-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NEWbSZi3wDS+62skNI0SFvy1QlBqqLpmyoWl3Dt7yTYYKuWPAATJ3gWqlWp6N/iX 9NMilovWtlX+vzbhAJeUGg== 0001125282-01-501892.txt : 20010912 0001125282-01-501892.hdr.sgml : 20010912 ACCESSION NUMBER: 0001125282-01-501892 CONFORMED SUBMISSION TYPE: SC TO-T PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20010911 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: FPF ACQUISITION CORP CENTRAL INDEX KEY: 0001158489 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC TO-T MAIL ADDRESS: STREET 1: FUJI PHOTO FILM USA, INC STREET 2: 55 TAXTER RD CITY: ELMSFORD STATE: NY ZIP: 10523 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PRIMESOURCE CORP CENTRAL INDEX KEY: 0000904816 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PROFESSIONAL & COMMERCIAL EQUIPMENT & SUPPLIES [5040] IRS NUMBER: 231430030 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T SEC ACT: 1934 Act SEC FILE NUMBER: 005-42735 FILM NUMBER: 1735459 BUSINESS ADDRESS: STREET 1: 4350 HADDONFIELD RD STREET 2: SUITE 222 CITY: PENNSAUKEN STATE: NJ ZIP: 08109 BUSINESS PHONE: 6094884888 MAIL ADDRESS: STREET 1: FAIRWAY CORPORATE CENTER SUITE 222 STREET 2: 4350 HADDONFIELD ROAD CITY: PENNSAUKEN STATE: NJ ZIP: 08109 FORMER COMPANY: FORMER CONFORMED NAME: PHILLIPS & JACOBS INC DATE OF NAME CHANGE: 19930514 SC TO-T 1 b313552_scto.txt TENDER OFFER ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------------------- SCHEDULE TO (Rule 14d-100) TENDER OFFER STATEMENT UNDER SECTION 14(D)(1) OR SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 PRIMESOURCE CORPORATION (Name of Subject Company) FPF ACQUISITION CORP. ENOVATION GRAPHIC SYSTEMS, INC. FUJI PHOTO FILM U.S.A., INC. FUJIFILM AMERICA, INC. FUJI PHOTO FILM CO., LTD. (Names of Filing Persons (Offerors)) -------------------------------------------- COMMON STOCK, PAR VALUE $0.01 PER SHARE (Title of Class of Securities) -------------------------------------------- 741593107 (CUSIP Number of Class of Securities) Jonathan E. File, Esq. Vice President and General Counsel Fuji Photo Film U.S.A., Inc. 555 Taxter Road Elmsford, New York 10523 Telephone: (914) 789-8100 (Name, address and telephone number of person authorized to receive notices and communications on behalf of filing persons) -------------------------------------------- Copy to: David L. Finkelman, Esq. Stroock & Stroock & Lavan LLP 180 Maiden Lane New York, New York 10038 Telephone: 212-806-5400 -------------------------------------------- CALCULATION OF FILING FEE ================================================================================ Transaction Valuation* Amount of Filing Fee** $ 65,351,917 $ 13,070 ================================================================================ * Estimated for purposes of calculating the filing fee only. Calculated by (i) multiplying $10.00, the per share tender offer price, by 6,357,806, the sum of the number of shares of Common Stock sought in the Offer, plus (ii) payments to holders of options with an exercise price less than $10.00 in an amount per option equal to the difference between (a) $10.00 and (b) the applicable exercise price, based on 486,621 outstanding options with an average weighted exercise price of $6.35 per share. ** Calculated as 1/50 of 1% of the transaction value. [ ] Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: Not Applicable Filing party: Not Applicable Form or Registration No.: Not Applicable Date Filed: Not Applicable [ ] Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: [X] third-party tender offer subject to Rule 14d-1. [ ] issuer tender offer subject to Rule 13e-4. [ ] going-private transaction subject to Rule 13e-3. [ ] amendment to Schedule 13D under Rule 13d-2. Check the following box if the filing is a final amendment reporting the results of the tender offer: [ ] ================================================================================ TENDER OFFER This Tender Offer Statement on Schedule TO ("Schedule TO") relates to an offer by FPF Acquisition Corp., a Pennsylvania corporation ("Purchaser") and a wholly-owned subsidiary of Enovation Graphic Systems, Inc., a Delaware corporation ("Enovation"), which is a wholly-owned subsidiary of Fuji Photo Film U.S.A., Inc., a New York corporation ("Fuji"), which is a wholly-owned subsidiary of FUJIFILM America, Inc., a Delaware corporation, which is a wholly-owned subsidiary of Fuji Photo Film Co., Ltd., a Japanese corporation, to purchase all outstanding shares of common stock, par value $0.01 per share (the "Shares"), of PrimeSource Corporation, a Pennsylvania corporation (the "Company"), and the associated rights to purchase Shares (the "Rights") issued pursuant to the Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated as of February 1, 2001, at $10.00 per Share and associated Right, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase (the "Offer to Purchase"), and in the related Letter of Transmittal (the "Letter of Transmittal," and together with the Offer to Purchase and any amendments or supplements thereto, the "Offer"), copies of which are attached hereto as Exhibits (a)(l) and (a)(2), respectively. The information in the Offer to Purchase, including all schedules and annexes thereto, is hereby expressly incorporated herein by reference in response to all the items of this Statement, except as otherwise set forth below. Item 12. Exhibits. (a)(1) Offer to Purchase dated September 11, 2001. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) Letter to Clients for Use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Summary Advertisement published September 11, 2001. (b) Not applicable. (c) Not applicable. (d)(1) Agreement and Plan of Merger dated as of September 4, 2001 among Fuji, Enovation, Purchaser and the Company. (d)(2) Confidentiality Agreement dated December 11, 2000 by and among Fuji, Heartland Imaging Companies, Inc. and the Company. (d)(3) Employment Agreement, dated as of September 4, 2001, between Enovation and James F. Mullan. (e) Not applicable. (f) Not applicable. (g) Not applicable. (h) Not applicable. SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: September 11, 2001 FPF ACQUISITION CORP. By: /s/ Yasuo Tanaka ------------------------- Name: Yasuo Tanaka Title: President ENOVATION GRAPHIC SYSTEMS INC. By: /s/ Yasuo Tanaka ------------------------- Name: Yasuo Tanaka Title: President FUJI PHOTO FILM U.S.A., INC. By: /s/ Yasuo Tanaka ------------------------- Name: Yasuo Tanaka Title: President FUJIFILM AMERICA, INC. By: /s/ Yasuo Tanaka ------------------------- Name: Yasuo Tanaka Title: President FUJI PHOTO FILM CO., LTD. By: /s/ Yasuo Tanaka ------------------------- Name: Yasuo Tanaka Title: Director and Executive Vice President EXHIBIT INDEX Exhibit No. - -------------------------------------------------------------------------------- (a)(1) Offer to Purchase dated September 11, 2001. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) Letter to Clients for Use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Summary Advertisement published September 11, 2001. (d)(1) Agreement and Plan of Merger dated as of September 4, 2001 among Fuji, Enovation, Purchaser and the Company. (d)(2) Confidentiality Agreement dated December 11, 2000 by and among Fuji, Heartland Imaging Companies, Inc. and the Company. (d)(3) Employment Agreement, dated as of September 4, 2001, between Enovation and James F. Mullan. EX-99.(A)(1) 3 b313552_ex99-a1.txt OFFER TO PURCHASE EXHIBIT 99.(a)(1) Offer to Purchase for Cash All Outstanding Shares of Common Stock of PrimeSource Corporation at $10.00 Net Per Share by FPF Acquisition Corp. an indirect wholly-owned subsidiary of Fuji Photo Film U.S.A., Inc. The Offer and Withdrawal Rights will expire at 12:00 midnight, New York City time, on Tuesday, October 9, 2001, unless the Offer is extended. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of September 4, 2001 (the "Merger Agreement"), among Fuji Photo Film U.S.A., Inc. ("Fuji"), Enovation Graphic Systems, Inc. ("Enovation"), a wholly-owned subsidiary of Fuji, FPF Acquisition Corp. ("Purchaser"), a wholly-owned subsidiary of Enovation, and PrimeSource Corporation (the "Company"). The Board of Directors of the Company has determined that the Offer and the Merger are fair to and in the best interests of the Company's shareholders and recommends that the Company's shareholders tender their shares in the Offer. The Offer is conditioned upon, among other things, (1) there being validly tendered and not withdrawn prior to the expiration of the Offer a number of shares of common stock of PrimeSource that represents, together with any shares beneficially owned by Fuji or Purchaser, at least 80% of the then outstanding shares of common stock of the Company and (2) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The Offer is also subject to other conditions. See "The Offer-- Conditions to the Offer." ------------------------ IMPORTANT If you are a shareholder of the Company and wish to tender your shares in the Offer, you must (1) complete and sign the Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal and mail or deliver the Letter of Transmittal and all other required documents to the Depositary (as defined herein) together with certificates representing the shares tendered or follow the procedure for book-entry transfer set forth in "The Offer--Procedures for Accepting the Offer and Tendering Shares," or (2) request your broker, dealer, commercial bank, trust company or other nominee to effect the transaction for you. If your shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you must contact that person if you wish to tender your shares. If you wish to tender your shares and cannot deliver certificates representing your shares and all other required documents to the Depositary on or prior to the Expiration Date (as defined herein) or you cannot comply with the procedures for book-entry transfer on a timely basis, you may tender your shares pursuant to the guaranteed delivery procedure set forth in "The Offer--Procedures for Accepting the Offer and Tendering Shares." Questions and requests for assistance may be directed to D.F. King & Co., Inc. (the "Information Agent") or Bear, Stearns & Co. Inc. (the "Dealer Manager") at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other related materials may be obtained from the Information Agent or the Dealer Manager. You may also contact your broker, dealer, commercial bank, trust company or other nominee for copies of these documents. The Dealer Manager for the Offer is: Bear, Stearns & Co. Inc. September 11, 2001 TABLE OF CONTENTS
Page ---- SUMMARY TERM SHEET ...................................................... 1 INTRODUCTION ............................................................ 4 THE OFFER ............................................................... 5 Terms of the Offer..................................................... 5 Acceptance for Payment and Payment for Shares.......................... 7 Procedures for Accepting the Offer and Tendering Shares................ 8 Withdrawal Rights...................................................... 11 Certain United States Federal Income Tax Consequences.................. 11 Price Range of Shares; Dividends....................................... 13 Certain Information Concerning the Company............................. 13 Certain Effects of the Offer........................................... 15 Certain Information Concerning the Fuji Companies...................... 16 Source and Amount of Funds............................................. 17 Background of the Offer................................................ 17 Purpose and Structure of the Offer and the Merger...................... 20 Plans for the Company.................................................. 20 The Merger Agreement................................................... 21 Dissenters Rights...................................................... 28 Confidentiality Agreement.............................................. 28 Employment Agreement................................................... 29 Conditions to the Offer................................................ 29 Certain Legal Matters; Regulatory Approvals............................ 30 Fees and Expenses...................................................... 33 Miscellaneous.......................................................... 34 SCHEDULE I Directors and Executive Officers of the Fuji Companies ....... I-1
SUMMARY TERM SHEET Fuji Photo Film U.S.A., Inc., through its indirect wholly-owned subsidiary, FPF Acquisition Corp., is offering to purchase all of the outstanding common stock of PrimeSource Corporation for $10.00 per share in cash. The following are some of the questions you, as a shareholder of PrimeSource, may have and the answers to those questions. We urge you to carefully read the remainder of this Offer to Purchase and the accompanying Letter of Transmittal because the information in this summary is not complete and additional important information is contained in the remainder of this Offer to Purchase and the Letter of Transmittal. Who is offering to buy my securities? We are Fuji Photo Film U.S.A., Inc., a New York corporation, and through our indirect wholly-owned subsidiary, FPF Acquisition Corp., a Pennsylvania corporation, we are offering to purchase all of the outstanding common stock of PrimeSource. FPF Acquisition was formed for the purpose of making this tender offer and engaging in the subsequent merger with PrimeSource and is a wholly-owned subsidiary of Enovation Graphic Systems, Inc., or Enovation, a Delaware corporation, which was recently formed to serve as a holding company for subsidiaries engaged in the distribution of graphic arts and printing systems products, including such products manufactured by us and our affiliates. We, Enovation and FPF Acquisition are each wholly-owned subsidiaries of FUJIFILM America, Inc., or Fuji America, a Delaware corporation, which is the principal United States holding company for the various U.S. operating subsidiaries of Fuji Photo Film Co., Ltd., or Fuji Japan, a publicly-owned Japanese corporation. See "Introduction" and "The Offer--Certain Information Concerning the Fuji Companies." What are the classes and amounts of securities sought in the offer? We are seeking to purchase all of the outstanding shares of common stock of PrimeSource. See "Introduction" and "The Offer--Terms of the Offer." How much are you offering to pay for my securities and what is the form of payment? Will I have to pay any fees or commissions? We are offering to pay the price of $10.00 per share, net to you, in cash, without interest. If you tender your shares to us in the offer, you will not have to pay brokerage fees, commissions or similar expenses. If you own your shares through a broker or other nominee, and your broker tenders your shares on your behalf, your broker or nominee may charge you a fee for doing so. You should consult your broker or nominee to determine whether any charges will apply. See "Introduction" and "The Offer--Terms of the Offer." Do you have the financial resources to make payment? Fuji Japan plans to use its and its subsidiaries' available cash and cash equivalents to provide FPF Acquisition with sufficient funds to purchase shares tendered to us in the offer and to complete the merger which is expected to follow the successful completion of the offer. The offer is not conditioned upon any financing arrangements. See "The Offer--Source and Amount of Funds." Is your financial condition relevant to my decision to tender in the offer? We do not think our financial condition is relevant to your decision whether to tender in the offer because: o the form of payment consists solely of cash, o the offer is not conditioned on our ability to obtain financing, and o if we consummate the offer, we will acquire all remaining shares for the same cash price in the merger. See "The Offer--Certain Information Concerning the Fuji Companies" and "The Offer--Source and Amount of Funds." How long do I have to decide whether to tender in the offer? You will have at least until 12:00 midnight, New York City time, on Tuesday, October 9, 2001, to decide whether to tender your shares in the offer, unless we decide to extend the offer. Further, if you are unable to deliver the required documents in order to make a valid tender by that time, you may be able to use the guaranteed delivery procedure described in this Offer to Purchase. See "The Offer--Terms of the Offer--Expiration Date" and "The Offer--Procedures for Accepting the Offer and Tendering Shares." What are the most significant conditions to the offer? We are not obligated to purchase any shares in the offer unless: o the number of shares tendered in the offer, when added to any shares then owned by us, Enovation or FPF Acquisition, represents at least 80% of the shares of common stock of PrimeSource outstanding on the expiration date of the offer. We calculate the minimum number of shares to be approximately 5,086,245 assuming none of the outstanding employee stock options are exercised. There are presently outstanding options to purchase an aggregate of 486,621 shares with exercise prices less than $10.00 per share. If all of such options are exercised, the minimum number of shares would be approximately 5,475,542; and o the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, has expired or been terminated. The offer is also subject to a number of other conditions. See "The Offer--Conditions to the Offer." How do I tender my shares? If you are a record holder, you may tender your shares by delivering the certificates representing your shares, together with a completed Letter of Transmittal, to American Stock Transfer & Trust Company, the depositary for the offer, not later than the time the offer expires. If your shares are held in street name, you must instruct your nominee to tender the shares. If you are unable to deliver the required documents to the depositary by the expiration of the offer, you may get some extra time to do so by having a broker, a bank or other fiduciary which is a member of the Securities Transfer Agents Medallion Program or other eligible institution guarantee that the missing items will be received by the depositary within three Nasdaq National Market trading days. For the tender offer to be valid, however, the depositary must receive the missing items within that three day period. See "The Offer--Procedures for Accepting the Offer and Tendering Shares." How do I withdraw previously tendered shares? To withdraw shares, you must deliver a properly executed written notice of withdrawal, or a facsimile of one, with the required information to the depositary while you still have the right to withdraw the shares. See "The Offer--Withdrawal Rights." Until what time can I withdraw previously tendered shares? You can withdraw shares at any time until the offer has expired. See "The Offer--Withdrawal Rights." Is there an agreement governing the offer? Yes. We, Enovation, FPF Acquisition and PrimeSource have entered into a merger agreement dated as of September 4, 2001. The merger agreement provides, among other things, for the terms and conditions of the offer and the merger of FPF Acquisition into PrimeSource following the offer. See "The Offer--The Merger Agreement." What does the board of directors of PrimeSource think of the offer? The board of directors of PrimeSource has unanimously determined that the offer and the merger are fair to and in the best interests of the shareholders of PrimeSource, and recommends that PrimeSource shareholders tender their shares in the offer. See "Introduction." 2 If a majority of the shares are tendered and accepted for payment, will PrimeSource continue as a public company? No. Following the purchase of the shares in the offer, we expect to consummate the merger. If the merger takes place, PrimeSource will be privately owned. Even if the merger does not take place, if we purchase all the tendered shares, there may be so few remaining shareholders and publicly held shares that PrimeSource's common stock will no longer be eligible to be traded through the Nasdaq National Market, there may not be a public trading market for PrimeSource's stock, and PrimeSource may cease making filings with the Securities and Exchange Commission or otherwise cease being required to comply with the rules of the Securities and Exchange Commission relating to publicly held companies. See "The Offer--Certain Effects of the Offer." Will the offer be followed by a merger if all PrimeSource shares are not tendered in the offer? Yes. If the offer is consummated, we, Enovation and PrimeSource plan to merge FPF Acquisition into PrimeSource. The merger is subject to conditions, including: o if required, PrimeSource shareholders shall have approved the merger; o no court or governmental entity shall have enacted or entered any statute, rule, regulation, judgment, decree, injunction or other order which is in effect and prohibits or makes the merger illegal; and o the receipt of regulatory approvals, including the expiration or termination of the waiting period under the HSR Act. See "The Offer--Certain Effects of the Offer," "The Offer--Purpose and Structure of the Offer," "The Offer--Plans for the Company" and "The Offer--The Merger Agreement." If I decide not to tender, how will the offer affect my shares? If the merger described above takes place, shareholders who have not tendered in the offer and do not exercise dissenters rights will receive the same amount of cash per share that they would have received had they tendered their shares in the offer. Therefore, if the merger takes place, the only difference to you between tendering your shares and not tendering your shares is that if you tender your shares into the offer, you will be paid earlier and will not have dissenters rights. However, even if the merger does not take place, the number of shareholders and shares of PrimeSource that are still in the hands of the public may be so small that there no longer will be an active public trading market or, possibly, any public trading market, for PrimeSource's common stock. Also, as described above, PrimeSource may cease making filings with the Securities and Exchange Commission or may no longer be required to comply with the rules of the Securities and Exchange Commission relating to publicly held companies. See "The Offer--Certain Effects of the Offer." What is the market value of my shares as of a recent date? On August 30, 2001, the last full trading day before PrimeSource announced that it was engaged in negotiations to be acquired by us at a cash price of $10.00 per share of PrimeSource common stock, the last sale price of PrimeSource's common stock reported on the Nasdaq National Market was $5.60 per share. On September 10, 2001, the last full trading day before the date of this offer to purchase, the last sale price of PrimeSource's common stock was $9.92 per share. We advise you to obtain a recent quotation for shares of PrimeSource's common stock in deciding whether to tender your shares. See "The Offer--Price Range of Shares; Dividends." Who can I talk to if I have questions about the offer? You can call either the Information Agent, D.F. King & Co., Inc., at (800) 207-3158 (toll free) or the Dealer Manager, Bear, Stearns & Co. Inc., at (877) 652-6039 (toll free) with any questions you may have. 3 To the Holders of Shares of Common Stock of PrimeSource Corporation: INTRODUCTION FPF Acquisition Corp. ("Purchaser"), a Pennsylvania corporation and a wholly-owned subsidiary of Enovation Graphic Systems, Inc., a Delaware corporation ("Enovation"), which is a wholly-owned subsidiary of Fuji Photo Film U.S.A., Inc., a New York corporation ("Fuji"), hereby offers to purchase all of the outstanding shares of common stock, par value $0.01 per share, of PrimeSource Corporation, a Pennsylvania corporation (the "Company"), and the associated rights to purchase shares (the "Rights") issued pursuant to the Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated as of February 1, 2001, as amended (together, the "Shares"), of the Company at a price of $10.00 per Share, net to the seller in cash and without interest thereon (the "Offer Price"), upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). The Offer is being made pursuant to the Agreement and Plan of Merger dated as of September 4, 2001 (the "Merger Agreement") among Fuji, Enovation, Purchaser and the Company. The Merger Agreement provides that, following completion of the Offer and the satisfaction or waiver of certain conditions in the Merger Agreement, Purchaser will be merged into the Company (the "Merger") with the Company continuing as the surviving corporation (the "Surviving Corporation"), which will be wholly-owned by Enovation. At the effective time of the Merger (the "Effective Time"), each Share outstanding immediately prior to the Effective Time (other than Shares held by the Company as treasury stock or owned beneficially by Fuji, Enovation or Purchaser or any of Fuji's other subsidiaries, all of which will be cancelled, and other than Shares that are held by shareholders, if any, who properly exercise their dissenters rights under the Pennsylvania Business Corporation Law (the "PBCL")), will be converted into the right to receive the per Share price paid in the Offer, in cash, without interest (the "Merger Consideration"). The Merger Agreement is more fully described in "The Offer--The Merger Agreement," which also contains a discussion of the treatment of stock options. Tendering shareholders who are record owners of their Shares and tender directly to the Depositary (as defined below) will not be obligated to pay brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the purchase of Shares by Purchaser pursuant to the Offer. Shareholders who hold their Shares through a broker or bank should consult such institution as to whether it charges any service fees. Fuji, Enovation or Purchaser will pay all charges and expenses of Bear, Stearns & Co. Inc. as dealer manager ("Bear Stearns" or the "Dealer Manager"), American Stock Transfer & Trust Company, as depositary (the "Depositary"), and D.F. King & Co., Inc., as information agent (the "Information Agent"), incurred in connection with the Offer. The Board of Directors of the Company (the "Company Board") has unanimously determined that the Offer and the Merger are fair to and in the best interests of the shareholders of the Company and recommends that the Company's shareholders tender their Shares in the Offer. Berwind Financial, L.P. ("Berwind Financial"), the Company's financial advisor, has delivered to the Company Board its written opinion dated September 4, 2001, to the effect that, as of such date and based on and subject to the matters stated in such opinion, the consideration to be received by holders of Shares in the Offer and the Merger pursuant to the Merger Agreement are fair from a financial point of view to such holders. The full text of Berwind Financial's written opinion, which describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken, is included as Annex A to the Company's Solicitation/ Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"), which is being mailed to shareholders concurrently herewith. Shareholders are urged to read the full text of such opinion carefully in its entirety. The Company has been advised that all of its directors and executive officers intend to tender all of their Shares pursuant to the Offer. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration of the Offer a number of Shares that, together with any Shares then beneficially owned by 4 Fuji, Enovation or Purchaser, represents at least 80% of the Shares outstanding on the Expiration Date of the Offer (the "Minimum Condition"). The Offer is also conditioned upon the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and the satisfaction of certain other conditions. See "The Offer--Conditions to the Offer." The Company has advised Fuji that, on August 31, 2001, 6,357,806 Shares were issued and outstanding and 486,621 Shares were subject to issuance upon the exercise of options having exercise prices less than $10.00 per share. Assuming that none of such options are exercised prior to the expiration of the Offer, the Minimum Condition would be satisfied if approximately 5,086,245 Shares (80% of the outstanding Shares as of August 31, 2001) were validly tendered and not withdrawn prior to the expiration of the Offer. If all of such options are exercised prior to the expiration of the Offer, Purchaser believes that the Minimum Condition would be satisfied if approximately 5,475,542 Shares were validly tendered and not withdrawn prior to the expiration of the Offer. The Merger Agreement provides that upon acceptance for payment of a number of Shares that satisfies the Minimum Condition, Fuji will be entitled to designate up to such number of directors, rounded up to the next whole number, on the Company Board that equals the product of (1) the total number of directors on the Company Board and (2) the percentage that the number of Shares beneficially owned by Purchaser bears to the total number of Shares then outstanding. The Company has agreed to use its best efforts to cause at least three members of the Company Board who were directors as of the date of the Merger Agreement to remain directors of the Company until the Effective Time. See "The Offer--The Merger Agreement." The Merger is subject to the satisfaction or waiver of certain conditions, including, if required, the approval of the Merger Agreement by the Company's shareholders. If the Minimum Condition is satisfied, Purchaser would have sufficient voting power to approve the Merger without the affirmative vote of any other shareholder of the Company. The Company has agreed, if required by applicable law, to cause a meeting of its shareholders to be held as promptly as practicable following consummation of the Offer for the purposes of considering and taking action upon the approval and adoption of the Merger Agreement. Fuji, Enovation and Purchaser have agreed to vote their Shares in favor of the approval and adoption of the Merger Agreement. See "The Offer--The Merger Agreement." This Offer to Purchase and the related Letter of Transmittal contain important information that should be read carefully before any decision is made with respect to the Offer. THE OFFER Terms of the Offer Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of such extension or amendment), Purchaser will accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not properly withdrawn as permitted under "The Offer--Withdrawal Rights." The term "Expiration Date" means 12:00 midnight, New York City time, on Tuesday, October 9, 2001, unless Purchaser shall have extended the period of time for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by Purchaser, shall expire. Subject to the provisions of the Merger Agreement, Purchaser expressly reserves the right in its sole discretion to waive any or all of the conditions to its obligation to purchase Shares pursuant to the Offer, to increase the price per Share payable in the Offer, to extend the Offer and to make any other changes in the terms and conditions of the Offer, except that Purchaser will not without the prior written consent of the Company (1) decrease the price per Share payable in the Offer, (2) decrease the maximum number of Shares to be purchased in the Offer, (3) except as required by law, impose conditions to the Offer in addition to the conditions set forth in "The Offer--Conditions to the Offer," (4) except as required by law, change the conditions to the Offer in any material respect adverse to the Company, (5) except as required by law, amend any other term of the Offer in a manner adverse to the holders of Shares or (6) change the form of consideration to be paid pursuant to the Offer. 5 Purchaser agrees that (a) it shall not terminate or withdraw the Offer or extend the Expiration Date of the Offer unless at the Expiration Date of the Offer, the conditions to the Offer set forth in "The Offer--Conditions to the Offer" shall not have been satisfied or earlier waived and (b) if the conditions to the Offer are not satisfied on any scheduled or extended Expiration Date of the Offer, then if all such conditions are reasonably capable of being satisfied prior to November 30, 2001, Purchaser shall, unless otherwise agreed by the Company, extend the Offer from time to time (each such individual extension not to exceed ten business days from the previously scheduled expiration date) until such conditions are satisfied or waived; provided, however, that Purchaser shall not be required to extend the Offer beyond November 30, 2001. The Purchaser may, without the consent of the Company, and expressly reserves the right (but shall not be obligated) to (a) extend the Offer, and thereby delay acceptance for payment of, and the payment for, any Shares, if at the Expiration Date any of the conditions to the Purchaser's obligation to purchase Shares are not satisfied or waived, and (b) extend the Offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission ("SEC") or the staff thereof applicable to the Offer or any period required by applicable law; provided, however, the Offer may not be extended beyond November 30, 2001 without the consent of the Company; provided, further, however, Purchaser may include a Subsequent Offering Period in the Offer as discussed below. If by the Expiration Date, any of or all the conditions to the Offer have not been satisfied or waived, the Purchaser, subject to the terms of the Merger Agreement and the applicable rules and regulations of the SEC, reserves the right (but shall not be obligated) (a) to terminate the Offer and not accept for payment or pay for any Shares and return all tendered Shares to tendering shareholders, (b) to waive all the unsatisfied conditions and accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not theretofore validly withdrawn, (c) as set forth above, to extend the Offer and, subject to the right of shareholders to withdraw Shares until the Expiration Date, retain the Shares that have been tendered during the period or periods for which the Offer is extended or (d) except as set forth above, to amend the Offer, in each case by giving oral or written notice of such extension, termination, waiver or amendment to the Depositary and by making a public announcement thereof. If Purchaser accepts for payment any Shares pursuant to the Offer, it will accept for payment all Shares validly tendered prior to the Expiration Date and not properly withdrawn, and will promptly pay for all Shares so accepted for payment. Any extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement thereof, such announcement in the case of an extension to be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date, in accordance with the public announcement requirements of Rule 14e-1(d) under the Securities Exchange Act of 1934 (the "Exchange Act"). Subject to applicable law (including Rules 14d-4(d) and 14d-6(c) under the Exchange Act, which require that material changes be promptly disseminated to shareholders in a manner reasonably designed to inform them of such changes) and without limiting the manner in which Purchaser may choose to make any public announcement, Purchaser shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a press release to the Dow Jones News Service. If Purchaser is delayed in its acceptance for payment of or payment for Shares or it is unable to pay for Shares pursuant to the Offer for any reason, then, without prejudice to Purchaser's rights under the Offer, the Depositary may retain tendered Shares on behalf of Purchaser, and such Shares may not be withdrawn except to the extent tendering shareholders are entitled to withdrawal rights as described herein under "The Offer--Withdrawal Rights." However, the ability of Purchaser to delay the payment for Shares that Purchaser has accepted for payment is limited by Rule 14e-1(c) under the Exchange Act, which requires that a bidder pay the consideration offered or return the securities deposited by or on behalf of shareholders promptly after the termination or withdrawal of such bidder's offer. If Purchaser makes a material change in the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, Purchaser will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(d), 14d-6(c) and 14e-1 under the Exchange Act. If Purchaser changes the price to be paid or the number of Shares to be purchased in the Offer, the Offer must remain open until the tenth business day from the date that notice of such change is first published, sent or 6 given to shareholders. The minimum period during which an offer must remain open following material changes in the terms of the offer, other than a change in price, percentage of securities sought or inclusion of or changes to a dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality, of the changes. In the SEC's view, an offer should remain open for a minimum of five business days from the date the material change is first published, sent or given to shareholders and, if material changes are made with respect to information that approaches the significance of price and share levels, a minimum of 10 business days may be required to allow for adequate dissemination to shareholders. Pursuant to Rule 14d-11 under the Exchange Act, although the Purchaser does not currently intend to do so, the Purchaser may, subject to certain conditions, elect to provide a subsequent offering period of from three business days to 20 business days in length following the expiration of the Offer on the Expiration Date and acceptance for payment of the Shares tendered in the Offer (a "Subsequent Offering Period"). A Subsequent Offering Period would be an additional period of time, following the expiration of the Offer and the purchase of Shares in the Offer, during which shareholders may tender Shares not tendered in the Offer. A Subsequent Offering Period, if one is included, is not an extension of the Offer, which already will have been completed. During a Subsequent Offering Period, tendering shareholders will not have withdrawal rights and the Purchaser will promptly purchase and pay for any Shares tendered at the same price paid in the Offer. Rule 14d-11 provides that the Purchaser may provide a Subsequent Offering Period so long as, among other things, (1) the initial 20-business day period of the Offer has expired, (2) the Purchaser offers the same form and amount of consideration for Shares in the Subsequent Offering Period as in the initial Offer, (3) the Purchaser immediately accepts and promptly pays for all securities tendered during the Offer prior to its expiration, (4) the Purchaser announces the results of the Offer, including the approximate number and percentage of Shares deposited in the Offer, no later than 9:00 a.m., Eastern time, on the next business day after the Expiration Date and immediately begins the Subsequent Offering Period and (5) the Purchaser immediately accepts and promptly pays for Shares as they are tendered during the Subsequent Offering Period. The Merger Agreement provides that Purchaser may elect to extend the Offer to include a Subsequent Offering Period not to exceed 20 business days following the expiration of the Offer if it satisfies the conditions above. In a public release, the SEC has expressed the view that the inclusion of a Subsequent Offering Period would constitute a material change to the terms of the Offer requiring the Purchaser to disseminate new information to shareholders in a manner reasonably calculated to inform them of such change sufficiently in advance of the Expiration Date (generally five business days). In the event the Purchaser elects to include a Subsequent Offering Period, it will notify shareholders of the Company consistent with the requirements of the SEC. The Purchaser does not currently intend to include a Subsequent Offering Period in the Offer, although it reserves the right to do so in its sole discretion. Pursuant to Rule 14d-7 under the Exchange Act, no withdrawal rights apply to Shares tendered during a Subsequent Offering Period and no withdrawal rights apply during the Subsequent Offering Period with respect to Shares tendered in the Offer and accepted for payment. The same consideration will be paid to shareholders tendering Shares in the Offer or in a Subsequent Offering Period, if one is included. The Company has provided Purchaser with the Company's shareholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of Shares whose names appear on the Company's shareholder list and will be furnished, for subsequent transmittal to beneficial owners of Shares, to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the shareholder list or, if applicable, who are listed as participants in a clearing agency's security position listing. Acceptance for Payment and Payment for Shares Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment) and the satisfaction or earlier waiver of all the conditions to the Offer set forth in "The Offer--Conditions to the Offer," Purchaser will accept for payment and will pay for all Shares validly tendered prior to the Expiration Date and not properly withdrawn 7 pursuant to the Offer as soon as it is permitted to do so under applicable law. Subject to the Merger Agreement and compliance with Rule 14e-1(c) under the Exchange Act, Purchaser expressly reserves the right to delay payment for Shares in order to comply in whole or in part with any applicable law. See "The Offer--Certain Legal Matters; Regulatory Approvals." In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (1) the certificates evidencing such Shares (the "Share Certificates") or confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in "The Offer--Procedures for Accepting the Offer and Tendering Shares," (2) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message (as defined below) in lieu of the Letter of Transmittal and (3) any other documents required by the Letter of Transmittal. For purposes of the Offer, Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered and not properly withdrawn as, if and when Purchaser gives oral or written notice to the Depositary of Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the Offer Price therefor with the Depositary, which will act as agent for tendering shareholders for the purpose of receiving payments from Purchaser and transmitting such payments to tendering shareholders whose Shares have been accepted for payment. If, for any reason whatsoever, acceptance for payment of any Shares tendered pursuant to the Offer is delayed, or Purchaser is unable to accept for payment Shares tendered pursuant to the Offer, then, without prejudice to Purchaser's rights under "The Offer--Terms of the Offer," the Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares, and such Shares may not be withdrawn, except to the extent that the tendering shareholders are entitled to withdrawal rights as described in "The Offer--Withdrawal Rights" and as otherwise required by Rule 14e-1(c) under the Exchange Act. Under no circumstances will interest on the Offer Price for Shares be paid, regardless of any delay in making such payment. If any tendered Shares are not accepted for payment for any reason pursuant to the terms and conditions of the Offer, or if Share Certificates are submitted evidencing more Shares than are tendered, Share Certificates evidencing unpurchased Shares will be returned, without expense to the tendering shareholder (or, in the case of Shares tendered by book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedure set forth in "The Offer--Procedures for Accepting the Offer and Tendering Shares," such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), as promptly as practicable following the expiration or termination of the Offer. Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of Fuji's affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transaction or assignment will not relieve Fuji, Enovation or Purchaser of their obligations under the Offer and will in no way prejudice the rights of tendering shareholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. The per Share consideration paid to any shareholder pursuant to the Offer will be the highest per Share consideration paid to any other shareholder pursuant to the Offer. Procedures for Accepting the Offer and Tendering Shares Valid Tenders. In order for a shareholder validly to tender Shares pursuant to the Offer, either (1) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal) and any other documents required by the Letter of Transmittal must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and either the Share Certificates evidencing tendered Shares must be received by the Depositary at such address or such Shares must be tendered pursuant to the procedure for book-entry transfer described below and a Book-Entry 8 Confirmation must be received by the Depositary, in each case prior to the Expiration Date, or (2) the tendering shareholder must comply with the guaranteed delivery procedures described below. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, that states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares that are the subject of such Book-Entry Confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Purchaser may enforce such agreement against such participant. Book-Entry Transfer. The Depositary will establish an account with respect to the Shares at the Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the system of the Book-Entry Transfer Facility may make a book-entry delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer at the Book-Entry Transfer Facility, either the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in lieu of the Letter of Transmittal, and any other required documents, must, in any case, be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date, or the tendering shareholder must comply with the guaranteed delivery procedure described below. Delivery of documents to the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's Procedures does not constitute delivery to the Depositary. Signature Guarantees. No signature guarantee is required on the Letter of Transmittal (1) if the Letter of Transmittal is signed by the registered holder of the Shares tendered therewith, unless such holder has completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on the Letter of Transmittal or (2) if the Shares are tendered for the account of a firm that is participating in the Security Transfer Agents Medallion Program (an "Eligible Institution"). In all other cases, all signatures on a Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 1 of the Letter of Transmittal. If a Share Certificate is registered in the name of a person or persons other than the signer of the Letter of Transmittal, or if payment is to be made or delivered to, or a Share Certificate not accepted for payment or not tendered is to be issued in the name of, a person other than the registered holder(s), then the Share Certificate must be endorsed or accompanied by appropriate duly executed stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear on the Share Certificate, with the signature(s) on such Share Certificate or stock powers guaranteed by an Eligible Institution as provided in the Letter of Transmittal. See Instructions 1 and 5 of the Letter of Transmittal. Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to the Offer and the Share Certificates evidencing such shareholder's Shares are not immediately available or such shareholder cannot deliver the Share Certificates and all other required documents to the Depositary prior to the Expiration Date, or such shareholder cannot complete the procedure for delivery by book-entry transfer on a timely basis, such Shares may nevertheless be tendered; provided that all of the following conditions are satisfied: (1) such tender is made by or through an Eligible Institution; (2) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by Purchaser, is received prior to the Expiration Date by the Depositary as provided below; and (3) the Share Certificates (or a Book-Entry Confirmation) evidencing all tendered Shares, in proper form for transfer, in each case together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message), and any other documents required by the Letter of Transmittal are received by the Depositary within three Nasdaq National Market trading days after the date of execution of such Notice of Guaranteed Delivery. 9 The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile transmission or mailed to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in the form of Notice of Guaranteed Delivery made available by Purchaser. In all cases, Shares will not be deemed validly tendered unless a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) (or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal) is received by the Depositary. The method of delivery of Share Certificates, the Letter of Transmittal and all other required documents, including delivery through the Book-Entry Transfer Facility, is at the option and risk of the tendering shareholder, and the delivery will be deemed made only when actually received by the Depositary (including, in the case of a book-entry transfer, receipt of a Book-Entry Confirmation). If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery. Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by Purchaser in its sole discretion, which determination shall be final and binding on all parties. Purchaser reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance for payment of which may, in the opinion of its counsel, be unlawful. Purchaser also reserves the absolute right to waive any defect or irregularity in the tender of any Shares of any particular shareholder, whether or not similar defects or irregularities are waived in the case of other shareholders. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived to the satisfaction of Purchaser. None of Purchaser, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. Other Requirements. By executing the Letter of Transmittal as set forth above, a tendering shareholder irrevocably appoints designees of Purchaser as such shareholder's proxies, each with full power of substitution, in the manner set forth in the Letter of Transmittal, to the full extent of such shareholder's rights with respect to the Shares tendered by such shareholder and accepted for payment by Purchaser (including, with respect to any and all other Shares or other securities issued or issuable in respect of such Shares on or after the date of this Offer to Purchase). All such proxies shall be considered coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, Purchaser accepts such Shares for payment. Upon such acceptance for payment, all prior proxies given by such shareholder with respect to such Shares (and such other Shares and securities) will be revoked without further action, and no subsequent proxies may be given nor any subsequent written consent executed by such shareholder (and, if given or executed, will not be deemed to be effective) with respect thereto. The designees of Purchaser will, with respect to the Shares (and other securities) for which the appointment is effective, be empowered to exercise all voting and other rights of such shareholder as they in their sole discretion may deem proper at any annual or special meeting of the Company's shareholders or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise. Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon Purchaser's payment for such Shares, Purchaser must be able to exercise full voting rights with respect to such Shares. The tender of Shares pursuant to any one of the procedures described above will constitute the tendering shareholder's acceptance of the Offer, as well as the tendering shareholder's representation and warranty that such shareholder has the full power and authority to tender and assign the Shares tendered, as specified in the Letter of Transmittal. Purchaser's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the tendering shareholder and Purchaser upon the terms and subject to the conditions of the Offer. To prevent backup federal income tax withholding with respect to payment to shareholders of the purchase price of Shares purchased pursuant to the Offer, each United States holder must provide the Depositary with such shareholder's correct taxpayer identification number or social security number or certify that such shareholder is not subject to backup withholding by completing the substitute Form 10 W-9 in the Letter of Transmittal. If backup withholding applies to a shareholder, the Depositary is required to withhold 30.5% of any payments made to such shareholder during the 2001 calendar year and 30% of any payments made during the 2002 calendar year. See Instruction 8 of the Letter of Transmittal. If a shareholder is a nonresident alien or foreign entity not subject to backup withholding, the shareholder is urged to give the Depositary a completed W-8BEN (Certificate of Foreign Status) prior to receipt of payment. Withdrawal Rights Except as otherwise provided below, tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn after November 9, 2001 unless theretofore accepted for payment as provided in this Offer to Purchase. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover page of this Offer to Purchase. Any such notice of withdrawal must specify the name and address of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of such Shares, if different from that of the person who tendered such Shares. If Share Certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in "The Offer--Procedures for Accepting the Offer and Tendering Shares," any notice of withdrawal must also specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered at any time prior to the Expiration Date by following one of the procedures described in "The Offer--Procedures for Accepting the Offer and Tendering Shares." If Purchaser is delayed in its acceptance for payment of Shares or is unable to accept Shares for payment pursuant to the Offer for any reason, then, without prejudice to Purchaser's rights under the Offer, the Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares, and such Shares may not be withdrawn except to the extent that tendering shareholders are entitled to withdrawal rights as described herein. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Purchaser, in its sole discretion, whose determination will be final and binding. None of Purchaser, the Dealer Manager, the Depositary, the Information Agent or any other person will be under duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. In the event the Purchaser provides a Subsequent Offering Period following the Offer, no withdrawal rights will apply to Shares tendered during such Subsequent Offering Period or to Shares tendered in the Offer and accepted for payment. Certain United States Federal Income Tax Consequences This summary of the material United States federal income tax consequences of the Offer and the Merger is for general information only and is based on the law as currently in effect. This summary does not discuss all of the tax consequences that may be relevant to a shareholder in light of its particular circumstances or to shareholders subject to special rules, such as financial institutions, broker-dealers, tax-exempt organizations, shareholders that hold their Shares as part of a straddle or a hedging or conversion transaction and shareholders who acquired their Shares through the exercise of an employee stock option or otherwise as compensation. 11 Shareholders are urged to consult their own tax advisors as to the particular tax consequences to them of the Offer and the Merger, including the effect of United States state and local tax laws or foreign tax laws. A United States holder refers to: o a citizen or resident of the United States, o a corporation or other entity created or organized in the United States or under the laws of the United States or of any political subdivision of the United States, or o an estate or trust, the income of which is includible in gross income for federal income tax purposes regardless of its source. A Non-United States holder refers to a shareholder that is not a United States holder. Tender Offer United States Holders. The receipt by a United States holder of cash for Shares pursuant to the Offer will be a taxable transaction under the United States Internal Revenue Code of 1986, as amended (the "Code"). A tendering United States holder will generally recognize gain or loss in an amount equal to the difference between the cash received by the shareholder pursuant to the Offer and the shareholder's adjusted tax basis in the Shares tendered pursuant to the Offer. That gain or loss will be a capital gain or loss if the Shares are a capital asset in the hands of the shareholder, and will be long term capital gain or loss if the Shares have been held for at least one year. Shareholders are urged to consult their own tax advisors as to the federal income tax treatment of a capital gain or loss (including limitations on the deductibility of a capital loss). A United States holder that tenders Shares may be subject to backup withholding unless it provides its taxpayer identification number and certifies that the number is correct or properly certifies that it is awaiting a taxpayer identification number, or unless an exemption is demonstrated to apply. If applicable, backup withholding will be imposed at a rate of 30.5% for any payments made during the calendar year ending December 31, 2001 and at a rate of 30% for any payments made during the 2002 calendar year (with the rate being further reduced to 28% by the year 2006). See "Procedures for Accepting the Offer and Tendering Shares--Other Requirements." Backup withholding is not an additional tax. Amounts so withheld can be refunded or credited against the federal income tax liability of the shareholder, provided appropriate information is forwarded to the IRS. A tendering United States holder should complete the Substitute Form W-9 that is included in the Letter of Transmittal. Non-United States Holders. A tendering Non-United States holder will generally not be subject to United States federal income tax on a gain realized on a disposition of Shares unless: o the gain is effectively connected with a trade or business in the United States of that Non-United States holder, o that Non-United States holder is a non-resident alien individual who holds the Shares as a capital asset and who is present in the United States for 183 or more days during the taxable year in which the disposition occurs, or o that Non-United States holder is subject to tax under the provisions of the Code on the taxation of United States expatriates. Information reporting and backup withholding imposed at the rates described above under "United States Holders" may apply under specified circumstances to cash payments received by a tendering Non-United States Holder unless it certifies as to its foreign status or otherwise establishes an exemption. See "The Offer--Procedures for Accepting the Offer and Tendering Shares--Other Requirements." Backup withholding is not an additional tax. Amounts so withheld can be refunded or credited against the federal income tax liability of a Non-United States holder, provided appropriate information is forwarded to the IRS. To avoid backup withholding, a tendering Non-United States holder should complete a Form W-8BEN, which may be obtained from the Depositary. 12 Merger The receipt by a United States holder or Non-United States holder of cash pursuant to the Merger would generally result in federal income tax consequences similar to those described in the relevant portion of the above summary. Shareholders that receive cash pursuant to the Merger are urged to consult their own tax advisors. Price Range of Shares; Dividends The Shares are authorized for quotation on the Nasdaq National Market under the symbol "PSRC." The following table sets forth, for the periods indicated, the high and low sales prices per Share and the amount of cash dividends paid per Share for the periods indicated. Share prices are as reported on the Nasdaq National Market based on published financial sources.
Common Stock High Low Cash Dividends ------ ----- -------------- 1999: First Quarter.................................................. $ 7.06 $5.25 $ .045 Second Quarter ................................................ $ 8.12 $4.84 $ .045 Third Quarter.................................................. $ 8.00 $4.50 $ .045 Fourth Quarter................................................. $ 6.50 $4.00 $ .045 2000: First Quarter.................................................. $ 6.84 $5.00 $.0475 Second Quarter................................................. $ 5.62 $4.81 $.0475 Third Quarter.................................................. $ 5.87 $4.00 $.0475 Fourth Quarter................................................. $ 5.25 $4.06 $.0475 2001: First Quarter.................................................. $ 5.38 $3.56 $.0475 Second Quarter................................................. $ 4.40 $3.75 $.0475 Third Quarter (through September 10, 2001)..................... $10.10 $3.95 $.0475
On August 30, 2001, the last full trading day before the Company announced that it was engaged in negotiations to be acquired by Fuji at a cash price of $10.00 per Share, the last sale price per Share on the Nasdaq National Market was $5.60. On September 10, 2001, the last full day of trading before the commencement of the Offer, the last sale price per Share on the Nasdaq National Market was $9.92 per Share. Shareholders are urged to obtain a current market quotation for the Shares. Certain Information Concerning the Company General. The Company's principal offices are located at 4350 Haddonfield Road, Suite 222, Pennsauken, New Jersey 08109. The telephone number of the Company is (856) 488-4888. The Company, a Pennsylvania corporation, was incorporated in 1954. The following description of the Company and its business has been taken from the Company's Form 10-K for the year ended December 31, 2000, and is qualified in its entirety by reference to such Form 10-K. The Company is a national distributor of machinery and equipment and consumable supplies serving the printing and publishing industry. The Company presently represents over 500 suppliers, provides more than 200,000 line items and has a customer base in excess of 20,000. The Company offers consumables, such as films, plates, blankets, papers and chemistries; scanners, servers, work stations, image setters, computer-to-plate devices and other digital electronic equipment and the applicable software; and press, bindery and other finishing machinery. Available Information. The Shares are registered under the Exchange Act. Accordingly, the Company is subject to the informational reporting requirements of the Exchange Act and, in accordance therewith, is required to file periodic reports, proxy statements and other information with the SEC relating to its business, financial condition and other matters. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Room 1024, 13 Washington, D.C. 20549, and at the SEC's regional offices located at Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Information regarding the public reference facilities may be obtained from the SEC by telephoning 1-800-SEC-0330. The Company's filings are also available to the public on the SEC's Internet site (http://www.sec.gov). Copies of such materials may also be obtained by mail from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Except as otherwise stated in this Offer to Purchase, the information concerning the Company contained herein has been taken from or is based upon reports and other documents on file with the SEC or otherwise publicly available. Although neither Purchaser nor Fuji has any knowledge that would indicate that any statements contained herein based upon such reports and documents are untrue, neither Purchaser nor Fuji takes any responsibility for the accuracy or completeness of the information contained in such reports and other documents or for any failure by the Company to disclose events that may have occurred and may affect the significance or accuracy of any such information but that are unknown to Purchaser or Fuji. Certain Projections. The Company does not, as a matter of course, make public any forecasts as to its future financial performance. However, in connection with Fuji's review of the transactions contemplated by the Merger Agreement, the Company provided Fuji with certain projected financial information concerning the Company. Such information included, among other things, the Company's projections of total revenues, gross profit, earnings before interest, taxation, depreciation and amortization ("EBITDA") and net income for the Company for the years 2001 through 2004. Set forth below is a summary of such projections. These projections should be read together with the financial statements of the Company that can be obtained from the SEC as described above.
Year Ended December 31, ------------------------------------------ 2001 2002 2003 2004 -------- -------- -------- -------- (in thousands) Total Revenues..................... $494,363 $504,250 $514,335 $524,665 Gross Profit....................... $ 80,617 $ 82,697 $ 84,351 $ 86,038 EBITDA............................. $ 13,785 $ 16,841 $ 17,617 $ 17,895 Net Income......................... $ 3,005 $ 4,680 $ 5,351 $ 5,851
It is the understanding of Fuji, Enovation and Purchaser that the projections were not prepared with a view to public disclosure or compliance with published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants regarding projections or forecasts and are included herein only because such information was provided to Fuji, Enovation and Purchaser in connection with their evaluation of a business combination transaction. These projections are subject to certain risks and uncertainties that could cause actual results to differ materially from the projections. The Company has advised Fuji, Enovation and Purchaser that its internal financial forecasts (upon which the projections provided to Fuji, Enovation and Purchaser were based in part) are, in general, prepared solely for internal use and capital budgeting and other management decisions and are subjective in many respects and thus susceptible to interpretations and periodic revision based on actual experience and business developments. The projections also reflect numerous assumptions (not all of which were provided to Fuji, Enovation and Purchaser), all made by management of the Company, with respect to industry performance, general business, economic, market and financial conditions and other matters, all of which are difficult to predict, many of which are beyond the Company's control, and none of which were subject to approval by Fuji, Enovation or Purchaser. Accordingly, there can be no assurance that the assumptions made in preparing the projections will prove accurate. It is expected that there will be differences between actual and projected results, and actual results may be materially greater or less than those contained in the projections. The inclusion of the projections herein should not be regarded as an indication that any of Fuji, Enovation, Purchaser, the Company or their respective affiliates or representatives considered or consider the projections to be a reliable prediction of future events, and the projections should not be relied upon as such. None of Fuji, Enovation, Purchaser, the Company or any of their respective affiliates or representatives has made or makes any representation to any person regarding the ultimate performance of the Company compared to the information contained in the projections, and none of them intends to update or otherwise revise the projections to reflect circumstances existing after the date when made or to reflect the occurrence of future events even in the 14 event that any or all of the assumptions underlying the projections are shown to be in error. Fuji, Enovation and Purchaser acknowledge that the Private Securities Litigation Reform Act of 1995 does not apply to the information set forth in this Offer to Purchase, including the projections set forth in this section. Certain Effects of the Offer Market for the Shares. The purchase of Shares pursuant to the Offer will reduce the number of holders of Shares and the number of Shares that might otherwise trade publicly, which could adversely affect the liquidity and market value of the remaining Shares held by shareholders other than Purchaser. Neither Fuji nor the Purchaser can predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for, or marketability of, the Shares or whether such reduction would cause future market prices to be greater or less than the Offer Price. Stock Quotation. The Shares are authorized for quotation on the Nasdaq National Market. According to the published guidelines of the Nasdaq National Market, the Shares might no longer be eligible for quotation on the Nasdaq National Market if, among other things, either (i) the number of Shares publicly held were less than 750,000, there were fewer than 400 holders of round lots, the aggregate market value of publicly-held Shares were less than $5,000,000, net tangible assets were less than $4,000,000, there were fewer than two registered and active market makers for the Shares and the minimum bid price was less than $1 per share, or (ii) the number of Shares publicly held were less than 1,100,000, there were fewer than 400 holders of round lots, the aggregate market value of publicly held Shares were less than $15,000,000 and either (x) the Company's market capitalization was less than $50,000,000 or (y) the total assets and total revenue of the Company for the most recently completed fiscal year or two of the last three most recently completed fiscal years were less than $50,000,000, there were fewer than four registered and active market makers and the minimum bid price was less than $5 per share. Shares held directly or indirectly by directors or officers of the Company or beneficial owners of more than 10% of the Shares are not considered as being publicly held for this purpose. If the Shares were to cease to be quoted on the Nasdaq National Market, the market for the Shares could be adversely affected. It is possible that the Shares would be traded or quoted on other securities exchanges (with trades published by such exchanges), the Nasdaq Stock Market (with quotations published in the Nasdaq "additional list" or in one of the "local lists") or in the over-the-counter market. The extent of the public market for the Shares and the availability of such quotations would, however, depend upon the number of shareholders and the aggregate market value of the Shares remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act and other factors. According to the Company, as of August 31, 2001, there were 6,357,806 Shares outstanding. Margin Regulations. The Shares are currently "margin securities" under the Regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of the Shares. Depending upon factors similar to those described above regarding the market for the Shares and stock quotations, it is possible that, following the Offer, the Shares would no longer constitute "margin securities" for the purposes of the margin regulations of the Federal Reserve Board and therefore could no longer be used as collateral for loans made by brokers. Exchange Act Registration. The Shares are currently registered under the Exchange Act. Such registration may be terminated upon application of the Company to the SEC if the Shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to its shareholders and to the SEC and would make certain provisions of the Exchange Act no longer applicable to the Company, such as the short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the requirement of furnishing a proxy statement pursuant to Section 14(a) or 14(c) of the Exchange Act in connection with shareholders' meetings and the related requirement of furnishing an annual report to shareholders and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions. Furthermore, the ability of "affiliates" of the Company and persons holding "restricted 15 securities" of the Company to dispose of such securities pursuant to Rule 144 promulgated under the Securities may be impaired or eliminated. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be "margin securities." Fuji, Enovation and Purchaser currently intend to seek to cause the Company to terminate the registration of the Shares under the Exchange Act as soon after consummation of the Offer as the requirements for termination of registration are met. Certain Information Concerning the Fuji Companies Fuji is a New York corporation with its principal offices located at 555 Taxter Road, Elmsford, New York 10523. The telephone number of Fuji is (914) 789-8100. Fuji is the indirect wholly-owned U.S. marketing subsidiary of Fuji Photo Film Co., Ltd. ("Fuji Japan") and offers a complete portfolio of imaging and information products, services and e-solutions to retailers, consumers, professionals and business customers. Enovation is a Delaware corporation with its principal offices located at 555 Taxter Road, Elmsford, New York 10523, c/o Fuji Photo Film U.S.A., Inc. The telephone number of Enovation is (914) 789-8100. Enovation is a wholly- owned subsidiary of Fuji. Enovation was recently formed to serve as a holding company for subsidiaries engaged in the distribution of graphic arts and printing systems products, including such products manufactured by Fuji Japan and its affiliates. To date, it has not carried on any activities other than in connection with the Merger Agreement and the Offer and in connection with certain other acquisitions as discussed under "The Offer--Background of the Offer." Purchaser is a Pennsylvania corporation with its principal offices located at 555 Taxter Road, Elmsford, New York 10523, c/o Fuji Photo Film U.S.A., Inc. The telephone number of Purchaser is (914) 789-8100. Purchaser is a wholly- owned subsidiary of Enovation and an indirect wholly-owned subsidiary of Fuji. Purchaser was recently formed solely for purposes of making this Offer and engaging in the Merger and has not carried on any activities other than in connection with the Merger Agreement and the Offer. Fuji is a wholly-owned subsidiary of FUJIFILM America, Inc. ("Fuji America"). Fuji America is a Delaware corporation with its principal offices located at 555 Taxter Road, Elmsford, New York 10523. The telephone number of Fuji America is (914) 789-8100. Fuji America is a wholly-owned subsidiary of Fuji Japan and the U.S. holding company for companies that are principally engaged in manufacturing and distribution of imaging and information products, conducting business in the following segments: Films and Imaging Systems, Digital Imaging Systems, Graphic Arts and Printing Systems, Medical Imaging and Diagnostic Systems, Recording Media, Office Imaging Information Systems, and Highly Functional Industrial Materials. Fuji Japan is a publicly-owned Japanese corporation with its principal offices located at 26-30 Nishiazabu 2-Chome, Tokyo, Japan 106-8620. The telephone number of Fuji Japan is 011-81-33406-2111. It is a manufacturer and distributor of, and is a holding company for companies that are principally engaged in manufacturing and distributing, imaging and information products, conducting businesses in the following segments: Films and Imaging Systems, Digital Imaging Systems, Graphic Arts and Printing Systems, Medical Imaging and Diagnostic Systems, Recording Media, Office Imaging Information Systems, and Highly Functional Industrial Materials. Fuji Japan, Fuji America, Fuji, Enovation and Purchaser are collectively referred to herein as the "Fuji Companies" and each individually as a "Fuji Company." The name, citizenship, business address, business phone number, principal occupation or employment and five-year employment history for each of the directors and executive officers of the Fuji Companies and certain other information are set forth in Schedule I hereto. To the best knowledge of the Fuji Companies, none of the persons listed in Schedule I to this Offer to Purchase has, during the past five years, (1) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) nor (2) been a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. 16 Except as described in this Offer to Purchase, (1) none of the Fuji Companies nor, to the best knowledge of the Fuji Companies, any of the persons listed in Schedule I to this Offer to Purchase or any associate or majority- owned subsidiary of the Fuji Companies or any of the persons so listed beneficially owns or has any right to acquire, directly or indirectly, any Shares and (2) none of the Fuji Companies nor, to the best knowledge of the Fuji Companies, any of the persons or entities referred to above nor any director, executive officer or subsidiary of any of the foregoing has effected any transaction in the Shares during the past 60 days. Except as provided in the Merger Agreement or as otherwise described in this Offer to Purchase, none of the Fuji Companies nor, to the best knowledge of the Fuji Companies, any of the persons listed in Schedule I to this Offer to Purchase, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or voting of such securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss, guarantees of profits, division of profits or loss or the giving or withholding of proxies. Except as set forth in this Offer to Purchase, none of the Fuji Companies nor, to the best knowledge of the Fuji Companies, any of the persons listed on Schedule I hereto, has had any business relationship or transaction with the Company or any of its executive officers, directors or affiliates that is required to be reported under the rules and regulations of the SEC applicable to the Offer. Except as set forth in this Offer to Purchase, there have been no contracts, negotiations or transactions between Fuji Japan or any of its subsidiaries or, to the best knowledge of Fuji Japan, any of the persons listed in Schedule I to this Offer to Purchase, on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, tender offer or other acquisition of securities, an election of directors or a sale or other transfer of a material amount of assets. Source and Amount of Funds The total amount of funds required by Purchaser to consummate the Offer and the Merger and to pay related fees and expenses is estimated to be approximately $67.3 million, exclusive of existing indebtedness of the Company. The Offer and the Merger are not conditioned on obtaining financing. Purchaser plans to obtain all funds needed for the Offer and the Merger through capital contributions or loans that will be made by Fuji Japan, indirectly through one or more of its direct or indirect wholly-owned subsidiaries, to Enovation which, in turn, will contribute the proceeds of such capital contributions or loans to Purchaser. Fuji Japan plans to make these contributions or loans by using its and its subsidiaries' available cash and cash equivalents. Background of the Offer For many years, the Company has served as a non-exclusive dealer of Fuji's Graphic Systems Division to market and sell Fuji's graphic arts and electronic imaging products. The Company serves as such a dealer pursuant to separate Dealer Agreements between Fuji and numerous branch offices of the Company, each of which is assigned a primary area of responsibility. The Dealer Agreements are generally terminable by the Company on 90 days prior notice and may be terminated by Fuji if, among other things, the particular branch office of the Company fails to achieve annual mutually agreed upon purchase targets for Fuji's products or specified percentages thereof for two successive calendar quarters. The Company is the Fuji Graphic Systems Division's largest dealer. For the years 1999 and 2000 and the six months ended June 30, 2001, Fuji's revenues from the Company under the Dealer Agreements totaled approximately $79,517,000, $87,711,000 and $42,667,000, respectively. In November 2000, Mr. James F. Mullan, Chief Executive Officer and President of the Company, discussed with representatives of Fuji the potential benefits of meeting to discuss industry conditions and the structure of the distribution channel for pre-press supplies and equipment within the printing and publishing industries in the United States. A meeting was then scheduled for December 11, 2000 at Fuji's headquarters in Elmsford, New York with Mr. Mullan and Mr. Robert J. Gourley, the sole stockholder of RJG Holding Company, Inc. ("RJG"), the parent of Heartland Imaging Companies which is another large Fuji graphic arts dealer. In advance of the meeting, both the Company and RJG provided certain financial information to Fuji. 17 At the December 11th meeting, Messrs. Mullan and Gourley met with Messrs. Stanley E. Freimuth, Executive Vice President and Chief Operating Officer of Fuji, Samuel C. Monroe, Jr., Director, Business Strategies and Daniel C. Maffeo, Vice President and General Manager, Graphic Systems Division to discuss conditions affecting the graphic arts industry generally and to explore potential options to respond to changes in the industry. At this meeting, Messrs. Mullan and Gourley asked if Fuji would consider investing in, or financing the possible combination of, the Company and RJG. Fuji indicated its willingness to consider such a transaction. At this meeting, a confidentiality agreement was signed by the parties and, thereafter, the parties exchanged non-public information. During the balance of 2000 and the first quarter of 2001, Fuji conducted preliminary financial analysis based on historical publicly available information and the non-public information provided by the Company and RJG and prepared internal financial projections regarding the proposed combination of the Company and RJG. On January 29, 2001, Mr. Mullan and William A. DeMarco, Vice President and Chief Financial Officer of the Company met with Mr. Gourley and Mr. Thomas Prater, RJG's Chief Financial Officer, and Messrs. Freimuth, Monroe and Maffeo in Elmsford, New York to discuss issues that could arise as a result of, and the potential operating and financial impact of, a possible transaction. During the period from late January through mid April 2001, Fuji from time to time requested, and the Company supplied, additional information and Messrs. Freimuth and/or Maffeo had several conversations with Mr. Mullan regarding the status of Fuji's deliberations. In early April 2001, senior officers of Fuji consulted with its outside legal advisor to discuss, among other things, the legal and regulatory framework and potential structures for the acquisition of the Company and RJG by Fuji, and on April 17, 2001, Fuji engaged Bear Stearns to serve as its financial advisor in connection with such transactions. Following these consultations, Messrs. Freimuth and Monroe advised Mr. Mullan that Fuji did not wish to make an investment in, or finance the combination of, the Company and RJG as previously discussed, but was considering making a proposal to acquire the Company, and that Fuji was continuing its internal financial analysis. Mr. Mullan was also advised that Fuji might seek to acquire RJG and Graphic Systems, Inc., which is another large Fuji graphic arts dealer, but that any proposal to acquire the Company would not be contingent on Fuji acquiring either of the other companies. On May 17, 2001, Messrs. Freimuth, Monroe and Maffeo informed Mr. Mullan by telephone that Fuji was interested in pursuing a transaction with the Company and was submitting a proposal to Fuji Japan for approval at the next meeting of its Board of Directors. Thereafter, Fuji continued to work with Bear Stearns, its financial advisor, and Stroock & Stroock & Lavan LLP, its outside legal advisor ("Stroock"), to complete its preliminary financial and legal analysis, and to develop a proposal for submission to Fuji Japan's Board of Directors. On June 8, 2001, Mr. Freimuth advised Mr. Mullan by telephone that Fuji Japan had given preliminary approval for Fuji to proceed with the acquisition of the Company in a transaction structured as a first-step cash tender offer followed by a second-step cash merger and recommended that the Company retain a financial advisor to assist in the negotiation of the purchase price. On June 26, 2001, Mr. Mullan informed Fuji that the Company had engaged Berwind Financial as its financial advisor. On June 26, 2001, representatives from Bear Stearns contacted Berwind Financial by telephone. Berwind Financial advised that it was meeting with the Company the following day to review discussions between the companies to date and the Company's business and thereafter would be ready to commence negotiations. Thereafter, Fuji instructed Stroock to prepare a draft of a merger agreement and related documents and commence legal due diligence and instructed its independent auditors to commence due diligence with respect to the Company's financial statements and accounting records and systems. On June 27, 2001, Mr. Freimuth met with Mr. Mullan in Edison, New Jersey to discuss tentatively Mr. Mullan's employment arrangements with Enovation, the subsidiary of Fuji formed to own the Company and the other acquired dealers, in the event a transaction with the Company was successfully negotiated and completed. On June 28, 2001, representatives of Bear Stearns and Berwind Financial began discussions by telephone of the terms of a potential transaction, during which Bear Stearns indicated that Fuji would be prepared to offer to acquire all of the outstanding Shares at a price of $9.00 per Share payable in cash, contingent upon satisfaction of financial and legal due diligence. On the morning of July 6, 2001, representatives from Bear 18 Stearns and Berwind Financial met in New York to discuss the proposal. During such discussions, Berwind Financial stated that $9.00 per Share was unacceptable and that the Company believed that a higher price was more appropriate given the Company's operating performance and market position. There was then a general discussion relating to the purchase price, after which Bear Stearns stated that they would discuss valuation with Fuji and would respond promptly. That afternoon, representatives from Bear Stearns and Fuji discussed the meeting with Berwind Financial held earlier that day. Following subsequent internal consultations at Fuji, Fuji instructed Bear Stearns to notify Berwind Financial that it was prepared to increase its proposal to $65 million, or approximately $10.00 per Share. On July 9, 2001, Berwind Financial responded to the proposal indicating that the Company would be willing to discuss a transaction valued at $71 million, or approximately $10.80 per Share. After further negotiations, the parties agreed in principle to a price of $69 million, or approximately $10.53 per Share (after taking into account the cost of cancellation of outstanding stock options), contingent upon satisfactory due diligence, the negotiation of a mutually acceptable definitive merger agreement and approvals by the respective Boards of Directors, and Fuji instructed legal counsel to negotiate definitive agreements with Stradley Ronon Stevens & Young LLP, special counsel for the Company. Thereafter, during July and early August 2001, Fuji's executives and its legal and accounting advisors conducted a due diligence review of the Company, and the companies' respective legal counsel negotiated successive drafts of the merger agreement. On August 9, 2001, representatives of Fuji met with Mr. Mullan to discuss Mr. Mullan's employment arrangements with Enovation and to address the provisions in the draft merger agreement relating to employee benefit matters. The principal terms of Mr. Mullan's employment agreement with Enovation were agreed to, subject to negotiation of a mutually acceptable definitive employment agreement, the negotiation of which continued until late August. Also in mid-August, Mr. Mullan and the Fuji representatives agreed that, subject to the consummation of the proposed transaction, the Company's employment agreements with Messrs. Mullan, Demarco, Donald James Purcell and Edward W. Padley should be canceled. On August 14, 2001, Fuji completed an internal review of the financial due diligence that had been conducted by its outside auditors and concluded that, among other things, there were questions regarding the Company's financial reserves for the Company's 74% owned joint venture, Canopy, LLC ("Canopy"), which had been formed in the second half of 2000 with Xeikon America, Inc., the owner of the remaining 26% interest in Canopy, to market and service Xeikon digital printing systems in the United States and Canada. Later that day, Mr. Maffeo spoke with Mr. Mullan and advised him of the results of Fuji's financial review and outlined a number of specific concerns. Mr. Mullan responded that Fuji's concerns regarding Canopy and other matters required further explanation and clarification. On August 15, 2001, senior Fuji executives participated in a conference telephone call with Mr. DeMarco to discuss further the concerns raised as a result of Fuji's due diligence review. Among the matters discussed by Mr. DeMarco was the basis for and adequacy of the Canopy inventory and receivables reserves and the potential costs associated with the proposals for unwinding Canopy which the Company and Xeikon were negotiating. Later in the day on August 15, Mr. Freimuth telephoned Mr. Mullan and informed him that prior to the conference call earlier that day with Mr. DeMarco, Fuji was planning to request a purchase price reduction of more than $10 million, but that, as a result of the clarifications and explanations provided by the Company on these issues, Fuji proposed that the purchase price be reduced by $3.64 million to $65.36 million for the equity of the Company, or $10.00 per Share. Mr. Mullan said he would consider this proposal. On August 17, 2001, at Mr. Mullan's suggestion, Bear Stearns discussed Fuji's August 15th price proposal with Berwind Financial. Thereafter, the proposal was considered by the Company Board at a meeting held on August 21, 2001 at which representatives of Berwind Financial and the Company's outside legal counsel participated. The Company Board concluded that the price reduction to $10.00 per Share would be acceptable, subject to satisfactory negotiation of several other issues in the most recent draft of the merger agreement, including the Minimum Condition, the amount of the Termination Fee payable by the Company in the event the Merger Agreement was terminated under certain circumstances as described herein under "The Merger Agreement - Fees and Expenses," the circumstances under which the Company would be obligated to reimburse Fuji for its out-of-pocket expenses and the maximum amount of such reimbursement and issues regarding certain of the Company's employee benefit plans. 19 Thereafter, between August 21 and September 4, 2001, such issues were negotiated by Fuji and the Company and their respective legal counsel and successive drafts of the merger agreement were prepared and negotiated. After the close of the trading on the Nasdaq National Market on August 30, 2001, counsel for the Company and Fuji discussed the day's trading activity for the Company's common stock, including the significant increase in price and above average volume and concluded that the issuance of a press release by the Company regarding the negotiations with Fuji would be appropriate. On the morning of August 31, 2001, prior to the opening of trading, counsel for Fuji confirmed that the Board of Directors of Fuji Japan had approved the transaction, and the Company thereupon issued a press release announcing that it was engaged in negotiations to be acquired by Fuji in a transaction that would pay each of its shareholders $10.00 per Share in cash. On September 4, 2001, the Company Board met with its financial and legal advisors and reviewed the terms of the Merger Agreement, including the Offer and the Merger, and received the opinion of Berwind Financial to the effect that the consideration to be received by the holders of Shares pursuant to the Offer and the Merger is fair to the holders of Shares from a financial point of view. At such meeting, the Company Board unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, are in the best interests of the Company, unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, and recommended that the shareholders of the Company accept the Offer and approve and adopt the Merger Agreement and the consummation of the Merger, if shareholder approval is required by applicable law in order to consummate the Merger. Thereafter, the parties signed the Merger Agreement, Mr. Mullan signed his employment agreement with Enovation and Fuji and the Company issued a joint press release announcing the signing of the definitive Merger Agreement. On September 4, 2001, Fuji also announced the signing of definitive agreements to acquire RJG and Graphic Systems, Inc. On September 11, 2001, pursuant to the terms of the Merger Agreement, Purchaser commenced the Offer. Purpose and Structure of the Offer and the Merger The purpose of the Offer is to acquire control of, and the entire equity interest in, the Company. The purpose of the Merger is to acquire all outstanding Shares not tendered and purchased pursuant to the Offer. If the Offer is successful, Fuji, Enovation and Purchaser intend to consummate the Merger as promptly as practicable. Depending upon the number of Shares purchased by Purchaser pursuant to the Offer or otherwise, the Company Board may be required to submit the Merger Agreement to the Company's shareholders for approval at a shareholders' meeting convened for that purpose in accordance with the PBCL. If shareholder approval is required, the Merger Agreement and the Merger must be adopted by a majority of all votes cast by all shareholders entitled to vote thereon at a meeting at which a quorum is present. Pursuant to the Merger Agreement, Parent, Enovation and Purchaser have agreed to vote all Shares beneficially owned by them in favor of approval and adoption of the Merger Agreement and the Merger at any such shareholders' meeting. If the Minimum Condition is satisfied, the Merger may be consummated without a shareholder meeting and without the approval of the Company's shareholders. Under the PBCL, holders of Shares do not have dissenters rights in the Offer but will have dissenters rights in the Merger. Plans for the Company Pursuant to the terms of the Merger Agreement, Fuji currently intends, promptly after consummation of the Offer, to exercise its right under the Merger Agreement to appoint a number of directors to the Company Board in proportion to its share ownership. Purchaser currently intends, as soon as practicable after consummation of the Offer, to consummate the Merger. Except as otherwise provided herein, it is expected that, initially following the Merger, the business and operations of the Company will be continued substantially as they are currently being conducted. Fuji will continue to evaluate the business and operations of the Company during the pendency of the Offer and after 20 the consummation of the Offer and the Merger and will take such actions as it deems appropriate under the circumstances then existing. Fuji intends to seek additional information about the Company during this period. Fuji's principal reason for acquiring the Company, as well as RJG and Graphic Systems, Inc., is to maintain and improve Fuji's competitive position in the graphic products industry and strengthen the distribution channel for the graphic products industry by creating a new value-added and efficient national distribution system to provide a complete array of products from a wide range of manufacturers, with substantial inventory and full technical service and support all backed by a financially stable global company such as Fuji Japan. Fuji intends to continue to review the Company and its assets, corporate structure, capitalization, operations, properties, policies, management and personnel and to consider, subject to the terms of the Merger Agreement, what, if any, changes would be desirable in light of the circumstances then existing, and reserves the right to take such actions or effect such changes as it deems desirable. The Merger Agreement The following is a summary of the material provisions of the Merger Agreement, a copy of which is filed as an exhibit to the Tender Offer Statement on Schedule TO filed by the Fuji Companies under the Exchange Act (the "Schedule TO"). The summary is qualified in its entirety by reference to the complete text of the Merger Agreement. The Offer The Merger Agreement provides for the making of the Offer. The obligation of Purchaser to accept for payment and pay for Shares tendered pursuant to the Offer is subject to the satisfaction or waiver of the Minimum Condition and certain other conditions that are described in "The Offer--Conditions to the Offer." Pursuant to the Merger Agreement, Purchaser may waive any condition to the Offer or change any of the terms or conditions of the Offer, except that, without the prior written consent of the Company, Purchaser may not make any change in the Offer which decreases the price per Share or the number of Shares sought in the Offer, which, except as required by law, imposes conditions to the Offer in addition to those set forth in "The Offer--Conditions to the Offer," changes the conditions to the Offer in any material respect adverse to the Company or amends any other term of the Offer in a manner adverse to the holders of the Shares or which changes the form of consideration to be paid pursuant to the Offer. The Merger Agreement provides that promptly upon the purchase of and payment for Shares pursuant to the Offer, Fuji shall be entitled to designate such number of directors, rounded up to the next whole number, on the Company Board that equals the product of (1) the total number of directors on the Company Board and (2) the percentage that the number of Shares beneficially owned by Fuji bears to the total number of Shares then outstanding. To this end, the Company will take all necessary action to cause Fuji's designees to be elected or appointed to the Company's Board. However, the Company shall use its best efforts to ensure that at least three members of the Company's Board who are directors as of the date of the Merger Agreement shall remain directors until the Effective Time. Following the election of Fuji's designees to the Company Board, any termination, amendment or waiver of the Merger Agreement by the Company will require the approval of a majority of the directors of the Company then in office who are not designees of Fuji, provided that if there shall be no such directors, such actions may be effected by a majority vote of the entire Board of Directors of the Company. The Merger The Merger Agreement provides that as soon as practicable after the satisfaction or waiver of each of the conditions to the Merger, Purchaser will be merged into the Company with the Company being the surviving corporation (the "Surviving Corporation"), unless Fuji elects to structure the Merger so that the Company shall be merged with and into Purchaser. If required by the PBCL, the Company will call and hold a meeting of its shareholders (the "Company Shareholder Meeting") promptly following consummation of the Offer for the purpose of voting upon the approval and adoption of the Merger Agreement and the Merger. At any such meeting all Shares then owned 21 by Fuji, Enovation or Purchaser or any subsidiary of Fuji will be voted in favor of approval and adoption of the Merger Agreement and the Merger. Pursuant to the Merger Agreement, each Share outstanding at the Effective Time (other than Shares held by the Company as treasury stock or Shares owned beneficially by Fuji, Enovation or Purchaser or any of Fuji's subsidiaries, all of which will be cancelled, and other than Shares that are held by shareholders, if any, who properly exercise their dissenters rights under the PBCL) will be converted into the right to receive the Merger Consideration. Shareholders who perfect their dissenters rights under the PBCL will be entitled to the amounts determined pursuant to such proceedings. See "The Offer--Dissenters Rights." Stock Options Immediately prior to the Effective Time, other than with respect to certain persons subject to Section 16(b) of the Exchange Act, the Company will pay each holder of a then outstanding stock option to purchase Shares granted under any stock option or compensation plan or arrangement of the Company, whether or not then exercisable or vested, in cancellation or settlement thereof, for each Share subject to such option, an amount in cash equal to the excess, if any, of the Merger Consideration over the per share exercise price thereof. Representations and Warranties Pursuant to the Merger Agreement, the Company has made customary representations and warranties to Fuji, Enovation and Purchaser, including representations relating to corporate existence and power; corporate authorizations; government authorizations; consents; capitalization; SEC filings; financial statements; absence of undisclosed material liabilities; absence of certain changes (including any material adverse effect on the Company); litigation; taxes; employee matters; financial advisors' fees; environmental matters; intellectual property; insurance; compliance with laws; contracts; transactions with affiliates; state takeover laws; rights plan; and other matters. Certain of the representations and warranties are qualified as to "materiality" or "material adverse effect." For these purposes, "material adverse effect" means a material adverse change in the business, operations, assets or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole, or Fuji and its subsidiaries, taken as a whole, as the case may be; provided, however, that (i) any adverse effect that is caused by conditions affecting the economy or security markets generally shall not be taken into account in determining whether there has been a material adverse effect, (ii) any adverse effect that is caused by conditions affecting the primary industry in which the Company or Fuji, as the case may be, currently competes which does not have a materially disproportionate effect on the Company or Fuji, as the case may be, shall not be taken into account in determining whether there has been a material adverse effect and (iii) any adverse effect that results from the announcement of the transactions contemplated by the Merger Agreement shall not be taken into account in determining whether there has been a material adverse effect. Pursuant to the Merger Agreement, Fuji, Enovation and Purchaser have made customary representations and warranties to the Company, including representations relating to their corporate existence and power; corporate authorizations; financing and other matters. Covenants The Merger Agreement contains various covenants of the parties thereto. Company Conduct of Business Covenants. Prior to the Effective Time and except as may be agreed in writing by Fuji or as expressly permitted by the Merger Agreement, the Company and its subsidiaries will conduct their business in the ordinary course consistent with past practices and shall use their best efforts to preserve intact their business organizations, present lines of business and relationships with customers, suppliers and others having business dealings with them to the end that their ongoing businesses shall not be impaired in any material respect at the Effective Time and to keep available the services of their present officers and employees, and the Company will not and will not permit its subsidiaries to, among other things: o pay dividends in excess of $0.0475 per share per quarter; 22 o issue additional shares of capital stock or rights to acquire capital stock or amend the terms of any existing equity securities except for Shares that may be issued pursuant to the exercise of stock options; o amend its organizational documents; o make material acquisitions or dispositions or enter into any new material lines of business; o make changes in its capital structure; o incur additional indebtedness or make capital expenditures other than in the ordinary course of business consistent with past practice; o amend its employee benefit or compensation plans except as may be required by law; o enter into or amend certain material contracts; or o take any action that would cause a representation or warranty to be untrue in any respect. Shareholder Meeting. Unless the PBCL does not require a vote of shareholders, the Company will cause the Company Shareholder Meeting to be duly called and held as soon as reasonably practicable after consummation of the Offer for the purpose of voting on the approval and adoption of the Merger Agreement and the Merger. In connection with such meeting, the Company will use its best efforts to obtain the necessary approvals by its shareholders of the Merger Agreement and the Merger and otherwise comply with all legal requirements applicable to such meeting. No Solicitation. The Company will not directly or indirectly (1) initiate, solicit or encourage (including by way of furnishing information or assistance), or take any other action to facilitate, any inquiries or the making of any proposal or offer that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal (as defined below), or (2) have any discussions with or provide any confidential information or data to any person relating to an Acquisition Proposal, or engage in any negotiations concerning an Acquisition Proposal, or knowingly facilitate any effort or attempt to make or implement an Acquisition Proposal, and the Company will not permit any of its Subsidiaries to take, and will prohibit the officers, directors, employees, advisors, representatives, agents and affiliates of the Company or any of its Subsidiaries from taking, any such action. However, the Merger Agreement does not prohibit the Company Board from: o furnishing information to, or entering into discussions or negotiations with, any person or entity that makes a written, bona fide Acquisition Proposal that was not solicited after the date of the Merger Agreement if, and only to the extent that, (1) the Company Board, after consultation with independent legal counsel and after consultation with Berwind Financial or other nationally recognized investment banking firm, determines in good faith by majority vote that (a) such Acquisition Proposal would, if consummated, constitute a Superior Proposal (as defined below), and (b) there is a reasonable probability that the failure to take such action would be inconsistent with the directors' fiduciary duties under applicable law and (2) prior to taking such action, the Company (a) provides prior notice to Fuji to the effect that it is taking such action and complies with the succeeding sentence and (b) receives from such person or entity an executed confidentiality agreement in reasonably customary form. The Company shall promptly (and in any event within one business day, and prior to taking any of the foregoing actions) advise Fuji following the receipt by it of any Acquisition Proposal or any inquiry or request relating thereto and the substance thereof (including the identity of the person making such Acquisition Proposal, a description of all material terms thereof and a copy of any written proposal), and advise Fuji of any developments with respect to such Acquisition Proposal, inquiry or request promptly upon the occurrence thereof, including the Company's entering into discussions or negotiations with respect thereto. The Company Board shall not, in connection with any of the actions described above, take any action to cause any state takeover statute or other similar state law to become applicable to the Offer or the Merger or inapplicable to any Acquisition Proposal (until such time as this Agreement has been terminated in accordance the provisions described under "The Offer--The Merger Agreement--Termination"). The Company has agreed immediately to cease and cause to be terminated any activities, discussions or negotiations conducted prior to the date of the 23 Merger Agreement with any parties other than Fuji and its affiliates with respect to any of the foregoing; o failing to make or reaffirm, withdrawing, adversely modifying or taking a public position materially inconsistent with its recommendation to its shareholders described under "Introduction" (which may include making any statement required by Rule 14e-2 under the Exchange Act) if there exists an Acquisition Proposal and the Company Board, after consultation with independent legal counsel and after consultation with Berwind Financial or other nationally recognized investment banking firm, determines in good faith by majority vote that (1) such Acquisition Proposal would, if consummated, constitute a Superior Proposal, and (2) there is a reasonable probability that the failure to take such action would be inconsistent with the directors' fiduciary duties under applicable law; or o making a "stop-look-and-listen" communication with respect to an Acquisition Proposal, of the nature contemplated in, and otherwise in compliance with, Rule 14d-9 under the Exchange Act as a result of receiving an Acquisition Proposal. "Acquisition Proposal" means any of the following (other than the transaction among the Company, Fuji, Enovation and Purchaser contemplated by the Merger Agreement) involving the Company or any of its Subsidiaries: (1) any proposed merger, consolidation, share exchange, division, recapitalization, business combination or other similar transaction; (2) any proposed sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets that comprise more than 15% (computed based on the fair market value of such assets as determined by the Company Board in good faith) of the assets of the Company and its Subsidiaries, on a consolidated basis, in a single transaction or series of transactions other than a disposition by the Company of its equity ownership interest in Canopy, LLC; (3) any proposed tender offer, exchange offer or other equity investment for more than 15% of the outstanding shares of any class of capital stock of the Company or the filing of a registration statement under the Securities Act of 1933, as amended (the "Securities Act") in connection therewith; or (4) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing. Recommendations. Except as set forth below, the Company Board will not (1) approve or recommend, or propose publicly to approve or recommend, any Acquisition Proposal or (2) approve or recommend, or propose to approve or recommend, or execute or enter into, any letter of intent, agreement in principle, merger agreement, acquisition agreement, option agreement or other similar agreement or propose publicly or agree to do any of the foregoing related to any Acquisition Proposal. However, if the Company Board, after consultation with independent legal counsel, determines in good faith that there is a reasonable probability that the failure to take such action would be inconsistent with its fiduciary duties under applicable law, the Company Board may approve or recommend a Superior Proposal or cause the Company to enter into an agreement with respect to a Superior Proposal, but in each case only if: o the Company provides written notice to Fuji three business days prior to the time it intends to cause the Company to enter into such an agreement advising Fuji that the Company Board has received a Superior Proposal, specifying the material terms and conditions of such Superior Proposal and identifying the Person making such Superior Proposal, o at the end of such three business day period, the Company Board continues to believe that such Acquisition Proposal constitutes a Superior Proposal, including taking into account any adjustment to the terms and conditions of the transaction contemplated by the Merger Agreement proposed by Fuji in response to such Acquisition Proposal and o the Company terminates this Agreement in accordance with the requirements of paragraph (g) under "The Offer--The Merger Agreement--Termination" prior to taking any of the foregoing actions. A "Superior Proposal" means any bona fide Acquisition Proposal not directly or indirectly initiated, solicited, encouraged or knowingly facilitated by the Company after the date of the Merger Agreement which the Company Board determines in its good faith judgment (based on the advice of Berwind Financial or other investment banker of nationally recognized reputation), taking into account all legal, financial, regulatory and other aspects of the proposal and the person making the proposal, (1) would, if consummated, result in a transaction that is more favorable to the Company's shareholders (in their capacity as shareholders), from a financial point of view, than the transaction contemplated by the Merger Agreement and (2) is reasonably 24 capable of being completed; provided that for purposes of this definition, the term "Acquisition Proposal" shall have the meaning described above except that each reference to 15% in the definition of "Acquisition Proposal" shall be deemed to be a reference to 80% and "Acquisition Proposal" shall only be deemed to refer to a transaction involving the Company or, with respect to assets (including the shares of any subsidiary of the Company), the assets of the Company and its Subsidiaries taken as a whole (and not any of its Subsidiaries alone). Employee Benefits. Fuji will review the existing employee benefit plans of the Company and, in deciding whether to amend or terminate any plans, will consider the general welfare of the Company's employees; provided that Fuji and the Surviving Corporation shall each have the right, in its sole discretion, to amend or terminate any of the Company's plans in accordance with law. Fuji will, and will cause the Surviving Corporation to, take into account prior service rendered by employees of the Company prior to the Effective Time for vesting and eligibility purposes under all employee benefit plans of Fuji and the Surviving Corporation to the same extent as such service was taken into account under the corresponding plans of the Company for those purposes, provided that there shall be no duplication of any benefits. Employees of the Company will not be subject to any preexisting condition limitation under any health plan of Fuji or the Surviving Corporation for any condition for which they would have been entitled to coverage under the corresponding plan of the Company in which they participated prior to the Effective Time. In addition, Fuji will cause the Surviving Corporation to apply the lesser of (i) all reserves and accruals for post-retirement medical benefits established by the Company on its books in the normal course as of the consummation of the Offer or (ii) the FASB liability for such benefits to provide post-retirement medical benefits to current retirees (and their eligible beneficiaries) receiving benefits and to current employees (and their eligible beneficiaries) eligible for future benefits upon such terms as the Surviving Corporation may determine. No employees of the Company hired after September 2, 1994 are eligible for these post-retirement medical benefits. Director and Officer Liability. After the Effective Time, Fuji will, and will cause the Surviving Corporation to, indemnify, to the fullest extent permitted by the PBCL and the Company's articles of incorporation and by-laws, the present and former officers and directors of the Company in respect of any losses, claims, damages, liabilities and expenses (including reasonable fees and expenses of legal counsel) arising out of actions or omissions occurring at or prior to the Effective Time, including the transactions contemplated by the Merger Agreement. For a period of not less than six years after the Effective Time, Fuji will cause to be maintained in effect the current officers' and directors' liability insurance maintained by the Company on the date of the Merger Agreement (provided that Fuji may substitute therefor policies with reputable and financially sound carriers having at least the same coverage and amounts, and containing terms and conditions which are no less advantageous to the persons currently covered by such policies as the insured) with respect to facts or circumstances occurring at or prior to the Effective Time to the extent that such liability insurance can be maintained annually at a cost to Fuji not greater than 150% of the current annual premium. Fuji shall reimburse all expenses, including reasonable attorney's fees, incurred by any person in successfully enforcing the obligations of Fuji and the Surviving Corporation under these provisions. Rights Agreement. The Board of Directors of the Company shall take all action to the extent necessary (including amending the Rights Agreement) in order to render the Rights inapplicable to the Merger, the Offer and the other transactions contemplated by the Merger Agreement. Except in connection with the foregoing sentence, the Board of Directors of the Company shall not, without the prior written consent of Fuji, except in connection with a Superior Proposal which the Board of Directors of the Company approves and recommends as provided in "The Offer--The Merger Agreement--Recommendations" above, (i) amend the Rights Agreement or (ii) take any action with respect to, or make any determination under, the Rights Agreement, including a redemption of the Rights, in each case in order to facilitate any Acquisition Proposal with respect to the Company. Takeover Statutes. If any "fair price," "moratorium," "control share acquisition" or other form of anti-takeover statute or regulation shall become applicable to the transactions contemplated by the Merger 25 Agreement, including any such provision of the PBCL, the parties shall grant such approvals and take such actions as are reasonably necessary so that the transactions contemplated by the Merger Agreement may be consummated as promptly as practicable on the terms contemplated by the Merger Agreement and otherwise to act to eliminate or minimize the effects of such statute or regulation on the transactions contemplated by the Merger Agreement. Reasonable Best Efforts. Each party will use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate the transactions contemplated by the Merger Agreement, including using reasonable efforts, including pursuit of legal appeals with respect to any temporary restraining order, preliminary injunction or other similar judicial order, to have any judgment, decree, injunction or order lifted, released or reversed which is in effect and prohibits or makes illegal consummation of the transactions contemplated by the Merger Agreement. Conditions to the Merger The Merger Agreement provides that the obligations of Fuji, Enovation, Purchaser and the Company to consummate the Merger are subject to the satisfaction of the following conditions: (a) if required under the PBCL, the shareholders of the Company shall have approved and adopted the Merger Agreement by the requisite affirmative vote in accordance with applicable law; (b) no court or governmental entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and prohibits or makes illegal consummation of the transactions contemplated by the Merger Agreement; (c) (1) any applicable waiting period under the HSR Act relating to the Merger shall have expired or been terminated and (2) the Company, Fuji and Purchaser shall have timely filed with and obtained from each governmental entity any other filings, notices, approvals, waivers and consents necessary for the consummation of the Merger, the Offer and the transactions contemplated by the Merger Agreement, except for those the failure of which to make or obtain would not have a material adverse effect on the Company or Fuji; and (d) Purchaser shall have purchased Shares pursuant to the Offer sufficient to satisfy the Minimum Condition. Termination The Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time (notwithstanding any approval of the Merger Agreement by the shareholders of the Company): (a) by mutual written consent duly authorized by the Board of Directors of the Company and Fuji; (b) by either the Company or Fuji, if, without any material breach by such terminating party of its obligations under the Merger Agreement causing or resulting in such delay, the purchase of Shares pursuant to the Offer shall not have occurred on or before November 30, 2001; provided that Fuji may extend such date for 45 calendar days if Fuji is then actively negotiating with the Department of Justice or the Federal Trade Commission regarding satisfaction of the conditions set forth in paragraphs(s) (b) and/or (c)(i) under "The Offer--Conditions to the Offer" and certifies to the Company that, to its knowledge, all other conditions to the Offer are satisfied or capable of prompt satisfaction as of the date of such verification; but, provided, further, such certification shall be without prejudice to the requirement that such conditions remain satisfied; (c) by Fuji or the Company, if the Offer expires or is terminated or withdrawn pursuant to its terms without any Shares being purchased; provided that Fuji may not terminate the Merger Agreement pursuant to this clause, if Fuji's termination of, or Purchaser's failure to accept for payment or pay for any Shares tendered pursuant to, the Offer is in violation of the terms of the Offer or the Merger Agreement; 26 (d) by Fuji or the Company, if any governmental entity of competent jurisdiction shall have (1) issued a final and nonappealable order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the purchase of Shares pursuant to the Offer or the Merger or (2) failed to issue an order, decree or ruling or to take any other action which is necessary to fulfill the conditions to the Merger set forth under "The Offer--Conditions to the Offer" and "The Offer--The Merger Agreement--Conditions to the Merger," and such denial of a request to issue such order, decree or ruling or to take such other action shall have become final and nonappealable; provided that the party seeking to terminate the Merger Agreement shall have complied with its obligations under the Merger Agreement to use its reasonable best efforts to attempt to remove or lift, or to obtain, as applicable, such order, decree, ruling or other action; (e) by the Company, if the Offer has not been timely commenced, unless the failure to commence the Offer shall be due to the failure of the Company to perform in any material respect any of its obligations under the Merger Agreement then required to be performed; (f) by Fuji prior to consummation of the Offer, if the Company Board shall have (1) withdrawn, modified or changed its recommendation or approval in respect of the Merger Agreement or the Offer in a manner adverse to Fuji, (2) approved or recommended any proposal other than by Fuji, Enovation or Purchaser in respect of an Acquisition Proposal, (3) (A) failed to include in the proxy statement the recommendation referred to in clause (1) or (B) materially breached its obligations under the Merger Agreement by reason of a failure to call the Company Shareholder Meeting in accordance with any of the provisions described under "The Offer--The Merger Agreement--The Merger," or (4) resolved to do any of the foregoing; (g) by the Company prior to consummation of the Offer, if (1) the Company Board shall have determined that an Acquisition Proposal constitutes a Superior Proposal and the Company shall have delivered to Fuji the notice in accordance with the requirements of, and shall have otherwise complied with the provisions described above under "The Offer--The Merger Agreement--Recommendations," (2) Fuji does not make, within three business days after receipt of the Company's written notice pursuant to clause (1) above, an offer that the Company Board shall have reasonably concluded in good faith (following consultation with its financial advisor and outside counsel) is as favorable to the shareholders of the Company as such Superior Proposal, (3) the Company shall have delivered to Fuji a written notice of the determination by the Company Board to terminate the Merger Agreement pursuant to this clause (g), and (4) simultaneously with such termination, the Company shall enter into a definitive acquisition, merger or similar agreement to effect such Acquisition Proposal and shall make payment of the full amount of the termination fee to Fuji required by, and confirms in writing its obligation to reimburse Fuji for its expenses in accordance with, the provisions described below under "The Offer--The Merger Agreement--Fees and Expenses; Termination Fee;" or (h) prior to the consummation of the Offer, by the Company or Fuji (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein), if there shall have been a material breach of any of the covenants or agreements or any of the representations or warranties set forth in the Merger Agreement on the part of the other party, which breach is not cured within ten business days following written notice given by the terminating party to the party committing such breach, or which breach, by its nature, cannot be cured prior to the date on which the Offer expires. The party desiring to terminate the Merger Agreement shall give written notice of such termination to the other party. Fees and Expenses; Termination Fee Except as otherwise specified below, all fees and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby will be paid by the party incurring such expenses. If (1) Fuji terminates this Agreement pursuant to paragraph (f) under "The Offer--The Merger Agreement--Termination," (2) the Company terminates this Agreement pursuant to paragraph (g) under "The 27 Offer--The Merger Agreement--Termination," or (3) (A) Fuji or the Company terminates this Agreement pursuant to paragraph (b) or paragraph (c) under "The Offer--The Merger Agreement--Termination" as a result of failure to meet the Minimum Condition or Fuji terminates this Agreement pursuant to paragraph (h) under "The Offer--The Merger Agreement--Termination," and (B) at any time prior to such termination an Acquisition Proposal shall have been publicly disclosed or publicly proposed, in the case of a termination pursuant to paragraph (c), or communicated to the Company, or its senior management, Board of Directors or stockholders in the case of a termination pursuant to paragraph (g) under "The Offer--The Merger Agreement--Termination," and (C) within 12 months after such termination the Company or any of its Subsidiaries enters into an agreement with respect to, or consummates, a transaction contemplated by such Acquisition Proposal or a Superior Proposal (whether or not such Superior Proposal was publicly disclosed, publicly proposed or otherwise communicated to the Company prior to such termination), then in each case the Company will pay to Fuji, simultaneously with the earlier of entry into any agreement for or the consummation of such transaction in the case of clause (3) above, a fee, in cash of $3,000,000 (a "Termination Fee"); provided that the Company in no event shall be obligated to pay more than one such fee with respect to all such terminations and transactions. If (a) Fuji shall become entitled to receive the Termination Fee provided for above by reason of the occurrence of any of the events described in clauses (1), (2) or (3) thereof, the Company shall also reimburse Fuji for all documented expenses, not to exceed $2,000,000, incurred by or on behalf of Fuji in connection with the transactions contemplated by the Merger Agreement. Amendment At any time prior to the Effective Time, the Merger Agreement may be amended or supplemented in writing if such amendment or supplement is approved by the respective boards of directors of the Company and Purchaser; provided, however, that following any approval by the shareholders of the Company, there shall be no amendment or change to the provisions hereof which (i) by law or in accordance with the rules of any relevant stock exchange or NASDAQ requires further approval by such shareholders without such further approval or (ii) is not permitted under applicable law. Subject to applicable law, any provision of the Merger Agreement may be waived prior to the Effective Time if, and only if, such waiver is in writing and signed by the party against whom the waiver is to be effective. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Dissenters Rights If the Merger is consummated, shareholders of the Company may have the right to dissent from the Merger and to obtain payment of the fair value of their Shares under the PBCL. Under the PBCL, dissenting shareholders who comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their Shares and to receive payment of such fair value in cash plus interest. "Fair value," as used in the PBCL, means the fair value of Shares immediately before the Effective Time of the Merger, taking into account all relevant factors, but excluding any appreciation or depreciation in anticipation of the Merger. Shareholders should recognize that the value so determined could be higher or lower than the price per Share paid pursuant to the Offer or the consideration per Share to be paid in the Merger. Moreover, Purchaser may argue in an appraisal proceeding that, for purposes of such a proceeding, the fair value of the Shares is less than the price paid in the Offer or the Merger. Confidentiality Agreement Pursuant to the Confidentiality Agreement dated as of December 11, 2000, Fuji, Heartland and the Company agreed to furnish each other, and to keep confidential, certain information concerning their respective businesses and future business relationship. The Merger Agreement provides that certain information exchanged pursuant to the Merger Agreement will be subject to the Confidentiality Agreement. 28 Employment Agreement On September 4, 2001, Enovation entered into an employment agreement with James F. Mullan to serve as President of Enovation through March 31, 2004, with possible earlier termination as provided therein. The employment relationship established by the employment agreement shall become effective only upon the purchase and payment for Shares by Purchaser pursuant to the Offer. The Employment Agreement provides for (1) a base salary of $275,000 through March 31, 2002 and increasing on April 1, 2002 and 2003 to $285,000 and $295,000, respectively; (2) an annual incentive bonus equal to the pro-rated portion of $175,000 for the fiscal year ending March 31, 2002 and which, thereafter, shall be variable based upon performance criteria to be established in the future, but ranging from a guaranteed minimum bonus of $95,000 to $190,000 for the fiscal year ending March 31, 2003 and not to exceed $205,000 for the fiscal year ending March 31, 2004; and (3) a one-time special bonus after the expiration of the employment term based upon performance criteria for the fiscal year ending March 31, 2004 to be established in good faith by Mr. Mullan and the Enovation Board of Directors prior to March 31, 2002. In the event that Mr. Mullan is terminated by Enovation without cause, Mr. Mullan will be entitled to severance equal to any remaining base salary through March 31, 2004 payable in accordance with customary payroll practices, any guaranteed and earned bonus as provided in clause (2) above and benefits accrued under any benefit plan in which Mr. Mullan was a participant on the date of termination. The Employment Agreement also provides that Mr. Mullan will not disclose confidential information of Enovation or any of its subsidiaries and affiliates and will not compete with, injure or disparage or solicit any employees of, Enovation or any of its subsidiaries and affiliates for a period of two years following the period of employment (which shall include the period, if any, that Enovation is required to make severance payments to Mr. Mullan). Conditions to the Offer The Merger Agreement provides that notwithstanding any other provision of the Offer or the Merger Agreement, Purchaser shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to Purchaser's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer), to pay for any Shares tendered and may postpone the acceptance for payment or, subject to the restriction referred to above, payment for any Shares tendered, and subject to the provisions of the Merger Agreement, may amend or terminate the Offer, if: (a) the Minimum Condition has not been satisfied prior to the time the Offer will otherwise expire; (b) any waiting periods under the HSR Act applicable to the purchase of Shares in the Offer and the Merger shall not have expired or been terminated prior to the expiration of the Offer; or (c) at any time on or after the date of the Merger Agreement and prior to the acceptance for payment of Shares pursuant to the Offer, any of the following conditions shall have occurred and be continuing: (i) there shall be threatened by any governmental agency, or instituted or pending any action or proceeding before any court or governmental entity, domestic or foreign, (A) challenging or seeking to make illegal, to delay materially or otherwise to restrain or prohibit the making of the Offer, the acceptance for payment of or payment for some of or all the Shares by Purchaser or the consummation by Purchaser of the Merger, (B) seeking to restrain or prohibit Fuji's or the Company's ownership or operation (or that of their respective subsidiaries, the Company's subsidiaries or affiliates) of all or any material portion of the business or assets of the Company and its subsidiaries, taken as a whole, or of Fuji and its subsidiaries, taken as a whole, (C) seeking to compel Fuji or the Company to sell or otherwise dispose of, or hold separate (through the establishment of a trust or otherwise) particular assets or categories of assets or businesses of any of the Company, Fuji or any of Fuji's affiliates, (D) seeking to prohibit or to impose material limitations on the ability of Fuji or any of its subsidiaries or affiliates effectively to exercise full rights of ownership of the Shares (including, without limitation, the right to vote any Shares acquired or owned by Fuji or any of its subsidiaries or affiliates on all matters properly presented to the Company's shareholders), or seeking to prohibit Fuji or any of its subsidiaries from effectively controlling in any material respect the 29 business and operations of the Company and the Company's subsidiaries, taken as a whole, (E) seeking to require divestiture by Fuji or any of its subsidiaries or affiliates of any Shares or seeking to obtain from the Company, Fuji, Enovation or Purchaser by reason of any of the transactions contemplated by the Offer or the Merger Agreement any damages that are material to the Company and its subsidiaries, taken as a whole, or Fuji and its subsidiaries, taken as a whole, or (F) that otherwise, in the reasonable judgment of Fuji, is likely to have a material adverse effect on the Company and its subsidiaries, taken as a whole, or Fuji and its subsidiaries, taken as a whole; or (ii) there shall be any action taken, or any statute, rule, regulation, injunction, interpretation, judgment, order or decree proposed, enacted, enforced, promulgated, issued or deemed applicable to Fuji or any of its subsidiaries or to the Company or any of its subsidiaries or the Offer or the Merger, by any court, governmental entity, domestic or foreign, other than the application of the waiting period provision of the HSR Act to the Offer or the Merger, that, in the reasonable judgment of Fuji, is likely, directly or indirectly, to result in any of the consequences referred to in paragraph (c)(i) above; or (iii) the Company shall have breached or failed to perform in any material respect any of its covenants or agreements under the Merger Agreement, or any of the representations and warranties of the Company set forth in the Merger Agreement (disregarding all qualifications as to materiality or material adverse effect) shall not be true and correct when made or at any time prior to consummation of the Offer as if made at and as of such time (except for those representations and warranties that address matters only as of a particular date which need only be true and accurate as of such date) except where the failure of such representations and warranties to be true and correct would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the Company; (iv) The Rights shall have become exercisable; or (v) the Merger Agreement shall have been terminated in accordance with its terms or the Offer shall have been terminated with the consent of the Company; which, in the reasonable judgment of Fuji in any such case, and regardless of the circumstances giving rise to any such condition, makes it inadvisable to proceed with such acceptance for payment or payment. The foregoing conditions are for the sole benefit of Fuji, Enovation and Purchaser and may be asserted by Purchaser regardless of the circumstances giving rise to such condition or may be waived by Purchaser in whole or in part at any time and from time to time in its sole discretion. The failure by Purchaser or any affiliate of Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. Certain Legal Matters; Regulatory Approvals General. Purchaser is not aware of any pending legal proceeding relating to the Offer. Except as described in this section, based on its examination of publicly available information filed by the Company with the SEC and other publicly available information concerning the Company, Purchaser is not aware of any governmental license or regulatory permit that appears to be material to the Company's business that might be adversely affected by Purchaser's acquisition of Shares as contemplated herein or of any approval or other action by any governmental, administrative or regulatory authority or agency, domestic or foreign, that would be required for the acquisition or ownership of Shares by Purchaser or Fuji as contemplated herein. Should any such approval or other action be required, Purchaser currently contemplates that, except as described below under "The Offer--Certain Legal Matters; Regulatory Approvals--State Takeover Statutes," such approval or other action will be sought. While Purchaser does not currently intend to delay acceptance for payment of Shares tendered pursuant to the Offer pending the outcome of any such matter (except as described below), there can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that if such approvals were not obtained or 30 such other actions were not taken, adverse consequences might not result to the Company's business, or certain parts of the Company's business might not have to be disposed of, any of which could cause Purchaser to elect to terminate the Offer without the purchase of Shares thereunder under certain conditions. See "The Offer--Conditions to the Offer." State Takeover Statutes. A number of states have adopted laws that purport, to varying degrees, to apply to attempts to acquire corporations that are incorporated in, or that have substantial assets, shareholders, principal executive offices or principal places of business or whose business operations otherwise have substantial economic effects in, such states. The Company, directly or through subsidiaries, conducts business in a number of states throughout the United States, some of which have enacted such laws. In Edgar v. MITE Corp., the Supreme Court of the United States invalidated on constitutional grounds the Illinois Business Takeover Statute which, as a matter of state securities law, made takeovers of corporations meeting certain requirements more difficult. However, in 1987 in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the State of Indiana could, as a matter of corporate law, constitutionally disqualify a potential acquiror from voting shares of a target corporation without the prior approval of the remaining shareholders where, among other things, the corporation is incorporated in, and has a substantial number of shareholders in, the state. Subsequently, in TLX Acquisition Corp. v. Telex Corp., a Federal District Court in Oklahoma ruled that the Oklahoma statutes were unconstitutional insofar as they apply to corporations incorporated outside Oklahoma in that they would subject such corporations to inconsistent regulations. Similarly, in Tyson Foods, Inc. v. McReynolds, a Federal District Court in Tennessee ruled that four Tennessee takeover statutes were unconstitutional as applied to corporations incorporated outside Tennessee. This decision was affirmed by the United States Court of Appeals for the Sixth Circuit. The Company is incorporated under the laws of Pennsylvania. The Pennsylvania Takeover Disclosure Law ("PTDL") purports to regulate certain attempts to acquire a corporation which (1) is organized under the laws of Pennsylvania or (2) has its principal place of business and substantial assets located in Pennsylvania. In Crane Co. v. Lam, the United States District Court for the Eastern District of Pennsylvania preliminarily enjoined, on grounds arising under the United States Constitution, enforcement of at least the portion of the PTDL involving the pre-offer waiting period thereunder. Section 8(a) of the PTDL provides an exemption for any offer to purchase securities as to which the board of directors of the target company recommends acceptance to its shareholders, if at the time such recommendation is first communicated to shareholders the offeror files with the Pennsylvania Securities Commission ("PSC") a copy of the Schedule TO and certain other information and materials, including an undertaking to notify securityholders of the target company that a notice has been filed with the PSC which contains substantial additional information about the offering and which is available for inspection at the PSC's principal office during business hours. The Company's Board has approved the transactions contemplated by the Merger Agreement and recommended acceptance of the Offer and the Merger to the Company's securityholders. While reserving and not waiving its right to challenge the validity of the PTDL or its applicability to the Offer, Purchaser is making a Section 8(a) filing with the PSC in order to qualify for the exemption from the PTDL. Additional information about the Offer has been filed with the PSC pursuant to the PTDL and is available for inspection at the PSC's office at Eastgate Office Building, 2nd Floor, 1010 North 7th Street, Harrisburg, PA 17102-1410 during business hours. Chapter 25 of the PBCL contains other provisions relating generally to takeovers and acquisitions of certain publicly owned Pennsylvania corporations such as the Company that have a class or series of shares entitled to vote generally in the election of directors registered under the Exchange Act (a "registered corporation"). The following discussion is a general and highly abbreviated summary of certain features of Chapter 25, is not intended to be complete or to address further potentially applicable exceptions or exemptions, and is qualified in its entirety by reference to the full text of Chapter 25 of the PBCL. The Company is a registered corporation. In addition to other provisions not applicable to the Offer or the Merger, Subchapter 25D of the PBCL includes provisions requiring approval of a merger of a registered corporation with an "interested shareholder," by the affirmative vote of the shareholders entitled to cast at least a majority of the votes that all shareholders other than the interested shareholder are entitled to cast with respect to the transaction without counting the votes of the interested shareholder. This disinterested shareholder approval requirement 31 is not applicable to a transaction (1) approved by a majority of disinterested directors, (2) in which the consideration to be received by shareholders is not less than the highest amount paid by the interested shareholder in acquiring his shares, or (3) effected without submitting the merger to a vote of shareholders as permitted in Section 1924(b)(1)(ii) of the PBCL. The Company has opted out of Section 2538(a) in its Restated Articles of Incorporation and has represented to Fuji, Enovation and Purchaser that the disinterested shareholder approval requirement of Subchapter 25D will not be applicable to the Merger. Subchapter 25E of the PBCL provides that, in the event that a person (or a group of related persons, or any other person or group of related persons) acquires securities representing at least 20% of the voting power of a registered corporation (a "Control Transaction"), securityholders of the corporation would have the right to demand "fair value" of such securityholders' securities and to be paid such fair value upon compliance with the requirements of Subchapter 25E. Under Subchapter 25E, "fair value" may not be less than the highest price per share paid by the controlling person or group at any time during the 90-day period ending on and including the date of the Control Transaction, plus an increment, if any, representing any value, including, without limitation, any proportion of value payable for acquisition of control of the corporation, that may not be reflected in such price. The Company has opted out of Subchapter 25E in its Restated Articles of Incorporation and has represented to Fuji, Enovation and Purchaser that Subchapter 25E is not applicable to the transactions contemplated by the Merger Agreement. Subchapter 25F of the PBCL prohibits under certain circumstances certain "business combinations," including mergers and sales or pledges of significant assets, of a registered corporation with an "interested shareholder" for a period of five years. An "interested shareholder" includes a shareholder who is the beneficial owner of 20% of the shares entitled to vote in an election of directors. At the time of the Merger, Purchaser will be an "interested shareholder" within the meaning of this Subchapter, because of its acquisition of Shares in the tender offer. Subchapter 25F provides an exception for a "business combination" approved by the board of directors prior to the interested shareholder's share acquisition date, or where the purchase of the shares by the interested shareholder on the share acquisition date has been approved by the board of directors prior to the interested shareholder's share acquisition date. The Company has opted out of Subchapter 25F in its Restated Articles of Incorporation and represented to Fuji, Enovation and Purchaser that Subchapter 25F is not applicable to the transactions contemplated by the Merger Agreement. In addition, on September 4, 2001, the Company's Board approved the Merger as well as the acquisition of shares in the Offer as contemplated by this Subchapter. Subchapter 25G of the PBCL, relating to "control-share acquisitions," prevents under certain circumstances the owner of a control-share block of shares of a registered corporation from voting such shares unless a majority of both the "disinterested" shares and all voting shares approve such voting rights. Failure to obtain such approval may result in a forced sale by the control-share owner of the control-share block to the corporation at a possible loss. The Company has opted out of Subchapter 25G in its Restated Articles of Incorporation and has represented to Fuji, Enovation and Purchaser that Subchapter 25G is not applicable to the transactions contemplated by the Merger Agreement. Subchapter 25H of the PBCL, relating to disgorgement by certain controlling shareholders of a registered corporation following attempts to acquire control, provides that under certain circumstances any profit realized by a controlling person from the disposition of shares of the corporation to any person (including to the corporation under Subchapter 25G or otherwise) will be recoverable by the corporation. The Company has opted out of Subchapter 25H in its Restated Articles of Incorporation and has represented to Fuji, Enovation and Purchaser that Subchapter 25H is not applicable to the transactions contemplated by the Merger Agreement. Subchapter 25I of the PBCL entitles "eligible employees" of a registered corporation to a lump sum payment of severance compensation under certain circumstances if the employee is terminated, other than for willful misconduct, within two years after voting rights lost as a result of a control-share acquisition are restored by a vote of disinterested shareholders ("Control-Share Approval") or, in the event the termination was accomplished pursuant to an agreement, arrangement or understanding with the acquiring person, within 90 days prior to Control-Share Approval. Subchapter 25J of the PBCL provides protection against termination or impairment under certain circumstances of "covered labor contracts" of a registered corporation as a result of a "business combination transaction" if the business operation to which the covered labor contract relates 32 was owned by the registered corporation at the time voting rights are restored by shareholder vote after a control-share acquisition. Subchapters 25I and 25J apply only in the event of a "control share acquisition" to which Subchapter 25G applies. Since the Company has opted out of Subchapter 25G, there can be no "control share acquisition" to which Subchapter 25G applies, and the Company has represented to Fuji, Enovation and Purchaser that Subchapters 25I and 25J are not applicable to the transactions contemplated by the Merger Agreement. Section 2504 of the PBCL provides that the applicability of Chapter 25 of the PBCL to a registered corporation having a class or series of shares entitled to vote generally in the election of directors registered under the Exchange Act or otherwise satisfying the definition of a registered corporation under Section 2502(l) of the PBCL shall terminate immediately upon the termination of the status of the corporation as a registered corporation. Purchaser intends to seek to cause the Company to terminate the registration of the Shares under the Exchange Act as soon after consummation of the Offer as the requirements for termination of the registration of the Shares are met. Purchaser does not believe that the antitakeover laws and regulations of any state other than the Commonwealth of Pennsylvania will by their terms apply to the Offer, and, except as set forth above with respect to the PBCL, Purchaser has not attempted to comply with any state antitakeover statute or regulation. Purchaser reserves the right to challenge the applicability or validity of any state law purportedly applicable to the Offer and nothing in this Offer to Purchase or any action taken in connection with the Offer is intended as a waiver of such right. If it is asserted that any state antitakeover statute is applicable to the Offer and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer, Purchaser might be required to file certain information with, or to receive approvals from, the relevant state authorities, and Purchaser might be unable to accept for payment or pay for Shares tendered pursuant to the Offer or may be delayed in consummating the Offer. In such case, Purchaser may not be obligated to accept for payment or pay for any tendered Shares. See "The Offer--Conditions to the Offer." United States Antitrust Compliance. Under the HSR Act and the rules that have been promulgated thereunder by the Federal Trade Commission (the "FTC"), certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the "Antitrust Division") and the FTC and certain waiting period requirements have been satisfied. The purchase of Shares pursuant to the Offer is subject to such requirements. Pursuant to the requirements of the HSR Act, Purchaser has filed a Notification and Report Form with respect to the Offer and Merger with the Antitrust Division and the FTC on September 7, 2001. As a result, the waiting period applicable to the purchase of Shares pursuant to the Offer is scheduled to expire at 11:59 p.m., New York City time, on September 24, 2001. However, prior to such time, the Antitrust Division or the FTC may extend the waiting period by requesting additional information or documentary material relevant to the Offer from Purchaser. If such a request is made, the waiting period will be extended until 11:59 p.m., New York City time, on the tenth day after substantial compliance by Purchaser with such request. Thereafter, such waiting period can be extended only by court order. The Antitrust Division and the FTC scrutinize the legality under the antitrust laws of transactions such as the acquisition of Shares by Purchaser pursuant to the Offer. At any time before or after the consummation of any such transactions, the Antitrust Division or the FTC could take such action under the antitrust laws of the United States as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or seeking divestiture of the Shares so acquired or divestiture of substantial assets of Fuji or the Company. Private parties (including individual States) may also bring legal actions under the antitrust laws of the United States. Purchaser does not believe that the consummation of the Offer will result in a violation of any applicable antitrust laws. However, there can be no assurance that a challenge to the Offer on antitrust grounds will not be made, or if such a challenge is made, what the result will be. See "The Offer-- Conditions to the Offer" and "The Offer--The Merger Agreement." Fees and Expenses Bear Stearns is acting as the Dealer Manager in connection with the Offer and is acting also as financial advisor to Fuji in connection with Fuji's proposed acquisition of the Company. Bear Stearns will receive 33 reasonable and customary compensation for its services relating to the Offer and to be reimbursed for certain out-of- pocket expenses. Fuji, Enovation and Purchaser will indemnify Bear Stearns and certain related persons against certain liabilities and expenses in connection with its engagement, including certain liabilities under the federal securities laws. Fuji, Enovation and Purchaser have retained D. F. King & Co., Inc. to be the Information Agent and American Stock Transfer & Trust Company to be the Depositary in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telecopy, telegraph and personal interview and may request banks, brokers, dealers and other nominees to forward materials relating to the Offer to beneficial owners of Shares. The Information Agent and the Depositary each will receive reasonable and customary compensation for their respective services in connection with the Offer, will be reimbursed for reasonable out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under federal securities laws. Neither of Fuji nor Purchaser will pay any fees or commissions to any broker or dealer or to any other person (other than to the Dealer Manager, the Depositary and the Information Agent) in connection with the solicitation of tenders of Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust companies will, upon request, be reimbursed by Purchaser for customary mailing and handling expenses incurred by them in forwarding offering materials to their customers. Miscellaneous The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. No person has been authorized to give any information or to make any representation on behalf of Fuji, Enovation or Purchaser not contained herein or in the Letter of Transmittal, and, if given or made, such information or representation must not be relied upon as having been authorized. The Fuji Companies have filed with the SEC a Tender Offer Statement on Schedule TO pursuant to Rule 14d-3 of the General Rules and Regulations under the Exchange Act, together with exhibits furnishing certain additional information with respect to the Offer, and may file amendments thereto. In addition, the Company has filed with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9, together with exhibits, pursuant to Rule 14d-9 under the Exchange Act, setting forth the recommendation of the Company Board with respect to the Offer and the reasons for such recommendation and furnishing certain additional related information. A copy of such documents, and any amendments thereto, may be examined at, and copies may be obtained from, the SEC (but not the regional offices of the SEC) in the manner set forth under "Certain Information about the Company" and "Certain Information about the Fuji Companies." FPF ACQUISITION CORP. September 11, 2001 34 SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS 1. Directors and Executive Officers of Fuji Photo Film U.S.A., Inc. The name, business address, current principal occupation or employment and five- year employment history of each director and executive officer of Fuji Photo Film U.S.A., Inc. and certain other information are set forth below. None of the directors and officers of Fuji Photo Film, U.S.A., Inc. listed below has, during the past five years, (1) been convicted in a criminal proceeding or (2) been a party to any judicial or administrative proceeding that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. All directors and officers listed below are citizens of the United States, unless otherwise indicated. Directors are identified by an asterisk.
Current Principal Occupation or Employment and Period Served in Name and Business Address Five-Year Employment History Such Office(s) - ------------------------------- ------------------------------------------------------------- ------------------------------ Yasuo Tanaka(1)* President and Director of Fuji Photo Film U.S.A., Inc. 1998 to date 555 Taxter Road Executive Vice President and Director of Fuji Photo Film 1996 to 1998 Elmsford, New York 10523 U.S.A., Inc. Executive Vice President and Director of Fuji Photo Film Co., Ltd. President and Director of FUJIFILM America, Inc. President and Director of Enovation Graphic Systems, Inc. President and Director of FPF Acquisition Corp. Stanley E. Freimuth* Executive Vice President, Chief Operating Officer and 2000 to date 555 Taxter Road Director of Fuji Photo Film U.S.A., Inc. Elmsford, New York 10523 President, Graphic Systems Division of Fuji Photo Film 1996 to date U.S.A., Inc. Jonathan E. File Vice President, General Counsel and Secretary of Fuji Photo 1996 to date 555 Taxter Road Film U.S.A., Inc. Elmsford, New York 10523 Secretary of FUJIFILM America, Inc. Secretary of Enovation Graphic Systems, Inc. Secretary of FPF Acquisition Corp. Noboru Tanaka(1) Treasurer of Fuji Photo Film U.S.A., Inc. 1996 to date 555 Taxter Road Treasurer of FUJIFILM America, Inc. Elmsford, New York 10523 Treasurer of Enovation Graphic Systems, Inc. Treasurer of FPF Acquisition Corp. Hideyuki Hayashi(1)* Chief Executive Officer, President and Director of Fujicolor 2000 to date 555 Taxter Road Processing, Inc. Elmsford, New York 10523 Chief Executive Officer and Director of Fujicolor Processing, 1998 to date Inc. Treasurer and Director of Fujicolor Processing, Inc. 1996 to 1998 Director of Fujicolor Processing, Inc. 1996 to date Director of Fuji Photo Film U.S.A., Inc. Minoru Ohnishi(1)* Representative Director, Chairman and Chief Executive Officer 1996 to date 26-30, Nishiazabu 2-Chome of Fuji Photo Film Co., Ltd. Minato-Ku, Tokyo 106-8620 Director of FUJIFILM America, Inc. Japan Director of Fuji Photo Film U.S.A., Inc. F. Herbert Prem, Jr.* Retired Partner, Whitman Breed Abbott & Morgan 1996 to 1999 325 E. 72nd Street, Apt. 15D Director of Fuji Photo Film U.S.A., Inc. New York, New York 10021
- --------------- (1) Citizen of Japan I-1 2. Directors and Executive Officers of Enovation Graphic Systems, Inc. The name, business address, current principal occupation or employment and five- year employment history of each director and executive officer of Enovation and certain other information are set forth below. None of the directors and officers of Enovation Graphic Systems, Inc. listed below has, during the past five years, (1) been convicted in a criminal proceeding or (2) been a party to any judicial or administrative proceeding that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. All directors and officers listed below are citizens of the United States, unless otherwise indicated. Directors are identified by an asterisk.
Current Principal Occupation or Employment and Period Served in Name and Business Address Five-Year Employment History Such Office(s) - ------------------------------- ------------------------------------------------------------- ------------------------------ Yasuo Tanaka(1)* President and Director of Fuji Photo Film U.S.A., Inc. 1998 to date 555 Taxter Road Executive Vice President and Director of Fuji Photo Film 1996 to 1998 Elmsford, New York 10523 U.S.A., Inc. Executive Vice President and Director of Fuji Photo Film Co., Ltd. President and Director of FUJIFILM America, Inc. President and Director of Enovation Graphic Systems, Inc. President and Director of FPF Acquisition Corp. Jonathan E. File Vice President, General Counsel and Secretary of Fuji Photo 1996 to date 555 Taxter Road Film U.S.A., Inc. Elmsford, New York 10523 Secretary of FUJIFILM America, Inc. Secretary of Enovation Graphic Systems, Inc. Secretary of FPF Acquisition Corp. Noboru Tanaka(1) Treasurer of Fuji Photo Film U.S.A., Inc. 1996 to date 555 Taxter Road Treasurer of FUJIFILM America, Inc. Elmsford, New York 10523 Treasurer of Enovation Graphic Systems, Inc. Treasurer of FPF Acquisition Corp.
- --------------- (1) Citizen of Japan. I-2 3. Directors and Executive Officers of FPF Acquisition Corp. The name, business address, current principal occupation or employment and five-year employment history of each director and executive officer of FPF Acquisition Corp. and certain other information are set forth below. None of the directors and officers of FPF Acquisition Corp. listed below has, during the past five years, (1) been convicted in a criminal proceeding or (2) been a party to any judicial or administrative proceeding that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. All directors and officers listed below are citizens of the United States, unless otherwise indicated. Directors are identified by an asterisk.
Current Principal Occupation or Employment and Period Served in Name and Business Address Five-Year Employment History Such Office(s) - ------------------------------- ------------------------------------------------------------- ------------------------------ Yasuo Tanaka(1)* President and Director of Fuji Photo Film U.S.A., Inc. 1998 to date 555 Taxter Road Executive Vice President and Director of Fuji Photo Film 1996 to 1998 Elmsford, New York 10523 U.S.A., Inc. Executive Vice President and Director of Fuji Photo Film Co., Ltd. President and Director of FUJIFILM America, Inc. President and Director of Enovation Graphic Systems, Inc. President and Director of FPF Acquisition Corp. Jonathan E. File Vice President, General Counsel and Secretary of Fuji Photo 1996 to date 555 Taxter Road Film U.S.A., Inc. Elmsford, New York 10523 Secretary of FUJIFILM America, Inc. Secretary of Enovation Graphic Systems, Inc. Secretary of FPF Acquisition Corp. Noboru Tanaka(1) Treasurer of Fuji Photo Film U.S.A., Inc. 1996 to date 555 Taxter Road Treasurer of FUJIFILM America, Inc. Elmsford, New York 10523 Treasurer of Enovation Graphic Systems, Inc. Treasurer of FPF Acquisition Corp.
- --------------- (1) Citizen of Japan. I-3 4. Directors and Executive Officers of FUJIFILM America, Inc. The name, business address, current principal occupation or employment and five-year employment history of each director and executive officer of FUJIFILM America, Inc. and certain other information are set forth below. None of the directors and officers of FUJIFILM America, Inc. listed below has, during the past five years, (1) been convicted in a criminal proceeding or (2) been a party to any judicial or administrative proceeding that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. All directors and officers listed below are citizens of the United States, unless otherwise indicated. Directors are identified by an asterisk.
Current Principal Occupation or Employment and Period Served in Name and Business Address Five-Year Employment History Such Office(s) - ------------------------------- ------------------------------------------------------------- ------------------------------ Yasuo Tanaka(1)* President and Director of Fuji Photo Film U.S.A., Inc. 1998 to date 555 Taxter Road Executive Vice President and Director of Fuji Photo Film 1996 to 1998 Elmsford, New York 10523 U.S.A., Inc. Executive Vice President and Director of Fuji Photo Film Co., Ltd. President and Director of FUJIFILM America, Inc. President and Director of Enovation Graphic Systems, Inc. President and Director of FPF Acquisition Corp. Jonathan E. File Vice President, General Counsel and Secretary of Fuji Photo 1996 to date 555 Taxter Road Film U.S.A., Inc. Elmsford, New York 10523 Secretary of FUJIFILM America, Inc. Secretary of Enovation Graphic Systems, Inc. Secretary of FPF Acquisition Corp. Noboru Tanaka(1) Treasurer of Fuji Photo Film U.S.A., Inc. 1996 to date 555 Taxter Road Treasurer of FUJIFILM America, Inc. Elmsford, New York 10523 Treasurer of Enovation Graphic Systems, Inc. Treasurer of FPF Acquisition Corp. Minoru Ohnishi(1)* Representative Director, Chairman and Chief Executive Officer 1996 to date 26-30, Nishiazabu 2-Chome of Fuji Photo Film Co., Ltd. Minato-Ku, Tokyo 106-8620 Director of FUJIFILM America, Inc. Japan Director of Fuji Photo Film U.S.A., Inc.
- --------------- (1) Citizen of Japan. I-4 5. Directors and Executive Officers of Fuji Photo Film Co., Ltd. The name, business address, current principal occupation or employment and five-year employment history of each director and executive officer of Fuji Photo Film Co., Ltd. and certain other information are set forth below. None of the directors and officers of Fuji Photo Film Co., Ltd. listed below has, during the past five years, (1) been convicted in a criminal proceeding or (2) been a party to any judicial or administrative proceeding that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. All directors and officers listed below are citizens of Japan.
Current Principal Occupation or Employment and Period Served in Name and Business Address Five-Year Employment History Such Office(s) - ------------------------------- ------------------------------------------------------------- ------------------------------ Minoru Ohnishi Representative Director, Chairman and Chief Executive Officer 1996 to date 26-30, Nishiazabu 2-Chome of Fuji Photo Film Co., Ltd. Minato-Ku, Tokyo 106-8620 Director of FUJIFILM America, Inc. Japan Director of Fuji Photo Film U.S.A., Inc. Masayuki Muneyuki Representative Director, Vice Chairman of Fuji Photo 2000 to date 26-30, Nishiazabu 2-Chome Film Co., Ltd. Minato-Ku, Tokyo 106-8620 Representative Director, President of Fuji Photo Film Co., 1996 to 2000 Japan Ltd. Shigetaka Komori Representative Director, President of Fuji Photo Film Co., 2000 to date 26-30, Nishiazabu 2-Chome Ltd. Minato-Ku, Tokyo 106-8620 Managing Director of Fuji Photo Film Co., Ltd. 1999 to 2000 Japan Director of Fuji Photo Film Co., Ltd. 1995 to 1999 Yasushi Oishi Representative Director of Fuji Photo Film Co., Ltd. 2000 to date 26-30, Nishiazabu 2-Chome Representative Senior Managing Director of Fuji Photo 1998 to 2000 Minato-Ku, Tokyo 106-8620 Film Co., Ltd. Japan Managing Director of Fuji Photo Film Co., Ltd. 1995 to 1998 Mitsutaka Sofue Director, Executive Vice President of Fuji Photo Film 2000 to date 26-30, Nishiazabu 2-Chome Co., Ltd. Minato-Ku, Tokyo 106-8620 Managing Director of Fuji Photo Film Co., Ltd. 1998 to 2000 Japan Director of Fuji Photo Film Co., Ltd. 1993 to 1998 Tasuku Imai Director, Executive Vice President of Fuji Photo Film 2000 to date 26-30, Nishiazabu 2-Chome Co., Ltd. Minato-Ku, Tokyo 106-8620 Managing Director of Fuji Photo Film Co., Ltd. 1999 to 2000 Japan Director of Fuji Photo Film Co., Ltd. 1995 to 1999 Yasuo Tanaka President and Director of Fuji Photo Film U.S.A., Inc. 1998 to date 555 Taxter Road Executive Vice President and Director of Fuji Photo 1996 to 1998 Elmsford, New York 10523 Film U.S.A., Inc. Executive Vice President and Director of Fuji Photo Film Co., Ltd. President and Director of FUJIFILM America, Inc. President and Director of Enovation Graphic Systems, Inc. President and Director of FPF Acquisition Corp. Nobuo Wakuya Director, Senior Vice President of Fuji Photo Film Co., Ltd. 2000 to date 26-30, Nishiazabu 2-Chome Director of Fuji Photo Film Co., Ltd. 1996 to 2000 Minato-Ku, Tokyo 106-8620 Japan
I-5
Current Principal Occupation or Employment and Period Served in Name and Business Address Five-Year Employment History Such Office(s) - ------------------------------- ------------------------------------------------------------- ------------------------------ Kotaro Aso Director, Senior Vice President of Fuji Photo Film Co., Ltd. 2000 to date 26-30, Nishiazabu 2-Chome Director of Fuji Photo Film Co., Ltd. 1998 to 2000 Minato-Ku, Tokyo 106-8620 Associate Director of Fuji Photo Film Co., Ltd. 1995 to 1998 Japan Nobuyuki Hayashi Director, Senior Vice President of Fuji Photo Film Co., Ltd. 2000 to date 26-30, Nishiazabu 2-Chome President of Fuji Photo Film B.V. 2000 to date Minato-Ku, Tokyo 106-8620 Director of Fuji Photo Film Co., Ltd. 1998 to 2000 Japan Managing Director of Fuji Photo Film B.V. 1998 to 2000 Associate Director of Fuji Photo Film Co., Ltd. 1995 to 1998 Jun Hayashi Senior Vice President of Fuji Photo Film Co., Ltd. 2000 to date 26-30, Nishiazabu 2-Chome Director of Fuji Photo Film Co., Ltd. 1996 to 2000 Minato-Ku, Tokyo 106-8620 Japan Takashi Matsushima Senior Vice President of Fuji Photo Film Co., Ltd. 2000 to date 26-30, Nishiazabu 2-Chome Executive of Fuji Photo Film Co., Ltd. 1998 to 2000 Minato-Ku, Tokyo 106-8620 Director of Fuji Photo Film Co., Ltd. 1996 to 1998 Japan Akikazu Mikawa Senior Vice President of Fuji Photo Film Co., Ltd. 2000 to date 26-30, Nishiazabu 2-Chome Executive of Fuji Photo Film Co., Ltd. 1998 to 2000 Minato-Ku, Tokyo 106-8620 Associate Director of Fuji Photo Film Co., Ltd. 1995 to 1998 Japan
I-6 Manually signed facsimile copies of the Letter of Transmittal, properly completed and duly executed, will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent or delivered by each shareholder of the Company or such shareholder's broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of the addresses set forth below: The Depositary for the Offer is: American Stock Transfer & Trust Company By Mail: By Overnight Courier: By Hand: 59 Maiden Lane 59 Maiden Lane 59 Maiden Lane New York, New York 10038 New York, New York 10038 New York, New York 10038 Attn: Exchange Department Attn: Exchange Department Attn: Exchange Department
By Facsimile Transmission: (For Eligible Institutions Only) (718) 234-5001 Confirm Facsimile by Telephone: (718) 921-8200 Questions or requests for assistance may be directed to the Information Agent or the Dealer Manager, at the addresses and telephone numbers set forth below. Additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and related materials may be obtained from the Information Agent or the Dealer Manager as set forth below and will be furnished promptly at Purchaser's expense. Shareholders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer. The Information Agent is: D. F. King & Co., Inc. 77 Water Street New York, New York 10005 (212) 269-5550 (Call Collect) or Call Toll Free: (800) 207-3158 The Dealer Manager is: Bear, Stearns & Co. Inc. 245 Park Avenue New York, New York 10167 Call Toll Free: (877) 652-6039 EX-99.(A)(2) 4 b313552ex99_a2.txt LETTER OF TRANSMITTAL EXHIBIT 99.(a)(2) LETTER OF TRANSMITTAL To Tender Shares of Common Stock of PrimeSource Corporation Pursuant to the Offer to Purchase Dated September 11, 2001 By FPF Acquisition Corp. an indirect wholly-owned subsidiary of Fuji Photo Film U.S.A., Inc. The Offer and Withdrawal Rights will expire at 12:00 midnight, New York City time, on Tuesday, October 9, 2001, unless the Offer is extended. The Depositary for the Offer is: American Stock Transfer & Trust Company By Mail: By Overnight Courier: By Hand: 59 Maiden Lane 59 Maiden Lane 59 Maiden Lane New York, New York 10038 New York, New York 10038 New York, New York 10038 Attn: Exchange Department Attn: Exchange Department Attn: Exchange Department
By Facsimile Transmission: (For Eligible Institutions Only) (718) 234-5001 Confirm Facsimile by Telephone: (718) 921-8200 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY.
- ----------------------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED - ----------------------------------------------------------------------------------------------------------------------------------- Name(s) and Address(es) of Registered Holder(s) (Please fill in, if blank, exactly as name(s) Share(s) Tendered appear(s) on (Attach additional list if necessary) Share certificate(s)) - ----------------------------------------------------------------------------------------------------------------------------------- Total Number of Shares Number of Certificate Represented by Share Shares Number(s)(1) Certificate(s)(2) Tendered ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total Shares: - -----------------------------------------------------------------------------------------------------------------------------------
(1) Need not be completed by Book-Entry Shareholders. (2) Unless otherwise indicated, it will be assumed that all Shares represented by certificates delivered to the Depositary are being tendered hereby. See Instruction 4. |_| CHECK HERE IF CERTIFICATES HAVE BEEN LOST, DESTROYED OR STOLEN. SEE INSTRUCTION 11. THE INSTRUCTIONS CONTAINED WITHIN THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. The names and addresses of the registered holders of the tendered Shares should be printed, if not already printed above, exactly as they appear on the Share Certificates tendered hereby. This Letter of Transmittal is to be used if certificates for Shares (as defined below) are to be forwarded herewith or, unless an Agent's Message (as defined in "The Offer--Procedures for Accepting the Offer and Tendering Shares" in the Offer to Purchase) is utilized, if delivery of Shares is to be made by book-entry transfer to an account maintained by the Depositary at the Book-Entry Transfer Facility (as defined in "The Offer--Acceptance for Payment and Payment for Shares" in the Offer to Purchase and pursuant to the procedures set forth in "The Offer--Procedures for Accepting the Offer and Tendering Shares" thereof). Holders of Shares whose certificates for such Shares (the "Share Certificates") are not immediately available, or who cannot complete the procedure for book-entry transfer on a timely basis, or who cannot deliver all other required documents to the Depositary prior to the Expiration Date (as defined in the Offer to Purchase), must tender their Shares according to the guaranteed delivery procedure set forth in "The Offer--Procedures for Accepting the Offer and Tendering Shares" in the Offer to Purchase. See Instruction 2. Delivery of documents to the Book-Entry Transfer Facility will not constitute delivery to the Depositary. |_| CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution___________________________________________________ Account Number______________________ Transaction Code Number____________________ |_| CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s)_________________________________________________ Window Ticket Number (if any) or DTC Participant Number_________________________ Date of Execution of Notice of Guaranteed Delivery______________________________ Name of Institution that Guaranteed Delivery____________________________________ If delivered by book-entry transfer: Name of Tendering Institution________________________________________________ Account Number______________________ Transaction Code Number_________________ NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to FPF Acquisition Corp., a Pennsylvania corporation ("Purchaser") and a wholly-owned subsidiary of Enovation Graphic Systems, Inc., a Delaware corporation, which is a wholly-owned subsidiary of Fuji Photo Film U.S.A., Inc., a New York corporation ("Fuji"), which is an indirect wholly-owned subsidiary of Fuji Photo Film Co., Ltd., a Japanese corporation, the above-described shares of common stock, par value $0.01 per share, of PrimeSource Corporation, a Pennsylvania corporation (the "Company"), including the associated rights to purchase shares issued pursuant to the Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated as of February 1, 2001, as amended (together, the "Shares"), at $10.00 per Share, net to the seller in cash, without interest thereon (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase dated September 11, 2001, and in this Letter of Transmittal (which together with any amendments or supplements thereto or hereto, collectively constitute the "Offer"). Upon the terms and subject to the conditions of the Offer (and if the Offer is extended or amended, the terms of any such extension or amendment), and effective upon acceptance for payment of the Shares tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to or upon the order of the Purchaser all right, title and interest in and to all of the Shares that are being tendered hereby (and any and all dividend, distributions, rights, other Shares or other securities issued or issuable in respect thereof on or after the date hereof (collectively, "Distributions")) and irrevocably constitutes and appoints American Stock Transfer & Trust Company (the "Depositary") the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and all Distributions), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (i) deliver certificates for such Shares (and any and all Distributions) or transfer ownership of such Shares (and any and all Distributions) on the account books maintained by the Book-Entry Transfer Facility, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of the Purchaser, (ii) present such Shares (and any and all Distributions) for transfer on the books of the Company, and (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any and all Distributions), all in accordance with the terms of the Offer. 2 By executing this Letter of Transmittal, the undersigned hereby irrevocably appoints Stanley E. Freimuth, Jonathan E. File and Samuel C. Monroe, Jr. in their respective capacities as officers of Purchaser and/or Fuji, and any individual who shall thereafter succeed to any such office of Purchaser and/or Fuji, and each of them, and any other designees of Purchaser, the attorneys- in-fact and proxies of the undersigned, each with full power of substitution, to vote at any annual or special meeting of the Company's shareholders or any adjournment or postponement thereof or otherwise in such manner as each such attorney-in-fact and proxy or his or her substitute shall in his or her sole discretion deem proper with respect to, to execute any written consent concerning any matter as each such attorney-in-fact and proxy or his or her substitute shall in his or her sole discretion deem proper with respect to, and to otherwise act as each such attorney-in-fact and proxy or his or her substitute shall in his or her sole discretion deem proper with respect to, all of the Shares (and any and all Distributions) tendered hereby and accepted for payment by Purchaser. This appointment will be effective if and when, and only to the extent that, Purchaser accepts such Shares for payment pursuant to the Offer. This power of attorney and proxy are irrevocable and are granted in consideration of the acceptance for payment of such Shares in accordance with the terms of the Offer. Such acceptance for payment shall, without further action, revoke any prior powers of attorney and proxies granted by the undersigned at any time with respect to such Shares (and any and all Distributions), and no subsequent powers of attorney, proxies, consents or revocations may be given by the undersigned with respect thereto (and, if given, will not be deemed effective). Purchaser reserves the right to require that, in order for the Shares or other securities to be deemed validly tendered, immediately upon Purchaser's acceptance for payment of such Shares, Purchaser must be able to exercise full voting, consent and other rights with respect to such Shares (and any and all Distributions), including voting at any meeting of the Company's shareholders. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and all Distributions and that, when the same are accepted for payment by Purchaser, Purchaser will acquire good, marketable and unencumbered title thereto and to all Distributions, free and clear of all liens, restrictions, charges and encumbrances and the same will not be subject to any adverse claims. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby and all Distributions. In addition, the undersigned shall remit and transfer promptly to the Depositary for the account of Purchaser all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer, and, pending such remittance and transfer or appropriate assurance thereof, Purchaser shall be entitled to all rights and privileges as owner of each such Distribution and may withhold the entire purchase price of the Shares tendered hereby or deduct from such purchase price, the amount or value of such Distribution as determined by Purchaser in its sole discretion. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, successors and assigns of the undersigned. Except as stated in the Offer, this tender is irrevocable. The undersigned understands that the valid tender of the Shares pursuant to any one of the procedures described in "The Offer--Procedures for Accepting the Offer and Tendering Shares" in the Offer to Purchase and in the Instructions hereto will constitute a binding agreement between the undersigned and Purchaser upon the terms and subject to the conditions of the Offer (and if the Offer is extended or amended, the terms or conditions of any such extension or amendment). Without limiting the foregoing, if the price to be paid in the Offer is amended in accordance with the Merger Agreement, the price to be paid to the undersigned will be the amended price notwithstanding the fact that a different price is stated in this Letter of Transmittal. The undersigned recognizes that under certain circumstances set forth in the Offer to Purchase, Purchaser may not be required to accept for payment any of the Shares tendered hereby. Unless otherwise indicated under "Special Payment Instructions," please issue the check for the purchase price of all of the Shares purchased and/or return any certificates for the Shares not tendered or accepted for payment in the name(s) of the registered holder(s) appearing above under "Description of Shares Tendered." Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price of all of the Shares purchased and/or return any certificates for the Shares not tendered or not accepted for payment (and any accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing above under "Description of Shares Tendered." In the event that the boxes entitled "Special Payment Instructions" and "Special Delivery Instructions" are both completed, please issue the check for the purchase price of all Shares purchased and/or return any certificates evidencing Shares not tendered or not accepted for payment (and any accompanying documents, as appropriate) in the name(s) of, and deliver such check and/or return any such certificates (and any accompanying documents, as appropriate) to, the person(s) so indicated. Unless otherwise indicated herein in the box entitled "Special Payment Instructions," please credit any Shares tendered herewith by book-entry transfer that are not accepted for payment by crediting the account at the Book-Entry Transfer Facility designated above. The undersigned recognizes that Purchaser has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares from the name of the registered holder thereof if Purchaser does not accept for payment any of the Shares so tendered. 3 SPECIAL PAYMENT INSTRUCTIONS (See Instructions 1, 5, 6 and 7) To be completed ONLY if the check for cash payable in the Offer is to be issued in the name of someone other than the undersigned, if certificates for the Shares not tendered or not accepted for payment are to be issued in the name of someone other than the undersigned, or if Shares tendered hereby and delivered by book-entry transfer that are not accepted for payment are to be returned by credit to an account maintained at a Book-Entry Transfer Facility other than the account indicated above. Issue |_| Check and/or |_| Certificate(s) to: Name:__________________________________________________________________________ (Please Print) Address:_______________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Include Zip Code) ________________________________________________________________________________ (Taxpayer Identification or Social Security No.) (See Substitute Form W-9) SPECIAL DELIVERY INSTRUCTIONS (See Instructions 1, 5, 6 and 7) To be completed ONLY if certificates for Shares not tendered or not accepted for payment and/or the check for cash payable in the Offer is to be sent to someone other than the undersigned, or to the undersigned at an address other than that shown under "Description of Shares Tendered." Mail |_| Check and/or |_| Certificate(s) to: Name:__________________________________________________________________________ (Please Print) Address:_______________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Include Zip Code) ________________________________________________________________________________ (Taxpayer Identification or Social Security No.) (See Substitute Form W-9) IMPORTANT: SIGN HERE (Please Complete Substitute Form W-9 Included Herein) ________________________________________________________________________________ ________________________________________________________________________________ (Signature(s) of Shareholder(s)) Dated:_____________________- (Must be signed by registered holder(s) exactly as name(s) appear(s) on the Share certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5.) Name(s):_______________________________________________________________________ ________________________________________________________________________________ (Please Print) Capacity (Full Title):_________________________________________________________ Address:_______________________________________________________________________ ________________________________________________________________________________ (Include Zip Code) Area Code and Telephone Number:________________________________________________ Taxpayer Identification or Social Security Number:_____________________________ (See Substitute Form W-9) GUARANTEE OF SIGNATURE(S) (If required--See Instructions 1 and 5) Authorized Signature(s):_______________________________________________________ Name:__________________________________________________________________________ (Please Print) Name of Firm:__________________________________________________________________ Address:_______________________________________________________________________ ________________________________________________________________________________ (Include Zip Code) Area Code and Telephone Number:________________________________________________ Dated:________________, 2001 4 INSTRUCTIONS Forming Part of the Terms and Conditions of the Offer 1. Guarantee of Signatures. No signature guarantee is required on this Letter of Transmittal (a) if this Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this Section, includes any participant in the Book-Entry Transfer Facility's systems whose name appears on a security position listing as the owner of the Shares) of Shares tendered herewith, unless such registered holder(s) has completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal or (b) if such Shares are tendered for the account of a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program (an "Eligible Institution"). In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. See Instructions 5 and 7. 2. Requirements of Tender. This Letter of Transmittal is to be completed by shareholders if certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if tenders are to be made pursuant to the procedure for tender by book-entry transfer set forth in "The Offer--Procedures for Accepting the Offer and Tendering Shares" in the Offer to Purchase. Share Certificates evidencing tendered Shares, or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of Shares into the Depositary's account at the Book-Entry Transfer Facility, as well as this Letter of Transmittal (or a facsimile hereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date (as defined in "The Offer--Terms of the Offer" in the Offer to Purchase). Shareholders whose Share Certificates are not immediately available, or who cannot complete the procedure for delivery by book-entry transfer on a timely basis or who cannot deliver all other required documents to the Depositary prior to the Expiration Date, may tender their Shares by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in "The Offer--Procedures for Accepting the Offer and Tendering Shares" in the Offer to Purchase. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by Purchaser, must be received by the Depositary prior to the Expiration Date; and (iii) the Share Certificates (or a Book-Entry Confirmation) evidencing all tendered Shares, in proper form for transfer, in each case together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry delivery, an Agent's Message) and any other documents required by this Letter of Transmittal, must be received by the Depositary within three Nasdaq National Market trading days after the date of execution of such Notice of the Guaranteed Delivery. If Share Certificates are forwarded separately to the Depositary, a properly completed and duly executed Letter of Transmittal must accompany each such delivery. The method of delivery of this Letter of Transmittal, Share Certificates and all other required documents, including delivery through the Book-Entry Transfer Facility, is at the option and the risk of the tendering shareholder and the delivery will be deemed made only when actually received by the Depositary (including, in the case of book-entry transfer, by book-entry confirmation). If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering shareholders, by execution of this Letter of Transmittal (or a facsimile hereof), waive any right to receive any notice of the acceptance of their Shares for payment. 3. Inadequate Space. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares and any other required information should be listed on a separate signed schedule attached hereto. 4. Partial Tenders. (Not applicable to shareholders who tender by book- entry transfer.) If fewer than all of the Shares evidenced by any Share Certificate are to be tendered, fill in the number of Shares that are to be tendered in the box entitled "Number of Shares Tendered." In this case, new Share Certificates for the Shares that were evidenced by your old Share Certificates, but were not tendered by you, will be sent to you, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the Expiration Date. All Shares represented by Share Certificates delivered to the Depositary will be deemed to have been tendered unless indicated. 5. Signatures on Letter of Transmittal, Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are held of record by two or more joint owners, all such owners must sign this Letter of Transmittal. 5 If any of the tendered Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations. If this Letter of Transmittal or any certificates or stock powers are signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to Purchaser of the authority of such person so to act must be submitted. If this Letter of Transmittal is signed by the registered holder(s) of the Shares listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless payment is to be made or certificates for Shares not tendered or not accepted for payment are to be issued in the name of a person other than the registered holder(s). Signatures on any such Share Certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the certificate(s) listed and transmitted hereby, the certificate(s) must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on the certificate(s). Signature(s) on any such Share Certificates or stock powers must be guaranteed by an Eligible Institution. 6. Stock Transfer Taxes. Except as otherwise provided in this Instruction 6, Purchaser will pay all stock transfer taxes with respect to the transfer and sale of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if certificate(s) for Shares not tendered or not accepted for payment are to be registered in the name of, any person other than the registered holder(s), or if tendered certificate(s) are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s) or such other person) payable on account of the transfer to such other person will be deducted from the purchase price of such Shares purchased unless evidence satisfactory to Purchaser of the payment of such taxes, or exemption therefrom, is submitted. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificate(s) evidencing the Shares tendered hereby. 7. Special Payment and Delivery Instructions. If a check is to be issued in the name of, and/or certificates for Shares not tendered or not accepted for payment are to be issued or returned to, a person other than the signer of this Letter of Transmittal or if a check and/or such certificates are to be returned to a person other than the person(s) signing this Letter of Transmittal or to an address other than that shown in this Letter of Transmittal, the appropriate boxes on this Letter of Transmittal must be completed. 8. Substitute Form W-9. Under the federal income tax laws, the Depositary will be required to withhold 30.5% of the amount of any payments made to certain shareholders during the 2001 calendar year and 30% of any payments made during the 2002 calendar year pursuant to the Offer. In order to avoid such backup withholding, each tendering shareholder, and, if applicable, each other payee, must provide the Depositary with such shareholder's or payee's correct taxpayer identification number and certify that such shareholder or payee is not subject to backup withholding by completing the Substitute Form W-9 set forth below. In general, if a shareholder or payee is an individual, the taxpayer identification number is the Social Security Number of such individual. If the Depositary is not provided with the correct taxpayer identification number, the shareholder or payee may be subject to a $50 penalty imposed by the Internal Revenue Service. Certain shareholders or payees (including, among others, all corporations) are not subject to these backup withholding and reporting requirements. In order to satisfy the Depositary that a shareholder or payee qualifies as an exempt recipient, such shareholder or payee must submit a statement, signed under penalties of perjury, attesting to that individual's exempt status. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one, and how to complete the Substitute Form W-9 if Shares are held in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. Shareholders who are non-resident aliens or foreign entities not subject to backup withholding must complete a Form W-8BEN (Certificate of Foreign Status) (and not a Substitute Form W-9) and give the Depositary a completed Form W-8BEN prior to the receipt of any payments to avoid backup withholding. Such Form W-8BEN may be obtained from the Depositary. Failure to complete the Substitute Form W-9 will not, by itself, cause Shares or Share Certificates to be deemed invalidly tendered, but may require the Depositary to withhold 30.5% of the amount of any payments made to you during the 2001 calendar year and 30% of the amount of any payments made to you during the 2002 calendar year pursuant to the Offer. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained provided that the required information is furnished to the Internal Revenue Service. Note: Failure to complete and return the Substitute Form W-9 may result in backup withholding of 30.5% of any payments made to you during the 2001 calendar year and 30% of any payments made to you during the 2002 calendar year pursuant to the Offer. Please review the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional details. 6 9. Requests for Assistance or Additional Copies. Questions and requests for assistance or additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery, IRS Form W-8BEN and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 may be directed to the Information Agent or Dealer Manager at the addresses and phone numbers set forth below, or from brokers, dealers, commercial banks or trust companies. 10. Waiver of Conditions. Subject to the terms and conditions of the Merger Agreement (as defined in the Offer to Purchase), Purchaser reserves the right, in its sole discretion, to waive, at any time or from time to time, any of the specified conditions of the Offer, in whole or in part, in the case of any Shares tendered. 11. Lost, Destroyed or Stolen Certificates. If any certificate representing Shares has been lost, destroyed or stolen, the shareholder should promptly notify American Stock Transfer & Trust Company, in its capacity as transfer agent for the shares (telephone number: (800) 937-5449). The shareholder will then be instructed as to the steps that must be taken in order to replace the certificate. This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A MANUALLY SIGNED FACSIMILE HEREOF) TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES, OR, IN THE CASE OF A BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE, AND ANY OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE AND EITHER CERTIFICATES FOR TENDERED SHARES MUST BE RECEIVED BY THE DEPOSITARY OR SHARES MUST BE DELIVERED PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER, IN EACH CASE PRIOR TO THE EXPIRATION DATE, OR THE TENDERING SHAREHOLDER MUST COMPLY WITH THE PROCEDURES FOR GUARANTEED DELIVERY. 7 What Number to Give the Depositary The shareholder is required to give the Depositary the TIN (e.g., Social Security number or Employer Identification Number) of the record owner of the Shares. If the Shares are registered in more than one name or are not registered in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. PAYER'S NAME:_________________________________ SUBSTITUTE Part I--PLEASE PROVIDE YOUR TIN ------------------------ IN THE BOX AT RIGHT AND CERTIFY Social Security Number BY SIGNING AND DATING BELOW OR FORM W-9 ------------------------ Employer Identification Number -------------------------------------------------------------- Department Part II--CERTIFICATION--Under PART III--- AWAITING TIN of the penalties of perjury, I certify that: / / Treasury Internal (1) The number shown on this form Revenue is my correct taxpayer identification number (or I am waiting for a number to be issued to me) and (2) I am not subject to backup Part IV--Exempt TIN withholding because (a) I am / / exempt from backup withholding, (b) I have not been notified by Payer's Request the Internal Revenue Service for Taxpayer (the "IRS") that I am subject Identification to backup withholding as a Number (TIN) result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. -------------------------------------------------------------- CERTIFICATION INSTRUCTIONS-- You must cross out item (2) above if you have been notified by the IRS that you are sub- ject to backup withholding because of underreporting inter- est or dividends on your tax return. However, if after being notified by the IRS that you are subject to backup withhold- ing you receive another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out item (2). If you are exempt from backup withhold- ing, check the box in Part IV above. SIGNATURE:__________________________________________ DATE:___________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 30.5% OF ANY PAYMENTS MADE TO YOU DURING THE 2001 CALENDAR YEAR AND 30% OF ANY PAYMENTS MADE TO YOU DURING THE 2002 CALENDAR YEAR PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver such an application in the near future. I understand that until I provide a taxpayer identification number 30.5% of all reportable payments made to me during the 2001 calendar year and 30% of all reportable payments made to me during the 2002 calendar year will be withheld, but that such withheld amount shall be refunded to me if I provide my taxpayer identification number within 60 days. SIGNATURE:__________________________________________ DATE:___________________ 8 The Information Agent is: D.F. King & Co., Inc. 77 Water Street New York, New York 10005 (212) 269-5550 (Call Collect) or Call Toll Free: (800) 207-3158 The Dealer Manager is: Bear, Stearns & Co. Inc. 245 Park Avenue New York, New York 10167 Call Toll Free: (877) 652-6039 EX-99.(A)(3) 5 b313552ex99_a3.txt NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.(a)(3) NOTICE OF GUARANTEED DELIVERY to Tender Shares of Common Stock of PrimeSource Corporation Pursuant to the Offer to Purchase dated September 11, 2001 of FPF Acquisition Corp. an indirect wholly-owned subsidiary of Fuji Photo Film U.S.A., Inc. This Notice of Guaranteed Delivery, or a form substantially equivalent hereto, must be used to accept the Offer (as defined below) (i) if certificates for Shares (as defined below) are not immediately available, (ii) if the procedure for book-entry transfer cannot be completed on a timely basis, or (iii) if time will not permit all required documents to reach American Stock Transfer & Trust Company (the "Depositary") on or prior to the Expiration Date (as defined in the Offer to Purchase). This form may be delivered by hand, transmitted by facsimile transmission or mailed to the Depositary. See "The Offer--Procedures for Accepting the Offer and Tendering Shares" in the Offer to Purchase. The Depositary for the Offer is: American Stock Transfer & Trust Company By Mail: By Overnight Courier: By Hand: 59 Maiden Lane 59 Maiden Lane 59 Maiden Lane New York, New York 10038 New York, New York 10038 New York, New York 10038 Attn: Exchange Department Attn: Exchange Department Attn: Exchange Department By Facsimile Transmission: (For Eligible Institutions Only) (718) 234-5001 Confirm Facsimile By Telephone: (718) 921-8200
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OR FACSIMILE NUMBER OTHER THAN ONE SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. This Notice of Guaranteed Delivery to the Depositary is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantees must appear in the applicable space provided in the signature box on the Letter of Transmittal. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal or an Agent's Message (as defined in the Offer to Purchase) and certificates for Shares to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED. Ladies and Gentlemen: The undersigned hereby tenders to FPF Acquisition Corp., a Pennsylvania corporation and a wholly-owned subsidiary of Enovation Graphic Systems, Inc., a Delaware corporation, which is a wholly-owned subsidiary of Fuji Photo Film U.S.A., Inc., a New York corporation, which is an indirect wholly-owned subsidiary of Fuji Photo Film Co., Ltd., a Japanese corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase dated September 11, 2001 (the "Offer to Purchase") and the related Letter of Transmittal (which, together with any amendments or supplements thereto, constitute the "Offer"), receipt of which is hereby acknowledged, the number of shares of common stock, par value $0.01 per share, of PrimeSource Corporation, a Pennsylvania corporation (the "Company"), including the associated rights to purchase shares issued pursuant to the Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated as of February 1, 2001, as amended (together, the "Shares"), set forth below, pursuant to the guaranteed delivery procedures set forth in the Offer to Purchase. Signature(s): ------------------------------------------------------------------- Name(s) of Record Holders: ------------------------------------------------------ - -------------------------------------------------------------------------------- Please Type or Print Number of Shares: --------------------------------------------------------------- Certificate No(s). (if available): ---------------------------------------------- Dated: , 2001 -------------------------- Address(es): -------------------------------------------------------------------- - -------------------------------------------------------------------------------- Zip Code - -------------------------------------------------------------------------------- Area Code and Tel. No.(s) Check box if Shares will be tendered by book-entry transfer: |_| Account Number: ----------------------------------------------------------------- GUARANTEE (Not to be used for signature guarantee) The undersigned, a bank, broker, dealer, credit union, savings association or other entity that is a member in good standing of the Securities Transfer Agents Medallion Program, (a) represents that the above named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended ("Rule 14e-4"), (b) represents that such tender of Shares complies with Rule 14e-4 and (c) guarantees to deliver to the Depositary either the certificates evidencing all tendered Shares, in proper form for transfer, or to deliver Shares pursuant to the procedure for book-entry transfer into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility"), in either case together with the Letter of Transmittal (or a facsimile thereof) properly completed and duly executed, with any required signature guarantees or an Agent's Message (as defined in the Offer to Purchase) in the case of a book- entry delivery, and any other required documents, all within three Nasdaq National Market trading days after the date hereof. Name of Firm: ------------------------------------------------------------------- Address: ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- Zip Code Area Code and Tel No.: ---------------------------------------------------------- - -------------------------------------------------------------------------------- Authorized Signature Name: --------------------------------------------------------------------------- Please Print Title: ------------------------------------------------------------------------- Dated: , 2001 ---------------------------------------------- NOTE: DO NOT SEND CERTIFICATE WITH THIS NOTICE OF GUARANTEED DELIVERY. CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. EX-99.(A)(4) 6 b313552ex99_a4.txt LETTER TO BROKERS, DEALERS, COMMERCIAL BANKS EXHIBIT 99.(a)(4) OFFER TO PURCHASE FOR CASH All Outstanding Shares of Common Stock of PrimeSource Corporation at $10.00 Net Per Share by FPF Acquisition Corp. an indirect wholly-owned subsidiary of Fuji Photo Film U.S.A., Inc. The Offer and Withdrawal Rights will expire at 12:00 midnight, New York City time, on Tuesday, October 9, 2001, unless the Offer is extended. September 11, 2001 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by FPF Acquisition Corp., a Pennsylvania corporation ("Purchaser") and a wholly-owned subsidiary of Enovation Graphic Systems, Inc., a Delaware corporation ("Enovation"), which is a wholly-owned subsidiary of Fuji Photo Film U.S.A., Inc., a New York corporation ("Fuji"), which is an indirect wholly-owned subsidiary of Fuji Photo Film Co., Ltd., a Japanese corporation, to act as Dealer Manager in connection with Purchaser's offer to purchase all outstanding shares of common stock, par value $0.01 per share, of PrimeSource Corporation, a Pennsylvania corporation (the "Company"), including the associated rights to purchase shares issued pursuant to the Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated as of February 1, 2001 (together, the "Shares"), at $10.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated September 11, 2001, as amended (the "Offer to Purchase") and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). The Offer is conditioned upon, among other things, (1) there being validly tendered and not withdrawn prior to the expiration of the Offer a number of Shares that represents, together with any Shares beneficially owned by Fuji or Purchaser, at least 80% of the then outstanding Shares and (2) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The Offer is also subject to the other conditions in the Offer to Purchase. For your information and for forwarding to your clients for whom you hold Shares registered in your name or in the name of your nominee, we are enclosing the following documents: 1. Offer to Purchase dated September 11, 2001; 2. A letter from the President and Chief Executive Officer of the Company accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9; 3. Letter of Transmittal for your use in accepting the Offer and tendering Shares and for the information of your clients together with Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 providing information relating to backup federal income tax withholding; 4. Notice of Guaranteed Delivery to be used to accept the Offer if Share Certificates are not immediately available or if such certificates and all other required documents cannot be delivered to the Depositary, or if the procedures for book-entry transfer cannot be completed on a timely basis; 5. A form of letter that may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; and 6. Return envelope addressed to American Stock Transfer & Trust Company as the Depositary. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, OCTOBER 9, 2001, UNLESS THE OFFER IS EXTENDED. Purchaser will not pay any fees or commissions to any broker or dealer or other person (other than the Depositary, the Information Agent and the Dealer Manager as described in the Offer to Purchase) for soliciting tenders of Shares pursuant to the Offer. Purchaser will, however, upon request, reimburse you for customary mailing and handling costs incurred by you in forwarding the enclosed materials to your customers. Purchaser will pay or cause to be paid all stock transfer taxes applicable to its purchase of Shares pursuant to the Offer, except as otherwise provided in Instruction 6 of the Letter of Transmittal. In order to accept the Offer, a duly executed and properly completed Letter of Transmittal (or a facsimile thereof) and any required signature guarantees or, in the case of a book-entry transfer of Shares, an Agent's Message (as defined in the Offer to Purchase) in lieu of the Letter of Transmittal, and any other required documents, should be sent to the Depositary by 12:00 midnight, New York City time, on Tuesday, October 9, 2001, all in accordance with the instructions set forth in the Letter of Transmittal and in the Offer to Purchase. If holders of Shares wish to tender, but it is impracticable for them to forward their certificates or other required documents or to complete the procedures for delivery by book-entry transfer prior to expiration of the Offer, a tender may be effected by following the guaranteed delivery procedures specified in the Offer to Purchase. Any inquiries you may have with respect to the Offer should be addressed to, and additional copies of the enclosed materials may be obtained from, the Information Agent or the undersigned at the addresses and telephone numbers set forth on the back cover of the Offer to Purchase. Very truly yours, BEAR, STEARNS & CO. INC. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON AS AN AGENT OF FUJI, ENOVATION, PURCHASER, THE COMPANY, THE DEALER MANAGER, THE INFORMATION AGENT, THE DEPOSITARY OR ANY AFFILIATE OF ANY OF THE FOREGOING OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 2 EX-99.(A)(5) 7 b313552ex99_a5.txt LETTER TO OUR CLIENTS EXHIBIT 99.(a)(5) OFFER TO PURCHASE FOR CASH All Outstanding Shares of Common Stock of PrimeSource Corporation at $10.00 Net Per Share by FPF Acquisition Corp. an indirect wholly-owned subsidiary of Fuji Photo Film U.S.A., Inc. The Offer and Withdrawal Rights will expire at 12:00 midnight, New York City time, on Tuesday, October 9, 2001, unless the Offer is extended. September 11, 2001 To Our Clients: Enclosed for your consideration is the Offer to Purchase dated September 11, 2001 (the "Offer to Purchase") and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") in connection with the offer by FPF Acquisition Corp., a Pennsylvania corporation ("Purchaser") and a wholly-owned subsidiary of Enovation Graphic Systems, Inc., a Delaware corporation ("Enovation"), which is a wholly-owned subsidiary of Fuji Photo Film U.S.A., Inc., a New York corporation ("Fuji"), which is an indirect wholly-owned subsidiary of Fuji Photo Film Co., Ltd., a Japanese corporation, to purchase all outstanding shares of common stock, par value $0.01 per share, of PrimeSource Corporation, a Pennsylvania corporation (the "Company"), including the associated rights to purchase shares issued pursuant to the Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated as of February 1, 2001, as amended (together, the "Shares"), at $10.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the Letter of Transmittal enclosed herewith. Also enclosed is a letter from the President and Chief Executive Officer of the Company accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9. We are the holder of record of Shares for your account. A tender of such Shares can be made only by us as the holder of record and pursuant to your instructions. The enclosed Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Shares held by us for your account. We request instructions as to whether you wish us to tender any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer to Purchase. Your attention is invited to the following: 1. The offer price is $10.00 per Share, net to you in cash, without interest. 2. The Offer is being made for all outstanding Shares. 3. The Offer and withdrawal rights expire at 12:00 midnight, New York City time, on Tuesday, October 9, 2001, unless the Offer is extended. 4. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of September 4, 2001 (the "Merger Agreement"), among Fuji, Enovation, Purchaser and the Company. The Merger Agreement provides, among other things, that Purchaser will be merged into the Company (the "Merger") following the satisfaction or waiver of each of the conditions to the Merger set forth in the Merger Agreement. 5. The Board of Directors of the Company has determined that the Offer and the Merger are fair to and in the best interests of the shareholders of the Company and recommends that the Company's shareholders tender their Shares in the Offer. 6. The Offer is conditioned upon, among other things, (a) there being validly tendered and not with-drawn prior to the expiration of the Offer a number of Shares that represents, together with any Shares beneficially owned by Fuji or Purchaser, at least 80% of the then outstanding Shares, and (b) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The offer is also subject to other conditions. See "The Offer--Conditions of the Offer." 7. Any stock transfer taxes applicable to the sale of Shares to Purchaser pursuant to the Offer will be paid by Purchaser, except as otherwise provided in Instruction 6 of the Letter of Transmittal. If you wish to have us tender any or all of your Shares, please so instruct us by completing, executing and returning to us the instruction form set forth on the reverse side of this letter. An envelope to return your instructions to us is also enclosed. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified on the reverse side of this letter. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf prior to the expiration of the Offer. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any jurisdiction in which the making of the Offer or acceptance thereof would not be in compliance with the laws of such jurisdiction. Payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by American Stock Transfer & Trust Company (the "Depositary") of (a) certificates evidencing such Shares or confirmation of the book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility"), pursuant to the procedures set forth in the Offer to Purchase under "Procedures for Accepting the Offer and Tendering Shares," (b) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase) in lieu of the Letter of Transmittal, and (c) any other documents required by the Letter of Transmittal. Accordingly, payment may not be made to all tendering shareholders at the same time depending upon when certificates for or confirmations of book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility are actually received by the Depositary. 2 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF PRIMESOURCE CORPORATION The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase dated September 11, 2001 and the related Letter of Transmittal, in connection with the offer by FPF Acquisition Corp. to purchase all outstanding shares of common stock, par value $0.01 per share, of PrimeSource Corporation, including the associated rights to purchase shares issued pursuant to the Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated as of February 1, 2001, as amended (together, the "Shares"), at $10.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase and the related Letter of Transmittal. This will instruct you to tender to Purchaser the number of Shares indicated below (or, if no number is indicated below, all Shares) that are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer to Purchase and the related Letter of Transmittal. Dated: ----------------------------, 2001 Number of Shares to Be Tendered:* SIGN HERE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Signature(s) - -------------------------------------------------------------------------------- Please Print Name(s) - -------------------------------------------------------------------------------- Address(es) - -------------------------------------------------------------------------------- Area Code and Telephone Number(s) - -------------------------------------------------------------------------------- Tax Identification or Social Security Number(s) - --------------- * Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. 3 EX-99.(A)(6) 8 b313552ex99_a6.txt GUIDELINES FOR CERTIFICATION EXHIBIT 99.(a)(6) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Identification Number to Give the Payer.--Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer.
- ----------------------------------------------------------------------------------------------------------------------------- For this type of account: Give the SOCIAL SECURITY number of-- - ----------------------------------------------------------------------------------------------------------------------------- 1. An individual's account The individual 2. Two or more individuals The actual owner of the account or, if combined funds, the (joint account) first individual on the account(1) 3. Custodian account of a minor (Uniform Gift to Minors Act) The minor(2) 4. a.The usual revocable savings trust account (grantor is The grantor-trustee(1) also trustee) b.So-called trust account that is not a legal or valid The actual owner(1) trust under state law 5. Sole proprietorship account The owner(3) 6. A valid trust, estate, or pension trust The legal entity(4) - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- For this type of account: Give the EMPLOYER IDENTIFICATION NUMBER of-- - ----------------------------------------------------------------------------------------------------------------------------- 7. Corporate account The corporation 8. Partnership account held in the name of the business The partnership 9. Association, club, religious, charitable, educational or The organization other tax-exempt organization 10. A broker or registered nominee The broker or nominee 11. Account with the Department of Agriculture in the name of The public entity a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments - -----------------------------------------------------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your social security number or employer identification number. (4) List first and circle the name of the legal trust, estate, or pension trust. Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Page 2 How to Obtain a Taxpayer Identification Number If you do not have a taxpayer identification number, apply for one immediately. To apply, obtain FORM SS-5, Application for a Social Security Card (for individuals), from your local office of the Social Security Administration (or, in the case of resident aliens who do not have and are not eligible for Social Security numbers, Form W-7, Application for Individual Taxpayer Identification Number), or FORM SS-4, Application for Employer Identification Number (for businesses and all other entities), from your local IRS office. Payees and Payments Exempt From Backup Withholding Payees specifically exempted from backup withholding include the following: o A corporation. o An organization exempt from tax under Section 501(a), or an IRA, or a custodial account under section 403(b)(7), if the account satisfies the requirements of Section 401(f)(2). o The United States or any of its agencies or instrumentalities. o A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. o A foreign government or any of its political subdivisions, agencies or instrumentalities. o An international organization or any of its wholly owned agencies or instrumentalities. o A foreign central bank of issue. o A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. o A real estate investment trust. o An entity registered at all times during the tax year under the Investment Company Act of 1940. o A common trust fund operated by a bank under section 584(a). o A financial institution. o A futures commission merchant registered with the Commodity Futures Trading Commission. EXEMPT PAYEES DESCRIBED ABOVE SHOULD FILE FORM W-9 TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER IN PART I OF THE SUBSTITUTE FORM W-9, CHECK THE BOX IN PART IV OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see section 6045 of the Internal Revenue Code, and the regulations thereunder. Penalties (1) Failure to Furnish Taxpayer Identification Number.--If you fail to furnish your correct taxpayer identification number to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) Civil Penalty for False Information With Respect to Withholding.--If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. (3) Criminal Penalty for Falsifying Information.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. (4) Privacy Act Notice.--Section 6109 of the Internal Revenue Code requires most recipients of dividends, interest, or certain other payments to furnish their correct taxpayer identification number to persons who must file information returns with the IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. You must provide your taxpayer identification number whether or not you are required to file a tax return. Payers must generally withhold 30.5% of such payments made to a payee during the 2001 calendar year and 30% of such payments made to a payee during the 2002 calendar year who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX ADVISOR OR THE INTERNAL REVENUE SERVICE EX-99.(A)(7) 9 b313552ex99_a7.txt NOTICE OF OFFER TO PURCHASE EXHIBIT 99.(a)(7) This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares. The Offer is made only by the Offer to Purchase, dated September 11, 2001, and the related Letter of Transmittal and any amendments or supplements thereto. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. Notice of Offer to Purchase for Cash All Outstanding Shares of Common Stock of PrimeSource Corporation at $10.00 Net Per Share by FPF Acquisition Corp. an indirect wholly-owned subsidiary of Fuji Photo Film U.S.A., Inc. FPF Acquisition Corp., a Pennsylvania corporation ("Purchaser") and a wholly-owned subsidiary of Enovation Graphic Systems, Inc., a Delaware corporation ("EGS"), which is a wholly-owned subsidiary of Fuji Photo Film U.S.A., Inc., a New York corporation ("Fuji"), which is an indirect wholly-owned subsidiary of Fuji Photo Film Co., Ltd., a Japanese corporation, is offering to purchase all outstanding shares of common stock, par value $0.01 per share, of PrimeSource Corporation, a Pennsylvania corporation (the "Company"), including the associated rights to purchase shares issued pursuant to the Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated as of February 1, 2001 (together, the "Shares"), at $10.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). - -------------------------------------------------------------------------------- The Offer and Withdrawal Rights will expire at 12:00 midnight, New York City time, on Tuesday, October 9, 2001, unless the Offer is extended. - -------------------------------------------------------------------------------- The Offer is conditioned upon, among other things, (1) there being validly tendered and not withdrawn prior to the expiration of the Offer a number of Shares that represents, together with any shares beneficially owned by Fuji or Purchaser, at least 80% of the then outstanding Shares and (2) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The offer is also subject to other conditions. The Offer is being made pursuant to the Agreement and Plan of Merger, dated as of September 4, 2001 (the "Merger Agreement"), among Purchaser, EGS, Fuji and the Company. The purpose of the Offer is to acquire control of, and the entire equity interest in, the Company. The Merger Agreement provides that, among other things, Purchaser will make the Offer and that, as promptly as practicable after the purchase of Shares pursuant to the Offer and the satisfaction or waiver of the other conditions set forth in the Merger Agreement, Purchaser will be merged into the Company, with the Company continuing as the surviving corporation (the "Merger"), which will be wholly-owned by EGS. At the effective time of the Merger, each Share outstanding immediately prior to such time (other than Shares held by the Company as treasury stock or owned beneficially by Fuji, EGS or Purchaser or any of Fuji's other subsidiaries, all of which will be cancelled, and other than Shares that are held by shareholders, if any, who properly exercise their dissenters rights under applicable law) will be converted into the right to receive the per Share price that is paid in the Offer, in cash, without interest thereon. The Board of Directors of the Company has unanimously determined that the Offer and the Merger are fair to and in the best interests of the shareholders of the Company and recommends that the Company's shareholders tender their Shares in the Offer. For purposes of the Offer, Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered and not properly withdrawn as, if and when Purchaser gives oral or written notice to American Stock Transfer & Trust Company (the "Depositary") of Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the Offer Price therefor with the Depositary, which will act as agent for tendering shareholders for the purpose of receiving payments from Purchaser and transmitting such payments to tendering shareholders whose Shares have been accepted for payment. Under no circumstances will interest on the purchase price of Shares be paid by Purchaser because of any delay in making any payment. Payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after the timely receipt by the Depositary of (1) the certificates evidencing such Shares (the "Share Certificates") or confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in "The Offer--Procedures for Accepting the Offer and Tendering Shares," (2) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase) in lieu of the Letter of Transmittal and (3) any other documents required by the Letter of Transmittal. The term "Expiration Date" means 12:00 a.m., New York City time, on October 9, 2001, unless Purchaser shall have extended the period of time for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by Purchaser, shall expire. Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn after November 9, 2001 unless theretofore accepted for payment as provided in the Offer to Purchase. For a withdrawal of Shares tendered pursuant to the Offer to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover page of the Offer to Purchase. Any such notice of withdrawal must specify the name and address of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn, and the name of the registered holder of such Shares, if different from that of the person who tendered such Shares. If Share Certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in "The Offer--Procedures for Accepting the Offer and Tendering Shares," any notice of withdrawal must also specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered at any time prior to the Expiration Date by following one of the procedures described in "The Offer--Procedures for Accepting the Offer and Tendering Shares." Under the Merger Agreement and pursuant to Rule 14d-11 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Purchaser may, subject to certain conditions, elect to provide a subsequent offering period following the Expiration Date. The Purchaser does not currently intend to provide a subsequent offering period in the Offer, although it reserves the right to do so in its sole discretion. Under the Exchange Act, no withdrawal rights apply to Shares tendered during a subsequent offering period and no withdrawal rights apply during the subsequent offering period with respect to Shares tendered in the Offer and accepted for payment. See "The Offer--Terms of the Offer." All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Purchaser, in its sole discretion, whose determination will be final and binding. None of Fuji, EGS, Purchaser, the Company, the Dealer Manager, the Depositary, the Information Agent or any other person will be under duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. The receipt by a United States stockholder of cash for Shares pursuant to the Offer or the Merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local or foreign tax laws. All shareholders should consult with their own tax advisors as to the particular tax consequences to them of the Offer and the Merger, including the effect of United States state and local tax laws or foreign tax laws. The information required to be disclosed by paragraph (d)(1) of Rule 14d-6 of the General Rules and Regulations under the Exchange Act is contained in the Offer to Purchase and is incorporated herein by reference. The Company has provided to Purchaser its list of shareholders and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase, the related Letter of Transmittal and other related materials are being mailed to record holders of Shares and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the shareholder list or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. The Offer to Purchase and the related Letter of Transmittal contain important information that should be read carefully before any decision is made with respect to the Offer. Questions and requests for assistance and copies of the Offer to Purchase, the Letter of Transmittal and all other tender offer materials may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth below and will be furnished promptly at Purchaser's expense. Purchaser will not pay any fees or commissions to any broker or dealer or any other person (other than the Dealer Manager and the Information Agent) for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: D.F. King & Co., Inc. 77 Water Street New York, New York 10005 (212) 269-5550 (Call Collect) or Call Toll Free (800) 207-3158 The Dealer Manager for the Offer is: Bear, Stearns & Co. Inc. 245 Park Avenue New York, New York 10167 (877) 652-6039 September 11, 2001 EX-99.D1 10 b313552ex99_d1.txt EXHIBIT 99.(D)(1) [EXECUTION COPY} AGREEMENT AND PLAN OF MERGER dated as of September 4, 2001 by and among FUJI PHOTO FILM U.S.A., INC. ENOVATION GRAPHIC SYSTEMS, INC. FPF ACQUISITION CORP. and PRIMESOURCE CORPORATION Table of Contents Page ---- ARTICLE I THE OFFER Section 1.1 The Offer....................................................1 Section 1.2 Company Action...............................................3 Section 1.3 Directors....................................................4 ARTICLE II THE MERGER Section 2.1 The Merger...................................................5 Section 2.2 Conversion or Cancellation of Shares.........................6 Section 2.3 Surrender and Payment........................................6 Section 2.4 Dissenting Shares............................................7 Section 2.5 Stock Option Plans...........................................8 Section 2.6 Withholding Rights...........................................8 Section 2.7 Lost Certificates............................................9 ARTICLE III THE SURVIVING CORPORATION Section 3.1 Articles of Incorporation....................................9 Section 3.2 Bylaws.......................................................9 Section 3.3 Directors and Officers.......................................9 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY Section 4.1 Corporate Existence and Power................................9 Section 4.2 Corporate Authorization.....................................10 Section 4.3 Governmental Authorization; Consents........................10 Section 4.4 Non-Contravention...........................................11 Section 4.5 Capital Stock...............................................12 Section 4.6 SEC Filings.................................................12 Section 4.7 Financial Statements........................................13 Section 4.8 Disclosure Documents........................................14 Section 4.9 Absence of Certain Changes..................................14 Section 4.10 Litigation..................................................16 Section 4.11 Taxes.......................................................16 Section 4.12 ERISA.......................................................17 Section 4.13 Financial Advisors' Fees....................................19 i Table of Contents (continued) Page ---- Section 4.14 Environmental Compliance....................................19 Section 4.15 Intellectual Property.......................................21 Section 4.16 Insurance...................................................22 Section 4.17 Compliance with Instruments and Laws........................22 Section 4.18 Contracts...................................................23 Section 4.19 Transactions with Affiliates................................23 Section 4.20 State Takeover Laws; Rights Plan............................24 Section 4.21 No Omissions................................................24 ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT, EGS AND MERGER SUBSIDIARY Section 5.1 Corporate Existence and Power...............................24 Section 5.2 Corporate Authorization.....................................25 Section 5.3 Governmental Authorization; Consents........................25 Section 5.4 Non-Contravention...........................................25 Section 5.5 Disclosure Documents........................................26 Section 5.6 Financial Advisors' Fees....................................26 Section 5.7 Financing...................................................27 Section 5.8 Share Ownership.............................................27 Section 5.9 Litigation..................................................27 ARTICLE VI COVENANTS OF THE COMPANY Section 6.1 Conduct of the Company......................................27 Section 6.2 Shareholder Meeting; Proxy Material.........................29 Section 6.3 Access to Information.......................................30 Section 6.4 No Solicitation.............................................31 Section 6.5 Notices of Certain Events...................................33 Section 6.6 Tax Elections...............................................33 Section 6.7 Benefit Plans...............................................34 Section 6.8 Rights Agreement............................................34 Section 6.9 Takeover Statutes...........................................34 ARTICLE VII COVENANTS OF MERGER SUBSIDIARY, EGS AND PARENT Section 7.1 Obligations of Merger Subsidiary, EGS and Parent............34 Section 7.2 Voting of Shares............................................34 Section 7.3 Indemnification; Directors and Officers Insurance...........35 ii Table of Contents (continued) Section 7.4 Employee Benefits...........................................36 Section 7.5 Takeover Statutes...........................................36 ARTICLE VIII COVENANTS OF PARENT, EGS, MERGER SUBSIDIARY AND THE COMPANY Section 8.1 Reasonable Best Efforts.....................................37 Section 8.2 Certain Filings.............................................37 Section 8.3 Public Announcements........................................38 Section 8.4 Further Assurances..........................................38 ARTICLE IX CONDITIONS TO THE MERGER Section 9.1 Conditions to the Obligations of Each Party.................38 ARTICLE X TERMINATION Section 10.1 Termination.................................................39 Section 10.2 Effect of Termination.......................................40 ARTICLE XI MISCELLANEOUS Section 11.1 Notices.....................................................41 Section 11.2 Non-Survival of Representations and Warranties..............42 Section 11.3 Amendments; No Waivers......................................42 Section 11.4 Fees and Expenses...........................................42 Section 11.5 Successors and Assigns......................................43 Section 11.6 Entire Agreement; Governing Law; No Third-Party Beneficiaries.............................................43 Section 11.7 Counterparts; Effectiveness.................................44 Section 11.8 Severability................................................44 Section 11.9 Submission to Jurisdiction; Waivers.........................44 iii AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of September 4, 2001 by and among FUJI PHOTO FILM U.S.A., INC., a New York corporation ("Parent"), ENOVATION GRAPHIC SYSTEMS, INC., a Delaware corporation and a wholly-owned subsidiary of Parent ("EGS"), FPF ACQUISITION CORP., a Pennsylvania corporation and a wholly-owned subsidiary of EGS ("Merger Subsidiary"), and PRIMESOURCE CORPORATION, a Pennsylvania corporation (the "Company"). In consideration of the mutual covenants and agreements contained herein and intending to be legally bound, the parties agree as follows: ARTICLE I THE OFFER Section 1.1 The Offer. (a) Provided that nothing shall have occurred that would result in a failure to satisfy any of the conditions set forth in Annex I hereto, Merger Subsidiary shall, as promptly as practicable following the date hereof and in any event prior to September 12, 2001, commence (within the meaning of Rule 14d-2 of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) a tender offer (as amended from time to time, the "Offer") to purchase all of the outstanding shares of common stock, par value $0.01 per share, of the Company (the "Shares") and the associated rights to purchase Shares (the "Rights") issued pursuant to the Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated as of February 1, 2001 (the "Rights Agreement") at a price of not less than $10.00 per Share and associated Right, net to the seller in cash. Subject to the satisfaction of the conditions to the Offer set forth in the immediately following sentence, Merger Subsidiary shall, and Parent shall cause Merger Subsidiary to, accept for payment and pay for Shares validly tendered and not properly withdrawn as soon as practicable after the expiration of the Offer. The obligation of Merger Subsidiary to accept for payment and to pay for any Shares tendered in the Offer shall be subject only to (x) the condition that there shall be validly tendered in accordance with the terms of the Offer prior to the expiration date of the Offer and not withdrawn a number of Shares which, together with any Shares then owned by Parent or Merger Subsidiary, represents at least 80% of the Shares outstanding on the expiration date of the Offer (the "Minimum Condition"), and (y) the other conditions set forth in Annex I hereto (collectively, together with the Minimum Condition, the "Offer Conditions"). The Company shall advise the Parent in writing of the number of shares outstanding at the close of business on the expiration date. Merger Subsidiary expressly reserves the right in its sole discretion to waive any such condition from time to time, to increase the price per Share (and associated Right) payable in the Offer, to extend the Offer and to make any other changes in the terms and conditions of the Offer; provided, however, that, unless previously approved by the Company in writing, Merger Subsidiary will not (i) decrease the price per Share payable in the Offer, (ii) decrease the maximum number of Shares to be purchased in the Offer, (iii) except as required by law, impose conditions to the Offer in addition to the Offer Conditions, (iv) except as required by law, change the conditions to the Offer in any material respect adverse to the Company, (v) except as required by law, amend any other term of the Offer in a manner adverse to the holders of the Shares or (vi) change the form of consideration to be paid pursuant to the Offer. The initial expiration date of the Offer shall be 20 business days following the commencement of the Offer. Merger Subsidiary agrees that (i) it shall not terminate or withdraw the Offer or extend the expiration date of the Offer unless at the expiration date of the Offer, the Offer Conditions shall not have been satisfied or earlier waived and (ii) if the Offer Conditions are not satisfied on any scheduled or extended expiration date of the Offer, then if all such conditions are reasonably capable of being satisfied prior to November 30, 2001 (the "Termination Date"), Merger Subsidiary shall, unless otherwise agreed by the Company, extend the Offer from time to time (each such individual extension not to exceed ten business days from the previously scheduled expiration date) until such conditions are satisfied or waived; provided, however, that Merger Subsidiary shall not be required to extend the Offer beyond the Termination Date. Notwithstanding the foregoing, Merger Subsidiary may, without the consent of the Company, (i) extend the Offer, if at any scheduled or extended expiration date of the Offer any of the Offer Conditions shall not be satisfied or waived, and (ii) extend the Offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer or any period required by applicable law; provided, however, the Offer may not be extended beyond the Termination Date without the consent of the Company; provided, further, however, that Merger Subsidiary may elect to extend the Offer to provide, in compliance with Rule 14d-11 under the Exchange Act, for a "subsequent offering period" not to exceed 20 business days following the expiration of the Offer. (b) On the date of the commencement of the Offer, Parent and Merger Subsidiary shall file with the SEC a Tender Offer Statement on Schedule TO with respect to the Offer which will contain the offer to purchase and a form of the related letter of transmittal and summary advertisement (together with any supplements or amendments thereto, the "Offer Documents") which will comply in all material respects with, and disseminate the same to the holders of the Shares to the extent required by, applicable federal securities laws and any other applicable laws. Each of the Parent, EGS, Merger Subsidiary and the Company agrees to promptly correct any information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect. Merger Subsidiary will take all steps necessary to cause the Offer Documents as so corrected to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws and any other applicable laws. The Company and its counsel shall be given a reasonable opportunity to review and comment on the Offer Documents and any amendments thereto prior to the filing thereof with the SEC. Merger Subsidiary will provide the Company and its counsel with any comments Merger Subsidiary or its counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt thereof. In the event that the Offer is terminated or withdrawn by Merger Subsidiary, Parent, EGS and Merger Subsidiary shall cause all tendered Shares to be returned to the registered holders of the Shares represented by the certificate or certificates surrendered to the Exchange Agent (as defined in Section 2.3(a) of this Agreement). (c) Subject to the terms and conditions of the Offer, Parent shall provide or cause to be provided to Merger Subsidiary on a timely basis the funds necessary to accept for payment, and pay for, the Shares that Merger Subsidiary becomes obligated to accept for payment and to pay for pursuant to the Offer. 2 Section 1.2 Company Action. (a) The Company hereby consents to the Offer and represents that its Board of Directors (the "Board of Directors"), at a meeting duly called and held, has (i) unanimously determined that this Agreement and the transactions contemplated hereby, including the Offer and the Merger (as defined in Section 2.1(a) of this Agreement), are in the best interests of the Company, (ii) unanimously approved this Agreement and the transactions contemplated hereby, including the Offer and the Merger, (iii) directed that this Agreement and the Merger, if required, be submitted to a vote of the shareholders of the Company at a special meeting of the shareholders and (iv) recommended that the shareholders of the Company accept the Offer and approve and adopt this Agreement and the consummation of the Merger, if shareholder approval of the Agreement is required by applicable law in order to consummate the Merger. Berwind Financial, L.P. (the "Financial Advisor") has delivered to the Board of Directors its written opinion, to the effect that the consideration to be received by the holders of the Shares pursuant to each of the Offer and the Merger is fair to the holders of Shares from a financial point of view. The Company has been authorized by the Financial Advisor to permit, subject to prior review and consent by the Financial Advisor (such consent not to be unreasonably withheld), the inclusion of the fairness opinion (or a reference thereto) in the Offer Documents and the Schedule 14D-9 (as defined in Section 1.2(b) of this Agreement). The Company has been advised that all of its directors and executive officers intend, to the extent of their ownership of Shares, to tender their Shares pursuant to the Offer. The Company will promptly furnish Parent with a list or computer file containing the names and addresses of the record holders of the Shares, mailing labels containing the names and addresses of all record holders of Shares and lists of securities positions of Shares held in stock depositories, in each case true and correct as of the most recent practicable date, and will provide to Parent such additional information (including, without limitation, updated lists of shareholders, mailing labels and lists of securities positions) and such other assistance as Parent may reasonably request from time to time in connection with the Offer and the Merger (including but not limited to communicating the Offer and the Merger to the record and beneficial holders of Shares). Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Offer or the Merger, Parent, EGS, Merger Subsidiary and their agents and advisors shall use the information contained in any such labels and listings only in connection with the Offer and the Merger and, if this Agreement shall be terminated pursuant to Article X hereof, shall deliver to the Company all copies of such information and extracts therefrom then in their possession or under their control. (b) On or prior to the date that the Offer is commenced, the Company will file with the SEC and disseminate to holders of the Shares a Solicitation/Recommendation Statement on Schedule 14D-9 (together with any supplements or amendments thereto, the "Schedule 14D-9") which shall contain the recommendations of the Board of Directors referred to in Section 1.2(a) of this Agreement; provided, however, the Company may modify, withdraw or change its recommendation, but only to the extent the Company complies with Section 6.4 hereof. The Schedule 14D-9 will comply in all material respects with all applicable federal securities laws and any other applicable laws. Each of the Company, Parent, EGS and Merger Subsidiary agrees to promptly correct any information provided by it for use in the Schedule 14D-9 if and to the extent that such information shall have become false or misleading in any material respect. The Company will take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed 3 with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws and any other applicable laws. Parent, EGS, Merger Subsidiary and their counsel shall be given a reasonable opportunity to review and comment on the Schedule 14D-9 and any amendments thereto prior to the filing thereof with the SEC. The Company will provide Parent, EGS and Merger Subsidiary and their counsel with any comments the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments. Section 1.3 Directors. (a) Effective upon the purchase of and payment for Shares by Merger Subsidiary pursuant to the Offer and from time to time thereafter, Parent shall be entitled to designate up to such number of directors, rounded up to the next whole number, on the Board of Directors that equals the product of (i) the total number of directors on the Board of Directors (giving effect to any increase in the number of directors pursuant to this Section 1.3) multiplied by (ii) the percentage that the number of Shares owned by Merger Subsidiary bears to the total number of Shares outstanding on a primary basis. The Company shall, upon the request of Parent, take all action necessary to cause Parent's designees to be elected or appointed to the Board of Directors, including, without limitation, increasing the number of directors and/or securing the resignations of such number of incumbent directors as is necessary to enable Parent's designees to be elected to the Board of Directors and to cause Parent's designees to be so elected. At such times, the Company will use its best efforts to cause individuals designated by Parent to constitute the same percentage as such individuals represent on the Board of Directors of (x) each committee of the Board of Directors, (y) each board of directors of each Subsidiary (as defined below) of the Company and (z) each committee of each such board. Notwithstanding the foregoing, until the Effective Time (as defined in Section 2.1(b) of this Agreement), the Company shall use its best efforts to ensure that not less than three persons who are directors on the date hereof shall remain members of the Board of Directors until the Effective Time. For purposes of this Agreement, "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are directly or indirectly owned by the Company or the Parent, as applicable. (b) The Company's obligations to appoint designees to the Board of Directors shall be subject to Section 14(f) of the Exchange Act, and Rule 14f-1 promulgated thereunder. The Company shall promptly take all actions required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 1.3 and shall include in the Schedule 14D-9 such information with respect to the Company and its officers and directors as is required under Section 14(f) and Rule 14f-1 to fulfill its obligations under this Section 1.3. Parent will supply to the Company in writing and be solely responsible for any information with respect to itself and its nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1. For purposes of this Agreement, "affiliate" shall mean, as to any Person (as defined in Section 2.3(c) of this Agreement), any other Person that would be deemed to be an "affiliate" of such Person as that term is defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. (c) Following the election or appointment of Parent's designees pursuant to this Section 1.3 and prior to the Effective Time, any amendment of this Agreement, any 4 termination of this Agreement by the Company, any extension by the Company of the time for the performance of any of the obligations or other acts of Parent, EGS or Merger Subsidiary or waiver of any of the Company's rights hereunder, will require the concurrence of a majority of the directors of the Company then in office who are not designated by Parent, provided that if there shall be no such directors, such actions may be affected by a majority vote of the entire Board of Directors of the Company. ARTICLE II THE MERGER Section 2.1 The Merger. (a) Subject to the terms and conditions of this Agreement, at the Effective Time, Merger Subsidiary shall be merged (the "Merger") with and into the Company in accordance with the Pennsylvania Business Corporation Law of 1988, as amended (the "PBCL"), whereupon the separate existence of Merger Subsidiary shall cease, and the Company shall be the surviving corporation. The corporation surviving the Merger is sometimes hereinafter referred to as the "Surviving Corporation." Notwithstanding the foregoing, in the event that Parent in its sole discretion elects to structure the Merger so that the Company shall be merged with and into Merger Subsidiary (a "Forward Subsidiary Merger Election"), and provides written notice of such election to the Company prior to the mailing of any Company Proxy Statement (as defined in Section 4.8(a) hereof), the separate existence of the Company shall cease and Merger Subsidiary shall be the "Surviving Corporation," and this Agreement shall be deemed amended to the extent necessary to provide for such. (b) On the date of the Closing (as defined in Section 2.1(d) hereof), as soon as practicable after the satisfaction or waiver in accordance with the terms of this Agreement of all of the conditions to the Merger set forth in Article IX hereof, each of the Company and Merger Subsidiary will cause articles of merger (the "Articles of Merger") to be executed and filed with the Department of State of the Commonwealth of Pennsylvania as provided in Sections 1926 and 1927 of the PBCL, which shall reflect any Forward Subsidiary Merger Election, if applicable, and will make all other filings or recordings required by the PBCL in connection with the Merger. The Merger shall become effective at such time as the Articles of Merger are duly filed with the Department of State of the Commonwealth of Pennsylvania or at such later time as is agreed upon by the parties hereto and specified in the Articles of Merger (the "Effective Time"). (c) From and after the Effective Time, the Merger shall have the effects set forth in this Agreement, the Articles of Merger and the applicable provisions of the PBCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all property, real, personal and mixed, and franchises of the Company and Merger Subsidiary shall transfer to and vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Subsidiary shall be transferred to and vested in the Surviving Corporation. (d) The closing of the Merger (the "Closing") shall take place (i) at the offices of Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038 at 10:00 A.M., New York City time, no later than the second business day after the last of the conditions 5 set forth in Article IX hereof shall be satisfied or waived in accordance with this Agreement, or (ii) at such other place, time and date as Parent, Merger Subsidiary and the Company shall agree. Section 2.2 Conversion or Cancellation of Shares. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Subsidiary or the Company or the holders of any securities of Merger Subsidiary or the Company: (a) each Share and associated Right, outstanding immediately prior to the Effective Time, shall (except as otherwise provided in paragraph (b) of this Section 2.2 or as provided in Section 2.4 hereof with respect to Dissenting Shares (as defined in Section 2.4(a)) be converted into the right to receive from the Surviving Corporation in cash, without interest, the price per Share paid by Merger Subsidiary pursuant to the Offer (the "Merger Consideration"); (b) each Share held by the Company as treasury stock or owned beneficially by Parent, EGS or Merger Subsidiary or any other direct or indirect Subsidiary of Parent immediately prior to the Effective Time shall be cancelled, and no payment shall be made with respect thereto; and (c) except in the event Parent has made a Forward Subsidiary Merger Election, each share of common stock of Merger Subsidiary outstanding immediately prior to the Effective Time shall be converted into and become one share of common stock of the Surviving Corporation with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation. Section 2.3 Surrender and Payment. (a) Prior to the Effective Time, Parent shall appoint as agent (the "Exchange Agent") a commercial bank or trust company, reasonably acceptable to the Company, for the purpose of exchanging certificates representing Shares for the Merger Consideration which holders of such certificates are entitled to receive pursuant to this Article II. Parent will make available to the Exchange Agent, as needed, the Merger Consideration to be paid in respect of the Shares. Promptly after the Effective Time, Parent will send, or will cause the Exchange Agent to send, to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding Shares, other than holders of certificates which represent Shares cancelled and retired pursuant to Section 2.2(b) hereof, (i) a letter of transmittal for use in such exchange (which shall specify that the delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the certificates representing Shares to the Exchange Agent) and (ii) instructions for use in effecting the surrender of certificates for payment therefor (the "Exchange Instructions"). (b) Each holder of certificates representing Shares that have been converted into a right to receive the Merger Consideration which holders of such certificates are entitled to receive pursuant to this Article II, upon surrender to the Exchange Agent of a certificate or certificates representing such Shares, together with a properly completed and executed letter of transmittal covering such Shares and any other documents reasonably required by the Exchange Instructions, will promptly receive the Merger Consideration payable in respect of such Shares as provided in this Article II, without any interest thereon, less any required withholding of taxes, 6 and the certificates so surrendered shall forthwith be cancelled. Until so surrendered, each such certificate shall, at and after the Effective Time, represent for all purposes only the right to receive such Merger Consideration payable with respect to the Shares theretofore represented by such certificate. (c) If any portion of the Merger Consideration is to be paid to a Person other than the registered holder of the Shares represented by the certificate or certificates surrendered in exchange therefor, it shall be a condition to such payment that the certificate or certificates so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the Person requesting such payment shall pay to the Exchange Agent any transfer or other taxes required as a result of such payment to a Person other than the registered holder of such Shares or establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable. The Exchange Agent may make any tax withholdings required by law if not provided with the appropriate documents. For purposes of this Agreement, "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or any agency or instrumentality thereof. (d) After the Effective Time, there shall be no further registration of transfers of Shares. If, after the Effective Time, certificates representing Shares are presented to the Surviving Corporation, they shall be cancelled and exchanged for the consideration provided for, and in accordance with the procedures set forth, in this Article II. (e) Any portion of the Merger Consideration made available to the Exchange Agent pursuant to paragraph (a) of this Section 2.3 that remains unclaimed by the holders of Shares one year after the Effective Time (including, without limitation, all interest and other income received by the Exchange Agent in respect of all funds made available to it) shall be returned to the Surviving Corporation, upon demand, and any such holder who has not exchanged his or her Shares for the Merger Consideration in accordance with this Section 2.3 prior to that time shall thereafter look only to the Surviving Corporation for payment of the Merger Consideration in respect of Shares (subject to abandoned property, escheat and other similar laws) as general creditors thereof. Notwithstanding the foregoing, the Surviving Corporation shall not be liable to any holder of Shares for any amount paid to a public official pursuant to applicable abandoned property, escheat or other similar laws. Any amounts remaining unclaimed by holders of Shares five years after the Effective Time (or such earlier date immediately prior to such time as such amounts would otherwise escheat to or become property of any governmental entity) shall, to the extent permitted by applicable law, become the property of the Surviving Corporation free and clear of any claims or interest of any Person previously entitled thereto. (f) Any portion of the Merger Consideration made available to the Exchange Agent pursuant to Section 2.3(a) to pay for Dissenting Shares for which dissenters' rights have been perfected shall be returned to the Surviving Corporation upon demand. Section 2.4 Dissenting Shares. (a) Notwithstanding anything in this Agreement to the contrary, Shares outstanding immediately prior to the Effective Time and held by a holder who objects to this 7 Agreement and complies with the provisions of Subchapter 15D of the PBCL (the "Dissenting Shares") shall not be converted into the right to receive the Merger Consideration with respect to such Shares at or after the Effective Time, unless and until the holder of such Dissenting Shares shall have failed to perfect or shall have effectively withdrawn or lost the right to appraisal and to receive payment of the fair value of such holder's Shares under Subchapter 15D of the PBCL. If a holder of Dissenting Shares shall have so failed to perfect or shall have effectively withdrawn or lost such right to appraisal and payment, then, as of the Effective Time or the occurrence of such event, whichever last occurs, such holder's Dissenting Shares shall be converted into and represent solely the right to receive the Merger Consideration with respect to such Shares, without any interest thereon, as provided in Section 2.2. (b) The Company shall give Parent (i) prompt notice of any written demands for appraisal, withdrawals of demands for appraisal and any other instruments served pursuant to Subchapter 15D of the PBCL which are received by the Company, and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under the PBCL. The Company will not voluntarily make any payment with respect to any demands for appraisal and will not, except with the prior written consent of Parent, settle or offer to settle any such demands. Section 2.5 Stock Option Plans. (a) Immediately prior to the Effective Time, the Company will pay each holder of a then outstanding stock option to purchase Shares granted under any stock option or compensation plan or arrangement of the Company, whether or not then exercisable or vested (collectively, the "Options"), in cancellation and settlement thereof, for each Share subject to such Option, an amount in cash equal to the excess, if any, of the Merger Consideration over the per Share exercise price thereof (such amount being hereinafter referred to as the "Option Consideration"); provided, however, that with respect to any person subject to Section 16 of the Exchange Act, any such amount will be paid by the Surviving Corporation as soon as practicable after the first date payment can be made without liability to such persons under Section 16(b) of the Exchange Act. Upon payment of the Option Consideration, the Option will be cancelled. The payment to the holder entitled thereto of the Option Consideration will be deemed a release of any or all rights the holder had or may have had in respect of such Option. (b) Prior to the Effective Time, the Company shall use its best efforts to obtain any consents from holders of Options to purchase Shares granted under the Company's stock option or compensation plans or arrangements that are necessary to give effect to the transactions contemplated by subsection (a) of this Section. The Company shall also immediately advise Parent of any exercises of Options that occur after August 31, 2001. Section 2.6 Withholding Rights. Parent, EGS, Merger Subsidiary or the Exchange Agent will be entitled to deduct and withhold, or cause to be deducted or withheld, from the consideration otherwise payable pursuant to this Agreement to any holder of Shares or Options such amounts as are required to be deducted and withheld with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the "Code"), or any provision of applicable state, local or foreign tax law. To the extent that amounts are so 8 withheld, such withheld amount will be treated for all purposes of this Agreement as having been paid to such holders in respect of which such deduction and withholding was made. Section 2.7 Lost Certificates. If any certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such certificate to be lost, stolen or destroyed and the posting by such Person of a bond, in such reasonable amount as the Surviving Corporation may direct, as indemnity against any claim that may be made against it with respect to such certificate, the Exchange Agent will pay, in exchange for such affidavit claiming such certificate is lost, stolen or destroyed and such indemnity bond, the Merger Consideration to be paid in respect of the Shares represented by such certificate, as contemplated by this Article II. ARTICLE III THE SURVIVING CORPORATION Section 3.1 Articles of Incorporation. The articles of incorporation of Merger Subsidiary in effect immediately prior to the Effective Time shall be the Articles of Incorporation of the Surviving Corporation until amended in accordance with applicable law, except that Article 1 shall be restated in its entirety to provide as follows: "The name of the corporation is `PrimeSource Corporation'." Section 3.2 Bylaws. The bylaws of Merger Subsidiary in effect immediately prior to the Effective Time shall be the bylaws of the Surviving Corporation until amended in accordance with applicable law. Section 3.3 Directors and Officers. From and after the Effective Time, until successors are duly elected or appointed and qualified in accordance with applicable law, (a) the directors of Merger Subsidiary immediately prior to the Effective Time shall become the directors of the Surviving Corporation, and (b) the officers of the Company immediately prior to the Effective Time shall become the officers of the Surviving Corporation. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent, EGS and Merger Subsidiary that, except as set forth in the disclosure schedule delivered to Parent, EGS and Merger Subsidiary concurrently with this Agreement (the "Company Disclosure Schedule") (all disclosure in such Company Disclosure Schedule shall state with particularity the representation and warranty herein, including section reference, to which such disclosure relates): Section 4.1 Corporate Existence and Power. (a) Each of the Company and its Subsidiaries is a corporation or limited liability company duly incorporated, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where its ownership or leasing of 9 property or the conduct of its business requires it to be so qualified, except for those jurisdictions where the failure to be so qualified would not, either individually or in the aggregate, have a Material Adverse Effect (as defined below). Each of the Company and its Subsidiaries has all requisite corporate or limited liability company power and authority to own, lease and operate its properties and to carry on its business as now being conducted. For purposes of this Agreement, "Material Adverse Effect" means any material adverse change in the business, operations, assets or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, or Parent and its Subsidiaries, taken as a whole, as the case may be; provided, however, that (i) any adverse effect that is caused by conditions affecting the economy or security markets generally shall not be taken into account in determining whether there has been a Material Adverse Effect, (ii) any adverse effect that is caused by conditions affecting the primary industry in which the Company or the Parent, as the case may be, currently competes which does not have a materially disproportionate effect on the Company or the Parent, as the case may be, shall not be taken into account in determining whether there has been a Material Adverse Effect and (iii) any adverse effect that results from the announcement of the transactions contemplated by this Agreement shall not be taken into account in determining whether there has been a Material Adverse Effect. (b) The Company has previously delivered to Parent true and complete copies of the amended and restated articles of incorporation and bylaws of the Company and the charter and bylaws or other governing instruments of each of the Company's Subsidiaries, all as currently in effect. Section 4.2 Corporate Authorization. The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby are within the Company's corporate powers and, except for any required adoption of the Merger by the affirmative vote of a majority of the votes cast by all holders of outstanding Shares entitled to vote thereon, this Agreement, the Merger and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly and validly executed and delivered by the Company and assuming the due and valid authorization, execution and delivery hereof by Parent, EGS and Merger Subsidiary, constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except to the extent such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting generally the enforcement of creditors' rights and by the availability of equitable remedies. Section 4.3 Governmental Authorization; Consents. (a) The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions (including the Merger) contemplated hereby require no consents or approvals of or filings or registrations with any supranational, national, state, municipal, local or foreign government, any instrumentality, subdivision, court, administrative agency or commission or other authority thereof, or any quasi-governmental or private body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority (each, a "Governmental Entity") other than (i) the filing of the Articles of Merger in accordance with the PBCL and appropriate documents reflecting the occurrence of the Merger with the relevant authorities of other states in which the Company is 10 qualified to do business; (ii) compliance with any applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"); (iii) compliance with any applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder; (iv) state securities or "blue sky" laws and takeover, antitrust and competition law filings and approvals; (v) the filing of an informational notice by Merger Subsidiary with the Pennsylvania Securities Commission in order to perfect an exemption from the registration requirements of the Pennsylvania Takeover Disclosure Law, 70 P.S. ss.71, et seq., pursuant to 70 P.S. ss.78(a); (vi) such filings, consents, approvals, orders, registrations and declarations as may be required under the laws of any foreign country in which the Company or any of its Subsidiaries conducts any business or owns any assets; (vii) such other actions, filings, approvals, consents and registrations, the failure to make or obtain which would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company; and (viii) any filings with the U.S. Department of Treasury under its regulations pertaining to mergers, acquisitions and takeovers by foreign Persons. (b) No consent, approval, waiver or other action by any Person under any contract, agreement, note, bond, mortgage, indenture, lease, instrument or other document to which the Company or any of its Subsidiaries is a party or by which any of them is bound is required or necessary for the execution, delivery and performance of this Agreement by the Company or the consummation of the transactions contemplated hereby, except for any consent, approval, waiver or other action the absence of which would not, either individually or in the aggregate, have a Material Adverse Effect on the Company. Section 4.4 Non-Contravention. The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby do not and will not (a) conflict with or violate any provision of the charter or bylaws of the Company or any of its Subsidiaries, (b) assuming compliance with the matters referred to in Section 4.3 hereof, and subject to Section 8.2 hereof, contravene or conflict with or constitute a violation of any provision of any law, statute, code, ordinance, rule, regulation, judgment, injunction, order, writ or decree binding upon or applicable to the Company or any of its Subsidiaries, (c) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration or any loss of material benefits to the Company or any of its Subsidiaries) under any of the terms, conditions or provisions of any contract, agreement, note, bond, mortgage, indenture, lease, license, instrument or other document to which the Company or any of its Subsidiaries is a party or any of their respective properties or assets may be bound, or (d) result in the creation or imposition of any Lien (as defined below) on any asset of the Company or any of its Subsidiaries, with such exceptions with respect to the matters referred to in clauses (b) through (d) as would not, either individually or in the aggregate, have a Material Adverse Effect on the Company or the Surviving Corporation or reasonably be expected to prevent consummation of the transactions contemplated hereby, including the Offer and the Merger. For purposes of this Agreement, "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. There are no applicable state anti-takeover or similar statutes applicable under Pennsylvania law to the transactions contemplated by this Agreement, including the Offer and the Merger, by virtue of the assets, operations or corporate structure of the Company and its Subsidiaries or otherwise. 11 Section 4.5 Capital Stock. (a) The authorized capital stock of the Company consists of 1,000,000 shares of preferred stock, par value $0.01 per share (the "Preferred Stock"), (none of which are issued or outstanding), and 24,000,000 shares of common stock, par value $0.01 per share. As of August 31, 2001, there were 6,357,806 Shares issued and outstanding (each of which includes one Right), 550,121 shares of common stock, par value $0.01 per share, reserved for issuance upon exercise of outstanding Options (of which 63,500 shares of common stock were reserved for issuance upon exercise of Options having exercise prices in excess of the Merger Consideration), and no shares held in the treasury of the Company. From August 31, 2001 to the date of this Agreement, no Company Securities (as defined in paragraph (b) below) have been issued except pursuant to employee and director stock plans of the Company in effect as of the date hereof (the "Company Stock Plans"). The Company has no bonds, debentures, notes or other indebtedness having the right to vote on any matters on which holders of Company Securities may vote (such items being referred to collectively as "Voting Debt") issued or outstanding. (b) All issued and outstanding Shares have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights. All issued and outstanding shares of capital stock or other equity ownership interests of the Company's Subsidiaries have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights and are owned by the Company or a direct or indirect wholly owned Subsidiary of the Company, free and clear of all Liens. No Stock Rights (as defined below) other than the Rights are authorized, issued or outstanding with respect to the capital stock of the Company or any of its Subsidiaries. Except as set forth in paragraph (a) of this Section 4.5, as of the date of this Agreement, there are no outstanding (x) shares of capital stock or other voting securities of the Company, (y) securities of the Company or any of its Subsidiaries convertible into or exchangeable for shares of capital stock or voting securities of the Company, and (z) options or other rights to acquire from the Company or any of its Subsidiaries, and no obligation of the Company or any of its Subsidiaries to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities (or cash or other property in lieu of such stock or securities) of the Company (the items in clauses (x), (y) and (z) being referred to collectively as the "Company Securities"). There are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any Company Securities. For purposes of this Agreement, "Stock Rights" mean warrants, options, rights, convertible securities and other arrangements or commitments which obligate an entity to issue or dispose of any of its capital stock or any other equity security, and stock appreciation rights, performance units and other similar stock-based rights whether they obligate the issuer thereof to issue stock or other securities or to pay cash. Section 4.5(b) of the Company Disclosure Schedule sets forth a list of each material investment of the Company in any Person other than its Subsidiaries. Section 4.6 SEC Filings. (a) Since December 31, 1997, the Company has timely filed all forms, reports, statements, schedules and other documents with the SEC required to be filed by the Company pursuant to the federal securities laws, all of which, as of their respective dates, 12 complied in all material respects with all applicable requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as applicable. (b) The Company has previously delivered to Parent and Merger Subsidiary (i) its annual reports on Form 10-K for the fiscal years ended December 31, 1998, 1999 and 2000, (ii) its quarterly reports on Form 10-Q which have been filed for each of the three-month periods ended after December 31, 2000, (iii) its proxy statements relating to meetings of the shareholders of the Company held since December 31, 2000, and (iv) all of its other forms, reports, statements, schedules and other documents filed by the Company with the SEC under the Exchange Act since December 31, 1997, (the items described in clauses (i), (ii), (iii) and (iv) are collectively referred to as the "Company Filings"). None of the Company Filings, including without limitation, any financial statements or schedules included therein, at the time filed, contained any untrue statement of a material fact or omitted to state a 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. (c) The Company has previously delivered to Parent, EGS and Merger Subsidiary all of its registration statements filed with the SEC under the Securities Act since December 31, 1997. Each such registration statement, as amended or supplemented, if applicable, including, without limitation, any financial statements or schedules included therein, when such statement or amendment became effective, did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Section 4.7 Financial Statements. (a) The audited consolidated financial statements and unaudited consolidated interim financial statements of the Company included in the Company Filings, fairly present, in conformity with United States generally accepted accounting principles applied on a consistent basis ("GAAP") (except as may be indicated in the notes thereto) the consolidated financial position of the Company and its Subsidiaries as of the dates thereof and their consolidated results of operations and statements of cash flows for the periods then ended (subject to normal year-end audit adjustments and as permitted for presentation in Quarterly Reports on Form 10-Q in the case of unaudited interim financial statements). (b) Except as set forth in the Company Filings (including any related notes and schedules thereto), neither the Company nor any of its Subsidiaries had at December 31, 2000, or has incurred since that date through the date hereof, any liabilities or obligations (whether absolute, accrued, contingent or otherwise) of any nature, except (i) liabilities, obligations or contingencies which (A) are accrued or reserved against in the financial statements in the Company Filings or reflected in the notes thereto, (B) were incurred in the ordinary course of business and consistent with past practices since the date of the Company's most recent Form 10-Q included in the Company Filings or (C) were incurred in connection with the transactions contemplated by this Agreement, (ii) liabilities, obligations or contingencies which have been discharged or paid in full prior to the date hereof, and (iii) liabilities, obligations and contingencies which are of a nature not required to be reflected in the consolidated financial 13 statements of the Company and its Subsidiaries prepared in accordance with GAAP consistently applied. Section 4.8 Disclosure Documents. (a) Each document required to be filed by the Company with the SEC in connection with the transactions contemplated by this Agreement (the "Company Disclosure Documents"), including, without limitation, the Schedule 14D-9, the proxy or information statement of the Company (the "Company Proxy Statement"), if any, to be filed with the SEC in connection with the Merger, and any amendments or supplements thereto, will, when filed, comply as to form in all material respects with the applicable requirements of the Exchange Act and the rules and regulations thereunder. (b) At the time the Company Proxy Statement or any amendment or supplement thereto is first mailed to shareholders of the Company, at the time such shareholders vote on adoption of this Agreement and at the Effective Time, the Company Proxy Statement, as supplemented or amended, if applicable, will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. At the time of the filing of any Company Disclosure Document other than the Company Proxy Statement, at the time of any distribution thereof and throughout the remaining pendency of the Offer, each such Company Disclosure Document will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties contained in paragraphs (a) and (b) of this Section 4.8 will not apply to statements included in, or omissions from, the Company Disclosure Documents or the Company Proxy Statement, if any, based upon information furnished to the Company in writing by Parent, EGS or Merger Subsidiary specifically for use therein. (c) The information with respect to the Company or any of its Subsidiaries that the Company furnishes to Parent, EGS or Merger Subsidiary in writing specifically for use in the Offer Documents will not, at the time of the filing thereof, at the time of any distribution thereof and throughout the remaining pendency of the Offer, 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 made therein, in the light of the circumstances under which they were made, not misleading. (d) Except as set forth in the Company Filings (including, without limitation, the exhibits thereto) and the Schedule 14D-9 (including, without limitation, the exhibits thereto), there are no material employment, consulting, benefit, severance or indemnification arrangements, agreements or understandings between the Company or any of its Subsidiaries, on the one hand, and any directors or executive officers of the Company or of any of its Subsidiaries, on the other hand. Section 4.9 Absence of Certain Changes. Except as disclosed in the Company Filings and except for the transactions contemplated by this Agreement, since December 31, 14 2000, the Company and its Subsidiaries have conducted their business in the ordinary course in accordance with their customary practices, and there has not been: (a) any event or occurrence which has had, individually or in the aggregate, a Material Adverse Effect on the Company; (b) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of the Company, or any repurchase, redemption or other acquisition by the Company or any of its Subsidiaries of any outstanding shares of capital stock or other securities of, or other ownership interests in, the Company other than the Company's regular quarterly dividends; (c) any revaluation by the Company or any of its Subsidiaries of any of their respective assets, including, without limitation, write-downs of inventory or write-offs of accounts receivable other than in the ordinary course of business in accordance with their customary practices; (d) any incurrence, assumption or guarantee by the Company or any of its Subsidiaries of any outstanding amount of indebtedness for borrowed money, or any creation or assumption by the Company or any of its Subsidiaries of any Lien on any material asset, in each case other than in the ordinary course of business in accordance with their customary practices; (e) any material transaction or commitment made, or any material contract or agreement entered into, by the Company or any of its Subsidiaries relating to their respective assets or businesses (including the acquisition or disposition of any assets) or any relinquishment by the Company or any of its Subsidiaries of any material contract or other right, other than transactions and commitments in the ordinary course of business in accordance with their customary practices; (f) any damage, destruction or other casualty loss (whether or not covered by insurance) having a Material Adverse Effect on the Company or any of its Subsidiaries; (g) any change in any method of accounting or accounting practice or policy or application thereof by the Company or any of its Subsidiaries except for any such change required by reason of a change in GAAP; (h) any increase in (or commitment, oral or written, to increase) the rate or terms (including, without limitation, any acceleration of the right to receive payment) of compensation payable or to become payable by the Company or any of its Subsidiaries to their directors, officers, employees or consultants, except increases occurring in the ordinary course of business in accordance with their customary practices or as required by applicable law; (i) any increase in (or commitment, oral or written, to increase) the rate or terms (including, without limitation, any acceleration of the right to receive payment) of any bonus, insurance, pension or other employee benefit plan, payment or arrangement made to, for or with any director, officer, employee or consultant of the Company or any of its Subsidiaries, except increases occurring in the ordinary course; 15 (j) any labor dispute, other than routine individual grievances, or any activity or proceeding by a labor union or representative thereof to organize any employees of the Company or any of its Subsidiaries, or any lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to such employees; (k) any amendment of any material term of any outstanding security of the Company or any of its Subsidiaries; (l) any tax election, other than those consistent with past practice, not required by law or any settlement or compromise of any tax liability in either case that is material to the Company or any of its Subsidiaries; or (m) any cancellation of any licenses, sublicenses, franchises, permits or agreements to which the Company or any of its Subsidiaries is a party, or any notification to the Company or any such Subsidiary that any party to any such arrangements intends to cancel or not renew such arrangements beyond their expiration date as in effect on the date hereof, which cancellation or notification, individually or in aggregate, has had or would have a Material Adverse Effect. Section 4.10 Litigation. Except as disclosed in the Company Filings, there is no claim, action, suit, investigation or proceeding pending or, to the Company's best knowledge, threatened against or relating to, the Company or any of its Subsidiaries or any of their respective properties or assets or any of their respective officers or directors in their capacity as officers or directors of the Company before (or which would properly be brought before) any court or arbitrator or any Governmental Entity or governmental official which (i) would reasonably be expected to have a Material Adverse Effect on the Company or (ii) in any manner challenges or seeks to prevent, enjoin, alter or delay the Offer or the Merger or any of the other transactions contemplated hereby. Neither the Company nor any of its Subsidiaries is subject to any outstanding order, writ, injunction, settlement agreement or decree which would (i) reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect on the Company or (ii) prevent or delay the Offer or the Merger or any of the other transactions contemplated hereby. Section 4.11 Taxes. (a) (i) All Tax returns, reports and similar statements, including information returns and reports, claims for refund and declarations of estimated Tax (including any schedules attached thereto), and amended or substituted returns and reports required to be filed with any Taxing Authority on or before the Effective Time by or on behalf of the Company or any Company Subsidiary (collectively, the "Returns"), have been or will be filed when due in accordance with all applicable laws (including any extensions of such due date); (ii) as of the time of filing, the Returns correctly reflected (and, as to any Returns not filed as of the date hereof, will correctly reflect) the income (or other measure of Tax) and any other information required to be shown therein in all material respects; (iii) the Company and its Subsidiaries have timely paid, withheld or made provision for all Taxes shown as due and payable on the Returns that have been filed; (iv) the Company and its Subsidiaries have made or will have made all required estimated Tax payments due on or before the Effective Time; (v) the charges, accruals 16 and reserves for deferred and contingent Taxes reflected on the books of the Company and its Subsidiaries are adequate to cover such Taxes; (vi) the Company Disclosure Schedule contains a list of the taxable years through which the Returns of the Company and its Subsidiaries have been examined and closed or with respect to which the applicable period for assessment under applicable law, after giving effect to extensions or waivers, remains open; (vii) neither the Company nor any of its Subsidiaries is delinquent in the payment of any Tax or has requested any extension of time within which to file or send any Return, which Return has not since been filed or sent; (viii) neither the Company nor any of its Subsidiaries has granted any extension or waiver of the limitation period applicable to any Returns; (ix) to the Company's best knowledge, there are no pending or threatened claims against or with respect to the Company or any of its Subsidiaries in respect of any Tax or assessment; and (x) there are no Liens for Taxes upon the assets of the Company or any of its Subsidiaries except Liens for current Taxes not yet due. (b) The Company Disclosure Schedule contains a list of states, territories and jurisdictions (whether foreign or domestic) to which any Tax is properly payable by the Company or any of its Subsidiaries. (c) For the purposes of this Agreement, "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means (i) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding on amounts paid to or by the Company or any of its Subsidiaries, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by any governmental authority (a "Taxing Authority") responsible for the imposition of any such tax (domestic or foreign), (ii) liability of the Company or any of its Subsidiaries for the payment of any amounts of the type described in clause (i) of this paragraph (c) as a result of being a member of an affiliated, consolidated, combined or unitary group for any Taxable period and (iii) liability of the Company or any of its Subsidiaries for the payment of any amounts of the type described in clause (i) or (ii) of this paragraph (c) as a result of any express or implied obligation to indemnify any other Person. Section 4.12 ERISA. (a) The Company Disclosure Schedule sets forth a list of all "employee benefit plans" (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), all bonus, deferred compensation, incentive compensation, excess benefit, stock, stock option, severance, termination pay, change in control compensation and death benefit plans, contracts, programs, agreements or arrangements of any kind and all fringe benefit plans (including but not limited to those providing medical, dental, vision, disability, life insurance and vacation benefits) maintained, sponsored, administered or contributed to by the Company or any of its Subsidiaries or with respect to which the Company or any of its Subsidiaries has any liability or obligation for the benefit of any current or former employee, director, consultant or other beneficiary (collectively, the "Plans"). No Plan is or at any time within the six calendar years preceding the date of this Agreement has been a "multiemployer plan" within the meaning of Section 3(37) of ERISA. 17 (b) With respect to each Plan (to the extent applicable), the Company has provided to Parent and Merger Subsidiary prior to the execution of this Agreement, true and complete copies of (i) the current Plan documents, including all amendments, (ii) each trust agreement relating to such Plan, (iii) the two most recent annual reports (Form 5500 Series) required to be filed with the IRS (including all schedules and accountants' reports), (iv) the most recent summary plan description, (v) the most recent actuarial report or valuation and (vi) the most recent determination letter issued by the IRS and any pending application with the IRS for a determination letter. (c) All Plans, in all material respects, have been administered in compliance with their terms and with the requirements of any applicable law, including, but not limited to ERISA and the Code. (d) Each Plan subject to Title IV of ERISA had sufficient assets on January 1, 2001, to make lump sum distributions on that date in an amount equal to the value of all accrued benefits, with such value determined on a basis that would satisfy the requirements for a standard termination pursuant to Section 4041 of ERISA. No employee pension benefit plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA for which the Company or a Subsidiary was the contributing sponsor was terminated prior to the date hereof (other than in a standard termination pursuant to Section 4041 of ERISA). (e) Neither the Company nor any of its Subsidiaries has engaged in a transaction that may give rise to liability under Sections 4064 or 4069 of ERISA. (f) Neither the Company, nor any of its Subsidiaries, nor any trustee or administrator of any Plan, is engaged in a "prohibited transaction," as defined in Section 4975 of the Code, or a transaction prohibited by Section 406 of ERISA that would give rise to any tax or penalty under Section 4975. (g) At the end of its most recent plan year, each Plan to which Section 412 of the Code is applicable satisfied the minimum funding standards provided for in such Section and all required installments (within the meaning of Section 412(m) of the Code), the due date for which is after the end of the most recent plan year but prior to the date hereof, have been made. (h) No Plan has incurred a reportable event within the meaning of Section 4044 of ERISA for which the 30-day notice requirement has not been waived by the Pension Benefit Guaranty Corporation. (i) Neither the Company nor any of its Subsidiaries has had a complete or partial withdrawal from a multiemployer plan (as defined in Section 4.12(a) of this Agreement) which is subject to Section 4201 of ERISA. (j) No Plan provides for (and no authorized officer of either the Company or any of its Subsidiaries has made a written or oral representation to any current or former employee promising or guaranteeing any employer payment or funding for) the continuation of medical, dental, life or disability coverage of any period of time beyond retirement or termination of employment, except to the extent of coverage required under Section 4980B of the Code. 18 (k) Neither the Company nor any of its Subsidiaries has taken any action with respect to any Plan that will increase the expense of maintaining such Plan above the level of expense reflected in the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2000. (l) There is no contract, agreement, plan or arrangement covering any employee or former employee of the Company or any of its Subsidiaries that, individually or in the aggregate, may give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G of the Code, or which increases, creates or accrues benefits or payments by virtue of a change of control of the Company or any of its Subsidiaries, including, without limitation, as a result of the transactions contemplated by this Agreement. (m) There are no actions, suits or claims pending, threatened or anticipated (other than routine claims for benefits) with respect to any Plan. (n) Except as otherwise provided under applicable law, there are no restrictions or other limitations on the Company's (or, after the Effective Time, the Surviving Corporation's) authority to amend or terminate any Plan. (o) As of December 31, 2000, the present value of the Company's accrued post retirement health and life insurance benefits does not exceed $1,483,000, determined in accordance with GAAP consistently applied. (p) Each Plan which is a "group health plan" within the meaning of Section 4980B of the Code) has been administered in compliance with the coverage continuation requirements contained in the Consolidated Omnibus Budget Reconciliation Act of 1985 and as provided in Section 4980B of the Code. (q) The representations and warranties set forth in Sections 4.12(d), (f), (g) and (h) are also true with respect to any employee pension benefit plan (as defined in Section 3(2) of ERISA) maintained, sponsored, administered or contributed to by any entity which is the same "controlled group" (as defined in Section 4001(a) (14) of ERISA or Section 412(l) (8) (c) of the Code) as the Company or any of its Subsidiaries. Section 4.13 Financial Advisors' Fees. Except for the Financial Advisor, whose fees will be paid by the Company in accordance with the provisions of the engagement letter previously provided to Parent, there is no investment banker, broker, finder or other financial intermediary which has been retained by or is authorized to act on behalf of the Company or any of its Subsidiaries who might be entitled to any fee or commission upon consummation of the transactions contemplated by this Agreement. Section 4.14 Environmental Compliance. Except as disclosed in the Company Filings or as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company: (a) No governmental agency has made, issued, filed in any court, or threatened to make, issue or file any written notice of noncompliance, notice of violation, demand, claim, request for information, citation, summons, complaint, order or consent or 19 settlement agreement which remains outstanding or in effect, nor has any penalty been assessed by any governmental agency which remains unsatisfied, with respect to (i) any violation of any environmental statute, ordinance, rule, regulation or order (collectively, "Environmental Laws") of any governmental agency with jurisdiction in connection with the operations of the Company or any of its Subsidiaries or any real property now or formerly owned, leased or operated by the Company or any of its Subsidiaries, (ii) any alleged failure to have or comply with any permit, certificate, license, registration or other authorization under any Environmental Laws ("Permit") legally required for the operation of the business of the Company or any of its Subsidiaries or for the Handling of Hazardous Substances (each, as defined below), or (iii) the use, storage, generation, emission, discharge, transportation, treatment, recycling or disposal (hereinafter "Handling") or release or threat of release (as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA")) (hereinafter "Release") of any hazardous, toxic or polluting substance or waste including, without limitation, polychlorinated biphenyls ("PCBs"), asbestos, petroleum, petroleum containing products or radioactive materials ("Hazardous Substances") in connection with the operations of the Company or any of its Subsidiaries or any real property now or formerly owned, leased or operated by the Company or any of its Subsidiaries. (b) Neither the Company nor any of its Subsidiaries has received written notice of, or is the subject of, any action, cause of action, claim, investigation, demand or notice by any Person alleging liability under or non-compliance with any Environmental Law which in each case remains outstanding or unresolved; (c) No Hazardous Substance has been Released or is threatened to be Released at, on or from any real property now or formerly owned, leased or operated by the Company or any of its Subsidiaries which may lead to investigations, enforcement, claims, liabilities, costs or causes of action against the Company, any Company Subsidiary or Parent for investigation or clean-up costs, remedial work, damages to natural resources or for personal injury or property damage claims, including, without limitation, claims under CERCLA, RCRA (as defined below) and state law related to Hazardous Substances. No real property now or formerly owned or operated by the Company or any of its Subsidiaries has been or is operated as a treatment, storage or disposal facility for hazardous waste (as that term is defined in the Resource Conservation and Recovery Act, as amended ("RCRA"), or any similar state law) during the period of ownership by the Company or any of its Subsidiaries.. (d) No Hazardous Substance handled by or on behalf of the Company or any of its Subsidiaries have come to be located at any site which is listed, as of the date hereof, on the National Priority List ("NPL") of sites under CERCLA, listed on the Comprehensive Environmental Response Compensation and Liability Information System ("CERCLIS") or listed or to the Company's knowledge proposed for listing on any similar state lists; or at any location which may lead to investigation, enforcement, claims, liabilities, costs or causes of action against the Company, any of its Subsidiaries or Parent for investigation or clean-up costs, remedial work, damages to natural resources or for personal injury or property damage claims, including, without limitation, claims under CERCLA and RCRA and state laws related to Hazardous Substances, nor has the Company or any of its Subsidiaries owned or operated any facility which is listed or, to the Company's knowledge, proposed for listing, as of the date hereof, on the NPL, listed on CERCLIS or listed or proposed for listing on any similar state lists. 20 (e) There has been no environmental investigation, study, audit, test, review or other analysis conducted of which the Company has knowledge in relation to the current or prior business of the Company or any property or facility now or previously owned or leased by the Company or any Subsidiary which has not been delivered to the Parent or Merger Subsidiary prior to the date hereof. (f) No asbestos-containing materials, PCBs, or active or inactive underground or above-ground storage tanks are present at any real property now or formerly owned, leased or operated by the Company or any of its Subsidiaries which may result in claims, liabilities, costs or causes of action against the Company, any of its Subsidiaries, Parent or Merger Subsidiary for investigation or clean-up costs or remediation work, damages to natural resources, or claims for personal injury or property damage; and (g) The operations by the Company or any of its Subsidiaries on the real property now or formerly owned or operated by, the Company or any of its Subsidiaries have been and are in compliance with all applicable Environmental Laws and all Permits which have been or should have been issued pursuant thereto. Section 4.15 Intellectual Property. Except as disclosed in the Company Filings: (a) The Company and its Subsidiaries own or have valid, binding and enforceable rights to use all Intellectual Property (as defined below) used or held for use in connection with the businesses of the Company and its Subsidiaries as presently conducted, subject to no Liens other than the rights of the grantors or licensors under their respective agreements. Neither the Company nor any of its Subsidiaries has received any written communications challenging the right of the Company or any of its Subsidiaries to use any Intellectual Property or has any knowledge that it has violated, or by conducting its business as currently conducted would violate, any of the trademarks, service marks, patents, trade names, copyrights, proprietary rights, know-how or processes of any other Person, other than such challenges or violations, if any, which would not, either individually or in the aggregate, have a Material Adverse Effect on the Company. For purposes of this Agreement, "Intellectual Property" means any trademark, service mark, registration thereof or application for registration therefor, trade name, invention, patent, patent application, trade secret, proprietary information, inventions, know-how, copyright, copyright registration, application for copyright registration, or any other similar type of intellectual property right related to the products or processes or business of the Company or any of its Subsidiaries, in each case which is owned or licensed and used or held for use by the Company or any of its Subsidiaries, including, without limitation, all license and other agreements ("Licenses") from or with third parties under or pursuant to which the Company or any of its Subsidiaries uses or exercises any rights with respect to any Intellectual Property other than as the sole and exclusive owner thereof. (b) No License is in default and there exists no condition with respect to any License which constitutes or which, with the passage of time or the giving of notice or both, would constitute an event of default thereunder, and no License will be invalidated, breached, limited or rendered terminable by the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, except in each case where there would be no Material Adverse Effect on the Company. 21 (c) No Intellectual Property is subject to any outstanding order, judgment, decree, stipulation or agreement restricting the use thereof by the Company or any of its Subsidiaries or restricting the licensing thereof by the Company or any of its Subsidiaries to any Person. (d) The Company and its Subsidiaries have not granted or promised to grant any exclusive licenses or any material non-exclusive licenses or covenants not to sue thereunder to any third party in respect of any Intellectual Property used in or necessary for the conduct of its business as currently conducted (other than (A) to Parent or Parent's Subsidiaries, (B) trademark or service mark Licenses entered into in the ordinary course of business, consistent with past practice, under distribution and supply agreements and (C) technology transfer and technology access agreements substantially on the terms of the Company's standard form agreements). The Company and its Subsidiaries neither own any patents nor have any patent applications pending. (e) None of the processes, techniques and formulae, research and development results and other know-how relating to the business of the Company and its Subsidiaries, the value of which to the Company is contingent upon maintenance of the confidentiality thereof, has been disclosed by the Company or any affiliate thereof to any Person other than those Persons who are bound to hold such information in confidence pursuant to confidentiality agreements or by operation of law, and other than any such disclosure which, individually or in the aggregate, would not have a Material Adverse Effect on the Company. Section 4.16 Insurance. All material fire and casualty, general liability, business interruption, product liability, and sprinkler and water damage insurance policies maintained by the Company or any of its Subsidiaries are with reputable insurance carriers, provide adequate coverage for risks incident to the business of the Company and its Subsidiaries and their respective properties and assets in character and amount generally comparable with those carried by Persons engaged in similar businesses and subject to generally comparable perils or hazards. All such policies are in full force and effect and no notice of cancellation, termination or default has been received with respect to any such policy. All premiums due and payable on such policies covering all periods up to and including the Effective Time have been or will be paid in full or accrued. Section 4.17 Compliance with Instruments and Laws. Neither the Company nor any of its Subsidiaries (or the manner in which any of them conducts its business) is in breach or violation of, or in default under, any term or provision of (i) its charter and by-laws, (ii) any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which it is a party or by which it is or may be bound or to which any of its properties or assets is or may be subject, the effect of which breach or default, in the aggregate, would have a Material Adverse Effect on the Company, or (iii) any law, statute, rule, regulation, judgment, injunction, order or decree binding upon or applicable to the Company or any of its Subsidiaries or of any arbitrator, court, regulatory body, administrative agency or any other governmental agency or body, domestic or foreign, having jurisdiction over the Company or any of its Subsidiaries or any of their respective properties or assets and the effect of which breach or default, either individually or in the aggregate, would have a Material Adverse Effect on the Company. The Company and each of its Subsidiaries hold all licenses, franchises, permits and 22 authorizations necessary for the lawful conduct of their respective business under and pursuant to each, except where the failure to hold such license, franchise, permit or authorization would not, either individually or in the aggregate, have a Material Adverse Effect on the Company. Section 4.18 Contracts. (a) Neither the Company nor any of its Subsidiaries is a party to or bound by any contract, arrangement, commitment or understanding (whether written or oral) (i) with respect to the employment of any directors, officers or employees other than in the ordinary course of business consistent with past practice, (ii) which, upon the consummation or shareholder approval of the transactions contemplated by this Agreement, will (either alone or upon the occurrence of any additional acts or events) result in any payment (whether of severance pay or otherwise) becoming due from Parent, the Company, Merger Subsidiary, the Surviving Corporation or any of their respective Subsidiaries to any officer or employee thereof, (iii) which is a "material contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the date of this Agreement that has not been filed or incorporated by reference in the Company Filings, or (iv) which materially restricts the conduct of any line of business by the Company or upon consummation of the Merger, the Offer and the transactions contemplated hereby will materially restrict the ability of the Parent or the Surviving Corporation to engage in any line of business. The Company has entered into termination agreements described in Item 1 of Section 4.18 of the Company Disclosure Schedule (copies of which have been furnished to Parent) with each of the officers of the Company who are parties to the employment agreements described in Item 1 of Section 4.18 of the Company Disclosure Schedule pursuant to which such employment agreements will be terminated and become null and void effective upon and contemporaneously with the purchase and payment for Shares by Merger Subsidiary pursuant to the Offer and payment by the Company of the termination fees provided for in such termination agreements. Each contract, arrangement, commitment or understanding of the type described in this Section 4.18, whether or not set forth in the Company Disclosure Schedule or in the Company Filings, is referred to herein as a "Company Contract" (for purposes of clarification, each "material contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the date of this Agreement, whether or not filed with the SEC, is a Company Contract). (b) (i) Each Company Contract is valid and binding on the Company and any of its Subsidiaries that is a party thereto, as applicable, and in full force and effect, (ii) the Company and each of its Subsidiaries has performed all obligations required to be performed by it to date under each Company Contract, except where such noncompliance, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company, and (iii) neither the Company nor any of its Subsidiaries knows of, or has received notice of, the existence of any event or condition which constitutes, or, after notice or lapse of time or both, will constitute, a material default on the part of the Company or any of its Subsidiaries under any such Company Contract, except where such default, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company. Section 4.19 Transactions with Affiliates. Since the date of the Company's last proxy statement prior to the date of this Agreement, there have been no transactions, agreements, arrangements or understandings between the Company or any of its Subsidiaries, on the one hand, and affiliates of the Company (other than wholly-owned Subsidiaries of the Company) or 23 other persons, on the other hand, that would be required to be disclosed under Item 404 of Regulation S-K under the Exchange Act. Section 4.20 State Takeover Laws; Rights Plan. (a) The Board of Directors of the Company has approved this Agreement and the transactions contemplated by this Agreement as required under any state takeover laws so that any such state takeover laws and restrictions will not apply to this Agreement, the Offer, the Merger or any of the transactions contemplated hereby. The provisions of Section 2538(a) and of Subchapters E, F, G, H, I and J of Chapter 25 of the PBCL do not apply to the acquisition of Shares pursuant to the Offer, the consummation of the Merger or the other transactions contemplated hereby. This Agreement shall not require the approval of the shareholders of the Company if immediately prior to the approval and adoption of a plan of merger meeting the requirements of the PBCL and at all times thereafter prior to the Effective Time, Merger Subsidiary owns, directly or indirectly, 80% or more of the Shares. Otherwise the adoption of this Agreement requires the affirmative vote of a majority of the votes cast by all holders of Shares entitled to vote thereon and no higher or additional vote is required pursuant to the Company's Articles of Incorporation or otherwise to adopt this Agreement, or to approve the Merger or any of the other transactions contemplated hereby. (b) The Rights Agreement has been amended to render the Rights Agreement inapplicable to the Offer, the Merger, this Agreement or any transaction contemplated hereby between the Company, Parent, EGS or Merger Subsidiary. Section 4.21 No Omissions. The Company does not know of any facts or circumstances not disclosed to Parent which indicate that the future operations, profits or business of the Company may be adversely affected or which otherwise should be disclosed to Parent in order to make any of the representations or warranties made herein on the part of the Company not misleading. No representation or warranty by the Company contained in this Agreement, and no statement contained in any Schedule, Exhibit, certificate or other instrument furnished to Parent, EGS or Merger Subsidiary under or in connection with this Agreement, contains any untrue statement of any material fact, or omits to state any material fact necessary in order to make the statements contained herein or therein not misleading. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT, EGS AND MERGER SUBSIDIARY Parent, EGS and Merger Subsidiary represent and warrant to the Company that, except as set forth in the disclosure schedule delivered to the Company concurrently with this Agreement (the "Parent Disclosure Schedule") (all disclosure in such Parent Disclosure Schedule shall state with particularity the representation and warranty herein, including section reference, to which such disclosure relates): Section 5.1 Corporate Existence and Power. Each of Parent, EGS and Merger Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of the respective states of their incorporation and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where its ownership or leasing of property or the conduct of its business requires it to be so qualified, except for those jurisdictions 24 where the failure to be so qualified would not, either individually or in the aggregate, have a Material Adverse Effect on Parent. Parent has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. EGS was recently formed to serve as a holding company for Merger Subsidiary which was recently formed solely for purposes of the Merger. Since the date of their incorporation, EGS and Merger Subsidiary have not engaged in any activities other than in connection with or as contemplated by this Agreement or in connection with arranging any financing required to consummate the transactions contemplated hereby. Section 5.2 Corporate Authorization. The execution, delivery and performance by Parent, EGS and Merger Subsidiary of this Agreement and the consummation by Parent, EGS and Merger Subsidiary of the transactions contemplated hereby are within the corporate powers of Parent, EGS and Merger Subsidiary and have been duly authorized by all necessary corporate action on the part of Parent, EGS and Merger Subsidiary. This Agreement has been duly and validly executed and delivered by each of Parent, EGS and Merger Subsidiary and assuming the due and valid authorization, execution and delivery hereof by the Company, constitutes a valid and binding agreement of each of Parent, EGS and Merger Subsidiary, enforceable against each of Parent, EGS and Merger Subsidiary in accordance with its terms, except to the extent such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting generally the enforcement of creditors' rights and by the availability of equitable remedies. Section 5.3 Governmental Authorization; Consents. The execution, delivery and performance by Parent, EGS and Merger Subsidiary of this Agreement and the consummation by Parent, EGS and Merger Subsidiary of the transactions contemplated hereby require no action by or in respect of, or filing with, any Governmental Entity other than (a) the filing of the Articles of Merger in accordance with the PBCL and appropriate documents reflecting the occurrence of the Merger with the relevant authorities of other states in which the Company is qualified to do business, (b) compliance with any applicable requirements of the HSR Act, (c) compliance with any applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder, (d) state securities or "blue sky" laws and state takeover, antitrust and competition law filings and approvals, (e) the filing of an informational notice by Merger Subsidiary with the Pennsylvania Securities Commission in order to perfect an exemption from the registration requirements of the Pennsylvania Takeover Disclosure Law, 70 P.S. ss.71, et seq., pursuant to 70 P.S. ss.78(a), (f) such filings, consents, approvals, orders, registrations and declarations as may be required under the laws of any foreign country in which Parent or any of its Subsidiaries conducts any business or owns any assets, and (g) such other actions, filings, approvals and consents, the failure to make or obtain which would not reasonably be expected to prevent the consummation of the transactions contemplated hereby, including the Offer and the Merger, and (h) any filings with the U.S. Department of Treasury under its regulations pertaining to mergers, acquisitions and takeovers by foreign Persons. Section 5.4 Non-Contravention. The execution, delivery and performance by Parent, EGS and Merger Subsidiary of this Agreement and the consummation by Parent, EGS and Merger Subsidiary of the transactions contemplated hereby do not and will not (a) conflict with or violate any provision of the charter or bylaws of Parent, EGS or Merger Subsidiary, (b) assuming compliance with the matters referred to in Section 5.3 hereof, and subject to 25 Section 8.2 hereof, contravene or conflict with any provision of law, statute, code, ordinance, rule, regulation, judgment, injunction, order, writ or decree binding upon or applicable to Parent, EGS or Merger Subsidiary, or (c) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration or any loss of material benefits to the Parent, EGS or Merger Subsidiary) under any of the terms, conditions or provisions of any contract, agreement, note, bond, mortgage, indenture, lease, license, instrument or other document to which Parent, EGS or Merger Subsidiary is a party or any of their respective properties or assets may be bound, with such exceptions with respect to the matters referred to in clauses (b) and (c) as would not reasonably be expected to prevent the consummation of the transactions contemplated hereby, including the Offer and the Merger. Section 5.5 Disclosure Documents. (a) The information with respect to Parent, EGS and its Subsidiaries that Parent furnishes to the Company in writing specifically for use in any Company Disclosure Document will not 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 made therein, in the light of the circumstances under which they were made, not misleading (i) in the case of the Company Proxy Statement, if any, at the time the Company Proxy Statement or any amendment or supplement thereto is first mailed to shareholders of the Company, at the time the shareholders vote on adoption of this Agreement and at the Effective Time, and (ii) in the case of any Company Disclosure Document other than the Company Proxy Statement, at the time of the filing thereof, at the time of any distribution thereof and throughout the remaining pendency of the Offer. (b) The Offer Documents will comply in all material respects with the applicable requirements of the Exchange Act and will not, at the time of the filing thereof, at the time of any distribution thereof and throughout the remaining pendency of the Offer contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading; provided, that no representation is made by Parent, EGS or Merger Subsidiary with respect to statements or omissions in the Offer Documents based upon information furnished to Parent, EGS or Merger Subsidiary in writing by the Company specifically for use therein. (c) Each document required to be filed by Parent, EGS or Merger Subsidiary with the SEC in connection with the transactions contemplated by this Agreement including, without limitation, the Schedule TO and the Offer Documents and any amendments or supplements thereto, will, when filed, comply as to form in all material respects with the applicable requirements of the Exchange Act and the rules and regulations thereunder. Section 5.6 Financial Advisors' Fees. Except for Bear, Stearns & Co., Inc., whose fees will be paid by Parent, there is no investment banker, broker, finder or other financial intermediary which has been retained by or is authorized to act on behalf of Parent or any of its Subsidiaries who might be entitled to any fee or commission upon consummation of the transactions contemplated by this Agreement. 26 Section 5.7 Financing. Parent, EGS and/or Merger Subsidiary has or will have sufficient funds available to make timely payment for all of the Shares pursuant to the Offer and to make timely payment of the Merger Consideration in the Merger. Section 5.8 Share Ownership. None of Parent, EGS or Merger Subsidiary, nor any of their respective corporate affiliates, nor, to their knowledge, any of their non-corporate affiliates, beneficially owns any Shares, and none has beneficially owned any Shares since January 1, 2001. Section 5.9 Litigation. There is no claim, action, suit, proceeding or investigation pending or, to the Parent's knowledge, threatened against either Parent, EGS or Merger Subsidiary or any of their Subsidiaries before any court or arbitrator or any Governmental Entity or governmental official that seeks to or would reasonably be expected to have a material adverse effect on the ability of the Parent, EGS or Merger Subsidiary to consummate the transactions contemplated hereby, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against Parent, EGS or Merger Subsidiary or any of their Subsidiaries having any such effect (it being understood that this representation shall not include any litigation which might result in an order, injunction or decree of the nature described in paragraph (c)(i) of Annex 1). ARTICLE VI COVENANTS OF THE COMPANY Section 6.1 Conduct of the Company. From the date hereof until the Effective Time, except as consented to in writing by Parent, as expressly provided in this Agreement or as disclosed in Company Disclosure Schedule 6.1 hereto, the Company and its Subsidiaries shall conduct their business in the ordinary course consistent with past practice and shall use their best efforts to preserve intact their business organizations, present lines of business and relationships with customers, suppliers and others having business dealings with them to the end that their ongoing businesses shall not be impaired in any material respect at the Effective Time and to keep available the services of their present officers and employees. Without limiting the generality of the foregoing, from the date hereof until the Effective Time: (a) the Company will not declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) with respect to any shares of capital stock of the Company or redeem, purchase or otherwise acquire any shares of capital stock of the Company or any Company Subsidiary other than the Company's regular quarterly dividends not in excess of $.0475 per share with usual record and payment dates for such dividends in accordance with past dividend practice; (b) except for Shares to be issued pursuant to Stock Options outstanding on the date hereof, the Company will not, and will not permit any Subsidiary to, issue any shares of capital stock or Voting Debt, any security convertible into or exchangeable for capital stock or Voting Debt or any option, warrant or other right to acquire capital stock or Voting Debt; 27 (c) neither the Company nor any of its Subsidiaries will adopt or propose any change in their respective charters or bylaws, except to the extent necessary to comply with Section 1.3 of this Agreement; (d) the Company will not, and will not permit any of its Subsidiaries to, (i) merge or consolidate with any other corporation or other entity or acquire a material amount of assets constituting all or substantially all of the assets of another Person or (ii) enter into any new material line of business; (e) the Company will not, and will not permit any of its Subsidiaries to, split, combine, subdivide or reclassify any shares of its capital stock; (f) the Company will not, and will not permit any of its Subsidiaries to, sell, lease, license or otherwise dispose of, or agree to sell, lease or otherwise dispose of, any assets (including capital stock of Subsidiaries of the Company) or property except pursuant to existing contracts or commitments or in the ordinary course of business on terms consistent with past practice; (g) the Company will not, and will not permit any of its Subsidiaries to, (i) incur, assume or guarantee any debt for borrowed money other than in the ordinary course of business consistent with past practice or (ii) incur or commit to any capital expenditures or any obligations or liabilities in connection therewith other than capital expenditures and obligations or liabilities in connection therewith incurred or committed to in the ordinary course of business consistent with past practice or contemplated by the 2001 capital budget approved by the Company's Board of Directors and previously disclosed to Parent; (h) the Company will not, and will not permit any of its Subsidiaries to, create, assume or incur any Lien on any material asset of the Company or any of its Subsidiaries other than in the ordinary course of business consistent with past practice; (i) except as required by law, the Company will not, and will not permit any of its Subsidiaries to, (i) grant or make any change in control, severance or termination payments to any officer or employee of the Company or any such Subsidiary, except pursuant to plans or agreements in existence on the date hereof, as identified on Schedule 6.1 hereto, (ii) enter into any option, employment, deferred compensation or other similar agreement (or enter into any amendment to any such existing agreement) with any officer, director or employee of the Company or any such Subsidiary, (iii) increase benefits payable under any existing severance or termination pay policies or agreements, or (iv) pay, or provide for, any increase in compensation, bonus, or other benefits payable to directors or employees of the Company or any such Subsidiary except for (A) normal merit and cost of living increases, (B) awards made consistent with past practice pursuant to any existing compensation plan or arrangement other than any stock option plan and (C) except as required by the terms of contracts or agreements in effect on the date hereof; (j) the Company will not, and will not permit any of its Subsidiaries to, modify or change in any material respect any existing material license, lease, contract, agreement or other document; 28 (k) the Company will not, and will not permit any of its Subsidiaries to, revalue in any material respect any of its assets, including, without limitation, writing down the value of inventory in any material manner or write-off of notes or accounts receivable in any material manner; (l) the Company will not, and will not permit any of its Subsidiaries to, pay, discharge or satisfy any material claims, liabilities or obligations (whether absolute, accrued, asserted or unasserted, contingent or otherwise) other than the payment, discharge or satisfaction in the ordinary course of business, consistent with past practice, of liabilities reflected or reserved against the consolidated financial statements of the Company or incurred in the ordinary course of business, consistent with past practices; (m) the Company will not, and will not permit any of its Subsidiaries to, take any action other than in the ordinary course of business and consistent with past practice with respect to accounting policies or practices except as may be required as a result of a change in GAAP; (n) the Company will not, and will not permit any of its Subsidiaries to, take or agree or commit to take any action that would make any representation and warranty of the Company contained herein inaccurate in any material respect at, or as of any time prior to, the Effective Time; and (o) the Company will not, and will not permit any of its Subsidiaries to, authorize, recommend, propose or announce an intention to do any of the foregoing actions proscribed by this Section 6.1, or enter into any contract, agreement, commitment or arrangement to do any of the foregoing actions. Section 6.2 Shareholder Meeting; Proxy Material. (a) Unless this Agreement is to be adopted pursuant to Section 1924(b)(1)(ii) of the PBCL in accordance with subparagraph (b) of this Section 6.2, the Company shall cause a special meeting of its shareholders (the "Company Shareholder Meeting") to be duly called and held as soon as reasonably practicable following the acceptance for payment and purchase of Shares by Merger Subsidiary pursuant to the Offer, for the purpose of voting on the approval and adoption of this Agreement and the Merger. The Directors of the Company shall recommend approval and adoption of this Agreement and the Merger by the Company's shareholders; provided, however, that the Company's Board of Directors may withdraw, adversely modify or take a public position materially inconsistent with such recommendation if permissible under Section 6.4(a)(ii) hereof. In connection with any Company Shareholder Meeting, the Company will (i) promptly prepare and file with the SEC, use its best efforts to have cleared by the SEC and thereafter mail to its shareholders as promptly as practicable, the Company Proxy Statement and all other proxy materials for such special meeting, (ii) use its best efforts to obtain the necessary approvals by its shareholders of this Agreement and the transactions contemplated hereby, (iii) include in such Company Proxy Statement a copy of this Agreement or a summary thereof and a copy of Subchapter 15D of the PBCL (relating to dissenters rights), and (iv) otherwise comply with all legal requirements applicable to such special meeting. The Company Proxy Statement shall not be filed and no amendment or supplement to the Company Proxy 29 Statement shall be made by the Company without reasonable advance consultation with Parent, EGS, Merger Subsidiary and their counsel. (b) In the event that Merger Subsidiary has purchased at least 80% of the Shares pursuant to the Offer, at the request of Parent or Merger Subsidiary, the Company shall take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after such purchase without approval of the Company's shareholders in accordance with Section 1924(b)(1)(ii) of the PBCL. In connection therewith, the Merger Subsidiary and its Board of Directors shall take all action necessary to approve a plan of merger under Section 1924(b)(3) of the PBCL, which plan of merger shall supercede the plan of merger adopted by the Board of Directors of the Company as contemplated by Section 1.2(a) hereof, solely to cause the Merger to become effective without approval of the Company's shareholders. Section 6.3 Access to Information. (a) From the date hereof until the Effective Time, the Company will (and will cause each of its Subsidiaries to) give Parent, its counsel, financial advisors, auditors and other authorized representatives full access during normal business hours to its offices, properties, books and records and will (and will cause each of its Subsidiaries to) furnish to Parent, its counsel, financial advisors, auditors and other authorized representatives such financial and operating data and other information as such persons may reasonably request and will instruct its employees, counsel and financial advisors to cooperate with Parent in its investigation of the business of the Company and its Subsidiaries. Notwithstanding the foregoing, the Company shall not be required to provide any information which it reasonably believes after consultation with legal counsel it may not provide to Parent by reason of applicable law, rules or regulations, which constitutes information protected by attorney/client privilege, or which the Company or any of its Subsidiaries is required to keep confidential by reason of any contract, agreement or understanding with third parties entered into prior to the date hereof; provided, however, the Company gives Parent written notice of the fact that it is withholding information pursuant to this Section 6.3. The parties will hold any information obtained pursuant to this Section 6.3 in confidence in accordance with, and shall otherwise be subject to, the provisions of the confidentiality agreement dated December 11, 2000, between Parent and the Company, inter alia, (the "Confidentiality Agreement"), which Confidentiality Agreement shall continue in full force and effect. Parent, EGS and Merger Subsidiary each acknowledges that all information regarding the Company and its Subsidiaries heretofore provided by the Company has been or will be protected pursuant to the Confidentiality Agreement to the extent provided for therein. (b) Subject to compliance with applicable law, from the date hereof until the Effective Time, the Company shall confer on a regular and frequent basis with one or more representatives of Parent to report operational matters of materiality and the general status of ongoing operations. (c) No information or knowledge obtained in any investigation pursuant to this Section 6.3 shall affect or be deemed to modify any representation or warranty given by the Company to Parent, EGS or Merger Subsidiary hereunder or the conditions to the obligations of Parent, EGS or Merger Subsidiary herein. 30 Section 6.4 No Solicitation. (a) The Company will not directly or indirectly (i) initiate, solicit or encourage (including by way of furnishing information or assistance), or take any other action to facilitate, any inquiries or the making of any proposal or offer that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal (as defined below), or (ii) have any discussions with or provide any confidential information or data to any Person relating to an Acquisition Proposal, or engage in any negotiations concerning an Acquisition Proposal, or knowingly facilitate any effort or attempt to make or implement an Acquisition Proposal, and the Company will not permit any of its Subsidiaries to take, and will prohibit the officers, directors, employees, advisors, representatives, agents and affiliates of the Company or any of its Subsidiaries (including any investment bankers, attorney or accountant retained by the Company or any of its Subsidiaries) (such officers, directors, employees, representatives, advisors, agents, affiliates, investment bankers, attorneys and accountants being referred to herein, collectively, as "Representatives") from taking, any such action; provided, however, that nothing contained in this Section 6.4 will prohibit the Board of Directors of the Company from: (i) furnishing information to, or entering into discussions or negotiations with, any person or entity that makes a written, bona fide Acquisition Proposal that was not solicited after the date of this Agreement if, and only to the extent that, (x) the Board of Directors of the Company, after consultation with independent legal counsel and after consultation with the Financial Advisor or other nationally recognized investment banking firm, determines in good faith by majority vote that (A) such Acquisition Proposal would, if consummated, constitute a Superior Proposal (as defined in Section 6.4(b) hereof), and (B) there is a reasonable probability that the failure to take such action would be inconsistent with the Board of Directors' fiduciary duties under applicable law and (y) prior to taking such action, the Company (A) provides prior notice to Parent to the effect that it is taking such action and complies with the succeeding sentence and (B) receives from such person or entity an executed confidentiality agreement in reasonably customary form. The Company shall promptly (and in any event within one business day, and prior to taking any of the foregoing actions) advise Parent following the receipt by it of any Acquisition Proposal or any inquiry or request relating thereto and the substance thereof (including the identity of the person making such Acquisition Proposal, a description of all material terms thereof and a copy of any written proposal), and advise Parent of any developments with respect to such Acquisition Proposal, inquiry or request promptly upon the occurrence thereof, including the Company's entering into discussions or negotiations with respect thereto. The Board of Directors of the Company shall not, in connection with any of the actions described in this Section 6.4, take any action to cause any state takeover statute or other similar state law to become applicable to the Offer or the Merger or inapplicable to any Acquisition Proposal (until such time as this Agreement has been terminated in accordance with the requirements of Section 10.1). The Company agrees immediately to cease and cause to be terminated any activities, discussions or negotiations conducted prior to the date of this Agreement with any parties other than Parent and its affiliates with respect to any of the foregoing; (ii) failing to make or reaffirm, withdrawing, adversely modifying or taking a public position materially inconsistent with its recommendation referred to in Article I hereof (which may include making any statement required by Rule 14e-2 under the Exchange Act) if 31 there exists an Acquisition Proposal and the Board of Directors of the Company, after consultation with independent legal counsel and after consultation with the Financial Advisor or other nationally recognized investment banking firm, determines in good faith by majority vote that (A) such Acquisition Proposal would, if consummated, constitute a Superior Proposal, and (B) there is a reasonable probability that the failure to take such action would be inconsistent with the Board of Directors' fiduciary duties under applicable law; or (iii) making a "stop-look-and-listen" communication with respect to an Acquisition Proposal, of the nature contemplated in, and otherwise in compliance with, Rule 14d-9 under the Exchange Act as a result of receiving an Acquisition Proposal. For purposes of this Agreement, "Acquisition Proposal" means any of the following (other than the transaction among the Company, Parent, EGS and Merger Subsidiary contemplated hereunder) involving the Company or any of its Subsidiaries: (i) any proposed merger, consolidation, share exchange, division, recapitalization, business combination or other similar transaction; (ii) any proposed sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets that comprise more than 15% (computed based on the fair market value of such assets as determined by the Board of Directors of the Company in good faith) of the assets of the Company and its Subsidiaries, on a consolidated basis, in a single transaction or series of transactions, other than a disposition by the Company of its equity ownership interest in Canopy, LLC; (iii) any proposed tender offer, exchange offer or other equity investment for more than 15% of the outstanding shares of any class of capital stock of the Company or the filing of a registration statement under the Securities Act in connection therewith; or (iv) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing. (b) Except as set forth in this Section 6.4(b), the Board of Directors of the Company will not (i) approve or recommend, or propose publicly to approve or recommend, any Acquisition Proposal or (ii) approve or recommend, or propose to approve or recommend, or execute or enter into, any letter of intent, agreement in principle, merger agreement, acquisition agreement, option agreement or other similar agreement or propose publicly or agree to do any of the foregoing related to any Acquisition Proposal. Notwithstanding the foregoing, if the Board of Directors of the Company, after consultation with independent legal counsel, determines in good faith that there is a reasonable probability that the failure to take such action would be inconsistent with its fiduciary duties under applicable law, the Board of Directors of the Company may approve or recommend a Superior Proposal (as defined below) or cause the Company to enter into an agreement with respect to a Superior Proposal, but in each case only if (i) the Company provides written notice to Parent (a "Notice of Superior Proposal") three business days prior to the time it intends to cause the Company to enter into such an agreement advising Parent that the Board of Directors of the Company has received a Superior Proposal, specifying the material terms and conditions of such Superior Proposal and identifying the Person making such Superior Proposal, (ii) at the end of such three business day period, the Company's Board of Directors continues to believe that such Acquisition Proposal constitutes a Superior Proposal, including taking into account any adjustment to the terms and conditions of the transaction contemplated hereby proposed by Parent in response to such Acquisition Proposal and (iii) the Company terminates this Agreement in accordance with the requirements of Section 10.1(g) prior to taking any of the foregoing actions. For purposes of this Agreement, a "Superior 32 Proposal" means any bona fide Acquisition Proposal not directly or indirectly initiated, solicited, encouraged or knowingly facilitated by the Company after the date of the Agreement which the Board of Directors of the Company determines in good faith judgment (based on the advice of the Financial Advisor or other investment banker of nationally recognized reputation), taking into account all legal, financial, regulatory and other aspects of the proposal and the Person making the proposal, (i) would, if consummated, result in a transaction that is more favorable to the Company's shareholders (in their capacity as shareholders), from a financial point of view, than the transaction contemplated by this Agreement and (ii) is reasonably capable of being completed; provided, however, that for purposes of this definition, the term "Acquisition Proposal" shall have the meaning assigned to such term in Section 6.4(a) except that each reference to 15% in the definition of "Acquisition Proposal" shall be deemed to be a reference to 80% and "Acquisition Proposal" shall only be deemed to refer to a transaction involving the Company or, with respect to assets (including the shares of any Subsidiary of the Company), the assets of the Company and its Subsidiaries taken as a whole (and not any of its Subsidiaries alone). Section 6.5 Notices of Certain Events. The Company shall promptly notify Parent of any: (a) notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; (b) notice or other communication from any Governmental Entity in connection with the transactions contemplated by this Agreement; (c) action, suit, claim, investigation or proceeding commenced or, to the Company's knowledge threatened against, relating to or involving or otherwise affecting the Company or any of its Subsidiaries which, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Article IV or which relate to the consummation of the transactions contemplated by this Agreement; and (d) change or event of which the Company becomes aware (i) having or which would have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole, or (ii) impairing the ability of the Company to consummate the transactions contemplated hereby. Section 6.6 Tax Elections. With respect to Taxes, without the prior consent of Parent (which consent shall not be unreasonably withheld), neither the Company nor any of its Subsidiaries shall make or change any election, change an annual accounting period, adopt or change any accounting method, file any amended Return, enter into any closing agreement, settle any Tax claim or assessment relating to the Company or its Subsidiaries, surrender any right to claim a refund of Taxes, consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to the Company or its Subsidiaries, take any other action or omit to take any action, if any such election, adoption, change, amendment, agreement, settlement, surrender, consent or other action or omission could have the effect of materially 33 increasing the Tax liability of the Company, any of its Subsidiaries, Parent or any affiliate of Parent. Section 6.7 Benefit Plans. During the period from the date of this Agreement and continuing until the Effective Time, the Company agrees as to itself and its Subsidiaries that it will not, without the prior written consent of Parent, (i) enter into, adopt, amend (except as may be required by law or as disclosed in Company Disclosure Schedule 6.7 hereto) or terminate any of the Plans or any other employee benefit plan or any agreement, arrangement, plan or policy between the Company or any Company Subsidiary and one or more of their respective current or former employees, directors or officers, (ii) except for normal increases in the ordinary course of business consistent with past practice, increase in any manner the compensation or fringe benefits of any current or former employee, director or officer or pay any benefit not required by any Plan as in effect as of the date of this Agreement or (iii) enter into any contract, agreement, commitment or arrangement to do any of the foregoing. Section 6.8 Rights Agreement. The Board of Directors of the Company shall take all action to the extent necessary (including amending the Rights Agreement) in order to render the Rights inapplicable to the Merger, the Offer and the other transactions contemplated by this Agreement. Except in connection with the foregoing sentence, the Board of Directors of the Company shall not, without the prior written consent of Parent, except in connection with a Superior Proposal which the Board of Directors of the Company approves and recommends as provided in Section 6.4(b) above, (i) amend the Rights Agreement or (ii) take any action with respect to, or make any determination under, the Rights Agreement, including a redemption of the Rights, in each case in order to facilitate any Acquisition Proposal with respect to the Company. Section 6.9 Takeover Statutes. If any "fair price," "moratorium," "control share acquisition" or other form of anti-takeover statute or regulation shall become applicable to the transactions contemplated hereby, including any such provision of the PBCL, the Company and the members of its Board of Directors shall grant such approvals and take such actions as are reasonably necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise to act to eliminate or minimize the effects of such statute or regulation on the transactions contemplated hereby. ARTICLE VII COVENANTS OF MERGER SUBSIDIARY, EGS AND PARENT Section 7.1 Obligations of Merger Subsidiary, EGS and Parent. Parent will take all action necessary to cause EGS, Merger Subsidiary and/or the Surviving Corporation (or any successor thereto) to perform their obligations under this Agreement, fully, faithfully and in a timely fashion, on the terms and conditions set forth in this Agreement. Section 7.2 Voting of Shares. Parent, EGS and Merger Subsidiary will vote all outstanding Shares beneficially owned by them in favor of adoption of this Agreement and the Merger at the Company Shareholder Meeting. 34 Section 7.3 Indemnification; Directors and Officers Insurance. (a) All rights to indemnification and permitted limitations of liability for monetary damages existing in favor of the present or former directors officers and employees of the Company or any of its Subsidiaries as provided in the Company's articles of incorporation or bylaws as in effect on the date hereof or pursuant to any agreements previously disclosed by the Company to Parent in writing with specific reference to this Section, or the articles of incorporation, bylaws or similar constitutive documents of any of the Company's Subsidiaries as in effect as of the date hereof with respect to matters occurring prior to the Effective Time (including without limitation the transactions contemplated by this Agreement) shall survive the Merger and shall continue in full force and effect (to the extent consistent with applicable law) after the Effective Time, without alteration or amendment. After the Effective Time, Parent shall, and shall cause the Surviving Corporation to, indemnify, defend and hold harmless the present and former directors and officers of the Company and its Subsidiaries against all losses, claims, damages or liabilities arising out of actions or omissions occurring at or prior to the Effective Time (including without limitation the transactions contemplated by this Agreement) to the full extent then permitted under the PBCL and by the Company's articles of incorporation or bylaws as in effect on the date hereof; provided that such indemnification shall be subject to any limitation imposed from time to time under applicable law. Without limiting the foregoing, the Surviving Corporation, to the extent permitted by applicable law, will periodically advance expenses as incurred with respect to the foregoing and in accordance with any applicable indemnification agreement disclosed on the Company Disclosure Schedules or otherwise to the fullest extent permitted under applicable law; provided that the person to whom the expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification. (b) Parent shall cause to be maintained in effect for not less than six years from the Effective Time the current policies of the directors' and officers' liability insurance maintained by the Company, or to the extent such coverage is not obtainable at the per annum cost presently in effect, Parent shall purchase such coverage (on terms with respect to coverage and amount no less favorable to such officers and directors than those of such policies in effect on the date hereof) as may be obtained having a cost per annum not to exceed 150% of the current annual premium paid by the Company with respect to such current policies (provided, however, that Parent may substitute therefor policies of at least the same coverage containing terms and conditions which are no less advantageous to such officers and directors so long as no lapse in coverage occurs as a result of such substitution) with respect to all matters, including the transactions contemplated hereby, occurring prior to, and including, the Effective Time; provided that, if any claim or claims are asserted or made within such six-year period, such insurance shall be continued in respect of such claim or claims until final disposition of such claim or claims. (c) In the event that any of the Surviving Corporation or Parent or their respective successors or assigns (i) consolidates with or merges into another Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties or assets to any Person, then in each such case, proper provisions shall be made so that the successors and assigns of the Surviving Corporation or Parent, an the case may be, shall assume the obligations set forth in this Section 7.3. 35 (d) Parent shall cause the Surviving Corporation to reimburse all expenses, including reasonable attorney's fees, incurred by any Person in successfully enforcing the obligations of Parent and Surviving Corporation under this Section 7.3. (e) This Section 7.3 shall be construed as an agreement as to which the directors and officers of the Company and its Subsidiaries are intended to be third party beneficiaries hereof, and shall be enforceable by each such person and his or her heirs and representatives. The obligations of the Surviving Corporation under this Section 7.3 shall survive the Effective Time. Section 7.4 Employee Benefits. (a) Except as specifically provided herein, Parent will, and will cause the Surviving Corporation to, cause service rendered by employees of the Company and its Subsidiaries prior to the Effective Time to be taken into account for vesting and eligibility purposes under all employee benefit plans, programs, policies and arrangements of Parent, the Surviving Corporation and its Subsidiaries, to the same extent as such service was taken into account under the corresponding plans of the Company and its Subsidiaries for those purposes, provided that nothing herein shall result in the duplication of any benefits. Employees of the Company and its Subsidiaries will not be subject to any pre-existing condition limitation, exclusions or waiting periods under any health plan of Parent, the Surviving Corporation or its Subsidiaries for any condition for which they would have been entitled to coverage under the corresponding plan of the Company or its Subsidiaries in which they participated prior to the Effective Time. Parent will and will cause the Surviving Corporation and its Subsidiaries to give such employees credit under such plans for co-payments made and deductibles satisfied prior to the Effective Time. (b) Parent will also review the existing employee benefit plans of the Company and, in deciding whether to amend or terminate any plans, will consider the general welfare of the Company's employees; provided, however, Parent and the Surviving Corporation shall each have the right, in its sole discretion, to amend or terminate any plan in accordance with law. The Surviving Corporation expressly agrees, however, to apply the lesser of (i) any and all reserves and accruals for post-retirement medical benefits established by the Company on its books in the normal course as of the consummation of the Offer or (ii) the FASB liability for such benefits to provide post retirement medical benefits to current retirees (and their eligible beneficiaries) receiving benefits (approximately 154 in number) and to current employees (and their eligible beneficiaries) eligible for future benefits (approximately 180 in number) upon such terms as the Surviving Corporation may determine. No employees of the Company hired after September 2, 1994 are eligible for these benefits. The names of the current employees who are eligible for future benefits are set forth on Company Disclosure Schedule 7.4. (c) From the date hereof until the Effective Time, Parent shall furnish to the Company, its counsel, financial advisors, auditors and other authorized representatives such information relating to Parent Benefit Plans as such persons may reasonably request. Section 7.5 Takeover Statutes. If any "fair price," "moratorium," "control share acquisition" or other form of anti-takeover statute or regulation shall become applicable to 36 the transactions contemplated hereby, including any such provision of the PBCL, Parent, EGS and Merger Subsidiary and the members of their respective Boards of Directors shall grant such approvals and take such actions as are reasonably necessary to be taken by them so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise to act to eliminate or minimize the effects of such statute or regulation on the transactions contemplated hereby. ARTICLE VIII COVENANTS OF PARENT, EGS, MERGER SUBSIDIARY AND THE COMPANY Section 8.1 Reasonable Best Efforts. Subject to the terms and conditions of this Agreement, each party will use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate the transactions contemplated by this Agreement, including using reasonable efforts, including pursuit of legal appeals with respect to any temporary restraining order, preliminary injunction or other similar judicial order, to have any judgment, decree, injunction or order lifted, released or reversed which is in effect and prohibits or makes illegal consummation of the transactions contemplated by this Agreement. Section 8.2 Certain Filings. (a) Subject to the terms and conditions of this Agreement (including but not limited to Section 8.2(b) below), the Company and Parent, EGS and Merger Subsidiary shall consult and cooperate with one another (i) in connection with the preparation of the Company Disclosure Documents and the Offer Documents, (ii) in determining whether any action by or in respect of, or filing with, any Governmental Entity is required or any actions, consents, approvals or waivers are required to be obtained from parties to any material contracts, in connection with the consummation of the transactions contemplated by this Agreement and (iii) in seeking any such actions, consents, approvals or waivers or making any such filings, furnishing information required in connection therewith or with the Company Disclosure Documents or the Offer Documents and seeking timely to obtain any such actions, consents, approvals or waivers. (b) Each of the Company, Parent, EGS and Merger Subsidiary will make as promptly as practicable all filings necessary under the HSR Act and other applicable federal, state, local and foreign antitrust, competition and other similar laws (collectively, the "Antitrust Laws") in order to obtain any required regulatory approvals, clearance or expirations of waiting periods in connection with the transactions contemplated by this Agreement. Subject to the limitations contained in the last sentence of this Section 8.2(b), each of the Company, Parent, EGS and Merger Subsidiary shall use its reasonable best efforts to resolve such objections, if any, as any Governmental Entity with jurisdiction over the enforcement of any Antitrust Laws may assert with respect to the Offer or the Merger under any such Antitrust Laws. The parties shall consult with each other when dealing with any such Governmental Entity and before submitting any application or other written communication to any such Governmental Entity. Notwithstanding the foregoing or any other provisions contained in this Agreement to the contrary, neither Parent nor any of its affiliates shall be under any obligation of any kind to enter into any negotiations or to otherwise agree with any Governmental Entity, including but limited 37 to any Governmental Entity with jurisdiction over the enforcement of any applicable Antitrust Laws, or any other party to sell or otherwise dispose of, or hold separate (through the establishment of a trust or otherwise) particular assets or categories of assets or businesses of any of the Company, Parent or any of Parent's affiliates. Section 8.3 Public Announcements. Parent, EGS, Merger Subsidiary and the Company will consult with each other before issuing any press release or making any public statement with respect to this Agreement and the transactions contemplated hereby and, except as may be required by applicable law or any listing agreement with any national securities exchange or the NASDAQ Stock Market, will not issue any such press release or make any such public statement prior to such consultation. The initial press release announcing the execution of this Agreement shall be made by Parent and the Company as promptly as practicable after the execution hereof. Section 8.4 Further Assurances. At and after the Effective Time, the officers and directors of the Surviving Corporation will be authorized to execute and deliver, in the name and on behalf of the Company or Merger Subsidiary, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of the Company or Merger Subsidiary, any other actions and things to vest, perfect or confirm of record or otherwise in the Surviving Corporation any and all right, title and interest in, to and under any of the rights, properties or assets of the Company and Merger Subsidiary acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger. ARTICLE IX CONDITIONS TO THE MERGER Section 9.1 Conditions to the Obligations of Each Party. The obligations of the Company, Parent, EGS and Merger Subsidiary to consummate the Merger are subject to the satisfaction of the following conditions: (a) Unless this Agreement is adopted in accordance with Section 1924(b)(1)(ii) of the PBCL, this Agreement shall have been approved and adopted by the requisite affirmative vote of the shareholders of the Company in accordance with applicable law; (b) No court or Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and prohibits or makes illegal consummation of the transactions contemplated by this Agreement; (c) (i) Any applicable waiting period under the HSR Act relating to the Merger shall have expired or been terminated and (ii) the Company, Parent, EGS and Merger Subsidiary shall have timely filed with and obtained from each Governmental Entity any other filings, notices, approvals, waivers and consents necessary for the consummation of the Merger, the Offer and the transactions contemplated by this Agreement, except for those the failure of which to make or obtain would not have a Material Adverse Effect on the Company or Parent; and 38 (d) Merger Subsidiary shall have purchased Shares pursuant to the Offer sufficient to satisfy the Minimum Condition. ARTICLE X TERMINATION Section 10.1 Termination. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time (notwithstanding any approval of this Agreement by the shareholders of the Company): (a) by mutual written consent duly authorized by the Board of Directors of the Company and Parent; (b) by Parent or the Company, if, without any material breach by such terminating party of its obligations under this Agreement causing or resulting in such delay, the purchase of Shares pursuant to the Offer will not have occurred on or before the Termination Date; provided, however, that Parent may extend such date for 45 calendar days if Parent is then actively negotiating with the Department of Justice or the Federal Trade Commission regarding satisfaction of any of the conditions set forth in paragraph(s) (b) and/or (c)(i) of Annex I and certifies to the Company that, to its knowledge, all other conditions to the Offer are satisfied or capable of prompt satisfaction as of the date of such verification; but, provided, further, such certification shall be without prejudice to the requirement that such conditions remain satisfied; (c) by Parent or the Company, if the Offer expires or is terminated or withdrawn pursuant to its terms without any Shares being purchased in accordance with Section 1.1(a); provided, however, that Parent may not terminate this Agreement pursuant to this Section 10.1(c), if Parent's termination of, or Merger Subsidiary's failure to accept for payment or pay for any Shares tendered pursuant to, the Offer is in violation of the terms of the Offer or this Agreement; (d) by Parent or the Company, if any Governmental Entity of competent jurisdiction shall have (i) issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the purchase of Shares pursuant to the Offer or the Merger and such order, decree, ruling or action shall have become final and nonappealable or (ii) failed to issue an order, decree or ruling or to take any other action which is necessary to fulfill the conditions set forth in Annex I and Section 9.1, as applicable, and such denial of a request to issue such order, decree or ruling or to take such other action shall have become final and nonappealable; provided, however, that the party seeking to terminate this Agreement will have complied with its obligations under this Agreement to use its reasonable best efforts to attempt to remove or lift, or to obtain, as applicable, such order, decree, ruling or other action; (e) by the Company, if the Offer has not been timely commenced in accordance with Section 1.1, unless the failure to commence the Offer shall be due to the failure of the Company to perform in any material respect any of its obligations under this Agreement then required to be performed; (f) by Parent prior to consummation of the Offer, if the Board of Directors of the Company shall have (i) withdrawn, modified or changed its recommendation or approval in 39 respect of this Agreement or the Offer in a manner adverse to Parent, (ii) approved or recommended any proposal other than by Parent, EGS or Merger Subsidiary in respect of an Acquisition Proposal, (iii) (A) failed to include in the Proxy Statement the recommendation referred to in clause (i) or (B) materially breached its obligations under this Agreement by reason of a failure to call the Company Shareholder Meeting in accordance with Section 6.2, or (iv) resolved to do any of the foregoing; (g) by the Company prior to consummation of the Offer, if (i) the Board of Directors of the Company shall have determined that an Acquisition Proposal constitutes a Superior Proposal and the Company shall have delivered to Parent a Notice of Superior Proposal in accordance with the requirements of Section 6.4(b) and otherwise complied with Section 6.4(b), (ii) Parent does not make, within three business days after receipt of the Company's written notice pursuant to clause (i) above, an offer that the Board of Directors of the Company shall have reasonably concluded in good faith (following consultation with its financial advisor and outside counsel) is as favorable to the shareholders of the Company as such Superior Proposal, (iii) the Company shall have delivered to Parent a written notice of the determination by the Company's Board of Directors to terminate this Agreement pursuant to this Section 10.1(g), and (iv) simultaneously with such termination, the Company shall enter into a definitive acquisition, merger or similar agreement to effect such Acquisition Proposal and shall make payment of the full amount of the Termination Fee required by Section 11.4(a) and confirm in writing its obligation to reimburse Parent for its Expenses in accordance with Section 11.4(b); or (h) prior to the consummation of the Offer, by the Company or Parent (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein), if there shall have been a material breach of any of the covenants or agreements or any of the representations or warranties set forth in this Agreement on the part of the other party, which breach is not cured within ten business days following written notice given by the terminating party to the party committing such breach, or which breach, by its nature, cannot be cured prior to the date on which the Offer expires. The party desiring to terminate this Agreement pursuant to clauses (b), (c), (d), (e), (f), (g) or (h) above shall give written notice of such termination to the other party in accordance with Section 11.1. Section 10.2 Effect of Termination. If this Agreement is terminated pursuant to Section 10.1, this Agreement shall become void and of no effect with no liability on the part of any party hereto to any other party hereto; provided, that (a) this Section 10.2, the second sentence of Section 6.3 and Article XI of this Agreement (including but not limited to the obligation to pay any Termination Fee and Expenses owed or to be owed pursuant to Section 11.4) shall survive the termination hereof and (b) no such termination will relieve any party from liability for willful breach of this Agreement. 40 ARTICLE XI MISCELLANEOUS Section 11.1 Notices. All notices, requests and other communications required or permitted to be given hereunder shall be in writing (including telecopy or similar writing) and shall be delivered by hand, facsimile, or sent, postage prepaid, by registered, certified or express mail or reputable overnight courier service, as follows: if to Parent, EGS or Merger Subsidiary, to: Fuji Photo Film U.S.A., Inc. 555 Taxter Road Elmsford, New York 10523 Attention: Jonathan E. File, Esq. Telecopy: (914) 789-8142 with a copy to: Stroock & Stroock & Lavan LLP 180 Maiden Lane New York, New York 10038-4982 Attention: David L. Finkelman, Esq. Telecopy: (212) 806-6006 If to the Company, to: PrimeSource Corporation Fairway Corporate Center, Suite 222 4350 Haddonfield Road Pennsauken, New Jersey 08109 Attention: President Telecopy: (856) 486-2993 with a copy to: PrimeSource Corporation 355 Treck Drive Seattle, Washington 98188-7603 Attention: Barry C. Maulding Telecopy: (206) 394-5579 Stradley, Ronon, Stevens & Young, LLP 2600 One Commerce Square Philadelphia, Pennsylvania 19103-7098 Attention: David E. Beavers, Esq. Telecopy: (215) 564-8120 41 or such other address or telecopy number as such party may hereafter specify for the purpose by notice to the other parties hereto. Each such notice, request or other communication shall be effective (i) if delivered by hand, when delivered at the address specified in this Section, (ii) if mailed, three days after mailing (one business day in the case of express mail or overnight service), or (iii) if given by facsimile, upon confirmation of receipt. Section 11.2 Non-Survival of Representations and Warranties. The representations and warranties contained herein and in any certificate or other writing delivered pursuant hereto shall expire at and not survive the Effective Time. This Section 11.2 shall not limit any covenant or agreement of the parties hereto which by its terms contemplates performance after the Effective Time. Section 11.3 Amendments; No Waivers. (a) At any time prior to the Effective Time, this Agreement may be amended or supplemented in writing by the Company, Parent, EGS and Merger Subsidiary if such amendment or supplement is approved by the respective boards of directors of the Company and Merger Subsidiary; provided, however, that following any approval by the shareholders of the Company, there shall be no amendment or change to the provisions hereof which (i) by law or in accordance with the rules of any relevant stock exchange or NASDAQ requires further approval by such shareholders without such further approval or (ii) is not permitted under applicable law. (b) Subject to applicable law, any provision of this Agreement may be waived prior to the Effective Time if, and only if, such waiver is in writing and signed by the party against whom the waiver is to be effective. (c) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Section 11.4 Fees and Expenses. (a) (i) If Parent terminates this Agreement pursuant to Section 10.1(f), (ii) if the Company terminates this Agreement pursuant to Section 10.1(g), or (iii) if (A) Parent or the Company terminates this Agreement pursuant to Section 10.1(b) or Section 10.1(c) as a result of failure to meet the Minimum Condition or Parent terminates this Agreement pursuant to Section 10.1(h), and (B) at any time prior to such termination an Acquisition Proposal shall have been publicly disclosed or publicly proposed, in the case of a termination pursuant to Section 10.1(c), or communicated to the Company, or its senior management, Board of Directors or shareholders in the case of a termination pursuant to Section 10.1(h), and (C) within 12 months after such termination the Company or any of its Subsidiaries enters into an agreement with respect to, or consummates, a transaction contemplated by such Acquisition Proposal or a Superior Proposal (whether or note such Superior Proposal was publicly disclosed, publicly proposed or otherwise communicated to the Company prior to such termination), then in each case the Company will pay to Parent, simultaneously with the earlier of entry into any agreement 42 for or the consummation of such transaction in the case of clause (iii) above, a fee, in cash of $3,000,000 (a "Termination Fee"); provided, however, that the Company in no event shall be obligated to pay more than one such fee with respect to all such terminations and transactions. For purposes of this Section 11.4(a) "Acquisition Proposal" shall have the meaning assigned to such term in Section 6.4(a) except that each reference to "15%" shall be deemed to be a reference to "80%" and the term shall be deemed to refer only to a transaction involving the Company or, with respect to assets (including shares of any Subsidiary of the Company), the assets of the Company and its Subsidiaries taken as a whole (and not any of its Subsidiaries alone). (b) Except as otherwise provided in this Section 11.4(b), all Expenses (as defined below) incurred in connection with the transactions contemplated by this Agreement shall be paid by the party incurring such expenses. If Parent shall become entitled to receive the Termination Fee provided for in Section 11.4(a) hereof by reason of the occurrence of any of the events described in clauses (i), (ii) or (iii) thereof, the Company shall, not later than two business days after submission of documentation therefor reimburse Parent for all documented Expenses, not to exceed $2,000,000, incurred by or on behalf of Parent. "Expenses", as used in this Section 11.4(b), shall include all out-of-pocket expenses (including, without limitation, all fees and expenses of counsel, accountants, investment bankers, experts and consultants, commitment fees and other financing fees and expenses, printing costs and expenses, publishing fees, filing fees and mailing costs) incurred by Parent, EGS, Merger Subsidiary or the Company or on behalf of any such party in connection with or related to, the authorization, preparation, negotiation, execution and performance of this Agreement, including the Offer, and all other matters related to the consummation of the transactions contemplated hereby. (c) The Company acknowledges that the agreements contained in this Section 11.4 are an integral part of the transactions contemplated by this Agreement and that, without these agreements, Parent would not enter into this Agreement. Accordingly, if the Company fails to pay any amount due to Parent, EGS or Merger Subsidiary pursuant to Section 11.4(a) or Section 11.4(b) when due, the Company shall reimburse Parent, EGS and Merger Subsidiary for all attorneys' fees and other costs and expenses incurred in collecting such amount from the Company. The Company, Parent, EGS and Merger Subsidiary hereto agree that any remedy or amount payable pursuant to this Section 11.4 shall not preclude any other remedy or amount payable hereunder, and shall not be an exclusive remedy, for any willful and material breach of any representation, warranty, covenant or agreement contained in this Agreement. Section 11.5 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other parties hereto except that Merger Subsidiary may transfer or assign, in whole or from time to time in part, to one or more of Parent's affiliates, its rights under this Agreement, but any such transfer or assignment will not relieve Parent, EGS and Merger Subsidiary of their obligations under the Offer or prejudice the rights of tendering shareholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. Section 11.6 Entire Agreement; Governing Law; No Third-Party Beneficiaries. This Agreement (including any exhibits, schedules and annexes hereto), the Confidentiality 43 Agreement and the other agreements contemplated hereunder (a) constitute the entire agreement with respect to the matters contemplated hereby and thereby and (b) supersede all other prior agreements, understandings, representations and warranties, both written and oral, among the parties with respect to the subject matter hereof and thereof. Except to the extent the laws of the Commonwealth of Pennsylvania expressly govern, this Agreement shall be construed in accordance with and governed by the laws of the State of New York regardless of the laws that might otherwise govern under principles of conflicts of laws applicable thereto. Except as provided in Section 7.3 hereof, this Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. Section 11.7 Counterparts; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. Section 11.8 Severability. If any term or provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by the applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. Section 11.9 Submission to Jurisdiction; Waivers. Each of Parent, EGS, Merger Subsidiary and the Company irrevocably agrees that any legal action or proceeding with respect to this Agreement or for recognition and enforcement of any judgment in respect hereof brought by the other party hereto or its successors or assigns may be brought and determined in the Courts of the State of New York, and each of Parent, EGS, Merger Subsidiary and the Company hereby irrevocably submits with regard to any such action or proceeding for itself and in respect to its property, generally and unconditionally, to the nonexclusive jurisdiction of the aforesaid courts. Each of Parent, EGS, Merger Subsidiary and the Company hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement, (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason other than the failure to lawfully serve process, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), (c) to the fullest extent permitted by applicable law, that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such law suit, action or proceeding is improper and (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts and (d) any right to a trial by jury. 44 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. FUJI PHOTO FILM U.S.A., INC. By: /s/ Yasuo Tanaka --------------------------------- Name: Yasuo Tanaka Title: President ENOVATION GRAPHIC SYSTEMS, INC. By: /s/ Yasuo Tanaka --------------------------------- Name: Yasuo Tanaka Title: President FPF ACQUISITION CORP. By: /s/ Yasuo Tanaka --------------------------------- Name: Yasuo Tanaka Title: President PRIMESOURCE CORPORATION By: /s/ James F. Mullan --------------------------------- Name: James F. Mullan Title: President ANNEX I The capitalized terms used in this Annex have the meanings set forth in the attached Agreement, except that the term "Merger Agreement" shall be deemed to refer to the attached Agreement. Notwithstanding any other provision of the Offer or the Merger Agreement, Merger Subsidiary shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to Merger Subsidiary's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer), to pay for any Shares tendered and may postpone the acceptance for payment or, subject to the restriction referred to above, payment for any Shares tendered, and subject to the provisions of the Merger Agreement, may amend or terminate the Offer, if: (a) the Minimum Condition has not been satisfied prior to the time the Offer will otherwise expire; (b) any waiting periods under the HSR Act applicable to the purchase of Shares in the Offer and the Merger shall not have expired or been terminated prior to the expiration of the Offer; or (c) at any time on or after the date of this Agreement and prior to the acceptance for payment of Shares pursuant to the Offer, any of the following conditions shall have occurred and be continuing: (i) there shall be threatened by any Governmental Agency, or instituted or pending any action or proceeding before any court or Governmental Entity, domestic or foreign, (A) challenging or seeking to make illegal, to delay materially or otherwise to restrain or prohibit the making of the Offer, the acceptance for payment of or payment for some of or all the Shares by Merger Subsidiary or the consummation by Merger Subsidiary of the Merger, (B) seeking to restrain or prohibit Parent's or the Company's ownership or operation (or that of their respective Subsidiaries, the Company's Subsidiaries or affiliates) of all or any material portion of the business or assets of the Company and its Subsidiaries, taken as a whole, or of Parent and its Subsidiaries, taken as a whole, (C) seeking to compel Parent or the Company to sell or otherwise dispose of, or hold separate (through the establishment of a trust or otherwise) particular assets or categories of assets or businesses of any of the Company, Parent or any of Parent's affiliates, (D) seeking to prohibit or to impose material limitations on the ability of Parent or any of its Subsidiaries or affiliates effectively to exercise full rights of ownership of the Shares (including, without limitation, the right to vote any Shares acquired or owned by Parent or any of its Subsidiaries or affiliates on all matters properly presented to the Company's shareholders), or seeking to prohibit Parent or any of its Subsidiaries from effectively controlling in any material respect the business and operations of the Company and the Company's Subsidiaries, taken as a whole, (E) seeking to require divestiture by Parent or any of its Subsidiaries or affiliates of any A-1 Shares or seeking to obtain from the Company, Parent, EGS or Merger Subsidiary by reason of any of the transactions contemplated by the Offer or the Merger Agreement any damages that are material to the Company and its Subsidiaries, taken as a whole, or the Parent and its Subsidiaries, taken as a whole, or (F) that otherwise, in the reasonable judgment of Parent, is likely to have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole, or Parent and its Subsidiaries, taken as a whole; or (ii) there shall be any action taken, or any statute, rule, regulation, injunction, interpretation, judgment, order or decree proposed, enacted, enforced, promulgated, issued or deemed applicable to Parent or any of its Subsidiaries or to the Company or any of its Subsidiaries or the Offer or the Merger, by any court, Governmental Entity, domestic or foreign, other than the application of the waiting period provision of the HSR Act to the Offer or the Merger, that, in the reasonable judgment of Parent, is likely, directly or indirectly, to result in any of the consequences referred to in paragraph (c)(i) above; or (iii) the Company shall have breached or failed to perform in any material respect any of its covenants or agreements under the Merger Agreement, or any of the representations and warranties of the Company set forth in the Merger Agreement (disregarding all qualifications as to materiality or Material Adverse Effect) shall not be true and correct when made or at any time prior to consummation of the Offer as if made at and as of such time (except for those representations and warranties that address matters only as of a particular date which need only be true and accurate as of such date) except where the failure of such representations and warranties to be true and correct would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company; (iv) The Rights shall have become exercisable; or (v) the Merger Agreement shall have been terminated in accordance with its terms or the Offer shall have been terminated with the consent of the Company; which, in the reasonable judgment of Parent in any such case, and regardless of the circumstances giving rise to any such condition, makes it inadvisable to proceed with such acceptance for payment or payment. The foregoing conditions are for the sole benefit of Parent, EGS and Merger Subsidiary and may be asserted by Merger Subsidiary regardless of the circumstances giving rise to such condition or may be waived by Merger Subsidiary in whole or in part at any time and from time to time in its sole discretion. The failure by Merger Subsidiary or any affiliate of Merger Subsidiary at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. A-2 EX-99.D2 11 b313552ex99-d2.txt EXHIBIT 99.(D)(2) CONFIDENTIALITY AGREEMENT To further the business relationship among Fuji Photo Film U.S.A., Inc. ("Fuji"), Heartland Imaging Companies, Inc. ("Heartland") and PrimeSource Corporation ("PrimeSource") the parties intend to evaluate and exchange certain information concerning their respective businesses and future business relationship (the "Project"). In consideration of the exchange of such information and to set forth a clear understanding of our mutual rights and obligations relating thereto, Fuji, Heartland and PrimeSource hereby agree as follows: 1. For purposes of this Agreement the term "Information" shall mean all information which the disclosing party deems to be confidential and proprietary to it (including, but not limited to, data, electronic information, know-how, technical and non-technical materials, and specifications) and which the disclosing party delivers to the receiving party pursuant to this Agreement. The parties agree that "Information" includes the fact that the Project itself is being conducted. 2. The receiving party, its subsidiaries and affiliates (collectively referred to as "Recipient") agree to maintain in confidence the Information with the same degree of care Recipient holds its own confidential and proprietary information. Recipient will not use the Information except for its evaluation of the Project pursuant to this Agreement. Recipient will disclose the Information only to its employees directly concerned with the evaluation of the Project, and Recipient will not disclose the Information to any third party nor will Recipient use the Information for any other purpose. For purposes of this paragraph "subsidiaries and affiliates" shall mean any corporation, firm, partnership, or other entity which directly or indirectly controls, is controlled by, or is under common control with, the Recipient's company. 3. The preceding obligations of Recipient of non-disclosure and the limitation upon the right to use the information shall not apply to the extent that Recipient can demonstrate that the Information is: (a) in the possession or control of Recipient prior to the time of disclosure hereunder, or (b) at the time of disclosure or thereafter becomes public knowledge through no fault or omission of the Recipient; or (c) lawfully obtained by Recipient from a third party under no obligation of confidentiality to the disclosing party. 4. Subject to the provisions of paragraph 3 hereof, all proprietary rights (including but not limited to patent rights and trade secrets) in and to the Information shall remain the disclosing party's property. 5. The Information being disclosed pursuant to this Agreement is disclosed with the express understanding that neither Fuji, Heartland, nor PrimeSource will be obligated to enter into any further agreement relating to the Project or the Information, and nothing in this Agreement shall be construed as granting any license relating thereto. 6. Upon the request of the disclosing party, Recipient will promptly return to the disclosing party all of the Information and use reasonable efforts to destroy all copies thereof. 7. All obligations of Recipient under this Agreement shall terminate five (5) years from the date of this Agreement. 8. Each of Fuji, Heartland and PrimeSource represent to the other parties that it has the full authority and right to enter into this Agreement and to disclose to the other parties the Information disclosed by it and that such disclosure will not violate the rights of any third party. 9. This Agreement sets forth the entire agreement and understanding among the parties as to the subject matter hereof, and none of the terms of this Agreement shall be amended or modified except in writing signed by the parties. IN WITNESS WHEREOF, the Parties have executed this Agreement this 11th December, 2000. FUJI PHOTO FILM U.S.A., INC. HEARTLAND IMAGING COMPANIES, INC. By: /s/ Stanley E. Freimuth By: /s/ Robert J. Gourley ------------------------------------ ----------------------------- Stanley E. Freimuth Robert J. Gourley Executive Vice President and Chief Chairman Operating Officer PRIMESOURCE CORPORATION By: /s/ Jim Mullan ------------------------------------------- Jim Mullan President and Chief Executive Officer EX-99.D3 12 b313552ex99_d3.txt EXHIBIT 99.(D)(3) EMPLOYMENT AND NONCOMPETITION AGREEMENT THIS AGREEMENT, dated as of September 4, 2001, between Enovation Graphic Systems, Inc., a Delaware corporation having a place of business at 555 Taxter Road, Elmsford, New York 10523, (the "Company"), and James F. Mullan, an individual residing at 11 South Hinchman Avenue, Haddonfield, New Jersey 08033 (the "Executive"). This Agreement is binding upon the parties hereto; provided, however, that the employment relationship hereinafter established shall become effective (the "Effective Date") only upon and contemporaneously with the consummation of the purchase of and payment for Shares (as defined in the Merger Agreement) by FPF Acquisition Corp. pursuant to the offer contemplated pursuant to the Agreement and Plan of Merger dated the date hereof (the "Merger Agreement") by and among Fuji Photo Film U.S.A., Inc., the Company, FPF Acquisition Corp. and PrimeSource Corporation. w i t n e s s e t h: WHEREAS, the Company and its subsidiaries are in the photographic and graphic arts businesses in the United States (the "Business"); and WHEREAS, the Company wishes to employ the Executive and the Executive wishes to be employed by the Company, subject to the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual benefits to be derived from this Agreement, the Company and the Executive hereby agree as follows: 1. Terms of Employment; Office and Duties. (a) During the Period of Employment (as hereinafter defined), the Company agrees to employ the Executive as President with general responsibility for the business, and the Executive shall perform such duties, services and responsibilities and have the authority commensurate to such position as determined from time to time by the Board of Directors. The Executive agrees to serve in such capacity, commensurate with the Executive's experience, knowledge and training, for the Company and for any subsidiary of the Company as shall be designated by the Chief Executive Officer or Board of Directors of the Company, all in accordance with the terms and conditions herein set forth. In performing his duties hereunder, the Executive shall report directly to the Chief Executive Officer or the delegate of the Board of Directors, and all functions of the Company's business, except financial and legal affairs, shall report to the Executive. (b) During the Period of Employment, the Executive shall devote all of his business time to the performance of his duties hereunder except for reasonable time for vacation, illness or incapacity. (c) During the Period of Employment, the Executive shall be entitled to take four (4) weeks paid vacation during each twelve-month period worked. (d) Until December 31, 2003, the location of the Executive's primary business office will be within thirty (30) miles of Pennsauken, New Jersey. 2. Period of Employment. The period of employment hereunder shall commence on the Effective Date and continue through March 31, 2004 (the "Period of Employment"). 3. Compensation. (a) During the portion of the Period of Employment ending on March 31, 2002, the Company shall pay the Executive for all services rendered hereunder by the Executive in any capacity a base salary at the rate of $275,000 per year. The Executive's salary shall be payable in accordance with the Company's customary payroll practices, but in no event less frequently than monthly. The base salary will be increased on April 1st of each year during the Period of Employment as follows: Year Amount ---- ------ April 1, 2002 $285,000 April 1, 2003 $295,000 (b) During the Period of Employment, commencing with the fiscal year ending March 31, 2002, the Company shall provide the Executive the opportunity to earn an annual incentive bonus (the "Bonus"). For the fiscal year ending March 31, 2002, such Bonus shall be equal to the pro-rated portion of $175,000 from the Effective Date through March 31, 2002, which pro-rated amount is guaranteed, and, thereafter, shall be variable based upon the attainment of performance criteria described below, and shall be payable in an amount not to exceed (i) $190,000 for the fiscal year ending March 31, 2003 and (ii) $205,000 for the fiscal year ending March 31, 2004; provided, however, that the Bonus payable in respect of the fiscal year ending March 31, 2003 shall be not less than $95,000, which is guaranteed. Each annual Bonus shall be payable promptly following a determination by the Board of Directors (or a designated committee thereof) that the applicable performance criteria have been satisfied, but in no event later than thirty (30) days after the Company's receipt of the report prepared by its regular independent certified public accountants with respect to the Company's financial statements for such fiscal year. For each of the fiscal years ending March 31, 2003 and March 31, 2004, appropriate performance criteria for each fiscal year shall be developed jointly and in good faith by the Executive and the Board (or a designated committee thereof) within the fourth quarter of the preceding fiscal year in connection with the development and approval of an annual strategic plan for the Company. (c) After the expiration of the Period of Employment, the Company shall provide the Executive the opportunity to earn a one-time special bonus (the "Special Bonus") based upon the attainment of performance criteria for the fiscal year ending March 31, 2004 to be developed jointly and in good faith by the Executive and the Board (or a designated committee thereof) before the end of the fiscal year ending March 31, 2002. 4. Expenses. The Company shall reimburse the Executive for reasonable travel and other expenses incurred by the Executive in connection with the performance of his duties under this Agreement in accordance with such procedures as the Company may from time to time establish. 2 5. Additional Benefits. (a) During the Period of Employment, the Executive shall have the option to (i) have full use and enjoyment of an automobile furnished by the Company, at the Company's expense, and under the terms and conditions of the standard auto allowance policy for executives of the Company's immediate parent, Fuji Photo Film U.S.A., Inc. or (ii) receive a car allowance. (b) During the Period of Employment, the Executive shall be entitled to participate in employee benefit programs that the Company makes available to its employees generally, which benefits will include a 401(k) Plan; provided, however, that until such time as PrimeSource Corporation's employee benefit programs are replaced by the Company's employee benefit programs, the Executive shall continue to participate in PrimeSource Corporation's employee benefit programs. The Executive, however, will not participate in the Fuji Photo Film U.S.A., Inc. Long Term Incentive Program or SERP. 6. Termination of Employment. (a) Notwithstanding any other provision of this Agreement, the Period of Employment may be terminated by the Company in accordance with the procedures specified in this Section 6(a), on account of any of the following reasons, each of which shall constitute "Cause" for purposes of this Agreement: (i) a material act of fraud or dishonesty on the part of the Executive which reflects adversely on the Company or directly affects the Company; (ii) a material failure by the Executive to comply with material applicable laws or regulations which reflect adversely on the Company or directly affects the Company; (iii) any violation of Section 9; or (iv) the Board of Directors of the Company determines that the Executive has materially failed to perform his duties hereunder or has committed any other material breach of any of the terms hereunder; provided, however, a failure to perform his duties shall not include either merely performing unsatisfactorily or actions taken in the Executive's reasonable business judgment. The Period of Employment shall terminate immediately upon the Company giving the Executive written notice that the Period of Employment is being terminated for a Cause specified in Sections 6(a)(i), (ii) or (iii). However, with respect to a termination for a Cause specified in Section 6(a)(iv), the Company shall give written notice to the Executive specifying the Cause relied upon for termination and if the Executive does not cease and correct such conduct, event, act or failure within thirty (30) days after the date of such notice, the Period of Employment shall then be terminated. (b) The Company may terminate the Period of Employment other than for Cause at any time by written notice to the Executive. In the event the Period of Employment is terminated by the Company without Cause, the Company shall, as liquidated damages or severance pay, or both, pay to the Executive and provide him an amount equal to the unearned remaining base salary provided in Section 3(a), payable at the times therein specified during the remainder of the Period of Employment, any guaranteed and earned bonus provided in Section 3(b) and benefits provided in Section 5(b). The Executive shall have no further right to receive any other compensation or benefits after such termination, except as otherwise determined in accordance with the terms of any Executive benefit plan in which Executive participates. The Executive is entitled to the payments described in this Section 6(b) upon the termination of his employment and is under no duty to mitigate any damages. 3 (c) If, during the Period of Employment, the Executive shall become incapable of fulfilling his obligations hereunder because of injury or physical or mental illness, and such incapacity shall exist for a period of six (6) consecutive months or such shorter periods aggregating more than six (6) months during any period of twelve (12) consecutive months, the Company may, upon at least fifteen (15) days' prior written notice to the Executive, terminate this Agreement. The disability of the Executive shall be determined by an independent physician acceptable to both the Company and the Executive or his representative. (d) If the Executive dies during the Period of Employment, this Agreement shall terminate immediately. (e) In the event that the Company terminates the Period of Employment for Cause, the Executive resigns or the Period of Employment terminates due to the disability or death of the Executive, then the Company's obligations to make payments to, and provide benefits for, the Executive under Sections 3, 4 and 5 shall immediately cease as of the date of such termination or resignation; provided, however, in the case of termination for disability, the Company shall continue providing the benefits set forth in Section 5(b) hereof. (f) The payments and benefits (if any) required to be provided to the Executive under this Section 6 shall be in complete satisfaction of any claims that the Executive may have as a result of termination of the Executive's employment. 7. Arbitration. Subject to Section 10 hereof, any controversy or claim arising out of or relating to this Agreement shall be settled by arbitration in Philadelphia, Pennsylvania in accordance with the National Rules for the Resolution of Employment Disputes set by the American Arbitration Association, and judgment upon the award rendered may be entered in any court having jurisdiction thereof; provided, however, that any such arbitration award shall be limited to monetary damages and shall not include any order for specific performance or other equitable relief. 8. Executive's Duty to Surrender Automobile and Materials. Upon the termination of the Period of Employment for any reason, the Executive or his estate shall surrender to the Company the automobile furnished under Section 5(a), all correspondence, letters, files, contracts, mailing lists, pricing lists and information, customer lists, advertising materials, ledgers, supplies, equipment, checks, and all other materials and records of any kind that are the property of the Company or any of its subsidiaries and affiliates, that are in the Executive's possession or under his control at such time, including all copies of any of the foregoing. 4 9. Other Duties of Executive During and After Period of Employment. (a) Both during and after the Period of Employment, the Executive shall, upon reasonable notice, furnish such information as may be in his possession to, and cooperate with, the Company as may reasonably be requested by the Company in connection with any litigation in which the Company or any of its subsidiaries and affiliates is or may become a party. (b) Both during and after the Period of Employment, the Executive shall not, to the detriment of the Company or its subsidiaries and affiliates, knowingly disclose or reveal to any unauthorized person any trade secret or other confidential information relating to the Company, its subsidiaries and affiliates, or any of the businesses operated by them, including, without limitation, any customer lists, pricing information or sales and marketing data, plans and programs, and the Executive confirms that such confidential information constitutes the exclusive property of the Company or any of its subsidiaries and affiliates. The Executive agrees that he will use such confidential information solely for purposes of this Agreement and the employment services to be provided hereunder. (c) During the Period of Employment (which, for purposes of this Section 9(c), shall include the period, if any, the Company is required to make payments to the Executive under Section 6(b)) and for a period of two years thereafter, the Executive shall not, directly or indirectly, with respect to the Business: (i) own 5% or more of the common equity or other ownership interest in, manage, operate, join, control, render financial or other assistance to or participate in or be connected, as an officer, employee, partner, stockholder, consultant or otherwise, with any individual, proprietor, partnership, firm, corporation or other business enterprise that is or may be competitive with the Company or any of its subsidiaries and affiliates with respect to the Business; or (ii) make any statement or perform any act intended to advance an interest of any existing or prospective competitor of the Company or any of its subsidiaries and affiliates or to injure an interest of the Company, or any of its subsidiaries and affiliates, in their relationship and dealings with existing or potential customers or any enterprise, with which the Company, or any of its subsidiaries and affiliates, had or has a business relationship enabling the Company or any of its subsidiaries and affiliates to sell graphic arts products or services to customers, or solicit or encourage any employee of the Company or any of its subsidiaries and affiliates to do any act that, in the Company's reasonable judgment, is disloyal to, or inconsistent with, the Company's or any of its subsidiaries' and affiliates' interests. 10. Injunctive Relief. In addition to any other remedies, at law or otherwise, that the Company may have against the Executive for a breach of this Agreement, and notwithstanding Section 7 hereof, the Company is entitled to an injunction to be issued by any court of competent jurisdiction, enjoining and restraining the Executive from committing any breach of Sections 8 and 9 of this Agreement. 5 11. Tax Withholding. The Company may withhold from any compensation and other benefits payable under this Agreement all federal, state, local or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 12. Consolidation, Merger, or Sale of Assets. Nothing in this Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation, which assumes this Agreement and all obligations and undertakings of the Company hereunder. Upon such consolidation, merger or transfer of assets and such assumption, the term "Company" as used herein shall mean such other corporation and this Agreement shall continue in full force and effect. 13. General Provisions. (a) This Agreement shall be binding upon, and inure to the benefit of, the Executive and the Company and their respective successors and permitted assigns. (b) This Agreement shall be governed by and construed under the laws of the State of New York (without giving effect to its principles of conflict of laws). (c) The obligations of the Executive under Sections 7, 8 and 9 shall survive the termination for any reason of this Agreement (whether such termination is by the Company, by the Executive, upon the expiration of the Period of Employment or otherwise). (d) In case any one or more of the provisions or any part of a provision contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect in any jurisdiction, such invalidity, illegality or unenforceability shall be deemed not to affect any other provision or part of a provision of this Agreement, but this Agreement shall be reformed and construed in such jurisdiction as if such provision or part of a provision held to be invalid, illegal or unenforceable had never been contained herein and such provision or part be reformed so that it would be valid, legal and enforceable in such jurisdiction to the maximum extent possible. (e) This Agreement contains the entire agreement between the Company and the Executive with respect to the subject matter thereof. This Agreement may not be amended, waived, changed, modified or discharged except by an instrument in writing executed by or on behalf of the party against whom any amendment, waiver, change, modification or discharge is sought. (f) All notices, requests, demands and other communications hereunder shall be in writing and shall be personally delivered or sent by expedited overnight courier service as follows: If to the Company: Enovation Graphic Systems, Inc. c/o Fuji Photo Film U.S.A., Inc. 555 Taxter Road Elmsford, New York 10523 Attn: General Counsel 6 If to the Executive: James F. Mullan 11 South Hinchman Avenue Haddonfield, New Jersey 08033 and/or to such other persons and addresses as any party shall have specified in writing to the other. (g) Any waiver of any breach of any provision of this Agreement shall not operate as a waiver of any other breach of such provision or any other provision of this Agreement, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof. Each of the parties hereto agrees to execute all such further instruments and documents and to take all such further action as the other party may reasonably request in order to effectuate the terms and purposes of this Agreement. (h) The terms of this Agreement shall be treated by the parties as confidential, except to the extent disclosure is required by law. (i) The section headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. EXECUTIVE /s/ James F. Mullan ------------------------------------------ James F. Mullan ENOVATION GRAPHIC SYSTEMS, INC. By: /s/ Yasuo "George" Tanaka ----------------------------------- Name: Yasuo "George" Tanaka Title: President 8 -----END PRIVACY-ENHANCED MESSAGE-----