SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 2)
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
(X) 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
(X) 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: $36,481.29
2) Form, Schedule, or Registration Statement No.: Preliminary Schedule 14A
3) Filing Party: American Filtrona Corporation
4) Date Filed: 08/01/97
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AMERICAN FILTRONA CORPORATION
3951 WESTERRE PARKWAY, SUITE 300
RICHMOND, VIRGINIA 23233
[LOGO]
ANNUAL MEETING OF SHAREHOLDERS
August 25, 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 23,
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 UNANIMOUSLY
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
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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 23, 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 25, 1997
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.
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AMERICAN FILTRONA CORPORATION
3951 WESTERRE PARKWAY, SUITE 300
RICHMOND, VIRGINIA 23233
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
Approximate date of mailing -- August 25, 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 23, 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
UNANIMOUSLY 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 pursuant to the Merger Agreement, excluding Holdings and its subsidiaries
and WBT Holdings, LLC ("WBT") and RNBT Holdings, LLC ("RNBT") under the
circumstances hereinafter described. 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 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 3,818,129 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 CORPORATION OR ANY OTHER PERSON.
------------------------
The date of this Proxy Statement is August 25, 1997.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SUMMARY.......................................................................................................... 4
The Annual Meeting.......................................................................................... 4
The Merger.................................................................................................. 5
SELECTED FINANCIAL INFORMATION CONCERNING THE CORPORATION........................................................ 8
ANNUAL MEETING................................................................................................... 9
Place, Date and Time........................................................................................ 9
Record Date; Solicitation of Proxies........................................................................ 9
Vote Required............................................................................................... 9
THE MERGER....................................................................................................... 11
General..................................................................................................... 11
Background of Merger........................................................................................ 11
Reasons for Merger; Recommendation of the Board of Directors................................................ 15
Opinion of Financial Advisor................................................................................ 17
Certain Tax Consequences of the Merger...................................................................... 20
No Dissenters' Rights....................................................................................... 21
Anticipated Accounting Treatment............................................................................ 21
Interests of Certain Persons in the Merger.................................................................. 21
Effective Time of the Merger................................................................................ 22
Payment for Shares of Common Stock.......................................................................... 22
No Solicitation; Fiduciary Duties........................................................................... 23
Government and Regulatory Approvals and Filings............................................................. 23
Terms of the Merger......................................................................................... 23
General................................................................................................ 23
Amendment, Extension, Waiver........................................................................... 23
Conditions to the Merger............................................................................... 24
Conduct of Business Pending the Merger................................................................. 24
Benefit Plans.......................................................................................... 24
Termination............................................................................................ 25
Guaranty............................................................................................... 25
MARKET PRICES AND DIVIDEND INFORMATION........................................................................... 25
SELECTED FINANCIAL INFORMATION CONCERNING THE CORPORATION........................................................ 26
ELECTION OF DIRECTORS............................................................................................ 27
SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE...................................................................... 28
SECURITY OWNERSHIP............................................................................................... 29
Security Ownership of Certain Beneficial Owners............................................................. 29
Security Ownership of Certain Management of the Corporation................................................. 30
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS................................................................. 31
Summary Compensation Table.................................................................................. 31
Option/SAR Grants in Last Fiscal Year....................................................................... 32
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values............................ 32
Retirement Benefits......................................................................................... 32
Remuneration of Directors................................................................................... 33
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION...................................................... 33
REPORT OF EXECUTIVE COMPENSATION COMMITTEE....................................................................... 33
PERFORMANCE GRAPH................................................................................................ 35
</TABLE>
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<TABLE>
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PAGE
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INDEPENDENT ACCOUNTANTS.......................................................................................... 35
<S> <C>
ADDITIONAL INFORMATION........................................................................................... 35
Incorporation of Certain Documents by Reference............................................................. 35
SHAREHOLDER PROPOSALS............................................................................................ 36
OTHER MATTERS.................................................................................................... 36
ANNEXES
Merger Agreement and Plan of Merger......................................................................... Annex I
Opinion of Goldman Sachs.................................................................................... Annex II
</TABLE>
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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 23, 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, 3,818,129 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.
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
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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 respective affiliates have
granted to Holdings irrevocable proxies with respect to the voting of
approximately 45.8% of the outstanding shares of Common Stock for the approval
of the Merger Agreement and the Plan of Merger (each, an "Irrevocable Proxy").
Holdings intends to vote all shares of Common Stock subject to the Irrevocable
Proxies granted by the family of Rudolph H. Bunzl and their affiliates for the
approval of the Agreement of Merger and the Plan of Merger. Whether or not the
W. H. Bunzl Interests (as hereinafter defined) exercise their rights under the
Acquisition Agreement, (see "The Merger -- Interests of Certain Persons in the
Merger-Acquisition Agreement"), Holdings intends to vote all shares of Common
Stock subject to the Irrevocable Proxies granted by the family of the late
Walter Bunzl and their affilates for the approval of the Merger Agreement and
the Plan of Merger. The current directors and executive officers of the
Corporation (other than those persons referenced in the first sentence of this
paragraph) also have indicated that they intend to vote approximately an
additional 7.6% of the outstanding shares of Common Stock for the approval of
the Merger Agreement and the Plan of Merger. Thus the current directors and
executive officers of the Corporation and the members of the family of the late
Walter H. Bunzl and the family of Rudolph H. Bunzl and certain of their
respective affiliates have indicated their intent to vote, or granted
Irrevocable Proxies to vote, an aggregate of 53.4% of the outstanding shares of
Common Stock FOR the approval of the Merger Agreement and the Plan of Merger.
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 7400
Whitepine Road, Richmond, Virginia 23237, and (804) 275-7850.
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 7400 Whitepine Road, Richmond, Virginia 23237, and (804)
275-7850.
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.
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 pursuant to the
Merger Agreement, excluding Holdings and its subsidiaries and WBT and RNBT under
the circumstances hereinafter described, is fair to such holders.
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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 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
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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."
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 August 11, 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 August 22, 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 $45 15/16 per share
and $45 7/8 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
BOOK VALUE PER SHARE OF COMMON STOCK 26.13 23.75 24.87 22.71 20.98 18.98 18.03
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 23, 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 3,818,129 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 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.
Any shareholder may revoke his, her or its 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
9
<PAGE>
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, INCLUDING MR. BUNZL, 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 to Holdings. Holdings intends to vote
all shares of Common Stock subject to the Irrevocable Proxies granted by the
family of Rudolph H. Bunzl and their affiliates for the approval of the
Agreement of Merger and the Plan of Merger. Whether or not the W. H. Bunzl
Interests exercise their rights under the Acquisition Agreement (see "The
Merger -- Interests of Certain Persons in the Merger-Acquisition Agreement"),
Holdings intends to vote all shares of Common Stock subject to the Irrevocable
Proxies granted by the family of the late Walter Bunzl and their affiliates for
the approval of the Merger Agreement and the Plan of Merger. THUS THE CURRENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION AND THE MEMBERS OF THE
FAMILY OF THE LATE WALTER H. BUNZL AND THE FAMILY OF RUDOLPH H. BUNZL AND
CERTAIN OF THEIR RESPECTIVE AFFILIATES HAVE INDICATED THEIR INTENT TO VOTE, OR
GRANTED IRREVOCABLE PROXIES TO VOTE, AN AGGREGATE OF 53.4% OF THE OUTSTANDING
SHARES OF COMMON STOCK FOR THE APPROVAL OF THE MERGER AGREEMENT AND THE PLAN OF
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) 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.
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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<PAGE>
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 257,300 shares of
Common Stock, entitling the holders to an aggregate amount of cash equal to
$4,801,874.13 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 H. Bunzl and the late Walter H. 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.
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
11
<PAGE>
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 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.
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<PAGE>
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 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
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<PAGE>
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 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). Although in the Corporation's view WBT may not have had a
contractual right to terminate the WBT Agreement, the Board decided that it was
in the best interests of the Corporation and its shareholders at that time to
pursue an alternative transaction rather than to
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seek a breach of contract or equitable remedy against WBT. The Board then
authorized 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 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 pursuant to the Merger Agreement, excluding Holdings
and its subsidiaries and WBT and RNBT to the extent they sell shares of Common
Stock pursuant to the Acquisition 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 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.);
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(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 pursuant to the Merger Agreement, excluding
Holdings and its subsidiaries and WBT and RNBT to the extent they
sell shares of Common Stock pursuant to the Acquisition 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.
With regard to the prospective information referenced in item (ii) above,
the Corporation's management prepared for the Board and delivered to Goldman
Sachs certain forecasts of the Corporation's future financial performance,
including revenues, income and cash flow. These forecasts included: projected
net sales for the years ended December 31, 1997, 1998 and 1999 of $204.3
million, $208.9 million and $220.2 million, respectively; projected net income
of $13.6 million, $15.4 million and $17.5 million, respectively; and earnings
per share of $3.55, $4.04 and $4.59, respectively, on a primary basis, and
$3.33, $3.79 and $4.30, respectively, on a fully-diluted basis.
The Corporation has made certain forward-looking statements in the
preceding paragraph as to how the Corporation may perform in the future. These
statements include estimates and projected aggregate results of the
Corporation's businesses that originally were prepared by the Corporation solely
for use by the Corporation's management, without involvement or independent
review and analysis by Goldman Sachs. None of the projections and estimates have
been updated since the date of their initial preparation. All of such
projections and estimates represent the subjective views of management and are
based upon information then available and assumptions made as of the time the
estimates and projections were prepared. Because such projections and estimates
are inherently subject to uncertainty, their inclusion in this Proxy Statement
should not be regarded as an indication that the Corporation or any other person
believes the actual results of the Corporation will not be materially different.
For these statements, the Corporation claims the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.
Shareholders should understand that the following important factors, among
others, could affect the future results of the Corporation and could cause those
results to differ materially from those expressed in the Corporation's
forward-looking statements. These factors include: material improvements or
materially adverse changes in U.S. or foreign economic conditions generally and
in the markets served by the Corporation in particular; a significant increase
or decrease in orders from certain of the Corporation's more significant
customers; and significant increases or decreases in the costs of raw materials
used in the Corporation's operations.
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
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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, (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 pursuant to
the Merger Agreement, excluding Holdings and its subsidiaries and WBT and RNBT
to the extent they sell shares of Common Stock pursuant to the Acquisition
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.
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
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"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 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
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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.
(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
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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.
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
pursuant to the Merger Agreement, excluding Holdings and its subsidiaries and
WBT and RNBT to the extent they sell shares of Common Stock pursuant to the
Acquisition 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
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.
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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.
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).
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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.
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
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<PAGE>
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.
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 August 11, 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 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
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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 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
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"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 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 August 22, 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 $45 15/16 per share
and $45 7/8 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
BOOK VALUE PER SHARE OF COMMON STOCK 26.13 23.75 24.87 22.71 20.98 18.98 18.03
CASH DIVIDENDS DECLARED AND PAID PER
SHARE OF COMMON STOCK .56 .53 1.09 1.03 .98 .95 .94
</TABLE>
26
<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, DIRECTOR
NAME AGE DIRECTORSHIPS IN PUBLIC CORPORATIONS SINCE
- ------------------------- --- ----------------------------------------------------- --------
<S> <C>
JOHN D. BARLOW, JR. 62 Vice President -- Finance of the Corporation. 1982
RUDOLPH H. BUNZL (a) 74 Former Chairman of the Board of the Corporation 1954
(1987-1994), and prior thereto Chairman and Chief
Executive Officer.
MANUEL DEESE 55 Retired (since February 1997); formerly Executive 1986
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., 1990
law 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.
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 Chairman and 1984
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 Chairman of 1978
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.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH CORPORATION,
PRINCIPAL OCCUPATION FOR LAST 5 YEARS, DIRECTOR
NAME AGE DIRECTORSHIPS IN PUBLIC CORPORATIONS SINCE
- ------------------------- --- ----------------------------------------------------- --------
<S> <C>
BERNARD C. WAMPLER 65 Chairman (since December 1993) and Chief Executive 1988
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 Chesapeake 1988
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 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.
28
<PAGE>
SECURITY OWNERSHIP
Pursuant to the rules and regulations of the Securities Exchange Act of
1934, as amended, 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 (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.
<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.
29
<PAGE>
(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. 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.
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.
30
<PAGE>
(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.
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
--------------------------
AWARDS PAYOUTS($)(1)
ANNUAL COMPENSATION -------- -------------
--------------------- 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.
(8) In addition, Anthony M. Vincent received a one-time payment of $134,375 in
1994 related to the sale of Dollinger Corporation.
31
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information on options or Stock Appreciation
Rights ("SAR") grants made during the 1996 fiscal year by the Corporation to the
Chief Executive Officer and the four other most highly compensated executive
officers of the Corporation.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------ VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR ($) 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
OPTIONS\SARS AT IN-THE-MONEY OPTIONS
VALUE(1) FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(1)
SHARES ACQUIRED REALIZED ------------------------- -------------------------
NAME ON EXERCISE (#) ($) 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.
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.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ANNUAL RETIREMENT BENEFITS PAYABLE FOR CREDITED
SERVICE OF FINAL AVERAGE
-----------------------------------------------------
10
EARNINGS 5 YEARS 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>
32
<PAGE>
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 of 1986, as amended, 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
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 35. 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.
33
<PAGE>
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 32 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.
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)
34
<PAGE>
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.
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;
(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.
35
<PAGE>
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 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 25, 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
36
<PAGE>
ANNEX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT OF MERGER
AMONG
FIL HOLDINGS CORP.,
FIL MERGER CORP.
AND
AMERICAN FILTRONA CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
JULY 29, 1997
<PAGE>
<TABLE>
<S> <C>
ARTICLE 1
THE BUSINESS COMBINATION.............................................................................................. A-1
1.1 THE MERGER............................................................................................. A-1
1.2 CLOSING................................................................................................ A-1
1.3 EFFECTIVE TIME OF THE MERGER........................................................................... A-1
1.4 ARTICLES OF INCORPORATION; BYLAWS...................................................................... A-2
1.5 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION.................................................... A-2
ARTICLE 2
CONVERSION AND EXCHANGE OF SHARES; ADDITIONAL ACTION.................................................................. A-2
2.1 CONVERSION OF SHARES................................................................................... A-2
(a) AFC COMMON STOCK................................................................................ A-2
(b) SUBCORP STOCK................................................................................... A-2
2.2 MERGER CONSIDERATION................................................................................... A-2
2.3 STOCK TRANSFER BOOKS................................................................................... A-2
2.4 SURRENDER AND EXCHANGE OF CERTIFICATES REPRESENTING AFC COMMON STOCK................................... A-2
(a) EXCHANGE AGENT.................................................................................. A-2
(b) SURRENDER OF CERTIFICATES....................................................................... A-2
(c) LOST CERTIFICATES............................................................................... A-3
(d) NO INTEREST..................................................................................... A-3
(e) WITHHOLDING RIGHTS.............................................................................. A-3
ARTICLE 3
AFC STOCK OPTIONS..................................................................................................... A-3
ARTICLE 4
REPRESENTATIONS AND WARRANTIES........................................................................................ A-3
4.1 REPRESENTATIONS AND WARRANTIES BY AFC.................................................................. A-3
(a) ORGANIZATION AND QUALIFICATION.................................................................. A-3
(b) CAPITALIZATION.................................................................................. A-3
(c) AUTHORITY....................................................................................... A-4
(d) NON-CONTRAVENTION............................................................................... A-4
(e) GOVERNMENTAL CONSENTS........................................................................... A-4
(f) PERIODIC REPORTS................................................................................ A-4
(g) SUBSIDIARIES.................................................................................... A-5
(h) FINANCIAL STATEMENTS............................................................................ A-5
(i) ABSENCE OF CERTAIN CHANGES OR EVENTS............................................................ A-6
(j) GOVERNMENTAL AUTHORIZATION AND COMPLIANCE WITH LAWS............................................. A-6
(k) CONDUCT OF BUSINESS............................................................................. A-7
(l) TAX MATTERS..................................................................................... A-7
(m) PROPERTY........................................................................................ A-7
(n) MATERIAL CONTRACTS.............................................................................. A-8
(o) LEGAL PROCEEDINGS............................................................................... A-9
(p) LABOR RELATIONS................................................................................. A-10
(q) INSIDER INTERESTS............................................................................... A-10
(r) INTELLECTUAL PROPERTY........................................................................... A-10
(s) INSURANCE....................................................................................... A-11
(t) PROXY STATEMENT................................................................................. A-11
(u) EMPLOYEE AND FRINGE BENEFIT PLANS............................................................... A-11
</TABLE>
i
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<TABLE>
<S> <C>
(v) MAJOR CUSTOMERS................................................................................. A-13
(w) SECTIONS 13.1-725 THROUGH 13.1-727.1............................................................ A-13
(x) ENVIRONMENTAL................................................................................... A-13
(y) ACCURACY OF SCHEDULES, CERTIFICATES AND DOCUMENTS............................................... A-15
(z) BROKERS, FINDERS AND INVESTMENT BANKERS......................................................... A-15
(aa) INVENTORIES AND RAW MATERIALS OF FIBERS BUSINESS................................................ A-15
(bb) RECEIVABLES OF THE FIBERS BUSINESS.............................................................. A-15
(cc) EMPLOYEES OF FIBERS BUSINESS.................................................................... A-15
(dd) PRODUCTS OF THE FIBERS BUSINESS................................................................. A-15
(ee) INTRACOMPANY ACCOUNTS........................................................................... A-15
(ff) FOREIGN CURRENCY EXPOSURES...................................................................... A-16
(gg) COMPANY NAME.................................................................................... A-16
(hh) INDEBTEDNESS.................................................................................... A-16
4.2 REPRESENTATIONS AND WARRANTIES BY HOLDINGS AND SUBCORP................................................. A-16
(a) ORGANIZATION AND QUALIFICATION, ETC............................................................. A-16
(b) AUTHORITY....................................................................................... A-16
(c) NON-CONTRAVENTION............................................................................... A-16
(d) GOVERNMENTAL CONSENTS........................................................................... A-17
(e) PROXY STATEMENT................................................................................. A-17
(f) ACTIVITIES OF HOLDINGS AND SUBCORP.............................................................. A-17
(g) LEGAL PROCEEDINGS............................................................................... A-17
(h) BROKERS, FINDERS AND INVESTMENT BANKERS......................................................... A-17
(i) OBLIGATIONS TO FUND............................................................................. A-17
(j) ABSENCE OF CERTAIN CHANGES...................................................................... A-17
ARTICLE 5
ADDITIONAL COVENANTS AND AGREEMENTS................................................................................... A-18
5.1 CONDUCT OF BUSINESS.................................................................................... A-18
(a) OPERATION BY AFC IN THE ORDINARY COURSE OF BUSINESS............................................. A-18
(b) FORBEARANCES BY AFC............................................................................. A-18
(c) CONDUCT OF THE FIBERS BUSINESS.................................................................. A-19
(d) NOTICES OF CERTAIN EVENTS....................................................................... A-19
5.2 AFC SHAREHOLDERS MEETING............................................................................... A-20
5.3 BEST EFFORTS; FURTHER ASSURANCES; COOPERATION.......................................................... A-20
(a) REGULATORY ACTION............................................................................... A-20
(b) CERTAIN LEGAL PROCEEDINGS....................................................................... A-20
(c) NOTICE.......................................................................................... A-20
5.4 INVESTIGATION; CONFIDENTIALITY......................................................................... A-20
5.5 EXPENSES............................................................................................... A-21
5.6 PROXY STATEMENT........................................................................................ A-21
5.7 PERIODIC REPORTS....................................................................................... A-21
5.8 PUBLIC ANNOUNCEMENTS................................................................................... A-21
5.9 ANTITRUST CHALLENGES................................................................................... A-21
5.10 EMPLOYEE MATTERS....................................................................................... A-21
(a) STAY BONUSES AND SEVERANCE AGREEMENTS........................................................... A-21
(b) EMPLOYEE BENEFIT PLAN MATTERS................................................................... A-21
5.11 ACCOUNTANT'S LETTERS................................................................................... A-22
</TABLE>
ii
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<TABLE>
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5.12 NON SOLICITATION; COMPETING OFFERS..................................................................... A-22
5.13 INVESTMENT SECURITIES.................................................................................. A-22
5.14 FILPAC INDEBTEDNESS.................................................................................... A-22
5.15 SETTLEMENT OF LAWSUITS................................................................................. A-22
ARTICLE 6
CONDITIONS TO THE MERGER.............................................................................................. A-22
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY................................................................ A-22
(a) AFC SHAREHOLDER APPROVAL........................................................................ A-22
(b) HSR ACT......................................................................................... A-22
(c) PROXY STATEMENT................................................................................. A-22
(d) INJUNCTION, ETC................................................................................. A-22
6.2 CONDITIONS TO OBLIGATIONS OF HOLDINGS AND SUBCORP...................................................... A-22
(a) CONSENTS, AUTHORIZATIONS, ETC................................................................... A-23
(b) REPRESENTATIONS AND WARRANTIES.................................................................. A-23
(c) CERTIFICATE..................................................................................... A-23
(d) OPINION OF AFC'S COUNSEL........................................................................ A-23
(e) LETTERS FROM ACCOUNTANTS........................................................................ A-23
(f) ADDITIONAL CERTIFICATES, ETC.................................................................... A-23
(g) RESIGNATIONS.................................................................................... A-23
(h) MORGAN CONSULTING AND NONCOMPETITION AGREEMENTS................................................. A-23
(i) MORGAN SEVERANCE AGREEMENT...................................................................... A-23
(j) TRANSFER AGENT'S CERTIFICATE.................................................................... A-23
6.3 CONDITIONS TO OBLIGATIONS OF AFC....................................................................... A-23
(a) CONSENTS, AUTHORIZATIONS, ETC................................................................... A-23
(b) REPRESENTATIONS AND WARRANTIES.................................................................. A-24
(c) CERTIFICATE..................................................................................... A-24
(d) OPINIONS OF HOLDINGS' AND SUBCORP'S COUNSEL..................................................... A-24
(e) ADDITIONAL CERTIFICATES, ETC.................................................................... A-24
(f) FAIRNESS OPINION................................................................................ A-24
ARTICLE 7
TERMINATION AND ABANDONMENT........................................................................................... A-24
7.1 TERMINATION AND ABANDONMENT............................................................................ A-25
7.2 SPECIFIC PERFORMANCE................................................................................... A-25
7.3 RIGHTS AND OBLIGATIONS UPON TERMINATION................................................................ A-25
7.4 CERTAIN FEES AND EXPENSES.............................................................................. A-25
(a) EXPENSES........................................................................................ A-25
(b) FEE............................................................................................. A-26
(c) PAYMENT......................................................................................... A-26
7.5 EFFECT OF TERMINATION.................................................................................. A-26
ARTICLE 8
GENERAL PROVISIONS.................................................................................................... A-26
8.1 WAIVER OF CERTAIN CONDITIONS........................................................................... A-26
8.2 NOTICES................................................................................................ A-27
8.3 TABLE OF CONTENTS; HEADINGS............................................................................ A-27
8.4 AMENDMENT.............................................................................................. A-27
8.5 NO SURVIVAL OF REPRESENTATIONS, WARRANTIES OR COVENANTS................................................ A-27
</TABLE>
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<TABLE>
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8.6 SEVERABILITY........................................................................................... A-27
8.7 WAIVER................................................................................................. A-27
8.8 NO THIRD PARTY BENEFICIARIES; ASSIGNMENT............................................................... A-27
8.9 TIME OF THE ESSENCE; COMPUTATION OF TIME............................................................... A-28
8.10 COUNTERPARTS........................................................................................... A-28
8.11 GOVERNING LAW.......................................................................................... A-28
8.12 ENTIRE AGREEMENT....................................................................................... A-28
</TABLE>
<TABLE>
<S> <C>
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
</TABLE>
<TABLE>
<S> <C>
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
4.1(ff)(i) Foreign Currency -- Products
4.1(ff)(ii) Foreign Currency -- Raw Materials
4.1(hh) Indebtedness
5.1 Conduct of Business
</TABLE>
iv
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<TABLE>
<S> <C>
5.1(b)(vi) Capital Expenditures
5.10 Stay Bonuses and Severance Agreements
</TABLE>
DEFINED TERMS
<TABLE>
<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)
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)
</TABLE>
v
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<TABLE>
<S> <C>
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)
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>
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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:
ARTICLE 1
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").
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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.
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 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
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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.
(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 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
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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 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.
(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
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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 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.
(C) The statements do not or will not reflect any allocations of
corporate overhead.
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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 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
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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) 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 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,
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structures or improvements for the purposes for which 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 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;
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(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;
(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.
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
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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 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 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
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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 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:
(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
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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.
(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 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
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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, 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.
(section mark) 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 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
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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 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. (section mark) 9601 ET SEQ., as amended;
[3] "hazardous materials" as identified in or pursuant to the Hazardous
Materials Transportation Act, 49 U.S.C. (section mark) 1801 ET SEQ., as
amended; [4] "hazardous wastes" and "regulated
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substances" as identified in or pursuant to the Resource Conservation and
Recovery Act, 42 U.S.C. (section mark) 6901 ET SEQ., as amended; [5] any
chemical substance or mixture regulated under the Toxic Substance Control
Act of 1976, 15 U.S.C. (section mark) 2601 ET SEQ., as amended; [6] any
"toxic pollutant" under the Clean Water Act, 33 U.S.C. (section mark) 466
ET SEQ., as amended; [7] any hazardous air pollutant under the Clean Air
Act, 42, U.S.C. (section mark) 7401 ET SEQ., as amended; and [8] any toxic
or hazardous wastes, 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 busine(section mark) 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 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
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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 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
Busine(section mark) 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). 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
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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.
(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.
(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.
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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 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.
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(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;
(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.
(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.
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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 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.
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.
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(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 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.
(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
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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.
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:
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(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 (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 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
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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
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 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:
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(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 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:
(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,
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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 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
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Fax No. (212) 450-4800
Attention: John J. McCarthy, Jr., Esquire
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
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
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<PAGE>
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.
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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
AMERICAN FILTRONA CORPORATION
By: /s/ JOHN L. MORGAN
----------------------------
Name: John L. Morgan
Title: Chairman
FIL HOLDINGS CORP.
By: /s/ A.J. HABGOOD
----------------------------
Name: A.J. Habgood
Title: Authorized Representative
FIL MERGER CORP.
By: /s/ A.J. HABGOOD
------------------------------
Name: A.J. Habgood
Title: Authorized Representative
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<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 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.
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<PAGE>
EXHIBIT I
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
AMERICAN FILTRONA CORPORATION
I. CORPORATE NAME
The name of the corporation is American Filtrona Corporation.
II. PURPOSE AND POWERS
The purpose for which the corporation is formed is to engage in any and all
lawful business not required to be specifically stated in these Articles of
Incorporation. In addition, the corporation shall have the same powers as an
individual to do all things necessary or convenient to carry out its business
and affairs.
III. AUTHORIZED STOCK
A. The aggregate number of shares which the corporation shall have
authority to issue and the par value per share are as follows:
<TABLE>
<CAPTION>
CLASS NUMBER PAR VALUR PER
AND SERIES OF SHARES SHARE
- ---------- --------- -------------
<S> <C>
Common 1,000 $1.00
</TABLE>
B. The holders of the Common Stock shall have unlimited voting rights and
be entitled to receive the net assets of the corporation upon dissolution.
C. The holders of shares of Common Stock of the corporation shall not have
preemptive or preferential right to purchase or subscribe for shares of any
class of the corporation, whether now or hereafter authorized.
IV. INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
A. The corporation shall indemnify a person who entirely prevails in the
defense of any proceeding to which he or she was a party because he or she is or
was a director or officer of the corporation against reasonable expenses
incurred by him or her in connection with the proceeding. The corporation shall
also indemnify a person made a party to a proceeding because he or she is or was
a director or officer against liability incurred in the proceeding if it has
been determined that such person has met the appropriate standard of conduct
described herein and liability is not incurred as a result of (i) wilful
misconduct; (ii) a knowing violation of the criminal law; or (iii) personal
benefit improperly received.
B. The corporation shall pay for or reimburse the reasonable expenses
incurred by a director or officer who is a party to a proceeding in advance of
final disposition of the proceeding if (i) the director or the director of
officer furnishes the corporation a written statement of his or her good faith
belief that he or she has met the appropriate standard of conduct as described
herein; (ii) the director or officer furnishes the corporation a written
undertaking to repay the advance if it is ultimately determined that he or she
did not meet the standard of conduct (which undertaking shall be an unlimited,
unsecured general obligation of the director or officer without reference to
financial ability to make repayment); and (iii) a determination is made that the
facts then known to those making the determination would not preclude
indemnification under this Article.
C. The corporation may indemnify or contract in advance to indemnify any
person made a party to a proceeding because he or she is or was an employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, to the same
extent as if such person were a director or officer of the corporation.
D. The provisions of this Article shall not be deemed to prohibit the
corporation from entering into contracts otherwise permitted by law with any
persons, including those listed above, for the purpose of conducting the
business of the corporation.
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<PAGE>
E. The corporation may purchase and maintain insurance to indemnify it
against the whole or any portion of the liability assumed by it in accordance
with this Article and may also procure insurance, in such amounts as the
corporation may determine, on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against any liability asserted against or incurred by any such
person in any such capacity or arising from his or her status as such, whether
or not the corporation would have power to indemnify him or her against such
liability under the provisions of this Article.
F. The provisions of this Article shall be applicable to all actions,
claims, suits or proceedings commenced after the adoption hereof, whether
arising from any action taken or failure to act before or after such adoption.
No amendment, modification or repeal of this Article shall diminish the rights
provided hereby or diminish the right to indemnification with respect to any
claim, issue or matter in any then pending or subsequent proceeding that is
based in any material respect on any alleged action or failure to act prior to
such amendment, modification or repeal.
G. For purpose of this Article V the following definitions shall apply:
"EXPENSES" include counsel fees, expert witness fees, and costs of
investigation, litigation and appeal, as well as any amounts expended in
asserting a claim for indemnification.
"LIABILITY" means the obligation to pay a judgment, settlement,
penalty, fine (including any excise tax assessed with respect to an
employee benefit plan), or reasonable expenses incurred with respect to
a proceeding.
"PERSON" means any corporation, association, partnership,
organization, business, individual or government or political
subdivision thereof or any governmental agency.
"PROCEEDING" means any threatened, pending, or completed action,
suit, proceeding or appeal, whether civil, criminal, administrative or
investigative and whether formal or informal.
"STANDARD OF CONDUCT" -- A person will have met the appropriate
standard of conduct if such person:
(a) conducted himself or herself in good faith;
(b) believed:
(i) in the case of conduct in his or her official capacity with
the corporation, that his or her conduct was in its best
interests; and
(ii) in all other cases, that his or her conduct was at least
not opposed to the best interests of the corporation; and
(c) in the case of any criminal proceeding, that he or she had no
reasonable cause to believe his or her conduct was unlawful.
A person's conduct with respect to an employee benefit plan for a purpose
he or she believed to be in the interests of the participants in and
beneficiaries of the plan is conduct that satisfies the requirement of paragraph
(b)(ii) above.
"DETERMINATION OF INDEMNIFICATION" -- The determination that a person has
met the appropriate standard of conduct and, if so, the determination of the
amount of indemnification shall be made:
(a) by the Board of Directors by a majority vote of a quorum
consisting of directors not at the time parties to the
proceeding; or
(b) if such a quorum cannot be obtained, by majority vote of a
committee duly designated by the Board of Directors (in which
directors who are parties may participate in such
designation), consisting solely of two or more directors not
at the time parties to the proceeding; or
(c) by special legal counsel:
(i) selected by the Board of Directors or its committee in the
manner prescribed in subsection (a) or (b) above; or
(ii) if such a quorum of the Board of Directors cannot be
obtained and such a committee cannot be designated,
selected by a majority vote of the full Board of Directors,
in which directors who are parties may participate in such
selection; or
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<PAGE>
(d) by the stockholders, but shares owned by or voted under the
control of directors who are at the time parties to the
proceeding may not be voted on the determination.
Notwithstanding the foregoing, if the determination is made by
special legal counsel that indemnification of the person is permissible,
evaluation as to reasonableness of expenses shall be made by those
entitled under subsection (c) above to select such counsel.
"GENDER" -- The use of "me", "him", or "his" (or "she", "her" or
"hers") shall be read as "it" or "its", and vice versa, as the context
shall require.
V. LIMITATION ON LIABILITY
In any proceeding brought by or in the right of the corporation or brought
by or on behalf of stockholders of the corporation, no officer or director shall
be liable for any damages assessed against him. Notwithstanding the foregoing,
the liability of an officer or director shall not be limited if the officer or
director engaged in willful misconduct, a knowing violation of the criminal law
or of any federal or state securities law or a determination is made pursuant to
Article V that the officer or director is not entitled to indemnification.
VI. DIRECTORS
The number of directors constituting the Board of Directors shall be fixed
in the Bylaws, and in the absence of a Bylaw fixing the number, the number shall
be three.
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<PAGE>
ANNEX II
[OPINION OF GOLDMAN, SACHS & CO.]
PERSONAL AND CONFIDENTIAL
July 29, 1997
Board of Directors
American Filtrona Corporation
3951 Westerre Parkway, Suite 300
Richmond, VA 23233
Gentlemen:
You have requested our opinion as to the fairness to the holders, excluding
FIL Holdings Corp. ("Buyer") and its subsidiaries and WBT Holdings, LLC ("WBT")
and RNBT Holdings, LLC ("RNBT") to the extent WBT and RNBT sell Common Stock
pursuant to the Acquisition Agreement (as hereinafter defined), of the
outstanding shares of Common Stock, par value $1.00 per share (the "Shares"), of
American Filtrona Corporation (the "Company") of the $46.52 per Share in cash to
be received by such holders pursuant to the Agreement of Merger dated as of July
29, 1997 among Buyer, FIL Merger Corp. ("Merger Sub"), a wholly-owned subsidiary
of Buyer, and the Company (the "Agreement"). The Agreement provides that Merger
Sub will be merged into the Company (the "Merger") and each outstanding Share
(other than Shares already owned by Buyer and its subsidiaries) will be
converted into the right to receive $46.52 in cash.
Goldman, Sachs & Co., 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. We are
familiar with the Company having acted as its financial advisor in connection
with the prior agreement among WBT, WB Parent Corporation, WB Acquisition Corp.
and the Company (the "WBT Holdings Agreement"), and having acted as its
financial advisor in connection with, and having participated in certain of the
negotiations leading to, the Agreement.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Acquisition Agreement dated as of July 29, 1997 among FIL
Holdings Corp., RNBT and WBT (the "Acquisition Agreement"); Annual Reports to
Stockholders and Annual Reports on Form 10-K of the Company for the five years
ended December 31, 1996; certain interim reports to stockholders and Quarterly
Reports on Form 10-Q; certain other communications from the Company to its
stockholders; and certain internal financial analyses and forecasts for the
Company prepared by its management. We also have held discussions with members
of the senior management of the Company regarding its past and current business
operations, financial condition and future prospects. In addition, we have
reviewed the reported price and trading activity for the Shares, compared
certain financial and stock market information for the Company 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 we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of this opinion. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the Company
or any of its subsidiaries and we have not been furnished with any such
evaluation or appraisal. We are aware that on February 7, 1997 another party
made a proposal to acquire all of the outstanding Shares, using a formula based
price contingent on the bids submitted by others, that viewed in the light most
favorable to such other party amounted to $47.01 per Share. At that time, the
Special Committee determined to recommend entering into the WBT Holdings
Agreement at $46.52 per Share in cash rather than an agreement with the other
party after taking into account the relative uncertainties and timing of the two
offers. Our advisory services and the opinion expressed herein are provided for
the information and assistance of the Board of Directors of the Company in
connection with its consideration of the Agreement and such opinion does not
constitute a recommendation as to how any holder of Shares should vote with
respect to the Merger.
<PAGE>
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the $46.52
per Share in cash to be received by the holders of Shares pursuant to the
Agreement, excluding Buyer and its subsidiaries and WBT and RNBT to the extent
WBT and RNBT sell Common Stock pursuant to the Acquisition Agreement, is fair to
such holders.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
------------------------------------------
(GOLDMAN, SACHS & CO.)
<PAGE>
AMERICAN FILTRONA CORPORATION
ANNUAL MEETING OF SHAREHOLDERS - SEPTEMBER 23, 1997
The undersigned hereby appoints John L. Morgan and John D. Barlow, Jr.,
or either of them, with full power of substitution in each, proxies (and
if the undersigned is a proxy, substitute proxies) to vote, as designated
on this proxy card and upon any and all other matters that may properly be
brought before such meeting, all shares of Common Stock of the undersigned
in American Filtrona Corporation at the Annual Meeting to be held on
September 23, 1997, and at any and all adjournments thereof, as specified
on the reverse side.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Please sign name exactly as it appears on stock certificate. Only one of several
joint owners need sign. Fidcuciaries should give full title.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- -------------------------- ---------------------------------
- -------------------------- ---------------------------------
- -------------------------- ---------------------------------
<PAGE>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
- -----------------------------------------------------------------------------
AMERICAN FILTRONA CORPORATION
- -----------------------------------------------------------------------------
Unless otherwise specified in the squares provided, the undersigned's vote will
be cast for items 1, 2 and 3. If, at or before the time of the meeting, any
of the nominees listed in item 2 has become unavailable for any reason, the
proxies have the discretion to vote for a substitute nominee or nominees. This
proxy may be revoked at any time prior to its exercise.
Mark box at right if an address change or comment has been noted
on the reverse side of this card. [ ]
RECORD DATE SHARES:
Please be sure to sign and date this Proxy. Date
-----------------
Shareholder sign here____________________Co-owner sign here____________________
1. Approval of 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.
[ ] For [ ] Against [ ] Abstain
2. Election of Directors.
John D. Barlow, Jr. Stanley F. Pauley
Rudoloph H. Bunzl Gilbert M. Rosenthal
Manuel Deese Wallace Stettinius
Leo C. Drozeski, Jr. Bernard C. Wampler
Bennett L. Kight Harry H. Warner
John L. Morgan
[ ] For All [ ] Withhold [ ] For All
Nominees Except
NOTE: If you do not wish your shares voted "For" a particular nominee,
mark the "For All Except" box and strike a line through the name(s)
of the nominee(s). Your shares will be voted for the remaining
nominee(s).
3. Ratification of 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.
[ ] For [ ] Against [ ] Abstain
4. In their discretion, the proxies are authorized to vote upon such other
business and matters incident to the conduct of the meeting as may properly
come before the meeting or any adjournments thereof.
DETACH CARD DETACH CARD
