 x 4.1 x 3.5 x 2.9 x 2.3 x 1.8 x
Capitalization:
Senior debt $ 100,000 58% $ 90,677 54% $ 82,364 49% $ 71,704 43% $ 59,036 35% $ 43,104 26%
Other debt 25,000 14% 25,000 15% 25,000 15% 25,000 15% 25,000 15% 25,000 15%
--------- --------- --------- -------- --------- ---------
Total debt 125,000 72% 115,677 69% 107,364 64% 96,704 58% 84,036 50% 68,104 41%
Equity 47,483 28% 52,730 31% 60,217 36% 70,185 42% 82,712 50% 98,443 59%
--------- --------- --------- -------- --------- ---------
Total capitalization $ 172,483 100% $ 168,407 100% $ 167,582 100% $166,888 100% $ 166,748 100 % $ 166,547 100%
Amortization:
Senior sub-debt retired annually 14,286 14,286 14,286 14,286 14,286
Senior term loan retired annually - - - - -
Sub-debt retired annually - - - - -
Other notes retired annually - - - - -
Goodwill amortization over 15 years $ 4,186 $ 4,186 $ 4,186 $ 4,186 $ 4,186
Fee amortization over 10 years $ 600 $ 600 $ 600 $ 600 $ 600
</TABLE>
(1) Adjusted to show historical operating results with proforma
interest expense and proforma capitalization.
<PAGE> 36
J.C. Bradford & Co.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS--MAXIMIZED PRICE
PROJECTED INCOME STATEMENTS
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
HISTORICAL ESTIMATED PROJECTED FISCAL YEAR ENDED AUG.
------------ ----------- --------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
------------ ----------- -------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES $175,835 $193,391 $207,846 $223,500 $239,900 $257,562 $ 276,160
% growth 10.0% 7.5% 7.5% 7.3% 7.4% 7.2%
Cost of sales $125,732 $138,952 $149,319 $160,546 $172,085 $184,850 $ 197,826
% of revenue 71.5% 71.9% 71.8% 71.8% 71.7% 71.8% 71.6%
-------- -------- -------- -------- -------- -------- ---------
Gross profit $ 50,103 $ 54,439 $ 58,527 $ 62,954 $ 67,815 $ 72,712 $ 78,334
gross margin 28.5% 28.1% 28.2% 28.2% 28.3% 28.2% 28.4%
General and administrative $ 8,855 $ 10,513 $10,477 $ 11,003 $ 11,549 $ 12,116 $ 12,661
% of revenue 5.0% 5.4% 5.0% 4.9% 4.8% 4.7% 4.6%
Sales and marketing 18,119 17,951 18,732 19,783 20,900 22,088 23,163
% of revenue 10.3% 9.3% 9.0% 8.9% 8.7% 8.6% 8.4%
Restructuring and unusual
charges 1,816 - - - - - -
% of revenue 1.0%
Other operating expenses - - - - - - -
% of revenue
-------- -------- -------- -------- -------- -------- ---------
Total operating expenses $ 28,790 $ 28,464 $ 29,209 $ 30,786 $ 32,449 $ 34,204 $ 35,824
% of revenue 16.4% 14.7% 14.1% 13.8% 13.5% 13.3% 13.0%
EBITDA $ 21,313 $ 25,975 $ 29,318 $ 32,168 $ 35,366 $ 38,508 $ 42,510
% of revenue 12.1% 13.4% 14.1% 14.4% 14.7% 15.0% 15.4%
Depreciation $ 4,270 $ 3,960 $ 3,934 $ 3,935 $ 3,936 $ 3,937 $ 3,938
Goodwill amortization 3,885 4,121 4,186 4,186 4,186 4,186 4,186
Transaction fee amortization - - 600 600 600 600 600
-------- -------- -------- -------- -------- -------- ---------
Total depreciation &
amortization $ 8,155 $ 8,081 $ 8,720 $ 8,721 $ 8,722 $ 8,723 $ 8,724
% of revenue 4.6% 4.2% 4.2% 3.9% 3.6% 3.4% 3.2%
-------- -------- -------- -------- -------- -------- ---------
EBIT $ 13,158 $ 17,894 $ 20,598 $ 23,447 $ 26,644 $ 29,785 $ 33,786
% of revenue 7.5% 9.3% 9.9% 10.5% 11.1% 11.6% 12.2%
Capital expenditures $ 3,834 $ 3,935 $ 3,936 $ 3,937 $ 3,938
% of revenue 1.8% 1.8% 1.6% 1.5% 1.4%
</TABLE>
<PAGE> 37
J.C. Bradford & Co.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS--MAXIMIZED PRICE
PROJECTED INCOME STATEMENTS
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
HISTORICAL ESTIMATED PROJECTED FISCAL YEAR ENDED AUG.
----------------------- -----------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
----------- ---------- --------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
EBIT $13,158 $17,894 $20,598 $23,447 $26,644 $29,785 $33,786
Interest expense:
Revolver -- -- 218 700 1,122 1,353 1,351
Senior sub-debt -- -- 9,286 7,857 6,429 5,000 3,571
Sub-debt -- -- -- -- -- -- --
Cap. lease oblg. -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total interest expense 3,002 4,200 11,704 10,757 9,750 8,553 7,123
Home office expense -- -- -- -- -- -- --
Discontinued operations expenses 4,820 -- -- -- -- -- --
Extraordinary loss from debt
extinguishment 241 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Other expenses (income) 8,063 --
Minority interest -- -- -- -- -- -- --
Pre-tax income 5,095 13,694 8,894 12,690 16,894 21,232 26,663
Provision (benefit) for income taxes 4,091 5,615 3,647 5,203 6,926 8,705 10,932
------- ------- ------- ------- ------- ------- -------
Net income $ 1,004 $ 8,079 $ 5,247 $ 7,487 $ 9,967 $12,527 $15,731
======= ======= ======= ======= ======= ======= =======
Preferred dividends -- -- 2,400 2,688 3,011 3,372 3,776
------- ------- ------- ------- ------- ------- -------
Net income to common $ 1,004 $ 8,079 $ 2,847 $ 4,799 $ 6,957 $ 9,155 $11,955
------- ------- ------- ------- ------- ------- -------
</TABLE>
<PAGE> 38
J.C. Bradford & Co.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS--MAXIMIZED PRICE
PROJECTED BALANCE SHEETS
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUG.
ESTIMATED PROFORMA ------------------------------------
AUG. 1998 ADJUSTMENTS AUG. 1998 1999 2000
------------ ------------------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents $ 1,000 $ 0 $ 3,000 $ 4,000 $ 1,000 $ 1,000
Short-term investments -- -- -- -- -- --
Accounts receivable 26,336 26,336 28,032 29,931 31,910 34,051
Inventories 34,821 34,821 37,064 39,574 42,191 45,021
Income taxes receivable 598 -- -- 598 636 679
Other receivables 773 -- -- 773 823 879
Prepaid expenses and other
current assets 2,672 -- -- 2,672 2,845 3,037
--------- --------- --------- --------- --------- ---------
Total current assets 66,200 3,000 69,200 70,400 75,100 80,000
Land 478 -- 478 478 478 478
Gross plant and equip. 37,971 37,971 41,805 45,740 49,676 53,613
Accumulated depreciation (16,849) -- -- (16,849) (20,783) (24,718)
--------- --------- --------- --------- --------- ---------
Net P,P&E 21,600 21,600 21,500 21,500 21,500 21,500
Goodwill, net of accumulated
amortization 34,888 49,430 84,318 80,132 75,946 71,760
Transaction fee & expenses -- 6,000 6,000 5,400 4,800 4,200
Other intangible assets 8,165 -- 8,165 8,775 9,436 10,129
Deferred income taxes and
other assets 4,200 -- -- 4,200 4,200 4,200
--------- --------- --------- --------- --------- ---------
Total assets $ 135,053 $ 0 $ 58,430 $ 193,483 $ 190,407 $ 190,982
========= ========= ========= ========= ========= =========
LIABILITIES & EQUITY
Current maturities & short-term debt $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Trade accounts payable 10,442 -- -- 10,442 11,050 11,753
Accrued liabilities 10,347 10,347 10,950 11,647 12,394 13,090
Current portion of lease obligation 211 211 -- -- -- --
--------- --------- --------- --------- --------- ---------
Total current liabilities 21,000 -- -- 21,000 22,000 23,400
Long term debt
Revolver 2,098 (2,098) -- -- 4,963 10,936
Senior sub-debt 39,600 (39,600) 100,000 100,000 85,714 71,429
Senior term loan 13,000 (13,000) 25,000 25,000 25,000 25,000
Sub-debt -- -- -- -- -- --
Other notes -- -- -- -- -- --
Cap. lease oblg. -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total debt 54,698 (54,698) 125,000 125,000 115,677 107,364
Less current portion -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total long-term debt 54,698 (54,698) 125,000 125,000 115,677 107,364
Total liabilities 75,698 (54,698) 125,000 146,000 137,677 130,764
Preferred stock -- -- 20,000 20,000 22,400 25,088
Common stock 22,858 (22,858) 27,483 27,483 27,483 27,483
Unrealized gain (loss) on
marketable securities 21,949 (21,949) -- -- -- --
Retained earnings 14,548 (14,548) -- 2,847 7,647 14,603
--------- --------- --------- --------- --------- ---------
Total stockholders' equity 59,355 (59,355) 47,483 47,483 52,730 60,217
--------- --------- --------- --------- --------- ---------
Total liabilities & equity $ 135,053 ($114,053) $ 172,483 $ 193,483 $ 190,407 $ 190,982
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUG.
------------------------------------------
2001 2002 2003
--------- ---------- -----------
<S> <C> <C> <C>
ASSETS
Cash and equivalents $ 1,000 $ 1,000 $ 1,000
Short-term investments -- -- --
Accounts receivable 36,232
Inventories 47,905
Income taxes receivable 724 773 822
Other receivables 937 1,000 1,064
Prepaid expenses and other
current assets 3,238 3,455 3,677
--------- --------- ---------
Total current assets 80,000 85,300 90,700
Land 478 478 478
Gross plant and equip. 57,551
Accumulated depreciation (28,654) (32,591) (36,529)
--------- --------- ---------
Net P,P&E 21,500 21,500 21,500
Goodwill, net of accumulated
amortization 71,760 67,574 63,388
Transaction fee & expenses 4,200 3,600 3,000
Other intangible assets 10,129 10,874 11,660
Deferred income taxes and
other assets 4,200 4,200 4,200
--------- --------- ---------
Total assets $ 191,788 $ 193,048 $ 194,447
========= ========= =========
LIABILITIES & EQUITY
Current maturities & short-term debt $ 0 $ 0 $ 0
Trade accounts payable 12,506 13,210 14,013
Accrued liabilities 13,887
Current portion of lease obligation --
--------- --------- ---------
Total current liabilities 24,900 26,300 27,900
Long term debt
Revolver 14,561 16,179 14,533
Senior sub-debt 57,143 42,857 28,571
Senior term loan 25,000 25,000 25,000
Sub-debt -- -- --
Other notes -- -- --
Cap. lease oblg. -- -- --
--------- --------- ---------
Total debt 96,704 84,036 68,104
Less current portion -- --
--------- --------- ---------
Total long-term debt 96,704 84,036 68,104
Total liabilities 121,604 110,336 96,004
Preferred stock 28,099 31,470 35,247
Common stock 27,483 27,483 27,483
Unrealized gain (loss) on
marketable securities -- -- --
Retained earnings 14,603 23,759 35,714
--------- --------- ---------
Total stockholders' equity 70,185 82,712 98,443
--------- --------- ---------
Total liabilities & equity $ 191,788 $ 193,048 $ 194,447
========= ========= =========
</TABLE>
J.C. Bradford & Co.
<PAGE> 39
J.C. BRADFORD & CO.
AUSTIN--LEVERAGED BUYOUT ANALYSIS--MAXIMIZED PRICE
CASH FLOW
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUG.
------------------------------------------------------------------------
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Income $ 5,247 $ 7,487 $ 9,967 $ 12,527 $ 15,731
Add: Depreciation & amortization 3,934 3,935 3,936 3,937 3,938
Add: Goodwill amortization 4,186 4,186 4,186 4,186 4,186
Add: Fee amortization 600 600 600 600 600
Add: Minority interest -- -- -- -- --
Add: PIK Dividend 2,400 2,688 3,011 3,372 3,776
Add: Dividend (2,400) (2,688) (3,011) (3,372) (3,776)
-------- -------- -------- -------- --------
Total Sources $ 13,967 $ 16,208 $ 18,689 $ 21,250 $ 24,455
Less: Changes in other long-term assets & liabilities (610) (661) (692) (746) (785)
Less: Change in working capital (3,200) (3,300) (3,400) (3,900) (3,800)
Less: Capital expenditures (Net of dispos.) (3,834) (3,935) (3,936) (3,937) (3,938)
-------- -------- -------- -------- --------
Total Uses ($ 7,644) ($ 7,896) ($ 8,028) ($ 8,583) ($ 8,523)
-------- -------- -------- -------- --------
TOTAL FREE CASH FLOW BEFORE FINANCING $ 6,323 $ 8,312 $ 10,661 $ 12,667 $ 15,932
REPAYMENT/BORROWING OF DEBT
Revolver 4,963 5,973 3,625 1,618 (1,646)
Senior sub-debt (14,286) (14,286) (14,286) (14,286) (14,286)
Senior term loan -- -- -- -- --
Sub-debt -- -- -- -- --
Other notes -- -- -- -- --
Cap. lease oblg. -- -- -- -- --
-------- -------- -------- -------- --------
Total Debt (Repayments)/ Borrowing ($ 9,323) ($ 8,312) ($10,661) ($12,667) ($15,932)
CHANGE IN CASH BALANCE ($ 3,000) $ 0 $ 0 $ 0 $ 0
</TABLE>
<PAGE> 40
J.C. BRADFORD & CO.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS--MAXIMIZED PRICE
Working Capital Assumptions
- --------------------------------------------------------------------------------
($'s in 000s)
<TABLE>
<CAPTION>
ESTIMATED PROFORMA PROJECTED FISCAL YEAR ENDED AUG.
----------------- AUG. -----------------------------------------------
1997 1998 ADJUSTMENTS 1998 1999 2000 2001 2002 2003
------- ------- ---- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accounts receivable $24,282 $26,336 -- -- $26,336 $28,032 $29,931 $31,910 $34,051 $36,232
% of sales 13.8% 13.6% -- -- 13.6% 13.5% 13.4% 13.3% 13.2% 13.1%
Inventories $32,105 $34,821 -- -- 34,821 $37,064 $39,574 $42,191 $45,021 $47,905
% of sales 18.3% 18.0% -- -- 18.0% 17.8% 17.7% 17.6% 17.5% 17.3%
Income taxes receivable $ 551 $ 598 -- -- $ 598 $ 636 $ 679 $ 724 $ 773 $ 822
% of sales 0.3% 0.3% -- -- 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%
Other receivables $ 713 $ 773 -- -- $ 773 $ 823 $ 879 $ 937 $ 1,000 $ 1,064
% of sales 0.4% 0.4% -- -- 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%
Prepaid expenses and other current assets $ 2,464 $ 2,672 -- -- $ 2,672 $ 2,845 $ 3,037 $ 3,238 $ 3,455 $ 3,677
% of sales 1.4% 1.4% -- -- 1.4% 1.4% 1.4% 1.3% 1.3% 1.3%
------- ------- ---- ---- ------- ------- ------- ------- ------- -------
TOTAL CURRENT ASSETS, EXCLUDING CASH $65,200 -- -- $65,200 $69,400 $74,100 $79,000 $84,300 $89,700
% of sales 0.0% 33.7% -- -- 33.7% 33.4% 33.2% 32.9% 32.7% 32.5%
Trade accounts payable $11,299 $10,442 -- -- $10,442 $11,050 $11,753 $12,506 $13,210 $14,013
% of sales 6.4% 5.4% -- -- 5.4% 5.3% 5.3% 5.2% 5.1% 5.1%
Accrued liabilities $11,197 $10,347 -- -- $10,347 $10,950 $11,647 $12,394 $13,090 $13,887
% of sales 6.4% 5.4% -- -- 5.4% 5.3% 5.2% 5.2% 5.1% 5.0%
Current portion of lease obligation $ 481 $ 211 -- -- $ 211 $ 0 $ 0 $ 0 $ 0 $ 0
% of sales 0.3% 0.1% -- -- 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%
------- ------- ---- ---- ------- ------- ------- ------- ------- -------
TOTAL CURRENT LIABILITIES
EXCLUDING S-T DEBT $21,000 -- -- $21,000 $22,000 $23,400 $24,900 $26,300 $27,900
% of sales 0.0% 10.9% 10.9% 10.6% 10.5% 10.4% 10.2% 10.1%
Net non-cash working capital $44,200 $44,200 $47,400 $50,700 $54,100 $58,000 $61,800
% of sales 0.0% 22.9% 22.9% 22.8% 22.7% 22.6% 22.5% 22.4%
Change in non-cash working capital $ 3,200 $ 3,300 $ 3,400 $ 3,900 $ 3,800
</TABLE>
<PAGE> 41
J.C. BRADFORD & CO.
AUSTIN--LEVERAGED BUYOUT ANALYSIS--MAXIMIZED PRICE
RETURNS ANALYSIS
- --------------------------------------------------------------------------------
($0s in 000s)
<TABLE>
<CAPTION>
PROJECTED RETURNS ON MANAGEMENT EQUITY
--------------------------------------
YEAR ENDING AUG.
----------------------------------------------------------------------
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
TOTAL CAPITALIZATION AS A
MULTIPLE OF EBITDA
5.0 x $ 146,590 $ 160,840 $ 176,830 $ 192,540 $ 212,550
5.5 x 161,249 176,924 194,513 211,794 233,805
6.0 x 175,908 193,008 212,196 231,048 255,060
6.5 x 190,567 209,092 229,879 250,302 276,315
LESS: TOTAL DEBT (NET OF CASH)(1) 137,077 131,452 123,802 114,507 102,351
VALUE OF EQUITY
5.0 x $ 9,513 $ 29,388 $ 53,028 $ 78,033 $ 110,199
5.5 x 24,172 45,472 70,711 97,287 131,454
6.0 x 38,831 61,556 88,394 116,541 152,709
6.5 x 53,490 77,640 106,077 135,795 173,964
RETURNS ANALYSIS
27,483
OWNERSHIP PERCENTAGE 85.2% 85.2% 85.2% 85.2% 85.2%
IRR ASSUMING EBITDA
MULTIPLES OF :
5.0 x NM (4.6%) 18.0% 24.7% 27.9%
5.5 x (25.1%) 18.7% 29.9% 31.8% 32.4%
7.0 x 6.0 x 20.4% 38.1% 39.9% 37.9% 36.5%
6.5 x 65.8% 55.1% 48.7% 43.2% 40.1%
</TABLE>
(1) Includes the repayment of preferred stock.
<PAGE> 42
J.C. BRADFORD & CO.
AUSTIN--LEVERAGED BUYOUT ANALYSIS--MAXIMIZED PRICE
RETURNS ANALYSIS
- --------------------------------------------------------------------------------
($0s in 000s)
<TABLE>
<CAPTION>
PROJECTED RETURNS ON PREFERRED EQUITY
--------------------------------------
YEAR ENDING AUG.
----------------------------------------------------------------------
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
TOTAL CAPITALIZATION AS A
MULTIPLE OF EBITDA
5.0 x $ 146,590 $ 160,840 $ 176,830 $ 192,540 $ 212,550
5.5 x 161,249 176,924 194,513 211,794 233,805
6.0 x 175,908 193,008 212,196 231,048 255,060
6.5 x 190,567 209,092 229,879 250,302 276,315
LESS: TOTAL DEBT (NET OF CASH)(1) 137,077 131,452 123,802 114,507 102,351
VALUE OF EQUITY
5.0 x $ 9,513 $ 29,388 $ 53,028 $ 78,033 $ 110,199
5.5 x 24,172 45,472 70,711 97,287 131,454
6.0 x 38,831 61,556 88,394 116,541 152,709
6.5 x 53,490 77,640 106,077 135,795 173,964
RETURNS ANALYSIS Balance at Year End:(2)
----------------------------------------------------------------------
20,000 22,400 25,088 28,099 31,470 35,247
OWNERSHIP PERCENTAGE 14.8% 14.8% 14.8% 14.8% 14.8%
IRR ASSUMING EBITDA
MULTIPLES OF:
5.0 x 19.0% 21.3% 21.6% 21.1% 20.9%
5.5 x 29.9% 26.1% 24.5% 23.1% 22.3%
6.0 x 40.7% 30.8% 27.2% 24.9% 23.7%
6.5 x 51.6% 35.2% 29.9% 26.7% 25.0%
</TABLE>
(1)Includes the repayment of preferred stock.
(2)Includes PIK Dividends
<PAGE> 43
J.C. BRADFORD & Co.
AUSTIN--LEVERAGED BUYOUT ANALYSIS
TRANSACTION SUMMARY
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
PROPOSED OFFER PRICE
% OF ------------------------
USES OF FUNDS: AMOUNT CAPITAL $19.50
- -------------------- ---------- ---------
<S> <C> <C>
Offer for equity (to cash out owner) $ 103,063 61.8%
Debt to be refinanced 54,698 32.8%
Cash 3,000 1.8%
Transaction fees & expenses 6,000 3.6%
---------- ------
Total Uses of Funds $ 166,761 100.0%
========== ======
</TABLE>
<TABLE>
<CAPTION>
INTEREST % OF FIVE YEAR IRR @ 6.5x EBITDA
SOURCES OF FUNDS: RATE AMOUNT CAPITAL OWNERSHIP % RETURN
- -------------------- ---- ---------- --------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Revolver 8.80% $ 0 0% Preferred Stock 15% 25.0%
Senior sub-debt 10.00% 100,000 60.0% Management equity - Common Stock 85% 46.8%
Senior term loan 8.80% 25,000 15.0%
Preferred Stock 12.00% 20,000 12.0%
Management equity - Common Stock 21,761 13.0%
---------- ------
Total Sources of Funds $ 166,761 100.0%
========== ======
</TABLE>
<TABLE>
<CAPTION>
TRANSACTION SUMMARY STATISTICS GOODWILL CALCULATION
- -------------------------------------------- ------------------------------------
<S> <C> <C> <C>
Purchase price of equity $ 103,063
Transaction value Plus: Transaction fees 0
Less: Book value acquired 59,355
Fiscal Year End Aug.: 1998 Less: Assumed asset write-up
- --------------------- ---- Less: Deferred income taxes 0
Transaction value/EBIT 9.32x ----------
Transaction value/EBITDA 6.42x Book goodwill $ 43,708(a)
Transaction value/Sales .86x ==========
</TABLE>
- ------------------------------
(a) Based on 5,285,306 shares outstanding as of 1/6/98.
(b) Transaction fees are amortized separately and therefore are excluded
from book goodwill.
<PAGE> 44
J.C. Bradford & Co.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS
ASSUMPTIONS SUMMARY, KEY RATIOS AND AMORTIZATION
SCHEDULE
- --------------------------------------------------------------------------------
($s in 000s)
Transaction Assumptions
$ 166,761 Transaction value
<TABLE>
<CAPTION>
PROFORMA PROJECTED FISCAL YEAR ENDED AUG.
1998 (1) 1999 2000 2001
--------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Key Ratios:
EBIT / interest expense 1.5x 1.8x 2.2x 2.7x
(EBIT - cap ex)/interest expense 1.5x 1.4x 1.8x 2.3x
EBITDA / interest expense 2.2x 2.5x 3.0x 3.6x
(EBITDA - cap ex) / interest expense 2.2x 2.2x 2.6x 3.2x
(EBITDA - change in working
cap-cap ex)/interest expense 1.9x 2.3x 2.9x
Senior debt/ EBITDA 3.8x 3.3x 2.7x 2.2x
Total debt/ EBITDA 4.8x 4.1x 3.5x 2.9x
Capitalization:
Senior debt $ 100,000 60% $ 90,677 56% $ 82,364 51% $ 71,704 44%
Other debt 25,000 15% 25,000 15% 25,000 15% 25,000 16%
--------- --- --------- --- --------- --- --------- ---
Total debt 125,000 75% 115,677 71% 107,364 66% 96,704 60%
Equity 41,761 25% 47,009 29% 54,496 34% 64,463 40%
--------- --- --------- --- --------- --- --------- ---
Total capitalization $ 166,761 100% $ 162,686 100% $ 161,861 100% $ 161,167 100%
Amortization:
Senior sub-debt retired annually 14,286 14,286 14,286
Senior term loan retired annually -- -- --
Sub-debt retired annually -- -- --
Other notes retired annually -- -- --
Goodwill amortization over 15 years $ 4,186 $ 4,186 $ 4,186
Fee amortization over 10 years $ 600 $ 600 $ 600
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUG.
--------------------------------
2002 2003
--------- ---------
<S> <C> <C> <C> <C>
Key Ratios:
EBIT / interest expense 3.5x 4.7x
(EBIT - cap ex)/interest expense 3.0x 4.2x
EBITDA / interest expense 4.5x 6.0x
(EBITDA - cap ex) / interest expense 4.0x 5.4x
(EBITDA - change in working cap-cap ex)/interest expense 3.6x 4.9x
Senior debt/ EBITDA 1.7x 1.2x
Total debt/ EBITDA 2.3x 1.8x
Capitalization:
Senior debt $ 59,036 37% $ 43,104 27%
Other debt 25,000 16% 25,000 16%
--------- --- --------- ---
Total debt 84,036 52% 68,104 42%
Equity 76,991 48%, 92,722 58%
--------- --- --------- ---
Total capitalization $ 161,027 100% $ 160,826 100%
Amortization:
Senior sub-debt retired annually 14,286 14,286
Senior term loan retired annually -- --
Sub-debt retired annually -- --
Other notes retired annually -- --
Goodwill amortization over 15 years $ 4,186 $ 4,186
Fee amortization over 10 years $ 600 $ 600
</TABLE>
(1) Adjusted to show historical operating results with proforma interest
expense and proforma capitalization.
<PAGE> 45
<TABLE>
<CAPTION>
J.C. BRADFORD & CO.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS
PROJECTED INCOME STATEMENTS
- ----------------------------------------------------------------------------------------------------------------------------------
($s in 000s)
HISTORICAL ESTIMATED PROJECTED FISCAL YEAR ENDED AUG.
------------------------ ----------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
--------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $175,835 $193,391 $207,846 $223,500 $239,900 $257,562 $276,160
% growth 10.0% 7.5% 7.5% 7.3% 7.4% 7.2%
Cost of sales $125,732 $138,952 $149,319 $160,546 $172,085 $184,850 $197,826
% of revenue 71.5% 71.9% 71.8% 71.8% 71.7% 71.8% 71.6%
-------- -------- -------- -------- -------- -------- --------
Gross profit $ 50,103 $ 54,439 $ 58,527 $ 62,954 $ 67,815 $ 72,712 $ 78,334
gross margin 28.5% 28.1% 28.2% 28.2% 28.3% 28.2% 28.4%
General and administrative $ 8,855 $ 10,513 $ 10,477 $ 11,003 $ 11,549 $ 12,116 $ 12,661
% of revenue 5.0% 5.4% 5.0% 4.9% 4.8% 4.7% 4.6%
Sales and marketing 18,119 17,951 18,732 19,783 20,900 22,088 23,163
% of revenue 10.3% 9.3% 9.0% 8.9% 8.7% 8.6% 8.4%
Restructuring and unusual charges 1,816 -- -- -- -- -- --
% of revenue 1.0%
Other operating expenses -- -- -- -- -- -- --
% of revenue
-------- -------- -------- -------- -------- -------- --------
Total operating expenses $ 28,790 $ 28,464 $ 29,209 $ 30,786 $ 32,449 $ 34,204 $ 35,824
% of revenue 16.4% 14.7% 14.1% 13.8% 13.5% 13.3% 13.0%
EBITDA $ 21,313 $ 25,975 $ 29,318 $ 32,168 $ 35,366 $ 38,508 $ 42,510
% of revenue 12.1% 13.4% 14.1% 14.4% 14.7% 15.0% 15.4%
Depreciation $ 4,270 $ 3,960 $ 3,934 $ 3,935 $ 3,936 $ 3,937 $ 3,938
Goodwill amortization 3,885 4,121 4,186 4,186 4,186 4,186 4,186
Transaction fee amortization -- -- 600 600 600 600 600
-------- -------- -------- -------- -------- -------- --------
Total depreciation & amortization $ 8,155 $ 8,081 $ 8,720 $ 8,721 $ 8,722 $ 8,723 $ 8,724
% of revenue 4.6% 4.2% 4.2% 3.9% 3.6% 3.4% 3.2%
-------- -------- -------- -------- -------- -------- --------
EBIT $ 13,158 $ 17,894 $ 20,598 $ 23,447 $ 26,644 $ 29,785 $ 33,786
% of revenue 7.5% 9.3% 9.9% 10.5% 11.1% 11.6% 12.2%
Capital expenditures $ 3,834 $ 3,935 $ 3,936 $ 3,937 $ 3,938
% of revenue 1.8% 1.8% 1.6% 1.5% 1.4%
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
J.C. BRADFORD & CO.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS
PROJECTED INCOME STATEMENTS
- ----------------------------------------------------------------------------------------------------------------------------------
($s in 000s)
HISTORICAL ESTIMATED PROJECTED FISCAL YEAR ENDED AUG.
------------------------ ------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
--------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
EBIT $ 13,158 $ 17,894 $ 20,598 $ 23,447 $ 26,644 $ 29,785 $ 33,786
Interest expense:
Revolver -- -- 218 700 1,122 1,353 1,351
Senior sub-debt -- -- 9,286 7,857 6,429 5,000 3,571
Sub-debt -- -- -- -- -- -- --
Cap. lease oblg. -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total interest expense 3,002 4,200 11,704 10,757 9,750 8,553 7,123
Home office expense -- -- -- -- -- -- --
Discontinued operations expenses 4,820 -- -- -- -- -- --
Extraordinary loss from debt extinguishment 241 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Other expenses (income) 8,063 --
Minority interest -- -- -- -- -- -- --
Pre-tax income 5,095 13,694 8,894 12,690 16,894 21,232 26,663
Provision (benefit) for income taxes 4,091 5,615 3,647 5,203 6,926 8,705 10,932
-------- -------- -------- -------- -------- -------- --------
Net income $ 1,004 $ 8,079 $ 5,247 $ 7,487 $ 9,967 $ 12,527 $ 15,731
======== ======== ======== ======== ======== ======== ========
Preferred dividends -- -- 2,400 2,688 3,011 3,372 3,776
-------- -------- -------- -------- -------- -------- --------
Net income to common $ 1,004 $ 8,079 $ 2,847 $ 4,799 $ 6,957 $ 9,155 $ 11,955
-------- -------- -------- -------- -------- -------- --------
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
J.C. BRADFORD & CO.
AUSTIN--LEVERAGED BUYOUT ANALYSIS
PROJECTED BALANCE SHEETS
- ----------------------------------------------------------------------------------------
($s in 000s)
ESTIMATED PROFORMA
AUG. 1998 ADJUSTMENTS AUG. 1998
--------- ----------------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents $ 1,000 $ 0 $ 3,000 $ 4,000
Short-term investments -- -- -- --
Accounts receivable 26,336 -- -- 26,336
Inventories 34,821 -- -- 34,821
Income taxes receivable 598 -- -- 598
Other receivables 773 -- -- 773
Prepaid expenses and other
current assets 2,672 -- -- 2,672
--------- --------- -------- ---------
Total current assets 66,200 -- 3,000 69,200
Land 478 -- -- 478
Gross plant and equip. 37,971 -- -- 37,971
Accumulated depreciation (16,849) -- -- (16,849)
--------- --------- -------- ---------
Net P,P&E 21,600 -- -- 21,600
Goodwill, net of accumulated
amortization 34,888 -- 43,708 78,596
Transaction fee & expenses -- -- 6,000 6,000
Other intangible assets 8,165 -- -- 8,165
Deferred income taxes and
other assets 4,200 -- -- 4,200
--------- --------- -------- ---------
Total assets $ 135,053 $ 0 $ 52,708 $ 187,761
========= ========= ======== =========
LIABILITIES & EQUITY
Current maturities &
short-term debt $ 0 $ 0 $ 0 $ 0
Trade accounts payable 10,442 -- -- 10,442
Accrued liabilities 10,347 -- -- 10,347
Current portion of lease
obligation 211 -- -- 211
--------- --------- -------- ---------
Total current liabilities 21,000 -- -- 21,000
Long term debt
Revolver 2,098 (2,098) -- --
Senior sub-debt 39,600 (39,600) 100,000 100,000
Senior term loan 13,000 (13,000) 25,000 25,000
Sub-debt -- -- -- --
Other notes -- -- -- --
Cap. lease oblg. -- -- -- --
--------- --------- -------- ---------
Total debt 54,698 (54,698) 125,000 125,000
Less current portion -- -- -- --
--------- --------- -------- ---------
Total long-term debt 54,698 (54,698) 125,000 125,000
--------- --------- -------- ---------
Total liabilities 75,698 (54,698) 125,000 146,000
Preferred stock -- -- 20,000 20,000
Common stock 22,858 (22,858) 21,761 21,761
Unrealized gain (loss) on
marketable securities 21,949 (21,949) -- --
Retained earnings 14,548 (14,548) -- --
--------- --------- -------- ---------
Total stockholders' equity 59,355 (59,355) 41,761 41,761
--------- --------- -------- ---------
Total liabilities & equity 135,053 ($114,053) $166,761 $ 187,761
========= ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
J.C. BRADFORD & CO.
AUSTIN--LEVERAGED BUYOUT ANALYSIS
PROJECTED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------
($s in 000s)
PROJECTED FISCAL YEAR ENDED AUG.
---------------------------------------------------------------------
1999 2000 2001 2002 2003
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Short-term investments -- -- -- -- --
Accounts receivable 28,032 29,931 31,910 34,051 36,232
Inventories 37,064 39,574 42,191 45,021 47,905
Income taxes receivable 636 679 724 773 822
Other receivables 823 879 937 1,000 1,064
Prepaid expenses and other
current assets 2,845 3,037 3,238 3,455 3,677
--------- --------- --------- --------- ---------
Total current assets 70,400 75,100 80,000 85,300 90,700
Land 478 478 478 478 478
Gross plant and equip. 41,805 45,740 49,676 53,613 57,551
Accumulated depreciation (20,783) (24,718) (28,654) (32,591) (36,529)
--------- --------- --------- --------- ---------
Net P,P&E 21,500 21,500 21,500 21,500 21,500
Goodwill, net of accumulated
amortization 74,410 70,224 66,038 61,852 57,666
Transaction fee & expenses 5,400 4,800 4,200 3,600 3,000
Other intangible assets 8,775 9,436 10,129 10,874 11,660
Deferred income taxes and
other assets 4,200 4,200 4,200 4,200 4,200
--------- --------- --------- --------- ---------
Total assets $ 184,686 $ 185,261 $ 186,067 $ 187,327 $ 188,726
========= ========= ========= ========= =========
LIABILITIES & EQUITY
Current maturities &
short-term debt $ 0 $ 0 $ 0 $ 0 $ 0
Trade accounts payable 11,050 11,753 12,506 13,210 14,013
Accrued liabilities 10,950 11,647 12,394 13,090 13,887
Current portion of lease
obligation -- -- -- -- --
--------- --------- --------- --------- ---------
Total current liabilities 22,000 23,400 24,900 26,300 27,900
Long term debt
Revolver 4,963 10,936 14,561 16,179 14,533
Senior sub-debt 85,714 71,429 57,143 42,857 28,571
Senior term loan 25,000 25,000 25,000 25,000 25,000
Sub-debt -- -- -- -- --
Other notes -- -- -- -- --
Cap. lease oblg. -- -- -- -- --
--------- --------- --------- --------- ---------
Total debt 115,677 107,364 96,704 84,036 68,104
Less current portion -- -- -- -- --
--------- --------- --------- --------- ---------
Total long-term debt 115,677 107,364 96,704 84,036 68,104
--------- --------- --------- --------- ---------
Total liabilities 137,677 130,764 121,604 110,336 96,004
Preferred stock 22,400 25,088 28,099 31,470 35,247
Common stock 21,761 21,761 21,761 21,761 21,761
Unrealized gain (loss) on
marketable securities -- -- -- -- --
Retained earnings 2,847 7,647 14,603 23,759 35,714
--------- --------- --------- --------- ---------
Total stockholders' equity 47,009 54,496 64,463 76,991 92,722
--------- --------- --------- --------- ---------
Total liabilities & equity $ 184,686 $ 185,261 $ 186,067 $ 187,327 $ 188,726
========= ========= ========= ========= =========
</TABLE>
<PAGE> 48
J.C. BRADFORD & CO.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS
CASH FLOW
- --------------------------------------------------------------------------------
($s in 000s)
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUG.
-----------------------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Income $ 5,247 $ 7,487 $ 9,967 $ 12,527 $ 15,731
Add: Depreciation & amortization 3,934 3,935 3,936 3,937 3,938
Add: Goodwill amortization 4,186 4,186 4,186 4,186 4,186
Add: Fee amortization 600 600 600 600 600
Add: Minority interest -- -- -- -- --
Add: PIK Dividend 2,400 2,688 3,011 3,372 3,776
Add: Dividend (2,400) (2,688) (3,011) (3,372) (3,776)
-------- -------- -------- -------- --------
Total Sources $ 13,967 $ 16,208 $ 18,689 $ 21,250 $ 24,455
Less: Changes in other long-term
assets & liabilities (610) (661) (692) (746) (785)
Less: Change in working capital (3,200) (3,300) (3,400) (3,900) (3,800)
Less: Capital expenditures
(Net of dispos.) (3,834) (3,935) (3,936) (3,937) (3,938)
-------- -------- -------- -------- --------
Total Uses ($ 7,644) ($ 7,896) ($ 8,028) ($ 8,583) ($ 8,523)
-------- -------- -------- -------- --------
TOTAL FREE CASH FLOW BEFORE FINANCING $ 6,323 $ 8,312 $ 10,661 $ 12,667 $ 15,932
REPAYMENT/BORROWING OF DEBT
Revolver 4,963 5,973 3,625 1,618 (1,646)
Senior sub-debt (14,286) (14,286) (14,286) (14,286) (14,286)
Senior term loan -- -- -- -- --
Sub-debt -- -- -- -- --
Other notes -- -- -- -- --
Cap. lease oblg. -- -- -- -- --
-------- -------- -------- -------- --------
Total Debt (Repayments)/Borrowing ($ 9,323) ($ 8,312) ($10,661) ($12,667) ($15,932)
CHANGE IN CASH BALANCE ($ 3,000) $ 0 $ 0 $ 0 $ 0
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
J.C. BRADFORD & CO.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS
WORKING CAPITAL ASSUMPTIONS
- ----------------------------------------------------------------------------------
($'s in 000s)
ESTIMATED PROFORMA
-------------------- AUG.
1997 1998 ADJUSTMENTS 1998
-------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Accounts receivable $ 24,282 $ 26,336 -- -- $ 26,336
% of sales 13.8% 13.6% 13.6%
Inventories $ 32,105 $ 34,821 -- -- $ 34,821
% of sales 18.3% 18.0% 18.0%
Income taxes receivable $ 551 $ 598 -- -- $ 598
% of sales 0.3% 0.3% 0.3%
Other receivables $ 713 $ 773 -- -- $ 773
% of sales 0.4% 0.4% 0.4%
Prepaid expenses and
other current assets $ 2,464 $ 2,672 -- -- $ 2,672
% of sales 1.4% 1.4% 1.4%
-------- -------- ----- ----- --------
TOTAL CURRENT ASSETS,
EXCLUDING CASH $ 65,200 -- -- $ 65,200
% of sales 0.0% 33.7% 33.7%
Trade accounts payable $ 11,299 $ 10,442 -- -- $ 10,442
% of sales 6.4% 5.4% 5.4%
Accrued liabilities $ 11,197 $ 10,347 -- -- $ 10,347
% of sales 6.4% 5.4% 5.4%
Current portion of
lease obligation $ 481 $ 211 -- -- $ 211
% of sales 0.3% 0.1% 0.1%
-------- -------- ----- ----- --------
TOTAL CURRENT LIABILITIES
EXCLUDING S-T DEBT $ 21,000 -- -- $ 21,000
% of sales 0.0% 10.9% 10.9%
Net non-cash working
capital $ 44,200 -- -- $ 44,200
% of sales 0.0% 22.9% 22.9%
Change in non-cash
working capital
</TABLE>
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED AUG.
-------------------------------------------------------------------
1999 2000 2001 2002 2003
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Accounts receivable $28,032 $29,931 $31,910 $34,051 $36,232
% of sales 13.5% 13.4% 13.3% 13.2% 13.1%
Inventories $37,064 $39,574 $42,191 $45,021 $47,905
% of sales 17.8% 17.7% 17.6% 17.5% 17.3%
Income taxes receivable $ 636 $ 679 $ 724 $ 773 $ 822
% of sales 0.3% 0.3% 0.3% 0.3% 0.3%
Other receivables $ 823 $ 879 $ 937 $ 1,000 $ 1,064
% of sales 0.4% 0.4% 0.4% 0.4% 0.4%
Prepaid expenses and
other current assets $ 2,845 $ 3,037 $ 3,238 $ 3,455 $ 3,677
% of sales 1.4% 1.4% 1.3% 1.3% 1.3%
------- ------- ------- ------- -------
TOTAL CURRENT ASSETS,
EXCLUDING CASH $69,400 $74,100 $79,000 $84,300 $89,700
% of sales 33.4% 33.2% 32.9% 32.7% 32.5%
Trade accounts payable $11,050 $11,753 $12,506 $13,210 $14,013
% of sales 5.3% 5.3% 5.2% 5.1% 5.1%
Accrued liabilities $10,950 $11,647 $12,394 $13,090 $13,887
% of sales 5.3% 5.2% 5.2% 5.1% 5.0%
Current portion of
lease obligation $ 0 $ 0 $ 0 $ 0 $ 0
% of sales 0.0% 0.0% 0.0% 0.0% 0.0%
------- ------- ------- ------- -------
TOTAL CURRENT LIABILITIES
EXCLUDING S-T DEBT $22,000 $23,400 $24,900 $26,300 $27,900
% of sales 10.6% 10.5% 10.4% 10.2% 10.1%
Net non-cash working $47,400 $50,700 $54,100 $58,000 $61,800
capital
% of sales 22.8% 22.7% 22.6% 22.5% 22.4%
Change in non-cash
working capital $ 3,200 $ 3,300 $ 3,400 $ 3,900 $ 3,800
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
J.C. BRADFORD & CO.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS
WORKING CAPITAL ASSUMPTIONS
- -----------------------------------------------------------------------------------------
($'s in 000s)
PROJECTED FISCAL YEAR ENDED AUG.
---------------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Accounts receivable $ 28,032 $ 29,931 $ 31,910 $ 34,051 $ 36,232
% of sales 13.5% 13.4% 13.3% 13.2% 13.1%
Inventories $ 37,064 $ 39,574 $ 42,191 $ 45,021 $ 47,905
% of sales 17.8% 17.7% 17.6% 17.5% 17.3%
Income taxes receivable $ 636 $ 679 $ 724 $ 773 $ 822
% of sales 0.3% 0.3% 0.3% 0.3% 0.3%
Other receivables $ 823 $ 879 $ 937 $ 1,000 $ 1,064
% of sales 0.4% 0.4% 0.4% 0.4% 0.4%
Prepaid expenses and
other current assets $ 2,845 $ 3,037 $ 3,238 $ 3,455 $ 3,677
% of sales 1.4% 1.4% 1.3% 1.3% 1.3%
-------- -------- -------- -------- ---------
TOTAL CURRENT ASSETS,
EXCLUDING CASH $ 69,400 $ 74,100 $ 79,000 $ 84,300 $ 89,700
% of sales 33.4% 33.2% 32.9% 32.7% 32.5%
Trade accounts payable $ 11,050 $ 11,753 $ 12,506 $ 13,210 $ 14,013
% of sales 5.3% 5.3% 5.2% 5.1% 5.1%
Accrued liabilities $ 10,950 $ 11,647 $ 12,394 $ 13,090 $ 13,887
% of sales 5.3% 5.2% 5.2% 5.1% 5.0%
Current portion of
lease obligation $ 0 $ 0 $ 0 $ 0 $ 0
% of sales 0.0% 0.0% 0.0% 0.0% 0.0%
-------- -------- -------- -------- ---------
TOTAL CURRENT LIABILITIES
EXCLUDING S-T DEBT $ 22,000 $ 23,400 $ 24,900 $ 26,300 $ 27,900
% of sales 10.6% 10.5% 10.4% 10.2% 10.1%
Net non-cash working
capital $ 47,400 $ 50,700 $ 54,100 $ 58,000 $ 61,800
% of sales 22.8% 22.7% 22.6% 22.5% 22.4%
Change in non-cash
working capital $ 3,200 $ 3,300 $ 3,400 $ 3,900 $ 3,800
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
J.C. BRADFORD & Co.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS
RETURNS ANALYSIS
- ---------------------------------------------------------------------------------------------
($Os in 000s)
PROJECTED RETURNS ON MANAGEMENT EQUITY
--------------------------------------
YEAR ENDING AUG.
-------------------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
TOTAL CAPITALIZATION AS A
MULTIPLE OF EBITDA
5.0 x $146,590 $160,840 $176,830 $192,540 $212,550
5.5 x 161,249 176,924 194,513 211,794 233,805
6.0 x 175,908 193,008 212,196 231,048 255,060
6.5 x 190,567 209,092 229,879 250,302 276,315
LESS: TOTAL DEBT (NET OF
CASH)(1) 137,077 131,452 123,802 114,507 102,351
VALUE OF EQUITY
5.0 x $ 9,513 $ 29,388 $ 53,028 $ 78,033 $110,199
5.5 x 24,172 45,472 70,711 97,287 131,454
6.0 x 38,831 61,556 88,394 116,541 152,709
6.5 x 53,490 77,640 106,077 135,795 173,964
RETURNS ANALYSIS
21,761
OWNERSHIP PERCENTAGE 85.2% 85.2% 85.2% 85.2% 85.2%
IRR ASSUMING EBITDA
MULTIPLES OF:
5.0 x NM 7.3% 27.6% 32.2% 34.0%
5.5 x (5.4%) 33.4% 40.4% 39.7% 38.8%
6.8x 6.0 x 52.0% 55.2% 51.3% 46.2% 43.0%
6.5 x 109.4% 74.3% 60.7% 51.8% 46.8%
(1) Includes the repayment of preferred stock.
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
J.C. BRADFORD & Co.
AUSTIN -- LEVERAGED BUYOUT ANALYSIS
RETURNS ANALYSIS
- ---------------------------------------------------------------------------------------------
($Os in 000s)
PROJECTED RETURNS ON PREFERRED EQUITY
--------------------------------------
YEAR ENDING AUG.
-------------------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
TOTAL CAPITALIZATION AS A
MULTIPLE OF EBITDA
5.0 x $146,590 $160,840 $176,830 $192,540 $212,550
5.5 x 161,249 176,924 194,513 211,794 233,805
6.0 x 175,908 193,008 212,196 231,048 255,060
6.5 x 190,567 209,092 229,879 250,302 276,315
LESS: TOTAL DEBT (NET OF
CASH)(1) 137,077 131,452 123,802 114,507 102,351
VALUE OF EQUITY
5.0 x $ 9,513 $ 29,388 $ 53,028 $ 78,033 $110,199
5.5 x 24,172 45,472 70,711 97,287 131,454
6.0 x 38,831 61,556 88,394 116,541 152,709
6.5 x 53,490 77,640 106,077 135,795 173,964
RETURNS ANALYSIS Balance at Year End: (2)
-------------------------------------------------------------
20,000 22,400 25,088 28,099 31,470 35,247
OWNERSHIP PERCENTAGE 14.8% 14.8% 14.8% 14.8% 14.8%
IRR ASSUMING EBITDA
MULTIPLES OF:
5.0 x 19.0% 21.3% 21.6% 21.1% 20.9%
5.5 x 29.9% 26.1% 24.5% 23.1% 22.3%
6.0 x 40.7% 30.8% 27.2% 24.9% 23.7%
6.5 x 51.6% 35.2% 29.9% 26.7% 25.0%
</TABLE>
(1) Includes the repayment of preferred stock.
(2) Includes PIK Dividends
<PAGE> 53
COMPARABLE TRANSACTIONS
V
<PAGE> 54
PROMOTIONAL PRODUCTS INDUSTRY*
ANALYSIS OF M&A TRANSACTION MULTIPLES SINCE 1/1/95
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
AGGREG. EQUITY CONSID.
AS A MULTIPLE OF:
AGGREGATE LEVERED ----------------------
DATE EQUITY AGGREGATE LTM NET BOOK
ANNOUNCED ACQUIROR/TARGET CONSIDERATION CONSIDERATION(2) INCOME VALUE
- --------- --------------- ------------- ---------------- ------ -----
<S> <C> <C> <C> <C> <C>
03/17/95 Devon Group Inc $17.2 $17.2 NA NA
Devon Group Inc
02/01/96 Arctco Inc $16.5 $16.5 NA NA
Arctco Inc
07/25/96 RR Donnelley & Sons Co $250.0 $250.0 NA NA
RR Donnelley & Sons Co
11/01/96 Social Expressions Acquisition $2.5 $8.5 NA NA
TMC Group Inc (AGP & Co Inc)
01/29/97 Agritherm Corp NA NA NA NA
Fieldsheer Inc
04/14/97 Katz Digital Technologies Inc $0.8 $0.8 NA 2.7
Advanced Digital Services Inc
05/19/97 LSI Industries Inc $17.9 $17.9 NA NA
Grady McCauley Inc
06/26/97 CYRK Inc NA NA NA NA
Champion Awards & Advertising
07/10/97 Mail-Well Inc NA NA NA NA
Allied Printers
07/15/97 Applied Graphics Technologies NA NA NA NA
MBA Graphics Inc
10/14/97 Big Flower Press Holdings Inc NA NA NA NA
Gamma One Inc
AVERAGE: NA 2.7
ADJUSTED AVERAGE NA 2.7
<CAPTION>
LEVERED AGGREGATE CONSIDERATION
AS A MULTIPLE OF:
-------------------------------
DATE LTM LTM LTM PERCENT
ANNOUNCED REVENUE EBITDA EBIT ACQUIRED
--------- ------- ------ ---- --------
<S> <C> <C> <C> <C>
03/17/95 NA NA NA NA
02/01/96 NA NA NA NA
07/25/96 NA NA NA NA
11/01/96 NA NA NA NA
01/29/97 NA NA NA 100.0%
04/14/97 0.3 NA NA 100.0%
05/19/97 1.2 NA NA 100.0%
06/26/97 NA NA NA 100.0%
07/10/97 NA NA NA NA
07/15/97 NA NA NA 100.0%
10/14/97 NA NA NA NA
AVERAGE: 0.8 NA NA
ADJUSTED AVERAGE 0.8 NA NA
</TABLE>
* Covers industries with SIC Codes of 5090 and 7336. Source: Securities Data
Company, Inc. (201) 622-3100. As of 2/25/98.
(2) Levered aggregate consideration is defined as aggregate equity
consideration plus total debt, net of cash and equivalents.
<PAGE> 55
PROMOTIONAL PRODUCTS INDUSTRY*
MERGERS & ACQUISITION TRANSACTIONS SINCE 1/1/95
<TABLE>
<CAPTION>
TARGET
VALUE SHARE-
EQUITY OF PRICE HOLDERS
DATE DATE VALUE DEAL PER SHARES EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3/17/95 - DEVON GROUP INC DEVON GROUP INC $17.2 $17.2 $24.50 7.4 $81.6
Advisor - -
Company Status Public Public
<CAPTION>
TARGET TARGET %
NET NET TARGET TARGET OWNED
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/ AFTER
LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/ TRANS-
($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE ACTION
------ ------ ------ ------ ------- ------ ---- -------- ------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$219.6 $18.8 $32.2 $42.2 $2.2 $128.5 - Intended -
Buyback
Not Appl.
</TABLE>
Deal Description
In March 1995, Devon Group's (DG) board authorized the repurchase of up to .700
mil common shares, or about 9.5% of the company's common stock outstanding, in
open market transactions. Based on DG closing stock price of $24.50 on Mar 16,
the last full trading day prior to the announcement of the board's approval, the
buyback had an indicated value of up to $17.15 mil in cash.
Target Business Description
Provide pre-press computer typesetting, composition and color separation
services; Typesetting, printing services, distribute posters, art reproductions
and note cards
Acquiror Business Description
Provide pre-press computer typesetting, composition and color separation
services; Typesetting, printing services, distribute posters, art reproductions
and note cards
<TABLE>
<CAPTION>
TARGET
VALUE SHARE-
EQUITY OF PRICE HOLDERS
DATE DATE VALUE DEAL PER SHARES EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2/1/96 - ARCTCO INC ARCTCO INC $16.5 $16.5 $11.00 29.7 $157.3
Advisor - -
Company Status Public Public
<CAPTION>
TARGET TARGET %
NET NET TARGET TARGET OWNED
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/ AFTER
LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/ TRANS-
($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE ACTION
------ ------ ------ ------ ------- ------ ---- -------- ------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$389.8 $24.5 $35.9 $42.4 - $224.8 - Intended -
Buyback
Not Appl.
</TABLE>
Deal Description
In February 1996, Arctco's (AR) board authorized the repurchase of up to 1.5 mil
common shares, or about 5% of the company's common stock outstanding, in open
market transactions. Based on AR's closing stock price of $11 on Jan 31, the
last full trading day prior to the announcement of the board's approval, the
buyback had an indicated value of up to $16.5 mil in cash.
Target Business Description
Manufacture and wholesale snowmobiles and related parts, garments and
accessories
Acquiror Business Description
Manufacture and wholesale snowmobiles and related parts, garments and
accessories
* Cover industries with SIC Codes of 5090 and 7336. Source: Securities Data
Company, Inc. (201) 622-3100. As of 2/25/98.
<PAGE> 56
PROMOTIONAL PRODUCTS INDUSTRY*
MERGERS & ACQUISITION TRANSACTIONS SINCE 1/1/95
<TABLE>
<CAPTION>
TARGET
VALUE SHARE-
EQUITY OF PRICE HOLDERS
DATE DATE VALUE DEAL PER SHARES EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7/25/96 - RR DONNELLEY & SONS CO RR DONNELLEY & SONS CO $250.0 $250.0 - 154.1 $1,790.8
Advisor - -
Company Status Public Public
<CAPTION>
TARGET TARGET %
NET NET TARGET TARGET OWNED
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/ AFTER
LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/ TRANS-
($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE ACTION
- ------ ------ ------ ------ ------- ------ ---- -------- ------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$6,827.6 $(135.2) $(50.9) $281.5 $1,247.6 $4,499.9 - Intended -
Buyback
Not Appl.
</TABLE>
Deal Description
RR Donnelley & Sons' board authorized the repurchase of up to $250 mil of the
company's common stock outstanding in open market and privately negotiated
transactions.
Target Business Description
Provide books, reports, catalogs, documents and business forms printing as well
as book binding and graphic arts services for the publishing, retailing,
merchandising and information technology markets worldwide
Acquiror Business Description
Provide books, reports, catalogs, documents and business forms printing as well
as book binding and graphic arts services for the publishing, retailing,
merchandising and information technology markets worldwide
<TABLE>
<CAPTION>
TARGET
VALUE SHARE-
EQUITY OF PRICE HOLDERS
DATE DATE VALUE DEAL PER SHARES EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11/1/96 - SOCIAL EXPRESSIONS TMC GROUP INC $2.5 $8.5 - - -
ACQUISITION (AGP & CO INC)
Advisor - -
Company Status Priv. Sub.
<CAPTION>
TARGET TARGET %
NET NET TARGET TARGET OWNED
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/ AFTER
LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/ TRANS-
($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE ACTION
- ------ ------ ------ ------ ------- ------ ---- -------- ------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$13.2 - - - - - - Pending -
Acq. of Assets
Friendly
</TABLE>
Deal Description
Social Expression Acquisition (SEA) agreed to acquire TMC, a unit of AGP, for
approximately $8.5 mil. Consideration was to consist of $2.5 mil in common
stock, the assumption of approximately $6 mil in liabilities and profit related
payments. Additionally, AGP was to receive a $2.5 mil 10-year promissory note
convertible into SEA voting stock. The receipt of the promissory note was
contingent on SEA being a privately held company at the time of closing of the
transaction.
Target Business Description
manufacture and wholesale wedding related accessories
Acquiror Business Description
Manufacture and wholesale wedding accessories and gifts
* Covers industries with SIC Codes of 5090 and 7336. Source: Securities Data
Company, Inc. (201) 622-3100. As of 2/25/98.
<PAGE> 57
PROMOTIONAL PRODUCTS INDUSTRY*
MERGERS & ACQUISITION TRANSACTIONS SINCE 1/1/95
<TABLE>
<CAPTION>
TARGET TARGET
VALUE SHARE- NET
EQUITY OF PRICE HOLDERS SALES
DATE DATE VALUE DEAL PER SHARES EQUITY LTM
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/29/97 1/29/97 AGRITHERM CORP FIELDSHEER INC - - - - - $3.8
Advisor - -
Company Status Public Priv.
<CAPTION>
TARGET %
NET TARGET TARGET OWNED
INCOME EBIT EBITDA TOTAL % OF STATUS/ AFTER
LTM LTM LTM DEBT, NET TOTAL SHARES FORM/ TRANS-
($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE ACTION
------ ------ ------ ------- ------ ---- -------- ------
<C> <C> <C> <C> <C> <C> <C> <C>
- - - - - 100 Completed 100
Merger
Friendly
</TABLE>
Deal Description
Agritherm acquired Fieldsheer in a stock swap transaction.
Target Business Description
Manufacture athletic clothing and accessories
Acquiror Business Description
Manufacture clothing
<TABLE>
<CAPTION>
VALUE
EQUITY OF PRICE
DATE DATE VALUE DEAL PER SHARES
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL)
- --------- --------- -------- ------ ------ ------ ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
4/14/97 8/4/97 KATZ DIGITAL TECHNOLOGIES INC ADVANCED DIGITAL SERVICES INC $0.8 $0.8 - -
Advisor - -
Company Status Public Priv.
<CAPTION>
TARGET TARGET TARGET %
SHARE- NET NET TARGET TARGET OWNED
HOLDERS SALES INCOME EBIT EBITDA TOTAL % OF STATUS/ AFTER
EQUITY LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/ TRANS-
($MIL) ($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE ACTION
- ------ ------ ------ ------ ------ ------- ------ ---- -------- ------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0.3 $2.5 $0.0 - - - $1.1 100 Completed 100
Acq. of Assets
Friendly
</TABLE>
Deal Description
Katz Digital Technologies acquired Advanced Digital Services for approximately
$.75 mil in cash plus 301,800 restricted common shares.
Target Business Description
Provide commercial graphic design services
Acquiror Business Description
Print plates and related products
* Covers industries with SIC Codes of 5090 and 7336. Source: Securities Data
Company, Inc. (201) 622-3100. As of 2/25/98.
<PAGE> 58
PROMOTIONAL PRODUCTS INDUSTRY*
MERGERS & ACQUISITION TRANSACTIONS SINCE 1/1/95
<TABLE>
<CAPTION>
TARGET
VALUE SHARE-
EQUITY OF PRICE HOLDERS
DATE DATE VALUE DEAL PER SHARES EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5/19/97 7/1/97 LSI INDUSTRIES INC GRADY MCCAULEY INC $17.9 $17.9 - - -
Advisor - -
Company Status Public Priv.
<CAPTION>
TARGET TARGET %
NET NET TARGET TARGET OWNED
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/ AFTER
LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/ TRANS-
($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE ACTION
- ------ ------ ------ ------ ------- ------ ---- -------- ------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$14.5 - - - - - 100 Completed 100
Acq. of Assets
Friendly
</TABLE>
Deal Description
LSI Industries (LSI) acquired Grady McCauley for approximately $17.9 mil. The
consideration consisted of $11.5 mil in cash, 475,700 LSI common shares valued
at $6.4 mil, and the assumption of an undisclosed amount in liabilities. The
shares were valued based on LSI's closing stock price of $13.5 on June 30, the
last full trading day prior to the announcement.
Target Business Description
Provide custom graphics services for retail industry
Acquiror Business Description
Manufactures & designs lighting and graphics products -
* Covers industries with SIC Codes of 5090 and 7336. Source: Securities Data
Company, Inc. (201) 622-3100. As of 2/25/98.
<TABLE>
<CAPTION>
TARGET
VALUE SHARE-
EQUITY OF PRICE HOLDERS
DATE DATE VALUE DEAL PER SHARES EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6/26/97 6/26/97 CYRK INC CHAMPION AWARDS & ADVERTISING - - - - -
Advisor - -
Company Status Public Priv.
<CAPTION>
TARGET TARGET %
NET NET TARGET TARGET OWNED
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/ AFTER
LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/ TRANS-
($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE ACTION
- ------ ------ ------ ------ ------- ------ ---- -------- ------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$4.5 - - - - - 100 Completed 100
Acq. of Assets
Friendly
</TABLE>
Deal Description
Cyrk acquired Champion Awards & Advertising. Terms were not disclosed.
Target Business Description
Manufacture promotional products
Acquiror Business Description
Manufacture high quality products for promotional programs and custom-designed
sports apparel and accessories including T-shirts, fleece pullovers, jackets,
sports bags, caps and watches that bear a brand or company name or logo
* Covers industries with SIC Codes of 5090 and 7336. Source: Securities Data
Company, Inc. (201) 622-3100. As of 2/25/98.
<PAGE> 59
PROMOTIONAL PRODUCTS INDUSTRY*
MERGERS & ACQUISITION TRANSACTIONS SINCE 1/1/95
<TABLE>
<CAPTION>
TARGET
VALUE SHARE-
EQUITY OF PRICE HOLDERS
DATE DATE VALUE DEAL PER SHARES EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7/10/97 - MAIL-WELL INC ALLIED PRINTERS - - - - -
Advisor - -
Company Status Public Priv.
<CAPTION>
TARGET TARGET %
NET NET TARGET TARGET OWNED
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/ AFTER
LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/ TRANS-
($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE ACTION
- ------ ------ ------ ------ ------- ------ ---- -------- ------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$17.0 - - - - - - Pending -
Acq. of Assets
Friendly
</TABLE>
Deal Description
Mail-Well, a majority-owned unit of Mail-Well Holdings, agreed to acquire Allied
Printers for an undisclosed amount in a combination of cash and Mail-Well common
stock.
Target Business Description
Provide high-ended commercial printing, service corporate clients
Acquiror Business Description
Manufacture envelopes in the United States and Canada; provide high-impact
color printing services
* Covers industries with SIC Codes of 5090 and 7336. Source: Securities Data
Company, Inc. (201) 622-3100. As of 2/25/98.
<TABLE>
<CAPTION>
TARGET
VALUE SHARE-
EQUITY OF PRICE HOLDERS
DATE DATE VALUE DEAL PER SHARES EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7/15/97 7/15/97 APPLIED GRAPHICS TECHNOLOGIES MBA GRAPHICS INC - - - - -
Advisor - -
Company Status Public Priv.
<CAPTION>
TARGET TARGET %
NET NET TARGET TARGET OWNED
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/ AFTER
LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/ TRANS-
($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE ACTION
- ------ ------ ------ ------ ------- ------ ---- -------- ------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$5.5 - - - - - 100 Completed 100
Acq. of Assets
Friendly
</TABLE>
Deal Description
Applied Graphics Technologies acquired MBA Graphics. Terms were not disclosed.
Target Business Description
Provide commercial graphic design services
Acquiror Business Description
Provide digital prepress services to magazine publishers, advertising agencies,
entertainment companies, automobile manufacturers and retailers
* Covers industries with SIC Codes of 5090 and 7336. Source: Securities Data
Company, Inc. (201) 622-3100. As of 2/25/98.
<PAGE> 60
PROMOTIONAL PRODUCTS INDUSTRY*
MERGERS & ACQUISITION TRANSACTIONS SINCE 1/1/95
<TABLE>
<CAPTION>
TARGET
VALUE SHARE-
EQUITY OF PRICE HOLDERS
DATE DATE VALUE DEAL PER SHARES EQUITY
ANNOUNCED EFFECTIVE ACQUIROR TARGET ($MIL) ($MIL) SHARE OUT. (MIL) ($MIL)
- --------- --------- -------- ------ ------ ------ ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10/14/97 11/4/97 BIG FLOWER PRESS HOLDINGS INC GAMMA ONE INC - - - - -
Advisor - -
Company Status Public Sub.
<CAPTION>
TARGET TARGET %
NET NET TARGET TARGET OWNED
SALES INCOME EBIT EBITDA TOTAL % OF STATUS/ AFTER
LTM LTM LTM LTM DEBT, NET TOTAL SHARES FORM/ TRANS-
($MIL) ($MIL) ($MIL) ($MIL) OF CASH ASSETS ACQ. ATTITUDE ACTION
- ------ ------ ------ ------ ------- ------ ---- -------- ------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$19.0 - - - - - - Completed -
Acq. of Assets
Friendly
</TABLE>
Deal Description
Big Flower Press Holdings acquired Gamma One. Terms were not disclosed.
Target Business Description
Provide digital premedia services including digital photography, digital
prepress and content management
Acquiror Business Description
Provide integrated advertising and marketing services, including direct
marketing and digital media services; print newspaper advertisement inserts
* Covers industries with SIC Codes of 5090 and 7336. Source: Securities Data
Company, Inc. (201) 622-3100. As of 2/25/98.
<PAGE> 61
PREMIUM ANALYSIS
VI
<PAGE> 62
MARKET PREMIUM SUMMARY VALUATION
Merger & Acquisition Activity
Since 1/1/95
<TABLE>
<CAPTION>
Market Premiums
Adjusted Average Premiums
Trans. ------------------------------------------
Structure 1 Day Prior 1 Week Prior 4 Weeks Prior
--------- ----------- ------------ -------------
<S> <C> <C> <C>
All Cash 28.7% 33.9% 38.3%
</TABLE>
<TABLE>
<CAPTION>
Implied Austin Share Price
Implied Share Prices
Trans. ------------------------------------------
Structure 1 Day Prior 1 Week Prior 4 Weeks Prior
--------- ----------- ------------ -------------
<S> <C> <C> <C>
All Cash $21.97 $22.85 $23.60
--------------------------------------------------------------
Current Austin Price $17.06 $17.06 $17.06
--------------------------------------------------------------
</TABLE>
<PAGE> 63
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 - FEBRUARY 19, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME
- --------- ------ ------------- -----------
<S> <C> <C> <C>
01/03/95 06/01/95 First Union Natl Bk of Florida Coral Gables Fedcorp Inc
01/05/95 06/30/95 Minnesota Power & Light Co ADESA Corp
01/06/95 07/12/95 Eridania Beghin-Say (Montediso) American Maize-Products Co
01/06/95 01/19/95 V'Power Corp Vector Aeromotive Corp
01/09/95 03/07/95 Siemens Nixdorf Info AG Pyramid Technology Corp
01/09/95 05/17/95 Investor Group Standard Brands Paint Co
01/10/95 03/31/95 Laidlaw Inc Mayflower Group Inc
01/13/95 07/13/95 ADAC Laboratories Community Health Computing
01/13/95 08/18/95 Staten Island Savings Bank Gateway Bancorp, New York
01/19/95 03/16/95 ALC Communications Corp ConferTech International
01/30/95 11/30/95 First Banks Inc, Clayton, MO QCB Bancorp
02/03/95 03/17/95 Clark Equipment Co Club Car Inc
02/03/95 11/02/95 National Australia Bank Ltd Michigan National Corp
02/07/95 07/12/95 WMX Technologies Inc Rust International Inc
02/15/95 03/31/95 Hollywood Entertainment Corp Title Wave Stores Inc
02/27/95 08/31/95 Conseco Inc CCP Insurance Inc
02/28/95 07/18/95 Hoechst AG Marion Merrell Dow Inc
03/02/95 08/30/95 Trans Union (Marmon Holdings) DATEQ Information Network
03/02/95 05/26/95 Luxottica Group SpA US Shoe Corp (Luxottica Group)
03/06/95 08/01/95 Mothers Work Inc A Pea in the Pod Inc
03/08/95 04/26/95 Marvel Entertainment Group Inc SkyBox International
03/08/95 07/06/95 ENSERCH Corp Sunrise Energy Services Inc
03/14/95 04/25/95 Penske Truck Leasing Co LP Leaseway Transportation Corp
03/15/95 06/16/95 LinPac Mouldings Ltd Ropak Corp
03/15/95 03/15/95 Remy Capital Partners III LP UTI Energy Corp
03/17/95 05/01/95 Waste Management Inc Resource Recycling Techs Inc
03/24/95 04/26/95 West Co Inc Paco Pharmaceutical Services
03/27/95 12/01/95 BayBanks, Boston, Massachusetts Cornerstone Financial Corp
03/28/95 05/25/95 Ingersoll-Rand Co Clark Equipment Co
04/03/95 05/08/95 Raytheon Co E-Systems Inc
04/04/95 06/26/95 FMC Corp Moorco International
04/05/95 08/02/95 Club Mediterranee SA Club Med Inc
04/05/95 04/05/95 Coinmach Corp Solon Automated Services Inc
04/06/95 08/31/95 Apollo Holding Inc Intermetrics Inc
04/07/95 10/03/95 McCaw Cellular Commun (AT&T) LIN Bdcstg (McCaw Cellular)
04/10/95 01/04/96 Investor Group Kemper Corp
</TABLE>
<TABLE>
<CAPTION>
DATE
ANNOUNCED ACQUIROR BUSINESS DESCRIPTION TARGET BUSINESS DESCRIPTION
- --------- ----------------------------- ---------------------------
<S> <C> <C>
01/03/95 Commercial bank Bank holding company
01/05/95 Electric utility Wholesale automobiles
01/06/95 Produce sugar Produce corn; mnfr tobacco prod
01/06/95 Investment firm Manufacture exotic sports cars
01/09/95 Mnfr wiring devices, computers Manufacture, whl computers
01/09/95 Investor group Mnfr paints, varnishes
01/10/95 Pvd busing, waste mgmt svcs Trucking and bussing services
01/13/95 Mnfr diagnostic imaging sys Manufacture medical equipment
01/13/95 Savings bank Bank holding co
01/19/95 Pvd long distance commun svcs Mnfr teleconferencing systems
01/30/95 Commercial bank holding co Bank holding company
02/03/95 Mnfr, whl construction equip Manufacture golf cars
02/03/95 Bank, insurance co Bank holding company
02/07/95 Pvd chemical waste mgmt svcs Provide engineering services
02/15/95 Own, op video rental stores Own, op record & tape stores
02/27/95 Insurance holding company Insurance company
02/28/95 Mnfr chemicals and fibers Manufacture pharmaceuticals
03/02/95 Pvd credit reporting svcs Provide info retrieval svcs
03/02/95 Manufacture eyeglass frames Manufacture shoes
03/06/95 Own, operate maternity stores Own, op women's clothing stores
03/08/95 Publish comic books Print trading cards
03/08/95 Gas transmission, distribution Pvd natural gas distr services
03/14/95 Provide truck leasing services Trucking company, related svcs
03/15/95 Mnfr plastic-injected mouldings Manufacture plastic containers
03/15/95 Investment partnership Pvd oil, nat gas drilling svcs
03/17/95 Solid, chemical waste mgmt svc Waste mgmt, recycling services
03/24/95 Mnfr packaging components Pharmaceutical packaging prod
03/27/95 Bank holding company Bank holding company
03/28/95 Mnfr industrial machinery Mnfr, whl construction equip
04/03/95 Mnfr radar equipment, aircrafts Mnfr defense electronics
04/04/95 Mnfr petro equip, chemicals Mnfr totalizing fluid meters
04/05/95 Op travel agency, hotel resorts Operate vacation resorts
04/05/95 Mnfr, whl laundry equipment Operate coin laundries
04/06/95 Investor group Pvd computer programming svcs
04/07/95 Pvd cellular commun services Pvd cellular commun services
04/10/95 Investor group Life insurance company
</TABLE>
<TABLE>
<CAPTION>
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER I DAY I WEEK 4 WEEKS
ANNOUNCED ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- ------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
01/03/95 515.7 26.59 23.7% 26.6% 43.7%
01/05/95 165.3 17.00 19.3% 25.9% 38.8%
01/06/95 434.0 40.00 49.5% 56.9% 66.7%
01/06/95 5.5 --
01/09/95 205.1 16.00 30.6% 23.1% 43.8%
01/09/95 18.0 --
01/10/95 158.4 12.39
01/13/95 16.5 --
01/13/95 56.8 12.61 20.1% 26.1% 9.7%
01/19/95 66.0 8.00 45.5% 28.0% 85.5%
01/30/95 5.0 --
02/03/95 243.0 25.00 50.4% 47.1% 57.5%
02/03/95 1713.3 110.00 25.7% 26.4% 44.5%
02/07/95 56.9 16.35 27.0% 39.1% 39.1%
02/15/95 8.5 2.00 33.3% 77.8% 34.7%
02/27/95 273.7 23.25 20.0% 30.1% 23.2%
02/28/95 7264.6 25.75 8.4% 14.4% 11.4%
03/02/95 19.1 5.41 27.3% 27.3% 27.3%
03/02/95 1326.4 28.00 45.5% 45.5% 43.6%
03/06/95 22.5 5.50 37.5% 83.3% 57.1%
03/08/95 136.6 16.00 29.3% 33.3% 31.3%
03/08/95 8.5 --
03/14/95 199.8 20.00 54.6% 55.3% 60.0%
03/15/95 28.5 11.00 4.8% 6.0% 4.8%
03/15/95 7.8 4.50 28.6% 20.0% 12.5%
03/17/95 33.5 11.50 37.3% 50.8% 46.0%
03/24/95 50.5 12.25 66.1% 66.1% 58.1%
03/27/95 21.3 8.80 8.3% 35.4% 32.8%
03/28/95 1467.4 86.00 63.4% 69.9% 60.7%
04/03/95 2255.2 64.00 41.0% 43.0% 46.3%
04/04/95 316.5 28.00 105.5% 111.3% 91.5%
04/05/95 153.4 32.00 41.4% 39.9% 44.6%
04/05/95 11.5 --
04/06/95 27.9 6.80 60.0% 60.0% 43.2%
04/07/95 3209.4 129.90 18.2% 19.7% 19.7%
04/10/95 1872.4 49.80 20.7% 24.5% 21.5%
</TABLE>
<PAGE> 64
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 - FEBRUARY 19, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME
- --------- ------ ------------- -----------
<S> <C> <C> <C>
04/12/95 04/12/95 Loral Conic (Loral Corp) Microcom Inc
04/12/95 10/20/95 Roosevelt Finl Group, Missouri WSB Bancorp Inc
04/18/95 06/30/95 California Bancshares Inc First Community Bankshares, CA
04/26/95 08/11/95 Stonington Partners Inc Dictaphone Corp
04/28/95 06/16/95 ICI PLC Grow Group Inc
04/28/95 06/02/95 American Vision Centers Inc NuVision Inc
05/03/95 10/24/95 Manor Healthcare Corp In Home Health Inc
05/04/95 06/08/95 Douglas & Lomason Co Bestop Inc
05/10/95 06/14/95 General Signal Corp Best Power Technology Inc
05/15/95 09/20/95 Entex Information Svcs Random Access Inc
05/15/95 11/14/95 DMB Property Ventures LP UDC Homes Inc
05/16/95 01/05/96 Independence Community Bank Bay Ridge Bancorp Inc
05/16/95 05/16/95 Philips Electronics North Regina Co Inc
05/17/95 07/27/95 American Tractebel Corp CRSS Inc (American Tractebel)
05/19/95 12/06/95 BIC SA Bic Corp (BIC SA)
05/22/95 09/21/95 MCI Communications Corp Nationwide Cellular Services
05/25/95 11/08/95 Computer Associates Intl Inc Legent Corp
05/30/95 05/30/95 First Interstate Bancorp, CA MNB Bancshares Inc
05/30/95 09/01/95 Schein Pharmaceutical Inc Marsam Pharmaceuticals Inc
06/05/95 09/01/95 Dyson Dyson & Dunn Inc Designatronics Inc
06/05/95 07/05/95 IBM Corp Lotus Development Corp
06/09/95 08/30/95 Thermo Electron Corp Bird Medical Technologies Inc
06/19/95 12/20/95 HVB Ltd BioSafety Systems Inc
06/19/95 10/03/95 Unitrin Inc Milwaukee Insurance Group Inc
06/20/95 01/03/96 ALBANK FSB (ALBANK Financial) Marble Financial Corp
06/20/95 03/08/96 Investor Group Marietta Corp
06/22/95 12/06/95 Genetics Institute Inc SciGenics Inc
07/04/95 04/01/96 Johnston Industries Inc Jupiter National Inc (Johnston)
07/05/95 01/10/96 NationsBank Corp, Charlotte, NC CSF Holdings Inc
07/06/95 08/04/95 United Acquisition Co Arcus Inc (Armored Transport)
07/10/95 01/03/96 THORN Americas Inc (Thorn EMI) Advantage Companies Inc
07/10/95 08/11/95 Sandoz AG Genetic Therapy Inc
07/10/95 09/05/95 Danaher Corp Joslyn Corp
07/14/95 12/11/95 COBE Laboratories (Gambro AB) REN Corp-USA (COBE Labs Inc)
07/17/95 08/22/95 Lear Seating Corp Automotive Industries Holding
07/17/95 11/08/95 LG Electronics Co Ltd (LG Grp) Zenith Electronics Corp
07/31/95 01/11/96 Reliance Bancorp Inc., New York Sunrise Bancorp Inc
</TABLE>
<TABLE>
<CAPTION>
DATE
ANNOUNCED ACQUIROR BUSINESS DESCRIPTION TARGET BUSINESS DESCRIPTION
- --------- ----------------------------- ---------------------------
<S> <C> <C>
04/12/95 Mnfr radio, tv commun equip Mnfr data comm products
04/12/95 Bank holding company Commercial bank
04/18/95 Commercial bank Bank holding company
04/26/95 Investment firm Dictating mach, office equip
04/28/95 Manufacture petrochemicals Mnfr paints, chemicals
04/28/95 Operate retail optical stores Eye care products stores
05/03/95 Nursing homes Pvd home health care services
05/04/95 Wholesale motor vehicles Manufacture automobile parts
05/10/95 Mnfr electric control equip Mnfr power protection equip
05/15/95 Pvd computer integrated svcs Own, operate computer stores
05/15/95 RE investment, dvlp firm Construct homes; RE developmen
05/16/95 Mutual savings bank holding co Savings and loan
05/16/95 Mnfr home entertainment prod Mnfr vacuum cleaners, products
05/17/95 Mnfr semiconductors Provide engineering services
05/19/95 Manufacture pens and lighters Mnfr writing instruments
05/22/95 Pvd telecommunication services Pvd cellular telephone svcs
05/25/95 Develop applications software Develop software
05/30/95 Bank holding company Savings and loan
05/30/95 Manufacture pharmaceuticals Mnfr generic drug products
06/05/95 Wholesale lumber, plywood Mnfr speed changers
06/05/95 Mnfr computers, office equip Develop applications software
06/09/95 Mnfr cogeneration systems Mnfr respiratory care prod
06/19/95 Investment firm Mnfr healthcare gloves, masks
06/19/95 Insurance company Insurance holding company
06/20/95 Savings and loan Bank holding company
06/20/95 Investor group Mnfr, wholesale toiletries
06/22/95 Pharmaceutical prods, R&D Manufacture biological prod
07/04/95 Mnfr woven indl textile prod Venture capital firm
07/05/95 Bank hldg co; pvd finl svcs Bank holding company
07/06/95 Investment firm Provide security services
07/10/95 Provide rental equipment svcs Telecomm services, magazines
07/10/95 Manufacture dyestuffs Dvlp delivery sys; Pvd research
07/10/95 Mnfr auto parts, main equip Electrical transmission equip
07/14/95 Mnfr medical equipment Own, op kidney dialysis centers
07/17/95 Mnfr automobile seats Mnfr autoparts
07/17/95 Mnfr electronic components Mnfr consumer electronics
07/31/95 Bank holding company Bank holding company
</TABLE>
<TABLE>
<CAPTION>
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- ------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
04/12/95 7.0 --
04/12/95 26.2 22.75 15.2% 12.3% 30.0%
04/18/95 16.3 --
04/26/95 450.0 --
04/28/95 353.5 22.00 30.4% 38.6% 37.5%
04/28/95 21.7 7.60 32.2% 38.2% 35.1%
05/03/95 20.0 --
05/04/95 44.1 12.75 22.0% 18.6% 27.5%
05/10/95 201.1 21.00 61.5% 68.0% 75.0%
05/15/95 22.1 3.25 6.1% 26.8% 23.8%
05/15/95 109.2 9.47 0.0% 0.0% 741.8%
05/16/95 133.2 22.06 24.3% 20.9% 35.8%
05/16/95 17.5 --
05/17/95 191.6 14.50 45.0% 56.8% 56.8%
05/19/95 212.6 40.50 13.3% 12.5% 28.6%
05/22/95 174.3 18.50 5.7% 8.0% 18.4%
05/25/95 1799.0 47.95 53.4% 65.3% 76.0%
05/30/95 5.0 --
05/30/95 239.0 21.00 29.2% 47.4% 55.6%
06/05/95 17.4 6.00 45.5% 29.7% 29.7%
06/05/95 3263.8 64.00 96.9% 100.8% 103.2%
06/09/95 61.4 9.25 39.6% 57.4% 72.1%
00/19/95 10.6 3.16 40.4% 40.4% 44.5%
06/19/95 92.7 22.00 63.0% 63.0% 77.8%
06/20/95 62.6 18.00 37.1% 35.8% 46.9%
06/20/95 33.8 10.25 6.5% 24.2% 36.7%
06/22/95 29.3 14.00 (1.8%) 7.7% (1.8%)
07/04/95 30.5 33.97 0.0% 25.8% 47.7%
07/05/95 401.1 39.50 26.9% 19.7% 30.0%
07/06/95 50.1 6.33 1.3% 1.3% 1.3%
07/10/95 77.7 18.50
07/10/95 283.4 21.00 37.7% 38.8% 84.6%
07/10/95 227.1 34.00 37.4% 34.7% 29.5%
07/14/95 182.1 20.00 27.0% 20.3% 26.0%
07/17/95 613.1 33.50 3.9% 10.7% 45.7%
07/17/95 186.2 10.00 17.6% 29.0% 29.0%
07/31/95 116.8 32.00 9.9% 11.3% 11.3%
</TABLE>
<PAGE> 65
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 - FEBRUARY 19, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME
- --------- ------ ------------- -----------
<S> <C> <C> <C>
08/01/95 11/24/95 Westinghouse Electric Corp CBS Inc
08/04/95 09/12/95 Advance Publications Inc American City Business Journal
08/04/95 02/29/96 Trigon Blue Cross Blue Shield Mid-South Insurance Co
08/09/95 09/30/95 Loewen Group Inc MHI Group Inc
08/10/95 10/13/95 Humana Inc Emphesys Financial Group Inc
08/10/95 11/15/95 Agrium Inc Nu-West Industries Inc
08/11/95 02/01/96 Life Bancorp Inc Seaboard Bancorp Inc
08/15/95 10/06/95 Johnson Matthey PLC Advance Circuits Inc
08/16/95 08/16/95 Investor Abigail Adams National Bancorp
08/17/95 01/15/96 Standard Fed Bancorp, Troy, MI FSB Financial Corp
08/22/95 12/29/95 First Midwest Finl, Iowa Iowa Bancorp Inc
08/23/95 10/04/95 Schering Berlin Inc Medrad Inc
08/25/95 01/02/96 Berkshire Hathaway Inc GEICO Corp (Berkshire Hathaway)
08/28/95 02/01/96 First Nationwide Bank, TX SFFed Corp
08/29/95 09/29/95 Vista 2000 Inc American Consumer Products Inc
08/30/95 01/03/96 Michigan Physicians Mutual Kentucky Medical Insurance Co
08/31/95 02/01/96 Ace Cash Express Inc Check Express Inc
08/31/95 04/01/96 Western Ohio Financial Corp Mayflower Financial Corp
09/07/95 03/06/96 Principal Health Care Inc Admar Group Inc
09/08/95 12/26/95 Pelican Cos Inc Sunbelt Cos Inc
09/12/95 10/20/95 Textron Inc Elco Industries Inc
09/13/95 01/19/96 Barnett Banks, Jacksonville, FL First Financial Bancshares
09/14/95 11/11/95 Thomas Nelson Inc CR Gibson Co
09/15/95 01/11/96 Measurex Corp Data Measurement Corp
09/18/95 09/23/96 Shinhan Bank Marine National Bank, Irvine, CA
09/19/95 10/31/95 Breuners Home Furnishings Corp Huffman Koos (SGH/JG Inds Inc)
09/22/95 03/01/96 Republic New York Corp, NY, NY Brooklyn Bancorp Inc
09/25/95 09/25/95 CD Spangler National Gypsum Co (Delcor)
09/25/95 11/06/95 Mallinckrodt Veterinary Inc Syntro Corp
09/26/95 12/21/95 SCOR SCOR US Corp (SCOR SA)
09/29/95 10/02/95 Investors Prudential Reinsurance Hldgs
10/04/95 12/22/95 Westcorp Hammond Co
10/09/95 10/09/95 Investors Personnel Group of America Inc
10/09/95 03/13/96 Pioneer Financial Services Universal Fidelity Life Ins Co
10/10/95 05/07/96 Pacific Bank NA, CA Burlingame Bancorp
10/13/95 11/13/95 Twentieth Century Fox Film Carolco Pictures Inc
10/13/95 03/08/96 Chelton Communications Systems Kevlin Corp
</TABLE>
<TABLE>
<CAPTION>
DATE
ANNOUNCED ACQUIROR BUSINESS DESCRIPTION TARGET BUSINESS DESCRIPTION
- --------- ----------------------------- ---------------------------
<S> <C> <C>
08/01/95 Mnfr elec defense electn equip Own, op TV, radio stations
08/04/95 Publish newspapers, magazines Publish journals and magazines
08/04/95 Pvd hospital, med service plans Health, accident, life ins co
08/09/95 Own, operate funeral homes Pvd funeral, crematory svcs
08/10/95 Own and operate HMOs Insurance holding company
08/10/95 Manufacture fertilizers Manufacture fertilizers
08/11/95 Bank holding company Bank holding company
08/15/95 Mnfr dyes, pigments, paints Mnfr printed circuit boards
08/16/95 Investor Bank holding company
08/17/95 Commercial bank Savings bank
08/22/95 Bank holding company Commercial bank
08/23/95 Manufacture pharmaceuticals Mnfr medical instruments
08/25/95 Property, casualty insurance co Insurance and financial svcs
08/28/95 Savings bank Savings and loan
08/29/95 Develop security systems Mnfr consumer hardware prods
08/30/95 Surety insurance co Insurance company
08/31/95 Provide check cashing services Provide check cashing services
08/31/95 Investment firm Savings and loan holding co
09/07/95 Own and operate HMO's Provide health care mgmt svcs
09/08/95 Wholesale lumber Wholesale lumber
09/12/95 Mnfr aircraft engines, parts Mnfr fasteners, hardware
09/13/95 Commercial bank Savings bank
09/14/95 Publish books Mnfr, publish memory books
09/15/95 Mnfr comptr process cntrl sys Mnfr quality control instr
09/18/95 Foreign bank Commercial bank
09/19/95 Own, operate furniture store Own, operate furniture stores
09/22/95 Bank holding company Commercial bank
09/25/95 Investment firm Mnfr gypsum, wallboard prods
09/25/95 Manufacture animal food Manufacture vaccines
09/26/95 Insurance holding company Reinsurance holding company
09/29/95 Investors Insurance holding company
10/04/95 Bank holding company Mortgage bank; holding co
10/09/95 Investors Pvd temporary staffing svcs
10/09/95 Life, health, accident ins svcs Insurance co
10/10/95 Commercial bank Commercial bank
10/13/95 Radio, TV stations; movie prod Motion picture prodn svcs
10/13/95 Mnfr electronic components Mnfr microwave components
</TABLE>
<TABLE>
<CAPTION>
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- ------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
08/01/95 5122.3 82.07 24.8% 22.5% 18.9%
08/04/95 205.4 28.00 28.7% 23.1% 28.0%
08/04/95 85.5 15.67 56.7% 56.7% 45.8%
08/09/95 69.9 10.25 15.5% 34.4% 46.4%
08/10/95 642.8 37.50 13.6% (3.8%) 1.4%
08/10/95 87.7 10.50 (12.5%) (12.5%) (8.7%)
08/11/95 8.2 1.65 10.0% 20.0% 32.0%
08/15/95 171.0 22.50 39.5% 36.4% 37.4%
08/16/95 5.1 --
08/17/95 27.2 23.50 19.0% 27.0% 32.4%
08/22/95 9.0 --
08/23/95 181.2 28.00 25.8% 25.8% 28.7%
08/25/95 2349.2 70.00 25.6% 23.1% 25.3%
08/28/95 264.0 32.00 21.9% 36.9% 43.4%
08/29/95 13.0 5.30 17.8% 28.5% 41.3%
08/30/95 25.0 12.37 45.5% 37.4% 76.7%
08/31/95 6.3 1.20 37.1% 37.1% 37.1%
08/31/95 10.0 28.50
09/07/95 19.8 2.25 60.0% 84.6% 75.6%
09/08/95 18.0 7.95 32.5% 27.2% 44.5%
09/12/95 182.2 36.00 93.3% 97.3% 100.0%
09/13/95 20.0 15.51 8.8% 8.8% 17.1%
09/14/95 67.5 9.00 2.9% 1.4% 5.9%
09/15/95 32.2 18.63 2.4% 18.3% 11.2%
09/18/95 21.9 --
09/19/95 37.6 9.38 50.0% 38.9% 33.9%
09/22/95 508.8 41.50 9.2% 9.6% 15.7%
09/25/95 1134.9 54.00 0.0% 0.9% 0.9%
09/25/95 41.5 3.55 42.0% 42.0% 49.5%
09/26/95 59.9 15.25 37.1% 35.6% 38.6%
09/29/95 837.5 --
10/04/95 5.4 --
10/09/95 105.0 13.13
10/09/95 26.0 28.00
10/10/95 7.5 12.00
10/13/95 50.0 --
10/13/95 15.9 4.54 0.0% 11.8% 17.2%
</TABLE>
<PAGE> 66
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 - FEBRUARY 19, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME
- --------- ------ ------------- -----------
<S> <C> <C> <C>
10/18/95 11/28/95 Rhone-Poulenc Rorer Inc Applied Immune Sciences Inc
10/18/95 03/29/96 Logicon Inc Geodynamics Corp
10/20/95 10/20/95 Roosevelt Bank, Chesterfield, MO Washington Savings Bank FSB
10/23/95 12/07/95 Diebold Inc Griffin Technology Inc
10/26/95 01/17/96 Hyundai Electronics Industries Maxtor Corp
10/30/95 12/28/95 SoftKey International Inc Learning Co
10/30/95 06/07/96 Great Financial Corp, Kentucky LFS Bancorp
10/31/95 02/06/96 Alberto-Culver Co St Ives Laboratories
11/02/95 06/20/96 Riverside Group Inc Wickes Lumber Co
11/03/95 06/26/96 Dime Savings Bk, Williamsburgh Conestoga Bancorp Inc
11/06/95 01/10/96 Marquette Electronics Inc USA E For M Corp
11/06/95 02/01/96 Airline Investors Partnership Hawaiian Airlines Inc(HAL Inc)
11/06/95 01/08/96 Compaq Computer Corp NetWorth Inc(Ungermann-Bass)
11/06/95 01/10/96 Sherwin-Williams Co Pratt & Lambert United Inc
11/08/95 02/15/96 ADT Ltd Alert Centre Inc(ADT Ltd)
11/08/95 04/23/96 MA Hanna Co CIMCO Inc
11/08/95 02/23/96 Packaging Acq (MST Part, MST Of) Dolco Packaging Corp
11/10/95 04/29/96 Bank of the West Northbay Financial Corp, CA
11/13/95 04/22/96 Harris Savings Assn, Harrisburg First Harrisburg Bancor Inc
11/13/95 12/19/95 S.O.C. Corp (Blount/Blount Int) Simmons Outdoor Corp
11/14/95 12/29/95 Main Line Fed Svgs Bk(MLF Ban) Suburban Federal Savings Bk, PA
11/15/95 05/02/96 ERD Waste Corp Environmental Services of Amer
11/22/95 01/31/96 Baxter Healthcare Corp PSICOR Inc
11/27/95 01/11/96 Wolters Kluwer NV Commerce Clearing House Inc
11/29/95 02/16/96 Kuhlman Corp Communication Cable Inc
12/07/95 02/16/96 Syratech Corp Rauch Industries Inc
12/11/95 01/19/96 Tyco International Ltd Earth Technology Corp USA
12/11/95 07/01/96 Capital City Bank Group, FL First Financial Bancorp Inc
12/11/95 06/28/96 Union Safe Deposit Bank Great Valley Bank, Ceres, CA
12/11/95 01/22/96 Newell Co Holson Burnes Group Inc
12/14/95 06/10/96 Standard Federal Bank, Troy, MI Bell Bancorp Inc, Chicago, IL
12/18/95 01/29/96 American Brands Inc Cobra Golf Inc
12/19/95 05/31/96 First Nationwide Bank, CA Home Fed Finl, San Francisco, CA
12/20/95 02/05/96 Thomson US Holdings Inc SCS/Compute Inc
01/02/96 01/02/96 Investor Auto Parts Club Inc
01/03/96 08/28/96 Recoton Corp International Jensen Inc
01/05/96 09/09/96 Investor Group Finl Institutions Ins Grp Ltd
</TABLE>
<TABLE>
<CAPTION>
DATE
ANNOUNCED ACQUIROR BUSINESS DESCRIPTION TARGET BUSINESS DESCRIPTION
- --------- ----------------------------- ---------------------------
<S> <C> <C>
10/18/95 Manufacture pharmaceuticals Mnfr blood therapeutic systems
10/18/95 Pvd computer svcs to military Provide info engineering svcs
10/20/95 Savings bank Savings bank
10/23/95 Mnfr ATMs, security equip Mnfr, whl computers
10/26/95 Mnfr computers, semiconductors Mnfr computer disk drives
10/30/95 Develops consumer software Develop educational software
10/30/95 Bank holding company Commercial bank
10/31/95 Mnfr and whl consumer products Manufacture personal care prod
11/02/95 Fire, marine casualty ins co Whl, ret lumber; wood millwork
11/03/95 Savings bank Commercial bank; holding co
11/06/95 Mnfr electromedical apparatus Manufacture HDTVs
11/06/95 Investment firm Passenger airline
11/06/95 Manufacture personal computers Mnfr networking equipment
11/06/95 Mrdr and retail paint products Mnfr, whl paints, adhesives
11/08/95 Provide security, cleaning svcs Pvd alarm maintenance svcs
11/08/95 Mnfr rubber, plastic polymers Thermoplastic products
11/08/95 Investment firm Mnfr packaging, shipping prods
11/10/95 Commercial bank Svgs bk; provide credit svcs
11/13/95 Savings bank Savings and loan
11/13/95 Whl professional equipment Whl professional equipment
11/14/95 Savings bank Savings bank
11/15/95 Pvd waste mgmt, business svcs Provide disposal services
11/22/95 Manufacture pharmaceuticals Provide health services
11/27/95 Publish newspapers, books Publish books and law reports
11/29/95 Mnfr transformers, indl springs Mnfr, whl electronic cable
12/07/95 Manufacture silver flatware Manufacture glass products
12/11/95 Mnfr fire protection systems Hazardous waste consulting svc
12/11/95 Commercial state bank Bank holding co; savings bank
12/11/95 Commercial bank Commercial bank
12/11/95 Mnfr food serving, storage prod Manufacture photo albums
12/14/95 Savings bank Bank holding company
12/18/95 Mnfr cigarettes, cigars Mnfr sporting, athletic goods
12/19/95 Savings and loan Bank holding company
12/20/95 Publish newspapers Pvd income tax processing svcs
01/02/96 Investor Mnfr, whl auto parts
01/03/96 Mnfr audio, video equipment Mnfr radios and televisions
01/05/96 Investor group Investment holding company
</TABLE>
<TABLE>
<CAPTION>
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER I DAY I WEEK 4 WEEKS
ANNOUNCED ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- ------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
10/18/95 84.6 11.75 67.9% 51.6% 38.2%
10/18/95 31.2 10.76 13.3% 13.3% 23.0%
10/20/95 103.7 22.75 360.8% 372.7% 295.7%
10/23/95 18.0 7.75 (8.8%) 0.0% (6.1%)
10/26/95 228.2 6.70 42.9% 64.9% 44.9%
10/30/95 579.6 67.50 80.0% 95.7% 84.9%
10/30/95 68.5 19.50 16.4% 7.2% 6.8%
10/31/95 110.4 15.00 20.0% 50.0% 55.8%
11/02/95 10.0 5.00 (36.5%) (39.4%) (47.0%)
11/03/95 105.3 21.25 11.8% 13.3% 18.9%
11/06/95 88.9 12.00 29.7% 37.1% 31.5%
11/06/95 20.0 1.10 (64.8%) (60.9%) (64.1%)
11/06/95 342.5 42.00 21.7% 48.7% 111.3%
11/06/95 405.2 35.00 68.7% 60.9% 49.7%
11/08/95 93.1 9.25 94.7% 117.6% 120.9%
11/08/95 31.8 10.50 104.9% 147.1% 133.3%
11/08/95 31.8 21.00 (9.7%) (15.2%) (12.5%)
11/10/95 45.9 15.75 21.2% 21.2% 16.7%
11/13/95 35.2 14.77 31.3% 24.4% 15.8%
11/13/95 34.2 10.40 66.4% 73.3% 77.0%
11/14/95 5.7 10.25
11/15/95 7.5 1.66 39.8% 66.0% 39.8%
11/22/95 81.3 17.50 14.8% 25.0% 48.9%
11/27/95 1901.0 55.50 100.0% 115.5% 131.3%
11/29/95 51.7 14.00 55.6% 55.6% 47.4%
12/07/95 48.2 13.00 35.1% 31.6% 32.5%
12/11/95 69.6 8.00 36.2% 33.3% 73.0%
12/11/95 11.0 22.00 11.4% 14.3% 20.5%
12/11/95 12.2 8.75
12/11/95 34.0 5.50 4.8% 41.9% 46.7%
12/14/95 361.2 37.50 13.6% 10.3% 23.0%
12/18/95 670.4 36.00 30.3% 32.1% 32.7%
12/19/95 69.1 18.50 8.8% 2.8% 15.6%
12/20/95 17.8 6.75 134.8% 157.1% 145.5%
01/02/96 5.1 -
01/03/96 109.1 11.00 29.4% 57.1% 49.2%
1/5/96 53.0 16.00 9.4% (1.5%) (4.1%)
</TABLE>
<PAGE> 67
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 - FEBRUARY 19, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME
- --------- ------ ------------- -----------
<S> <C> <C> <C>
01/05/96 02/15/96 GreenGrass Holdings Swing-N-Slide Corp
01/09/96 04/30/96 CompuWare Corp Technalysis Corp
01/16/96 02/26/96 Multicare Cos Inc Concord Health Group
01/16/96 04/10/96 Depuy Inc (Corange Ltd) Orthopedic Technology Inc
01/18/96 07/02/96 Pfizer Inc Corvita Corp
01/23/96 05/09/96 Spartech Corp Portage Industries Corp
01/24/96 07/16/96 First Maryland Bancorp, MD 1st Washington Bancorp Inc
01/24/96 08/08/96 Chartwell Leisure Associates National Lodging Corp
01/26/96 05/15/96 Charter Financial Inc, Illinois Community Savings Bk, Marion, IL
01/29/96 04/08/96 WH Brady Co Varitronic Systems Inc
01/31/96 03/04/96 IBM Corp Tivoli Systems Inc
02/05/96 06/19/96 Bay View Capital, San Mateo, CA CTL Credit Inc
02/08/96 07/31/96 Meridian Insurance Group Citizens Security Group Inc
02/12/96 05/03/96 Essilor of America Inc Benson Eyecare Corp
02/12/96 05/01/96 Honeywell Inc Duracraft Corp
02/13/96 07/12/96 Horizon/CMS Healthcare Corp Medical Innovations Inc
02/13/96 08/02/96 American Federal Savings Bk, MN Northwestern Financial Corp
02/14/96 03/20/96 Unilever NV Helene Curtis Industries Inc
02/15/96 05/14/96 Genstar Capital Partners II LP Andros Inc
02/15/96 04/29/96 NationsBank Corp, Charlotte, NC LDI Corp
02/21/96 03/29/96 Welsh Carson Anderson & Stowe Aurora Electronics Inc
02/29/96 07/10/96 TBC Corp Big O Tires Inc
02/29/96 09/30/96 Trenton Savings Bank, NJ Burlington County Bank, NJ
03/04/96 04/08/96 Lilly Industries Inc Guardsman Products Inc
03/07/96 07/03/96 Danaher Corp Acme-Cleveland Corp
03/13/96 04/18/96 Eaton Corp CAPCO Automotive Products Co
03/21/96 10/01/96 Monarch Bancorp, California Western Bank, Los Angeles, CA
03/29/96 04/26/96 Equity Holdings, Chicago,IL Great American Mgmt & Invt Inc
03/29/96 10/21/96 ISB Financial, New Iberia, LA Jefferson Bancorp, Gretna, LA
03/29/96 08/07/96 Abbott Laboratories MediSense Inc
04/02/96 08/26/96 Hibernia National Bank, LA CM Bank Holding Co
04/22/96 06/03/96 K-III Communications Corp Westcott Communications Inc
04/23/96 10/21/96 Security Banc Corp, OH Third Financial Corp, Piqua, OH
04/26/96 07/03/96 Movie Gallery Inc Home Vision Entertainment Inc
04/29/96 09/03/96 Hubco Inc, Mahwah, New Jersey Hometown Bancorporation Inc, CT
05/07/96 07/03/96 Orion Capital Corp Guaranty National Corp
05/10/96 10/01/96 HF Bancorp Inc, Hemet, CA Palm Springs Savings Bank, CA
</TABLE>
<TABLE>
<CAPTION>
DATE
ANNOUNCED ACQUIROR BUSINESS DESCRIPTION TARGET BUSINESS DESCRIPTION
- --------- ----------------------------- ---------------------------
<S> <C> <C>
01/05/96 Investment holding company Mnfr backyard swings, slides
01/09/96 Dvlp, whl software systems Develop software
01/16/96 Own, op nursing care facilities Pvd healthcare mgmt services
01/16/96 Mnfr orthopedic devices Manufacture surgical supplies
01/18/96 Manufacture pharmaceuticals Manufacture medical equipment
01/23/96 Manufacture plastic products Mnfr extruded plastic sheets
01/24/96 Bank holding company Bank holding company
01/24/96 Own and operate hotels Own and operate casinos
01/26/96 Savings bank; holding co Savings bank
01/29/96 Mnfr indl labeling machines Mnfr typewriters
01/31/96 Mnfr computers, office equip Dvlp systems mgmt software
02/05/96 Bank holding company Bank holding company
02/08/96 Insurance holding company Insurance holding company
02/12/96 Mnfr, whl ophthalmic goods Wholesale ophthalmic goods
02/12/96 Mnfr automation, control sys Mnfr electric housewares
02/13/96 Pvd nursing care services Pvd home health care services
02/13/96 Savings bank Bank holding co; coml bank
02/14/96 Produce foods; holding company Mnfr perfumes, cosmetics
02/15/96 Investment firm Mnfr infrared gas analyzers
02/15/96 Bank hldg co; pvd finl svcs Computer equip leasing svcs
02/21/96 Venture capital firm Recycle integrated circuits
02/29/96 Whl tires, automobile parts Own, operate tire stores
02/29/96 Savings and loan Commercial bank
03/04/96 Mnfr industrial finishings Mnfr coatings, cleaning prod
03/07/96 Mnfr auto parts, main equip Mnfr metal cutting tools
03/13/96 Manufacture automotive parts Mnfr automobile parts
03/21/96 Bank holding co Savings and loan
03/29/96 Investment firm Invt advice and financial svcs
03/29/96 Savings bank; bank holding co Savings bank; bank holding co
03/29/96 Mnfr pharmaceuticals, med equip Mnfr blood monitoring systems
04/02/96 Commercial bank Bank holding company
04/22/96 Publish magazines Pvd motion picture prodn svcs
04/23/96 Bank holding co; coml bank Bank holding company
04/26/96 Own, op video stores Pvd video tape rental svcs
04/29/96 Bank holding company Bank holding company
05/07/96 Insurance company; holding co Insurance company
05/10/96 Bank holding co; savings bank Savings bank
</TABLE>
<TABLE>
<CAPTION>
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- ------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
01/05/96 22.8 6.50 (25.7%) (29.7%) (36.6%)
01/09/96 32.6 14.00 12.0% 16.7% 16.7%
01/16/96 126.9 7.35 25.1% 43.4% 58.9%
01/16/96 45.2 10.43 26.4% 43.9% 49.0%
01/18/96 78.5 10.25 (2.4%) 2.5% (2.4%)
01/23/96 15.8 6.60 46.7% 79.0% 79.0%
01/24/96 81.9 8.13 27.5% 51.2% 44.4%
01/24/96 57.0 14.25 34.1% 26.7% 0.0%
01/26/96 7.5 50.00
01/29/96 42.5 17.50 79.5% 79.5% 62.8%
01/31/96 709.8 47.50 25.8% 25.0% 41.8%
02/05/96 65.0 18.00 53.2% 82.3% 69.4%
02/08/96 22.6 12.50 88.7% 108.3% 117.4%
02/12/96 210.3 6.60 (26.7%) (30.5%) (17.5%)
02/12/96 286.7 43.50 58.2% 50.0% 68.1%
02/13/96 30.3 1.85 13.8% 18.4% 5.7%
02/13/96 12.5 23.25
02/14/96 737.4 70.00 18.6% 30.2% 71.8%
02/15/96 92.6 18.00 16.1% 24.1% 35.8%
02/15/96 28.1 4.10 31.2% 21.5% 49.1%
02/21/96 50.0 -
02/29/96 56.6 16.50 5.6% 7.3% 12.8%
02/29/96 12.5 77.00
03/04/96 227.8 23.00 32.4% 32.4% 57.3%
03/07/96 204.4 30.00 50.0% 55.8% 56.9%
03/13/96 128.9 12.50 66.7% 72.4% 78.6%
03/21/96 61.0 -
03/29/96 63.3 50.00 2.6% 4.2% 3.6%
03/29/96 52.0 23.00 15.0% 16.5% 18.7%
03/29/96 821.6 45.00 48.8% 48.8% 39.0%
04/02/96 201.7 193.52
04/22/96 438.9 21.50 43.3% 57.8% 56.4%
04/23/96 43.9 33.41 11.4% 13.7% 14.2%
04/26/96 32.0 -
04/29/96 31.9 17.75 20.3% 29.1% 29.1%
05/07/96 85.1 18.50 15.6% 15.6% 22.3%
05/10/96 17.3 14.38 36.9% 43.8% 43.8%
</TABLE>
<PAGE> 68
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 - FEBRUARY 19, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME
- --------- ------ ------------- -----------
<S> <C> <C> <C>
05/13/96 08/15/96 Northern Telecom Ltd(BCE Inc) MICOM Communications Corp
05/15/96 06/21/96 Heritage Fund I Klearfold Inc
05/16/96 10/31/96 Markel Corp Investors Insurance Group
05/20/96 07/23/96 General Electric Capital Svcs AmeriData Technologies Inc
05/20/96 08/29/96 Finova Group Inc Financing for Science Intl Inc
05/21/96 10/01/96 Collective Bancorp,New Jersey Continental Bancorporation
05/24/96 09/04/96 Joint Energy Development Clinton Gas Systems Inc
05/24/96 07/02/96 Lear Corp Masland Corp
05/27/96 02/16/97 Novartis AG SyStemix Inc(Novartis AG)
05/29/96 01/28/97 Regions Finl, Birmingliam, AL Florida First Bancorp Inc, FL
06/03/96 09/30/96 Pakhoed Holding NV Univar Corp
06/06/96 10/01/96 Investor Group AT&T Capital Corp(AT&T Corp)
06/06/96 07/09/96 Lacy Distribution Inc FinishMaster Inc(Maxco Inc)
06/10/96 08/23/96 Vemco Acquisition Corp Bailey Corp
06/10/96 07/22/96 Merck-Medco Managed Care Inc SysteMed Inc
06/11/96 07/23/96 Forstmann Little & Co Community Health Systems; Inc
06/11/96 11/30/96 TDI Financial, Chicago, IL Security Chicago, Chicago, IL
06/13/96 11/07/96 Citizens Financial Group,RI Farmers & Mechanics Bank, CT
06/14/96 08/23/96 Varlen Corp Brenco Inc
06/14/96 07/12/96 Falcon Holding Group LP Falcon Cable Systems Co
06/14/96 11/14/96 Western Ohio Financial Corp Seven Hills Financial
06/20/96 09/16/96 Public Storage Inc Public Storage Properties X
06/20/96 09/16/96 Public Storage Inc Public Storage Properties XII
06/21/96 08/23/96 United Communications Group Computer Petroleum Corp
06/24/96 11/01/96 First Banks America Inc Sunrise Bancorp, Roseville, CA
06/27/96 02/21/97 Northwest Svgs Bk, Warre, PA Bridgeville Savings Bank
06/28/96 09/27/96 Investor Group Salem Corp
07/01/96 09/25/96 Rockwell International Corp Brooktree Corp
07/01/96 03/25/97 Tribune Co Renaissance Commun Corp
07/03/96 09/05/97 Gold Kist Inc Golden Poultry Co Inc
07/12/96 10/10/90 Astor Chemicals ADCO Technologies Inc
07/22/96 10/25/96 cisco Systems Inc Telebit Corp
07/23/96 02/19/97 Capstar Broadcasting Partners Osborn Communications Corp
07/29/96 01/03/97 First Nationwide Bank, CA Cal Fed Bancorp, Los Angeles, CA
07/31/96 11/13/96 Monsanto Co Calgene Inc
07/31/96 09/17/96 Investor Group Grand Union Co
08/02/96 11/29/96 General Electric Capital Corp First Colony Corp
</TABLE>
<TABLE>
<CAPTION>
DATE
ANNOUNCED ACQUIROR BUSINESS DESCRIPTION TARGET BUSINESS DESCRIPTION
- --------- ----------------------------- ---------------------------
<S> <C> <C>
05/13/96 Mnfr telephone apparatus Mnfr communications equipment
05/15/96 Investment firm Mnfr paperboard packaging prod
05/16/96 Insurance firm, agency Insurance company; holding co
05/20/96 Pvd financing services Whl computers, peripherals
05/20/96 Pvd financial services Pvd business credit services
05/21/96 Bank holding company Bank holding company
05/24/96 Oil and gas exploration, prodn Oil and gas exploration, prodn
05/24/96 Mnfr automobile seats Mnfr motor vehicle parts
05/27/96 Manufacture pharmaceuticals Mnfr, dvlp cellular processes
05/29/96 Bank holding company Savings and loan; holding co
06/03/96 Pvd freight transp services Whl chemicals, pesticides
06/06/96 Investor Group Pvd leasing, financing services
06/06/96 Whl industrial machinery equip Whl automotive paint, coatings
06/10/96 Investment holding company Manufacture rubber products
06/10/96 Health insurance company Pvd medical services
06/11/96 Investment company Operate medical clinics
06/11/96 Commercial bank; holding co Commercial bank holding co
06/13/96 Savings bank; holding co Commercial bank
06/14/96 Mnfr custom tubular products Ball and roller bearings
06/14/96 Own and operate cable TV sys Own, operate cable TV systems
06/14/96 Investment firm Savings and loan
06/20/96 Real estate investment trust Pvd warehousing, storage svcs
06/20/96 Real estate investment trust Rent storage space
06/21/96 Publish newsletters Information retrieval svcs
06/24/96 6 vings bank Commercial bank
06/27/96 Savings and loan Savings bank
06/28/96 Investor group Whl industrial mach and equip
07/01/96 Mnfr aircraft, defense systems Manufacture semiconductors
07/01/96 Publish newspaper; cable TV sys Own and operate TV stations
07/03/96 Produce, wholesale poultry Produce, wholesale poultry
07/12/96 Mnfr specialty, chemicals Mnfr adhesives and sealants
07/22/96 Mnfr inter-networking systems Mnfr data transmission equip
07/23/96 Own, operate radio stations Own, op radio and TV stations
07/29/96 Savings and loan Bank holding company
07/31/96 Mnfr agro chems, manmade fiber Own and operate greenhouse
07/31/96 Investor group Own and operate supermarkets
08/02/96 Pvd consumer financing svcs Insurance holding company
</TABLE>
<TABLE>
<CAPTION>
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- ------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
05/13/96 138.3 12.00 (14.3%) 9.1% 58.4%
05/15/96 45.8 -
05/16/96 38.0 -
05/20/96 454.8 16.00 4.1% 25.0% 47.1%
05/20/96 39.2 6.40 4.5% 67.0% 12.5%
05/21/96 287.0 5.00
05/24/96 38.4 6.75 3.8% 14.9% 31.7%
05/24/96 413.5 26.00 6.1% 18.2% 30.0%
05/27/96 107.6 19.50 4.7% 69.6% 59.2%
05/29/96 40.9 11.65 21.0% 19.5% 33.1%
06/03/96 331.8 19.45 57.2% 54.1% 58.8%
06/06/96 2128.6 45.00 37.4% 38.5% 42.3%
06/06/96 62.6 15.65 30.4% 27.8% 42.3%
06/10/96 47.8 8.75 5.5% 6.1% 11.1%
06/10/96 64.8 3.00 (4.0%) 4.3% 9.1%
06/11/96 1080.0 52.00 20.2% 19.9% 18.9%
06/11/96 12.5 60.00
06/13/96 52.9 32.00 58.0% 62.0% 62.0%
06/14/96 161.4 16.13 31.0% 30.3% 20.6%
06/14/96 247.4 -
06/14/96 11.0 19.70 19.4% 19.4% 19.4%
06/20/96 50.2 20.92 13.9% 13.1% 10.8%
06/20/96 55.2 22.34 14.6% 14.6% 15.3%
06/21/96 12.0 3.85 28.3% 46.7% 71.1%
06/24/96 18.7 4.00 39.1% 52.4% 45.5%
06/27/96 18.3 16.00 10.3% 10.3% 8.5%
06/28/96 46.6 25.00 22.0% 23.5% 11.7%
07/01/96 261.8 15.00 42.9% 64.4% 16.5%
07/01/96 1094.4 36.00 11.6% 19.0% 20.5%
07/03/96 52.1 14.25 52.0% 50.0% 39.0%
07/12/96 53.8 10.25 28.1% 51.9% 57.7%
07/22/96 196.3 13.35 22.8% 22.8% 4.7%
07/23/96 89.9 15.38 28.1% 50.0% 38.2%
07/29/96 1287.8 23.50 18.2% 32.4% 31.5%
07/31/96 50.0 8.00 64.1% 80.3% 39.1%
07/31/96 00.0 -
08/02/96 1799.2 36.15 37.7% 32.7% 39.0%
</TABLE>
<PAGE> 69
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 - FEBRUARY 19, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME
- --------- ------ ------------- -----------
<S> <C> <C> <C>
08/07/96 10/03/96 Magna International Inc Douglas & Lomason Co
08/07/96 08/26/97 Bank SinoPac Far East National Bank, CA
08/08/96 09/17/96 Chemed Corp Roto-Rooter Inc (Chemed Corp)
08/16/96 07/31/96 Pengo Industries Inc Inland Resources Inc
08/21/96 11/22/96 Golden Technologies (ACX Tech) Photocomm Inc
08/29/96 11/14/96 Cypress Group LLC Amtrol Inc
09/09/96 09/23/96 Highwoods Properties Inc Crocker Realty Trust Inc
09/11/96 03/04/97 American Eco Corp Chempower Inc
09/16/96 03/31/97 Mutual Savings Bk, Milwaukee, WI First Fed Bancshares of Eau Cl
09/16/96 04/11/97 Superior National Ins Group Pac Rim Holding Corp
09/16/96 12/06/96 Schnitzer Steel Industries Inc Proler International Corp
09/20/96 11/01/96 Sanmina Corp Comptronix Corp
09/24/96 01/02/97 Oracle Corp Datalogix International
09/30/96 02/28/97 Cullen/Frost Bankers Inc, Texas Corpus Christi Bancshares, TX
10/07/96 12/02/96 Computer Associates Intl Inc Cheyenne Software Inc
10/07/96 12/05/96 Southwide Life Insurance Corp Southland National Insurance
10/08/96 11/22/96 Nash Finch Co Super Food Services Inc
10/10/96 11/27/96 Renco Group Inc WCI Steel Inc (Renco Group Inc)
10/15/96 06/03/97 Investor Group Conrail Inc
10/17/96 12/03/96 LF Strategic Investors RF&P Corp
10/17/96 02/27/97 Investor Group Triad Systems Corp
10/21/96 03/31/97 Investor Group Detroit & Canada Tunnel Corp
10/21/96 04/10/97 Newnan Holdings Inc, Newnan, GA Tara Bankshares Corp, Georgia
10/28/96 01/15/97 Henkel KGaA Loctite Corp
11/04/96 03/05/97 Citizens Bank of Massachusetts Grove Banks, Chesnut Hill, MA
11/04/96 05/19/97 Glendale Fed Bk, Glendale, CA TransWorld Bancorp, California
11/05/96 03/14/97 Harbour Group Ltd Panatech Research & Development
11/06/96 03/07/97 Progressive Corp Midland Financial Group Inc
11/07/96 06/13/97 Shoreline Financial Corp, MI SJS Bancorp Inc, St Joseph, MI
11/12/96 06/12/97 Investor Group Leslie's Poolmart
11/13/96 12/17/96 IBM Corp Edmark Corp
11/13/96 01/20/97 FCY Inc Medex Inc
11/18/96 01/02/97 Intermet Corp Sudbury Inc
11/22/96 05/01/97 ABN-AMRO Holding NV Standard Fed Bancorp, Troy, MI
11/25/96 01/09/97 Applied Materials Inc Opal Inc
11/26/96 12/30/96 Clorox Co Armor All Products (McKesson)
11/26/96 11/27/96 Software Acquisition Co NeoStar Retail Group Inc
</TABLE>
<TABLE>
<CAPTION>
DATE
ANNOUNCED ACQUIROR BUSINESS DESCRIPTION TARGET BUSINESS DESCRIPTION
- --------- ----------------------------- ---------------------------
<S> <C> <C>
08/07/96 Mnfr auto parts, accessories Wholesale motor vehicles
08/07/96 Bank (Foreign) Savings and loan
08/08/96 Mnfr chems, janitorial equip Provide plumbing services, prod
08/16/96 Provide oil field services Oil and gas field exploration
08/21/96 Produce corn related products Mnfr, whl solar electric, prods
08/29/96 Investment bank Mnfr plumbing, hearing systems
09/09/96 Real estate investment trust REIT
09/11/96 Pvd engineering services Insulation, asbestos abatement
09/16/96 Savings Bank Commercial bank
09/16/96 Pvd workers' compensation svcs Pvd workers' compensation svcs
09/16/96 Manufacture steel products Whl scrap metals & metals
09/20/96 Mnfr printed circuit boards Mnfr printed circuit boards
09/24/96 Develop database software Develop business software
09/30/96 Bank holding company Bank holding company
10/07/96 Develop applications software Develop computer software
10/07/96 Life insurance company Pvd funeral insurance svs
10/08/96 Wholesale groceries Wholesale food products
10/10/96 Mnfr steel products Manufacture steel
10/15/96 Investor group Own, op freight railroad lines
10/17/96 Investment company Real estate development firm
10/17/96 Investor group Develop turnkey computer sys
10/21/96 Investor group Pvd tunnel operation services
10/21/96 Bank holding company Commercial bank; holding co
10/28/96 Mnfr, whl chemicals, detergents Mnfr adhesives & sealants
11/04/96 Commercial savings and loan Savings bank
11/04/96 Savings and loan Bank holding company
11/05/96 Mnfr steel cutting tools Manufacture semiconductors
11/06/96 Insurance holding company Fire, marine, casualty ins co
11/07/96 Commercial bank; holding co Commercial bank; holding co
11/12/96 Investor group Own, op swimming pool stores
11/13/96 Mnfr computers, office equip Develop educational software
11/13/96 Mnfr engineered polymer prods Mnfr drug infusion products
11/18/96 Ductile, gray iron castings Mnfr automotive parts
11/22/96 Bank holding company Commercial bank
11/25/96 Mnfr wafer fabrication systems Mnfr special industry equip
11/26/96 Manufacture household bleach Mnfr cleaners and waxes
11/26/96 Leverage buyout company Wholesale computer software
</TABLE>
<TABLE>
<CAPTION>
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WKS
ANNOUNCED ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- ------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
08/07/96 134.6 31.00 39.3% 90.8% 103.3%
08/07/96 94.0 -
08/08/96 93.6 41.00 12.3% 12.3% 11.2%
08/16/96 9.5 -
08/21/96 16.8 -
08/29/96 227.2 28.25 71.2% 56.9% 56.9%
09/09/96 76.1 11.88 18.8% 20.3% 21.8%
09/11/96 50.0 6.20 48.1% 48.1% 45.9%
09/16/96 132.7 18.85 23.1% 25.7% 25.7%
09/16/96 42.0 -
09/16/96 42.5 9.00 132.3% 125.0% 148.3%
09/20/96 22.0 -
09/24/96 80.0 8.00 28.0% 42.2% 56.1%
09/30/96 32.4 18.84 17.8% 17.8% 17.8%
10/07/96 1247.6 30.50 32.6% 34.8% 30.5%
10/07/96 9.5 38.00
10/08/96 164.2 15.50 37.8% 36.3% 29.2%
10/10/96 56.5 10.00 17.6% 29.0% 77.8%
10/15/96 10435.9 115.00 62.0% 60.3% 60.3%
10/17/96 570.0 -
10/17/96 193.1 9.25 68.2% 60.9% 89.7%
10/21/96 36.5 54.00 64.9% 74.2% 54.3%
10/21/96 10.5 15.00
10/28/96 1289.1 61.00 31.9% 36.7% 34.8%
11/04/96 78.7 51.00 37.8% 46.8% 50.0%
11/04/96 63.2 18.25 10.6% 12.3% 30.4%
11/05/96 29.2 7.00 55.6% 55.6% 51.4%
11/06/96 47.2 9.00 30.9% 24.1% 0.0%
11/07/96 26.5 27.00 18.7% 13.7% 24.1%
11/12/96 112.8 14.50 26.1% 31.8% 31.8%
11/13/96 123.8 15.50 35.5% 63.2% 31.9%
11/13/96 150.6 23.50 54.1% 58.0% 66.7%
11/18/96 155.4 12.50 19.0% 25.0% 9.9%
11/22/96 1971.0 59.00 1.7% 6.8% 15.4%
11/25/96 189.6 18.50 52.6% 64.4% 105.6%
11/26/96 410.1 19.09 9.1% 14.0% 14.0%
11/26/96 58.5 - 0.0% 0.0% 0.0%
</TABLE>
<PAGE> 70
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 - FEBRUARY 19, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME
- --------- ------ ------------- -----------
<S> <C> <C> <C>
11/27/96 12/27/96 JW Childs Equity Partners LP Central Tractor Farm & Country
11/27/96 03/27/97 JW Childs Equity Partners LP Central Tractor Farm & Country
11/27/96 01/16/97 Bell Industries Inc Milgray Electronics Inc
11/29/96 01/06/97 Tyco International Ltd ElectroStar Inc
12/03/96 05/01/97 Dime Bancorp Inc, New York, NY BFS Bankorp Inc, New York, NY
12/04/96 12/04/96 DowElanco (DowChem, Eli Lilly) Mycogen Corp (DowElanco/Dow)
12/05/96 03/27/97 Centex Corp Cavco Industries Inc
12/05/96 01/10/97 Hadco Corp Zycon Corp
12/06/96 03/18/97 Sears Roebuck & Co MaxServ Inc (Sears Roebuck)
12/11/96 02/21/97 Aon Corp Alexander & Alexander Services
12/12/96 01/22/97 Forcenergy Inc Great Western Resources Inc
12/16/96 01/27/97 Zurn Industries Inc Eljer Industries Inc
12/24/96 03/11/97 DENTSPLY International Inc New Image Industries Inc
12/26/96 06/09/97 Commerce Security Bancorp, CA Eldorado Bancorp, Tustin, CA
12/27/96 05/01/97 US Bancorp, Portland, Oregon Business & Professional Bk, CA
01/02/97 01/20/97 Thermo Trilogy Corp biosys
01/07/97 02/25/97 MedTrans Inc (Laidlaw Inc) American Medical Response Inc
01/07/97 02/10/97 DLB Oil & Gas Inc Bonray Drilling Corp
01/13/97 09/02/97 Zurich Versicherungs GmbH Zurich Reinsurance Centre
01/15/97 08/06/97 Columbia/HCA Healthcare Corp Value Health Inc
01/21/97 07/09/97 Mafco Holdings Inc Mafco Consolidated Grp (Mafco)
01/27/97 03/07/97 Honeywell Inc Measurex Corp
01/28/97 05/21/97 Monsanto Co Calgene Inc (Monsanto Co)
02/10/97 03/31/97 Vencor Inc TheraTx Inc
02/13/97 02/13/97 Resources Corp (Uniwide) Contour Medical (Retirement)
02/13/97 05/20/97 British Aerospace Holdings Reflectone Inc
02/18/97 06/27/97 NGC Corp Destec Energy Inc
02/18/97 05/09/97 Tracy Bankshares, Denver, CO Tracy Federal Bk FSB, Tracy, CA
02/19/97 08/06/97 United Bankshares Inc. WV First Patriot Bankshares,VA
03/06/97 08/13/97 Fireman's Fund Insurance Co Crop Growers Corp
03/14/97 10/01/97 Berlin City National Bank PEMI Bancorp Inc, Plymouth, NH
03/21/97 05/02/97 Health Systems International FOHP Inc
03/24/97 04/28/97 Elsevier Science MDL Information Systems
03/26/97 08/01/97 Deposit Guaranty, Jackson, MS CitiSave Finl,Baton Rouge, LA
03/27/97 03/27/97 Hamilton Acquisition LLC Strober Organization Inc
03/28/97 06/04/97 R-B Capital Corp Peerless Industrial Group Inc
03/31/97 06/03/97 Moore Corp Ltd Peak Technologies Group Inc
</TABLE>
<TABLE>
<CAPTION>
DATE
ANNOUNCED ACQUIROR BUSINESS DESCRIPTION TARGET BUSINESS DESCRIPTION
- --------- ----------------------------- ---------------------------
<S> <C> <C>
11/27/96 Investment company Own, op tractor, hardware stores
11/27/96 Investment company Own, op tractor, hardware stores
11/27/96 Mnfr electronic, computer prods Whl electronic equip
11/29/96 Mnfr fire protection systems Mnfr printed circuit boards
12/03/96 Savings, mortgage bank hldg co Bank holding company
12/04/96 Manufacture insecticides Develop biological pesticides
12/05/96 Construct bldg, RE dvlp firm Mnfr mobile homes
12/05/96 Mnfr computer circuit boards Mnfr printed circuit boards
12/06/96 Department stores; finl svcs Pvd technical info support svc
12/11/96 Insurance holding company Pvd insurance brokerage svcs
12/12/96 Oil, gas exploration and prodn Oil and gas production
12/16/96 Mnfr environmental equipment Manufacture plumbing fixtures
12/24/96 Mnfr dental, med X-ray equip Dev computer imaging software
12/26/96 Commercial bank; holding co Bank holding company
12/27/96 Commercial bank; trust facility Commercial bank
01/02/97 Mnfr biochemical products Mnfr pharmaceutical products
01/07/97 Pvd ambulance svcs Provide ambulance services
01/07/97 Oil and gas exploration, prodn On-shore oil and gas drilling
01/13/97 Insurance holding company Insurance agency
01/15/97 Own, operate hospitals Provide health plan services
01/21/97 Mnfr toilet preparations Mnfr cosmetics, beauty products
01/27/97 Mnfr automation, control sys Mnfr comptr process cntrl sys
01/28/97 Mnfr agro chems, manmade fiber Own and operate greenhouse
02/10/97 Provide healthcare services Own, op nursing care facilities
02/13/97 Pvd construction services Mnfr surgical supplies
02/13/97 Whl aircraft, aircraft equip Manufacture flight simulators
02/18/97 Wholesale natural gas products Electric utility
02/18/97 Commercial bank; holding co Savings bank
02/19/97 Bank holding company Bank holding company
03/06/97 Insurance company Insurance agency
03/14/97 State bank Bank holding company
03/21/97 Own, op HMO's; holding company Pvd healthcare management svcs
03/24/97 Publish scientific journals Pvd scientific info svcs
03/26/97 Bank holding co Bank holding co
03/27/97 Investment company Wholesale building materials
03/28/97 Investment company Mnfr chain and wire
03/31/97 Mnfr manifold business forms Whl integrated systems
</TABLE>
<TABLE>
<CAPTION>
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- ------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
11/27/96 81.0 14.00 15.5% 15.5% 16.7%
11/27/96 56.7 14.25 17.5% 17.5% 18.8%
11/27/96 100.0 14.77 8.4% 17.0% 20.6%
11/29/96 111.0 14.00 7.7% 27.3% 16.7%
12/03/96 91.5 52.00 11.8% 16.9% 22.4%
12/04/96 16.8 16.75 (1.5)% 0.0% 4.7%
12/05/96 76.2 26.75 13.2% 20.2% 30.5%
12/05/96 211.7 18.00 12.5% 46.9% 94.6%
12/06/96 46.0 7.75 19.2% 67.6% 55.0%
12/11/96 1227.4 17.50 6.1% 8.5% 9.4%
12/12/96 48.3 -
12/16/96 175.6 24.00 77.8% 84.6% 90.1%
12/24/96 11.4 2.00 0.0% 0.0% 77.8%
12/26/96 91.7 23.00 12.9% 14.3% 12.9%
12/27/96 33.5 18.00 14.3% 20.0% 30.9%
01/02/97 11.0 -
01/07/97 1011.1 40.00 21.2% 23.1% 36.8%
01/07/97 12.7 30.00 11.1% 11.1% 30.4%
01/13/97 319.0 36.00 17.1% 18.5% 11.6%
01/15/97 1132.3 20.50 1.2% 0.6% 0.0%
01/21/97 116.8 33.50 23.5% 23.5% 27.6%
01/27/97 597.0 35.00 44.3% 42.1% 45.8%
01/28/97 242.6 8.00 62.0% 60.0% 60.0%
02/10/97 378.2 17.10 30.3% 35.4% 59.1%
02/13/97 9.8 5.00 (14.0%) (18.4%) (2.4%)
02/13/97 41.1 24.00 20.0% 18.5% 25.5%
02/18/97 1222.4 21.65 82.3% 80.4% 63.4%
02/18/97 5.7 2.40
02/19/97 35.4 17.00 15.3% 9.7% 4.6%
03/06/97 82.1 10.25 206.0% 15.5% 41.4%
03/14/97 19.3 28.00
03/21/97 51.7 -
03/24/97 310.7 32.00 85.5% 43.8% 54.2%
03/26/97 20.3 20.50 46.4% 50.5% 46.4%
03/27/97 33.4 6.00 3.2% 2.1%
03/28/97 10.5 1.67
03/31/97 169.8 18.00 108.7% 97.3% 65.5%
</TABLE>
<PAGE> 71
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 - FEBRUARY 19, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME
- --------- ------ ------------- -----------
<S> <C> <C> <C>
04/08/97 08/28/97 Citizens Financial Group, RI BNH Bancshares, New Haven, CT
04/10/97 06/26/97 Compaq Computer Corp Microcom Inc
04/14/97 11/12/97 Neptune Orient Lines Ltd APL Ltd
04/16/97 01/30/98 Harcourt General Inc Steck-Vaughn Publishing Corp
04/18/97 04/21/97 Manor Care Inc Vitalink Pharmacy Services Inc
04/21/97 06/10/97 Harcourt General Inc National Education Corp
04/25/97 04/25/97 U-C Holdings LLC UC Television Network Corp
04/30/97 07/25/97 Park-Ohio Industries Inc Arden Industrial Products Inc
04/30/97 09/26/97 SunTrust Banks Inc, Atlanta, GA Union Planters Corp, Memphis, TN
05/01/97 10/01/97 Area Bancshares Corp, Kentucky Cardinal Bancshares, Kentucky
05/01/97 07/30/97 Choucroute Partners David White Inc
05/02/97 06/30/97 Investor Group WRT Energy Corp
05/05/97 06/13/97 Incentive AB Vivra Inc
05/06/97 01/05/98 Foundation Health Systems Inc Physicians Health Services Inc
05/06/97 07/25/97 Riddell Sports Inc Varsity Spirit
05/88/97 09/10/97 Nicolet Biomedical Inc Imex Medical Systems Inc
05/30/97 07/09/97 Whitehall Street Real Estate Integrated Living Communities
06/02/97 07/15/97 Anthem Inc Acordia Inc(Anthem Inc)
06/03/97 09/30/97 Santa Barbara Bancorp, CA Citizens State Bank, CA
06/05/97 10/20/97 Humana Inc ChoiceCare Corp
06/05/97 07/14/97 Intermedia Communications Inc DIGEX Inc
06/09/97 10/01/97 SAFECO Corp American States Financial Corp
06/10/97 08/28/97 Micron Electronics Inc NetFrame Systems Inc
06/12/97 07/31/97 Fahnestock Viner Holdings Inc First of Michigan Capital Corp
06/12/97 10/01/97 Thyssen AG Giddings & Lewis Inc
06/16/97 08/29/97 United Dominion Industries Ltd Core Industries Inc
06/16/97 09/30/97 Investor Group Frederick's of Hollywood, Inc.
06/16/97 10/10/97 Genesis Eldercare Acquisition Multicare Cos Inc
06/16/97 08/07/97 BT Industries AB Raymond Corp
06/17/97 09/25/97 Leonard Green & Partners LP Hechinger Co
06/17/97 07/24/97 Monterey Resources Inc McFarland Energy Inc
06/17/97 07/25/97 CCL Industries Inc Seda Specialty Packaging Corp
06/19/97 08/15/97 Gateway 2000 Inc Advanced Logic Research Inc
06/23/97 10/17/97 General Motors Acceptance(GM) Integon Corp
06/24/97 09/29/97 Three Rivers Holding Corp SMT Health Services Inc
06/26/97 11/26/97 Rhone-Poulenc SA(France) Rhone-Poulenc Rorer Inc
06/30/97 10/09/97 Eaton Corp Fusion Systems Corp
</TABLE>
<TABLE>
<CAPTION>
DATE
ANNOUNCED ACQUIROR BUSINESS DESCRIPTION TARGET BUSINESS DESCRIPTION
- --------- ----------------------------- ---------------------------
<S> <C> <C>
04/08/97 Savings bank; holding co Bank holding company
04/10/97 Manufacture personal computers Mnfr data comm products
04/14/97 Pvd deep sea oil transp svcs Shipping, trucking company
04/16/97 Operate movie theaters, stores Publish books, magazines
04/18/97 Own,op nursing homes, hotels Pvd health and allied svcs
04/21/97 Operate movie theaters, stores Vocational training services
04/25/97 investment company Own, op interactive TV network
04/30/97 Mnfr forged and machined parts Whl fasteners
04/30/97 Commercial bank Commercial bank holding co
05/01/97 Bank holding co Bank holding co
05/01/97 Investment company Mnfr, whl surveying instruments
05/02/97 Investor group Oil and gas exploration, prodn
05/05/97 Mnfr medical instr, ind equip Provide home health care svcs
05/06/97 Own, op HMO's; holding company Own and operate HMO's
05/00/97 Manufacture football equipment Pvd cheerleading training svcs
05/08/97 Investment company Mnfr fetal diagnostic instr
05/30/97 Real estate development firm Pvd nursing, personal care svcs
06/02/97 Insurance company Pvd insurance brokerage svcs
06/03/97 Bank holding co Commercial bank
06/05/97 Own and operate HMOs Own, operate HMOs
06/05/97 Pvd telecommunications svcs Develop Internet software
06/09/97 Provide insurance services Fire and marine insurance co
06/10/97 Mnfr electronic components Manufacture electn computers
06/12/97 Securities brokerage firm Securities brokerage firm
06/12/97 Manufacture malleable iron Mnfr automated machine tools
06/16/97 Mnfr structural metal Manufacture electronic equip
06/16/97 Investor group Women's clothing stores
06/16/97 Own,op geriatric facilities Own, op nursing care facilities
06/16/97 Mnfr fork lift trucks Mnfr industrial lift trucks
06/17/97 Merchant banking firm Own,op retail home centers
06/17/97 Oil and gas exploration, prodn Oil and gas exploration, prodn
06/17/97 Mnfr, pvd specialty packaging Mnfr specialty packaging prods
06/19/97 Mnfr personal computers Mnfr microcomputer systems
06/23/97 Provide business finance svcs Insurance holding company
06/24/97 Investment company Operate outpatient facilities
06/26/97 Mnfr chemicals and cosmetics Manufacture pharmaceuticals
06/30/97 Manufacture automotive parts Mnfr curing sys, semiconductors
</TABLE>
<TABLE>
<CAPTION>
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- ------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
04/08/97 58.0 15.50 14.8% 26.5% 19.2%
04/10/97 267.6 16.25 54.8% 91.2% 35.4%
04/14/97 878.5 33.50 55.8% 65.4% 42.6%
04/16/97 40.3 14.75 21.6% 32.6% 24.2%
04/18/97 30.0 20.00 14.3% 8.1% (4.2%)
04/21/97 776.1 21.00 22.6% 54.1% 40.0%
04/25/97 16.2 -
04/30/97 42.0 6.00 41.2% 50.0% 37.1%
04/30/97 10.8 -
05/01/97 96.0 60.26 26.9% 33.9% 31.0%
05/01/97 5.9 12.00 11.6% 14.3% 18.5%
05/02/97 30.0 -
05/05/97 1660.5 35.62 26.1% 41.8% 35.7%
05/06/97 268.2 28.25 23.5% 27.0% 51.7%
05/06/97 91.0 18.90 30.3% 28.1% 23.9%
05/08/97 9.3 1.35 7.9% 2.8% 2.8%
05/30/97 79.7 11.50 26.9% 21.1% 50.8%
06/02/97 193.2 40.00 12.7% 11.5% 26.0%
06/03/97 16.2 1925.00
06/05/97 243.3 16.38
06/05/97 171.6 13.00 19.5% 35.9% 31.6%
06/09/97 3127.1 47.00 45.7% 48.6% 57.3%
06/10/97 14.0 1.00 (23.8%) (15.8%) (20.0%)
06/12/97 38.4 15.00
06/12/97 703.0 21.00 10.5% 9.8% 0.6%
06/16/97 275.2 25.00 26.6% 37.9% 49.3%
06/16/97 69.4 7.75 48.8% 44.5% 25.9%
06/16/97 1249.1 28.00 9.3% 13.7% 34.9%
06/16/97 360.4 33.00 (6.1%) (1.5%) 6.5%
06/17/97 127.0 3.00 (14.3%) (7.7%) (11.1%)
06/17/97 111.2 18.55 11.6% 41.3% 44.8%
06/17/97 182.6 29.00 31.8% 36.5% 52.6%
06/19/97 206.8 15.50 29.2% 30.5% 34.8%
06/23/97 517.1 26.00 173.7% 92.6% 74.8%
06/24/97 75.6 11.75 4.4% 2.2% 8.0%
06/26/97 4831.6 97.00 22.1% 22.8% 29.3%
06/30/97 308.6 39.00 11.4% 9.9% 24.3%
</TABLE>
<PAGE> 72
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 - FEBRUARY 19, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME
- --------- ------ ------------- -----------
<S> <C> <C> <C>
07/02/97 09/23/97 Bunzl PLC American Filtrona Corp
07/02/97 10/28/97 Summa Industries Inc Calnetics Corp
07/08/97 09/30/97 Jitney-Jungle Stores of Amer Delchamps Inc
07/09/97 09/23/97 CDSI Holding Corp Control Data Systems Inc
07/09/97 12/23/97 Investor Group Seaman Furniture Co
07/10/97 11/18/97 Investor Group Kinetic Concepts Inc
07/15/97 10/02/97 Axiohm SA DH Technology Inc
07/17/97 09/29/97 Lucent Technologies Inc Octel Communications Corp
07/23/97 12/18/97 Newport Investment LLC Alliance Imaging Inc
07/23/97 12/02/97 Benihana Inc Rudy's Restaurant Group
07/24/97 09/15/97 Mallinckrodt Inc Nellcor Puritan-Bennett
07/25/97 07/25/97 McCown de Leeuw & Co Healthcare America Inc
07/25/97 08/28/97 Constellation Capital Partners Imo Industries Inc
07/28/97 02/02/98 Intel Corp Chips and Technologies Inc
07/30/97 09/18/97 Fujitsu Ltd Amdahl Corp
07/30/97 02/02/98 PL Holdings Corp Plasti-Line Inc
08/04/97 12/23/97 Restaurant Co Perkins Family Restaurant LP
08/07/97 12/02/97 SPS Technologies Inc Magnetic Technologies Corp
08/07/97 09/30/97 Investor Group Outboard Marine Corp
08/12/97 09/17/97 Steris Corp Isomedix Inc
08/14/97 09/16/97 Omnicare Inc American Medserve Corp
08/14/97 10/01/97 Counsel Corp Health Management Inc
08/14/97 09/24/97 MedPartners Inc Talbert Medical Management
08/14/97 12/29/97 Madison Dearborn Partners Tuesday Morning Corp
08/15/97 10/09/97 VS&A Communications Partners T/SF Communications Corp
08/25/97 10/03/97 Cambrex Corp Bio Whittaker Inc
08/28/97 10/10/97 Applied Power Inc Versa Technologies Inc
08/29/97 12/29/97 Rexel SA (Pinault-Printemps) Rexel Inc
09/02/97 12/03/97 GRR Holdings LLC Ground Round Restaurants
09/04/97 12/30/97 Investor Group Cinergi Pictures Entertainment
09/05/97 11/26/97 Misys PLC Medic Computer Systems Inc
09/22/97 12/05/97 Conseco Inc Washington National Corp
09/23/97 01/22/98 Investor Group El Chico Restaurants Inc
09/26/97 09/26/97 Birmingham Steel Corp Laclede Steel Co
10/01/97 12/05/97 Land O'Lakes Inc Alpine Lace Brands Inc
10/02/97 10/02/97 Investor Biomagnetic Technologies Inc
10/09/97 12/23/97 Borden Chemical Inc (Borden) Melamine Chemicals Inc
</TABLE>
<TABLE>
<CAPTION>
DATE
ANNOUNCED ACQUIROR BUSINESS DESCRIPTION TARGET BUSINESS DESCRIPTION
- --------- ----------------------------- ---------------------------
<S> <C> <C>
07/02/97 Whl, mnfr paper, constn material Mnfr bonded fiber
07/02/97 Mnfr plastic conveyor parts Manufacture plastic products
07/08/97 Own and operate grocery stores Own and operate supermarkets
07/09/97 Investment holding company Mnfr computers, peripherals
07/09/97 Investor group Own, op ret furniture stores
07/10/97 Investor group Mnfr medical treatment tables
07/15/97 Mnfr, whl computer printers Mnfr, whl computer printers
07/17/97 Mnfr telecommun sys, software Mnfr voice processing systems
07/23/97 Investment company Pvd diagnostic imaging svcs
07/23/97 Own and operate restaurants Own and operate restaurants
07/24/97 Mnfr diagnostic products Mnfr electr patient monitors
07/25/97 Venture capital firm Own, operate hospitals
07/25/97 Investment company Mnfr industrial controls, pumps
07/28/97 Mnfr, whl microprocessors Design, whl integrated circuit
07/30/97 Mnfr computers, telecomnm equi Develop computer sys, software
07/30/97 Investor group formed by mgmt Mnfr illuminated outdoor signs
08/04/97 Own, operate restaurants Own, op franchised restaurants
08/07/97 Mnfr industrial fasteners Manufacture copiers, printers
08/07/97 Investor group Manufacture marine products
08/12/97 Mnfr sterile processing sys Pvd contract sterilization svc
08/14/97 Whl, retail pharmaceuticals Wholesale pharmaceuticals
08/14/97 Own, op pharmacy; whl pharm pr Pvd prescription distu svcs
08/14/97 Pvd medical services to HMO's Own, op medical, dental clinics
08/14/97 Investors Own, operate giftware stores
08/15/97 Investment firm Publish newspapers, magazines
08/25/97 Mnfr specialty chemicals Mnfr, whl medical testing prods
08/28/97 Mnfr tool, equip, consumables Mnfr rubber components, molds
08/29/97 Whl radios, televisions Whl electrical components
09/02/97 Investment company Own and operate restaurants
09/04/97 Investor group Pvd motion picture prodn svcs
09/05/97 Manufacture computers Pvd mgmt info sys design svcs
09/22/97 Insurance holding company Insurance company
09/23/97 Investor group Own and operate restaurant
09/26/97 Manufacture steel, steel prod Own, operate steel works
10/01/97 Produce butter, milk and meats Whl dairy products, cheese
10/02/97 Investor Mnfr medical imaging equipment
10/09/97 Mnfr formaldehyde, resins Manufacture melamine crystal
</TABLE>
<TABLE>
<CAPTION>
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- ------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
07/02/97 183.5 46.52 8.8% 2.2% 3.4%
07/02/97 23.4 7.35 30.7% 33.6% 25.1%
07/08/97 213.6 30.00 (2.4%) (0.8%) 6.7%
07/09/97 273.9 20.25 29.1% 30.6% 35.0%
07/09/97 31.6 25.05 21.5% 25.3% 21.5%
07/10/97 776.7 19.25 6.9% 7.7% 9.2%
07/15/97 169.5 25.00 57.5% 56.3 57.5%
07/17/97 1824.8 31.00 15.9% 37.4% 41.3%
07/23/97 114.2 11.00 7.3% 3.5% 14.3%
07/23/97 18.8 5.00 50.9% 70.2% 72.0%
07/24/97 1858.4 28.50 36.1% 43.4% 57.2%
07/25/97 85.0 -
07/25/97 112.1 7.05 18.7% 20.0% 22.6%
07/28/97 422.9 17.50 25.0% 32.1% 68.7%
07/30/97 924.8 12.40 5.0% 22.5% 25.6%
07/30/97 30.7 14.50 36.5% 36.5% 30.3%
08/04/97 76.3 14.00 28.7% 26.6% 31.8%
08/07/97 16.8 5.00 25.0% 25.0% 33.3%
08/07/97 330.9 18.00 (7.7%) (2.4%) 20.0%
08/12/97 139.8 20.50 5.8% 15.5% 13.9%
08/14/97 233.2 18.00 2.5% 16.1% 25.8%
08/14/97 40.0 -
08/14/97 189.0 63.00 10.5% 18.9% 37.0%
08/14/97 298.6 25.00 22.7% 25.8% 11.1%
08/15/97 115.2 -
08/25/97 130.5 11.63 17.8% 38.9% 47.7%
08/28/97 141.9 24.63 36.8% 33.1% 31.3%
08/29/97 302.0 22.50 19.2% 26.3% 21.6%
09/02/97 17.5 1.65 10.0% 10.0% (5.7%)
09/04/97 16.3 2.52 26.9% 24.7% 56.6%
09/05/97 915.8 35.00 7.7% 12.0% 25.0%
09/22/97 424.0 33.25 2.7% 4.1% 12.2%
09/23/97 49.2 12.75 64.5% 75.9% 104.0%
09/26/97 15.0 8.00 106.5% 106.5% 106.5%
10/01/97 48.4 9.13 15.9% 49.0% 46.0%
10/02/97 31.3 1.25
10/09/97 119.7 20.50 70.8% 72.6% 708.0%
</TABLE>
<PAGE> 73
MERGER & ACQUISITION ACTIVITY
JANUARY 1, 1995 - FEBRUARY 19, 1998
CASH TRANSACTIONS
<TABLE>
<CAPTION>
DATE DATE
ANNOUNCED UNCON. ACQUIROR NAME TARGET NAME
- --------- ------ ------------- -----------
<S> <C> <C> <C>
10/15/97 11/21/97 FinishMaster Inc (Lacey Distn) Thompson PBE Inc
10/16/97 02/12/98 Hartford Financial Services Omni Insurance Group Inc
10/25/97 11/04/97 Blackstone Group Clark USA Inc
10/27/97 02/10/98 National Australia Bank Ltd HomeSide Inc
11/13/97 12/02/97 Thiokol Corp Howmet International Inc
11/18/97 01/08/98 Cendant Corp Jackson Hewitt
11/21/97 01/28/97 TRW Inc BDM International Inc
11/24/97 02/03/98 Davel Communications Group Inc Communications Central Inc
11/24/97 11/24/97 Sinophil Corp MagiNet Corp
12/11/97 01/20/98 MascoTech Inc TriMas Corp
12/11/97 01/07/98 Harvard Private Capital Group White River Corp
12/12/97 02/13/98 Voith Sulzer Paper Technology Impact Systems Inc
12/17/97 01/23/98 Invacare Corp Suburban Ostomy Supply Co Inc
12/22/97 02/02/98 OM Group Inc Auric Corp
12/23/97 01/27/98 O'Reilly Automotive Inc Hi-Lo Automotive Inc
01/29/98 01/29/98 Flowers Industries Inc Keebler Foods Co
02/04/98 02/04/98 Investor Group Tremont Corp
</TABLE>
<TABLE>
<CAPTION>
DATE
ANNOUNCED ACQUIROR BUSINESS DESCRIPTION TARGET BUSINESS DESCRIPTION
- --------- ----------------------------- ---------------------------
<S> <C> <C>
10/15/97 Whl automotive paint, coatings Whl automotive paint, supplies
10/16/97 Provide insurance services Insurance company
10/25/97 Investment bank Mnfr petroleum products
10/27/97 Bank, insurance co Mortgage bank
11/13/97 Mnfr chemicals, propulsion sys Mnfr steel invest foundries
11/18/97 Provide discount club svcs Pvd tax preparation services
11/21/97 Elect equip, credit reporting Pvd comp info technology svcs
11/24/97 Pvd pay telephone commun svcs Pvd telecommunications svcs
11/24/97 Own, operate resorts Pvd cable, pay television svcs
12/11/97 Mnfr motor vehicle components Mnfr specialty closures, caps
12/11/97 Investment company Insurance agency; holding co
12/12/97 Provide paper tech dvlp svcs Paper prodn control systems
12/17/97 Mnfr surgical, medical supplies Whl medical and hospital equip
12/22/97 Mnfr chemicals; holding co Mnfr electroless nickel
12/23/97 Own, op auto supply stores Own, op auto parts stores
01/29/98 Produce baked foods Produce bread, cookies; hldg co
02/04/98 Investor group Mnfr drilling lubricants
</TABLE>
<TABLE>
<CAPTION>
VALUE OF PRICE PREMIUM PREMIUM PREMIUM
DATE TRANSACTION PER 1 DAY 1 WEEK 4 WEEKS
ANNOUNCED ($ MIL) SHARE PRIOR PRIOR PRIOR
- --------- ------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
10/15/97 69.3 8.00 25.5% 33.3% 42.2%
10/16/97 184.7 31.75 78.9% 75.8% 130.9%
10/25/97 135.0 -
10/27/97 1230.1 27.83 14.7% 12.1% 7.3%
11/13/97 183.8 -
11/18/97 468.2 68.00 26.5% 21.7% 47.8%
11/21/97 888.0 29.50 31.1% 43.5% 38.0%
11/24/97 102.4 10.50 30.2% 25.4% 12.0%
11/24/97 15.0 -
12/11/97 911.7 34.50 12.7% 10.0% 19.0%
12/11/97 400.0 -
12/12/97 28.6 2.75 57.1% 49.2% 44.3%
12/17/97 130.8 11.75 8.0% 13.3% 13.3%
12/22/97 80.0 203.00
12/23/97 42.5 4.35 (14.1%) 12.3% 24.3%
01/29/98 309.1 27.60
02/04/98 5.6 54.00 (6.4%) (4.4%) 0.5%
Median 24.0% 27.5% 33.6%
Average 29.5% 34.7% 40.2%
Adj. Avg. 28.7% 33.9% 38.3%
Low Middle Quartile 11.5% 14.5% 18.5%
High Middle Quartile 39.7% 48.8% 51.4%
</TABLE>
<PAGE> 74
STOCK PRICE AND OWNERSHIP PROFILES
VII
<PAGE> 75
AUSTIN VS. PROMOTIONAL COMPANY INDEX* AND NASDAQ COMPOSITE INDEX
AND S&P 400 INDUSTRIALS SINCE 12/29/95
Graph depicting the performance of Norwood Promotional Products, Inc. Common
Stock versus the S&P 400 Industrial Index, the Nasdaq Composite Index, and the
Promotional Company Index. Promotional Company Index includes CSS, CYRK, EMAK,
HMK, LVC, RACN, SABI and TBAC.
<PAGE> 76
AUSTIN
FORWARD P/E RATIO SINCE MARCH 1995
Graph depicting the forward P/E ratio of Norwood Promotional Products, Inc.
since March 1995
<PAGE> 77
AUSTIN
DAILY PRICE & VOLUME TRADING STATISTICS SINCE 8/12/97
Graph depicting the daily price and volume trading statistics since
August 12, 1997 for Norwood Promotional Products, Inc.
<PAGE> 78
AUSTIN
DAILY PRICE & VOLUME TRADING STATISTICS SINCE 1/12/98
Graph depicting the daily price and volume trading statistics since
January 12, 1998 for Norwood Promotional Products, Inc.
<PAGE> 79
AUSTIN
WEEKLY PRICE & VOLUME TRADING STATISTICS SINCE 6/18/93
Graph depicting the weekly price and volume trading statistics since
June 18, 1993 for Norwood Promotional Products, Inc.
<PAGE> 80
AUSTIN
WEEKLY PRICE & VOLUME TRADING STATISTICS SINCE 2/14/97
Graph depicting weekly price and volume trading statistics since
February 14, 1997 for Norwood Promotional Products, Inc.
<PAGE> 81
AUSTIN
SHARES TRADED AT VARIOUS PRICES FROM 2/12/97 TO 2/12/98
<TABLE>
<CAPTION> CUMULATIVE
--------------------------------------------------
DAYS % OF TOTAL % OF TOTAL DAYS % OF TOTAL % OF TOTAL
TRADING DAILY AVG. DAYS TRADING TRADING DAILY AVG. DAYS TRADING TRADING
RANGE(1) IN RANGE TRADED VOLUME VOLUME IN RANGE TRADED VOLUME VOLUME
--------------- ---------- ---------- ------- ---------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<$12.60 0 0.0% - 0.0% 0 0.0% - 0.0%
$12.60 - $13.20 6 2.3% 731,900 12.4% 6 2.3% 731,900 12.4%
$13.20 - $13.80 29 11.1% 1,407,000 23.9% 35 13.4% 2,138,900 36.3%
$13.80 - $14.40 49 18.7% 1,342,100 22.8% 84 32.1% 3,481,000 59.2%
$14.40 - $15.00 39 14.9% 341,000 5.8% 123 46.9% 3,822,000 65.0%
$15.00 - $15.60 44 16.8% 438,100 7.4% 167 63.7% 4,260,100 72.4%
$15.60 - $16.20 59 22.5% 842,800 14.3% 226 86.3% 5,102,900 86.7%
$16.20 - $16.80 12 4.6% 505,400 8.6% 238 90.8% 5,608,300 95.3%
$16.80 - $17.40 10 3.8% 71,500 1.2% 248 94.7% 5,679,800 96.5%
$17.40 - $18.00 9 3.4% 181,600 3.1% 257 98.1% 5,861,400 99.6%
$18.00 - $18.60 5 1.9% 22,800 0.4% 262 100.0% 5,884,200 100.0%
>= - $18.60 0 0.0% - 0.0% 262 100.0% 5,884,200 100.0%
TOTAL: 262 100.0% 5,884,200 100.0%
</TABLE>
[Chart depicting the number of shares of Norwood Promotional Products, Inc.
Common Stock that traded in specified price ranges from February 12, 1997
through February 12, 1998.]
(1) Price ranges include low range price and exclude high range price.
(2) The average daily trading volume has been 22,459 shares or $328,274.50 and
the average daily close has been $15.11.
<PAGE> 82
AUSTIN
SHARES TRADED AT VARIOUS PRICES FROM 8/12/97 TO 2/12/98
<TABLE>
<CAPTION>
CUMULATIVE
---------------------------------------------------
DAYS % OF TOTAL % OF TOTAL DAYS % OF TOTAL % OF TOTAL
TRADING DAILY AVG. DAYS TRADING TRADING DAILY AVG. DAYS TRADING TRADING
RANGE(1) IN RANGE TRADED VOLUME VOLUME IN RANGE TRADED VOLUME VOLUME
- ----------- ----------- ---------- -------- ----------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<$13.50 0 0.0% -- 0.0% 0 0.0% -- 0.0%
$13.50-$13.90 4 3.1% 738,000 26.9% 4 3.1% 738,000 26.9%
$13.90-$14.30 9 7.0% 308,900 11.3% 13 10.2% 1,046,900 38.2%
$14.30-$14.70 7 5.5% 109,000 4.0% 20 15.6% 1,155,900 42.2%
$14.70-$15.10 12 9.4% 76,500 2.8% 32 25.0% 1,232,400 45.0%
$15.10-$15.50 16 12.5% 154,600 5.6% 48 37.5% 1,387,000 50.6%
$15.50-$15.90 43 33.6% 364,100 13.3% 91 71.1% 1,751,100 63.9%
$15.90-$16.30 27 21.1% 754,800 27.5% 118 92.2% 2,505,900 91.4%
$16.30-$16.70 8 6.3% 208,300 7.6% 126 98.4% 2,714,200 99.0%
$16.70-$17.10 2 1.6% 26,300 1.0% 128 100.0% 2,740,500 100.0%
>=-$17.10 0 0.0% -- 0.0% 128 100.0% 2,740,500 100.0%
TOTAL: 128 100.0% 2,740,500 100.0%
</TABLE>
[Chart depicting the number of shares of Norwood Promotional Products, Inc.
Common Stock that traded in specified price ranges from August 12, 1997
through February 12, 1998.]
(1) Prices ranges include low range price and exclude high range price.
(2) The average daily trading volume has been 21,410 shares or $322,811.70 and
the average daily close has been $15.47.
<PAGE> 83
AUSTIN
SHARES TRADED AT VARIOUS PRICES FROM 1/12/98 to 2/12/98
<TABLE>
<CAPTION>
CUMULATIVE
--------------------------------------------------
DAYS % OF TOTAL % OF TOTAL DAYS % OF TOTAL % OF TOTAL
TRADING DAILY AVG. DAYS TRADING TRADING DAILY AVG DAYS TRADING TRADING
RANGE(1) IN RANGE TRADED VOLUME VOLUME IN RANGE TRADED VOLUME VOLUME
- ------------- ------------ ----------- ------- ---------- --------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<$15.50 0 0.0% -- 0.0% 0 0.0% -- 0.0%
$15.50-$15.65 2 8.7% 1,500 0.3% 2 8.7% 1,500 0.3%
$15.65-$15.80 2 8.7% 400 0.1% 4 17.4% 1,900 0.4%
$15.80-$15.95 8 34.8% 36,400 7.1% 12 52.2% 38,300 7.4%
$15.95-$16.10 2 8.7% 19,500 3.8% 14 60.9% 57,800 11.2%
$16.10-$16.25 1 4.3% 276,200 53.5% 15 65.2% 334,000 64.7%
$16.25-$16.40 1 4.3% 11,400 2.2% 16 69.6% 345,400 66.9%
$16.40-$16.55 3 13.0% 118,800 23.0% 19 82.6% 464,200 89.9%
$16.55-$16.70 2 8.7% 25,800 5.0% 21 91.3% 490,000 94.9%
$16.70-$16.85 0 0.0% -- 0.0% 21 91.3% 490,000 94.9%
$16.85-$17.00 0 0.0% -- 0.0% 21 91.3% 490,000 94.9%
$17.00-$17.15 2 8.7% 26,300 5.1% 23 100.O% 516,300 100.0%
>=-$17.15 0 0.0% -- 0.0% 23 100.0% 516,300 100.0%
TOTAL: 23 100.0% 516,300 100.0%
</TABLE>
Chart depicting the number of shares of Norwood Promotional Products, Inc.
Common Stock that traded in specified price ranges from January 12, 1998 to
February 12, 1998
(1) Price ranges include low range price and exclude high range price.
(2) The average daily trading volume has been 22,448 shares or $365,837.10 and
the average daily close has been $16.11.
<PAGE> 84
AUSTIN OWNERSHIP PROFILE
Chart depicting the percentage of the outstanding Common Stock of Norwood
Promotional Products, Inc. owned by Institutions, Retail, and Officers and
Directors.
<TABLE>
<CAPTION>
CHANGE FROM
SHAREHOLDERS SHARES HELD PRIOR PERIOD % OWNERSHIP
- ---------------------------------------------------------------------
<S> <C> <C> <C>
OFFICERS and DIRECTORS(1) 880,006 17.35%
INDUSTRIAL INVESTORS(2)
Neuberger & Berman 706,500 304,900 13.93%
Heartland Investors 486,000 286,000 9.58%
TCW Group 472,400 (3,100) 9.32%
Thomson Horstman 442,700 (17,300) 8.73%
Tweedy Browne 160,000 160,000 3.16%
Dimensional Fund 156,500 20,300 3.09%
Hathaway & Assoc 150,000 (77,500) 2.96%
Neuberger & Berman 142,200 35,000 2.80%
Glickenhaus & Co. 140,100 0 2.76%
Putnam Management 112,300 0 2.21%
Franklin Mutual 94,900 94,900 1.87%
AGF Management Ltd. 75,000 0 1.48%
BZW Barclays 81,812 700 1.61%
Jenswod, Roger H. & Co. 37,500 (31,050) 0.74%
Luther King Capital 20,000 0 0.39%
Goldman Sachs 20,000 0 0.39%
Clover Capital 14,700 14,700 0.29%
Merrill Lynch & Co. 2,397 2,397 0.05%
Bank of NY 970 970 0.02%
Travelers Group 300 (300) 0.01%
Legg Mason Wood Walker 200 200 0.00%
GHS Management 0 (128,000) 0.00%
T Rowe Price 0 (300,000) 0.00%
TOTAL INDUSTRIAL INVESTORS 3,316,479 362,817 65.40%
IMPLIED RETAIL HOLDINGS 874,684 17.25%
------------
TOTAL SHARES OUTSTANDING(3) 5,071,169 100.00%
============ =========
</TABLE>
(1) Source: 10-K/A as of 9/30/97 with updated information from company.
(2) Source: Bloomberg as of February 16, 1998.
(3) Source: 10-Q dated November 29, 1997.
<PAGE> 85
COMPANY PROJECTION MODEL
VIII
<PAGE> 86
PROJECT AUSTIN -- PROJECTION MODEL
PROJECTED INCOME STATEMENTS
(Numbers in Thousands)
(Fiscal Year Ended August)
<TABLE>
<CAPTION>
HISTORICAL ESTIMATED PROJECTED
1997 1998 1999 2000 2001 2002 2003
---------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $175,835 $193,391 $207,846 $223,500 $239,900 $257,562 $276,160
Cost of sales 125,732 138,952 149,319 160,546 172,085 184,850 197,826
-------- -------- -------- -------- -------- -------- --------
Gross profit 50,103 54,439 58,527 62,954 67,815 72,712 78,334
General and administrative, net dep. 8,855 10,513 10,477 11,003 11,549 12,116 12,661
Sales and marketing 18,119 17,951 18,732 19,783 20,900 22,088 23,163
Restructuring and unusual charges 1,816 -- -- -- -- -- --
Other operating expenses -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total operating expenses 28,790 28,464 29,209 30,786 32,449 34,204 35,824
EBITDA 21,313 25,975 29,318 32,168 35,366 38,508 42,510
Depreciation 4,270 3,960 3,934 3,935 3,936 3,937 3,938
Amortization 3,885 4,121 4,186 4,186 4,186 4,186 4,186
-------- -------- -------- -------- -------- -------- --------
Total depreciation & amortization 8,155 8,081 8,120 8,121 8,122 8,123 8,124
Total operating income 13,158 17,894 21,198 24,047 27,244 30,385 34,386
Interest expense 3,002 4,200 4,200 3,600 2,800 1,500 500
Interest (income) -- -- -- -- -- -- --
Home office expense -- -- -- -- -- -- --
Discontinued operations expense 4,820 -- -- -- -- -- --
Extraordinary loss from debt extinguishment 241 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Other expenses (income) 8,063 4,200 4,200 3,600 2,800 1,500 500
Pre-tax income 5,095 13,694 16,998 20,447 24,444 28,885 33,886
Provision for income taxes 4,091 5,615 6,969 8,383 10,022 11,843 13,893
-------- -------- -------- -------- -------- -------- --------
Net income $ 1,004 $ 8,079 $ 10,029 $ 12,064 $ 14,422 $ 17,042 $ 19,993
======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE> 87
PROJECT AUSTIN -- PROJECTION MODEL
PROJECTED BALANCE SHEETS
(Numbers in Thousands)
(Fiscal Year Ended August)
<TABLE>
<CAPTION>
HISTORICAL PROJECTED
1997 1998 1999 2000 2001 2002 2003
---------- --------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash $ 2,609 $ 1,000 $ 1,000 $ 1,000 $ 1,175 $ 4,603 $ 24,282
Accounts receivable 24,282 26,336 28,032 29,931 31,910 34,051 36,232
Inventories 32,105 34,821 37,064 39,574 42,191 45,021 47,905
Income taxes receivable 551 598 636 679 724 773 822
Other receivables 713 773 823 879 937 1,000 1,064
Prepaid expenses and other current assets 2,464 2,672 2,845 3,037 3,238 3,455 3,677
--------- --------- --------- --------- ---------- --------- ---------
Total current assets 62,724 66,200 70,400 75,100 80,175 88,903 113,982
Land 478 478 478 478 478 478 478
Gross plant and equip. 34,877 37,971 41,805 45,740 49,676 53,613 57,551
Accumulated depreciation (14,214) (16,849) (20,783) (24,718) (28,654) (32,591) (36,529)
--------- --------- --------- --------- ---------- --------- ---------
Net P,P&E 21,141 21,600 21,500 21,500 21,500 21,500 21,500
Goodwill, net of accumulated amortization 39,009 34,888 30,702 26,516 22,330 18,144 13,958
Other intangible assets 8,165 8,165 8,165 8,165 8,165 8,165 8,165
Other fixed assets -- -- -- -- -- -- --
Deferred income taxes and other assets 4,155 4,200 4,200 4,200 4,200 4,200 4,200
Other assets -- -- -- -- -- -- --
--------- --------- --------- --------- ---------- --------- ---------
Total assets $ 135,194 $ 135,053 $ 134,967 $ 135,481 $ 136,370 $ 140,912 $ 161,805
========= ========= ========= ========= ========== ========= =========
</TABLE>
<PAGE> 88
PROJECT AUSTIN -- PROJECTION MODEL
PROJECTED BALANCE SHEETS
(Numbers in Thousands)
(Fiscal Year Ended August)
<TABLE>
<CAPTION>
HISTORICAL PROJECTED
1997 1998 1999 2000 2001 2002 2003
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES & EQUITY
Current maturities & short-term debt $ 1,871 $ -- $ -- $ -- $ -- $ -- $ --
Trade accounts payable 11,299 10,442 11,050 11,753 12,506 13,210 14,013
Accrued liabilities 11,197 10,347 10,950 11,647 12,394 13,090 13,887
Current portion of lease obligation 481 211 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total current liabilities 24,848 21,000 22,000 23,400 24,900 26,300 27,900
Long term debt
Revolver -- -- 183 33 -- -- --
Senior term note 40,000 39,600 34,200 26,000 13,200 -- --
Notes payable 13,740 13,000 9,200 4,600 2,400 1,700 1,000
Existing revolver 6,990 2,098 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total debt 60,730 54,698 43,583 30,633 15,600 1,700 1,000
Less current portion (1,871) -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total long-term debt 58,859 54,698 43,583 30,633 15,600 1,700 1,000
Capitalized lease obligations 211 -- -- -- -- -- --
Other -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total liabilities 83,918 75,698 65,583 54,033 40,500 28,000 28,900
Common stock 22,858 22,858 22,858 22,858 22,858 22,858 22,858
Additional paid-in-capital 21,949 21,949 21,949 21,949 21,949 21,949 21,949
Retained earnings 6,469 14,548 24,577 36,641 51,063 68,105 88,098
--------- --------- --------- --------- --------- --------- ---------
Total stockholders' equity 51,276 59,355 69,384 81,448 95,870 112,912 132,905
--------- --------- --------- --------- --------- --------- ---------
Total liabilities & equity $ 135,194 $ 135,053 $ 134,967 $ 135,481 $ 136,370 $ 140,912 $ 161,805
========= ========= ========= ========= ========= ========= =========
</TABLE>
<PAGE> 89
PROJECT AUSTIN -- PROJECTION MODEL
PROJECTED CASH FLOW STATEMENTS
(Numbers in Thousands)
(Fiscal Year Ended August)
<TABLE>
<CAPTION>
PROJECTED
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 10,029 $ 12,064 $ 14,422 $ 17,042 $ 19,993
Depreciation 3,934 3,935 3,936 3,937 3,938
Amortization of goodwill 4,186 4,186 4,186 4,186 4,186
Amortization of intangibles -- -- -- -- --
Minority interest -- -- -- -- --
Other non-cash -- -- -- -- --
Changes in current assets (4,200) (4,700) (4,900) (5,300) (5,400)
Changes in current liabilities 1,000 1,400 1,500 1,400 1,600
-------- -------- -------- -------- --------
Net cash provided by operating activities 14,949 16,885 19,144 21,265 24,317
Cash flows from investing activities
Capital expenditures (net of dispositions) (3,834) (3,935) (3,936) (3,937) (3,938)
Investments in new goodwill -- -- -- -- --
Acquisition of additional intangibles -- -- -- -- --
Changes in other long-term assets & liabilities -- -- -- -- --
-------- -------- -------- -------- --------
Net cash provided by investing activities (3,834) (3,935) (3,936) (3,937) (3,938)
Cash flows from financing activities
Dividends paid -- -- -- -- --
Proceeds from sale of stock -- -- -- -- --
Proceeds from debt issue -- -- -- -- --
Cash inflow (outflow) from other equity -- -- -- -- --
Repayment of debt (11,298) (12,983) (15,033) (13,900) (700)
Repurchase of stock -- -- -- -- --
Drawdown on revolver 183 33 -- -- --
-------- -------- -------- -------- --------
Net cash provided by financing activities (11,115) (12,950) (15,033) (13,900) (700)
-------- -------- -------- -------- --------
Net additions to cash $ -- $ -- $ 175 $ 3,428 $ 19,679
======== ======== ======== ======== ========
Beginning cash balance 1,000 1,000 1,000 1,175 4,603
Ending cash balance 1,000 1,000 1,175 4,603 24,282
</TABLE>
<PAGE> 90
PROJECT AUSTIN -- PROJECTION MODEL
HISTORICAL AND PROJECTED INCOME STATEMENT RATIOS (PERCENT OF SALES)
(Fiscal Year Ended August)
<TABLE>
<CAPTION>
HISTORICAL PROJECTED
1997 1998 AVERAGE 1999 2000 2001 2002 2003
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 71.5% 71.9% 71.7% 71.8% 71.8% 71.7% 71.8% 71.6%
------ ------ ------ ------ ------ ------ ------ ------
Gross profit 28.5% 28.1% 28.3% 28.2% 28.2% 28.3% 28.2% 28.4%
General and administrative, net dep. 5.0% 5.4% 5.2% 5.0% 4.9% 4.8% 4.7% 4.6%
Sales and marketing 10.3% 9.3% 9.8% 9.0% 8.9% 8.7% 8.6% 8.4%
Restructuring and unusual charges 1.0% 0.0% 0.5% 0.0% 0.0% 0.0% 0.0% 0.0%
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses 16.4% 14.7% 15.5% 14.1% 13.8% 13.5% 13.3% 13.0%
EBITDA 12.1% 13.4% 12.8% 14.1% 14.4% 14.7% 15.0% 15.4%
Depreciation 2.4% 2.0% 2.2% 1.9% 1.8% 1.6% 1.5% 1.4%
Amortization 2.2% 2.1% 2.2% 2.0% 1.9% 1.7% 1.6% 1.5%
------ ------ ------ ------ ------ ------ ------ ------
Total depreciation & amortization 4.6% 4.2% 4.4% 3.9% 3.6% 3.4% 3.2% 2.9%
Total operating income 7.5% 9.3% 8.4% 10.2% 10.8% 11.4% 11.8% 12.5%
Interest expense 1.7% 2.2% 1.9% 2.0% 1.6% 1.2% 0.6% 0.2%
Interest (income) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Home office expense 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Discontinued operations expense 2.7% 0.0% 1.4% 0.0% 0.0% 0.0% 0.0% 0.0%
Extraordinary loss from debt extinguishment 0.1% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%
------ ------ ------ ------ ------ ------ ------ ------
Other expenses (income) 4.6% 2.2% 3.4% 2.0% 1.6% 1.2% 0.6% 0.2%
Pre-tax income 2.9% 7.1% 5.0% 8.2% 9.1% 10.2% 11.2% 12.3%
Provision for income taxes 80.3% 41.0% 60.6% 41.0% 41.0% 41.0% 41.0% 41.0%
------ ------ ------ ------ ------ ------ ------ ------
Net income 0.6% 4.2% 2.4% 4.8% 5.4% 6.0% 6.6% 7.2%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<PAGE> 91
PROJECT AUSTIN -- PROJECTION MODEL
HISTORICAL AND PROJECTED BALANCE SHEET RATIOS (PERCENT OF SALES)
(Fiscal Year Ended August)
<TABLE>
<CAPTION>
HISTORICAL PROJECTED
1997 1998 AVERAGE 1999 2000 2001 2002 2003
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash 1.5% 0.5% 1.0% 0.5% 0.4% 0.5% 1.8% 8.8%
Accounts receivable 13.8% 13.6% 13.7% 13.5% 13.4% 13.3% 13.2% 13.1%
Inventories 18.3% 18.0% 18.1% 17.8% 17.7% 17.6% 17.5% 17.3%
Income taxes receivable 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%
Other receivables 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%
Prepaid expenses and other current assets 1.4% 1.4% 1.4% 1.4% 1.4% 1.3% 1.3% 1.3%
------ ------ ------ ------ ------ ------ ------ ------
Total current assets 35.7% 34.2% 35.0% 33.9% 33.6% 33.4% 34.5% 41.3%
Land 0.3% 0.2% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2%
Gross plant and equip. 19.8% 19.6% 19.7% 20.1% 20.5% 20.7% 20.8% 20.8%
Accumulated depreciation (8.1%) (8.7%) (8.4%) (10.0%) (11.1%) (11.9%) (12.7%) (13.2%)
------ ------ ------ ------ ------ ------ ------ ------
Net P,P&E 12.0% 11.2% 11.6% 10.3% 9.6% 9.0% 8.3% 7.8%
Goodwill, net of accumulated amortization 22.2% 18.0% 20.1% 14.8% 11.9% 9.3% 7.0% 5.1%
Deferred income taxes and other assets 2.4% 2.2% 2.3% 2.0% 1.9% 1.8% 1.6% 1.5%
Other assets 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
------ ------ ------ ------ ------ ------ ------ ------
Total assets 76.9% 69.8% 73.4% 64.9% 60.6% 56.8% 54.7% 58.6%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<PAGE> 92
PROJECT AUSTIN -- PROJECTION MODEL
HISTORICAL AND PROJECTED BALANCE SHEET RATIOS (PERCENT OF SALES)
(Fiscal Year Ended August)
<TABLE>
<CAPTION>
HISTORICAL PROJECTED
1997 1998 AVERAGE 1999 2000 2001 2002 2003
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES & EQUITY
Current maturities & short-term debt 1.1% 0.0% 0.5% 0.0% 0.0% 0.0% 0.0% 0.0%
Trade accounts payable 6.4% 5.4% 5.9% 5.3% 5.3% 5.2% 5.1% 5.1%
Accrued liabilities 6.4% 5.4% 5.9% 5.3% 5.2% 5.2% 5.1% 5.0%
Current portion of lease obligation 0.3% 0.1% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0%
------ ------ ------ ------ ------ ------ ------ ------
Total current liabilities 14.1% 10.9% 12.5% 10.6% 10.5% 10.4% 10.2% 10.1%
Long term debt
Revolver 0.0% 0.0% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0%
Senior term note 22.7% 20.5% 21.6% 16.5% 11.6% 5.5% 0.0% 0.0%
Notes payable 7.8% 6.7% 7.3% 4.4% 2.1% 1.0% 0.7% 0.4%
Existing revolver 4.0% 1.1% 2.5% 0.0% 0.0% 0.0% 0.0% 0.0%
------ ------ ------ ------ ------ ------ ------ ------
Total debt 34.5% 28.3% 31.4% 21.0% 13.7% 6.5% 0.7% 0.4%
Less current portion (1.1%) 0.0% (0.5%) 0.0% 0.0% 0.0% 0.0% 0.0%
------ ------ ------ ------ ------ ------ ------ ------
Total long-term debt 33.5% 28.3% 30.9% 21.0% 13.7% 6.5% 0.7% 0.4%
Capitalized lease obligations 0.1% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%
------ ------ ------ ------ ------ ------ ------ ------
Total liabilities 47.7% 39.1% 43.4% 31.6% 24.2% 16.9% 10.9% 10.5%
Common stock 13.0% 11.8% 12.4% 11.0% 10.2% 9.5% 8.9% 8.3%
Additional paid-in-capital 12.5% 11.3% 11.9% 10.6% 9.8% 9.1% 8.5% 7.9%
Retained earnings 3.7% 7.5% 5.6% 11.8% 16.4% 21.3% 26.4% 31.9%
------ ------ ------ ------ ------ ------ ------ ------
Total stockholders' equity 29.2% 30.7% 29.9% 33.4% 36.4% 40.0% 43.8% 48.1%
------ ------ ------ ------ ------ ------ ------ ------
Total liabilities & equity 76.9% 69.8% 73.4% 64.9% 60.6% 56.8% 54.7% 58.6%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 99(b)(4)
STRICTLY CONFIDENTIAL
- --------------------------------------------------------------------------------
PRESENTATION TO
NORWOOD PROMOTIONAL
PRODUCTS, INC.
November 14, 1997
[LOGO] MERRILL LYNCH
<PAGE> 2
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
1. Executive Summary
2. Recent Stock Price and Earnings Performance
3. Valuation Analysis
4. Summary of Indicative Terms
- Senior Credit Facility
- Senior Subordinated Notes
5. Transaction Structure and Issues to Consider
Appendix
A. Detailed Financial Models
- Base Case
- Initial Case
B. Comparable Company Public Multiples Analysis
C. Comparable Company Acquisition Multiples Analysis
[LOGO] MERRILL LYNCH -----------------------------------------------------------
<PAGE> 3
- --------------------------------------------------------------------------------
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
<PAGE> 4
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
o Merrill Lynch & Co. ("Merrill Lynch") reviewed the feasibility of a
leveraged recapitalization (the "Recapitalization") for Norwood
Promotional Products, Inc. ("Norwood")
o Initial constraints included:
* $20/share purchase price of public shares (4.02 million shares)
* Financing for the Recapitalization to be provided through debt
markets only
* All existing bank debt to be refinanced
* EBITDA for the year ended August 30, 1997 of $22.5 million
o The sources and uses of funds for the Initial Case are as follows:
<TABLE>
<CAPTION>
USES OF FUNDS SOURCES OF FUNDS
- ----------------------------------------- ------------------------------------
<S> <C> <C> <C>
Purchase of Equity $ 80.4 Revolving Credit Facility $ 7.2
Refinance Existing Debt 60.7 A Term Loan 40.0
Estimated Fees and Expenses 6.1 Senior Subordinated Notes 100.0
------ ------
Total uses of funds $147.2 Total sources of funds $147.2
====== ======
</TABLE>
[LOGO] MERRILL LYNCH -----------------------------------------------------------
1
<PAGE> 5
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
Review of Initial Case
o Pro forma credit statistics:
<TABLE>
<CAPTION>
PRO FORMA
FISCAL YEAR ENDED
AUGUST 30, 1997
-------------------
<S> <C>
EBITDA/Total Interest Expense 1.5x
EBITDA-CapEx/Total Interest Expense 1.2x
Total Debt/EBITDA 6.6x
Total Debt/Total Book Capitalization 128.0%
</TABLE>
o Comments:
* Coverage ratio (EBITDA/Total Interest Expense) at low-end of
leveraged buyout structures
* Leverage ratio (Total Debt/EBITDA) limits future financial
flexibility
* Rating agency concern over substantial negative book equity
[LOGO] MERRILL LYNCH -----------------------------------------------------------
2
<PAGE> 6
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
Description of Base Case
o An alternative scenario (the "Base Case") preserves Norwood's
liquidity and financial flexibility
* Financing for the Recapitalization includes $20 million of
contributed equity
o The sources and uses of funds for the Base Case as follows:
<TABLE>
<CAPTION>
USES OF FUNDS SOURCES OF FUNDS
--------------------------------------- ----------------------------------------
<S> <C> <C> <C>
Purchase of Equity $ 80.4 Revolving Credit Facility $ 2.2
Refinance Existing Debt 60.7 A Term Loan 25.0
Estimated Fees and Expenses 6.1 Senior Subordinated Notes 100.0
Common Equity 20.0
------ ------
Total Uses of Funds $147.2 Total Sources of Funds $147.2
====== ======
</TABLE>
<TABLE>
<CAPTION>
o Pro forma credit statistics: PRO FORMA
FISCAL YEAR ENDED
AUGUST 30, 1997
--------------------
<S> <C>
EBITDA/Total Interest Expense 1.8x
EBITDA-CapEx/Total Interest Expense 1.4x
Total Debt/EBITDA 5.7x
Total Debt/Total Book Capitalization 110.6%
</TABLE>
[LOGO] MERRILL LYNCH -----------------------------------------------------------
3
<PAGE> 7
EXECUTIVE SUMMARY
- -------------------------------------------------------------------------------
Review of Base Case
o Capital structure in Base Case consistent with strategic objectives
* Provides Senior Debt capacity as "dry powder" to make opportunistic
acquisitions
* Appears to strike balance between cost of capital and financial
flexibility
o Attractive market conditions in both high yield and private equity
sectors permit aggressive financings at attractive levels
o Norwood's guidelines for an optimal capital structure should consider:
* Free cash flow available for debt amortization
* Realization of anticipated synergies and cost savings from completed
acquisitions
* The likelihood of material future acquisitions and timing
[LOGO] MERRILL LYNCH------------------------------------------------------------
4
<PAGE> 8
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
M & A Considerations
o The management team and its advisors must have confidence that the
offer price for the shares of NPPI will be deemed by a Special
Committee formed by the Company's Board of Directors and its advisor
to be within a range of fairness after a thorough review has been made
of the Company
o Determination of the fair value of the Company will be difficult
* acquisitions of comparable companies are primarily those made by
Norwood and are small with little publicly disclosed financial
information
* few publicly traded comparable companies exist
* valuation is therefore to be determined primarily by the
discounted cash flow valuation
o It is likely that the Company will be "put in play" on announcement of
tender
* while the value of the Company will be reduced without its
current management, there are several potential buyers with deep
pockets who may be in the position to acquire the Company
* it will clearly be prudent to be prepared for the event that a
new buyer emerges.
[LOGO] MERRILL LYNCH -----------------------------------------------------------
5
<PAGE> 9
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
Next Steps
o Determine appropriate capital structure and need for financial sponsor
o Identify and approach financial sponsors
o Establish timetable and responsibility schedule
o Detailed organizational meeting and commence due diligence
o Initial approach to Board of Directors to form Special Committee of
independent directors
o Prepare filing documents
[LOGO] MERRILL LYNCH -----------------------------------------------------------
6
<PAGE> 10
- --------------------------------------------------------------------------------
RECENT STOCK PRICE AND EARNINGS PERFORMANCE
- --------------------------------------------------------------------------------
<PAGE> 11
NORWOOD PROMOTIONAL PRODUCTS
- --------------------------------------------------------------------------------
Daily Stock Price Performance - LTM
[GRAPH]
- ---------------------
Comparable Composite: Cyrk Inc., Equity Marketing, HA-LO Industries and Swiss
Army Brands.
[LOGO] MERRILL LYNCH -----------------------------------------------------------
7
<PAGE> 12
NORWOOD PROMOTIONAL PRODUCTS
- --------------------------------------------------------------------------------
Daily Stock Price Performance Since IPO
[GRAPH]
- ---------------------
Comparable Composite: Cyrk Inc., Equity Marketing, HA-LO Industries and Swiss
Army Brands.
[LOGO] MERRILL LYNCH -----------------------------------------------------------
8
<PAGE> 13
NORWOOD PROMOTIONAL PRODUCTS
- --------------------------------------------------------------------------------
Analysis of Trading Volume - LTM
PERCENT OF VOLUME WHICH TRADED IN STOCK PRICE RANGE
[CHART]
PERCENT OF VOLUME WHICH TRADED BELOW STOCK PRICE RANGE
[CHART]
[LOGO] MERRILL LYNCH -----------------------------------------------------------
9
<PAGE> 14
NORWOOD PROMOTIONAL PRODUCTS
- --------------------------------------------------------------------------------
Analysis of Trading Volume Since IPO
(includes volume from IPO in June 1993 and secondary offering in December 1995)
PERCENT OF VOLUME WHICH TRADED IN STOCK PRICE RANGE
[CHART]
PERCENT OF VOLUME WHICH TRADED BELOW STOCK PRICE RANGE
[CHART]
[LOGO] MERRILL LYNCH -----------------------------------------------------------
10
<PAGE> 15
NORWOOD PROMOTIONAL PRODUCTS
- --------------------------------------------------------------------------------
Shareholder Ownership Profile
<TABLE>
<CAPTION>
% OF TOTAL % OF
TOTAL SHARES OUTSTANDING PUBLIC FLOAT
------------ ----------- ------------
<S> <C> <C> <C>
INSTITUTIONAL HOLDINGS(a)
TCW Group Incorporated 475,500 9.42% 11.80%
Thomson Horstmann & Bryant 460,000 9.12% 11.41%
Neuberger & Berman 401,600 7.96% 9.96%
T Rowe Price Associates 300,000 5.94% 7.44%
Hathaway & Associates 227,500 4.51% 5.64%
Heartland Advisors Inc. 200,000 3.96% 4.96%
Glickenhaus & Company 140,100 2.78% 3.48%
Dimensional Fund Advisors 131,200 2.60% 3.25%
GHS Management Inc. 127,500 2.53% 3.16%
Putmman Investment Management 112,300 2.23% 2.79%
---------- ------- -------
TOP TEN INSTITUTIONS 2,575,700 51.04% 63.89%
ALL OTHER INSTITUTIONS 460,162 9.12% 11.41%
---------- ------- -------
TOTAL INSTITUTIONAL OWNERSHIP(b) 3,035,862 60.16% 75.31%
INSIDER HOLDINGS(c)
Frank P. Krasovec 652,917 12.94%
John K. Finnell 193,001 3.82%
Robert P. Whitesell 108,023 2.14%
---------- -------
MAJOR INSIDER HOLDINGS 953,941 18.90%
All Other Insider Holdings 61,417 1.22%
---------- -------
TOTAL INSIDERS 1,015,358 20.12%
========== =======
RETAIL HOLDINGS 995,396 19.72% 24.69%
---------- ------- -------
TOTAL PUBLIC FLOAT 4,031,258 79.88% 100.00%
---------- ------- =======
TOTAL SHARES OUTSTANDING(d) 5,046,616 100.00%
========== =======
OPTIONS AND WARRANTS OUTSTANDING(e) 353,915
----------
TOTAL SHARES OUTSTANDING INCLUDING OPTIONS AND WARRANTS 5,400,531
==========
</TABLE>
- --------------------------------------------------
(a) Source: CDA/Spectrum as of 9/30/97
(b) Includes 13-F institutions, domestic mutual funds, insurance companies,
pension funds, and variable annuities as defined by CDA/Spectrum
(c) Source: Proxy dated 12/20/96 and SEC press releases. Includes direct and
indirect share ownership and excludes options and warrants
(d) Source: Form 10-Q dated 6/30/97
(e) Management holds 38% or 134,118 of outstanding options and warrants
[LOGO] MERRILL LYNCH -----------------------------------------------------------
11
<PAGE> 16
- --------------------------------------------------------------------------------
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
<PAGE> 17
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
Summary of Valuation Methodology
<TABLE>
<CAPTION>
--------------------------------
Preliminary Valuation
Analysis
--------------------------------
- -------------------------------- -------------------------------- --------------------------------
Comparable Public Discounted Cash Comparable
Companies Flow Analysis Acquisitions
- -------------------------------- -------------------------------- --------------------------------
<S> <C> <C>
o Analysis of valuations for o Present value of projected o Analysis of pricing of relevant
relevant peer groups unlevered free cash flows acquisitions
o Review of historical and o Terminal multiples of 6.0x-8.0x o Review of historical and
projected trading multiples 2004 LTM EBITDA projected multiples paid
o Adjustments for non- o Discount rates of 11.0%-13.0%
recurring items
</TABLE>
[LOGO] MERRILL LYNCH -----------------------------------------------------------
12
<PAGE> 18
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
Preliminary Valuation Summary of Norwood
[GRAPH]
<TABLE>
<CAPTION>
IMPLIED AUG-97
MULTIPLES: RESULTS
- ---------------- ---------
<S> <C> <C> <C> <C>
1997 Sales 0.75x-1.00x 0.85x-1.10x WACC 11%-13% $175.8
1997 EBITDA 6.0-8.0 EBITDA Multiples 23.1
1997 EBIT 8.0-12.0 6.0x to 8.0x 15.0
1998 Net Income 11.0-14.0 9.0
</TABLE>
[LOGO] MERRILL LYNCH -----------------------------------------------------------
13
<PAGE> 19
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
Summary of Comparable Companies
<TABLE>
<CAPTION>
COMPANY MARKET VALUE MARKET CAP. DESCRIPTION
- ----------------------------- ---------------- --------------- -----------------------------------------
<S> <C> <C> <C>
Bemrose Corporation $289.1 $333.8 Bemrose is the largest supplier of
advertising and promotional products in
the UK. Bemrose produces imprinted
products such as calendars, diaries, pens
and etched crystal for corporate and
retail customers. Clients include British
Airways, Microsoft and Visa International.
Bemrose also prints security documents
such as bank checks, government and
university documents.
Cyrk Inc. $171.9 $174.4 Cyrk designs, develops, manufactures, and
distributes products for promotional
programs and custom-designed sports
apparel and accessories. Promotional
product programs include T-shirts,
pullovers, sports bags, caps and watches.
Cyrk's business is heavily concentrated
with its two largest customers, Pepsi-Cola
and Philip Morris, accounting for 38% and
30% of 1996 net sales, respectively.
Equity Marketing $170.4 $156.9 Equity Marketing designs, develops,
produces and distributes custom toy, gift
and other products based on characters
from television and movies such as cartoon
figurines, plush toys, action vehicles,
and play sets. Equity Marketing sells its
products domestically and internationally
to fast food restaurant chains, oil
companies, and mass market retailers for
use in promotional campaigns.
HA-LO Industries $550.7 $589.2 HA-LO Industries markets and distributes
advertising specialty and promotional
products through a network of eleven
showrooms and 2,500 vendors. Products
include jackets, hats, T-shirts,
calendars, pens, coffee mugs and key
chains. HA-LO also conducts telemarketing
services through a network of 1,400
telephone representatives.
Swiss Army Brands $88.3 $84.6 Swiss Army Brands is the exclusive U.S.,
Canadian and Caribbean distributor of the
Victorinox Swiss Army Knife, Victorinox
cutlery and Victorinox watches. It also
sells its own line of watches and other
products under its Swiss Army brand. Swiss
Army Brands also imprints its products
with corporate names and logos and sells
its products through distributors to
corporations and other organizations for
promotional purposes.
</TABLE>
[LOGO] MERRILL LYNCH -----------------------------------------------------------
14
<PAGE> 20
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
P/E Multiples for Comparable Companies
Multiple of Market Value of Multiple of Market
Equity to 1998E EPS(a) Capitalization to LTM EBITDA
- --------------------------- ----------------------------
[CHART] [CHART]
- -----
(a) Calendarized EPS Estimates from First Call; prices as of November 7, 1997.
(b) 1998E EPS Average excludes Norwood. LTM EBITDA Average excludes HA-LO,
Norwood and Swiss Army.
[LOGO] MERRILL LYNCH -----------------------------------------------------------
15
<PAGE> 21
VALUATION ANALYSIS
- -------------------------------------------------------------------------------
Summary Financial Information
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------------------
AUGUST 28, SEPTEMBER 3, SEPTEMBER 2, AUGUST 31, AUGUST 30,
1993 1994(a) 1995 1996(b) 1997(c)
---------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Sales $ 49.3 $ 62.4 $ 103.9 $ 152.0 $ 175.8
Growth 31.9% 26.5% 66.5% 46.3% 15.7%
EBITDA 7.2 8.5 14.5 18.7 23.1
EBIT 5.3 6.3 10.5 12.0 15.0
Interest Expense, Gross 2.0 1.0 3.6 3.5 3.0
Net Income(d) 1.8 3.3 4.0 5.0 7.4
Fully Diluted EPS(d) $ 0.76 $ 0.93 $ 1.10 $ 0.99 $ 1.34
Growth 230.4% 22.4% 18.3% (9.7)% 35.3%
CASH FLOW STATEMENT
Cash Flow(e) 3.5 5.5 7.8 11.2 13.7
Depreciation & Amortization 1.8 2.2 4.0 6.7 8.2
Capital Expenditures 1.2 1.4 2.1 4.9 4.9
BALANCE SHEET
Total Debt(f) 8.0 32.2 62.9 47.7 61.4
Net Debt 7.8 31.7 60.7 45.8 58.8
Shareholders' Equity 13.5 16.9 21.0 57.4 51.3
OPERATING MARGINS
EBITDA Margin 14.5% 13.7% 13.9% 12.3% 13.2%
EBIT Margin 10.8% 10.2% 10.1% 7.9% 8.5%
Net Margin 3.6% 5.3% 3.9% 3.3% 4.2%
SUMMARY CREDIT SERVICES
EBITDA/Interest Expense, Gross 3.6x 8.3x 4.0x 5.4x 7.7x
Total Debt/EBITDA 1.1x 3.8x 4.3x 2.5x 2.7x
Total Debt/Capitalization 37.1% 65.6% 74.9% 45.4% 54.5%
Net Debt/Capitalization 36.3% 64.6% 72.4% 43.6% 52.2%
</TABLE>
- --------------------
(a) Adjusted for extraordinary loss from debt extinguishment of $.58 million,
$.34 million net of tax
(b) Adjusted for restructuring charge of $1.64 million, $.98 million net of tax
(c) Adjusted for extraordinary charge of $1.82 million, $1.08 million net of
tax and refinancing charge of $.24 million
(d) From continuing operations
(e) Cash flow defined as Net Income + Depreciation & Amortization + Deferred
Taxes
(f) Includes capital leases
16
<PAGE> 22
VALUATION ANALYSIS
- -------------------------------------------------------------------------------
Acquisition Pricing Matrix
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
TRANSACTION VALUE AS MULTIPLE OF: OFFER VALUE AS MULTIPLE OF:
--------------------------------- ---------------------------------
OFFER OFFER OFFER NET TRANSACTION 1997 1997 1997 1997 1998 1997
PRICE PREMIUM VALUE DEBT VALUE SALES EBITDA EBIT EPS EPS BOOK VALUE
- -------- -------- -------- -------- ----------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 16.00 0.0% $ 80.7 $ 58.8 $ 139.6 0.79x 6.0x 9.3x 11.8x 9.0x 1.57x
16.80 5.0% 84.8 58.8 143.6 0.82 6.2 9.6 12.4 9.5 1.65
17.60 10.0% 88.8 58.8 147.6 0.84 6.4 9.8 12.9 9.9 1.73
18.40 15.0% 92.9 58.8 151.7 0.86 6.6 10.1 13.5 10.4 1.81
19.20 20.0% 96.9 58.8 155.7 0.89 6.7 10.4 14.1 10.8 1.89
20.00 25.0% 100.9 58.8 159.7 0.91 6.9 10.6 14.7 11.3 1.97
20.80 30.0% 105.0 58.8 163.8 0.93 7.1 10.9 15.3 11.7 2.05
21.60 35.0% 109.0 58.8 167.8 0.95 7.3 11.2 15.9 12.2 2.12
22.40 40.0% 113.0 58.8 171.9 0.98 7.4 11.5 16.5 12.6 2.20
23.20 45.0% 117.1 58.8 175.9 1.00 7.6 11.7 17.1 13.1 2.28
24.00 50.0% 121.1 58.8 179.9 1.02 7.8 12.0 17.6 13.5 2.36
24.80 55.0% 125.2 58.8 184.0 1.05 8.0 12.3 18.2 14.0 2.44
25.60 60.0% 129.2 58.8 188.0 1.07 8.1 12.5 18.8 14.4 2.52
- ---------------------------------------------------------------------------------------------------------------------------------
NORWOOD DATA $175.8 $23.1 $15.0 $1.36 $1.77 $51.3
=================================================================================================================================
</TABLE>
17
<PAGE> 23
VALUATION ANALYSIS
- -------------------------------------------------------------------------------
Overview of Potential Buyers
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
BEMROSE HA-LO
CORPORATION HAGEMEYER INDUSTRIES 3M BIC GILLETTE
----------- --------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Sales $321.7 $5,104.9 $279.8 $14,980.0 $1,091.2 $9,902.9
EBITDA 53.1 347.3 24.3 3,501.9 266.6 2,593.6
EBIT 41.6 277.4 19.9 2,620.0 180.6 2,186.0
Interest Expense, Gross 3.4 65.1 0.8 99.0 NA 75.0
Net Income 23.5 175.6 10.7 2,140.0 117.4 1,071.6
CASH FLOW STATEMENT
Cash Flow(a) $36.5 $245.5 $14.5 $3,021.9 $203.5 $1,479.2
Depreciation & Amortization 11.5 69.9 4.3 881.9 86.1 407.6
Capital Expenditures 4.3 134.3 4.6 1,108.8 107.2 917.9
BALANCE SHEET
Market Value $289.1 $16,003.5 $550.7 $38,108.3 $1,962.4 $52,262.2
Market Capitalization 333.8 17,068.6 589.2 39,518.3 1,775.9 53,783.1
Cash 0.0 42.3 1.9 306.0 309.7 102.8
Short Term Debt 0.0 2.8 9.1 585.0 48.4 11.3
Long Term Debt 44.7 1,043.2 31.3 1,131.0 9.4 1,481.9
Minority Interest 0.0 61.4 0.0 0.0 65.5 36.9
Preferred Equity (Liquidation Value) 0.0 0.0 0.0 0.0 0.0 93.6
Shareholders' Equity 87.2 744.6 66.0 6,324.0 1,008.7 5,080.7
SUMMARY CREDIT STATISTICS
EBITDA/Interest Expense, Gross 15.5x 5.3x 32.2x 35.4x NM 34.6x
Total Debt/EBITDA 0.8x 3.0x 1.7x 0.5x 0.2x 0.6x
Total Debt/Capitalization 33.9% 58.5% 41.5% 23.0% 5.7% 22.8%
Net Debt/Capitalization 33.9% 56.1% 39.6% 18.9% NM 21.2%
</TABLE>
- -------------------
(a) Cash flow defined as Net Income + Depreciation & Amortization + Deferred
Taxes
18
<PAGE> 24
ANALYSIS OF WEIGHTED AVERAGE COST OF CAPITAL - PROMOTIONAL PRODUCTS COMPANIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assumptions
- ----------------------------------------------------------------------------------------------------------------------
Thirty Year Government Bond (at 11/12/97) 6.16% Estimated Future Market Return (b) 13.56%
Historical Spread Between Long Bond & S&P 500(a) 7.40% Estimated Future Risk Free Rate (c) 6.16%
-------
Estimated Differential 7.40%
- ----------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
LEVERED TAX NET DEBT TO UNLEVERED LEVERED UNLEVERED
COMPARABLE COMPANIES BETA (d) RATE EQUITY (e) BETA (f) RETURN RETURN
- ---------------------------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bemrose Corporation 0.51 38.5% 9.3% 0.48 9.9% 9.7%
Cyrk Inc. 0.10 * 38.5% 1.5% 0.10 * 6.9% 6.9%
Equity Marketing Inc. 1.78 * 38.5% 0.0% 1.78 * 19.3% 19.3%
HA-LO Industries 1.28 38.5% 7.0% 1.23 15.6% 15.2%
Norwood Promotional Products 1.15 38.5% 72.3% 0.80 14.7% 12.1%
Swiss Army Brands 0.62 38.5% 0.0% 0.62 10.7% 10.7%
- ----------------------------------------------------------------------------------------------------------------------
AVERAGE 0.89 38.5% 15.0% 0.78 12.7% 11.9%
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------
COST OF EQUITY AT VARIOUS UNLEVERED BETA AND CAPITAL RATES
NET DEBT/EQUITY ----------------------------------------------------------------------
CAPITAL STRUCTURES 0.68 0.73 0.78 0.83 0.88
- ------------------ ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
10.0% 11.5% 11.9% 12.3% 12.7% 13.1%
20.0% 11.8% 12.2% 12.7% 13.1% 13.5%
30.0% 12.1% 12.6% 13.0% 13.4% 13.9%
40.0% 12.4% 12.9% 13.4% 13.8% 14.3%
50.0% 12.8% 13.2% 13.7% 14.2% 14.7%
60.0% 13.1% 13.6% 14.1% 14.6% 15.1%
70.0% 13.4% 13.9% 14.4% 15.0% 15.5%
80.0% 13.7% 14.2% 14.8% 15.3% 15.9%
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
WEIGHTED AVERAGE COST OF CAPITAL AT VARIOUS UNLEVERED BETA AND CAPITAL RATES
NET DEBT/EQUITY EST. COST ----------------------------------------------------------------------------
CAPITAL STRUCTURES OF DEBT 0.68 0.73 0.78 0.83 0.88
- ------------------ ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
10.0% 6.50% 10.8% 11.2% 11.5% 11.9% 12.3%
20.0% 6.75% 10.5% 10.9% 11.2% 11.6% 11.9%
30.0% 7.00% 10.3% 10.7% 11.0% 11.3% 11.7%
40.0% 7.25% 10.2% 10.5% 10.8% 11.1% 11.5%
50.0% 7.50% 10.0% 10.4% 10.7% 11.0% 11.3%
60.0% 7.75% 10.0% 10.3% 10.6% 10.9% 11.2%
70.0% 8.00% 9.9% 10.2% 10.5% 10.8% 11.1%
80.0% 8.25% 9.9% 10.2% 10.5% 10.8% 11.1%
</TABLE>
* Excluded from Average
- --------------------------------------------------------------------------------
(a) Source: Ibbottson & Sinquefeld 1997 Yearbook.
(b) Thirty year government bond yield plus the historical spread between the
long bond and the S&P 500.
(c) Thirty year government bond yield.
(d) Source: Merrill Lynch Beta Book, October 1997 for all except Bemrose
which was obtained from Bloomberg.
(e) Book Value of Net Debt to market Value of Equity.
(f) Unlevered beta equals (Levered Beta/(1 + ((1 - Tax Rate) * Debt/Equity)).
19
<PAGE> 25
NORWOOD PROMOTIONAL PRODUCTS
- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS-EBITDA MULTIPLE METHOD
(Dollars in Millions)
<TABLE>
<CAPTION>
PROJECTED FYE AUGUST 31
--------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 194.6 $ 209.7 $ 225.9 $ 243.4 $ 262.4 $ 282.8 $ 304.9
EBITDA 26.9 30.6 34.1 38.0 42.3 47.0 52.1
Less: Depreciation (4.9) (4.9) (4.9) (4.9) (4.9) (4.9) (4.9)
------- ------- ------- ------- ------- ------- -------
EBITA 22.1 25.7 29.2 33.1 37.4 42.0 47.2
Less: Taxes @ 40.0% (8.8) (10.3) (11.7) (13.2) (15.0) (16.8) (18.9)
------- ------- ------- ------- ------- ------- -------
Tax-effected EBITA 13.2 15.4 17.5 19.8 22.4 25.2 28.3
Plus: Depreciation 4.9 4.9 4.9 4.9 4.9 4.9 4.9
Plus: Change in Deferred Taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Less: Capital Expenditures (4.0) (4.0) (4.0) (4.0) (4.0) (4.0) (4.0)
Less: Changes in Working Capital (3.6) (2.9) (3.1) (3.4) (3.6) (3.9) (4.2)
------- ------- ------- ------- ------- ------- -------
Free Cash Flow $ 10.5 $ 13.4 $ 15.3 $ 17.4 $ 19.7 $ 22.2 $ 25.0
</TABLE>
<TABLE>
<CAPTION>
A + B = C
-------------- --------------------------- -----------------------------
DISCOUNTED(a) PV OF TERMINAL VALUE AS A
CASH FLOWS MULTIPLE OF 2004 EBITDA(b) FIRM VALUE
--------------------------- -----------------------------
WEIGHTED AVERAGE COST OF CAPITAL 1998-2004 6.0x 7.0x 8.0x 6.0x 7.0x 8.0x
- -------------------------------- -------------- --------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
11.0% $78.6 $150.7 $175.8 $200.9 $229.3 $254.4 $279.5
11.5% 77.2 146.0 170.3 194.7 223.2 247.5 271.9
12.0% 75.8 141.5 165.1 188.7 217.3 240.9 264.5
12.5% 74.4 137.2 160.0 182.9 211.6 234.5 257.3
13.0% 73.1 133.0 155.1 177.3 206.1 228.2 250.4
<CAPTION>
- D = E
-------------- ---------------------------
NET DEBT TOTAL EQUITY VALUE EQUITY VALUE PER SHARE(c)
--------------------------- -----------------------------
WEIGHTED AVERAGE COST OF CAPITAL AUG-31-97 6.0x 7.0x 8.0x 6.0x 7.0x 8.0x
- -------------------------------- -------------- --------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
11.0% $58.1 $171.2 $196.3 $221.4 $33.82 $38.78 $43.74
11.5% 58.1 165.1 189.4 213.8 $32.61 $37.42 $42.23
12.0% 58.1 159.2 182.8 206.4 $31.45 $36.10 $40.76
12.5% 58.1 153.5 176.3 199.2 $30.32 $34.83 $39.35
13.0% 58.1 148.0 170.1 192.3 $29.23 $33.60 $37.98
-----------------------------
<CAPTION>
PRESENT VALUE OF
TERMINAL VALUE AS A % OF
FIRM VALUE
- ----------------------------
6.0 7.0 8.0
- ----------------------------
<S> <C> <C>
65.7% 69.1% 71.9%
65.4% 68.8% 71.6%
65.1% 68.5% 71.3%
64.8% 68.3% 71.1%
64.5% 68.0% 70.8%
</TABLE>
- ----------------------------------
(a) Present values calculated as of August 31, 1997.
(b) Discounted 7 years; based on FYE August 31, 2004 EBITDA of $52.1 million.
(c) Based on 5.1 million shares outstanding.
20
<PAGE> 26
- -------------------------------------------------------------------------------
SUMMARY OF INDICATIVE TERMS
- --------------------------------------------------------------------------------
<PAGE> 27
SUMMARY OF INDICATIVE TERMS
- -------------------------------------------------------------------------------
Summary of Economic Terms
(Dollars in Millions)
<TABLE>
<CAPTION>
SENIOR CREDIT FACILITY SENIOR SUBORDINATED NOTES
----------------------------- -------------------------
<S> <C> <C>
AMOUNT: $50 $100
FACILITY: $25 Revolving Credit Facility --
$25 A Term Loan
ASSUMED RATINGS: B1/B+ B3/B-
MATURITY: Revolving Credit: 6 years 10 Years
A Term Loan: 6 years
SECURITY: Stock/Assets None
CALL FEATURES: Anytime at Par Non-Call 5
INITIAL PRICING(a): LIBOR+ Coupon
----------------------------- -------------------------
Revolving Credit
Facility: 250 bps 9 3/4% - 10%
A Term Loan: 250 bps
</TABLE>
- ------------------
(a) Subject to market conditions at time of pricing.
[LOGO] MERRILL LYNCH-----------------------------------------------------------
21
<PAGE> 28
SUMMARY OF INDICATIVE TERMS
- --------------------------------------------------------------------------------
Senior Credit Facility
- -------------------------
BORROWER Norwood Promotional Products, Inc. (the
"Company").
- -------------------------
ARRANGER Merrill Lynch & Co.
- -------------------------
LENDERS Merrill Lynch Capital Corporation ("Merrill
Lynch") and a syndicate of lenders acceptable to
the Company and Merrill Lynch.
- -------------------------
CREDIT FACILITIES See "Summary of Economic Terms."
- -------------------------
SECURITY Fully secured by (i) a perfected first priority
lien on, and pledge of, all the capital stock of
the Company and its existing (if applicable) and
hereafter created subsidiaries and (ii) perfected
first priority liens on, and security interests
in, all tangible and intangible properties and
assets of the Company and its existing (if
applicable) and hereafter created or acquired
subsidiaries.
- -------------------------
GUARANTEES The Senior Credit Facility will be guaranteed by
all direct and indirect subsidiaries of the
Company (existing, if applicable, or hereafter
created or acquired) on a senior secured basis.
- -------------------------
USE OF PROCEEDS Borrowings under the Term Loan Facilities will be
used to finance a portion of the funds necessary
to effect the Recapitalization, refinance existing
indebtedness, and provide funds for general
corporate purposes.
- -------------------------
INTEREST RATE Interest will be based, at the option of the
Company, on one, three, or six month LIBOR plus
the applicable margins or Alternate Base Rate
("ABR") plus the applicable margin. For rates, see
"Summary of Economic Terms." Interest shall be
payable at the end of each interest period and, in
any event, at least every three months or 90 days,
as the case may be. The default rate will be the
applicable interest rate per annum plus 200 bps
per annum. Subsequent to the six month anniversary
of the Closing Date, the applicable margin or the
Revolving Credit Facility and Term Loan A shall be
based on a Total Debt/EBITDA performance grid.
[LOGO] MERRILL LYNCH -----------------------------------------------------------
22
<PAGE> 29
SUMMARY OF INDICATIVE TERMS
- --------------------------------------------------------------------------------
Senior Credit Facility (cont'd)
- -------------------------
COMMITMENT FEES Prior to the Closing Date, a commitment fee of
0.50% per annum shall accrue on the aggregate
amount of the Senior Credit Facility. On and after
the closing date, 0.50% per annum shall accrue on
the unused portion of the Revolving Credit
Facility, payable quarterly in arrears.
- -------------------------
MATURITY AND AMORTIZATION
<TABLE>
<CAPTION>
FACILITY MATURITY AMORTIZATION
------------------------- -------- --------------------------
<S> <C> <C> <C>
Revolving Credit Facility 6 Years Bullet Maturity
A Term Loan 6 Years Over the life of the loan; exact
amounts to be determined
</TABLE>
- -------------------------
AVAILABILITY The Term Loans will be funded with a single draw
at closing. Revolving Credit loans will be
available subject to compliance with certain
customary conditions on and after the closing date
and prior to the Revolving Credit Facility
maturity date.
- -------------------------
MANDATORY PREPAYMENTS The Term Loans shall be prepaid with (i) 75% of
excess cash flow, (ii) 100% of net cash proceeds
from asset sales, (iii) 100% of net cash proceeds
from the issuance of debt and (iv) 50% from the
issuance of equity.
- -------------------------
OPTIONAL PREPAYMENTS Optional prepayments are permitted at any time, in
whole or in part, at the option of the Company, at
par, subject to LIBOR breakage and/or redeployment
costs.
- -------------------------
CONDITIONS PRECEDENT Usual and customary conditions including, but not
limited to:
Satisfaction with all documentation; satisfaction
with the capital and legal structure; absence of
material adverse change; or material adverse
change in financial or syndication markets.
Satisfaction with the continuing due diligence
investigation including, but not limited to,
historical, pro forma and projected financial
statements, legal, tax, accounting, and
environmental issues.
Satisfaction with results of a third party
solvency opinion.
[LOGO] MERRILL LYNCH -----------------------------------------------------------
23
<PAGE> 30
SUMMARY OF INDICATIVE TERMS
- --------------------------------------------------------------------------------
Senior Credit Facility (cont'd)
- -------------------------
REPRESENTATIONS AND Usual and customary for transactions of this type,
WARRANTIES including, but not limited to, no Default or Event
of Default; absence of material adverse change;
compliance with laws; solvency; no conflicts with
laws; charter documents or agreements; ownership
of properties; and absence of liens and security
interests.
- -------------------------
AFFIRMATIVE COVENANTS Usual and customary for transactions of this type,
including, but not limited to, compliance with
laws; performance of obligations; maintenance of
properties in good repair; maintenance of
appropriate and adequate insurance; inspection of
books and properties; payment of taxes and other
liabilities; maintenance of interest rate
protection; notice of defaults; true and complete
disclosure, validity and perfection of security
interests, and delivery of financial statements,
financial projections and compliance certificates.
- -------------------------
NEGATIVE COVENANTS Usual and customary for transactions of this type,
including, but not limited to, limitations on
indebtedness, liens (including negative pledges),
sale-leaseback transactions, loans, investments,
transaction with affiliates, joint ventures,
contingent obligations, restricted payments,
mergers, acquisitions, consolidations, asset
sales, creation of subsidiaries, capital
expenditures, and changes in business conducted.
- -------------------------
FINANCIAL COVENANTS Usual and customary for transactions of this type,
including, but not limited to, maximum total
leverage, minimum interest coverage, and minimum
fixed charge coverage.
- -------------------------
RELATED BUSINESS Acquisitions of business entities shall be subject
ACQUISITIONS among others to the following requirements: (i)
pro forma covenant compliance, (ii) no default or
Event of Default existing or arising from the
transactions, (iii) cash acquisitions shall be in
the same or substantially similar type of business
as existing businesses of the Borrower, (iv)
pledge of all assets acquired and (v) mutually
agreed upon dollar cap per transactions as well as
an aggregate cap.
- -------------------------
EVENTS OF DEFAULT Usual and customary for transactions of this type,
including, but not limited to, nonpayment of
principal, interest, fees or other amounts when
due; default of principle agreements; violation of
covenants; failure of any representation or
warranty to be true in all material respects;
cross-default and cross-acceleration; change in
control; bankruptcy; material judgments; ERISA
events; and invalidity of loan documents, security
interests, or guarantees.
[LOGO] MERRILL LYNCH -----------------------------------------------------------
24
<PAGE> 31
SUMMARY OF INDICATIVE TERMS
- --------------------------------------------------------------------------------
Senior Credit Facility (cont'd)
- -------------------------
ASSIGNMENTS AND Lenders shall be permitted to assign and
PARTICIPATIONS participate in loans, notes and commitments. Non
pro-rata assignments of loans, notes, and
commitments of the Senior Credit Facility shall be
permitted. Each assignment shall be in a minimum
amount to be determined or proportionately smaller
as the Senior Credit Facility is reduced.
Assignments through novation or otherwise shall be
permitted with the Company's consent (not to be
unreasonably withheld or delayed). Intra-syndicate
assignments shall be permitted in any amount
without the Company's consent. Participations
shall be permitted without restriction.
- -------------------------
PROVISIONS OF An underwriting commitment of the Senior Credit
UNDERWRITING COMMITMENT Facility by Merrill Lynch & Co., including any
affiliates or subsidiaries ("Merrill Lynch") would
be subject to, among other items, approval of
Merrill Lynch's Leverage Transaction Commitment
Committee, completion of Merrill Lynch's credit,
legal, accounting and business due diligence,
absence of a material adverse change with respect
to the Borrower; absence of material adverse change
with respect to financial or capital market
conditions and satisfactory documentation.
[LOGO] MERRILL LYNCH -----------------------------------------------------------
25
<PAGE> 32
SUMMARY OF INDICATIVE TERMS
- --------------------------------------------------------------------------------
Senior Subordinated Notes
- -------------------------
ISSUER Norwood Promotional Products, Inc. (the "Company").
- -------------------------
ISSUE Senior Subordinated Notes (the "Notes").
- -------------------------
PRINCIPAL AMOUNT See "Summary of Economic Terms".
- -------------------------
MATURITY 2008 (10 years).
- -------------------------
INDICATIVE COUPON See "Summary of Economic Terms".
- -------------------------
INTEREST PAYMENT DATES Semi-annual; interest paid in cash in arrears.
- -------------------------
RANKING The Notes will be senior subordinated obligations
of the Company and will be subordinated in right
of payment to all existing and future senior
indebtedness of the Company.
- -------------------------
MANDATORY REDEMPTION None.
- -------------------------
OPTIONAL REDEMPTION The Notes will be redeemable, at the option of the
Company, in whole or in part, anytime on or after
_____ 2003 (five years from the date of issuance),
at a premium to par, declining thereafter ratably
to par in year eight, together with accrued and
unpaid interest, if any, to the redemption date.
[LOGO] MERRILL LYNCH -----------------------------------------------------------
26
<PAGE> 33
SUMMARY OF INDICATIVE TERMS
- --------------------------------------------------------------------------------
Senior Subordinated Notes (cont'd)
- -------------------------
OPTIONAL REDEMPTION UPON On or before _____, 2001 (three years after the
A PUBLIC EQUITY OFFERING date of issuance), the Company may redeem up to
30% (to be determined based on size of offering
amount) of the principal amount of the Notes
originally issued at a percentage of par (exact
price to be determined at the time of pricing),
together with accrued and unpaid interest, if any,
to the redemption date, with the net proceeds of
one or more Public Equity Offerings; provided,
however, that in no event will the principal
amount of the Notes outstanding be less than $___
million (to be determined based on size of
offering amount) after consummating such
redemptions.
- -------------------------
SECURITY None.
- -------------------------
CHANGE IN CONTROL In the event of a Change in Control (to be
defined), each holder of Notes may require the
Company to repurchase such holder's Notes at 101%
of the principal amount thereof, together with
accrued and unpaid interest, if any, to the
repurchase date.
- -------------------------
INCURRENCE COVENANTS Covenants may include, but not be limited to, the
following:
-- Limitation on Additional Indebtedness;
-- Limitation on Restricted Payments;
-- Limitation on Transactions with Affiliates;
-- Limitation on Liens;
-- Limitation on Dividends and other Payment
Restrictions Affecting Subsidiaries;
-- Limitation on Disposition of Proceeds of
Asset Sales;
-- Limitation on Mergers, Consolidations or
Sale of Substantially All Assets;
-- Limitation on Guarantees of Indebtedness;
-- Limitation on Certain Other Senior
Subordinated Indebtedness; and
-- Provision of Financial Statements.
- -------------------------
EVENTS OF DEFAULT As are customary for transactions of this nature.
[LOGO] MERRILL LYNCH -----------------------------------------------------------
27
<PAGE> 34
SUMMARY OF INDICATIVE TERMS
- -------------------------------------------------------------------------------
Summary Description of Principal High Yield Covenants
<TABLE>
<CAPTION>
COVENANT DESCRIPTION RATIONALE
- ---------------------------- -------------------------------------------------- ---------------------------------
<S> <C> <C>
Limitation on Additional An incurrence test which limits the ability of Limit additional debt unless
Indebtedness the Company to incur additional indebtedness cash flow is sufficient to
unless the Company exceeds a specified ratio of service all debt. Maintain or
EBITDA to interest expense on a pro forma basis. improve existing credit
Existing indebtedness and refinancings, among quality/rating.
other things, are carved-out from this covenant
as well as certain "Permitted Debt".
Limitation on Restricted An incurrence test which limits the ability of Prevent cash and assets from
Payments the Company to pay dividends, repurchase stock leaving consolidated family;
or make investments in certain entities (e.g., prevent Company from
joint ventures). The Company will be able to prioritizing its cash flow for
make "Restricted Payments" over time of up to the benefit of junior creditors
50% of the Company's Consolidated Net Income and equity holders.
plus a defined "Restricted Payments Basket".
Limitation on Transactions Any related party transaction must be on terms Prevent self-dealing.
with Affiliates no less favorable than would be available in an
arm's-length transaction and all related party
transactions above a specified dollar amount must
be approved by a majority of the Independent
Directors.
Limitation on Liens The Company shall not incur any Liens unless the Protect relative seniority to
Notes are equally and ratably secured. Existing income producing assets.
liens and purchase money mortgages are typical
carve-outs from this covenant as are Liens
associated with certain "Permitted Debt".
Limitation on Sale of The Company will not permit its Subsidiaries to Prevent additional claims
Subsidiary Capital Stock issue Capital Stock other than Capital Stock on/control of the issuer's
issued to the Company. subsidiaries.
</TABLE>
[LOGO] MERRILL LYNCH ----------------------------------------------------------
28
<PAGE> 35
SUMMARY OF INDICATIVE TERMS
- -------------------------------------------------------------------------------
Summary Description of Principal High Yield Covenants (cont'd)
<TABLE>
<CAPTION>
COVENANT DESCRIPTION RATIONALE
- ---------------------------- -------------------------------------------------- ---------------------------------
<S> <C> <C>
Limitation on Dividends and The Company will not and will not permit any Ensure that the issuer has
Other Payment Restrictions Subsidiary to enter into any agreements which complete access to subsidiaries'
Affecting Subsidiaries limit the ability of its Subsidiaries to make cash flow so it may be utilized
dividends or otherwise transfer cash or other to service debt.
assets to the Company or a Wholly-Owned
Subsidiary.
Limitation on Disposition of The Company cannot make an Asset Sale unless the Maintain "asset coverage" of
Proceeds of Asset Sales Board of Directors determines that the Company debt; ensure assets remain
receives Fair Market Value and unless at least dedicated to main lines of
___% of the proceeds from the Asset Sale are business; retain relative asset
received in cash or Cash Equivalents. Proceeds risk profile of investment.
from the Asset Sale must be used to repay Senior
Indebtedness, invest in the business within one
year or make an offer to purchase the Notes at
100% of par.
Mergers, Consolidations and The Company will not enter into a merger unless Restrict mergers, consolidations
Transfer of Assets (i) the Company is the Surviving Entity or the or sale of all of an issuer's
Surviving Entity is a U.S. or Canadian assets which would result in an
corporation and assumes the Note Indenture, (ii) impaired credit from the
no Default or Event of Default shall have perspective of the bondholder.
occurred, (iii) immediately after the merger the
Surviving Entity shall have a net worth at least
equal to the Company's net worth prior to the
transaction and (iv) the Company's
EBITDA/interest expense ratio on a pro forma
basis should be at least equal to the ratio in
the Limitation on Indebtedness Covenant.
Change in Control The Company would be required to make an offer Protect against change in
to purchase the Notes at 101% of par if a Change controlling interest by an
in Control occurred. A Change in Control would investor who may have a
result if a person acquired up to ___% of the different financial strategy (i.e.,
Company or if ___% of the Board of Directors more leverage) for the issuer.
were replaced.
</TABLE>
[LOGO] MERRILL LYNCH ----------------------------------------------------------
29
<PAGE> 36
- --------------------------------------------------------------------------------
TRANSACTION STRUCTURE AND ISSUES TO CONSIDER
- --------------------------------------------------------------------------------
<PAGE> 37
TRANSACTION STRUCTURE AND ISSUES TO CONSIDER
- --------------------------------------------------------------------------------
Introduction
o The assumed transaction structure is a cash tender offer for shares
not currently owned by Norwood management
o If, as a result of the transaction, Norwood management own
substantially all of the issued and outstanding equity securities of
Norwood, the transaction will be deemed a "going private" transaction
(a Rule 13e-3 transaction), and the buyer will be required to make
Rule 13e-3 and Rule 13e-4 disclosure filings with the SEC
o SEC filings require certain disclosures related to the transaction:
* Details of any transactions between Norwood management or any
other affiliate over the two fiscal years preceding the
transaction with a value greater than 1% of Norwood's sales
* Details of any merger discussions regarding Norwood over two
fiscal years preceding the transaction
* Future plans regarding any merger, reorganization or material
change in policy for Norwood
* Purpose for the transaction, any alternatives considered and
effects of the transaction on the buyer, Norwood and minority
shareholders
* Statement as to whether the filing entity believes the
transaction is fair or unfair to minority shareholders and a
discussion of the material factors upon which this belief is
based
* Disclosure of any reports, opinions or appraisals that are
materially related to the transaction
[LOGO] MERRILL LYNCH -----------------------------------------------------------
30
<PAGE> 38
TRANSACTION STRUCTURE AND ISSUES TO CONSIDER
- --------------------------------------------------------------------------------
o The likelihood of litigation on behalf of minority shareholders in any
"going private" transaction is high
o Special Committee:
* Litigation risk to directors may be reduced by appointment of a
Special Committee comprised of Norwood independent directors to
evaluate and approve the transaction and to assure that the
transaction is negotiated at arm's length and a fair price is received
by minority shareholders
* Approval by Special Committee is an important factor in determining
procedural fairness under entire fairness test
o A summary of Norwood's current Board of Directors follows on the next page.
[LOGO] MERRILL LYNCH -----------------------------------------------------------
31
<PAGE> 39
TRANSACTION STRUCTURE AND ISSUES TO CONSIDER
- --------------------------------------------------------------------------------
Board of Directors
<TABLE>
<CAPTION>
DIRECTOR COMPANY AND POSITIONS HELD DIRECTOR SINCE INDEPENDENT
- --------------------- ----------------------------------------------------- -------------- -------------
<S> <C> <C> <C>
Frank P. Krasovec Chairman and Chief Executive Officer of Norwood 1989 No
Promotional Products. Also serves as Chairman of
Littlefield Real Estate Company and manages other
personal investments.
Robert L. Seibert Director of Norwood Promotional Products since 1989 Yes
October 1989 and was a director of Norwood
Products, Inc. from December 1988 to October 1989.
Since 1978, he has served as a director of Advertising
Unlimited, Inc., a supplier of promotional product
calendars and served as its Chairman from 1978 to
December 1994. Mr. Siebert has also been a director of
Northstar Guaranty since 1992.
John H. Wilson III Has served as President of the U.S. Equity Corporation, 1991 Yes
a private venture capital company, since April 1983.
Mr. Wilson is also a director of Capital Southwest Corp.,
Whitehall Corp., Encore Wire Corporation and Palm Harbor Homes.
John H. Josephson Has been employed by Allen & Company Incorporated since 1993 Yes
August 1987 and has been a director of that firm since
February 1995. Mr. Josephson is also a director of Medical
Resources, Inc., OFI Holdings, Inc., SESAC Holdings, Inc.
and Virgol Servicos de Conveniencia, SA.
Harold Holland Founder of ArtMold Products Corporation in 1960 and served 1994 No
as its President and Chairman until July 1994, when ArtMold
was acquired by Norwood Promotional Products.
Roy D. Terracina Owner and chief executive officer of Sterling Foods, Inc. 1996 Yes
from 1984 until he sold the company in 1993. He is currently
a partner of Jungle Labs, a supplier of chemicals to the pet
industry. Mr. Terracina is also a director of Texas Commerce
Bank, National Association, United Services Advisors, Inc.
and Mesirow Partners.
</TABLE>
[LOGO] MERRILL LYNCH -----------------------------------------------------------
32
<PAGE> 40
TRANSACTION STRUCTURE AND ISSUES TO CONSIDER
- --------------------------------------------------------------------------------
o A fairness opinion is typically required on behalf of Norwood's
minority shareholders
* A key element of the transaction
* Based on a thorough valuation by the financial advisors to the
Special Committee
o Among other things, in determining the fairness of any proposed offer
for Norwood, the Special Committee will likely review:
* Company's financial projections
* Public trading multiples of comparable companies
* Acquisition multiples of comparable companies
* Historical trading levels of Norwood stock
* Potential strategic buyers of Norwood
* Other "going private" transactions
[LOGO] MERRILL LYNCH -----------------------------------------------------------
33
<PAGE> 41
TRANSACTION STRUCTURE AND ISSUES TO CONSIDER
- --------------------------------------------------------------------------------
Timetable Summary
(assumes a friendly cash tender offer transaction, may vary depending on the
transaction structure)
Weeks 1-2 Preliminary matters, including engagement by
Norwood Management of advisors, due diligence,
review of regulatory issues, financing
structure, tender offer preparations
Weeks 3-6 Approach Norwood Board of Directors, form
special committee, engagement of separate
advisors for special committee, prepare tender
offer documents (Schedule 13e-4, Offer to
Purchase, side documents), Rule 13e-3 filing
and state regulatory filings (if required)
Continue due diligence
Week 7 Finalize due diligence, prepare fairness
opinion by financial advisors
Week 8 Final organization for launch of tender offer,
Norwood to finalize Schedule 13e-4
Commencement of the tender offer, publish
summary advertisement, issue joint press
release prior to opening of business, file 10
copies of Schedule 13e-4 with the SEC, commence
mailing of Offer to Purchase to shareholders,
state filings, Rule 13e-3 filing, file
amendment to 13-D or 13-G as appropriate
Launch Date + 15 calendar days Receive SEC Comments
Launch Date + 20 business days Close tender offer, Norwood may purchase
shares, issue press release reporting results
of tender offer, file final amendment to
Schedule 13e-4 reporting results of tender
offer
Following Tender Offer Closing File Form 4 (within 10 days of tender offer
closing) to report acquisition of Norwood's
shares, short-form merger (if minority
shareholders own less than 10% of Norwood's
shares)
Shareholder meeting; Certificate of Merger
filed
[LOGO] MERRILL LYNCH -----------------------------------------------------------
34
<PAGE> 42
- --------------------------------------------------------------------------------
APPENDIX
- --------------------------------------------------------------------------------
<PAGE> 43
- --------------------------------------------------------------------------------
DETAILED FINANCIAL MODELS
- --------------------------------------------------------------------------------
<PAGE> 44
CONFIDENTIAL BASE CASE
- -------------------------------------------------------------------------------
TRANSACTION SUMMARY - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 1
[Dollars in Millions]
SOURCES AND USES OF FUNDS
<TABLE>
<CAPTION>
Sources of Funds Amount Percent Interest Rate
- ---------------- ------ ------- -------------
<S> <C> <C> <C>
Revolving Credit Facility $ 2.2 1.5% 8.500%
Undrawn Portion 0.500%
A Term Loan 25.0 17.0% 8.500%
B Term Loan 0.0 0.0% 8.750%
Senior Subordinated Notes 100.0 67.9% 9.875%
Common Equity 20.0 13.6%
------ ------
Total Sources $147.2 100.0%
====== ======
</TABLE>
<TABLE>
<CAPTION>
Uses of Funds Amount Percent
- ------------- ------ -------
<S> <C> <C>
Purchase Price per share $ 20.0
Shares Purchased 4.02
------
Purchase Price 80.4 54.6%
Refinance Existing Debt 60.7 41.2%
Tender Premium 0.0 0.0%
Estimated Fees & Expenses 6.1 4.1%
------ ------
Total Uses $147.2 100.0%
====== ======
</TABLE>
SUMMARY INFORMATION
<TABLE>
<CAPTION>
Year Ended on or about August 31,
---------------------------------------------------------------------------------
Pro Forma Projected
--------- ---------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 176.0 $ 194.6 $ 209.7 $ 225.9 $ 243.4 $ 262.4 $ 282.8
Sales Growth 10.6% 7.7% 7.7% 7.8% 7.8% 7.8%
EBITDA 22.5 26.9 30.6 34.1 38.0 42.3 47.0
Margins
EBITDA Margin 12.8% 13.8% 14.6% 15.1% 15.6% 16.1% 16.6%
Gross Margin 28.6% 28.3% 28.4% 28.5% 28.5% 28.6% 28.6%
Total Interest Expense 12.6 12.4 11.9 11.2 10.6 10.3 10.3
Capital Expenditures 4.9 4.0 4.0 4.0 4.0 4.0 4.0
Revolving Credit Facility 2.2 0.0 0.0 0.0 0.0 0.0 0.0
A Term Loan 25.0 22.2 15.6 6.7 0.0 0.0 0.0
Total Debt 127.2 122.2 115.6 106.7 100.0 100.0 100.0
Shareholders' Equity (12.2) (9.6) (4.4) 3.2 13.5 27.0 43.7
EBITDA/Total Interest Expense 1.8x 2.2x 2.6x 3.0x 3.6x 4.1x 4.6x
EBITDA-CapEx/Total Interest Expense 1.4x 1.9x 2.2x 2.7x 3.2x 3.7x 4.2x
Total Debt/EBITDA 5.7x 4.5x 3.8x 3.1x 2.6x 2.4x 2.1x
Total Debt/Total Capitalization 110.6% 108.5% 104.0% 97.1% 88.1% 78.8% 69.6%
</TABLE>
<PAGE> 45
CONFIDENTIAL BASE CASE
- --------------------------------------------------------------------------------
PROJECTED INCOME STATEMENTS - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 2
[Dollars in Millions]
<TABLE>
<CAPTION>
Year Ended on or about August 31,
---------------------------------------------------------------------------------------------------
Pro Forma Projected
--------- ---------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
--------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Sales 176.0 194.6 209.7 225.9 243.4 262.4 282.8 304.9 328.7 354.5
COGS 125.7 139.5 150.1 161.6 174.0 187.4 201.9 217.5 234.4 252.6
S,G & A 31.4 32.2 33.0 34.1 35.3 36.6 37.9 39.2 40.6 42.1
EBITDA 22.5 26.9 30.6 34.1 38.0 42.3 47.0 52.1 57.7 63.8
Depreciation 4.3 4.9 4.9 4.9 4.9 4.9 4.9 4.9 4.9 4.9
Amortization of Goodwill 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
EBIT 15.0 18.9 22.5 26.0 29.9 34.2 38.8 44.0 49.6 55.7
Interest Expense
Revolving Credit Facility 0.3 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
A Term Loan 2.1 2.0 1.6 0.9 0.3 0.0 0.0 0.0 0.0 0.0
B Term Loan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Senior Subordinated Notes 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9
Amortization of Financing
Fees 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Interest Expense 12.6 12.4 11.9 11.2 10.6 10.3 10.3 10.3 10.3 10.3
Interest Income 0.1 0.1 0.1 0.1 0.2 0.6 1.4 2.4 3.5 4.8
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Interest Expense 12.5 12.3 11.9 11.2 10.4 9.7 8.9 7.9 6.8 5.5
Other Expenses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Pre-Tax Income 2.5 6.6 10.7 14.8 19.4 24.5 30.0 36.1 42.7 50.2
Income Taxes(a) 2.3 3.9 5.6 7.2 9.1 11.1 13.3 15.7 18.4 21.4
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Income $ 0.2 $ 2.7 $ 5.1 $ 7.6 $ 10.4 $ 13.4 $ 16.7 $ 20.4 $ 24.4 $ 28.8
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------------------------
Notes: Assumes an effective tax rate of 40.0%.
<PAGE> 46
CONFIDENTIAL BASE CASE
- --------------------------------------------------------------------------------
PROJECTED BALANCE SHEET - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 3
[Dollars in Millions]
<TABLE>
<CAPTION>
Year Ended on or about August 31,
-------------------------------------------------------------------------------------------
Pro Forma Projected
--------- -------------------------------------------------------------------------------
8/31/97 1998 1999 2000 2001 2002 2003 2004 2005 2006
--------- ------ ------ ------ ------ ------ ------ ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash $ 2.6 $ 1.0 $ 1.0 $ 1.0 $ 5.8 $ 20.0 $ 37.2 $ 57.7 $ 81.9 $110.2
Other Current Assets(a) 60.1 65.6 70.4 75.6 81.2 87.2 93.7 100.7 108.3 116.5
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 62.7 66.6 71.4 76.6 86.9 107.2 130.9 158.5 190.3 226.8
PP&E 21.1 20.3 19.4 18.5 17.6 16.6 15.7 14.8 13.9 13.0
Other Fixed Assets 12.3 12.3 12.3 12.3 12.3 12.3 12.3 12.3 12.3 12.3
Goodwill & Intangibles 39.0 35.8 32.6 29.4 26.2 23.0 19.8 16.6 13.4 10.2
Deferred Financing Costs 3.0 2.7 2.4 2.1 1.8 1.5 1.2 0.9 0.6 0.3
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Assets $138.2 $137.7 $138.1 $138.9 $144.8 $160.6 $179.9 $203.1 $230.5 $262.5
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Liabilities
Current Liabilities $ 23.0 $ 24.9 $ 26.8 $ 28.8 $ 31.1 $ 33.5 $ 36.0 $ 38.8 $ 41.8 $ 45.1
Debt:
Existing Debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Revolving Credit Facility 2.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
A Term Loan 25.0 22.2 15.6 6.7 0.0 0.0 0.0 0.0 0.0 0.0
B Term Loan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Senior Subordinated Notes 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Debt 127.2 122.2 115.6 106.7 100.0 100.0 100.0 100.0 100.0 100.0
Other Long-Term Liabilities 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Minority Interests 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Shareholders' Equity (12.2) (9.6) (4.4) 3.2 13.5 27.0 43.7 64.0 88.4 117.2
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Liabilities & Shareholders' Equity $138.2 $137.7 $138.1 $138.9 $144.8 $160.6 $179.9 $203.1 $230.5 $262.5
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
0.0 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 (0.0) 0.0
BALANCE SHEET STATISTICS
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Days Current Assets 124.7 123.1 122.6 122.1 121.7 121.3 121.0 120.6 120.3 120.0
Days Current Liabilities 66.7 65.2 65.2 65.2 65.2 65.2 65.2 65.2 65.2 65.2
====== ====== ====== ====== ====== ====== ====== ====== ====== =====
</TABLE>
- --------------------------
(a) Other Current Assets includes Inventory, Accounts Receivable and Prepaid
Expenses.
<PAGE> 47
CONFIDENTIAL BASE CASE
- -------------------------------------------------------------------------------
PROJECTED CASH FLOW STATEMENT-NORWOOD PROMOTIONAL PRODUCTS, INC. Page 4
[Dollars in Millions]
<TABLE>
<CAPTION>
Year Ended on or about August 31,
------------------------------------------------------
Pro Forma Projected
--------- -----------------------------------------
1997 1998 1999 2000 2001
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
EBITA $ 22.5 $ 26.9 $ 30.6 $ 34.1 $ 38.0
Less:
Capital Expenditures 4.9 4.0 4.0 4.0 4.0
Net Cash Interest Expense 12.0 11.6 10.9 10.1
Other Expenses 0.0 0.0 0.0 0.0
Taxes 3.9 5.6 7.2 9.1
Working Capital Items:
Incr/(Decr) in Non-Cash Current Assets 5.5 4.8 5.2 5.6
(Incr)/Decr in Current Liabilities (1.9) (1.9) (2.1) (2.2)
------ ------ ------ ------
Change in Working Capital 3.6 2.9 3.1 3.4
Other:
(Incr)/Decr in Other Long Term Liabilities 0.0 0.0 0.0 0.0
------ ------ ------ ------
Cash Flow Available for Debt Service 3.4 6.6 8.9 11.4
Incr/(Decr) in Revolving Credit Facility (2.2) 0.0 0.0 0.0
Incr/(Decr) in A Term Loan (2.8) (6.6) (8.9) (6.7)
Incr/(Decr) in B Term Loan 0.0 0.0 0.0 0.0
Incr/(Decr) in Senior Subordinated Notes 0.0 0.0 0.0 0.0
------ ------ ------ ------
Net Cash Flow (1.6) (0.0) (0.0) 4.8
Cash Balance
Minimum Cash Balance 1.0 1.0 1.0 1.0
Beginning Balance 2.6 2.6 1.0 1.0 1.0
Incr/(Decr) 0.0 (1.6) (0.0) (0.0) 4.8
------ ------ ------ ------ ------
Ending Balance 2.6 1.0 1.0 1.0 5.8
Average Balance 2.6 1.8 1.0 1.0 3.4
Interest Income 5.000% 0.1 0.1 0.0 0.0 0.2
<CAPTION>
Year Ended on or about August 31,
----------------------------------------------------
Projected
----------------------------------------------------
2002 2003 2004 2005 2006
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
EBITA $ 42.3 $ 47.0 $ 52.1 $ 57.7 $ 63.8
Less:
Capital Expenditures 4.0 4.0 4.0 4.0 4.0
Net Cash Interest Expense 9.4 8.6 7.6 6.5 5.2
Other Expenses 0.0 0.0 0.0 0.0 0.0
Taxes 11.1 13.3 15.7 18.4 21.4
Working Capital Items:
Incr/(Decr) in Non-Cash Current Assets 6.0 6.5 7.0 7.6 8.2
(Incr)/Decr in Current Liabilities (2.4) (2.6) (2.8) (3.0) (3.3)
------ ------ ------ ------ ------
Change in Working Capital 3.6 3.9 4.2 4.6 5.0
Other:
(Incr)/Decr in Other Long Term Liabilities 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ------
Cash Flow Available for Debt Service 14.2 17.2 20.5 24.2 28.3
Incr/(Decr) in Revolving Credit Facility 0.0 0.0 0.0 0.0 0.0
Incr/(Decr) in A Term Loan 0.0 0.0 0.0 0.0 0.0
Incr/(Decr) in B Term Loan 0.0 0.0 0.0 0.0 0.0
Incr/(Decr) in Senior Subordinated Notes 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ------
Net Cash Flow 14.2 17.2 20.5 24.2 28.3
Cash Balance
Minimum Cash Balance 1.0 1.0 1.0 1.0 1.0
Beginning Balance 5.8 20.0 37.2 57.7 81.9
Incr/(Decr) 14.2 17.2 20.5 24.2 28.3
------ ------ ------ ------ ------
Ending Balance 20.0 37.2 57.7 81.9 110.2
Average Balance 12.9 28.6 47.5 69.8 96.1
Interest Income 5.000% 0.6 1.4 2.4 3.5 4.8
</TABLE>
<PAGE> 48
CONFIDENTIAL BASE CASE
- --------------------------------------------------------------------------------
BALANCE SHEET ADJUSTMENTS - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 5
[Dollars in Millions]
<TABLE>
<CAPTION>
Actual Pro Forma
--------- Financing Accounting -----------
8/31/97 Adjustments Adjustments 8/31/97
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Cash $ 2.6 $ 86.5 $ (86.5) $ 2.6
Other Current Assets 60.1 60.1
------- -------- --------- -------
Total 62.7 86.5 (86.5) 62.7
PP&E 21.1 21.1
Other Long-Term Assets 12.3 12.3
Goodwill & Intangibles 39.0 0.0 39.0
Deferred Financing Costs 0.0 3.0 3.0
------- -------- --------- -------
Total Assets $ 135.2 $ 86.5 $ (83.5) $ 138.2
======= ======== ========= =======
Liabilities
Current Liabilities $ 23.0 $ 23.0
Debt:
Existing Debt 60.7 (60.7) 0.0
Working Capital Revolver 0.0 2.2 2.2
A Term Loan 0.0 25.0 25.0
B Term Loan 0.0 0.0 0.0
Senior Subordinated Notes 0.0 100.0 100.0
------- -------- --------- -------
Total Debt 60.7 66.5 0.0 127.2
Other Long-Term Liabilities 0.2 0.2
Minority Interests 0.0 0.0
Shareholders' Equity 51.3 20.0 (83.5) (12.2)
------- -------- --------- -------
Total Liabilities & Shareholders' Equity $ 135.2 $ 86.5 $ (83.5) $ 138.2
======= ======== ========= =======
0.0 0.0 (0.0) (0.0)
</TABLE>
<PAGE> 49
CONFIDENTIAL BASE CASE
- -------------------------------------------------------------------------------
CAPITALIZATION SCHEDULES - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 6
[Dollars in Millions]
<TABLE>
<CAPTION>
Year Ended on or about August 31,
------------------------------------------------------------------------------------------
Pro Forma Projected
--------- ------------------------------------------------------------------------------
Rates 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
------- ---------- ------ ------ ------ ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revolving Credit Facility 8.500%
Beginning Balance 2.2 2.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Additions/(Payments) 0.0 (2.2) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Ending Balance 2.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Undrawn Portion 0.500% 22.8 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0
Interest on Undrawn Portion 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Average Balance 2.2 1.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Interest Expense 0.3 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
A Term Loan 8.500%
Beginning Balance 25.0 25.0 22.2 15.6 6.7 0.0 0.0 0.0 0.0 0.0
Additions/(Payments) 0.0 (2.8) (6.6) (8.9) (6.7) 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Ending Balance 25.0 22.2 15.6 6.7 0.0 0.0 0.0 0.0 0.0 0.0
Average Balance 25.0 23.6 18.9 11.1 3.3 0.0 0.0 0.0 0.0 0.0
Interest Expense 2.1 2.0 1.6 0.9 0.3 0.0 0.0 0.0 0.0 0.0
B Term Loan 8.750%
Beginning Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Additions/(Payments) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Ending Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Average Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Interest Expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Senior Subordinated Notes 9.875%
Beginning Balance 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Additions/(Payments) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Ending Balance 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Average Balance 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Interest Expense 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9
</TABLE>
<PAGE> 50
CONFIDENTIAL INITIAL CASE
- -------------------------------------------------------------------------------
TRANSACTION SUMMARY - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 1
[Dollars in Millions]
- -------------------------------------------------------------------------------
SOURCES AND USES OF FUNDS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Sources of Funds Amount Percent Interest Rate
- ---------------- -------- -------- -------------
<S> <C> <C> <C>
Revolving Credit Facility $ 7.2 4.9% 8.500%
Undrawn Portion 0.500%
A Term Loan 40.0 27.2% 8.500%
B Term Loan 0.0 0.0% 8.750%
Senior Subordinated Notes 100.0 67.9% 10.375%
Common Equity 0.0 0.0%
-------- --------
Total Sources $ 147.2 100.0%
======== ========
</TABLE>
<TABLE>
<CAPTION>
Uses of Funds Amount Percent
- ------------- -------- --------
<S> <C> <C>
Purchase Price per share $ 20.0
Shares Purchased 4.02
--------
Purchase Price 80.4 54.6%
Refinance Existing Debt 60.7 41.2%
Tender Premium 0.0 0.0%
Estimated Fees & Expenses 6.1 4.1%
-------- --------
Total Uses $ 147.2 100.0%
======== ========
</TABLE>
- -------------------------------------------------------------------------------
SUMMARY INFORMATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended on or about August 31,
--------------------------------------------------------------------------------------------
Pro Forma Projected
--------- -----------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
--------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 176.0 $ 194.6 $ 209.7 $ 225.9 $ 243.4 $ 262.4 $ 282.8
Sales Growth 10.6% 7.7% 7.7% 7.8% 7.8% 7.8%
EBITDA 22.5 26.9 30.6 34.1 38.0 42.3 47.0
Margins 12.8% 13.8% 14.6% 15.1% 15.6% 16.1% 16.6%
EBITDA Margin
Gross Margin 28.6% 28.3% 28.4% 28.5% 28.5% 28.6% 28.6%
Total Interest Expense 14.8 14.6 14.3 13.7 13.0 12.0 11.1
Capital Expenditures 4.9 4.0 4.0 4.0 4.0 4.0 4.0
Revolving Credit Facility 7.2 3.5 0.0 0.0 0.0 0.0 0.0
A Term Loan 40.0 40.0 38.3 30.9 21.0 8.2 0.0
Total Debt 147.2 143.5 138.3 130.9 121.0 108.2 100.0
Shareholders' Equity (32.2) (30.9) (27.2) (21.1) (12.3) (0.2) 15.2
EBITDA/Total Interest Expense 1.5x 1.8x 2.1x 2.5x 2.9x 3.5x 4.2x
EBITDA-CapEx/Total Interest Expense 1.2x 1.6x 1.9x 2.2x 2.6x 3.2x 3.9x
Total Debt/EBITDA 6.6x 5.3x 4.5x 3.8x 3.2x 2.6x 2.1x
Total Debt/Total Capitalization 128.0% 127.5% 124.5% 119.2% 111.3% 100.2% 86.8%
</TABLE>
<PAGE> 51
CONFIDENTIAL INITIAL CASE
- -------------------------------------------------------------------------------
PROJECTED INCOME STATEMENTS - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 2
[Dollars in Millions]
<TABLE>
<CAPTION>
Year Ended on or about August 31,
----------------------------------------------------------------------------------------------------
Pro Forma Projected
--------- -------- -------- -------- -------- -------- -------- -------- -------- --------
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
--------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Sales 176.0 194.6 209.7 225.9 243.4 262.4 282.8 304.9 328.7 354.5
COGS 125.7 139.5 150.1 161.6 174.0 187.4 201.9 217.5 234.4 252.6
S,G&A 31.4 32.2 33.0 34.1 35.3 36.6 37.9 39.2 40.6 42.1
EBITDA 22.5 26.9 30.6 34.1 38.0 42.3 47.0 52.1 57.7 63.8
Depreciation 4.3 4.9 4.9 4.9 4.9 4.9 4.9 4.9 4.9 4.9
Amortization of Goodwill 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2 3.2
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
EBIT 15.0 18.9 22.5 26.0 29.9 34.2 38.8 44.0 49.6 55.7
Interest Expense
Revolving Credit Facility 0.7 0.6 0.3 0.1 0.1 0.1 0.1 0.1 0.1 0.1
A Term Loan 3.4 3.4 3.3 2.9 2.2 1.2 0.3 0.0 0.0 0.0
B Term Loan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Senior Subordinated Notes 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4
Amortization of Financing Fees 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Interest Expense 14.8 14.6 14.3 13.7 13.0 12.0 11.1 10.8 10.8 10.8
Interest Income 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.9 2.0 3.2
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Interest Expense 14.6 14.5 14.2 13.7 13.0 12.0 10.9 9.9 8.8 7.6
Other Expenses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Pre-Tax Income 0.3 4.3 8.3 12.3 16.9 22.2 27.9 34.1 40.7 48.1
Income Taxes(a) 1.4 3.0 4.6 6.2 8.0 10.2 12.5 14.9 17.6 20.5
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Income $ (1.1) $ 1.3 $ 3.7 $ 6.1 $ 8.9 $ 12.0 $ 15.5 $ 19.2 $ 23.2 $ 27.6
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Notes:
(a) Assumes an effective tax rate of 40.0%.
<PAGE> 52
CONFIDENTIAL INITIAL CASE
- -------------------------------------------------------------------------------
PROJECTED BALANCE SHEET - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 3
[Dollars in Millions]
<TABLE>
<CAPTION>
Year Ended on or about August 31,
-----------------------------------------
Pro Forma Projected
--------- -----------------------------------------
8/31/97 1998 1999 2000 2001
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Assets
Cash $ 2.6 $ 1.0 $ 1.0 $ 1.0 $ 1.0
Other Current Assets(a) 60.1 65.6 70.4 75.6 81.2
-------- -------- -------- -------- --------
Total 62.7 66.6 71.4 76.6 82.2
PP&E 21.1 20.3 19.4 18.5 17.6
Other Fixed Assets 12.3 12.3 12.3 12.3 12.3
Goodwill & Intangibles 39.0 35.8 32.6 29.4 26.2
Deferred Financing Costs 3.0 2.7 2.4 2.1 1.8
-------- -------- -------- -------- --------
Total Assets $ 138.2 $ 137.7 $ 138.1 $ 138.9 $ 140.0
======== ======== ======== ======== ========
Liabilities
Current Liabilities $ 23.0 $ 24.9 $ 26.8 $ 28.8 $ 31.1
Debt:
Existing Debt 0.0 0.0 0.0 0.0 0.0
Revolving Credit Facility 7.2 3.5 0.0 0.0 0.0
A Term Loan 40.0 40.0 38.3 30.9 21.0
B Term Loan 0.0 0.0 0.0 0.0 0.0
Senior Subordinated Notes 100.0 100.0 100.0 100.0 100.0
-------- -------- -------- -------- --------
Total Debt 147.2 143.5 138.3 130.9 121.0
Other Long-Term Liabilities 0.2 0.2 0.2 0.2 0.2
Minority Interests 0.0 0.0 0.0 0.0 0.0
Shareholders' Equity (32.2) (30.9) (27.2) (21.1) (12.3)
-------- -------- -------- -------- --------
Total Liabilities & Shareholders' Equity $ 138.2 $ 137.7 $ 138.1 $ 138.9 $ 140.0
======== ======== ======== ======== ========
0.0 0.0 0.0 0.0 0.0
BALANCE SHEET STATISTICS
- -------------------------------------------------------------------------------------------------------------
Days Current Assets 124.7 123.1 122.6 122.1 121.7
Days Current Liabilities 66.7 65.2 65.2 65.2 65.2
=============================================================================================================
<CAPTION>
Year Ended on or about August 31,
---------------------------------------------------
Projected
---------------------------------------------------
2002 2003 2004 2005 2006
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Assets
Cash $ 1.0 $ 8.8 $ 28.1 $ 51.1 $ 78.2
Other Current Assets(a) 87.2 93.7 100.7 108.3 116.5
-------- -------- -------- -------- --------
Total 88.2 102.5 128.9 159.5 194.7
PP&E 16.6 15.7 14.8 13.9 13.0
Other Fixed Assets 12.3 12.3 12.3 12.3 12.3
Goodwill & Intangibles 23.0 19.8 16.6 13.4 10.2
Deferred Financing Costs 1.5 1.2 0.9 0.6 0.3
-------- -------- -------- -------- --------
Total Assets $ 141.6 $ 151.5 $ 173.5 $ 199.7 $ 230.5
======== ======== ======== ======== ========
Liabilities
Current Liabilities $ 33.5 $ 36.0 $ 38.8 $ 41.8 $ 45.1
Debt:
Existing Debt 0.0 0.0 0.0 0.0 0.0
Revolving Credit Facility 0.0 0.0 0.0 0.0 0.0
A Term Loan 8.2 0.0 0.0 0.0 0.0
B Term Loan 0.0 0.0 0.0 0.0 0.0
Senior Subordinated Notes 100.0 100.0 100.0 100.0 100.0
-------- -------- -------- -------- --------
Total Debt 108.2 100.0 100.0 100.0 100.0
Other Long-Term Liabilities 0.2 0.2 0.2 0.2 0.2
Minority Interests 0.0 0.0 0.0 0.0 0.0
Shareholders' Equity (0.2) 15.2 34.5 57.6 85.2
-------- -------- -------- -------- --------
Total Liabilities & Shareholders' Equity $ 141.6 $ 151.5 $ 173.5 $ 199.7 $ 230.5
======== ======== ======== ======== ========
0.0 0.0 0.0 (0.0) 0.0
BALANCE SHEET STATISTICS
- ------------------------------------------------------------------------------------------------------------
Days Current Assets 121.3 121.0 120.6 120.3 120.0
Days Current Liabilities 65.2 65.2 65.2 65.2 65.2
============================================================================================================
</TABLE>
- -----------------
(a) Other Current Assets includes Inventory, Accounts Receivable and Prepaid
Expenses.
<PAGE> 53
CONFIDENTIAL INITIAL CASE
- --------------------------------------------------------------------------------
PROJECTED CASH FLOW STATEMENT - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 4
[Dollars in Millions]
<TABLE>
<CAPTION>
Pro Forma Year ended on or about August 31,
--------- ---------------------------------------------------------------------
Projected
---------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
--------- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA $22.5 $26.9 $30.6 $34.1 $38.0 $42.3 $47.0 $52.1 $57.7 $63.8
Less:
Capital Expenditures 4.9 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0
Net Cash Interest Expense 14.2 13.9 13.4 12.7 11.7 10.6 9.6 8.5 7.3
Other Expenses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Taxes 3.0 4.6 6.2 8.0 10.2 12.5 14.9 17.6 20.5
Working Capital Items:
Incr/(Decr) in Non-Cash Current Assets 5.5 4.8 5.2 5.6 6.0 6.5 7.0 7.6 8.2
(Incr)/Decr in Current Liabilities (1.9) (1.9) (2.1) (2.2) (2.4) (2.6) (2.8) (3.0) (3.3)
----- ----- ----- ----- ----- ----- ----- ----- -----
Change in Working Capital 3.6 2.9 3.1 3.4 3.6 3.9 4.2 4.6 5.0
Other:
(Incr)/Decr in Other Long Term Liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Cash Flow Available for Debt Service 2.1 5.2 7.4 9.9 12.8 16.0 19.4 23.0 27.1
Incr/(Decr) in Revolving Credit Facility (3.7) (3.5) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Incr/(Decr) in A Term Loan 0.0 (1.7) (7.4) (9.9) (12.8) (8.2) 0.0 0.0 0.0
Incr/(Decr) in B Term Loan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Incr/(Decr) in Senior Subordinated Notes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Net Cash Flow (1.6) 0.0 (0.0) (0.0) (0.0) 7.8 19.4 23.0 27.1
Cash Balance
Minimum Cash Balance 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
Beginning Balance 2.6 2.6 1.0 1.0 1.0 1.0 1.0 8.8 28.1 51.1
Incr/(Decr) 0.0 (1.6) 0.0 (0.0) (0.0) (0.0) 7.8 19.4 23.0 27.1
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Ending Balance 2.6 1.0 1.0 1.0 1.0 1.0 8.8 28.1 51.1 78.2
Average Balance 2.6 1.8 1.0 1.0 1.0 1.0 4.9 18.4 39.6 64.7
Interest Income 5.000% 0.1 0.1 0.1 0.0 0.0 0.0 0.2 0.9 2.0 3.2
</TABLE>
<PAGE> 54
CONFIDENTIAL INITIAL CASE
- --------------------------------------------------------------------------------
BALANCE SHEET ADJUSTMENTS - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 5
[Dollars in Millions]
<TABLE>
<CAPTION>
Actual Pro Forma
------ Financing Accounting ---------
8/31/97 Adjustments Adjustments 8/31/97
------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Cash $ 2.6 $ 86.5 $(86.5) $ 2.6
Other Current Assets 60.1 60.1
------ ------ ------ ------
Total 62.7 86.5 (86.5) 62.7
PP&E 21.1 21.1
Other Long-Term Assets 12.3 12.3
Goodwill & Intangibles 39.0 0.0 39.0
Deferred Financing Costs 0.0 3.0 3.0
------ ------ ------ ------
Total Assets $135.2 $ 86.5 $(83.5) $138.2
====== ====== ====== ======
Liabilities
Current Liabilities $ 23.0 $ 23.0
Debt:
Existing Debt 60.7 (60.7) 0.0
Working Capital Revolver 0.0 7.2 7.2
A Term Loan 0.0 40.0 40.0
B Term Loan 0.0 0.0 0.0
Senior Subordinated Notes 0.0 100.0 100.0
------ ------ ------ ------
Total Debt 60.7 86.5 0.0 147.2
Other Long-Term Liabilities 0.2 0.2
Minority Interests 0.0 0.0
Shareholders' Equity 51.3 0.0 (83.5) (32.2)
------ ------ ------ ------
Total Liabilities &
Shareholders' Equity $135.2 $ 86.5 $(83.5) $138.2
====== ====== ====== ======
0.0 0.0 (0.0) (0.0)
</TABLE>
<PAGE> 55
CONFIDENTIAL INITIAL CASE
- --------------------------------------------------------------------------------
CAPITALIZATION SCHEDULES -- NORWOOD PROMOTIONAL PRODUCTS, INC. Page 6
[Dollars in Millions]
<TABLE>
<CAPTION>
YEAR ENDED ON OR ABOUT AUGUST 31,
---------------------------------------------------------------------------------
PRO FORMA PROJECTED
--------- ---------------------------------------------------------------------
RATES 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
------- --------- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revolving Credit Facility 8.500%
Beginning Balance 7.2 7.2 3.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Additions/(Payments) 0.0 (3.7) (3.5) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Ending Balance 7.2 3.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Undrawn Portion 0.500% 17.8 21.5 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0
Interest on Undrawn
Portion 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Average Balance 7.2 5.4 1.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Interest Expense 0.7 0.6 0.3 0.1 0.1 0.1 0.1 0.1 0.1 0.1
A Term Loan 8.500%
Beginning Balance 40.0 40.0 40.0 38.3 30.9 21.0 8.2 0.0 0.0 0.0
Additions/(Payments) 0.0 0.0 (1.7) (7.4) (9.9) (12.8) (8.2) 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Ending Balance 40.0 40.0 38.3 30.9 21.0 8.2 0.0 0.0 0.0 0.0
Average Balance 40.0 40.0 39.2 34.6 26.0 14.6 4.1 0.0 0.0 0.0
Interest Expense 3.4 3.4 3.3 2.9 2.2 1.2 0.3 0.0 0.0 0.0
B Term Loan 8.750%
Beginning Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Additions/(Payments) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Ending Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Average Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Interest Expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Senior Subordinated Notes 10.375%
Beginning Balance 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Additions/(Payments) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Ending Balance 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Average Balance 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Interest Expense 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4
</TABLE>
<PAGE> 56
- -------------------------------------------------------------------------------
COMPARABLE COMPANY PUBLIC MULTIPLES ANALYSIS
- -------------------------------------------------------------------------------
<PAGE> 57
ANALYSIS OF VALUATION MULTIPLES OF COMPARABLE PROMOTIONAL PRODUCTS COMPANIES
- --------------------------------------------------------------------------------
Public Market Multiples
<TABLE>
<CAPTION>
MARKET VALUE OF EQUITY AS A MULTIPLE OF:
--------------------------------------------
LTM LTM
PRICE MARKET MARKET NET TO 1997E 1998E CASH LFQ
COMPANY NOV-6-97 VALUE CAP.(A) COMMON EPS.(B) EPS(B) FLOW(C) EQUITY
------- -------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. COMPANIES
Cyrk Inc.(d) 12.56 171.9 174.4 NM NA NA 19.1 1.08
Equity Marketing Inc.(d) 28.63 170.4 156.9 20.9 18.3 15.1 18.2 5.57
HA-LO Industries 27.00 550.7 589.2 44.5 36.0 27.0 34.0 8.35
Swiss Army Brands 10.75 88.3 84.6 NM NM 12.6 NM 1.13
EUROPEAN COMPANIES
Bemrose Corporation $ 6.82 $289.1 $333.8 11.5x 10.3x 9.2 7.6x 3.32x
---------------------------------------------------------------
Minimum(e) 11.5x 10.3x 9.2x 7.6x 1.08x
Mean(e) 25.7 21.6 16.0 19.7 3.89x
Median(e) 20.9 18.3 13.9 18.6 3.32x
Maximum(e) 44.5 36.0 27.0 34.0 8.35x
---------------------------------------------------------------
Norwood Promotional Products $16.13 $81.4 $140.2 11.0x 14.0x 11.8x 5.9x 1.59x
<CAPTION>
MARKET CAPITALIZATION AS
A MULTIPLE OF:
-------------------------
LTM LTM LTM
COMPANY SALES EBITDA EBIT
------- ------ ------- ------
<S> <C> <C> <C>
U.S. COMPANIES
Cyrk Inc.(d) 0.50 11.3 14.8
Equity Marketing Inc.(d) 1.27 11.2 12.3
HA-LO Industries 2.11* 24.3* 29.6*
Swiss Army Brands 0.66 48.2* NM
EUROPEAN COMPANIES
Bemrose Corporation 1.04x 6.3x 8.0x
------------------------
Minimum(e) 0.50x 6.3x 8.0x
Mean(e) 0.87x 9.6 11.7
Median(e) 0.85x 11.2 12.3
Maximum(e) 1.27x 11.3 14.8
------------------------
Norwood Promotional Products 0.80x 6.1x 9.4x
</TABLE>
- ---------------
Dollar amounts in U.S. millions except per share data and if otherwise
stated.
(a) Market Capitalization = Market Value of Equity + Preferred Equity +
Short-Term Debt + Long-Term Debt + Minority Interest - Cash & Marketable
Securities.
(b) Earnings Estimates were obtained from First Call as of Nov-7-97 and
calendarized when necessary.
(c) Cash Flow = Income Available to Common + DD&A + Deferred Taxes + Earnings of
Unconsolidated Subsidiaries.
(d) Insufficient detail available to adjust financials for recent acquisitions.
(e) Summary Multiples exclude numbers that are Negative, Not Available, Not
Meaningful or (*) items.
<PAGE> 58
ANALYSIS OF VALUATION MULTIPLES OF COMPARABLE PROMOTIONAL PRODUCTS COMPANIES
- -------------------------------------------------------------------------------
Summary Data for Selected Industry Comparables
<TABLE>
<CAPTION>
LTM LTM LFQ
Net to 1997E 1998E LTM LTM LTM Cash Common LTM
Company Shares Common EPS(a) EPS(a) Sales EBITDA EBIT Flow(b) Equity FYE ENDED
- ---------------------------- ------ ------ ------ ------ ------ ------ ----- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bemrose Corporation 42.4 $25.1 $0.66 $0.74 $321.7 $53.1 $41.6 $38.1 $ 87.2 Dec-96 Jun-97
Cyrk Inc. 13.7 2.7 NA NA 345.4 15.5 11.8 9.0 159.4 Dec-96 Jun-97
Equity Marketing Inc. 6.0 8.1 1.56 1.89 123.4 14.0 12.8 9.4 30.6 Dec-96 Jun-97
HA-LO Industries 20.4 12.4 0.75 1.00 279.8 24.3 19.9 16.2 66.0 Dec-96 Jun-97
Norwood Promotional Products 5.0 7.4 1.15 1.37 175.8 23.1 15.0 13.7 51.3 Aug-97 Aug-97
Swiss Army Brands 8.2 (1.0) 0.00 0.85 128.3 1.8 (1.2) 0.3 77.8 Dec-96 Aug-97
</TABLE>
- ---------------
Dollar amounts in U.S. millions except per share data and if otherwise stated.
(a) Earnings Estimates were obtained from First Call as of Nov-7-97 and
calendarized when necessary.
(b) Cash Flow = Income Available to Common + DD&A + Deferred Taxes + Earnings
of Unconsolidated Subsidiaries.
<PAGE> 59
ANALYSIS OF VALUATION MULTIPLES OF COMPARABLE PROMOTIONAL PRODUCTS COMPANIES
- --------------------------------------------------------------------------------
Summary Credit Statistics
<TABLE>
<CAPTION>
CREDIT RATINGS
SENIOR DEBT LTM LTM (EBITDA- TOTAL NEW DEBT/ TOTAL
-------------- EBITDA/ EBITDA/ CAPEX)/ DEBT/ NET DEBT/
COMPANY MOODY'S S&P GROSS INT. NET INT. GROSS INT. TOTAL CAP BOOK CAP EBITDA
- ----------------------------- ------- --- ---------- -------- ---------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bemrose Corporation - - 15.5x 15.5x 14.3x 33.9% 33.9% 0.8x
Cyrk, Inc. - - 4.5 5.0 3.2x 17.8% 1.6% 0.5
Equity Marketing - - NM NM NM 0.0% NM 0.0
HA-LO Industries - - 32.2 NM 26.1x 38.0% 36.8% 1.3
NORWOOD PROMOTIONAL PRODUCTS - - 7.7 7.7 6.1x 54.5% 53.4% 2.6
Swiss Army Brands - - 11.9 NM 3.4x 0.0% NM 0.0
</TABLE>
- ------------------------------------------
Definitions:
Gross Interest = Gross Interest incurred before subtracting (i) capitalized
interest, (ii) interest income.
FFO = Funds From Operations = Net income from continuing operations plus
depreciation, amortization, deferred income taxes, and other noncash
items.
<PAGE> 60
ANALYSIS OF CAPITAL STRUCTURE OF COMPARABLE PROMOTIONAL PRODUCTS COMPANIES
- --------------------------------------------------------------------------------
Summary Data for Selected Industry Comparables
<TABLE>
<CAPTION>
MARKET CASH & PREFERRED MINORITY MARKET
COMPANY VALUE EQUIVALENTS ST DEBT LT DEBT EQUITY INTEREST CAP.(a)
- ----------------------------- ------ ----------- ------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Bemrose Corporation $289.1 $ 0.0 $ 0.0 $44.7 $0.0 $0.0 $333.8
Cyrk Inc. 171.9 32.1 26.2 8.4 0.0 0.0 174.4
Equity Marketing Inc. 170.4 13.5 0.0 0.0 0.0 0.0 156.9
HA-LO Industries 550.7 1.9 9.1 31.3 0.0 0.0 589.2
NORWOOD PROMOTIONAL PRODUCTS 81.4 2.6 2.4 59.1 0.0 0.0 140.2
Swiss Army Brands 88.3 3.7 0.0 0.0 0.0 0.0 84.6
</TABLE>
- ------------------------------------------
Dollar amounts in U.S. millions except per share data and if otherwise stated.
(a) Market Capitalization = Market Value of Equity + Preferred Equity +
Short-Term Debt + Long-Term Debt + Minority Interest - Cash & Marketable
Securities.
<PAGE> 61
- --------------------------------------------------------------------------------
COMPARABLE COMPANY ACQUISITION MULTIPLES ANALYSIS
- --------------------------------------------------------------------------------
<PAGE> 62
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
Acquisition Multiples For Comparable Manufacturing Companies
(Dollars in millions)
<TABLE>
<CAPTION>
ANNOUNC. OFFER
DATE ACQUIROR TARGET/DESCRIPTION VALUE
-------- ---------------------------- --------------------------------------------- -----
<S> <C> <C> <C>
1/29/97 Norwood Promotional Products Wesburn Golf $7.0
Manufactures logo imprinted golf balls
4/4/96 Norwood Promotional Products Alpha Products 6.7
Manufactures plastic drinking cups
1/23/96 Norwood Promotional Products Tee-Off Enterprises 7.5
Manufactures custom-imprinted golf balls
7/31/95 Norwood Promotional Products BTS Group 9.8
Manufactures signs and advertising products
4/1/95 Norwood Promotional Products Air-Tex 15.8
Manufactures promotional products
2/22/95 Norwood Promotional Products Designer Plastics 3.9
Manufactures plastic promotional bags
12/14/94 Norwood Promotional Products Bob Allen Companies 16.8
Manufactures luggage
8/10/94 Norwood Promotional Products Ocean Specialty Manufacturing 3.5
3/29/94 Norwood Promotional Products ArtMold Products 13.1
Manufactures promotional products including
keychains, golf tees, hats and pens
2/22/94 Norwood Promotional Products Key Industries Inc. 9.5
Manufactures promotional and advertising
products
<CAPTION>
OFFER VALUE TRANSACTION VALUE
AS A MULTIPLE OF: AS A MULTIPLE OF:
------------------------ ---------------------
ANNOUNC. TRANS. NET CASH BOOK
DATE VALUE(a) INCOME FLOW(B) VALUE EBITDA EBIT SALES
-------- -------- ------ ------- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1/29/97 $ 7.0 -- -- -- -- -- 0.44
4/4/96 9.9 -- 5.4 -- -- -- 0.61
1/23/96 9.2 6.3 6.3 -- -- 8.2 1.01
7/31/95 11.2 -- -- -- -- 39.6 1.52
4/1/95 18.2 -- -- -- -- -- --
2/22/95 4.9 -- -- -- -- 57.6* 0.91
12/14/94 19.2 316.0* -- -- -- 103.5* 2.41*
8/10/94 4.9 -- -- -- -- -- 0.67
3/29/94 14.2 -- -- -- -- -- 1.10
2/22/94 11.9 10.6 10.6 -- -- -- 0.99
-----------------------------------------------------------
MAXIMUM 10.6x 10.6x -- -- 39.6x 1.52x
MEAN 8.4 7.4 -- -- 23.9 0.91x
MEDIAN 8.4 6.3 -- -- 23.9 0.95x
MINIMUM 6.3 5.4 -- -- 8.2 0.44x
-----------------------------------------------------------
</TABLE>
- ---------------
(a) Transaction Value = Offer Value + Preferred Equity at Liquidation Value +
Long Term Debt + Short Term Debt + Minority Interest - Cash & Marketable
Securities - Exercisable Options Proceeds.
(b) Cash Flow = Net Income + Depreciation & Amortization + Deferred Taxes
2
<PAGE> 63
VALUATION ANALYSIS
- -------------------------------------------------------------------------------
Acquisition Multiples for Comparable Distributors
(Dollars in millions)
<TABLE>
<CAPTION>
ANNOUNC. OFFER
DATE ACQUIROR TARGET/DESCRIPTION VALUE
- -------- --------------------------------------- ---------------------------------------- -----
<S> <C> <C>
6/4/97 HA-LO Industries Lees/Keystone Inc. $ 4.0
Distributor of speciality and premium Distributor of promotional products
promotional products
5/8/97 Cyrk, Inc. Simon Marketing 58.0
Manufacturer of custom-imprinted Global promotion agency and provider of
promotional products and sports apparel custom promotional products
4/8/97 Cyrk, Inc. Tonkin Inc. 22.0
Manufacturer of custom-imprinted Promotional products and catalog company
promotional products and sports apparel
10/29/96 HA-LO Industries Creative Concepts in Advertising 75.9
Distributor of speciality and premium Distributor of promotional products
promotional products
12/22/95 HA-LO Industries Fletcher-Barnhardt & White 10.2
Distributor of speciality and premium Distributor of specialty advertising
promotional products products
<CAPTION>
OFFER VALUE TRANSACTION VALUE
AS A MULTIPLE OF: AS A MULTIPLE OF:
------------------------- -----------------------
ANNOUNC. TRANS. NET CASH BOOK
DATE VALUE(a) INCOME FLOW(b) VALUE EBITDA EBIT SALES
- -------- -------- ------ ------- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
6/4/97 $ 4.0 -- -- -- -- -- 0.40
5/8/97 39.2 380.9 * 52.6 7.0 10.1 13.4 0.10
4/8/97 22.0 -- -- -- -- -- 0.55
10/29/96 98.8 -- -- -- 169.5 * -- 1.46
12/22/95 13.0 46.8 30.0 8.2 26.6 35.5 0.31
------------------------------------------------------------------
Maximum 46.8x 52.6x 8.2x 26.6x 35.5x 1.46x
Mean 46.8 41.3 7.6 18.4 24.4 0.56x
Median 46.8 41.3 7.6 18.4 24.4 0.40x
Minimum 46.8 30.0 7.0 10.1 13.4 0.10x
------------------------------------------------------------------
</TABLE>
- ---------------------
(a) Transaction Value = Offer Value + Preferred Equity at Liquidation Value +
Long Term Debt + Short Term Debt + Minority Interest - Cash & Marketable
Securities - Exercisable Options Proceeds.
(b) Cash Flow = Net Income + Depreciation & Amortization
<PAGE> 1
EXHIBIT 99(b)(5)
STRICTLY CONFIDENTIAL
- --------------------------------------------------------------------------------
PRESENTATION TO
NORWOOD PROMOTIONAL
PRODUCTS, INC.
December 5, 1997
<PAGE> 2
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
1. Executive Summary
2. Summary of Indicative Terms
- Senior Credit Facility
- Senior Subordinated Notes
- PIK Preferred Stock with Warrants
3. Transaction Structure and Issues to Consider
Appendices
----------
A. Recent Stock Price and Earnings Performance
B. Valuation Analysis
C. Detailed Financial Models
-Base Case
-Initial Case
D. Comparable Company Public Multiples Analysis
E. Comparable Company Acquisition Multiples Analysis
[LOGO] MERRILL LYNCH-----------------------------------------------------------
<PAGE> 3
- -------------------------------------------------------------------------------
EXECUTIVE SUMMARY
- -------------------------------------------------------------------------------
<PAGE> 4
EXECUTIVE SUMMARY
- -------------------------------------------------------------------------------
o Merrill Lynch & Co. ("Merrill Lynch") reviewed the feasibility of a
leveraged recapitalization (the "Recapitalization") for Norwood Promotional
Products, Inc. ("Norwood")
o Initial constraints included:
- $20 per share purchase price of public shares (4.02 million shares)
- Financing for the Recapitalization to be provided through debt markets
only
- All existing bank debt to be refinanced
- EBITDA for the twelve months ended November 30, 1997 of $23.2 million
- Adjusted EBITDA (including the full year earnings from Wesburn Golf
and adjustment for public company related expenses) of $27.1 million
o The sources and uses of funds for the Initial Case are as follows:
<TABLE>
<CAPTION>
USES OF FUNDS SOURCES OF FUNDS
- ------------------------------------- ------------------------------------
<S> <C> <C> <C>
Purchase of Equity $ 80.4 Revolving Credit Facility $ 2.8
Refinance Existing Debt 56.3 A Term Loan 40.0
Estimated Fees and Expenses 6.1 Senior Subordinated Notes 100.0
------ ------
Total Uses of Funds $142.8 Total Sources of Funds $142.8
====== ======
</TABLE>
[LOGO] MERRILL LYNCH-----------------------------------------------------------
1
<PAGE> 5
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
Review of Initial Case
o Pro forma credit statistics:
<TABLE>
<CAPTION>
PRO FORMA
TWELVE MONTHS ENDED
NOVEMBER 30, 1997
---------------------
<S> <C>
EBITDA/Total Interest Expense 1.7x
EBITDA-CapEx/Total Interest Expense 1.4x
Total Debt/EBITDA 6.2x
Total Debt/Total Book Capitalization 126.3%
</TABLE>
o Comments:
* Coverage ratio (EBITDA/Total Interest Expense) at low-end of
leveraged buyout structures
* Leverage ratio (Total Debt/EBITDA) limits future financial
flexibility
* Rating agency concern over substantial negative book equity
* Credit for adjusted EBITDA in credit statistics is dependent on
ability of adjustments to stand up to scrutiny by underwriters,
counsel and prospective investors
[LOGO] MERRILL LYNCH -----------------------------------------------------------
2
<PAGE> 6
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
Description of Base Case
o An alternative scenario ("Base Case") preserves Norwood's
liquidity and financial flexibility
* Financing for the Recapitalization includes $20 million of
contributed equity either in the form of common equity or
pay-in-kind preferred stock with warrants
o The sources and uses of funds for the Base Case as follows:
<TABLE>
<CAPTION>
USES OF FUNDS SOURCES OF FUNDS
--------------------------------------- ----------------------------------------
<S> <C> <C> <C>
Purchase of Equity $ 80.4 Revolving Credit Facility $ 0.0
Refinance Existing Debt 56.4 A Term Loan 25.0
Estimated Fees and Expenses 6.1 Senior Subordinated Notes 100.0
Excess Cash 2.2 Equity Contribution 20.0
------ ------
Total Uses of Funds $145.0 Total Sources of Funds $145.0
====== ======
</TABLE>
o Pro forma credit statistics:
<TABLE>
<CAPTION>
PRO FORMA
TWELVE MONTHS ENDED
NOVEMBER 30, 1997
--------------------
<S> <C>
EBITDA/Total Interest Expense 1.9x
EBITDA-CapEx/Total Interest Expense 1.6x
Total Debt/EBITDA 5.4x
Total Debt/Total Book Capitalization 108.5%
</TABLE>
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3
<PAGE> 7
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
Review of Base Case
o Capital structure in Base Case is consistent with strategic objectives
* Provides Senior Debt capacity as "dry powder" to make
opportunistic acquisitions
* Appears to strike balance between cost of capital and financial
flexibility
o Attractive market conditions in the high yield sector permits
aggressive financing at attractive levels
o Norwood's guidelines for an optimal capital structure should consider:
* Free cash flow available for debt amortization
* Realization of anticipated synergies and cost savings from
completed acquisitions
* The likelihood of material future acquisitions and timing
o Clearly, a critical consideration in the transaction is the form of
the equity component of the capital structure, as discussed on the
following page
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4
<PAGE> 8
EXECUTIVE SUMMARY
- -------------------------------------------------------------------------------
Review of Equity Contribution
o Depending on management's objectives, we would recommend that all
forms of equity be committed prior to announcement of the acquisition
of the Company
o The following issues should be considered in the determination of the
appropriate form of equity contribution:
* total number of common shares offered
* impact on pricing and execution of subordinated debt
* the universe of potential buyers
* degree of negotiation by investors
* break-up fees
* required returns
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5
<PAGE> 9
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
M & A Considerations
o The management team and its advisors must have confidence that the
offer price for the shares of NPPI will be deemed by a Special
Committee formed by the Company's Board of Directors and its advisor
to be within a range of fairness after a thorough review has been made
of the Company
o Determination of the fair value of the Company will be difficult
* acquisitions of comparable companies are primarily those made by
Norwood and are small with little publicly disclosed financial
information
* few publicly traded comparable companies exist
* valuation is therefore to be determined primarily by the
discounted cash flow valuation
o It is likely that the Company will be "put in play" on announcement of
tender
* while the value of the Company will be limited without the
current management team, several potential buyers with deep
pockets may have an interest in acquiring the Company
* it will clearly be prudent to be prepared for the event that a
new buyer emerges
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6
<PAGE> 10
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
Next Steps
o Determine appropriate capital structure and form of equity
contribution
o Engage financial advisors
o Identify and approach appropriate equity investors
o Establish timetable and responsibility schedule
o Detailed organizational meeting and commence due diligence
o Initial approach to Board of Directors to form Special Committee of
independent directors
o Prepare filing documents
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7
<PAGE> 11
- --------------------------------------------------------------------------------
SUMMARY OF INDICATIVE TERMS
- --------------------------------------------------------------------------------
<PAGE> 12
SUMMARY OF INDICATIVE TERMS
- -------------------------------------------------------------------------------
Summary of Economic Terms
(Dollars in Millions)
<TABLE>
<CAPTION>
SENIOR EXCHANGEABLE
SENIOR PIK PREFERRED STOCK
SENIOR CREDIT FACILITY SUBORDINATED NOTES WITH WARRANTS
----------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
AMOUNT: $50 $100 $20
FACILITY: $25 Revolving Credit Facility -- --
$25 A Term Loan
ASSUMED RATINGS: B1/B+ B3/B- NA
MATURITY: Revolving Credit: 6 years 10 Years 12 Years
A Term Loan: 6 years
SECURITY: Stock/Assets None None
CALL FEATURES: Anytime at Par Non-Call 5 Non-Call 5
INITIAL PRICING(a): LIBOR+ Coupon Coupon
----------------------------- ------------------------- -------------------------
Revolving Credit 9 3/4% - 10% Greater of:
Facility: 250 bps o 12% area
A Term Loan: 250 bps o 225 bps over Senior
Subordinated Notes
Warrants
-------------------------
12.5%-15.0% of Company
(Sufficient to result in
an IRR of 25%-27%)
</TABLE>
- ------------------
(a) Subject to market conditions at time of pricing.
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8
<PAGE> 13
SUMMARY OF INDICATIVE TERMS
- --------------------------------------------------------------------------------
Senior Credit Facility
- -------------------------
BORROWER Norwood Promotional Products, Inc. (the
"Company").
- -------------------------
ARRANGER Merrill Lynch & Co.
- -------------------------
LENDERS Merrill Lynch Capital Corporation ("Merrill
Lynch") and a syndicate of lenders acceptable to
the Company and Merrill Lynch.
- -------------------------
CREDIT FACILITIES See "Summary of Economic Terms."
- -------------------------
SECURITY Fully secured by (i) a perfected first priority
lien on, and pledge of, all the capital stock of
the Company and its existing (if applicable) and
hereafter created subsidiaries and (ii) perfected
first priority liens on, and security interests
in, all tangible and intangible properties and
assets of the Company and its existing (if
applicable) and hereafter created or acquired
subsidiaries.
- -------------------------
GUARANTEES The Senior Credit Facility will be guaranteed by
all direct and indirect subsidiaries of the
Company (existing, if applicable, or hereafter
created or acquired) on a senior secured basis.
- -------------------------
USE OF PROCEEDS Borrowings under the Term Loan Facilities will be
used to finance a portion of the funds necessary
to effect the Recapitalization, refinance existing
indebtedness, and provide funds for general
corporate purposes.
- -------------------------
INTEREST RATE Interest will be based, at the option of the
Company, on one, three, or six month LIBOR plus
the applicable margins or Alternate Base Rate
("ABR") plus the applicable margin. For rates, see
"Summary of Economic Terms." Interest shall be
payable at the end of each interest period and, in
any event, at least every three months or 90 days,
as the case may be. The default rate will be the
applicable interest rate per annum plus 200 bps
per annum. Subsequent to the six month anniversary
of the Closing Date, the applicable margin or the
Revolving Credit Facility and Term Loan A shall be
based on a Total Debt/EBITDA performance grid.
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9
<PAGE> 14
SUMMARY OF INDICATIVE TERMS
- --------------------------------------------------------------------------------
Senior Credit Facility (cont'd)
- -------------------------
COMMITMENT FEES Prior to the Closing Date, a commitment fee of
0.50% per annum shall accrue on the aggregate
amount of the Senior Credit Facility. On and after
the closing date, 0.50% per annum shall accrue on
the unused portion of the Revolving Credit
Facility, payable quarterly in arrears.
- -------------------------
MATURITY AND AMORTIZATION
<TABLE>
<CAPTION>
FACILITY MATURITY AMORTIZATION
------------------------- -------- --------------------------
<S> <C> <C> <C>
Revolving Credit Facility 6 Years Bullet maturity
A Term Loan 6 Years Over the life of the loan; exact
amounts to be determined
</TABLE>
- -------------------------
AVAILABILITY The Term Loans will be funded with a single draw
at closing. Revolving Credit loans will be
available subject to compliance with certain
customary conditions on and after the closing date
and prior to the Revolving Credit Facility
maturity date.
- -------------------------
MANDATORY PREPAYMENTS The Term Loans shall be prepaid with (i) 75% of
excess cash flow, (ii) 100% of net cash proceeds
from asset sales, (iii) 100% of net cash proceeds
from the issuance of debt and (iv) 50% from the
issuance of equity.
- -------------------------
OPTIONAL PREPAYMENTS Optional prepayments are permitted at any time, in
whole or in part, at the option of the Company, at
par, subject to LIBOR breakage and/or redeployment
costs.
- -------------------------
CONDITIONS PRECEDENT Usual and customary conditions including, but not
limited to:
Satisfaction with all documentation; satisfaction
with the capital and legal structure; absence of
material adverse change; or material adverse
change in financial or syndication markets.
Satisfaction with the continuing due diligence
investigation including, but not limited to,
historical, pro forma and projected financial
statements, legal, tax, accounting, and
environmental issues.
Satisfaction with results of a third party
solvency opinion.
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10
<PAGE> 15
SUMMARY OF INDICATIVE TERMS
- --------------------------------------------------------------------------------
Senior Credit Facility (cont'd)
- -------------------------
REPRESENTATIONS AND Usual and customary for transactions of this type,
WARRANTIES including, but not limited to, no Default or Event
of Default; absence of material adverse change;
compliance with laws; solvency; no conflicts with
laws; charter documents or agreements; ownership
of properties; and absence of liens and security
interests.
- -------------------------
AFFIRMATIVE COVENANTS Usual and customary for transactions of this type,
including but not limited to, compliance with
laws; performance of obligations; maintenance of
properties in good repair; maintenance of
appropriate and adequate insurance; inspection of
books and properties; payment of taxes and other
liabilities; maintenance of interest rate
protection; notice of defaults; true and complete
disclosure, validity and perfection of security
interests, and delivery of financial statements,
financial projections and compliance certificates.
- -------------------------
NEGATIVE COVENANTS Usual and customary for transactions of this type,
including, but not limited to, limitations on
indebtedness, liens (including negative pledges),
sale-leaseback transactions, loans, investments,
transaction with affiliates, joint ventures,
contingent obligations, restricted payments,
mergers, acquisitions, consolidations, asset
sales, creation of subsidiaries, capital
expenditures, and changes in business conducted.
- -------------------------
FINANCIAL COVENANTS Usual and customary for transactions of this type,
including, but not limited to, maximum total
leverage, minimum interest coverage, and minimum
fixed charge coverage.
- -------------------------
RELATED BUSINESS Acquisitions of business entities shall be subject
ACQUISITIONS among others to the following requirements: (i)
pro forma covenant compliance, (ii) no default or
Event of Default existing or arising from the
transactions, (iii) cash acquisitions shall be in
the same or substantially similar type of business
as existing businesses of the Borrower; (iv)
pledge of all assets acquired and (v) mutually
agreed upon dollar cap per transactions as well as
an aggregate cap.
- -------------------------
EVENTS OF DEFAULT Usual and customary for transactions of this type,
including, but not limited to, nonpayment of
principal, interest, fees or other amounts when
due; default of principle agreements; violation of
covenants; failure of any representation or
warranty to be true in all material respects;
cross-default and cross-acceleration; change in
control; bankruptcy; material judgments; ERISA
events; and invalidity of loan documents, security
interests, or guarantees.
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11
<PAGE> 16
SUMMARY OF INDICATIVE TERMS
- --------------------------------------------------------------------------------
Senior Credit Facility (cont'd)
- -------------------------
ASSIGNMENTS AND Lenders shall be permitted to assign and
PARTICIPATIONS participate in loans, notes and commitments. Non
pro-rata assignments of loans, notes, and
commitments of the Senior Credit Facility shall be
permitted. Each assignment shall be in a minimum
amount to be determined or proportionately smaller
as the Senior Credit Facility is reduced.
Assignments through novation or otherwise shall be
permitted with the Company's consent (not to be
unreasonably withheld or delayed). Intra-syndicate
assignments shall be permitted in any amount
without the Company's consent. Participations
shall be permitted without restriction.
- -------------------------
PROVISIONS OF An underwriting commitment of the Senior Credit
UNDERWRITING COMMITMENT Facility by Merrill Lynch & Co., including any
affiliates or subsidiaries ("Merrill Lynch") would
be subject to, among other items, approval of
Merrill Lynch's Leverage Transaction Commitment
Committee, completion of Merrill Lynch's credit,
legal, accounting and business due diligence,
absence of a material adverse change with respect
to the Borrower; absence of material adverse change
with respect to financial or capital market
conditions and satisfactory documentation.
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12
<PAGE> 17
SUMMARY OF INDICATIVE TERMS
- --------------------------------------------------------------------------------
Senior Subordinated Notes
- -------------------------
ISSUER Norwood Promotional Products, Inc. (the "Company").
- -------------------------
ISSUE Senior Subordinated Notes (the "Notes").
- -------------------------
PRINCIPAL AMOUNT See "Summary of Economic Terms".
- -------------------------
MATURITY 2008 (10 years).
- -------------------------
INDICATIVE COUPON See "Summary of Economic Terms".
- -------------------------
INTEREST PAYMENT DATES Semi-annual; interest paid in cash in arrears.
- -------------------------
RANKING The Notes will be senior subordinated obligations
of the Company and will be subordinated in right
of payment to all existing and future senior
indebtedness of the Company.
- -------------------------
MANDATORY REDEMPTION None.
- -------------------------
OPTIONAL REDEMPTION The Notes will be redeemable, at the option of the
Company, in whole or in part, anytime on or after
_____ 2003 (five years from the date of issuance),
at a premium to par, declining thereafter ratably
to par in year eight, together with accrued and
unpaid interest, if any, to the redemption date.
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13
<PAGE> 18
SUMMARY OF INDICATIVE TERMS
- --------------------------------------------------------------------------------
Senior Subordinated Notes (cont'd)
- -------------------------
OPTIONAL REDEMPTION UPON On or before _____, 2001 (three years after the
A PUBLIC EQUITY OFFERING date of issuance), the Company may redeem up to
30% (to be determined based on size of offering
amount) of the principal amount of the Notes
originally issued at a percentage of par (exact
price to be determined at the time of pricing),
together with accrued and unpaid interest, if any,
to the redemption date, with the net proceeds of
one or more Public Equity Offerings; provided,
however, that in no event will the principal
amount of the Notes outstanding be less than $___
million (to be determined based on size of
offering amount) after consummating such
redemptions.
- -------------------------
SECURITY None.
- -------------------------
CHANGE IN CONTROL In the event of a Change in Control (to be
defined), each holder of Notes may require the
Company to repurchase such holder's Notes at 101%
of the principal amount thereof, together with
accrued and unpaid interest, if any, to the
repurchase date.
- -------------------------
INCURRENCE COVENANTS Covenants may include, but not be limited to, the
following:
-- Limitation on Additional Indebtedness;
-- Limitation on Restricted Payments;
-- Limitation on Transactions with Affiliates;
-- Limitation on Liens;
-- Limitation on Dividends and other Payment
Restrictions Affecting Subsidiaries;
-- Limitation on Disposition of Proceeds of
Asset Sales;
-- Limitation on Mergers, Consolidations or
Sale of Substantially All Assets;
-- Limitation on Guarantees of Indebtedness;
-- Limitation on Certain Other Senior
Subordinated Indebtedness; and
-- Provision of Financial Statements.
- -------------------------
EVENTS OF DEFAULT As are customary for transactions of this nature.
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14
<PAGE> 19
SUMMARY OF INDICATIVE TERMS
- --------------------------------------------------------------------------------
Senior Exchangeable PIK Preferred Stock with Warrants
- -------------------------
ISSUER Norwood Promotional Products, Inc. (the "Company").
- -------------------------
GROSS PROCEEDS $20 million.
- -------------------------
SECURITIES 200,000 shares of Senior Exchangeable PIK
Preferred Stock (the "Preferred Stock") with
warrants to purchase shares of common stock of the
Company (the "Warrants").
- -------------------------
LIQUIDATION PREFERENCE $100 per share.
- -------------------------
MANDATORY REDEMPTION 12 years (2010).
- -------------------------
USE OF PROCEEDS To provide a portion of the financing for the
acquisition of the Company.
- -------------------------
DIVIDEND(a) The greater of 12% area per annum or 225 bps over
the coupon of the Senior Subordinated Notes due
2008, payable quarterly in kind.
- -------------------------
NUMBER OF WARRANTS(a) The Warrants will be exercisable for approximately
12.5% - 15.0% of the common stock of the Company
on a fully diluted basis as of the date of
issuance after giving effect to such issuance, to
result in an IRR through year five to the
Preferred Stock holders of approximately 25% - 27%.
- -------------------------
WARRANT EXERCISE The Warrants will be exercisable at any time prior
to mandatory redemption.
- -------------------------
WARRANT EXERCISE PRICE Each Warrant entitles the holder thereof to
purchase ___ share(s) of common stock at the
exercise price of $0.01 per share, subject to
certain adjustments.
- -------------------------
WARRANT EXPIRATION The Warrants will expire upon the mandatory
redemption of the Preferred Stock.
- -------------------------
RANKING The Preferred Stock will be senior to all present
and future classes of equity securities.
- ----------
(a) Subject to market conditions at the time of pricing.
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15
<PAGE> 20
SUMMARY OF INDICATIVE TERMS
- --------------------------------------------------------------------------------
Senior Exchangeable PIK Preferred Stock with Warrants (cont'd)
- -------------------------
DIVIDENDS Dividends will be payable quarterly. Prior to five
years after the issue date, dividends may, at the
option of the Company, be paid by issuing
additional shares of Preferred Stock with an
aggregate liquidation preference equal to the
amount of such dividends.
- -------------------------
CHANGE IN CONTROL Upon the occurrence of a Change in Control, the
Company must make an offer to purchase all
outstanding Preferred Stock at 101% of the
liquidation preference, plus all accrued and
unpaid dividends, if any, to the purchase date.
- -------------------------
OPTIONAL REDEMPTION The Preferred Stock will be redeemable at the
option of the Company, in whole or in part, at any
time on or after ____ 2003 (five years from the
date of issuance) at a premium to the aggregate
liquidation preference amount, with the premium
declining ratably to 100% of the aggregate
liquidation preference amount on ____ 2006 (eight
years from the date of issuance), in each case,
together with accrued and unpaid interest, if any,
to the redemption date.
- -------------------------
OPTIONAL REDEMPTION UPON Upon a Public Equity Offering (as defined)
AN EQUITY OFFERING occurring on or before the third anniversary of
the sale of the Preferred Stock, the Company may
redeem up to 100% of the Preferred Stock, at a
premium (to be determined at the time of pricing)
of the liquidation preference, plus accrued and
unpaid dividends, if any, to the redemption date.
- -------------------------
EXCHANGE PROVISION The Preferred Stock will be exchangeable at the
option of the Company into Junior Subordinated
Notes due 2009 pursuant to the covenants contained
in the Senior Subordinated Notes due 2008.
- -------------------------
CERTAIN COVENANTS The Preferred Stock will have covenants consisting
substantially of the following:
Limitation on Payments on any Junior or Parity
Securities;
Limitation on Indebtedness;
Limitation on Mergers, Consolidations or Sale of
Substantially All Assets; and
Provision for Financial Reporting.
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16
<PAGE> 21
SUMMARY OF INDICATIVE TERMS
- --------------------------------------------------------------------------------
Senior Exchangeable PIK Preferred Stock with Warrants (cont'd)
- -------------------------
VOTING RIGHTS The Preferred Stock will be non-voting, except as
otherwise required by law and except in certain
circumstances described herein, including (i)
amending certain rights of the holders of the
Preferred Stock and (ii) the issuance of any class
of equity securities that ranks senior to or,
in certain circumstances, on a parity with the
Preferred Stock. In addition, if: (i) the Company
fails to pay dividends in cash or, to the extent
permitted, by the issuance of additional Preferred
Stock in respect of six or more quarters in the
aggregate (whether or not consecutive); (ii) the
Company fails to make an Offer to Purchase (as
defined) upon a Change of Control; or (iii) the
Company fails to comply with the covenants
contained in the Certificate of Designations or
make certain payments on its indebtedness, holders
of a majority of the outstanding Preferred Stock,
voting as a class, will be entitled to elect a
number of directors of the Company equal to the
lesser of two directors or that number of
directors constituting at least 25% of the board
of directors of the Company.
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17
<PAGE> 22
- --------------------------------------------------------------------------------
TRANSACTION STRUCTURE AND ISSUES TO CONSIDER
- --------------------------------------------------------------------------------
<PAGE> 23
TRANSACTION STRUCTURE AND ISSUES TO CONSIDER
- --------------------------------------------------------------------------------
Introduction
o The assumed transaction structure is a cash tender offer for shares
not currently owned by Norwood management
o If, as a result of the transaction, Norwood management own
substantially all of the issued and outstanding equity securities of
Norwood, the transaction will be deemed a "going private" transaction
(a Rule 13e-3 transaction), and the buyer will be required to make
Rule 13e-3 and Rule 13e-4 disclosure filings with the SEC
o SEC filings require certain disclosures related to the transaction:
* Details of any transactions between Norwood management or any
other affiliate over the two fiscal years preceding the
transaction with a value greater than 1% of Norwood's sales
* Details of any merger discussions regarding Norwood over two
fiscal years preceding the transaction
* Future plans regarding any merger, reorganization or material
change in policy for Norwood
* Purpose for the transaction, any alternatives considered and
effects of the transaction on the buyer, Norwood and minority
shareholders
* Statement as to whether the filing entity believes the
transaction is fair or unfair to minority shareholders and a
discussion of the material factors upon which this belief is
based
* Disclosure of any reports, opinions or appraisals that are
materially related to the transaction
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18
<PAGE> 24
TRANSACTION STRUCTURE AND ISSUES TO CONSIDER
- --------------------------------------------------------------------------------
o The likelihood of litigation on behalf of minority shareholders in any
"going private" transaction is high
o Special Committee:
* Litigation risk to directors may be reduced by appointment of a
Special Committee comprised of Norwood independent directors to
evaluate and approve the transaction and to assure that the
transaction is negotiated at arm's length and a fair price is received
by minority shareholders
* Approval by Special Committee is an important factor in determining
procedural fairness under entire fairness test
o A summary of Norwood's current Board of Directors follows on the next page.
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19
<PAGE> 25
TRANSACTION STRUCTURE AND ISSUES TO CONSIDER
- --------------------------------------------------------------------------------
Board of Directors
<TABLE>
<CAPTION>
DIRECTOR COMPANY AND POSITIONS HELD DIRECTOR SINCE INDEPENDENT
- --------------------- ----------------------------------------------------- -------------- -------------
<S> <C> <C> <C>
Frank P. Krasovec Chairman and Chief Executive Officer of Norwood 1989 No
Promotional Products. Also serves as Chairman of
Littlefield Real Estate Company and manages other
personal investments.
Robert L. Seibert Director of Norwood Promotional Products since 1989 Yes
October 1989 and was a director of Norwood
Products, Inc. from December 1988 to October 1989.
Since 1978, he has served as a director of Advertising
Unlimited, Inc., a supplier of promotional product
calendars and served as its Chairman from 1978 to
December 1994. Mr. Siebert has also been a director of
Northstar Guaranty since 1992.
John H. Wilson III Has served as President of the U.S. Equity Corporation, 1991 Yes
a private venture capital company, since April 1983.
Mr. Wilson is also a director of Capital Southwest Corp.,
Whitehall Corp., Encore Wire Corporation and Palm Harbor Homes.
John H. Josephson Has been employed by Allen & Company Incorporated since 1993 Yes
August 1987 and has been a director of that firm since
February 1995. Mr. Josephson is also a director of Medical
Resources, Inc., OFI Holdings, Inc., SESAC Holdings, Inc.
and Virgol Servicos de Conveniencia, SA.
Harold Holland Founder of ArtMold Products Corporation in 1960 and served 1994 No
as its President and Chairman until July 1994, when ArtMold
was acquired by Norwood Promotional Products.
Roy D. Terracina Owner and chief executive officer of Sterling Foods, Inc. 1996 Yes
from 1984 until he sold the company in 1993. He is currently
a partner of Jungle Labs, a supplier of chemicals to the pet
industry. Mr. Terracina is also a director of Texas Commerce
Bank, National Association, United Services Advisors, Inc.
and Mesirow Partners.
</TABLE>
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20
<PAGE> 26
TRANSACTION STRUCTURE AND ISSUES TO CONSIDER
- -------------------------------------------------------------------------------
o A fairness opinion is typically required on behalf of Norwood's minority
shareholders
* A key element of the transaction
* Based on a thorough valuation by the financial advisors to the Special
Committee
o Among other things, in determining the fairness of any proposed offer for
Norwood, the Special Committee will likely review:
* Company's financial projections
* Public trading multiples of comparable companies
* Acquisition multiples of comparable companies
* Historical trading levels of Norwood stock
* Potential strategic buyers of Norwood
* Other "going private" transactions
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21
<PAGE> 27
TRANSACTION STRUCTURE AND ISSUES TO CONSIDER
- --------------------------------------------------------------------------------
Timetable Summary
(assumes a friendly cash tender offer transaction, may vary depending on the
transaction structure)
Weeks 1-2 Preliminary matters, including engagement by
Norwood Management of advisors, due
diligence, review of regulatory issues,
financing structure, tender offer
preparations
Weeks 3-6 Approach Norwood Board of Directors, form
special committee, engagement of separate
advisors for special committee, prepare
tender offer documents (Schedule 13e-4, Offer
to Purchase, side documents), Rule 13e-3
filing and state regulatory filings (if
required)
Continue due diligence
Week 7 Finalize due diligence, prepare fairness
opinion by financial advisors
Week 8 Final organization for launch of tender
offer, Norwood to finalize Schedule 13e-4
Commencement of the tender offer, publish
summary advertisement, issue joint press
release prior to opening of business, file 10
copies of Schedule 13e-4 with the SEC,
commence mailing of Offer to Purchase to
shareholders, state filings, Rule 13e-3
filing, file amendment to 13-D or 13-G as
appropriate
Launch Date + 15 calendar days Receive SEC Comments
Launch Date + 20 business days Close tender offer, Norwood may purchase
shares, issue press release reporting results
of tender offer, file final amendment to
Schedule 13e-4 reporting results of tender
offer
Following Tender Offer Closing File Form 4 (within 10 days of tender offer
closing) to report acquisition of Norwood's
shares, short-form merger (if minority
shareholders own less than 10% of Norwood's
shares)
Shareholder meeting; Certificate of Merger
filed
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22
<PAGE> 28
- --------------------------------------------------------------------------------
APPENDIX
- --------------------------------------------------------------------------------
<PAGE> 29
- --------------------------------------------------------------------------------
RECENT STOCK PRICE AND EARNINGS PERFORMANCE
- --------------------------------------------------------------------------------
<PAGE> 30
NORWOOD PROMOTIONAL PRODUCTS
- --------------------------------------------------------------------------------
Daily Stock Price Performance - LTM
[GRAPH]
- ---------------------
Comparable Composite: Cyrk Inc., Equity Marketing, HA-LO Industries and Swiss
Army Brands.
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23
<PAGE> 31
NORWOOD PROMOTIONAL PRODUCTS
- --------------------------------------------------------------------------------
Daily Stock Price Performance Since IPO
[GRAPH]
- ---------------------
Comparable Composite: Cyrk Inc., Equity Marketing, HA-LO Industries and Swiss
Army Brands.
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24
<PAGE> 32
NORWOOD PROMOTIONAL PRODUCTS
- --------------------------------------------------------------------------------
Analysis of Trading Volume - LTM
PERCENT OF VOLUME WHICH TRADED IN STOCK PRICE RANGE
[CHART]
PERCENT OF VOLUME WHICH TRADED BELOW STOCK PRICE RANGE
[CHART]
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25
<PAGE> 33
NORWOOD PROMOTIONAL PRODUCTS
- --------------------------------------------------------------------------------
Analysis of Trading Volume Since IPO
(includes volume from IPO in June 1993 and secondary offering in December 1995)
PERCENT OF VOLUME WHICH TRADED IN STOCK PRICE RANGE
[CHART]
PERCENT OF VOLUME WHICH TRADED BELOW STOCK PRICE RANGE
[CHART]
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26
<PAGE> 34
NORWOOD PROMOTIONAL PRODUCTS
- --------------------------------------------------------------------------------
Shareholder Ownership Profile
<TABLE>
<CAPTION>
% OF TOTAL % OF
TOTAL SHARES OUTSTANDING PUBLIC FLOAT
------------ ----------- ------------
<S> <C> <C> <C>
INSTITUTIONAL HOLDINGS(a)
TCW Group Incorporated 475,500 9.38% 11.73%
Thomson Horstmann & Bryant 460,000 9.07% 11.34%
Neuberger & Berman 401,600 7.92% 9.90%
T Rowe Price Associates 300,000 5.92% 7.40%
Hathaway & Associates 227,500 4.49% 5.61%
Heartland Advisors Inc. 200,000 3.94% 4.93%
Glickenhaus & Company 140,100 2.76% 3.46%
Dimensional Fund Advisors 131,200 2.59% 3.24%
GHS Management Inc. 127,500 2.51% 3.14%
Putmman Investment Management 112,300 2.21% 2.77%
---------- ------- -------
TOP TEN INSTITUTIONS 2,575,700 50.80% 63.52%
ALL OTHER INSTITUTIONS 460,162 9.08% 11.35%
---------- ------- -------
TOTAL INSTITUTIONAL OWNERSHIP(b) 3,035,862 59.88% 74.87%
INSIDER HOLDINGS(c)
Frank P. Krasovec 652,917 12.88%
John K. Finnell 193,001 3.81%
Robert P. Whitesell 108,023 2.13%
---------- -------
MAJOR INSIDER HOLDINGS 953,941 18.82%
All Other Insider Holdings 61,417 1.21%
---------- -------
TOTAL INSIDERS 1,015,358 20.03%
========== =======
RETAIL HOLDINGS 1,018,823 20.09% 25.13%
---------- ------- -------
TOTAL PUBLIC FLOAT 4,054,685 79.97% 100.00%
---------- ------- =======
TOTAL SHARES OUTSTANDING(d) 5,070,043 100.00%
========== =======
OPTIONS AND WARRANTS OUTSTANDING(e) 353,915
----------
TOTAL SHARES OUTSTANDING INCLUDING OPTIONS AND WARRANTS 5,423,958
==========
</TABLE>
- --------------------------------------------------
(a) Source: CDA/Spectrum as of 9/30/97
(b) Includes 13-F institutions, domestic mutual funds, insurance companies,
pension funds, and variable annuities as defined by CDA/Spectrum
(c) Source: Proxy dated 12/20/96 and SEC press releases. Includes direct and
indirect share ownership and excludes options and warrants
(d) Source: Form 10-K dated 8/30/97
(e) Management holds 38% or 134,118 of outstanding options and warrants
[LOGO] MERRILL LYNCH -----------------------------------------------------------
27
<PAGE> 35
- --------------------------------------------------------------------------------
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
<PAGE> 36
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
Summary of Valuation Methodology
<TABLE>
<CAPTION>
--------------------------------
Preliminary Valuation
Analysis
--------------------------------
- -------------------------------- -------------------------------- --------------------------------
Comparable Public Discounted Cash Comparable
Companies Flow Analysis Acquisitions
- -------------------------------- -------------------------------- --------------------------------
<S> <C> <C>
o Analysis of valuations for o Present value of projected o Analysis of pricing of relevant
relevant peer groups unlevered free cash flows acquisitions
o Review of historical and o Terminal multiples of 6.0x-8.0x o Review of historical and
projected trading multiples 2004 LTM EBITDA projected multiples paid
o Adjustments for non- o Discount rates of 11.0%-13.0%
recurring items
</TABLE>
[LOGO] MERRILL LYNCH -----------------------------------------------------------
28
<PAGE> 37
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
Preliminary Valuation Summary of Norwood
[GRAPH]
<TABLE>
<CAPTION>
IMPLIED LTM NOV-97
MULTIPLES: RESULTS
- ---------------- ---------
<S> <C> <C> <C> <C>
1997 Sales 0.75x-1.00x 0.85x-1.10x WACC 11%-13% $182.0
1997 EBITDA 6.0-8.0 EBITDA Multiples 23.2
1997 EBIT 8.0-12.0 6.0x to 8.0x 15.6
1998 Net Income 11.0-16.0 9.0
</TABLE>
[LOGO] MERRILL LYNCH -----------------------------------------------------------
29
<PAGE> 38
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
Summary of Comparable Companies
<TABLE>
<CAPTION>
COMPANY MARKET VALUE MARKET CAP. DESCRIPTION
- ----------------------------- ---------------- --------------- -----------------------------------------
<S> <C> <C> <C>
Bemrose Corporation $289.1 $333.8 Bemrose is the largest supplier of
advertising and promotional products in
the UK. Bemrose produces imprinted
products such as calendars, diaries, pens
and etched crystal for corporate and
retail customers. Clients include British
Airways, Microsoft and Visa International.
Bemrose also prints security documents
such as bank checks, government and
university documents.
Cyrk Inc. $171.9 $174.4 Cyrk designs, develops, manufactures, and
distributes products for promotional
programs and custom-designed sports
apparel and accessories. Promotional
product programs include T-shirts,
pullovers, sports bags, caps and watches.
Cyrk's business is heavily concentrated
with its two largest customers, Pepsi-Cola
and Philip Morris, accounting for 38% and
30% of 1996 net sales, respectively.
Equity Marketing $170.4 $156.9 Equity Marketing designs, develops,
produces and distributes custom toy, gift
and other products based on characters
from television and movies such as cartoon
figurines, plush toys, action vehicles,
and play sets. Equity Marketing sells its
products domestically and internationally
to fast food restaurant chains, oil
companies, and mass market retailers for
use in promotional campaigns.
HA-LO Industries $550.7 $589.2 HA-LO Industries markets and distributes
advertising specialty and promotional
products through a network of eleven
showrooms and 2,500 vendors. Products
include jackets, hats, T-shirts,
calendars, pens, coffee mugs and key
chains. HA-LO also conducts telemarketing
services through a network of 1,400
telephone representatives.
Swiss Army Brands $ 88.3 $ 84.6 Swiss Army Brands is the exclusive U.S.,
Canadian and Caribbean distributor of the
Victorinox Swiss Army Knife, Victorinox
cutlery and Victorinox watches. It also
sells its own line of watches and other
products under its Swiss Army brand. Swiss
Army Brands also imprints its products
with corporate names and logos and sells
its products through distributors to
corporations and other organizations for
promotional purposes.
</TABLE>
[LOGO] MERRILL LYNCH -----------------------------------------------------------
30
<PAGE> 39
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
P/E Multiples for Comparable Companies
Multiple of Market Value of Multiple of Market
Equity to 1998E EPS(a) Capitalization to LTM EBITDA
- --------------------------- ----------------------------
[CHART] [CHART]
- -----
(a) Calendarized EPS Estimates from First Call; prices as of December 2, 1997.
(b) 1998E EPS Average excludes Norwood. LTM EBITDA Average excludes HA-LO and
Norwood.
[LOGO] MERRILL LYNCH -----------------------------------------------------------
31
<PAGE> 40
VALUATION ANALYSIS
- -------------------------------------------------------------------------------
Summary Financial Information
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------------------
AUGUST 28, SEPTEMBER 3, SEPTEMBER 2, AUGUST 31, AUGUST 30,
1993 1994(a) 1995 1996(b) 1997(c)
---------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Sales $ 49.3 $ 62.4 $ 103.9 $ 152.0 $ 175.8
Growth 31.9% 26.5% 66.5% 46.3% 15.7%
EBITDA 7.2 8.5 14.5 18.7 23.1
EBIT 5.3 6.3 10.5 12.0 15.0
Interest Expense, Gross 2.0 1.0 3.6 3.5 3.0
Net Income(d) 1.8 3.3 4.0 5.0 7.4
Fully Diluted EPS(d) $ 0.76 $ 0.93 $ 1.10 $ 0.99 $ 1.34
Growth 230.4% 22.4% 18.3% (9.7)% 35.3%
CASH FLOW STATEMENT
Cash Flow(e) 3.5 5.5 7.8 11.2 13.7
Depreciation & Amortization 1.8 2.2 4.0 6.7 8.2
Capital Expenditures 1.2 1.4 2.1 4.9 4.9
BALANCE SHEET
Total Debt(f) 8.0 32.2 62.9 47.7 61.4
Net Debt 7.8 31.7 60.7 45.8 58.8
Shareholders' Equity 13.5 16.9 21.0 57.4 51.3
OPERATING MARGINS
EBITDA Margin 14.5% 13.7% 13.9% 12.3% 13.2%
EBIT Margin 10.8% 10.2% 10.1% 7.9% 8.5%
Net Margin 3.6% 5.3% 3.9% 3.3% 4.2%
SUMMARY CREDIT STATISTICS
EBITDA/Interest Expense, Gross 3.6x 8.3x 4.0x 5.4x 7.7x
Total Debt/EBITDA 1.1x 3.8x 4.3x 2.5x 2.7x
Total Debt/Capitalization 37.1% 65.6% 74.9% 45.4% 54.5%
Net Debt/Capitalization 36.3% 64.6% 72.4% 43.6% 52.2%
</TABLE>
- --------------------
(a) Adjusted for extraordinary loss from debt extinguishment of $.58 million,
$.34 million net of tax
(b) Adjusted for restructuring charge of $1.64 million, $.98 million net of tax
(c) Adjusted for extraordinary charge of $1.82 million, $1.08 million net of
tax and refinancing charge of $.24 million
(d) From continuing operations
(e) Cash flow defined as Net Income + Depreciation & Amortization + Deferred
Taxes
(f) Includes capital leases
32
<PAGE> 41
VALUATION ANALYSIS
- -------------------------------------------------------------------------------
Acquisition Pricing Matrix
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
TRANSACTION VALUE AS MULTIPLE OF: OFFER VALUE AS MULTIPLE OF:
--------------------------------- ---------------------------------
OFFER OFFER OFFER NET TRANSACTION LTM LTM LTM 1998 1999 LTM
PRICE PREMIUM VALUE DEBT VALUE SALES EBITDA EBIT EPS EPS BOOK VALUE
- -------- -------- -------- -------- ----------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 15.00 0.0% $ 78.0 $ 55.9 $ 133.9 0.74x 5.8x 8.6x 10.8x 8.7x 1.45x
19.00 26.7% 98.8 55.9 154.7 0.85 6.7 9.9 13.7 11.0 1.84
20.00 33.3% 104.0 55.9 159.9 0.88 6.9 10.3 14.4 11.6 1.93
21.00 40.0% 109.2 55.9 165.1 0.91 7.1 10.6 15.1 12.2 2.03
22.00 46.7% 114.4 55.9 170.3 0.94 7.3 10.9 15.8 12.8 2.13
23.00 53.3% 119.6 55.9 175.5 0.96 7.6 11.3 16.5 13.4 2.22
24.00 60.0% 124.8 55.9 180.7 0.99 7.8 11.6 17.3 13.9 2.32
25.00 66.7% 130.0 55.9 185.9 1.02 8.0 11.9 18.0 14.5 2.42
- ---------------------------------------------------------------------------------------------------------------------------------
NORWOOD DATA $182.0 $23.2 $15.6 $1.39 $1.72 $53.8
=================================================================================================================================
</TABLE>
33
<PAGE> 42
VALUATION ANALYSIS
- -------------------------------------------------------------------------------
Overview of Potential Buyers
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
BEMROSE HA-LO
CORPORATION HAGEMEYER INDUSTRIES 3M BIC GILLETTE
----------- --------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Sales $321.7 $5,104.9 $292.9 $14,980.0 $1,091.2 $9,902.9
EBITDA 53.1 347.3 26.2 3,501.9 266.6 2,593.6
EBIT 41.6 277.4 21.8 2,620.0 180.6 2,186.0
Interest Expense, Gross 3.4 65.1 0.9 99.0 NA 75.0
Net Income 23.5 175.6 12.3 2,140.0 117.4 1,071.6
CASH FLOW STATEMENT
Cash Flow(a) $36.5 $245.5 $16.1 $3,021.9 $203.5 $1,479.2
Depreciation & Amortization 11.5 69.9 4.4 881.9 86.1 407.6
Capital Expenditures 4.3 134.3 4.4 1,108.8 107.2 917.9
BALANCE SHEET
Market Value $291.3 $16,594.5 $546.6 $40,177.2 $2,019.8 $52,052.2
Market Capitalization 336.0 17,659.7 582.3 41,587.2 1,833.4 53,573.1
Cash 0.0 42.3 2.3 306.0 309.7 102.8
Short Term Debt 0.0 2.8 5.3 585.0 48.4 11.3
Long Term Debt 44.7 1,043.2 32.7 1,131.0 9.4 1,481.9
Minority Interest 0.0 61.4 0.0 0.0 65.5 36.9
Preferred Equity (Liquidation Value) 0.0 0.0 0.0 0.0 0.0 93.6
Shareholders' Equity 87.2 744.6 76.4 6,324.0 1,008.7 5,080.7
SUMMARY CREDIT STATISTICS
EBITDA/Interest Expense, Gross 15.5x 5.3x 28.0x 35.4x NM 34.6x
Total Debt/EBITDA 0.8x 3.0x 1.5x 0.5x 0.2x 0.6x
Total Debt/Capitalization 33.9% 58.5% 34.8% 23.0% 5.7% 22.8%
Net Debt/Capitalization 33.9% 56.1% 32.7% 18.9% NM 21.2%
</TABLE>
- -------------------
(a) Cash flow defined as Net Income + Depreciation & Amortization + Deferred
Taxes
34
<PAGE> 43
ANALYSIS OF WEIGHTED AVERAGE COST OF CAPITAL - PROMOTIONAL PRODUCTS COMPANIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assumptions
- ----------------------------------------------------------------------------------------------------------------------
Thirty Year Government Bond (at 12/3/97) 6.01% Estimated Future Market Return (b) 13.41%
Historical Spread Between Long Bond & S&P 500(a) 7.40% Estimated Future Risk Free Rate (c) 6.01%
-------
Estimated Differential 7.40%
- ----------------------------------------------------------------------------------------------------------------------
LEVERED TAX NET DEBT TO UNLEVERED LEVERED UNLEVERED
COMPARABLE COMPANIES BETA (d) RATE EQUITY (e) BETA (f) RETURN RETURN
- ---------------------------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bemrose Corporation 0.50 * 38.5% 9.2% 0.47 * 9.7% 9.5%
Cyrk Inc. (0.04)* 38.5% 0.7% (0.04)* 5.7% 5.7%
Equity Marketing Inc. 1.78 * 38.5% 0.0% 1.78 * 19.2% 19.2%
HA-LO Industries 1.27 38.5% 6.5% 1.22 15.4% 15.0%
Norwood Promotional Products 1.11 38.5% 78.0% 0.75 14.2% 11.6%
Swiss Army Brands 0.60 38.5% 0.9% 0.60 10.5% 10.4%
- ----------------------------------------------------------------------------------------------------------------------
AVERAGE 0.99 38.5% 15.9% 0.86 13.4% 12.3%
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------
COST OF EQUITY AT VARIOUS UNLEVERED BETA AND CAPITAL RATES
NET DEBT/EQUITY ----------------------------------------------------------------------
CAPITAL STRUCTURES 0.76 0.81 0.86 0.91 0.96
- ------------------ ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
10.0% 12.0% 12.3% 12.7% 13.1% 13.5%
20.0% 12.3% 12.7% 13.1% 13.5% 14.0%
30.0% 12.6% 13.1% 13.5% 14.0% 14.4%
40.0% 13.0% 13.4% 13.9% 14.4% 14.8%
50.0% 13.3% 13.8% 14.3% 14.8% 15.3%
60.0% 13.7% 14.2% 14.7% 15.2% 15.7%
70.0% 14.0% 14.5% 15.1% 15.6% 16.1%
80.0% 14.4% 14.9% 15.5% 16.0% 16.6%
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
WEIGHTED AVERAGE COST OF CAPITAL AT VARIOUS UNLEVERED BETA AND CAPITAL RATES
NET DEBT/EQUITY EST. COST ----------------------------------------------------------------------------
CAPITAL STRUCTURES OF DEBT 0.76 0.81 0.86 0.91 0.96
- ------------------ ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
10.0% 7.00% 11.3% 11.6% 12.0% 12.3% 12.7%
20.0% 7.25% 11.0% 11.3% 11.7% 12.0% 12.4%
30.0% 7.50% 10.8% 11.1% 11.5% 11.8% 12.1%
40.0% 7.75% 10.6% 11.0% 11.3% 11.6% 12.0%
50.0% 8.00% 10.5% 10.8% 11.2% 11.5% 11.8%
60.0% 8.25% 10.4% 10.8% 11.1% 11.4% 11.7%
70.0% 8.50% 10.4% 10.7% 11.0% 11.3% 11.6%
80.0% 8.75% 10.4% 10.7% 11.0% 11.3% 11.6%
</TABLE>
* Excluded from Average
- --------------------------------------------------------------------------------
(a) Source: Ibbottson & Sinquefeld 1997 Yearbook.
(b) Thirty year government bond yield plus the historical spread between the
long bond and the S&P 500.
(c) Thirty year government bond yield.
(d) Source: Merrill Lynch Beta Book, November 1997 for all except Bemrose
which was obtained from Bloomberg.
(e) Book Value of Net Debt to market Value of Equity.
(f) Unlevered beta equals (Levered Beta/(1 + ((1 - Tax Rate) * Debt/Equity)).
35
<PAGE> 44
- --------------------------------------------------------------------------------
DETAILED FINANCIAL MODELS
- --------------------------------------------------------------------------------
<PAGE> 45
CONFIDENTIAL BASE CASE
- -------------------------------------------------------------------------------
TRANSACTION SUMMARY - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 1
[Dollars in Millions]
- -------------------------------------------------------------------------------
SOURCES AND USES OF FUNDS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Sources of Funds Amount Percent Interest Rate
- ---------------- -------- -------- -------------
<S> <C> <C> <C>
Revolving Credit Facility $ 0.0 0.0% 8.500%
Undrawn Portion 0.500%
A Term Loan 25.0 17.2% 8.500%
B Term Loan 0.0 0.0% 8.750%
Senior Subordinated Notes 100.0 69.0% 9.875%
PIK Preferred Stock 0.0 0.0% 0.000%
Warrants 0.000%
Common Equity 20.0 13.8%
-------- --------
Total Sources $ 145.0 100.0%
======== ========
</TABLE>
<TABLE>
<CAPTION>
Uses of Funds Amount Percent
- ------------- -------- --------
<S> <C> <C>
Purchase Price per share $ 20.0
Shares Purchased 4.02
--------
Purchase Price 80.4 55.4%
Refinance Existing Debt 56.4 38.9%
Tender Premium 0.0 0.0%
Estimated Fees & Expenses 6.1 4.2%
Excess Cash 2.2 1.5%
-------- --------
Total Uses $ 145.0 100.0%
======== ========
</TABLE>
- -------------------------------------------------------------------------------
SUMMARY INFORMATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended on or about August 31,
------------------------------------------------------------------------------
Pro Forma Projected
LTM -----------------------------------------------------------------------------
11/30/97 1998 1999 2000 2001 2002 2003
--------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 182.0 $ 194.6 $ 209.7 $ 225.9 $ 243.4 $ 262.4 $ 282.8
Sales Growth 10.6% 7.7% 7.7% 7.8% 7.8% 7.8%
EBITDA 23.2 26.9 30.6 34.1 38.0 42.3 46.9
Margins
EBITDA Margin 12.7% 13.8% 14.6% 15.1% 15.6% 16.1% 16.6%
Gross Margin 28.6% 28.3% 28.4% 28.5% 28.5% 28.6% 28.6%
Total Interest Expense 12.4 12.2 11.7 11.1 10.5 10.3 10.3
PIK Preferred Cash Dividends 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Capital Expenditures 3.6 4.0 4.0 4.0 4.0 4.0 4.0
Revolving Credit Facility 0.0 0.0 0.0 0.0 0.0 0.0 0.0
A Term Loan 25.0 19.7 13.2 4.5 0.0 0.0 0.0
Total Debt 125.0 119.7 113.2 104.5 100.0 100.0 100.0
PIK Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Shareholders' Equity (9.7) (7.2) (2.3) 5.1 15.4 28.6 45.1
Incremental Debt Capacity (2.0x
EBITDA/Total Interest, at 9%) 14.0 39.8 66.8 94.7 120.8 146.3
EBITDA/Total Interest Expense 1.9x 2.2x 2.6x 3.1x 3.6x 4.1x 4.6x
EBITDA/Cash Interest Expense 1.9x 2.3x 2.7x 3.2x 3.7x 4.2x 4.7x
EBITDA-CapEx/Total Interest Expense 1.6x 1.9x 2.3x 2.7x 3.2x 3.7x 4.2x
Total Debt/EBITDA 5.4x 4.4x 3.7x 3.1x 2.6x 2.4x 2.1x
Total Debt/Total Capitalization 108.5% 106.4% 102.1% 95.3% 86.7% 77.7% 68.9%
</TABLE>
- -------------------------------------------------------------------------------
SENSITIVITY ANALYSIS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Purchase Price Per Share $ 20.0 $ 21.0 $ 22.0 $ 23.0 $ 24.0 $ 25.0
Total Debt/LTM EBITDA 5.4x 5.5x 5.6x 5.8x 6.0x 6.2x
</TABLE>
<PAGE> 46
CONFIDENTIAL BASE CASE
- -------------------------------------------------------------------------------
PROJECTED INCOME STATEMENTS - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 2
[Dollars in Millions]
<TABLE>
<CAPTION>
Year Ended on or about August 31,
------------------------------------------------------------------------------------------
Pro Forma Projected
--------- ------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
---------- ------ ------ ------ ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Sales 176.0 194.6 209.7 225.9 243.4 262.4 282.8 304.9 328.7 354.5
COGS 125.7 139.5 150.1 161.6 174.0 187.4 201.9 217.5 234.4 252.6
S,G & A 31.4 32.2 33.0 34.1 35.0 36.6 37.9 39.2 40.6 42.1
EBITDA 22.5 26.9 30.6 34.1 38.0 42.3 46.9 52.1 57.6 63.7
Depreciation 3.6 4.2 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3
Amortization of Goodwill 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9
------ ------ ------ ------ ----- ------ ------ ------ ------ ------
EBIT 15.0 18.8 22.4 26.0 29.9 34.2 38.8 44.0 49.5 55.6
Interest Expense
Revolving Credit Facility 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
A Term Loan 2.1 1.9 1.4 0.8 0.2 0.0 0.0 0.0 0.0 0.0
B Term Loan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Senior Subordinated Notes 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9
Amortization of Financing Fees 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Interest Expense 12.4 12.2 11.7 11.1 10.5 10.3 10.3 10.3 10.3 10.3
Interest Income 0.1 0.1 0.0 0.0 0.2 0.7 1.5 2.4 3.6 4.9
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Interest Income 12.3 12.1 11.6 11.0 10.3 9.6 8.8 7.9 6.7 5.4
Other Expenses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Pre-Tax Income 2.7 6.7 10.8 15.0 19.6 24.7 30.0 36.1 42.7 50.1
Income Taxes(a) 2.6 4.2 5.9 7.5 9.4 11.4 13.6 16.0 18.6 21.6
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Income 0.1 2.5 4.9 7.5 10.2 13.3 16.5 20.1 24.1 28.5
PIK Preferred Dividends 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Income Available to Common $ 0.1 $ 2.5 $ 4.9 $ 7.5 $ 10.2 $ 13.3 $ 16.5 $ 20.1 $ 24.1 $ 28.5
</TABLE>
Notes:
(a) Assumes an effective tax rate of 40.0%.
<PAGE> 47
CONFIDENTIAL BASE CASE
- -------------------------------------------------------------------------------
PROJECTED BALANCE SHEET - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 3
(Dollars in Millions)
<TABLE>
<CAPTION>
Year Ended on or about August 31,
-------------------------------------------------------------------------------------------
Pro Forma Projected
--------- -------------------------------------------------------------------------------------------
11/30/97 1998 1999 2000 2001 2002 2003 2004 2005 2006
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash $ 2.7 $ 1.0 $ 1.0 $ 1.0 $ 7.8 $ 21.9 $ 38.8 $ 59.1 $ 83.1 $ 111.1
Other Current Assets(a) 58.8 65.6 70.4 75.6 81.2 87.2 93.7 100.7 108.3 116.5
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total 61.5 66.6 71.4 76.6 89.0 109.1 132.6 159.9 191.4 227.6
PP&E 20.6 20.4 20.2 19.9 19.6 19.4 19.1 18.8 18.6 18.3
Other Fixed Assets 12.9 12.9 12.9 12.9 12.9 12.9 12.9 12.9 12.9 12.9
Goodwill & Intangibles 38.6 34.7 30.9 27.0 23.1 19.3 15.4 11.6 7.7 3.9
Deferred Financing Costs 3.0 2.7 2.4 2.1 1.8 1.5 1.2 0.9 0.6 0.3
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Assets $ 136.5 $ 137.3 $ 137.7 $ 138.5 $ 146.4 $ 162.1 $ 181.2 $ 204.1 $ 231.2 $ 263.0
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Liabilities
Current Liabilities $ 21.3 $ 24.9 $ 26.8 $ 28.8 $ 31.1 $ 33.5 $ 36.0 $ 38.8 $ 41.8 $ 45.1
Debt:
Existing Debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Revolving Credit Facility 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
A Term Loan 25.0 19.7 13.2 4.5 0.0 0.0 0.0 0.0 0.0 0.0
B Term Loan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Senior Subordinated Notes 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Debt 125.0 119.7 113.2 104.5 100.0 100.0 100.0 100.0 100.0 100.0
Other Long-Term Liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Minority Interests 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
PIK Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Shareholders' Equity (9.7) (7.2) (2.3) 5.1 15.4 28.6 45.1 65.2 89.3 117.9
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Liabilities &
Shareholders' Equity $ 136.5 $ 137.3 $ 137.7 $ 138.4 $ 146.4 $ 162.1 $ 181.2 $ 204.1 $ 231.2 $ 263.0
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
0.0 (0.0) (0.0) (0.0) (0.0) 0.0 (0.0) 0.0 0.0 (0.0)
BALANCE SHEET STATISTICS
- ------------------------------------------------------------------------------------------------------------------------------------
Days Current Assets 122.0 123.1 122.6 122.1 121.7 121.3 121.0 120.6 120.3 120.0
Days Current Liabilities 61.8 65.2 65.2 65.2 65.2 65.2 65.2 65.2 65.2 65.2
====================================================================================================================================
</TABLE>
- -----------------
(a) Other Current Assets includes Inventory, Accounts Receivable and Prepaid
Expenses.
<PAGE> 48
CONFIDENTIAL BASE CASE
- --------------------------------------------------------------------------------
PROJECTED CASH FLOW STATEMENT - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 4
[Dollars in Millions]
<TABLE>
<CAPTION>
Year Ended on or about August 31,
------------------------------------------------------
Pro Forma Projected
--------- -----------------------------------------
1997 1998 1999 2000 2001
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
EBITDA $22.5 $26.9 $30.6 $34.1 $38.0
Less:
Capital Expenditures 4.9 4.0 4.0 4.0 4.0
Net Cash Interest Expense 11.8 11.3 10.7 10.0
Cash PIK Preferred Dividends 0.0 0.0 0.0 0.0
Other Expenses 0.0 0.0 0.0 0.0
Taxes 4.2 5.9 7.5 9.4
------ ------ ------ ------
Total 20.0 21.2 22.2 23.4
Plus:
Working Capital Items:
Incr/(Decr) in Non-Cash Current Assets 6.8 4.8 5.2 5.6
(Incr)/Decr in Current Liabilities (3.6) (1.9) (2.1) (2.2)
------ ------ ------ ------
Change in Working Capital 3.2 2.9 3.1 3.4
Other:
Incr/(Decr) in Other Long Term Liabilities 0.0 0.0 0.0 0.0
------ ------ ------ ------
Cash Flow Available for Debt Service 3.7 6.5 8.8 11.3
Incr/(Decr) in Revolving Credit Facility 0.0 0.0 0.0 0.0
Incr/(Decr) in A Term Loan (5.3) (6.5) (8.8) (4.5)
Incr/(Decr) in B Term Loan 0.0 0.0 0.0 0.0
Incr/(Decr) in Senior Subordinated Notes 0.0 0.0 0.0 0.0
------ ------ ------ ------
Net Cash Flow (1.7) 0.0 0.0 6.8
Cash Balance
Minimum Cash Balance 1.0 1.0 1.0 1.0
Beginning Balance 2.7 2.7 1.0 1.0 1.0
Incr/(Decr) 0.0 (1.7) 0.0 0.0 6.8
------ ------ ------ ------ ------
Ending Balance 2.7 1.0 1.0 1.0 7.8
Average Balance 2.7 1.8 1.0 1.0 4.4
Interest Income 5.000% 0.1 0.1 0.1 0.1 0.2
<CAPTION>
Year Ended on or about August 31,
----------------------------------------------------
Projected
----------------------------------------------------
2002 2003 2004 2005 2006
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
EBITA $42.3 $46.9 $52.1 $57.6 $63.7
Less:
Capital Expenditures 4.0 4.0 4.0 4.0 4.0
Net Cash Interest Expense 9.3 8.5 7.6 6.4 5.1
Cash PIK Preferred Dividends 0.0 0.0 0.0 0.0 0.0
Other Expenses 0.0 0.0 0.0 0.0 0.0
Taxes 11.4 13.6 16.0 18.6 21.6
----- ----- ----- ----- -----
Total 24.7 26.0 27.5 29.1 30.7
Plus:
Working Capital Items:
Incr/(Decr) in Non-Cash Current Assets 6.0 6.5 7.0 7.6 8.2
(Incr)/Decr in Current Liabilities (2.4) (2.6) (2.8) (3.0) (3.3)
------ ------ ------ ------ ------
Change in Working Capital 3.6 3.9 4.2 4.6 5.0
Other:
Incr/Decr in Other Long Term Liabilities 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ------
Cash Flow Available for Debt Services 14.0 17.0 20.3 23.9 28.0
Incr/(Decr) in Revolving Credit Facility 0.0 0.0 0.0 0.0 0.0
Incr/(Decr) in A Term Loan 0.0 0.0 0.0 0.0 0.0
Incr/(Decr) in B Term Loan 0.0 0.0 0.0 0.0 0.0
Incr/(Decr) in Senior Subordinated Notes 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ------
Net Cash Flow 14.0 17.0 20.3 23.9 28.0
Cash Balance
Minimum Cash Balance 1.0 1.0 1.0 1.0 1.0
Beginning Balance 7.8 21.9 38.8 59.1 83.1
Incr/(Decr) 14.0 17.0 20.3 23.9 28.0
------ ------ ------ ------ ------
Ending Balance 21.9 38.8 59.1 83.1 111.1
Average Balance 14.8 30.4 49.0 71.1 97.1
Interest Income 5.000% 0.7 1.5 2.4 3.6 4.9
</TABLE>
<PAGE> 49
CONFIDENTIAL BASE CASE
- --------------------------------------------------------------------------------
BALANCE SHEET ADJUSTMENTS - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 5
[Dollars in Millions]
<TABLE>
<CAPTION>
Actual Pro Forma
------- Financing Accounting ----------
11/30/97 Adjustments Adjustments 11/30/97
-------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Assets
Cash $ 0.5 $ 88.6 $(86.5) $ 2.7
Other Current Assets 58.8 58.8
------ ------ ------ ------
Total 59.3 88.6 (86.5) 61.5
PP&E 20.6 20.6
Other Long-Term Assets 12.9 12.9
Goodwill & Intangibles 38.6 0.0 38.6
Deferred Financing Costs 0.0 3.0 3.0
------ ------ ------ ------
Total Assets $131.4 $ 88.6 $(83.5) $136.5
====== ====== ====== ======
Liabilities
Current Liabilities $ 21.3 $ 21.5
Debt:
Existing Debt 56.4 (56.4) 0.0
Working Capital Revolver 0.0 0.0 0.0
A Term Loan 0.0 25.0 25.0
B Term Loan 0.0 0.0 0.0
Senior Subordinated Notes 0.0 100.0 100.0
------ ------ ------ ------
Total Debt 56.4 68.6 0.0 125.0
Other Long-Term Liabilities 0.0 0.0
Minority Interests 0.0 0.0
PIK Preferred 0.0 0.0 0.0
Shareholders' Equity 53.8 20.0 (83.5) (9.7)
------ ------ ------ ------
Total Liabilities &
Shareholders' Equity $131.4 $ 88.6 $(83.5) $136.5
====== ====== ====== ======
0.0 0.0 0.0 0.0
</TABLE>
<PAGE> 50
CONFIDENTIAL BASE CASE
- --------------------------------------------------------------------------------
CAPITALIZATION SCHEDULES -- NORWOOD PROMOTIONAL PRODUCTS, INC. Page 6
[Dollars in Millions]
<TABLE>
<CAPTION>
Year Ended on or about August 31,
---------------------------------------------------------------------
PRO FORMA PROJECTED
LTM ---------------------------------------------------------------------
RATES 11/30/97 1998 1999 2000 2001 2002 2003 2004 2005 2006
------- --------- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revolving Credit Facility 8.500%
Beginning Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Additions/(Payments) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Ending Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Undrawn Portion 0.500% 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0
Interest on Undrawn
Portion 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Average Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Interest Expense 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
A Term Loan 8.500%
Beginning Balance 25.0 25.0 19.7 13.2 4.5 0.0 0.0 0.0 0.0 0.0
Additions/(Payments) 0.0 (5.3) (6.5) (8.8) (4.5) 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Ending Balance 25.0 19.7 13.2 4.5 0.0 0.0 0.0 0.0 0.0 0.0
Average Balance 25.0 22.3 16.4 8.8 2.2 0.0 0.0 0.0 0.0 0.0
Interest Expense 2.1 1.9 1.4 0.8 0.2 0.0 0.0 0.0 0.0 0.0
B Term Loan 8.750%
Beginning Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Additions/(Payments) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Ending Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Average Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Interest Expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Senior Subordinated Notes 9.875%
Beginning Balance 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Additions/(Payments) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Ending Balance 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Average Balance 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Interest Expense 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9
PIK Preferred 0.000%
Beginning Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Accreted Interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Ending Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Average Balance 0.0 0.0 0.0 0.0
Interest Expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
</TABLE>
<PAGE> 51
CONFIDENTIAL BASE CASE
- --------------------------------------------------------------------------------
INTERNAL RATE OF RETURN OF EQUITY - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 7
[U.S. Dollars in Millions, except per share value]
<TABLE>
<CAPTION>
Projected FYE on or about August 31,
-------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
EBITDA $ 26.9 $ 30.6 $ 34.1 $ 38.0 $ 42.3 $ 46.9
FIRM VALUE @ EBITDA MULTIPLE OF:
6.00x $ 161.5 $ 183.4 $ 204.7 $ 228.1 $ 254.1 $ 281.6
7.00x 188.4 213.9 238.8 266.1 296.4 328.6
8.00x 215.3 244.5 272.9 304.2 338.8 375.5
Less: Total Debt $(119.7) $(113.2) $(104.5) $(100.0) $(100.0) $(100.0)
Plus: Cash 1.0 1.0 1.0 7.8 21.9 38.8
Less: Other Deductions -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total Deductions to Equity $(118.7) $(112.2) $(103.5) $ (92.2) $ (78.1) $( 61.2)
EQUITY VALUE @ EBITDA MULTIPLE OF:
6.00x $ 42.8 $ 71.2 $ 101.2 $ 135.9 $ 176.0 $ 220.5
7.00x 69.7 101.7 135.4 174.0 218.3 267.4
8.00x 96.7 132.3 169.5 212.0 260.7 314.3
</TABLE>
<TABLE>
<CAPTION>
PRE-TAX IRR SUMMARY ANALYSIS FOR MANAGEMENT'S EQUITY INTEREST
Net Equity Holders
Equity Ownership % EBITDA Multiple 1998 1999 2000 2001 2002 2003
------ ------------------ --------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$40.8 100.0% 6.00x 4.8% 32.0% 35.3% 35.1% 33.9% 32.4%
7.00x 70.7% 57.8% 49.1% 43.7% 39.8% 36.8%
8.00x 136.6% 80.0% 60.7% 50.9% 44.9% 40.5%
</TABLE>
<TABLE>
<CAPTION>
PRE-TAX VALUE ANALYSIS FOR MANAGEMENT'S EQUITY INTEREST
Net Management
Ownership % EBITDA Multiple 1998 1999 2000 2001 2002 2003
-------------- --------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
51.0% 6.00x $21.9 $36.3 $51.7 $69.4 $89.8 $112.5
7.00x 35.6 51.9 69.1 88.8 111.4 136.5
8.00x 49.3 67.5 86.5 108.2 133.0 160.4
</TABLE>
<PAGE> 52
NORWOOD PROMOTIONAL PRODUCTS
- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS-EBITDA MULTIPLE METHOD Page 10
(Dollars in millions)
<TABLE>
<CAPTION>
PROJECTED FYE AUGUST 31
--------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 194.6 $ 209.7 $ 225.9 $ 243.4 $ 262.4 $ 282.8 $ 304.9
EBITDA 26.9 30.6 34.1 38.0 42.3 46.9 52.1
Less: Depreciation (4.2) (4.3) (4.3) (4.3) (4.3) (4.3) (4.3)
------- ------- ------- ------- ------- ------- -------
EBITA 22.7 26.3 29.9 33.8 38.1 42.7 47.8
Less: Taxes @ 40.0% (9.1) (10.5) (11.9) (13.5) (15.2) (17.1) (19.1)
------- ------- ------- ------- ------- ------- -------
Tax-effected EBITA 13.6 15.8 17.9 20.3 22.9 25.6 28.7
Plus: Depreciation 4.2 4.3 4.3 4.3 4.3 4.3 4.3
Plus: Change in Deferred Taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Less: Capital Expenditures (4.0) (4.0) (4.0) (4.0) (4.0) (4.0) (4.0)
Less: Changes in Working Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------- ------- ------- ------- ------- ------- -------
Free Cash Flow $ 13.8 $ 16.0 $ 18.2 $ 20.5 $ 23.1 $ 25.9 $ 29.0
</TABLE>
<TABLE>
<CAPTION>
A + B = C
-------------- --------------------------- -----------------------------
DISCOUNTED (a) PV OF TERMINAL VALUE AS A
CASH FLOWS MULTIPLE OF 2004 EBITDA (b) FIRM VALUE
--------------------------- -----------------------------
WEIGHTED AVERAGE COST OF CAPITAL 1998-2004 6.0x 7.0x 8.0x 6.0x 7.0x 8.0x
- -------------------------------- -------------- --------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
11.0% $93.8 $150.5 $175.6 $200.7 $244.3 $269.4 $294.5
11.5% 92.1 145.8 170.1 194.5 237.9 262.2 286.5
12.0% 90.4 141.3 164.9 188.5 231.8 255.3 278.9
12.5% 88.8 137.0 159.8 182.7 225.8 248.7 271.5
13.0% 87.3 132.8 155.0 177.1 220.1 242.2 264.4
<CAPTION>
- D = E
-------------- ---------------------------
NET DEBT TOTAL EQUITY VALUE EQUITY VALUE PER SHARE (c)
--------------------------- -----------------------------
WEIGHTED AVERAGE COST OF CAPITAL 35673 6.0x 7.0x 8.0x 6.0x 7.0x 8.0x
- -------------------------------- -------------- --------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
11.0% $55.9 $188.4 $213.5 $238.6 $37.22 $42.18 $47.13
11.5% 55.9 182.1 206.4 230.7 $35.97 $40.77 $45.57
12.0% 55.9 175.9 199.5 223.0 $34.75 $39.41 $44.06
12.5% 55.9 170.0 192.8 215.7 $33.58 $38.09 $42.60
13.0% 55.9 164.2 186.4 208.5 $32.44 $36.82 $41.19
-----------------------------
<CAPTION>
PRESENT VALUE OF
TERMINAL VALUE AS A % OF
FIRM VALUE
- ----------------------------
6.0 7.0 8.0
- ---------------------------
<S> <C> <C>
61.6% 65.2% 68.1%
61.3% 64.9% 67.9%
61.0% 64.6% 67.6%
60.7% 64.3% 67.3%
60.3% 64.0% 67.0%
</TABLE>
- ---------------------------------------
(a) Present values calculated as of August 31, 1997.
(b) Discounted 7 years; based on FYE August 31, 2004 EBITDA of $52.1 million.
(c) Based on 5.1 million shares outstanding.
<PAGE> 53
CONFIDENTIAL INITIAL CASE
- -------------------------------------------------------------------------------
TRANSACTION SUMMARY - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 1
[Dollars in Millions]
- -------------------------------------------------------------------------------
SOURCES AND USES OF FUNDS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Sources of Funds Amount Percent Interest Rate
- ---------------- -------- -------- -------------
<S> <C> <C> <C>
Revolving Credit Facility $ 2.8 2.0% 8.500%
Undrawn Portion 0.500%
A Term Loan 40.0 28.0% 8.500%
B Term Loan 0.0 0.0% 8.750%
Senior Subordinated Notes 100.0 70.0% 9.875%
PIK Preferred Stock 0.0 0.0% 0.000%
Warrants 0.000%
Common Equity 0.0 0.0%
-------- --------
Total Sources $ 142.8 100.0%
======== ========
</TABLE>
<TABLE>
<CAPTION>
Uses of Funds Amount Percent
- ------------- -------- --------
<S> <C> <C>
Purchase Price per share $ 20.0
Shares Purchased 4.02
--------
Purchase Price 80.4 56.3%
Refinancing Existing Debt 56.4 39.4%
Tender Premium 0.0 0.0%
Estimated Fees & Expenses 6.1 4.3%
Excess Cash 0.0 0.0%
-------- --------
Total Uses $ 142.8 100.0%
======== ========
</TABLE>
- -------------------------------------------------------------------------------
SUMMARY INFORMATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended on or about August 31,
------------------------------------------------------------------------------
Pro Forma Projected
LTM -----------------------------------------------------------------------------
11/30/97 1998 1999 2000 2001 2002 2003
--------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 182.0 $ 194.6 $ 209.7 $ 225.9 $ 243.4 $ 262.4 $ 282.8
Sales Growth 10.6% 7.7% 7.7% 7.8% 7.8% 7.8%
EBITDA 23.2 26.9 30.6 34.1 38.0 42.3 46.9
Margins
EBITDA Margin 12.7% 13.8% 14.6% 15.1% 15.6% 16.1% 16.6%
Gross Margin 28.6% 28.3% 28.4% 28.5% 28.5% 28.6% 28.6%
Total Interest Expense 13.9 13.8 13.5 13.0 12.2 11.2 10.5
PIK Preferred Cash Dividends 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Capital Expenditures 3.6 4.0 4.0 4.0 4.0 4.0 4.0
Revolving Credit Facility 2.8 0.7 0.0 0.0 0.0 0.0 0.0
A Term Loan 40.0 40.0 35.3 27.7 17.6 4.5 0.0
Total Debt 142.8 140.7 135.3 127.7 117.6 104.5 100.0
PIK Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Shareholders' Equity (29.7) (28.3) (24.4) (18.1) (9.0) 3.2 18.9
Incremental Debt Capacity (2.0x
EBITDA/Total Interest, at 9%) (4.3) 19.4 45.3 75.4 110.4 144.2
EBITDA/Total Interest Expense 1.7x 1.9x 2.3x 2.6x 3.1x 3.8x 4.5x
EBITDA/Cash Interest Expense 1.7x 2.0x 2.3x 2.7x 3.2x 3.9x 4.6x
EBITDA-CapEx/Total Interest Expense 1.4x 1.7x 2.0x 2.3x 2.8x 3.4x 4.1x
Total Debt/EBITDA 6.2x 5.2x 4.4x 3.7x 3.1x 2.5x 2.1x
Total Debt/Total Capitalization 126.3% 125.1% 122.0% 116.5% 108.3% 97.0% 84.1%
</TABLE>
- -------------------------------------------------------------------------------
SENSITIVITY ANALYSIS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Purchase Price Per Share $ 20.0 $ 21.0 $ 22.0 $ 23.0 $ 24.0 $ 25.0
Total Debt/LTM EBITDA 6.2x 6.3x 6.5x 6.7x 6.9x 7.0x
</TABLE>
<PAGE> 54
CONFIDENTIAL INITIAL CASE
- -------------------------------------------------------------------------------
PROJECTED INCOME STATEMENTS - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 2
[Dollars in Millions]
<TABLE>
<CAPTION>
Year Ended on or about August 31,
----------------------------------------------------------------------------------------
Pro Forma Projected
--------- ----------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
--------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Sales 176.0 194.6 209.7 225.9 243.4 262.4 282.8 304.9 328.7 354.5
COGS 125.7 139.5 150.1 161.6 174.0 187.4 201.9 217.5 234.4 252.6
S,G & A 31.4 32.2 33.0 34.1 35.3 36.6 37.9 39.2 40.6 42.1
EBITDA 22.5 26.9 30.6 34.1 38.0 42.3 46.9 52.1 57.6 63.7
Depreciation 3.6 4.2 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3
Amortization of Goodwill 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
EBIT 15.0 18.8 22.4 26.0 29.9 34.2 38.8 44.0 49.5 55.6
Interest Expense
Revolving Credit Facility 0.4 0.3 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1
A Term Loan 3.4 3.4 3.2 2.7 1.9 0.9 0.2 0.0 0.0 0.0
B Term Loan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Senior Subordinated Notes 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9
Amortization of Financing Fees 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Interest Expense 13.9 13.8 13.5 13.0 12.2 11.2 10.5 10.3 10.3 10.3
Interest Income 0.0 0.0 0.0 0.0 0.0 0.0 0.3 1.1 2.2 3.4
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Interest Expense 13.9 13.8 13.5 12.9 12.2 11.2 10.2 9.2 8.1 6.9
Other Expenses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Pre-Tax Income 1.1 5.0 9.0 13.1 17.7 23.0 28.7 34.8 41.3 48.7
Income Taxes(a) 2.0 3.6 5.1 6.8 8.6 10.8 13.0 15.5 18.1 21.0
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Income (0.9) 1.5 3.8 6.3 9.1 12.3 15.7 19.3 23.3 27.7
PIK Preferred Dividends 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Income Available to Common $ (0.9) $ 1.5 $ 3.8 $ 6.3 $ 9.1 $ 12.3 $ 15.7 $ 19.3 $ 23.3 $ 27.7
</TABLE>
Notes:
(a) Assumes an effective tax rate of 40.0%.
<PAGE> 55
CONFIDENTIAL INITIAL CASE
- -------------------------------------------------------------------------------
PROJECTED BALANCE SHEET - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 3
[Dollars in Millions]
<TABLE>
<CAPTION>
Year Ended on or about August 31,
-------------------------------------------------------------------------------------------
Pro Forma Projected
--------- -------------------------------------------------------------------------------------------
11/30/97 1998 1999 2000 2001 2002 2003 2004 2005 2006
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash $ 0.5 $ 1.0 $ 1.0 $ 1.0 $ 1.0 $ 1.0 $ 12.6 $ 32.1 $ 55.2 $ 82.4
Other Current Assets(a) 58.8 65.6 70.4 75.6 81.2 87.2 93.7 100.7 108.3 116.5
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total 59.3 66.6 71.4 76.6 82.2 88.2 106.3 132.9 163.6 198.9
PP&E 20.6 20.4 20.2 19.9 19.6 19.4 19.1 18.8 18.6 18.3
Other Fixed Assets 12.9 12.9 12.9 12.9 12.9 12.9 12.9 12.9 12.9 12.9
Goodwill & Intangibles 38.6 34.7 30.9 27.0 23.1 19.3 15.4 11.6 7.7 3.9
Deferred Financing Costs 3.0 2.7 2.4 2.1 1.8 1.5 1.2 0.9 0.6 0.3
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Assets $ 134.4 $ 137.3 $ 137.7 $ 138.5 $ 139.6 $ 141.2 $ 154.9 $ 177.0 $ 203.3 $ 234.3
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Liabilities
Current Liabilities $ 21.3 $ 24.9 $ 26.8 $ 28.8 $ 31.1 $ 33.5 $ 36.0 $ 38.8 $ 41.8 $ 45.1
Debt:
Existing Debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Revolving Credit Facility 2.8 0.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
A Term Loan 40.0 40.0 35.3 27.7 17.6 4.5 0.0 0.0 0.0 0.0
B Term Loan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Senior Subordinated Notes 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Debt 142.8 140.7 135.3 127.7 117.6 104.5 100.0 100.0 100.0 100.0
Other Long-Term Liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Minority Interests 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
PIK Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Shareholders' Equity (29.7) (28.3) (24.4) (18.1) (9.0) 3.2 18.9 38.2 61.5 89.2
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Liabilities &
Shareholders' Equity $ 134.4 $ 137.3 $ 137.7 $ 138.4 $ 139.6 $ 141.2 $ 154.9 $ 177.0 $ 203.3 $ 234.3
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
0.0 0.0 (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) 0.0 (0.0)
BALANCE SHEET STATISTICS
- ------------------------------------------------------------------------------------------------------------------------------------
Days Current Assets 122.0 123.1 122.6 122.1 121.7 121.3 121.0 120.6 120.3 120.0
Days Current Liabilities 61.8 65.2 65.2 65.2 65.2 65.2 65.2 65.2 65.2 65.2
====================================================================================================================================
</TABLE>
- -----------------
(a) Other Current Assets includes Inventory, Accounts Receivable and Prepaid
Expenses.
<PAGE> 56
CONFIDENTIAL INITIAL CASE
- --------------------------------------------------------------------------------
PROJECTED CASH FLOW STATEMENT - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 4
[Dollars in Millions]
<TABLE>
<CAPTION>
Year Ended on or About August 31,
--------- ---------------------------------------------------------------------
Pro Forma Projected
--------- ---------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
--------- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA $22.5 $26.9 $30.6 $34.1 $38.0 $42.3 $46.9 $52.1 $57.6 $63.7
Less:
Capital Expenditures 4.9 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0
Net Cash Interest Expense 13.5 13.2 12.6 11.9 10.9 9.9 8.9 7.8 6.6
Cash PIK Preferred Dividends 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other Expenses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Taxes 3.6 5.1 6.8 8.6 10.8 13.0 15.5 18.1 21.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Total 21.1 22.3 23.4 24.5 25.6 26.9 28.3 29.9 31.6
Plus:
Working Capital Items:
Incr/(Decr) in Non-Cash Current Assets 6.8 4.8 5.2 5.6 6.0 6.5 7.0 7.6 8.2
(Incr)/Decr in Current Liabilities (3.6) (1.9) (2.1) (2.2) (2.4) (2.6) (2.8) (3.0) (3.3)
----- ----- ----- ----- ----- ----- ----- ----- -----
Change in Working Capital 3.2 2.9 3.1 3.4 3.6 3.9 4.2 4.6 5.0
Other:
Incr/(Decr) in Other Long Term Liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Cash Flow Available for Debt Service 2.6 5.4 7.6 10.1 13.1 16.1 19.5 23.1 27.2
Incr/(Decr) in Revolving Credit Facility (2.1) (0.7) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Incr/(Decr) in A Term Loan 0.0 (4.7) (7.6) (10.1) (13.1) (4.5) 0.0 0.0 0.0
Incr/(Decr) in B Term Loan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Incr/(Decr) in Senior Subordinated Notes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Net Cash Flow 0.5 0.0 0.0 0.0 0.0 11.6 19.5 23.1 27.2
Cash Balance
Minimum Cash Balance 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
Beginning Balance 0.5 0.5 1.0 1.0 1.0 1.0 1.0 12.6 32.1 55.2
Incr/(Decr) 0.0 0.5 0.0 0.0 0.0 0.0 11.6 19.5 23.1 27.2
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Ending Balance 0.5 1.0 1.0 1.0 1.0 1.0 12.6 32.1 55.2 82.4
Average Balance 0.5 0.8 1.0 1.0 1.0 1.0 6.8 22.4 43.7 68.8
Interest Income 5.000% 0.0 0.0 0.1 0.1 0.1 0.1 0.3 1.1 2.2 3.4
</TABLE>
<PAGE> 57
CONFIDENTIAL INITIAL CASE
- --------------------------------------------------------------------------------
BALANCE SHEET ADJUSTMENTS - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 5
[Dollars in Millions]
<TABLE>
<CAPTION>
Actual Pro Forma
--------- Financing Accounting -----------
11/30/97 Adjustments Adjustments 11/30/97
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Cash $ 0.5 $ 86.5 $ (86.5) $ 0.5
Other Current Assets 58.8 58.8
------- -------- --------- -------
Total 59.3 86.5 (86.5) 59.3
PP&E 20.6 20.6
Other Long-Term Assets 12.9 12.9
Goodwill & Intangibles 38.6 0.0 38.6
Deferred Financing Costs 0.0 3.0 3.0
------- -------- --------- -------
Total Assets $ 131.4 $ 86.5 $ (83.5) $ 134.4
======= ======== ========= =======
Liabilities
Current Liabilities $ 21.3 $ 21.3
Debt:
Existing Debt 56.4 (56.4) 0.0
Working Capital Revolver 0.0 2.8 2.8
A Term Loan 0.0 40.0 40.0
B Term Loan 0.0 0.0 0.0
Senior Subordinated Notes 0.0 100.0 100.0
------- -------- --------- -------
Total Debt 56.4 86.5 0.0 142.8
Other Long-Term Liabilities 0.0 0.0
Minority Interests 0.0 0.0
PIK Preferred 0.0 0.0 0.0
Shareholders' Equity 53.8 0.0 (83.5) (29.7)
------- -------- --------- -------
Total Liabilities & Shareholders' Equity $ 131.4 $ 86.5 $ (83.5) $ 134.4
======= ======== ========= =======
0.0 0.0 0.0 0.0
</TABLE>
<PAGE> 58
CONFIDENTIAL INITIAL CASE
- -------------------------------------------------------------------------------
CAPITALIZATION SCHEDULES - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 6
[Dollars in Millions]
<TABLE>
<CAPTION>
Year Ended on or about August 31,
------------------------------------------------------------------------------
Pro Forma Projected
LTM ------------------------------------------------------------------------------
Rates 11/30/97 1998 1999 2000 2001 2002 2003 2004 2005 2006
------- ---------- ------ ------ ------ ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revolving Credit Facility 8.500%
Beginning Balance 2.8 2.8 0.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Additions/(Payments) 0.0 (2.1) (0.7) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Ending Balance 2.8 0.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Undrawn Portion 0.500% 22.2 24.3 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0
Interest on Undrawn Portion 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Average Balance 2.8 1.8 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Interest Expense 0.4 0.3 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1
A Term Loan 8.500%
Beginning Balance 40.0 40.0 40.0 35.3 27.7 17.6 4.5 0.0 0.0 0.0
Additions/(Payments) 0.0 0.0 (4.7) (7.6) (10.1) (13.1) (4.5) 0.0 0.0 0.0
------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Ending Balance 40.0 40.0 35.3 27.7 17.6 4.5 0.0 0.0 0.0 0.0
Average Balance 40.0 40.0 37.7 31.5 22.7 11.1 2.3 0.0 0.0 0.0
Interest Expense 3.4 3.4 3.2 2.7 1.9 0.9 0.2 0.0 0.0 0.0
B Term Loan 8.750%
Beginning Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Additions/(Payments) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Ending Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Average Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Interest Expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Senior Subordinated Notes 9.875%
Beginning Balance 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Additions/(Payments) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Ending Balance 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Average Balance 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Interest Expense 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9 9.9
PIK Preferred 0.000%
Beginning Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Accreted Interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Ending Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Average Balance 0.0 0.0 0.0 0.0
Interest Expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
</TABLE>
<PAGE> 59
CONFIDENTIAL INITIAL CASE
- --------------------------------------------------------------------------------
INTERNAL RATE OF RETURN OF EQUITY - NORWOOD PROMOTIONAL PRODUCTS, INC. Page 7
[U.S. Dollars in Millions, except per share value]
<TABLE>
<CAPTION>
Projected FYE on or about August 31,
-------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
EBITDA $ 26.9 $ 30.6 $ 34.1 $ 38.0 $ 42.3 $ 46.9
FIRM VALUE @ EBITDA MULTIPLE OF:
6.00x $ 161.5 $ 183.4 $ 204.7 $ 228.1 $ 254.1 $ 281.6
7.00x 188.4 213.9 238.8 266.1 296.4 328.6
8.00x 215.3 244.5 272.9 304.2 338.8 375.5
Less: Total Debt $(140.7) $ (135.3) $ (127.7) $ (117.6) $ (104.5) $ (100.0)
Plus: Cash 1.0 1.0 1.0 1.0 1.0 12.6
Less: Other Deductions -- -- -- -- -- --
------- -------- -------- -------- -------- --------
Total Deductions to Equity $(139.7) $ (134.3) $ (126.7) $ (116.6) $ (103.5) $ (87.4)
EQUITY VALUE @ EBITDA MULTIPLE OF:
6.00x $ 21.8 $ 49.0 $ 78.0 $ 111.5 $ 150.6 $ 194.2
7.00x 48.7 79.6 112.1 149.5 192.9 241.2
8.00x 75.6 110.2 146.2 187.6 235.3 288.1
</TABLE>
<TABLE>
<CAPTION>
Pre-tax IRR Summary Analysis for Management's Equity Interest
- --------------------------------------------------------------------------------------------------------------------------
Net Equity Holders
Equity Ownership % EBITDA Multiple 1998 1999 2000 2001 2002 2003
------ ------------------ --------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$20.8 100.0% 6.00x 4.6% 53.4% 55.2% 52.1% 48.5% 45.1%
7.00x 133.7% 95.4% 75.2% 63.7% 56.0% 50.4%
8.00x 262.8% 129.9% 91.4% 73.2% 62.4% 54.9%
</TABLE>
<TABLE>
<CAPTION>
Pre-tax Value Analysis for Management's Equity Interest
- --------------------------------------------------------------------------------------------------------------------------
Net Management
Ownership % EBITDA Multiple 1998 1999 2000 2001 2002 2003
------------------ --------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
100.0% 6.00x $21.8 $49.0 $78.0 $111.5 $150.6 $194.2
7.00x 48.7 79.6 112.1 149.5 192.9 241.2
8.00x 75.6 110.2 146.2 187.6 235.3 288.1
</TABLE>
<PAGE> 60
NORWOOD PROMOTIONAL PRODUCTS
- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS-EBITDA MULTIPLE METHOD Page 10
(Dollars in millions)
<TABLE>
<CAPTION>
PROJECTED FYE AUGUST 31
--------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 194.6 $ 209.7 $ 225.9 $ 243.4 $ 262.4 $ 282.8 $ 304.9
EBITDA 26.9 30.6 34.1 38.0 42.3 46.9 52.1
Less: Depreciation (4.2) (4.3) (4.3) (4.3) (4.3) (4.3) (4.3)
------- ------- ------- ------- ------- ------- -------
EBITA 22.7 26.3 29.9 33.8 38.1 42.7 47.8
Less: Taxes @ 40.0% (9.1) (10.5) (11.9) (13.5) (15.2) (17.1) (19.1)
------- ------- ------- ------- ------- ------- -------
Tax-effected EBITA 13.6 15.8 17.9 20.3 22.9 25.6 28.7
Plus: Depreciation 4.2 4.3 4.3 4.3 4.3 4.3 4.3
Plus: Change in Deferred Taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Less: Capital Expenditures (4.0) (4.0) (4.0) (4.0) (4.0) (4.0) (4.0)
Less: Changes in Working Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------- ------- ------- ------- ------- ------- -------
Free Cash Flow $ 13.8 $ 16.0 $ 18.2 $ 20.5 $ 23.1 $ 25.9 $ 29.0
</TABLE>
<TABLE>
<CAPTION>
A + B = C
-------------- --------------------------- -----------------------------
DISCOUNTED (a) PV OF TERMINAL VALUE AS A
CASH FLOWS MULTIPLE OF 2004 EBITDA (b) FIRM VALUE
--------------------------- -----------------------------
WEIGHTED AVERAGE COST OF CAPITAL 1998-2004 6.0x 7.0x 8.0x 6.0x 7.0x 8.0x
- -------------------------------- -------------- --------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
11.0% $93.8 $150.5 $175.6 $200.7 $244.3 $269.4 $294.5
11.5% 92.1 145.8 170.1 194.5 237.9 262.2 286.5
12.0% 90.4 141.3 164.9 188.5 231.8 255.3 278.9
12.5% 88.8 137.0 159.8 182.7 225.8 248.7 271.5
13.0% 87.3 132.8 155.0 177.1 220.1 242.2 264.4
<CAPTION>
- D = E
-------------- ---------------------------
NET DEBT TOTAL EQUITY VALUE EQUITY VALUE PER SHARE (c)
--------------------------- -----------------------------
WEIGHTED AVERAGE COST OF CAPITAL 35673 6.0x 7.0x 8.0x 6.0x 7.0x 8.0x
- -------------------------------- -------------- --------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
11.0% $55.9 $188.4 $213.5 $238.6 $37.22 $42.18 $47.13
11.5% 55.9 182.1 206.4 230.7 $35.97 $40.77 $45.57
12.0% 55.9 175.9 199.5 223.0 $34.75 $39.41 $44.06
12.5% 55.9 170.0 192.8 215.7 $33.58 $38.09 $42.60
13.0% 55.9 164.2 186.4 208.5 $32.44 $36.82 $41.19
-----------------------------
<CAPTION>
PRESENT VALUE OF
TERMINAL VALUE AS A % OF
FIRM VALUE
- ----------------------------
6.0 7.0 8.0
- ----------------------------
<S> <C> <C>
61.6% 65.2% 68.1%
61.3% 64.9% 67.9%
61.0% 64.6% 67.6%
60.7% 64.3% 67.3%
60.3% 64.0% 67.0%
</TABLE>
- ----------------------------------
(a) Present values calculated as of August 31, 1997.
(b) Discounted 7 years; based on FYE August 31, 2004 EBITDA of $52.1 million.
(c) Based on 5.1 million shares outstanding.
<PAGE> 61
- -------------------------------------------------------------------------------
COMPARABLE COMPANY PUBLIC MULTIPLES ANALYSIS
- -------------------------------------------------------------------------------
<PAGE> 62
ANALYSIS OF VALUATION MULTIPLES OF COMPARABLE PROMOTIONAL PRODUCTS COMPANIES
- --------------------------------------------------------------------------------
Public Market Multiples
<TABLE>
<CAPTION>
MARKET VALUE OF EQUITY AS A MULTIPLE OF:
--------------------------------------------
LTM LTM
PRICE MARKET MARKET NET TO 1997E 1998E CASH LFQ
COMPANY DEC-2-97 VALUE CAP.(a) COMMON EPS.(b) EPS(b) FLOW(c) EQUITY
------- -------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. COMPANIES
Cyrk Inc.(d) $ 11.63 $159.1 $160.2 48.2 NA NA 14.4 1.00
Equity Marketing Inc.(d) 29.00 173.2 160.5 20.6 18.6 15.3 17.7 5.36
HA-LO Industries 26.44 546.6 582.3 42.4 35.3 26.2 32.7 7.15
Swiss Army Brands 10.25 84.1 84.9 NM NM 22.8 NM 1.09
EUROPEAN COMPANIES
Bemrose Corporation $ 6.87 $291.3 $336.0 11.6x 10.5x 9.3x 7.7x 3.34x
---------------------------------------------------------------
Minimum(e) 11.6x 10.5x 9.3x 7.7x 1.00x
Mean(e) 30.7 21.4 18.4 18.1 3.59x
Median(e) 31.5 18.6 19.1 16.0 3.34x
Maximum(e) 48.2 35.3 26.2 32.7 7.15x
---------------------------------------------------------------
NORWOOD PROMOTIONAL PRODUCTS $14.88 $75.4 $134.2 10.5x 12.9x 10.9x 5.6x 1.47x
<CAPTION>
MARKET CAPITALIZATION AS
A MULTIPLE OF:
-------------------------
LTM LTM LTM
COMPANY SALES EBITDA EBIT
------- ------ ------- ------
<S> <C> <C> <C>
U.S. COMPANIES
Cyrk Inc.(d) 0.35 8.4 11.5
Equity Marketing Inc.(d) 1.23 11.1 12.2
HA-LO Industries 1.99* 22.2* 26.7*
Swiss Army Brands 0.70 NM* NM
EUROPEAN COMPANIES
Bemrose Corporation 1.04x 6.3x 8.1x
-------------------------
Minimum(e) 0.35x 6.3x 8.1x
Mean(e) 0.83x 8.6 10.6
Median(e) 0.87x 8.4 11.5
Maximum(e) 1.23x 11.1 12.2
-------------------------
NORWOOD PROMOTIONAL PRODUCTS 0.76x 5.8x 9.0x
</TABLE>
- ---------------
Dollar amounts in U.S. millions except per share data and if otherwise
stated.
(a) Market Capitalization = Market Value of Equity + Preferred Equity +
Short-Term Debt + Long-Term Debt + Minority Interest - Cash & Marketable
Securities.
(b) Earnings Estimates were obtained from First Call as of Dec-2-97 and
calendarized when necessary.
(c) Cash Flow = Income Available to Common + DD&A + Deferred Taxes + Earnings of
Unconsolidated Subsidiaries.
(d) Insufficient detail available to adjust financials for recent acquisitions.
(e) Summary Multiples exclude numbers that are Negative, Not Available, Not
Meaningful or (*) items.
<PAGE> 63
ANALYSIS OF VALUATION MULTIPLES OF COMPARABLE PROMOTIONAL PRODUCTS COMPANIES
- --------------------------------------------------------------------------------
Summary Credit Statistics
<TABLE>
<CAPTION>
CREDIT RATINGS
SENIOR DEBT LTM LTM (EBITDA- TOTAL NEW DEBT/ TOTAL
-------------- EBITDA/ EBITDA/ CAPEX)/ DEBT/ NET DEBT/
COMPANY MOODY'S S&P GROSS INT. NET INT. GROSS INT. TOTAL CAP BOOK CAP EBITDA
- ----------------------------- ------- --- ---------- -------- ---------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bemrose Corporation - - 15.5x 15.5x 14.3x 33.9% 33.9% 0.8x
Cyrk Inc. - - 4.8 4.9 3.6x 19.3% 0.7% 0.5
Equity Marketing Inc. - - NM NM NM 0.0% NM 0.0
HA-LO Industries - - 28.0 NM 23.4x 33.2% 31.8% 1.3
NORWOOD PROMOTIONAL PRODUCTS - - 7.7 7.7 6.1x 54.5% 53.4% 2.6
Swiss Army Brands - - NM 18.2 NM 2.1% 1.0% 0.0
</TABLE>
- ------------------------------------------
Definitions:
Gross Interest = Gross Interest incurred before subtracting (i) capitalized
interest, (ii) interest income.
FFO = Funds From Operations = Net income from continuing operations plus
depreciation, amortization, deferred income taxes, and other noncash
items.
<PAGE> 64
ANALYSIS OF VALUATION MULTIPLES OF COMPARABLE PROMOTIONAL PRODUCTS COMPANIES
- -------------------------------------------------------------------------------
Summary Data for Selected Industry Comparables
<TABLE>
<CAPTION>
LTM LTM LFQ
NET TO 1997E 1998E LTM LTM LTM CASH COMMON LTM
COMPANY SHARES COMMON EPS(a) EPS(a) SALES EBITDA EBIT FLOW(b) EQUITY FYE ENDED
- ---------------------------- ------ ------ ------ ------ ------ ------ ----- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bemrose Corporation 42.4 $25.1 $0.66 $0.74 $321.7 $53.1 $41.6 $38.1 $87.2 Dec-96 Jun-97
Cyrk Inc. 13.7 3.3 NA NA 460.7 19.1 14.0 11.1 159.8 Dec-96 Sep-97
Equity Marketing Inc. 6.0 8.4 1.56 1.89 130.9 14.5 13.1 9.8 32.3 Dec-96 Sep-97
HA-LO Industries 20.7 12.9 0.75 1.01 292.9 26.2 21.8 16.7 76.4 Dec-96 Sep-97
NORWOOD PROMOTIONAL PRODUCTS 5.1 7.1 1.15 1.37 175.8 23.1 15.0 13.5 51.3 AUG-97 AUG-97
Swiss Army Brands 8.2 (2.9) 0.00 0.45 121.6 (1.9) (4.0) (2.5) 77.0 Dec-96 Sep-97
</TABLE>
- ---------------
Dollar amounts in U.S. millions except per share data and if otherwise stated.
(a) Earnings Estimates were obtained from First Call as of Dec-2-97 and
calendarized when necessary.
(b) Cash Flow = Income Available to Common + DD&A + Deferred Taxes + Earnings of
Unconsolidated Subsidiaries.
<PAGE> 65
ANALYSIS OF CAPITAL STRUCTURE OF COMPARABLE PROMOTIONAL PRODUCTS COMPANIES
- --------------------------------------------------------------------------------
Summary Data for Selected Industry Comparables
<TABLE>
<CAPTION>
MARKET CASH & PREFERRED MINORITY MARKET
COMPANY VALUE EQUIVALENTS ST DEBT LT DEBT EQUITY INTEREST CAP.(a)
- ----------------------------- ------ ----------- ------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Bemrose Corporation $291.3 $ 0.0 $ 0.0 $44.7 $0.0 $0.0 $336.0
Cyrk Inc. 159.1 36.9 28.4 9.7 0.0 0.0 160.2
Equity Marketing Inc. 173.2 12.7 0.0 0.0 0.0 0.0 160.5
HA-LO Industries 546.6 2.3 5.3 32.7 0.0 0.0 582.3
NORWOOD PROMOTIONAL PRODUCTS 75.4 2.6 2.4 59.1 0.0 0.0 134.2
Swiss Army Brands 84.1 0.9 1.6 0.0 0.0 0.0 84.9
</TABLE>
- ------------------------------------------
Dollar amounts in U.S. millions except per share data and if otherwise stated.
(a) Market Capitalization = Market Value of Equity + Preferred Equity +
Short-Term Debt + Long-Term Debt + Minority Interest - Cash & Marketable
Securities.
<PAGE> 66
- --------------------------------------------------------------------------------
COMPARABLE COMPANY ACQUISITION MULTIPLES ANALYSIS
- --------------------------------------------------------------------------------
<PAGE> 67
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
Acquisition Multiples for Comparable Manufacturing Companies
(Dollars in millions)
<TABLE>
<CAPTION>
ANNOUNC. OFFER
DATE ACQUIROR TARGET/DESCRIPTION VALUE
- -------- -------- ------------------ -----
<S> <C> <C> <C>
1/29/97 Norwood Promotional Products Wesburn Golf $ 7.0
Manufactures logo imprinted golf balls
4/4/96 Norwood Promotional Products Alpha Products 6.7
Manufactures plastic drinking cups
1/23/96 Norwood Promotional Products Tee-Off Enterprises 7.5
Manufactures custom-imprinted golf balls
7/31/95 Norwood Promotional Products BTS Group 9.8
Manufactures signs and advertising
products
4/1/95 Norwood Promotional Products Air-Tex 15.8
Manufactures promotional products
2/22/95 Norwood Promotional Products Designer Plastics 3.9
Manufactures plastic promotional bags
12/14/94 Norwood Promotional Products Bob Allen Companies 16.8
Manufactures luggage
8/10/94 Norwood Promotional Products Ocean Specialty Manufacturing 3.5
3/29/94 Norwood Promotional Products ArtMold Products 13.1
Manufactures promotional products
including keychains, golf tees, hats and
pens
2/22/94 Norwood Promotional Products Key Industries Inc. 9.5
Manufactures promotional and advertising
products
<CAPTION>
OFFER VALUE TRANSACTION VALUE
AS A MULTIPLE OF: AS A MULTIPLE OF:
-------------------- -------------------
ANNOUNC. TRANS. NET CASH BOOK
DATE VALUE(a) INCOME FLOW(b) VALUE EBITDA EBIT SALES
- -------- -------- ------ ------- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1/29/97 $ 7.0 - - - - - 0.44
4/4/96 9.9 - 5.4 - - - 0.61
1/23/96 9.2 6.3 6.3 - - 8.2 1.01
7/31/95 11.2 - - - - 39.6 1.52
4/1/95 18.2 - - - - - -
2/22/95 4.9 - - - - 57.6* 0.91
12/14/94 19.2 316.0* - - - 103.5* 2.41*
8/10/94 4.9 - - - - - 0.67
3/29/94 14.2 - - - - - 1.10
2/22/94 11.9 10.6 10.6 - - - 0.99
-----------------------------------------------------
MAXIMUM 10.6x 10.6x - - 39.6x 1.52x
MEAN 8.4 7.4 - - 23.9 0.91x
MEDIAN 8.4 6.3 - - 23.9 0.95x
MINIMUM 6.3 5.4 - - 8.2 0.44x
-----------------------------------------------------
</TABLE>
- ---------------
(a) Transaction Value = Offer Value + Preferred Equity at Liquidation Value +
Long Term Debt + Short Term Debt + Minority Interest - Cash & Marketable
Securities - Exercisable Options Proceeds.
(b) Cash Flow = Net Income + Depreciation & Amortization + Deferred Taxes.
<PAGE> 68
VALUATION ANALYSIS
- -------------------------------------------------------------------------------
Acquisition Multiples for Comparable Distributors
(Dollars in millions)
<TABLE>
<CAPTION>
ANNOUNC. OFFER
DATE ACQUIROR TARGET/DESCRIPTION VALUE
- -------- --------------------------------------- ---------------------------------------- -----
<S> <C> <C> <C>
6/4/97 HA-LO Industries Lees/Keystone Inc. $ 4.0
Distributor of specialty and premium Distributor of promotional products
promotional products
5/8/97 Cyrk, Inc. Simon Marketing 58.0
Manufacturer of custom-imprinted Global promotion agency and provider of
promotional products and sports apparel custom promotional products
4/8/97 Cyrk, Inc. Tonkin Inc. 22.0
Manufacturer of custom-imprinted Promotional products and catalog company
promotional products and sports apparel
10/29/96 HA-LO Industries Creative Concepts in Advertising 75.9
Distributor of specialty and premium Distributor of promotional products
promotional products
12/22/95 HA-LO Industries Fletcher-Barnhardt & White 10.2
Distributor of specialty and premium Distributor of specialty advertising
promotional products products
<CAPTION>
OFFER VALUE TRANSACTION VALUE
AS A MULTIPLE OF: AS A MULTIPLE OF:
------------------------- -----------------------
ANNOUNC. TRANS. NET CASH BOOK
DATE VALUE (a) INCOME FLOW (b) VALUE EBITDA EBIT SALES
- -------- --------- ------ -------- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
6/4/97 $ 4.0 -- -- -- -- -- 0.40
5/8/97 39.2 380.9 * 52.6 7.0 10.1 13.4 0.10
4/8/97 22.0 -- -- -- -- -- 0.55
10/29/96 98.8 -- -- -- 169.5 * -- 1.46
12/22/95 13.0 46.8 30.0 8.2 26.6 35.5 0.31
-------------------------------------------------------------------
Maximum 46.8x 52.6x 8.2x 26.6x 35.5x 1.46x
Mean 46.8 41.3 7.6 18.4 24.4 0.56x
Median 46.8 41.3 7.6 18.4 24.4 0.40x
Minimum 46.8 30.0 7.0 10.1 13.4 0.10x
-------------------------------------------------------------------
</TABLE>
- ---------------------
(a) Transaction Value = Offer Value + Preferred Equity at Liquidation Value +
Long Term Debt + Short Term Debt + Minority Interest - Cash & Marketable
Securities - Exercisable Options Proceeds.
(b) Cash Flow = Net Income + Depreciation & Amortization
<PAGE> 1
EXHIBIT 99(d)(1)
PRELIMINARY PROXY STATEMENT
<PAGE> 2
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only
(as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
NORWOOD PROMOTIONAL PRODUCTS, 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):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(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):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$16,971
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Schedule 13E-3
- --------------------------------------------------------------------------------
(3) Filing Party:
Norwood Promotional Products, Inc.
- --------------------------------------------------------------------------------
(4) Date Filed:
April 29, 1998
- --------------------------------------------------------------------------------
<PAGE> 3
NORWOOD PROMOTIONAL PRODUCTS, INC.
106 E. SIXTH STREET
SUITE 300
AUSTIN, TEXAS 78701
, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
(including any adjournments or postponements thereof, the "Meeting") of Norwood
Promotional Products, Inc. (the "Company") to be held on ,
, 1998 at 10:00 a.m., local time, in the [San Jacinto Room] at The Four
Seasons Hotel, 98 San Jacinto Boulevard, Austin, Texas.
At the Meeting, you will be asked to consider and vote upon proposals to
(1) adopt an amendment to the articles of incorporation of the Company (the
"Charter Amendment") that would change the shares of the common stock of the
Company (the "Common Stock") from shares without par value into shares with a
par value of $.01 per share and authorize the Board of Directors of the Company
(the "Board") to establish and issue one or more series of serial preferred
stock, and (2) approve the merger (the "Merger") of a wholly-owned subsidiary
("Newco") of FPK, LLC ("LLC") with and into the Company, with the Company
continuing as the surviving corporation (the "Surviving Corporation"), pursuant
to an Agreement and Plan of Merger dated as of March 15, 1998, as amended (the
"Merger Agreement"), by and between the Company and LLC, and the other terms of
the Merger Agreement. The adoption of the Charter Amendment is a condition to
the consummation of the Merger under the Merger Agreement. A copy of the Merger
Agreement is attached to the accompanying Proxy Statement as Appendix A. If the
Charter Amendment is adopted by the shareholders, it will be filed and will
become effective whether or not the Merger Agreement is approved or the Merger
is consummated.
Subject to the terms and conditions of the Merger Agreement, at the
effective time of the Merger (the "Effective Time"), each share of Common Stock
outstanding immediately prior to the Effective Time (other than shares held by
the Company or any of its subsidiaries as treasury stock, shares held by the
Buyout Group (as defined below) and shares held by dissenting shareholders who
have validly exercised and perfected their rights under Texas law) will be
converted into the right to receive $20.70 in cash (the "Merger Consideration").
Frank P. Krasovec is the Chairman, President and Chief Executive Officer of
the Company and is a member of the Buyout Group. Mr. Krasovec beneficially owns
all the interests in LLC. All of the capital stock of Newco, when formed, will
be beneficially owned by LLC. John H. Josephson, a director of the Company, is
also a member of the Buyout Group. As of June 23, 1998 (the "Record Date"), Mr.
Krasovec and the other shareholders of the Company who will continue to own
shares of common stock in the Surviving Corporation (the "Buyout Group")
beneficially owned 660,917 and 466,543 shares of Common Stock, respectively
(representing approximately 13.0% and 8.9%, respectively, of the outstanding
Common Stock).
Pursuant to the Texas Business Corporation Act, the affirmative vote of
holders of at least two-thirds of the shares of Common Stock outstanding as of
the Record Date is required to adopt the Charter Amendment and approve the
Merger Agreement. It is anticipated that the members of the Buyout Group and
their spouses will vote the 982,655 shares of Common Stock held of record by
them, representing approximately 19.3% of the outstanding Common Stock, in favor
of the adoption of the Charter Amendment and the approval of the Merger
Agreement. In addition, it is anticipated that the members of the Board who are
not members of the Buyout Group will vote the 25,010 shares of Common Stock held
of record by them in favor of the Charter Amendment and the Merger Agreement.
At the Effective Time, in order to fund a portion of the costs of the
Merger, the Surviving Corporation will issue (i) shares of its common stock to
purchasers (which purchasers may include members of the Buyout Group) (the
"Additional Common Shareholders") for an aggregate of approximately $4 million,
and (ii) units of its preferred stock and common stock to purchasers for an
aggregate of $20.3 million (collectively,
<PAGE> 4
with the Additional Common Shareholders, the "New Shareholders"). Newco will be
formed by LLC in order to enable members of the Buyout Group and the New
Shareholders to acquire, through the Merger, all of the outstanding Common Stock
not already owned by the members of the Buyout Group. At the Effective Time, the
members of the Buyout Group will continue to beneficially own an aggregate of
1,127,460 shares of Common Stock that they held immediately prior to the
Effective Time. If the Merger is consummated, (i) the members of the Buyout
Group, along with the New Shareholders, will hold all of the outstanding capital
stock of the Surviving Corporation, and (ii) except as described in the Proxy
Statement, the holders of options, warrants and convertible debt instruments
entitling them to purchase or acquire shares of Common Stock, including members
of the Buyout Group, who do not exercise or convert such options, warrants or
convertible debt instruments prior to the Effective Time will continue to hold
such securities entitling them to purchase or acquire common stock of the
Surviving Corporation. The Company expects all directors who are not members of
the Buyout Group to exercise their warrants to purchase shares of Common Stock
prior to the Effective Time.
Due to the inherent conflicts of interest related to the Merger, the Board
appointed a Special Committee of the Board (the "Special Committee") comprised
of two of the directors of the Company, Robert L. Seibert and John H. Wilson
III, who are neither officers of the Company nor members of the Buyout Group, to
review, evaluate and negotiate the terms of the proposed Merger and to make a
recommendation to the Board concerning the fairness of the proposed Merger. The
Special Committee retained J.C. Bradford & Co., L.L.C. ("J.C. Bradford") to act
as its financial advisor. J.C. Bradford has delivered its written opinion to the
Special Committee to the effect that, as of the date hereof, the Merger
Consideration of $20.70 in cash per share of Common Stock to be received in the
Merger by the Company's shareholders other than members of the Buyout Group (the
"Public Shareholders") is fair to the Public Shareholders from a financial point
of view. A copy of J.C. Bradford's written opinion is attached as Appendix B to
the accompanying Proxy Statement.
For the reasons set forth in the attached Proxy Statement, upon the
recommendation of the Special Committee, the Board (with two interested
directors abstaining) has unanimously determined that the proposed Merger is in
the best interests of the Company and the Public Shareholders, approved the
terms of Merger Agreement and recommended that the Merger Agreement be approved
and adopted by the shareholders of the Company. Consummation of the Merger is
dependent upon adoption of the Charter Amendment. THE BOARD RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" ADOPTION OF THE CHARTER AMENDMENT AND APPROVAL OF THE
MERGER AGREEMENT.
Attached is a Notice of Special Meeting of Shareholders and a Proxy
Statement containing a description of the Charter Amendment and a discussion of
the background of, reasons for and terms of the Merger. You are urged to read
this material carefully. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE
ASKED TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. FAILURE TO
VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE CHARTER AMENDMENT AND THE
MERGER AGREEMENT. If you attend the Meeting, your proxy may be revoked if you
elect to vote in person. Your prompt cooperation will be greatly appreciated.
Very truly yours,
/s/ JAMES P. GUNNING, JR.
------------------------------------
James P. Gunning, Jr.,
Secretary
<PAGE> 5
NORWOOD PROMOTIONAL PRODUCTS, INC.
106 E. SIXTH STREET
SUITE 300
AUSTIN, TEXAS 78701
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of Norwood Promotional Products, Inc. (the "Company") will be held on
, 1998 at 10:00 a.m., local time, in the [San Jacinto Room] at
The Four Seasons Hotel, 98 San Jacinto Boulevard, Austin, Texas, for the
following purposes:
(1) To consider and vote upon a proposal to adopt an amendment to the
Company's articles of incorporation (the "Charter Amendment") to (a) change
the shares of the Company's common stock (the "Common Stock") from shares
without par value to shares with a par value of $.01 per share and (b)
authorize the Board of Directors of the Company (the "Board of Directors")
to establish and issue up to 1,000,000 shares in one or more series of
serial preferred stock;
(2) To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of March 15, 1998, as amended (the
"Merger Agreement"), between the Company and FPK, LLC ("LLC"), and the
merger of a wholly-owned subsidiary of LLC with and into the Company (the
"Merger") as contemplated by the Merger Agreement; and
(3) To transact such other business as may properly come before the
Meeting or any postponements or adjournments thereof.
Please read carefully the accompanying Proxy Statement. A copy of the
Merger Agreement is attached as Appendix A thereto and a copy of the proposed
Charter Amendment is attached as Appendix C thereto. The Proxy Statement and
Appendices thereto form a part of this Notice.
Only shareholders of record on the books of the Company at the close of
business on June 23, 1998, the record date fixed by the Board of Directors, are
entitled to notice of, and to vote at, the Meeting and any postponements or
adjournments thereof. A list of the shareholders entitled to vote at the Meeting
will be kept on file at the offices of the Company located at 106 E. Sixth
Street, Suite 300, Austin, Texas 78701 for a period of at least 10 days prior to
the Meeting and will also be available at the Meeting subject to inspection by
any shareholder as required by law.
In connection with the Merger, holders of Common Stock who comply with
certain requirements and procedures set forth in Articles 5.12 and 5.13 of the
Texas Business Corporation Act may be entitled to assert certain dissenters'
rights. A copy of Articles 5.12 and 5.13 of the Texas Business Corporation Act
is attached as Appendix D to the accompanying Proxy Statement.
You are cordially invited to attend the Meeting. WHETHER OR NOT YOU EXPECT
TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO MARK, SIGN, DATE AND MAIL THE
ENCLOSED PROXY CARD PROMPTLY SO THAT YOUR SHARES OF COMMON STOCK MAY BE
REPRESENTED AND VOTED IN ACCORDANCE WITH YOUR WISHES. Proxies should be mailed
promptly, but not later than , 1998. If you attend the Meeting, you
may revoke your proxy and vote in person.
<PAGE> 6
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. UPON APPROVAL OF
THE MERGER, YOU WILL BE SENT INSTRUCTIONS REGARDING THE PROCEDURES TO EXCHANGE
YOUR EXISTING CERTIFICATES EVIDENCING COMMON STOCK OF THE COMPANY FOR THE MERGER
CONSIDERATION.
By Order of the Board of Directors
/s/ JAMES P. GUNNING, JR.
------------------------------------
James P. Gunning, Jr.,
Secretary
Austin, Texas
, 1998
<PAGE> 7
NORWOOD PROMOTIONAL PRODUCTS, INC.
106 E. SIXTH STREET
SUITE 300
AUSTIN, TEXAS 78701
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1998
The accompanying proxy is solicited by and on behalf of the Board of
Directors (the "Board of Directors" or "Board") of Norwood Promotional Products,
Inc. (the "Company") for use at a Special Meeting of Shareholders to be held on
, , 1998, at 10:00 a.m., local time, in the
[San Jacinto Room] at The Four Seasons Hotel, 98 San Jacinto Boulevard, Austin,
Texas, and any postponements or adjournments thereof (the "Meeting"). The
matters to be considered and acted upon at the Meeting are described in the
foregoing Notice of Special Meeting of Shareholders and this Proxy Statement (as
defined below). This Proxy Statement and the related form of proxy are first
being mailed on or about , 1998 to all shareholders of
record as of June 23, 1998 (the "Record Date"). Shares of the Company's common
stock, no par value (the "Common Stock"), represented by proxies, will be voted
as hereinafter described or as otherwise specified in the proxy by the
shareholder. Any proxy given by a shareholder may be revoked by the shareholder
at any time, prior to the voting of the proxy, by delivering a written notice to
the Secretary of the Company, by executing and delivering a later-dated proxy or
by attending the Meeting and voting in person.
At the Meeting, holders of the Common Stock as of the Record Date will
consider and vote upon proposals to (1) adopt an amendment to the articles of
incorporation of the Company (the "Charter Amendment") that would change the
shares of the Common Stock from shares without par value into shares with a par
value of $.01 per share and authorize the Board of Directors to establish and
issue up to 1,000,000 shares in one or more series of serial preferred stock
("Serial Preferred Stock"), and (2) approve and adopt the merger (the "Merger")
of a wholly-owned subsidiary of FPK, LLC ("LLC") with and into the Company, with
the Company continuing as the surviving corporation (the "Surviving
Corporation") pursuant to an Agreement and Plan of Merger dated as of March 15,
1998, as amended (the "Merger Agreement"), by and between the Company and LLC,
and approve the other terms of the Merger Agreement. The Merger Agreement
provides, subject to the approval of two-thirds of the shareholders of the
Company at the Meeting and subject to the satisfaction or waiver of certain
other conditions, that: (a) a newly-formed, wholly-owned, corporate subsidiary
of LLC ("Newco") will be merged with and into the Company, with the Company
continuing as the Surviving Corporation; (b) each share of Common Stock that is
outstanding at the Effective Time (as hereinafter defined) of the Merger,
excluding shares of Common Stock held by the Company or any of its subsidiaries
as treasury stock, shares held by members of the Buyout Group (as hereinafter
defined), and shares held by dissenting shareholders who have validly exercised
and perfected their rights under Texas law (the "Dissenting Shareholders"), will
be converted into the right to receive $20.70 per share in cash, without
interest, subject to any applicable back-up withholding of taxes (the "Merger
Consideration"); and (c) except as provided herein, each existing option,
warrant and convertible debt instrument (each a "Company Stock Derivative")
relating to shares of Common Stock that is not exercised or converted prior to
the Effective Time shall continue to be outstanding on the same terms and
conditions as existed immediately prior to the Effective Time (except that the
term of all Company Stock Derivatives (other than convertible debt and employee
incentive stock options) will be extended for three years after the date of
their current expiration), except that upon exercise or conversion of each
Company Stock Derivative, the holder will receive common stock of the Surviving
Corporation rather than the Common Stock. If the Charter Amendment is adopted by
the shareholders, it will be filed and will become effective whether or not the
Merger is consummated.
Frank P. Krasovec ("Krasovec") is the Chairman, President and Chief
Executive Officer of the Company and is a member of the Buyout Group. Krasovec
beneficially owns all the interests in LLC. All of the capital stock of Newco,
when formed, will be beneficially owned by LLC. John H. Josephson ("Josephson"),
a director of the Company, is also a member of the Buyout Group. As of the
Record Date,
<PAGE> 8
Krasovec and the other shareholders of the Company who will continue to own
shares of common stock in the Surviving Corporation (the "Buyout Group")
beneficially owned 660,917 and 466,543 shares of Common Stock, respectively
(representing approximately 13.0% and 8.9%, respectively, of the outstanding
Common Stock).
At the Effective Time, in order to fund a portion of the costs of the
Merger, the Surviving Corporation will issue (i) shares of its common stock to
purchasers (which purchasers may include members of the Buyout Group) (the
"Additional Common Shareholders") for an aggregate of approximately $4 million,
and (ii) units of its preferred stock and common stock to purchasers (the
"Preferred Shareholders") for an aggregate of $20.3 million (collectively, with
the Additional Common Shareholders, the "New Shareholders"). Newco will be
formed by LLC in order to enable members of the Buyout Group and the New
Shareholders to acquire, through the Merger, all of the outstanding Common Stock
not already owned by the members of the Buyout Group (the "Public Stock"). At
the Effective Time, the members of the Buyout Group will continue to
beneficially own an aggregate of 1,127,460 shares of Common Stock that they held
immediately prior to the Effective Time.
Pursuant to the Texas Business Corporation Act (the "TBCA"), the
affirmative vote of holders of at least two-thirds of the outstanding shares of
Common Stock is required to adopt the Charter Amendment and approve the Merger
Agreement. It is anticipated that the members of the Buyout Group and their
spouses will vote the 982,655 shares of Common Stock held of record by them,
representing approximately 19.3% of the outstanding Common Stock, in favor of
the adoption of the Charter Amendment and the approval of the Merger Agreement.
In addition, it is anticipated that the members of the Board who are not members
of the Buyout Group will vote the 25,010 shares of Common Stock held of record
by them in favor of the adoption of the Charter Amendment and the approval of
the Merger Agreement. The Company expects all directors who are not members of
the Buyout Group to exercise their warrants to purchase shares of Common Stock
prior to the Effective Time.
The Board of Directors appointed a Special Committee of the Board (the
"Special Committee") to review, evaluate and negotiate the terms of the Merger
Agreement and to make a recommendation to the Board of Directors concerning the
fairness of the Merger. The Special Committee is comprised of two of the
directors, Robert L. Seibert and John H. Wilson III, who are neither officers of
the Company nor members of the Buyout Group (but who will receive cash in
exchange for their shares of Common Stock, including shares of Common Stock
issued to them upon exercise of their Company Stock Derivatives prior to the
Effective Time, upon consummation of the Merger). Based upon the unanimous
recommendation of the Special Committee, the Board of Directors (with Krasovec
and Josephson abstaining due to inherent conflicts of interest) unanimously
determined that the Merger is in the best interests of the Company and holders
of the Public Stock (the "Public Shareholders"), approved the terms of the
Merger Agreement and recommended that the Merger Agreement be approved by the
shareholders of the Company. The Board of Directors (with Krasovec and Josephson
abstaining due to inherent conflicts of interest) also unanimously approved the
Charter Amendment. Under the terms of the Merger Agreement, consummation of the
Merger is dependent upon adoption of the Charter Amendment.
All shares of Common Stock represented by properly executed proxies
received prior to or at the Meeting and not revoked will be voted in accordance
with the instructions indicated in such proxies. IF NO INSTRUCTIONS ARE
INDICATED, SUCH PROXIES WILL BE VOTED FOR THE ADOPTION OF THE CHARTER AMENDMENT
AND THE APPROVAL OF THE MERGER AGREEMENT AND IN THE DISCRETION OF THE PERSONS
NAMED IN THE PROXY WITH RESPECT TO SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING. A shareholder may revoke his or her proxy at any time before
it is voted at the meeting by (i) executing and delivering to the Secretary of
the Company a proxy bearing a later date, (ii) filing written notice of such
revocation with the Secretary of the Company stating that the proxy is revoked
or (iii) attending the Meeting and voting in person.
In addition to the solicitation of proxies by use of the mails, directors,
officers and employees of the Company, without receiving additional
compensation, may solicit proxies by telephone, telecopier or personal
interview. The Company also will request brokerage houses and other custodians,
nominees and fiduciaries to
ii
<PAGE> 9
forward soliciting material to the beneficial owners of Common Stock held of
record by such custodians and will reimburse such custodians for their expenses
in forwarding soliciting materials.
If the Merger is not consummated, any proposals of shareholders of the
Company intended to be presented at the Annual Meeting of Shareholders of the
Company to be held in 1998 must be received by the Company, addressed to the
Secretary of the Company, by no later than August 31, 1998 to be considered for
inclusion in the Company's proxy statement and form of proxy relating to that
meeting. Any such proposal has to comply with the requirements of Rule 14a-8
promulgated pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------
The Board of Directors knows of no additional matters that will be
presented for consideration at the Meeting. Execution of the accompanying proxy,
however, confers on the designated proxy holders discretionary authority to vote
the shares of Common Stock covered thereby in accordance with their best
judgment on such other business, if any, that may properly come before, and all
matters incident to the conduct of, the Meeting or any adjournments or
postponements thereof.
The date of this Proxy Statement is , 1998.
iii
<PAGE> 10
AVAILABLE INFORMATION
The Company, LLC, Krasovec, Josephson and James P. Gunning, Jr. ("Gunning")
have filed with the Securities and Exchange Commission (the "SEC" or
"Commission") a Rule 13E-3 Transaction Statement on Schedule 13E-3 (including
any amendments thereto, the "Schedule 13E-3") under the Exchange Act with
respect to the Merger. This Proxy Statement does not contain all of the
information set forth in the Schedule 13E-3 and the exhibits thereto, certain
parts of which are omitted in accordance with the rules and regulations of the
SEC. The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the SEC.
The Schedule 13E-3 and the exhibits thereto, as well as such reports, proxy
statements and other information filed by the Company, can be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices at Suite 1300, Seven World Trade Center, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.
Copies of such materials also can be obtained at prescribed rates from the
Public Reference Section of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC maintains an Internet site on the World Wide Web
at "http://www.sec.gov," which contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC.
This Proxy Statement incorporates by reference documents that are not
presented herein or delivered herewith. The Company will provide these
documents, other than exhibits to such documents, without charge, by first class
mail or other equally prompt means within one business day of receipt of
request, to any person to whom this Proxy Statement is delivered, on written or
oral request to the Company at its offices located at 106 E. Sixth Street, Suite
300, Austin, Texas 78701, Attention: Corporate Secretary (telephone number (512)
476-7100).
Except as otherwise indicated herein, all information appearing in this
Proxy Statement concerning the Company has been supplied by the Company, and all
information appearing in this Proxy Statement concerning LLC, Newco and the
members of the Buyout Group has been supplied by LLC or the members of the
Buyout Group or is based upon publicly available documents on file with the SEC
and other public records.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OTHER PERSON.
iv
<PAGE> 11
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.......................................
Table of Contents...........................................
Summary.....................................................
Selected Financial Data.....................................
The Parties.................................................
The Company...............................................
LLC.......................................................
Newco.....................................................
The Meeting.................................................
Time, Date and Place......................................
Voting Rights.............................................
Required Vote.............................................
Proposal One -- Amendment to the Articles of
Incorporation.............................................
Overview..................................................
Conversion of Par Value...................................
Authorization of Serial Preferred Stock...................
Proposal Two -- The Merger and Related Matters..............
Special Factors...........................................
Background of the Merger...............................
Purpose of and Reasons for the Merger; Certain Effects
of the Merger.........................................
Determination of Fairness of the Merger by the Special
Committee and the Board of Directors..................
Opinion of Special Committee's Financial Advisor.......
Position of Krasovec, Gunning and Josephson as to
Fairness..............................................
Material Prepared by Krasovec's Advisor................
Certain Projections....................................
Conflicts of Interest..................................
Future Plans of the Company............................
Rights of Dissenting Shareholders......................
Estimated Fees and Expenses; Sources of Funds..........
Expenses...............................................
The Merger Agreement......................................
The Merger.............................................
Effective Time.........................................
Articles of Incorporation and Bylaws of the Surviving
Corporation...........................................
Directors and Officers of the Surviving Corporation....
Conversion of Securities in the Merger; Treatment of
Derivatives...........................................
Payment For and Surrender of Company Common Shares.....
Closing of Stock Transfer Records......................
Representations and Warranties.........................
Acquisition Proposals..................................
Interim Operations of the Company......................
Certain Filings and Other Actions......................
Access to Information..................................
Insurance; Indemnity...................................
Employee Benefits......................................
Financing..............................................
Conditions.............................................
Termination............................................
Amendment..............................................
Material U.S. Federal Income Tax Consequences of the
Merger................................................
Accounting Treatment of the Merger.....................
Regulatory Approvals...................................
Pending Litigation.....................................
</TABLE>
v
<PAGE> 12
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Market Information..........................................
Security Ownership of Certain Beneficial Owners and
Management................................................
Purchases of Common Stock by and Other Transactions with
Certain Persons...........................................
Transaction of Other Business...............................
Independent Auditors........................................
Incorporation of Certain Documents by Reference.............
Appendices:
Appendix A -- Agreement and Plan of Merger, as amended.... A-1
Appendix B -- Opinion of J.C. Bradford & Co., L.L.C....... B-1
Appendix C -- Proposed Charter Amendment.................. C-1
Appendix D -- Articles 5.12 and 5.13 of the Texas Business
Corporation Act........................................ D-1
Appendix E -- Form of Proxy Card.......................... E-1
</TABLE>
vi
<PAGE> 13
SUMMARY
The following summary is subject to and qualified in its entirety by
reference to the more detailed information contained elsewhere in this Proxy
Statement, including in the Appendices attached hereto and in the documents
incorporated by reference herein (the "Proxy Statement"). Unless defined herein,
capitalized terms used in this Proxy Statement have the meanings ascribed to
them in the Merger Agreement.
Certain information contained in this Proxy Statement contains forward
looking statements, including without limitation, statements as to the Company's
financial condition, results of operations and liquidity and capital resources
and statements as to management's beliefs, expectations or options. Such forward
looking statements are subject to risks and uncertainties and may be affected by
various factors that may cause actual results to differ materially from those in
the forward looking statements. Certain of these risks, uncertainties and other
factors, as and when applicable, are discussed in the Company's filings with the
Commission.
Shareholders are urged to read carefully the Proxy Statement in its
entirety.
Time, Date and Place.......... The Meeting will be held on ,
, 1998 at 10:00 a.m., local time, in
the [San Jacinto Room] at The Four Seasons
Hotel, 98 San Jacinto Boulevard, Austin, Texas.
Purposes of the Meeting....... To consider and vote upon (i) the adoption of
the Charter Amendment (attached hereto as
Appendix C), (ii) the approval of the Merger
Agreement (attached as Appendix A hereto), and
(iii) such other matters as may properly come
before the Meeting or any postponements or
adjournments thereof.
Voting Rights................. The close of business on June 23, 1998 has been
fixed as the Record Date for determining
holders of Common Stock entitled to notice of
and to vote at the Meeting. Each share of
Common Stock outstanding on the Record Date is
entitled to one vote at the Meeting. As of the
Record Date, [5,080,751] shares of Common Stock
were outstanding. The presence, in person or by
proxy, of the holders of a majority of the
shares of Common Stock entitled to vote at the
Meeting is necessary to constitute a quorum for
the transaction of business of the Meeting.
Any proxy given by a shareholder may be revoked
by the shareholder at any time prior to the
voting of the proxy by delivering a written
notice of revocation to the Secretary of the
Company, by executing and delivering a
later-dated proxy or by attending the meeting
and voting in person. UNLESS CONTRARY
INSTRUCTIONS ARE INDICATED ON THE PROXY, ALL
SHARES OF COMMON STOCK REPRESENTED BY VALID
PROXIES WILL BE VOTED FOR ADOPTION OF THE
CHARTER AMENDMENT AND APPROVAL OF THE MERGER
AGREEMENT.
Required Vote................. The affirmative vote of holders of at least
two-thirds of all of the outstanding shares of
Common Stock is required to adopt the Charter
Amendment and to approve the Merger Agreement,
which vote will constitute a majority of
outstanding shares of Common Stock held by
unaffiliated shareholders. It is anticipated
that the members of the Buyout Group and their
spouses will vote the 982,655 shares of Common
Stock held of record by them (representing
approximately 19.3% of the outstanding Common
Stock) in favor of the matters to be voted
upon. In addition, it is anticipated that the
members of the Board who are not members of the
Buyout Group will vote the 25,010 shares of
Common Stock
1
<PAGE> 14
held of record by them in favor of the Charter
Amendment and the Merger Agreement.
Effective Time of the
Merger........................ The Merger is expected to become effective as
of the date and time (the "Effective Time") of
the filing of appropriate Articles of Merger
with the Secretary of State of the State of
Texas, which is anticipated to occur
approximately two business days after the
approval of the Merger Agreement by the
Company's shareholders and the satisfaction or
waiver of the other conditions to the Merger
stated in the Merger Agreement.
Recommendation of the Board of
Directors................... Based upon, among other things, the
recommendation of the Special Committee and the
opinion of J.C. Bradford & Co., L.L.C. ("J.C.
Bradford") referred to below, the Board of
Directors (with Krasovec and Josephson
abstaining due to inherent conflicts of
interest) has determined that the Merger is in
the best interests of the Company and the
Public Shareholders and unanimously recommends
that the shareholders vote FOR adoption of the
Charter Amendment and approval of the Merger
Agreement.
Opinion of Special Committee's
Financial Advisor........... The Special Committee retained J.C. Bradford to
act as its financial advisor in connection with
the Merger. J.C. Bradford has delivered its
written opinion to the Special Committee, dated
the date hereof, to the effect that, as of such
date and subject to the qualifications and
assumptions set forth therein, the Merger
Consideration of $20.70 in cash per share of
Common Stock to be received by the Public
Shareholders in the Merger is fair to such
shareholders from a financial point of view. A
copy of J.C. Bradford's written opinion, which
sets forth the assumptions made, matters
considered and limitations on the review
undertaken in connection with the opinion, is
attached hereto as Appendix B and is
incorporated herein by reference. PUBLIC
SHAREHOLDERS SHOULD READ SUCH OPINION CAREFULLY
IN ITS ENTIRETY.
Conflicts of Interest......... In considering the recommendation of the Board
with respect to the Merger, Public Shareholders
should be aware that, upon consummation of the
Merger, (i) the members of the Buyout Group
(including Krasovec and Gunning, the executive
officers of the Company, and Josephson, a
director of the Company), along with the New
Shareholders, will be the sole shareholders of
the Surviving Corporation; (ii) Josephson, in
addition to being a member of the Buyout Group,
is affiliated with Allen & Company Incorporated
("Allen"), which has acted as a financial
advisor to Krasovec in connection with the
Merger and which will continue to own warrants
to purchase shares of the Surviving
Corporation's common stock after the Effective
Time; (iii) as holders of Company Stock
Derivatives, all of the members of the Buyout
Group will continue to hold such Company Stock
Derivatives on the same terms and conditions as
existed immediately prior to the Effective Time
of the Merger (except as set forth herein), as
will all other holders of such Company Stock
Derivatives; and (iv) each director of the
Company (other than Krasovec and Josephson)
will receive
2
<PAGE> 15
$20.70 per share upon payment of the Merger
Consideration for the shares of Common Stock
that they own and the shares of Common Stock
they will receive upon the anticipated exercise
of their Company Stock Derivatives.
Accordingly, the members of the Buyout Group
and the above-mentioned directors of the
Company have a direct economic interest in the
Merger. In light of these inherent conflicts of
interest, the Board of Directors of the Company
appointed the Special Committee comprised of
two of the directors who are not officers of
the Company or members of the Buyout Group to
review, evaluate and negotiate the terms of the
Merger Agreement and to make a recommendation
to the Board concerning the fairness of the
Merger.
Certain Effects of the
Merger........................ Following the Merger, the Buyout Group and the
New Shareholders will own 100% of the
outstanding capital stock of the Surviving
Corporation. Except as set forth herein, all
Company Stock Derivatives outstanding
immediately prior to the Effective Time shall
remain outstanding and shall be exercisable or
convertible into the common stock of the
Surviving Corporation. The members of the
Buyout Group and the New Shareholders will be
the sole beneficiaries of any future earnings
and growth of the Surviving Corporation (until
shares of the Surviving Corporation, if any,
are issued to others pursuant to the exercise
or conversion of Company Stock Derivatives or
otherwise), and the Public Shareholders will no
longer benefit from any increases in the value
of the Company or any payment of dividends on
the shares of Common Stock and will no longer
bear the risk of any decreases in value of the
Company. As a result of the Merger, (i) the
Surviving Corporation will be privately held,
(ii) there will be no public market for the
Common Stock and (iii) the Common Stock will
cease to be quoted on The Nasdaq Stock Market's
National Market ("Nasdaq"). Except as described
herein, all employee benefit and compensation
plans of the Surviving Corporation will be
substantially the same as the Company's present
benefit plans for a period of at least one
year, but the Surviving Corporation may
determine to amend present benefit plans or to
initiate additional employee benefit plans in
the future.
Future Plans for the
Company....................... It is expected that, immediately following the
Merger, the business and operations of the
Company will be continued by the Company, as
the Surviving Corporation in the Merger,
substantially as they are currently being
conducted. However, the members of the Buyout
Group and the management of the Surviving
Corporation will continue to evaluate the
Company's business and operations after the
consummation of the Merger and make such
changes as are deemed appropriate.
Merger Agreement.............. The Company and LLC have entered into the
Merger Agreement, providing for the merger of
Newco with and into the Company, with the
Company being the Surviving Corporation. A copy
of the Merger Agreement is attached hereto as
Appendix A. Under the terms of the Merger
Agreement, each share of the Common Stock
outstanding immediately prior to the Effective
Time (other than shares of Common Stock held by
members of the Buyout Group,
3
<PAGE> 16
held by the Company or any of its subsidiaries
as treasury stock and held by Dissenting
Shareholders) will be converted into the right
to receive $20.70 in cash, without interest. At
the Effective Time, the members of the Buyout
Group will continue to hold their respective
shares of the Common Stock and, upon
consummation of the Merger, the shares of the
Common Stock held by the members of the Buyout
Group will become outstanding common stock of
the Surviving Corporation. Thus, as a result of
the Merger, the Surviving Corporation will
become wholly-owned by the members of the
Buyout Group and the New Shareholders
(excluding any rights of any holder of Company
Stock Derivatives to exercise such derivatives
for common stock of the Surviving Corporation).
The Company has agreed not to participate or
engage in any discussions with anyone other
than LLC and the Buyout Group regarding any
Acquisition Proposal (as defined herein)
involving the Company, except with respect to
unsolicited written proposals or offers if the
Board reasonably believes that there is a
substantial risk that a failure to consider
such unsolicited written proposal or offer
would violate its fiduciary duties.
Dissenters' Rights............ If the Merger is consummated, Dissenting
Shareholders will be entitled to demand payment
of the fair value of their shares of Common
Stock in accordance with the procedures set
forth in Articles 5.12 and 5.13 of the TBCA.
Shareholders wishing to exercise dissenters'
rights must (i) not vote in favor of approval
of the Merger Agreement (which would include
submitting a signed proxy without voting
instructions); (ii) deliver to the Company,
prior to the Meeting, written notice of their
objection to the Merger stating that they will
exercise their right to dissent under the TBCA
if the Merger is effected; and (iii) strictly
comply with the other requirements of the TBCA.
Failure to follow the procedures required by
Articles 5.12 and 5.13 of the TBCA may result
in the loss of dissenters' rights (in which
event a shareholder will be entitled to receive
the Merger Consideration with respect to such
shareholder's shares of Common Stock in
accordance with the Merger Agreement).
Material U.S. Federal Income
Tax Consequences of the
Merger...................... The receipt of cash for Public Stock pursuant
to the Merger will be a taxable transaction to
the Public Shareholders for U.S. federal income
tax purposes under the Internal Revenue Code of
1986, as amended (the "Code"), and may be a
taxable transaction for foreign, state and
local income tax purposes as well. Public
Shareholders should consult their own tax
advisors regarding the U.S. federal income tax
consequences of the Merger, as well as any tax
consequences under state, local or foreign
laws.
Accounting Treatment of the
Merger........................ The Merger will be accounted for as a
"recapitalization," as such term is used under
generally accepted accounting principles, for
accounting and financial reporting purposes.
Estimated Fees and Expenses,
Sources of Funds.............. The total financing for the Merger Agreement
and related costs and expenses will be
approximately $179.3 million, of which
approximately $85 million will be required to
pay the Merger
4
<PAGE> 17
Consideration to the Public Shareholders and
approximately $94.3 million will have been
incurred to refinance certain of the Company's
current indebtedness, fund the Surviving
Corporation's working capital needs after the
Merger and to pay all expenses of the Company,
LLC, Newco and the members of the Buyout Group
in connection with the Merger Agreement and the
transactions contemplated thereby. Such funds
will be furnished from (i) equity financing of
approximately $44.3 million (the "Equity
Financing"), consisting of (A) approximately
$24.3 million to be provided by the Buyout
Group and the Additional Common Shareholders
and (B) $20 million from the issuance by the
Surviving Corporation to the Preferred
Shareholders of units of its pay-in-kind
preferred stock and common stock, which will be
provided pursuant to a commitment letter from
Ares Leveraged Investment Fund, L.P., an
affiliate of Ares Management, L.P. ("Ares"),
(ii) a $50 million senior secured credit
facility to be provided to the Surviving
Corporation pursuant to a commitment letter
from Merrill Lynch Capital Corporation
("Merrill Lynch"), NationsBank, N.A.
("NationsBank") and NationsBanc Montgomery
Securities, LLC ("NMS"), consisting of (A) a
$25 million senior secured term loan which will
be fully drawn at the Effective Time and (B) a
$25 million senior secured revolving credit
facility, of which no more than $10 million
will be drawn at the Effective Time (together,
the "Credit Facilities"), and (iii) up to $100
million from the issuance by the Surviving
Corporation of unsecured senior subordinated
notes due 2008, which notes will be sold or
placed pursuant to a highly confident letter by
Merrill Lynch, Pierce, Fenner & Smith
Incorporated and its affiliates and will be
issued at the Effective Time (the "Senior
Subordinated Notes").
5
<PAGE> 18
SELECTED FINANCIAL DATA
The following selected financial data for the five years ended August 30,
1997 are derived from the audited consolidated financial statements of the
Company. The financial data for the six month periods ended March 1, 1997 and
February 28, 1998 are derived from unaudited financial statements. The unaudited
financial statements include all adjustments, consisting of normal recurring
accruals, that the Company considers necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the six months ended February 28, 1998 are not necessarily
indicative of the results that may be expected for the entire year ending August
29, 1998.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(a) SIX MONTHS ENDED
------------------------------------------------------------------ -----------------------
AUGUST 28, SEPTEMBER 3, SEPTEMBER 2, AUGUST 31, AUGUST 30, MARCH 1, FEBRUARY 28,
1993 1994 1995 1996(C) 1997 1997(I) 1998
---------- ------------ ------------ ---------- ---------- -------- ------------
UNAUDITED, IN
AUDITED, IN THOUSANDS THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA(b):
Sales........................... $49,300 $62,385 $103,860 $144,048 $175,835 $75,086 $ 86,953
Cost of Sales................... 33,860 43,207 70,963 100,245 125,732 52,850 63,501
------- ------- -------- -------- -------- -------- --------
Gross Profit.................. 15,440 19,178 32,897 43,803 50,103 22,236 23,452
Operating expenses:
Sales and marketing........... 5,678 6,886 11,290 16,441 18,119 8,705 8,480
General and administrative.... 4,266 5,065 9,037 12,171 13,125 6,145 7,181
Amortization expense............ 724 889 2,119 3,538 3,885 1,904 2,034
Restructuring and unusual
charges..................... -- -- -- 1,640 1,816 -- --
------- ------- -------- -------- -------- -------- --------
Total operating expenses........ 10,668 12,840 22,446 33,790 36,945 16,754 17,695
------- ------- -------- -------- -------- -------- --------
Operating income................ 4,772 6,338 10,451 10,013 13,158 5,482 5,757
Interest expense................ 1,982 1,030 3,619 3,246 3,002 1,313 1,902
------- ------- -------- -------- -------- -------- --------
Income before income taxes...... 2,790 5,308 6,832 6,767 10,156 4,169 3,855
Provision for income taxes...... 1,032 1,979 2,800 2,705 4,091 1,645 1,581
------- ------- -------- -------- -------- -------- --------
Income from continuing
operations before
extraordinary loss............ 1,758 3,329 4,032 4,062 6,065 2,524 2,274
Net income...................... $ 1,183(d) $ 3,329 $ 4,032 $ 4,155(f) $ 1,004(f) $ 1,605(k) $ 2,274
======= ======= ======== ======== ======== ======== ========
Net income available to common
shareholders.................. $ 1,116(e) $ 3,329 $ 4,032 $ 4,155 $ 1,004 $ 1,605 $ 2,274
Earnings per common share(j):
Basic......................... $ 0.65 $ 0.94 $ 1.14 $ 0.85 $ 0.19 $ 0.29 $ 0.45
Diluted....................... $ 0.62 $ 0.93 $ 1.11 $ 0.82 $ 0.18 $ 0.28 $ 0.43
Weighted average number of
common shares outstanding(j):
Basic......................... 1,718 3,539 3,539 4,898 5,388 5,620 5,075
Diluted....................... 1,803 3,576 3,636 5,090 5,500 5,775 5,200
BALANCE SHEET DATA:
(AT END OF PERIOD)
Working capital............... $12,246 $18,668 $ 31,083 $ 35,248 $ 37,876 $35,463 $ 43,770
Total assets.................. 25,941 55,702 94,859 121,376 135,194 127,965 127,527
Total debt:
Bank credit facility........ 6,146 27,100 50,500 33,725 46,990 38,735 45,990
Other debt and capital
leases.................... 1,828 5,097 12,410 13,953 14,432 15,975 13,532
Total shareholders' equity...... 13,546 16,871 21,034 57,380 51,276 59,071 53,712
OTHER DATA:
EBITDA(g)..................... $ 6,597 $ 8,526 $ 14,476 $ 16,686 $ 21,313 $ 9,306 $ 9,688
Cash flows from operating
activities.................. 1,101 1,708 2,948 6,866 8,844 1,481 1,693
Depreciation expense.......... 1,101 1,299 1,906 3,135 4,270 1,920 1,897
Amortization expense.......... 724 889 2,119 3,538 3,885 1,904 2,034
Capital expenditures.......... 1,199 1,426 2,073 4,919 4,863 2,487 2,106
Dividends(h).................. 132 -- -- -- -- -- --
</TABLE>
- ---------------
(a) The Company's fiscal year is a 52- or 53-week period ending on the Saturday
closest to August 31. All references to fiscal 1993, 1994, 1995, 1996 and
1997 are to the fiscal years ended August 28, 1993, September 3, 1994,
September 2, 1995, August 31, 1996 and August 30, 1997, respectively.
(b) The Company's results of operations for the periods presented were
significantly affected by acquisitions in fiscal 1994, 1995, 1996 and 1997
and by the public offerings of Common Stock in June 1993 and December 1995.
These factors affect the comparability of sales and results of operations
from period to period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" incorporated herein by
reference to such information included in the Company's reports on Form
10-K and Form 10-Q.
(c) The fiscal 1996 amounts have been restated to reflect the activity for the
five months of ownership of the Alpha Products retail division as
discontinued operations.
(d) After deducting a one-time charge to earnings of $575,000, net of taxes,
related to the write-off of unamortized debt costs and the termination of a
product financing arrangement in connection with the Company's initial
public offering of Common Stock in June 1993, which resulted in a reduction
in basic and diluted earnings per share of $0.33 and $0.32, respectively.
6
<PAGE> 19
(e) Reflects the deduction of dividends on outstanding Junior Preferred Stock
which was redeemed in fiscal 1993.
(f) After deducting gain (loss) on discontinued operations, net of tax, of
$93,000 and ($1.96) million in fiscal 1996 and fiscal 1997, respectively,
and estimated loss of $2.86 million on disposal of discontinued operations,
net of tax, in fiscal 1997. Additionally, an extraordinary loss from debt
extinguishment of $241,000, net of tax, was recognized in fiscal 1997.
(g) EBITDA is defined as income from continuing operations before extraordinary
loss, income taxes, interest expense, depreciation and amortization. The
Company believes that the presentation of EBITDA facilitates an investor's
understanding of the effects on the Company's operations of amortization of
goodwill and other intangibles and increased interest expense under
indebtedness incurred in connection with various acquisitions which
substantially impacted net income, net income per common share and cash
flows. EBITDA should not be considered by an investor as an alternative to
net income as an indicator of the Company's operating performance or to
cash flows as a measure of liquidity. EBITDA is not presented in financial
statements prepared in accordance with generally accepted accounting
principles ("GAAP") and may be different than a similarly titled measure
presented by another entity.
(h) The Company paid dividends to holders of its preferred stock between fiscal
1990 and fiscal 1993. None of the preferred stock is currently outstanding.
(i) Restated for discontinued operations reported in the fourth quarter 1997.
(j) The fiscal 1993, 1994, 1995, 1996, 1997 and Six Months Ended March 1, 1997
amounts have been restated to conform with the provisions of Statement of
Financial Accounting Standards No. 128, Earnings Per Share.
(k) After deducting loss on discontinued operations, net of tax, of $919,000
for the Six Months Ended March 1, 1997.
7
<PAGE> 20
THE PARTIES
THE COMPANY
The Company is a Texas corporation. Its principal executive offices are
located at 106 E. Sixth Street, Suite 300, Austin, Texas 78701, and its
telephone number is (512) 476-7100. For a further discussion of the Company, its
business and its current financial condition, see the Company's Annual Report on
Form 10-K for the fiscal year ended August 30, 1997, as amended, and the
Company's Quarterly Report on Form 10-Q for the six months ended February 28,
1998, both of which are incorporated herein by reference.
LLC
LLC is a Delaware limited liability company. Its principal offices are
located at 106 E. Sixth Street, Suite 300, Austin, Texas 78701, and its
telephone number is (512) 476-7100. Krasovec is the sole member and manager of
LLC. LLC conducts no business activities and its only asset will be the capital
stock of Newco when Newco is formed, and such capital stock will be canceled at
the Effective Time.
NEWCO
Newco will be a Texas corporation, wholly owned by LLC and organized solely
for the purpose of effecting the Merger. Newco will have no material assets.
Newco will not engage in any activities except in connection with the Merger and
will cease to exist upon the consummation of the Merger. Newco's principal
offices will be located at 106 E. Sixth Street, Suite 300, Austin, Texas 78701,
and its telephone number will be (512) 476-7100.
THE MEETING
TIME, DATE AND PLACE
The Meeting will be held on , , 1998 at 10:00 a.m.,
local time, in the [San Jacinto Room] at The Four Seasons Hotel, 98 San Jacinto
Boulevard, Austin, Texas.
VOTING RIGHTS
Only holders of shares of Common Stock of record at the close of business
on the Record Date will be entitled to notice of and vote at the Meeting. At the
close of business on the Record Date, the Company had [5,080,751] outstanding
shares of Common Stock, each such share entitling the holder thereof to one vote
on each matter that may properly come before the Meeting. The presence at the
Meeting, in person or by proxy, of the holders of a majority of the shares of
Common Stock entitled to vote shall constitute a quorum at the Meeting.
Abstentions and broker non-votes (shares held by brokers and other nominees or
fiduciaries that are present at the Meeting but not voted on a particular
matter) will be counted as present at the Meeting for purposes of determining
the presence or absence of a quorum, but since they are not votes "for" a
particular matter, they will have the same effect as votes "against" a
particular matter. Any proxy given by a shareholder may be revoked by the
shareholder at any time, prior to the voting of the proxy, by delivering a
written notice of such revocation to the Secretary of the Company, by executing
and delivering a later-dated proxy or by attending the Meeting and voting in
person.
If a shareholder gives specific voting instructions by checking the boxes
on the proxy, the shares of Common Stock will be voted in accordance with such
instructions. UNLESS CONTRARY INSTRUCTIONS ARE INDICATED ON THE PROXY, ALL
SHARES OF COMMON STOCK REPRESENTED BY VALID PROXIES WILL BE VOTED FOR EACH
PROPOSAL SET FORTH IN SUCH PROXY AND WILL BE VOTED AT THE DISCRETION OF THE
PROXIES IN RESPECT OF SUCH OTHER BUSINESS, IF ANY, AS MAY PROPERLY BE BROUGHT
BEFORE THE MEETING. As of the date hereof, the Board of Directors knows of no
other business that will be presented for consideration at the Meeting other
than the matters referred to herein. If, however, other matters are properly
brought before the Meeting, it is the intention of the persons
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named in the accompanying proxy to vote the shares represented thereby in
accordance with their best judgment and discretionary authority to do so is
included in the proxy.
In addition to the solicitation of proxies by mail, the directors, officers
and employees of the Company, without receiving additional compensation, may
solicit proxies by telephone, telecopier, personal interview or otherwise. The
Company also will request brokerage houses and other custodians, nominees and
fiduciaries to forward soliciting material to the beneficial owners of Common
Stock held of record by such custodians and will reimburse such custodians for
their reasonable out-of-pocket expenses incurred by them in forwarding
soliciting materials.
REQUIRED VOTE
Pursuant to the TBCA, the affirmative vote of the holders of two-thirds of
the outstanding shares of Common Stock is required to adopt the Charter
Amendment and approve the Merger Agreement, which vote will constitute a
majority of outstanding shares of Common Stock held by unaffiliated
shareholders. It is anticipated that the members of the Buyout Group and their
spouses will vote the 982,655 shares of Common Stock held of record by them
(representing approximately 19.3% of the outstanding Common Stock) in favor of
the matters to be voted upon. It is also anticipated that the members of the
Board who are not members of the Buyout Group will vote the 25,010 shares of
Common Stock held of record by them in favor of the Charter Amendment and the
Merger Agreement.
PROPOSAL ONE
AMENDMENT TO THE ARTICLES OF INCORPORATION
OVERVIEW
The Board of Directors has adopted a resolution setting forth a proposed
amendment to Article Four of the Company's articles of incorporation, and
directed that the proposed amendment be submitted to a vote of the shareholders
at the Meeting. The proposed amendment would (i) change the shares of Common
Stock from shares without par value into shares with a par value of $.01 per
share, and (ii) authorize the Board of Directors to establish and issue up to
1,000,000 shares of Serial Preferred Stock. The primary reasons for the Charter
Amendment are (i) to increase the Company's surplus, as defined in the TBCA, by
fixing the par value of the Common Stock thereby enhancing the ability of the
Company under the TBCA to purchase its own shares and make distributions to
shareholders, including in connection with the Merger, and (ii) to allow the
Board of Directors to create and issue, without further shareholder approval,
preferred stock, including the Preferred Stock to be issued to raise funds to
pay a portion of the Merger Consideration to the Public Shareholders. The text
of the proposed Charter Amendment is set forth in Appendix C to this Proxy
Statement and should be read in its entirety by the shareholders. The adoption
of the Charter Amendment is a condition to the consummation of the Merger.
The affirmative vote of the holders of at least two-thirds of the
outstanding Common Stock present in person or by proxy is required for adoption
of the proposed Charter Amendment. If the proposed Charter Amendment is adopted
by the shareholders, the Company will file the Charter Amendment with the
Secretary of State of the State of Texas. The Charter Amendment will become
effective upon the issuance by the Secretary of State of the State of Texas of a
certificate of amendment with a copy of the Charter Amendment attached. The
approval of the Merger Agreement is not a condition to the adoption of the
Charter Amendment. If the Charter Amendment is adopted by the shareholders, it
will be filed and will become effective whether or not the Merger Agreement is
approved or the Merger is consummated.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" ADOPTION OF
THE CHARTER AMENDMENT (PROPOSAL ONE).
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CONVERSION OF PAR VALUE
If the Charter Amendment is adopted and becomes effective, the Common Stock
will be automatically converted from shares without par value into shares with a
par value of $.01 per share. As a result, pursuant to the TBCA, the "stated
capital" of the Company will be reduced by $22,967,556, from $23,024,128 to
$56,572 (the product of $.01 multiplied by the number of shares of Common Stock
issued), and the "surplus" of the Company will be increased in an equal amount.
Under the TBCA, a Texas corporation may not make any distribution to its
shareholders, including a dividend, a redemption or other acquisition of shares
or a payment in liquidation of its assets, if the corporation would be insolvent
as a result of such distribution or if such distribution exceeds such
corporation's surplus. Therefore, the increase in the Company's surplus
resulting from the Charter Amendment would enhance the ability of the Company to
use the funds it raises to finance the Merger for the payment of the Merger
Consideration for the Public Stock pursuant to the Merger. If the Charter
Amendment is not approved by the shareholders, the Company may not be able to
consummate the Merger, even if the Merger Agreement is approved and the Company
receives adequate financing to fund the Merger, because of the Company's
inadequate surplus position.
AUTHORIZATION OF SERIAL PREFERRED STOCK
The Charter Amendment would expressly vest in the Board the authority to
establish and issue up to 1,000,000 shares of Serial Preferred Stock in one or
more series to be designated by the Board. Such provisions are often referred to
as "blank check" provisions because they give the Board of Directors the
flexibility, at any time or from time to time, without further shareholder
approval, to create one or more series of Serial Preferred Stock and to
determine the designations, preferences and limitations of each such series,
including, but not limited to, (i) the number of shares, (ii) dividend rights,
(iii) voting rights, (iv) conversion privileges, (v) redemption provisions, (vi)
sinking fund provisions, (vii) rights upon liquidation, dissolution or winding
up of the Company and (viii) other relative rights, preferences and limitations
of such series.
The Board of Directors believes that amending the Articles of Incorporation
to authorize the Board to issue up to 1,000,000 shares of Serial Preferred Stock
provides the Company with the flexibility to address its potential future
financing needs, including in connection with the Merger, by creating one or
more series of Serial Preferred Stock customized to meet the needs of any
particular transaction and to market conditions. The Company also could issue
Serial Preferred Stock for other corporate purposes, such as to implement joint
ventures or to make acquisitions.
LLC has agreed in principle with Ares to cause the Surviving Corporation to
issue to the Preferred Shareholders, at the Effective Time, a new series of
20,000 shares of Serial Preferred Stock with a liquidation preference of $1,000
per share, in connection with the financing of the Merger. The new series of
Serial Preferred Stock, to be designated "Senior Redeemable Exchangeable
Preferred Stock" (the "Preferred Stock"), will be issued in units, each
consisting of one share of Preferred Stock and an undetermined number of shares
of common stock of the Surviving Corporation representing approximately 15% of
its common stock in the aggregate, on a fully diluted basis. Total proceeds from
the issuance of such units is expected to be $20 million, which will be used by
the Surviving Corporation to pay a portion of the expenses incurred in
connection with the Merger, including the payment of Merger Consideration for
the Public Stock. The Preferred Stock will have no voting rights, other than as
required by law, and will be senior in liquidation and payment of dividends to
all other classes of capital stock of the Surviving Corporation outstanding at
the Effective Time or issued thereafter. The Preferred Stock will accrue
dividends at a rate equal to the greater of (i) 12.25% and (ii) the yield to
maturity on the Senior Subordinated Notes plus 250 basis points. For the first
five years after issuance, dividends on the Preferred Stock will be payable, at
the Surviving Corporation's option, in additional shares of Preferred Stock or
cash. Thereafter, dividends on the Preferred Stock will be payable in cash only.
The Preferred Stock will be redeemable, in whole or in part, at the option
of the Surviving Corporation at any time after the fifth anniversary of the
issuance thereof, at various premiums to the liquidation preference thereof and
may be redeemed prior to the fifth anniversary of issuance in certain instances.
The Surviving Corporation will also have the option at any time to exchange the
Preferred Stock for subordinated notes with substantially the same terms as the
Preferred Stock.
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If the Merger is not consummated, the Preferred Stock will not be issued.
Although the Company is not currently considering the issuance of Serial
Preferred Stock for any other financing or transactional purposes and has no
present intention to issue any series of Serial Preferred Stock other than the
Preferred Stock, the Board and management of the Company believe that, in the
future, the Board should have the flexibility to issue Serial Preferred Stock
consistent with its ability to issue debt or additional shares of Common Stock.
If the Merger is not consummated, and if any future series of Serial
Preferred Stock issued by the Board provides for dividends, such dividends may
be cumulative and may have a preference as to the payment over the Common Stock.
In addition, if any series of Serial Preferred Stock authorized by the Board so
provides, in the event of any dissolution, liquidation or winding up of the
Company, whether voluntary or involuntary, the holders of each such series of
the then outstanding Serial Preferred Stock may be entitled to receive, prior to
the distribution of any assets or funds to the holders of Common Stock, a
liquidation preference established by the Board of Directors, together with all
accumulated and unpaid dividends. Depending upon the consideration paid for
Serial Preferred Stock, the liquidation preference of Serial Preferred Stock and
other matters, the issuance of Serial Preferred Stock could therefore result in
a reduction in the assets available for distribution to the holders of Common
Stock in the event of liquidation of the Company. Holders of Common Stock do not
have any preemptive rights to acquire Serial Preferred Stock or any other
securities of the Company.
The Company's authorized capital stock currently consists of 24,000,700
shares, consisting of 4,000,000 shares of cumulative convertible preferred
stock, no par value ("Senior Preferred Stock"), 700 shares of cumulative
preferred stock, no par value ("Junior Preferred Stock"), and 20,000,000 shares
of Common Stock. As of the Record Date, [5,080,751] shares of Common Stock were
outstanding and no shares of Senior Preferred Stock or Junior Preferred Stock
were outstanding. The Charter Amendment would eliminate the Senior Preferred
Stock and the Junior Preferred Stock. The proposed amendment to authorize the
Serial Preferred Stock is not designed to deter or to prevent a change in
control; however, if the Merger is not consummated, under certain circumstances,
the Company could use the Serial Preferred Stock to create voting impediments or
to frustrate persons seeking to effect a takeover or otherwise gain control of
the Company and thereby to protect the continuity of the Company's management.
In addition, the issuance of additional Common Stock or Serial Preferred Stock
at below market rates would dilute the value of the outstanding securities of
the Company. The Company could also privately place such shares with purchasers
who might favor the Board of Directors in opposing a hostile takeover bid.
PROPOSAL TWO
THE MERGER AND RELATED MATTERS
SPECIAL FACTORS
BACKGROUND OF THE MERGER
Since June 1993, the Company has experienced significant growth. This
growth has resulted from internal growth and from selective acquisitions of
other businesses. As the Company expanded, its management became more
decentralized and it relied primarily on the operating companies to implement
systems designed to integrate the operations of acquired businesses.
During fiscal years 1996 and 1997, the Company encountered difficulties in
integrating the operations of certain acquired businesses. In the fourth quarter
of fiscal 1996, the Company recorded restructuring and non-recurring charges of
approximately $1.6 million ($984,000 net of tax) based on its decision to
consolidate certain facilities, terminate certain employees and write-off
capitalized acquisition costs. In the fourth quarter of fiscal 1997, the Company
decided to discontinue the operations of its Alpha Products retail division,
acquired in fiscal 1996, and relocate the promotional products division of Alpha
Products to other Company facilities. The Company announced that it anticipated
the loss from discontinued operations of the Alpha Products retail division
would be approximately $8.0 million ($4.8 million net of tax). The Company also
undertook a substantial restructuring in August 1997 that included significant
changes in management personnel and the realignment of operating companies into
two principal operating groups. As a result of these
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changes, the Company recorded restructuring and non-recurring charges of
approximately $1.8 million ($1.1 million net of tax).
Management of the Company believes that the operating results reported by
the Company as a result of difficulties encountered in implementing its
acquisition strategy and the resulting restructuring and consolidation charges,
which results did not meet expectations of securities analysts, combined with
the Company's small market capitalization and the limited trading activity in
the Company's Common Stock, have depressed the market price of the Common Stock.
In light of these conditions, Krasovec met with Merrill Lynch in November
1997 and again in December 1997 to discuss the possibility of a buyout of the
Public Shareholders. Krasovec selected Merrill Lynch because of its
long-standing relationship with the Company beginning with its initial
investment in the Company in 1989 and continuing today in its role as the
arranger and administrative agent of the Company's current senior credit
facility.
On January 8, 1998, representatives of Merrill Lynch made a presentation to
Krasovec regarding the feasibility of a leveraged buyout and recapitalization of
the Company. The presentation included an analysis of the sources and uses of
funds necessary to recapitalize the Company and certain timing and due diligence
issues.
On January 9, 1998, a special meeting of the Board of Directors was held
during which Krasovec informed the Board of Directors that he was evaluating
whether to make a proposal involving the acquisition of the outstanding Common
Stock of the Company through a merger or other leveraged buyout transaction.
Krasovec informed the Board that any such proposal might involve other members
of management of the Company or other persons.
With Krasovec excused from the meeting, the Board of Directors appointed
Messrs. Robert L. Seibert and John H. Wilson III, two of the directors of the
Company who are neither officers of the Company nor members of the Buyout Group,
to serve on the Special Committee created to receive, review, evaluate and
negotiate any proposed transaction and to make recommendations in respect
thereof to the Board. The Board authorized the Special Committee to engage its
own financial and legal advisors for the transaction at the Company's expense.
Between January 9, 1998 and March 6, 1998, several telephone meetings
occurred between the members of the Special Committee. Between January 9, 1998
and February 12, 1998, the Special Committee contacted a number of investment
banking firms regarding acting as the financial adviser to the Special
Committee. On January 20, 1998, the Special Committee engaged Fulbright &
Jaworski, L.L.P. as its special legal counsel.
As of January 12, 1998, Krasovec formally engaged Merrill Lynch and Allen
as his financial advisors to assist him in analyzing, structuring, negotiating
and effecting a proposed transaction with the Company. On January 19, 1998,
Krasovec and other members of management made a presentation to representatives
of NationsBank and Merrill Lynch on the Company's business and operations. On
January 29, 1998, Krasovec formally engaged Blank Rome Comisky & McCauley LLP as
his counsel.
On February 5, 1998, the Special Committee received a written proposal
letter from Krasovec suggesting a cash price of $19.50 for each share of
outstanding Common Stock of the Company. In the proposal letter, Krasovec stated
that he expected the acquisition would be effected by means of a merger of the
Company with a company to be formed by Krasovec and that he would solicit other
investors, including other members of senior management of the Company, to
invest in such newly formed company. The proposal letter also stated that
Krasovec was arranging with Merrill Lynch and NationsBank to provide the funds
necessary to finance the acquisition and that the financing sources would
deliver commitment letters and a "highly confident" letter in the aggregate
amount of the required financing at the time of the execution of a binding,
definitive merger agreement.
On February 12, 1998, the Special Committee engaged J.C. Bradford as
special financial advisor to the Special Committee and the Board. Subject to
written confirmation in a formal engagement letter, the Special Committee
authorized J.C. Bradford to commence an examination of the Company and explore
appropriate
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valuation methodologies for the purpose of rendering an opinion regarding
whether the consideration to be paid in any transaction would be fair to the
Public Shareholders from a financial point of view. J.C. Bradford thereafter
undertook a review of the Company's business, operations and prospects with a
view toward advising the Special Committee as to the fairness, from a financial
point of view, of the consideration to be proposed by Krasovec. The scope and
nature of that examination is discussed in "-- Opinion of Special Committee's
Financial Advisor." J.C. Bradford provided the Special Committee with a written
preliminary report with respect to its preliminary examination of the Company
and the various valuation methodologies that would be used in determining the
fairness, from a financial point of view, of the price to be paid to the Public
Shareholders. Such preliminary report was prepared on the same basis as J.C.
Bradford's final report to the Special Committee and was superceded by the final
report. After considering the preliminary report provided by J.C. Bradford,
which indicated that $19.50 per share was generally below the ranges of implied
values for the Company's common stock and based on their own knowledge and
experience in commercial transactions, the members of the Special Committee
concluded that the proposed price of $19.50 per share should be increased.
On February 27, 1998, John H. Wilson III, a member of the Special
Committee, contacted Krasovec to inform him that the cash price of $19.50 per
share was inadequate. On March 2, 1998, Krasovec met with Mr. Wilson to inform
him that he would increase the consideration to $20.70 per share, provided the
other terms of a merger agreement, including the respective representations and
warranties, covenants and conditions of the parties, could be agreed upon. On
March 4, 1998, an initial draft of the Merger Agreement was delivered to the
members of the Special Committee and to counsel to the Special Committee and
counsel to the Company.
On March 7, 1998, a special meeting of the Board of Directors was held to
discuss the terms of the revised proposal submitted by Krasovec. J.C. Bradford
reviewed for the Board of Directors its financial analyses and indicated that,
based upon the various considerations and assumptions described below under
"-- Opinion of Special Committee's Financial Advisor," J.C. Bradford was
prepared to orally advise the Board of Directors that the $20.70 per share in
cash to be received by the Public Shareholders in connection with the proposed
Merger was fair from a financial point of view to the Public Shareholders. See
"-- Opinion of Special Committee's Financial Advisor."
During the next several days, Krasovec, members of the Special Committee
and counsel to Krasovec, the Special Committee and the Company (Hughes & Luce,
L.L.P.) engaged in numerous telephone conversations to discuss and negotiate the
terms of the Merger Agreement, including the respective representations and
warranties, covenants and conditions of the parties, as well as terms relating
to termination fees and expenses and the termination of the Merger Agreement.
On March 11, 1998, a substantially complete form of the Merger Agreement
was delivered to the directors of the Company. On March 13, 1998, substantially
complete forms of the commitment and "highly confident" letter regarding the
financing of the Merger were delivered to the directors of the Company. On March
13, 1998, Krasovec formed FPK, LLC by filing a certificate of formation with the
Secretary of State of the State of Delaware.
On March 15, 1998, a special meeting of the Board of Directors was held by
telephone conference. A presentation was made by counsel to the Special
Committee as to the revisions to the Merger Agreement. J.C. Bradford then
delivered its oral opinion that, as of March 15, 1998, the $20.70 per share cash
consideration to be received by the Public Shareholders in the Merger was fair
to such shareholders from a financial point of view. The Special Committee then
recommended to the Board the approval of the Merger Agreement and the
transactions contemplated thereby. The Board of Directors (with Krasovec and
Josephson abstaining due to inherent conflicts of interest) unanimously adopted
a resolution approving the Merger Agreement and recommending that the
shareholders of the Company approve the Merger Agreement. See "-- Conflicts of
Interest."
Later on March 15, 1998, the parties executed and delivered the Merger
Agreement. On the morning of March 16, 1998, the execution of the Merger
Agreement was publicly announced through a press release issued by the Company.
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Following the execution of the Merger Agreement, Krasovec solicited certain
members of the Company's management (namely, Gunning, John Finnel, Michael
Linderman, James Preston, Paul W. Lawson, Russell A. Devereau, George Bell
Strob, Brian P. Miller, J. Max Waits and David Kagel) to become members of the
Buyout Group. Such members of the Company's management, along with Krasovec,
jointly filed a Schedule 13D with the Commission on March 25, 1998, as amended
on April 7, 1997, stating their intention to become members of the Buyout Group.
It is anticipated that the members of the Buyout Group, along with the New
Shareholders, will enter into a shareholders' agreement that will provide
certain rights and responsibilities among the shareholders of the Surviving
Corporation. The terms of the shareholders' agreement have not yet been
determined.
PURPOSE OF AND REASONS FOR THE MERGER; CERTAIN EFFECTS OF THE MERGER
The principal purposes for the Merger are: (a) for the members of the
Buyout Group, along with the New Shareholders, to acquire all of the equity
interest in the Company represented by the Public Stock; (b) to give the Public
Shareholders the opportunity to dispose of their shares of Common Stock at a
fair value; and (c) to eliminate the potential volatility in the value of the
Common Stock occasioned by the lack of an active trading market for the Common
Stock. Other than as set forth herein, the members of the Buyout Group have no
reason for proposing the Merger at this particular time (as opposed to any other
time) and are not aware of any material development affecting the future value
of the Common Stock that is not described in this Proxy Statement. See
"-- Future Plans of the Company."
The Merger has been structured so as to enable the Buyout Group, along with
the New Shareholders, to acquire all of the equity interest in the Company while
maximizing shareholder value for the Public Shareholders. The Merger will
terminate all equity interests in the Company of the Company's current
shareholders, other than the members of the Buyout Group. Accordingly, the
Public Shareholders will share in neither future earnings and growth of the
Company nor the risks associated with achieving such earnings and growth
following the Merger. The Merger will enable the Public Shareholders to receive
a cash payment of $20.70 per share of Common Stock pursuant to a transaction
which has been determined by the Special Committee and the Board of Directors of
the Company and by Krasovec, as discussed under "-- Determination of Fairness of
the Merger by the Special Committee and the Board of Directors" and "-- Position
of Krasovec, Gunning and Josephson as to Fairness," to be fair to such Public
Shareholders, or to seek dissenters' rights as described under "-- Rights of
Dissenting Shareholders." The Merger Consideration was the result of
arm's-length negotiations between representatives of Krasovec and the members of
the Special Committee and their respective advisors following the receipt of the
proposal by Krasovec. Following the Merger, the members of the Buyout Group and
the New Shareholders, along with holders of other Company Stock Derivatives upon
their exercise or conversion, will be the sole beneficiaries of any future
earnings and growth of the Company and will have the ability to benefit from any
divestitures, strategic acquisitions or other corporate opportunities that may
be pursued by the Company in the future.
The assumption by the Company of the status of a private company will allow
the Company to eliminate the time devoted by its management and certain other
employees to matters that relate exclusively to the Company being a public
company. Additionally, the Company will be able to reduce certain other costs
that relate to being a public company, estimated by the Company to be
approximately $600,000 per year, including the following: the cost of preparing,
printing and mailing certain corporate reports and proxy statements, the expense
of a transfer agent and the cost of investor relations activities. As a result
of the Merger, the Surviving Corporation will be privately held and there will
be no public market for its common stock. Upon consummation of the Merger, the
Common Stock will cease to be quoted on Nasdaq.
In connection with the Merger and the discussions relating thereto, the
members of the Buyout Group have advised the Company that, relating to the
structure of the Merger, they did not consider any alternative that would have
allowed the Public Shareholders to maintain an equity interest in the Company
because no such alternative would have accomplished the purposes of the Merger
set forth in this section. The members of the Buyout Group considered, but
ultimately rejected, a redemption, including an issuer self tender of the Public
Stock, because a merger would permit the Company's shareholders to vote on the
transaction and permit sufficient time to raise the necessary financing.
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The Company believes that the Merger will be treated for federal income tax
purposes as a redemption by the Company of the Public Stock and, therefore, will
not give rise to gain, loss or other income to the Company, to LLC or to Newco.
The Merger will be a taxable transaction to the holders of the Common Stock who
receive Merger Consideration or cash pursuant to the exercise of dissenters'
rights for federal income tax purposes and may be taxable for state, local,
foreign and other tax purposes. See "The Merger Agreement -- Certain U.S.
Federal Income Tax Consequences of the Merger."
Other than the Company's Second Amended and Restated Employee Stock
Purchase Plan, which is expected to be terminated at the Effective Time, all
employee benefit and compensation plans of the Surviving Corporation will be
substantially the same as the Company's present benefit plans for a period of at
least one year. The Surviving Corporation may determine to amend present benefit
plans or to initiate additional employee benefit plans in the future to
compensate and motivate key employees. See "The Merger Agreement -- Employee
Benefits."
DETERMINATION OF FAIRNESS OF THE MERGER BY THE SPECIAL COMMITTEE AND THE BOARD
OF DIRECTORS
On March 15, 1998, the Board of Directors (with Krasovec and Josephson
abstaining due to inherent conflicts of interest), after receiving the
recommendation of the Special Committee, unanimously determined that the Merger
is in the best interests of the Company and the Public Shareholders, approved
the Merger Agreement and recommended to the Public Shareholders that they
approve the Merger Agreement. See "-- Conflicts of Interests."
In making its determination with respect to the fairness, from a financial
point of view, of the Merger, including the Merger Consideration, and in
determining to recommend approval of the Merger Agreement to the Board of
Directors, the Special Committee considered a number of factors. In making its
determination with respect to the fairness of the Merger from a financial point
of view, including the Merger Consideration, and in approving the Merger
Agreement, the Board of Directors (except for the interested directors)
considered the same factors. The material factors so considered by the Special
Committee and the Board of Directors were those set forth below. In analyzing
the proposed Merger, the Special Committee met on numerous separate occasions,
consulted with its financial and legal advisors and had numerous other
discussions with Krasovec and his representatives and between the members of the
Special Committee. The Special Committee did not perform any financial analysis
other than that performed by J.C. Bradford.
(i) The Special Committee and the Board considered the historical
market prices and recent trading activity of the Common Stock and the fact
that the Merger Consideration would enable the Public Shareholders to
realize a premium over the prices at which the Common Stock has traded in
the last year (including the ten business day average of reported closing
prices for the Common Stock ending with the day prior to the date of the
Company's press release reporting the Merger (the "Public Announcement
Date") which was $17.375); and the Merger Consideration represents a 19%
premium over the ten business day average price and a 30% premium over the
average of the closing prices during the 120 business days prior to the
Public Announcement Date. Although such prices may not adequately reflect
the value of the Common Stock in the view of management, the historical
market prices of the Common Stock for the past year were deemed relevant
because they indicate the arm's-length trading prices of the Common Stock
for that period as determined in the open market. In the judgment of the
Special Committee and the Board, the fact that the Merger Consideration
represents a premium over such prices is a significant factor in the
determination of fairness.
(ii) The Special Committee and the Board considered the oral opinion
of J.C. Bradford to the effect that, as of March 15, 1998, the Merger
Consideration of $20.70 in cash per share of Common Stock to be received by
the Public Shareholders in the Merger was fair to such shareholders from a
financial point of view and also considered the analyses underlying such
opinion. See "-- Opinion of Special Committee's Financial Advisor." A copy
of the written J.C. Bradford opinion, dated the date hereof, setting forth
the assumptions made, matters considered and limitations on the review
undertaken in connection with such opinion, is attached as Appendix B to
this Proxy Statement and should be carefully read in its entirety.
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(iii) The Special Committee and the Board considered information with
respect to the financial condition, results of operations, business and
prospects of the Company, as well as the risks involved in achieving such
prospects, and the current state of the promotional products industry,
including the Special Committee's views regarding the economic and market
conditions affecting the Company and such industry. The Special Committee
and Board believe that the promotional products industry will face
increased competition in the future, notably from Internet-based
advertising, and that this trend could adversely affect the future growth
prospects of the industry and the Company. Therefore, the Special Committee
determined that there was significant risk involved in the Company
achieving future growth that would support a price per share higher than
the Merger Consideration.
(iv) The Special Committee and the Board also evaluated the Merger
Consideration in light of the following factors: price, the ability of LLC
to consummate the proposed transaction, the percentage of Common Stock
owned by the members of the Buyout Group, the proposed structure of the
transaction and anticipated closing date, and the fiduciary obligations of
the Special Committee and the Board to the Public Shareholders. Based upon
information provided by LLC, the Special Committee and the Board believed
that LLC could obtain the financing required to complete the Merger. In
addition, because of the percentage of Common Stock owned by members of the
Buyout Group, the Special Committee and the Board considered it likely that
the Merger would be approved by the shareholders of the Company. These
factors, when combined with the structure of the transaction as a merger,
led the Special Committee and the Board to conclude that the Merger could
be completed more quickly than any alternative transaction, with less
disruption of the Company's business operations.
(v) The Special Committee considered the risks to the Company and the
Public Shareholders of entering into the Merger Agreement with LLC,
including (a) LLC being a newly-formed company without any significant
assets prior to consummation of the Merger, (b) LLC's ability to consummate
the Merger being dependent upon its ability to close on the financing and
(c) the provisions of the Merger Agreement requiring the Company in certain
circumstances to reimburse LLC for its reasonable and customary
out-of-pocket expenses in the event that the Merger is not consummated.
(vi) The Special Committee also considered the fact that consummation
of the Merger would preclude the Public Shareholders from having the
opportunity to participate in the future growth prospects of the Surviving
Corporation. Accordingly, in reaching its conclusion to approve the Merger
Agreement, the Special Committee considered the Revised Projections (as
defined below) and determined, based in part on these projections and on
J.C. Bradford's analysis of these projections, that the future prospects of
the Company are adequately reflected in the Merger Consideration. The
Special Committee believed that it was appropriate to consider management's
projections in its analysis because management is in the best position to
analyze the financial prospects of the Company. In addition, the Special
Committee recognized that the members of the Buyout Group will have the
opportunity to benefit from any increases in the value of the Surviving
Corporation following the Merger. See "-- Conflicts of Interest,"
"-- Future Plans of the Company," "-- Certain Projections" and "-- Purpose
of and Reasons for the Merger; Certain Effects of the Merger."
(vii) The Special Committee also considered the fact that the Merger
would afford the Public Shareholders an opportunity to dispose of their
Common Stock at fair value without the possible diminution of value
resulting from the lack of an active trading market and without payment of
brokerage fees.
The Special Committee considered whether the Company should actively seek
other potential buyers for the Company, but did not solicit other offers and did
not request J.C. Bradford to seek other bids or explore other alternatives to
the Merger. Based on statements by LLC, the Special Committee believed that LLC
would withdraw the proposal set forth in the Merger Agreement if the Company
were to solicit competing offers. Moreover, the Special Committee concluded that
there were very few, if any, other companies in the promotional products
industry that would be plausible acquirers of the Company and that there could
be no assurance that soliciting other offers would lead to an alternative
transaction more favorable to the Public Shareholders than the Merger. The
Special Committee and the Board of Directors also considered that the
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Merger Agreement did not preclude unsolicited offers. The Special Committee and
the Board of Directors believed that the public awareness of ability to consider
unsolicited proposals disclosed in the Current Report on Form 8-K filed promptly
after the execution of the Merger Agreement would act as a "market check" and
confirm to the Special Committee and the Board of Directors that no other
potential superior offers were available or, alternatively, would generate one
or more superior offers.
In view of the various factors considered by the Special Committee in
connection with its evaluation of the Merger and the Merger Consideration, the
Special Committee did not find it necessary to quantify or otherwise attempt to
assign relative importance to the specific factors considered in making its
determination, nor did it evaluate whether such factors were of equal
importance. However, based upon these factors, the evaluation of all the
relevant information provided to them by J.C. Bradford and taking into account
the existing trading ranges for the Common Stock, the Special Committee
determined that the Merger, including the Merger Consideration, was fair from a
financial point of view, to the Public Shareholders. The Special Committee and
the other members of the Board of Directors believe that the Merger was
considered in a manner that was procedurally fair to the Public Shareholders and
that the directors properly discharged their responsibilities and duties.
Krasovec and Josephson are the only members of the Board of Directors who
are members of the Buyout Group. Accordingly, Krasovec and Josephson did not
participate on the Special Committee and abstained from voting on the Merger due
to inherent conflicts of interest. See "-- Conflicts of Interest."
The Company believes that the manner in which the Merger is to be
implemented is procedurally fair to the Public Shareholders based on the
following factors: (i) the Special Committee was formed to promote and protect
the interests of the Public Shareholders; (ii) the Special Committee was
comprised solely of members of the Board of Directors who are neither members of
the Buyout Group nor officers of the Company (but who will receive cash in
exchange for their Common Stock, including shares of Common Stock to be issued
upon the anticipated exercise of their warrants, upon consummation of the
Merger); (iii) the Special Committee retained an independent financial advisor,
J.C. Bradford, and independent legal counsel, Fulbright & Jaworski L.L.P.; and
(iv) the negotiations between Krasovec and the Special Committee and their
respective counsel of the terms of the Merger Agreement were conducted on an
arm's-length basis.
OPINION OF SPECIAL COMMITTEE'S FINANCIAL ADVISOR
J.C. Bradford was retained by the Special Committee to assist the Special
Committee and the Board of Directors in evaluating the proposed Merger and to
render its opinion as to the fairness from a financial point of view of the
consideration to be received by the Public Shareholders in the Merger. J.C.
Bradford is a nationally recognized investment banking firm that engages in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for estate, corporate, and other purposes. J.C. Bradford was selected
as the Special Committee's financial advisor based upon such expertise.
On March 15, 1998, J.C. Bradford delivered its oral opinion to the Special
Committee to the effect that, as of such date, the Merger Consideration was fair
to the Public Shareholders from a financial point of view. J.C. Bradford
subsequently confirmed its oral opinion by delivery of its written opinion dated
as of the date of this Proxy Statement. J.C. Bradford's opinion is directed only
to the fairness from a financial point of view of the Merger Consideration to be
received by the Public Shareholders in the Merger and does not constitute a
recommendation to any shareholder as to whether such shareholder should vote in
favor of the Merger. J.C. Bradford conducted valuation analyses of the Common
Stock and evaluated the Merger Consideration, but was not asked to and did not
recommend a specific per share price to be issued pursuant to the Merger. J.C.
Bradford's opinion does not address the likely tax consequences of the Merger to
any Public Shareholder. In addition, J.C. Bradford was not asked to consider and
its opinion does not address the relative merits of the proposed Merger as
compared to any alternative business strategies that might exist for the Company
or the effect of any other transactions in which the Company might engage. J.C.
Bradford did not make an independent evaluation or appraisal of the assets and
liabilities of the Company or any of its subsidiaries or affiliates and has not
been provided with any such evaluation or appraisal. The full text of J.C.
Bradford's
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<PAGE> 30
written opinion, which sets forth the assumptions made, procedures followed,
matters considered, and limits of its review undertaken in connection with the
opinion, is included as Appendix B and is incorporated by reference herein. The
Public Shareholders are urged to and should read such opinion in its entirety.
In conducting its analysis and delivering its opinions, J.C. Bradford
considered such financial and other factors as it deemed appropriate and
feasible under the circumstances, including the following items J.C. Bradford
considers material to its opinion: (i) the Merger Agreement; (ii) the historical
and current financial position and results of operations of the Company; (iii)
the Revised Projections for the fiscal years beginning September 1, 1997 and
ending August 31, 2003, prepared for the Company by its senior management; (iv)
certain financial and securities data of certain other companies, the securities
of which are publicly traded and that J.C. Bradford believed to be generally
comparable to the Company; (v) prices and premiums paid in certain other
acquisitions and transactions that J.C. Bradford believed to be relevant; and
(vi) historical and current price and trading activity for the Common Stock.
J.C. Bradford also held discussions with members of the senior management of the
Company regarding the past and current business operations, financial condition
and future prospects of the Company. With the permission of the Special
Committee, J.C. Bradford assumed that financing for the Merger had been
irrevocably obtained on the terms set forth in commitment letters and highly
confident letters from financing sources previously reviewed by J.C. Bradford,
and that the Merger Agreement had been executed and delivered by the parties
thereto on terms substantially similar to those contained in the most recent
draft thereof supplied to and reviewed by J.C. Bradford as of the date of its
opinion. In addition, J.C. Bradford took into account its assessment of general
economic, market and financial conditions and its experience in other
transactions as well as its experience in securities valuation and its knowledge
of the promotional products industry generally.
J.C. Bradford's opinion is necessarily based upon general economic, market,
financial and other conditions as they existed on the date thereof and the
information made available to J.C. Bradford through such date. For purposes of
the opinion, J.C. Bradford relied upon and assumed the accuracy and completeness
of the financial and other information made available to it and did not assume
responsibility for independent verification of such information. J.C. Bradford
has assumed, and the management of the Company has represented, that the
information provided by the Company, including the Revised Projections had a
reasonable basis and reflected the best currently available estimates and
judgments of the Company's management as to the recent and likely future
performance of the Company. J.C. Bradford also relied upon the representations
of the Company's management that they were not aware of any information or fact
that would make the information provided to J.C. Bradford incomplete or
misleading, J.C. Bradford was not authorized by the Special Committee or the
Company to solicit, and did not solicit, other entities for purposes of a
possible business combination. No limitations were imposed by the Special
Committee or the Company on the scope of J.C. Bradford's investigation or the
procedures to be followed in rendering its opinion. The opinion was based upon
the information available to J.C. Bradford and the facts and circumstances as
they existed and were subject to evaluation on the date of the opinion. Events
occurring after such date could materially affect the assumptions used in
preparing the opinion and J.C. Bradford has no duty or obligation to update or
amend its opinion or otherwise advise the Special Committee, the Board of
Directors or any other party or person of the occurrence of any such events.
In preparing its report to the Special Committee, J.C. Bradford performed a
variety of financial and comparative analyses and considered a variety of
factors, including (i) comparable company analysis; (ii) discounted cash flow
analysis; (iii) leveraged buyout analysis; (iv) premium analysis; and (v) stock
trading analysis. The summary of J.C. Bradford's analyses set forth below does
not purport to be a complete description of the analyses underlying J.C.
Bradford's opinion. The preparation of a fairness opinion is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analysis or summary description. In arriving at its opinion, J.C. Bradford did
not attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, J.C. Bradford believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
the factors considered by it, without considering all analyses and factors,
could create a misleading or incomplete view of the processes underlying such
analyses and its opinion. With respect to the comparable company analysis
summarized below, no company utilized as a comparison is identical to the
Company and such analysis necessarily involves complex considerations and
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<PAGE> 31
judgments concerning the differences in financial and operating characteristics
of the companies and other factors that could affect the acquisition or public
trading values of the companies concerned. The analyses performed by J.C.
Bradford are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses.
The following is a summary of the report presented by J.C. Bradford to the
Special Committee on March 7, 1998:
(a) Comparable Company Analysis. Using publicly available information,
J.C. Bradford reviewed certain financial and operating data for several
publicly traded companies engaged in businesses with characteristics
similar to the Company's (the "Comparable Company Group"). The Comparable
Company Group includes CCS Industries, Inc., Equity Marketing, Inc.,
Lillian Vernon Corp., Racing Champions Corp. and Swiss Army Brands, Inc.
J.C. Bradford advised the Special Committee that there were no publicly
traded companies directly comparable to the Company and the analysis had to
be considered in light of that qualification. J.C. Bradford calculated the
current market price of each company as a multiple of estimated 1998
earnings ("1998 P/E"), which ranged from 11.3x to 25.6x with an adjusted
average multiple of 13.1x; current market price as a multiple of estimated
1999 earnings ("1999 P/E"), which ranged from 9.3x to 22.2x with an
adjusted average multiple of 11.2x; current market price as a multiple of
book value ("Book Value Multiple"), which ranged from 1.2x to 2.6x with an
adjusted average multiple of 1.7x; total firm value (defined as equity
market value plus net debt) as a multiple of last twelve months ("LTM")
revenues ("Revenue Multiple"), which ranged from 0.6x to 2.1x with an
adjusted average multiple of 0.9x; and total firm value as a multiple of
LTM earnings and earnings before interest, taxes, depreciation and
amortization ("EBITDA") (the "EBITDA Multiple"), which ranged from 5.7x to
9.0x with an adjusted average multiple of 7.4x. J.C. Bradford compared the
Comparable Company Group multiples to the corresponding multiples in the
Merger, including 12.6x 1998 P/E, 10.3x 1999 P/E, 2.1x Book Value Multiple,
0.9x Revenue Multiple and 7.2x EBITDA Multiple.
(b) Discounted Cash Flow Analysis. Using discounted cash flow
analysis, based on information obtained from the senior management of the
Company, J.C. Bradford discounted to present value the future cash flows
that the Company is projected to generate through 2003, under various
circumstances, assuming the Company performed in accordance with the
Revised Projections. J.C. Bradford calculated terminal values for the
Company (i.e., the values at the 2003 fiscal year end) by applying
multiples of EBITDA and earnings in the year 2003. The cash flow streams
and terminal values were then discounted to present values using different
discount rates chosen to reflect different assumptions regarding the
Company's cost of capital. J.C. Bradford's analysis of operating cash flows
yielded an implied value per share ranging from $19.27 to $23.17. J.C.
Bradford's analysis utilizing the free cash flow method resulted in per
share values ranging from $19.94 to $22.37. J.C. Bradford also calculated
various implied future stock prices of the Company based on its projected
net earnings for fiscal years 1999 to 2003 and discounted those prices to
present values using different discount rates chosen to reflect different
assumptions regarding the Company's cost of capital. Based on the above
described analysis, the implied value per share ranged from $18.16 to
$20.95 as compared to the closing stock price of the Common Stock on March
3, 1998 of $17.38 and the offer price of $20.70.
(c) Leveraged Buyout Analysis. J.C. Bradford utilized the Revised
Projections provided by senior management of the Company to analyze the
value of the Company as a stand-alone entity in a leveraged transaction.
Based on the structure of the proposed recapitalization and the proposed
offer of $20.70 per share of Common Stock in the Merger, J.C. Bradford
calculated the five-year internal rates of return ("IRRs") to the
convertible preferred equity holders and the equity investors, and analyzed
the total indebtedness to be incurred as a result of the transaction. J.C.
Bradford calculated terminal values for the Company (i.e., the values at
the 2003 fiscal-year end) by applying multiples of EBITDA in the year 2003.
J.C. Bradford noted that, based on the foregoing, the convertible preferred
equity holders are projected to achieve an IRR of between 22.9% and 25.0%
over the five-year period, and that the equity investors are projected to
achieve an IRR of between 31.1% and 36.9% over the five-year period. J.C.
Bradford also noted that upon completion of the transaction, the Company's
total indebtedness to LTM
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EBITDA ratio will be approximately 4.8x. Based upon its experience in
leveraged transactions, J.C. Bradford noted that these return levels are
generally consistent with those required in such transactions.
(d) Premium Analysis. J.C. Bradford prepared an analysis of the
premiums paid in 386 completed cash acquisitions of public companies since
January 1995 in which 100% of the target's shares were controlled by the
acquirer following the acquisition. J.C. Bradford considered, among other
factors, the type of consideration used in the acquisition and the premiums
paid based on the closing price of the target's shares at one day, one week
and four weeks prior to the announcement. For all cash acquisitions where
100% of the target's shares were controlled by the acquirer following the
acquisition, J.C. Bradford calculated median premiums of 24.0%, 27.5% and
33.6% at one day, one week, and four weeks prior to the announcement,
respectively. These premiums, based upon the announcement date of March 16,
1998, imply per share equity values for the Company of $21.55, $22.15 and
$22.38, respectively. These premiums, when applied to the 30-day average
stock price as of March 7, 1998, imply per share equity values for the
Company of $19.98, $20.55 and $21.54, respectively.
(e) Stock Trading Analysis. J.C. Bradford reviewed and analyzed the
historical trading volume and prices at which the Common Stock has traded
since the Company's initial public offering. J.C. Bradford noted that
trading activity was limited and that the trading market was relatively
illiquid. J.C. Bradford also noted that the highest traded price was
$24.00, which occurred in April 1996, and the lowest traded price was
$9.25, which occurred in May 1994.
Pursuant to the terms of an engagement letter dated February 12, 1998, the
Company agreed to pay J.C. Bradford for acting as financial advisor to the
Special Committee in connection with the Merger a fee as follows: (i) $50,000
upon execution of the engagement letter, (ii) $75,000 at the time J.C. Bradford
notified the Special Committee that it was prepared to render its opinion
concerning the Merger, and (iii) $100,000 upon delivery of the opinion by J.C.
Bradford. The fees paid to J.C. Bradford were not contingent upon the
consummation of the Merger. In addition, the Company has agreed to reimburse
J.C. Bradford for its reasonable out-of-pocket expenses, including the fees and
disbursements of its counsel, and to indemnify J.C. Bradford and certain related
persons against certain liabilities relating to or arising out of its
engagement, including certain liabilities under the federal securities laws. In
the ordinary course of its business, J.C. Bradford has traded, and may in the
future trade, securities of the Company for its own account and for the accounts
of its customers and, accordingly, may at any time hold a long or short position
in such securities.
J.C. Bradford was engaged by the Special Committee to render its opinion as
to the fairness from a financial point of view of the consideration to be
received by the Public Shareholders in the Merger in connection with the Special
Committee's discharge of its fiduciary obligations. The engagement letter
between J.C. Bradford and the Special Committee provides, and J.C. Bradford has
advised the members of the Board of Directors and the Special Committee, that
J.C. Bradford does not believe that any person (including any shareholder of the
Company) other than the Board of Directors and the Special Committee has the
legal right to rely upon J.C. Bradford's opinion for any claim arising under
state law and that, should any such claim be brought against J.C. Bradford, this
assertion will be raised as a defense. In the absence of governing authority,
this assertion will be resolved by the final adjudication of such issue by a
court of competent jurisdiction. Resolution of this matter under state law,
however, will have no effect on the rights and responsibilities of any person
under the federal securities laws or on the rights and responsibilities of the
Company's Board of Directors and the Special Committee under applicable state
law.
POSITION OF KRASOVEC, GUNNING AND JOSEPHSON AS TO FAIRNESS
Krasovec, Gunning and Josephson have concluded that the Merger and the
Merger Consideration are fair to the Public Shareholders and recommend that the
Public Shareholders vote in favor of the Merger based upon the following
factors: (i) the conclusions and recommendations of the Special Committee and
the Company's Board of Directors; (ii) the fact that the Merger Consideration
and the other terms and conditions of the Merger Agreement were the result of
arm's-length good faith negotiations between the Special Committee and its
advisor and Krasovec and his advisors; (iii) the Financial Analyses, (as defined
below) prepared by Merrill Lynch and (iv) the other factors referred to above as
having been taken into
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account by the Special Committee and the Board of Directors. See
"-- Determination of Fairness of the Merger by the Special Committee and the
Board of Directors," "-- Opinion of the Special Committee's Financial Advisor"
and "-- Material Prepared by Krasovec's Advisor." Krasovec, Gunning and
Josephson also took into account the factors referred to above as having been
taken into account by the Special Committee and the Company's Board of
Directors.
In view of the variety of factors considered in connection with their
evaluation of the Merger and the Merger Consideration, Krasovec, Gunning and
Josephson did not find it practicable to assign relative weights to the factors
considered in reaching their decision and, therefore, Krasovec, Gunning and
Josephson did not quantify or otherwise attach relative weights to the specific
factors considered by the Special Committee, the Company's Board of Directors
and themselves.
Krasovec engaged Merrill Lynch and Allen to provide advice regarding, and
to assist in negotiating, the Merger Agreement. Krasovec also engaged Merrill
Lynch to assist in obtaining the financing necessary to consummate the
transactions contemplated by the Merger Agreement. Neither Merrill Lynch nor
Allen were engaged to, nor did either of them render, any opinion as to the
fairness of the Merger Consideration. If the Merger is consummated, Allen will
be paid a fee of $700,000 for providing advice and assistance with respect to
negotiating the Merger Agreement and Merrill Lynch will be paid fees in the
aggregate of $5,025,000 for (i) providing advice and assistance with respect to
negotiating the Merger Agreement, (ii) acting as co-arranger in connection with
the $50 million senior secured credit facility to be provided to the Surviving
Corporation pursuant to that certain commitment letter, dated March 15, 1998
from Merrill Lynch, NationsBank and NMS, (iii) acting as an initial purchaser in
connection with the issuance by the Surviving Corporation of up to $100 million
principal amount of Senior Subordinated Notes pursuant to that certain highly
confident letter, dated March 15, 1998, from Merrill Lynch, Pierce, Fenner &
Smith Incorporated, (iv) issuing the highly confident letter relating to the
Senior Subordinated Notes and (v) acting in connection with the placement of
units of Preferred Stock and common stock of the Surviving Corporation (for
which Ares will also obtain a fee). Regardless of whether the Merger is
consummated, Merrill Lynch and Allen will be reimbursed for all out-of-pocket
expenses. All amounts owed to Merrill Lynch and Allen will be paid by the
Surviving Corporation pursuant to its agreement to pay all expenses of the
transaction. See "-- Expenses" and "The Merger Agreement -- Termination."
MATERIAL PREPARED BY KRASOVEC'S ADVISOR
Merrill Lynch was retained by Krasovec to act as his financial advisor. On
November 19, 1997 and again on December 5, 1997, Merrill Lynch met with Krasovec
and provided him with certain financial analyses (respectively, the "November
Financial Analyses" and the "December Financial Analyses" and together, the
"Financial Analyses"). The Financial Analyses were preliminary and were never
updated after December 5, 1997. The Financial Analyses are described below and
the full text of the Financial Analyses are filed as exhibits to the Schedule
13E-3 filed with the Commission in connection with the Merger and will be made
available for inspection and copying at the principal executive offices of the
Company during its regular business hours by any interested holder of shares of
Common Stock or by any representative of such a holder designated as such in
writing. The description below is qualified by reference to the text of such
Financial Analyses. Merrill Lynch was not requested to, and did not, render any
opinion as to the fairness of the consideration to be received by the Public
Shareholders, or any other party, in the Merger nor did Krasovec or the Buyout
Group obtain any opinion as to the fairness of the Merger to the Public
Stockholders.
Merrill Lynch prepared the Financial Analyses based on its review of (i)
the Company's publicly available business and historical financial information,
(ii) the historical market prices and trading volume of the Company's Common
Stock, (iii) certain initial financial forecasts prepared and furnished by the
Company's management, (iv) publicly available business and historical financial
information of companies it deemed comparable to the Company, (v) the historical
market prices of the common stock of the companies referred to in clause (iv),
and (vi) business trends in the business segments in which the Company operates.
Merrill Lynch assumed and relied on the accuracy and completeness of all
information supplied or otherwise made available to it and did not assume any
responsibility for independently verifying such information or
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<PAGE> 34
undertake an independent evaluation or appraisal of any of the assets or
liabilities of the Company, nor was Merrill Lynch furnished with any such
evaluation or appraisal.
The following is a summary of the material financial analyses used by
Merrill Lynch in preparing the December Financial Analyses (all of the analyses
are as of December 5, 1997), which, except as described below, are not
materially different than the financial analyses used by Merrill Lynch in
preparing the November Financial Analyses:
(a) Recent Stock Price and Earnings Performance
Merrill Lynch reviewed the historical trading prices and volumes at which
the Common Stock had traded since June 1993 (when the Company effected an
initial public offering) as well as during the twelve month period beginning
December 1996 and compiled the percentage of Common Stock traded within and
below various price ranges. Such review included Merrill Lynch's analysis of the
historical trading prices of the Common Stock as compared to the Standard &
Poor's 400 Index and a composite index comprised of four other publicly traded
corporations in businesses comparable to the Company's business: Cyrk Inc.,
Equity Marketing, HA-LO Industries and Swiss Army Brands. Representatives of
Merrill Lynch advised Krasovec that there were no publicly traded companies
directly comparable to the Company and that the analysis had to be considered in
light of that qualification. The analysis of such historical share trading
prices indicated that the Common Stock underperformed both the Standard & Poor's
400 Index and the comparable composite index during each period. Since June
1993, the Standard & Poor's 400 Index had increased 118.5%, the comparable
composite index had increased 384.5%, and the Common Stock had increased 29.3%.
Since December 1996, the Standard & Poor's 400 Index had increased 27%, the
comparable composite index had increased 0.3%, and the Common Stock had
decreased 5.6%. This analysis also revealed that the twelve month high for the
Common Stock was $21.50 and the twelve month low was $12.00, with the Common
Stock trading at $14.88 on December 2, 1997.
(b) Discounted Cash Flow Analysis
Because there are few publicly traded companies comparable to the Company
and because acquisitions of comparable companies have been made primarily by the
Company and have been small acquisitions with little publicly disclosed
financial information, Merrill Lynch noted that the best method to value the
Company was by its discounted cash flows. Merrill Lynch performed a discounted
cash flow analysis based on projected cash flows per share.
In performing the November Financial Analyses Merrill Lynch used a forecast
of the Company's income statement (including EBITDA) as well as selected cash
flow items (the "Initial Projections") for the years 1998 through 2004 that was
prepared by the Company, without making any adjustments to such forecasts.
Merrill Lynch then calculated ranges for the terminal value of the Company
applying to the EBITDA estimate for fiscal year 2004 terminal value multiples
ranging from 6.0x to 8.0x (which multiples were selected by Merrill Lynch on the
basis of its experience and judgment). Merrill Lynch then discounted the stream
of free cash flows (as estimated by Merrill Lynch) for fiscal years 1998 through
2004 as well as the terminal value of the Company using discount rates ranging
from 11% to 13%, representing Merrill Lynch's estimate of the weighted average
cost of capital of the Company. Based on these calculations, Merrill Lynch
calculated a value per share of Common Stock ranging from $29.23 to $43.74.
In performing the December Financial Analyses, Merrill Lynch used the
Initial Projections, without making any adjustments to such forecasts. Merrill
Lynch than calculated ranges for the terminal value of the Company applying to
the EBITDA estimate for fiscal year 2004 terminal value multiples ranging from
6.0x to 8.0x (which multiples were selected by Merrill Lynch on the basis of its
experience and judgment). Merrill Lynch then discounted the stream of free cash
flows (as estimated by Merrill Lynch, such estimate being revised from the
estimate used in the November Financial Analyses) for fiscal years 1998 through
2004 as well as the terminal value of the Company using discount rates ranging
from 11% to 13%, representing Merrill Lynch's estimate of the weighted average
cost of capital to the Company. Based on these calculations, Merrill
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<PAGE> 35
Lynch calculated a value per share of Common Stock ranging from $32.44 to
$47.13. Merrill Lynch included this calculation in an appendix to the December
Financial Analyses.
After meetings with the Company's management and after conducting its due
diligence investigation of the Company, Merrill Lynch formulated a set of
adjustments to the Initial Projections which presented a more conservative
projected rate of revenue growth and projected operating profit margin than the
Initial Projections. Performing an analysis substantially identical to the one
described in the immediately preceding paragraph above on the Initial
Projections as so adjusted yielded a value per share of Common Stock ranging
from $18.00 to $28.00. Merrill Lynch included this result in the December
Financial Analyses.
(c) Comparable Public Company Multiples Analysis
Merrill Lynch reviewed certain publicly available financial, operating and
stock market information for Cyrk Inc., Equity Marketing Inc., HA-LO Industries,
Swiss Army Brands, and Bemrose Corporation (a European company), which are
publicly traded companies that Merrill Lynch deemed to be similar in certain
respects to the Company. Although these companies were deemed comparable based
on certain characteristics of their business, each was different from the
Company in other key respects. Nevertheless, Merrill Lynch used these companies
in its analysis because few publicly traded comparable companies exist. Merrill
Lynch calculated, among other things, (i) market value of equity as a multiple
of estimated 1997 and 1998 earnings per share and (ii) market capitalization as
a multiple of the last twelve months sales, EBITDA, and EBIT. For the relevant
periods the comparable companies had a (i) median market value of equity to
earnings per share of 18.6x and 19.1x for estimated 1997 and 1988 earnings,
respectively and (ii) market capitalization as a multiple of the last twelve
month sales, EBITDA and EBIT of .87x, 8.4x and of 11.5x, respectively. The
Company's multiples were lower than the median public company comparable
multiple in each of the calculations with (i) market value of equity as a
multiple of estimated 1997 and 1998 earnings of 12.9x and 10.9x, respectively
and (ii) market capitalization as a multiple of the last twelve months sales,
EBITDA and EBIT of .76x, 5.8x and 9.0x, respectively. Based on these comparable
public company multiples, Merrill Lynch calculated a reference value for the
Common Stock ranging from $14.50 to $25.00.
(d) Comparable Company Acquisition Multiples Analysis
Merrill Lynch also examined ten transactions involving the acquisition of
comparable manufacturing companies since 1994 and five transactions involving
the acquisition of comparable distributors since 1995. The Company was the
acquiror in each of the ten transactions involving manufacturing companies. For
nine of the ten transactions Merrill Lynch determined the multiple of
transaction value to sales, with the analysis revealing a range of 0.44x to
1.52x with the median multiple being 0.95x. For the five acquisitions of
comparable distributors, HA-LO was the acquiror in three of the transactions and
Cyrk Inc. was the acquiror in two of the transactions. Merrill Lynch determined
for each of these five transactions the multiple of transaction value to sales,
with the analysis revealing a range of 0.10x to 1.46x and the median multiple
being 0.40x. These comparable company acquisition multiples indicate a reference
value for the Common Stock ranging from $19.00 to $27.00.
Selecting portions of the material set forth above, without considering the
material as a whole, could create an incomplete view of the processes underlying
the analysis of Merrill Lynch. Moreover, as indicated above, the material was
preliminary when presented on December 5, 1997 and has not been updated since
that time. Additionally, no company or transaction used in the material for
comparison is identical to the Company or the Merger. The material was prepared
solely for the purposes described above and did not and does not purport to be
an appraisal or necessarily to reflect the prices at which businesses or
securities actually may be sold. Analyses based upon projected future results
are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of Merrill Lynch, their inclusion in this
Proxy Statement should not be regarded as an indication that Merrill Lynch
believes that future results or actual values will not be materially different
from these forecasts or assumptions.
23
<PAGE> 36
Merrill Lynch provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of the Company for its own account and for the account of customers.
Merrill Lynch is acting as financial advisor in connection with the Merger
based upon Merrill Lynch's qualifications, expertise and reputation, including
the fact that Merrill Lynch, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bidding, secondary distributions of listed and unlisted securities, private
placements and valuation for corporate and other purposes. Pursuant to an
engagement letter between Krasovec and Merrill Lynch, dated as of January 12,
1998, Krasovec has agreed to pay Merrill Lynch a fee of $1,500,000 payable in
cash upon the closing of the Merger. Krasovec has also agreed to pay, upon
request, Merrill Lynch's reasonable out-of-pocket expenses incurred in
connection with its activities under the engagement letter and to indemnify it
against certain liabilities, including under the federal securities laws.
CERTAIN PROJECTIONS
The Company does not as a matter of course make public forecasts or
projections as to future revenues or results of operations. As discussed above
in "-- Determination of Fairness of the Merger by the Special Committee and the
Board of Directors," "-- Opinion of Special Committee's Financial Advisor," and
"-- Material Prepared by Krasovec's Advisor," management presented estimates of
the Company's future financial performance to representatives of Merrill Lynch
and to representatives of J.C. Bradford and to certain independent directors in
connection with their analysis of the proposed Merger. Management initially
prepared the Initial Projections in November 1997, which it provided to
representatives of Merrill Lynch in that month . Management concluded, based
upon historical performance and the Company's operating results subsequent to
the preparation of the Initial Projections, that the Initial Projections were
too optimistic and, accordingly, management revised its estimates in January
1998. Management provided the revised projections ("Revised Projections") to
representatives of J.C. Bradford, certain independent directors and its
Financing Sources in February 1998. The Initial Projections and Revised
Projections are summarized in the table below.
While presented with numerical specificity, the projections are based upon
numerous estimates and assumptions that are inherently subject to significant
business, economic, industry and competitive uncertainties and contingencies,
all of which are difficult to predict and many of which are beyond the Company's
control. Certain assumptions on which the projections were based related to the
achievement of strategic goals, objectives and targets over the applicable
periods that are more aggressive than recent historical results. Because there
can be no assurance that the Company will complete any acquisitions, the
projections do not reflect any future acquisitions by the Company and were
prepared based on the assumption that the Company will not complete any
acquisitions of other businesses during the five-year period covered by the
projections. An important element of the Company's business strategy is to
selectively acquire other businesses. Accordingly, there can be no assurance
that the projected results would be realized or that actual results would not be
significantly higher or lower than those predicted.
While the projections were prepared in good faith, no assurance can be made
regarding future events. Therefore, such projections cannot be considered a
reliable predictor of future operating results, and this information should not
be relied upon as such. Additionally, the financial projections do not reflect
revised prospects for the Company, changes in general business and economic
conditions, or any other transaction or event that has occurred or may occur and
that was not anticipated at the time such information was prepared. The
projections were not prepared with a view toward public disclosure or complying
with either the published guidelines of the Commission regarding projections or
forecasts or the American Institute of Certified Public Accountants' Guide for
Prospective Financial Statements. The projections do not purport to present
operations in accordance with generally accepted accounting principles, and the
Company's independent auditors have not examined, compiled or performed any
procedures regarding these projections, and
24
<PAGE> 37
accordingly, assume no responsibility for them. Shareholders are cautioned not
to place undue reliance on the projections.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED AUGUST 31,
---------------------------------------------------------
1998 1999 2000 2001 2002 2003
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Initial Projections:
Sales..................... 194,642 209,676 225,906 243,432 262,358 282,801
EBITDA.................... 26,900 30,600 34,100 38,000 42,300 47,000
Revised Projections:
Sales..................... 193,400 207,800 223,500 239,900 257,562 276,160
EBITDA.................... 26,000 29,300 32,200 35,400 38,500 42,500
</TABLE>
CONFLICTS OF INTERESTS
In considering the recommendations of the Company's Board of Directors, the
Company's shareholders should be aware that certain members of the Company's
management and the Board of Directors have interests in the Merger beyond the
interests of the Public Shareholders that may create potential conflicts of
interest.
Krasovec is the Chairman, Chief Executive Officer and President of the
Company and a member of the Buyout Group. Josephson, a director of the Company,
is also a member of the Buyout Group. In addition, Josephson is an affiliate of
Allen, which is one of the financial advisors retained by Krasovec to provide
financial advice in connection with the proposed Merger. Allen and Josephson
will continue to own warrants to acquire common stock of the Surviving
Corporation. Due to their conflicts of interest, Krasovec and Josephson did not
participate on the Special Committee and abstained from evaluating and voting on
the Merger.
As of the Record Date, Krasovec and the other members of the Buyout Group
beneficially owned 660,917 and 466,543 shares of Common Stock, respectively
(representing approximately 13.0% and 8.9%, respectively, of the Common Stock
then outstanding). In the Merger, Krasovec's ownership position in the Company
will be converted into beneficial ownership of approximately [47]% of the total
outstanding common stock of the Surviving Corporation immediately after the
Merger, and the ownership position in the Company of the rest of the members of
the Buyout Group will be converted into beneficial ownership of approximately
[24]% of the total outstanding common stock of the Surviving Corporation
immediately after the Merger.
Following the Merger, the members of the Buyout Group and the New
Shareholders will own, in the aggregate, 100% of the Surviving Corporation's
common stock outstanding immediately after the Merger. Accordingly, the members
of the Buyout Group have a direct economic interest in the Merger. See
"-- Future Plans of the Company."
Additionally, substantially all of the members of the Buyout Group hold
Company Stock Derivatives to purchase shares of Common Stock. As set forth in
the Merger Agreement, all such derivatives (whether or not exercisable) will
continue to be outstanding after the Effective Time and shall entitle the
holders of such derivatives to purchase common stock of the Surviving
Corporation under the same terms and conditions as existed immediately prior to
the Effective Time, except that the term of all Company Stock Derivatives (other
than convertible debt and employee incentive stock options) shall be extended
for three years from the date of their current expiration. See "The Merger
Agreement -- Conversion of Securities in the Merger; Treatment of Derivatives."
The opportunity to obtain an equity interest in the Surviving Corporation
may have presented the members of the Buyout Group with actual or potential
conflicts of interest in connection with the Merger. In light of these inherent
conflicts of interest, the Board of Directors of the Company appointed the
Special Committee comprised solely of Board members who are not members of the
Buyout Group and are not officers of the Company (but who will receive cash in
exchange for their shares of Common Stock, including shares of Common Stock to
be issued upon their anticipated exercise of their warrants, upon consummation
of the Merger).
25
<PAGE> 38
In making its determination with respect to the Merger in accordance with
its fiduciary duties to the Public Shareholders, the Special Committee and the
Board of Directors considered the actual and potential conflicts of interest of
the members of the Buyout Group and certain of the Board's members, along with
the other matters described under "-- Determination of Fairness of the Merger by
the Special Committee and the Board of Directors."
FUTURE PLANS OF THE COMPANY
It is expected that, following the Merger, the business and operations of
the Company will be continued by the Company, as the Surviving Corporation in
the Merger, substantially as they are currently being conducted. However, the
members of the Buyout Group and the management of the Surviving Corporation will
continue to evaluate the Company's business and operations after the
consummation of the Merger and make such changes as are deemed appropriate. The
Company's executive and corporate headquarters is expected to remain at its
current location in Austin, Texas.
Except as otherwise indicated in this Proxy Statement, the members of the
Buyout Group do not have any present plans or proposals subsequent to the Merger
that relate to or would result in an extraordinary corporate transaction, such
as a merger, reorganization or liquidation, involving the Company, a sale or
transfer of a material amount of assets of the Company or any material change in
the Company's corporate structure. However, the Company regularly reviews
various strategic acquisition opportunities and periodically engages in
discussions regarding such possible acquisitions. Currently, the Company is not
a party to any agreements, understandings, arrangements or negotiations
regarding any material acquisitions; however, as the result of the Company's
process of regularly reviewing acquisition prospects, negotiations may occur
from time to time if appropriate opportunities arise. See "-- Estimated Fees and
Expenses; Sources of Funds."
The Merger Agreement provides that the directors and officers of Newco
immediately prior to the Effective Time shall become, from and after the
Effective Time, the directors and officers of the Surviving Corporation. Such
persons will continue as directors or officers, as the case may be, of the
Surviving Corporation until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the articles of incorporation and by-laws of the Surviving Corporation. It
is anticipated that the sole director of Newco will be Krasovec, with an
additional director who will be designated by the New Shareholders. It is also
anticipated that the officers of Newco will be the current officers of the
Company.
RIGHTS OF DISSENTING SHAREHOLDERS
If the Merger Agreement is approved by the required vote of the Company's
shareholders and is not abandoned or terminated, shareholders of the Company who
did not vote in favor of the Merger may, by complying with Articles 5.12 and
5.13 of the TBCA, be entitled to dissenters' rights as described therein. If a
shareholder of the Company has a beneficial interest in shares of Common Stock
that are held of record in the name of another person, such as a broker or
nominee, and such shareholder desires to perfect whatever dissenters' rights
such beneficial shareholder may have, such beneficial shareholder must act
promptly to cause the holder of record timely and properly to follow the steps
summarized below.
A VOTE IN FAVOR OF THE MERGER BY A SHAREHOLDER OF THE COMPANY WILL RESULT
IN A WAIVER OF THE SHAREHOLDER'S DISSENTERS' RIGHTS.
The Company's shareholders will have the right to dissent from the Merger
and to obtain an appraisal of the fair value of their shares of Common Stock in
the event that the Merger Agreement is approved and is not abandoned or
terminated. Fair value will be determined as of the day immediately preceding
the Meeting.
The summary set forth below does not purport to be a complete statement of
the provisions of Texas law relating to shareholders' rights to dissent and to
obtain an appraisal of Common Stock in connection with the Merger and is
qualified in its entirety by reference to Articles 5.12 and 5.13 of the TBCA,
which are attached hereto as Appendix D, and the other relevant provisions of
the TBCA. The TBCA contains provisions that, in the case of the merger of a
corporation organized under the laws of Texas, grant Dissenting Shareholders who
26
<PAGE> 39
comply with the procedures set forth in Articles 5.12 and 5.13 the right to
receive payment in cash equal to the fair value of their shares. The principal
provisions of Articles 5.12 and 5.13 as they apply to the Merger are summarized
below.
To claim dissenters' rights, a shareholder must (i) prior to the
shareholder vote on the Merger, file a written objection to the Merger stating
that such shareholder intends to demand payment for such shareholder's Common
Stock if the Merger is consummated and giving such shareholder's address to
which notice of the Merger shall be mailed in the event it occurs; (ii) not vote
such shareholder's Common Stock in favor of approval of the Merger; (iii) if the
Merger is approved by the Company's shareholders and consummated, demand, in
writing, payment of the fair value of such shareholder's shares of Common Stock
from the Surviving Corporation (stating therein the number and class of shares
of Common Stock owned by such shareholder and an estimate of the fair market
value of such shares) within ten days after the date the notice that the Merger
has become effective is delivered or mailed to the shareholder, which notice
must be provided to all shareholders who complied with (i) and (ii) above within
ten days after the Effective Time of the Merger; and (iv) within twenty days of
filing such written demand for payment, submit to the Surviving Corporation the
certificate or certificates representing such shareholder's shares of Common
Stock for the purpose of having a notation placed thereon to the effect that a
demand for payment with respect thereto has been made.
Neither an abstention from voting on the Merger proposal nor a vote against
the Merger will be deemed to satisfy the requirement that a written objection be
filed with the Company before the vote on the Merger. However, a shareholder who
has filed a written objection to the Merger as provided above will not be deemed
to have waived such shareholder's dissenter's rights by abstaining from voting
on the Merger proposal or otherwise not voting; however, such a shareholder will
be deemed to have waived such shareholder's dissenters' rights if such
shareholder votes in favor of the Merger. A shareholder who fails to make the
written demand within the ten-day period described above will be bound by the
Merger as if such shareholder had voted in favor thereof. If a shareholder fails
to submit such shareholder's certificates within the twenty-day period described
above, such shareholder's rights to receive payment pursuant to dissenters'
rights shall terminate unless a court for good and sufficient cause determines
otherwise.
In the event that the Merger is approved by the Company's shareholders and
a shareholder elects to exercise such shareholder's dissenters' rights, the
Surviving Corporation shall, within twenty days of the date it receives such
shareholder's written demand for payment, deliver or mail to such shareholder a
written notice that either: (i) provides that the Surviving Corporation accepts
the amount claimed by the Dissenting Shareholder as the fair value of such
shareholder's shares and that the Surviving Corporation agrees to pay such
amount within ninety days after the Effective Time of the Merger and upon
surrender of the certificates for such shareholder's shares duly endorsed; or
(ii) contains an estimate by the Surviving Corporation of the fair value of the
shares and an offer to pay such amount within ninety days after the effective
date of the Merger, but only if the Surviving Corporation receives from the
shareholder, within sixty days after such date, a notice from the shareholder
that such shareholder agrees to accept such amount upon surrender of such
shareholder's share certificate or certificates duly endorsed.
If the Dissenting Shareholder and the Surviving Corporation fail to agree
on a value within sixty days after the Effective Time of the Merger, either the
shareholder or the Surviving Corporation may, within sixty days after the
expiration of such sixty day period, file a petition in any court of competent
jurisdiction in Travis County, Texas for the purpose of obtaining a
determination of the value of the shares of the Dissenting Shareholder. Then, if
the court determines that the shareholder has complied with the requirements for
a Dissenting Shareholder under Articles 5.12 and 5.13 of the TBCA, the court
will appoint one or more appraisers to determine the value of the shareholder's
shares. All Dissenting Shareholders who do not reach agreement with the
Surviving Corporation as to the value of their shares within sixty days of the
effective date of the Merger will receive notice of such court proceeding, and
those who are found to have complied with Articles 5.12 and 5.13 of the TBCA
will be bound by the final judgment of the court as to the value of their
shares.
27
<PAGE> 40
A Dissenting Shareholder who makes a written demand for payment of such
shareholder's shares will not thereafter be entitled to vote or to exercise any
other rights of a shareholder, except the right to receive payment for such
shareholder's shares pursuant to the TBCA.
A Dissenting Shareholder may withdraw such shareholder's demand for payment
for such shareholder's shares at any time before such payment is made. The
demand may not be withdrawn after payment by the Surviving Corporation has been
made nor may the demand be withdrawn after a petition has been filed with a
court for such payment unless the Surviving Corporation consents to the
withdrawal of the demand.
In the absence of fraud in the transaction, the remedy provided by Article
5.12 of the TBCA is the exclusive remedy for the recovery of the value of shares
or money damages by a Dissenting Shareholder. If the Surviving Corporation
complies but a Dissenting Shareholder fails to comply with the requirements of
Articles 5.12 and 5.13 of the TBCA, such shareholder is not entitled to bring an
action for the recovery of the value of such shareholder's shares or for money
damages.
ANY SHAREHOLDER CONTEMPLATING THE EXERCISE OF THE RIGHTS SUMMARIZED ABOVE
IN CONNECTION WITH THE MERGER IS URGED TO CONSULT SUCH SHAREHOLDER'S OWN
COUNSEL. THE FAILURE BY A SHAREHOLDER TO FOLLOW PRECISELY ALL OF THE STEPS
REQUIRED BY ARTICLES 5.12 AND 5.13 OF THE TBCA WILL RESULT IN THE LOSS OF THOSE
RIGHTS.
ESTIMATED FEES AND EXPENSES; SOURCES OF FUNDS
Estimated fees and expenses incurred or to be incurred by the Company, LLC,
Newco and the members of the Buyout Group in connection with the Merger
Agreement and the transactions contemplated thereby are approximately as
follows:
<TABLE>
<S> <C>
Payment of Merger Consideration(1).......................... $85,000,000
Financial advisory fees, financing commitment fees and
expenses(2)............................................... 7,175,000
Legal fees and expenses(3).................................. 1,475,000
Accounting and appraisal fees and expenses.................. 150,000
SEC filing fees............................................. 16,800
Printing and mailing expenses............................... 75,000
Paying Agent fees and expenses.............................. 1,500
Miscellaneous expenses...................................... 106,700
-----------
TOTAL............................................. $94,000,000
</TABLE>
- ---------------
(1) Includes payment for all outstanding shares of Common Stock other than those
owned by members of the Buyout Group.
(2) Includes the fees and estimated expenses of J.C. Bradford, Merrill Lynch and
Allen See "-- Opinion of Special Committee's Financial Advisor" and
"-- Position of Krasovec, Gunning and Josephson as to Fairness."
(3) Includes the estimated fees and expenses of legal counsel for the Special
Committee, for the Company, for J.C. Bradford, for Krasovec and the members
of the Buyout Group, for Merrill Lynch and for Ares.
The total funds required to pay the Merger Consideration of $20.70 per
share to all Public Shareholders, consummate the other transactions contemplated
by the Merger Agreement, refinance certain of the Company's current
indebtedness, fund the Surviving Corporation's working capital needs after the
Merger, and pay all related fees, costs and expenses is estimated to be
approximately $179.3 million, which amount will be obtained by means of certain
equity contributions and borrowings as described below. Except as otherwise
stated below, all of such equity contributions will become effective at the
Effective Time, and all of such borrowings will become available immediately
subsequent to the Effective Time upon satisfaction of the conditions in the loan
documents. None of the equity contributions or borrowings will become effective
or available if the Merger is not consummated for any reason. The terms of and
the documentation for the
28
<PAGE> 41
intended borrowings have not yet been finalized and are still being negotiated.
Accordingly, the description below of such borrowings is preliminary and not
necessarily complete. In any event, the final documentation for such borrowings
might contain terms and conditions that are more or less restrictive than
currently contemplated.
The total financing for the Merger Agreement and related costs and expenses
will be approximately $179.3 million, of which approximately $85 million will be
required to pay the Merger Consideration to the Public Shareholders and
approximately $94.3 million will have been incurred to refinance certain of the
Company's current indebtedness, fund the Surviving Corporation's working capital
needs after the Merger and to pay all expenses of the Company, LLC, Newco and
the members of the Buyout Group in connection with the Merger Agreement and the
transactions contemplated thereby. Such funds will be furnished from (i) the
Equity Financing of approximately $44.3 million, consisting of (A) approximately
$24.3 million to be provided by the Buyout Group and the Additional Common
Shareholders and (B) $20 million from the issuance to the Preferred Shareholders
by the Surviving Corporation of units of Preferred Stock and common stock of the
Surviving Corporation, which will be provided pursuant to a commitment letter
from Ares, (ii) the $50 million Credit Facilities to be provided to the
Surviving Corporation pursuant to a commitment letter from Merrill Lynch,
NationsBank and NMS, consisting of (A) a $25 million senior secured term loan
which will be fully drawn at the Effective Time and (B) a $25 million senior
secured revolving credit facility, of which no more than $10 million will be
drawn at the Effective Time, and (iii) up to $100 million from the issuance by
the Surviving Corporation of the Senior Subordinated Notes at the Effective
Time.
Equity Financing. At the Effective Time, the Equity Financing, in the
amount of approximately $44.3 million, will consist of (A) approximately $24.3
million to be provided by the Buyout Group and the Additional Common
Shareholders, as described below, and (B) $20 million from the issuance by the
Surviving Corporation of units of Preferred Stock and common stock of the
Surviving Corporation, which will be provided pursuant to a commitment letter
from Ares, as described below:
Additional Common Shareholders. Of the $24.3 million of Equity Financing,
approximately $20.3 million will be provided by the members of the Buyout Group,
by converting their Common Stock (valued at the Merger Consideration of $20.70
per share) into common stock of the Surviving Corporation, and approximately $4
million will be provided through the issuance of new shares of common stock by
the Surviving Corporation at the Effective Time to the Additional Common
Shareholders, which shareholders may include members of the Buyout Group. An
employee of Merrill Lynch is a member of a limited liability company that is
anticipated to be an Additional Common Shareholder.
Preferred Shareholders. At the Effective Time, the Surviving Corporation
will issue to the Preferred Shareholders 20,000 units ("Units"), each consisting
of (i) one share of the Surviving Corporation's Preferred Stock with a
liquidation preference ("Liquidation Preference") of $1,000 per share, and (ii)
an undetermined number of shares of common stock. The total number of shares of
common stock to be issued to the Preferred Shareholders will represent 15% of
the fully diluted common equity of the Surviving Corporation. The Preferred
Stock will have no voting rights, other than as required by law, and will be
ranked senior in liquidation and payment of dividends to all other classes of
capital stock of the Surviving Corporation, now outstanding or hereafter issued.
The annual dividend rate (the "Dividend Rate") of the Preferred Stock will be
the greater of (i) 12.25% and (ii) the yield to maturity on the Senior
Subordinated Notes plus 250 basis points. For the first five years after
issuance, dividends will be payable, at the Surviving Corporation's option, in
additional shares of Preferred Stock or cash. Thereafter, dividends will be
payable in cash. All dividends will accumulate and will be payable (whether in
cash or Preferred Stock) quarterly, in arrears. Dividends will accumulate on all
unpaid dividends at the applicable annual Dividend Rate.
The Preferred Stock will be redeemable, in whole or in part, at the option
of the Surviving Corporation at any time on or after the dividend payment date
that is closest to the fifth anniversary of issuance. The Preferred Stock will
also be redeemable at the option of the Surviving Corporation any time on or
prior to the fifth anniversary of issuance in certain instances. The Surviving
Corporation will have the option to exchange the Preferred Stock at any time for
subordinated notes that will have substantially the same terms as the Preferred
Stock.
29
<PAGE> 42
Credit Facilities. At the Effective Time, Merrill Lynch, NationsBank and
certain other lenders (collectively, the "Lenders") will make available to the
Surviving Corporation senior secured credit facilities in an aggregate principal
amount of $50 million, such Credit Facilities comprising:
Term Loan Facility. The Lenders will make available a term loan facility in
an aggregate principal amount of $25 million (the "Term Loan Facility"). The
Term Loan Facility will mature on the fifth anniversary of the Effective Time.
Amounts outstanding under the Term Loan Facility will amortize, beginning with
the last business day of the first full fiscal quarter after the Effective Time,
on a quarterly basis during each year as set forth below:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -----------
<S> <C>
1998............................................ $ 3,000,000
1999............................................ 4,000,000
2000............................................ 5,000,000
2001............................................ 6,500,000
2002............................................ 6,500,000
-----------
$25,000,000
</TABLE>
The Term Loan Facility will be available solely on the Effective Time in a
single draw. Amounts borrowed under the Term Loan Facility that are repaid or
prepaid may not be reborrowed. Borrowings under the Term Loan Facility may be
prepaid at any time in whole or in part at the option of the Surviving
Corporation, in a minimum principal amount and in multiples to be agreed upon,
without premium or penalty (except, in the case of LIBOR borrowings, prepayments
not made on the last day of the relevant interest period). Voluntary prepayments
under the Term Loan Facility will be applied pro rata against the remaining
scheduled amortization payments under the Term Loan Facility.
Revolving Facility. The Lenders will make available a revolving credit
facility in an aggregate principal amount of $25 million (the "Revolving
Facility"). The Revolving Facility will mature on the fifth anniversary of the
Effective Time (the "Revolving Facility Maturity Date"). The Revolving Facility
will be available for working capital and general corporate purposes in the form
of revolving loans and letters of credit ("Letters of Credit") on and after the
Effective Time until 30 business days prior to the Revolving Facility Maturity
Date. Amounts repaid under the Revolving Facility may be reborrowed to the
extent of the commitments then in effect. At the Effective Time, not more than
$10 million shall be drawn under the Revolving Facility to consummate the
Merger. The unutilized portion of the commitments under the Revolving Facility
may be reduced and Revolving Loans may be repaid at any time, in each case, at
the option of the Surviving Corporation, in a minimum principal amount and in
multiples to be agreed upon, without premium or penalty (except, in the case of
LIBOR borrowings, prepayments not made on the last day of the relevant interest
period).
The Credit Facilities will be secured by (i) a perfected first priority
lien on, and pledge of, all the capital stock and intercompany debt of each of
the direct and indirect subsidiaries of the Surviving Corporation existing at
the Effective Time or thereafter created or acquired (except that to the extent
that the pledge thereof would cause material adverse tax consequences, such
pledge with respect to foreign subsidiaries shall be limited to 65% of the
capital stock of "first tier" foreign subsidiaries), and (ii) a perfected first
priority lien on, and security interest in, all of the tangible and intangible
properties and assets (including all real property) of the Surviving Corporation
and its direct and indirect domestic subsidiaries existing at the Effective Time
or thereafter created or acquired, except for those properties and assets which
Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Syndication Agent, shall
determine in its sole discretion that the costs of obtaining such security
interest are excessive in relation to the value of the security to be afforded
thereby (it being understood that none of the foregoing shall be subject to any
other liens or security interests, except for certain customary exceptions to be
agreed upon) (all of such collateral, the "Collateral").
The Surviving Corporation will be entitled to make borrowings at either
LIBOR or ABR, plus (A) with respect to LIBOR Loans, (i) in the case of loans
under the Revolving Facility, 2.50% per annum; (ii) in the case of loans under
the Term Loan Facility, 2.50% per annum; and (B) with respect to ABR Loans, (i)
in the
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case of loans under the Revolving Facility, 1.50% per annum; and (ii) in the
case of loans under the Term Loan Facility, 1.50% per annum. A pricing grid
governing such rates showing stepups/stepdowns in such rates beginning 12 months
after the Effective Time shall be negotiated based upon improved credit
measures.
The Credit Facilities will be subject to a 0.50% per annum commitment fee
on the undrawn amount of the commitment, commencing at the Effective Time. The
Company intends to repay all indebtedness and terminate all commitments to make
extensions of credit under its existing $125 million credit facility arranged by
Merrill Lynch (the "Old Credit Facility"). Other than as described herein, the
Company has no present plans or arrangements to refinance or repay the Credit
Facilities.
Senior Subordinated Notes. At the Effective Time, the Surviving Corporation
will issue up to $100 million principal amount of unsecured senior subordinated
notes due 2008, which notes will be sold or placed pursuant to a highly
confident letter, dated March 15, 1998, by Merrill Lynch, Pierce, Fenner & Smith
Incorporated and its affiliates.
EXPENSES
Except with regard to the expense payments described under the caption "The
Merger Agreement -- Termination," the Merger Agreement provides that in the
event the Merger is not consummated, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated by the
Merger Agreement will be paid by the party incurring such expenses. In the event
the Merger is consummated, all costs and expenses incurred in connection with
the Merger Agreement and the transactions contemplated thereby (including those
incurred by LLC and Newco) will be paid by the Surviving Corporation.
THE MERGER AGREEMENT
The following discussion is a summary of the material provisions of the
Merger Agreement. This summary and all other discussions of the terms and
conditions of the Merger and the Merger Agreement included elsewhere in this
Proxy Statement are qualified in their entirety by reference to the Merger
Agreement, a copy of which is attached as Appendix A to this Proxy Statement and
incorporated by reference herein. Capitalized terms used but not defined herein
have the meanings ascribed to such terms in the Merger Agreement.
THE MERGER
On the terms and subject to the conditions of the Merger Agreement, at the
Effective Time, Newco will be merged with and into the Company in accordance
with the applicable provisions of the TBCA, and the separate corporate existence
of Newco will thereupon cease. The Company will be the surviving corporation
under the corporate name it possesses immediately prior to the Effective Time.
The Merger will have the effects specified in the TBCA and in the Merger
Agreement.
EFFECTIVE TIME
Within two business days following the date on which the last of the
conditions (excluding conditions that by their terms cannot be satisfied until
the date of the Merger) set forth in the Merger Agreement is satisfied or waived
or at such other time or date as the parties may agree, Newco and the Company
will cause articles of merger to be filed with the Secretary of State of the
State of Texas as provided in the TBCA. Upon completion of such filing and the
issuance of a certificate of merger by the Secretary of State of the State of
Texas, the Merger will become effective in accordance with the TBCA.
ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION
The Merger Agreement provides that the articles of incorporation of the
Company, as in effect immediately prior to the Effective Time, as amended to
reflect the Charter Amendment, and the by-laws of the Company, as in effect
immediately prior to the Effective Time, shall become, from and after the
Effective
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Time, the articles of incorporation and by-laws of the Surviving Corporation
until amended in accordance with their terms and the TBCA.
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
The Merger Agreement provides that the directors and officers of Newco
immediately prior to the Effective Time shall become, from and after the
Effective Time, the directors and officers of the Surviving Corporation. Such
persons will continue as directors or officers, as the case may be, of the
Surviving Corporation until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the articles of incorporation and by-laws of the Surviving Corporation. It
is anticipated that the sole director of Newco will be Krasovec, with an
additional director who will be designated by the New Shareholders. It is also
anticipated that the officers of Newco will be the current officers of the
Company.
CONVERSION OF SECURITIES IN THE MERGER; TREATMENT OF DERIVATIVES
The Merger Agreement provides that, at the Effective Time, (i) each share
of Common Stock (collectively, the "Company Common Shares") issued and
outstanding immediately prior to the Effective Time, other than the Non-Merger
Consideration Shares (as defined below) and other than Company Common Shares
owned by Dissenting Shareholders, will, by virtue of the Merger and without any
action on the part of the holders thereof, be converted solely and exclusively
into the right to receive the Merger Consideration and any dividends payable as
described below; (ii) all Company Common Shares to be converted into the right
to receive the Merger Consideration pursuant to clause (i) will, 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
Company Common Shares will thereafter cease to have any rights with respect to
such Company Common Shares (other than the right to receive any dividends
payable as described below), except the right to receive the Merger
Consideration for each of the Company Common Shares, upon the surrender of such
holder's certificate(s) in accordance with the terms of the Merger Agreement,
without any interest thereon, as provided in the Merger Agreement, or the rights
under Articles 5.11, 5.12 and 5.13 of the TBCA; (iii) each Company Common Share
issued and outstanding that is owned by any member of the Buyout Group
immediately prior to the Effective Time (the "Buyout Shares"), by virtue of the
Merger and without any action on the part of the holder thereof, will be
converted into one fully paid and nonassessable share of common stock, $.01 par
value, of the Surviving Corporation; (iv) each Company Common Share issued and
outstanding that is owned by the Company as treasury stock or any of the
Company's Subsidiaries (as defined below) immediately prior to the Effective
Time (together with the Buyout Shares and the Company Common Shares held by
Dissenting Shareholders, the "Non-Merger Consideration Shares") will, by virtue
of the Merger and without any action on the part of the holder thereof, cease to
be outstanding, be canceled and retired and cease to exist without payment of
any Merger Consideration therefor; (v) each share of capital stock of Newco
issued and outstanding immediately prior to the Effective Time will, by virtue
of the Merger and without any action on the part of Newco or the holder thereof,
cease to be outstanding, be canceled and retired and cease to exist without
payment of any Consideration therefor; and (vi) all notes and other debt
instruments of the Company that are outstanding immediately prior to the
Effective Time shall continue to be outstanding subsequent to the Effective Time
as debt instruments of the Surviving Corporation, subject to their respective
terms and provisions. The word "Subsidiary," when used in the Merger Agreement
with respect to any party, means any corporation or other organization, whether
incorporated or unincorporated, of which such party directly or indirectly owns
or controls at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the board of directors
or others performing similar functions.
Each Company Stock Derivative to purchase Company Common Shares outstanding
immediately prior to the Effective Time shall continue to be outstanding
subsequent to the Effective Time as options, warrants and convertible debt of
the Surviving Corporation, subject to all expiration, lapse and other terms and
conditions thereof, except that the term of all Company Stock Derivatives (other
than convertible debt and employee incentive stock options) shall be extended
for three years from the date of their current expiration. It
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is anticipated that all warrants held by directors of the Company (other than
Krasovec and Josephson) will be exercised prior to the Effective Time.
PAYMENT FOR AND SURRENDER OF COMPANY COMMON SHARES
From time to time as needed by the Paying Agent (as defined below), the
Surviving Corporation will deposit with such bank or trust company designated by
LLC and reasonably acceptable to the Company (the "Paying Agent"), for the
benefit of the holders of Company Common Shares, cash, cash equivalents or a
combination thereof in an aggregate amount equal to the product of (i) the
number of Company Common Shares issued and outstanding at the Effective Time
(other than the Non-Merger Consideration Shares) multiplied by (ii) the Merger
Consideration (being hereinafter referred to as the "Payment Fund"). The Paying
Agent will, pursuant to irrevocable instructions from the Surviving Corporation,
deliver the Merger Consideration out of the Payment Fund, and, except as
described herein, the Payment Fund will not be used for any other purpose. The
Company will act as paying agent with respect to payments to holders of Company
Stock Derivatives described in the preceding paragraph.
Promptly after the Effective Time, the Paying Agent will mail to each
holder of record (other than the Company, members of the Buyout Group, any of
the Company's Subsidiaries or any Dissenting Shareholders) of a certificate or
certificates that immediately prior to the Effective Time represented
outstanding Company Common Shares (the "Certificates") (i) a form of letter of
transmittal (which will specify that delivery will be effected, and risk of loss
and title to the Certificates will pass, only upon proper delivery of the
Certificates to the Paying Agent) and (ii) instructions for use in effecting the
surrender of the Certificates for payment therefor. Upon surrender of
Certificates for cancellation to the Paying Agent, together with such letter of
transmittal duly executed and any other required documents, the holder of such
Certificates will be entitled to receive for each of the Company Common Shares
represented by such Certificates the Merger Consideration, and the Certificates
so surrendered will promptly be canceled. Until so surrendered, Certificates
will represent solely the right to receive the Merger Consideration plus any
declared but unpaid dividends. No interest will be paid or accrued on the cash
payable upon the surrender of the Certificates. No dividends or other
distributions, if any, that are declared prior to the Effective Time and are
payable after the Effective Time to holders of record of Certificates will be
paid to persons entitled by reason of the Merger to receive the Merger
Consideration until such persons surrender their Certificates. Upon such
surrender, there will be paid to the registered holders of surrendered
Certificates such declared but unpaid dividends or other distributions, if any,
on the appropriate payment date.
In no event will the persons entitled to receive such dividends or other
distributions be entitled to receive interest on such dividends or other
distributions. If any Merger Consideration is to be paid to a person whose name
is a name other than that in which the surrendered Certificate in exchange
therefor is registered, it will be a condition of such exchange that the
Certificate so surrendered be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange pay to the Paying Agent
any transfer or other taxes required by reason of the payment of such Merger
Consideration in a name other than that of the registered holder of the
surrendered Certificate, or establish to the satisfaction of the Paying Agent
that such tax has been paid or is not applicable. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Certificate to be lost, stolen or
destroyed, the Paying Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Merger Consideration deliverable in respect thereof as
determined in accordance with the Merger Agreement, provided that the person to
whom the Merger Consideration is paid shall, as a condition precedent to the
payment thereof if required by the Surviving Corporation, give the Surviving
Corporation a bond in such sum as it may direct or otherwise indemnify the
Surviving Corporation in a manner satisfactory to it against any claim that may
be made against the Surviving Corporation with respect to the Certificate
claimed to have been lost, stolen or destroyed.
Any portion of the Payment Fund that remains unclaimed by the former
shareholders of the Company for 180 days after the Effective Time will be
delivered to the Surviving Corporation, and any former shareholders of the
Company will thereafter look only to the Surviving Corporation for payment of
their claim for the Merger Consideration for the Company Common Shares.
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Neither LLC, Newco, the Surviving Corporation nor the Paying Agent shall be
liable to any holder of Company Common Shares for such shares (or dividends or
distributions with respect thereto) or cash from the Payment Fund (or from the
Surviving Corporation after the Payment Fund has terminated) delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. Immediately prior to the time as any amounts remaining unclaimed by
holders of any such shares would otherwise escheat to or become property of any
governmental or regulatory authority, domestic or foreign ("Governmental
Entity"), such amounts shall, to the extent permitted by applicable law, become
the property of the Surviving Corporation free and clear of any claims or
interest of any such holders or their successors, assigns or personal
representatives previously entitled thereto.
CLOSING OF STOCK TRANSFER RECORDS
At the Effective Time, the stock transfer books of the Company, other than
with respect to Buyout Shares, will be closed, and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties. These include representations and warranties by the Company with
respect to corporate existence, good standing, corporate authority,
authorization, validity and effect of the Merger Agreement, capitalization,
Subsidiaries, conflicts, required filings and consents, finders' fees and
brokerage commissions, receipt of J.C. Bradford's opinion, SEC filings,
financial statements, undisclosed liabilities and absence of certain changes or
events. LLC has also made certain representations and warranties on behalf of
itself and Newco, where appropriate, with respect to limited liability company
or corporate existence, good standing, corporate and limited liability company
authority, authorization, validity and effect of the Merger Agreement,
Subsidiaries, conflicts, required filings and consents, finders' fees and
brokerage commissions, financing and certain regulatory matters.
ACQUISITION PROPOSALS
Under the Merger Agreement, the Company has agreed to cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted theretofore with respect to any Acquisition Proposal (as defined
below). The Company has agreed that, prior to the Effective Time, neither it nor
any of its Subsidiaries will, nor will it or any of its Subsidiaries permit
their respective officers, directors, employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) to, initiate, solicit, participate in
or encourage, directly or indirectly, any Acquisition Proposal or, except as set
forth below, engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal. An "Acquisition Proposal" means, other than
the transactions among the Company and LLC contemplated by the Merger Agreement
or that LLC consents to in writing in advance, any of the following involving
the Company or any of its Subsidiaries: (i) any merger, consolidation, share
exchange, recapitalization, business combination, or similar transaction; (ii)
any sale, lease, exchange, mortgage, pledge, transfer or other disposition of
all or substantially all of the assets of the Company and its Subsidiaries,
taken as a whole, in a single transaction or series of transactions; (iii) any
tender offer or exchange offer for all or substantially all of the outstanding
shares of capital stock of the Company or the filing of a registration statement
under the Securities Act of 1933, as amended, in connection therewith; or (iv)
any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing. Notwithstanding
the foregoing, in the event the Company receives an unsolicited written proposal
or unsolicited written offer (in either case subject to due diligence) with
respect to an Acquisition Proposal, the Special Committee or the Board of
Directors of the Company shall be entitled to review and participate in
negotiations concerning such proposal and furnish confidential information and
data concerning the Company and its Subsidiaries to the offeror if the Board of
Directors reasonably believes, after consultation with its counsel and its
financial advisor, that there is a substantial risk that a failure to do so
would violate its fiduciary
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duties to the shareholders of the Company; provided that (A) the Company shall
have furnished, or concurrently with the provision of such information to such
offeror shall furnish, LLC with all such information provided to such offeror
and (B) the offeror executes a confidentiality agreement with the Company. The
Company shall notify the Special Committee and LLC immediately of any such
unsolicited Acquisition Proposal, or any inquiry or contact with any person with
respect thereto. In addition, in the event (i) the Company enters into
negotiations with respect to an unsolicited Acquisition Proposal or (ii) the
Company's Board of Directors (upon recommendation of the Special Committee)
shall withdraw its approval of the Merger Agreement and the transactions
contemplated thereby or its recommendation to the shareholders of the Company to
approve the same, then the Company shall immediately deliver an additional
notice of such events to LLC. Nothing in the Merger Agreement will (x) permit
the Company to terminate the Merger Agreement except as provided therein, (y)
permit the Company to enter into any agreement to consummate an Acquisition
Proposal for as long as the Merger Agreement remains in effect (it being agreed
that for as long as the Merger Agreement remains in effect, the Company will not
enter into any agreement with any person that provides for, or in any way
facilitates, an Acquisition Proposal except as otherwise permitted in the Merger
Agreement), or (z) affect any other obligation of the Company under the Merger
Agreement. Under the Merger Agreement, LLC shall cause the members of the Buyout
Group to notify the Special Committee immediately in the event a member of the
Buyout Group receives an unsolicited written proposal or unsolicited written
offer with respect to an Acquisition Proposal or any inquiry or contact with any
person with respect thereto.
INTERIM OPERATIONS OF THE COMPANY
Pursuant to the Merger Agreement, the Company has agreed that, prior to the
Effective Time, except as contemplated by any other provision of the Merger
Agreement, unless LLC has previously consented in writing thereto or unless the
Chief Executive Officer of the Company has previously authorized thereto, the
Company: (i) will, and will cause each of its Subsidiaries to, conduct its
operations in the ordinary and normal course, consistent with past practice;
(ii) will use its reasonable best efforts, and will cause each of its
Subsidiaries to use its reasonable best efforts, to preserve intact their
business organizations and goodwill, keep available the services of their
respective officers and employees, and maintain satisfactory relationships with
those persons having business relationships with them; (iii) will not amend its
articles of incorporation or bylaws or comparable governing instruments; (iv)
will, upon the occurrence of any event or change in circumstances as a result of
which any representation or warranty of the Company contained in the Merger
Agreement would be untrue or incorrect in any material respect if such
representation or warranty were made immediately following the occurrence of
such event or change in circumstance, promptly (and in any event within two
business days of an executive officer of the Company obtaining knowledge
thereof) notify LLC thereof; (v) will promptly deliver to LLC true and correct
copies of any report, statement, application or schedule (including exhibits
thereto) filed by the Company with the SEC subsequent to the date of the Merger
Agreement; (vi) will not (a) issue any shares of its capital stock, other than
the issuance of Common Stock issuable upon exercise of Company Stock Derivatives
outstanding on the date of the Merger Agreement (in accordance with the present
terms thereof), effect any stock split, or otherwise change its capitalization
as it existed on the date of the Merger Agreement, (b) grant, confer or award
any option, warrant, conversion right or other equity rights not existing on the
date of the Merger Agreement to acquire any shares of its capital stock, (c)
grant, confer or award any bonuses or other forms of incentive compensation to
any officer, director or employee, except for cash bonuses or incentives
consistent with past practice or under any existing agreement or automatically
under any of the Company's stock option plans, (d) increase any compensation
under any employment agreement with any of its present or future officers,
directors or employees, except for normal increases for officers and employees
consistent with past practice or the terms of such employment agreement, (e)
grant any severance or termination pay to, or enter into any employment,
severance or termination agreement with any officer, director, or employee or
amend any such agreement in any material respect other than severance
arrangements consistent with past practice with respect to officers and
employees terminated by the Company, or (f) adopt any new employee benefit plan
or program (including any stock option, stock benefit or stock purchase plan) or
amend any existing employee benefit plan or program in any material respect;
(vii) will not (a) declare, set aside or pay any dividend or make any other
distribution or
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payment with respect to any shares of its capital stock or other ownership
interests or (b) directly or indirectly redeem, purchase or otherwise acquire
any shares of its capital stock or capital stock of any of its Subsidiaries, or
make any commitment for any such action; (viii) will not, and will not permit
any of its Subsidiaries to, sell, lease or otherwise dispose of any of its
assets (including capital stock of Subsidiaries) or acquire any business or
assets, except for (a) any purchase or sale of inventory in the ordinary course
of business, or (b) any sale, lease or other disposition of assets in the
ordinary course of business; (ix) will not incur any material amount of
indebtedness for borrowed money or make any loans, advances or capital
contributions to, or investments (other than non-controlling investments in the
ordinary course of business) in, any other person other than a wholly owned
Subsidiary of the Company, or issue or sell any debt securities, other than
borrowings under existing lines of credit in the ordinary course of business;
(x) will not, except pursuant to and in accordance with the capital budget
disclosed to LLC prior to the date of the Merger Agreement, authorize, commit
to, or make capital expenditures; (xi) will not mortgage or otherwise encumber
or subject to any lien any properties or assets except for such of the foregoing
as are in the ordinary course of business and would not be reasonably likely to
have, individually or in the aggregate, a material adverse effect on the
business, operations, properties, financial condition, assets or liabilities of
the Company and its Subsidiaries taken as a whole (a "Material Adverse Effect");
(xii) will not enter into or agree to enter into any contract without the prior
written consent of LLC unless such contract is entered into by the Company for
(a) any purchase or sale of inventory undertaken in the ordinary course of
business, (b) the sale of accounts receivable that are more than 180 days past
due, or (c) any other contract in the ordinary course of business; (xiii) will
maintain insurance consistent with past practices for its businesses and
properties; (xiv) will not make any change in its accounting (including tax
accounting) methods, principles or practices, except as may be required by
generally accepted accounting principles and except, in the case of tax
accounting methods, principles or practices, in the ordinary course of business
of the Company or any of its Subsidiaries; and (xv) will not take or agree in
writing or otherwise to take any action that would make any of the
representations or warranties of the Company contained in the Merger Agreement
untrue or incorrect or prevent the Company from performing or cause the Company
not to perform its covenants contained in the Merger Agreement.
CERTAIN FILINGS AND OTHER ACTIONS
The Company and LLC have agreed, subject to the terms and conditions
provided in the Merger Agreement, that they will (i) use all reasonable efforts
to cooperate with one another in (a) determining which filings are required to
be made prior to the Effective Time with, and which consents, approvals, permits
or authorizations are required to be obtained prior to the Effective Time from
Governmental Entities, in connection with the execution and delivery of the
Merger Agreement and the consummation of the transactions contemplated thereby
and (b) timely making all such filings and timely seeking all such consents,
approvals, permits or authorizations, including this Proxy Statement and
information required by Schedule 13E-3 and Schedule 14A; and (ii) use all
reasonable efforts to take, or cause to be taken, all other action and do, or
cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by the Merger
Agreement. If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purpose of the Merger Agreement, the
proper officers and directors of the parties will take all such necessary
action.
ACCESS TO INFORMATION
The Company has agreed that, from the date of the Merger Agreement to the
Effective Time, it will, and will cause its Subsidiaries to, subject to the
execution of reasonable confidentiality agreements that the Company may elect to
require, (a) allow all designated officers, attorneys, accountants and other
representatives of LLC reasonable access at all reasonable times upon reasonable
notice to the offices, records and files, correspondence, audits and properties,
as well as to all information relating to commitments, contracts, titles and
financial position, or otherwise pertaining to the business and affairs, of the
Company and its Subsidiaries, as the case may be, (b) furnish to LLC, LLC's
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information as such persons may
reasonably request, (c) instruct the employees, counsel and financial advisors
of the Company to cooperate with the other in the other's investigation of the
business of it and its Subsidiaries and (d) keep LLC fully appraised and
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informed of all material developments with respect to the assets, business
activities, financial condition, earnings and prospects of the Company and its
Subsidiaries. LLC will be permitted to make extracts from or to make copies of
such books and records as may be reasonably necessary.
INSURANCE; INDEMNITY
The Merger Agreement provides that, from and after the Effective Time, the
Surviving Corporation will indemnify, defend and hold harmless, to the fullest
extent that the Company would be required under its presently existing articles
of incorporation and presently existing by-laws and applicable law, each person
who is now or was prior to the date of the Merger Agreement an officer or
director of the Company or any of its Subsidiaries (individually, an
"Indemnified Party" and collectively, the "Indemnified Parties"), against all
losses, claims, damages, liabilities, costs or expenses (including attorneys'
fees), judgments, fines, penalties and amounts paid in settlement in connection
with any claim, action, suit, proceeding or investigation arising out of or
pertaining to acts or omissions, or alleged acts or omissions, by them in their
capacities as such occurring at or prior to the Effective Time. In the event of
any such claim, action, suit, proceeding or investigation (an "Action"), any
Indemnified Party wishing to claim indemnification will promptly notify the
Surviving Corporation thereof (provided that failure to so notify the Surviving
Corporation will not affect the obligations of the Surviving Corporation to
provide indemnification except to the extent that the Surviving Corporation
shall have been prejudiced as a result of such failure). With respect to any
Action for which indemnification is requested, the Surviving Corporation will be
entitled to participate therein at its own expense and, except as otherwise
provided below, to the extent that it may wish, the Surviving Corporation may
assume the defense thereof, with counsel reasonably satisfactory to the
Indemnified Party. After notice from the Surviving Corporation to the
Indemnified Party of its election to assume the defense of an Action, the
Surviving Corporation will not be liable to the Indemnified Party for any legal
or other expenses subsequently incurred by the Indemnified Party in connection
with the defense thereof, other than as provided below. The Surviving
Corporation will not settle any Actions without the consent of the Indemnified
Party where such settlement includes an admission of civil or criminal liability
on behalf of an officer or director or requires any payment to be made by the
Indemnified Party. The Indemnified Party will have the right to employ counsel
in any Action, but the fees and expenses of such counsel incurred after notice
from the Surviving Corporation of its assumption of the defense thereof will be
at the expense of the Indemnified Party, unless (i) the employment of counsel by
the Indemnified Party has been authorized by the Surviving Corporation in
writing, (ii) the Indemnified Party will have reasonably concluded upon the
advice of counsel that there may be a conflict of interest between the
Indemnified Party and the Surviving Corporation in the conduct of the defense of
an Action, or (iii) the Surviving Corporation shall not in fact have employed
counsel to assume the defense of an Action, in each of which cases the
reasonable fees and expenses of counsel selected by the Indemnified Party will
be at the expense of the Surviving Corporation. Notwithstanding the foregoing,
the Surviving Corporation will not be liable for any settlement effected without
its written consent, which will not be unreasonably withheld, conditioned or
delayed, and the Surviving Corporation will not be obligated pursuant to the
Merger Agreement to pay the fees and disbursements of more than one counsel
(including local counsel) for all Indemnified Parties in any single Action,
except to the extent two or more of such Indemnified Parties have conflicting
interests in the outcome of such action.
For a period of six years after the Effective Time, the Surviving
Corporation will maintain officers' and directors' liability insurance covering
the Indemnified Parties who are currently covered, in their capacities as
officers and directors, by the Company's existing officers' and directors'
liability insurance policies on terms substantially no less advantageous to the
Indemnified Parties than such existing insurance; provided, however, that the
Surviving Corporation will not be required in order to maintain or procure such
coverage to pay premiums on an annualized basis in excess of 200% of the current
annual premium paid by the Company for its existing coverage (the "Cap") (which
current annual premium is approximately $100,000); and provided, further, that
if equivalent coverage cannot be obtained, or can be obtained only by paying an
annual premium in excess of the Cap, the Surviving Corporation will only be
required to obtain as much coverage as can be obtained by paying premiums on an
annualized basis equal to the Cap.
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EMPLOYEE BENEFITS
The Merger Agreement provides that from and after the Effective Time the
Surviving Corporation will have sole discretion over the hiring, promotion,
retention and firing of employees of the Surviving Corporation. Notwithstanding
the immediately preceding sentence, the Surviving Corporation will (i) satisfy
all obligations of the Company or any of its Subsidiaries under any existing
severance agreement between the Company or any of its Subsidiaries and any of
their officers or employees and (ii) until the expiration of at least one year
after the Effective Time, satisfy all obligations of the Company or any of its
Subsidiaries under their current respective severance policies. The Surviving
Corporation will provide for the benefit of employees of the Surviving
Corporation who were employees of the Company immediately prior to the Effective
Time "employee benefit plans" within the meaning of Section 3(3) of ERISA (a)
for a period of at least one year after the Effective Time, that are, in the
aggregate, substantially comparable to the "employee benefit plans" provided to
such individuals by the Company or any Subsidiary on the date of the Merger
Agreement, and (b) thereafter that are, at the election of the Surviving
Corporation, either (i) in the aggregate, substantially comparable to the
"employee benefit plans" provided to such individuals by the Company or any
Subsidiary on the date of the Merger Agreement or (ii) in the aggregate,
substantially comparable to the "employee benefit plans" provided to similarly
situated employees of the Surviving Corporation or its Subsidiaries who were not
employees of the Company or any Subsidiary immediately prior to the Effective
Time; provided, however, that notwithstanding the foregoing (A) nothing in the
Merger Agreement will be deemed to require the Surviving Corporation to modify
the benefit formulas under any pension, profit sharing or savings plan of the
Company or any Subsidiary in a manner that increases the aggregate expenses
thereof as of the date of the Merger Agreement in order to comply with the
requirements of ERISA or the Code, (B) multiemployer pension plans with the
meaning of 3(37) of ERISA, employee stock ownership, stock bonus, stock option
and similar equity-based plans, programs and arrangements of the Company or any
of its Subsidiaries are not encompassed within the meaning of the term "employee
benefit plans," and (C) nothing in the Merger Agreement will obligate the
Surviving Corporation to continue any particular "employee benefit plan" for any
period after the Effective Time.
FINANCING
Upon the terms and subject to the conditions of the Merger Agreement, the
Company is required to use commercially reasonable efforts to take, or cause to
be taken, all action, and to do or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, as promptly as
practicable, proper or advisable to secure the Financing on terms substantially
as outlined in the Financing Letters.
CONDITIONS
Conditions to Each Party's Obligation To Effect the Merger. Under the
Merger Agreement, the respective obligations of each party to effect the Merger
are subject to the fulfillment of the following conditions: (i) the Merger
Agreement and the transactions contemplated thereby (including the Charter
Amendment) shall have been approved in the manner required by applicable law by
the holders of the issued and outstanding shares of capital stock of the
Company; (ii) the aggregate number of Company Common Shares owned by those
Company shareholders, if any, other than members of the Buyout Group, who shall
have exercised, or given notice of their intent to exercise, the rights of
Dissenting Shareholders under the TBCA shall be less than ten percent (10%) of
the total number of outstanding Company Common Shares; (iii) neither of the
parties thereto shall be subject to any order or injunction of a court of
competent jurisdiction that prohibits the consummation of the transactions
contemplated by the Merger Agreement or the effective operation of the business
of the Company and its Subsidiaries after the Effective Time; (iv) the Company
shall have received the Financing on terms substantially as outlined in the
Financing Letters and shall have sufficient financing thereunder to consummate
the Merger; and (v) all consents, authorizations, orders and approvals of (or
filings or registrations with) any Governmental Entity required in connection
with the execution, delivery and performance of the Merger Agreement shall have
been obtained or made, except for filings in connection with the Merger and any
other documents required to be filed after the Effective Time and except where
the failure to have obtained or made any such consent, authorization, order,
approval, filing or registration would not have
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<PAGE> 51
a material adverse effect on the business, financial condition or results of
operations of the Surviving Corporation following the Effective Time.
Conditions to Obligation of the Company To Effect the Merger. Under the
Merger Agreement, the obligation of the Company to effect the Merger is subject
to the fulfillment of the following additional conditions: (i) (a) the
representations and warranties of LLC contained in the Merger Agreement shall
have been true and correct in all material respects as of the date of the Merger
Agreement and (b) the representations and warranties of LLC and Newco contained
in the Merger Agreement and in any document delivered in connection therewith
shall be true and correct in all material respects (but without regard to any
materiality qualifications or references to material adverse effect contained in
any specific representation or warranty) as of the Closing Date, except (I) for
changes specifically permitted by the Merger Agreement and (II) that those
representations and warranties that address matters only as of a particular date
shall remain true and correct in all material respects as of such date; (ii) LLC
shall have performed or complied with all agreements and conditions contained in
the Merger Agreement required to be performed or complied with by it on or prior
to the Effective Time; (iii) LLC shall have delivered to the Company a
certificate, dated the Closing Date, signed by the President of LLC, certifying
as to the fulfillment of the conditions specified in clauses (i) and (ii) above;
(iv) LLC shall have delivered to the Company a certificate, dated the Closing
Date, signed by the President of LLC, certifying that, to its knowledge, certain
conditions have been fulfilled (unless the Company is unable to deliver a
specified officer's certificate); and (v) LLC shall have obtained all material
consents, waivers, approvals, authorizations or orders and made all filings
required in connection with the authorization, execution and delivery of the
Merger Agreement by LLC and the consummation by it of the transactions
contemplated by the Merger Agreement, and all applicable notice periods shall
have expired.
Conditions to Obligation of LLC and Newco to Effect the Merger. Under the
Merger Agreement, the obligations of LLC and Newco to effect the Merger are
subject to the fulfillment of the following additional conditions: (i) (a) the
representations and warranties of the Company contained in the Merger Agreement
shall have been true and correct in all material respects as of the date of the
Merger Agreement and (b) the representations and warranties of the Company
contained in the Merger Agreement and in any document delivered in connection
therewith shall be true and correct in all material respects (but without regard
to any materiality qualifications or references to material adverse effect
contained in any specific representation or warranty) as of the Closing Date,
except (I) for changes specifically permitted by the Merger Agreement and (II)
that those representations and warranties that address matters only as of a
particular date shall remain true and correct in all material respects as of
such date; (ii) the Company shall have performed or complied with all agreements
and conditions contained in the Merger Agreement required to be performed or
complied with by it on or prior to the Closing Date, unless such failure to
perform or comply is due to any act by, or omission of LLC or any members of the
Buyout Group; (iii) the Company shall have delivered to LLC a certificate, dated
the Closing Date, signed by the Chief Executive Officer of the Company,
certifying as to the fulfillment of the conditions specified in clauses (i) and
(ii) above; (iv) from the date of the Merger Agreement through the Effective
Time, there shall not have been any condition, event or occurrence that,
individually or in the aggregate, has resulted in a Material Adverse Effect; (v)
the Company shall have obtained all material consents, waivers, approvals,
authorizations or orders and made all filings required in connection with the
authorization, execution and delivery of the Merger Agreement by the Company and
the consummation by it of the transactions contemplated thereby, and all
applicable notice periods shall have expired; (vi) the Company or the Board of
Directors of the Company shall have taken any action needed to be taken to
provide that Company Stock Derivatives will be treated as described under the
caption "-- Conversion of Securities in the Merger; Treatment of Derivatives";
(vii) LLC shall have received a valuation of the assets of the Company from a
reputable third party, and such other assurances it deems reasonable, that the
payment of the Merger Consideration is in compliance with Article 2.38 of the
TBCA, which limits the repurchase of outstanding shares if such repurchase would
make the corporation insolvent or would exceed the surplus of the corporation;
and (viii) the provisions of Article 13.03 of the TBCA, which restricts certain
business combinations between public companies and affiliated shareholders,
shall not apply to the Merger, the Merger Agreement and the transactions
contemplated thereby.
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<PAGE> 52
TERMINATION
Termination by Mutual Consent. The Merger Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Merger
by the shareholders of the Company or the member of LLC, by the mutual written
consent of the Manager of LLC and the Special Committee or Board of Directors of
the Company.
Termination by Either the Company or LLC. The Merger Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the shareholders of the Company or by the member of LLC, (i)
by either the Company or LLC if (a) any Governmental Entity shall have issued
any injunction or taken any other action permanently restraining, enjoining or
otherwise prohibiting the consummation of the Merger or such injunction or other
action shall have become final and nonappealable, or (b) any required approval
of the shareholders of the Company shall not have been obtained by reason of the
failure to obtain the required vote upon a vote held at a duly held meeting of
shareholders or at any adjournments or postponements thereof or (ii) by either
the Company or LLC, so long as such party has not breached its obligations under
the Merger Agreement, if the Merger shall not have been consummated on or before
September 30, 1998; provided, that the right to terminate the Merger Agreement
under this clause (ii) shall not be available to any party to the Merger
Agreement whose failure to fulfill any obligation under the Merger Agreement has
been the cause of or resulted in the failure of the Merger to occur on or before
such date.
Termination by the Company. The Merger Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after approval of the matters presented in connection with the Merger by the
shareholders of the Company or by the member of LLC, by the Company (i) if there
has been a material breach of the Merger Agreement on the part of LLC of its
covenants or any of its representations or warranties contained therein shall be
materially inaccurate and such breach or inaccuracy has not been cured within 10
business days after written notice thereof from the Company or (ii) if the
Company receives an Acquisition Proposal in writing from any person or group (a)
that the Company's Board determines in its good faith judgment is more favorable
to the Company's shareholders than the Merger and (b) as a result of which, the
Company's Board reasonably believes, after consultation with its counsel and its
financial advisor, that there is a substantial risk that a failure to terminate
the Merger Agreement would violate its fiduciary duties to the shareholders of
the Company.
Termination by LLC. The Merger Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or
after the approval of the matters presented in connection with the Merger by the
shareholders of the Company or by the member of LLC, by LLC if (i) there has
been a material breach of the Merger Agreement on the part of the Company of its
covenants or any of its representations or warranties contained therein shall be
materially inaccurate and such breach or inaccuracy has not been cured within 10
business days after written notice thereof from LLC; or (ii) the Board of
Directors of the Company, without the consent of LLC (a) shall have withdrawn or
modified, in any manner that is adverse to LLC, its recommendation or approval
of the Merger or the Merger Agreement or shall have resolved to do so or (b)
shall have recommended to the shareholders of the Company any Acquisition
Proposal or any transaction described in the definition of Acquisition Proposal,
or shall have resolved to do so.
Effect of Termination and Abandonment. In the event of termination of the
Merger Agreement by either the Company or LLC pursuant to the terms described
above, the Merger Agreement shall become void, and there shall be no liability
or obligation on the part of LLC or the Company or their respective affiliates,
officers, directors or shareholders (except (i) with respect to certain
obligations of the parties to the Merger Agreement, including those with respect
to expenses, insurance, indemnity and employee benefits, and (ii) to the extent
that such termination results from the willful breach by a party to the Merger
Agreement of any of its representations or warranties, or any of the covenants
and agreements contained in the Merger Agreement). If the Merger Agreement is
terminated in certain circumstances, and such termination was not due to any act
by, or omission of, LLC or any member of the Buyout Group (not including the act
of termination), then the Company shall pay (or reimburse) to LLC all reasonable
and customary out-of-pocket
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<PAGE> 53
fees, costs and expenses (including reasonable and customary out-of-pocket fees,
costs and expenses of accountants, attorneys and financing sources (as described
in the commitment letters and highly confident letter described in "Special
Factors -- Estimated Expenses and Fees; Sources of Funds")) incurred by or on
behalf of LLC in connection with the Merger, the Merger Agreement and the
transactions contemplated thereby.
Sole Remedy. The rights and remedies set forth above are the sole and
exclusive rights and remedies of the parties to the Merger Agreement with
respect to the inaccuracy of a representation or warranty or the breach of a
covenant by the Company (with respect to the compliance with a covenant that was
under the control of a member of the Buyout Group as an officer of the Company).
AMENDMENT
The Merger Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties to the Merger Agreement. The parties to
the Merger Agreement may agree to any amendment or supplement to the Merger
Agreement or a waiver of any provision of the Merger Agreement, either before or
after the approval of the Company's shareholders (and without seeking further
shareholder approval), so long as such amendment, supplement or waiver does not
have a material adverse effect on the Company's shareholders which determination
will be made by the Board of Directors of the Company (with interested directors
abstaining due to conflicts of interest) and will be binding on the Company's
shareholders.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following section summarizes the material United States federal income
tax consequences of the Merger to shareholders of the Company other than the
members of the Buyout Group. It is based upon laws, regulations (whether final,
temporary, or proposed), rulings and judicial decisions now in effect, all of
which are subject to change, possibly with retroactive effect. It does not
address all aspects of federal income taxation that may be relevant to a
particular shareholder in light of that shareholder's personal circumstances,
nor does it address federal income tax consequences to types of taxpayers
subject to special treatment under the federal income tax laws (e.g., life
insurance companies, tax exempt organizations, foreign taxpayers, securities
dealers and persons who have entered into hedging transactions with respect to
the Common Stock or who hold the Common Stock as part of a conversion
transaction or straddle), nor does it address any aspect of state, local,
foreign, federal estate and gift or other tax laws. It is assumed that the
shares of Common Stock are held as capital assets by a United States person
(i.e., a citizen or resident of the United States or a domestic corporation).
The Company has not requested, and does not anticipate requesting, any ruling
from the Internal Revenue Service with respect to the Merger.
The receipt of cash for Common Stock pursuant to the Merger will be a
taxable transaction to the Public Shareholders for federal income tax purposes
under the Code and also may be a taxable transaction under applicable state,
local, foreign and other tax laws. The Merger will be treated for federal income
tax purposes as a redemption by the Company of the Public Stock. Any Public
Shareholder that is not related to a member of the Buyout Group or to a
purchaser of units of common stock and preferred stock of the Company in a way
that would result in constructive ownership of such other person's stock under
applicable provisions of the Code will be treated as having sold such
shareholder's Common Stock for the cash received by such shareholder in the
Merger. In general, for federal income tax purposes, a shareholder will
recognize gain (or loss) equal to the amount by which the cash received in
exchange for the Common Stock exceeds (or is exceeded by) the tax basis for such
Common Stock. Assuming that the Common Stock is held as a capital asset, such
gain or loss will be capital gain or loss. In the case of individuals and other
noncorporate taxpayers, such gain will be subject to maximum federal income tax
rates of 20% for Common Stock held for more than 18 months and 28% for Common
Stock held for more than one year but for not more than 18 months. The same
maximum rates apply for purposes of the alternative minimum tax.
Shareholders who hold Common Stock issued to them by the Company after
August 10, 1993 and prior to December 31, 1994 may qualify for a full or partial
deferral of any gain from the sale or exchange of such Common Stock in the
Merger if such shareholders purchase other stock in an original issuance
satisfying the
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<PAGE> 54
requirements for "Qualified Small Business Stock" within the meaning of Section
1202 of the Code within 60 days after the Effective Time ("Replacement Small
Business Stock"). Qualified Small Business Stock generally consists of stock in
a C corporation the aggregate gross assets of which do not exceed $50 million on
or immediately after the date of issuance and which satisfies certain active
business requirements. The amount of gain realized in the Merger will not be
recognized to the extent of the cost of the Replacement Small Business Stock
that is not already used to offset gains on the sale or exchange of other
Qualified Small Business Stock. Any such deferred gain instead will be applied
to reduce the shareholder's basis in the Replacement Small Business Stock.
Shareholders will continue to be taxed as described above on the excess, if any,
of the amount received in the Merger over the cost of the Replacement Small
Business Stock. If the combined holding periods of the Common Stock and the
Replacement Small Business Stock exceed five years, a shareholder may also
qualify for a 50% exclusion of any gain from the subsequent sale or exchange of
the Replacement Small Business Stock.
The foregoing discussion may not be applicable to shareholders who acquired
their Common Stock pursuant to the exercise of options or other compensation
arrangements, or who are not citizens or residents of the United States, or who
are otherwise subject to special tax treatment under the Code or who are treated
under the Code as constructively owning Common Stock by reason of being related
to a member of the Buyout Group.
Cash payments to shareholders pursuant to the Merger may be subject to
backup withholding tax at a rate of 31% on the gross amount of the Merger
Consideration unless the shareholder has complied with certain reporting and/or
certification procedures. The Letter of Transmittal, which will be sent to the
former shareholders of the Company following the Effective Time if the Merger is
consummated, will include a substitute Form W-9 on which shareholders can
provide the information required to avoid backup withholding. Any amount
withheld from a shareholder under the backup withholding rules will be allowed
as a credit against such shareholder's federal income tax liability and may
entitle the shareholder to a refund, provided that the required information is
timely furnished to the Internal Revenue Service. Shareholders should consult
their tax advisors regarding the application of information reporting and backup
withholding in their particular circumstances and the availability of an
exemption therefrom if the shareholders cannot or do not make the certifications
required by the substitute Form W-9.
EACH SHAREHOLDER IS URGED TO CONSULT SUCH SHAREHOLDER'S OWN TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH SHAREHOLDER OF THE MERGER IN
VIEW OF THE SHAREHOLDER'S OWN PARTICULAR CIRCUMSTANCES.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for as a "recapitalization," as that term is
used under generally accepted accounting principles, for accounting and
financial reporting purposes.
REGULATORY APPROVALS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), provides that certain transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice and the Federal Trade Commission (the "FTC") and certain
waiting period requirements have been satisfied. Pursuant to the provisions of
the Merger Agreement, the consummation of the Merger is subject to any
requirements of the HSR Act. Representatives of the Company and Krasovec have
determined, after communications with the FTC, that an exemption from the
notification requirements of the HSR Act applied to the Merger. Therefore, no
filings are required under the HSR Act prior to the consummation of the Merger.
No other federal or state regulatory approvals are required to be obtained, nor
are any other regulatory requirements required to be complied with, in
connection with consummation of the Merger by any party to the Merger Agreement.
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<PAGE> 55
LITIGATION
On March 16, 1998, Harbor Finance Partners, an alleged shareholder of the
Company, filed a lawsuit against the Company seeking to enjoin the Merger. The
plaintiff alleged that the Merger is unfair to the Company's shareholders. The
lawsuit also named the Company's directors individually and, as alternative
relief, sought unspecified damages for an alleged breach of their fiduciary
duties. The suit was filed in the 250th District Court of Travis County, Texas
and was styled Harbor Finance Partners v. Frank P. Krasovec, et al. The
plaintiff sought certification as a class action on behalf of all shareholders
of the Company, except the individual defendants and their affiliates.
The Company believes that the allegations made in the lawsuit are without
merit and intends to contest them vigorously. On April 10, 1998, the Company
filed special exceptions asserting that the plaintiff was not entitled to the
requested relief as a matter of law. At a hearing on April 16, 1998, the Court
sustained the Company's special exceptions and ordered the plaintiff to amend
its pleadings to state a proper claim for relief by April 27, 1998. On April 24,
1998, the plaintiff filed a non-suit, dismissing the lawsuit.
MARKET INFORMATION
The Company's Common Stock is listed for quotation on Nasdaq under the
symbol "NPPI". The following table sets forth the high and low closing sales
prices for the Common Stock for the fiscal periods indicated, as reported by
Nasdaq.
<TABLE>
<CAPTION>
FISCAL 1996 HIGH LOW
- ----------- ------ ------
<S> <C> <C>
First Quarter (ended December 2, 1995).................... 19.00 15.50
Second Quarter (ended March 2, 1996)...................... 20.50 16.25
Third Quarter (ended June 1, 1996)........................ 24.00 17.00
Fourth Quarter (ended August 31, 1996).................... 22.75 12.75
FISCAL 1997
First Quarter (ended November 30, 1996)................... 18.25 14.00
Second Quarter (ended March 1, 1997)...................... 21.50 15.25
Third Quarter (ended May 31, 1997)........................ 17.50 12.50
Fourth Quarter (ended August 30, 1997).................... 16.25 12.00
FISCAL 1998
First Quarter (ended November 29, 1997)................... 17.00 13.875
Second Quarter (ended February 28, 1998).................. 17.063 14.75
Third Quarter (through April 15, 1998).................... 19.938 19.75
</TABLE>
These quotations reflect inter-dealer prices, without retail markups,
markdowns or commissions and may not necessarily reflect actual transactions.
On March 13, 1998, the last full trading day on which shares of stock
traded prior to the Public Announcement Date, the last reported sales price
quoted by Nasdaq was $17.375 per share of Common Stock. On , the most
recent date on which shares of stock traded prior to the printing of this Proxy
Statement, the last reported sales price quoted by Nasdaq was $ per
share of Common Stock. As of the Record Date, there were holders of record of
Common Stock of the Company. The Company's shareholders are urged to obtain a
current market quotation for the Common Stock.
The Merger Consideration represents a 19% premium over the closing sale
price on March 13, 1998, the last full trading day on which the Common Stock
traded prior to the Public Announcement Date.
Except for payments to shareholders in connection with a restructuring of
the Company in October 1989, which were treated as dividends for accounting
purposes, the Company has never paid any cash dividends or distributions on its
Common Stock and intends to retain earnings for use in its business expansion.
The Company paid dividends to holders of its preferred stock between fiscal 1990
and fiscal 1993. None of the
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<PAGE> 56
preferred stock is currently outstanding. The Old Credit Facility limits the
payment of cash dividends on the Company's capital stock and, in any event, the
Company does not anticipate paying any cash dividends in the foreseeable future.
On December 20, 1995, the Company sold 2,015,481 shares of Common Stock in
an underwritten public offering at an offering price of $17.00 per share for an
aggregate of $34,263,177 (before deducting underwriting discounts and
commissions of $2,186,797 and expenses of $1,090,000).
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date for (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each member of the Buyout Group, (iv) all of the members of the Buyout Group and
(v) all of the directors and officers of the Company as a group. Except pursuant
to applicable community property laws and except as otherwise indicated, each
shareholder identified in the table possess sole voting and investment power
with respect to its or his shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(A) BENEFICIAL OWNERSHIP(B) Class(b)
--------------------------------------- ----------------------- ----------
<S> <C> <C>
Frank P. Krasovec (c)....................................... 660,917 13.0%
FIVE PERCENT SHAREHOLDERS OTHER THAN KRASOVEC:
Newberger & Berman, L.L.C.(d)(e)............................ 833,700 16.4%
Heartland Advisors, Inc.(d)(f).............................. 486,000 9.6%
Tweedy, Browne Company LLC(d)(g)............................ 267,500 5.3%
Thomas Horstmann & Bryant, Inc.(d)(h)....................... 460,000 9.1%
DIRECTORS OTHER THAN KRASOVEC:
Robert L. Seibert(i)........................................ 14,587 *
John H. Wilson III(j)....................................... 39,151 *
John H. Josephson(k)........................................ 29,228 *
Harold Holland(l)........................................... 12,000 *
Roy D. Terracina(m)......................................... 15,000 *
NAMED MEMBERS OF THE BUYOUT GROUP OTHER THAN KRASOVEC AND
JOSEPHSON:
James P. Gunning, Jr........................................ 500 *
J. Max Waits(n)............................................. 13,100 *
John Finnell(o)............................................. 206,553 4.1%
Michael Linderman(p)........................................ 57,253 1.1%
James Preston............................................... 1,000 *
Paul W. Larson(q)........................................... 62,298 1.2%
Russell A. Devereau(r)...................................... 2,500 *
George Bell Strob(s)........................................ 53,193 1.0%
Brian P. Miller............................................. 17,142 *
David Kagel(t).............................................. 23,776 *
All members of the Buyout Group (12 persons)(u)............. 1,127,460 21.6%
All directors and named executive officers as a group (7
persons)(v)............................................... 770,883 14.9%
Company Employee 401(k) Plan................................ 8,888 *
</TABLE>
- ---------------
* Less than 1%
(a) Except as otherwise shown, the address of each person listed above is care
of Norwood Promotional Products, Inc., 106 E. Sixth Street, Suite 300,
Austin, Texas 78701.
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<PAGE> 57
(b) Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to the shares of Common Stock
shown as beneficially owned by them. Beneficial ownership as reported in
the above table has been determined in accordance with Rule 13d-3 of the
Exchange Act. The percentages are based upon [5,080,751] shares outstanding
as of the Record Date.
(c) Includes 7,000 shares of Common Stock issuable upon exercise of options
granted to Krasovec, which are exercisable within 60 days. Includes 1,000
shares of Common Stock held of record by Krasovec's wife.
(d) Information regarding beneficial ownership has been obtained from reports
on SEC Schedule 13F and 13G or from Nasdaq. This information has not been
verified by the Company.
(e) The business address of Newberger & Berman, L.L.C. is 605 Third Avenue, New
York, New York 10158-3698.
(f) The business address for Heartland Advisors, Inc. is 790 N. Milwaukee
Street, Milwaukee, Wisconsin 53202-3712.
(g) The business address of Tweedy, Browne Company LLC is 52 Vanderbilt Avenue,
New York, New York 10017.
(h) The business address of Thomson Horstmann & Bryant, Inc. is Park 80
West/Plaza Two, Saddle Brook, New Jersey 07663.
(i) Includes 6,000 shares of Common Stock issuable upon exercise of warrants
granted to Mr. Seibert, which are exercisable within 60 days.
(j) Includes 27,728 shares of Common Stock issuable upon exercise of warrants
granted to Mr. Wilson, which are exercisable within 60 days.
(k) Includes 27,728 shares of Common Stock issuable upon exercise of warrants
granted to Josephson, which are exercisable within 60 days. Excludes
150,000 shares of Common Stock issuable upon exercise of warrants held by
Allen. Josephson, a director of Allen, disclaims beneficial ownership of
these shares.
(l) Includes 12,000 shares of Common Stock issuable upon exercise of warrants
granted to Mr. Holland, which are exercisable within 60 days.
(m) Includes 10,500 shares of Common Stock issuable upon exercise of warrants
granted to Mr. Terracina, which are exercisable within 60 days.
(n) Includes 7,862 shares of Common Stock issuable upon exercise of options
granted to Mr. Waits, which are exercisable within 60 days.
(o) Includes 9,728 shares of Common Stock issuable upon exercise of options
granted to Mr. Finnell, which are exercisable within 60 days.
(p) Includes 21,000 shares of Common Stock issuable upon exercise of options
and warrants granted to Mr. Linderman, which are exercisable within 60
days. Includes 35,294 shares of Common Stock issuable upon the conversion
of convertible debt issued to Mr. Linderman. Includes 710 shares held of
record by Mr. Linderman's wife.
(q) Includes 3,867 shares of Common Stock issuable upon exercise of options
granted to Mr. Larson, which are exercisable within 60 days.
(r) Includes 2,000 shares of Common Stock issuable upon exercise of options
granted to Mr. Devereau, which are exercisable within 60 days.
(s) Includes 14,008 shares of Common Stock issuable upon exercise of options
granted to Mr. Strob, which are exercisable within 60 days. Mr. Strob holds
all of his shares of Common Stock jointly with his wife, Debra Ann Strob.
Accordingly, Mrs. Strob may be deemed to share in the power to vote or
direct the vote of Mr. Strob's shares.
(t) Includes 16,318 shares of Common Stock issuable upon exercise of options
granted to Mr. Kagel, which are exercisable within 60 days.
(u) Includes 109,571 shares of Common Stock issuable upon exercise of options
or warrants that are exercisable within 60 days. Includes 1,000 shares of
Common Stock held of record by Krasovec's wife
45
<PAGE> 58
and 710 shares of Common Stock held of record by Mr. Linderman's wife.
Includes 35,294 shares of Common Stock issuable upon the conversion of
convertible debt issued to Mr. Linderman. Includes 39,185 shares of Common
Stock held jointly by Mr. Strob and his wife.
(v) Includes 90,956 shares of Common Stock issuable upon exercise of options or
warrants that are exercisable within 60 days. Includes 1,000 shares of
Common Stock held of record by Krasovec's wife.
PURCHASES OF COMMON STOCK BY AND OTHER
TRANSACTIONS WITH CERTAIN PERSONS
Neither the Company, the members of the Buyout Group, any affiliate thereof
nor, to the Company's knowledge, any of the executive officers or directors of
the Company have purchased Common Stock within sixty days of the date of this
Proxy Statement.
The following table sets forth certain information concerning purchases of
Common Stock since September 3, 1995 by the Company, Krasovec and LLC.
<TABLE>
<CAPTION>
NUMBER OF
SHARES RANGE OF PRICES AVERAGE PURCHASE
FISCAL QUARTER NAME PURCHASED PAID PER SHARE PRICE PER SHARE
- -------------- --------- --------- ----------------- ----------------
<S> <C> <C> <C> <C>
Quarter ended May 31, 1997....... Company 575,100 $12.625 - $13.125 $12.839
Quarter ended August 31, 1996.... Krasovec 10,000 $13.500 - $15.000 $14.250
Quarter ended May 31, 1997....... Krasovec 13,000 $13.375 - $15.250 $14.534
Quarter ended November 29,
1997........................... Krasovec 5,000 $16.375 - $16.750 $16.525
</TABLE>
TRANSACTION OF OTHER BUSINESS
The Board of Directors knows of no other matters which may be presented at
the Meeting, but if other matters do properly come before the Meeting, it is
intended that the persons named in the Proxy will vote, pursuant to their
discretionary authority, according to their best judgment in the interest of the
Company.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company as of August 30, 1997
and for the year then ended included in the Company's Annual Report on Form 10-K
for the fiscal year ended August 30, 1997, as amended, and incorporated by
reference herein, have been audited by Ernst & Young LLP, independent auditors,
as stated in their report appearing therein.
It is expected that representatives of Ernst & Young LLP, will be present
at the Meeting, and will have an opportunity to respond to appropriate questions
of shareholders and to make a statement if they so desire.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission pursuant to
the Exchange Act are incorporated herein by reference and shall be deemed a part
hereof:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
August 30, 1997, as amended.
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
November 29, 1997.
3. The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
February 28, 1998.
4. The Company's Current Report on Form 8-K filed on September 10, 1997.
5. The Company's Current Report on Form 8-K filed on March 20, 1998.
In addition, all documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy Statement
and prior to the date of the Meeting shall be deemed to be incorporated by
reference into this Proxy Statement and to be a part hereof from the date of
filing of such documents.
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<PAGE> 59
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any statement
so modified shall not be deemed to constitute a part hereof except as so
modified or superseded.
47
<PAGE> 60
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
NORWOOD PROMOTIONAL PRODUCTS, INC.
AND
FPK, LLC,
AS AMENDED
A-1
<PAGE> 61
================================================================================
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
FPK, LLC
AND
NORWOOD PROMOTIONAL PRODUCTS, INC.
DATED AS OF MARCH 15, 1998
================================================================================
<PAGE> 62
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. THE MERGER.............................................................................1
1.1 The Merger....................................................................1
1.2 The Closing...................................................................2
1.3 Effective Time................................................................2
1.4 Company Actions...............................................................2
2. ARTICLES OF INCORPORATION, BY-LAWS, DIRECTORS AND
OFFICERS OF THE SURVIVING CORPORATION..................................................3
2.1 Articles of Incorporation and By-laws of Surviving Corporation................3
2.2 Directors and Officers of Surviving Corporation...............................3
3. CONVERSION OF SECURITIES...............................................................3
3.1 Conversion of Securities......................................................3
3.2 Dissenting Shareholders.......................................................4
3.3 Payment for and Surrender of Company Common Shares............................5
3.4 Stock Transfer Books..........................................................6
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................7
4.1 Organization and Qualification................................................7
4.2 Authorization, Validity and Effect of Agreement...............................7
4.3 Capitalization................................................................7
4.4 Subsidiaries..................................................................8
4.5 No Conflict; Required Filings and Consents....................................9
4.6 No Brokers...................................................................10
4.7 Opinion of Financial Advisor.................................................10
4.8 SEC Filings; Financial Statements; Undisclosed Liabilities...................10
4.9 Absence of Certain Changes or Events.........................................11
5. REPRESENTATIONS AND WARRANTIES OF LLC.................................................11
5.1 Organization.................................................................11
5.2 Authorization, Validity and Effect of Agreement..............................11
5.3 Subsidiaries.................................................................12
5.4 No Conflict; Required Filings and Consents...................................12
5.5 No Brokers...................................................................13
5.6 Financing....................................................................13
5.7 WARN Act.....................................................................13
6. COVENANTS.............................................................................13
6.1 Acquisition Proposals........................................................13
6.2 Conduct of Business by the Company...........................................15
6.3 Meeting of Shareholders......................................................17
6.4 Filings, Other Action........................................................17
</TABLE>
-i-
<PAGE> 63
<TABLE>
<S> <C> <C>
6.5 Access to Information; Confidentiality.......................................17
6.6 Publicity....................................................................18
6.7 Reasonable Efforts; Additional Actions.......................................18
6.8 Expenses.....................................................................19
6.9 Insurance; Indemnity.........................................................20
6.10 Employee Benefits............................................................21
6.11 Conveyance Taxes.............................................................21
6.12 Financing....................................................................22
6.13 Newco........................................................................22
7. CONDITIONS............................................................................22
7.1 Conditions to Each Party's Obligation to Effect the Merger...................22
7.2 Conditions to Obligation of Company to Effect the Merger.....................23
7.3 Conditions to Obligation of LLC and Newco To Effect the Merger...............23
8. TERMINATION...........................................................................24
8.1 Termination..................................................................24
8.2 Effect of Termination........................................................26
8.3 Extension; Waiver............................................................26
8.4 Sole Remedy..................................................................26
9. GENERAL PROVISIONS....................................................................27
9.1 Nonsurvival of Representations, Warranties and Agreements....................27
9.2 Notices......................................................................27
9.3 Assignment; Binding Effect...................................................28
9.4 Entire Agreement.............................................................28
9.5 Amendment....................................................................28
9.6 Governing Law................................................................28
9.7 Counterparts.................................................................28
9.8 Headings.....................................................................29
9.9 Interpretation...............................................................29
9.10 Waivers......................................................................29
9.11 Incorporation of Schedules...................................................29
9.12 Severability.................................................................29
9.13 Enforcement of Agreement.....................................................29
</TABLE>
LIST OF SCHEDULES
Schedule 4.3 Company Stock Derivatives
Schedule 4.4 Company Subsidiaries
Schedule 4.5 Consents
Schedule 4.8 SEC Filings; Financial Statements; Undisclosed Liabilities
Schedule 4.9 Absence of Certain Changes or Events
-ii-
<PAGE> 64
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Action .............................................................................................. 20
Agreement ................................................................................................1
Blue Sky Laws ................................................................................................9
Cap ...............................................................................................21
Certificate of Merger.............................................................................................2
Certificates ................................................................................................5
Closing ................................................................................................2
Closing Date ................................................................................................2
Code ................................................................................................9
Company ................................................................................................1
Company Common Share..............................................................................................3
Company Stock Derivative..........................................................................................4
Company Stock Plan................................................................................................8
Consideration ................................................................................................3
Effective Time ................................................................................................2
Exchange Act ................................................................................................2
Financing ...............................................................................................13
Financing Letters ................................................................................................1
Governmental Entity...............................................................................................9
HSR Act ................................................................................................9
Indemnified Party ...............................................................................................20
J.C. Bradford ................................................................................................2
LLC ................................................................................................1
Merger ................................................................................................1
Newco ................................................................................................1
Parent Material Adverse Effect...................................................................................12
Paying Agent ................................................................................................5
Payment Fund ................................................................................................5
Proxy Statement ................................................................................................2
SEC ................................................................................................2
Securities Act ................................................................................................8
Special Committee ...............................................................................................25
Stockholders' Meeting............................................................................................17
Subsidiary ................................................................................................8
Surviving Corporation.............................................................................................2
TBCA ................................................................................................1
WARN Act ...............................................................................................13
</TABLE>
-iii-
<PAGE> 65
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger (this "Agreement"), dated as of March 15,
1998, by and between FPK, LLC, a Delaware limited liability company ("LLC"), and
NORWOOD PROMOTIONAL PRODUCTS, INC., a Texas corporation (the "Company").
BACKGROUND
A. LLC was formed by the filing of a Certificate of Formation with the
Secretary of State of the State of Delaware on March 13, 1998.
B. The Board of Directors of the Company (based upon the recommendation
of a special committee of its independent directors (the "Special Committee"))
and the Manager of LLC have each determined that a business combination between
the Company and a wholly-owned subsidiary corporation of LLC to be formed under
the laws of Texas prior to the Effective Time (as defined in Section 1.3)
("Newco") is in the best interests of their respective companies and
shareholders/member, whereby Newco will merge with and into the Company (the
"Merger"), with the Company being the surviving corporation, all upon the terms
and subject to the conditions of this Agreement.
C. Certain executive officers and employees of the Company and certain
other holders of Company Common Shares (as defined in Section 3.1 ) desire to
remain shareholders of the Surviving Corporation (as defined in Section 1.1)
(collectively, each being a member of the "Buyout Group"), whose members will be
set forth on a list which LLC will deliver to the Company at least three days
prior to the mailing of the definitive Proxy Statement (as defined in 1.4).
D. LLC has arranged for the debt and equity financing necessary to
complete the Merger to be provided to the Company simultaneous with the
completion of the Merger in accordance with the terms and conditions of certain
commitment letters, highly confident letters and term sheets (the "Financing
Letters").
E. Each of the Company and LLC desires to provide for the consummation
of the Merger and certain other transactions relating thereto, on the terms and
subject to the conditions set forth herein.
NOW THEREFORE, intending to be legally bound, and in consideration of
the mutual agreements and covenants set forth below the parties agree as
follows:
1. THE MERGER.
1.1 The Merger.
(a) On the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined in Section 1.3), Newco will be
merged with and into the Company in accordance with the applicable provisions of
the Texas Business Corporation Act (the "TBCA"), and the separate corporate
existence of Newco will thereupon cease. The Company will be the surviving
<PAGE> 66
corporation in the Merger (as such, the "Surviving Corporation") under the
corporate name it possesses immediately prior to the Effective Time.
(b) At and after the Effective Time, the corporate existence
of the Company with all its rights, privileges, powers and franchises will
continue unaffected and unimpaired by the Merger. The Merger will have the
effects specified in the relevant provisions of the TBCA and in this Agreement.
1.2 The Closing. Unless this Agreement shall have been terminated
pursuant to the provisions of Article 8, the closing of the transactions
contemplated by this Agreement (the "Closing") will take place at the offices of
Fulbright & Jaworski L.L.P., 2200 Ross Avenue, Suite 2800, Dallas, Texas 75201,
at 10:00 a.m., local time, within two business days following the date on which
the last of the conditions (excluding conditions that by their terms cannot be
satisfied until the Closing Date (as defined below)) set forth in Article 7 is
satisfied or waived in accordance herewith, or at such other place, time or date
as the parties may agree. The date on which the Closing occurs is hereinafter
referred to as the "Closing Date".
1.3 Effective Time. On the Closing Date, LLC, Newco and the
Company will cause articles of merger with respect to the Merger (the "Articles
of Merger"), executed in accordance with the relevant provisions of the TBCA, to
be filed with the Secretary of State of the State of Texas as provided in
Article 5.04 of the TBCA. Upon completion of such filing and the issuance of a
certificate of merger by the Secretary of State of the State of Texas as
provided in Article 5.04(c) of the TBCA, the Merger will become effective in
accordance with the TBCA. The time and date on which the Merger becomes
effective is herein referred to as the "Effective Time."
1.4 Company Actions. The Company hereby represents that (a) its
Board of Directors (at a meeting duly held on March 15, 1998), based upon the
recommendation of the Special Committee, has adopted resolutions by the
unanimous vote of the directors (with all interested directors of the Company
abstaining upon advice of counsel) recommending that the holders of Company
Common Shares (as defined in Section 3.1) approve and adopt this Agreement and
the transactions contemplated hereby, including (i) the conversion of the par
value of the Company Common Shares from no par value to $.01 par value (the "Par
Value Conversion") and (ii) the Merger, and (b) J.C. Bradford & Company, L.L.C.
("J.C. Bradford") has provided to the Special Committee its opinion that the
Consideration (as defined in Section 3.1) to be received by the holders of
Company Common Shares (other than the Buyout Group) pursuant to the Merger is
fair to such holders from a financial point of view. The Company shall file as
soon as practicable after the date hereof with the Securities and Exchange
Commission (the "SEC"), a preliminary and final definitive proxy statement
(including certain information described in Schedule 13E-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and required to be set
forth in such proxy statement (such preliminary and final definitive proxy
statement, and any amendments or supplements thereto, collectively, the "Proxy
Statement") pursuant to Rule 13e-3(e)(1) and Rule 14a- 3 under the Exchange Act)
and shall cause the Proxy Statement to be mailed to the holders of the Company
Common Shares. The Company agrees to provide LLC and its counsel with any
written or oral comments the Company or its counsel may receive from the SEC
with respect to such Proxy Statement promptly after the receipt of such
comments. The Company shall also provide LLC and
2
<PAGE> 67
its counsel a reasonable opportunity to review each of the filings relating to
the Proxy Statement prior to its filing with the SEC or dissemination to the
holders of the Company Common Shares and to participate, including by way of
discussions with the SEC, in the response of the Company to such comments.
2. ARTICLES OF INCORPORATION, BY-LAWS, DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION.
2.1 Articles of Incorporation and By-laws of Surviving
Corporation.
(a) The articles of incorporation of the Company, as in
effect immediately prior to the Effective Time, as amended to reflect the Par
Value Conversion and to include the terms of the preferred stock as described in
the Financing Letters, shall become, from and after the Effective Time, the
articles of incorporation of the Surviving Corporation until amended in
accordance with its terms and the TBCA.
(b) The by-laws of the Company, as in effect immediately
prior to the Effective Time, shall become, from and after the Effective Time,
the by-laws of the Surviving Corporation until amended in accordance with their
terms and the TBCA.
2.2 Directors and Officers of Surviving Corporation. The directors
and officers of Newco immediately prior to the Effective Time shall become, from
and after the Effective Time, the directors and officers of the Surviving
Corporation and shall serve in accordance with the articles of incorporation and
by-laws of the Surviving Corporation until his/her successor has been duly
elected or appointed and qualified or until his/her earlier death, resignation
or removal in accordance with the articles of incorporation and the by-laws of
the Surviving Corporation.
3. CONVERSION OF SECURITIES.
3.1 Conversion of Securities.
(a) At the Effective Time, each share of Common Stock, (which
immediately prior to the Merger will be converted from no par value to $.01 par
value), of the Company (each a "Company Common Share" and collectively, the
"Company Common Shares") issued and outstanding immediately prior to the
Effective Time, other than as described in Sections 3.1(c), 3.1(d) and 3.2
hereof, by virtue of the Merger and without any action on the part of the
holders thereof, will be converted solely and exclusively into the right to
receive $20.70 per share in cash (the "Consideration") and any dividends payable
in accordance with Section 3.3(b).
(b) At the Effective Time, all Company Common Shares to be
converted into the right to receive the Consideration pursuant to this Section
3.1, by virtue of the Merger and without any action on the part of the holders
thereof, will cease to be outstanding, be canceled and retired and cease to
exist, and each holder of Company Common Shares will thereafter cease to have
any rights with respect to such Company Common Shares (other than the right to
receive any dividends payable in accordance with Section 3.3(b)), except the
right to receive the Consideration
3
<PAGE> 68
for each of the Company Common Shares, upon the surrender of such certificate in
accordance with Section 3.3, without any interest thereon, as provided in this
Agreement or the rights under Article 5.11 of the TBCA.
(c) At the Effective Time, each Company Common Share issued
and outstanding that is owned by any member of the Buyout Group immediately
prior to the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof, will be converted into one fully paid and
nonassessable share of common stock, $.01 par value, of the Surviving
Corporation.
(d) At the Effective Time, each Company Common Share issued
and outstanding that is owned by the Company or any of its Subsidiaries (as
defined in Section 4.4) as treasury stock, by virtue of the Merger and without
any action on the part of the holder thereof, will cease to be outstanding, be
canceled and retired and cease to exist without payment of any Consideration
therefor.
(e) At the Effective Time, each share of the capital stock of
Newco issued and outstanding immediately prior to the Effective Time, by virtue
of the Merger and without any action on the part of Newco or the holder thereof,
will cease to be outstanding, be canceled and retired and cease to exist without
payment of any Consideration therefor.
(f) All notes and other debt instruments of the Company which
are outstanding immediately prior to the Effective Time shall continue to be
outstanding subsequent to the Effective Time as debt instruments of the
Surviving Corporation, subject to their respective terms and provisions.
(g) All options and warrants to purchase Company Common
Shares and debt which is convertible into Company Common Shares which are
outstanding immediately prior to the Effective Time (each, a "Company Stock
Derivative") shall continue to be outstanding subsequent to the Effective Time
as options, warrants and convertible debt of the Surviving Corporation, subject
to all expiration, lapse and other terms and conditions thereof, except that the
term of all Company Stock Derivatives (other than convertible debt and employee
incentive stock options) shall be extended for three years from the date of
their current expiration.
3.2 Dissenting Shareholders. Notwithstanding anything in this
Agreement to the contrary, holders of Company Common Shares that have, as of the
Effective Time, complied with all procedures necessary to assert dissenter's
rights in accordance with the TBCA, if applicable, (collectively, the
"Dissenting Shareholders") shall have such rights, if any, as they may have
pursuant to Articles 5.11, 5.12 and 5.13 of the TBCA and such Company Common
Shares shall not be converted or be exchangeable as provided in Section 3.1, but
such holders shall be entitled to receive such payment as may be determined to
be due to such holders pursuant to the TBCA; provided, however, that if any such
holder shall have failed to perfect or shall have effectively withdrawn his
right to appraisal and payment under the TBCA, or if pursuant to Article 5.13.B
of the TBCA, the Company shall have terminated such holder's rights under
Article 5.12 of the TBCA, such holder shall be conclusively presumed to have
approved and ratified the Merger and such holder's Company
4
<PAGE> 69
Common Shares shall thereupon be deemed to have been converted and to have
become exchangeable, as of the Effective Time, into the right to receive, the
Consideration, without interest thereon, upon surrender of the Certificate or
Certificates (as defined in Section 3.3) in the manner provided in Section 3.3.
The Company shall give LLC prompt notice of any demand for dissenter's rights
received by the Company (and shall also give LLC prompt notice of any
withdrawals of such demands for dissenter's rights) and LLC shall have the
opportunity and right to participate in and direct all negotiations with respect
to such demands. The Company shall not, except with the prior written consent of
LLC (which consent shall not be unreasonably withheld, conditioned or delayed),
settle or otherwise negotiate or offer to settle any such demand for dissenter's
rights.
3.3 Payment for and Surrender of Company Common Shares.
(a) From time to time as needed by such bank or trust company
designated by LLC and reasonably acceptable to the Company (the "Paying Agent"),
the Surviving Corporation will deposit with the Paying Agent, for the benefit of
the holders of Company Common Shares, cash, cash equivalents or a combination
thereof in an aggregate amount equal to the product of (i) the number of Company
Common Shares issued and outstanding at the Effective Time (other than the
Company Common Shares referred to in Sections 3.1(c) and (d) and 3.2),
multiplied by (ii) the Consideration referred to in Section 3.1 (being
hereinafter referred to as the "Payment Fund"). The Paying Agent will, pursuant
to irrevocable instructions from the Surviving Corporation, deliver the
Consideration contemplated by Section 3.1 out of the Payment Fund, and, except
as provided in this Section 3.3, the Payment Fund will not be used for any other
purpose. The Company will act as paying agent with respect to payments to
holders of Options pursuant to Section 3.1(g). The Paying Agent shall invest any
cash included in the Payment Fund, as directed by the Surviving Corporation, on
a daily basis. Any interest and other income resulting from such investments
shall be paid to the Surviving Corporation.
(b) Promptly after the Effective Time, the Paying Agent will
mail to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding Company Common Shares that
were converted to the right to receive the Consideration pursuant to Section 3.1
(the "Certificates") (i) a form of letter of transmittal (which will specify
that delivery will be effected, and risk of loss and title to the Certificates
will pass, only upon proper delivery of the Certificates to the Paying Agent)
and (ii) instructions for use in effecting the surrender of the Certificates for
payment therefor. Upon surrender of Certificates for cancellation to the Paying
Agent, together with such letter of transmittal duly executed and any other
required documents, the holder of such Certificates will be entitled to receive
the Consideration for each of the Company Common Shares represented by such
Certificates, and the Certificates so surrendered will promptly be canceled.
Until so surrendered, Certificates will represent solely the right to receive
the Consideration plus any declared but unpaid dividends. No interest will be
paid or accrued on the cash payable upon the surrender of the Certificates. No
dividends or other distributions, if any, that are declared prior to the
Effective Time and are payable after the Effective Time to holders of record of
Certificates will be paid to persons entitled by reason of the Merger to receive
the Consideration until such persons surrender their Certificates. Upon such
surrender, there will be paid to the registered holders of surrendered
Certificates such declared but unpaid dividends or other distributions, if any,
on the appropriate payment date. In no event will the persons entitled to
receive
5
<PAGE> 70
such dividends or other distributions be entitled to receive interest on such
dividends or other distributions. If any Consideration is to be paid to a person
whose name is a name other than that in which the surrendered Certificate in
exchange therefor is registered, it will be a condition of such exchange that
the Certificate so surrendered be properly endorsed and otherwise in proper form
for transfer and that the person requesting such exchange pay to the Paying
Agent any transfer or other taxes required by reason of the payment of such
Consideration in a name other than that of the registered holder of the
Certificate surrendered, or establish to the satisfaction of the Paying Agent
that such tax has been paid or is not applicable. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Certificate to be lost, stolen or
destroyed, the Paying Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Consideration deliverable in respect thereof as
determined in accordance with this Agreement, provided that the person to whom
the Consideration is paid shall, as a condition precedent to the payment thereof
if required by the Surviving Corporation, give the Surviving Corporation a bond
in such sum as it may direct or otherwise indemnify the Surviving Corporation in
a manner satisfactory to it against any claim that may be made against the
Surviving Corporation with respect to the Certificate claimed to have been lost,
stolen or destroyed.
(c) Any portion of the Payment Fund which remains unclaimed
by the former shareholders of the Company for 180 days after the Effective Time
will be delivered to the Surviving Corporation and any former shareholders of
the Company will thereafter look only to the Surviving Corporation for payment
of their claim for the Consideration for the Company Common Shares.
(d) Neither LLC, Newco, the Surviving Corporation nor the
Paying Agent shall be liable to any holder of Company Common Shares for such
shares (or dividends or distributions with respect thereto) or cash from the
Payment Fund (or from the Surviving Corporation after the Payment Fund has
terminated) delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. Immediately prior to the time as any amounts
remaining unclaimed by holders of any such shares would otherwise escheat to or
become property of any Governmental Entity (as defined below), such amounts
shall, to the extent permitted by applicable law, become the property of the
Surviving Corporation free and clear of any claims or interest of any such
holders or their successors, assigns or personal representatives previously
entitled thereto.
3.4 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company, other than with respect to Company Common Shares
held by the Buyout Group, will be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to LLC as follows:
4.1 Organization and Qualification. The Company and each of its
Subsidiaries (as defined in Section 4.4) is a corporation or organization duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has the requisite power
and authority and all necessary governmental approvals to own, lease and operate
6
<PAGE> 71
its properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals would not, individually or in
the aggregate, have a Company Material Adverse Effect (as defined below). The
Company and each of its Subsidiaries is duly qualified or licensed as a foreign
corporation or organization to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in good
standing that would not, individually or in the aggregate, have a Company
Material Adverse Effect. The term "Company Material Adverse Effect" means any
change or effect that is or is reasonably likely to be materially adverse to the
business, operations, properties, financial condition, assets or liabilities of
the Company and its Subsidiaries taken as a whole. The Company has previously
delivered to LLC correct and complete copies of the articles of incorporation
and by-laws (or equivalent governing instruments), as currently in effect, of
the Company and each of its Subsidiaries.
4.2 Authorization, Validity and Effect of Agreement. The Company
has the requisite corporate power and authority to execute and deliver this
Agreement and all agreements and documents contemplated hereby to be executed
and delivered by it, and, subject to receipt of necessary shareholder approval,
to consummate the transactions contemplated hereby. Subject only to the approval
of this Agreement, the Merger and the transactions contemplated hereby by the
holders of at least two-thirds of the outstanding Company Common Shares, this
Agreement, the Merger and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all requisite
corporate action, and no other corporate action on the part of the Company is
necessary to authorize this Agreement or the Merger or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and constitutes, and all agreements and
documents contemplated hereby to be executed and delivered by the Company (when
executed and delivered pursuant hereto) will constitute, the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to creditors' rights
generally and (ii) the availability of injunctive relief and other equitable
remedies.
4.3 Capitalization. The authorized capital stock of the Company
consists of 20,000,000 Company Common Shares, 4,000,000 shares of cumulative
convertible preferred stock, no par value (the "Company Preferred Shares") and
700 shares of cumulative preferred stock, no par value (the "Company Junior
Preferred Shares"). As of the close of business on the date hereof, (a)
5,078,028 Company Common Shares were issued and outstanding, all of which were
validly issued, fully paid and nonassessable and 576,530 shares were held in the
Company's treasury, (b) no Company Preferred Shares or Company Junior Preferred
Shares were outstanding or held in the Company's treasury, (c) no Company Common
Shares, Company Preferred Shares or Company Junior Preferred Shares were held by
Subsidiaries of the Company, (d) a total of 410,536 Company Common Shares were
reserved for future issuance pursuant to outstanding Company Stock Derivatives
whether or not granted under the Company's Amended and Restated 1989 Incentive
Stock Option Plan, Amended and Restated 1994 Incentive Stock Compensation Plan,
1993 Non-Qualified Stock Option Plan, 1993 Non-Employee Director Stock Purchase
Plan and Second Amended and Restated Employee Stock Purchase Plan (collectively,
the "Company Stock Option
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Plans") and 219,464 shares were reserved for future grants whether or not under
such plans, and (e) Schedule 4.3 is a true and complete list, as of the date
hereof, of the holders of all Company Stock Derivatives, the number of Company
Common Shares subject to each such option, warrant or convertible debt
instrument and the exercise prices thereof. Except as set forth on Schedule 4.3,
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character issued or authorized by the Company relating to the
issued or unissued capital stock of the Company or any of its Subsidiaries or
obligating the Company or any of its Subsidiaries to issue or sell any shares of
capital stock of, or other equity interests in, the Company or any of its
Subsidiaries. All Company Common Shares subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, will be duly authorized, validly issued, fully paid and
nonassessable. Except as set forth on Schedule 4.3, there are no outstanding
contractual obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any Company Common Shares or any capital stock of
any its Subsidiaries or to provide funds to, or make any investment (in the form
of a loan, capital contribution or otherwise) in, any person. Except as set
forth on Schedule 4.3, there are no persons with registration or other similar
rights to have any securities (debt or equity) of the Company registered by the
Company under the Securities Act of 1933, as amended (the "Securities Act").
4.4 Subsidiaries. Schedule 4.4 sets forth a complete and
accurate list of the Subsidiaries of the Company and indicates for each such
Subsidiary the jurisdiction of incorporation or organization. Except as set
forth on Schedule 4.4, each of the Company's Subsidiaries is wholly owned by the
Company or a Subsidiary of the Company. Each outstanding share of capital stock
of each of the Company's Subsidiaries is duly authorized, validly issued, fully
paid and nonassessable and, other than the security interests held by Merrill
Lynch & Co., or any of its affiliates ("Merrill Lynch") as the administrative
agent under the Company's current credit facility, each such share owned by the
Company or another of its Subsidiaries is free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on the Company's or such other Subsidiary's voting rights, charges
and other encumbrances of any nature whatsoever. As used in this Agreement, the
word "Subsidiary" when used with respect to any party means any corporation or
other organization, whether incorporated or unincorporated, of which such party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions.
4.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the
Company do not, and the consummation by the Company of the transactions
contemplated hereby will not, (i) conflict with or violate the articles of
incorporation or by-laws or equivalent organizational documents of the Company
or any of its Subsidiaries, (ii) subject to making the filings and obtaining the
approvals identified in this Section 4.5, conflict with or violate any law,
rule, regulation, order, judgment or decree (whether United States or foreign)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected, or (iii)
except as set forth on Schedule 4.5, result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, result in the loss of a material
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benefit under, or give to others any right of termination, amendment,
acceleration, increased payments or cancellation of, or result in the creation
of a lien or other encumbrance on any property or asset of the Company pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company is a
party or by which the Company or any property or asset of the Company is bound
or affected, except in the case of clauses (ii) and (iii), for any such
conflicts, violations, breaches, defaults or other occurrences which would not
prevent or delay consummation of any of the transactions contemplated hereby in
any material respect, or otherwise prevent the Company from performing its
obligations under this Agreement in any material respect, and would not,
individually or in the aggregate, have a Company Material Adverse Effect.
(b) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement and the consummation by
the Company of the transactions contemplated hereby will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign (each a
"Governmental Entity") by either the Company or any of its Subsidiaries, except
(i) for (A) applicable requirements, if any, of the Exchange Act, the Securities
Act, and state securities or "blue sky" laws ("Blue Sky Laws"), (B) the filing
of the Articles of Merger and related requirements pursuant to the TBCA, (C)
filings and approvals as may be required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), (D) filings and consents as may be
required under any environmental, health or safety law or regulation pertaining
to any notification, disclosure or required approval, triggered by the Merger or
the other transactions contemplated by this Agreement as set forth on Schedule
4.5, and (E) applicable requirements, if any, of the Internal Revenue Code of
1986, as amended (the "Code"), and state, local and foreign tax laws, and (ii)
where failure to obtain such consents, approvals, authorizations or permits, or
to make such filings or notifications, would not delay consummation of any of
the transactions contemplated hereby in any material respect or prevent the
Company from performing its obligations under this Agreement in any material
respect, and would not, individually or in the aggregate, have a Company
Material Adverse Effect.
(c) The affirmative vote of the holders of at least
two-thirds of the outstanding Company Common Shares is the only vote of the
holders of any class or series of capital stock of the Company necessary to
approve this Agreement, the Merger and the transactions contemplated hereby on
behalf of the Company.
4.6 No Brokers. Neither the Company nor any of its officers or
directors has employed any investment banker, business consultant, financial
advisor, broker or finder to act on behalf of the Company in connection with the
transactions contemplated by this Agreement, except for J.C. Bradford (the fees
of which will be paid by the Company), or incurred any liability for any
investment banking, business consultancy, financial advisory, brokerage or
finders' fees or commissions in connection with the transactions contemplated
hereby, except for fees payable to J.C. Bradford. The Company has provided LLC
with a true and correct copy of the engagement letter between the Company and
J.C. Bradford.
4.7 Opinion of Financial Advisor. J.C. Bradford has provided its
opinion to the Company to the effect that, as of the date hereof, the
Consideration to be received by the holders of
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Company Common Shares (other than the Buyout Group) in the Merger is fair to
such holders from a financial point of view, and a complete and correct signed
written copy of such opinion, promptly upon receipt thereof, will be delivered
to LLC.
4.8 SEC Filings; Financial Statements; Undisclosed Liabilities.
Except as set forth on Schedule 4.8, The Company has made all filings required
to be made under the Exchange Act and the Securities Act with the SEC since
December 31, 1995 (the "SEC Filings"). As of their respective dates, the SEC
Filings complied as to form 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 SEC Filings,
and the SEC Filings did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Except as set forth on Schedule 4.8, the financial
statements set forth in the SEC Filings comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC promulgated under the Securities Act or the Exchange Act,
as the case may be, and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes to such financial statements) and
fairly present in all material respects the consolidated financial position of
the Company and its Subsidiaries at the respective dates thereof and the
consolidated results of operations and cash flows for the respective periods
then ended (subject, in the case of unaudited interim financial statements, to
exceptions permitted by Form 10-Q under the Exchange Act and to normal year-end
adjustments). As of August 30, 1997, neither the Company nor any of its
Subsidiaries had, and since such date neither the Company nor any of its
Subsidiaries has incurred, any liabilities of any nature, whether accrued,
absolute, contingent or otherwise, whether due or to become due that are
required to be recorded or reflected on a consolidated balance sheet of the
Company under generally accepted accounting principles, except (i) liabilities
that have arisen since August 31, 1997 in the ordinary course of business, (ii)
liabilities that are reflected or reserved against or disclosed in the financial
statements of the Company included in the SEC Filings, (iii) liabilities that
would not, individually or in the aggregate, have a Company Material Adverse
Effect or (iv) as otherwise disclosed to LLC in writing on or prior to the date
hereof.
4.9 Absence of Certain Changes or Events. Except as disclosed in
the SEC Filings filed and publicly available prior to the date hereof, since
August 30, 1997, the Company and its Subsidiaries have conducted their
respective businesses in the ordinary course consistent with past practice and
as of the date hereof there has not been (i) any condition, event or occurrence
that, individually or in the aggregate, has resulted in a Company Material
Adverse Effect, (ii) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect to any
of the Company's capital stock, (iii) any split, combination or reclassification
of any of its capital stock or any issuance or the authorization of any issuance
of any other securities in respect of, in lieu of or in substitution for shares
of its capital stock, (iv) except as reflected in Schedule 4.3 and except as set
forth on Schedule 4.9, (x) any granting by the Company or any of its
Subsidiaries to any executive officer or other key employee of the Company or
any of its Subsidiaries of any increase in compensation, except for normal
increases in the ordinary course of business consistent with past practice, (y)
any granting by the Company or any of its Subsidiaries to any such executive
officer of any increase in severance or termination pay, except as was required
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under any employment, severance or termination agreements in effect as of August
30, 1997 or (z) any entry by the Company or any of its Subsidiaries into any
employment, severance or termination agreement with any such executive officer
except in the ordinary course of business consistent with past practice, (v) any
damage, destruction or loss, whether or not covered by insurance, that has had
or will have a Company Material Adverse Effect or (vi) except as required by a
change in generally accepted accounting principles, any change in accounting
methods, principles or practices except as required by generally accepted
accounting principles.
5. REPRESENTATIONS AND WARRANTIES OF LLC. LLC represents and warrants
to the Company as follows:
5.1 Organization. LLC is a limited liability company duly
organized, validly existing and in good standing under the laws of Delaware.
Newco, when formed and at the Effective Time, will be a wholly owned subsidiary
corporation of LLC duly incorporated, validly existing and in good standing
under the laws of Texas formed solely for the purpose of engaging in the
transactions contemplated hereby. Except for obligations or liabilities incurred
in connection with its incorporation or organization and the transactions
contemplated hereby, Newco will not incur any obligations or liabilities or
engage in any business or activities of any type or kind whatsoever or enter
into any agreements or arrangements with any person or entity. LLC has
previously delivered to the Company correct and complete copies of the
organizational documents, as currently in effect, of LLC, and will deliver to
the Company prior to the Effective Time correct and complete copies of the
articles of incorporation and by-laws of Newco.
5.2 Authorization, Validity and Effect of Agreement. LLC has the
requisite limited liability company power and authority to execute and deliver
this Agreement and all agreements and documents contemplated hereby to be
executed and delivered by it and to consummate the transactions contemplated
hereby and thereby. Newco, when formed and at the Effective Time, will have the
requisite corporate power and authority to execute and deliver all agreements
and documents contemplated hereby to be executed and delivered by it and to
consummate the transactions contemplated hereby and thereby. This Agreement, the
Merger and the consummation by LLC and Newco of the transactions contemplated
hereby have been duly and validly authorized by the Manager and member of LLC
and will be duly and validly authorized by the Board of Directors and
shareholders of Newco, and no other limited liability company action on the part
of LLC is necessary, or other corporate action on the part of Newco will be
necessary, to authorize this Agreement or the Merger or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed by LLC and constitutes, and all agreements and documents contemplated
hereby to be executed and delivered by LLC and Newco (when executed and
delivered pursuant hereto) will constitute, the valid and binding obligations of
LLC and Newco enforceable against each of them in accordance with their
respective terms, subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to creditors' rights
generally and (ii) the availability of injunctive relief and other equitable
remedies.
5.3 Subsidiaries. As of the date hereof, LLC does not own any
Subsidiaries. Prior to the Effective Time, LLC will not own any Subsidiaries
other than Newco.
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5.4 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by LLC do
not, and the consummation by LLC and Newco of the transactions contemplated
hereby will not, (i) conflict with or violate the organizational documents of
LLC or the articles of incorporation or by-laws of Newco, (ii) conflict with or
violate any law, rule, regulation, order, judgment or decree (whether United
States or foreign) applicable to LLC or Newco or by which any property or asset
of LLC or Newco is bound or affected, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, result in the loss of a material benefit under,
or give to others any right of termination, amendment, acceleration, increased
payments or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of LLC or Newco pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which LLC or Newco is a party or
by which LLC or Newco or any property or asset of LLC or Newco is bound or
affected, except in the case of clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which would not prevent or
delay consummation of any of the transactions contemplated hereby in any
material respect, or otherwise prevent LLC or Newco from performing its
obligations under this Agreement in any material respect, and would not,
individually or in the aggregate, have an LLC/Newco Material Adverse Effect. The
term "LLC/Newco Material Adverse Effect" means any change of effect that is or
is reasonably likely to be materially adverse to the business, operations,
properties, financial condition, assets or liabilities of LLC or Newco.
(b) The execution and delivery of this Agreement by LLC do
not, and the performance of this Agreement and the consummation of the
transactions contemplated hereby by LLC and Newco will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except (i) for (A) applicable requirements, if any, of the
Exchange Act, the Securities Act and Blue Sky Laws, (B) the filing of the
Articles of Merger and related requirements pursuant to the TBCA, (C) filings
and approvals as may be required under the HSR Act, (D) such filings and
consents as may be required under any environmental, health or safety law or
regulation pertaining to any notification, disclosure or required approval
triggered by the Merger or the transactions contemplated by this Agreement, and
(E) applicable requirements, if any, of the Code and state, local and foreign
tax laws, and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of any of the transactions contemplated hereby in
any material respect, or otherwise prevent LLC or Newco from performing its
obligations under this Agreement in any material respect, and would not,
individually or in the aggregate, have an LLC/Newco Material Adverse Effect.
5.5 No Brokers. Neither LLC nor its Manager has employed, nor
Newco nor any of its directors or officers will employ, any investment banker,
business consultant, financial advisor, broker or finder in connection with the
transactions contemplated by this Agreement, except for Merrill Lynch and Allen
& Company Incorporated ("Allen & Co.") (the fees of which will be paid by LLC),
or incurred any liability for any investment banking, business consultancy,
financial advisory, brokerage or finders' fees or commissions in connection with
the transactions contemplated hereby, except for fees payable to Merrill Lynch
and Allen & Co.
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5.6 Financing. LLC has furnished to the Company complete and
correct copies of the Financing Letters which LLC believes, subject to terms and
the conditions set forth therein, will provide (together with the roll-over of
Buyout Group's equity) all of the financing required in order to consummate the
Merger (the "Financing"). LLC has no reason to believe that any conditions to
the Financing will not be satisfied or that the Financing will not be available
at and after the Closing.
5.7 WARN Act. LLC does not intend to implement a "plant closing"
or a "mass layoff", as those terms are defined in the Worker Adjustment and
Retraining Notification Act (29 U.S.C. ss. 2101 et seq.) as amended (the "WARN
Act"), in respect of the Company or any of its Subsidiaries within 90 days after
the Closing Date. The Surviving Corporation shall be solely responsible for
giving any and all notices required by the WARN Act or any similar state law or
regulation because of any action taken by LLC or the Surviving Corporation with
respect to the Company or any of its Subsidiaries occurring on or after the
Closing Date. The parties hereby designate the Closing Date as the "effective
date" for purposes of the WARN Act.
6. COVENANTS.
6.1 Acquisition Proposals.
(a) Upon execution of this Agreement, the Company will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any Acquisition Proposal (as defined below). Prior to the Effective Time, the
Company agrees that neither it nor any of its Subsidiaries will, nor will it or
any of its Subsidiaries permit their respective officers, directors, employees,
agents and representatives (including, without limitation, any investment
banker, attorney or accountant retained by it or any of its Subsidiaries) to,
initiate, solicit, participate in or encourage, directly or indirectly, any
Acquisition Proposal or, except as set forth below, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal.
Notwithstanding the foregoing, in the event the Company receives an unsolicited
written proposal or unsolicited written offer (in either case subject to due
diligence) with respect to an Acquisition Proposal, the Special Committee or the
Board of Directors of the Company shall be entitled to review and participate in
negotiations concerning such proposal and furnish confidential information and
data concerning the Company and its Subsidiaries to the offeror if it reasonably
believes, after consultation with its counsel and its financial advisor, that
there is a substantial risk that a failure to do so would violate its fiduciary
duties to the shareholders of the Company; provided that (A) the Company shall
have furnished, or concurrently with the provision of such information to such
offeror shall furnish, LLC with all such information provided to such offeror
and (B) the offeror executes a confidentiality agreement with the Company. The
Company shall notify the Special Committee and LLC immediately of any such
unsolicited Acquisition Proposal, or any inquiry or contact with any person with
respect thereto, and shall in such notice indicate in reasonable detail the
identity of the offeror and the terms and conditions of such proposal and,
subject to the fiduciary duties of the Special Committee under applicable law,
shall keep LLC
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promptly advised of all developments which could be reasonably expected to
culminate in the Special Committee withdrawing, modifying or amending its
recommendation of the Merger and the other transactions contemplated by this
Agreement. In addition, in the event (i) the Company enters into negotiations
with respect to an unsolicited Acquisition Proposal or (ii) the Company's Board
of Directors (upon recommendation of the Special Committee) shall withdraw its
approval of this Agreement and the transactions contemplated hereby or its
recommendation to the shareholders of the Company to approve the same, then the
Company shall immediately deliver an additional notice of such events to LLC.
Nothing in this Section 6.1 will (x) permit the Company to terminate this
Agreement except as provided in Section 8.1(f), (y) permit the Company to enter
into any agreement to consummate an Acquisition Proposal for as long as this
Agreement remains in effect (it being agreed that for as long as this Agreement
remains in effect, the Company will not enter into any agreement with any person
that provides for, or in any way facilitates, an Acquisition Proposal except as
otherwise permitted herein), or (z) affect any other obligation of the Company
under this Agreement.
(b) For purposes of this Agreement, an "Acquisition Proposal"
shall mean any of the following (other than the transactions among the Company
and LLC contemplated hereunder or which LLC consents to in writing in advance)
involving the Company or any of its Subsidiaries: (i) any merger, consolidation,
share exchange, recapitalization, business combination, or other similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of all or substantially all of the assets of the Company and its
Subsidiaries, taken as a whole, in a single transaction or series of
transactions; (iii) any tender offer or exchange offer for all or substantially
all of the outstanding shares of capital stock of the Company or the filing of a
registration statement under the Securities Act in connection therewith; or (iv)
any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
(c) LLC shall cause the members of the Buyout Group to notify
the Special Committee immediately in the event a member of the Buyout Group
receives an unsolicited written proposal or unsolicited written offer with
respect to an Acquisition Proposal or any inquiry or contact with any person
with respect thereto.
6.2 Conduct of Business by the Company. Prior to the Effective
Time, except as contemplated by any other provision of this Agreement, unless
LLC has previously consented in writing thereto or unless the Chief Executive
Officer of the Company has previously authorized thereto, the Company:
(a) will, and will cause each of its Subsidiaries to, conduct
its operations in the ordinary and normal course, consistent with past practice;
(b) will use its reasonable best efforts, and will cause each
of its Subsidiaries to use its reasonable best efforts, to preserve intact their
business organizations and goodwill, keep available the services of their
respective officers and employees and maintain satisfactory relationships with
those persons having business relationships with them;
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(c) will not amend its articles of incorporation or by-laws
or comparable governing instruments;
(d) will, upon the occurrence of any event or change in
circumstances as a result of which any representation or warranty of the Company
contained in Article 4 would be untrue or incorrect in any material respect if
such representation or warranty were made immediately following the occurrence
of such event or change in circumstance, promptly (and in any event within two
business days of an executive officer of the Company obtaining knowledge
thereof) notify LLC thereof;
(e) will promptly deliver to LLC true and correct copies of
any report, statement, application or schedule (including any exhibits thereto)
filed with the SEC subsequent to the date of this Agreement;
(f) will not (i) issue any shares of its capital stock other
than the issuance of Company Common Shares issuable upon exercise of Company
Stock Derivatives outstanding on the date of this Agreement (in accordance with
the present terms thereof), effect any stock split or otherwise change its
capitalization as it existed on the date hereof, (ii) grant, confer or award any
option, warrant, conversion right or other equity rights not existing on the
date hereof to acquire any shares of its capital stock, (iii) grant, confer or
award any bonuses or other forms of incentive compensation to any officer,
director or employee, except for cash bonuses or incentives consistent with past
practice or under any existing agreement or automatically under any of the
Company Stock Option Plans, (iv) increase any compensation under any employment
agreement with any of its present or future officers, directors or employees,
except for normal increases for officers and employees consistent with past
practice or the terms of such employment agreement, (v) grant any severance or
termination pay to, or enter into any employment, severance or termination
agreement with any officer, director or employee or amend any such agreement in
any material respect, except for severance arrangements consistent with past
practice with respect to officers and employees terminated by the Company, or
(vi) adopt any new employee benefit plan or program (including any stock option,
stock benefit or stock purchase plan) or amend any existing employee benefit
plan or program in any material respect;
(g) will not (i) declare, set aside or pay any dividend or
make any other distribution or payment with respect to any shares of its capital
stock or other ownership interests or (ii) directly or indirectly redeem,
purchase or otherwise acquire any shares of its capital stock or capital stock
of any of its Subsidiaries, or make any commitment for any such action;
(h) will not, and will not permit any of its Subsidiaries to,
sell, lease or otherwise dispose of any of its assets (including capital stock
of Subsidiaries) or to acquire any business or assets, except for (i) any
purchase or sale of inventory undertaken in the ordinary course of business, or
(ii) any sale, lease or other disposition of assets in the ordinary course of
business;
(i) will not incur any material amount of indebtedness for
borrowed money or make any loans, advances or capital contributions to, or
investments (other than non-controlling investments in the ordinary course of
business) in, any other person other than a wholly owned
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Subsidiary of the Company, or issue or sell any debt securities, other than
borrowings under existing lines of credit in the ordinary course of business;
(j) will not, except pursuant to and in accordance with the
capital budget previously disclosed in writing to LLC, authorize, commit to or
make capital expenditures;
(k) will not mortgage or otherwise encumber or subject to any
lien any properties or assets except for such of the foregoing as are in the
ordinary course of business and would not be reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect;
(l) will not enter into or agree to enter into any contract
without the prior written consent of LLC unless such contract is entered into by
the Company for (i) any purchase or sale of inventory undertaken in the ordinary
course of business, (ii) the sale of accounts receivable that are more than 180
days past due; or (iii) any other contract in the ordinary course of business;
(m) will maintain insurance consistent with past practices
for its businesses and properties;
(n) will not make any change in its accounting (including tax
accounting) methods, principles or practices, except as may be required by
generally accepted accounting principles and except, in the case of tax
accounting methods, principles or practices, in the ordinary course of business
of the Company or any of its Subsidiaries; and
(o) will not take or agree in writing or otherwise to take
any action which would make any of the representations or warranties of the
Company contained in this Agreement untrue or incorrect or prevent the Company
from performing or cause the Company not to perform its covenants hereunder.
6.3 Meeting of Shareholders. The Company will take all action
necessary in accordance with applicable law and its articles of incorporation
and by-laws to convene a meeting of its shareholders (the "Shareholders'
Meeting") as promptly as practicable after the date hereof to consider and vote
upon the adoption and approval of the Par Value Conversion, this Agreement and
the Merger, the other transactions contemplated hereby and such other related
matters as it deems appropriate. The Board of Directors of the Company (upon the
recommendation of the Special Committee) will recommend such adoption and
approval, and the Company and the Board (and the Special Committee) will each
take all lawful action to solicit such approval, including, without limitation,
the timely mailing of the Proxy Statement; provided, however, that the Board of
Directors of the Company may withdraw, modify or change such recommendation if
the Company receives an Acquisition Proposal and the Board or the Special
Committee reasonably believes, after consultation with its counsel and its
financial advisor, that there is a substantial risk that a failure to do so
would violate its fiduciary duties to the shareholders of the Company. At the
Shareholders' Meeting, LLC shall use its reasonable efforts to cause all Company
Common Shares owned by any members of the Buyout Group to be voted in favor of
the adoption and approval of this Agreement, the Merger and the transactions
contemplated hereby.
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6.4 Filings, Other Action. Subject to the terms and conditions
herein provided, the parties will: (a) use all reasonable efforts to cooperate
with one another in (i) determining which filings are required to be made prior
to the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from
Governmental Entities in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and (ii)
timely making all such filings and timely seeking all such consents, approvals,
permits or authorizations, including the Proxy Statement and the information
required by Schedule 13E-3 and Schedule 14A; and (b) use all reasonable efforts
to take, or cause to be taken, all other action and do, or cause to be done, all
other things necessary, proper or appropriate to consummate and make effective
the transactions contemplated by this Agreement. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purpose of this Agreement, the proper officers and directors of the parties will
take all such necessary action.
6.5 Access to Information; Confidentiality. From the date
hereof to the Effective Time, the Company shall, and shall cause its
Subsidiaries to, subject to the execution of reasonable confidentiality
agreements which the Company may elect to require, (a) allow all designated
officers, attorneys, accountants and other representatives of LLC reasonable
access at all reasonable times upon reasonable notice to the offices, records
and files, correspondence, audits and properties, as well as to all information
relating to commitments, contracts, titles and financial position, or otherwise
pertaining to the business and affairs, of the Company and its Subsidiaries, as
the case may be, (b) furnish to LLC, LLC's counsel, financial advisors, auditors
and other authorized representatives such financial and operating data and other
information as such persons may reasonably request, (c) instruct the employees,
counsel and financial advisors of the Company to cooperate with each other in
the other's investigation of the business of it and its Subsidiaries and (d)
keep LLC fully appraised and informed of all material developments with respect
to the assets, business activities, financial condition, earnings and prospects
of the Company and its Subsidiaries. LLC will be permitted to make extracts from
or to make copies of such books and records as may be reasonably necessary. LLC
shall keep such information confidential, subject to the requirements of any
governmental or other authorities, except with respect to information that is
ascertainable from public or published information or trade sources.
6.6 Publicity. Each of the parties agrees that it shall not,
nor shall any of their respective affiliates, issue or cause the publication of
any press release or other public announcement with respect to the Merger, this
Agreement or the transactions contemplated hereby without the prior approval of
the other party, except such disclosure as may be required by law or by any
listing agreement with a national securities exchange or NASDAQ; provided, if
such disclosure is required by law or any such listing agreement, such
disclosure may not be made without prior consultation of the other parties.
6.7 Reasonable Efforts; Additional Actions.
(a) Upon the terms and subject to the conditions of this
Agreement, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action, and to
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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 as promptly as practicable the transactions contemplated by, and in
connection with, this Agreement, including using all reasonable efforts to (i)
obtain all consents, amendments to or waivers under the terms of any of the
Company's contractual arrangements required by the transactions contemplated by
this Agreement (other than consents, amendments or waivers the failure of which
to obtain will not, individually or in the aggregate, (x) have a Company
Material Adverse Effect, (y) impair the ability of the Company to perform its
obligations under this Agreement in any material respect or (z) delay in any
material respect or prevent the consummation of any of the transactions
contemplated by this Agreement), (ii) effect promptly all necessary or
appropriate registrations and filings with Governmental Entities, including,
without limitation, filings and submissions pursuant to the HSR Act, the
Exchange Act and the TBCA, (iii) defend any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated hereby, (iv) fulfill or cause the
fulfillment of the conditions to Closing set forth in Article 7 and (v) ensure
that the payment of the Consideration is in compliance with Article 2.38.B of
the TBCA. In connection with and without limiting the foregoing, the Company
shall (x) use all reasonable efforts to ensure that no state takeover statute or
similar statute or regulation (including, without limitation, Article 13.03 of
the TBCA) is or becomes applicable to the Merger, this Agreement or any of the
other transactions contemplated by this Agreement and (y) if any state takeover
statute or similar statute or regulation becomes applicable to the Merger, this
Agreement or any other transaction contemplated by this Agreement, use all
reasonable efforts to ensure that the Merger and the other transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated by this Agreement and otherwise to minimize the effect of
such statute or regulation on the Merger, this Agreement and the other
transactions contemplated by this Agreement. Notwithstanding the foregoing, the
Board of Directors of the Company shall not be prohibited from taking any action
permitted by the terms of this Agreement.
(b) If, at any time after the Effective Time, the Surviving
Corporation shall determine or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation the right, title or interest in, to or under any of the rights,
properties or assets of the Company or Newco acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger or
otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of each of the Company and Newco or otherwise, all such deeds,
bills of sale, assignments and assurances and to take and do, in the name and on
behalf of each of the Company and Newco or otherwise, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties or assets in
the Surviving Corporation or otherwise to carry out this Agreement.
(c) In furtherance of and without limiting the above
provisions, each of the Company and LLC shall as promptly as practicable
following the execution and delivery of this Agreement, but not later than
thirty days from the date hereof, file with the United States Federal Trade
Commission (the "FTC") and the United States Department of Justice ("DOJ") the
notification and report form, if any, required for the transactions contemplated
hereby and any supplemental
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information requested in connection therewith pursuant to the HSR Act. Any such
notification and report form and supplemental information shall be in
substantial compliance with the requirements of the HSR Act. Each of the Company
and LLC shall furnish to the other such necessary information and reasonable
assistance as the other may request in connection with its preparation of any
filing or submission which is necessary under the HSR Act. The Company and LLC
shall keep each other apprised of the status of any communications with, and any
inquiries or requests for additional information from, the FTC and the DOJ and
shall comply promptly with any such inquiry or request. Each of LLC and the
Company shall use all reasonable efforts to obtain any clearance required under
the HSR Act for, and to provide assistance to the other in any antitrust
proceedings related to, the consummation of the transactions contemplated by
this Agreement.
6.8 Expenses. Except as provided in Article 8, in the event the
Merger is not consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby will be paid by the
party incurring such expenses. In the event the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including those incurred by LLC and Newco) will be paid by
the Surviving Corporation.
6.9 Insurance; Indemnity.
(a) From and after the Effective Time, the Surviving
Corporation will indemnify, defend and hold harmless, to the fullest extent that
the Company would be required under its presently existing Articles of
incorporation, presently existing by-laws and applicable law, each person who is
now or was prior to the date hereof an officer or director of the Company or any
of its Subsidiaries (individually, an "Indemnified Party" and collectively, the
"Indemnified Parties"), against all losses, claims, damages, liabilities, costs
or expenses (including attorneys' fees), judgments, fines, penalties and amounts
paid in settlement in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to acts or omissions, or alleged acts
or omissions, by them in their capacities as such occurring at or prior to the
Effective Time. In the event of any such claim, action, suit, proceeding or
investigation (an "Action"), any Indemnified Party wishing to claim
indemnification will promptly notify the Surviving Corporation thereof (provided
that failure to so notify the Surviving Corporation will not affect the
obligations of the Surviving Corporation to provide indemnification except to
the extent that the Surviving Corporation shall have been prejudiced as a result
of such failure). With respect to any Action for which indemnification is
requested, the Surviving Corporation will be entitled to participate therein at
its own expense and, except as otherwise provided below, to the extent that it
may wish, the Surviving Corporation may assume the defense thereof, with counsel
reasonably satisfactory to the Indemnified Party. After notice from the
Surviving Corporation to the Indemnified Party of its election to assume the
defense of an Action, the Surviving Corporation will not be liable to the
Indemnified Party for any legal or other expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof, other than as provided
below. The Surviving Corporation will not settle any Actions without the consent
of the Indemnified Party where such settlement includes an admission of civil or
criminal liability on behalf of an officer or director or requires any payment
to be made by the Indemnified Party. The Indemnified Party will have the right
to employ counsel in any Action, but the fees and expenses of such counsel
incurred after notice from the Surviving Corporation of its assumption of
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the defense thereof will be at the expense of the Indemnified Party, unless (i)
the employment of counsel by the Indemnified Party has been authorized by the
Surviving Corporation in writing, (ii) the Indemnified Party will have
reasonably concluded upon the advice of counsel that there may be a conflict of
interest between the Indemnified Party and the Surviving Corporation in the
conduct of the defense of an Action, or (iii) the Surviving Corporation shall
not in fact have employed counsel to assume the defense of an Action, in each of
which cases the reasonable fees and expenses of counsel selected by the
Indemnified Party will be at the expense of the Surviving Corporation.
Notwithstanding the foregoing, the Surviving Corporation will not be liable for
any settlement effected without its written consent, which will not be
unreasonably withheld, conditioned or delayed, and the Surviving Corporation
will not be obligated pursuant to this Section 6.9(a) to pay the fees and
disbursements of more than one counsel (including local counsel) for all
Indemnified Parties in any single Action, except to the extent two or more of
such Indemnified Parties have conflicting interests in the outcome of such
action.
(b) For a period of six years after the Effective Time, the
Surviving Corporation will maintain officers' and directors' liability insurance
covering the Indemnified Parties who are currently covered, in their capacities
as officers and directors, by the Company's existing officers' and directors'
liability insurance policies on terms substantially no less advantageous to the
Indemnified Parties than such existing insurance; provided, however, that the
Surviving Corporation will not be required in order to maintain or procure such
coverage to pay premiums on an annualized basis in excess of 200% of the current
annual premium paid by the Company for its existing coverage (the "Cap") (which
current annual premium the Company represents and warrants to be approximately
$100,000); and provided, further, that if equivalent coverage cannot be
obtained, or can be obtained only by paying an annual premium in excess of the
Cap, the Surviving Corporation will only be required to obtain as much coverage
as can be obtained by paying premiums on an annualized basis equal to the Cap.
(c) The provisions of this Section 6.9 will survive the
consummation of the Merger and expressly are intended to benefit each of the
Indemnified Parties covered by such Section.
6.10 Employee Benefits. Notwithstanding anything to the contrary
contained herein, from and after the Effective Time, the Surviving Corporation
will have sole discretion over the hiring, promotion, retention and firing of
employees of the Surviving Corporation. Notwithstanding the immediately
preceding sentence, the Surviving Corporation will (i) satisfy all obligations
of the Company or any of its Subsidiaries under any existing severance agreement
between the Company or any of its Subsidiaries and any of their officers or
employees and (ii) until the expiration of at least one year after the Effective
Time, satisfy all obligations of the Company or any of its Subsidiaries under
their current respective severance policies. The Surviving Corporation will
provide for the benefit of employees of the Surviving Corporation who were
employees of the Company immediately prior to the Effective Time "employee
benefit
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plans" within the meaning of Section 3(3) of ERISA (a) for a period of at least
one year after the Effective Time, that are, in the aggregate, substantially
comparable to the "employee benefit plans" provided to such individuals by the
Company or any Subsidiary on the date hereof, and (b) thereafter that are, at
the election of the Surviving Corporation, either (i) in the aggregate,
substantially comparable to the "employee benefit plans" provided to such
individuals by the Company or any Subsidiary on the date hereof or (ii) in the
aggregate, substantially comparable to the "employee benefit plans" provided to
similarly situated employees of the Surviving Corporation or its Subsidiaries
who were not employees of the Company or any Subsidiary immediately prior to the
Effective Time; provided, however, that notwithstanding the foregoing (A)
nothing herein will be deemed to require the Surviving Corporation to modify the
benefit formulas under any pension, profit sharing or savings plan of the
Company or any Subsidiary in a manner that increases the aggregate expenses
thereof as of the date hereof in order to comply with the requirements of ERISA
or the Code, (B) multiemployer pension plans within the meaning of 3(37) of
ERISA, employee stock ownership, stock bonus, stock option and similar
equity-based plans, programs and arrangements of the Company or any of its
Subsidiaries are not encompassed within the meaning of the term "employee
benefit plans" hereunder, and (C) nothing herein will obligate the Surviving
Corporation to continue any particular "employee benefit plan" for any period
after the Effective Time.
6.11 Conveyance Taxes. The Company and LLC will cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding 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 which become payable in
connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time and each party
will pay any such tax or fee which becomes payable by it on or before the
Effective Time.
6.12 Financing. Upon the terms and subject to the conditions of
this Agreement, the Company shall use its commercially reasonable efforts to
take, or cause to be taken, all action, and to do or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary, as
promptly as practicable, proper or advisable to secure the Financing on terms
substantially as outlined in the Financing Letters.
6.13 Newco. Prior to the Effective Time, LLC shall form Newco as
a wholly owned subsidiary incorporated under the laws of Texas.
7. CONDITIONS.
7.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger will be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) This Agreement and the transactions contemplated hereby
(including the Par Value Conversion) shall have been approved in the manner
required by applicable law by the shareholders of the Company.
(b) The aggregate number of Company Common Shares owned by
those Company shareholders, if any, other than members of the Buyout Group, who
shall have exercised, or given notice of their intent to exercise, the rights of
dissenting shareholders under the TBCA shall be less than ten percent (10%) of
the total number of outstanding Company Common Shares.
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(c) Neither of the parties hereto shall be subject to any
order or injunction of a court of competent jurisdiction which prohibits the
consummation of the transactions contemplated by this Agreement or the effective
operation of the business of the Company and its Subsidiaries after the
Effective Time. In the event any such order or injunction shall have been
issued, each party agrees to use its reasonable best efforts to have any such
injunction lifted.
(d) The Company shall have received the Financing on terms
substantially as outlined in the Financing Letters and shall have sufficient
financing thereunder to consummate the Merger.
(e) All consents, authorizations, orders and approvals of (or
filings or registrations with) any Governmental Entity required in connection
with the execution, delivery and performance of this Agreement shall have been
obtained or made, except for filings in connection with the Merger and any other
documents required to be filed after the Effective Time and except where the
failure to have obtained or made any such consent, authorization, order,
approval, filing or registration would not have a material adverse effect on the
business, financial condition or results of operations of the Surviving
Corporation following the Effective Time.
7.2 Conditions to Obligation of Company to Effect the Merger.
The obligation of the Company to effect the Merger will be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) (i) The representations and warranties of LLC contained
in this Agreement shall have been true and correct in all material respects as
of the date hereof and (ii) the representations and warranties of LLC and Newco
contained in this Agreement and in any document delivered in connection herewith
shall be true and correct in all material respects (but without regard to any
materiality qualifications or references to material adverse effect contained in
any specific representation or warranty) as of the Closing Date, except (A) for
changes specifically permitted by this Agreement and (B) that those
representations and warranties which address matters only as of a particular
date shall remain true and correct in all material respects as of such date.
(b) LLC shall have performed or complied with all agreements
and conditions contained in this Agreement required to be performed or complied
with by it on or prior to the Effective Time.
(c) LLC shall have delivered to the Company a certificate,
dated the Closing Date, signed by the President of LLC, certifying as to the
fulfillment of the conditions specified in Section 7.2(a) and (b).
(d) LLC shall have delivered to the Company a certificate,
dated the Closing Date, signed by the President of LLC, certifying that, to its
knowledge, the conditions specified in Section 7.3(a) have been fulfilled;
provided, however, that if the Company is unable to deliver to LLC its
certificate required by Section 7.3(c) as to the fulfillment of the conditions
specified in Section 7.3(a), then the Company shall not be able to fail to
effect the Merger because LLC has failed to deliver the certificate required by
this Section 7.2(d).
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(e) LLC shall have obtained all material consents, waivers,
approvals, authorizations or orders and made all filings required in connection
with the authorization, execution and delivery of this Agreement by LLC and the
consummation by it of the transactions contemplated hereby, and all applicable
notice periods shall have expired.
7.3 Conditions to Obligation of LLC and Newco To Effect the
Merger. The obligation of LLC and Newco to effect the Merger will be subject to
the fulfillment at or prior to the Effective Time (or such other date as may be
specified below) of the following additional conditions:
(a) (i) The representations and warranties of the Company
contained in this Agreement shall have been true and correct in all material
respects as of the date hereof and (ii) the representations and warranties of
the Company contained in this Agreement and in any document delivered in
connection herewith shall be true and correct in all material respects (but
without regard to any materiality qualifications or references to material
adverse effect contained in any specific representation or warranty) as of the
Closing Date, except (A) for changes specifically permitted by this Agreement
and (B) that those representations and warranties which address matters only as
of a particular date shall remain true and correct in all material respects as
of such date.
(b) The Company shall have performed or complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it on or prior to the Effective Time, unless such failure to
perform or comply is due to any act by, or omission of, LLC or any member of the
Buyout Group.
(c) The Company shall have delivered to LLC a certificate,
dated the Closing Date, signed by the Chief Executive Officer of the Company,
certifying as to the fulfillment of the conditions specified in Section 7.3(a)
and (b).
(d) From the date of this Agreement through the Effective
Time, there shall not have been any condition, event or occurrence that,
individually or in the aggregate, has resulted in a Company Material Adverse
Effect.
(e) The Company shall have obtained all material consents,
waivers, approvals, authorizations or orders and made all filings required in
connection with the authorization, execution and delivery of this Agreement by
the Company and the consummation by it of the transactions contemplated hereby,
and all applicable notice periods shall have expired.
(f) The Company or the Board of Directors of the Company
shall have taken any action needed to be taken to provide that Company Stock
Derivatives will be treated as provided in Section 3.1(g) hereof.
(g) LLC shall have received a valuation of the assets of the
Company from a reputable third party, and such other assurances it deems
reasonable, that the payment of the Consideration is in compliance with Article
2.38 of the TBCA.
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(h) The provisions of Article 13.03 of the TBCA shall not
apply to the Merger, this Agreement and the transactions contemplated hereby.
8. TERMINATION.
8.1 Termination. Notwithstanding the provisions of Article 7,
this Agreement may be terminated and the Merger may be abandoned at any time
prior to the Effective Time, whether before or after approval of the matters
presented in connection with the Merger by the shareholders of the Company or by
the member of LLC:
(a) by mutual written consent duly authorized by the Manager
of LLC and the Special Committee or the Board of Directors of the Company on
behalf of the Company;
(b) by either LLC or the Company if (i) any Governmental
Entity shall have issued any injunction or taken any other action permanently
restraining, enjoining or otherwise prohibiting the consummation of the Merger
or such injunction or other action shall have become final and nonappealable, or
(ii) any required approval of the shareholders of the Company shall not have
been obtained by reason of the failure to obtain the required vote upon a vote
held at a duly held meeting of shareholders or at any adjournment thereof;
(c) by either LLC or the Company, so long as such party has
not breached its obligations hereunder, if the Merger shall not have been
consummated on or before September 30, 1998; provided, that the right to
terminate this Agreement under this Section 8.1(c) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before such
date;
(d) by the Company if there has been a material breach of
this Agreement on the part of LLC of its covenants or any of its representations
or warranties contained herein shall be materially inaccurate and such breach or
inaccuracy has not been cured within 10 business days after written notice
thereof from the Company;
(e) by LLC if there has been a material breach of this
Agreement on the part of the Company of its covenants or any of its
representations or warranties contained herein shall be materially inaccurate
and such breach or inaccuracy has not been cured within 10 business days after
written notice thereof from LLC;
(f) by the Company if the Company receives an Acquisition
Proposal in writing from any person or group (i) that the Company's Board
determines in its good faith judgment is more favorable to the Company's
shareholders than the Merger and (ii) as a result of which, the Company's Board
reasonably believes, after consultation with its counsel and its financial
advisor, that there is a substantial risk that a failure to terminate this
Agreement would violate its fiduciary duties to the shareholders of the Company;
provided, that such termination pursuant to this clause (f) shall not be
effective unless the Company has made payment of the full fee and expense
reimbursement required by Section 8.2(b) within the earlier of (i) 20 days from
the date of termination or (ii) the closing date of the Acquisition Proposal;
notwithstanding the foregoing, nothing in this
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Agreement shall prohibit the Company from entering into an agreement with
respect to an Acquisition Proposal prior to the payment of the aforementioned
fee and expense reimbursement.
(g) by LLC if the Company (without the consent of LLC) (i)
shall have withdrawn or modified, in any manner which is adverse to LLC, its
recommendation or approval of the Merger or this Agreement or shall have
resolved to do so or (ii) shall have recommended to the shareholders of the
Company any Acquisition Proposal or any transaction described in the definition
of Acquisition Proposal, or shall have resolved to do so.
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8.2 Effect of Termination.
(a) In the event of termination of this Agreement by either
the Company or LLC as provided in Section 8.1, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of LLC or
the Company or their respective affiliates, officers, directors or shareholders
except (i) with respect to this Section 8.2 and Sections 6.8, 6.9 and 6.10 and
except for the provisions of Sections 9.3, 9.4, 9.6, 9.8, 9.9, 9.11, 9.12, and
9.13 and (ii) to the extent that such termination results from the willful
breach by a party hereto of any of its representations or warranties, or of any
of its covenants or agreements, in each case, as set forth in this Agreement.
(b) If this Agreement is terminated pursuant to Sections
8.1(b)(ii) (provided that the Company Common Shares owned by the members of the
Buyout Group are voted in favor of the transactions contemplated hereby), (e)
(as a result of a willful and material breach of a covenant in Article 6 by the
Company), (f) or (g), and such termination (or the breach giving rise thereto)
was not due to any act by, or omission of, LLC or any member of the Buyout Group
(not including the act of termination), then the Company shall pay (or
reimburse) (not later than one business day after submission of statements
therefor) to LLC all reasonable and customary out-of-pocket fees, costs and
expenses (including reasonable and customary out-of-pocket fees, costs and
expenses of accountants, attorneys, financing sources (as described in the
Financing Letters) incurred by or on behalf of LLC in connection with the
Merger, this Agreement and the transactions contemplated thereby and hereby.
(c) The parties agree that the agreements contained in this
Section 8.2 are an integral part of the transactions contemplated by this
Agreement and constitute reasonable liquidated damages and not a penalty. If the
Company fails to promptly pay to LLC any fee due under Section 8.2(b), in
addition to any amounts paid or payable pursuant to such section, the Company
shall pay the costs and expenses (including reasonable legal fees and expenses)
in connection with any action, including the filing of any lawsuit or other
legal action, taken to collect payment, together with interest on the amount of
any unpaid fee at the prime rate as published in the Wall Street Journal from
time to time, from the date such fee was required to be paid.
8.3 Extension; Waiver. At any time prior to the Effective Time,
and subject to applicable law, the parties hereto, by action taken or authorized
by the Company's Board of Directors and the LLC's Manager, may, to the extent
legally allowed: (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto; (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto; and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party. The failure of any party
hereto to assert any of its rights hereunder shall not constitute a waiver of
such rights.
8.4 Sole Remedy. The rights and remedies set forth in Section
8.2 shall be the sole and exclusive rights and remedies of the parties hereto
with respect to the inaccuracy of a
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representation or warranty contained in Articles 4 and 5 or the breach of a
covenant contained in Article 6 by the Company (with respect to the compliance
with a covenant in Article 6 that was under the control of a member of the
Buyout Group as an officer of the Company).
9. GENERAL PROVISIONS.
9.1 Nonsurvival of Representations, Warranties and Agreements.
All representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement will not survive the Merger,
provided, however, that the agreements contained in Article 3, Sections 6.8 and
6.9 and this Article 9 will survive the Merger indefinitely.
9.2 Notices. Any notice, request, claim, demand or other
communication required to be given hereunder will be sufficient if in writing,
and sent by facsimile transmission or by courier service (with proof of
service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
If to the Company:
Norwood Promotional Products, Inc.
106 East Sixth Street, Suite 300
Austin, Texas 78701
Attention: Chief Financial Officer
Fax No.: (512) 477-8603
with copies to:
Fulbright & Jaworski L.L.P.
2200 Ross Avenue, Suite 2800
Dallas, Texas 75201
Attention: Linton Barbee, Esquire
Fax No.: (214) 855-8200
If to LLC:
FPK, LLC
106 East Sixth Street, Suite 300
Austin, Texas 78701
Attention: President
Fax No.: (512) 477-8603
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with copies to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103-6998
Attention: G. Michael Stakias, Esquire
Fax No.: 215-569-5555
or to such other address as any party will specify by written notice so given,
and such notice will be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
9.3 Assignment; Binding Effect. Neither this Agreement nor any
of the rights, interests or obligations hereunder will be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except LLC may assign and/or delegate any
or all of its rights and obligations hereunder to Newco or any other party
controlled by LLC. Subject to the preceding sentence, this Agreement will be
binding upon and will inure to the benefit of the parties hereto and their
respective successors and assigns. Notwithstanding anything contained in this
Agreement to the contrary, except for the provisions of Section 6.9, nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
9.4 Entire Agreement. This Agreement, the Exhibits, the
Schedules and any documents delivered by the parties in connection herewith
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior or contemporaneous agreements, written or
oral, and understandings between the parties with respect thereto. No addition
to or modification of any provision of this Agreement will be binding upon any
party hereto unless made in writing and signed by all parties hereto.
9.5 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. The
parties hereto may agree to any amendment or supplement to this Agreement or a
waiver of any provision of this Agreement, either before or after the approval
of the Company's shareholders (and without seeking further shareholder
approval), so long as such amendment, supplement or waiver does not have a
material adverse effect on the Company's shareholders which determination will
be made by the Board of Directors of the Company and will be binding on the
Company's shareholders.
9.6 Governing Law. This Agreement will be governed by and
construed in accordance with the laws of the State of Texas without regard to
its rules of conflict of laws.
9.7 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
will be an original, but all such counterparts will together constitute one and
the same instrument.
28
<PAGE> 93
9.8 Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and will be given no
substantive or interpretive effect whatsoever.
9.9 Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number will include the plural
and vice versa, and words denoting any gender will include all genders and words
denoting natural persons will include corporations and partnerships and vice
versa.
9.10 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, will be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder will not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
9.11 Incorporation of Schedules. The Schedules attached hereto and
referred to herein are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.
9.12 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction will, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision will be interpreted
to be only so broad as is enforceable.
9.13 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties will be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any Texas Court, this
being in addition to any other remedy to which they are entitled at law or in
equity.
******
29
<PAGE> 94
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
NORWOOD PROMOTIONAL PRODUCTS, INC.
By: /s/ Frank P. Krasovec
-----------------------------------
Name: Frank P. Krasovec
Title: Chief Executive Officer
By: /s/ James P. Gunning, Jr.
-----------------------------------
Name: James P. Gunning, Jr.
Title: Chief Financial Officer
FPK, LLC
By: /s/ Frank P. Krasovec
-----------------------------------
Name: Frank P. Krasovec
Title: President
30
<PAGE> 95
LIST OF SCHEDULES TO MERGER AGREEMENT
Schedule 4.3 Company Stock Derivatives
Schedule 4.4 Company Subsidiaries
Schedule 4.5 Consents
Schedule 4.8 SEC Filings; Financial Statements; Undisclosed Liabilities
Schedule 4.9 Absence of Certain Changes or Events
The Schedules to this Agreement are omitted pursuant to Rule 601(b)(2) of
Regulation S-K. The Registrant agrees to furnish supplementally a copy of any
omitted Schedule to the Securities and Exchange Commission upon request.
31
<PAGE> 96
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "Amendment")
is entered into as of April 14, 1998, by and between FPK, LLC, a Delaware
limited liability company ("LLC"), and Norwood Promotional Products, Inc., a
Texas corporation (the "Company").
BACKGROUND
A. LLC and the Company entered into an Agreement and Plan of Merger
(the "Agreement") on March 15, 1998. All capitalized terms used herein have the
same meanings given to them in the Agreement.
B. Each of LLC and the Company desires to amend the Agreement by
entering into this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Section 6.7(c) of the Agreement is hereby amended to read in its
entirety as follows:
"(c) In furtherance of and without limiting the above
provisions, each of the Company and LLC shall as promptly as
practicable following the execution and delivery of this Agreement, but
not later than sixty days from the date hereof, file with the United
States Federal Trade Commission (the "FTC") and the United States
Department of Justice ("DOJ") the notification and report form, if any,
required for the transactions contemplated hereby and any supplemental
information requested in connection therewith pursuant to the HSR Act.
Any such notification and report form and supplemental information
shall be in substantial compliance with the requirements of the HSR
Act. Each of the Company and LLC shall furnish to the other such
necessary information and reasonable assistance as the other may
request in connection with its preparation of any filing or submission
which is necessary under the HSR Act. The Company and LLC shall keep
each other apprised of the status of any communications with, and any
inquiries or requests for additional information from, the FTC and the
DOJ and shall comply promptly with any such inquiry or request. Each of
LLC and the Company shall use all reasonable efforts to obtain any
clearance required under the HSR Act for, and to provide assistance to
the other in any antitrust proceedings related to, the consummation of
the transactions contemplated by this Agreement."
<PAGE> 97
2. Except as and to the extent expressly amended by this Amendment, the
Agreement remains in full force and effect in accordance with its terms.
3. This Amendment may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered will be an original,
but all such counterparts will together constitute one and the same instrument.
[The remainder of this page intentionally has been left blank.]
2
<PAGE> 98
IN WITNESS WHEREOF, the parties have executed this Amendment and caused
the same to be duly delivered on their behalf on the day and year first written
above.
NORWOOD PROMOTIONAL PRODUCTS, INC.
By: /s/ FRANK P. KRASOVEC
-------------------------------
Name: Frank P. Krasovec
Title: Chief Executive Officer
By: /s/ JAMES P. GUNNING, JR.
-------------------------------
Name: James P. Gunning, Jr.
Title: Chief Financial Officer
FPK, LLC
By: /s/ FRANK P. KRASOVEC
-------------------------------
Name: Frank P. Krasovec
Title: President
3
<PAGE> 99
APPENDIX B
[LETTERHEAD OF J.C. BRADFORD]
June , 1998
Special Committee of the Board of Directors
Norwood Promotional Products, Inc.
106 E. Sixth Street, Suite 300
Austin, TX 78701
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of Norwood Promotional Products, Inc. (the
"Company"), other than Frank P. Krasovec and the other shareholders of the
Company who will continue to own shares of common stock in the surviving
corporation following the merger (as defined below) (the "Krasovec Group") (such
shareholders are collectively referred to herein as the "Unaffiliated
Shareholders") of the consideration to be received by such Unaffiliated
Shareholders in connection with the proposed merger (the "Merger") of a
wholly-owned subsidiary ("Merger Sub") of FPK, LLC, a Delaware limited liability
company ("Parent"), with and into the Company pursuant to the Agreement and Plan
of Merger (the "Merger Agreement"), dated as of March 15, 1998, among the
Company and Parent. The terms and conditions of the Merger are more fully set
forth in the Merger Agreement. Capitalized terms used herein, if not otherwise
defined herein, shall have the respective meanings set forth in the Merger
Agreement.
J.C. Bradford & Co., L.L.C., as part of its investment banking business,
engages in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements, and valuations for estate,
corporate, and other purposes. We have acted as financial advisor to the Special
Committee of the Board of Directors of the Company in connection with the
proposed Merger and will receive a fee from the Company for our services.
In conducting our analysis and arriving at our opinion, we have considered
such financial and other information as we deemed appropriate and feasible
including, among other things, the following: (i) the Merger Agreement; (ii) the
historical and current financial position and results of operations of the
Company; (iii) the Revised Projections for the fiscal years beginning September
1, 1997 and ending August 31, 2003, prepared for the Company by its senior
management; (iv) certain financial and securities data of certain other
companies, the securities of which are publicly traded, that we believed to be
generally comparable to the Company; (v) prices and premiums paid in certain
other acquisitions and transactions that we believed to be relevant; (vi)
historical and current price and trading activity for the Common Stock; and
(vii) such other financial studies, analyses, and investigations as we deemed
appropriate for purposes of our opinion. We also have held discussions with
members of the senior management of the Company regarding the past and current
business operations, financial condition, and future prospects of the Company.
With your permission, we have assumed that financing for the Merger has been
irrevocably obtained on terms previously reviewed by us in commitment letters
and "highly confident" letters from financing sources, and that the Merger
Agreement has been executed and delivered by the parties thereto on terms
substantially similar to those contained in the most recent draft of the Merger
Agreement supplied to and reviewed by us.
We have taken into account our assessment of general economic, market, and
financial and other conditions and our experience in other transactions, as well
as our experience in securities valuation and our knowledge of the promotional
products industry generally. Our opinion is necessarily based upon the
information made available to us and conditions as they currently exist and can
be evaluated as of the date hereof. We have relied upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of our opinion and have not assumed any responsibility for, nor
undertaken an
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independent verification of, such information. With respect to the internal
operating data and financial analyses and forecasts supplied to us, we have
assumed that such data, analyses, and forecasts were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's senior management as to the recent and likely future performance of
the Company. Accordingly, we express no opinion with respect to such analyses or
forecasts or the assumptions on which they are based.
We were not asked to consider and our opinion does not address the relative
merits of the proposed Merger as compared to any alternative business strategies
that might exist for the Company or the effect of any other transactions in
which the Company might engage. Furthermore, we were not asked to propose, nor
did we propose, the consideration to be received by the Unaffiliated
Shareholders in the Merger. We have not made an independent evaluation or
appraisal of the assets and liabilities of the Company or any of its
subsidiaries or affiliates and have not been provided with any such evaluation
or appraisal.
Based upon and subject to the foregoing, and based upon such other matters
as we consider relevant, it is our opinion that, as of the date hereof, the
Merger Consideration to be received by the Unaffiliated Shareholders in the
Merger is fair to the Unaffiliated Shareholders from a financial point of view.
Very truly yours,
J.C. BRADFORD & CO., L.L.C.
By:
----------------------------------
David Jones
Senior Vice President
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<PAGE> 101
APPENDIX C
PROPOSED CHARTER AMENDMENT
NORWOOD PROMOTIONAL PRODUCTS, INC.
ARTICLES OF AMENDMENT
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporations Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
ARTICLE I
The name of the corporation is Norwood Promotional Products, Inc.
ARTICLE II
The following amendment to the Articles of Incorporation was adopted by the
shareholders of the corporation at a special meeting held on , 1998.
Article Four of the Articles of Incorporation, as amended, of the
Corporation is hereby amended to be and read in its entirety as follows:
"ARTICLE FOUR
(a) The total number of shares of stock which the Corporation shall
have authority to issue is 21,000,000, consisting of 20,000,000 shares of
Common Stock, $0.01 par value, and 1,000,000 shares of Preferred Stock,
$0.01 par value.
(b) The Preferred Stock may be issued from time to time in one or more
series. The board of directors of the Corporation is hereby authorized, at
any time and from time to time, to adopt resolutions to issue the shares,
to fix the number of shares, to divide the authorized and unissued shares
of Preferred Stock into one or more series and to establish and alter the
voting powers, designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or
restrictions of any such series of Preferred Stock, in each case without
the approval of the Shareholders. The number of shares of Preferred Stock
of any such series may be increased (but not above the total number of
authorized shares of Preferred Stock) or decreased (but not below the
number of shares thereof then outstanding) by the board of directors. In
case the number of shares shall be decreased, the number of shares
constituting such decrease shall resume the status which they had prior to
the adoption of the resolution originally fixing the number of shares of
such series.
(c) Each holder of shares of Common Stock shall be entitled to one
vote for each share of Common Stock held of record on all matters on which
the holders of shares of Common Stock are entitled to vote. Subject to the
express provisions of the Texas Business Corporation Act and of any
certificate of designation providing for the issuance of any series of
Preferred Stock, the holders of outstanding shares of Common Stock shall
have and possess the exclusive right to notice of shareholders' meetings
and the exclusive power to vote."
ARTICLE III
Each such amendment made by the Articles of Amendment to the Articles of
Incorporation of the Corporation has been effected in conformity with the
provisions of the Texas Business Corporation Act. The number of shares of the
Corporation outstanding and entitled to vote at the time of such adoption was
[5,080,751] shares of Common Stock. Shareholders holding shares of Common
Stock (representing in excess of two-thirds of the outstanding shares of Common
Stock) voted in favor such amendment to the
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Articles of Incorporation; and shareholders holding shares of Common Stock
voted against such amendment.
ARTICLE IV
Upon the adoption of such amendment by the shareholders of the Corporation
and due execution and filing of the Articles of Amendment with the Secretary of
State of the State of Texas, the [5,657,281] shares of the Corporation's Common
Stock, no par value per share, which are issued as of the effective date of such
amendment, shall be automatically converted into, and deemed for all purposes to
be an equal number of shares of the Corporation's Common Stock, $0.01 par value
per share. The conversion of all shares of Common Stock outstanding immediately
prior to the conversion shall occur automatically without any further action on
the part of the holder of such shares and whether or not certificates
representing such shares are surrendered to the Corporation. Written notice of
such conversion shall be given by the secretary of the Corporation, in person or
at their latest addresses reflected on the records of the Corporation, together
with notice of the procedures specified by law for exchange or replacement of
the certificates representing the Corporation's new Common Stock.
ARTICLE V
The foregoing amendment and the method of exchange of shares of the
Corporation's capital stock (as effected by this amendment), effects a decrease
in the amount of stated capital of the Corporation from $[23,024,128] to
$[56,572].
EXECUTED as of , 1998.
Norwood Promotional Products, Inc.
By:
------------------------------------
Frank P. Krasovec
Chairman, President and
Chief Executive Officer
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APPENDIX D
ARTICLES 5.12 AND 5.13 OF THE
TEXAS BUSINESS CORPORATION ACT
Art. 5.12 Procedure for Dissent by Shareholders as to Said Corporate
Actions
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1) (a) With respect to proposed corporate action that is submitted to
a vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action,
setting out that the shareholder's right to dissent will be exercised if
the action is effective and giving the shareholder's address, to which
notice thereof shall be delivered or mailed in that event. If the action is
effected and the shareholder shall not have voted in favor of the action,
the corporation, in the case of action other than a merger, or the
surviving or new corporation (foreign or domestic) or other entity that is
liable to discharge the shareholder's right of dissent, in the case of a
merger, shall, within ten (10) days after the action is effected, deliver
or mail to the shareholder written notice that the action has been
effected, and the shareholder may, within ten (10) days from the delivery
or mailing of the notice, make written demand on the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the
shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved
pursuant to Section A of Article 9.10 of this Act, the corporation, in the
case of action other than a merger, and the surviving or new corporation
(foreign or domestic) or other entity that is liable to discharge the
shareholder's right of dissent, in the case of a merger, shall, within ten
(10) days after the date the action is effected, mail to each shareholder
of record as of the effective date of the action notice of the fact and
date of the action and that the shareholder may exercise the shareholder's
right to dissent from the action. The notice shall be accompanied by a copy
of this Article and any articles or documents filed by the corporation with
the Secretary of State to effect the action. If the shareholder shall not
have consented to the taking of the action, the shareholder may, within
twenty (20) days after the mailing of the notice, make written demand on
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was
delivered to the corporation pursuant to Section A of Article 9.10 of this
Act, excluding any appreciation or depreciation in anticipation of the
action. The demand shall state the number and class of shares owned by the
dissenting shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the twenty (20)
day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, of a demand for payment made by a dissenting shareholder in accordance
with Subsection (1) of this Section, the corporation (foreign or domestic)
or other entity shall deliver or mail to the shareholder a written notice
that shall either set out that the corporation (foreign or domestic) or
other entity accepts the amount claimed in the demand and agrees to pay
that amount within ninety (90) days after the date on which the action was
effected, and, in the case of shares represented by certificates, upon the
surrender of the certificates duly endorsed, or shall contain an estimate
by the corporation (foreign or domestic) or other entity of the fair value
of the shares, together with an offer to pay the amount of that estimate
within ninety (90) days after the date on which the action was effected,
upon receipt of notice within sixty (60) days after that date from the
shareholder that the shareholder agrees to accept that amount and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed.
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(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall
be made within ninety (90) days after the date on which the action was
effected and, in the case of shares represented by certificates, upon
surrender of the certificates duly endorsed. Upon payment of the agreed
value, the shareholder shall cease to have any interest in the shares or in
the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
shares of which they are charged with the duty of valuing, and they shall make a
determination of the fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the value of
the shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
Shares acquired by the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be
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treated as provided in the plan of merger and, in all other cases, may be held
and disposed of by the corporation as in the case of other treasury shares.
The provisions of this Article shall not apply to a merger if, on the date
of the filing of the articles of merger, the surviving corporation is the owner
of all the outstanding shares of the other corporations, domestic or foreign,
that are parties to the merger.
In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
Art. 5.13 Provisions Affecting Remedies of Dissenting Shareholders
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to
vote or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act, as
the case may be, or if after the hearing of a petition filed pursuant to Article
5.12 or 5.16, the court shall determine that such shareholder is not entitled to
the relief provided by those articles, then, in any such case, such shareholder
and all persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
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NORWOOD PROMOTIONAL PRODUCTS, INC.
106 E. SIXTH STREET
SUITE 300
AUSTIN, TEXAS 78701
, 1998
Dear Norwood Promotional Products, Inc. Shareholder:
You are cordially invited and encouraged to attend the Special Meeting of
Shareholders of Norwood Promotional Products, Inc. The meeting will be held on
, 1998 at :00 a.m., local time, in the [SAN JACINTO ROOM] at The
Four Seasons Hotel, 98 San Jacinto Boulevard, Austin, Texas.
If you cannot personally attend the meeting, please vote your preference on
the proxy card attached below and return it promptly. Your participation in
Norwood Promotional Products, Inc.'s business, whether in person or by proxy, is
an important part of the Company's governance.
I look forward to and appreciate your participation in Norwood Promotional
Products, Inc.'s Special Meeting of Shareholders.
Sincerely,
Frank P. Krasovec
Chairman, President and Chief Executive Officer
Detach Proxy Form Here
-------------------------------------------------------------------------------
ITEM 2. ADOPTION OF MERGER AND APPROVAL OF MERGER AGREEMENT (AS DEFINED IN PROXY
STATEMENT).
______ FOR ______ AGAINST ______ ABSTAIN
In their sole discretion, the Proxies are authorized to vote upon such other
business as may properly come before the special meeting or any adjournment
thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED IN THE SPACES PROVIDED THEREFORE, OR, IF
NO SUCH SPECIFICATION IS MADE, IT WILL BE VOTED FOR ITEMS 1 AND 2.
The matters in Items 1 and 2 are proposed by the Company.
The adoption of the Charter Amendment (Item 1) is a condition to the
consummation of the Merger under the Merger Agreement (Item 2).
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
NORWOOD PROMOTIONAL PRODUCTS, INC.
SIGN HERE ________________________
(Please sign exactly as name
appears hereon)
SIGN HERE ________________________
(Executors, administrators,
trustees, etc. should so
indicate when signing)
DATED ______________________________
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<PAGE> 107
Detach Proxy Form Here
- --------------------------------------------------------------------------------
PROXY NORWOOD PROMOTIONAL PRODUCTS, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS -- , 1998
The undersigned, revoking all previous proxies, hereby appoints James P.
Gunning, Jr. and Michael Linderman, or either of them, as Proxy or Proxies of
the undersigned, each with the power to appoint his substitute, to vote, as
designated below, all of the shares of Common Stock of Norwood Promotional
Products, Inc. (the "Company") held of record by the undersigned on June 23,
1998, at the special meeting of shareholders to be held at 10:00 a.m., local
time, on , , 1998, in the [San Jacinto Room] at The Four
Seasons Hotel, 98 San Jacinto Blvd., Austin, Texas, and at any adjournment or
postponement thereof.
ITEM 1. ADOPTION OF CHARTER AMENDMENT (AS DEFINED IN PROXY STATEMENT).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED, AND TO BE SIGNED ON THE OTHER SIDE.)
E-2
