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:
|X| Preliminary Proxy Statement
| | Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
| | Definitive Proxy Statement
| | Definitive Additional Materials
| | Soliciting Material Pursuant to Section 240-14a-11(c) or
Section 240-14a-12
Marlton Technologies, Inc.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
| | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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| | 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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MARLTON TECHNOLOGIES, INC.
2828 CHARTER ROAD
PHILADELPHIA, PENNSYLVANIA 19154
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 19, 2005
9:00 AM
Dear Shareholder:
We strongly encourage your attendance and participation at a Special
Meeting of Shareholders of Marlton Technologies, Inc., which will be held in the
Pennsylvania Suite of the Double Tree Club Hotel at 9461 Roosevelt Boulevard,
Philadelphia, Pennsylvania, 19114 on Monday, December 19, 2005, commencing at
9:00 AM to consider and vote upon the following matters:
1. a proposal to amend the Articles of Incorporation to effect
a 1 for 5,000 reverse stock split of the Company's class of Common Stock; and
2. the transaction of such other business as may properly come
before the Special Meeting or any adjournments thereof.
As a result of the reverse stock split if approved, (i) each
shareholder holding fewer than 5,000 shares of the Company's Common Stock will
receive $1.25 per share in cash from the Company and will cease to be a Marlton
shareholder; (ii) each shareholder holding greater than 5,000 shares of the
Common Stock will receive one share for every 5,000 shares they own and will
receive $1.25 in cash for each share that would otherwise be converted into a
fractional share as a result of the proposed reverse stock split; and (iii) the
number of shareholders of record of the Company will decrease to fewer than 300
holders so that the Company can deregister its Common Stock as a class under the
Securities Exchange Act of 1934, and terminate the Company's public reporting
obligation with the Securities and Exchange Commission.
We have enclosed a proxy statement which more fully explains the
proposed reverse split. Only holders of record as of the close of business on
October 31, 2005, will be entitled to receive notice of and to vote at the
Special Meeting and any adjournments thereof.
THE BOARD OF DIRECTORS EMPHASIZES THE IMPORTANCE OF YOUR VOTE ON THE
PROPOSAL DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. THE BOARD HAS REVIEWED
THE TERMS OF THE PROPOSED REVERSE STOCK SPLIT AND HAS DETERMINED THAT IT IS FAIR
TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS SHAREHOLDERS. THE BOARD
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE PROPOSED REVERSE
STOCK SPLIT.
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE SPECIAL MEETING, PLEASE
PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE FORM OF PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
By Order of the Board of Directors,
Alan I. Goldberg
Corporate Secretary
MARLTON TECHNOLOGIES, INC.
2828 CHARTER ROAD
PHILADELPHIA, PENNSYLVANIA 19154
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 19, 2005
9:00 AM
This proxy statement is furnished in connection with the
solicitation of proxies by the Board of Directors (the "Board") of Marlton
Technologies, Inc. (the "Company" or "Marlton"), to be used at a Special Meeting
of Shareholders to be held in the Pennsylvania Suite of the Double Tree Club
Hotel at 9461 Roosevelt Boulevard, Philadelphia, Pennsylvania, 19114 on December
19, 2005, commencing at 9:00 AM, and at any adjournments thereof (the "Special
Meeting"). If the enclosed form of proxy is properly executed and returned, the
shares represented thereby will be voted in accordance with the instructions
specified by the shareholder. This proxy statement and form of proxy were first
mailed or delivered to shareholders on or about November 8, 2005.
You are being asked to consider and vote on the following
matters:
1. a proposal to amend the Company's Articles of Incorporation
to effect a 1 for 5,000 reverse stock split (the "Reverse Split") of the
Company's class of Common Stock (the "Common Stock"); and
2. the transaction of such other business as may properly come
before the Special Meeting or any adjournments thereof.
As a result of the Reverse Split if approved, (i) each shareholder
holding fewer than 5,000 shares of Common Stock will receive $1.25 per share in
cash from the Company and will cease to be a Marlton shareholder; (ii) each
shareholder holding greater than 5,000 shares of Common Stock will receive one
share for every 5,000 shares they own and will receive $1.25 in cash for each
share that would otherwise be converted into a fractional share as a result of
the Reverse Split; and (iii) the number of shareholders of record of the Company
will decrease to fewer than 300 holders so that the Company can deregister its
Common Stock as a class under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and terminate the Company's public reporting obligation
with the Securities and Exchange Commission (the "SEC").
THE REVERSE SPLIT DESCRIBED IN THIS PROXY STATEMENT HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, AND NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS PASSED
UPON THE FAIRNESS OR MERITS OF THE REVERSE SPLIT NOR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-1-
SUMMARY TERM SHEET
The following summary term sheet, including the section
entitled "Questions and Answers About the Special Meeting and the Reverse
Split," emphasizes certain material details of the proposed Reverse Split. In
addition to reviewing this summary term sheet, we strongly encourage you to read
the more detailed description of the proposed transaction provided in this proxy
statement. The date on which the Reverse Split takes effect is referred to
herein as the "Effective Date."
REVERSE SPLIT The Board has unanimously approved the
Reverse Split in order to reduce the
Company's number of shareholders of record
to fewer than 300 holders. If approved at
the Special Meeting, shareholders who own
fewer than 5,000 shares of Common Stock on
the Effective Date will no longer be
shareholders of the Company ("Discontinued
Shareholders"). Shareholders holding more
than 5,000 shares on the Effective Date will
remain shareholders of the Company after the
Reverse Split ("Continuing Shareholders"),
but will receive payment for any fractional
shares that would result from the Reverse
Split. The shares we purchase will be
cancelled and the outstanding shares
eliminated by the Reverse Split will become
authorized but unissued shares. See
"PROPOSAL NO.1 - TO EFFECT A REVERSE STOCK
SPLIT."
PAYMENT Discontinued Shareholders will receive $1.25
in cash per share as a result of the Reverse
Split; Continuing Shareholders will receive
the same cash consideration for any shares
that would otherwise become fractional
shares as a result of the Reverse Split. See
"Effects on Shareholders with Fewer Than
5,000 Shares of Common Stock" and "Effects
on Shareholders with 5,000 or More Shares of
Common Stock."
SHAREHOLDER APPROVAL Approval of the Reverse Split will require
the affirmative vote of the holders of a
majority of the outstanding shares of Common
Stock present and entitled to vote at the
Special Meeting where a quorum is present.
According to the bylaws of the Company, a
quorum exists when at least a majority of
the votes entitled to be cast on an issue
are present at the meeting either in person
or by proxy. Senior officers of the Company
are record owners of approximately 43% of
the outstanding shares of Common Stock and
have indicated that they will vote to
approve the Reverse Split. The transaction
does not require the approval of a majority
of the unaffiliated shareholders. See
"PROPOSAL NO.1 - TO EFFECT A REVERSE STOCK
SPLIT."
PURPOSE OF TRANSACTION The Reverse Split represents the first step
in the Company's plan to terminate its
public reporting obligations under the
Exchange Act by reducing the number of its
shareholders of record to fewer than 300
holders, and deregistering its class of
Common Stock from under the Exchange Act.
See "Purposes and Advantages of the Reverse
Split."
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REASONS FOR TRANSACTION The Board believes that the burdens of
escalating costs and heightened disclosure
obligations associated with being a public
reporting company, particularly the pending
internal control, audit assessment and
review requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 ("SOA"), and the
limited trading market and analyst coverage
for the Common Stock outweigh the perceived
benefits of being a public reporting
company. See "Purposes and Advantages of the
Reverse Split."
SPECIAL COMMITTEE The Board appointed a Special Committee
composed of three independent directors to
consider and review the terms of the Reverse
Split and to recommend the approval or
rejection of the Reverse Split to the Board.
The Special Committee retained the
investment banking firm of Mufson Howe
Hunter & Partners LLC ("MHH") as its
financial advisor to evaluate and report on
the fairness of the Reverse Split to
unaffiliated shareholders. See "PROPOSAL
NO.1 - TO EFFECT A REVERSE STOCK SPLIT -
Background of the Proposal."
FAIRNESS OF TRANSACTION MHH has rendered its opinion that the
consideration is fair to unaffiliated
shareholders. Based in part on that opinion,
the Board believes that the consideration is
fair to the Company's shareholders,
including its unaffiliated shareholders, and
recommends that shareholders vote to approve
the Reverse Split. See "Fairness of the
Reverse Stock Split."
POTENTIAL CONFLICTS OF INTEREST Our executive officers, directors and other
affiliates may have interests in the
transaction that are different from those of
our shareholders generally. Most notably,
the percentage beneficial ownership
interests of all Continuing Shareholders,
including our directors and executive
officers, will increase slightly as a result
of the Reverse Split. See "Special Interests
of Affiliated Persons in the Transaction"
and "Securities Ownership of Certain
Beneficial Owners and Management."
DISSENTERS' OR APPRAISAL RIGHTS Shareholders who receive shares and/or cash
in the Reverse Split do not have dissenters'
or appraisal rights under Pennsylvania law.
The Board did not consider the presence or
lack of appraisal rights to be a material
factor in its consideration and approval of
the Reverse Split. See "Appraisal and
Dissenters' Rights."
TRADING MARKET After the Company deregisters its Common
Stock from under the Exchange Act, the
Company will no longer be eligible to list
its shares on the American Stock Exchange
(the "Amex"). As a result of the delisting,
the Common Stock will no longer be quoted or
traded on Amex but may be traded on the
over-
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the-counter market and be quoted in the
Pink Sheets, although no assurances in this
regard can be made.
FINAL BOARD APPROVAL The Board adopted all of the resolutions
necessary to effectuate the Reverse Split at
its meeting on November 4, 2005. If the
proposal is approved by the shareholders,
the Board would still retain the authority
to determine whether to effect the Reverse
Split. While it is unlikely that it would do
so, the Board could elect to delay or even
abandon the Reverse Split without further
action by shareholders. The Board has not
identified any specific contingencies which
might lead to the delay or abandonment of
the Reverse Split, and any such decision
would most likely occur only as the result
of an extraordinary event outside of the
ordinary course of business. If approved by
the shareholders, the Board's intention is
to complete the Reverse Split so that the
Company has less than 300 holders of record
on January 1, 2006. See "PROPOSAL NO.1 - TO
EFFECT A REVERSE STOCK SPLIT."
CERTIFICATES Shareholders should not send stock
certificates to the Company at this time. If
the Reverse Split is approved and effected,
shareholders will be notified about
forwarding certificates and receiving
payment and replacement certificates.
-4-
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND
THE REVERSE SPLIT
Q: WHAT IS THE TIME AND PLACE OF THE SPECIAL MEETING?
A: The Special Meeting will be held in the Pennsylvania Suite of the
Double Tree Club Hotel at 9461 Roosevelt Boulevard, Philadelphia, Pennsylvania,
19114 on December 19, 2005 at 9:00 AM.
Q: WHAT PROPOSALS WILL BE VOTED ON AT THE SPECIAL MEETING?
A: Shareholders will be asked to vote on a proposal to approve the
Reverse Split, and to transact such other business as may properly come before
the meeting.
Q: WHY IS THE REVERSE SPLIT BEING PROPOSED?
A: If completed, the Reverse Split would reduce the number of
shareholders of record to fewer than 300 holders and would allow the Company to
deregister its class of Common Stock under the Exchange Act and terminate its
public company reporting obligations. As a result, the Company would no longer
be obligated to comply with the SEC's public company reporting requirements or
the existing and the new SOA provisions.
Q: WHAT ARE THE ADVANTAGES OF DEREGISTERING?
A: The following list enumerates the benefits of deregistration from
the Exchange Act.
o Elimination of the Company's estimated annual public company
expenses of $303,000 for the preparation and filing of disclosure
documents under the Exchange Act with the SEC, including
incremental audit and accounting costs.
o Elimination of the cost of compliance with SOA and related
regulations, including in particular SOA Section 404, which
requires public reporting companies to establish costly systems of
internal controls over financial reporting and provide annual
assessments of the efficacy of such controls. The Company
estimates that these costs would be $50,000 annually, as well as
an initial SOA 404 compliance expense of $150,000 to be incurred
in the Company's 2006 fiscal year.
o Increased protection of sensitive customer and commercial or
financial information from disclosure to current and future
competitors.
o The opportunity for our shareholders who hold fewer than 5,000
shares immediately before the Reverse Split to receive cash for
their shares without having to pay brokerage commissions and other
transaction costs.
o Provide our Company's management with the time and resources to
focus on the achievement of the Company's strategic business
objectives rather than meeting public company reporting
obligations.
-5-
Q: WHAT ARE THE DISADVANTAGES OF DEREGISTERING?
A: The following list enumerates the disadvantages of deregistration
from the Exchange Act.
o Discontinued Shareholders will not have an opportunity to
liquidate their shares after the Reverse Split at a time and for a
price of their own choosing; instead, they will receive a
pre-determined amount of cash for their shares and will no longer
be our shareholders with the opportunity to participate in or
benefit from any future potential appreciation in our value.
o Continuing Shareholders will not be able to readily access
information regarding the Company and its operations from publicly
available materials filed with the SEC or Amex following the
Reverse Split.
o Our shares may experience a further reduction in liquidity as a
result of their delisting from trading on Amex.
o Equity-based compensation, such as stock options, may be perceived
to have less value due to our status as a non-reporting company.
This may adversely effect our ability to recruit key employees.
o Our Common Stock may become less attractive as consideration for
acquisitions of other operating companies or assets.
o The Company will be less able to access the public markets for
additional financing in the future.
Q: IS IT POSSIBLE THAT THE NUMBER OF HOLDERS OF RECORD WILL INCREASE, THEREBY
MAKING US A REPORTING COMPANY AGAIN?
A: We would have to re-register under the Exchange Act if the number of
holders of record of our Common Stock exceeds 300 holders of record on January 1
of any subsequent year. After the Reverse Split is effected, we may attempt to
repurchase any shares of Common Stock proposed to be transferred by a Continuing
Shareholder if such proposed transfer might cause the number of holders of
record of our Common Stock to equal or exceed 300.
Q: IF I OWN FEWER THAN 5,000 SHARES, IS THERE ANY WAY I CAN CONTINUE TO BE A
SHAREHOLDER AFTER THE TRANSACTION?
A: If you currently own fewer than 5,000 shares of our Common Stock,
you can continue to be a shareholder after the Effective Date by purchasing, in
the open market or in private purchases, enough additional shares to cause you
to own a minimum of 5,000 shares in a single account immediately prior to the
Effective Date. There is no assurance, however, that any shares will be
available for purchase prior to the Effective Date.
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Q: IS THERE ANYTHING I CAN DO TO TAKE ADVANTAGE OF THE OPPORTUNITY TO RECEIVE
CASH FOR MY SHARES AS A RESULT OF THE TRANSACTION IF I CURRENTLY OWN MORE
THAN 5,000 SHARES?
A: If you currently own 5,000 or more shares, you can receive cash for
shares you own as of the Effective Date if you reduce your ownership to fewer
than 5,000 shares by selling such shares in the open market or otherwise
transferring them. There is no assurance, however, that any purchasers of shares
will be available prior to the Effective Date.
Q: WHAT HAPPENS IF I OWN A TOTAL OF 5,000 OR MORE SHARES BENEFICIALLY, BUT I
HOLD FEWER THAN 5,000 SHARES OF RECORD IN MY NAME AND FEWER THAN 5,000 SHARES
WITH MY BROKER IN "STREET NAME"?
A: Holding shares in "street name" means that your brokerage firm holds
your securities in its name or the name of another shareholder nominee rather
than in your name, but your firm keeps records showing you as the real or
beneficial owner. These shareholder nominees will advise our paying agent of the
number and size of such nominees' beneficial owner accounts and the paying agent
will forward to such nominees the number of whole shares and/or the
corresponding cash amount in lieu of fractional shares for the benefit of each
individual account. Shareholder nominees will not aggregate the holdings of the
individual beneficial accounts they hold. Similarly, shareholder nominees will
not aggregate the shares held by you in a beneficial account with any shares you
may hold of record.
An example of this would be that you have 1,000 shares registered in
your own name with our transfer agent and you have 4,000 shares registered with
your broker in street name.Accordingly, you are the beneficial owner of a total
of 5,000 shares, but you do not own 5,000 shares of record or beneficially in
the same name. If this is the case, as a result of the transaction, you would
receive cash for the 1,000 shares you hold of record, and you will also receive
cash for the 4,000 shares held in street name. You can avoid this result by
consolidating your holdings of 5,000 or more shares into a single account prior
to the Effective Date.
Q: WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION TO ME?
A: Shareholders who do not receive any cash as a result of the Reverse
Split should not recognize any gain or loss. For Continuing Shareholders, their
tax basis in the shares of our Common Stock should change proportionally after
the Reverse Split, but the holding period will remain the same. Shareholders who
will be paid in cash for some or all of their shares of our Common Stock as a
result of this transaction will generally recognize capital gain or loss for
federal income tax purposes if the shares were held for more than one year. Such
gain or loss will be measured by the difference between the cash received by
such shareholder and the aggregate adjusted tax basis of the shares of Common
Stock that were cancelled in the transaction. Continuing Shareholders who
received cash for fractional shares as a result of the Reverse Split may have
dividend income. While we do not provide tax advice to any shareholder, a
summary of the generally applicable material tax consequences of the Reverse
Split can be found in the section "Federal Income Tax Consequences."
Q: AM I ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS?
A: Under the Pennsylvania Business Corporation Law of 1988, as amended
(the "PBCL"), statutory dissenters' or appraisal rights are not available in a
reverse stock split transaction.
Q: WHAT IS THE VOTING RECOMMENDATION OF OUR BOARD OF DIRECTORS?
A: Based on the recommendation of the Special Committee and the report
of MHH, the Board has determined that the Reverse Split is advisable and in the
best interests of the Company and its shareholders. The Board has therefore
unanimously approved the Reverse Split and recommends that you vote "FOR"
approval of this matter at the Special Meeting.
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Q: WHAT IS THE COST TO THE COMPANY TO EFFECT THE REVERSE STOCK SPLIT?
A: We estimate that the total cash outlay of the Reverse Split will be
approximately $1,813,500, including the amount to be paid in lieu of fractional
shares. This figure includes $251,000 in transaction expenses which we expect to
incur, including the legal, accounting and financial advisor fees, and
distribution costs, and $1,562,500 in cash to be paid for the shares. This total
outlay could increase or decrease if the number of fractional shares that would
otherwise be outstanding upon the Reverse Split changes as a result of purchases
or sales of shares of our Common Stock prior to the Effective Date.
Q: WHAT SHARES CAN I VOTE?
A: You may vote all shares of our Common Stock that you own as of the
close of business on the record date, which is October 31, 2005. These shares
include (1) shares held directly in your name as the holder of record, and (2)
shares held for you in street name as the beneficial owner through a nominee
(such as a broker or bank). Nominees may have different procedures and, if you
own shares in a street name, you should contact your nominee prior to voting.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If the Reverse Split is approved and consummated, we will send
instructions on where to send your stock certificates and how you will receive
any cash payments you may be entitled to receive.
Q: CAN I VOTE MY SHARES WITHOUT ATTENDING THE SPECIAL MEETING?
A: Whether you hold your shares directly as the shareholder of record
or beneficially in street name, you may direct your vote without attending the
Special Meeting. For record owners, you may vote by signing your proxy card and
mailing it in the enclosed, pre-addressed envelope or, for shares held in street
name, by signing the voting instruction card sent to you by your broker or
nominee and returning it as instructed. If you provide specific voting
instructions, your shares will be voted as you instruct. If you sign but do not
provide instructions, your shares will be voted in favor of the Reverse Split.
Q: CAN I CHANGE MY VOTE?
A: You may change your proxy instructions at any time prior to the vote
at the Special Meeting. For shares held directly in your name, proxies may be
revoked at any time prior to being voted (i) by delivery of written notice to
the Company's Corporate Secretary, (ii) by submission of a later dated proxy
(which automatically revokes the earlier dated proxy card), or (iii) by revoking
the proxy and voting in person at the Special Meeting. Attendance at the Special
Meeting will not cause your previously signed proxy card to be revoked unless
you specifically so request. For shares held beneficially by you in street name,
you may change your vote only by submitting new voting instructions to your
broker or nominee. Shares held in street name may not be voted by you at the
Special Meeting other than through voting instructions submitted to your broker
or nominee before the meeting.
Q: WHAT ARE THE VOTING REQUIREMENTS TO APPROVE THE REVERSE SPLIT?
A: Under the PBCL, the presence at the Special Meeting in person or by
proxy of the holders of at least a majority of the issued and outstanding
Marlton shares as of the record date is
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necessary to establish a quorum to consider the Reverse Split proposal. Approval
of the Reverse Split will require the affirmative vote of the holders of a
majority of the shares represented in person or by proxy at the Special Meeting.
Q: HOW ARE VOTES COUNTED?
A: You may vote "FOR," "AGAINST" or "ABSTAIN" on the Reverse Split. If
you sign and date your proxy card with no further instructions, your shares will
be voted "FOR" the approval of the transaction, all in accordance with the
recommendations of our Board of Directors.
Q: WHERE CAN I FIND THE VOTING RESULTS OF THE SPECIAL MEETING?
A: We will announce preliminary voting results at the Special Meeting
and publish final results in a Current Report on Form 8-K filed with the SEC or
by amending the Schedule 13E-3 filed in connection with the Reverse Split.
Q: HOW WILL WE OPERATE AFTER THE TRANSACTION?
A: If the Reverse Split is approved and consummated, and assuming that
we have fewer than 300 holders of record after the transaction, we would
deregister under the Exchange Act and no longer be subject to the SEC's
reporting and related requirements under the federal securities laws that are
applicable to public reporting companies. The Common Stock would be delisted
from trading on Amex and would be expected to trade in the over-the-counter
market. We expect to otherwise conduct our business in accordance with our
current operation.
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PROPOSAL NO. 1 -- TO EFFECT A REVERSE STOCK SPLIT
The Board of Directors is seeking the approval of the
transaction discussed below. If approved by the shareholders, a 1 for 5,000
reverse stock split of our Common Stock will be effected. Shareholders who own
less than 5,000 shares of Common Stock will receive $1.25 in cash per share and
will cease to be shareholders of the Company. Shareholders who own more than
5,000 shares will continue as shareholders holding one (1) share for every 5,000
shares held prior to the Effective Date and receiving $1.25 in cash per share in
lieu of any fractional shares. The shares we purchase will be retired and the
outstanding shares eliminated by the Reverse Split will become authorized but
unissued shares. As of [date of this proxy], there were 12,939,696 shares of
Common Stock outstanding and held by approximately [holders] of record. Of these
holders, approximately [#] hold of record fewer than 5,000 shares of Common
Stock.
At the Special Meeting, the Board will ask the shareholders to
vote upon proposed Articles of Amendment to amend the Company's Articles of
Incorporation and effect the Reverse Split. The form of the proposed Articles of
Amendment is attached as Exhibit A to this proxy statement.
SPECIAL FACTORS
PURPOSES AND ADVANTAGES OF THE REVERSE SPLIT
PURPOSE. The principal purpose of the Reverse Split is to
decrease the number of holders of record of our Common Stock below 300 holders.
This will:
o allow termination of the registration of our Common Stock under
the Exchange Act resulting in the suspension of our duties to file
annual and quarterly reports, proxy statements and other filings
with the SEC and to comply with SOA;
o provide management more time to focus on the long term strategic
objectives of the Company rather than on the frequent periodic
filing requirements imposed on public reporting companies;
o avoid required or inadvertent disclosure of the Company's
sensitive commercial, financial and operating information to
competitors and potential competitors; and
o allow shareholders with under 5,000 shares to receive cash for
their shares of our Common Stock at a fair price. We will pay all
transaction costs incurred, allowing our shareholders to avoid
brokerage commissions.
COST SAVINGS. Due in part to a series of highly-publicized
corporate scandals and the resulting legislative action, the costs of
maintaining public company status have increased dramatically in recent years.
In particular, SOA has imposed a host of new compliance burdens upon public
companies. These rapidly evolving obligations have translated into significant
costs for reporting companies, including increased audit fees, securities
counsel fees, outside director fees and greater potential liability faced by
officers and directors. On top of the financial costs, compliance with these
guidelines requires substantial amounts of time and attention from the members
of our management team. As a relatively small publicly traded company, we feel
that these mounting costs will detract from the financial success of our
Company.
-10-
Our Board believes that, by deregistering our shares of Common
Stock and suspending our periodic reporting obligations, we will realize annual
cost savings of approximately $503,000 in 2006, and $353,000 annually
thereafter. These estimated annual cost savings reflect, among other things: (i)
a reduction in audit, legal and other fees required for publicly held companies,
(ii) the elimination of various internal costs associated with filing periodic
reports with the SEC, (iii) the reduction or elimination of the cost of
directors' and officers' liability insurance, (iv) the reduction or elimination
of various administrative and other expenses, including printing, stock transfer
and proxy solicitation expenses, and (v) the reallocation of management and
personnel time. The additional $150,000 to be incurred in 2006 reflects the
projected cost of the Company's initial compliance with SOA 404. The Company's
annual cost estimates for other specific public company expenses are as follows:
Estimated SOA 404 Compliance 50,000
Amex Listing Fee 20,000
Incremental Audit Fees 60,000
Incremental Directors' and Officers' Liability Insurance 25,000
Transfer Agent Fees 10,000
Printing and Distribution Costs 15,000
10-Q Accounting Costs 13,000
Incremental Legal Expense 50,000
Incremental Board and Committee Fees 10,000
Incremental Internal Accounting and Legal Costs 100,000
-----------
ESTIMATED TOTAL ANNUAL PUBLIC COMPANY EXPENSE $353,000
===========
OPERATIONAL FLEXIBILITY. Our Board believes that consummating
the Reverse Split and ending our status as a public reporting company will
enable management to concentrate its efforts on our long-term growth, free from
the constraints and distractions of public reporting status. Our Board believes
that the Company will benefit more if its business decisions can be made with a
view toward long-term growth and with less emphasis on the effect of decisions
upon the short-term earnings and the consequent short-term effect of such
earnings on the market value of our Common Stock.
COMPETITIVE PROTECTION. As a public reporting company, we are
required to disclose information to the public, including to actual and
potential competitors, that may be helpful to these competitors in challenging
our business operations. Some of this information includes the identity of
material customers, including the percentage of our business that originates
from those customers, known trends and contingencies that may impact our
operating results and the identity of key employees. These competitors and
potential competitors can use that information against us in an effort to take
market share, employees and customers away from us. Terminating our public
company reporting obligation will help to protect that sensitive information
from required or inadvertent disclosure.
DISADVANTAGES OF THE PROPOSAL
REDUCTION OF PUBLIC SALE OPPORTUNITIES FOR OUR SHAREHOLDERS.
Following the transaction, we anticipate that the already limited market for
shares of our Common Stock may be reduced or eliminated altogether. Our
shareholders may no longer have the option of selling their shares of our Common
Stock in a public market. While shares may be traded in the over-the-
-11-
counter market and quoted in the Pink Sheets for some period of time, any such
market for our Common Stock may be highly illiquid after the suspension of our
periodic reporting obligations.
LOSS OF CERTAIN PUBLICLY AVAILABLE INFORMATION. Upon
terminating the registration of our Common Stock under the Exchange Act, our
duty to file periodic reports with the SEC would be suspended. The information
regarding our operations and financial results that is currently available to
the general public and our investors will not be available after we have
terminated our registration. Upon the suspension of our duty to file reports
with the SEC, investors seeking information about us may have to contact us
directly to receive such information. We cannot assure you that we will be in a
position to provide the requested information to an investor. While our Board
acknowledges the circumstances in which such termination of publicly available
information may be disadvantageous to some of our shareholders, our Board
believes that the overall benefit to the Company to no longer being a public
reporting company substantially outweighs the disadvantages to those
shareholders.
POSSIBLE SIGNIFICANT DECLINE IN THE VALUE OF OUR SHARES.
Because of the limited liquidity for the shares of our Common Stock following
the consummation of the Reverse Split and the diminished opportunity for our
shareholders to monitor actions of our management due to the lack of public
information, continuing shareholders may experience a decrease in the value of
their shares of our Common Stock, which decrease may be significant.
INABILITY TO PARTICIPATE IN ANY FUTURE INCREASES IN VALUE OF
OUR COMMON STOCK. Discontinued Shareholders will have no further ownership
interest in the Company and thus will not have the opportunity to participate in
any potential appreciation in the value of our shares. Our Board of Directors
determined that this factor does not make the transaction unfair to
shareholders, because those shareholders who wish to remain shareholders after
the Reverse Split can do so by acquiring additional shares so that they own at
least 5,000 shares of our Common Stock before the Effective Date.
ALTERNATIVES TO THE REVERSE SPLIT
Upon concluding that the termination of its public reporting
requirement represented an important strategic objective for the Company, the
Board solicited the advice of legal counsel on the most advantageous means of
accomplishing this objective. With the help of its legal counsel, the Board
discussed a possible issuer tender offer for the Common Stock, but identified
the Reverse Split as the preferred vehicle for its purpose. The Board eliminated
a possible issuer tender offer because it did not offer adequate assurance of
reducing the number of record holders of the Common Stock below the necessary
threshold of 300. Without such assurance, the Board feared the possibility of a
costly transaction that failed to achieve its intended result. The Board favored
the precision of the Reverse Split, allowing them to predict the number of
post-transaction shareholders based upon the specified split ratio. The Board
and the Special Committee did not consider any other alternatives to the Reverse
Split proposal.
EFFECTS ON SHAREHOLDERS WITH FEWER THAN 5,000 SHARES OF COMMON STOCK
If the Reverse Split is approved and implemented, Discontinued
Shareholders will:
o not receive a fractional share of Common Stock as a result of the
Reverse Split;
-12-
o receive a cash payment in exchange for surrender of the shares of
our Common Stock they held on the Effective Date in accordance
with the procedures described in this proxy statement;
o not be required to pay any service charges or brokerage
commissions in connection with the Reverse Split;
o not receive any interest on the cash payments made as a result of
the Reverse Split; and
o have no further ownership interest in our Company and no further
voting rights.
Cash payments to Discontinued Shareholders as a result of the
Reverse Split will be subject to income taxation if the cash payment exceeds a
shareholder's tax basis. For a discussion of the federal income tax consequences
of the Reverse Split, please see the section of this proxy statement entitled
"Federal Income Tax Consequences."
If you do not currently hold at least 5,000 shares of Common
Stock in a single account and you want to continue to hold shares of our Common
Stock after the Reverse Split, you may do so by taking either of the following
actions:
o purchase a sufficient number of additional shares of our Common
Stock in the open market or privately and have them registered in
your name and consolidated with your current record account, if
you are a record holder, or have them entered in your account with
a nominee (such as your broker or bank) in which you hold your
current shares so that you hold at least 5,000 shares of our
Common Stock in your account on the Effective Date; or
o if you hold an aggregate of 5,000 or more shares in one or more
accounts, consolidate your accounts so that you hold at least
5,000 shares of our Common Stock in one account immediately before
the Effective Date.
Either course of action will require you to act far enough in
advance to ensure completion by the close of business on the day prior to the
Effective Date.
EFFECTS ON SHAREHOLDERS WITH 5,000 OR MORE SHARES OF COMMON STOCK
If the Reverse Split is consummated, Continuing Shareholders will:
o continue to be our shareholders and will be the only persons
entitled to vote as shareholders immediately after the
consummation of the Reverse Split;
o receive cash for any of their shares that would otherwise become
fractional shares as a result of the Reverse Split; and
o likely experience a reduction in liquidity (which may be
significant) with respect to their shares of our Common Stock.
FAIRNESS OF THE REVERSE SPLIT
A Special Committee of the independent members of our Board of
Directors has reviewed the purpose, structure, effects, advantages and
disadvantages of the Reverse Split proposal and determined that the transaction
is in the best interests of Marlton and is substantively and
-13-
procedurally fair to unaffiliated holders of our Common Stock. The Special
Committee did not assign a specific weight to each of the factors it considered
in a formulaic fashion, but rather viewed each factor in light of the overall
facts, circumstances and cost benefit analysis that led to initial proposal of
the Reverse Split.
In their deliberations concerning the fairness of the proposed
Reverse Split, the Special Committee, with the assistance of MHH, considered the
then current trading price of the Common Stock (ranging from a high of $1.25 to
a low of $.68 in the quarter ended June 30, 2005 and from a high of $1.56 to a
low of $.70 during the third quarter through early September), the historical
trading prices for the Common Stock (from a low of $.12 in October 2002 to a
recent high of $1.56 in September 2005), the sporadic trading volume in the
stock (average daily trading volume of only 7,000 shares with numerous days
showing no trading at all and occasional spikes of over 50,000 shares traded on
a single day), the net book value per share (according to the Company's
quarterly report for the period ended June 30, 2005, approximately $.79 per
share versus $.61 as of the year ended December 31, 2004), as well as the
general lack of liquidity of the stock. The Special Committee also took note of
the fact that no shareholders attended the Company's most recent annual meeting
and less than ten unaffiliated shareholders attended the prior meeting.
The Special Committee did not consider, nor was there any
effort made to calculate, liquidation values per share or going concern value
per share because neither measure was believed by the committee to be meaningful
or relevant for evaluating the fairness of the Reverse Split. Liquidation value
was not considered relevant since, under the circumstances, a liquidation of the
Company's assets and distribution to its shareholders of the proceeds from the
sale of those assets was not a viable alternative to the Reverse Split itself.
"Going concern value" refers to the value of an operating business that would be
greater than the sum of its assets were they sold separately because it includes
intangibles such as goodwill, operating efficiencies, management and employee
quality. The Special Committee did not believe it appropriate to consider any
incremental value for the Company as a going concern since the Board had
determined that the Company should remain as an independent company. Moreover,
the Special Committee did not have the benefit of any firm offers made for the
Company during the past two years to consider as part of its deliberations.
A discussion of other factors considered by the Special
Committee and the Board in making the fairness determination follows.
PROCEDURAL FAIRNESS. The Special Committee did not obtain an
unaffiliated stockholder representative to act on behalf of the unaffiliated
shareholders and the approval of a majority of the unaffiliated holders of
Common Stock is not required to authorize the transaction. However, the Special
Committee and the Board believe that the Reverse Split is procedurally fair
because:
o the Special Committee, which the Board established to review the
Reverse Split proposal, consisted entirely of independent
directors and has unanimously approved the transaction;
o the transaction is being effected in accordance with the
applicable requirements of Pennsylvania law;
o the Special Committee retained the services of MHH to serve as
financial advisor for the transaction and render an opinion as to
the fairness of the cash consideration to be
-14-
received by the unaffiliated shareholders receiving consideration
in lieu of fractional shares;
o the transaction is being submitted to a vote of Marlton
shareholders and is subject to approval of a majority of the
outstanding shares of Common Stock present and entitled to vote at
the Special Meeting;
o affiliated and unaffiliated shareholders are treated equally under
the Reverse Split proposal;
o shareholders can increase, divide or otherwise adjust their
existing holdings, prior to the Effective Date, so as either to
retain some or all of their shares or to receive cash with respect
to some or all of their shares; and
o Discontinued Shareholders would likely have the option to
repurchase shares of Marlton in the over-the-counter market.
The determination of the Special Committee was then reviewed
by our Board of Directors which, based on the same factors considered by the
Special Committee ( (i.e., current market prices for the Common Stock,
historical market prices for the stock, the net book value per share, as well as
the general lack of liquidity for the Common Stock) and the additional
considerations described below, independently determined that the proposed
Reverse Split was in the best interests of the Company and was fair to the
Company's unaffiliated shareholders, including both those who are being cashed
out as a result of the Reverse Split and those who will continue to be
shareholders of the Company after the Reverse Split, and unanimously resolved to
submit the Reverse Split to our shareholders for approval.
Of particular importance to the Board's determination of
procedural fairness was the equal treatment of affiliated and unaffiliated
shareholders. The Board noted that shareholders would receive the same cash
consideration in the transaction, regardless of their affiliation with the
Company. Although the Board considered the fact that shareholders would receive
differing treatment based upon the size of their holdings, the Board did not
feel that this aspect of the transaction impacted procedural fairness due to the
ability of shareholders to adjust their holdings prior to the consummation of
the transaction based upon their preferences. By announcing the transaction upon
its adoption by the Board, the Board recognized that shareholders may alter
their holdings with respect to the 5,000 share threshold and thereby determine
whether or not they wish to remain Marlton shareholders or receive cash in
exchange for their holdings.
SUBSTANTIVE FAIRNESS. In order to facilitate its consideration
of the substantive fairness of the Reverse Split to unaffiliated shareholders,
the Special Committee retained MHH to serve as its financial advisor in
connection with the transaction. MHH performed a thorough due diligence review
of the Company and its financial results and projections, including
conversations with members of the Company's senior management. MHH also
undertook an analysis of the valuation multiples and financial terms of recent
mergers and acquisitions of other business service companies in comparison to
similar data for Marlton. Based upon this review, MHH determined that $1.24 to
$1.57 per share represented a fair range of values for the Common Stock. The
Special Committee adopted this determination and the corresponding analysis in
setting the proposed transaction consideration at $1.25 per share. The Special
Committee collectively agreed on the per share consideration of $1.25 because it
was within the range of fairness presented by MHH. Following its review of the
Special Committee's determination and aided by the analysis of MHH and the
recommendation of the Special Committee, the Board concluded that $1.25 was
-15-
fair to the affiliated and unaffiliated shareholders of the Company. For more
information on the fairness opinion, see "Opinion of Mufson Howe Hunter &
Partners LLC."
In addition to receiving fair consideration for their shares,
the Special Committee also considered the fact that Discontinued Shareholders
and other shareholders receiving cash would get the benefit of selling their
shares without paying brokerage fees or commissions. The Special Committee noted
that this feature of the transaction weighed in favor of the overall substantive
fairness of the Reverse Split because it allowed shareholders receiving cash to
realize more value for their shares than a sale in the open market would afford
them.
The Special Committee also considered the substantive fairness
of the transaction to unaffiliated shareholders who would be Continuing
Shareholders following the Reverse Split. The Special Committee and the Board
found that the Reverse Split was substantively fair to these Continuing
Shareholders as well. The Board reached this conclusion based on the fact that
Continuing Shareholders would retain the ability to participate in the future
profitability of the Company. Since a principal purpose behind the Reverse Split
proposal was to eliminate its public company reporting obligations and thereby
improve operational efficiency, the Special Committee and the Board reasoned
that Continuing Shareholders could benefit from the long term cost savings
resulting from this transaction. The Special Committee and the Board also
considered that holders of over 5,000 Marlton shares would have the option to
reduce their holdings below the transaction threshold before the Effective Date
if they wished to receive the transaction consideration rather than continue to
hold the Company's shares.
We have not made any special provision in connection with the
Reverse Split to grant shareholders access to our corporate files or to obtain
counsel or appraisal services at our expense. Neither the Special Committee nor
the Board of Directors determined that these steps were necessary to ensure the
fairness of the Reverse Split. The Board of Directors believes that this proxy
statement, together with our other filings with the SEC, provide adequate
information for our shareholders to make an informed decision with respect to
the transaction.
In light of the fairness opinion delivered by MHH, the
recommendation of the Special Committee of independent directors, and thorough
consideration of the advantages and disadvantages of the Reverse Split, the
Board has determined that the transaction is in all respects fair to both
affiliated and unaffiliated holders of our Common Stock.
OPINION OF MUFSON HOWE HUNTER & PARTNERS LLC
On September 22, 2005, MHH rendered its opinion to the Special
Committee that the proposed price per share to be paid in connection with the
reverse split of $1.25 is fair, from a financial point of view, to the
shareholders, including the unaffiliated shareholders. The full text of MHH's
opinion is attached as Exhibit B to this document. The fairness opinion and the
supporting Special Committee Presentation delivered by MHH on September 13, 2005
are also available for inspection and copying at Marlton's principal executive
offices located at 2828 Charter Road, Philadelphia, Pennsylvania 19154.
Shareholders may also request that a copy of the fairness opinion or the Special
Committee Presentation be mailed to them by sending a request to the Marlton
Corporate Secretary at the address above. We encourage you to read MHH's opinion
to understand the information reviewed, assumptions made, analyses prepared, and
matters considered by MHH, as well as the limitation of its opinion.
-16-
MHH's opinion does not constitute a recommendation to Marlton
shareholders as to how such shareholders should vote with respect to the Reverse
Split.
The following is a summary of the Special Committee
Presentation which includes the analyses that MHH prepared to support its
opinion. In arriving at its opinion, MHH, among other things:
(a) reviewed a draft of the preliminary proposal, as described in
a draft of Marlton's proxy statement, dated September 16,
2005;
(b) reviewed the Company's Quarterly Reports on Form 10-Q for the
six and three months ended June 30, and March 31, 2005,
respectively, and its Annual Reports on Form 10-K for the
years ended December 31, 2004, 2003 and 2002;
(c) reviewed Marlton's detailed forecasts for the years ending
December 31, 2005 and 2006 and summary forecasts for the years
ending December 31, 2007, 2008 and 2009 and prepared
discounted cash flow analyses from such forecasts;
(d) discussed with members of the senior management of Marlton,
the Company's business, operating results, financial condition
and prospects;
(e) compared stock prices, operating results, earnings estimates
and financial condition of certain publicly-traded tradeshow
design and marketing services companies which MHH deemed
reasonably comparable to Marlton, to similar data for Marlton;
(f) compared valuation multiples (to the extent available) and
other financial terms of mergers and acquisitions of certain
tradeshow design and marketing services companies which MHH
deemed reasonably comparable to Marlton, to similar data for
Marlton;
(g) compared premiums or discounts to recent share prices for
certain recent reverse stock splits;
(h) analyzed Marlton's stock price and volume trading history; and
(i) reviewed certain other information and performed other
analyses that MHH deemed appropriate.
In arriving at its opinion, MHH assumed that all information
publicly available to it or furnished to it by the Company was accurate and
complete. MHH is not aware of any facts or circumstances that would make such
information inaccurate or misleading, but MHH has not independently verified and
does not assume any responsibility or liability for such information. With
respect to the forecasts furnished to MHH by the Company, MHH assumed that such
forecasts were reasonably prepared on a basis reflecting the best currently
available estimates and judgments of Marlton's management as to the future
results of operations and financial condition of the Company. MHH conducted only
a limited physical inspection of Marlton's facilities and did not appraise any
of the assets of the Company. MHH has assumed that the Reverse Split will be
completed as described herein, and has also assumed that all governmental,
regulatory or other consents required to consummate the Reverse Split will be
obtained without any material
-17-
restrictions imposed on the Company. MHH's opinion is based upon market,
economic and other conditions as they exist on, and can be evaluated as of, the
date MHH rendered its opinion.
In connection with rendering its opinion, MHH performed
certain financial, comparative and other analyses as summarized below. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial and comparative analyses and the
application of those methods to the particular circumstances. Therefore, such an
opinion is not readily susceptible to partial analysis or summary description.
Furthermore, in arriving at its opinion, MHH did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, MHH believes that its analyses must be considered as a whole and
that considering any portion of such analyses and factors, without considering
all analyses and factors as a whole, could create a misleading or incomplete
view of the process underlying its opinion. In its analyses, MHH made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond MHH's control. Neither
Marlton, MHH nor any other person assumes responsibility if future results
differ materially from those assumed. Any estimates contained in these analyses
were not necessarily indicative of actual values or predictive of future results
or values, which may be significantly more or less favorable than those set
forth therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which such businesses
actually may be sold.
PREMIUMS PAID ANALYSIS. MHH reviewed acquisition transactions
of publicly-traded companies in the business services market since December 31,
2003. For each of these transactions, MHH compared the acquisition price with
the closing prices per share of the acquired company one-month and one-week
prior to the announcement of the transaction. For the one-month premiums, this
resulted in a median premium of 25.1% since 2003, with a range of 14.6% to 34.0%
based upon the thirty-third (33%) and sixty-seventh (67%) percentiles. For the
one-week premiums, this resulted in a median premium of 22.3% since 2003, with a
range of 13.0% to 32.3% based upon the thirty-third (33%) and sixty-seventh
(67%) percentiles. In its analysis, MHH calculated both the median premium as
well as a range of premiums which represented the middle-third (represented by
the range of premiums between the thirty-third and sixty seventh percentiles) of
premiums for all transactions reviewed. MHH performed this calculation in order
to address some of the inherent limitations in the median calculation, which by
definition is limited to one data point. By analyzing a range of premiums, MHH
was able to derive where a coagulation of premiums existed.
MHH included over 100 comparable transactions in its premiums
paid analysis review. The following table lists the 10 most recent transaction
which MHH reviewed, and the indicated one-month and one-week premiums.
Date One-Month One-Week
Announced Target Company Premium Premium
--------------------------------------------------------------------------------
07/28/05 SS&C Technologies Inc. 36.2% 18.7%
07/29/05 PRG-Schultz International Inc. 14.7% 22.9%
08/08/05 Labone Inc. 10.5% 16.7%
08/09/05 Register.com Inc. -2.0% 1.2%
08/10/05 Fastclick Inc. 21.6% 17.3%
08/17/05 CyberGuard Corp. 30.3% 14.3%
08/23/05 Union Community Bancorp 69.0% 74.4%
-18-
08/25/05 Liberty Corp. 25.6% 26.6%
08/28/05 PanAmSat Holding Corporation 28.3% 30.3%
08/29/05 NDCHealth Corp. -39.1% -39.7%
Median (entire data set) 25.1% 22.3%
33rd Percentile (entire data set) 14.6% 13.0%
67th Percentile (entire data set) 34.0% 32.3%
MHH also reviewed 17 recent transactions which were announced
during the past 6 months which MHH deemed comparable to the Marlton transaction.
In connection with such analysis, MHH reviewed publicly available information of
selected transactions involving reverse stock splits with a stated purpose
similar to the Company's transaction. For each of these transactions, MHH
determined the "cash out" price of the transaction with the closing price per
share of the company one-month and one-week prior to the announcement of the
transaction. For the one-month premiums, this resulted in a median premium of
22.4% for the examined transactions, with a range of 18.7% to 32.2% based upon
the thirty-third (33%) and sixty-seventh (67%) percentiles. For the one-week
premiums, this resulted in a median premium of 24.4% for the examined
transactions, with a range of 14.9% to 31.1% based upon the thirty-third (33%)
and sixty-seventh (67%) percentiles.
The selected transactions involving reverse stock splits with
a stated purpose similar to the Company's transaction, with their one-month and
one-week premiums are listed below:
One-Month One-Week
Company Premium Premium
----------------------------------------------------------------
News Communications, Inc 80.3% NA
JB Oxford Holdings Inc. 60.0% 24.9%
Liberate Technologies 11.1% -31.0%
American Education 6.4% 40.1%
McRae Industries 22.0% 23.9%
FFD Financial Corp 24.1% 26.7%
Wellsford Real Properties 43.1% 22.8%
Community Investor Bancorp 17.3% 13.2%
Refocus Group Inc. 52.2% 52.2%
Pioneer Oil & Gas 3.4% 10.3%
Color Imaging 134.0% 41.0%
United Systems Technology 33.3% 31.1%
Synbiotics Corp 30.0% 36.8%
Lynch Interactive Corp. 22.4% 33.9%
Kaiser group Holdings, Inc 18.4% 3.1%
Mercury Air Group 19.4% 14.9%
Northeast Indiana Bancorp 12.9% 13.5%
Median 22.4% 24.4%
33rd Percentile 18.7% 14.9%
67th Percentile 32.2% 31.1%
MHH applied these premiums to the Company's 5-day and 3-month
volume weighted average price ("VWAP") of $1.394 and $1.064, respectively. This
resulted in a range of indicated values of $1.20 to $1.87. The per share
consideration of $1.25 offered to unaffiliated shareholders is within this
range.
-19-
COMPARABLE COMPANY ANALYSIS. In connection with its opinion,
MHH compared certain financial information, including the market values and
trading multiples of the Company, with similar information for publicly traded
companies whose business MHH believed to be comparable to that of the Company.
MHH noted that none of the companies used in this analysis were identical to the
Company. Based on the market values of these companies, MHH determined various
multiples of their latest 12 months' earnings before interest, taxes,
depreciation and amortization ("LTM EBITDA"). The companies used in the
comparison along with the LTM EBITDA for each are set forth below.
Enterprise Value to
Company LTM EBITDA
-----------------------------------------------------------------
Viad Corp 7.4x
GL Events 13.2x
Ambassadors International Inc. 12.6x
Co-Active Marketing Group, Inc. 7.4x
Using these multiples, MHH determined that that the range of
EBITDA multiples was 7.4x to 13.2x, with a median of 10.0x. While none of the
comparable companies is identical to the Company, Viad Corp. was determined by
MHH to be the closest to the Company, and MHH took this into account when it
determined the relevant range for Marlton to be 7.4x to 12.6x. MHH used a
narrower range than the minimum and maximum values derived from its analysis
because it determined that a meaningful analysis should eliminate extreme values
and rather focus on a narrower range which it believes it to be a more
representative sample of market indicators. Applying these multiples to both the
Company projected LTM EBITDA through September 30, 2005 and its projected LTM
EBITDA through December 31, 2005 resulted in a range of implied enterprise value
from approximately $31.4 million to approximately $57.2 million. Consequently,
the range of implied value per share was $1.22 to $2.40. The per share
consideration of $1.25 offered to unaffiliated shareholders is within this
range.
COMPARABLE MERGERS & ACQUISITIONS ANALYSIS. Using publicly
available information, MHH reviewed and compared the purchase prices and
valuation multiples paid in twelve acquisitions of business services companies
that MHH deemed comparable to the Company. While these acquisition transactions
are different in nature than the reverse split transaction being proposed by the
Company, MHH believes that the analysis was worthwhile because it provides
useful valuation data which it utilized in arriving at its opinion. MHH
calculated the enterprise values for each target company as a multiple of its
LTM EBITDA. The range of EBITDA multiples was 6.2x to 11.0x, with a median of
8.3x. MHH determined the relevant range for Marlton to be 7.5x to 10.4x. MHH
used a narrower range than the minimum and maximum values derived from its
analysis because it determined that a meaningful analysis should eliminate
extreme values and rather focus on a narrower range which it believes it to be a
more representative sample of market indicators. In its analysis, MHH noted that
smaller transactions typically had lower valuation multiples and determined that
this was meaningful to the Company given the relatively smaller size of the
Company when compared to the companies in MHH's comparable mergers &
acquisitions analysis. Therefore, it also calculated a median and range for
companies with total transaction values under $100 million.
When only acquisitions with total transaction values under
$100 million were taken into consideration, the range of EBITDA multiples was
6.2x to 11.0x, with a median of 7.5x. MHH determined the relevant range for
Marlton to be 6.2x to 11.0x. In its analysis, MHH noted that smaller
transactions typically had lower valuation multiples and determined that this
was
-20-
meaningful to the Company given the relatively smaller size of the Company
when compared to the companies in MHH's comparable mergers & acquisitions
analysis. Therefore, it also calculated a median and range for companies with
total transaction values under $100 million.
The twelve comparable merger and acquisition transactions
reviewed are listed below.
Transaction
Value to
Target Transaction Value ($mm) EBITDA
--------------------------------------------------------------------------------
Sandrew Metronome Sverige $7.9 NA
MediaNation Inc $42.7 6.2x
Showtime Enterprises Inc. $7.5 NA
Expo-Volga EMG, LLC $1.5 NA
Harrison Cowley North $7.4 NA
Americam $1.5 NA
Genlyte Thomas Group LLC $1,075.0 8.3x
Vari-Lite, Inc. $11.8 NM
Sloane Group $22.0 11.0x
Willey Brothers, Inc $30.0 7.5x
Cunningham Graphics International,
Inc. $187.6 10.4x
Market Place Media, Inc. $30.0 NA
Median (All transactions) 8.3x
Median (All transaction under $100 million transaction value) 7.5x
Applying these multiples to both the Company projected LTM
EBITDA through September 30, 2005 and its projected LTM EBITDA through December
31, 2005 resulted in a range of implied enterprise value from approximately
$26.3 million to approximately $49.9 million. Consequently, the range of implied
value per share was $0.98 to $2.07. The per share consideration of $1.25 offered
to unaffiliated shareholders is within this range.
Given the limited number of comparable transactions, MHH also
evaluated a much larger group of acquisitions which included all business
services companies acquired since January 1, 2003. MHH calculated the enterprise
values for each target company as a multiple of its LTM EBITDA.
In its analysis, MHH noted that smaller transactions typically
had lower valuation multiples and determined that this was meaningful to the
Company given the relatively smaller size of the Company when compared to the
companies in MHH's sampling. Therefore, it also calculated a median and range
for companies with total transaction values under $100 million and total
values under $50 million.
A sampling of the over 200 transactions reviewed, with their
total transaction value and transaction value as a multiple of EBITDA, are
listed below. The summary computations included represent the entire data set.
-21-
Transaction Value
Target Company Transaction Value to EBITDA
-----------------------------------------------------------------------------
Airborne, Inc. $1,908.4 5.6x
Wallace Computer Services, Inc. $1,282.7 7.3x
Giga Information Group $51.5 6.1x
EDO Professional Services $41.8 6.5x
Hake Group $52.2 3.4x
NCH Marketing Services, Inc. $75.8 6.0x
Insignia Financial Group $447.4 5.8x
Multex.com, Inc. $224.6 35.3x
Tetra Tech FW, Inc. $128.0 20.8x
TherImmune Research Corporation $58.0 30.8x
Ross University $378.0 15.5x
Whitman Education Group $267.1 17.9x
Clayton Homes, Inc. $1,867.4 7.2x
Guideline Research Corporation $5.9 21.2x
National Service Industries, Inc. $113.8 4.6x
Predictive Systems, Inc. $19.2 0.0x
Hotels.com $1,096.0 5.5x
Information Spectrum Inc. $90.7 16.8x
Safeguard Business Systems $87.8 8.7x
Atlantic Data Services Inc. $32.3 2.0x
For all the transactions, this resulted in a median multiple
of 10.4x since 2003, with a range of 7.4x to 12.6x based upon the thirty-third
(33%) and sixty-seventh (67%) percentiles.
For all the transactions under $100 million in transaction
value, this resulted in a median multiple of 7.4x since 2003, with a range of
6.0x to 10.9x based upon the thirty-third (33%) and sixty-seventh (67%)
percentiles.
For all the transactions under $50 million in transaction
value, this resulted in a median multiple of 6.3x since 2003, with a range of
5.5x to 8.1x based upon the thirty-third (33%) and sixty-seventh (67%)
percentiles.
Applying these multiples to both the Company projected LTM
EBITDA through September 30, 2005 and its projected LTM EBITDA through December
31, 2005 resulted in a range of implied enterprise value from approximately
$23.5 million to approximately $49.4 million. Consequently, the range of implied
value per share was $0.84 to $2.04. The per share consideration of $1.25 offered
to unaffiliated shareholders is within this range.
DISCOUNTED CASH FLOW ANALYSIS. MHH prepared a discounted cash
flow analysis to derive a range of values for Marlton utilizing projections
through 2009 furnished to it by the management of Marlton. MHH calculated the
present values of the projected free cash flows (net income plus depreciation
and certain other non-cash expenses, less cash for working capital and capital
expenditures) for the five months ended December 31, 2005 and the four fiscal
years ending December 31, 2009 and the terminal value. To calculate a terminal
value for Marlton at the end of the forecast period, MHH applied a range of 6.0
to 8.0 times projected year ending December 31, 2009 EBITDA. The range of
multiples was arrived at by examining the range of historical M&A multiples for
companies with transaction values under $100 million since 2000. For this
period, the median transaction value as a multiple of EBITDA was 7.1x.
-22-
MHH used discount rates of 20.5 percent to 23.5 percent. The
range of discount rates was arrived at by the recent risk-free 10-year interest
rate of 4.2% to risk-premiums of 16.3% to 19.3%. The risk premiums were derived
by taking the historical risk premium of common stocks of 7.6% (which premium
was based on data provided by Ibbotson Associates) and multiplying it by a range
of estimated betas of 0.85 and 1.25. To the resulting value, a micro-cap size
premium of 9.8% was added, which size premium was based on data provided by
Ibbotson Associates.
Based on the foregoing, MHH calculated the range of implied
equity values per share for Marlton of $1.00 to $1.43 based on Marlton
management's projections. The per share consideration of $1.25 offered to
unaffiliated shareholders is within this range.
CONCLUSION. Based upon the above analyses, MHH determined that
$1.25 per share is fair, from a financial point of view, to the shareholders,
including the unaffiliated shareholders.
MHH, as part of its financial advisory business, is frequently
engaged in rendering financial advice in connection with mergers and
acquisitions and was selected by the Board based upon its qualifications,
reputation and experience in similar transactions. MHH has acted as the
financial advisor to the Special Committee in connection with the proposed
transaction and Marlton has agreed to pay MHH a fee of $75,000. Pursuant to the
agreement between Marlton and MHH, $25,000 of the fee was to be paid as a
retainer, $25,000 was to be paid when MHH orally delivered its opinion and the
balance was to be paid upon the delivery of its written opinion to the Special
Committee. In addition, the Company has agreed to reimburse MHH for its
reasonable out-of-pocket expenses not to exceed $10,000. and to indemnify MHH
against certain liabilities relating to or arising from this engagement.
SPECIAL INTERESTS OF AFFILIATED PERSONS IN THE TRANSACTION
In considering the recommendation of our Board with respect to
the Reverse Split, our shareholders should be aware that our executive officers
and directors have interests in the transaction which may differ from those of
our shareholders generally. These interests may create potential conflicts of
interest. After the Reverse Split, our executive officers and directors will
face less legal exposure compared to public reporting company executive officers
and directors. While there are still significant controls, regulations and
liabilities for directors and executives officers of unregistered companies, the
legal exposure for the members of our Board and our executive officers will be
reduced after the Reverse Split.
As a result of the transaction, Continuing Shareholders,
including our directors and executive officers, will generally experience a
slight increase in their beneficial ownership as a percentage of the class of
Common Stock. The percentage beneficial ownership of each director and executive
officer will increase by a factor of approximately 11%, and the beneficial
holdings of the directors and officers as a group will increase from 63.3% of
the class before the transaction to 68.3% following effectiveness. The
collective record holdings of the directors and executive officers will increase
from 42.8% of the class before the Reverse Split, to approximately 48.4% after
the transaction. Please see "Security Ownership of Certain Beneficial Owners and
Management."
As with other Continuing Shareholders, our directors and
executive officers will receive cash consideration of $1.25 for any shares that
would otherwise become fractional shares as
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a result of the Reverse Split. However, no director, executive officer, or
holder of 5% or more of our Common Stock is expected to receive cash for more
than 10,000 shares in the amount of $12,500.00.
In addition, Messrs. Harrow and Tarte have agreed to serve as
back-up lenders in the event that the Company is unable to fund the transaction
under its existing credit facility. Please see "Costs of the Transaction and
Source of Funds."
COSTS OF THE TRANSACTION AND SOURCE OF FUNDS
Based on estimates of the record ownership of shares of our
Common Stock, the number of shares outstanding and other information as of
October 31, 2005, and assuming that approximately 1,250,000 shares are
cancelled, we estimate that the total funds required to consummate the Reverse
Split will be around $1,813,500, of which approximately $1,562,500 will be used
to pay the consideration to shareholders entitled to receive cash for their
shares of our Common Stock and $251,000 will be used to pay the costs of the
reverse stock split, as follows:
Legal, Accounting and Financial Advisor $225,000
Special Meeting, Printing and Distribution 15,000
SEC Filing Fees and Press Releases 1,000
Transfer Agent Fees 10,000
-----------
TOTAL TRANSACTION FEES $251,000
===========
We intend to the finance the Reverse Split through funds
obtained from our revolving credit facility with Bank of America (the "Loan
Facility"). This Loan Facility provides maximum borrowing capacity of
$15,000,000 at a total effective interest rate of 6%. The Loan Facility
restricts the Company's ability to pay dividends, and includes certain financial
covenants including fixed charge coverage ratio and maximum capital expenditure
amount. The Loan Facility is incorporated herein by reference to the Exhibits
10.21, 10.39, 10.40 and 10.41 of the Company's Annual Report on Form 10-K for
the year ended December 31, 2004.
The Company currently has about $7,000,000 in availability
under the Loan Facility, and expects to have at least $3,000,000 in availability
at year end. The Loan Facility prohibits any payment in respect of stock,
redemption of stock and certain inter-company transfers of fund without the
lender's consent. Although the proposed Reverse Split would violate these
prohibitions if consummated, we have obtained the consent of the Bank of America
(the "Consent Letter") to fund the transaction under the Loan Facility in
accordance with the conditions contained in the Consent Letter. The Consent
Letter provides that the Company must have at least $1,500,000 in availability
under its borrowing formula following the consummation of the Reverse Split in
order to fund the transaction under the Loan Facility. The Consent Letter is
attached to the Schedule 13E-3 as Exhibit (b)(1.2).
In the event that we are unable to fully fund the Reverse
Split through the Loan Facility due to lack of sufficient availability or
otherwise, the Company has secured a commitment from Messrs. Harrow and Tarte to
loan Marlton the amount necessary to consummate the transaction, at the same
interest rate charged under the Loan Facility and repayable at such time as
Marlton has the requisite availability as mandated by the Consent Letter.
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The Company plans to repay the funds borrowed to consummate
the Reverse Split in accordance with the terms of the Loan Facility and the
Consent Letter.
BACKGROUND OF THE PROPOSAL
In recent years, the disclosure obligations of public
companies have been heightened by an increasingly complex process of complying
with the Exchange Act's filing and reporting requirements. We incur substantial
direct and indirect costs associated with the preparation and filing of the
Exchange Act's reporting requirements imposed on public reporting companies. The
financial costs and time demands associated with public reporting increased
significantly with the implementation of SOA, including the significant costs
and burdens of meeting the pending internal control evaluation and audit
requirements of SOA Section 404. While the SEC has delayed the application of
Section 404 to non-accelerated filers like us until our 2007 fiscal year, the
cost of implementing Section 404's internal control procedures is expected to be
burdensome and costly for a small company like Marlton.
We will have to incur substantial costs in 2006 and each year
thereafter to implement these procedures unless and until we deregister under
the Exchange Act. Historically, we have also incurred substantial indirect costs
as a result of the management time expended to prepare and review our public
filings. These indirect costs are expected to increase under the SOA and Section
404 in particular.
Over the period since the implementation of these heightened
disclosure requirements, the daily trading volume for our Common Stock has
averaged approximately 10,000 shares, ranging from a large number of days with
almost no trading at all to infrequent spikes of over 50,000 shares. The Board
believes that the erratic trading volumes have resulted in a highly inefficient
market for the Common Stock, with the trading price varying from a recent high
of $1.56 to a low of $0.20 per share in 2002. This low trading volume and modest
market capitalization have limited the Company's ability to use its Common Stock
as a source of funding. The Company has not raised any capital through the sales
of Common Stock in a public offering in over five years and has no plans to do
so in the foreseeable future.
The Board has also determined that, given the Company's size,
the absence of sustained interest from public investors and securities research
analysts, and other factors, the Company has not enjoyed appreciable enhancement
in its image which may result from reporting company status.
In light of these circumstances, our Board believes that it is
in the best interest of the Company and its shareholders to undertake the
Reverse Split, enabling us to deregister our Common Stock under the Exchange
Act. Deregistering will relieve us of the administrative burden, cost and
competitive disadvantages associated with filing reports and otherwise complying
with the requirements imposed under the Exchange Act and the SOA.
In 2002, upon the recommendation of a special committee of
independent directors, our Board entered into in an agreement to merge the
Company into an entity controlled by, among others, Messrs. Jeffery K. Harrow,
Chairman of the Company's Board of Directors, Scott J. Tarte, Vice Chairman of
the Board, Robert B. Ginsburg, President and Chief Executive Officer of the
Company, and Alan I. Goldberg, General Counsel and Corporate Secretary of the
Company. If consummated, the merger would have resulted in the Company ceasing
to be a public reporting
-25-
company. The group offered to terminate the merger transaction, however, after
other parties approached the Board with varying inquiries or proposals to
acquire the Company. The special committee, after considering and evaluating a
number of factors relating to Marlton, including the offer to terminate the
merger agreement and the other preliminary inquiries regarding possible
acquisitions of Marlton, and after consulting with its independent financial
advisor and counsel, recommended to the Board that it accept the proposal to
terminate the merger agreement and that it not pursue discussions with the other
parties. The Board accepted the recommendations of the special committee and
executed an agreement terminating the proposed merger transaction.
While the Company's directors and officers have had informal
discussions since 2002 about whether the Company was achieving the benefits of
being a public reporting company when weighed against the costs of complying
with the public company reporting obligations under the Exchange Act, the Board
did not formally consider taking any steps to deregister the Common Stock until
2005. During this period, the Board remained consistent in its desire to remain
an independent company.
In a meeting of the Board on August 4, 2005, with all the
directors present, the Board began to formally discuss the possibility of
terminating the Company's public reporting obligations with the SEC by
deregistering its class of Common Stock from under the Exchange Act. In
connection with its consideration of such deregistration, the Board sought the
advice of outside counsel and was subsequently provided with a briefing on the
mechanics of terminating its Exchange Act reporting obligation by means of a
reverse stock split and on the deregistration process. Because the Board
believed that future growth and further enhancement of shareholder value remain
viable prospects for the Company, the Board determined that it remained in the
best interests of the Company and a majority of its shareholders for the Company
to continue as an independent company, but not as a public reporting company
under the Exchange Act.
On August 8, 2005, at a meeting of the Board with all
directors and counsel present, the Board established a Special Committee of
independent directors to include Messrs. A.J. Agarwal, Washburn Oberwager and
Richard Vague and charged it with the responsibility of reviewing a reverse
stock split proposal to terminate the Company's public reporting obligations
under the Exchange Act, and authorized it to engage a financial adviser and
other consultants to review the fairness of such a transaction and the
consideration to be paid to the Company's shareholders, including unaffiliated
shareholders. Mr. Vague was elected by the Special Committee to act as its
chairman. The Special Committee was empowered by the Board to consider any
alternatives to achieve the objective of terminating the Company's Exchange Act
reporting obligation that did not include the sale of the Company. At the
meeting, the directors, counsel and management discussed potential investment
banker candidates to review the fairness of the proposed consideration. The
Special Committee selected three potential candidates and authorized its members
to contact those firms for proposals.
On August 15, 2005, at a meeting of the Special Committee with
all members present, the committee reviewed the materials provided and
qualifications of the three candidates for investment banker adviser to the
Special Committee, and listened to presentations by each candidate. The Special
Committee was advised of any prior contacts with the candidates, noting that one
candidate had provided a prior valuation of the Company in 2004 as part of the
Board's overall strategic planning process and a founding member of another
candidate had performed investment banking work for the Company when employed by
a different investment banking firm
-26-
in 2003. The Special Committee discussed each of the candidates in turn and
determined that two out of the three had met the Special Committee's
requirements to serve as its financial adviser.
On August 16, 2005, at a meeting of the Special Committee with
all members and counsel present, the Special Committee reviewed the
qualifications of the final two investment banker candidates and determined to
select MHH to serve as its financial adviser, subject to clarification of the
scope and cost of the representation with representatives of MHH. The committee
authorized its chairman to contact MHH for the required clarification and to ask
that representatives of MHH be prepared to address the committee at its next
meeting.
On August 22, 2005, at a meeting of the Special Committee with
all members present, as well as counsel and senior management of the Company by
invitation of the committee, the Special Committee reviewed the results of its
interviews with the investment banking candidates and its anticipated selection
of MHH as its financial adviser. The Special Committee confirmed its selection
of MHH to act as its investment banking adviser. Representatives of MHH were
then asked to join the meeting and to provide an overview of their valuation
process and schedule for rendering its advice to the committee.
On August 29, 2005, at a meeting of the Special Committee with
all members present along with counsel and representatives of MHH, the committee
reviewed and discussed the concept of a reverse stock split to terminate the
Company's public reporting obligations. The committee also briefly discussed
with counsel and MHH the possible use of an issuer tender offer, but noted that
it could not ensure that the Company would be eligible to terminate its public
reporting obligation. . The Special Committee also discussed the then current
trading levels of the Common Stock, the possibility of a third party offer for
the Company, SEC processing of the reverse split materials and the outlines of a
fairness opinion from MHH as part of its review of the transaction. The Special
Committee reaffirmed its desire to terminate the Company's public company
reporting obligation, but to remain an independent company and not to put the
Company up for sale. The Special Committee then asked its chairman to request
preliminary terms of a reverse split from management as soon as possible. The
Special Committee did not give any material consideration to other alternatives
to terminating the Company's public reporting obligations, and it did not
recommend a cash-out price as part of the Reverse Split.
At a meeting of the Special Committee on September 13, 2005,
with all members present, as well as counsel, representatives of MHH and senior
management of the Company, who attended at the request of the Special Committee,
preliminary terms of the Reverse Split were presented by management and
discussed, including a 5,000 to 1 ratio, a range of cash consideration values of
$1.15 to $1.30 and a discussion of the source of funding for the Reverse Split.
MHH noted during the discussion that, based upon its research, the
volume-weighted average price of the Company's Common Stock during the previous
one, three and six months periods was approximately $0.94 to $1.03 per share.
The Special Committee was advised that the Company's primary lender had
indicated informally that it would consent to the transaction and the Company
could use its revolving credit facility to fund the transaction subject to
conditions relating to its availability under its borrowing formula, but that
its formal approval would be required. Mr. Harrow indicated to the Special
Committee that he and Mr. Tarte would be willing to loan the Company any
additional funds it may need to complete the payments to the shareholders
receiving cash for their shares, on the same terms as the credit facility. In
addition, MHH provided an oral presentation of recent going private transactions
including the range of premiums paid in those transactions.
-27-
On September 19, 2005, at a meeting of the Special Committee
with all members present, as well as counsel and representatives of MHH, the
committee was provided with a review of the Reverse Split proposal by the MHH
representatives, including a discussion of the recent trading activity and
increase in stock price, noting that the stock price can move significantly
higher or lower on relatively low trading volume. MHH representatives noted the
negative growth of the Company for the last two of the previous three years, as
well as improving general economic conditions, and presented its analysis of the
proposal, using multiple methodologies, including premiums paid, comparable
company, discounted cash flow and cost of capital procedures. MHH also noted the
lack of many comparable companies to the business of the Company. Following a
discussion with and questioning of MHH representatives by the Special Committee
regarding MHH's evaluation procedures and results, the meeting was adjourned to
later in the day. The meeting was subsequently reconvened and the discussion
continued. Based upon the work product of MHH, the Special Committee instructed
MHH to request a revised proposal from management that was within the range of
fair values MHH had presented and above the trading price on the day proposed.
At a meeting on September 22, 2005 of all members of the
Special Committee and the Board, as well as counsel and representatives of MHH
and senior management, a revised proposal was presented by management, including
the $1.25 cash-out price and a standby guaranty of funding. After discussion of
the revised proposal by the Special Committee and MHH, the Board determined that
the proposal was fair to the unaffiliated shareholders and approved the Reverse
Split and determined to present the proposal to the shareholders for approval
with its recommendation that the shareholders approve the Reverse Split. The
Board retained the authority to terminate the transaction even after shareholder
approval.
During the course of the Special Committee's consideration of
the Reverse Split, it did not evaluate in any material fashion any split ratios
other than the 1 for 5,000 ratio, which the Special Committee determined was
sufficient to reduce the number of holders of record to below 300 holders.
-28-
FEDERAL INCOME TAX CONSEQUENCES
Summarized below are material federal income tax consequences
to the Company and to our shareholders resulting from the Reverse Split, if
consummated. This summary is based on the provisions of the Internal Revenue
Code of 1986, as amended, more commonly referred to as the Code, the Treasury
Regulations, issued pursuant thereto, and published rulings and court decisions
in effect as of the date hereof, all of which are subject to change. This
summary does not take into account possible changes in such laws or
interpretations, including amendments to the Code, other applicable statutes,
Treasury Regulations and proposed Treasury Regulations or changes in judicial or
administrative rulings; some of which may have retroactive effect. No assurance
can be given that any such changes will not adversely affect the federal income
tax consequences of the Reverse Split.
This summary does not address all aspects of the possible
federal income tax consequences of the Reverse Split and is not intended as tax
advice to any person or entity. In particular, and without limiting the
foregoing, this summary does not consider the federal income tax consequences to
our shareholders in light of their individual investment circumstances nor to
our shareholders subject to special treatment under the federal income tax laws
(for example, tax exempt entities, life insurance companies, regulated
investment companies and foreign taxpayers), or who hold, have held, or will
hold our Common Stock as part of a straddle, hedging, or conversion transaction
for federal income tax purposes. In addition, this summary does not address any
consequences of the Reverse Split under any state, local or foreign tax laws.
We will not obtain a ruling from the Internal Revenue Service
or an opinion of counsel regarding the federal income tax consequences to our
shareholders as a result of the Reverse Split. Accordingly, you are encouraged
to consult your own tax advisor regarding the specific tax consequences of the
proposed transaction, including the application and effect of state, local and
foreign income and other tax laws.
This summary assumes that you are one of the following: (i) a
citizen or resident of the United States, (ii) a domestic corporation, (iii) an
estate the income of which is subject to United States federal income tax
regardless of its source, or (iv) a trust if a United States court can exercise
primary supervision over the trust's administration and one or more United
States persons are authorized to control all substantial decisions of the trust.
This summary also assumes that you have held and will continue to hold your
shares as capital assets for federal income tax purposes.
You should consult your tax advisor as to the particular
federal, state, local, foreign, and other tax consequences, applicable to your
specific circumstances.
We believe that the Reverse Split will be treated as a
"recapitalization" for federal income tax purposes. This should result in no
material federal income tax consequences to us or to our shareholders who do not
receive cash in the transaction. However, if you are receiving cash in the
transaction, you may not qualify for tax-free "recapitalization" treatment for
federal income tax purposes.
SHAREHOLDERS WHO DO NOT RECEIVE CASH IN CONNECTION WITH THE
REVERSE SPLIT. If you (1) continue to hold Common Stock directly immediately
after the Reverse Split, and (2) you
-29-
receive no cash as a result of the Reverse Split, you should not recognize any
gain or loss in the Reverse Split for federal income tax purposes. Your
aggregate adjusted tax basis in your shares of our Common Stock held immediately
after the Reverse Split will be equal to your aggregate adjusted tax basis in
such shares held immediately prior to the Reverse Split and you will have the
same holding period or periods in your Common Stock as you had in such Common
Stock immediately prior to the Reverse Split.
SHAREHOLDERS WHO RECEIVE CASH IN CONNECTION WITH THE REVERSE
SPLIT. If you (1) receive cash in exchange for your shares as a result of the
Reverse Split, (2) you do not continue to hold any Common Stock directly
immediately after the Reverse Split, and (3) you are not related to any person
or entity that holds Common Stock immediately after the Reverse Split, you will
recognize capital gain or loss on the Reverse Split for federal income tax
purposes, with such gain measured by the difference between the cash you
received for your shares and your aggregate adjusted tax basis in those shares.
If you receive cash in exchange for some of your shares of our
Common Stock as a result of the Reverse Split, but either continue to directly
own stock immediately after the Reverse Split, or are related to a person or
entity who continues to hold stock immediately after the Reverse Split, you will
recognize capital gain or loss in the same manner as set forth in the previous
paragraph, provided that your receipt of cash either is "not essentially
equivalent to a dividend," or constitutes a "substantially disproportionate
redemption of stock," as described below.
o "NOT ESSENTIALLY EQUIVALENT TO A DIVIDEND." You will satisfy the
"not essentially equivalent to a dividend" test if the reduction
in your proportionate interest in the Company resulting from the
Reverse Split (taking into account for this purpose the Common
Stock owned by persons related to you) is considered a "meaningful
reduction" given your particular facts and circumstances. In other
cases, the Internal Revenue Service has ruled that a small
reduction by a minority shareholder whose relative stock interest
is minimal and who exercises no control over the affairs of a
corporation will satisfy this test.
o "SUBSTANTIALLY DISPROPORTIONATE REDEMPTION OF STOCK." The receipt
of cash in the Reverse Split will be a "substantially
disproportionate redemption of stock" for you if the percentage of
the outstanding shares of our Common Stock owned by you (and by
persons related to you) immediately after the Reverse Split is (a)
less than 50% of all outstanding shares and (b) less than 80% of
the percentage of shares of our Common Stock owned by you
immediately before the Reverse Split.
In applying these tests, you will be treated as owning shares
of our Common Stock actually or constructively owned by certain individuals and
entities related to you. If your receipt of cash in exchange for Common Stock is
not treated as capital gain or loss under any of the tests, it will be treated
first as ordinary dividend income to the extent of your ratable share of our
current and accumulated earnings and profits, then as a tax-free return of
capital to the extent of your aggregate adjusted tax basis in your shares, and
any remaining amount will be treated as capital gain. See "CAPITAL GAIN AND
LOSS" and "SPECIAL RATE FOR CERTAIN DIVIDENDS," below.
CAPITAL GAIN AND LOSS. For individuals, net capital gain
(defined generally as your total capital gains in excess of capital losses for
the year) recognized upon the sale of capital assets that have been held for
more than 12 months generally will be subject to tax at a rate not to exceed
-30-
15%. Net capital gain recognized from the sale of capital assets that have been
held for 12 months or less will continue to be subject to tax at ordinary income
tax rates. Capital gain recognized by a corporate taxpayer will continue to be
subject to tax at the ordinary income tax rates applicable to corporations.
There are limitations on the deductibility of capital losses.
SPECIAL RATE FOR CERTAIN DIVIDENDS. In general, dividends are
taxed at ordinary income rates. However, you may qualify for a 15% rate of tax
on any cash received in the Reverse Split that is treated as a dividend as
described above, if (i) you are an individual or other non-corporate
shareholder, (ii) you have held the shares of our Common Stock with respect to
which the dividend was received for more than 60 days during the 120-day period
beginning 60 days before the dividend date, as determined under the Code, and
(iii) you were not obligated during such period (pursuant to a short sale or
otherwise) to make related payments with respect to positions in substantially
similar or related property. You are urged to consult with your tax advisor
regarding your applicability for, and the appropriate federal, state, local,
foreign or other tax treatment of, any such dividend income.
WITHHOLDING TAX ON NON U.S. PERSONS. If you are not a U.S.
person (a "Non U.S. Person"), cash payments made to you that qualify as a
dividend, as described above, may be subject to a withholding of a 30% U.S. tax.
Cash payments that you receive from payment for fractional or odd lot shares are
likely to be classified as a dividend because you are likely to have increased
your percentage ownership in the Common Stock as a result of the Reverse Split.
We will determine at the time of payment if we are required to withhold. You may
reduce the rate of withholding if you provide us with a properly executed form
W-8BEN on which you claim the benefits of an applicable tax treaty.
If the 30% (or reduced) tax withheld exceeds your actual U.S.
tax liability, you may filed with the IRS for a refund.
BACKUP WITHHOLDING. Shareholders will be required to provide
their social security or other taxpayer identification numbers (or, in some
instances, additional information) in connection with the Reverse Split to avoid
backup withholding requirements that might otherwise apply. The letter of
transmittal will require each shareholder to deliver such information when the
Common Stock certificates are surrendered following the Effective Date. Failure
to provide such information may result in backup withholding at a rate of 28%.
As explained above, the amounts paid to you as a result of the
Reverse Split may result in dividend income, capital gain income, or some
combination of dividend and capital gain income to you depending on your
individual circumstances. You should consult your tax advisor as to the
particular federal, state, local, foreign, and other tax consequences of the
transaction, in light of your specific circumstances.
THE PRECEDING DISCUSSION OF THE MATERIAL U.S. FEDERAL INCOME
TAX CONSEQUENCES OF THE REVERSE SPLIT IS GENERAL AND DOES NOT INCLUDE ALL
CONSEQUENCES TO EVERY SHAREHOLDER UNDER FEDERAL, STATE, LOCAL, OR FOREIGN TAX
LAWS. ACCORDINGLY, EACH SHAREHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO IT OF THE REVERSE STOCK SPLIT, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY
PROPOSED CHANGES IN APPLICABLE LAW.
-31-
APPRAISAL AND DISSENTERS' RIGHTS
The Pennsylvania Business Corporation Law of 1988, as amended,
does not afford shareholders appraisal or dissenters' rights for a reverse stock
split transaction. The Board did not consider the presence or lack of appraisal
rights to be a material factor in its consideration of the Reverse Split.
RECOMMENDATION OF THE BOARD
Our Board has unanimously determined that the Reverse Split is
from all perspectives fair to, and in the best interests of, the Company and its
shareholders. Members of the Board and executive officers of the Company own
approximately 43% of the outstanding shares of Common Stock and have indicated
that they will vote to approve the Reverse Split.
THEREFORE, THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE APPROVAL OF THE REVERSE SPLIT ON THE ATTACHED PROXY.
THE COMPANY
Marlton Technologies, Inc., through its Sparks Exhibits &
Environments and Sparks Custom Retail subsidiaries, is engaged in the design,
marketing and production of trade show, museum, theme park and themed interior
exhibits, store fixtures, premium incentive plans, corporate events, and point
of purchase displays, both domestically and internationally. Our executive
offices are located at 2828 Charter Road, Philadelphia, Pennsylvania 19154 and
our telephone number is (215) 676-6900.
RECENT DEVELOPMENTS
On March 15, 2005, Sparks Exhibits & Environments Corp., a
subsidiary of the Company, acquired substantially all of the assets and assumed
specified liabilities of Showtime Enterprises, Inc. and its subsidiary, Showtime
Enterprises West, Inc. (collectively "Showtime") from the Chapter 11 bankruptcy
proceeding which Showtime had filed in January 2005. Showtime designed, marketed
and produced trade show exhibits, point of purchase displays, museums and
premium incentive plans. Showtime had sales of approximately $21 million in
2004. The aggregate purchase price was $6.3 million, comprised of $2.8 million
paid in cash, $1.7 million for contingent royalty and percentage of sales
payments, $1 million of long-term debt assumption and $0.8 million for stock
warrants. The Company financed this acquisition by increasing its revolving
credit facility borrowing capacity and obtaining a new term loan. The Company's
Audit Committee engaged the Company's registered public accounting firm to
perform the required audit of Showtime's financial statements. It was
subsequently determined that such audit could not be performed due to the
unavailability of necessary documentation and personnel of Showtime due to the
bankruptcy proceeding. The Company subsequently applied for a waiver of these
financial statement requirements with the Office of Chief Accountant of the SEC,
but the waiver was denied. The inability to file these audited financial
statements would limit the Company's ability to engage in certain types of
transactions requiring SEC review, including without limitation, public
offerings and certain private offerings of securities and business combination
transactions requiring shareholder approval.
-32-
MARKET INFORMATION FOR OUR COMMON STOCK
Our Common Stock trades on Amex under the symbol "MTY." The
following table sets forth the quarterly high and low sales prices for our last
two fiscal years and the first three quarters of this fiscal year.
--------------------------------------------------------------------------------
SALES PRICE ($)
--------------------------------------------------------------------------------
FISCAL YEAR 2003 HIGH LOW
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
First Quarter .33 .18
--------------------------------------------------------------------------------
Second Quarter .40 .29
--------------------------------------------------------------------------------
Third Quarter .80 .38
--------------------------------------------------------------------------------
Fourth Quarter .80 .42
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SALES PRICE ($)
--------------------------------------------------------------------------------
FISCAL YEAR 2004 HIGH LOW
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
First Quarter .67 .45
--------------------------------------------------------------------------------
Second Quarter .66 .45
--------------------------------------------------------------------------------
Third Quarter .70 .53
--------------------------------------------------------------------------------
Fourth Quarter .98 .58
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SALES PRICE ($)
--------------------------------------------------------------------------------
FISCAL YEAR 2005 HIGH LOW
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
First Quarter 1.48 .72
--------------------------------------------------------------------------------
Second Quarter 1.25 .68
--------------------------------------------------------------------------------
Third Quarter 1.56 .70
--------------------------------------------------------------------------------
DIVIDEND POLICY
No dividends were paid during the past two fiscal years. The
Company currently intends to employ all available funds in the business. Future
dividend policy will be determined in accordance with the financial requirements
of the business. However, the Company's loan agreement provides that the Company
may not pay dividends to its shareholders without the lender's prior written
consent and also provides restrictions on the ability of the Company's
subsidiaries to transfer funds to the Company in the form of dividends, loans or
advances.
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information about our directors and
executive officers, including their names, ages, all positions and offices held
by each of them, the period during which each has served in his current role,
and the principal occupations of each over the past five years.
JEFFREY K. HARROW, age 48, serves as our Chairman and has been
a director and officer of the Company since November 2001. Mr. Harrow served as
President and CEO of CMPExpress.com from 1999 through 2000. Mr. Harrow
negotiated the sale of the CMPExpress.com business to Cyberian Outpost (Nasdaq
ticker "COOL") in September 2000. From 1982 through 1998, Mr. Harrow was the
President, CEO and a Director of Travel One, which was in 1998 the 6th largest
travel management company in the United States. Mr. Harrow previously served as
a board member for the Company and has served as a board member for Eastern
Airlines Advisory Board, Cherry Hill National Bank (sold to Meridian Bank), and
Hickory
-33-
Travel Systems. Mr. Harrow is a graduate of George Washington University School
of Government and Business Administration earning his B.B.S. in 1979.
A.J. AGARWAL, age 39, has been a director since 2001. Mr.
Agarwal is a Senior Managing Director in the Mergers & Acquisitions Advisory
Group for The Blackstone Group. Since joining Blackstone 1992, Mr. Agarwal has
worked on a variety of mergers and acquisitions transactions (both in an
advisory capacity and as a principal). Before joining Blackstone, Mr. Agarwal
was with Bain & Company. Mr. Agarwal graduated from Princeton University magna
cum laude and Phi Beta Kappa and received an MBA from Stanford University
Graduate School of Business. He serves as a trustee of Princeton University's
Foundation for Student Communication, the publisher of Business Today magazine.
WASHBURN OBERWAGER, age 58, has been a director since 2002.
Mr. Oberwager was Chief Executive Officer and a co-owner from 1987 to 1999 of
Western Sky Industries, Inc., a leading manufacturer of aircraft systems and
components. This $170 million business was divested in 1999. Since that time,
Mr. Oberwager has provided equity capital for high tech companies and has been a
principal in Avery Galleries, which specializes in American paintings.
SCOTT J. TARTE, age 43, has served as an officer and director
of the Company since November 2001 and is currently Vice Chairman of the
Company. From January 2001 to November 2001, Mr. Tarte served as acting CEO of
Medidata Solutions, a privately held technology company specializing in
applications that streamline the data collection process for clinical trials of
new drug compounds seeking FDA approval. From January 1988 to November 1998, Mr.
Tarte was an owner and served as Chief Operating Officer of Travel One. Mr.
Tarte oversaw all corporate operations and finance of the company, and shared
responsibility for strategic planning with Mr. Harrow. In November 1998, Travel
One was sold to the American Express Corporation. Mr. Tarte launched American
Express One, a $3 billion travel division representing a consolidation of the
prior Travel One organization and over $2 billion of legacy American Express
business. In December 1999, Mr. Tarte resigned his position with American
Express but agreed to remain as a paid consultant. Mr. Tarte graduated from the
University of Pennsylvania with a B.A. in 1984 and he received his law degree
from Fordham University in 1987.
RICHARD VAGUE, age 49, has been a director since 2001. Mr.
Vague co-founded Juniper Financial in 1999, a direct consumer bank with advanced
internet and wireless functionality. Mr. Vague is the Chairman and CEO of
Juniper Financial. Prior to co-founding Juniper Financial, from 1985 to 1999,
Mr. Vague was co-founder, Chairman and CEO of First USA, a credit card company
that grew from a virtual start-up in 1985 to the largest VISA credit card issuer
in the world. He also served as chairman of Paymentech, the merchant
payment-processing subsidiary of First USA and is a former board member of VISA.
ROBERT B. GINSBURG, age 51, is our Chief Executive Officer and
President and has served as an officer of the Company since August 1990. Mr.
Ginsburg also served as a director of the Company from 1990 to 2004. From 1985
to August 1990, Mr. Ginsburg was actively involved in the development and
management of business opportunities, including the acquisition of manufacturing
companies, investment in venture capital situations and the provision of finance
and management consulting services as a principal of Omnivest Ventures, Inc. Mr.
Ginsburg is a Certified Public Accountant.
-34-
ALAN I. GOLDBERG, age 53, is our General Counsel and Corporate
Secretary and has served as an officer of the Company since August 1990. Mr.
Goldberg also served as a director of the Company from 1991 to the 2004. From
April 1987 through August 1990 he was involved in venture capital investments
and business acquisitions as a principal of Omnivest Ventures, Inc. Mr. Goldberg
is a corporate attorney.
STEPHEN P. ROLF, age 50, became Chief Financial Officer and
Treasurer of the Company in January 2000. Mr. Rolf was employed from 1977 to
December 1999 by Hunt Corporation, a New York Stock Exchange listed manufacturer
and distributor of office and graphics products. Mr. Rolf worked in various
financial capacities for Hunt Corporation, including Vice President and
Controller.
Each director and executive officer is a citizen of the United
States and may be contacted at the Company's executive offices at 2828 Charter
Road, Philadelphia, Pennsylvania 19154, telephone number (215) 676-6900.
To the Company's knowledge, none of our executive officers or
directors has been convicted in a criminal proceeding during the past five years
(excluding traffic violations or similar misdemeanors) or has been a party to
any judicial or administrative proceeding during the past five years (except for
matters that were dismissed without sanction or settlement) that resulted in a
judgment, decree or final order enjoining the person from future violations of,
or prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the
shares of Common Stock, beneficially owned as of [Record Date], by (i) the
Company's directors; (ii) the Company's executive officers; (iii) the Company's
directors and executive officers as a group; and (iv) each person or entity
known to the Company to own beneficially more than 5% of the outstanding shares
of Common Stock.
--------------------------------------------------------------------------------------------
Shares of Common Stock Percent of
Beneficially Owned Class After
Prior to Reverse Split Reverse Split
--------------------------------------------------------------------------------------------
Name and Address of Beneficial Percent of
Owners, Officers and Directors No. of Shares Class
--------------------------------------------------------------------------------------------
Scott J. Tarte 4,198,816 (1) (3) 27.9 30.9
--------------------------------------------------------------------------------------------
Jeffrey K. Harrow 4,188,344 (2) (3) 27.8 30.8
--------------------------------------------------------------------------------------------
Robert B. Ginsburg 2,634,684 (3) (4) (5) 18.1 20.1
--------------------------------------------------------------------------------------------
Alan I. Goldberg 1,300,772 (5) (6) 9.4 10.5
--------------------------------------------------------------------------------------------
A.J. Agarwal 100,000 (7) - -
--------------------------------------------------------------------------------------------
-35-
--------------------------------------------------------------------------------------------
Richard Vague 100,000 (8) - -
--------------------------------------------------------------------------------------------
Washburn Oberwager 100,000 (9) - -
--------------------------------------------------------------------------------------------
Stephen P. Rolf 121,000 (10) - 1.1
--------------------------------------------------------------------------------------------
All directors and executive 12,743,616 (11) 63.3% 68.3%
officers as a group (8 persons)
--------------------------------------------------------------------------------------------
Lawrence Schan 990,750 (12) 7.7 8.7
--------------------------------------------------------------------------------------------
Stanley D. Ginsburg 815,467 (13) 6.3 7.1
--------------------------------------------------------------------------------------------
Ira Ingerman 774,367 (14) 6.0 6.7
--------------------------------------------------------------------------------------------
Lombard Associates 1,044,926 (15) 8.1 9.1
--------------------------------------------------------------------------------------------
(1) Includes an aggregate of 2,125,000 shares which Mr. Tarte may acquire
upon the exercise of outstanding options and warrants.
(2) Includes an aggregate of 2,138,336 shares which Mr. Harrow may acquire
upon the exercise of outstanding options and warrants.
(3) Messrs. Harrow, Tarte and R. Ginsburg are parties to a Stockholders'
Agreement as described below. The amount listed does not include shares
held by other parties to the Stockholders' Agreement, and each party
disclaims beneficial ownership of all shares held by the other parties
thereto. This Stockholders' Agreement will not dictate the votes of
Messrs. Harrow, Tarte and R. Ginsburg with regard to the Reverse Split
proposal.
(4) Includes an aggregate of 1,630,021 shares which Mr. Ginsburg may
acquire upon the exercise of outstanding options and warrants.
(5) Does not include for each of Messrs. Goldberg and Ginsburg 194,670
shares held by the Company's 401(k) Plan for the benefit of the
Company's employees. Each of Messrs. Goldberg and Ginsburg is a trustee
of such plan, and each disclaims beneficial ownership of all such
shares except those shares held for his direct benefit as a participant
in such plan.
(6) Includes an aggregate of 896,221 shares which Mr. Goldberg may acquire
upon the exercise of outstanding options and warrants.
(7) Includes an aggregate of 100,000 shares which Mr. Agarwal may acquire
upon the exercise of outstanding options and warrants.
(8) Includes an aggregate of 100,000 shares which Mr. Vague may acquire
upon the exercise of outstanding options and warrants.
(9) Includes an aggregate of 100,000 shares which Mr. Oberwager may acquire
upon the exercise of outstanding options and warrants.
(10) Includes an aggregate of 120,000 shares which Mr. Rolf may acquire upon
the exercise of outstanding options and warrants.
(11) Includes shares beneficially owned by Messrs. Harrow, Tarte, R.
Ginsburg, Goldberg, Agarwal, Vague, Oberwager and Rolf. The address for
each of the Company's executive officers and directors is 2828 Charter
Road, Philadelphia, Pennsylvania, 19154.
(12) Mr. Schan's address is: 507 Fishers Road, Bryn Mawr, PA 19010.
(13) Mr. Stanley Ginsburg's address is: 50 Belmont Ave., #1014, Bala Cynwyd,
PA 19004.
(14) Mr. Ingerman's address is: 1300 Centennial Road, Narbeth, PA 19072.
(15) Lombard Associates is a sole proprietorship owned by Charles P.
Stetson, Jr. and its address is: 115 East 62nd Street, New York, New
York 10021.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS WITH AFFILIATES
The Company leases its principal facility in Philadelphia from
2828 Partnership L.P., a limited partnership whose general partners are Stanley
Ginsburg (the father of Robert Ginsburg, our President and Chief Executive
Officer) and Ira Ingerman, each a beneficial owner of
-36-
more than five percent of our Common Stock. In 2004, the Company paid $771,025
pursuant to this lease.
STOCKHOLDERS' AGREEMENT
On November 20, 2001, Messrs. Tarte, Harrow and Robert
Ginsburg and the Company entered into a Stockholders' Agreement pursuant to
which, with certain exceptions, (i) Messrs. Tarte and Harrow have the right to
designate that number of individuals as nominees (which nominees include Tarte
and Harrow) for election as directors as shall represent a majority of the
Company Board, (ii) Messrs. Tarte, Harrow and Ginsburg will vote their shares of
Common Stock in favor of the Messrs. Tarte and Harrow designees and Mr.
Ginsburg, (iii) without the prior written consent of Mr. Ginsburg, for a period
of seven years following the effective date of the Stockholders' Agreement,
Messrs. Tarte and Harrow agreed not to vote any of their shares of Common Stock
in favor of (x) the merger of the Company, (y) the sale of substantially all of
the Company's assets, or (z) the sale of all the shares of Common Stock, in the
event that in connection with such transactions the shares of Common Stock are
valued at less than $2.00 per share, (iv) Messrs. Tarte, Harrow and Ginsburg
will recommend to the Board that it elect Mr. Harrow as the Chairman of the
Board of the Company, Mr. Ginsburg as the President and Chief Executive Officer
of the Company, and Mr. Tarte as the Vice Chairman of the Board of the Company
and as the Chief Executive Officer of each subsidiary of the Company, and (v)
Messrs. Tarte, Harrow and Ginsburg shall have a right of first refusal with
respect to one another in connection with any sale of the shares of Common Stock
held by them. The term of the Stockholders' Agreement is 20 years. For the
Company's last Annual Meeting, Messrs. Tarte and Harrow did not designate any
nominees for directors other than themselves. Due to the Amex's requirement that
a majority of the Board be comprised of independent directors, Mr. Ginsburg has
waived the Stockholders' Agreement requirement (and his employment agreement
requirement) that Messrs. Tarte and Harrow vote for him as a nominee for
director, as long as the Company provides him with Board observer rights
allowing him to receive notice and all materials for Board meetings as provided
to Board members and the right to attend Board meetings without any voting
rights. This Stockholders" Agreement will not dictate the voting of Messrs.
Tate, Harrow and Robert Ginsburg with respect to the Reverse Split proposal.
FINANCIAL STATEMENTS AND OTHER INFORMATION
The Company's financial information can be found in our Annual
Report on Form 10-K for the year ended December 31, 2004, which is included as
Exhibit C to this proxy statement, and our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2005, which is included as Exhibit D to this proxy
statement. Pro forma financial information showing the impact of the Reverse
Split on the Company's balance sheet and income statement is attached as Exhibit
E to this proxy statement.
-37-
OTHER MATTERS
PROXY SOLICITATION
The Company will bear the expense of the solicitation of
proxies for use at the Special Meeting. In addition to solicitation of proxies
by the mails, some of our officers and directors may solicit proxies by
telephone, facsimile or personal interview without any additional remuneration.
The Company will reimburse brokers, nominees, custodians and other fiduciaries
for expenses in forwarding proxy materials to their principals.
"RULE 13e-3 TRANSACTION"
The Reverse Split described in this proxy statement is
considered a "Rule 13e-3 transaction" as defined under the Exchange Act because
it has the purpose or effect of reducing the number of record owners of the
Common Stock to less than 300 persons and will lead to delisting of the Common
Stock from trading on Amex. As required by the rules of the SEC, we have filed a
Rule 13e-3 Transaction Statement on Schedule 13E-3 with the SEC. The Schedule
13E-3 is available on the SEC's website at http://www.sec.gov or by contacting
the Company's Corporate Secretary at the address above.
PROXY REVOCATION AND VOTING OF SHARES
A properly executed proxy may be revoked at any time prior to
it being voted (i) by delivery of written notice to the Company's Corporate
Secretary, (ii) by submission of a later dated proxy, or (iii) by revoking the
proxy and voting in person at the Special Meeting.
Only shareholders of record at the close of business on
[Record Date] will be entitled to vote at the Special Meeting. On that date
there were 12,939,696 shares of Common Stock issued and outstanding. Each share
of Common Stock is entitled to one vote on all matters submitted to the
shareholders for approval. A majority of the issued and outstanding shares of
Common Stock eligible to vote must be represented in person or by proxy at the
meeting to establish a quorum. The affirmative vote of the holders of a majority
of the outstanding shares of Common Stock present and entitled to vote at the
Special Meeting is required to approve the Reverse Split and any other proposals
which may properly come before the meeting or any adjournments thereof.
Abstentions, votes withheld, and broker non-votes will be
counted for purposes of determining a quorum but will not be counted otherwise.
Broker non-votes occur as to any particular proposal when a broker returns a
proxy but does not have authority to vote on such proposal.
WHERE YOU CAN FIND MORE INFORMATION
As permitted by the SEC, this proxy statement omits certain
information contained in the Schedule 13E-3. As explained above, the Schedule
13E-3, and any amendments or exhibits that it incorporates by reference, remain
available for shareholder inspection. Statements made in this proxy statement,
or any other document which this proxy statement incorporates by reference,
should not necessarily be considered complete. Each such statement is qualified
in its entirety by reference to that document filed as an exhibit with the SEC.
-38-
As a public company, we are currently subject to the
informational reporting requirements of the Exchange Act. In compliance with
this obligation, the Company files annual, quarterly and periodic reports, proxy
statements and other communicative documents with the SEC. The SEC maintains a
public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C.
20549 where visitors may copy and read any document that we file with the SEC.
You may call the SEC at 1-800-732-0330 to gain further information about the
public reference room. Certain of our SEC filings are also available to the
public through the SEC's website at http://www.sec.gov.
We have included with this proxy statement copies of our
Annual Report on Form 10-K for the fiscal year ended December 31, 2004, and our
Quarterly Report on Form 10-Q for the quarter ended September 30, 2005.
OTHER MATTERS FOR THE MEETING
The Board knows of no other matters to be brought before the
Special Meeting. If other matters properly come before the meeting, the persons
named in the accompanying form of proxy will exercise their best judgment in
voting the proxies solicited and received by the Company.
-39-
EXHIBIT A
Form of Articles of Amendment to the Marlton Technologies, Inc.
Articles of Incorporation
--------------------------------------------------------------------------------
PENNSYLVANIA DEPARTMENT OF STATE
CORPORATION BUREAU
--------------------------------------------------------------------------------
Articles of Amendment-Domestic Corporation
(15 Pa.C.S.)
---------------------
Entity Number
3021580 X Business Corporation (ss. 1915)
---
--------------------- Nonprofit Corporation (ss. 5915)
---
-------------------------------------------------- DOCUMENT WILL BE RETURNED
Name TO THE NAME AND ADDRESS
Philip M. Worthington YOU ENTER TO THE LEFT.
------------------------------------------------
Address <--
c/o Pepper Hamilton LLP, 3000 Two Logan Square
------------------------------------------------
City State Zip Code
Philadelphia PA 19106
------------------------------------------------
--------------------------------------------------
--------------------------------------------------------------------------------
Fee: $70 -----------------------------------------------------
Filed in the Department of State on _____________
-------------------------------------------------
Secretary of the Commonwealth
-----------------------------------------------------
In compliance with the requirements of the applicable provisions
(relating to articles of amendment), the undersigned, desiring to amend its
articles, hereby states that:
--------------------------------------------------------------------------------
1. The name of the corporation is:
Marlton Technologies, Inc.
------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2. The (a) address of this corporation~s current registered office in this
Commonwealth or (b) name of its commercial registered office provider and
the county of venue is (the Department is hereby authorized to correct the
following information to conform to the records of the Department):
(a) Number and Street City State Zip County
2828 Charter Rd. Philadelphia PA 19154 Philadelphia
---------------------------------------------------------------------
(b) Name of Commercial Registered Office Provider County
------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
3. The statute by or under which it was incorporated: Business Corporation Law
of 1988.
--------------------------------------------------------------------------------
--------------------------------------------------------
4. The date of its incorporation: August 20, 2001
--------------------------------------------------------
--------------------------------------------------------------------------------
5. CHECK, AND IF APPROPRIATE COMPLETE, ONE OF THE FOLLOWING:
X The amendment shall be effective upon filing these Articles of Amendment
--- in the Department of State.
The amendment shall be effective on: ___________ at ___________
--- Date Hour
--------------------------------------------------------------------------------
-40-
--------------------------------------------------------------------------------
6. CHECK ONE OF THE FOLL OWING:
X The amendment was adopted by the shareholders or members pursuant to 15
--- Pa.C.S. ss. 1914(a) and (b) or ss. 5914(a).
The amendment was adopted by the board of directors pursuant to 15 Pa.
--- C.S. ss. 1914(c) or ss. 5914(b).
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
7. CHECK, AND IF APPROPRIATE, COMPLETE ONE OF THE FOLLOWING:
The amendment adopted by the corporation, set forth in full, is as
--- follows
------------------------------------------------------------------------------
------------------------------------------------------------------------------
X The amendment adopted by the corporation is set forth in full in Exhibit
--- A attached hereto and made a part hereof.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
8. CHECK IF THE AMENDMENT RESTATES THE ARTICLES:
The restated Articles of Incorporation supersede the original articles
--- and all amendments thereto.
--------------------------------------------------------------------------------
------------------------------------------
IN TESTIMONY WHEREOF, the undersigned
corporation has caused these Articles of
Amendment to be signed by a duly
authorized officer thereof this
_________ day of _______________,
_________.
--------------------------------------
Name of Corporation
--------------------------------------
Signature
--------------------------------------
Title
------------------------------------------
-41-
EXHIBIT A
ATTACHMENT TO THE ARTICLES OF AMENDMENT OF MARLTON TECHNOLOGIES, INC.
Article 4 of the Articles of Incorporation of Marlton
Technologies, Inc. is hereby amended and restated in its entirety as follows:
4. (A) The total number of shares which the corporation shall have
authority to issue is 10,000 shares of Common Stock no par value, and
2,000 shares of Preferred Stock no par value. The Board may issue in
one or more class or series, or both, shares of Preferred Stock, with
full, limited, multiple, fractional or no voting rights, and with such
designations, preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights or other special or relative
rights as shall be fixed from time to time by the Board.
(B) Effective at the date and time these Articles of Amendment are
filed with the Secretary of State of the Commonwealth of Pennsylvania
and become effective ("Effective Time"), each five thousand (5,000)
shares of the corporation's Common Stock held by a shareholder and then
issued and outstanding shall be automatically converted (the "Reverse
Split") into one fully-paid and non-assessable share of Common Stock
(the "New Shares"). In lieu of the issuance of any fractional shares
that would otherwise result from the Reverse Split to holders who held
less than 5,000 shares immediately before the Effective Time of the
Reverse Split ("Discontinued Holders"), each Discontinued Holder shall
be entitled to receive the amount of $1.25 in cash for each share of
Common Stock held immediately prior to the Effective Time. At the
Effective Time, Discontinued Shareholders shall cease to be
shareholders of the corporation. Shareholders who held more than 5,000
shares immediately before the Effective Time of the Reverse Split will
remain shareholders of the Company after the Reverse Split ("Continuing
Shareholders"), and shall be entitled to receive New Shares for each
five thousand (5,000) shares of the corporation's Common Stock held by
such shareholder, plus the amount of $1.25 in cash for each share of
Common Stock held immediately prior to the Effective Time which would
otherwise result in a fractional share as a result of the Reverse
Split. The shares purchased by the corporation will be cancelled and
will become authorized but unissued shares. This subsection (B) of this
Article 4 shall affect both issued and outstanding shares and
authorized shares of the corporation as of the Effective Time.
Therefore, the number of shares of Common Stock and Preferred Stock
authorized in subsection (A) of this Article 4 have been reduced in
proportion to the Reverse Split ratio.
-42-
EXHIBIT B
Opinion of Mufson Howe Hunter & Partners LLC
[GRAPHIC OMITTED] Mufson Howe Hunter & Partners LLC
I N V E S T M E N T B A N K I N G
1600 Market Street, 16th Floor
Philadelphia, PA 19103
Phone: 215.399.5400
Fax: 215.399.5415
www.mhhco.com
September 22, 2005
Special Committee of the Board of Directors
Marlton Technologies, Inc.
2828 Charter Road
Philadelphia, PA 19154
Attention: Richard W. Vague, Member of the Special Committee
To: Members of the Special Committee and Board of Directors,
We understand that Marlton Technologies, Inc. ("Marlton", or the "Company")
proposes to undertake a 5,000-to-1 reverse stock split of common stock,
resulting in (i) the cash-out of all record holders of fewer than 5,000 shares
of common stock, and (ii) a decrease in the number of shareholders of record to
below 300 persons, which will permit the Company to deregister its common stock
under the Securities Exchange Act of 1934, delist the Common Stock from trading
on the American Stock Exchange and terminate the Company's public reporting
obligation with the Securities and Exchange Commission (the "Reverse Split.") As
a result of the Reverse Split, shareholders holding less than 5,000 shares of
the Company's common stock will receive $1.25 in cash per share; shareholders
holding more than 5,000 shares will receive the same cash consideration for any
fractional shares that they hold after the effective time of the Reverse Split.
You have requested our opinion as to the fairness, from a financial point of
view, of the cash consideration to be received by the unaffiliated shareholders
of Marlton Technologies pursuant to the Reverse Split. Our opinion does not
address the relative merits of the Reverse Split nor any other alternatives to
the Reverse Split that might exist for the Company. In arriving at our opinion,
we have, among other things:
(a) reviewed a draft of the proposal, as described in a draft of the Company's
Proxy Statement, dated September 16, 2005;
(b) reviewed the Company's 10-Qs for the three months ended June 30, and March
31, 2005 and its10-Ks for the years ended December 31, 2002, 2003 and 2004;
(c) reviewed Marlton's detailed forecasts for the years ending December 31,
2005 and 2006 and summary forecasts for the years ending December 31, 2007,
2008 and 2009 and prepared discounted cash flow analyses from such
forecasts;
(d) discussed with members of the senior management of Marlton, the Company's
business, operating results, financial condition and prospects;
(e) compared stock prices, operating results, earnings estimates and financial
condition of certain publicly-traded tradeshow design and marketing
services companies we deemed reasonably comparable to Marlton, to similar
data for Marlton;
MEMBER OF NATIONAL ASSOCIATION OF SECURITIES DEALERS AND SECURITIES INVESTOR
PROTECTION CORPORATION
-43-
Board of Directors
Marlton Technologies, Inc.
September 22, 2005
(f) compared valuation multiples (to the extent available) and other financial
terms of mergers and acquisitions of certain tradeshow design and marketing
services companies we deemed reasonably comparable to Marlton, to similar
data for Marlton;
(g) analyzed Marlton's stock price trading history; and
(h) reviewed certain other information and performed other analyses that we
deemed appropriate.
In arriving at our opinion, we assumed that all information publicly available
to us or furnished to us by the Company was accurate and complete. We are not
aware of any facts or circumstances that would make such information inaccurate
or misleading, but we have not independently verified and do not assume any
responsibility or liability for such information. With respect to the forecasts
furnished to us by the Company, we assumed that such forecasts were reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of Marlton's management as to the future results of operations and
financial condition of the Company. We conducted only a limited physical
inspection of Marlton's facilities and did not appraise any of the assets of the
Company. We have assumed that the Reverse Split will be completed as described
in the proxy material, and have also assumed that all governmental, regulatory
or other consents required to consummate the Reverse Split will be obtained
without any material restrictions imposed on the Company. Our opinion is based
upon market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter.
Our opinion does not constitute a recommendation to Marlton stockholders as to
how they should vote with respect to the Reverse Split.
Based upon and subject to the foregoing, we are of the opinion as of the date of
this letter; the proposed price per share to be paid to shareholders in
connection with the Reverse Split of $1.25 is fair, from a financial point of
view, to the shareholders (other than its executive officers).
We acted as the exclusive financial advisor to the Special Committee of
Marlton's Board of Directors in connection with the Reverse Split. The Company
will pay us a fee for our services, a portion of which has already been paid to
us and the remainder is payable upon delivery of this opinion. The Company has
also agreed to reimburse us for our reasonable expenses and to indemnify us for
certain liabilities relating to or arising from this opinion.
Very truly yours,
Mufson Howe Hunter & Partners LLC
MEMBER OF NATIONAL ASSOCIATION OF SECURITIES DEALERS AND SECURITIES INVESTOR
PROTECTION CORPORATION
-44-
EXHIBIT C
Annual Report on Form 10-K for the Year Ended December 31, 2004
-45-
EXHIBIT D
Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2005
-46-
EXHIBIT E
Pro Forma Financial Statements
The audited financial statements of the Company for the year
ended December 31, 2004, and the Company's unaudited financial statements as of,
and for, the quarter ended September 30, 2005, have previously been filed with
Securities and Exchange Commission on Form 10-K and Form 10-Q, respectively. The
unaudited pro forma financial information presented is based on the estimates
and information set forth herein and has been prepared utilizing the audited
financial statements and notes thereto appearing in the Company's Form 10-K as
for the year ended December 31, 2004, and the Company's unaudited financial
statements and notes thereto appearing in the Company's Form 10-Q as of and for
the quarter ended September 30, 2005. The unaudited pro forma financial
information should be read in conjunction with the historical audited and
unaudited financial statements of the Company, including the related notes
thereto.
The following unaudited pro forma financial information of the
Company is presented to give effect to a 1 for 5,000 reverse stock split, as
described in the proxy statement. Pursuant to the reverse stock split, each
5,000 shares of Common Stock outstanding will be converted into one share of
Common Stock with shareholders to receive $1.25 per share in cash consideration
in lieu of any fractional shares.
The Company's unaudited pro forma statements of operations for
the nine months ended September 30, 2005, and for the year ended December 31,
2004, and the unaudited pro forma balance sheet as of September 30, 2005, and
for the year ended December 31, 2004, have been prepared as if the reverse stock
split had occurred on January 1, 2004.
The accompanying financial statements are unaudited and are not necessarily
indicative of the results that would have occurred if the transaction had
occurred on January 1 of each year, or any particular date thereafter, nor do
they purport to represent the financial position or results of operations that
may be achieved by the Company in future periods.
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MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2004
(UNAUDITED)
(In thousands except share and per share data)
December 31, December 31,
2004 Pro-Forma 2004
ASSETS Historical Adjustments Pro-Forma
----------- ----------- -----------
Current:
Cash and cash equivalents $ 311 $ 311
Accounts receivable, net of allowance of $444 10,157 10,157
Inventories 7,069 7,069
Prepaid and other current assets 400 400
----------- ----------- -----------
Total current assets 17,937 -- 17,937
Property and equipment, net of accumulated depreciation of $10,792 2,469 2,469
Rental assets, net of accumulated depreciation of $4,239 2,875 2,875
Goodwill 2,750 2,750
Other assets, net of accumulated amortization of $1,781 126 126
Notes receivable 178 178
----------- ----------- -----------
Total assets $ 26,335 $ -- $ 26,335
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 83 $ 83
Accounts payable 5,596 5,596
Accrued expenses and other current liabilities 7,722 7,722
----------- ----------- -----------
Total current liabilities 13,401 -- 13,401
Long-term liabilities:
Long-term debt, net of current portion 5,070 1,602 (1) 6,672
----------- ----------- -----------
Total long-term liabilities 5,070 1,602 6,672
----------- ----------- -----------
Total liabilities 18,471 1,602 20,073
----------- ----------- -----------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, no par value - shares authorized
10,000,000; no shares issued or outstanding -- --
Common stock, no par value - shares authorized 50,000,000;
12,939,696 (historical), 11,689,696 (pro-forma) outstanding -- --
Stock warrants 742 742
Additional paid-in capital 32,998 (1,563)(2) 31,435
Accumulated deficit (25,728) (39) (25,767)
----------- ----------- -----------
8,012 (1,602) 6,410
Less cost of 148,803 treasury shares (148) (148)
----------- ----------- -----------
Total stockholders' equity 7,864 (1,602) 6,262
----------- ----------- -----------
Total liabilities and stockholders' equity $ 26,335 $ -- $ 26,335
=========== =========== ===========
Book value per share $ 0.61 $ 0.54
(1) Represents estimated additional borrowings under the Company's revolving
credit facility to finance the stock repurchase for $1,563, transaction
expenses of $251 and interest expense of $91, partially offset by
estimated savings of $303 for Securities & Exchange Commission reporting
expenses (excluding $50 for Sarbanes Oxley Act compliance costs).
(2) Represents estimated amount for stock repurchase, including fractional and
odd lot shares.
(3) Represents estimated transaction expenses of $251 and interest expense of
$91, offset by estimated savings of $303 from the elimination of Security
& Exchange Commission reporting expenses (excluding $50 for Sarbanes Oxley
Act compliance costs).
-48-
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
(UNAUDITED)
(in thousands except per share amounts)
2004 Pro-Forma 2004
Historical Adjustments Pro-Forma
---------- ----------- ---------
Net sales $ 71,943 $ 71,943
Cost of sales 56,524 56,524
--------- --------- ---------
Gross profit 15,419 15,419
--------- --------- ---------
Selling expenses 7,760 7,760
Administrative and general expenses 6,544 (52)(1) 6,492
--------- --------- ---------
14,304 (52) 14,252
--------- --------- ---------
Operating income (loss) 1,115 52 1,167
--------- --------- ---------
Other income (expense):
Interest and other income -- --
Interest expense (510) (91)(2) (601)
Income (loss) from investment in affiliates 72 72
--------- --------- ---------
(438) (91) (529)
--------- --------- ---------
Income (loss) before income taxes 677 (39) 638
Provision for (benefit from) income taxes -- -- --
--------- --------- ---------
Net income (loss) $ 677 $ (39) $ 638
========= ========= =========
Net income (loss) per common share:
Basic $ 0.05 $ -- (3) $ 0.05
========= ========= =========
Diluted $ 0.04 $ -- (3) $ 0.04
========= ========= =========
Fixed charge coverage ratio 3.62:1 3.22:1
(1) Includes estimated cost savings of $303 from the elimination of Securities
& Exchange Commission reporting expenses (excluding $50 for Sarbanes Oxley
Act compliance costs), partially offset by transaction costs of $251
(legal, fairness opinion, accounting and other expenses).
(2) Includes estimated interest expense from additional borrowings under the
Company's credit facility.
(3) Includes the estimated impact of the repurchase of approximately 1,250,000
shares.
-49-
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 2005
(UNAUDITED)
(In thousands except share and per share data)
September 30, September 30,
2005 Pro-Forma 2005
ASSETS As Reported Adjustments Pro-Forma
------------ ----------- ------------
Current:
Cash and cash equivalents $ 1,305 $ 1,305
Accounts receivable, net of allowance of $554 17,100 17,100
Inventories 6,630 6,630
Prepaid and other current assets 934 934
------------ ----------- -----------
Total current assets 25,969 -- 25,969
Property and equipment, net of accumulated depreciation of $11,370 3,069 3,069
Rental assets, net of accumulated depreciation of $4,686 2,730 2,730
Goodwill 2,750 2,750
Other intangible assets, net of accumulated amortization of $299 4,841 4,841
Other assets, net of accumulated amortization of $1,823 105 105
Notes receivable 122 122
------------ ----------- -----------
Total assets $ 39,586 $ -- $ 39,586
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,067 $ 1,067
Accounts payable 6,571 6,571
Accrued expenses and other current liabilities 9,951 9,951
------------ ----------- -----------
Total current liabilities 17,589 -- 17,589
Long-term liabilities:
Long-term debt, net of current portion 9,869 1,287(1) 11,156
Other long-term liabilities 1,674 1,674
------------ ----------- -----------
Total long-term liabilities 11,543 1,287 12,830
------------ ----------- -----------
Total liabilities 29,132 1,287 30,419
------------ ----------- -----------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, no par value - shares authorized
10,000,000; no shares issued or outstanding -- --
Common stock, no par value - shares authorized 50,000,000;
12,939,696 (historical), 11,689,696 (pro-forma) outstanding -- --
Stock warrants 1,528 1,528
Additional paid-in capital 32,998 (1,563)(2) 31,435
Accumulated deficit (23,924) 276 (3) (23,648)
------------ ----------- -----------
10,602 (1,287) 9,315
Less cost of 148,803 treasury shares (148) (148)
------------ ----------- -----------
Total stockholders' equity 10,454 (1,287) 9,167
------------ ----------- -----------
Total liabilities and stockholders' equity $ 39,586 $ -- $ 39,586
============ =========== ===========
Book value per share $ 0.81 $ 0.78
(1) Represents estimated additional borrowings under the Company's revolving
credit facility to finance the stock repurchase for $1,563, transaction
expenses of $251 and interest expense of $91 in 2004 and $67 for the first
nine months of 2005, partially offset by estimated savings of $303 in 2004
and $227 for the first nine months of 2005 and transaction costs of $155
incurred in the third quarter of 2005. The estimated savings from the
elimination of Securities and Exchange Commission reporting costs exclude
estimated Sarbanes Oxley Act compliance costs of $50.
(2) Represents estimated amount for stock repurchase, including fractional and
odd lot shares.
(3) Represents estimated transaction expenses of $251 and interest expense of
$91 in 2004 and $67 for the first nine months of 2005, offset by estimated
cost savings of $303 in 2004 and $227 for the first nine months of 2005
and transaction costs of $155 incurred in the third quarter of 2005.
-50-
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005
(UNAUDITED)
(in thousands except per share amounts)
Pro-Forma
Historical Adjustments Pro-Forma
---------- ----------- ---------
Net sales $ 69,528 $ 69,528
Cost of sales 53,903 53,903
---------- ---------- ---------
Gross profit 15,625 15,625
Selling expenses 7,936 7,936
Administrative and general expenses 5,483 (382)(1) 5,101
---------- ---------- ---------
Operating income (loss) 2,206 382 2,588
Other income (expense):
Interest and other income 111 111
Interest expense (513) (67)(2) (580)
---------- ---------- ---------
Income (loss) before income taxes 1,804 315 2,119
Provision for (benefit from) income taxes -- -- --
---------- ---------- ---------
Net income (loss) $ 1,804 $ 315 $ 2,119
========== ========== =========
Net income (loss) per common share:
Basic $ 0.14 $ 0.04 (3) $ 0.18
========== ========== =========
Diluted $ 0.10 $ 0.03 (3) $ 0.13
========== ========== =========
Fixed charge coverage ratio 2.88:1 3.02:1
(1) Includes estimated cost savings of $227 from the elimination of Securities
& Exchange Commission reporting expenses and the removal of $155 for
transaction costs incurred in the third quarter of 2005.
(2) Includes estimated interest expense from additional borrowings under the
Company's credit facility.
(3) Includes the estimated impact of the repurchase of approximately 1,250,000
shares.
-51-
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005
(UNAUDITED)
(in thousands except per share amounts)
Pro-Forma
Historical Adjustments Pro-Forma
------------ -------------- ------------
Net sales $ 69,528 $ 69,528
Cost of sales 53,903 53,903
------------ -------------- ------------
Gross profit 15,625 15,625
Selling expenses 7,936 7,936
Administrative and general expenses 5,483 (265) (1) 5,218
------------ -------------- ------------
Operating income (loss) 2,206 265 2,471
Other income (expense):
Interest and other income 111 111
Interest expense (513) (63) (2) (576)
------------ -------------- ------------
Income (loss) before income taxes 1,804 202 2,006
Provision for (benefit from) income taxes -- -- --
------------ -------------- ------------
Net income (loss) $ 1,804 $ 202 $ 2,006
============ ============== ============
Net income (loss) per common share:
Basic $ 0.14 $ 0.03 (3) $ 0.17
============ ============== ============
Diluted $ 0.10 $ 0.03 (3) $ 0.13
============ ============== ============
(1) Includes estimated cost savings of $265 for Securities & Exchange
Commission reporting expenses.
(2) Includes estimated interest expense from additional borrowings under the
Company's credit facility.
(3) Includes the estimated impact of the repurchase of approximately 1,250,000
shares.
-52-
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 2005
(UNAUDITED)
(In thousands except share and per share data)
September 30, September 30,
2005 Pro-Forma 2005
ASSETS As Reported Adjustments Pro-Forma
--------------- -------------- --------------
Current:
Cash and cash equivalents $ 1,305 $ 1,305
Accounts receivable, net of allowance of $554 17,100 17,100
Inventories 6,630 6,630
Prepaid and other current assets 934 934
--------------- -------------- --------------
Total current assets 25,969 25,969
Property and equipment, net of accumulated depreciation of $11,370 3,069 3,069
Rental assets, net of accumulated depreciation of $4,686 2,730 2,730
Goodwill 2,750 2,750
Other intangible assets, net of accumulated amortization of $299 4,841 4,841
Other assets, net of accumulated amortization of $1,823 105 105
Notes receivable 122 122
--------------- -------------- --------------
Total assets $ 39,586 $ 39,586
=============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,067 $ 1,067
Accounts payable 6,571 6,571
Accrued expenses and other current liabilities 9,951 9,951
--------------- -------------- --------------
Total current liabilities 17,589 17,589
Long-term liabilities:
Long-term debt, net of current portion 9,869 1,347 (1) 11,216
Other long-term liabilities 1,674 1,674
--------------- -------------- --------------
Total long-term liabilities 11,543 1,347 12,890
--------------- -------------- --------------
Total liabilities 29,132 1,347 30,479
--------------- -------------- --------------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, no par value - shares authorized
10,000,000; no shares issued or outstanding -- --
Common stock, no par value - shares authorized 50,000,000;
12,939,696 (historical), 11,689,696 (pro-forma) outstanding -- --
Stock warrants 1,528 1,528
Additional paid-in capital 32,998 (1,563) (2) 31,435
Accumulated deficit (23,924) 216 (3) (23,708)
--------------- -------------- --------------
10,602 (1,347) 9,255
Less cost of 148,803 treasury shares (148) (148)
--------------- -------------- --------------
Total stockholders' equity 10,454 (1,347) 9,107
--------------- -------------- --------------
Total liabilities and stockholders' equity $ 39,586 $ 39,586
=============== ============== ==============
(1) Represents estimated additional borrowings under the Company's revolving
credit facility to finance the stock repurchase for $1,563, transaction
expenses of $251 and interest expense of $88 in 2004 and $63 for the first
nine months of 2005, partially offset by estimated savings of $353 in 2004
and $265 for the first nine months of 2005.
(2) Represents estimated amount for stock repurchase, including fractional and
odd lot shares.
(3) Represents estimated transaction expenses of $251 and interest expense of
$88 in 2004 and $63 for the first nine months of 2005, partially offset by
estimated cost savings of $353 in 2004 and $265 for the first nine months
of 2005.
-53-
PRELIMINARY COPY
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
MARLTON TECHNOLOGIES, INC.
MARLTON TECHNOLOGIES, INC. SPECIAL MEETING OF SHAREHOLDERS
December __, 2005
IMPORTANT
Please complete both sides of the Proxy Card. Sign, date and
return the attached Proxy Card in the postage paid envelope as soon as possible.
Your vote is important, regardless of the number of shares that you own.
The undersigned shareholder of Marlton Technologies, Inc.
("Marlton") hereby constitutes and appoints _________________ as the Proxy or
Proxies of the undersigned with full power of substitution and resubstitution,
to vote at the Special Meeting of Shareholders of Marlton to be held at the
__________, on December __, 2005, at ___:___ __.m., local time (the "Special
Meeting"), all of the shares of the Common Stock of Marlton which the
undersigned is entitled to vote at the Special Meeting, or at any adjournment
thereof, on each of the following proposals, all of which are described in the
accompanying Proxy Statement:
1. The amendment of Marlton's Articles of Incorporation to
effect a 1-for-5,000 reverse stock split of Marlton's class of Common Stock (the
"Reverse Split"). As a result of the Reverse Split, (a) each shareholder owning
fewer than 5,000 shares of Common Stock immediately before the Reverse Split
will receive $1.25 in cash, without interest, for each share owned by such
shareholder immediately prior to the Reverse Split and will no longer be a
shareholder of Marlton; and (b) each shareholder holding greater than 5,000
shares of Common Stock will receive one share for every 5,000 shares they own
and will receive $1.25 in cash for each share that would otherwise be converted
into a fractional share as a result of the Reverse Split.
[_] FOR [_] AGAINST [_] ABSTAIN
2. In their discretion, upon such other business as may
properly come before the Special Meeting or any adjournments thereof.
IMPORTANT: Please sign and date this Proxy on the reverse
side. Your Board of Directors recommends a vote "FOR" the approval of the
amendments to Marlton's Articles of Incorporation to effect the Reverse Split.
This Proxy, when properly executed, will be voted in the
manner directed herein by the undersigned shareholder. Unless otherwise
specified, the shares will be voted FOR the approval of the amendment to
Marlton's Articles of Incorporation to effect the Reverse Split.
-54-
All Proxies previously given by the undersigned are hereby
revoked. Receipt of the Notice of the Special Meeting of Shareholders of Marlton
and of the accompanying Proxy Statement is hereby acknowledged.
Please sign exactly as your name appears above. When signing
as attorney, executor, administrator, trustee, guardian or agent, please give
your full title. If share are held jointly, each holder should sign.
---------------------------------- ----------------------------------
Signature Signature
Dated: _______________, 2005 Dated: _________________, 2005
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED FOR MAILING IN THE U.S.A.
-55-