SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant (X)
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
AMERICAN FILTRONA CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
( ) No fee required
(X) 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: Common
Stock, plus employee stock options
2) Aggregate number of securities to which transaction applies: 3,817,629
shares, plus 257,800 employee stock options
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): $46.52
per share (being the amount payable to the registrant's shareholders
in the proposed merger); option price variable based on exercise
price
4) Proposed maximum aggregate value of transaction: $182,406,463.25
5) Total fee paid: $36,481.29
( ) Fee paid previously with preliminary materials.
(X) 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: $28,058.16
2) Form, Schedule, or Registration Statement No.: Preliminary Schedule 14A
3) Filing Party: American Filtrona Corporation
4) Date Filed: 05/01/97
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American Filtrona Corporation
3951 Westerre Parkway, Suite 300
Richmond, Virginia 23233
Logo
Annual Meeting of Shareholders
August 15, 1997
To the Shareholders:
We invite you to attend the annual meeting of shareholders of American
Filtrona Corporation (the "Corporation") to be held on Tuesday, September 16,
1997, at 11:00 a.m., Eastern Daylight Time (the "Annual Meeting"), in the
Second Floor Conference Room at NationsBank Center, 12th and Main Streets,
Richmond, Virginia. A formal notice of the Annual Meeting, together with the
Proxy Statement and proxy, is enclosed with this letter.
At the Annual Meeting, you will be asked to consider and vote on a
proposal to approve an Agreement of Merger, dated as of July 29, 1997 (the
"Merger Agreement"), by and among the Corporation, FIL Holdings Corp., an
indirect wholly-owned subsidiary of Bunzl plc ("Holdings"), and FIL Merger
Corp., a wholly-owned subsidiary of Holdings ("Merger Subsidiary"), and the
related Plan of Merger (the "Plan of Merger"). A copy of the Merger Agreement,
together with the Plan of Merger, is included as Annex I to the attached Proxy
Statement. On the terms and subject to the conditions of the Merger Agreement,
Merger Subsidiary will be merged with and into the Corporation (the "Merger")
and the Corporation will become a subsidiary of Holdings. Upon consummation of
the Merger, each outstanding share of the Corporation's common stock, other than
shares held by Holdings or its subsidiaries, will be converted into the right to
receive $46.52 in cash.
Approval of the Merger Agreement and the Plan of Merger requires the
affirmative vote of more than two-thirds of the outstanding shares of common
stock of the Corporation. Detailed information concerning the Merger is set
forth in the Proxy Statement, which we urge you to read carefully.
YOUR BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS APPROVED THE
MERGER AGREEMENT AND THE PLAN OF MERGER AND DETERMINED THAT THE MERGER IS FAIR
TO, AND IN THE BEST INTERESTS OF, THE CORPORATION AND ITS SHAREHOLDERS, AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE
PLAN OF MERGER.
In addition, at the Annual Meeting you will be asked to elect a Board
of Directors to serve until consummation of the transactions contemplated by the
Merger Agreement and the Plan of Merger and to ratify the designation of
independent accountants. The list of proposed directors is contained in the
Proxy Statement.
Whether or not you plan to attend the Annual Meeting in person and
regardless of the number of shares of common stock you own, please complete,
sign, date and return the enclosed proxy promptly in the accompanying prepaid
envelope.
Sincerely yours,
John L. Morgan
Chairman
<PAGE>
AMERICAN FILTRONA CORPORATION
Richmond, Virginia
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of the holders of shares
of Common Stock, $1.00 par value, of American Filtrona Corporation (the "Common
Stock") will be held in the Second Floor Conference Room at NationsBank Center,
12th and Main Streets, Richmond, Virginia, on Tuesday, September 16, 1997, at
11:00 a.m., Eastern Daylight Time, for the following purposes:
1. To approve the Agreement of Merger, dated as of July 29, 1997,
by and among American Filtrona Corporation, FIL Holdings
Corp. and FIL Merger Corp., and the related Plan of Merger;
2. To elect a Board of Directors to serve until consummation of
the proposed merger or, if the proposed merger is not
consummated, for the ensuing year;
3. To ratify the designation by the Board of Directors of Coopers
& Lybrand L.L.P. as independent public accountants for the
fiscal year ending December 31, 1997; and
4. To transact such other business as may properly come before
the meeting.
Holders of shares of Common Stock of record at the close of business of
the Nasdaq Stock Market on August 8, 1997, are entitled to notice of and to
vote at the meeting or any adjournment thereof.
Please complete, sign, date and return the enclosed proxy promptly,
whether or not you expect to attend the meeting. A self-addressed, stamped
envelope is enclosed for your convenience.
If you are present at the meeting, you may vote in person even if you
already have returned your proxy.
By Order of the Board of Directors,
ANNE B. GIBBS
Secretary
August 15, 1997
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.
<PAGE>
American Filtrona Corporation
3951 Westerre Parkway, Suite 300
Richmond, Virginia 23233
PROXY STATEMENT
for
ANNUAL MEETING OF SHAREHOLDERS
August 15, 1997
Approximate date of mailing - August 15, 1997
Proxies in the form enclosed are solicited by the Board of Directors of
American Filtrona Corporation (the "Corporation") for the Annual Meeting of
Shareholders (the "Annual Meeting") to be held on Tuesday, September 16, 1997,
and any adjournments thereof. At the Annual Meeting, holders of shares of common
stock, $1.00 par value, of the Corporation (the "Common Stock") will be asked to
consider and vote upon the approval of the Agreement of Merger (the "Merger
Agreement"), dated as of July 29, 1997, by and among the Corporation, FIL
Holdings Corp., a Delaware corporation ("Holdings") and indirect wholly-owned
subsidiary of Bunzl plc, an English public limited company ("Bunzl plc"), and
FIL Merger Corp., a Virginia corporation and wholly-owned subsidiary of Holdings
("Merger Subsidiary"), and the related plan of merger (the "Plan of Merger"),
providing for the merger of Merger Subsidiary with and into the Corporation (the
"Merger"), on the terms and subject to the conditions set forth in the Merger
Agreement. Upon the consummation of the Merger, each outstanding share of Common
Stock (other than shares held by Holdings and its subsidiaries) will be
converted into the right to receive $46.52 in cash (the "Merger Consideration").
As a result of the Merger, the Corporation will become a wholly-owned subsidiary
of Holdings . (With respect to the period following the consummation of the
Merger, the Corporation may be referred to in this Proxy Statement as the
"Surviving Corporation.")
A copy of the Merger Agreement, including the Plan of Merger, is
attached hereto as Annex I . The summaries of the portions of the Merger
Agreement set forth in this Proxy Statement do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, the text of
the Merger Agreement .
THE CORPORATION'S BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS
APPROVED THE MERGER AGREEMENT AND THE PLAN OF MERGER AND DETERMINED THAT THE
MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE CORPORATION AND ITS
SHAREHOLDERS, AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT AND THE PLAN OF MERGER. The Board of Directors has received the
opinion, dated as of July 29, 1997, of Goldman Sachs & Co. ("Goldman Sachs"),
the Corporation's financial advisor, as to the fairness as of July 29, 1997, of
the $46.52 per share of Common Stock in cash to be received by holders of
Common Stock, excluding Holdings and its subsidiaries and WBT Holdings, LLC
("WBT") and RNBT Holdings, LLC ("RNBT") under the circumstances hereinafter
described, pursuant to the Merger Agreement. The opinion of Goldman Sachs is
included as Annex II hereto and is incorporated herein by reference.
Shareholders are urged to read the opinion carefully in its entirety for further
information respecting the assumptions made, matters considered and limitations
on the review undertaken in connection with such opinion. See " The Merger --
Reasons for Merger; Recommendation of the Board of Directors;" and "-- Opinion
of Financial Advisor."
At the Annual Meeting, shareholders of the Corporation also will be
asked to elect a Board of Directors and ratify the designation of independent
accountants. If the shareholders approve the Merger Agreement and the
<PAGE>
Plan of Merger and the Merger is consummated, the Board of Directors of the
Surviving Corporation will be replaced by the Board of Directors of Merger
Subsidiary.
On August 8, 1997, the date for determining shareholders entitled to
notice of and to vote at the Annual Meeting, there were 3,817,629 shares of
Common Stock issued and outstanding. Each share of Common Stock is entitled to
one vote.
Any person giving a proxy (other than an irrevocable proxy coupled with
an interest) may revoke it any time before it is voted by voting in person at
the meeting or delivering another proxy, or written notice of revocation, to the
Secretary of the Corporation. A proxy, if executed and not properly revoked,
will be voted, and, if it contains any specific instructions, will be voted in
accordance with such instructions.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OTHER PERSON.
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The date of this Proxy Statement is August 15, 1997.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SUMMARY............................................................................................ 5
The Annual Meeting........................................................................ 5
The Merger................................................................................ 6
Anticipated Accounting Treatment................................................................... 8
Certain Tax Consequences of the Merger.................................................... 8
No Dissenters' Rights..................................................................... 9
Government and Regulatory Approvals and Filings........................................... 9
Market Prices and Dividend Information.................................................... 9
SELECTED FINANCIAL INFORMATION CONCERNING THE CORPORATION.......................................... 10
ANNUAL MEETING..................................................................................... 11
Place, Date and Time...................................................................... 11
Record Date; Solicitation of Proxies...................................................... 11
Vote Required............................................................................. 11
THE MERGER........................................................................................ 13
General................................................................................... 13
Background of Merger...................................................................... 13
Reasons for Merger; Recommendation of the Board of
Directors................................................................................. 18
Opinion of Financial Advisor.............................................................. 20
Certain Tax Consequences of the Merger.................................................... 24
No Dissenters' Rights..................................................................... 25
Anticipated Accounting Treatment.......................................................... 25
Interests of Certain Persons in the Merger................................................ 25
Effective Time of the Merger.............................................................. 27
Payment for Shares of Common Stock........................................................ 27
No Solicitation; Fiduciary Duties......................................................... 27
Government and Regulatory Approvals and Filings........................................... 28
Terms of the Merger....................................................................... 28
General.......................................................................... 28
Amendment, Extension, Waiver..................................................... 28
Conditions to the Merger......................................................... 28
Conduct of Business Pending the Merger........................................... 29
Benefit Plans.................................................................... 29
Termination...................................................................... 30
Guaranty........................................................................ 30
MARKET PRICES AND DIVIDEND INFORMATION............................................................. 30
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SELECTED FINANCIAL INFORMATION CONCERNING THE CORPORATION.......................................... 31
ELECTION OF DIRECTORS.............................................................................. 32
SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE......................................................... 34
SECURITY OWNERSHIP................................................................................ 34
Security Ownership of Certain Beneficial Owners.......................................... 34
Security Ownership of Certain Management of the
Corporation.............................................................................. 37
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS.................................................. 38
Summary Compensation Table............................................................... 38
Option/SAR Grants in Last Fiscal Year.................................................... 39
Aggregated Option/SAR Exercises in Last Fiscal
Year and FY-End Option/SAR Values........................................................ 39
Retirement Benefits...................................................................... 39
Remuneration of Directors................................................................ 40
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION....................................... 41
REPORT OF EXECUTIVE COMPENSATION COMMITTEE......................................................... 41
PERFORMANCE GRAPH.................................................................................. 42
INDEPENDENT ACCOUNTANTS............................................................................ 43
ADDITIONAL INFORMATION............................................................................. 43
Incorporation of Certain Documents by Reference........................................... 43
SHAREHOLDER PROPOSALS.............................................................................. 44
OTHER MATTERS...................................................................................... 44
ANNEXES
Merger Agreement and Plan of Merger................................................................ Annex I
Opinion of Goldman Sachs........................................................................... Annex II
</TABLE>
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<PAGE>
SUMMARY
The following is a brief summary of certain information found elsewhere
in this Proxy Statement. Certain capitalized terms used in this Summary are
defined elsewhere in this Proxy Statement. All statements in the following
Summary are qualified by and are made subject to the more detailed information
contained elsewhere in this Proxy Statement and the Annexes attached hereto,
which you are urged to read in their entirety.
The Annual Meeting
Place, Date and Time.
The Annual Meeting of Shareholders of the Corporation will be held in
the Second Floor Conference Room at NationsBank Center, 12th and Main Streets,
Richmond, Virginia, on Tuesday, September 16, 1997, at 11:00 a.m., Eastern
Daylight Time.
Record Date; Shares of Common Stock Entitled to Vote.
The Board of Directors has fixed the close of business of the Nasdaq
Stock Market on August 8, 1997, as the record date (the "Record Date") for the
determination of shareholders entitled to notice of, and to vote at, the Annual
Meeting. See "Annual Meeting -- Record Date; Solicitation of Proxies."
Purpose of the Annual Meeting.
At the Annual Meeting, holders of Common Stock will be asked, to (i)
approve the Merger Agreement and the Plan of Merger, providing for the merger of
Merger Subsidiary, a wholly-owned subsidiary of Holdings, with and into the
Corporation, whereby the Surviving Corporation will become a wholly-owned
subsidiary of Holdings, (ii) elect a Board of Directors to serve until
consummation of the Merger or until the next annual meeting of shareholders if
the Merger is not consummated and (iii) ratify the designation of independent
accountants.
Vote Required; Proxies.
A majority of the outstanding shares of Common Stock entitled to vote,
represented in person or by proxy, is required for a quorum at the Annual
Meeting. Approval of the Merger Agreement and the Plan of Merger requires the
affirmative vote of the holders of more than two-thirds of the shares of Common
Stock outstanding as of the Record Date. At the Record Date, 3,817,629 shares
of Common Stock were issued and outstanding and entitled to vote at the Annual
Meeting. See "Annual Meeting -- Record Date; Solicitation of Proxies." The
election of each nominee for director requires the affirmative vote of the
holders of a plurality of the shares of Common Stock cast in the election of
directors.
Shares of Common Stock that are represented by properly executed
proxies, unless such proxies shall have previously been properly revoked, will
be voted in accordance with the instructions indicated in such proxies. If no
contrary instructions are indicated, such shares will be voted FOR (i) approval
of the Merger Agreement and the Plan of Merger, (ii) the election of all of the
nominees as directors and (iii) the designation of Coopers & Lybrand L.L.P. as
the Corporation's independent accountants, and in the discretion of the persons
named in the proxy as proxy appointees, as to any other matter that may properly
come before the Annual Meeting and of which the Corporation is not presently
aware. Under the rules of the National Association of Securities Dealers, Inc.
(the "NASD"), although brokers who hold shares in street name have the authority
to vote on certain items when they have not received instructions from
beneficial owners, brokers will not be entitled to vote on the Merger Agreement
and the Plan of Merger absent instructions. A broker non-vote will have the
effect of a negative vote on the approval of the Merger Agreement and the Plan
of Merger. Similarly, a failure to return a properly executed proxy or an
abstention will have the effect of a negative vote on the approval of the Merger
Agreement and the Plan of Merger. Votes that are withheld and shares held in
street name that are not voted in the election of directors will not be included
in determining the number of votes cast in such election.
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<PAGE>
It is not expected that any matters other than those referred to in
this Proxy Statement will be brought before the Annual Meeting. If other matters
are properly presented, however, the persons named as proxy appointees will vote
in accordance with their best judgment on such matters. The grant of a proxy
also will confer discretionary authority on the persons named in the proxy to
vote in accordance with their best judgment on matters incident to the conduct
of the Annual Meeting.
Any shareholder may revoke a proxy (other than an irrevocable proxy
coupled with an interest) at any time before it is voted by filing with the
Corporate Secretary of the Corporation an instrument revoking the proxy or by
returning a duly executed proxy bearing a later date, or by attending the Annual
Meeting and voting in person.
In addition to the solicitation of proxies by use of the mails, proxies
also may be solicited by the Corporation and its directors, officers and
employees (who will receive no additional compensation therefor) by telephone,
telegram, facsimile transmission and other electronic communication methods or
personal interview. The Corporation will reimburse banks, brokerage houses,
custodians and other fiduciaries who hold shares of Common Stock in their name
or custody, or in the name of nominees for others, for their out-of-pocket
expenses incurred in forwarding copies of the proxy materials to those persons
for whom they hold such shares. The Corporation will bear all other costs of the
Annual Meeting and of soliciting proxies therefor, including the cost of
printing and mailing this Proxy Statement and related materials.
Certain members of (i) the family of the late Walter H. Bunzl and (ii)
the family of Rudolph H. Bunzl and certain of their affiliates have granted to
Holdings irrevocable proxies with respect to the voting of their shares of
Common Stock for the approval of the Merger Agreement and the Plan of Merger
(each, an "Irrevocable Proxy"). See "Annual Meeting -- Vote Required."
The Merger
Parties to the Merger Agreement.
The following entities are parties to the Merger Agreement:
The Corporation. The Corporation is engaged in the manufacture and sale
of bonded fibers and plastic products. The address and telephone number of the
Corporation's executive offices are 3951 Westerre Parkway, Suite 300, Richmond,
Virginia, 23233, and (804) 346-2400.
Holdings. Holdings is a newly-formed Delaware corporation created
solely for the purpose of engaging in the transactions contemplated by the
Merger Agreement. Holdings is an indirect wholly-owned subsidiary of Bunzl plc.
The address and telephone number of Holdings' principal executive offices are
__________, and (____) ___________.
Merger Subsidiary. Merger Subsidiary is a newly-formed Virginia
corporation created solely for the purpose of engaging in the transactions
contemplated by the Merger Agreement. Merger Subsidiary is a wholly-owned
subsidiary of Holdings. The address and telephone number of Merger Subsidiary's
principal executive offices are ___________________________________, and (____)
_______________.
General.
If the Merger Agreement and the Plan of Merger are approved by the
requisite vote, and all other conditions to the obligations of the parties are
satisfied or waived, Merger Subsidiary will merge with and into the Corporation.
Pursuant to the Merger, each share of Common Stock will be canceled and
converted automatically into the right to receive the Merger Consideration,
other than shares owned by Holdings and its subsidiaries (which will be
automatically canceled and extinguished). Each outstanding share of common stock
of Merger Subsidiary will be converted automatically into one share of common
stock of the Surviving Corporation.
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<PAGE>
Recommendation of the Board of Directors and Reasons for the Merger.
The Board of Directors of the Corporation, at a special meeting on July
29, 1997, unanimously approved the Merger Agreement and the Plan of Merger and
directed that the Merger Agreement and the Plan of Merger be submitted to the
shareholders of the Corporation for their approval. The Board of Directors has
determined that the Merger is fair to, and in the best interests of, the
Corporation and its shareholders and recommends that the shareholders vote FOR
approval of the Merger Agreement and the Plan of Merger. In reaching its
decision to approve the Merger Agreement and the Plan of Merger, the Board of
Directors considered a number of factors. For a discussion of the factors
considered by the Board in reaching its determination, see "The Merger --
Reasons for Merger; Recommendation of the Board of Directors;" and "-- Opinion
of Financial Advisor."
Opinion of Financial Advisor.
Goldman Sachs has delivered its written opinion to the Board of
Directors of the Corporation that, as of July 29, 1997, the $46.52 per share
of Common Stock in cash to be received by the holders of Common Stock, excluding
Holdings and its subsidiaries and WBT and RNBT under the circumstances
hereinafter described, pursuant to the Merger Agreement is fair to such holders.
The full text of the written opinion of Goldman Sachs, which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached hereto as Annex II and is incorporated
herein by reference. Holders of Common Stock are urged to, and should, read such
opinion in its entirety. See " The Merger -- Reasons for Merger; Recommendation
of the Board of Directors;" and " -- Opinion of Financial Advisor."
No Solicitation; Fiduciary Duties.
Pursuant to the Merger Agreement, neither the Corporation, nor its
officers, directors or agents may solicit or encourage in any manner, including
by way of furnishing information, any merger, acquisition or takeover proposal
for the Corporation or its shares or any significant portion of its assets or
businesses, however structured or to be effected, unless the Corporation's Board
of Directors concludes in good faith, after receiving the advice of its counsel,
that the failure to take such action would violate the fiduciary obligations of
the directors under applicable law. See "The Merger -- No Solicitation;
Fiduciary Duties."
Interests of Certain Persons in the Merger.
In addition to (i) shares of Common Stock held by directors and
executive officers of the Corporation, for which they will receive the same
consideration as other shareholders of the Corporation, and (ii) options to
acquire shares of Common Stock granted pursuant to certain Corporation
compensation plans, which will be treated as described below under " The Merger
- - - - - -- General," certain employees of the Corporation and its subsidiaries are
parties to agreements with the Corporation pursuant to which significant
payments and other benefits may be provided to such persons in the event the
employment of such persons by the Corporation or one of its subsidiaries is
terminated under certain circumstances. See "The Merger -- Interests of Certain
Persons in the Merger."
The Merger Agreement contains certain provisions with respect to
various employee benefit plans of the Corporation. See "The Merger -- Terms of
the Merger - Benefit Plans."
Bennett L. Kight, Esq., a director of the Corporation, as a fiduciary
of certain trusts established for the benefit of certain members of the family
of the late Walter H. Bunzl (the "Walter Bunzl Family") and a director of a
charitable foundation, may be deemed to beneficially own 27.8% of the
outstanding shares of Common Stock. Certain of these shares are held directly by
WBT, a Georgia limited
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<PAGE>
liability company whose membership interests are held by certain trusts for the
Walter Bunzl Family and the charitable foundation (together with such trusts and
foundation and the Walter Bunzl Family, the "W. H. Bunzl Interests"). WBT, RNBT,
a Georgia limited liability company whose membership interests are held by
certain trusts for the Walter Bunzl Family, and Holdings have entered into an
acquisition agreement dated July 29, 1997 (the "Acquisition Agreement"),
pursuant to which, upon notice by WBT and RNBT delivered in advance of the
Merger, (i) WBT and RNBT will transfer 959,364 shares of Common Stock to WB
Parent LLC, a Delaware limited liability company wholly owned by WBT and RNBT
("WB Parent"); and (ii) WBT and RNBT will sell all of the limited liability
company ownership interests in WB Parent to Holdings concurrently with the
effectiveness of the Merger.
Anticipated Accounting Treatment
The Merger will be accounted for by Holdings as a "purchase" for accounting
and financial reporting purposes. See " The Merger -- Anticipated Accounting
Treatment."
Certain Tax Consequences of the Merger
The disposition of shares of Common Stock in the Merger will be a taxable
transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local, foreign or other tax laws.
Shareholders are urged to consult their own tax advisors as to the particular
tax consequences of the Merger, including the applicability and effect of state,
local, foreign and other taxes. See " The Merger -- Certain Tax Consequences of
the Merger."
Effective Time of the Merger; Payment for Common Stock.
On the closing date of the Merger (the "Closing Date") (or such later date as
the parties may agree), the Corporation and Merger Subsidiary will file
Articles of Merger with the State Corporation Commission of the Commonwealth of
Virginia (the "Virginia Commission") executed in accordance with the relevant
provisions of the Virginia Stock Corporation Act (the "Virginia Act"). The
Merger shall become effective upon the issuance of a Certificate of Merger by
the Virginia Commission unless a later time and date is specified in the
Articles of Merger (the "Effective Time"). See "The Merger -- Terms of the
Merger Conditions to the Merger;" and "-- Effective Time of the Merger."
Detailed instructions with regard to the surrender of certificates, to be
accompanied by a letter of transmittal, will be forwarded to holders of
certificates formerly evidencing shares of Common Stock promptly following the
Effective Time by ChaseMellon Shareholder Services L.L.C. (the "Exchange
Agent"). Payment will be made to such former holders of shares of Common Stock
promptly following receipt by the Exchange Agent of certificates for their
shares of Common Stock and other required documents. No interest will be paid or
accrued on the cash payable upon the surrender of certificates. See "The Merger
- - - - - -- Payment for Shares of Common Stock."
STOCK CERTIFICATES SHOULD NOT BE SENT WITH THE ENCLOSED PROXY
CARD. IF THE MERGER IS CONSUMMATED, SHAREHOLDERS WILL BE
FURNISHED INSTRUCTIONS FOR EXCHANGING THEIR SHARES OF COMMON
STOCK FOR THE MERGER CONSIDERATION.
Conditions to the Merger
The obligations of the Corporation, Holdings and Merger Subsidiary to
consummate the Merger are subject to waiver or satisfaction of certain
conditions, including obtaining requisite shareholder and regulatory approvals.
See "The Merger -- Terms of the Merger - Conditions to the Merger;" and "--
Government and Regulatory Approvals and Filings."
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<PAGE>
Termination; Fees and Expenses
The Merger Agreement may be terminated at any time prior to the Effective
Time by mutual written consent of the Board of Directors of the Corporation and
the Board of Directors of Holdings or by either Holdings or the Corporation if
certain conditions to the obligations of the parties are not met or other
specified events occur.
If the Merger Agreement is terminated by the Corporation or Holdings for
specified reasons, the Corporation will pay Holdings expenses incurred by
Holdings or its affiliates since June 26, 1997, up to an amount equal to 1% of
the product of the Merger Consideration and the total number of outstanding
shares of Common Stock of the Corporation (the "Expenses") and, if a Competing
Transaction is consummated on or before July 30, 1998, the Corporation will pay
Holdings a fee equal to 2% of the product of the Merger Consideration and the
total number of outstanding shares of Common Stock of the Corporation (the
"Fee"). A "Competing Transaction" is defined to mean (i) any merger,
consolidation, share exchange, business combination or other similar transaction
involving the Corporation or a significant subsidiary of the Corporation; (ii)
any sale, lease, exchange, mortgage, pledge, transfer or other disposition of
25% or more of the assets of the Corporation, taken as a whole, in a single
transaction or series of transactions; (iii) any tender or exchange offer for
25% or more of the outstanding shares of the Common Stock or the filing of a
registration statement under the Securities Act of 1933 (the "Securities Act")
in connection therewith; or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing. See "The Merger -- Terms of the Merger - Termination."
Guaranty
Bunzl USA, Inc., a wholly-owned indirect subsidiary of Bunzl plc ("Bunzl
USA"), has guaranteed the performance of all obligations of Holdings and Merger
Subsidiary under the Merger Agreement.
No Dissenters' Rights
The shareholders of the Corporation, whether or not they vote at the Annual
Meeting, will not be entitled to dissenters' rights and will be bound by the
terms and conditions of the Merger Agreement if the Merger is consummated. See "
The Merger -- No Dissenters' Rights."
Government and Regulatory Approvals and Filings
The consummation of the Merger is subject to the expiration or early
termination of the relevant waiting period requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Such early
termination was granted on ___________________, 1997. See "The Merger --
Government and Regulatory Approvals and Filings."
Market Prices and Dividend Information
The Common Stock is listed and traded on the Nasdaq Stock Market. As of
November 4, 1996, the last date on which the Common Stock was traded prior to
the public announcement by the Corporation that it had entered into negotiations
with WBT regarding a proposed sale of the Corporation that subsequently were
terminated, the high and low sales prices of the Common Stock on the Nasdaq
Stock Market were $33 1/2 per share and $33 per share, respectively. On July 1,
1997, the last date on which the Common Stock was traded prior to the public
announcement by the Corporation that it had entered into a letter of intent with
Bunzl plc regarding a proposed sale of the Corporation, the high and low sales
prices of the Common Stock on the Nasdaq Stock Market were $42 3/4 per share and
$41 1/2 per share, respectively. On _______ __, 1997, the latest practicable
trading day before the printing of this Proxy Statement, the high and low sales
prices of the Common Stock on the Nasdaq Stock Market were $_____ per share and
$_____ per share, respectively.
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SELECTED FINANCIAL INFORMATION CONCERNING THE CORPORATION
The selected summary consolidated financial data presented below for each of
the last five fiscal years ended December 31, 1996, and the six months ended
June 30, 1997 and 1996, have been derived from the Corporation's historical
financial statements. This data should be read in conjunction with the
consolidated financial statements and notes thereto of the Corporation included
in the Annual Report on Form 10-K for the fiscal year ended December 31, 1996,
and the Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, which
is incorporated by reference into this Proxy Statement. See "Additional
Information -- Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
IN THOUSANDS EXCEPT PER SHARE AMOUNTS
SIX MONTHS ENDED
JUNE 30, (UNAUDITED) YEARS ENDED DECEMBER 31,
--------------------- ------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C>
INCOME STATEMENT
DATA
Total Revenues $ 105,013 $ 97,892 $ 194,841 $ 177,848 $ 150,191 $ 131,531 $ 122,868
Income Before Income Taxes 10,808 9,053 19,438 15,554 12,231 10,480 9,720
Income From Continuing
Operations 6,908 5,878 12,438 10,104 7,806 6,705 6,420
Net Income 6,908 5,878 12,438 10,104 11,761 7,316 1,212
PER SHARE (Dollars)
Earnings (Loss)
Continuing Operations 1.81 1.57 3.32 2.70 1.80 1.73
2.08
Discontinued Operations -- -- -- -- .16 (1.40)
------- --------- --------- --------- --------- --------- ---------
1.05
Net Income 1.81 1.57 3.32 2.70 3.13 1.96 .33
BALANCE SHEET DATA
(at end of period)
Working Capital 65,693 57,674 60,476 54,246 47,016 48,219 31,841
Total Assets 122,661 111,240 117,554 108,266 99,709 87,094 80,542
Total Assets Less
Deferred Research and
Development Charges and
Excess of Cost of Assets
Acquired Over Book Value 118,176 106,346 112,861 103,169 94,276 82,754 75,872
Long-term Debt -- -- -- 650 1,300 -- --
Shareholders' Equity 99,733 88,857 93,397 84,825 78,365 70,966 67,042
CASH DIVIDENDS
DECLARED AND PAID
PER SHARE OF
COMMON STOCK .56 .53 1.09 1.03 .98 .95 .94
</TABLE>
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ANNUAL MEETING
Place, Date and Time
The Annual Meeting of Shareholders of the Corporation will be held in
the Second Floor Conference Room at NationsBank Center, 12th and Main Streets,
Richmond, Virginia, on Tuesday, September 16, 1997, at 11:00 a.m. Eastern
Daylight Time.
Record Date; Solicitation of Proxies
The Board of Directors of the Corporation has fixed the close of
business of the Nasdaq Stock Market on August 8, 1997, as the Record Date for
the determination of shareholders entitled to notice of and to vote at the
Annual Meeting. At the Record Date, there were 3,817,629 shares of Common Stock
issued and outstanding and entitled to vote at the Annual Meeting held by
approximately 1,200 holders of record. Holders of Common Stock are entitled to
one vote at the Annual Meeting for each share of Common Stock held of record at
the Record Date.
In addition to the solicitation of proxies by use of the mails, proxies
also may be solicited by the Corporation and its directors, officers and
employees (who will receive no additional compensation therefor) by telephone,
telegram, facsimile transmission and other electronic communication methods or
personal interview. The Corporation will reimburse banks, brokerage houses,
custodians and other fiduciaries who hold shares of Common Stock in their name
or custody, or in the name of nominees for others, for their out-of-pocket
expenses incurred in forwarding copies of the proxy materials to those persons
for whom they hold such shares. The Corporation will bear the costs of the
Annual Meeting and of soliciting proxies therefor, including the cost of
printing and mailing this Proxy Statement and related materials. Any questions
or requests for assistance regarding the Corporation's proxies and related
materials may be directed in writing to Anne B. Gibbs, Secretary, American
Filtrona Corporation, P.O. Box 31640, Richmond, Virginia 23294.
Vote Required
A majority of the outstanding shares of Common Stock entitled to vote
as of the Record Date, represented in person or by proxy, is required for a
quorum at the Annual Meeting. The affirmative vote of more than two-thirds of
the outstanding shares of Common Stock as of the Record Date is required for
approval of the Merger Agreement and the Plan of Merger. Abstentions may be
specified with respect to the approval of the Merger Agreement and the Plan of
Merger and will be counted as present for the purpose of determining the
existence of a quorum but will have the effect of a negative vote.
The election of each nominee for director requires the affirmative vote
of the holders of a plurality of the shares of Common Stock cast in the election
of directors. Votes that are withheld and shares that are held in street name
that are not voted in the election of directors will not be included in
determining votes cast for such election.
Shares of Common Stock that are represented by properly executed
proxies, unless such proxies shall have previously been properly revoked, will
be voted in accordance with the instructions indicated in such proxies. If no
contrary instructions are indicated, such shares will be voted FOR (i) approval
of the Merger Agreement and the Plan of Merger, (ii) the election of all of the
nominees as directors and (iii) the designation of Coopers and Lybrand L.L.P. as
the Corporation's independent accountants, and in the discretion of the persons
named in the proxy as proxy appointees, as to any other matter that may properly
come before the Annual Meeting and of which the Corporation is not presently
aware.
Under the rules of the NASD, although brokers who hold shares in street
name have the authority to vote on certain items when they have not received
instructions from beneficial owners, brokers will not be entitled to
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vote on the approval of the Merger Agreement and the Plan of Merger absent
instructions. Brokers who do not receive instructions but who are present, in
person or by proxy, at the Annual Meeting will be counted as present for quorum
purposes. A broker non-vote will have the effect of a negative vote on the
approval of the Merger Agreement and the Plan of Merger. Similarly, a failure to
return a properly executed proxy or an abstention will have the effect of a
negative vote on the approval of the Merger Agreement and the Plan of Merger.
It is not expected that any matters other than those referred to in
this Proxy Statement will be brought before the Annual Meeting. If other matters
are properly presented, however, the persons named as proxy appointees will vote
in accordance with their best judgment on such matters. The grant of a proxy
also will confer discretionary authority on the persons named as proxy
appointees to vote in accordance with their best judgment on matters incident to
the conduct of the Annual Meeting (other than an irrevocable proxy coupled with
an interest).
Any shareholder may revoke his, her or its proxy at any time before it
is voted by filing with the Corporate Secretary of the Corporation an instrument
revoking the proxy or by returning a duly executed proxy bearing a later date,
or by attending the Annual Meeting and voting in person. Attendance at the
Annual Meeting will not by itself constitute revocation of a proxy.
As of June 30, 1997, the current directors and executive officers of
the Corporation and their respective affiliates as a group beneficially owned
2,118,682 shares (approximately 55.5%) of the outstanding shares of Common
Stock, including 99,800 shares that such directors and executive officers have
the right to acquire through the exercise of presently exercisable Stock Options
(as hereinafter defined), but also including 1,653,946 shares as to which the
directors and executive officers either disclaimed beneficial ownership or did
not have sole dispositive and voting power. See "Security Ownership -- Security
Ownership of Certain Beneficial Owners;" and "-- Security Ownership of Certain
Management of the Corporation." Such directors and executive officers of the
Corporation have indicated that they intend to vote the 464,736 shares as to
which they presently have sole voting power (approximately 12.17% of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting) FOR
the approval of the Merger Agreement and the Plan of Merger.
Each of Bennett L. Kight, Frances B. Bunzl, Rudolph H. Bunzl and
trustees of certain trusts for the benefit of members of the family of Rudolph
H. Bunzl has executed an Irrevocable Proxy appointing Holdings as his or her
sole and exclusive agent and attorney-in-fact to vote all shares of Common Stock
in which such person has a beneficial interest for the approval of the Merger
Agreement and the Plan of Merger. Each Irrevocable Proxy will terminate upon
termination of the Merger Agreement, provided that an Irrevocable Proxy will not
terminate if the grantor thereof or any of his or her affiliates has breached
his or her respective obligations in connection with the Merger Agreement in a
manner that proximately contributed to the termination of the Merger Agreement.
Irrevocable Proxies covering 1,748,599 shares of Common Stock, or approximately
45.8% of the outstanding Common Stock have been granted.
In addition to (i) shares of Common Stock held by directors and
executive officers of the Corporation, for which they will receive the same
consideration as other shareholders of the Corporation, and (ii) Stock Options
granted pursuant to certain Corporation compensation plans, which will be
treated as described below under " The Merger -- General," certain executive
officers of the Corporation are parties to agreements with the Corporation
pursuant to which significant payments and other benefits may be provided to
such persons in the event their employment by the Corporation or one of its
subsidiaries is terminated under certain circumstances.
SHAREHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION
PRESENTED IN THIS PROXY STATEMENT, AND SHAREHOLDERS ARE URGED TO COMPLETE, DATE,
SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING PREPAID
ENVELOPE.
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<PAGE>
STOCK CERTIFICATES SHOULD NOT BE SENT WITH THE ENCLOSED PROXY. IF THE
MERGER IS CONSUMMATED, SHAREHOLDERS WILL BE FURNISHED INSTRUCTIONS FOR
EXCHANGING THEIR SHARES OF COMMON STOCK FOR THE MERGER CONSIDERATION.
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THE MERGER
General
The following information with respect to the Merger is qualified in
its entirety by reference to the complete text of the Merger Agreement
(including the Plan of Merger), a copy of which is included in this Proxy
Statement as Annex I. The Merger Agreement sets forth the terms and conditions
upon which the Merger is to be effected. If the Merger Agreement and the Plan of
Merger are approved by the holders of more than two-thirds of the outstanding
shares of Common Stock at the Annual Meeting, and all other conditions to the
obligations of the parties thereto are satisfied or waived, the Merger will be
consummated and Merger Subsidiary will merge with and into the Corporation at
the Effective Time. The Corporation will be the Surviving Corporation in the
Merger.
Pursuant to the Merger, each share of Common Stock issued and
outstanding at the Effective Time, other than shares owned by Holdings and its
subsidiaries (which will be automatically canceled and extinguished), will be
canceled and converted automatically into the right to receive the Merger
Consideration. Each outstanding share of common stock of Merger Subsidiary will
be converted automatically into one share of common stock of the Surviving
Corporation. As a result of the Merger, shareholders of the Corporation will
cease to have an equity interest in, or possess any rights as shareholders of,
the Surviving Corporation.
Pursuant to the Merger Agreement, each exercisable Stock Option (as
defined below), and any rights thereunder, outstanding and unexercised
immediately prior to the Effective Time shall be canceled at the Effective Time
in exchange for the right to receive an amount in cash equal to the product of
(i) the number of shares of Common Stock underlying any unexercised portion of
such Stock Option immediately prior to the Effective Time and (ii) the excess,
if any, of (A) the Merger Consideration over (B) the per share exercise price of
such Stock Option, subject to applicable withholding taxes. A "Stock Option"
refers to an option, warrant, stock appreciation right or right of any kind to
purchase shares of Common Stock.
At the Closing Date, Stock Options having a per share exercise price
under $46.52 will be outstanding and exercisable for an aggregate of 257,800
shares of Common Stock, entitling the holders to an aggregate amount of cash
equal to [$4,810,362.25] if no such Stock Options are exercised or lapse in
accordance with their terms prior to the Effective Time. All of such Stock
Options will be exercisable in full.
Background of Merger
The terms and conditions of the Merger were determined through
arms-length negotiations between the representatives of the Corporation and
Holdings. The following is a brief discussion of the history of the
transaction.
Since the Corporation's initial public offering in 1972, members of the
families of Rudolph Bunzl and the late Walter Bunzl have beneficially owned in
excess of 40% of the Common Stock. Beginning in 1992, at several of its
regularly scheduled meetings, the Board of Directors of the Corporation
discussed a number of alternative courses of action to maximize shareholder
value while pursuing two additional goals: (i) to make efficient use of the
substantial cash reserves accumulated by the Corporation; and (ii) to permit the
members of the family of Rudolph H. Bunzl (collectively, the "R. H. Bunzl
Interests") to pursue their stated objective of diversifying some but not all of
their significant stock holdings in the Corporation. (At the time these
discussions commenced, Bennett L. Kight served as co-trustee for trusts for the
benefit of members of the Walter Bunzl Family, as well as co-trustee for trusts
for the benefit of certain of the R. H. Bunzl Interests.) Because of the
relatively limited market for the Common Stock, an open market sale of a large
portion of the shares of Common Stock held by or for the benefit of the R. H.
Bunzl Interests would have been expected to reduce the market price of the
Common Stock significantly.
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<PAGE>
Among the available alternatives, the Board focused on an issuer tender
offer in which (i) the W. H. Bunzl Interests and the R. H. Bunzl Interests would
have sold relatively equal percentages of their Common Stock holdings and (ii)
the public shareholders could have participated. The Board was advised that, if
structured properly, the issuer tender offer could permit the Corporation to
achieve the goals outlined above without significantly altering the relative
ownership positions of the W. H. Bunzl Interests and the R. H. Bunzl Interests,
which the Board concluded, for reasons discussed in the next paragraph, was in
the best interests of the Corporation. The Board also received advice that the
issuer tender offer could be structured to provide capital gains tax treatment
for most shareholders.
Mr. Kight, however, informed the Board that he had concluded that the
issuer tender offer was not in the best interests of the W. H. Bunzl Interests
because of the large number of shares of Common Stock that would have to be
tendered by such trusts in the aggregate and because of the tax costs of the
transaction. Mr. Kight did express his willingness to cooperate if the trusts
for the benefit of the R. H. Bunzl Interests wished to participate in the issuer
tender offer. After further discussion, the Board of Directors concluded that
it was not in the best interests of the Corporation to pursue an issuer tender
offer under those circumstances. An issuer tender offer in which only public
shareholders and the R. H. Bunzl Interests participated would have eliminated
the substantially comparable ownership positions of the R. H. Bunzl Interests
and the W. H. Bunzl Interests, resulting in a sudden change in control of the
Corporation.
Because of the perceived benefits that could be made available to the
Corporation's shareholders by an issuer tender offer, and in order to avoid the
potential results of such a sudden change in control, in the summer of 1995, the
Board of Directors appointed two of its members to a committee to attempt to
negotiate a continuity agreement with the W. H. Bunzl Interests. As proposed,
the continuity agreement would have permitted the issuer tender offer to go
forward with participation of the R. H. Bunzl Interests and the public
shareholders, while obligating the W. H. Bunzl Interests not to use its
resulting increased ownership position to change a majority of the Board of
Directors for a transition period of several years. After several months of
negotiations, in late 1995, the Board abandoned efforts with respect to such a
continuity agreement.
In January 1996, the Corporation, with the unanimous approval of the
Board (except for Mr. Kight), engaged Goldman Sachs to act as its financial
advisor to assist the Corporation in its analysis and consideration of various
financial alternatives. In February 1996, Goldman Sachs discussed with the
Board of Directors various possible transactions in which the Corporation might
engage in order to achieve the primary goal of maximizing shareholder value
while also addressing the goals of efficient use of cash reserves for the
benefit of all shareholders and diversification of the investment of the R. H.
Bunzl Interests. In the course of these discussions, members of the Board of
Directors again asked Mr. Kight whether the W. H. Bunzl Interests would be
willing to participate in an issuer tender offer. After Mr. Kight reiterated
the unwillingness of the W. H. Bunzl Interests to tender any shares in such a
transaction, the Corporation requested that Goldman Sachs study a possible sale
of the Corporation.
After discussions with Goldman Sachs, in April 1996, the Board
authorized the Corporation's management to pursue a sale of the Corporation with
the assistance of Goldman Sachs and the Corporation's legal counsel, Hunton &
Williams. Throughout the spring of 1996, the Board attempted to reach agreement
with the W. H. Bunzl Interests with respect to a sale process that the W. H.
Bunzl Interests would be willing to support. As proposed by the Board, such an
agreement would have permitted the W. H. Bunzl Interests to make an offer to
purchase the Corporation, but would have obligated the W. H. Bunzl Interests to
sell their shares of Common Stock if a third party made a superior offer. The
W. H. Bunzl Interests declined to agree in advance to support a sale of the
Corporation to another party.
While these discussions between the Corporation and the W. H. Bunzl
Interests were ongoing, in May 1996, WBT made an offer to acquire the
Corporation in a cash merger at a price of approximately $40.00 per share of
Common Stock. After discussion, the Board of Directors rejected this offer
because it concluded that the price was inadequate. The Board authorized the
Corporation's management to continue discussions of possible
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<PAGE>
transactions with the W. H. Bunzl Interests. In June 1996, the Corporation and
WBT entered into an informal agreement with respect to the process by which the
Corporation would pursue a sale (the "Process Agreement"). The Process Agreement
provided, among other things, that the Corporation would negotiate exclusively
with WBT until the parties had entered into an acquisition agreement. The
Process Agreement also provided that the W. H. Bunzl Interests would consider
selling their shares of Common Stock in the event the Corporation received a
superior offer.
For the next six weeks, the W. H. Bunzl Interests and their
representatives conducted a business and financial review of the Corporation. On
July 24, 1996, the Board of Directors created a Special Committee, to which
neither the employee-directors of the Corporation nor Mr. Kight belonged, to
conduct the sales process and negotiate with all potential acquirors. The
Special Committee consisted at its inception of Rudolph H. Bunzl, Manuel Deese,
Stanley F. Pauley, Gilbert M. Rosenthal, Wallace Stettinius, Bernard C. Wampler
and Harry H. Warner. (Messrs. Bunzl and Stettinius withdrew from the Special
Committee in December 1996 because, as a significant shareholder and a trustee
for trusts with significant share holdings, respectively, they were receiving
unsolicited direct overtures from potential bidders.) On August 12, 1996, WBT
presented a new formal merger proposal to the Special Committee providing for a
merger between the Corporation and a subsidiary of WBT at a price of $38.00 per
share of Common Stock. The Special Committee considered the reduced offer at a
meeting on August 16, 1996, and voted to reject the offer as inadequate. At that
time, the Special Committee informed WBT that the Corporation would entertain
further offers from WBT (and would continue exclusive negotiations with WBT)
only until August 30, 1996.
Upon notification by WBT that it would be unable to improve its offer
in a timely fashion, the Special Committee recommended, and the Board
authorized, the Corporation to explore with its advisors the possibility of a
sale of the Corporation to a limited number of potential strategic and financial
acquirors, including Bunzl plc. While Goldman Sachs was making inquiries of
several potential acquirors, WBT informed the Special Committee in
mid-September 1996 that in view of the expiration of the Process Agreement on
August 30, 1996, WBT was attempting to formulate an improved offer to acquire
the Corporation at $42.00 per share of Common Stock with the support of a
potential equity partner with whom it had entered into confidential
negotiations. The potential equity partner was later identified as Bunzl plc.
Goldman Sachs' inquiries did not result in any formal acquisition offers for the
Corporation. On September 24, 1996, WBT made a revised formal offer to acquire
the Corporation at $42.00 per share, indicating at that time that, as a part of
its proposal, WBT intended to cause the Corporation to sell the Corporation's
bonded fibers business (the "Fibers Business") to a subsidiary of Bunzl plc
immediately following the consummation of the merger.
Throughout October 1996, the Special Committee and its advisors
negotiated with WBT in an attempt to improve the price offered and to reach
agreement on other terms of a letter of intent. On October 23, 1996, WBT
increased its offer to $43.00.
On November 7, 1996, certain of the R. H. Bunzl Interests brought suit
against Bennett L. Kight in the U. S. District Court for the Eastern District of
Virginia seeking to have Mr. Kight removed as co-trustee from all trusts for the
benefit of any of the R. H. Bunzl Interests and to prevent him from proceeding
with the WBT acquisition proposal so long as he continued in that fiduciary
capacity. The litigation focused on Mr. Kight's simultaneous services both as
co-trustee for the benefit of members of the Walter Bunzl Family who would be
buyers in connection with the WBT acquisition proposal and as co-trustee for
the benefit of the R. H. Bunzl Interests who would be sellers. During the
pendency of the litigation, all negotiations between the Corporation and WBT
were suspended. The parties settled the litigation on December 9, 1996. Pursuant
to that settlement, Mr. Kight resigned as co-trustee for all trusts for the
benefit of the R. H. Bunzl Interests and was replaced by court-approved interim
co-trustees.
The Corporation and WBT resumed negotiations in mid-December 1996.
After several meetings of the Special Committee and numerous discussions among
the parties, the Special Committee approved on December
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12, 1996, a letter of intent with WBT (i) providing for a cash merger between
the Corporation and a subsidiary of WBT at a per share price of $43.00, and
(ii) contemplating the subsequent sale of the Fibers Business by the Corporation
to Bunzl plc (the "WBT Letter of Intent"). The WBT Letter of Intent provided,
among other things, that the Corporation could solicit additional offers from up
to ten potential acquirors and that the Corporation could pursue discussions
with unsolicited parties during the negotiation with WBT of a final merger
agreement. The WBT Letter of Intent did not indicate the price that Bunzl plc
had agreed to pay for the Fibers Business but included an agreement to disclose
such amount before the Board of Directors would consider and approve the final
merger agreement. For the next month: (i) WBT, its lender and Bunzl plc
continued their business and financial review of the Corporation; (ii) Goldman
Sachs explored possible interest in alternative transactions with other
solicited prospective buyers and unsolicited offerors; and (iii) representatives
of WBT, Bunzl plc and the Corporation engaged in negotiations to finalize the
appropriate documentation. Only one potential acquiror engaged in substantive
discussions with Goldman Sachs and Hunton & Williams.
That party (the "Second Bidder"), made a formal offer on January 17,
1997, to enter into a letter of intent to acquire the Corporation through a
leveraged recapitalization at $46.00 per share of Common Stock (the "Alternative
Offer"). The Special Committee met several times to discuss the Alternative
Offer, and on January 22, 1997, authorized Goldman Sachs and Hunton & Williams
to engage in discussions with the Second Bidder concerning the Alternative
Offer. Following these discussions, the Second Bidder revised the Alternative
Offer to provide for a merger of the Corporation with an entity to be formed by
the Second Bidder. As required by the WBT Letter of Intent, the Corporation
informed Holdings of the Alternative Offer. On January 23, 1997, the W. H. Bunzl
Interests informed the Special Committee that they would not agree to support
the Alternative Offer; and on January 30, 1997, WBT indicated it would be
willing to increase its offer to $44.50 per share under certain circumstances.
The Special Committee met on February 4, 1997, with representatives of
Goldman Sachs and Hunton & Williams to consider the two offers for the
Corporation. The Special Committee reviewed the terms of the two offers,
considering the substantial negotiations and documentation that had already been
done in connection with the WBT offer; the financing required to consummate the
two offers, including the financing commitment WBT already had obtained; the
additional time necessary to consummate the Alternative Offer; other conditions
to the Alternative Offer, including completion of a due diligence review,
obtaining required financing and agreement by the R. H. Bunzl Interests and the
Corporation's officers and directors (other than Mr. Kight) to vote their shares
in favor of the Alternative Offer; and uncertainties and anticipated costs of
consummating the Alternative Offer over the opposition of the W. H. Bunzl
Interests. These costs would have resulted from the additional legal, accounting
and other fees that the Corporation would incur in structuring and negotiating
final documentation of the Alternative Offer, as well as costs incurred in
connection with the Second Bidder's due diligence review. After discussion, the
Special Committee authorized Goldman Sachs and Hunton & Williams to attempt to
conduct a final round of blind bidding between the two offerors.
Each of the two offerors was told that (i) they should deliver their
final bid to Goldman Sachs no later than the afternoon of February 7, 1997; (ii)
if the Second Bidder's final bid was $1.00 or more per share in excess of WBT's
final bid (which was believed by the Special Committee to approximate reasonably
the relative uncertainties and timing of the two offers), the Corporation would
enter into an agreement with the Second Bidder; and (iii) if the Second Bidder's
final bid was not more than $1.00 per share in excess of WBT's final bid, the
Corporation would enter into an agreement with WBT. The Special Committee was
scheduled to meet on February 7, 1997, to receive and consider the final bids.
During the morning of February 7, 1997, the Corporation became
concerned that one or more of the bidders might provide the Special Committee
with a bid based on a formula tied to the other offeror's bid rather than a bid
for a fixed price per share. The Special Committee believed that such
formula-based bidding could entail further simultaneous negotiations with the
offerors and undermine the Special Committee's stated position that the
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bids presented were to be the offerors' final bids. Each offeror was contacted
and informed that the Special Committee would consider only fixed-price final
bids.
The offer from the Second Bidder nevertheless included a formula-based
component. The Second Bidder offered, in the alternative: (i) $46.00 per share
of Common Stock, in cash, or (ii) if WBT's bid was not less than $45.00 per
share and not more than $46.00 per share, a cash amount equal to $1.01 per share
more than WBT's bid. WBT's final bid was for $46.52 per share of Common Stock,
in cash. Viewed in the light most favorable to the Second Bidder, therefore, its
final bid was for $47.01 per share of Common Stock, in cash. Because WBT's
final bid exceeded the requirement established for the final round, the Special
Committee voted to accept WBT's offer to acquire the Corporation.
During the next twelve days, representatives of the Corporation and WBT
negotiated the final terms of a merger agreement between the Corporation and
WBT (the "WBT Agreement"), WBT and Bunzl plc conducted additional due diligence,
and the Corporation received a copy of the agreement between WBT and Bunzl plc
(the "Fibers Sale Agreement"), including the price to be paid for the Fibers
Business.
On February 19, 1997, the Board of Directors met to consider the WBT
Agreement. Mr. Kight was excused from the meeting immediately. Hunton & Williams
summarized the terms of the WBT Agreement for the Board members, and Goldman
Sachs reviewed with the Board its analysis of the fairness as of February 19,
1997, of the $46.52 per share of Common Stock in cash to be received by the
holders, excluding WBT and its subsidiaries, of Common Stock pursuant to the
WBT Agreement. Members of the Board not on the Special Committee were then
excused and the Special Committee discussed the agreements and the financial
analyses presented by Goldman Sachs, as well as the opinion of Goldman Sachs.
Following this discussion, the Special Committee voted unanimously to recommend
to the Board that it approve the WBT Agreement. The full Board then considered
the Special Committee recommendation and, after additional discussion, approved
the WBT Agreement, with Mr. Kight abstaining due to his affiliation with WBT.
From February through April, 1997, the parties negotiated the form and
contents of the proxy materials, as well as related disclosure matters. On May
1, 1997, the Corporation and certain of the W. H. Bunzl Interests filed a
preliminary proxy statement and a Rule 13e-3 Transaction Statement on Schedule
13E-3 (collectively, the "WBT Proxy Materials") with the Securities & Exchange
Commission (the "SEC") regarding the transaction. On June 6, 1997, the
Corporation received comments from the SEC on the WBT Proxy Materials and from
June 7 through June 13, 1997, prepared a response to the SEC, together with
revised WBT Proxy Materials.
Beginning in the week of June 16, 1997, the W. H. Bunzl Interests
approached Bunzl plc requesting certain amendments to the Fibers Sale Agreement
to which Bunzl plc declined to agree. On June 26, 1997, the Corporation's Board
of Directors was scheduled to meet and discuss the revised WBT Proxy Materials
and recent developments between the W. H. Bunzl Interests and Bunzl plc.
Immediately before the Board meeting, the Corporation received a notice from WBT
that it was electing to terminate the WBT Agreement because the Agreement could
not be closed by June 30, 1997, as provided therein. Mr. Kight was excused from
the meeting and the Board of Directors discussed the appropriate response to
WBT's actions with the Corporation's financial and legal advisors. The Board
decided to acknowledge WBT's election to terminate the WBT Agreement (while
reserving any rights the Corporation might have with respect to such
termination) and to authorize the Special Committee, together with Hunton &
Williams and Goldman Sachs, to pursue alternative means to enhance shareholder
value.
Following the adjournment of the Board meeting, on the evening of June
26, 1997, Bunzl plc indicated orally to representatives of the Corporation that
Bunzl plc would consider an acquisition of all of the outstanding shares of
Common Stock at $46.52 per share; provided that (i) it received assurances that
the transaction could be accomplished quickly and (ii) the W. H. Bunzl Interests
and the R. H. Bunzl Interests
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would agree in advance to vote their shares of Common Stock in favor of the
transaction. From June 27 through June 30, 1997, representatives of the
Corporation and Bunzl plc negotiated the terms of a letter of intent (the "Bunzl
Letter of Intent") and representatives of the Corporation, Bunzl plc, the W. H.
Bunzl Interests and the R. H. Bunzl Interests negotiated the terms of an
agreement with respect to the voting of shares of Common Stock held by the W. H.
Bunzl Interests and the R. H. Bunzl Interests (the "Shareholder Agreement"). The
Bunzl Letter of Intent and the Shareholder Agreement were executed on July 1,
1997.
For the next four weeks, representatives of Bunzl plc conducted a
further business and financial review of the Corporation and representatives of
the Corporation and Bunzl plc negotiated the terms of the Merger Agreement. The
Corporation's Board of Directors met on July 29, 1997, to consider the Merger
Agreement. Hunton & Williams reviewed with the Board the terms of the Merger
Agreement, which are substantially similar to the terms of the WBT Agreement,
and Goldman Sachs reviewed with the Board its analysis of the fairness as of
July 29, 1997, of the $46.52 per share of Common Stock in cash to be received by
the holders of Common Stock, excluding Holdings and its subsidiaries and WBT and
RNBT to the extent they sell shares of Common Stock pursuant to the Acquisition
Agreement, pursuant to the Merger Agreement. After discussion, the Special
Committee recommended approval of the Merger Agreement unanimously, and the
Board of Directors approved the Merger Agreement unanimously.
Reasons for Merger; Recommendation of the Board of Directors
At its July 29, 1997, meeting, the Corporation's Board of Directors
determined that the Merger is fair to, and in the best interests of, the
Corporation and its shareholders. Accordingly, at such meeting, the Board of
Directors approved the Merger Agreement and the Plan of Merger unanimously and
directed that the Merger Agreement and the Plan of Merger be submitted to the
Corporation's shareholders for approval.
THE BOARD OF DIRECTORS
OF THE CORPORATION RECOMMENDS THAT THE
CORPORATION'S SHAREHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT AND THE PLAN OF MERGER.
The determination of the Corporation's Board of Directors to approve
the Merger Agreement and the Plan of Merger was based upon consideration of a
number of factors. The following list, together with the matters discussed in
"-- Background of Merger," includes various factors considered by the Board of
Directors in its evaluation of the Merger:
(i) The Board's familiarity with the business, operations,
competitive position and prospects of the Corporation and the
nature of the industries in which the Corporation
participates, both on a historical and a prospective basis,
including the Board's views: (a) that the Corporation needed
to be able to make more efficient use of its cash reserves to
maximize shareholder value and (b) that its prospects were
affected negatively by the uncertainties about the
Corporation's future ownership;
(ii) The Board's consideration of, among other things, information
with respect to the financial condition, results of operations
and business of the Corporation, on both a historical and a
prospective basis, and the influence of current industry,
economic and market conditions;
(iii) WBT's election to terminate the WBT Agreement;
(iv) The Board's consideration of a number of strategic
alternatives, including an issuer tender offer and possible
sales of parts of the Company's business (None of the
strategic alternatives considered appeared to the Board to be
as favorable to the holders of shares of Common
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Stock as the Merger. The Board noted that (a) there was
substantial uncertainty as to the Corporation's ability to
consummate an alternative transaction or series of
transactions on satisfactory terms within a reasonable time
and (b) if it were to engage in an alternative transaction or
series of transactions in which assets were sold followed by a
liquidation of the Corporation, the net proceeds to the
shareholders likely would be less than the Merger
Consideration at the same or even a greater level of gross
sale proceeds because the gain on any such sale or sales would
be taxable to the Corporation.);
(v) The fact that procedures to elicit proposals to acquire the
Corporation had been implemented and that numerous discussions
had been conducted with likely interested parties in the
context of a prolonged and comprehensive process to maximize
value;
(vi) The Board's review of the historical and prospective market
prices of the Common Stock compared to the Merger
Consideration, including the Board's view that the historical
market prices of the Common Stock did not adequately reflect
the Corporation's value;
(vii) The Board's review of presentations by, and discussion of the
terms and conditions of the Merger with, senior executive
officers of the Corporation, representatives of its legal
counsel and representatives of Goldman Sachs;
(viii) The Board's receipt of the financial analyses presented by
Goldman Sachs, as well as the opinion of Goldman Sachs,
presented on July 29, 1997, to the effect that, based upon
and subject to certain matters as set forth in such opinion,
as of July 29, 1997, the $46.52 per share of Common Stock in
cash to be received by the holders of Common Stock, excluding
Holdings and its subsidiaries and WBT and RNBT to the extent
they sell shares of Common Stock pursuant to the Acquisition
Agreement, pursuant to the Merger Agreement is fair to such
holders (See Opinion of Goldman Sachs attached as Annex II
hereto);
(ix) The Board's consideration of the terms of the Merger
Agreement, including the Corporation's right to terminate the
Merger Agreement if the Board of Directors determines in good
faith, after receiving the advice of its legal counsel, that a
Competing Transaction is in the best interests of the
Corporation and its shareholders and the fact that the terms
of the Merger Agreement were negotiated at arms' length;
(x) The Board's consideration of the high probability that
Holdings would be able to consummate the Merger Agreement;
(xi) The guaranty by Bunzl USA of the obligations of Holdings and
its subsidiaries under the Merger Agreement;
(xii) The difficulty of consummating any transaction over the
objections of either the W. H. Bunzl Interests or the R. H.
Bunzl Interests; and
(xiii) The Board's conclusion that it was in the best interests of
the Corporation and its shareholders to resolve the
uncertainties about the future ownership of the Corporation
without unnecessary delay.
In view of the wide variety of material factors considered in
connection with its evaluation of the Merger, the Board of Directors did not
find it practicable to, and did not attempt to, quantify or otherwise attempt to
assign relative weights to the specific factors considered in reaching its
determination. Nevertheless, the Board of Directors took particular note of:
(i) the comprehensive efforts to elicit proposals to acquire the Corporation,
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(ii) the Board's ability to terminate the Merger Agreement under certain
circumstances, (iii) WBT's election to terminate the WBT Agreement, (iv) the
difficulty of consummating a transaction over the objections of either the W. H.
Bunzl Interests or the R. H. Bunzl Interests, (v) the opinion of Goldman Sachs
and (vi) the need to resolve uncertainties about the Corporation's future
ownership. Although the Board concluded that all of the factors discussed above
supported its conclusion that the Merger is in the best interests of the
Corporation at the present time, these six factors provided particular support.
Opinion of Financial Advisor
On July 29, 1997, Goldman Sachs delivered its opinion to the Board of
Directors of the Corporation that as of July 29, 1997, the $46.52 per share of
Common Stock in cash to be received by the holders of Common Stock, excluding
Holdings and its subsidiaries and WBT and RNBT to the extent they sell shares of
Common Stock pursuant to the Acquisition Agreement, pursuant to the Merger
Agreement is fair to such holders. Goldman Sachs subsequently confirmed its oral
opinion by delivery of its written opinion dated July 29, 1997.
The full text of the written opinion of Goldman Sachs dated July 29,
1997, which sets forth assumptions made, matters considered and limitations on
the review undertaken in connection with the opinion, is attached hereto as
Annex II to this Proxy Statement and is incorporated herein by reference.
Holders of Common Stock are urged to, and should, read such opinion in its
entirety.
In connection with its opinion, Goldman Sachs reviewed, among other
things, (i) the Merger Agreement ; (ii) the Annual Reports to Shareholders and
Annual Reports on Form 10-K of the Corporation for the five years ended December
31, 1996; (iii) certain interim reports to shareholders and Quarterly Reports
on Form 10-Q of the Corporation; (iv) certain other communications from the
Corporation to its shareholders (i.e., press releases, Current Reports on Form
8-K filed by the Corporation, and informal quarterly reports from the
Corporation to its shareholders); and (v) certain internal financial analyses
and forecasts for the Corporation prepared by its management. Goldman Sachs also
held discussions with members of the senior management of the Corporation
regarding the past and current business operations, financial condition, and
future prospects of the Corporation. In addition, Goldman Sachs reviewed the
reported price and trading activity for the Common Stock, compared certain
financial and stock market information for the Corporation with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations and
performed such other studies and analyses as it considered appropriate. Goldman
Sachs' opinion was provided for the information and assistance of the
Corporation's Board of Directors in connection with its consideration of the
Merger Agreement and such opinion does not constitute a recommendation as to how
any holder of Common Stock should vote with respect to the Merger.
Goldman Sachs relied without independent verification upon the accuracy
and completeness of all of the financial and other information reviewed by it
for purposes of its opinion and Goldman Sachs assumed such accuracy and
completeness for purposes of rendering its opinion. In addition, Goldman Sachs
has not made an independent evaluation or appraisal of the assets and
liabilities of the Corporation or any of its subsidiaries, and Goldman Sachs has
not been furnished with any such evaluation or appraisal. Goldman Sachs was
aware that on February 7, 1997 the Second Bidder made a proposal to acquire all
of the outstanding shares of Common Stock, using a formula based price
contingent on the bids submitted by others (contrary to the Special Committee's
stated position that the Special Committee would consider only fixed price final
bids), that viewed in the light most favorable to the Second Bidder amounted to
$47.01 per share of Common Stock . At that time, the Special Committee
determined to recommend entering into the WBT Agreement at $46.52 per share of
Common Stock in cash rather than an agreement with the Second Bidder after
taking into account the relative uncertainties and timing of the two offers.
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The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its opinion to the Corporation's
Board of Directors on July 29, 1997.
(i) Selected Companies Analysis.
Goldman Sachs reviewed and compared certain financial
information relating to the Corporation to corresponding
financial information, ratios and public market multiples for
five publicly traded bonded fiber/cigarette components
manufacturing companies (the "Selected Bonded Fiber
Companies"), six publicly traded plastic products
manufacturing companies (the "Selected Plastic Products
Companies"), four publicly traded flexible packaging
manufacturing companies (the "Selected Flexible Packaging
Companies") and two other publicly traded companies ("Other
Selected Companies," together with the Selected Bonded Fiber
Companies, the Selected Plastic Products Companies and the
Selected Flexible Packaging Companies, the "Selected
Companies"). The Selected Bonded Fiber Companies were: P.H.
Glatfelter Co., DIMON Incorporated, Schweitzer-Maudit
International, Inc., Standard Commercial Corp. and Universal
Corporation. The Selected Plastic Products Companies were:
Furon, O'Sullivan Corp., Park-Ohio Industries, Inc., Spartech
Corp., Tuscarora Inc. and Uniflex, Inc. The Selected Flexible
Packaging Companies were: Applied Extrusion Technologies,
Inc., Bemis Company, Inc., Sealright Co., Inc. and Winpack
Ltd. The Other Selected Companies were: Bunzl plc and
Baumgartner Papiers S.A. The Selected Companies were chosen
because they are publicly-traded companies with operations
that for purposes of analysis may be considered similar to the
various operations conducted by the Corporation. Goldman Sachs
calculated and compared various financial multiples and
ratios. The multiples of the Corporation were calculated
using a price of $33.50 per share of Common Stock, the
closing price of the Common Stock on the Nasdaq National
Market on November 4, 1996, the last date on which the Common
Stock was traded prior to the public announcement by the
Corporation that it had entered into negotiations with WBT
regarding a proposed sale of the Corporation that subsequently
were terminated, as well as a price of $46.52 per share of
Common Stock, and the multiples and ratios for the Corporation
were based on information provided by the Corporation's
management. The multiples for each of the Selected Companies
were calculated using closing market prices for such companies
on July 25, 1997, and except as may be set forth below, the
multiples and ratios for each of the Selected Companies were
based on the most recently publicly available information.
With respect to the Selected Companies, Goldman Sachs
considered, among other multiples and ratios, (i) levered
market capitalization (i.e., market value of common equity
plus book value of debt and preferred stock less cash) as a
multiple of the latest twelve months ("LTM") earnings before
interest, taxes, depreciation and amortization ("EBITDA") (the
"LTM EBITDA Multiple"); (ii) price-to-earnings ratios for 1997
(the "1997 P/E Ratios") (based on Institutional Broker
Estimate System ("IBES") estimates as of July 25, 1997) and
for 1998 (the "1998 P/E Ratios") (based on IBES estimates as
of July 25, 1997 (except for Tuscarora Inc., which was
calculated using IBES estimates for 1997 and the IBES
estimated five year growth rate, in each case, as of July 25,
1997)) for the Selected Companies (in each case, calendarized
to December (except for Spartech Corp., which was calendarized
to October)); (iii) LTM earnings before interest and taxes
("EBIT") margins (the "LTM EBIT Margins"); and (iv) the IBES
five year estimated earnings per share ("EPS") growth rate
(the "IBES Five Year Estimated Growth Rate"). IBES estimates
for 1997 EPS and 1998 EPS have been calculated using IBES
median estimates or, for companies for which such IBES median
estimates were not available, by multiplying the available
IBES EPS estimates by the IBES Five Year Estimated Growth
Rate. EPS estimates for the Corporation were based on
estimates for the three years ended December 31, 1999 provided
by the Corporation's management. The IBES estimates
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for 1997 EPS and for 1998 EPS, in each case, as of July 25,
1997, used in such calculations were: 1.20 and 1.68,
respectively, for P.H. Glatfelter Co., 2.01 and 2.43,
respectively, for DIMON Incorporated, 2.75 and 3.10,
respectively, for Schweitzer-Maudit International, Inc., 2.04
and 2.41, respectively, for Standard Commercial Corp., 3.10
and 3.10, respectively, for Universal Corporation, 2.01 and
2.64, respectively, for Furon, 0.65 and 0.80, respectively,
for O'Sullivan Corp., 1.00 and 1.15, respectively, for
Park-Ohio Industries, Inc., 0.85 and 1.13, respectively, for
Spartech Corp., 1.14 and 1.31, respectively for Tuscarora
Inc., 0.80 and 0.91, respectively, for Applied Extrusion
Technologies, Inc., 2.05 and 2.40, respectively, for Bemis
Company, Inc., 0.45 and 0.75, respectively, for Sealright Co.,
Inc., 1.63 and 1.74, respectively, for Winpack Ltd., 0.29 and
0.30, respectively, for Bunzl plc, and 3.33 and 3.79,
respectively for the Corporation. IBES estimates for 1997 EPS
and for 1998 EPS, in each case, as of July 25, 1997, were not
available for Uniflex, Inc. and for Baumgartner Papiers S.A.
The IBES Five Year Estimated Growth Rate for each of the
Selected Companies were: 5.0% for P.H. Glatfelter Co., 20.0%
for DIMON Incorporated, 15.0% for Schweitzer-Maudit
International, Inc., 20.0% for Standard Commercial Corp.,
16.0% for Universal Corporation, 20.2% for Furon, 10.0% for
O'Sullivan Corp., 15.0% for Park-Ohio Industries, Inc., 14.5%
for Spartech Corp., 15.0% for Tuscarora Inc., not available
for Uniflex, Inc., 13.5% for Applied Extrusion Technologies,
Inc., 14.0% for Bemis Company, Inc., 8.0% for Sealright Co.,
Inc., 12.0% for Winpack Ltd., 7.6% for Bunzl plc, not
available for Baumgartner Papiers S.A. The long term estimated
EPS growth rate for the Corporation based on a three year
estimate ending December 31, 1999, as provided by the
Corporation, is 12.1%. IBES is a data service which monitors
and publishes a compilation of earnings estimates produced by
selected research analysts on companies of interest to
investors.
Goldman Sachs's analyses of the Selected Companies indicated
that (a) LTM EBITDA Multiples ranged from 6.8x to 8.1x for
the Selected Bonded Fiber Companies with a mean of 7.3x, from
4.2x to 9.5x for the Selected Plastic Products Companies with
a mean of 7.5x, from 6.9x to 10.9x for the Selected Flexible
Packaging Companies with a mean of 8.3x, and from 6.3x to
7.7x for the Other Selected Companies with a mean of 7.0x,
compared with an LTM EBITDA Multiple of 3.6x for the
Corporation; (b) 1997 P/E Ratios ranged from 8.0x to 15.6x
for the Selected Bonded Fiber Companies with a mean of 12.4x,
from 13.5x to 17.4x for the Selected Plastic Products
Companies with a mean of 15.0x, from 13.6x to 25.6x for the
Selected Flexible Packaging Companies with a mean of 19.4x,
was 11.0x for Other Selected Companies (only available data
point), and was 23.9x for the S&P 400 Index, compared with
1997 P/E Ratios of 10.1x for the Corporation; (c) 1998 P/E
Ratios ranged from 6.8x to 12.5x for the Selected Bonded Fiber
Companies with a mean of 10.1x, from 11.1x to 13.1x for the
Selected Plastic Products Companies with a mean of 12.2x, from
12.0x to 18.2x for the Selected Flexible Packaging Companies
with a mean of 15.4x, was 10.4x for the Other Selected
Companies (only available data point), and was 22.5x for the
S&P 400 Index, compared to 1998 P/E Ratios of 8.8x for the
Corporation; (d) LTM EBIT Margins ranged from 4.8% to 18.2%
for the Selected Bonded Fiber Companies with a mean of 11.5%,
from 6.5% to 16.4% for the Selected Plastic Products Companies
with a mean of 9.3%, from 3.2% to 11.0% for the Selected
Flexible Packaging Companies with a mean of 8.1%, and from
2.9% to 7.3% for the Other Selected Companies with a mean of
5.1%, compared with a LTM EBIT Margin of 9.7% for the
Corporation; and (e) the IBES Five Year Estimated Growth Rate
ranged from 5.0% to 20.0% for Selected Bonded Fiber Companies
with a mean of 15.2% ranged from 10.0% to 20.2% for the
Selected Plastic Products Companies with a mean of 14.9%,
from 8.0% to 14.0% for the Flexible Packaging Companies with a
mean of 11.9%, and was 7.6% for the Other Selected Companies
(only available data point), compared with a three year
estimated EPS growth rate as provided by the Corporation, of
12.1% for the Corporation.
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(ii) Discounted Cash Flow Analysis. Goldman Sachs performed a
discounted cash flow analysis using the financial projections
provided by the Corporation's management and assuming a range
of discount rates and terminal values. Using a discounted
cash flow analysis, Goldman Sachs estimated the present value
of the future free cash flows (EBITDA minus taxes (assuming
the Corporation had no interest income or expense), capital
expenditures and changes in working capital) set forth in the
Corporation's management projections. Goldman Sachs
calculated a net present value of free cash flows for the
years 1997 through 2005 using discount rates ranging from 10%
to 15% resulting in net present value of free cash flows
ranging from $46.4 million dollars to $59.1 million dollars.
Goldman Sachs calculated the terminal values in the year 2005
of the Corporation's future free cash flows based on multiples
ranging from 4.0x EBITDA to 9.0x EBITDA. These terminal
values were then discounted to present value using discount
rates ranging from 10% to 15% resulting in net present value
of terminal values ranging from $48.2 million dollars to
$161.8 million dollars. Using the discounted cash flow
methodology described above and the projections of the
Corporation's management of future cash flow, the implied
enterprise value of the Corporation ranged from $94.6 million
dollars to $220.8 million dollars. Taking into account the
Corporation's net debt and the costs of exercise of all
outstanding stock options, the implied equity values per fully
diluted share ranged from $36.21 to $67.19.
(iii) Selected Transactions Analysis. Goldman Sachs analyzed
certain information relating to twenty- one selected
transactions in the tobacco, === paper and plastic industries
since January 1, 1993 in which the total value of the
transaction, measured by the enterprise value of the
transaction, ranged from $50 million dollars to $250 million
dollars (the "Selected Transactions"). Such analysis indicated
that for the Selected Transactions (i) the enterprise value of
the transaction as a multiple of LTM sales ranged from 0.3x
to 4.4x, as compared to 0.72x for the enterprise value of the
Corporation (based on the Corporation's 1996 sales), and (ii)
the enterprise value of the transaction as a multiple of LTM
EBIT ranged from 7.5x to 32.7x, as compared to 7.8x for the
total enterprise value of the Corporation (based on the
Corporation's 1996 EBIT) (in each case, based on the $46.52
per share of Common Stock in cash to be received by holders of
Common Stock pursuant to the Merger).
(iv) Analysis at Transaction Price. Goldman Sachs prepared a
financial analysis of the Merger and calculated various
financial multiples assuming that (i) the price per share of
Common Stock is $46.52 per share (cash consideration to be
received by holders of Common Stock in the Merger), (ii) the
fully diluted equity value of the Corporation is $189.6
million dollars, and (iii) the enterprise value (equity value,
plus debt minus cash and cash equivalents) of the Corporation
is $136.6 million dollars. Goldman Sachs calculated multiples
of the enterprise value of the Corporation to: (i) sales, (ii)
EBITDA and (iii) EBIT, for 1996 based on actual 1996 data
provided by the Corporation and for 1997 and 1998 based on
information and projections from the Corporation's management.
This analysis indicated that the multiples of (i) 1996 sales,
1997 estimated sales and 1998 estimated sales were 0.71x,
0.67x and 0.65x, respectively, (ii) 1996 EBITDA, 1997
estimated EBITDA and 1998 estimated EBITDA were 5.8x, 5.3x and
4.7x, respectively, and (iii) 1996 EBIT, 1997 estimated EBIT
and 1998 estimated EBIT were 7.6x, 7.0x and 6.0x,
respectively. In addition, Goldman Sachs calculated multiples
of the fully diluted equity value of the Corporation to net
income. This analysis indicated that the multiples of 1996
net income, 1997 estimated net income and 1998 estimated net
income were 15.2x, 14.0x and 12.3x, respectively.
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The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
the Corporation or the contemplated transaction. The analyses were prepared
solely for purposes of Goldman Sachs' providing its opinion to the Corporation's
Board of Directors as to the fairness, as of July 29, 1997, of the $46.52 per
share of Common Stock in cash to be received by the holders of Common Stock,
excluding Holdings and its subsidiaries and WBT and RNBT to the extent they sell
shares of Common Stock pursuant to the Acquisition Agreement, pursuant to the
Merger Agreement to such holders of Common Stock and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the Corporation or its advisors, neither the Corporation,
Goldman Sachs nor any other person assumes responsibility if future results are
materially different from those forecast. As described above, Goldman Sachs'
opinion to the Board of Directors of the Corporation was one of many factors
taken into consideration by the Corporation's Board of Directors in making its
determination to approve the Merger Agreement. The foregoing summary does not
purport to be a complete description of the analysis performed by Goldman Sachs
and is qualified by reference to the written opinion of Goldman Sachs set forth
in Annex II hereto.
Goldman Sachs, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements, and valuations for estate, corporate and other purposes. The
Corporation selected Goldman Sachs as its financial advisor because it is a
nationally recognized investment banking firm that has substantial experience in
transactions similar to the Merger. Goldman Sachs is familiar with the
Corporation having acted as its financial advisor in connection with the WBT
Agreement, and having acted as its financial advisor in connection with, and
having participated in certain of the negotiations leading to, the Merger
Agreement.
Pursuant to a letter agreement dated June 28, 1996 (the "Engagement
Letter"), the Corporation engaged Goldman Sachs to act as its financial advisor
in connection with the possible sale of all or a portion of the Corporation.
Pursuant to the terms of the Engagement Letter, the Corporation has agreed to
pay Goldman Sachs upon the purchase of 50% or more of the outstanding Common
Stock or the assets (based on the book value thereof) of the Corporation (a
"Sale of the Corporation") in one or a series of transactions, including, but
not limited to, private or open market purchases of stock, a tender offer, a
merger or a sale by the Corporation of its stock or assets, a transaction fee of
1.5% of the Aggregate Consideration (as defined in the Engagement Letter) in
such transactions. Such a fee (a "Transaction Fee") will be paid upon
consummation of a Sale of the Corporation. Pursuant to the terms of the
Engagement Letter, the Corporation paid Goldman Sachs an advisory fee of
$100,000, which will be applied against the Transaction Fee. In addition,
pursuant to a letter agreement dated January 30, 1996, the Corporation engaged
Goldman Sachs to act as its financial advisor to assist the Corporation in its
analysis and consideration of various financial alternatives available to it,
and such other matters agreed upon during the course of Goldman Sachs'
engagement. Pursuant to the terms of the January 30, 1996 letter agreement, the
Corporation paid Goldman Sachs an advisory fee of $100,000, which will be
applied against the Transaction Fee. The Corporation has agreed to reimburse
Goldman Sachs for reasonable out-of-pocket expenses, including fees and
disbursements for Goldman Sachs' attorneys, plus any sales, use or similar taxes
(including additions to such taxes, if any) arising in connection with such
matters referred to in the Engagement Letter. The Corporation has agreed to
indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the federal securities law.
Certain Tax Consequences of the Merger
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The disposition of shares of Common Stock in the Merger will be a
taxable transaction to the holders of Common Stock for federal income tax
purposes and may also be a taxable transaction under applicable state, local,
foreign or other tax laws. Generally, a shareholder will recognize gain or loss
for such purposes equal to the difference between the tax basis for the
shareholder's shares of Common Stock and the amount of Merger Consideration
payable for such shares. For federal income tax purposes, such gain or loss
generally will be a capital gain or loss if the shares of Common Stock are a
capital asset in the hands of the shareholder, and capital gain or loss will be
long-term if the shareholder's holding period is more than one year as of the
Effective Time. There are limitations on the deductibility of capital losses.
The summary of tax consequences set forth above is for general
information only. The tax treatment of each shareholder will depend in part upon
his or her particular situation. Special tax consequences not described herein
may be applicable to particular classes of taxpayers, such as financial
institutions, broker-dealers, persons who are not citizens or residents of the
United States, shareholders who acquired the shares of Common Stock through the
exercise of Stock Options or otherwise as compensation and persons who received
payments in respect of Stock Options and Performance Shares (as hereinafter
defined). ALL SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY STATE, LOCAL AND FOREIGN LAWS.
No Dissenters' Rights
Under the Virginia Act, the shareholders of the Corporation, whether or
not they vote at the Annual Meeting, will not be entitled to dissenters' rights
and will be bound by the terms of the Merger Agreement and the Plan of Merger if
the Merger is consummated.
Anticipated Accounting Treatment
The Merger will be accounted for by Holdings as a "purchase" for
accounting and financial reporting purposes. Under this method of accounting,
the purchase price will be allocated to assets acquired and liabilities assumed
based on their estimated fair values at the Effective Time.
Interests of Certain Persons in the Merger
General. In addition to (i) shares of Common Stock held by directors
and executive officers of the Corporation, for which they will receive the same
consideration as other shareholders of the Corporation, and (ii) Stock Options
granted pursuant to certain Corporation compensation plans, which will be
treated as described under "-- General," certain employees of the Corporation
and its subsidiaries are parties to agreements with the Corporation pursuant to
which significant payments and other benefits may be provided to such persons.
John L. Morgan's Separation from Service Agreement. On February 12,
1997, the Corporation and John L. Morgan, the Chairman of the Corporation,
entered into a separation from service agreement, as amended on July 29, 1997,
whereby Mr. Morgan agreed to resign from all of his positions with the
Corporation and its subsidiaries as of the Effective Time in exchange for a
severance benefit of $800,000 and continued participation in the Corporation's
health insurance plan until December 31, 1999, subject to certain conditions.
The Corporation has agreed to reimburse Mr. Morgan to the extent that he is
subject to any excise tax under Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code") and in an amount sufficient to pay the excise,
income and employment taxes on such reimbursement.
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<PAGE>
John L. Morgan's Consulting Agreement and Noncompetition Agreement.
Prior to the Merger, John L. Morgan will enter into a Consulting Agreement
(the "Morgan Consulting Agreement") whereby Mr. Morgan will agree to serve as a
consultant to Holdings and its subsidiaries and affiliates for a period of two
years and the Corporation and Mr. Morgan will enter into a Noncompetition
Agreement (the "Morgan Noncompetition Agreement") whereby Mr. Morgan will agree
not to compete with the Corporation or any of its subsidiaries or affiliates for
a period of three years. Holdings will pay Mr. Morgan a consulting fee of
$200,000 per year and the Corporation will pay Mr. Morgan a one-time
noncompetition payment of $400,000.
L.C. Drozeski, Jr.'s Severance Benefits Agreement. On July 29, 1997,
the Corporation and L.C. Drozeski, Jr., the President of the Corporation,
entered into a severance benefits agreement (the "Drozeski Agreement") to
encourage Mr. Drozeski to remain with the Corporation during the transition
period with respect to the ownership of the Corporation and to prevent Mr.
Drozeski from being distracted from his operating responsibilities during such
period. Mr. Drozeski will be entitled to the severance benefits described below
if he terminates his employment or if his employment is terminated by the
Corporation without Cause (as hereinafter defined) within three years of the
anniversary of the Effective Time.
The severance benefit will be equal to two times the sum of (i) Mr.
Drozeski's base salary in effect on the date of the severance benefits agreement
and (ii) his most recent bonus payment. The Corporation has agreed to reimburse
Mr. Drozeski to the extent that he is subject to any excise tax under Section
4999 of the Code and in an amount sufficient to pay the excise, income and
employment taxes on such reimbursement.
Cause is defined in the Drozeski Agreement as (i) willful and
continuing neglect by Mr. Drozeski of his duties to the Corporation; or (ii) his
conviction of a felony (including the theft, larceny or embezzlement of the
Corporation's tangible or intangible property).
Stay Bonus and Severance Benefit Letters. On November 7, 1996, eighteen
employees of the Corporation received Stay Bonus and Severance Benefit Letters
to encourage such employees to remain with the Corporation during the transition
period with respect to the ownership of the Corporation and to prevent such
employees from being distracted from their operating responsibilities during
such period. Each such employee will receive a stay bonus equal to 50% of his or
her salary as of the Control Change Date (as defined below) if (i) he or she
continues to work for the Corporation or one of its affiliates until the second
anniversary of the Control Change Date, (ii) his or her employment with the
Corporation or one of its affiliates is terminated without Cause (as defined
below) before the second anniversary of the Control Change Date or (iii) he or
she resigns from employment with the Corporation and its affiliates with Good
Reason (as defined below) before the second anniversary of the Control Change
Date.
Each such employee will receive a severance benefit equal to 100% of his
or her base pay as in effect on the date he or she terminates employment or the
Control Change Date, whichever amount is larger, if (i) his or her employment
with the Corporation and its affiliates is terminated without Cause before the
third anniversary of the Control Change Date or (ii) he or she resigns from the
Corporation and its affiliates with Good Reason before the third anniversary of
the Control Change Date.
On November 7, 1996, thirty-one employees of the Corporation received
Severance Benefit Letters to encourage such employees to remain with the
Corporation during the transition period with respect to the ownership of the
Corporation and to prevent such employees from being distracted from their
operating responsibilities during such period. Each such employee will receive a
severance benefit equal to 100% of his or her base pay as in effect on the date
he or she terminates employment or the Control Change Date, whichever amount is
larger, if (i) his or her employment with the Corporation and its affiliates is
terminated without Cause before the second anniversary of the Control Change
Date or (ii) he or she resigns from the Corporation and its affiliates with Good
Reason before the second anniversary of the Control Change Date.
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<PAGE>
Cause means such employee's willful and continuing neglect of his or
her duties to the Corporation or the conviction of such employee of a felony
(including the theft, larceny or embezzlement of the Corporation's tangible or
intangible property). Change in Control means, among other things, the
consummation of the Merger. Control Change Date means the date that a Change in
Control occurs. Good Reason means the occurrence of one or more of the
following: (i) such employee does not receive salary increases or bonuses
comparable to the salary increases or bonuses that such employee received in
prior years, (ii) such employee's salary or bonus is reduced, (iii) such
employee's status, title, office, working conditions or management
responsibilities are significantly diminished, (iv) such employee's place of
employment is changed by more than 35 miles without such employee's consent, (v)
the Corporation's President or Board of Directors directs that such employee
perform an act or refrain from acting if such act or omission would be illegal,
unethical or a violation of the Corporation's policy or standards or (vi) the
failure of any successor employer to enter into an agreement, satisfactory to
such employee, to assume and agree to provide the benefits described in the
American Filtrona Corporation Severance Pay Plan and/or the American Filtrona
Corporation Severance Benefit Plan, as appropriate.
Acquisition Agreement. WBT , RNBT and Holdings have entered into the
Acquisition Agreement, pursuant to which, upon notice by WBT and RNBT delivered
in advance of the Merger, (i) WBT and RNBT will transfer to WB Parent 959,364
shares of Common Stock; and (ii) concurrently with the effectiveness of the
Merger, WBT and RNBT will sell all of the limited liability company ownership
interests in WB Parent to Holdings (the "WB Ownership Interests"). In exchange
for the WB Ownership Interests, Holdings will deliver to WBT a promissory note
in the amount of $44,629,613.28 (the "Holdings Note"), together with a guaranty
of the Holdings Note executed by Bunzl USA. The Holdings Note will be payable on
April 10, 1998, and bear interest on the outstanding principal sum at the rate
of 5.7% per annum. The Holdings Note is not transferrable and may not be
prepaid. WBT and RNBT have agreed to indemnify Holdings and its affiliates from
and against any and all damage, loss, liability or expense arising from any
misrepresentation or breach of warranty, covenant or agreement made to be
performed by WBT and RNBT pursuant to the Acquisition Agreement.
Effective Time of the Merger
On the Closing Date (or such later date or time as the parties shall
agree), the parties to the Merger Agreement will cause the Articles of Merger
to be executed, delivered and filed with the Virginia Commission. The Effective
Time for the Merger will be upon the issuance of a Certificate of Merger by the
Virginia Commission or such later time as is specified in the Articles of Merger
pursuant to the Virginia Act. See "-- Terms of the Merger - Conditions to the
Merger."
Payment for Shares of Common Stock
As a result of the Merger, holders of certificates formerly
representing shares of Common Stock (the "Certificates") will cease to have any
equity interest in the Surviving Corporation. After consummation of the Merger
all Certificates will be required to be surrendered to the Exchange Agent in
order to receive the Merger Consideration to which holders thereof will be
entitled as a result of the Merger. No interest will be paid or accrued on the
cash payable upon the surrender of Certificates.
Detailed instructions with regard to the surrender of Certificates,
together with a letter of transmittal, will be forwarded by the Exchange Agent
to holders of Certificates promptly following the Effective Time. HOLDERS OF
SHARES OF COMMON STOCK SHOULD NOT SUBMIT THEIR CERTIFICATES TO THE EXCHANGE
AGENT UNTIL THEY HAVE RECEIVED SUCH MATERIALS. Upon surrender of the
Certificates and other required documents to the Exchange Agent, the Exchange
Agent, promptly following its receipt of the Certificates, will distribute the
Merger Consideration (subject to applicable withholding taxes) for each share
represented by such Certificates to the holder thereof.
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<PAGE>
If any portion of the Merger Consideration to be received upon exchange
of an outstanding Certificate or Certificates is to be paid to a person other
than the person in whose name the Certificate surrendered and exchanged therefor
is registered, it shall be a condition of such payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such exchange shall pay in advance any transfer
or other taxes required by reason of the issuance of a check representing cash
to such other person, or establish to the reasonable satisfaction of the
Exchange Agent that such tax has been paid or that no such tax is applicable.
No Solicitation; Fiduciary Duties
The Merger Agreement provides that neither the Corporation nor its
officers, directors or agents may solicit or encourage, in any manner, including
by way of furnishing information, any merger, acquisition or takeover proposal
or offer for the Corporation or its shares or any significant portion of its
assets or businesses, however structured or to be effected, unless the Board of
Directors of the Corporation concludes in good faith, after receiving the advice
of its counsel, that the failure to take such action would violate the fiduciary
obligations of the directors of the Corporation under applicable law.
Government and Regulatory Approvals and Filings
The consummation of the Merger is subject to the expiration or early
termination of the relevant waiting period under the HSR Act as it applies to
the Merger Agreement. The parties have agreed to make and cause their
respective subsidiaries to make all necessary filings, as soon as practicable,
including, without limitation, those required under the HSR Act in order to
facilitate prompt consummation of the Merger and the other transactions
contemplated by the Merger Agreement.
On ______________, 1997, the relevant waiting period under the HSR Act
with respect to the Merger was terminated by the Federal Trade Commission.
Terms of the Merger
The terms of the Merger are set forth in the Merger Agreement that
appears as Annex I to this Proxy Statement, and the description of the Merger
Agreement contained herein is qualified in its entirety by reference to the
Merger Agreement. Shareholders are urged to review the Merger Agreement
carefully.
General. The Merger Agreement sets forth the terms and conditions upon
which the Merger is to be effected. The Merger is contingent upon the approval
of the Merger Agreement and the Plan of Merger by the holders of more than
two-thirds of the outstanding shares of Common Stock at the Annual Meeting and
the satisfaction or waiver of the other conditions to the obligations of the
parties.
At the Effective Time, Merger Subsidiary will merge with and into the
Corporation. The Corporation will be the Surviving Corporation in the Merger.
Pursuant to the Merger, each share of Common Stock issued and outstanding at the
Effective Time will be canceled and converted automatically into the right to
receive the Merger Consideration, other than shares owned by Holdings and its
subsidiaries (which will be automatically canceled and extinguished). Each
outstanding share of common stock of Merger Subsidiary will be automatically
converted into one share of common stock of the Surviving Corporation). As a
result of the Merger, shareholders of the Corporation (other than Holdings and
its affiliates) will cease to have an equity interest in, or possess rights as
shareholders of, the Surviving Corporation.
Amendment, Extension, Waiver. Subject to the applicable provisions of
the Virginia Act at any time prior to the Effective Time, the parties may modify
or amend the Merger Agreement by action of the respective Boards of Directors of
the Corporation, Merger Subsidiary and Holdings. However, after approval of
the Merger
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<PAGE>
Agreement and the Plan of Merger by the shareholders of the
Corporation at the Annual Meeting, no amendment shall be made that, under
applicable law, requires the approval of such shareholders unless such further
shareholder approval shall have been obtained. The Merger Agreement may not be
amended unilaterally by any party.
At any time prior to the Effective Time, the parties may waive (i) any
inaccuracies in the representations and warranties of the other parties
contained in the Merger Agreement or in any document delivered pursuant to the
Merger Agreement or (ii) compliance with any of the agreements or conditions of
the other parties contained in the Merger Agreement, other than the obligations
of each party set forth in the following paragraph and the requirement that
certain consents of governmental entities be obtained.
Conditions to the Merger. The respective obligations of each party to
consummate the Merger are subject to the satisfaction or, where permissible,
waiver of the following conditions: (i) approval of the Merger Agreement and the
Plan of Merger by the requisite vote of the Corporation's shareholders; (ii)
expiration or early termination of all applicable waiting periods under the HSR
Act; (iii) the absence of any pending or threatened proceedings by the SEC
under the proxy rules of the SEC and with respect to the Merger; and (iv) the
absence of (A) any injunction, order, judgment, decree, law or regulation that
would be violated by the Merger with respect to the parties to the Merger
Agreement or their respective officers or directors and (B) any pending or
threatened suit or proceeding that seeks to (1) prohibit, restrict or delay
consummation of the Merger or to limit in any material respect the right of
Bunzl plc to control any material aspect of the business of Holdings and its
subsidiaries or the Corporation and its subsidiaries after the Effective Time,
or (2) to subject Holdings or the Corporation or their respective directors or
officers to material liability on the ground that it or they have breached any
law or regulation or otherwise acted improperly in relation to the Merger;
provided, however, that in the case of any action, suit or proceeding instituted
by a person other than a governmental entity, such action, suit or proceeding
has a substantial likelihood of success in the opinion of legal counsel for the
party invoking this provision.
The obligations of Holdings to consummate the Merger are also subject
to the satisfaction or waiver of the following conditions: (i) receipt of all
material consents and authorizations for which the Corporation is responsible
that are required in connection with the Merger Agreement and the Merger; (ii)
the material accuracy of the representations and warranties contained in the
Merger Agreement, and the performance or compliance in all material respects of
or with the agreements and covenants that are to be performed or complied with
at or prior to the Closing Date made by the Corporation in the Merger Agreement;
(iii) receipt of certain accountant's letters, transfer agent's certificates,
legal opinions, confirmations and closing certificates from the Corporation and
its advisors; (iv) receipt of the written resignations of the directors of the
Corporation, to the extent requested by Holdings; and (v) the receipt of (A)
the Morgan Consulting Agreement and Morgan Noncompetition Agreement and (B) a
severance agreement executed by the Corporation and Mr. Morgan providing for the
termination of Mr. Morgan's employment with the Corporation upon the terms and
conditions described in " The Merger - Interests of Certain Persons in the
Merger - John L. Morgan's Separation from Service Agreement."
The obligations of the Corporation to consummate the Merger are also
subject to the satisfaction or waiver of the following conditions: (i) receipt
of all material consents and authorizations for which Holdings and Merger
Subsidiary are responsible that are required in connection with the Merger
Agreement and the Merger; (ii) the material accuracy of the representations and
warranties contained in the Merger Agreement and the performance or compliance
in all material respects of or with the agreements and covenants that are to be
performed or complied with at or prior to the Closing Date made by Holdings or
Merger Subsidiary in the Merger Agreement; (iii) receipt of certain legal
opinions, confirmations and closing certificates from Holdings and its advisors;
and (iv) the continued applicability of the fairness opinion of Goldman Sachs.
Conduct of Business Pending the Merger. The Corporation has agreed,
pending the Effective Time, to conduct and to cause each of its subsidiaries to
conduct, their respective operations in the ordinary and usual course of
business and consistent with past practice, and, among other things, to use its
reasonable best efforts: (i) to
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<PAGE>
preserve intact its business organization as appropriate in the ordinary course
of business consistent with past practice; (ii) to keep available the services
of its officers and employees; and (iii) to maintain satisfactory relationships
with licensors, suppliers, distributors, customers and others having business
relationships with it. The Corporation has agreed to prepare and file all tax
returns, reports, filings and amendments as required and to allow Holdings to
review those returns, reports, filings and amendments relating to income taxes
prior to the filing thereof. The Agreement also prohibits the Corporation,
except as contemplated by the Merger Agreement or consented to in writing by
Holdings, from taking certain actions, including, but not limited to, incurring
additional debt, assuming or guaranteeing obligations of others, paying
dividends in excess of its regular quarterly amounts or making any other special
distribution to shareholders, creating liens or disposing of certain assets,
making certain capital expenditures and making unusual increases in the
compensation of its employees.
Benefit Plans. Through December 31, 1998 Holdings will (i) continue
in effect all Corporation benefit plans other than any stock or other equity
based plans, including the Employee Stock Ownership Plan of American Filtrona
Corporation (the "Corporation Benefit Plans") covering employees who continue
employment with Holdings or an affiliate or (ii) establish and maintain employee
plans or benefit arrangements for the benefit of such employees that are
reasonably comparable in the aggregate to the Corporation Benefit Plans.
Termination. The Merger Agreement may be terminated at any time prior
to the Effective Time: (i) by mutual written consent of the Board of Directors
of the Corporation and the Board of Directors of Holdings; (ii) by Holdings if
(A) any event shall have occurred as a result of which any condition to the
obligations of Holdings and Merger Subsidiary set forth in the Merger Agreement
is no longer capable of being satisfied; (B) there has been a breach by the
Corporation of any representation or warranty contained in the Merger Agreement
that individually, or in the aggregate with all other such breaches, would have
a material adverse effect on the consolidated financial condition, results of
operations or business of the Corporation and its subsidiaries taken as a whole
(a "Material Adverse Effect"), or there has been a material breach of a covenant
or agreement on the part of the Corporation and the lapse of any applicable cure
period; (C) the Corporation (or its Board of Directors) shall have authorized,
recommended, proposed or publicly announced its intention to enter into a
Competing Transaction that has not been consented to in writing by Holdings; or
(D) the Board of Directors of the Corporation shall have withdrawn or materially
modified its authorization, approval or favorable recommendation to the
shareholders of the Corporation with respect to the Plan of Merger or the Merger
Agreement in a manner adverse to Holdings or shall have failed to make such
favorable recommendation; (iii) by the Corporation if (A) any event shall have
occurred as a result of which any condition to the obligations of the
Corporation set forth in the Merger Agreement is no longer capable of being
satisfied; (B) there has been a breach by Holdings or Merger Subsidiary of any
representation or warranty that individually, or in the aggregate with all other
such breaches, would have or would be reasonably likely to have a material
adverse effect on Holdings and its subsidiaries taken as a whole or the ability
of Holdings or Merger Subsidiary to consummate the Merger, or there has been a
material breach of a covenant or agreement on the part of Holdings or Merger
Subsidiary and the lapse of any applicable cure period; or (C) because of its
receipt of a proposal with respect to a Competing Transaction, the Board of
Directors concludes, in good faith, after receiving advice of its counsel, that
such termination is in the best interests of the Corporation and its
shareholders; or (iv) by the Corporation or Holdings if (A) there shall have
occurred any general suspension of, or limitation on, trading in securities
generally on the Nasdaq Stock Market continuing for a period of fifteen business
days, or a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States continuing for a period of fifteen
business days; (B) any event shall have occurred as a result of which any
condition to the obligations of each party to the Merger Agreement is no longer
capable of being satisfied; or (C) the Merger shall not have been consummated by
December 1, 1997; provided, however, that, in the case of a termination pursuant
to (iv)(B) or (C), the terminating party shall not have breached in any material
respect its obligations under the Merger Agreement in any manner that
proximately contributed to the failure of any such condition to be satisfied or
the failure to consummate the Merger.
If the Merger Agreement is terminated by the Corporation for the reason
described in subsection (iii) (C) above or by Holdings for reasons described in
subsections (ii) (C) or (D) above and there exists a Competing
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<PAGE>
Transaction, the Corporation will pay Holdings the Expenses and, if a Competing
Transaction is consummated on or before July 30, 1998, the Corporation will pay
Holdings the Fee.
Guaranty. Bunzl USA has guaranteed the performance of all obligations
of Holdings and Merger Subsidiary under the Merger Agreement.
MARKET PRICES AND DIVIDEND INFORMATION
The Common Stock is listed and traded on the Nasdaq Stock Market. As of
November 4, 1996, the last date on which the Common Stock was traded prior to
the public announcement by the Corporation that it had entered into negotiations
with WBT regarding a proposed sale of the Corporation that subsequently were
terminated, the high and low sales prices of the Common Stock on the Nasdaq
Stock Market were $33 1/2 per share and $33 per share, respectively. On July 1,
1997, the last date on which the Common Stock was traded prior to public
announcement by the Corporation that it had entered into a letter of intent with
Bunzl plc regarding a proposed sale of the Corporation, the high and low sales
prices of the Common Stock on the Nasdaq Stock Market were $42 3/4 per share and
$41 1/2 per share, respectively. On _______ __, 1997, the latest practicable
trading day before the printing of this Proxy Statement, the high and low sales
prices of the Common Stock on the Nasdaq Stock Market were $_____ per share and
$_____ per share, respectively.
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SELECTED FINANCIAL INFORMATION CONCERNING THE CORPORATION
The selected summary consolidated financial data presented below for
each of the last five fiscal years ended December 31, 1996, and the six months
ended June 30, 1997 and 1996, have been derived from the Corporation's
historical financial statements. This data should be read in conjunction with
the consolidated financial statements and notes thereto of the Corporation
included in the Annual Report on Form 10-K for the fiscal year ended December
31, 1996, and the Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, which is incorporated by reference into this Proxy Statement. See
"Additional Information -- Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
IN THOUSANDS EXCEPT PER SHARE AMOUNTS
SIX MONTHS ENDED
JUNE 30, (UNAUDITED) YEARS ENDED DECEMBER 31,
---------------------- ------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C>
INCOME STATEMENT
DATA
Total Revenues $105,013 $ 97,892 $194,841 $177,848 $150,191 $131,531 $122,868
Income Before Income Taxes 10,808 9,053 19,438 15,554 12,231 10,480 9,720
Income From Continuing
Operations 6,908 5,878 12,438 10,104 7,806 6,705 6,420
Net Income 6,908 5,878 12,438 10,104 11,761 7,316 1,212
PER SHARE (Dollars)
Earnings (Loss)
Continuing Operations 1.81 1.57 3.32 2.70 2.08 1.80 1.73
Discontinued Operations -- -- -- -- 1.05 .16 (1.40)
-------- -------- -------- -------- ------- ------- ------
Net Income 1.81 1.57 3.32 2.70 3.13 1.96 .33
BALANCE SHEET DATA
(at end of period)
Working Capital 65,693 57,674 60,476 54,246 47,016 48,219 31,841
Total Assets 122,661 111,240 117,554 108,266 99,709 87,094 80,542
Total Assets Less
Deferred Research and
Development Charges and
Excess of Cost of Assets
Acquired Over Book Value 118,176 106,346 112,861 103,169 94,276 82,754 75,872
Long-term Debt -- -- -- 650 1,300 -- --
Shareholders' Equity 99,733 88,857 93,397 84,825 78,365 70,966 67,042
CASH DIVIDENDS
DECLARED AND PAID
PER SHARE OF
COMMON STOCK .56 .53 1.09 1.03 .98 .95 .94
</TABLE>
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<PAGE>
ELECTION OF DIRECTORS
Proxies will be voted for the election of the persons named below as
directors for the ensuing year unless otherwise instructed. If the Merger is
consummated, the Board of Directors of the Corporation will be replaced by the
Board of Directors of Merger Subsidiary, until such time as a new Board of
Directors is elected by Holdings, as the sole shareholder of the Corporation.
If for any reason any of the persons named below should become unavailable to be
elected as a director, then the proxies will be voted for such substitute
nominee as the Board of Directors may designate. The Corporation has no reason
to believe that any of the nominees will be unavailable. All of the nominees
currently are members of the Board. The number of shares of Common Stock owned
by each of the nominees is shown in the next section.
Unless otherwise specified in the accompanying form of proxy, it is
intended that votes will be cast for the election of all of the nominees as
directors.
<TABLE>
<CAPTION>
Position with Corporation,
Principal Occupation
for Last 5 Years,
Directorships in Public Director
Name Age Corporations Since
---- --- ---------------------------------- --------
<S> <C>
JOHN D. BARLOW, JR. 62 Vice President -- Finance of the 1982
Corporation.
RUDOLPH H. BUNZL (a) 74 Former Chairman of the Board of the 1954
Corporation (1987-1994), and prior
thereto Chairman and Chief Executive Officer.
MANUEL DEESE 55 Retired (since February 1997); formerly 1986
Executive Vice President,
Major Accounts Business
Unit, of Trigon Blue
Cross Blue Shield, health
care insurer, Richmond,
Virginia. Director of Central Fidelity
National Bank, Richmond, Virginia.
LEO C. DROZESKI, JR. 57 President (since January 1995) and 1993
Chief Operating Officer of the Corporation
(since January 1993), having previously
served as Executive Vice President and Chief
Operating Officer (since January 1993), and
Executive Vice President (since 1992).
BENNETT L. KIGHT 56 Partner, Sutherland, Asbill & Brennan, L.L.P., law 1990
firm, Atlanta, Georgia
JOHN L. MORGAN (a) 62 Chairman (since January 1995) and 1973
Chief Executive Officer of the Corporation, having
previously served as President and Chief Executive Officer.
</TABLE>
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<TABLE>
<CAPTION>
Position with Corporation,
Principal Occupation
for Last 5 Years,
Directorships in Public Director
Name Age Corporations Since
---- --- ---------------------------------- --------
<S> <C>
STANLEY F. PAULEY (a) 69 Chairman and Chief Executive Officer of Carpenter 1976
Company, manufacturer of comfort cushioning products,
Richmond, Virginia.
GILBERT M. ROSENTHAL (a) 71 Retired (since October 1993); formerly 1984
Chairman and Chief Executive Officer of
Standard Drug Company, retail drug chain,
Richmond, Virginia. Director of Jefferson
Bankshares Corporation, Charlottesville,
Virginia.
WALLACE STETTINIUS (a) 64 Retired (since February 1995); formerly 1978
Chairman of Cadmus Communications
Corporation printer and publisher,
Richmond, Virginia (since October 1992),
having previously served as Chairman and
Chief Executive Officer of that
corporation. Director of Cadmus
Communications Corporation and Chesapeake
Corporation, Richmond, Virginia.
BERNARD C. WAMPLER 65 Chairman (since December 1993) and Chief 1990
Executive Officer of Pulaski Furniture
Corporation, manufacturer of furniture,
Pulaski, Virginia, having previously
served as President and Chief Executive
Officer of that corporation. Director of
Pulaski Furniture Corporation.
HARRY H. WARNER 61 Financial Consultant. Director of 1988
Chesapeake Corporation, Richmond,
Virginia; Pulaski Furniture Corporation,
Pulaski, Virginia; and Allied Research
Corporation, Vienna, Virginia.
</TABLE>
(a) Member of Executive Committee
Ten meetings of the Corporation's Board of Directors and two meetings
of its Executive Committee were held during 1996. The Corporation also has
standing Audit, Executive Compensation and Nominating Committees of the Board of
Directors. Three meetings of the Audit Committee, six meetings of the Executive
Compensation Committee and one meeting of the Nominating Committee were held
during 1996. Each of the directors attended at least 75% of the aggregate of the
total number of meetings held by the Board of Directors and committees of the
Board on which he served during 1996.
During 1996, in addition to its formal meetings, the Audit Committee
maintained informal contact with the auditors and management throughout the
year. Messrs. Kight, Rosenthal, Stettinius and Wampler served on the Audit
Committee during 1996. The Audit Committee reviews the Corporation's internal
audit and financial
-35-
<PAGE>
reporting functions and the scope and results of the audit performed by the
Corporation's independent accountants and matters relating thereto and reports
thereon to the Board of Directors.
Messrs. Bunzl, Deese, Pauley and Warner served on the Executive
Compensation Committee during 1996. The Executive Compensation Committee
determines compensation of the Corporation's key executives and administers all
stock option and executive compensation plans of the Corporation.
Messrs. Pauley, Rosenthal and Wampler served on the Nominating
Committee during 1996. The Nominating Committee reviews the qualifications of,
and recommends candidates for, election as directors.
The by-laws provide that a shareholder of the Corporation entitled to
vote for the election of directors may nominate persons for election to the
Board by mailing written notice to the Secretary of the Corporation not later
than (i) with respect to an election to be held at an annual meeting of
shareholders, 60 days prior to such meeting, and (ii) with respect to an
election to be held at a special meeting of shareholders for the election of
directors, the close of business on the seventh day following the date on which
notice of such meeting is first given to shareholders. Such shareholder's notice
shall include (i) the name and address of the shareholder and of each person to
be nominated, (ii) a representation that the shareholder is a holder of record
of stock of the Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate each person specified,
(iii) a description of all understandings between the shareholder and each
nominee and any other person (naming such person) pursuant to which the
nomination is to be made by the shareholder, (iv) such other information
regarding each nominee as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the SEC, had the nominee been nominated by
the Board of Directors and (v) the consent of each nominee to serve as a
director of the Corporation if so elected. The chairman of the meeting may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedure.
SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on its review of the forms required by Section 16(a) of
the Exchange Act that have been received by the Corporation, the Corporation
believes that there has been compliance with all filing requirements applicable
to its officers, directors and beneficial owners of greater than 10% of the
Common Stock.
SECURITY OWNERSHIP
Pursuant to the rules and regulations of the Exchange Act, Rudolph H.
Bunzl, Wallace Stettinius and Thomas S. Word, Jr. may be deemed to be members
of a "group" (as that term is used in Section 13(d)(3) of the Exchange Act) with
respect to all securities of the Corporation owned by each of them, and Bennett
L. Kight and Frances B. Bunzl may also be deemed to be such a "group." Each of
the foregoing persons expressly disavows the existence of any such group by
virtue of the relationships described below and, to the extent any such groups
may be deemed to exist, expressly disclaims membership in any such group and
beneficial ownership of all shares deemed to be beneficially owned as a result
thereof.
Security Ownership of Certain Beneficial Owners
The following table lists any person (including any "group" as that
term is used in Section 13(d)(3) of the Exchange Act) who, to the knowledge of
the Corporation, was the beneficial owner, as of June 30, 1997, of more than
five percent of the outstanding shares of Common Stock. The number of shares
shown under column
-36-
<PAGE>
(3) below excludes shares that may be deemed to be beneficially owned under the
rules and regulations of the Exchange Act as a result of either Rudolph H.
Bunzl, Wallace Stettinius and Thomas S. Word, Jr., or Bennett L. Kight and
Frances B. Bunzl, respectively, being deemed to be a group. Unless otherwise
indicated, all persons have sole voting and investment power over all shares
beneficially owned.
-37-
<PAGE>
<TABLE>
<CAPTION>
(3) Amount and
(2) Name and Nature of
(1) Title Address of Beneficial (4) Percent
of Stock Beneficial Owner Ownership of Class
-------- ---------------- -------------- -----------
<S> <C>
Common Stock Rudolph H. Bunzl 253,775 shares (a) 6.7
5540 Falmouth Street, Suite 305
Richmond, Virginia 23230
Frances B. Bunzl 1,059,720 shares (b) 27.8
3649 Peachtree Rd., Apt. 105
Atlanta, Georgia 30319
Bennett L. Kight 1,059,720 shares (b) 27.8
c/o Sutherland, Asbill, & Brennan
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
Wallace Stettinius 515,540 shares (c) 13.5
P.O. Box 27367
Richmond, Virginia 23261
Thomas S. Word, Jr. 513,540 shares (d) 13.5
P.O. Box 27367
Richmond, Virginia 23261
Quest Advisory Corp. 325,300 shares (e) 8.5
Charles M. Royce
1414 Avenue of the Americas
New York, New York 10019
David L. Babson & Company, Inc. 221,900 shares (f) 5.8
One Memorial Drive
Cambridge, Massachusetts 02142
</TABLE>
(a) Includes 173,339 shares held in a revocable trust of which Rudolph H.
Bunzl is the sole trustee, sole beneficiary and has sole voting and investment
power, and 80,436 shares as to which Rudolph H. Bunzl has shared voting and
investment power. Of the shares in the latter category, 80,000 are held in
certain trusts for the benefit of Rudolph H. Bunzl's wife and others, of which
Rudolph H. Bunzl's wife and Thomas McN.Millhiser are trust committee members,
and the remainder are held by Rudolph H. Bunzl's wife. Rudolph H. Bunzl
disclaims beneficial ownership of 80,436 of such shares and has neither voting
nor investment control thereover. These shares are included in this total only
in order to comply with regulations promulgated under Section 13(d)(3) of the
Exchange Act.
(b) Bennett L. Kight and Frances B. Bunzl are co-trustees of a marital
trust for the benefit of Mrs. Bunzl. Bennett L. Kight and Frances B. Bunzl share
voting and investment power with respect to 429,298 of such shares that are
owned by the trust. Bennett L. Kight disclaims beneficial ownership of all of
such trust shares. In addition, Bennett L. Kight and Frances B. Bunzl share
voting and investment power with respect to 593,622 of such shares, which are
held in certain trusts for the benefit of the children of Walter H. Bunzl, of
which Bennett L. Kight and Frances B. Bunzl are co-trustees or members of the
trust committee, or which one of the trusts has the present right to acquire
prior to the Merger from the children of Frances B. Bunzl. Bennett L. Kight and
Frances B. Bunzl disclaim beneficial ownership of the shares held in all such
trusts. Bennett L. Kight, Frances B. Bunzl and Mrs.
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<PAGE>
Bunzl's children also share voting and investment power with respect to 36,800
shares owned by a charitable foundation of which each is a director. Bennett L.
Kight and Frances B. Bunzl disclaim beneficial ownership of all shares in such
charitable foundation.
(c) Includes 2,000 shares as to which Wallace Stettinius has sole voting
and investment power and 513,540 shares as to which Wallace Stettinius has
shared voting and investment power. All of the shares in the latter category are
held in certain trusts for the benefit of the children of Rudolph H. Bunzl of
which Wallace Stettinius and Thomas S. Word, Jr. are co-trustees. Wallace
Stettinius disclaims beneficial ownership of all shares held in such trusts.
(d) All of such shares are held in certain trusts for the benefit of the
children of Rudolph H. Bunzl of which Thomas S. Word, Jr. and Wallace
Stettinius are co-trustees and share voting and investment power. Thomas S.
Word, Jr. disclaims beneficial ownership of all such shares.
(e) The information contained herein with respect to Quest Advisory Corp.
and Charles M. Royce, is based solely on a Schedule 13G filed by such entities
with the SEC, a copy of which was received by the Corporation on February 10,
1997. Such filing further stated that the acquisition of such shares was in the
ordinary course of business and not in connection with or as a participant in
any transaction having the purpose or effect of changing or influencing the
control of the Corporation.
(f) The information contained herein with respect to David L. Babson &
Company, Inc. is based solely on a Schedule 13G filed by such entity with the
SEC, a copy of which was received by the Corporation on February 18, 1997. Such
filing further stated that the acquisition of such shares was in the ordinary
course of business and not in connection with or as a participant in any
transaction having the purpose or effect of changing or influencing the control
of the Corporation.
The Board of Directors knows of no other person (including any
"group") who is the beneficial owner of more than five percent of the
Corporation's Common Stock.
-39-
<PAGE>
Security Ownership of Certain Management of the Corporation
The following table provides information, as of June 30, 1997, as to
shares of Common Stock owned by each director, the Chief Executive Officer and
the four other most highly compensated officers of the Corporation and by all
directors and officers of the Corporation as a group:
<TABLE>
<CAPTION>
Amount and Nature
Name of Person or Number of of Beneficial Percent of Class if
Persons in Group Ownership (a)(b) more than 1%
- - - - - --------------------------- ----------------- -------------------
<S> <C>
John D. Barlow, Jr. 39,841 shares (c) 1.0
Rudolph H. Bunzl 253,775 shares 6.7
Manuel Deese 400 shares
Leo C. Drozeski, Jr. 52,943 shares (c) 1.4
Bennett L. Kight 1,059,720 shares 27.8
John L. Morgan 121,200 shares (c) 3.2
Stanley F. Pauley 1,100 shares
Gilbert M. Rosenthal 1,000 shares
Wallace Stettinius 515,540 shares 13.5
Bernard C. Wampler 500 shares
Harry H. Warner 1,500 shares
Randall L. Hagan 39,086 shares (c) 1.0
Anthony M. Vincent 18,328 shares (c)
All Officers and Directors as a Group (17) 2,118,682 shares (d) 55.5
</TABLE>
(a) Includes 1,653,946 shares held by spouses, children and in certain trust
relationships, which may be deemed to be beneficially owned by the directors and
officers under the rules and regulations of the SEC, but as to which the
directors and officers disclaim beneficial ownership.
(b) Except in situations described in Note (a) above where beneficial ownership
is disclaimed, and except as set forth in the preceding table and the notes
thereto, the beneficial owner of each share shown in the table has sole voting
and investment power.
(c) Includes 10,500, 15,600, 38,100, 13,000 and 10,900 shares that may be
acquired by Messrs. Barlow, Drozeski, Morgan, Hagan and Vincent , respectively,
on or before August 29, 1997, under the Corporation's stock option plans.
(d) Includes the shares described in Note (c) above and 11,700 shares that may
be acquired by other officers on or before August 29, 1997, under the
Corporation's stock option plans.
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<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table lists all compensation paid by the Corporation to
the Chief Executive Officer and the four other most highly compensated executive
officers of the Corporation for services rendered in fiscal years 1996, 1995 and
1994.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
-------------
Annual Compensation Awards
------------------- ---------
Payouts($)(1)
-------------
Options/ All Other
Name and Salary Bonus SARs Compensation
Principal Position Year ($) ($) (#) (2) ($)
- - - - - ------------------ ---- ------ ------ ------- ------------ ------------
<S> <C>
John L. Morgan 1996 286,000 200,000 15,000 653,625 12,750(3)
Chief Executive Officer 1995 275,000 150,000 15,000 0 11,250
and Chairman 1994 250,000 110,000 0 0 10,500
Leo C. Drozeski, Jr. 1996 195,000 125,000 12,000 466,875 12,750(4)
Chief Operating Officer 1995 175,000 100,000 12,000 0 11,250
and President 1994 154,000 80,000 0 0 10,500
Randall L. Hagan 1996 128,000 60,000 2,500 217,875 14,250(5)
Vice President - Bonded 1995 123,000 49,000 2,500 0 13,500
Fiber Products 1994 118,000 40,000 0 0 12,000
John D. Barlow, Jr. 1996 152,000 25,000 2,500 155,625 12,750(6)
Vice President - Finance 1995 146,600 22,000 2,500 0 11,250
1994 141,400 19,000 0 0 10,500
Anthony M. Vincent 1996 116,500 18,000 1,500 0 11,202(7)
Vice President 1995 112,000 18,000 2,000 0 11,100
1994 107,500 18,000(8) 0 0 6,987
</TABLE>
(1) The amounts in this column represent the value of shares of Common Stock
received at the completion of the 1994-1996 Performance Cycle of the
Corporation's Performance Plan based on per-share prices of $41.00 and
$42.50. No new Performance Shares were issued in 1996 pursuant to the
Performance Plan.
(2) The amounts in this column represent shares of Common Stock issuable upon
the exercise of options.
(3) Includes contributions to the 401(k) Savings and Profit Sharing Plan
($11,625, $10,125 and $9,375) and ESOP ($1,125, $1,125 and $1,125) for 1996,
1995 and 1994, respectively.
(4) Includes contributions to the 401(k) Savings and Profit Sharing Plan
($11,625, $10,125 and $9,375) and ESOP ($1,125, $1,125 and $1,125) for 1996,
1995 and 1994, respectively.
(5) Includes contributions to the 401(k) Savings and Profit Sharing Plan
($13,125, $12,375 and $10,875) and ESOP ($1,125, $1,125 and $1,125) for
1996, 1995 and 1994, respectively.
(6) Includes contributions to the 401(k) Savings and Profit Sharing Plan
($11,625, $10,125 and $9,375) and ESOP ($1,125, $1,125 and $1,125) for 1996,
1995 and 1994, respectively.
(7) Includes contributions to the 401(k) Savings and Profit Sharing Plan
($10,193, $9,990 and $5,862) and ESOP ($1,009, $1,110 and $1,125) for 1996,
1995 and 1994, respectively.
-41-
<PAGE>
(8) In addition, Anthony M. Vincent received a one-time payment of $134,375 in
1994 related to the sale of Dollinger Corporation.
Option/SAR Grants in Last Fiscal Year
The following table provides information on options or Stock Appreciation
Rights ("SAR") grants made during the 1996 fiscal year by the Corporation to the
Chief Executive Officer and the four other most highly compensated executive
officers of the Corporation.
<TABLE>
<CAPTION>
Potential
Realizable
Individual Grants Value at Assumed
-------------------------------------------------- Annual Rates of
Number of % of Total Stock Price
Securities Options/SARs Appreciation for
Underlying Granted to Exercise or Option Term
Options/SARs Employees in Base Price Expiration -------------------
Name Granted (#) Fiscal Year ($) Date 5% ($) 10% ($)
---- ----------- ------------ ----------- ---------- ------- -------
<S> <C>
John L. Morgan 15,000(1) 21.2% 35.00 02/07/06 330,170 836,715
Leo C. Drozeski, Jr. 12,000(1) 17.0% 35.00 02/07/06 264,136 669,372
Randall L. Hagan 2,500(2) 3.5% 35.00 02/07/06 55,028 139,453
John D. Barlow, Jr. 2,500(2) 3.5% 35.00 02/07/06 55,028 139,453
Anthony M. Vincent 1,500(2) 2.1% 35.00 02/07/06 33,017 83,672
</TABLE>
(1) Each of these options was immediately exercisable.
(2) Each of these options becomes exercisable in 20% increments on February 7,
1997, 1998, 1999, 2000 and 2001.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
The following table provides information on option/SAR exercises by
the Chief Executive Officer and the four other most highly compensated executive
officers of the Corporation and the value of each officer's unexercised options.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options/SARs at In-The-Money Options
Acquired Value Fiscal Year-End (#) at Fiscal Year-End ($)(1)
on Realized -------------------- -------------------------
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------ --------- ------------------------- -------------------------
<S> <C>
John L. Morgan 0 0 54,500/23,500 925,000/362,813
Leo C. Drozeski, Jr. 20,800 387,562 12,000/13,600 90,000/211,150
Randall L. Hagan 0 0 16,500/ 5,500 333,656/ 65,125
John D. Barlow, Jr. 0 0 14,100/ 5,300 277,706/ 62,125
Anthony M. Vincent 0 0 9,800/ 3,900 165,425/ 48,350
</TABLE>
(1) Value of unexercised options based on the December 31, 1996, closing price
of $42.50 per share of Common Stock.
-42-
<PAGE>
Retirement Benefits
The following table illustrates annual retirement benefits payable
under the Retirement Plan and the supplemental benefit plan, as amended in 1993
(the "Supplemental Plan"), to participants based on Final Average Earnings and
years of credited service, assuming normal retirement at age 65.
<TABLE>
<CAPTION>
Pension Plan Table
Annual Retirement Benefits Payable for Credited Service of Final Average
-----------------------------------------------------------------------------
Earnings 5 years 10 years 15 years 20 or more years
- - - - - ---------- ------- -------- --------- ----------------
<S> <C>
$100,000................ $ 6,250 $ 12,500 $ 18,750 $ 25,000
150,000................ 9,375 18,750 28,125 37,500
200,000................ 12,500 25,000 37,500 50,000
250,000................ 15,625 31,250 46,875 62,500
300,000................ 18,750 37,500 56,250 75,000
350,000................ 21,875 43,750 65,625 87,500
400,000................ 25,000 50,000 75,000 100,000
450,000................ 28,125 56,250 84,375 112,500
500,000................ 31,250 62,500 93,750 125,000
550,000................ 34,375 68,750 103,125 137,500
600,000................ 37,500 75,000 112,500 150,000
</TABLE>
Under the Retirement Plan, "Final Average Earnings" is the highest
annual average compensation during any five consecutive calendar years within
the ten-year period prior to the date the participant's benefits are determined.
Annual retirement benefits at age 65 for all participants equal 25% of Final
Average Earnings. The benefits under the Retirement Plan may be reduced
depending upon the number of years of service with the Corporation or one of its
subsidiaries or divisions.
To the extent that benefits determined under the Retirement Plan's
benefit formula are reduced because of compensation limitations imposed by the
Internal Revenue Code, they will be paid under the Supplemental Plan.
Benefit amounts are stated as payments in the form of a life annuity
with a guarantee of 120 monthly payments and are in addition to Social Security
benefits. Other actuarially equivalent forms of benefit may be selected.
At December 31, 1996, Messrs. Morgan, Drozeski, Hagan, Barlow and
Vincent had 27, 24, 18, 16 and 17 years of credited service for purposes of
calculating retirement benefits, respectively, and $436,000, $295,000, $177,000,
$174,000 and $134,500 Rates of Earnings, respectively.
The Supplemental Plan provides certain key management personnel with
additional supplemental retirement benefits. The Executive Compensation
Committee selects participants and determines the amount payable to each
participant under the Supplemental Plan. Benefits are paid at retirement and may
be payable at death or disability. A participant's benefit may be reduced
depending on the number of years of service with the Corporation or any of its
subsidiaries. Benefit amounts under the Supplemental Plan are stated as annual
payments in the form of a life annuity with a guarantee of 120 monthly payments.
Benefits are paid in the form of benefit selected by the participant under the
Retirement Plan. At December 31, 1996, Messrs. Morgan and Barlow were entitled
to annual benefits under the Supplemental Plan of $12,000 and $5,000,
respectively, at normal retirement age.
Remuneration of Directors
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<PAGE>
During the year ended December 31, 1996, each of the directors except
Messrs. Barlow, Drozeski and Morgan was paid $750 for attendance at each Board
meeting, $500 for attendance at each meeting of a Committee of the Board of
which he was a member and $6,000 per year as a retainer. Such directors' fees
may, at the director's election, be deferred until retirement. Interest will
accrue thereon semi-annually at an interest rate equal to the 26-week U.S.
Treasury Bill rate in effect on January 1 and July 1 of each year. Each chairman
of a Committee of the Board received $2,000 per year as an additional retainer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
One member of the Executive Compensation Committee, Mr. Bunzl, was the
Chairman of the Board of the Corporation until December 31, 1994, and was
formerly the Chief Executive Officer of the Corporation.
REPORT OF EXECUTIVE COMPENSATION COMMITTEE
The Corporation's executive compensation program, as administered by
the Executive Compensation Committee (the "Committee"), encompasses several
components: base salary, cash bonus and long-term, stock-based incentive awards.
The Committee determines base salaries based on a review of salaries
paid to executives of companies of comparable size and type and on the inflation
rate. The Committee attempts to set base salaries slightly below the middle of
the range of salaries paid by such companies. The companies considered do not
include all of the companies reflected in the Performance Graph on page 42. The
Committee also takes into account level of responsibility, time in position and
past performance in setting base salary. The Committee approved a base salary
for Mr. Morgan for 1996 that reflected an increase of 4% above his 1995 base
salary in response to inflation and to bring his salary more in line with the
Committee's general sense of competitive salaries.
In determining the cash bonuses for the Corporation's executives, the
Committee reviews the Corporation's financial results as well as each
individual's contribution to the Corporation's performance, especially his level
of responsibility and leadership efforts. The procedure is essentially
discretionary and subjective. When establishing Mr. Morgan's cash bonus, the
Committee considers his total cash compensation (base salary and bonus) on a
year to year basis. In determining Mr. Morgan's 1996 cash bonus, the Committee
also reviewed the Corporation's performance for the year, as well as Mr.
Morgan's individual efforts in enhancing that performance and his consistently
strong performance as Chief Executive Officer. Mr. Morgan's cash bonus of
$200,000 was 33% above his 1995 cash bonus. However, his total cash compensation
increased only 14%, which was less than the Corporation's 23% increase in
earnings per share from continuing operations.
In 1996, the Corporation made stock-based incentive awards pursuant to
the Incentive Plan to its executives who have contributed, and are expected to
contribute, to the long-term financial performance of the Corporation. The
Incentive Plan provides for the grant of (i) incentive stock options to purchase
shares of Common Stock at no less than the fair market value of the Common Stock
on the date of grant and (ii) non-qualified stock options to purchase shares of
Common Stock at no less than 85% of the fair market value of the Common Stock on
the date of grant. The Corporation has granted both incentive stock options and
non-qualified stock options pursuant to the Incentive Plan, all of which have
exercise prices of 100% of the fair market value of the Common Stock on the
dates of such grants. The Incentive Plan also provides for the issuance of
performance shares (the "Performance Shares") entitling an executive to receive
one share of Common Stock for each Performance Share that vests after a
pre-determined performance cycle (i) upon continued employment with the
Corporation, (ii) upon satisfaction of certain pre-established performance
goals, including achievement of corporate earnings per share and return on
equity goals, and (iii) at the discretion of the Committee, based on individual
performance. Achievement of these goals inures to the benefit of the
shareholders, as well as the executives. On February 7, 1996, the executives
listed on page 39 were awarded 33,500 options. Mr. Morgan received 15,000 of
such options because of his critical long-term role in the Corporation's
development. No Performance Shares were awarded in 1996.
-44-
<PAGE>
In adopting the Stay Bonus and Severance Benefit arrangements for
certain key employees including Messrs. Drozeski, Barlow, Hagan and Vincent,
described under "The Merger -- Interests of Certain Persons in the Merger," the
Committee considered the importance of protecting the Corporation from efforts
by competitors to hire such employees, and to reduce other distractions, to
which such employees may be exposed during the transition period with respect to
the ownership of the Corporation.
In approving Mr. Morgan's severance arrangements also described above,
the Committee initially attempted to provide him with compensation comparable to
what he would have received if he were permitted by an acquiror of the
Corporation to continue in his present position and at his current compensation
level through his normal retirement date.
Because none of the Corporation's executive officers has received
annual compensation in excess of $1 million, the Corporation has not taken any
position with respect to the cap on tax deductibility of compensation in excess
of that amount established under the Omnibus Budget Reconciliation Act of 1993.
Executive Compensation Committee
Rudolph H. Bunzl
Manuel Deese
Stanley F. Pauley
Harry H. Warner (Chairman)
PERFORMANCE GRAPH
[GRAPH]
Nasdaq
American Non-Financial
Filtrona S&P 500 Stocks
-------- ------- -------------
100.00 100.00 100.00
1992 118.86 107.70 109.39
1993 120.09 118.47 126.30
1994 130.32 120.05 121.44
1995 171.97 165.08 169.24
1996 218.58 203.46 205.62
Assumes $100 invested on January 1, 1992 with dividends reinvested.
-45-
<PAGE>
INDEPENDENT ACCOUNTANTS
Upon appointment by the Corporation's Board of Directors, ratified by
the holders of the shares of Common Stock, Coopers & Lybrand L.L.P., independent
public accountants, audited and reported on the consolidated financial
statements of the Corporation and its subsidiaries for the year ended December
31, 1996. Such financial statements have been incorporated by reference in this
Proxy Statement in reliance upon such report. The Board of Directors, upon
recommendation of its Audit Committee, has designated Coopers & Lybrand L.L.P.,
independent accountants, as auditors of the financial statements for the fiscal
year ending December 31, 1997, subject to shareholder ratification.
Although shareholder ratification of this action is not required under
applicable law, the Board believes it is desirable to afford the shareholders a
vote on this matter. Should this designation not be so ratified, the Board
intends to reconsider its action in light of this result. Representatives of
Coopers & Lybrand L.L.P. are expected to be present at the meeting with the
opportunity to make a statement if they desire to do so and to respond to
appropriate questions.
The Board of Directors of the Corporation recommends that you vote FOR
ratification of the designation of Coopers & Lybrand L.L.P. as independent
accountants to audit and report upon the financial statements of the Corporation
for the year 1997. It is intended that proxies will be voted for ratification
unless instructions to the contrary are given in the proxy.
ADDITIONAL INFORMATION
Incorporation of Certain Documents by Reference
The following documents, filed by the Corporation with the SEC, are
incorporated herein by reference:
(i) the Corporation's Annual Report on Form 10-K filed March 31, 1997,
for the year ended December 31, 1996;
(ii) the Corporation's Quarterly Report on Form 10-Q filed May 7, 1997,
for the quarterly period ended March 31, 1997; and
(iii) the Corporation's Quarterly Report on Form 10-Q filed July 28,
1997, for the quarterly period ended June 30, 1997; and
(iv) the Corporation's Current Reports on Form 8-K filed February 14,
1997, February 28, 1997, and July 8, 1997, and dated February 7, 1997, February
19, 1997, and June 27, 1997, respectively.
All reports and definitive proxy or information statements filed by the
Corporation pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement and prior to the date of the
Annual Meeting shall be deemed to be incorporated by reference into this Proxy
Statement from the dates of filing of such documents. Any statement contained in
a document incorporated or deemed to be incorporated in this Proxy Statement
shall be deemed to be modified or superseded for purposes of this Proxy
Statement to the extent that a statement contained herein or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference modifies or supersedes such statement.
A copy of the documents incorporated herein by reference (excluding
exhibits unless such exhibits are specifically incorporated by reference into
the information incorporated herein) that are not presented herein or delivered
herewith will be provided without charge to each person, including any
beneficial owner, to whom a Proxy Statement is delivered, upon oral or written
request of any such person and by first-class mail or other
-46-
<PAGE>
equally prompt means. Requests should be directed to the Corporate Secretary at
the address set forth below in "Other Matters."
SHAREHOLDER PROPOSALS
If the Merger is consummated, no public annual meetings of shareholders
of the Corporation will be held in the future. If the Merger is not consummated,
the next annual meeting of shareholders of the Corporation will be held on April
28, 1998. Under regulations of the SEC, any shareholder desiring to make a
proposal to be acted upon at that meeting must present such proposal to the
Corporation at its principal office in Richmond, Virginia, by November 13, 1997,
for the proposal to be considered for inclusion in the Corporation's proxy
statement.
In addition to any other applicable requirements, for business to be
properly brought before the annual meeting by a shareholder, even if the
proposal is not to be included in the Corporation's proxy statement, the
Corporation's Bylaws provide that the shareholder must give timely notice in
writing to the Secretary of the Corporation not later than 60 days prior to the
annual meeting. As to each matter, the notice must contain (i) a brief
description of the matter and the reasons for addressing it at the annual
meeting, (ii) the name of, record address of and class and number of shares
beneficially owned by the shareholder proposing such business and (iii) any
material interest of the shareholder in such business.
OTHER MATTERS
The Board of Directors of the Corporation as of August 15, 1997, is
not aware of any matters to be presented for action at the meeting other than
the (i) approval of the Merger Agreement and the Plan of Merger, (ii) election
of directors and (iii) ratification of independent accountants and does not
intend to bring any other matters before the Annual Meeting. However, if any
other matters properly come before the meeting, or any adjournment thereof, the
person or persons voting the proxies will vote in accordance with their
judgment.
A copy of the Corporation's 1996 Annual Report on Form 10-K as required
to be filed with the SEC will be provided on written request without charge to
any shareholder whose proxy is being solicited by the Board of Directors. The
written request should be directed to the Secretary of the Corporation, P.O. Box
31640, Richmond, Virginia 23294.
By Order of the Board of Directors,
ANNE B. GIBBS
Secretary
-47-
<PAGE>
ANNEX I
AGREEMENT OF MERGER
AMONG
FIL HOLDINGS CORP.,
FIL MERGER CORP.
AND
AMERICAN FILTRONA CORPORATION
July 29, 1997
<PAGE>
<TABLE>
<CAPTION>
ARTICLE 1
<S> <C>
THE BUSINESS COMBINATION..........................................................................................2
1.1 The Merger......................................................................................2
1.2 Closing.........................................................................................2
1.3 Effective Time of the Merger....................................................................2
1.4 Articles of Incorporation; Bylaws...............................................................2
1.5 Directors and Officers of the Surviving Corporation.............................................2
ARTICLE 2
CONVERSION AND EXCHANGE OF SHARES; ADDITIONAL ACTION..............................................................3
2.1 Conversion of Shares............................................................................3
(a) AFC Common Stock.......................................................................3
(b) SubCorp Stock..........................................................................3
2.2 Merger Consideration............................................................................3
2.3 Stock Transfer Books............................................................................3
2.4 Surrender and Exchange of Certificates Representing AFC Common Stock...........................3
(a) Exchange Agent.........................................................................3
(b) Surrender of Certificates..............................................................4
(c) Lost Certificates......................................................................4
(d) No Interest............................................................................5
(e) Withholding Rights.....................................................................5
ARTICLE 3
AFC STOCK OPTIONS.................................................................................................5
ARTICLE 4
REPRESENTATIONS AND WARRANTIES....................................................................................6
4.1 Representations and Warranties by AFC...........................................................6
(a) Organization and Qualification.........................................................6
(b) Capitalization.........................................................................6
(c) Authority..............................................................................6
(d) Non-Contravention......................................................................7
(e) Governmental Consents..................................................................7
(f) Periodic Reports.......................................................................8
(g) Subsidiaries...........................................................................8
(h) Financial Statements...................................................................9
<PAGE>
(i) Absence of Certain Changes or Events..................................................10
(j) Governmental Authorization and Compliance with Laws...................................12
(k) Conduct of Business...................................................................12
(l) Tax Matters...........................................................................12
(m) Property..............................................................................13
(n) Material Contracts....................................................................15
(o) Legal Proceedings.....................................................................17
(p) Labor Relations.......................................................................17
(q) Insider Interests.....................................................................18
(r) Intellectual Property.................................................................18
(s) Insurance.............................................................................19
(t) Proxy Statement.......................................................................20
(u) Employee and Fringe Benefit Plans.....................................................20
(v) Major Customers. ....................................................................24
(w) Sections 13.1-725 through 13.1-727.1..................................................24
(x) Environmental.........................................................................24
(y) Accuracy of Schedules, Certificates and Documents.....................................27
(z) Brokers, Finders and Investment Bankers...............................................27
(aa) Inventories and Raw Materials of Fibers Business......................................27
(bb) Receivables of the Fibers Business....................................................27
(cc) Employees of Fibers Business..........................................................28
(dd) Products of the Fibers Business.......................................................28
(ee) Intracompany Accounts.................................................................28
(ff) Foreign Currency Exposures............................................................28
(gg) Company Name..........................................................................29
(hh) Indebtedness..........................................................................29
4.2 Representations and Warranties by Holdings and SubCorp.........................................29
(a) Organization and Qualification, etc...................................................29
(b) Authority.............................................................................29
(c) Non-Contravention.....................................................................30
(d) Governmental Consents.................................................................30
(e) Proxy Statement.......................................................................31
(f) Activities of Holdings and SubCorp....................................................31
(g) Legal Proceedings.....................................................................31
(h) Brokers, Finders and Investment Bankers...............................................31
(i) Obligations to Fund...................................................................31
(j) Absence of Certain Changes............................................................32
ARTICLE 5
ADDITIONAL COVENANTS AND AGREEMENTS..............................................................................32
<PAGE>
5.1 Conduct of Business............................................................................32
(a) Operation by AFC in the Ordinary Course of Business...................................32
(b) Forbearances by AFC...................................................................32
(c) Conduct of the Fibers Business........................................................35
(d) Notices of Certain Events.............................................................35
5.2 AFC Shareholders Meeting.......................................................................35
5.3 Best Efforts; Further Assurances; Cooperation..................................................35
(a) Regulatory Action.....................................................................36
(b) Certain Legal Proceedings.............................................................36
(c) Notice................................................................................36
5.4 Investigation; Confidentiality.................................................................37
5.5 Expenses.......................................................................................37
5.6 Proxy Statement................................................................................37
5.7 Periodic Reports...............................................................................38
5.8 Public Announcements...........................................................................38
5.9 Antitrust Challenges...........................................................................38
5.10 Employee Matters...............................................................................38
(a) Stay Bonuses and Severance Agreements................................................38
(b) Employee Benefit Plan Matters........................................................39
5.11 Accountant's Letters...........................................................................39
5.12 Non Solicitation; Competing Offers.............................................................39
5.13 Investment Securities.........................................................................39
5.14 Filpac Indebtedness............................................................................39
5.15 Settlement of Lawsuits.........................................................................39
ARTICLE 6
CONDITIONS TO THE MERGER.........................................................................................40
6.1 Conditions to Obligations of Each Party........................................................40
(a) AFC Shareholder Approval..............................................................40
(b) HSR Act...............................................................................40
(c) Proxy Statement.......................................................................40
(d) Injunction, etc.......................................................................40
6.2 Conditions to Obligations of Holdings and SubCorp..............................................40
(a) Consents, Authorizations, etc.........................................................40
(b) Representations and Warranties........................................................41
(c) Certificate...........................................................................41
(d) Opinion of AFC's Counsel..............................................................41
(e) Letters from Accountants..............................................................41
(f) Additional Certificates, etc..........................................................41
(g) Resignations..........................................................................41
<PAGE>
(h) Morgan Consulting and Noncompetition Agreements.......................................41
(i) Morgan Severance Agreement............................................................42
(j) Transfer Agent's Certificate..........................................................42
6.3 Conditions to Obligations of AFC...............................................................42
(a) Consents, Authorizations, etc.........................................................42
(b) Representations and Warranties........................................................42
(c) Certificate...........................................................................43
(d) Opinions of Holdings' and SubCorp's Counsel...........................................43
(e) Additional Certificates, etc..........................................................43
(f) Fairness Opinion......................................................................43
ARTICLE 7
TERMINATION AND ABANDONMENT......................................................................................43
7.1 Termination and Abandonment....................................................................43
7.2 Specific Performance...........................................................................45
7.3 Rights and Obligations upon Termination........................................................45
7.4 Certain Fees and Expenses......................................................................45
(a) Expenses..............................................................................46
(b) Fee...................................................................................46
(c) Payment...............................................................................46
7.5 Effect of Termination..........................................................................46
ARTICLE 8
GENERAL PROVISIONS...............................................................................................47
8.1 Waiver of Certain Conditions...................................................................47
8.2 Notices........................................................................................47
8.3 Table of Contents; Headings....................................................................48
8.4 Amendment......................................................................................48
8.5 No Survival of Representations, Warranties or Covenants........................................48
8.6 Severability...................................................................................48
8.7 Waiver.........................................................................................49
8.8 No Third Party Beneficiaries; Assignment.......................................................49
8.9 Time of the Essence; Computation of Time.......................................................49
8.10 Counterparts...................................................................................49
8.11 Governing Law..................................................................................50
8.12 Entire Agreement...............................................................................50
</TABLE>
<PAGE>
LIST OF EXHIBITS
Exhibit A Plan of Merger
Exhibit B-1 Letter Agreement
Exhibit B-2 Irrevocable Proxy
Exhibit C Articles of Merger
Exhibit D Opinion of AFC's Counsel
Exhibit E-1 Form of John L. Morgan's Consulting Agreement
Exhibit E-2 Form of John L. Morgan's Noncompetition Agreement
Exhibit F Opinion of Holdings' Counsel
Exhibit G Opinion of SubCorp's Counsel
LIST OF SCHEDULES
Schedule 3.1 AFC Stock Option Plans
4.1(b) Capitalization
4.1(d) Non-Contravention
4.1(e) Governmental Consents
4.1(g) AFC Subsidiaries
4.1(h)(iii) Fibers Business Liabilities
4.1(i) Certain Changes or Events
4.1(j) Governmental Authorizations and Compliance with
Laws
4.1(j)(ii) Permits
4.1(l) Tax Matters
4.1(m)(i) Possession of Properties
4.1(m)(ii) Fibers Real Property
4.1(m)(iii) Fibers Personal Property
4.1(m)(iv) Headquarters Property
4.1(n) Material Contracts
4.1(o) Legal Proceedings
4.1(p) Labor Relations
4.1(q) Insider Interests
4.1(r) Intellectual Property
4.1(s) Insurance
4.1(u) Employee and Fringe Benefit Plans
4.1(v) Major Customers of AFC
4.1(x) Environmental
4.1(cc) Fibers Business Employees
4.1(ee) Intracompany Accounts
<PAGE>
4.1(ff)(i) Foreign Currency - Products
4.1(ff)(ii) Foreign Currency - Raw Materials
4.1(hh) Indebtedness
5.1 Conduct of Business
5.1(b)(vi) Capital Expenditures
5.10 Stay Bonuses and Severance Agreements
<TABLE>
<CAPTION>
DEFINED TERMS
<S> <C>
AFC........................................................................................................Preamble
AFC Common Stock...............................................................................Background Statement
AFC Financial Statements.............................................................................Section 4.1(h)
AFC Quarterly Report.................................................................................Section 4.1(h)
AFC Stock Option Plans..................................................................................Section 3.1
AFC Stock Options.......................................................................................Section 3.1
AFC Shareholders Meeting...............................................................................Section 4(t)
Acquisition Agreement..........................................................................Background Statement
Affiliate............................................................................................Section 4.1(n)
Agreement..................................................................................................Preamble
Applicable Plan Year-End.............................................................................Section 4.1(u)
Articles of Merger......................................................................................Section 1.3
Associate............................................................................................Section 4.1(n)
best of AFC's knowledge..............................................................................Section 4.1(j)
Bunzl................................................................................................Section 5.4(c)
Buyer Benefit Plans.................................................................................Section 5.10(b)
Certificates.........................................................................................Section 2.4(b)
Closing.................................................................................................Section 1.2
Closing Date............................................................................................Section 1.2
Code.................................................................................................Section 2.4(e)
Commission..............................................................................................Section 1.3
Competing Transaction...................................................................................Section 7.1
Confidentiality Agreement...............................................................................Section 5.4
EEOC.................................................................................................Section 4.1(p)
Effective Time..........................................................................................Section 1.3
Employee Plans.......................................................................................Section 4.1(u)
Environmental Laws...................................................................................Section 4.1(x)
ERISA................................................................................................Section 4.1(u)
ERISA Affiliate......................................................................................Section 4.1(u)
Exchange Act.........................................................................................Section 4.1(f)
Exchange Agent.......................................................................................Section 2.4(a)
Expenses.............................................................................................Section 7.4(a)
<PAGE>
Fee..................................................................................................Section 7.4(b)
Fibers Balance Sheet.................................................................................Section 4.1(h)
Fibers Balance Sheet Date............................................................................Section 4.1(h)
Fibers Business......................................................................................Section 4.1(h)
Fibers Financial Statements..........................................................................Section 4.1(h)
Fibers Intellectual Property Agreement...............................................................Section 4.1(r)
Fibers Intellectual Property Rights.................................................................Section 4.1(r)
Fibers Material Adverse Effect.......................................................................Section 4.1(i)
Fibers Real Property.................................................................................Section 4.1(m)
FTC..................................................................................................Section 4.1(e)
Governmental Entity..................................................................................Section 4.1(e)
hazardous materials..................................................................................Section 4.1(x)
Hazardous Substance..................................................................................Section 4.1(x)
Holdings...................................................................................................Preamble
Holdings Material Contract...........................................................................Section 4.2(d)
HSR Act..............................................................................................Section 4.1(d)
"Immediate Family"...................................................................................Section 4.1(n)
Intellectual Property................................................................................Section 4.1(r)
Intellectual Property Agreement......................................................................Section 4.1(d)
Intellectual Property Agreements.....................................................................Section 4.1(r)
IRS...............................................................................................Section 4.1(u)(i)
Justice..............................................................................................Section 4.1(e)
Lien.................................................................................................Section 4.1(d)
Material Adverse Change..............................................................................Section 4.1(i)
Material Adverse Effect..............................................................................Section 4.1(a)
Material Contract....................................................................................Section 4.1(d)
Material Contracts...................................................................................Section 4.1(n)
Merger.........................................................................................Background Statement
Merger Consideration.................................................................................Section 2.1(a)
multi-employer plan..................................................................................Section 4.1(u)
NASDAQ...............................................................................................Section 2.4(b)
NLRB.................................................................................................Section 4.1(p)
Option Payment..........................................................................................Section 3.1
PBGC.................................................................................................Section 4.1(u)
Plan of Merger.................................................................................Background Statement
Performance Share Awards.............................................................................Section 4.1(b)
Permits..............................................................................................Section 4.1(j)
Permitted Liens......................................................................................Section 4.1(m)
Proxy Statement......................................................................................Section 4.1(t)
Registration Statement...............................................................................Section 4.1(u)
second request.......................................................................................Section 5.3(a)
<PAGE>
SEC..................................................................................................Section 4.1(d)
Securities Act.......................................................................................Section 4.1(f)
SubCorp....................................................................................................Preamble
Subsidiary...........................................................................................Section 4.1(g)
Surviving Corporation...................................................................................Section 1.1
Super Fund...........................................................................................Section 4.1(x)
Super Lien...........................................................................................Section 4.1(x)
Tax Returns..........................................................................................Section 4.1(l)
Taxes................................................................................................Section 4.1(l)
toxic substances.....................................................................................Section 4.1(x)
VSCA....................................................................................................Section 1.1
Waste................................................................................................Section 4.1(x)
</TABLE>
<PAGE>
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (this "Agreement") is made as of July 29, 1997
among AMERICAN FILTRONA CORPORATION, a Virginia corporation ("AFC"), FIL
Holdings Corp., a Delaware corporation ("Holdings") and FIL Merger Corp., a
Virginia corporation ("SubCorp"), which is a wholly-owned subsidiary of
Holdings.
BACKGROUND STATEMENT
Holdings and AFC desire to effect a business combination of AFC and
SubCorp pursuant to the Plan of Merger attached hereto as Exhibit A (the "Plan
of Merger"), by which SubCorp will merge with and into AFC, and the holders of
shares of AFC common stock, $1.00 par value ("AFC Common Stock"), other than
Holdings and any of its Subsidiaries (as hereinafter defined), will receive cash
in exchange for AFC Common Stock, as provided in this Agreement (the "Merger").
The respective Boards of Directors of Holdings, SubCorp and AFC each has, and
Holdings as the sole shareholder of SubCorp has, approved this Agreement and the
Plan of Merger. The Board of Directors of AFC has directed that this Agreement
and the Plan of Merger be submitted to the shareholders of AFC for their
approval.
The parties contemplate that concurrently with the Closing shares of
AFC Common Stock may be indirectly acquired by Holdings from certain parties
pursuant to that certain Acquisition Agreement dated as of the date hereof among
Holdings, RNBT Holdings, LLC, a Georgia limited liability company and WBT
Holdings, LLC, a Georgia limited liability company (the "Acquisition
Agreement").
The parties further contemplate that certain of the shareholders of AFC
will grant an irrevocable proxy pursuant to the Letter Agreement and the
Irrevocable Proxy attached hereto as Exhibit B-1 and Exhibit B-2, respectively,
with respect to the voting of their shares of AFC Common Stock to approve this
Agreement and the Plan of Merger.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein, the parties hereto agree
as follows:
1
<PAGE>
ARTICLE I
THE BUSINESS COMBINATION
1.1 The Merger. Subject to the terms and conditions of this Agreement
and the Plan of Merger, at the Effective Time (as defined in Section 1.3
hereof), SubCorp shall be merged with and into AFC in accordance with the
provisions of this Agreement, the Plan of Merger and the Virginia Stock
Corporation Act (the "VSCA"), and the separate existence of SubCorp shall
thereupon cease, and AFC, as the surviving corporation in the Merger
(hereinafter sometimes referred to as the "Surviving Corporation"), shall
continue its corporate existence under the laws of the Commonwealth of Virginia
as a wholly-owned subsidiary of Holdings. The Plan of Merger provides for the
terms and conditions of the Merger, which terms and conditions are incorporated
herein and made a part of this Agreement by reference. The Merger shall have the
effects provided under the applicable laws of the Commonwealth of Virginia
including, but not limited to, Section 13.1-721 of the VSCA.
1.2 Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Hunton & Williams,
Riverfront Plaza, 951 East Byrd Street, Richmond, Virginia 23219-4074, as soon
as possible after all conditions set forth in Article 6 have been satisfied or
waived in writing but in no event later than the third business day after all
such conditions shall have been satisfied or waived (the "Closing Date") or on
such other date or time as the parties shall agree.
1.3 Effective Time of the Merger. If all the conditions set forth in
Article 6 shall have been fulfilled or waived in accordance with this Agreement
and provided that this Agreement and the Plan of Merger have not been terminated
pursuant to Article 7, the parties shall cause the articles of merger attached
hereto as Exhibit C (the "Articles of Merger") to be executed, delivered and
filed with the State Corporation Commission of the Commonwealth of Virginia (the
"Commission") in accordance with the provisions of the VSCA. The Merger shall
become effective at the time a certificate of merger is issued by the Commission
with respect to the Merger unless a later effective time and date is specified
in the Articles of Merger pursuant to the VSCA (the "Effective Time").
1.4 Articles of Incorporation; Bylaws. The Articles of Incorporation
and Bylaws of AFC shall be amended and restated at the Effective Time in the
form of the Articles of Incorporation and Bylaws of SubCorp as in effect
immediately prior to the Effective Time.
1.5 Directors and Officers of the Surviving Corporation. At the
Effective Time, the persons who are directors and officers of SubCorp at the
Effective Time will become the directors and officers of the Surviving
Corporation.
2
<PAGE>
ARTICLE 2
CONVERSION AND EXCHANGE OF SHARES; ADDITIONAL ACTION
2.1 Conversion of Shares. In accordance with the Plan of Merger, at the
Effective Time, by virtue of the Merger and without any further action on the
part of any holder thereof:
(a) AFC Common Stock. Each issued and outstanding share of AFC
Common Stock, excluding any such shares held by any of AFC's
Subsidiaries and excluding any such shares held by Holdings or any of
its Subsidiaries, shall automatically be converted into only the right
to receive from the Surviving Corporation the consideration for the
Merger as set forth in Sections 2.2 and 2.4 (the "Merger
Consideration"). Each share of AFC Common Stock held by any of AFC's
Subsidiaries or by Holdings or any of its Subsidiaries shall be
automatically canceled and extinguished, and no payment shall be made
in respect thereof.
(b) SubCorp Stock. Each issued and outstanding share of SubCorp
shall automatically be converted into one common share, $1.00 par
value, of the Surviving Corporation. Such shares shall thereafter
constitute all of the issued and outstanding shares of the Surviving
Corporation.
2.2 Merger Consideration. In accordance with the Plan of Merger and
this Agreement, the Merger Consideration to be paid for each share of AFC Common
Stock shall be Forty Six Dollars and 52 cents ($46.52) in cash.
2.3 Stock Transfer Books. From and after the Effective Time, no
transfer of AFC Common Stock outstanding prior to the Effective Time shall be
registered on the stock transfer books of the Surviving Corporation. If, after
the Effective Time, certificates for AFC Common Stock other than shares held by
Holdings and its Subsidiaries are presented to the Surviving Corporation for
transfer, such certificates shall be canceled and exchanged for the
consideration as described in Sections 2.1 and 2.2 and in accordance with the
Plan of Merger.
2.4 Surrender and Exchange of Certificates Representing AFC Common
Stock.
(a) Exchange Agent. Prior to the mailing of the Proxy Statement
(as hereinafter defined) to the holders of record of AFC Common Stock,
Holdings shall appoint ChaseMellon Shareholder Services L.L.C. to act
as exchange agent for the Merger (the "Exchange Agent") pursuant to an
exchange agent agreement reasonably acceptable to AFC and Holdings.
Immediately prior to the Effective Time, SubCorp shall deposit with the
Exchange Agent cash in the amount of (i) the Merger Consideration
payable under
3
<PAGE>
Section 2.1(a) and (ii) the Option Payments payable under Section 3.1
and, pursuant to irrevocable instructions, direct the Exchange Agent to
pay the Merger Consideration.
(b) Surrender of Certificates. Promptly after the Effective
Time, Holdings shall cause the Exchange Agent to mail and otherwise
make available to each record holder as of the Effective Time of an
outstanding certificate or certificates that immediately prior to the
Effective Time represented shares of AFC Common Stock (the
"Certificates"), a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates
to the Exchange Agent) and instructions for use in effecting the
surrender of the Certificates for payment therefor and conversion
thereof, which letter of transmittal shall comply with all applicable
rules and regulations of the NASDAQ Stock Market ("NASDAQ"). Upon
surrender to the Exchange Agent of the Certificates, together with such
letter of transmittal duly executed, the holder of such Certificates
shall be entitled to receive promptly in exchange therefor a check
representing the Merger Consideration to which such holder shall have
become entitled pursuant to Section 2.2 and the Plan of Merger, and the
Certificates so surrendered shall forthwith be canceled. If any portion
of the Merger Consideration to be received upon exchange of a
Certificate is to be paid to a person other than the person in whose
name the Certificate surrendered and exchanged therefor is registered,
it shall be a condition of such payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for
transfer and that the person requesting such exchange shall pay in
advance any transfer or other taxes required by reason of the issuance
of a check representing cash to such other person, or establish to the
reasonable satisfaction of the Exchange Agent that such tax has been
paid or that no such tax is applicable. From the Effective Time until
surrender in accordance with the provisions of this Section 2.4 and the
Plan of Merger, each Certificate (other than Certificates held by
Holdings or any of its Subsidiaries) shall represent for all purposes
only the right to receive the Merger Consideration. All payments in
respect of AFC Common Stock that are made in accordance with the terms
hereof shall be deemed to have been made in full satisfaction of all
rights pertaining to such securities.
(c) Lost Certificates. In the case of any lost, misplaced,
stolen or destroyed Certificate, the holder thereof may be required, as
a condition precedent to delivery to such holder of the Merger
Consideration, to deliver to Holdings an indemnity agreement and a bond
in such reasonable sum as Holdings may direct as indemnity against any
claim that may be made against the Exchange Agent, Holdings or the
Surviving Corporation with respect to the Certificate alleged to have
been lost, misplaced, stolen or destroyed.
4
<PAGE>
(d) No Interest. No interest shall be paid or accrued on
any portion of the Merger Consideration regardless of the cause for
delay in payment of the Merger Consideration.
(e) Withholding Rights. Holdings or the Exchange Agent shall be
entitled to deduct and withhold from the Merger Consideration otherwise
payable pursuant to this Agreement to any holder of shares of AFC
Common Stock and pay to the appropriate tax authority such amounts as
Holdings or the Exchange Agent is required to deduct, withhold and pay
with respect to the making of such payment under the Internal Revenue
Code of 1986, as amended, (the "Code"), or any provision of state,
local or foreign tax law. To the extent that amounts are so withheld by
Holdings or the Exchange Agent, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of
the shares of AFC Common Stock in respect of which such deduction and
withholding was made by Holdings or the Exchange Agent.
ARTICLE 3
AFC STOCK OPTIONS
3.1 Schedule 3.1 lists all plans for the issuance of options to acquire
AFC Common Stock (the "AFC Stock Option Plans") and plans for awards of
performance shares, if any, together with a list of all outstanding and
unexercised options and all awards of performance shares, if any, under those
plans, including as to each option or performance share award, the number of
shares of AFC Common Stock covered by such option or performance share award, if
any, the date of grant of such option or performance share award, if any, and
the date of expiration of such option. True and correct copies of all plans, and
a copy of each form of option and performance share award listed on Schedule 3.1
have been delivered to Holdings. All outstanding options to purchase AFC Common
Stock granted pursuant to the AFC Stock Option Plans shall become exercisable at
the Effective Time and each holder shall receive from the Exchange Agent, as
soon as practicable after the Effective Time, a payment equal to the per share
Merger Consideration less the applicable option exercise price for each share
subject to an outstanding option (each such payment an "Option Payment").
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties by AFC. AFC represents and warrants
to and agrees with Holdings and SubCorp as of the date of this Agreement and as
of the Closing as follows:
(a) Organization and Qualification. AFC is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, has the corporate power and authority to own
all of its properties and assets and to carry on its business as it is
5
<PAGE>
now being conducted, and is duly qualified to do business and is in
good standing in each of the jurisdictions in which the failure to be
so qualified would have a material adverse effect on the consolidated
financial condition, results of operations or business of AFC and its
Subsidiaries, taken as a whole (a "Material Adverse Effect"). The
copies of AFC's Articles of Incorporation and Bylaws, as amended to
date, that have been delivered to Holdings, are complete and correct,
and such instruments, as so amended, are in full force and effect at
the date hereof.
(b) Capitalization. The authorized capital stock of AFC
consists of 10,000,000 shares of AFC Common Stock. All of the issued
and outstanding shares of AFC Common Stock are duly authorized, validly
issued, fully paid and nonassessable, and were not issued in violation
of any preemptive rights. As of the date hereof: (i) 3,817,629 shares
of AFC Common Stock are issued and outstanding; (ii) 257,800 shares of
AFC Common Stock are subject to outstanding options pursuant to the AFC
Stock Option Plans; and (iii) there are no outstanding performance
share awards under the 1988 Performance Share Plan (the "Performance
Share Awards"). Except as set forth on Schedule 3.1 or Schedule 4.1(b)
and in this Section 4.1(b), there are no shares of capital stock of AFC
outstanding, and there are no subscriptions, options, convertible
securities, calls, rights, warrants, performance share awards or other
agreements, claims or commitments of any nature whatsoever obligating
AFC to issue, transfer, register with any securities commission or
other authority, deliver or sell or cause to be issued, transferred, so
registered, delivered or sold, additional shares of the capital stock
or other securities of AFC or obligating AFC to grant, extend or enter
into any such agreement or commitment.
(c) Authority. AFC has the corporate power and authority to
execute and deliver this Agreement and, subject to the receipt of the
approval of this Agreement and the Plan of Merger by the affirmative
vote of more than two-thirds of the outstanding shares of AFC Common
Stock, to consummate the Merger. The execution and delivery by AFC of
this Agreement and the consummation by AFC of the Merger in accordance
with the Plan of Merger have been duly authorized by its Board of
Directors. Except for the approval of this Agreement and the Plan of
Merger by the holders of AFC Common Stock, no other corporate action on
the part of AFC is necessary to authorize the execution and delivery of
this Agreement by AFC or the consummation by AFC of the Merger in
accordance with the Plan of Merger. This Agreement has been duly
executed and delivered by AFC and is a valid, binding and enforceable
agreement of AFC.
(d) Non-Contravention. The execution and delivery of this
Agreement by AFC do not and, subject to the approval of this Agreement
and the Plan of Merger by the holders of AFC Common Stock, the filing
of all necessary forms with the Securities and Exchange Commission (the
"SEC") and the expiration of all applicable waiting periods after the
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<PAGE>
filings required by the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act") referred to in paragraph (e) below, the
consummation by AFC of the Merger, will not (A) violate or conflict
with any provision of the Articles of Incorporation or Bylaws of AFC or
any of its Subsidiaries, or (B) except as set forth on Schedule 4.1(d)
and except insofar as it would not have a Material Adverse Effect,
violate or conflict with, or result (with the giving of notice or the
lapse of time or both) in a violation of or constitute a default under
any provision of, or result in the acceleration or termination of or
entitle any party to accelerate or terminate (whether after the giving
of notice or lapse of time or both), any obligation or benefit under,
or result in the creation or imposition of any Lien (as hereinafter
defined) upon any of the assets or properties of AFC or any of its
Subsidiaries or require consent, authorization or approval of any
person or entity pursuant to any provision of any "Material Contract"
(as hereinafter defined), "Intellectual Property Agreement" (as
hereinafter defined), or law, ordinance, regulation, order, arbitration
award, judgment or decree to which AFC or any of its Subsidiaries is a
party or by which it or its assets or properties are bound and will not
constitute an event permitting termination of any Material Contract or
Intellectual Property Agreement to which AFC or any of its Subsidiaries
is a party or require any additional payment or expense to avoid any
such event. As used herein, a "Lien" with respect to any property
refers to any mortgage, lien, pledge, charge, security interest,
encumbrance or other adverse claim of any kind (including the interest
of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement) relating to such property.
Except for violations, conflicts, defaults, accelerations,
terminations, entitlements, creations or impositions of Liens or other
encumbrances, conflicts or events described on Schedule 4.1(d), no such
event shall cause a Material Adverse Effect or cause any material
damage, additional cost or expense (including any payments or expenses
incurred to obtain consents or waivers) to Holdings or the Surviving
Corporation.
(e) Governmental Consents. Except for the consents described
in Schedule 4.1(e), other than the filing of the Proxy Statement (as
hereinafter defined) with the SEC, filings with the Federal Trade
Commission (the "FTC") and the Department of Justice ("Justice") as
required by the HSR Act and the filing of the Articles of Merger with
the Commission, no consent, authorization, clearance, order or approval
of, or filing or registration with, any executive, judicial or other
public authority, agency, department, bureau, division, unit or court
or other public person or entity (any of which is hereinafter referred
to as a "Governmental Entity") is required for or in connection with
the execution and delivery of this Agreement by AFC and the
consummation by AFC of the Merger.
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(f) Periodic Reports. Since January 1, 1993, AFC has timely
filed all forms and reports with the SEC required to be filed by it
pursuant to the Securities Act of 1933 (the "Securities Act") and the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and
the SEC rules and regulations thereunder, all of which have complied as
of their respective filing dates in all material respects with all
applicable requirements of the Securities Act and the Exchange Act, and
the rules promulgated thereunder, except for such statements, if any,
as have been modified by subsequent filings. AFC has delivered all such
forms and reports to Holdings. None of such forms or reports at the
time filed contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except for such statements,
if any, as have been modified by subsequent filings.
(g) Subsidiaries. AFC owns, directly or indirectly, all the
outstanding capital stock of each of its Subsidiaries, free and clear
of all Liens and all such capital stock is duly authorized, validly
issued and outstanding, fully paid and nonassessable, and except as set
forth in Schedule 4.1(g), neither AFC nor any of its Subsidiaries has
made any material investment in, or material advance of cash or other
extension of credit to, any person, corporation or other entity other
than its Subsidiaries. None of such Subsidiaries has any commitment to
issue or sell any shares of its capital stock or any securities or
obligations convertible into or exchangeable for, or giving any person
(other than AFC) any right to acquire from such Subsidiary, any shares
of its capital stock, and no such securities or obligations are
outstanding. Each of AFC's Subsidiaries is a corporation duly organized
and validly existing in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority
to own all of its properties and assets and to carry on its business as
it is now being conducted. Each of AFC's Subsidiaries is duly qualified
to do business and is in good standing in all jurisdictions where such
qualification is required and where failure to so qualify would have a
Material Adverse Effect. As used in this Agreement, the term
"Subsidiary" means, with respect to any person, corporation or other
entity, any corporation or other organization, whether incorporated or
unincorporated, of which at least a majority of the securities or
interests having by the terms thereof voting power to elect a majority
of the board of directors or others performing similar functions with
respect to such corporation or other organization is at that time
directly or indirectly owned or controlled by such person, corporation
or other entity, or by any one or more of its Subsidiaries, or by such
person, corporation or other entity, and one or more of its
Subsidiaries.
(h) Financial Statements.
(i) AFC has previously furnished Holdings with a true
and complete copy of the balance sheets of AFC as of December
31, 1994, 1995 and 1996 and the related statements of income,
shareholders' equity and cash flows for the years then ended,
including the notes thereto, certified by Coopers & Lybrand
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L.L.P., independent certified public accountants, and the
financial statements of AFC, including the notes thereto,
contained in the AFC Annual Report on Form 10-K for the year
ended December 31, 1996 and with the balance sheets of AFC as
of March 31, 1997 and June 30, 1997, and the related statements
of income, shareholders' equity and cash flows for the periods
then ended, contained in the AFC Quarterly Reports on Form 10-Q
for the periods ended March 31, 1997 and June 30, 1997. AFC
will furnish to Holdings as soon as available true and complete
copies of the comparable financial statements of AFC as of
September 30, 1997 and the fiscal period then ended, if the
Closing has not occurred prior to the date of such financial
statements' availability. All of the foregoing financial
statements are referred to hereunder as the "AFC Financial
Statements." The AFC Financial Statements have been or will be
prepared from, and are or will be in accordance with, the books
and records of AFC and present or will present fairly the
consolidated financial position, results of operations and cash
flows of AFC and its Subsidiaries taken as a whole as of the
dates and for the periods indicated, in each case in conformity
with generally accepted accounting principles, consistently
applied, except as otherwise stated in the AFC Financial
Statements and, for statements covering interim periods,
include or will include all adjustments (consisting only of
normal recurring accruals) that are necessary for the fair
presentation of the consolidated financial position, results of
operations and cash flows of AFC and its Subsidiaries.
(ii) AFC has previously furnished Holdings with a true
and complete copy of the balance sheets of the assets used by
AFC in conducting the business consisting of AFC's Bonded
Fibers Segment (the "Fibers Business") as of December 31, 1995,
September 30, 1996, December 31, 1996 and March 31, 1997 and
the related statements of income for the periods then ended and
will furnish to Holdings true and complete copies of the
comparable financial statements of the Fibers Business as of
June 30, 1997 and September 30, 1997 and the fiscal periods
then ended, if the Closing has not occurred prior to the date
of such financial statements' availability (the "Fibers
Financial Statements"). The Fibers Financial Statements have
been or will be prepared from, and are or will be in accordance
with, the books and records of AFC and present or will present
fairly the financial position and results of operations of the
Fibers Business as of the dates and for the periods indicated,
in each case in conformity with generally accepted accounting
principles, consistently applied, except that:
(A) The statements do not or will not contain
disclosure notes.
(B) The statements do not or will not reflect any
income taxes.
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<PAGE>
(C) The statements do not or will not reflect any
allocations of corporate overhead.
The Fibers Financial Statements covering interim periods
include or will include all adjustments (consisting only of
normal recurring accruals) that are necessary for the fair
presentation of the financial position and the results of
operations of the Fibers Business.
(iii) There are no liabilities of the Fibers Business of
any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, other than:
(A) liabilities provided for in the balance sheet
of the Fibers Business (the "Fibers Balance Sheet") at
December 31, 1996 (the "Fibers Balance Sheet Date")
included in the Fibers Financial Statements;
(B) liabilities disclosed or described on Schedule
4.1(h)(iii); and
(C) other liabilities incurred in the ordinary
course of business of the Fibers Business since the
Fibers Balance Sheet Date that, individually or in the
aggregate, are not material to the business, financial
condition or results of operations of the Fibers
Business, taken as a whole.
(i) Absence of Certain Changes or Events. Except as disclosed
in Schedule 4.1(i) or in any report filed by AFC with the SEC prior to
the date of this Agreement, since December 31, 1996, there has not
been: (i) any Material Adverse Change (as used in this Agreement,
"Material Adverse Change" means any material adverse change in the
business, financial condition or results of operations of AFC and its
Subsidiaries taken as a whole); (ii) any damage, destruction, loss or
casualty to property or assets of AFC or any of its Subsidiaries,
whether or not covered by insurance, that would have a Material
Adverse Effect; (iii) any strike, work stoppage or slowdown or other
labor trouble involving AFC or any of its Subsidiaries that would have
a Material Adverse Effect; (iv) any declaration, setting aside or
payment of any dividend or distribution (whether in cash, capital stock
or property) with respect to the capital stock of AFC other than the
regular quarterly cash dividend at the rate of $0.28 per share on AFC
Common Stock to be declared on or about July 29, 1997; (v) any
redemption or other acquisition by AFC of any of the capital stock of
AFC (except for the acquisition of AFC Common Stock in payment of the
exercise price upon the exercise of AFC Stock Options and payment of
performance share related withholding taxes); (vi) any split,
combination, reclassification or other similar change in the
outstanding AFC Common Stock; (vii) any incurrence, assumption or
guarantee of any indebtedness for borrowed money with respect to the
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<PAGE>
Fibers Business; (viii) creation of any Lien involving an amount in
excess of $10,000 with respect to any assets of the Fibers Business;
(ix) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the Fibers Business or any asset of the
Fibers Business that, individually or in the aggregate, has had or
could reasonably be expected to have a material adverse effect on the
financial condition, results of operations or business of the Fibers
Business (a "Fibers Material Adverse Effect"); (x) any transaction or
commitment made, or any contract or agreement entered into, by AFC
relating to the Fibers Business or any asset of the Fibers Business
(including the acquisition or disposition of any assets) or any
relinquishment by AFC of any contract or other right, in either case
involving an amount in excess of $25,000, other than transactions and
commitments in the ordinary course of business consistent with past
practices and those contemplated by this Agreement; (xi) any change in
any method of accounting or accounting practice by AFC with respect to
the Fibers Business except for any such change required by reason of a
concurrent change in GAAP; (xii) any (A) employment, deferred
compensation, severance, retirement or other similar agreement entered
into with any employee of the Fibers Business (or any amendment to any
such existing agreement), (B) grant of any severance or termination pay
to any such employee or (C) change in compensation or other benefits
payable to any such employee pursuant to any severance or retirement
plans or policies, other than in the ordinary course of business
consistent with past practice; (xiii) any labor dispute, other than
routine individual grievances, or any activity or proceeding by a labor
union or representative thereof to organize any employees of the Fibers
Business, or any lockouts, strikes, slowdowns, work stoppages or
threats thereof by or with respect to such employees; (xiv) any capital
expenditure, or commitment for a capital expenditure, for additions or
improvements to property, plant and equipment with respect to the
Fibers Business exceeding $100,000 in the aggregate; (xv) any
disposition of any capital asset of the Fibers Business involving an
amount in excess of $25,000; (xvi) with respect to the Fibers Business,
any loss of any significant customer or customer accounts or any
significant decrease in the sales volume to any significant customer;
or (xvii) any agreement to do any of the foregoing. Since December 31,
1996, there has not been any issuance by AFC of any shares, or options,
calls or commitments relating to shares of its capital stock, or any
securities or obligations convertible into or exchangeable for, or
giving any person any right to acquire from it, any shares of its
capital stock other than the issuance of stock options, performance
shares or shares of AFC Common Stock pursuant to the AFC Stock Option
Plans and except as set forth on Schedule 4.1(b).
(j) Governmental Authorization and Compliance with Laws. Except
as set forth on Schedule 4.1(j) and except insofar as the failure to do
so would not have a Material Adverse Effect, AFC and its Subsidiaries
(i) are in compliance with all laws, orders, regulations, policies and
guidelines of all Governmental Entities applicable to AFC and its
Subsidiaries or their businesses or properties and assets, and (ii)
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<PAGE>
have all permits, certificates, licenses, approvals and other
authorizations required in connection with the operation of their
businesses. Schedule 4.1(j)(ii) correctly describes each license,
franchise, permit or other similar authorization affecting, or relating
in any way to the Fibers Business or, with respect to the business,
assets, or operations of AFC or any of its Subsidiaries, required by
any Environmental Law (as defined below), together with the name of the
Governmental Entity issuing such license or permit or requiring such
notice (the "Permits") with an indication of which Permits affect or
relate in any way to the Fibers Business. Except as set forth on
Schedule 4.1(j)(ii), such Permits are valid and in full force and
effect, and none of the Permits will be terminated or impaired or
become invalid, in whole or in part, as a result of the Merger. As of
the date hereof, no notice has been issued and, to the best of AFC's
knowledge (as defined below), no investigation or review is pending or
is contemplated or threatened by any Governmental Entity (Y) with
respect to any alleged violation by AFC or any Subsidiary of any law,
order, regulation, policy or guideline of any Governmental Entity, or
(Z) with respect to any alleged failure to have all permits,
certificates, licenses, approvals and other authorizations required in
connection with the operation of the business of AFC and its
Subsidiaries. Neither AFC nor any Subsidiary is in violation of any
judgment, decree, injunction, ruling or order of Governmental Entity
binding on AFC or such Subsidiary the violation of which would have a
Material Adverse Effect. As used in this Agreement, the "best of AFC's
knowledge" and any other reference to the knowledge of AFC or its
officers or directors shall mean the actual knowledge, without
independent investigation, of John L. Morgan, Leo C. Drozeski, Jr.,
John D. Barlow Jr., Randall L. Hagan, Anthony M. Vincent and Bruce A.
Nylander.
(k) Conduct of Business. Since December 31, 1996, AFC and its
Subsidiaries have conducted their businesses in the ordinary and usual
course consistent with prior practice.
(l) Tax Matters. Except as set forth on Schedule 4.1(l), (i)
all material Taxes (as defined below) due and payable by AFC and its
Subsidiaries have been paid and are
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<PAGE>
not delinquent; (ii) to the extent required by GAAP, estimates for all
Taxes due but not yet payable for all periods through December 31, 1996
have been accrued on the books of AFC, and adequate reserves have been
established therefor as of the end of such periods; (iii) all material
Taxes due and payable by AFC and its Subsidiaries for all periods
through December 31, 1996 have been paid or provided for in the AFC
Financial Statements and are not delinquent; (iv) as of the date
hereof, there are no pending claims asserted for Taxes against AFC or
any of its Subsidiaries or outstanding agreements or waivers extending
the statutory period of limitation applicable to any tax return of AFC
or any of its Subsidiaries for any period; (v) AFC and each of its
Subsidiaries have duly and timely filed all material federal, state,
local and foreign tax returns and all other returns heretofore required
to be filed ("Tax Returns") with respect to all Taxes. AFC has
delivered to Holdings true and correct copies of all federal income Tax
Returns for the 1993, 1994 and 1995 taxable periods. AFC has not filed
a consent to the application of Section 341(f) of the Code. AFC has
made all estimated federal income tax deposits and, for all currently
open taxable periods, has complied in all material respects with the
tax withholding provisions and employment tax provisions of all
applicable federal, state, local and other laws. "Taxes" shall mean all
taxes arising under the Code or arising under any federal, state, local
or foreign law, rule, regulation or order including, without
limitation, any income, profits, employment, sales, gross receipts,
use, occupation, excise, real property, personal property or ad valorem
taxes or any license or franchise fee or tax and all penalties and
interest related thereto.
(m) Property. (i) AFC or one of its Subsidiaries has good and
marketable title to all properties and assets reflected in the balance
sheet dated December 31, 1996 (or acquired after that date), and valid
leasehold interests in all properties and assets not reflected on such
balance sheet but used by AFC or a Subsidiary in its business, free and
clear of any title defects, liens, charges, pledges, security
interests, adverse claims, or other encumbrances, except (A) mortgages
and liens securing debt reflected as liabilities on such balance sheet,
(B) liens for current taxes and assessments not in default, (C)
mechanics', carriers', workmen's, repairman's, statutory or common law
liens either not delinquent or being contested in good faith and (D)
Liens, encumbrances, covenants, rights-of-way, minor imperfections of
title, building or use restrictions, easements, exceptions, variances,
reservations and other matters or limitations of any kind, if any, that
do not have a Material Adverse Effect. Except as set forth on Schedule
4.1(m)(i), no person other than AFC or one of its Subsidiaries is
currently entitled to possession of any of the properties of AFC,
whether owned, leased or used by AFC or one of its Subsidiaries. To the
best of AFC's knowledge, the real property, buildings, structures and
improvements owned, leased or used by AFC or any of its Subsidiaries
conform to all applicable laws, ordinances and regulations, including
zoning regulations, none of which would upon consummation of the Merger
materially adversely interfere with the use of such properties,
buildings, structures or improvements for the purposes for which
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<PAGE>
they are now utilized. The properties and assets owned or leased by AFC
are adequate in all material respects for the conduct of its businesses
as presently conducted.
(ii) Schedule 4.1(m)(ii) correctly describes all real property
used in the Fibers Business (the "Fibers Real Property"), that AFC
owns, leases or subleases, any title insurance policies and surveys
with respect thereto, and any Liens thereon, specifying in the case of
leases or subleases, the name of the lessor or sublessor, the lease
term and the basic annual rent.
(iii) Schedule 4.1(m)(iii) constitutes a depreciation schedule
at December 31, 1996 of all machinery, equipment, furniture, vehicles,
storage tanks and other trade fixtures and fixed assets that are owned
by AFC and used in the Fibers Business.
(iv) Schedule 4.1.(m)(iv) constitutes a depreciation schedule
at December 31, 1996 of all machinery, equipment, furniture, vehicles,
storage tanks and other trade fixtures and fixed assets that are owned
by AFC and located in the headquarters building.
(v) AFC has good and marketable, indefeasible, fee simple title
(subject only to Permitted Liens) to, or in the case of leased property
has valid leasehold interests in, all property used in the Fibers
Business (whether real, personal, tangible or intangible) and reflected
on the Fibers Balance Sheet of AFC at December 31, 1996, or acquired
after that date, except for assets sold since that date in the ordinary
course of business consistent with past practices.
(vi) No property used in the Fibers Business is subject to any
Lien, except:
(A) Liens disclosed on the Fibers Balance Sheet;
(B) Liens for taxes not yet due or being contested in
good faith (and for which adequate accruals or reserves have
been established on the Fibers Balance Sheet); and
(C) Liens, covenants, rights-of-way, zoning restrictions
and other encumbrances or restrictions of record that do not
materially detract from the value of such assets as now used in
the Fibers Business, or materially interfere with any present
or intended use of such assets (clauses (A), (B) and (C) are,
collectively, the "Permitted Liens").
(vii) No violation of any law, regulation or ordinance
(including, without limitation, laws, regulations or ordinances
relating to zoning, city planning or similar matters) relating to the
Fibers Business or any asset used in the Fibers Business currently
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<PAGE>
exists or has existed at any time, except for violations which have not
had and would not reasonably be expected to have, individually or in
the aggregate, a Fibers Material Adverse Effect.
(n) Material Contracts. Schedule 4.1(n) contains a correct and
complete list as of the date hereof, of the following (hereinafter
referred to as the "Material Contracts"):
(i) except for investment securities held by AFC or
any of its Subsidiaries, all bonds, debentures, loan
agreements, notes, mortgages, deeds to secure debt, deeds of
trust and guaranties to which AFC or any Subsidiary is a party
or by which AFC or any Subsidiary or its properties or assets
are bound;
(ii) all leases (whether capital or operating)
involving an annual commitment or annual payments of $25,000 or
more under which AFC or any Subsidiary is the lessee of real or
personal property, and all leases of property used in the
Fibers Business with a (A) book value in excess of $10,000 or
(B) fair market value in excess of $25,000, specifying the name
of the lessor or sublessor, the lease term and basic annual
rent;
(iii) all employment and consulting agreements between
AFC or any Subsidiary and any person or entity;
(iv) all existing contracts and commitments (other
than those described in subparagraphs (i), (ii) or (iii), and
any Employee Plans (as hereinafter defined) to which AFC or any
Subsidiary is a party or by which AFC or any Subsidiary or its
properties or assets may be bound involving either (A) annual
payments of $25,000 or more or (B) aggregate payments of
$50,000 or more;
(v) any collective bargaining agreements;
(vi) any agreement for the purchase of materials,
supplies, goods, services, equipment or other assets for the
Fibers Business providing for (A) annual payments of $25,000 or
more, (B) aggregate payments of $25,000 or more or (C) the
purchase of more than 90 days usage of raw materials;
(vii) any sales, distribution or other similar
agreement providing for the sale of materials, supplies, goods,
services, equipment or other assets of the Fibers Business that
provides for either (A) annual payments of $25,000 or more or
(B) aggregate payments of $50,000 or more;
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(viii) any partnership, joint venture or other similar
agreement or arrangement with respect to the Fibers Business;
(ix) any agreement relating to the deferred purchase
price of property of the Fibers Business (whether incurred,
assumed, guaranteed or secured by any asset), except any such
agreement with an aggregate outstanding principal amount not
exceeding $25,000 and which may be prepaid on not more than 30
days notice without the payment of any penalty;
(x) any option, license, franchise or similar
agreement with respect to the Fibers Business or any assets
used in the Fibers Business;
(xi) any agency, dealer, sales representative,
marketing or other similar agreement with respect to the Fibers
Business;
(xii) any agreement that limits the freedom of AFC to
compete in any line of business or with any person or entity or
in any area or to own, operate, sell, transfer, pledge or
otherwise dispose of or encumber any asset used in the Fibers
Business or that would so limit the freedom of the Surviving
Corporation, Holdings or any of Holdings' Affiliates after the
Closing Date;
(xiii) any agreement providing for any purchase or sale
obligations with respect to the Fibers Business with a duration
of such obligations in excess of six months;
(xiv) any agreement with or for the benefit of (A) any
Affiliate (as defined below) of AFC; (B) any person or entity
directly or indirectly owning, controlling or holding with
power to vote, 5% or more of the outstanding voting securities
of AFC or any of its Affiliates, (C) any person or entity 5% or
more of whose outstanding voting securities are directly or
indirectly owned, controlled or held with power to vote by AFC
or any of its Affiliates or (D) any director or officer of AFC
or any of their respective Affiliates or any "Associates" or
members of the "Immediate Family" (as used in this Agreement,
the terms "Affiliate", "Associate" or "Member of the Immediate
Family" being respectively defined in Rule 12b-2 or Rule 16a-1
promulgated under the Exchange Act) of such person or entity;
and
(xv) any other agreement, commitment, arrangement or
plan with respect to the Fibers Business not made in the
ordinary course of business that is material to the business,
financial condition, results of operations or properties of the
Fibers Business.
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Subject to Section 5.4(a) hereof, true and complete copies of all
Material Contracts, including all amendments thereto, have been
delivered to Holdings. Except as set forth on Schedule 4.1(n): (i) all
Material Contracts are in full force and effect and constitute the
valid and binding obligations of AFC and, to the best of AFC's
knowledge, the other parties thereto; (ii) there has not been and there
currently is no breach of any Material Contract by AFC or any of its
Subsidiaries or, to the best of AFC's knowledge, any other party
thereto in any material respect; (iii) no event has occurred that
(whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute a default by AFC or any
of its Subsidiaries thereunder entitling another party to terminate a
Material Contract; and (iv) the continuation, validity and
effectiveness of all such Material Contracts under the current terms
thereof and the current rights and obligations of AFC or any of its
Subsidiaries thereunder will in no way be affected, altered or impaired
by the consummation of the Merger. Except as disclosed in Schedule
4.1(n), there are no contracts or options to sell or lease any material
properties or material assets of AFC or any of its Subsidiaries other
than in the ordinary course of business.
(o) Legal Proceedings. Except as set forth in Schedule 4.1(o):
(i) there is no claim, action, suit, proceeding or investigation
pending or, to the best of AFC's knowledge, contemplated or threatened
against AFC or any of its Subsidiaries or any of their respective
properties or assets (or any of its officers or directors in connection
with the business of AFC and its Subsidiaries) before any arbitrator or
Governmental Entity, domestic or foreign, that, in the event of a final
adverse determination as to any claim made therein, considered
individually or in the aggregate with all such other unscheduled
claims, actions, suits or proceedings, would have a Material Adverse
Effect, or that seeks treble damages, seeks damages in connection with
the Merger or seeks to prohibit, restrict or delay consummation of the
Merger or any of the conditions to consummation of the Merger or to
limit in any material manner the right of Holdings to control the
Surviving Corporation or any aspect of the business of AFC or its
Subsidiaries after the Effective Time, nor is there any judgment,
decree, injunction, ruling or order of any Governmental Entity,
arbitrator or any other person outstanding against AFC or any of its
Subsidiaries having any such effect; and (ii) neither AFC nor any of
its Subsidiaries is a party to or bound by any judgment, decree,
injunction, ruling or order of any Governmental Entity, arbitrator or
any other person against AFC or any of its Subsidiaries that, when
considered individually or in the aggregate with all such other
judgments, decrees, injunctions, rulings or orders, would have a
Material Adverse Effect.
(p) Labor Relations. AFC is in compliance in all material
respects with all federal and state laws respecting employment and
employment practices, terms and conditions of employment, wages and
hours, and is not engaged in any unfair labor or unlawful employment
practice. Except as set forth in Schedule 4.1(p), (i) there is no
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unlawful employment practice or discrimination charge pending before
the Equal Employment Opportunity Commission ("EEOC") or any EEOC
recognized state "referral agency;" (ii) there is no unfair labor
practice charge or complaint against AFC or any Subsidiary pending
before the National Labor Relations Board ("NLRB"); (iii) there is no
labor strike, dispute, slowdown or stoppage actually pending or, to the
best of AFC's knowledge, threatened against or involving or affecting
AFC or any of its Subsidiaries; (iv) there is no NLRB representation
question respecting any of its employees; (v) there is no grievance or
arbitration proceeding pending and no written claim therefor exists;
and (vi) there is no collective bargaining agreement that is binding on
AFC or any of its Subsidiaries. Except for any Material Contract
disclosed pursuant to Section 4.1(n), neither AFC nor any of its
Subsidiaries is a party to or bound by any agreement, arrangement or
understanding with any employee or consultant that cannot be terminated
on notice of ninety (90) or fewer days without liability to AFC or a
Subsidiary or that entitles the employee or consultant to receive any
salary continuation or severance payment or retain any specified
position with AFC or a Subsidiary.
(q) Insider Interests. Except for this Agreement and as
disclosed or incorporated by reference in the AFC's 1996 Annual Report
on Form 10-K, AFC's proxy statement for its 1996 annual meeting of
shareholders, or on Schedule 4.1(q), no known affiliate, officer or
director of AFC or any Subsidiary (i) has any agreement with AFC or any
of its Subsidiaries or any interest in any property, real or personal,
tangible or intangible, including without limitation trade names or
trademarks used in or pertaining to the business of AFC or any of its
Subsidiaries, except for the normal rights as a shareholder, or (ii) as
of the date hereof, to the best of AFC's knowledge, has any claim or
cause of action against AFC or any of its Subsidiaries, except for
accrued compensation and benefits, expenses and similar obligations
incurred in the ordinary course of business (including reimbursement of
medical expenses pursuant to Employee Plans) with respect to directors
or employees of AFC or any of its Subsidiaries.
(r) Intellectual Property. Schedule 4.1(r) lists all patents,
trademarks, service marks, trade names, copyrights, or applications for
the foregoing and all computer programs, firmware and documentation
relating thereto used in the Fibers Business (other than computer
software generally available to the public and having a purchase price
of less than $1,000 per application) or used by AFC or any of its
Subsidiaries ("Intellectual Property") with an indication of any that
are owned or licensed by or to AFC or any affiliate of AFC or used or
held for use in the Fibers Business currently (the "Fibers Intellectual
Property Rights"). AFC or a Subsidiary of AFC owns or, to the extent
disclosed on Schedule 4.1(r), has adequate rights to use all
Intellectual Property that is material to the operation of AFC's or any
of its Subsidiaries' businesses as of the date hereof (the Agreements
relating thereto are referred to as the "Intellectual Property
Agreements", all of which are listed on Schedule 4.1(r) with an
indication of any such
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agreements that relate to the Fibers Intellectual Property Rights,
which agreements are referred to herein as the "Fibers Intellectual
Property Agreements"). As to any Intellectual Property owned by AFC or
any Subsidiary, such Intellectual Property is owned free and clear of
all material claims of others, including employees, former employees or
independent contractors of AFC or any of its Subsidiaries, and neither
AFC nor any of its Subsidiaries has received notice that the use of
such Intellectual Property in the business of AFC or the Subsidiaries
of AFC violates or infringes upon the claimed rights of others. As to
the Intellectual Property Agreements, except as set forth in Schedule
4.1(r), (i) all such agreements are in full force and effect, (ii)
neither AFC nor any of its Subsidiaries, nor to the best of AFC's
knowledge any other party thereto, is in material default under any
such agreement, (iii) neither AFC nor any of its Subsidiaries is
obligated to make any royalty or similar payments under any such
agreements except as stated therein, and (iv) the rights of AFC or any
of its Subsidiaries under such agreements will not be affected by the
consummation of the Merger. Except as set forth in Schedule 4.1(r),
neither AFC nor any of its Subsidiaries has granted to any person any
license or other right to use in any manner any of the Intellectual
Property owned by AFC or any of its Subsidiaries or has granted any
sublicense or right to use any Intellectual Property licensed to AFC or
any of its Subsidiaries under the Intellectual Property Agreements.
Schedule 4.1(r) specifies as to each Fibers Intellectual Property
Right, as applicable: (i) the nature of such Fibers Intellectual
Property Right; (ii) the owner of such Intellectual Property Right;
(iii) the jurisdictions by or in which such Fibers Intellectual
Property Right is recognized without regard to registration or has been
issued or registered or in which an application for such issuance or
registration has been filed, including the respective registration or
application numbers; and (iv) licenses, sublicenses and other
agreements as to which AFC or any of its affiliates is a party and
pursuant to which any person or entity is authorized to use such Fibers
Intellectual Property Right, including the identity of all parties
thereto, a description of the nature and subject matter thereof, the
applicable royalty and the term thereof. With respect to the Fibers
Intellectual Property Rights, AFC has not during the three years
preceding the date of this Agreement been a defendant in any action,
suit, investigation or proceeding relating to, or otherwise been
notified of, any alleged claim or infringement of any patents,
trademarks, service marks or copyrights, and to the best of AFC's
knowledge there are no other claims or infringements by AFC or any
person or entity of any Fibers Intellectual Property Rights. No Fibers
Intellectual Property Right is subject to any outstanding judgment,
injunction, order, decree or agreement restricting the use thereof by
AFC with respect to the Fibers Business or restricting the licensing
thereof to any person or entity. AFC has not entered into any agreement
to indemnify any other person or entity against any charge of
infringement of any patent, trademark, service mark or copyright.
(s) Insurance. Schedule 4.1(s) lists all insurance policies or
contracts and fidelity bonds providing coverage to AFC and its
Subsidiaries as of the date hereof with
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an indication of any that relate to the business, operations, employees
or assets of the Fibers Business. All such policies or contracts of
insurance have been provided to Holdings and are, in the opinion of
AFC's Chief Financial Officer, of a scope and in an amount usual and
customary for businesses engaged in the businesses of AFC and its
Subsidiaries and are sufficient for compliance with all requirements of
law and of all agreements to which AFC or any of its Subsidiaries is a
party as of the date hereof. All insurance policies and fidelity bonds
or other policies and bonds providing substantially similar insurance
coverage pursuant to which any such insurance is provided have been in
effect since 1992 and remain in full force and effect, and no effective
notice of cancellation or termination of any such insurance policies
has been given to AFC or any of its Subsidiaries by the carrier of any
such policy or comparable insurance. Through the date hereof, all
premiums required to be paid in connection therewith have been timely
paid in full. There is no claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by
the underwriters of such policies or bonds or in respect of which such
underwriters have reserved their rights.
(t) Proxy Statement. The information in the definitive proxy
statement ("Proxy Statement") that will be distributed to shareholders
of AFC in connection with the meeting of such shareholders to approve
this Agreement and the Plan of Merger (the "AFC Shareholders Meeting"),
other than information supplied by Holdings or its authorized
representatives for use in the Proxy Statement will not, on the date or
dates the Proxy Statement is first mailed to shareholders of AFC and at
the time of the AFC Shareholders Meeting, as the Proxy Statement is
then amended or supplemented, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading or necessary to
correct any statement in any earlier filing with the SEC of the Proxy
Statement or amendment thereto or any earlier communication in the
preparation of which AFC participated (including the Proxy Statement)
to shareholders of AFC with respect to the Merger.
(u) Employee and Fringe Benefit Plans.
(i) Schedule of Plans. Schedule 4.1(u) to this
Agreement lists each of the following plans that AFC or any of
its Subsidiaries or any ERISA Affiliate (as defined below)
either maintains, is required to contribute to or otherwise
participates in (or at any time during the preceding three
years maintained, contributed to or otherwise participated in)
or as to which AFC or any of its Subsidiaries or any ERISA
Affiliate has any unsatisfied liability or obligation, whether
accrued, contingent or otherwise:
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(A) any employee pension benefit plan (as such
term is defined in the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")),
(B) any "multi-employer plan" (as such term is
defined in ERISA), or
(C) any other generally applicable compensation
plan, written welfare or fringe benefit plan or any
stock, retirement or retiree medical plan, of any kind
whatsoever, not included in the foregoing and providing
for benefits for, or the welfare of, any or all of the
current or former employees or agents of AFC or any of
its Subsidiaries or any ERISA Affiliate or their
beneficiaries or dependents,
(all of the foregoing in items (A), (B), and (C) being referred
to as "Employee Plans"). "ERISA Affiliate" means each trade or
business (whether or not incorporated) which together with AFC
or any of its Subsidiaries is treated as a single employer
pursuant to Code Section 414(b), (c), (m) or (o). AFC has
provided to Holdings copies of the following: (1) each written
Employee Plan, as amended (including either the original plan
or the most recent restatement and all subsequent amendments);
(2) the most recent Internal Revenue Service ("IRS")
determination letter issued, if applicable; (3) the most recent
annual report on the Form 5500 series; (4) each trust
agreement, insurance contract or document setting forth any
other funding arrangement, if any, with respect to each
Employee Plan; (5) the most recent ERISA summary plan
description or other summary of plan provisions distributed to
participants or beneficiaries for each Employee Plan; (6) each
opinion or ruling from the IRS, the Department of Labor or the
Pension Benefit Guaranty Corporation ("PBGC") concerning any
Employee Plan; and (7) each current Registration Statement,
amendment thereto and prospectus relating thereto filed with
the SEC or furnished to participants in connection with any
Employee Plan if applicable.
(ii) Qualification. Except as set forth in Schedule
4.1(u), each Employee Plan that is intended to be a qualified
Plan under Code Section 401 or 501: (A) has received a current
favorable determination letter from the IRS to the effect that
the form of the plan satisfies Code Section 401(a) and that its
trust is tax-exempt under Code Section 501(a); (B) is not
currently subject to any assertion by any governmental agency
that it is not so qualified; and (C) to the best of AFC's
knowledge has been operated substantially in accordance with
its terms.
(iii) Accruals; Funding.
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(A) Employee Pension Benefit Plans. AFC has
provided to Holdings copies of actuarial valuation
reports as of the end of each Employee Plan's most
recently ended fiscal year (or, each Employee Plan's
second most recently ended fiscal year if the required
information is not yet available for such Employee
Plan's most recently ended fiscal year) (such year end,
as applicable, being referred to as the "Applicable Plan
Year-End"), for each Employee Plan subject to ERISA
Title IV (including those for retired, terminated or
other former employees and agents). Except as set forth
in Schedule 4.1(u), none of the Employee Plans subject
to ERISA Title IV has: (I) incurred any "accumulated
funding deficiency" (as such term is defined in ERISA);
(II) incurred employer liability with respect to any of
such Plans as determined in accordance with ERISA
Sections 4062 or 4063; (III) become subject to a Lien
under Section 4.12(n); or (IV) been the subject of a
minimum funding waiver. Except as set forth in Schedule
4.1(u), the actuarially computed present value of the
benefits of each such Employee Plan, accrued to the
Applicable Plan Year-End, does not exceed the value of
the assets of such Employee Plan. There have been no
material changes in the financial condition of any of
the Employee Plans since the Applicable Plan Year-End.
(B) Other Plans. AFC has provided to Holdings
information describing any liabilities under any retiree
medical, dental or life insurance arrangement.
(C) Contributions. Except as disclosed in Schedule
4.1(u): (I) AFC, and its Subsidiaries and each ERISA
Affiliate have in all material respects made full and
timely payment of all amounts required to be contributed
under the terms of each Employee Plan and applicable
law, or required to be paid as expenses under such
Employee Plan, including PBGC premiums and amounts
required to be contributed under Code Section 412; and
(II) no excise taxes or Liens are assessable against
AFC, its Subsidiaries or any ERISA Affiliate as a result
of any nondeductible or other contributions made or not
made to an Employee Plan or any other plan of an ERISA
Affiliate.
(iv) Reporting and Disclosure. Summary plan descriptions
and all other returns, reports, registration statements,
prospectuses, documents, statements and communications which
are required to have been filed, published or disseminated
under ERISA or other federal law and the rules and regulations
promulgated by the Department of Labor under ERISA and the
Treasury Department or by the SEC with respect to the Employee
Plans have been so filed, published or disseminated
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<PAGE>
or if not so filed, published or disseminated, such failure to
file, publish or disseminate will not result in a Material
Adverse Effect.
(v) Prohibited Transactions; Terminations; Other
Reportable Events. Except as set forth in Schedule 4.1(u), with
respect to the Employee Plans neither AFC, any Subsidiary of
AFC, any ERISA Affiliate, any of the Employee Plans, any trust
or arrangement created under any of them, nor any trustee,
fiduciary, custodian, administrator nor any person or entity
holding or controlling assets of any of the Employee Plans has
engaged in any "prohibited transaction" (as such term is
defined in ERISA or the Code) for which there is no exception
which could subject any of the foregoing persons or entities,
or any person or entity dealing with them, to any tax, penalty
or other cost or liability of any kind except for any tax,
penalty, cost or liability that would not have a Material
Adverse Effect; and no "reportable event" (as such term is
defined in ERISA) has occurred with respect to any Employee
Plan subject to Title IV of ERISA; and no investigation by a
Governmental Entity is currently underway or threatened with
respect to any Employee Plan.
(vi) Claims for Benefits. Except as set forth in
Schedule 4.1(u), with respect to the Employee Plans, other than
claims for benefits arising in the ordinary course of the
administration and operation of the Employee Plans, as of the
date hereof, no claims, investigations or arbitrations are
pending or threatened against any Employee Plan or against AFC,
any Subsidiary of AFC, any ERISA Affiliate, any trust or
arrangement created under or as part of any Employee Plan, any
trustee, fiduciary, custodian, administrator or other person or
entity holding or controlling assets of any Employee Plan, and
to the best of AFC's knowledge, no basis to anticipate any such
claim or claims exists.
(vii) Other. With respect to the Employee Plans, each
of AFC, each Subsidiary of AFC and all ERISA Affiliates have
substantially complied with all of their obligations under each
of the Employee Plans and with all provisions of ERISA and the
Code and any and all other law applicable to the Employee Plans
except insofar as a failure to comply would not have a Material
Adverse Effect. No written notice has been received by AFC or
any Subsidiary of AFC of any claim by any participant in the
Employee Plans of any violations of such laws, and to the best
of AFC's knowledge, no such claims are pending or threatened.
(viii) Creation of Obligations By Reason of Merger.
Except as set forth in such Schedule 4.1(u), the execution of
this Agreement or the consummation of the Merger will not
constitute an event under any Employee Plan that will or may
result in any payment (whether of severance pay or otherwise),
acceleration,
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forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any
employee, including any obligation to make a payment that would
be nondeductible under Code Section 280G or any other Code
provision.
(ix) No Multi-Employer Plans. Except as set forth in
Schedule 4.1(u), none of the Employee Plans is a Multi-Employer
Plan, and neither AFC, any Subsidiary of AFC nor any ERISA
Affiliate has any liability, joint or otherwise, for any
withdrawal liability (potential, contingent or otherwise) under
ERISA Title IV for a complete or partial withdrawal from any
Multi-Employer Plan.
(v) Major Customers. Schedule 4.1(v) sets forth (i) the name of
each customer of AFC or any of its Subsidiaries that during the year
ended December 31, 1996, generated revenue of $1,000,000 or more of
tobacco filters or $250,000 or more of medical diagnostic kit
components or other bonded fibers products or $1,000,000 or more of any
other products, (ii) the volume of such revenue from such customer for
such year, and (iii) the name of each such customer as to which AFC has
received a termination notice or a notice of a decrease or intended
decrease in sales volume or any intent to terminate or adversely modify
in any material respect its contractual or business relationship with
the Fibers Business as a result of the consummation of the Merger.
(w) Sections 13.1-725 through 13.1-727.1. The Board of
Directors of AFC has taken all action necessary to make the provisions
of Sections 13.1-725 through 13.1- 727.1 of the VSCA inapplicable to
the Merger and the transactions contemplated pursuant thereto and
hereunder, including without limitation approval of (i) the Merger and
(ii) the acquisition, pursuant to the Acquisition Agreement and
pursuant to the irrevocable proxies granted on the date hereof in the
form of Exhibit B-2 attached hereto, by Holdings of beneficial
ownership of more than 10% of the outstanding shares of AFC Common
Stock, by a majority of AFC's "disinterested directors" (as defined in
Section 13.1-725 of the VSCA with respect to the Merger and such
acquisitions by Holdings).
(x) Environmental. Except as set forth in Schedule 4.1(x):
(i) no generation, storage, presence, contamination,
transport, emission, discharge or "release" (as such term is defined in
42 U.S.C. ss. 9601(22)) of any Hazardous Substance (as defined below)
exists or is occurring (or has existed or occurred) from, or upon, any
property owned, leased, used or controlled at any time by AFC or any of
its Subsidiaries in any manner that constituted or constitutes a
violation of, or that reasonably could be expected to give rise to
liabilities or obligations under any applicable Environmental Law;
(ii) there is no past or present action, activity,
event, condition or circumstance (A) that could be reasonably expected
to require AFC or any of its
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Subsidiaries to incur costs of removal, remediation, response or
corrective action (and the terms "removal," "remediation," "response"
and "corrective action" include the types of activities covered by
CERCLA (as defined below) pursuant to any Environmental Laws (as
defined below) with respect to any Hazardous Substances or Waste (as
defined below) or (B) that could be reasonably expected to give rise to
any common law or statutory liability (including punitive or exemplary
damages and whether assessed with respect to personal injury or
property damage, damage to the natural resources or the environment or
otherwise) on the part of AFC or any of its Subsidiaries;
(iii) Either AFC or a Subsidiary of AFC has obtained,
maintained and complied with all permits, registrations, licenses, and
other authorizations, has maintained all records and has made all
filings required by applicable Environmental Laws (as defined below)
with respect to storage, presence, contamination, generation,
transport, emission, discharge or release into the environment of any
substance (including solids, liquids and gases) and the proper disposal
of such materials (including solid waste materials and petroleum or any
fractions or by-products of it) required for AFC's or any of its
Subsidiary's operations at past or present operating levels;
(iv) Neither AFC nor any of its Subsidiaries has
received any notice of any action, activity, event, condition or
circumstance covered by any of clauses (i), (ii) or (iii) above or
otherwise alleging any liability under any Environmental Law;
(v) without limiting or being limited by the
foregoing, AFC and each of its Subsidiaries is (and has been) otherwise
in compliance with all Environmental Laws in respect of any of the
properties owned, leased, used or controlled at any time by AFC, of any
of the products, business operations or other activities of AFC and its
Subsidiaries, and no facts or circumstances exist that could be
reasonably expected to interfere with AFC's compliance with
Environmental Laws;
(vi) no polychlorinated biphenyls, radioactive material,
lead, asbestos- containing material, incinerator, surface impoundment,
lagoon, landfill, septic, wastewater treatment or other disposal system
or underground storage tank (active or abandoned) is or has been
present at any real property owned or leased by AFC or any of its
Subsidiaries in any manner that constituted or constitutes a violation
of, or that reasonably could be expected to give rise to liabilities or
obligations under any applicable Environmental Law;
(vii) no Hazardous Substance has been discharged,
disposed of, dumped, injected, deposited, spilled, leaked, emitted or
released at, on or under any real property owned or leased by AFC or
any of its Subsidiaries;
(viii) no real property owned or leased by AFC or any of
its Subsidiaries, nor any property to which Hazardous Substances
located on or resulting from the use of any
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asset or real property owned or leased by AFC or any of its
Subsidiaries have been transported is listed or, to AFC's knowledge,
proposed for listing on the National Priorities List promulgated
pursuant to CERCLA, on CERCLIS (as defined in CERCLA) or on any similar
federal, state, local or foreign list of sites requiring investigation
or cleanup;
(ix) there are no permits under Environmental Laws that
are either nontransferable or require consent, notification or other
action to remain in full force and effect following the consummation of
the transactions contemplated hereby;
(x) there has been no environmental investigation,
study, audit, test, review or other analysis conducted of which AFC has
knowledge in relation to the business or assets of AFC or any of its
Subsidiaries that has not been delivered to Holdings at least ten days
prior to the date hereof; and
(xi) none of the assets owned by AFC or any of its
Subsidiaries is located in New Jersey or Connecticut.
Schedule 4.1(x) lists all environmental site
assessments, internal audits, phase I audits, and tests and reports
regarding significant remediation or disposal activities, with respect
to the business, assets or operations of AFC or any of its Subsidiaries
or with respect to any real property owned or operated at any time by
AFC or any of its Subsidiaries. "Environmental Laws" means and includes
all applicable laws relating to protection of the environment,
prevention or minimization of pollution, control and tracking of
Hazardous Substances and Wastes, protection of human health or similar
matters, including those relating to the generation, use, collection,
treatment, storage, transportation, recovery, removal, discharge or
disposal of Hazardous Substances and any record keeping, notification
and reporting requirements of them. "Hazardous Substance" means and
includes: [1] any toxic or hazardous wastes, materials, pollutants or
substances, including petroleum or petroleum-based or related products
and its fractions and by-products, flammables, explosives, radioactive
materials, asbestos, polychlorinated byphenyls, pesticides, herbicides,
pesticide or herbicide containers, untreated sewage, and industrial
process sludge; [2] any substances defined as "hazardous substances" or
"toxic substances" or similarly identified in or pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. ss. 9601 et seq., as amended; [3] "hazardous materials"
as identified in or pursuant to the Hazardous Materials Transportation
Act, 49 U.S.C. ss. 1801 et seq., as amended; [4] "hazardous wastes" and
"regulated substances" as identified in or pursuant to the Resource
Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., as amended;
[5] any chemical substance or mixture regulated under the Toxic
Substance Control Act of 1976, 15 U.S.C. ss. 2601 et seq., as amended;
[6] any "toxic pollutant" under the Clean Water Act, 33 U.S.C. ss. 466
et seq., as amended; [7] any hazardous air pollutant under the Clean
Air Act, 42, U.S.C. ss. 7401 et seq., as amended; and [8] any toxic or
hazardous wastes,
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materials, pollutants or substances regulated under any other
applicable law, including any so-called "Super Fund" or "Super Lien"
legislation relating to environmental, pollution or similar matters.
"Waste" means and includes any garbage, refuse or waste, whether or not
involving Hazardous Substances. For purposes of this Section, the term
"AFC" shall include any entity which is, in whole or in part, a
predecessor of AFC.
(y) Accuracy of Schedules, Certificates and Documents. All
information concerning AFC and its Subsidiaries contained in this
Agreement, in any certificate furnished to Holdings pursuant hereto and
in each schedule attached hereto is both complete (in that, except as
otherwise stated therein, it represents all the information called for
by the description of the respective schedule in this Agreement and
does not omit to state any material fact necessary to make the
statements contained therein not misleading) and accurate in all
material respects; and all documents furnished to Holdings pursuant to
this Agreement as being documents described in this Agreement or in any
schedule attached hereto are true and complete copies of the documents
that they purport to represent.
(z) Brokers, Finders and Investment Bankers. None of AFC or any
of its Subsidiaries or any of its officers, directors or employees have
employed any broker, finder or investment banker or incurred any
liability for any investment banking fees, financial advisory fees,
brokerage fees or finders' fees in connection with the transactions
contemplated by this Agreement, except that AFC has arrangements with
Goldman, Sachs & Co., the complete terms of which have been disclosed
to Holdings.
(aa) Inventories and Raw Materials of Fibers Business. The
inventories set forth in the Fibers Balance Sheet were properly stated
therein (after making provisions for obsolescent, obsolete, slow-moving
and similar items) at the lesser of cost or fair market value
determined in accordance with GAAP consistently maintained and applied.
Since the Fibers Balance Sheet Date, the level of inventories related
to the Fibers Business has been maintained in the ordinary course of
business. All of the inventories recorded on the Fibers Balance Sheet
consist of, and all inventories related to the Fibers Business on the
Closing Date will consist of, items of a quality usable or saleable in
the normal course of the Fibers Business consistent with past practices
and are and will be in quantities sufficient for the normal operation
of the Fibers Business in accordance with past practice. The level of
raw materials held for use in the Fibers Business as of the Closing
Date will not exceed the normal requirements of the Fibers Business for
such raw materials for a period of 90 days.
(bb) Receivables of the Fibers Business. All accounts, notes
receivable and other receivables (other than receivables collected
since the Fibers Balance Sheet Date) reflected on the Fibers Balance
Sheet are, and all accounts and notes receivable arising from or
otherwise relating to the Fibers Business at the Closing Date will be,
valid and genuine. All accounts, notes receivable and other receivables
arising out of or relating to
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the Fibers Business at the Fibers Balance Sheet Date have been included
in the Fibers Balance Sheet in accordance with GAAP applied on a
consistent basis.
(cc) Employees of Fibers Business. Schedule 4.1(cc) sets forth
a true and complete list of the names and titles of all employees of
the Fibers Business as of January 31, 1997 and the annual salaries and
other compensation of such employees as of January 31, 1997. No key
employee of the Fibers Business has indicated to AFC that he intends to
resign or retire as a result of the transactions contemplated by this
Agreement or otherwise within one year after the Closing Date.
(dd) Products of the Fibers Business. Each of the products
produced or sold in connection with the Fibers Business is, and at all
times up to and including the sale thereof has been, (i) in compliance
in all material respects with all applicable federal, state, local and
foreign laws and regulations and (ii) fit for the ordinary purposes for
which it is intended to be used and conforms in all material respects
to any promises or affirmations of fact made on the container or label
for such product or in connection with its sale. Each of such products
contains adequate warnings, presented in a reasonably prominent manner,
in accordance with applicable laws, rules and regulations and current
industry practice with respect to its contents and use.
(ee) Intracompany Accounts. Schedule 4.1(ee) contains a
complete list of all intracompany balances as of the Fibers Balance
Sheet Date between AFC and its respective Affiliates, on the one hand,
and the Fibers Business, on the other hand. Except as set forth on
Schedule 4.1(ee), since the Fibers Balance Sheet Date there has not
been any accrual of liability by the Fibers Business to AFC or any of
its respective Affiliates or other transaction between the Fibers
Business, on the one hand, and AFC or any of its respective Affiliates,
on the other hand, except in the ordinary course of business of the
Fibers Business and on terms no less favorable to the Fibers Business
than obtainable on an arm's-length basis.
(ff) Foreign Currency Exposures.
(i) Except as disclosed on Schedule 4.1(ff)(i), there
has been no sales within the three years ending on December 31,
1996 of the products of the Fibers Business to any person or
entity that denominated its pricing for such products in any
currency other than the United States dollar (other than any
sales not exceeding $50,000 per annum in the aggregate).
(ii) Except as disclosed on Schedule 4.1(ff)(ii), there
have been no purchases within the three years ending on
December 31, 1996, of any raw materials or inventory used in
the Fibers Business from any person or entity that denominated
its pricing for such raw materials or inventory in any currency
other
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than the United States dollar (other than any purchases not
exceeding $50,000 per annum in the aggregate).
(gg) Company Name. To the best of AFC's knowledge, AFC has the
exclusive right to use the name "Filtrona" and any derivations thereof
in the United States of America and Canada.
(hh) Indebtedness. Except as disclosed on Schedule 4.1(hh), AFC
does not have any Indebtedness, which in any case represents any lien,
encumbrance, obligation or other liability to which any asset of the
Fibers Business is subject or which was incurred in the operation of
the Fibers Business. As used in this Agreement, Indebtedness means, at
any date, without duplication, (i) all obligations of AFC for borrowed
money, (ii) all obligations of AFC evidenced by bonds, debentures,
notes or other similar instruments, (iii) all obligations of AFC to pay
the deferred purchase price of property or services, except trade
accounts payable arising in the ordinary course of business, (iv) all
obligations of AFC as lessee which are capitalized in accordance with
GAAP, (v) all non- contingent obligations of AFC to reimburse any bank
or other person or entity in respect of amounts paid under a letter of
credit or similar instrument, (vi) all indebtedness secured by a Lien
on any asset of AFC, whether or not such indebtedness is otherwise an
obligation of AFC and (vii) all guarantees by AFC of indebtedness of
another person or entity (each such guarantee to constitute
indebtedness in an amount equal to the amount of such other person's or
entity's indebtedness guaranteed thereby).
4.2 Representations and Warranties by Holdings and SubCorp. Holdings
and SubCorp, jointly and severally, represent and warrant to, and agree with,
AFC as of the date hereof and as of the Closing as follows:
(a) Organization and Qualification, etc. Holdings is a Delaware
corporation validly existing and in good standing under the laws of the
State of Delaware and has the necessary power and authority to own all
its properties and assets and to carry on its business as it is now
being conducted. SubCorp is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Virginia and has the corporate power and authority to own all its
properties and assets and to carry on its business as it is now being
conducted. The copies of Holdings' Certificate of Incorporation and
Bylaws, as amended to date, and SubCorp's Articles of Incorporation and
Bylaws, as amended to date, which have been delivered to AFC, are
complete and correct, and such instruments, as so amended, are in full
force and effect at the date hereof. Holdings owns all of the
outstanding shares of SubCorp.
(b) Authority. Each of Holdings and SubCorp has the power and
authority to execute and deliver this Agreement. SubCorp has the power
and authority to consummate the Merger. The execution and delivery by
Holdings of this Agreement has been duly authorized by its Board of
Directors (or a duly authorized committee thereof).
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The execution and delivery by SubCorp of this Agreement and the
consummation by SubCorp of the Merger in accordance with the Plan of
Merger has been duly authorized by its Board of Directors. No other
action on the part of Holdings or SubCorp is necessary to authorize the
execution and delivery of this Agreement by Holdings or SubCorp or the
consummation by SubCorp of the Merger in accordance with the Plan of
Merger. This Agreement has been duly executed and delivered by Holdings
and SubCorp and is a valid, binding and enforceable agreement of each
of Holdings and SubCorp. Holdings as the sole shareholder of SubCorp
has approved this Agreement and the Plan of Merger.
(c) Non-Contravention. The execution and delivery of this
Agreement by Holdings and SubCorp do not and, subject to the expiration
of the applicable waiting periods after the filings required by the HSR
Act referred to in paragraph (e) below, the consummation by SubCorp of
the Merger does not and will not (i) violate or conflict with any
provision of the Articles of Incorporation or Bylaws of SubCorp or the
Articles of Organization of Holdings or (ii) violate or conflict with,
or result (with the giving of notice or the lapse of time or both) in a
violation of or constitute a default under, any provision of, or result
in the acceleration or termination of or entitle any party to
accelerate or terminate (whether after the giving of notice or lapse of
time or both) any obligation or benefit under, or result in the
creation or imposition of any Lien upon any of the assets or property
of Holdings or SubCorp pursuant to any provision of any contract,
agreement, commitment, undertaking, arrangement or understanding to
which Holdings or any of its Subsidiaries is a party or bound or to
which any of their assets or properties are subject (a "Holdings
Material Contract"), law, ordinance, regulation, order, arbitration
award, judgment or decree to which Holdings or SubCorp is a party or by
which either of them or their respective assets or properties is bound
and do not and will not violate or conflict with any other restriction
of any kind or character to which Holdings or SubCorp is subject or by
which any of their assets or properties may be bound, and the same does
not and will not constitute an event permitting termination of any
Holdings Material Contract, if such violation, conflict, default,
acceleration, termination, entitlement, creation or imposition of Liens
would, when taken together with all other such violations, conflicts,
defaults, accelerations, terminations, entitlements to accelerate,
creations and impositions of Liens and events, affect materially and
adversely the financial condition or results of operations of Holdings
and its Subsidiaries taken as a whole.
(d) Governmental Consents. Except for the filing of the Proxy
Statement with the SEC, filings with the FTC and Justice as required by
the HSR Act, and the filing of the Articles of Merger with the
Commission, no consent, authorization, order or approval, or filing or
registration with, any Governmental Entity is required for or in
connection with the execution and delivery of this Agreement by
Holdings or SubCorp and the consummation by SubCorp of the Merger.
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(e) Proxy Statement. The information with respect to Holdings,
its directors, officers, and Subsidiaries (including SubCorp) that
shall have been supplied by Holdings or its respective authorized
representatives in writing for use in the Proxy Statement will not, on
the date or dates the Proxy Statement is first mailed to shareholders
of AFC and at the time of the AFC Shareholders Meeting, as the Proxy
Statement is then amended or supplemented, contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading or
necessary to correct statements in any earlier filing with the SEC or
amendment thereto or any earlier communication (in the preparation of
which Holdings participated) to shareholders of AFC with respect to the
Merger.
(f) Activities of Holdings and SubCorp. Each of Holdings and
SubCorp was formed solely for the purpose of engaging in the
transactions contemplated in this Agreement. Except for obligations or
liabilities incurred in connection with its incorporation or
organization or the negotiation and consummation of this Agreement and
the transactions contemplated hereby, neither Holdings nor SubCorp has
incurred any obligations or liabilities or engaged in any business or
activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person or entity.
(g) Legal Proceedings. There is no claim, action, suit,
proceeding or investigation pending or, to the best of Holdings' and
SubCorp's knowledge, contemplated or threatened against Holdings,
SubCorp or any of their respective Subsidiaries (or any of their
respective officers or directors) before any arbitrator or Governmental
Entity, foreign or domestic, that seeks to prohibit, restrict or delay
consummation of the Merger or any of the conditions to consummation of
the Merger nor is there any judgment, decree, injunction, ruling or
order of any Governmental Entity, arbitrator or other person
outstanding against Holdings, SubCorp or any of their respective
Subsidiaries having any such effect.
(h) Brokers, Finders and Investment Bankers. None of Holdings,
SubCorp or any of their respective Subsidiaries or any of their
respective officers, directors, managers or employees have employed any
broker, finder or investment banker or incurred any liability for any
investment banking fees, financial advisory fees, brokerage fees or
finders' fees in connection with the transactions contemplated by this
Agreement.
(i) Obligations to Fund. SubCorp will have as of the Closing
Date cash in an amount sufficient to pay in U.S. dollars the Merger
Consideration for each share of AFC Common Stock (other than the shares
of AFC Common Stock held (or to be held as of the Effective Time) by
AFC's Subsidiaries, Holdings or any of its Subsidiaries) upon surrender
of all such shares of AFC Common Stock after the consummation of the
Merger and to fund the payment of the Option Payments.
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(j) Absence of Certain Changes. Since December 31, 1996, there
has been no material adverse change in the financial condition of Bunzl
USA, Inc. and its Subsidiaries, taken as a whole.
ARTICLE 5
ADDITIONAL COVENANTS AND AGREEMENTS
5.1 Conduct of Business. During the period from the date hereof to the
Effective Time (except as required by law or as set forth on Schedule 5.1 and
except for the transactions contemplated by this Agreement):
(a) Operation by AFC in the Ordinary Course of Business. AFC
shall, and shall cause each of its Subsidiaries to, (i) conduct its
operations according to its ordinary and usual course of business in
substantially the same manner as heretofore conducted and (ii) use its
reasonable efforts to preserve intact its business organization as
appropriate in the ordinary course of business consistent with past
practice, to keep available the services of its officers and employees
and to maintain satisfactory relationships with licensors, suppliers,
distributors, customers and others having business relationships with
it. AFC shall prepare and file all federal, state, local and foreign
Tax Returns and other tax reports, filings and amendments thereto
required to be filed by it, and allow Holdings, at its request, to
review all such returns, reports, filings and amendments relating to
income taxes at AFC's offices prior to the filing thereof, which review
shall not interfere with the timely filing of such returns.
(b) Forbearances by AFC. Except as contemplated by this
Agreement, neither AFC nor any of its Subsidiaries shall, without the
prior written consent of Holdings, which consent shall not be
unreasonably withheld:
(i) except as otherwise permitted pursuant to clause
(vi) below, intentionally incur any debt, liability or
obligation, direct or indirect, whether accrued, absolute,
contingent or otherwise, other than current liabilities
incurred in the ordinary and usual course of business, pay any
debt, liability or obligation of any kind other than such
current liabilities and current maturities of existing
long-term debt (including interest when due) in each case only
in accordance with the terms of the document creating and
evidencing such debt, fail to pay any debt when due or take or
fail to take any action, the taking of which, or the failure to
take of which, would permit any debt to be accelerated;
(ii) assume, guarantee, endorse or otherwise become
responsible for the obligations of any other individual, firm
or corporation, or make any loans or advances to any
individual, firm or corporation other than a Subsidiary
notwithstanding the foregoing, AFC and each of its Subsidiaries
shall be entitled to
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endorse checks and to make cash advances to, and reimburse the
business expenses of, their respective directors, officers,
employees and agents, all in the ordinary course of business
consistent with past practice;
(iii) other than the regular quarterly cash dividend
at the rate of $.28 per share on the AFC Common Stock to be
declared on or about July 29, 1997, declare, set aside or pay
any dividend (whether in cash, capital stock or property) with
respect to its capital stock, or declare or make any
distribution on, redeem or purchase or otherwise acquire (other
than the acquisition of AFC Common Stock from optionees in
payment of the exercise price or withholding taxes upon the
exercise of employee stock options outstanding on the date
hereof), any AFC Common Stock, or split, combine or otherwise
similarly change the outstanding AFC Common Stock, or authorize
the creation or issuance of or issue or sell any shares of its
capital stock or any securities or obligations convertible into
or exchangeable for, or giving any person any right to acquire
from it, any shares of its capital stock, or agree to take any
such action, except for the issuance of AFC Common Stock upon
the exercise of options described in Section 4.1(b);
(iv) mortgage, pledge or otherwise encumber any
property or asset, except in the ordinary and usual course of
business;
(v) sell, lease, transfer or dispose of any of its
properties or assets, waive or release any rights or cancel,
compromise, release or assign any indebtedness owed to it or
any claims held by it, except that AFC in the ordinary and
usual course of business may make such sales, leases,
transfers, dispositions, waivers, releases, cancellations,
compromises or assignments other than with respect to the
Fibers Business;
(vi) make any capital expenditure or any investment
of a capital nature (other than to any of its Subsidiaries)
except as described in Schedule 5.1(b)(vi), either by purchase
of stock or securities, contributions to capital, property
transfers or otherwise, or by the purchase of any property or
assets of any other individual, firm or corporation; provided,
however, that AFC may make capital expenditures in the Fibers
Business not in excess of $50,000 per instance or in excess of
$200,000 in the aggregate and may make capital expenditures
other than in the Fibers Business not in excess of $50,000 per
instance or in excess of $300,000 in the aggregate.
(vii) fail to use commercially reasonable efforts to
perform in all material respects its obligations under Material
Contracts (except those being contested in good faith) or enter
into, assume or amend any contract or commitment that would
have been a Material Contract in effect on the date hereof
other than contracts to provide goods or services entered into
in the ordinary and usual course of business;
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(viii) except for regularly scheduled increases in
accordance both as to timing and amount with normal prior
practice, increase in any manner the compensation or fringe
benefits of any of its officers or employees or pay or agree to
pay any pension or retirement allowance not required by any
existing plan or agreement to any such officers or employees,
or commit itself to or enter into any employment agreement or
any incentive compensation, deferred compensation, profit
sharing, stock option, stock appreciation rights, performance
shares, stock purchase, savings, consulting, severance,
retirement, pension or other "fringe benefit" plan, award or
arrangement with or for the benefit of any officer, employee or
other person or material consulting agreement;
(ix) permit any insurance policy naming it as a
beneficiary or a loss payable payee to be canceled or
terminated or any of the coverage thereunder to lapse, unless
AFC makes reasonable efforts to obtain simultaneously with such
termination or cancellation replacement policies on
commercially reasonable terms providing substantially the same
coverage;
(x) amend its Articles of Incorporation or Bylaws;
(xi) enter into any union, collective bargaining or
similar agreement;
(xii) purchase or sell any raw materials, inventory or
product used in, or produced by, the Fibers Business in any
transaction where the pricing for such raw materials, inventory
or product is in any currency other than the United States
dollar;
(xiii) purchase any intangible assets, including,
without limitation, patents or trademarks; or
(xiv) enter into an agreement to do any of the things
described in clauses (i) through (xiii).
In connection with the continued operation of the business of AFC and its
Subsidiaries between the date of this Agreement and the Effective Time, AFC
shall confer in good faith on a regular basis with one or more representatives
of Holdings designated in writing to receive reports on operational matters of
materiality and the general status of ongoing operations. AFC acknowledges that
Holdings does not thereby waive any rights it may have under this Agreement as a
result of this covenant to engage in consultations nor shall Holdings be
responsible for any decisions made by AFC's officers and directors with respect
to matters that are the subject of such consultation. Any act or failure to act
by AFC or any of its Subsidiaries consented to in writing by Holdings shall not
constitute a breach by AFC of any representation, warranty, covenant or
agreement contained in this Agreement.
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(c) Conduct of the Fibers Business. From the date hereof until
the Closing Date, AFC will promptly notify Holdings of any development
or occurrence relating to the Fibers Business not in the ordinary
course of business consistent with past practices or that contravenes
or is reasonably likely to contravene the provisions of Section 4.1(i).
(d) Notices of Certain Events. AFC shall promptly notify
Holdings of each of the following of which it has notice:
(i) any notice or other communication from any person or
entity alleging that the consent of such person or entity is or
may be required in connection with the Merger;
(ii) any notice or other communication from any
Governmental Entity in connection with the Merger;
(iii) any actions, suits, claims, investigations or
proceedings commenced or, to its knowledge threatened against,
relating to or involving or otherwise affecting AFC or the
Fibers Business that, if pending on the date of this Agreement,
would have been required to have been disclosed pursuant to any
provision of this Agreement or that relate to the consummation
of the Merger; and
(iv) the damage or destruction by fire or other casualty
of any asset of the Fibers Business or in the event that any
asset of the Fibers Business becomes the subject of any
proceeding or, to the knowledge of AFC, threatened proceeding
for the taking thereof or any part thereof or of any right
relating thereto by condemnation, eminent domain or other
similar governmental action.
5.2 AFC Shareholders Meeting. Subject to the provisions of Article 7,
AFC covenants and agrees that its Board of Directors shall (a) cause the AFC
Shareholders Meeting to be duly called and held in accordance with AFC's
Articles of Incorporation, its Bylaws and applicable law as soon as reasonably
practicable to consider and vote upon the approval of this Agreement and the
Plan of Merger; (b) recommend approval of this Agreement and the Plan of Merger
to the holders of the AFC Common Stock; and (c) use commercially reasonable
efforts to cause such meeting to take place and to obtain the approval by the
holders of the AFC Common Stock of this Agreement and the Plan of Merger in
accordance with its Articles of Incorporation, Bylaws and the VSCA.
5.3 Best Efforts; Further Assurances; Cooperation. Subject to the other
provisions in this Agreement, the parties hereto shall each use commercially
reasonable efforts to perform their respective obligations herein and to take,
or cause to be taken or do, or cause to be done, all things necessary, proper or
advisable under applicable law to obtain all regulatory approvals, consents,
authorizations and orders and satisfy all conditions to the obligations of the
parties under this Agreement and to cause the Merger to be carried out promptly
in accordance with the
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terms hereof and shall cooperate fully with each other and their respective
officers, directors, employees, agents, counsel, accountants and other designees
in connection with any steps required to be taken as part of their respective
obligations under this Agreement, including without limitation:
(a) Regulatory Action. AFC and Holdings (or any of its
Affiliates) shall each promptly, but in no event later than 10 days
after the date of this Agreement, make the respective filings and
submissions required under the provisions of the HSR Act relating to
the Merger, and thereafter shall comply fully and promptly with any
request for additional information ("second request"), voluntary
request to submit information, third party subpoena or civil
investigative demand that might be issued to or served on such party in
connection with any investigation under the HSR Act. AFC and Holdings
(or any of their respective Subsidiaries) shall each use commercially
reasonably efforts to take, or cause to be taken, all actions and do,
or cause to be done, all things necessary, proper or advisable under
applicable law or regulations to obtain any required approval, action,
or inaction of any Governmental Entity with jurisdiction over the
Merger, so that the Merger may be permitted to close in accordance with
its terms.
(b) Certain Legal Proceedings. In the event any claim, action,
suit, investigation or other proceeding by any Governmental Entity or
other person is commenced which questions the validity or legality of
the Merger or seeks damages in connection therewith, the parties agree
to cooperate and use their best efforts to defend against such claim,
action, suit, investigation or other proceeding and, if an injunction
or other order is issued in any such action, suit or other proceeding,
to use commercially reasonable efforts to have such injunction or other
order lifted or appealed and to cooperate reasonably regarding any
other impediment to the consummation of the Merger; provided, however,
that nothing in this subsection (b) shall require Holdings (or any of
its Affiliates) or AFC to divest any assets or business as a
requirement of consummating the Merger.
(c) Notice. Each party shall give prior written notice to the
other of (i) the occurrence, or failure to occur, of any event which
occurrence or failure would cause, or any assertion or threatened
assertion of a claim that if pursued would cause any representation or
warranty of AFC, Holdings or SubCorp, as the case may be, contained in
this Agreement to be untrue or inaccurate in any material respect at
any time from the date hereof to the Closing Date or that will result
in the failure to satisfy any of the conditions specified in Article 6
and (ii) any failure of AFC, Holdings or SubCorp, as the case may be,
to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder.
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5.4 Investigation; Confidentiality.
(a) AFC agrees to permit Holdings and its authorized
representatives to have or cause them to be permitted to have, after
the date hereof and until the Effective Time, reasonable access to the
premises, books and records of AFC and its Subsidiaries at reasonable
hours, and the officers of AFC and its Subsidiaries will furnish
Holdings with such financial and operating data and other information
with respect to AFC's and its Subsidiaries' businesses and properties
and permit Holdings to meet with such AFC employees as Holdings shall
from time to time reasonably request; provided that AFC shall be
permitted to restrict Holdings' access to commercially sensitive
information regarding the Fibers Business; provided further that any
such restrictions shall terminate at least ten Business Days prior to
the Closing Date and Holdings shall have unrestricted access to such
information thereafter. AFC will request its auditing firm to permit
Holdings and its representatives, including its auditing firm, to
review the work papers of the auditing firm of AFC relating to their
examination of the AFC Financial Statements. No investigation by
Holdings heretofore or hereafter made shall affect the representations
and warranties of AFC, and each such representation and warranty shall
survive any such investigation, subject to Section 7.5.
(b) Holdings agrees to permit AFC and its authorized
representatives to have or cause them to be permitted to have, after
the date hereof and until the Effective Time, such information with
respect to Holdings' business as AFC shall from time to time reasonably
request.
(c) Except as contemplated by this Agreement or as necessary to
carry out the transactions contemplated hereby, all information or
documents furnished hereunder shall be subject to the letter agreement
between Goldman, Sachs & Co., on behalf of AFC and Bunzl plc ("Bunzl")
dated December 13, 1996, as amended from time to time (the
"Confidentiality Agreement").
5.5 Expenses. Except as otherwise provided in this Agreement, whether
or not the Merger is consummated, all costs and expenses (including any
brokerage commissions or any finder's or investment banker's fees and including
attorney's and accountants' fees) incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
expenses.
5.6 Proxy Statement. Holdings and AFC shall cooperate in taking steps
to (a) prepare and file with the SEC as soon as is practicable the Proxy
Statement and (b) use its reasonable efforts to have the Proxy Statement cleared
by the SEC as promptly as practicable. Promptly after the Proxy Statement has
been cleared by the SEC, subject to the provisions of Article 7 herein AFC shall
mail the Proxy Statement to the holders of AFC Common Stock and AFC shall use
its reasonable efforts to solicit proxies in favor of the approval of this
Agreement and the
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Plan of Merger. Holdings shall also take any action required to be taken under
state blue sky or other securities laws in connection with the Merger. If at any
time prior to the AFC Shareholders Meeting, Holdings or AFC reasonably believes
that the Proxy Statement includes an untrue statement of a material fact or
omits a material fact required to be stated therein, the parties shall cooperate
to distribute any required supplement or amendment to the Proxy Statement, and
to comply with any resolicitation requirements, and shall provide to each other
all necessary information for such amendment or supplement, all of which shall
be true and correct in all material respects and shall not omit any material
fact required to be included in such amendment or supplement.
5.7 Periodic Reports. Each of AFC and Holdings covenants that it will
file with the SEC on a timely basis all periodic reports and other filings
required to be filed by it by the federal securities laws and regulations of the
SEC thereunder from the date of this Agreement through the Effective Time, and
that each such report or filing will comply in all material respects with the
federal securities laws and regulations of the SEC and will not contain any
untrue statement of material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
5.8 Public Announcements. The timing and content of all public
announcements regarding any aspect of this Agreement or the Merger to the
financial community, government agencies, employees or the general public shall
be mutually agreed upon in advance unless Holdings or AFC is advised in writing
by legal counsel that any such announcement or other disclosure not mutually
agreed upon in advance is required or requested to be made by applicable law or
applicable NASDAQ or London Stock Exchange rules or regulations and then only
after making a reasonable attempt to comply with provisions of this Section 5.8.
5.9 Antitrust Challenges. In the event a suit is instituted challenging
the Merger as violative of the antitrust laws, each of Holdings and AFC will use
commercially reasonable efforts to defend against such suit. Holdings and AFC
will use commercially reasonable efforts to take such action as may be required
by any federal or state court of the United States, in any suit brought by a
private party or Governmental Entity challenging the Merger as violative of the
antitrust laws, in order to avoid the entry of, or to effect the dissolution of,
any injunction, temporary restraining order or other order that has the effect
of preventing the consummation of the Merger, including pursuing an appeal
thereof; provided, however, that nothing in this Section 5.9 shall require
Holdings (or any of its Affiliates) or AFC to divest any assets or business as a
requirement of consummating the Merger.
5.10 Employee Matters.
(a) Stay Bonuses and Severance Agreements. Stay bonuses and
severance agreements for employees other than John Morgan will be
limited to those described on Schedule 5.10.
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(b) Employee Benefit Plan Matters. Holdings agrees that it
will, through December 31, 1998, (i) continue in effect, the Employee
Plans (other than any stock or other equity based plans, including the
Employee Stock Ownership Plan of American Filtrona Corporation)
covering employees who continue employment with Holdings or an
affiliate of Holdings or (ii) establish and maintain employee plans and
benefit arrangements (the "Buyer Benefit Plans") for the benefit of
such employees that are reasonably comparable in the aggregate to such
Employee Plans. Buyer agrees that all service credited under the
Employee Plans for purposes of eligibility and vesting shall be
credited under the applicable Buyer Benefit Plan with respect to any
employee who continues employment with Holdings or an Affiliate of
Holdings.
5.11 Accountant's Letters. AFC agrees to use commercially reasonable
efforts to cause to be delivered to Holdings a letter of Coopers & Lybrand
L.L.P., independent auditors for AFC, dated the date of the Proxy Statement and
the Closing Date (or such other dates reasonably acceptable to the parties) with
respect to certain financial statements and other financial information included
in the Proxy Statement, which letter shall be in form reasonably satisfactory to
Holdings.
5.12 Non Solicitation; Competing Offers. From the date of this
Agreement until the Closing Date, neither AFC nor its officers, directors or
agents shall be entitled to solicit or encourage, in any manner, including by
way of furnishing information, any merger, acquisition, or takeover proposal or
offer for AFC or its shares or any significant portion of its assets or
businesses, however structured or to be effected, unless the Board of Directors
of AFC concludes in good faith, after receiving the advice of its counsel, that
the failure to take such action would violate the fiduciary obligation of the
directors of AFC under applicable law; provided, however, that Holdings shall be
notified promptly of the principal terms of all bona fide competing offers made
to AFC, and AFC shall be subject to any applicable obligation to pay the
Expenses and the Fee set forth in Section 7.4 in the event this Agreement is
terminated.
5.13 Investment Securities. AFC agrees that at the Effective Time all
of its investment securities will be redeemable at par for cash within seven
days or in a form traded in established securities markets.
5.14 Filpac Indebtedness. AFC agrees to document the indebtedness of
Filpac, Inc. to AFC to the reasonable satisfaction of Holdings promptly after
execution of this Agreement.
5.15 Settlement of Lawsuits. In 1994, the Office of Federal Compliance
Programs issued a Notice of Violation in which it alleged that two employment
screening tests used by AFC were unlawful. AFC will not settle this matter
without the prior written consent of Holdings, and will not admit any liability
in connection therewith.
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ARTICLE 6
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party. The respective
obligations of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing of each of the following conditions:
(a) AFC Shareholder Approval. This Agreement and the Plan of
Merger shall have been adopted at the AFC Shareholders Meeting duly
called and held in accordance with AFC's Articles of Incorporation and
Bylaws and the VSCA, by the holders of more than two-thirds of the
shares of AFC Common Stock outstanding and entitled to vote thereon.
(b) HSR Act. All applicable waiting periods under the HSR Act
shall have expired or been terminated.
(c) Proxy Statement. No proceedings under the proxy rules of
the SEC pursuant to the Exchange Act and with respect to the Merger
shall be pending before or threatened by the SEC.
(d) Injunction, etc. The consummation of the Merger will not
violate the provisions of any injunction, order, judgment, decree, law
or regulation applicable or effective with respect to AFC, Holdings,
SubCorp or their respective officers and directors. No suit or
proceeding shall have been instituted by any person, or, to the best of
AFC's or Holdings' knowledge, shall have been threatened by any
Governmental Entity, that seeks to (i) prohibit, restrict or delay
consummation of the Merger or to limit in any material respect the
right of Bunzl to control any material aspect of the business of
Holdings and its Subsidiaries or AFC and its Subsidiaries after the
Effective Time, or (ii) to subject Holdings or AFC or their respective
directors or officers to material liability on the ground that it or
they have breached any law or regulation or otherwise acted improperly
in relation to the Merger; provided, however, that in the case of any
action, suit or proceeding instituted by a person other than a
Governmental Entity, such action, suit or proceeding has a substantial
likelihood of success in the opinion of legal counsel for the party
invoking this provision.
6.2 Conditions to Obligations of Holdings and SubCorp. Consummation of
the Merger is subject to the fulfillment to the reasonable satisfaction of
Holdings, prior to or at the Closing, of each of the following conditions:
(a) Consents, Authorizations, etc. The consents required under
the items listed on Schedule 4.1(e) and all consents, authorizations,
orders and approvals of, and filings and registrations with, any
Governmental Entity or any nongovernmental third party
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(other than the filing of the Articles of Merger with the Commission)
that are required for or in connection with the execution and delivery
by AFC of this Agreement and the consummation by AFC of the Merger
shall have been obtained or made, except where the failure to obtain
such consent, authorization, order or approval would not have a
Material Adverse Effect.
(b) Representations and Warranties. The representations and
warranties of AFC contained in this Agreement shall have been true and
correct in all respects at the date hereof and, except for changes
contemplated in this Agreement, shall also be true and correct in all
respects at and as of the Closing Date, with the same force and effect
as if made at and as of the Closing Date, except in either case as such
representations and warranties by their terms relate only to dates or
periods of time prior to the Closing Date, or, in any event, except
where the failure of representations or warranties to be true and
correct (determined for this purpose without taking into consideration
any materiality qualifier contained in such representation or warranty)
in the aggregate would not have a Material Adverse Effect, and AFC
shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or
complied with by it at or prior to the Closing Date.
(c) Certificate. (i) AFC shall have delivered to Holdings a
certificate, dated as of the Closing Date, of the Chief Executive
Officer, the Chief Operating Officer, the Chief Financial Officer and
the Vice President, Bonded Fiber Products of AFC to the effect that to
the best of such officer's knowledge the conditions specified in
paragraph (b) of this Section 6.2 have been satisfied. Such certificate
shall also specify the number of issued and outstanding shares of AFC
Common Stock as of the Closing Date.
(d) Opinion of AFC's Counsel. Holdings and SubCorp shall have
received an opinion, dated as of the Closing Date, of Hunton &
Williams, counsel to AFC, substantially to the effect set forth in
Exhibit D hereto, with such exceptions and limitations as shall be
reasonably satisfactory to Holdings.
(e) Letters from Accountants. Holdings shall have received the
letter of Coopers & Lybrand L.L.P. contemplated by Section 5.11.
(f) Additional Certificates, etc. AFC shall have furnished to
Holdings such additional certificates, opinions and other documents as
Holdings may have reasonably requested as to any of the conditions set
forth in Sections 6.1 and 6.2.
(g) Resignations. AFC shall have delivered to Holdings, to the
extent requested by Holdings, the written resignations of the directors
of AFC or any of its Subsidiaries.
(h) Morgan Consulting and Noncompetition Agreements. John L.
Morgan shall have executed and delivered a Consulting Agreement with
Holdings and a
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Noncompetition Agreement with AFC in the form of Exhibit E-1 and
Exhibit E-2, respectively, hereto.
(i) Morgan Severance Agreement. AFC and John L. Morgan shall
have executed a severance agreement providing for termination of his
employment by AFC and its Subsidiaries as of the Effective Time
providing for (i) a severance payment of $800,000 at Closing (in lieu
of all salary and bonuses payable after the Effective Time and all
additional accruals or contributions that would be payable after the
Effective Time with respect to his interest in the AFC Pension Plan,
SERP and Profit-Sharing and 401(k) Plan and in lieu of continued
participation in welfare plans other than health insurance plans); and
(ii) continued participation until December 31, 1999 as a retiree, in
AFC's medical insurance plan (if generally available for retirees
thereunder) on the same contributing basis as now in effect; provided,
however, that Mr. Morgan will pay any premiums in excess of $9,000 for
such medical insurance coverage during 1997 through 1999; and (iii)
indemnification holding Mr. Morgan harmless with respect to the
application of the provisions of Sections 280G and 4999 of the Code,
respectively, including indemnification for any excise tax obligations
and any federal, state or local income, employment-related and excise
tax obligations with respect to the indemnification payments.
(j) Transfer Agent's Certificate. AFC shall have delivered to
Holdings a certificate of the Transfer Agent for the AFC Common Stock
specifying the number of issued and outstanding shares as of the
Closing Date.
6.3 Conditions to Obligations of AFC. Consummation of the Merger is
subject to the fulfillment to the reasonable satisfaction of or waiver by AFC,
prior to or at the Effective Time, of each of the following conditions:
(a) Consents, Authorizations, etc. All consents,
authorizations, orders and approvals of, and filings and registrations
with, any Governmental Entity or non-governmental third party (other
than the filing of the Articles of Merger with the Commission), which
are required for or in connection with the execution and delivery of
this Agreement by Holdings and SubCorp and the consummation by SubCorp
of the Merger shall have been obtained or made except where the failure
to obtain such consent, authorization, or approval would not have a
material adverse effect on the consolidated financial condition,
results of operations, business or prospects of Holdings and its
Subsidiaries taken as a whole.
(b) Representations and Warranties. The representations and
warranties of Holdings and SubCorp contained in this Agreement shall
have been true and correct in all respects at the date hereof and shall
also be true and correct in all respects at and as of the Closing Date,
except for changes contemplated in this Agreement, with the same force
and effect as if made at and as of the Closing Date or except as such
representations and
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warranties by their terms relate only to periods of time prior to the
Closing Date or except where the failure of any representation or
warranty to be true and correct would not have a material adverse
effect on the consolidated financial condition, results of operation,
business or prospects of Holdings and its Subsidiaries taken as a
whole; and Holdings shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement
to be performed or complied with by it at or prior to the Closing Date.
(c) Certificate. Holdings shall have delivered to AFC a
certificate, dated as of the Closing Date, of the Chief Executive
Officer of Holdings to the effect that the conditions specified in
paragraph (b) of this Section 6.3 have been satisfied.
(d) Opinions of Holdings' and SubCorp's Counsel. AFC shall have
received opinions, dated as of the Closing Date, of (i) Davis Polk &
Wardwell, to the effect set forth in Exhibit F hereto and (ii)
McSweeney, Burtch & Crump, to the effect set forth in Exhibit G hereto.
(e) Additional Certificates, etc. Holdings shall have furnished
to AFC such additional certificates, opinions and other documents as
AFC may have reasonably requested as to any of the conditions set forth
in Sections 6.1 and 6.3.
(f) Fairness Opinion. The fairness opinion of Goldman, Sachs
& Co. with respect to the Merger shall not have been withdrawn.
ARTICLE 7
TERMINATION AND ABANDONMENT
7.1 Termination and Abandonment. This Agreement and the Merger may be
terminated and abandoned at any time prior to the Effective Time:
(a) By mutual action of the Board of Directors of AFC and the
Board of Directors of Holdings, whether before or after any action by
AFC's shareholders.
(b) By Holdings:
(i) if any event shall have occurred as a result of
which any condition set forth in Section 6.2 is no longer
capable of being satisfied;
(ii) if there has been a breach by AFC of any
representation or warranty contained in this Agreement that
individually, or in the aggregate with all other such breaches,
would have a Material Adverse Effect, or there has been a
material
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breach of any of the covenants or agreements set forth in this
Agreement on the part of AFC, which breach is not curable, or,
if curable, is not cured within 15 days after written notice of
such breach is given by Holdings to AFC;
(iii) if AFC (or its Board of Directors) shall have
authorized, recommended, proposed or publicly announced its
intention to enter into a Competing Transaction (as defined
below) that has not been consented to in writing by Holdings;
or
(iv) if the Board of Directors of AFC shall have
withdrawn or materially modified its authorization, approval or
favorable recommendation to the shareholders of AFC with
respect to the Plan of Merger or this Agreement in a manner
adverse to Holdings or shall have failed to make such favorable
recommendation.
(c) By AFC:
(i) if any event shall have occurred as a result of
which any condition set forth in Section 6.3 is no longer
capable of being satisfied; or
(ii) if there has been a breach by Holdings or
SubCorp of any representation or warranty contained in this
Agreement which individually, or in the aggregate with all
other such breaches, would have or would be reasonably likely
to have a material adverse effect on the consolidated financial
condition, results of operations or business of Holdings and
its Subsidiaries taken as a whole or the ability of Holdings or
SubCorp to consummate the Merger, or there has been a material
breach of any of the covenants or agreements set forth in this
Agreement on the part of Holdings or SubCorp, which breach is
not curable or, if curable, is not cured within 15 days after
written notice of such breach is given by AFC to Holdings.
(d) By AFC if because of its receipt of a proposal with respect
to a Competing Transaction, the Board of Directors concludes, in good
faith, after receiving advice of its legal counsel that such
termination is in the best interests of AFC and its shareholders.
(e) By Holdings or AFC if there shall have occurred (i) any
general suspension of, or limitation on, trading in securities
generally on NASDAQ continuing for a period of fifteen (15) business
days, or (ii) a declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States continuing for a
period of fifteen (15) business days.
(f) By Holdings or AFC if (i) any event shall have occurred as
a result of which any condition set forth in Section 6.1 is no longer
capable of being satisfied or (ii) the
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Merger shall not have been consummated by December 1, 1997; provided,
however, that, in either case, the party terminating this Agreement
shall not have breached in any material respect its obligations under
this Agreement in any manner that proximately contributed to the
failure of any such condition to be satisfied or to the failure to
consummate the Merger.
As used herein, a "Competing Transaction" shall mean (i) any merger,
consolidation, share exchange, business combination, or other similar
transaction involving AFC or a significant Subsidiary of AFC; (ii) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition of 25% or more
of the assets of AFC, taken as a whole, in a single transaction or series of
transactions; (iii) any tender or exchange offer for 25% or more of the
outstanding shares of AFC Common Stock or the filing of a registration statement
under the Securities Act in connection therewith; or (iv) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing.
7.2 Specific Performance. The parties acknowledge that the rights of
each party to consummate Merger are special, unique, and of extraordinary
character, and that, in the event that either violates or fails and refuses to
perform any covenant made by it herein, the other party or parties will be
without adequate remedy at law. Each party agrees, therefore, that, in the event
that it violates or fails and refuses to perform any covenant made by it herein,
the other party or parties so long as it or they are not in breach hereof, may,
in addition to any remedies at law, institute and prosecute an action in a court
of competent jurisdiction to enforce specific performance of such covenant or
seek any other equitable relief.
7.3 Rights and Obligations upon Termination. If this Agreement is not
consummated for any reason, each party will redeliver all documents, work
papers, and other materials of any party relating to the Merger, whether
obtained before or after the execution hereof, to the party furnishing the same,
except to the extent previously delivered to third parties in connection with
the Merger, and no information received by any party hereto with respect to the
business of any other party shall be used for the advantage of, or disclosed to
third parties by, such party to the detriment of the party furnishing such
information; provided, however, that this Section 7.3 shall not apply to any
documents, work papers, material, or information that, through no act or failure
to act by any other party hereto (a) is a matter of public knowledge or (b)
heretofore has been or hereafter is published in any publication for public
distribution or filed as public information with any Governmental Entity.
7.4 Certain Fees and Expenses. AFC acknowledges that Holdings has
spent, and will be required to spend, substantial time and effort in examining
the business, properties, affairs, financial condition and prospects of AFC and
its Subsidiaries and has incurred, and will continue to incur, substantial fees
and expenses in connection with such examination, the preparation of this
Agreement and the accomplishment of the Merger. Therefore, to induce Holdings to
enter this Agreement:
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(a) Expenses. In the event that AFC terminates this Agreement
pursuant to Section 7.1(d) or Holdings terminates this Agreement
pursuant to Section 7.1(b)(iii) or Section 7.1(b)(iv) and at the time
there exists a Competing Transaction, then AFC shall reimburse Holdings
for the total amount of the Expenses. For purposes of this Section 7.4,
"Expenses" shall include all reasonable out-of-pocket expenses and fees
(including, without limitation, fees and expenses payable to all
investment banking firms and their respective agents and counsel, and
all reasonable fees of counsel, accountants, experts and consultants to
Holdings) actually incurred by Bunzl, Holdings or on their behalf since
June 26, 1997 in connection with the Merger and all transactions
contemplated by this Agreement; provided, however, that Expenses shall
be limited to 1% of the product of the Merger Consideration multiplied
by the total number of shares of outstanding AFC Common Stock. The
Expenses, if due, shall be paid promptly after such termination.
(b) Fee. If this Agreement is terminated pursuant to Section
7.1(d) by AFC or pursuant to Section 7.1(b)(iii) or 7.1(b)(iv) by
Holdings and a Competing Transaction is consummated on or before July
30, 1998, then AFC shall pay to Holdings promptly after the
consummation of the Competing Transaction a fee in the amount of 2% of
the product of the Merger Consideration multiplied by the total number
of shares of outstanding AFC Common Stock in addition to the amount of
any Expenses paid or payable under subsection (a) above (the "Fee"),
not as a penalty but as full and complete liquidated damages.
The Expenses and the Fee shall be payable to Holdings notwithstanding that any
action taken by the Board of Directors of AFC that may give rise to the
obligation to pay the Expenses and the Fee may have been taken in accordance
with the fiduciary duties of the Board of Directors.
(c) Payment. Any payment required pursuant to this Section 7.4
shall be made as promptly as practicable, but in no event later than
three business days after Holdings' delivery to AFC of a statement
setting forth the amount payable and the facts causing such amount to
be payable, including (if applicable) the Expenses in reasonable
detail, and shall be made by wire transfer of immediately available
funds to an account designated by Holdings. In the event that Holdings
is entitled to the Expenses or the Fee, AFC shall also pay to Holdings
interest at the rate of 8.0% per year on any amounts that are not paid
when due, plus all costs and expenses in connection with or arising out
of the enforcement of the obligation of AFC to pay the Expenses, the
Fee or such interest.
7.5 Effect of Termination. Except for the provisions of Sections 5.4,
5.5, 5.12, 7.3, 7.4, this Section 7.5 and Article 8, which shall survive any
termination of this Agreement, in the event of the termination and abandonment
of this Agreement pursuant to Section 7.1, this Agreement shall forthwith become
void and have no further effect, without any liability on the part of any party
hereto or its respective officers, directors or shareholders; provided, however,
that except as expressly set forth in Section 7.4(b), nothing in this Section
7.5 shall relieve any
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party from liability for the knowing and intentional breach of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
ARTICLE 8
GENERAL PROVISIONS
8.1 Waiver of Certain Conditions. Any party may, at its option, waive
in writing any or all of the conditions herein contained to which its
obligations hereunder are subject, except that the conditions contained in
Section 6.1, and Section 6.2(a) (with respect to consents and authorizations,
orders and approvals of, and filings and registrations with, any Governmental
Entity) and Section 6.3(a) (with respect to consents and authorizations, orders
and approvals of, and filings and registrations with, any Governmental Entity)
may not be so waived.
8.2 Notices. All notices and other communications under this Agreement
shall be in writing and may be given by any of the following methods: (a)
personal delivery; (b) facsimile transmission; (c) registered or certified mail,
postage prepaid, return receipt requested; or (d) overnight delivery service
requiring acknowledgment of receipt. Any such notice or communication shall be
sent to the appropriate party at its address or facsimile number given below (or
at such other address or facsimile number for such party as shall be specified
by notice given hereunder):
If to Holdings or SubCorp, to:
c/o Bunzl plc
110 Park Street
London WIY 3RD
Fax No. 011-44-171-495-2527
Attention: Company Secretary
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Fax No. (212) 450-4800
Attention: John J. McCarthy, Jr., Esquire
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If to AFC, to:
3951 Westerre Parkway, Suite 300
Richmond, Virginia 23233
Fax No. (804) 346-0164
Attention: John L. Morgan
with a copy to:
Hunton & Williams
951 East Byrd Street
Richmond, Virginia 23219-4074
Fax No. (804) 788-8218
Attention: C. Porter Vaughan, III, Esquire
All such notices and communications shall be deemed received upon (i) actual
receipt thereof by the addressee, (ii) actual delivery thereof to the
appropriate address as evidenced by an acknowledged receipt, or (iii) in the
case of a facsimile transmission, upon transmission thereof by the sender and
confirmation of receipt. In the case of notices or communications sent by
facsimile transmission, the sender shall contemporaneously mail or deliver a
copy of the notice or communication to the addressee at the address provided for
above. However, such mailing shall in no way alter the time at which the
facsimile notice or communication is deemed received.
8.3 Table of Contents; Headings. The Table of Contents, cross reference
pages and headings contained herein are for convenience of reference only, do
not constitute a part of this Agreement, and shall not be deemed to limit or
affect any of the provisions hereof.
8.4 Amendment. Except as otherwise provided in Section 13.1-718(I) of
the VSCA, this Agreement or the Plan of Merger may be amended, at any time
before or after the approval of this Agreement and the Plan of Merger by the
holders of AFC Common Stock, by action of the respective Boards of Directors of
AFC, Holdings and SubCorp, without action by the shareholders thereof. Any
variation, modification or amendment to this Agreement must be made in writing
and executed by each of the parties hereto.
8.5 No Survival of Representations, Warranties or Covenants. None of
the representations or warranties made in Article 4 or the covenants made in
Article 5 shall survive the Closing Date.
8.6 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the Merger is not affected in any manner adverse to any party hereto. Upon any
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such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto will negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the Merger as
contemplated by the Plan of Merger is consummated.
8.7 Waiver. The failure of any party hereto at any time or times to
require performance of any provision hereof shall in no manner affect the right
to enforce the same. No waiver by any party of any condition, or the breach of
any term, provision, warranty, representation, agreement or covenant contained
in this Agreement or the other agreements contemplated hereby, whether by
conduct or otherwise, in any one or more instances shall be deemed or construed
as a further or continuing waiver of any such condition or breach or a waiver of
any other condition or of the breach of any other term, provision, warranty,
representation, agreement or covenant herein or therein contained.
8.8 No Third Party Beneficiaries; Assignment. This Agreement shall
inure to the benefit of the parties and their respective successors and
permitted assignees. Nothing in this Agreement shall create or be deemed to
create any third party beneficiary rights in any person or entity; provided,
however, that all persons who are beneficiaries of Sections 5.4(a), 5.10 or 5.12
shall be entitled to enforce the provisions of those sections, respectively.
Except for assignments to wholly-owned subsidiaries (direct or indirect) of
Holdings, in which event Holdings shall remain liable for the performance of
this Agreement, no transfer or assignment (including by operation of law) of
this Agreement or of any rights or obligations under this Agreement may be made
by any party without the prior written consent of the other parties and any
attempted transfer or assignment without that required consent shall be void. No
transfer or assignment by a party of its rights under this Agreement shall
relieve it of any of its obligations to the other parties under this Agreement.
8.9 Time of the Essence; Computation of Time. Time is of the essence of
each and every provision of this Agreement. Whenever the last day for the
exercise of any right or the discharge of any duty under this Agreement shall
fall upon Saturday, Sunday or a public or legal holiday, the party having such
right or duty shall have until 5:00 p.m. New York City time on the next
succeeding regular business day to exercise such right or to discharge such
duty.
8.10 Counterparts. This Agreement may be executed by each party upon a
separate copy, and in such case one counterpart of this Agreement shall consist
of enough of such copies to reflect the signatures of all of the parties. This
Agreement may be executed in two or more counterparts, each of which shall be an
original, and each of which shall constitute one and the same agreement. Any
party may deliver an executed copy of this Agreement and of any documents
contemplated hereby by facsimile transmission to another party and such delivery
shall have the same force and effect as any other delivery of a manually signed
copy of this Agreement or of such other documents.
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8.11 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia, without giving
effect to the conflicts of law principles thereof.
8.12 Entire Agreement. This Agreement (with its Schedules and Exhibits)
and the Confidentiality Agreement contain, and are intended as, a complete
statement of all the terms of the arrangements among the parties with respect to
the matters provided for, supersede any previous agreements and understandings
between the parties with respect to those matters and cannot be changed or
terminated orally.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
AMERICAN FILTRONA CORPORATION
----------------------------------
Name:
Title:
FIL HOLDINGS CORP.
----------------------------------
Name:
Title:
FIL MERGER CORP.
----------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
PLAN OF MERGER
OF
FIL MERGER CORP.
WITH AND INTO
AMERICAN FILTRONA CORPORATION
SECTION 1. Corporations Proposing to Merge and Surviving Corporation.
FIL Merger Corp. ("SubCorp"), a Virginia corporation and wholly-owned subsidiary
of FIL Holdings Corp. ("Holdings"), a Delaware corporation, shall be merged (the
"Merger") with and into American Filtrona Corporation ("AFC"), a Virginia
corporation, pursuant to the terms and conditions of this Plan of Merger (the
"Plan of Merger") and of the Agreement of Merger, dated as of July 29, 1997, by
and among AFC, Holdings and SubCorp (the "Agreement"). The effective time for
the Merger (the "Effective Time") shall be at the time a certificate of merger
is issued by the Virginia State Corporation Commission with respect to the
Merger unless a later Effective Time is specified in the Articles of Merger
filed pursuant to the Virginia Stock Corporation Act (the "VSCA"). AFC shall
continue as the surviving corporation (the "Surviving Corporation") in the
Merger and the separate corporate existence of SubCorp shall cease.
SECTION 2. Effects of the Merger. The Merger shall have the effects
described in this Plan of Merger and as set forth in Section 13.1-721 of the
VSCA.
SECTION 3. Articles of Incorporation. The Articles of Incorporation of
AFC as in effect immediately prior to the Effective Time shall be amended and
restated at the Effective Time in their entirety as the Articles of
Incorporation of the Surviving Corporation to read as set forth in Exhibit I
attached hereto.
SECTION 4. Officers and Directors. At the Effective Time, the persons
who are officers and directors of SubCorp at the Effective Time will become the
officers and directors of the Surviving Corporation.
SECTION 5. Conversion of Shares and Rights. The manner of converting or
canceling shares of SubCorp and shares and certain rights to acquire shares of
AFC shall, by virtue of the Merger and without any further action on the part of
the holders thereof, be as follows:
(a) At the Effective Time, each share of AFC common stock, $1.00 par
value (the "AFC Common Stock") then outstanding other than the Excluded Shares
(as hereinafter defined), shall be canceled and extinguished and converted into
the right to receive $46.52 in cash from the Surviving Corporation. As used in
this Section 5(a), "Excluded Shares" means
<PAGE>
any shares of AFC Common Stock held by any of AFC's subsidiaries or by Holdings
or any of its subsidiaries, if any.
(b) At the Effective Time, all rights to acquire shares of AFC Common
Stock evidenced by employee stock options outstanding immediately before the
Effective Time shall be automatically converted into the right to receive $46.52
in cash from the Surviving Corporation in respect of each share of AFC Common
Stock covered by each such option, minus the exercise price applicable to such
option.
(c) At the Effective Time, each issued and outstanding share of
SubCorp common stock shall automatically be converted into one share of common
stock, $1.00 par value, of the Surviving Corporation.
<PAGE>
Annex II
OPINION OF GOLDMAN SACHS
(To be delivered at a later date)
