DEFM14A 1 aljj-defm14a_20220317.htm DEFM14A aljj-defm14a_20220317.htm

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

 

 

 

 

Filed by the Registrant

Filed by a Party other than the Registrant

Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material under §240.14a-12

 

ALJ Regional Holdings, Inc.

 

(Name of Registrant as Specified In Its Charter)

 

N/A

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

       Not applicable. 

 

(2)

Aggregate number of securities to which transaction applies:

       Not applicable. 

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

       Not applicable. 

 

(4)

Proposed maximum aggregate value of transaction:

       $134,775,000. The purchase price payable under the Stock Purchase Agreement, which is subject to a possible adjustment as set forth therein.  It is not possible as of the time of this filing to determine the value of this possible adjustment, or whether this possible adjustment would be positive or negative in value.  Solely for purposes of calculating the filing fee, the proposed maximum aggregate value of the transaction assumes that no such adjustment to the purchase price will be required.   

 

(5)

Total fee paid:

 


 

 

       $12,493.64 

 

Fee paid previously with preliminary materials.

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

(1)

Amount Previously Paid:

 

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

 

(3)

Filing Party:

 

 

 

(4)

Date Filed:

 

 


 

 

ALJ REGIONAL HOLDINGS, INC.

SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON APRIL 11, 2022

March 17, 2022

Dear Stockholder:

You are invited to attend a special meeting of stockholders of ALJ Regional Holdings, Inc. (the “Company”), which will be held at the offices of Shearman & Sterling LLP, located at 1460 El Camino Real, Floor 2, Menlo Park, CA 94025, on April 11, 2022, at 10:00 a.m. Pacific Time.  There are three proposals on which you are being asked to vote:

 

1.

To approve the sale of Phoenix Color Corp. (the “Phoenix Color Sale”), a direct wholly owned subsidiary of the Company (“Phoenix Color”), to LSC Communications Book LLC, a Delaware limited liability company (d/b/a Lakeside Book Company) (“Lakeside”), pursuant to the terms and conditions of a Stock Purchase Agreement, dated as of February 3, 2022 (the “Stock Purchase Agreement”), by and among the Company, Lakeside and Phoenix Color, to the extent that the Phoenix Color Sale constitutes a sale of substantially all of the assets of the Company under Delaware law;

 

 

2.

To approve the compensation of our named executive officers based on or that otherwise relates to the Phoenix Color Sale as disclosed pursuant to Item 402(t) of Regulation S-K; and

 

 

 

3.

To approve the adjournment or postponement of the special meeting to another date, time or place, if necessary or appropriate, for the purpose of soliciting additional proxies for the proposals to be acted upon at the special meeting in the event that there are insufficient votes at the time of the special meeting or any adjournment thereof to approve one or more of the foregoing proposals.

Our Board of Directors, after consideration of a variety of factors, has determined that consummation of the Phoenix Color Sale on the terms and conditions of the Stock Purchase Agreement is advisable, fair, expedient and for the best interests of the Company and our stockholders and unanimously approved the Phoenix Color Sale on the terms and conditions of the Stock Purchase Agreement. Our Board of Directors unanimously recommends that you vote “FOR” the proposal to approve the Phoenix Color Sale on the terms and conditions of the Stock Purchase Agreement and “FOR” each of the other proposals to be voted on at the special meeting.

The proposal to approve the Phoenix Color Sale must be approved by the holders of a majority of the shares of our common stock outstanding on the record date for the special meeting and entitled to vote on the proposal. The advisory resolution to approve the compensation of our named executive officers related to the Phoenix Color Sale must be approved by the affirmative vote of the holders of a majority of the stock having voting power present in person or represented by proxy at the special meeting. More information about the each of these proposals and the special meeting (including any adjournment or postponement thereof) is contained in the accompanying proxy statement. We encourage you to read the accompanying proxy statement in its entirety because it describes the terms of the Phoenix Color Sale, the Stock Purchase Agreement and the compensation of our named executive officers related to the Phoenix Color Sale pursuant to Item 402(t) of Regulation S-K, as well as provides specific information about the special meeting and any adjournment or postponement thereof.

YOUR VOTE IS EXTREMELY IMPORTANT
REGARDLESS OF THE NUMBER OF SHARES YOU OWN.

In order to ensure that your shares are represented at the special meeting, whether you plan to attend or not, please vote in accordance with the enclosed instructions. You can vote your shares by telephone, electronically via the Internet or by completing and returning the enclosed proxy card or vote instruction form. If you vote using the enclosed proxy card or vote instruction form, you must sign, date and mail the proxy card or vote instruction form in the enclosed envelope. If you wish to attend the special meeting, you may be requested to present

 


 

valid, government-issued photo identification to gain admission. Any record stockholder attending the special meeting may vote in person, even if that stockholder has returned a proxy or voted by telephone or the Internet.

Thank you for your continued support of ALJ Regional Holdings, Inc.

 

 

 

 


 

Very truly yours,

Jess M. Ravich, Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the transactions, passed upon the merits or fairness of the transactions or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

The proxy statement is dated March 17, 2022, and is being first mailed to stockholders on or about March 22, 2022.


 


 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS OF

ALJ REGIONAL HOLDINGS, INC.

TO BE HELD ON APRIL 11, 2022

To the Stockholders of ALJ Regional Holdings, Inc.:

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of ALJ Regional Holdings, Inc., a Delaware corporation (the “Company,” “we” or “our”), will be held on April 11, 2022, at 10:00 a.m. Pacific Time, at the offices of Shearman & Sterling LLP, located at 1460 El Camino Real, Floor 2, Menlo Park, CA 94025, for the following purposes:

 

1.

To consider and vote on a proposal to approve the sale (the “Phoenix Color Sale”) of Phoenix Color Corp., a Delaware corporation and a direct wholly owned subsidiary of the Company (“Phoenix Color”), to LSC Communications Book LLC, a Delaware limited liability company (d/b/a Lakeside Book Company) (“Lakeside”), pursuant to the terms and conditions of a Stock Purchase Agreement, dated as of February 3, 2022 (the “Stock Purchase Agreement”), by and among the Company, Lakeside and Phoenix Color, to the extent that the Phoenix Color Sale constitutes a sale of substantially all of the assets of the Company under Delaware law (the “Phoenix Color Sale Proposal”);

 

2.

To consider and vote upon an advisory (non-binding) resolution concerning the compensation of our named executive officers based on or that otherwise relates to the Phoenix Color Sale as disclosed pursuant to Item 402(t) of Regulation S-K in the accompanying proxy statement (the “Transaction-Related Compensation Proposal”); and

 

3.

To consider and vote upon a proposal to approve the adjournment or postponement of the special meeting to another date, time or place, if necessary or appropriate, for the purpose of soliciting additional proxies for the proposals to be acted upon at the special meeting in the event that there are insufficient votes at the time of the special meeting or any adjournment thereof to approve one or more of the foregoing proposals (the “Adjournment Proposal”).

Our Board of Directors has fixed the close of business on March 16, 2022 as the record date for the determination of stockholders entitled to notice of and to vote at the special meeting and any adjournment or postponement thereof. Each share of the Company’s common stock is entitled to one vote on all matters presented at the special meeting and any adjournment or postponement thereof.

Our Board of Directors has determined that consummation of the Phoenix Color Sale on the terms and conditions of the Stock Purchase Agreement is advisable, fair, expedient and for the best interests of the Company and our stockholders and approved the Phoenix Color Sale on the terms and conditions of the Stock Purchase Agreement.

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE PHOENIX COLOR SALE PROPOSAL, “FOR” THE TRANSACTION-RELATED COMPENSATION PROPOSAL AND “FOR” THE ADJOURNMENT PROPOSAL.

We cannot complete the Phoenix Color Sale unless our stockholders approve the Phoenix Color Sale Proposal, in addition to the satisfaction of the other conditions to the closing of the Phoenix Color Sale. The Phoenix Color Sale Proposal will not be approved unless the proposal receives the affirmative vote of the holders of a majority of the shares of our common stock outstanding on the record date and entitled to vote on the proposal. The Transaction-Related Compensation Proposal is only advisory in nature and is not binding on our Board of Directors or the Company. However, we intend to review the voting results with our Board of Directors and the Compensation, Nominating and Corporate Governance Committee of our Board of Directors so that such voting results may be taken into consideration in connection with our executive compensation decisions in connection with the Phoenix Color Sale.

 


 

In order to ensure that your shares are represented at the special meeting, whether you plan to attend or not, please vote in accordance with the enclosed instructions. You can vote your shares by telephone, electronically via the Internet or by completing and returning the enclosed proxy card or vote instruction form.  If you vote using the enclosed proxy card or vote instruction form, you must sign, date and mail the proxy card or vote instruction form in the enclosed envelope.

YOUR VOTE IS EXTREMELY IMPORTANT
REGARDLESS OF THE NUMBER OF SHARES YOU OWN.

The failure of any stockholder to vote on the Phoenix Color Sale Proposal will have the same effect as a vote against the proposal. If you fail to return your proxy card or fail to submit your proxy by telephone or via the Internet and you fail to attend the special meeting, your shares will not be counted for purposes of determining whether a quorum is present at the meeting, but will not affect the outcome of the vote regarding the Transaction-Related Compensation Proposal or the Adjournment Proposal.

If you wish to attend the special meeting, you may be requested to present valid, government-issued photo identification to gain admission. Attendance at the meeting will not, by itself, revoke a proxy. If you are a stockholder of record, voting in person at the special meeting will revoke any previously submitted proxy. If you hold your shares through a broker, bank or other nominee, please follow the instructions provided by your broker, bank or other nominee as to how you may change your vote or obtain a “legal proxy” to vote your shares if you wish to cast your vote in person at the special meeting.

 

 

 

 

 

By Order of the Board of Directors,

 


 

 

 

 

Jess M. Ravich
Chief Executive Officer and Chairman of the Board

March 17, 2022

 

 

 


 

 

PROXY STATEMENT

FOR SPECIAL MEETING OF STOCKHOLDERS OF

ALJ REGIONAL HOLDINGS, INC.

TO BE HELD ON APRIL 11, 2022

This proxy statement is being furnished to the holders of common stock, par value $0.01 per share, of ALJ Regional Holdings, Inc., a Delaware corporation (the “Company,” “we” or “our”), in connection with the solicitation by our Board of Directors of proxies to be voted at a special meeting of stockholders of the Company to be held on April 11, 2022, at 10:00 a.m. Pacific Time, at the offices of Shearman & Sterling LLP, located at 1460 El Camino Real, Floor 2, Menlo Park, CA 94025, or at any adjournment or postponement of the special meeting, for the purposes set forth in the accompanying Notice of Special Meeting.

This proxy statement and the other proxy materials are being first mailed to stockholders on or about March 22, 2022. If a stockholder of record executes and returns the enclosed proxy card or submits vote instructions to us by telephone or via the Internet, the stockholder may nevertheless revoke his, her or its proxy at any time prior to its use by filing with the Company’s counsel, Shearman & Sterling LLP, located at 1460 El Camino Real, Floor 2, Menlo Park, CA 94025, Attention: Christopher M. Forrester and Cody Wright, a written notice of revocation, or it may be revoked by a later-dated vote, by mail, by Internet or by telephone, or by attending the meeting and voting in person. Only a stockholder’s latest proxy received by 11:59 p.m. Eastern Time on April 10, 2022 will be counted.

If you wish to attend the special meeting, you may be requested to present valid, government-issued photo identification to gain admission. Attendance at the meeting will not, by itself, revoke a proxy. If you are a stockholder of record, voting in person at the special meeting will revoke any previously submitted proxy. If you hold your shares through a broker, bank or other nominee, please follow the instructions provided by your broker, bank or other nominee as to how you may change your vote or obtain a “legal proxy” to vote your shares if you wish to cast your vote in person at the special meeting.

Unless revoked or unless contrary instructions are given, each proxy that is properly signed, dated and returned or authorized by telephone or via the Internet in accordance with the instructions on the enclosed proxy card or vote instruction form prior to the start of the special meeting will be voted as indicated on the proxy card or vote instruction form or via telephone or the Internet, and if no indication is made, each such proxy will be deemed to grant authority to vote “FOR” each of the proposals described in this proxy statement.

 

 

 


 

 

TABLE OF CONTENTS

 

SUMMARY TERM SHEET

1

The Phoenix Color Sale

1

Parties

1

The Stock Purchase Agreement

2

Effect of the Phoenix Color Sale

2

Closing Date

2

Purchase Price

3

Recommendation of our Board of Directors

3

Opinion of Lincoln International LLC

3

Non-solicitation of Competing Proposals

3

Changes in the Recommendation of our Board of Directors; Fiduciary Termination

4

HSR and Other Regulatory Approvals

5

Company Assumption of Reisch Employment Agreement

6

Conditions to the Closing

6

Termination of the Stock Purchase Agreement

7

Termination Fee

7

Voting and Support Agreement

8

Certain United States Federal Income Tax Consequences of the Phoenix Color Sale

9

Certain Accounting Consequences of the Phoenix Color Sale

9

Anticipated use of Proceeds from the Phoenix Color Sale

9

Interests of Our Directors and Officers in the Transaction

9

No Appraisal Rights

10

The Special Meeting

10

Date, Time and Place

10

Purpose

10

Record Date and Voting Securities

10

Quorum; Vote Required

10

Voting by, and Revocation of, Proxy

10

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE TRANSACTION

12

Special Meeting and Voting

12

Proposed Transaction

15

General

18

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

19

RISK FACTORS

21

Risks Related to the Phoenix Color Sale

21

Risks Relating to our Company if the Phoenix Color Sale is Completed

24

 


 

THE SPECIAL MEETING

26

Date, Time, Place and Purpose of the Special Meeting

26

Record Date

26

Quorum; Vote Required

26

Abstentions and Broker Non-Votes

26

Proxies and Revocation

27

Adjournments and Postponements

27

Dissenters’ Rights

27

Solicitation of Proxies

27

Questions and Additional Information

28

PROPOSAL 1: THE PHOENIX COLOR SALE PROPOSAL

29

General Description of the Phoenix Color Sale

29

The Parties to the Phoenix Color Sale

29

ALJ

29

Phoenix Color

29

Lakeside

30

Recommendation of our Board of Directors with respect to the Phoenix Color Sale Proposal

30

Vote Required

30

Interests of Our Directors and Officers

31

Background of the Transaction

34

Reasons for Recommending the Phoenix Color Sale

38

Phoenix Color Financial Projections

40

Opinion of Lincoln International LLC

42

Certain United States Federal Income Tax Consequences of the Phoenix Color Sale

47

Certain Accounting Consequences of the Phoenix Color Sale

47

No Dissenters’ Rights

47

The Stock Purchase Agreement

47

Explanatory Note Regarding the Stock Purchase Agreement

47

Effect of the Phoenix Color Sale

48

Closing of the Phoenix Color Sale

48

Purchase Price

48

Representations and Warranties

48

Conduct of Business Prior to Closing

50

Stockholder Meeting

53

Non-solicitation of Competing Proposals

54

Changes in the Recommendation of our Board of Directors; Fiduciary Termination

56

HSR and Other Regulatory Approvals

57

Employment Matters

58

Directors’ and Officers’ Indemnification and Insurance

59

 

ii


 

Restrictive Covenants

59

Company Assumption of Reisch Employment Agreement

60

Other Covenants

60

Conditions to the Closing

61

Termination of the Stock Purchase Agreement

62

Termination Fee

63

Effect of Termination

63

Amendments and Waivers

64

Governing Law

64

The Voting And Support Agreement

64

Agreement to Vote and Irrevocable Proxy

64

Termination

66

Anticipated Use of Proceeds from the Transaction

66

Effects on the Company if the Transaction is Not Completed

67

Security Ownership of Certain Beneficial Owners and Management

67

Section 16(a) Beneficial Ownership Reporting Compliance

71

Market Price of Common Stock and Dividend Data

71

PROPOSAL 2: ADVISORY VOTE ON NAMED EXECUTIVE OFFICER TRANSACTION-RELATED COMPENSATION

72

General

72

Required Vote

72

Recommendation of our Board of Directors

72

PROPOSAL 3: ADJOURNMENT PROPOSAL

73

General

73

Required Vote

73

Recommendation of our Board of Directors

73

EXPENSES AND SOLICITATION

74

WHERE YOU CAN FIND MORE INFORMATION

75

SUBMISSION OF STOCKHOLDER PROPOSALS

76

HOUSEHOLDING OF SPECIAL MEETING MATERIALS

77

OTHER BUSINESS

78

ANNEX A:  STOCK PURCHASE AGREEMENT

 

ANNEX B:  VOTING AND SUPPORT AGREEMENT

 

ANNEX C:  OPINION OF LINCOLN INTERNATIONAL LLC

 

ANNEX D:  UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ASSUMING COMPLETION OF PHOENIX COLOR SALE AND FANEUIL TRANSACTION

 

ANNEX E:  UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ASSUMING COMPLETION OF PHOENIX COLOR SALE ONLY

 

 

 

 

 

iii


 

 

SUMMARY TERM SHEET

This summary term sheet, together with the question and answer section that follows, highlights selected information contained in this proxy statement and may not contain all of the information that is important to you.  To understand the transactions and the special meeting fully, and for a more complete description of the terms of the Transaction and the Stock Purchase Agreement, you should carefully read this entire proxy statement and the documents delivered with and incorporated by reference into this proxy statement.  See “Where You Can Find More Information” beginning on page 75 of this proxy statement. In this proxy statement, unless the context otherwise requires, the terms “we,” “us,” “our” “ALJ” and the “Company” refer to ALJ Regional Holdings, Inc., a Delaware corporation.

There are three proposals on which you are being asked to vote:

 

1.

To approve the sale (the “Phoenix Color Sale” or the “Transaction”) of Phoenix Color Corp., a Delaware corporation and a direct wholly owned subsidiary of the Company (“Phoenix Color”), to LSC Communications Book LLC, a Delaware limited liability company (d/b/a Lakeside Book Company) (“Lakeside”), pursuant to the terms and conditions of a Stock Purchase Agreement, dated as of February 3, 2022 (the “Stock Purchase Agreement”), by and among the Company, Lakeside and Phoenix Color, to the extent that the Phoenix Color Sale constitutes a sale of substantially all of the assets of the Company under Delaware law (the “Phoenix Color Sale Proposal”);

 

2.

To approve the compensation of our named executive officers based on or that otherwise relates to the Phoenix Color Sale as disclosed pursuant to Item 402(t) of Regulation S-K in the accompanying proxy statement (the “Transaction-Related Compensation Proposal”); and

 

3.

To approve the adjournment or postponement of the special meeting to another date, time or place, if necessary or appropriate, for the purpose of soliciting additional proxies for the proposals to be acted upon at the special meeting in the event that there are insufficient votes at the time of the special meeting or any adjournment thereof to approve one or more of the foregoing proposals (the “Adjournment Proposal”).

The Phoenix Color Sale

Parties

ALJ

ALJ is a holding company consisting of the following wholly owned subsidiaries:

 

Faneuil, Inc. (including its subsidiaries, “Faneuil”), which is a leading provider of call center services, back-office operations, staffing services, and toll collection services to government and regulated commercial clients across the United States, focusing on the healthcare, utility, transportation, and toll revenue collection industries. Faneuil is headquartered in Hampton, Virginia. The Company acquired Faneuil in October 2013.

On December 21, 2021, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with TTEC Government Solutions, LLC, a Colorado limited liability company (“TTEC”), TTEC Holdings, Inc., a Delaware corporation, and Faneuil, pursuant to which TTEC agreed, subject to the terms and conditions set forth in the Asset Purchase Agreement, to acquire the assets of Faneuil’s tolling and transportation vertical and health benefit exchange vertical (the “Faneuil Transaction”).  As of the date of this proxy statement, the Faneuil Transaction has not closed. We expect, but cannot guarantee, that the Faneuil Transaction will close within 30 days of the date of this proxy statement.

 

 

Phoenix Color (described in more detail below).

ALJ’s common stock is publicly traded on NASDAQ under the symbol “ALJJ.”

 

1


 

Phoenix Color

Phoenix Color is a Delaware corporation headquartered in Hagerstown, Maryland.  The Company acquired Phoenix Color in August 2015.

Phoenix Color is a premier full-service, full-color printer with over 40 years of superior printing experience.  Drawing on a broad spectrum of materials and decorative technologies, Phoenix Color produces memorable, value-added components, heavily illustrated books, and specialty commercial products. Book publishers generally design book components to enhance the sales appeal of their books. The production of book components requires specialized equipment, materials, and finishes and often demands high-quality, intricate work. As a result, many leading publishers rely on specialty printers such as Phoenix Color to supply high-quality book components. This same philosophy applies to labels, packaging, and specialty commercial products, where Phoenix Color customers require the knowledge and expertise of a printer that can enhance their products for sale into the commercial marketplace. Phoenix Color has been servicing the publishing industry within the United States since 1979 and has formed lasting relationships with many of the biggest names in book publishing.

As a domestic manufacturer, Phoenix Color offers extensive, in-house digital pre-press capabilities and its technologically advanced UV printing platform supports an array of printing and finishing options.  Phoenix Color innovative special effects include foil stamping, UV embellishments, and laminations, as well as its trademarked products LithoFoil®, MetalTone™, Look of Leather™, and VibraColor™.

Lakeside

Lakeside is a Delaware limited liability company headquartered in Warrenville, Illinois, and a direct wholly owned subsidiary of LSC Communications LLC  (“LSC”), a Delaware limited liability company and indirect wholly owned subsidiary of funds managed by Atlas Holdings LLC (“Atlas”), which acquired substantially all of the assets of LSC Communications, Inc. in December 2020.

Lakeside operates the book division of LSC and is the largest book manufacturer in the United States. In addition to book manufacturing, Lakeside provides warehousing, distribution, sales, marketing services and fulfillment services, as well as IP and brand protection technology for book publishers and others requiring premium quality print and distribution-related services.  Lakeside also operates a publishing group that publishes books under the Dover Publications and REA imprints.  With approximately 5,400 associates, Lakeside operates across more than 15 facilities throughout the United States.

LSC is a global leader in print and digital media solutions and offers a range of services and products that serve the needs of publishers, merchandisers and retailers around the world through a number of business units in addition to Lakeside.

The Stock Purchase Agreement (see page 47 and Annex A)

The Company, Lakeside and Phoenix Color entered into the Stock Purchase Agreement on February 3, 2022. A copy of the Stock Purchase Agreement is attached to this proxy statement as Annex A.  We encourage you to read the Stock Purchase Agreement in its entirety.

Effect of the Phoenix Color Sale (see page 48)

Pursuant to the Stock Purchase Agreement, the Company has agreed to sell 100% of the outstanding shares of the capital stock of Phoenix Color to Lakeside. The Phoenix Color Sale may constitute a sale of substantially all of the assets of the Company under Delaware law.

Closing Date (see page 48)

The closing of the Phoenix Color Sale (the “Closing”) will take place at 10:00 a.m. New York City time on the third business day following the satisfaction or waiver of the conditions to the Closing or at such other time and

 

2


 

place as may be agreed upon between the Company and Lakeside in writing.  The date that the Closing actually occurs is referred to in this proxy statement as the “Closing Date.

Purchase Price (see page 48)

The purchase price for the Phoenix Color Sale will be an amount equal to $134,775,000, minus (A) the amount of indebtedness of Phoenix Color and its subsidiaries as of the Closing Date, minus (B) the amount, if any, by which $9,818,269 exceeds the working capital of Phoenix Color and its subsidiaries as of the Closing Date, plus (C) the amount, if any, by which the working capital of Phoenix Color and its subsidiaries as of the Closing Date exceeds $9,818,269, minus (D) the amount of transaction expenses of Phoenix Color and its subsidiaries as of the Closing Date. If the Closing takes place after April 15, 2022, but on or before May 15, 2022, then the purchase price will be reduced by $1,000,000.  If the Closing takes place after May 15, 2022, then the purchase price will be reduced by $2,000,000.

Recommendation of our Board of Directors (see page 30)

Our Board of Directors, at a special meeting held on February 2, 2022, after due consideration, unanimously (i) determined that the Phoenix Color Sale on the terms and conditions of the Stock Purchase Agreement is advisable, fair, expedient and for the best interests of the Company and its stockholders, (ii) approved the Stock Purchase Agreement and the consummation by the Company of the transactions contemplated by the Stock Purchase Agreement, and (iii) directed that the Phoenix Color Sale on the terms and conditions of the Stock Purchase Agreement be submitted for consideration by our stockholders at a special meeting of stockholders.  Our Board of Directors unanimously recommends that stockholders vote “FOR” the Phoenix Color Sale Proposal.  For a discussion of the factors considered by our Board of Directors in reaching its conclusions, see “Proposal 1: The Phoenix Color Sale Proposal—Reasons for Recommending the Phoenix Color Sale” beginning on page 38 of this proxy statement.

Opinion of Lincoln International LLC (see page 42 and Annex C)

Lincoln International LLC (“Lincoln”) orally rendered its opinion to our Board of Directors, subsequently  confirmed in writing, by delivery of Lincoln’s written opinion addressed to the Board of Directors dated February 3, 2022, that, as of the date of such opinion, and upon and subject to the qualifications, procedures, limitations and assumptions set forth therein, the $134,775,000 cash consideration (the “Consideration”) to be received by ALJ in the Transaction pursuant to, and subject to the adjustments described in, the Stock Purchase Agreement, is fair, from a financial point of view, to ALJ.

Lincoln’s opinion was directed to our Board of Directors (in its capacity as such) and only addressed the fairness, from a financial point of view, to ALJ of the Consideration to be received by ALJ in the Transaction pursuant to the Stock Purchase Agreement and did not address any other aspect or implication of the Transaction, any related transaction or any other agreement, arrangement or understanding entered into in connection therewith or otherwise. The summary of Lincoln’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is attached as Annex C to this proxy statement and which describes the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Lincoln in connection with the preparation of its opinion. Neither Lincoln’s opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute, advice or a recommendation to the Board, any security holder of ALJ, or any other person as to how to act or vote on any matter relating to the Transaction or otherwise.

 

Non-solicitation of Competing Proposals (see page 54)

Under the Stock Purchase Agreement, subject to certain exceptions described below, the Company has agreed that the Company will not and will cause its subsidiaries, directors and officers not to, and will use its reasonable best efforts to cause its outside representatives not to, directly or indirectly, through affiliates, directors, officers, employees, representatives, advisors or other intermediaries:

 

3


 

 

(1)

solicit, initiate or encourage or facilitate (including by way of providing non-public information) the submission of any inquiries, proposals or offers (other than from Lakeside) that constitute, relate or may reasonably be expected to lead to any Acquisition Proposal (as defined below) or agree to or endorse any Acquisition Proposal, or

 

(2)

enter into, participate or engage in, or continue, any discussions or negotiations with respect to any Acquisition Proposal or to obtain an Acquisition Proposal or furnish to any person any non-public information with respect to its business, properties or assets in connection with any Acquisition Proposal.

An “Acquisition Proposal” for purposes of the Stock Purchase Agreement means:  (1) any proposal or offer with respect to a merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, exchange offer, share issuance, recapitalization, reorganization, share exchange, business combination or similar transaction involving the Company, Phoenix Color or any of Phoenix Color’s subsidiaries which would, either in one or a series of transactions, result in any person (other than Lakeside or its affiliates) owning, directly or indirectly, 20% or more of any class of equity securities of the Company, Phoenix Color or any of Phoenix Color’s subsidiaries; (2) any acquisition by any person (other than Lakeside or its affiliates) resulting in, or proposal or offer, which if consummated would result in, any person becoming the beneficial owner of directly or indirectly, in one or a series of related transactions, 20% or more of any class of equity securities of the Company, Phoenix Color or any of Phoenix Color’s subsidiaries, or 20% or more of the revenue or consolidated total assets, measured either by book value or fair market value (including equity securities of its subsidiaries) of Phoenix Color; or (3) any combination of the foregoing having a similar effect to those described in clauses (1) and (2).

Notwithstanding the prohibitions described above, if, prior to obtaining the Company Stockholder Approval (as defined below), (i) the Company or any of its subsidiaries has received an unsolicited bona fide written Acquisition Proposal from a third party that is not an affiliate of Lakeside that did not result from or arise out of a breach of the Company’s non-solicitation obligations, and (ii) our Board of Directors determines in good faith, after consultation with its financial advisors and outside legal counsel, that such Acquisition Proposal constitutes or is reasonably likely to lead to a Superior Proposal (as defined below) and that the failure to take such action would be inconsistent with the fiduciary duties required of our Board of Directors under applicable law, then the Company and its subsidiaries may (A) furnish information with respect to the Company and its subsidiaries to the person making such Acquisition Proposal and (B) engage in discussions or negotiations with the person making such Acquisition Proposal.

A “Superior Proposal” for purposes of the Stock Purchase Agreement means a bona fide unsolicited written Acquisition Proposal (except that for purposes of the definition of “Superior Proposal” references in the definition of “Acquisition Proposal” to “20%” will be replaced by “50%”) made by a third party that is not affiliated with the Company and that did not result from or arise out of a breach of the Company’s non-solicitation obligations that our Board of Directors determines in good faith (after consultation with its outside legal counsel and financial advisors), taking into account all terms and conditions of such transaction and all legal, financial, tax, regulatory, timing and other aspects of the proposal, (a) is reasonably likely to be consummated in accordance with its terms, for which financing, if a transaction involving cash consideration (whether in whole or in part), is then fully committed or determined by our Board of Directors to be reasonably likely to be available, and which is not subject to any condition to consummation based on the availability of financing, and (b) is more favorable to the Company than the terms of the Stock Purchase Agreement and the Phoenix Color Sale as determined in good faith by our Board of Directors.

Changes in the Recommendation of our Board of Directors; Fiduciary Termination (see page 56)

Under the Stock Purchase Agreement, subject to certain exceptions described below, neither our Board of Directors nor any committee thereof may (1) withhold or withdraw (or qualify or modify in a manner adverse to Lakeside), the adoption, recommendation or declaration of advisability by our Board of Directors or any such committee of the Stock Purchase Agreement; (2) recommend the approval or adoption of, or approve or adopt, any Acquisition Proposal; (3) in the case of a tender offer or exchange offer subject to Regulation 14D under the Securities Exchange Act of 1934 (the “Exchange Act”), fail to recommend, in a Solicitation/Recommendation Statement on Schedule 14D-9, rejection of such tender offer or exchange offer within ten business days of the commencement of such tender offer or exchange offer; or (4) approve, adopt or recommend, or publicly propose to

 

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approve, adopt or recommend, or permit the Company or any of its subsidiaries to execute, enter into or consummate any transactions contemplated by any letter of intent, memorandum of understanding, agreement in principle, merger agreement, share exchange agreement, acquisition agreement, purchase agreement, agreement which requires the Company to abandon or terminate the Stock Purchase Agreement or the transactions contemplated thereby, or other agreement with respect to any Acquisition Proposal, other than certain confidentiality agreements.  We refer to each of the actions set forth in clauses (1), (2) or (3) as an Adverse Recommendation Change.

Notwithstanding the foregoing, at any time prior to obtaining the Company Stockholder Approval, if our Board of Directors determines in good faith (after consultation with its financial advisors and outside legal counsel) that the failure to take such action would be inconsistent with its fiduciary duties under applicable Law, our Board of Directors may:

 

make an Adverse Recommendation Change following receipt of an unsolicited bona fide written Acquisition Proposal that did not result from a breach of the Company’s non-solicitation obligations and which our Board of Directors determines in good faith, in consultation with its financial advisors and outside legal counsel, is a Superior Proposal; or

 

 

make an Adverse Recommendation Change and cause the Company to terminate the Stock Purchase Agreement and, concurrently with or immediately after such termination, cause the Company to enter into a definitive acquisition agreement with respect to a Superior Proposal solely in response to a bona fide written Acquisition Proposal which our Board of Directors determines in good faith, in consultation with its financial advisors and outside legal counsel, is a Superior Proposal that did not result from a breach of the Company’s obligations described in this section.

Prior to making an Adverse Recommendation Change for any reason set forth above, the Company must provide Lakeside with four business days’ prior written notice advising Lakeside that our Board of Directors intends to make an Adverse Recommendation Change and, if applicable, terminate the Stock Purchase Agreement and enter into an acquisition agreement with respect to a Superior Proposal. The Company must engage in good faith negotiations with Lakeside to amend the Stock Purchase Agreement in a manner that would make the failure to effect an Adverse Recommendation Change no longer inconsistent with the fiduciary duties of our Board of Directors, and, in the case of a Superior Proposal, our Board of Directors must make the required determination regarding its fiduciary duties again at the end of such four business day negotiation period (after taking into account in good faith the amendments to the Stock Purchase Agreement proposed by Lakeside, if any). With respect to any Adverse Recommendation Change in response to a Superior Proposal, if there is any amendment to the financial terms or any other material terms of the then-existing Superior Proposal, the Company must notify Lakeside of each such amendment and the applicable four business day period will be extended until at least two business days after the time that Lakeside receives notification of such amendment.

HSR and Other Regulatory Approvals (see page 57)

Under the Stock Purchase Agreement, each of the Company and Lakeside is required to use its reasonable best efforts to (1) obtain any authorization of any governmental authority that is or may become necessary for its performance of its obligations pursuant to the Stock Purchase Agreement and (2) take all actions as may be requested by any such governmental authority to obtain such authorizations.

In particular, the Company and Lakeside each agreed to make an appropriate filing of a Notification and Report Form pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), with respect to the transactions contemplated by the Stock Purchase Agreement and to supply as promptly as reasonably practicable any additional information and documentary material that may be requested pursuant to the HSR Act and to take all other actions necessary, proper or advisable to cause the expiration or termination of the applicable waiting periods under the HSR Act as soon as practicable.

Until the waiting periods (and any extension thereof) applicable to the Transaction under the HSR Act have expired or been terminated, Lakeside may not, and must cause its controlled affiliates not to, acquire or make any

 

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investment in any person that (A) manufactures, prints, distributes or markets book components or (B) prints or assembles books, but only to the extent the consummation of such acquisition or investment pursuant to this clause (B) would require the filing of a pre-merger notification form pursuant to the HSR Act, if in each case, the investment or acquisition would, or would reasonably be expected to, result in (i) a material delay in the satisfaction of any of the conditions to the closing of the transactions contemplated by the Stock Purchase Agreement or (ii) any of such conditions not being satisfied.

Each of the Company and Lakeside filed a Notification and Report Form pursuant to the HSR Act on February 14, 2022. The waiting period under the HSR Act expired on Wednesday, March 16, 2022, at 11:59 pm EST.

Company Assumption of Reisch Employment Agreement (see page 60)

The Stock Purchase Agreement requires that, prior to the Closing, the Company, Marc Reisch, Chairman of Phoenix Color, and Phoenix Color will enter into an amendment and novation of the employment agreement, dated as of December 17, 2021, by and between the Phoenix Color and Mr. Reisch (the “Reisch Employment Agreement”), pursuant to which, among other things, the Company will assume all obligations of Phoenix Color under the Reisch Employment Agreement effective as of no later than the Closing (the “Reisch Novation Agreement”).

Conditions to the Closing (see page 61)

The obligations of Lakeside to consummate the transactions contemplated by the Stock Purchase Agreement are subject to the satisfaction or waiver, as of the Closing Date, of the following conditions (among others):

 

the representations and warranties of the Company in the Stock Purchase Agreement being true and correct in all respects, except for such failures to be true and correct as would not have, or reasonably be expected to have, a material adverse effect (with such term having the meaning described under “Proposal 1: The Phoenix Color Sale Proposal—The Stock Purchase Agreement—Representations and Warranties” beginning on page 48 of this proxy statement), except that certain representations and warranties related to the Company’s, Phoenix Color’s and its subsidiaries’ organization, Phoenix Color’s capitalization, Phoenix Color’s subsidiaries, the Company’s power and authority to enter into the Stock Purchase Agreement, the absence of any material adverse effect since September 30, 2021, the absence of any brokers and the absence of any fraudulent conveyance must be true and correct in all respects;

 

 

performance and compliance by the Company of the covenants, obligations and undertakings required to be performed or complied with by it under the Stock Purchase Agreement on or prior to the Closing Date;

 

 

the absence of any material adverse effect since the date of the Stock Purchase Agreement; and

 

 

the release of Phoenix Color and its subsidiaries as borrower, guarantor and pledger under the Company’s existing credit agreements.

The obligations of the Company to consummate the transactions contemplated by the Stock Purchase Agreement are subject to the satisfaction or waiver, as of the Closing Date, of the following conditions (among others):

 

the representations and warranties of Lakeside in the Stock Purchase Agreement being true and correct in all respects, except where the failure of any such representation or warranty to be so true and correct would not reasonably be expected to, individually or in the aggregate, prevent or materially delay the consummation of the transactions contemplated by the Stock Purchase Agreement; and

 

 

performance and compliance in all material respects by Lakeside of the covenants, obligations and undertakings required to be performed or complied with by it under the Stock Purchase Agreement on or prior to the Closing Date.

 

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The obligations of both the Company and Lakeside to effect the transactions contemplated by the Stock Purchase Agreement are subject to the satisfaction or waiver, as of the Closing Date, of the following conditions:

 

absence of any governmental order having the effect of enjoining the consummation of the transactions contemplated by the Stock Purchase Agreement;

 

 

expiration or termination of the waiting periods (and any extension thereof) applicable to the transactions contemplated by the Stock Purchase Agreement under the HSR Act; and

 

 

approval of the Transaction by the affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote thereon (the “Company Stockholder Approval”).

Termination of the Stock Purchase Agreement (see page 62)

The Stock Purchase Agreement may be terminated at any time prior to the Closing Date by either the Company or Lakeside in the following circumstances:

 

mutual written consent of the Company and Lakeside;

 

 

the Closing has not occurred on or prior to June 15, 2022 (the “Outside Date”), except that if, on the Outside Date, all of the conditions to Closing, other than certain conditions related to the absence of any governmental order enjoining the consummation of the transactions contemplated by the Stock Purchase Agreement and the expiration or termination, as applicable, of the waiting period (or extensions thereof) under the HSR Act, have been satisfied or are then capable of being satisfied, then the Outside Date may be extended by the Company or Lakeside to a date no later than December 3, 2022;

 

 

any permanent injunction or other order of a governmental authority preventing the consummation of the transactions contemplated by the Stock Purchase Agreement in any material respect has become final and non-appealable;

 

 

the Company Stockholder Approval has not been obtained at the special meeting (or any adjournment or postponement thereof); or

 

 

the other party has breached any of its representations, warranties, covenants or agreements contained in the Stock Purchase Agreement, which breach (A) would result in the failure of the conditions to the terminating party’s obligation to consummate the transactions contemplated by the Stock Purchase Agreement and (B)(x) is not reasonably capable of being cured prior to the Outside Date or (y) if capable of being cured, has not been cured (i) within thirty days following receipt of written notice from the terminating party of such breach or (ii) any shorter period of time that remains between the date such written notice is provided and the Outside Date.

The Stock Purchase Agreement may also be terminated at any time prior to the Closing Date by Lakeside if an Adverse Recommendation Change has occurred prior to receipt of the Company Stockholder Approval.

The Stock Purchase Agreement may also be terminated at any time prior to the Closing Date by the Company if, prior to receipt of the Company Stockholder Approval, the Company enters into a definitive agreement with respect to a Superior Proposal, as long as (1) the Company has complied with its obligations described under “Proposal 1: The Phoenix Color Sale Proposal—The Stock Purchase Agreement—Changes in the Recommendation of our Board of Directors; Fiduciary Termination,” beginning on page 56 of this proxy statement, and (2) the Company pays to Lakeside the $4,000,000 Termination Fee described below.

Termination Fee (see page 63)

The Company will be required to pay Lakeside a termination fee equal to $4,000,000 (the “Termination Fee”) if:

 

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after the date of the Stock Purchase Agreement and at or prior to the time of the special meeting, an Acquisition Proposal has been publicly disclosed and is not withdrawn; (2) the Stock Purchase Agreement is subsequently terminated (A) by the Company or Lakeside as a result of the Closing having not occurred on or before the Outside Date or the Company Stockholder Approval having not been obtained or (B) by Lakeside as a result of a willful breach of the Stock Purchase Agreement by the Company; and (3) within 12 months of such termination, an Acquisition Proposal is consummated or a definitive agreement providing for the consummation of an Acquisition Proposal is entered into;

 

 

Lakeside terminates the Stock Purchase Agreement following an Adverse Recommendation Change that occurred prior to receipt of the Company Stockholder Approval;

 

 

the Company terminates the Stock Purchase Agreement in order to enter into an acquisition agreement with respect to a Superior Proposal; or

 

 

at or prior to the time of the special meeting, an Adverse Recommendation Change has, or is deemed to have, occurred, and Lakeside or the Company terminates the Stock Purchase Agreement as a result of the Company Stockholder Approval having not been obtained.

If Lakeside or the Company terminates the Stock Purchase Agreement as a result of the Company Stockholder Approval having not been obtained, then the Company will be required to pay to Lakeside all reasonable and documented out-of-pocket expenses incurred by Lakeside or its affiliate in connection with or related to the authorization, preparation, negotiation, execution and performance of the Stock Purchase Agreement and the transactions contemplated thereby up to a maximum amount of $2,000,000; provided that the amount of any such reimbursed expenses will be credited against any Termination Fee paid to Lakeside.

Voting and Support Agreement (see page 64 and Annex B)

In connection with the execution of the Stock Purchase Agreement, Jess Ravich, the Chief Executive Officer and Chairman of the Company (the “Supporting Stockholder”), and Lakeside entered into a Voting and Support Agreement on February 3, 2022 (the “Voting and Support Agreement”).

Pursuant to the Voting and Support Agreement, subject to certain exceptions, at every meeting of the holders of common stock of the Company, however convened, at which any of the following matters is considered or voted upon, and on every action or approval by written consent of such stockholders with respect to any of the following matters, the Supporting Stockholder agreed to vote or give written consent, among other things:

 

in favor of authorizing or approving the transactions contemplated by the Stock Purchase Agreement;

 

 

in favor of any other matter necessary for consummation of the transactions contemplated by the Stock Purchase Agreement;

 

 

against (1) any acquisition agreement (other than the Stock Purchase Agreement), (2) any Acquisition Proposal (including any Superior Proposal), without regard to the terms of such Acquisition Proposal, or any other transaction, proposal, agreement or action made in opposition to, or in competition or inconsistent with, the transactions contemplated by the Stock Purchase Agreement, and (3) any action that would reasonably be expected to result in (x) a breach of or failure to perform, in any material respect, any representation, warranty, covenant or agreement of the Company under the Stock Purchase Agreement or (y) any of the conditions to closing of the transactions contemplated by the Stock Purchase Agreement not being satisfied.

In connection with the foregoing voting covenants and to secure the performance of the Supporting Stockholder’s duties under the Voting and Support Agreement, the Supporting Stockholder granted an irrevocable proxy to, and appointed, Lakeside (and its designees) as the Supporting Stockholder’s proxy and attorney-in-fact to vote the shares of Company common stock that are subject to the Voting and Support Agreement, or give written consent in respect of such shares, in respect of any of the matters covered by the Voting and Support Agreement.

 

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The Voting and Support Agreement will terminate automatically upon the earliest of (a) the termination of the Stock Purchase Agreement in accordance with its terms; (b) the date upon which our Board of Directors effects an Adverse Recommendation Change; and (c) the closing of the transactions contemplated by the Stock Purchase Agreement.

Certain United States Federal Income Tax Consequences of the Phoenix Color Sale (see page 47)

The Phoenix Color Sale will be treated for United States federal income tax purposes as a taxable sale upon which we will recognize a gain or loss. An election pursuant to Section 336(e) of the Code (“Section 336(e) Election”) will be made with respect to the Phoenix Color Sale.  The Section 336(e) Election will result in a deemed sale, for United States federal income tax purposes, by Phoenix Color of all of its assets to a hypothetical unrelated party in exchange for the “aggregate deemed asset disposition price” (as defined by the Treasury Regulations). The amount of gain or loss we recognize will be measured by the difference between the aggregate deemed disposition price and the tax basis in Phoenix Color’s assets. We may reduce or eliminate such gain by use of our net operating losses. 

Certain Accounting Consequences of the Phoenix Color Sale (see page 47)

Under generally accepted accounting principles, upon completion of the Phoenix Color Sale, we will remove the net assets sold and liabilities assumed from our consolidated balance sheet. We will record a gain, net of any applicable taxes, on the Phoenix Color Sale equal to the difference between (i) the consideration received, less transaction expenses, and (ii) the net book value of the assets sold when the transaction is completed. Beginning with the three months ended March 31, 2022, we will reclassify Phoenix Color as held for sale and discontinued operations for all periods presented in order to match the current held-for-sale and discontinued operations classifications.

Anticipated use of Proceeds from the Phoenix Color Sale (see page 66)

We estimate the Company will receive total gross proceeds of approximately $134,775,000 upon consummation of the Transaction (see “Proposal 1: The Phoenix Color Sale ProposalThe Stock Purchase Agreement—Purchase Price” beginning on page 48 of this proxy statement).

The Company expects that it may use these proceeds to pay transaction expenses, to pay down any remaining debt of the Company, to purchase additional assets or businesses, to buy back the Company’s stock and/or for any other purpose that our Board of Directors deems appropriate.

For additional information, please refer to our Unaudited Pro Forma Condensed Consolidated Financial Statements attached to this proxy statement as Annex D, which assume completion of both the Phoenix Color Sale and the Faneuil Transaction, and our Unaudited Pro Forma Condensed Consolidated Financial Statements attached to this proxy statement as Annex E, which assume completion of the Phoenix Color Sale but not the Faneuil Transaction.

Interests of Our Directors and Officers in the Transaction (see page 31)

In considering the recommendation of our Board of Directors with respect to the Phoenix Color Sale Proposal, you should be aware that certain of our directors and executive officers may have interests in the Transaction that are different from, or in addition to, your interests as a stockholder and that such interests may present actual or potential conflicts of interest. Our Board of Directors was aware of these interests prior to the execution of the Stock Purchase Agreement and considered them, among other matters, in approving the Stock Purchase Agreement and in determining to recommend that the stockholders adopt the Stock Purchase Agreement. Such interests include, among other matters, potential bonus payments to our executive officers, entitlement of the executive officers to receive severance benefits under their respective employment agreements upon a qualifying termination of employment following the completion of the Phoenix Color Sale and certain rights to continued indemnification and insurance coverage.

 

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No Appraisal Rights (see page 47)

Holders of our common stock are not entitled to dissenting stockholders’ appraisal rights, rights of objecting stockholders or other similar rights in connection with the Transaction. Delaware law does not provide for appraisal rights or other similar rights to stockholders of a corporation in connection with a sale of substantially all of its assets.

The Special Meeting

Date, Time and Place (see page 26)

The special meeting will take place on April 11, 2022, at 10:00 a.m. Pacific Time, at the offices of Shearman & Sterling LLP, 1460 El Camino Real, Floor 2, Menlo Park, CA 94025.

Purpose (see page 26)

At the special meeting, you will be asked to consider and vote upon: (1) the Phoenix Color Sale Proposal; (2) the Transaction-Related Compensation Proposal and (3) the Adjournment Proposal.

Record Date and Voting Securities (see page 26)

You are entitled to notice of, and to vote at, the special meeting and any adjournment or postponement thereof, if you are a holder of record of our common stock as of the close of business on March 16, 2022, the record date for the special meeting. You will have one vote for each share of our common stock that you owned on the record date. As of the record date, there were 42,408,830 shares of our common stock issued and outstanding and entitled to receive notice of and to vote at the special meeting.

Quorum; Vote Required (see page 26)

Under Section 2.7 of our Restated Bylaws, a majority of all the stock issued and outstanding and entitled to vote, present in person or represented in proxy, shall constitute a quorum for the transaction of business at the special meeting. Pursuant to Section 271 of the Delaware General Corporation Law, or the “DGCL,” the approval of the sale of substantially all of our assets pursuant to the Phoenix Color Sale Proposal requires the affirmative vote of the holders of a majority of the total number of shares of our common stock outstanding and entitled to vote on the matter as of the record date. Under Sections 2.7 and 2.10 of our Restated Bylaws, the approval of the advisory resolution approving the compensation of our named executive officers as disclosed pursuant to Item 402(t) of Regulation S-K and any adjournment of the special meeting each requires the affirmative vote of a majority of the votes cast on such proposal at a meeting at which a quorum is present.

For each proposal, you may vote FOR, AGAINST or ABSTAIN. Abstentions will not be counted as votes cast or shares voting on the Transaction-Related Compensation Proposal or the Adjournment Proposal, but will count for the purpose of determining whether a quorum is present at the special meeting. If you vote ABSTAIN or do not vote on the Phoenix Color Sale Proposal, it will have the same effect as a vote “AGAINST” the Phoenix Color Sale Proposal.

Voting by, and Revocation of, Proxy (see page 27)

You can vote your shares by telephone, electronically via the Internet or by completing and returning the enclosed proxy card. If you vote using the enclosed proxy card, you must sign, date and mail the proxy card in the enclosed envelope.

You may change your vote at any time prior to the vote at the special meeting. Your vote may be revoked by filing with the Company’s counsel, Shearman & Sterling LLP, located at 1460 El Camino Real, 2nd Floor, Menlo Park, CA 94025, Attention: Christopher M. Forrester and Cody Wright, a written notice of revocation, or it may be revoked by a later-dated vote, by mail, by Internet or by telephone, or by attending the meeting and voting in

 

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person. Only a stockholder’s latest proxy received by 11:59 p.m. Eastern Time on April 10, 2022 will be counted. Attendance at the meeting will not, by itself, revoke a proxy.

Our Board of Directors has selected Jess Ravich, our Chief Executive Officer, and Brian Hartman, our Chief Financial Officer, to serve as proxies at the special meeting. The shares of common stock represented by each executed and returned proxy will be voted in accordance with the directions indicated on the proxy card. If no direction is indicated on a signed proxy card, the proxy holders will vote your shares FOR each of the Phoenix Color Sale Proposal, the Transaction-Related Compensation Proposal and the Adjournment Proposal.  No matter other than the Phoenix Color Sale Proposal, the Transaction-Related Compensation Proposal and, if necessary, the Adjournment Proposal will be brought for a vote at the special meeting. See “Other Business” beginning on page 78 of this proxy statement.

 

 

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE TRANSACTION

The following questions and answers are intended to address briefly some commonly asked questions regarding the special meeting and the Transaction. These questions and answers may not address all questions that may be important to you as an ALJ stockholder. Please refer to the “Summary Term Sheet” and the more detailed information contained elsewhere in this proxy statement and the Annexes to this proxy statement which you should read carefully.

Special Meeting and Voting

Q. When and where is the special meeting going to be held?

 

A. The special meeting will be held at the offices of Shearman & Sterling LLP, located at 1460 El Camino Real, Floor 2, Menlo Park, CA 94025, on April 11, 2022 at 10:00 a.m. Pacific Time.

 

Q. What is the purpose of the special meeting?

 

A. At the special meeting, stockholders will be asked to vote on the following matters:

 

1.

the Phoenix Color Sale Proposal:  to approve the sale of Phoenix Color to Lakeside pursuant to the terms and conditions of the Stock Purchase Agreement, to the extent that the Phoenix Color Sale constitutes a sale of substantially all of the assets of the Company under Delaware law;

 

 

2.

the Transaction-Related Compensation Proposal:  to approve the compensation of our named executive officers based on or that otherwise relates to the Phoenix Color Sale as disclosed pursuant to Item 402(t) of Regulation S-K in the accompanying proxy statement; and

 

 

3.

the Adjournment Proposal:  to approve the adjournment or postponement of the special meeting to another date, time or place, if necessary or appropriate, for the purpose of soliciting additional proxies for the proposals to be acted upon at the special meeting in the event that there are insufficient votes at the time of the special meeting or any adjournment thereof to approve one or more of the foregoing proposals.

No other matters will be brought for a vote at the special meeting.

 

Q. Which stockholders may vote?

 

A. Our Board of Directors has fixed the close of business on March 16, 2022 as the record date for determining the stockholders entitled to receive notice of the special meeting, and to vote their shares at the special meeting and any adjournment or postponement of the special meeting. Only stockholders of record at the close of business on the record date will be entitled to notice of, and to vote at, the special meeting and any adjournment or postponement of the special meeting. Each share of the Company’s common stock is entitled to one vote on each matter properly brought to a vote at the special meeting.

At the close of business on the record date, the Company had issued and outstanding 42,408,830 shares of common stock.

Q. What are the Board of Directors’ recommendations for how I should vote my shares?

Our Board of Directors recommends that you vote your shares as follows:

 

FOR the Phoenix Color Sale Proposal;

 

FOR the Transaction-Related Compensation Proposal; and

 

FOR the Adjournment Proposal.

 

 

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Q. Why is the Company seeking a stockholder vote on the Adjournment Proposal?

 

A. Adjourning the special meeting to a later date will give us additional time to solicit proxies to vote in favor of approval of the Phoenix Color Sale Proposal and/or the Transaction-Related Compensation Proposal if there are not sufficient votes in favor of the proposals. Consequently, we are seeking your approval of the Adjournment Proposal to ensure that, if necessary, we will have enough time to solicit the required votes for approval of the Phoenix Color Sale Proposal and/or the Transaction-Related Compensation Proposal.

 

Q. What is the difference between record stockholders and street name stockholders?

 

A. The difference between record stockholders and street name stockholders is as follows:

 

Record Stockholders. If, as of the record date, your shares are registered directly in your name with American Stock Transfer & Trust Company, LLC, our transfer agent, you are considered, with respect to those shares, the stockholder of record, and the proxy materials are being sent to you by us. As the stockholder of record, you have the right to grant your voting proxy directly to the individuals listed on the proxy card or to vote by telephone or the Internet as instructed on the proxy card or in person at the special meeting.

 

Street Name Stockholders. If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered, with respect to those shares, the beneficial owner of shares held in street name. The proxy materials are being forwarded to you by your broker or nominee, who is considered, with respect to those shares, the record holder. As the beneficial owner, you have the right to direct your broker or nominee how to vote, and you are also invited to attend the special meeting. However, since you are not the record holder, you may not vote these shares in person at the special meeting unless you follow your broker’s procedures for obtaining a legal proxy. Your broker or nominee will provide a voting instruction card for you to use.

 

Q. Can I attend the special meeting in person?

 

A. Yes. You are invited to attend the special meeting if you are a record stockholder or street name stockholder as of March 16, 2022, the record date. You may be required to present photo identification, such as a driver’s license or passport, to gain admission to the special meeting.

 

Q. How many votes must be present at the special meeting to constitute a quorum?

 

A. Stockholders holding a majority of the issued and outstanding shares of our common stock entitled to vote as of the record date, March 16, 2022, must be present, in person or by proxy, to constitute a quorum at the special meeting. As of the record date, there were 42,408,830 shares of our common stock issued and outstanding. Shares voted to ABSTAIN and broker non-votes on any proposal to be acted upon by stockholders at the special meeting will be treated as present at the special meeting for purposes of determining whether a quorum is present.

 

Q. How many votes can be cast by all stockholders?

 

A. 42,408,830 votes may be cast at the special meeting. Each stockholder is entitled to cast one vote for each share of common stock held by such stockholder as of the record date.

 

Q. What vote is needed for each of the proposals to be adopted?

 

A. Under Section 271 of the DGCL, the approval of the sale of substantially all of our assets pursuant to the Phoenix Color Sale Proposal requires the affirmative vote of the holders of a majority of the total number of shares of our common stock outstanding and entitled to vote on the matter.

Under Sections 2.7 and 2.10 of our Restated Bylaws, the approval of the Transaction-Related Compensation Proposal and the Adjournment Proposal each requires the affirmative vote of a majority of the votes cast on such proposal at a special meeting at which a quorum is present.

 

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Q. What is a broker non-vote?

 

A. Generally, a broker non-vote occurs when shares held by a bank, broker or other nominee for a beneficial owner are not voted with respect to a particular proposal because (i) the nominee has not received voting instructions from the beneficial owner and (ii) the nominee lacks discretionary voting power to vote such shares. Under the rules of the Nasdaq Stock Market (the “NASDAQ”), a nominee does not have discretionary voting power with respect to “non-routine” matters.

Each of the matters to be brought before the special meeting is a “non-routine” matter under the NASDAQ’s rules. As a result, your bank, broker or other nominee may only vote your shares at the special meeting if you have provided your bank, broker or other nominee with specific voting instructions.

Thus, if your shares are held in “street name” and you do not provide instructions as to how your shares are to be voted at the special meeting, your bank, broker or other nominee will not be able to vote your shares on your behalf and your shares will be reported as “broker non-votes.”

However, broker non-votes will be counted for purposes of calculating whether a quorum is present at the special meeting.  Accordingly, a broker non-vote will not negatively impact our ability to obtain a quorum but will have the effect of a vote against the Phoenix Color Sale Proposal.

We urge you to provide instructions to your bank, broker or other nominee so that your votes may be counted for each proposal to be voted upon at the special meeting. You should vote your shares by following the instructions provided on the vote instruction form that you receive from your bank, broker or other nominee.

Q. How do I vote?

A. You can vote in person or by valid proxy received by telephone or over the Internet, or by mail. We urge you to vote by doing one of the following:

Vote by Telephone or over the Internet:

 

Vote by Mail:

You may vote your shares by telephone or via the Internet by following the instructions provided in the proxy materials. If you vote by telephone or via the Internet, you do not need to return a proxy card by mail. Telephone and Internet voting are available 24 hours a day. Votes submitted by telephone or through the Internet must be received by 11:59 p.m. Eastern Time on April 10, 2022.

 

If you received printed proxy materials, you may submit your vote by marking, dating, signing and mailing the enclosed proxy card in the prepaid envelope. Giving a proxy will not affect your right to vote your shares if you attend the special meeting and want to vote in person. The shares represented by the proxies received in response to this solicitation and not properly revoked will be voted at the special meeting in accordance with the instructions therein.

Q. Can I change my vote?

A. Yes. Please follow the applicable instructions described below for record stockholders and street name stockholders:

 

Record Stockholders: You may change your vote at any time prior to the vote at the special meeting. Your vote may be revoked by filing with the Company’s counsel, Shearman & Sterling LLP, located at 1460 El Camino Real, 2nd Floor, Menlo Park, CA 94025, Attention: Christopher M. Forrester and Cody Wright, a written notice of revocation, or it may be revoked by a later-dated vote, by mail, by Internet or by telephone, or by attending the meeting and voting in person. Only a stockholder’s latest proxy received by 11:59 p.m. Eastern Time on April 10, 2022 will be counted. Attendance at the meeting will not, by itself, revoke a proxy.

 

 

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Street Name Stockholders: If you hold your shares through a broker, bank or other nominee, please follow the instructions provided by your broker, bank or other nominee as to how you may change your vote or obtain a “legal proxy” to vote your shares if you wish to cast your vote in person at the special meeting.

Q. Could other matters be decided at the special meeting?

A. No. No matters other than the Phoenix Color Sale Proposal, the Transaction-Related Compensation Proposal and, if necessary, the Adjournment Proposal will be brought for a vote at the special meeting.

Q. What if I vote for some but not all of the proposals?

A. Shares of our common stock represented by proxies received by us (whether received through the return of the enclosed proxy card or received via telephone or the Internet) where the stockholder has provided voting instructions with respect to the proposals described in this proxy statement, including the Phoenix Color Sale Proposal, the Transaction-Related Compensation Proposal and the Adjournment Proposal, will be voted in accordance with the voting instructions so made. If your proxy card is properly executed and returned but does not contain voting instructions as to one or more of the proposals to be voted upon at the special meeting, or if you give your proxy by telephone or via the Internet without indicating how you want to vote on each of the proposals to be voted upon at the special meeting, your shares will be voted:

 

FOR the Phoenix Color Sale Proposal;

 

FOR the Transaction-Related Compensation Proposal; and

 

FOR the Adjournment Proposal.

If your shares are held in street name and you do not properly instruct your bank, broker or other nominee how to vote your shares on any proposal to be brought before the special meeting, your bank, broker or other nominee matters would not be able to vote your shares on such proposal. We encourage you to provide instructions to your bank, broker or other nominee by carefully following the instructions provided to ensure that your shares are voted at the special meeting in accordance with your desires.

Q. Who will pay for the cost of this proxy solicitation?

 

A. We will pay the cost of preparing, assembling, printing, mailing, distributing and making available these proxy materials and soliciting votes. We may, on request, reimburse brokerage firms and other nominees for their expenses in forwarding or making available proxy materials to beneficial owners. In addition to soliciting proxies by mail, we expect that our directors, officers and employees may solicit proxies in person, by phone or by other electronic means. None of these individuals will receive any additional or special compensation for doing this, although we will reimburse these individuals for their reasonable out-of-pocket expenses.

 

Q. How are votes counted?

 

A. All votes will be tabulated by the inspector of elections appointed for the special meeting by the Company, who will tabulate affirmative and negative votes, abstentions and broker non-votes. Votes for and against and abstentions will each be counted for determining the presence of a quorum.

 

Proposed Transaction

Q. What is the proposed Transaction?

 

A. The proposed Transaction is the sale of Phoenix Color to Lakeside on the terms and conditions of the Stock Purchase Agreement.

 

 

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Q. What are the total gross proceeds that the Company estimates it will receive for the Transaction?

A. Under the Stock Purchase Agreement, the purchase price for the Transaction is an amount equal to $134,775,000, minus (A) the amount of indebtedness of Phoenix Color and its subsidiaries as of the Closing Date, minus (B) the amount, if any, by which $9,818,269 exceeds the working capital of Phoenix Color and its subsidiaries as of the Closing Date, plus (C) the amount, if any, by which the working capital of Phoenix Color and its subsidiaries as of the Closing Date exceeds $9,818,269, minus (D) the amount of transaction expenses of Phoenix Color and its subsidiaries as of the Closing Date. If the Closing takes place after April 15, 2022, but on or before May 15, 2022, then the purchase price will be reduced by $1,000,000.  If the Closing takes place after May 15, 2022, then the purchase price will be reduced by $2,000,000.

We estimate the Company will receive total gross proceeds of approximately $134,775,000 upon consummation of the Transaction.

Q. If the Phoenix Color Sale is consummated, how does the Company intend to use the proceeds from the Transaction?

 

A. We expect that the proceeds from the Phoenix Color Sale may be used to pay transaction expenses, to pay down any remaining debt of the Company, to purchase additional assets or businesses, to buy back the Company’s stock or for any other purpose that our Board of Directors deems appropriate.  (See “Proposal 1: The Phoenix Color Sale Proposal—Anticipated Use of Proceeds from the Transaction” beginning on page 66 of this proxy statement for additional information.)

 

Q. What will happen if stockholders do not approve the Phoenix Color Sale Proposal?

 

A. We cannot complete the Phoenix Color Sale unless our stockholders approve the Phoenix Color Sale Proposal, in addition to the satisfaction of the other conditions to closing of the Phoenix Color Sale. If our stockholders do not approve the Phoenix Color Sale Proposal, then the Stock Purchase Agreement may be terminated by either us or Lakeside. Under these circumstances, the Company will be required to pay to Lakeside all reasonable and documented out-of-pocket expenses incurred by Lakeside or its affiliate in connection with or related to the authorization, preparation, negotiation, execution and performance of the Stock Purchase Agreement and the transactions contemplated thereby up to a maximum amount of $2,000,000; provided that the amount of any such reimbursed expenses will be credited against any Termination Fee paid to Lakeside.

 

Q. What is the Transaction-Related Compensation Proposal?

 

A. The Transaction-Related Compensation Proposal is a non-binding advisory vote to approve the payment of certain compensation to our named executive officers that is based on or otherwise relates to the Phoenix Color Sale. For further information regarding the compensation arrangements, see “Proposal 1: The Phoenix Color Sale Proposal —Interests of Our Directors and Officers” beginning on page 31 of this proxy statement.

 

Q. What will happen if the Transaction-Related Compensation Proposal is not approved by our stockholders?

 

A. The advisory (nonbinding) vote on executive compensation payable in connection with the Transaction is a vote separate and apart from the Phoenix Color Sale Proposal. Accordingly, approval of this proposal is not a condition to completion of the Phoenix Color Sale, and as an advisory vote, the result will not be binding on our Board of Directors. Although the Transaction-Related Compensation Proposal is only advisory in nature and is not binding on our Board of Directors or the Company, we intend to review the voting results with our Board of Directors so that such voting results may be taken into consideration in connection with future executive compensation decisions.

 

 

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Q. What if the Company receives another offer for Phoenix Color?

 

A. Under the Stock Purchase Agreement, subject to certain exceptions, the Company has agreed that the Company will not solicit, initiate or encourage or facilitate the submission of alternate Acquisition Proposals or engage in any discussions or negotiations with respect to any Acquisition Proposal or to furnish to any person any non-public information with respect to its business, properties or assets in connection with any Acquisition Proposal.  However, if, prior to obtaining the Company Stockholder Approval, (i) the Company or any of its subsidiaries has received an unsolicited bona fide written Acquisition Proposal from a third party that is not an affiliate of Lakeside that did not result from or arise out of a breach of the Company’s non-solicitation obligations, and (ii) our Board of Directors determines in good faith, after consultation with its financial advisors and outside legal counsel, that such Acquisition Proposal constitutes or is reasonably likely to lead to a proposal that is superior to the current Phoenix Color Sale and that the failure to take such action would be inconsistent with the fiduciary duties required of our Board of Directors under applicable law, then the Company and its subsidiaries may (A) furnish information with respect to the Company and its subsidiaries to the person making such Acquisition Proposal and (B) engage in discussions or negotiations with the person making such Acquisition Proposal. (See “Proposal 1: The Phoenix Color Sale Proposal—The Stock Purchase Agreement—Change in Recommendation of our Board of Directors; Fiduciary Termination” beginning on page 56 of this proxy statement for more information.)

 

Q. Will the Company continue operations if the Phoenix Color Sale is completed?

 

A. Yes. Whether or not the Phoenix Color Sale is completed, we intend to continue to operate our remaining Faneuil business. (See “Proposal 1: The Phoenix Color Sale Proposal—The Stock Purchase Agreement —Effect of the Phoenix Color Sale” beginning on page 48 of this proxy statement for more information.)


Q. What will happen if the Phoenix Color Sale is not completed?

 

A. If the proposed Phoenix Color Sale is not completed, we may explore other strategic alternatives for Phoenix Color, including the sale of Phoenix Color to another party. Any alternative transaction may have terms that are less favorable to us than the terms of the proposed Phoenix Color Sale or we may be unable to reach agreement with any third-party on an alternate transaction that we would consider to be reasonable.

 

Q. Will I have dissenting stockholder’s appraisal rights or rights of objecting stockholders with respect to the Transaction?

 

A. No. You are not entitled to dissenting stockholders’ appraisal rights, rights of objecting stockholders or other similar rights in connection with the Phoenix Color Sale and Stock Purchase Agreement. Delaware law does not provide for appraisal rights, rights of objecting stockholders or other similar rights to stockholders of a corporation in connection with a sale of substantially all of its assets.

 

Q. Are there any risks related to the proposal for the sale of substantially all of the assets of the Company pursuant to the Phoenix Color Sale Proposal?

 

A. Yes. You should carefully review “Risk Factors” beginning on page 21 of this proxy statement for a description of risks related to each of the Phoenix Color Sale Proposal.

 

Q. Will I owe any United States federal income taxes as a result of the Phoenix Color Sale?

A. The Phoenix Color Sale will not result in any direct United States federal income tax consequences to our stockholders. You are urged to read the discussions in “Proposal 1: The Phoenix Color Sale Proposal—Certain United States Federal Income Tax Consequences of the Phoenix Color Sale” beginning on page 47 of this proxy statement for a summary of the material United States federal income tax consequences to us of the Transaction, and to consult your tax advisor as to the United States federal income tax consequences of the Transaction, as well as the effects of state, local and foreign tax laws to you.

 

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General

Q. Who can help answer my questions?

 

A. If you have any questions about the special meeting, any of the Phoenix Color Sale Proposal, the Transaction-Related Compensation Proposal or the Adjournment Proposal, how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, you should contact our Corporate Secretary at (888) 486-7775, or by writing to Corporate Secretary at 244 Madison Avenue, PMB #358, New York, NY 10016.

 

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The information in this proxy statement includes forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. We intend that such forward-looking statements be subject to the safe harbors created by Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act. These statements include statements regarding the intent, belief or current expectations of members of our management team, as well as the assumptions on which such statements are based, and are generally identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should,” “could,” “continues,” “pro forma” or similar expressions. Among many other examples, the following statements are examples of the forward-looking statements in this document:

 

all statements regarding the satisfaction of certain closing conditions in the Stock Purchase Agreement and the timing of closing of the Phoenix Color Sale;

 

all statements regarding financial projections for Phoenix Color;

 

all statements regarding our future business, future business prospects, future revenues or cash flows, future working capital, the amount of cash reserves to be established in the future, future liquidity, future capital needs and future income;

 

all statements regarding the tax and accounting consequences of the Phoenix Color Sale; and

 

all statements regarding the amounts of proceeds resulting from the Phoenix Color Sale, including statements regarding our intended use of the proceeds resulting from the Phoenix Color Sale.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Such statements are subject to known and unknown risks and uncertainties and other unpredictable factors, many of which are beyond our control. We make no representation or warranty (express or implied) about the accuracy of any such forward-looking statements. These statements are based on a number of assumptions involving the judgment of management. Many relevant risks are described under “Risk Factors” beginning on page 21 of this proxy statement, as well as throughout this proxy statement, and you should consider these important cautionary factors as you read this document.

Our actual results, performance or achievements may differ materially from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements. Among the factors that could cause such a difference are:

 

the occurrence of any event, change or circumstance that could give rise to the termination of the Stock Purchase Agreement;

 

the outcome of any legal proceedings that may be initiated against any of the Company, Phoenix Color or any of the other parties to the Stock Purchase Agreement;

 

the inability to complete the Phoenix Color Sale due to the failure to obtain the Company Stockholder Approval, or the failure to satisfy other conditions to consummation of the Phoenix Color Sale;

 

the failure of the Phoenix Color Sale to close for any other reason;

 

risks that the Phoenix Color Sale disrupts current plans and operations and the potential difficulties in employee retention generally;

 

the amount of the costs, fees and expenses related to the Transaction;

 

the effects of market volatility or macroeconomic changes and financial market regulations on the industry in which Phoenix Color operates;

 

the effects of changes in, or our failure to comply with, laws and regulations; and

 

the other factors discussed under “Risk Factors” beginning on page 21 of this proxy statement.

Many of the factors that will determine our future results are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof.

 

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We cannot guarantee any future results, levels of activity, performance or achievements. The statements made in this proxy statement represent our views as of the date of this proxy statement, and it should not be assumed that the statements made herein remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements or update the reasons that actual results could differ materially from those anticipated in forward-looking statements, except as required by law.

 

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RISK FACTORS

The following risk factors, together with the other information in this proxy statement, should be carefully considered by each of our stockholders before deciding whether to vote to approve the Phoenix Color Sale Proposal as described in this proxy statement. In addition, our stockholders should keep in mind that the risks described below are not the only risks that are relevant to your voting decision. The risks described below are the risks that we currently believe are the material risks of which our stockholders should be aware. Nonetheless, additional risks that are not presently known to us, or that we currently believe are not material, may also prove to be important.

Risks Related to the Phoenix Color Sale

The Phoenix Color Sale is subject to the Company Stockholder Approval and other closing requirements, and may not be completed as anticipated, or at all.

The sale of 100% of the outstanding shares of capital stock of Phoenix Color Corp. may be deemed to constitute a sale of substantially all of our assets under Delaware law and, therefore, the closing of the Phoenix Color Sale is subject to the approval of our stockholders that is the subject of this special meeting, the release of Phoenix Color Corp. and its subsidiaries as borrowers, guarantors and pledgors (as applicable) under our existing credit agreement, the expiration or termination of waiting periods under the HSR Act, as well as other customary closing requirements.

In addition, the Stock Purchase Agreement provides certain termination rights to Lakeside and to us. If an Adverse Recommendation Change by our Board of Directors occurs prior to us receiving the Company Stockholder Approval, Lakeside has the right to terminate the Stock Purchase Agreement and we must pay to Lakeside a $4,000,000 termination fee. If we engage in discussions or negotiations with respect to an unsolicited Superior Proposal from a third party prior to us receiving the Company Stockholder Approval, we have the right, under certain circumstances, to terminate the Stock Purchase Agreement and enter into a definitive transaction agreement providing for such Superior Proposal, and we must pay to Lakeside a $4,000,000 termination fee. Furthermore, if the Stock Purchase Agreement is terminated under the circumstance that we cannot obtain the Company Stockholder Approval, then we must reimburse Lakeside for all reasonable out-of-pocket expenses incurred by Lakeside up to a maximum amount of $2,000,000.

The total proceeds realized from the Phoenix Color Sale are contingent upon receiving the required stockholder vote and meeting other customary closing conditions as of the Closing Date. There can be no assurances that we will receive the vote and satisfy the conditions. Any delay in receiving the required stockholder vote and satisfying the other closing conditions may increase the risk that the Phoenix Color Sale will be terminated, or reduce the benefits that we expect to achieve.

If the Phoenix Color Sale does not close in accordance with its negotiated terms, we may not be able to negotiate another transaction for the sale of Phoenix Color at all, or to negotiate a sale for Phoenix Color with expected proceeds similar to those expected under the Stock Purchase Agreement, which could materially and adversely affect our business and financial results.

The Phoenix Color Sale is subject to clearance under the HSR Act, and regulatory authorities may impose conditions on clearance of the Phoenix Color Sale under the HSR Act that could prevent completion of the transaction.

Before the closing of the Phoenix Color Sale may be completed, the parties must obtain clearance under the HSR Act. In deciding whether to grant clearance to the Phoenix Color Sale under the HSR Act, the relevant governmental authorities have broad discretion and may, among other factors, consider the effect of the proposed transactions on competition within their relevant jurisdiction. The terms and conditions of the clearance under the HSR Act may impose requirements, limitations or costs on the parties or otherwise delay completion of the Phoenix Color Sale. Under the Stock Purchase Agreement, the parties have agreed to use their reasonable best efforts to obtain clearance under the HSR Act; however, there can be no assurance that governmental authorities will not impose conditions or limitations on the Phoenix Color Sale. For a more detailed description of the regulatory review

 

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process, see “Proposal 1: The Phoenix Color Sale ProposalThe Stock Purchase Agreement—HSR and Other Regulatory Approvals beginning on page 57 of this proxy statement.

The Stock Purchase Agreement with Lakeside may be amended, and any term or provision may be waived by a writing signed by the party against whom such or waiver is sought to be enforced.

The Stock Purchase Agreement may be amended or modified by a writing signed by the parties, and any provision of the Stock Purchase Agreement may be waived by a writing signed by the party against whom enforcement of any such waiver is sought. As a result, if we are unable to satisfy any closing requirement upon which the Phoenix Color Sale is dependent, then the amendment of the Stock Purchase Agreement or the waiver of such closing requirement, as applicable, will be subject to approval by Lakeside. Additionally, Lakeside may make the granting of any such amendment or waiver contingent on our approval of new or additional terms or conditions of the Stock Purchase Agreement. Any inability to obtain such an amendment or waiver of the Stock Purchase Agreement, or to satisfy any additional terms or conditions of the Stock Purchase Agreement required by Lakeside, could have a material and adverse effect on our ability to complete the Phoenix Color Sale.

We may not distribute the proceeds of the Phoenix Color Sale.

There can be no assurances that we will return capital to stockholders as a result of the Phoenix Color Sale, or that any amounts returned will be distributed in any prescribed time frame. The amount of capital available for distribution and the method and timing of such distributions, if any, will depend on several factors, including but not limited to:

 

the completion of the Phoenix Color Sale, including the receipt of required approvals and the time required to obtain such approvals;

 

the proceeds realized from the Phoenix Color Sale;

 

the completion of the Faneuil Transaction, including the receipt of required approvals and the time required to obtain such approvals;

 

the proceeds realized from the Faneuil Transaction;

 

the actual amounts of future cash outflows, including expenses incurred in connection with the Phoenix Color Sale and the Faneuil Transaction, required payments for our outstanding indebtedness and realized tax amounts;

 

the outcomes of contingencies, including our legal and regulatory matters, any purchase price adjustment, and other contingencies; and

 

working capital and contingent cash requirements of the Company’s remaining business.

In addition, the method, timing and amount of any returns of capital will be at the discretion of our Board of Directors and will depend on market and business conditions, the market price of our common stock and our overall capital structure and liquidity position.

The announcement and pendency of the Phoenix Color Sale, whether or not consummated, creates uncertainty about our future, which could have a material adverse effect on our business, financial condition and results of operations.

The announcement and pendency of the Phoenix Color Sale, whether or not consummated, creates uncertainty about our future and introduces additional risks to our business. The risks related to the announcement and pendency of the Phoenix Color Sale include:

 

the diversion of management and employee attention and resources from our day-to-day operations;

 

the potential disruption to business partners, customers, suppliers and other service providers which could cause customers, suppliers and others that deal with us and/or our businesses to seek to change existing business relationships;

 

the loss of employees who may depart due to concerns regarding uncertainty relating to their jobs following the closing of the Phoenix Color Sale; and

 

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we may be unable to respond effectively to competitive pressures, industry developments and future opportunities.

The occurrence of any of these events individually or in combination could have a material adverse effect on our business, financial condition and results of operations. Additionally, we have incurred substantial transaction costs and diversion of management resources in connection with the Phoenix Color Sale, and we will continue to do so until the final closing or termination of the Transaction.

If the proposed Phoenix Color Sale is not completed, we may explore other potential transactions, but alternatives may be less favorable to us.

Completion of the Phoenix Color Sale will require significant time, attention, and resources of our senior management and others within Phoenix Color, potentially diverting their attention from other business opportunities that might benefit us. If the proposed Phoenix Color Sale is not completed, we may explore other strategic alternatives to another party or parties. An alternative transaction may have terms that are less favorable to us than the terms of the proposed Phoenix Color Sale, or we may be unable to reach agreement with any third-party on an alternate transaction that we would consider to be reasonable.

In addition, as discussed above, if the proposed Phoenix Color Sale is terminated in certain circumstances, we may be obligated to pay a $4,000,000 termination fee and all reasonable out-of-pocket expenses (up to a maximum of $2,000,000) incurred by Lakeside under the Stock Purchase Agreement. If the Phoenix Color Sale is not completed, we may have difficulty recouping the costs incurred in connection with negotiating such transaction, preparing the Stock Purchase Agreement and this proxy statement.

We will be subject to certain other contractual restrictions while the Phoenix Color Sale is pending.

The Stock Purchase Agreement restricts us from taking certain actions prior to the closing of the Phoenix Color Sale or the termination of the Stock Purchase Agreement, which may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Transaction and could have the effect of delaying or preventing other strategic transactions. See “Proposal 1: The Phoenix Color Sale Proposal—The Stock Purchase AgreementConduct of Business Prior to Closing” beginning on page 50 of this proxy statement.

The failure to complete the Phoenix Color Sale may impact our business, financial condition and results of operations.

If the Phoenix Color Sale is not completed for any reason, our business, financial condition and results of operations may be impacted. To the extent that the market price of our common stock reflects positive market assumptions that the Transaction will be completed and the related benefits will be realized, the failure to complete the Transaction may result in a decrease in the market value of our common stock and may impair our ability to achieve our objective of enhancing the value of our assets to our stockholders. Additionally, we will have incurred significant expenses, such as in connection with legal and financial advisory services, which generally must be paid regardless of whether the Transaction is completed. We may be unable to enter into alternative transactions for the sale of Phoenix Color on terms as favorable as the Transaction or at all.

Our directors and executive officers may have interests in the Phoenix Color Sale that may be different from, or in addition to, the interests of our stockholders generally.

Certain of our directors and executive officers negotiated the terms of the Phoenix Color Sale, and our Board of Directors unanimously recommended that our stockholders vote in favor of the Phoenix Color Sale Proposal, the Transaction-Related Compensation Proposal and the Adjournment Proposal. These directors and executive officers may have interests in the merger that are different from, or in addition to, those of our stockholders. These interests include, among other matters, potential bonus payments to certain of our executive officers, entitlement of certain of our executive officers to receive severance benefits under their respective employment agreements upon a qualifying termination of employment following the completion of the Phoenix Color Sale and certain rights to continued indemnification and insurance coverage. Our stockholders should be

 

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aware of these interests when they consider our Board of Directors’ recommendation that they vote in favor of the Phoenix Color Sale Proposal, the Transaction-Related Compensation Proposal and the Adjournment Proposal.

Our Board of Directors was aware of these potential interests and considered them in making its recommendations to approve the Phoenix Color Sale Proposal, the Transaction-Related Compensation Proposal and the Adjournment Proposal. For more detail regarding the interests of our directors and executive officers, see “Proposal 1: The Phoenix Color Sale Proposal—Interests of Our Directors and Officers” beginning on page 31 of this proxy statement.

The opinion obtained by our Board of Directors from its financial advisor does not and will not reflect changes in circumstances after the date of such opinion.

Lincoln orally rendered its opinion to our Board of Directors, subsequently confirmed in writing, by delivery of Lincoln’s written opinion addressed to the Board of Directors dated February 3, 2022, that, as of the date of such opinion, and upon and subject to the qualifications, procedures, limitations and assumptions set forth therein, the Consideration to be received by ALJ in the Transaction pursuant to, and subject to the adjustments described in, the Stock Purchase Agreement, is fair, from a financial point of view, to ALJ. Changes in the operations and prospects of Phoenix Color, general market and economic conditions and other factors that may be beyond our control, and on which the opinion of Lincoln was based, may alter Phoenix’s value. We have not obtained, and we do not expect to request, an updated opinion from our financial advisor. Lincoln’s opinion does not speak to the time when the Transaction will be completed or to any date other than the date of such opinion. As a result, the opinion does not and will not address the fairness, from a financial point of view, of the aggregate consideration to be received by us in connection with the Transaction at the time the Transaction is completed or at any time other than the date when the opinion was rendered. For a more complete description of the opinion that our Board of Directors received from Lincoln and a summary of the material financial analyses Lincoln provided to our Board of Directors in connection with rendering such opinion, see “Proposal 1: The Phoenix Color Sale Proposal—Opinion of Lincoln International LLC” beginning on page 42 of this proxy statement and the full text of such written opinion included as Annex C to this proxy statement.

Risks Relating to our Company if the Phoenix Color Sale is Completed

After completion of the Phoenix Color Sale, the size of our Company may be sub-scale, we will have substantially fewer assets, we may be more susceptible to adverse events, and we may not be able to use the proceeds from the Phoenix Color Sale as intended.

If the Phoenix Color Sale is completed, we will no longer own Phoenix Color and our future results of operations will be dependent solely on the remaining Faneuil business and differ materially from our previous results of operations. After completion of the Phoenix Color Sale, we will be subject to concentration of the risks that affect our remaining Faneuil business and we will have substantially fewer assets and may experience significant decreases in earnings and cash flow and increases in operating costs or other expenses. Following the Phoenix Color Sale, we will continue to be a public company (whether or not the Faneuil Transaction is completed) with ongoing costs associated with public company operations, which will be a greater percentage of our revenues. The market price of our common stock may significantly decrease, and our common stock may be more susceptible to market fluctuations. In addition, if there are significant adverse changes in our business prospects, the industries in which we operate, or in market and economic conditions generally, or if the Faneuil Transaction is not completed, we may not be able to use the proceeds from the Phoenix Color Sale as currently intended, because the proceeds would be expected to be used to pay down the remaining debt of the Company if the Faneuil Transaction is not completed and may be required for operations or other needs at Faneuil that we do not currently anticipate. Any downturn in our remaining Faneuil business or future prospects following the closing of the Phoenix Color Sale, or if we fail to bring overhead costs in line with our reduced operations following the closing of the Phoenix Color Sale, could have a material adverse effect on our future operating results and financial condition and could materially and adversely affect the market price of our securities.

 

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Following the Phoenix Color Sale, the continuing costs and burdens associated with being a public company will constitute a much larger percentage of our revenues.

If the Phoenix Color Sale is completed, we will remain a public company and will continue to be subject to the listing standards of the NASDAQ and SEC rules and regulations, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Sarbanes-Oxley Act of 2002. While all public companies face the costs and burdens associated with being public companies, the costs and burden of being a public company will be a significant portion of our revenues, which will be reduced if the Phoenix Color Sale is completed.

Our future results following the Phoenix Color Sale may differ materially from the unaudited pro forma financial statements attached as Annex D and Annex E to this proxy statement.

The unaudited pro forma condensed consolidated financial statements attached to this proxy statement as Annex D present our historical consolidated financial statements as adjusted to give effect to the Phoenix Color Sale and the Faneuil Transaction. The unaudited pro forma condensed consolidated financial statements attached to this proxy statement as Annex E present our historical consolidated financial statements as adjusted to give effect to only the Phoenix Color Sale but not the Faneuil Transaction. The unaudited pro forma condensed consolidated financial statements are not necessarily indicative of our financial condition. In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect our financial condition and results of operations following the Phoenix Color Sale. Any change in our financial condition or results of operations may cause significant variations in the price of our common stock. See “Unaudited Pro Forma Condensed Consolidated Financial Statements Assuming Completion of Phoenix Color Sale and Faneuil Transaction” at Annex D and “Unaudited Pro Forma Condensed Consolidated Financial Statements Assuming Completion of Phoenix Color Sale Only” at Annex E of this proxy statement for more information.


 

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THE SPECIAL MEETING

Date, Time, Place and Purpose of the Special Meeting

This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by our Board of Directors for use at the special meeting to be held on April 11, 2022, at 10:00 a.m. Pacific Time, at the offices of Shearman & Sterling LLP, located at 1460 El Camino Real, Floor 2, Menlo Park, CA 94025, to consider and vote upon: (1)  the Phoenix Color Sale Proposal, (2) the Transaction-Related Compensation Proposal and (3) the Adjournment Proposal.

Record Date

Our Board of Directors has specified the close of business on March 16, 2022 as the record date for purpose of determining our stockholders who are entitled to receive notice of and to vote at the special meeting. Only our stockholders of record on the close of business on the record date are entitled to notice of and to vote at the special meeting. As of the record date, there were 42,408,830 shares of our common stock issued and outstanding and entitled to notice of and to vote at the special meeting. Each share of our common stock entitles its holder to one vote on all matters properly coming before the special meeting.

As of March 16, 2022, the record date, our directors and executive officers held and are entitled to vote, in the aggregate, 18,912,685 shares of our common stock, representing approximately 44.6% of our issued and outstanding common stock.

Quorum; Vote Required

Under Section 2.7 of our Restated Bylaws, a majority of all the stock issued and outstanding and entitled to vote, present in person or represented in proxy, shall constitute a quorum for the transaction of business at the special meeting.  Pursuant to Section 271 of the Delaware General Corporation Law (the “DGCL”), the approval of the sale of substantially all of our assets pursuant to the Phoenix Color Sale Proposal requires the affirmative vote of the holders of a majority of the total number of shares of our common stock outstanding and entitled to vote on the matter as of the record date. Under Sections 2.7 and 2.10 of our Restated Bylaws, the approval of the advisory resolution approving the compensation of our named executive officers as disclosed pursuant to Item 402(t) of Regulation S-K and any adjournment of the special meeting each requires the affirmative vote of a majority of the votes cast on such proposal at a meeting at which a quorum is present. See “The Special Meeting—Quorum; Vote Required” beginning on page 26 of this proxy statement.

Abstentions and Broker Non-Votes

For each proposal, you may vote FOR, AGAINST or ABSTAIN. Abstentions will not be counted as votes cast or shares voting on the Transaction-Related Compensation Proposal or the Adjournment Proposal, but will count for the purpose of determining whether a quorum is present at the special meeting. If you vote ABSTAIN or do not vote on the Phoenix Color Sale Proposal, it will have the same effect as a vote “AGAINST” the Phoenix Color Sale Proposal.

Under the rules of the NASDAQ, brokers who hold shares in street name for customers have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are precluded from exercising their voting discretion with respect to approving non-routine matters such as the approval of the Phoenix Color Sale Proposal. As a result, absent specific instructions from the beneficial owner of such shares, brokers cannot vote those shares, referred to generally as “broker non-votes.” Any broker non-votes will be counted for purposes of determining whether a quorum is present at the special meeting but will have the same effect as a vote “AGAINST” the Phoenix Color Sale Proposal. However, any broker non-votes will have no effect on the outcome of the vote for each of the Transaction-Related Compensation Proposal and the Adjournment Proposal.

 

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Proxies and Revocation

If you submit a proxy by telephone, via the Internet or by returning a signed proxy card by mail, your shares will be voted at the special meeting as you indicate. If you sign your proxy card without indicating your vote, your shares will be voted “FOR” the Phoenix Color Sale Proposal, “FOR” the Transaction-Related Compensation Proposal, and “FOR” the Adjournment Proposal. If your shares of common stock are held in street name, you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares voted. If you do not instruct your broker to vote your shares, it has the same effect as a vote against the Phoenix Color Sale Proposal.

Proxies received at any time before the special meeting, and not revoked or superseded before being voted, will be voted at the special meeting. You have the right to change or revoke your proxy at any time before it is voted at the special meeting in the following ways:

 

Record Stockholders: You may change your vote at any time prior to the vote at the special meeting. Your vote may be revoked by filing with the Company’s counsel, Shearman & Sterling LLP, located at 1460 El Camino Real, 2nd Floor, Menlo Park, CA 94025, Attention: Christopher M. Forrester and Cody Wright, a written notice of revocation, or it may be revoked by a later-dated vote, by mail, by Internet or by telephone, or by attending the meeting and voting in person. Only a stockholder’s latest proxy received by 11:59 p.m. Eastern Time on April 10, 2022 will be counted. Attendance at the meeting will not, by itself, revoke a proxy.

 

 

Street Name Stockholders: If you hold your shares through a broker, bank or other nominee, please follow the instructions provided by your broker, bank or other nominee as to how you may change your vote or obtain a “legal proxy” to vote your shares if you wish to cast your vote in person at the special meeting.

No matter other than the Phoenix Color Sale Proposal, the Transaction-Related Compensation Proposal and, if necessary, the Adjournment Proposal will be brought for a vote at the special meeting.

Adjournments and Postponements

Although it is not currently expected, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies. Whether or not a quorum is present, a special meeting of stockholders may be adjourned without notice by announcement made at the special meeting, of the time, date and place of the adjourned meeting. Any signed proxies received by us in whom no voting instructions are provided on such matter will be voted “FOR” the Adjournment Proposal to approve any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies.

Dissenters’ Rights

Holders of our common stock are not entitled to dissenting stockholders’ appraisal rights or other similar rights in connection with the Phoenix Color Sale and Stock Purchase Agreement. The DGCL does not provide for appraisal rights, rights of objecting stockholders or other similar rights to stockholders of a corporation in connection with a sale of substantially all of its assets.

Solicitation of Proxies

This proxy solicitation is being made and paid for by the Company on behalf of our Board of Directors. Our directors, officers and employees may solicit proxies by personal interview, mail, e-mail, telephone, facsimile or other means of communication. These persons will not be paid additional remuneration for their efforts. We will also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of our common stock that the brokers and fiduciaries hold of record. Upon request, we will reimburse them for their reasonable out-of-pocket expenses.

 

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Questions and Additional Information

If you have more questions about the Phoenix Color Sale, the advisory (nonbinding) vote on executive compensation payable in connection with the Transaction or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call our Corporate Secretary at (888) 486-7775, or write to Corporate Secretary at 244 Madison Avenue, PMB #358, New York, NY 10016.

Our Board of Directors unanimously recommends that you vote “FOR” the Phoenix Color Sale Proposal, “FOR” the Transaction-Related Compensation Proposal, and “FOR” the Adjournment Proposal.


 

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PROPOSAL 1: THE PHOENIX COLOR SALE PROPOSAL

General Description of the Phoenix Color Sale

Pursuant to the Stock Purchase Agreement, dated as of February 3, 2022, by and between ALJ and Lakeside,  ALJ has agreed to sell to Lakeside 100 shares of the Class A Common Stock, par value $0.01 per share, of Phoenix Color, representing 100% of the outstanding shares of capital stock of Phoenix Color.

The purchase price for the Phoenix Color Sale will be an amount equal to $134,775,000, minus (A) the amount of indebtedness of Phoenix Color and its subsidiaries as of the Closing Date, minus (B) the amount, if any, by which $9,818,269 exceeds the working capital of Phoenix Color and its subsidiaries as of the Closing Date, plus (C) the amount, if any, by which the working capital of Phoenix Color and its subsidiaries as of the Closing Date exceeds $9,818,269, minus (D) the amount of transaction expenses of Phoenix Color and its subsidiaries as of the Closing Date. If the Closing takes place after April 15, 2022, but on or before May 15, 2022, then the purchase price will be reduced by $1,000,000.  If the Closing takes place after May 15, 2022, then the purchase price will be reduced by $2,000,000.

See “Proposal 1: The Phoenix Color Sale Proposal—The Stock Purchase Agreement” beginning on page 47 of this proxy statement for more information. A copy of the Stock Purchase Agreement is attached to this proxy statement as Annex A. We encourage you to read the Stock Purchase Agreement and the Voting and Support Agreement in their entireties.

The Parties to the Phoenix Color Sale

ALJ

ALJ is a holding company consisting of the following wholly owned subsidiaries:

 

Faneuil, which is a leading provider of call center services, back-office operations, staffing services, and toll collection services to government and regulated commercial clients across the United States, focusing on the healthcare, utility, transportation, and toll revenue collection industries. Faneuil is headquartered in Hampton, Virginia.  The Company acquired Faneuil in October 2013.

On December 21, 2021, the Company entered into the Asset Purchase Agreement with TTEC, TTEC Holdings, Inc., a Delaware corporation, and Faneuil, pursuant to which TTEC agreed, subject to the terms and conditions set forth in the Asset Purchase Agreement, to acquire the assets of Faneuil’s tolling and transportation vertical and health benefit exchange vertical.  As of the date of this proxy statement, the Faneuil Transaction has not closed.  We expect, but cannot guarantee, that the Faneuil Transaction will close within 30 days of the date of this proxy statement.

 

Phoenix Color (described in more detail below).

ALJ’s common stock is publicly traded on NASDAQ under the symbol “ALJJ.”  Our executive offices are located at 244 Madison Avenue, PMB #358, New York, NY 10016, and our telephone number is (888) 486-7775.

Phoenix Color

Phoenix Color is a Delaware corporation headquartered in Hagerstown, Maryland.  The Company acquired Phoenix Color in August 2015.

Phoenix Color is a premier full-service, full-color printer with over 40 years of superior printing experience.  Drawing on a broad spectrum of materials and decorative technologies, Phoenix Color produces memorable, value-added components, heavily illustrated books, and specialty commercial products. Book publishers generally design book components to enhance the sales appeal of their books. The production of book components requires specialized equipment, materials, and finishes and often demands high-quality, intricate work. As a result,

 

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many leading publishers rely on specialty printers such as Phoenix Color to supply high-quality book components. This same philosophy applies to labels, packaging, and specialty commercial products, where Phoenix Color customers require the knowledge and expertise of a printer that can enhance their products for sale into the commercial marketplace. Phoenix Color has been servicing the publishing industry within the United States since 1979 and has formed lasting relationships with many of the biggest names in book publishing.

As a domestic manufacturer, Phoenix Color offers extensive, in-house digital pre-press capabilities and its technologically advanced UV printing platform supports an array of printing and finishing options.  Phoenix Color innovative special effects include foil stamping, UV embellishments, and laminations, as well as its trademarked products LithoFoil®, MetalTone™, Look of Leather™, and VibraColor™.

Phoenix Color’s principal executive offices are located at 18249 Phoenix Dr, Hagerstown, MD 21742, and its telephone number is (301) 733-0018.

Lakeside

Lakeside is a Delaware limited liability company headquartered in Warrenville, Illinois, and a direct wholly owned subsidiary of LSC Communications LLC  (“LSC”), a Delaware limited liability company and indirect wholly owned subsidiary of funds managed by Atlas Holdings LLC (“Atlas”), which acquired substantially all of the assets of LSC Communications, Inc. in December 2020.

Lakeside operates the book division of LSC and is the largest book manufacturer in the United States. In addition to book manufacturing, Lakeside provides warehousing, distribution, sales, marketing services and fulfillment services, as well as IP and brand protection technology for book publishers and others requiring premium quality print and distribution-related services.  Lakeside also operates a publishing group that publishes books under the Dover Publications and REA imprints.  With approximately 5,400 associates, Lakeside operates across more than 15 facilities throughout the United States.

LSC is a global leader in print and digital media solutions and offers a range of services and products that serve the needs of publishers, merchandisers and retailers around the world through a number of business units in addition to Lakeside.

Lakeside’s executive offices are located at 4101 Winfield Road, Warrenvile, IL 60555, and its telephone number is (844) 572-5720.

Recommendation of our Board of Directors with respect to the Phoenix Color Sale Proposal

Our Board of Directors, at a special meeting held on February 2, 2022, after due consideration, unanimously (i) determined that the Phoenix Color Sale on the terms and conditions of the Stock Purchase Agreement is advisable, fair, expedient and for the best interests of the Company and its stockholders, (ii) approved the Stock Purchase Agreement and the consummation by the Company of the transactions contemplated by the Stock Purchase Agreement, and (iii) directed that the Phoenix Color Sale on the terms and conditions of the Stock Purchase Agreement be submitted for consideration by our stockholders at a special meeting of stockholders. Our Board of Directors has unanimously approved the Phoenix Color Sale on the terms and conditions of the Stock Purchase Agreement and unanimously recommends that stockholders vote “FOR” the Phoenix Color Sale Proposal.

Vote Required

The affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote thereon is required for the approval of the Phoenix Color Sale (the “Company Stockholder Approval”). This means that, of the shares of common stock entitled to vote on the proposal (regardless of whether the holders of such shares are present in person or by proxy at the special meeting), a majority must vote in favor of the proposal to approve the Phoenix Color Sale in order for the Phoenix Color Sale to be approved. Abstentions and broker non-votes will have the effect of a vote against this proposal.

 

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Under the Voting and Support Agreement, Mr. Ravich, our Chairman and Chief Executive Officer and the Company’s largest stockholder, has agreed to vote or cause to be voted all of the shares of the Company’s common stock owned by him beneficially or of record (other than any shares that he is required to vote in accordance with that certain Voting Agreement, dated as of September 6, 2019, by and between Mr. Ravich and the Company (the “Existing Voting Agreement”)) in favor of the Phoenix Color Sale, and that the Voting and Support Agreement terminates in the event of an Adverse Recommendation Change by our Board of Directors.

Members of our Board of Directors who beneficially owned an aggregate of approximately 43.4% of the outstanding shares of common stock as of March 16, 2022 have indicated that they intend to vote in favor of Phoenix Color Sale.

Interests of Our Directors and Officers

In considering the recommendation of our Board of Directors with respect to the Phoenix Color Sale Proposal, you should be aware that certain of our directors and executive officers may have interests in the Phoenix Color Sale that are different from, or in addition to, your interests as a stockholder and that such interests may present actual or potential conflicts of interest. Our Board of Directors was aware of these interests prior to the execution of the Stock Purchase Agreement and considered them, among other matters, in approving the Stock Purchase Agreement and in determining to recommend that the stockholders adopt the Stock Purchase Agreement. Such interests include, among other matters, potential bonus payments to our executive officers, entitlement of the executive officers to receive severance benefits under their respective employment agreements upon a qualifying termination of employment following the completion of the Phoenix Color Sale and certain rights to continued indemnification and insurance coverage. In addition, the number of shares of our common stock owned by our directors and executive officers as of March 16, 2022, appears below under “Proposal 1: The Phoenix Color Sale Proposal—Security Ownership of Certain Beneficial Owners and Management” beginning on page 67 of this proxy statement.

Employment Agreements with Executive Officers

 

Employment Agreement with Mr. Ravich

The Company is party to an amended and restated employment agreement with Mr. Jess Ravich, its Chief Executive Officer, dated as of June 21, 2020 (the “Ravich Employment Agreement”).  Under the Ravich Employment Agreement, if Mr. Ravich’s employment is terminated by the Company without “cause” or by Mr. Ravich with “good reason,” Mr. Ravich will be entitled to (1) continued payment of his base salary until the earlier of one year from his date of termination and the end of the initial term (September 30, 2022) or any additional two-year term (such period, the “Ravich Severance Period”), (2) a pro-rated annual bonus payment for the year of termination, calculated based on actual performance for the year of termination and (3) continued medical plan coverage during the Ravich Severance Period at no cost to Mr. Ravich. In addition, under the Ravich Employment Agreement, Mr. Ravich is entitled to a Realization Bonus (the “Realization Bonus”) upon the Closing of the Phoenix Color Sale equal to 5% of the gross sales price (excluding expenses of the Phoenix Color Sale) less the sum of (1) the gross purchase price of Phoenix Color and any of its subsidiaries and (2) any growth capital expenditures incurred after the Closing of the purchase of Phoenix Color. Pursuant to the Ravich Employment Agreement, Mr. Ravich has agreed to restrictions on the use of confidential information and, for a period of one year following his termination of employment, not to compete with the Company, not to solicit its customers, clients or suppliers to cease doing business with the Company and not to solicit or encourage to cease providing services to the Company, or to hire, any individual providing services to the Company in the six-month period preceding the solicitation or hire.

 

Employment Agreement with Mr. Hartman

 

The Company is party to an amended and restated employment agreement with Mr. Brian Hartman, its Chief Operating Officer, dated as of August 20, 2021 (the “Hartman Employment Agreement”).  Under the Hartman Employment Agreement, if Mr. Hartman’s employment is terminated by the Company without “cause” or by Mr. Hartman with “good reason,” Mr. Hartman will be entitled to (1) continued payment of his base salary for six months, plus one additional month of base salary for every year of service completed, for a maximum of 12 months

 

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(2) continued health care coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) at active employee rates, (3) the annual bonus for the year in which his termination of employment occurs, if Mr. Hartman would have otherwise been entitled to receive such bonus had he been employed at the time that the annual bonuses are paid and (4) the annual bonus for the year prior to the year in which his termination of employment occurs, if Mr. Hartman had otherwise earned an annual bonus payment for such prior year and said bonus had not yet been paid. Pursuant to the Hartman Employment Agreement, Mr. Hartman has agreed to restrictions on the use of confidential information and, for a period of one year following his termination of employment, not to compete with the Company, not to solicit its customers, clients or suppliers to cease doing business with the Company and not to solicit or encourage to cease providing services to the Company, or to hire, any individual providing services to the Company in the six-month period preceding the solicitation or hire.

 

Employment Agreements with Other Key Employees

 

Employment Agreement with Mr. Reisch

 

Phoenix Color is party to an amended and restated employment agreement with Mr. Marc Reisch, its Chairman, dated as of December 17, 2021 (the “Reisch Employment Agreement”).  Pursuant to the Reisch Employment Agreement, Mr. Reisch is entitled to an annual bonus equal to $200,000 (the “Base Bonus”), an annual bonus equal to 10% of the adjusted EBITDA of Phoenix Color for the fiscal year to the extent the adjusted EBITDA is between $17,500,000 and $27,000,000, plus 5% of the adjusted EBITDA above $27,000,000 (the “Annual Bonus”) and a retention bonus (the “Retention Bonus”) equal to $5,000,000.  The remaining portions of the Retention Bonus will vest and become payable as follows: 50% on September 15, 2022 and 50% on September 15, 2023.  Under the Reisch Employment Agreement, if Mr. Reisch’s employment is terminated by Phoenix Color without “cause” or by Mr. Reisch with “good reason,” Mr. Reisch will be entitled to any unpaid portion of the Retention Bonus (including any portion that had not yet vested as of the date of Mr. Reisch’s termination). Pursuant to the Reisch Employment Agreement, Mr. Reisch has agreed to restrictions on the use of confidential information and, for one year following his termination of employment, not to compete with Phoenix Color, not to solicit its customers, clients or suppliers to cease doing business with Phoenix Color and not to solicit or encourage to cease providing services to Phoenix Color, or to hire, any individual providing services to Phoenix Color in the six-month period preceding the solicitation or hire.

 

Pursuant to the Reisch Employment Agreement, upon the Closing of the Phoenix Color Sale, Mr. Reisch will be entitled to a bonus (the “Reisch Sale Bonus”), equal to five percent (5%) of the amount by which the net sale price exceeds $85,000,000. In addition, Mr. Reisch will receive a pro-rata portion of the Base Bonus and Annual Bonus (with the Annual Bonus calculated using a trailing twelve month adjusted EBITDA as of the last day of the fiscal quarter preceding the quarter in which the Phoenix Color Sale occurs).  The Reisch Sale Bonus, as well as the pro-rated portions of the Base Bonus and Annual Bonus, will be paid to Mr. Reisch in a lump sum on the first payroll period following the Closing of the Phoenix Color Sale.

 

Prior to the Closing Date, the Company, Mr. Reisch and Phoenix Color will enter into an amendment and novation of the Reisch Employment Agreement (the “Reisch Novation Agreement”), pursuant to which the Company will assume all obligations of Phoenix Color under the Reisch Employment Agreement and will permit Mr. Reisch to provide services to Phoenix Color as a consultant for up to 10 hours a week for a period of three months following the Closing Date.

 

Definition of “Cause”

 

Under each employment agreement, “cause” means generally (1) continued neglect by the executive of the executive’s duties, (2) continued incompetence or unsatisfactory attendance, (3) conviction of any felony, (4) violation of the rules, regulations, procedures or instructions relating to the conduct of employees, directors, officers or consultants of the Company (in the case of Mr. Reisch, Phoenix Color), (5) willful misconduct by the executive in connection with the performance of any material portion of the executive’s duties, (6) breach of fiduciary obligation owed to the Company (in the case of Mr. Reisch, Phoenix Color) or commission of any act of fraud, embezzlement, disloyalty or defalcation, or usurpation of a Company opportunity, (7) breach of any provision of the applicable employment agreement, including any non-competition, non-solicitation or confidentiality provisions, (8) any act that has a material adverse effect upon the reputation of or the public confidence in the Company (in the

 

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case of Mr. Reisch, Phoenix Color), (9) failure to comply with a reasonable order, policy or rule that constitutes material insubordination, (10) engaging in any discriminatory or sexually harassing behavior or (11) using, possessing or being impaired by or under the influence of illegal drugs or the abuse of controlled substances or alcohol on the premises of the Company (in the case of Mr. Reisch, Phoenix Color) or any of its subsidiaries or affiliates or while working or representing the Company (in the case of Mr. Reisch, Phoenix Color) or any of its subsidiaries or affiliates.

 

Definition of “Good Reason”

Under each employment agreement, “good reason” means generally, without the advance written consent of the specified executive officer: (1) a reduction in base salary (unless such reduction is made generally to other senior executives of the Company), or, in the case of Mr. Reisch, Phoenix Color, a reduction in base salary, Base Bonus, Annual Bonus, Retention Bonus or Reisch Sale Bonus, or (2) a material reduction in the executive’s title or responsibilities, provided, that a change in reporting responsibilities or a reduction in responsibilities that occurs solely by virtue of the Company (in the case of Mr. Reisch, Phoenix Color) being acquired and made part of a larger entity will not by itself constitute “good reason.” A termination by the executive for “good reason” will be effective only if the executive provides the Company or Phoenix Color, as applicable, with written notice specifying the event which constitutes “good reason” within 30 days (15 days under the Ravich Employment Agreement) following the occurrence of such event or date the executive became aware or should have become aware of such event, and the Company or Phoenix Color, as applicable, fails to cure the circumstances giving rise to “good reason” within 30 days (15 days under the Ravich Employment Agreement).

Transaction Bonus for Mr. Hartman

Upon the closing of the Phoenix Color Sale, Mr. Hartman will be entitled to a transaction bonus equal to $200,000 (the “Hartman Sale Bonus”), which will be paid to Mr. Hartman in a lump sum on the first payroll period following the closing of the Phoenix Color Sale.  

Indemnification and Insurance

Pursuant to the terms of the Stock Purchase Agreement, Phoenix Color’s non-employee directors and executive officers will be entitled to certain indemnification protections by Lakeside following the Phoenix Color Sale, as further described in “Proposal 1: The Phoenix Color Sale Proposal—The Stock Purchase Agreement—Other Covenants” beginning on page 60 of this proxy statement, and will be entitled to ongoing indemnification and coverage under certain of our directors’ and officers’ liability insurance policies following the Transaction.

        As permitted in accordance with Section 2-418(k) of the Maryland General Corporation Law, the Company maintains a directors and officers liability insurance policy providing insurance for the directors and officers of the Company against certain liabilities asserted against them or incurred by them, including liabilities under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.

Quantification of Potential Payments and Benefits to the Company’s Named Executive Officers in Connection with the Transaction

 

In accordance with Item 402(t) of Regulation S-K, the table below sets forth the compensation that is based on or otherwise relates to the Phoenix Color Sale that may become payable to each of the Company’s named executive officers in connection with the Phoenix Color Sale.  For additional details regarding the terms of the payments described below, see the discussion in “Proposal 1: The Phoenix Color Sale Proposal—Interests of Our Directors and Officers” beginning on page 31 of this proxy statement.

The amounts indicated in the table below are estimates of the amounts that would be payable assuming, solely for purposes of this table, that the Phoenix Color Sale was consummated on March 1, 2022, the Faneuil Transaction has closed and that the employment of each of the named executive officers was immediately terminated by the Company without “cause” or by the executive for “good reason” on such date. In addition to the assumptions regarding the consummation date of the Phoenix Color Sale and the termination of employment, these estimates assume that the purchase price for the Phoenix Color Sale will be $134,775,000 and that the Company purchased

 

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Phoenix Color for aggregate consideration of $104.6 million (which amount represents the sum of the gross purchase price of Phoenix Color and any of its subsidiaries and any growth capital expenditures incurred after the Closing of the purchase of Phoenix Color). In addition, the amounts shown below do not attempt to quantify any reduction that may be applied to avoid application of the excise tax under Section 280G of the Code; therefore, actual payments to the named executive officers may be less than the amounts indicated below. Accordingly, the actual values to be received by a named executive officer in connection with the Phoenix Color Sale may differ from the amounts set forth below.

Named Executive Officer

 

Cash ($)

 

 

Perquisites/

Benefits ($)

 

 

Total ($) (6)

Mr. Jess Ravich

 

1,682,350

 

(1)

3,829

 

(2)

1,686,179

Mr. Brian Hartman

 

833,330

 

(3)

11,520

 

(4)

844,850

Ms. Anna Van Buren (5)

 

-

 

 

-

 

 

-

(1)

Represents $131,250 of base salary continuation through September 30, 2022, a pro-rated amount of Mr. Ravich’s annual bonus for the year of termination (based on actual performance as of March 1, 2022) equal to $42,250, and the Realization Bonus, which is equal to $1,508,850.

(2)

Represents the estimated value of the continued medical benefits payable by the Company through September 30, 2022.  

(3)

Represents $333,330 of base salary continuation for 10 months, the annual bonus of $300,000 for the year in which Mr. Hartman’s termination of employment occurs and the Hartman Sale Bonus, which is equal to $200,000.

(4)

Represents the value of the employer’s portion of Mr. Hartman’s health care benefits.

(5)

Ms. Van Buren’s employment with the Company and its subsidiaries will terminate as of the closing of the Faneuil Transaction.

(6)

No named executive officer is entitled to a gross-up or other make-whole payment in connection with any golden parachute excise taxes imposed due to Section 280G of the Code on the payments and benefits that the named executive officer may receive in connection with the transaction, including the payments and benefits reflected above.

 

Background of the Transaction

Lakeside is the largest producer of books in the United States and one of Phoenix Color’s largest customers.  Since December 2020, Lakeside has been a direct wholly owned subsidiary of LSC, a Delaware limited liability company and a portfolio company of Atlas.

Early in the second quarter of 2021, Marc Reisch, Chairman and Chief Executive Officer of Phoenix Color, had lunch with Dave McCree, Lakeside’s Chief Executive Officer.  At that meeting, Mr. McCree asked if ALJ would consider a possible transaction with Lakeside involving Phoenix Color.  Mr. Reisch responded that, depending on the proposed terms, ALJ would be open to discussions regarding such a transaction.

On May 24, 2021, Tim Fazio, managing partner and co-founder of Atlas, and member of the Board of Managers of ACR III Global LSC Holdings LLC, an affiliate of Atlas which indirectly wholly owns LSC and Lakeside, sent an email to Mr. Reisch and Jess Ravich, our Chairman and Chief Executive Officer, requesting a call to discuss Phoenix Color.  Mr. Reisch and Mr. Ravich then had two phone calls with Mr. Fazio, on June 18 and July 6, 2021, to discuss their preliminary views of possible transactions that the parties might engage in with respect to Phoenix Color.  During this time, Mr. Fazio suggested that the parties should sign a confidentiality agreement to enable the sharing of additional information regarding their businesses.

 

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Following the discussions with Mr. Fazio, the Company engaged Shearman & Sterling LLP (“Shearman”), the Company’s longtime external legal counsel, to represent it in connection with a possible transaction involving Phoenix Color.

On August 13, 2021 and August 18, 2021, Mr. Reisch had phone calls with representatives of Atlas and Lakeside to provide a high-level business overview of Phoenix Color.

On August 20, 2021, Atlas delivered a letter to the Company (the “August 20 letter”), addressed to Mr. Ravich, indicating Atlas’s interest in acquiring, directly or indirectly through one of its affiliates, the assets of Phoenix Color (the “Phoenix Color assets”) and combining them with Lakeside. The August 20 letter stated that, based on certain assumptions set forth in the letter and subject to due diligence and the negotiation of definitive documentation, Atlas or one of its affiliates was prepared to purchase the Phoenix Color assets on a cash-free, debt-free basis for a purchase price in the range of $120 million to $140 million.

On August 23, 2021, the Company entered into a confidentiality agreement with Atlas, pursuant to which each of the Company and Atlas agreed to disclose confidential information to the other to enable them to further evaluate a possible negotiated transaction involving the acquisition of Phoenix Color.

On August 24 and September 2, 2021, representatives of Phoenix Color, Lakeside and Atlas had phone calls to discuss the scope of the financial diligence and to answer additional questions regarding Phoenix Color’s business.

On September 3, 2021, the Company provided to Atlas and Lakeside and their respective representatives the requested financial information regarding Phoenix Color, including several years of its historical financial statements and details regarding its historical and planned capital expenditures.  On September 10, 2021, representatives of Phoenix Color and Atlas had a phone call to discuss the financial information that had been provided and next steps.

On September 14, 2021, Atlas delivered a revised letter to the Company (the “September 14 letter”), indicating Atlas’ continued interest in acquiring, directly or indirectly through one of its affiliates, the Phoenix Color assets and combining them with Lakeside.  The September 14 letter stated that, based on the same assumptions set forth in the August 20 letter and subject to completion of its due diligence and the negotiation of definitive documentation, Atlas or one of its affiliates was prepared to purchase the Phoenix Color assets on a cash-free, debt-free basis for a purchase price in the range of $130 million.

On September 20, 2021, representatives of ALJ and Phoenix Color, including Mr. Reisch, had a phone call with representatives of Atlas and Lakeside to discuss a proposed process for additional due diligence of Phoenix Color.

Beginning on October 1, 2021, representatives of Lakeside were given access to an electronic data room containing additional non-public information regarding Phoenix Color to enable them to conduct further due diligence on Phoenix Color.  In addition, throughout the months of October and November 2021, representatives of Phoenix Color and the Company, including Mr. Reisch and Brian Hartman, Chief Financial Officer of the Company, participated in more than a dozen diligence calls with representatives of Atlas and/or Lakeside.

On October 8, 2021, the Company entered into an Engagement Letter with Lincoln to provide a fairness opinion in connection with the Transaction.

On October 12, 2021, a videoconference meeting of our Board of Directors was held to discuss, among other things, the status of the proposed sale of Phoenix Color.  At the meeting, representatives of Shearman described the terms of the draft Stock Purchase Agreement that it was preparing, in consultation with the Company’s management, to deliver to Lakeside and its counsel, and answered the directors’ questions relating thereto.  Representatives of Shearman also reviewed with the Board of Directors their fiduciary duties in connection with the proposed transaction.

 

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On October 15, 2021, Shearman delivered to Willkie Farr & Gallagher LLP (“Willkie”), Lakeside’s external legal counsel for the proposed transaction, an initial draft of the Stock Purchase Agreement that contemplated, among other things: a transaction structured as a purchase of all of the outstanding capital stock of Phoenix Color, not just the Phoenix Color assets; a base purchase price of $130 million; and non-survival of the parties’ representations and warranties, and certain covenants following the Closing.

On October 21, 2021, Shearman delivered to Willkie an initial draft of the Voting and Support Agreement.

On November 1, 2021, Willkie delivered to Shearman a revised draft of the Stock Purchase Agreement that, among other things: identified Lakeside as the intended purchaser; significantly expanded the representations, warranties and covenants to be made by the Company; provided for the survival of the representations, warranties and covenants of the Company following the Closing; and proposed an indemnity by the Company to Lakeside for damages arising from any breaches of certain representations and warranties, and covenants of the Company.  Willkie also informed Shearman that the structure of the proposed transaction was still under consideration by its client, which preferred an asset purchase rather than a stock purchase, and that the base purchase price had not yet been agreed pending completion of due diligence.  In response to this markup, representatives of the Company advised representatives of Lakeside that the Company did not intend to provide Lakeside with an indemnity in the proposed transaction and expected that Lakeside would obtain a representations and warranties insurance policy for such purposes.

On November 2, 2021, a videoconference meeting of our Board of Directors was held to discuss, among other things, the status of the proposed sale of Phoenix Color.  At the meeting, representatives of Shearman described the principal business and legal issues raised by Willkie’s November 1 revised draft of the Stock Purchase Agreement.

During November 2021, the parties continued to work on the due diligence and, in early December 2021, representatives of Lakeside provided to the Company Lakeside’s updated position on material transactions terms, which included the following: absence of a post-Closing indemnity for any breaches of the Company’s representations, warranties and covenants and that Lakeside would obtain a representations and warranties insurance policy for such purposes; the proposed transaction would be structured as an acquisition of all of the outstanding capital stock of Phoenix Color, not just the Phoenix Color assets, provided that the Company would make a Section 336(e) Election resulting in the Transaction being deemed an asset sale for United States federal income tax purposes; and Lakeside would pay a base purchase price of $125 million.

On December 20, 2021, Mr. Ravich and Mr. Fazio discussed by phone Lakeside’s updated positions on material transaction terms for the Phoenix Color Sale, including the Company’s view that the revised purchase price proposed by Lakeside was too low. On their call, no agreement was reached on the purchase price, and Mr. Ravich informed Mr. Fazio that the Company would defer further negotiations with Lakeside while the Company focused on the completion of the Company’s separate negotiations with TTEC for the sale of the assets of Faneuil’s tolling and transportation vertical and health benefit exchange vertical.

On December 23, 2021, the Company announced its entry into the Asset Purchase Agreement for the Faneuil Transaction.

In early January 2022, the parties continued discussions regarding the proposed Phoenix Color Sale, exchanging several emails and conducting two phone calls, on January 12 and January 26, 2022, to further negotiate the purchase price and related transaction terms.  On January 16, 2022, the parties reached a tentative understanding that Lakeside would pay a base purchase price of $135 million, provided that the Company would make a Section 336(e) Election and that purchase price would be reduced by $1 million if the Transaction did not close by April 15, 2022 and by an additional $1 million if the Transaction did not close by May 15, 2022.  They also agreed that the purchase price would be reduced at the Closing for any then outstanding amounts related to the purchase and installation by the Company of certain new equipment in its Hagerstown and Terre Haute facilities.

Following the tentative understanding on purchase price reached on January 16, 2022, the parties and their respective representatives resumed negotiation of the terms of the Stock Purchase Agreement and the Voting and Support Agreement during the next two weeks.  These negotiations focused on, among other things:  the working

 

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capital target; Lakeside and the Company’s obligations to obtain clearance of the Transaction under the HSR Act, including certain restrictions on Lakeside’s ability to acquire businesses similar to Phoenix Color prior to obtaining such clearance; the ability of Lakeside and Phoenix Color to make claims under insurance policies of the Company following the Closing; the ability of our Board of Directors to make an Adverse Recommendation Change under certain circumstances; and whether the Voting and Support Agreement would terminate in the event of an Adverse Recommendation Change.

On January 20, 2022, a videoconference meeting of our Board of Directors was held to discuss, among other things, the status of the proposed sale of Phoenix Color.  At the meeting, representatives of Shearman summarized the status of the Company’s negotiations with Lakeside, including the tentative understanding on purchase price reached by the parties on January 16, 2022.

On January 25, 2022, another videoconference meeting of our Board of Directors was held to discuss, among other things, the status of the proposed sale of Phoenix Color.  At the meeting, representatives of Shearman provided an update on the negotiations of the Stock Purchase Agreement with Willkie and Lakeside and again reviewed with the Board of Directors their fiduciary duties in connection with the proposed transaction.

On February 2, 2022, a videoconference meeting of our Board of Directors was held to consider and approve the proposed sale of Phoenix Color.  At the meeting, representatives of Shearman described the latest changes to the draft Stock Purchase Agreement, which was then in substantially final form, and answered the directors’ questions relating thereto.  Representatives of Lincoln then gave a presentation to the directors regarding the financial analyses performed by Lincoln and, following discussion thereof, Lincoln orally rendered its opinion to our Board of Directors that, as of that date, and upon and subject to the qualifications, procedures, limitations and assumptions set forth therein, the consideration to be received by the Company in the Transaction pursuant to, and subject to the adjustments described in, the Stock Purchase Agreement, was fair, from a financial point of view, to the Company. Next, Mr. Ravich reviewed with the Board of Directors the few remaining transaction issues outstanding between the parties and advised the Board that the Company might need to agree to a reduction of the purchase price by up to $500,000 to settle those remaining issues.  After further discussion, the directors unanimously (i) determined that the Phoenix Color Sale on the terms and conditions of the Stock Purchase Agreement is advisable, fair, expedient and for the best interests of the Company and its stockholders, (ii) approved the Stock Purchase Agreement (including any amendments thereto to resolve the remaining issues) and the consummation by the Company of the transactions contemplated by the Stock Purchase Agreement, and (iii) directed that the Phoenix Color Sale on the terms and conditions of the Stock Purchase Agreement be submitted for consideration by our stockholders at a special meeting of stockholders.

Later on February 2, 2022, representatives of the Company and Phoenix Color, including Mr. Ravich and Mr. Reisch, and representatives of Lakeside held a videoconference meeting to resolve the remaining issues in the Stock Purchase Agreement and the Voting and Support Agreement.  Following the meeting, representatives of the Company agreed with representatives of Lakeside that the base purchase price would be reduced by $225,000, to $134,775,000, to settle certain of those remaining issues.  Over the next 24 hours, Shearman and Willkie worked to finalize the drafting in the Stock Purchase Agreement and the Voting and Support Agreement to reflect the parties’ resolution of the remaining issues, including the revised base purchase price.

In the morning of February 3, 2022, Lincoln was informed of the revised base purchase and was provided a near-final draft of the Stock Purchase Agreement.  Lincoln then delivered its written opinion to our Board of Directors that, as of that date, and upon and subject to the qualifications, procedures, limitations and assumptions set forth therein, the consideration to be received by the Company in the Transaction pursuant to, and subject to certain adjustments as described in, the Stock Purchase Agreement, was fair, from a financial point of view, to the Company.

In the evening of February 3, 2022, the Company, Lakeside and Phoenix Color executed the Stock Purchase Agreement, and Lakeside and Mr. Ravich concurrently executed the Voting and Support Agreement.  The Transaction was publicly announced the next morning, on February 4, 2022.

 

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Reasons for Recommending the Phoenix Color Sale

Our Board of Directors (i) determined that the Phoenix Color Sale on the terms and conditions of the Stock Purchase Agreement is advisable, fair, expedient and for the best interests of the Company and its stockholders, (ii) approved the Stock Purchase Agreement and the consummation by the Company of the transactions contemplated by the Stock Purchase Agreement, and (iii) directed that the Phoenix Color Sale on the terms and conditions of the Stock Purchase Agreement be submitted for consideration by our stockholders at a special meeting of stockholders. Our Board of Directors unanimously recommends that the Company’s stockholders vote “FOR” the approval of the Phoenix Color Sale on the terms and conditions of the Stock Purchase Agreement.

In evaluating the Phoenix Color Sale, our Board of Directors discussed the proposed transaction with the Company’s management and legal and financial advisors and considered a variety of factors, including the positive factors set forth below, each of which our Board of Directors believed supported its determination:

 

our Board of Directors’ knowledge of the business, financial condition, strategy and prospects of Phoenix Color, including the risks and uncertainties inherent in Phoenix Color’s business;

 

our Board of Directors’ knowledge of Phoenix Color’s historical financial performance and results of operations and management’s projections for future financial performance;

 

the amount of the consideration to be received by the Company upon the consummation of the Phoenix Color Sale pursuant to the terms of the Stock Purchase Agreement;

 

the fact that the consideration for the Phoenix Color Sale consists solely of cash, allowing the Company to immediately realize the full value of the Phoenix Color Sale;

 

the opinion of Lincoln, dated February 3, 2022, to our Board of Directors that, as of that date, and upon and subject to the qualifications, procedures, limitations and assumptions set forth therein, the consideration to be received by the Company in the Transaction pursuant to, and subject to certain adjustments as described in, the Stock Purchase Agreement, was fair, from a financial point of view, to the Company;

 

the representation made by Lakeside to the Company in the Stock Purchase Agreement that Lakeside will have on the Closing Date sufficient funds to consummate the Phoenix Color Sale, and the absence of a financing condition to the Closing;

 

the fact that the Stock Purchase Agreement was the product of arm’s-length negotiations between the parties and was designed to provide substantial certainty that the Phoenix Color Sale would ultimately be consummated on a timely basis;

 

the agreement made by Lakeside in the Stock Purchase Agreement that Lakeside may not, and must cause its controlled affiliates not to, acquire or make any investment in certain types of businesses if the investment or acquisition would reasonably be expected to result in a material delay in the satisfaction of any of the conditions to the Closing or any of such conditions not being satisfied;

 

the fact that the Transaction is structured as a sale of the equity of Phoenix Color, rather than a sale of its assets, which will reduce the number of consents required from counterparties to contracts with Phoenix Color in connection with the consummation of the Transaction, and which will result in the Company not retaining any of the liabilities of Phoenix Color following the Closing;

 

the fact that the Company’s representations, warranties and pre-Closing covenants in the Stock Purchase Agreement will not survive the Closing, that the Company is not required to indemnify Lakeside for any breaches of such representations, warranties and covenants, and that Lakeside has obtained a representations and warranties insurance policy for such purpose;

 

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the ability of the Company to, prior to the time that the stockholders of the Company approve the Phoenix Color Sale, furnish information to and conduct negotiations with third parties in respect of any unsolicited Acquisition Proposal if our Board of Directors determines in good faith, after consultation with its financial advisors and outside legal counsel, that the Acquisition Proposal constitutes or is reasonably likely to lead to a Superior Proposal and that the failure to take such action would be inconsistent with the fiduciary duties required of our Board of Directors under applicable law;

 

the ability of our Board of Directors to make an Adverse Recommendation Change following receipt of an unsolicited bona fide written Acquisition Proposal that did not result from a breach of the Company’s non-solicitation obligations and which our Board of Directors determines in good faith, in consultation with its financial advisors and outside legal counsel, is a Superior Proposal, and the ability of the Company to terminate the Stock Purchase Agreement and enter into a definitive acquisition agreement with respect to the Superior Proposal in those circumstances, subject to the payment of the Termination Fee by the Company to Lakeside; and

 

under the Voting and Support Agreement, Mr. Ravich, our Chairman and Chief Executive Officer and the Company’s largest stockholder, has agreed to vote or cause to be voted all of the shares of the Company’s common stock owned by him beneficially or of record (other than any shares that he is required to vote in accordance with the Existing Voting Agreement) in favor of the Phoenix Color Sale, and that the Voting and Support Agreement terminates in the event of an Adverse Recommendation Change by our Board of Directors.

Our Board of Directors also considered a variety of risks and potentially negative factors concerning the Phoenix Color Sale and the Stock Purchase Agreement, including the following:

 

the fact that, following the Closing, the Company will not have a continuing interest in Phoenix Color or any future earnings from or growth in Phoenix Color’s business;

 

the fact that the completion of the Phoenix Color Sale is subject to a number of conditions, including approval by the Company’s stockholders and clearance under the HSR Act, and that there can be no assurance that all conditions will be satisfied on a timely basis and, as a result, it is possible that the Phoenix Color Sale may be delayed or may not be completed, even if the Phoenix Color Sale is approved by the Company’s stockholders;

 

the fact that the Stock Purchase Agreement restricts the Company’s ability to solicit alternative proposals;

 

the fact that the Company is obligated to provide Lakeside with notice of any Acquisition Proposal and an opportunity to match any Superior Proposal (although our Board of Directors believed that this would not preclude a potential acquirer from submitting a Superior Proposal);

 

the fact that, under the terms of the Stock Purchase Agreement, the Company must pay Lakeside the Termination Fee if the Stock Purchase Agreement is terminated in certain circumstances, including a termination by the Company to accept a Superior Proposal, although our Board of Directors was of the view that the amount of the Termination Fee ($4,000,000) was reasonable in the context of termination and similar fees payable in other transactions and in light of the overall terms of the Stock Purchase Agreement, and that the Termination Fee would not preclude a potential acquirer from making a Superior Proposal;

 

the fact that the cash consideration to be received in the Phoenix Color Sale will be a taxable transaction to the Company for United States federal income tax purposes;

 

the significant costs involved in connection with negotiating the Stock Purchase Agreement and consummating the Phoenix Color Sale, the substantial management time and effort required to effectuate the Phoenix Color Sale, and the related disruption to Phoenix Color’s day-to-day operations during the pendency of the Phoenix Color Sale;

 

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the restrictions imposed by the Stock Purchase Agreement on the conduct of Phoenix Color’s business prior to the consummation of the Phoenix Color Sale;

 

the potential negative effect of the pendency of the Phoenix Color Sale on Phoenix Color’s business, including uncertainty about the effect of the proposed Phoenix Color Sale on Phoenix Color’s employees, customers and vendors, which may impair Phoenix Color’s ability to attract, retain and motivate key personnel and cause customers and vendors to seek to change or terminate existing business relationships with Phoenix Color;

 

the obligation of the Company to assume all of the obligations of Phoenix Color under the Reisch Employment Agreement effective as of no later than the Closing;

 

the risk that, if the Phoenix Color Sale is not completed:

 

the market price of the Company’s shares could be affected by many factors, including (1) the reason for which the Stock Purchase Agreement is terminated and whether such termination results from factors adversely affecting Phoenix Color, and (2) the possible sale of shares by short-term investors following an announcement of the termination of the Stock Purchase Agreement; and

 

the Company would be required to pay its expenses related to the Phoenix Color Sale, including expenses incurred in connection with any litigation that may result from the announcement or pendency of the Phoenix Color Sale, without receiving the consideration for the Phoenix Color Sale; and

 

the fact that the Company’s directors and executive officers have interests in the Phoenix Color Sale that are different from, or in addition to, the interests of the Company’s stockholders generally, as described under “Proposal 1: The Phoenix Color Sale Proposal—Interests of Our Directors and Officers” beginning on page 31 of this proxy statement.

The factors listed above as supporting our Board of Directors’ decisions were determined by our Board of Directors to outweigh the countervailing considerations and risks.  The foregoing discussion of our Board of Directors’ reasons for its recommendation is not meant to be exhaustive, but addresses the material factors considered by our Board of Directors in connection with its recommendation.  In view of the wide variety of factors considered by our Board of Directors in connection with its evaluation of the Phoenix Color Sale and the complexity of these matters, our Board of Directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation.  Rather, our Board of Directors made its determination and recommendation based on the totality of the information presented to it, and the judgments of individual members of our Board of Directors may have been influenced to a greater or lesser degree by different factors. The factors, potential risks and uncertainties contained in this section contain information that is forward-looking in nature and should be read in conjunction with the factors discussed in “Special Note Regarding Forward-Looking Statements” beginning on page 19 of this proxy statement.

Phoenix Color Financial Projections

As a matter of course, Phoenix Color does not develop or publicly disclose long-term projections or internal projections of its future performance and is wary of making projections for extended periods due to the unpredictability of the underlying assumptions and estimates. However, in connection with the Phoenix Color Sale, our management prepared certain non-public, unaudited financial projections for Phoenix Color (the “Phoenix Color Projections”) and provided the projections to our Board of Directors to assist them in evaluating a possible transaction with Lakeside. The Phoenix Color Projections were also provided to Lincoln, who were authorized to use and rely upon such projections in providing advice to our Board of Directors.

The Phoenix Color Projections were based on Phoenix Color information as of December 31, 2021 and reflect numerous judgments, estimates and assumptions with respect to industry performance, general business, economic, market and financial conditions and other future events, as well as matters specific to Phoenix Color, all of which are inherently uncertain, difficult to predict and many of which are beyond our control. In addition, certain

 

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assumptions were based on information derived from third parties. Our management believes the Phoenix Color Projections were prepared on a reasonable basis and reflected the best then-currently available estimates and judgments of our management at the time that the projections were prepared. The Phoenix Color Projections are subjective in many respects and are subject to change based on actual experience and business developments. As such, Phoenix Color Projections constitute forward-looking information and are subject to risks and uncertainties that could cause actual results to differ materially from the results forecasted, including the various risks set forth in ALJs periodic reports. For additional information regarding these risks, see Special Note Regarding Forward-Looking Statements beginning on page 19 of this proxy statement. There can be no assurance that the projected results will be realized or that actual results will not be significantly higher or lower than projected. The Phoenix Color Projections should not be considered a reliable predictor of future results. The Phoenix Color Projections cover multiple years and such information by its nature becomes less predictive with each successive year.

The Phoenix Color Projections were based upon various assumptions which relate only to the periods presented. The Phoenix Color Projections do not take into account any circumstances or events occurring after the date they were prepared, including the announcement of the Phoenix Color Sale.

The Phoenix Color Projections were not prepared with a view toward public disclosure or toward complying with generally accepted accounting principles, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. All of the Phoenix Color Projections (excluding industry projections prepared by third parties) were estimates prepared by our management. In addition, the Phoenix Color Projections are unaudited and neither ALJ’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the Phoenix Color Projections, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and they assume no responsibility for, and disclaim any association with, the Phoenix Color Projections. Readers of this document are urged not to place undue reliance on the unaudited Phoenix Color Projections set forth below.

The inclusion of the Phoenix Color Projections in this proxy statement is not deemed an admission or representation by ALJ or any other person that it considered, or now considers, the Phoenix Color Projections as material information or necessarily predictive of actual future results or events. The Phoenix Color Projections are not included in this proxy statement in order to influence any ALJ stockholder with respect to the approval of the proposal to approve the Phoenix Color Sale, but because the Phoenix Color Projections were provided to our Board of Directors to assist them in evaluating a possible transaction with Lakeside and to Lincoln who were authorized to use and rely upon such projections in providing advice to our Board of Directors. ALJ DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE PHOENIX COLOR PROJECTIONS INCLUDED IN THIS PROXY STATEMENT TO REFLECT CIRCUMSTANCES EXISTING SINCE ITS PREPARATION OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE UNDERLYING ASSUMPTIONS ARE SHOWN TO BE IN ERROR, OR TO REFLECT CHANGES IN GENERAL ECONOMIC OR INDUSTRY CONDITIONS.

Set forth below is a summary of the Phoenix Color Projections:

 

 

Fiscal years ending September 30,

 

($ in millions unless otherwise noted)
(unaudited)

 

2022

 

2023

 

2024

 

2025

 

Projected Revenue

 

 

$120.3

 

 

$116.5

 

 

$119.9

 

 

$119.9

 

Projected Gross Profit

 

 

$34.7

 

 

$32.2

 

 

$32.7

 

 

$32.7

 

Projected EBITDA

 

 

$21.8

 

 

$18.9

 

 

$21.3

 

 

$21.3

 

Projected Adjusted EBITDA (1)

 

 

$23.8

 

 

$20.9

 

 

$21.3

 

 

$21.3

 

(1) ALJ defines adjusted EBITDA for a segment as segment net loss before depreciation and amortization, interest expense, net, acquisition/disposition-related expenses, restructuring and cost reduction initiatives, stock-based compensation, gain on disposal of assets, net, bank fees accreted to term loans, loan amendment expenses, and provision for income taxes.

 

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Opinion of Lincoln International LLC

Lincoln orally rendered its opinion to our Board of Directors, subsequently confirmed in writing, by delivery of Lincoln’s written opinion addressed to the Board of Directors dated February 3, 2022, that, as of the date of such opinion, and upon and subject to the qualifications, procedures, limitations and assumptions set forth therein, the Consideration to be received by ALJ in the Transaction pursuant to, and subject to the adjustments described in, the Stock Purchase Agreement, is fair, from a financial point of view, to ALJ.

 

Lincoln’s opinion was directed to our Board of Directors (in its capacity as such) and only addressed the fairness, from a financial point of view, to ALJ of the Consideration to be received by ALJ in the Transaction pursuant to the Stock Purchase Agreement and did not address any other aspect or implication of the Transaction, any related transaction or any other agreement, arrangement or understanding entered into in connection therewith or otherwise. The summary of Lincoln’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is attached as Annex C to this proxy statement and which describes the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Lincoln in connection with the preparation of its opinion. Neither Lincoln’s opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute, advice or a recommendation to our Board of Directors, any security holder of ALJ, or any other person as to how to act or vote on any matter relating to the Transaction or otherwise.

In connection with this Opinion, Lincoln, among other things:

 

Reviewed the following documents provided by management of the Company and management of Phoenix Color (collectively, “Management”):

 

Financial statements for Phoenix Color, including corporate allocations, for the fiscal years ended September 30, 2019 through September 30, 2021 and for the three months ended December 31, 2021;

 

The Phoenix Color Financial Projections;

 

A letter addressed to us by management of the Company which contains, among other things, representations regarding the accuracy of the information, data and other materials (financial or otherwise) provided to, or discussed with, us by or on behalf of the Company, dated February 2, 2022;

 

A draft of the Stock Purchase Agreement dated as of February 3, 2022; and

 

The Confidential Information Presentation for the Company dated June 2021;

 

Discussed the terms and circumstances surrounding the Transaction with Management;

 

Met virtually with Management, discussed the business, financial outlook and prospects of Phoenix Color;

 

Reviewed certain financial and other information for Phoenix Color, and compared that data and information with certain stock trading, financial and corresponding data and information for companies with publicly traded securities as of the date hereof, none of which is directly comparable to Phoenix Color, that we deemed relevant;

 

Performed certain valuation and comparative financial analyses using generally accepted valuation and analytical techniques including a discounted cash flow analysis, an analysis of selected public companies and an analysis of change of control M&A transactions that we deemed relevant; and

 

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Considered such other information, financial studies, generally accepted valuation and analytical techniques and investigations and financial, economic and market criteria that we deemed relevant.

For purposes of its analysis and opinion, Lincoln relied upon and assumed the accuracy and completeness of all the financial, accounting, legal, tax and other information Lincoln reviewed, and Lincoln did not assume any responsibility for the independent verification of any of such information. With respect to the financial forecasts, Lincoln assumed that they were reasonably prepared in good faith on a basis reflecting the best then-currently available estimates and judgments of the applicable parties who prepared them. Lincoln assumed no responsibility for the assumptions, estimates and judgments on which such forecasts were based. In addition, Lincoln was not requested to make, and did not make, an independent evaluation or appraisal of the assets or liabilities (contingent, derivative, off-balance sheet or otherwise) of Phoenix Color or any of its subsidiaries, nor was Lincoln furnished with any such evaluations or appraisals. With regard to the financial, accounting, legal, tax and other information provided to Lincoln by the Company, Lincoln relied upon the assurances of management of the Company and Phoenix Color that they were unaware of any facts or circumstances that would make such information materially incomplete or misleading. Lincoln also assumed that there had been no material change in the assets, liabilities, business, condition (financial or otherwise), results of operations or prospects of Phoenix Color since the date of the most recent financial statements made available. Lincoln also assumed that in the course of obtaining any necessary regulatory and third party consents, approvals and agreements for the Transaction, no modification, delay, limitation, restriction or condition would be imposed that would have an adverse effect on the Company or the Transaction, and that the Transaction would be consummated in accordance with the terms of the Stock Purchase Agreement, without waiver, modification or amendment of any term, condition or agreement therein that was material to Lincoln’s opinion or financial analyses related thereto. Lincoln also relied upon and assumed, without independent verification, at the direction of the Company, that any adjustments to the Consideration pursuant to the Stock Purchase Agreement would not be material to its opinion or its financial analyses underlying its opinion.

 

Representatives of the Company advised Lincoln, and Lincoln further assumed, that the final terms of the Stock Purchase Agreement would not vary materially from those set forth in the copies or drafts, as applicable, reviewed by Lincoln. Lincoln’s opinion was necessarily based on financial, economic, market and other conditions as they existed on and the information made available to Lincoln as of February 3, 2022. Although subsequent developments may affect Lincoln’s opinion, Lincoln does not have any obligation to update, revise or reaffirm its opinion.

 

Lincoln’s opinion only addressed the fairness from a financial point of view to the Company of the Consideration to be received by the Company in the Transaction pursuant to the Stock Purchase Agreement and does not address any other terms, aspects or implications of the Transaction, or any agreements, arrangements or understandings entered into in connection with the Transaction or otherwise. In addition, Lincoln’s opinion does not address the relative merits of the Transaction as compared to other transaction structures, transactions or business strategies that may have been available to the Company or the Board, nor does it address or constitute a recommendation to the Board, any security holder or any other party as to how to act or vote with respect to any matter relating to the Transaction or otherwise. The issuance of the opinion was approved by an opinion committee of Lincoln. Lincoln’s opinion does not indicate that the consideration to be received was the best possibly attainable under any circumstances; instead, it merely states whether the consideration to be received by the Company in the Transaction was within a range suggested by certain financial analyses. The decision as to whether to proceed with the Transaction or any related transaction depends on an assessment of factors unrelated to the financial analyses on which Lincoln’s opinion was based. Lincoln’s opinion does not constitute advice or a recommendation to ALJ as to how it should act on any matter relating to the Transaction. Lincoln expressed no opinion about the amount or nature of the compensation to the Company’s officers, directors or employees, or class of such persons, in connection with the Transaction relative to the Consideration in the Transaction.

 

Set forth below is a summary of the material financial analyses reviewed by Lincoln with our Board of Directors on February 2, 2022 in connection with rendering its opinion. The following summary, however, does not purport to be a complete description of the analyses performed by Lincoln. The order of the analyses described and the results of these analyses do not represent relative importance or weight given to these analyses by Lincoln. Except as otherwise noted, the following quantitative information, to the extent that it is

 

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based on market data, is based on market data that existed on or before February 3, 2022 and is not necessarily indicative of then-current market conditions.

 

The following summary of Lincoln’s financial analyses includes information presented in tabular format. Several financial analyses were employed and no one method of analysis should be regarded as critical to the overall conclusion reached. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. Each of the analyses conducted was carried out to provide a particular perspective of the Consideration. In order to fully understand the analyses, the tables must be read together with the full text of each summary. The tables are not intended to stand-alone and alone do not constitute a complete description of Lincoln’s financial analyses. Considering the tables below without considering the full narrative description of Lincoln’s financial analyses, including the methodologies and assumptions underlying such analyses, could create a misleading or incomplete view of such analyses. Lincoln did not form a conclusion as to whether any individual analysis, when considered in isolation, supported or failed to support its opinion as to the fairness of Consideration. Lincoln did not place any specific reliance on any individual analysis, but instead, concluded that its analyses, taken as a whole, supported its opinion.

 

Discounted Cash Flow Analysis

 

As part of its valuation analysis, Lincoln performed a discounted cash flow (“DCF”) analysis utilizing the Phoenix Color Financial Projections, which provided a financial forecast for the fiscal years 2022 through 2025, and other financial information provided by Management. A discounted cash flow analysis is a valuation methodology used to derive an intrinsic valuation of a company by calculating the present value of its estimated future cash flows.

 

Lincoln performed a discounted cash flow analysis of the projected unlevered free cash flows of Phoenix Color for the fiscal years 2022 through 2025. Lincoln defined “free cash flow” as cash generated by Phoenix Color that is available either to reinvest, service debt, or distribute to security holders. The discounted cash flow analysis was used to determine the net present value of projected unlevered free cash flows utilizing an appropriate cost of capital for the discount rate.

 

Lincoln calculated Phoenix Color’s projected unlevered free cash flows by taking Projected Adjusted EBITDA, subtracting tax deductible depreciation and amortization, subtracting estimated taxes using a 26.0% tax rate, adding back tax deductible depreciation and amortization, and subtracting capital expenditures and changes in net working capital.

 

Lincoln determined the net present value of the projected unlevered free cash flows using an appropriate cost of capital for the discount rate, which reflects the relative risk associated with the Phoenix Color Financial Projections cash flows as well as the rates of return that investors could expect to realize on alternative investment opportunities with similar risk profiles to Phoenix Color. Lincoln selected discount rates for Phoenix Color which ranged from 10.25% to 12.25%, which were selected based on the application of Lincoln’s professional judgment and experience and were calculated using a capital asset pricing model and information derived from the selected public companies and using a 26.0% tax rate, as provided by Management. Lincoln calculated Phoenix Color’s terminal value using the Gordon Growth perpetuity growth formula assuming a 1.5% terminal growth rate and the aforementioned range of discount rates.

 

Based on these assumptions, Lincoln’s discounted cash flow analysis indicated an estimated enterprise value for Phoenix Color of $119.0 million to $143.0 million.

 

Selected Public Companies Analysis

 

Lincoln performed a selected public company analysis for Phoenix Color. Lincoln reviewed and compared certain financial information of Phoenix Color to corresponding financial multiples, metrics, and ratios for several

 

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publicly traded companies in the commercial printing industry. Lincoln used certain publicly available historical financial data for the selected public companies. This analysis produced valuation multiples of selected financial metrics which Lincoln utilized to estimate the enterprise value of Phoenix Color.

 

Although none of the selected public companies are directly comparable to Phoenix Color, Lincoln selected these companies based on a comparative analysis that considered, among other things, their relative size, end markets addressed, historical and projected growth and profitability, capital intensity, revenue and earnings composition and other financial performance metrics, to that of Phoenix Color. As a result, a complete valuation analysis cannot be limited to a quantitative review of the selected public companies, but also requires complex considerations and judgments concerning differences in financial and operating characteristics of such companies, as well as other factors that could affect their value relative to that of Phoenix Color.

 

The table below summarizes certain observed multiples of the selected public companies as of January 28, 2022.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Enterprise Value as a Multiple of

 

Company Name

 

LTM(1)
EBITDA(2)

 

  

2022P
EBITDA

 

  

LTM
EBIT

 

 2022P EBIT 

LTM
Revenue

 

ARC Document Solutions, Inc.

 

4.4x

 

 

 

NA

 

 

 

13.1x

 

 

NA

0.66x

 

 

Cimpress plc

 

14.8x

 

 

 

11.9x

 

 

 

33.5x

 

 

20.0x

1.26x

 

 

Deluxe Corporation

 

8.3x

 

 

 

7.4x

 

 

 

12.0x

 

 

12.4x

1.41x

 

 

Ennis, Inc.

 

7.1x

 

 

 

6.1x

 

 

 

10.5x

 

 

8.1x

1.06x

 

 

Quad/Graphics, Inc.

 

4.3x

 

 

 

NA

 

 

 

11.7x

 

 

NA

0.37x

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mean

 

7.8x

 

 

 

8.4x

 

 

 

16.2x

 

 

13.5x

0.95x

 

 

Median

 

7.1x

 

 

 

7.4x

 

 

 

12.0x

 

 

12.4x

1.06x

 

 

(1) LTM: Latest twelve months for which financial information was available.

(2) EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization.

 

M&A Transactions Analysis

 

Lincoln reviewed publicly available information related to the precedent acquisition transactions involving companies in the commercial printing industry listed in the table below. The selection of these transactions was based on, among other things, the target company’s industry, the relative size of the transaction, and the availability of public information related to the selected transaction.

The selected transactions indicated (i) enterprise value to LTM EBITDA multiples ranging from 5.0x to 8.5x, with a mean of 6.9x and a median of 7.1x, and (ii) enterprise value to LTM revenue multiples ranging from 0.24x to 1.60x, with a mean of 0.93x and a median of 0.67x.

 

 

 

 

 

 

 

Enterprise Value/LTM

Date of Announcement

 

Target

 

Acquiror

 

Revenue

 

EBITDA

Nov-21

 

R. R. Donnelley & Sons Company

 

Undisclosed Buyer

 

0.46x

 

6.0x

Feb-19

 

Multi-Color Corporation

 

WS Packaging Group, Inc.

 

1.45x

 

8.3x

Jul-18

 

European Printing Business of LSC Communications, Inc.

 

Walstead Investments Limited

 

0.24x

 

5.0x

Jul-18

 

Wright Business Graphics

 

Ennis, Inc.

 

0.67x

 

NA

Jan-18

 

Crane & Co.

 

Crane Co.

 

1.60x

 

8.5x

Sept-17

 

Publishers Press

 

LSC Communications, Inc.

 

1.59x

 

NA

Jan-17

 

Independent Printing Co., Inc.

 

Ennis, Inc.

 

0.48x

 

NA

 

 

 

 

 

 

 

 

 

 

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Mean

 

 

 

 

 

0.93x

 

6.9x

Median

 

 

 

 

 

0.67x

 

7.1x

 

None of the selected public companies or the target companies in the M&A transactions analysis is identical to Phoenix Color and Lincoln does not have access to non-public information regarding those companies.

 

Summary of Selected Public Companies / M&A Transactions Analyses

In order to estimate a range of enterprise values for Phoenix Color, Lincoln applied valuation multiples to (i) Adjusted EBITDA (as defined below) for Phoenix Color for the last twelve months ended December 31, 2021, (ii) Projected EBITDA for Phoenix Color for the fiscal year 2022, (iii) Adjusted EBIT for Phoenix Color for the last twelve months ended December 31, 2021, and (iv) Projected EBIT for Phoenix Color for the fiscal year 2022, as follows:

 

 

 

LTM Adjusted EBITDA: 5.50x to 6.50x

 

 

 

Projected 2022 EBITDA: 5.25x to 6.25x

 

 

 

LTM Adjusted EBIT: 8.50x to 10.00x

 

 

 

 

 

 

Projected 2022 EBIT: 8.50x to 10.00x

Adjusted EBITDA, for purposes of this analysis, was defined as Projected EBITDA adjusted to exclude non-recurring items. Such non-recurring items include (i) restructuring charges, (ii) executive bonus normalization, (iii) intangible asset impairment, (iv) merger and acquisition related expenses, and (v) loss/gain on sale of assets.

Valuation multiples were selected, in part, by taking into consideration business comparability and historical and projected financial performance metrics of Phoenix Color relative to such metrics of the selected public companies and selected transactions, including, but not limited to, the size of Phoenix Color on a revenue and Adjusted EBITDA basis, historical, estimated and projected Adjusted EBITDA margins compared to the selected public companies, and historical, estimated and projected revenue and Adjusted EBITDA growth compared to the selected public companies.

Based on these selected valuation multiples, the enterprise value indication of Phoenix Color ranged from $127.0 million to $150.0 million.

 

Summary of Financial Analysis

The range of indicated enterprise values for Phoenix Color that Lincoln derived from its discounted cash flow analysis and its selected public companies/M&A transactions analysis was $123.0 million to $147.0 million. Lincoln then subtracted $0.5 million of CARES Act Deferred Payroll Taxes liability, a range of $2.6 to $2.7 million for the present value of executive bonus payments, after tax, added $0.5 million of estimated cash and cash equivalents and $0.7 million for an estimated excess working capital adjustment to conclude a valuation range of $121.1 million to $145.0 million for the equity of Phoenix Color compared to the total consideration of approximately $135 million under the Stock Purchase Agreement.

Miscellaneous

Lincoln and its affiliates provide a range of investment banking and financial services and, in that regard, Lincoln and its affiliates have provided, and may in the future provide, investment banking and other financial services to the Company and each of its affiliates, for which Lincoln and its affiliates would expect to receive compensation.  Within the prior two years, Lincoln was retained by the Company to act as its exclusive investment banking financial advisor in connection with the refinancing of the Company’s capital structure on December 14, 2020 as well as provide a fairness opinion on its sale of certain operating divisions of its subsidiary, Faneuil, Inc., on December 21, 2021 for which Lincoln was indemnified, paid customary professional fees, and expense

 

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reimbursements. Lincoln and the Company entered into an Engagement Letter, dated as of October 8, 2021, to provide a fairness opinion in connection with the Transaction. The Board of Directors of the Company selected Lincoln as its financial advisor in connection with the Transaction based on the qualifications and reputation of Lincoln as well as its substantial experience in similar transactions. Lincoln is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, strategic transactions, corporate restructurings, and valuations for corporate and other purposes. No portion of Lincolns fee in connection with the delivery of its opinion is contingent upon either the conclusion reached in its opinion or the consummation of the Transaction. 

Certain United States Federal Income Tax Consequences of the Phoenix Color Sale

The Phoenix Color Sale will be treated for United States federal income tax purposes as a taxable sale upon which we will recognize a gain or loss. An election pursuant to Section 336(e) of the Code (“Section 336(e) Election”) will be made with respect to the Phoenix Color Sale.  The Section 336(e) Election will result in a deemed sale, for United States federal income tax purposes, by Phoenix Color of all of its assets to a hypothetical unrelated party in exchange for the “aggregate deemed asset disposition price” (as defined by the Treasury Regulations). The amount of gain or loss we recognize will be measured by the difference between the aggregate deemed asset disposition price and the tax basis in Phoenix Color’s assets. We may reduce or eliminate such gain by use of our net operating losses.

Certain Accounting Consequences of the Phoenix Color Sale

Under generally accepted accounting principles, upon completion of the Phoenix Color Sale, we will remove the net assets sold and liabilities assumed from our consolidated balance sheet. We will record a gain, net of any applicable taxes, on the Phoenix Color Sale equal to the difference between (i) the consideration received, less transaction expenses, and (ii) the net book value of the assets sold when the transaction is completed. Beginning with the three months ended March 31, 2022, we will reclassify Phoenix Color as held for sale and discontinued operations for all periods presented in order to match the current held-for-sale and discontinued operations classifications.

No Dissenters’ Rights

Holders of our common stock are not entitled to dissenting stockholders’ appraisal rights, rights of objecting stockholders or other similar rights in connection with the Phoenix Color Sale or any of the transactions contemplated by the Stock Purchase Agreement. The DGCL does not provide for appraisal rights or other similar rights to stockholders of a corporation in connection with a sale of substantially all of its assets.

The Stock Purchase Agreement

The following is a summary of the material terms and conditions of the Stock Purchase Agreement. This summary does not purport to be complete and may not contain all of the information about the Stock Purchase Agreement that is important to you. The description of the Stock Purchase Agreement in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the Stock Purchase Agreement, a copy of which is attached to this proxy statement as Annex A and is incorporated by reference into this proxy statement. We encourage you to read the Stock Purchase Agreement carefully in its entirety because it is the primary contractual document that governs the Transaction.

Explanatory Note Regarding the Stock Purchase Agreement

The Stock Purchase Agreement and this summary of its terms have been included to provide you with information regarding the terms of the Stock Purchase Agreement. The Stock Purchase Agreement is not intended to be a source of factual, business or operational information about the Company or Lakeside, and the following summary of the Stock Purchase Agreement and the copy thereof attached hereto as Annex A are not intended to modify or supplement any factual disclosure about the Company in any documents it publicly files with the SEC. The representations, warranties and covenants made in the Stock Purchase Agreement by the Company and

 

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Lakeside were made solely for the benefit of the parties to the Stock Purchase Agreement and are qualified and subject to important limitations agreed to by the Company and Lakeside in connection with negotiating the terms of the Stock Purchase Agreement. In particular, in your review of the representations and warranties contained in the Stock Purchase Agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purposes of establishing the circumstances in which a party to the Stock Purchase Agreement may have the right not to close the transactions if the representations and warranties of the other party prove to be untrue in any material respect, and allocating risk between the parties to the Stock Purchase Agreement, rather than establishing matters as facts.

The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to stockholders and reports and documents filed with the SEC and in some cases were qualified by confidential disclosures that were made by each party to the other, which disclosures are not reflected in the Stock Purchase Agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the Stock Purchase Agreement, and subsequent developments or new information that may affect the accuracy of a representation or warranty may or may not be fully reflected in this proxy statement or the Company’s public disclosures. Accordingly, you should not rely on the representations and warranties as being accurate or complete or characterizations of the actual state of facts as of any specified date.

Effect of the Phoenix Color Sale

Pursuant to the Stock Purchase Agreement, the Company has agreed to sell to Lakeside all of the outstanding shares of capital stock of Phoenix Color. The Phoenix Color Sale may constitute a sale of substantially all of the assets of the Company under Delaware law.

Closing of the Phoenix Color Sale

The closing of the Phoenix Color Sale will take place at 10:00 a.m., New York City time, on the third (3rd) business day following the satisfaction or waiver of the conditions to closing (other than those conditions that by their nature will not be satisfied until the Closing, but subject to the satisfaction or waiver of such conditions) or at such other time and place as may be agreed upon between the Company and Lakeside in writing. For more information on the conditions to the closing, see “Proposal 1: The Phoenix Color Sale ProposalThe Stock Purchase Agreement—Conditions to the Closing” beginning on page 61 of this proxy statement.

Purchase Price

The purchase price for the Phoenix Color Sale will be an amount equal to $134,775,000, minus (A) the amount of indebtedness of Phoenix Color and its subsidiaries as of the Closing Date, minus (B) the amount, if any, by which $9,818,269 exceeds the working capital of Phoenix Color and its subsidiaries as of the Closing Date, plus (C) the amount, if any, by which the working capital of Phoenix Color and its subsidiaries as of the Closing Date exceeds $9,818,269, minus (D) the amount of transaction expenses of Phoenix Color and its subsidiaries as of the Closing Date. If the Closing takes place after April 15, 2022, but on or before May 15, 2022, then the purchase price will be reduced by $1,000,000.  If the Closing takes place after May 15, 2022, then the purchase price will be reduced by $2,000,000.

Representations and Warranties

The Stock Purchase Agreement contains representations and warranties made by the Company and Lakeside to each other.

The representations and warranties made by the Company to Lakeside relate to, among other things, the following:

 

due organization;

 

capitalization of Phoenix Color;

 

48


 

 

 

subsidiaries;

 

corporate authority relative to the Stock Purchase Agreement;

 

due execution, delivery and enforceability of the Stock Purchase Agreement;

 

no conflicts;

 

required consents and approvals;

 

compliance with laws;

 

litigation;

 

financial statements;

 

books and records;

 

internal controls and procedures;

 

absence of undisclosed liabilities;

 

intellectual property;

 

privacy and data security;

 

contracts and commitments;

 

employee benefits;

 

absence of certain changes;

 

taxes;

 

environmental matters;

 

real estate;

 

labor relations and compliance;

 

absence of brokers;

 

affiliate transactions;

 

title to tangible personal property;

 

sufficiency of assets;

 

bank accounts, letters of credit and powers of attorney;

 

customer warranties;

 

insurance;

 

inventory;

 

solvency;

 

absence of fraudulent conveyance; and

 

information supplied for this proxy statement.

 

Certain of the Company’s representations and warranties are qualified as to, among other things, “materiality” or “material adverse effect.” For purposes of the Stock Purchase Agreement, “material adverse effect” means any change, circumstance, condition, event, fact, development, effect or occurrence that individually or in the aggregate with all other changes, circumstance, conditions, events, facts, developments, effects or occurrences:

 

(A)

has had, or would reasonably be expected to have, a material adverse effect on the assets, liabilities, business, condition or results of operations of Phoenix Color and its subsidiaries, taken as a whole, other than any material adverse effect resulting from:

 

(i)

changes in general economic, financial market or geopolitical conditions;

 

(ii)

general changes or developments in any of the industries in which Phoenix Color or its subsidiaries operate;

 

(iii)

the announcement of the Stock Purchase Agreement and the transactions contemplated thereby or the identity of Lakeside;

 

(iv)

changes after the date of the Stock Purchase Agreement in any applicable laws or applicable accounting regulations or principles or authoritative interpretations thereof;

 

49


 

 

(v)

global, national, or regional political conditions, including any outbreak or escalation of hostilities or war, sabotage, military actions or any act of terrorism or any earthquakes, floods, natural disasters or other acts of nature;

 

(vi)

any change in the cost or availability or other terms of any financing necessary for Lakeside to consummate the transactions contemplated by the Stock Purchase Agreement;

 

(vii)

widespread health conditions, including any epidemic, pandemic or disease outbreak (including outbreaks relating to COVID-19), including, in each case, any worsening thereof; or

 

(viii)

any failure by Phoenix Color or its subsidiaries to meet internal or published projections, budgets, plans or forecasts of revenues, earnings or other financial performance or results of operations, in and of itself (it being understood that the facts or occurrences giving rise or contributing to such failure that are not otherwise excluded from the definition of “material adverse effect” may be taken into account in determining whether there has been a material adverse effect),

unless, in the cases of clauses (i), (ii), (iv), (v) or (vii) above, such changes would reasonably be expected to have a materially disproportionate adverse impact on the assets, liabilities, business, financial condition or results of operations of Phoenix Color and its subsidiaries, taken as a whole, relative to other affected participants in the industries in which Phoenix Color and its subsidiaries conduct business; or

 

(B)

would reasonably be expected to prevent or materially impair or delay the Company or Phoenix Color from consummating the transactions contemplated by the Stock Purchase Agreement.

The representations and warranties made by Lakeside to the Company relate to, among other things, the following:

due organization;

corporate authority relative to the Stock Purchase Agreement;

no conflicts;

required consents and approvals;

litigation;

absence of brokers;

financing;

investment qualifications;

solvency; and

information supplied for this proxy statement.

Conduct of Business Prior to Closing

The Stock Purchase Agreements provides for certain restrictions on Phoenix Color’s and its subsidiaries’ activities until the Closing Date. In general, except as set forth in the Company’s confidential disclosure schedules, as expressly set forth in the Stock Purchase Agreement, as required by applicable law or any agreement or arrangement disclosed in the Company’s confidential disclosure schedules or as consented to in writing by Lakeside (which consent may not be unreasonably withheld, conditioned or delayed), the Company is required to cause Phoenix Color and its subsidiaries to (i) use reasonable best efforts to conduct their respective businesses in the ordinary course of business consistent with past practice and in all material respects, in compliance with applicable Law, (ii) use commercially reasonable efforts to preserve and maintain their respective business organizations and goodwill in accordance with past practice, and to preserve and maintain, in all material respects, their present relationships with customers, suppliers, distributors, licensors, licensees and others having business dealings with them and maintain their assets, properties, machinery, rights, operations and equipment in accordance with past practice, good repair, as applicable, and operating condition (subject to normal wear and tear), (iii) use commercially reasonable efforts to keep available the services of their respective officers and key employees, (iv) prior to and as of the Closing, have sufficient cash available to timely make any payments in respect of any uncleared checks and

 

50


 

drafts written or issued by Phoenix Color and its subsidiaries, and (v) pay, perform and discharge all liabilities and other obligations, including taxes, in the ordinary course of business consistent with past practice.  

In addition, except as set forth in the Company’s confidential disclosure schedules, as expressly set forth in the Stock Purchase Agreement, as required by applicable law or by any agreement or arrangement disclosed in the Company’s confidential disclosure schedule (with respect to clauses (xv) and (xviii) only) or as consented to in writing by Lakeside (which consent may not be unreasonably withheld, conditioned or delayed), the Company is required to not permit Phoenix Color or any of its subsidiaries to:

 

(i)

(A) split, combine, adjust or reclassify any of its capital stock or other equity interests or rights relating thereto, or issue any other securities in respect of, in lieu of or in substitution for shares of its capital stock or amend the terms of any of its securities, (B) directly or indirectly redeem, purchase, repurchase or otherwise acquire any of its equity securities or rights relating thereto with property or stock, (C) following 12:01 a.m., New York City time, on the Closing Date, declare, pay or set aside any cash dividend or make any cash distribution with respect to any of its equity securities or (D) declare, pay or set aside any non-cash dividend or make any non-cash distribution with respect to any of its equity securities;

 

(ii)

authorize for issuance, issue, sell, pledge, encumber, grant, deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any stock of any class, any other voting securities, equity equivalents, phantom equity interests or any options, warrants, convertible securities or other rights of any kind to acquire shares, or amend in any respect any of the terms of any such securities or equity equivalents outstanding on the date hereof;

 

(iii)

amend its certificate of incorporation or by-laws or equivalent organizational documents;

 

(iv)

sell, lease, transfer, mortgage, pledge, encumber, dispose of, create liens (other than certain permitted exceptions) on, or exclusively license any assets that are material to Phoenix Color or its subsidiaries, except (A) for the sale of finished goods in the ordinary course of business consistent with past practice, (B) pursuant to any material contract in effect on the date of the Stock Purchase Agreement, or (C) the sale of obsolete assets that are not material to Phoenix Color or its subsidiaries;

 

(v)

assign, transfer, sell, exclusively license, abandon or dedicate to the public, or otherwise dispose of any owned intellectual property, except in the ordinary course of business consistent with past practice;

 

(vi)

make any capital expenditures (x) in excess of the aggregate amount of capital expenditures reflected on the Company’s confidential disclosure schedule, (y) of more than $250,000 in excess of the amount reflected for any individual line item on Company’s confidential disclosure schedule, or (z) with respect to the package segment;

 

(vii)

incur or assume any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities of Phoenix Color or any of its subsidiaries or guarantee (or become liable for) any indebtedness for borrowed money of others, other than, (A) under capital leases and letters of credit in the ordinary course of business consistent with past practice, and (B) between or among Phoenix Color and any of its subsidiaries, (C) in connection with borrowings under (x) the Amended and Restated Financing Agreement, dated as of June 29, 2021, among the Company, Faneuil, Inc., Phoenix Color, each of Company’s other subsidiaries, the lending institutions from time to time party thereto, and PNC Bank, National Association, as Administrative Agent and Collateral Agent, and (y) the Financing Agreement, dated as of June 29, 2021, among the Company, Faneuil Inc., Phoenix Color, each of the Company’s other subsidiaries, the lending institutions from time to time party thereto, and Blue Torch Finance, LLC, as Administrative Agent and Collateral Agent ((x) and (y) collectively, the “Credit Agreements”);

 

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(viii)

(A) forgive any loans made to any person (other than to Phoenix Color or any of its subsidiaries) or (B) make any loans, advances or capital contributions, outside the ordinary course of business, in each case, other than to any of its subsidiaries;

 

(ix)

except as may otherwise be required by applicable law or regulation, GAAP or the Financial Accounting Standards Board, (A) file a tax return inconsistent with past practice, (B) extend or waive any statute of limitations (other than as a result of obtaining an extension of time, in the ordinary course consistent with past practice, to file a tax return), (C) change any of the accounting principles or practices used by it in any material respect, (D) make, change or revoke any tax election, change any material accounting period or tax accounting method, (E) file any amended tax return, (F) settle or compromise any audit or other proceeding relating to taxes, (G) enter into any “closing agreement” within the meaning of Section 7121 of the code (or any similar provision of foreign, state or local law), (H) apply for or request any tax ruling, or (I) surrender any right to claim a material tax refund;

 

(x)

except (A) to the extent required under the terms of certain benefit plans disclosed on the Company’s confidential disclosure schedule as in effect on the date of the Stock Purchase Agreement, or (B) as required by applicable law: (1) enter into, adopt, amend or terminate any benefit plan or adopt or establish any new arrangement that would (if it were in effect on the date hereof) constitute a Phoenix Color benefit plan, (2) increase or accelerate the vesting or payment of the compensation or benefits payable or available to any current or former employee or individual service provider of Phoenix Color or any of its subsidiaries, (3) grant or announce any increases in salaries, bonuses, severance, termination, retention or change-in-control pay, or other compensation or benefits payable or to become payable by Phoenix Color or any of its subsidiaries to any current or former employees or individual service provider of Phoenix Color or any of its subsidiaries (x) with an annual base salary or base fee in excess of $150,000 or (y) where the aggregate value of such increases is in excess of $600,000 per year, (4) terminate (other than for cause), promote or change the title of any employee or individual service provider of Phoenix Color or any of its subsidiaries (retroactively or otherwise), or hire, engage or make an offer to hire or engage any new employee, officer, director, consultant or other service provider, in each case, with an annual base salary or base fee in excess of $150,000, (5) transfer the employment of (x) any employee of the Company or its affiliates (other than Phoenix Color and its subsidiaries) into Phoenix Color or its subsidiary or (y) any employee of Phoenix Color or its subsidiary into the Company or its affiliates (other than Phoenix Color and its subsidiaries), or (7) make any loan to any current or former employee or other individual service provider of Phoenix Color or any of its subsidiaries (other than advancement of expenses in the ordinary course of business consistent with past practices);

 

(xi)

enter (or commit to enter) into, amend, terminate or extend any collective bargaining agreement or agreement with a works council or other union (or enter into negotiations to do any of the foregoing);

 

(xii)

dissolve, liquidate, recapitalize, acquire, or merge or consolidate with or into any other person or engage in any other material reorganization or restructuring;

 

(xiii)

settle any pending or threatened litigation or other legal proceeding, other than a settlement involving payment of less than $100,000 (unless such settlement involved material monetary damages or material restrictions upon the operations of Phoenix Color or its subsidiaries) in exchange for a complete release;

 

(xiv)

materially amend or terminate or waive compliance with the terms of or breaches under, any material contract, or enter into a new contract or agreement or arrangement that would constitute a material contract or extend the term of any material contract, except, in the ordinary course of business, provided that no such new contract, or agreement or extension of a material contract, shall have a term that extends beyond December 31, 2022;

 

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(xv)

revalue any assets of Phoenix Color or any of its subsidiaries, including writing off notes or accounts receivable, accelerate, settle, discount or compromise any accounts receivable or reverse any reserves with respect thereto, in each case, except (A) with respect to any intercompany receivables or payables which will be eliminated as described in the Stock Purchase Agreement or (B) in the ordinary course of business consistent with past practice with respect to accounts receivable prior to 12:01 a.m., New York City time, on the Closing Date (provided that any such revaluation, writing off, acceleration, settlement, discount or compromise shall be reflected in the calculation of working capital of Phoenix Color and its subsidiaries);

 

(xvi)

adopt, change or revoke Phoenix Color’s accounting policies or procedures, except insofar as may have been required by GAAP;

 

(xvii)

change the fiscal year end of Phoenix Color;

 

(xviii)

subject to clause (xiv) above, propose or consent to any material change to the pricing of any products sold by Phoenix Color or any of its subsidiaries, or offer any material discounts or rebates to any customers of Phoenix Color or any of its subsidiaries, in each case, other than in the ordinary course of business consistent with past practice and provided that such pricing changes, discounts or rebates do not extend beyond December 31, 2022;

 

(xix)

enter into a contract with, or involving the making of any payment or transfer of assets to, any affiliate of the Company (other than Phoenix Color or its subsidiaries);

 

(xx)

(A) enter into any agreement or commitment for the purchase, acquisition, sale, lease, sublease, license, sublicense, occupancy, or other direct or indirect transfer of any real property or any interest therein, or (B) materially amend or modify, voluntarily terminate or rescind, exercise or decline any material option, or request or grant any material waiver under any real property lease; or

 

(xxi)

authorize, commit or agree to take any of the foregoing actions; provided, however, that Lakeside’s consent will not be required for the Company to take, or fail to take, any action set forth in any of the foregoing clauses (vii), (x), (xiv), (xvi), (xviii) (or (xxi) in respect of any such clauses) if the Company determines in good faith that such action or inaction is reasonably necessary in light of the then-current operating conditions and developments with respect to Phoenix Color or any of its subsidiaries in response to COVID-19 and such action or inaction is (x) commercially reasonable and (y) (1) reasonably required to comply with COVID-19 laws or implement any quarantine, “shelter in place,” “stay at home,” workforce reduction, social distancing, shut down, closure, sequester Laws by any Governmental Authority in connection with or in response to COVID-19 or (2) materially consistent with actions or inactions taken by other similarly situated companies in response to COVID-19; provided, further, that prior to any taking or failing to take such action in accordance with foregoing proviso, the Company is required to provide reasonable notice to Lakeside thereof in writing.

Stockholder Meeting

The Stock Purchase Agreement requires the Company to (i) establish a record date for, duly call, give notice of, convene and hold a meeting of its stockholders for the purpose of obtaining the Company Stockholder Approval as promptly as reasonably practicable after the SEC confirms that it has no further comments on this proxy statement or advises the Company that it is not reviewing this proxy statement, (ii) use reasonable best efforts to solicit from the Company stockholders proxies for the purposes of obtaining the Company Stockholder Approval and (iii) subject to certain exceptions described below, through our Board of Directors, recommend to its stockholders that they vote in favor of the transactions contemplated by the Stock Purchase Agreement and include such recommendation in this proxy statement.  

 

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Non-solicitation of Competing Proposals

Under the Stock Purchase Agreement, subject to certain exceptions described below, the Company has agreed that the Company will not and will cause its subsidiaries, directors and officers not to, and will use its reasonable best efforts to cause its outside representatives not to, directly or indirectly, through affiliates, directors, officers, employees, representatives, advisors or other intermediaries:

 

(1)

solicit, initiate or encourage or facilitate (including by way of providing non-public information) the submission of any inquiries, proposals or offers (other than from Lakeside) that constitute, relate or may reasonably be expected to lead to any Acquisition Proposal (as defined below) or agree to or endorse any Acquisition Proposal, or

 

(2)

enter into, participate or engage in, or continue, any discussions or negotiations with respect to any Acquisition Proposal or to obtain an Acquisition Proposal (including, in each case, with respect to any person that has previously been invited into a process to make, or participate in any discussions regarding, an Acquisition Proposal) or furnish to any person any non-public information with respect to its business, properties or assets in connection with any Acquisition Proposal.

In addition, under the Stock Purchase Agreement, the Company has agreed that:

 

it will immediately cease, and cause Phoenix Color, its subsidiaries and its and their respective directors and officers to cease, and direct their respective outside representatives, advisors and other intermediaries to immediately cease, any and all existing activities, discussions or negotiations with any parties conducted  with respect to any of the foregoing;

 

it will, and will cause Phoenix Color and its subsidiaries to, (i) promptly following the date of the Stock Purchase Agreement request each person (other than Lakeside) that has previously executed a confidentiality agreement in connection with such person’s consideration of a transaction involving a purchase of Phoenix Color or any of its subsidiaries to return or destroy all confidential information furnished to such person or its representatives by or on behalf of the Company or any of its subsidiaries in connection with such transaction and (ii) not amend or waive the provisions of each such confidentiality agreement and use reasonable best efforts to enforce the provisions of any such agreement, provided, however, that the Company may waive any such provision in response to an Acquisition Proposal to our Board of Directors made under circumstances in which the Company is permitted under the Stock Purchase Agreement to participate in discussions regarding an Acquisition Proposal, but only to the extent necessary to allow such third party to make such Acquisition Proposal.

Notwithstanding the prohibitions described above, if, prior to obtaining the Company Stockholder Approval, (i) the Company or any of its subsidiaries has received an unsolicited bona fide written Acquisition Proposal from a third party that is not an affiliate of Lakeside that did not result from or arise out of a breach of the Company’s non-solicitation obligations (described above), and (ii) our Board of Directors determines in good faith, after consultation with its financial advisors and outside legal counsel, that such Acquisition Proposal constitutes or is reasonably likely to lead to a Superior Proposal (as defined below) and that the failure to take such action would be inconsistent with its fiduciary duties under applicable law, then the Company and its subsidiaries may (A) furnish information with respect to the Company and its subsidiaries to the person making such Acquisition Proposal and (B) engage in discussions or negotiations with the person making such Acquisition Proposal, provided that the Company:

 

promptly notifies Lakeside (within twenty-four hours) in writing of any such determination by our Board of Directors that such Acquisition Proposal constitutes or is reasonably likely to lead to a Superior Proposal and that the failure to take such action would be inconsistent with its fiduciary duties under applicable law;

 

does not, and does not allow its subsidiaries, directors or officers to, and uses its reasonable best efforts to not allow any of its or their outside representatives to, disclose any non-public information to such person without the Company first entering into a customary confidentiality agreement with such person containing

 

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confidentiality provisions that are at least as restrictive as those terms contained in the confidentiality agreement between the Company and Atlas; and

 

provides, in accordance with the terms of the confidentiality agreement between the Company and Atlas, and on a contemporaneous basis, to Lakeside any non-public information concerning the Company or its subsidiaries provided to such other person which was not previously provided to Lakeside.

As promptly as practicable (and in any event within twenty-four hours) after receipt of any Acquisition Proposal, the Company must notify Lakeside of the receipt or occurrence thereof and, to the extent applicable, provide Lakeside with an initial written notice of such Acquisition Proposal or of any written notice from a third party that it intends to make an Acquisition Proposal, including, as applicable, a summary of such proposal (including the identity of the party making such proposal, the purchase price and a description of the assets to be purchased pursuant to such proposal) and a copy of any draft of a definitive agreement with respect to such Acquisition Proposal provided to the Company related to such Acquisition Proposal. In addition, the Company will, as promptly as reasonably practicable (and in any event within twenty-four hours), keep Lakeside reasonably currently informed of all material modifications regarding, and the status of, any such Acquisition Proposal and any related discussions or negotiations.

An “Acquisition Proposal” for purposes of the Stock Purchase Agreement (and as used herein) means:

 

(1)

any proposal or offer with respect to a merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, exchange offer, share issuance, recapitalization, reorganization, share exchange, business combination or similar transaction involving the Company, Phoenix Color or any of Phoenix Color’s subsidiaries which would, either in one or a series of transactions, result in any person (other than Lakeside or its affiliates) owning, directly or indirectly, 20% or more of any class of equity securities of the Company, Phoenix Color or any of Phoenix Color’s subsidiaries;

 

(2)

any acquisition by any person (other than Lakeside or its affiliates) resulting in, or proposal or offer, which if consummated would result in, any person becoming the beneficial owner of directly or indirectly, in one or a series of related transactions, 20% or more of any class of equity securities of the Company, Phoenix Color or any of Phoenix Color’s subsidiaries, or 20% or more of the revenue or consolidated total assets, measured either by book value or fair market value (including equity securities of its subsidiaries) of Phoenix Color;

 

(3)

any combination of the foregoing having a similar effect to those described in clauses (1) and (2).

A “Superior Proposal” for purposes of the Stock Purchase Agreement means a bona fide unsolicited written Acquisition Proposal (except that for purposes of the definition of “Superior Proposal” references in the definition of “Acquisition Proposal” to “20%” will be replaced by “50%”) (on its most recently amended or modified terms, if amended or modified) made by a third party that is not affiliated with the Company and that did not result from or arise out of a breach of the Company’s non-solicitation obligations under the Stock Purchase Agreement that our Board of Directors determines in good faith (after consultation with its outside legal counsel and financial advisors), taking into account all terms and conditions of such transaction (including any breakup fees, expense reimbursement provisions and financial terms) and all legal, financial, tax, regulatory, timing and other aspects of the proposal (including the risks, probabilities and timing of consummation), (a) is reasonably likely to be consummated in accordance with its terms, for which financing, if a transaction involving cash consideration (whether in whole or in part), is then fully committed or determined by our Board of Directors to be reasonably likely to be available, and which is not subject to any condition to consummation based on the availability of financing, and (b) is more favorable to the Company than the terms of the Stock Purchase Agreement and the Transaction as determined in good faith (after consultation with its outside legal counsel and financial advisors and after giving effect to any modifications to the Transaction as contemplated by the Stock Purchase Agreement) by our Board of Directors.

 

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Changes in the Recommendation of our Board of Directors; Fiduciary Termination

Under the Stock Purchase Agreement, subject to certain exceptions described below, none of the Company, our Board of Directors or any committee thereof may:

 

(1)

withhold or withdraw (or qualify or modify in a manner adverse to Lakeside), or publicly propose to withhold or withdraw (or qualify or modify in a manner adverse to Lakeside), the adoption, recommendation or declaration of advisability by our Board of Directors or any such committee of the Stock Purchase Agreement;

 

(2)

recommend the approval or adoption of, or approve or adopt, or publicly propose to recommend, approve or adopt, any Acquisition Proposal;

 

(3)

in the case of a tender offer or exchange offer subject to Regulation 14D under the Exchange Act, fail to recommend, in a Solicitation/Recommendation Statement on Schedule 14D-9, rejection of such tender offer or exchange offer within ten business days of the commencement of such tender offer or exchange offer; or

 

(4)

approve, adopt or recommend, or publicly propose to approve, adopt or recommend, or, in the case of our Board of Directors and any committee thereof, cause or permit the Company or any of its subsidiaries to execute, enter into or consummate any transactions contemplated by (and none of the Company or any of its subsidiaries will execute, enter into or consummate any transactions contemplated by), any letter of intent, memorandum of understanding, agreement in principle, merger agreement, share exchange agreement, acquisition agreement, purchase agreement, agreement which requires the Company to abandon or terminate the Stock Purchase Agreement or the transactions contemplated thereby, or other agreement with respect to any Acquisition Proposal, other than certain confidentiality agreements.

We refer to each of the actions set forth in clauses (1), (2) or (3) as an “Adverse Recommendation Change”.  If our Board of Directors effects an Adverse Recommendation Change prior to the Company receiving the Company Stockholder Approval, Lakeside may terminate the Stock Purchase Agreement and upon such termination, the Company will be obligated to pay the Termination Fee (see “Proposal 1: The Phoenix Color Sale Proposal—The Stock Purchase Agreement —Termination Fee” beginning on page 63 of this proxy statement).

Notwithstanding the foregoing, at any time prior to obtaining the Company Stockholder Approval, if our Board of Directors determines in good faith (after consultation with its financial advisors and outside legal counsel) that the failure to take such action would be inconsistent with its fiduciary duties under applicable Law, our Board of Directors may:

 

make an Adverse Recommendation Change solely in response to an Intervening Event (as defined below) or following receipt of an unsolicited bona fide written Acquisition Proposal that did not result from a breach of the Company’s non-solicitation obligations and which our Board of Directors determines in good faith, in consultation with its financial advisors and outside legal counsel, is a Superior Proposal, in each case, if our Board of Directors has determined in good faith, after consultation with its financial advisors and outside legal counsel, that the failure to take such action would be inconsistent with its fiduciary duties under applicable law, provided that the Company complies with its notice obligations described below; or

 

make an Adverse Recommendation Change and cause the Company to terminate the Stock Purchase Agreement and, concurrently with or immediately after such termination, cause the Company to enter into a definitive acquisition agreement with respect to a Superior Proposal solely in response to a bona fide written Acquisition Proposal which our Board of Directors determines in good faith, in consultation with its financial advisors and outside legal counsel, is a Superior Proposal that did not result from a breach of the Company’s non-solicitation obligations, if our Board of Directors has determined in good faith, after consultation with its financial advisors and outside legal counsel, that the failure to take such action would be inconsistent with its fiduciary duties under applicable law, provided that the Company complies with its notice and termination obligations, and pays the Termination Fee to Lakeside as described below.

 

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Prior to making an Adverse Recommendation Change for any reason set forth above, the Company must provide Lakeside with four business days prior written notice advising Lakeside that our Board of Directors intends to make an Adverse Recommendation Change or, if applicable, terminate the Stock Purchase Agreement and enter into an acquisition agreement with respect to a Superior Proposal. The notice must specify in reasonable detail the nature and details of such Intervening Event, or the material terms and conditions of the Superior Proposal (including a copy of the relevant proposed transaction agreements with the person or group of persons making such Superior Proposal and other material documents) for any Adverse Recommendation Change due to a Superior Proposal. In each case, to the extent requested by Lakeside, the Company, its financial advisors and outside legal counsel must engage in good faith negotiations with Lakeside to amend the Stock Purchase Agreement in a manner that would make the failure to effect an Adverse Recommendation Change no longer inconsistent with the fiduciary duties of our Board of Directors, and, in the case of a Superior Proposal, our Board of Directors must make the required determination regarding its fiduciary duties again at the end of such four business day negotiation period (after taking into account in good faith the amendments to the Stock Purchase Agreement proposed by Lakeside, if any). With respect to any Adverse Recommendation Change in response to a Superior Proposal, if there is any amendment to the financial terms or any other material terms of the then-existing Superior Proposal, the Company must notify Lakeside of each such amendment and the applicable four business day period will be extended until at least two business days after the time that Lakeside receives notification of such amendment.

An “Intervening Event” for purposes of the Stock Purchase Agreement means a material event, development, occurrence, state of facts or change (or the magnitude thereof) that (A) affects the assets, business or operations of Phoenix Color and (B) was not known to our Board of Directors and was not reasonably foreseeable by our Board of Directors as of or prior to the date of the Stock Purchase Agreement, which event, development, occurrence, state of facts or change (or the magnitude thereof) becomes known to our Board of Directors before the receipt of the Company Stockholder Approval; provided that in no event will the following events, changes or developments constitute an Intervening Event: (a) the receipt, existence of or terms of an Acquisition Proposal or any inquiry relating thereto or the consequences thereof, or (b) any change in the price or trading volume of the Company’s equity securities (provided that the underlying cause of such change may be taken into account in determining whether there has been an Intervening Event).

Any public disclosure by the Company or any of its subsidiaries relating to an Acquisition Proposal will be deemed to be an Adverse Recommendation Change unless our Board of Directors affirms that it is not modifying or changing in a manner adverse to Lakeside its approval or recommendation of the Stock Purchase Agreement or any of the transactions contemplated thereby in such disclosure.

Nothing contained in the Stock Purchase Agreement prohibits the Company from taking and disclosing to its stockholders a position contemplated by Rule 14d-9 or Rule 14e-2(a) promulgated under the Exchange Act in response to an unsolicited bona fide written Acquisition Proposal from a third party not affiliated with the Company that did not result from or arise out of a breach of the Company’s non-solicitation obligations.  The issuance by the Company or our Board of Directors or any committee thereof of a “stop, look and listen” statement which does not take a position with respect thereto (or similar communication pending disclosure of its position, as contemplated by Rules 14d-9(f) and 14e-2(a) promulgated under the Exchange Act) will not in and of itself constitute an Adverse Recommendation Change.

HSR and Other Regulatory Approvals

Under the Stock Purchase Agreement, each of the Company and Lakeside is required to use its reasonable best efforts to (1) obtain any authorization of any governmental authority that is or may become necessary for its performance of its obligations pursuant to the Stock Purchase Agreement and (2) take all actions as may be requested by any such governmental authority to obtain such authorizations.

In particular, the Company and Lakeside each agreed to make an appropriate filing of a Notification and Report Form pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), with respect to the transactions contemplated by the Stock Purchase Agreement as promptly as practicable and in any event within eleven days of the date of the Stock Purchase Agreement and to supply as promptly as reasonably practicable any additional information and documentary material that may be requested pursuant to the HSR Act and

 

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to take all other actions necessary, proper or advisable to cause the expiration or termination of the applicable waiting periods under the HSR Act as soon as practicable.

Under the Stock Purchase Agreement, in connection with the efforts referenced above to obtain all requisite authorizations for the transactions contemplated by the Stock Purchase Agreement under the HSR Act or any other antitrust law, Lakeside, on the one hand, and the Company and Phoenix Color, on the other hand, also agreed to:

 

cooperate in all respects with each other in connection with any filing or submission and in connection with any investigation or other inquiry, including any proceeding initiated by a private party;

 

keep the other party reasonably informed of any communication received by such party from, or given by such party to, the Federal Trade Commission (the “FTC”), the Antitrust Division of the Department of Justice (the “DOJ”) or any other U.S. or foreign governmental authority and of any communication received or given in connection with any proceeding by a private party, in each case, regarding any of the transactions contemplated by the Stock Purchase Agreement; and

 

permit the other party to review any communication given by it to, and consult with each other in advance of any meeting or conference with, the FTC, the DOJ or any other governmental authority or, in connection with any proceeding by a private party, with any other person, and to the extent permitted by the FTC, the DOJ or such other applicable governmental authority or other person, give the other party the opportunity to attend and participate in such meetings and conferences.

Until the waiting periods (and any extension thereof) applicable to the transactions contemplated by the Stock Purchase Agreement under the HSR Act have expired or been terminated, Lakeside may not, and must cause its controlled affiliates not to, acquire or make any investment in any person that (A) manufactures, prints, distributes or markets book components or (B) prints or assembles books, but only to the extent the consummation of such acquisition or investment pursuant to this clause (B) would require the filing of a pre-merger notification form pursuant to the HSR Act, if in each case, the investment or acquisition would, or would reasonably be expected to, result in (i) a material delay in the satisfaction of any of the conditions to the Closing or (ii) any of such conditions not being satisfied.

Notwithstanding anything to the contrary contained in the Stock Purchase Agreement, neither Lakeside nor any of its affiliates will be required to (i) cease operating or divest (or hold separate) any of its businesses, product lines or assets, or to agree to ceasing operation or any divestiture of (or separately holding) Phoenix Color’s or any of its subsidiaries’ businesses, product lines or assets, (ii) change the manner in which it conducts its business or (iii) otherwise terminate, amend or assign existing relationships and contractual rights and obligations, in order to obtain any consent, clearance or expiration or termination of any waiting period under any antitrust law. In addition, if any governmental authority shall have issued an order, decree, ruling or injunction, or taken any other action related to the Company, Phoenix Color or any of its subsidiaries, or Lakeside or any of its affiliates that would have the effect of restraining, enjoining or otherwise prohibiting or preventing the transactions contemplated by the Stock Purchase Agreement, Lakeside and the Company will cooperate in all respects with each other and use commercially reasonable efforts to have such order, decree, ruling or injunction or other action declared ineffective as soon as practicable.

Each of the Company and Lakeside filed a Notification and Report Form pursuant to the HSR Act on February 14, 2022.  The waiting period under the HSR Act expired on Wednesday, March 16, 2022, at 11:59 p.m. EST.

Employment Matters

With respect to the employees of Phoenix Color who are employed immediately prior to as of the Closing Date (the “Continuing Employees”), Lakeside has agreed that, for a period beginning on the Closing Date and ending on December 31, 2022, Lakeside will provide or make available to the Continuing Employees: (i) base salaries or base wages that are no less favorable than the base salary or base wages provided to the Continuing Employees by Phoenix Color as of immediately prior to the Closing Date; (ii) annual target cash bonus and

 

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commission opportunities (excluding equity-based compensation) that are no less favorable in the aggregate to the annual target cash bonus and commission opportunities provided to the Continuing Employees by Phoenix Color as of immediately prior to the Closing Date; and (iii) retirement, health and welfare benefits that are no less favorable in the aggregate than those benefits provided to the Continuing Employees under the plans sponsored or maintained by Phoenix Color as of immediately prior to the Closing Date.

With respect to each Continuing Employee, (i) expenses and benefits with respect to claims incurred by Continuing Employees or their covered dependents on or after the Closing Date will be the responsibility of Lakeside and (ii) the Company will assign and transfer to Lakeside all reserves reflected in Phoenix Color’s financial statements as of September 30, 2021 and set aside prior to the Closing Date, to the extent related to work-related injury claims submitted by any such individual in respect of any injury that occurred prior to the Closing Date and on or following the Closing Date, and Lakeside will have the obligation and liability for any work-related injury claims submitted by any such individual in respect of any injury, whether occurring prior to, on or after the Closing Date. Moreover, for the 2022 calendar year, Lakeside will cause Phoenix Color to honor each Continuing Employee’s accrued but unused vacation, paid time off and sick leave accrued as of the Closing Date under the relevant Phoenix Color plan, provided that any accrued but unused vacation amounts that would otherwise be eligible to be carried over into 2023 or cashed out by Phoenix Color on the employee’s service anniversary date occurring after December 31, 2022, in either case, after giving effect to applicable limitations on carry-over and cash-outs under the applicable Phoenix Color policy, shall instead be cashed out by Phoenix Color no later than December 31, 2022.

Directors’ and Officers’ Indemnification and Insurance

Under the Stock Purchase Agreement, Lakeside is required to cause the organizational documents of Phoenix Color and its subsidiaries to contain provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of former or present directors and officers than are set forth in such organizational documents on the date of the Stock Purchase Agreement, which provisions may not be amended, repealed or otherwise modified for a period of six years from the Closing Date in any manner that would adversely affect the rights thereunder of any such individuals.

In addition, for a period of six years following the Closing, the Company is required to maintain directors’ and officers’ liability, employment practices liability and fiduciary liability insurance applicable to Phoenix Color and its subsidiaries, covering persons and categories of persons in respect of Phoenix Color covered by such policies as of the date of the Stock Purchase Agreement, in each case, solely for any event or liabilities caused by, arising from, or relating to the period prior to Closing, at a level and scope of not less than that applicable to the directors and officers of the Company during such six-year period.

Restrictive Covenants

The Company has agreed that, from the Closing Date until the third anniversary of the Closing Date, it will not, directly or indirectly:

 

on a worldwide basis, engage in any business or activity or render service to any person with respect to any business that, directly or indirectly, manufactures, prints, assembles, warehouses, distributes or markets books or any component thereof; however, these restrictions will not prohibit or restrict the Company or any of its subsidiaries from: (i) investing in or owning any debt securities or other debt obligations which in each case are non-voting and are not convertible into voting securities, unless convertible into such voting securities referred to in clause (ii) below, in which case such debt securities or debt obligations may be convertible into such voting securities only; or (ii) investing in or acquiring any person whose common stock is publicly traded on a securities exchange or in the over-the-counter market that engages in any such competing business, so long as the Company or any of its subsidiaries’ investment is less than two percent (2%) of the outstanding ownership interest in such person;

 

encourage, solicit, request, induce, persuade or in any manner attempt to, encourage, solicit, request, induce or persuade any customer or supplier of Phoenix Color or its subsidiaries within the six-month period prior

 

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to the Closing Date to cease or adversely modify or reduce in any material respect its relationship with Phoenix Color for books or book components; or

 

encourage, solicit or induce, or in any manner attempt to encourage, solicit or induce, any individual employed by, or providing consulting services to, Phoenix Color or its subsidiaries to terminate such individual’s employment or services (or in the case of a consultant, materially reduce such services) with Phoenix Color or its subsidiaries, as the case may be, or (ii) hire any individual who was employed by Phoenix Color or its subsidiaries within the six-month period prior to the date of such hiring; provided that these restrictions will not restrict or preclude the rights of the Company and its subsidiaries from soliciting or hiring (a) any employee who responds to a general solicitation or advertisement that is not specifically targeted at or focused on the employees employed by Phoenix Color or its subsidiaries, or (b) any employee or consultant whose employment or services have been terminated by Phoenix Color or any of its subsidiaries within the three-month period prior to the date of such solicitation or hiring.

Each of the Company, Phoenix Color and Lakeside also agreed that, from the Closing Date until the third anniversary of the Closing Date, it will not make, and will cause its affiliates not to make, any disparaging or defamatory comments regarding the other parties to the Stock Purchase Agreement or such other party’s affiliates, or their respective current or former directors, managers, officers, employees or shareholders.

Company Assumption of Reisch Employment Agreement

The Stock Purchase Agreement requires that, prior to the Closing, the Company, Marc Reisch, Chairman of Phoenix Color, and Phoenix Color will enter into the Reisch Novation Agreement, pursuant to which, among other things, the Company will assume all obligations of Phoenix Color under the Reisch Employment Agreement effective as of no later than the Closing.

Other Covenants

The Stock Purchase Agreement contains additional agreements between the parties relating to, among other things, the following:

 

access to information and preservation of records and confidentiality;

 

consultation and consent rights regarding any public announcements or press release with respect to the Stock Purchase Agreement or the transactions contemplated by the Stock Purchase Agreement;

 

resignations of directors and officers of the Company and its subsidiaries;

 

termination of affiliate agreements and intercompany accounts;

 

the release of (a) Phoenix Color and its subsidiaries from all indebtedness for borrowed money of the Company and its affiliates (including Phoenix Color and its subsidiaries), and (b) all liens and security interests over the assets of Phoenix Color and its subsidiaries securing such indebtedness;

 

Phoenix Color ceasing to use the Company’s trademarks;

 

obtaining third party consents and giving third party notices in connection with the Stock Purchase Agreement and the consummation of the transactions contemplated thereby;

 

access by Lakeside to occurrence-based liability insurance policies of the Company for pre-Closing events;

 

the Company remaining in existence and good standing, and maintaining a minimum cash position, for specified periods following the Closing;

 

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post-Closing asset and liability transfer; and

 

notice, cooperation and coordination relating to Transaction-related litigation, if any

Conditions to the Closing

The obligations of Lakeside to consummate the transactions contemplated by the Stock Purchase Agreement are subject to the satisfaction or waiver by Lakeside, as of the Closing Date, of the following conditions:

 

the representations and warranties of the Company in the Stock Purchase Agreement (without giving effect to materiality, material adverse effect or like qualifications therein) being true and correct in all respects both when made and at and as of the Closing Date with the same effect as though made as of the Closing Date (except to the extent such representations and warranties are specifically made only as of an earlier date (in which case, as of such earlier date), except for such failures to be true and correct as would not have, or reasonably be expected to have, a material adverse effect (with such term as described under “Proposal 1: The Phoenix Color Sale ProposalThe Stock Purchase Agreement—Representations and Warranties” beginning on page 48 of this proxy statement), except that certain representations and warranties related to the Company’s, Phoenix Color’s and its subsidiaries’ organization, Phoenix Color’s capitalization, Phoenix Color’s subsidiaries, the Company’s power and authority to enter into the Stock Purchase Agreement, the absence of any material adverse effect since September 30, 2021, the absence of any brokers and the absence of any fraudulent conveyance must be true and correct in all respects both when made and at and as of the Closing Date with the same effect as though made as of the Closing Date (except to the extent such representations and warranties are specifically made only as of an earlier date (in which case, as of such earlier date));

 

 

performance and compliance (a) in all respects by the Company of certain of its interim operating covenants and its covenants, obligations and undertakings under the Stock Purchase Agreement relating to the termination of affiliate agreements, and (b) in all material respects by the Company of the other covenants, obligations and undertakings required to be performed or complied with by it under the Stock Purchase Agreement on or prior to the Closing Date;

 

 

the absence of any material adverse effect since the date of the Stock Purchase Agreement;

 

 

the release of Phoenix Color and its subsidiaries as borrower, guarantor and pledger under the Credit Agreements (as defined above under “Proposal 1: The Phoenix Color Sale ProposalThe Stock Purchase Agreement— Conduct of Business Prior to Closing” beginning on page 50 of this proxy statement) and all liens on the assets of Phoenix Color and its subsidiaries under the Credit Agreements being fully and unconditionally released (with the Company providing evidence of the foregoing); and

 

 

certain closing documents and certificates specified in the Stock Purchase Agreement being delivered by the Company to Lakeside, including (i) duly executed resignation letters of all directors and officers of Phoenix Color and its subsidiaries, and (ii) the Reisch Novation Agreement.

The obligations of the Company to consummate the transactions contemplated by the Stock Purchase Agreement are subject to the satisfaction or waiver by the Company, as of the Closing Date, of the following conditions:

 

the representations and warranties of Lakeside in the Stock Purchase Agreement (without giving effect to any materiality or like qualifications therein) being true and correct in all respects both when made and at and as of the Closing Date with the same effect as though made as of the Closing Date (unless any such representation or warranty is specifically made only as of an earlier date, in which event such representation and warranty shall be true and correct as of such earlier date), except where the failure of any such representation or warranty to be so true and correct would not reasonably be expected to, individually or in the aggregate, prevent or materially delay the consummation of the transactions contemplated by the Stock Purchase Agreement;

 

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performance or compliance in all material respects by Lakeside of the covenants, obligations and undertakings required to be performed or complied with by it under the Stock Purchase Agreement on or prior to the Closing Date;

 

 

certain closing documents and certificates specified in the Stock Purchase Agreement being delivered by Lakeside to the Company; and

 

 

payment of the purchase price by Lakeside to the Company.

The obligations of the Company and Lakeside to effect the transactions contemplated by the Stock Purchase Agreement are subject to the satisfaction or waiver, as of the Closing Date, of the following conditions:

 

absence of any governmental order having the effect of enjoining the consummation of the transactions contemplated by the Stock Purchase Agreement;

 

 

expiration or termination of the waiting periods (and any extension thereof) applicable to the transactions contemplated by the Stock Purchase Agreement under the HSR Act; and