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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
April 20, 1998
-------------------------------
Date of Report
(Date of earliest event reported)
PCA INTERNATIONAL, INC.
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(Exact Name of Registrant as Specified in Charter)
North Carolina 0-8550 56-0888429
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(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
815 Matthews-Mint Hill Road
Matthews, North Carolina 28105
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(Address of Principal Executive Offices)
(Zip Code)
(704) 847-8011
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name or Former Address,
if Changed since Last Report)
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Item 5. Other Events.
On April 20, 1998, the Registrant signed a merger agreement with Jupiter
Acquisition Corp. On April 21, 1998 the Registrant issued a press release
describing the transaction. The Registrant hereby incorporates by reference the
Agreement and Plan of Merger attached hereto as Exhibit 2.1 and the press
release attached hereto as Exhibit 99.1, each made a part hereof, into this Item
5.
Item 7. Financial Statements and Exhibits
(c) Exhibits:
2.1 Agreement and Plan of Merger dated as of April 20, 1998 by and
between PCA International, Inc. and Jupiter Acquisition Corp.
99.1 Press Release, dated April 21, 1998
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PCA INTERNATIONAL, INC.
By: /s/ John Grosso
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John Grosso
President
Dated: April 22, 1998
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EXHIBIT INDEX
Exhibit
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2.1 Agreement and Plan of Merger dated as of April 20, 1998 by and
between PCA International, Inc. and Jupiter Acquisition Corp.
99.1 Press Release dated April 21, 1998
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AGREEMENT AND PLAN OF MERGER
by and between
PCA INTERNATIONAL, INC.
AND
JUPITER ACQUISITION CORP.
dated as of
April 20, 1998
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TABLE OF CONTENTS
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ARTICLE I THE MERGER................................................................... 1
Section 1.1 The Merger................................................................... 1
Section 1.2 Effective Time............................................................... 2
Section 1.3 Closing...................................................................... 2
Section 1.4 Directors and Officers of the Surviving Corporation.......................... 2
Section 1.5 Shareholders' Meeting........................................................ 2
ARTICLE II CONVERSION OF SECURITIES..................................................... 4
Section 2.1 Conversion of Capital Stock.................................................. 4
Section 2.2 Payment of Cash Merger Consideration......................................... 6
Section 2.3 Dissenters' Rights........................................................... 7
Section 2.4 Exchange of Stock Certificates............................................... 7
Section 2.5 Stock Options................................................................ 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY...................................................................... 8
Section 3.1 Organization................................................................. 8
Section 3.2 Capitalization............................................................... 9
Section 3.3 Authorization; Validity of Agreement; Company Action......................... 10
Section 3.4 Consents and Approvals; No Violations........................................ 10
Section 3.5 SEC Reports and Financial Statements......................................... 11
Section 3.6 Absence of Certain Changes................................................... 12
Section 3.7 No Undisclosed Liabilities................................................... 12
Section 3.8 Litigation................................................................... 12
Section 3.9 Employee Benefit Plans; ERISA................................................ 13
Section 3.10 Information in Proxy Statement............................................... 14
Section 3.11 No Default; Compliance with Applicable Laws.................................. 15
Section 3.12 Licenses; Intellectual Property.............................................. 15
Section 3.13 Taxes........................................................................ 16
Section 3.14 Insurance.................................................................... 19
Section 3.15 Contracts.................................................................... 19
Section 3.16 Related Party Transactions................................................... 20
Section 3.17 Real Property................................................................ 20
Section 3.18 Vote Required................................................................ 21
Section 3.19 Environmental Matters........................................................ 21
Section 3.20 Year 2000.................................................................... 23
Section 3.21 Fairness Opinion............................................................. 23
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
MERGERCO.............................................................................. 23
Section 4.1 Organization................................................................. 24
Section 4.2 Capitalization............................................................... 24
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<TABLE>
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Section 4.3 Authorization; Validity of Agreement; Necessary Action....................... 24
Section 4.4 Consents and Approvals: No Violation......................................... 24
Section 4.5 Information in Proxy Statement............................................... 25
Section 4.6 Litigation................................................................... 25
Section 4.7 Financing Commitment......................................................... 25
Section 4.8 Fraudulent Conveyance........................................................ 26
ARTICLE V COVENANTS.................................................................... 26
Section 5.1 Interim Operations of the Company............................................ 26
Section 5.2 Access; Confidentiality...................................................... 28
Section 5.3 Consents and Approvals....................................................... 28
Section 5.4 No Solicitation.............................................................. 29
Section 5.5 Brokers or Finders........................................................... 30
Section 5.6 Additional Agreements........................................................ 30
Section 5.7 Publicity.................................................................... 30
Section 5.8 Notification of Certain Matters.............................................. 31
Section 5.9 Directors' and Officers' Insurance and Indemnification....................... 31
Section 5.10 Tax Return Filing and Tax Elections.......................................... 32
Section 5.11 Cooperation.................................................................. 33
Section 5.12 Financing.................................................................... 33
Section 5.13 NASDAQ Listing............................................................... 33
Section 5.14 Fees......................................................................... 33
Section 5.15 Consummation of the Merger................................................... 33
ARTICLE VI CONDITIONS............................................................................ 34
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger
Transaction.................................................................. 34
Section 6.2 Conditions to Mergerco's Obligation to Effect the Merger..................... 34
Section 6.3 Conditions to the Company's Obligation to Effect
the Merger................................................................... 36
ARTICLE VII TERMINATION........................................................................... 37
Section 7.1 Termination.................................................................. 37
Section 7.2 Effect of Termination........................................................ 39
ARTICLE VIII MISCELLANEOUS......................................................................... 39
Section 8.1 Fees and Expenses............................................................ 39
Section 8.2 Amendment and Modification................................................... 40
Section 8.3 Nonsurvival of Representations and Warranties................................ 40
Section 8.4 Notices...................................................................... 40
Section 8.5 Interpretation............................................................... 41
Section 8.6 Counterparts................................................................. 42
Section 8.7 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership.................................................................... 42
Section 8.8 Severability................................................................. 42
Section 8.9 Governing Law................................................................ 42
Section 8.10 Assignment................................................................... 42
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Index of Defined Terms
<TABLE>
<CAPTION>
Defined Term Section No.
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Affiliate(s)........................................................................ 8.5
Agreement........................................................................... Recitals
Agreements.......................................................................... 3.4
Acquisition Proposal................................................................ 5.4
Alternative Financing............................................................... 5.12
Benefit Plans....................................................................... 3.9(a)
Cash Merger......................................................................... 2.1(c)
Cash Merger Consideration........................................................... 2.1(c)
Cash Merger Shares.................................................................. 2.1(c)
Certificates........................................................................ 2.2(b)
Closing............................................................................. 1.3
Closing Date........................................................................ 1.3
Code................................................................................ 3.9(b)
Commitment Letter................................................................... 4.7(b)
Common Stock........................................................................ 2.1
Company............................................................................. Recitals
Company SEC Documents............................................................... 3.5
Company Shares...................................................................... 3.2(a)
Continuing Share Election........................................................... 2.1(d)
Continuing Shareholders............................................................. 2.1(d)
Continuing Shares................................................................... 2.1(d)
Disclosure Schedule................................................................. 2.1(d)
Dissenting Shareholders............................................................. 2.1(c)
Documents........................................................................... 3.5
D&O Insurance....................................................................... 5.9(b)
Effective Time...................................................................... 1.2
Environment......................................................................... 3.19(a)
Environment Claims.................................................................. 3.19(b)
Environmental Compliance Costs...................................................... 3.19(c)
ERISA............................................................................... 3.9(a)
ERISA Affiliate..................................................................... 3.9(a)
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<TABLE>
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Defined Term Section No.
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Exchange Act........................................................................ 1.5(a)
Fees and Expenses................................................................... 8.1(b)
Financing........................................................................... 4.7(b)
GAAP................................................................................ 3.5
Governmental Entity................................................................. 3.4
Hazardous Substances................................................................ 2.2
HSR Act............................................................................. 3.4
Indemnified Party................................................................... 5.9(a)
Intellectual Property............................................................... 3.12
Jupiter............................................................................. 4.2
Licenses............................................................................ 3.12
Material Adverse Effect............................................................. 7.1(a)
Material Agreements................................................................. 3.15
Maximum Continuing Number........................................................... 2.1(d)
Maximum Continuing Percentage....................................................... 2.1(d)
Merger.............................................................................. Recitals
Mergerco............................................................................ Recitals
Mergerco Common Stock............................................................... 2.1
Minimum Continuing Number........................................................... 2.1(d)
Minimum Continuing Percentage....................................................... 2.1(d)
NationsBank Letter.................................................................. 4.7(b)
NationsBridge Letter................................................................ 4.7(b)
NCBCA............................................................................... Recitals
1998 Financial Statements .......................................................... 3.5
1998 Form 10-K ..................................................................... 3.5
Options............................................................................. 2.5
Option Consideration................................................................ 2.5
Owned Real Property................................................................. 3.17(a)
Paying Agent........................................................................ 2.2(a)
Preferred Stock..................................................................... 3.2(a)
Proxy Statement..................................................................... 1.5(a)
Release............................................................................. 3.19(e)
Remedial Action..................................................................... 3.19(f)
Rollover Letters.................................................................... 2.1(d)
Safety and Environmental Claims..................................................... 3.19(g)
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<TABLE>
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Defined Term Section No.
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Safety and Environmental Law........................................................ 3.19(h)
Schedule 13E-3...................................................................... 1.5(b)
SEC................................................................................. 1.5(a)
SEC Documents....................................................................... 3.5
Secretary of State.................................................................. 1.2
Securities Act...................................................................... 3.5
Service............................................................................. 3.9(b)
Shares.............................................................................. 2.1
Special Meeting..................................................................... 1.5(a)
Stock Option Plans.................................................................. 2.5
Subsidiary.......................................................................... 3.1
Surviving Corporation............................................................... 1.1
Taxes............................................................................... 3.13(c)
Tax Return.......................................................................... 3.13(c)
Termination Date ................................................................... 7.1(b)
Title Defects....................................................................... 3.17(a)
Trade Secrets....................................................................... 3.12
Year 2000........................................................................... 3.20
Voting Debt......................................................................... 3.2(a)
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of April 20,
1998, by and between PCA International, Inc., a North Carolina corporation (the
"Company") and Jupiter Acquisition Corp., a North Carolina corporation
("Mergerco").
RECITALS
The respective boards of directors of the Company and Mergerco deem it
advisable for the mutual benefit of the Company and Mergerco, and their
respective shareholders, that Mergerco be merged with and into the Company (the
"Merger") upon the terms and subject to the conditions set forth herein and in
accordance with the Business Corporation Act of the State of North Carolina (the
"NCBCA"). The Board of Directors and sole shareholder of Mergerco have approved
and adopted this Agreement. The Board of Directors of the Company has approved
this Agreement and has resolved to recommend to the shareholders of the Company
to vote to approve the principal terms of this Agreement in conjunction with
their approval of the principal terms of the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.2 hereof), the Company
and Mergerco shall consummate the Merger pursuant to which (a) Mergerco shall be
merged with and into the Company and the separate corporate existence of
Mergerco shall thereupon cease, (b) the Company shall be the successor or
surviving corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation") and shall continue to be governed by the laws of the
State of North Carolina, and (c) the separate corporate existence of the Company
with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger, except as set forth in this Section 1.1.
Pursuant to the Merger, (x) the Articles of Incorporation of the Company, as in
effect immediately prior to the Effective Time, shall be the articles of
incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Articles of Incorporation, and (y) the Bylaws of Mergerco, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter
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amended as provided by law, such Articles of Incorporation and such Bylaws. The
Merger shall have the effects specified in the NCBCA.
Section 1.2 Effective Time. Mergerco and the Company will cause
Articles of Merger to be executed and filed on the date of the Closing (as
defined in Section 1.3) (or on such other date as Mergerco and the Company may
agree) with the Secretary of State of North Carolina (the "Secretary of State")
as provided in the NCBCA. The Merger shall become effective on the date on which
the Articles of Merger have been duly filed with the Secretary of State or such
time as is agreed upon by the parties and specified in the Articles of Merger,
and such time is hereinafter referred to as the "Effective Time."
Section 1.3 Closing. The closing of the Merger (the "Closing") shall
take place at 10:00 a.m. on a date to be specified by the parties, which shall
be no later than the third business day after satisfaction or waiver of all of
the conditions set forth in Article VI hereof (the "Closing Date"), at the
offices of Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the
Americas, New York, New York, unless another date or place is agreed to in
writing by the parties hereto.
Section 1.4 Directors and Officers of the Surviving Corporation. The
directors of Mergerco at the Effective Time shall, from and after the Effective
Time, be the directors of the Surviving Corporation until their successors shall
have been duly elected or appointed or qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's Articles
of Incorporation and Bylaws. Mergerco agrees that prior to the Effective Time,
it shall offer the following directors of the Company the opportunity to remain
as directors of the Company following the Effective Time until their successors
shall have been duly elected or appointed or qualified or until their earlier
death, resignation or removal: Donald P. Greenberg, Bridgette P. Heller and
Joseph H. Reich. The officers of the Company at the Effective Time shall, from
and after the Effective Time, remain as the officers of the Surviving
Corporation until their successors shall have been duly elected or appointed or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Bylaws.
Section 1.5 Shareholders' Meeting.
(a) The Company, acting through its Board of Directors, shall,
in accordance with applicable law:
(i) duly call, give notice of, convene and hold a special
meeting (or the annual meeting) of its shareholders (the "Special
Meeting") as promptly as practicable for the purpose of considering and
taking action upon the approval of this Agreement and the Merger;
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(ii) prepare and, after consultation with Mergerco, file with
the Securities and Exchange Commission (the "SEC") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), a preliminary
proxy statement relating to the Merger and this Agreement and use its
best efforts (x) to obtain and furnish the information required to be
included by the SEC in the Proxy Statement (as hereinafter defined)
and, after consultation with Mergerco, to respond promptly to any
comments made by the SEC with respect to the preliminary proxy
statement and cause a definitive proxy statement, including any
amendment or supplement thereto (the "Proxy Statement"), to be mailed
to its shareholders, provided that no amendment or supplement to the
Proxy Statement will be made by the Company without consultation with
Mergerco and its counsel and (y) to obtain the necessary approvals of
the Merger and this Agreement by its shareholders;
(iii) promptly notify Mergerco of the receipt of the comments
of the SEC and of any request from the SEC for amendments or
supplements to the preliminary proxy statement or the definitive Proxy
Statement or for additional information, and will promptly supply
Mergerco with copies of all correspondence between the Company or its
representatives, on the one hand, and the SEC or members of its staff,
on the other hand, with respect to the preliminary proxy statement, the
definitive Proxy Statement or the Merger;
(iv) promptly inform Mergerco if at any time prior to the
Special Meeting any event should occur which is required by applicable
law to be set forth in an amendment of, or a supplement to, the Proxy
Statement, in which case, the Company, with the cooperation of
Mergerco, will, upon learning of such event, promptly prepare and mail
such amendment or supplement; provided, that prior to such mailing, the
Company shall consult with Mergerco with respect to such amendment or
supplement and shall afford Mergerco reasonable opportunity to comment
thereon;
(v) notify Mergerco at least 24 hours prior to the mailing of
the Proxy Statement, or any amendment or supplement thereto, to the
shareholders of the Company; and
(vi) subject to the fiduciary obligations of the Board of
Directors under applicable law as advised by independent counsel,
include in the Proxy Statement the recommendation of the Board of
Directors that shareholders of the Company vote in favor of the
approval of this Agreement and the Merger.
(b) The Company, if required, and Mergerco, if required, shall
prepare and file concurrently with the filing of the preliminary proxy
statement, a Statement on Schedule 13E-3 ("Schedule 13E-3") with the SEC. If at
any time prior to the Special Meeting any event should occur which is required
by applicable law to be set
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forth in an amendment of, or supplement to, the Schedule 13E-3, the Company or
Mergerco, as the case may be, shall file such amendments or supplements.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of the holders
of any shares of common stock, par value $.20 per share, of the Company ("Common
Stock" or "Shares" and individually as "Share") or holders of any shares of
common stock, par value $.01 per share, of Mergerco (the "Mergerco Common
Stock"):
(a) Mergerco Common Stock. Each issued and outstanding share
of Mergerco Common Stock shall be converted into and become one (1) fully paid
and nonassessable share of common stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All
Shares that are owned by the Company as treasury stock and any Shares owned by
Mergerco or any wholly owned Subsidiary (as defined in Section 3.1 hereof) of
Mergerco immediately prior to the Effective Time shall be canceled and retired
and shall cease to exist and no consideration shall be delivered in exchange
therefor.
(c) Exchange of Shares. Each issued and outstanding Share
(other than Shares to be canceled in accordance with Section 2.1(b), Shares to
remain outstanding pursuant to Section 2.1(d), and any Shares which are held by
shareholders exercising appraisal rights pursuant to Chapter 55-13 of the NCBCA
("Dissenting Shareholders")) shall, subject to Section 2.1(d) herein, be
converted into the right to receive $26.50 in cash without interest (the "Cash
Merger Consideration"), payable to the holder thereof. Such Cash Merger
Consideration shall be paid upon surrender of the certificate formerly
representing such Share in the manner provided in Section 2.2. The Shares
converted into the right to receive the Cash Merger Consideration are
hereinafter referred to as the "Cash Merger Shares." All such Cash Merger
Shares, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any Cash Merger Shares shall cease to have any
rights with respect thereto, except the right to receive the Cash Merger
Consideration therefor upon the surrender of such certificate in accordance with
Section 2.2, without interest.
(d) Continuing Shares. Notwithstanding the provisions of
Section 2.1(c), in connection with the Merger, each holder of Shares of Common
Stock shall have the right to elect to have any or all Shares held by such
holder to remain outstanding (any Shares which so remain outstanding are herein
referred to as
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5
"Continuing Shares") and not be converted into the right to receive the Cash
Merger Consideration (subject to the upward or downward adjustment referred to
below in this Section 2.1(d)). Such election may be exercised by a holder of
Shares completing and returning to the Company by 5:00 P.M., New York City time,
on the last business day preceding the date of the Special Meeting, a form of
Continuing Share Election (the "Continuing Share Election") which shall be
mailed to holders together with the Proxy Statement and proxy. Each holder of
Shares (other than holders of Shares to be canceled as set forth in Section
2.1(b) and Dissenting Shareholders) shall have the right to specify in the
Continuing Share Election (i) the number of Shares owned by such holder that
such holder desires to have converted into the right to receive the Cash Merger
Consideration and (ii) the number of Shares owned by such holder that such
holder desires to remain outstanding as Continuing Shares and not be converted
into the right to receive the Cash Merger Consideration. If holders of Shares
elect in the aggregate to retain Continuing Shares in excess of the Maximum
Continuing Number (as hereinafter defined), then the number of Continuing Shares
to be owned by all such electing holders will be prorated based on the number of
Continuing Shares each shareholder that made a Continuing Share Election elected
to retain (with fractional Shares rounded down to the next whole number) so that
only the Maximum Continuing Number of Shares shall remain as Continuing Shares.
With respect to Shares as to which Continuing Share Elections are made but with
respect to which no Continuing Shares will be issued by reason of the preceding
sentence, such Continuing Share Elections shall be deemed revoked and
relinquished and such Shares shall be converted into the right to receive the
Cash Merger Consideration. If holders of Shares elect in the aggregate to retain
less than the Minimum Continuing Number (as hereinafter defined) of Shares, then
(i) each shareholder that made a Continuing Share Election shall retain the
number of Continuing Shares set forth in such election and (ii) each shareholder
(whether or not such shareholder made a Continuing Share Election) shall receive
a prorated (based on the total number of Shares owned by such Shareholder as to
which a Continuing Share Election has not been made) number of Continuing Shares
(with fractional Shares rounded up to the next whole number) so that the Minimum
Continuing Number of Shares shall remain outstanding as Continuing Shares. With
respect to Shares as to which no Continuing Share Election was made but which
will remain outstanding as Continuing Shares by reason of the preceding
sentence, such a Continuing Share Election shall be deemed to have been made.
The Continuing Shares shall not be converted or canceled as provided in Section
2.1(c), but the certificates representing such Shares shall be exchanged as
provided in Section 2.4(b). For the purposes of this Agreement, "Maximum
Continuing Number" shall mean 358,490 Shares (plus the number of Continuing
Shares "beneficially owned" (as defined in the Exchange Act) by the persons
listed in Section 2.1(d) to the Disclosure Schedule heretofore delivered to
Mergerco (the "Disclosure Schedule")), and "Minimum Continuing Number" shall
mean 271,698 Shares (plus the number of Continuing Shares "beneficially owned"
by the persons listed in Section 2.1(d) to the Disclosure Schedule).
(e) Adjustments. If, between the date of this Agreement and
the Effective Time, the number of outstanding Shares or the number of shares of
the
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6
Common Stock of the Company shall have been changed into a different number of
shares or a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split-up, combination, exchange of shares or
the like, the amount of the Cash Merger Consideration shall be correspondingly
adjusted.
Section 2.2 Payment of Cash Merger Consideration.
(a) Paying Agent. Mergerco shall designate a bank or trust
company to act as agent for the holders of the Cash Merger Shares in connection
with the Merger (the "Paying Agent") to receive the funds to which holders of
the Cash Merger Shares shall become entitled pursuant to Section 2.1(c). Such
funds shall be invested by the Paying Agent as directed by Mergerco or the
Surviving Corporation in direct obligations of the United States, obligations
for which the full faith and credit of the United States is pledged to provide
for the payments of principal and interest, commercial paper rated of the
highest quality by Moody's Investor Services or Standard & Poors Rating Group or
certificates of deposit, issued by commercial banks having at least $1 billion
in assets.
(b) Exchange Procedures. As soon as reasonably practicable
after the Effective Time, the Paying Agent shall mail to each holder of record
of a certificate or certificates, which immediately prior to the Effective Time
represented outstanding Cash Merger Shares (the "Certificates"), whose Shares
were converted pursuant to Section 2.1 into the right to receive the Cash Merger
Consideration (i) 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 delivery of the Certificates to the Paying Agent and shall be in such
form and have such other provisions as Mergerco and the Company may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for payment of the Cash Merger Consideration. Upon
surrender of a Certificate for cancellation to the Paying Agent or to such other
agent or agents as may be appointed by Mergerco, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor the Cash Merger Consideration for each Share
formerly represented by such Certificate and the Certificate so surrendered
shall forthwith be canceled. If payment of the Cash Merger Consideration is to
be made to a person other than the person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the person requesting such payment shall have
paid any transfer and other taxes required by reason of the payment of the Cash
Merger Consideration to a person other than the registered holder of the
Certificate surrendered or shall have established to the satisfaction of the
Surviving Corporation that such tax either has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.2, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive the Cash Merger Consideration in cash as contemplated by this Section
2.2.
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(c) No Further Ownership Rights in the Shares. At the
Effective Time, there shall be no further registration of transfers of the Cash
Merger Shares on the records of the Company. From and after the Effective Time,
the holders of Certificates evidencing ownership of the Cash Merger Shares
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such Shares, except as otherwise provided for herein or
by applicable law. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Article II.
(d) Termination of Fund; No Liability. At any time following
one year after the Effective Time, the Surviving Corporation shall be entitled
to require the Paying Agent to deliver to it any funds (including any interest
received with respect thereto) which had been made available to the Paying Agent
and which have not been disbursed to holders of Certificates, and thereafter
such holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) with respect to the Cash
Merger Consideration payable upon due surrender of their Certificates, without
any interest thereon. Notwithstanding the foregoing, neither the Surviving
Corporation nor the Paying Agent shall be liable to any holder of a Certificate
for Cash Merger Consideration delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
Section 2.3 Dissenters' Rights. Any Dissenting Shareholder which
perfects its dissenter's rights pursuant to Chapter 55-13 of the NCGCA shall
have the rights to receive payment as provided in such Chapter for its Shares.
If any Dissenting Shareholder shall fail to perfect or shall have effectively
withdrawn or lost the right to dissent, the Shares held by such Dissenting
Stockholder shall thereupon be treated as though such Shares had been converted
into the Cash Merger Consideration pursuant to Section 2.1.
Section 2.4 Exchange of Stock Certificates. (a) Immediately after the
Effective Time, the Surviving Corporation shall deliver to the record holders of
the certificates which immediately prior to the Effective Time represented all
the outstanding shares of Mergerco Common Stock that were converted into the
right to receive Shares in accordance with Section 2.1(a), in exchange for such
certificates, duly endorsed in blank, Share certificates, registered in the
names of such record holders, representing the number of Shares to which such
record holder are so entitled by virtue of Section 2.1(a).
(b) As soon as reasonably practicable after the Effective
Time, the Paying Agent shall mail to each holder of record of Continuing Shares
a letter of instructions (which shall be in such form and have such other
provisions as Mergerco and the Company may reasonably specify) instructing such
holders to transmit their certificates representing Continuing Shares to the
Paying Agent in exchange for new certificates representing such Continuing
Shares. Although certificates representing Continuing Shares which are not so
exchanged will be deemed for all purposes to
<PAGE> 14
8
represent validly issued and outstanding Continuing Shares, such certificates
will not be transferable on the books of the Company except for such new
certificates. Any holder of a certificate which represents some Shares entitled
to receive the Cash Merger Consideration and some Continuing Shares shall
receive in exchange therefor the Cash Merger Consideration for the Cash Merger
Shares pursuant to Section 2.2(b) and a new certificate for the Continuing
Shares pursuant to this Section 2.4(b).
Section 2.5 Stock Options. With respect to the Company's Amended and
Restated 1996 Omnibus Long-Term Compensation Plan, the 1990 Non-Qualified Stock
Option Plan and the 1992 Non-Qualified Stock Option Plan (collectively, the
"Stock Option Plans"), the Company shall take such action as shall be required
to effectuate the cancellation of all options under the Stock Option Plans (the
"Options") (whether or not then exercisable and without regard to the exercise
price of such Options), to take effect immediately prior to the Effective Time.
Each holder of an Option shall receive from the Company, in respect of each
Option so canceled, as soon as practicable following the Effective Time, an
amount equal to the excess, if any, of the Cash Merger Consideration over the
exercise price of such Option, multiplied by the number of Shares subject to
such Option, without any interest thereon and after deducting taxes required to
be withheld (the "Option Consideration"). Notwithstanding the foregoing, payment
may be withheld in respect of any Option until any required consent of the
holder thereof to its cancellation as contemplated hereby is obtained. The
surrender of an Option to the Company shall be deemed a release of any and all
rights the holder had or may have had in such Option, other than the right to
receive the Option Consideration in respect thereof. Notwithstanding the
foregoing, Mergerco may, by separate agreements with holders of any Options,
agree with such holders on alternate treatment of such Options.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Mergerco as follows:
Section 3.1 Organization. Except as set forth in Section 3.1 of the
Company's disclosure schedule heretofore delivered to Mergerco (the "Disclosure
Schedule"), each of the Company and its Subsidiaries (as defined below) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization and has all requisite
corporate power and authority and all necessary governmental approvals to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power, authority, and governmental approvals would not
have a material adverse effect on the Company and its Subsidiaries, taken as a
whole. As used in this Agreement, the term "Subsidiary" shall mean all
<PAGE> 15
9
corporations or other entities in which the Company or Mergerco, as the case may
be, owns a majority of the issued and outstanding capital stock or similar
interests. As used in this Agreement, any reference to any event, change or
effect being material or having a material adverse effect on or with respect to
any entity (or group of entities taken as a whole) means such event, change or
effect is materially adverse to the condition (financial or other), businesses,
assets or results of operations of such entity (or, if used with respect
thereto, of such group of entities taken as a whole). The Company and each of
its Subsidiaries is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not in the aggregate have a material adverse
effect on the Company and its Subsidiaries, taken as a whole. The Company does
not own any equity interest in any corporation or other entity other than the
Subsidiaries. Section 3.1 of the Company's Disclosure Schedule sets forth a
complete list of the Company's Subsidiaries.
Section 3.2 Capitalization. (a) The authorized capital stock of the
Company consists of 20,000,000 shares of Common Stock, (the "Company Shares")
and 2,000,000 shares of preferred stock, par value $10.00 per share (the
"Preferred Stock"). As of the date hereof, (i) 7,941,379 Shares are issued and
outstanding, (ii) no Shares are issued and held in the treasury of the Company,
(iii) no shares of Preferred Stock are issued or outstanding, (iv) 1,511,000
Shares are reserved for issuance upon exercise of outstanding Options granted
under the Stock Option Plans and (v) 150,000 Shares are reserved for issuance
upon exercise of outstanding warrants. Section 3.2 of the Company's Disclosure
Schedule sets forth the exercise price, grant date and expiration date for all
outstanding Options. All the outstanding Shares of the Company's capital stock
are, and all Shares which may be issued pursuant to the exercise of outstanding
options will be, when issued in accordance with the respective terms thereof,
duly authorized, validly issued, fully paid and non-assessable. Except as set
forth in Section 3.2 of the Disclosure Schedule there are no bonds, debentures,
notes or other indebtedness having general voting rights (or convertible into
securities having such rights) ("Voting Debt") of the Company or any of its
Subsidiaries issued and outstanding. Except as set forth above and except for
the transactions contemplated by this Agreement, as of the date hereof, (i)
there are no shares of capital stock of the Company or any of its Subsidiaries
authorized, issued or outstanding, (ii) there are no existing options, warrants,
calls, preemptive rights, subscriptions or other rights, agreements,
arrangements or commitments of any character, relating to the issued or unissued
capital stock of the Company or any of its Subsidiaries, obligating the Company
or any of its Subsidiaries to issue, transfer or sell or cause to be issued,
transferred or sold any shares of capital stock or Voting Debt of, or other
equity interest in, the Company or any of its
<PAGE> 16
10
Subsidiaries or securities convertible into or exchangeable for such shares or
equity interests, or obligating the Company or any of its Subsidiaries to grant,
extend or enter into any such option, warrant, call, subscription or other
right, agreement, arrangement or commitment, and (iii) there are no outstanding
contractual obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any Shares, or any capital stock of the Company, or
any Subsidiary or affiliate of the Company or to provide funds to make any
investment (in the form of a loan, capital contribution or otherwise) in any
Subsidiary or any other entity.
(b) All of the outstanding shares of capital stock of each of
the Subsidiaries of the Company are beneficially owned by the Company, directly
or indirectly, and all such shares have been validly issued and are fully paid
and nonassessable and are owned by either the Company or one of its Subsidiaries
free and clear of all liens, charges, claims or encumbrances.
(c) There are no voting trusts or other agreements or
understandings to which the Company or any of its Subsidiaries is a party with
respect to the voting of the capital stock of the Company or any of its
Subsidiaries.
(d) None of the Company or its Subsidiaries is required to
redeem, repurchase or otherwise acquire shares of capital stock of the Company,
or any of its Subsidiaries, respectively, as a result of the transactions
contemplated by this Agreement.
Section 3.3 Authorization; Validity of Agreement; Company Action. The
Company has full corporate power and authority to execute and deliver this
Agreement and, subject to shareholder approval, to consummate the transactions
contemplated hereby. The execution, delivery and performance by the Company of
this Agreement, and the consummation by it of the transactions contemplated
hereby, have been duly authorized by its Board of Directors and, except for
obtaining the approval of its shareholders as contemplated by Section 1.5
hereof, no other corporate action on the part of the Company is necessary to
authorize the execution and delivery by the Company of this Agreement and the
consummation by it of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by the Company and, assuming due and valid
authorization, execution and delivery hereof by Mergerco, is a valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms.
Section 3.4 Consents and Approvals; No Violations. Except for the
filings, permits, authorizations, consents and approvals as may be required as
set forth in Section 3.4 of the Company's Disclosure Schedule, and other
applicable requirements of the Exchange Act, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), state securities or blue
sky laws, and the NCBCA, neither the execution, delivery or performance of this
Agreement by the Company nor the consummation by the Company of the transactions
contemplated hereby nor compliance by the Company with any of the provisions
hereof will (i) conflict with or result in any breach of any provision of the
Articles of Incorporation or the Bylaws of the Company or of any of its
Subsidiaries, (ii) require any filing with, or permit, authorization, consent or
<PAGE> 17
11
approval of, any court, arbitral tribunal, administrative agency or commission
or other governmental or other regulatory authority or agency (a "Governmental
Entity"), (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of payment, termination, amendment, cancellation or acceleration) under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which the Company or any of its Subsidiaries is a party or by which any of
them or any of their properties or assets may be bound (the "Agreements") or
(iv) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, any of its Subsidiaries or any of their properties or
assets, excluding from the foregoing clause (iii) such violations, breaches or
defaults which would not, individually or in the aggregate, have a material
adverse effect on the Company and its Subsidiaries, taken as a whole and which
will not materially impair the ability of the Company to consummate the
transactions contemplated hereby. Except as set forth in Section 3.4 of the
Company's Disclosure Schedule, neither the Company nor any of its Subsidiaries
is a party to or otherwise bound by any contract or agreement (whether written
or oral) providing for any severance or other payment upon or following a change
of control of the Company. Section 3.4 of the Company's Disclosure Schedule
describes in reasonable detail the nature and amount of any such severance or
other payments.
Section 3.5 SEC Reports and Financial Statements. The Company has filed
with the SEC, and has heretofore made available to Mergerco true and complete
copies of, all forms, reports, schedules, statements and other documents
required to be filed by it since January 1, 1995 under the Exchange Act or the
Securities Act of 1933, as amended (the "Securities Act") (as such documents
have been amended since the time of their filing, collectively, the "Company SEC
Documents"). As of their respective dates or, if amended, as of the date of the
last such amendment, the Company SEC Documents, including, without limitation,
any financial statements or schedules included therein (a) did not contain any
untrue statement of a material fact or omit 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 and (b) complied
in all material respects with the applicable requirements of the Exchange Act
and the Securities Act, as the case may be, and the applicable rules and
regulations of the SEC thereunder. None of the Subsidiaries is required to file
any forms, reports or other documents with the SEC. The financial statements of
the Company (the "1998 Financial Statements") included in the Company's Annual
Report on Form 10K for the fiscal year ended February 1, 1998 (the "1998 10-K")
have been prepared from, and are in accordance with, the books and records of
the Company and its consolidated Subsidiaries, comply in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with United States generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position and
the consolidated results of operations and cash flows of the Company and its
consolidated Subsidiaries at the dates
<PAGE> 18
12
and for the periods covered thereby. The historical financial information
contained in the financial information attached as Section 3.5 of the Disclosure
Schedule is, to the best of the knowledge of the Company, true and correct in
all material respects.
Section 3.6 Absence of Certain Changes. Except as disclosed in Section
3.6 of the Company's Disclosure Schedule, since February 1, 1998, the Company
and its Subsidiaries have conducted their respective businesses only in the
ordinary and usual course and there has not occurred (i) any events or changes
(including the incurrence of any liabilities of any nature, whether or not
accrued, contingent or otherwise) having, individually or in the aggregate, a
material adverse effect on the Company and its Subsidiaries, taken as a whole;
(ii) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to the equity
interests of the Company or of any of its Subsidiaries; or (iii) any change by
the Company or any of its Subsidiaries in accounting principles or methods,
except insofar as may be required by a change in GAAP.
Section 3.7 No Undisclosed Liabilities. Except (a) as disclosed in the
Company SEC Documents and (b) for liabilities and obligations as set forth in
Section 3.7 of the Company Disclosure Schedule, since February 1, 1998, neither
the Company nor any of its Subsidiaries has incurred any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise, that
have, or would be reasonably likely to have, a material adverse effect on the
Company and its Subsidiaries, taken as a whole, or, subject to the foregoing
exceptions or for liabilities or obligations incurred in the ordinary course of
business and consistent with past practice, would be required by GAAP to be
reflected on a consolidated balance sheet of the Company and its Subsidiaries
(including the notes thereto).
Section 3.8 Litigation. Except as set forth in Section 3.8 of the
Company's Disclosure Schedule, none of the Company, any of its Subsidiaries and
any of their respective properties, assets, businesses, franchises, or
governmental approvals, is subject to any pending, or, to the knowledge of the
Company, threatened, legal action, suit, arbitration or other legal or
administrative proceeding or outstanding order, writ, injunction or decree
which, insofar as can be reasonably foreseen after due inquiry, in the future
would have, individually or in the aggregate, a material adverse effect on the
Company and its Subsidiaries, taken as a whole, or a material adverse effect on
the ability of the Company to consummate the transactions contemplated hereby.
Section 3.9 Employee Benefit Plans; ERISA.
(a) Section 3.9 of the Company's Disclosure Schedule sets
forth a list of all material employee benefit plans, arrangements, contracts or
agreements (including, but not limited to, employment agreements, severance
agreements, executive compensation arrangements, equity arrangements, incentive
plans, bonus plans, deferred compensation agreements, health, accident, vacation
or other fringe benefit plans) of any
<PAGE> 19
13
type (including but not limited to plans described in section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
maintained by the Company, any of its Subsidiaries or any trade or business,
whether or not incorporated (an "ERISA Affiliate"), which together with the
Company would be under "common control" within the meaning of section
4001(a)(14) of ERISA ("Benefit Plans"). Neither the Company nor any ERISA
Affiliate has any formal plan or commitment, whether legally binding or not, to
create any additional Benefit Plan or modify or change any existing Benefit Plan
that would affect any employee or terminated employee of the Company or any
Subsidiary.
(b) With respect to each Benefit Plan: (i) if intended to
qualify under section 401(a), 401(k) or 403(a) of the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated thereunder (the
"Code"), the United States Internal Revenue Service (the "Service") has issued a
favorable letter of determination on such qualified status and on the exempt
status under section 501(a) of the Code and since such letter of determination
no event has occurred that would disqualify such plan; (ii) such plan has been
administered in all material respects in accordance with its terms and
applicable law; (iii) no breaches of fiduciary duty have occurred which might
reasonably be expected to give rise to material liability on the part of the
Company; (iv) no disputes are pending, or, to the knowledge of the Company,
threatened that might reasonably be expected to give rise to material liability
on the part of the Company; (v) no prohibited transaction (within the meaning of
Section 406 of ERISA) has occurred that might reasonably be expected to give
rise to material liability on the part of the Company; (vi) all contributions
and premiums due as of the date hereof (taking into account any extensions for
such contributions and premiums) have been made in full; and (vii) all reports
required to be filed with respect to such Benefit Plan have been properly,
accurately and timely filed.
(c) Neither the Company nor any ERISA Affiliate (a) has
incurred, or reasonably expects to incur, an accumulated funding deficiency, as
defined in the Code and ERISA or (b) has any material liability under Title IV
of ERISA with respect to any Benefit Plan that is subject to Title IV of ERISA.
(d) With respect to each Benefit Plan that is a "welfare plan"
(as defined in section 3(1) of ERISA), no such plan provides medical or death
benefits with respect to current or former employees of the Company or any of
its Subsidiaries beyond their termination of employment, other than on an
employee-pay-all basis.
(e) Except as contemplated by Section 2.5, the consummation of
the transactions contemplated by this Agreement will not (i) entitle any
individual to severance pay or accelerate the time of payment or vesting, or
increase the amount, of compensation or benefits due to any individual, (ii)
constitute or result in a prohibited transaction under section 4975 of the Code
or section 406 or 407 of ERISA or (iii) subject the Company, any of its
Subsidiaries, any ERISA Affiliate, any of the Benefit Plans, any
<PAGE> 20
14
related trust, any trustee or administrator of any thereof, or any party dealing
with the Benefit Plans or any such trust to either a civil penalty assessed
pursuant to section 409 or 502(i) of ERISA or a tax imposed pursuant to section
4976 or 4980B of the Code.
(f) There is no arrangement under any Benefit Plan that would
result in the payment of any amount that by operation of section 280G or 162(m)
of the Code would not be deductible by the Company or any of the Subsidiaries.
(g) There are no unfunded obligations under any Benefit Plan
except to the extent of reserves therefor shown in the Company SEC Documents.
(h) No employees of the Company or any of its Subsidiaries who
earn annual compensation in 1998 in excess of $50,000 have threatened to
terminate or are reasonably expected to terminate, their employment prior to or
after the Effective Time.
(i) Neither the Company nor any ERISA Affiliate has at any
time within the preceding six years been obligated to contribute to any Benefit
Plan that is a "multiemployer plan," as such term is defined in section 3(37) of
ERISA.
(j) With respect to each Benefit Plan, the Company has made
available to Mergerco or its representatives accurate and complete copies of all
plan texts, summary plan descriptions, summary of material modifications, trust
agreements and other related agreements including all amendments to the
foregoing; the most recent annual report; the most recent annual and periodic
accounting of plan assets; the most recent determination letter received from
the Service; and the most recent actuarial valuation, to the extent any of the
foregoing may be applicable to a particular Benefit Plan.
Section 3.10 Information in Proxy Statement. The information contained
in the Proxy Statement and the Schedule 13E-3, any amendment or supplement
thereto or any other documents filed with the SEC by the Company in connection
with the Merger, when filed with the SEC and, in case of the Proxy Statement,
when mailed to Company shareholders and at the time of the Special Meeting
(except for information supplied by Mergerco specifically for inclusion or
incorporation by reference therein, as to which no representation by the Company
is made), will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
Section 3.11 No Default; Compliance with Applicable Laws. The business
of the Company and each of its Subsidiaries is not being conducted in default or
violation of any term, condition or provision of (i) its respective Articles of
Incorporation or Bylaws, or (ii) any federal, state, local or foreign statute,
law, ordinance, rule,
<PAGE> 21
15
regulation, judgment, decree, order, concession, grant, franchise, permit or
license or other governmental authorization or approval applicable to the
Company or any of its Subsidiaries, excluding from the foregoing clause (ii),
defaults or violations which would not, individually or in the aggregate, have a
material adverse effect on the Company and its Subsidiaries, taken as a whole.
Except as disclosed in Section 3.11 of the Company's Disclosure Schedule, as of
the date of this Agreement, no claim or, to the best knowledge of the Company,
investigation or review by any Governmental Entity or other entity with respect
to the Company or any of its Subsidiaries is pending or, to the best knowledge
of the Company, threatened nor to the best knowledge of the Company has any
Governmental Entity or other entity indicated an intention to assert or conduct
the same, other than, in each case, those the outcome of which, as far as
reasonably can be foreseen after due inquiry, in the future will not,
individually or in the aggregate have a material adverse effect on the Company
and its Subsidiaries, taken as a whole.
Section 3.12 Licenses; Intellectual Property. Section 3.12 of the
Company's Disclosure Schedule sets forth a list of all registered and material
unregistered Intellectual Property (as defined below) owned by the Company and
used in the conduct of its business and all agreements granting any right to use
or practice any right relating to the Intellectual Property (as defined below)
currently used in the conduct of the Company's business (the "Licenses"). Except
as set forth in Section 3.12 of the Company's Disclosure Schedule, (i) the
Company or its Subsidiaries is the sole owner of all of its rights under the
Licenses free and clear of any liens, claims, encumbrances or interests; (ii)
the Company or its Subsidiaries is the sole owner of, or has a valid right to
use pursuant to a License, all patents and patent applications; registered and
unregistered trademarks, service marks, trade names, trade dress, logos, company
names and other source or business identifiers, including all goodwill
associated therewith; the names, likenesses and other attributes of individuals;
registered and unregistered copyrights, computer programs and databases; trade
secrets, inventions, discoveries, proprietary technology, know-how, industrial
designs, customer lists and other confidential information ("Trade Secrets");
any pending applications for any of the foregoing (collectively, the
"Intellectual Property") currently used in the conduct of the Company's
business, free and clear of any liens, claims, encumbrances or interests; (iii)
to the Company's best knowledge the present or past operations of the Company or
the Subsidiaries does not infringe upon, violate, interfere or conflict with the
rights of others with respect to any Intellectual Property and no claim is
pending or, to the Company's best knowledge, threatened, to this effect; (iv)
none of the Intellectual Property currently used is invalid or unenforceable, or
has not been used or enforced or has failed to be used or enforced in a manner
that would result in the abandonment, cancellation or unenforceability of any of
the Intellectual Property and no claim is pending or, to the Company's best
knowledge, threatened, to this effect; (v) no License provision or any other
contract, agreement or understanding to which the Company or any Subsidiary is a
party would prevent the continued use by the Company or the Subsidiaries (as
currently used by the Company or its Subsidiaries) of any Intellectual Property
following the consummation of the transactions contemplated hereby; (vi) to the
Company's best
<PAGE> 22
16
knowledge, no person is infringing upon or otherwise violating any Intellectual
Property or License; (vii) there are no claims pending or, to the Company's best
knowledge, threatened in connection with any License; and (viii) to the
Company's best knowledge, no Trade Secret has been disclosed by the Company or
its Subsidiaries to any third party except subject to an appropriate
confidentiality agreement or as required by a governmental authority.
Section 3.13 Taxes. (a) Except as set forth in Section 3.13 of the
Company's Disclosure Schedule:
(i) the Company and its Subsidiaries have (w) duly filed (or
there have been filed on their behalf) with the Service all United
States federal income Tax Returns (as hereinafter defined) required to
be filed by them on or prior to the date hereof, such Tax Returns are
true, correct and complete in all material respects (or the financial
statements contain an adequate charge, accrual or reserve for taxes in
respect of such tax returns), and all Taxes (as hereinafter defined)
shown on such Tax Returns have been duly paid, (x) duly filed (or there
have been filed on their behalf) with the appropriate governmental
authorities all other Tax Returns required to be filed by them on or
prior to the date hereof, other than any filings which the failure to
make in a timely manner would not, whether singly or in the aggregate,
have a material adverse effect on the Company and its Subsidiaries
taken as a whole, such Tax Returns are true, correct and complete in
all material respects (or the financial statements contain an adequate
charge, accrual or reserve for taxes in respect of such tax returns),
and all Taxes shown on such Tax Returns and all other Taxes due or
claimed to be due, whether by proposed assessment or otherwise, by any
governmental authority have been duly paid, except for such Taxes, if
any, as are being contested in good faith and as to which adequate
reserves have been provided in accordance with GAAP and (y) duly made
provision in accordance with GAAP for all Taxes for all periods for
which Tax Returns have not yet been filed or with respect to which
Taxes are not yet due;
(ii) there are no liens for Taxes upon any property or assets
of the Company or any Subsidiary thereof, except for liens for Taxes
not yet due;
(iii) neither the Company nor any of its Subsidiaries has made
any change in accounting methods, there is no application pending with
any taxing authority requesting permission for any change in any
accounting method of any of the Company or its Subsidiaries and no
taxing authority has proposed any adjustment or change in accounting
method, and neither the Company nor any of its Subsidiaries has
received a ruling from any taxing authority or signed an agreement
likely to have a material adverse effect on the Company and its
Subsidiaries, taken as a whole;
<PAGE> 23
17
(iv) the Company and its Subsidiaries have complied in all
respects with all applicable laws, rules and regulations relating to
the payment and withholding of Taxes (including, without limitation,
withholding of Taxes pursuant to Sections 1441 and 1442 of the Code or
similar provisions under any foreign laws) and have, within the time
and the manner prescribed by law, withheld from employee wages and
other compensation and paid over to the proper governmental authorities
all amounts required to be so withheld and paid over under applicable
laws;
(v) no federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently pending
with regard to any Taxes or Tax Returns of the Company or its
Subsidiaries and neither the Company nor its Subsidiaries has received
notice that such an audit or proceedings may be commenced;
(vi) the Federal Income Tax Returns of or with respect to each
of the Company and its Subsidiaries have been examined by the Service
(or the applicable statutes of limitation for the assessment of Taxes
for such periods have expired) for all periods through and including
January 31, 1994 (except for the returns of American Studios, Inc.,
which have been examined through December 31, 1991), and no
deficiencies were asserted as a result of such examinations which have
not been resolved and fully paid;
(vii) there are no outstanding requests, agreements, consents
or waivers to extend the statutory period of limitations applicable to
the assessment or collection of any Taxes or deficiencies against the
Company or any of its Subsidiaries, and no power of attorney granted by
either the Company or any of its Subsidiaries with respect to any Taxes
is currently in force;
(viii) neither the Company nor any of its Subsidiaries is a
party to, is bound by or has any obligation under any agreement
providing for the allocation or sharing of Taxes and neither the
Company nor any of its Subsidiaries has any liability for Taxes of any
person or entity other than the Company and its Subsidiaries;
(ix) neither the Company nor its Subsidiaries is a party to
any agreement, contract or arrangement that could result, separately or
in the aggregate, in the payment of any "excess parachute payments"
within the meaning of Section 280G of the Code, and none of the actions
contemplated or permitted by this Agreement will result in any such
payments;
(x) neither the Company nor any of its Subsidiaries has, with
regard to any assets or property held, acquired or to be acquired by
any of them, filed a consent to the application of Section 341(f) of
the Code, or agreed to
<PAGE> 24
18
have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of
the Code);
(xi) the deductibility of compensation by the Company and/or
its Subsidiaries will not be limited by Section 162(m) of the Code;
(xii) all transactions that could give rise to an
understatement of the federal income tax liability of the Company or
any of its Subsidiaries within the meaning of Section 6662(d) of the
Code are adequately disclosed on Tax Returns in accordance with Section
6662(d)(2)(B) of the Code if there is or was no substantial authority
for the treatment giving rise to such understatement;
(xiii) no closing agreement that could affect the Taxes of the
Company or any of its Subsidiaries for periods ending after the Closing
Date pursuant to Section 7121 of the Code or any similar provision of
any state, local or foreign law has been entered into by or with
respect to any of the Company or its Subsidiaries;
(xiv) no currently effective Federal Income Tax elections have
been made or filed by or with respect to the Company or any of its
Subsidiaries;
(xv) none of the assets of the Company or any of its
Subsidiaries are assets or property that are or will be required to be
treated as being: (a) owned by another person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954
(as in effect immediately before the enactment of the Tax Reform Act of
1986); (b) "tax-exempt use property" within the meaning of Section
168(h)(1) of the Code; (c) property used predominantly outside the
United States within the meaning of Proposed Treasury Regulation
Section 1.168-2(g)(5) or (d) "tax-exempt bond financed property" within
the meaning of Section 168(g)(5) of the Code; and
(xvi) all adjustments to Federal taxable income required to
have been reported to any state or local taxing authority have been so
reported.
(b) The net operating loss and credit carryovers available to
the Company and its Subsidiaries are set forth in Section 3.13 of the Company's
Disclosure Schedule. Except as set forth in Section 3.13 of the Company's
Disclosure Schedule, as of the date of this Agreement, the net loss and credit
carryovers are not subject to limitations imposed by Sections 382, 383 or 384 of
the Code (or any predecessor thereto), the consolidated return regulations or
otherwise.
<PAGE> 25
19
(c) "Taxes" shall mean any and all taxes, charges, fees,
levies or other assessments, including, without limitation, income, gross
receipts, estimated, excise, real or personal property, sales, withholding,
social security, occupation, use, service, license, net worth, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the
Service or any taxing authority (whether domestic or foreign including, without
limitation, any state, county, local or foreign government or any subdivision or
taxing agency thereof (including a United States possession)), whether computed
on a separate, consolidated, unitary, combined or any other basis; and such term
shall include any interest whether paid or received, fines, penalties or
additional amounts attributable to, or imposed upon, or with respect to, any
such taxes, charges, fees, levies or other assessments. "Tax Return" shall mean
any report, return, document, declaration or other information or filing
required to be supplied to any taxing authority or Jurisdiction (foreign or
domestic) with respect to Taxes, including, without limitation, information
returns, any documents with respect to or accompanying payments of estimated
Taxes, or with respect to or accompanying requests for the extension of time in
which to file any such report, return, document, declaration or other
information.
Section 3.14 Insurance. As of the date hereof, the Company and each of
its Subsidiaries are insured by insurers of recognized financial responsibility
and solvency, against such losses and risks and in such amounts as are customary
in the businesses in which they are engaged. All material policies of insurance
and fidelity or surety bonds insuring the Company or any of its Subsidiaries or
their respective businesses, assets, employees, officers and directors have
previously been made available for inspection by Mergerco and are in full force
and effect. Section 3.14 of the Company's Disclosure Schedule describes all
self-insurance arrangements affecting the Company or any Subsidiary and the
aggregate amount of all claims made under such arrangements since January 1,
1994. As of the date hereof, there are no material claims by the Company or any
Subsidiary under any such policy or instrument as to which any insurance company
is denying liability or defending under a reservation of rights clause. To the
Company's best knowledge, all necessary notifications of claims have been made
to insurance carriers other than those which will not have a material adverse
effect on the Company and its Subsidiaries, taken as a whole.
Section 3.15 Contracts. Each Agreement (as defined in Section 3.4) is
legally valid and binding against the Company or its Subsidiaries and, to the
Company's best knowledge, each other party thereto and in full force and effect,
except where failure to be legally valid and binding and in full force and
effect would not, individually or in the aggregate, have a material adverse
effect on the Company and its Subsidiaries, taken as a whole, and there are no
material defaults thereunder by the Company or its Subsidiaries and, to the
Company's best knowledge, any other party thereto, except those defaults that
would not have a material adverse effect on the Company and its Subsidiaries,
taken as a whole. The Company has previously made available for inspection by
Mergerco or its representatives all material Agreements. Each of the Agreements
set forth on section 3.15 of the Company's Disclosure Schedule (the
<PAGE> 26
20
"Material Agreements") is legally valid and binding against the Company or its
Subsidiaries and, to the Company's best knowledge, each other party thereto and
in full force and effect, and there are no material defaults thereunder by the
Company or its Subsidiaries and, to the Company's best knowledge, any other
party thereto. The Company has delivered to Mergerco true and complete copies of
all Material Agreements. (a) No party to any of the Material Agreements within
the last twelve months has threatened to modify, cancel or otherwise terminate,
or to the Company's best knowledge, intends to modify, cancel or otherwise
terminate, any of the Material Agreements or the relationship evidenced thereby
and (b) no such party has during the last twelve months materially limited or,
to the Company's best knowledge, intends to materially limit the services or
supplies provided by it to the Company or any of its Subsidiaries, or by the
Company or any of its Subsidiaries to it.
Section 3.16 Related Party Transactions. Except as set forth in Section
3.16 of the Company's Disclosure Schedule or in the Company SEC Reports, no
director, officer, partner, employee, "affiliate" or "associate" (as such terms
are defined in Rule 12b-2 under the Exchange Act) of the Company or any of its
Subsidiaries (i) has borrowed money from or has outstanding any indebtedness or
other similar obligations to the Company or any of its Subsidiaries; (ii) to the
best knowledge of the Company, owns any direct or indirect interest of any kind
in, or is a director, officer, employee, affiliate or associate of, or
consultant or lender to, or borrower from, or has the right to participate in
the management, operations or profits of, any person or entity which is (x) a
competitor, supplier, customer, distributor, lessor, tenant, creditor or debtor
of the Company or any of its Subsidiaries, (y) engaged in a business related to
the business of the Company or any of its Subsidiaries or (z) participating in
any transaction to which the Company or any of its Subsidiaries is a party or
(iii) is otherwise a party to any contract, arrangement or understanding with
the Company or any of its Subsidiaries.
Section 3.17 Real Property.
(a) The Company is the owner of good, marketable and insurable
fee title to the parcels of land described in Section 3.17 of the Company's
Disclosure Schedule and to all of the buildings and other improvements located
thereon (collectively, the "Owned Real Property") free and clear of all Title
Defects (as hereinafter defined) except for the matters listed in Section 3.17
of the Company's Disclosure Schedule or encumbrances that do not, individually
or in the aggregate (i) interfere in any material respect with the use and
occupancy of the Owned Real Property as currently used and occupied or (ii)
materially reduce the fair market value of the Owned Real Property below the
fair market value the Owned Real Property would have had but for such
encumbrances. The Owned Real Property constitutes all of the real property owned
by the Company on the date hereof. As used in this Agreement, "Title Defects"
shall mean and include any mortgage, deed of trust, lien, pledge, security
interest, claim, lease, option, right of first refusal, easement, restrictive
covenant,
<PAGE> 27
21
encroachment or other survey defect, encumbrance or other restriction or
limitation whatsoever.
(b) The Company does not own or hold, and is not obligated
under or a party to, any option, right of first refusal or other contractual
right to purchase, acquire, sell or dispose of the Owned Real Property or any
portion thereof or any other real property, or interest therein.
(c) The Owned Real Property is in full compliance with all
applicable building, zoning, subdivision, environmental and other land use and
similar laws, codes, regulations and orders of governmental authorities, except
where the failure to be in such compliance will not have a material adverse
effect on the Company and its Subsidiaries, taken as a whole.
(d) The Company has not received notice and has no knowledge
of any pending, threatened or contemplated condemnation proceeding affecting the
Owned Real Property or any part thereof or of any sale or other disposi tion of
the Owned Real Property or any part thereof in lieu of condemnation.
Section 3.18 Vote Required. The affirmative vote of the holders of a
majority of the outstanding Shares is the only vote of the holders of any class
or series of the Company's capital stock necessary to approve the Merger, this
Agreement and the transactions contemplated thereby and hereby.
Section 3.19 Environmental Matters. Except as set forth on Section 3.19
of the Company's Disclosure Schedule, the Company (a) is and has been for the
past five years in compliance in all material respects with all applicable
Safety and Environmental Laws; (b) there is no Environmental Claim pending, or,
to the knowledge of the Company, threatened, against the Company, and there is
no civil, criminal or administrative judgment, order or notice of violation
extant against the Company pursuant to Safety and Environmental Laws or
principles of common law relating to pollution, protection of the Environment or
health and safety; and (c) there are no past or present events, conditions,
circumstances, activities, practices, incidents, agreements, actions or plans
which may prevent material compliance by the Company with Environmental Laws, or
which have given rise to, or which are reasonably likely to give rise to, an
Environmental Claim or to Environmental Compliance Costs in which the liability
to the Company is reasonably likely to exceed $100,000. For purposes of this
Section 3.19:
(a) "Environment" means navigable waters, waters of the
contiguous zone, ocean waters, natural resources, surface waters, ground water,
drinking water supply, land surface, subsurface strata, ambient air, both inside
and outside of buildings and structures, man-made buildings and structures, and
plant and animal life on earth;
<PAGE> 28
22
(b) "Environment Claims" means any notification, whether
direct or indirect, formal or informal, written or oral, pursuant to Safety and
Environmental Laws or principles of common law relating to pollution, protection
of the Environment or health and safety, that any of the current or past
operations of the Company or any of its Subsidiaries, or any by-product thereof,
or any of the property currently or formerly owned, leased or operated by the
Company or any of its Subsidiaries, or the operations or property of any
predecessor of the Company or any of its Subsidiaries is or may be implicated in
or subject to any claim, order, demand, hearing, notice, lawsuit, agreement or
evaluation by any Governmental Entity or any other person;
(c) "Environmental Compliance Costs" means any expenditures,
costs, assessments or expenses (including any expenditures, costs, assessments
or expenses in connection with the conduct of any Remedial Action, as well as
reasonable fees, disbursements and expenses of attorneys, experts, personnel and
consultants), whether direct or indirect, necessary to cause the operations,
real property, assets, equipment or facilities owned, leased, operated or used
by the Company or any of its Subsidiaries to be in compliance with any and all
requirements, as in effect at the Closing Date, of Safety and Environmental
Laws, principles of common law concerning pollution, protection of the
Environment or health and safety, or permits issued pursuant to Safety and
Environmental Laws; provided, however, that Environmental Compliance Costs do
not include expenditures, costs, assessments or expenses necessary in connection
with normal maintenance of such real property, assets, equipment or facilities
or the replacement of equipment in the normal course of events due to ordinary
wear and tear;
(d) "Hazardous Substance" means any toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste, industrial substance or waste, petroleum or petroleum-derived substance
or waste, radioactive substance or waste, or any constituent of any such
substance or waste, or any other substance regulated under or defined by any
Safety and Environmental Law;
(e) "Release" means any release, spill, emission, leaking,
pumping, injection, deposit, discharge, dispersal, leaching or migration into or
through the indoor or outdoor Environment or into, through or out of any
property, including the movement of Hazardous Substances through or in the air,
soil, surface water, ground water or property;
(f) "Remedial Action" means all actions, whether voluntary or
involuntary, reasonably necessary to comply with, or discharge any obligation
under, Safety and Environmental Laws to (i) clean up, remove, treat, cover or in
any other way adjust Hazardous Substances in the indoor or outdoor Environment;
(ii) prevent or control the Release of Hazardous Substances so that they do not
migrate or endanger or threaten to endanger public health or welfare or the
Environment; or (iii) perform
<PAGE> 29
23
remedial studies, investigations, restoration and post-remedial studies,
investigations and monitoring on, about or in any real property;
(g) "Safety and Environmental Claim" means any claims based
upon, arising out of or otherwise in respect of any inaccuracy in or any breach
of any representation or warranty of the Sellers contained in this Agreement or
in any Document delivered pursuant to this Agreement related to Safety and
Environmental Laws; and
(h) "Safety and Environmental Law" means all laws, statutes,
codes, ordinances, regulations or other requirements and orders, judgments,
awards, decrees or writs relating to pollution, protection of the Environment,
public or worker health and safety, or the emission, discharge, release or
threatened release of Hazardous Substances into the Environment or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances.
Section 3.20 Year 2000. The Company has developed and implemented a
program to address, on a timely basis, the "Year 2000 Problem" (that is, the
risk that computer applications used by the Company may be unable to recognize
and perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999) and reasonably anticipates that it will,
on a timely basis, successfully resolve the Year 2000 Problem for all material
computer applications used by the Company.
Section 3.21 Fairness Opinion. The Company has received a fairness
opinion from Needham & Company in the form attached as Section 3.21 to the
Disclosure Schedule.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
MERGERCO
Mergerco represents and warrants to the Company as follows:
Section 4.1 Organization. Mergerco is a corporation duly organized,
validly existing and in good standing under the laws of North Carolina and has
all requisite corporate or other power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority, and
governmental approvals would not have a material adverse effect on Mergerco.
Mergerco is duly qualified or licensed to do business and in good standing in
each jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
<PAGE> 30
24
necessary, except where the failure to be so duly qualified or licensed and in
good standing would not, in the aggregate, have a material adverse effect on
Mergerco.
Section 4.2 Capitalization. The authorized capital stock of Mergerco
will, immediately prior to the Effective Time, consist of (i) 10,000,000 shares
of Mergerco Common Stock, of which there will be 1,905,661 shares outstanding.
All outstanding shares of capital stock of Mergerco will at such time be duly
authorized and validly issued and fully paid and nonassessable. As soon as
practicable after the Effective Time, the Company shall issue to Jupiter
Partners II L.P. ("Jupiter"), and Jupiter shall purchase from the Company, for
cash consideration of $26.50 per share, a number of Shares of the Company equal
to (i) the amount, if any, of equity provided by Jupiter to Mergerco or the
Company pursuant to Section 4.7(a) in excess of $50,500,000, divided by (ii)
$26.50.
Section 4.3 Authorization; Validity of Agreement; Necessary Action.
Mergerco has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance by Mergerco of this Agreement, and the consummation of
the Merger and of the transactions contemplated hereby have been duly authorized
by the Board of Directors of Mergerco and by the sole stockholder of Mergerco
and no other corporate action on the part of Mergerco is necessary to authorize
the execution and delivery by Mergerco of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by Mergerco, as the case may be, and, assuming due and valid
authorization, execution and delivery hereof by the Company, is a valid and
binding obligation of Mergerco, as the case may be, enforceable against it in
accordance with its terms.
Section 4.4 Consents and Approvals: No Violation. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the HSR Act, state
securities or blue sky laws and the NCBCA, neither the execution, delivery or
performance of this Agreement by Mergerco nor the consummation by Mergerco of
the transactions contemplated hereby nor compliance by Mergerco with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of the articles of incorporation or by-laws of Mergerco, (ii) require
any filing with, or permit, authorization, consent or approval of, any
Governmental Entity, (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which Mergerco is a
party or by which it or any of its properties or assets may be bound or (iv)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Mergerco or any of its properties or assets, excluding from the
foregoing clause (iii) such violations, breaches or defaults which would not,
individually or in the aggregate, have a material adverse effect on Mergerco
<PAGE> 31
25
and will not materially impair the ability of Mergerco to consummate the
transactions contemplated hereby.
Section 4.5 Information in Proxy Statement. None of the information
supplied by Mergerco specifically for inclusion or incorporation by reference in
the Proxy Statement will, at the date mailed to shareholders and at the time of
the Special Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
Section 4.6 Litigation. Mergerco is not subject to any outstanding
order, writ, injunction or decree which, insofar as can be reasonably foreseen
after due inquiry, would have a material adverse effect on the ability of
Mergerco to consummate the transactions contemplated hereby.
Section 4.7 Financing Commitment. (a) Jupiter will provide to Mergerco
not less than $50.5 million and not more than $54.3 million (including the
amount to purchase additional Shares pursuant to Section 4.2 herein) in equity
to consummate the Merger, pay the Cash Merger Consideration and pay the related
transaction expenses.
(b) Jupiter has entered into commitment letters (the "Commitment
Letters") for $127 million in senior debt financing and for $100 million of
senior subordinated debt financing (collectively, the "Financing"). Such
Financing, together with the amount referred to in paragraph (a) above, is
adequate to pay in full in cash at closing the Cash Merger Consideration,
together with all fees and expenses of Mergerco associated with the transactions
contemplated hereby, and to make any other payments necessary to consummate the
transactions contemplated hereby, including refinancing any debt required to be
refinanced. True and correct copies of the Commitment Letters have been
furnished to the Company. Neither Mergerco, Jupiter nor their affiliates will
terminate, amend or modify in any respect the Commitment Letters or in a manner
which will adversely affect the probability that such financing will be actually
funded, or the timing thereof, without the prior written consent of the Company.
Jupiter has fully paid any and all commitment fees or other fees required by
such Commitment Letters to be paid as of the date hereof (and will duly pay any
such fees due after the date hereof). The Commitment Letters are valid and in
full force and effect and no event has occurred which (with or without notice,
lapse of time or both) would constitute a default on the part of Jupiter or
Mergerco thereunder.
Section 4.8 Fraudulent Conveyance. Assuming the accuracy of the
representations and warranties of the Company in this Agreement, Mergerco has no
reason to believe that the financing to be provided to effect the Merger will
cause (i) the fair salable value of the Surviving Corporation's assets to be
less than the total amount of its existing liabilities, (ii) the fair salable
value of the assets of the Surviving Corporation
<PAGE> 32
26
to be less than the amount that will be required to pay its probable liabilities
on its existing debts as they mature, (iii) the Surviving Corporation not to be
able to pay its existing debts as they mature or (iv) the Surviving Corporation
to have an unreasonably small capital with which to engage in its business.
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company. The Company
covenants and agrees that, except (i) as expressly contemplated by this
Agreement, (ii) as set forth in Section 5.1 of the Company's Disclosure Schedule
or (iii) as agreed in writing by Mergerco, after the date hereof, and prior to
the Effective Time:
(a) the business of the Company and its Subsidiaries
shall be conducted only in the ordinary and usual course and, to the extent
consistent therewith, each of the Company and its Subsidiaries shall use its
commercially reasonable best efforts to preserve its business organization
intact and maintain its existing relations with material customers and
suppliers, key employees, material creditors and business partners (including,
without limitation, those party to the Material Agreements);
(b) the Company will not, directly or indirectly, (i)
sell, transfer or pledge or agree to sell, transfer or pledge any of the Shares,
Preferred Stock, or capital stock of it or of any of its Subsidiaries
beneficially owned by it; (ii) amend its Articles of Incorporation or Bylaws or
similar organizational documents; or (iii) split, combine or reclassify the
outstanding Shares or Preferred Stock, or any outstanding capital stock of any
of the Subsidiaries of the Company;
(c) neither the Company nor any of its Subsidiaries
shall: (i) declare, set aside or pay any dividend or other distribution payable
in cash, stock or property with respect to its capital stock; (ii) issue, sell,
pledge, dispose of or encumber any additional shares of, or securities
convertible into or exchangeable for, or options, warrants, calls, commitments
or rights of any kind to acquire any shares of, capital stock of any class of
the Company or its Subsidiaries, other than shares reserved for issuance on the
date hereof pursuant to the exercise of Options outstanding on the date hereof;
(iii) transfer, lease, license, sell, mortgage, pledge, dispose of, or encumber
any material assets other than in the ordinary and usual course of business and
consistent with past practice, or incur or modify any material indebtedness or
other liability; or (iv) redeem, purchase or otherwise acquire directly or
indirectly any of its capital stock;
(d) neither the Company nor any of its Subsidiaries
shall: (i) grant any increase in the compensation payable or to become payable
by the Company or any of its Subsidiaries to any of its executive officers or
key employees; (ii) (A) adopt
<PAGE> 33
27
any new, or (B) amend or otherwise increase, or accelerate the payment or
vesting of the amounts payable or to become payable under any existing, bonus,
incentive compensation, deferred compensation, severance, profit sharing, stock
option, stock purchase, insurance, pension, retirement or other employee benefit
plan agreement or arrangement; or (iii) enter into any employment or severance
agreement with or, except in accordance with the existing written policies of
the Company, grant any severance or termination pay to, any officer, director or
employee of the Company or any its Subsidiaries;
(e) neither the Company nor any of its Subsidiaries
shall modify, amend or terminate any of its material Agreements or waive,
release or assign any material rights or claims thereunder;
(f) neither the Company nor any of its Subsidiaries
shall permit any material insurance policy naming it as a beneficiary or a loss
payable payee to be canceled or terminated without notice to Mergerco, and the
Company shall use its reasonable commercial best efforts to maintain all such
policies;
(g) neither the Company nor any of its Subsidiaries
shall: (i) incur or assume any long-term debt or any short-term indebtedness
other than normal borrowings under the Company's existing revolving credit
facility; (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person, except in the ordinary course of business and consistent with
past practice; (iii) make any loans, advances or capital contributions to, or
investments in, any other person (other than to wholly owned Subsidiaries of the
Company or customary expense advances to employees in accordance with past
practice); or (iv) enter into any material commitment or transaction (including,
but not limited to, any material borrowing, capital expenditure or purchase,
sale or lease of assets or real estate);
(h) neither the Company nor any of its Subsidiaries
shall change any of the accounting methods used by it unless required by GAAP;
(i) neither the Company nor any of its Subsidiaries
shall pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction of any such claims, liabilities or
obligations reflected or reserved against in, or contemplated by, the
consolidated financial statements (or the notes thereto) of the Company and its
consolidated Subsidiaries or those incurred in the ordinary course of business
subsequent to the date of such financial statements;
(j) neither the Company nor any of its Subsidiaries
will adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring,
<PAGE> 34
28
recapitalization or other reorganization of the Company or any of its
Subsidiaries (other than the Merger);
(k) neither the Company nor any of its Subsidiaries
will take, or agree to commit to take, any action that would make any
representation or warranty of the Company contained herein, in the case of any
representation or warranty not qualified by materiality, materially inaccurate
or, in the case of any other representation or warranty, inaccurate in any
respect at, or as of any time prior to, the Effective Time in each case without
regard to any knowledge qualification; and
(l) neither the Company nor any of its Subsidiaries
will enter into an agreement, contract, commitment or arrangement to do any of
the foregoing, or to authorize, recommend, propose or announce an intention to
do any of the foregoing.
Section 5.2 Access; Confidentiality. Upon reasonable notice,
the Company shall (and shall cause each of its Subsidiaries to) afford to the
officers, employees, accountants, counsel, financing sources and other
representatives of Mergerco, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, the Company shall (and shall
cause each of its Subsidiaries to) furnish promptly to Mergerco (a) a copy of
each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of federal
securities laws, (b) all interim management reports, financial statements or
similar documents or information prepared by the Company, and (c) all other
information concerning its business, properties and personnel as Mergerco may
reasonably request. Unless otherwise required by law and until the Effective
Time, Mergerco will hold and will cause any Representative, as defined in the
Confidentiality Agreement, dated April 18, 1997 between the Company and Mergerco
to hold any such information which is nonpublic in confidence pursuant to the
terms of such Confidentiality Agreement.
Section 5.3 Consents and Approvals. (a) Each of the Company
and Mergerco will take all reasonable actions necessary to comply promptly with
all legal requirements which may be imposed on it with respect to this Agreement
and the transactions contemplated hereby (which actions shall include, without
limitation, furnishing all information required under the HSR Act and in
connection with approvals of or filings with any other Governmental Entity) and
will promptly cooperate with and furnish information (except that Mergerco shall
have no obligation to share any information filed by it under the HSR Act with
the Company other than information relating to its businesses in industries
within the same SIC codes as the Company) to each other in connection with any
such requirements imposed upon any of them or any of their Subsidiaries in
connection with this Agreement and the transactions contemplated hereby. Each of
the Company and Mergerco will, and will cause its Subsidiaries to, take all
reasonable actions necessary to obtain (and will cooperate with each other in
obtaining) any consent, authorization, order or approval of, or any exemption
by, any Governmental
<PAGE> 35
29
Entity or other public or private third party required to be obtained or made by
Mergerco, the Company or any of their Subsidiaries in connection with the Merger
or the taking of any action contemplated thereby or by this Agreement.
(b) The Company and Mergerco shall take all
reasonable actions necessary to file as soon as practicable notifications under
the HSR Act and to respond as promptly as practicable to any inquiries received
from the Federal Trade Commission and the Antitrust Division of the Department
of Justice for additional information or documentation and to respond as
promptly as practicable to all inquiries and requests received from any State
Attorney General or other Governmental Entity in connection with antitrust
matters.
Section 5.4 No Solicitation. Neither the Company nor any of
its Subsidiaries or affiliates shall (and the Company shall use its best efforts
to cause its officers, directors, employees, representatives and agents,
including, but not limited to, investment bankers, attorneys and accountants,
not to), directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Mergerco,
any of its affiliates or representatives) concerning any merger, tender offer,
exchange offer, sale of assets, sale of shares of capital stock or debt
securities or similar transactions involving the Company or any Subsidiary,
division or operating or principal business unit of the Company (an "Acquisition
Proposal"). The Company will immediately cease any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. Notwithstanding the foregoing, the Company may furnish
information concerning its business, properties or assets to any corporation,
partnership, person or other entity or group pursuant to appropriate
confidentiality agreements, and may negotiate and participate in discussions and
negotiations with such entity or group concerning an Acquisition Proposal (x) if
such entity or group has on an unsolicited basis submitted a bona fide written
proposal to the Board of Directors of the Company relating to any such
transaction which the Board of Directors determines (based upon the advice of
independent investment bankers for the Company) represents a superior
transaction to the Merger for the shareholders of the Company, and (y) if the
Board of Directors of the Company determines, only after receipt of advice from
independent legal counsel to the Company and firm, that the failure to provide
such information or access or to engage in such discussions or negotiations
would cause the Board of Directors to violate its fiduciary duties to the
Company's shareholders under applicable law. The Company shall immediately (in
any event within 24 hours) communicate to Mergerco the terms of any proposal,
discussion, negotiation or inquiry (and will disclose any written materials
received by the Company in connection with such proposal, discussion,
negotiation or inquiry) and the identity of the party making such proposal or
inquiry which it may receive in respect of any such transaction.
Section 5.5 Brokers or Finders. The Company represents, as to
itself, its Subsidiaries and its affiliates, that, except as set forth in
Section 5.5 of the Company's
<PAGE> 36
30
Disclosure Schedule, no agent, broker, investment banker, financial advisor or
other firm or person is or will be entitled to any broker's or finder's fee or
any other commission or similar fee in connection with any of the transactions
contemplated by this Agreement and the Company agrees to indemnify and hold
Mergerco harmless from and against any and all claims, liabilities or
obligations with respect to any other fees, commissions or expenses asserted by
any person on the. basis of any act or statement alleged to have been made by
the Company or its affiliates. The expenses of the Company in connection with
the transactions contemplated by this Agreement, including the fees and expenses
of attorneys, accountants, investment bankers, financial advisors or similar
agents or reasonable estimates thereof, are set forth in Section 5.5 of the
Company's Disclosure Schedule.
Section 5.6 Additional Agreements. Subject to the terms and
conditions herein provided, each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations, or to remove any injunctions or other impediments or delays, legal
or otherwise, to consummate and make effective the Merger and the other
transactions contemplated by this Agreement. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement the proper officers and directors of Mergerco shall
use all reasonable efforts to take, or cause to be taken, all such necessary
actions.
Section 5.7 Publicity. The initial press release with respect
to the execution of this Agreement shall be a joint press release acceptable to
Mergerco and the Company. Thereafter, so long as this Agreement is in effect,
neither the Company, Mergerco nor any of their respective affiliates shall issue
or cause the publication of any press release or other announcement with respect
to the Merger, this Agreement or the other transactions contemplated hereby
without the prior consultation of the other party, except as may be required by
law or by any listing agreement with a national securities exchange or trading
market.
Section 5.8 Notification of Certain Matters. The Company shall
give prompt notice to Mergerco and Mergerco shall give prompt notice to the
Company, of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at or prior to
the Effective Time and (ii) any material failure of the Company, or Mergerco, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.8 shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
Section 5.9 Directors' and Officers' Insurance and
Indemnification. (a) After the Effective Time the Surviving Corporation (or any
successor to the Surviving
<PAGE> 37
31
Corporation) shall indemnify, defend and hold harmless the present and former
officers and directors of the Company and its Subsidiaries (each an "Indemnified
Party") against all losses, claims, damages, liabilities, fees and expenses
(including reasonable fees and disbursements of counsel and judgments, fines,
losses, claims, liabilities and amounts paid in settlement (provided that any
such settlement is effected with the written consent of the Surviving
Corporation, such consent not to be unreasonably withheld)) arising out of
actions or omissions occurring at or prior to the Effective Time to the full
extent permitted under North Carolina law, such right to include advancement of
expenses incurred in the defense of any action or suit; provided that any
determination required to be made with respect to whether such Indemnified Party
is entitled to indemnity hereunder (including without limitation whether, with
respect to the indemnification of such Indemnified Party by the Surviving
Corporation, an Indemnified Party's conduct complies with the standards set
forth under the NCBCA), shall be made at the Surviving Corporation's expense by
independent counsel mutually acceptable to the Surviving Corporation and the
Indemnified Party; provided further, that nothing herein shall impair any rights
or obligations of any present or former directors or officers of the Company.
(b) The Surviving Corporation shall maintain the
Company's existing officers' and directors' liability insurance covering claims
arising from facts or events which occurred before the Effective Time ("D&O
Insurance"), for a period of not less than six years after the Effective Date;
provided, that the Surviving Corporation may substitute therefor policies of
substantially similar coverage and amounts containing terms no less favorable to
such former directors or officers; provided, further, if the existing D&O
Insurance expires, is terminated or canceled during such period, the Surviving
Corporation will obtain substantially similar D&O Insurance; provided further,
however, that in no event shall the Surviving Corporation be required to pay
aggregate annual premiums for insurance under this Section in excess of 150% of
the aggregate annual premiums paid by the Company in 1998 on an annualized basis
for such purpose and, in the event that the annual premium for insurance
required to be obtained hereunder shall exceed such amount, the Surviving
Corporation shall maintain as much of such insurance as may be maintained for
such amount.
(c) To the extent permitted by applicable law, the
articles of incorporation and the bylaws of the Surviving Corporation for so
long as it continues to exist shall contain the provisions with respect to
advancement of expenses, indemnification and exculpation from liability set
forth in the Articles of Incorporation and Bylaws of the Company on the date of
this Agreement, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who on or prior to
the Effective Time were directors or officers of the Company, unless such
modification is required by law.
(d) In the event the Surviving Corporation or any of
its respective successors or assigns (i) consolidates with or merges into any
other person and
<PAGE> 38
32
shall not be the continuing or surviving corporation or entity in such
consolidation or merger or (ii) transfers all or substantially all its
properties and assets to any person, then, and in each case, proper provision
shall be made so that the successors and assigns of the Surviving Corporation
honor the indemnification obligations set forth in this Section 5.9. The
Surviving Corporation shall honor the indemnification provisions of Section 5.9
of the Agreement and Plan of Merger dated December 17, 1996, as amended, by and
among the Company, ASI Acquisition Corp. and American Studios, Inc.
(e) The obligations of the Surviving Corporation
under this Section 5.9 shall not be terminated, modified or assigned in such a
manner as to adversely affect any director or officer to whom this Section 5.9
applies without the consent of such affected director or officer (it being
expressly agreed that the directors and officers to whom this Section 5.9
applies shall be third-party beneficiaries of this Section 5.9).
Section 5.10 Tax Return Filing and Tax Elections. The Company
shall, and the Company shall cause each Subsidiary to, prepare, in a manner
consistent with past practices, and timely file all Tax Returns required to be
filed by the Company and each Subsidiary the due date of which occurs on or
before the Closing Date and pay all Taxes due with respect to any such Tax
Returns. The Company shall, and the Company shall cause each Subsidiary to,
deliver drafts of such Tax Returns to Mergerco for its review no later than 10
business days prior to the date, including extensions, on which such Tax Returns
are required to be filed and neither the Company nor any Subsidiary shall
unreasonably fail to make any changes to such Tax Returns as Mergerco may
request sufficiently in advance of the due date of such Tax Return to permit the
making of such change. Except upon the prior written consent of Mergerco, the
Company shall not, and the Company shall not permit any Subsidiary to, make any
Tax elections on or prior to the Closing Date.
Section 5.11 Cooperation. After the date hereof and prior to
the Effective Time, the Company shall, and shall cause its management to,
cooperate with Jupiter in connection with Jupiter's arranging the financing for
the Merger, including (a) providing to Jupiter's financing sources all
information reasonably requested by them to complete syndications of their
loans, (b) assisting such financing sources upon their reasonable request in the
preparation of information memoranda to be used in connection with such
syndications and (c) otherwise assisting such financing sources in their
syndication efforts, including by making reasonably available officers of the
Company and its subsidiaries, as appropriate, at meetings of prospective lenders
in various locations. In the event that the Merger is not consummated and
Mergerco is not entitled to reimbursement pursuant to Section 8.1 for its Fees
and Expenses, Mergerco shall bear the out-of-pocket costs the Company incurred
as a result of the cooperation required under this Section 5.11.
Section 5.12 Financing. Mergerco shall use commercially
reasonable efforts to consummate the Financing or alternative financing on terms
similar to the
<PAGE> 39
33
Financing and no more onerous than the terms of the Financing ("Alternative
Financing") .
Section 5.13 NASDAQ Listing. Mergerco will not take any
action, for at least three years after the Effective Time of the Merger, to
cause the Common Stock to be de-listed from the NASDAQ; provided, however, that
Mergerco may cause or permit the Common Stock to be de-listed in connection with
any transaction (including the Merger) which results in the termination of
registration of such securities under Section 12 of the Exchange Act, and
provided, further, that nothing in this Section 5.13 shall require the Company
to take any affirmative action to prevent the Common Stock from being de-listed
by NASDAQ if the Common Stock ceases to meet the applicable listing standards.
Section 5.14 Fees. The Company shall take reasonable actions
to insure that all legal, investment banking, accounting, advisory, consulting,
and other third party professional, printing and SEC fees and expenses incurred,
paid or accrued by the Company and its Subsidiaries in connection with the
negotiation, execution and delivery of this Agreement and the other documents
contemplated hereby and the special Meeting shall be reasonable and customary
for such a Merger and the contemplated transactions under this Agreement.
Section 5.15 Consummation of the Merger. The Company shall use
its commercially reasonable efforts to consummate the Merger and the other
transactions contemplated by this Agreement.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect
the Merger Transaction. The respective obligation of each party to effect the
Merger shall be subject to the satisfaction on or prior to the Closing Date of
each of the following conditions, any and all of which may be waived in whole or
in part by the Company, or Mergerco, as the case may be, to the extent permitted
by applicable law:
(a) Stockholder Approval. This Agreement shall have
been approved and adopted by the requisite vote of the holders of the Shares.
(b) Statutes: Consents. No statute, rule, order,
decree or regulation shall have been enacted or promulgated by any government or
any governmental agency or authority of competent jurisdiction which prohibits
the consummation of the Merger and all governmental consents, orders and
approvals required for the consummation of the Merger and the transactions
contemplated hereby shall have been obtained and shall be in effect at the
Effective Time;
<PAGE> 40
34
(c) Injunctions. There shall be no order or
injunction of a court or other governmental authority of competent jurisdiction
in effect precluding, restraining, enjoining or prohibiting consummation of the
Merger; and
(d) HSR Approval. The applicable waiting period under
the HSR Act shall have expired or been terminated.
Section 6.2 Conditions to Mergerco's Obligation to Effect the
Merger. The obligation of Mergerco to effect the Merger shall be subject to the
satisfaction on or prior to the Closing Date of each of the following
conditions, any and all of which may be waived in whole or in part by Mergerco
to the extent permitted by applicable law:
(a) Representations and Warranties. The
representations and warranties of the Company set forth in this Agreement (other
than in Section 3.2 and considered without regard to any materiality or material
adverse effect qualification) shall be true and correct in all respects in each
case when made and on the Closing Date as though made on and as of the Closing
Date except at either time to the extent that the failure of such
representations and warranties to be true and correct would not have or be
reasonably likely to have a material adverse effect on the Company and its
Subsidiaries taken as a whole or on the consummation of the transactions
contemplated hereby or the Company's ability to perform its obligations
hereunder in a timely manner. The representations and warranties of the Company
set forth in Section 3.2 shall be true and correct in all material respects on
and as of the date made and as of the Closing Date. The Company shall have
delivered to Mergerco a certificate, dated the Closing Date and signed by the
Chief Executive Officer or Chief Operating Officer of the Company, to the
foregoing effects.
(b) Covenants. The Company shall have performed or
complied in all material respects with all obligations, agreements or covenants
required by this Agreement to be performed or complied with by it. The Company
shall have delivered to Mergerco a certificate, dated the Closing Date and
signed by the Chief Executive Officer or Chief Operating Officer of the Company,
to the foregoing effect.
(c) No Material Adverse Change. Since the date of
this Agreement, there shall have been no material adverse change in the
business, assets, operations or condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole. The Company shall have delivered
to Mergerco a certificate, dated the Closing Date and signed by the Chief
Executive Officer or Chief Financial Officer of the Company, to the foregoing
effect.
(d) Litigation. There shall have been no action
taken, or statute, rule, regulation, judgment, order or injunction promulgated,
entered, enforced, enacted, issued or deemed applicable to the Merger by any
Governmental Entity which directly or indirectly (i) prohibits, or imposes any
material limitations on, the Company's
<PAGE> 41
35
ownership or operation (or that of its Subsidiaries or affiliates) of all or a
material portion of their businesses or assets, or compels the Company to
dispose of or hold separate any material portion of the business or assets of
the Company and its Subsidiaries, in each case taken as a whole, (ii) prohibits
or makes illegal the consummation of the Merger or the other transactions
contemplated by this Agreement, or (iii) otherwise materially adversely affects
the business, assets, operations or condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole; provided that Mergerco shall
have used all reasonable efforts to cause any such judgment, order or injunction
to be vacated or lifted.
(e) Financing. All conditions to the availability of
the Financing contemplated by the Commitment Letters shall have been met and
such Financing shall be available or Alternative Financing shall be available.
(f) Consents. All consents and waivers from third
parties necessary in connection with the consummation of the Merger shall have
been obtained, except to the extent that the failure to obtain such consents and
waivers would not, individually or in the aggregate, have a materially adverse
effect to the Company as a whole or a material adverse effect on the
consummation of the transactions contemplated hereby.
(g) Code Section 1445 Statement. The Company shall
have furnished Mergerco with a statement meeting the requirements of Treasury
Regulation Section 1.1445-2(c)(3).
(h) Option Consents. The Company shall have caused
the cancellation of all Options as contemplated by Section 2.5 hereof other than
Options which Mergerco and the holders thereof agree will remain outstanding and
other than Options covering not more than 10,000 Shares.
(i) Dissenting Shares. The number of Dissenting
Shares shall constitute no greater than 10% of the total number of Shares
outstanding immediately prior to the Effective Time.
Section 6.3 Conditions to the Company's Obligation to Effect
the Merger. The obligation of the Company to effect the Merger shall be subject
to the satisfaction on or prior to the Closing Date of each of the following
conditions, any and all of which may be waived in whole or in part by the
Company, to the extent permitted by applicable law:
(a) Representations and Warranties. The
representations and warranties of Mergerco set forth in this Agreement that are
qualified as to materiality shall be true, and the representations and
warranties of Mergerco set forth in this Agreement that are not so qualified
shall be true in all material respects, in either case
<PAGE> 42
36
when made and immediately prior to the Closing Date as though made on or as of
the Closing Date, and in each case without giving effect to any knowledge
qualifiers contained therein. Mergerco shall have delivered to the Company a
certificate, dated the Closing Date and signed by the Chief Executive Officer or
Chief Operating Officer of Mergerco, to the foregoing effect.
(b) Covenants. Mergerco shall have performed or
complied with all obligations, agreements or covenant required by this Agreement
to be performed or complied with by it. Mergerco shall have delivered to the
Company a certificate, dated the Closing Date and signed by the Chief Executive
Officer or Chief Financial Officer of Mergerco, to the foregoing effect.
(c) Litigation. There shall have been no action
taken, or statute, rule, regulation, judgment, order or injunction promulgated,
entered, enforced, enacted, issued or deemed applicable to the Merger by any
Governmental Entity which directly or indirectly prohibits or makes illegal the
consummation of the Merger or the other transactions contemplated by this
Agreement; provided that the Company shall have used all reasonable efforts to
cause any such judgment, order or injunction to be vacated or lifted.
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after stockholder approval thereof:
(a) By the mutual consent of the Board of Directors
of Mergerco and the Board of Directors of the Company.
(b) By either of the Board of Directors of the
Company or the Board of Directors of Mergerco:
(i) if the Merger shall not have been
consummated before October 31, 1998 (the "Termination Date"); provided,
that a party that has willfully and materially breached a
representation, warranty or covenant set forth in this Agreement shall
not be entitled to exercise its right to terminate under this Section
7.1(b)(i);
(ii) if, upon a vote at a duly held meeting
of the shareholders of the Company or any adjournment thereof, the
shareholders of the Company shall not approve the Merger or this
Agreement; or
<PAGE> 43
37
(iii) if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action (which
order, decree, ruling or other action the parties hereto shall use
their reasonable efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other
action shall have become final and non-appealable.
(c) By the Board of Directors of the Company:
(i) if, prior to the Effective Time, the
Board of Directors of the Company shall have (A) withdrawn, or modified
or changed in a manner adverse to Mergerco its approval or
recommendation of this Agreement or the Merger in order to permit the
Company to execute an agreement in principle or a definitive agreement
providing for the acquisition of the Company by merger, consolidation
or otherwise, on terms (including the per share consideration)
determined by the Board of Directors of the Company (based upon the
advice of independent investment bankers for the Company), to be
superior for the shareholders of the Company as compared to the terms
of the acquisition of the Company contemplated by this Agreement, and
(B) determined, only after receipt of advice from independent legal
counsel to the Company, that the failure to take such action as set
forth in the preceding clause (A) could cause the Board of Directors to
violate its fiduciary duties to the Company's shareholders under
applicable law; or
(ii) if, prior to the Effective Time,
Mergerco breaches or fails in any material respect to perform or comply
with any of its material covenants and agreements contained herein or
breaches its representations and warranties in any material respect, or
if any representation or warranty of Mergerco set forth in this
Agreement shall have become untrue such that any of the conditions set
forth in Section 6.1 or Section 6.3 is reasonably likely to be
incapable of being satisfied by the Termination Date (as such date may
otherwise be extended by agreement of the parties); provided, however,
that the Board of Directors of the Company may terminate this Agreement
under this Section 7.1(c)(ii) only if such breach, failure of
compliance or untruth, if it is capable of being cured, continues
uncured for a period of ten (10) days after receipt by Mergerco of
notice thereof from the Company.
(d) By the Board of Directors of Mergerco:
(i) if prior to the Effective Time, the
Board of Directors of the Company shall have withdrawn, failed to
reaffirm or modified or changed in a manner adverse to Mergerco its
approval or recommendation of this Agreement or the Merger or shall
have recommended an Acquisition Proposal or offer, or shall have
executed an agreement in principle (or similar agreement) or
<PAGE> 44
38
definitive agreement providing for a tender offer or exchange offer for
any shares of capital stock of the Company, or a merger, consolidation
or other business combination with a person or entity other than
Mergerco or its affiliates (or the Board of Directors of the Company
resolves to do any of the foregoing); or
(ii) if, prior to the Effective Time, the
Company breaches or fails to perform or comply with any of its
covenants and agreements contained herein or breaches any of its
representations or warranties contained herein, or if any
representation or warranty of the Company shall have become untrue such
that any of the conditions set forth in Section 6.1 and Section 6.2 is
reasonably likely to be incapable of being satisfied by the Termination
Date (as such date may otherwise be extended by the agreement of the
parties); provided, however, that the Board of Directors of Mergerco
may terminate this Agreement under this Section 7.1(d)(ii) only if the
breach, failure of compliance or untruth referred to herein would have
or would be reasonably likely to have a material adverse effect on the
Company and its Subsidiaries taken as a whole or on the consummation of
the transactions contemplated hereby or the Company's ability to
perform its obligations hereunder in a timely manner and, if such
breach, failure of compliance or untruth is capable of being cured, the
same continues uncured for a period of ten (10) days after receipt by
the Company of notice thereof from Mergerco.
Section 7.2 Effect of Termination. In the event of the
termination of this Agreement as provided in Section 7. 1, written notice
thereof shall forthwith be given to the other party specifying the provision
hereof pursuant to which such termination is made, and this Agreement, except
for the last sentence of Section 5.2 hereof shall forthwith become null and
void, and there shall be no liability on the part of Mergerco or the Company
except (A) for fraud and (B) as set forth in this Section 7.2 and Section 8.1.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses. (a) Except as otherwise
contemplated by this Agreement, including Section 8.1(b) hereof, all costs and
expenses incurred in connection with this Agreement and the consummation of the
transactions contemplated hereby shall be paid by the party incurring such
expenses.
(b) If (v) the Board of Directors of the Company
shall terminate this Agreement pursuant to Section 7.1(c)(i) hereof, (w) the
Board of Directors of Mergerco shall terminate this Agreement pursuant to
Section 7.1(d)(i) hereof, (x) the Board of Directors of Mergerco shall terminate
this Agreement pursuant to Section 7.1(b)(i) hereof and the Company has breached
the covenant set forth in Section 5.15, or
<PAGE> 45
39
(y) this Agreement shall be terminated pursuant to Section 7.1(b)(i) or Section
7.1(b)(ii) hereof and, in the case of this subclause (y) only, at the time of
such termination an Acquisition Proposal or an intention to make an Acquisition
Proposal (whether or not such Acquisition Proposal has been made subject to
certain contingencies) shall have been made to the Company (whether or not it is
pending at the time of such termination) or shall have been publicly announced
by any person and, if, in the case of this subclause (y) only, within one year
of such termination, the Company or any of its Subsidiaries enters into an
agreement relating to an Acquisition Proposal, the Company shall pay to or at
the direction of Mergerco (not later than two business days after termination of
this Agreement or the execution of the agreement referred to in subclause (y) in
the case of subclause (y) above) an amount equal to $6,000,000 and shall
promptly assume and pay, or reimburse Mergerco for, all reasonable out-of-pocket
fees and expenses (collectively "Fees and Expenses") incurred, or to be
incurred, by Mergerco and its affiliates (including the fees and expenses of
legal counsel, accountants, financial advisors, other consultants, financial
printers and financing sources) in connection with the Merger and the
consummation of the transactions contemplated by this Agreement. In the event of
any breach or failure set forth in subclause (x) above, such $6,000,000 amount
shall be paid by the Company to Mergerco as liquidated damages and not as a
penalty. In any such event recovery of such liquidated damages shall be the sole
right of Mergerco and payment of such amount shall be the sole liability of the
Company. Such amount is being fixed as liquidated damages in any such event by
reason of the fact that the actual damages to be suffered by Mergerco are by
their nature uncertain and unascertainable with exactness. In any such event,
Mergerco shall not seek any money or other judgment against the Company, or any
officer, director or shareholder of the Company or against the assets of the
Company, and the sole recourse of Mergerco shall be to recover liquidated
damages in the foregoing amount.
(c) If this Agreement is terminated pursuant to
Section 7.1(d)(ii) or terminated by the Company at a time after Mergerco has
given notice to the Company that Mergerco is (or with notice or lapse of time or
both, would be) entitled to terminate this Agreement under Section 7.1(d)(ii),
the Company shall promptly assume and pay, or reimburse Mergerco for, all Fees
and Expenses.
(d) If this Agreement is terminated pursuant to
Section 7.1(b)(i) or Section 7.1(b)(ii) and, at the time of such termination,
any person or group of persons (the "Acquiror") has acquired beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of more than 20%
(other than for investment purposes only) (or, in the case of Centennial
Partners L.P., 35%) in the aggregate of the outstanding Common Stock of the
Company and if, within one year of such termination, the Company or any of its
Subsidiaries enters into an agreement relating to an Acquisition Proposal, then
the Company shall pay to or at the direction of Mergerco (not later than two
business days after the execution of such agreement), an amount equal to
$6,000,000.
<PAGE> 46
40
Section 8.2 Amendment and Modification. Subject to applicable
law, this Agreement may be amended, modified and supplemented in any and all
respects, whether before or after any vote of the shareholders of the Company
contemplated hereby, by written agreement of the parties hereto, by action taken
by their respective boards of directors, at any time prior to the Closing Date
with respect to any of the terms contained herein; provided, however, that after
the approval of this Agreement by the shareholders of the Company, no such
amendment, modification or supplement shall reduce the amount or change the form
of the Merger consideration.
Section 8.3 Nonsurvival of Representations and Warranties.
None of the representations and warranties in this Agreement or in any schedule,
instrument or other document delivered pursuant to this Agreement shall survive
the Effective Time unless otherwise specified therein.
Section 8.4 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by an overnight courier service, such as
Federal Express, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Mergerco or Jupiter, to:
Jupiter Partners II L.P.
30 Rockefeller Plaza, Suite 4525
New York, New York 10112
Attention: Mr. John A. Sprague
Telephone No.: (212) 332-2800
Fax No.: (212) 332-2828
and
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Richard S. Borisoff, Esq.
Telephone No.: (212) 373-3000
Fax No.: (212) 757-3990
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41
(b) if to the Company, to:
PCA International, Inc.
815 Matthews-Mint Hill Road
Matthews, NC 28105
Attention: John Grosso
Telephone No.: (704) 847-8011
Fax No.: (704) 847-1548
with a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Marc Weingarten, Esq.
Telephone No.: (212) 756-2000
Fax No.: (212) 593-5955
Section 8.5 Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. Whenever the words "include," "includes" or
"including" are used in this Agreement they shall be deemed to be followed by
the words "without limitation." As used in this Agreement, the term
"affiliate(s)" shall have the meaning set forth in Rule 12b-2 of the Exchange
Act.
Section 8.6 Counterparts. This Agreement may be executed in
two or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when two or more counterparts have been
signed by each of the parties and delivered to the other parties.
Section 8.7 Entire Agreement; No Third Party Beneficiaries;
Rights of Ownership. This Agreement and the Confidentiality Agreement (including
the documents and the instruments referred to herein and therein): (a)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Section 5.9 is not intended
to confer upon any person other than the parties hereto any rights or remedies
hereunder.
Section 8.8 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
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42
Section 8.9 Governing Law. Except to the extent that the laws
of the State of North Carolina are mandatorily applicable, this Agreement shall
be governed by and construed in accordance with the laws of the State of New
York without giving effect to the principles of conflicts of law thereof.
Section 8.10 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that Mergerco may assign, in its
sole discretion, any or all of its rights, interests and obligations hereunder
to any of its affiliates. Subject to the preceding sentence, this Agreement will
be binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
<PAGE> 49
43
IN WITNESS WHEREOF, Mergerco and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
JUPITER ACQUISITION CORP.
By: /s/ JOHN A. SPRAGUE
-----------------------
Name: John A. Sprague
Title: President
PCA INTERNATIONAL, INC.
By: /s/ JOSEPH H. REICH
-----------------------
Name: Joseph H. Reich
Title: Chairman of the Board
<PAGE> 50
GUARANTY
The undersigned, Jupiter Partners II L.P., hereby
unconditionally guarantees the due and punctual payment and performance of all
obligations of Jupiter Acquisition Corp. under the Agreement and Plan of Merger
by and between Jupiter Acquisition Corp. and PCA International, Inc., dated as
of April 20, 1998 (the "Agreement") and its obligations under Section 4.7(a) of
the Agreement. The liabilities of Jupiter Partners II L.P. under this Guaranty
shall in no event exceed $54,300,000.
JUPITER PARTNERS II L.P.
By: Ganymede II LLC
General Partner
/s/ JOHN F. KLEIN
--------------------
Name: John F. Klein
Title: Principal
<PAGE> 1
FOR IMMEDIATE RELEASE
CONTACTS: FOR PCA INTERNATIONAL FOR JUPITER PARTNERS
John Grosso Anna Cordasco
President and Managing Director
Chief Executive Officer Sard Verbinnen & Co.
704/847-8011 212/687-8080
JUPITER PARTNERS AND SENIOR MANAGEMENT TO ACQUIRE
PCA INTERNATIONAL FOR $26.50 PER SHARE
MATTHEWS, NORTH CAROLINA, APRIL 21, 1998 - PCA International, Inc.
(NASDAQ: PCAI), and Jupiter Partners L.P. announced today they have entered into
a definitive merger agreement under which Jupiter Partners and PCA senior
management including John Grosso, President and Chief Executive Officer of PCA,
will acquire between 95% and 97% of the primary common stock of PCA for $26.50
per share. The transaction, which will be accounted for as a recapitalization,
is valued at approximately $276 million, including the refinancing of existing
debt. The merger has been approved by the Board of Directors of PCA and is
expected to be completed in July. PCA will continue to be run by its current
management team led by Mr. Grosso.
Under the terms of the agreement, the holder of each share of common stock
of PCA can elect to receive $26.50 in cash for each share or to retain (subject
to proration) a share of stock in the surviving entity. Public shareholders will
be permitted to retain (subject to proration) a continuing equity interest in
the Company of no more than approximately 4.5% and no less than approximately
3.4% of the current outstanding shares of the Company.
"This transaction represents an outstanding opportunity for PCA and its
shareholders," said Grosso. "The partnership with Jupiter offers a unique
win-win scenario for everyone involved. It provides public shareholders a cash
premium to the market and the opportunity for continuing equity participation.
For the new equity holders, along with all PCA employees, customers and retail
partners, this allows us to pursue our longer-term business plan for the benefit
of all our constituencies."
<PAGE> 2
-more-
"PCA has an outstanding management team, highly skilled employees and
excellent customer relationships," said John A. Sprague, General Partner,
Jupiter Partners. "We look forward to working closely with management and
providing strong support for the Company as it continues to pursue its
strategy."
The merger is subject to customary terms and conditions, including
approval by PCA shareholders, the expiration of applicable waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the receipt by
Jupiter of funding under its financing commitments. Subject to various
exceptions, the agreement places certain restrictions on the Company's ability
to pursue alternative transactions.
Senior bank financing for the recapitalization is expected to be provided
by NationsBank, N.A. In addition, affiliates of NationsBank, N.A. and the Chase
Manhattan Bank have committed to provide subordinated debt financing in
connection with the recapitalization.
The offer will be made only pursuant to documents that will be filed with
the Securities and Exchange Commission and mailed to stockholders of PCA as
promptly as practicable. The Company's annual meeting of shareholders,
traditionally held in May following the fiscal year-end, will be delayed to
allow for the preparation and filing of proxy materials. A Special Meeting of
PCA shareholders will then be held for the purpose of considering and taking
action upon the approval of the Merger Agreement and the Merger. The timing of
this Special Meeting is yet to be determined.
PCA International, Inc. is a holding company which sells and processes
professional color portraits of children, adults and families. The Company
operates 2,075 portrait studios within Kmart and Wal-Mart stores and
supercenters in the United States, Canada, Mexico, Puerto Rico, and South
America. The Company also operates an extensive traveling business providing
portrait photography services in approximately 1,400 additional retail locations
and to church congregations and other institutions.
Jupiter Partners L.P. is a New York-based investment firm organized to
invest in management buyouts and growth capital opportunities. Founded in 1994,
Jupiter Partners has over $500 million in total committed capital. Including its
pending investment in PCA, Jupiter Partners has completed equity investments
totaling over $350 million in eight companies.
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