<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 4, 1994
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PHILLIPS & JACOBS, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 5043 23-1430030
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
FAIRWAY CORPORATE CENTER, SUITE 222,
4350 HADDONFIELD ROAD,
PENNSAUKEN, NEW JERSEY 08109
(609) 488-4888
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
<TABLE>
<S> <C>
MR. WILLIAM A. DEMARCO BARRY C. MAULDING, ESQ.
FAIRWAY CORPORATE CENTER, SUITE 222 KOLL CENTER BELLEVUE, SUITE 1900
4350 HADDONFIELD ROAD 500 - 108TH AVE. N.E.
PENNSAUKEN, NEW JERSEY 08109 BELLEVUE, WA 98004
(609) 488-4888 (206) 450-6550
</TABLE>
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
DAVID E. BEAVERS, ESQ. RICHARD B. DODD, ESQ.
ANN CUDDY RODA, ESQ. MARK R. BEATTY, ESQ.
STRADLEY, RONON, STEVENS & YOUNG PRESTON GATES & ELLIS
2600 ONE COMMERCE SQUARE 5000 COLUMBIA CENTER
PHILADELPHIA, PA 19103-7098 701 FIFTH AVENUE
SEATTLE, WA 98104-7078
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
SEPTEMBER 1, 1994
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
TITLE OF CLASS AMOUNT MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE(3)
- --------------------------------------------------------------------------------------------------
Common Stock...................... 2,512,878 $7.25 $25,659,678 $8,847.46
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents maximum number of Phillips Shares issuable in the Merger.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(1), based on a maximum of 3,539,266 Momentum Shares being
exchanged for Phillips Shares, using the closing price of Momentum Shares of
$7.25 per share as reported on the Nasdaq Stock Market on August 2, 1994.
(3) A filing fee of $7,406.17 was paid on behalf of the Registrant in connection
with a Preliminary Proxy Statement/Prospectus filed on June 17, 1994 and,
pursuant to rule 457(b), is credited to the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM AND CAPTION IN FORM S-4 CAPTION IN PROXY/PROSPECTUS
- ------------------------------------------------------ -------------------------------------
<S> <C>
Item 1. Forepart of Registration Statement and
Outside Front Cover of Prospectus............ Outside Front Cover Page
Item 2. Inside Front Cover and Outside Back Cover
Pages of Prospectus.......................... Inside Front Cover Page; Available
Information; Incorporation of Certain
Documents by Reference
Item 3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information................ Summary of the Proxy
Statement/Prospectus; Selected
Financial and Operating Data;
Unaudited Pro Forma Condensed
Financial Information
Item 4. Terms of the Transaction..................... Proposal 1 -- The Merger; Management
of PrimeSource; The Reorganization
Agreement and Plan of Merger;
Description of PrimeSource
Securities; PrimeSource Amended and
Restated Articles of Incorporation
and Bylaws; Certain Differences
Between the Corporation Statutes of
Delaware and Pennsylvania
Item 5. Pro Forma Financial Information.............. Selected Financial and Operating
Data; Unaudited Pro Forma Condensed
Financial Information
Item 6. Material Contacts with the Company being
Acquired..................................... Proposal 1 -- The
Merger -- Background of the Merger
Item 7. Additional Information Required for
Reoffering by Persons and Parties Deemed
Underwriters................................. Not Applicable
Item 8. Interests of Named Experts and Counsel....... Legal Matters
Item 9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Proposal 2 -- Election of
Directors -- Indemnification of
Directors and Officers
Item 10. Information with Respect to S-3
Registrants......................................... Not Applicable
</TABLE>
<TABLE>
<S> <C>
Item 11. Incorporation of Certain Information by
Reference........................................... Not Applicable
Item 12. Information with Respect to
S-2 or S-3 Registrants...................... Not Applicable
Item 13. Incorporation of Certain Information by
Reference........................................... Not Applicable
Item 14. Information with Respect to Registrants other
than S-3 or S-2 Registrants.................. Phillips Business Description;
Financial Statements; Description of
PrimeSource Securities; Comparative
per Share Data and Market Prices; The
Phillips Shareholders Meeting
Item 15. Information with Respect to S-3
Registrants......................................... Not Applicable
Item 16. Information with Respect to
S-2 or S-3 Companies........................ Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM AND CAPTION IN FORM S-4 CAPTION IN PROXY/PROSPECTUS
- ------------------------------------------------------ -------------------------------------
<S> <C>
Item 17. Information with Respect to Companies Other
than S-3 or S-2 Companies.................... Momentum Business Description;
Financial Statements; Description of
PrimeSource Securities; Comparative
per Share Data and Market Prices; The
Momentum Stockholders Meeting
Item 18. Information if Proxies, Consents or
Authorizations are to be Solicited........... The Phillips Shareholders Meeting;
The Momentum Stockholders Meeting;
Summary of Proxy
Statement/Prospectus; Certain
Differences Between the Corporation
Statutes of Delaware and
Pennsylvania; Proposal 1 -- The
Merger -- Interest of Certain Persons
in the Merger; Security Ownership;
Proposal 2 -- Election of Directors;
Proposal 3 -- Adoption of the Long
Term Incentive Plan; Proposal
4 -- Adoption of the Replacement
Option Plan; Proposal 5 -- Approval
of Independent Auditors
Item 19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in
an Exchange offer............................ Not Applicable
</TABLE>
<PAGE> 4
[MOMENTUM LETTERHEAD]
August 8, 1994
Dear Stockholder:
We have the pleasure of enclosing for your review a copy of the Proxy
Statement/Prospectus describing the proposed combination of Momentum Corporation
and Phillips & Jacobs, Incorporated ("Phillips"). At a Special Meeting of
Stockholders to be held on Thursday, September 1, 1994, stockholders will vote
on a transaction in which Momentum merges into Phillips, which will be renamed
PrimeSource Corporation ("PrimeSource"). If the transaction is approved and
completed, each share of Momentum stock will be converted into .71 PrimeSource
Shares. Shareholders of Phillips will retain their ownership of Phillips Shares
under the name of PrimeSource.
The Boards of Directors of Momentum and Phillips have unanimously approved
this "merger of equals," which is designed to create the largest publicly-owned
graphics arts distribution company in the U.S. The merger represents significant
geographic expansion for both Momentum and Phillips from their existing markets
and offers the potential for enhancing the products and services available to
our customers and those of Phillips.
The attached Proxy Statement/Prospectus provides you with detailed
information regarding the proposed transaction. We urge you to read it
carefully. Your Board of Directors unanimously recommends that you vote in favor
of the adoption of the Merger. Proposals 2 through 5 relate to matters to be
voted upon by the Phillips shareholders at their annual meeting.
It is important that your shares be represented at the Special Meeting.
Therefore, please sign, date, and return the enclosed proxy card as soon as
possible. This will not prevent you from voting your shares in person if you
wish to attend the Special Meeting.
Sincerely,
MOMENTUM CORPORATION
<TABLE>
<S> <C>
Richard E. Engebrecht John H. Goddard
Chairman President and Chief Executive Officer
</TABLE>
<PAGE> 5
[PHILLIPS LETTERHEAD]
August 8, 1994
Dear Shareholder:
We have the pleasure of enclosing for your review a copy of the Proxy
Statement/Prospectus describing the proposed combination of Phillips & Jacobs,
Incorporated and Momentum Corporation ("Momentum"). At the Annual Meeting of
Shareholders to be held on Thursday, September 1, 1994, shareholders will vote
on a transaction in which Momentum merges into Phillips, which will be renamed
PrimeSource Corporation ("PrimeSource"). If the transaction is approved and
completed, each share of Momentum stock will be converted into .71 PrimeSource
Shares, and each share of Phillips stock will remain outstanding and represent
one PrimeSource Share. Thus, shareholders of Phillips will retain their current
ownership of Phillips Shares under the name of PrimeSource.
The Boards of Directors of Phillips and Momentum have unanimously approved
this "merger of equals," which is designed to create the largest publicly-owned
graphics arts distribution company in the U.S. The merger represents significant
geographic expansion for both Phillips and Momentum from their existing markets
and offers the potential for enhancing the products and services available to
our customers and those of Momentum.
The attached Proxy Statement/Prospectus provides you with detailed
information regarding the proposed transaction and other matters which
shareholders will be asked to vote upon at our first Annual Meeting as a public
company. We urge you to read it carefully. Your Board of Directors unanimously
recommends that you vote in favor of the adoption of the Merger, "for" each of
the nominees to the Board of Directors and for proposals 3, 4 and 5.
It is important that your shares be represented at the Annual Meeting.
Therefore, please sign, date, and return the enclosed proxy card as soon as
possible. This will not prevent you from voting your shares in person if you
wish to attend the Annual Meeting.
Sincerely,
PHILLIPS & JACOBS, INCORPORATED
<TABLE>
<S> <C>
Philip J. Baur, Jr. James F. Mullan
Chairman President and Chief Executive Officer
</TABLE>
<PAGE> 6
MOMENTUM CORPORATION
500-108TH AVENUE NE, SUITE 1900
BELLEVUE, WA 98004
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS:
A special meeting of stockholders of Momentum Corporation will be held in
the Koll Center Conference Center, 2nd Floor, Koll Center Bellevue, 500 - 108th
Avenue N.E., Bellevue, Washington on September 1, 1994 at 9:00 a.m. (P.D.T.) for
the following purposes:
1. To consider and vote upon the merger of Momentum Corporation into
Phillips & Jacobs, Incorporated, described in the accompanying Proxy
Statement/Prospectus to be effected pursuant to an Agreement and Plan of
Reorganization dated as of May 27, 1994 (the "Reorganization Agreement")
by and between Momentum and Phillips. The Reorganization Agreement
provides, among other things,
for the merger of Momentum into Phillips, which will be renamed PrimeSource
Corporation and, if
the merger is approved and completed, for each share of Momentum stock to
be converted into .71 PrimeSource Shares.
2. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only stockholders of record at the close of business on July 25, 1994 are
entitled to notice of, and to vote at, this meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Barry C. Maulding
Corporate Secretary
Bellevue, Washington
August 8, 1994
STOCKHOLDERS ARE REQUESTED TO SIGN, MARK, DATE, AND PROMPTLY RETURN THE ENCLOSED
PROXY IN THE ADDRESSED REPLY ENVELOPE WHICH IS FURNISHED FOR YOUR CONVENIENCE.
THIS ENVELOPE NEEDS NO POSTAGE IF MAILED WITHIN THE UNITED STATES.
<PAGE> 7
PHILLIPS & JACOBS, INCORPORATED
FAIRWAY CORPORATE CENTER, SUITE 222
4350 HADDONFIELD ROAD
PENNSAUKEN, NEW JERSEY 08109
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, SEPTEMBER 1, 1994
TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders of Phillips & Jacobs, Incorporated will
be held at the Pennsauken Country Club, 3800 Haddonfield Road, Pennsauken, New
Jersey, on Thursday, September 1, 1994, at 9:30 a.m. (E.D.T.), for the following
purposes:
(1) to consider and vote upon the merger of Momentum Corporation into
Phillips & Jacobs, Incorporated, described in the accompanying Proxy
Statement/Prospectus, which will be effected pursuant to an Agreement and
Plan of Reorganization dated as of May 27, 1994 (the "Reorganization
Agreement") by and between Momentum and Phillips;
(2) to elect three directors in Class I to hold office until the
Effective Time of the Merger, or if the Merger is not approved, until the
Annual Meeting of Shareholders in 1997, and until their successors are
elected and qualified;
(3) to approve the 1993 Long Term Incentive Plan;
(4) to approve the 1993 Replacement Option Plan (P&J Spin-off);
(5) to approve the selection of Coopers & Lybrand as independent
certified public accountants for the fiscal year ending December 31, 1994;
and
(6) to transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Only shareholders of record at the close of business on July 27, 1994, will
be entitled to notice of, and to vote at, the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
WILLIAM A. DEMARCO
Vice President of Finance and
Secretary
Pennsauken, New Jersey, August 8, 1994
SHAREHOLDERS ARE REQUESTED TO SIGN, MARK, DATE, AND PROMPTLY RETURN THE ENCLOSED
PROXY IN THE ADDRESSED REPLY ENVELOPE WHICH IS FURNISHED FOR YOUR CONVENIENCE.
THIS ENVELOPE NEEDS NO POSTAGE IF MAILED WITHIN THE UNITED STATES.
<PAGE> 8
PHILLIPS & JACOBS, INCORPORATED
PROSPECTUS
COMMON STOCK, PAR VALUE $.01 EACH (NOT TO EXCEED 2,512,878 SHARES)
------------------------
PHILLIPS & JACOBS, INCORPORATED
AND
MOMENTUM CORPORATION
PROXY STATEMENT
FOR
ANNUAL AND SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD SEPTEMBER 1, 1994
------------------------
This Proxy Statement/Prospectus constitutes the proxy statement of each of
Phillips & Jacobs, Incorporated ("Phillips") and Momentum Corporation
("Momentum") relating to the solicitation of proxies for use at the Annual
Meeting of Shareholders of Phillips (the "Phillips Meeting") and the Special
Meeting of Stockholders of Momentum (the "Momentum Meeting"), each scheduled to
be held on September 1, 1994, and the prospectus of Phillips relating to shares
of common stock, par value $.01 per share (the "PrimeSource Shares") that will
be issued in connection with the merger (the "Merger") of Momentum into
Phillips, which will be renamed PrimeSource Corporation upon consummation of the
Merger. The Merger will be effected pursuant to an Agreement and Plan of
Reorganization (the "Reorganization Agreement") dated as of May 27, 1994 by and
between Momentum and Phillips and a Plan of Merger (the "Plan of Merger") by and
between Momentum and Phillips to be executed at closing of the Reorganization
Agreement. Phillips has filed a registration statement with the Securities and
Exchange Commission with respect to such PrimeSource Shares.
No person has been authorized to give any information or to make any
representation other than those contained in this Proxy Statement/Prospectus in
connection with the solicitations of proxies or the offering of securities made
by this Proxy Statement/Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by Phillips or
Momentum. Neither the delivery of this Proxy Statement/Prospectus nor any
distribution of securities made hereunder shall under any circumstances create
any implication that there has been no change in the information set forth
herein since the date of this Proxy Statement/Prospectus. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, any securities, or the solicitation of a proxy, by anyone in
any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to anyone to whom it is unlawful to make such solicitation.
NEITHER THE MERGER NOR THESE SECURITIES HAVE BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is August , 1994.
<PAGE> 9
AVAILABLE INFORMATION
Phillips and Momentum are subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Phillips and Momentum with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Northwestern Atrium Center,
500 West Madison Street, Chicago, Illinois 60661-2511. Copies of such material
can also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The common stock
of both Phillips and Momentum is traded on the Nasdaq National Market. Material
filed by Phillips and Momentum can be inspected at the offices of the National
Association of Securities Dealers, Inc., Reports Section, 1735 K Street, N.W.,
Washington, D.C. 20006.
Phillips has filed with the Commission a registration statement on Form S-4
(the "Registration Statement") under the Securities Act of 1933, as amended,
with respect to the PrimeSource Shares to be issued pursuant to or as
contemplated by this Proxy Statement/Prospectus. This Proxy Statement/Prospectus
does not contain all the information set forth or incorporated by reference in
the Registration Statement and the exhibits and schedules relating thereto,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information, reference is made to the
Registration Statement and the exhibits filed or incorporated as a part thereof,
which are on file at the offices of the Commission and may be obtained upon
payment of the fee prescribed by the Commission, or may be examined without
charge at the offices of the Commission. Statements contained in this Proxy
Statement/ Prospectus, as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document.
2
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
AVAILABLE INFORMATION................................................................ 2
SUMMARY OF PROXY STATEMENT/PROSPECTUS................................................ 7
SELECTED FINANCIAL AND OPERATING DATA................................................ 12
Phillips & Jacobs, Incorporated Selected Financial and Operating Data.............. 12
Phillips Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................... 13
Momentum Corporation Selected Financial and Operating Data......................... 17
Momentum Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................... 17
PrimeSource Unaudited Pro Forma Condensed Selected Financial Information........... 20
COMPARATIVE PER SHARE DATA AND MARKET PRICES......................................... 21
THE PHILLIPS SHAREHOLDERS MEETING.................................................... 22
Date, Time and Place............................................................... 22
Matters to be Considered........................................................... 22
Record Date; Proxies............................................................... 23
Votes Required..................................................................... 23
Solicitation, Voting and Revocation of Proxies..................................... 23
THE MOMENTUM STOCKHOLDERS MEETING.................................................... 24
Date, Time and Place............................................................... 24
Matters to be Considered........................................................... 24
Record Date........................................................................ 24
Votes Required..................................................................... 25
Solicitation, Voting and Revocation of Proxies..................................... 25
</TABLE>
<TABLE>
<S> <C>
PROPOSAL 1 -- THE MERGER............................................................. 25
The Parties........................................................................ 25
Background of the Merger........................................................... 26
Reasons for the Merger -- General.................................................. 27
Reasons for the Merger -- Phillips................................................. 29
Reasons for the Merger -- Momentum................................................. 30
Opinion of Phillips Financial Advisor.............................................. 31
Opinion of Momentum Financial Advisor.............................................. 33
Recommendation of the Boards of Directors.......................................... 38
Interests of Certain Persons in the Merger......................................... 38
Anticipated Accounting Treatment................................................... 39
Certain Federal Income Tax Consequences............................................ 39
Regulatory Approvals............................................................... 40
Federal Securities Law Consequences................................................ 41
Nasdaq National Market Quotation of PrimeSource Shares............................. 41
</TABLE>
3
<PAGE> 11
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
MANAGEMENT OF PRIMESOURCE............................................................ 42
Board of Directors of PrimeSource.................................................. 42
Committees of PrimeSource's Board of Directors..................................... 44
Compensation of Board of Directors................................................. 44
PrimeSource Executive Officers..................................................... 44
Corporate Headquarters............................................................. 44
THE REORGANIZATION AGREEMENT AND PLAN OF MERGER...................................... 45
General............................................................................ 45
Conversion of Momentum Shares; Effects on Phillips Shareholders;
No Fractional PrimeSource Shares................................................ 45
Surrender of Certificates; Lost Certificates....................................... 45
Treatment of Stock Options......................................................... 46
Name............................................................................... 46
Conduct of Business Pending the Merger............................................. 46
Other Covenants.................................................................... 47
Conditions to the Merger........................................................... 47
Representations and Warranties..................................................... 48
Termination, Amendment and Waiver.................................................. 49
Termination Fee.................................................................... 49
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION................................... 49
INDUSTRY OVERVIEW.................................................................... 58
PHILLIPS BUSINESS DESCRIPTION........................................................ 58
General............................................................................ 58
Business, Products and Services.................................................... 59
Employees.......................................................................... 62
Properties......................................................................... 62
Patents, Trademarks and Tradenames................................................. 64
Environmental Regulations.......................................................... 64
Legal Proceedings.................................................................. 65
MOMENTUM BUSINESS DESCRIPTION........................................................ 65
General............................................................................ 65
Business........................................................................... 65
Employees.......................................................................... 67
Properties......................................................................... 67
Environmental Regulation........................................................... 67
Legal Proceedings.................................................................. 68
SECURITY OWNERSHIP................................................................... 68
Shareholders of Phillips and Former Stockholders of Momentum....................... 68
Management Ownership in PrimeSource................................................ 68
Phillips -- Principal Holders of Voting Securities................................. 69
Momentum -- Principal Holders of Voting Securities................................. 70
</TABLE>
4
<PAGE> 12
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
DESCRIPTION OF PRIMESOURCE SECURITIES................................................ 72
PrimeSource Shares................................................................. 72
PrimeSource Preferred Shares....................................................... 72
PRIMESOURCE AMENDED AND RESTATED ARTICLES OF INCORPORATION
AND BYLAWS......................................................................... 73
Purpose............................................................................ 73
Pennsylvania Anti-Takeover Laws.................................................... 73
Informal Shareholder Action........................................................ 73
Supermajority Vote on Certain Matters.............................................. 73
Directors.......................................................................... 75
Modifications to the Amended Articles.............................................. 76
COMPARISON OF RIGHTS OF SHAREHOLDERS OF MOMENTUM AND PHILLIPS........................ 76
Capital Stock...................................................................... 77
Voting Power....................................................................... 77
Board of Directors................................................................. 77
Limitation on Directors' Liability................................................. 78
Supermajority Vote on Certain Matters.............................................. 78
Informal Shareholder Action........................................................ 78
Modification of Amended Articles................................................... 79
CERTAIN DIFFERENCES BETWEEN THE CORPORATION STATUTES OF DELAWARE AND PENNSYLVANIA.... 79
Fiduciary Duties of Directors...................................................... 79
Limitation of Director Liability................................................... 80
Indemnification.................................................................... 80
Shareholder Protective Provisions.................................................. 81
Amendments to Charter.............................................................. 81
Mergers and Major Transactions..................................................... 81
Dividends.......................................................................... 82
Stock Repurchases.................................................................. 82
Voting Rights...................................................................... 82
Appraisal or Dissenters Rights..................................................... 82
Amendments to Bylaws............................................................... 82
Action by Written Consent.......................................................... 83
Special Meetings of Shareholders................................................... 83
Annual Meeting of Shareholders..................................................... 83
Case Law and Court Systems......................................................... 83
PROPOSAL 2 -- ELECTION OF DIRECTORS.................................................. 84
Board of Directors................................................................. 84
Vote Required For Election, Recommendation of The Board of Directors............... 84
</TABLE>
5
<PAGE> 13
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Committees of the Board of Directors............................................... 85
Executive Officers (Not Also Directors)............................................ 86
Phillips Compensation of Directors and Executive Officers.......................... 86
Momentum Compensation of Directors and Executive Officers.......................... 93
PROPOSAL 3 -- ADOPTION OF THE 1993 LONG TERM INCENTIVE PLAN.......................... 100
Description of the Incentive Plan.................................................. 101
Federal Tax Consequences of Incentive Plan......................................... 102
Vote Required for Approval; Recommendation of the Board of Directors............... 103
PROPOSAL 4 -- ADOPTION OF THE REPLACEMENT OPTION PLAN................................ 103
Description of the Replacement Option Plan......................................... 104
Federal Tax Consequences of the Replacement Option Plan............................ 105
Vote Required for Approval; Recommendation of Board of Directors................... 105
PROPOSAL 5 -- APPROVAL OF INDEPENDENT AUDITORS..................................... 105
OTHER BUSINESS....................................................................... 105
PROPOSALS FOR THE 1995 ANNUAL MEETING................................................ 105
LEGAL MATTERS........................................................................ 106
EXPERTS.............................................................................. 106
ANNUAL REPORT ON FORM 10-K FILED WITH SECURITIES AND
EXCHANGE COMMISSION................................................................ 106
FINANCIAL STATEMENTS................................................................. F-1
</TABLE>
LIST OF ANNEXES
<TABLE>
<S> <C>
Annex A -- Agreement and Plan of Reorganization
Annex B -- Form of Plan of Merger
Annex C -- Amended and Restated Articles of Incorporation of PrimeSource
Annex D -- Amended and Restated Bylaws of PrimeSource
Annex E -- Opinion of Berwind Financial Group, Inc.
Annex F -- [Intentionally Omitted]
Annex G -- Opinion of Piper Jaffray Inc.
Annex H -- Phillips 1993 Long Term Incentive Plan
Annex I -- Phillips 1993 Replacement Option Plan (P&J Spin-off)
</TABLE>
6
<PAGE> 14
SUMMARY OF PROXY STATEMENT/PROSPECTUS
The following is a summary of certain information contained elsewhere in
this Proxy Statement/ Prospectus. It is not, and is not intended to be, complete
in itself. Reference is made to, and this summary is qualified in its entirety
by, the more detailed information contained in this Proxy Statement/Prospectus
and the attached Annexes, which shareholders of each company are encouraged to
review. Unless otherwise defined herein, capitalized terms used in this summary
are defined elsewhere in this Proxy Statement/Prospectus.
INTRODUCTION The Boards of Directors of Phillips and Momentum
have each unanimously approved and adopted the
Merger, pursuant to which Momentum will be merged
into and with Phillips if the shareholders of both
Phillips and Momentum adopt the Merger by the
requisite votes and certain other conditions are
satisfied. The parties negotiated the transaction
as a merger of equals. Phillips, whose name will be
changed to PrimeSource Corporation will be the
surviving corporation in the Merger. Copies of the
Reorganization Agreement and Plan of Merger are
attached hereto as Annexes A and B, respectively,
and are incorporated herein by reference.
<TABLE>
<S> <C> <C>
PARTIES TO THE MERGER......... Phillips Momentum
Fairway Corporate Center Koll Center Bellevue
Suite 222 Suite 1900
4350 Haddonfield Road 500 - 108th Ave. N.E.
Pennsauken, New Jersey 08109 Bellevue, WA 98004
(609) 488-4888 (206) 450-6550
</TABLE>
Each of Phillips and Momentum are major
distributors of a broad line of photographic and
graphic arts supplies and electronic prepress
systems. See "INDUSTRY OVERVIEW," "PHILLIPS
BUSINESS DESCRIPTION" and "MOMENTUM BUSINESS
DESCRIPTION."
REASONS FOR THE MERGER;
RECOMMENDATIONS OF THE
BOARDS OF DIRECTORS The Boards of Directors of Phillips and Momentum
each considered various factors and reasons for
approving the Merger, including the following: (1)
The Merger will create a major national distributor
of a broad line of traditional supplies and
equipment and state of the art electronic prepress
systems to the graphic arts, commercial printing
and allied trades in the United States that
encompasses 28 different metropolitan areas; (2)
the geographic areas served by Phillips' and
Momentum's existing facilities do not overlap
significantly (see map at page 28); (3) the
geographic expansion will assist PrimeSource in
becoming the preferred supplier for national,
multi-location accounts and will be a national
distributor for the manufacturers it represents;
(4) opportunities for limited cost savings and
synergies, such as the ability to attract national
accounts, consolidate purchasing and develop more
technology-based business, are expected to result
from the Merger; and (5) the Merger will facilitate
more rapid expansion than possible through internal
growth and smaller acquisitions.
THE BOARDS OF DIRECTORS OF PHILLIPS AND MOMENTUM
EACH UNANIMOUSLY RECOMMEND APPROVAL OF THE MERGER.
See "PROPOSAL 1 -- THE MERGER -- Reasons for the
Merger; Recommendation of the Boards of Directors."
7
<PAGE> 15
INTEREST OF CERTAIN PERSONS
IN THE MERGER James H. Wiborg, Vice Chairman of Momentum, was
retained to represent Momentum in the development
of the strategy and design of the Merger and the
negotiations of the major terms and conditions of
the Merger. Pursuant to an agreement approved by
the other members of the Board of Directors of
Momentum, Mr. Wiborg has received a nonrefundable
retainer of $50,000, reimbursement of expenses of
approximately $3,851, and, if the Merger is
consummated, will receive an additional fee equal
to .75% of the value of the PrimeSource Shares
received by the Momentum stockholders as of the
Effective Time. Based on the market value of
Phillips Shares as of July 25, 1994, the contingent
portion of this fee is estimated at approximately
$173,000. Under previously existing change of
control agreements, John H. Goddard, President and
Chief Executive Officer of Momentum, and Patsy R.
Turnipseed, Senior Vice President and Chief
Financial Officer of Momentum, may receive up to 24
months of compensation and benefits, which are
payable only in the event the Merger is completed
and their employment is terminated within 24
months. Mr. Goddard will continue his employment
with PrimeSource but it is anticipated that Ms.
Turnipseed may elect to pursue other opportunities
and receive her benefits under her agreement which
are estimated to have a present value of $416,599;
however, no definitive agreement has been reached
regarding the terms of her separation. In addition,
in the event of termination after the Merger the
unvested portion of previously granted restricted
stock and stock options will be automatically
vested and have an estimated present value of
$7,385 assuming a market value for Momentum Shares
of $7.00 per share. See "PROPOSAL 1 -- THE
MERGER -- Interests of Certain Persons in the
Merger."
OPINION OF FINANCIAL
ADVISORS Phillips. Berwind Financial Group, Inc. has
rendered an opinion to the Phillips Board that, as
of the date of such opinion, the Merger is fair
from a financial point of view to Phillips
shareholders. See "PROPOSAL 1 -- THE
MERGER -- Opinion of Phillips Financial Advisor"
and Annex E.
Momentum. Piper Jaffray Inc. has rendered an
opinion to the Momentum Board that, as of the date
of such opinion, the consideration proposed to be
received by Momentum stockholders in the Merger is
fair from a financial point of view to Momentum
stockholders. See "PROPOSAL 1 -- THE
MERGER -- Opinion of Momentum Financial Advisor"
and Annex G.
BOARD OF DIRECTORS AND
EXECUTIVE OFFICERS OF
PRIMESOURCE The PrimeSource Board of Directors will consist of
twelve members, six designated by Phillips and six
designated by Momentum. Richard E. Engebrecht
(Chairman of the Board of Momentum) will be
Chairman of the Board of PrimeSource, Philip J.
Baur, Jr. (Chairman of the Board of Phillips) will
be Vice-Chairman of PrimeSource, James F. Mullan
(President and Chief Executive Officer of Phillips)
will be President
and Chief Executive Officer of PrimeSource and John
H. Goddard
(President and Chief Executive Officer of Momentum)
will be Execu-
tive Vice President of PrimeSource. See "MANAGEMENT
OF PRIMESOURCE."
8
<PAGE> 16
TERMS OF THE MERGER
EXCHANGE RATIO On the closing of the Reorganization Agreement (the
"Effective Time"), each share of Momentum common
stock, par value $1.00 per share (each a "Momentum
Share" and collectively "Momentum Shares"), then
issued and outstanding will cease to be outstanding
and will be converted (except for treasury shares)
into .71 shares (the "Exchange Ratio") of
PrimeSource common stock, par value $.01 per share
(the "PrimeSource Shares"). Each share of Phillips
common stock, par value $.01 per share (each a
"Phillips Share" and collectively "Phillips
Shares"), then issued and outstanding will continue
to represent one share, which, following the change
of Phillips' name, will be one PrimeSource Share.
See "THE REORGANIZATION AGREEMENT AND PLAN OF
MERGER -- Conversion of Momentum Shares; Effects on
Phillips Shareholders; No Fractional PrimeSource
Shares."
EFFECTIVE TIME It is anticipated that the Merger will become
effective as promptly as practicable after the
requisite shareholder approvals have been obtained
and all other conditions to the Merger have been
satisfied or waived.
CONDITIONS; TERMINATION The obligations of Phillips and Momentum to
consummate the Merger are subject to the
satisfaction of certain conditions, including
obtaining requisite shareholder and regulatory
approvals. See "THE REORGANIZATION AGREEMENT AND
PLAN OF MERGER -- Conditions to the Merger."
The Reorganization Agreement is subject to
termination if the Merger is not consummated on or
before December 31, 1994. In addition, the
Reorganization Agreement may be terminated under
certain circumstances by either Phillips or
Momentum, including in certain instances where the
terminating party is entitled to payment of its
fees and expenses relating to the Merger. See "THE
REORGANIZATION AGREEMENT AND PLAN OF
MERGER -- Termination, Amendment and Waiver" and
"-- Termination Fee."
NO DISSENTERS OR
APPRAISAL RIGHTS Shareholders of Phillips and Momentum who vote
against the Merger will not have, under
Pennsylvania law or Delaware law, respectively, any
dissenters or appraisal rights by which they could
require Phillips or Momentum, as the case may be,
to purchase their shares at fair value. See
"CERTAIN DIFFERENCES BETWEEN THE CORPORATION
STATUTES OF DELAWARE AND PENNSYLVANIA -- Appraisal
or Dissenters Rights."
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES The Merger has been structured with the intent that
it be tax-free to Phillips, Momentum and their
respective shareholders. See "PROPOSAL 1 -- THE
MERGER -- Certain Federal Income Tax Consequences."
SHAREHOLDER MEETINGS
THE PHILLIPS ANNUAL
MEETING OF SHAREHOLDERS The Phillips Meeting will be held on Thursday,
September 1, 1994 at 9:30 a.m. (E.D.T.) at
Pennsauken Country Club, 3800 Haddonfield Road,
Pennsauken, New Jersey. Shareholders of record of
Phillips at the close of business on July 27, 1994
are entitled to notice of and to vote at
9
<PAGE> 17
the Phillips Meeting. See "THE PHILLIPS
SHAREHOLDERS MEETING."
THE MOMENTUM SPECIAL
MEETING OF
STOCKHOLDERS The Momentum Meeting will be held on Thursday,
September 1, 1994, at 9:00 a.m. (P.D.T.) at Koll
Center Conference Center, 2nd Floor, Koll Center
Bellevue, 500 - 108th Avenue N.E., Bellevue,
Washington. Stockholders of record of Momentum at
the close of business on July 25, 1994 are entitled
to notice of and to vote at the Momentum Meeting.
See "THE MOMENTUM STOCKHOLDERS MEETING."
MATTERS TO BE CONSIDERED Shareholders will consider and vote upon a proposal
to approve the Merger of Momentum into Phillips, so
that stockholders of Momentum will become
shareholders of Phillips, which will change its
name to PrimeSource, and Phillips and Momentum
shareholders will, at the Effective Time, own
PrimeSource shares. Phillips shareholders will also
elect three persons to serve as Class I directors
until the Effective Time of the Merger or, if the
Merger is not approved, until 1997. Phillips
shareholders will also consider and vote upon
proposals to approve (i) the Phillips 1993 Long
Term Incentive Plan (the "Incentive Plan") in the
form attached as Annex H, and (ii) the Phillips
1993 Replacement Option Plan (P&J Spin-off) (the
"Replacement Option Plan") in the form attached as
Annex I. Phillips shareholders will also approve
the selection of Coopers & Lybrand as independent
certified public accountants for the year ending
December 31, 1994. Approval of the Merger by
Phillips and Momentum shareholders will constitute
election of the directors designated by Phillips
and Momentum and approval of the Amended and
Restated Articles of Incorporation of PrimeSource
(the "Amended Articles") and the Amended and
Restated Bylaws of PrimeSource (the "Amended
Bylaws"), attached as Annexes C and D,
respectively. See "PROPOSAL 1 -- THE MERGER;"
"MANAGEMENT OF PRIMESOURCE," "PROPOSAL
2 -- ELECTION OF DIRECTORS;" "PROPOSAL
3 -- ADOPTION OF THE 1993 LONG TERM INCENTIVE
PLAN;" "PROPOSAL 4 -- ADOPTION OF THE REPLACEMENT
OPTION PLAN;" and "PROPOSAL 5 -- APPOINTMENT OF
INDEPENDENT AUDITORS."
VOTES REQUIRED Phillips. The affirmative vote of at least a
majority of the Phillips Shares present in person
or by proxy at the Phillips Meeting is required to
approve the Merger (including the Amended
Articles), the Incentive Plan, the Replacement
Option Plan and the selection of auditors. The
three nominees receiving the highest number of
votes will be elected directors. See "THE PHILLIPS
SHAREHOLDERS MEETING -- Votes Required."
Momentum. The affirmative vote of at least a
majority of the outstanding Momentum Shares
entitled to vote is required to approve the Merger.
See "THE MOMENTUM STOCKHOLDERS MEETING -- Votes
Required."
TRADING MARKETS Shares of Phillips and Momentum are traded on the
Nasdaq National Market under the symbols PNJI and
MMDI, respectively. PrimeSource Shares will
continue to be traded on the Nasdaq National Market
under the symbol PSRC.
10
<PAGE> 18
At March 17, 1994, the last trading day before
announcement of the Merger, the closing prices of
Phillips and Momentum were $12.375 and $13.25,
respectively. The Momentum closing price of $13.25
on March 17 is believed to be the result of unusual
trading activity. The 30-and 60-day average trading
prices of Momentum prior to the March 17
announcement were $9.05 and $8.72, respectively,
and the post announcement 60-day average trading
price was $8.68 per share. On August 2, 1994, the
closing prices were $9.125 for Phillips and $7.25
for Momentum. See "COMPARATIVE PER SHARE DATA AND
MARKET PRICES."
11
<PAGE> 19
SELECTED FINANCIAL AND OPERATING DATA
The following tables set forth (i) selected financial and operating data
for the five fiscal years in the period ended December 31, 1993 and the three
month periods ended March 31, 1993 and 1994 for Phillips and Momentum and (ii)
unaudited pro forma financial and operating data giving effect to the Merger
using the purchase method of accounting for the year ended December 31, 1993 and
as of and for the three-month periods ended March 31, 1994 and 1993. The
selected financial data for Phillips for the five fiscal years in the period
ended December 31, 1993 have been derived from consolidated financial statements
audited by Coopers & Lybrand, independent public accountants. The selected
financial data for Momentum for the five fiscal years in the period ended
December 31, 1993 have been obtained from Momentum's consolidated financial
statements, which statements have been audited by Ernst & Young, independent
public accountants. The selected financial and operating data for Phillips and
Momentum for the three month periods ended March 31, 1993 and 1994 have been
derived from unaudited financial statements of each of Phillips and Momentum,
and include in the opinion of management of each company, respectively, all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the results for such periods. This selected financial and operating data
should be read in conjunction with the separate consolidated financial
statements and notes thereto of Phillips and Momentum, attached hereto beginning
at page F-1. This historical and pro forma selected financial and operating data
is not necessarily indicative of the results to be expected if the Merger is
consummated.
PHILLIPS & JACOBS, INCORPORATED
SELECTED FINANCIAL AND OPERATING DATA(1)
<TABLE>
<CAPTION>
QUARTERS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
----------------- --------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
------- ------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of operations data:
Net sales(2)............................ $44,419 $42,595 $167,744 $158,748 $151,632 $142,964 $132,454
Gross profit............................ 8,185 7,524 32,650 28,913 28,255 25,995 23,542
Gross profit percentage................. 18.4% 17.7% 19.5% 18.2% 18.6% 18.2% 17.8%
Income from operations.................. 1,588 1,687 6,078(4) 6,070 5,705 5,239(3) 6,248
Income before provision for income taxes
and cumulative effect of changes in
accounting principles................. 1,470 1,571 5,798 5,756 5,081 4,486 5,218
Net income (loss)....................... 914 (349)(5) 2,093(5) 3,508 3,105 2,715 3,193
Net income (loss) per share............. .22 (.09) .51 .86 .77 .66 .76
Average number of common shares
outstanding(6)........................ 4,115 4,070 4,098 4,057 4,038 4,094 4,226
Balance sheet data:
Working capital......................... 30,216 17,188 28,631 16,858 15,738 13,415 12,908
Total assets............................ 53,610 44,343 52,427 45,651 43,034 42,795 36,990
Long-term debt, net of current
portion............................... 13,654 2,714 12,747 2,943 3,857 3,871 600
Total shareholders' equity.............. 21,211 19,439 20,653 20,121 17,943 16,048 14,524
Book value per share(6)................. 5.16 4.77 5.04 4.96 4.44 3.92 3.44
</TABLE>
- ---------------
(1) All numbers are in thousands, except per share data. Includes Dixie Type and
Supply Company, Inc. for all periods. Onondaga Litho Supply Co. Inc. is
included from August 3, 1990, C.M. Graphics from September 30, 1992, and
Jetcom Division from November 1, 1993, their respective dates of
acquisition. Phillips' chemical division is included through October 4,
1991, its date of sale.
(2) Includes sales generated by the chemical division (which was divested in
1991) of $5,092,954, $7,478,190 and $6,797,779 in 1991, 1990 and 1989,
respectively.
(3) Reflects a one-time pre-tax charge in 1990 of $609,000 (after tax $369,000)
resulting from an early retirement program.
(4) Reflects a one-time pre-tax charge in 1993 of $609,000 (after tax $519,000)
resulting from costs associated with the spin-off consisting primarily of
legal, accounting and other professional fees.
(5) Reflects a one-time after tax charge of $1,306,000 for the cumulative effect
of changes in methods of accounting for post-retirement benefits other than
pensions and for income taxes.
(6) Average number of shares outstanding information for 1989 through 1992 and
for March 31, 1993, is based on the average number of shares of common stock
of Tasty Baking Company, the former parent of Phillips, outstanding for each
of these years converted to Phillips Shares using the spin-off ratio of two
Phillips Shares for every three shares of Tasty Baking Company common stock.
12
<PAGE> 20
PHILLIPS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Effects of the Merger
The Merger, if approved by shareholders, will create a national
distribution company, without incurring the financial burdens of acquisition
debt, with anticipated 1994 pro forma annualized revenues and net income of $350
million and $5 million, respectively. Sales are expected to increase due to
synergies which are likely to result from the Merger, especially sales to
national accounts and electronics sales. Cost reductions are not expected to be
significant in the short term. Borrowings for working capital are not expected
to increase, nor is it anticipated that there will be any increase in capital
expenditures above current levels. Although the current ratio of Phillips will
decline somewhat as a result of the Merger, it should remain in excess of 2 to
1, and working capital will increase to over $50 million. Shareholders' equity
will also increase substantially to over $45 million, strengthening the combined
company's balance sheet and improving its borrowing power.
Results of Operations First Quarter 1994 and 1993
In the first quarter of 1994, Phillips realized consolidated net income of
$914,090 or $.22 per share which compares to income before cumulative effects of
accounting principle changes of $956,599 or $.23 in the comparable quarter of
1993. The effects of the accounting principle changes in 1993 were $1,306,013 or
$.32 per share on an after tax basis, resulting in a net loss of $349,414.
Consolidated net sales for the first quarter of 1994 increased 4% to
$44,419,368 compared to $42,594,919 for the first quarter of 1993. The increase
was due primarily to the incremental sales from the recent Jetcom acquisition
along with strong performances by the Dixie Type and C.M. Graphics subsidiaries.
These increases were offset by the negative impact of the severe winter in
several of the P/J Division locations, as well as at Onondaga. The weather
conditions caused a loss of as many as 10% of regular business days in certain
locations. Technological changes within the printing and imaging industries
continue to reduce the consumption of certain types of traditional film
products. The overall long-term effects of the technological changes should,
however, result in a positive impact on the business as the company moves in the
direction of systems solution integrator.
Selling, general and administrative expenses for the first quarter of 1994
increased $759,448 or 14%. These expenses include $682,575 from the Jetcom
Division. Excluding Jetcom's expenses, selling, general and administrative
expenses increased $76,873 or 1%. The increase was due primarily to normal
increases in overall business costs.
The effective tax rates for the quarter ended March 31, 1994 and 1993 were
37.8% and 39.1%, respectively, which compares to a statutory federal tax rate of
34%. The principle reason for the difference between the effective rates and the
statutory rate in 1994 and 1993 was the effect of state income taxes.
Results of Operations Years Ended December 31, 1993 and 1992
Phillips recorded net income of $2,092,782 or $.51 per share for the year
ended December 31, 1993 as compared to $3,507,802 or $.86 per share in 1992. The
1993 results included one-time costs of $609,000 ($519,000 or $.13 per share,
after related tax benefits) for legal, accounting and other professional fees
associated with its spin-off from Tasty Baking Company. Also included in 1993
earnings were the cumulative effects of accounting principle changes. In 1993,
the company adopted Statement of Financial Accounting Standard No.
106 -- "Employers' Accounting for Postretirement Benefits Other than Pensions"
(SFAS 106) and Statement of Financial Accounting Standards No.
109 -- "Accounting for Income Taxes" (SFAS 109). The adoption of SFAS 106
resulted in a charge to continuing operations of $2,000,000 which, after related
tax benefits, represents a net charge of $1,208,000 or $.30 per share. The
effect of SFAS 109 was that the company recorded a tax charge of $98,013 or $.02
per share. The 1993 earnings before the effects of one-time spin-off costs and
the cumulative effects of accounting principle changes were $3,917,795 or $.96
per share, an increase of 11.7% over the 1992 net income of $3,507,802 or $.86
per share.
Net sales in 1993 were $167,744,496 compared to $158,747,647 in 1992, an
increase of 5.7%. The sales increase came primarily from increases in printing
machinery sales and strong gains in electronic imaging
13
<PAGE> 21
systems sales. Supply sales, however, were less than anticipated due to
uncertain economic conditions in several markets as well as the effects of
technological change within the industry causing decreased consumption of
certain traditional products. Net sales contributed by Jetcom, which was
acquired in the fourth quarter, did not have a significant impact on
consolidated net sales or operating income for 1993.
Gross profit as a percentage of net sales in 1993 was 19.5% compared to
18.2% in 1992. The positive effect in gross profit resulted from increased sales
of higher margin electronic imaging systems and printing machinery sales.
Selling, general and administrative (SG&A) expense increased $2,903,826 or
13.7% in 1993 over 1992. The acquisition of C.M. Graphics, Inc. in late 1992 and
Jetcom in 1993 increased SG&A by $841,289 in 1993. The balance of the increases
came from costs supporting the increased sales level in 1993, new costs
associated with being a public company, additions to staff necessary to meet
growing opportunities in electronics, increased sales training costs and general
increases in overall business costs.
Provision for doubtful accounts was $879,913 in 1993 compared to $646,344
in 1992. The increase resulted from a greater number of business failures among
customers in several markets.
Interest expenses remained relatively unchanged in 1993 from 1992. The
average borrowing and interest rates were comparable from year to year.
The effective tax rate was 41.4% in 1993 as compared to 39.1% in 1992. The
principal reason for the differences between the effective rates is the effect
of non-deductible expenses associated with the spin-off from Tasty Baking
Company.
Results of Operations Years Ended December 31, 1992 and 1991
In 1992, net income increased 13% to $3,507,802 from $3,105,312 in 1991.
Earnings per share based on the average number of shares of Tasty Baking Company
common stock outstanding in each year converted to Phillips Shares, using the
distribution ratio of two Phillips Shares for every three shares of Tasty Baking
Company, was $.86 in 1992 compared to $.77 in 1991, an increase of 12%.
Net sales for 1992 were $158,747,647, which represented a 5% increase over
the previous year. Included in 1991's net sales was $5,092,954 contributed by
the chemical division which was sold in October, 1991. Net sales for 1992
compared to 1991, after excluding sales generated by the chemical division,
increased 8%. Net sales contributed by C.M. Graphics, which was purchased in the
fourth quarter of 1992, did not have a significant impact on consolidated net
sales or operating income in that year. The net sales improvement in 1992 over
1991 resulted principally from volume increases in both supplies and electronic
imaging systems.
Gross profit as a percentage of net sales was 18.2% in 1992 compared to
18.6% in 1991. The slightly lower margins in 1992 compared to 1991 were a result
of selective price adjustments due to competitive pressures in the marketplace.
SG&A expenses in 1992 rose by $187,205 or less than 1%. However, included
in 1991 were SG&A expenses of $784,561 associated with the chemical division.
Excluding these expenses, SG&A expense increased $971,766 or 5%. This increase
was due to payroll and benefit expenses and a one-time restructuring charge
related to the relocation and consolidation of the administrative function of
Onondaga Litho Supply Co. Inc. to the P/J Division.
In 1992, the provision for doubtful accounts increased $117,973 over 1991
as a result of higher uncollectible accounts and some business failures in
several markets.
The effective tax rate in 1992 and 1991 was 39.1% and 38.9%, respectively,
which compares to a statutory federal tax rate of 34%. The differences between
the effective rates and the statutory rates in 1992 and 1991 are primarily
attributable to the effect of state income taxes.
14
<PAGE> 22
Financial Condition at March 31, 1994
Phillips has consistently demonstrated the ability to generate sufficient
cash for working capital from operations. Working capital increased by
$1,585,221 in the first quarter of 1994. The ratio of current assets to current
liabilities increased to 3.06 to 1 at the end of the first quarter in 1994
compared to 2.90 to 1 at the end of 1993. The increase came primarily from a
reduction in short-term bank notes payable of $1,095,000.
Cash provided by operating activities for the quarter ended March 31, 1994
was $931,683 representing an increase of $190,169 from the $741,514 for the
quarter ended March 31, 1993. The increase in cash was due to increased
amortization expense, and changes in working capital items, primarily in the
levels of accounts payable and accounts receivable.
Net cash provided from operations, together with additional bank borrowings
on the revolving line of credit, totaled $2,231,683. These funds were used for
investing and financing activities. Investing activities included additions to
property, plant and equipment of $109,214. Cash used for financing activities
included a dividend payment of $462,892 (for the third consecutive quarterly
dividend payment of $.1125 per share), long-term debt payments of $392,857 and
short-term debt payments of $1,095,000. It is anticipated that remaining
budgeted capital expenditures of approximately $600,000 will also be funded
through cash provided by operating activities. It should be noted, however, that
there are no commitments outstanding for capital expenditures at March 31, 1994.
Management believes that cash flow from operations will continue to improve for
the remainder of 1994 which, combined with the bank lines of credit, will create
sufficient cash for expected operating and financial needs.
Financial Condition at December 31, 1993 and 1992
Phillips ended 1993 in strong financial condition and with a solid balance
sheet. Working capital increased by $11,772,949 in 1993 and by $1,119,729 in
1992. The increase came primarily from a $5,621,000 restructuring of debt
converted at the time of the spin-off from short-term to long-term, adding
$2,376,536 of Jetcom operating assets purchased with long-term borrowing and
$3,775,414 provided from changes in current assets and current liabilities.
Accounts receivable in 1993 increased $3,925,221 over 1992 as a result of
new customer balances from the Jetcom Division's sales in November and December,
1993, as well as the general increase in consolidated sales in the last quarter
of 1993 over the comparable period in 1992.
Inventories increased by $1,917,599 in 1993. This increase included
Jetcom's inventories totaling $2,366,579. Excluding Jetcom, Phillips reduced
inventories by $448,980 as a result of a consolidation of distribution
facilities within the Onondaga subsidiary as well as an overall inventory
reduction reflecting the decreased consumption of certain traditional supply
products.
The excess of cost of investment in subsidiaries over equity in net assets
increased $352,288 as a result of the Jetcom purchase.
Current assets increased by $5,762,860, including $2,376,536 due to the
Jetcom acquisition. The balance came from increased accounts receivable
reflecting higher sales volumes in 1993 over 1992. Current liabilities decreased
$6,010,089 as a result of reducing short-term borrowings $5,621,000 through debt
restructuring, as well as a decrease in accounts payable of $1,422,076 due to
reduced inventory purchases and general timing differences.
As a result of Phillips' adoption of SFAS No. 109 in 1993, Phillips has
recognized a deferred tax asset aggregating $2,195,316. Management believes
based on Phillips' historical profitability and consistent payment of income
taxes that these items will be realized.
At year end 1993, Phillips had bank lines of credit totaling $9,500,000,
with $4,405,000 available for borrowing. In addition, Phillips has a term loan
facility of $11 million which has been fully funded. The interest rates on the
term facility are fixed at 6.03% on $7 million and will float at LIBOR plus 1%
on the remainder. Interest rates on the remaining lines of credit vary from the
bank's prime rate to LIBOR plus 3/4% at Phillips' option. All loans are
unsecured. Phillips' excellent credit rating and historical earning ability make
15
<PAGE> 23
it likely that bank funds will be available at a reasonable cost to finance
future expansion and strategic acquisitions.
Historically, Phillips' business has not required significant capital
expenditures. Capital expenditures were $641,284, $915,057 and $580,657 in 1993,
1992 and 1991, respectively, primarily for leasehold improvements to new or
existing facilities, upgrades to information systems, new training facilities
for the electronic imaging opportunity and replacement of autos and trucks.
16
<PAGE> 24
MOMENTUM CORPORATION
SELECTED FINANCIAL AND OPERATING DATA(1)
<TABLE>
<CAPTION>
TEN MONTHS
THREE MONTHS ENDED
ENDED MARCH 31, YEARS ENDED DECEMBER 31, DECEMBER 31,
------------------- --------------------------------------------- ------------
1994 1993 1993 1992 1991 1990(2) 1989(2)
------- ------- -------- -------- ------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Sales of graphic
supplies and
equipment............. $34,673 $30,003 $116,788 $112,022 $97,339 $94,835 $114,906
Gross margin............ 6,764 5,713 22,542 21,903 19,056 19,934 14,170
Gross margin percent.... 19.5% 19.0% 19.3% 19.6% 19.6% 21.0% 12.3%
Income (loss) from
continuing
operations............ 159 (450) (3,060) (1,286) (2,479) (2,727) (10,533)
Percent of sales........ .5% (1.5)% (2.6)% (1.1)% (2.5)% (2.9)% (9.2)%
Income from discontinued
operations(3)......... -- 628 7,424 2,238 1,300 1,415 1,316
Net income (loss)....... 159 178 4,364 952 (1,179) (1,312) (9,217)
Income (loss) per share
from continuing
operations(4)......... .05 (.12) (0.84) (0.37) (0.72) (0.82) --
Net income (loss) per
share(4).............. .05 .05 1.20 0.27 (0.34) (0.39) --
BALANCE SHEET
Working capital......... 26,757 19,404 26,558 26,875 18,861 19,888 23,515
Total assets............ 70,237 57,869 52,430 51,616 50,311 51,803 58,711
Long-term obligations,
net of current
portion............... 11,438 10,728 1,793 8,066 10,453 9,847 14,024
Shareholders' equity.... 34,023 30,122 33,949 29,708 28,576 29,362 30,000
Book value per
share(4).............. 9.65 8.24 9.62 8.45 8.32 8.59
</TABLE>
- ---------------
(1) All numbers are in thousands, except per share data.
(2) Momentum was spun off from its parent company, VWR Corporation, effective
March 1, 1990 (which changed to a calendar year in 1989). VWR Corporation is
a publicly-traded company headquartered in West Chester, Pennsylvania.
(3) Income from discontinued operations for 1993 includes the gain on the sales
of the discontinued operations of $6,146,000.
(4) Per share data is not provided for periods prior to the spin-off from VWR
Corporation.
MOMENTUM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides a historical perspective of Momentum's
financial condition and results of operations. The analysis of these historical
results and applicability to subsequent periods may be of limited value due to
developments occurring in 1993 and 1994. Specifically, in September, 1993,
Momentum sold its textiles group, which was composed of VWR Textiles & Supplies
Inc. and Momentum Textiles Inc. In addition, as of March 1, 1994, the date
effective control was acquired, Momentum acquired the assets of T. K. Gray, Inc.
("Gray"), a regional distributor of photographic and graphic arts supplies and
equipment, with sales in excess of $40 million, which are not reflected in the
following discussion. Finally, except as specifically noted below, the following
analysis does not reflect the impact of the Merger.
The financial statements have been restated to report the textiles group as
discontinued operations. Accordingly, the following discussion and analysis is
for the continuing operations.
17
<PAGE> 25
Comparison of First Quarter 1994 to First Quarter 1993
Net income from continuing operations for the quarter ended March 31, 1994
was $159,000 ($.05 per share) on sales of $34,673,000 compared to a net loss of
$450,000 ($.12 loss per share) on sales of $30,003,000 for the same quarter last
year.
The 15.6% sales increase for the quarter over the same quarter last year
was primarily due to the acquisition of Gray. Excluding the sales of Gray,
Momentum's sales increase of 1.5% was below expectations due to two factors.
First, the industry's major manufacturers have not increased prices since early
1993. Second, and more importantly, the industry's shift away from the
traditional procedures is accelerating toward the digital preparation of text
and images for printing. Momentum has anticipated this change in demand, and has
gradually shifted its organization to increase its participation in the areas of
the industry which offer continued growth: electronic prepress systems and
pressroom consumables. Revenues from prepress systems, which was Momentum's
first area of emphasis, increased 66% (81% with Gray) over last year. The
technical resources which Momentum believes are required to increase pressroom
consumable sales were added during the second half of 1993 and are anticipated
to begin having a significant impact on sales in the second half of the year.
Selling and administrative expenses were 18.6% of sales for the quarter
compared to 20.3% for the first quarter last year. This improvement is due to
the increased sales volume as a result of the Gray acquisition and the expense
reduction program established in 1993.
The restructure charge for 1993 of $182,000 represents salaries and
benefits applicable to positions which were eliminated as a result of the
divestiture of the discontinued operations.
The tax rate on income from continuing operations was 48% for the quarter
compared to a 34% benefit on the loss for the first quarter of last year. The
high tax rate for 1994 was due to state tax expenses and nondeductible expenses.
Income from discontinued operations represents earnings from Momentum's
textiles group which was disposed of in September, 1993.
Comparison of 1993 to 1992
Sales in 1993 were $116.8 million or 4% greater than 1992. Sales were
hampered by an 8% decrease in sales on the west coast, which was strongly
impacted by the weak California economy and a contraction in demand for
reprographic and professional photographic products in the defense industry.
Sales excluding the west coast locations increased by almost 9% for the year.
This gain is primarily attributable to strong sales growth of electronic
prepress systems. The gross margin percentage decreased from 19.6% to 19.3%,
primarily due to competitive price pressure and changes in product mix.
Selling and administrative expenses increased 8% between years. This
increase, which was higher than the sales growth, was primarily due to increased
sales and marketing expenses. During the year, Momentum replaced the traditional
sales structure with a team of sales and technical specialists, which will
better meet customer requirements as the graphics industry goes through the
current period of rapid technological changes. This restructuring resulted in
increased fixed costs, but with an ongoing decrease in variable costs as sales
personnel now receive a greater percentage of their total compensation in the
form of base salary and less emphasis is placed on individual commission-based
compensation. Thus, in the future, as Momentum's sales volume increases, the
incremental sales and marketing expenses should increase at a slower rate.
In 1993, Momentum incurred $1.6 million in restructure and other charges.
One million dollars were incurred for the restructure of the sales and marketing
function as discussed above. These costs were primarily for employee severance
and relocation costs. The majority of the payments for these charges was made in
the third and fourth quarters of 1993 using proceeds from the sale of Momentum's
textiles group. At December 31, 1993, the remaining amount to be paid was
$65,000. The balance of the charges, $.6 million, and the charge for 1992, also
$.6 million, represents salaries and benefits applicable to positions which were
eliminated as a result of the divestiture of the textiles group. In addition,
computer equipment of $.8 million
18
<PAGE> 26
was written-off as a result of Momentum's decision to replace this equipment
with new, more efficient and cost effective equipment. The full benefit of the
restructure and other charges will begin to be realized in 1994.
Interest expense decreased $144,000 or 26% in 1993. This decrease was
primarily due to the repayment of Momentum's revolving debt with the proceeds
from the sales of the textiles group.
The effective tax rate for both 1993 and 1992 approximated the statutory
federal rate of 34%.
Comparison of 1992 to 1991
Sales increased 15% in 1992 to $112 million. This growth was primarily the
result of increased penetration in the market. The gross margin percentage
remained constant between years at 19.6%.
Selling and administrative expenses increased 5%. Due to the significant
sales growth and relationship of fixed to variable expenses, selling and
administrative expenses as a percent of sales decreased from 22.4% to 20.4%.
Interest expense decreased $131,000 or 19% in 1992. This decrease was
primarily due to a reduction of interest rates charged under the revolving
credit agreements.
Restructure and other charges of $.6 million in 1992 and 1991 represent
salaries and benefits applicable to positions which have been eliminated as a
result of the divestiture of the textiles group.
The effective tax rate for both years approximated the statutory federal
rate of 34%.
During inflationary times, Momentum's prices generally rise in tandem with
costs. Operating results partially provide for the effects of inflation by using
LIFO inventory accounting, so that the cost of sales generally reflects the most
recent cost of the inventory sold. Asset values are based upon historical costs
that do not necessarily represent either replacement costs or result in charges
to operations based on replacement costs; however, since Momentum is not capital
intensive, it is Momentum's opinion that charging operations for replacement
costs of long-lived assets would not significantly reduce income from
operations.
Financial Condition and Liquidity
Momentum had a cash outflow from operating activities of $1.3 million
during the first quarter of 1994. This net outflow was the result of a $2.1
million increase in receivables. Receivables at December 31, 1993 were at a low
level due to the traditionally lower sales levels in December. Momentum had
negative cash flow from operations of approximately $1.6 million in 1993 which
was primarily due to an increase in income taxes receivable which will be
recovered in 1994 as refunds. Momentum does not expect any significant increases
in working capital requirements over the balance of 1994 and, accordingly,
expects increases in cash flow, and positive cash flow from operations over the
balance of 1994.
Cash flow from investing activities for the quarter consisted of $2.4
million in additional proceeds from the 1993 sale of discontinued operations
offset by $49,000 in property and equipment additions and $106,000 in other
asset additions. During the second quarter of 1994, Momentum received an
additional $1 million from the sale of the discontinued operations and expended
approximately $15.4 million as payment for the acquisition of Gray. Investing
activities during 1993 consisted of $17.1 million in cash proceeds from the sale
of the discontinued operations offset by additions to property and equipment and
other assets of $3.1 million.
Financing activities in the first quarter of 1994 resulted in a net cash
outflow of $70,000. This was the result of the purchase of treasury shares
offset primarily by an increase in debt. Financing activities during 1993
resulted in a net cash outflow of $7 million. This was primarily the result of
using funds from the sales of the discontinued operations to pay off the
outstanding balances under Momentum's revolving credit agreements.
Momentum's primary source of debt financing is two revolving credit
agreements, with a total commitment of $17.5 million, subject to certain
covenant restrictions. One agreement expires in July, 1995 and the other in
January, 1996. At March 31, 1994, there was no outstanding debt under these
agreements.
19
<PAGE> 27
At March 31, 1994, Momentum had $5.2 million in short-term investments.
These investments combined with the revolving credit commitments provide over
$22 million in available funds. Approximately $15.4 million was expended in
April, 1994 to purchase Gray. The balance of these funds combined with
anticipated proceeds from operations plus $1 million additional proceeds from
the sale of the discontinued operations provide adequate financing for the
internal growth of Momentum. Any additional expansion of Momentum through
acquisitions would potentially require additional sources of financing.
Effects of the Merger
The Merger would create a national distribution company, without incurring
the financial burdens of acquisition debt, with anticipated annualized revenues
of approximately $350 million and annualized earnings of approximately $5
million. Sales, especially to national accounts, are likely to increase, but
short-term cost reductions are not expected to be significant. Borrowings for
working capital are not expected to increase nor is it anticipated that there
will be any increase in capital expenditures above current levels. The current
ratio of Momentum will increase somewhat as a result of the Merger and working
capital will increase to over $50 million. Shareholders equity will also
increase substantially to over $45 million, strengthening the combined company's
balance sheet and improving its borrowing power.
PRIMESOURCE
UNAUDITED PRO FORMA CONDENSED SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1994 MARCH 31, 1993 DECEMBER 31, 1993
------------------ ------------------ -----------------
<S> <C> <C> <C>
Statement of Operations Data:
Net Sales................................ $ 86,749 $ 83,643 $ 329,051
Gross Profit............................. 15,888 15,082 62,810
Income from Operations................... 1,869 1,784 3,307
Income before provision for income
taxes................................. 1,620 1,367 2,102
Income from continuing operations........ 972 820 1,261
Income per share......................... 0.15 0.12 0.19
Balance Sheet Data:
Total Assets............................. $118,122
Working Capital.......................... 56,199
Long-term Debt, net of current portion... 25,092
Total Shareholders' Equity............... 45,607
Book Value per share..................... 6.90
Cash Dividends per share................. .1125
</TABLE>
(See "PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION"
and accompanying footnotes)
20
<PAGE> 28
COMPARATIVE PER SHARE DATA AND MARKET PRICES
The following table sets forth (1) the historical income (loss) from
continuing operations per common share, including common share equivalents, of
Phillips Shares and Momentum Shares for the year ended December 31, 1993 and the
three months ended March 31, 1994 (unaudited); (2) historical cash dividends
declared; (3) the historical book value per outstanding Phillips Share and
Momentum Share as of December 31, 1993 and March 31, 1994 (unaudited); and (4)
the unaudited pro forma and pro forma equivalent for Momentum income (loss) from
continuing operations per common share including common share equivalents,
unaudited pro forma cash dividends declared and the unaudited pro forma book
value per outstanding share of PrimeSource Shares for the respective periods and
dates. The information presented in the table should be read in conjunction with
"PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION" and the separate historical
consolidated financial statements of Phillips and Momentum and the notes thereto
appearing elsewhere herein.
<TABLE>
<CAPTION>
MOMENTUM
--------------------------
PHILLIPS PRO FORMA PRIMESOURCE
HISTORICAL HISTORICAL EQUIVALENT(1) PRO FORMA
---------- ---------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Income (loss) from Continuing Operations per common
and common equivalent share (fully diluted)
Year ended December 31, 1993................... $ .83 $ (.84) $ .14 $ .19
Three months ended March 31, 1994
(unaudited).................................. $ .22 $ .05 $ .11 $ .15
Cash dividends declared(2)(3)
Third quarter 1993(3).......................... $ .1125 -- -- $ .1125
Fourth quarter 1993............................ $ .1125 -- -- $ .1125
First quarter 1994............................. $ .1125 -- -- $ .1125
Second quarter 1994............................ $ .1125 -- -- $ .1125
Third quarter 1994 (payable September 1)....... $ .1125 -- -- $ .1125
Book value per outstanding share:
December 31, 1993.............................. $ 5.04 $ 9.62 $4.84 $6.81
March 31, 1994 (unaudited)..................... $ 5.16 $ 9.65 $4.90 $6.90
</TABLE>
- ---------------
(1) Represents PrimeSource pro forma per share data multiplied by .71, the
Exchange Ratio of PrimeSource Shares for each Momentum Share.
(2) The PrimeSource pro forma dividends represent Phillips' historical
dividends. It is anticipated that the PrimeSource Board of Directors will
initially continue the dividend payment policy established by Phillips and
will review that dividend policy periodically in light of the earnings,
capital needs and financial requirements of PrimeSource and other relevant
factors. No assurance can be given that PrimeSource will be able to sustain
the equivalent dividends in the future.
(3) To date, Phillips has paid four cash dividends. Prior to the third quarter
of 1993, Phillips was a wholly-owned subsidiary of Tasty Baking Company
("TBC")and cash dividends were paid to TBC for at least the preceding five
years. Momentum has paid no cash dividends since its incorporation.
21
<PAGE> 29
The following table sets forth the high and low sales prices of Phillips
Shares, traded under the symbol "PNJI", and Momentum Shares, traded under the
symbol "MMDI", for the periods indicated. Prior to July 21, 1993 the date on
which "when issued" Phillips Shares began trading, no trading prices are
available with respect to Phillips Shares. The common stock of both companies is
quoted on the Nasdaq National Market. The quotations are as reported in
published financial sources. PrimeSource Shares will trade on the Nasdaq
National Market under the symbol "PSRC."
<TABLE>
<CAPTION>
PHILLIPS MOMENTUM
----------------- ------------------
HIGH LOW HIGH(1) LOW(1)
------ ------ ------- ------
<S> <C> <C> <C> <C>
Calendar Quarters -- 1991
First Quarter....................................... * * $ 5.50 $4.25
Second Quarter...................................... * * $ 5.92 $4.67
Third Quarter....................................... * * $ 5.25 $4.08
Fourth Quarter...................................... * * $ 4.83 $3.75
Calendar Quarters -- 1992
First Quarter....................................... * * $ 5.88 $3.75
Second Quarter...................................... * * $ 6.38 $5.38
Third Quarter....................................... * * $ 8.50 $5.75
Fourth Quarter...................................... * * $ 7.50 $6.00
Calendar Quarters -- 1993
First Quarter....................................... * * $ 8.75 $6.75
Second Quarter...................................... * * $ 9.00 $7.88
Third Quarter....................................... $13.75 $10.75 $ 8.50 $7.50
Fourth Quarter...................................... $12.25 $10.25 $ 9.00 $7.50
Calendar Quarters -- 1994
First Quarter....................................... $13.25 $10.00 $13.25 $7.75
Second Quarter...................................... $12.25 $10.00 $ 9.25 $6.75
</TABLE>
- ---------------
* No trading market during this period.
(1) Prices adjusted to reflect a three-for-one stock split in July, 1992.
THE PHILLIPS SHAREHOLDERS MEETING
DATE, TIME AND PLACE
The Phillips Meeting will be held on Thursday, September 1, 1994, at 9:30
a.m. (E.D.T.) at Pennsauken Country Club, 3800 Haddonfield Road, Pennsauken, New
Jersey.
MATTERS TO BE CONSIDERED
At the Phillips Meeting, Phillips shareholders will be asked to vote upon
the following:
1. A proposal to approve and adopt the Merger pursuant to which, among
other things, Momentum will be merged with and into Phillips, pursuant to
the Reorganization Agreement and Plan of Merger, copies of which are
attached to this Proxy Statement/Prospectus as Annexes A and B. Approval of
the Merger will constitute election to the PrimeSource Board of Directors
of the directors designated by Phillips and Momentum and approval of the
Amended Articles and Amended Bylaws attached as Annexes C and D.
2. The election of three persons to serve as Class I directors until
the Merger is consummated or, if the Merger is not consummated for any
reason, until the Annual Meeting in 1997.
3. A proposal to approve the adoption of the Phillips 1993 Long Term
Incentive Plan (the "Incentive Plan"), a copy of which is attached to this
Proxy Statement/Prospectus as Annex H.
22
<PAGE> 30
4. A proposal to approve the adoption of the Phillips 1993 Replacement
Option Plan (P&J Spin-off) (the "Replacement Option Plan"), a copy of which
is attached to this Proxy Statement/Prospectus as Annex I.
5. A proposal to approve the selection of Coopers & Lybrand as
independent certified public accountants for the fiscal year ending
December 31, 1994.
See "PROPOSAL 1 -- THE MERGER;" "MANAGEMENT OF PRIMESOURCE;" "PRIMESOURCE
AMENDED AND RESTATED ARTICLES OF INCORPORATION AND BYLAWS;" "PROPOSAL
2 -- ELECTION OF DIRECTORS;" "PROPOSAL 3 -- ADOPTION OF THE 1993 LONG TERM
INCENTIVE PLAN;" "PROPOSAL 4 -- ADOPTION OF THE REPLACEMENT OPTION PLAN;" and
"PROPOSAL 5 -- APPOINTMENT OF INDEPENDENT AUDITORS."
RECORD DATE; PROXIES
The close of business on July 27, 1994 (the "Record Date") has been fixed
by the Phillips Board of Directors (the "Phillips Board") as the record date for
the determination of holders of Phillips Shares entitled to notice of and to
vote at the Phillips Meeting. At the close of business on the Record Date, there
were outstanding 4,114,352 Phillips Shares. Holders of record of Phillips Shares
are entitled to one vote per share on matters that come before the meeting,
except that cumulative voting rights may be exercised with respect to the
election of Directors as described in the following paragraph. Phillips
shareholders are not entitled to exercise dissenters' rights with respect to the
Merger. See "CERTAIN DIFFERENCES BETWEEN THE CORPORATION STATUTES OF DELAWARE
AND PENNSYLVANIA -- Appraisal or Dissenters Rights."
A shareholder wishing to exercise cumulative voting rights in the election
of Directors (Proposal 2) may multiply the number of shares which he or she is
entitled to vote by the total number of Directors to be elected (three) and may
distribute the total number of such votes among one or more nominees in such
proportion as he or she desires. The proxies shall have the discretionary
authority to vote cumulatively and to distribute such votes among the nominees
so as to assure the election of the nominees of the Board of Directors, except
such nominees as to whom a shareholder withholds authority to vote and except
where a shareholder has directed that votes be cast cumulatively by specific
instructions to the proxies.
Proxies in the form enclosed, if duly signed, marked and received in time
for voting, will be voted in accordance with the directions of the shareholders.
The giving of a Proxy does not preclude the right to vote in person should the
shareholder so desire.
VOTES REQUIRED
The affirmative vote of a majority of all Phillips Shares present in person
or by proxy, at the Phillips Meeting is required to adopt the Merger (including
the Amended Articles), the Incentive Plan and the Replacement Option Plan and to
approve the appointment of the auditors. The three nominees receiving the
highest number of votes will be elected directors.
As of the Record Date, Phillips' directors, executive officers and their
affiliates owned and were entitled to vote 590,679 shares at the Phillips
Meeting, representing 14% of the total number of outstanding Phillips Shares of
as of the Record Date. See "SECURITY OWNERSHIP -- Phillips -- Principal Holders
of Voting Securities."
SOLICITATION, VOTING AND REVOCATION OF PROXIES
The Board of Directors of Phillips by this Proxy Statement/Prospectus is
soliciting proxies in the accompanying form for use at the Phillips Meeting.
When proxies are returned properly executed, the shares represented thereby will
be voted in accordance with the shareholders' directions. Shareholders are urged
to specify their choices by marking the appropriate box on the enclosed proxy
card. IF NO CHOICE HAS BEEN SPECIFIED, THE SHARES WILL BE VOTED IN FAVOR OF THE
MERGER, the Incentive Plan, the Replacement Option Plan
23
<PAGE> 31
and approval of the auditors and for election of the nominated directors. A
shareholder may vote for, against or abstain from voting on, any matter as may
properly come before the meeting.
Under the Pennsylvania Business Corporation Law of 1988, as amended (the
"PBCL") and the Phillips Bylaws, the presence, in person or by proxy, of
shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast on a particular matter constitutes a quorum to
take action at a shareholders' meeting. Shares which are present, or represented
by a proxy, at the Phillips Meeting will be counted for quorum purposes
regardless of whether the holder of the shares or proxy fails to vote on a
matter ("abstentions") or whether a broker with discretionary authority fails to
exercise its discretionary authority to vote shares with respect to the matter
("broker non-votes"). For voting purposes, only shares voted for the adoption of
a proposal or the election of directors, and neither abstentions nor broker
non-votes, will be counted as voting in favor in determining whether a proposal
is approved or a director is elected by the holders of Phillips Shares. As a
consequence, abstentions and broker non-votes will have the same effect as votes
against adoption of a proposal or election of a director.
The expense of soliciting proxies for the Phillips Meeting will be paid by
Phillips. The solicitation will be made by the use of the mails and through
brokers and banking institutions and may also be made by officers and regular
employees of Phillips. Proxies may be solicited by personal interview, mail,
telephone and possibly by facsimile transmission. Expenses incurred in
connection with printing and mailing this Proxy Statement/Prospectus and related
filing fees will be shared equally with Momentum.
Shareholders who execute proxies retain the right to revoke them at any
time before they are voted. A proxy may be revoked by written notice to the
Corporate Secretary of Phillips at Suite 222 Fairway Corporate Center, 4350
Haddonfield Road, Pennsauken, NJ 08109; by submission of a proxy with a later
date; by a request in person to return the executed proxy; or by giving notice
to the Corporate Secretary of Phillips in open meeting, but such revocation
shall not affect any vote previously taken.
THE MOMENTUM STOCKHOLDERS MEETING
DATE, TIME AND PLACE
The Momentum Meeting will be held at 9:00 a.m. (P.D.T.) on Thursday,
September 1, 1994, in the Koll Center Conference Center, 2nd Floor, Koll Center
Bellevue, 500 -- 108th Avenue N.E., Bellevue, Washington.
MATTERS TO BE CONSIDERED
At the Momentum Meeting, stockholders of Momentum will consider and vote
upon a proposal to approve the Merger pursuant to which, among other things,
Momentum will be merged with and into Phillips. A copy of the Reorganization
Agreement and Plan of Merger are attached to this Proxy Statement/Prospectus as
Annexes A and B. Approval of the Merger by the stockholders of Momentum will
also constitute election to the PrimeSource Board of Directors of the directors
designated by Phillips and Momentum and the adoption of the Amended Articles and
Amended Bylaws attached as Annexes C and D. See "MANAGEMENT OF PRIMESOURCE" and
"PRIMESOURCE AMENDED AND RESTATED ARTICLES OF INCORPORATION AND BYLAWS."
RECORD DATE
Shareholders of record of Momentum at the close of business on July 25,
1994 will be entitled to notice of and to vote at the Momentum Meeting. At the
close of business on July 25, 1994, there were 3,437,912 Momentum Shares
outstanding. Holders of record of Momentum Shares are entitled to one vote per
share.
24
<PAGE> 32
VOTES REQUIRED
The affirmative vote of a majority of all Momentum Shares outstanding on
July 25, 1994 is required to adopt the Merger. A majority of the outstanding
shares present or represented at the meeting will constitute a quorum.
As of July 25, 1994, Momentum's directors, executive officers and their
affiliates owned and were entitled to vote 707,652 shares at the Momentum
Meeting, representing 20.6% of the total number of Momentum stockholder votes
necessary to adopt the Merger. See "SECURITY OWNERSHIP -- Momentum -- Principal
Holders of Voting Securities."
SOLICITATION, VOTING AND REVOCATION OF PROXIES
The Board of Directors of Momentum are by this Proxy Statement/Prospectus
soliciting proxies in the accompanying form for use at the Momentum Meeting.
When proxies are returned properly executed, the shares represented thereby will
be voted, and will be voted in accordance with the stockholders' directions.
Stockholders are urged to specify their choices by marking the appropriate box
on the enclosed proxy card. IF NO CHOICE HAS BEEN SPECIFIED, THE SHARES WILL BE
VOTED IN FAVOR OF ADOPTION OF THE MERGER. A stockholder may vote for, against or
abstain from voting on, any matter as may properly come before the meeting.
Under Delaware law, shares which abstain or constitute "broker non-votes" (i.e.,
shares held by a broker or nominee as to which a broker or nominee does not have
authority to vote on a particular matter) will be counted as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum but as not voted for purposes of determining the approval of any matter
submitted to the stockholders for a vote. Since the Merger must be approved by a
majority of the outstanding shares, both abstentions and broker non-votes will
have the practical effect of a vote against the Merger.
Stockholders who execute proxies retain the right to revoke them at any
time before they are voted. A proxy may be revoked by written notice to the
Corporate Secretary of Momentum at Koll Center Bellevue - Suite 1900,
500 - 108th Avenue, N.E., Bellevue, WA 98004; by submission of a proxy with a
later date; or by a request in person to return the executed proxy. The cost of
solicitation of proxies will be borne by Momentum.
PROPOSAL 1
THE MERGER
THE PARTIES
Phillips and Momentum are major distributors of a broad line of
photographic, graphics art and imaging supplies and equipment, an industry in
which both companies have been engaged for many years.
Momentum became a publicly-owned company on March 1, 1990 as a result of a
100% spin-off from VWR Corporation. Momentum previously was also engaged through
two subsidiaries as a converter and distributor of decorative fabrics, textile
products and supplies used in upholstery, transportation, furniture and bedding
industries. In 1993, the Momentum Board decided to concentrate on the graphics
business and sold the two textiles businesses. In April 1994, Momentum acquired
the assets of Gray, a major regional distributor of photographic and graphics
art supplies and equipment in Minnesota, Wisconsin, Iowa, North Dakota and South
Dakota.
Phillips became a publicly-owned company on August 1, 1993 as a result of a
100% spin-off from Tasty Baking Company ("TBC"). In November 1993, Phillips
acquired the operating assets of Jetcom, Inc., the largest distributor of
graphic arts supplies and equipment in the Cincinnati area, and combined it with
Phillips' existing Cincinnati branch office.
25
<PAGE> 33
BACKGROUND OF THE MERGER
Messrs. John H. Goddard and James F. Mullan, the chief executive officers
of Momentum and Phillips, respectively, have known each other for a number of
years. In August, 1993, while attending an industry trade group meeting, they
briefly exchanged views on the direction of the graphic arts industry and the
implications for the supply channel for products distributed by their respective
companies. After commenting on the strategic challenges of Phillips as a new
publicly-owned company, Mr. Goddard suggested meeting at some future time to
review alternative strategies that might solve both companies' future needs.
Following that meeting, during early September, Mr. Mullan called Mr.
Goddard on two occasions to further discuss this subject and to indicate his
interest in pursuing the discussions in greater depth. The parties agreed to
meet again.
On October 19, 1993, Messrs. Mullan and Goddard met and discussed the
potential strengths of a merger of Momentum and Phillips. Among the topics of
discussion were the potential reaction of manufacturers to a merger and the
anticipated development of the electronic prepress business in the industry. The
parties agreed to meet again to discuss prospective benefits of a merger.
Mr. Goddard briefed the Momentum executive committee (Messrs. Wiborg,
Engebrecht and MacLeod) on his discussions with Mr. Mullan. The executive
committee agreed that the subject should be reviewed in detail at the next board
of directors meeting. At the next regularly scheduled board of directors
meeting, November 30, 1993, Mr. Goddard led a discussion which considered
various growth alternatives for Momentum. The discussion included a review of
other prospective methods of expanding Momentum's operations and distribution
system. The board of directors concluded that Phillips was the best strategic
opportunity and directed Mr. Goddard to explore the possibility of a merger.
Messrs. Mullan and Goddard met briefly in Chicago on December 8, 1993. They
agreed to schedule a meeting for early January with key directors from each
company to discuss how a merger might be structured to address the needs of each
company.
At the Phillips Board of Directors meeting on December 17, 1993, Mr. Mullan
reported on his preliminary discussions with Mr. Goddard regarding the possible
combination of the two companies. The sales, net worth, net income, suppliers,
and commitment to electronics of Momentum were reviewed. The Phillips Board
authorized management to continue with discussions with Momentum to determine
whether both parties had sufficient interest in, and if there was a common basis
for, a combination of the two companies.
On January 5, 1994, Messrs. Richard Engebrecht, James Wiborg and Goddard,
as representatives of Momentum, met with Messrs. Mullan, William A. DeMarco
(Vice President of Finance), Nelson G. Harris and Fred C. Aldridge, Jr., as
representatives of Phillips, in Chicago, Illinois. The participants discussed
the philosophies of each company and the potential short and long term benefits
of a combination of the businesses and agreed that a merger of equals was the
most attractive structure. At that meeting, the parties agreed to hold further
discussions regarding the operating philosophies, management, suppliers and
strategic opportunities of each company and to prepare a proposed business plan
and projected financial statements for the combined entity.
On January 6, 1994, Mr. Goddard sent a draft non-disclosure agreement to
Mr. Mullan, and on January 18, 1994, Momentum and Phillips executed a revised
non-disclosure agreement.
Messrs. Mullan and Goddard met on January 16, 1994 to discuss the
organization and functional components of the combined company. The parties
continued their discussions on February 2, 1994 in Washington D.C., with the
topics including a discussion of organization and management responsibilities,
vendor commitments and expectations of each party. Mr. Goddard suggested that
Mr. Mullan become chief executive officer and that Mr. Engebrecht serve as
chairman.
On February 9, 1994, Mr. Goddard and Ms. Nadine Adams, Controller of
Momentum, met with Mr. Mullan and Mr. DeMarco to develop internal financial
projections to assist the respective parties in
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evaluating the merger. Mr. Goddard presented draft projections at the meeting
that the parties refined and revised after discussion.
At its regularly scheduled board meeting on February 18, 1994, the Phillips
Board was apprised by Mr. Mullan of the status of the negotiations with Momentum
and Mr. Mullan's perspective on the possible combination of the companies. The
Board authorized management to continue discussions of a possible merger with
Momentum and to retain an investment banker or consultant to advise Phillips on
structuring a potential transaction and the appropriate share exchange ratio.
At a regularly scheduled board meeting on February 22, 1994, Mr. Goddard
provided the Momentum Board with a detailed description of the prospective
merger. After extensive discussion, the board of directors authorized management
to proceed with negotiations and appointed Mr. Wiborg as Momentum's consultant
to lead, together with Messrs. Goddard and Engebrecht, the negotiating effort.
On March 11, 1994, Messrs. Goddard, Wiborg and Engebrecht met with Messrs.
Mullan, Harris and Aldridge in Chicago to discuss the structure of the
transaction and, for the first time, the exchange ratios for their respective
shareholders. The parties tentatively agreed to merge Momentum and Phillips into
a new company, with each company operating as a division of the combined
company. The Exchange Ratio was negotiated based primarily on earnings
contributions and dividend payment ability of each company, their respective
book values, market values of each company, and the impact of the proposed
merger on the shareholders of each company. After exchanging their respective
views on the proposals made by each, the parties eventually agreed upon the
Exchange Ratio of .71 subject to the receipt of fairness opinions by both
companies and the approval of their respective boards of directors. Each
outstanding Phillips Share would continue as one PrimeSource Share. The parties
also tentatively agreed that the PrimeSource board of directors would consist of
twelve members with six being chosen by each company and agreed on the
respective positions of Mr. Engebrecht as Chairman, Mr. Philip J. Baur, Jr. as
Vice Chairman, Mr. Mullan as President and Chief Executive Officer, and Mr.
Goddard as Executive Vice President.
On March 17, 1994, Phillips and Momentum signed an Agreement in Principle
that provided that the companies would negotiate in good faith a combination
that would result in Momentum's stockholders receiving in exchange for each
Momentum Share .71 PrimeSource Shares, with Phillips' shareholders retaining one
PrimeSource Share for each Phillips Share. The Agreement in Principle also set
forth certain basic conditions to be satisfied, including approval of each
party's board of directors, execution of definitive agreements, completion of
due diligence by each party, receipt by each party of an opinion as to the
fairness of the transaction, compliance with regulatory requirements and
approval by shareholders of both companies.
In the weeks following execution of the Agreement in Principle, the parties
and their legal counsel met numerous times in person and by conference call to
draft the definitive merger agreement, and revised articles of incorporation and
bylaws, as well as to finalize the structure of the transaction.
Special Meetings of the Boards of Directors for Momentum and Phillips were
each held on May 23 and again on May 27, 1994. On May 23, 1994, each of the
Boards received a fairness opinion from their respective financial advisors
concluding that the consideration to be exchanged in the Merger is fair, from a
financial point of view, to the respective shareholders of each company. See
"PROPOSAL 1 -- THE MERGER -- Opinion of Phillips Financial Advisor," -- "Opinion
of Momentum Financial Advisor," "-- Certain Federal Income Tax Consequences" and
Annexes E and G. On May 27, 1994, the board of directors of each company
unanimously approved the Merger. On that day, Momentum and Phillips executed the
Reorganization Agreement and issued a press release announcing the execution.
REASONS FOR THE MERGER -- GENERAL
The merger of Momentum and Phillips will create a major national
distributor of a broad line of traditional supplies and equipment and state of
the art electronic prepress systems to the graphic arts, commercial printing and
publishing and allied trades in the United States. Momentum has 17 distribution
facilities located primarily in the western, midwestern and southern regions of
the United States. Phillips has 16 distribution facilities located primarily in
the eastern and southern regions of the United States. With the
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exception of Cincinnati, Pennsauken, N. J. (Philadelphia), Atlanta, Miami and
Dallas, where each company presently has a facility, the geographic areas served
by these facilities do not overlap significantly, and collectively they
encompass 28 different metropolitan areas. Based on anticipated annual revenues,
PrimeSource will be one of the largest distributors in its industry in the
United States. The map below shows the current distribution facilities of
Momentum and Phillips.
[MAP]
Management of both companies believes that PrimeSource's size, the
geographic coverage of its distribution facilities and the breadth of its
product lines will enhance both customer and supplier relationships. Customers
with multiple locations in the United States in the past have had limited
choices if they desired to purchase all of their needs from one supplier. By
doubling its number of branch locations, the combined company will be able to
compete effectively for the growing national account business.
The geographic coverage of the combined entity also may create
opportunities for PrimeSource to serve as a national dealer for nontraditional
hardware and software manufacturers of imaging systems. Management of both
companies believes that manufacturers seeking more efficient distribution
channels in order to reduce their operating costs are likely to turn to the
largest distributors. After the Merger both companies will continue to operate
as separate divisions of PrimeSource in order to build on the entrepreneurial
spirit of each group of employees and to preserve the important supplier
relationships of each company. Presently, either or both companies serve as
dealers for Agfa, Anitec, Apple, Day, DuPont, Eastman Kodak, Fuji, Hamada,
Hoechst Celanese, KBA Planeta, Omni, Reeves, Ryobi, 3M, and Xerox. These
suppliers are the largest manufacturers of graphic art supplies and equipment
for distribution in the United States. Management of both companies believes
that the combination of Momentum and Phillips will enhance their ability to
develop stronger relationships with manufacturers.
The Merger also will permit Momentum and Phillips to combine their high
technology businesses, which market technologically-advanced graphic
arts-related equipment such as electronic prepress systems, electronic imaging
setting equipment, desk top publishing equipment and related software.
Management of the two companies believes that high-technology hardware,
software, and services is the fastest growing product sector of the graphic arts
industry. Both companies enjoy good relationships with manufacturers of high-
technology hardware and software and have well-trained, experienced sales
people.
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REASONS FOR THE MERGER -- PHILLIPS
At its meeting on May 27, 1994, the Board of Directors of Phillips
determined that the Merger and the Reorganization Agreement are fair to, and in
the best interests of, Phillips, its employees and its shareholders. In reaching
its determination, the Phillips Board consulted with the management of Phillips,
as well as its financial and legal advisors, and considered a number of factors,
including the following:
(a) the effectiveness of the Merger in implementing and accelerating
Phillips' strategy for increasing market share and long-term growth;
(b) the Phillips Board's review, based in part on a presentation by
Phillips' management, financial advisor, independent auditors and legal
counsel, regarding (i) the due diligence review of Momentum, including the
business, operations, earnings, asset quality, financial condition and
management philosophy of Momentum on a historical, prospective and pro
forma basis, (ii) product compatibility, the comparability of corporate
goals and the respective contributions the parties would bring to a
combined entity, (iii) the enhanced opportunities for growth that the
Merger makes possible as a result of the greater capitalization of the
combined entity, and (iv) the enhanced opportunities for limited cost
savings and synergies, such as the ability of the combined entity to
attract national accounts, consolidate purchasing and pool resources to
develop more technology business, that are expected to result from the
Merger;
(c) the terms of the Reorganization Agreement, the Plan of Merger and
the other documents to be executed in connection with the Merger;
(d) the opinion of Berwind Financial Group, Inc., discussed elsewhere
in this Proxy Statement/Prospectus, that as of May 23, 1994, the Merger was
fair from a financial point of view to the shareholders of Phillips;
(e) Phillips' long-term strategy of expanding its operations across
the midwestern and western regions of the United States;
(f) the expectation that the Merger will be tax-free for federal
income tax purposes to Phillips and its shareholders;
(g) the opportunity that the Merger provides to strengthen and deepen
the management team of the combined entity by integrating the already
strong management teams at both Phillips and Momentum;
(h) the ability of the combined entity, by virtue of its size, to
compete more effectively in the increasingly competitive graphic arts
equipment and supply business, particularly with respect to large national
accounts, and to strengthen relationships with manufacturers;
(i) the significant investment in management information systems,
applications, technical personnel and telemarketing programs which Momentum
has made during the past three years; and
(j) the ability to combine the strength of each company in the
electronics sector of the business to drive growth and create a
substantially new business.
The Phillips Board determined that the Merger would better serve Phillips'
basic business strategy than expansion through internal growth and/or
acquisitions. In particular, the Board considered that a national dealership
would be achieved through the Merger without the burden of acquisition debt. The
projected book value of Phillips Shares would increase by approximately 50%,
improving the combined company's ability to raise capital for future needs.
The Phillips Board determined that the Merger would best advance Phillips'
strategic plan because of its belief that the Merger combines two financially
sound companies with complementary businesses and business strategies, thereby
creating a combined company with greater size, flexibility, breadth of products
and services, efficiency, capital strength and profitability than Phillips would
possess on a stand-alone basis. The Phillips Board believes that the distinct
management cultures of Phillips and Momentum can be blended for the mutual
benefit of both companies. Each company possesses distinct but complementary
business strengths.
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The opportunity and challenge of the Merger is for management to facilitate and
assure that each company learns from and takes advantage of the managerial
strengths, experience and overall resources of the other company to improve
performance, customer service and profitability of the combined enterprise. In
addition, the capitalization of the combined company will allow it to take
advantage of future acquisition opportunities which otherwise might not be
available to either entity individually.
The Phillips Board did not assign any specific or relative weight to the
foregoing factors in the course of its consideration.
REASONS FOR THE MERGER -- MOMENTUM
In reaching its decision that the Merger and Reorganization Agreement are
fair to, and in the best interest of, Momentum, its employees and its
stockholders, the Momentum Board of Directors (the "Momentum Board") consulted
with Momentum management, as well as its financial and legal advisors, and
considered a number of factors, including the following:
(a) the effectiveness of the Merger in bringing Momentum much closer
to realizing its goal of becoming the leading value-added and value growth
dealer for graphic arts supplies, the pressroom, and electronic prepress
systems;
(b) the addition of 11 new locations primarily in the eastern and
southern states and the strengthening of 5 existing locations which should
better position PrimeSource to become the preferred supplier for national,
multi-location accounts, an increasingly important market segment;
(c) the knowledge and experience of Phillips, a well-managed company
with a history of strong earnings and a favorable dividend policy, which
will complement Momentum's strong balance sheet and better position
PrimeSource to achieve its corporate purpose of maximizing growth in
shareholder value;
(d) the combined resources of the two companies which should form the
necessary critical mass for efficient positioning as a supplier and systems
integrator for the rapidly growing emerging electronic prepress systems
market;
(e) the enhanced opportunities for cost savings and synergies that are
expected to result from the Merger;
(f) the opportunity that the Merger provides to strengthen and deepen
the management team of the combined entity by integrating the already
strong management teams at both Phillips and Momentum;
(g) the presentation by Momentum management and legal counsel
regarding its due diligence review of Phillips, including the business,
operations, earnings, financial condition and performance, regulatory
compliance, and operations of Phillips;
(h) the terms of the Reorganization Agreement, the Plan of Merger and
other documents to be executed in connection with the Merger;
(i) the opinion of Piper Jaffray Inc., discussed elsewhere in this
Proxy Statement/Prospectus, that, as of May 23, 1994, the consideration
proposed to be received by Momentum stockholders in the Merger was fair
from a financial point of view to the stockholders of Momentum;
(j) the expectation that the Merger would be tax-free for federal
income tax purposes to Momentum and its stockholders (other than in respect
to cash paid in lieu of fractional shares); and
(k) the current and prospective economic environment facing graphic
arts suppliers in general and Momentum in particular.
The Momentum Board did not assign any specific or relative weights to the
foregoing factors in the course of its consideration.
The Momentum Board determined that the Merger, on a more timely basis and
with less risk, would facilitate Momentum in reaching its goal of becoming the
leading value-added and value growth dealer in the
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industry. The Board recognized that consolidation is accelerating in the graphic
arts industry due to several factors including the growing importance of
electronic printing and equipment and decreased sales of film and other
traditional supplies. Mergers and other restructurings are inevitable as graphic
arts dealers will seek to increase operating efficiencies, provide national
geographic coverage for customers and manufacturers, and make long-term capital
investments required to compete as suppliers and integrators of electronic
prepress systems. The Board concluded that the Merger was clearly preferable to
the alternatives of internal growth and/or smaller acquisitions which carry the
implicit risks of delay in a fast moving and changing market, possibly greater
difficulties in integrating multiple systems and cultures and more possibility
for errors in the selection, pricing and closing of multiple acquisitions.
The Momentum Board also determined that the Merger would also have
significant long-term and immediate benefits to the Momentum stockholders by
combining Momentum's strong balance sheet with Phillips' history of strong
earnings and a favorable dividend policy. PrimeSource is expected to continue
the Phillips dividend policy subject to periodic review by the PrimeSource Board
of Directors.
OPINION OF PHILLIPS FINANCIAL ADVISOR
Background. After management had interviewed five firms for the position of
financial advisor/valuation consultant, management and a special committee of
the Phillips Board consisting of Messrs. Fred C. Aldridge, Jr., Myron S.
Gelbach, Jr., and Nelson G. Harris recommended to the Phillips Board that
Berwind Financial Group, Inc. ("Berwind"), be engaged to advise as to the
fairness to the Phillips shareholders, from a financial point of view, of the
proposed merger with Momentum. The Phillips Board approved the engagement of
Berwind and a letter agreement was executed April 28, 1994 (the "Letter
Agreement").
Berwind, as part of its investment banking business, regularly is engaged
in the valuation of assets, securities and companies in connection with various
types of asset and security transactions, including mergers, acquisitions,
private placements, and valuations for various other purposes and in the
determination of adequate consideration in such transactions.
Fairness Opinion. On May 27, 1994, at the meeting at which the Phillips
Board approved the Reorganization Agreement, Berwind delivered its fairness
opinion to the Phillips Board that, as of May 23, 1994, the Merger was fair to
the Phillips shareholders from a financial point of view. Berwind's opinion is
directed to the Phillips Board only and addresses only the proposed Merger and
does not constitute a recommendation to any Phillips shareholder as to how such
shareholder should vote at the Phillips Meeting. Furthermore, Berwind was not
requested to, nor did it, make any recommendation to the Phillips Board as to
the form or amount of consideration to be received, which was determined through
negotiation directly between Phillips and Momentum. Berwind subsequently updated
and reissued its opinion by letter dated August 5, 1994. Phillips shareholders
are urged to read carefully the full text of Berwind's opinion, a copy of which
is attached as Annex E to this Proxy Statement/Prospectus and is incorporated
herein by reference.
In arriving at its opinion, Berwind considered the following factors, among
others: (i) the operating histories and management of Phillips and Momentum;
(ii) the nature of business operated by Phillips and Momentum, and the future
prospects for PrimeSource; (iii) the historical and current operating results of
Phillips and Momentum and the factors affecting these results; (iv) the
historical and current financial condition of Phillips and Momentum; (v) the
historical and current earnings per share and dividend payments of Phillips and
Momentum; (vi) the projected earnings per share and dividend payments of
PrimeSource; (vii) the projected operating results of Phillips and Momentum as
stand-alone entities for the years ending 1994 through 1998 prepared by Phillips
and Momentum management, respectively; (viii) projected operating results of
PrimeSource for the years 1994 through 1998 prepared collectively by Phillips
and Momentum management; (ix) price-to-earnings ratios and future growth
prospects of other publicly-traded distribution companies; (x) available
information on Momentum's acquisition of Gray; (xi) the historical stock price
and trading volume of Phillips Shares and Momentum Shares; (xii) conditions in
the general economy and the industry in which Phillips and Momentum operate; and
(xiii) the financial terms and conditions of the proposed Merger. In addition,
Berwind reviewed data of publicly-owned companies and data with respect to
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sales and acquisitions of publicly-owned companies. Due to the lack of
comparability, this data was deemed inappropriate for Berwind's analysis.
Berwind made no independent verification of the financial and operating
data supplied by Phillips and Momentum management, including but not limited to
internal and audited financial statements and projected data for the years 1994
through 1998 for Phillips, Momentum and PrimeSource, and has accepted the
information as presented. Berwind's opinion is based upon market, economic,
financial and other conditions as they exist and can be evaluated as of August
5, 1994 and speaks to no other time period. Berwind has assumed and relied upon
the accuracy and completeness of the publicly available information reviewed by
Berwind and the information provided to Berwind by Phillips and Momentum
management without independent investigation. With respect to financial
projections, Berwind has assumed, for purposes of its opinion, that they have
been reasonably prepared by Phillips and Momentum management on bases reflecting
the best currently available estimates and judgments of the future financial
performance of Phillips, Momentum and PrimeSource.
A summary of Berwind's financial analysis is set forth below.
- Berwind analyzed the historical and projected earnings per share of
Phillips on a stand-alone basis, without consideration to the proposed
Merger, and compared Phillips' stand-alone projected earnings per share to
the projected pro forma earnings per share of PrimeSource. This comparison
illustrated that for the year ending 1994 Phillips shareholders would
experience dilution in earnings per share on a pro forma basis. However, in
the aggregate for the years 1994 through 1998, this comparison illustrated
that on a projected basis Phillips shareholders would experience increases
in earnings per share over and above its stand-alone projected earnings per
share for the same period.
- For the year 1993, Berwind compared the relative pro forma
ownership contribution of Phillips and Momentum if the proposed Merger were
to be consummated. This comparison illustrated that from a balance sheet
(book value) perspective, Phillips was contributing to PrimeSource
approximately 53% of the working capital, 45% of the total assets and 38%
of the shareholders' equity. From an income statement perspective, Phillips
was contributing approximately 51% of the net sales, 73% of the earnings
before depreciation, interest and taxes, 105% of the earnings before
interest and taxes and 135% of the net income.
- Using a discounted cash flow analysis, Berwind estimated the
present value of the future cash flow streams that Phillips and Momentum
management projected for each company, respectively, and compared those
results to the estimated present value of the future cash flow streams that
Phillips and Momentum management projected for PrimeSource. The cash flow
streams for Phillips, Momentum and PrimeSource each comprised five years of
projected data and a terminal year value. The five year cash flow streams
and terminal year values for Phillips, Momentum, and PrimeSource were
discounted to the present utilizing discount rates ranging from 11% to 13%,
14% to 16% and 13% to 15%, respectively, to reflect different assumptions
regarding the required rates of return by holders or prospective buyers of
Phillips, Momentum and PrimeSource's common equity. Berwind noted that the
discounted cash flow analysis was included because it is a widely used
valuation methodology, but noted that it relies on numerous assumptions
which may or may not be realized, including earnings growth rates, terminal
values and discount rates.
- As of the date of Berwind's fairness opinion, there were no
publicly-traded companies, other than Phillips and Momentum, that were
directly comparable in terms of line of business to Phillips, Momentum and
PrimeSource. Berwind deemed it unnecessary to utilize financial data of
other public companies which were considered not to be comparable in terms
of line of business. Therefore, Berwind did not perform a comparable
company analysis. However, Berwind deemed it appropriate to consider
price-to-earnings data of other publicly-traded distribution companies for
the current fiscal year and next fiscal year. These publicly-owned
distribution companies were selected based upon similar operating and
financial characteristics. In particular, Berwind considered
price-to-earnings data for the following publicly-owned distribution
companies: D&K Wholesale Drug, Inc.; GBC Technologies, Inc.; Guest Supply,
Inc.; Kent Electronics Corp.; Lawson Products, Inc.; LESCO, Inc.; The Peak
Technologies
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Group, Inc.; Richardson Electronics Ltd.; Sullivan Dental Products, Inc.
and Vallen Corp. The mean and median price-to-earnings ratios for the
latest twelve months were 19 and 21, respectively. The mean and median
price-to-earnings ratios for the current fiscal year was 18, and the mean
and median price-to-earnings ratio for the next fiscal year was 13.
- As of the date of Berwind's fairness opinion, Berwind determined
that there were no sales or acquisitions of comparable public companies in
terms of line of business to Phillips, Momentum and PrimeSource which could
be utilized for Berwind's analysis. However, Berwind determined that the
Momentum acquisition of Gray, a non-public company, was the only comparable
transaction appropriate to consider. Based upon the purchase price and
liabilities assumed, transaction multiples for earnings before
depreciation, interest and taxes ("EBDIT") and for earnings before interest
and taxes ("EBIT") were calculated and applied to Phillips and Momentum's
latest twelve months EBDIT and EBIT. The EBDIT and EBIT transaction
multiples derived from the Gray transaction were 8 and 11.5, respectively.
Although the summary set forth above describes all the material provisions
of the analysis performed by Berwind, it is not intended to be a complete
description of all the analyses performed by Berwind. The preparation of a
fairness opinion is not necessarily susceptible to partial analysis or summary
description. Berwind believes that its analyses and the summary set forth above
must be considered as a whole and that selecting portions of the analyses,
without considering all factors and analyses, would create an incomplete view of
the processes underlying the analyses set forth in Berwind's opinion and
presentation to the Phillips Board. Additionally, in performing its analyses,
Berwind made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters many of which are beyond the
control of Phillips or Momentum. The analyses performed by Berwind are not
necessarily indicative of actual value or actual future results, which may be
significantly more or less favorable than suggested by the analyses. Such
analyses were prepared solely as part of Berwind's review of the fairness from a
financial point of view of the Merger to Phillips' shareholders. The analyses do
not purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future. In addition, Berwind's opinion to Phillips
was one of many factors taken into consideration by the Phillips Board in making
its determination to approve the Merger. There were no instructions of any kind
imposed by Phillips which would have impaired Berwind's independence.
Furthermore, no limitations were imposed by Phillips upon Berwind with respect
to the investigations made or procedures followed by Berwind in rendering its
opinion.
Compensation of Berwind. Pursuant to the Letter Agreement, Phillips agreed
to pay Berwind for its services, including the rendering of a fairness opinion,
a fee which totals $80,000, of which amount $15,000 is due upon consummation of
the Merger, plus reimbursement of out-of-pocket expenses, which are estimated to
be $4,000. The Letter Agreement also provides that Phillips will indemnify
Berwind and its affiliates and their respective employees and agents against any
claims, expenses or liabilities which Berwind may incur or to which it may
become subject in connection with the services it provided to Phillips under the
Letter Agreement, excluding however, any such claims, expenses or liabilities to
the extent a court determines such were attributable in a material part to the
misfeasance or negligence of Berwind.
OPINION OF MOMENTUM FINANCIAL ADVISOR
Background. Piper Jaffray Inc. ("Piper Jaffray") was retained by the
Momentum Board in April 1994 to render its opinion regarding the fairness, from
a financial point of view, of the consideration proposed to be received by the
stockholders of Momentum in the Merger contemplated by the Reorganization
Agreement and Plan of Merger. Piper Jaffray, as a customary part of its
investment banking business, is engaged in the evaluation of businesses and
their securities in connection with mergers and acquisitions, underwriting and
secondary distributions of securities, private placements and evaluations for
estate, corporate and other purposes. Momentum management interviewed several
investment bankers and recommended that the Board select Piper Jaffray because
of its expertise and reputation.
Piper Jaffray delivered to the Momentum directors on May 23, 1994, its
written opinion (the "Opinion") to the Momentum Board, to the effect that, as of
the date of the Opinion and based on and subject to the
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assumptions, factors and limitations set forth in the Opinion and as described
below, the consideration proposed to be received by the stockholders of Momentum
in the Merger is fair, from a financial point of view, to the stockholders of
Momentum. The Opinion was subsequently reaffirmed by issuance to the Momentum
Board of a Piper Jaffray opinion dated August 4, 1994 (the "Updated Opinion"
and, together with the "Opinion", collectively the "Opinions"). A copy of Piper
Jaffray's Updated Opinion letter is attached to this Proxy Statement/Prospectus
as Annex G and is incorporated herein by reference. The stockholders of Momentum
are urged to read such Updated Opinion in its entirety.
Piper Jaffray was not requested to and did not make any recommendation to
the Momentum Board as to the form or amount of the consideration to be received
by the stockholders of Momentum in the Merger, which was determined through
negotiations between Phillips and Momentum. The Opinions of Piper Jaffray are
directed to the Momentum Board only and do not constitute a recommendation to
any Momentum stockholder as to how such stockholder should vote at the Momentum
Meeting. Piper Jaffray was not requested to opine as to, and its Opinions do not
address, Momentum's underlying business decision to proceed with or effect the
Merger.
In arriving at its Opinions, Piper Jaffray reviewed, among other things,
(i) the Reorganization Agreement and form of Plan of Merger; (ii) publicly
available information relative to Momentum; (iii) certain audited consolidated
financial statements for Gray; (iv) certain internal financial planning
information of Momentum furnished by management of Momentum; (v) certain
financial and securities data of Momentum and companies deemed similar to
Momentum or representative of the business sector in which Momentum operates;
(vi) to the extent publicly available, the financial terms of certain
acquisition transactions involving characteristics deemed similar to the Merger,
(vii) publicly available information relative to Phillips; (viii) certain
internal financial planning information of Phillips furnished by Phillips
management; (ix) certain internal financial planning information of PrimeSource
after the Merger furnished by the management of Phillips and Momentum; and (x)
certain financial and securities data of Phillips and companies deemed similar
to Phillips or representative of the business sector in which Phillips operates.
In addition, Piper Jaffray engaged in discussions with members of management of
Phillips and Momentum concerning their respective financial condition, current
operating results and business outlook, including potential operating
efficiencies and synergies which may arise from the Merger. Piper Jaffray also
visited the headquarters of each of Phillips and Momentum.
In delivering its Opinion to the Momentum Board on May 23, 1994, Piper
Jaffray prepared and delivered to the Momentum Board certain written materials
containing various valuation analyses and other information material to its
Opinion. The following is a summary of these materials.
Stock Price and Exchange Ratio Analyses. Piper Jaffray reviewed the stock
trading history of each of Phillips and Momentum. Piper Jaffray presented the
following stock price data relative to the specified periods before and after
announcement of the proposed Merger:
<TABLE>
<CAPTION>
MOMENTUM PHILLIPS
-------- --------
<S> <C> <C>
May 18, 1994 (last practicable date prior to
presentation).......................................... $ 7.88 $ 11.50
30 trading days pre-announcement average
(2/3/94-3/17/94)....................................... $ 9.05 $ 11.71
60 trading days pre-announcement (12/22/93-3/17/94)
average............................................. $ 8.72 $ 11.07
high................................................ $13.25 $ 12.75
low................................................. $ 7.75 $ 10.00
Trading day post-announcement (3/18/94-5/18/94)
average............................................. $ 8.68 $ 11.85
high................................................ $11.50 $ 13.25
low................................................. $ 7.75 $ 10.875
</TABLE>
Piper Jaffray noted that consideration was given to the 30 and 60 trading
day averages prior to announcement of the Merger, as these averages adjust for
the relatively large increase in Momentum's share price experienced during the
week prior to announcement. Momentum's closing share price on March 17,
34
<PAGE> 42
1994, the day prior to announcement, was $13.00. Based on the Exchange Ratio,
Piper Jaffray calculated an implied purchase price per Momentum Share of $8.17
based on the last reported sale price of Phillips Shares on May 18, 1994 of
$11.50 per share. Piper Jaffray noted that this price was $.88 below and $.56
below the 30 and 60 trading day averages, respectively, for Momentum Shares
prior to announcement of the Merger.
Piper Jaffray also presented relative stock price performance data for each
of Momentum and Phillips against certain indices and the Comparable Groups
described below under "Comparable Company Analysis". For the period from
announcement of the Merger to May 18, 1994, Piper Jaffray observed a 9.7%
decrease in the price of Momentum Shares (using the 60 trading day
pre-announcement average of $8.73), compared to a 7.1% decrease in the price of
Phillips Shares and a 10.1%, 3.4%, 10.2%, 23.6%, and 15.6% decrease for,
respectively, the S&P Midcap Industrials Index, Dow Jones Industrial 30, NASDAQ
Composite Index, Computer Distributor Comparable Group and Electronics
Distributor Comparable Group.
Giving effect to the Exchange Ratio and the outstanding capital stock and
options of each company, Piper Jaffray calculated that an aggregate of 2,484,202
Phillips Shares would be issued or reserved for issuance to Momentum
securityholders as a result of the Merger. Based on the share price of Phillips
and Momentum on May 18, 1994, this amount represented 37.65% of the capital
stock, warrants and options of PrimeSource outstanding or reserved for issuance
immediately following the Merger. Piper Jaffray compared this pro forma
ownership to the relative historical value of the two companies based on market
capitalization at May 18, 1994 or for pre-and post-announcement periods
indicated as follows:
<TABLE>
<CAPTION>
MOMENTUM
--------
<S> <C>
May 18, 1994 stock price.......................................... 36.80%
30 trading days pre-announcement average.......................... 39.65%
60 trading days pre-announcement average.......................... 40.13%
Trading day post-announcement average (3/18/94-5/18/94)........... 38.38%
Indicated pro forma ownership..................................... 37.65%
</TABLE>
Dilution Analysis. Piper Jaffray used the respective stand-alone internal
financial planning data of Momentum and Phillips for the years ending December
31, 1994 and 1995 and the anticipated combined results of the two companies as
PrimeSource, with and without estimated synergies anticipated by management of
PrimeSource, to evaluate the relative performance of PrimeSource as a single
entity. Piper Jaffray noted that in comparing the anticipated earnings of
PrimeSource following the Merger on a pro forma equivalent share basis to the
anticipated per share earnings of Momentum as a stand-alone entity during the
period analyzed, the Merger would be accretive on an earnings per share basis to
stockholders of Momentum. Piper Jaffray assessed the impact of the Merger with
and without giving effect to anticipated synergies arising from the Merger and
found the Merger to be accretive on a pro forma equivalent per share basis to
Momentum shareholders in either case.
Contribution Analysis. Piper Jaffray analyzed the expected contributions of
each of Momentum and Phillips to PrimeSource based on certain operating data
derived from each company's stand-alone historical financial data and internal
financial planning data and compared these expected contributions to the
indicated pro forma ownership of PrimeSource by Momentum securityholders. This
analysis indicated the following percentage contribution by Momentum to (i) the
indicated income statement item for each of the years in the three-year period
ending December 31, 1995: net income (40%), 27.8%, 37.6%; operating income
(8.2%), 32.4%, 40.8%; gross profit 48.2%, 49.2%, 50.7%; and net sales 49.0%,
47.9%, 49.6%; and (ii) the indicated balance sheet item at March 31, 1994:
tangible book value 56.3%; and stockholders' equity 61.6%. This compared to an
indicated pro forma ownership of PrimeSource by former Momentum securityholders
of 37.65%. Piper Jaffray observed that in its view net income and operating
income were relatively more important indicators of relative value of the two
companies.
Discounted Cash Flow Analysis. Piper Jaffray performed a discounted cash
flow analysis for PrimeSource on a pro forma basis using the internal financial
planning data for PrimeSource giving effect to synergies anticipated by
management of PrimeSource and applying a range of terminal value multiples of
6.0x to 9.0x forecast 1998 earnings before interest and taxes and a range of
discount rates of 10% to 16%. Based on
35
<PAGE> 43
the Exchange Ratio, this analysis indicated per share present values of
estimated future cash flows of PrimeSource on an equivalent share basis to
former Momentum stockholders equal to or in excess of the 30 and 60 trading day
pre-announcement averages for Momentum Shares.
Comparable Company Analysis. Piper Jaffray compared certain financial
information relating to Momentum and Phillips to corresponding data and ratios
from a group of selected publicly traded companies deemed comparable to Momentum
and Phillips (the "Comparable Companies" or "Comparable Company"). Piper Jaffray
noted that Momentum and Phillips were the only two publicly traded graphic arts
distributors in the United States. Accordingly, the Comparable Companies were
selected based on a similar business focus of product distribution in niche
industries and operating characteristics believed by Piper Jaffray to be
comparable to those of Momentum and Phillips including margins, distribution
systems and customer and supplier relationships. Piper Jaffray divided these
Comparable Companies into three groups: Printing Product Distributors (Alco
Standard Corp. and United Stationers Supply Co.), Electronic Component
Distributors (Arrow Electronics, Inc., Avnet Inc., Bell Industries Inc.,
Marshall Industries, Milgray Electronics Inc., Pioneer-Standard Electronics,
Inc. and Sterling Electronics Corp.) and Computer Product Distributors (Bell
Microproducts Inc., Gates/FA Distributing Inc., Intelligent Electronics, Inc.,
Liuski International, Inc., Merisel Inc., Software Spectrum Inc. and Tech Data
Corp.)
Piper Jaffray presented the following operating and valuation ratios for
Momentum, Phillips and the Comparable Companies:
<TABLE>
<CAPTION>
COMPUTER PRODUCT ELECTRONIC
COMPONENT PRINTING PRODUCT
DISTRIBUTORS DISTRIBUTORS DISTRIBUTORS
----------------- ----------------- ---------------------
MOMENTUM PHILLIPS MEAN MEDIAN MEAN MEDIAN MEAN MEDIAN
-------- -------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Gross Margin(1)......................... 19.4 % 19.6% 9.5% 8.9 % 21.7% 21.4 % 24.5% 24.5%
Operating Margin(1)..................... NM %* 3.9% 3.1% 3.6 % 5.8% 5.4 % 3.1% 3.1%
Net Margin(1)........................... NM % 2.3% 1.7% 1.9 % 3.1% 3.1 % 1.5% 1.5%
Revenue Growth(2)....................... 9.5 % 5.2% 46.6% 39.5 % 21.8% 17.5 % 21.9% 21.9%
EPS Growth(2)........................... (21.3 )% 11.7% 74.8% 38.2 % 62.2% 17.6 % 34.0% 34.0%
SELECTED VALUATION DATA:
Company Value LTM
Revenue(3).............................. 0.32 x 0.37x 0.30x 0.23 x 0.48x 0.49 x 0.41x 0.41x
P/E Ratios:
LTM................................... NM 12.2x 15.2x 15.7 x 12.6x 13.3 x 11.4x 11.4x
Fiscal 1994 Estimated(4).............. NM 11.0 12.8 12.4 13.0 12.8 15.6 15.6
1994 Calendar(4)...................... NM 11.0 11.3 12.4 13.0 12.1 14.6 14.6
Company Value/LTM
Operating Income........................ NM 9.43x 9.39x 9.87 x 8.37x 8.40 x 13.19x 13.19x
Market Capitalization
(in Millions)........................... $27.1 $47.3 $290.2 $117.6 $492.7 $254.5 $1,664.6 $1,664.6
</TABLE>
- ---------------
* NM signifies not meaningful.
(1) Latest twelve month ("LTM") results.
(2) Two-Year Compound Annual Growth Rate for fiscal 1991 to fiscal 1993.
(3) "Company Value" is market value of common equity plus debt and preferred
stock less cash.
(4) Based on estimates provided by IBES, a financial information service.
Comparable Transaction Analysis. Piper Jaffray noted that no comparable
merger and acquisition transactions were found within the SIC Codes which were
deemed representative of the industry segments in which Momentum and Phillips
operate. Based on publicly available data, Piper Jaffray selected seven "merger
of equals" transactions with the following characteristics which Piper Jaffray
deemed materially similar to the Merger: (i) a stock for stock exchange, (ii)
the market value of the target was 50% to 100% of the market value of the
acquirer, (iii) completed after January 1, 1990, (iv) valued in excess of $10
million, and (v) involved a post-merger board of directors in which
approximately equal numbers of directors were from the acquirer and the target.
These transactions included the Society Corp./KeyCorp merger; Costco
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<PAGE> 44
Wholesale Corp./Price Co. merger; Medical Care International Inc./Critical Care
America Inc. merger; Scios Inc./Nova Pharmaceutical Corp. merger; Tristate
Bancorp/First Savings Bancorp merger; Iowa Resources/Midwest Energy Co. merger;
and Planters Corp./Peoples Bancorp merger. The party to these transactions which
provided the chief executive officer was deemed to be the buyer in the
transaction. Based on the relative closing prices of the seller and buyer stock
four weeks prior to announcement of each transaction and the exchange ratio in
each transaction, Piper Jaffray calculated an implied percentage premium
(discount) of the exchange ratio in the transaction to be received by the seller
in these transactions. This analysis produced a range of premium (discount) of
26.8% to (18.8)%, with a mean of (1.6%) and a median of (2.3%). This compared to
a (7.8%) discount for the proposed Merger based on the Exchange Ratio.
No company or transaction used in any comparable analysis as a comparison
is identical to Momentum, Phillips or the Merger. Accordingly, an analysis of
the results is not mathematical, rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the Comparable Companies and other factors that could affect the public trading
value of the Comparable Companies or Company to which Phillips and Momentum are
being compared. In reaching its conclusion as to fairness of the consideration
to be received in the Merger and in its presentation to the Momentum Board,
Piper Jaffray did not rely on any single analysis or factor described above,
assign relative weights to the analyses or factors considered by it, or make any
conclusions as to how the results of any given analysis, taken alone, supported
its fairness Opinions. The preparation of a fairness opinion is a complex
process and not necessarily susceptible to partial analyses or summary
description. Piper Jaffray believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors considered
by it, without considering all factors and analyses, would create a misleading
view of the processes underlying its Opinions. The analyses of Piper Jaffray are
not necessarily indicative of actual values, which may be significantly more or
less favorable than the values used therein. Analyses relating to the value of
companies do not purport to be appraisals or valuations or necessarily reflect
the price at which companies may actually be purchased or sold.
For purposes of its Opinions, Piper Jaffray relied upon and assumed the
accuracy, completeness and fairness of the financial and other information made
available to it and did not attempt independently to verify such information.
Piper Jaffray relied upon the assurances of Momentum and Phillips managements
that the information provided by Momentum and Phillips had a reasonable basis
and, with respect to financial planning data and other business outlook
information, reflected the best available estimates, and that they were not
aware of any information or fact that would make the information provided to
Piper Jaffray incomplete or misleading. Piper Jaffray relied, without
independent verification, on the assessments by management of Momentum and
Phillips of the amount and timing of potential cost savings and other synergies
realizable as a result of the Merger. In arriving at its Opinions, Piper Jaffray
did not perform any appraisals or valuation of specific assets of Momentum or
Phillips and expressed no opinion regarding the liquidation value of any entity.
No limitations were imposed by Momentum on the scope of Piper Jaffray's
investigation or the procedures to be followed in rendering its Opinions, except
that Piper Jaffray was not authorized by the Momentum Board to solicit, and did
not solicit, other entities for purposes of a possible business combination
transaction with Momentum. Piper Jaffray expressed no opinion as to the price at
which PrimeSource Shares may trade at any future time. The Opinions are based
upon information available to Piper Jaffray and the facts and circumstances as
they existed and were subject to evaluation on the date of the Opinions. Events
occurring after such dates could materially affect the assumptions used in
preparing the Opinions.
Piper Jaffray was not advised by Momentum, Phillips or their respective
legal counsel concerning the probable outcome of, or estimated damages which
might arise from, any pending or threatened litigation, possible unasserted
claims or other contingent liabilities, to which Momentum or Phillips or their
affiliates was a party or may be subject and undertook no analysis independent
thereof. Accordingly, at Momentum's direction and with its consent, the Opinions
made no assumption concerning, and therefore did not consider, the possible
assertion of claims, outcomes or damages arising out of any such matters.
For its services relating to the Opinions, Piper Jaffray has received fees
aggregating $175,000 and is entitled to reimbursement of certain out-of-pocket
expenses, presently estimated at approximately $15,000. The fees payable to
Piper Jaffray were not contingent upon consummation of the proposed Merger
transaction.
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<PAGE> 45
Momentum has agreed to indemnify Piper Jaffray against all liabilities incurred
(including liabilities under the federal securities laws) in connection with the
engagement of Piper Jaffray by Momentum except those finally judicially
determined to have resulted primarily and directly from Piper Jaffray's gross
negligence or willful misconduct.
RECOMMENDATION OF THE BOARDS OF DIRECTORS
THE BOARDS OF DIRECTORS OF BOTH PHILLIPS AND MOMENTUM UNANIMOUSLY RECOMMEND
A VOTE FOR THE MERGER.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Momentum
Momentum has executed change of control agreements (the "Agreements") with
John H. Goddard and Patsy R. Turnipseed (the "Executives"). Each Agreement
provides that the Executive will receive compensation for up to 24 months if his
or her employment is terminated (voluntarily or involuntarily) for any reason
other than gross misconduct, death, disability, or reaching age 65, provided
such termination occurs within 24 months after certain defined events which
might constitute or lead to a change of control of Momentum. The compensation
will be paid at a rate equal to the Executive's current salary and target bonus.
The compensation is subject to a minimum annual rate of not less than the
Executive's average compensation for the preceding three calendar years, and is
subject to reduction if the aggregate present value of all payments would exceed
three times the Executive's "base amount" as defined in Section 280G of the
Internal Revenue Code. The Executive will also continue to have "employee"
status for the 24 month period and will be entitled to retain most employee
benefits and rights during this period.
The estimated aggregate present value of amounts presently payable in the
event of a change of control (assuming each officer receives payments at the
same rate for the maximum 24 month period) would be: Mr. Goddard, $869,313 and
Ms. Turnipseed, $416,599. The foregoing does not include the value of any
employee benefits which might be payable to the officer during the 24 month
period. The value of these benefits is not capable of computation. Continuation
of these benefits would include participation in the Momentum's health and
welfare plans, disability and life insurance policies, continued vesting of
stock options and restricted stock awards, and continuation of years of service
for pension and other retirement plan benefit computation purposes. The Merger
will constitute a change of control for purposes of the Agreements, but Mr.
Goddard is expected to continue employment with PrimeSource after the Merger.
Although no definitive agreement has been reached, it is anticipated
that Ms. Turnipseed may elect to pursue other opportunities and receive her
benefits under her change of control agreement. In addition, under the terms of
previously granted restricted stock awards and stock options generally
applicable to all holders as described below, Ms. Turnipseed will be entitled
to accelerated vesting for 15,000 shares of restricted stock and options for
9,709 shares the unvested portion of which in the aggregate have an estimated
present value of $7,385 assuming a market value for Momentum Shares of $7.00
per share and using computation procedures specified by the Internal Revenue
Service.
Although Momentum believes that it is unlikely that the compensation or
other benefits payable or vesting upon the Executive's termination will
constitute "golden parachute payments" under the Internal Revenue Code, the
Agreements do provide for indemnification against excise taxes payable by the
Executive in the event of such a determination. Momentum may cease payments in
the event the Executive breaches certain noncompetition or confidentiality
covenants. Momentum also has the right to terminate the Agreements upon a
one-year notice, except as to rights accruing as a result of an event which has
triggered the change of control provisions of the Agreements.
Mr. Wiborg was retained as a consultant to Momentum in connection with
providing his services to assist with development of strategies and negotiations
of the Merger pursuant to a pre-existing policy approved by the Momentum Board
which authorizes senior officers of Momentum to engage individual directors to
perform professional services. Mr. Wiborg will receive a fee, which based on the
value of Phillips Shares as of
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<PAGE> 46
July 25, 1994, is currently estimated at $223,000 which is based on the
following formula: a nonrefundable retainer of $50,000 plus, if the Merger is
completed, three-quarters of one percent of the first $25 million of aggregate
consideration received by Momentum stockholders and one percent of the aggregate
consideration above that amount. In addition, Mr. Wiborg has received
reimbursement of expenses totaling $3,851. This fee arrangement was approved by
the Momentum Board without Mr. Wiborg's participation.
Pursuant to the terms of Momentum stock options or Momentum restricted
stock awards granted pursuant to Momentum's 1989 Long-Term Incentive Stock Plan,
if the employment of any holder of such an option or award is terminated within
24 months of the Merger, that person's options and/or restricted stock award
will vest, thereby accelerating the vesting schedule of such option or award.
Approximately 306,811 Momentum Shares are subject to options or awards that
include these provisions. In connection with the Merger, the 4,615 restricted
shares awarded in 1993 to each of Messrs. John C. Dimmer and William K. Street,
Momentum directors who will not continue as directors of PrimeSource, will be
fully vested.
Phillips
Phillips has a Supplemental Executive Retirement Plan ("SERP") which
provides to key executives of Phillips upon their retirement a supplemental
retirement benefit equal to the difference between (i) 45% of the average 60
highest calendar months compensation paid by Phillips during the 120 calendar
months immediately preceding the executive's separation from service and (ii)
the sum of the executive's other retirement benefits. In November, 1989,
Phillips entered into a trust agreement (the "SERP Trust Agreement") with
Meridian Trust Company (the "Trustee"). The SERP Trust Agreement requires
Phillips to transfer to the Trustee upon a "Potential Change of Control" of
Phillips cash sufficient to purchase annuities which will provide the benefits
due to key executives pursuant to the SERP. The Trustee is required to purchase
annuity contracts with such monies if a "Change in Control" occurs. All of the
key executives of Phillips who are beneficiaries under the SERP Trust Agreement
have waived any claim that the Merger constitutes a "Potential Change in
Control" or a "Change In Control" under the SERP Trust Agreement. The Trustee
also has agreed that no action is required to be taken by either Phillips or the
Trustee pursuant to the SERP Trust Agreement as a result of the Merger or the
other transactions contemplated by the Reorganization Agreement.
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for under the "purchase" method of accounting.
Accordingly, a determination of the fair market value of Momentum's assets and
liabilities will be made in order to allocate the purchase price to the assets
acquired and the liabilities assumed. From and after the Effective Time,
Momentum's financial statements will be included in PrimeSource's consolidated
financial statements. See "PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger has been structured with the intent that it be tax-free to
Phillips and Momentum and their respective shareholders for federal income tax
purposes. Consummation of the Merger is conditioned upon, among other things,
the receipt by Phillips and Momentum of opinions of their respective counsel
substantially to the effect that, on the basis of certain facts, assumptions and
representations, the Merger constitutes a tax-free transaction for federal
income tax purposes. Assuming that the Merger is tax-free for federal income tax
purposes, the following are expected to be the general federal income tax
consequences:
1. No gain or loss will be recognized by holders of Phillips Shares
or Momentum Shares, except as discussed below with respect to any cash
received by Momentum stockholders in lieu of fractional shares of
PrimeSource Shares.
2. The aggregate tax basis of PrimeSource Shares received in the
Merger will equal the aggregate tax basis of Momentum Shares exchanged
therefor, reduced by any amount allocable to any fractional share interest
of Momentum shareholders for which cash is received.
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<PAGE> 47
3. No gain or loss will be recognized by Phillips or Momentum in
connection with the Merger.
4. Provided that the Momentum Shares are held as a capital asset at
the Effective Time, the holding period of PrimeSource Shares will include
the holding period of Momentum Shares.
5. Although the Merger is expected to be accounted for under the
"purchase" method of accounting, as discussed above, the tax basis of the
Momentum assets in the hands of PrimeSource will be the same as the basis
of such assets in the hands of Momentum immediately prior to the Effective
Time and PrimeSource will generally succeed to and take into account the
tax attributes of Momentum.
A Momentum stockholder who receives cash in the Merger in lieu of a
fractional interest in PrimeSource Shares will be treated for federal income tax
purposes as having received cash in redemption of such fractional share
interest. The stockholder will recognize gain or loss as of the Effective Time
equal to the difference between the amount of cash received and the portion of
the stockholder's adjusted tax basis in the Momentum Share allocable to such
fractional interest. Any gain or loss generally will be capital gain or loss if
the stockholder holds the Momentum Shares as a capital asset at the Effective
Time and will be long-term capital gain or loss if the holding period
(determined as described above) for the fractional interest deemed to be
received and then redeemed is more than one year.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS BASED UPON CURRENT
LAW. BECAUSE EACH STOCKHOLDER'S TAX CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER
IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL, AND OTHER TAX LAWS AND ANY PROPOSED CHANGES IN SUCH TAX
LAWS.
See "THE REORGANIZATION AGREEMENT AND PLAN OF MERGER -- Conditions to the
Merger" and "LEGAL MATTERS."
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
specified waiting period requirements have been satisfied. Phillips and Momentum
each filed its respective notification and report forms under the HSR Act on May
20, 1994. The parties were subsequently notified that the Merger had been
assigned to the FTC for review. The required waiting period under the HSR Act
expired on June 19, 1994.
Federal and state antitrust enforcement authorities frequently scrutinize
the legality under the antitrust laws of transactions such as the Merger. At any
time before or after the Effective Time, and notwithstanding that the HSR Act
waiting period has expired, any such agency could take any action under
antitrust laws that it deems necessary or desirable in the public interest. Such
action could include seeking to enjoin the consummation of the Merger or seeking
divestiture of businesses of Phillips or Momentum acquired as a result of the
Merger. Private parties may also bring legal actions under the antitrust laws
under certain circumstances.
Based on information available to them, Phillips and Momentum believe that
the Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, Phillips and Momentum would prevail or would not be required to accept
certain conditions (possibly including certain divestitures) in order to
consummate the Merger. Under the Reorganization Agreement, a condition to
consummation of the Merger for each of Phillips and Momentum is that no
temporary restraining order, preliminary or permanent injunction or other order
or decree which prevents the consummation of the Merger or imposes material
conditions with respect to the Merger shall have been issued and remain in
effect.
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<PAGE> 48
FEDERAL SECURITIES LAW CONSEQUENCES
All PrimeSource Shares received by stockholders of Momentum in the Merger
will be freely transferable, except that PrimeSource Shares received by persons
who are deemed to be "affiliates" (as such term is defined under the Securities
Act) of Momentum prior to the date of the Momentum Meeting may be resold by them
only in transactions permitted by Rule 145 promulgated under the Securities Act
(permitting limited sales under certain circumstances) or as otherwise permitted
under the Securities Act. Persons who may be deemed to be "affiliates" of
Momentum generally include individuals or entities that control, are controlled
by, or are under common control with, Momentum and may include certain officers
and directors as well as principal shareholders. Upon consummation of the
Merger, based on the number of Momentum Shares outstanding on July 25, 1994, the
persons who may be deemed to be affiliates of Momentum are expected to receive
an aggregate of 502,430 PrimeSource Shares, or 7.6%, of the outstanding
PrimeSource Shares. The Reorganization Agreement requires Momentum to use its
best efforts to cause each principal executive officer, each director and each
other person who may be deemed to be an "affiliate" of it for purposes of Rule
145 under the Securities Act, to execute a written agreement to the effect that
such person will not offer or sell or otherwise dispose of any of the
PrimeSource Shares issued to such person in or pursuant to the Merger in
violation of the Securities Act or the rules and regulations promulgated by the
Commission thereunder. See "THE REORGANIZATION AGREEMENT AND PLAN OF
MERGER -- Other Covenants."
NASDAQ NATIONAL MARKET QUOTATION OF PRIMESOURCE SHARES
PrimeSource Shares will be quoted on the Nasdaq National Market under the
symbol "PSRC."
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<PAGE> 49
MANAGEMENT OF PRIMESOURCE
BOARD OF DIRECTORS OF PRIMESOURCE
The PrimeSource Board of Directors will consist of twelve members, six of
whom have been designated by Phillips and six of whom have been designated by
Momentum. The Amended Articles provide that the board of directors will be
divided into three classes as follows: one class of four directors whose term
will expire at the annual meeting of shareholders to be held in 1995, another
class of four directors whose term will expire at the annual meeting of
shareholders to be held in 1996 and a third class of four directors whose term
will expire at the annual meeting of shareholders to be held in 1997. If, prior
to the Effective Time, any of the Phillips Designees or Momentum Designees shall
decline or be unable to serve as a director of PrimeSource, Phillips (if such
person was a Phillips Designee) or Momentum (if such person was a Momentum
Designee) shall designate another person, subject to the reasonable approval of
the other party.
Momentum and Phillips have designated the following individuals to be
Directors of PrimeSource from and after the Effective Time:
<TABLE>
<CAPTION>
NAME AGE PRESENT BOARD AFFILIATION CLASS OF DIRECTOR
- ------------------------------ --- -------------------------- -----------------
<S> <C> <C> <C>
TERM EXPIRING IN 1995
James F. Mullan 54 Phillips Class I
Nelson G. Harris 67 Phillips Class I
Gary MacLeod 61 Momentum Class I
Jerrold B. Harris 51 Momentum Class I
TERM EXPIRING IN 1996
Philip J. Baur, Jr. 63 Phillips Class II
Edward N. Patrone 59 Phillips Class II
Richard E. Engebrecht 67 Momentum Class II
Andrew V. Smith 70 Momentum Class II
TERM EXPIRING IN 1997
Fred C. Aldridge, Jr. 61 Phillips Class III
John M. Pettine 51 Phillips Class III
John H. Goddard 47 Momentum Class III
James H. Wiborg 69 Momentum Class III
</TABLE>
Under applicable law, adoption of the Merger by the shareholders of
Momentum and Phillips constitutes approval of the above directors of PrimeSource
designated by Momentum and Phillips in accordance with the Reorganization
Agreement. Set forth below is a brief description of the current principal
occupation and recent business experience of the designated Directors of
PrimeSource.
DIRECTORS -- CLASS I (TERM EXPIRES AT ANNUAL MEETING IN 1995)
James F. Mullan has been President of Phillips and has served as a member
of the Board of Directors since January, 1982. Mr. Mullan was elected President
and Chief Executive Officer of Phillips in March 1991. He joined Phillips in
1970.
Nelson G. Harris, retired, was elected President of TBC in September, 1979,
its Chief Executive Officer in April, 1981, and its Chairman and Chief Executive
Officer in February 1991, in which capacity he served until his retirement on
May 1, 1992. He served as a consultant to TBC until April 1994. He is a Director
of the CoreStates Financial Corp., American Water Works Company, Inc., TBC and
PECO Energy Company. He has served as a director of Phillips since September,
1979.
Gary MacLeod, retired, was Chairman, Laird Norton Trust Company, a private
trust and investment management company, from 1975 to 1993. Mr. MacLeod has been
a director of Momentum since its formation in 1989 and is also a director of
several private corporations.
42
<PAGE> 50
Jerrold B. Harris has been a director of Momentum since its formation in
1989. Mr. Harris has been President and Chief Executive Officer of VWR
Corporation, since March 1, 1990. From April 1, 1989 to March 1, 1990 he served
as Executive Vice President and Chief Operating Officer of VWR Corporation. Mr.
Harris is also a director of VWR Corporation.
DIRECTORS -- CLASS II (TERM EXPIRES AT ANNUAL MEETING IN 1996)
Philip J. Baur, Jr. has served as a director of Phillips since 1965. Mr.
Baur retired on December 31, 1987, as President of Tastykake, Inc., then a
subsidiary of TBC, a position he had held for more than fourteen years. Mr. Baur
has served as a Director of TBC since 1954 and as its Chairman of the Board
since 1981. He is a Director of Pennsylvania Manufacturers' Association and
Pennsylvania Manufacturers' Association Insurance Company.
Edward N. Patrone is presently a senior consultant to Alco Standard
Corporation (since 1991). From 1979 through 1991 he served as a director of Alco
Standard Corporation and in various senior executive capacities, including
Executive Vice President from 1983 through 1988, when he had primary
responsibility for strategic planning, acquisitions and divestitures and human
resource development. From 1988 through 1991, he was President and CEO of Paper
Corporation of America. He serves as a director of Compucom Corporation and
various educational institutions and charitable foundations.
Richard E. Engebrecht was Chairman of the Board, President and Chief
Executive Officer of Momentum since its formation in 1989 until June 2, 1992.
From June 2, 1992 to December 8, 1992 he was Chairman and Chief Executive
Officer. From December 8, 1992 to the present he has served as Chairman. From
1986 to 1990 Mr. Engebrecht was President and Chief Executive officer of VWR
Corporation, a distributor of laboratory equipment and supplies, and former
parent company of Momentum. Mr. Engebrecht is also a director of PENWEST, LTD.,
VWR Corporation and Univar Corporation.
Andrew V. Smith, retired, was President and a director of Pacific Northwest
Bell Telephone Company (a telecommunications company now known as U.S. WEST
Communications, Inc.) from 1978 to 1988. He was also the President of Operations
and a director of U.S. WEST Communications, Inc. from July 1, 1988 to July 1,
1989. Mr. Smith has been a director of Momentum since its formation in 1989 and
is also a director of Airborne Express Corporation, Aldus Corporation, Cascade
Natural Gas Company, Tektronix, Inc., Univar Corporation, and U.S. Bancorp.
DIRECTORS -- CLASS III (TERM EXPIRES AT ANNUAL MEETING 1997)
Fred C. Aldridge, Jr. was elected a director of Phillips in June, 1993. He
is a senior partner at the Philadelphia law firm of Stradley, Ronon, Stevens &
Young, counsel to Phillips, President and a director of The Grace S. and W.
Linton Nelson Foundation, a charitable foundation, President and a director of
Preston Drainage Company, a Pennsylvania public utility company, and a director
of TBC.
John M. Pettine has served as a director of Phillips since April, 1981. Mr.
Pettine was elected Vice President and Chief Financial Officer of TBC in April,
1991. He has served as Vice-President of Finance of TBC since December, 1983. He
is also a Director of TBC.
John H. Goddard has been President and Chief Executive Officer and a
director of Momentum since December, 1992. From June, 1992 to December, 1992 he
served as President of Momentum. Prior to that he served as Senior Vice
President from December, 1990 to June, 1992, and as Vice President from March,
1990 to December, 1990. Mr. Goddard was President of Momentum Graphics Inc., a
subsidiary of Momentum, from March, 1990 to January, 1994, and prior to that was
President of the VWR Graphics Division of VWR Scientific Inc.
James H. Wiborg has been Vice Chairman of the Board of Momentum since its
formation in 1989. He has served as Chairman of the Board of VWR Corporation
since 1986 and as Chairman of the Board of Univar Corporation, an industrial
chemical distributor, since 1983. Mr. Wiborg is also a director of PACCAR Inc.
and PENWEST, LTD.
43
<PAGE> 51
COMMITTEES OF PRIMESOURCE'S BOARD OF DIRECTORS
The Reorganization Agreement provides that there will be a nominating
committee consisting of four directors, two designated by Phillips and two
designated by Momentum. Phillips has designated Mullan and Baur as members of
the nominating committee, while Momentum has designated Engebrecht and Goddard.
The members of the nominating committee have an initial term of two years. The
nominating committee has the exclusive power to nominate persons, by unanimous
vote, to serve as directors of PrimeSource, which nominations are subject to the
approval of the PrimeSource Board of Directors.
PrimeSource will also have Audit/Pension, Compensation and Executive
Committees, the members of which will be designated by the PrimeSource Board
after the Effective Time. The Executive Committee will have the power to act on
behalf of the full Board of Directors at such times when there is no regularly
scheduled meeting of the Board. The Audit/Pension Committee will be charged with
the responsibility of reviewing reports from PrimeSource's independent certified
public accountants, keeping the Board informed with respect to accounting
policies and the adequacy of internal controls, making recommendations regarding
the selection of the independent certified public accountants and reviewing the
scope of their audit. The Audit/Pension Committee also will have responsibility
for reviewing the performance of investment advisors and administration of
PrimeSource's retirement plans. The primary function of the Compensation
Committee will be to review and make recommendations with respect to
compensation for the directors, officers and other employees.
COMPENSATION OF BOARD OF DIRECTORS
The Compensation Committee of PrimeSource's Board of Directors will
determine, following consummation of the Merger, the remuneration payable to the
directors of PrimeSource for their services. See "PROPOSAL 2 -- ELECTION OF
DIRECTORS -- Phillips Compensation of Directors and Executive Officers" and
" -- Momentum Compensation of Directors and Executive Officers -- Directors'
Remuneration" for description of the compensation currently paid to directors of
Phillips and Momentum, respectively.
PRIMESOURCE EXECUTIVE OFFICERS
The Reorganization Agreement sets forth the initial officers of PrimeSource
after the Merger as follows:
<TABLE>
<CAPTION>
TITLE NAME AGE AFFILIATION
------------------------------ ---------------------- --- ---------
<S> <C> <C> <C>
Chairman of the Board Richard E. Engebrecht 67 Momentum
Vice Chairman Philip J. Baur, Jr. 63 Phillips
President and Chief Executive
Officer James F. Mullan 54 Phillips
Executive Vice President John H. Goddard 47 Momentum
Vice President and Chief
Financial Officer and
Treasurer William A. DeMarco 48 Phillips
Vice President -- Marketing Frederick G. Heinkel 57 Phillips
Vice
President -- Administration,
General Counsel and
Corporate Secretary Barry C. Maulding 48 Momentum
</TABLE>
PrimeSource's Board of Directors will review both Phillips' and Momentum's
executive compensation policies and programs and will recommend programs for the
merged company.
CORPORATE HEADQUARTERS
PrimeSource's corporate headquarters and principal executive offices will
be located in Pennsauken, New Jersey.
44
<PAGE> 52
THE REORGANIZATION AGREEMENT AND PLAN OF MERGER
This section of the Proxy Statement/Prospectus describes various aspects of
the Merger but does not purport to be complete and is qualified in its entirety
by reference to the Reorganization Agreement and Plan of Merger (Annexes A and
B), which agreements are hereby incorporated by reference in this Proxy
Statement/Prospectus. All shareholders of Phillips and Momentum are urged to
read the Reorganization Agreement and Plan of Merger in their entireties.
Capitalized terms used and not otherwise defined in this Proxy
Statement/Prospectus shall have the same meaning as in the Reorganization
Agreement.
GENERAL
The Reorganization Agreement provides that, subject to the satisfaction
(including, among other things, adoption of the Reorganization Agreement by the
shareholders of Momentum and Phillips and receipt of all necessary material
governmental approvals), or, in certain cases, waiver of certain conditions,
Momentum will be merged into and with Phillips. Upon consummation of the Merger,
the separate corporate existence of Momentum will cease, Phillips will be the
surviving corporation under the name of PrimeSource, the stockholders of
Momentum will become shareholders of PrimeSource and the shareholders of
Phillips will, by virtue of their ownership of Phillips Shares, continue as
shareholders of PrimeSource.
CONVERSION OF MOMENTUM SHARES; EFFECTS ON PHILLIPS SHAREHOLDERS; NO FRACTIONAL
PRIMESOURCE SHARES
At the Effective Time, each of the Momentum Shares then issued and
outstanding will cease to be outstanding and will be converted into .71
PrimeSource Shares. See "DESCRIPTION OF PRIMESOURCE SECURITIES" and "CERTAIN
DIFFERENCES BETWEEN THE CORPORATION STATUTES OF DELAWARE AND PENNSYLVANIA."
At the Effective Time, each Phillips Share then issued and outstanding will
continue as one PrimeSource Share.
No fractional PrimeSource Shares will be issued in the Merger, but, in lieu
thereof, each holder of Momentum Shares who otherwise would have been entitled
to a fraction of a PrimeSource Share, upon surrender of the certificates
representing Momentum Shares, will be paid the cash value (without interest) of
such fraction, which will be equal to such fraction multiplied by the average
closing price of PrimeSource Shares as reported on the Nasdaq National Market
during the five trading days immediately following the Effective Time. See
"PROPOSAL 1 -- THE MERGER -- Certain Federal Income Tax Consequences."
SURRENDER OF CERTIFICATES; LOST CERTIFICATES
Momentum and Phillips have selected American Stock Transfer & Trust Company
as exchange agent (the "Exchange Agent") to effect the exchange of certificates
representing Momentum Shares in connection with the Merger. Promptly after the
Effective Time, the Exchange Agent will mail to each holder of record of
certificates which immediately prior to the Effective Time represented
outstanding Momentum Shares, a transmittal form (the "Certificate Transmittal
Form"). The Certificate Transmittal Form will contain instructions with respect
to the surrender of certificates representing Momentum Shares to be exchanged
for PrimeSource Shares (together with cash in lieu of any fractional share) and
will specify that delivery will be effected, and risk of loss and title to such
certificates will pass, only upon delivery of the certificates to the Exchange
Agent. Upon surrender, in accordance with the instructions contained in the
Certificate Transmittal Form, to the Exchange Agent of certificates representing
Momentum Shares, the holder thereof will be entitled to receive in exchange
therefor a PrimeSource certificate(s) representing the appropriate number of
PrimeSource Shares to which such holder is entitled and cash in lieu of any
fractional PrimeSource Share.
MOMENTUM STOCK CERTIFICATES SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT
UNTIL A MOMENTUM STOCKHOLDER HAS RECEIVED A CERTIFICATE TRANSMITTAL FORM AND
SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY. NO ACTION IS REQUIRED OF ANY
HOLDER OF PHILLIPS SHARES.
45
<PAGE> 53
Any Momentum stockholder who has lost or misplaced a certificate for any of
his Momentum Shares should immediately call the Momentum stock transfer agent,
First Interstate Bank of Washington, at 1-800-522-6645 for information regarding
the procedures to be followed for replacing the lost certificate. Until a
replacement certificate is obtained, the Momentum stockholder will be unable to
properly submit the Certificate Transmittal Form.
TREATMENT OF STOCK OPTIONS
As of July 25, 1994, there were 240,099 unexercised options outstanding
under the Momentum 1989 Long-Term Incentive Stock Plan (the "Momentum Stock
Plan") to purchase Momentum Shares at prices varying from $4.20 to $9.25 per
share. As of that date, options to purchase 96,343 Momentum Shares were
exercisable.
At the Effective Time, PrimeSource will assume each option, whether or not
then exercisable, under the Momentum Stock Plan outstanding immediately prior to
the Effective Time, and each such option will become an option of PrimeSource
and remain outstanding in accordance with the terms of the Momentum Option Plan
under which it was issued and the stock option agreement by which it is
evidenced, except that (a) each such option may be exercised only for
PrimeSource Shares, (b) each such option will become an option to purchase the
number of PrimeSource Shares equal to .71 multiplied by the number of Momentum
Shares subject to such option immediately prior to the Effective Time, (c) the
exercise price per PrimeSource Share at which each such option is exercisable
will be an amount computed by dividing the exercise price per share of Momentum
Shares at which such option is exercisable immediately prior to the Effective
Time by .71, and (d) PrimeSource and the Compensation Committee of the Board of
Directors of PrimeSource will be substituted for Momentum and the Compensation
Committee of Momentum's Board of Directors. At the Effective Time, the Momentum
Stock Plan will be automatically and without further action assumed by
PrimeSource (and thereupon become a stock option plan of PrimeSource). Under the
Reorganization Agreement, Momentum has agreed not to grant additional options
prior to the Effective Time under the Momentum Stock Plan, except with Phillips'
prior consent.
As of July 25, 1994, there were unexercised options to acquire 192,000
Phillips Shares under the Long Term Incentive Plan at prices of $10.75 or $11.50
per share. See "PROPOSAL 3 -- ADOPTION OF 1993 LONG TERM INCENTIVE PLAN". In
addition, there were unexercised options to acquire 27,748 Phillips Shares under
the Replacement Option Plan. See "PROPOSAL 4 -- ADOPTION OF THE REPLACEMENT
OPTION PLAN". These options will not be affected in any manner by the Merger.
NAME
At the Effective Time, Phillips, as the surviving corporation in the
Merger, will change its name to "PrimeSource Corporation."
CONDUCT OF BUSINESS PENDING THE MERGER
The Reorganization Agreement contains certain restrictions, which are
reciprocal, on the conduct of the respective businesses of Momentum and Phillips
pending the consummation of the Merger. In particular, unless the prior written
consent of the other party is obtained, or as otherwise permitted by the
Reorganization Agreement, prior to the Effective Time, the Reorganization
Agreement requires both Momentum and Phillips to conduct their respective
operations in the ordinary and usual course of business consistent with past
practices to preserve intact their respective business organizations and keep
available the services of their respective present officers and key employees,
and preserve the goodwill and business relationships with suppliers,
distributors, customers and others having business relationships with them.
Specifically, without the consent of the other party, which consent shall not be
unreasonably withheld, neither Momentum, nor Phillips, nor Phillips'
subsidiaries will:
(a) except as permitted by the Reorganization Agreement, amend their
respective charters or bylaws, or split, combine or reclassify their
outstanding stock or declare or pay any dividend or
46
<PAGE> 54
distribution (other than regular quarterly dividends by Phillips at the
rate payable as of March 31, 1994) or issue any other securities in respect
of its capital stock;
(b)(i) issue, sell, pledge, or dispose of any additional shares of, or
grant any options, warrants or rights to purchase, their capital stock or
any debt or equity securities convertible into or exchangeable for such
capital stock, other than issuance pursuant to options, warrants or rights
to purchase outstanding on the date of the Reorganization Agreement; (ii)
acquire or purchase any material equity interest in or material assets of
any business or corporation or partnership; (iii) sell, lease, pledge,
dispose of or encumber any assets that are material to the business of the
party, other than in the ordinary course of business; (iv) incur any
liability for borrowed money or guarantee any indebtedness or issue any
debt securities other than short term indebtedness in the ordinary course
of business; (v) redeem, purchase, acquire or offer to purchase any shares
of its capital stock or long term debt other than pursuant to the terms
thereof; or (vi) enter into any contract, agreement, commitment or
arrangement with respect to the foregoing;
(c) enter into or amend any employment, severance, or special pay
arrangement with respect to termination of employment or modify levels of
compensation or benefits for any directors, officers or key employees;
(d) adopt, enter into or become obligated under any new employee
compensation plan except as required to comply with changes in applicable
law, except in the ordinary course of business;
(e) take any action that would result in any of the parties'
representations and warranties in the Reorganization Agreement becoming
untrue or any of the conditions to the Merger not being satisfied.
OTHER COVENANTS
The Reorganization Agreement contains a number of covenants of the parties,
including agreements to provide the other with access to information, promptly
filing this Proxy Statement/Prospectus, calling shareholder meetings, conversion
of Momentum stock options into options for PrimeSource Shares, consultation
prior to press releases, and obtaining letters from each party's respective
accountant and financial advisor, as well as the following:
(a) No Solicitation. Without the prior written consent of the other,
neither party will initiate or solicit, directly or indirectly, any
inquiries or the making of any proposal, except to the extent required by
the directors in the discharge of their fiduciary duties, engage in
negotiations concerning, provide any confidential information or data to or
have any discussions with any third party relating to any acquisition,
business combination or purchase of all or any significant portion of the
assets of or any equity interest in Phillips or Momentum, as the case may
be.
(b) Compliance with Rule 145. The Reorganization Agreement requires
Momentum to use its best efforts to cause each principal executive officer,
each director and each other person who may be deemed to be an "affiliate"
of it for purposes of Rule 145 under the Securities Act, to execute a
written agreement to the effect that such person will not offer or sell or
otherwise dispose of any of the PrimeSource Shares issued to such person in
or pursuant to the Merger in violation of the Securities Act or the rules
and regulations promulgated by the Commission thereunder.
CONDITIONS TO THE MERGER
The respective obligations of Momentum and Phillips to effect the Merger
are subject to the satisfaction prior to the Effective Time of certain
conditions, including but not limited to, the following conditions (some of
which may be waived):
(a) the Reorganization Agreement and the Plan of Merger shall have
been approved by the requisite votes of shareholders of Momentum and
Phillips;
(b) absence of any temporary restraining order, injunction or other
order by any federal or state court or agency which enjoins or prohibits
consummation of the Merger;
47
<PAGE> 55
(c) absence of any law or governmental rule or regulation that would
prevent the consummation of the Merger or that imposes material conditions
with respect thereto;
(d) receipt of all governmental consents and approvals required for
the consummation of the Merger, including state securities permits and
other authorizations necessary to issue the PrimeSource Shares;
(e) approval of the PrimeSource Shares for quotation under a mutually
acceptable ticker symbol on the Nasdaq National Market;
(f) receipt of agreements from affiliates of Momentum providing that
such persons will not offer to sell or sell PrimeSource Shares issued in
the Merger except pursuant to an effective registration statement or in
compliance with applicable law;
(g) in the case of each party, performance in all material respects at
or prior to the Effective Time of the agreements and covenants required to
be performed by the other party;
(h) in the case of each party, the truth and correctness in all
material respects as of the Effective Time and the date of signing of the
Reorganization Agreement of the representations and warranties of the other
party contained in the Reorganization Agreement, except as expressly
contemplated by the Reorganization Agreement and except for any
representation and warranty made as of a specified date (which shall be
true and correct as of such date);
(i) in the case of each party, receipt of consents or approvals of
each person whose consent or approval is required under any material loan
or credit agreement, mortgage, lease or other agreement or instrument;
(j) in the case of each party, the registration statement registering
the shares to be issued in the Merger shall have been declared effective by
the SEC and no stop order suspending such effectiveness shall have been
issued and remain in effect;
(k) Phillips shall have received a comfort letter from Ernst & Young
and an opinion from Stradley, Ronon, Stevens & Young, substantially to the
effect that the Merger shall be a tax-free transaction for Phillips and
shall not have any Material Adverse Effect on the tax consequences to the
Phillips shareholders of the 1993 distribution of Phillips Shares by TBC,
and a customary closing opinion of Preston Gates & Ellis;
(l) Momentum shall have received a comfort letter from Coopers &
Lybrand and an opinion of Preston Gates & Ellis, substantially to the
effect that the Merger shall be a tax-free transaction for Momentum and a
customary closing opinion of Stradley, Ronon, Stevens & Young; and
(m) the Amended Articles for PrimeSource shall have been pre-approved
for filing by the Department of State for the Commonwealth of Pennsylvania.
REPRESENTATIONS AND WARRANTIES
The Reorganization Agreement contains various customary representations and
warranties of Momentum and Phillips relating to, among other things, (a) each
party's and their respective subsidiaries' (if any) organization and similar
corporate matters; (b) each party's capital structure; (c) authorization,
execution, delivery, performance and enforceability of the Reorganization
Agreement and related agreements; (d) certain consents and approvals; (e)
documents filed by each of Momentum and Phillips with the Commission and the
accuracy of information contained therein; (f) the absence of certain changes or
events; (g) the absence of material litigation; (h) the accuracy of information
supplied by each of Momentum and Phillips in connection with the Registration
Statement and this Proxy Statement/Prospectus; (i) matters relating to
retirement and other employee plans and the Employee Retirement Income Security
Act of 1974, as amended; (j) transactions with affiliates or absence thereof;
(k) environmental matters; (l) the absence of violations of law; (m) opinions of
financial advisors; (n) the absence of undisclosed brokers or finders; and (o)
payment of federal, state, local and foreign taxes.
48
<PAGE> 56
TERMINATION, AMENDMENT AND WAIVER
The Reorganization Agreement provides that it may be terminated at any time
prior to the Effective Time, whether before or after approval by the
shareholders of Momentum or Phillips by (a) the mutual written consent of
Momentum and Phillips; (b) by either party if (i) the Merger does not occur on
or before December 31, 1994; (ii) any required governmental consent has not been
obtained and appeals have been unsuccessful or (iii) the Merger has been
permanently restrained or enjoined by a court of competent jurisdiction and the
injunction shall have become final and nonappealable; (c) by either party if
there has been (i) a material breach by the other party of any representation,
warranty, covenant or agreement in the Reorganization Agreement that has not
been cured after ten days notice; (ii) the Board of Directors of the other has
failed to recommend to its shareholders approval of the Merger; or (iii) either
party has breached its covenant not to engage in negotiations with, or provide
confidential information to, a third party concerning an acquisition, business
combination or other transaction involving the assets or equity interest of a
party.
The Reorganization Agreement and Plan of Merger may be amended by the
parties at any time before or after approval by the shareholders of Momentum or
Phillips, provided that after any such approval, no amendment shall be made
which (a) changes the ratios at which Momentum Shares are to be converted into
PrimeSource Shares; (b) in any way materially adversely affects the rights of
holders of Momentum Shares or Phillips Shares; or (c) changes any of the
principal terms of the Reorganization Agreement or Plan of Merger, in each case
without the further approval of shareholders. At any time prior to the Effective
Time, the parties may extend the time for performance of any of the obligations
of the other parties, waive any inaccuracies in the representations and
warranties and waive compliance with any of the agreements or conditions
contained in the agreements.
TERMINATION FEE
If, after June 30, 1994, either party terminates the Reorganization
Agreement because the other party (or its board of directors) (i) has materially
breached any of its representations, warranties, covenants or agreements in the
Reorganization Agreement that has not been cured after ten days notice; (ii) has
failed to recommend to its shareholders approval of the Merger; or (iii) has
breached its covenant not to engage in negotiations with a third party
concerning an acquisition, business combination or other transaction involving
the assets or equity interest of a party, then the breaching party shall
reimburse the terminating party for all out-of-pocket expenses (including all
fees and expenses of its counsel, advisors, accountants and consultants)
incurred in connection with the Merger. The terminating party is not entitled to
reimbursement of expenses if its own conduct falls within (i), (ii) or (iii) of
this paragraph so that the other party also has the right to terminate the
Reorganization Agreement.
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following pro forma condensed combined balance sheet of Phillips and
Momentum as of March 31, 1994 and the pro forma condensed combined statement of
operations for the three months ended March 31, 1994 and the year ended December
31, 1993 give effect to the Merger accounted for as a purchase as if the
acquisition had occurred at the beginning of such period. Additionally, the pro
forma condensed combined statement of operations for the three months ended
March 31, 1994 and the year ended December 31, 1993 give effect to the
acquisition accounted for as a purchase on March 1, 1994 of Gray by Momentum as
if the acquisition had occurred at the beginning of such periods. The pro forma
condensed combined statement of operations for the year ended December 31, 1993
does not give effect to the acquisition of certain of the assets of Jetcom, Inc.
by Phillips as if the acquisition had occurred as of the beginning of the
period, since the acquisition would not have had a significant impact on
Phillips' consolidated results of operations.
The pro forma financial information has been prepared on the basis of
assumptions described in the notes thereto and includes assumptions relating to
the market price of the Phillips Shares and to the allocation of the
consideration paid for the assets and liabilities of Momentum based on
preliminary estimates of their respective fair values. The actual allocation of
such consideration may differ from that reflected in the pro forma combined
financial statements after valuations and other studies to be performed have
been completed.
49
<PAGE> 57
Pro forma per share amounts are based on the conversion rate of .71 PrimeSource
Share for each Momentum Share.
The pro forma condensed combined financial statements do not include the
impact of any restructuring or the cost savings anticipated to result from the
Merger. The pro forma combined financial condition and results of operations may
not be indicative of the results that actually would have occurred if the Merger
had been in effect during the periods presented or which may be attained in the
future. The pro forma condensed combined financial information should be read in
conjunction with the historical consolidated financial statements and notes
thereto of Phillips and Momentum, and the unaudited consolidated condensed
historical information, including the notes thereto, appearing elsewhere herein.
See "FINANCIAL STATEMENTS."
50
<PAGE> 58
PHILLIPS & JACOBS, INCORPORATED AND MOMENTUM CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, 1994
-----------------------------------------------
PRO FORMA
MOMENTUM PHILLIPS ADJUSTMENTS COMBINED
-------- -------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets:
Cash and investments............................. $ 5,034 $ 385 $ 5,419
Receivables...................................... 25,747 27,666 53,413
Inventories...................................... 18,176 15,757 $ 1,476(d) 35,409
Other current assets............................. 1,345 1,103 2,448
-------- -------- ----------- ---------
Total current assets............................... 50,302 44,911 1,476 96,689
-------- -------- ----------- ---------
Property, plant and equipment, net................. 7,088 4,289 3,000(e) 14,377
Goodwill........................................... 9,495 2,060 (9,495)(c) 2,775
715(j)
Other assets....................................... 3,173 2,350 (1,242)(f) 4,281
-------- -------- ----------- ---------
Total assets....................................... $70,058 $ 53,610 $(5,546) $ 118,122
======== ======= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations........................... $ 5,200 $ 5,200
Current portion of long-term debt................ 177 $ 1,572 1,749
Accounts payable and other accrued liabilities... 18,168 13,123 $ 600(b)
950(g)
700(h) 33,541
-------- -------- ----------- ---------
Total current liabilities.......................... 23,545 14,695 2,250 40,490
-------- -------- ----------- ---------
Long-term debt, net of current portion............. 11,438 13,654 25,092
Accrued pension and other liabilities.............. 1,052 4,050 1,435(f)
396(i) 6,933
-------- -------- ----------- ---------
Total liabilities........................ 36,035 32,399 4,081 72,515
-------- -------- ----------- ---------
Commitments and contingencies
Shareholders' equity:
Common stock..................................... 3,559 41 (3,535) 65
Additional paid in capital....................... 29,274 1,355 (4,902) 25,727
Retained earnings................................ 2,984 19,928 (2,984) 19,928
Other shareholders' equity....................... (1,794 ) (113) 1,794 (113)
-------- -------- ----------- ---------
Total shareholders' equity......................... 34,023 21,211 (9,627)(a) 45,607
-------- -------- ----------- ---------
Total liabilities and shareholders' equity......... $70,058 $ 53,610 $(5,546) $ 118,122
======== ======= ========= ========
</TABLE>
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<PAGE> 59
PHILLIPS & JACOBS, INCORPORATED AND MOMENTUM CORPORATION
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
Pro forma adjustments as of March 31, 1994 to give effect to the Merger of
Momentum and Phillips, accounted for as a purchase, pursuant to APB Opinion No.
16, through the exchange of 2,440,000 Phillips Shares for all outstanding
Momentum Shares at an exchange ratio of .71 share for each Momentum Share. The
purchase price is based on the expected number of outstanding Momentum Shares
and the estimated market value per Phillips Share at the date of the approval of
the Merger by the shareholders of Phillips and Momentum. The final values may
differ from those set forth below. The final purchase price is subject to
adjustment based on the actual number of Momentum Shares outstanding and the
actual market value per Phillips Share at the date of shareholder approval and
consummation of the Merger. A change of $.50 in the market value per Phillips
Share would impact the excess of purchase price over fair value of net assets
purchased by $1,220,000 and would impact pro form income from continuing
operations for the year ended December 31, 1993 and the three months ended March
31, 1994 by $48,800 and $12,200, respectively. The purchase price will be
allocated to the net assets of Momentum based on their relative fair values.
Such allocations are subject to final determination based on valuations and
other studies to be performed.
<TABLE>
<S> <C> <C>
Purchase Price (in thousands except number of shares): Phillips
shares exchanged for outstanding Momentum shares (3,436,000 X
.71 X $10.00)................................................... $24,396
Momentum's shareholders' equity................................... 34,023
-------
(a) Reduction in pro forma shareholders' equity.................. 9,627
(b) Estimated acquisition expenses............................... 600
-------
Excess of total purchase price over historical financial basis of
net assets purchased............................................ 9,027
Adjustments of historical financial basis of net assets purchased:
(c) Eliminate historical goodwill................................ (9,495)
(d) Adjust inventories to estimated fair value................... 1,476
(e) Adjust property, plant and equipment to estimated fair
value........................................................ 3,000
(f) Eliminate unrecognized actuarial losses and other net
unamortized expenses applicable to pension plan.............. (2,677)
(g) Recognize accrued liability for Momentum's merger costs...... (950)
(h) Recognize accrued liability for employee severance costs
associated with merger....................................... (700)
(i) Recognize net additional deferred taxes on differences
between assigned values of assets and liabilities and tax
bases........................................................ (396)
-------
Total estimated adjustments to financial basis of net assets
purchased....................................................... (9,742)
-------
(j) Excess of purchase price over fair value of net assets
purchased.................................................... $ 715
=======
</TABLE>
52
<PAGE> 60
PHILLIPS & JACOBS, INCORPORATED AND MOMENTUM CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1994
-----------------------------------------------------
PRO FORMA
MOMENTUM(1) PHILLIPS ADJUSTMENTS(2) COMBINED
----------- -------- -------------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales..................................... $42,330 $ 44,419 $86,749
Cost of sales................................. 34,627 36,234 70,861
----------- -------- ---------
Gross profit................................ 7,703 8,185 15,888
----------- -------- ---------
Operating costs:
Selling, general and administrative......... 7,536 6,597 $ (114)(b) 14,019
----------- -------- ------- ---------
Income from operations........................ 167 1,588 114 1,869
----------- -------- ------- ---------
Interest expense.............................. (182) (164) (346)
Other income, net............................. 51 46 97
----------- -------- ------- ---------
Income before provision for income taxes...... 36 1,470 114 1,620
----------- -------- ------- ---------
Provision for income taxes.................... (38) (556) (54)(c) (648)
----------- -------- ------- ---------
Income (loss) from continuing operations...... $ (2) $ 914 $ 60 $ 972
=========== ======= =========== ========
Weighted average number of shares
outstanding................................. 6,609,362
Per share of common stock:
Income from continuing operations........... $0.15
</TABLE>
53
<PAGE> 61
PHILLIPS & JACOBS, INCORPORATED AND MOMENTUM CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1993
-----------------------------------------------------
PRO FORMA
MOMENTUM(1) PHILLIPS ADJUSTMENTS(2) COMBINED
----------- -------- -------------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales.................................... $ 161,307 $167,744 $ 329,051
Cost of sales................................ 130,921 135,095 $ 225(a) 266,241
----------- -------- ------- ---------
Gross profit............................... 30,386 32,649 (225) 62,810
----------- -------- ------- ---------
Operating costs:
Selling, general and administrative........ 30,960 25,962 (410)(b) 56,512
Provisions for cost of spin-off............ 609 609
Restructure and other charges.............. 1,582 1,582
Write-off of computer equipment............ 800 800
----------- -------- ------- ---------
Income (loss) from operations................ (2,956) 6,078 185 3,307
----------- -------- ------- ---------
Interest expense............................. (1,133) (531) (1,664)
Other income, net............................ 208 251 459
----------- -------- ------- ---------
Income (loss) before (provision) benefit for
income taxes............................... (3,881) 5,798 185 2,102
----------- -------- ------- ---------
(Provision) benefit for income taxes......... 1,267 (2,399) 291(c) (841)
----------- -------- ------- ---------
Income (loss) from continuing operations..... $ (2,614) $ 3,399 $ 476 $ 1,261
=========== ======== =========== ========
Weighted average number of shares
outstanding................................ 6,674,880
Per share of common stock:
Income from continuing operations.......... $0.19
</TABLE>
54
<PAGE> 62
PHILLIPS & JACOBS, INCORPORATED AND MOMENTUM CORPORATION
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(1) For Momentum, the pro forma condensed combined statements of operations
for the three months ended March 31, 1994 and the year ended December 31, 1993
give effect to the acquisition on March 1, 1994 by Momentum of Gray accounted
for as a purchase as if the acquisition had occurred at the beginning of such
periods.
(2) Reflects adjustments to expenses based on the purchase accounting
adjustments to net assets related to the acquisition of Momentum by Phillips and
of Gray by Momentum as follows:
<TABLE>
<CAPTION>
3/31/94 12/31/93
------- --------
<S> <C> <C> <C>
(a) Adjust cost of sales to reflect adjustment in inventory value
Beginning of period.......................................... $ 1,476 $ 1,701
End of period................................................ (1,476) (1,476)
------- --------
Change impacting cost of sales............................... -- $ 225
======= =======
(b) Adjust selling, general and administrative to:
Eliminate amortization of goodwill by Momentum (include pro
forma adjustment for T.K. Gray and other amortization)....... $ (164) $ (608)
Add amortization of goodwill as a result of Merger........... 12 48
Add depreciation of PP&E as a result of Merger............... 38 150
------- --------
$ (114) $ (410)
======= =======
(c) Adjustment to reflect income tax effect assuming a combined state and federal
statutory income tax rate of 40%.
</TABLE>
55
<PAGE> 63
MOMENTUM CORPORATION AND T. K. GRAY, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1994
--------------------------------------------------------------
PRO FORMA
MOMENTUM T. K. GRAY, INC. ADJUSTMENTS COMBINED
--------- ----------------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales................................. $34,673 $ 7,657 $ 42,330
Cost of sales............................. 27,909 6,718 34,627
--------- ------- ----------
Gross profit............................ 6,764 939 7,703
--------- ------- ----------
Operating costs:
Selling, general and administrative..... 6,437 1,016 $ 83(1) 7,536
--------- ------- ------------ ----------
Income (loss) from operations............. 327 (77) (83) 167
--------- ------- ------------ ----------
Interest expense.......................... (74) (66) (42)(2) (182)
Other income, net......................... 51 51
--------- ------- ------------ ----------
Income (loss) before provision for income
taxes................................... 304 (143) (125) 36
--------- ------- ------------ ----------
(Provision) benefit for income taxes...... (145) 107(3) (38)
--------- ------- ------------ ----------
Income (loss) from continuing
operations.............................. $ 159 $ (143) $ (18) $ (2)
========= ============ ========= ========
</TABLE>
56
<PAGE> 64
MOMENTUM CORPORATION AND T. K. GRAY, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1993
--------------------------------------------------------------
PRO FORMA
MOMENTUM T. K. GRAY, INC. ADJUSTMENTS COMBINED
--------- ----------------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales................................. $116,788 $44,519 $161,307
Cost of sales............................. 94,246 36,675 130,921
--------- ----------------- ----------
Gross profit............................ 22,542 7,844 30,386
--------- ----------------- ----------
Operating costs
Selling, general and administrative..... 24,590 6,721 $ (351)(1) 30,960
Restructure and other charges........... 1,582 1,582
Write-off of computer equipment......... 800 800
--------- ----------------- ------------ ----------
Income (loss) from operations............. (4,430 ) 1,123 351 (2,956)
--------- ----------------- ------------ ----------
Interest expense.......................... (402 ) (509) (222)(2) (1,133)
Other income, net......................... 208 208
--------- ----------------- ------------ ----------
Income (loss) before (provision) benefit
for income taxes........................ (4,624 ) 614 129 (3,881)
--------- ----------------- ------------ ----------
(Provision) benefit for income taxes...... 1,564 (297)(3) 1,267
--------- ----------------- ------------ ----------
Income (loss) from continuing
operations.............................. $ (3,060 ) $ 614 $ (168) $ (2,614)
========= ============ ========= ========
</TABLE>
57
<PAGE> 65
MOMENTUM CORPORATION AND T. K. GRAY, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
3/31/94 12/31/93
-------- ---------
(DOLLARS IN THOUSANDS)
<C> <S> <C> <C>
(1) Adjust selling, general, and administrative expenses to:
Eliminate T.K. Gray amortization on assets not acquired by
Momentum, primarily noncompete agreements............... $ (12) $(706)
Add amortization of goodwill and non-compete agreements as
a result of the acquisition............................. 95 542
Reduce T.K. Gray officer compensation to amounts payable
pursuant to employment agreements executed with Momentum
following acquisition................................... (187)
-------- ---------
$ 83 $(351)
======= ========
(2) Adjust interest expense to reflect increased interest
expense on debt incurred to finance acquisition......... $ (42) $(222)
======= ========
(3) Record tax provision on Gray's pro forma income as though
Gray were included in Momentum's income tax returns..... $ 107 $(297)
======= ========
</TABLE>
INDUSTRY OVERVIEW
The graphic arts and commercial printing industry provides services and
products to companies and other persons and entities that need or use printed
materials such as books, magazines, newspapers, packaging, catalogs, brochures
and advertising materials. The industry is divided into three components:
prepress, press and bindery processes. Prepress, also referred to as graphic
arts, includes design, type setting, layout, graphics, transfer of the printed
or graphic design to a printable format, electronic and photographic processes,
color separation, platemaking and all other activities preceding the actual
printing process. The press portion of the industry is the actual printing,
while bindery is the finishing of the printed product. The industry is highly
fragmented and, except for a relatively few large companies, is comprised of
thousands of small companies.
An important trend occurring in the graphics art and printing industry is
the modification of the traditional prepress process with sophisticated
electronic prepress equipment and systems. These new systems speed up the
prepress process and reduce the cost of the numerous intermediate steps prior to
printing. Increasingly, companies outside the graphics art and printing industry
are acquiring electronic prepress equipment to reduce the design time and
prepress costs of printed materials. In addition, companies within the industry
are acquiring such equipment to expand their services beyond those traditionally
offered to their customers.
Historically, companies in the industry generally limited their services to
distinct, related components in the printing process. In recent years, however,
and especially with advances in technology, companies have been expanding the
range of services beyond those they traditionally offered to their customers.
For example, some graphics art trade shops, which historically performed only
prepress functions, have begun to purchase presses and bindery equipment in
order to provide printing and binding services to advertising agencies and other
customers. Some commercial printers are now engaging in prepress activities,
using desktop publishing equipment and other technology-based hardware and
software.
PHILLIPS BUSINESS DESCRIPTION
GENERAL
Phillips, which was incorporated under the laws of the Commonwealth of
Pennsylvania in 1954, was acquired by TBC, Philadelphia, Pennsylvania in 1965.
On August 1, 1993, TBC spun-off 100% of the ownership of Phillips which resulted
in the distribution of 4,092,652 Phillips Shares to the shareholders of
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<PAGE> 66
TBC in a dividend distribution. As a result, Phillips became an independent
publicly-owned company whose shares are traded on the Nasdaq National Market,
under the symbol PNJI.
Phillips, through its P/J and Jetcom Divisions, and its subsidiaries Dixie
Type and Supply Company, Inc., Onondaga Litho Supply Co., Inc. and C.M.
Graphics, Inc., operates businesses in the northeast, southwest and southeast
regions of the United States. The Jetcom Division was created on November 1,
1993, when the company acquired the operating assets of Jetcom, Inc., the
largest distributor of graphic arts supplies in the Cincinnati area, and
combined it with the company's existing branch office in Cincinnati. Each
division and subsidiary maintains its own sales force which is compensated on
the basis of gross profits and other financial criteria.
Phillips has 16 distribution outlets serving a geographic region extending
from New York to Florida and west to Texas. Its leading suppliers include Agfa,
Anitec, DuPont, Eastman Kodak, Hoechst Celanese, 3M and Xerox. Dixie Type,
Onondaga and CM Graphics also have several exclusive geographic dealerships for
printing presses with manufacturers, including Ryobi, Hamada, Omni and KBA
Planeta.
BUSINESS, PRODUCTS AND SERVICES
Phillips is a leading distributor and systems integrator for the printing
and publishing industry. Typical customers include design studios, in-plant
printing operations, color separators, service bureaus, commercial printers and
newspapers. Phillips sells approximately 15,000 products, constituting what
management believes to be the most comprehensive line of supplies and equipment
available from a single dealer in the industry. Phillips' products are used in
the creative design and production phases of the printing process. Consumable
products, which include film plates, proofing materials, photographic chemicals,
printing blankets and pressroom chemistry, represent approximately 80% of the
company's consolidated revenues. Phillips also distributes high-technology
equipment to the prepress sector, having pioneered distribution of these
products to the graphics arts industry in 1980. In addition, Phillips sells
printing presses and bindery equipment which are used in the press and bindery
sectors of the industry.
Phillips offers a wide variety of graphic arts-related hardware and
software, including electronic imaging setting equipment, desk-top publishing
equipment and software, scanners, electronic color proofing equipment and
various image output devices. Phillips is a value-added reseller for Apple
Computer, distributing hardware and software products that complement the
Macintosh, such as scanning systems, flatbed and drum scanners, and color
proofing products. Each Phillips facility has Apple certified technicians to
service Macintosh products. Phillips also increased the number of its
demonstration facility locations from three to ten during 1993.
In addition to traditional services offered by most graphic arts suppliers,
Phillips has developed a number of customized services. These include a real
time, on-line inventory system, customized computer reports for monitoring
quarterly and annual purchases and tracking and filing for rebates, special
dedicated inventories established upon the request of customers to ensure timely
delivery of any unique product, and appraisal services for presses and other
printing equipment.
Phillips purchases products from over 600 different suppliers and then
resells them to over 12,000 customers. Phillips does not manufacture any
merchandise, although printing blankets are cut to size for certain customers.
Management believes that Phillips has earned a reputation for excellence
among its customers, suppliers and competition due to its extensive product line
and commitment to customer service. Phillips was recognized as "Dealer of the
Year" in 1991 by the Graphic Arts Suppliers Association, a national trade
association with more than 250 members which are dealers or manufacturers in the
industry.
Phillips' operations are subject to the economic and business risks
typically associated with product distribution. As a distributor, Phillips must
maintain good relationships with its suppliers. The largest manufacturers have
become more selective about whom they will allow to market their products. They
have over the last five years actively limited the establishment of new
dealerships and attempted to cancel
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<PAGE> 67
underperforming dealerships. Management believes that this environment may serve
to enhance Phillips' overall competitive position.
Typically, Phillips enters into written agreements with its key suppliers
for periods of one or two years, although these agreements are cancelable by the
manufacturers on 30 days notice. Under those agreements, Phillips is usually
limited to certain territories and, in most instances it does not receive the
exclusive right to sell the manufacturer's products within such territory.
Phillips believes it generally enjoys good relations with its suppliers,
however, there is no assurance that its licenses to sell any manufacturer's
products will be renewed. Although no single supplier accounts for more than 20%
of Phillips' purchases, an adverse change in a few of these relationships could
have a negative impact on Phillips' results. In most instances, however,
management of Phillips believes it would be able to replace any discontinued
manufacturer's products with a suitable line of comparable products.
Approximately 30% of Phillips' inventories are consigned at various
customers' locations. Consigning inventory has been a common practice in the
graphic arts distribution industry for the last ten years. It allows the
servicing of accounts on the fringe areas of branch locations as well as those
accounts that have excessive service requirements. Usage of inventory is
monitored at least monthly through physical inventory by Phillips salespeople.
The majority of consigned inventory is secured by Uniform Commercial Code
filings to reflect Phillips' ownership.
As a distributor of products manufactured by others, Phillips is not
directly affected by the raw materials markets. Shortages of raw materials
experienced by its suppliers could result in higher prices for and/or shortages
in Phillips' products, however, Phillips has not experienced any significant
difficulties in this area for many years. Sales are primarily from inventory
and, therefore, there is no meaningful backlog. Also, no material portion of
Phillips' business is subject to renegotiation of profits or termination of
contracts at the election of the United States Government. Phillips has not
spent a material amount during any of the last three fiscal years on
company-sponsored research and/or development activities.
MARKETS AND CUSTOMERS
Customers for Phillips' products include design studios, in-plant printing
operations, color separators, service bureaus, newspapers, commercial printers,
binderies and others engaged in prepress, press and bindery processes in the
printing industry. Phillips' customers typically are mid-sized printers and
trade shops, with 200 or fewer employees, although sales to large national
accounts are becoming a more significant part of the business. Although no
single customer accounts for over 3% of total sales, an adverse change in a few
of these relationships could have a negative impact, although not likely to be
material, on Phillips' operating results. No material part of Phillips' business
is regarded as seasonal.
BUSINESS STRATEGY
Phillips' management believes that during the next five years the graphic
arts supply sector of the printing industry will undergo significant
consolidation, primarily resulting from manufacturers seeking more efficient
distribution channels and the failure of some competitors to keep pace with
demands for technologically-advanced products. Management of Phillips believes
that this consolidation presents an opportunity for growth and higher
profitability to the largest distributors of graphic arts products. In addition,
opportunities for Phillips to serve as a primary United States distributor for
certain manufacturers of graphic arts equipment are likely to arise in the
future and further geographic expansion will enhance Phillips' ability to
capitalize on these opportunities to the fullest. One such opportunity arose in
late 1993 when Phillips was offered and accepted distribution rights from Xerox
for its new generation of color printers.
Industry-wide changes are also affecting customers. The customer with
multiple facilities throughout the country often finds it easier and more
cost-effective to purchase through one company which can service all of its
facilities. Phillips believes that based on its excellent reputation in its
existing markets, it can increase its ability to compete for the business of
multiple-facility customers by further geographic expansion. Technological
changes within the printing and imaging industries have reduced the consumption
of certain types of traditional sensitized film and paper products. Development
of the market for electronic prepress systems and
60
<PAGE> 68
becoming a systems solution integrator are important steps which Phillips is
pursuing in response to this trend. The Merger will greatly enhance the ability
of both Momentum and Phillips to take advantage of, and respond to, these trends
by relying on each others' strengths and geographic markets.
The key components of Phillips' strategy for increasing market share and
improving profitability are set forth below.
Continued emphasis on customer service at competitive
prices. Phillips attempts to differentiate itself by providing products
and technical advice which will make its customer's business more cost-
efficient and effective. Phillips' philosophy is to focus on the customer's
profitability rather than the sale of products without regard to a
particular customer's needs.
Geographic expansion. Phillips currently distributes products in what
management believes to be approximately 35% of the major United States
markets. The Merger will result in coverage in approximately 75% of the
major United States markets. Further expansion will focus on gaps in
geographic coverage and take advantage of quality acquisition
opportunities.
Broadened product lines. Phillips will continue to expand its product
line for the prepress sector into the press and bindery sectors in order to
become a full service supplier to all three sectors. Presently, Phillips
can supply new presses and bindery equipment under manufacturer licenses at
Dixie Type and Onondaga locations and in the middle Atlantic states through
C. M. Graphics. Management intends to expand these or similar product lines
to existing P/J Division markets, as well.
High technology equipment and supplies. Both Phillips and Momentum
have had a long-standing focus on emerging high technology products. Each
has highly trained sales consultants who provide a form of value-added
service to their customers. Management considers the ability of its sales
force to sell high technology products and Phillips' and Momentum's
excellent relationships with manufacturers of high technology equipment and
software to be a major competitive advantage.
In the event the Merger is not consummated for any reason, Phillips
management intends to expand, both through internal growth and by acquisition of
other dealers. Acquisition opportunities will be sought both to expand product
lines and geographic markets. Management believes that Phillips is an attractive
potential acquirer due to its reputation in its industry, its acquisition
philosophy which encourages preservation of the local name, benefits programs
and entrepreneurship of the acquired business, and the availability of Phillips
Shares to pay all or a portion of the purchase price and to provide long term
incentives. However, Phillips management believes that the Merger presents a
superior opportunity for significant geographic expansion without impairing
Phillips' borrowing capacity to finance additional growth.
SALES AND MARKETING
Phillips' basic sales strategy is twofold: (i) offer quality products from
leading suppliers at competitive prices and (ii) differentiate itself from its
competitors by helping its customers to become more profitable by recommending
the most cost effective products, whether supplies or equipment, to fulfill the
customer's needs. Phillips' salespeople strive to gain a thorough understanding
of their customers' business needs. Its salespeople have technical training in
the products they sell, enabling them to provide assistance to end users in
identifying their needs and matching those needs with the appropriate products
or services. Phillips also maintains an in-stock service level (delivery same
day or within 24 hours of order), which management believes enhances Phillips'
attractiveness to customers.
COMPETITION
The graphic arts supplies and equipment distribution business is highly
competitive. The marketplace for this industry generates sales to the ultimate
customer of in excess of $2.5 billion, excluding new and used press and bindery
equipment. Management believes that most of these sales are made through more
than 300 independent dealers, with no dealer accounting for more than 14% of the
total market place. Based on published sales estimates, Phillips believes that
it is one of the top three dealers in the country. Each of the other larger
dealers (based on published sales estimates) other than Phillips cover up to 75%
of the major
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<PAGE> 69
United States markets with their distribution networks. Presently, management
estimates that Phillips services approximately 35% of the major United States
markets.
Principal means of competition among the larger dealers are breadth of
product offerings, price, quality, prompt and complete order delivery and
service. Management believes that Phillips' success stems from the breadth of
its product offerings, its commitment to product quality and customer service,
its marketing of high technology equipment and supplies by technically trained
sales people, and its ability to provide economical solutions to the specific
needs of its customers.
EMPLOYEES
The graphic arts distribution industry is people-driven. Phillips has a
highly motivated and experienced work force of 348 permanent full-time employees
as of April 30, 1994, none of whom are currently represented by any collective
bargaining unit. Employee relations are excellent. Over 20% of the present work
force has been with Phillips more than 15 years.
Phillips' management team, including branch managers, have an average
experience level in excess of 20 years in the industry, 14 of which have been
with Phillips. This has provided stability and a shared business philosophy that
stresses the intrinsic value of the individual and the importance of adding
value to the customer's business. This philosophy encourages an open environment
where initiative and accountability are basic fabrics of the business day. This
culture has allowed Phillips to attract and retain a highly productive, creative
and professional staff.
Phillips presently employs 95 salespeople. Phillips invests heavily in
sales training programs and experiences very little turnover among its top
performers. This specific group averages 19 years experience in the industry,
the majority being with Phillips. Critical to Phillips' success is the fact that
the salespeople are not "order takers," but rather seek to add value for their
customers by developing a sophisticated understanding of their needs and
offering the most cost-effective solutions. Phillips' full-line approach and
particular strengths in the electronic sector of the market are key elements of
its successful sales strategy.
For the most part, key management and sales personnel are not bound by any
agreement not to compete with Phillips. Since the loss of key personnel could
have a negative impact on revenues, management utilizes a stock incentive
program both to recognize significant performance and to help ensure the
continued stability of this key business component. In 1993, Phillips granted
options to purchase its common stock to 43 employees, including its executive
officers, and awarded restricted shares of its common stock, which are subject
to forfeiture under certain circumstances, to an additional 25 employees. See
"PROPOSAL 3 -- ADOPTION OF THE 1993 LONG TERM INCENTIVE PLAN".
Compensation for Phillips salespeople is based on their achieving targeted
financial goals, including but not limited to sales, profit, inventory control
and receivables aging. This compensation system rewards production while
encouraging salespeople to exercise sound business judgment.
PROPERTIES
Phillips currently has 16 distribution facilities consisting of 10 branches
in the eastern half of the U.S., three Dixie Type branches in the southeastern
U.S., two Onondaga branches in upstate New York and the Jetcom branch in
Cincinnati, Ohio. Each facility is a full service office and warehouse, offering
sales support, service and local inventory. The company also has four sales
offices, two in New Jersey and two in upstate New York, a fabricating facility
in Philadelphia, Pennsylvania, and corporate offices in Pennsauken, New Jersey.
Phillips' principal executive offices are located in Pennsauken, New Jersey, a
suburb of Philadelphia.
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<PAGE> 70
The following table presents information regarding these facilities of
Phillips and its subsidiaries and divisions:
<TABLE>
<CAPTION>
APPROXIMATE FLOOR
LOCATION(1) SPACE (SQ. FT.) PRIMARY FACILITY USE
--------------- ----------------- --------------------------
<S> <C> <C> <C>
Phillips Pennsauken, NJ 3,200 Corporate Headquarters
Philadelphia,
P/J Division PA 14,000 Pressroom Products
Carlstadt, NJ 11,000 Sales Office
Pennsauken, NJ 32,000 Distribution/Div. Office
Pittsburgh, PA 10,480 Distribution
Lititz, PA 14,000 Distribution
Elkridge, MD 10,000 Distribution
Atlanta, GA 16,000 Distribution
Nashville, TN 16,000 Distribution
Miramar, FL 15,000 Distribution
Orlando, FL 14,350 Distribution
Houston, TX 4,300 Distribution
Dallas, TX 17,550 Distribution
Dixie Type Birmingham, AL 36,000 Distribution/Corp. Office
Mobile, AL 8,000 Distribution
Jackson, MS 6,000 Distribution
Onondaga Buffalo, NY 3,000 Sales Office
Albany, NY 4,800 Sales Office
Rochester, NY 9,100 Distribution
Syracuse, NY 10,000 Distribution
C.M. Graphics Cherry Hill, NJ 3,000 Sales/Corp. Office
Jetcom Division Cincinnati, OH 35,000 Distribution/Div. Office
</TABLE>
- ---------------
(1) All properties other than the Philadelphia, Atlanta and Birmingham
facilities, which are owned, are held under operating leases.
Although each facility identified above as distribution is a full service
facility, consisting of office and warehouse space, Phillips maintains larger
division, corporate and sales offices (approximately 10,000 square feet) in the
Pennsauken, Birmingham and Cincinnati locations.
The majority of Phillips' shipments to customers are made on company-owned
vehicles, with the balance shipped by common carrier or drawn from consigned
inventories held at customer locations. Each branch maintains at least one
delivery vehicle. Management believes that local warehousing is critical to both
its customers and suppliers. Customers rely on close proximity of distribution
centers for rush order delivery and prompt service. Suppliers often require
local warehousing capacity as a pre-condition to granting authorized dealer
status.
Each of the P/J Division and Onondaga facilities is linked to a central
computer system that provides customer profiles, marketing information,
statistics on local markets, products and sales and company financial data.
Management believes that the current computer system offers high speed
networking performance for current use, and allows room for significant
expansion in the future. Dixie Type and Jetcom each maintain their own central
computer systems which in Dixie Type's case provides similar support for each of
the Dixie Type distribution facilities.
Phillips' management strategy is to maintain a decentralized management
system which permits the presidents of its operating units broad discretion in
the conduct of their respective businesses, including responsibility for
management of their suppliers, customers and employees. Strong formal and
informal planning and monitoring functions occur within this structure and the
presidents of the operating units are evaluated against their financial and
non-financial goals which are established on an annual basis. A substantial
portion of each president's compensation is tied to the performance of his
operating unit against its annual plan. Management believes that a significant
factor in the company's success is the result of fostering
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<PAGE> 71
and perpetuating the entrepreneurial drive of operating management. The
company's current operating managers consistently meet or exceed industry
performance levels.
Phillips believes that its properties and equipment are generally well
maintained, in good operating condition and adequate for current operations and
foreseeable expansion, although it conducts ongoing, long range strategic
planning to ensure that additional capacity will be available as and when
needed. The inability of Phillips to renew any short-term real property lease
would not have a material adverse effect on the company's results of operations.
PATENTS, TRADEMARKS AND TRADENAMES
Phillips does not own any patents or registered trademarks or tradenames.
The symbol "P/J" is an unregistered common law trademark which Phillips has been
using for many years. To the extent patents or trademarks are significant to
Phillips' business, they are owned by the suppliers who have licensed Phillips.
Management of Phillips does not believe that patents play a significant role in
its business; however, the trademarks and tradenames of its key suppliers play a
role in sales generation.
ENVIRONMENTAL REGULATIONS
Management does not believe that compliance with federal, state and local
laws relating to the protection of the environment will have a material effect
on the financial condition or results of operations of Phillips.
Phillips' primary business involves the resale of a variety of products
including certain chemicals. The chemical products are all pre-packaged by the
manufacturer or formulator before shipment to Phillips. Occasionally, during
handling, packages are damaged and/or product is spilled. Phillips disposes of
such damaged materials as hazardous wastes where required by law, normally
through the original manufacturer or its recommended disposal company. The
annual expenditures for such disposal is insignificant.
Until September 1991, Phillips sold industrial chemicals through its
Chemical Division which was operated at a facility in Philadelphia, Pennsylvania
owned by Phillips. The Chemical Division was sold in 1991 and the business was
relocated by the purchaser. Presently, Phillips maintains its pressroom products
division at this facility. In the spring of 1992, Phillips had the underground
storage tanks removed from this facility and reported to the Pennsylvania
Department of Environmental Resources the tank removal project and the existence
of low levels of volatile organic compounds in groundwater at the site. No
further site specific action is anticipated other than occasional groundwater
testing.
Phillips has been designated a "potentially responsible party" by the
Pennsylvania Department of Environmental Resources ("DER") in connection with
the investigation and potential clean-up of the Industrial Solvents and Chemical
Company site in York County, Pennsylvania under the Pennsylvania Hazardous Sites
Cleanup Act ("HSCA"). More than 900 potentially responsible parties ("PRPs")
have been identified in connection with the site. At present, it is not possible
to estimate precisely the total dollar cost to remediate the site. Under HSCA,
Phillips may potentially be held "jointly and severally" liable for all costs
incurred to remedy the environmental conditions at the site. Under several
liability, Phillips could be held responsible, alone, for all such costs.
However, in such circumstances, Phillips would possess a right of contribution
under HSCA against all other PRPs. Phillips believes the imposition of several
liability to be unlikely because Phillips is actively participating in a PRP
Group which is cooperating with DER, under various Consent Orders and
Agreements, to remedy the conditions at the site. Participating PRPs which are
signatories to the Consent Orders and Agreements represent more than 60 percent
of the volume of the material at the site. Accordingly, Phillips anticipates,
based upon current information, that its ultimate potential liability for the
site will not have a material adverse impact upon the company. In this regard,
Phillips has reserved $70,000 for this potential liability based upon its
approximate share of the clean-up costs (estimated at $40 million) and the
amount of material alleged to have been sent to the site by Phillips.
From the time of its incorporation through approximately 1974, Phillips
formulated certain silver-based photographic chemicals for resale. Under federal
and state "superfund" laws, Phillips could have potential liability for clean-up
costs if any wastes generated in the formulation process were hazardous and were
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<PAGE> 72
disposed of at a location which becomes a state or federal "superfund" site.
Management of Phillips believes it is unlikely that any such claims will occur
since, except as identified in this paragraph, Phillips has not been identified
as a "potentially responsible party" at any site and, due to the silver content,
any wastes ordinarily would have been collected for recovery and recycling.
Management of Phillips does not anticipate any material obligation arising out
of any of its past or present operations; however, no assurance can be made in
this regard.
LEGAL PROCEEDINGS
Phillips and its subsidiaries are from time to time involved in routine
litigation incidental to the conduct of their business. Management believes that
none of the routine litigation in which Phillips and its subsidiaries are
currently involved is, individually or in the aggregate, material to Phillips'
financial condition or results of operations.
MOMENTUM BUSINESS DESCRIPTION
GENERAL
Momentum was incorporated in Delaware on October 26, 1989 as a subsidiary
of VWR Corporation for the purpose of carrying out the spin-off of VWR
Corporation's non-laboratory distribution businesses into a separate,
independent, publicly held corporation. This spin-off was accomplished on March
1, 1990, with the VWR Corporation stockholders receiving one Momentum Share for
each five shares of VWR Corporation common stock held. Momentum Shares were
split (in the form of a 200% stock dividend) three for one effective July 7,
1992.
Following the spin-off from VWR, Momentum had two business segments, the
graphics group and the textiles group. In 1993 Momentum sold its wholly-owned
subsidiaries, VWR Textiles & Supplies Inc. and Momentum Textiles Inc., with the
result that Momentum's business consists solely of the graphics business as
described below. If the Merger is not consummated, the Board of Directors of
Momentum anticipates that Momentum would continue its goal of becoming the
leading value-added and value growth dealer in the industry by increasing
operating efficiencies and providing national geographic coverage for customers
and manufacturers, and through long-term capital investments and acquisitions as
consolidation in the industry occurs. However, management of Momentum believe
that the Merger will enable Momentum to achieve its objectives more quickly and
efficiently.
BUSINESS
Momentum is a major national distributor of a broad line of photographic,
graphic arts and reprographic supplies and equipment. Products include supply
items such as photographic film and papers, paste-up supplies, printing plates,
offset blankets, pressroom chemistry and equipment ranging from traditional
processors to advanced electronic prepress systems. Principal customers include
commercial and in-plant printers, photographers, color separators, service
bureaus, newspapers, and other users of electronic imaging.
PRODUCTS AND SERVICES
Momentum sells approximately 18,000 photographic and graphic arts products,
none of which are manufactured by Momentum. Momentum purchases products from
manufacturers and others and maintains an inventory of substantially all of the
products in its regional warehouses. Momentum purchases its inventory from
manufacturers and other vendors on payment terms that generally call for payment
within 30 to 60 days. Warranties for products that Momentum distributes are made
by the manufacturer.
Momentum generally ships products to customers upon request from its
various warehouses, except in some instances where the customer has previously
arranged for consignment of products and is billed monthly. Approximately 9% of
Momentum's inventory is presently consigned at customers' locations. Certain
types of
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<PAGE> 73
products, primarily electronic prepress equipment, are often shipped direct from
manufacturers and generally not kept in inventory.
Momentum also, in connection with electronic prepress equipment, provides
services to customers, including consulting on system configuration and training
personnel on use of such equipment and sale of maintenance contracts.
Momentum distinguishes for internal purposes two general categories of
products: (1) traditional supplies, which generally include consumables such as
film, plates and photographic papers and chemicals and equipment such as film
processors and cameras, which presently comprise approximately 80% of Momentum's
revenues; and (2) production equipment, primarily electronic prepress equipment,
which includes computer hardware and software designed for the graphics arts
industry, which presently comprises approximately 20% of Momentum's revenues.
Various sources of supply exist for the products essential to the business.
Momentum has written contracts with its key suppliers. Those contracts are
generally terminable upon 30 or 60 days notice (with the exception of Momentum's
contract with Fuji, Momentum's single largest supplier), are not exclusive and
in some cases impose geographic limits on Momentum's distribution activities.
Momentum's agreement with Fuji is only terminable "for cause" and runs through
December 31, 1997. Sales of Fuji products represent about 34% of Momentum's
business and Momentum is Fuji's largest distributor in the U.S. If this
agreement were terminated it would seriously impact Momentum's sales although
Momentum believes it could obtain comparable products for its customers.
Momentum does not manage or conduct significant research activities
relating to the development of new products, although it does work with
customers and suppliers to improve or develop new uses for existing products.
Momentum owns several trademarks and tradenames, none of which are considered
material to current operations. No material portion of the continuing business
of Momentum is regarded as seasonal.
MARKETS AND CUSTOMERS
The principal customers of Momentum are thousands of relatively small
businesses including commercial printers, photographers, color separators, and
service bureaus. The operations of Momentum are not dependent on a single
customer or a few customers, the loss of any one or more of which would have an
adverse effect on Momentum. No one customer accounts for ten percent or more of
the revenues. Momentum has no material foreign sales or income.
METHOD OF DISTRIBUTION
Momentum maintains an outside sales force to provide product information
and technical support to its customers. Approximately one-third of Momentum's
employees are outside sales representatives who solicit orders, provide product
information and provide technical support to their customers. Momentum also
maintains an inside sales force by which customers place individual orders by
telephone or by computer.
Orders are shipped from local or central warehouses, depending on the
nature of the product ordered. Orders are generally shipped to the customer by
common carrier or, less frequently, by Momentum's trucks.
COMPETITION
Momentum competes with numerous regional and local distributors as well as
manufacturers who sell direct. On a national basis in the photographic and
graphic arts products marketplace, Momentum is one of the four largest
distributors based upon published sales information.
A combination of quality, price and service is the major determining
competitive factor. The graphics industry is considered to be highly
competitive.
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FOREIGN OPERATIONS AND EXPORT SALES
Momentum has had no direct foreign source of income during any of the past
three fiscal years other than sales that are made at domestic locations to
certain foreign customers. These have accounted for less than 5% of total sales.
BACKLOG
Backlog figures for Momentum are not maintained. Such figures are not
meaningful because most orders received are for merchandise held in inventory
and available for immediate shipment.
EMPLOYEES
Momentum has approximately 300 employees. Only one employee is represented
by a union. Momentum believes its employee relations are excellent.
PROPERTIES
Momentum's executive offices, which are leased, are located at Koll Center
Bellevue, Suite 1900, 500 -- 108th Avenue N.E., Bellevue, Washington 98004. Its
distribution facilities are described below:
<TABLE>
<CAPTION>
METROPOLITAN AREA LEASED/OWNED SQ. FOOTAGE LEASE EXPIRES
------------------------------------------ ------------ ----------- -------------
<S> <C> <C> <C>
Atlanta, GA............................... Leased 14,400 1/31/95
Boston, MA................................ Leased 11,600 10/31/94
Chicago, IL............................... Leased 49,600 7/31/00
Cincinnati, OH............................ Leased 10,900 10/31/96
Dallas, TX................................ Leased 5,600 3/31/95
Detroit, MI............................... Leased 8,000 4/30/96
Kansas City, MO........................... Leased 9,000 12/31/95
Los Angeles, CA........................... Leased 11,800 8/31/02
Miami, FL................................. Owned 17,600 --
Minneapolis, MN........................... Leased 38,000 6/30/98
Minneapolis, MN........................... Leased 12,190 3/31/95
Milwaukee, WI............................. Leased 2,000 4/30/95
New Orleans, LA........................... Owned 14,400 --
Philadelphia, PA.......................... Leased 14,300 5/31/95
Portland, OR.............................. Leased 7,800 9/30/95
Seattle, WA............................... Owned 23,200 --
San Francisco, CA......................... Leased 10,000 5/15/96
St. Louis, MO............................. Owned 22,900 --
</TABLE>
In addition, Momentum has several small sales offices.
Momentum believes that its facilities are well suited to its business needs
and are adequate to accommodate its current business and expected growth for the
next two years. It is not anticipated there will be any difficulty in acquiring
and/or leasing additional facilities as and when needed.
ENVIRONMENTAL REGULATION
It is not anticipated, although there can be no assurances, that compliance
with federal, state and local provisions relating to the protection of the
environment will have a material effect on capital expenditures, earnings or
competitive position of Momentum.
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<PAGE> 75
LEGAL PROCEEDINGS
Momentum is involved in various contractual, personal injury and general
liability cases and claims which are considered normal to its business. In the
opinion of management, these claims, when finally concluded, will not,
individually or in the aggregate, have a material adverse impact on the
financial position or results of operations of Momentum.
SECURITY OWNERSHIP
The following tables describe the relative ownership interests of
shareholders of Phillips and the former stockholders of Momentum in PrimeSource
following the Merger, as well as the ownership interest of management of
PrimeSource, Phillips Shares owned by management of Phillips and Momentum Shares
owned by management of Momentum.
SHAREHOLDERS OF PHILLIPS AND FORMER STOCKHOLDERS OF MOMENTUM
At and after the Effective Time, by reason of the conversion of Momentum
Shares into PrimeSource Shares, the equity ownership of PrimeSource will be
shared by the persons who were holders of Phillips Shares and Momentum Shares
immediately prior to the Effective Time. Accordingly, the equity interest of
holders of Momentum Shares immediately prior to the Effective Time will be
converted into a smaller percentage ownership interest in a larger company. The
equity interest of holders of Phillips Shares will remain an equity interest in
Phillips, renamed PrimeSource, but will represent a smaller percentage ownership
interest following the Merger.
Following consummation of the Merger, the holders of Phillips Shares and
Momentum Shares are expected to own the following percentages of PrimeSource
Shares:
<TABLE>
<CAPTION>
PERCENT OF PRIMESOURCE SHARES
-------------------------------
AS ISSUED(1) AS ADJUSTED(2)
------------ --------------
<S> <C> <C>
Holders of Phillips Shares....................... 62.76 62.35(3)
Holders of Momentum Shares....................... 37.24 37.65
</TABLE>
- ---------------
(1) Assumes 6,555,269 PrimeSource Shares issued and outstanding at the Effective
Time; also assumes no exercise of any options or warrants for Phillips
Shares or Momentum Shares.
(2) Assumes the exercise of options for Phillips Shares and Momentum Shares with
an exercise price of less than $10.50 and $6.50, respectively, which may be
purchased upon exercise of options vested as of June 1, 1994 or vesting
within 60 days after such date.
(3) Excludes options with respect to 192,000 PrimeSource Shares which will be
issued and outstanding at the Effective Time. Also excludes options with
respect to 27,748 PrimeSource Shares issued to certain Phillips directors.
See "PROPOSAL 4 -- ADOPTION OF THE REPLACEMENT OPTION PLAN."
MANAGEMENT OWNERSHIP IN PRIMESOURCE
The following table sets forth the number of shares of PrimeSource expected
to be owned by the directors and executive officers of PrimeSource as a group at
the Effective Time (assuming no transactions in Phillips Shares or Momentum
Shares between July 1, 1994 and the Effective Time). See "MANAGEMENT OF
PRIMESOURCE."
<TABLE>
<CAPTION>
PRIMESOURCE SHARES AT
THE EFFECTIVE TIME
------------------------
SHARES
BENEFICIALLY
OWNED(1) PERCENT
------------ -------
<S> <C> <C>
Directors and Executive Officers as a
Group (15 persons)..................................... 930,117 14.2%
</TABLE>
- ---------------
(1) Includes 103,461 PrimeSource Shares that could be purchased after the
Effective Time upon exercise of currently exercisable stock options of each
company or options of each company exercisable within sixty
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<PAGE> 76
days of the Record Date. Does not include options granted to certain
Phillips directors to acquire 27,748 Phillips Shares. See "PROPOSAL
4 -- ADOPTION OF THE REPLACEMENT OPTION PLAN."
PHILLIPS -- PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth, as of July 1, 1994, Phillips Shares
beneficially owned by shareholders of Phillips who were known by the company to
own beneficially more than 5% of the outstanding Phillips Shares, each director
of Phillips, each executive officer and all directors and executive officers as
a group and the number of PrimeSource Shares expected to be beneficially owned
by each such person or group at the Effective Time (assuming no transactions in
Phillips Shares after such date).
<TABLE>
<CAPTION>
PRIMESOURCE
SHARES AT
AMOUNT AND NATURE OF BENEFICIAL EFFECTIVE
OWNERSHIP OF PHILLIPS SHARES(1) TIME(11)
NAME AND ADDRESS OF BENEFICIAL ------------------------------------------------ -----------
OWNER DIRECT INDIRECT PERCENT(1) PERCENT
- ----------------------------------- ------- -------- ------- -----------
<S> <C> <C> <C> <C>
Philip J. Baur, Jr................. 63,881 432,574(2)(3)(5)(9) 12 7
2801 Hunting Park Avenue
Philadelphia, PA 19129
John M. Pettine.................... 18,350 251,776(9) 7 4
2801 Hunting Park Avenue
Philadelphia, PA 19129
Marie B. Dillin.................... 420 594,502(3)(4)(6) 14 9
1408 S. Highland Park Drive
Lake Wales, FL 33853
DeHaven A. Kane.................... -- 380,045(4) 9 6
Rockhill Mennonite
Community, Apt. L-29
Sellersville, PA 18960
NAME OF DIRECTOR OR EXECUTIVE
OFFICER
- -----------------------------------
Fred C. Aldridge, Jr............... 14,866(10) * *
Philip J. Baur, Jr................. 63,881 432,574(2)(3)(5)(9) 12 7
William A. DeMarco................. 2,493(7) * *
James L. Everett, III.............. 2,636(10) * *
Don G. Garner...................... 4,612(8) * *
Myron S. Gelbach, Jr............... 5,000(10) * *
Nelson G. Harris................... 28,536(10) * *
Frederick G. Heinkel............... 14,131(8) * *
James F. Mullan.................... 17,103(7)(8) * *
John M. Pettine.................... 18,350 251,776(9) 7 4
Harold F. Still, Jr................ 1,000 * *
Judith M. von Seldeneck............ 1,000 * *
Dennis M. Zewiske.................. 15,997(8) * *
All Directors and Executive
Officers as a Group (13
persons)......................... 189,605(7)(8)(10) 432,574(2)(3)(5)(9) 15 9
</TABLE>
- ---------------
* Representing less than 1% of the outstanding stock.
(1) This table has been prepared based on information furnished to Phillips by
the respective shareholders, or contained in filings made with the
Securities and Exchange Commission. For purposes of this table, if a person
has or shares voting or investment power with respect to such shares, they
are considered beneficially owned by that person under rules of the
Securities and Exchange Commission. As a result, in some cases, the same
shares are listed opposite more than one name in the table. The table also
includes shares which are the subject of presently exercisable options to
acquire Phillips Shares awarded to certain officers and directors under
stock option plans. Such shares are deemed outstanding for the
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<PAGE> 77
purpose of computing the percentage ownership of such officers and
directors individually and in the aggregate. The total number of shares
held by shareholders of Phillips who own beneficially more than 5% of the
outstanding Phillips Shares, after elimination of duplication, is 1,019,464
or 25% of the outstanding Phillips Shares.
(2) Includes (i) 8,144 shares in a trust of which Philip J. Baur, Jr. has sole
voting and investment power, (ii) 7,196 shares owned by the Philippian
Foundation, a charitable foundation of which Mr. Baur is trustee and has
sole voting and investment power and (iii) 7,191 shares owned by Mr. Baur's
spouse. Also includes 27,901 shares held in two trusts of which Mr. Baur
and CoreStates Bank N.A. are co-trustees and share investment power. Mr.
Baur has sole power to vote all shares held in these two trusts.
(3) Includes 90,263 shares held in two trusts created by Emma M. Baur,
deceased. Philip J. Baur, Jr. and Marie B. Dillin are co-trustees and share
voting and investment power.
(4) A total of 380,044 shares are held in four trusts created under the will of
Philip J. Baur, deceased, of which First Fidelity Bank, Marie B. Dillin and
DeHaven A. Kane are co-trustees and share investment power. Marie B. Dillin
has sole power to vote all the shares held in the four trusts.
(5) Includes 40,103 shares held in two trusts created through distribution of
the Estate of Marguerite E. Baur, deceased. Philip J. Baur, Jr. and Edwin
R. Boynton are co-trustees for one trust while Marie B. Dillin and Steven
P. Crouse are co-trustees for the other. Mr. Baur has sole power to vote
all shares held in both trusts.
(6) Includes 124,194 shares held in a trust created by Marie B. Dillin, of
which Marie B. Dillin, Steven P. Crouse and William H. Crouse, Jr. are
co-trustees and share voting and investment power.
(7) Does not include 36,063 shares owned by the Phillips 401(k) Savings Plan
and held in a trust for the benefit of those employees of Phillips
participating in the Plan. Messrs. Mullan and DeMarco and Mr. Joel Saftlas
are the plan trustees. The employees have the sole power to direct the
voting of these shares. Therefore, the trustees disclaim any beneficial
ownership of these shares.
(8) Messrs. Mullan, Heinkel, Zewiske, DeMarco and Garner hold options for
8,150, 9,500, 9,500, 1,500 and 2,850 Phillips Shares, respectively, under
Phillips' 1993 Long Term Incentive Plan. The directors and executive
officers of Phillips, as a group, hold options to acquire 31,500 Phillips
Shares, that are either presently exercisable or exercisable within 60 days
of the date of this Proxy Statement/Prospectus.
(9) A total of 234,316 shares are presently held by the TBC Thrift Plan for the
benefit of those eligible employees of TBC participating in the plan and
have been allocated to the accounts of individual employees. The committee
members (two of whom are also directors of Phillips), Carl S. Watts, Philip
J. Baur, Jr., and John M. Pettine, share the voting power with respect to
these shares. In addition, a total of 17,460 shares were purchased with
employee contributions and the employees are entitled to direct the voting
of these shares. In the absence of such direction from individual
employees, the committee members share voting power with respect to these
shares.
(10) Messrs. Aldridge, Everett and Gelbach have each been granted options to
acquire 5,975 Phillips Shares, and Mr. Harris has been granted options to
acquire 9,823 Phillips Shares, all under the Replacement Option Plan,
subject to shareholder approval which is requested at this meeting. See
"PROPOSAL 4 -- ADOPTION OF THE REPLACEMENT OPTION PLAN". None of these
options are presently exercisable and therefore the shares are not
reflected in this table.
(11) Since Phillips is the surviving entity in the Merger (under the new name
PrimeSource), the number of shares beneficially owned at the Effective Time
will not change. Assumes 6,555,269 PrimeSource Shares issued and
outstanding at the Effective Time.
MOMENTUM -- PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth, as of June 1, 1994, Momentum Shares
beneficially owned by shareholders of Momentum who were known by the company to
own beneficially more than 5% of the outstanding
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<PAGE> 78
Momentum Shares, each director of Momentum, each named executive officer and all
directors and executive officers as a group and the number of PrimeSource Shares
expected to be beneficially owned by each such person or group at the Effective
Time (assuming no transactions in Momentum Shares). Momentum knows of no other
person or "group", as that term is used in Section 13(d)(3) of the Securities
and Exchange Act of 1934, that is the beneficial owner of more than five percent
of Momentum Shares; however, as of July 1, 1994, the Momentum Money-Maker 401(k)
Retirement Plan Trust held 179,834 Momentum Shares (5.3% of outstanding Momentum
Shares) on behalf of 158 plan participants. In addition as of July 1, 1994 the
Momentum Stock Ownership Plan (the "ESOP") owned 129,469 Momentum Shares of
which 37,068 have been allocated to 251 participants and 92,401 are unallocated.
Members of the administrative committee (two of whose three members are
executive officers of Momentum) share the power to vote unallocated shares of
the ESOP. Historically, such committee has voted such shares in the same
percentages as allocated shares were voted by ESOP participants. Momentum has
indicated that immediately prior to the Effective Time it intends to terminate
the ESOP. Upon termination unallocated shares will be transferred to Momentum in
satisfaction of a note payable by the ESOP and any remaining unallocated shares
will be allocated prorata to the ESOP participants.
Voting power includes the power to direct the voting of the shares held,
and investment power includes the power to direct the disposition of shares
held. Since most shares appear under both the voting power and investment power
columns, the individual columns will not add across to the total column. As
required by SEC regulations, also shown are shares over which the named person
could acquire such powers within 60 days by exercising stock options under
Momentum's 1989 Long-Term Incentive Stock Plan.
<TABLE>
<CAPTION>
PRIMESOURCE SHARES
VOTING POWER INVESTMENT POWER ACQUIRABLE AT EFFECTIVE TIME
----------------- ----------------- WITHIN PERCENT --------------------
NAME SOLE SHARED SOLE SHARED 60 DAYS TOTAL(1) OF CLASS SHARES PERCENT(2)
- -------------------------------- ------- ------- ------- ------- ---------- -------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arnold J. Cogan................. 20,624 -- 20,429 -- 1,167 21,791 * 15,471 *
John C. Dimmer(3)............... 195,429 1,800 195,429 1,800 -- 197,229 6 140,032 2
Richard E. Engebrecht........... 34,571 61,126 34,571 46,126 43,219 138,916 4 99,630 1
John H. Goddard................. 1,132 19,251 937 4,251 1,167 21,550 * 15,300 *
Jerrold B. Harris............... 16,315 25,288 16,315 25,288 -- 41,603 1 29,538 *
Gary MacLeod.................... 11,428 -- 11,428 -- -- 11,428 * 8,113 *
Andrew V. Smith................. 18,610 -- 18,610 -- -- 18,610 * 13,213 *
William K. Street(4)............ 16,933 3,033 16,933 3,033 -- 19,966 * 14,175 *
Patsy R. Turnipseed............. 23,567 -- 8,372 -- 18,332 41,899 1 29,748 *
James H. Wiborg(3)(5)........... 170,815 70,260 170,815 70,260 -- 241,075 7 171,163 3
Dennis C. Widman................ 15,464 -- 13,124 -- 2,250 17,714 * 12,576 *
All directors and executive
officers as a group (12
persons)...................... 526,894 180,758 508,897 150,758 67,260 774,912 22 550,185 8
</TABLE>
- ---------------
* Represents less than 1% of outstanding shares.
(1) Represents the total shares over which the named person has any voting or
investment power and includes the shares in the "Acquirable Within 60 Days"
column above as required by SEC regulations.
(2) Assumes 6,555,269 PrimeSource Shares issued and outstanding at the Effective
Time.
(3) The address for Messrs. Dimmer and Wiborg, who are the only persons known to
Momentum to own beneficially more than 5% of the outstanding Momentum
Shares, is c/o Momentum Corporation, Suite 1900 Koll Center Bellevue,
500 -- 108th Avenue N.E., Bellevue, WA 98004.
(4) Mr. Street disclaims any beneficial interest in 3,033 shares which are owned
by his spouse. These shares are included in the table above as required by
SEC regulations.
(5) Mr. Wiborg shares voting and investment power in 6,048 shares held in a
trust by the University of Puget Sound. Mr. Wiborg disclaims any beneficial
interest in these 6,048 shares. These 6,048 shares and 64,212 shares owed by
Mr. Wiborg's spouse are included in the shared voting and investment power
and total columns above, as required by SEC regulations.
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DESCRIPTION OF PRIMESOURCE SECURITIES
The Amended Articles authorize 24,000,000 PrimeSource Shares, each share
having a par value of $.01, and 1,000,000 shares of Preferred Stock, each having
a par value of $.01 ("PrimeSource Preferred Shares"). After the Merger,
approximately 6,555,000 PrimeSource Shares will be validly issued and
outstanding, including approximately 2,441,000 shares issued to the Momentum
stockholders. In addition, approximately 638,000 shares will be reserved for
issuance upon exercise of options or awards of restricted stock or upon
satisfaction of Phillips' obligations in connection with its acquisition of
Jetcom, Inc. No shares of PrimeSource Preferred Shares will be outstanding. See
"PRIMESOURCE AMENDED AND RESTATED ARTICLES OF INCORPORATION AND BYLAWS".
The authorized but unissued PrimeSource Shares and PrimeSource Preferred
Shares will be available for future corporate purposes, such as raising capital,
stock dividends, employee incentive plans, acquisitions and other purposes as
determined by the PrimeSource Board of Directors. It is not the intention of the
PrimeSource Board of Directors to seek approval of the holders of PrimeSource
Shares for future issuance of any of the additional shares, except as may be
required by applicable laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Presently, NASD rules require prior shareholder approval
of transactions (other than a public offering for cash) in which there will be
issued common stock, or securities convertible into or exercisable for common
stock, having voting power equal to or in excess of 20% of the voting power
outstanding prior to the issuance of such securities.
PRIMESOURCE SHARES
All registered holders of PrimeSource Shares will be entitled to
participate ratably in such dividends on PrimeSource Shares as are declared by
PrimeSource's Board of Directors, from time to time, out of legally available
funds. All of the issued and outstanding PrimeSource Shares are identical and
will be fully paid and nonassessable. The holders of PrimeSource Shares do not
have preemptive or conversion rights, and there are no redemption or sinking
fund provisions. In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of PrimeSource, after distribution in full of the
preferential amounts to be distributed to the holders of any senior class of
security which may hereafter be issued (none are outstanding presently), the
holders of PrimeSource Shares are entitled to share equally and ratably in any
assets remaining after payment of all debts and liabilities.
Holders of PrimeSource Shares are entitled to one vote for each share held
of record on all matters voted on by shareholders, including the election of
directors. Shareholders will be entitled to exercise cumulative voting rights in
the election of directors.
PRIMESOURCE PREFERRED SHARES
The Board of Directors of PrimeSource has the authority, without further
action by the holders of the outstanding PrimeSource Shares, to issue
PrimeSource Preferred Shares from time to time in one or more classes or series
and to fix the number of shares constituting any class or series. The
PrimeSource Board shall have the power to fix the terms of any such series or
class, including designations, preferences, and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions relating thereto, including voting rights, dividends, rights on
liquidation, dissolution or winding up, conversion or exchange rights and
redemption provisions (including sinking fund provisions), if any. The
designations, rights and preferences of any class or series of PrimeSource
Preferred Shares which may be issued would be set forth in a Statement which
would be filed with the Secretary of State of the Commonwealth of Pennsylvania.
The issuance in the future of PrimeSource Preferred Shares, or the
designation of authorized but unissued shares of PrimeSource Preferred Shares
with voting and other rights which may be established by the Board of Directors
in its discretion without shareholder approval, may be used by the PrimeSource
Board of Directors to create voting impediments or otherwise delay or prevent a
change in control of PrimeSource. By issuance of PrimeSource Preferred Shares,
the Board of Directors could modify the rights of holders of PrimeSource Shares.
There is no current intention to issue any PrimeSource Preferred Shares.
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PRIMESOURCE AMENDED AND RESTATED ARTICLES OF
INCORPORATION AND BYLAWS
The following is a summary of the Amended Articles and Amended Bylaws of
PrimeSource not otherwise described in preceding sections of the Proxy
Statement/Prospectus, which is qualified in its entirety by reference to the
complete text of each such document. The Amended Articles are set forth as Annex
C hereto and will go into effect only upon consummation of the Merger. The
Amended Bylaws are filed as Annex D and will go into effect only upon
consummation of the Merger.
A vote in favor of the Merger by a Phillips shareholder shall constitute a
vote in favor of amending and restating the Phillips' Articles of Incorporation
and Bylaws to read as set forth in the Amended Articles and Amended Bylaws,
respectively.
PURPOSE
The Amended Articles provide that the purpose of the company shall be to
maximize growth in shareholder value through long-term profit on invested
capital and growth of that capital. The Amended Articles also enumerate a number
of objectives and philosophies which the Board of Directors, management and
employees are expected to follow or pursue, as appropriate. Nothing in the
purpose Article is intended in any fashion to alter or limit the provisions of
the PBCL relating to the fiduciary duty of directors, standard of care, personal
liability and the exercise of the directors' powers.
PENNSYLVANIA ANTI-TAKEOVER LAWS
Chapter 25 of the PBCL contains certain shareholder protective provisions
which apply to a registered corporation, such as PrimeSource, unless the
registered corporation elects not to be governed by such provisions. PrimeSource
has elected not to be governed by such provisions and, following the Merger,
will be governed by the shareholder protective provisions set forth in its
Amended Articles, which are described below. See "CERTAIN DIFFERENCES BETWEEN
THE CORPORATE STATUTES OF DELAWARE AND PENNSYLVANIA -- Shareholder Protective
Provisions."
INFORMAL SHAREHOLDER ACTION
Article X of the Amended Articles provides that shareholder action may be
taken only at a meeting of shareholders. Absent such a provision, under the PBCL
any action required to be taken by shareholders could generally be taken by the
written consent of the requisite number of shareholders without notice or a
meeting. Such actions would include approval of modifications to the Amended
Articles, approval of business combinations such as mergers, and approval of
other fundamental transactions. This provision removes the possibility of any
corporate action being taken by any group of shareholders in the absence of a
meeting at which proper notice is given to all shareholders.
SUPERMAJORITY VOTE ON CERTAIN MATTERS
Articles VII and VIII of the Amended Articles provide definitions for a
number of the terms used in the Amended Articles and further require a
supermajority vote for any "Major Transaction" which involves a "10%
Shareholder". Article VII contains specific definitions of "10% Shareholder",
"Major Transaction", "Voting Power", "Voting Stock", "Disinterested Director"
and certain other relevant terms.
A Major Transaction is defined to include, but is not limited to, the
following transactions in which a 10% Shareholder is involved: (i) any merger or
consolidation involving PrimeSource or any subsidiary, (ii) any sale, lease,
exchange, transfer or other disposition of assets of PrimeSource or any
subsidiary amounting to 10% in value of the total consolidated assets of
PrimeSource, (iii) any sale, lease, exchange, transfer or other disposition of a
substantial portion of the assets of a 10% Shareholder to PrimeSource or any
subsidiary, (iv) the issuance of securities having a value in excess of $2
million in a transaction in which other shareholders of PrimeSource do not
receive a proportional number of shares, (v) acquisition by PrimeSource of
securities of a 10% Shareholder having a fair market value in excess of $2
million, (vi) any liquidation or
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reclassification proposed by the 10% Shareholder, (vii) any share exchange or
division under the PBCL, and (viii) any loan or extension of credit to a 10%
Shareholder.
Any transaction which is deemed to be a Major Transaction will require
either the affirmative vote of 75% of the Disinterested Directors of
PrimeSource, or the affirmative vote of holders of not less than two-thirds of
the voting power of all of the voting stock of PrimeSource held by shareholders
other than the 10% Shareholder. There are two major exceptions to this rule.
First, if the shareholder obtains the majority approval of the Disinterested
Directors prior to becoming a 10% Shareholder, then the supermajority voting
requirements will not be applicable. Second, if prior to becoming a 10%
Shareholder, the shareholder, in compliance with applicable federal and state
securities laws made a tender offer for any and all shares of stock of
PrimeSource and acquired at least 85 percent of the voting power of outstanding
shares as a result of such tender offer, then the supermajority voting
requirements will not apply.
The provisions in the Amended Articles relating to supermajority voting
requirements are intended to protect shareholders from certain abusive tactics,
and to preserve the role of the Board of Directors in managing PrimeSource for
the benefit of all of its shareholders. The supermajority voting requirement for
Major Transactions is designed to achieve some assurance that any multi-step
attempt to gain control of PrimeSource without Board approval is made on terms
which offer similar treatment to most, if not all, shareholders. These voting
requirements do not impede a takeover or change in control that is approved by
the PrimeSource Board of Directors.
Article VIII of the Amended Articles is intended to be a substitute for the
PBCL anti-takeover provisions, and to prevent certain of the potential
inequities of business combinations which involve two or more steps by making it
more difficult to complete Major Transactions which have not been approved by
75% of the Disinterested Directors. These provisions of the Amended Articles
increase the likelihood that any shareholder or any prospective shareholder
would negotiate directly with the Board of Directors in order to avoid the
requirement that Major Transactions be submitted to shareholders and be approved
by a supermajority vote. But for these provisions of the Amended Articles,
certain Major Transactions could be accomplished simply by majority vote of the
Board of Directors, and without shareholder approval. Accordingly, it is
believed that these provisions of the Amended Articles increase the likelihood
of negotiations between a shareholder and the PrimeSource Board of Directors and
the ability of the Board to obtain the best value for all shareholders.
Article VIII may discourage the accumulation of large blocks of PrimeSource
Shares in excess of 10%. Such positions could well be disruptive to the
stability of PrimeSource's relationships with its employees, suppliers,
customers and lenders, and could precipitate a change in control of PrimeSource
on terms unfavorable to some of its shareholders. However, accumulations of
PrimeSource Shares amounting to less than 10% of the outstanding shares could be
accomplished without triggering the supermajority voting requirements with
respect to any future transaction with PrimeSource.
Tender offers or other non-open market acquisitions of stock are usually
made at prices above the prevailing market price of a company's stock. In
addition, acquisitions of stock by persons attempting to acquire control through
market purchases may cause the market price of the stock to reach levels which
are higher than would otherwise be the case. Article VIII may discourage such
acquisitions, particularly those of less than all of the PrimeSource Shares, and
may thereby deprive shareholders of an opportunity to sell their stock at
temporarily higher market prices. Because of the requirement for a higher
shareholder vote to approve Major Transactions, it may become more costly for a
shareholder to assure that it will acquire control of PrimeSource. Moreover, to
the extent that these provisions deter any potential acquirer from such takeover
attempts, they may also have the effect of maintaining the incumbent management
in office.
For these reasons, the Amended Articles may decrease the likelihood that a
tender offer will be made for less than all of the PrimeSource Shares, and as a
result, may adversely affect those shareholders who would desire to participate
in such a tender offer. A potential purchaser of stock seeking to obtain control
may also be discouraged from purchasing stock because of the supermajority
voting requirements to eliminate the provisions of Article VIII. Another effect
of these provisions is to give veto power to the holders of a minority
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of the PrimeSource Shares with respect to a Major Transaction which a majority
(but less than 75%) of the Board and a majority of shareholders (but less than
85%) may believe to be desirable and beneficial.
DIRECTORS
Number of Directors. The Amended Bylaws provided that, until changed by the
Board of Directors, the number of directors of PrimeSource will be 12. In no
case will a decrease in the number of directors shorten the term of any
incumbent director. Shareholders will have the right to vote cumulatively for
the election of directors.
Classified Board. The Amended Bylaws and Article IX of the Amended Articles
together provide that the Board of Directors shall be classified with respect to
the term for which each member shall serve into three classes. The classes shall
be as nearly equal in number as possible. Initially, one class of directors will
hold office until the annual meeting of shareholders in 1995, a second class
until the annual meeting in 1996, and a third until the annual meeting in 1997.
At each annual meeting of shareholders beginning with 1995, the class of
directors then being elected shall be elected for a three year term.
A director may be removed prior to the expiration of his or her term of
office only upon the affirmative vote of shares representing 80% of the
outstanding voting securities, provided however, if there is a 10% Shareholder,
such 80% vote must include the affirmative vote of at least two-thirds of the
outstanding voting securities held by shareholders other than the 10%
Shareholder.
Any director elected to fill a vacancy shall hold office for the remainder
of the term of the class to which such director has been elected. Vacancies
resulting from an increase in the number of directors shall be filled only by a
majority of the Disinterested Directors then in office. A "Disinterested
Director" means any member of the Board of Directors who is not affiliated with
any 10% Shareholder and was either a member of the Board prior to the time a 10%
Shareholder achieved that status or became a director subsequently upon the
recommendation of a majority of the remaining Disinterested Directors.
The establishment of a classified Board of Directors with staggered terms,
the limitations on the total number of directors and on removal of directors,
and the requirement of a supermajority vote of shareholders to change these
provisions (see "PRIMESOURCE AMENDED AND RESTATED ARTICLES OF INCORPORATION AND
BYLAWS -- Modifications to the Amended Articles"), will ensure continuity in the
affairs and business strategy of PrimeSource by making it more time consuming
for a shareholder to gain control of the Board without its consent. Thus, a
shareholder who controls more than 50% of the common stock and other voting
securities of PrimeSource may not be able to gain control of the Board of
Directors for at least two years. Moreover, since shareholders are entitled to
vote cumulatively in the election of directors, the number and percentage of
votes required to elect a single director increases as the number of directors
to be elected at any meeting of shareholders decreases. Control could be
obtained at any time, however, with the cooperation of the Board of Directors.
This provision will encourage persons interested in acquiring control of
PrimeSource to negotiate with the Board of Directors. The Board of Directors
believes that by encouraging any person intending to obtain control of
PrimeSource to negotiate with the Board, the Board will be in the best position
possible to represent and protect the interests of all shareholders.
Limitation on Directors' Liability. Article XII of the Amended Articles
limits a director's liability to PrimeSource or its shareholders for money
damages for breaches of, or failure to perform, his or her duties as a director
to the maximum extent permitted under Pennsylvania law. Under the PBCL, a
director is generally obligated to act in good faith, in a manner reasonably
believed to be in the best interest of PrimeSource, and with such care,
including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances. Under this provision, a director
is immune from liability for money damages arising out of his or her failure to
meet this standard, including when the conduct constitutes gross negligence,
unless such failure constitutes self-dealing, willful misconduct or
recklessness. The director is not, however, immune from liability imposed under
any criminal statute or for nonpayment of taxes. This provision also does not
affect any equitable remedies which do not have the result of imposing monetary
liability upon a director.
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The Amended Articles further provide that in the event the PBCL is amended
in the future to further restrict the personal liability of directors, such
standard shall be deemed adopted by PrimeSource without further action by its
shareholders. Any repeal or modification of these provisions will not adversely
affect any right or protection of a director existing at the time of such repeal
or modification with respect to acts or omissions occurring prior to such repeal
or modification.
Indemnification. The Amended Bylaws provide officers and directors with the
maximum indemnification permitted under the laws and public policy of the
Commonwealth of Pennsylvania. Under the Amended Bylaws, PrimeSource is obligated
to indemnify and defend its officers and directors, except for where the action
or failure to act giving rise to the claim for indemnification is determined by
a court to have constituted self-dealing, willful misconduct or recklessness.
Thus, indemnification may even be provided where the indemnified liability
arises from any litigation or judgment by or in the right of PrimeSource (i.e.,
a shareholder's derivative suit) against the directors, officers or other
persons entitled to indemnification. The indemnification applies to expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement,
actually and reasonably incurred by an indemnified director or officer arising
out of any claims against them in connection with their serving as an officer or
director of PrimeSource or as an officer, director, trustee, employee or agent
of another corporation or entity at the request of PrimeSource. In addition, no
independent determination that indemnification is appropriate under the
circumstances will be required.
PrimeSource is obligated to pay expenses incurred by a director or officer
in advance of the final disposition of an action, suit or proceeding, if the
director or officer agrees in writing to repay such advances if it is ultimately
determined that he or she is not entitled to be indemnified by PrimeSource. The
indemnification provisions of the Amended Bylaws are not exclusive of any other
rights to indemnification or advancement of expenses under contract, by law, by
action of the Board or shareholders or by judicial action.
The current directors of Phillips have entered into indemnification
agreements with Phillips. Although such indemnification agreements offer
substantially the same scope of coverage afforded by the provisions of the
Amended Bylaws, the indemnification agreements are direct contractual
obligations in favor of each individual. Therefore, in the event that the
Amended Bylaws are subsequently changed to reduce the scope of indemnification,
directors with indemnification agreements will not be adversely affected by such
changes. It is anticipated that similar indemnification agreements will be
entered into with the new directors of PrimeSource after the Merger is
effective.
Phillips presently carries directors' and officers' liability insurance and
intends to continue such insurance, provided the coverage and pricing of such
policies are reasonable. Insurance, however, is not a complete replacement for
the provisions in the Amended Bylaws and indemnification agreements, since the
availability of such insurance cannot be guaranteed, the pricing of such
policies has been volatile, and such policies ordinarily exclude from coverage
high risk circumstances such as contests for corporate control.
MODIFICATIONS TO THE AMENDED ARTICLES
In order to change any of the provisions of the Amended Articles relating
to the corporate purpose, the classified board, the inability to act by partial
written consent of shareholders, and the supermajority voting rights
requirements on certain transactions, the affirmative vote of 80% of all of the
voting stock of the corporation is required, provided, however, that if there is
a 10% Shareholder, such 80% vote must also include the affirmative vote of at
least two-thirds of the outstanding voting stock held by shareholders other than
the 10% Shareholder.
COMPARISON OF RIGHTS OF SHAREHOLDERS OF MOMENTUM AND PHILLIPS
Upon consummation of the Merger, the stockholders of Momentum will become
shareholders of PrimeSource, and their rights as such will cease to be defined
and governed by the corporate charter and bylaws of Momentum and the DGCL and
will be defined instead by PrimeSource's Amended Articles and Amended Bylaws and
the provisions of the PBCL. Consummation of the Merger will also modify the
rights of the shareholders of Phillips to the extent its articles of
incorporation and bylaws are amended by the Amended
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Articles and Amended Bylaws. Certain provisions of the Amended Articles and
Amended Bylaws alter the rights of stockholders of Momentum from those that
Momentum stockholders presently have, and also modify the rights which Phillips'
shareholders presently have. The most significant provisions are summarized
below. Certain capitalized terms in this section are defined in the Amended
Articles. See "Article VII -- CERTAIN DEFINITIONS" in Annex C. This summary is
qualified in its entirety by reference to the full text of the Amended Articles,
the Amended Bylaws, the Momentum Certificate of Incorporation, the Momentum
Bylaws, the Phillips Amended and Restated Articles of Incorporation (the
"Phillips Articles"), and the Phillips Bylaws. In addition, there are certain
differences between the corporate laws of the State of Delaware and the
Commonwealth of Pennsylvania which could be implemented by PrimeSource. For a
discussion of such provisions, see "CERTAIN DIFFERENCES BETWEEN THE CORPORATE
STATUTES OF DELAWARE AND PENNSYLVANIA".
CAPITAL STOCK
PrimeSource. The Amended Articles authorize the issuance of 24 million
PrimeSource Shares and 1 million PrimeSource Preferred Shares. The PrimeSource
Board of Directors will have the power to set the rights, preferences,
privileges and designations with respect to each class or series of the
PrimeSource Preferred Shares. The PrimeSource Board of Directors could, without
shareholder approval, issue PrimeSource Preferred Shares with terms giving the
holders thereof substantial voting power, conversion or other rights which could
have the effect of delaying or preventing a change in control of PrimeSource, or
modifying the rights of holders of the PrimeSource Shares. See "DESCRIPTION OF
PRIMESOURCE SECURITIES".
Phillips. Presently, Phillips has the authority to issue 10 million shares
of common stock, par value $.01 per share. No preferred stock is authorized.
Momentum. Momentum has the authority to issue 5 million shares of common
stock, par value $1.00 per share and 1 million shares of preferred stock, par
value $1.00 per share. The Momentum Board has the power to issue the preferred
stock in such classes or series and with such rights, preferences, privileges
and designations as it deems appropriate without stockholder approval.
VOTING POWER
Based upon the current capitalization of Momentum and Phillips, after
consummation of the Merger, Phillips shareholders will hold approximately
4,114,000 PrimeSource Shares and Momentum stockholders will hold approximately
2,441,000 PrimeSource shares. Phillips shareholders and Momentum stockholders
will hold approximately 63% and 37%, respectively, of PrimeSource's voting power
after the Merger. No shareholder of either company will possess the same
relative voting power in matters put to a vote of shareholders of PrimeSource as
he or she had possessed prior to the transaction. See "SECURITY OWNERSHIP."
BOARD OF DIRECTORS
PrimeSource. The Amended Articles and Amended Bylaws provide for a
classified Board of Directors of 12 members with staggered terms which will run
for 3 years, after the initial term. No director may be removed from office
prior to the expiration of his or her term except upon the vote of 80% of the
voting stock of PrimeSource and, if there is a 10% Shareholder, a 2/3 vote of
holders of outstanding voting stock other than that held by the 10% Shareholder.
Shareholders have the right to vote cumulatively in the election of directors.
Phillips. Presently, the Phillips Board has 9 members, divided into 3
classes, but the Phillips Articles eliminate the classified board commencing
with the annual meeting of shareholders in 1997, so that thereafter all Phillips
directors standing for election would be elected for a term of one year. The
Amended Articles eliminate this "sunset" provision with respect to the
classified board. Presently, directors of Phillips can be removed upon the
affirmative vote of shareholders with 75% of the voting power of outstanding
shares. Phillips shareholders have cumulative voting rights.
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Momentum. Presently, the Momentum Board consists of 8 members, divided into
3 classes, each serving for a term of 3 years. The provisions relating to
removal of directors are substantially similar to that contained in the Amended
Articles. Momentum stockholders do not have cumulative voting rights.
LIMITATION ON DIRECTORS' LIABILITY
PrimeSource and Phillips. The Amended Articles and the Phillips Bylaws both
provide for the elimination of personal monetary liability of directors to the
company or its shareholders to the fullest extent permissible under the laws of
the Commonwealth of Pennsylvania. The Amended Articles also provide that if the
PBCL is amended to authorize further limitations on the personal liability of
directors, the liability of directors shall be limited to the fullest extent
provided by such amendments.
Momentum. The Momentum Certificate of Incorporation provides for the
elimination of personal monetary liability of directors to Momentum and its
shareholders to the fullest extent permitted under the DGCL. For a description
of the differences between Pennsylvania and Delaware law on this topic, see
"CERTAIN DIFFERENCES BETWEEN THE CORPORATE STATUTES OF DELAWARE AND
PENNSYLVANIA".
SUPERMAJORITY VOTE ON CERTAIN MATTERS
PrimeSource. The Amended Articles provide that certain specified
transactions (a "Major Transaction") between PrimeSource and a 10% Shareholder
must be approved by either (i) 75% of the directors who are not affiliates of
such shareholder, or (ii) the affirmative vote of holders of not less than 2/3
of the voting power of all voting stock of PrimeSource held by shareholders
other than such shareholder.
Phillips. The Phillips Articles do not contain any provision similar to the
Amended Articles. However, the Phillips Articles require the affirmative vote of
75% of all voting stock to approve certain "business combinations" which have
not been approved by 75% of the members of the Board of Directors. This
provision has been eliminated in the Amended Articles. Thus, a "business
combination" not involving a 10% Shareholder will not require supermajority
approval under the Amended Articles. "Business combinations" are generally
limited to fundamental transactions which would require shareholder approval
under the PBCL. In this respect, the Amended Articles are more narrow in
coverage than the current Phillips Articles.
The Amended Articles are broader in coverage in the definition of "Major
Transaction" than in the definition of "business combination" under the Phillips
Articles. In many cases under the PBCL and the Phillips Articles, the Board of
Directors could effect a Major Transaction without shareholder approval. Under
the Amended Articles Major Transactions, which by definition involve a 10%
Shareholder and PrimeSource, require a supermajority vote of shareholders unless
the transaction is approved by 75% of the directors who are not affiliates of
the 10% Shareholder.
Momentum. The Momentum Certificate of Incorporation contains a provision
substantially similar to the Amended Articles but sets the beneficial ownership
of 5% as the trigger for Major Transactions. In addition, provisions in the
Momentum Certificate of Incorporation which have not been included in the
Amended Articles include limitations on transactions with 15% shareholders and
the creation of cumulative voting rights only in the event of a shareholder
owning 40% of the voting power of all outstanding Momentum securities. Lastly, a
prohibition against the payment of "greenmail" to any shareholder contained in
the Momentum Certificate has not been included in the Amended Articles.
INFORMAL SHAREHOLDER ACTION
PrimeSource. The Amended Articles prohibit action by shareholders by
partial written consent which is otherwise permissible under the PBCL.
Phillips. Previously, the Phillips Articles had no prohibition against a
majority of shareholders acting by written consent without the giving of notice
or holding a meeting of shareholders.
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Momentum. Momentum's Certificate of Incorporation contains a provision
similar to that contained in the Amended Articles.
MODIFICATION OF AMENDED ARTICLES
PrimeSource. The affirmative vote of 80% of all of the voting stock of
PrimeSource is required to approve any changes to the provisions of the Amended
Articles relating to the classified Board of Directors, the inability to act by
partial written consent of shareholders, and the supermajority voting
requirements on certain transactions. In addition, if there is a 10%
Shareholder, a 2/3 vote of holders of outstanding voting stock other than that
held by the 10% Shareholder is required to approve any such change. These
articles include Article III PURPOSE, Article VII CERTAIN DEFINITIONS, Article
VIII HIGHER THAN MAJORITY VOTE OF DIRECTORS OR SHAREHOLDERS REQUIRED IN THE
EVENT OF CERTAIN TRANSACTIONS, Article IX CLASSIFICATION OF DIRECTORS, Article X
SHAREHOLDER MEETINGS and Article XI RESTRICTIONS ON CERTAIN AMENDMENTS. See
Annex C.
Phillips. In order to change comparable provisions, the Phillips Articles
require the affirmative vote of holders of 75% of the outstanding voting shares.
Momentum. In order to modify similar provisions contained in the Momentum
Certificate of Incorporation, the affirmative vote of 85% of outstanding voting
shares was required, plus the 2/3 vote of voting shares held by persons other
than a 10% Shareholder.
CERTAIN DIFFERENCES BETWEEN THE CORPORATION
STATUTES OF DELAWARE AND PENNSYLVANIA
Although the DGCL and the PBCL are similar in many respects, there are a
number of differences between the two statutes which should be carefully
considered by Momentum stockholders in evaluating the proposed Merger. The
Amended Articles and Amended Bylaws also contain various provisions which modify
the statutory provisions and differ from the charter provisions of both Phillips
and Momentum and, accordingly, should be carefully considered by both Phillips
and Momentum shareholders. The following summary, which sets forth certain
material differences between the two statutes, does not purport to be a complete
statement of all differences between the DGCL and the PBCL, nor does it purport
to be a complete statement of the provisions of the two statutes which it
compares, nor the modifying provisions in the Amended Articles or the Amended
Bylaws. Certain capitalized terms in this section are defined in the Amended
Articles. See "Article VII -- CERTAIN DEFINITIONS" in Annex C.
All statements contained in the following summary are qualified in their
entirety by the laws of Delaware and Pennsylvania and reference is made to those
laws for a complete statement of their provisions. Certain provisions of the
PBCL are made applicable only to "registered corporations," which is defined to
include corporations such as PrimeSource that have, and will have, a class or
series of shares entitled to vote generally in the election of directors of a
corporation, which shares are registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended. Among the more
significant differences affecting the rights, obligations and relationships
between a corporation and its shareholders are the following.
FIDUCIARY DUTIES OF DIRECTORS
Both Delaware and Pennsylvania law provide that the board of directors has
the ultimate responsibility for managing the business and affairs of a
corporation. In discharging this function, directors owe fiduciary duties of
care and loyalty to the corporation and to its shareholders.
Delaware courts have held that the duty of care requires the directors to
exercise an informed business judgment. An informed business judgment means that
the directors have informed themselves of all material information reasonably
available to them. Delaware courts have also imposed a heightened standard of
conduct upon directors in matters involving a contest for control of the
corporation.
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Similar to Delaware law, Pennsylvania law requires that directors perform
their duties in good faith, in a manner they reasonably believe to be in the
best interests of the corporation, and with such care, including reasonable
inquiry, skill and diligence, as a person of ordinary prudence would use under
similar circumstances. The PBCL, however, contains a provision specifically
permitting (not requiring) directors, in discharging their duties, to consider
the effects of any action taken by them upon any or all affected groups
(including, e.g. shareholders, employees, customers, creditors and certain
communities) as well as all other pertinent factors. Furthermore, unlike
Delaware law, the PBCL expressly makes clear that a director has no greater
obligation to justify, or higher burden of proof with respect to, any act
relating to an actual or potential take-over of the corporation than he or she
has with respect to any other act as a director.
LIMITATION OF DIRECTOR LIABILITY
Both Delaware and Pennsylvania law permit a corporation's certificate or
articles of incorporation (or bylaws in Pennsylvania) to limit a director's
exposure to monetary liability for breach of fiduciary duty.
Momentum's Certificate of Incorporation currently eliminates a director's
personal liability for monetary damages to the fullest extent permitted by
Delaware law. Pursuant to Delaware law, this means that a director presently has
no monetary liability except for liability for (i) breach of the duty of
loyalty, (ii) acts or omissions not in good faith or constituting intentional
misconduct or knowing violation of the law, (iii) declaration of an improper
dividend or an improper redemption of stock, or (iv) any transaction from which
the director derived an improper personal benefit.
Similarly, the Amended Articles eliminate a director's liability to the
fullest extent permitted by Pennsylvania law. Pursuant to Pennsylvania law, this
means that a director will have no monetary liability for any action taken or
omitted unless (i) the director breached or failed to perform his or her duties
and (ii) the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness. Under Pennsylvania law, a director will also remain
personally liable where the responsibility or liability is pursuant to any
criminal statute or is for the payment of taxes under local, State or Federal
law.
INDEMNIFICATION
Momentum's bylaws presently require indemnification of its directors and
officers to the fullest extent not prohibited by Delaware law or other
applicable law or public policy. The Amended Bylaws provide for such
indemnification to the fullest extent permitted by Pennsylvania law.
Both Delaware and Pennsylvania law permit a corporation to indemnify any
person involved in a third party action by reason of his being an officer or
director of the corporation, against expenses, judgments, fines and settlement
amounts paid in such third party action (and against expenses incurred in any
derivative action), if such person acted in good faith and reasonably believed
that his actions were in or not opposed to the best interests of the corporation
and, with respect to any criminal proceeding, had no reasonable cause to believe
that his conduct was unlawful. Furthermore, both states' laws provide that a
corporation may advance expenses incurred in defending any action upon receipt
of an undertaking by the person to repay the amount advanced if it is ultimately
determined that he is not entitled to indemnification.
In general, no indemnification for expenses in derivative actions is
permitted under either state law where the person has been adjudged liable to
the corporation, unless a court finds him entitled to such indemnification. If,
however, the person has been successful in defending a third party or derivative
action, indemnification for expenses incurred is mandatory under both states'
laws.
In both states the statutory provisions for indemnification are
non-exclusive with respect to any other rights, such as contractual rights (and,
in the case of a Pennsylvania corporation, under a bylaw or vote of shareholders
or disinterested directors), to which a person seeking indemnification may be
entitled. Unlike Delaware law, however, Pennsylvania law expressly permits such
contractual or other rights to provide for indemnification against judgments and
settlements paid in a derivative action unless a court determines that the act
or omission giving rise to the claim for indemnification constituted willful
misconduct or recklessness. The Amended Bylaws incorporate this broader right to
indemnification in the context of derivative actions.
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SHAREHOLDER PROTECTIVE PROVISIONS
While Delaware law permits corporations to adopt various charter provisions
to provide protection to shareholders, Chapter 25 of the PBCL contains certain
shareholder protective provisions which apply to a registered corporation, such
as PrimeSource, unless the registered corporation elects not to be governed by
such provisions. The provisions, which were added to the PBCL with the intent of
protecting Pennsylvania corporations against many of the abusive hostile
acquisition and takeover techniques, are briefly described as follows:
-- Chapter 25E provides that in the event a shareholder acquires 20% or
more of the voting stock of a company, the remaining shareholders are
entitled to compel the acquirer to purchase all remaining shares for
their fair market value in cash;
-- Chapter 25F prohibits business combinations for a period of five years
with a 20% shareholder unless all disinterested directors approve;
-- Chapter 25G provides that a shareholder loses his voting rights in a
control share acquisition, i.e. the purchase of more than 20% of the
company's stock, unless and until the remaining shareholders of the
company vote to restore voting rights after a detailed information
statement is provided to all shareholders, and the company is also
provided a right to redeem the stock for a period of two years;
-- Chapter 25H provides for the disgorgement of greenmail profits, i.e.
any profits earned over the original purchase price during a certain
period of time; and
-- Section 2538 requires the affirmative vote of a majority of all
shareholders, excluding shares held by an interested shareholder, to
approve certain fundamental transactions such as a merger,
consolidation, share exchange or sale of a substantial portion of the
company's assets.
The Phillips and Momentum Boards have concluded that, while the abuses at
which the statutory provisions are directed are real and continue, the
provisions of the Amended Articles adequately address the concerns in an
alternative fashion. Therefore, the Amended Articles specify in Article VI that
PrimeSource will not be covered by these provisions of the PBCL. In the event
that the PrimeSource Board of Directors determines in the future that it is in
the best interest of the company to have the protection of any or all of these
provisions, approval of shareholders would be required to adopt any such
decision.
AMENDMENTS TO CHARTER
Under Delaware law, amending the Certificate of Incorporation of Momentum
generally requires the approval of the holders of a majority of the shares
entitled to vote. Pennsylvania law only requires the affirmative vote of a
majority of the votes actually cast on a proposed amendment, unless the articles
or bylaws require a greater percentage (as the Amended Articles do with respect
to the super-majority provisions referenced above). Pennsylvania law also
eliminates the need for shareholder approval of certain non-material amendments
to the articles of incorporation (such as a change in the corporate name) and
eliminates the need for class votes in order to change the par value of, or
decrease the number of authorized shares of, any class of stock. Thus, future
amendment of PrimeSource's charter will generally be made somewhat easier than
amendments by Momentum under Delaware law, other than those provisions specified
by the Amended Articles as requiring approval by a higher percentage of the
outstanding PrimeSource Shares.
MERGERS AND MAJOR TRANSACTIONS
Under Delaware law, fundamental corporate transactions (such as mergers,
sales of all or substantially all of the corporation's assets, dissolutions,
etc.) require the approval of the holders of a majority of the shares of
Momentum. Pennsylvania law reduces the approval threshold to a majority of the
votes actually cast by the shareholders at the meeting. Delaware and
Pennsylvania laws each permit a corporation to increase the minimum percentage
vote required above the statutory minimums described above. As described above,
the Amended Articles impose higher approval requirements for certain Major
Transactions (including mergers, interested party transactions and other
fundamental transactions).
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DIVIDENDS
Delaware law permits dividends to be paid out of (i) surplus (the excess of
net assets of the corporation over capital) or (ii) net profits for the current
or immediately preceding fiscal year, unless the net assets are less than the
capital of any outstanding preferred stock. Pennsylvania law permits the payment
of dividends unless they would render the corporation insolvent, meaning either
(i) the corporation would be unable to pay its debts as they become due in the
ordinary course of business, or (ii) the total assets of the corporation would
be less than the sum of its total liabilities plus the amount that would be
needed upon dissolution of the corporation to pay the holders of shares having a
liquidation preference.
STOCK REPURCHASES
Under Delaware law, a corporation may not purchase or redeem its own shares
when the capital of the corporation is impaired or when such purchase or
redemption would cause an impairment of the capital of the corporation. A
Delaware corporation may, however, purchase or redeem out of capital any of its
preferred shares if such shares will be retired upon acquisition, thereby
reducing the capital of the corporation. In contrast, Pennsylvania law permits a
corporation to redeem any and all classes of its shares and treats such
redemption or repurchase like a dividend, subject to the same limitations
described above.
VOTING RIGHTS
Under Delaware law cumulative voting in the election of directors is only
permitted if expressly authorized in a corporation's charter. The Certificate of
Incorporation of Momentum authorizes cumulative voting only if there is a
shareholder which beneficially owns 40% or more of the outstanding stock. Under
Pennsylvania law, however, shareholders automatically have cumulative voting
rights unless the Pennsylvania charter provides otherwise. Under the Amended
Articles, PrimeSource shareholders will have cumulative voting rights.
APPRAISAL OR DISSENTERS RIGHTS
The rights of stockholders to demand payment in cash by a corporation of
the fair value of their shares under certain circumstances are called appraisal
rights under the DGCL and dissenters rights under the PBCL. Delaware law does
not afford appraisal rights to holders of shares which are either listed on a
national securities exchange, quoted on Nasdaq National Market or held of record
by more than 2,000 stockholders, unless the plan of merger or consolidation
converts such shares into anything other than stock of the surviving corporation
(such as PrimeSource in the case of the Merger) or stock of another corporation
which is either listed on a national securities exchange, quoted on Nasdaq or
held of record by more than 2,000 stockholders. For this reason, stockholders of
Momentum will not have appraisal rights in connection with the Merger.
Pennsylvania law is substantially the same as Delaware law regarding
appraisal rights, except that (i) Pennsylvania law does not automatically deny
dissenters rights to holders of shares quoted on the Nasdaq National Market and
(ii) where shares are listed on a national exchange or held of record by more
than 2,000 shareholders, dissenters rights will nevertheless be available under
Pennsylvania law unless the plan converts such shares into stock of the
surviving or new corporation. As a result of the Merger, since Phillips will be
the surviving corporation (under the name PrimeSource), the shareholders of
Phillips will not have dissenters rights with respect to the Merger.
ACCORDINGLY, NEITHER APPRAISAL NOR DISSENTERS RIGHTS ARE AVAILABLE TO
HOLDERS OF PHILLIPS SHARES OR MOMENTUM SHARES WITH RESPECT TO THE MERGER OF
MOMENTUM INTO PHILLIPS.
AMENDMENTS TO BYLAWS
Under Delaware law, if the certificate of incorporation confers on the
board of directors the power to amend the bylaws, as does Momentum's Certificate
of Incorporation, the DGCL does not limit the power of
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the board to make changes in the bylaws. Under Pennsylvania law, however, the
board's power to adopt or amend bylaw provisions on specified subjects is
limited absent a contrary provision in the articles.
Under Delaware law, a corporation's bylaws may be amended by the
stockholders at any annual meeting, without the need to obtain the consent of
the board of Directors or to give prior notice that such action would be taken
at the meeting. Pennsylvania law is more restrictive to shareholders, as it
requires that a copy of any proposed amendment to the bylaws, or a summary
thereof, be included with the notice of the meeting at which the shareholders
wish to amend a Pennsylvania corporation's bylaws. Accordingly, the Amended
Bylaws require that such notice of a proposed amendment must be provided.
ACTION BY WRITTEN CONSENT
Delaware law permits a majority of shareholders to consent in writing to
any action without a meeting, unless the certificate of incorporation prohibits
such written consent, as does the Certificate of Incorporation of Momentum. With
respect to registered corporations, such as PrimeSource, Pennsylvania law also
permits shareholder action by majority written consent, but only where the
articles specifically authorize less than unanimous consent. To remain
consistent, the Amended Articles contain a prohibition against shareholder
action by written consent identical to that contained in Momentum's Certificate
of Incorporation.
SPECIAL MEETINGS OF SHAREHOLDERS
Both Delaware and Pennsylvania laws permit a special meeting of the
shareholders to be called by the board of directors or such other person as may
be authorized by the corporation's charter or bylaws. Pennsylvania law, however,
explicitly states that shareholders of a registered corporation, such as
PrimeSource, shall not have a statutory right to call special meetings. The
Certificate of Incorporation of Momentum provides that special meetings of the
shareholders may only be called by the board. The Amended Articles do not
contain any such limitation. Therefore, under the PBCL, special meetings of the
shareholders may be called by shareholders entitled to cast 20% of the votes
entitled to be cast at such special meeting.
ANNUAL MEETING OF SHAREHOLDERS
Under Delaware law, if the annual meeting for the election of directors is
not held on the designated date the directors are required to cause such meeting
to be held as soon thereafter as may be convenient. If they fail to do so for a
period of 80 days after the designated date, or if no date has been designated,
for a period of 18 months after the organization of the corporation or after its
annual meeting, the Court of Chancery may summarily order a meeting to be held
upon application of any shareholder or director.
Under Pennsylvania law, if the annual meeting of shareholders for election
of directors is not called and held within six months after the designated time,
any shareholder may call such meeting at any time thereafter without application
to the court.
CASE LAW AND COURT SYSTEMS
There is a substantial body of case law in Delaware interpreting the
corporation laws of that state. A comparable body of judicial interpretations
does not exist in Pennsylvania. Delaware also has established a system of
Chancery Courts to adjudicate matters arising under its corporation law.
Pennsylvania is considering but has not yet established an equivalent court
system. As a result of these factors there may be less certainty as to the
outcome of matters governed by Pennsylvania corporation law, and therefore it
may be more difficult to obtain legal guidance as to such matters than would be
the case under Delaware law.
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PROPOSAL 2
ELECTION OF DIRECTORS
BOARD OF DIRECTORS
At the Phillips Meeting, three persons will be elected to the Board of
Directors as Class I directors to serve until the Merger is consummated or, if
the Merger is not consummated for any reason, until the Annual Meeting in 1997.
Phillips Articles and Bylaws, as amended, provide for three classes of Directors
with staggered terms of three years each. At present, Class II directors will
hold office until the Annual Meeting of Shareholders in 1995, and Class III
directors will hold office until the Annual Meeting of shareholders in 1996,
with the members of each class to hold office until their successors are elected
and qualified. There are presently nine members of the Board of Directors. If
the Merger is consummated, there will be 12 members of the Board of Directors
and the Directors following the Merger will be the persons designated by
Momentum and Phillips pursuant to the Reorganization Agreement to serve as the
initial directors of PrimeSource. See "MANAGEMENT OF PRIMESOURCE."
Listed below are the nominees for the Phillips Board, as well as the
remaining Directors and Executive Officers of Phillips. Any Proxy not
specifically marked will be voted by the named proxies for the election of the
nominees named below, except as otherwise instructed by the shareholders,
provided that, as set forth above, the proxies have discretionary authority to
cumulate their votes. It is not contemplated that any of the nominees will be
unable or unwilling to serve as a Director but, if that should occur, the Board
of Directors reserves the right to nominate another person.
VOTE REQUIRED FOR ELECTION, RECOMMENDATION OF THE BOARD OF DIRECTORS
The three nominees receiving the highest number of votes cast for the
election of directors shall be elected as Class I directors.
THE BOARD OF DIRECTORS OF PHILLIPS RECOMMENDS A VOTE FOR THE ELECTION OF
THE FOLLOWING NOMINEES:
NOMINEES FOR DIRECTORS -- CLASS I (TERM EXPIRES AT ANNUAL MEETING IN 1997)
James F. Mullan
James L. Everett, III
Nelson G. Harris
DIRECTORS -- CLASS II (TERM EXPIRES AT ANNUAL MEETING IN 1995)
Philip J. Baur, Jr.
Myron S. Gelbach, Jr.
Judith M. von Seldeneck
DIRECTORS -- CLASS III (TERM EXPIRES AT ANNUAL MEETING 1996)
Fred C. Aldridge, Jr.
John M. Pettine
Harold F. Still, Jr.
BIOGRAPHICAL INFORMATION
The biographies of Messrs. Mullan, Harris, Baur, Aldridge and Pettine
appear in "MANAGEMENT OF PRIMESOURCE -- Board of Directors of PrimeSource."
James L. Everett, III, (age 67) -- Mr. Everett retired on August 1, 1988 as
Chairman of the Board and Chief Executive Officer of PECO Energy Company, a
position he had held since June, 1982. Mr. Everett is also a Director of Martin
Marietta Corporation and TBC. He was elected a Director of Phillips in June,
1993.
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Myron S. Gelbach, Jr. (age 73) -- Mr. Gelbach is a private investor and a
Director of TBC and Cable Design Technologies, Inc. He was elected a Director of
Phillips in June, 1993.
Judith M. von Seldeneck (age 54) -- Mrs. von Seldeneck was elected a
Director in June, 1993. She is the Chief Executive Officer of Diversified Search
Companies, a general executive search firm. Mrs. von Seldeneck is also a
Director of Meridian Bancorp, Inc., TBC and Keystone Insurance Company.
Harold F. Still, Jr. (age 71) -- Mr. Still's principal occupation was that
of Chairman of Meridian Bancorp, Inc. until his retirement on January 31, 1988.
He continued as a director of Meridian Bankcorp, Inc. until April 1993. Mr.
Still is a Director of TBC. He was elected a Director of Phillips in June, 1993.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of Phillips has a standing Audit Committee. The
Committee is charged with the responsibility of reviewing reports from Phillips'
independent certified public accountants, keeping the board informed with
respect to Phillips' accounting policies and the adequacy of internal controls,
making recommendations regarding the selection of Phillips' independent
certified public accountants and reviewing the scope of their audit. Harold F.
Still, Jr. is the Chairman of the Audit Committee and Messrs. Aldridge, Everett
and Gelbach are members of the Committee. During the fiscal year ended December
31, 1993 and since becoming a publicly-owned company, there was one (1) meeting
of the Audit Committee.
The Board of Directors has a standing Compensation Committee, the function
of which is to review and make recommendations with respect to compensation of
the President and Chief Executive Officer and the other key executive officers
of Phillips and its subsidiaries, including salary, bonus and benefits under the
various compensation plans maintained by Phillips. Myron S. Gelbach, Jr. is
Chairman of the Compensation Committee and Messrs. Harris and Still and Mrs. von
Seldeneck are members of the Committee. During the fiscal year ended December
31, 1993 and since becoming a publicly-owned company, there were two (2)
meetings of the Compensation Committee.
The Board of Directors has a standing Nominating Committee charged with the
responsibility of reporting its recommendations annually to the Board with
respect to those persons for whose election as Directors by the shareholders
proxies shall be solicited by the Board of Directors and the filling of any
vacancy among the shareholder-elected Directors. The Nominating Committee will
consider shareholder recommendations of nominees for election to the Board if
the recommendations are accompanied by comprehensive written information
relating to the recommended individual's business experience and background and
by a consent executed by the recommended individual stating that he or she
desires to be considered as a nominee, and, if nominated or elected, that he or
she will serve as a Director. Recommendations should be sent to the Secretary of
Phillips. Philip J. Baur, Jr. is the Chairman of the Nominating Committee and
Messrs. Mullan and Gelbach are members of the Committee. This Committee met on
February 18, 1994, to consider and recommend the candidates to be nominated for
election at this meeting.
In connection with the discussions with Momentum, at the request of
management, an ad hoc committee of outside directors, consisting of Messrs.
Aldridge, Gelbach and Harris, was appointed to provide assistance to management.
The committee assisted management in focusing on a methodology to analyze,
evaluate and report to the Board of Directors on critical business combination
issues, in evaluating what would be an exchange ratio in the Merger which would
be fair to the Phillips shareholders, and in selecting a valuation consultant to
render advice and a fairness opinion to the Phillips Board and shareholders.
Messrs. Aldridge and Harris participated in eight meetings each, including two
meetings with Momentum representatives, and Mr. Gelbach participated in three
meetings of the committee. Committee members are paid $600 for each meeting
attended.
During the fiscal year ended December 31, 1993 and since becoming a
publicly-owned company, five (5) scheduled meetings of the Board of Directors
were held. In addition, an aggregate of three (3) meetings of the committees of
the Board of Directors were held in that period. Attendance at the Board of
Directors meetings and committee meetings averaged 98% among all directors
during 1993. Each director attended 86% or more of the aggregate number of
meetings of the Board of Directors and committees on which he or she served.
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EXECUTIVE OFFICERS (NOT ALSO DIRECTORS)
As hereinafter used, and unless otherwise provided, the term "Executive
Officers" refers to the President and Chief Executive Officer, the Vice
President of Finance, the Vice President of Sales and Marketing, the President
of the P/J Division, and the President of Dixie Type & Supply Company, Inc. (a
wholly-owned subsidiary of Phillips and hereinafter referred to as "Dixie
Type").
William A. DeMarco (age 48) -- Mr. DeMarco is Vice President of Finance,
Treasurer and Secretary. He became the Vice President of Finance and Operations
of Phillips in 1992. Prior to that time, he was Director of Finance and
Operations since rejoining Phillips in 1990 after spending ten years in several
management positions with Snap On Tools. Prior to 1980 he was Controller and
Accounting Manager at Phillips, starting in 1969.
Dennis M. Zewiske (age 50) -- Mr. Zewiske is a Vice President of Phillips
and also serves as President of the P/J Division which operates 10 branch
offices and manages the Onondaga branch offices. He joined Phillips in 1976 and
served as Regional Sales Manager for the Southeast and Southwest and as a Branch
Manager in the P/J Division prior to his current position.
Frederick G. Heinkel (age 57) -- Mr. Heinkel is Vice President of Sales and
Marketing. He joined Phillips in 1978 and served as Regional Sales Manager for
the Northeast and as a Branch Manager in the P/J Division prior to his current
position.
Don G. Garner (age 64) -- Mr. Garner has been President of Dixie Type since
1987. Prior to joining Dixie Type, he served as President of the graphic arts
supplies business of Citation Carolina Corporation. Previously, he held various
positions with a motivational training and consulting firm.
PHILLIPS COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Prior to August 1, 1993, the date on which 100% of the Phillips Shares were
distributed to the shareholders of TBC no directors' fees were paid to any
directors of Phillips. After the distribution, non-officer directors of Phillips
were paid an annual retainer fee of $6,000 (pro rated for fiscal year 1993) and
$600 for each meeting of the Board of Directors or committee of the Board of
Directors attended.
The following table discloses compensation received by Phillips' Chief
Executive Officer and the four remaining most highly paid executive officers for
the three fiscal years ended December 31, 1993.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION(2)
---------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
-------------------- STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(3)(#) COMPENSATION($)
------------------------------ ----- --------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
J.F. Mullan, 1993 $ 190,000 $135,000 18,150 $ 522
Chief Executive 1992 175,000 100,000 -- 616
Officer and President 1991 170,000 90,000 -- 591
F.G. Heinkel 1993 95,316 50,513 15,500 568
Vice President 1992 91,416 41,949 -- 2,704
1991 91,116 30,013 -- 2,510
D.M. Zewiske 1993 100,256 65,677 15,500 493
Vice President 1992 95,226 68,634 -- 492
1991 91,561 59,232 -- 490
W.A. DeMarco 1993 89,880 60,000 7,500 493
Vice President 1992 84,700 45,000 -- 330
Finance and Secretary 1991 75,384 35,000 -- 40
D.G. Garner, 1993 106,964 51,290 8,850 5,824
President, Dixie 1992 101,087 39,127 -- 4,533
Type & Supply Company, Inc. 1991 98,580 41,521 -- 5,699
</TABLE>
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- ---------------
(1) This table does not include columns for Other Annual Compensation,
Restricted Stock Awards, and Long-Term Incentive Plan Payouts. Phillips had
no amounts to report in the columns for Restricted Stock Awards and
Long-Term Incentive Plan Payouts, and the amount of Other Annual
Compensation paid to the named executive officers was in each case for
perquisites which are not reportable since they did not exceed the lesser of
$50,000 or 10% of salary and bonus as reported for any named executive
officer.
(2) No stock options are reported for 1991 or 1992. In both of those years the
named executives were granted options for TBC common stock which were either
exercised or canceled on or before August 19, 1993. See "Option Grants in
Last Fiscal Year" for the 1993 option grants. Messrs. Zewiske and Heinkel
each held 376 shares of restricted stock at December 31, 1993, which had a
then market value of $4,136. All restrictions will lapse on April 14, 1995.
Messrs. Zewiske and Heinkel receive dividends on these restricted shares.
(3) Includes contributions made for four named executive officers under the TBC
Thrift Plan and term life insurance premiums paid on behalf of each
executive. In 1993, Messrs. Mullan, DeMarco, Heinkel and Zewiske each
received contributions of $450 under the TBC Thrift Plan and imputed values
of $72, $43, $118 and $43, respectively for term life insurance premiums.
Mr. Garner received a contribution of $4,631 under the Dixie Type 401(k)
plan and was imputed $1,193 for term life insurance premiums.
STOCK OPTIONS
The following table provides information on fiscal year 1993 grants of
options under the Incentive Plan to the named executive officers to purchase
Phillips Shares.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF
SECURITIES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT DATE
STOCK OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE(3) VALUE(1)($)
------------------------------ ------------- ------------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C>
J.F. Mullan................... 12,500 6.5% 11.50 08/19/03 $12,250
2,325(2) 1.2% 11.50 12/16/98 1,616
3,325(2) 1.7% 11.50 12/15/99 2,660
F.G. Heinkel.................. 7,500 3.9% 11.50 08/19/03 7,350
5,000(2) 2.6% 11.50 09/25/97 2,825
1,665(2) 0.9% 11.50 12/16/98 1,157
1,335(2) 0.7% 11.50 12/15/99 1,068
D.M. Zewiske.................. 7,500 3.9% 11.50 08/19/03 7,350
5,000(2) 2.6% 11.50 09/25/97 2,825
1,665(2) 0.9% 11.50 12/16/98 1,157
1,335(2) 0.7% 11.50 12/15/99 1,068
W.A. DeMarco.................. 7,500 3.9% 11.50 08/19/03 6,000
D.G. Garner................... 7,500 3.9% 11.50 08/19/03 7,350
1,350(2) 0.7% 11.50 12/15/99 1,080
</TABLE>
- ---------------
(1) To determine grant date present value Phillips used the Black-Scholes model
of option valuation, discounted by 50% to reflect lack of marketability,
restrictions on transfer, the fact that the options may be subject to
forfeiture, and the fact that not all options are immediately exercisable.
Phillips does not advocate or necessarily agree that the Black-Scholes model
can properly determine the value of an option. These values were derived
based on the following assumptions: (i) volatility of 18.7% based on the
period from August 19, 1993 through March 22, 1994, (ii) an expected
dividend yield of 3.9%, (iii) risk-free rate of return of 5.26% on the new
options and from 4.05% to 4.75% on the replacement options (See footnote 2)
and (iv) an expected time of exercise of six years on the new options and
from two to four years on the replacement options.
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(2) In connection with the spin-off of Phillips Shares by TBC, certain options
to acquire TBC common stock held by the named executives were surrendered
and canceled. In recognition of the economic value thereby lost by the named
executives and to encourage increased ownership in Phillips by the named
executives, the Compensation Committee and Board of Directors authorized
replacement of the out-of-the-money TBC stock options with options to
purchase a proportional number of Phillips Shares with expiration dates and
vesting schedules similar to the canceled options. The noted options are the
replacement options granted. The vesting schedules and expiration dates for
these options remain the same as those for the options on TBC common stock
which were canceled. These options expire on the tenth anniversary of the
original grant of options to acquire TBC common stock which were canceled.
(3) Those options which expire August 19, 2003, reflect new grants to the
executive officers and become exercisable one-fifth on each anniversary of
grant until fully exercisable after five years.
The following table provides information on option exercises in fiscal year
1993 by the named executives and the value of such executive's unexercised
options to acquire Phillips Shares at December 31, 1993.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE AT FISCAL YEAR-END(#) OPTIONS AT FISCAL YEAR-END(3)($)
ON REALIZED ------------------------------------------- ---------------------------------------
NAME EXERCISE(#) ($) TOTAL EXERCISABLE(1) UNEXERCISABLE(2) TOTAL EXERCISABLE UNEXERCISABLE
- --------------- ------------- ---------- ------- --------------- ----------------- ------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J.F. Mullan None 0 18,150 5,650 12,500 -- -- --
F.G. Heinkel None 0 15,500 8,000 7,500 -- -- --
D.M. Zewiske None 0 15,500 8,000 7,500 -- -- --
W.A. DeMarco None 0 7,500 -- 7,500 -- -- --
D.G. Garner None 0 8,850 1,350 7,500 -- -- --
</TABLE>
- ---------------
(1) Represents replacement options granted to the named executive officers in
consideration of options to purchase TBC common stock which were surrendered
and canceled in connection with the spin-off of Phillips by TBC. See "Stock
Option Grants in Last Fiscal Year," Note 2.
(2) Represents new options granted in 1993.
(3) This value represents the difference on December 31, 1993 between the market
price of Phillips Shares and the exercise price of the options. The exercise
price of all of these options exceeded the market price of Phillips Shares
on December 31, 1993 and therefore the options had no value.
PENSION PLAN
Phillips (but not its subsidiaries) participates in and sponsors a defined
benefit, non-contributory Pension Plan maintained by TBC which covers
substantially all employees of Phillips (other than those of its subsidiaries).
Annual amounts which are contributed to the plan and charged to expense during
the year are computed on an aggregate actuarial basis and cannot be individually
allocated. The remuneration covered by the plan includes salaries and bonuses,
paid to plan participants as reflected in the Summary Compensation Table.
Benefits under the plan are calculated as a percentage of average remuneration
over the last five years of employment, which percentage depends on the
employees' total number of years of service. Benefits under the pension plan are
subject to reduction for Social Security and are presently restricted under
Federal tax law to a maximum of $118,800 per year. The Internal Revenue Code
also limits the level of compensation which may be used to determine benefits
under qualified plans. Additional benefits may be payable under the SERP
described below. Messrs. Mullan, Heinkel, Zewiske and DeMarco have 23 1/2, 15,
17 and 13 years, respectively, of credited service under the Pension Plan.
The following table shows the approximate annual retirement benefits which
will be payable in total under the Pension Plan and Supplemental Executive
Retirement Plan ("SERP") at the normal retirement age of 65 (assuming
continuation of the Plans) for specified years of service and levels of average
remuneration. Generally, employees of Phillips (but not its subsidiaries) have
been eligible to participate in Phillips' benefit plans, thus the table set
forth below is applicable only to Messrs. Mullan, Heinkel, Zewiske
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<PAGE> 96
and DeMarco. Employees of Phillips' subsidiaries are covered generally by
separate retirement and other employee benefit plans. Mr. Garner participates in
a profit sharing retirement plan maintained by Dixie Type. Dixie Type does not
generally provide separate supplemental retirement benefits for its executives,
however, Mr. Garner is entitled to certain supplemental retirement benefits
under his employment agreement described below.
<TABLE>
<CAPTION>
FINAL AVERAGE YEARS OF SERVICE
REMUNERATION 15 OR MORE YEARS
- ------------- -----------------
<S> <C>
$ 125,000 $ 56,250
150,000 67,500
175,000 78,750
200,000 90,000
225,000 101,250
250,000 112,500
300,000 135,000
350,000 157,500
</TABLE>
Effective January 1, 1994, Phillips adopted a 401(k) Savings Plan for the
benefit of most of its employees (including subsidiaries). Under this plan
Phillips will match employee contributions up to $450.00 per year.
The SERP is designed and intended to encourage key executives to continue
in the service of Phillips by providing them upon their retirement with a
supplemental retirement benefit equal to the difference between (i) 45% of the
average 60 highest calendar months compensation paid by Phillips during the 120
calendar months immediately preceding the executive's separation from service,
and (ii) the sum of the executive's primary Social Security Benefits, payments
for which the executive would be eligible from Phillips' pension plan on a
single life annuity basis, and any other retirement benefits for which the
executive is eligible. A surviving spouse is also entitled to certain benefits
under the SERP. Messrs. Mullan, Heinkel, Zewiske and DeMarco are the only
current employees who are participants in the SERP.
Phillips has also entered into a Trust Agreement with Meridian Trust
Company for the benefit of the participants in the SERP. Under this Trust
Agreement, Phillips is obligated to deposit sufficient funds with the Trustee to
enable it to purchase annuity contracts to fund the SERP in the event of a
change in control or potential change in control of Phillips. The participants
in the SERP have executed a waiver of any rights to cause funding of the Trust
in connection with the Merger.
EMPLOYMENT AGREEMENTS
Each of the named executives has entered into an employment agreement with
Phillips or, with respect to Mr. Garner, Dixie Type. Pursuant to his employment
agreement Mr. Mullan is employed as the President of Phillips. Pursuant to their
respective employment agreements, Messrs. Heinkel, DeMarco and Zewiske are each
employed as Vice Presidents of Phillips. The agreements with Messrs. Mullan,
Heinkel and Zewiske were entered into in 1988, while Mr. DeMarco executed his
agreement in 1992.
The employment agreements for Messrs. Mullan, Heinkel, Zewiske and DeMarco
contain termination arrangements pursuant to which each will receive annually
$215,000, $100,000, $115,000 and $95,000, respectively, upon termination of his
employment under the following circumstances: (a) termination by Phillips except
for cause or upon death, retirement or three years prior notice with respect to
Mr. Mullan, and two years prior notice with respect to Messrs. Heinkel, Zewiske
and DeMarco, (b) termination by the executive because his authority or duties
are changed so as to be inconsistent with his training and experience or (c)
termination by the executive because of a breach of his employment agreement by
Phillips. The specified payments will be made for three years for Mr. Mullan and
for two years for Messrs. Heinkel, Zewiske and DeMarco. This payment would be in
addition to any other damages which the executive may suffer as a result of such
termination.
Mr. Garner entered into an Amended and Restated Employment and
Non-Competition Agreement with Dixie Type in 1993. This Agreement expires not
later than September 25, 1996. Pursuant to this Agreement,
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<PAGE> 97
Mr. Garner is employed as President and chief operating officer of Dixie Type.
Upon Mr. Garner's retirement, Mr. Garner or his heirs will be entitled to
receive for a period of ten (10) years, supplemental payments of $35,000 per
annum provided he makes himself available to consult with Dixie Type and does
not compete with Dixie Type in violation of the Agreement. Should Mr. Garner die
prior to retirement, a death benefit similar to his retirement benefits will be
payable to his heirs.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Compensation Policies Applicable To Executive Officers. The purpose of
Phillips' executive compensation program is to attract, retain and motivate
qualified executives to manage the business of Phillips and its subsidiaries so
as to maximize profits and shareholder value. Executive compensation in the
aggregate is made up principally of the executive's annual base salary, a bonus
and awards of Phillips Shares or stock options under Phillips' 1993 Long Term
Incentive Plan. Phillips' Compensation Committee (the "Committee") annually
considers and makes recommendations to the Board of Directors as to executive
compensation including changes in base salary and bonuses.
The Committee has been delegated the authority to grant options and to make
awards of restricted stock under Phillips' 1993 Long Term Incentive Plan. Since
Phillips was a wholly-owned subsidiary of TBC until August 1, 1993, the
executives and other key employees of Phillips had only a minimal ownership
interest in Phillips when it became public. In order to increase substantially
the ownership interest of the executives in Phillips and thereby increase their
incentives for creating shareholder value, Phillips "replaced" out-of-the-money
options on TBC common stock with options on Phillips Shares for four executives
and made substantial new stock option grants to all executives in 1993.
Consistent with the above-noted purpose of the executive compensation
program, it is the policy of the Committee, in recommending the aggregate annual
compensation of executive officers of Phillips, to consider the overall
performance of Phillips, the performance of the subsidiary or division of
Phillips for which the executive has responsibility and the individual
contribution and performance of the executive. The performance of Phillips and
of the subsidiary or division for which the executive has responsibility are
significant factors in determining aggregate compensation although they are not
necessarily determinative. While shareholders' total return is considered by the
Committee, it is subject to the vagaries of the public marketplace and Phillips
has been public only since August 1, 1993 so there has not been sufficient
history as a public company for this to be evaluated in a meaningful fashion.
Phillips' compensation program focuses on Phillips' strategic plans, corporate
performance measures, and specific corporate goals which should lead to a
favorable stock price. The corporate performance measures which the Committee
considers include sales, gross profits, earnings, and comparisons of sales,
gross profits and earnings with prior years and with budgets.
A substantial portion of the annual compensation of the executives is
directly related to corporate performance. Bonuses, which for 1993 represented
approximately 32% to 42% of total annual compensation for the executives, are
calculated and awarded largely based upon objective formulae, with some
subjective business judgment applied where an adjustment to the amount derived
from the formulas is believed appropriate. Different formulas are applied to the
named executives depending on their areas of responsibility.
The Committee does not rely on any fixed formulas or specific numerical
criteria in determining an executive's annual salary. It considers both
corporate and personal performance criteria, competitive compensation levels,
the economic environment and changes in the cost of living and (with respect to
officers other than the Chief Executive Officer) relies heavily upon the
recommendation of the Chief Executive Officer. The Committee then exercises
business judgment based on all of these criteria and the purposes of the
executive compensation program.
Compensation of the Chief Executive Officer. Mr. Mullan, President and
Chief Executive Officer of Phillips, joined Phillips in 1970 and became
President in 1982. For 1993, Mr. Mullan received a base salary of $190,000 and
was awarded a bonus of $135,000 and stock options on 18,150 shares of common
stock valued at $16,526 His base salary for 1994 was increased from $190,000 to
$215,000.
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<PAGE> 98
Mr. Mullan's bonus represents approximately 2.7% of Phillips' operating
profit (calculated before consolidation of its subsidiaries) before any LIFO
adjustments and charges for management fees to Phillips' former parent and
one-time spin-off costs. Mr. Mullan, the Vice President of Finance, the
Controller and the Director of Operations, share annually a bonus pool equal to
up to 5% of Phillips' operating profit adjusted as described in the preceding
sentence. Historically, Mr. Mullan's share of the bonus pool has been
approximately 50%. Of the bonus awarded to Mr. Mullan for 1993, $15,000
represents a special bonus for his extraordinary efforts in managing Phillips'
transition to becoming a public company.
In determining its recommendations for Mr. Mullan's compensation, the
Committee considered that in a difficult economic environment, Phillips has
continued to perform well over the past year and Phillips has made a smooth
transition to being a public company. Phillips' sales increased by 5.5% over
1992 and net income, before the cumulative effect of accounting principle
changes and the one-time charge for spin-off expenses, increased by 11.6% over
1992 net income. For the year 1993, net income was $.96 per share before the
cumulative effect of accounting principle changes and the onetime charge for
spin-off expenses, compared to net income per share of $.86 in 1992. The
spin-off expenses resulted in a charge to net income of $.13 per share.
The Committee concluded that in view of Phillips' performance as outlined
above and Mr. Mullan's contributions in furtherance of Phillips' strategic plans
and corporate goals, it was appropriate that Mr. Mullan be awarded bonus
compensation and stock options as outlined above and that his base salary for
1994 be adjusted. Accordingly, it made its recommendations to the Board of
Directors, which, after consideration, accepted those recommendations.
The Compensation Committee
Myron S. Gelbach, Jr., Chairman
Harold F. Still, Jr.
Judith M. von Seldeneck
Nelson G. Harris
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<PAGE> 99
PERFORMANCE GRAPH
The following line graph compares the cumulative total shareholder return
on Phillips Shares with (i) the NASDAQ Composite Index and (ii) the NASDAQ
Non-Financial Index for the period from July 21, 1993 through December 31, 1993.
July 21, 1993 is the date on which "when issued" trading of Phillips Shares
commenced.
<TABLE>
<CAPTION>
NASDAQ
Measurement Period NASDAQ Non-Finan-
(Fiscal Year Covered) Phillips Composite cial
<S> <C> <C> <C>
JULY 1993 100 100 100
DEC. 1993 93.39 110.50 111.90
</TABLE>
Assumes $100 invested on July 21, 1993 in Phillips Shares, the NASDAQ
Composite Index and the NASDAQ Non-Financial Stocks Index. Total shareholder
return assumes reinvestment of dividends. The stock price performance is not
necessarily indicative of future price performance.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of Phillips appointed a Compensation Committee on
August 6, 1993, consisting of Myron S. Gelbach, Jr., Harold F. Still, Jr.,
Judith M. von Seldeneck and Nelson G. Harris. Mr. Harris is Chairman of the
Executive Committee of TBC. Until July 17, 1993 Mr. Mullan served as a director
of TBC. All of the directors of Phillips with the exception of Mr. Mullan are
presently directors of TBC.
In connection with the spin-off of all of the Phillips Shares by TBC,
Phillips and TBC entered into various agreements to facilitate the spin-off and
define the rights of the parties thereafter. These agreements included: (i) a
Tax Matters Agreement in which each party agrees that it will be responsible for
and indemnify the other against tax liabilities associated with their respective
businesses, (ii) an Environmental Indemnification Agreement pursuant to which
each indemnifies the other against environmental liabilities arising out of
their respective businesses, and (iii) an agreement regarding rights and
obligations under the various employee pension benefit plans maintained by TBC
in which Phillips' employees participated.
The Tax Matters Agreement is not binding on the Internal Revenue Service.
Accordingly, since Phillips was a member of the TBC consolidated group for
federal income tax purposes through the date of the spin-off in August, 1993,
Phillips is jointly and severally liable for all federal income tax liabilities
of TBC prior to such date. TBC has been audited for federal income tax purposes
through December 29, 1990 and all income taxes through such date have been
settled. Phillips does not believe that there are any material federal income
tax
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<PAGE> 100
liabilities of TBC for which Phillips would be contingently liable, which would
be material to Phillips, and which TBC would be financially unable to satisfy.
CERTAIN TRANSACTIONS
Dennis M. Zewiske, a Vice President of Phillips, is a part owner of the
Orlando, Florida facility (approximate floor space of 14,350 square feet)
currently leased to Phillips. The term of this lease runs from April 1, 1986
through March 31, 1996. The rent on this facility is $4,963 per month. Phillips
is also responsible for payment of all utilities and maintaining fire insurance.
These provisions are consistent with the terms of Phillips' other leases.
Management of Phillips believes that the terms of this lease, at the time it was
entered into, are as favorable to Phillips as could have been obtained from
unaffiliated parties.
MOMENTUM COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS' REMUNERATION
Each Momentum director other than the Chairman and the President receives
for services an annual retainer of $10,000 payable in shares of restricted stock
of Momentum valued at $30,000 for each three year term, with one-third of each
grant scheduled to vest on successive anniversaries of the grant dates. On
January 19, 1993, 4,615 restricted shares were issued to each of six outside
directors for the 3-year retainer period ending December 31, 1995. As of June 1,
1994, one-third of the restricted shares issued in 1993 to the six outside
directors have vested. In connection with the Merger, the 4,615 restricted
shares awarded in 1993 to each of Messrs. John C. Dimmer and William K. Street,
Momentum directors who will not continue as directors of PrimeSource, will be
fully vested.
In addition, the directors receive fees of $1,000 for attending Momentum
Board meetings ($2,500 per meeting if two days of travel are required), fees of
$500 for attending Momentum Board committee meetings, and, when applicable,
reimbursement of travel expenses in connection with meetings. Each member of the
Momentum Executive Committee receives an annual retainer of $2,000 and the
Chairman of each standing Momentum committee receives an annual retainer of
$2,000. Directors Engebrecht and Goddard receive no annual board or committee
retainers and Mr. Goddard also receives no meeting fees.
In connection with Richard E. Engebrecht's retirement as Chief Executive
Officer, Momentum entered into a 3-year Employment Agreement with Mr.
Engebrecht. This agreement provides for an annual salary of $60,000 for 1993 and
$50,000 in each of 1994 and 1995. Mr. Engebrecht will assist in strategic
business planning, management development, acquisitions and related
transactions, continuing support of the quality process, special projects and
serve as Chairman of the Board of Directors. This salary is in lieu of normal
retainers he would otherwise be entitled to as a member of the Board of
Directors and a member of the Executive Committee of the Board. Mr. Engebrecht
retains his existing stock options so long as he continues to be an employee. In
addition, for 1993 he participated in the restricted stock program for certain
senior executive officers. This program has been discontinued and no shares were
awarded to Mr. Engebrecht or any other continuing member of management for 1993.
In 1993, James H. Wiborg, Vice Chairman of the Board, was retained to
represent Momentum pursuant to a pre-existing policy approved by the Board of
Directors in December 1992 which authorizes senior officers of Momentum to
engage individual directors to perform professional services. A formal policy
was adopted in recognition of the fact that there would be instances, such as
acquisitions or divestitures, where retention of a director to perform
extraordinary services would be appropriate. On the closing of the sale of
Momentum's VWR Textiles & Supplies subsidiary on September 1, 1993, as
consideration for Mr. Wiborg's services in development of the strategy and
structure of the Merger and negotiating the Merger terms and conditions of the
Merger, Mr. Wiborg received a fee of $107,500 which was based on the following
formula: one quarter of one percent of the first $20 million of aggregate
consideration received by Momentum and one percent of the aggregate
consideration above that amount. This fee arrangement was approved by John H.
Goddard, President and Chief Executive Officer, and Mr. Engebrecht, Chairman of
Momentum, at the commencement of the negotiations and was subsequently ratified
by the other members of the Board. Mr. Wiborg will also
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<PAGE> 101
receive a fee in connection with the Merger. See "PROPOSAL 1 -- THE
MERGER -- Interests Of Certain Persons in the Merger."
EXECUTIVE OFFICERS (NOT ALSO DIRECTORS)
The following individuals are executive officers of Momentum as of July 25,
1994.
Patsy R. Turnipseed (age 59) -- Ms. Turnipseed is Senior Vice President and
Chief Financial Officer. She became the Vice President and Chief Financial
Officer of Momentum in December, 1990. Prior to that, she was Vice President,
Treasurer and Corporate Secretary of Momentum during 1990, and from 1986 to
1990, she was Vice President, Treasurer and Corporate Secretary of VWR
Corporation.
Barry C. Maulding (age 48) -- Mr. Maulding is Vice President,
Administration, General Counsel, and Corporate Secretary. He became Vice
President, Administration, General Counsel, and Corporate Secretary in August,
1993. From 1992 to 1993, he was General Counsel, Director of Administration and
Corporate Secretary of Momentum. Prior to that time, from 1991 to 1992, he was
General Counsel and Corporate Secretary of Momentum, and from 1986 to 1990, he
was Director -- Legal Services and Corporate Secretary of Univar Corporation.
Arnold J. Cogan (age 51) -- Mr. Cogan is Senior Vice President. He became
Senior Vice President of Momentum in January, 1994. In 1993, he was Executive
Vice President and Regional Vice President of Momentum Graphics Inc. Prior to
that time, from 1990 to 1993, he was Regional Vice President of VWR Graphics,
and from 1988 to 1990, he was with VWR Scientific Inc.
Dennis C. Widman (age 47) -- Mr. Widman is Senior Vice President Quality
Implementation and Results. He became Senior Vice President Quality
Implementation and Results of Momentum in January, 1994. During 1993, he held
the titles of Senior Vice President Sales and Executive Vice President Sales of
Momentum Graphics Inc. From 1991 to 1992, he was Vice President, Continuous
Quality Improvement of Momentum. Prior to joining Momentum, he was District
Manager -- Service, Northwest District, XEROX Corporation from 1984-1991.
Following the Merger, Mr. Maulding is expected to become an executive
officer of PrimeSource, while Messrs. Cogan and Widman are expected to become
officers of the Momentum Division of PrimeSource.
EXECUTIVE OFFICERS' COMPENSATION
The following table sets forth the compensation paid by Momentum for
services rendered during the last three calendar years to Momentum's chief
executive officer and the three executive officers of Momentum whose salary and
bonus exceeded $100,000 in 1993. Barry C. Maulding, Vice
President-Administration and General Counsel, is the other executive officer of
Momentum.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
----------------------------------------------
ANNUAL COMPENSATION SECURITIES
----------------------------------------- RESTRICTED UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL STOCK STOCK ALL OTHER
POSITIONS YEAR SALARY($) BONUS($) COMPENSATION(1)($) AWARDS(2)($) OPTIONS(#) COMPENSATION(3)($)
- ------------------------- ---- --------- -------- ------------------ ------------ ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John H. Goddard 1993 200,000 0 13,605 0 21,665 773
CEO and President 1992 147,500 1,420 13,967 109,688 0 758
1991 135,000 0 12,833 0 0
Arnold J. Cogan 1993 146,250 0 13,218 0 5,620 952
Senior Vice President
Patsy R. Turnipseed 1993 140,825 0 13,605 0 8,548 968
Senior Vice President 1992 128,250 13,500 13,967 109,688 0 1,152
and CFO 1991 120,000 0 12,833 0 11,670
Dennis C. Widman 1993 102,500 0 13,168 0 5,620 340
Senior Vice President
</TABLE>
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<PAGE> 102
- ---------------
(1) Represents amounts paid under the Executive Auto Plan, including gross-ups
for income taxes. This plan was terminated at the end of 1993.
(2) These amounts represent restricted stock awards granted for 1992 performance
and which vest on January 2, 1995. At December 31, 1993 Mr. Goddard and Ms.
Turnipseed each held 15,000, shares of restricted stock having a market
value of $127,500 each based on the year-end closing price of Momentum
Shares. These restricted shares would be entitled to receive any future
dividends which may be declared on the Momentum Shares.
(3) Consists of (a) matching contributions by Momentum under the Money-Maker
401(k) Retirement Plan, (b) profit-sharing contributions by Momentum under
the Employee Stock Ownership Plan, and (c) miscellaneous items which are
each less than $250 per item.
1993 Executive Incentive Plan. The 1993 Executive Incentive Plan was
adopted by the Board and is administrated by the Compensation Committee of the
Board. It is effective for 1993 for the four individuals in the Summary
Compensation Table plus one other executive officer. A description of this new
plan appears below under "Compensation Committee Report".
Special Restricted Stock Plan. In 1991, the Compensation Committee approved
a special restricted stock incentive program for Senior Vice President Arnold J.
Cogan. This program provides for an award of 6,000 Momentum Shares of restricted
stock for the calendar year if the targets below are met.
<TABLE>
<CAPTION>
RETURN ON NET
YEAR CAPITAL EMPLOYED
----------------------------- ----------------
<S> <C>
1994......................... 20%
1995......................... 25%
1996......................... 30%
</TABLE>
Any shares issued would vest two years after the end of the calendar year in
which earned. Prior to vesting Mr. Cogan would have full voting and dividend
rights on any issued shares. The targets for 1992 and 1993 were not reached and
it is unlikely that the target for 1994 will be attained.
STOCK OPTIONS
Set forth in the tables below is certain information concerning stock
options granted to executive officers of Momentum.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SHARES OPTIONS OPTION MARKET PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE PRICE ON 10-YEAR OPTION TERM
OPTIONS EMPLOYEES PRICE DATE OF EXPIRATION -----------------------------
GRANTED(#) IN 1993 ($/SHARE) GRANT DATE 0%($) 5%($) 10%($)
---------- ---------- --------- -------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John H. Goddard..................... 21,665 46% $6.75 $ 7.50 8/26/03 $16,249 $118,436 $275,212
Arnold J. Cogan..................... 5,620 12% 6.75 7.50 8/26/03 4,215 30,723 71,391
Patsy R. Turnipseed................. 8,548 18% 6.75 7.50 8/26/03 6,411 46,729 108,586
Dennis C. Widman.................... 5,620 12% 6.75 7.50 8/26/03 4,215 30,723 71,391
</TABLE>
These options have a 10-year term and vest (become exercisable) on January
1, 1996. In accordance with change-in-control acceleration provisions, options
may vest immediately if a holder is terminated within 24 months after the
approval by Momentum stockholders of a plan of merger (such as the Merger) or
exchange, sale of substantially all of Momentum's assets, or plan of
liquidation. Options are exercisable for three months following the termination
of the Optionee's employment or for 12 months in the event of death or
disability.
If the stock appreciates at 5% per year for the same 10-year period, the
shares held by the stockholders of Momentum would have increased in value by
$16,209,252. At a 10% appreciation rate, the increase in value for the
stockholders would be $41,077,190.
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<PAGE> 103
On March 29, 1994 the Momentum Board granted CEO John H. Goddard a 10-year
nonqualified stock option to purchase 15,000 Momentum Shares at $9.25 per share,
with 25% of these shares becoming exercisable each year beginning with the first
anniversary of the grant.
AGGREGATE STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT 12/31/93 AT 12/31/93($)
ACQUIRED VALUE --------------------------- ----------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- -------------- ----------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
John H. Goddard.................. None 0 1,167 21,665 $ 962 $ 37,914
Arnold J. Cogan.................. None 0 1,167 5,620 962 9,835
Patsy R. Turnipseed.............. None 0 17,169 10,870 64,364 23,307
Dennis C. Widman................. None 0 1,125 8,995 4,500 23,335
</TABLE>
PENSION PLAN
The table below shows the estimated annual benefits payable on retirement
under the Momentum Retirement Plan (the "Retirement Plan") and Supplemental
Benefits Plan to designated executive officers in specified remuneration and
years-of-service classifications. The table applies to benefits payable on or
after January 1, 1994. The retirement benefits shown are based upon retirement
at age 65 and the payments of a single-life annuity to the officer. These
benefits are not subject to any deduction for Social Security or other offset
amounts.
DEFINED BENEFIT RETIREMENT PLAN
<TABLE>
<CAPTION>
HIGHEST AVERAGE ANNUAL
EARNINGS DURING ANY YEARS OF SERVICE
CONSECUTIVE SIXTY ----------------------------------------------------------
MONTHS OF EMPLOYMENT 10 15 20 25 33
---------------------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$100,000......... $15,985 $23,978 $ 31,970 $ 39,963 $ 52,751
150,000......... $24,735 $37,103 $ 49,470 $ 61,838 $ 81,626
200,000......... $33,485 $50,228 $ 66,970 $ 83,713 $110,501
250,000......... $42,235 $63,353 $ 84,470 $105,588 $139,376
300,000......... $50,985 $76,478 $101,970 $127,463 $168,251
350,000......... $59,735 $89,603 $119,470 $149,338 $197,126
</TABLE>
With certain exceptions, Section 415 of the Internal Revenue Code currently
limits pensions which may be paid under plans qualified under the Internal
Revenue Code to an annual benefit of $118,800. In addition, Section 401(a)(17)
of the Internal Revenue Code limits compensation which may be used to determine
benefits under qualified plans.
The Board of Directors, upon the recommendation of the Compensation
Committee, has established a Supplemental Benefits Plan for executive officers
to whom the Section 415 and 401 limits apply, or will apply in the future, so
that these individuals will obtain retirement benefits comparable to other
retirement plan participants not impacted by the Section 415 and 401 limits. The
benefits in the table above have not been limited by Sections 415 and 401.
Under the terms of the spin-off agreement with VWR Corporation, VWR
Corporation has agreed to pay two-thirds of all amounts payable to Richard E.
Engebrecht under the Supplemental Benefits Plan and Momentum has agreed to pay
the remaining one-third. Momentum has guaranteed payment of the two-thirds
payable by VWR Corporation and, likewise, VWR Corporation has guaranteed payment
of the one-third payable by Momentum. Effective January 1, 1993, Mr. Engebrecht,
Chairman of the Board, ceased being a full-time employee and began drawing
retirement pay under both the Retirement Plan ($9,044 per month) and the
Supplemental Benefits Plan ($8,489 per month).
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<PAGE> 104
The following are the approximate years of credited service of the persons
named in the compensation table set forth above under the Retirement Plan: Mr.
Goddard, 6; Mr. Cogan, 7; Ms. Turnipseed, 19; and Mr. Widman, 3. No additional
retirement benefits accrue after 33 years of service.
Compensation of executive officers covered by the Retirement Plan includes
salaries and bonuses. Compensation of all non-executive officer employees
covered by the Retirement Plan includes salaries, commissions and bonuses.
Nearly all regular, full-time employees are eligible to participate in the
Retirement Plan.
COMPENSATION COMMITTEE REPORT
Momentum's compensation programs are administered by the Compensation
Committee of the Board. The Committee is composed of three directors, none of
whom is an executive officer of Momentum. All issues pertaining to compensation
of elected officers of Momentum are submitted to the full Board of Directors for
final approval.
In 1993, the Compensation Committee engaged a recognized expert in the
field of executive compensation to review Momentum's current executive
compensation practices and to recommend an executive compensation program for
the CEO and senior executives of Momentum. This review indicated that both of
the senior executives still with Momentum after the sale of the textiles group
were receiving total cash compensation and total compensation below the
compensation averages of comparable positions in all three large national
compensation surveys utilized as benchmarks. Based upon a review and discussions
of that report by the Committee and the full Board with representatives of the
compensation consulting firm, a new 1993 Executive Incentive Plan was adopted on
August 25, 1993 and a revised policy on executive compensation was adopted by
the Committee and the Board on February 22, 1994 as set out below.
Also in 1993 another national compensation consulting firm conducted a
salary survey of 18 other management positions which still exist today in
Momentum. This survey indicated that the salaries and total cash compensation
for 17 of the 18 positions were below competitive averages. Both compensation
surveys used very broad industry data.
Executive Compensation Policy. Momentum will endeavor to maintain a
conservative salary structure for its CEO and senior executives with salary
midpoints around market averages for similar positions in companies with which
it competes. Having determined a median salary for CEO's of comparably-sized,
publicly-owned distribution companies, the salary for the CEO of Momentum will
be subjectively adjusted by considering the following factors, with each factor
being given more-or-less equal weight:
a) managerial experience in the printing distribution industry,
b) proven ability to manage and motivate other managers,
c) a serious commitment to the quality process,
d) ability to anticipate changes in, and adjust to, the rapidly
changing markets served by Momentum, especially in difficult economic
climates, and
e) strategic decision-making which produces long-term Value Growth for
Momentum. Value Growth is maximum continuing value growth through long-term
profit on invested capital and the growth of that capital.
The purposes of the 1993 Executive Incentive Plan ("EIP") are (a) to
attract and retain in the employ of Momentum persons of outstanding competence
who are or will be primarily responsible for the management, growth and success
of the business; (b) to provide greater incentive for such persons to exert
their best efforts on behalf of Momentum; and (c) to further the identity of
interests of such persons with those of Momentum's stockholders generally by
encouraging them to acquire stock ownership in Momentum.
Upon recommendation of the Compensation Committee, the Board of Directors
shall annually designate the CEO and other appropriate senior executives to
participate in the EIP. These participants shall have a total cash compensation
opportunity (salary plus short-term incentive) up to the third quartile of
similarly
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sized companies. Other than salary, the incentive compensation components will
be dependent upon achieving pre-set performance criteria.
The EIP will also provide the CEO and designated participants with an
equity-based, aggressive, long-term, incentive program to support Momentum's
Value Growth Philosophy and its commitment to the quality process. This longterm
incentive component of the EIP should not only foster Value Growth but also
align the interests of the CEO and the other participants with those of the
shareholders. Specifically, these long-term incentives should be tied to the
growth of Momentum and to increases in the book value of Momentum's Shares.
Short Term Incentive Component of the EIP. For 1994 the Committee has
designated the CEO plus four other senior officers to participate in the EIP.
The short-term incentive portion of the EIP incorporates a modified version of
Momentum's former Executive Bonus Plan. Designated participants have the
opportunity to earn a variable cash award depending upon Momentum's achievement
in producing a pre-tax, pre-interest return on capital that exceeds Momentum's
cost of capital (which for 1993 was 16.3%), thus creating real value for
shareholders. Cost of capital is the estimated average return on capital
required to give Momentum's lenders and shareholders a competitive return on
their respective investments as determined by a pre-set formula. The annual
target award for the participants are a designated percentage of the midpoint of
their individual salary grade. Unless otherwise designated by the Committee,
these target percentages are:
<TABLE>
<CAPTION>
CASH
POSITION TARGET MAXIMUM
-------------------------------------------------- ------ -------
<S> <C> <C>
Chief Executive Officer........................... 50% 100%
President (if different from CEO)................. 45% 90%
Senior Vice Presidents and Vice Presidents........ 30% 45%
</TABLE>
The EIP payout formula is as follows:
<TABLE>
<CAPTION>
% OF SUCCESS RATIO % OF SALARY GRADE
ACHIEVED MIDPOINT PAID OUT
------------------ -----------------
<S> <C> <C>
Maximum Payout..................... 130% 150%
Target Payout...................... 100% 100%
Threshold Payout................... 60% 25%
</TABLE>
No awards were made for 1993 under this short-term incentive program.
Long Term Incentive Component of the EIP. The long-term component of the
EIP provides a 3-year target equal to a percentage of the midpoint of the
participant's salary grade multiplied by three. 75% of the target payout is
based on the projected gain on stock options granted under the EIP and 25% is
potentially payable in cash from the performance unit plan. The primary function
of the performance unit plan is to help pay the income tax on any option gains.
The performance unit plan for 1993-95 is based on achieving a minimum 6% annual,
internal growth in revenues with a target payout at 10% annual revenue growth.
Revenue growth from acquisitions are disregarded. The payout formula for the
performance unit plan is the same as the short-term incentive formula above.
The 3-year targets are as set out below:
<TABLE>
<CAPTION>
75% FROM 25% FROM
STOCK OPTION PERFORMANCE
EXECUTIVE ANNUAL TARGET 3-YEAR TARGET GAINS UNIT PLAN
-------------------------------------- ------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Chief Executive Officer............... $ 118,293 $ 354,878 $266,159 $88,719
Senior Vice Presidents and/or
Chief Financial Officer............. 46,670 140,009 105,006 35,003
Vice Presidents....................... 30,686 92,058 69,043 23,015
</TABLE>
The stock options are nonqualified 10-year options which generally vest
(become exercisable) at the end of the 3-year target period. For each 3-year
period, forty percent (40%) of the stock options to be potentially granted (at
target) shall be granted at the beginning of the 3-year period, with additional
options of up to 20% of the 3-year target to be granted at the end of the first,
second and third years. For 1993-95 the granting of
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<PAGE> 106
additional options at year end shall be dependent on the book value of
Momentum's stock increasing 13.3% or more from the beginning of the year to the
end of the year with the target level grant based on a 20% compounded annual
gain in book value. The 13.3% threshold was not achieved at December 31, 1993 so
no additional options were granted at the end of the first plan year.
Under the EIP the following initial stock options (representing the 40%
above) were granted in 1993 and, when they vest in 1996, will be exercisable at
$6.75:
<TABLE>
<CAPTION>
OPTIONEE NUMBER OF SHARES
----------------------------- ----------------
<S> <C>
John H. Goddard.............. 21,665
Patsy R. Turnipseed.......... 8,548
Dennis C. Widman............. 5,620
Arnold J. Cogan.............. 5,620
Barry C. Maulding............ 5,620
</TABLE>
No stock options have previously been granted by Momentum to Ms. Turnipseed
and Messrs. Goddard, Cogan and Widman since Momentum's March 1, 1990 spin-off.
General Compensation Philosophy. Salaries and total compensation for
officers and other employees not participating in the EIP shall be in the
competitive range for similar positions at other national distribution companies
of Momentum's size, with particular emphasis placed on salaries paid for similar
positions at companies Momentum directly competes with. In addition to
competitive factors, individual compensation levels will be based on the
individual's experience, responsibility, value of contribution to Momentum, and
individual performance.
The Compensation Committee retains the power to waive performance criteria
under any compensation program of Momentum although it has never done so.
February 22, 1994
The Compensation Committee
James H. Wiborg, Chairman
Andrew V. Smith
William K. Street
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<PAGE> 107
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Momentum Peer Group Broad Market
<S> <C> <C> <C>
1990 100.00 100.00 100.00
1990 77.78 90.78 93.30
1991 62.50 131.68 119.77
1992 125.13 144.99 120.95
1993 141.13 167.79 145.08
</TABLE>
The above graph compares the four-year cumulative total return for Momentum
Shares with the comparable cumulative return of two indexes. The Broad Market is
a composite total return index of all national market and OTC stocks traded on
the Nasdaq National Market, the market on which Momentum Shares trade. The Peer
Group for comparison is a total return index for wholesale trade distributors:
durable goods and non-durable goods (Standard Industry Codes 50 and 51) prepared
by Media General, Richmond, VA.
The graph assumes $100 invested on March 30, 1990 in Momentum Shares and
$100 invested at that time in each of the two referenced indexes. The comparison
assumes all dividends are reinvested. March 30, 1990 was chosen as the beginning
date because Momentum Shares first traded on March 19, 1990.
PROPOSAL 3
ADOPTION OF THE 1993 LONG TERM INCENTIVE PLAN
On June 17, 1993, the Phillips Board adopted, and TBC as Phillips' then
sole shareholder subsequently approved, the 1993 Long Term Incentive Plan (the
"Incentive Plan"), a copy of which is attached as Annex H. The purpose of the
Incentive Plan is to provide meaningful long term incentives for Phillips'
executives and other key employees, directly related to their individual and
collective performances. Options to acquire Phillips Shares and restricted stock
awards of such shares, will allow Phillips to provide meaningful incentives to
its key employees, which presently number 66. Options and restricted stock
awards will permit key employees to profit proportionally as shareholder value
is enhanced (as evidenced by the market price for Phillips Shares), and will
also give management an effective tool to encourage key employees to continue in
the employ of Phillips and its subsidiaries. If the Merger is consummated, all
executives and key employees of PrimeSource selected by the PrimeSource Board of
Directors will be eligible to participate in the Incentive Plan. Key employees
of Phillips were granted options to acquire a total of 192,000 Phillips Shares
under the Incentive Plan during fiscal year 1993.
The Incentive Plan provides for the granting of (i) "incentive stock
options" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), (ii) "non-statutory" stock options and
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<PAGE> 108
(iii) Phillips Shares which are subject to forfeiture under the circumstances
specified in the Incentive Plan ("restricted stock"). The purpose of the
Incentive Plan is to reward and provide incentives for key employees of Phillips
and its subsidiaries by providing them with an opportunity to acquire an equity
interest in Phillips, thereby increasing their personal interest in its
continued success and progress. The Incentive Plan is also intended to aid
Phillips and its subsidiaries in attracting executive personnel of exceptional
ability.
DESCRIPTION OF THE INCENTIVE PLAN
The following are the key provisions of the Incentive Plan and apply to
incentive stock options, non-statutory stock options and restricted stock
granted under the plan unless specifically noted.
1. Number of Shares. The aggregate maximum number of shares authorized
to be issued under the Incentive Plan pursuant to grants of stock options
or restricted stock is ten percent of the issued and outstanding Phillips
Shares. The aggregate maximum number of Phillips Shares which may be the
subject of incentive stock options is 400,000, and the aggregate maximum
number of shares which may be subject to restricted stock awards is 75,000.
In each case these numbers may be adjusted for any changes in Phillips'
capitalization.
2. Administration. The Incentive Plan will be administered by the
Compensation Committee of the Board of Directors (the "Committee").
3. Eligibility. The class of employees eligible to receive options or
restricted stock is key employees of Phillips (who may also be Directors of
Phillips) or its subsidiaries, as selected by the Phillips Board.
4. Term of Plan. The Incentive Plan became effective July 1, 1993, and
will remain in effect until all shares issuable upon the exercise of
options granted under the Incentive Plan have been issued or the options
have been terminated. No incentive stock options may be awarded after June
15, 2003. The Phillips Board may terminate the Incentive Plan at any time
without prejudice to the holders of any then outstanding options.
5. Options.
a. Term of Option. All options will lapse at the earlier of the
expiration of the option term specified by the Committee (not more than
ten years in the case of incentive stock options) or three months
following the date on which an employee's employment with Phillips or
its subsidiaries terminates, whether voluntarily or involuntarily, for
any reason other than death. If employment is terminated because of the
employee's death, the option will lapse one year thereafter, but in no
event later than the option expiration date.
b. Option Price. The option price will be determined by the
Committee and, in the case of incentive stock options, will be no less
than the fair market value of the shares on the date that the option is
granted.
c. Special Rules for Certain Shareholders. If an incentive stock
option is granted to a key employee who then owns, directly or by
attribution under the Code, shares possessing more than ten percent of
the total combined voting power of all classes of stock of Phillips, the
term of the option will not exceed five years, and the option price will
be at least 110% of the fair market value of the shares on the date that
the option is granted.
d. Size of Grant. The number of shares for which an option is
granted to an employee will be determined by the Committee.
e. Status of Options. The status of each grant of options as an
incentive stock option or non-statutory stock option will be defined at
the time of grant. If, however, the aggregate fair market value
(determined as of the date of grant) of shares with respect to which
incentive stock options become exercisable for the first time by an
employee exceeds $100,000 in any calendar year, the options with respect
to the excess shares will be non-statutory stock options.
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<PAGE> 109
f. Payment. An employee must pay for option shares at the time of
exercise, and no shares shall be issued until such payment has been
made. Payment may be made in cash, other Phillips Shares owned by the
employee (other than stock acquired by exercise of an incentive stock
option which has not been held for the requisite "holding period") or by
a combination of cash and Phillips Shares. With the consent of the
Committee payment may also be made by withholding that number of shares
otherwise to be issued pursuant to the options being exercised having an
aggregate fair market value equal to the total option price at the date
of the exercise.
g. Option Contract. All options will be evidenced by a written
contract containing provisions consistent with the Incentive Plan and
such other provisions as the Committee deems appropriate.
h. Transferability. No option is transferable other than by will or
the laws of descent and distribution, and only the employee or his
guardian or legal representative may exercise any option during the
employee's lifetime.
6. Restricted Stock.
a. Forfeiture. All shares of restricted stock granted under the
Incentive Plan become nonforfeitable five years after the date of grant
or when the employee retires with the approval of Phillips, if earlier.
Such shares also become nonforfeitable if the employee dies while in
Phillips' employ. If during the five years following the date of grant,
the employee's employment with Phillips or its subsidiaries terminates,
whether voluntarily or involuntarily, for any reason other than approved
retirement or death, all shares of restricted stock granted under the
Incentive Plan are immediately forfeited and canceled.
b. Transferability. If restricted stock is voluntarily or
involuntarily transferred by the employee at any time before it becomes
nonforfeitable, such restricted stock is immediately forfeited and
canceled.
c. Other Terms and Conditions. The Committee may establish other
terms and conditions for the issuance of restricted stock under the
Incentive Plan.
7. Amendments. The Board of Directors may from time to time amend the
Incentive Plan, however, no amendment which modifies the class of eligible
employees, increases the number of Phillips Shares authorized or available
under the Incentive Plan or extends the duration of the Incentive Plan may
be adopted without the prior approval of the shareholders of Phillips.
FEDERAL TAX CONSEQUENCES OF INCENTIVE PLAN
The following is a summary of the principal federal income tax consequences
of the Incentive Plan, based on tax laws and regulations in effect on the date
of this Proxy Statement/Prospectus, which laws and regulations are subject to
change. This Summary does not purport to be a complete description of the
federal income tax aspects of the Incentive Plan.
No taxable income will be recognized by the recipient of an incentive stock
option upon either the grant or exercise of the option. However, the amount by
which the fair market value of a share at the time of exercise exceeds the
option price will be taken into account in computing the employee's "alternative
minimum taxable income" in the year an incentive stock option is exercised for
purposes of the "alternative minimum tax" imposed by Section 55 of the Code.
Phillips will not be allowed a deduction by reason of the grant or exercise of
an incentive stock option, provided the recipient of such option does not
dispose of the shares issued upon exercise within two years from the date the
option was granted nor within one year after the shares were transferred to him
on exercise of the option. The recipient will recognize long-term capital gain
or loss on disposition of such shares after the foregoing holding periods have
been satisfied. If the recipient fails to satisfy these holding period
requirements, any gain recognized upon any disposition of the shares will be
taxed as ordinary income to the extent of the excess of the fair market value of
the shares on the date of exercise over the adjusted basis of the shares (or, in
the case of certain dispositions, the excess of the amount realized on a
disposition over the adjusted basis, if such excess is less), and Phillips will
be entitled to a deduction in
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<PAGE> 110
that amount. The balance of the gain, if any, will be long-term or short-term
capital gain, depending upon the length of time the shares were held prior to
disposition.
Upon the grant of a non-statutory option, no income will be realized by the
employee. Upon the exercise of such an option, the amount by which the fair
market value of the shares at the time of exercise exceeds the exercise price
will be taxed as ordinary income to the employee, and Phillips will be entitled
to a corresponding deduction. Special rules are applicable to the use of
Phillips Shares as payment for shares purchased upon exercise of incentive stock
options and non-statutory stock options.
No taxable income will be recognized by the recipient upon the grant of
restricted stock. When the restricted stock becomes nonforfeitable, the fair
market value thereof at such date will be included in the employee's ordinary
income for such year and Phillips will be entitled to a corresponding deduction.
VOTE REQUIRED FOR APPROVAL; RECOMMENDATION OF THE BOARD OF DIRECTORS
The Incentive Plan is subject to approval by the affirmative vote of the
holders of a majority of the Phillips Shares present in-person or by proxy at
the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE 1993 LONG TERM
INCENTIVE PLAN.
PROPOSAL 4
ADOPTION OF THE REPLACEMENT OPTION PLAN
On June 17, 1993, the Phillips Board adopted (subject to shareholder
approval) the 1993 Replacement Option Plan (P&J Spin-Off) (the "Replacement
Option Plan"), a copy of which is attached as Annex I. The purpose of the
Replacement Option Plan is expressly and solely to provide for the grant of
stock options to certain non-employee directors of Phillips, as replacements for
options to purchase TBC common stock held by such directors which were canceled
pursuant to the Plan of Distribution effectuating the spin-off of Phillips on
August 1, 1993 (the "Plan of Distribution").
At June 1, 1993, non-employee directors held unexercised options to acquire
173,600 shares of TBC's common stock. Pursuant to the Plan of Distribution, any
and all of these options which were in-the-money (defined for this purpose to be
options where the market price of TBC common stock exceeded the exercise price
by at least $1.00 per share at June 18, 1993) became immediately exercisable,
and if not exercised prior to the close of business on July 21, 1993 (the
distribution record date) were automatically surrendered and canceled. By
exercise of these options, the option holder was able to protect and realize
only that portion of the value of the options which represented the difference
between the market price of the TBC common stock on June 18, 1993 and the option
exercise price. The remaining option value going forward was lost.
The Plan of Distribution also provided that any and all out-of-the-money
options held by non-employee directors (covering 116,000 shares of TBC common
stock) would be automatically surrendered and canceled, and that after the
effective date of the spin-off new options would be granted to acquire the same
number of shares, in total, of TBC common stock and Phillips Shares (adjusted to
reflect the distribution of two Phillips Shares for each three shares of TBC
common stock). The options granted were divided between Phillips and TBC in
proportion to the respective market prices of Phillips Shares and TBC common
stock after the spin-off, and were granted pursuant to special replacement
option plans adopted by Phillips (the Plan under consideration here) and TBC (a
separate plan administered by TBC) expressly and solely for this purpose,
subject to the subsequent approval of shareholders.
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<PAGE> 111
The eligible participants in the Replacement Option Plan, the number of
out-of-the-money options surrendered and canceled, the replacement options for
Phillips Shares granted under the Replacement Option Plan and the option
exercise price are set forth in the following table. No further options may be
granted under the Replacement Option Plan.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF TBC OPTIONS PHILLIPS REPLACEMENT OPTION
PLAN PARTICIPANT SURRENDERED OR CANCELED OPTIONS GRANTED EXERCISE PRICE
-------------------------------- ----------------------- -------------------- --------------
<S> <C> <C> <C>
Fred C. Aldridge, Jr............ 25,000(1) 5,975 $11.50
James L. Everett................ 25,000(1) 5,975 $11.50
Myron S. Gelbach................ 25,000(1) 5,975 $11.50
Nelson G. Harris................ 41,000(2) 9,823 $11.50
</TABLE>
- ---------------
(1) Originally granted under the 1988 TBC Director Option Plan. Each director
gave up $1.00 of his director's compensation for each option share granted.
Each director also received from TBC replacement options to purchase 16,037
shares of TBC common stock.
(2) Originally granted under TBC's employee stock option plans while Mr. Harris
was employed by TBC as Chief Executive Officer. Mr. Harris also received
from TBC replacement options to purchase 26,366 shares of TBC common stock.
The closing price of Phillips Shares on July 20, 1994 was $9.25.
DESCRIPTION OF THE REPLACEMENT OPTION PLAN
A summary of the key provisions of the Replacement Option Plan is set forth
below.
1. Administration. The Plan is administered by a Committee of
Directors consisting of Philip J. Baur, Jr., Harold F. Still, Jr. and
Judith M. von Seldeneck.
2. Participants. Nelson G. Harris, Fred C. Aldridge, Jr., James L.
Everett, III and Myron S. Gelbach, Jr. are the only persons eligible to
participate in the Plan.
3. Number of Shares. The number of shares authorized to be issued
under the Replacement Option Plan is determined by formula set forth in the
Replacement Option Plan (Section F(b)) based upon the number of old options
being replaced and the relative market values of TBC common stock and
Phillips Shares after the spin-off of Phillips. Based on that formula, the
number of shares has been determined to be 27,748 as set forth in the Table
above.
4. Exercise Price. The exercise price of each option share is the
average closing price of Phillips Shares as quoted on the Nasdaq National
Market during the first ten business days of "regular way trading"
following the spin-off, rounded upward to the nearest one-eighth of a
dollar, which has been calculated to be $11.50.
5. Term of Option. Options granted under the Replacement Option Plan
become exercisable and expire on the dates on which the out-of-the-money
options being replaced would have become exercisable and expired had they
not been surrendered and canceled; provided however that the term of the
options granted to Mr. Harris has been extended to August 31, 1996; and
provided further that the Plan Committee has the power to extend the
expiration date for up to two years so that each eligible director will
have a period of not less than two years within which to exercise the
options granted. It is anticipated that the Plan Committee will extend the
expiration date for the options granted to Messrs. Everett and Gelbach
until August 31, 1996.
6. Modification of Options. The Committee has the power to modify,
extend or renew outstanding options issued under the Replacement Option
Plan.
7. Amendment of Plan. The Board of Directors may from time to time
amend the Replacement Option Plan provided that such amendment does not
alter or impair any option previously granted without the consent of the
affected director.
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<PAGE> 112
Replacement of the surrendered out-of-the-money TBC options in part with
options to acquire Phillips Shares is believed to be beneficial to Phillips
through encouraging equity ownership in Phillips by non-employee directors and,
in the context of the spin-off, this replacement of the out-of-the-money TBC
options is believed to be fair to Phillips and the participating non-employee
directors.
FEDERAL TAX CONSEQUENCES OF THE REPLACEMENT OPTION PLAN
The following is a summary of the principal federal income tax consequences
of the Replacement Option Plan, based on tax laws and regulations in effect on
the date of this Proxy Statement/Prospectus, which laws and regulations are
subject to change, and does not purport to be a complete description of the
federal income tax aspects of the Replacement Option Plan.
No taxable income is recognized by the non-employee director on the grant
of options under the Replacement Option Plan. On the exercise of any such
option, the amount by which the fair market value of the shares at the time of
exercise exceeds the exercise price will be taxed as ordinary income to the non-
employee director, and Phillips will be entitled to a corresponding deduction.
VOTE REQUIRED FOR APPROVAL; RECOMMENDATION OF BOARD OF DIRECTORS
The Replacement Option Plan is subject to approval by the affirmative vote
of the holders of a majority of the Phillips Shares present in person or by
proxy at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE REPLACEMENT
OPTION PLAN.
PROPOSAL 5.
APPROVAL OF INDEPENDENT AUDITORS
Shareholders of Phillips will be asked to approve the selection of Coopers
& Lybrand, Phillips' present independent certified public accountant, as the
independent certified public accountants of Phillips for the year ending
December 31, 1994. Representatives of the firm will be present at the Phillips
meeting, will be given an opportunity to make a statement if they desire to do
so, and will be available to respond to appropriate questions by shareholders
concerning the accounts of Phillips.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF COOPERS & LYBRAND.
OTHER BUSINESS
Neither the Phillips Board nor the Momentum Board knows of any other
business to come before the Phillips Meeting or Momentum Meeting, respectively.
However, if any additional matters are presented at the meeting, it is the
intention of the persons named in the accompanying Proxy to vote such Proxy in
accordance with their judgment on such matters.
PROPOSALS FOR THE 1995 ANNUAL MEETING
Any proposal which a shareholder of Phillips or PrimeSource intends to
present at the 1995 Annual Meeting must be received by the Secretary of Phillips
or, if the Merger is approved, the Secretary of PrimeSource, at Suite 222,
Fairway Corporate Center, 4350 Haddonfield Road, Pennsauken, New Jersey 08109,
not later than December 19, 1994 for inclusion in the company's proxy statement
and proxy relating to the 1995 Annual Meeting.
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<PAGE> 113
LEGAL MATTERS
The validity of the PrimeSource Shares to be issued by PrimeSource under
the Reorganization Agreement and certain tax and other matters relating to the
Merger will be passed upon by Phillips' counsel, Stradley, Ronon, Stevens &
Young, 2600 One Commerce Square, Philadelphia, Pennsylvania 19103. Fred C.
Aldridge, Jr., a director of Phillips, is a partner in Stradley, Ronon, Stevens
& Young. Mr. Aldridge and other attorneys who are partners in or employed by
Stradley, Ronon, Stevens & Young in the aggregate own 18,109 Phillips Shares and
have options to purchase an additional 5,975 shares under the Replacement Option
Plan at an exercise price of $11.50 per share. Certain tax and other matters
relating to the Merger will be passed upon for Momentum by its counsel, Preston
Gates & Ellis, 5000 Columbia Center, 701 Fifth Avenue, Seattle, WA 98104.
EXPERTS
The attached consolidated balance sheets of Phillips as of December 31,
1993 and 1992 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1993, have been audited by Coopers & Lybrand, independent
auditors, as set forth in their report included herein. Such consolidated
financial statements are included herein in reliance upon the authority of such
firm as experts in accounting and auditing.
The consolidated financial statements of Momentum at December 31, 1993 and
1992 and for each of the three years in the period ended December 31, 1993 have
been audited by Ernst & Young, independent auditors, as set forth in their
report included herein. Such consolidated financial statements are included
herein in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The attached balance sheets of T.K. Gray, Inc. as of December 31, 1993 and
1992, and the related statements of income, retained earnings (deficit), and
cash flows for the years then ended, have been audited by McGladrey & Pullen,
independent auditors, as set forth in their report included herein. Such
financial statements are included herein in reliance upon the authority of such
firm as experts in accounting and auditing.
The attached statements of income and retained earnings (deficit) and
of cash flows of T.K. Gray, Inc. for the year ended December 31, 1991 have been
audited by Deloitte & Touche, independent auditors, as set forth in their
report included herein and have been so included in reliance upon the report of
such firm given upon their authority as experts in accounting and
auditing.
ANNUAL REPORT ON FORM 10-K FILED WITH
SECURITIES AND EXCHANGE COMMISSION
A copy of Phillips' Annual Report for its fiscal year ended December 31,
1993, as required to be filed with the Securities and Exchange Commission on
Form 10-K, may be obtained, without charge, by any shareholder, upon written
request directed to William A. DeMarco, Vice President of Finance and Secretary,
Phillips & Jacobs, Incorporated, Fairway Corporate Center, Suite 222, 4350
Haddonfield Road, Pennsauken, New Jersey 08109.
A copy of Momentum's Annual Report for its fiscal year ended December 31,
1993, as required to be filed with the Securities and Exchange Commission on
Form 10-K, may be obtained, without charge, by any stockholder, upon written
request directed to Barry C. Maulding, General Counsel, Momentum Corporation,
Koll Center Bellevue, Suite 1900, 500 - 108th Avenue N.E., Bellevue, Washington
98004.
106
<PAGE> 114
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Annual Financial Statements........................................................... F-1
Consolidated Balance Sheets as of December 31, 1993 and 1992........................ F-2
Consolidated Statements of Operations for the years ended December 31, 1993, 1992
and 1991......................................................................... F-3
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1993, 1992, and 1991................................................ F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992
and 1991......................................................................... F-5
Notes to Consolidated Financial Statements.......................................... F-6
Report of Independent Auditors...................................................... F-17
Interim Financial Statements.......................................................... F-18
Consolidated Condensed Balance Sheets (Unaudited) at March 31, 1994 and December 31,
1993............................................................................. F-18
Consolidated Condensed Statements of Operations (Unaudited) for the Three Months
Ended March 31, 1994 and 1993.................................................... F-19
Consolidated Condensed Statements of Cash Flows (Unaudited) for the Three Months
Ended March 31, 1994 and 1993.................................................... F-20
Notes to Consolidated Condensed Financial Statements................................ F-21
MOMENTUM CORPORATION AND SUBSIDIARY
Annual Financial Statements........................................................... F-23
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1992
and 1991......................................................................... F-23
Consolidated Balance Sheets at December 31, 1993 and 1992........................... F-24
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1992
and 1991......................................................................... F-25
Consolidated Statements of Shareholders' Equity for the Years Ended December 31,
1993, 1992 and 1991.............................................................. F-26
Notes to Consolidated Financial Statements.......................................... F-27
Report of Independent Auditors...................................................... F-36
Interim Financial Statements.......................................................... F-37
Statements of Income (Unaudited) for the Three Months Ended March 31, 1994 and
1993............................................................................. F-37
Balance Sheets at March 31, 1994 and December 31, 1993.............................. F-38
Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 1994 and
1993............................................................................. F-39
Notes to Unaudited Financial Statements............................................. F-40
T. K. GRAY, INCORPORATED
Statement of Income and Retained Earnings (Deficit) for the years ended December 31,
1993, 1992 and 1991................................................................. F-41
Statement of Cash Flows for the years ended December 31, 1993, 1992 and 1991.......... F-42
Balance Sheets as of December 31, 1993 and 1992....................................... F-43
Notes to Financial Statements......................................................... F-44
Report of Independent Auditors........................................................ F-47
Report of Independent Auditors........................................................ F-48
</TABLE>
F-1
<PAGE> 115
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1992
ASSETS
<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, 31,
1993 1992
----------- -----------
<S> <C> <C>
Current assets:
Cash.............................................................. $ 232,698 $ 327,213
Receivables, less allowance of $937,000 and $836,000,
respectively................................................... 26,090,391 22,165,170
Inventories....................................................... 16,241,427 14,323,828
Deferred income taxes............................................. 721,739 739,666
Other current assets.............................................. 382,427 349,945
----------- -----------
Total current assets................................................ 43,668,682 37,905,822
----------- -----------
Property, plant and equipment, net.................................. 4,425,165 4,592,991
----------- -----------
Excess of cost of investment in subsidiaries over equity in net
assets at acquisition, net of accumulated amortization of $379,000
and $323,000...................................................... 2,078,020 1,725,732
----------- -----------
Deferred income taxes............................................... 1,473,577 600,800
Long-term receivables............................................... 383,301 567,397
Other assets........................................................ 398,076 258,269
----------- -----------
2,254,954 1,426,466
----------- -----------
Total assets........................................................ $52,426,821 $45,651,011
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................. $ 1,571,429 $ 914,286
Notes payable, Tasty Baking Company............................... -- 6,500,000
Notes payable, banks.............................................. 1,095,000 216,000
Accounts payable, trade........................................... 9,634,062 11,056,138
Accrued income taxes.............................................. 498,324 540,449
Other accrued liabilities......................................... 2,239,302 1,821,333
----------- -----------
Total current liabilities........................................... 15,038,117 21,048,206
----------- -----------
Long-term debt, net of current portion.............................. 12,746,841 2,942,856
Accrued pension and other liabilities............................... 1,988,399 1,539,352
Postretirement benefits other than pension.......................... 2,000,000 --
----------- -----------
Total liabilities................................................... 31,773,357 25,530,414
----------- -----------
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value, 10,000,000 shares authorized,
4,104,352 shares issued........................................ 41,043 --
Common stock, $1 par value, 300,000 shares authorized,
252,001 issued and outstanding................................. -- 252,001
Additional paid-in capital........................................ 1,255,225 897,174
Retained earnings................................................. 19,476,825 18,971,422
Less: restricted stock awards..................................... 119,629 --
----------- -----------
Total shareholders' equity.......................................... 20,653,464 20,120,597
----------- -----------
Total liabilities and shareholders' equity.......................... $52,426,821 $45,651,011
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 116
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................................ $167,744,496 $158,747,647 $151,632,075
Cost of sales........................................ 135,094,779 129,834,827 123,377,060
------------ ------------ ------------
Gross profit......................................... 32,649,717 28,912,820 28,255,015
------------ ------------ ------------
Operating costs
Selling, general and administrative................ 24,035,278 21,131,452 20,944,247
Depreciation....................................... 1,047,031 1,064,918 1,077,692
Provision for doubtful accounts.................... 879,913 646,344 528,371
Provision for cost of spin-off..................... 609,000 -- --
------------ ------------ ------------
Income from operations............................... 6,078,495 6,070,106 5,704,705
------------ ------------ ------------
Interest expense..................................... 531,233 515,385 850,074
Other income, net.................................... (250,946) (201,516) (226,725)
------------ ------------ ------------
Income before provision for income taxes and
cumulative effect of changes in accounting
principles......................................... 5,798,208 5,756,237 5,081,356
------------ ------------ ------------
Provision for income taxes:
Current............................................ 2,549,644 2,382,454 2,248,005
Deferred........................................... (150,231) (134,019) (271,961)
------------ ------------ ------------
2,399,413 2,248,435 1,976,044
Income before cumulative effect of changes in
accounting principles.............................. 3,398,795 3,507,802 3,105,312
Cumulative effect on prior years of changes in
accounting principles:
Income taxes.................................... (98,013) -- --
Post-retirement benefits other than pensions,
net of taxes.................................. (1,208,000) -- --
------------ ------------ ------------
Net income........................................... $ 2,092,782 $ 3,507,802 $ 3,105,312
============ ============ ============
Average number of shares outstanding................. 4,098,227 4,057,179 4,038,037
Per share of common stock:
Income before cumulative effect of changes in
accounting principles........................... $ .83 $ .86 $ .77
Cumulative effect on prior years of changes in
accounting principles........................... (.32) -- --
------------ ------------ ------------
Net income........................................... $ .51 $ .86 $ .77
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 117
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
COMMON
COMMON STOCK ADDITIONAL RESTRICTED
STOCK $1 $0.01 PAID-IN RETAINED STOCK
PAR VALUE PAR VALUE CAPITAL EARNINGS AWARDS TOTAL
--------- --------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1990..................... $ 252,001 $ 897,174 $14,898,476 $16,047,651
Net income............... 3,105,312 3,105,312
Cash dividend paid to
TBC................... (1,209,603) (1,209,603)
--------- ---------- ----------- -----------
Balance, December 31,
1991..................... 252,001 897,174 16,794,185 17,943,360
Net Income............... 3,507,802 3,507,802
Cash dividend paid to
TBC................... (1,330,565) (1,330,565)
--------- ---------- ----------- -----------
Balance, December 31,
1992..................... 252,001 897,174 18,971,422 20,120,597
Adjustment to equity
caused by distribution
of Company stock by
TBC................... (252,001) $40,926 211,075
Issuance of Common Stock
for Restricted Stock
Awards................ 117 125,809 $ (125,926)
Tax benefits related to
TBC Management Stock
Purchase Plan and TBC
Stock Option Plan..... 21,167 21,167
Amortization of
Restricted Stock
Awards................ 6,297 6,297
Net income............... 2,092,782 2,092,782
Cash dividends paid to
TBC................... (665,282) (665,282)
Cash dividends paid to
shareholders ($.225
per share)............ (922,097) (922,097)
--------- --------- ---------- ----------- ---------- -----------
Balance, December 31,
1993..................... $ -- $41,043 $1,255,225 $19,476,825 $ (119,629) $20,653,464
========= ======= ========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 118
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from (used for) operating activities:
Net income............................................ $ 2,092,782 $ 3,507,802 $ 3,105,312
Adjustments to reconcile net income to net cash
provided by operating activities
Cumulative effect of changes in accounting
principles....................................... 1,306,013
Depreciation....................................... 1,047,031 1,064,918 1,077,692
Amortization....................................... 133,441 173,854 201,352
Provision for doubtful accounts.................... 879,913 646,344 528,371
Deferred taxes..................................... (150,231) (134,019) (271,961)
Gain on sale of property, plant and equipment...... (3,293) (52,316) (94,408)
Provision for pension expense...................... 246,234 206,420 162,229
Changes in assets and liabilities:
Increase in receivables............................... (4,805,134) (1,216,142) (1,774,883)
Decrease (increase) in inventories.................... 448,980 (2,498,751) (46,457)
Decrease (increase) in other current assets........... (22,526) (87,454) 177,989
Increase (decrease) in accrued and deferred taxes..... (31,590) (183,633) 102,774
Increase (decrease) in accounts payable, trade and
other accrued liabilities.......................... (1,004,107) 1,738,770 (787,298)
Payment of pension.................................... (255,684)
----------- ----------- -----------
Net cash provided by operating activities............. 137,513 2,910,109 2,380,712
----------- ----------- -----------
Cash flows from (used for) investing activities:
Proceeds from sale of property, plant and equipment... 111,372 88,329 654,305
Purchase of property, plant and equipment............. (641,284) (915,057) (580,657)
Purchase of business.................................. (3,130,709) (309,158)
Payment of non-compete agreement...................... (31,250) (112,500) (150,000)
Decrease (increase) in long-term receivables.......... 184,096 64,999 (340,765)
Increase (decrease) in other.......................... 22,998 (19,694) 23,386
----------- ----------- -----------
Net cash used for investing activities................ (3,484,777) (1,203,081) (393,731)
----------- ----------- -----------
Cash flows from (used for) financing activities:
Dividends paid to shareholders........................ (922,097)
Dividends paid to Tasty Baking Company................ (665,282) (1,330,565) (1,209,603)
Long-term borrowings.................................. 14,889,698 1,200,000
Payment of long-term debt............................. (4,428,570) (1,214,285) (1,014,287)
Net increase (decrease) in short-term debt............ 879,000 (39,000) 106,000
Net increase (decrease) in notes payable, Tasty Baking
Company............................................ (6,500,000) 300,000 (825,000)
----------- ----------- -----------
Net cash provided by (used for) financing
activities......................................... 3,252,749 (2,283,850) (1,742,890)
----------- ----------- -----------
Net increase (decrease) in cash....................... (94,515) (576,822) 244,091
Cash, beginning of year............................... 327,213 904,035 659,944
----------- ----------- -----------
Cash, end of year..................................... $ 232,698 $ 327,213 $ 904,035
=========== =========== ===========
Cash paid during the year for:
Interest........................................... $ 546,972 $ 568,473 $ 903,898
=========== =========== ===========
Income taxes....................................... $ 2,864,165 $ 2,571,211 $ 2,005,650
=========== =========== ===========
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
In connection with the purchase of C.M. Graphics in 1992, the Company
incurred a note obligation of $65,842. In connection with the retirement of an
Onondaga Litho Supply Co. officer in 1993, the Company incurred a note
obligation of $225,000.
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 119
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND DISTRIBUTION:
Phillips & Jacobs, Incorporated (the "Company") through its P/J and Jetcom
Divisions, and its subsidiaries Dixie Type & Supply Company, Inc. ("Dixie
Type"), Onondaga Litho Supply Co., Inc. ("Onondaga") and C.M. Graphics, Inc.
("C.M. Graphics"), sells a comprehensive line of graphic arts supplies and
distributes high-technology equipment to the prepress sector.
On August 1, 1993 (the "Distribution Date"), Tasty Baking Company ("TBC")
distributed to the holders of record of TBC's common stock, at the close of
business on the Record Date, July 21, 1993, two shares of the Company's common
stock for every three shares of TBC common stock outstanding. The Distribution
resulted in 100% of the outstanding shares of the Company's common stock being
distributed to holders of TBC common stock on a proportionate basis. As a result
of the execution of the Plan of Distribution, the Company is no longer a
subsidiary of TBC but an independent publicly-owned company whose shares are
traded on the NASDAQ National Market System.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
Inventory Valuation:
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) and first-in, first-out (FIFO) methods.
Property, Plant, Equipment and Depreciation:
Property, plant and equipment are carried at cost. Costs of major
additions, replacements and betterments are capitalized and maintenance and
repairs which do not extend the life of the respective assets are expensed as
incurred. When property is retired or otherwise disposed of, the cost of the
property and the related accumulated depreciation are removed from the accounts
and any resulting gains or losses are reflected in current operations.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets which range from three to ten years for machinery and
equipment and ten to thirty years for buildings and improvements. For income tax
purposes, accelerated depreciation methods are used.
Excess Cost of Investment in Subsidiaries Over Equity in Net Assets at
Acquisition and Amortization:
The excess cost of the total acquisition over the fair value of net assets
acquired is being amortized by the straight-line method over periods ranging
from fifteen to forty years.
Pension Cost:
The Company participates in a funded noncontributory pension plan,
sponsored by TBC. Pension cost was determined in accordance with the
requirements of Statement of Financial Accounting Standards No. 87
- -- "Employers' Accounting for Pensions." TBC's general funding policy is to
contribute amounts deductible for federal income tax purposes plus such
additional amounts, if any, as TBC's independent actuarial consultants advise to
be appropriate. Contributions are intended to provide not only for benefits
attributable to service to date but also for those expected to be earned in the
future. The Company makes a pro rata contribution to the plan based on its
actuarially determined allocation of the liability.
F-6
<PAGE> 120
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Postretirement Benefits Other than Pensions:
In 1993, the Company adopted Statement of Financial Accounting Standards
No. 106 -- "Employers' Accounting for Postretirement Benefits Other than
Pensions". The standard requires employers to account for retiree benefit
obligations on an accrual basis, rather than the "pay-as-you-go" basis the
Company previously used.
Income Taxes:
In 1993, the Company adopted Statement of Financial Accounting Standards
No. 109 -- "Accounting for Income Taxes" which requires the use of an asset and
liability approach for financial accounting and reporting for income taxes.
For 1992 and 1991, deferred income taxes have been provided using the
deferred method for those items of revenue and expense which have been
recognized for financial reporting purposes in different periods than for income
tax purposes.
Prior to the Distribution, the Company was included in the consolidated tax
returns of TBC, which allocated to the Company its pro rata share of the
consolidated tax provision as if the Company had filed a separate income tax
return.
Income Per Common Share:
Income per common share is based on the weighted average number of common
shares and equivalent common shares outstanding during the year. The weighted
average number of shares for 1992 and 1991 are based on the average number of
shares of TBC common stock outstanding for each of those periods converted to
Company shares using the distribution ratio of two shares of Company common
stock for every three shares of TBC common stock.
3. ACQUISITIONS:
On November 1, 1993, the Company acquired the operating assets of Jetcom,
Inc., a distributor of graphic arts supplies in the Cincinnati, Ohio area, for
approximately $3,500,000. The acquisition was accounted for as a purchase and,
accordingly, the operating assets and results of operations of Jetcom are
included in the Company's consolidated financial statements since the date of
acquisition. The excess of the total acquisition cost over the fair value of the
operating assets acquired of approximately $408,000 is being amortized on a
straight-line basis over fifteen years. In addition, the Company agreed to issue
25,000 shares of Company common stock to the major shareholder of the seller in
consideration for a five-year non-compete agreement in favor of the Company. The
Company issued 10,000 shares in January, 1994 and is obligated to issue the
remaining 15,000 shares in January, 1995. The Company is also obligated to issue
up to 25,000 shares of Company common stock to the seller in the event that
certain earnings levels are achieved in the Jetcom Division in 1994 and 1995.
On September 30, 1992, the Company acquired the assets of C.M. Graphics,
Inc., a used equipment dealer, for $375,000. The acquisition was accounted for
as a purchase and, accordingly, the net assets and results of operations of C.M.
Graphics are included in the Company's consolidated financial statements since
the date of acquisition. The total acquisition cost approximated the appraised
value of the net assets acquired and, accordingly, no excess of cost of
investment over equity in net assets was recorded.
The pro forma results of these acquisitions would not have had a
significant impact on the Company's consolidated results of operations.
F-7
<PAGE> 121
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVENTORIES:
Inventories, all of which are finished goods, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1993 1992
----------- -----------
<S> <C> <C>
Last-in, first-out (LIFO)........................... $ 7,427,321 $ 7,064,545
First-in, first-out (FIFO).......................... 8,814,106 7,259,283
----------- -----------
$16,241,427 $14,323,828
=========== ===========
</TABLE>
The current replacement costs of inventories exceeds LIFO value by
approximately $5,262,000 and $5,216,000 at December 31, 1993 and 1992.
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
---------- ----------
<S> <C> <C>
Property, plant and equipment:
Land............................................. $ 407,173 $ 407,173
Buildings and improvements....................... 3,370,160 3,284,426
Machinery and equipment.......................... 5,480,628 5,220,737
---------- ----------
Total......................................... 9,257,961 8,912,336
Less accumulated depreciation.................... 4,832,796 4,319,345
---------- ----------
$4,425,165 $4,592,991
========== ==========
</TABLE>
6. OTHER ACCRUED LIABILITIES:
Other accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
---------- ----------
<S> <C> <C>
Payroll............................................... $ 950,501 $ 723,794
Vacation.............................................. 389,671 362,089
Taxes other than income............................... 150,512 118,302
Travel and entertainment.............................. 128,068 120,000
Rebates............................................... 120,797 139,090
Unearned service revenue.............................. 67,624 81,984
Interest.............................................. 81,178 55,045
Other................................................. 350,951 221,029
---------- ----------
Total................................................. $2,239,302 $1,821,333
========== ==========
</TABLE>
7. NOTES PAYABLE:
On June 23, 1993, the Company entered into an uncollateralized revolving
credit agreement with a bank under which it may borrow up to $5,000,000 until
April 30, 1994. The terms, interest rate and special conditions will be
established at the time of the request. At December 31, 1993, $1,000,000 was
outstanding under this agreement with a rate of 3.863%.
F-8
<PAGE> 122
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company had a revolving credit agreement with TBC to borrow up to
$7,000,000 at prime (6% at December 31, 1992). An advance of $6,500,000 was
outstanding under this agreement at December 31, 1992 and was repaid in full
prior to the Distribution Date. Interest expense incurred under this agreement
was $162,316, $255,308 and $392,294 in 1993, 1992 and 1991, respectively.
Dixie Type has an uncollateralized revolving credit agreement with a bank
under which it may borrow up to $500,000, primarily at the prime rate of
interest (6% at December 31, 1993). At December 31, 1993 and 1992, $95,000 and
$216,000, respectively, were outstanding under this agreement.
8. LONG-TERM DEBT:
In June, 1993, the Company entered into a revolving credit and term loan
agreement with a bank totaling $12,000,000. The facility consists of a term loan
of $8,000,000 divided into two equal tranches of $4,000,000 each and a revolving
credit agreement of up to $4,000,000. The first tranche bears interest at a
fixed rate of 6.03%. The second tranche bears interest at LIBOR plus 1%. The
term loans mature June, 1998. The revolving credit agreement provides for
borrowings up to $4,000,000 until April, 1995. It bears interest at either the
LIBOR rate plus .75% or the bank's prime rate. This interest rate is fixed at
the Company's discretion. All loans are uncollateralized. A commitment fee at an
annual rate of 3/8 of 1% is payable quarterly in the average daily unused
portion of the revolving credit and term loan facility.
In December, 1993, the bank amended the agreement increasing the Company's
uncollateralized credit facility to $15,000,000. The additional amount of the
facility consists of a term loan bearing interest at a fixed rate of 6.03% and
matures December, 1998.
The facility requires the maintenance of minimum levels of working capital
and tangible net worth, as defined, compliance with certain financial covenants,
as defined, limits the incurrence of additional debt and other obligations and
restricts the payment of dividends and the purchase of fixed assets.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1992
----------- ----------
<S> <C> <C>
Term loan: Tranche A, plus interest; Tranche B , plus interest at
LIBOR rate plus 1% (4.18% at December 31, 1993) $285,714
principal payments due quarterly with a final payment of
$2,285,714 due June, 1998........................................ $ 7,428,571 --
Term loan, plus interest; $107,413 principal payments due quarterly
with a final payment of $853,981 due December, 1998.............. 2,889,699 --
Revolving credit agreements, plus interest at the LIBOR rate plus
.75% (4.02% average at December 31, 1993)........................ 4,000,000 --
Term loan, with interest at a variable annual rate equal to the
prime rate, a CD rate, a LIBOR rate, or a Treasury Note rate at
the Company's option fully repaid in 1993........................ -- $2,857,142
Term loan, plus interest at the prime rate fully repaid in 1993.... -- 1,000,000
----------- ----------
$14,318,270 $3,857,142
Less current portion............................................... 1,571,429 914,286
----------- ----------
$12,746,841 $2,942,856
=========== ==========
</TABLE>
F-9
<PAGE> 123
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1993, long-term borrowing maturities are as follows:
<TABLE>
<S> <C>
1994............................ $ 1,571,429
1995............................ 5,571,429
1996............................ 1,571,429
1997............................ 1,571,429
1998............................ 4,032,554
-----------
$14,318,270
===========
</TABLE>
9. LEASING ARRANGEMENTS:
The Company leases certain distribution and office facilities, machinery,
and automotive equipment under various noncancellable lease agreements. The
Company expects that in the normal course of business, leases that expire will
be renewed or replaced by other leases.
Minimum annual rentals payable under noncancellable operating leases with a
remaining term of more than one year from December 31, 1993 are as follows:
<TABLE>
<S> <C>
1994............................. $1,001,300
1995............................. 773,200
1996............................. 536,700
1997............................. 535,000
1998............................. 468,800
Later years...................... 1,058,800
----------
Total minimum lease payments..... $4,373,800
==========
</TABLE>
Rental expense, net of sublease income of $35,000, $45,000 and $11,000 in
1993, 1992 and 1991, respectively, was approximately $969,000, $880,000 and
$899,000 in 1993, 1992 and 1991, respectively.
The Company leases certain distribution and office facilities from
employees. Rent expense incurred in connection with these leases was
approximately $66,000 in 1993 and $135,000 in 1992 and 1991.
10. PENSION COSTS AND OTHER POSTRETIREMENT BENEFITS:
The Company will participate in a funded noncontributory pension plan
sponsored by TBC through December 31, 1994. The plan provides retirement
benefits for substantially all of the Company's employees (excluding employees
of its subsidiaries). Benefits under this plan generally are based on the
employee's years of service and compensation during the years preceding
retirement. Net pension gains and losses in excess of 10% of the greater of the
projected benefit obligation or the market value of the plan assets ("the
corridor") are recognized in income in the year of occurrence.
Costs are allocated to the Company based on actuarial attributes of its
respective participants.
F-10
<PAGE> 124
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of pension cost for the plan are summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Service Cost -- benefits earned
during the year................... $ 1,228,000 $ 1,142,000 $ 854,000
Interest cost on projected
obligation........................ 5,153,000 4,978,000 4,959,000
Actual return on plan assets........ (7,269,000) (4,431,000) (9,502,000)
Net amortization and deferral....... 1,997,000 (842,000) 4,637,000
----------- ----------- -----------
Net pension cost.................... $ 1,109,000 $ 847,000 $ 948,000
=========== =========== ===========
</TABLE>
The Company's allocation of the net pension cost included in the
accompanying statements of operations was $246,234, $206,420 and $162,229 in
1993, 1992 and 1991, respectively.
The following table sets forth the funded status of the pension plan at
December 31, 1993 and 1992. Funded status reflects all assets and liabilities of
the plan, including those eligible present and former employees of TBC.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1993 1992
------------ -----------
<S> <C> <C>
Plan assets as fair value........................ $ 59,754,000 $57,257,000
------------ -----------
Actuarial present value of benefit obligations:
Vested......................................... 56,351,000 49,963,000
Nonvested...................................... 2,569,000 1,705,000
------------ -----------
Accumulated benefit obligations.................. 58,920,000 51,668,000
Effect of projected future salary increases...... 12,117,000 9,258,000
------------ -----------
Projected benefit obligations.................... 71,037,000 60,926,00
------------ -----------
Plan assets in excess of (less than) projected
benefit obligations............................ (11,283,000) (3,669,000)
Unrecognized net gains........................... 3,174,000 (2,959,000)
Unrecognized net transition asset................ (2,970,000) (3,342,000)
------------ -----------
Pension liability................................ $(11,079,000) $(9,970,000)
============ ===========
</TABLE>
The Company's portion of the pension liability included in the accompanying
balance sheets was $1,432,000 at December 31, 1993 and $1,205,000 at December
31, 1992.
The actuarial present value of benefits and projected benefit obligation
were determined using a discount rate of 7.5% for fiscal year end 1993 and 8.5%
for fiscal years ended 1992 and 1991. The expected long-term rate of return on
assets was 9% and the rate of compensation increase used to measure the
projected benefit obligation was 6% for all three years. Plan assets are
invested in a diverse portfolio that primarily consists of equity and debt
securities as well as certain real property and subsequent improvements with
additions thereto.
Other Postretirement Benefits:
The Company also provides certain unfunded health care and life insurance
programs to substantially all of its retired employees (excluding employees of
its subsidiaries). These benefits are provided through contracts with insurance
companies and health service providers.
In 1993, the Company adopted Statement of Financial Accounting Standards
No. 106 -- "Employers' Accounting for Postretirement Benefits Other than
Pensions" (excluding employees of its subsidiaries). The
F-11
<PAGE> 125
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
standard requires employers to account for retiree benefit obligations on an
accrual basis, rather than the "pay-as-you-go" basis. The Company elected to
recognize the full amount of its accumulated postretirement benefit obligation,
which represents the present value of the estimated future benefits payable to
current retirees and a pro-rata portion of estimated benefits payable to active
employees after retirement. Upon adoption, the new standard resulted in a
cumulative effect charge to income of $2,000,000 which, after related tax
benefits, represented a net charge of $1,208,000 or $.30 per share.
The net periodic postretirement benefit cost in 1993 included the following
components:
<TABLE>
<S> <C>
Service cost...................... $ 32,757
Interest cost..................... 164,167
---------
$ 196,924
=========
</TABLE>
The amounts recognized in the Company's balance sheet at December 31, 1993
were as follows:
<TABLE>
<S> <C>
Retirees......................... $ 1,592,768
Fully eligible active employee... 186,227
Other active employees........... 221,005
-----------
$ 2,000,000
===========
</TABLE>
The accumulated postretirement benefit obligation was determined at January
1, 1993 using an 8.5% weighted average discount rate and an assumed compensation
increase rate of 6%. The health care cost trend rates are anticipated to be
10.8% and 12.2% in 1994 for pre-65 and post-65 benefits, respectively, gradually
declining to 5% in eleven years and remaining at that level thereafter. The
health care cost trend rates assumption has a significant effect on the amounts
reported. For example, a 1% increase in the health care trend rate would
increase the accumulated postretirement benefit obligation by $59,000 at
December 31, 1993 and the net periodic cost by $8,000 for the fiscal year 1993.
11. THRIFT PLAN:
Substantially all the Company employees (except employees of its
subsidiaries) were eligible to participate in the TBC Thrift Plan through
December 31, 1993. The Company matched the employees' contributions up to a
specified limit. The Company's contributions charged against income were
$60,997, $58,097 and $59,795 in 1993, 1992 and 1991, respectively.
Effective January 1, 1994, as a result of the spin-off, the Company's
employees could no longer participate in the TBC Thrift Plan and, as of that
date, the Company adopted Phillips & Jacobs, Incorporated 401(k) Savings Plan.
All employees of P/J Division, Jetcom Division and Onondaga are eligible to
participate in this Plan.
The 1994 401(k) Savings Plan permits participants to make contributions to
the Plan. The Company will match the employees' contributions up to a specified
amount.
Dixie Type sponsors a plan similar to the Company's 401(k) Savings Plan for
substantially all of its employees. Dixie Type matches the employees' pre-tax
contribution up to a specified limit. The contributions charged against income
totaled approximately $60,000, $60,000 and $50,000 in 1993, 1992 and 1991,
respectively.
12. STOCK OPTION PLANS:
Effective July 1, 1993, the Board of Directors approved the adoption of the
1993 Long Term Incentive Plan, subject to approval of shareholders. Under the
terms of the plan, the aggregate maximum number of
F-12
<PAGE> 126
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
shares of the Company's common stock which may be the subject of incentive stock
options is 400,000, and the aggregate maximum number of shares which may be
subject to restricted stock awards is 75,000. The incentive stock options price
can be no less than the fair market value of the shares on the date that the
option is granted. All options will lapse at the earlier of the expiration of
the option term (not more than ten years in the case of incentive stock options)
or three months following the date on which employment with the Company or its
subsidiaries terminates. After the effective date of the spin-off, the Company
granted 11,700 shares of Company common stock as restricted stock awards and
169,000 shares of Company common stock as incentive stock options at an average
price of $11.50 per share.
On June 17, 1993, the Board of Directors adopted the 1993 Replacement
Option Plan (the "Replacement Option Plan"), subject to approval of
shareholders, to provide for the grant of stock options to certain non-employee
directors of the Company, as replacements for options to purchase TBC common
stock held by such directors. Pursuant to the spin-off, the term of options
whose exercise price per share was less than the market price per share, became
accelerated, and were exercisable prior to July 21, 1993. The remaining options
totaling 100,000 shares of TBC common stock were automatically forfeited,
surrendered and canceled. After the effective date of spin-off, new options were
granted to acquire a proportionate number of shares of TBC common stock and
Company common stock at the respective market prices. Replacement options of
27,748 shares of Company common stock were granted under the replacement option
plan. No other grants may be made under this plan.
13. COMMITMENTS AND CONTINGENCIES:
The Company is subject to various legal proceedings and claims which have
arisen in the ordinary course of its business. The Company is unable to predict
the outcome of these matters, but does not believe that the ultimate resolution
of such matters will have a material adverse effect on the consolidated
financial position of the Company.
The Company is also subject to other loss contingencies pursuant to
federal, state and local environmental laws and regulations. These include
possible obligations to remove or mitigate the effects on the environment of
certain hazardous waste substances at one site. The Company, in conjunction with
other potentially responsible parties, is currently involved in environmental
assessments and preliminary remediations at this site. Although these
contingencies could result in future expenses or judgments, such expenses or
judgments are not expected to have a material adverse effect on the Company's
consolidated financial position or its consolidated results of operations.
The Company has employment agreements with several executive officers and
certain other management personnel whose aggregate annual base compensation
approximates $700,000. These agreements continue until terminated by the
executive or the Company and provide for salary continuation for a specified
number of months under certain circumstances.
F-13
<PAGE> 127
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. PROVISION FOR INCOME TAXES:
The provision for income taxes, at an effective rate of 41.4%, 39.1% and
38.9% for the years ended December 31, 1993, 1992 and 1991, respectively,
differs from the amounts derived from applying the statutory U.S. federal income
tax rate of 34% to income before provision for income taxes as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Statutory tax provision................ $1,971,391 $1,957,121 $1,727,661
State income taxes, net of federal
income tax benefit................... 310,205 286,681 260,439
Expenses for which there are no tax
benefits............................. 153,900 -- --
Other, net............................. (36,083) 4,633 (12,056)
---------- ---------- ----------
$2,399,413 $2,248,435 $1,976,044
========== ========== ==========
</TABLE>
Deferred income taxes represent the future tax consequences of differences
between the tax basis of assets and liabilities and their financial reporting
amounts at each year end. Significant components of the Company's deferred
income tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
---------- ----------
<S> <C> <C>
Postretirement benefits other than pensions......... $ 792,000
Pension and employee benefit cost................... 539,929 $ 540,077
Vacation accrual.................................... 132,821 98,973
Provision for doubtful accounts..................... 338,530 335,588
Inventory-uniform capitalization.................... 144,884 138,053
Employee severance.................................. 64,326 83,835
Other, net.......................................... 182,826 143,940
---------- ----------
$2,195,316 $1,340,466
Less: current portion............................... (721,739) (739,666)
---------- ----------
$1,473,577 $ 600,800
========== ==========
</TABLE>
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109 -- "Accounting for Income Taxes", which requires the
use of an asset and liability approach for financial accounting and reporting
for income taxes. A charge of $98,013 was recorded and reported as a cumulative
effect of a change in accounting principle.
15. OTHER RELATED PARTY TRANSACTIONS:
The consolidated financial statements include direct charges incurred by
TBC on behalf of the Company for legal services, accounting fees, employee
health and insurance benefits, interest on net funds advanced to the Company and
other expenses which amounted to $886,309, $1,723,281 and $1,922,398 for the
years ended 1993, 1992, and 1991, respectively. These direct charges were
determined by specific identification as representing actual costs incurred for
the Company by TBC. Effective January 1, 1993, the Company assumed
responsibility for its employee life and health insurance benefits. The Company
anticipates that the remaining direct charges, previously incurred by TBC on its
behalf, will be similar on a stand alone basis.
In addition to these direct expenses, the Company has been charged a
management fee for various services rendered by TBC which allocates corporate
personnel who assist in administering the insurance, cash management, taxation,
personnel, employee benefits and legal activities of the Company. The management
fee
F-14
<PAGE> 128
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
was $103,520 in 1993 and $155,280 in 1992 and 1991. Subsequent to the
Distribution Date, no management fees were paid to TBC.
16. CONCENTRATIONS OF CREDIT:
The Company encounters, in the normal course of business, exposure to
concentrations of credit risk with respect to trade receivables and cash. The
Company places its cash with high credit quality financial institutions, thereby
limiting their credit exposure. At times, concentrations of credit risk with
respect to trade receivables are limited due to a large customer base and its
geographic dispersion. Ongoing credit evaluations of customers' financial
condition are performed and, generally, no collateral is required. The Company
maintains reserves for potential credit losses and such losses have not exceeded
management's expectations. In management's opinion, no significant
concentrations of credit risk exist for the Company.
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
In the opinion of management, the accompanying quarterly financial
information contains all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the results of operations for the years
ended December 31, 1993 and 1992.
The Company uses an estimated gross profit rate during interim periods to
compute cost of sales. No significant adjustments resulted in 1993 from the
reconciliation between estimated cost of sales and actual cost of sales as
determined from the annual physical inventory.
QUARTERLY FINANCIAL DATA(1)
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH YEAR
------- ------- ------- ------- --------
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1993
Net sales............................... $42,595 $42,051 $39,863 $43,235 $167,744
Gross profit............................ 7,524 8,004 7,808 9,313 32,649
Net income before cumulative effect..... 957 1,042 416 984 3,399
Net income (loss)....................... (349)(2) 1,042 416(3) 984 2,093
Net income per share(5)................. (.09) .26 .10 .24 .51
1992
Net sales............................... $37,836 $40,271 $39,216 $41,425 $158,748
Gross profit............................ 6,865 7,269 7,222 7,557 28,913
Net income.............................. 791 955 879 883(4) 3,508
Net income per share(5)................. .20 .23 .21 .22 .86
</TABLE>
- ---------------
(1) Includes P/J Division, Dixie Type and Onondaga for all periods. C.M.
Graphics is included from September 30, 1992 and Jetcom Division from
November 1, 1993, their respective dates of acquisition.
(2) Includes a one-time after tax charge of $1,306,000 reflecting the cumulative
effect of changes in methods of accounting for postretirement benefits other
than pensions and for income taxes.
(3) Includes a one-time after tax charge of $519,000 resulting from costs
associated with the spin-off consisting primarily of legal, accounting and
other professional fees.
(4) Includes a one-time restructuring charge, net of tax, of $117,266 related to
the consolidation of administrative functions of Onondaga into the P/J
Division.
F-15
<PAGE> 129
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) Net income per share information for first and second quarters in 1993 and
all quarters in 1992 is based on the average number shares of TBC common
stock outstanding for these quarters converted to Company shares using the
distribution ratio of two shares of Phillips & Jacobs, Incorporated for
every three shares of TBC.
18. SUBSEQUENT EVENT:
In March, 1994, the Company has entered into an agreement in principle to
combine with Momentum Corporation ("Momentum"). Momentum is a major national
distributor of photographic and graphic arts supplies and equipment.
The transaction calls for the exchange of each outstanding share of the
Company common stock for one share of the combined entities common stock, and
the exchange of each outstanding share of Momentum common stock for .71 shares
of the combined entities common stock. The combination is subject to the
execution of a definitive agreement, the approval of the Board of Directors and
the shareholders of the Company and Momentum, satisfactory completion of due
diligence investigations of both parties, receipt of customary regulatory
approvals, as well as satisfaction of certain other standard conditions.
F-16
<PAGE> 130
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
of Phillips & Jacobs, Incorporated
We have audited the accompanying consolidated balance sheets of Phillips &
Jacobs, Incorporated and its subsidiaries as of December 31, 1993 and 1992 and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1993. These financial statements are the responsibility of Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Phillips &
Jacobs, Incorporated and its subsidiaries as of December 31, 1993 and 1992, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993 in conformity with
generally accepted accounting principles.
As discussed in Notes 10 and 14 to the consolidated financial statements,
effective January 1, 1993, the Company changed its method of accounting for post
retirement benefits other than pensions and income taxes.
/s/ COOPERS & LYBRAND
COOPERS & LYBRAND
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103
February 18, 1994 except for
Note 18 for which the date is
March 17, 1994
F-17
<PAGE> 131
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, 1994 DECEMBER 31, 1993
-------------- -----------------
<S> <C> <C>
Current assets:
Cash........................................................ $ 384,887 $ 232,698
Receivables................................................. 27,666,122 26,090,391
Inventories................................................. 15,756,586 16,241,427
Other current assets........................................ 1,102,588 1,104,166
------------ -----------
Total current assets.......................................... 44,910,183 43,668,682
------------ -----------
Property, plant and equipment, net............................ 4,289,138 4,425,165
Excess of cost of investment in subsidiaries over equity in
net assets at acquisition, net........................... 2,060,143 2,078,020
Other assets................................................ 2,350,293 2,254,954
------------ -----------
Total assets.................................................. $ 53,609,757 $52,426,821
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........................... $ 1,571,429 $ 1,571,429
Notes payable, banks........................................ -- 1,095,000
Accounts payable, trade..................................... 10,492,428 9,634,062
Accrued income taxes........................................ 763,441 498,324
Other accrued liabilities................................... 1,867,099 2,239,302
------------ -----------
Total current liabilities..................................... 14,694,397 15,038,117
------------ -----------
Long-term debt, net of current portion...................... 13,653,984 12,746,841
Accrued pension liabilities and other liabilities........... 4,050,418 3,988,399
------------ -----------
Total liabilities............................................. 32,398,799 31,773,357
------------ -----------
Commitments and contingencies
Shareholders' equity:
Common stock................................................ 41,143 41,043
Additional paid in capital.................................. 1,355,125 1,255,225
Retained earnings........................................... 19,928,023 19,476,825
Less: restricted stock awards............................... 113,333 119,629
------------ -----------
Total shareholders' equity.................................... 21,210,958 20,653,464
------------ -----------
Total liabilities and shareholders' equity.................... $ 53,609,757 $52,426,821
============ ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-18
<PAGE> 132
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------------
MARCH 31, 1994 MARCH 31, 1993
-------------- --------------
<S> <C> <C>
Net sales....................................................... $ 44,419,368 $ 42,594,919
Costs and expenses:
Cost of sales................................................. 36,234,269 35,070,610
Selling, general and administrative........................... 6,351,853 5,592,405
Depreciation.................................................. 245,241 245,343
Interest expense.............................................. 163,968 139,536
Other income, net............................................... (46,263) (23,826)
------------ ------------
42,949,068 41,024,068
------------ ------------
Income before provision for income taxes and cumulative effect
of changes in accounting principals........................... 1,470,300 1,570,851
Provision for income taxes...................................... (556,210) (614,252)
------------ ------------
Income before cumulative effect of changes in accounting
principles.................................................... 914,090 956,599
Cumulative effect on prior years of changes in accounting
principles for:
Income taxes.................................................. -- (98,013)
Postretirement benefits other than pension, net of taxes of
$792,000................................................... -- (1,208,000)
------------ ------------
Net income (loss)............................................... $ 914,090 $ (349,414)
============ ============
Average number of shares outstanding............................ 4,115,132 4,069,831
Per share of common stock:
Income before cumulative effect of changes in accounting
principles................................................. $ .22 $ .23
Cumulative effect on prior years of changes in accounting
principles................................................. -- (.32)
------------ ------------
Net income (loss)............................................... $ .22 $ (.09)
------------ ------------
Cash dividend................................................... $ .1125 $ --
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-19
<PAGE> 133
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------------
MARCH 31, 1994 MARCH 31, 1993
-------------- --------------
<S> <C> <C>
Cash flows from (used for) operating activities:
Net income (loss)............................................. $ 914,090 $ (349,414)
Adjustments to reconcile net income (loss) to net
Cash provided by operating activities:
Cumulative effect of changes in accounting principles,
net...................................................... -- 1,306,013
Depreciation............................................... 245,241 245,343
Amortization............................................... 52,925 22,841
Other...................................................... (4,560) 5,667
Changes in assets and liabilities affecting operations........ (276,013) (488,936)
------------ ------------
Net cash from operating activities............................ 931,683 741,514
------------ ------------
Cash flows from (used for) investing activities:
Proceeds from sale of property, plant and equipment........... 4,560 32,326
Purchase of property, plant and equipment..................... (109,214) (113,185)
Increase in other assets...................................... (24,091) (249,421)
------------ ------------
Net cash used for investing activities........................ (128,745) (330,280)
------------ ------------
Cash flows from (used for) financing activities:
Additional borrowings......................................... 1,300,000 --
Dividends paid to shareholders................................ (462,892) --
Dividends paid to TBC......................................... -- (332,641)
Payment of long-term debt..................................... (392,857) (228,571)
Net decrease in notes payable................................. (1,095,000) (116,000)
------------ ------------
Net cash used for financing activities........................ (650,749) (677,212)
------------ ------------
Net increase (decrease) in cash............................... 152,189 (265,978)
Cash, beginning of year....................................... 232,698 327,213
------------ ------------
Cash, end of period........................................... $ 384,887 $ 61,235
============ ============
Supplemental cash flow information
Cash paid during the period for:
Interest...................................................... $ 167,885 $ 165,777
============ ============
Income taxes.................................................. $ 274,780 $ 474,935
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-20
<PAGE> 134
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The consolidated condensed financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated.
INVENTORY VALUATION:
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) and first-in, first-out methods (FIFO) .
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION:
Property, plant and equipment are carried at cost. Costs of major
additions, replacements and betterments are capitalized and maintenance and
repairs which do not extend the life of the respective assets are expensed as
incurred. When property is retired or otherwise disposed of, the cost of the
property and the related accumulated depreciation are removed from the accounts
and any resulting gains or loses are reflected in current operations.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets which range from three to ten years for machinery and
equipment and ten to thirty years for buildings and improvements. For income tax
purposes, accelerated depreciation methods are used.
EXCESS COST OF INVESTMENT IN SUBSIDIARIES OVER EQUITY IN NET ASSETS AT
ACQUISITION AND AMORTIZATION:
The excess cost of the total acquisition over the fair value of net assets
acquired is being amortized by the straight-line method over periods ranging
from fifteen to forty years.
PENSION COST:
The Company participates in a funded noncontributory pension plan,
sponsored by Tasty Baking Company. Pension cost was determined in accordance
with the requirements of Statement of Financial Accounting Standards No.
87 -- "Employers' Accounting for Pensions." TBC's general funding policy is to
contribute amounts deductible for federal income tax purposes plus such
additional amounts, if any, as TBC's independent actuarial consultants advise to
be appropriate. Contributions are intended to provide not only for benefits
attributable to service to date but also for those expected to be earned in the
future.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
In 1993, the Company adopted Statement of Financial Accounting Standards
No. 106 -- "Employers' Accounting for Postretirement Benefits Other than
Pensions". The standard requires employers to account for retiree benefit
obligations on an accrual basis, rather than the "pay-as-you-go" basis the
Company previously used. The pretax charge to the first quarter of 1993 income
was $2,000,000 which, after tax benefits, was $1,208,000.
INCOME TAXES:
The Company adopted Statement of Financial Accounting Standards No.
109 -- "Accounting for Income Taxes" in 1993, which requires the use of an asset
and liability approach for financial accounting and reporting for income taxes.
A charge of $98,013 was recorded in the first quarter of 1993.
F-21
<PAGE> 135
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NET INCOME PER COMMON SHARE:
Net income per common share is based on the weighted average number of
common shares and equivalent common shares outstanding during the quarter. The
weighted average number of shares for 1993 are based on the average number of
shares of TBC common stock outstanding converted to Company shares using the
distribution ratio of two shares of Company common stock for every three shares
of TBC common stock.
2. QUARTERLY FINANCIAL INFORMATION:
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal accruals)
necessary to present fairly the financial position of the Company as of March
31, 1994 and December 31, 1993 and the results of its operations for the
quarters ended March 31, 1994 and 1993 and cash flows for the three months ended
March 31, 1994 and 1993.
The results of operations for the three months ended March 31, 1994 are not
necessarily indicative of the results to be expected for the full year.
3. OTHER INFORMATION:
The Company entered into an agreement in principle to merge with Momentum
Corporation which is headquartered in Bellevue, Washington. Momentum is a major
national supplier to the printing and imaging industry.
The combination is subject to the execution of a definitive agreement,
approval of the shareholders of the Company and Momentum, satisfactory
completion of due diligence investigations of both parties, receipt of customary
regulatory approvals, as well as satisfaction of certain other standard
conditions. The parties are currently negotiating a definitive agreement. The
merger is expected to be completed within approximately ninety days after the
definitive agreement is signed.
F-22
<PAGE> 136
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MOMENTUM CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1992 1991
-------- -------- --------
(THOUSANDS OF DOLLARS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Sales of graphics supplies and equipment................. $116,788 $112,022 $ 97,339
Cost of sales............................................ 94,246 90,119 78,283
-------- -------- --------
Gross margin............................................. 22,542 21,903 19,056
Selling and administrative expenses:
Graphics supplies and equipment........................ 22,466 20,700 19,832
Corporate staff........................................ 2,124 2,161 2,006
Restructure and other charges.......................... 1,582 619 553
Write-off of computer equipment........................ 800
-------- -------- --------
Loss from operations..................................... (4,430) (1,577) (3,335)
Interest expense......................................... (402) (546) (677)
Other income -- net...................................... 208 205 328
-------- -------- --------
Loss before income tax benefit........................... (4,624) (1,918) (3,684)
Income tax benefit....................................... 1,564 632 1,205
-------- -------- --------
Loss from continuing operations.......................... (3,060) (1,286) (2,479)
Discontinued operations:
Operating results, net................................. 1,278 2,238 1,300
Gain on sales.......................................... 6,146
-------- -------- --------
Income from discontinued operations...................... 7,424 2,238 1,300
-------- -------- --------
Net income (loss)........................................ $ 4,364 $ 952 $ (1,179)
======== ======== ========
Income (loss) per share:
Loss from continuing operations........................ $ (0.84) $ (0.37) $ (0.72)
Discontinued operations:
Operating results, net................................. $ 0.35 0.64 0.38
Gain on sales.......................................... $ 1.69
-------- -------- --------
Income from discontinued operations...................... 2.04 0.64 0.38
Net income (loss)........................................ $ 1.20 $ 0.27 $ (0.34)
</TABLE>
See Notes to Consolidated Financial Statements
F-23
<PAGE> 137
MOMENTUM CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 1993 AND 1992
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993
------- 1992
----------
(RESTATED)
<S> <C> <C>
(THOUSANDS OF DOLLARS)
Current assets:
Short-term Investments................................................ $ 6,123 $ --
Trade receivables, less reserves of $374 and $451..................... 12,935 13,165
Current notes receivable.............................................. 3,529 167
Income taxes receivable............................................... 2,537 1,178
Other receivables..................................................... 1,840 1,653
Inventories........................................................... 14,179 11,138
Net current assets of discontinued operations......................... 9,457
Other................................................................. 1,051 2,190
------- ----------
Total current assets........................................ 42,194 38,948
Property and equipment, net............................................. 7,140 7,317
Net non-current assets of discontinued operations....................... 3,555
Other assets............................................................ 3,096 1,796
------- ----------
$52,430 $ 51,616
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank checks outstanding less cash in bank............................. $ 1,925 $ 1,259
Accounts payable...................................................... 8,454 7,581
Accrued liabilities................................................... 5,083 3,073
Current portion of long-term obligations.............................. 174 160
------- ----------
Total current liabilities............................................... 15,636 12,073
Long-term obligations................................................... 1,793 8,066
Deferred items.......................................................... 1,052 1,769
Shareholders' Equity
Preferred stock, $1 par value, 1,000,000 shares authorized, none
issued Common stock, $1 par value, 5,000,000 shares authorized,
3,558,903 and 3,434,334 issued..................................... 3,559 3,434
Additional paid-in capital............................................ 29,274 28,589
Retained earnings (deficit)........................................... 2,825 (1,539)
Treasury shares, at cost, 101,393 shares.............................. (795)
Unamortized restricted stock awards................................... (301) (48)
Note receivable from ESOP............................................. (613) (728)
------- ----------
Total Shareholders' Equity.................................. 33,949 29,708
------- ----------
$52,430 $ 51,616
======= ========
</TABLE>
See Notes to Consolidated Financial Statements
F-24
<PAGE> 138
MOMENTUM CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1992 1991
-------- ---------- ----------
<S> <C> <C> <C>
(RESTATED) (RESTATED)
(THOUSANDS OF DOLLARS)
>Operating activities:
Loss from continuing operations.......................... $ (3,060) $ (1,286) $ (2,479)
Adjustments to reconcile loss from continuing operations
to cash provided (used) by operating activities:
Depreciation and amortization......................... 2,460 1,165 932
ESOP shares allocated................................. 115 80 265
Change in assets and liabilities:
Receivables......................................... (1,316) 922 2,280
Inventories......................................... (3,041) (928) 140
Other current assets................................ 1,139 (876) 255
Accounts payable.................................... 873 1,714 (1,253)
Accrued liabilities................................. 2,010 479 (252)
Deferred items...................................... (717) 236 334
-------- ---------- ----------
(1,537) 1,506 222
Income from discontinued operations........................ 7,424 2,238 1,300
Gain on sale of discontinued operations.................... (6,146)
Adjustments to reconcile income from discontinued
operations to cash provided (used) by operating
activities............................................... (1,337) (2,035) 873
-------- ---------- ----------
Cash provided (used) by operating activities............... (1,596) 1,709 2,395
Investing activities:
Additions to property and equipment...................... (1,739) (758) (1,662)
Proceeds from sale of discontinued operations, net of
notes receivable...................................... 17,133
Net (additions) reductions of other assets............... (1,366) 1,284 (1,249)
-------- ---------- ----------
Cash provided (used) by investing activities............. 14,028 526 (2,911)
Financing activities:
Proceeds from long-term obligations...................... 56,500 72,500 89,353
Repayment of long-term obligations....................... (62,759) (74,955) (88,843)
Purchase of treasury shares.............................. (802)
Proceeds from exercise of stock options.................. 46 46
Proceeds from issuance of stock.......................... 40 20 6
-------- ---------- ----------
Cash provided (used) by financing activities............. (6,975) (2,435) 562
Increase (decrease) in cash and cash equivalents........... 5,457 (200) 46
Cash and cash equivalents at beginning of year............. (1,259) (1,059) (1,105)
-------- ---------- ----------
Cash and cash equivalents at end of year................... $ 4,198 $ (1,259) $ (1,059)
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest.............................................. $ 470 $ 791 $ 879
Income taxes.......................................... 5,296 176 (777)
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-25
<PAGE> 139
MOMENTUM CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
UNAMORTIZED
COMMON ADDITIONAL RETAINED RESTRICTED NOTE
STOCK ($1 PAID-IN EARNINGS TREASURY STOCK RECEIVABLE
PAR VALUE) CAPITAL (DEFICIT) SHARES AWARDS FROM ESOP TOTAL
----------- ------------ ---------- ---------- ----------- ----------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1991
(1,135,771 shares).............. $ 1,136 $ 30,764 $ (1,312) $ -- $(153) $(1,073) $29,362
Net loss.......................... (1,179) (1,179)
Restricted stock awards (3,000
shares)......................... 3 48 25 76
ESOP activity..................... 265 265
Exercise of stock options (3,817
shares)......................... 4 42 46
Issuance of stock (424 shares).... 6 6
----------- ------------ ---------- ---------- ----------- ----------- -------
Balance December 31, 1991
(1,143,012 shares).............. 1,143 30,860 (2,491) (128) (808) 28,576
Net income........................ 952 952
Restricted stock awards........... 80 80
ESOP activity..................... 80 80
Issuance of stock (1,766
shares)......................... 2 18 20
Additional shares issued in
three-for-one stock split
(2,289,556 shares).............. 2,289 (2,289)
----------- ------------ ---------- ---------- ----------- ----------- -------
Balance December 31, 1992
(3,434,334 shares).............. 3,434 28,589 (1,539) (48) (728) 29,708
Net income........................ 4,364 4,364
Purchase treasury shares.......... (802) (802)
Restricted stock awards (107,190
shares)......................... 107 617 7 (253) 478
ESOP activity..................... 115 115
Exercise of stock options (11,951
shares)......................... 12 34 46
Issuance of stock (5,428
shares)......................... 6 34 40
----------- ------------ ---------- ---------- ----------- ----------- -------
Balance December 31, 1993
(3,558,903 shares).............. $ 3,559 $ 29,274 $ 2,825 $ (795) $(301) $ (613) $33,949
======== ======== ======= ======= ========= ========= =======
</TABLE>
See Notes to Consolidated Financial Statements
F-26
<PAGE> 140
MOMENTUM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying consolidated financial statements include the accounts of
Momentum Corporation (the Company/Momentum) and its wholly owned subsidiary,
Momentum Graphics Inc. Material intercompany balances and transactions have been
eliminated.
Discontinued Operations
The consolidated financial statements for 1992 and prior have been restated
to show the Textiles Group, VWR Textiles & Supplies Inc. and Momentum Textiles
Inc., as discontinued operations. As further described in the following Notes to
Consolidated Financial Statements, this group was sold in September, 1993.
Cash and Cash Equivalents
For purposes of the cash flow statement, the Company considers investments
which have an original maturity of three months or less to be cash equivalents.
In addition, the Company's cash management system operates so that a cash
overdraft for uncleared checks exists in the disbursing account. To the extent
the outstanding balance for uncleared checks exceeds the cash balances, the net
balance is reported as a current liability on the balance sheet and is included
as cash and cash equivalents on the cash flow statement.
Short-term Investments
The Company invests idle funds in short-term investments, with maturities
of three months or less. The Company records these investments at cost which
approximates market. All investments are in investment grade commercial paper.
Capitalization, Depreciation and Amortization
Property and equipment are recorded at cost. Expenditures for maintenance
and repairs are expensed as incurred. Depreciation is computed using the
straight-line method for financial reporting purposes and, generally, using
accelerated methods for income tax purposes.
Capital leases are included under property and equipment with the
corresponding amortization included in depreciation. The related financial
obligations under the capital leases are included in long-term obligations.
Income (Loss) Per Share
Income (loss) per share is based on the weighted average number of shares
and dilutive common share equivalents outstanding during the year. Common stock
equivalents related to stock options have not been considered in computing the
loss per share for 1991 as the effect is antidilutive. The weighted average
number of shares outstanding were 3,629,089, 3,492,568, and 3,422,310 for the
years ended December 31, 1993, 1992 and 1991, respectively. Shares outstanding
include shares held by the Momentum Employee Stock Ownership Plan.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk, as defined by the Financial Accounting Standards
Board Statement No. 105, are primarily accounts receivable. Concentrations of
credit risk with respect to the receivables are limited due to the large number
of customers
F-27
<PAGE> 141
MOMENTUM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
in the Company's customer base, and their dispersion across different industries
and geographic areas. The Company maintains an allowance for losses based upon
the expected collectibility of all accounts receivable.
Reclassification
Certain prior year amounts have been reclassified to conform with current
year presentation.
2. INVENTORIES
Inventories consist primarily of purchased goods for sale. Substantially
all of the Company's inventories are valued at lower of cost or market using the
last-in, first-out (LIFO) method of accounting. Inventories at current costs
exceed those reported under the LIFO method by approximately $2.2 million at
December 31, 1993 and $2.4 million at December 31, 1992.
3. PROPERTY AND EQUIPMENT
Net property and equipment at December 31 consisted of:
<TABLE>
<CAPTION>
1993 1992
------- -------
(RESTATED)
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Land.................................................... $ 243 $ 243
Buildings and equipment............................... 7,676 6,452
Leased property under capital lease................... 2,750 2,750
Computer system software.............................. 3,788 3,788
------- -------
14,457 13,233
Less accumulated depreciation and amortization........ (7,317) (5,916)
------- -------
Net property and equipment.............................. $ 7,140 $ 7,317
======= =======
</TABLE>
4. LONG-TERM OBLIGATIONS AND REVOLVING CREDIT AGREEMENTS
The long-term obligations of the Company at December 31 consisted of:
<TABLE>
<CAPTION>
1993 1992
------ ------
(RESTATED)
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Revolving credit agreements.............................. $ -- $6,100
Capitalized lease obligation, 8.38% payable in
installments through 2002........................... 1,866 2,011
Other miscellaneous notes.............................. 101 115
------ ------
1,967 8,226
Less current portion................................... (174) (160)
------ ------
Net long-term obligations................................ $1,793 $8,066
====== ======
</TABLE>
F-28
<PAGE> 142
MOMENTUM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Maturities of long-term obligations for each of the five years beginning
January 1, 1994 are as follows:
<TABLE>
<CAPTION>
CAPITALIZED OTHER
LEASE LONG-TERM
OBLIGATIONS OBLIGATIONS
------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
1994............................................... $ 308 $ 17
1995............................................... 308 18
1996............................................... 308 20
1997............................................... 308 22
1998............................................... 308 24
Thereafter......................................... 1,076
------ ----
2,616 101
Less imputed interest on capitalized lease........... (750)
------ ----
$1,866 $101
====== ====
</TABLE>
The Company has two unsecured revolving credit agreements, with a total
commitment of $17.5 million. Under the terms of these agreements, the Company
can borrow under several options including rates tied to prime, certificate of
deposit, and LIBOR. The approximate weighted average interest rates were 5.0%,
5.8% and 7.3% for 1993, 1992, and 1991, respectively. One of the revolving
credit agreements provides for conversion of up to $5 million of the line into
term loans with a maximum term period extending to March, 1997. Among other
provisions, the revolving credit agreements include various limitations on
working capital, tangible net worth, current ratio, debt to equity and cash flow
to interest expense. Under the most restrictive of these terms, none of the
Company's shareholders' equity would have been available for cash dividends in
1993.
Under the terms of a March, 1990 agreement with the Company's former parent
company, VWR Corporation (VWR), VWR is obligated through February, 1995 to make
available to the Company an unsecured subordinated revolving line of credit of
approximately $5 million. At December 31, 1993, the Company had no outstanding
debt under this agreement.
Under terms of its insurance policies and claims handling agreements, the
Company is required to maintain certain standby letters of credit. At December
31, 1993 these totaled approximately $1,500,000.
5. INCOME TAXES
Income tax benefit for the years ended December 31 consisted of:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------ -------
(RESTATED) (RESTATED)
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current:
Federal.................................. $(1,421) $(645) $(1,420)
State.................................... (60) (40) (30)
------- ------ -------
(1,481) (685) (1,450)
Deferred:
Federal.................................. (79) 43 195
State.................................... (4) 10 50
------- ------ -------
(83) 53 245
------- ------ -------
Total income tax benefit................... $(1,564) $(632) $(1,205)
======= ====== =======
</TABLE>
F-29
<PAGE> 143
MOMENTUM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reconciliation of the statutory Federal tax benefit to the actual tax
benefit for the years ended December 31 consisted of:
<TABLE>
<CAPTION>
1993 1992 1991
------- ----- -------
(RESTATED) (RESTATED)
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Statutory rate............................. 34% 34% 34%
Statutory expense (benefit)................ $(1,572) $(652) $(1,253)
State tax expense and other................ 8 20 48
------- ----- -------
Total income tax expense benefit........... $(1,564) $(632) $(1,205)
======= ===== =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the deferred tax assets and liability at December
31, consisted of:
<TABLE>
<CAPTION>
1993 1992
----- -------
(RESTATED)
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred tax assets
Inventory adjustments................................. $ 273 $ 241
Bad debt reserve...................................... 135 175
Insurance reserve accruals............................ 87 134
Federal alternative minimum tax credit carryforward... 255
Federal net operating loss carryforward............... 159
State net operating loss carryforward................. 87
Other................................................. 359 432
----- -------
Total deferred tax assets............................... 854 1,483
----- -------
Deferred tax liability
Tax depreciation in excess of financial............... 617 854
----- -------
Net deferred tax assets................................. $ 237 $ 629
===== =======
</TABLE>
6. PENSION AND OTHER EMPLOYEE BENEFITS
Pension Plans
The Company has a defined benefit pension plan (the Plan/pension plan)
covering substantially all employees. Pension benefits are based on years of
credited service and highest five consecutive years average compensation.
Contributions to the Plan are based on funding standards established by the
Employee Retirement Income Security Act of 1974 (ERISA).
F-30
<PAGE> 144
MOMENTUM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Plan's funded status and the amounts recognized in the Company's
consolidated balance sheet at December 31 were:
<TABLE>
<CAPTION>
1993 1992
------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of plan benefit obligations
Vested................................................. $13,945 $11,001
Non-vested............................................. 111 115
------- -------
Accumulated benefit obligation......................... 14,056 11,116
Effect of future salary increases...................... 1,360 1,617
------- -------
Projected benefit obligation........................... 15,416 12,733
Plan assets at fair value.............................. 14,280 12,216
------- -------
Projected benefit obligation in excess of plan
assets.............................................. (1,136) (517)
Unrecognized net transition obligation................. 85 201
Unrecognized prior service cost........................ (72) (170)
Unrecognized actuarial loss............................ 2,664 1,206
------- -------
Net pension asset........................................ $ 1,541 $ 720
======= =======
</TABLE>
The assets of the Plan consist predominantly of undivided interests in
several funds structured to duplicate the performance of various stock and bond
indexes. The net pension asset is included in other current assets and other
assets.
The assumptions used for computing the net pension asset were:
<TABLE>
<S> <C> <C>
Discount rate................................................ 7.5% 8.75%
Rate of increase in compensation levels...................... 5.0% 5.0%
</TABLE>
Net pension expense for the years ended December 31 included the following
components:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------ -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost of benefits earned during the
year......................................... $ 485 $ 476 $ 426
Interest cost on projected benefit
obligation................................ 1,119 1,013 961
Actual return on plan assets................. (1,490) (753) (1,970)
Net amortization and deferral................ 308 (385) 1,096
------- ------ -------
Net pension expense............................ $ 422 $ 351 $ 513
======= ====== =======
</TABLE>
Net pension expense includes pension expense applicable to discontinued
operations of approximately $123,000, $88,000, and $117,000 for 1993, 1992, and
1991, respectively.
In calculating the net pension expense, an expected long-term rate of
return on plan assets of 10% was used for 1993, 1992, and 1991.
The Company maintains a supplemental pension plan for certain senior
officers. Expenses for this plan were $34,000, none, and $18,000 for 1993, 1992,
and 1991, respectively.
Restricted Stock Awards
Under the Company's 1989 Long-term Incentive Stock Plan, the Company
provides for grants of restricted Company common stock to directors, officers
and managers. The vesting periods on the stock range from two to four years. The
fair market value of the stock at the date of grant establishes the compensation
amount which is amortized to operations over the restricted period. During 1993,
107,190 shares were granted
F-31
<PAGE> 145
MOMENTUM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
at a fair market value of $731,000. At December 31, 1993, the unamortized
balance of the restricted stock awards is approximately $301,000, as shown in
the shareholders' equity section of the consolidated balance sheets.
Stock Options
Under stock option plans (vesting over one to ten years), options have been
granted to certain officers and managers to purchase common stock of the Company
at its fair market value at the date of grant. Changes in options outstanding
for the three years ended December 31, 1993 are:
<TABLE>
<CAPTION>
SHARES AVERAGE PRICE
------- -------------
<S> <C> <C>
Outstanding at January 1, 1991.......................... 153,222 $4.75
Exercised............................................... (11,451) 4.03
Cancelled............................................... (2,775) 4.67
------- ------
Outstanding at December 31, 1991........................ 138,996 4.81
Granted................................................. 108,000 4.50
------- ------
Outstanding at December 31, 1992........................ 246,996 4.68
Granted................................................. 47,073 6.75
Exercised............................................... (11,951) 3.84
Cancelled............................................... (86,913) 4.47
------- ------
Outstanding at December 31, 1993........................ 195,205 $5.32
======= ======
</TABLE>
Options exercisable at December 31, 1993, were 74,302.
Under the Company's 1989 Long-term Incentive Stock Plan, approximately
223,000 shares of the Company's common stock has been reserved for issuance
under various stock option and award plans.
Momentum Money-Maker 401(k) Retirement Plan
The Momentum Money-Maker 401(k) Retirement Plan (Money-Maker) is a
voluntary savings plan available to all employees covered under the Company
pension plan. Company matching contributions, if any, are determined by the
Board of Directors based on the historical performance of the Company.
The Company's expense for the Money-Maker was approximately $35,000,
$56,000 and $122,000 for 1993, 1992, and 1991, respectively.
Momentum Employee Stock Ownership Plan (ESOP)
The ESOP was established in 1990 as a means to provide employees with
increased ownership in the Company. All full time employees with one year of
service are eligible to participate. Total shares to be allocated to the
employees for each year is determined by the Board of Directors based on the
performance of the Company, with a minimum contribution each year of 30 shares
to each employee.
The Company's expense for the ESOP, based on the shares allocated or to be
allocated to the employees' accounts, was approximately $40,000, $37,000 and
$47,000 in 1993, 1992, and 1991 respectively.
The ESOP held 103,591 unallocated shares of the Company's common stock at
December 31, 1993, including 6,770 shares earned in 1993 but not allocated until
1994.
The ESOP acquired the Company's common stock by issuing a note to the
Company. The balance of the note is shown as a reduction of shareholders' equity
on the consolidated balance sheets. The repayment of the
F-32
<PAGE> 146
MOMENTUM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
note and the accompanying interest is made by a contribution in the form of a
forgiveness of the debt by the Company as the shares are allocated to the
employees' accounts.
7. LEASES
The Company leases various facilities and equipment under non-cancelable
lease arrangements. The major leases are for terms of three to ten years.
Renewal and purchase options are available on certain of these leases. Future
minimum lease payments as of December 31, 1993 under non-cancelable operating
leases, having initial lease terms of more than one year are:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, (THOUSANDS OF DOLLARS)
-------------------------- ----------------------
<S> <C>
1994................................................. $ 934
1995................................................. 720
1996................................................. 485
1997................................................. 268
1998................................................. 164
Thereafter........................................... 277
-------
2,848
Less sublease income................................. (128)
-------
Total minimum lease payments.............................. $2,720
=======
</TABLE>
Rent expense, net of non-cancelable sublease rentals, was approximately
$1.1, $1.6 and $1.6 million for 1993, 1992, and 1991, respectively.
8. RESTRUCTURE AND OTHER CHARGES
Momentum incurred restructure and other charges of $1,582,000, $619,000 and
$553,000 for 1993, 1992 and 1991, respectively. For 1993, $1 million was
incurred for the restructuring of the sales and marketing function, which was
composed predominantly of employee severance and relocation costs. The balance
of the expense for 1993, $582,000, and the charges for 1992 and 1991 of $619,000
and $553,000, respectively, represented the portion of the salaries and benefits
applicable to positions which were eliminated as a result of the divestiture of
the textiles group. In addition, in 1993, computer equipment of $800,000 was
written-off as a result of Momentum's decision to replace the equipment.
9. DISCONTINUED OPERATIONS
In September 1993, the Company sold its Textiles Group composed of VWR
Textiles & Supplies Inc. and Momentum Textiles Inc. The net proceeds on the
sales were $20.5 million, including $3.4 million in short-term notes receivable.
The consolidated financial statements show the Textiles Group as discontinued
operations.
Net sales of the Textiles Group were $60,511,000 for the period ended
September 30, 1993 and $82,300,000 and $68,102,000 for the years 1992 and 1991,
respectively. Interest expense, which included interest on debt assumed by the
buyers and an allocation of interest on other debt based on the average net
assets of the discontinued operations to the consolidated net assets, was
$238,000, $356,000, and $198,000 for 1993, 1992, and 1991, respectively.
Income tax expense for discontinued operations was $841,000 for the period
ended September 30, 1993 and $1,439,000 and $799,000 for the years 1992 and
1991, respectively. Income tax expense on the gain on the sales was $3,913,000.
F-33
<PAGE> 147
MOMENTUM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS
Acquisition
On February 17, 1994, the Company signed an agreement in principle to
acquire the assets of T.K. Gray, Inc. (Gray), a regional distributor of
photographic and graphic arts supplies and equipment, for a purchase price in
excess of $14 million, predominantly in cash. The acquisition, which is expected
to be accounted for as a purchase, is subject to the execution of a definitive
agreement, receipt of customary regulatory approval, and satisfactory completion
of due diligence investigations. Completion of the acquisition is anticipated in
April, 1994.
Combination
On March 17, 1994, the Company signed an agreement in principle to form a
new holding company and combine, in a tax-free reorganization, with Phillips &
Jacobs, Incorporated (P&J), a national distributor of photographic and graphic
arts supplies and equipment. P&J common stock is traded on the NASDAQ National
Market System and is headquartered in Pennsauken, N.J.
Under the agreement, each share of outstanding P&J common stock will be
exchanged for one share of the new company. Each share of Momentum common stock
will be exchanged for .71 shares of the new company.
F-34
<PAGE> 148
MOMENTUM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The combination is subject to the execution of a definitive agreement, the
approval of the shareholders of both Momentum and P&J, satisfactory completion
of due diligence investigations by both parties, receipt of customary regulatory
approvals, and satisfaction of certain other standard conditions.
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
Sales........................................... $30,003 $30,142 $28,256 $28,387 $116,788
Gross margin.................................... 5,713 5,938 5,533 5,358 22,542
Loss from continuing operations................. (450) (1,009) (937) (664) (3,060)
Income from discontinued operations(1).......... 628 584 6,212 7,424
Net income (loss)............................... 178 (425) 5,275 (664) 4,364
Income (loss) per share:
Continuing operations(2)...................... (0.12) (0.28) (0.26) (0.19) (0.84)
Discontinued operations(1).................... 0.17 0.16 1.71 2.04
Net income (loss)(2).......................... $ 0.05 $ (0.12) $ 1.45 $ (0.19) $ 1.20
Year Ended December 31, 1992 (restated)
Sales........................................... $26,879 $28,072 $28,489 $28,582 $112,022
Gross margin.................................... 5,358 5,504 5,369 5,672 21,903
Loss from continuing operations................. (362) (297) (289) (338) (1,286)
Income from discontinued operations............. 451 451 671 665 2,238
Net income...................................... 89 154 382 327 952
Income (loss) per share:
Continuing operations......................... (0.10) (0.09) (0.08) (0.10) (0.37)
Discontinued operations....................... 0.13 0.13 0.19 0.19 .64
Net income.................................... $ 0.03 $ 0.04 $ 0.11 $ 0.09 $ 0.27
</TABLE>
- ---------------
(1) Income from discontinued operations for the third quarter of 1993 includes
the gain on the sales of the discontinued operations of $6,146,000 ($1.69
per share).
(2) Due to changes in the outstanding shares during the year, the sum of the
quarterly income (losses) per share for 1993 will not equal the loss per
share for the year.
F-35
<PAGE> 149
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Momentum Corporation
We have audited the accompanying consolidated balance sheets of Momentum
Corporation and subsidiary as of December 31, 1993 and 1992, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Momentum Corporation and subsidiary at December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG
ERNST & YOUNG
Seattle, Washington
March 8, 1994
(except for the Subsequent Events
note regarding combination, as to which
the date is March 17, 1994)
F-36
<PAGE> 150
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
MOMENTUM CORPORATION
STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1994 1993
--------- ---------
(THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Sales............................................................... $34,673 $30,003
Cost of sales....................................................... 27,909 24,290
--------- ---------
Gross margin........................................................ 6,764 5,713
Selling and administrative expenses................................. 6,437 6,099
Restructure and other charges....................................... -- 182
--------- ---------
Income (loss) from operations....................................... 327 (568)
Interest expense.................................................... (74) (112)
Other income -- net................................................. 51 --
Income (loss) before income taxes................................... 304 (680)
Income tax expense (benefit)........................................ 145 (230)
--------- ---------
Income (loss) from continuing operations............................ 159 (450)
Income from discontinued operations................................. -- 628
--------- ---------
Net income.......................................................... $ 159 $ 178
========= =========
Income (loss) per share
Continuing operations............................................. $ .05 $ (.12)
Discontinued operations........................................... .17
--------- ---------
Net income.......................................................... $ .05 $ .05
========= =========
Weighted average number of shares outstanding....................... 3,513,313 3,640,272
</TABLE>
See notes to consolidated financial statements.
F-37
<PAGE> 151
MOMENTUM CORPORATION
BALANCE SHEETS
AT MARCH 31, 1994 AND DECEMBER 31, 1993
ASSETS
<TABLE>
<CAPTION>
MARCH 31, 1994 DECEMBER 31,1993
--------------- ----------------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Current assets:
Investments................................................ $ 5,213 $ 6,123
Receivables, less reserves of $524 and $374................ 25,747 20,841
Inventories................................................ 18,176 14,179
Other...................................................... 1,345 1,051
------- -------
Total current assets......................................... 50,481 42,194
Property and equipment....................................... 14,665 14,457
Less allowances for depreciation............................. (7,577) (7,317)
------- -------
7,088 7,140
Goodwill and other assets.................................... 12,668 3,096
------- -------
$70,237 $52,430
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank checks outstanding less cash in bank.................. $ 179 $ 1,925
Accounts payable and accrued liabilities................... 18,168 13,537
Short-term obligations..................................... 5,200 --
Current portion of long-term obligations................... 177 174
------- -------
Total current liabilities.................................... 23,724 15,636
Long-term obligations........................................ 11,438 1,793
Deferred items............................................... 1,052 1,052
Shareholders' equity:
Preferred stock, $1 par value 1,000,000 shares authorized,
none issued............................................. -- --
Common stock, $1 par value 5,000,000 shares authorized,
3,558,903 issued........................................ 3,559 3,559
Other shareholders' equity................................. 30,464 30,390
------- -------
34,023 33,949
------- -------
$70,237 $52,430
======= =======
</TABLE>
See notes to consolidated financial statements.
F-38
<PAGE> 152
MOMENTUM CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1994 1993
------- -------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Operating activities:
Net income (loss) from continuing operations......................... $ 159 $ (450)
Adjustments to reconcile net income (loss) from continuing operations
to cash used by operating activities:
Depreciation and amortization..................................... 388 403
ESOP shares allocated............................................. 39 83
Change in assets and liabilities, net of effect of business
acquired:
Receivables..................................................... (2,112) (2,512)
Inventories..................................................... 1,039 (2,003)
Other current assets............................................ (282) (667)
Accounts payable and accrued liabilities........................ (533) 3,390
Deferred items.................................................. -- (19)
------- -------
(1,302) (1,775)
------- -------
Income from discontinued operations.................................... 628
Adjustments to reconcile income from discontinued operations to cash
provided by operating activities..................................... -- (1,151)
------- -------
Cash used by operating activities...................................... (1,302) (2,298)
------- -------
Investing activities:
Additions to property and equipment.................................. (49) (235)
Proceeds from sale of discontinued operations........................ 2,363 --
Net reduction (increase) in goodwill and other assets................ (106) 7
------- -------
Cash provided (used) by investing activities........................... 2,208 (228)
------- -------
Financing activities:
Proceeds from long-term obligations.................................. 111 29,300
Repayment of long-term obligations................................... -- (26,635)
Purchase of treasury shares.......................................... (186) --
Proceeds from exercise of stock options.............................. 5 18
Proceeds from issuance of stock...................................... -- 40
Cash provided (used) by financing activities........................... (70) 2,723
------- -------
Net increase in cash................................................... 836 197
Cash and cash equivalents at beginning of period....................... 4,198 (1,259)
------- -------
Cash and cash equivalents at end of period............................. $ 5,034 $(1,062)
======= =======
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest............................................................. $ 71 $ 186
Income taxes......................................................... 286 316
======= =======
</TABLE>
See notes to consolidated financial statements.
F-39
<PAGE> 153
MOMENTUM CORPORATION
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
1. ADJUSTMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information pursuant to the rules and regulations of the
Securities and Exchange Commission and instructions to Form 10-Q. While these
statements reflect all adjustments (consisting of normal recurring accruals)
which are, in the opinion of management, necessary to a fair presentation of the
results for the interim periods presented, they do not include all of the
information and disclosures required by generally accepted accounting principles
for complete financial statements. These statements should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in the Company's 1993 Annual Report as amended on Form 10-K/A for
further information.
2. INVENTORY PRICING
Inventories consist primarily of purchased goods for sale. The Company's
inventories are valued at the lower of cost or market using the last-in,
first-out (LIFO) method of accounting. Because the inventory determination under
the LIFO method can only be made at the end of each fiscal year, interim
financial results are based on estimated LIFO amounts and are subject to final
year-end LIFO inventory adjustments.
3. ACQUISITION
Effective March 1, 1994, under the terms of an asset purchase agreement
consummated in April, 1994, the Company purchased substantially all of the
assets and assumed certain of the liabilities of Minneapolis-based, T.K. Gray
Inc., (Gray) a regional distributor of graphics arts and printed circuit
supplies and equipment. The purchase price was approximately $15.4 million which
was paid in April, 1994. At March 31, 1994, the liability for the acquisition
was shown as a current obligation to the extent of the Company's short-term
investments of approximately $5.2 million (which were redeemed in April, 1994)
with the balance of approximately $10.2 million (which was funded through the
Company's revolving credit agreements) included in long-term obligations.
The acquisition of Gray (a closely-held Sub-Chapter S corporation) is
accounted for as a purchase. Assuming the acquisition had occurred at the
beginning of the period, unaudited pro-forma sales and net loss for the three
months ended March 31, 1994 would have been approximately $42.3 million and
$2,000 ($.00 per share), respectively. For the three months ended March 31,
1993, unaudited pro-forma sales, loss from continuing operations and net income
would have been $41.0 million, $368,000 ($.10 loss per share) and $260,000 ($.07
per share), respectively. The pro-forma net income has been adjusted, for costs
associated with purchase price adjustments (amortization of intangibles, debt
service costs, and taxes).
4. GOODWILL
Goodwill, the excess of the purchase price over the fair value of the net
assets of acquired businesses, is being amortized on a straight-line method over
a fifteen year period. Goodwill, net of amortization, was approximately $9.5
million at March 31, 1994 and $.1 million at December 31, 1993.
5. DIVIDENDS
No dividends were paid for the quarter ended March 31, 1994. The Company
has no plans to pay any cash dividends.
F-40
<PAGE> 154
T. K. GRAY, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Income:
Sales............................................. $44,519,162 $41,866,165 $40,944,819
Cost of sales..................................... 36,675,476 34,427,096 33,659,194
----------- ----------- -----------
Gross profit.............................. 7,843,686 7,439,069 7,285,625
----------- ----------- -----------
Expenses:
Selling........................................ 3,159,101 3,034,094 2,819,910
Administrative and general..................... 2,766,890 2,287,494 2,291,111
Depreciation and amortization.................. 794,874 1,445,450 1,490,228
Interest....................................... 509,219 811,415 1,151,090
----------- ----------- -----------
Total expenses............................ 7,230,084 7,578,453 7,752,339
----------- ----------- -----------
Income (loss) before tax benefit.................. 613,602 (139,384) (466,714)
Income tax benefit (Note 5)....................... 114,000
----------- ----------- -----------
Net income (loss)................................. $ 613,602 $ (139,384) $ (352,714)
========== ========== ==========
Retained earnings (deficit):
Balance (deficit), Beginning...................... $ (376,774) $ (237,390) $ 115,324
Net income (loss).............................. 613,602 (139,384) (352,714)
----------- ----------- -----------
Balance (Deficit), Ending......................... $ 236,828 $ (376,774) $ (237,390)
========== ========== ==========
</TABLE>
See Notes to Financial Statements.
F-41
<PAGE> 155
T. K. GRAY, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income (loss)................................... $ 613,602 $ (139,384) $ (352,714)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation...................................... 75,181 111,842 122,744
Amortization...................................... 719,694 1,333,608 1,367,484
Gain on sale of equipment......................... (5,926) -- --
(Increase) decrease in deferred interest.......... -- (166,018) 140,040
Changes in operating assets & liabilities:
(Increase) decrease in trade receivable........ (113,817) (161,834) 821,171
(Increase) decrease in inventories............. 857,717 (613,284) 1,408,272
(Increase) decrease in prepaid expenses........ 20,318 51,021 (80,567)
Increase (decrease) in trade accounts payable
and accrued expenses......................... (162,774) 353,020 (650,151)
Increase (decrease) in current income taxes
payable...................................... -- 37,585 (249,500)
Decrease in long-term income taxes payable..... (218,330) (184,585) (84,000)
----------- ----------- -----------
Net cash provided by operating activities...... 1,785,665 621,971 2,442,779
----------- ----------- -----------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements... (2,715) (28,193) (114,657)
Proceeds on sale of equipment....................... 9,310 -- --
----------- ----------- -----------
Net cash provided by (used in) investing
activities.............................. 6,595 (28,193) (114,657)
----------- ----------- -----------
Cash flows from financing activities:
Net advances (payments) on revolving line........... (246,260) 1,998,512 (2,426,178)
Principal payments on capital lease obligations..... -- (55,706) (36,778)
Principal payments on long-term debt................ (1,100,000) (3,403,584) --
Proceeds from long-term debt........................ -- 1,100,000 --
Distributions to stockholders....................... (446,000) (233,000) --
----------- ----------- -----------
Net cash used in financing activities..... (1,792,260) (593,778) (2,462,956)
----------- ----------- -----------
Change in cash and cash equivalents....... -- -- (134,834)
Cash and cash equivalents:
Beginning........................................... -- -- 134,834
----------- ----------- -----------
Ending.............................................. $ -- $ -- $ --
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash payments for (receipts from):
Interest.......................................... $ 543,112 $ 807,462 $ 1,041,889
Income taxes...................................... 10,000 154,391 373,600
Income tax refunds................................ (3,651) (10,210) (153,936)
</TABLE>
See Notes to Financial Statements.
F-42
<PAGE> 156
T. K. GRAY, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1993 1992
----------- -----------
<S> <C> <C>
Current assets:
Trade receivables, less allowance for doubtful accounts of
$100,000 and $75,000, respectively (Note 2).................. $ 5,156,798 $ 5,042,981
Inventories (Note 2)............................................ 4,875,527 5,733,244
Prepaid expenses................................................ 29,530 49,848
----------- -----------
Total current assets.............................................. 10,061,855 10,826,073
----------- -----------
Equipment and leasehold improvements, at cost (Note 2):
Equipment and furniture......................................... 405,756 414,709
Leasehold improvements.......................................... 100,008 100,008
----------- -----------
505,764 514,717
Less accumulated depreciation & amortization.................... 332,697 265,800
----------- -----------
173,067 248,917
----------- -----------
Intangible assets:
Noncompete agreements........................................... -- 3,279,215
Debt issuance costs............................................. 367,300 378,300
Customer list................................................... 156,215 156,215
----------- -----------
523,515 3,813,730
Less accumulated amortization................................... 282,179 2,852,700
----------- -----------
241,336 961,030
----------- -----------
$10,476,258 $12,036,020
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............................ $ -- $ 660,000
Trade accounts payable.......................................... 2,996,809 3,050,398
Salaries, wages and other related accruals...................... 163,964 168,994
Property, sales, and payroll taxes, including amounts withheld
from employees............................................... 135,649 164,946
Accrued profit sharing (Note 4)................................. -- 50,000
Other accrued expenses.......................................... 21,795 46,653
Income taxes payable (Note 5)................................... 185,085 185,085
----------- -----------
Total current liabilities......................................... 3,503,302 4,326,076
----------- -----------
Long-term debt, less current maturities (Notes 2 and 6)........... 6,030,043 6,716,303
----------- -----------
Long-term income taxes payable (Note 5)........................... 185,085 403,415
----------- -----------
Commitments and contingencies (Note 3)
Stockholders' equity (Note 3):
Class A voting common stock, par value $1 per share; authorized
100,000 shares; issued 48,000 shares......................... 48,000 48,000
Class B nonvoting common stock, par value $1 per share;
authorized 100,000 shares; issued 48,000 shares.............. 48,000 48,000
Additional paid-in capital (Note 5)............................. 425,000 871,000
Retained earnings (deficit)..................................... 236,828 (376,774)
----------- -----------
757,828 590,226
----------- -----------
$10,476,258 $12,036,020
========== ==========
</TABLE>
See notes to financial statements.
F-43
<PAGE> 157
T. K. GRAY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: T. K. Gray, Inc. ("Gray") distributes supplies and
equipment and provides service support to the printing and printed circuit board
industries principally in Minnesota. In addition, Gray manufactures and sells
printing blankets to the printing industry and is a distributor of electronic
publishing industry supplies and equipment. Gray establishes credit with its
customer on an individual basis.
Inventories: Nonequipment inventories (86 percent of total inventories) are
stated at last-in, first-out method (LIFO) cost which does not exceed market.
The remaining equipment inventories are valued at the lower of first-in,
first-out (FIFO) cost or market. The lower of cost or market is determined on a
pooled basis. If the FIFO method had been used for all inventories, Gray's
inventories would have been $184,601 and $153,342 higher at December 31, 1993
and 1992, respectively.
Depreciation and amortization: Equipment and furniture are depreciated over
estimated useful lives of five to thirteen years using straight-line and
accelerated methods. Leasehold improvements are amortized over the lesser of the
useful lives of the assets or the term of the building lease.
Intangible assets: Noncompete agreements were amortized over three to four
years. Debt issuance costs are being amortized over the life of the loan (five
years). The customer list is being amortized over 13 years. All amortization is
on the straight-line method.
NOTE 2. DEBT FACILITIES
Debt outstanding includes the following at December 31:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Revolving credit facility borrowings................ $6,030,043 $6,276,303
Senior term loan, paid in 1993...................... -- 1,100,000
---------- ----------
6,030,043 7,376,303
Less current maturities............................. 660,000
---------- ----------
$6,030,043 $6,716,303
========= =========
</TABLE>
Gray has a revolving credit facility with a bank, which matures October 19,
1995. Collateral pledged for amounts advanced under the line of credit consists
of inventories, accounts receivable and equipment. Borrowings are limited to the
lesser of $7,250,000 or a percentage of eligible accounts receivable and
inventories, less $500,000. Gray is required to maintain a collateral account
with the bank, wherein, all funds deposited are used to pay down the line with
one-day availability. At December 31, 1993 and 1992, Gray had checks outstanding
in excess of cash balances of $249,687 and $224,500, respectively. These amounts
are included as part of the revolving credit facility borrowings. At December
31, 1993, Gray had available for borrowing $920,929, before deducting the
$500,000 minimum available balance and checks outstanding. Interest on the
credit facility is paid monthly in arrears, at the then current base rate plus
1.75 percent (7.75 percent at December 31, 1993 and 1992, respectively) and Gray
is required to pay an annual fee of 0.375 percent of the unused funds.
The credit agreement with the bank contains provisions which, among other
things, limit the ability of Gray to acquire or merge with other companies,
borrow additional funds, sell or purchase fixed assets, pay dividends, or
repurchase its capital stock. Gray must also maintain certain net worth levels
and meet periodic ratios of fixed charge coverage, interest coverage, current
ratios and cash generation. As of December 31, 1993, Gray was in compliance and
had obtained a waiver of these covenants.
F-44
<PAGE> 158
T. K. GRAY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. COMMITMENTS AND CONTINGENCIES
Leases: Gray currently leases approximately 38,000 square feet of office
and warehouse facilities through June 1998. Terms of the lease require minimum
annual rentals of $170,100 plus real estate taxes and other occupancy expenses.
Gray has the option to renew the lease for an additional five years and also has
an agreement to lease an additional 12,190 square feet of office and warehouse
space through March 31, 1995.
In addition, Gray leases transportation equipment under noncancelable
operating leases.
Approximate minimum annual rentals are as follows:
<TABLE>
<S> <C>
Years ending December 31:
1994......................... $227,600
1995......................... 182,200
1996......................... 170,100
1997......................... 170,100
1998......................... 85,000
</TABLE>
Total rent expense was $234,048, $230,569 and $221,018 for the years ended
December 31, 1993, 1992 and 1991, respectively.
Employment and stock repurchase agreements: The stockholders have entered
into five-year employment agreements which include three-year noncompete
agreements after termination. They have also entered into stock purchase
agreements which first allow the other stockholders and then Gray the right of
first refusal regarding stock transfers or sales after January 1, 1996. After
that time, or when the aggregate outstanding balance of Gray's term debt is less
than the available borrowings under the revolving credit facility, the
stockholders may require Gray to purchase their shares at fair market value but,
in the event of death, at no less than the face amount of insurance carried on
the stockholder's life. Fair market value is to be determined by mutual
agreement between the seller and the buyer or by independent appraisal. Terms
require that 20 percent of the price be paid upon transfer of shares with the
remainder to be paid in up to five equal annual installments.
NOTE 4. BENEFIT PLAN
Gray has a profit sharing/savings plan which meets the requirements of
Internal Revenue Code Section 401(k). All employees with at least six months of
service are eligible to participate in the plan and may contribute up to 10
percent of their earnings. Gray matches 50 percent of the first six percent of
the employee contributions and may make additional contributions as determined
by the Board of Directors. The total nondiscretionary expense relating to this
plan was $98,748, $98,396 and $94,972 for the years ended December 31, 1993,
1992, and 1991, respectively. In addition, Gray made discretionary contributions
of none, $50,000 and $36,400 for the years ended December 31, 1993, 1992, and
1991, respectively.
NOTE 5. INCOME TAXES
Gray has elected to be taxed under sections of the federal and state income
tax laws which provide that, in lieu of corporation income taxes, the
stockholders separately account for Gray's items of income, deductions, losses
and credits (S Corporation). Prior to January 1, 1992, income taxes were payable
at the corporate level ('C' Corporation), and income taxes were computed for
financial statement purposes in accordance with Accounting Principles Board
Opinion No. 11. Therefore, the statements of income subsequent to 1991 do not
include any provision or benefit for corporate income taxes. Periodic
distributions are made to Gray's stockholders to enable them to pay the income
taxes applicable to Gray's income
F-45
<PAGE> 159
T. K. GRAY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
reportable on their individual income tax returns. Cash distributions of
$446,000 and $233,000 were made to the shareholders in 1993 and 1992,
respectively, from additional paid-in capital.
As an S Corporation, Gray is liable for the tax associated with the
recapture of prior years' LIFO benefits which is to be paid over a four-year
period, which began with the year ended December 31, 1992. Income taxes payable
related to this obligation was recorded in 1990 in connection with the
acquisition of Gray by Gray Acquisition Co. and the original request to the
Internal Revenue Service (IRS) to be treated as an S Corporation effective
January 1, 1991. This election was not granted by the IRS. However, Gray filed a
similar election effective January 1, 1992 for which no IRS permission was
required. Because of the S election no other income taxes are reflected on the
balance sheet at December 31, 1993.
The income tax benefit in 1991 consisted of the following:
<TABLE>
<S> <C>
Federal:
Current......................... $ 27,000
Deferred........................ 55,000
State:
Current......................... 3,000
Deferred........................ 29,000
--------
$114,000
========
</TABLE>
The income tax benefit reconciles to the statutory combined federal and
state income tax rates for the year ended December 31, 1991 as follows:
<TABLE>
<S> <C>
Benefit at statutory rate........................................ $ 189,000
Unprovided prepaid taxes related to inventory, depreciation and
amortization adjustments due to S election..................... (173,500)
Unprovided deferred taxes related to inventory, accrued expenses,
and LIFO reserve adjustments due to S election................. 85,500
Adjustment of prior period provision............................. 24,000
Other............................................................ (11,000)
---------
$ 114,000
=========
</TABLE>
NOTE 6. SUBSEQUENT EVENT
On January 27, 1994, Gray signed a letter of intent to sell substantially
all assets of Gray to Momentum Corporation. Momentum will assume all liabilities
including existing leases, but excluding the revolving credit facility which
shall be retained and discharged by Gray from sale proceeds.
F-46
<PAGE> 160
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
T. K. Gray, Inc.
Minneapolis, Minnesota
We have audited the accompanying balance sheets of T. K. Gray, Inc. as of
December 31, 1993 and 1992, and the related statements of income, retained
earnings (deficit), and cash flows for the years then ended. These financial
statements are the responsibility of Gray's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of T. K. Gray, Inc. as of
December 31, 1993 and 1992, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ MCGLADREY & PULLEN
McGladrey & Pullen
St. Paul, Minnesota
February 18, 1994
F-47
<PAGE> 161
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
T. K. Gray, Inc.
We have audited the statements of income and retained earnings (deficit)
and of cash flows of T. K. Gray, Inc. (the "Company") for the year ended
December 31, 1991. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of the
Company for the year ended December 31, 1991 in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE
Deloitte & Touche
Minneapolis, MN
February 28, 1992
F-48
<PAGE> 162
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
<PAGE> 163
AGREEMENT AND PLAN
OF
REORGANIZATION
dated as of May 27, 1994
by and between
MOMENTUM CORPORATION
and
PHILLIPS & JACOBS, INCORPORATED
<PAGE> 164
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
AGREEMENT AND PLAN OF REORGANIZATION
ARTICLE I
CERTAIN DEFINITIONS
ARTICLE II
THE MERGER
Section 2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.2 Filing of Merger Documents . . . . . . . . . . . . . . . . . . 6
Section 2.3 Effect of Merger . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.4 Directors and Officers of Newco . . . . . . . . . . . . . . . 6
Section 2.5 Closing and Closing Date . . . . . . . . . . . . . . . . . . . 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PHILLIPS
Section 3.1 Organization and Qualification . . . . . . . . . . . . . . . . 8
Section 3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.4 Consents and Approvals; No Violation . . . . . . . . . . . . . 9
Section 3.5 SEC Reports and Financial Statements . . . . . . . . . . . . . 10
Section 3.6 Absence of Certain Changes or Events . . . . . . . . . . . . . 10
Section 3.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.8 Information Supplied . . . . . . . . . . . . . . . . . . . . . 11
Section 3.9 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.10 Affiliate Agreements . . . . . . . . . . . . . . . . . . . . . 12
Section 3.11 Environmental . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.12 No Violations . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.13 Opinion of Financial Advisor . . . . . . . . . . . . . . . . . 13
Section 3.14 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . 13
Section 3.15 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.16 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MOMENTUM
Section 4.1 Organization and Qualification . . . . . . . . . . . . . . . . 14
Section 4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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<PAGE> 165
<TABLE>
<S> <C> <C>
Section 4.4 Consents and Approvals; No Violation . . . . . . . . . . . . . 16
Section 4.5 SEC Reports and Financial Statements . . . . . . . . . . . . . 16
Section 4.6 Absence of Certain Changes or Events . . . . . . . . . . . . . 17
Section 4.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.8 Information Supplied . . . . . . . . . . . . . . . . . . . . . 17
Section 4.9 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.10 Affiliate Agreements . . . . . . . . . . . . . . . . . . . . . 18
Section 4.11 Environmental . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.12 No Violations . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.13 Opinion of Financial Advisor . . . . . . . . . . . . . . . . . 19
Section 4.14 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . 19
Section 4.15 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.16 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 5.1 Conduct of Business of Phillips Pending the Effective Time . . 20
Section 5.2 Conduct of Business of Momentum Pending the Effective Time . . 22
Section 5.3 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VI
ADDITIONAL COVENANTS AND AGREEMENTS
Section 6.1 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.2 Access to Information . . . . . . . . . . . . . . . . . . . . 24
Section 6.3 Registration Statement and Proxy Statement . . . . . . . . . . 24
Section 6.4 Shareholder Approval . . . . . . . . . . . . . . . . . . . . . 24
Section 6.5 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.6 Agreement to Cooperate; Further Assurances . . . . . . . . . . 25
Section 6.7 Stock Options and Restricted Stock . . . . . . . . . . . . . . 25
Section 6.8 Public Statements . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.9 Letter of Phillips's Accountants . . . . . . . . . . . . . . . 26
Section 6.10 Letter of Momentum's Accountants . . . . . . . . . . . . . . . 27
Section 6.11 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.12 Opinions of Financial Advisors . . . . . . . . . . . . . . . . 27
Section 6.13 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger . . 28
Section 7.2 Conditions to Obligation of Phillips to Effect the Merger . . 29
Section 7.3 Conditions to Obligations of Momentum to Effect the Merger . . 29
</TABLE>
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<PAGE> 166
<TABLE>
<S> <C> <C>
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . 31
Section 8.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.5 Termination Fee . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Non-Survival of Representations, Warranties and Agreements . . 32
Section 9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.4 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.6 Parties in Interest . . . . . . . . . . . . . . . . . . . . . 34
Section 9.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.8 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . 34
SIGNATURE PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
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<PAGE> 167
EXHIBITS
<TABLE>
<S> <C>
Exhibit 2.1 Form of Plan of Merger
Exhibit 2.3(A) Amended and Restated Articles of Incorporation for Newco
Exhibit 2.3(B) Amended and Restated Bylaws for Newco
Exhibit 2.4(A) Newco Board Designees, Nominating Committee, Chairman and Executive Officers
Exhibit 2.4(B) Newco management organizational structure
</TABLE>
<PAGE> 168
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of May 27, 1994 (the
"AGREEMENT"), by and between MOMENTUM CORPORATION, a Delaware corporation
("MOMENTUM"), and PHILLIPS & JACOBS, INCORPORATED, a Pennsylvania corporation
("PHILLIPS").
WHEREAS, (i) Momentum is a corporation organized and existing under
the laws of the State of Delaware and (ii) Phillips is a corporation organized
and existing under the laws of the Commonwealth of Pennsylvania; and
WHEREAS, the Board of Directors of each of Momentum and Phillips deem
it advisable and in the best interests of their stockholders or shareholders,
as the case may be, that Momentum merge with and into Phillips pursuant to the
Merger (as hereinafter defined) hereinafter provided for, to effect a change in
the name of Phillips to Newco, to amend the Articles of Incorporation and
Bylaws of Phillips, and desire to make certain representations, warranties and
agreements in connection with such Merger; and
WHEREAS, for Federal income tax purposes, it is intended that the
Merger contemplated by this Agreement constitute a reorganization as described
in section 368 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder (the "CODE").
NOW, THEREFORE, in consideration of the foregoing, the
representations, warranties, covenants and agreements set forth herein and such
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto, intending to be legally bound hereby,
agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
"AFFILIATE" shall mean, as to any person, any other person that
directly or indirectly controls, or is under common control with or is
controlled by such person, except that references to "AFFILIATE" in Section 6.5
shall have the meaning set forth in Rule 145 of the Securities Act.
"AGGREGATE NUMBER" shall have the meaning set forth in Section 6.7.
"BERWIND" shall mean the Berwind Financial Group, Inc., an investment
banking firm retained by Phillips.
"CODE" shall have the meaning set forth in the introductory clauses
hereto.
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<PAGE> 169
"CONTAMINATION" shall mean the uncontained presence of Hazardous
Materials which has required or can reasonably be expected to require removal
or remediation under any Environmental Law.
"COOPERS & LYBRAND" shall mean Coopers & Lybrand, Phillips'
independent auditors.
"DGCL" shall have the meaning set forth in Section 2.1.
"EFFECTIVE TIME" shall have the meaning set forth in Section 2.2.
"ENVIRONMENTAL LAW" shall mean any law, statute, ordinance, order,
rule, or regulation pertaining to health, industrial hygiene or the
environment, and the regulations implementing such laws, statutes and
regulations adopted thereunder and amendments thereto, including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C. Section 9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et seq. ("RCRA")), the
Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Clean Air
Act (42 U.S.C. Section 7001 et seq.) and the Federal Water Pollution Control
Act (33 U.S.C. Section 1251 et seq.).
"ERISA AFFILIATE," with respect to any party, shall mean any trade or
business, whether or not incorporated, that together with such party would be
deemed a "single employer" within the meaning of section 4001(a)(15) of ERISA.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERNST & YOUNG" shall mean Ernst & Young, Momentum's independent
auditors.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCHANGE RATIO" shall have the meaning set forth in Section 2.1.
"FORM S-4" shall mean the Registration Statement on Form S-4 to be
filed with the SEC under the Securities Act in connection with the Merger for
the purpose of registering the shares of Phillips Common Stock to be issued in
the Merger.
"GOVERNMENTAL ENTITY" shall mean any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign.
"HAZARDOUS MATERIAL" shall include without limitation those substances
included within the definitions of "Hazardous Substances," "Hazardous
Materials," "Toxic Substances," "Hazardous Waste," or "Solid Waste" in any
Environmental Law, those substances listed in the United States Department of
Transportation Table (49 C.F.R. 172.01 and any amendments thereto) or by the
Environmental Protection Agency as hazardous substances (40 C.F.R. Part 302 and
amendments thereto), and including, without limitation, oil and petroleum
products.
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<PAGE> 170
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"KNOWLEDGE" shall mean the actual knowledge, after reasonable inquiry,
of the officers of the representing party and those employees who report
directly to such officers; provided, however, for purposes of Sections 3.11 and
4.11 only, "reasonable inquiry" shall mean a review of current files relating
to Environmental Laws and a review of Sections 3.11 or 4.11, whichever is
applicable and the related Disclosure Schedule.
"MATERIAL ADVERSE EFFECT," with respect to any party, shall mean a
material adverse effect (or any development which, insofar as reasonably can be
foreseen, in the future is reasonably likely to have a material adverse effect)
on the business, assets, financial or other condition, results of operations or
prospects of such party and its current Subsidiaries taken as a whole.
"MERGER AGREEMENT" shall have the meaning set forth in Section 2.1.
"MERGER DOCUMENTS" shall have the meaning set forth in Section 2.2.
"MERGER" shall have the meaning set forth in Section 2.1.
"MOMENTUM" shall have the meaning set forth in the introductory
clauses hereto.
"MOMENTUM COMMON STOCK" shall have the meaning set forth in Section
2.1.
"MOMENTUM DESIGNEES" shall have the meaning set forth in Section 2.4.
"MOMENTUM FINANCIAL STATEMENTS" shall have the meaning as set forth in
Section 4.5.
"MOMENTUM PLANS" shall have the meaning set forth in Section 4.9.
"MOMENTUM PREFERRED STOCK" shall have the meaning set forth in Section
4.2.
"MOMENTUM PROPERTIES" shall have the meaning set forth in Section 4.11.
"MOMENTUM RESTRICTED STOCK AWARDS" shall have the meaning set forth in
Section 4.2(a).
"MOMENTUM SEC REPORTS" shall have the meaning set forth in Section 4.5.
"MOMENTUM STOCK OPTION" shall have the meaning set forth in Section
4.2(a).
"MOMENTUM STOCK PLAN" shall have the meaning set forth in Section
4.2(a).
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<PAGE> 171
"NEWCO" shall mean Phillips as of the Effective Time, operating under
its new corporate name selected in accordance with Section 2.3(a).
"NEWCO COMMON STOCK" shall mean Phillips Common Stock as of the
Effective Time and shall have the meaning set forth in Section 2.1.
"PBCL" shall have the meaning set forth in Section 2.1.
"PHILLIPS" shall have the meaning set forth in the introductory
clauses hereto.
"PHILLIPS COMMON STOCK" shall have the meaning set forth in Section
3.2.
"PHILLIPS DESIGNEES" shall have the meaning set forth in Section 2.4.
"PHILLIPS FINANCIAL STATEMENTS" shall have the meaning set forth in
Section 3.5.
"PHILLIPS PLANS" shall have the meaning set forth in Section 3.9.
"PHILLIPS PROPERTIES" shall have the meaning set forth in Section 3.11.
"PHILLIPS RESTRICTED STOCK AWARDS" shall have the meaning set forth in
Section 3.2(a).
"PHILLIPS SEC REPORTS" shall have the meaning set forth in Section 3.5.
"PHILLIPS STOCK OPTION" shall have the meaning set forth in Section
3.2(a).
"PIPER JAFFRAY" shall mean Piper Jaffray Inc., an investment banking
firm retained by Momentum.
"PROXY STATEMENT" shall mean the joint proxy statement/prospectus to
be distributed to holders of shares of Phillips Common Stock and holders of
shares of Momentum Common Stock in connection with the meetings of such holders
to be held in connection with the transactions contemplated by this Agreement
and the Merger Agreement.
"RETURN PERIODS" shall have the meaning set forth in Section 3.15.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SIGNIFICANT SUBSIDIARY" shall have the meaning set forth in Rule 1-02
of Regulation S-X of the SEC.
"STOCK OPTIONS" shall mean the Phillips Stock Options and the Momentum
Stock Options.
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<PAGE> 172
"SUBSIDIARY" shall mean present and former "SUBSIDIARIES" (as defined
in Rule 1-02 of Regulation S-X of the SEC) of the representing party and former
subsidiaries of their respective former parents (i.e., TBC in the case of
Phillips, and VWR and Univar in the case of Momentum) which engaged in a
business conducted by, continued by or succeeded to by the representing party,
directly or indirectly, through a majority controlled subsidiary, provided that
former subsidiaries shall be included only during the periods such entities
were subsidiaries of the representing party or their respective former parents.
"TAX" or "TAXES" shall have the meaning set forth in Section 3.15.
"TBC" shall mean Tasty Baking Company, the former parent of Phillips.
"TERMINATION DATE" shall have the meaning set forth in Section 8.1.
"THIRD PARTY" shall mean any person or group that is deemed to be a
"person" within the meaning of Section 13(d) of the Exchange Act other than
Momentum or Phillips.
"UNIVAR" shall mean Univar Corporation, the former parent of certain
businesses conducted by Momentum or its Subsidiaries.
"VWR" shall mean VWR Corporation, the former parent of Momentum.
ARTICLE II
THE MERGER
SECTION 2.1 THE MERGER.
(a) Momentum and Phillips will execute and deliver, and agree,
subject to the terms and conditions of this Agreement and the Merger Agreement,
to submit to their respective shareholders for adoption and approval as
required under the Delaware General Corporation Law (the "DGCL"), or the
Pennsylvania Business Corporation Law (the "PBCL"), as applicable, together
with this Agreement, in accordance with Article II hereof, the Plan of Merger,
in the form which is set forth as Exhibit 2.1 hereto, with such further changes
as may be mutually agreed upon by the parties hereto (the "MERGER AGREEMENT"),
providing for the merger of Momentum with and into Phillips (the "MERGER") and
the conversion of each outstanding share of Momentum common stock, par value
$1.00 per share including without limitation any shares subject to Momentum
Restricted Stock Awards and any shares held by the Momentum Stock Ownership
Plan (the "MOMENTUM COMMON STOCK"), into .71 (the "EXCHANGE RATIO") shares of
Newco common stock, par value $.01 per share (the "NEWCO COMMON STOCK"), as set
forth in the Merger Agreement. As provided in the Merger Agreement, Phillips,
to be renamed Newco, as provided in Section 2.3(a), shall be the surviving
corporation in the Merger. From and after the
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<PAGE> 173
Effective Time, the identity and separate existence of Momentum shall cease,
and Newco shall succeed, without other transfer, to all the rights, properties,
debts and liabilities of Momentum.
(b) In connection with the Merger, Phillips shall take such
actions as may be necessary to reserve sufficient shares of Phillips Common
Stock, prior to the Merger, to permit the issuance of shares of Phillips Common
Stock (i) to the holders of Momentum Common Stock as of the Effective Time in
accordance with the terms of the Merger Agreement and (ii) upon the exercise of
Momentum Stock Options to be assumed by Phillips in accordance with Section 6.7
hereof. Each of Phillips and Momentum shall use its best efforts to cause the
Merger to be consummated in accordance with the terms of this Agreement and the
Merger Agreement.
SECTION 2.2 FILING OF MERGER DOCUMENTS. Immediately after all
conditions to this Agreement have been satisfied or waived, a certificate and
articles of merger pertaining to the Merger (collectively the "MERGER
DOCUMENTS"), or such other documents necessary to effect the Merger, shall be
executed and filed in accordance with the DGCL and the PBCL, as the case may
be, and the Merger shall become effective substantially simultaneously in
accordance with the terms of the Merger Agreement (such time and date are
referred to herein as the "EFFECTIVE TIME"). For accounting purposes, the
Merger shall be deemed to be effective as of the close of business on the date
of the Effective Time or such other date as the parties shall mutually agree to
in writing.
SECTION 2.3 EFFECT OF MERGER. The parties agree to the following
provisions with respect to the Merger:
(a) NAME OF SURVIVING CORPORATION. The name of Phillips, as the
surviving corporation in the Merger, from and after the Effective Time shall be
changed to such name as is mutually agreed upon by Phillips and Momentum
(referred to herein as "Newco") until changed or amended in accordance with
applicable law.
(b) CHARTER DOCUMENTS. At the Effective Time the Articles of
Incorporation and Bylaws of Phillips, shall be amended to read in their
entirety as set forth in Exhibits 2.3(A) and 2.3(B) hereto, respectively, with
such further changes thereto as Momentum and Phillips may mutually agree upon.
(c) OTHER EFFECTS. The Merger shall have such other effects as
are set forth in the Merger Agreement, the DGCL and the PBCL.
SECTION 2.4 DIRECTORS AND OFFICERS OF NEWCO.
(a) NEWCO GOVERNANCE
(i) Phillips shall take all actions necessary to cause
the directors comprising the full board of directors of Newco (the "NEWCO
BOARD") at the Effective Time to be comprised of 12 directors. Initially, half
of such directors shall be designated by Momentum and half shall be designated
by Phillips. Momentum and Phillips shall take all action necessary so that, to
the
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greatest extent practicable, the Momentum Designees and the Phillips Designees
shall serve in equal numbers in each of three classes of directors of the Newco
Board. Within twenty (20) days of the date hereof, Momentum shall designate in
writing to Phillips the persons who shall serve as its initial designees to the
Newco Board (the "MOMENTUM DESIGNEES"), the classes in which such persons shall
serve, and its two designees to serve on the nominating committee of the Newco
Board. Within twenty (20) days of the date hereof, Phillips shall designate in
writing to Momentum the persons who shall serve as its initial designees to the
Newco Board (the "PHILLIPS DESIGNEES"), the classes in which such persons shall
serve, and its two designees to serve on the nominating committee of the Newco
Board. If, prior to the Effective Time, any of the Momentum Designees or
Phillips Designees shall decline or be unable to serve as a Newco director,
Momentum (if such person was so designated by Momentum) or Phillips (if such
person was so designated by Phillips) shall designate another person to serve
in such person's stead, which person shall be reasonably acceptable to the
other party.
(ii) At or prior to the Effective Time, Phillips shall
amend its bylaws (the "NEWCO BYLAWS") to provide that a nominating committee of
the Newco Board be created for an initial term of two years which committee
shall have the exclusive power to nominate persons, by unanimous vote, to serve
as directors of Newco, which nomination shall be subject to the approval of the
Newco Board.
(iii) At or prior to the Effective Time, Momentum and
Phillips shall cause (A) the persons listed as such on Exhibit 2.4(A) hereto to
be designated as Chairman of the Board and Vice Chairman of Newco and (B) Newco
to designate the persons listed on such Exhibit 2.4(A) to be named executive
officers of Newco, holding the positions therein indicated; provided, that if
any such persons are unwilling or unable to serve in such capacities, their
replacements shall be selected by the Newco Board as constituted at the
Effective Time. Newco shall also have such other officers as may be elected by
the Newco Board. The management organizational structure, including
responsibility, authority and reporting lines, of Newco from and after the
Effective Time shall be as further set forth on Exhibit 2.4(B) until modified
by the Newco Board.
(b) TENURE. The foregoing officers and directors of Newco shall
hold their positions until their resignation or removal or the election or
appointment of their successors in the manner provided in Newco's Articles of
Incorporation, Bylaws, and applicable law.
SECTION 2.5 CLOSING AND CLOSING DATE. The execution and delivery
of the documents required to effectuate the transactions contemplated by this
Agreement (the "Closing") shall take place at such place and time as the
parties shall reasonably agree, on the fifth business day after satisfaction or
waiver of the last to be fulfilled of the conditions set forth in Article VII
that by their terms are not to occur at the Closing (the "Closing Date").
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PHILLIPS
Except as disclosed in a disclosure schedule which specifically refers
to the section to which such disclosure relates and is delivered prior to the
execution of this Agreement (the "Phillips Disclosure Schedule") Phillips
represents and warrants to Momentum as follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION. Each of Phillips and
its Significant Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation and
has the requisite power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted, and is duly
qualified to do business and in good standing in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
so qualify or be in good standing, or to have such authority, would not have a
Material Adverse Effect on Phillips. True and complete copies of the articles
of incorporation and bylaws of Phillips as in effect on the date hereof,
including all amendments thereto, have heretofore been delivered to Momentum.
SECTION 3.2 CAPITALIZATION.
(a) The authorized capital stock of Phillips consists of ten
million shares of Phillips common stock par value $.01 per share (the "Phillips
Common Stock"). As of May 1, 1994, there were (i) 4,114,352 shares of Phillips
Common Stock issued and outstanding, all of which are validly issued, fully
paid and nonassessable and are not subject to and were not issued in violation
of any preemptive rights, (ii) 400,000 shares of Phillips Common Stock reserved
for issuance in connection with Phillips 1993 Long Term Incentive Plan, and
(iii) options to acquire 219,748 shares of Phillips Common Stock granted to
directors, officers and other employees of Phillips (the "Phillips Stock
Options"). No Subsidiary of Phillips holds any shares of Phillips Common
Stock. There has been no material change in the information set forth in the
second sentence of this Section 3.2(a) between the close of business on May 1,
1994, and the date hereof. The Phillips Disclosure Schedule sets forth true,
accurate and complete lists of (A) each Phillips Stock Option which presently
is outstanding, with the name of optionholder, number of shares, grant date,
expiration date, exercise price and vesting schedule and (B) each restricted
stock award of Phillips Common Stock which has not yet fully vested, with the
name of the shareholder, number of shares and vesting schedule (the "PHILLIPS
RESTRICTED STOCK AWARDS"). All of the outstanding Phillips Stock Options and
Phillips Restricted Stock Awards have been issued under plans, and in
transactions, which satisfy the exemption requirements of Rule 16b-3 under the
Exchange Act, or its predecessor provisions.
(b) Except for this Agreement, the Merger Agreement and the
Phillips Stock Options, there are not now, and at the Effective Time there will
not be, any options, warrants, calls, rights, subscriptions, convertible
securities or other rights or agreements, arrangements or commitments of any
kind obligating Phillips or any of its current Subsidiaries to issue, transfer
or sell any securities of Phillips. All shares of Phillips Common Stock
subject to issuance as aforesaid, upon
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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. There are no outstanding contractual or other obligations
of Phillips or any of its current Subsidiaries to purchase, redeem or otherwise
acquire any shares of Phillips Common Stock. There is not now, and at the
Effective Time there will not be, any stockholder agreement, voting trust or
other agreement or understanding to which Phillips or any of its Subsidiaries
is a party or bound relating to the voting of any shares of the capital stock
of Phillips or any of its current Subsidiaries.
SECTION 3.3 AUTHORITY. Phillips has all requisite corporate
power and authority to execute and deliver this Agreement, and the Merger
Agreement and, subject to approval of this Agreement and the Merger Agreement
by the shareholders of Phillips, to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement and the
Merger Agreement and the consummation by Phillips of the transactions
contemplated hereby and thereby, have been duly authorized by Phillips's board
of directors and no other corporate proceedings on the part of Phillips are
necessary to authorize the execution and delivery of this Agreement and the
Merger Agreement and the consummation by Phillips of the transactions
contemplated hereby and thereby, except for the approval of this Agreement and
the Merger Agreement by the shareholders of Phillips. This Agreement has been,
and as of the Effective Time, the Merger Agreement will be, duly and validly
executed and delivered by Phillips and, assuming the due authorization,
execution and delivery hereof and thereof by Momentum, constitute or will
constitute, as the case may be, valid and binding agreements of Phillips,
enforceable against Phillips in accordance with their terms, except that such
enforceability may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally and (ii) by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).
SECTION 3.4 CONSENTS AND APPROVALS; NO VIOLATION. None of the
execution and delivery by Phillips of this Agreement or the Merger Agreement,
the consummation by Phillips of the transactions contemplated hereby and
thereby or compliance by Phillips with any of the provisions hereof will (i)
conflict with or result in a breach of any provision of the respective charters
or bylaws (or similar governing documents) of Phillips or any of its current
Subsidiaries, (ii) require any consent, approval, authorization or permit of,
or filing with or notification to, any Governmental Entity, except (A) pursuant
to the Exchange Act, the Securities Act, certain state takeover, securities and
antitrust statutes and the HSR Act and (B) for filing the Merger Documents with
respect to the Merger pursuant to the PBCL, (iii) result in a default (or an
event which with notice or lapse of time or both would become a default) or
give to any third party any right of termination, cancellation, amendment or
acceleration under, or result in the creation of a lien or encumbrance on any
of the assets of Phillips or any of its current Subsidiaries pursuant to any
note, license, agreement or other instrument or obligation to which Phillips or
any of its current Subsidiaries is a party or by which Phillips or any of its
current Subsidiaries or any of their respective assets may be bound or
affected, or (iv) violate or conflict with any order, writ, injunction, decree,
statute, rule or regulation applicable to Phillips or any of its current
Subsidiaries or any of their respective properties or assets; other than such
defaults, rights of termination, cancellation, amendment or acceleration, liens
and encumbrances, violations, conflicts, consents, approvals, authorizations,
permits or filings which, in the aggregate, would
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not have a Material Adverse Effect on Phillips and would not materially impair
Phillips's ability to consummate the transactions contemplated by this
Agreement and the Merger Agreement.
SECTION 3.5 SEC REPORTS AND FINANCIAL STATEMENTS. Each form,
report, schedule, registration statement and definitive proxy statement filed
by Phillips with the SEC since May 12, 1993 (as such documents have since the
time of their filing been amended, the "PHILLIPS SEC REPORTS"), which include
all the documents (other than preliminary material) that Phillips was required
to file with the SEC since such date, as of their respective dates, complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Phillips SEC Reports. None of the Phillips SEC
Reports contained any untrue statement of a material fact or omitted 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 for such statements, if any, as have been modified by
subsequent filings prior to the date hereof. The financial statements of
Phillips included in such reports comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, 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 thereto
or, in the case of the unaudited statements, as permitted by Form 10-Q of the
SEC) and fairly present (subject in the case of the unaudited statements, to
normal, recurring audit adjustments) the consolidated financial position of
Phillips and its Subsidiaries as at the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended. Since
December 31, 1993, neither Phillips nor any of its current Subsidiaries has
incurred any liabilities or obligations, whether absolute, accrued, fixed,
contingent, liquidated, unliquidated or otherwise and whether due or to become
due, except (i) as and to the extent set forth in the consolidated financial
statements of Phillips and its Subsidiaries as at December 31, 1993 (including
the notes thereto) (the "PHILLIPS FINANCIAL STATEMENTS"), (ii) as incurred in
connection with the transactions contemplated, or as provided, by this
Agreement, (iii) as incurred after December 31, 1993 in the ordinary course of
business and consistent with past practices, (iv) as described in the Phillips
SEC Reports or (v) as would not, individually or in the aggregate, have a
Material Adverse Effect on Phillips.
SECTION 3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
disclosed in the Phillips SEC Reports filed prior to the date of this
Agreement, since December 31, 1993, Phillips and its current Subsidiaries have
conducted their respective businesses only in the ordinary course, consistent
with past practice, and there has not occurred or arisen any event,
individually or in the aggregate, having or which, insofar as reasonably can be
foreseen, in the future is likely to have, a Material Adverse Effect on
Phillips.
SECTION 3.7 LITIGATION. As of the date of this Agreement, except
as disclosed in the Phillips SEC Reports filed prior to the date of this
Agreement, there is no claim, suit, action or proceeding pending, or, to the
best Knowledge of Phillips, threatened against or affecting Phillips or any of
its current Subsidiaries, which is reasonably likely to have a Material Adverse
Effect on Phillips, nor is there any judgment, decree, order, injunction, writ
or rule of any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator
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outstanding against Phillips or any of its current Subsidiaries having, or
which, insofar as reasonably can be foreseen, in the future is likely to have,
any such effect. There are no suits, actions, claims, proceedings, or
investigations pending or, to the best of Phillips' Knowledge, threatened which
challenge the validity or propriety of the transactions contemplated by this
Agreement.
SECTION 3.8 INFORMATION SUPPLIED. The information supplied or to
be supplied by Phillips or its Subsidiaries for inclusion in (i) the Form S-4
will not, either at the time the Form S-4 is filed with the SEC or at the time
it becomes effective under the Securities Act, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii) the
Proxy Statement, including any amendments and supplements thereto, will not,
either at the date mailed to shareholders or at the time of the meeting of
shareholders of Phillips to be held in connection with the transactions
contemplated by this Agreement and the Merger Agreement, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The Proxy
Statement and the Form S-4 will each comply as to form in all material respects
with all applicable laws, including the provisions of the Securities Act and
the Exchange Act and the rules and regulations promulgated thereunder, except
that no representation is made by Phillips with respect to information supplied
by Momentum for inclusion therein.
SECTION 3.9 EMPLOYEE MATTERS. Phillips has delivered or made
available to Momentum full and complete copies or descriptions of each material
employment, bonus, profit sharing, compensation, termination, stock option,
stock appreciation right, restricted stock, phantom stock, performance unit,
pension, retirement, deferred compensation, welfare or other employee benefit
agreement, trust fund or other arrangement and any union, guild or collective
bargaining agreement maintained or contributed to or required to be contributed
to by Phillips or any of its ERISA Affiliates, for the benefit or welfare of
any director, officer, employee or former employee of Phillips or any of its
ERISA Affiliates (such plans and arrangements, being referred to herein as the
"PHILLIPS PLANS"). Each of the Phillips Plans is in material compliance with
all applicable laws including ERISA and the Code. With respect to each
Phillips Plan which the Internal Revenue Service has determined to be a
qualified plan under section 401(a) of the Code, Phillips is aware of no event
occurring after the date of such determination that would adversely affect such
determination. With respect to each Phillips Plan that is intended to be a
qualified plan under Section 401(a) of the Code, but for which Phillips has not
submitted an application for a determination letter to, or received a
determination letter from, the Internal Revenue Service, Phillips is aware of
no reason why the Internal Revenue Service would not issue a determination
letter that the Phillips Plan is so qualified. The liabilities accrued under
each such plan are accurately reflected on the Phillips Financial Statements.
No condition exists that is reasonably likely to subject Phillips or any of its
current Subsidiaries to any direct or indirect liability under Title IV of
ERISA or to a civil penalty under section 502 of ERISA or liability under
section 4069 of ERISA or 4975, 4976, 4980B or 6652 of the Code or the loss of a
Federal tax deduction under section 280G of the Code or other liability with
respect to the Phillips Plans or any similar plan maintained with respect to
TBC or Phillips' Subsidiaries that would have a Material Adverse Effect on
Phillips and that is not reflected in the Phillips Financial Statements. No
Phillips Plan
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(other than any Phillips Plan that is a "MULTIEMPLOYER PLAN" as such term is
defined in section 4001(a)(3) of ERISA) is subject to Title IV of ERISA. There
are no pending, threatened, or anticipated claims (other than routine claims
for benefits or immaterial claims) by, on behalf of or against any of the
Phillips Plans or any trusts related thereto.
SECTION 3.10 AFFILIATE AGREEMENTS. Except as disclosed in the
Phillips SEC Reports filed prior to the date of this Agreement and except for
this Agreement neither Phillips nor any of its Subsidiaries is a party to any
oral or written agreement with any of its Affiliates or its former parent
corporation, Tasty Baking Company.
SECTION 3.11 ENVIRONMENTAL. Except as otherwise disclosed in
writing to Momentum and to the best of Phillips's Knowledge: (i) the businesses
as presently or formerly engaged in by Phillips and its Subsidiaries are and
have been conducted in material compliance with all then-applicable
Environmental Laws, including, without limitation, having all material permits,
licenses and other approvals and authorizations, during the time Phillips or
any Subsidiary of Phillips engaged in such businesses; (ii) the properties
presently or formerly owned or operated by Phillips or any Subsidiary of
Phillips (including, without limitation, soil, groundwater or surface water on,
under or adjacent to the properties, and buildings thereon) ("PHILLIPS
PROPERTIES") do not contain any Contamination other than as permitted under
applicable Environmental Law (provided, however, that with respect to Phillips
Properties formerly owned or operated by Phillips or any Subsidiary of
Phillips, such representation is limited to the period Phillips or any
Subsidiary of Phillips owned or operated such Phillips Properties); (iii)
neither Phillips nor any Subsidiary of Phillips has received any notices,
demand letters or request for information from any Governmental Entity or any
Third Party indicating that Phillips or any Subsidiary of Phillips may be in
violation of, or liable under, any Environmental Law in connection with the
ownership or operation of Phillips or its Subsidiaries' businesses; (iv) there
are no civil, criminal or administrative actions, suits, demands, claims,
hearings, investigations or proceedings pending or threatened against Phillips
or any Subsidiary of Phillips with respect to Phillips or any Subsidiary of
Phillips or the Phillips Properties relating to any violation, or alleged
violation, of any Environmental Law; (v) no reports have been filed, or are
required to be filed, by Phillips or any Subsidiary of Phillips concerning the
release of any Hazardous Material or the threatened or actual violation of any
Environmental Law on or at Phillips Properties; (vi) no Hazardous Material has
been generated at, transferred or transported to or from, disposed at or
removed for disposal from, or otherwise released at or from any of the Phillips
Properties in a manner which caused Contamination other than in compliance with
Environmental Law; (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analyses conducted by or which are in
the possession of Phillips or any Subsidiary of Phillips relating to Phillips
or any Subsidiary of Phillips or the Phillips Properties which have not been
delivered to Momentum prior to the date hereof; (viii) there are no underground
storage tanks on, in or under any of the Phillips Properties and no underground
storage tanks have been closed or removed from any Phillips Properties which
are or have been in the ownership of Phillips or any Subsidiary of Phillips
(provided, however, that with respect to Phillips Properties formerly owned or
operated by Phillips or any Subsidiary of Phillips, the representations in this
subsection (viii) are limited to the period Phillips or any Subsidiary of
Phillips owned or operated such Phillips Properties); (ix) there is no friable
asbestos-containing material on the Phillips Property presently owned or
operated by
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Phillips or any subsidiary of Phillips which would require, under ordinary
occupancy (non-construction) conditions, a response action pursuant to the
Occupational Safety & Health Act ("OSHA"), or applicable state and local
counterparts to OSHA, and no such material has been removed from any Phillips
Property while such Phillips Property was owned or operated by Phillips or any
Subsidiary of Phillips; (x) none of the Phillips Properties has been used at
any time by Phillips or any Subsidiary of Phillips as a treatment, storage or
disposal facility under RCRA; and (xi) neither Phillips nor any Subsidiary of
Phillips has incurred, and none of the Phillips Properties are presently
subject to, any material liabilities (fixed or contingent) relating to any
suit, settlement, court order, administrative order, judgment or claim asserted
or arising under any Environmental Law.
SECTION 3.12 NO VIOLATIONS. To the best of Phillips' Knowledge,
the business of Phillips and its Subsidiaries are not being conducted in
violation of, or in a manner which would cause liability under any applicable
law, rule or regulation, judgment, decree or order of any Governmental Entity,
except for any violations or practices, which, individually or in the
aggregate, have not had and will not have a Material Adverse Effect on
Phillips.
SECTION 3.13 OPINION OF FINANCIAL ADVISOR. Phillips has received
the opinion of Berwind to the effect that, as of May 23, 1994, the Merger is
fair to the holders of shares of Phillips Common Stock from a financial point
of view.
SECTION 3.14 BROKERS AND FINDERS. Neither Phillips nor any of its
Subsidiaries nor any of their respective directors, officers or employees has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or similar payments in connection
with the transactions contemplated by this Agreement or the Merger Agreement
other than Berwind.
SECTION 3.15 TAXES. Phillips and each of its Subsidiaries has
timely filed (or caused to be filed) all federal, state, local and foreign tax
returns, reports and information statements required to be filed by each of
them, and to the best of Phillips' Knowledge, all such returns, reports and
statements are true, correct and complete in all material respects. All taxes
required to be paid as shown on such returns, reports and statements have been
timely paid. All taxes required to be paid in respect of the periods covered
by such returns ("RETURN PERIODS"), to the best of Phillips' Knowledge have
either been paid or fully accrued on the books of Phillips. Phillips and each
of its Subsidiaries has fully accrued all unpaid taxes in respect of all
periods (or the portion of any such periods) subsequent to the Return Periods
and ending on or prior to the Effective Time. No deficiencies or adjustments
for any tax have been claimed, proposed or assessed, or to the best of
Phillips' Knowledge, threatened against Phillips or its Subsidiaries. The
Phillips Disclosure Schedule accurately sets forth the last year for which
Phillips' or its Subsidiaries' federal and state income tax returns,
respectively, have been audited and any years which are the subject of a
pending audit by the Internal Revenue Service and the applicable state
agencies. Except as so disclosed, neither Phillips nor any of its Subsidiaries
is subject to any pending or, to the best of Phillips' Knowledge, threatened,
tax audit or examination. The Phillips SEC Reports contain adequate accruals
for all unpaid taxes. For the purposes of this Agreement, the terms "tax and
"taxes" shall include all federal, state, local and foreign taxes, assessments,
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duties and tariffs, including without limitation all income, franchise,
property, production, sales, use, payroll, license, windfall profits,
severance, withholding, excise, gross receipts and other taxes, as well as any
interest, additions or penalties relating thereto and any interest in respect
of such additions or penalties. Phillips has provided Momentum or its
designated representatives true and correct copies of all tax returns,
information statements, reports, and other tax data reasonably requested by
Momentum.
SECTION 3.16 DISCLOSURE. No representation or warranty of
Phillips contained in this Agreement or the Merger Agreement and no statement
contained in any certificate or the Phillips Disclosure Schedule furnished or
to be furnished by or on behalf of Phillips to Momentum or any of its
representatives pursuant thereto contains or will contain any untrue statement
of a material fact, or omits or will omit to state any material fact necessary,
in light of the circumstances under which it was or will be made, in order to
make the statements herein or therein not misleading or necessary in order to
fully and fairly provide the information required to be provided in any such
document, certificate or schedule.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MOMENTUM
Except as disclosed in a disclosure schedule which specifically refers
to the section to which such disclosure relates and is delivered prior to the
execution of this Agreement (the "Momentum Disclosure Schedule") Momentum
represents and warrants to Phillips as follows:
SECTION 4.1 ORGANIZATION AND QUALIFICATION. Momentum is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has the requisite power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted, and is duly qualified to do business and in good
standing in each jurisdiction in which the properties owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
necessary, except where the failure to so qualify or be in good standing, or
have such authority, would not have a Material Adverse Effect on Momentum.
True and complete copies of the Certificate of Incorporation and Bylaws of
Momentum as in effect on the date hereof, including all amendments thereto,
have heretofore been delivered to Phillips. Momentum does not have any
subsidiaries.
SECTION 4.2 CAPITALIZATION.
(a) The authorized capital stock of Momentum consists of 5,000,000
shares of Momentum Common Stock and 1,000,000 shares of preferred stock, par
value $1.00 per share (the "MOMENTUM PREFERRED STOCK"). As of May 24, 1994,
(i) 3,437,912 shares of Momentum Common Stock were issued and outstanding, all
of which are validly issued, fully paid and nonassessable and are not subject
to and were not issued in violation of any preemptive rights, (ii) 525,000
shares of Momentum Common Stock were reserved for issuance in connection with
Momentum's 1989 Long-Term Incentive Stock Plan (the "MOMENTUM STOCK PLAN"), and
(iii) options to acquire 240,099 shares of Momentum Common Stock held by
officers and other
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employees of Momentum had been granted and were outstanding (the "Momentum
Stock Options"). No shares of Momentum Preferred Stock are issued and
outstanding. There has been no material change in the information set forth in
the second sentence of this Section 4.2(a) between the close of business on May
24, 1994, and the date hereof. The Momentum Disclosure Schedule sets forth
true, accurate and complete lists of (A) each Momentum Stock Option which
presently is outstanding, with the name of optionholder, number of shares,
grant date, expiration date, exercise price and vesting schedule and (B) each
restricted stock award of Momentum Common Stock which has not yet fully vested,
with the name of the shareholder, number of shares and vesting schedule (the
"MOMENTUM RESTRICTED STOCK AWARDS"). All of the outstanding Momentum Stock
Options and Momentum Restricted Stock Awards issued to officers or directors
have been issued under plans, and in transactions, which satisfy the exemption
requirements of Rule 16b-3 under the Exchange Act, or its predecessor
provisions.
(b) Except for this Agreement, the Merger Agreement and the
Momentum Stock Options, there are not now, and at the Effective Time there will
not be, any options, warrants, calls, rights, subscriptions, convertible
securities or other rights or agreements, arrangements or commitments of any
kind obligating Momentum to issue, transfer or sell any securities of Momentum.
All shares of Momentum Common Stock 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. There are no outstanding contractual or other obligations
of Momentum to purchase, redeem or otherwise acquire any shares of Momentum
Common Stock. There is not now, and at the Effective Time there will not be,
any stockholder agreement, voting trust or other agreement or understanding to
which Momentum is a party or bound relating to the voting of any shares of the
capital stock of Momentum.
SECTION 4.3 AUTHORITY. Momentum has all requisite corporate
power and authority to execute and deliver this Agreement and the Merger
Agreement and, subject to approval of this Agreement and the Merger Agreement
by the shareholders of Momentum, to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement and the
Merger Agreement and the consummation by Momentum of the transactions
contemplated hereby and thereby, have been duly authorized by Momentum's board
of directors and no other corporate proceedings on the part of Momentum are
necessary to authorize the execution and delivery of this Agreement and the
consummation by Momentum of the transactions contemplated hereby and thereby,
except for the approval of this Agreement and the Merger Agreement by the
shareholders of Momentum. This Agreement has been, and as of the Effective
Time, the Merger Agreement will be, duly and validly executed and delivered by
Momentum and, assuming the due authorization, execution and delivery hereof and
thereof by Phillips, constitute or will constitute, as the case may be, valid
and binding agreements of Momentum, enforceable against Momentum in accordance
with their terms, except that such enforceability may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally and
(ii) by general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law).
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SECTION 4.4 CONSENTS AND APPROVALS; NO VIOLATION. None of the
execution and delivery by Momentum of this Agreement or the Merger Agreement,
the consummation by Momentum of the transactions contemplated hereby and
thereby or compliance by Momentum with any of the provisions hereof will (i)
conflict with or result in a breach of any provision of the charter or bylaw
(or similar governing documents) of Momentum, (ii) require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except (A) pursuant to the Exchange Act, the Securities
Act, certain state takeover, securities and antitrust statutes and the HSR Act
and (B) for filing the Merger Documents with respect to the Merger pursuant to
the DGCL, (iii) result in a default (or an event which with notice or lapse of
time or both would become a default) or give to any third party any right of
termination, cancellation, amendment or acceleration under, or result in the
creation of a lien or encumbrance on any of the assets of Momentum pursuant to
any note, license, agreement or other instrument or obligation to which
Momentum is a party or by which Momentum or any of its assets may be bound or
affected, or (iv) violate or conflict with any order, writ, injunction, decree,
statute, rule or regulation applicable to Momentum or any of its properties or
assets; other than such defaults, rights of termination, cancellation,
amendment or acceleration, liens and encumbrances, violations, conflicts
consents, approvals, authorizations, permits or filings which, in the
aggregate, would not have a Material Adverse Effect on Momentum and would not
materially impair Momentum's ability to consummate the transactions
contemplated by this Agreement and the Merger Agreement.
SECTION 4.5 SEC REPORTS AND FINANCIAL STATEMENTS. Each form,
report, schedule, registration statement and definitive proxy statement filed
by Momentum with the SEC since October 26, 1989 (as such documents have since
the time of their filing been amended, the "MOMENTUM SEC REPORTS"), which
include all the documents (other than preliminary material) that Momentum was
required to file with the SEC since such date, as of their respective dates,
complied in all material respects with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such Momentum SEC Reports. None of the Momentum
SEC Reports contained any untrue statement of a material fact or omitted 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 for such statements, if any, as have been modified by
subsequent filings prior to the date hereof. The financial statements of
Momentum included in such reports comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, 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 thereto
or, in the case of the unaudited statements, as permitted by Form 10-Q of the
SEC) and fairly present (subject in the case of the unaudited statements, to
normal, recurring audit adjustments) the consolidated financial position of
Momentum and its Subsidiaries as at the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended. Since
December 31, 1993, Momentum has not incurred any liabilities or obligations,
whether absolute, accrued, fixed, contingent, liquidated, unliquidated or
otherwise and whether due or to become due, except (i) as and to the extent set
forth on the audited consolidated financial statements of Momentum and its
Subsidiaries as at December 31, 1993 (including the notes thereto) (the
"MOMENTUM FINANCIAL STATEMENTS"), (ii) as incurred in
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connection with the transactions contemplated, or as provided, by this
Agreement, (iii) as incurred after December 31, 1993 in the ordinary course of
business and consistent with past practices, (iv) as described in the Momentum
SEC Reports or (v) as would not, individually or in the aggregate, have a
Material Adverse Effect on Momentum.
SECTION 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
disclosed in the Momentum SEC Reports filed prior to the date of this
Agreement, since December 31, 1993, Momentum has conducted its businesses only
in the ordinary course, consistent with past practice, and there has not
occurred or arisen any event, individually or in the aggregate, having or
which, insofar as reasonably can be foreseen, in the future is likely to have,
a Material Adverse Effect on Momentum.
SECTION 4.7 LITIGATION. As of the date of this Agreement, except
as disclosed in the Momentum SEC Reports filed prior to the date of this
Agreement, there is no claim, suit, action or proceeding pending, or, to the
best Knowledge of Momentum, threatened against or affecting Momentum, or to the
best Knowledge of Momentum, its former Subsidiaries, which is reasonably likely
to have a Material Adverse Effect on Momentum, nor is there any judgment,
decree, order, injunction, writ or rule of any court, governmental department,
commission, agency, instrumentality or authority or any arbitrator outstanding
against Momentum or, to the best Knowledge of Momentum, its former Subsidiaries
having, or which, insofar as reasonably can be foreseen, in the future is
likely to have, any such effect. There are no suits, actions, claims,
proceedings or investigations pending or, to the best of Momentum's Knowledge,
threatened which challenge the validity or propriety of the transactions
contemplated by this Agreement.
SECTION 4.8 INFORMATION SUPPLIED. The information supplied or to
be supplied by Momentum for inclusion in (i) the Form S-4 will not, either at
the time the Form S-4 is filed with the SEC or at the time it becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or (ii) the Proxy Statement,
including any amendments and supplements thereto, will not, either at the date
mailed to shareholders or at the time of the meeting of shareholders of
Momentum to be held in connection with the transactions contemplated by this
Agreement and the Merger Agreement, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Proxy Statement
and the Form S-4 will each comply as to form in all material respects with all
applicable laws, including the provisions of the Securities Act and the
Exchange Act and the rules and regulations promulgated thereunder, except that
no representation is made by Momentum with respect to information supplied by
Phillips for inclusion therein.
SECTION 4.9 EMPLOYEE MATTERS. Momentum has delivered or made
available to Phillips full and complete copies or descriptions of each material
employment, bonus, profit sharing, compensation, termination, stock option,
stock appreciation right, restricted stock, phantom stock, performance unit,
pension, retirement, deferred compensation, welfare or other employee benefit
agreement, trust fund or other arrangement and any union, guild or collective
bargaining agreement maintained or contributed to or required to be contributed
to by Momentum
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or any of its ERISA Affiliates, for the benefit or welfare of any director,
officer, employee or former employee of Momentum or any of its ERISA Affiliates
(such plans and arrangements being referred to herein as the "MOMENTUM PLANS").
Each of the Momentum Plans is in material compliance with all applicable laws
including ERISA and the Code. With respect to each Momentum Plan which the
Internal Revenue Service has determined to be a qualified plan under section
401(a) of the Code Momentum is aware of no event occurring after the date of
such determination that would adversely affect such determination. With
respect to each Momentum Plan that is intended to be a qualified plan under
Section 401(a) of the Code, but for which Momentum has not submitted an
application for a determination letter to, or received a determination letter
from, the Internal Revenue Service, Momentum is aware of no reason why the
Internal Revenue Service would not issue a determination letter that the
Momentum Plan is so qualified. The liabilities accrued under each such plan
are accurately reflected in the Momentum Financial Statements. No condition
exists that is reasonably likely to subject Momentum to any direct or indirect
material liability under Title IV of ERISA or to a civil penalty under section
502 of ERISA or liability under section 4069 of ERISA or 4975, 4976, 4980B or
6652 of the Code or the loss of a Federal tax deduction under section 280G of
the Code or other liability with respect to the Momentum Plans or any similar
plans maintained with respect to VWR or Momentum's Subsidiaries, that would
have a Material Adverse Effect on Momentum and that is not reflected in the
Momentum Financial Statements. No Momentum Plan is subject to Title IV of
ERISA except the Momentum Retirement Plan. There are no pending, threatened,
or anticipated claims (other than routine claims for benefits) by, on behalf of
or against any of the Momentum Plans or any trusts related thereto.
SECTION 4.10 AFFILIATE AGREEMENTS. Except as disclosed in the
Momentum SEC Reports filed prior to the date of this Agreement and except for
this Agreement, Momentum is not a party to any oral or written agreement with
any of its Affiliates, VWR or Univar.
SECTION 4.11 ENVIRONMENTAL. Except as otherwise disclosed in
writing to Phillips and to the best of Momentum's Knowledge: (i) the
businesses as presently or formerly engaged in by Momentum and its Subsidiaries
are and have been conducted in material compliance with all then-applicable
Environmental Laws, including, without limitation, having all material permits,
licenses and other approvals and authorizations, during the time Momentum or
any Subsidiary of Momentum engaged in such businesses; (ii) the properties
presently or formerly owned or operated by Momentum or any Subsidiary of
Momentum (including, without limitation, soil, groundwater or surface water on,
under or adjacent to the properties, and buildings thereon) ("MOMENTUM
PROPERTIES") do not contain any Contamination other than as permitted under
applicable Environmental Law (provided, however, that with respect to Momentum
Properties formerly owned or operated by Momentum or any Subsidiary of
Momentum, such representation is limited to the period Momentum or any
Subsidiary of Momentum owned or operated such Momentum Properties); (iii)
neither Momentum nor any Subsidiary of Momentum has received any notices,
demand letters or request for information from any Governmental Entity or any
Third Party indicating that Momentum or any Subsidiary of Momentum may be in
violation of, or liable under, any Environmental Law in connection with the
ownership or operation of Momentum's or its Subsidiaries' businesses; (iv)
there are no civil, criminal or administrative actions, suits,
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demands, claims, hearings, investigations or proceedings pending or threatened
against Momentum or any Subsidiary of Momentum with respect to Momentum or any
Subsidiary of Momentum or the Momentum Properties relating to any violation, or
alleged violation, of any Environmental Law; (v) no reports have been filed, or
are required to be filed, by Momentum or any Subsidiary of Momentum concerning
the release of any Hazardous Material or the threatened or actual violation of
any Environmental Law on or at Momentum Properties; (vi) no Hazardous Material
has been generated at, transferred or transported to or from, disposed at or
removed for disposal from, or otherwise released at or from any of the Momentum
Properties in a manner which caused Contamination other than in compliance with
Environmental Law; (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analyses conducted by or which are in
the possession of Momentum or any Subsidiary of Momentum relating to Momentum
or any Subsidiary of Momentum or the Momentum Properties which have not been
delivered to Phillips prior to the date hereof; (viii) there are no underground
storage tanks on, in or under any of the Momentum Properties and no underground
storage tanks have been closed or removed from any Momentum Properties which
are or have been in the ownership of Momentum or any Subsidiary of Momentum
(provided, however, that with respect to Momentum Properties formerly owned or
operated by Momentum or any Subsidiary of Momentum, the representations in this
subsection (viii) are limited to the period Momentum or any Subsidiary of
Momentum owned or operated such Momentum Properties); (ix) there is no friable
asbestos-containing material on the Momentum Property presently owned or
operated by Momentum or any subsidiary of Momentum which would require, under
ordinary occupancy (non-construction) conditions, a response action pursuant to
the Occupational Safety & Health Act ("OSHA"), or applicable state and local
counterparts to OSHA, and no such material has been removed from any Momentum
Property while such Momentum Property was owned or operated by Momentum or any
Subsidiary of Momentum; (x) none of the Momentum Properties has been used at
any time by Momentum or any Subsidiary of Momentum as a treatment, storage or
disposal facility under RCRA; and (xi) neither Momentum nor any Subsidiary of
Momentum has incurred, and none of the Momentum Properties are presently
subject to, any material liabilities (fixed or contingent) relating to any
suit, settlement, court order, administrative order, judgment or claim asserted
or arising under any Environmental Law.
SECTION 4.12 NO VIOLATIONS. To the best of Momentum's Knowledge,
the business of Momentum is not being conducted, and the business of Momentum's
former Subsidiaries have not been conducted, in violation of, or in a manner
which could cause liability under any applicable law, rule or regulation,
judgment, decree or order of any Governmental Entity, except for any violations
or practices, which, individually or in the aggregate, have not had and will
not have a Material Adverse Effect on Momentum.
SECTION 4.13 OPINION OF FINANCIAL ADVISOR. Momentum has received
the opinion of Piper Jaffray to the effect that, as of May 23, 1994, the
consideration to be received in the Merger by the holders of shares of Momentum
Common Stock is fair to such holders from a financial point of view.
SECTION 4.14 BROKERS AND FINDERS. Neither Momentum nor any of its
directors, officers or employees has employed any broker or finder or incurred
any liability for any financial
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advisory fees, brokerage fees, commissions or similar payments in connection
with the transactions contemplated by this Agreement or the Merger Agreement
other than Piper Jaffray and a consulting fee payable to James H. Wiborg.
SECTION 4.15 TAXES. Momentum and each of its SUBSIDIARIES has
timely filed (or caused to be filed) all federal, state, local and foreign tax
returns, reports and information statements required to be filed by them, and
to the best of Momentum's Knowledge, all such returns, reports and statements
are true, correct and complete in all material respects. All taxes required to
be paid as shown on such returns, reports and other statements have been timely
paid. All taxes required to be paid in respect of the Return Periods, to the
best of Momentum's Knowledge, have either been paid or fully accrued on the
books of Momentum. Momentum and each of its SUBSIDIARIES has fully accrued all
unpaid taxes in respect of all periods (or the portion of any such periods)
subsequent to the Return Periods and ending on or prior to the Effective Time.
No deficiencies or adjustments for any tax have been claimed, proposed or
assessed, or to the best of Momentum's Knowledge, threatened against Momentum
or its Subsidiaries. The Momentum Disclosure Schedule accurately sets forth
the last year for which Momentum or its Subsidiaries' federal and state income
tax returns, respectively, have been audited and any years which are the
subject of a pending audit by the Internal Revenue Service and the applicable
state agencies. Except as so disclosed, neither Momentum nor any of its
Subsidiaries is subject to any pending or, to the best of Momentum's Knowledge,
threatened tax audit or examination. The Momentum SEC Reports contain
adequate accruals for all unpaid taxes. Momentum has provided to Phillips or
its designated representatives true and correct copies of all tax returns,
information statements, reports, and other tax data reasonably requested by
Phillips.
SECTION 4.16 DISCLOSURE. No representation or warranty of
Momentum contained in this Agreement or the Merger Agreement and no statement
contained in any certificate or the Momentum Disclosure Schedule furnished or
to be furnished by or on behalf of Momentum to Phillips or any of its
representatives pursuant thereto contains or will contain any untrue statement
of a material fact, or omits or will omit to state any material fact necessary,
in light of the circumstances under which it was or will be made, in order to
make the statements herein or therein not misleading or necessary in order to
fully and fairly provide the information required to be provided in any such
document, certificate or schedule.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.1 CONDUCT OF BUSINESS OF PHILLIPS PENDING THE EFFECTIVE
TIME. Except as expressly permitted or contemplated by this Agreement
(including exceptions set forth in the Phillips Disclosure Schedule) or the
Merger Agreement or as shall be consented to in writing by Momentum (which
consent shall not be unreasonably withheld), until the Effective Time, Phillips
shall, and shall cause each of its Subsidiaries to, conduct its operations in
the ordinary and usual course of business consistent with past practice and use
all reasonable efforts (in the ordinary course of business consistent with past
practice) to preserve intact their respective business organizations' goodwill,
keep available the services of their respective present officers and key
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employees, and preserve the goodwill and business relationships with suppliers,
distributors, customers and others having business relationships with them.
Without limiting the generality of the foregoing, and except as otherwise
permitted by this Agreement, prior to the Effective Time, without the written
consent of Momentum, which consent shall not be unreasonably withheld, Phillips
will not, and will cause each of its Subsidiaries not to:
(a) amend or propose to amend their respective charters or bylaws
(other than as contemplated by this Agreement); or split, combine or reclassify
their outstanding capital stock or declare, set aside or pay any dividend or
distribution in respect of any capital stock (other than a regular quarterly
dividend at a rate not greater than the quarterly cash dividend paid as of
March 31, 1994, or the payment to Phillips or any of its Subsidiaries of any
dividend or distribution) or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock;
(b) (i) issue or authorize or propose the issuance of, sell,
pledge or dispose of, or agree to issue or authorize or propose the issuance
of, sell, pledge or dispose of, any additional shares of, or any options,
warrants or rights of any kind to acquire any shares of, their capital stock of
any class or any debt or equity securities convertible into or exchangeable for
such capital stock, other than any such issuance pursuant to options, or rights
outstanding as of the date hereof in accordance with their terms; (ii) acquire
or agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial portion of the assets of, or by
any other manner, any business or any corporation, partnership, association or
other business organization division thereof or otherwise acquire or agree to
acquire any assets in each case which are material, individually or in the
aggregate, to Phillips and its Subsidiaries taken as a whole; (iii) sell
(including by sale-leaseback), lease, pledge, dispose of or encumber any assets
or interests therein, which are material, individually or in the aggregate, to
Phillips and its Subsidiaries taken as a whole, other than in the ordinary
course of business and consistent with past practice; (iv) incur or become
contingently liable with respect to any material indebtedness for borrowed
money or guarantee any such indebtedness or issue any debt securities or
otherwise incur any material obligation or liability (absolute or contingent)
other than short-term indebtedness in the ordinary course of business and
consistent with past practice; (v) redeem, purchase, acquire or offer to
purchase or acquire any shares of its capital stock or its long-term debt,
other than as required by the governing instruments relating thereto; or (vi)
enter into any contract, agreement, commitment or arrangement with respect to
any of the foregoing;
(c) enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other arrangements, or
modify levels of compensation or benefits for, agreements with any directors,
officers or key employees;
(d) adopt, enter into or amend any, or become obligated under any
new, bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation, health care, employment or other employee benefit plan,
agreement, trust, fund or arrangement for the benefit or welfare of any
employee or retiree, except as required to comply with changes in applicable
law occurring after the date hereof and except, with respect to all plans other
than bonus plans, in the ordinary course of business and consistent with past
practice; or
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(e) take any action that would, or is reasonably likely to, result
in any of its representations and warranties set forth in this Agreement
becoming untrue, or in any of the conditions to the Merger set forth in Article
VII not being satisfied.
SECTION 5.2 CONDUCT OF BUSINESS OF MOMENTUM PENDING THE EFFECTIVE
TIME. Except as expressly permitted or contemplated by this Agreement
(including exceptions set forth in the Momentum Disclosure Schedule) or the
Merger Agreement or as shall be consented to in writing by Phillips (which
consent shall not be unreasonably withheld), until the Effective Time, Momentum
shall conduct its operations in the ordinary and usual course of business
consistent with past practice and use all reasonable efforts (in the ordinary
course of business consistent with past practice) to preserve intact its
business organizations' goodwill, keep available the services of its present
officers and key employees, and preserve the goodwill and business
relationships with suppliers, distributors, customers and others having
business relationships with them. Without limiting the generality of the
foregoing, and except as otherwise permitted by this Agreement, prior to the
Effective Time, without the consent of Phillips, which consent shall not be
unreasonably withheld, Momentum will not:
(a) amend or propose to amend its charter or bylaw (other than as
contemplated by this Agreement); or split, combine or reclassify its
outstanding capital stock or declare, set aside or pay any dividend or
distribution in respect of any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock;
(b) (i) issue or authorize or propose the issuance of, sell,
pledge or dispose of or agree to issue or authorize or propose the issuance of,
sell, pledge or dispose of, any additional shares of, or any options, warrants
or rights of any kind to acquire any shares of, their capital stock of any
class or any debt or equity securities convertible into or exchangeable for
such capital stock, other than any such issuance pursuant to options or rights
outstanding as of the date hereof in accordance with their terms or removal of
restrictions on restricted stock awards granted to directors of Momentum who
are not elected as directors of Newco; (ii) acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity interest
in or a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to acquire any
assets in each case which are material, individually or in the aggregate, to
Momentum; (iii) sell (including by sale-leaseback), lease, pledge, dispose of
or encumber any assets or interests therein, which are material, individually
or in the aggregate, to such party, other than in the ordinary course of
business and consistent with past practice; (iv) incur or become contingently
liable with respect to any material indebtedness for borrowed money or
guarantee any such indebtedness or issue any debt securities or otherwise incur
any material obligation or liability (absolute or contingent) other than
short-term indebtedness in the ordinary course of business and consistent with
past practice; (v) redeem, purchase, acquire or offer to purchase or acquire
any shares of its capital stock or its long-term debt, other than as required
by the governing instruments relating thereto; or (vi) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing;
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(c) enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other arrangements,
agreements with, or modify levels of compensation or benefits for, any
directors, officers or key employees;
(d) adopt, enter into or amend any, or become obligated under any
new, bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation, health care, employment or other employee benefit plan,
agreement, trust, fund or arrangement for the benefit or welfare of any
employee or retiree, except as required to comply with changes in applicable
law occurring after the date hereof and except, with respect to all plans other
than bonus plans, in the ordinary course of business and consistent with past
practice; or
(e) take any action that would, or is reasonably likely to, result
in any of its representations and warranties set forth in this Agreement
becoming untrue, or in any of the conditions to the Merger set forth in Article
VII not being satisfied.
SECTION 5.3 COOPERATION. Subject to compliance with applicable
law, from the date hereof until the Effective Time, each of Phillips and
Momentum shall confer on a regular and frequent basis with one or more
representatives of the other party to report operational matters of materiality
and the general status of ongoing operations and shall promptly provide the
other party or its counsel with copies of all filings made by such party with
any Governmental Entity in connection with this Agreement, the Merger Agreement
and the transactions contemplated hereby and thereby.
ARTICLE VI
ADDITIONAL COVENANTS AND AGREEMENTS
SECTION 6.1 NO SOLICITATION.
(a) Without the prior written consent of Momentum, Phillips and
its Subsidiaries will not, and will use their best efforts to cause their
respective officers, directors, employees and agents not to, initiate or
solicit, directly or indirectly, any inquiries or the making of any proposal
with respect to or, except to the extent required by the directors in the
discharge of their fiduciary duties, engage in negotiations concerning, provide
any confidential information or data to or have any discussions with, any Third
Party, other than Momentum or any Affiliate of Momentum, relating to, any
acquisition, business combination or purchase of all or any significant portion
of the assets of, or any equity interest in, Phillips or any of its
Subsidiaries. Phillips shall immediately notify Momentum if any such
negotiations, or providing of confidential information or data or discussions
are entered into or made or any such inquiries are received in respect thereof,
and shall provide details with respect thereto.
(b) Without the prior written consent of Phillips, Momentum will
not, and will use its best efforts to cause its officers, directors, employees
and agents not to, initiate or solicit, directly or indirectly, any inquiries
or the making of any proposal with respect to or, except to the extent required
by the directors in the discharge of their fiduciary duties, engage in
negotiations
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concerning, provide any confidential information or data to, or have any
discussions with, any Third Party, other than Phillips or any Affiliate of
Phillips relating to, any acquisition, business combination or purchase of all
or any significant portion of the assets of, or any equity interest in,
Momentum. Momentum shall immediately notify Phillips if any such negotiations,
or providing of confidential information or data or discussions are entered
into or made or any such inquiries are received in respect thereof, and shall
provide details with respect thereto.
SECTION 6.2 ACCESS TO INFORMATION. Subject to compliance with
applicable law, upon reasonable notice Momentum and Phillips shall each (and
shall cause each of their respective Subsidiaries to) afford to the other and
the officers, employees, accountants, counsel, financial advisors and other
representatives of the other, access during normal business hours throughout
the period prior to the Effective Time to all of its key employees, properties,
books, contracts, commitments and records and, during such period, each of
Momentum and Phillips shall (and shall cause each of their respective
Subsidiaries to) furnish promptly to the other (a) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of Federal securities laws, and
(b) all other information concerning its businesses, properties and personnel
as such other party may reasonably request. Unless otherwise required by law,
the parties will hold any such information which is nonpublic in confidence
until such time as such information otherwise becomes publicly available
through no wrongful act of either party and in the event of termination of this
Agreement for any reason, each party shall promptly return all nonpublic
documents obtained from any other party, and any copies made of such documents,
to such other party. In addition, in the event of such termination, all
documents, memoranda, notes and other writing whatsoever prepared by each party
based on the information in such material shall be destroyed (and each party
shall use its best efforts to cause its advisors and their representatives to
similarly destroy their respective documents, memoranda and notes), and such
destruction (and best efforts) shall be certified in writing to the other party
by an authorized officer supervising such destruction.
SECTION 6.3 REGISTRATION STATEMENT AND PROXY STATEMENT. As soon
as is reasonably practicable after the date hereof, Momentum and Phillips shall
prepare and file the Proxy Statement with the SEC and Phillips shall promptly
prepare and file with the SEC the Form S-4 in which the Proxy Statement will be
included. Each of Momentum and Phillips shall use its best efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing. Momentum and Phillips shall take any action
required to be taken under applicable state securities and blue sky laws in
connection with the issuance of shares of Newco Common Stock in the Merger and
as contemplated by this Agreement. Momentum and Phillips shall promptly
furnish to each other all information, and take such other actions, as may
reasonably be requested in connection with any action by any of them in
connection with this Section 6.3.
SECTION 6.4 SHAREHOLDER APPROVAL. Each of Momentum and Phillips
shall call a meeting of its shareholders to be held as promptly as practicable
for the purpose of voting upon this Agreement and the Merger Agreement.
Subject to the exercise of their respective fiduciary obligations, the
respective boards of directors of Phillips and Momentum shall recommend to
their respective shareholders approval of such matters. Phillips and Momentum
shall coordinate and
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cooperate with respect to the timing of such meetings and shall use their best
efforts to hold such meetings on the same day and to take all additional
actions as necessary to adopt and approve this Agreement, the Merger Agreement
and the transactions contemplated hereby and thereby.
SECTION 6.5 AFFILIATES. Momentum shall use its best efforts to
cause each person who may be deemed to be an "AFFILIATE," for purposes of Rule
145 under the Securities Act, of Momentum to deliver to Momentum on or prior to
the Effective Time a written agreement to the effect that such person will not
offer to sell, sell or otherwise dispose of any shares of Newco Common Stock,
issued in the Merger, except, in each case, pursuant to an effective
registration statement or in compliance with Rule 145, as amended from time to
time, or in a transaction which, in the opinion of legal counsel satisfactory
to Newco, is exempt from the registration requirements of the Securities Act.
SECTION 6.6 AGREEMENT TO COOPERATE; FURTHER ASSURANCES. Subject
to the terms and 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 do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement and the Merger Agreement, subject to the
appropriate vote of shareholders of Phillips and Momentum described in Section
7.1(a) hereof, including providing information and using reasonable efforts to
obtain all necessary or appropriate waivers, consents and approvals, and
effecting all necessary registrations and filings (including filings under the
HSR Act); provided, that nothing herein shall require Momentum or Phillips to
hold, manage or operate any assets separately in order to obtain any such
consent or approval or to enter into any sale or divestiture of assets. In
case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement or the Merger Agreement,
the proper officers and directors of each party to this Agreement shall take
all necessary actions to the extent not inconsistent with their other duties
and obligations or applicable law.
SECTION 6.7 STOCK OPTIONS AND RESTRICTED STOCK.
(a) To the extent that acceleration of the exercisability of any
Momentum Stock Option, or the removal of any or all restrictions on any
outstanding Momentum Restricted Stock Award, is permitted but not required by
the applicable governing instrument, then Momentum shall take all necessary
action or refrain from taking action, so as to cause such acceleration or
removal not to occur, provided Momentum may remove restrictions on restricted
stock awards granted to its directors who are not elected or appointed as
directors of Newco. In connection therewith, at the Effective Time, to the
extent permitted by the terms of the relevant governing instruments, each
Momentum Stock Option, whether vested or unvested, and the rights and
obligations with respect to each Restricted Stock Award, shall be assumed by
Newco. Unless Momentum and Phillips shall otherwise agree, each such Momentum
Stock Option shall pursuant to the Merger Agreement be converted to an option
to acquire, on the same terms and conditions as were applicable under such
Momentum Stock Option, shares of Newco Common Stock subject to the following
adjustments which shall be made regardless of whether such option was intended
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to qualify as an incentive stock option under Section 422 of the Code and its
applicable regulations:
(i) Each Momentum Stock Option will be exercisable for a
number of whole shares of Newco Common Stock (the "AGGREGATE NUMBER") equal to:
(x) the number of shares of Momentum Common Stock remaining subject to the
Momentum Stock Option immediately prior to the Effective Time, and (y)
multiplied by the Exchange Ratio;
(ii) The exercise price per share for the number of Newco
Common Shares determined in clause (i) shall be a price per share equal to (x)
the aggregate exercise price for Momentum Common Stock otherwise purchasable
pursuant to such Momentum Stock Option divided by (y) the Aggregate Number.
(b) After the Effective Time, Newco shall issue to each holder of
an outstanding Momentum Stock Option a document evidencing the foregoing
assumptions of said option by Newco or conversions to Newco options.
(c) As soon as practicable after the Effective Time, Newco shall
file a registration statement on Form S-8, (or any successor or other
appropriate forms) with respect to the shares of Newco Common Stock subject to
such options and shall use its best efforts to maintain the effectiveness of
such registration statement or registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such options remain outstanding.
(d) After the Effective Time, Newco shall issue to each holder of
Momentum Common Stock issued pursuant to a Momentum Restricted Stock Award a
document acknowledging the conversion of such shares to Newco Common Shares and
restating the applicable terms and conditions of such award. Momentum shall
cause the certificates representing such shares to be submitted to the Exchange
Agent (as defined in the Merger Agreement) for conversion into Newco Common
Shares which shall be held by Newco in accordance with the terms and conditions
of each respective award.
(e) Newco shall administer the Momentum Stock Plan pursuant to
which the Momentum Stock Options and Momentum Restricted Stock Awards were
granted in a manner that complies with Rule 16b-3 promulgated under the
Exchange Act to the extent the Momentum Stock Plan complied with such rule
prior to the Merger.
SECTION 6.8 PUBLIC STATEMENTS. The parties shall consult with
each other prior to issuing any public announcement or statement with respect
to this Agreement, the Merger Agreement, or the transactions contemplated
hereby or thereby and shall not issue any such public announcement or statement
prior to such consultation, except as may be required by law or by the rules of
the National Association of Securities Dealers, Inc.
SECTION 6.9 LETTER OF PHILLIPS'S ACCOUNTANTS. Phillips shall use
its best efforts to cause to be delivered to Momentum a letter of Coopers &
Lybrand, dated a date within two
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business days before the date on which the Form S-4 shall become effective and
addressed to Momentum, in form and substance reasonably satisfactory to
Momentum and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
SECTION 6.10 LETTER OF MOMENTUM'S ACCOUNTANTS. Momentum shall use
its best efforts to cause to be delivered to Phillips a letter of Ernst &
Young, dated a date within two business days before the date on which the Form
S-4 shall become effective and addressed to Phillips, in form and substance
reasonably satisfactory to Phillips and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
SECTION 6.11 EXPENSES. Subject to Section 8.5 hereof, all costs
and expenses incurred in connection with this Agreement, the Merger Agreement
and the transactions contemplated hereby and thereby shall be paid by the party
incurring such expenses, except that those expenses incurred in connection with
printing and mailing the Proxy Statement and the Form S-4, as well as the
filing fee relating thereto, shall be shared equally by Momentum, on the one
hand, and Phillips, on the other hand.
SECTION 6.12 OPINIONS OF FINANCIAL ADVISORS. Each of Phillips and
Momentum shall use its best efforts to cause Berwind and Piper Jaffray,
respectively, to provide its opinion, as of a date no earlier than three
business days prior to the date that the Proxy Statement is mailed to
shareholders of Phillips and Momentum, as to the fairness of the consideration
to be received by the shareholders of Phillips and Momentum, respectively, from
a financial point of view, as contemplated by this Agreement, and shall include
such updated opinions in the Proxy Statement.
SECTION 6.13 EMPLOYEE BENEFITS. Phillips and Momentum expressly
intend to continue immediately after the Effective Time to make available to
employees of Momentum as of the Effective Time (regardless of the division or
other corporate unit in which they may be employed after the Effective Time)
employee benefits which are substantially similar to the benefits presently
available to Momentum employees provided, however, it is presently anticipated
that the Momentum Employee Stock Ownership Plan shall be terminated in
accordance with the procedures set forth in the Momentum Disclosure Schedule.
For all purposes with respect to Newco's employee benefits for which Momentum
employees are otherwise eligible, including, without limitation, determining
eligibility, vesting, the amount of benefits and benefit accrual, to the extent
prior service credit is taken into account for Phillips or Newco employees,
Momentum employees shall receive credit for their periods of service with
Momentum and its former affiliated corporations, and with any other companies
on the same basis that the Momentum employees have or will have received
service credit under Momentum's employee benefit plans and programs, including,
without limitation, service with (i) certain companies or businesses which were
predecessors to or acquired by Momentum, and (ii) VWR Corporation and its
subsidiaries prior to March 1, 1990, Univar Corporation, T.K. Gray, Inc., Cogan
& O'Brien Company, Inc., Dillard-Phillips Graphics, Inc., Roberts & Porter,
Inc., and Treck Photographic, Inc. If Newco establishes a plan or benefit
program for which Momentum does not have a comparable plan or benefit, to the
extent prior service is taken into account, service credit will be provided to
Momentum and Phillips employees on a comparable basis with prior service for
Momentum
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employees determined in accordance with the preceding sentence. In the
ordinary course of business after the Effective Time, Newco will evaluate its
employee benefits programs for all employees and shall have the right to make
such modifications in all such programs, including the elimination of any
particular benefits, as Newco believes reasonable. Nothing contained in this
agreement is intended, nor shall anything herein be construed, to confer any
legal rights upon, or third party beneficiary interest in, any employee of
Momentum, Phillips or any Subsidiary, or any other third party.
ARTICLE VII
CONDITIONS
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) This Agreement, the Merger Agreement and the transactions
contemplated hereby and thereby shall have been approved and adopted by the
affirmative vote of a majority of the outstanding shares of Momentum Common
Stock and Phillips Common Stock entitled to vote;
(b) The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated;
(c) The Form S-4 shall have become effective in accordance with
the provisions of the Securities Act, and no stop order suspending such
effectiveness shall have been issued and remain in effect;
(d) No temporary restraining order, preliminary or permanent
injunction or other order or decree by any court of competent jurisdiction
which prevents the consummation of the merger or imposes material conditions
with respect thereto shall have been issued and remain in effect (each party
agreeing to use its best efforts to have any such injunction, order or decree
lifted);
(e) No action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or Federal government or
governmental agency which would prevent the consummation of the Merger or
imposes material conditions with respect thereto;
(f) All governmental consents and approvals legally required for
the consummation of the Merger and the transactions contemplated hereby shall
have been obtained and be in effect at the Effective Time, including all state
securities or blue sky permits and other authorizations necessary to issue the
shares of Newco Common Stock pursuant to this Agreement and the Merger
Agreement and as contemplated by Section 6.7 hereof, except those for which
failure to obtain such consents and approvals would not, individually or in the
aggregate, have a Material Adverse Effect on Newco, or upon the consummation of
the transactions contemplated hereby;
(g) The shares of Newco Common Stock shall be approved for
quotation under a mutually acceptable ticker symbol on the Nasdaq National
Market of the National Association of Securities Dealers, Inc.; and
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(h) Momentum shall have received from each person specified in
Section 6.5 hereof the written agreement referred to in such Section 6.5;
SECTION 7.2 CONDITIONS TO OBLIGATION OF PHILLIPS TO EFFECT THE
MERGER. The obligation of Phillips to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Momentum shall have performed in all material respects its
agreements contained in this Agreement and the Merger Agreement and required to
be performed on or prior to the Effective Time and the representations and
warranties of Momentum contained in this Agreement and the Merger Agreement
shall be true and correct in all material respects on and as of the date of
this Agreement and on and as of the Effective Time as if made on and as of such
date, except as contemplated or permitted by this Agreement and the Merger
Agreement, and Phillips shall have received a certificate of the President of
Momentum to that effect;
(b) Momentum shall have obtained the consent or approval of each
person whose consent or approval shall be required in connection with the
transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument, except
those for which failure to obtain such consents and approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Momentum,
or upon the consummation of the transactions contemplated hereby;
(c) Phillips shall have received an opinion of Preston Gates &
Ellis in form and substance reasonably satisfactory to Phillips covering such
matters customary for transactions of the nature contemplated by this
Agreement;
(d) Phillips shall have received the letter of Ernst & Young
referred to in Section 6.10 hereof;
(e) Phillips shall have received an opinion from Stradley, Ronon,
Stevens & Young substantially to the effect that the Merger shall be a tax-free
transaction for Phillips, and shall not have any Material Adverse Effect on the
tax consequences to the Phillips shareholders of the 1993 distribution of
Phillips Common Stock by TBC; and
(f) Phillips shall have completed its due diligence to its
reasonable satisfaction not later than June 30, 1994.
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF MOMENTUM TO EFFECT THE
MERGER. The obligations of Momentum to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the additional following
conditions:
(a) Phillips shall have performed in all material respects its
agreements contained in this Agreement, the Merger Agreement and required to be
performed on or prior to the Effective Time and the representations and
warranties of Phillips contained in this Agreement, the Merger Agreement and
shall be true and correct in all material respects on and as of the date of
this
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Agreement and on and as of the Effective Time as if made on and as of such
date, except as contemplated by this Agreement and the Merger Agreement and
Momentum shall have received a certificate of the President of Phillips to that
effect;
(b) Phillips shall have obtained the consent or approval of each
person whose consent or approval shall be required in connection with the
transaction contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument, except
those for which failure to obtain such consents and approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Phillips,
or upon the consummation of the transactions contemplated hereby;
(c) Momentum shall have received an opinion of Stradley, Ronon,
Stevens & Young, in form and substance reasonably satisfactory to Momentum
covering such matters customary for transactions of the nature contemplated by
this Agreement;
(d) Momentum shall have received the letter of Coopers & Lybrand
referred to in Section 6.9 hereof;
(e) Momentum shall have received an opinion from Preston Gates &
Ellis substantially to the effect that the Merger shall be a tax-free
transaction for Momentum and the shareholders of Momentum who receive Newco
Common Stock in the Merger;
(f) The Amended and Restated Articles of Incorporation for Newco
shall have been pre-approved for filing by the Department of State for the
Commonwealth of Pennsylvania; and
(g) Momentum shall have completed its due diligence to its
reasonable satisfaction not later than June 30, 1994.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 TERMINATION. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval by the
shareholders of Momentum or Phillips:
(a) by the mutual written consent of Momentum and Phillips;
(b) by either Momentum or Phillips if (i) the Merger shall not
have been consummated on or before December 31, 1994 (the "TERMINATION DATE");
(ii) any Governmental Entity, the consent of which is a condition to the
obligations of Momentum and Phillips to consummate the transactions
contemplated hereby or by the Merger Agreement, shall have determined not to
grant its consent and all appeals of such determination shall have been taken
and have been unsuccessful, (iii) any court of competent jurisdiction in the
United States or any State shall have issued an order, judgment or decree
(other than a temporary restraining order) restraining, enjoining or otherwise
prohibiting the Merger and such order, judgment or decree shall have become
final and nonappealable, or (iv) either party gives written notice to the other
on or before
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June 30, 1994, that the notifying party has elected in good faith to terminate
this Agreement because its due diligence has not been completed to its
reasonable satisfaction;
(c) by Phillips if (i) there has been a material breach by
Momentum of any representation, warranty, covenant or agreement set forth in
this Agreement or the Merger Agreement, which breach has not been cured within
ten business days following receipt by the breaching party of notice of such
breach; (ii) the Board of Directors of Momentum should fail to recommend to its
shareholders approval of the transactions contemplated by this Agreement and
the Merger Agreement or such recommendation shall have been made and
subsequently withdrawn, or (iii) following the execution of this Agreement,
Momentum shall have engaged in negotiations concerning, provided any
confidential information or data to, or had any discussions with, any Third
Party other than Phillips or any of its Affiliates relating to, any
acquisition, business combination or purchase of all or any significant portion
of the assets of, or equity interest in, Momentum or any of its Subsidiaries.
(d) by Momentum if (i) there has been a material breach by
Phillips of any representation, warranty, covenant or agreement set forth in
this Agreement or the Merger Agreement which breach has not been cured within
ten business days following receipt by the breaching party of notice of such
breach; (ii) the Board of Directors of Phillips should fail to recommend to its
shareholders approval of the transactions contemplated by this Agreement and
the Merger Agreement or such recommendation shall have been made and
subsequently withdrawn, or (iii) following the execution of this Agreement,
Phillips shall have engaged in negotiations concerning, provided any
confidential information or data to, or had any discussions with, any Third
Party other than Momentum or any of its Affiliates relating to, any
acquisition, business combination or purchase of all or any significant portion
of the assets of, or equity interest in, Phillips or any of its Subsidiaries;
provided, that the right to terminate this Agreement (i) under Section
8.1(b)(i) hereof shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date and (ii) under
Section 8.l(c) and (d) hereof shall not be available to any party who at such
time is in material breach of any representation, warranty, covenant or
agreement set forth in this Agreement or the Merger Agreement.
SECTION 8.2 EFFECT OF TERMINATION. In the event of termination
of this Agreement by either Momentum or Phillips as provided in Section 8.1
hereof, this Agreement shall forthwith become void (except as set forth in this
Section 8.2 and in Sections 6.2, 6.11 and 8.5 hereof which shall survive the
termination) and there shall be no liability on the part of Momentum or
Phillips or their respective officers or directors except for any breach of any
of its obligations under this Section 8.2 and Sections 6.2, 6.11 and 8.5
hereof. Notwithstanding the foregoing, no party hereto shall be relieved from
liability for any willful, material breach of this Agreement.
SECTION 8.3 AMENDMENT. This Agreement and the Merger Agreement
may be amended by the parties hereto at any time before or after approval
hereof by the shareholders of Momentum or Phillips, provided that after any
such approval, no amendment shall be made which
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(a) changes the ratios at which shares are to be converted into shares of Newco
Common Stock pursuant to the Merger Agreement, (b) in any way materially
adversely affects the rights of holders of shares of Momentum Common Stock or
Phillips Common Stock or (c) changes any of the principal terms of this
Agreement or the Merger Agreement, in each case without the further approval of
such shareholders. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
SECTION 8.4 WAIVER. At any time prior to the Effective Time, the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) 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 if set forth in an
instrument in writing signed on behalf of such party.
SECTION 8.5 TERMINATION FEE.
(a) If this Agreement is terminated after June 30, 1994 pursuant
to any subsection of Section 8.1(c) hereof and if Momentum is not entitled to
terminate this Agreement by reason of Section 8.1(d) hereof, then, in addition
to any other rights or remedies that may be available, Momentum shall promptly
(and in any event within two days of receipt by Momentum of written notice from
Phillips) reimburse Phillips for all out-of-pocket expenses (including all fees
and expenses of its counsel, advisors, accountants and consultants) incurred by
Phillips or on its behalf in connection with the transactions contemplated by
this Agreement.
(b) If this Agreement is terminated after June 30, 1994 pursuant
to any subsection of Section 8.1(d) hereof and if Phillips is not entitled to
terminate this Agreement by reason of Section 8.1(c) hereof, then, in addition
to any other rights or remedies that may be available, Phillips shall promptly
(and in any event within two days of receipt by Phillips of written notice from
Momentum) reimburse Momentum for all out-of-pocket expenses (including all fees
and expenses of its counsel, advisors, accountants and consultants) incurred by
them or on their behalf in connection with the transactions contemplated by
this Agreement.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. None of the representations, warranties and agreements in this
Agreement shall survive the Effective Time.
SECTION 9.2 NOTICES. Any notices or other communications
required or permitted hereunder shall be in writing and shall be deemed duly
given upon (a) transmitter's confirmation of a receipt of a facsimile
transmission, (b) confirmed delivery by a standard overnight carrier or when
delivered by hand or (c) the expiration of five business days after the day
when mailed by
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certified or registered mail, postage prepaid, addressed at the following
addresses (or at such other address as the parties hereto shall specify by like
notice):
If to Momentum, to: Momentum Corporation
Koll Center Bellevue - Suite 1900
500 - 108th Ave. N.E.
Bellevue, WA 98004
Telecopy No.: (206) 646-6574
Attention: Barry C. Maulding, Esq.
Vice President Administration
and General Counsel
with a copy to: Preston Gates & Ellis
5000 Columbia Center
701 Fifth Avenue
Seattle, WA 98104
Telecopy No.: (206) 623-7022
Attention: Richard B. Dodd, Esq.
If to Phillips, to: Phillips & Jacobs, Incorporated
Suite 222 Fairway Corporate Center
4350 Haddonfield Road
Pennsauken, New Jersey 08109
Telecopy No. (609) 486-2998
Attention: James F. Mullan
Chief Executive Officer and
President
with a copy to: Stradley Ronon Stevens & Young
2600 One Commerce Square
Philadelphia, PA 19103-7098
Telecopy No.: (215) 564-8120
Attention: David E. Beavers, Esq.
SECTION 9.3 INTERPRETATION. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation."
SECTION 9.4 MISCELLANEOUS. This Agreement (including the
documents and instruments referred to herein) (a) together with the
Confidentiality Agreement dated January 6, 1994, and the Merger Agreement,
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof; (b) is not intended to confer upon any
other person any rights or remedies hereunder; (c) shall not be assigned by
operation of law or otherwise without the prior written consent of the other
parties hereto; and (d) shall be governed in all respects, including validity,
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interpretation and effect, by the laws of the State of Delaware (without giving
effect to the provisions thereof relating to conflicts of law). The parties
hereby acknowledge that no party shall have the right to acquire or shall be
deemed to have acquired shares of common stock of the other party pursuant to
the Merger until consummation thereof.
SECTION 9.5 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
SECTION 9.6 PARTIES IN INTEREST. Subject to the provisions of
Section 9.4(c) hereof, this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns and, except as set forth in Section 9.4 hereof, nothing
in this Agreement, express or implied, is intended to confer upon any other
person any rights or remedies of any nature whatsoever under or by reason of
this Agreement.
SECTION 9.7 SEVERABILITY. Any term or provision of this
Agreement which is invalid or unenforceable in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
SECTION 9.8 ATTORNEYS' FEES. If any action at law or equity,
including an action for declaratory relief, is brought to enforce or interpret
any provision of this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees and expenses from the other party, which
fees and expenses shall be in addition to any other relief which may be
awarded.
IN WITNESS WHEREOF, Momentum and Phillips have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
MOMENTUM CORPORATION
By _________________________________________
Name: John H. Goddard
Title: President
PHILLIPS & JACOBS, INCORPORATED
By ________________________________________
Name: James F. Mullan
Title: President
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ANNEX B
FORM OF PLAN OF MERGER
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FORM OF PLAN OF MERGER
AGREEMENT OF MERGER, dated ______, 1994, between Phillips & Jacobs,
Incorporated, a Pennsylvania corporation ("Phillips"), and Momentum
Corporation, a Delaware corporation ("Momentum").
WHEREAS, Phillips and Momentum have entered into an Agreement and Plan
of Reorganization (the "Plan of Reorganization") which provides for this
Agreement of Merger; and
WHEREAS, the Boards of Directors and the shareholders of Phillips and
Momentum have approved the merger of Momentum with and into Phillips and the
consummation of the transactions contemplated hereby and by the Plan of
Reorganization, upon the terms and subject to the conditions set forth herein
and in the Plan of Reorganization.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein and in the Plan of Reorganization,
the parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the
conditions of this Agreement and the Plan of Reorganization, at the Effective
Time (as hereinafter defined), in accordance with the Pennsylvania Business
Corporation Law of 1988, as amended (the "PBCL"), and the Delaware General
Corporation Law, as amended (the "DGCL"), Momentum shall be merged with and
into Phillips and the separate existence of Momentum shall thereupon cease (the
"Merger"). Phillips, which shall be renamed [insert new name] shall be the
surviving corporation in the Merger (hereinafter sometimes referred to as the
"Surviving Corporation" or "Newco").
SECTION 1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall
become effective pursuant to Section 1928 of the PBCL as of 5:00 p.m.,
Pennsylvania time on the date (the "Effective Time") a copy of this Agreement
and the requisite Articles of Merger pursuant to Section 1926 of the PBCL and
the requisite Certificate of Merger pursuant to Section 251 of the DGCL and any
other documents necessary to effect the Merger in accordance with the PBCL and
DGCL are filed with the Department of State of the Commonwealth of Pennsylvania
and the office of the Delaware Secretary of State. Such filings shall be made,
and shall provide that the instruments filed therewith shall become effective,
in accordance with this Agreement and the Plan of Reorganization.
SECTION 1.3 EFFECTS OF MERGER. The Merger shall have the effects
set forth in Section 1929 of the PBCL and Section 259 of the DGCL.
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ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1 ARTICLES OF INCORPORATION. At the Effective Time,
the articles of incorporation of Phillips, as in effect immediately prior to
the Effective Time, shall be amended and restated as set forth in Exhibit A.
SECTION 2.2 BYLAWS. At the Effective Time, the bylaws of
Phillips, as in effect immediately prior to the Effective Time, shall be
amended and restated as set forth in Exhibit B.
SECTION 2.3 DIRECTORS AND OFFICERS. At and after the Effective
Time, the board of directors of Newco shall be comprised of the persons so
designated in Exhibit C hereto and the officers of Newco shall be the persons
so designated in Exhibit C hereto, in each case until their respective
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and bylaws.
ARTICLE III
CONVERSION AND EXCHANGE OF MOMENTUM SHARES
SECTION 3.1 CONVERSION OF SHARES. At the Effective Time, by
virtue of the Merger and without any action on the part of any holder of any
capital stock of Phillips or Momentum:
(a) Each share of Momentum common stock, par value $1.00 per
share, including shares subject to restricted stock awards and shares held by
the Momentum Stock Ownership Plan (but excluding shares held in the Momentum
treasury ("Momentum Treasury Shares")) (the "Momentum Shares"), issued and
outstanding immediately prior to the Effective Time shall be converted into,
and become exchangeable for, 0.71 (the "Exchange Ratio") shares of common
stock, par value $.01 per share, of Newco ("Newco Shares").
(b) Each Momentum Treasury Share shall be canceled and cease to
exist at and after the Effective Time and no consideration shall be delivered
with respect thereto.
SECTION 3.2 EXCHANGE OF MOMENTUM CERTIFICATES.
(a) From and after the Effective Time, each holder of a
certificate which immediately prior to the Effective Time represented a
Momentum Share (other than Momentum Treasury Shares), shall be entitled to
receive in exchange therefor (or upon the provision of an appropriate affidavit
of lost certificate and an indemnity bond), upon surrender thereof to an
exchange agent selected by Momentum and Phillips (the "Exchange Agent"), (i) a
certificate or certificates representing the number of whole Newco Shares into
which such holder's Momentum Shares
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were converted pursuant to Section 3.1 hereof, and (ii) the cash payment in
lieu of the issuance of fractional shares as provided in Section 3.3 hereof.
From and after the Effective Time, Newco shall be entitled to treat each
certificate formerly representing Momentum Shares (each a "Momentum
Certificate"), which has not yet been surrendered for exchange, as evidencing
the ownership of the number of full Newco Shares into which the Momentum Shares
represented by such Momentum Certificate shall have been converted pursuant to
Section 3.1 hereof, notwithstanding the failure to surrender such Momentum
Certificate. However, notwithstanding any other provision of this Agreement,
until holders or transferees of Momentum Certificates formerly representing
Momentum Shares have surrendered them for exchange as provided herein (i) no
dividends or other distributions shall be paid with respect to any Newco Shares
represented by such Momentum Certificates and no payment for fractional shares
shall be made, and (ii) without regard to when such Momentum Certificates are
surrendered for exchange as provided herein, no interest shall be paid or
payable on any dividends, if any, or any amount payable in respect of
fractional Newco Shares pursuant to Section 3.3. Upon surrender of a Momentum
Certificate, which immediately prior to the Effective Time represented Momentum
Shares, there shall be paid to the holder of such Momentum Certificate the
amount of any dividends, if any, which theretofore became payable, but which
were not paid by reason of the holder's failure to surrender such Momentum
Certificate, with respect to the number of whole Newco Shares represented by
such Momentum Certificate (or certificates) issued upon such surrender. If any
Newco Certificate is to be issued in a name other than that in which the
Momentum Certificate surrendered in exchange therefor is registered, it shall
be a condition of such exchange that the person requesting such exchange shall
pay any transfer or other taxes required by reason of the issuance of such
Newco Certificates in a name other than that of the registered holder of the
Momentum Certificate surrendered, or shall establish to the satisfaction of
Newco that such tax has been paid or is not applicable.
(b) As soon as practicable after the Effective Time, Newco shall
make available to the Exchange Agent the Newco Certificates required to effect
the exchange referred to in Section 3.2(a) hereof. The Newco Shares into which
Momentum Shares shall be converted in the Merger shall be deemed to have been
issued at the Effective Time.
(c) As soon as practicable after the Effective Time, the Exchange
Agent shall mail to each person who was a holder of record of Momentum Shares
immediately prior to the Effective Time whose shares were converted into the
right to receive Newco Shares pursuant to Section 3.1 hereof (i) a form letter
of transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to any Momentum Certificate shall pass, only upon actual
delivery of the Momentum Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Momentum and Phillips may
reasonably specify) and (ii) instructions for use in effecting the surrender of
Momentum Certificates in exchange for Newco Certificates. Upon surrender of a
Momentum Certificate for cancellation to the Exchange Agent, together with a
duly executed letter of transmittal and such other documents as the Exchange
Agent shall require, the holder of such Momentum Certificate shall be entitled
to receive in exchange therefor a Newco Certificate representing that number of
whole Newco Shares into which the Momentum Shares represented by the Momentum
Certificates surrendered shall have been converted pursuant
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to the provisions of Section 3.1 hereof, and any applicable cash payment
required pursuant to Section 3.3 hereof, at which time the Momentum
Certificates so surrendered shall forthwith be canceled. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be liable to a
holder of Momentum Shares for any Newco Shares or dividends or distributions
thereon, if any, delivered to a public official pursuant to applicable
abandoned property, escheat or similar law.
SECTION 3.3 NO NEWCO FRACTIONAL SHARES. Notwithstanding any
other provision of this Agreement or the Plan of Reorganization, no
certificates or scrip for fractional Newco Shares shall be issued upon the
surrender for exchange of Momentum Certificates pursuant to this Article III
and no dividend or other distribution, stock split or interest with respect to
Newco Shares shall relate to any fractional security, and such fractional
interests shall not entitle the owner thereof to vote or to any other rights of
a shareholder of Newco. In lieu of any such fractional shares, each holder of
Momentum Shares who would otherwise have been entitled to a fraction of a Newco
Share upon surrender of Momentum Certificates for exchange pursuant to this
Article III shall be entitled to receive from the Exchange Agent a cash payment
(without interest) in lieu of such fractional share equal to such fraction
multiplied by the average closing price per Newco Share on the Nasdaq National
Market of the National Association of Securities Dealers, Inc. during the five
trading days immediately following the Effective Time.
SECTION 3.4 NO MOMENTUM APPRAISAL RIGHTS. Pursuant to Section
262(b)(1) of the DGCL no appraisal or dissenting rights are available to
holders of Momentum Shares.
SECTION 3.5 CLOSING OF TRANSFER BOOKS. From and after the
Effective Time, the stock transfer books of Momentum (but not of Newco) shall
be closed and no transfer of Momentum Shares shall thereafter be made except in
accordance with this Article III.
ARTICLE IV
PHILLIPS SHARES
SECTION 4.1 CONTINUANCE OF SHARES. Each share of Phillips common
stock, par value $0.01 per share (the "Phillips Shares") issued and outstanding
immediately prior to the Effective Time shall continue to be issued and
outstanding Newco Shares and any shares held in the Phillips treasury shall
continue to be held in the treasury of Newco after the Effective Time. No
exchange of certificates representing Phillips Shares shall be required,
provided that holders of Phillips Shares may, at their option, at any time,
elect to exchange their Phillips certificates for new certificates bearing the
name of "Newco" in accordance with normal stock transfer procedures.
SECTION 4.2 NO PHILLIPS APPRAISAL RIGHTS. Pursuant to Section
1571(b) of the PBCL, no appraisal or dissenting rights are available to holders
of Phillips Shares.
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ARTICLE V
MOMENTUM STOCK OPTIONS
SECTION 5.1 CONVERSION OF STOCK OPTIONS. At the Effective Time,
all rights with respect to Momentum Shares pursuant to stock options granted or
assumed by Momentum ("Momentum Stock Options") under Momentum's 1989 Long-Term
Incentive Stock Plan (the "Momentum Stock Plan"), which are outstanding at the
Effective Time, whether or not then exercisable, shall be converted into and
become options with respect to Newco Shares and Newco shall assume each of the
Momentum Stock Options, on the terms and subject to the conditions set forth in
the Momentum Stock Plan and the stock option agreement by which it is
evidenced. From and after the Effective Time, (i) each Momentum Stock Option
will be exercisable for a number of whole Newco Shares (the "Aggregate Number")
equal to: (x) the number of Momentum Shares remaining subject to the Momentum
Stock Option immediately prior to the Effective Time, and (y) multiplied by the
Exchange Ratio; (ii) the exercise price per share for the number of Newco
Shares determined in clause (i) shall be a price per share equal to (x) the
aggregate exercise price for the Momentum Shares otherwise purchasable pursuant
to such Momentum Stock Option divided by (y) the Aggregate number; and (iii)
Newco and its Compensation Committee shall be substituted for Momentum and the
Momentum Compensation Committee in administering the Momentum Stock Plan. No
additional Momentum Stock Options shall be hereafter granted by Momentum under
the Momentum Stock Plan. It is intended that the foregoing assumption shall be
undertaken in a manner that will not constitute a "Modification" as defined in
Section 424(h) of the Internal Revenue Code as to any stock option which is an
"incentive stock option." The Newco Board of Directors shall take such action
as may be required under the Momentum Stock Plan to effectuate the foregoing.
SECTION 5.2 ASSUMPTION OF STOCK PLAN. At the Effective Time, the
Momentum Stock Option Plan shall be automatically and without further action
assumed by Newco (and thereupon become a stock option plan of Newco) as
follows: (i) each option or right granted under the Momentum Stock Plan from
and after the Effective Time shall be solely for or in respect of Newco Shares,
notwithstanding any contrary provisions of the Momentum Stock Plan, (ii) Newco
and its Compensation Committee shall be substituted for Momentum and the
Momentum Compensation Committee, and (iii) references to Momentum shall be
deemed to be references to Newco, references to Momentum's Bylaws shall be
deemed to be references to the Newco Bylaws, and any similar references shall
be appropriately conformed.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 TERMINATION. Prior to the Effective Time, this
Agreement shall terminate in the event of and upon the termination of the Plan
of Reorganization.
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SECTION 6.2 AMENDMENT. This Agreement may be amended by the
parties hereto, at any time before or after approval hereof by the shareholders
of Momentum or Phillips, provided that after any such approval, no amendment
shall be made which (a) changes the Exchange Ratio, (b) in any way materially
adversely affects the rights of holders of Phillips Shares or (c) changes any
of the principal terms of this Agreement or the Plan of Reorganization, in each
case, without the further approval of such shareholders and provided further
that all of the requirements of Section 251(d) of the DGCL and Section 1922(b)
of the PBCL are met. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
SECTION 6.3 NOTICES. Any notices or other communications
required or permitted hereunder shall be in writing and shall be deemed duly
given upon (a) transmitter's confirmation of a receipt of a facsimile
transmission, (b) confirmed delivery by a standard overnight carrier or by hand
delivery or (c) the expiration of five business days after the day when mailed
by certified or registered mail, postage prepaid, addressed at the following
addresses (or at such other address as the parties hereto shall specify by like
notice):
If to Momentum, to:
Momentum Corporation
Koll Center Bellevue - Suite 1900
500 - 108th Ave. N.E.
Bellevue, WA 98004
Telecopy No.: (206) 646-6574
Attention: John H. Goddard
with a copy to:
Preston Gates & Ellis
5000 Columbia Center
701 Fifth Avenue
Seattle, WA 98104-7078
Telecopy No.: (206) 623-7022
Attention: Richard B. Dodd, Esq.
If to Phillips, to:
Phillips & Jacobs, Incorporated
Suite 222 Fairway Corporate Center
4350 Haddonfield Road
Pennsauken, New Jersey 08109
Telecopy No. (609) 486-2998
Attention: James F. Mullan
Chief Executive Officer and President
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with a copy to:
Stradley Ronon Stevens & Young
2600 One Commerce Square
Philadelphia, PA 19103-7098
Telecopy No.: (215) 564-8120
Attention: David E. Beavers, Esq.
SECTION 6.4 INTERPRETATION. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation."
SECTION 6.5 MISCELLANEOUS. This Agreement (including the
documents and instruments referred to herein), (a) together with the Plan of
Reorganization, constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof; (b) shall not be assigned
by operation of law or otherwise without the prior written consent of the other
parties hereto; and (c) shall be governed in all respects, including validity,
interpretation and effect, by the laws of the Commonwealth of Pennsylvania
(without giving effect to the provisions thereof relating to conflicts of law).
SECTION 6.6 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
SECTION 6.7 PARTIES IN INTEREST. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective permitted successors and assigns, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 6.8 SEVERABILITY. Any term or provision of this
Agreement which is invalid or unenforceable in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
IN WITNESS WHEREOF, Phillips and Momentum have each caused this
Agreement of Merger to be signed by their respective officers thereunto duly
authorized as of the date first written above.
PHILLIPS & JACOBS, INCORPORATED
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By___________________________________________
Name: _______________________________________
Title: ______________________________________
By___________________________________________
Name: _______________________________________
Title: Secretary
--------------------------------------
MOMENTUM CORPORATION
By___________________________________________
Name: _______________________________________
Title:_______________________________________
By___________________________________________
Name: _______________________________________
Title: Secretary
--------------------------------------
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ANNEX C
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
<PAGE> 212
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
PRIMESOURCE CORPORATION
ARTICLE I
NAME
The name of the corporation (hereinafter called the "Corporation") is
PrimeSource Corporation.
ARTICLE II
REGISTERED OFFICE AND AGENT
The registered office of the Corporation in the Commonwealth of
Pennsylvania shall be provided by: c/o CT Corporation System. Solely for
purposes of venue and official publication, the registered office of this
Corporation shall be deemed to be located in Philadelphia County.
ARTICLE III
PURPOSE
The purpose of the Corporation is to maximize growth in shareholder
value through long-term profit on invested capital and growth of that capital.
To accomplish this purpose, the Board of Directors, management and
employees of the Corporation are expected to exercise appropriate business
judgment in discharging their responsibilities to the shareholders of the
Corporation. Without limiting this purpose and without limiting the
permissible scope of such business judgment or modifying the legal duties and
liabilities of the Board of Directors, management and employees, it is expected
that they will strive to:
o Evaluate business opportunities with due consideration to the
risks to be undertaken;
o Develop and maintain strategic direction for all business
segments;
o Develop and maintain superior management and organizational
structures;
o Encourage employee involvement in the business process;
o Maintain a working environment in which employees are provided
with training, the opportunity for advancement and growth and
recognition for their achievements;
o Promote an understanding in the market place of the intrinsic
values so created;
o Maintain a dynamic dividend policy that balances the current
needs of the shareholders with the needs of the Corporation to
preserve a sound financial condition as a foundation for
long-term growth;
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o Give appropriate consideration to the effects of any action
upon shareholders, employees, customers, suppliers, creditors,
the community and other appropriate constituencies; and
o Conduct its business legally and ethically within the free
enterprise system as a responsible corporate citizen.
The Corporation is organized under the Pennsylvania Business
Corporation Law of 1988 ("PBCL"), and in carrying out this purpose the
Corporation is authorized to engage in any lawful act or activity for which
corporations may be organized under the PBCL.
Nothing contained in this Article III is intended or should be
construed to modify, alter, limit or restrict in any fashion any of the
provisions of Chapter 17, subchapter B of the Pennsylvania Business Corporation
Law of 1988, as amended from time to time (relating to the fiduciary duty of
directors, standard of care, personal liability and exercise of powers, inter
alia).
ARTICLE IV
SHARES
1. The total number of shares of stock which the Corporation
shall have authority to issue is twenty-five million, which shall consist of
twenty-four million shares of Common Stock, each having a par value of one
penny ($.01) (the "Common Stock") and one million shares of Preferred Stock,
each having a par value of one penny ($.01) (the "Preferred Stock").
The Board of Directors shall have the full authority permitted by law
to divide the authorized and unissued shares of Preferred Stock into classes or
series, or both, and to provide for the issuance thereof not exceeding in the
aggregate the number of shares of Preferred Stock authorized by these Articles
of Incorporation, as amended from time to time; and to determine with respect
to each such class and/or series the voting powers, if any (which voting
powers, if granted, may be full or limited), designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions relating thereto, including without
limiting the generality of the foregoing, the voting rights relating to shares
of Preferred Stock of any class and/or series (which may be one or more votes
per share or a fraction of a vote per share, which may vary over time and which
may be applicable generally or only upon the happening and continuance of
stated events or conditions), the rate of dividend to which holders of
Preferred Stock of any class and/or series may be entitled (which may be
cumulative or noncumulative), the rights of holders of Preferred Stock of any
class and/or series in the event of liquidation, dissolution or winding up of
the affairs of the Corporation, the rights, if any, of holders of Preferred
Stock of any class and/or series to convert or exchange such shares of
Preferred Stock of such class and/or series for shares of any other class or
series of capital stock or for any other securities, property or assets of the
Corporation or any Subsidiary (including the determination of the price or
prices or the rate or rates applicable to such rights to convert or exchange
and the adjustment thereof, the time or times during which the right to convert
or exchange shall be applicable and the time or times during which a particular
price or rate shall be applicable), whether or not the shares of that class
and/or series shall be redeemable, and if so, the terms and conditions of such
redemption, including the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption, which
amount may vary under different conditions and at different redemption dates,
and whether any shares of that class and/or series shall be redeemed pursuant
to a retirement or sinking fund or otherwise and the terms and conditions of
such obligation.
Before the Corporation shall issue any shares of Preferred Stock of
any class and/or series, a statement in a form meeting the requirements of the
PBCL, setting forth a copy of the resolution or resolutions of the Board of
Directors, fixing the voting powers, designations, preferences, the relative,
participating, optional or other special rights, if any, and the
qualifications, limitations and restrictions, if any, relating to the shares of
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Preferred Stock of such class and/or series, and the number of shares of
Preferred Stock of such class and/or series authorized by the Board of
Directors to be issued shall be signed on behalf of the Corporation and shall
be filed in the manner prescribed by the PBCL. The Board of Directors is
further authorized to increase or decrease (but not below the number of such
shares of such series then outstanding) the number of shares of any class or
series subsequent to the issuance of shares of that class or series.
The Preferred Stock may have voting powers, designations, preferences,
and relative participating, optional, or other special rights and
qualifications, limitations, or restrictions which negate or supersede the
provisions of Article VIII hereof (so long as the resolution or resolutions
which provided for the issue of the same are approved by the unanimous vote of
the Disinterested Directors).
2. The shares of stock of this Corporation may be issued by this
Corporation from time to time for such consideration as from time to time may
be fixed by the Board of Directors of this Corporation; and all issued shares
of the capital stock of this Corporation shall be deemed fully paid and
non-assessable.
ARTICLE V
DURATION
The existence of this Corporation is to be perpetual.
ARTICLE VI
NON-APPLICABLE STATUTORY PROVISIONS
The provisions of Section 2538(a) (relating to approval of
transactions with interested shareholders) and of Subchapters E (relating to
control transactions), F (relating to business combinations), G (relating to
control share acquisitions) and H (relating to disgorgement by certain
controlling shareholders) of Chapter 25 of the Pennsylvania Business
Corporation Law of 1988 (15 Pa. C.S.), as amended, and any corresponding
provisions of succeeding law, shall not be applicable to the Corporation.
ARTICLE VII
CERTAIN DEFINITIONS
1. For purposes of these Articles, the following defined terms
shall have the meanings set forth below. All references in these Articles to
statutes, rules or regulations shall include a reference to said statutes,
rules or regulations as currently in effect or hereafter amended.
a. The terms "Affiliate" or "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 promulgated and issued
under the Securities Exchange Act of 1934.
b. The term "Beneficial Owner" and correlative terms
shall have the meanings ascribed to them in Rule 13d-3 and related interpretive
releases promulgated and issued under the Securities Exchange Act of 1934.
Without limitation, a Person shall be a "Beneficial Owner" of any Voting Stock:
(1) which such Person or any of its Affiliates or
Associates Beneficially Owns, directly or indirectly; or
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(2) which such Person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (b) the right to vote
pursuant to any agreement, arrangement or understanding; or
(3) which are Beneficially Owned, directly or
indirectly, by any other Person with which such Person or any of its Affiliates
or Associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any shares of Voting Stock.
c. The term "Common Stock" shall mean the common stock
of the Corporation as authorized pursuant to Article IV of these Articles, as
amended from time to time.
d. The term "Disinterested Director" means any member of
the Board of Directors who is not an Affiliate of any 10% Shareholder, and was
a member of the Board prior to the time that any 10% Shareholder achieved such
status, and any successor of a Disinterested Director who is not an Affiliate
of any 10% Shareholder and is recommended to succeed a Disinterested Director
by a majority of Disinterested Directors then on the Board.
e. The term "Employee Stock Ownership Plan" shall mean
any employee stock ownership plan established for the benefit of the employees
of the Corporation and its Subsidiaries and which meets the definitional
requirements of Sections 401(a) and 4975(e)(7) of the Internal Revenue Code of
1986, as the same may be amended from time to time.
f. The term "Fair Market Value" means: (1) in the case
of stock, the Market Price, and (2) in the case of property other than cash or
stock, the fair market value of such property on the date in question as
determined by the Board in good faith.
g. The term "10% Shareholder" shall mean any Person
(other than the Corporation, any Subsidiary, or an Employee Stock Ownership
Plan) who or which:
(1) is the Beneficial Owner of 10% or more of the
Voting Power of the outstanding Voting Stock; or
(2) is an Affiliate of the Corporation and at any
time within the two-year period immediately prior to the date in question was
the Beneficial Owner of 10% or more of the Voting Power of the then outstanding
Voting Stock; or
(3) is an assignee of or has otherwise succeeded
to any shares of Voting Stock which were, at any time within the two-year
period immediately prior to the date in question, Beneficially Owned by any 10%
Shareholder, if such assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933;
provided, however, no Person who has Beneficially Owned all his, her or its
shares of Voting Stock for two years or more (or received such shares by gift
or bequest from a Person who beneficially owned such shares for two years or
more) shall be deemed a 10% Shareholder if such Person becomes a 10%
Shareholder solely by reason of any action taken by the Corporation to acquire
any of its outstanding shares of Voting Stock, whether accomplished by
purchase, redemption, reverse stock split or in any other manner.
h. The term "Major Transaction" shall mean (1) any
merger or consolidation of this Corporation or a Subsidiary with or into a 10%
Shareholder, (2) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage or any other security device, of a
Substantial Part of the
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assets of this Corporation (including without limitation any securities of a
Subsidiary) or of a Subsidiary, to a 10% Shareholder, (3) any sale, lease,
exchange, transfer or other disposition of a Substantial Part of the assets of
a 10% Shareholder, to the Corporation or a Subsidiary, (4) the issuance or
transfer (in one or a series of transactions) of any securities of this
Corporation or a Subsidiary having a Fair Market Value in excess of $2,000,000
to a 10% Shareholder other than a transaction in which each shareholder of the
Corporation receives the same type of consideration in proportion to his or her
stockholdings, (5) the acquisition by this Corporation or a Subsidiary (in one
or a series of transactions) of any securities of a 10% Shareholder having a
Fair Market Value in excess of $2,000,000, (6) any reclassification of Voting
Stock or any recapitalization involving Voting Stock which has the effect,
directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities of the
Corporation which is beneficially owned by any 10% Shareholder, (7) any plan or
proposal for the liquidation or dissolution of the Corporation proposed by or
on behalf of a 10% Shareholder, (8) any share exchange or division with respect
to the Corporation or any Subsidiary in which a 10% Shareholder is to be
treated in a fashion different than holders of Common Stock generally, (9) any
loan or other extension of credit by the Corporation or a Subsidiary to a 10%
Shareholder or any guarantees by the Corporation or a Subsidiary of any loan or
other extension of credit by any Person to a 10% Shareholder, and (10) any
agreement, contract or other arrangement providing for any of the transactions
described in this definition of Major Transaction. Whenever the term "10%
Shareholder" appears in the preceding sentence it shall be deemed to mean a
"10% Shareholder or any corporation or entity (whether or not itself a 10%
Shareholder) which is, or after the transaction specified would be, an
Affiliate of a 10% Shareholder."
i. The term "Market Price" means: the last closing sale
price immediately preceding the time in question of a share of the stock in
question on the Composite Tape for New York Stock Exchange-Listed Stocks, or,
if such stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or, if such stock is not listed on such Exchange, on the principal
United States securities exchange registered under the Securities Exchange Act
of 1934, on which such stock is listed, or, if such stock is not listed on any
such exchange, on the Nasdaq National Market, or, if such stock is not
designated as a Nasdaq National Market security, the last closing bid quotation
with respect to a share of such stock immediately preceding the time in
question on the Nasdaq National Market or any system then in use (or any other
system of reporting or ascertaining quotations then available), or if such
stock is not so quoted, the fair market value at the time in question of a
share of such stock as determined by the Board in good faith.
j. The term "Person" shall mean and include any
individual, corporation, partnership or other person or entity and each member
of any "Person" as such term is defined in section 13(d)(3) of the Securities
Exchange Act of 1934, as amended.
k. "Subsidiary" means any corporation or other entity of
which a majority of any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for the purposes of the
definition of 10% Shareholder, the term "Subsidiary" shall mean only a
corporation or other entity of which a majority of the Voting Power of its
capital stock entitled to vote generally in the election of directors is owned,
directly or indirectly, by the Corporation.
l. The term "Substantial Part" shall mean having a value
greater than ten percent of the total assets of the Person or entity in
question, as of the end of its most recent fiscal year ending prior to the time
the determination is being made. In reference to the Corporation or any
Subsidiary, a "Substantial Part" shall be calculated on the basis of the total
assets of the Corporation on a consolidated basis even if the transaction
relates only to a Subsidiary.
m. The term "Voting Power" shall mean, with respect to a
share of capital stock, the number of votes that such share is entitled to cast
(disregarding the effect of cumulative voting) at the time in question and, in
the case of a convertible security, computing such voting power by reference to
the greatest number of votes such security is entitled to in the converted or
unconverted status.
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n. The term "Voting Stock" shall mean all Common Stock
and any other shares entitled to vote for the election of Directors of the
Corporation.
2. A majority of the Disinterested Directors of the Corporation
shall have the power and duty to determine for the purposes of these Articles,
on the basis of information known to them after reasonable inquiry, (a) whether
a Person is a 10% Shareholder, (b) the number of shares of Voting Stock
Beneficially owned by any Person, (c) whether a Person is an Affiliate or an
Associate of another Person, and (d) whether a transaction or a series of
transactions constitutes a Major Transaction. The good faith determination of
a majority of the Disinterested Directors shall be conclusive and binding for
all purposes of these Articles.
3. Nothing contained in these Articles shall be construed to
relieve any 10% Shareholder from any fiduciary obligation imposed by law.
4. It shall be the duty of any 10% Shareholder:
a. to give or cause to be given written notice to the
Corporation, immediately upon becoming a 10% Shareholder, of such Person's
status as a 10% Shareholder and of such other information as the Corporation
may reasonably require with respect to identifying all owners and amount of
ownership of the outstanding Voting Stock of which such 10% Shareholder is a
Beneficial Owner, and
b. to notify the Corporation promptly in writing of any
change in the information provided in subparagraph (a) of this section 4;
provided, however, that the failure of a 10% Shareholder to comply with, or the
failure of the Corporation to enforce, the provisions of this section 4 shall
not in any way be construed to prevent the Corporation from enforcing other
provisions of these Articles.
ARTICLE VIII
HIGHER THAN MAJORITY VOTE OF DIRECTORS OR SHAREHOLDERS
REQUIRED IN THE EVENT OF CERTAIN TRANSACTIONS
1. Subject to the provisions of any class or series of Preferred
Stock which may at the time be outstanding, any Major Transaction shall require
the affirmative vote of either (i) 75% of the Disinterested Directors or (ii)
the holders of not less than 66-2/3% of the Voting Power of the outstanding
Voting Stock of the Corporation held by shareholders other than the 10%
Shareholder involved in such Major Transaction; provided however that such
voting requirements shall not be applicable if:
a. The Major Transaction was approved by the affirmative
vote of a majority of the Disinterested Directors either (i) prior to the 10%
Shareholder involved in the Major Transaction having become a 10% Shareholder,
or (ii) after such 10% Shareholder became such but only if the 10% Shareholder
has sought and obtained the unanimous approval by the Board of Directors of
such 10% Shareholder's acquisition of 10% or more of the outstanding shares of
Voting Stock prior to such acquisition being consummated; or
b. The Major Transaction involves solely the Corporation
and a Subsidiary none of whose stock is Beneficially Owned by a 10% Shareholder
(other than Beneficial Ownership arising solely because of ownership of stock
of the Corporation); provided that each shareholder of the Corporation receives
the same type of consideration in such transaction in proportion to his or her
stockholdings; or
c. Prior to becoming a 10% Shareholder, such 10%
Shareholder made a tender offer for Voting Stock which: (i) conformed in all
respects to federal laws and regulations governing such a transaction whether
or not the Corporation or such stock was then regulated by or registered under
said laws, (ii)
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committed such 10% Shareholder to take all shares tendered if it took any
shares, and (iii) resulted in such 10% Shareholder acquiring at least 85% of
the Voting Power of the outstanding Voting Stock held by Persons other than
such 10% Shareholder.
ARTICLE IX
CLASSIFICATION OF DIRECTORS
1. The number of Directors of the Corporation shall be specified
in the Bylaws, and such number may from time to time be increased or decreased
in such manner as may be prescribed in the Bylaws.
2. Directors shall be classified with respect to the time for
which they shall severally hold office by dividing them into three classes, as
nearly equal in number as possible. One class shall serve for a term of office
to expire at the 1995 Annual Meeting of Shareholders. A second class shall
serve for a term of office to expire at the 1996 Annual Meeting of
Shareholders. A third class shall serve for a term of office to expire at the
1997 Annual Meeting of Shareholders. At each Annual Meeting of Shareholders
beginning with the 1995 Annual Meeting, the class of Directors then being
elected shall be elected to hold office for a term of office to expire at the
third succeeding Annual Meeting of Shareholders after their election. Subject
to any provisions relating to mandatory retirement contained from time to time
in the Corporation's bylaws, each Director shall hold office for the term for
which elected and until his successor shall have been elected and qualified.
3. Any Director, any class of Directors, or the entire Board of
Directors may be removed from office at any time, at a duly called meeting of
shareholders, by the affirmative vote of shareholders which satisfies the
requirements of Article XI applicable to an amendment, modification, or repeal
of certain of these Articles.
4. Vacancies in the Board of Directors, including vacancies
resulting from an increase in the number of Directors, shall be filled only by
a majority of the Disinterested Directors then in office, though less than a
quorum, or by the sole Disinterested Director. All Directors elected to fill
vacancies shall hold office for a term expiring at the annual meeting of
shareholders at which the term of the class to which they have been elected
expires. No decrease in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent Director.
ARTICLE X
SHAREHOLDER MEETINGS
Any action by shareholders of the Corporation shall only be
taken at a meeting of shareholders and no action may be taken by written
consent of shareholders entitled to vote upon such action.
ARTICLE XI
RESTRICTIONS ON CERTAIN AMENDMENTS
The provisions set forth in this Article XI and in Articles III, VII,
VIII, IX, and X herein may not be repealed or amended in any respect, unless
such action is approved by the affirmative vote of the holders of not less than
80% of the outstanding shares of Voting Stock of the Corporation, subject to
the provisions of any series of Preferred Stock which may at the time be
outstanding; provided, however, that if there is a shareholder of the
Corporation which is a 10% Shareholder, such 80% vote must include the
affirmative vote of at least 66-2/3% of the outstanding Voting Stock held by
shareholders other than the 10% Shareholder.
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ARTICLE XII
LIMITATION OF DIRECTORS' LIABILITY
1. No Director of this Corporation shall be personally liable for
monetary damages as such for any action taken or failure to take any action, on
or after January 27, 1987, unless (a) the Director has breached or failed to
perform the duties of his office under subchapter B of Part II, Subpart B,
Article B, chapter 17 of Title 15 of the PBCL (relating to the fiduciary duty
of directors); and (b) the breach or failure to perform constitutes self
dealing, willful misconduct or recklessness; provided, however, that the
provisions of this Article XII shall not apply to the responsibility or
liability of a Director pursuant to any criminal statue, or the liability of a
Director for the payment of taxes pursuant to local, state or federal law.
2. If the PBCL is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent not prohibited by the PBCL, as so amended. The provisions of this
Article XII shall be deemed to be a contract with each Director of the
Corporation who serves as such at any time while such provisions are in effect,
and each such Director shall be deemed to be serving as such in reliance on the
provisions of this Article. Any repeal or modification of the foregoing
paragraph by the shareholders of the Corporation shall not adversely affect any
right or protection of a Director of the Corporation with respect to any acts
or omissions of such Director occurring prior to such repeal or modification.
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ANNEX D
AMENDED AND RESTATED BYLAWS OF PRIMESOURCE
<PAGE> 221
PRIMESOURCE CORPORATION
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BYLAWS
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ARTICLE I
OFFICES
Section 1. The registered office shall be provided by CT
Corporation System in the Commonwealth of Pennsylvania. Solely for purposes of
venue and official publication, the registered office of the corporation shall
be deemed to be located in the City of Philadelphia, Philadelphia County.
Section 2. The corporation may also have offices at such other
places both within and without the Commonwealth of Pennsylvania as the Board of
Directors may, from time to time, determine or the business of the corporation
may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. All meetings of the shareholders shall be held at
such places within or without the Commonwealth of Pennsylvania as the Board of
Directors may designate.
Section 2. The annual meeting of the shareholders, commencing
with the year 1994, shall be held at such time and at such place as shall be
determined by the Board, when they shall elect by a plurality vote a Board of
Directors and transact such other business as may properly be brought before
the meeting.
Section 3. Special meetings of the shareholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the articles of
incorporation, may be called at any time by the Chairman of the Board, Chief
Executive Officer or a majority of the Board of Directors, or shareholders
entitled to cast at least a majority of the votes which all shareholders are
entitled to cast at the particular meeting, upon written request delivered to
the Secretary of the corporation. Such request shall state the purpose or
purposes of the proposed meeting. Upon receipt of any such request, it shall
be the duty of the Secretary to call a special meeting of the shareholders to
be held at such time, not less than ten (10) nor more than sixty (60) days
thereafter, as the Secretary may fix. If the Secretary shall neglect to issue
such call, the person or persons making the request may issue the call.
Section 4. Written notice of every meeting of the shareholders,
specifying the place, date and hour and the general nature of the business of
the meeting, shall be served upon or mailed, postage prepaid, at least five (5)
days prior to the meeting, unless a greater period of notice is required by
statute, to each shareholder.
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Section 5. The officer having charge of the transfer books for
shares of the corporation shall prepare and make, at least ten (10) days before
each meeting of shareholders, a complete list of the shareholders entitled to
notice of the meeting and a complete list of the shareholders entitled to vote
at the meeting, arranged in alphabetical order, with the address and the number
of shares held by each which lists shall be kept on file at the principal
office of the corporation and shall be subject to inspection by any shareholder
at any time during usual business hours. Such lists shall also be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection of any shareholder during the whole time of the meeting.
Section 6. Business transacted at all special meetings of
shareholders shall be limited to the purposes stated in the notice.
Section 7. The presence, in person or by proxy, of shareholders
entitled to cast at least a majority of the votes which all shareholders are
entitled to cast on a particular matter, shall be requisite and shall
constitute a quorum at all meetings of the shareholders for the transaction of
business, except as otherwise provided by statute or by the articles of
incorporation or by these bylaws. The shareholders present in person or by
proxy at a duly convened meeting can continue to do business until adjournment,
notwithstanding withdrawal of enough shareholders to leave less than a quorum.
If, however, any meeting of the shareholders cannot be organized because a
quorum has not attended, the shareholders entitled to vote thereat, present in
person or by proxy, shall have power, except as otherwise provided by statute,
to adjourn the meeting to such time and place as they may determine, but in the
case of any meeting called for the election of directors such meeting may be
adjourned from day to day or for such longer periods not exceeding fifteen (15)
days each as the holders of a majority of the shares present in person or by
proxy and entitled to vote shall direct, and those who attend the second of
such adjourned meetings, although less than a quorum, shall nevertheless
constitute a quorum for the purpose of electing directors. At any adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 8. When a quorum is present or represented at any
meeting, the acts of the shareholders present, in person or by proxy, entitled
to cast at least a majority of the votes which all shareholders present are
entitled to cast shall be the acts of the shareholders, unless the question is
one upon which, by express provision of the statutes or of the articles of
incorporation or of these bylaws, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 9. Unless otherwise provided in the articles of
incorporation, each shareholder shall, at every meeting of the shareholders, be
entitled to one (1) vote in person or by proxy for each share having voting
power held by such shareholder, but no proxy shall be voted on after three (3)
years from its date, unless coupled with an interest, and, except where the
transfer books of the corporation have been closed or a date has been fixed as
a record date for the determination of its shareholders entitled to vote,
transferees of shares which are transferred on the books of the corporation
within ten (10) days next preceding the date of such meeting shall not be
entitled to vote at such meeting. In each election for directors, every
shareholder entitled to vote shall have the right, in person or by proxy, to
multiply the number of votes to which he may be entitled by the total number of
directors to be elected in the same election, and he may cast the whole number
of such votes for one candidate or he may distribute them among any two (2) or
more candidates. The candidates receiving the highest number of votes up to
the number of directors to be elected shall be elected.
Section 10. In advance of any meeting of shareholders, the Board
of Directors may appoint judges of election, who need not be shareholders, to
act at such meeting or any adjournment thereof. If judges of election be not
so appointed, the chairman of any such meeting may and, on the request of any
shareholder entitled to vote or his proxy, shall make such appointment at the
meeting. The number of judges shall be one (1) or three (3). If appointed at
a meeting on the request of one (1) or more shareholders entitled to vote or
proxies, the majority of shares present and entitled to vote shall determine
whether one (1) or three (3) judges
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are to be appointed. No person who is a candidate for office shall act as a
judge. The judges of election shall do all such acts as may be proper to
conduct the election or vote with fairness to all shareholders, and shall make
a written report of any matter determined by them and execute a certificate of
any fact found by them, if requested by the chairman of the meeting or any
shareholder entitled to vote or his proxy. If there be three (3) judges of
election, the decision, act or certificate of a majority, shall be effective in
all respects as the decision, act or certificate of all.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the
Board shall be twelve (12). The Board of Directors may by a vote of not less
than a majority of the authorized number of directors increase or decrease the
number of directors from time to time without a vote of the shareholders,
provided, however, that any such decrease shall not eliminate any director then
in office. The directors shall be classified, with respect to the time for
which they severally hold office, into three (3) classes, as nearly equal in
number as possible, as shall be provided in the manner specified in these
bylaws; one (1) class to hold office initially for a term expiring at the
annual meeting of shareholders to be held in 1995, another class to hold office
initially for a term expiring at the annual meeting of the shareholders to be
held in 1996, and another class to hold office initially for a term expiring at
the annual meeting of shareholders to be held in 1997. The number of directors
in each class shall be determined by a vote of not less than a majority of the
authorized number of directors. At each annual meeting of shareholders of the
corporation beginning with the 1995 annual meeting, the class of directors then
being elected shall be elected to hold office for a term of office to expire at
the third succeeding annual meeting of shareholders after their election.
Subject to any provisions contained in these bylaws relating to mandatory
retirement, each director shall hold office for the term for which elected and
until his or her successor shall have been elected and qualified.
Section 2. Except as otherwise prescribed in the articles of
incorporation, notwithstanding anything contained in these bylaws to the
contrary, and notwithstanding the fact that a lesser percentage may be
permitted by law, the affirmative vote of the holders of not less than 80% of
the outstanding shares of Voting Stock (as defined in the articles of
incorporation) of the corporation, subject to the provisions of any preferred
stock of the corporation which may at the time be outstanding, voting together
as a single class, shall be required to remove any director from office without
assigning any cause for such removal at any annual or special meeting of
shareholders. Except as otherwise prescribed in the articles of incorporation,
notwithstanding anything contained in these bylaws to the contrary, and
notwithstanding the fact that a lesser percentage may be permitted by law, the
affirmative vote of the holders of not less than 80% of the outstanding shares
of Voting Stock (as defined in the articles of incorporation) of the
corporation, subject to the provisions of any preferred stock of the
corporation which may at the time be outstanding, voting together as a single
class, shall be required to alter, amend or adopt any provisions inconsistent
with, or repeal this Section 2, or any provision hereof at any annual or
special meeting of shareholders; provided, however, that if there is a
shareholder of the corporation which is a 10% Shareholder (as defined in the
articles of incorporation) such 80% vote must include the affirmative vote of
at least two-thirds of the outstanding Voting Stock (as defined in the articles
of incorporation) held by shareholders other than the 10% Shareholder.
Section 3. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors shall be filled by the
affirmative vote of a majority of the remaining directors, though less than a
quorum. Any director so elected shall hold office for the remainder of the
full term of the class of directors in which the new directorship was created
or the vacancy occurred and until such director's successor shall have been
elected and qualified.
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Section 4. The business and affairs of the corporation shall be
managed under the direction of its Board of Directors, which may exercise all
such powers of the corporation and do all such lawful acts and things as are
not by statute or by the articles of incorporation or by these bylaws directed
or required to be exercised and done by the shareholders. Directors need not
be shareholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the Commonwealth
of Pennsylvania.
Section 6. The first meeting of each newly elected Board of
Directors shall be held at the same place as, and immediately following, the
annual meeting of the shareholders, unless a different time and place shall be
fixed by the shareholders at the meeting at which such directors were elected,
and no notice of such meeting shall be necessary to the newly elected directors
in order legally to constitute the meeting, provided a majority of the whole
Board shall be present. In the event such meeting is not held at such time and
place, or in the event of the failure of the shareholders to fix a different
time or place for such first meeting of the newly elected Board of Directors,
the meeting may be held at such time and place as shall be specified in a
notice given as hereinafter provided for such meetings of the Board of
Directors, or as shall be specified in a written waiver signed by all of the
directors.
Section 7. Regular meetings of the Board of Directors may be
held without notice at such time and place as shall from time to time be
determined by the Board.
Section 8. Special meetings of the Board may be called by the
Chairman of the Board or Chief Executive Officer on one day's notice to each
director, either personally or by mail or by telegram; special meetings shall
be called by the Chief Executive Officer or Secretary in like manner and on
like notice on the written request of two directors, which request shall state
the purpose or purposes of the proposed meeting.
Section 9. At all meetings of the Board a majority of the
directors in office shall be necessary to constitute a quorum for the
transaction of business, and the acts of a majority of the directors present at
a meeting at which a quorum is present shall be the acts of the Board of
Directors, except as may be otherwise specifically provided by statute or by
the articles of incorporation. If a quorum shall not be present at any meeting
of directors, the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 10. Any action required or permitted to be taken at a
meeting of the directors or any committee thereof may be taken without a
meeting if, prior or subsequent to the action, all the directors shall
severally or collectively consent in writing to any such action taken or to be
taken by the corporation, and such action shall be as valid a corporate action
as though it had been authorized at a meeting of the Board of Directors.
Section 11. In the event a national disaster or national
emergency is proclaimed by the President or Vice-President of the United
States, the directors, even though there may be less than a quorum present, may
take all actions which they could have taken if a quorum had been present.
Section 12. One or more directors may participate in a meeting of
the Board or any committee of the Board by means of conference telephone or
similar communications equipment by means of which all persons participating in
such meeting can hear each other. Participation in a meeting pursuant to this
section shall constitute presence in person at the meeting.
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NOMINATING COMMITTEE
Section 13. The Board of Directors shall, by resolution passed by
a majority of the whole Board, designate a nominating committee which shall
have the exclusive power to nominate persons to serve as directors of the
corporation. All nominations by the nominating committee shall require the
unanimous vote of all members of the committee, and all such nominations shall
be subject to approval of the Board of Directors. The members of the
nominating committee designated after the adoption of this Article III, Section
13 shall serve for an initial term of two years.
OTHER COMMITTEES
Section 14. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more other committees, each
committee to consist of two or more of the directors of the corporation. Any
committee, to the extent provided in the authorizing resolutions of the Board,
shall have and exercise the authority of the Board of Directors in the
management of the business affairs of the corporation. Vacancies in the
membership of any committee shall be filled by the Board of Directors at a
regular or special meeting of the Board of Directors. The committee or
committees designated shall keep regular minutes of its or their proceedings
and report the same to the Board when required.
COMPENSATION OF DIRECTORS
Section 15. The Board of Directors shall have the power to fix,
and from time to time to change, the compensation of the directors of the
corporation, which compensation may include an annual retainer fee and a fee
for attendance at regular or special meetings of the Board and of any
committees of the Board.
MANDATORY RETIREMENT
Section 16. The term of office of each director of the
corporation shall automatically expire as of the date of the next annual
meeting of shareholders immediately following the date of such director's 72nd
birthday, regardless of whether the term of office of said director would
otherwise have expired at such annual meeting.
ARTICLE IV
NOTICES
Section 1. Notices to directors and shareholders shall be in
writing and delivered either personally or by sending such notice by first
class or express mail, postage prepaid, or by telegram (with messenger service
specified), telex or TWX (with answer back received) or courier service,
charges prepaid, or by telecopier, to their respective addresses (or to their
respective telex, TWX, telecopier or telephone number) appearing on the books
of the corporation or, in the case of directors, supplied by him or her to the
corporation for the purpose of notice. Notice by mail, telegraph or courier
service shall be deemed to be given at the time when the same shall be
deposited in the United States mail or with a telegraph office or courier
service for delivery to that person or, in the case of telex or TWX, when
dispatched. Notice to directors may also be given by telegram.
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Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the articles of incorporation or of these
bylaws, a waiver thereof in writing signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by
the Board of Directors and shall be a Chairman of the Board, a Chief Executive
Officer, a President, a Vice-President, a Secretary and a Treasurer. The Board
of Directors may also choose a Vice Chairman and additional vice-presidents and
one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person.
Section 2. The Board of Directors, immediately after each annual
meeting of shareholders, shall elect a Chairman of the Board. The Board shall
also annually choose a Chief Executive Officer, a President, a Vice-President,
a Secretary and a Treasurer who need not be members of the Board.
Section 3. The Board of Directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
Section 4. The compensation of all officers of the corporation
shall be fixed by the Board of Directors or a duly authorized committee.
Section 5. The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. Any vacancy
occurring in the office of any officer or agent of the corporation shall be
filled by the Board of Directors, and such successor officer or agent shall
hold office for the unexpired term in respect of which the vacancy occurred.
CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board shall preside, when
present, at all meetings of the Board of Directors and all meetings of the
shareholders and shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe. The Chairman of the
Board need not be an employee of the corporation.
VICE CHAIRMAN
Section 7. The Vice Chairman shall, in the absence of the
Chairman of the Board, preside, when present, at all meetings of the Board of
Directors and all meetings of the shareholders and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe. The Vice Chairman need not be an employee of the corporation.
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CHIEF EXECUTIVE OFFICER
Section 8. The Chief Executive Officer shall have general
supervisory responsibility and authority over the officers of the corporation,
shall see that all orders and resolutions of the Board of Directors are carried
into effect, shall preside at all meetings of the Board of Directors in the
absence of the Chairman and Vice Chairman, and shall perform such other duties
and have such other powers as the Board of Directors may from time to time
prescribe. The Board of Directors shall determine the person or persons who
shall perform the duties and exercise the powers of the Chief Executive Officer
in the absence or disability of the Chief Executive Officer.
Section 9. The Chief Executive Officer shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
THE PRESIDENT
Section 10. The President shall be the chief operating officer of
the corporation, shall, under the direction of the Chief Executive Officer,
have general and active management of the business of the corporation and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe. The Board of Directors shall determine the
person or persons who shall perform the duties and exercise the powers of the
President in the absence or disability of the President.
THE VICE-PRESIDENTS
Section 11. The Vice-President or Vice-Presidents shall perform
such duties and have such powers as the Board of Directors may from time to
time prescribe.
THE SECRETARIES AND ASSISTANT SECRETARIES
Section 12. The Secretary shall attend all meetings of the Board
of Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
committees of the Board of Directors when required. He shall give, or cause to
be given, notice of all meetings of the shareholders and special meetings of
the Board of Directors, and shall perform such other duties as may be
prescribed by the Board of Directors or Chief Executive Officer, under whose
supervision he shall be. He shall keep in safe custody the seal of the
corporation and affix the same to any instrument requiring it and, when so
affixed, it shall be attested by his signature or by the signature of an
Assistant Secretary.
Section 13. The Assistant Secretary, or if there are more than
one, the Assistant Secretaries, in the order determined by the Board of
Directors, shall, in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
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THE TREASURER AND ASSISTANT TREASURERS
Section 14. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the Board of
Directors.
Section 15. He shall disburse the funds of the corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
corporation.
Section 16. If required by the Board of Directors, he shall give
the corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration of the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
Section 17. The Assistant Treasurer, or if there shall be more
than one, the Assistant Treasurers, in the order determined by the Board of
Directors, shall, in the absence or disability of the Treasurer, perform the
duties and exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
VACANCIES
Section 18. If the office of any officer or agent becomes vacant
for any reason, the Board of Directors may choose a successor or successors,
who shall hold office for the unexpired term in respect of which such vacancy
occurred.
ARTICLE VI
CERTIFICATES OF SHARES
Section 1. The certificates of shares of the corporation shall
be numbered and registered in a share register as they are issued. They shall
exhibit the name of the registered holder and the number and class of shares
and the series, if any, represented thereby and the par value of each share or
a statement that such shares are without par value as the case may be.
Section 2. Every share certificate shall be signed by the Chief
Executive Officer or President and the Secretary or Treasurer and shall be
sealed with the corporate seal which may be facsimile, engraved or printed.
Section 3. Where a certificate is signed (1) by a transfer agent
or (2) by a transfer agent and/or registrar, the signature of the officers of
the corporation may be facsimile. In case any officer or officers who have
signed, or whose facsimile signature or signatures have been used on, any such
certificate or certificates shall cease to be such officer or officers of the
corporation, whether because of death, resignation or otherwise, before such
certificate or certificates have been delivered by the corporation, such
certificate or certificates may nevertheless be adopted by the corporation and
be issued and delivered as though the person or persons who
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signed such certificate or certificates or whose facsimile signature or
signatures have been used thereon had not ceased to be such officer or officers
of the corporation.
LOST OR DESTROYED CERTIFICATES
Section 4. The Board of Directors shall direct a new certificate
or certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, destroyed or
wrongfully taken, upon the making of an affidavit of that fact by the person
claiming the share certificate to be lost, destroyed or wrongfully taken. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, destroyed or wrongfully taken,
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and give the corporation a bond in such sum
as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate or certificates alleged to have
been lost, destroyed or wrongfully taken.
TRANSFERS OF SHARES
Section 5. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
CLOSING OF TRANSFER BOOKS
Section 6. The Board of Directors may fix a time, not more than
ninety (90) days, prior to the date of any meeting of shareholders or the date
fixed for the payment of any dividend or distribution or the date for the
allotment of rights or the date when any change or conversion or exchange of
shares will be made or go into effect, as a record date for the determination
of the shareholders entitled to notice of and to vote at any such meeting or
entitled to receive payment of any such dividend or distribution or to receive
any such allotment of rights or to exercise the rights in respect to any such
change, conversion or exchange of shares. In such case only such shareholders
as shall be shareholders of record on the date so fixed shall be entitled to
notice of and to vote at such meeting or to receive payment of such dividend or
to receive such allotment of rights or to exercise such rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after any record date so fixed. The Board of Directors may close the books of
the corporation against transfers of shares during the whole or any part of
such period and in such case written or printed notice thereof shall be mailed
at least ten (10) days before the closing thereof to each shareholder of record
at the address appearing on the records of the corporation or supplied by him
to the corporation for the purpose of notice.
REGISTERED SHAREHOLDERS
Section 7. The corporation shall be entitled to treat the holder
of record of any share or shares as the holder in fact thereof and shall not be
bound to recognize any equitable or other claim to or interest in such share on
the part of any other person, and shall not be liable for any registration or
transfer of shares which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with actual knowledge that
a fiduciary or nominee of a fiduciary is committing a breach of trust in
requesting such registration or transfer, or with knowledge of such facts that
its participation therein amounts to bad faith.
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ARTICLE VII
INDEMNIFICATION AND INSURANCE; LIMITATION OF DIRECTORS' LIABILITY
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS
Section 1. The corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 2. The corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise against expense (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. No such indemnification against expenses shall be made, however,
in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless and only to the extent that the Court of
Common Pleas of the county in which the registered office of the corporation is
located or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Common Pleas or such other court
shall deem proper.
Section 3. Indemnification under Sections 1 and 2 of this
Article shall be made by the corporation when ordered by a court or upon a
determination that indemnification of the director or officer is proper in the
circumstances because he has met the applicable standard of conduct set forth
in those Sections. Such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
shareholders.
Section 4. In addition to and notwithstanding the limited
indemnification provided in Sections 1, 2 and 3 of this Article, the
corporation shall indemnify and hold harmless its present and future officers
and directors of, from and against any and all liability, expenses (including
attorneys' fees), claims, judgments, fines and amounts paid in settlement,
actually incurred by such person in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including but not limited to any action by or in the right of
the corporation), to which such person is, was or at any time becomes, a party,
or is threatened to be made a party, by reason of the fact that such person is,
was or at any
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time becomes a director or officer of the corporation, or is or was serving or
at any time serves at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other person of any nature whatsoever. Nothing contained in this Section 4
shall authorize the corporation to provide, or entitle any officer or director
to receive, indemnification for any action taken, or failure to act, which
action or failure to act is determined by a court to have constituted willful
misconduct or recklessness.
Section 5. Expenses incurred in defending a civil or criminal
action, suit or proceeding of the kind described in Sections 1, 2 and 4 of this
Article shall be paid by the corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking, by or on behalf
of the person who may be entitled to indemnification under those Sections, to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation.
Section 6. The indemnification, advancement of expenses and
limitation of liability provided in this Article shall continue as to a person
who has ceased to be a director or officer of the corporation and shall inure
to the benefit of the heirs, executors and administrators of such person.
Section 7. Nothing herein contained shall be construed as
limiting the power or obligation of the corporation to indemnify any person in
accordance with the Pennsylvania Business Corporation Law as amended from time
to time or in accordance with any similar law adopted in lieu thereof. The
indemnification and advancement of expenses provided under this Article shall
not be deemed exclusive of any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any agreement,
vote of shareholders or directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding that
office.
Section 8. The corporation shall also indemnify any person
against expenses, including attorneys' fees, actually and reasonably incurred
by him in enforcing any right to indemnification under this Article, under the
Pennsylvania Business Corporation Law as amended from time to time or under any
similar law adopted in lieu thereof.
Section 9. Any person who shall serve as director, officer,
employee or agent of the corporation or who shall serve, at the request of the
corporation, as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall be deemed to do so
with knowledge of and in reliance upon the rights of indemnification provided
in this Article, in the Pennsylvania Business Corporation Law as amended from
time to time and in any similar law adopted in lieu thereof.
INSURANCE
Section 10. The corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability.
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ARTICLE VIII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the shares of the corporation, subject
to the provisions of the articles of incorporation, if applicable, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in its shares, subject
to the provisions of the articles of incorporation.
Section 2. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purposes as the directors shall think conducive to the interest
of the corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
FINANCIAL REPORT TO SHAREHOLDERS
Section 3. The directors shall send, or cause to be sent, to the
shareholders, within one hundred twenty (120) days after the close of the
fiscal year of the corporation, a financial report as of the closing date of
the preceding fiscal year.
CHECKS
Section 4. All checks or demands for money and notes of the
corporation shall be signed manually or by facsimile signature of such officer
or officers or such other person or persons as the Board of Directors may from
time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words "Corporate
Seal, Pennsylvania." The seal may be used by causing it or a facsimile thereof
to be impressed or affixed or reproduced or otherwise.
EMERGENCY BYLAWS
Section 7. The Board of Directors of the corporation may adopt
emergency bylaws, subject to repeal or change by action of the shareholders,
which shall, notwithstanding any different provisions of law or of the articles
of incorporation or these bylaws, be effective during any emergency resulting
from an attack on
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the United States, a nuclear disaster or another catastrophe as a result of
which a quorum of the Board cannot be readily assembled. The emergency bylaws
may make any provision that may be practical and necessary for the
circumstances of the emergency.
ARTICLE IX
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed by a
majority vote of the shareholders entitled to vote thereon at any regular or
special meeting duly convened after notice to the shareholders of that purpose
or by a majority vote of the members of the Board of Directors at any regular
or special meeting duly convened after notice to the directors of that purpose,
subject always to the power of the shareholders to change such action by the
directors.
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ANNEX E
OPINION OF BERWIND FINANCIAL GROUP, INC.
<PAGE> 235
[BERWIND LETTERHEAD]
August 5, 1994
Board of Directors
Phillips & Jacobs, Incorporated
Fairway Corporate Center, Suite 222
4350 Haddonfield Road
Pennsauken, New Jersey 08109
Members of the Board:
Berwind Financial Group, Inc. ("Berwind") was retained by the Board of
Directors of Phillips & Jacobs, Incorporated ("P&J") to render an opinion as to
the fairness, from a financial point of view to the shareholders of P&J, in
connection with the proposed merger of Momentum Corporation ("Momentum") into
P&J and the P&J name changed to Newco ("Newco"). The merger calls for the
exchange of each outstanding share of Momentum common stock for 0.71 shares of
Newco. The merger is more fully described in the Agreement and Plan of
Reorganization between P&J and Momentum dated as of May 27, 1994 ("Agreement").
Berwind, as part of its investment banking business, regularly is engaged in
the valuation of assets, securities and companies in various types of asset and
security transactions, including the valuation of assets, securities and
companies in mergers, acquisitions, divestitures and leveraged buyouts and in
the determination of adequate consideration in such transactions.
In accordance with the terms of our engagement letter dated April 26, 1994, we
submit this letter which sets forth our opinion and summarizes the procedures
used in arriving at that opinion.
A. DOCUMENTATION AND INFORMATION EXAMINED
As background for our analysis of the proposed merger, we reviewed the
history, current operations and future prospects of P&J, Momentum and
Newco with certain members of each of the Companies' (defined as P&J
and Momentum) management. Our financial analysis is based upon, but
not limited to the following documents and information we examined
during the course of our analysis:
3000 CENTRE SQUARE WEST, 1500 MARKET STREET,
PHILADELPHIA, PENNSYLVANIA 19102. PHONE (219) 563-2800 FAX: (216) 583-8347
<PAGE> 236
1. P&J audited financial statements on Form 10-K for fiscal years
12/31/92 through 12/31/93.
2. P&J Information Statement dated 7/12/93 issued in connection
with its divestiture from Tasty Baking Company.
3. P&J unaudited financial statements on Form 10-Q for the
quarter ended 3/31/94.
4. List of P&J's ten largest customer relationships.
5. List of P&J's ten largest vendors.
6. P&J's sales for 1993 by branch.
7. Internally prepared unaudited P&J projected income statements
for the years ended 12/31/94 through 12/31/98.
8. NASDAQ Records providing common stock trading information for
the periods covering 10/1/93 through 3/3/94.
9. Momentum audited financial statements on Form 10-K/A No. 1 for
fiscal years 12/31/92 and 12/31/93.
10. Momentum unaudited financial statement on Form 10-Q for the
quarter ended 3/31/94.
11. Momentum's sales by product type for the three months ended
3/31/94.
12. Internally prepared unaudited pro forma results for Momentum
and T.K. Gray for the period 12/31/91 through 3/31/94.
13. Internally prepared consolidated balance sheet and income
statements of Momentum (with Textile Group segregated) for the
periods ended 12/31/91 through 12/31/93.
14. Internally prepared unaudited projected balance sheet and
income statements of Momentum (inclusive of T.K.Gray) for the
periods ended 12/31/94 through 12/31/98.
15. Momentum's 1993 Shareholder Proxy Statement.
16. Momentum's sales for 1993 by branch.
17. Momentum's Purchase Agreement with T.K. Gray.
18. List of Momentum's top customer relationships.
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19. List of Momentum's top suppliers.
20. Newco pro forma balance sheet as of 12/31/94 and income
statements for the periods ending 12/31/94 through 12/31/98
(jointly prepared by the Companies' management).
21. T.K. Gray's unaudited income statement for the twelve months
ended 12/31/93.
22. Agreement in Principal between P&J and Momentum dated March
17, 1994.
23. Agreement and Plan of Reorganization between P&J and Momentum
dated as of May 27, 1994.
24. Proposed organization chart for Newco.
25. The minutes of the Board of Directors of P&J for the period
January, 1993 through March, 1994.
B. PERSONS INTERVIEWED
During the course of our analysis, we conducted meetings and
interviews with persons who, in our judgment, were capable of
providing us with information necessary to complete the assignment.
These interviews and meetings included, but were not limited to, James
Mullan, William DeMarco, Frederick Heinkel, Robert Kurelic and Michael
Silverman of P&J and John Goddard, Patsy Turnipseed and Robert Miller
of Momentum.
C. FACILITIES VISITED
As part of the development of information and our opinion, we visited
P&J's branch office and corporate facility located in Pennsauken, New
Jersey and Momentum's corporate offices located in Bellevue,
Washington.
D. FACTORS CONSIDERED
In arriving at our opinion, we considered the following factors, among
others, which we deemed relevant:
1. The operating history and management of P&J and Momentum.
2. The nature of business operated by P&J and Momentum, and the
future prospects for Newco.
3. The historical and current operating results of P&J and
Momentum and the factors affecting these results.
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4. The historical and current financial condition of P&J and
Momentum.
5. The historical and current earnings per share and dividend
payments of P&J and Momentum.
6. The projected earnings per share and dividend payments of
Newco.
7. Projected operating results of P&J and Momentum as stand-alone
entities for the years ending 1994 through 1998 prepared by
each of the Companies' management.
8. Projected operating results of Newco for the years 1994
through 1998 prepared collectively by P&J and Momentum's
management.
9. Price earnings ratios and future growth prospects of other
publicly-traded distribution companies.
10. Available information on Momentum's acquisition of T.K. Gray.
11. The historical stock price and trading volume of P&J and
Momentum's common stock.
12. Conditions in the general economy and the industry in which
P&J and Momentum operate.
13. The financial terms and conditions of the proposed merger.
In addition, Berwind reviewed data of publicly-owned companies and data with
respect to sales and acquisitions of publicly-owned companies. Due to the lack
of comparability, this data was deemed inappropriate for Berwind's analysis.
E. ACCESS TO INFORMATION AND PERSONNEL
During our analysis, we received access to all materials and personnel
which we deemed necessary and adequate for the purpose of formulating
the opinion expressed in this letter, and no limitations were placed
upon our investigations.
F. ASSUMPTIONS AND LIMITATIONS
Our opinion is subject to the following assumptions and limitations,
among others.
1. We express no opinion as to the tax consequences, if any, to
P&J and their shareholders.
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<PAGE> 239
2. We have made no independent verification of the financial and
operating data supplied by P&J and Momentum's management
including but not limited to internal and audited financial
statements and projected data for the years 1994 through 1998
for P&J, Momentum and Newco and have accepted the information
as presented. In addition, since Berwind is not qualified as
an expert in detecting the presence of potentially hazardous
material, we have relied upon P&J and Momentum's management
representation that there are no known environmental problems
that would have a material effect on our opinion.
3. Our opinion is based upon market, economic, financial and
other conditions as they exist and can be evaluated as of the
date of this letter and speaks to no other time period.
4. We assume that the proposed transaction is, in all respects,
lawful under applicable corporate law.
5. We have assumed and relied upon the accuracy and completeness
of the information reviewed by us and the information provided
to us by P&J and Momentum management without independent
investigation. With respect to financial projections, we have
assumed, for purposes of our opinion, that they have been
reasonably prepared by each of the Companies' management on
bases reflecting the best currently available estimates and
judgements of the future financial performance of each of the
Companies and Newco.
G. CONCLUSION
In preparing our opinion, we have relied upon the completeness and
accuracy of the information and data furnished to us by P&J and
Momentum as of the date hereof. We have not independently verified
such data nor data obtained from regularly published sources.
We are not aware of any present or contemplated relationship between
Berwind and P&J and Momentum that, in our opinion, would affect our
ability to render a fair and independent opinion in this matter. At
all times, we understood that payment of our fee was not contingent
upon the success of the transaction and that our opinion as to the
fairness of the transaction from a financial point of view would be
only one of many factors considered by the Board of Directors of P&J
in reaching its decision as to whether to complete the transaction.
Based upon the foregoing analysis and review, other matters we
considered relevant, our general knowledge and experience in the
valuation of companies, and subject to the assumptions and limitations
detailed above, it is our opinion that the proposed merger, as
described previously and in detail in the Agreement, based upon
information known as of the date of this letter, is fair from a
financial point of view to the shareholders of P&J as of the date of
this letter.
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<PAGE> 240
Berwind expressly consents to the filing of this letter as an exhibit
to the registration statement on Form S-4 filed by P&J with the
Securities and Exchange Commission in connection with the merger with
Momentum and its inclusion in the joint Proxy Statement/Prospectus
which forms a part of said registration statement. Berwind further
consents to the references to Berwind in the joint Proxy
Statement/Prospectus as the financial advisor to P&J.
Respectfully submitted,
Berwind Financial Group, Inc.
-----------------------------
Berwind Financial Group, Inc.
6
<PAGE> 241
ANNEX G
OPINION OF PIPER JAFFRAY INC.
<PAGE> 242
August 4, 1994
The Board of Directors
Momentum Corporation
500 108th Avenue NE
Suite 1900
Bellevue, WA 98004
Members of the Board:
In connection with the proposed merger transaction ("Merger") pursuant to an
Agreement and Plan of Merger dated May 27, 1994 ("Agreement"), whereby Momentum
Corporation ("Momentum") shall be merged with and into Phillips & Jacobs
Incorporated ("Phillips") which as the surviving corporation, shall then be
renamed (and shall herein be referred to as "Newco"), you have requested our
opinion as to the fairness, from a financial point of view, to Momentum
shareholders of the consideration to be received in the Merger. Pursuant to the
Agreement, the consideration to be received by the Momentum shareholders will
consist of Newco common stock to be issued in a transaction which we have been
advised by management of the parties will be accounted for as a purchase
transaction.
Piper Jaffray Inc. ("Piper Jaffray"), as a customary part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, underwriting and secondary
distributions of securities, private placements, and valuations for estate,
corporate and other purposes. For our services in rendering this opinion,
Momentum will pay Piper Jaffray a fee which is not contingent upon the
consummation of the Merger. Momentum will also indemnify Piper Jaffray against
certain liabilities in connection with this engagement.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed a copy of the Agreement dated May 27, 1994,
audited consolidated financial statements for Momentum for the years ended
December 31, 1991, 1992 and 1993, unaudited consolidated financial statements
for Momentum for the three months ended March 31, 1994, audited consolidated
financial statements for T.K. Gray Corporation ("Gray"), a recent acquisition by
Momentum, for the years ended December 31, 1992 and 1993, audited consolidated
financial statements for Phillips for the fiscal years ended December 31, 1992
and 1993, unaudited consolidated financial statements for Phillips for the three
months ended March 31, 1994, certain internal financial planning information of
Momentum, Phillips and Newco prepared or provided by their respective
managements, certain publicly available information relative to Momentum and
Phillips, certain other financial and securities data of Momentum and Phillips,
certain financial and securities data of companies deemed similar to Momentum
and Phillips or representative of the business sector in which they operate, and
the financial terms, to the extent publicly available, of certain merger
transactions deemed comparable to the Merger. We have visited Momentum's
headquarters in Bellevue, Washington; Gray's headquarters in Minneapolis,
Minnesota; and Phillips' headquarters in Pennsauken, New Jersey. We have had
discussions regarding the financial condition, current operating results,
business outlook and prospects for Momentum, Gray, Phillips and Newco with
members of their respective managements.
We have relied upon and assumed the accuracy, completeness and fairness of the
financial statements and other information provided by Momentum and Phillips or
otherwise made available to us and have not attempted independently to verify
such information. We have further relied upon the assurances of Momentum and
Phillips management that the information provided has been prepared on a
reasonable basis and, with respect to financial planning data, reflects the best
currently available estimates, and that Momentum and Phillips management are not
aware of any information or facts that would make the information provided to us
incomplete or misleading.
In arriving at our opinion, we have not performed any appraisals or valuations
of specific assets of Momentum and Phillips, and we express no opinion regarding
the liquidation value of any entity. We have not been
<PAGE> 243
authorized by the Board of Directors of Momentum to solicit, and did not
solicit, other entities for purposes of a business combination with Momentum.
This opinion is based upon the information available to us and facts and
circumstances as they exist and are subject to evaluation on the date hereof. We
are not expressing any opinion herein as to the prices at which shares of
Momentum Common Stock or Phillips Common Stock have traded or at which shares of
Newco Common Stock may trade at any future time.
This opinion is for the benefit of the Board of Directors of Momentum and shall
not be relied upon by others, and shall not be published or otherwise used, nor
shall any public references to us be made, without our written consent. However,
notwithstanding the foregoing, Piper Jaffray does consent to inclusion of the
opinion in the joint proxy statement/prospectus to be issued in connection with
the Special Meeting of Shareholders of Momentum. This opinion is not intended to
be and does not constitute a recommendation to any stockholder as to how such
stockholder should vote with respect to the Merger.
Based upon and subject to the foregoing and based upon such other factors as we
consider relevant, it is our opinion that the consideration to be received by
Momentum stockholders pursuant to the Agreement is fair, from a financial point
of view, to Momentum stockholders as of the date hereof.
Sincerely,
/s/ PIPER JAFFRAY INC.
PIPER JAFFRAY INC.
<PAGE> 244
ANNEX H
PHILLIPS & JACOBS, INCORPORATED
1993 LONG TERM INCENTIVE PLAN
<PAGE> 245
PHILLIPS & JACOBS, INCORPORATED
1993 LONG TERM INCENTIVE PLAN
A. PURPOSE
The Phillips & Jacobs, Incorporated Long Term Incentive Plan
(the "Plan") is intended to reward and provide incentives for key employees of
Phillips & Jacobs, Incorporated (the "Company") and its subsidiaries by
providing them, by means of authorized stock awards, with an opportunity to
acquire an equity interest in the Company, thereby increasing their personal
interest in its continued success and progress. The Plan is also intended to
aid the Company in attracting key personnel of exceptional ability.
B. ADMINISTRATION
1. The Plan is to be administered by the Compensation
Committee (the "Committee") of the Board of Directors.
2. No member of the Committee shall be eligible to
participate in the Plan.
3. The Committee shall have the power and authority to
adopt, amend and rescind administrative guidelines, rules and
regulations pertaining to the Plan and to interpret and rule on any
questions respecting any provision of the Plan.
4. Decisions of the Committee concerning the Plan shall
be binding on the Company and on all Eligible Employees and
Participants (as such terms are defined herein).
C. ELIGIBILITY
1. Officers and other key employees of the Company or
its subsidiaries who are designated Key Employees by the Board of
Directors (the "Eligible Employees") will be eligible for
participation in the Plan.
2. No Director of the Company who is not also an
employee of the Company is eligible to participate in the Plan.
D. AUTHORIZED STOCK AWARDS
1. The awards authorized under the Plan are grants of
options to purchase shares of the Company's common stock and/or grants
of restricted stock.
2. Subject to the provisions of the Plan, the Committee
is authorized and empowered to award to Eligible Employees in the Plan
any one or more grants in such amounts and combinations and upon such
terms and conditions as it shall determine.
3. The term "Participant" as used herein shall mean and
include Eligible Employees who are granted stock awards in accordance
with this Plan.
E. GRANTS OF STOCK OPTIONS
1. Stock options may be either (i) incentive stock
options as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or (ii) non-statutory stock options or
any
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combination thereof. The status of each grant as an incentive stock
option or non-statutory stock option shall be clearly defined at time
of grant; provided, however, that in the event the aggregate fair
market value (determined as of the date(s) of grant) of the shares of
common stock with respect to which incentive stock options become
exercisable for the first time by a Participant exceeds $100,000 in
any calendar year, the options with respect to the excess shares will
be non-statutory stock options.
2. The Committee shall have authority to grant to
Eligible Employees options to purchase shares of common stock upon
such terms and conditions as it shall establish, subject to the
following restrictions and requirements:
(i) The option price per share of an incentive
stock option shall not be less than the fair market value of
the shares at the date of grant. The option price of any
option may be paid in shares of common stock of the Company,
except that a share of stock acquired by exercise of an
incentive stock option which has not been held for the
requisite holding period (the "Holding Period") cannot be
tendered as part of the option price. A share shall be deemed
to have been held for the requisite Holding Period if held for
two years from the date of the grant of the stock option to
the Participant and for one year after the issuance of such
share to the Participant. Notwithstanding the foregoing, with
the consent of the Committee, the option price may be paid by
withholding that number of shares subject to the option
exercise whose aggregate fair market value at the date of
exercise equals the option price; in addition, with the
consent of the Committee, sufficient shares subject to the
option exercise (valued at the fair market value thereof at
such date) may also be withheld to pay any Federal, state or
local tax due on account of the exercise of the option. Any
shares of common stock tendered hereunder shall be valued at
the fair market value on the day of exercise.
(ii) No incentive stock option shall be
exercisable after the expiration of ten years from the date
of grant.
(iii) Notwithstanding the provisions of (i) and
(ii) above, no incentive stock option shall be granted to an
individual who, immediately after the grant, would own more
than 10% of the voting stock of the Company, a parent or a
subsidiary, unless (a) the option price is at least 110% of
the fair market value of the shares at the date of grant, and
(b) the option is not exercisable after the expiration of five
years from the date of grant.
(iv) During the lifetime of a Participant, only
such Participant, or his guardian or legal representative, may
exercise any option. In the event of termination of
employment of a Participant holding one or more options for
any reason other than death, the term of such options shall
expire on a date not later than three months after
termination.
(v) In the event of termination of employment due
to death of a Participant holding one or more options, the
term of such options shall expire not later than the earlier
of (a) twelve months from the date of termination, or (b) the
expiration date set forth in the option.
(vi) No option granted hereunder shall be
transferable by the Participant other than by will or the laws
of descent and distribution.
(vii) A Participant or his guardian, legal
representative, heir or legatee, entitled to exercise an
option may, subject to its terms and conditions and the terms
and conditions of the Plan, exercise it in whole at any time
or in part from time to time by delivery to the Company at its
principal office in Philadelphia, Pennsylvania, of written
notice of exercise, specifying the number of shares with
respect to which the option is being exercised, accompanied by
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<PAGE> 247
payment in full of the purchase price of the shares to be
purchased at the time. No shares shall be issued until full
payment therefore has been made, and the granting of an option
shall give such Participant no rights as a shareholder except
as to shares actually issued to him.
(viii) The Plan is intended to provide common stock
for investment and not for resale. A Participant granted an
option under this Plan agrees to give prompt written notice to
the Company of the disposition of any shares within either two
years from the date of grant of the option or one year after
the issuance of any shares to such Participant. The notice
shall show the number of shares disposed of. As used herein
the term "disposition" has the meaning ascribed to it by
Section 424(c) of the Code and includes any sale, exchange,
gift or transfer of legal title of the stock.
F. GRANTS OF RESTRICTED STOCK
1. The Committee shall have authority to grant to
Eligible Employees awards of shares of common stock of the Company as
compensation for services rendered to the Company, upon such terms and
conditions as it shall establish, but subject, nevertheless, to the
following restrictions (herein "Restricted Stock"):
(i) If a Participant's employment with the
Company is terminated prior to the expiration of five years
from the date of grant by reason of discharge, release in the
best interests of the Company, voluntary quit or retirement
without the approval of the Company, the shares of Restricted
Stock issued in the name of such Participant pursuant to such
grant shall be forfeited and canceled forthwith.
(ii) If at any time before Restricted Stock
granted hereunder becomes nonforfeitable, a Participant shall
directly or indirectly, voluntarily or involuntarily transfer
such Restricted Stock whether by sale, assignment, gift, court
order, operation of law, equitable or other distribution after
divorce, separation, bankruptcy, insolvency proceedings, or
otherwise, any such shares of Restricted Stock issued in the
name of such Participant under the Plan shall be forfeited and
canceled forthwith.
(iii) Upon the expiration of five years from the
date of grant, or upon the retirement of a Participant
with the approval of the Company, if earlier, all
shares of Restricted Stock awarded to such Participant
shall become nonforfeitable.
(iv) If a Participant dies while in the employ of
the Company, all shares of Restricted Stock awarded to such
participant shall become nonforfeitable and shall be delivered
to the beneficiary designated by such Participant pursuant to
such rules and regulations as may be established by the
Committee.
(v) Subject to the foregoing restrictions, a
Participant shall have all of the rights and be entitled to
all of the benefits of ownership of Restricted Stock granted
hereunder.
G. SHARES AUTHORIZED UNDER THE PLAN
1. The number of shares of common stock authorized to be
issued pursuant to grant of stock options or restricted stock under
the Plan shall not exceed 10% of the issued and outstanding common
stock of the Company, provided, however, that the total number of
shares which may be the subject of incentive stock options shall not
exceed 400,000 and the total number of shares which may be the subject
of restricted stock awards shall not exceed 75,000.
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<PAGE> 248
2. All common stock covered by options granted under the
Plan which expire, shall thereupon be available for awards to Eligible
Employees.
3. No fractional shares of common stock shall be issued
pursuant to the Plan.
4. Common stock may be issued from authorized and
unissued shares or out of shares held in the Company's treasury, or
both.
H. ANTIDILUTION PROVISIONS
Except as otherwise provided herein, the following provisions
shall apply to all common stock authorized for issuance, including shares of
restricted stock, under the Plan:
(i) In the event of a stock dividend, stock
split, or other subdivision or combination of the common
stock, the number of shares of common stock authorized under
the Plan will be adjusted proportionately. Similarly, in any
such event there will be a proportionate adjustment in the
number of shares of common stock subject to unexercised stock
options.
(ii) In the event that the outstanding shares of
common stock are changed or converted into, or exchanged or
exchangeable for, a different number or kind of shares or
other securities of the Company or of another corporation by
reason of a reorganization, merger, consolidation,
reclassification or combination, appropriate adjustment shall
be made by the Board of Directors in the number of shares and
kind of common stock for which options may be or may have been
granted under the Plan and shares of restricted stock granted
under the Plan, to the end that the proportionate interests of
Participants shall be maintained as before the occurrence of
such event, provided, however, that in the event of any
contemplated transaction which may constitute a change in
control of the Company, the Board of Directors may modify any
and all outstanding options, so as to accelerate, as a
consequence of or in connection with such transaction, the
vesting of a Participant's right to exercise any such option
or to terminate the forfeiture provisions of any restricted
stock granted under the Plan.
I. AMENDMENTS
All amendments to the Plan shall be in writing and shall be
effective when approved by the Board of Directors, provided, however, that no
amendment shall be made to modify the class of Eligible Employees, increase the
number of shares of common stock authorized or available under the Plan or to
continue the Plan in effect beyond the time established in paragraph J (ii)
without the prior approval of the shareholders of the Company.
J. OTHER PROVISIONS
(i) The Plan became effective on July 1, 1993.
(ii) The Plan shall remain in effect until all
shares issuable upon the exercise of options granted under the
Plan have been satisfied by the issuance of common stock or
terminated under the terms of the Plan, provided that no
incentive stock options under the Plan may be awarded on or
after June 15, 2003.
(iii) Notwithstanding the provisions of paragraph J
(ii), the Board of Directors may terminate the Plan at any
time, but no such action by the Board of Directors shall
adversely affect the rights of Participants under the Plan
with respect to outstanding awards.
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<PAGE> 249
(iv) The options and common stock issued pursuant
to the Plan shall be deemed restricted securities as defined
by Rule 144 unless and until all appropriate listing,
registration and qualification requirements have been met,
free of any conditions unacceptable to the Board of Directors,
or other action has been taken to comply with the Securities
Act of 1933 and other pertinent laws and regulations. In the
absence of an effective registration statement relating to the
issuance of such shares under the Securities Act of 1933, the
Company's obligation to issue shares under the Plan shall be
subject to the Company being satisfied that the shares being
issued are being acquired for investment and not with a view
to the distribution thereof.
(v) Whenever common stock is to be issued or
delivered pursuant to options and/or restricted stock granted
hereunder, the Company shall have the right to require the
Participant to remit an amount sufficient to satisfy any
applicable Federal, state and local withholding taxes prior to
delivery of any certificate for such shares.
(vi) The award of stock options and/or restricted
stock shall not be construed as giving a Participant the right
to be retained in the employ of the Company or a subsidiary of
the Company. The Company or a subsidiary may at any time
dismiss a Participant from employment for any reason without
regard to the effect such dismissal will have on his rights
under the Plan and any such Participant shall have no claim
under the Plan except as may be expressly provided therein.
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<PAGE> 250
ANNEX I
PHILLIPS & JACOBS, INCORPORATED
1993 REPLACEMENT OPTION PLAN
(P&J SPIN-OFF)
<PAGE> 251
PHILLIPS & JACOBS, INCORPORATED
1993 REPLACEMENT OPTION PLAN
(P&J SPIN-OFF)
A. PURPOSE
The purpose of this 1993 Replacement Option Plan (P&J Spin-off)
("Plan") of Phillips & Jacobs, Incorporated (the "Company") is to provide for
the grant of stock options to certain directors of the Company, as replacements
for out-of-the-money stock options to purchase Tasty Baking Company ("TBC")
common stock held by such directors which will be canceled pursuant to the Plan
of Distribution of TBC effectuating the spin-off of the Company (the "Plan of
Distribution").
B. ADMINISTRATION
A Committee (the "Committee") consisting of Philip J. Baur, Jr.,
Harold F. Still, Jr., and Judith M. von Seldeneck shall supervise and
administer this Plan. In the event that any member of the Committee ceases to
be a director of the Company, the Board of Directors may appoint another
director of the Company who is not eligible to participate in this Plan and who
otherwise is a "disinterested person" within the meaning of Rule 16b-3(c)(2)(i)
under the Securities Exchange Act of 1934, as such rule may be amended from
time to time, to serve as his or her successor on such Committee. Grants of
stock options under this Plan and the amount, timing and pricing of the options
to be granted shall be automatic as described in Section F. However, all
questions of interpretation of this Plan or of any options issued hereunder
shall be determined by the Committee and such determination shall be final and
binding upon all persons having an interest in this Plan.
C. PARTICIPATION IN PLAN
Nelson G. Harris, Fred C. Aldridge Jr., James L. Everett, III and
Myron S. Gelbach, Jr. (collectively, the "Eligible Directors") shall be
eligible to participate in this Plan.
D. STOCK SUBJECT TO PLAN
The maximum number of options to purchase shares of the Company's
$0.01 par value common stock (the "Common Stock") which may be granted under
this Plan shall be the number of options to purchase shares of the Company's
Common Stock which shall be granted to all Eligible Directors using the
methodology set forth in Section F(b) below.
E. NON-STATUTORY STOCK OPTIONS
All options granted under this Plan shall be non-statutory options not
entitled to special tax treatment under Section 422A of the Internal Revenue
Code of 1986, as amended from time to time (the "Code").
F. TERMS, CONDITIONS AND FORM OF OPTIONS
Each option granted under this Plan shall be evidenced by a written
agreement in such form as the Committee shall from time to time approve, which
agreement shall comply with and be subject to the following terms and
conditions:
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<PAGE> 252
(a) Option Grants. Options on the terms and subject to
the conditions contained in this Plan shall be granted automatically to each
Eligible Director without any further action being taken by the Company's Board
of Directors, the Committee or any Eligible Director. All options granted
hereunder shall be conditioned upon approval of this Plan by the Company's
shareholders in accordance with subsection (e) below. In the event that
shareholder approval is not obtained, this Plan and all options granted
hereunder shall terminate and be of no further force and effect.
(b) Number of Option Shares. The number of options
granted to each Eligible Director shall be based upon the relative market
values of the Company's Common Stock and the common stock of TBC ("TBC Common
Stock") (determined by comparing the average closing prices of the TBC Common
Stock as quoted on the American Stock Exchange and the Company's Common Stock
as quoted on the NASDAQ National Market System or exchange on which the
Company's Common Stock is listed during the ten business days immediately
following the Payment Date), and each Eligible Director will receive a
proportionate number of options (after adjustment for the two for three
distribution of the Company's Common Stock on the TBC Common Stock) to purchase
the Company's Common Stock (pursuant to this Plan) and TBC Common Stock
(pursuant to a similar TBC Plan) which in the aggregate will equal the
unexercised out-of-the-money options held by such director on the Payment Date.
"Business day" shall mean a day on which the American Stock Exchange is open
for business. "Out-of-the-money" options shall mean options having an option
exercise price which is greater than $1.00 below the closing price of the TBC
Common Stock as quoted on the American Stock Exchange on June 18, 1993. As an
example, if the closing price is $18.25, all options having an exercise price
which is greater than $17.25 are out-of-the-money for purposes of this Plan.
(c) Option Exercise Price. The option price per share of
the Company's Common Stock subject to each option shall be the average closing
price of the Company's Common Stock as quoted on the NASDAQ National Market
System or exchange on which the Company's Common Stock is listed during the ten
trading days commencing on the later of (i) the Payment Date and (ii) the date
the Company's Common Stock first trades "regular way" as declared by the
National Association of Securities Dealers, Inc., rounded upwards to the
nearest one-eighth of one dollar.
(d) Option Grant Date. All options shall be granted as
of the close of business on the tenth trading day following the later of (i)
the Payment Date and (ii) the date the Company's Common Stock last trades "when
issued" as declared by the National Association of Securities Dealers, Inc.
(e) Period of Option Exercise. No option shall be
exercisable unless and until this Plan is approved by the Company's
shareholders at the first annual meeting of shareholders following the Payment
Date. Subject to the preceding sentence, options granted hereunder shall
become exercisable and shall expire on the dates on which the out-of-the-money
options being replaced by such options would have become exercisable and
expired but for their cancellation pursuant to the Plan of Distribution
provided however, the Plan Committee shall have the power and authority to
extend such expiration date for up to two years, in the event that the terms of
this Plan would result in any Eligible Director having less than two years
within which he may exercise the options granted hereunder. Options not
exercised prior to their expiration date shall terminate.
(f) Options Non-Transferable. Each option granted
hereunder by its terms shall be non-transferable by the director other than by
will or the laws of descent and distribution, and shall be exercisable during
the lifetime of the director only by him. No option or interest therein may be
transferred, assigned, pledged or hypothecated by the director during his
lifetime, whether by operation of law or otherwise, or be made subject to
execution, attachment or similar process.
(g) Exercise of Options. Options may be exercised only
by written notice given to the Company at its executive offices and accompanied
by payment in cash of the option exercise price for each share as to which
options are being exercised.
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<PAGE> 253
(h) Exercise by Representative Following Death of
Director. A director's legal representative (executor or administrator) shall,
by reason of his death, acquire the right to exercise all or a portion of the
options outstanding on the date of the director's death. Any exercise by a
representative shall be subject to the provisions of this Plan, including
(without limitation) Section F(e) above.
G. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS
The Committee shall have the power to modify, extend or renew
outstanding options and authorize the grant of new options in substitution
therefor, provided that any such action may not have the effect of altering or
impairing any rights or obligations of any option previously granted without
the consent of the option holder.
H. ASSIGNMENTS
The rights and benefits under this Plan may not be assigned except as
provided in Section F(h) above.
I. LIMITATION OF RIGHTS
(a) No Right to Continue as a Director. Neither this Plan nor the
granting of an option pursuant to this Plan shall constitute or be evidence of
any agreement or understanding, expressed or implied, that the Company will
retain a director for any period of time, or at any particular rate of
compensation, or with any other benefits whatsoever.
(b) No Stockholders' Rights for Options. An option holder shall
have no rights as a stockholder with respect to the shares covered by his
options until the date of the issuance to him of a stock certificate therefor,
and no adjustment shall be made for dividends or other rights for which the
record date is prior to the date such certificate is issued.
J. CHANGES IN PRESENT STOCK
In the event of any merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, or other change in the corporate
structure or capitalization affecting the Company's Common Stock, appropriate
adjustment shall be made by the Committee in the number of shares subject to
this Plan and the number of shares and price per share of Common Stock subject
to outstanding options. In the event of any contemplated transaction which may
constitute a change in control of the Company, the Committee may modify any
options granted hereunder, so as to accelerate, as a consequence of or in
connection with such transaction, the vesting of the director's right to
exercise any such option.
K. EFFECTIVE DATE OF PLAN
This Plan shall take effect on the date of adoption by the Board of
Directors of the Company.
L. TERMINATION OF PLAN
This Plan shall automatically terminate upon abandonment of the Plan
of Distribution by the Board of Directors of TBC.
M. AMENDMENT OF PLAN
The Board of Directors may suspend or discontinue this Plan or revise
or amend it in any respect whatsoever, provided, however, that no action may be
taken which alters or impairs any option previously granted without the consent
of the affected director.
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<PAGE> 254
N. NOTICE
Any written notice to the Company required by any of the provisions of
this Plan shall be addressed to the Secretary of the Company and shall become
effective when such notice is received.
O. GOVERNING LAW
This Plan and all determinations made and actions taken pursuant
hereto shall be governed by the law of the Commonwealth of Pennsylvania and
construed accordingly.
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<PAGE> 255
PHILLIPS & JACOBS, INCORPORATED
FAIRWAY CORPORATE CENTER, SUITE 222
4350 HADDONFIELD ROAD
PENNSAUKEN, NEW JERSEY 08109
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY CARD
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 1, 1994, 9:30 A.M.
The undersigned hereby appoints Philip J. Baur, Jr. and James F. Mullan and
each of them (with the full power to act alone), as Proxies of the undersigned,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated on the reverse side of this Proxy card, all
shares of Common Stock of Phillips & Jacobs, Incorporated (the "Company") held
of record by the undersigned on the record date of July 27, 1994 at the Annual
Meeting of Shareholders to be held on September 1, 1994 at the Pennsauken
Country Club, 3800 Haddonfield Road, Pennsauken, New Jersey, and at any
postponements or adjournments thereof, all as in accordance with the Notice of
Annual Meeting and Proxy Statement/Prospectus furnished with this Proxy.
(Continued and to be signed and dated on reverse side)
- -----------
Please mark your vote
X
as in this example
- -----------
*INSTRUCTION: To withhold authority to vote
for any individual nominee, strike
a line through or otherwise strike out the
individual nominee(s) name below:
<TABLE>
<S> <C> <C> <C> <C>
FOR AGAINST ABSTAIN FOR WITHHOLD
/ / / / / / / / / /
1. PROPOSAL TO APPROVE AND ADOPT the merger of *2. ELECTION OF THREE DIRECTORS in Class I (to
Momentum Corporation ("Momentum") into the hold office until the Merger is consummated
Company (the "Merger") described in the or, if the Merger is not consummated, until
accompanying Proxy Statement/Prospectus, which the Annual Meeting in 1997).
will be effected pursuant to an Agreement and NOMINEE: James F. Mullan, James L. Everett, III,
Plan of Reorganization dated as of May 27, 1994 Nelson G. Harris
by and between Momentum and the Company.
</TABLE>
<TABLE>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
3. PROPOSAL TO APPROVE the 1993 Long Term Indenture Plan: / / / / / /
4. PROPOSAL TO APPROVE the 1993 Replacement Option Plan
(P&J Spinoff): / / / / / /
5. PROPOSAL TO APPROVE the selection of Coopers & Lybrand
as independent certified public accountants for the
fiscal year ending December 31, 1994: / / / / / /
6. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING AND AT ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
This Proxy, if properly executed and received in time for the voting, will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this Proxy will be voted FOR the election as director of
all nominees named above in Proposal 2 and FOR Proposals 1, 3, 4 and 5 herein.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
SIGNATURE _________________________ DATE ___________________ SIGNATURE _________________________ DATE _________________________
Signature if held jointly
</TABLE>
NOTE: Please sign exactly as your name appears hereon. When shares are held by
joint tenants both should sign. When signing as attorney, executor,
administrator or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
<PAGE> 256
PROXY
FOR SPECIAL MEETING OF THE STOCKHOLDERS OF
MOMENTUM CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard E. Engebrecht and John H. Goddard,
and either of them, with full power of substitution, as proxies to vote the
shares which the undersigned is entitled to vote at the Special Meeting of the
Company to be held at the Koll Center Conference Center, 2nd Floor, Koll Center
Bellevue, 500-108th Avenue N.E., Bellevue, Washington, on September 1, 1994 at
9:00 a.m. (P.D.T.) and at any adjournments thereof.
1. To consider and vote upon the merger of Momentum Corporation into
Phillips & Jacobs, Incorporated, described in the accompanying Proxy
Statement/Prospectus to be effected pursuant to an Agreement and Plan of
Reorganization dated as of May 24, 1994 (the "Reorganization Agreement")
by and between Momentum and Phillips. The Reorganization Agreement
provides, among other things, for the merger of Momentum into Phillips,
which will be renamed PrimeSource, and, if the merger is approved and
completed, for each share of Momentum stock to be converted into .71
PrimeSource Shares.
/ / FOR / / AGAINST / / ABSTAIN And
2. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting and at any postponements
or adjournments thereof.
This proxy when properly signed will be voted in the manner directed herein
by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1.
Dated: , 1994
-------------------------
Signature
-------------------------
Signature if held jointly
IMPORTANT -- PLEASE SIGN
AND RETURN PROMPTLY. When
shares are held by joint
tenants, both should
sign. When signing as
attorney, executor,
administrator, trustee,
or guardian, please give
full title as such. If a
company, please sign in
full corporate name by
the president or other
authorized officer. If a
partnership, please sign
in partnership name by an
authorized person.
<PAGE> 257
APPENDIX
DESCRIPTION OF GRAPHICS AND IMAGES
1. On page 28 appears a map of the continental United States
illustrating the locations of Phillips' and Momentum's distribution
facilities. Seventeen stars represent and are placed on the various
locations of Momentum's facilities and sixteen solid rectangular shapes
represent and are placed on the various locations of Phillips' facilities.
2. The Phillips stock performance graph appears on page 92.
3. The Momentum stock performance graph appears on page 100.
<PAGE> 258
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Officers and Directors of PrimeSource will be subject to provisions of the
PBCL, the Amended Bylaws and certain indemnification agreements, which serve to
limit and, in specified instances, to indemnify them against certain liabilities
which they may incur in such capacities. These various provisions are described
generally below.
Limitation on Directors' Liability.
Article XII of the Amended Articles limits a director's liability to
PrimeSource or its shareholders for money damages for breaches of, or failure to
perform, his or her duties as a director to the maximum extent permitted under
Pennsylvania law. Under the PBCL, a director is generally obligated to act in
good faith, in a manner reasonably believed to be in the best interest of
PrimeSource, and with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances. Under this provision, a director is immune from liability for
money damages arising out of his or her failure to meet this standard, including
when the conduct constitutes gross negligence, unless such failure constitutes
self-dealing, willful misconduct or recklessness. The director is not, however,
immune from liability imposed under any criminal statute or for nonpayment of
taxes. This provision also does not affect any equitable remedies which do not
have the result of imposing monetary liability upon a director.
The Amended Articles further provide that in the event the PBCL is amended
in the future to further restrict the personal liability of directors, such
standard shall be deemed adopted by PrimeSource without further action by its
shareholders. Any repeal or modification of these provisions will not adversely
affect any right or protection of a director existing at the time of such repeal
or modification with respect to acts or omissions occurring prior to such repeal
or modification.
Indemnification.
The Amended Bylaws provide officers and directors with the maximum
indemnification permitted under the laws and public policy of the Commonwealth
of Pennsylvania. Under the Amended Bylaws, PrimeSource is obligated to indemnify
and defend its officers and directors, except for where the action or failure to
act giving rise to the claim for indemnification is determined by a court to
have constituted self-dealing, willful misconduct or recklessness. Thus,
indemnification may even be provided where the indemnified liability arises from
any litigation or judgment by or in the right of PrimeSource (i.e., a
shareholder's derivative suit) against the directors, officers or other persons
entitled to indemnification. The indemnification applies to expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, actually and
reasonably incurred by an indemnified director or officer arising out of any
claims against them in connection with their serving as an officer or director
of PrimeSource or as an officer, director, trustee, employee or agent of another
corporation or entity at the request of PrimeSource. In addition, no independent
determination that indemnification is appropriate under the circumstances will
be required.
PrimeSource is obligated to pay expenses incurred by a director or officer
in advance of the final disposition of an action, suit or proceeding, if the
director or officer agrees in writing to repay such advances if it is ultimately
determined that he or she is not entitled to be indemnified by PrimeSource. The
indemnification provisions of the Amended Bylaws are not exclusive of any other
rights to indemnification or advancement of expenses under contract, by law, by
action of the Board or shareholders or by judicial action.
The current directors of Phillips have entered into indemnification
agreements with Phillips. Although such indemnification agreements offer
substantially the same scope of coverage afforded by the provisions of the
Amended Bylaws, the indemnification agreements are direct contractual
obligations in favor of each individual. Therefore, in the event that the
Amended Bylaws are subsequently changed to reduce the scope of indemnification,
directors with indemnification agreements will not be adversely affected by such
changes. It is
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<PAGE> 259
anticipated that similar indemnification agreements will be entered into with
the new directors of PrimeSource after the Merger is effective.
Phillips presently carries directors' and officers' liability insurance and
PrimeSource plans to continue such insurance, provided the coverage and pricing
of such policies are reasonable. Insurance, however, is not a complete
replacement for the provisions in the Amended Bylaws and indemnification
agreements, since the availability of such insurance cannot be guaranteed, the
pricing of such policies has been volatile, and such policies ordinarily exclude
from coverage high risk circumstances such as contests for corporate control.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT INDEX
(a) EXHIBIT NUMBER AND DESCRIPTION
<TABLE>
<CAPTION>
FOOTNOTES
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<S> <C> <C>
2.1 Form of Agreement and Plan of Distribution executed by and between *
Momentum Distribution, Inc. and VWR Corporation (filed with General
Form for Registration of Securities on Form 10 filed November 13,
1989 and including Amendment #1 on Form 8 filed December 6, 1989;
Amendment #2 on Form 8 filed January 19, 1990; Amendment #3 on Form 8
filed February 9, 1990; and Amendment #4 on Form 8 filed March 2,
1990, File No. 0-18112)
2.2 Stock Purchase Agreement, dated September 1, 1993, for the sale of *
the stock of VWR Textiles & Supplies Inc., a wholly-owned subsidiary
of Momentum Corporation, to Hanes Companies, Inc. (filed as exhibit 2
to Form 8-K dated September 15, 1993, File No. 0-18112)
</TABLE>
<TABLE>
<S> <C> <C>
2.3 Stock Acquisition Agreement, dated September 30, 1993, for the sale *
of the stock of Momentum Textiles Inc., a wholly-owned subsidiary of
Momentum Corporation, to Textile Acquisition Inc. (filed as exhibit 2
to Form 8-K dated October 15, 1993, File No. 0-18112)
2.4 Agreement and Plan of Reorganization dated as of May 27, 1994 by and
between Momentum Corporation and Phillips & Jacobs, Incorporated
(Annex A to proxy Statement/Prospectus)
2.5 Form of Plan of Merger by and between Momentum Corporation and Phillips
& Jacobs, Incorporated (Annex B to Proxy Statement/Prospectus)
3.1 Amended and Restated Articles of Incorporation of Phillips & Jacobs, (1)
Incorporated
3.2 Phillips & Jacobs, Incorporated Bylaws (1)
3.3 Proposed Amended and Restated Articles of Incorporation of Phillips &
Jacobs, Incorporated to become effective upon consummation of the
Merger (Annex C to Proxy Statement/Prospectus)
3.4 Proposed Amended and Restated Bylaws of Phillips & Jacobs,
Incorporated to become effective upon consummation of the Merger
(Annex D to Proxy Statement/Prospectus)
5 Opinion of Stradley, Ronon, Stevens & Young Re: legality of shares
being issued
8.1 Form of Opinion of Stradley, Ronon, Stevens & Young Re certain tax matters
8.2 Form of Opinion of Preston Gates & Ellis Re certain tax matters
10.1 Form of Phillips & Jacobs, Incorporated 1993 Long Term Incentive Plan
(Annex H to Proxy Statement/Prospectus)
10.2 Form of Phillips & Jacobs, Incorporated Directors Indemnification (1)
Agreement (filed as exhibit 10.2 to Form 10)
</TABLE>
II-2
<PAGE> 260
<TABLE>
<CAPTION>
FOOTNOTES
---------
<S> <C> <C>
10.3 Form of Environmental Indemnification Agreement (filed as exhibit (1)
10.3 to Form 10)
10.4 Tasty Baking Company Pension Plan (filed as exhibit 10.4 to Form 10) (1)
10.5 Form of Supplemental Executive Retirement Plan Agreement (filed as (1)
exhibit 10.5 to Form 10)
10.6 Employment Agreement between Phillips & Jacobs, Incorporated and J.F. (1)
Mullan (filed as exhibit 10.6 to Form 10)
10.7 Employment Agreement between Phillips & Jacobs, Incorporated and F.G. (1)
Heinkel (filed as exhibit 10.7 to Form 10)
10.8 Employment Agreement between Phillips & Jacobs, Incorporated and D.M. (1)
Zewiske (filed as exhibit 10.8 to Form 10)
10.9 Employment Agreement between Phillips & Jacobs, Incorporated and W.A. (1)
DeMarco (filed as exhibit 10.9 to Form 10)
10.10 Amended and Restated Employment and Non-Competition Agreement between (2)
Dixie Type and D.G. Garner (filed as exhibit 10.10 to 1993 Form 10-K)
10.11 Form of Tax Matters Agreement between Tasty Baking Company and (1)
Phillips & Jacobs, Incorporated (filed as exhibit 10.11 to Form 10)
10.12 Agreement among Employers Participating in Certain Qualified Plans (1)
between Tasty Baking Company and Phillips & Jacobs, Incorporated
(filed as exhibit 10.12 to Form 10)
10.13 Phillips & Jacobs, Incorporated 401(k) Savings Plan and Trust (2)
Agreement (filed as exhibit 10.14 to 1993 Form 10-K)
10.14 Amendment No. 1 to Agreement Among Employers Participating in Certain
Qualified Plans (Exhibit 10.12 above) dated December 17, 1993
10.15 Trust Agreement dated as of November 17, 1989 between Phillips &
Jacobs, Incorporated and Meridian Trust Company relating to
Supplemental Executive Retirement Plan (Exhibit 10.5 above)
10.16 Phillips & Jacobs, Incorporated 1993 Replacement Option Plan (P&J
Spin-off) (Annex I to Proxy Statement/Prospectus)
10.17 Revolving Credit and Term Loan Agreement among Phillips & Jacobs, its (1)
subsidiaries and First Fidelity Bank, N.A., Pennsylvania (filed as
Exhibit 10.14 to Form 10)
10.18 First Amendment to Revolving Credit and Term Loan Agreement listed as
Exhibit 10.17
10.19 Agreement and Plan of Distribution (see Exhibit 2.1) *
10.20 Momentum Distribution Inc. 1989 Long-term Incentive Stock Plan as *
amended June 4, 1991 (filed with Registration Statement on Form S-8,
File No. 33-43920)
10.21 Momentum Distribution Inc. Retirement Plan as amended through March *
1, 1992 (filed as exhibit 10.5 to 1991 Form 10-K, File No. 0-18112,
dated March 29, 1992)
10.22 Amendment to Exhibit 10.21, Momentum Distribution Inc. Retirement *
Plan, effective January 1, 1992 (filed as exhibit 10.15 to 1992 Form
10-K, File No. 0-18112, dated March 30, 1993)
10.23 Momentum Distribution Inc. Executive Bonus Plan, dated March 1, 1990 *
(filed as exhibit 10.7 to 1990 Form 10-K, File No. 0-18112, dated
March 28, 1991)
10.24 Amended and Restated Agreements relating to compensation in the event *
of a change in control of Momentum Distribution Inc. between Momentum
Distribution Inc. and each of John H. Goddard, Jr. and Patsy R.
Turnipseed, effective February 26, 1990 (filed as exhibit 10.9 to
1990 Form 10-K, File No. 0-18112, dated March 28, 1991)
</TABLE>
II-3
<PAGE> 261
<TABLE>
<CAPTION>
FOOTNOTES
---------
<S> <C> <C>
10.25 Amendment to Exhibit 10.24, Amended and Restated Agreements relating *
to compensation in the event of a change in control of Momentum
Distribution Inc. and each of John H. Goddard, Jr. and Patsy R.
Turnipseed, executed December 11, 1992 (filed as exhibit 10.14 to
1992 Form 10-K, File No. 0-18112, dated March 30, 1993)
10.26 Momentum Distribution Inc. Revised and Restated Employee Stock *
Ownership Plan and Trust, effective January 1, 1992 (filed as exhibit
10.12 to 1992 Form 10-K, File No. 0-18112, dated March 29, 1993)
10.27 Restated Momentum Distribution Inc. Supplemental Benefits Plan, *
effective April 22, 1991 (filed as exhibit 10.13 to 1992 Form 10-K,
File No. 0-18112, dated March 30, 1993)
10.28 Momentum Money-Maker 401(k) Retirement Plan and Trust as Amended and *
Restated January 1, 1992 (filed as exhibit 10.16 to 1992 Form 10-K,
File No. 0-18112, dated March 30, 1993)
10.29 Momentum Graphics Bonus Plan, effective January 1, 1992 (filed as *
exhibit 10.17 to 1992 Form 10-K, File No. 0-18112, dated March 30,
1993)
10.30 Employment Agreement between Momentum Distribution Inc. and Mr. *
Richard E. Engebrecht dated December 9, 1992 (filed as exhibit 10.19
to 1992 Form 10-K, File No. 0-18112, dated March 30, 1993)
10.31 1993 Momentum Corporation 1993 Executive Incentive Plan (filed as *
exhibit 10.1 to 1993 Form 10-K, File No. 0-18112, dated March 29,
1994)
11 Computation of Per Share Income (Loss) of Phillips & Jacobs,
Incorporated for the three years ended December 31, 1993 and the
quarters ended March 31, 1994 and 1993
21 Subsidiaries of the Registrant
23.1 Consent of Coopers & Lybrand
23.2 Consent of Ernst & Young
23.3 Consent of McGladrey & Pullen
23.4 Consent of Deloitte & Touche
23.5 Consent of Stradley, Ronon, Stevens & Young
23.6 Consent of Preston Gates & Ellis
23.7 Consent of Berwind Financial Group, Inc. is included in Annex E to
the Proxy Statement/Prospectus
23.8 Consent of Piper Jaffray Inc. is included in Annex G to the Proxy
Statement/ Prospectus
99.1 Consent of Named Director: Richard E. Engebrecht
99.2 Consent of Named Director: John H. Goddard
99.3 Consent of Named Director: Jerrold B. Harris
99.4 Consent of Named Director: Gary MacLeod
99.5 Consent of Named Director: Andrew V. Smith
99.6 Consent of Named Director: James H. Wiborg
99.7 Consent of Named Director: Edward N. Patrone
</TABLE>
- ---------------
* Incorporated by reference from indicated filing.
(1) Filed with General Form for Registration of Securities on Form 10 filed by
Phillips & Jacobs, Incorporated on May 12, 1993, and as subsequently amended
by filings on Form 8 filed May 28, 1993, July 7, 1993 and July 13, 1993,
File No. 0-21750.
(2) Filed as exhibits to the Phillips & Jacobs, Incorporated annual report on
Form 10-K for the year ended December 31, 1993, dated March 25, 1993, File
No. 0-21750.
II-4
<PAGE> 262
(b) FINANCIAL STATEMENT SCHEDULES
Opinion of Coopers & Lybrand with regard to financial statement schedules
of Phillips & Jacobs, Incorporated
Schedule VIII. Valuation of Qualifying Accounts of Phillips & Jacobs,
Incorporated
Schedule IX. Short-Term Borrowing of Phillips & Jacobs, Incorporated
ITEM 22. UNDERTAKINGS
1. The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
2. The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415 (Section 230.415 of this chapter),
will be filed as a part of an amendment to that registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
3. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
4. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
5. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 263
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Philadelphia, Commonwealth of Pennsylvania on August
4, 1994.
PHILLIPS & JACOBS, INCORPORATED
By /s/ JAMES F. MULLAN
------------------------------
James F. Mullan
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ------------------------------- ----------------
<S> <C> <C>
/s/ JAMES F. MULLAN President and Chief Executive August 4, 1994
------------------------------ Officer and Director of
James F. Mullan Phillips & Jacobs,
Incorporated (Principal
Executive Officer)
/s/ WILLIAM A. DeMARCO Vice President of Finance and August 4, 1994
------------------------------ Operations of Phillips &
William A. DeMarco Jacobs, Incorporated
(Principal Financial Officer
and
Principal Accounting Officer)
/s/ PHILIP J. BAUR, JR. Chairman of the Board of August 4, 1994
------------------------------ Directors and Director of
Philip J. Baur, Jr. Phillips & Jacobs,
Incorporated
/s/ FRED C. ALDRIDGE, JR. Director of Phillips & Jacobs, August 4, 1994
------------------------------ Incorporated
Fred C. Aldridge, Jr.
/s/ JAMES L. EVERETT, III Director of Phillips & Jacobs, August 4, 1994
------------------------------ Incorporated
James L. Everett, III
/s/ MYRON S. GELBACH, JR. Director of Phillips & Jacobs, August 4, 1994
------------------------------ Incorporated
Myron S. Gelbach, Jr.
/s/ NELSON G. HARRIS Director of Phillips & Jacobs, August 4, 1994
------------------------------ Incorporated
Nelson G. Harris
</TABLE>
II-6
<PAGE> 264
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ------------------------------- ----------------
<S> <C> <C>
/s/ JOHN M. PETTIINE Director of Phillips & Jacobs, August 4, 1994
-------------------------------- Incorporated
John M. Pettine
/s/ HAROLD F. STILL, JR. Director of Phillips & Jacobs, August 4, 1994
-------------------------------- Incorporated
Harold F. Still, Jr.
/s/ JUDITH M. VON SELDENECK Director of Phillips & Jacobs, August 4, 1994
-------------------------------- Incorporated
Judith M. von Seldeneck
</TABLE>
II-7
<PAGE> 265
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Phillips & Jacobs, Incorporated
In connection with our audits of the consolidated financial statements of
Phillips & Jacobs, Incorporated and its subsidiaries as of December 31, 1993 and
1992, and for each of the three years in the period ended December 31, 1993,
which financial statements, together with our opinion thereon, are included in
this Registration Statement on Form S-4, we have also audited the financial
statement schedules listed in Item 21(b) herein.
In our opinion, these financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information required to be included therein.
/s/ COOPERS & LYBRAND
Philadelphia, Pennsylvania
February 18, 1994
S-1
<PAGE> 266
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULES
SCHEDULE VIII. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
COLUMN C
--------------------------
COLUMN B COLUMN E
---------- ADDITIONS COLUMN D ------------
COLUMN A BALANCE AT CHARGED TO ----------- BALANCES AT
- ------------------------------------ BEGINNING CHARGED TO OTHER DEDUCTIONS END OF
CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS WRITE-OFFS PERIOD
- ------------------------------------ ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31,
1993:
Allowance for doubtful accounts... $ 835,534 $ 879,913 $ (778,548) $ 936,899
Amortization of goodwill.......... 323,245 55,886 379,133
Inventory valuation reserves...... 132,926 31,261 $ 182,760(1) (114,531) 232,416
---------- ----------- ----------- ----------- ------------
$1,291,707 $ 987,070 $ 182,760 $ (893,079) $ 1,548,448
========= ======== ======== ========= =========
For the year ended December 31,
1992:
Allowance for doubtful accounts... $ 724,836 $ 646,344 $ (535,646) $ 835,534
Amortization of goodwill.......... 271,895 51,352 323,247
Inventory valuation reserves...... 105,371 80,459 (52,904) 132,926
---------- ----------- ----------- ------------
$1,102,102 $ 778,155 $ (588,550) $ 1,291,707
========= ======== ========= =========
For the year ended December 31,
1991:
Allowance for doubtful accounts... $ 748,082 $ 528,371 $ (551,617) $ 724,836
Amortization of goodwill.......... 220,543 51,352 271,895
Inventory valuation reserves...... 89,456 32,713 (16,798) 105,371
---------- ----------- ----------- ------------
$1,058,081 $ 612,436 $ (568,415) $ 1,102,102
========= ======== ========= =========
</TABLE>
- ---------------
(1) Reflects acquisition of Jetcom.
S-2
<PAGE> 267
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
SCHEDULE IX. SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
COLUMN C COLUMN D COLUMN E COLUMN F
COLUMN B ---------- ------------ ------------ ------------
COLUMN A ---------- WEIGHTED MAXIMUM AVERAGE WEIGHTED
- --------------------------------------- BALANCE AT AVERAGE OUTSTANDING OUTSTANDING AVG INTEREST
CATEGORY OF AGGREGATE BEGINNING INTEREST DURING DURING RATE DURING
SHORT-TERM BORROWINGS(1) OF PERIOD RATE PERIOD(2) PERIOD(2) PERIOD(3)
- --------------------------------------- ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1993:
Banks................................ $1,095,000 6.00% $ 1,095,000 $ 45,000 6.00%
========= ========= =========
For the year ended December 31, 1992:
Banks................................ $ 216,000 6.00% $ 450,000 $131,000 6.25%
========= ========= =========
For the year ended December 31, 1991:
Banks................................ $ 255,000 6.50% $ 450,000 $137,000 8.46%
========= ========= =========
</TABLE>
- ---------------
(1) Reflects borrowings with various banks at or below the prime rate of
interest (see Note 7 of Notes to Consolidated Financial Statements).
(2) Calculated on the basis of the borrowings outstanding at the end of each
week.
(3) Calculated on the basis of the interest paid on the average borrowings
outstanding at the end of each week.
S-3
<PAGE> 268
EXHIBIT INDEX
EXHIBIT NUMBER AND DESCRIPTION
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C> <C>
2.4 Agreement and Plan of Reorganization dated as of May 27, 1994 by and Annex A to Proxy
between Momentum Corporation and Phillips & Jacobs, Incorporated Statement/Prospectus
2.5 Form of Plan of Merger by and between Momentum Corporation and Phillips Annex B to Proxy
& Jacobs, Incorporated Statement/Prospectus
3.3 Proposed Amended and Restated Articles of Incorporation of Phillips & Annex C to Proxy
Jacobs, Incorporated to become effective upon consummation of the Statement/Prospectus
Merger
3.4 Proposed Amended and Restated Bylaws of Phillips & Jacobs, Annex D to Proxy
Incorporated to become effective upon consummation of the Merger Statement/Prospectus
5 Opinion of Stradley, Ronon, Stevens & Young Re: legality of shares
being issued
8.1 Form of Opinion of Stradley, Ronon, Stevens & Young Re certain tax matters
8.2 Form of Opinion of Preston Gates & Ellis Re certain tax matters
10.1 Form of Phillips & Jacobs, Incorporated 1993 Long Term Incentive Plan Annex H to Proxy
10.14 Amendment No. 1 to Agreement Among Employers Participating in Certain
Qualified Plans dated December 17, 1993
10.15 Trust Agreement dated as of November 17, 1989 between Phillips &
Jacobs, Incorporated and Meridian Trust Company relating to
Supplemental Executive Retirement Plan
10.16 Phillips & Jacobs, Incorporated 1993 Replacement Option Plan (P&J Annex I to Proxy
Spin-off) Statement/Prospectus
10.18 First Amendment to Revolving Credit and Term Loan Agreement
11 Computation of Per Share Income (Loss) of Phillips & Jacobs,
Incorporated for the three years ended December 31, 1993 and the
quarters ended March 31, 1994 and 1993
21 Subsidiaries of the Registrant
23.1 Consent of Coopers & Lybrand
23.2 Consent of Ernst & Young
23.3 Consent of McGladrey & Pullen
23.4 Consent of Deloitte & Touche
23.5 Consent of Stradley, Ronon, Stevens & Young
23.6 Consent of Preston Gates & Ellis
23.7 Consent of Berwind Financial Group, Inc. Included in Annex E to
the Proxy Statement/Prospectus
23.8 Consent of Piper Jaffray Inc. Included in Annex G to the Proxy
Statement/ Prospectus
99.1 Consent of Named Director: Richard E. Engebrecht
99.2 Consent of Named Director: John H. Goddard
99.3 Consent of Named Director: Jerrold B. Harris
99.4 Consent of Named Director: Gary MacLeod
99.5 Consent of Named Director: Andrew V. Smith
99.6 Consent of Named Director: James H. Wiborg
99.7 Consent of Named Director: Edward N. Patrone
</TABLE>
<PAGE> 1
EXHIBIT 5
August 4, 1994
Phillips & Jacobs, Incorporated
Fairway Corporate Center
Suite 222
4350 Haddonfield Road
Pennsauken, New Jersey 08109
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to and for Phillips & Jacobs,
Incorporated, a Pennsylvania corporation (the "Company"), in connection with
the preparation and filing with the Securities and Exchange Commission of a
registration statement on Form S-4 (the "Registration Statement"), for the
purpose of registering under the Securities Act of 1933, as amended, up to a
maximum of 2,512,878 shares (the "Shares") of the Company's common stock, $.01
par value per share (the "Common Stock"). The Shares are to be issued to the
holders of the issued and outstanding common stock of Momentum Corporation, a
Delaware corporation ("Momentum"), upon consummation of the merger (the
"Merger") of Momentum into the Company, which will be renamed PrimeSource
Corporation, pursuant to an Agreement and Plan of Reorganization (the
"Reorganization Agreement") dated as of May 27, 1994 between the Company and
Momentum. Terms used herein and not described herein shall have the meanings
ascribed to them in the Reorganization Agreement.
In our capacity as counsel, we have been requested to render
the opinion set forth in this letter and in connection therewith, we have
reviewed the following documents: (i) the Registration Statement, (ii) the
Reorganization Agreement, (iii)
<PAGE> 2
Phillips & Jacobs, Incorporated
August 4, 1994
Page 2
the Merger Agreement, (iv) Amended and Restated
Articles of Incorporation of the Company, as amended to date, (v) proposed
Amended and Restated Articles of Incorporation of the Company included in the
Registration Statement, which will become effective upon consummation of the
Merger, (vi) Bylaws of the Company, as amended to date, (vii) proposed Amended
and Restated Bylaws of the Company included in the Registration Statement,
which will become effective upon consummation of the Merger, (viii) minutes of
the proceedings of the Board of Directors of the Company and (ix) such other
documents, instruments and records as we deemed necessary or appropriate for
purposes of rendering the opinion set forth herein.
In rendering this opinion, we have assumed and relied upon,
without independent investigation, (i) the authenticity, completeness, truth
and due authorization and execution of all documents submitted to us as
originals, (ii) the genuineness of all signatures on all documents submitted to
us as originals, and (iii) the conformity to the originals of all documents
submitted to us as certified or photostatic copies. We have further assumed
without independent investigation that all of the issued and outstanding shares
of common stock of Momentum will be duly authorized, validly issued, fully paid
and nonassessable shares of Momentum immediately prior to the Effective Time.
No opinion is expressed herein in any respect as to (i)
federal and state securities laws and regulations, (ii) pension and employee
benefit laws and regulations, including without limitation the Employee
Retirement Income Security Act of 1974, as amended, and (iii) federal and state
tax laws and regulations.
The opinion expressed herein is limited and qualified in all
respects by the effects of general principles of equity, whether applied by a
court of law or equity, and by the effects of bankruptcy, insolvency,
reorganization, moratorium, arrangement, fraudulent conveyance or fraudulent
transfer, receivership, and other laws now or hereafter in force affecting the
rights and remedies of creditors generally (not just creditors of specific
types of debtors) and other laws now or hereafter in force affecting generally
only creditors of specific types of debtors.
The law covered by the opinion expressed herein is limited to
the Federal statutes, judicial decisions and rules and regulations of the
governmental agencies of the United States and the statutes, judicial and
administrative decisions and rules and
<PAGE> 3
Phillips & Jacobs, Incorporated
August 4, 1994
Page 3
regulations of the governmental agencies of the Commonwealth of Pennsylvania.
This opinion letter is given only with respect to laws and
regulations presently in effect. We assume no obligation to advise you of any
changes in law or regulation which may hereafter occur, whether the same are
retroactively or prospectively applied, or to update or supplement this letter
in any fashion to reflect any facts or circumstances which hereafter come to
our attention.
Based upon, and subject to, the foregoing, we are of the
opinion, as of the date hereof, that the Shares have been duly authorized and,
when issued in accordance with the terms and conditions of the Reorganization
Agreement and the Merger Agreement (including but not limited to the approval
of the Merger by the shareholders of the Company and the Registration Statement
being declared effective by the Securities and Exchange Commission) and upon
consummation of the Merger, will be validly issued, fully paid and
nonassessable shares of the Common Stock of the Company.
We hereby consent to the filing of this opinion letter as an
Exhibit to the Registration Statement and to any reference to our firm in the
Proxy Statement/Prospectus forming a part thereof as legal counsel who have
passed upon the legality of the securities offered thereby.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG
By: /s/ DAVID E. BEAVERS
----------------------
David E. Beavers, A Partner
<PAGE> 1
EXHIBIT 8.1
August ___, 1994
Board of Directors
Phillips & Jacobs, Incorporated
Fairway Corporate Center, Suite 222
4350 Haddonfield Road
Pennsauken, NJ 08109
Re: COMBINATION OF PHILLIPS & JACOBS, INCORPORATED
("PHILLIPS") AND MOMENTUM CORPORATION ("MOMENTUM") IN
A REORGANIZATION DESCRIBED IN SECTION 368(A)(1)(A) OF
THE INTERNAL REVENUE CODE OF 1986,AS AMENDED (THE
"CODE")
------------------------------------------------------
Ms. von Seldeneck and Gentlemen:
You have requested our opinion as to certain federal income
tax consequences of the combination of Phillips and Momentum whereby Momentum
will merge with and into Phillips, and each outstanding share of Momentum
common stock, par value $1.00 per share, will be converted into .71 shares of
Phillips common stock, par value $.01 per share and the right to receive a cash
payment in lieu of the issuance of fractional shares (the "Merger"). In
connection with the Merger, we understand that the articles of incorporation of
Phillips will be amended to increase the number of shares of authorized
capital, to change its corporate name and to make certain other changes. All
terms used herein unless otherwise defined are used as defined in the Agreement
and Plan of Reorganization entered into between Momentum and Phillips as of May
27, 1994 (the "Agreement").
<PAGE> 2
Board of Directors
Phillips & Jacobs, Incorporated
August , 1994
Page 2
On August 1, 1993, Tasty Baking Company ("TBC") distributed
all the shares of Phillips Common Stock (the "Phillips Common Stock"), to its
shareholders in a transaction (the "Distribution") intended to qualify for
nonrecognition of gain or loss pursuant to Section 355 of the Code.
Immediately prior to the Distribution, TBC Investment Company, a wholly owned
subsidiary of TBC and owner of 100% of the issued and outstanding Phillips
Common Stock liquidated and distributed all of its assets, including the
Phillips Common Stock, subject to its liabilities, to TBC pursuant to an
Agreement and Plan of Merger (the "Liquidation"). Concurrently with the
Liquidation and prior to the Distribution, Phillips adopted a Plan of
Recapitalization (the "Recapitalization") pursuant to which Phillips exchanged,
by means of a reclassification under the Pennsylvania Business Corporation Law,
5,000,000 shares of its common stock (having a par value of $.01 per share) for
252,001 shares of its common stock (having a par value of $1.00 per share)
issued and outstanding prior to the effective date of the Recapitalization. On
June 30, 1993, our firm rendered a legal opinion as counsel to TBC and Phillips
to the effect that no gain or loss would be recognized to Phillips, TBC and
TBC's shareholders for federal income tax purposes as a result of the
Distribution, Liquidation and Recapitalization (the "1993 Opinion").
In rendering our opinion with respect to the Merger, we
reviewed and relied upon (a) the Agreement adopted by the Phillips and Momentum
Boards of Directors on May 27, 1994; (b) the Merger Agreement adopted by the
Phillips and Momentum Boards of Directors on May 27, 1994; (c) the
registration statement on Form S-4, including the prospectus and joint proxy
statement of Phillips and Momentum contained therein, which was declared
effective by the Securities and Exchange Commission on , 1994;
(d) certain representations concerning the Merger made to us by Phillips and
Momentum in a letter dated August , 1994, (the "Representation Letter"); (e)
all other documents, financial and other reports and corporate minutes which we
deemed relevant or appropriate; and (f) all matters referred to in the 1993
Opinion.
Our review of items (a) through (e) of the preceding paragraph
has been without independent investigation. We have also relied upon the
truth, authenticity, accuracy and completeness of all documents, certifications
and instruments examined and the statements, covenants, representations and
warranties contained therein, the genuineness of all documents submitted to us
as originals, the conformity of the originals of
<PAGE> 3
Board of Directors
Phillips & Jacobs, Incorporated
August , 1994
Page 3
all documents submitted to us as certified or photostatic copies and the due
execution and delivery of all documents where execution and delivery are
pre-requisites to the effectiveness thereof.
Based on the foregoing and provided the Merger is carried out
in accordance with, and qualifies as a statutory merger pursuant to, the
applicable laws of the Commonwealth of Pennsylvania and the State of Delaware,
the Merger Agreement, and the Representation Letter, it is our opinion that:
1. The Merger will constitute a reorganization within
the meaning of Section 368(a)(1)(A) of the Code. Both Phillips and Momentum
will be a "party to a reorganization" within the meaning of section 368(b) of
the Code.
2. No gain or loss will be recognized to Phillips upon
receipt of the assets of Momentum in exchange for Phillips common stock.
(Section 1032(a) of the Code).
3. The basis of the Momentum assets in the hands of
Phillips will be the same as the basis of the Momentum assets in the hands of
Momentum immediately prior to the transaction. (Section 362(b) of the Code).
4. The holding period of the Momentum assets received by
Phillips will include the period during which such assets were held by Momentum
(Section 1223(2) of the Code).
5. Pursuant to Section 381(a) of the Code and Treasury
Regulation Section 1.381(a)-1, Phillips will succeed to and take into account
the items (i.e., tax attributes) of Momentum described in Section 381(c) of the
Code. These items will be taken into account by Phillips subject to the
conditions and limitations specified in Sections 381, 382, 383, and 384 of the
Code and the Treasury regulations thereunder.
6. As provided by Section 381(c)(2) of the Code and
Treasury Regulation section 1.381(c)(2)-1, Phillips will succeed to and take
into account the earnings and profits, or deficit in earnings and profits, of
Momentum as of the date of the transfer. Any deficit in earnings and profits
of Momentum or Phillips may be used only to offset earnings and profits
accumulated after the date of transfer. Any earnings and profits of Momentum
or Phillips accumulated before the date of transfer will be used to
<PAGE> 4
Board of Directors
Phillips & Jacobs, Incorporated
August , 1994
Page 4
offset any deficit in earnings and profits incurred after the transfer.
7. The Merger will not have a Material Adverse Effect on
the federal income tax consequences of the Distribution to the Phillips'
shareholders.
We express no opinion as to whether the Merger will have a
Material Adverse Effect on the federal income tax consequences of the 1990
distribution of the stock of Momentum Distribution, Inc. by VWR Corporation
which was the subject of a private letter ruling issued by the Internal Revenue
Service on February 23, 1990.
Our opinions are based upon the Code, as amended, the
applicable Treasury Regulations promulgated thereunder, the present positions
of the Internal Revenue Service as set forth in published revenue rulings and
revenue procedures and existing judicial decisions, all of which are subject to
change either prospectively or retroactively in such a fashion as to have a
material adverse effect upon the conclusions reached in our opinions as
aforesaid. In rendering our opinion based on the foregoing, you should be
aware that our opinion is not binding upon the Internal Revenue Service or any
court and there is no assurance that the Internal Revenue Service would not
successfully assert a contrary opinion upon an audit of the relevant tax return
of any party to the Merger or shareholder thereof, or otherwise.
Our opinions are conditioned upon the performance by Phillips
and Momentum of their undertakings in the Representation
<PAGE> 5
Board of Directors
Phillips & Jacobs, Incorporated
August , 1994
Page 5
Letter. These opinions are being rendered to Phillips and may be relied upon
only by Phillips and its shareholders.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG
By:__________________________________
William S. Pilling, III, a Partner
<PAGE> 1
EXHIBIT 8.2
August , 1994
Momentum Corporation
Koll Center Bellevue
500 108th Avenue N.E.
Bellevue, Washington 98004
Re: MOMENTUM CORPORATION: MERGER OF MOMENTUM INTO PHILLIPS & JACOBS,
INCORPORATED
Dear Sir or Madam:
This opinion is being delivered to you in connection with Section
7.3(e) of the Agreement and Plan of Reorganization (the "Agreement") by and
between MOMENTUM CORPORATION ("Momentum"), a Delaware corporation, and PHILLIPS
& JACOBS, INCORPORATED ("Phillips"), a Pennsylvania corporation, dated as of
May 27, 1994.
Except as otherwise provided, capitalized items referred to herein
have the same meaning as set forth in the Agreement. All Section references
unless otherwise indicated are to the Internal Revenue Code of 1986, as amended
(the "Code").
Pursuant to the Agreement, Momentum will merge with and into Phillips,
(the "Merger"), which will be renamed PrimeSource Corporation ("PrimeSource").
Phillips shareholders will retain their ownership of Phillips Shares under the
name of PrimeSource. Each outstanding share of Momentum common stock, par
value $1.00 per share, will be converted into .71 shares of PrimeSource common
stock, par value $.01 per share and the right to receive a cash payment in lieu
of the issuance of fractional shares, and as a result thereof the identity and
separate existence of Momentum will cease. In connection with the Merger, the
Articles of Incorporation of Phillips will be amended to increase the number of
shares of authorized capital, to change its corporate name and to make certain
other changes.
We have acted as legal counsel to Momentum in connection with the
Merger. As such, and for the purposes of rendering this opinion, we have
examined and are relying upon, without independent investigation or review
thereof, the truth and accuracy, at all times, of the statements, covenants,
representations and warranties contained in the following documents:
<PAGE> 2
August ___, 1994
Page 2
1. The Agreement adopted by the Phillips and Momentum Boards of
Directors as of May 27, 1994;
2. The registration statement on Form S-4, including the
prospectus and joint proxy statement of Phillips and Momentum contained
therein, which was declared effective by the Securities and Exchange Commission
on ____________________, 1994;
3. Representations made to us by Momentum and Phillips in a
letter reproduced as Exhibit A hereto; and
4. Such other instruments and documents related to the formation,
organization, and operation of Momentum and Phillips, the consummation of the
Merger, and the transactions contemplated thereby as we deemed necessary or
appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon without independent investigation or
review) that:
1. Original documents (including signatures) are authentic,
documents submitted to us as copies conform to the original documents and there
has been, or will be by the Closing Date of the Merger), due execution and
delivery of all documents where execution and delivery are prerequisites to
effectiveness thereof; and
2. The Merger will be effective under the applicable laws of the
Commonwealth of Pennsylvania and the State of Delaware.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations, and qualifications set forth herein, we
are of the opinion that:
1. The Merger will constitute a reorganization within the meaning
of Section 368(a)(1)(A) of the Code. Both Momentum and Phillips will be a
"party to the reorganization" within the meaning of Section 368(b) of the Code;
2. No gain or loss will be recognized by holders of Momentum
Shares, except that a Momentum stockholder who receives cash in the Merger in
lieu of a fractional interest in PrimeSource Shares will be treated for federal
income tax purposes as having received cash in redemption of such fractional
share interest. The stockholder will recognize gain or loss as of the
Effective Time equal to the difference between the amount of cash received and
the portion of the stockholder's adjusted tax basis in the Momentum Share
allocable to such fractional interest. Any gain or loss generally will be
capital gain or loss if the stockholder holds the Momentum Shares as
<PAGE> 3
August ___, 1994
Page 3
a capital asset at the Effective Time and will be long-term capital gain if the
holding period for the fractional interest deemed to be received and then
redeemed is more than one year;
3. The aggregate tax basis of PrimeSource Shares received in the
Merger will equal the aggregate tax basis of Momentum Shares exchanged
therefor, reduced by any amount allocable to any fractional share interest of
Momentum shareholders for which cash is received;
4. No gain or loss will be recognized to Momentum in connection
with the Merger;
5. Provided that the Momentum Shares are held as a capital asset
at the Effective Time, the holding period of PrimeSource Shares will include
the holding period of Momentum Shares; and
6. The tax basis of the Momentum assets in the hands of
PrimeSource will be the same as the basis of such assets in the hands of
Momentum immediately prior to the Effective Time and PrimeSource will generally
succeed to and take into account the tax attributes of Momentum.
In addition to the assumptions set forth above, this opinion is
subject to the exemptions, limitations and qualifications set forth below:
1. This opinion represents and is based upon our best judgment
regarding the application of federal income tax laws arising under the Code,
existing judicial decisions, administrative regulations and published rulings
and procedures. Our opinion is not binding upon the Internal Revenue Service
or the courts and there is no assurance that the Internal Revenue Service could
not successfully assert a contrary opinion. Furthermore, no assurance can be
given that future legislation, judicial or administrative changes, either on a
prospective or retroactive basis, would not adversely effect the accuracy of
the conclusions stated herein.
2. This opinion addresses only the classification of the Merger
as a reorganization under Section 368 of the Code and does not address any
other federal, state, local or foreign tax consequences that may result from
the Merger or any other related transactions.
3. No opinion is expressed as to any transaction other than the
Merger as described in this opinion.
4. This opinion has been delivered to you for the purpose of
satisfying the conditions set forth in the Agreement and is intended solely for
your benefit; except as provided in the next sentence, it may not be relied
upon for any other purpose or by any other person or entity and it may not be
made available to any other person or entity without our prior written consent.
Very truly yours,
PRESTON GATES & ELLIS
By
Charles H. Purcell
<PAGE> 1
EXHIBIT 10.14
AMENDMENT NO. 1 TO AGREEMENT AMONG EMPLOYERS
PARTICIPATING IN CERTAIN QUALIFIED PLANS
This Amendment is made this 17th day of December, 1993, by Tasty
Baking Company ("TBC") and Phillips & Jacobs, Incorporated ("P&J").
W I T N E S S E T H:
WHEREAS, TBC and P&J entered into an Agreement Among Employers
Participating in Certain Qualified Plans, dated June 18, 1993, (the
"Agreement") to provide for the effective and efficient operation and
administration of the Tasty Baking Company Pension Plan, and the termination of
P&J's participation in the Plan under certain circumstances, and for the
termination of P&J's participation in the Tasty Baking Company Thrift Plan
("Thrift Plan") and the Tasty Baking Company Employee Stock Ownership Plan
("ESOP"); and
WHEREAS, the Agreement provides that P&J shall no longer be entitled
to participate in the ESOP after the effective date of the spin-off of the
stock of P&J to the shareholders of TBC; and
WHEREAS, TBC and P&J desire to amend the Agreement to permit P&J to be
a participating employer in the ESOP through the end of the current plan year
of the ESOP.
NOW, THEREFORE, for good and valuable consideration, intending to be
legally bound, the Agreement is amended effective as of the effective date as
defined in the Agreement as follows:
The first sentence of Section 8(a) of the Agreement is amended to read
as follows:
"The parties agree that P&J shall continue to be a participating
employer in the Thrift Plan and the ESOP until January 1, 1994 and
that employees of P&J who were participants in the Thrift Plan and
ESOP as of the effective date of the spin-off of the stock of P&J to
the shareholders of TBC shall continue to be eligible to participate
in the ESOP and Thrift Plan until January 1, 1994."
IN WITNESS WHEREOF, TBC and P&J have caused this Amendment to be
executed by their duly authorized officers as of the date and year first
written above.
ATTEST: TASTY BAKING COMPANY
/s/ Elizabeth H. Gemmill By:/s/ Carl S. Watts
- ------------------------ --------------------------
Carl S. Watts, President
ATTEST: PHILLIPS & JACOBS, INCORPORATED
/s/ William A. DeMarco By:/s/ James F. Mullan
- ------------------------ --------------------------
James F. Mullan, President
<PAGE> 1
EXHIBIT 10.15
TRUST AGREEMENT
THIS TRUST AGREEMENT (hereinafter referred to as "Agreement") made as
of this 17th day of November 1989, by and between Phillips & Jacobs, Inc., a
Pennsylvania corporation (hereinafter referred to as "Company"), and Meridian
Trust Company (hereinafter referred to as "Trustee").
W I T N E S S E T H:
WHEREAS, the Company has established a Supplemental Executive
Retirement Plan (hereinafter referred to as "Plan"), attached hereto as Exhibit
"A", which grants supplemental retirement benefits to certain executives of the
Company (hereinafter referred to as "Employees") and their spouses under
certain conditions; and
WHEREAS, the Company wishes to establish a trust (hereinafter called
"Trust") and to transfer to the Trust, but only upon a Potential Change of
Control of the Company, a certain sum of money which shall be held therein,
subject to the claims of the Company's creditors in the event of the Company's
insolvency, until paid to the Employees or their spouses as beneficiaries of
the Trust (hereinafter referred to as "Trust Beneficiaries") as supplemental
retirement income benefits (hereinafter referred to as "Supplemental Benefits")
in such amount and manner and at such times as specified in the Plan; and
WHEREAS, the Trustee is independent of, and is not subject to the
direct or indirect control of, either the Company or the Trust Beneficiaries;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
ARTICLE I: TRUST FUND.
A. Except as provided in Article IV, the Trust hereby
established shall be irrevocable.
B. The Trust is intended to be a grantor trust, within the
meaning of Section 671 of the Internal Revenue Code of 1986, as amended, and
shall be construed accordingly.
C. The principal of the Trust, and any earnings thereon
which are not paid to the Company as provided in Article
<PAGE> 2
IV and Article V, shall be held separate and apart from other funds of the
Company and shall be used exclusively for the uses and purposes herein set
forth. Neither the Trust Beneficiaries, nor the Plan, shall have any preferred
claim on, or any beneficial ownership interest in, any assets of the Trust
prior to the time such assets are paid to the Trust Beneficiaries as
Supplemental Benefits as provided in Article III of this Agreement. All
rights created under the Plan and this Agreement in the Trust Beneficiaries
shall be mere unsecured contractual rights against the Company.
ARTICLE II: CONTRIBUTIONS BY THE COMPANY.
A. Upon a Potential Change in Control (as hereinafter
defined) of the Company, the Company shall transfer to the Trustee that sum of
money which is sufficient to purchase from an insurance company (the "Insurance
Company") with a rating of B or better in Best's annuities which will provide
the benefits in the amounts and at the times due to all Trust Beneficiaries of
the Plan. For purposes of determining the purchase price of such annuity
policies, the retirement date for Employees who are Trust Beneficiaries shall
be presumed to be the date upon which the Potential Change in Control occurred.
B. A Potential Change in Control occurs when (1) the
Company or its parent Tasty Baking Company (herinafter "TBC") has entered into
an agreement, the consummation of which would result in the occurrence of a
Change in Control of the Company or TBC; (2) any person or entity has publicly
announced an intention to take or consider taking actions which if consummated
would constitute a Change in Control of the Company or TBC; (3) any person or
entity, excluding persons or entities who on the date hereof have such
"beneficial ownership", has become the "beneficial owner" (as determined
pursuant to Sections 13(d) and 14(d) of the Securities Exchange Act of 1934),
directly or indirectly, of securities of the Company or TBC representing 10% or
more of the combined voting power of the outstanding securities of the Company
or of TBC; or (4) the Board of Directors of TBC has adopted a resolution to the
effect that such a Potential Change in Control of the Company or TBC has
occurred.
C. A Change in Control is that change in control of the
Company or TBC which is of a nature which would be required to be reported to
the Securities and Exchange Commission pursuant to Schedule 14A of Regulation
14A or any successor provision (whether or not the Company or TBC is then
subject to such reporting requirements). A Change in Control will be deemed to
have occurred if any person other than persons or entities who on the date
hereof have such "beneficial ownership", is or becomes the "beneficial owner"
(as determined pursuant to Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934) of 25% or more of
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<PAGE> 3
the combined voting power of the outstanding securities of the Company or TBC,
or if during any two consecutive year periods, the directors of TBC at the
beginning of such periods cease for any reason during the two-year period to
constitute a majority of the Board of Directors of TBC.
D. If a Change in Control occurs, the Trustee shall purchase
an annuity contract with respect to each Trust Beneficiary who is an Employee,
providing monthly payments to the Trustee of amounts due the Trust Beneficiary
under the Plan. Written notice of such event received by the Trustee from the
Board of Directors or the Chief Executive Officer of the Company shall be
sufficient evidence of a Change of Control. In the event a Trust Beneficiary
is the spouse of a deceased Employee, the commencement date of the annuity
shall be the date of the Change in Control. Upon a Change of Control, the
Company shall contribute to the Trust such additional sums as shall reflect a
recomputation of the Trust Beneficiaries Supplemental Benefits as of the date
of the commencement of payment of such Benefits.
E. The Trustee shall cause each annuity contract to
contain a provision requiring, on notice to the Insurance Company from the
Trustee, the cessation of payments in the event the Company becomes insolvent
within the meaning of Article IV of this Trust Agreement and the payment of
such annuities or the cash surrender value thereof to the person or entity
entitled thereto under Article IV.B.2 of this Trust Agreement.
F. If a Change in Control does not occur within one year of
the Potential Change in Control, then all sums contributed to the Trust by the
Company shall be returned to the Company together with any income earned
thereon.
ARTICLE III: PAYMENT TO TRUST BENEFICIARIES.
A. The Trustee shall make payments of Supplemental Benefits
to the Trust Beneficiaries from the assets of the Trust in accordance with the
terms set forth in the Plan, if and to the extent (i) assets are available for
distribution; and (ii) at the time of each payment the Trustee does not have
actual knowledge of the insolvency of the Company as provided in Article IV.C.
B. If the assets of the Trust, which are not paid to the
Company as provided in Article IV, are not sufficient to make payments to the
Trust Beneficiaries in accordance with the terms set forth in the Plan, the
Trustee shall abate the payments pro rata and the Company shall pay the balance
of any such payments as they fall due.
-3-
<PAGE> 4
ARTICLE IV: TRUSTEE'S RESPONSIBILITY WHEN THE COMPANY IS
INSOLVENT.
A. The Company shall be considered insolvent for the
purposes of this Agreement if (i) the Company is unable to pay its debts as
they mature, or (ii) the Company is subject to a pending proceeding as a debtor
under the Bankruptcy Code.
B. At all times during the continuance of this Trust, the
principal and income of the Trust shall be subject to claims of general
creditors of the Company as hereinafter set forth.
1. At such time as the Trustee has actual knowledge, or
has determined, that the Company is insolvent, the Trustee shall deliver the
Trust assets to satisfy such claims in such manner as a court of competent
jurisdiction may direct.
2. The Board of Directors and the Chief Executive
Officer of the Company shall inform the Trustee in the event the Company
becomes insolvent. If the Company or a person claiming to be a creditor of the
Company alleges in writing to the Trustee that the Company has become
insolvent, the Trustee shall independently determine, within 30 days after
receipt of such notice, whether the Company is insolvent. Pending such
determination, the Trustee shall notify the Insurance Company to discontinue
payments to the Trust and the Trustee shall hold the Trust assets for the
benefit of the Company's general creditors. The Trustee shall notify the
Insurance Company to resume payments to the Trust and the Trustee shall resume
payments to the Trust Beneficiaries in accordance with Article III of this
Agreement only after the Trustee has determined that the Company is not
insolvent (or is no longer insolvent, if the Trustee initially determined the
Company to be insolvent).
3. Unless the Trustee has actual knowledge of the
Company's insolvency, the Trustee shall have no duty to inquire whether the
Company is insolvent and shall continue making payments to Trust Beneficiaries
until he has such actual knowledge. The Trustee may in all events rely on such
evidence concerning the Company's solvency as may be furnished to the Trustee
which will give the Trustee a reasonable basis for making a determination
concerning the Company's solvency.
4. Nothing in this Trust Agreement shall in any way
diminish any rights of a Trust Beneficiary to pursue his rights as a general
creditor of the Company with respect to his Supplemental Benefits.
C. If the Insurance Company discontinues payments to the
Trust pursuant to Article IV.B, of this Agreement, and subsequently resumes
such payments, the first payment to the Trust Beneficiaries following such
discontinuance shall include the
-4-
<PAGE> 5
aggregate amount of all payments which would have been made to the Trust
Beneficiaries (together with interest on the amount delayed calculated at the
long-term applicable federal rate) in accordance with the terms set forth in
the Plan during the period of such discontinuance, less the aggregate amount of
any payments made to the Trust Beneficiaries by the Company in lieu of the
payments provided for hereunder during any such period of discontinuance.
ARTICLE V: PAYMENT TO THE COMPANY.
Except as provided in Article II.F and Article IV, the Company
may not direct the Trustee to return to the Company or to divert to others any
of the Trust assets before all payments have been made to the Trust
Beneficiaries pursuant to the terms set forth in the Plan.
ARTICLE VI: ACCOUNTING BY THE TRUSTEE.
A. The Trustee shall keep accurate and detailed records of
all investments, receipts, disbursements, and all other transactions required
to be done, including such specific records as shall be agreed upon in writing
between the Company and the Trustee. All such accounts, books and records
shall be open to inspection and audit at all reasonable times by the Company
and by the Trust Beneficiaries.
B. Within 90 days following the close of each calendar year
and within 90 days after the removal or resignation of the Trustee, the Trustee
shall deliver to the Company and the Trust Beneficiaries a written account of
its administration of the Trust during such year or during the period from the
close of the last preceding year to the date of such removal or resignation,
setting forth all investments, receipts, disbursements and other transactions
effected by the Trustee, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities, and other property held in the Trust at the end
of such year or as of the date of such removal or resignation, as the case may
be.
ARTICLE VII: DUTIES AND POWERS OF THE TRUSTEE.
A. The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent man acting in
a like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to anyone for any action taken pursuant
-5-
<PAGE> 6
to a direction, request, or approval given by the Company or the Trust
Beneficiaries contemplated by and complying with the terms of this Agreement
and/or the Plan, and to that extent shall be relieved of the prudent man rule
for investments.
B. The Trustee shall not be required to undertake or to
defend any litigation arising in connection with this Agreement, unless it be
first indemnified by the Company against its prospective costs, expenses and
liability, and the Company hereby agrees to indemnify the Trustee for such
costs, expenses and liability.
C. The Trustee may consult with legal counsel (who may also
be counsel for the Trustee generally) with respect to any of the Trustee's
duties or obligations hereunder, and shall have no liability for any losses
occasioned by the Company or any Trust Beneficiary as a result of acting or
refraining from acting in accordance with the advice of such counsel.
D. The Trustee may hire agents, accountants, actuaries and
financial consultants.
E. The Trustee shall have, without exclusion, all powers
conferred on Trustees by applicable law unless expressly provided otherwise
herein; provided, however, that if an insurance policy is held as an asset of
the Trust in order to fund the Supplemental Benefits payable to the Trust
Beneficiaries:
1. The Trustee shall have no power, except in accordance
with Article III of this Agreement, to name as a beneficiary of any policy any
person or entity other than the Trust, to assign the policy (as distinct from
conversion of the policy to a different form) other than to a successor
Trustee, or to loan to any person the proceeds of any borrowing against such
policy.
2. The Trust shall own any insurance policies purchased
hereunder outright, subject to any claims of creditors as provided in Article
IV.B of this Agreement.
3. The Insurance Company shall not be responsible to see
to the execution or performance of this Trust.
ARTICLE VIII: COMPENSATION AND EXPENSES OF THE TRUSTEE.
The Trustee shall be entitled to receive from the Company such
reasonable compensation for his services as shall be agreed upon by the Company
and the Trustee. All expenses incurred with respect to the administration of
the Trust shall be paid by the Company, including, without limitation, expenses
for items expressly referred to in Article VII.
-6-
<PAGE> 7
ARTICLE IX: REPLACEMENT OF THE TRUSTEE.
A. The Trustee may be removed at any time by the Company,
with the consent of the Trust Beneficiaries, or may resign, in which case a new
trustee, which shall be independent and not subject to direct or indirect
control of, or an agent of, either the Company or the Trust Beneficiaries,
shall be appointed by the Company with the consent of the Trust Beneficiaries.
B. Any successor Trustee shall have all of the powers of the
original Trustee.
C. No bond shall be required of any Trustee.
D. The Company releases and discharges the Trustee and his
successors of and from all liability for any act of omission or commission as
long as they act in good faith.
ARTICLE X: AMENDMENT OR TERMINATION.
A. This Agreement may be amended any time and to any extent
by a written instrument executed by the Trustee and the Company and consented
to by all of the Trust Beneficiaries.
B. The Trust shall not terminate until the date on which the
Trust Beneficiaries are entitled to no more Supplemental Benefits pursuant to
the Plan, unless sooner rendered inoperative in accordance with Article IV.B.1
of this Agreement.
C. Upon termination of the Trust as provided in Article X.B
of this Agreement, any assets remaining in the Trust shall be returned to the
Company after all debts and obligations of the Trust then outstanding shall
have been satisfied from such assets.
ARTICLE XI: ALIENATION AND ASSIGNMENT.
Amounts payable to the Trust Beneficiaries under this
Agreement may not be anticipated, assigned (either at law or in equity),
alienated or subject to attachment, garnishment, levy, execution or other legal
or equitable process.
-7-
<PAGE> 8
ARTICLE XII: MISCELLANEOUS.
A. Notices. Notice to the parties to this Agreement shall
be sent to:
Company: Phillips & Jacobs, inc.
15 Twinbridge Drive
Pennsauken, NJ 08110
and Trustee: Meridian Trust Company
5 Penn Center Plaza
Philadelphia, PA 19103
and Trust Beneficiaries: See attached list.
B. Waiver of Provisions. Any waiver at any time by either
party hereto of its rights with respect to any matter arising in connection
with this Agreement shall not be deemed to be a waiver with respect to any
subsequent matter. Any waiver at any time by either party hereto as to any
right under this Agreement shall not affect any other right or obligation held
by such party under this Agreement.
C. Alteration of Terms. No alteration or variation of the
terms of this Agreement shall be valid unless in writing and signed by the
parties hereto.
D. Valid and Binding Agreement. The Company and the Trustee
intend to be legally bound by this Agreement in accordance with its terms.
E. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the Company and the Trustee have executed
or caused its authorized officers to execute this Agreement as of the date
first above written.
Attest: PHILLIPS & JACOBS, INC.
/s/ Elizabeth H. Gemmill By:/s/ P.J. Baur, Jr., Chairman
- ------------------------ ----------------------------
Secretary
The Trustee hereby accepts the Trust:
/s/
-------------------------------
Trustee
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<PAGE> 9
COMMONWEALTH OF PENNSYLVANIA :
: SS.
COUNTY OF :
On this, the 17th day of Nov., 1989, before me, the
undersigned Notary Public, personally appeared P.J. Baur, Jr. who acknowledged
himself to be an officer of PHILLIPS & JACOBS, INC., a corporation, and that he
as such being authorized to do so, executed the foregoing instrument for the
purposes therein contained by signing the name of the corporation by himself as
officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal.
/s/ Elaine L. Tomkowiez
--------------------------------
Notary Public
My Commission Expires:
July 23, 1992
-9-
<PAGE> 10
PHILLIPS & JACOBOS, INCORPORATED
James F. Mullan Frederick G. Heinkel
11 South Hinchman Avenue 112 Thornhill Road
Haddonfield, NJ 08033 Cherry Hill, NJ 08003
Joseph F. Duden Dennis M. Zewiske
1540 Davidson Road 2291 Piedmont Terrace Drive
Abington, PA 19001 Marietta, GA 30062
William A. DeMarco
8 West Windrose Drive
Churchville, PA 18966
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<PAGE> 1
EXHIBIT 10.18
FIRST AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT
FIRST AMENDMENT (this "AMENDMENT"), dated as of December 23,
1993, to REVOLVING CREDIT AND TERM LOAN AGREEMENT (the "LOAN AGREEMENT"), dated
as of June 30, 1993, among PHILLIPS & JACOBS INCORPORATED ("P&J"), DIXIE TYPE
& SUPPLY COMPANY, INC. ("DIXIE"), ONONDAGA LITHO SUPPLY CO., INC.
("ONONDAGA"), C.M. GRAPHICS, INC. ("C.M.") (P&J, Dixie, Onondaga and C.M.
sometimes individually each a "BORROWER" and sometimes collectively the
"BORROWERS") and FIRST FIDELITY BANK, NATIONAL ASSOCIATION, PENNSYLVANIA (the
"BANK").
P&J has acquired certain assets of Jetcom Inc. ("JETCOM"), a
graphic arts distributor based in Cincinnati, Ohio. To pay for the
acquisition, P&J has borrowed under the Revolving Credit Commitment. P&J now
wishes to refinance $3,000,000 of the Revolving Credit Loans it used for the
acquisition into a five-year term loan at a fixed rate of interest. The Bank
has agreed to the proposed term loan on the terms and conditions set forth
below.
NOW, THEREFORE, intending to be legally bound, the parties
agree as follows:
1. Defined Terms. Capitalized terms not otherwise
defined in this Amendment will have the meanings that the Loan Agreement gives
to those terms.
2. Amendments to Loan Agreement. The Loan Agreement is
hereby amended as follows:
(a) The definitions of the terms "Commitment(s),"
"Loan(s)" "Note(s)" and "Treasury Rate" in Section 1.1 are hereby amended to
read as follows:
"COMMITMENT(S)" means the Revolving Credit
Commitment, the Term Loan Commitment, or the Jetcom Term Loan
Commitment or any or all of them as the context may require.
"LOAN(S)" means the Revolving Credit Loans, the Term
Loan, or the Jetcom Term Loan or any or all of them as the
context may require.
"NOTE(S)" means the Revolving Credit Note, the Term
Note, or the Jetcom Term Note or any or all of them as the
context may require.
-1-
<PAGE> 2
"TREASURY RATE" means (a) the highest asked yield for
"Govt. Bonds & Notes," as set forth in the column designated
"Treasury Bonds, Notes & Bills" in The Wall Street Journal
most recently published as of the effective date of the
selection of the fixed rate option, having a maturity date
that falls in the same month as the final maturity of the
Loan, or (b) in the event that such yield is no longer being
published in The Wall Street Journal at the time of
determination of the Treasury Rate, "Treasury Rate" means the
yield for the week most recently ended, as reported under the
caption "Treasury constant maturities" in the statistical
release designated "H.15(519)" (or any successor) most
recently published by the Federal Reserve System prior to the
effective date of the selection of the fixed rate option, for
a maturity equal to the remaining term of the Loan, calculated
from said effective date until the final maturity of the Loan.
If, in the case of a determination pursuant to clause (a),
above, no such yield is published for the same month in which
the final maturity date of the Loan falls, or, in the case of
a determination pursuant to clause (b), above, no such yield
is published for a maturity which exactly equals such
remaining term, yields for the published month next following
and the published month next preceding such month, or the
published maturity next longer and the published maturity next
shorter than such remaining term, as the case may be, shall be
determined pursuant to the immediately preceding sentence and
the Treasury Rate shall be interpolated from such yields on a
straight-line basis. For purposes of both Tranche A of the
Term Loan and the Jetcom Term Loan, the Treasury Rate shall be
deemed to be 5.03%.
-2-
<PAGE> 3
(b) The following defined terms are added to
Section 1.1 of the Loan Agreement and will have the meanings assigned to them
in the following sections:
New Term Section Cross Reference
-------- -----------------------
"JETCOM ASSETS" 2A.13
"JETCOM TERM LOAN" 2A.9
"JETCOM TERM LOAN COMMITMENT" 2A.9
"JETCOM TERM LOAN MATURITY DATE" 2A.11
"JETCOM TERM NOTE" 2A.12
(c) A new Section A-1 is added to Article II,
between existing sections A and B, to read as follows:
A-1. THE JETCOM TERM LOAN
Section 2A.9. Jetcom Term Commitment. Bank agrees on the
terms and conditions set forth in the First Amendment to this
Agreement to make a loan (the "JETCOM TERM LOAN") to the
Borrowers on the date thereof in a principal amount of up to
but not exceeding Three Million Dollars ($3,000,000) (the
"JETCOM TERM LOAN COMMITMENT"). The Bank shall make the
Jetcom Term Loan by crediting it to a deposit account P&J
maintains with Bank for further disbursement by P&J to the
appropriate Borrower.
Section 2A.10. Interest on the Jetcom Term Loan. The unpaid
principal amount of the Jetcom Term Loan shall bear interest
from the date on which it is disbursed until such principal
amount has been repaid in full at an annual rate equal to the
Treasury Rate plus one percent (1%). Such interest shall be
payable in arrears (A) quarterly on the last day of each
March, June, September, and December in each year, beginning
on the first of such date after the date of the First
Amendment to this Agreement and (B) on the date of repayment
in full.
SECTION 2A.11. Repayment of Jetcom Term Loan. Borrowers
shall repay the principal of the Jetcom Term Loan (A) in
nineteen (19) consecutive quarterly installments of $107,143
each on the last day of each March, June, September, and
December in each year, beginning on the first of such dates
after the date of the First Amendment to this Agreement and
(B) in the amount necessary to repay the Jetcom Term Loan in
full
-3-
<PAGE> 4
on the fifth anniversary of the date of the First Amendment
to this Agreement (the "JETCOM TERM LOAN MATURITY DATE").
SECTION 2A.12. Jetcom Term Note. The Jetcom Term Loan shall
be evidenced by a single promissory note of the Borrowers in
substantially the form of Exhibit 2A.12 attached to the First
Amendment of this Agreement (said promissory note, as it may
be hereafter amended, renewed or extended, the "JETCOM TERM
NOTE"). The Jetcom Term Note shall be duly completed in the
principal amount of the Jetcom Term Loan Commitment, dated the
date of the First Amendment to this Agreement, and made
payable to the order of Bank.
SECTION 2A.13. Use of Jetcom Term Loan Proceeds. The
proceeds of the Jetcom Term Loan shall be used by the
Borrowers to refinance existing indebtedness to the Bank for
P&J's acquisition of the assets of Jetcom Inc. (the "JETCOM
ASSETS").
SECTION 2A.14. Prepayment. (A) Right to Prepay. Borrowers
shall have the right at their option from time to time to
prepay the Jetcom Term Loan in whole or in part if P&J gives
the Bank Standard Notice of the election to prepay, specifying
the date, amount, and type of prepayment; and upon such date
the amount so specified, together with accrued interest
thereon, shall be due and payable.
(B) Indemnification of Losses Resulting from Prepayment.
Borrowers shall indemnify Bank, in accordance with Section
2.20, against any loss or expenses the Bank incurs as a result
of the prepayment of the Jetcom Term Loan.
(C) No Reborrowing of Prepaid Amounts. Amounts prepaid
on the Jetcom Term Loan may not be reborrowed.
(D) Application of Prepayments. Prepayments shall be
applied to the principal installments of the Jetcom Term Loan
in the inverse order of their maturities or as the Bank
otherwise determines in its sole discretion.
(d) A new subsection (E) is added to Section 2.17
(default interest) to read as follows:
(E) Jetcom Term Loan. Upon the occurrence and during the
continuance of any Event of Default, the unpaid principal
amount of the Jetcom Term Loan shall bear interest for each
day until paid (before and after judgment) (1) until the
Jetcom Term Loan Maturity Date,
-4-
<PAGE> 5
at an annual rate 3% above the Treasury Rate and (2) there-
after in accordance with Section 2.17(A).
(e) A new subsection (3) is added to Section 2.20(A)
(funding loss indemnification) to read as follows:
(3) Any payment or prepayment of the Jetcom Term Loan on
a date or in an amount other than on the payment dates and in
the amounts provided for herein, including but not limited to
any payment or prepayment pursuant to acceleration of the
Jetcom Term Loan by the Bank under Section 8.2.
(f) A new sentence is added to the end of Section 6.3
(mergers, consolidations, acquisitions, etc.) to read as follows:
Bank may require any newly-formed or newly-acquired Subsidiary
to become a Borrower or a surety for the Loans.
3. Consent to Stock Issuance by P&J. Notwithstanding
any provision, including Section 6.9, of the Loan Agreement to the contrary,
Bank hereby consents to the issuance by P&J of (A) up to 25,000 shares of its
common stock to Jetcom Inc. in partial payment of the purchase price for the
Jetcom Assets and (B) 25,000 shares of its common stock to Albert Wernersbach
in consideration of his covenant not to compete.
4. Conditions Precedent. The obligation of the Bank to
make the Jetcom Term Loan is subject to the conditions precedent that the Bank
shall have received on or before the day on which the Jetcom Term Loan is to be
made, all of the following, in form and substance satisfactory to the Bank and
its counsel:
(a) Evidence that P&J has completed its
acquisition of the Jetcom Assets in conformity with
Section 6.3 of the Loan Agreement;
(b) The Jetcom Term Note duly executed by
the Borrowers;
(c) A certificate (dated the date of this
Amendment) of the Secretary of each Borrower (1) setting forth
and certifying as true and correct all corporate action taken
by such Borrower, including resolutions of its board of
directors, authorizing the execution, delivery, and
performance of this Amendment and each other document to be
delivered pursuant to this Amendment and (2) certifying the
names and true signatures of the officers of such Borrower
authorized to sign this Amendment and the other documents to
be delivered by such Borrower under this Amendment;
-5-
<PAGE> 6
(d) A favorable opinion of Stradley, Ronon,
Stevens & Young, counsel for the Borrowers, as to such matters
as the Bank may reasonably request;
(e) A certificate (dated the date of this
Agreement) of the President, Vice President, or Chief
Financial Officer of P&J stating that no material adverse
change has occurred regarding the financial condition of P&J
and its Subsidiaries on a consolidated basis since the most
recent financial statements supplied to the Bank;
(f) A certificate of the President, Vice
President, or Chief Financial Officer of P&J stating that,
after giving effect to the proposed Jetcom Term Loan, (1) the
representations and warranties contained in Article IV of the
Loan Agreement shall be accurate in all material respects on
and as of the date of the Jetcom Term Loan; and (2) no
condition exists as of the date of the Jetcom Term Loan that
would constitute a Default or an Event of Default under the
Loan Agreement.
5. Representations and Warranties. The Borrowers
represent and warrant to the Bank that:
(a) Authorization. The execution, delivery and
performance by each Borrower of this Amendment, the Jetcom Term Note, and the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and do not and will not (1) require any consent or approval of
the shareholders of such corporation, (2) contravene such corporation's charter
or by-laws, (3) violate any provision of any law, rule, regulation (including,
without limitation, Regulation U of the Board of Governors of the Federal
Reserve System), order, writ, judgment, injunction, decree, determination, or
award presently in effect having applicability to such corporation, (4) result
in a breach of or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which such corporation
is a party or by which it or its properties may be bound or affected which will
have a material adverse effect on such corporation, (5) result in or require
the creation or imposition of any Lien upon or with respect to any of the
properties now owned or hereafter acquired by such corporation except as
contemplated by this Amendment, and (6) cause such corporation to be in default
under any such law, rule, regulation, order, writ, judgment, injunction,
decree, determination, or award or any such material indenture, agreement,
lease, or instrument.
(b) Legally Enforceable Amendment. This
Amendment is, and the Jetcom Term Note when delivered under this Amendment will
be, legal, valid and binding obligations of each Borrower that is a party
thereto, enforceable against such Borrower in
-6-
<PAGE> 7
accordance with their respective terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency, and other
similar laws affecting creditors' rights generally.
(c) Article IV of Loan Agreement. The
representations and warranties contained in Article IV of the Loan Agreement,
as hereby amended, are accurate as of the date hereof.
Borrowers agree that it shall be an Event of Default if a representation or
warranty made by P&J in this Amendment or which is contained in any
certificate, document, opinion, or financial or other statement furnished at
any time under or in connection with this Amendment shall prove to have been
incorrect in any material respect or misleading in any material respect on or
as of the date made.
6. Continuing Effectiveness of Loan Documents. Except
as amended hereby, the Loan Documents remain in full force and effect.
7. Counterparts. This Amendment may be executed in any
number of counterparts and by different parties to this Amendment in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
8. Governing Law. This Amendment and the Jetcom Term
Note shall be governed by, and construed in accordance with, the laws of the
Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed under seal by their respective officers
-7-
<PAGE> 8
thereunto duly authorized, as of the date first above written.
PHILLIPS & JACOBS, INCORPORATED
By:/s/ James F. Mullan, President
--------------------------------------
Name: James F. Mullan
Title: President
Attest:/s/ W. A. DeMarco
-----------------------------
Secretary
FIRST FIDELITY BANK, NATIONAL ASSOCIATION,
PENNSYLVANIA
By:/s/ Wynelle Farlow, Vice President
--------------------------------------
Name: Wynelle Farlow
Title: Vice President
DIXIE TYPE & SUPPLY COMPANY, INC.
By:/s/ James F. Mullan, CEO
--------------------------------------
Name: James F. Mullan
Title: CEO
Attest:/s/ W. A. DeMarco
-----------------------------
Secretary
ONONDAGA LITHO SUPPLY CO., INC.
By:/s/ James F. Mullan, Chairman
--------------------------------------
Name: James F. Mullan
Title: Chairman
Attest:/s/ W. A. DeMarco
----------------------------
Secretary
C.M. GRAPHICS, INC.
By:/s/ Frank R. Matteo, President
-------------------------------------
Name: Frank R. Matteo
Title: President
Attest:/s/ W. A. DeMarco
---------------------------
Secretary
-8-
<PAGE> 9
EXHIBIT 2A.12
JETCOM TERM NOTE
$3,000,000 December , 1993
FOR VALUE RECEIVED, PHILLIPS & JACOBS, INC., a Pennsylvania
corporation, DIXIE TYPE & SUPPLY COMPANY, INC., an Alabama corporation,
ONONDAGA LITHO SUPPLY CO., a New York corporation and C.M. GRAPHICS, INC., a
New Jersey corporation, (collectively, the "Borrowers"), HEREBY PROMISE TO PAY
to the order of FIRST FIDELITY BANK, NATIONAL ASSOCIATION, PENNSYLVANIA
("Bank") at Broad and Walnut Streets, 6th Floor, Philadelphia, PA 19109, in
lawful money of the United States and in immediately available funds, the
principal amount of Three Million Dollars ($3,000,000) in the installments and
at the times provided in the Loan Agreement (hereinafter defined) and to pay
interest from the date of this Jetcom Term Note, in like money, at the times
and rates per annum provided in the Loan Agreement.
This Jetcom Term Note is the Jetcom Term Note referred to in
the Revolving Credit and Term Loan Agreement dated June 30, 1993, as amended by
a First Amendment of even date herewith, among the Borrowers and the Bank (such
Revolving Credit and Term Loan Agreement, as amended and as it may be hereafter
amended, the "Loan Agreement"). The Loan Agreement, among other things,
contains provisions for acceleration of the maturity of this Jetcom Term Note
upon the happening of certain stated events and also for prepayments on account
of the principal of this Jetcom Term Note prior to the maturity of this Jetcom
Term Note upon the terms and conditions specified in the Loan Agreement.
-9-
<PAGE> 10
This Jetcom Term Note shall be governed by the laws of the
Commonwealth of Pennsylvania. The Borrowers shall be jointly and severally
liable hereunder. The Borrowers severally waive presentment, demand, protest,
and notice of nonpayment.
PHILLIPS & JACOBS, INC.
By:
-------------------------------
Name:
Title:
Attest:
-----------------------
Secretary
DIXIE TYPE & SUPPLY COMPANY, INC.
By:
------------------------------
Name:
Title:
Attest:
----------------------
Secretary
ONONDAGA LITHO SUPPLY CO.
By:
------------------------------
Name:
Title:
Attest:
---------------------
Secretary
C.M. GRAPHICS, INC.
By:
------------------------------
Name:
Title:
Attest:
---------------------
Secretary
-10-
<PAGE> 1
EXHIBIT 11
PHILLIPS & JACOBS, INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the 3 Months Ended For the Years Ended
---------------------- --------------------------------------
3/31/94 3/31/93 12/31/93 12/31/92 12/31/91
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 4,114 4,070 4,098 4,057 4,038
Net effect of dilutive stock options-
based on the treasury stock method using
average market price 1 - - - -
4,115 4,070 4,098 4,057 4,038
----- ----- ------- ------ ------
Income before cumulative effect of
changes in accounting principles $914 $957 $3,399 $3,508 $3,105
----- ----- ------- ------ ------
Per share amount $0.22 $0.23 $0.83 $0.86 $0.77
----- ----- ------- ------ ------
Cumulative effect on prior years of
changes in accounting principles - ($1,306) ($1,306) - -
------- -------
Per share amount - ($0.32) ($0.32) - -
------ ------
Net income (loss) $914 ($349) $2,093 $3,508 $3,105
----- ----- ------- ------ ------
Per share amount $0.22 ($0.09) $0.51 $0.86 $0.77
----- ----- ------- ------ ------
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary State of Incorporation
Dixie Type & Supply Company, Inc. Alabama
Onondaga Litho Supply Co., Inc. New York
C.M. Graphics, Inc. New Jersey
The Registrant owns 100% of the outstanding stock of each Subsidiary.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on
Form S-4 (File No. 0-21750) of our report dated February 18, 1994, except
for Note 18 for which the date is March 17, 1994, on our audits of the
financial statements and financial statement schedules of Phillips & Jacobs,
Incorporated and its subsidiaries. We also consent to the reference to our
Firm under the caption "Experts."
/s/ COOPERS & LYBRAND
Philadelphia, Pennsylvania
August 4, 1994
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 8, 1994 (except for the subsequent event note
regarding combination, as to which the date is March 17, 1994), with respect to
the financial statements of Momentum Corporation and Subsidiary included in the
Registration Statement (Form S-4) and the related Prospectus of Phillips &
Jacobs, Incorporated and Subsidiaries for the registration of 2,512,878 shares
of its common stock.
/s/ ERNST & YOUNG
ERNST & YOUNG
Seattle, Washington
August 2, 1994
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-4 of our
report, dated February 18, 1994, relating to the financial statements of T.K.
Gray, Inc. as of and for the years ended December 31, 1993 and 1992, and to the
reference to our firm under the caption "experts."
/s/ MCGLADREY & PULLEN
St. Paul, Minnesota McGLADREY & PULLEN
August 2, 1994
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Phillips & Jacobs,
Incorporated and Momentum Corporation on Form S-4 of our report dated February
28, 1992 appearing in the Prospectus, which is part of this Registration
Statement, relating to the financial statements of T.K. Gray, Inc. for the year
ended December 31, 1991 appearing elsewhere in this Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE
Minneapolis, Minnesota DELOITTE & TOUCHE
August 2, 1994
<PAGE> 1
EXHIBIT 23.5
CONSENT OF STRADLEY, RONON, STEVENS & YOUNG
We hereby consent to the filing of our opinion letter as Exhibit 8.1 to the
Registration Statement on Form S-4 of Phillips & Jacobs, Incorporated with
respect to the shares to be issued to the stockholders of Momentum Corporation
in connection with its merger into Phillips & Jacobs, Incorporated, and to the
references to our firm in the Proxy Statement/Prospectus forming a part thereof
as legal counsel who have passed upon the legality of the securities offered
thereby and upon certain federal income tax matters relating to the merger.
STRADLEY, RONON, STEVENS & YOUNG
By: /s/ David E. Beavers
-----------------------
David E. Beavers, A Partner
<PAGE> 1
EXHIBIT 23.6
CONSENT OF PRESTON GATES & ELLIS
We hereby consent to the filing of the form of our opinion letter as an exhibit
to the Registration Statement filed by Phillips with the Securities and
Exchange Commission in connection with the Merger, and to any reference to our
firm in the Proxy Statement/Prospectus forming a part thereof as legal counsel
for Momentum who will pass upon certain federal income tax matters relating to
the Merger.
Very truly yours,
PRESTON GATES & ELLIS
By /s/ Richard B. Dodd
-------------------
Richard B. Dodd
<PAGE> 1
EXHIBIT 99.1
CONSENT OF NOMINEE
In accordance with Rule 438 of Regulation C as promulgated under the
Securities Act of 1933, the undersigned hereby consents to being named as an
appointee to the Board Directors in the Registration Statement filed by
Phillips & Jacobs, Incorporated with the Securities and Exchange Commission in
connection with the proposed merger with Momentum Corporation.
Dated: August 1, 1994.
\s\ Richard E. Engebrecht
---------------------------
Richard E. Engebrecht
<PAGE> 1
EXHIBIT 99.2
CONSENT OF NOMINEE
In accordance with Rule 438 of Regulation C as promulgated under the
Securities Act of 1933, the undersigned hereby consents to being named as an
appointee to the Board Directors in the Registration Statement filed by
Phillips & Jacobs, Incorporated with the Securities and Exchange Commission in
connection with the proposed merger with Momentum Corporation.
Dated: July 29, 1994.
\s\ John H. Goddard
----------------------------------------
John H. Goddard
<PAGE> 1
EXHIBIT 99.3
CONSENT OF NOMINEE
In accordance with Rule 438 of Regulation C as promulgated under the
Securities Act of 1933, the undersigned hereby consents to being named as an
appointee to the Board Directors in the Registration Statement filed by
Phillips & Jacobs, Incorporated with the Securities and Exchange Commission in
connection with the proposed merger with Momentum Corporation.
Dated: July 29, 1994.
\s\ Jerrold B. Harris
----------------------------------------
Jerrold B. Harris
<PAGE> 1
EXHIBIT 99.4
CONSENT OF NOMINEE
In accordance with Rule 438 of Regulation C as promulgated under the
Securities Act of 1933, the undersigned hereby consents to being named as an
appointee to the Board Directors in the Registration Statement filed by
Phillips & Jacobs, Incorporated with the Securities and Exchange Commission in
connection with the proposed merger with Momentum Corporation.
Dated: July 28, 1994.
\s\ Gary MacLeod
----------------------------------------
Gary MacLeod
<PAGE> 1
EXHIBIT 99.5
CONSENT OF NOMINEE
In accordance with Rule 438 of Regulation C as promulgated under the
Securities Act of 1933, the undersigned hereby consents to being named as an
appointee to the Board Directors in the Registration Statement filed by
Phillips & Jacobs, Incorporated with the Securities and Exchange Commission in
connection with the proposed merger with Momentum Corporation.
Dated: July 28, 1994.
\s\ Andrew V. Smith
----------------------------------------
Andrew V. Smith
<PAGE> 1
EXHIBIT 99.6
CONSENT OF NOMINEE
In accordance with Rule 438 of Regulation C as promulgated under the
Securities Act of 1933, the undersigned hereby consents to being named as an
appointee to the Board Directors in the Registration Statement filed by
Phillips & Jacobs, Incorporated with the Securities and Exchange Commission in
connection with the proposed merger with Momentum Corporation.
Dated: July 28, 1994.
\s\ James H. Wiborg
----------------------------------------
James H. Wiborg
<PAGE> 1
EXHIBIT 99.7
RULE 438 CONSENT
The undersigned, Edward N. Patrone, hereby consents to being
named, in the Form S-4 Registration Statement of Phillips & Jacobs,
Incorporated ("Phillips") relating to the merger of Momentum Corporation into
Phillips (the "Merger"), as an individual designated to become a Director of
Phillips upon consummation of the Merger.
Dated: July 26, 1994 /s/ Edward N. Patrone
----------------------------------
Edward N. Patrone
