SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
(X) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
( ) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
AMERICAN FILTRONA CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
( ) No fee required
(X) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies: Common
Stock, $1.00 par value per share
2) Aggregate number of securities to which transaction applies: 3,015,709
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)
4) Proposed maximum aggregate value of transaction: $140,290,782.68
5) Total fee paid: $28,058.16
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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American Filtrona Corporation
3951 Westerre Parkway, Suite 300
Richmond, Virginia 23233
Logo
Annual Meeting of Shareholders
___________ __, 1997
To the Shareholders:
We invite you to attend the annual meeting of shareholders of American
Filtrona Corporation (the "Corporation") to be held on _________, ___________
__, 1997, at ____ _.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 February 19, 1997 (the
"Merger Agreement"), by and among the Corporation, WBT Holdings, LLC
("Holdings"), WB Parent Corp., a wholly-owned subsidiary of Holdings ("Parent
Corp."), and WB Acquisition Corp., a wholly-owned subsidiary of Parent Corp.
("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 Parent Corp. Upon consummation of the Merger, each outstanding share of the
Corporation's common stock, other than shares held by Holdings, Parent Corp. and
Merger Subsidiary, will be converted into the right to receive $46.52 in cash.
Immediately following consummation of the Merger, the Corporation will sell the
Corporation's bonded fibers business to FIL Acquisition Corp., a wholly-owned
subsidiary of Bunzl plc, pursuant to an agreement dated as of February 19, 1997,
a copy of which is included as Annex II to the attached Proxy Statement.
Approval of the Merger Agreement and the Plan of Merger requires the
affirmative vote of more than two-thirds of the outstanding shares of common
stock of the Corporation. Detailed information concerning the Merger is set
forth in the Proxy Statement, which we urge you to read carefully.
YOUR BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS APPROVED THE
MERGER AGREEMENT AND THE PLAN OF MERGER AND DETERMINED THAT THE MERGER IS FAIR
TO, AND IN THE BEST INTERESTS OF, THE CORPORATION AND ITS SHAREHOLDERS, AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE
PLAN OF MERGER.
In addition, at the Annual Meeting you will be asked to elect a Board
of Directors to serve until consummation of the transactions contemplated by the
Merger Agreement and the Plan of Merger and to ratify the designation of
independent accountants. The list of proposed directors is contained in the
Proxy Statement.
Whether or not you plan to attend the Annual Meeting in person and
regardless of the number of shares of common stock you own, please complete,
sign, date and return the enclosed proxy promptly in the accompanying prepaid
envelope.
Sincerely yours,
John L. Morgan
Chairman
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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 __________, __________ __, 1997,
at ____ _.m., Eastern Daylight Time, for the following purposes:
1. To approve the Agreement of Merger, dated as of February 19,
1997, by and among American Filtrona Corporation, WBT Holdings,
LLC, WB Parent Corp. and WB Acquisition 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 May 9, 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
__________, 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
___________ __, 1997
Approximate date of mailing - __________ __, 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 _________, ______________ __,
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 February 19, 1997, by and among the
Corporation, WBT Holdings, LLC, a Georgia limited liability company
("Holdings"), WB Parent Corp., a Virginia corporation and wholly-owned
subsidiary of Holdings ("Parent Corp."), and WB Acquisition Corp., a Virginia
corporation and wholly-owned subsidiary of Parent Corp. ("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, Parent Corp. and Merger Subsidiary) 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
Parent Corp. and present shareholders of the Corporation other than Holdings and
its affiliates will cease to have any equity interest in, or possess rights as
shareholders of, the Corporation. (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.") Immediately after the consummation of
the Merger, the Surviving Corporation will sell the assets of its bonded fibers
division to FIL Acquisition Corp. ("FIL Acquisition Corp."), a Delaware
corporation and wholly-owned subsidiary of Bunzl plc, an English public limited
company ("Bunzl plc"), for approximately $72,450,000, pursuant to a Fibers Sale
Agreement dated as of February 19, 1997 (the "Fibers Sale Agreement").
A copy of the Merger Agreement, including the Plan of Merger, is
attached hereto as Annex I and a copy of the Fibers Sale Agreement is attached
hereto as Annex II. The summaries of the portions of the Merger Agreement and
the Fibers Sale 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 and the Fibers Sale Agreement,
respectively.
THE CORPORATION'S BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS
APPROVED THE MERGER AGREEMENT AND THE PLAN OF MERGER AND DETERMINED THAT THE
MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE CORPORATION AND ITS
SHAREHOLDERS, AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT AND THE PLAN OF MERGER. In reaching its determination, the Board of
Directors considered, among other things, the opinion, dated as of February 19,
1997, of Goldman Sachs & Co. ("Goldman Sachs"), the Corporation's financial
advisor, as to the fairness as of February 19, 1997, of the $46.52 in cash per
share of Common Stock to be received by holders, excluding Holdings and its
subsidiaries, of Common Stock pursuant to the Merger Agreement. The opinion of
Goldman Sachs is included as Annex III 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
<PAGE>
connection with such opinion. See "Special Factors -- 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 May 9, 1997, the date for determining shareholders entitled to
notice of and to vote at the Annual Meeting, there were __________ shares of
Common Stock issued and outstanding. Each share of Common Stock is entitled to
one vote.
Any person giving a proxy 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.
On ___________, the high and low per share sales prices for the Common
Stock as reported on the Nasdaq Stock Market were $____ and $_____,
respectively, and the last reported sale price was $_____ per share.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OTHER PERSON.
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THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------------------
The date of this Proxy Statement is __________________, 1997.
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TABLE OF CONTENTS
Page
SUMMARY..................................................................... 5
The Annual Meeting................................................. 5
The Merger......................................................... 6
Anticipated Accounting Treatment................................... 8
Certain Tax Consequences of the Merger............................. 8
No Dissenters' Rights.............................................. 9
Sale of the Fibers Business Assets................................. 10
Government and Regulatory Approvals and Filings.................... 10
Market Prices and Dividend Information............................. 10
Quarterly Common Stock Data (Unaudited)............................ 10
SELECTED FINANCIAL INFORMATION CONCERNING THE CORPORATION................... 11
ANNUAL MEETING.............................................................. 12
Place, Date and Time............................................... 12
Record Date; Solicitation of Proxies............................... 12
Vote Required...................................................... 12
SPECIAL FACTORS............................................................. 14
General............................................................ 14
Background of Merger............................................... 14
Reasons for Merger; Recommendation of the Board of Directors....... 18
Reasons of Holdings for the Merger................................. 19
Opinion of Financial Advisor....................................... 20
Conduct of Business After the Merger.............................. 25
Certain Tax Consequences of the Merger............................. 25
No Dissenters' Rights.............................................. 26
Anticipated Accounting Treatment................................... 26
Financing of the Merger............................................ 26
Expenses of the Merger............................................. 26
Interests of Certain Persons in the Merger......................... 27
THE MERGER.................................................................. 29
Effective Time of the Merger....................................... 29
Payment for Shares of Common Stock................................. 29
No Solicitation; Fiduciary Duties.................................. 30
Government and Regulatory Approvals and Filings.................... 30
Terms of the Merger................................................ 30
General................................................... 30
Amendment, Extension, Waiver.............................. 30
Conditions to the Merger.................................. 31
Conduct of Business Pending the Merger.................... 32
Benefit Plans............................................. 32
Termination............................................... 32
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<PAGE>
SALE OF THE FIBERS BUSINESS ASSETS......................................... 33
General........................................................... 33
Conditions to the Consummation of the Sale of the
Fibers Business Assets......................................... 33
Termination....................................................... 34
MARKET PRICES AND DIVIDEND INFORMATION..................................... 35
Quarterly Common Stock Data (Unaudited)........................... 36
SELECTED FINANCIAL INFORMATION CONCERNING THE CORPORATION.................. 37
ELECTION OF DIRECTORS...................................................... 38
SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.................................. 41
EXECUTIVE OFFICERS OF THE CORPORATION...................................... 41
SECURITY OWNERSHIP......................................................... 41
Security Ownership of Certain Beneficial Owners................... 41
Security Ownership of Certain Management of the Corporation....... 44
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS........................... 45
Option/SAR Grants in Last Fiscal Year............................. 46
Aggregated Option/SAR Exercises in Last Fiscal Year and
FY-End Option/SAR Values ........................................ 46
Retirement Benefits............................................... 46
Remuneration of Directors......................................... 47
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION................ 48
REPORT OF EXECUTIVE COMPENSATION COMMITTEE................................. 48
PERFORMANCE GRAPH.......................................................... 49
INFORMATION CONCERNING HOLDINGS, PARENT CORP. AND MERGER
SUBSIDIARY AND THEIR DIRECTORS, MEMBERS AND EXECUTIVE OFFICERS............. 50
INDEPENDENT ACCOUNTANTS.................................................... 51
ADDITIONAL INFORMATION..................................................... 51
Incorporation of Certain Documents by Reference................... 51
Available Information............................................. 52
SHAREHOLDER PROPOSALS...................................................... 52
OTHER MATTERS.............................................................. 53
ANNEXES
Merger Agreement and Plan of Merger.......................... Annex I
Fibers Sale Agreement....................................... Annex II
Opinion of Goldman Sachs................................... Annex III
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<PAGE>
SUMMARY
The following is a brief summary of certain information found elsewhere
in this Proxy Statement. Certain capitalized terms used in this Summary are
defined elsewhere in this Proxy Statement. All statements in the following
Summary are qualified by and are made subject to the more detailed information
contained elsewhere in this Proxy Statement and the Annexes attached hereto,
which you are urged to read in their entirety.
The Annual Meeting
Place, Date and Time.
The Annual Meeting of Shareholders of the Corporation will be held in
the Second Floor Conference Room at NationsBank Center, 12th and Main Streets,
Richmond, Virginia, on _______, ________ __, 1997, at _______ _.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 May 9, 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 Parent Corp., with and into the
Corporation, whereby the Surviving Corporation will become a wholly-owned
subsidiary of Parent Corp., (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. In order to achieve the required
two-thirds vote, a majority of the shares of Common Stock held by persons other
than Holdings will have to approve the Merger Agreement and Plan of Merger. At
the Record Date, ___________ shares of Common Stock were issued and outstanding
and entitled to vote at the Annual Meeting. See "Annual Meeting -- Record Date;
Solicitation of Proxies." The election of each nominee for director requires the
affirmative vote of the holders of a plurality of the shares of Common Stock
cast in the election of directors.
Shares of Common Stock that are represented by properly executed
proxies, unless such proxies shall have previously been properly revoked, will
be voted in accordance with the instructions indicated in such proxies. If no
contrary instructions are indicated, such shares will be voted FOR (i) approval
of the Merger Agreement and the Plan of Merger, (ii) the election of all of the
nominees as directors and (iii) the designation of Coopers & Lybrand L.L.P. as
the Corporation's independent accountants, and in the discretion of the persons
named in the proxy as proxy appointees, as to any other matter that may properly
come before the Annual Meeting and of which the Corporation is not presently
aware. Under the rules of the National Association of Securities Dealers, Inc.
(the "NASD"), although brokers who hold shares in street name have the authority
to vote on certain items when they have not received instructions from
beneficial owners, brokers will not be entitled to vote on the Merger Agreement
and the Plan of Merger absent instructions. A broker non-vote will have the
effect of a negative vote on the approval of the Merger Agreement and the Plan
of Merger. Similarly, a failure to return a properly executed proxy or an
abstention will have the effect of a negative vote on the approval of the Merger
Agreement and the Plan of Merger. Votes that are withheld and shares held in
street name that are not voted in the election of directors will not be included
in determining the number of votes cast in such election.
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<PAGE>
It is not expected that any matters other than those referred to in
this Proxy Statement will be brought before the Annual Meeting. If other matters
are properly presented, however, the persons named as proxy appointees will vote
in accordance with their best judgment on such matters. The grant of a proxy
also will confer discretionary authority on the persons named in the proxy to
vote in accordance with their best judgment on matters incident to the conduct
of the Annual Meeting.
Any shareholder may revoke a proxy 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. [____________________________ has been engaged to assist in
the solicitation of proxies from brokers, nominees, fiduciaries and other
custodians. The Corporation will pay _________________ approximately $________
for its services, plus reimbursement for out-of-pocket expenses.] The
Corporation will reimburse banks, brokerage houses, custodians and other
fiduciaries who hold shares of Common Stock in their name or custody, or in the
name of nominees for others, for their out-of-pocket expenses incurred in
forwarding copies of the proxy materials to those persons for whom they hold
such shares. The Corporation will bear all other costs of the Annual Meeting and
of soliciting proxies therefor, including the cost of printing and mailing this
Proxy Statement and related materials.
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 Georgia limited liability company that, prior
to the Merger, will hold all of the Common Stock of the Corporation owned in a
fiduciary capacity by Frances B. Bunzl and Bennett L. Kight as general trustees
or members of trust committees of various trusts established for the benefit of
certain members of the family of the late Walter H. Bunzl (the "Walter Bunzl
Family") and as directors of a private charitable foundation established by Mrs.
Bunzl and the late Walter Bunzl. Holdings was formed solely for the purpose of
effecting the Merger Agreement and the transactions contemplated therein. The
address and telephone number of Holdings' principal executive offices are 999
Peachtree Street N.E., Suite 2300, Atlanta, Georgia 30309, and (404) 853-8680.
Parent Corp. Parent Corp. is a newly-formed Virginia corporation
created solely for the purpose of engaging in the transactions contemplated by
the Merger Agreement, and, immediately prior to the Merger, will hold 27.8% of
the issued and outstanding Common Stock of the Corporation. Parent Corp. is
wholly owned by Holdings. The address and telephone number of Parent Corp.'s
principal executive offices are 999 Peachtree Street N.E., Suite 2300, Atlanta,
Georgia 30309, and (404) 853-8680.
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 wholly owned by
Parent Corp. The address and telephone number of Merger Subsidiary's principal
executive offices are 999 Peachtree Street N.E., Suite 2300, Atlanta, Georgia
30309, and (404) 853-8680.
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<PAGE>
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 affiliates (which will continue to
represent the same number of validly issued, fully paid and nonassessable shares
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
February 19, 1997, 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. With the exception of
Bennett L. Kight, who abstained from voting due to his interests in Holdings,
Parent Corp. and Merger Subsidiary, the vote of the Board of Directors was
unanimous. 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
"Special Factors -- Reasons for Merger;" "-- Recommendation of the Board of
Directors;" and "-- Opinion of Financial Advisor."
Reasons of Holdings for the Merger.
The Walter Bunzl Family, through Holdings, wishes to maintain its
ownership of the plastics products business of the Corporation. Holdings was
established to enable the Walter Bunzl Family to acquire beneficial ownership of
the remaining shares of Common Stock not currently held by them. See "Special
Factors -- Reasons of Holdings for the Merger."
Opinion of Financial Advisor.
Goldman Sachs has delivered its written opinion to the Board of
Directors of the Corporation that, as of February 19, 1997, the $46.52 in cash
per share of Common Stock to be received by the holders, excluding Holdings and
its subsidiaries, of Common Stock pursuant to the Merger Agreement is fair to
such holders.
The full text of the written opinion of Goldman Sachs, which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached hereto as Annex III and is incorporated
herein by reference. Holders of Common Stock are urged to, and should, read such
opinion in its entirety. See "Special Factors -- Reasons for Merger;
Recommendation of the Board of Directors;" and "Special Factors -- 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."
Financing of the Merger.
The total amount of funds necessary for payment of the Merger
Consideration and estimated fees and expenses payable by Holdings, Parent Corp.
and Merger Subsidiary will be approximately $________. These funds will be
financed by (i) a $50,000,000 term loan and revolving credit facility from
Wachovia Bank of Georgia, N.A.,
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<PAGE>
and Wachovia Bank of North Carolina, N.A.; (ii) the sale of the Fibers Business
Assets (as hereinafter defined) for $72,450,000; and (iii) cash and investment
securities of the Corporation. See "Special Factors -- Financing of the Merger."
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 "Special
Factors -- 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.
The Merger Agreement contains certain provisions with respect to
various employee benefit plans of the Corporation. See "The Merger -- Benefit
Plans."
Bennett L. Kight, Esq., a director of the Corporation, as a fiduciary
of certain trusts of the Walter Bunzl Family and a director of a charitable
foundation, may be deemed to beneficially own 27.8% of the Common Stock. Such
shares are to be transferred to Parent Corp. immediately before the consummation
of the Merger. These trusts and the foundation together own all of the
membership interests in Holdings. Mr. Kight holds offices in Holdings, Parent
Corp. and Merger Subsidiary. In order to avoid any potential conflict of
interest, Mr. Kight has abstained from voting as a director of the Corporation
on all matters pertaining to the Merger.
Anticipated Accounting Treatment
The Merger will be accounted for by Holdings as a "purchase" for
accounting and financial reporting purposes. See "Special Factors --
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 "Special Factors -- 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 shall 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 Wachovia Bank of North Carolina, N.A. (the "Exchange Agent").
Payment will be made to such former holders of shares of Common Stock promptly
following receipt by the Exchange Agent of certificates for their shares of
Common Stock and other required documents. No interest will be paid or accrued
on the cash payable upon the surrender of certificates. See "The Merger --
Payment for Shares of Common Stock."
-8-
<PAGE>
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.
Conduct of Business After the Merger
Following the consummation of the Merger and the contemporaneous sale
of the Fibers Business Assets (as hereinafter defined) of the Corporation, the
business of the Surviving Corporation will consist only of the plastics products
business of the Corporation. It is expected that the plastics products business
of the Surviving Corporation will be continued by Holdings substantially as it
is currently being conducted. Upon consummation of the Merger, the Board of
Directors of the Surviving Corporation will be replaced with Frances B. Bunzl
and Bennett L. Kight, who are the sole directors of Merger Subsidiary. It is
anticipated that the principal executive officers of the Corporation will remain
in the same capacities with the Surviving Corporation following the Merger,
except for John L. Morgan and Randall L. Hagan. Following consummation of the
Merger, the Surviving Corporation will no longer be a public company and its
stock will not be traded in any public securities market. In addition, the
Surviving Corporation will have no obligation to file informational reports
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). See
"Special Factors -- Conduct of Business After the Merger."
Conditions to the Merger
The obligations of the Corporation, Holdings, Parent Corp. 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 Managers 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 its expenses 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 February 28, 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 (w) any
merger, consolidation, share exchange, business combination, or other similar
transaction involving the Corporation or a significant subsidiary of the
Corporation; (x) 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; (y) any tender or exchange
offer for 25% or more of the outstanding shares of the Corporation's Common
Stock or the filing of a registration statement under the Securities Act of 1933
(the "Securities Act") in connection therewith; or (z) 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."
No Dissenters' Rights
The shareholders of the Corporation, whether or not they vote in 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 "Special Factors - No Dissenters' Rights."
-9-
<PAGE>
Sale of the Fibers Business Assets
Immediately upon consummation of the Merger, the Surviving Corporation
will sell substantially all of its assets relating to the manufacture, sale and
distribution of tobacco filters, writing instrument components, healthcare
device components and components of household products that, in each case, are
manufactured using bonded fibers technology (the "Fibers Business") to FIL
Acquisition Corp. pursuant to the Fibers Sale Agreement. FIL Acquisition Corp.
will pay the Surviving Corporation approximately $72,450,000 in cash for the
above-described assets of the Fibers Business (the "Fibers Business Assets") and
assume certain liabilities of the Fibers Business. See "Sale of the Fibers
Business Assets."
The obligations of FIL Acquisition Corp. and Merger Subsidiary to
consummate the sale of the Fibers Business Assets are subject to certain
conditions, including the consummation of the transactions contemplated by the
Merger Agreement. See "Sale of the Fibers Business Assets -- Conditions to the
Consummation of the Sale of the Fibers Business Assets."
Government and Regulatory Approvals and Filings
The consummation of the Merger is subject to the satisfaction of
certain conditions in the Fibers Sale Agreement. The Sale of the Fibers Business
Assets pursuant to the Fibers Sale Agreement is subject to the expiration or
early termination of the relevant waiting period requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1975, as amended (the "HSR
Act"). Such early termination was granted on April 4, 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 Holdings regarding a proposed sale of the Corporation, 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 _______ __, 1997, the latest
practicable trading day before the printing of this Proxy Statement, the high
and low sales prices of the Common Stock on the Nasdaq Stock Market were $_____
per share and $_____ per share, respectively.
Quarterly Common Stock Data (Unaudited)
The following table presents the frequency and amount of dividends paid
by the Corporation during the past two years with respect to the Common Stock
and the high and low sales prices of the Common Stock on the Nasdaq Stock Market
for each quarterly period during the past two years.
<TABLE>
<CAPTION>
1997 1996 1995
----------- -------------------------------------- ---------------------------------------
First First Second Third Fourth First Second Third Fourth
- - --------------------------------------------------------------------------------------------------------------------
<S> <C>
Dividends .28 .265 .265 .28 .28 .25 .25 .265 .265
paid per
share
Price Range
High 46 36 1/2 35 1/4 34 45 1/4 29 31 32 1/4 40 3/4
Low 40 33 1/2 29 1/2 30 32 26 27 1/4 29 1/2 30 3/4
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE>
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, 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, which is incorporated by reference into this Proxy
Statement. See "Additional Information -- Incorporation of Certain Documents by
Reference."
<TABLE>
<CAPTION>
(IN THOUSANDS UNLESS OTHERWISE INDICATED)
FOR THE
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> ---- ---- ---- ---- ----
INCOME STATEMENT DATA
Total Revenues $194,841 $177,848 $150,191 $131,531 $122,868
Income Before Income Taxes 19,438 15,554 12,231 10,480 9,720
Income From Continuing Operations 12,438 10,104 7,806 6,705 6,420
Net Income 12,438 10,104 11,761 7,316 1,212
PER SHARE (Dollars)
Earnings <Loss>
Continuing Operations 3.32 2.70 2.08 1.80 1.73
Discontinued Operations -- -- 1.05 .16 <1.40>
----- ----- ----- ------ -----
Net Income 3.32 2.70 3.13 1.96 .33
BALANCE SHEET DATA (at end of period)
Working Capital 60,476 54,246 47,016 48,219 31,841
Total assets 117,554 108,266 99,709 87,094 80,542
Total assets less deferred research and development 112,861 103,169 94,276 82,754 75,872
charges and excess of cost of assets acquired over book
value
Long-term debt -- 650 1,300 -- --
Shareholders' equity 93,397 84,825 78,365 70,966 67,042
BOOK VALUE PER SHARE OF COMMON STOCK 24.87 22.71 20.98 18.98 18.03
(Dollars)
CASH DIVIDENDS DECLARED AND PAID PER 1.09 1.03 .98 .95 .94
SHARE OF COMMON STOCK (Dollars)
</TABLE>
-11-
<PAGE>
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 ________, _________ __, 1997, at ______ _.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 May 9, 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 __________ shares of Common Stock issued
and outstanding and entitled to vote at the Annual Meeting held by approximately
_____ 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. [The
Corporation has retained ____________ to assist in the solicitation of proxies.
Pursuant to the Corporation's agreement with that firm, it will assist in the
solicitation of proxies from brokers, nominees, fiduciaries and other custodians
in connection with the Annual Meeting at a cost of approximately $_______, plus
reimbursement for out-of-pocket expenses.] 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 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. In order to achieve the required
two-thirds vote, a majority of the shares of Common Stock held by persons other
than Holdings will have to approve 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
-12-
<PAGE>
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 at any time before it
is voted by filing with the Corporate Secretary of the Corporation an instrument
revoking the proxy or by returning a duly executed proxy bearing a later date,
or by attending the Annual Meeting and voting in person. Attendance at the
Annual Meeting will not by itself constitute revocation of a proxy.
As of February 28, 1997, the current directors and executive officers
of the Corporation and their respective affiliates as a group beneficially owned
2,115,079 shares (approximately 55%) of the outstanding shares of Common Stock,
including 96,200 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 1,653,943 shares as to which the
directors and executive officers either disclaimed beneficial ownership or did
not have sole dispositive and voting power. See "Security Ownership -- Security
Ownership of Certain Beneficial Owners;" and "-- Security Ownership of Certain
Management of the Corporation." [Such directors and executive officers of the
Corporation have indicated that they intend to vote the _________ shares as to
which they presently have sole voting power (approximately _____% 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.]
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
(as hereinafter defined) granted pursuant to certain Corporation compensation
plans, which will be treated as described below under "Special Factors --
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.
-13-
<PAGE>
SPECIAL FACTORS
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
affiliates (which will continue to represent the same number of validly issued,
fully paid and nonassessable shares of common stock of the Surviving
Corporation), will be canceled and converted automatically into the right to
receive the Merger Consideration. As a result of the Merger, except as set forth
in this paragraph, 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 258,800
shares of Common Stock, entitling the holders to an aggregate amount of cash
equal to $4,828,432.25 if no such Stock Options are exercised or lapse in
accordance with their terms prior to the Effective Time. All of such Stock
Options will be exercisable in full.
Background of Merger
The terms and conditions of the Merger were determined through
arms-length negotiations between the representatives of the Corporation and
Holdings. The following is a brief discussion of the history of the transaction.
Since the Corporation's initial public offering in 1972, members of the
families of Rudolph Bunzl and the late Walter Bunzl have beneficially owned in
excess of 40% of the Common Stock. Beginning in 1992, at several of its
regularly scheduled meetings, the Board of Directors of the Corporation
discussed a number of alternative courses of action to maximize shareholder
value while pursuing two additional goals: (i) to make efficient use of the
substantial cash reserves accumulated by the Corporation; and (ii) to permit the
members of the family of Rudolph H. Bunzl (collectively, the "R. H. Bunzl
Interests") to pursue their stated objective of diversifying some but not all of
their significant stock holdings in the Corporation. (At the time these
discussions commenced, Bennett L. Kight served as co-trustee for trusts for the
benefit of members of the family of the late Walter H. Bunzl (collectively, the
"W. H. Bunzl Interests"), 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.
-14-
<PAGE>
Among the available alternatives, the Board focused on an issuer tender
offer in which (i) the W. H. Bunzl Interests and the R. H. Bunzl Interests would
have sold relatively equal percentages of their Common Stock holdings and (ii)
the public shareholders could have participated. The Board was advised that, if
structured properly, the issuer tender offer could permit the Corporation to
achieve the goals outlined above without significantly altering the relative
ownership positions of the W. H. Bunzl Interests and the R. H. Bunzl Interests,
which the Board concluded, for reasons discussed in the next paragraph, was in
the best interests of the Corporation. The Board also received advice that the
issuer tender offer could be structured to provide capital gains tax treatment
for most shareholders.
Mr. Kight, however, informed the Board that he had concluded that the
issuer tender offer was not in the best interests of the W. H. Bunzl Interests
because of the large number of shares of Common Stock that would have to be
tendered by such trusts in the aggregate and because of the tax costs of the
transaction. Mr. Kight did express his willingness to cooperate if the trusts
for the benefit of the R. H. Bunzl Interests wished to participate in the issuer
tender offer. After further discussion, the Board of Directors concluded that
it was not in the best interests of the Corporation to pursue an issuer tender
offer under those circumstances. An issuer tender offer in which only public
shareholders and the R. H. Bunzl Interests participated would have eliminated
the substantially comparable ownership positions of the R. H. Bunzl Interests
and the W. H. Bunzl Interests, resulting in a sudden change in control of the
Corporation.
Because of the perceived benefits that could be made available to the
Corporation's shareholders by an issuer tender offer, and in order to avoid the
potential results of such a sudden change in control, in the summer of 1995, the
Board of Directors appointed two of its members to a committee to attempt to
negotiate a continuity agreement with the W. H. Bunzl Interests. As proposed,
the continuity agreement would have permitted the issuer tender offer to go
forward with participation of the R. H. Bunzl Interests and the public
shareholders, while obligating the W. H. Bunzl Interests not to use its
resulting increased ownership position to change a majority of the Board of
Directors for a transition period of several years. After several months of
negotiations, in late 1995, the Board abandoned efforts with respect to such a
continuity agreement.
In January 1996, the Corporation, with the unanimous approval of the
Board (except for Mr. Kight), engaged Goldman Sachs to act as its financial
advisor to assist the Corporation in its analysis and consideration of various
financial alternatives. In February 1996, Goldman Sachs discussed with the
Board of Directors various possible transactions in which the Corporation might
engage in order to achieve the primary goal of maximizing shareholder value
while also addressing the goals of efficient use of cash reserves for the
benefit of all shareholders and diversification of the investment of the R. H.
Bunzl Interests. In the course of these discussions, members of the Board of
Directors again asked Mr. Kight whether the W. H. Bunzl Interests would be
willing to participate in an issuer tender offer. After Mr. Kight reiterated
the unwillingness of the W. H. Bunzl Interests to tender any shares in such a
transaction, the Corporation requested that Goldman Sachs study a possible sale
of the Corporation.
After discussions with Goldman Sachs, in April 1996, the Board
authorized the Corporation's management to pursue a sale of the Corporation with
the assistance of Goldman Sachs and the Corporation's legal counsel, Hunton &
Williams. Throughout the spring of 1996, the Board attempted to reach agreement
with the W. H. Bunzl Interests with respect to a sale process that the W. H.
Bunzl Interests would be willing to support. As proposed by the Board, such an
agreement would have permitted the W. H. Bunzl Interests to make an offer to
purchase the Corporation, but would have obligated the W. H. Bunzl Interests to
sell their shares of Common Stock if a third party made a superior offer. The
W. H. Bunzl Interests declined to agree in advance to support a sale of the
Corporation to another party.
While these discussions between the Corporation and the W. H. Bunzl
Interests were ongoing, in May 1996, Holdings 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 but
authorized the Corporation's management to continue discussions of possible
transactions with the W. H. Bunzl Interests. In June 1996, the Corporation and
Holdings entered into an informal agreement with respect to the process by which
the
-15-
<PAGE>
Corporation would pursue a sale (the "Process Agreement"). The Process Agreement
provided, among other things, that the Corporation would negotiate exclusively
with Holdings 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. On August
12, 1996, Holdings presented a new formal merger proposal to the Special
Committee providing for a merger between the Corporation and a subsidiary of
Holdings 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
Holdings that the Corporation would entertain further offers from Holdings (and
would continue exclusive negotiations with Holdings) only until August 30, 1996.
Upon notification by Holdings that it would be unable to improve the
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, Holdings informed the Special Committee in
mid-September 1996 that in view of the expiration of the Process Agreement on
August 30, 1996, Holdings 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, Holdings 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, Holdings intended to cause the Corporation to sell the
Fibers Business to Bunzl plc immediately following the consummation of the
merger.
Throughout October 1996, the Special Committee and its advisors
negotiated with Holdings in an attempt to improve the price offered and to reach
agreement on other terms of a letter of intent. On October 23, 1996, Holdings
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 Holdings 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 the W. H. Bunzl Interests who would be buyers in
connection with the Holdings 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 Holdings 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 Holdings 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 Holdings (i) providing for a cash merger between the Corporation and
a subsidiary of Holdings 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
"Letter of Intent"). The 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 Holdings of a final merger agreement. The 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) Holdings, its lender and Bunzl plc continued their business
and financial review
-16-
<PAGE>
of the Corporation; (ii) Goldman Sachs explored possible interest in alternative
transactions with other solicited prospective buyers and unsolicited offerors;
and (iii) representatives of Holdings, 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 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, Holdings 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 Holdings offer; the financing required to consummate
the two offers, including the financing commitment Holdings already had
obtained; the additional time necessary to consummate the Alternative Offer;
other conditions to the Alternative Offer; and uncertainties and anticipated
costs of consummating the Alternative Offer over the opposition of the W. H.
Bunzl Interests. 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
Holdings' 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
Holdings' final bid, the Corporation would enter into an agreement with
Holdings. 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 Holdings' 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 Holdings' bid. Holdings' 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 Holdings' final bid exceeded the requirement established for the final
round, the Special Committee voted to accept Holdings' offer to acquire the
Corporation.
During the next twelve days, representatives of the Corporation and
Holdings negotiated the final terms of the Merger Agreement, Holdings and Bunzl
plc conducted additional due diligence, and the Corporation received a copy of
the Fibers Sale Agreement, including the price to be paid for the Fibers
Business.
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On February 19, 1997, the Board of Directors met to consider the Merger
Agreement. Mr. Kight was excused from the meeting immediately. Hunton & Williams
summarized the terms of the Merger Agreement and the Fibers Sale 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 Holdings and its subsidiaries, of
Common Stock pursuant to the Merger 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 Merger Agreement. The
full Board then considered the Special Committee recommendation and, after
additional discussion, approved the Merger Agreement, with Mr. Kight abstaining
due to his affiliation with Holdings.
Reasons for Merger; Recommendation of the Board of Directors
At its February 19, 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 and directed that
the Merger Agreement and the Plan of Merger be submitted to the Corporation's
shareholders for approval. Disregarding the abstention of Bennett L. Kight, who
stated that it would be inappropriate for him to vote on the transaction given
his interests in Holdings, Parent Corp. and Merger Subsidiary, the vote of the
Board of Directors was unanimous.
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;
(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) 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 be as favorable
to the holders of the shares of Common Stock as the Merger);
(iv) 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;
(v) The Board's review of the historical and prospective market
prices of the Common Stock compared to the Merger
Consideration;
(vi) 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;
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(vii) The Board's receipt of the financial analyses presented by
Goldman Sachs, as well as the opinion of Goldman Sachs,
presented on February 19, 1997, to the effect that, based upon
and subject to certain matters as set forth in such opinion,
as of February 19, 1997, the $46.52 per share of Common Stock
in cash to be received by the holders, excluding Holdings and
its subsidiaries, of Common Stock pursuant to the Merger
Agreement is fair to such holders (See Opinion of Goldman
Sachs attached as Annex III hereto);
(viii) 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;
(ix) The Board's consideration of the terms of the Fibers Sale
Agreement;
(x) The difficulty of consummating any transaction over the
objections of either the W. H. Bunzl Interests or the R. H.
Bunzl Interests; and
(xi) The Board's conclusion that it was the best interest of the
Corporation and its shareholders to resolve the lingering
uncertainties about the future ownership of the Corporation
without unnecessary delay.
In view of the wide variety of material factors considered in
connection with its evaluation of the Merger, the Board of Directors did not
find it practicable to, and did not attempt to, quantify or otherwise attempt to
assign relative weights to the specific factors considered in reaching its
determination.
The Board of Directors recognizes that upon consummation of the Merger,
except for Holdings and its affiliates, shareholders of the Corporation will no
longer have their equity interests in the Corporation or any interest in any
future growth of the Corporation. The Board of Directors has determined, based
upon consideration of the material factors specified above, however, that the
Merger is in the best interests of the Corporation's shareholders and is
consistent with maximizing shareholder value.
Reasons of Holdings for the Merger
Prior to the Merger, Holdings will acquire beneficial ownership of
approximately 27.8% of the outstanding shares of Common Stock. The purpose of
the Merger is for Holdings to acquire beneficial ownership of the remaining
shares of Common Stock.
As fiduciary owners of Common Stock in various capacities, Mrs. Bunzl
and Mr. Kight believe that the value of the investment in the Corporation of the
Walter Bunzl Family trusts and foundation, for which they serve as trustees and
trust committee members (collectively, the "WB Parties"), can best be preserved
and increased by maintaining ownership of the Corporation's plastics products
business. The WB Parties have organized Holdings to hold (either directly or
through one or more wholly-owned subsidiaries) all of the Common Stock owned by
them as fiduciaries.
Holdings' approach at the onset was to acquire, in a cash merger or
tender offer, the outstanding shares of Common Stock but without a
contemporaneous sale of the Fibers Business Assets. Initially, Holdings planned
to retain the Fibers Business. Later, Holdings opted for a structure that
included a cash merger and the contemporaneous sale of the Fibers Business
Assets, in order to permit Holdings to offer a higher Merger price per share. A
merger transaction was chosen over a tender offer because Holdings believed it
to be desirable not to leave any minority shareholders with an illiquid
investment in the Corporation.
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Holdings elected to pursue the Merger at this time in order to resolve
the differences between the WB Parties and the Corporation's Board of Directors
and management described in " -- Background of the Merger."
The WB Parties have concluded that the Merger is fair to all other
shareholders based on the following factors:
(a) The fact that the $46.52 price per share offered by Holdings
represents a 38.9% premium over the last reported sale price of the
Common Stock on November 4, 1996, the last day on which the Common
Stock was traded prior to the public announcement by the
Corporation on November 7, 1996 that it had entered into
negotiations with Holdings regarding a proposed sale of the
Corporation.
(b) The recommendation of the Special Committee to the Board of
Directors and the approval by the Board of Directors of the
Corporation described under "-- Reasons for Merger; Recommendation
of the Board of Directors;"
(c) The fact that the Board of Directors received the opinion of
Goldman Sachs that, as of February 19, 1997, the $46.52 per share
of Common Stock in cash to be received by the holders, excluding
Holdings and its subsidiaries, of Common Stock pursuant to the
Merger Agreement is fair to such holders;
(d) The fact that the principal terms of the Merger were established
through arm's length negotiation; and
(e) The fact that during the negotiations of the Merger Agreement, the
interests of the shareholders of the Corporation were represented
by the Special Committee and the Corporation's Board of Directors
(other than Mr. Kight) and the legal and financial advisors of the
Corporation's Board of Directors and the interests of Holdings were
represented by Mr. Kight and Holdings' legal and financial
advisors.
In addition to the other factors considered by the WB Parties in
concluding that the Merger is fair to the shareholders, the WB Parties adopted
the conclusion and analysis of the Board of Directors of the Corporation, set
forth under the heading " -- Reasons for Merger; Recommendation of the Board of
Directors" above, that the Merger is fair to and in the best interests of the
shareholders other than the WB Parties. The WB Parties did not attach relative
weights to the specific factors considered in reaching their conclusions as to
the fairness of the Merger, although they considered the premium price offered
by Holdings, the arm's length negotiations between the parties, the fact that
the Board of Directors received the opinion of Goldman Sachs and the
recommendation of the Board of Directors to be the most significant factors.
Opinion of Financial Advisor
On February 19, 1997, Goldman Sachs delivered its oral opinion to the
Board of Directors of the Corporation that as of February 19, 1997, the $46.52
per share of Common Stock in cash to be received by the holders, excluding
Holdings and its subsidiaries, of Common Stock pursuant to the Merger Agreement
is fair to such holders. Goldman Sachs subsequently confirmed its oral opinion
by delivery of its written opinion dated February 19, 1997.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED FEBRUARY
19, 1997, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS
ANNEX III 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 and the Fibers Sale Agreement; (ii) the Annual
Reports to Shareholders and Annual Reports on Form 10-K of the Corporation for
the five years ended December 31, 1995; (iii) certain interim reports to
shareholders and Quarterly
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Reports on Form 10-Q of the Corporation; (iv) certain other communications 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 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 and that the Special Committee determined to recommend entering
into the Merger Agreement 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 February 19, 1997.
(i) Selected Companies Analysis. Goldman Sachs reviewed and
compared certain financial information relating to the
Corporation to corresponding financial information, ratios and
public market multiples for five publicly traded bonded
fiber/cigarette components manufacturing companies (the
"Selected Bonded Fiber Companies"), six publicly traded
plastic products manufacturing companies (the "Selected
Plastic Products Companies"), four publicly traded flexible
packaging manufacturing companies (the "Selected Flexible
Packaging Companies") and two other publicly traded companies
("Other Selected Companies," together with the Selected Bonded
Fiber Companies, the Selected Plastic Products Companies and
the Selected Flexible Packaging Companies, the "Selected
Companies"). The Selected Bonded Fiber Companies were: P.H.
Glatfelter Co., DIMON Incorporated, Schweitzer-Maudit
International, Inc., Standard Commercial Corp. and Universal
Corporation. The Selected Plastic Products Companies were:
Furon, O'Sullivan Corp., Park-Ohio Industries, Inc., Spartech
Corp., Tuscarora Inc. and Uniflex, Inc. The Selected Flexible
Packaging Companies were: Applied Extrusion Technologies,
Inc., Bemis Company, Inc., Sealright Co., Inc. and Winpack
Ltd. The Other Selected Companies were: Bunzl plc and
Baumgartner Papiers S.A. The Selected Companies were chosen
because they are publicly-traded companies with operations
that for purposes of analysis may be considered similar to the
various operations conducted by the Corporation. Goldman
Sachs calculated and compared various financial multiples and
ratios. The multiples of the Corporation were calculated
using a price of $42.25 per share of Common Stock, the closing
price of the Common Stock on the Nasdaq National Market on
February 14, 1997, 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 February 14, 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.
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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 February 14, 1997) and for 1998 (the "1998 P/E
Ratios") (based on IBES estimates as of February 14, 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 February 14, 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 historical earnings per share
("EPS") compound annual growth rate ("CAGR") (the "Historical
EPS CAGR") based on IBES estimates of five year EPS CAGR
ending the 1995 fiscal year for each of the Selected
Companies. 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 6.0x to 13.9x for
the Selected Bonded Fiber Companies with a mean of 8.9x, from
5.8x to 9.1x for the Selected Plastic Products Companies with
a mean of 6.8x, from 7.2x to 10.1x for the Selected Flexible
Packaging Companies with a mean of 7.7x, and from 6.0x to 8.9x
for the Other Selected Companies with a mean of 7.4x, compared
with an LTM EBITDA Multiple of 4.8x for the Corporation; (b)
1997 P/E Ratios ranged from 11.4x to 13.6x for the Selected
Bonded Fiber Companies with a mean of 12.3x, from 10.5x to
18.9x for the Selected Plastic Products Companies with a mean
of 13.7x, from 13.3x to 32.0x for the Selected Flexible
Packaging Companies with a mean of 20.5x, was 12.0x for Other
Selected Companies (only available data point), and was 22.5x
for the S&P 400 Index, compared with 1997 P/E Ratios of 11.9x
for the Corporation; (c) 1998 P/E Ratios ranged from 9.0x to
11.7x for the Selected Bonded Fiber Companies with a mean of
10.3x, from 8.6x to 15.1x for the Selected Plastic Products
Companies with a mean of 11.5x, from 10.8x to 17.1x for the
Selected Flexible Packaging Companies with a mean of 14.2x,
was 11.4x for the Other Selected Companies (only available
data point), and was 21.6x for the S&P 400 Index, compared to
1998 P/E Ratios of 10.5x for the Corporation; (d) LTM EBIT
Margins ranged from 1.8% to 19.2% for the Selected Bonded
Fiber Companies with a mean of 10.5%, from 6.5% to 16.6% for
the Selected Plastic Products Companies with a mean of 9.7%,
from 2.4% to 11.5% for the Selected Flexible Packaging
Companies with a mean of 8.0%, and from 3.3% to 6.4% for the
Other Selected Companies with a mean of 4.9%, compared with a
LTM EBIT Margin of 9.2% for the Corporation; and (e)
Historical EPS CAGR was 22.8% for the Selected Bonded Fiber
Companies (only meaningful data point), ranged from 22.8% to
94.6% for the Selected Plastic Products Companies with a mean
of 48.7%, from 17.5% to 42.9% for the Flexible Packaging
Companies with a mean of 26.5%, and was 6.0% for the Other
Selected Companies (only available data point), compared with
a Historical EPS CAGR of 5.6% 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%. 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
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terminal values were then discounted to present value using
discount rates ranging from 10% to 15%. 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 $94.8 million
dollars to $221.1 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 $23.26 to $54.25.
(iii) Selected Transactions Analysis. Goldman Sachs analyzed
certain information relating to twenty seven 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 0.4x to
5.3x, 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 4.4x to 37.4x, 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) Historical Stock Trading Analysis and Indexed Price Histories.
Goldman Sachs reviewed the historical closing prices and
trading volumes for the Common Stock, separately and in
comparisons to the S&P 400 Index, an index comprised of
Selected Plastic Products Companies (the "Plastic Products
Index") and an index comprised of certain selected bonded
fiber companies (P.H. Glatfelter Co., DIMON Incorporated
(formerly Dibrell Brothers), Schweizer-Maudit International,
Inc. and Universal Corporation collectively, the "Bonded Fiber
Index"), for the last one year (daily, for a period from
February 14, 1996 to February 14, 1997), the last three years
(weekly, for a period from February 18, 1994 to February 14,
1997), and the last five years (monthly, for a period from
January 31, 1992 to January 31, 1997). Such analyses
indicated that: the stock price increase for the last one year
for the Corporation, the S&P 400 Index, the Plastic Products
Index and the Bonded Fiber Index were 24.3%, 22.5%, 13.9% and
12.6%, respectively; the stock price increase for the last
three years for the Corporation, the S&P 400 Index, the
Plastic Products Index and the Bonded Fiber Index were 45.7%,
71.8%, 52.1% and 28.3%, respectively; and the stock price
increase for the last five years for the Corporation, the S&P
400 Index and the Plastic Products Index were 62.4%, 90.1% and
398.5%, respectively, and the stock price decrease for the
last five years for the Bonded Fiber Index was (12.4%).
(v) 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 $139.1 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 0.72x,
0.69x and 0.67x, respectively, (ii) 1996 EBITDA, 1997
estimated EBITDA and 1998 estimated EBITDA were 5.9x, 5.4x and
4.8x, respectively, and (iii) 1996 EBIT, 1997 estimated EBIT
and 1998 estimated EBIT were 7.8x, 7.0x and 6.1x,
respectively. In addition, Goldman Sachs calculated multiples
of the fully diluted equity value of the Corporation to net
income. This analysis indicated that the multiples of 1996
net
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income, 1997 estimated net income and 1998 estimated net
income were 15.2x, 13.7x 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 February 19, 1997, of
the $46.52 per share of Common Stock in cash to be received by the holders,
excluding Holdings and its subsidiaries, of the Common Stock pursuant to the
Merger Agreement to such holders of Common Stock and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the Corporation or its advisors, neither the Corporation,
Goldman Sachs nor any other person assumes responsibility if future results are
materially different from those forecast. As described above, Goldman Sachs'
opinion to the Board of Directors of the Corporation was one of many factors
taken into consideration by the Corporation's Board of Directors in making its
determination to approve the Merger Agreement. The foregoing summary does not
purport to be a complete description of the analysis performed by Goldman Sachs
and is qualified by reference to the written opinion of Goldman Sachs set forth
in Annex III 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, 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.
A copy of the written materials provided by Goldman Sachs and
distributed to the Board of Directors at the meeting of the Board of Directors
held on February 19, 1997 has been filed as an exhibit to the Schedule 13E-3
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filed with the SEC by Holdings, Parent Corp., Merger Subsidiary and the
Corporation with respect to the Merger, and is available for inspection and
copying at the principal executive offices of the Corporation during its regular
business hours by any shareholder or any representative of a shareholder who has
been so designated in writing. A copy of such materials shall be provided to any
shareholder or any representative of a shareholder who has been so designated in
writing upon written request and at the expense of the requesting shareholder or
representative.
Conduct of Business After the Merger
In connection with the Merger, the Fibers Business Assets will be sold
to Bunzl plc, and will thus no longer be part of the business of the Surviving
Corporation. After the Merger, the Surviving Corporation will own the plastics
business that it currently operates, which will be continued under Holdings'
ownership in substantially the manner in which it is currently conducted.
Pursuant to the Merger Agreement, the directors and officers of Merger
Subsidiary will become the directors and officers of the Surviving Corporation
upon consummation of the Merger. Mr. Kight and Mrs. Bunzl are the sole directors
and officers of Merger Subsidiary, and they will thus become the initial
directors and officers of the Surviving Corporation upon consummation of the
Merger. See "Information Concerning Holdings, Parent Corp. and Merger Subsidiary
and their Directors, Members and Executive Officers." Following the Merger,
Holdings intends to retain the principal executive officers of the Corporation
in their current capacities, except for John L. Morgan, who will retire and
serve as a consultant to Bunzl plc, and Randall L. Hagan, who will become an
employee of a subsidiary of Bunzl plc.
Except as described above, neither Holdings nor Parent Corp. has any
present intention to sell any material portion of the Common Stock or any
material portion of the business or assets of the Surviving Corporation, or any
present plans or proposals that would result in an extraordinary corporate
transaction such as a merger, reorganization, liquidation, relocation of
operations or sale or transfer of assets involving the Surviving Corporation, or
any of its subsidiaries, or any material changes in the Surviving Corporation's
corporate structure, business or composition of its management.
Merger Subsidiary will incur significant debt in connection with the
consummation of the Merger pursuant to a bank credit facility, which debt will
become an obligation of the Surviving Corporation. As a result, the Surviving
Corporation's practice of paying regular dividends will be discontinued, and
instead any dividends or other distributions to Parent Corp., as the sole
shareholder of the Surviving Corporation, will be made only when deemed
appropriate by the Board of Directors of the Corporation.
If the Merger is consummated, the current shareholders of the
Corporation, other than Holdings and its affiliates, will no longer have an
equity interest in the Surviving Corporation and, therefore, will not share in
its future earnings and growth. Instead, each shareholder will have the right to
receive $46.52 in cash per share of Common Stock.
As a result of the Merger, the Surviving Corporation will become an
indirect wholly-owned subsidiary of Holdings. The Common Stock will be delisted
from The Nasdaq Stock Market, the registration of the Common Stock under the
Exchange Act will terminate and the Surviving Corporation will be relieved of
the obligation to comply with the proxy rules of Regulation 14A under Section 14
of the Exchange Act, and its officers, directors and beneficial owners of more
than 10% of the Common Stock will be relieved of the reporting requirements and
restrictions on insider trading under Section 16 of the Exchange Act. Further,
the Surviving Corporation will no longer be subject to the reporting
requirements of the Exchange Act, and will not be required to file, among other
things, quarterly reports on Form 10-Q and annual reports on Form 10-K.
Accordingly, substantially less information will be required to be made publicly
available about the Surviving Corporation than is currently the case.
Immediately after the Merger, all of the then outstanding Common Stock
will be owned beneficially by Holdings. Accordingly, Holdings' indirect interest
in the assets and liabilities of the Surviving Corporation,
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including the net book value and net earnings of the Surviving Corporation, will
increase, upon effectiveness of the Merger, from 27.8% to 100%.
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.
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 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.
Financing of the Merger
The total amount of funds necessary for payment of the Merger
Consideration and estimated fees and expenses payable by Holdings, Parent Corp.
and Merger Subsidiary will be approximately $_____ million. The financing for
these payments will originate from three sources. Merger Subsidiary plans to
borrow a portion of the funds and has received a commitment dated February 19,
1997, from Wachovia Bank of Georgia, N.A., and Wachovia Bank of North Carolina,
N.A., for a $50,000,000 term loan and revolving credit facility, which is
composed of a $30,000,000 five-year revolving credit facility and a $20,000,000
five-year amortizing term loan. Second, immediately following with the Merger,
FIL Acquisition Corp. will purchase the Fibers Business Assets for $72,450,000,
subject to adjustment. Finally, a portion of the cash and investment securities
of the Corporation as of the Closing will be used as consideration in the
Merger.
The Wachovia credit facility will be secured by a first lien on
substantially all of the assets of the Surviving Corporation and its
subsidiaries. Interest on borrowings under the credit facility will bear
interest at an adjustable
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LIBOR-based rate following the Merger. Holdings anticipates that all borrowings
under the credit facility will be repaid from the cash flow of the Surviving
Corporation over a period of time following the Merger.
Expenses of the Merger
The following is an estimate of the costs and expenses incurred or
expected to be incurred in connection with the Merger:
SEC Filing Fees ................................. $
Legal Fees and Expenses(1).......................
Investment Banking Fees and Expenses(2)..........
Printing and Mailing.............................
Accounting Fees and Expenses(3)..................
Banking Fees and Expenses........................
Miscellaneous.................................... _______
$-------
(1) Includes fees of counsel for the Corporation, Holdings, Parent
Corp. and Merger Subsidiary.
(2) Includes fees of Goldman Sachs, financial advisor to the
Corporation, and First Union Capital Markets Corp., financial
advisor to Holdings. See " -- Opinion of Financial Advisor."
(3) Includes fees of Coopers & Lybrand LLP, independent
accountants for the Corporation, and Ernst & Young LLP,
advisor to Holdings.
The Merger Agreement provides that all costs and expenses incurred in
connection with the Merger Agreement and the Merger will be paid by the party
incurring the expense. However, the Merger Agreement provides that, under
certain circumstances, the Corporation will reimburse Holdings for certain
expenses. See "The Merger -- Terms of the Merger -- Termination."
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 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 and Noncompetition Agreement. Prior to the
Merger, a subsidiary of Bunzl plc ("Bunzl Subsidiary") and John L. Morgan will
enter into a Consulting and Noncompetition Agreement (the "Morgan Consulting
Agreement") whereby Mr. Morgan will agree (i) to serve as a consultant to Bunzl
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Subsidiary for a period of two years and (ii) not to compete with Bunzl
Subsidiary or any of its subsidiaries or affiliates in the bonded fibers
business for a period of three years. Bunzl Subsidiary will pay Mr. Morgan a
consulting fee of $200,000 per year and a one-time noncompetition payment of
$400,000.
L.C. Drozeski, Jr.'s Severance Benefits Agreement. On _______________,
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 for Good Reason (as hereinafter defined) 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). Good Reason is defined in the
Drozeski Agreement as any of the following occurrences: [(i) the failure of
Holdings to deliver to Mr. Drozeski on or before March 31, 1997, an agreement
acceptable to him in his reasonable discretion, providing for his employment
after consummation of the Merger as President and Chief Executive Officer of the
Corporation;] (ii) the failure of Mr. Drozeski to receive salary increases,
bonuses and incentive awards that he received in prior years; (iii) the
reduction of his compensation or employment benefits; (iv) the failure of the
Board of Directors of the Corporation to elect and reelect Mr. Drozeski as
President and Chief Executive Officer of the Corporation, or the diminishing of
his status, office, working conditions or management responsibilities; (v) a
change in his place of employment in any way without his consent; (vi) a
direction by the Board of Directors to perform an act or refrain from acting
which act or omission would be illegal, unethical or a violation of the
Corporation's policy or standards; or (vii) the failure of the Corporation to
obtain an agreement, satisfactory to Mr. Drozeski, from any successor employer
to assume and agree to provide the severance benefit and other payments
described in the Drozeski Agreement.
Holdings and Mr. Drozeski have advised the Corporation that Holdings
has expressed to Mr. Drozeski its desire that he become the chief executive
officer of the Corporation after the Merger. Holdings and Mr. Drozeski have
further advised the Corporation that Mr. Drozeski and Holdings have discussed
the terms of a post-Merger employment arrangement in some detail, and have
reached an agreement in principle on most of the specific terms of such an
arrangement, including term of contract and base salary and annual bonus
provisions. Holdings and Mr. Drozeski have advised, however, that Mr. Drozeski
and Holdings have not yet reached agreement on a definitive contract of
employment and there is no assurance any such agreement will be reached.
Holdings and Mr. Drozeski have further advised the Corporation that Mr. Drozeski
and Holdings both contemplate that any new employment arrangement, if agreed
upon, will replace the existing severance arrangement for Mr. Drozeski described
above.
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
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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.
THE MERGER
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 shall cause the Articles of Merger
to be executed, delivered and filed with the Virginia Commission. The Effective
Time for the Merger shall 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 other than Holdings and its subsidiaries
(the "Certificates") will cease to have any equity interest in the Surviving
Corporation. After consummation of the Merger all Certificates will be required
to be surrendered to the Exchange Agent in order to receive the Merger
Consideration to which holders thereof will be entitled as a result of the
Merger. No interest will be paid or accrued on the cash payable upon the
surrender of such certificates.
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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 satisfaction of
certain conditions in the Fibers Sale Agreement, one of which is the expiration
or early termination of the relevant waiting period under the HSR Act as it
applies to the sale of the Fibers Business Assets by Merger Subsidiary to FIL
Acquisition Corp. 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 April 4, 1997, the relevant waiting period under the HSR Act with
respect to the sale of the Fibers Business Assets by Merger Subsidiary to FIL
Acquisition Corp. 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
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Consideration, other than shares owned by Holdings and its affiliates (which
will continue to represent the same number of validly issued, fully paid and
nonassessable shares 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 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, Parent Corp. and Merger Subsidiary and the Managers of
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 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
Securities and Exchange Commission (the "SEC") under the proxy rules or Rule
13e-3 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, managers 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 Holdings 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, managers 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; (v) the satisfaction of
certain financing conditions beyond the control of Merger Subsidiary and its
affiliates; (vi) the satisfaction of the conditions to the Fibers Sale Agreement
that are not within the control of Holdings and its affiliates; and (vii) the
receipt of (A) the Morgan Consulting 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 "Special Factors - Interests of Certain Persons in the Merger - John L.
Morgan's Separation from Service Agreement."
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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, Parent Corp. 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, Parent Corp. or Merger Subsidiary in the Merger
Agreement; (iii) receipt of certain legal opinions, confirmations and closing
certificates from Holdings and its advisors; (iv) satisfaction of all conditions
to the Fibers Sale Agreement and the availability of the cash consideration
payable thereunder at closing to the Surviving Corporation; and (v) 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. Until December 31, 1997, Holdings will maintain all
Corporation benefit plans other than the Employee Stock Ownership Plan of
American Filtrona Corporation (the "Corporation Benefit Plans") covering
employees who continue employment with the Surviving Corporation, with such
amendments as may be required by the Code, ERISA or other applicable law or
required to carry out certain of Holdings' undertakings set forth in the Merger
Agreement.
Holdings has agreed to use its best efforts to (i) cause FIL
Acquisition Corp. to establish and maintain through December 31, 1997, employee
benefit plans comparable to the Corporation Benefit Plans for those employees of
the Corporation that become employees of FIL Acquisition Corp.; (ii) ensure that
any employee welfare plans of FIL Acquisition Corp. credit such employees with
any internal limits, deductibles or copayments satisfied by such employees under
the Corporation's employee welfare plans; and (iii) cause FIL Acquisition Corp.
to offer employment to all of the Corporation's employees in the Fibers Business
at the Closing Date.
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 Managers 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 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
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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, Parent Corp. or Merger Subsidiary of any representation or warranty
that 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,
Parent Corp. or Merger Subsidiary to consummate the Merger, or there has been a
material breach of a covenant or agreement on the part of Holdings, Parent Corp.
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 (15)
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 (15) 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 June 30, 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 February 28, 1998, the Corporation will pay Holdings
the Fee.
SALE OF THE FIBERS BUSINESS ASSETS
General
The following information with respect to the sale of the Fibers
Business Assets is qualified in its entirety by reference to the complete text
of the Fibers Sale Agreement, a copy of which is included in this Proxy
Statement as Annex II. The Fibers Sale Agreement sets forth the terms and
conditions upon which the sale of the Fibers Business Assets is to be effected.
If all of the conditions to the obligations of the parties to the Fibers Sale
Agreement are satisfied or waived, the sale of the Fibers Business Assets will
be consummated immediately after the Effective Time (the "Fibers Closing Date").
In exchange for the Fibers Business Assets, FIL Acquisition Corp., a
wholly-owned subsidiary of Bunzl plc, will pay the Surviving Corporation the sum
of $72,450,000 (subject to adjustment for certain changes in the working capital
and fixed assets of the Fibers Business) and assume the liabilities of the
Fibers Business other than (i) any tax liability arising from or with respect to
the Fibers Business Assets or the operations of the Fibers Business that is
incurred in or is attributable to any tax period prior to the Fibers Closing
Date; (ii) except as specified in the Fibers Sale Agreement, any liabilities or
obligations relating to employee benefits or compensation arrangements existing
on or prior to the Fibers Closing Date related to all employees of the
Corporation who are not employed in the Fibers Business; (iii) any liabilities
or obligations of the Fibers Business arising from or related to any actual,
alleged or asserted damage to human health or to health-related exposures or
public health exposures or human safety exposures, in each case related to
tobacco-related products manufactured, distributed, sold or delivered by the
Corporation on or prior to the Fibers Closing Date for use in the United States;
(iv) any liabilities or obligations relating to any assets other than the Fibers
Business Assets; (v) any liabilities and obligations of the Fibers Business
arising from or relating to any of its liabilities to Merger Subsidiary, the
Corporation or any of their respective affiliates; (vi) any liabilities or
obligations arising from any indebtedness incurred on or prior to the Fibers
Closing Date or any checks outstanding as of the Fibers Closing Date; (vii) any
claims that have been or may be asserted relating to certain litigation in which
the Corporation is involved; and (viii) any liability to the Surviving
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<PAGE>
Corporation in respect of any payments made by the Surviving Corporation either
before or after the Fibers Closing Date to any officer of the Fibers Business
pursuant to (A) the Articles of Incorporation or Bylaws of the Corporation or
(B) any indemnification agreement between the Corporation and its employees.
Conditions to the Consummation of the Sale of the Fibers Business Assets
The obligations of FIL Acquisition Corp. and Surviving Corporation to
consummate the sale of the Fibers Business Assets are subject to the
satisfaction of the following conditions: (i) the expiration or termination of
any applicable waiting period under the HSR Act relating to the transactions
contemplated by the Fibers Sale Agreement; (ii) the absence of any provision of
any applicable law or regulation and any judgment, injunction, order or decree
that would (A) prohibit the consummation of the sale of the Fibers Business
Assets or (B) restrain, prohibit or otherwise interfere in any material respect
with the effective operation or enjoyment by FIL Acquisition Corp. of all or any
material portion of the Fibers Business Assets; (iii) the absence of any pending
proceeding challenging the Fibers Sale Agreement or the transactions
contemplated thereby or seeking to prohibit, alter, prevent or materially delay
the consummation of the sale of the Fibers Business Assets; (iv) the taking of
all actions by or in respect of or filings with any governmental body, agency,
official or authority required to permit the consummation of the sale of the
Fibers Business Assets; (v) the execution by FIL Acquisition Corp. and the
Surviving Corporation of an easement agreement relating to certain real
property; and (vi) the consummation of the transactions contemplated by the
Merger Agreement in accordance with the terms thereof.
The obligation of FIL Acquisition Corp. to consummate the sale of the
Fibers Business Assets is subject to the satisfaction of the following further
conditions: (i)(A) the material performance by Merger Subsidiary and the
Surviving Corporation of all of their respective obligations under the Fibers
Sale Agreement and under the Merger Agreement required to be performed by each
of them on or prior to the Fibers Closing Date, (B) the material accuracy as of
the Fibers Closing Date of the representations and warranties of Merger
Subsidiary contained in the Fibers Sale Agreement, the representations and
warranties of the Corporation contained in the Merger Agreement, and in any
certificate or other writing delivered by Merger Subsidiary or the Corporation
pursuant to the Fibers Sale Agreement or the Merger Agreement, disregarding all
qualifications and exceptions relating to materiality or material adverse effect
and (C) the receipt by FIL Acquisition Corp. of a certificate signed by the
President of Merger Subsidiary to the foregoing effect; (ii) the receipt by FIL
Acquisition Corp. of an opinion of Sutherland, Asbill & Brennan, L.L.P., counsel
to Merger Subsidiary, dated as of the Fibers Closing Date as specified in the
Fibers Sale Agreement; (iii) the execution and delivery of the Morgan Consulting
Agreement; (iv) the execution and delivery by the parties to the Fibers Sale
Agreement of such agreements with respect to the Fibers Business or the
employees of the Fibers Business as FIL Acquisition Corp. may reasonably
request; (v) the receipt by Merger Subsidiary of the consents required by the
Fibers Sale Agreement; (vi) the receipt by FIL Acquisition Corp. of (A) certain
insurance coverage and (B) any easements necessary for its use of the real
property transferred to it pursuant to the Fibers Sale Agreement; (vii) the
receipt by FIL Acquisition Corp. of evidence reasonably satisfactory to it that
certain customers of the Fibers Business will not terminate or materially and
adversely modify their contractual or business relationships with the Fibers
Business as a result of the transactions contemplated under the Fibers Sale
Agreement; (viii) the absence of any material adverse change to the Fibers
Business since September 30, 1996; (ix) the absence of any facts, events or
circumstances that may come to the attention of FIL Acquisition Corp. as a
result of information disclosed regarding certain agreements, which facts,
events or circumstances, as determined by FIL Acquisition Corp. in its
reasonable judgment, materially affect the Fibers Business; and (x) the receipt
by FIL Acquisition Corp. of evidence relating to the existence of Merger
Subsidiary and the authority of Merger Subsidiary with respect to the Fibers
Sale Agreement.
The obligation of Merger Subsidiary to consummate the sale of the
Fibers Business Assets is subject to the satisfaction of the following further
conditions: (i)(A) the material performance by FIL Acquisition Corp. of all of
its obligations under the Fibers Sale Agreement required to be performed by it
at or prior to the Fibers Closing Date, (B) the material accuracy as of the
Fibers Closing Date of the representations and warranties of FIL Acquisition
Corp. contained in the Fibers Sale Agreement and in any certificate or other
writing delivered by FIL Acquisition Corp. pursuant thereto and (C) the receipt
by Merger Subsidiary of a certificate signed by any Vice-
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<PAGE>
President of FIL Acquisition Corp. to the foregoing effect; (ii) the receipt by
Merger Subsidiary of an opinion of Davis Polk & Wardwell, counsel to FIL
Acquisition Corp., dated the Fibers Closing Date as specified in the Fibers Sale
Agreement; (iii) the receipt by FIL Acquisition Corp. of the consents required
by the Fibers Sale Agreement; and (iv) the receipt by Merger Subsidiary of
evidence relating to the existence of FIL Acquisition Corp. and the authority of
FIL Acquisition Corp. with respect to the Fibers Sale Agreement.
Termination
Either party to the Fibers Sale Agreement may terminate such agreement
if (i) the sale of the Fibers Business Assets pursuant to the terms and
conditions of the Fibers Agreement has not been consummated by June 30, 1997;
(ii) the consummation of the transactions contemplated by the Fibers Sale
Agreement is made illegal or otherwise prohibited by any law or would violate
any nonappealable final order, decree or judgment of any governmental entity
having competent jurisdiction; or (iii) the Merger Agreement is terminated.
Holdings entered into a Fee Agreement dated as of December 12, 1996
(the "Fee Agreement") with Bunzl plc pursuant to which Holdings agreed that in
certain circumstances, as an alternative to the Merger, Holdings would cooperate
as requested by Bunzl plc and use its best efforts to ensure that Bunzl plc has
the opportunity to negotiate a definitive agreement for the purchase of the
Fibers Business Assets directly from the Corporation, including voting its and
its affiliates' shares of Common Stock in favor of any such proposal or
resolution approved by the directors of the Corporation, or providing a fair
price to the Corporation in the reasonable judgment of Holdings, to sell the
Fibers Business Assets to Bunzl plc.
A copy of the Fee Agreement has been filed as an exhibit to the
Schedule 13E-3 filed with the SEC by Holdings, Parent Corp., Merger Subsidiary
and the Corporation with respect to the Merger, and is available for inspection
and copying at the principal executive offices of the Corporation during its
regular business hours by any shareholder or any representative of a shareholder
who has been so designated in writing. A copy of such materials shall be
provided to any shareholder or any representative of a shareholder who has been
so designated in writing upon written request and at the expense of the
requesting shareholder or representative.
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 Holdings regarding a proposed sale of the Corporation, 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 _______ __, 1997, the latest
practicable trading day before the printing of this Proxy Statement, the high
and low sales prices of the Common Stock on the Nasdaq Stock Market were $_____
per share and $_____ per share, respectively.
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<PAGE>
Quarterly Common Stock Data (Unaudited)
The following table presents the frequency and amount of dividends paid
by the Corporation during the past two years with respect to the Common Stock
and the high and low sales prices of the Common Stock on the Nasdaq Stock Market
for each quarterly period during the past two years.
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------------------------------------ -----------------------------------
First First Second Third Fourth First Second Third Fourth
- - ---------------------------------------------------------------------------------------------------------
<S> <C>
Dividends .28 .265 .265 .28 .28 .25 .25 .265 .265
paid per
share
Price Range
High 46 36 1/2 35 1/4 34 45 1/4 29 31 32 1/4 40 3/4
Low 40 33 1/2 29 1/2 30 32 26 27 1/4 29 1/2 30 3/4
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
-36-
<PAGE>
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, 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, which is incorporated by reference into this Proxy
Statement. See "Additional Information -- Incorporation of Certain Documents by
Reference."
<TABLE>
<CAPTION>
(IN THOUSANDS UNLESS OTHERWISE INDICATED)
FOR THE
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C>
INCOME STATEMENT DATA
Total Revenues $194,841 $177,848 $150,191 $131,531 $122,868
Income Before Income Taxes 19,438 15,554 12,231 10,480 9,720
Income From Continuing Operations 12,438 10,104 7,806 6,705 6,420
Net Income 12,438 10,104 11,761 7,316 1,212
PER SHARE (Dollars)
Earnings <Loss>
Continuing Operations 3.32 2.70 2.08 1.80 1.73
Discontinued Operations -- -- 1.05 .16 <1.40>
----- ----- ----- ------ -----
Net Income 3.32 2.70 3.13 1.96 .33
BALANCE SHEET DATA (at end of period)
Working Capital 60,476 54,246 47,016 48,219 31,841
Total assets 117,554 108,266 99,709 87,094 80,542
Total assets less deferred research and development 112,861 103,169 94,276 82,754 75,872
charges and excess of cost of assets acquired over book
value
Long-term debt -- 650 1,300 -- --
Shareholders' equity 93,397 84,825 78,365 70,966 67,042
BOOK VALUE PER SHARE OF COMMON STOCK 24.87 22.71 20.98 18.98 18.03
(Dollars)
CASH DIVIDENDS DECLARED AND PAID PER 1.09 1.03 .98 .95 .94
SHARE OF COMMON STOCK (Dollars)
</TABLE>
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<PAGE>
ELECTION OF DIRECTORS
Proxies will be voted for the election of the persons named below as
directors for the ensuing year unless otherwise instructed. If the Merger is
consummated, the Board of Directors of the Corporation will be replaced by the
Board of Directors of Merger Subsidiary, until such time as a new Board of
Directors is elected by Parent Corp., as the sole shareholder of the
Corporation. If for any reason any of the persons named below should become
unavailable to be elected as a director, then the proxies will be voted for such
substitute nominee as the Board of Directors may designate. The Corporation has
no reason to believe that any of the nominees will be unavailable. All of the
nominees currently are members of the Board. The number of shares of Common
Stock owned by each of the nominees is shown in the next section.
Unless otherwise specified in the accompanying form of proxy, it is
intended that votes will be cast for the election of all of the nominees as
directors.
<TABLE>
<CAPTION>
Position with Corporation,
Principal Occupation
for Last 5 Years,
Directorships in Public Director
Name Age Corporations and Business Address Since
------ ---- ------------------------------------------------ ---------
<S> <C>
JOHN D. BARLOW, JR. 62 Vice President -- Finance of the Corporation. 1982
Business Address: American Filtrona Corporation
3951 Westerre Parkway, Suite 300, Richmond,
VA 23233
RUDOLPH H. BUNZL (a) 74 Former Chairman of the Board of the Corporation 1954
(1987-1994), and prior thereto Chairman and Chief
Executive Officer.
Business Address: 5540 Falmouth Street, Suite
305, Richmond, VA 23230
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.
Business Address: 3912 Wainfleet Drive,
Richmond, VA 23235
LEO C. DROZESKI, JR. 57 President (since January 1995) and Chief 1993
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).
Business Address: American Filtrona Corporation
3951 Westerre Parkway, Suite 300, Richmond,
VA 23233
</TABLE>
-38-
<PAGE>
<TABLE>
<CAPTION>
Position with Corporation,
Principal Occupation
for Last 5 Years,
Directorships in Public Director
Name Age Corporations and Business Address Since
------ ---- ------------------------------------------------ ---------
<S> <C>
BENNETT L. KIGHT 56 Partner, Sutherland, Asbill & Brennan, L.L.P., 1990
law firm, Atlanta, Georgia.
Business Address: Sutherland, Asbill & Brennan,
L.L.P., 999 Peachtree Street, N.E., Atlanta, GA
30309-3996
JOHN L. MORGAN (a) 62 Chairman (since January 1995) and Chief 1973
Executive Officer of the Corporation, having
previously served as President and Chief Executive
Officer.
Business Address: American Filtrona Corporation
3951 Westerre Parkway, Suite 300, Richmond,
VA 23233
STANLEY F. PAULEY (a) 69 Chairman and Chief Executive Officer of 1976
Carpenter Company, manufacturer of comfort
cushioning products, Richmond, Virginia.
Business Address: Carpenter Company, 5016
Monument Avenue, Richmond, VA 23230
GILBERT M. ROSENTHAL (a) 71 Retired (since October 1993); formerly Chairman 1984
and Chief Executive Officer of Standard Drug
Company, retail drug chain, Richmond, Virginia.
Director of Jefferson Bankshares Corporation,
Charlottesville, Virginia.
Business Address: Healthcare Outcomes, 3301
Rosedale Avenue, Richmond, VA 23230
WALLACE STETTINIUS (a) 64 Retired (since February 1995); formerly Chairman 1978
of Cadmus Communications Corporation, printer
and publisher, Richmond, Virginia (since October
1992), having previously served as Chairman and
Chief Executive Officer of that corporation.
Director of Cadmus Communications Corporation
and Chesapeake Corporation, Richmond, Virginia.
Business Address: Cadmus Communications
Corporation, P. O. Box 1371, Richmond, VA
23261
</TABLE>
-39-
<PAGE>
<TABLE>
<CAPTION>
Position with Corporation,
Principal Occupation
for Last 5 Years,
Directorships in Public Director
Name Age Corporations and Business Address Since
------ ---- ------------------------------------------------ ---------
<S> <C>
BERNARD C. WAMPLER 65 Chairman (since December 1993) and Chief 1990
Executive Officer of Pulaski Furniture
Corporation, manufacturer of furniture, Pulaski,
Virginia, having previously served as President
and Chief Executive Officer of that corporation.
Director of Pulaski Furniture Corporation.
Business Address: Pulaski Furniture Corporation,
P. O. Box 1371, Pulaski, VA 24301
HARRY H. WARNER 61 Financial Consultant. Director of Chesapeake 1988
Corporation, Richmond, Virginia; Pulaski
Furniture Corporation, Pulaski, Virginia; and
Allied Research Corporation, Vienna, Virginia.
Business Address: P.O. Box 1577, Lexington,
Virginia 24450
</TABLE>
(a) Member of Executive Committee
All members of the Board of Directors are citizens of the United States
of America.
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
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<PAGE>
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.
EXECUTIVE OFFICERS OF THE CORPORATION
The names of all executive officers of the Corporation, as of March 18,
1997 who are not also directors of the Corporation, are set forth below. The
term of office of each such officer is until the next annual meeting of the
Board of Directors. Other than Mr. McCune all of such officers have been
employed by the Corporation for at least the last five years, are citizens of
the United States of America and have the following business address: American
Filtrona Corporation, 3951 Westerre Parkway, Suite 300, Richmond, Virginia
23233.
Randall L. Hagan Vice President - Bonded Fiber Products and
President of American Filtrona Company, a division
of the Corporation.
Anthony M. Vincent Vice President (since April 1994) and prior thereto
Vice President - Industrial Filtration Products and
President of Dollinger Corporation, a former
subsidiary of the Corporation.
James E. McCune Vice President - Plastic Products (since January
1997) having previously served as General Manager -
Extrusion Operations of the Corporation (since April
1993) and prior thereto as Vice President/Director
of Operations of Reznor, a unit of Thomas and Betts
Corp. (since July 1981).
SECURITY OWNERSHIP
Pursuant to the rules and regulations of the Exchange Act, Rudolph H.
Bunzl, Wallace Stettinius and William A. Forrest, 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.
-41-
<PAGE>
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 February 28, 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 Bunzl,
Wallace Stettinius and William A. Forrest, 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 253,772 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
William A. Forrest, 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 80,433 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 Edmund A. Rennolds are trust committee members, and the
remainder are held by Rudolph H. Bunzl's wife. Rudolph H. Bunzl disclaims
beneficial ownership of 80,433 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.
-42-
<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 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 William A. Forrest, 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 William A. Forrest, Jr. and Wallace
Stettinius are co-trustees and share voting and investment power. William A.
Forrest, 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.
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<PAGE>
Security Ownership of Certain Management of the Corporation
The following table provides information, as of February 28, 1997, as
to shares of Common Stock owned by each director, the Chief Executive Officer
and the executive 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. 39,411 shares (c) 1.0
Rudolph H. Bunzl 253,772 shares 6.7
Manuel Deese 400 shares
Leo C. Drozeski, Jr. 51,343 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 38,586 shares (c) 1.0
Anthony M. Vincent 17,928 shares (c)
James E. McCune 3,193 shares (c)
All Officers and Directors as a Group (17) 2,115,079 shares (d) 55.4
</TABLE>
(a) Includes 1,653,943 shares held by spouses, children and in certain trust
relationships, which may be deemed to be beneficially owned by the directors and
officers under the rules and regulations of the SEC, but as to which the
directors and officers disclaim beneficial ownership.
(b) Except in situations described in Note (a) above where beneficial ownership
is disclaimed, and except as set forth in the preceding table and the notes
thereto, the beneficial owner of each share shown in the table has sole voting
and investment power.
(c) Includes 10,100, 14,000, 38,100, 12,500, 10,500 and 3,100 shares that may be
acquired by Messrs. Barlow, Drozeski, Morgan, Hagan, Vincent and McCune,
respectively, on or before April 29, 1997, under the Corporation's stock option
plans.
(d) Includes the shares described in Note (c) above and 7,900 shares that may be
acquired by other officers on or before April 29, 1997, under the Corporation's
stock option plans.
Neither the Corporation nor any of the directors or executive officers of
the Corporation has engaged in any transaction in the Common Stock effected
during the last 60 days.
-44-
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table lists all compensation paid by the Corporation to
the Chief Executive Officer and the four other highly compensated executive
officers of the Corporation for services rendered in fiscal years 1996, 1995 and
1994.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
-----------------------
Annual Compensation Awards Payouts($)/1
-------------------- ------- -----------
Options/ All Other
Name and Salary Bonus SARs Compensation
Principal Position Year ($) ($) (#)2 ($)
-------------------- ---- ------- ------- -------- ------------
<S> <C>
John L. Morgan 1996 286,000 200,000 15,000 653,625 12,750/3
Chief Executive Officer 1995 275,000 150,000 15,000 0 11,250
and Chairman 1994 250,000 110,000 0 0 10,500
Leo C. Drozeski, Jr. 1996 195,000 125,000 12,000 466,875 12,750/4
Chief Operating Officer 1995 175,000 100,000 12,000 0 11,250
and President 1994 154,000 80,000 0 0 10,500
Randall L. Hagan 1996 128,000 60,000 2,500 217,875 14,250/5
Vice President - Bonded 1995 123,000 49,000 2,500 0 13,500
Fiber Products 1994 118,000 40,000 0 0 12,000
John D. Barlow, Jr. 1996 152,000 25,000 2,500 155,625 12,750/6
Vice President - Finance 1995 146,600 22,000 2,500 0 11,250
1994 141,400 19,000 0 0 10,500
Anthony M. Vincent 1996 116,500 18,000 1,500 0 11,202/7
Vice President 1995 112,000 18,000 2,000 0 11,100
1994 107,500 18,000/8 0 0 6,987
</TABLE>
1 The amounts in this column represent the value of shares of Common Stock
received at the completion of the 1994-1996 Performance Cycle of the
Corporation's Performance Plan based on per-share prices of $41.00 and $42.50.
No new Performance Shares were issued in 1996 pursuant to the Performance
Plan.
2 The amounts in this column represent shares of Common Stock issuable upon the
exercise of options.
3 Includes contributions to the 401(k) Savings and Profit Sharing Plan ($11,625,
$10,125 and $9,375) and ESOP ($1,125, $1,125 and $1,125) for 1996, 1995 and
1994, respectively.
4 Includes contributions to the 401(k) Savings and Profit Sharing Plan ($11,625,
$10,125 and $9,375) and ESOP ($1,125, $1,125 and $1,125) for 1996, 1995 and
1994, respectively.
5 Includes contributions to the 401(k) Savings and Profit Sharing Plan ($13,125,
$12,375 and $10,875) and ESOP ($1,125, $1,125 and $1,125) for 1996, 1995 and
1994, respectively.
6 Includes contributions to the 401(k) Savings and Profit Sharing Plan ($11,625,
$10,125 and $9,375) and ESOP ($1,125, $1,125 and $1,125) for 1996, 1995 and
1994, respectively.
7 Includes contributions to the 401(k) Savings and Profit Sharing Plan ($10,193,
$9,990 and $5,862) and ESOP ($1,009, $1,110 and $1,125) for 1996, 1995 and
1994, respectively.
8 In addition, Anthony M. Vincent received a one-time payment of $134,375 in
1994 related to the sale of Dollinger Corporation.
-45-
<PAGE>
Option/SAR Grants in Last Fiscal Year
The following table provides information on options or Stock Appreciation
Rights ("SAR") grants made during the 1996 fiscal year by the Corporation to the
Chief Executive Officer and the four other most highly compensated executive
officers of the Corporation.
<TABLE>
<CAPTION>
Potential
Realizable
Individual Grants Value at Assumed
--------------------------------------------------------------------- Annual Rates of
Number of % of Total Stock Price
Securities Options/SARs Appreciation for
Underlying Granted to Exercise or Option Term
Options/SARs Employees in Base Price Expiration --------------------
Name Granted (#) Fiscal Year ($) Date 5% ($) 10% ($)
---- ------------- ------------- ----- ------ ------ -------
<S> <C>
John L. Morgan 15,000/1 21.2% 35.00 02/07/06 330,170 836,715
Leo C. Drozeski, Jr. 12,000/1 17.0% 35.00 02/07/06 264,136 669,372
Randall L. Hagan 2,500/2 3.5% 35.00 02/07/06 55,028 139,453
John D. Barlow, Jr. 2,500/2 3.5% 35.00 02/07/06 55,028 139,453
Anthony M. Vincent 1,500/2 2.1% 35.00 02/07/06 33,017 83,672
</TABLE>
1 Each of these options was immediately exercisable.
2 Each of these options becomes exercisable in 20% increments on February 7,
1997, 1998, 1999, 2000 and 2001.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
The following table provides information on option/SAR exercises by
the Chief Executive Officer and the four other most highly compensated executive
officers of the Corporation and the value of each officer's unexercised options.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options/SARs at In-The-Money Options
Acquired Value Fiscal Year-End (#) at Fiscal Year-End ($)1
on Realized ------------------- -----------------------
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------ ----- ------------------------- -------------------------
<S> <C>
John L. Morgan 0 0 54,500/23,500 925,000/362,813
Leo C. Drozeski, Jr. 20,800 387,562 12,000/13,600 90,000/211,150
Randall L. Hagan 0 0 16,500/ 5,500 333,656/ 65,125
John D. Barlow, Jr. 0 0 14,100/ 5,300 277,706/ 62,125
Anthony M. Vincent 0 0 9,800/ 3,900 165,425/ 48,350
</TABLE>
1 Value of unexercised options based on the December 31, 1996, closing price of
$42.50 per share of Common Stock.
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.
-46-
<PAGE>
Pension Plan Table
<TABLE>
<CAPTION>
Annual Retirement Benefits Payable for Credited Service of
-----------------------------------------------------------------------
Final Average Earnings 5 years 10 years 15 years 20 or more years
- - ---------------------- ------- -------- -------- ----------------
<S> <C>
$100,000................ $ 6,250 $ 12,500 $ 18,750 $ 25,000
150,000................ 9,375 18,750 28,125 37,500
200,000................ 12,500 25,000 37,500 50,000
250,000................ 15,625 31,250 46,875 62,500
300,000................ 18,750 37,500 56,250 75,000
350,000................ 21,875 43,750 65,625 87,500
400,000................ 25,000 50,000 75,000 100,000
450,000................ 28,125 56,250 84,375 112,500
500,000................ 31,250 62,500 93,750 125,000
550,000................ 34,375 68,750 103,125 137,500
600,000................ 37,500 75,000 112,500 150,000
</TABLE>
Under the Retirement Plan, "Final Average Earnings" is the highest
annual average compensation during any five consecutive calendar years within
the ten-year period prior to the date the participant's benefits are determined.
Annual retirement benefits at age 65 for all participants equal 25% of Final
Average Earnings. The benefits under the Retirement Plan may be reduced
depending upon the number of years of service with the Corporation or one of its
subsidiaries or divisions.
To the extent that benefits determined under the Retirement Plan's
benefit formula are reduced because of compensation limitations imposed by the
Internal Revenue Code, they will be paid under the Supplemental Plan.
Benefit amounts are stated as payments in the form of a life annuity
with a guarantee of 120 monthly payments and are in addition to Social Security
benefits. Other actuarially equivalent forms of benefit may be selected.
At December 31, 1996, Messrs. Morgan, Drozeski, Hagan, Barlow and
Vincent had 27, 24, 18, 16 and 17 years of credited service for purposes of
calculating retirement benefits, respectively, and $436,000, $295,000, $177,000,
$174,000 and $134,500 Rates of Earnings, respectively.
The Supplemental Plan provides certain key management personnel with
additional supplemental retirement benefits. The Executive Compensation
Committee selects participants and determines the amount payable to each
participant under the Supplemental Plan. Benefits are paid at retirement and may
be payable at death or disability. A participant's benefit may be reduced
depending on the number of years of service with the Corporation or any of its
subsidiaries. Benefit amounts under the Supplemental Plan are stated as annual
payments in the form of a life annuity with a guarantee of 120 monthly payments.
Benefits are paid in the form of benefit selected by the participant under the
Retirement Plan. At December 31, 1996, Messrs. Morgan and Barlow were entitled
to annual benefits under the Supplemental Plan of $12,000 and $5,000,
respectively, at normal retirement age.
Remuneration of Directors
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.
-47-
<PAGE>
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 49. The
Committee also takes into account level of responsibility, time in position and
past performance in setting base salary. The Committee approved a base salary
for Mr. Morgan for 1996 that reflected an increase of 4% above his 1995 base
salary in response to inflation and to bring his salary more in line with the
Committee's general sense of competitive salaries.
In determining the cash bonuses for the Corporation's executives, the
Committee reviews the Corporation's financial results as well as each
individual's contribution to the Corporation's performance, especially his level
of responsibility and leadership efforts. The procedure is essentially
discretionary and subjective. When establishing Mr. Morgan's cash bonus, the
Committee considers his total cash compensation (base salary and bonus) on a
year to year basis. In determining Mr. Morgan's 1996 cash bonus, the Committee
also reviewed the Corporation's performance for the year, as well as Mr.
Morgan's individual efforts in enhancing that performance and his consistently
strong performance as Chief Executive Officer. Mr. Morgan's cash bonus of
$200,000 was 33% above his 1995 cash bonus. However, his total cash compensation
increased only 14%, which was less than the Corporation's 23% increase in
earnings per share from continuing operations.
In 1996, the Corporation made stock-based incentive awards pursuant to
the Incentive Plan to its executives who have contributed, and are expected to
contribute, to the long-term financial performance of the Corporation. The
Incentive Plan provides for the grant of (i) incentive stock options to purchase
shares of Common Stock at no less than the fair market value of the Common Stock
on the date of grant and (ii) non-qualified stock options to purchase shares of
Common Stock at no less than 85% of the fair market value of the Common Stock on
the date of grant. The Corporation has granted both incentive stock options and
non-qualified stock options pursuant to the Incentive Plan, all of which have
exercise prices of 100% of the fair market value of the Common Stock on the
dates of such grants. The Incentive Plan also provides for the issuance of
performance shares (the "Performance Shares") entitling an executive to receive
one share of Common Stock for each Performance Share that vests after a
pre-determined performance cycle (i) upon continued employment with the
Corporation, (ii) upon satisfaction of certain pre-established performance
goals, including achievement of corporate earnings per share and return on
equity goals, and (iii) at the discretion of the Committee, based on individual
performance. Achievement of these goals inures to the benefit of the
shareholders, as well as the executives. On February 7, 1996, the executives
listed on page 46 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.
-48-
<PAGE>
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. The arrangements finally approved
reflect the apportionment between Holdings and Bunzl plc of the costs of
providing such treatment.
Because none of the Corporation's executive officers has received
annual compensation in excess of $1 million, the Corporation has not taken any
position with respect to the cap on tax deductibility of compensation in excess
of that amount established under the Omnibus Budget Reconciliation Act of 1993.
Executive Compensation Committee
Rudolph H. Bunzl
Manuel Deese
Stanley F. Pauley
Harry H. Warner (Chairman)
PERFORMANCE GRAPH
Comparison of Five Year Cumulative Total Return
Among American Filtrona, S&P 500, and NASDAQ Non-Financial Stocks
[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.
-49-
<PAGE>
INFORMATION CONCERNING HOLDINGS, PARENT CORP. AND MERGER
SUBSIDIARY AND THEIR DIRECTORS, MEMBERS AND EXECUTIVE OFFICERS
Each of Holdings, Parent Corp. and Merger Subsidiary was formed solely
for purposes of effecting the Merger and the sale of the Fibers Business Assets,
and has no independent business operations. Holdings is a Georgia limited
liability company, the sole members of which are the WB Parties. Collectively,
the WB Parties, including Holdings, Parent Corp. and Merger Subsidiary,
beneficially own 1,059,720 shares of Common Stock.
Parent Corp. and Merger Subsidiary are business corporations formed
under Virginia law. Holdings is the sole shareholder of Parent Corp., which is
in turn the sole shareholder of Merger Subsidiary. Bennett L. Kight and Frances
B. Bunzl serve as the sole directors of Parent Corp. and Merger Subsidiary, as
well as their sole officers, Mr. Kight serving as President and Treasurer and
Mrs. Bunzl serving as Vice President and Secretary. Mr. Kight and Mrs. Bunzl
also serve as the sole managers of Holdings and its sole officers, Mrs. Bunzl
serving as Chairman and Mr. Kight serving as President.
Mrs. Bunzl and Mr. Kight, as fiduciaries and not individually, may be
deemed to have beneficial ownership (with the meaning of Rule 13d-3) of:
(a) 429,298 shares of Common Stock held by the trust established
under the Will of Walter H. Bunzl for the benefit of Frances B. Bunzl (the
"Marital Trust"), as to which they are members of the trust committee (the
"Marital Trust Shares");
(b) 505,892 shares of Common Stock, held by two trusts established
by Walter H. and Frances B. Bunzl for the benefit of their children (the "Walter
Bunzl Family Trusts"), as to which they are general trustees (the "Family Trust
Shares");
(c) 63,556 shares of Common Stock which are subject to a right to
be acquired by the 1959 Trust established by Walter H. Bunzl for the benefit of
his children (the "1959 Trust"), as to which Mrs. Bunzl and Mr. Kight are
members of the trust committee (the "1959 Trust Shares"); and
(d) 24,174 shares of Common Stock held by two trusts for the
benefit of Mrs. Bunzl's children established under the Wills of Robert M. Bunzl
and Nellie M. Bunzl (the "Testamentary Trusts"), as to which Mrs. Bunzl and Mr.
Kight are members of the trust committees (the "Testamentary Trust Shares").
As fiduciaries, Mrs. Bunzl's and Mr. Kight's actions with respect to
the Marital Trust Shares, the Family Trust Shares, the 1959 Trust Shares and the
Testamentary Trust Shares are governed by the terms of the trust instruments and
the general obligations of fiduciaries. In particular, Mrs. Bunzl and Mr. Kight
may consult with each other and act in concert with respect to the voting and
disposition of these shares. Mrs. Bunzl and Mr. Kight expressly disclaim any
pecuniary interest in the Family Trust Shares, the 1959 Trust Shares and the
Testamentary Trust Shares. Mr. Kight expressly disclaims any pecuniary interest
in the Marital Trust Shares.
Mrs. Bunzl and Mr. Kight, as directors of the Walter H. and Frances B.
Bunzl Foundation, a private foundation exempt from federal income tax (the
"Foundation"), and not individually, may be deemed to have beneficial ownership
(within the meaning of Rule 13d-3) of 36,800 shares of Common Stock held by the
Foundation (the "Foundation Shares"). Mrs. Bunzl and Mr. Kight, as directors,
and not individually, share voting and dispositive power with respect to the
Foundation Shares, along with Mrs. Bunzl's two adult children, who are also
directors. Mrs. Bunzl and Mr. Kight expressly disclaim any pecuniary interest
in the Foundation Shares.
The Marital Trust Shares, the Family Trust Shares, the 1959 Trust
Shares, the Foundation Shares and the Testamentary Trust Shares total 1,059,720
shares, representing 27.8% of the 3,816,629 shares of the Corporation's Common
Stock outstanding as of February 28, 1997.
-50-
<PAGE>
The Marital Trust and the Walter Bunzl Family Trusts are currently the
sole members of Holdings. Prior to consummation of the Merger, the 1959 Trust
will exercise its right to acquire 63,556 shares of Common Stock from Mrs.
Bunzl's two children, and the 1959 Trust, the Foundation and the Testamentary
Trusts will contribute all of their shares of Common Stock to Holdings in
exchange for membership units in Holdings, and the Marital Trust and the Walter
Bunzl Family Trusts will contribute all of their remaining shares of Common
Stock to Holdings in exchange for additional membership units in Holdings.
Holdings will transfer all contributed shares of Common Stock to Parent Corp.,
which will become the sole shareholder of the Corporation if the Merger is
consummated.
Mr. Kight, Holdings, Parent Corp. and Merger Subsidiary all share the
same principal office: 999 Peachtree Street, N.E., Suite 2300, Atlanta, Georgia
30309. Mrs. Bunzl's residence address is 3649 Peachtree Road, Apt. 105,
Atlanta, Georgia 30319. For the past five years, Mr. Kight has been a partner
in Sutherland, Asbill & Brennan, L.L.P., which firm serves as legal counsel to
Holdings, Parent Corp. and Merger Subsidiary. During the same period, Mrs.
Bunzl's principal occupation has been as a private investor. Both Mr. Kight and
Mrs. Bunzl are United States citizens.
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; and
(ii) the Corporation's Current Reports on Form 8-K filed February 14,
1997, and February 28, 1997, and dated February 7, 1997, and February 19, 1997,
respectively.
All reports and definitive proxy or information statements filed by the
Corporation pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement and prior to
-51-
<PAGE>
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."
Available Information
The Corporation is subject to the information requirements of the
Exchange Act, and in accordance therewith, files reports, proxy statements and
other information with the SEC. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549 and at the regional offices of the SEC located at 7 World Trade Center,
13th Floor, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp
Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can also be obtained at prescribed rates by writing to the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C., 20549. In addition, such reports, proxy statements and other
information can be inspected at the offices of the Nasdaq Stock Market, 20 Broad
Street, New York, New York 10005.
The SEC maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants, such as the Corporation, that file
electronically with the SEC.
This Proxy Statement includes information to be disclosed pursuant to
Rule 13e-3 under the Exchange Act, which governs so-called "going private"
transactions by certain issuers or their affiliates. Holdings beneficially owns
1,059,720 shares of the Corporation's Common Stock, representing approximately
27.8% of the total outstanding capital stock of the Corporation. Holdings does
not believe that Holdings, Parent Corp., Merger Subsidiary or Bennett L. Kight
is an affiliate of the Corporation and Holdings, Parent Corp., Merger Subsidiary
and Bennett L. Kight deny being affiliates of the Corporation. Holdings, Parent
Corp., Merger Subsidiary and Bennett L. Kight and the Corporation are, however,
filing a Rule 13e-3 Transaction Statement (the "Schedule 13E- 3") to furnish
information with respect to the transactions described herein. This Proxy
Statement does not contain all of the information set forth in the Schedule
13E-3, parts of which are omitted in accordance with the regulations of the SEC.
The Schedule 13E-3, and any amendments thereto, including exhibits filed as a
part thereof, will be available for inspection and copying at the offices of the
SEC as set forth above.
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.
-52-
<PAGE>
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 __________________,
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
-53-
<PAGE>
Annex I
AGREEMENT OF MERGER
AMONG
WBT HOLDINGS LLC,
WB PARENT CORP.,
WB ACQUISITION CORP.
AND
AMERICAN FILTRONA CORPORATION
February 19, 1997
<PAGE>
<TABLE>
<CAPTION>
ARTICLE 1
<S> <C>
THE BUSINESS COMBINATION..........................................................................................2
1.1 THE MERGER......................................................................................2
1.2 CLOSING.........................................................................................2
1.3 EFFECTIVE TIME OF THE MERGER....................................................................2
1.4 ARTICLES OF INCORPORATION; BYLAWS...............................................................2
1.5 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION.............................................2
ARTICLE 2
CONVERSION AND EXCHANGE OF SHARES; ADDITIONAL ACTION..............................................................3
2.1 CONVERSION OF SHARES............................................................................3
(a) AFC COMMON STOCK.......................................................................3
(b) SUBCORP STOCK..........................................................................3
(c) AFC COMMON STOCK HELD BY HOLDINGS......................................................3
2.2 MERGER CONSIDERATION............................................................................3
2.3 STOCK TRANSFER BOOKS............................................................................3
2.4 SURRENDER AND EXCHANGE OF CERTIFICATES REPRESENTING AFC COMMON STOCK...........................3
(a) EXCHANGE AGENT.........................................................................3
(b) SURRENDER OF CERTIFICATES..............................................................4
(c) LOST CERTIFICATES......................................................................4
(d) NO INTEREST............................................................................4
(e) WITHHOLDING RIGHTS.....................................................................5
ARTICLE 3
AFC STOCK OPTIONS.................................................................................................5
ARTICLE 4
REPRESENTATIONS AND WARRANTIES....................................................................................5
4.1 REPRESENTATIONS AND WARRANTIES BY AFC...........................................................5
(a) ORGANIZATION AND QUALIFICATION.........................................................5
(b) CAPITALIZATION.........................................................................6
(c) AUTHORITY..............................................................................6
(d) NON-CONTRAVENTION......................................................................6
(e) GOVERNMENTAL CONSENTS..................................................................7
(f) PERIODIC REPORTS.......................................................................7
(g) SUBSIDIARIES...........................................................................8
(h) FINANCIAL STATEMENTS...................................................................8
(i) ABSENCE OF CERTAIN CHANGES OR EVENTS..................................................10
<PAGE>
(j) GOVERNMENTAL AUTHORIZATION AND COMPLIANCE WITH LAWS...................................11
(k) CONDUCT OF BUSINESS...................................................................12
(l) TAX MATTERS...........................................................................12
(m) PROPERTY..............................................................................12
(n) MATERIAL CONTRACTS....................................................................14
(o) LEGAL PROCEEDINGS.....................................................................16
(p) LABOR RELATIONS.......................................................................16
(q) INSIDER INTERESTS.....................................................................17
(r) INTELLECTUAL PROPERTY.................................................................17
(s) INSURANCE.............................................................................18
(t) PROXY STATEMENT.......................................................................19
(u) EMPLOYEE AND FRINGE BENEFIT PLANS.....................................................19
(v) MAJOR CUSTOMERS. ....................................................................22
(w) SECTIONS 13.1-725 THROUGH 13.1-727.1..................................................23
(x) ENVIRONMENTAL.........................................................................23
(y) ACCURACY OF SCHEDULES, CERTIFICATES AND DOCUMENTS.....................................25
(z) BROKERS, FINDERS AND INVESTMENT BANKERS...............................................25
(aa) INVENTORIES AND RAW MATERIALS OF FIBERS BUSINESS......................................26
(bb) RECEIVABLES OF THE FIBERS BUSINESS....................................................26
(cc) EMPLOYEES OF FIBERS BUSINESS..........................................................26
(dd) PRODUCTS OF THE FIBERS BUSINESS.......................................................26
(ee) INTRACOMPANY ACCOUNTS.................................................................26
(ff) FOREIGN CURRENCY EXPOSURES............................................................27
(gg) COMPANY NAME..........................................................................27
(hh) INDEBTEDNESS..........................................................................27
4.2 REPRESENTATIONS AND WARRANTIES BY HOLDINGS, PARENT AND SUBCORP.................................27
(a) ORGANIZATION AND QUALIFICATION, ETC...................................................27
(b) CAPITALIZATION........................................................................28
(c) AUTHORITY.............................................................................28
(d) NON-CONTRAVENTION.....................................................................28
(e) GOVERNMENTAL CONSENTS.................................................................29
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS..................................................29
(g) PROXY STATEMENT.......................................................................29
(h) ACTIVITIES OF SUBCORP.................................................................29
(i) LEGAL PROCEEDINGS.....................................................................30
(j) BROKERS, FINDERS AND INVESTMENT BANKERS...............................................30
(k) OBLIGATIONS TO FUND...................................................................30
ARTICLE 5
ADDITIONAL COVENANTS AND AGREEMENTS..............................................................................30
5.1 CONDUCT OF BUSINESS............................................................................30
(a) OPERATION BY AFC IN THE ORDINARY COURSE OF BUSINESS...................................30
<PAGE>
(b) FORBEARANCES BY AFC...................................................................31
(c) CONDUCT OF THE FIBERS BUSINESS........................................................33
(d) NOTICES OF CERTAIN EVENTS.............................................................33
5.2 AFC SHAREHOLDERS MEETING.......................................................................34
5.3 BEST EFFORTS; FURTHER ASSURANCES; COOPERATION..................................................34
(a) REGULATORY ACTION.....................................................................34
(b) CERTAIN LEGAL PROCEEDINGS.............................................................35
(c) NOTICE................................................................................35
5.4 INVESTIGATION; CONFIDENTIALITY.................................................................35
5.5 EXPENSES.......................................................................................36
5.6 PROXY STATEMENT................................................................................36
5.7 PERIODIC REPORTS...............................................................................36
5.8 PUBLIC ANNOUNCEMENTS...........................................................................36
5.9 ANTITRUST CHALLENGES...........................................................................37
5.10 EMPLOYEE MATTERS...............................................................................37
(a) STAY BONUSES AND SEVERANCE AGREEMENTS..................................................37
(b) EMPLOYEE BENEFIT PLAN MATTERS..........................................................37
(c) LABOR MATTERS..........................................................................39
5.11 ACCOUNTANT'S LETTERS...........................................................................39
5.12 NON SOLICITATION; COMPETING OFFERS.............................................................39
5.13 CONDITIONS IN FIBERS SALE AGREEMENT AND FINANCING.............................................39
5.14 INVESTMENT SECURITIES.........................................................................39
5.15 FILPAC INDEBTEDNESS............................................................................39
5.16 ACCESS TO INFORMATION..........................................................................39
5.17 SETTLEMENT OF LAWSUITS.........................................................................41
5.18 ASSUMPTION OF LIABILITIES......................................................................41
ARTICLE 6
CONDITIONS TO THE MERGER.........................................................................................41
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY........................................................41
(a) AFC SHAREHOLDER APPROVAL..............................................................41
(b) HSR ACT...............................................................................41
(c) PROXY STATEMENT.......................................................................41
(d) INJUNCTION, ETC.......................................................................41
6.2 CONDITIONS TO OBLIGATIONS OF HOLDINGS AND SUBCORP..............................................42
(a) CONSENTS, AUTHORIZATIONS, ETC.........................................................42
(b) REPRESENTATIONS AND WARRANTIES........................................................42
(c) CERTIFICATE...........................................................................42
(d) OPINION AND CONFIRMATION OF AFC'S COUNSEL.............................................42
(e) LETTERS FROM ACCOUNTANTS..............................................................42
(f) ADDITIONAL CERTIFICATES, ETC..........................................................42
(g) RESIGNATIONS..........................................................................43
<PAGE>
(h) FINANCING.............................................................................43
(i) SATISFACTION OF CONDITIONS IN FIBERS SALE AGREEMENT...................................43
(j) MORGAN CONSULTING AND NON-COMPETITION AGREEMENT.......................................43
(k) MORGAN SEVERANCE AGREEMENT............................................................43
(l) TRANSFER AGENT'S CERTIFICATE..........................................................43
6.3 CONDITIONS TO OBLIGATIONS OF AFC...............................................................43
(a) CONSENTS, AUTHORIZATIONS, ETC.........................................................43
(b) REPRESENTATIONS AND WARRANTIES........................................................44
(c) CERTIFICATE...........................................................................44
(d) OPINION AND CONFIRMATION OF HOLDINGS', PARENT'S AND SUBCORP'S
COUNSEL...............................................................................44
(e) ADDITIONAL CERTIFICATES, ETC..........................................................44
(f) SATISFACTION OF CONDITIONS IN FIBERS SALE AGREEMENT...................................44
(g) FAIRNESS OPINION......................................................................44
ARTICLE 7
TERMINATION AND ABANDONMENT......................................................................................45
7.1 TERMINATION AND ABANDONMENT....................................................................45
7.2 SPECIFIC PERFORMANCE...........................................................................46
7.3 RIGHTS AND OBLIGATIONS UPON TERMINATION........................................................46
7.4 CERTAIN FEES AND EXPENSES......................................................................47
(a) EXPENSES..............................................................................47
(b) FEE...................................................................................47
(c) PAYMENT...............................................................................47
7.5 EFFECT OF TERMINATION..........................................................................48
ARTICLE 8
GENERAL PROVISIONS...............................................................................................48
8.1 WAIVER OF CERTAIN CONDITIONS...................................................................48
8.2 NOTICES........................................................................................48
8.3 TABLE OF CONTENTS; HEADINGS....................................................................49
8.4 AMENDMENT......................................................................................49
8.5 NO SURVIVAL OF REPRESENTATIONS, WARRANTIES OR COVENANTS........................................49
8.6 SEVERABILITY...................................................................................49
8.7 WAIVER.........................................................................................50
8.8 NO THIRD PARTY BENEFICIARIES; ASSIGNMENT.......................................................50
8.9 TIME OF THE ESSENCE; COMPUTATION OF TIME.......................................................50
8.10 COUNTERPARTS...................................................................................50
8.11 GOVERNING LAW..................................................................................50
8.12 ENTIRE AGREEMENT...............................................................................51
</TABLE>
<PAGE>
LIST OF EXHIBITS
Exhibit A Plan of Merger
Exhibit B Fibers Sale Agreement
Exhibit C Articles of Merger
Exhibit D Opinion and Confirmation of AFC's Counsel
Exhibit E Opinion and Confirmation of Holdings's and SubCorp's
Counsel
Exhibit F Wachovia Commitment Letter Dated _____________
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
<PAGE>
5.1(b)(vi) Capital Expenditures
5.10 Stay Bonuses and Severance Agreements
DEFINED TERMS
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)
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)
best of Holdings', Parents and SubCorp's knowledge...............Section 4.2(i)
Bunzl......................................................Background Statement
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............................................Background Statement
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)
<PAGE>
Fibers Real Property.............................................Section 4.1(m)
Fibers Sale Agreement......................................Background Statement
FTC..............................................................Section 4.1(e)
Govermental Entity...............................................Section 4.1(e)
hazardous materials..............................................Section 4.1(x)
Hazardous Substance..............................................Section 4.1(x)
Holdings...............................................................Preamble
Holdings Material Contract.......................................Section 4.2(d)
HSR Act..........................................................Section 4.1(d)
"Immediate Family"...............................................Section 4.1(n)
Intellectual Property............................................Section 4.1(r)
Intellectual Property Agreement..................................Section 4.1(d)
Intellectual Property Agreements.................................Section 4.1(r)
IRS...........................................................Section 4.1(u)(i)
Justice..........................................................Section 4.1(e)
Lien.............................................................Section 4.1(d)
Material Adverse Change..........................................Section 4.1(i)
Material Adverse Effect..........................................Section 4.1(a)
Material Contract................................................Section 4.1(d)
Material Contracts...............................................Section 4.1(n)
Merger.....................................................Background Statement
Merger Consideration.............................................Section 2.1(a)
multi-employer plan..............................................Section 4.1(u)
NASDAQ...........................................................Section 2.4(b)
NLRB.............................................................Section 4.1(p)
Option Payment......................................................Section 3.1
Parent.................................................................Preamble
PBGC.............................................................Section 4.1(u)
Plan of Merger.............................................Background Statement
Plastics Business..........................................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)
Rule 13e-3.......................................................Section 4.2(e)
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)
<PAGE>
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)
<PAGE>
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (this "Agreement") is made as of February 19,
1997 among AMERICAN FILTRONA CORPORATION, a Virginia corporation ("AFC"), WBT
HOLDINGS LLC, a Georgia limited liability company ("Holdings"), WB PARENT CORP.,
a Virginia corporation ("Parent"), which is a wholly-owned subsidiary of
Holdings, and WB ACQUISITION CORP., a Virginia corporation ("SubCorp"), which is
a wholly-owned subsidiary of Parent.
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 Parent, SubCorp and AFC each has, the
Managers of Holdings have, and Parent 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 shares of AFC Common Stock will be
acquired by Holdings from its affiliates and will be transferred by Holdings to
Parent.
The parties contemplate that the Closing (as hereinafter defined) of
the Merger will take place contemporaneously with, but immediately before, the
sale by the surviving corporation in the Merger to FIL Acquisition Corp., a
Delaware corporation ("Bunzl"), of the assets used by AFC in conducting the
business consisting of AFC's Bonded Fibers Segment (the "Fibers Business")
pursuant to the Fibers Sale Agreement of even date herewith between SubCorp and
Bunzl attached hereto as Exhibit B (the "Fibers Sale Agreement"). Following the
Closing of the Merger and the transactions contemplated under the Fibers Sale
Agreement, the surviving corporation in the Merger shall continue to conduct
AFC's business consisting of its Plastic Products Segment (the "Plastics
Business").
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein, the parties hereto agree
as follows:
1
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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 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 Parent. The
Plan of Merger provides for the terms and conditions of the Merger, which terms
and conditions are incorporated herein and made a part of this Agreement by
reference. The Merger shall have the effects provided under the applicable laws
of the Commonwealth of Virginia including, but not limited to, Section 13.1-721
of the VSCA.
1.2 CLOSING. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Hunton & Williams,
Riverfront Plaza, 951 East Byrd Street, Richmond, Virginia 23219-4074, as soon
as possible after all conditions set forth in Article 6 have been satisfied or
waived in writing but in no event later than the third business day after all
such conditions shall have been satisfied or waived (the "Closing Date") or on
such other date or time as the parties shall agree.
1.3 EFFECTIVE TIME OF THE MERGER. If all the conditions set forth in
Article 6 shall have been fulfilled or waived in accordance with this Agreement
and provided that this Agreement and the Plan of Merger have not been terminated
pursuant to Article 7, the parties shall cause the articles of merger attached
hereto as Exhibit C (the "Articles of Merger") to be executed, delivered and
filed with the State Corporation Commission of the Commonwealth of Virginia (the
"Commission") in accordance with the provisions of the VSCA. The Merger shall
become effective at the time a certificate of merger is issued by the Commission
with respect to the Merger unless a later effective time and date is specified
in the Articles of Merger pursuant to the VSCA (the "Effective Time").
1.4 ARTICLES OF INCORPORATION; BYLAWS. The Articles of Incorporation
and Bylaws of SubCorp as in effect immediately prior to the Effective Time shall
be the Articles of Incorporation and Bylaws of the Surviving Corporation at the
Effective Time.
1.5 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. At the
Effective Time, the persons who are directors and officers of SubCorp at the
Effective Time will become the directors and officers of the Surviving
Corporation.
2
<PAGE>
ARTICLE 2
CONVERSION AND EXCHANGE OF SHARES; ADDITIONAL ACTION
2.1 CONVERSION OF SHARES. In accordance with the Plan of Merger, at the
Effective Time, by virtue of the Merger and without any further action on the
part of any holder thereof:
(a) AFC COMMON STOCK. Each issued and outstanding share of AFC
Common Stock, excluding any such shares held by any of AFC's
Subsidiaries and excluding any such shares held by Holdings or any of
its Subsidiaries, shall automatically be converted into only the right
to receive the consideration for the Merger as set forth in Sections
2.2 and 2.4 (the "Merger Consideration").
(b) SUBCORP STOCK. Each share of AFC Common Stock held by any
of AFC's Subsidiaries and each issued and outstanding share of SubCorp
at the Effective Time shall be automatically canceled and extinguished,
and no payment shall be made in respect thereof.
(c) AFC COMMON STOCK HELD BY HOLDINGS. Each issued and
outstanding share of AFC Common Stock held by Holdings or any of its
Subsidiaries at the Effective Time shall thereafter continue to
represent one validly issued, fully paid and nonassessable share of
common stock 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 Wachovia Bank of North Carolina, N.A. to act as
exchange agent for the Merger (the "Exchange Agent") pursuant to an
exchange agent agreement reasonably acceptable to AFC and Holdings. At
the Effective Time, Holdings shall deposit with the Exchange Agent cash
in the amount of the Merger Consideration less the amount of cash and
3
<PAGE>
cash-equivalents held by AFC at the Effective Time and, pursuant to
irrevocable instructions, direct the Exchange Agent to pay the Merger
Consideration.
(b) SURRENDER OF CERTIFICATES. Promptly after the Effective
Time, Holdings shall cause the Exchange Agent to mail and otherwise
make available to each record holder as of the Effective Time of an
outstanding certificate or certificates that immediately prior to the
Effective Time represented shares of AFC Common Stock (the
"Certificates"), a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates
to the Exchange Agent) and instructions for use in effecting the
surrender of the Certificates for payment therefor and conversion
thereof, which letter of transmittal shall comply with all applicable
rules and regulations of the NASDAQ Stock Market ("NASDAQ"). Upon
surrender to the Exchange Agent of the Certificates, together with such
letter of transmittal duly executed, the holder of such Certificates
shall be entitled to receive promptly in exchange therefor a check
representing the Merger Consideration to which such holder shall have
become entitled pursuant to Section 2.2 and the Plan of Merger, and the
Certificates so surrendered shall forthwith be canceled. If any portion
of the Merger Consideration to be received upon exchange of a
Certificate is to be paid to a person other than the person in whose
name the Certificate surrendered and exchanged therefor is registered,
it shall be a condition of such payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for
transfer and that the person requesting such exchange shall pay in
advance any transfer or other taxes required by reason of the issuance
of a check representing cash to such other person, or establish to the
reasonable satisfaction of the Exchange Agent that such tax has been
paid or that no such tax is applicable. From the Effective Time until
surrender in accordance with the provisions of this Section 2.4 and the
Plan of Merger, each Certificate (other than Certificates held by
Holdings or any of its Subsidiaries) shall represent for all purposes
only the right to receive the Merger Consideration. All payments in
respect of AFC Common Stock that are made in accordance with the terms
hereof shall be deemed to have been made in full satisfaction of all
rights pertaining to such securities.
(c) LOST CERTIFICATES. In the case of any lost, misplaced,
stolen or destroyed Certificate, the holder thereof may be required, as
a condition precedent to delivery to such holder of the Merger
Consideration, to deliver to Holdings an indemnity agreement and a bond
in such reasonable sum as Holdings may direct as indemnity against any
claim that may be made against the Exchange Agent, Holdings, Parent 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.
4
<PAGE>
(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, together with a list of all outstanding and unexercised
options and all awards of performance shares 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, the date of grant of such
option or performance share award 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 be amended to provide that each such option shall
become exercisable at the Effective Time and that each holder shall receive, 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, Parent 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
5
<PAGE>
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) 3,816,629 shares
of AFC Common Stock are issued and outstanding; (ii) 258,800 shares of
AFC Common Stock are subject to outstanding options pursuant to the AFC
Stock Option Plans ; and (iii) there are no outstanding performance
share awards under the 1988 Performance Share Plan (the "Performance
Share Awards"). Except as set forth on Schedule 3.1 or Schedule 4.1(b)
and in this Section 4.1(b), there are no shares of capital stock of AFC
outstanding, and there are no subscriptions, options, convertible
securities, calls, rights, warrants, performance share awards or other
agreements, claims or commitments of any nature whatsoever obligating
AFC to issue, transfer, register with any securities commission or
other authority, deliver or sell or cause to be issued, transferred, so
registered, delivered or sold, additional shares of the capital stock
or other securities of AFC or obligating AFC to grant, extend or enter
into any such agreement or commitment.
(c) AUTHORITY. AFC has the corporate power and authority to
execute and deliver this Agreement and, subject to the receipt of the
approval of this Agreement and the Plan of Merger by the affirmative
vote of more than two-thirds of the outstanding shares of AFC Common
Stock, to consummate the Merger. The execution and delivery by AFC of
this Agreement and the consummation by AFC of the Merger in accordance
with the Plan of Merger have been duly authorized by its Board of
Directors. Except for the approval of this Agreement and the Plan of
Merger by the holders of AFC Common Stock, no other corporate action on
the part of AFC is necessary to authorize the execution and delivery of
this Agreement by AFC or the consummation by AFC of the Merger in
accordance with the Plan of Merger. This Agreement has been duly
executed and delivered by AFC and is a valid, binding and enforceable
agreement of AFC.
(d) NON-CONTRAVENTION. The execution and delivery of this
Agreement by AFC do not and, subject to the approval of this Agreement
and the Plan of Merger by the holders of AFC Common Stock, the filing
of all necessary forms with the Securities and Exchange Commission (the
"SEC") and the expiration of all applicable waiting periods after the
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
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4.1(d)(i) 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 and, to the extent required, any
filings with or approvals by any state securities commissions or
authorities, filings with the Federal Trade Commission (the "FTC") and
the Department of Justice ("Justice") under 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
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all such forms and reports to Holdings. None of such forms or reports
at the time filed contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except for
such statements, if any, as have been modified by subsequent filings.
(g) SUBSIDIARIES. AFC owns, directly or indirectly, all the
outstanding capital stock of each of its Subsidiaries, free and clear
of all Liens and all such capital stock is duly authorized, validly
issued and outstanding, fully paid and nonassessable, and except as set
forth in Schedule 4.1(g), neither AFC nor any of its Subsidiaries has
made any material investment in, or material advance of cash or other
extension of credit to, any person, corporation or other entity other
than its Subsidiaries. None of such Subsidiaries has any commitment to
issue or sell any shares of its capital stock or any securities or
obligations convertible into or exchangeable for, or giving any person
(other than AFC) any right to acquire from such Subsidiary, any shares
of its capital stock, and no such securities or obligations are
outstanding. Each of AFC's Subsidiaries is a corporation duly organized
and validly existing in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority
to own all of its properties and assets and to carry on its business as
it is now being conducted. Each of AFC's Subsidiaries is duly qualified
to do business and is in good standing in all jurisdictions where such
qualification is required and where failure to so qualify would have a
Material Adverse Effect. As used in this Agreement, the term
"Subsidiary" means, with respect to any person, corporation or other
entity, any corporation or other organization, whether incorporated or
unincorporated, of which at least a majority of the securities or
interests having by the terms thereof voting power to elect a majority
of the board of directors or others performing similar functions with
respect to such corporation or other organization is at that time
directly or indirectly owned or controlled by such person, corporation
or other entity, or by any one or more of its Subsidiaries, or by such
person, corporation or other entity, and one or more of its
Subsidiaries.
(h) FINANCIAL STATEMENTS.
(i) AFC has previously furnished Holdings with a true
and complete copy of the balance sheets of AFC as of December
31, 1994, 1995 and 1996 and the related statements of income,
shareholders' equity and cash flows for the years then ended,
including the notes thereto, certified or to be 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 Quarterly Report on Form
10-Q for the quarter ended September 30, 1996 in the form last
delivered to Holdings on or prior to the date of this Agreement
(the "AFC Quarterly Report"). AFC will furnish to Holdings as
soon as available true and complete copies of the comparable
financial statements of AFC as of March 31, 1997 and the fiscal
quarter then ended. All of the foregoing financial statements
are referred to
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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 Fibers Business
as of December 31, 1995, September 30, 1996 and December 31,
1996 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 March 31, 1997 and the fiscal quarter then ended (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.
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
September 30, 1996 (the "Fibers Balance Sheet Date")
included in the Fibers Financial Statements;
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<PAGE>
(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, 1995, 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 regular
quarterly cash dividends at the rate of $0.28 per share on AFC Common
Stock; (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 of 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
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<PAGE>
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, 1995, there has not been any issuance by
AFC of any shares, or options, calls or commitments relating to shares
of its capital stock, or any securities or obligations convertible into
or exchangeable for, or giving any person any right to acquire from it,
any shares of its capital stock other than the issuance of stock
options, performance shares or shares of AFC Common Stock pursuant to
the AFC Stock Option Plans and except as set forth on Schedule 4.1(b).
(j) GOVERNMENTAL AUTHORIZATION AND COMPLIANCE WITH LAWS. Except
as set forth on Schedule 4.1(j) and except insofar as the failure to do
so would not have a Material Adverse Effect, AFC and its Subsidiaries
(i) are in compliance with all laws, orders, regulations, policies and
guidelines of all Governmental Entities applicable to AFC and its
Subsidiaries or their businesses or properties and assets, and (ii)
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,
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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, 1995, 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 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, 1995 (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
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AFC or one of its Subsidiaries is currently entitled to possession of
any of the properties of AFC, whether owned, leased or used by AFC or
one of its Subsidiaries. To the best of AFC's knowledge, the real
property, buildings, structures and improvements owned, leased or used
by AFC or any of its Subsidiaries conform to all applicable laws,
ordinances and regulations, including zoning regulations, none of which
would upon consummation of the Merger materially adversely interfere
with the use of such properties, buildings, structures or improvements
for the purposes for which 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, 1995, 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
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<PAGE>
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;
(vii) any sales, distribution or other similar
agreement providing for the sale of materials, supplies, goods,
services, equipment or other assets of the Fibers
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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 AFC or Bunzl
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 herein, the terms
"Affiliate", "Associate" or "Member of the Immediate Family"
being respectively defined in Rule 12b-2 or Rule 16a-1 of the
Exchange Act) of such person or entity; and
(xv) any other agreement, commitment, arrangement or
plan with respect to the Fibers Business not made in the
ordinary course of business that is material to the business,
financial condition, results of operations or properties of the
Fibers Business.
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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 Subsidiary or any of its 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 the
Fibers Sale Agreement or seeks to prohibit, restrict or delay
consummation of the Merger or the Fibers Sale Agreement or any of the
conditions to consummation of the Merger or the Fibers Sale Agreement
or to limit in any material manner the right of Holdings or Parent to
control the Surviving Corporation or any aspect of the business of AFC
or its Subsidiaries after the Effective Time, nor is there any
judgment, decree, injunction, ruling or order of any Governmental
Entity, arbitrator or any other person outstanding against AFC or any
Subsidiary having any such effect; and (ii) neither AFC nor any
Subsidiary 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 Subsidiary 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
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"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
Subsidiary; (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
Subsidiary. Except for any Material Contract disclosed pursuant to
Section 4.1(n), neither AFC nor any Subsidiary 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 1995 Annual Report
on Form 10-K, AFC's proxy statement for its 1995 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
Subsidiary 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 Subsidiary, 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 Subsidiary, 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 Subsidiary.
(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) used by AFC or a Subsidiary
("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 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
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others, including employees, former employees or independent
contractors of AFC or any Subsidiary, and neither AFC nor any
Subsidiary has received notice that the use of such Intellectual
Property in the business of AFC or the Subsidiaries 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
Subsidiary, 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 Subsidiary 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 Subsidiary 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 Subsidiary 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 Subsidiary or has granted any sublicense or right to use
any Intellectual Property licensed to AFC or any Subsidiary under the
Intellectual Property Agreements. Schedule 4.1(r) specifies as to each
Fibers Intellectual Property Right, as applicable: (i) the nature of
such Fibers Intellectual Property Right; (ii) the owner of such
Intellectual Property Right; (iii) the jurisdictions by or in which
such Fibers Intellectual Property Right is recognized without regard to
registration or has been issued or registered or in which an
application for such issuance or registration has been filed, including
the respective registration or application numbers; and (iv) licenses,
sublicenses and other agreements as to which AFC or any of its
affiliates is a party and pursuant to which any person or entity is
authorized to use such Fibers Intellectual Property Right, including
the identity of all parties thereto, a description of the nature and
subject matter thereof, the applicable royalty and the term thereof.
With respect to the Fibers Intellectual Property Rights, AFC has not
during the three years preceding the date of this Agreement been a
defendant in any action, suit, investigation or proceeding relating to,
or otherwise been notified of, any alleged claim or infringement of any
patents, trademarks, service marks or copyrights, and to the best of
AFC's knowledge there are no other claims or infringements by AFC or
any person or entity of any Fibers Intellectual Property Rights. No
Fibers Intellectual Property Right is subject to any outstanding
judgment, injunction, order, decree or agreement restricting the use
thereof by AFC with respect to the Fibers Business or restricting the
licensing thereof to any person or entity. AFC has not entered into any
agreement to indemnify any other person or entity against any charge of
infringement of any patent, trademark, service mark or copyright.
(s) INSURANCE. Schedule 4.1(s) lists all insurance policies or
contracts and fidelity bonds providing coverage to AFC and its
Subsidiaries as of the date hereof with 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 the Subsidiaries and are
sufficient for compliance with all requirements of law and of all
agreements to which AFC or any Subsidiary 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
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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 Subsidiary 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
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AFC or any of its Subsidiaries or any ERISA Affiliate or
their beneficiaries or dependents,
(all of the foregoing in items (A), (B), and (C) being referred
to as "Employee Plans"). "ERISA Affiliate" means each trade or
business (whether or not incorporated) which together with AFC
or any of its Subsidiaries is treated as a single employer
pursuant to Code Section 414(b), (c), (m) or (o). AFC has
provided to Holdings copies of the following: (1) each written
Employee Plan, as amended (including either the original plan
or the most recent restatement and all subsequent amendments);
(2) the most recent Internal Revenue Service ("IRS")
determination letter issued, if applicable; (3) the most recent
annual report on the Form 5500 series; (4) each trust
agreement, insurance contract or document setting forth any
other funding arrangement, if any, with respect to each
Employee Plan; (5) the most recent ERISA summary plan
description or other summary of plan provisions distributed to
participants or beneficiaries for each Employee Plan; (6) each
opinion or ruling from the IRS, the Department of Labor or the
Pension Benefit Guaranty Corporation ("PBGC") concerning any
Employee Plan; and (7) each current Registration Statement,
amendment thereto and prospectus relating thereto filed with
the SEC or furnished to participants in connection with any
Employee Plan if applicable.
(ii) QUALIFICATION. Except as set forth in Schedule
4.1(u), each Employee Plan that is intended to be a qualified
Plan under Code Section 401 or 501: (A) has received a current
favorable determination letter from the IRS to the effect that
the form of the plan satisfies Code Section 401(a) and that its
trust is tax-exempt under Code Section 501(a); (B) is not
currently subject to any assertion by any governmental agency
that it is not so qualified; and (C) to the best of AFC's
knowledge has been operated substantially in accordance with
its terms.
(iii) ACCRUALS; FUNDING.
(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
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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
Affiliated 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 Employee
Plan subject to Title IV of ERISA; and no investigation by a
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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
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notice or a notice of a decrease or intended decrease in sales volume
22 or any intent to terminate or adversely modify in any material
respect its contractual or business relationship with the relationship
with the Fibers Business as a result of the consummation of the Merger
or the Fibers Sale Agreement.
(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, including approval of the Merger and the acquisition, after
execution of the Agreement, by Holdings and by Parent 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 such acquisition by
Holdings and by Parent of beneficial ownership of more than 10% of the
outstanding shares of AFC Common Stock).
(x) ENVIRONMENTAL. Except as set forth in Schedule 4.1(x):
(i) no generation, storage, presence, contamination,
transport, emission, discharge or "release" (as such term is defined in
42 U.S.C. ss. 9601(22)) of any Hazardous Substance (as defined below)
exists or is occurring (or has existed or occurred) from, or upon, any
property owned, leased, used or controlled at any time by AFC or any
Subsidiary 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 Subsidiary to incur costs of removal,
remediation, response or corrective action (and the terms "removal,"
"remediation," "response" and "corrective action" include the types of
activities covered by CERCLA (as defined below) pursuant to any
Environmental Laws (as defined below) with respect to any Hazardous
Substances or Waste (as defined below) or (B) that could be reasonably
expected to give rise to any common law or statutory liability
(including punitive or exemplary damages and whether assessed with
respect to personal injury or property damage, damage to the natural
resources or the environment or otherwise) on the part of AFC or any of
its Subsidiaries;
(iii) Either AFC or a Subsidiary of AFC has obtained,
maintained and complied with all permits, registrations, licenses, and
other authorizations, has maintained all records and has made all
filings required by applicable Environmental Laws (as defined below)
with respect to storage, presence, contamination, generation,
transport, emission, discharge or release into the environment of any
substance (including solids, liquids and gases) and the proper disposal
of such materials (including solid waste materials and petroleum or any
fractions or by-products of it) required for AFC's or any of its
Subsidiary's operations at past or present operating levels;
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(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
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respect to any real property owned or operated at any time by
AFC or any of its Subsidiaries. "Environmental Laws" means and includes
all applicable laws relating to protection of the environment,
prevention or minimization of pollution, control and tracking of
Hazardous Substances and Wastes, protection of human health or similar
matters, including those relating to the generation, use, collection,
treatment, storage, transportation, recovery, removal, discharge or
disposal of Hazardous Substances and any record keeping, notification
and reporting requirements of them. "Hazardous Substance" means and
includes: [1] any toxic or hazardous wastes, materials, pollutants or
substances, including petroleum or petroleum-based or related products
and its fractions and by-products, flammables, explosives, radioactive
materials, asbestos, polychlorinated byphenyls, pesticides, herbicides,
pesticide or herbicide containers, untreated sewage, and industrial
process sludge; [2] any substances defined as "hazardous substances" or
"toxic substances" or similarly identified in or pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. ss. 9601 et seq., as amended; [3] "hazardous materials"
as identified in or pursuant to the Hazardous Materials Transportation
Act, 49 U.S.C. ss. 1801 et seq., as amended; [4] "hazardous wastes" and
"regulated substances" as identified in or pursuant to the Resource
Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., as amended;
[5] any chemical substance or mixture regulated under the Toxic
Substance Control Act of 1976, 15 U.S.C. ss. 2601 et seq., as amended;
[6] any "toxic pollutant" under the Clean Water Act, 33 U.S.C. ss. 466
et seq., as amended; [7] any hazardous air pollutant under the Clean
Air Act, 42, U.S.C. ss. 7401 et seq., as amended; and [8] any toxic or
hazardous wastes, 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.
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(aa) INVENTORIES AND RAW MATERIALS OF FIBERS BUSINESS. The
inventories set forth in the Fibers Balance Sheet were properly stated
therein (after making provisions for obsolescent, obsolete, slow-moving
and similar items) at the lesser of cost or fair market value
determined in accordance with GAAP consistently maintained and applied.
Since the Fibers Balance Sheet Date, the level of inventories related
to the Fibers Business has been maintained in the ordinary course of
business. All of the inventories recorded on the Fibers Balance Sheet
consist of, and all inventories related to the Fibers Business on the
Closing Date will consist of, items of a quality usable or saleable in
the normal course of the Fibers Business consistent with past practices
and are and will be in quantities sufficient for the normal operation
of the Fibers Business in accordance with past practice. The level of
raw materials held for use in the Fibers Business as of the Closing
Date will not exceed the normal requirements of the Fibers Business for
such raw materials for a period of 90 days.
(bb) RECEIVABLES OF THE FIBERS BUSINESS. All accounts, notes
receivable and other receivables (other than receivables collected
since the Fibers Balance Sheet Date) reflected on the Fibers Balance
Sheet are, and all accounts and notes receivable arising from or
otherwise relating to the Fibers Business at the Closing Date will be,
valid and genuine. All accounts, notes receivable and other receivables
arising out of or relating to 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 December 31, 1996. No key
employee of the Fibers Business has indicated to AFC that he intends to
resign or retire as a result of the transactions contemplated by this
Agreement or otherwise within one year after the Closing Date.
(dd) PRODUCTS OF THE FIBERS BUSINESS. Each of the products
produced or sold in connection with the Fibers Business is, and at all
times up to and including the sale thereof has been, (i) in compliance
in all material respects with all applicable federal, state, local and
foreign laws and regulations and (ii) fit for the ordinary purposes for
which it is intended to be used and conforms in all material respects
to any promises or affirmations of fact made on the container or label
for such product or in connection with its sale. Each of such products
contains adequate warnings, presented in a reasonably prominent manner,
in accordance with applicable laws, rules and regulations and current
industry practice with respect to its contents and use.
(ee) INTRACOMPANY ACCOUNTS. Schedule 4.1(ee) contains a
complete list of all intracompany balances as of the Fibers Balance
Sheet Date between AFC and its respective Affiliates, on the one hand,
and the Fibers Business, on the other hand. Except as set forth on
Schedule 4.1(ee), since the Fibers Balance Sheet Date there has not
been any accrual of liability by the Fibers Business to AFC or any of
its respective Affiliates or other transaction between the Fibers
Business, on the one hand, and AFC or any of its
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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 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 Business. As used in this Agreement, Indebtedness means, at
any date, without duplication, (i) all obligations of AFC for borrowed
money, (ii) all obligations of AFC evidenced by bonds, debentures,
notes or other similar instruments, (iii) all obligations of AFC to pay
the deferred purchase price of property or services, except trade
accounts payable arising in the ordinary course of business, (iv) all
obligations of AFC as lessee which are capitalized in accordance with
GAAP, (v) all non-contingent obligations of AFC to reimburse any bank
or other person or entity in respect of amounts paid under a letter of
credit or similar instrument, (vi) all indebtedness secured by a Lien
on any asset of AFC, whether or not such indebtedness is otherwise an
obligation of AFC and (vii) all guarantees by AFC of indebtedness of
another person or entity (each such guarantee to constitute
indebtedness in an amount equal to the amount of such other person's or
entity's indebtedness guaranteed thereby).
4.2 REPRESENTATIONS AND WARRANTIES BY HOLDINGS, PARENT AND SUBCORP.
Holdings, Parent 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 limited
liability company validly existing and in good standing under the laws
of the State of Georgia and has the
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necessary power and authority to own all its properties and assets and
to carry on its business as it is now being conducted. SubCorp and
Parent are corporations duly organized, validly existing and in good
standing under the laws of the Commonwealth of Virginia and have the
corporate power and authority to own all their properties and assets
and to carry on their businesses as they are now being conducted. The
copies of Holdings's Articles of Organization and Parent's and
SubCorp's Articles of Incorporation and Bylaws, in each case, 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.
(b) CAPITALIZATION. The authorized equity of Holdings consists
of percentage interests totaling 100%. The authorized capital stock of
Parent consists of 1,000 shares of common stock, no par value, of which
100 shares are validly issued and outstanding, fully paid and
non-assessable. The authorized capital stock of SubCorp consists of
1,000 shares of common stock, no par value, of which 100 shares are
validly issued and outstanding, fully paid and non-assessable. Holdings
owns all of the outstanding shares of Parent, and Parent owns all of
the outstanding shares of SubCorp.
(c) AUTHORITY. Each of Holdings, Parent 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
Managers (or a duly authorized committee thereof). The execution and
delivery by each of Parent and 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 (or a duly
authorized committee thereof). No other action on the part of Holdings,
Parent or SubCorp is necessary to authorize the execution and delivery
of this Agreement by Holdings, Parent 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, Parent and
SubCorp and is a valid, binding and enforceable agreement of each of
Holdings, Parent and SubCorp. Parent as the sole shareholder of SubCorp
has approved this Agreement and the Plan of Merger.
(d) NON-CONTRAVENTION. The execution and delivery of this
Agreement by Holdings, Parent 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 Parent
or SubCorp or the Articles of Organization of Holdings or (ii) violate
or conflict with, or result (with the giving of notice or the lapse of
time or both) in a violation of or constitute a default under, any
provision of, or result in the acceleration or termination of or
entitle any party to accelerate or terminate (whether after the giving
of notice or lapse of time or both) any obligation or benefit under, or
result in the creation or imposition of any Lien upon any of the assets
or property of Holdings, Parent or SubCorp pursuant to any provision of
any contract, agreement, commitment, undertaking, arrangement or
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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, Parent 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, Parent 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.
(e) GOVERNMENTAL CONSENTS. Except for the filing of the Proxy
Statement and filings under Rule 13e-3 promulgated by the SEC under the
Exchange Act ("Rule 13e-3") with the SEC and any required filings with
state securities commissions, 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, Parent or SubCorp and the consummation by SubCorp of the
Merger.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30,
1996, there has not been any material adverse change in the business,
financial condition or results of operations of Holdings, Parent and
its Subsidiaries, taken as a whole.
(g) PROXY STATEMENT. The information with respect to Holdings,
its managers, officers, and Subsidiaries (including Parent and SubCorp)
and its negotiations with Bunzl 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.
(h) ACTIVITIES OF SUBCORP. 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, SubCorp has
neither incurred any obligations or liabilities nor engaged in any
business or activities
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of any type or kind whatsoever or entered into any agreements or
arrangements with any person or entity.
(i) LEGAL PROCEEDINGS. There is no claim, action, suit,
proceeding or investigation pending or, to the best of Holdings',
Parent's and SubCorp's knowledge, contemplated or threatened against
Holdings, Parent's, SubCorp or any of their respective Subsidiaries (or
any of their respective officers, directors or managers) 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, Parent,
SubCorp or any of their respective Subsidiaries having any such effect.
As used in this Agreement, the "best of Holdings', Parent's and
SubCorp's knowledge" and any other reference to the knowledge of
Holdings or its officers or managers or of Parent or SubCorp or their
officers or directors shall mean the actual knowledge, without
independent investigation, of Frances B. Bunzl and Bennett L. Kight.
(j) BROKERS, FINDERS AND INVESTMENT BANKERS. None of Holdings,
Parent, 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, except that SubCorp has arrangements with First Union
Capital Markets Corp., the complete terms of which have been disclosed
to AFC. SubCorp is solely responsible for and shall pay all of the fees
and expenses to which First Union Capital Markets Corp. is entitled in
connection with such arrangements.
(k) OBLIGATIONS TO FUND. Pursuant to the commitment referenced
in Section 6.2(h), 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 upon surrender of all the shares of AFC
Common Stock after the consummation of the Merger and to fund the
payment of the Option Payments.
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
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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 regular quarterly cash dividends at
the rate of $.28 per share on the AFC Common Stock consistent
with past practice, 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);
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(iv) mortgage, pledge or otherwise encumber any
property or asset, except in the ordinary and usual course of
business;
(v) sell, lease, transfer or dispose of any of its
properties or assets, waive or release any rights or cancel,
compromise, release or assign any indebtedness owed to it or
any claims held by it, except that AFC in the ordinary and
usual course of business may make such sales, leases,
transfers, dispositions, waivers, releases, cancellations,
compromises or assignments other than with respect to the
Fibers Business;
(vi) make any capital expenditure or any investment
of a capital nature (other than to any of its Subsidiaries)
except as described in Schedule 5.1(b)(vi), either by purchase
of stock or securities, contributions to capital, property
transfers or otherwise, or by the purchase of any property or
assets of any other individual, firm or corporation; provided,
however, that AFC may make capital expenditures in the Fibers
Business not in excess of $50,000 per instance or in excess of
$200,000 in the aggregate and may make capital expenditures
other than in the Fibers Business not in excess of $50,000 per
instance or in excess of $300,000 in the aggregate.
(vii) fail to use commercially reasonable efforts to
perform in all material respects its obligations under Material
Contracts (except those being contested in good faith) or enter
into, assume or amend any contract or commitment that would
have been a Material Contract in effect on the date hereof
other than contracts to provide goods or services entered into
in the ordinary and usual course of business;
(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;
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(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;
(xiv) enter into an agreement to do any of the things
described in clauses (i) through (xiii);
provided, however, that notwithstanding any other provision of this Section
5.1(b), AFC will not enter into a contract for construction of a building in
connection with the proposed capital expenditures for a new facility at A&B
Plastics or the purchase or renovation of any building for Tri-Lite Plastics
without the prior written consent of Holdings, unless the chairman of the
Special Committee of the AFC Board determines otherwise after requesting, and
allowing a period of time determined by the chairman to receive, the views of
Holdings.
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 or the Fibers
Sale Agreement;
(ii) any notice or other communication from any
Governmental Entity in connection with the Merger or the Fibers
Sales Agreement;
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(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 or the Fibers Sale Agreement; and
(iv) the damage or destruction by fire or other casualty
of any asset of the Fibers Business or in the event that any
asset of the Fibers Business becomes the subject of any
proceeding or, to the knowledge of AFC, threatened proceeding
for the taking thereof or any part thereof or of any right
relating thereto by condemnation, eminent domain or other
similar governmental action.
5.2 AFC SHAREHOLDERS MEETING. Subject to the provisions of Article 7,
AFC covenants and agrees that its Board of Directors shall (a) cause the AFC
Shareholders Meeting to be duly called and held in accordance with AFC's
Articles of Incorporation, its Bylaws and applicable law as soon as reasonably
practicable to consider and vote upon the approval of this Agreement and the
Plan of Merger; (b) recommend approval of this Agreement and the Plan of Merger
to the holders of the AFC Common Stock; and (c) use commercially reasonable
efforts to cause such meeting to take place and to obtain the approval by the
holders of the AFC Common Stock of this Agreement and the Plan of Merger in
accordance with its Articles of Incorporation, Bylaws and the VSCA.
5.3 BEST EFFORTS; FURTHER ASSURANCES; COOPERATION. Subject to the other
provisions in this Agreement, the parties hereto shall each use commercially
reasonable efforts to perform their respective obligations herein and to take,
or cause to be taken or do, or cause to be done, all things necessary, proper or
advisable under applicable law to obtain all regulatory approvals, consents,
authorizations and orders and satisfy all conditions to the obligations of the
parties under this Agreement and to cause the Merger to be carried out promptly
in accordance with the 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 shall each promptly,
but in no event later than 15 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 to the Fibers Sale
Agreement, 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
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
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Governmental Entity with jurisdiction over the Merger or the Fiber
Sales Agreement, 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 either Holdings,
Bunzl 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, Parent 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, Bunzl and their 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 and Bunzl with such financial and operating data and other
information with respect to AFC's and its Subsidiaries' businesses and
properties and permit Holdings and Bunzl to meet with such AFC
employees as Holdings or Bunzl shall from time to time reasonably
request; provided that AFC shall be permitted to restrict Bunzl's
access to commercially sensitive information regarding any business of
AFC. AFC will request its auditing firm to permit Holdings and its
representatives, including its auditing firm, to review the work papers
of the auditing firm of AFC relating to their examination of the AFC
Financial Statements. No investigation by Holdings heretofore or
hereafter made shall affect the representations and warranties of AFC,
and each such representation and warranty shall survive any such
investigation, subject to Section 7.5.
(b) Holdings agrees to permit AFC and its authorized
representatives to have or cause them to be permitted to have, after
the date hereof and until the Effective Time, such information with
respect to Holdings' business as AFC shall from time to time reasonably
request.
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(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 Confidentiality
Agreement between Holdings and AFC dated June 25, 1996, and the letter
agreement between Goldman, Sachs & Co., on behalf of AFC and Bunzl
dated December 13, 1996 (collectively, 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, including all information required by Rule 13e-3 and (b) use
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, AFC
shall mail the Proxy Statement to the holders of AFC Common Stock and AFC shall
use 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 pursuant to Rule 13e-3 or 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 to be made by applicable law or applicable
NASDAQ rules or regulations and then only after making a reasonable attempt to
comply with provisions of this Section 5.8.
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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 or the Fibers Sale
Agreement 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 or
the Fibers Sale Agreement, including pursuing an appeal thereof; provided,
however, that nothing in this Section 5.9 shall require either Holdings or AFC
to divest any assets or business as a requirement of consummating the Merger or
the Fibers Sale Agreement.
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.
(i) Holdings agrees that AFC will continue in effect,
without amendment (except with respect to any amendment
required by the Code, ERISA or other applicable law or required
to carry out Holdings' undertakings hereinafter set out), until
December 31, 1997, the Employee Plans (other than the Employee
Stock Ownership Plan of American Filtrona Corporation (the
"ESOP")) covering employees who continue employment with
Holdings or an affiliate of Holdings.
(ii) With respect to the American Filtrona Corporation
401(k) Savings and Profit Sharing Plan (the "Profit Sharing
Plan"), Holdings will obtain and enforce an agreement by
Purchaser to make a contribution for 1997 to a substantially
comparable profit sharing plan for the employees of the Fibers
Business (the "Purchaser Profit Sharing Plan") equal to the
amount accrued on the books of the Fibers Business as of the
Closing Date as a liability (computed in accordance with past
practices) for a profit sharing contribution with respect to
the employees who accept employment with the purchaser of the
Fibers Business (the "Purchaser") (the "Transferred AFC
Employees") (such liability is hereafter referred to as the
"Fibers Profit Sharing Liability"). Holdings agrees that AFC
will make a profit sharing contribution to the Profit Sharing
Plan equal to at least the excess of (A) the amount accrued on
the books of AFC as of the Closing Date as a liability
(computed in accordance with past practices) for a profit
sharing contribution to the Profit Sharing Plan over (B) the
amount of the Fibers Profit Sharing Liability and will make a
total contribution comparable to the 1996 contribution for
employees of the Plastics Business if the 1997 earnings before
interest and taxes of the Plastics Business approximate such
earnings in 1996. Holdings agrees to obtain and enforce an
agreement by Purchaser that the Purchaser Profit Sharing Plan
shall have a salary
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reduction arrangement under which all Transferred AFC Employees
will have all service credited under the Profit Sharing Plan
credited under the Purchaser Profit Sharing Plan for all plan
purposes, including eligibility and vesting, and to cause AFC
to transfer to the Purchaser Profit Sharing Plan the account
balances under the Profit Sharing Plan of all Transferred AFC
Employees.
(iii) Holdings agrees to obtain and enforce an agreement
by Purchaser to contribute to the Purchaser Profit Sharing Plan
an amount equal to the liability (computed in accordance with
past practices) accrued on the books of the Fibers Business as
of the Closing Date for a contribution to the ESOP with respect
to Transferred AFC Employees (the "Purchaser ESOP
Contribution"). Holdings agrees to cause AFC to contribute to
the ESOP an amount equal to the excess of (A) the liability
(computed in accordance with past practices) accrued on the
books of AFC as of the Closing Date over (B) the amount of the
Purchaser ESOP Contribution, and to amend the ESOP to provide
that all AFC employees, including all Transferred AFC
Employees, are 100% vested in their accrued benefits
thereunder.
(iv) Holdings agrees to use its best efforts to cause
Purchaser to assume sponsorship of the following plans covering
employees employed in the Fibers Business: the American
Filtrona Corporation Pension Plan for Hourly Employees and the
American Filtrona Corporation 401(k) Plan for Hourly Employees.
Holdings agrees to use its best efforts to cause Purchaser to
establish a defined benefit plan that (A) covers AFC's salaried
employees who become salaried Transferred AFC Employees; (B)
meets the requirements of Section 401(a) of the Code (the
"Purchaser Retirement Plan"); and (C) provides that all service
of such salaried Transferred AFC Employees credited with the
American Filtrona Corporation Retirement Plan (the "AFC
Retirement Plan") shall be credited under the Purchaser
Retirement Plan for all plan purposes, including eligibility,
vesting and benefit accrual. Holdings agrees to cause an amount
to be transferred from the trust maintained under the AFC
Retirement Plan to the trust under the Purchaser Retirement
Plan calculated pursuant to the applicable provisions of
Section 414(l) of the Code, with respect to salaried
Transferred AFC Employees.
(v) Holdings agrees to use its best efforts to cause
Purchaser (A) to establish and maintain through December 31,
1997 employee benefit plans (as defined in Section 3(3) of
ERISA) for Purchaser's employees that are in the aggregate
approximately equal to the Employee Plans sponsored and
maintained by AFC for its salaried and hourly employees; and
(B) to ensure that any of Purchaser's employee welfare benefit
plans (as defined in Section 3(1) of ERISA) credit Transferred
AFC Employees with any internal limits, deductibles or co-
payments satisfied by such employees under AFC's employee
welfare benefit plans.
(vi) Holdings will use its best efforts to cause
Purchaser to offer employment to all AFC employees who are
active employees at the Closing Date.
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(c) LABOR MATTERS. Holdings agrees to use its best
efforts to cause Purchaser to assume any collective bargaining
agreement with respect to employees of the Fibers Business in effect as
of the date of the sale of the Fibers Business.
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 and
Bunzl 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 CONDITIONS IN FIBERS SALE AGREEMENT AND FINANCING. Holdings shall
use its commercially reasonable efforts to have satisfied all conditions to the
obligations of Bunzl in the Fibers Sale Agreement and to the financing
obligations of Wachovia Bank of North Carolina, N.A. and other banks pursuant to
the commitment letter referenced in Section 6.2(h) except for such conditions
that are not within the control of Holdings and its Affiliates.
5.14 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.
5.15 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.
5.16 ACCESS TO INFORMATION.
(a) From the date hereof until the Closing Date, AFC (i) will
give Bunzl, its counsel, financial advisors, auditors and other
authorized representatives full access to the offices, properties,
books and records of AFC relating to the Fibers Business, (ii) will
furnish to Bunzl, its counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information relating to the Fibers Business as such persons or entities
may reasonably request and (iii) will instruct the employees, counsel
and financial advisors of AFC to cooperate with Bunzl in its
investigation of the Fibers Business. Any investigation pursuant to
this Section shall be
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conducted in such manner as not to interfere unreasonably with the
conduct of the business of AFC.
(b) AFC will furnish, to Bunzl and its counsel copies of those
agreements, contracts and commitments of AFC relating to the Fibers
Business (and, if such agreements, contracts and commitments are not
reduced to writing, reasonable written details of the same) which (i)
have previously been withheld from Bunzl or (ii) include obligations of
confidentiality or impose restrictions on disclosure by AFC (clauses
(i) and (ii), collectively, the "Confidential Agreements") no less than
5 business days prior to the Closing. The Confidential Agreements shall
include, without limitation, agreements, contracts and commitments
relating to research and/or development work and projects or contracts
or agreements with or commitments to or understandings with suppliers
or customers of the Fibers Business. Bunzl shall, if requested, enter
into confidentiality undertakings with regard to such Confidential
Agreements on such terms as Bunzl may agree, with the counterparties to
such Confidential Agreements.
(c) AFC will disclose to Bunzl, its counsel, auditors and other
authorized representatives and/or give Bunzl, its counsel, auditors and
other authorized representatives, access to, not less than 5 business
days before the Closing:
(i) The commercial terms upon which products, goods,
materials and services are supplied by the Fibers Business to
its customers including, but not limited to, the price at which
such products, goods, materials and services are sold and
details of any rebates, discounts, commissions and extended
credit terms paid or given to customers;
(ii) The commercial terms upon which products, goods,
materials and devices are supplied to the Fibers Business by
its suppliers including, but not limited to, the price at which
such products, goods, materials and services are supplied to
the Fibers Business and details of any rebates, discounts and
commissions paid or given to the Fibers Business;
(iii) The financial budgets and forecasts and business
plans of or relating to the Fibers Business including, but not
limited to, full details of the 1997 forecast and budget and
the 1997 to 1999 plan and any notes and commentaries forming
part of or relating to such forecasts, budgets and plans;
(iv) The Jefferson Davis and White Pine facilities and
the Pine Glen warehouse and the Fibers Business; research and
development facilities;
(v) Written details of any significant business or
commercial arrangement, commitments or understandings (whether
or not reduced to writing and whether or not legally binding)
related to the Fibers Business; and
(vi) Such access to the employees and advisors of AFC as
may be necessary or useful in connection with any of the
foregoing.
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5.17 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.
5.18 ASSUMPTION OF LIABILITIES. AFC acknowledges and agrees that, upon
the consummation of the Merger, the Surviving Corporation shall be the successor
to, and assume, all the obligations of SubCorp under the Fibers Sale Agreement.
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 or
Rule 13e-3 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,
Parent, SubCorp or their respective officers, managers and directors.
No suit or proceeding shall have been instituted by any person, or, to
the best 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 Holdings 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.
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6.2 CONDITIONS TO OBLIGATIONS OF HOLDINGS AND SUBCORP. Consummation
of the Merger is subject to the fulfillment to the reasonable satisfaction of
Holdings, prior to or at the Closing, of each of the following conditions:
(a) CONSENTS, AUTHORIZATIONS, ETC. The consents required under
the items listed on Schedule 4.1(e) and all consents, authorizations,
orders and approvals of, and filings and registrations with, any
Governmental Entity or any nongovernmental third party (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 AND CONFIRMATION OF AFC'S COUNSEL. Holdings, Parent
and SubCorp shall have received an opinion and confirmation, dated as
of the Closing Date, of Hunton & Williams, counsel to AFC,
substantially to the effect set forth in Exhibit E 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.
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(g) RESIGNATIONS. AFC shall have delivered to Holdings, to the
extent requested by Holdings, the written resignations of the directors
of AFC.
(h) FINANCING. All conditions in the commitment of financing
for the Merger from Wachovia Bank of North Carolina, N.A. and, if
applicable, other banks as set forth in that certain commitment letter
dated February ___, 1997 and attached hereto as Exhibit F that are not
within the control of SubCorp and its Affilliates shall have been
satisfied, all of which conditions SubCorp agrees to use its best
commercial efforts to have satisfied.
(i) SATISFACTION OF CONDITIONS IN FIBERS SALE AGREEMENT. All
conditions to the obligations of Bunzl in the Fibers Sale Agreement
that are not within the control of Holdings and its Affiliates shall
have been satisfied.
(j) MORGAN CONSULTING AND NON-COMPETITION AGREEMENT. John L.
Morgan shall have executed and delivered a Consulting and
Non-Competition Agreement with Bunzl in the form of Exhibit B to the
Fibers Sale Agreement.
(k) 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.
(l) TRANSFER AGENT'S CERTIFICATE. AFC shall have delivered to
Holdings a certificate of the Transfer Agent for the AFC Common Stock
specifying the number of issued and outstanding shares as of the
Closing Date.
6.3 CONDITIONS TO OBLIGATIONS OF AFC. Consummation of the Merger is
subject to the fulfillment to the reasonable satisfaction of or waiver by AFC,
prior to or at the Effective Time, of each of the following conditions:
(a) CONSENTS, AUTHORIZATIONS, ETC. All consents,
authorizations, orders and approvals of, and filings and registrations
with, any Governmental Entity or non-governmental third party (other
than the filing of the Articles of Merger with the Commission), which
are required for or in connection with the execution and delivery of
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this Agreement by Holdings, Parent 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, Parent 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) OPINION AND CONFIRMATION OF HOLDINGS', PARENT'S AND
SUBCORP'S COUNSEL. AFC shall have received an opinion and confirmation,
dated as of the Closing Date, of Sutherland, Asbill & Brennan, L.L.P.
counsel to Holdings, Parent and SubCorp, to the effect set forth in
Exhibit E hereto, with such exceptions and limitations as shall be
reasonably satisfactory to AFC.
(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) SATISFACTION OF CONDITIONS IN FIBERS SALE AGREEMENT. All
conditions to the obligations of Bunzl in the Fibers Sale Agreement
shall have been satisfied, and the cash consideration payable
thereunder to the Surviving Corporation at Closing shall have been made
available to the Surviving Corporation.
(g) FAIRNESS OPINION. The fairness opinion of Goldman,
Sachs & Co. with respect to the Merger shall not have been withdrawn.
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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
Managers 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
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:
(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, Parent
or SubCorp of any representation or warranty contained in this
Agreement which 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,
Parent 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, Parent or SubCorp,
which breach is not
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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 either 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 June 30, 1997; provided, however, that, in either
case, the terminating party 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 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
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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, experts and consultants to
Holdings) actually incurred by Holdings or on its behalf or by Bunzl or
on its behalf in connection with the Merger and all transactions
contemplated by this Agreement, including the sale of the Fibers
Business to Bunzl; 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
February 28, 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
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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, Parent or SubCorp, to:
WBT Holdings LLC
999 Peachtree Street, N.E. Suite 2300
Atlanta, Georgia 30309-3996
Telecopier: (404) 853-8806
Attention: Bennett L. Kight, President
48
<PAGE>
with a copy to:
Sutherland, Asbill & Brennan, L.L.P.
999 Peachtree Street, N.E., Suite 2300
Atlanta, Georgia 30309-3996
Fax No. (404) 853-8806
Attention: George L. Cohen, Esq.
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, Parent and SubCorp and the Managers of Holdings, without action by the
shareholders or members 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.
49
<PAGE>
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 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. Atlanta, Georgia 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.
50
<PAGE>
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.
51
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
AMERICAN FILTRONA CORPORATION
/s/ JOHN L. MORGAN
-----------------------------------------
Name John L. Morgan
Title Chairman
WBT HOLDINGS LLC
/s/ BENNETT L. KIGHT
-----------------------------------------
Name Bennett L. Kight
Title President
WB PARENT CORP.
/s/ BENNETT L. KIGHT
-----------------------------------------
Name Bennett L. Kight
Title President
WB ACQUISITION CORP.
/s/ BENNETT L. KIGHT
-----------------------------------------
Name Bennett L. Kight
Title President
<PAGE>
Annex II
FIBERS SALE AGREEMENT
dated as of
February 19, 1997
between
FIL ACQUISITION CORP.
and
WB ACQUISITION CORP.
<PAGE>
TABLE OF CONTENTS(1)
<TABLE>
<CAPTION>
Page
ARTICLE 1
DEFINITIONS
<S> <C>
1.01. Definitions................................................................. 1
<CAPTION>
ARTICLE 2
PURCHASE AND SALE
<S> <C>
2.01. Purchase and Sale........................................................... 7
2.02. Excluded Assets............................................................. 9
2.03. Assumed Liabilities......................................................... 9
2.04. Excluded Liabilities........................................................ 10
2.05. Assignment of Contracts and Rights.......................................... 11
2.06. Purchase Price; Allocation of
Purchase Price.............................................................. 11
2.07. Closing..................................................................... 13
2.08. Closing Date Working Capital; Closing
Date Fixed Assets; Purchase Price
Adjustment.................................................................. 13
<CAPTION>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
<S> <C>
3.01. Corporate Existence and Power............................................... 13
3.02. Corporate Authorization..................................................... 14
3.03. Governmental Authorization.................................................. 14
3.04. Non-Contravention........................................................... 14
3.05. Required and Other Consents................................................. 14
3.06. Financial Statements........................................................ 15
3.07. Absence of Certain Changes.................................................. 15
3.08. Properties.................................................................. 18
</TABLE>
- - --------
(1) The Table of Contents is not a part of this Agreement.
i
<PAGE>
<TABLE>
Page
<S> <C>
3.09. Sufficiency of and Title to the
Purchased Assets............................................................ 19
3.10. No Undisclosed Liabilities.................................................. 20
3.11. Litigation.................................................................. 20
3.12. Material Contracts.......................................................... 20
3.13. Licenses and Permits........................................................ 22
3.14. Insurance Coverage.......................................................... 22
3.15. Compliance with Laws and Court
Orders...................................................................... 23
3.16. Inventories................................................................. 23
3.17. Receivables................................................................. 24
3.18. Intellectual Property....................................................... 24
3.19. Employees................................................................... 26
3.20. Products.................................................................... 27
3.21. Finders' Fees............................................................... 28
3.22. Environmental Compliance.................................................... 28
3.23. Intracompany Accounts....................................................... 29
3.24. Foreign Currency Exposures.................................................. 29
3.25. Representations............................................................. 30
<CAPTION>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
<S> <C>
4.01. Organization and Existence.................................................. 30
4.02. Corporate Authorization..................................................... 30
4.03. Governmental Authorization.................................................. 30
4.04. Non-Contravention........................................................... 30
4.05. Finders' Fees............................................................... 31
4.06. Litigation.................................................................. 31
<CAPTION>
ARTICLE 5
COVENANTS OF SELLER
<S> <C>
5.01. Conduct of the Business..................................................... 31
5.02. Access to Information;
Confidentiality............................................................. 31
5.03. Notices of Certain Events................................................... 33
5.04. Noncompetition.............................................................. 34
5.05. Amendment of Merger Agreement............................................... 35
5.06. Supplemental Disclosure..................................................... 35
5.07. Certain Permits............................................................. 35
5.08. Insurance................................................................... 35
</TABLE>
ii
<PAGE>
<TABLE>
Page
<S> <C>
5.09. Intracompany Indebtedness................................................... 36
5.10. Trademarks; Tradenames...................................................... 36
5.11. OFCCP....................................................................... 37
5.12. Post-Closing Payments....................................................... 37
<CAPTION>
ARTICLE 6
COVENANTS OF BUYER
<S> <C>
6.01. Access...................................................................... 38
6.02. Use of Name................................................................. 38
<CAPTION>
ARTICLE 7
COVENANTS OF BOTH PARTIES
<S> <C>
7.01. Best Efforts; Further Assurances............................................ 39
7.02. Certain Filings............................................................. 39
7.03. Public Announcements........................................................ 40
7.04. WARN Act.................................................................... 40
7.05. Notice of Certain Events.................................................... 40
7.06. Access...................................................................... 41
<CAPTION>
ARTICLE 8
TAX MATTERS
<S> <C>
8.01. Tax Matters................................................................. 41
8.02. Tax Cooperation; Allocation of Taxes........................................ 42
<CAPTION>
ARTICLE 9
EMPLOYEE BENEFITS
<S> <C>
9.01. Employees and Offers of Employment.......................................... 43
9.02. Severance Obligations and COBRA
Costs....................................................................... 44
9.03. Collective Bargaining Agreement............................................. 44
9.04. Seller's Employee Benefits Plans............................................ 44
9.05. Buyer Benefit Plans......................................................... 45
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
9.06. Hourly Pension Plan......................................................... 46
9.07. Salaried Pension Plan....................................................... 46
9.08. Hourly 401(k) Plan.......................................................... 48
9.09. Salaried 401(k) Plan........................................................ 48
9.10. Certain Salaried Employee Benefit
Services.................................................................... 49
9.11. Sharing of Benefits-Related
Information................................................................. 50
9.12. No Third Party Beneficiaries................................................ 50
<CAPTION>
ARTICLE 10
CONDITIONS TO CLOSING
<S> <C>
10.01. Conditions to the Obligations of Each
Party....................................................................... 50
10.02. Conditions to Obligation of Buyer........................................... 51
10.03. Conditions to Obligation of Seller.......................................... 53
<CAPTION>
ARTICLE 11
SURVIVAL; INDEMNIFICATION
<S> <C>
11.01. Survival.................................................................... 54
11.02. Indemnification............................................................. 55
11.03. Procedures.................................................................. 55
11.04. Exclusive Remedies.......................................................... 56
<CAPTION>
ARTICLE 12
TERMINATION
<S> <C>
12.01. Grounds for Termination..................................................... 57
12.02. Effect of Termination....................................................... 57
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Page
ARTICLE 13
MISCELLANEOUS
<S> <C>
13.01. Notices..................................................................... 58
13.02. Amendments and Waivers...................................................... 59
13.03. Successors and Assigns...................................................... 59
13.04. Governing Law; Arbitration; Consent
to Jurisdiction............................................................. 59
13.05. Counterparts; Effectiveness................................................. 61
13.06. Third Party Beneficiaries................................................... 61
13.07. Bulk Sales Laws............................................................. 61
13.08. Captions; Schedules......................................................... 61
</TABLE>
Exhibit A -- Form of Assumption and Assignment Agreement
Exhibit B -- Form of Consulting and Non-Competition
Agreement
Schedule 1.01 Seller Employees
Schedule 2.01(x) Shared Tangible or Intangible Property
Schedule 2.02 Excluded Assets
Schedule 2.08 Computation of Closing Date Working
Capital, Closing Date Fixed Assets and
Purchase Price Adjustments
Schedule 3.05(a) Required Consents
Schedule 3.05(b) Other Consents
Schedule 3.06(a) Financial Statements
Schedule 3.06(c) Exceptions to GAAP
Schedule 3.07(a) Absence of Certain Changes Since
December 31, 1995
Schedule 3.07(b) Absence of Certain Changes Since
the Balance Sheet Date
Schedule 3.08(a) Real Property
Schedule 3.08(b) Personal Property
Schedule 3.10 Undisclosed Liabilities
Schedule 3.11 Litigation
Schedule 3.12 Material Contracts
Schedule 3.13 Licenses and Permits
Schedule 3.15 Noncompliance with Laws and Court Orders
Schedule 3.18 Intellectual Property
Schedule 3.19(a) Employees
Schedule 3.19(b) Employee Plans
Schedule 3.19(d) Benefit Arrangements
Schedule 3.19(e) Employee Benefits
Schedule 3.21 Finders' Fees
Schedule 3.22 Environmental Compliance
Schedule 3.23 Intracompany Accounts
v
<PAGE>
Schedule 3.24(b) Foreign Currency Exposures
Schedule 9.02 Employee Benefits or Compensation
Arrangements
Schedule 9.07(b) Salaried Employees
Schedule 10.02 Customers of the Business
vi
<PAGE>
FIBERS SALE AGREEMENT
AGREEMENT dated as of February 19, 1997 between WB Acquisition
Corp., a Virginia corporation ("Seller"), and FIL Acquisition Corp., a Delaware
corporation ("Buyer").
W I T N E S S E T H :
WHEREAS, American Filtrona Corporation, a Virginia corporation
("AFC"), conducts a business which manufactures, sells and distributes tobacco
filters, writing instrument components, healthcare device components and
components of household products which, in each case, are manufactured using the
bonded fibers technology (the "Business");
WHEREAS, Seller intends to merge with and into AFC (the "Merger")
pursuant to the Merger Agreement (as defined below); and
WHEREAS, Buyer desires to purchase substantially all of the assets
and certain of the liabilities of the Business from Seller, and Seller desires
to sell substantially all of the assets and certain of the liabilities of the
Business to Buyer, upon the terms and subject to the conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein contained, the
parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.01. Definitions. (a) The following terms, as used herein,
have the following meanings:
"Accounting Referee" means Price Waterhouse LLP, or if such firm
declines to act in such capacity, Arthur Andersen LLP.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such other Person.
<PAGE>
"Balance Sheet" means the balance sheet of the Business as of the
Balance Sheet Date included in the Reference Financial Statements.
"Balance Sheet Date" means September 30, 1996.
"Benefit Arrangement" means any employment, severance or similar
contract or arrangement (whether or not written), or any plan, policy, fund,
program or contract or arrangement (whether or not written) providing for
compensation, bonus, profit-sharing, stock option, or other stock related rights
or other forms of incentive or deferred compensation, vacation benefits,
insurance coverage (including any self-insured arrangements), health or medical
benefits, disability benefits, workers' compensation, supplemental unemployment
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance or other
benefits) that is not an Employee Plan.
"Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in New York are authorized by law to close.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and any rules or regulations
promulgated thereunder.
"Closing Balance Sheet" means a balance sheet of the Purchased
Assets and the Assumed Liabilities as of the close of business as at the Closing
Date, to be prepared in accordance with Section 2.08 and Schedule 2.08.
"Closing Date" means the date of the Closing.
"Closing Date Fixed Assets" means the fixed assets of the Business
as at the Closing Date extracted from the Closing Balance Sheet and shown on the
Closing Date Fixed Assets Statement.
"Closing Date Working Capital" means the working capital of the
Business as at the Closing Date extracted from the Closing Balance Sheet and
shown on the Closing Date Working Capital Statement.
"Code" means the Internal Revenue Code of 1986, as amended.
2
<PAGE>
"Employee Plan" means any "employee benefit plan", as defined in
Section 3(3) of ERISA, that is subject to any provision of ERISA.
"Environmental Laws" means any federal, state, local or foreign
law (including, without limitation, common law), treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, permit or governmental
restriction or any agreement or contract with any governmental authority or
other third party, whether now or hereafter in effect, relating to the
environment, human health and safety or to pollutants, contaminants, waste or
chemicals or any toxic, radioactive, ignitable, corrosive, reactive or otherwise
hazardous substances, wastes or materials.
"Environmental Permits" means all permits, licenses,
authorizations, certificates and approvals of governmental authorities relating
to or required by Environmental Laws and necessary or proper for the Business as
currently conducted.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended and the rules and regulations promulgated thereunder.
"ERISA Affiliate" of any entity means any other entity which,
together with such entity, would be treated as a single employer under Section
414 of the Code.
"GAAP" means generally accepted accounting principles in the
United States.
"Hazardous Substances" means any pollutant, contaminant, waste or
chemical or any toxic, radioactive, ignitable, corrosive, reactive or otherwise
hazardous substance, waste or material or any substance, waste or material
having any constituent elements displaying any of the foregoing characteristics
including, without limitation, petroleum, its derivatives, by-products and other
hydrocarbons, and any substance, waste or material regulated under any
Environmental Law.
"Health Liabilities" means all liabilities and obligations of the
Business arising from or related to any actual, alleged or asserted damage to
human health or to health related exposures or public health exposures or human
safety exposures, in each case arising from or related to cigarettes or other
tobacco products which in any manner use any of the products manufactured,
distributed, sold or
3
<PAGE>
delivered by AFC on or prior to the Closing Date for use in the United States
market.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Indebtedness" of any Person means, at any date, without
duplication, (i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all obligations of such Person 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 such Person as lessee
which are capitalized in accordance with GAAP, (v) all non- contingent
obligations of such Person to reimburse any bank or other Person in respect of
amounts paid under a letter of credit or similar instrument, (vi) all
Indebtedness secured by a Lien on any asset of such Person, whether or not such
Indebtedness is otherwise an obligation of such Person and (vii) all guarantees
by such Person of Indebtedness of another Person (each such guarantee to
constitute Indebtedness in an amount equal to the amount of such other Person's
Indebtedness guaranteed thereby).
"Intellectual Property Right" means any trademark, service mark,
trade name, invention, patent, trade secret, know-how, copyright, (including any
registration or applications for registration of any of the foregoing) or any
other similar type of proprietary intellectual property right, in each case
which is owned or licensed by or to Seller or any Affiliate of Seller and used
or held for use in the Business.
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset. For the purposes of this
Agreement, a Person shall be deemed to own subject to a Lien any property or
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such property or asset.
"Material Adverse Change" means a material adverse change in the
trading, business, assets, condition (financial or otherwise), result of
operations or prospects of the Business (other than the Excluded Assets) taken
as a whole.
4
<PAGE>
"Material Adverse Effect" means a material adverse effect on the
trading, business, assets, condition (financial or otherwise), result of
operations or prospects of the Business taken as a whole.
"Merger Agreement" means the Agreement and Plan of Merger dated as
of February 19, 1997, among WBT, WB Parent Corp., a Virginia corporation, WB
Acquisition Corp. and AFC.
"Multiemployer Plan" means each Employee Plan that is a
multiemployer plan, as defined in Section 3(37) of ERISA.
"1934 Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, corporation, partnership,
association, trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"Pre-Closing Tax Period" means (i) any Tax period ending on or
before the Closing Date and (ii) with respect to a Tax period that commences
before but ends after the Closing Date, the portion of such period up to and
including the Closing Date.
"Prime Rate" means a rate per annum equal to the rate of interest
announced from time to time by Citibank, N.A., in New York City as its prime
rate in effect from time to time during the period from the Closing Date to the
date of payment.
"Reference Financial Statements" means (i) the financial
statements delivered to Buyer prior to the date hereof and included in Schedule
3.06(a) hereto and (ii) any financial statements related to the Business
delivered to Buyer by Seller after the date hereof in accordance with the
provisions of this Agreement.
"Seller Employee" means the employees of AFC, who are (i) employed
in the Business on the Closing Date and listed on Schedule 1.01 or (ii) hired
and employed in the Business after January 31, 1997 (with respect to the
Salaried Employees) or after the date hereof (with respect to all other Seller
Employees) (the lists of such employees to be delivered by Seller to Buyer at
the Closing Date), in
5
<PAGE>
each case including any employee on a leave of absence approved by AFC, but
excluding any person who is not employed by AFC as of the Closing Date.
"Tax" means (i) any net income, alterative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, registration, recording, documentary, conveyancing,
gains, withholding on amounts paid to or by Seller or AFC or any of their
respective Subsidiaries, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax, custom duty
or other tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest, penalty, addition to tax or additional
amount imposed by any governmental authority (a "Taxing Authority") responsible
for the imposition of any such tax (domestic or foreign), or (ii) liability for
the payment of any amounts of the type described in (i) as a result of being
party to any agreement or any express or implied obligation to indemnify any
other Person.
"Title IV Plan" means an Employee Plan subject to Title IV of
ERISA other than any Multiemployer Plan.
(b) Each of the following terms is defined in the Section set
forth opposite such term:
Term Section
---- -------
active employee 9.01
Allocation Statement 2.06
Assumed Liabilities 2.03
Benefit Transition Period 9.10
Books and Records 7.06
Bulk Sales 13.07
Bulk Transfer 13.07
Buyer 401(k) Plan 9.09
Closing 2.07
Confidential Agreements 5.02
Contracts 2.01
Conveyance Documents 2.07
Excluded Assets 2.02
Excluded Liabilities 2.03
Hourly 401(k) Plan 9.08
Indemnified Party 11.03
Indemnifying Party 11.03
Inventories 2.01
IRS 3.19
Loss 11.02
Other Consent 3.05
Pension Plan Transition Period 9.07
6
<PAGE>
Permits 3.13
Permitted Liens 3.08
Personnel 3.18
Post-Closing Tax Period 8.02
Purchased Assets 2.01
Purchase Price 2.06
Real Property 3.08
Required Consent 3.05
Retirement Plan 9.07
RP Amount 9.07
Salaried Employees 9.07
Seller 401(k) Plan 9.09
Seller ESOP 9.04
Seller Hourly Plan 9.06
Seller Retirement Plan 9.07
Severance Payments 9.02
Transfer Taxes 8.02
Transferred Employees 9.01
WARN Act 7.04
Welfare Plans 9.10
ARTICLE 2
PURCHASE AND SALE
2.01. Purchase and Sale. Except as otherwise provided below,
upon the terms and subject to the conditions of this Agreement, Buyer agrees to
purchase from Seller and Seller agrees to sell, convey, transfer, assign and
deliver, or cause to be sold, conveyed, transferred, assigned and delivered, to
Buyer at Closing, free and clear of all Liens, other than Permitted Liens, all
of Seller's right, title and interest in, to and under the assets, properties
and business, of every kind and description, wherever located, real, personal or
mixed, tangible or intangible, owned, held, used or to be used in the conduct of
the Business by AFC or Seller as the same shall exist on the Closing Date,
including all assets shown on the Balance Sheet and not disposed of in the
ordinary course of business, and all assets of the Business acquired by AFC or
Seller after the Balance Sheet Date (the "Purchased Assets"), and including,
without limitation, all right, title and interest of Seller in, to and under:
(a) all real property and leases of, and other interests in,
real property owned, held, used or to be used in the Business, in each
case, together with all buildings, fixtures, and improvements erected
thereon, including, without limitation, the items listed on Schedule
3.08(a);
7
<PAGE>
(b) all personal property and interests therein owned, held,
used or to be used in the Business, including plant, machinery,
equipment, furniture, office equipment, communications equipment,
vehicles, storage tanks, spare and replacement parts, fuel and other
tangible property, including, without limitation, the items listed on
Schedule 3.08(b);
(c) all raw materials, work-in-process, finished goods,
supplies, packaging and other inventories, in each case, owned, held,
used or to be used in the Business(the "Inventories");
(d) all rights under all contracts, agreements, leases,
licenses, commitments, sales and purchase orders and other instruments,
in each case, owned, held, used or to be used in the Business (whether
written or oral), including, without limitation, the items listed on
Schedule 3.12 (collectively, the "Contracts");
(e) all accounts, notes and other receivables, in each case,
owned, held, used or to be used in the Business;
(f) all prepaid expenses, including but not limited to ad
valorem taxes, leases and rentals, in each case, owned, held, used or
to be used in the Business;
(g) all petty cash on hand at operating facilities of the
Business;
(h) all of Seller's rights, claims, credits, causes of action
or rights of set-off against third parties relating to the Purchased
Assets, including, without limitation, unliquidated rights under
manufacturers' and vendors' warranties;
(i) all patents, copyrights, trademarks, trade names,
servicemarks, service names, technology, know-how, processes, trade
secrets, inventions, proprietary data, formulae, research and
development data, computer software programs and other intangible
property and any applications for the same, in each case, owned or
licensed by or to Seller or any Affiliate of Seller or AFC and used or
held or held for use in the Business within the period of the last 10
years, including, without limitation, the items listed on Schedule
3.18;
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(j) all transferable licenses, permits or other governmental
authorizations affecting, or relating in any way to, the Business,
including, without limitation, the items listed on Schedules 3.13 and
3.18;
(k) all rights to the benefits of the insurance policies, as
in effect immediately prior to the Closing, related to any of the
Purchased Assets;
(l) all of Seller's and its Affiliates' rights, title and
interest to the name "Filtrona" and any derivations thereof;
(m) all books, records, files and papers, whether in hard copy
or computer format, used in or needed to carry on the Business,
including, without limitation, engineering information, manufacturing
records, sales and promotional literature, manuals and data, sales and
purchase information and correspondence, lists of present and former
suppliers, lists of present and former customers, personnel and
employment records, and any information relating to Tax imposed on the
Purchased Assets; and
(n) all goodwill associated with the Business or the Purchased
Assets, together with the right to represent to third parties that
Buyer is the successor to the Business;
provided, however, that arrangements will be made as described in Schedule
2.01(x) for the sharing of items of tangible or intangible property that are
used with respect to both the Business and to other business activities of AFC.
2.02. Excluded Assets. Buyer expressly understands and agrees
that (i) any Purchased Assets sold or otherwise disposed of in the ordinary
course of business (it being understood that such ordinary course of business
does not include any dispositions of capital assets except with the prior
written consent of Buyer) and not in violation of any provisions of this
Agreement during the period from the date hereof until the Closing Date and (ii)
any assets listed or described on Schedule 2.02 (collectively, the "Excluded
Assets") shall be excluded from the Purchased Assets.
2.03. Assumed Liabilities. Upon the terms and subject to the
conditions of this Agreement, Buyer agrees, effective at the time of Closing, to
assume all liabilities
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and obligations of the Business of whatever nature, whether presently in
existence or arising hereafter, except for those liabilities and obligations of
whatever nature, whether presently in existence or arising hereafter, which are
Excluded Liabilities (the "Assumed Liabilities"). Notwithstanding any provision
in this Agreement or any other writing to the contrary, Buyer is assuming only
the Assumed Liabilities and is not assuming any other liability or obligation of
Seller or AFC (or any predecessor of AFC or prior owner of all or part of its
businesses and assets) of whatever nature, whether presently in existence or
arising hereafter and all such other liabilities and obligations shall be
retained by and remain obligations and liabilities of Seller (all such
liabilities and obligations not being assumed being herein referred to as the
"Excluded Liabilities").
2.04. Excluded Liabilities. None of the following, whether or
not the liabilities or obligations of the Business, shall be Assumed Liabilities
for the purposes of this Agreement:
(a) any obligation or liability for Tax arising from or with
respect to the Purchased Assets or the operations of the Business which
is incurred in or attributable to the Pre-Closing Tax Period;
(b) except as specifically provided in Section 9.07, any
liabilities or obligations relating to employee benefits or
compensation arrangements existing on or prior to the Closing Date
related to all employees of AFC who are not Seller Employees,
including, without limitation, any such liabilities or obligations
under any of Seller's employee benefit agreements, plans or other
arrangements listed on Schedule 9.02;
(c) any Health Liability;
(d) any liability or obligation relating to any Excluded
Asset;
(e) all liabilities and obligations of the Business arising
from or relating to any of its liabilities to Seller, AFC or any of
their respective Affiliates; and
(f) any liability or obligation arising from any Indebtedness
incurred on or prior to the Closing Date or any checks outstanding as
of the Closing Date.
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For the avoidance of doubt and without limiting the generality
of the foregoing, Buyer is not assuming any liabilities or obligations with
respect to any liability or obligation of Seller or AFC (or any predecessor of
AFC or prior owner of all or part of its business or assets) that is not an
Assumed Liability (including without limitation, any claims that have been or
may in the future be asserted that relate in any way to the matters, events or
transactions resulting in the litigation captioned Ingersoll-Rand Company v.
Flair Corporation). It is further understood and agreed that Buyer shall have no
responsibility or liability to Seller in respect of any payments made by Seller
(whether before or after the Closing Date) to any officer of the Business
pursuant to (i) the Articles of Incorporation or Bylaws of AFC or (ii) any
indemnification agreement between employees of AFC and AFC.
2.05. Assignment of Contracts and Rights. Anything in this
Agreement to the contrary notwithstanding, this Agreement shall not constitute
an agreement to assign any Purchased Asset or any claim or right or any benefit
arising thereunder or resulting therefrom if an attempted assignment thereof,
without the consent of a third party thereto, would constitute a breach or other
contravention thereof or in any way adversely affect the rights of Buyer or
Seller thereunder. Seller and Buyer will use their best efforts (but without any
payment of money by Seller or Buyer) to obtain the consent of the other parties
to any such Purchased Asset or any claim or right or any benefit arising
thereunder for the assignment thereof to Buyer as Buyer may request. If such
consent is not obtained, or if an attempted assignment thereof would be
ineffective or would adversely affect the rights of Seller thereunder so that
Buyer would not in fact receive all such rights, Seller and Buyer will cooperate
in a mutually agreeable arrangement under which Buyer would obtain the benefits
and assume the obligations thereunder in accordance with this Agreement,
including sub-contracting, sub-licensing, or sub-leasing to Buyer, or under
which Seller would enforce for the benefit of Buyer, with Buyer assuming
Seller's obligations, any and all rights of Seller against a third party
thereto. Seller will promptly pay to Buyer when received all monies received by
Seller under any Purchased Asset or any claim or right or any benefit arising
thereunder.
2.06. Purchase Price; Allocation of Purchase Price. (a) The
purchase price for the Purchased Assets (the "Purchase Price") is the amount in
cash equal to $72,450,000, subject to adjustment as provided in Section 2.08.
The Purchase Price shall be paid as provided in Section 2.07.
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(b) As soon as practicable after the Closing, Buyer shall
deliver to Seller a statement (the "Allocation Statement"), setting forth the
values allocated among the Purchased Assets and the value allocated to the
covenant not to compete described in Section 5.04 hereof, which shall be used
for the allocation of the Purchase Price (together with the Assumed Liabilities)
among the Purchased Assets and the covenant not to compete.
(c) Seller shall have a period of 15 Business Days after the
delivery of the Allocation Statement to present in writing to Buyer notice of
any objections Seller may have to the allocation set forth in the Allocation
Statement. Unless Seller timely objects, the Allocation Statement shall be
binding on the parties without further adjustment.
(d) If Seller shall raise any objections within the 15 day
period, Buyer and Seller shall negotiate in good faith and use their best
efforts to resolve such dispute. If the parties fail to agree within 5 Business
Days after the delivery of the notice, then the disputed items shall be resolved
by the Accounting Referee. The Accounting Referee shall resolve the dispute
within 30 days of having the item referred to it. The costs, fees and expenses
of the Accounting Referee shall be borne equally by Seller and Buyer.
(e) Any adjustment made with respect to the Purchase Price
pursuant to Section 2.08 of this Agreement shall be allocated in accordance with
the determination mutually agreed by Seller and Buyer. In the event that an
agreement is not reached within 5 Business Days after such adjustment, the
disputed item(s) shall be resolved pursuant to Section 2.06(d) hereof.
(f) Seller and Buyer agree to (i) be bound by the Allocation,
(ii) act in accordance with the Allocation in the preparation of financial
statements and filing of all Tax returns (including, without limitation, filing
Form 8594 with its Federal income Tax return for the taxable year that includes
the date of the Closing) and in the course of any Tax audit, Tax review or Tax
litigation relating thereto and (iii) take no position and cause their
Affiliates to take no position inconsistent with the Allocation for tax
purposes.
(g) Not later than 30 days prior to the filing of their
respective Forms 8594 relating to this transaction, each party shall deliver to
the other party a copy of its Form 8594.
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2.07. Closing. The closing (the "Closing") of the purchase
and sale of the Purchased Assets and the assumption of the Assumed Liabilities
hereunder shall take place at the offices of Hunton & Williams, Riverfront
Plaza, Richmond, Virginia, concurrently with the consummation of the
transactions contemplated by the Merger Agreement. At the Closing,
(a) Buyer shall pay the Purchase Price by causing to be
credited to such bank account of Seller as may be designated by Seller at least
two Business Days prior to the Closing the amount of the Purchase Price in
immediately available funds.
(b) Seller and Buyer shall enter into an Assignment and
Assumption Agreement substantially in the form attached hereto as Exhibit A, and
Seller shall deliver to Buyer such deeds (special warranty deeds or local
equivalent thereof), bills of sale, endorsements, consents, assignments and
other good and sufficient instruments of conveyance and assignment (the
"Conveyance Documents") as the parties and their respective counsel shall deem
reasonably necessary or appropriate to vest in Buyer all right, title and
interest in, to and under the Purchased Assets.
2.08. Closing Date Working Capital; Closing Date Fixed Assets;
Purchase Price Adjustment. The respective amounts of (i) the Closing Date
Working Capital, (ii) the Closing Date Fixed Assets and (iii) the Purchase Price
adjustment, if any, shall be determined and, to the extent applicable, paid in
accordance with Schedule 2.08.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as of the date hereof
and as of the Closing Date that:
3.01. Corporate Existence and Power. Seller is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all material
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted. Seller is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where such qualification is necessary, except
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for those jurisdictions where failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect. Seller has heretofore
delivered to Buyer true and complete copies of the certificate of incorporation
and bylaws of Seller as currently in effect.
3.02. Corporate Authorization. The execution, delivery and
performance by Seller of this Agreement are within Seller's corporate powers and
have been duly authorized by all necessary corporate action on the part of
Seller. This Agreement constitutes a valid and binding agreement of Seller.
3.03. Governmental Authorization. The execution, delivery
and performance by Seller of this Agreement require no action by or in respect
of, or filing with, any governmental body, agency or official other than
compliance with any applicable requirements of the HSR Act.
3.04. Non-Contravention. The execution, delivery and
performance by Seller of this Agreement do not and will not (a) violate the
certificate of incorporation or bylaws of Seller, (b) assuming compliance with
the matters referred to in Section 3.03, violate any applicable law, rule,
regulation, judgment, injunction, order or decree; (c) assuming the obtaining of
all Required and Other Consents, constitute a default under or give rise to any
right of termination, cancellation or acceleration of any right or obligation of
Seller or to a loss of any benefit relating to the Business to which Seller is
entitled under any provision of any agreement, contract or other instrument
binding upon Seller or by which any of the Purchased Assets is or may be bound
or any Permit or (d) result in the creation or imposition of any Lien on any
Purchased Asset, other than Permitted Liens.
3.05. Required and Other Consents. (a) Schedule 3.05(a) sets
forth each agreement, contract or other instrument binding upon Seller or any
Permit requiring a consent as a result of the execution, delivery and
performance of this Agreement, except such consents as would not, individually
or in the aggregate, have a Material Adverse Effect if not received by the
Closing Date (each such consent, a "Required Consent" and together the "Required
Consents").
(b) Schedule 3.05(b) sets forth every other consent (each such
consent, an "Other Consent" and together the "Other Consents") under such
agreements, contracts or other instruments or such Permits that is necessary
with
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respect to the execution, delivery and performance of this Agreement.
3.06. Financial Statements. (a) Schedule 3.06(a) lists the
financial statements of AFC and the Business that constitute the Reference
Financial Statements. The Reference Financial Statements fairly present, in
conformity with GAAP applied on a consistent basis (except (i) as may be
indicated in the notes thereto and (ii) as set forth or described on Schedule
3.06(c) with respect to the financial statements of the Business), the financial
position of the Business or AFC, as the case may be, taken as a whole as of the
dates thereof and its results of operations, changes in financial position and
cash flows for the periods then ended (subject to normal year-end adjustments in
the case of any unaudited interim financial statements).
(b) As soon as available and in any event prior to the Closing
Date, Seller will deliver the financial statements of the Business and AFC which
will fairly present, in conformity with GAAP applied on a consistent basis
(except (i) as may be indicated in the notes thereto and (ii) as set forth or
described on Schedule 3.06(c) with respect to the financial statements of the
Business), the financial position of the Business or AFC, as the case may be,
taken as a whole as of March 31, 1997 and its results of operations, changes in
financial position and cash flows for the periods then ended (subject to normal
year-end adjustments in the case of any unaudited interim financial statements).
(c) The financial statements of the Business delivered or to
be delivered hereunder have been or will be prepared in accordance with GAAP as
applied in the audited financial statements of AFC included in the Reference
Financial Statements of the same date, except as set forth in Schedule 3.06(c).
(d) Books and records of the Business accurately reflect the
transactions related to the Business and such books and records contain full,
true and correct entries which are made in at least so much detail as to enable
Seller to provide true and accurate Reference Financial Statements.
3.07. Absence of Certain Changes. (a) Since December 31,
1995, except as set forth on Schedule 3.07(a) or with the prior written consent
of Buyer, the Business has been conducted in the ordinary course consistent with
past practices.
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(b) Since the Balance Sheet Date, except as set forth on
Schedule 3.07(b) or with the prior written consent of Buyer, the Business has
been conducted in the ordinary course consistent with past practices, and there
has not been:
(i) any event, occurrence, development or fact which has
had or could reasonably be expected to have a Material Adverse Effect;
(ii) any incurrence, assumption or guarantee of any
indebtedness for borrowed money with respect to the Business;
(iii) any creation or other incurrence of any Lien on any
Purchased Asset other than in the ordinary course of business
consistent with past practices;
(iv) any damage, destruction or other casualty loss
(whether or not covered by insurance) affecting the Business or any
Purchased Asset which, individually or in the aggregate, has had or
could reasonably be expected to have a Material Adverse Effect;
(v) any transaction or commitment made, or any contract
or agreement entered into, by Seller or AFC relating to the Business or
any Purchased Asset (including the acquisition or disposition of any
assets) or any relinquishment by Seller or AFC of any contract or other
right, in either case, other than transactions and commitments in the
ordinary course of business consistent with past practices and those
contemplated by this Agreement;
(vi) any change in any method of accounting or accounting
practice by AFC with respect to the Business except for any such change
after the date hereof required by reason of a concurrent change in
GAAP;
(vii) any (A) employment, deferred compensation, severance,
retirement or other similar agreement entered into with any employee of
the Business (or any amendment to any such existing agreement), (B)
grant of any severance or termination pay to any such employee, (C)
change in compensation or other benefits payable to any such employee,
or (D) change in compensation or other benefits payable to any such
employee pursuant to any severance or retirement
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plans or policies, other than in the ordinary course of business
consistent with past practice;
(viii) 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 Business, or
any lockouts, strikes, slowdowns, work stoppages or threats thereof by
or with respect to such employees;
(ix) any capital expenditure, or commitment for a capital
expenditure, for additions or improvements to property, plant and
equipment exceeding $50,000 individually or $200,000 in the aggregate;
(x) (A) any distribution in respect of the capital stock
of AFC or (B) any payment or declaration of any dividend in respect of
the capital stock of AFC other than regular quarterly cash dividends at
the rate of $.28 per share;
(xi) any issuance of AFC capital stock or securities, or
any warrant, option or other right to purchase shares of AFC capital
stock or any security convertible into AFC capital stock;
(xii) any disposition (whether by means of sale, transfer,
lease or otherwise) of any capital asset of the Business;
(xiii) any loss of any significant customer or customer
accounts or any significant decrease in the volume of sales to any
significant customer and Seller has no reason to believe (including,
without limitation, by reason of any written notice from such customer)
that any such loss or decrease should be anticipated or expected;
(xiv) any change in any material terms of any Contract or
arrangement with (or any commitment to) any customer or supplier of the
Business, in each case, providing for payments in the aggregate equal
to or greater than $100,000; or
(xv) any material alteration in the payment terms of any
Contract, arrangement or commitment related to the Business, in each
case, providing for payments in the aggregate equal to or greater than
$100,000.
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3.08. Properties. (a) Schedule 3.08(a) correctly describes all
real property used in the Business included in the Purchased Assets (the "Real
Property"), which Seller 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
basic annual rent.
(b) Schedule 3.08(b) correctly describes all personal property
with (a) book value in excess of $10,000 or (b) fair market value in excess of
$25,000, in each case, used in the Business included in the Purchased Assets,
including but not limited to machinery, equipment, furniture, vehicles, storage
tanks, spare and replacement parts, fuel and other trade fixtures and fixed
assets, which is owned, leased or subleased in the Business, and any Liens
thereon, specifying in the case of leases or subleases, the name of the lessor
or sublessor, the lease term and basic annual rent.
(c)(i) Seller has good and marketable, indefeasible, fee
simple title (subject only to Permitted Liens) to, or in the case of leased Real
Property has valid leasehold interests in, all Purchased Assets (whether real,
personal, tangible or intangible) reflected on the Balance Sheet or acquired
after the Balance Sheet Date, except for assets sold since the Balance Sheet
Date in the ordinary course of business consistent with past practices.
(ii) The Real Property includes all real property used or held for
use in connection with the conduct and operations of the Business as heretofore
conducted.
(iii) All leases of Real Property or personal property are in good
standing and are valid, binding and enforceable in accordance with their
respective terms, and there does not exist under any such lease of real property
or personal property any default or any event which with notice or lapse of time
or both would constitute a default.
(iv) The plants, buildings, structures and equipment included in
the Purchased Assets have no material defects, are in good operating condition
and repair and have been reasonably maintained consistent with standards
generally followed in the industry (giving due account to the age and length of
use of same, ordinary wear and tear excepted), are suitable for their present
uses and, in the case of plants, buildings and other structures (including,
without limitation, the roofs thereof), are structurally sound.
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(v) The plants, buildings and structures included in the
Purchased Assets currently have access to (i) public roads or valid easements
over private streets or private property for such ingress to and egress from all
such plants, buildings and structures and (ii) water supply, storm and sanitary
sewer facilities, telephone, gas and electrical connections, fire protection,
drainage and other public utilities, in each case as is necessary for the
conduct of the Business.
(vi) None of the structures on the Real Property encroaches upon
real property of another person, and no structure of any other person
substantially encroaches upon any Real Property.
(d) No Purchased Asset is subject to any Lien, except:
(i) Liens disclosed on the Balance Sheet;
(ii) Liens for taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on
the Balance Sheet); or
(iii) Liens, covenants, rights-of-way and other restrictions of
record which do not materially detract from the value of such Purchased
Asset as now used, or materially interfere with any present or intended
use of such Purchased Asset (clauses (i), (ii) and (iii) are,
collectively, the "Permitted Liens").
(e) 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 Business or any
Purchased Asset 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 Material Adverse Effect. There are no
developments affecting any of the Purchased Assets pending or, to the knowledge
of Seller threatened, which, as a result of any law, regulation or ordinance,
might materially detract from the value of such Purchased Assets, materially
interfere with any present or intended use of any such Purchased Assets or
materially adversely affect the marketability of such Purchased Assets.
3.09. Sufficiency of and Title to the Purchased Assets. (a)
The Purchased Assets constitute, and on the Closing Date will constitute, all of
the assets or property
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used or held for use in or required for the conduct of the Business and are
generally adequate to conduct such business.
(b) Upon consummation of the transactions contemplated hereby,
Buyer will have acquired good and marketable title in and to, or a valid
leasehold interest in, each of the Purchased Assets, free and clear of all
Liens, except for Permitted Liens and any Liens created by operation of any
after-acquired property clause (i) entered into by Buyer or any of its
Affiliates or (ii) resulting from any judicial decree or decision entered
against Buyer prior to the date hereof.
3.10. No Undisclosed Liabilities. There are no liabilities of
the Business of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition, fact,
events or development which could reasonably be expected to result in such a
liability, other than:
(a) liabilities provided for in the Balance Sheet;
(b) liabilities disclosed or described on Schedule 3.10; and
(c) other undisclosed liabilities which, individually or in
the aggregate are not material to the Business, taken as a whole.
3.11. Litigation. Except as disclosed in Schedule 3.11, there
is no claim, action, suit, investigation or proceeding pending against, or to
the knowledge of Seller, threatened against or affecting, the Business or any
Purchased Asset before any court or arbitrator or any governmental body, agency
or official or which in any manner challenges or seeks to prevent, enjoin, alter
or materially delay the transactions contemplated hereby.
3.12. Material Contracts. (a) Except for the Contracts
disclosed in Schedule 3.12 or any other schedule to this Agreement, with respect
to the Business, neither Seller nor AFC is a party to or bound by:
(i) any lease (whether of real or personal property) providing for
annual rentals of $25,000 or more;
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(ii) any agreement for the purchase of materials, supplies, goods,
services, equipment or other assets providing for (A) annual payments
of $25,000 or more, (B) aggregate payments of $50,000 or more or (C)
the purchase of more than 90 days usage of raw materials;
(iii) any sales, distribution or other similar agreement providing
for the sale of materials, supplies, goods, services, equipment or
other assets that provides for either (A) annual payments of $25,000 or
more or (B) aggregate payments of $50,000 or more;
(iv) any partnership, joint venture or other similar agreement or
arrangement;
(v) any agreement relating to indebtedness for borrowed money
(whether incurred, assumed, guaranteed or secured by any asset);
(vi) any agreement relating to the deferred purchase price of
property (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;
(vii) any option, license, franchise or similar agreement;
(viii) any agency, dealer, sales representative, marketing or other
similar agreement;
(ix) any agreement that limits the freedom of Seller or AFC to
compete in any line of business or with any Person or in any area or to
own, operate, sell, transfer, pledge or otherwise dispose of or
encumber any Purchased Asset or which would so limit the freedom of
Buyer after the Closing Date;
(x) any agreement providing for any purchase or sale obligations
with a duration of such obligations in excess of six months;
(xi) any agreement with or for the benefit of (A) AFC or Seller or
any Affiliate of AFC or Seller, (B) any Person directly or indirectly
owning, controlling or holding with power to vote, 5% or more of the
outstanding voting securities of AFC, Seller or any of their respective
Affiliates, (C) any Person 5% or more of whose outstanding voting
securities are directly or
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indirectly owned, controlled or held with power to vote by AFC, Seller
or any of their respective Affiliates or (D) any director or officer of
AFC, Seller or any of their respective Affiliates or any "associates"
or members of the "immediate family" (as such terms are respectively
defined in Rule 12b-2 and Rule 16a-1 of the 1934 Act) of such Person;
or
(xii) any other agreement, commitment, arrangement or plan not made
in the ordinary course of business which is material to the Business
taken as a whole.
(b) Each Contract disclosed in any schedule to this Agreement
or required to be disclosed pursuant to this Section except as specifically
disclosed in such schedule is a valid and binding agreement of Seller and is in
full force and effect, and neither Seller nor, to the knowledge of Seller, any
other party thereto is in default or breach in any material respect under the
terms of any such Contract, nor, to the knowledge of Seller, has any event or
circumstance occurred that, with notice or lapse of time or both, would
constitute any event of default thereunder. True and complete copies of each
such contract have been delivered to Buyer.
3.13. Licenses and Permits. Schedule 3.13 correctly describes
each license, franchise, permit or other similar authorization affecting, or
relating in any way to, the Business or any Purchased Asset, together with the
name of the government agency or entity issuing such license or permit (the
"Permits"). Except as set forth on the Schedule 3.13, such Permits are valid and
in full force and effect and, assuming the related Required Consents and Other
Consents have been obtained prior to the Closing Date, are transferable by
Seller, and none of the Permits will, assuming the related Required Consents and
Other Consents have been obtained prior to the Closing Date, be terminated or
impaired or become invalid, in whole or in part, as a result of the transactions
contemplated hereby. Upon consummation of such transactions, Buyer will,
assuming the related Required Consents and Other Consents have been obtained
prior to the Closing Date, have all of the right, title and interest in all the
Permits.
3.14. Insurance Coverage. Seller has furnished to Buyer a
list of, and true and complete copies of, all insurance policies and fidelity
bonds relating to the Purchased Assets, the business and operations of the
Business and its employees. 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
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policies or bonds or in respect of which such underwriters have reserved their
rights. All premiums payable under all such policies and bonds have been timely
paid and AFC and Seller has otherwise complied fully with the terms and
conditions of all such policies and bonds. Such policies of insurance and bonds
(or other policies and bonds providing substantially similar insurance coverage)
have been in effect since January 1, 1992 and remain in full force and effect.
Such policies and bonds are of the type and in amounts customarily carried by
Persons conducting businesses similar to the Business.
3.15. Compliance with Laws and Court Orders. Except as
disclosed in Schedule 3.15 neither Seller nor AFC is in violation of, has since
January 1, 1992 violated, or, to Seller's knowledge, is under investigation with
respect to or has been threatened to be charged with or given notice of any
violation of, any law, rule, regulation, judgment, injunction, order or decree
applicable to the Purchased Assets or the conduct of the Business which
violation could be reasonably expected to (i) result in any loss or damage to
the Business or (ii) interfere with the operations of the Business, in each
case, after the Closing Date.
3.16. Inventories. (a) The inventories set forth in the
Balance Sheet (including, without limitation, the Inventories) 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 Balance
Sheet Date, the level of inventories related to the Business has been maintained
in the ordinary course of business. All of the inventories recorded on the
Balance Sheet consist of, and all inventories related to the Business on the
Closing Date will consist of, items of a quality usable or saleable in the
normal course of the Business consistent with past practices and are and will be
in quantities sufficient for the normal operation of the Business in accordance
with past practices and to fulfill current requirements of the Business. As of
the Closing Date, all Inventories will be in physical possession of Seller and
held on the Real Property other than (i) Inventories purchased by Seller and in
transit to the Real Property, (ii) the Inventories held at Seller's facilities
at Columbia, South Carolina (which shall not exceed $50,000 in value in the
aggregate) and (iii) the Inventories in transit to the customers of the
Business.
(b) The level of raw materials held for use in the Business
as of the Closing Date does not exceed the
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normal requirements of the Business for such raw materials for a period of 90
days.
3.17. Receivables. All accounts, notes receivable and other
receivables (other than receivables collected since the Balance Sheet Date)
reflected on the Balance Sheet are, and all accounts and notes receivable
arising from or otherwise relating to the Business at the Closing Date will be,
valid and genuine in the aggregate amount thereof, subject to normal and
customary trade discounts, less any reserves for doubtful accounts recorded on
the Balance Sheet. All accounts, notes receivable and other receivables arising
out of or relating to the Business at the Balance Sheet Date have been included
in the Balance Sheet, and all accounts, notes receivable and other receivables
arising out of or relating to the Business at the Closing Date will be included
in the Closing Balance Sheet, in accordance with GAAP applied on a consistent
basis.
3.18. Intellectual Property. (a) Schedule 3.18 sets forth a
list of all Intellectual Property Rights, specifying as to each, as applicable:
(i) the nature of such Intellectual Property Right; (ii) the owner of such
Intellectual Property Right; (iii) the jurisdictions by or in which such
Intellectual Property Right is recognized without regard to registration or has
been issued or registered or in which an application for such issuance or
registration has been filed, including the respective registration or
application numbers; and (iv) licenses, sublicenses and other agreements as to
which Seller or any of its Affiliates is a party and pursuant to which any
Person (including Seller or AFC) is authorized to use such 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.
(b)(i) Neither Seller nor AFC has during the three years
preceding the date of this Agreement been a defendant in any claim, action,
suit, investigation or proceeding relating to, or otherwise has been notified
of, any alleged claim or infringement of any patents, trademarks, service marks
or copyrights, and Seller has no knowledge of any other claim or infringement by
Seller, in each case, with respect to the Intellectual Property Rights, and (ii)
Seller has no knowledge of any continuing infringement by any other Person of
any Intellectual Property Rights. No Intellectual Property Right is subject to
any outstanding judgment, injunction, order, decree or agreement restricting the
use thereof by Seller with respect to the Business or restricting the licensing
thereof to any
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Person. Neither Seller nor AFC has entered into any agreement to indemnify any
other Person against any charge of infringement of any patent, trademark,
service mark or copyright.
(c) None of the processes and formulae, research and
development results and other know-how relating to the Business, the value of
which is contingent upon maintenance of the confidentiality thereof, has been
disclosed by AFC, Seller or any Affiliate thereof to any Person other than
employees, representatives and agents of Seller or other Persons subject to
confidentiality obligations to Seller in respect of such information.
(d) All Purchased Assets consisting of Intellectual Property
have been maintained in confidence in accordance with protection procedures
customarily used in the industry to protect rights of like importance. All
former and current members of management and key personnel of Seller, AFC or any
Affiliates of the Seller or AFC, including all former and current employees,
agents, consultants and independent contractors who have contributed to or
participated in the conception and development of Intellectual Property
(collectively, the "Personnel"), have executed and delivered to AFC or one of
its Affiliates a proprietary information agreement restricting such person's
right to disclose proprietary information of the Business. Other than Mr.
Richard Berger, all former and current Personnel of the Business either (i) have
been party to a "work-for-hire" arrangement or agreement with AFC, in accordance
with all applicable laws, that has accorded AFC full, effective, exclusive and
original ownership of all tangible and intangible property thereby arising or
(ii) have executed appropriate instruments of assignment in favor of AFC as
assignee that have conveyed to AFC full, effective and exclusive ownership of
all tangible and intangible property thereby arising. No former or current
Personnel of the Seller or AFC have any claim in connection with such person's
involvement in the conception and development of any Intellectual Property and
no such claim has been asserted or is threatened. None of the current officers
and employees of Seller or AFC has any patents issued or applications pending
for any device, process, design or invention of any kind now used or needed by
Buyer, Seller or AFC in the furtherance of the Business, which patents or
applications have not been assigned to Seller or AFC and with such assignment
duly recorded in the United States Patent and Trademark Office.
(e) The Purchased Assets include the "Filtrona" name and
the goodwill associated therewith and the exclusive
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right to use the name "Filtrona" and any derivations thereof in the United
States of America and Canada, and AFC has not granted any such right to any
third party.
(f) At the time of Closing, Seller shall execute and deliver,
or cause to be executed and delivered to Buyer, assignments, in recordable form
for each of the jurisdictions, transferring all of Seller's right, title and
interest in the Intellectual Property Rights identified in Schedule 3.18.
3.19. Employees. (a) Schedule 3.19(a) sets forth a true and
complete list as of December 31, 1996 of the names, titles, annual salaries and
other compensation provided by AFC during 1996 calendar year of all Seller
Employees. No key employee of the Business has indicated to Seller 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.
(b) Schedule 3.19(b) identifies each Employee Plan that (i) is
entered into, maintained, administered or contributed to, as the case may be, by
Seller or any of its ERISA Affiliates and (ii) covers any Seller Employee or any
former employee of the Seller. Seller has furnished or made available to Buyer
copies of such Employee Plans (and, if applicable, related trust agreements) and
all amendments thereto and written interpretations thereof together with the
most recent annual report (Form 5500 including, if applicable, Schedule B
thereto) and the most recent actuarial valuation report prepared in connection
with any such Employee Plan. Neither Seller nor any of its ERISA Affiliates has
engaged in, or is a successor or parent corporation to an entity that has
engaged in, a transaction described in Sections 4069 of ERISA.
(c) Each Employee Plan that is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service (the "IRS") and, to the knowledge of Seller, no
event has occurred since the date of such determination letter to adversely
affect the qualified status of such Employee Plan. Each such Employee Plan has
been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all applicable statutes, orders, rules and
regulations, including but not limited to ERISA and the Code.
(d) Schedule 3.19(d) identifies each Benefit Arrangement that
(i) is entered into, maintained, administered or contributed to, as the case may
be, by
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Seller or any of its ERISA Affiliates and (ii) covers any Seller Employee or any
former employee of the Seller. Seller has furnished or made available to Buyer
copies or descriptions of each such Benefit Arrangement (and, if applicable,
related trust agreements) and all amendments thereto and written interpretations
thereof. Each such Benefit Arrangement has been maintained in substantial
compliance with its terms and with the requirements prescribed by any and all
applicable statutes, orders, rules and regulations and has been maintained in
good standing with applicable regulatory authorities.
(e) Except as otherwise set forth in Schedule 3.19(e), neither
the execution and delivery of this Agreement or the Merger Agreement nor the
consummation of the transactions contemplated hereby or thereby will (i) result
in any payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due under any Employee
Plan, (ii) materially increase any benefits otherwise payable under any Employee
Plan or (iii) result in the acceleration of the time of payment or vesting of
any such benefits to any material extent.
(f) There are no Multiemployer Plans to which Seller or any of
its ERISA Affiliates is required to contribute with respect to any current or
former Seller Employee.
(g) As of the Closing Date, the aggregate fair market value of
the assets held in the Seller Hourly Plan shall not be less than the projected
benefit obligation under such Plan, based on the actuarial assumptions set forth
in Schedule B to Form 5500 for 1995 filed with respect to the Seller Hourly
Plan, provided that the 1983 Group Annuity Table shall be used in lieu of the
1971 Group Annuity Mortality Table.
3.20. Products. Each of the products produced or sold in
connection with the Business is, and at all times up to and including the sale
thereof has been, (a) in compliance in all material respects with all applicable
federal, state, local and foreign laws and regulations and (b) 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. There is no design
defect with respect to any of the products produced or sold in connection with
the Business prior to the Closing Date or, manufactured in conformance with the
design in effect as of the Closing Date during the
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period ending twelve months after the Closing Date, and 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.
3.21. Finders' Fees. Except for Goldman Sachs & Co., whose
fees will be paid by AFC, and First Union Capital Markets, whose fees will be
paid by Seller, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of AFC
or Seller who might be entitled to any fee or commission in connection with the
transactions contemplated by this Agreement or the Merger Agreement. The fees of
each of Goldman Sachs & Co. and First Union Capital Markets are set forth on
Schedule 3.21.
3.22. Environmental Compliance. (a) Except as disclosed on
Schedule 3.22:
(i) in connection with or relating to the Purchased Assets,
Business or Real Property, no notice, notification, demand, request for
information, citation, summons or order has been issued, no complaint
has been filed, no penalty has been assessed and no investigation or
review is pending, or to Seller's knowledge, threatened by any
governmental entity or other Person with respect to matters arising out
of or relating to any Environmental Law;
(ii) there are no liabilities of or relating to the Purchased
Assets, Business or Real Property of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise,
arising under or relating to any Environmental Law, and there are no
facts, conditions, situations or set of circumstances which could
reasonably be expected to result in or be the basis for any such
liability;
(iii) no incinerator, sump, 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;
(iv) no Hazardous Substance has been discharged, disposed of,
dumped, injected, deposited, spilled, leaked, emitted or released at,
on or under any Real Property;
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(v) no Real Property nor any property to which Hazardous
Substances located on or resulting from the use of any Purchased Asset
or Real Property have been transported is listed or, to Seller'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;
(vi) the Purchased Assets, Business and Real Property are and have
been in compliance in all material respects with all Environmental Laws
and have been and are in compliance in all material respects with all
Environmental Permits; and
(vii) there are no Environmental Permits 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.
(b) There has been no environmental investigation, study,
audit, test, review or other analysis conducted of which Seller has knowledge in
relation to the Business, any Purchased Asset or Real Property which has not
been delivered to Buyer prior to the date hereof.
(c) None of the Purchased Assets or the Real
Property is located in New Jersey or Connecticut.
(d) For purposes of this Section, the term "Seller" shall
include any entity which is, in whole or in part, a predecessor of Seller.
3.23. Intracompany Accounts. Schedule 3.23 contains a complete
list of all intracompany balances as of the Balance Sheet Date between Seller,
AFC and their respective Affiliates, on the one hand, and the Business, on the
other hand. Except as set forth on Schedule 3.23, since the Balance Sheet Date
there has not been any accrual of liability by the Business to Seller, AFC or
any of their respective Affiliates or other transaction between the Business, on
the one hand, and Seller, AFC or any of their respective Affiliates, on the
other hand.
3.24. Foreign Currency Exposures. (a) There have been
no sales within the three years ending on December 31, 1996 of the products of
the Business to any Person which paid for such products in any currency other
than the United
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States dollars (other than any sales not exceeding $50,000 per annum in the
aggregate).
(b) Except as disclosed on Schedule 3.24(b), there have been
no purchases within the three years ending on December 31, 1996 of any raw
materials or inventory used in the Business from any Person which denominated
its pricing for such raw materials or inventory in any currency other than the
United States dollars (other than any purchases not exceeding $50,000 per annum
in the aggregate).
3.25. Representations. The representations and warranties of
Seller contained in this Agreement, disregarding all qualifications and
exceptions contained therein relating to materiality or Material Adverse Effect,
are true and correct with only such exceptions as would not in the aggregate
reasonably be expected to have a Material Adverse Effect.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the date hereof
and as of the Closing Date that:
4.01. Organization and Existence. Buyer is a
corporation duly incorporated, validly existing and in good standing under the
laws of Delaware and has all corporate powers and all material governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted.
4.02. Corporate Authorization. The execution, delivery
and performance by Buyer of this Agreement are within the corporate powers of
Buyer and have been duly authorized by all necessary corporate action on the
part of Buyer. This Agreement constitutes a valid and binding agreement of
Buyer.
4.03. Governmental Authorization. The execution,
delivery and performance by Buyer of this Agreement require no material action
by or in respect of, or material filing with, any governmental body, agency or
official other than compliance with any applicable requirements of the HSR Act.
4.04. Non-Contravention. The execution, delivery and
performance by Buyer of this Agreement do not and will not (a) violate the
certificate of incorporation or bylaws of Buyer or (b) assuming compliance with
the matters
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referred to in Section 4.03, violate any applicable law, rule, regulation,
judgment, injunction, order or decree.
4.05. Finders' Fees. There is no investment banker,
broker, finder or other intermediary which has been retained by or is authorized
to act on behalf of Buyer who might be entitled to any fee or commission from
Seller or any of its Affiliates upon consummation of the transactions
contemplated by this Agreement.
4.06. Litigation. There is no claim, action, suit,
investigation or proceeding pending against, or to the knowledge of Buyer
threatened against or affecting, Buyer before any court or arbitrator or any
governmental body, agency or official which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the transactions contemplated hereby.
ARTICLE 5
COVENANTS OF SELLER
Seller agrees that:
5.01. Conduct of the Business. From the date hereof until the
Closing Date, Seller (i) will promptly notify the Buyer of any development or
occurrence of which Seller has notice relating to the Business not in the
ordinary course of business consistent with past practices or which contravenes
or is reasonably likely to contravene the provisions of Section 3.07, (ii) will,
at the request of Buyer, use its commercially reasonable best efforts to learn
of any development or occurrence described in clause (i) above, as reasonably
specified in such request, and (iii) will, at the request of Buyer, promptly
enforce all of its rights against AFC under the Merger Agreement if AFC shall
fail to perform, observe and comply with any of the covenants or agreements set
forth in the Merger Agreement.
5.02. Access to Information; Confidentiality. (a) From the
date hereof until the Closing Date, Seller (i) will give, and will cause AFC to
give, Buyer, its counsel, financial advisors, auditors and other authorized
representatives full access to the offices, properties, books and records of
Seller and AFC relating to the Business, (ii) will furnish, and will add a
provision to the Merger Agreement that requires AFC to furnish, to Buyer, its
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information relating to the Business as
such Persons may
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reasonably request and will enforce such provision of the Merger Agreement at
Buyer's request and (iii) will instruct the employees, counsel and financial
advisors of Seller or AFC to cooperate with Buyer in its investigation of the
Business; provided that no investigation by Buyer or other information received
by Buyer shall operate as a waiver or otherwise affect any representation,
warranty or agreement given or made by Seller hereunder. Any investigation
pursuant to this Section shall be conducted in such manner as not to interfere
unreasonably with the conduct of the business of AFC or Seller.
(b) Seller will add a provision to the Merger Agreement that
requires AFC to furnish to Buyer and its counsel copies of those agreements,
contracts and commitments of AFC relating to the Business (and, if such
agreements, contracts and commitments are not reduced to writing, reasonable
written details of the same) which (i) have previously been withheld from Buyer
or (ii) include obligations of confidentiality or impose restrictions on
disclosure by AFC (clauses (i) and (ii), collectively, the "Confidential
Agreements") no less than 5 Business Days prior to the Closing. The Confidential
Agreements shall include, without limitation, agreements, contracts and
commitments relating to research and/or development work and projects or
contracts or agreements with or commitments to or understandings with suppliers
or customers of the Business. Buyer shall, if requested, enter into
confidentiality undertakings with regard to such Confidential Agreements on such
terms as Buyer may agree, with the counterparties to such Confidential
Agreements. Seller shall enforce such provision of the Merger Agreement at
Buyer's request.
(c) Seller shall add a provision to the Merger Agreement that requires
AFC to disclose to Buyer, its counsel, auditors and other authorized
representatives and/or to give Buyer, its counsel, auditors and other authorized
representatives, access to, not less than 5 Business Days before the Closing:
(i) The commercial terms upon which products, goods,
materials and services are supplied by the Business to its
customers including, but not limited to, the price at which
such products, goods, materials and services are sold and
details of any rebates, discounts, commissions and extended
credit terms paid or given to customers;
(ii) The commercial terms upon which products, goods,
materials and devices are supplied to the
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Business by its suppliers including, but not limited to, the
price at which such products, goods, materials and services
are supplied to the Business and details of any rebates,
discounts and commissions paid or given to the Business;
(iii) The financial budgets and forecasts and business plans
of or relating to the Business including, but not limited to,
full details of the 1997 forecast and budget and the 1997 to
1999 plan and any notes and commentaries forming part of or
relating to such forecasts, budgets and plans;
(iv) The Jefferson Davis and White Pine facilities and the
Pine Glen warehouse and the Business research and development
facilities;
(v) Written details of any significant business or commercial
arrangement, commitments or understandings (whether or not
reduced to writing and whether or not legally binding) related
to the Business; and
(vi) Such access to the employees and advisors of AFC as may
be necessary or useful in connection with any of the
foregoing.
Seller shall enforce such provision of the Merger Agreement at Buyer's
request.
5.03. Notices of Certain Events. Seller shall promptly notify
Buyer of each of the following of which it has knowledge (and, at Buyer's
request, Seller shall use its commercially reasonable best efforts to acquire
such knowledge, as reasonably specified in such request):
(a) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or
involving or otherwise affecting Seller, AFC or the Business that, if
pending on the date of this Agreement, would have been required
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to have been disclosed pursuant to Section 3.11 or that relate to the
consummation of the transactions contemplated by this Agreement; and
(d) the damage or destruction by fire or other casualty of any
Purchased Asset or part thereof or in the event that any Purchased
Asset or part thereof becomes the subject of any proceeding or, to the
knowledge of Seller, threatened proceeding for the taking thereof or
any part thereof or of any right relating thereto by condemnation,
eminent domain or other similar governmental action.
5.04. Noncompetition. (a) Seller agrees that
for a period of five full years from the Closing Date,
neither it nor any of its Affiliates shall:
(i) engage, either directly or indirectly, as a principal or
for its own account or solely or jointly with others, or as
stockholders in any corporation or joint stock association, in any
business that competes with the Business as it exists on the Closing
Date within the United States of America, Canada, Germany, Ireland,
France, United Kingdom, Peru, Mexico, Brazil, Venezuela, Colombia,
Australia, Israel, South Korea, India, Thailand, Singapore, Malaysia,
Taiwan, Indonesia and Japan; provided that nothing herein shall
prohibit the acquisition by Seller or any of its Affiliates of a
diversified company having not more than 5% of its sales (based on its
latest published annual audited financial statements) attributable to
any business that competes with the Business; or
(ii) employ or solicit, or receive or accept the performance
of services by, any Transferred Employee.
(b) If any provision contained in this Section shall for any
reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provisions
of this Section, but this Section shall be construed as if such invalid, illegal
or unenforceable provision had never been contained herein. It is the intention
of the parties that if any of the restrictions or covenants contained herein is
held to cover a geographic area or to be for a length of time which is not
permitted by applicable law, or in any way construed to be too broad or to any
extent invalid, such provision shall not be construed to be null, void and of no
effect, but to the extent such provision would be valid or enforceable under
applicable law, a court of competent jurisdiction shall construe and interpret
or reform this
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Section to provide for a covenant having the maximum enforceable geographic
area, time period and other provisions (not greater than those contained herein)
as shall be valid and enforceable under such applicable law. Seller acknowledges
that Buyer would be irreparably harmed by any breach of this Section and that
there would be no adequate remedy at law or in damages to compensate Buyer for
any such breach. Seller agrees that Buyer shall be entitled to injunctive relief
requiring specific performance by Seller of this Section, and Seller consents to
the entry thereof.
5.05. Amendment of Merger Agreement. Seller shall not amend,
modify, terminate or waive any of the terms, representations, warranties,
covenants or conditions of the Merger Agreement without the prior written
consent of the Buyer.
5.06. Supplemental Disclosure. Seller shall furnish to Buyer,
immediately upon receipt or becoming aware of, any information that would have
been required to be included in the Schedules to this Agreement if available on
the date hereof. No disclosure pursuant to the immediately preceding sentence
shall amend, supplement or modify the Schedules to this Agreement or otherwise
limit or affect any right of Buyer to decline to consummate the Closing.
5.07. Certain Permits. Prior to the Closing Date, Seller shall
have obtained, in a form reasonably satisfactory to Buyer, consent to the
transfer of any Permit listed or described on Schedule 3.13 or issuance of a
comparable new permit to Buyer, such transferred or new Permit to have terms and
conditions that are at least as favorable in the aggregate to the Business as
the terms and conditions of such Permit as in effect on the date hereof.
5.08. Insurance. Seller will cooperate with Buyer with respect
to making claims under any insurance policies written by insurance companies, to
the extent such policies were owned by AFC or any of its Subsidiaries prior to
the Closing Date. Such cooperation shall include, without limitation, (i) making
all reasonable claims and demands against such insurance companies with respect
to any matters that might be covered by such insurance policies and pursuing
such claims and demands in a commercially reasonable manner; (ii) providing
Buyer with all information reasonably requested by Buyer with respect to such
insurance policies for a period of not less than ten years prior to the Closing
Date, such information to include, without limitation, the insurance company
providing the policy, the number of the policy, the dates of the effectiveness
of the
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policy and, to the extent available, the insurance policy; and (iii) requesting
such insurance companies to name Buyer (or its appropriate Affiliates) as
additional insureds on such policies as Buyer's (or its Affiliates') interests
may appear, and cooperating in a commercially reasonable manner in obtaining
such additional insured coverage.
5.09. Intracompany Indebtedness. At least five Business Days
prior to the Closing Date, Seller shall prepare and deliver to Buyer a statement
setting out in reasonable detail the calculation of all intracompany balances
between Seller, AFC and their respective Affiliates, on the one hand, and the
Business, on the other hand, based upon the latest available financial
information as of such date, and, to the extent requested by Buyer, provide
Buyer with supporting documentation to verify the underlying intracompany
charges and transactions. All such intracompany account balances which
constitute liabilities of the Business shall be canceled prior to the Closing
Date.
5.10. Trademarks; Tradenames. (a) Except as specifically set
forth herein, after the Closing, Seller and its Affiliates shall not use any
trademark or tradename listed on Schedule 3.18, any other name or mark that may
reasonably be confused therewith or any logo, format or style that includes any
such mark or name.
(b) After the Closing, Seller and its Affiliates as of the
date hereof (but only in the case of the Affiliates while the Affiliates remain
Affiliates of Seller) shall have the right to sell existing inventory and to use
existing packaging, labeling, containers, supplies, brochures and technical data
sheets bearing or including the tradename "Filtrona", and to use the tradename
"Filtrona" or any tradename including the name "Filtrona" on buildings, cars,
trucks and other fixed assets, until the earlier of (i) six months after the
Closing Date and (ii) the date existing stocks are exhausted. Except as
specifically provided herein, neither Seller nor any of its Affiliates shall
have the right to use the tradename "Filtrona" or any tradename including the
word "Filtrona" in any advertising or public relations materials. Seller and its
Affiliates shall comply with all applicable laws or regulations in any use of
packaging or labeling containing the tradename "Filtrona" or any tradename
including the word "Filtrona" and shall maintain the quality of goods and
services provided under the tradename "Filtrona" or any tradename including the
word "Filtrona".
(c) After the Closing, Southern Plastics Company, A&B Plastics
Southwest Inc. and Tri-Lite Plastics Inc. shall
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have the right (i) to sell existing inventory and to use existing packaging,
labeling, containers, supplies, brochures and technical data sheets bearing the
trademark or tradename "Filtrona Lighting Group", and to use the trademark or
tradename "Filtrona Lighting Group" on buildings, cars, trucks and other fixed
assets, solely in connection with acrylic and styrene lighting fixture lenses
for fluorescent and other lighting fixtures in the United States until the
earlier of (x) six months after the Closing Date and (y) the date existing stock
are exhausted, and (ii) to use the trademark or tradename "Filtrona Lighting
Group" solely in connection with the sale of acrylic and styrene lighting
fixture lenses for fluorescent and other lighting fixtures in the United States
until six months after the Closing Date. Except as specifically provided herein,
neither Seller nor any of its Affiliates shall have the right to use the
trademark or tradename "Filtrona Lighting Group" in any advertising or public
relations materials. Seller, Southern Plastics Company, A&B Plastics Southwest
Inc. and Tri-Lite Plastics Inc. shall comply with all applicable laws or
regulations in any use of packaging or labeling containing the trademark or
tradename "Filtrona Lighting Group" and shall maintain the quality of goods and
services provided under the trademark or tradename "Filtrona Lighting Group". In
the event that any of the Affiliates of Seller specified in this Section 5.10(c)
shall cease to be an Affiliate of Seller, the rights granted by Buyer to such
Affiliate in respect of the tradename "Filtrona Lighting Group" pursuant to this
Section 5.10(c) shall terminate immediately.
(d) Seller shall not be obligated to change the tradename
"Filtrona" or any tradename including the word "Filtrona" or the trademark or
tradename "Filtrona Lighting" on goods in the hands of dealers, distributors and
customers at the time of the expiration of a time period set forth in this
Section 5.10(b) or 5.10(c) above, respectively.
(e) The prohibitions set forth in this Section 5.10 may be
amended or extended only pursuant to the prior written consent of Buyer.
5.11. OFCCP. Without the prior written consent of Buyer,
Seller shall not permit AFC (i) to settle any claims arising out of or in
connection with the matters described in the Notice of Violation issued to
American Filtrona Company, a division of AFC, by the Office of Federal Contract
Compliance Programs or (ii) to admit any liability in connection therewith.
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5.12. Post-Closing Payments. Seller agrees that it shall (i)
promptly deliver to Buyer all checks in respect of the Business that are
received by Seller after the Closing Date in respect of the Business, with such
endorsements as may be reasonably required by Buyer to allow Buyer to present
such checks and (ii) promptly upon receipt of any other payment in respect of
the Business that is received by Seller after the Closing Date, deliver the
funds so received to the bank account designated by Buyer.
ARTICLE 6
COVENANTS OF BUYER
Buyer agrees that:
6.01. Access. On and after the Closing Date, Buyer will afford
promptly to Seller and its agents reasonable access to its properties, books,
records, employees and auditors to the extent necessary to permit Seller to
determine any matter relating to its rights and obligations hereunder or to any
period ending on or before the Closing Date; provided that any such access by
Seller shall not unreasonably interfere with the conduct of the business of
Buyer. Seller will hold, and will use its best efforts to cause its officers,
directors, employees, accountants, counsel, consultants, advisors and agents to
hold, in confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law, all confidential documents and
information concerning Buyer or the Business provided to it pursuant to this
Section.
6.02. Use of Name. Buyer agrees that it is likely that the
customers of Filtrona Lighting Group will be confused if Buyer uses that name in
a business competing with certain of Seller's businesses as described below and
that therefore for a period of two full years from the Closing Date, neither
Buyer nor any of its Affiliates shall:
(i) use the name "Filtrona Lighting Group" in the United
States in connection with the manufacture, sale or distribution of
acrylic and styrene lighting fixture lenses for fluorescent and other
lighting fixtures; or
(ii) employ or solicit, or receive or accept the performance
of services by, any salaried employee of Seller who is not a Seller
Employee unless such employee responds to general solicitation for
employment by Buyer or any of its Affiliates.
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ARTICLE 7
COVENANTS OF BOTH PARTIES
Buyer and Seller agree that:
7.01. Best Efforts; Further Assurances. (a)
Subject to the terms and conditions of this Agreement, Buyer and Seller will
each use its best efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary or desirable under applicable laws and
regulations to consummate the transactions contemplated by this Agreement.
Seller and Buyer each agree to execute and deliver such other documents,
certificates, agreements and other writings and to take such other actions as
may be necessary or desirable in order to consummate or implement expeditiously
the transactions contemplated by this Agreement and to vest in Buyer good and
marketable title to the Purchased Assets.
(b) Subject to the provisions of Section 11.03, Seller hereby
constitutes and appoints, effective as of the Closing Date, Buyer and its
successors and assigns as the true and lawful attorney of Seller with full power
of substitution in the name of Buyer or in the name of Seller, but for the
benefit of Buyer (i) to collect for the account of Buyer any items of Purchased
Assets and (ii) to institute and prosecute all proceedings which Buyer may in
its sole discretion deem proper in order to assert or enforce any right, title
or interest in, to or under the Purchased Assets, and to defend or compromise
any and all claims, actions, suits or proceedings in respect of the Purchased
Assets. Buyer shall be entitled to retain for its own account any amounts
collected pursuant to the foregoing powers, including any amounts payable as
interest in respect thereof.
7.02. Certain Filings. Seller and Buyer shall cooperate with
one another (a) in determining whether any action by or in respect of, or filing
with, any governmental body, agency, official or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (b) in taking such actions or
making any such filings, furnishing information required in connection therewith
and seeking timely to obtain any such actions, consents, approvals or waivers.
Buyer and Seller shall promptly, but in no event later than 30 days after the
date of this Agreement, make the
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respective filings and submissions required under the provisions of the HSR Act
relating to the Merger and to this Agreement, and thereafter shall comply fully
and promptly with any request for additional information ("second request"),
voluntary request to submit information or civil investigative demand that might
be issued to or served on such party in connection with any investigation under
the HSR Act. Buyer and Seller shall further take, or cause to be taken, all
actions and do, or cause to be done, all things necessary, proper or advisable
under applicable laws or regulations to obtain any required approval, action, or
inaction of any governmental body, entity or agency with jurisdiction, so that
both the Merger and this Agreement may be permitted to close in accordance with
their respective terms, provided that neither Buyer nor Seller shall be required
pursuant to the foregoing to agree to any commitment or obligation that would
(1) impose material limitations on the ability of Buyer to effectively control,
operate, or enjoy full rights of ownership with respect to (i) the business,
assets or operations of the Business or (ii) any other material business, assets
or operations of Buyer or its Affiliates, (2) require the divestiture of any
other material business or assets by Buyer or its Affiliates or (3) require the
prior approval by either the Federal Trade Commission or the Antitrust Division
of the Department of Justice of future acquisitions by Buyer or its Affiliates.
7.03. Public Announcements. The parties agree to consult with
each other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except as
may be required by applicable law or any listing agreement with any national
securities exchange, will not issue any such press release or make any such
public statement prior to such consultation.
7.04. WARN Act. The parties agree to cooperate in good faith
to determine whether any notification may be required under the Worker
Adjustment and Retraining Notification Act (the "WARN Act") as a result of the
transactions contemplated by this Agreement. Buyer will be responsible for
providing any notification that may be required under the WARN Act with respect
to any Seller Employee.
7.05. Notice of Certain Events. Buyer or Seller shall
promptly notify the other party of (i) any breach of any representation or
warranty made by it or made or deemed made by Buyer or Seller, as the case may
be, that is contained herein or (ii) any breach of any representation,
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warranty, covenant or agreement made or deemed made by AFC or Seller, as the
case may be, that is contained in the Merger Agreement.
7.06. Access. (a) Each party agrees that it will cooperate
with and make available to the other party, during normal business hours, all
books of account and other financial records (including, without limitation,
accountant's work papers) pertaining to the Business ("Books and Records"),
information and employees (without substantial disruption of employment)
retained and remaining in existence after the Closing Date which are necessary
or useful in connection with any inquiry relating to Taxes or any audit,
investigation or dispute, any litigation or investigation or any other matter
requiring any such Books and Records, information or employees for any
reasonable business purpose. The party requesting any such Books and Records,
information or employees shall bear all of the out-of-pocket costs and expenses
(including, without limitation, attorneys' fees, but excluding reimbursement for
general overhead, salaries and employee benefits) reasonably incurred in
connection with providing such Books and Records, information or employees. The
Seller may require certain financial information relating to the Business for
periods prior to the Closing Date for the purpose of filing federal, state,
local and foreign Tax Returns and other governmental reports, and the Buyer
agrees to furnish such information to the Seller at the Seller's request and
expense.
(b) Each party agrees that it will cooperate with and afford
promptly to the Accounting Referee reasonable access to its properties, Books
and Records, employees and auditors to the extent necessary to permit the
Accounting Referee to resolve any dispute arising between Buyer and Seller in
connection with the calculation of any Purchase Price adjustment pursuant to
Section 2.08 and Schedule 2.08; provided that any such access by the Accounting
Referee shall not unreasonably interfere with the conduct of the business of
Buyer or Seller.
ARTICLE 8
TAX MATTERS
8.01. Tax Matters. Seller hereby represents and warrants to
Buyer that:
(a) Seller has timely paid all Taxes, and all interest and
penalties due thereon and payable by it or AFC
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for the Pre-Closing Tax Period which will have been required to be paid on or
prior to the Closing Date, the non-payment of which would result in a Lien on
any Purchased Asset, would otherwise adversely affect the Business or would
result in Buyer becoming liable or responsible therefor.
(b) Seller has established, in accordance with generally
accepted accounting principles applied on a basis consistent with that of
preceding periods, adequate reserves for the payment of, and will timely pay all
Tax liabilities, assessments, interest and penalties which arise from or with
respect to the Purchased Assets or the operation of the Business and are
incurred in or attributable to the Pre-Closing Tax Period, the non-payment of
which would result in a Lien on any Purchased Asset, would otherwise adversely
affect the Business or would result in Buyer becoming liable therefor.
8.02. Tax Cooperation; Allocation of Taxes. (a)
All excise, sales, use, value added, registration stamp, recording, documentary,
conveyancing, franchise, property, transfer, gains and similar Taxes, levies,
charges and fees (collectively, "Transfer Taxes") incurred in connection with
the transactions contemplated by this Agreement shall be borne by Seller. Buyer
and Seller shall cooperate in providing each other with any appropriate resale
exemption certifications and other similar documentation. The party that is
required by applicable law to make the filings, reports, or returns with respect
to any applicable Transfer Taxes shall do so, and the other party shall
cooperate with respect thereto as necessary.
(b) All real property taxes, personal property taxes and
similar ad valorem obligations levied with respect to the Purchased Assets for a
taxable period which includes (but does not end on) the Closing Date shall be
apportioned between Seller and Buyer based on the number of days of such taxable
period included in the Pre-Closing Tax Period and the number of days of such
taxable period after the Closing Date (with respect to any such taxable period,
the "Post- Closing Tax Period"). Seller shall be liable for the proportionate
amount of such taxes that is attributable to the Pre-Closing Tax Period, and
Buyer shall be liable for the proportionate amount of such taxes that is
attributable to the Post-Closing Tax Period. Upon receipt of any bill for real
or personal property taxes relating to the Purchased Assets, each of Seller and
Buyer shall present a statement to the other setting forth the amount of
reimbursement to which each is entitled under this Section 8.02 together with
such supporting evidence as is reasonably necessary to calculate the proration
amount. The proration
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amount shall be paid by the party owing it to the other within 10 days after
delivery of such statement. In the event that either Seller or Buyer shall make
any payment for which it is entitled to reimbursement under this Section 8.02,
the other party shall make such reimbursement promptly but in no event later
than 10 days after the presentation of a statement setting forth the amount of
reimbursement to which the presenting party is entitled along with such
supporting evidence as is reasonably necessary to calculate the amount of
reimbursement.
(c) Buyer and Seller agree to furnish or cause to be
furnished to each other, upon request, as promptly as practicable, such
information and assistance relating to the Business and the Purchased Assets
(including, without limitation, access to personnel and books and records) as is
reasonably necessary for the filing of all Tax returns, the making of any
election relating to Taxes, the preparation for any audit by any taxing
authority, and the prosecution or defense of any claim, suit or proceeding
relating to any Tax. Buyer and Seller shall retain all books and records with
respect to Taxes pertaining to the Purchased Assets for a period of at least six
years following the Closing Date. At the end of such period, each party shall
provide the other with at least ten days prior written notice before destroying
any such books and records, during which period the party receiving such notice
can elect to take possession, at its own expense, of such books and records.
Seller and Buyer shall cooperate with each other in the conduct of any audit or
other proceeding relating to Taxes involving the Purchased Assets or the
Business.
ARTICLE 9
EMPLOYEE BENEFITS
9.01. Employees and Offers of Employment. (a) On
the Closing Date, Buyer shall offer employment to all Seller Employees who are
active employees; provided, that Buyer may terminate at any time after the
Closing Date the employment of any Seller Employee who accepts such offer. For
purposes of this Article 9, the term "active employee" shall mean any Person
who, on the Closing Date, is actively employed by Seller or who is on short-term
disability leave, authorized leave or absence, including leave under the Family
and Medical Leave Act, military service or lay-off with recall rights as of the
Closing Date (such inactive employees shall be offered employment by Buyer as of
the date they return to active employment), but shall exclude any other inactive
or former employee including any Person who as of the Closing
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Date is on unauthorized leave of absence or who has terminated his or her
employment, retired or died on or before the Closing Date. Except as provided in
this Article 9, any such offers shall be at such salary or wage and benefit
levels and on such other terms and conditions as are substantially comparable in
the aggregate to those offered to each such Transferred Employee by the Seller
prior to the Closing Date. The employees who accept and commence employment with
Buyer are hereinafter collectively referred to as the "Transferred Employees".
Seller will not take and will cause each of its subsidiaries not to take, any
action which would impede, hinder, interfere or otherwise compete with Buyer's
effort to hire any Transferred Employees.
9.02. Severance Obligations and COBRA Costs.
Buyer shall be responsible for all severance payments and stay bonus payments
("Severance Payments") pursuant to the stay and severance plans and arrangements
set forth on Schedule 9.02 hereto, to Seller Employees who are or become
entitled to benefits thereunder. Buyer shall also reimburse Seller for the net
out-of-pocket cost of providing COBRA coverage to any Seller Employee who does
not become a Transferred Employee; provided that any such Seller Employee pays
the maximum "applicable premium" (within the meaning of Section 4980B(f)(4) of
the Code) in respect of such COBRA coverage.
9.03. Collective Bargaining Agreement. Buyer
will assume all obligations with respect to the collective bargaining agreements
between AFC on the one hand and the (i) Bakery, Confectionary and Tobacco
Workers International Union, AFL-CIO-CLC, Local Union No. 321-T, and (ii)
International Association of Machinists and Aerospace Workers, AFL-CIO, Local
Lodge No. 10, on the other.
9.04. Seller's Employee Benefits Plans.
(a) Seller shall continue to operate in accordance with past
practices, including past accounting practices, all of the Employee Plans and
Benefit Arrangements until the Closing Date. Except as otherwise provided in
this Article 9, Buyer shall assume all obligations and liabilities existing on
or after the Closing Date under the Employee Plans and Benefit Arrangements and
all other employment related obligations and liabilities in respect of each
Seller Employee, including any beneficiary or dependent thereof, and all
obligations and liabilities under Seller's retiree medical plan or arrangement
for both former hourly and salaried employees who were employed in the Business.
Seller shall pay to Buyer on the Closing Date an amount equal to the amount
accrued on the books of account of
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Seller and/or the Business, as the case may be, as of such date as a liability
for a profit-sharing contribution to Seller's 401(k) Plan with respect to
Transferred Employees, and Buyer agrees to contribute such amount as a
profit-sharing contribution for Transferred Employees to the profit-sharing plan
with salary reduction arrangement adopted or designated by Buyer for such
employees pursuant to Section 9.09 hereof. Except as expressly set forth in this
Article 9, no assets of any Employee Plan or Benefit Arrangement shall be
transferred to Buyer or to any plan of Buyer. Accrued benefits or account
balances of Transferred Employees under the Employee Plans and Benefit
Arrangements shall be fully vested as of the Closing Date.
(b) Seller shall amend the Employee Stock Ownership Plan of
American Filtrona Corporation ("Seller ESOP") to provide that each Seller
Employee participating therein shall be 100% vested in their accrued benefit
thereunder and to provide for the distribution or rollover of such benefits
following the Closing. Buyer shall have no obligation to provide to Transferred
Employees benefits similar to those provided under the ESOP. Seller shall pay to
Buyer on or promptly after the Closing Date an amount equal to the amount
accrued on the accounting records of Seller and/or the Business, as the case may
be, as of such date as a liability for a contribution to Seller's ESOP with
respect to Transferred Employees, and Buyer agrees to contribute such amount as
a profit-sharing contribution for Transferred Employees to the profit-sharing
plan with salary reduction arrangement adopted or designated by Buyer for such
employees pursuant to Section 9.09 hereof.
(c) Seller shall pay Buyer on the Closing Date $22,000 as the
estimated present value of the contingent projected benefit of Randall Hagan
under Seller's Supplemental Benefit Plan as of the Closing Date and shall have
no further liability for such benefit for Mr. Hagan under such Plan. Buyer shall
assume all such liabilities under such Supplemental Benefit Plan for Mr. Hagan.
(d) Buyer shall not assume any liability under stock option,
stock purchase or any other incentive or bonus plans sponsored or maintained by
Seller.
9.05. Buyer Benefit Plans. Except as expressly set forth
herein, Buyer or one of its Affiliates will recognize all service of the
Transferred Employees with Seller or any of its Affiliates, only for purposes of
eligibility to participate in those employee benefit plans (within the meaning
of Section 3(3) of ERISA) in which the
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Transferred Employees are enrolled by Buyer or one of its Affiliates immediately
after the Closing Date.
9.06. Hourly Pension Plan. (a) Subject to sub-
section (b) below, Buyer shall adopt and assume all assets and liabilities for
and under the American Filtrona Corporation Pension Plan for Hourly Employees
(the "Seller Hourly Plan") as of the Closing Date.
(b) Seller shall pay to Buyer on or promptly after the Closing
Date an amount equal to the amount accrued on the books of account of Seller
and/or the Business, as the case may be, as of such date as a pension cost
computed in accordance with past practice with respect to Seller's Hourly Plan
for the 1997 plan year, and Buyer agrees to contribute such amount to Seller's
Hourly Plan for the 1997 plan year. Buyer and Seller shall cooperate with each
other at all times to ensure the ongoing operation and administration of the
Seller Hourly Plan.
9.07. Salaried Pension Plan. (a) Seller shall retain the
responsibility for pensions under the American Filtrona Corporation Retirement
Plan (the "Seller Retirement Plan") for former employees of the Seller who have
retired or terminated employment prior to the Closing Date except for persons
listed on Schedule 9.07(b). Prior to the Closing Date, but contingent on the
Closing, Seller shall fully vest all Seller Employees in their accrued benefits
under the Seller Retirement Plan effective as of the Closing Date.
(b) (i) Within 90 days following the Closing Date, Buyer shall
adopt or designate a defined benefit plan that covers the persons listed on
Schedule 9.07(b) who are participants in the Seller Retirement Plan ("Salaried
Employees") and meets the requirements of Section 401(a) of the Code (the
"Retirement Plan"). Buyer agrees that all service credited under the Seller
Retirement Plan as of such adoption or designation with respect to Salaried
Employees shall be credited under the Retirement Plan for all plan purposes,
including eligibility, vesting and benefit accrual.
(ii) Within 90 days after the adoption or designation of the
Retirement Plan by Buyer, Seller shall cause an amount in cash determined as of
the Closing Date pursuant to subparagraph (iii) below (the "RP Amount"),
adjusted as set forth in subparagraph (iv) below, to be transferred from the
trust maintained under the Seller Retirement Plan to the trust maintained under
the Retirement Plan. Such transfer of assets shall be made only after
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(1) Seller has supplied to Buyer (A) either (i) a
copy of an IRS determination letter finding the Seller Retirement Plan
to be a qualified plan meeting the requirements of Section 401(a) of
the Code or (ii) an opinion of counsel or a written representation from
Seller (with appropriate indemnities), in either case, to the effect
that the Seller Retirement Plan has been established in accordance with
the Code and ERISA, and an agreement that Seller will request a
determination letter from the IRS and make any and all changes to the
Seller Retirement Plan necessary to receive a favorable determination
letter and (B) information enabling the enrolled actuary for the
Retirement Plan to issue the certification required by Section 414(l)
of the Code (Form 5310-A); and
(2) Buyer has supplied to Seller (A) either (i) a
copy of an IRS determination letter finding the Retirement Plan to be a
qualified plan meeting the requirements of Section 401(a) of the Code
or (ii) an opinion of counsel or a written representation from Buyer
(with appropriate indemnities), in either case, to the effect that the
Retirement Plan has been established in accordance with the Code and
ERISA, and an agreement that Buyer will request a determination letter
from the IRS and make any and all changes to the Retirement Plan
necessary to receive a favorable determination letter and (B)
information enabling the enrolled actuary for the Seller Retirement
Plan to issue the certification required by Section 414(l) of the Code
(Form 5310-A).
Buyer and Seller shall cooperate with each other during the period beginning on
the date hereof and ending on the date the assets are transferred to the trust
maintained under the Retirement Plan (the "Pension Plan Transition Period") to
ensure the ongoing operation and administration of the Seller Retirement Plan
and the Retirement Plan with respect to the Salaried Employees.
(iii) Buyer and Seller agree that the RP Amount, as calculated
pursuant to Section 414(1) of the Code and regulations thereunder and based on
the actuarial assumptions used by the Pension Benefit Guaranty Corporation as if
the Seller Retirement Plan had terminated on the Closing Date, is $2,195,810.
(iv) The RP Amount shall be adjusted (A) to reflect payments
made to Salaried Employees from the Seller Retirement Plan during the period
beginning on January 1, 1997 and ending on the date the assets are transferred,
and
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(B) as may be required by the PBGC and the IRS to maintain the status of the
Retirement Plan or the Seller Retirement Plan as an employee pension plan
meeting the requirements of Section 401(a) of the Code. In addition to the RP
Amount, Seller shall cause to be transferred from the Seller Retirement Plan to
the Retirement Plan interest on the RP Amount at a rate equal to 7.5% calculated
from and including the Closing Date but excluding the actual date of transfer.
Within 60 days after the Closing Date or as soon as practicable thereafter,
Seller and Buyer shall make any required governmental filings necessary to
effect the asset transfer described herein, including the filing of IRS Form
5310-A.
(c) Seller shall pay to Buyer on the Closing Date an amount
equal to the amount accrued on the books of account of Seller and/or the
Business, as the case may be, as of such date as a pension cost with respect to
Seller's Retirement Plan for the 1997 plan year attributable to Seller Employees
computed in accordance with past practice, and Buyer agrees to contribute such
amount to one of its corresponding plans or a new plan covering the Salaried
Employees for the 1997 plan year.
9.08. Hourly 401(k) Plan. (a) Effective as of the Closing
Date, Buyer shall adopt and assume all assets and liabilities for and under the
American Filtrona Corporation 401(k) Plan for Hourly Employees ("Hourly 401(k)
Plan"). Seller and Buyer shall execute all documents and make any required
governmental filings required to effect the assumption of the Hourly 401(k) Plan
as described herein.
(b) Seller shall pay to Buyer on or promptly after the Closing
Date an amount equal to the amount (if any) accrued on the books of account of
Seller and/or the Business, as the case may be, as of such date as the liability
of the Hourly 401(k) Plan.
9.09. Salaried 401(k) Plan. (a) (i) As soon as practicable
after and effective as of the Closing Date, Buyer shall adopt or designate a
profit-sharing plan with a salary reduction arrangement that covers the
Transferred Employees participating in the American Filtrona Corporation 401(k)
Savings & Profit-Sharing Plan ("Seller 401(k) Plan") and meets the requirements
of Sections 401(a) and 401(k) of the Code ("Buyer 401(k) Plan"). Buyer agrees
that all service credited under the Salaried 401(k) Plan as of the Closing Date
with respect to such Transferred Employees shall be credited under the Buyer
401(k) Plan for all plan purposes, including eligibility and vesting.
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(ii) Within 30 days after the adoption or designation of the
Buyer 401(k) Plan by Buyer, Seller shall cause an amount, in cash equivalent to
the account balances of all Transferred Employees under the Seller 401(k) Plan
as of the date of the transfer, to be transferred from the trust maintained
under the Seller 401(k) Plan to the trust maintained under the Buyer 401(k)
Plan. Such transfer of assets shall be made only after
(1) Seller has supplied to Buyer either (A) a copy of an IRS
determination letter finding the Seller 401(k) Plan to be a
qualified plan meeting the requirements of Sections 401(a) and
401(k) of the Code or (B) an opinion of counsel or written
representation from Seller (with appropriate indemnities), in
either case, to the effect that the Seller 401(k) Plan has
been established in accordance with the Code and ERISA, and an
agreement that Seller will request a determination letter from
the IRS and make any and all changes to the Seller 401(k) Plan
necessary to receive a favorable determination letter; and
(2) Buyer has supplied to Seller either (A) a copy of an IRS
determination letter finding the Buyer 401(k) Plan to be a
qualified plan meeting the requirements of Sections 401(a) and
401(k) of the Code or (B) an opinion of counsel or written
representation from Buyer (with appropriate indemnities), in
either case, to the effect that the Buyer 401(k) Plan has been
established in accordance with the Code and ERISA, and an
agreement that Buyer will request a determination letter from
the IRS and make any and all changes to the Buyer 401(k) Plan
necessary to receive a favorable determination letter.
Any Seller Employee who does not become a Transferred Employee
shall continue as a participant in Seller 401(k) Plan, and Buyer shall have no
responsibility or liability for such individual benefits under such Plan. Seller
and Buyer shall cooperate with each other during the period beginning on the
date hereof and ending on the date the assets are transferred to the trust
maintained under the Buyer 401(k) Plan to ensure the ongoing operation and
administration of the Buyer 401(k) Plan and the Seller 401(k) Plan with respect
to such Transferred Employees.
(b) Seller shall pay to Buyer on or promptly after the Closing
Date an amount equal to the amount (if any) accrued on the books of account of
Seller and/or the
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Business, as the case may be, as of such date as a liability for the Transferred
Employees to the Seller 401(k) Plan for matching contributions and CODA
contributions.
9.10. Certain Salaried Employee Benefit Services. During the
period beginning on the Closing Date and ending 90 days thereafter (the "Benefit
Transition Period"), Seller shall permit Salaried Transferred Employees to
continue to participate in the Seller Retirement Plan, the Seller 401(k) Plan
and the "Welfare Plans" (within the meaning of Section 3(1) of ERISA) in which
such Transferred Employees participated immediately prior to the Closing Date.
Buyer shall promptly reimburse Seller for all contributions and premiums paid by
Seller and reasonable out of pocket expenses incurred by Seller, in each case in
respect of participation during the Benefit Transition Period of such
Transferred Employees in the Welfare Plans.
9.11. Sharing of Benefits-Related Information.
Buyer and Seller will cooperate in providing at their own expense
employee-related and plan-related data to facilitate accomplishment of the
provisions of this Article 9.
9.12. No Third Party Beneficiaries. No provision of this
Article shall create any third party beneficiary or other rights in any employee
or former employee (including any beneficiary or dependent thereof) of Seller or
of any of its subsidiaries in respect of continued employment (or resumed
employment) with either Buyer or the Purchased Assets or any of their Affiliates
and no provision of this Article 9 shall create any such rights in any such
Person in respect of any benefits that may be provided, directly or indirectly,
under any Employee Plan or Benefit Arrangement or any plan or arrangement which
may be established by Buyer or any of its Affiliates. No provision of this
Agreement shall constitute a limitation on rights to amend, modify or terminate
after the Closing Date any such plans or arrangements of Buyer or any of its
Affiliates.
ARTICLE 10
CONDITIONS TO CLOSING
10.01. Conditions to the Obligations of Each Party.
The obligations of Buyer and Seller to consummate the Closing are subject to the
satisfaction of the following conditions:
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(a) Any applicable waiting period under the HSR Act relating
to the transactions contemplated hereby shall have expired or been
terminated.
(b) No provision of any applicable law or regulation and no
judgment, injunction, order or decree shall (i) prohibit the
consummation of the Closing or (ii) restrain, prohibit or otherwise
interfere in any material respect with the effective operation or
enjoyment by Buyer of all or any material portion of the Purchased
Assets.
(c) No proceeding challenging this Agreement or the
transactions contemplated hereby or seeking to prohibit, alter, prevent
or materially delay the Closing shall have been instituted by any
Person before any court, arbitrator or governmental body, agency or
official and be pending.
(d) All actions by or in respect of or filings with any
governmental body, agency, official or authority required to permit the
consummation of the Closing shall have been taken, made or obtained.
(e) Buyer and Seller as the owner of the Reserved Property
(defined in Schedule 3.08(a)) shall have entered into an easement
agreement relating to the Easement Property (defined in Schedule
3.08(a)) in form and substance reasonably satisfactory to Buyer and
Seller, including provisions for the apportionment of maintenance costs
and real estate taxes with respect to the Easement Property.
(f) The consummation of the transactions
contemplated by the Merger Agreement in accordance with
the terms thereof.
10.02. Conditions to Obligation of Buyer. The
obligation of Buyer to consummate the Closing is subject to the satisfaction of
the following further conditions:
(a)(i) Seller and AFC shall have performed in all material
respects or shall perform in all material respects at a closing held
simultaneously with the Closing, all of their respective obligations hereunder
and under the Merger Agreement required to be performed by each of them on or
prior to the Closing Date, (ii) the representations and warranties of Seller
contained in this Agreement, the representations and warranties of AFC contained
in the Merger Agreement, and in any certificate or other writing delivered by
Seller or AFC pursuant hereto or the Merger
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Agreement, disregarding all qualifications and exceptions relating to
materiality or Material Adverse Effect, shall be materially correct at and as of
the Closing Date, as if made at and as of such date, and (iii) Buyer shall have
received a certificate signed by the President of Seller to the foregoing
effect.
(b) Buyer shall have received an opinion of Sutherland, Asbill
& Brennan, L.L.P., counsel to Seller, dated the Closing Date to the effect
specified in Sections 3.01 through 3.04, 3.09(b) and 3.11. In rendering such
opinion, such counsel may rely upon certificates of public officers, as to
matters governed by the laws of jurisdictions other than Georgia or the federal
laws of the United States of America, upon opinions of counsel reasonably
satisfactory to Buyer, copies of which shall be contemporaneously delivered to
Buyer, and as to matters of fact, upon certificates of officers of Seller.
(c) Mr. John Morgan shall have executed and delivered a
Consulting and Non-Competition Agreement substantially in the form of Exhibit B
hereto.
(d) Buyer and Seller shall have executed and delivered such
agreements with respect to the Business or the employees of the Business as
Buyer may reasonably request.
(e) Seller shall have received all Required Consents and all
consents, authorizations or approvals from the governmental agencies referred to
in Section 3.03, in each case in form and substance reasonably satisfactory to
Buyer, and no such consent, authorization or approval shall have been revoked.
(f) (i) Buyer shall have obtained at its sole cost an ALTA
extended coverage form of owner's or leasehold owner's title insurance and flood
insurance policies at the current levels of such flood insurance policies, or
binders to issue the same, dated the Closing Date and in amounts satisfactory to
Buyer insuring or committing to insure, at ordinary premium rates without any
requirement for additional premiums, good and marketable title to the Real
Property being transferred pursuant to the terms of this Agreement free and
clear of any Liens, except for Permitted Liens and containing such endorsements
and affirmative coverages required by Buyer and available in the jurisdiction
where the Real Property is located and otherwise in form and substance
reasonably satisfactory to Buyer and (ii) any easements necessary for the use by
Buyer
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of the transferred Real Property shall have been obtained by Buyer.
(h) Buyer shall have received evidence reasonably satisfactory
to Buyer that none of the customers of the Business (including, without
limitation, the customers listed on Schedule 10.02) which, within any of the
last three years, have placed orders for or purchased products of the Business
with an average annual value in excess of (i) $1,000,000 for the Tobacco Filters
division of the Business or Writing Instrument Components division of the
Business and (ii) $250,000 for the Healthcare Device Component and Other Bonded
Products division of the Business will terminate or materially and adversely
modify its contractual or business relationship with the Business as a result of
the transactions contemplated hereunder, except to the extent disclosed in item
1 of Schedule 3.07(b).
(i) Since the Balance Sheet Date, there has been no Material
Adverse Change.
(j) No facts, events or circumstances have come to the
attention of Buyer as a result of information disclosed pursuant to Section
5.02(b)-(c) which facts, events or circumstances, as determined by Buyer in its
reasonable judgment, materially affect the Business, it being understood and
agreed that any information disclosing that (i) the Confidential Agreements are
not arm's-length contracts with terms consistent with industry practices; (ii)
the Confidential Agreements do not reflect terms, including without limitation,
pricing, volumes, duration, commitments to expend funds, discounts, rebates,
commissions and other material terms consistent with those previously
represented by AFC to Buyer, (iii) the agreements, arrangements and
understandings so disclosed do not contain all of the Confidential Agreements
previously represented to exist by AFC to Buyer, (iv) the agreements,
arrangements and understandings so disclosed do not reflect the terms and
conditions of the Confidential Agreements as such terms and conditions were
previously represented by AFC to Buyer; (v) the information so disclosed
indicates that a material reduction in either the sales volume or the profits in
the aggregate of the Business can be reasonably expected by Buyer or (vi) the
information so disclosed reflects that the status of the properties, plant,
equipment or machinery is (x) not consistent with the customary requirements of
the customers of the Business in respect of the products produced by such
properties, plant, equipment or machinery or (y) as previously represented by
AFC to Buyer, shall, in each case, be deemed to materially affect the Business.
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(k) Buyer shall have received all documents it may reasonably
request relating to the existence of Seller and the authority of Seller for this
Agreement, all in form and substance reasonably satisfactory to Buyer.
10.03. Conditions to Obligation of Seller. The obligation of
Seller to consummate the Closing is subject to the satisfaction of the following
further conditions:
(a)(i) Buyer shall have performed in all material respects all
of its obligations hereunder required to be performed by it at or prior to the
Closing Date, (ii) the representations and warranties of Buyer contained in this
Agreement and in any certificate or other writing delivered by Buyer pursuant
hereto shall be true in all material respects at and as of the Closing Date, as
if made at and as of such date and (iii) Seller shall have received a
certificate signed by any Vice-President of Buyer to the foregoing effect.
(b) Seller shall have received an opinion of Davis Polk &
Wardwell, counsel to Buyer, dated the Closing Date to the effect specified in
Sections 4.01 through 4.04. In rendering such opinion, such counsel may rely
upon certificates of public officers, as to matters governed by the laws of
jurisdictions other than the State of New York, General Corporation Law of the
State of Delaware or the federal laws of the United States of America, upon
opinions of counsel reasonably satisfactory to Seller, copies of which shall be
contemporaneously delivered to Seller, and as to matters of fact, upon
certificates of officers of Buyer.
(c) Buyer shall have received all consents, authorizations or
approvals from governmental agencies referred to in Section 4.03, in each case
in form and substance reasonably satisfactory to Seller, and no such consent,
authorization or approval shall have been revoked.
(d) Seller shall have received all documents it may reasonably
request relating to the existence of Buyer and the authority of Buyer for this
Agreement, all in form and substance reasonably satisfactory to Seller.
ARTICLE 11
SURVIVAL; INDEMNIFICATION
11.01. Survival. The representations and warranties of the
parties hereto contained in this Agreement or in any certificate or other
writing delivered pursuant
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hereto or in connection herewith shall not survive the Closing; provided that
the representations and warranties contained in Article 8 shall survive until
expiration of the applicable statutory period of limitations (giving effect to
any waiver, mitigation or extension thereof), if later. The indemnification
provisions contained in Section 11.02 shall survive the Closing indefinitely.
Notwithstanding the foregoing, any representation or warranty in respect of
which indemnity may be sought under this Agreement and any claim of
indemnification of Buyer shall survive the time at which it would otherwise
terminate pursuant to the preceding sentence, if notice of the claim (providing
reasonable details of such claim) giving rise to such right to indemnity shall
have been given to the party against whom such indemnity may be sought prior to
such time.
11.02. Indemnification. Seller hereby indemnifies Buyer and
its Affiliates against and agrees to hold each of them harmless from any and all
damage, loss, liability and expense (including, without limitation, reasonable
expenses of investigation and reasonable attorneys' fees and expenses in
connection with any claim, action, suit or proceeding) (collectively, "Loss")
incurred or suffered by Buyer or any of its Affiliates arising out of:
(i) any breach of representation, warranty, covenant or
agreement contained in Article 8 hereof made or to be performed by
Seller pursuant to this Agreement;
(ii) any Excluded Liability described in Sections 2.04(a), (d)
and (f); or
(iii) any claim, action, suit or proceeding brought by any party
(other than Seller) arising out of or related to the covenant of Buyer
set forth in Section 6.02.
11.03. Procedures. (a) The party seeking indemnification
under Section 11.02 (the "Indemnified Party") agrees to give prompt notice to
the party against whom indemnity is sought (the "Indemnifying Party") of the
assertion of any claim, or the commencement of any suit, action or proceeding in
respect of which indemnity may be sought under such Section. The Indemnifying
Party may, and at the request of the Indemnified Party shall, assume and control
the defense of any such suit, action or proceeding at its own expense. In case
of such assumption by the Indemnifying Party, the Indemnified Party may
participate in
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such suit, action or proceeding, provided that it does so solely at its own
expense.
(b) If the Indemnifying Party wishes to assume the defense of
such claim, action, suit or proceeding, then the Indemnifying Party shall give
written notice to the Indemnified Party within 30 days after notice from the
Indemnified Party of such claim, action, suit or proceeding (unless the claim,
action, suit or proceeding reasonably requires a response in less than 30 days
after the notice is given to the Indemnifying Party, in which event it shall
notify the Indemnified Party at least 10 days prior to such reasonably required
response date) and the Indemnifying Party shall thereafter assume and control
the defense of any such claim, action, suit or proceeding. The Indemnified Party
shall cooperate with the Indemnifying Party in any claim, action, suit or
proceeding covered by the indemnification hereunder. The Indemnifying Party
shall not settle, or enter into any agreement to settle, any such claim, action,
suit or proceeding, unless (i) the Indemnifying Party shall have first given the
Indemnified Party not less than ten days' written notice and (ii) such agreement
contains a complete release of all claims against the Indemnified Party and is
otherwise not adverse to the interests of the Indemnified Party.
(c) If the Indemnifying Party fails to assume the defense of
any such claim, action, suit or proceeding in accordance with the procedure
referred to in Section 11.03(b), or if after assuming the same the Indemnifying
Party fails to defend such claim, action, suit or proceeding, the Indemnified
Party may defend and control the defense of such claim, action, suit or
proceeding at the Indemnifying Party's expense. The Indemnifying Party shall not
be liable under Section 11.02 for any settlement effected without its consent of
any claim, litigation or proceeding in respect of which indemnity may be sought
hereunder; provided that if the Indemnifying Party does not assume and continue
the defense of any claim, litigation or proceeding as aforesaid, the Indemnified
Party shall have the right to settle such claim, action, suit or proceeding on
such terms as it may reasonably deem appropriate and the Indemnifying Party
shall be fully liable under Section 11.02 for such settlement.
(d) Subject to the Indemnified Party complying with the
procedures set forth in Sections 11.03(a), 11.03(b) and 11.03(c), if a judgment
is rendered against the Indemnified Party in any action covered by the
indemnification hereunder, or any lien in respect of such judgment attaches to
any of the assets of the Indemnified
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Party, the Indemnifying Party shall as soon as reasonably practicable upon
notification of such entry or attachment pay such judgment in full or discharge
such lien unless, at the expense and direction of the Indemnifying Party, an
appeal is taken under which the execution of the judgment or satisfaction of the
lien is stayed. If and when a final judgment is rendered against the Indemnified
Party in any such action, the Indemnifying Party shall pay such judgment or
discharge such lien as soon as practicable.
11.04. Exclusive Remedies. If the Closing occurs, then the
remedies provided in this Article 11 constitute the sole and exclusive remedies
for recoveries against another party for breaches of the representations and
warranties in this Agreement and for the matters specifically listed in this
Article 11 as being indemnified against, but neither the foregoing nor anything
else in this Agreement shall limit the right of a party to enforce the
performance of this Agreement or of any contract, document or other instrument
executed and delivered pursuant to this Agreement by any remedy available to it
in equity.
ARTICLE 12
TERMINATION
12.01. Grounds for Termination. This Agreement may be
terminated at any time prior to the Closing:
(a) by either Seller or Buyer if the Closing shall not have
been consummated on or before June 30, 1997;
(b) by either Seller or Buyer if there shall be any law or
regulation that makes the consummation of the transactions contemplated
hereby illegal or otherwise prohibited or if consummation of the
transactions contemplated hereby would violate any nonappealable final
order, decree or judgment of any court or governmental body having
competent jurisdiction; or
(c) by either Buyer or Seller upon the termination of the
Merger Agreement pursuant to any provision of Article 7 thereof.
The party desiring to terminate this Agreement shall give
notice of such termination to the other party.
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12.02. Effect of Termination. If this Agreement is terminated
as permitted by Section 12.01, such termination shall be without liability of
either party (or any stockholder, director, officer, employee, agent, consultant
or representative of such party) under this Agreement or any writing delivered
pursuant hereto to the other party to this Agreement; provided that if such
termination shall result from the willful failure of either party to fulfill a
condition to the performance of the obligations of the other party, willful
failure of Seller to fulfill a condition to the performance of obligations of
AFC under the Merger Agreement, failure to perform a covenant or agreement
contained herein, intentional breach by either party to this Agreement of any
representation or warranty contained herein, failure by Seller to perform a
covenant or agreement contained in the Merger Agreement or intentional breach by
Seller of any representation or warranty contained in the Merger Agreement, such
party shall be fully liable for any and all Losses incurred or suffered by the
other party as a result of such failure or breach. The provisions of Sections
5.02 and 6.01 shall survive any termination hereof pursuant to Section 12.01.
ARTICLE 13
MISCELLANEOUS
13.01. Notices. All notices, requests and other
communications to either party hereunder shall be in writing (including
facsimile transmission) and shall be given,
if to Buyer, to:
FIL Acquisition Corp.
c/o Bunzl plc
110 Park Street
London W1Y 3RB
Telecopy: 011-44-171-495-2527
Attention: Company Secretary
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800
Attention: John J. McCarthy, Jr.
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if to Seller, to:
WB Acquisition Corp.
999 Peachtree Street, N.E.
Suite 2300
Atlanta, Georgia 30309
Telecopy: (404) 853-8806
Attention: Bennett L. Kight, President
with a copy to:
Sutherland, Asbill & Brennan, L.L.P.
999 Peachtree Street, N.E.
Suite 2300
Atlanta, Georgia 30309
Telecopy: (404) 853-8806
Attention: George L. Cohen
All such notices, requests and other communications shall be deemed received on
the date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a Business Day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding Business Day in the place of receipt.
13.02. Amendments and Waivers. (a) Any
provision of this Agreement may be amended or waived prior to the Closing Date
if, but only if, such amendment or waiver is in writing and is signed, in the
case of an amendment, by each party to this Agreement, or in the case of a
waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
13.03. Successors and Assigns. The provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns; provided that no party may
assign, delegate or otherwise transfer any of its rights or obligations under
this Agreement without the consent of each other party hereto except that Buyer
may transfer or assign, in whole or from time to time in part, to one or more of
its
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Affiliates, the right to purchase all or a portion of the Purchased Assets or
any of its other rights hereunder, but no such transfer or assignment will
relieve Buyer of its obligations hereunder.
13.04. Governing Law; Arbitration; Consent to Jurisdiction.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflict of law rules of such state.
(b) Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (AAA), and judgment upon the award rendered by the Arbitration
Tribunal may be entered in any court having jurisdiction, pursuant to clause (h)
below.
(c) Any arbitration shall be conducted in New York, New York.
(d) Any arbitrator shall be selected from the AAA National
panel of Arbitrators for Large Complex Cases, and shall be experienced in the
arbitration of commercial cases involving businesses comparable to the
businesses in which the parties are engaged at the time of the arbitration.
(e) The Arbitration Tribunal shall permit and facilitate such
discovery as it shall determine is appropriate in the circumstances, taking into
account the needs of the parties and the desirability of making discovery
expeditious and cost-effective.
(f) Any award shall be in writing and shall state the
reasoning on which the award rests, unless the parties agree otherwise. When
there are three arbitrators, the award shall be made and signed by at least a
majority of the arbitrators; and if the award decides a number of issues, the
part of the award relating to each issue shall be made and signed by at least a
majority of the arbitrators.
(g) Any arbitration may include, by consolidation or joinder,
any third party which has signed an arbitration agreement with either party,
where the presence of such third party is necessary for complete relief to be
accorded in arbitration; provided that such arbitration shall continue to be
conducted pursuant to rules set forth in clauses (b) - (f) above. Any
arbitration which includes a third party shall be administered by the AAA in
such a manner that all parties are treated equally in such matters
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as the selection or arbitrators and other procedural aspects of the arbitration.
(h) No provision of this Section 13.04 shall limit the right
of any party to this Agreement to obtain provisional or ancillary remedies from
a court of competent jurisdiction before the pendency of any arbitration or
other proceeding. The exercise of such remedy does not waive the right of any
party to resort to arbitration.
(i) Each party hereby submits to the non-exclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any New York State court sitting in New York City for purposes
of all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby. Each party irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such proceeding brought in such a court and any claim
that any proceeding brought in such a court has been brought in an inconvenient
forum. Each party agrees that a final judgment in any such proceeding shall be
conclusive and binding upon it and may be enforced in any court of the
jurisdiction to which it is subject by a suit upon such judgment or in any
manner provided by law.
13.05. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received a counterpart hereof signed by the other party hereto.
13.06. Third Party Beneficiaries. No representation,
inducement, promise, understanding, condition or warranty not set forth herein
has been made or relied upon by either party hereto. Neither this Agreement nor
any provision hereof is intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.
13.07. Bulk Sales Laws. Buyer and Seller each hereby waive
compliance by Seller with the provisions of the "bulk sales", "bulk transfer" or
similar laws of any state. Seller agrees to indemnify and hold Buyer harmless
against any and all claims, losses, damages, liabilities, costs and expenses
incurred by Buyer or any of its Affiliates as a result of any failure to comply
with any such "bulk sales", "bulk transfer" or similar laws.
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13.08. Captions; Schedules. (a) The captions herein are
included for convenience of reference only and shall be ignored in the
construction or interpretation hereof.
(b) Any matter that Seller discloses in any section or
subsection of the schedules to this Agreement shall be deemed to have been
disclosed by Seller only for purposes of the corresponding section or subsection
of this Agreement unless this Agreement or such schedule expressly states
otherwise.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
FIL ACQUISITION CORP.
/s/ A. J. Habgood
By -------------------------
Name: A. J. Habgood
Title: Authorized representative
WB ACQUISITION CORP.
/s/ Bennett L. Kight
By --------------------------
Name: Bennett L. Kight
Title: President
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Annex III
OPINION OF GOLDMAN SACHS
(To be delivered at a later date)
