M&F Worldwide Corp / John H. Harland Co. Transaction

Merger Negotiations

April 12. 2010

Group FourDenis Cranstoun

Elias Debbas

Brent Morowitz

Kumar Pallav

Valentina Shagisultanova

Prasun Singhal

Table of Contents

1. Company Overview

2. Transaction Overview

3. Strategic Considerations

4. Valuation

5. Capital Structure

6. Negotiations

7. Antitrust Issues

8. Employees Issues

9. Legal Structure

10.

Results

1. Company Overview

MacAndrews and Forbes Holdings, Inc.

Private company wholly owned by Ronald Perelman

Owns a variety of businesses in many different product lines

Ron Perelman

Chairman and CEO of MacAndrews and Forbes Holdings, Inc.

Participated in his first acquisition in 1961, while still a freshman in college

Well known for his role in large acquisitions, such as Revlon in 1985

MacAndrews and Forbes Holdings, Inc.

Business Model

– Leveraged buyout model

– High debt-to-equity ratio in the capital structure

– Uses high-yield debt (rated BB+ or lower by S&P)

– Holds majority equity stakes in acquired companies

Competitive Advantages

– Viable alternative to PE shops

– Financial Acumen

– Tax expertise

– Relationships with banks

– Diverse operational experience

Past Landmark Deals

– Marvel Entertainment, Technicolor, Pantry Pride

Clarke American

Founded in 1874 by Samuel Maverick and Robert Clarke as the Maverick-Clarke Litho Company in San Antonio, Texas

Grew internally at first, and during the 1970’s expanded further through acquisitions

Clarke American provided checks, check related services, and other services to financial institutions, and offered financial institution partners an ability to assist their customers in bank related transactions

M&F acquired Clarke American and several related businesses in 2005 from Honeywell, Inc. for $800 Million in cash

Harland Corporation

John H. Harland Corporation was founded in 1923 in Atlanta, Georgia

Originally consisted of a printing plant and office supplies store

Began to focus on check printing in the 1950’s and went public in 1969

Purchased Scantron in 1988

Diversified in the 1990’s with acquisitions in financial services and technology

2. Transaction Overview

Executive Summary

3

Situation Overview

M&F Worldwide in search of an acquisition opportunity

Select number of players in the highly consolidated industry (3 majors)

One weaker but willing target; the other one – stronger, but harder to get

Analysis

Transaction financing seamless due to combination of markets and corporate reputation

Harland becomes a willing negotiating party when price is right

Antitrust concerns alleviated by M&F Worlwide “seal the deal”

Strategic Nature

Clarke American and Harland are two of the three major players in a consolidated industry

Economies of scope realized through cross-selling to respective customer databases

Economies of scale realized through cost-cutting and improved efficiency at Harland

3. Strategic Considerations

Harland Company Profile

3

Printed Products

Checks, Direct Marketing, & Contact Center

Services for Financial/Commercial

Institutions and Individual Customers

Harland can be thought of as three discrete business units

Harland Financial Solutions “HFS

Software & Services for Banks, Credit Unions and

Thrifts

Scantron

Testing and Surveys for Schools & Companies

Synergies OverviewAcquisition of Harland by Clarke American will create a new entity

– Approximately $1.7 billion of revenue

– $508.0 million of 2006 PF Adjusted Cash EBITDA

– Over $175 million of Pro Forma Free Cash Flow

6

The strategic nature of the combination will generate significant cost synergies

– $106.4 million of run-rate EBITDA within 18 months of closing

– $112.6 million of run-rate EBITDA within 24 months of closing

Performance goals surpassed following integration

What is Free Cash Flow?

Free Cash Flow to the Firm (FCFF)

EBIT (1-t)- (CapEx – Depr)- Change in WC

= FCFF

Source of Cost Savings

6

Non-facility related headcount $78.3

Facilities $15.5

Procurement $9.8

Other $9.0

Total $112.6

COST SAVINGS SUMMARY DESCRIPTION

Clarke American / Harland

A leading provider of check-related products, direct marketing and contact center services

A leading provider of software and services to financial institutions

A leading provider of testing and survey technologies

6

Leading Market Presence

Diversified, Blue-chip Client

Portfolio

Strong, Long-Term Client

Relationships

Leading Market Presence

Broad client portfolio includes over 14,000 financial institution customers such as:

Trusted, integrated relationships with clients

Provider of mission-critical software products

Strong partnerships with long-term contracts (cover ~80% of revenue)

Printed products: 7 full-service contact centers and 22 state-of-the-art plants

HFS: 16 fully networked facilities

Scantron: 2 state of the art facilities

Compelling Strategic Rationale

Diversifies business and products

Diversifies and expands client relationships with long-term contracts

Capitalizes on the combined platform

Significant cost savings

Strong management ties

Strong free cash flow generation

6

Integrated Planning Approach

Key Personnel Decisions

Clarke assembled a team of dedicated integration associates immediately upon signing

Decision announced on December 21, 2006

Team members selected based on their knowledge of specific key business and industry aspects

Integrations plans to be developed for each functional area and each process

Other Clarke “non-dedicated subject matter experts” involved on an ‘as needed’ basis

Inputs to be used by non-dedicated team sanitized by removing sensitive information

4. Valuation of Harland

13/11/06: $ 0.175, Cash Dividend

Q1 2006 Earnings Call, April-04 2006

$ 0.15, Cash Dividend, May-15-2006

Announcement to launch Validify, a solution designed to significantly reduce check fraud, in January 2007

12/19/2006 – Acquisition Announcement

Q2 2006 Earnings Call – 12% drop in NI Aug-04 2006

52 week high: $50.4352 week low: $33.62

Harland Corp. Stock Performance

Harland Corp. Relative Stock Performance

Harland stock price relative to the S&P 600 Commercial Printing IndexJanuary 2, 2006 – December 29, 2006

December 20, 2006

Valuation Summary

Purchase Price Per Share

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11/30 Price: $43.3

LTM Average Price: $ 36.0

$33.6

$54.0

$62.3

$60.56

$48.9

$43.9

$39.9

$50.43

$20 $30 $40 $50 $60 $70

Comparable Companies

10

Source: Company filings, Capital IQ data(1) Stock Price and Capital IO forward median estimates as of December 26, 2006(2) Equity Value equals fully diluted shares at the stock price less any option proceeds(3) Firm Value equals Equity Value plus straight debt, minority interest

Price E.P.S P/E EV EBITDA EV/EBITDA Revenues EV/Revenues

42.3 2.6 16.3 685.6 109.1 6.3 1,044.0 0.7

19.5 2.5 7.8 1,749.8 295.2 5.9 1,314.8 1.3

12.9 0.9 14.3 972.6 119.4 8.1 821.7 1.2

24.4 1.4 17.4 2,093.4 235.8 8.9 878.8 2.4

34.8 2.3 15.1 1,881.3 206.3 9.1 1,405.7 1.3

21.5 1.5 14.3 7,265.8 1,288.0 5.6 9,812.7 0.7

16.9 1.2 14.1 944.0 172.2 5.5 1,152.9 0.8

8.6 0.6 14.4 501.8 55.1 9.1 805.4 0.6

4.9 0.8 6.1 2,303.9 372.1 6.2 1,361.3 1.7

Top 3 in industry 20.6 1.5 16.3 2,044.3 317.0 9.0 2,066.4 1.8

Harland Clarke Corp. 2.7 192.7 1,050.2 Imputed 1,332.8 1,741.0 1,894.8 Share Price 43.9 55.0 60.5

FCF Analysis

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 TV

Total Revenue 743.2 767.8 786.7 790.3 976.6 1,050.2 1,129.3 1,214.3 1,287.2 1,351.5 1,392.1 1,433.8

Growth Over Prior Year 3.1% 3.3% 2.5% 0.5% 23.6% 7.5% 7.5% 7.5% 6.0% 5.0% 3.0% 3.0%

Gross Profit 340.7 364.4 387.6 395.3 485.5 529.2 550.9 592.4 633.3 668.3 688.7 708.3

Margin % 45.8% 47.5% 49.3% 50.0% 49.7% 50.4% 48.8% 48.8% 49.2% 49.4% 49.5% 49.4%

EBITDA 150.2 141.4 143.4 149.9 185.3 192.7 212.9 229.0 240.2 252.7 261.2 268.7

Margin % 20.2% 18.4% 18.2% 19.0% 19.0% 18.3% 18.9% 18.9% 18.7% 18.7% 18.8% 18.7%

EBIT 88.9 96.6 95.1 104.9 131.5 136.4 143.7 154.6 165.2 174.0 180.8 185.6

Margin % 12.0% 12.6% 12.1% 13.3% 13.5% 13.0% 12.7% 12.7% 12.8% 12.9% 13.0% 12.9%

Net Income 39.0 52.4 56.0 55.1 75.5 68.1 76.0 81.7 89.3 94.0 96.5 99.4

Margin % 5.2% 6.8% 7.1% 7.0% 7.7% 6.5% 6.7% 6.7% 6.9% 7.0% 6.9% 6.9%

FCFF

EBIT (1-t) 66.7 72.4 71.3 78.7 98.6 102.3 107.8 115.9 123.9 130.5 135.6 139.2

Add Depreciation 33.3 36.9 39.5 36.0 36.8 33.7 36.0 36.0 36.4 36.4 35.9 35.9

Minus Capex 47.5 32.1 28.1 28.9 23.9 23.5 30.7 27.9 27.2 27.0 26.7 27.1

Minus Change in WC 6.0 4.0 0 (1.0) 0 0 0 0 0 0 0 0

Free Cash Flow 46.5 73.2 82.7 86.8 111.5 112.5 113.2 124.1 133.2 139.9 144.8 148.0

Source: Company filings, Factset dataNotes:(1) Revenue expected to grow at current trends(2) Gross Margin: Average of last three years, remaining steady(3) SG&A based on current trends – Getting lower as a % of revenue(4) W/C bases on current trends

WACC Analysis

12

Harland has a Levered Beta of 1.3 and Weighted Average Cost of Capital of approximately 8.8%, which is likely to increase in the near future due to rising equity risk premiums

WACC Computation High Low

Risk Free Rate 4.9% 4.9%

Risk Premium 4.5% 4.5%

Beta 1.3 1.5

Cost of Equity 11% 12%

Cost of Debt 8% 8%

Total Debt 211.2 40.6%

Total Common Equity 308.5 59.4%

WACC 8.8% 9.4%

Notes:

(1) Risk Free Rate is the Yield on the relevant T-Bond, from FactSet, as of 12/26/2007

(2) Equity Risk Premium is between 4-6%.

(3) Betas based on 5 year weekly returns against the MSCI. Beta is average adjusted equity beta from key industry competitors.

Adjusted equity betas are the raw betas adjusted for a long term reversion towards 1 through the following calculation: (2/3 x Raw Beta) + (1/3 x 1).

(4) Discount rate = RFR + Beta * MRP. Assumes competitors have access to the global capital markets and that cash flows will be discounted in USD.

(5) Credit Spread calculated using average YTM on 5-10 year Eagle bonds minus 10-year Treasury rate

Enterprise Value

11

Intrinsic valuation of Harland suggests a total firm value of approximately $2.17bn, corresponding to a share price of $52.7

Source: Company filings, Factset dataNotes:(1) Revenue expected to grow at current trends(2) Gross Margin: Average of last three years, remaining steady(3) SG&A based on current trends – Getting lower as a % of revenue because of increased off-shore operations which lowers SG&A costs(4) W/C bases on current trends

Enterprise Value 2007 2008 2009 2010 2011

FCFF 113.2 124.1 133.2 139.9 2,684.6

WACC 8.8%

EV ($ mn) $2,170.7

Debt 211.2

Cash 11.0

Equity Value ($ mn) $1,970.5

Number of shares o/s 37.4

Share Price 52.7

Discounted Cash Flow Analysis

11

Source: Company filings, Factset dataNotes:(1) Revenue expected to grow at current trends(2) Gross Margin: Average of last three years, remaining steady(3) SG&A based on current trends – Getting lower as a % of revenue because of increased off-shore operations which lowers SG&A costs(4) W/C bases on current trends

(52.7) 7.5% 8.0% 8.5% 9.0% 9.5%

2.0% 54.0 48.6 44.0 40.1 36.7

2.5% 59.1 52.7 47.4 42.9 39.1

3.0% 65.2 57.6 51.4 46.2 41.9

3.5% 72.9 63.6 56.2 50.2 45.1

4.0% 82.7 71.1 62.1 54.9 48.9

WACC

TV Growth Rate

5. Capital Structure

Current economic environment: Late 2006

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US High-Yield Bond Market 1978 – 2009 (Mid-year US$ billions)

The U.S. Leveraged Loan Market(a)

1990 – 2007 (1H)

(a) Defined as speculative grade with a LIBOR spread of 150 basis points or greater.

Source: Credit Suisse Source: Ed Altman NYU Stern

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Leveraged Loan Market Size New Leveraged Loan Volume

Deal Financing

$615,000,000

$305,000,000 Senior Floating Rate Notes due May 15, 2015$310,000,000 9.50% Senior Fixed Rate Notes due May 15, 2015

No issues securing financing for the deal:

In late 2007, it is a buyers market

Credit Suisse happily lends to a stable business with ample cash flows

1. Track record of operating Clarke American (1.5+ yrs)

2. Harland Clarke combination a strategic fit

3. Other MacAndrews Forbes companies have performed well on their financial obligations

4. Skillful negotiations for a favorable deal

5. Great management team -> good story on the road

6. Access to relatively cheap capital in the economic environment of the times

Sources and UsesSec. 280G. Golden parachute payments (a) General rule No deduction shall be allowed under this chapter for any excess

parachute payment. (b) Excess parachute payment For purposes of this section - (1) In general The term ''excess parachute payment'' means an amount equal to the excess of any parachute payment

over the portion of the base amount allocated to such payment. (2) Parachute payment defined (A) In general The term ''parachute

payment'' means any payment in the nature of compensation to (or for the benefit of) a disqualified individual if - (i) such payment is

contingent on a change - (I) in the ownership or effective control of the corporation, or (II) in the ownership of a substantial portion of

the assets of the corporation, and (ii) the aggregate present value of the payments in the nature of compensation to (or for the benefit of)

such individual which are contingent on such change equals or exceeds an amount equal to

3 times the base amount

Equity Purchase

- Harland shareholders paid $52.75 in cash

- Taxable as capital gains or loss depending on their tax basis

- Executive compensation on change of control (“golden parachutes”) over 3x last 3 years’ earnings incur an extra 20% income tax under Regulation 280G

Revolver - Equity Purchase Price $1,436.0Term Loan B (due 2014) $1,800.0 Refinance Existing Harland Debt 211.2Senior Unsecured Notes (due 2015) 615.0 Total Purchase Price Before Fees $1,647.2

Refinance Existing Clarke Debt 600.0Prepayment Penalties 38.0Total Clarke Refinancing $638.0

Change of Control (Harland) 34.0Transaction Expenses 95.8

Total Uses $2,415.0 Total Uses $2,415.0

SOURCES USES

Pro Forma Capitalization

Pro Forma for the Acquisition, Clarke will have a strong credit profile:

•Net Senior debt to 12/31/06 PF Adjusted Cash EBITDA of 3.5x

•Net Total Debt to 12/31/06 PF Adjusted Cash EBITDA of 4.7x

($ in millions)Pro FormaCombined

Net Cum.Mult. EBITDA

Cash $41.0

Revolver - -New Term Loan B 1,800.0 3.5 x

Total Senior Secured Debt $1,800.0 3.5 x

New Senior Unsecured Debt 615.0Total Debt $2,415.0

PF Adjusted Cash EBITDA $508.0

PF Adjusted Cash EBITDA / Cash Interest 2.4 x

PF Adjusted Cash EBITDA - CapEx / Cash Interest 2.2 x

6. Negotiations

Alternatives Considered by Harland and MFW

8

Eventual targets considered by MFW:

• Harland;

• Deluxe

• continued execution of the strategic operating plan;

• a sale of the company;

• acquisition;

• a leverage buyout with a private equity firm; and

• recapitalization accompanied by a significant stock repurchase

Alternatives considered by Harland: Alternatives considered by MFW:

In March 2006, Mr. Timothy Tuff, Chairman of Harland, President and Chief Executive Officer, was advised by the representatives of Goldman Sachs, the financial advisor of Harland, that they were approached by MFW about a possible business combination with Harland.

Participants in Negotiations

9

Mr. Timothy Tuff, Chairman, President and Chief Executive Officer;Mr. Charles Carden, Chief Financial Officer;Mr. John Walters, General Counsel;

Consultants:

On behalf of Harland:

On behalf of MFW:

Mr. Ronald O. Perelman, a member of the Board of Directors of MFW, the beneficial owner of about 37% of the outstanding common stock of MFW;Mr. Barry F. Schwartz, Executive Vice President and General Counsel of MFW;Mr. Samuel L. Katz, a senior executive of MacAndrews & Forbes;

Consultant:

Negotiation, Phase I (March – May, 2006)

10

• MFW contacted Goldman Sachs and informed them about their interest in business combination with Harland;• Harland and Clarke American signed a mutual nondisclosure agreement

March 2006:

•The parties met and discussed the potential operating synergies;•Mr. Perelman informed Mr. Tuff that MFW would be prepared to offer consideration in the range of $45 to $50 per share of common stock;• Management of Harland met with the Board of Director of Harland, it was decided that the offered range of prices is not sufficient to justify further negotiations.

April, 2006

Harland informed MFW that it was not interested in further negotiations

Negotiation, Phase II (August – September, 2006)

• Mr. Tuff received a letter from Mr. Perelman stating that MFW is still interested in Harland;• Mr. Tuff informed about this express of interest the Board of Directors of Harland during its regular meeting

August 2006:

Harland considers possible alternatives:

• discussions of potential strategic combinations with two other companies;• expression of interest from two private equity firms;• internal discussions of continued execution of ongoing strategic plan

August - September 2006:

The Board of Directors of Harland decides that the company should remain independent and pursue its

existing strategic plan

• Goldman Sachs once again informed Mr. Tuff that MFW expressed its interest in acquisition of Harland;• MFW indicated that it was ready to provide:

$50 per share; Reverse break-up fee if the transaction is not consummated for

regulatory reasons; Retention bonuses for the personnel

•The Board of Harland responded that the price suggested was not adequate and the regulatory issues are not properly addressed

October 2006:

• Consultants of both parties discuss the regulatory issues;• New suggestion from MFW:

$52.50 per share;$40M if the antitrust clearance of the deal is not received; ready to discuss retention bonuses

•The Board of Harland is still concerned that the price is not adequate

November 2006:

Negotiation, Phase III (October – December, 2006)

• Final suggestion from MFW:$52.75 per share;Reverse break-up fee of $52.5M;Retention bonuses for the personnel in the amount of $12M •The Board of Harland decided that it is the highest price likely to be offered by MFW and authorized management to proceed with direct negotiations

November 2006:

• Due diligence presentations are made by the management of Harland;• MFW conduct due diligence up to December 19;• Merger Agreement is negotiated;• Goldman Sachs provides fairness opinion

December 2006:

Negotiation, Final Step

the Merger Agreement is executed by the parties;December 19:

the parties issued press-release announcing execution of the Merger Agreement

December 20:

7. Antitrust Issues

Antitrust Law related to business combination

8

Section 7A of the Clayton Act, 15 U.S.C. 18a, as added by Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, requires persons contemplating certain mergers or acquisitions to give the Federal Trade Commission and the Assistant Attorney General an advance notice and to wait designated periods before consummation of such plans. Section 7A (b)(2) of the Act permits the agencies, in individual cases, to terminate this waiting period prior to its expiration and requires that notice of this action be published in the Federal Register.

Hart-Scott-Rodino Antitrust Improvements Act of 1976

Antitrust issues related to business combination

Agreement of Merger

ARTICLE 1 : DEFINITIONS “ Antitrust Law ” means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all other federal, state and foreign, if any, statutes, rules, regulations, orders, decrees, administrative and judicial doctrines and other Laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or lessening of competition or the creation or strengthening of a dominant position through merger or acquisition, in any case that are applicable to the transactions contemplated by this Agreement.

Conditions to the Merger

The merger is expected to close in the second half of 2007, subject to the satisfaction of customary closing conditions, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and approval by the shareholders of Harland.

Proxy statement before Securities and Exchange Commission

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

SCHEDULE 14AProxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934  Filed by the Registrant   xFiled by a Party other than the Registrant   oCheck the appropriate box:X Preliminary Proxy StatementO Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))O Definitive Proxy StatementO Definitive Additional MaterialsO Soliciting Material Pursuant to §240.14a-12

John H. Harland Company 

“We and MFW will not complete the merger unless a number of conditions are satisfied or waived (to the extent permitted), as applicable, including the approval by our shareholders of the merger agreement and the expiration or termination of the waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the HSR Act.” 

Key Facts

 • Before the acquisition, market share for each company was just over 30%, putting

the combined market share immediately upon acquisition into the 60-65% range

• We can compare the Herfindahl-Hirschman Index (HHI) of just over 900 before the transaction to 3600-4225 after

• Clarke's customers (large banks) supporting the acquisition, BofA, their largest customer, literally wrote a letter to the government stating “Why would they do that when in theory going from three large suppliers to two could increase prices for them?”  That is to Increased efficiency and better service.

• If BofA hadn't written that letter, MFW may not have gone through with the transaction

• MFW successfully argued that one strong and one weaker but hungry competitor would be better for the industry at large that 3 mortal competitors who could potentially destroy each other.

8. Employees’ issues

Pre-Closing Actions

 The merger agreement contains provisions restricting the ability of John H. Harland Company to provide certain increases

in compensation and benefits prior to closing.

Interests of Directors and Executive Officers in the Merger

 Directors and executive officers of John H. Harland Company may receive interests in the merger including the following:

  Executive officers will receive cash consideration for their vested and unvested stock options and shares of restricted

stock.

Non-employee directors will receive cash consideration for their stock equivalent units under compensation plans for

non-employee directors.       

Employees (including executive officers) who remain with, MFW or of John H. Harland Company or MFW subsidiaries

following the merger will be entitled for a period of 12 months after the merger to compensation and employee benefits.

In lieu of equity-based awards, executive officers of John H. Harland Company may be granted long-term cash incentive

bonuses.

The merger agreement provides for indemnification and liability insurance arrangements for each of John H. Harland

Company’s current and former directors and officers.

  

 

POST-CLOSING CONTINUATION OF COMPENSATION AND BENEFITS THE MERGER AGREEMENT CONTAINS PROVISIONS THAT ARE APPLICABLE TO JOHN H. HARLAND COMPANY’S EMPLOYEES GENERALLY RELATING TO THE CONTINUATION BY MFW OF CERTAIN COMPENSATION AND BENEFITS ARRANGEMENTS FOLLOWING CONSUMMATION OF THE MERGER.     

EMPLOYEE COMPENSATION AND BENEFIT PLAN (ERISA) MERGER AGREEMENT PROVIDES EACH JOHN H. HARLAND COMPANY’S EMPLOYEE TO PARTICIPATE, EMPLOYEE BENEFIT PLANS SPONSORED BY PARENT AND ITS SUBSIDIARIES.

(COMPLIED WITH SECTION 3(3) OF ERISA)  SURVIVING CORPORATION OR THE COMPANY SHALL PAY TO EACH EMPLOYEE OF THE COMPANY OR ITS SUBSIDIARIES THE AMOUNT OF CASH SET FORTH UNDER THE RETENTION BONUS WITH RESPECT TO SUCH EMPLOYEE.  

9. Deal Structure

A Reverse Triangular Merger

Merger Sub shall be merged with and into the Company.

As a result of the Merger,

– the separate corporate existence of Merger Sub will cease and

– the Company will continue under the name “John H. Harland Company” as the Surviving Corporation

– all the property, rights, privileges, immunities powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation

– all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

Articles of Incorporation and Bylaws

At the Effective Time:

– the Articles of Incorporation of the Surviving Corporation shall be amended to read in their entirety as the Articles of Incorporation of Merger Sub read immediately prior to the Effective Time, except that the name of the Surviving Corporation shall be “John H. Harland Company” and

– the bylaws of the Surviving Corporation shall be amended so as to read in their entirety as the bylaws of Merger Sub as in effect immediately prior to the Effective Time, until thereafter amended in accordance with applicable Law, except that references to Merger Sub’s name shall be replaced to references to “John H. Harland Company.”

Effect of the Merger on Capital Stock

At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company, or the holders of any of the following securities:

– Each share of Common Stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and shall become one fully paid and nonassessable share of common stock, par value of $0.01, of the Surviving Corporation.

– Each share of Common Stock, par value $1.00, of the Company issued and outstanding immediately prior to the Effective Time (shall be converted into the right to receive in cash an amount per share equal to $52.75 in cash, without interest (the “Merger Consideration”).

Deal Protection—Termination by Parent

Section 8.1(f)(ii)—This Agreement may be terminated and the Merger may be abandoned (notwithstanding approval thereof of the Requisite Shareholder Vote) prior to the effective time by Parent if the Board, any committee thereof or the company shall have:

– Effected a Recommendation Withdrawal

– taken any of the actions described in clauses (ii)(iii)(iv)(v) of Section 6.5(a) (whether or not permitted to do so) or

– failed to call the Shareholders Meeting in accordance with this Agreement.

In the event that this Agreement is terminated by Parent pursuant to Section 8.1(f)(ii), then the company shall pay to Parent the Company Termination Fee as promptly as practicable

Deal Protection—The Company Termination Fee

In the event that:

– This Agreement is terminated by Parent or the Company pursuant to Section 8.1(c) or Section 8.1(d)

– At any time prior to such termination, a Company Takeover Proposal has been publicly announced or publicly made known and not irrevocably withdrawn, and

– Within 12 months after such termination, the Company or any of its Subsidiaries enters into a definitive Contract with respect to, or consummates, any Company Takeover Proposal

Then the Company shall pay to Parent on the date of, and as a condition to, such execution or consummation, the Company Termination Fee.

The “Company Termination Fee” means $52,500,000 in cash.

Deal Protection—The Parent Termination Fee

In the event that this Agreement is terminated by Parent or the Company pursuant to Section 8.1(b) or Section 8.1(c),

– then Parent shall pay to the company as promptly as practicable, the Parent Termination Fee and up to an aggregate of $12,000,000 with respect to the retention bonuses described in Section 6.14, to the extent the company is able to pay such bonuses to certain employees of the Company and its Subsidiaries in accordance with Section 6.14

The “Parent Termination Fee” means $52,500,000 in cash.

Deal Protection—Limiting the Fees

In the event that this Agreement is terminated under circumstances in which the Parent Termination Fee has been paid pursuant to Section 8.3(d) and, within 12 months after such termination, the Company or any of its subsidiaries enters into a definitive Contract with respect to , or consummates, any Company Takeover Proposal that has consideration with a value that is equal to or higher than $52.75 per share of the Company Common Stock, the Company shall reimburse the Parent Termination Fee to Parent on the date of, and as a condition to, such execution or consummation.

The parties agree and understand that under no event shall the Company or the Parent be required to pay the Company Termination Fee or the Parent Termination Fee, respectively, on more than one occasion.

Deal Protection—Limiting the Fees

In the event that this Agreement is terminated under circumstances in which the Parent Termination Fee has been paid pursuant to Section 8.3(d) and, within 12 months after such termination, the Company or any of its subsidiaries enters into a definitive Contract with respect to , or consummates, any Company Takeover Proposal that has consideration with a value that is equal to or higher than $52.75 per share of the Company Common Stock, the Company shall reimburse the Parent Termination Fee to Parent on the date of, and as a condition to, such execution or consummation.

The parties agree and understand that under no event shall the Company or the Parent be required to pay the Company Termination Fee or the Parent Termination Fee, respectively, on more than one occasion.

Representations and Warranties of the Company

4.1 Organization

– The Company is duly organized, in good standing in its jurisdiction, and not in violation of its governing documents.

– The bylaws and articles of incorporation have been correctly filed and accurately provided to Parent.

Section 4.2—Authority

– The Company has all the necessary corporate power to execute the Agreement, acting under Board approval; the only thing necessary to adoption is shareholder approval.

Representations and Warranties of the Company

Section 4.2—Authority / Enforceability

– The Board at a duly held meeting has unanimously Determined that it is in the best interests of the company and its

shareholders, and declared it advisable, to enter into this Agreement; Adopted this Agreement and the consummation of the transactions

contemplated hereby, including the merger and; Resolved to recommend that the shareholders of the Company

approve the adoption of this Agreement and directed that such matter be submitted for consideration of the shareholders of the Company at the Shareholders Meeting.

– This Agreement has been duly executed and delivered by the Company and, assuming due authorization, execution and delivery by the other parties, constitutes a legal, valid and binding agreement of the Company, enforceable against the Company in accordance with its terms.

10. Results

Results of the Acquisition and Merger

Harland Clarke

The work of the dedicated integration team enabled Harland and Clarke American to realize the operating synergies of the combined entity very quickly

Combined company has approximately 4,800 employees, 13,000 clients, and $1.7 billion of revenue

Scantron

Disappointing part of the acquisition

Approximately $20 million of operating synergies never materialized

M & F overpaid by approximately $75 million

Harland Clarke Holdings Today

• Strong revenue generation even through latest economic downturn

• More efficient spending

• HFS most vibrant, with check printing a cash cow and Scantron in a decline

Source: Capital IQ

For the Fiscal Period EndingReclassified

12 monthsDec-31-2007

Reclassified12 months

Dec-31-200812 months

Dec-31-2009 Total Revenue $1,369.9 $1,794.6 $1,712.3

Operating Income 209.7 290.3 332.0 Net Interest Exp. (159.9) (184.2) (135.9)

Net Income ($15.4) $47.2 $112.1

EBITDA $335.9 $454.8 $494.1 EBIT $209.7 $290.3 $332.0

EBITDA Interest Coverage 2.1 x 2.5 x 3.6 xEBIT Interest Coverage 1.3 x 1.6 x 2.4 x

Transaction Highlights

1. Tremendous Success of Operational Integration

2. Antitrust Approval

3. Financing