<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
[Amendment No. ]
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
| | Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
ALOETTE COSMETICS, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction
applies:
Common Stock
------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
2,104,253
------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
$5.25 (cash merger consideration to be paid per share)
------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$11,778,703 (includes $731,375 payable to option
and warrant holders for spread)
------------------------------------------------------------
5) Total fee paid.
$2,356
------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by Rgistration
Statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
ALOETTE COSMETICS, INC.
1301 Wright's Lane East
West Chester, PA 19380
(610) 692-0600
May 22, 1998
Dear Shareholders:
You are cordially invited to attend a special meeting of shareholders
of Aloette Cosmetics, Inc. to be held at the Company's headquarters at the
above address on Tuesday, June 23, 1998 at 10:00 a.m. local time.
At this meeting, you will be asked to vote on the acquisition, by
means of a merger, of Aloette Cosmetics by ACI Acquisition Partners, Inc.
("ACIA"). In the merger, you will be entitled to receive $5.25 in cash for
each share of Aloette Cosmetics common stock that you own.
A merger agreement with ACIA has been unanimously approved by your
Board of Directors. The Board of Directors has concluded that the proposed
merger is in the best interests of Aloette Cosmetics' shareholders and,
therefore, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE MERGER AGREEMENT. In deciding to approve the merger agreement,
your Board of Directors received the opinion of Berwind Financial, L.P. to the
effect that, based upon the assumptions made, matters considered and the
limitations on the review undertaken in connection therewith, the
consideration to be received by the Aloette Cosmetics shareholders in the
merger, as of such date, was fair to such shareholders from a financial point
of view.
The attached notice of meeting and proxy statement explain the
proposed merger and provide specific information concerning the special
meeting. Please read these materials carefully.
Whether or not you plan to attend the special meeting, we urge you to
complete, sign and promptly return the enclosed proxy card to assure that your
shares will be voted at the meeting. The merger is an important step for
Aloette Cosmetics and its shareholders. THE MERGER CANNOT BE COMPLETED UNLESS
THE ALOETTE COSMETICS SHAREHOLDERS ADOPT THE MERGER AGREEMENT.
On behalf of the Board of Directors, I thank you for your support and
urge you to vote FOR adoption of the merger agreement.
Sincerely,
/s/ Patricia J. Defibaugh
Patricia J. Defibaugh
Chairman of the Board of Directors and
Chief Executive Officer
<PAGE>
ALOETTE COSMETICS, INC.
1301 Wright's Lane East
West Chester, PA 19380
(610) 692-0600
NOTICE AND PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 23, 1998
To the Shareholders of Aloette Cosmetics, Inc.:
This notice is provided to inform you that a Special Meeting of
Shareholders of Aloette Cosmetics, Inc. ("Aloette" or the "Company") will be
held at the Company's headquarters at the above address, on Tuesday, June 23,
1998 at 10:00 a.m. local time (the "Meeting"), for consideration of and action
upon the following matters:
1. To consider and vote on a proposal (the "Proposal") to approve and
adopt an Agreement and Plan of Merger, dated April 10, 1998 (the "Merger
Agreement"), by and between ACI Acquisition Partners, Inc. ("ACIA") and
Aloette. Pursuant to the Merger Agreement, ACIA will be merged into Aloette
(the "Merger"), with Aloette continuing as the surviving corporation (the
"Surviving Entity"). If the Merger Agreement is adopted and the Merger
approved by the shareholders of Aloette and the other conditions to the Merger
are satisfied or waived, each share of common stock of Aloette ("Aloette
Common Stock") issued and outstanding immediately prior to the effective time
of the Merger (other than (i) shares of Aloette Common Stock held by Aloette
as treasury stock, which shares shall be canceled, and (ii) shares as to which
statutory appraisal rights have been exercised) will be converted into the
right to receive $5.25 in cash, without interest. The actual terms of the
Merger are contained in the Merger Agreement which is attached to the Proxy
Statement as Appendix A.
2. To transact such other business as may properly come before the
Meeting and any postponement or adjournment thereof, and matters incident to
the conduct of the Meeting.
The Board of Directors has fixed the close of business on May 8, 1998
as the record date (the "Record Date") for the determination of shareholders
of Aloette entitled to notice of, and to vote at, the Meeting and any
postponement or adjournment thereof. Shareholders may vote in person or by
proxy. In the event that there are not sufficient votes to approve the
Proposal, the Meeting may be postponed or adjourned in order to permit further
solicitation of proxies by Aloette. If the Meeting is adjourned for one or
more periods aggregating at least 15 days because of the absence of a quorum
with respect to the Proposal, then those shareholders entitled to vote who are
present at the adjourned Meeting in person or by proxy shall nevertheless
constitute a quorum for the purpose of acting upon such Proposal. The Proxy
Statement and the accompanying proxy card is first being sent to shareholders
on or about May 22, 1998.
Whether or not you plan to attend the Meeting in person, please mark,
date and sign your proxy, and mail it in the stamped envelope enclosed for
your convenience. In order to avoid the additional expense to Aloette of
further solicitation, we ask your cooperation in mailing your proxy promptly.
Returning the proxy does not affect your right to vote in person on all
matters brought before the Meeting, but will help assure a quorum if you do
not attend.
BY ORDER OF THE BOARD OF DIRECTORS,
Sincerely,
/s/ Patricia J. Defibaugh
Patricia J. Defibaugh
Chairman of the Board of Directors and
Chief Executive Officer
West Chester, PA
May 22, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...............................................................................1
SUMMARY..............................................................................................................3
TIME, PLACE AND PURPOSE OF THE SPECIAL MEETING.......................................................................7
VOTING SECURITIES OF THE COMPANY.....................................................................................7
SOLICITATION OF PROXIES..............................................................................................8
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE......................................................................8
APPROVAL OF THE MERGER...............................................................................................9
Purpose, Structure and Effect of the Merger...............................................................9
Background of the Merger..................................................................................9
Aloette's Reasons for the Merger; Recommendation of the Board of Directors...............................10
Opinion of Independent Financial Advisor ................................................................11
Interests of Certain Persons in the Merger...............................................................13
Merger Agreement.........................................................................................14
Terms of the Merger.............................................................................14
Conversion of Aloette Common Stock and the Stock of ACIA in the Merger..........................14
Appraisal Rights................................................................................15
Aloette Options and Warrants....................................................................15
Payment for Shares..............................................................................15
Representations and Warranties..................................................................16
Conduct of Business Pending the Merger..........................................................16
Solicitations and Superior Proposals............................................................17
Additional Covenants............................................................................18
ACIA's Deposit..................................................................................18
Conditions to the Merger........................................................................19
Termination of Merger Agreement and Termination Fees............................................19
Expenses........................................................................................20
Amendment.......................................................................................20
Guaranty Agreement.......................................................................................20
Accounting Treatment.....................................................................................20
Certain Effects of the Merger............................................................................20
Federal Income Tax Consequences..........................................................................20
Regulatory Compliance....................................................................................21
APPRAISAL RIGHTS....................................................................................................22
INFORMATION REGARDING ALOETTE.......................................................................................23
INFORMATION REGARDING ACIA..........................................................................................26
MARKET PRICE FOR THE ALOETTE COMMON STOCK..........................................................................26
PRINCIPAL SHAREHOLDERS AND HOLDINGS OF OFFICERS AND DIRECTORS.......................................................27
INDEPENDENT ACCOUNTANTS.............................................................................................28
WHERE YOU CAN FIND ADDITIONAL INFORMATION...........................................................................28
OTHER BUSINESS......................................................................................................28
Appendix A - Agreement and Plan of Merger
Appendix B - Opinion of Berwind Financial, L.P.
Appendix C - Guaranty Agreement
Appendix D - Appraisal Rights Statute
</TABLE>
i
<PAGE>
ALOETTE COSMETICS, INC.
1301 Wright's Lane East
West Chester, Pennsylvania 19380
(610) 692-0600
PROXY STATEMENT
----------------
SPECIAL MEETING OF SHAREHOLDERS
OF ALOETTE COSMETICS, INC.
JUNE 23, 1998
----------------
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: When is the Special Meeting?
A: The Meeting will take place on Tuesday, June 23, 1998 at 10:00 a.m.,
local time, at the Company's headquarters. At the Meeting, the Aloette
shareholders will be asked to approve the Merger and adopt the related
Merger Agreement.
Q: What will I receive in the Merger?
A: If the Merger is completed, the Aloette shareholders will have the right
to receive $5.25 in cash for each share of Aloette Common Stock they own.
Q: Who is ACIA?
A: ACI Acquisition Partners, Inc. is a closely held corporation recently
organized for the purpose of effecting the Merger. It has no material
assets (except for cash on hand) and is not engaged in any material
activities, except in connection with the Merger and the transactions
contemplated thereby. The executive offices of ACIA are located at 1640
Powers Ferry Road, Building A, Marietta, Georgia 30067.
Q: Do I have the option to receive ACIA common stock in the Merger?
A: No. ACIA is a closely held, private company.
Q: Why is Aloette recommending the Merger Agreement?
A: Due to the continuing decline in Aloette's revenues, franchises, and
independent sales people, the Aloette Board of Directors determined that,
in an attempt to maximize shareholder value, the Company should explore
its strategic alternatives. Based on its assessment, the Aloette Board of
Directors concluded that a sale of the Company at the present time is in
the best interests of Aloette's shareholders. In addition, your Board of
Directors received the opinion of Berwind Financial, L.P. ("Berwind"),
its investment banker, to the effect that, based upon the assumptions
made, matters considered and the limitations on the review undertaken in
connection therewith, the merger consideration is fair to the Aloette
shareholders from a financial point of view. The text of the opinion of
Berwind is included in this Proxy Statement as Appendix B. The price of
$5.25 per share represents a 45% premium over the average closing market
price of the shares over the three-month period ended March 31, 1998.
Q: What is the required vote?
A: The affirmative vote of the holders of a majority of the votes cast at
the Meeting is required to adopt the Merger Agreement.
<PAGE>
Q: Will I have appraisal rights?
A: Any shareholder who does not wish to accept the merger consideration has
the right under Pennsylvania law to receive the "fair value" of his or
her shares as determined by the Pennsylvania courts. This "right of
appraisal" is subject to a number of restrictions and technical
requirements.
Q: What do I need to do now? Should I send in my stock certificates now?
A: Please mail your signed proxy card in the enclosed return envelope as
soon as possible, so that your shares may be represented at the Meeting.
In addition, you may attend and vote at the Meeting in person, whether or
not you have signed and mailed your proxy card. DO NOT SEND IN YOUR STOCK
CERTIFICATES NOW. If the Merger is completed, you will receive written
instructions on how to exchange them.
Q: What if I want to change my vote?
A: Just send in a later-dated, signed proxy card before the Meeting or
attend the Meeting in person and vote.
Q: If my shares are held in "street name" by my broker, will my broker vote
my shares for me?
A: Your broker will vote your shares ONLY if you instruct your broker how to
vote. Your broker should mail information to you that will explain how to
give instructions to your broker. If you do not instruct your broker how
to vote, your shares will not be counted as a vote cast.
Q: Will I owe any federal income tax as a result of the Merger?
A: You will be taxed on your receipt of the merger consideration to the
extent that the amount you receive exceeds your tax basis in your common
stock. Tax matters are complicated, and tax results may vary among
shareholders. We urge you to contact your own tax advisor to fully
understand how the Merger will affect you.
Q: When do you expect the Merger to be completed?
A: Aloette and ACIA are working toward completing the Merger as quickly as
possible. We hope to complete the Merger as soon after the Meeting date
as possible.
Q: Whom should I call with questions?
A. If you have any questions about the Merger, please call Aloette Investor
Relations at (610) 692-0600.
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<PAGE>
SUMMARY
This summary highlights selected information from this document. The
Merger will be completed promptly after shareholder approval.
This summary may not contain all of the information that is important
to you. To understand the Merger fully and for a more complete description of
the legal terms of the Merger, you should read carefully this entire document
and the other documents which are being furnished to you concurrently herewith
and to which we have referred you. See "Where You Can Find Additional
Information." The actual terms of the Merger are contained in the Merger
Agreement. The Merger Agreement is included in this Proxy Statement as
Appendix A.
The Merger Consideration
If the Merger is completed, ACIA has agreed that shareholders who not
exercise their statutory appraisal rights will receive $5.25 per share (the
"Merger Consideration") in cash for their Aloette Common Stock. The total
amount to be paid to all holders of Aloette Common Stock (assuming no
shareholders exercise their statutory appraisal rights) and holders of stock
options and warrants will be approximately $11.8 million.
Voting
At the Meeting, the holders of Aloette Common Stock will vote on a
proposal to adopt the Merger Agreement. Each share of Aloette Common Stock is
entitled to one vote. Employees who hold shares of Aloette Common Stock in an
ESOP account will be entitled to vote such shares as if held directly. In
order to be approved, a majority of all the votes cast must be voted in favor
of adopting the Merger Agreement. On the record date, there were 2,104,253
shares of Aloette Common Stock outstanding and entitled to vote which were
held by approximately 900 shareholders of record.
Members of the Aloette Board of Directors and officers of Aloette,
including the Chairman of the Board and Chief Executive Officer, who have the
power to vote approximately 42% of the outstanding shares of Aloette Common
Stock, have indicated that they intend to vote their shares in favor of the
Merger.
Record Date
The close of business on May 8, 1998, is the record date for
determining who is entitled to vote at the Meeting.
Recommendation of the Aloette Board of Directors
The Aloette Board of Directors has approved the Merger Agreement and
unanimously recommends that you vote to adopt the Merger Agreement. The
Aloette Board of Directors believes that the Merger is fair to, and in the
best interests of, the Aloette shareholders.
Factors Considered by the Aloette Board of Directors
In reaching its decision to recommend adoption of the Merger
Agreement, the Aloette Board of Directors considered a number of factors.
These included the following:
o The continuing decline in Aloette's revenues and the number
of franchises and independent sales people led the Aloette
Board of Directors to determine that, in order to maximize
shareholder value, the Company should explore its strategic
alternatives. Based on its assessment, the Aloette Board of
Directors concluded that a sale of the Company at the
present time is in the best interests of Aloette's
shareholders.
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o The Aloette Board of Directors believed that $5.25 per share
was the highest price that ACIA or another party would be
willing to pay for Aloette at this time. The Aloette Board
of Directors formed this belief after substantial efforts to
identify interested parties and negotiations with ACIA to
obtain the highest possible price.
o The Aloette Board of Directors compared the historical
market prices of the Aloette Common Stock with the $5.25 per
share proposed Merger consideration. The Merger
Consideration represents a greater than 100% premium over
the closing market price of the shares prior to the
announcement by Aloette that it was retaining Berwind to
seek strategic alternatives and a 45% premium over the
average closing market price of the shares over the
three-month period ended March 31, 1998.
o The Merger Agreement allows third parties to make bona fide
offers to acquire Aloette and specifically permits the
Aloette Board of Directors to provide information to and
negotiate with third parties. A termination fee may be owed
to ACIA if Aloette accepts another proposal.
Opinion of Berwind Financial, L.P.
On April 10, 1998, Berwind delivered to the Aloette Board of
Directors its opinion to the effect that, based upon the assumptions made,
matters considered and the limitations on the review undertaken in connection
therewith, the Merger Consideration, as of such date, was fair to the Aloette
shareholders from a financial point of view. The opinion of Berwind has been
confirmed by a subsequent written opinion dated as of May 21, 1998 which
opinion is included in this Proxy Statement as Appendix B. Shareholders of
Aloette are urged to read the opinion of Berwind in its entirety.
Interests of Aloette Management in the Merger
All members of the Aloette Board of Directors and officers of Aloette
hold stock options, stock warrants and/or own Common Stock of Aloette and, to
that extent, their interest in the Merger is the same as yours. However, some
of the officers and directors of Aloette have interests in the Merger that are
different from your interests as a shareholder. Some of these interests are
set forth below. The Aloette Board of Directors was aware of these interests
and considered them in recommending and approving the Merger.
o Certain Aloette officers may be entitled to deferred
compensation, severance payments or other consideration as a
result of the Merger or as a result of their termination
after the Merger.
o One member of the Aloette Board of Directors is also a
subordinated noteholder.
o The Merger Agreement provides that all rights to
indemnification in favor of any present or former director
or officer of Aloette as provided in the Aloette Bylaws and
Articles of Incorporation or certain applicable
indemnification agreements shall continue indefinitely in
full force and effect after the Merger with respect to
matters occurring at or prior to the effective time of the
Merger.
In addition, certain of Aloette's executive officers may enter into
employment agreements or otherwise will continue to be employed with the
Surviving Entity after the Merger.
ACIA's Deposit
Pursuant to the Merger Agreement, ACIA paid to PNC Bank, National
Association, as escrow agent, a good faith earnest money deposit of $1,170,000
(the "Deposit"). ACIA shall be entitled to have the Deposit returned to ACIA
only in the event that this Agreement is terminated:
o because the parties have not consummated the Merger by
August 15, 1998, provided that ACIA is not in breach of its
obligations under the Agreement;
4
<PAGE>
o because the Aloette shareholders do not approve the Merger; or
o by Aloette in connection with the Company's receipt of a
financially superior proposal to acquire more than 15% of
Aloette's stock or assets.
The Deposit is not intended to be construed as liquidated damages or
to limit any rights or remedies of Aloette with respect to ACIA or any
obligations of ACIA to Aloette.
Guaranty of ACIA Shareholders
Simultaneously with the execution of the Merger Agreement, the
shareholders of ACIA entered into a Guaranty Agreement with Aloette whereby
the ACIA shareholders unconditionally guaranteed the performance of the ACIA
obligations under the Merger Agreement, provided that the aggregate liability
of the ACIA shareholders pursuant to such guaranty is limited to $1,170,000.
The Guaranty Agreement is included in this Proxy Statement as Appendix C.
Appraisal Rights
Any shareholder who does not wish to accept the Merger Consideration
has the right under Pennsylvania law to receive the "fair value" of his or her
shares as determined by a Pennsylvania court. This "right of appraisal" is
subject to a number of restrictions and technical requirements. Generally, in
order to exercise appraisal rights:
o you must not vote in favor of the Merger; and
o you must make a written demand for appraisal before the vote
on the Merger.
Merely voting against the Merger will not protect your right of
appraisal. Appendix D to this proxy statement contains the applicable
provisions of the Pennsylvania Business Corporation Law (the "PBCL") relating
to appraisal rights.
Conditions to the Merger
The obligations of Aloette and ACIA to complete the Merger are
subject to a number of conditions. If these conditions are not satisfied or
waived, the Merger will not be completed. The mutual conditions are:
o approval of the Merger Agreement by the Aloette shareholders;
and
o absence of any injunctions, legal restraints or prohibitions
that prevent completion of the Merger;
Several additional conditions must be met to require ACIA to complete
the Merger. These conditions are:
o Aloette's compliance in all material respects with the
Merger Agreement;
o absence of a decline in Retail Sales for the period April 1,
1998 to the end of the month preceding the closing of the
Merger transaction (the "Closing") of not more than 20% from
the comparable period in 1997;
o absence of any extraordinary occurrences outside the
ordinary course of business that has resulted, or is
reasonably likely to result, in an expenditure of greater
than $600,000; and
o accuracy in all material respects of the representations and
warranties made by Aloette on the date of the Merger
Agreement;
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Additional conditions exist that must be met to require Aloette to
complete the Merger. These conditions are:
o ACIA's compliance in all material respects with the Merger
Agreement;
o ACIA's deposit of funds sufficient to purchase all of the
Shares outstanding on a fully diluted basis and agreement to
pay all fees and expenses related to this transaction; and
o accuracy in all material respects of the representations and
warranties made by ACIA on the date of the Merger Agreement.
Termination of the Merger Agreement
The Merger Agreement may be terminated in the event of any of the
following:
o by mutual written consent of Aloette and ACIA;
o by either party if the Merger is not consummated by August
15, 1998, unless the terminating party has caused the
failure to meet the applicable closing conditions by
wrongful action or a failure to act;
o by either party if the shareholders of Aloette do not approve
the Merger;
o by either party if a law or court order prohibits the Merger;
o by Aloette in the event that, prior to the Effective Time,
the Aloette Board of Directors determines in good faith,
after Aloette has received a financially superior proposal
to acquire more than 15% of Aloette's stock or assets and
after consultation with its financial adviser and outside
counsel, that it is necessary to do so in order to comply
with its fiduciary duties to the Company's shareholders
under applicable laws.
Termination Fees
Aloette will be required to pay ACIA a termination fee of $125,000 if
the Merger Agreement is terminated:
o because the parties have not consummated the Merger by
August 15, 1998, provided that ACIA is not in breach of its
obligations under the Agreement;
o because the Aloette shareholders do not approve the Merger; or
o by Aloette in connection with the Company's receipt of a
financially superior proposal to acquire more than 15% of
Aloette's stock or assets.
Federal Income Tax Consequences
You will be taxed for federal income tax purposes on your receipt of
the Merger Consideration to the extent that the amount you receive exceeds
your tax basis in your Aloette common stock. Because determining the tax
consequences of the Merger can be complicated, especially in light of recent
changes to the federal tax laws governing capital gains, and because state tax
laws may apply as well, you should consult your tax advisor in order to
understand fully how the Merger will affect you.
6
<PAGE>
TIME, PLACE AND PURPOSE OF THE SPECIAL MEETING
This proxy statement and the accompanying proxy card are solicited by
the Board of Directors (the "Board") of Aloette. These proxies will be used at
the Meeting to be held at 10:00 a.m. local time, on Tuesday, June 23, 1998 at
the Company's headquarters, and at any and all adjournments thereof. The
purpose of the Meeting is to consider and vote on the Proposal to approve and
adopt the Merger Agreement, by and among Aloette and ACIA pursuant to which
ACIA will be merged into Aloette with Aloette continuing as the Surviving
Entity. The Board has approved the Merger Agreement, and unanimously
recommends that the Aloette shareholders vote FOR approval and adoption of the
Merger Agreement and the Merger. See "Approval of the Merger - Background of
the Merger."
In arriving at its conclusion that the Merger is fair to, and in the
best interests of, Aloette's shareholders, the Board considered the opinion of
Berwind, its investment banker, to the effect that, based upon the assumptions
made, matters considered and the limitations on the review undertaken in
connection therewith, the merger consideration was fair to the Aloette
shareholders from a financial point of view. A copy of the Berwind opinion is
attached as Appendix B to this Proxy Statement and shareholders should read
such opinion in its entirety.
VOTING SECURITIES OF THE COMPANY
Only holders of record of Aloette Common Stock at the close of
business on the Record Date are entitled to notice of, and to vote at, the
Meeting. At the close of business on the Record Date, 2,104,253 shares of
Aloette Common Stock were outstanding. Each share of Aloette Common Stock is
entitled to one vote on all matters presented at the Meeting. This Proxy
Statement and the proxy card will be sent to shareholders beginning on or
about May 22, 1998. If you give a proxy, you may revoke it at any time before
the proxy is voted. You may revoke your proxy before it is voted by executing
another proxy at a later date, by notifying the secretary of Aloette in
writing of your revocation, or by attending in person and voting at the
Meeting. Under Pennsylvania law and the bylaws of Aloette, the presence at the
Meeting, in person or by proxy, of shareholders entitled to cast at least a
majority of the votes that all shareholders are entitled to cast on a
particular matter to be acted upon at the Meeting shall constitute a quorum.
All valid proxies returned will be included in the determination of whether a
quorum is present at the Meeting.
An affirmative vote of a majority of the votes cast by shareholders
present in person or by proxy and entitled to vote at the Meeting is required
for approval of the Merger Agreement and the Merger and all other matters
presented at the Meeting. Abstentions and "broker non-votes" will be counted
for purposes of determining the existence of a quorum but will not be voted
and will not be counted as votes cast. Furthermore, shares held in ESOP
accounts for which no voting instructions are received are counted for
purposes of determining the existence of a quorum but are treated as
abstentions. Unallocated shares contained in the ESOP are voted by the ESOP
trustee proportionally to the balance of the voted ESOP shares.
Members of the Board and officers of Aloette, including Aloette's
Chairman of the Board and Chief Executive Officer, who have the power to vote
approximately 42% of the outstanding shares of Aloette Common Stock, have
indicated that they intend to vote their shares in favor of the Merger.
If the enclosed proxy is duly executed and received in time for the
Meeting, and if no contrary instructions are included on the proxy, it is the
intention of the persons named as proxies to vote the shares of Aloette Common
Stock represented thereby in favor of the proposal to adopt the Merger
Agreement, and in the discretion of the persons named as proxies in connection
with any other business that may properly come before the Meeting or any
adjournment thereof.
At this time, Aloette knows of no other matters that may be presented
for shareholder action at the Meeting. However, if any matters, other than
those referred to above, should properly come before the Meeting, it is the
intention of the persons named in the enclosed proxy to vote such proxy in
accordance with their best judgment.
7
<PAGE>
In the event that there are not sufficient votes to approve the
Proposal raised at the Meeting, the Meeting may be postponed or adjourned in
order to permit further solicitation of proxies by Aloette. If the Meeting is
adjourned for one or more periods aggregating at least 15 days because of the
absence of a quorum with respect to the Proposal, then those shareholders
entitled to vote who are present at the adjourned Meeting in person or by
proxy shall nevertheless constitute a quorum for the purpose of acting upon
such Proposal.
The delivery of this Proxy Statement shall not, under any
circumstances, create any implication that the information contained herein is
correct after the date hereof.
THE ALOETTE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE ADOPTION OF THE MERGER AGREEMENT. THE AFFIRMATIVE VOTE OF THE MAJORITY OF
THE VOTES CAST BY SHAREHOLDERS PRESENT IN PERSON OR BY PROXY AND ENTITLED TO
VOTE AT THE MEETING IS REQUIRED TO ADOPT THE MERGER AGREEMENT.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN
CONNECTION WITH ALOETTE'S SOLICITATION OF PROXIES AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY ALOETTE OR ANY OTHER PERSON.
SOLICITATION OF PROXIES
Harris Trust Company ("Harris Trust") is Aloette's transfer agent
and, as such, will assist in the dissemination of proxies and associated
materials. Aloette will pay Harris Trust a fee of approximately $2,000 for its
services, plus reimbursement for its out-of-pocket expenses. Aloette will pay
all additional expenses of the solicitation of proxies for the Meeting,
including the cost of mailing. In addition to solicitation by mail and the
services performed by Harris Trust, officers and employees of Aloette may
solicit proxies from shareholders by telephone, telegram, facsimile or in
person. Aloette will not pay these individuals any additional compensation for
such services, except for the reimbursement of any reasonable out-of-pocket
expenses that they incur.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Some statements contained or incorporated by reference in this Proxy
Statement regarding future financial performance and results and other
statements that are not historical facts are forward-looking statements. The
words "expect," "project," "estimate," "predict," "anticipate," "believes" and
similar expressions are also intended to identify forward-looking statements.
Such statements and the Company's results are subject to numerous risks,
uncertainties and assumptions, including but not limited to: the continuing
declining revenue trend; the potential decline generally in the level of
demand for the Company's products and services; the potential termination or
non-renewal of franchise agreements; legal proceedings; and the risks
described in in Aloette's Form 10-KSB for the period ended December 31, 1997.
Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those indicated.
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APPROVAL OF THE MERGER
Purpose, Structure and Effect of the Merger
The purpose of the Merger is for ACIA to acquire all of the
outstanding capital stock of Aloette and to provide Aloette shareholders
(other than those who exercise their statutory appraisal rights) with $5.25
in cash in exchange for each share of Aloette Common Stock that they hold.
The Merger is structured as a cash merger of ACIA with and into
Aloette, with the result that Aloette will be the Surviving Entity. Under the
Merger Agreement, the officers and directors of ACIA immediately prior to the
effective time of the Merger (the "Effective Time") shall be the officers and
directors of the Surviving Entity.
If the Merger is consummated, the shareholders of Aloette will no
longer have any equity interest in such company, and therefore will not share
in its future earnings and growth. Instead, each shareholder (other than
shareholders who perfect statutory appraisal rights) will receive, upon
surrender of the certificate or certificates evidencing the Aloette Common
Stock, the Merger Consideration. As a result of the Merger, ACIA will be
merged with and into the Company at the Effective time. Following the
Effective Time, the Company will be the Surviving Entity in the Merger and
will succeed to and assume all the rights and obligations of ACIA in
accordance with applicable law. At such time, there will cease to be any
public market for the Aloette Common Stock and, after the Effective Time, the
Aloette Common Stock will be delisted from the Nasdaq Stock Market. Upon such
event, the Surviving Entity will apply to the Securities and Exchange
Commission (the "Commission") for the deregistration of the Aloette Common
Stock, under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
Background of the Merger
Founded in 1977, Aloette's business is the direct marketing of aloe
vera-based skin care products, as well as makeup, fragrances and cosmetic
accessories. The Company's products are available exclusively through its
domestic and foreign franchises and distributors.
During the period from January 1990 through June 1995, the Company
also manufactured products for sale to its franchises as well as other health
and beauty aid products for sale to third parties. On June 15, 1995, the
Company consummated the sale of substantially all of the assets of its
manufacturing operations for cash of approximately $2.1 million.
Last year, in response to a continuing decline in the Company's
revenues and the number of franchises and independent sales people, the
Company's management and the Board determined that it would be difficult for
Aloette to alter this trend either through internal growth or through
acquisitions within a reasonable period of time. At a meeting of the Board on
July 30, 1997, the directors discussed Aloette's various options. At the
meeting, the directors authorized Aloette management to meet with prospective
financial advisors to discuss the strategic alternatives available to the
Company. On September 30, 1997, the Board authorized management to engage
Berwind as the Company's financial advisor in connection with a review of the
strategic alternatives available to the Company. On October 7, 1997, Aloette
retained Berwind as its financial advisor. At a meeting of the Board on
November 18, 1997, Berwind reviewed Aloette's alternatives, including the
various aspects of a possible sale, by merger or otherwise, of all or
substantially all of the Company's stock or assets. The Board authorized
management and Berwind to continue to pursue strategic alternatives including
the possibility of a sale of the Company. On the same date Aloette issued a
press release announcing its retention of Berwind to identify strategic
alternatives for the Company.
Berwind then began contacting select potential acquirors, including
an investor group led by Robert K. Cohen ("Cohen"), the majority shareholder
of ACIA and an affiliate of an Aloette franchise.
In late 1997, 16 potential acquirors (including Cohen) entered into
confidentiality agreements with Aloette concerning information about the
Company. Shortly thereafter, Aloette provided such potential acquirors certain
non-public information regarding Aloette.
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In December 1997, Aloette received initial expressions of interest
from five potential acquirors, including Cohen. The letters were non-binding
and included proposed, but not definitive, purchase prices. On December 22,
1997, the Board reviewed the five expressions of interest and decided to
continue discussions with three of them based on the proposed terms contained
in their respective expressions of interest. Between December 1997 and March
1998, several of the prospective acquirors who had submitted expressions of
interest conducted due diligence investigations of Aloette.
On March 11, 1998, the Board formed a subcommittee consisting of two
directors who were not employees of Aloette (the "Subcommittee"), to be the
primary contacts between the Company and Berwind with respect to acquisition
proposals.
As a result of negotiations, one of the potential acquirors, other
than ACIA, informed Aloette that it was willing to purchase all of the
outstanding Common Stock of the Company for $4.75 per share in cash, and
submitted a proposed draft merger agreement to the Company. The Subcommittee
and counsel proceeded to negotiate the terms of this proposed merger
agreement. While the parties conducted extensive negotiations, a number of
issues remained unresolved and the transaction was not finalized. In the
meantime, on March 26, 1998, ACIA submitted an amended proposal to acquire
Aloette in an all cash transaction for $5.25 per share. The proposal was
subject to due diligence and the mutual negotiation and execution of a
definitive agreement.
At a meeting of the Board on April 3, 1998, Berwind reviewed the
proposals received to date. Based primarily on the higher price per share
offered by ACIA, the Board directed the Subcommittee to seek to negotiate a
transaction with ACIA. The Company and ACIA subsequently finalized the terms
and conditions of the Merger Agreement.
At a meeting of the Board on April 10, 1998, Berwind presented the
negotiated terms of the Merger to the Board. Berwind also delivered to the
Board its opinion to the effect that, based upon the assumptions made, matters
considered and the limitations on the review undertaken in connection
therewith, the Merger Consideration, as of such date, was fair to the Aloette
shareholders from a financial point of view. Berwind's presentation included a
discussion of its valuation methodologies and analyses used in arriving at its
opinion. In addition, Aloette's counsel reviewed the terms of the Merger
Agreement with the Board.
After discussion and deliberation, the Board determined that the
Merger was fair to, and in the best interests of, Aloette shareholders, and
unanimously approved the Merger and authorized the execution of the Merger
Agreement, as conclusively negotiated by management.
The Company and ACIA executed the Merger Agreement on April 10, 1998,
with the effective date of such agreement subject to receipt of the Deposit
from ACIA. On April 14, 1998, upon notification of receipt of the Deposit,
Aloette announced the execution of the Merger Agreement.
Aloette's Reasons for the Merger; Recommendation of the Board of Directors
The Board has determined that the Merger is fair to, and in the best
interests of, the shareholders of Aloette, and has unanimously approved the
Merger Agreement. Accordingly, the Board recommends that the shareholders vote
to adopt the Merger Agreement and approve the Merger. In reaching its
conclusion, the Board considered a number of factors, including:
o The continuing decline in Aloette's revenues and the number
of franchises and independent sales people led the Aloette
Board of Directors to determine that, in order to maximize
shareholder value, the Company should explore its strategic
alternatives. Based on its assessment, the Aloette Board of
Directors concluded that a sale of the Company at the
present time is in the best interests of Aloette's
shareholders.
o The Board compared the historical market prices of the
Aloette Common Stock with the Merger Consideration. The
Merger Consideration represents a greater than 100% premium
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over the closing market price of the shares prior to the
announcement by Aloette that it was retaining Berwind to
seek strategic alternatives and a 45% premium over the
average closing market price of the shares over the
three-month period ended March 31, 1998.
o The efforts of Berwind and Aloette in seeking potential
acquirors and the conclusion of the Board based on such
effort that a Merger could not be structured with another
purchaser that would offer greater value to Aloette
shareholders.
o The financial presentation of Berwind and delivery of its
opinion to the Board on April 10, 1998, to the effect that,
based upon the assumptions made, matters considered and the
limitations on the review undertaken in connection
therewith, the Merger Consideration, as of such date, was
fair to the Aloette shareholders from a financial point of
view. See "Opinion of Independent Financial Advisor" below
and the written opinion of Berwind attached as Appendix B.
o The terms and conditions of the Merger Agreement, including
the right of the Board to terminate the Merger Agreement
under certain circumstances in the exercise of its fiduciary
duties.
The foregoing discussion of the factors considered by the Board is
not intended to be all-inclusive. In view of the variety of factors considered
in connection with its evaluation of the Merger, the Board did not find it
practicable to and did not attempt to rank or assign relative weights to the
foregoing factors.
The Aloette Board of Directors recommends that the shareholders vote
FOR adoption of the Merger Agreement and Merger.
Opinion of Independent Financial Advisor
Aloette retained Berwind to act as its financial advisor and to
render a fairness opinion in connection with the Merger. Berwind rendered its
opinion to the Board that, based upon and subject to the various
considerations set forth therein, as of April 10, 1998 and as of May 21, 1998
(collectively the "Opinion"), the consideration to be received in the Merger
is fair, from a financial point of view, to the holders of Aloette Common
Stock.
THE FULL TEXT OF BERWIND'S OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS OF THE REVIEW UNDERTAKEN, IS ATTACHED
AS APPENDIX B TO THIS PROXY STATEMENT, IS INCORPORATED HEREIN BY REFERENCE,
AND SHOULD BE READ IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY STATEMENT.
THE SUMMARY OF THE OPINION OF BERWIND SET FORTH HEREIN IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
Berwind was selected to act as Aloette's financial advisor in
connection with the Merger based upon its qualifications, expertise and
experience. Berwind has knowledge of, and experience with, the mid-Atlantic
region as well as national markets and companies operating in those markets,
and was selected by Aloette because of its knowledge, experience and
reputation as an investment banking firm. Berwind, as part of its investment
banking business, is engaged regularly in the valuation of assets, securities
and companies in connection with various types of asset and securities
transactions, including mergers, acquisitions, private placements, and
valuations for various other purposes and in the determination of adequate
consideration in such transactions.
On April 10, 1998, the Board approved and executed the Merger
Agreement. Prior to such approval, Berwind delivered its Opinion to Aloette's
Board stating that, as of such date, the consideration to be received in the
Merger was fair to the shareholders of Aloette from a financial point of view.
Berwind confirmed the Opinion as of May 21, 1998. The full text of the Opinion
which sets forth assumptions made, matters considered and limits on the review
undertaken is attached as Appendix B to this Proxy Statement. No limitations
were imposed by the Board upon Berwind with respect to the investigations made
or procedures followed by Berwind in rendering the Opinion.
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In rendering its Opinion, Berwind: (i) reviewed the historical
financial performances, current financial positions and general prospects of
Aloette; (ii) reviewed the Merger Agreement; (iii) reviewed and analyzed the
stock market performance of Aloette; (iv) studied and analyzed the
consolidated financial and operating data of Aloette and ACIA; (v) considered
the terms and conditions of the proposed Merger as compared with the terms and
conditions of comparable company mergers and acquisitions; (vi) met and/or
communicated with certain members of Aloette's senior management to discuss
their respective operations, historical financial statements, and future
prospects; (vii) reviewed this Proxy Statement; and (viii) conducted such
other financial analyses, studies and investigations as Berwind deemed
appropriate.
In delivering its Opinion, Berwind assumed that in the course of
obtaining the necessary regulatory and governmental approvals for the Merger,
no restriction will be imposed on Aloette or ACIA that would have a material
adverse effect on the contemplated benefits of the Merger. Berwind also
assumed that there will not occur any change in applicable law or regulation
that would cause a material adverse change in the prospects or operations of
the combined company after the Merger.
Berwind relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by and
discussed with it for purposes of its Opinion. With respect to Aloette's
financial forecasts reviewed by Berwind in rendering its Opinion, Berwind
assumed that such financial forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Aloette as to the future financial performance of Aloette.
Berwind did not make an independent evaluation or appraisal of the assets or
liabilities of Aloette or ACIA nor was it furnished with any such appraisal.
The following is a summary of selected analyses conducted by Berwind
and presented to Aloette's Board in connection with the Opinion. In connection
with delivering its written Opinion as of May 21, 1998, Berwind updated
certain analyses to reflect current market conditions and events occurring
since April 10, 1998, when it originally delivered its Opinion to the Board.
Such reviews and updates led Berwind to conclude that it was not necessary to
change the conclusions it had reached in connection with rendering its
original Opinion.
Comparable Companies and Comparable Acquisition Transaction Analyses.
Berwind compared selected financial and operating data for Aloette with those
of a peer group of selected cosmetic distributors, as of the most recent
financial period publicly available, headquartered throughout the United
States. Financial data and operating ratios compared in the analysis of the
Aloette peer group included but were not limited to: gross margin, EBIT
(defined as earnings before interest and tax expenses) margin, EBITDA (defined
as earnings before interest, tax, depreciation and amortization expenses)
margin, long-term debt to shareholders' equity, certain liquidity and growth
rate ratios, equity value to earnings (latest twelve months) and enterprise
value (defined as equity value plus cash and marketable securities less
long-term debt) to (i) EBIT (latest twelve months) and (ii) EBITDA (latest
twelve months).
Berwind also compared the multiples of earnings, book value, EBIT and
EBITDA inherent to the Merger with the multiples paid in acquisitions of
certain wholesale distribution companies that Berwind deemed comparable. No
company or transaction, however, used in this analysis is identical to
Aloette, ACIA or the Merger. Accordingly, an analysis of the result of the
foregoing is not mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that would affect the public trading values of
the companies or company to which they are being compared.
Discounted Cash Flow Analyses. Using discounted cash flow analyses,
Berwind estimated the present value of Aloette's enterprise value after a
five-year period by (i) discounting projected free cash flows to the present
and (ii) applying a range of cash flow multiples to Aloette's terminal year
cash flow under various growth assumptions. The range of multiples used
reflected a variety of scenarios regarding the growth and profitability
prospects of Aloette. The cash flows and terminal values were then discounted
to present value using varying discount rates, reflecting different
assumptions regarding the rates of return required by holders or prospective
buyers of Aloette's Common Stock.
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Adjusted Net Book Value Analysis. Berwind estimated Aloette's
adjusted net book value after presenting certain assets and liabilities of
Aloette as of the most recent date such amounts have been publicly disclosed
at their approximate fair market value based on Aloette's assessments and/or
certain other independent sources. In addition, Berwind made certain
assumptions as to potential discounts to the fair market values of certain
assets and/or liabilities to reflect their potential realizable value under an
expedited collection and/or liquidation process. Berwind did not obtain actual
appraisals for any of Aloette's assets.
In connection with rendering its Opinion, Berwind performed a variety
of financial analyses. Although the evaluation of the fairness, from a
financial point of view, of the consideration to be paid in the Merger was to
some extent a subjective one based on the experience and judgment of Berwind
and not merely the result of mathematical analysis of financial data, Berwind
principally relied on the previously discussed financial valuation
methodologies in its determinations. Berwind believes its analyses must be
considered as a whole and that selecting portions of such analyses and factors
considered by Berwind without considering all such analyses and factors could
create an incomplete view of the process underlying Berwind's Opinion. In its
analysis, Berwind made numerous assumptions with respect to business, market,
monetary and economic conditions, industry performance and other matters, many
of which are beyond Aloette's and ACIA's control. Any estimates contained in
Berwind's analyses are not necessarily indicative of future results or values,
which may be significantly more or less favorable than such estimates.
In reaching its Opinion as to fairness, none of the analyses
performed by Berwind was assigned a greater or lesser weighting by Berwind
than any other analysis. As a result of its consideration of the aggregate of
all factors present and analyses performed, Berwind reached the conclusion,
and opined, that the consideration to be received in the Merger as set forth
in the Agreement, is fair from a financial point of view to Aloette and its
shareholders. The amount of the Merger Consideration was negotiated between
ACIA and Aloette.
Berwind's Opinion was based solely upon the information available to
it and the economic, market and other circumstances as they existed as of the
date its Opinion was delivered; events occurring after the date of its Opinion
could materially affect the assumptions used in preparing its Opinion. Berwind
has not undertaken nor does it intend to reaffirm and revise its Opinion or
otherwise comment upon any events occurring after the date thereof.
Pursuant to the terms of the engagement letter dated October 7, 1997,
Aloette has paid Berwind $10,000 for acting as financial advisor. In addition,
Aloette paid Berwind $50,000 upon the issuance of its written Opinion and has
agreed to pay approximately $230,000 upon the consummation of the Merger. In
addition, Aloette has agreed to reimburse Berwind for its reasonable
out-of-pocket expenses. Whether or not the Merger is consummated, Aloette has
also agreed to indemnify Berwind and certain related persons against certain
liabilities relating to or arising out of its engagement.
The full text of the Opinion of Berwind dated as of May 21, 1998,
which sets forth assumptions made and matters considered, is attached hereto
as Appendix B. Aloette's shareholders are urged to read the Opinion in its
entirety. Berwind's Opinion is directed only to the financial consideration to
be received by Aloette's shareholders in the Merger and does not constitute a
recommendation to any holder of Aloette Common Stock as to how such holder
should vote at the Meeting.
THE FOREGOING PROVIDES ONLY A SUMMARY OF THE OPINION OF BERWIND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THAT OPINION,
WHICH IS SET FORTH IN APPENDIX B TO THIS PROXY STATEMENT.
Interests of Certain Persons in the Merger
In considering the Merger, shareholders should be aware that certain
directors, officers and prior officers of Aloette have interests in the
Merger, as described below.
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Certain executive officers and employees of Aloette may enter into
employment agreements with the Surviving Entity or may be entitled to
severance payments based on existing agreements, severance plans and policies
of Aloette upon completion of the Merger, or should such individuals be
terminated after the Merger. As of the date hereof, no employment agreements
or severance arrangements have been finalized.
Options and Warrants. Certain of the Aloette officers and directors
hold Aloette Stock Rights (as defined below). Such Aloette officers and
directors who hold Aloette Stock Rights will be entitled to receive payment of
the Aloette Option and/or Warrant Consideration (as defined below), to the
extent provided in the Merger Agreement, in connection with the cancellation
of such Stock Rights. See "Merger Agreement--Aloette Options and Warrants."
Indemnification. The Merger Agreement provides that all rights to
indemnification and advancement of expenses existing in favor of any present
or former director or officer of Aloette, as provided in (i) Articles of
Incorporation or bylaws, respectively, or (ii) certain indemnification
agreements identified in the Merger Agreement as in effect on the date
thereof, shall continue indefinitely in full force and effect after the Merger
with respect to matters occurring at or prior to the Effective Time.
Other. John E. Defibaugh, a member of the Aloette Board of Directors,
a shareholder of Aloette and a holder of Aloette stock warrants, is also the
holder of a subordinated note from the Company in the amount of $1,355,720
with deferred interest outstanding of $633,535 as of April 23, 1998.
Cohen and other shareholders of ACIA control a franchise of the
Company that accounted for approximately 6% of Aloette's consolidated net
product sales in 1997. Since 1986, such franchise and individuals have been
parties to a franchise agreement with the Company containing customary terms.
Pursuant to the franchise agreement, such franchise routinely purchases
products from Aloette. Such purchases have been at "arm's-length" and
consistent with industry practice and terms provided to other franchises.
Aloette has had no material arrangements or contracts with ACIA prior to the
Merger Agreement.
Merger Agreement
The following summary of the Merger Agreement is subject to, and
qualified in its entirety by, the complete text of the Merger Agreement which
is attached to this Proxy Statement as Appendix A. The terms of the Merger
Agreement are the result of arms' length negotiations between Aloette and
ACIA.
Terms of the Merger. At the Effective Time, and subject to and upon
the terms and conditions of the Merger Agreement and the PBCL, ACIA will be
merged with and into Aloette, the separate corporate existence of ACIA will
cease, and Aloette will continue as the Surviving Entity.
Subject to and immediately following the receipt of the vote of
shareholders of Aloette and the satisfaction or waiver of the conditions to
the consummation of the Merger set forth in the Merger Agreement, the parties
shall cause the Merger to be consummated by filing articles of merger (the
"Articles of Merger") as contemplated by the PBCL and the Georgia Business
Corporation Code. The Merger shall be effective at the time the Articles of
Merger are filed with the Secretaries of State of the Commonwealth of
Pennsylvania and the State of Georgia and/or such other time as specified in
the Articles of Merger.
The Merger Agreement provides that the Articles of Incorporation of
Aloette, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Entity. The Merger Agreement
provides that the bylaws of Aloette, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Entity.
The directors of ACIA immediately prior to the Effective Time shall
be the initial directors of the Surviving Entity, and the officers of ACIA
immediately prior to the Effective Time shall be the initial officers of the
Surviving Entity.
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Conversion of Aloette Common Stock and the Stock of ACIA in the
Merger. At the Effective Time, each share of Aloette Common Stock which is
issued and outstanding immediately prior to the Effective Time (other than (i)
shares of Aloette Common Stock as to which appraisal rights are exercised and
(ii) shares of Aloette Common Stock held of record by Aloette or by any
wholly-owned subsidiary of Aloette) shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into and represent
the right to receive, in cash, the Merger Consideration.
At the Effective Time, each share of common stock of ACIA issued and
outstanding immediately prior to the Effective Time will be converted into one
share of common stock in the Surviving Entity, and those shares shall
constitute the only issued and outstanding shares of capital stock of the
Surviving Entity immediately after the Effective Time.
At the Effective Time, each share of Aloette Common Stock held in the
treasury of Aloette immediately prior to the Effective Time shall be canceled
and cease to exist, and no consideration will be delivered in exchange
therefor.
Appraisal Rights. Notwithstanding any provision of the Merger
Agreement to the contrary, any shares of Aloette Common Stock outstanding
immediately prior to the Effective Time held by a holder who has demanded and
perfected the right of appraisal of those shares in accordance with the
provisions of Sections 1571-1580 of the PBCL and as of the Effective Time has
not withdrawn or lost such right to such appraisal ("Dissenting Shares") shall
not be converted into or represent a right to receive a cash payment pursuant
to the Merger Agreement, but the holder shall only be entitled to such rights
as are granted by the PBCL. See "Appraisal Rights." If a holder of shares of
Aloette Common Stock who demands appraisal of those shares under the PBCL
effectively withdraws or loses (through failure to perfect or otherwise) the
right of appraisal, then, as of the Effective Time or the occurrence of such
event, whichever last occurs, those shares shall be converted into and
represent only the right to receive the Merger Consideration as provided in
the Merger Agreement, without interest, upon compliance with the provisions,
and subject to the limitations, of the Merger Agreement. The Merger Agreement
requires that Aloette shall give ACIA notice of any notices or demands for
appraisal of any shares of Aloette Common Stock, and ACIA shall have the right
to participate in all negotiations and proceedings with respect to such
demands for appraisal. Aloette or the Surviving Entity shall not, except with
the prior written consent of ACIA, voluntarily make any payment with respect
to any demands for appraisal of Aloette Common Stock, offer to settle or
settle any such demands or approve any withdrawal of any such demands.
Aloette Options and Warrants. ACIA and Aloette shall, effective as of
the Effective Time, (A) cause each outstanding stock option or warrants to
purchase shares of Aloette Common Stock ("Options" or "Warrants" as the case
may be and collectively "Stock Rights") granted, whether or not then
exercisable or vested, to become fully exercisable and vested, (B) cause each
Option and Warrant that is then outstanding to be canceled, and (C) in
consideration of such cancellation, and except to the extent that ACIA and the
holder of any such Option and Warrant otherwise agree, cause Aloette (or, at
ACIA's option, ACIA) to pay to such holders of Options and Warrants an amount
in respect thereof equal to the product of (i) the excess, if any, of the
Merger Consideration over the exercise price of each such Option and Warrant
and (ii) the number of shares previously subject to the Option and Warrant
immediately prior to its cancellation (such payment to be net of withholding
taxes).
Except as may be otherwise agreed to by ACIA and Aloette, the Aloette
Director's Stock Warrant Plan and Incentive Stock Option Plan, as amended
(collectively, the "Option Plans") shall terminate as of the Effective Time
and the provisions in any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of
Aloette or any of its Subsidiaries shall be deleted as of the Effective Time
and no holder of Options or any participant in the Option Plans or any other
plans, programs or arrangements shall have any right thereunder to acquire any
equity securities of ACIA, Aloette, the Surviving Entity or any subsidiary
thereof.
Payment for Shares. As of the Effective Time, ACIA will designate a
bank or trust company to act as agent for the holders of the shares of Aloette
Common Stock (the "Paying Agent") to receive the funds to which holders of the
shares will become entitled (the "Exchange Fund"). As soon as reasonably
practicable after the Effective Time, the Paying Agent will mail to each
Aloette shareholder of record holding shares that were converted into the
right to
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receive the Merger Consideration (i) a letter of transmittal (which will
specify that delivery will be effected, and risk of loss and title to the
certificates representing shares of Aloette Common Stock (the "Certificates")
will pass, only upon delivery of the Certificates to the Paying Agent and will
be in such form and have such other provisions as ACIA may specify and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate for
cancellation (or affidavits of loss in lieu thereof) to the Paying Agent,
together with a properly signed letter of transmittal and such other documents
as may reasonably be required by the Paying Agent, the holder of such
Certificate will be entitled to receive in exchange therefor the Merger
Consideration for each share formerly represented by such Certificate, and the
Certificate so surrendered will be canceled. If payment of the Merger
Consideration is to be made to a person other than the person in whose name
the Certificate so surrendered is registered, it shall be a condition of
payment that the Certificate so surrendered be properly endorsed or otherwise
in proper form for transfer and that the person requesting such payment shall
have paid any transfer or other taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder of such
Certificate surrendered or shall have established to the satisfaction of ACIA
that such tax has been paid or is not applicable. Until surrendered, each
Certificate will be deemed at any time after the Effective Time to represent
only the right to receive upon surrender the Merger Consideration in cash,
which the holder thereof has the right to receive in respect of such
Certificate. No interest will be paid or will accrue on any cash payable to
holders of Certificates.
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED
TO SHAREHOLDERS AND HOLDERS OF ALOETTE STOCK RIGHTS PROMPTLY FOLLOWING THE
EFFECTIVE TIME AS TO THE METHOD OF EXCHANGING CERTIFICATES FORMERLY
REPRESENTING SHARES OF ALOETTE COMMON STOCK OR STOCK RIGHTS FOR THE MERGER
CONSIDERATION. SHAREHOLDERS AND HOLDERS OF ALOETTE STOCK RIGHTS SHOULD NOT
SEND CERTIFICATES REPRESENTING THEIR SHARES OF ALOETTE COMMON STOCK OR STOCK
RIGHTS TO THE PAYING AGENT OR ALOETTE PRIOR TO RECEIPT OF THE TRANSMITTAL
LETTER.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of Aloette relating to, among other things, the
following matters (which representations and warranties are subject, in
certain cases, to specified exceptions): (i) organization, qualification and
corporate power; (ii) subsidiaries; (iii) capital structure; (iv) the
authorization, execution, delivery and enforceability of the Merger Agreement
and that the execution and delivery of the Merger Agreement does not conflict
with or result in a breach of (a) Aloette's or any subsidiary's Articles of
Incorporation or bylaws, (b) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to Aloette or any of its subsidiaries or their
respective properties or assets, or (c) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to the Company or any of its
subsidiaries or their respective properties or assets; (v) compliance with the
applicable Commission filing requirements and compliance in all material
respects of such filings with the requirements of the Securities Act of 1933,
as amended and the Exchange Act, the financial statements contained in such
filings, and the absence of undisclosed liabilities; (vi) information included
in the Proxy Statement; (vii) absence of certain changes or events since March
31, 1998; (viii) litigation; (ix) taxes; (x) employee matters; (xi) labor
matters; (xii) environmental matters; (xiii) compliance with applicable laws;
(xiv) insurance; (xv) trademarks, patents and copyrights; (xvi) material
contracts; (xvii) voting requirements for approving the Merger; (xviii) Board
approval of the Merger; (xix) brokers; and (xx) the opinion of the financial
advisor.
The Merger Agreement contains various representations and warranties
of ACIA relating to, among other things, the following matters (which
representations and warranties are subject, in certain cases, to specific
exceptions): (i) organization, standing and corporate power; (ii) the
authorization, execution, delivery and enforceability of the Merger Agreement
and that the execution and delivery of the Merger Agreement does not conflict
with or resulting in a breach of (a) ACIA's charter documents, (b) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to ACIA, or
(c) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to ACIA; (iii) voting requirements for approving the Merger; (iv)
brokers; (v) ownership of Aloette Common Stock; (vi) due diligence; (vii)
shareholders of ACIA;
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(viii) financial ability to perform the requirements set forth in the Merger
Agreement; and (ix) information supplied for inclusion in the Proxy Statement.
None of the representations or warranties of Aloette or ACIA survive
the consummation of the Merger.
Conduct of Business Pending the Merger. The Merger Agreement provides
that, from the date of the Merger Agreement through the Effective Time,
Aloette and its subsidiaries shall conduct their business only in the usual,
regular and ordinary course, in substantially the same manner as heretofore
conducted and in compliance in all material respects with all applicable laws
and, to the extent consistent therewith, and shall use reasonable efforts to
preserve intact their current business organizations. Without limiting the
generality of the foregoing, the Merger Agreement provides that, from the date
of the Merger Agreement through the Effective Time, Aloette, shall not do any
of the following without the prior written consent of ACIA: (i) other than
dividends and distributions (including liquidating distributions) by a direct
or indirect wholly-owned subsidiary of the Company to its parent, or by a
subsidiary that is partially owned by the Company or any of its subsidiaries,
provided that the Company or any such subsidiary receives or is to receive its
proportionate share thereof (based upon equity ownership), (A) declare, set
aside or pay any dividends on, or make any other distributions in respect of,
any of its capital stock, (B) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock, or (C)
purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its Subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible into,
or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities; (iii) amend its articles of
incorporation, bylaws or other comparable organizational documents; (iv)
acquire by merging or consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any business or any
corporation, limited liability company, partnership, joint venture,
association or other business organization or division thereof; (v) sell,
lease, license, mortgage or otherwise encumber or subject to any lien or
otherwise dispose of any of its properties or assets, other than (A) in the
ordinary course of business consistent with past practice and (B) sales of
assets, the net book value of which does not individually or in the aggregate
exceed $25,000; (vi)(A) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or any
of its subsidiaries, guarantee any debt securities of another person, enter
into any "keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the economic
effect of any of the foregoing, except for short-term debt not to exceed
$100,000 pursuant to existing credit facilities incurred in the ordinary
course of business consistent with past practice, or (B) make any loans,
advances or capital contributions to, or investments in, any other person,
other than to the Company or any subsidiary of the Company or to officers and
employees of the Company or any of its subsidiaries for travel, business or
relocation expenses in the ordinary course of business; (vii) make or agree to
make any capital expenditure or capital expenditures other than capital
expenditures set forth in the operating budget of the Company previously
furnished to ACIA; (viii) make any change to its accounting methods,
principles or practices, except as may be required by generally accepted
accounting principles; (ix) except as required by Law or contemplated by the
Merger Agreement enter into, adopt or amend in any material respect or
terminate any benefit plans maintained or contributed to by the Company or any
of its subsidiaries or any other agreement, plan or policy involving the
Company or any of its subsidiaries and one or more of their directors,
officers or employees, or materially change any actuarial or other assumption
used to calculate funding obligations with respect to any Company pension
plans, or change the manner in which contributions to any Company pension
plans are made or the basis on which such contributions are determined; (x)
increase the compensation of any director, executive officer or other key
employee of the Company or pay any benefit or amount not required by a plan or
arrangement as in effect on the date of this Agreement to any such person;
(xi) enter into any contract or agreement, written or oral, with any
affiliate, associate or relative of the Company, or make any payment to or for
the benefit of, directly or indirectly, any of the foregoing; (xii) authorize,
or commit or agree to take, any of the foregoing actions.
Additionally, except as required by law (including fiduciary duties
applicable to the Board consistent with their obligations under the Merger
Agreement), neither Aloette, on the one hand, nor ACIA, on the other hand,
will, and will not permit any of their respective subsidiaries to, voluntarily
take any action that would, or that could
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reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in the Merger Agreement that are qualified
as to materiality becoming untrue, (ii) any of such representations and
warranties that are not so qualified becoming untrue in any material respect,
or (iii) any of the conditions to the Merger not being satisfied. Aloette and
ACIA will promptly advise the other party orally and in writing of (i) any
representation or warranty made by them contained in the Merger Agreement that
is qualified as to materiality becoming untrue or inaccurate in any respect or
any such representation or warranty that is not so qualified becoming untrue
or inaccurate in any material respect, (ii) the failure by them to comply in
any material respect with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement, or (iii) any change or event having, or which, insofar as can
reasonably be foreseen, could reasonably be expected to have, a material
adverse effect on such party or on the truth of their respective
representations and warranties or the ability of the conditions to the Merger
to be satisfied.
Solicitations and Superior Proposals. Aloette agreed that upon
execution of the Merger Agreement it would immediately cease all activities or
negotiations with other parties pertaining to any extraordinary corporate
transaction which were conducted prior to the execution of the Merger
Agreement. Aloette will not, nor will it permit any of its subsidiaries to,
nor will it authorize or permit any of its officers, directors or employees or
any investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly through another person, (i) solicit, initiate or encourage
(including by way of furnishing information), or take any other action
designed to facilitate, any inquiries or the making of any proposal which
constitutes any Company Takeover Proposal (as hereinafter defined) or (ii)
participate in any discussions or negotiations regarding any Company Takeover
Proposal; provided, however, that if, at any time prior to the Effective Time,
the Board determines in good faith, after consultation with its financial
advisor and outside counsel, that such action is necessary for the Board to
comply with its fiduciary duties to the Company's shareholders under
applicable law, the Company may, in response to a bona fide written Company
Takeover Proposal which was not solicited by it or which did not otherwise
result from a breach of the Merger Agreement and which is a superior
transaction to the Merger and which is not subject to financing (a "Superior
Proposal"): (A) furnish information with respect to the Company and each of
its subsidiaries to any person or entity pursuant to a customary
confidentiality agreement (as determined by the Company after consultation
with its outside counsel), (B) participate in negotiations regarding such
Company Takeover Proposal, (C) provide access to employees, franchisees,
accountants, lawyers, financial advisors and other advisors to the Company,
and (D) conduct meetings with Company management regarding such Company
Takeover Proposal. For purposes of this Agreement, "Company Takeover Proposal"
means any inquiry, proposal or offer from any person or entity relating to any
direct or indirect acquisition or purchase of 15% or more of the assets of the
Company and its subsidiaries or 15% or more of any class of equity securities
of the Company or any of its subsidiaries, any tender offer or exchange offer
that if consummated would result in any person or entity beneficially owning
15% or more of any class of equity securities of the Company or any of its
subsidiaries, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
the Company or any of its subsidiaries, other than the transactions
contemplated by the Merger Agreement.
Except as expressly permitted in the Merger Agreement, neither the
Board nor any committee thereof may (i) withdraw or modify, or propose
publicly to withdraw or modify, the approval or recommendation by the Board or
such committee of the Merger or the Merger Agreement, (ii) approve or
recommend, or propose publicly to approve or recommend, any Company Takeover
Proposal, or (iii) cause the Company to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement
related to any Company Takeover Proposal. Notwithstanding the foregoing, in
the event that prior to the Effective Time the Board determines in good faith,
after the Company has received a Superior Proposal and after consultation with
its financial adviser and outside counsel, that it is necessary to do so in
order to comply with its fiduciary duties to the Company's shareholders under
applicable law, the Board may withdraw or modify its approval or
recommendation of the Merger or the Merger Agreement, approve or recommend a
Superior Proposal or terminate this Agreement.
In addition to the above obligations of the Company, the Company will
(i) immediately advise ACIA orally and in writing of any request for
information or of any Company Takeover Proposal and the material terms and
conditions of such request or Company Takeover Proposal and (ii) keep ACIA
reasonably informed of the status and details (including amendments or
proposed amendments) of any such request or Company Takeover Proposal,
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provided, however, that the Company will not be required to provide to ACIA
any information if and to the extent that the Board determines in good faith,
following consultation with outside counsel, that it is necessary to refrain
from doing so in order to comply with its fiduciary duties to the Company's
shareholders under applicable law.
Additional Covenants. Pursuant to the Merger Agreement, Aloette and
ACIA have covenanted to use reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, and to assist and cooperate with
the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, the Merger.
In the event that the Merger Agreement is terminated (i) because the
parties have not consummated the Merger by August 15, 1998, provided that ACIA
is not in breach of its obligations under the Agreement; (ii) because the
Aloette shareholders do not approve the Merger; or (iii) by Aloette in
connection with the Company's receipt of a Superior Proposal, then Aloette
will, within thirty (30) days after the termination date, pay ACIA a fee equal
to $125,000.
ACIA's Deposit. Simultaneous with the execution of the Merger
Agreement, ACIA deposited with PNC Bank, National Association (the "Escrow
Agent") the Deposit of $1,170,000, which will be held by the Escrow Agent in
accordance with the terms of the Escrow Agreement among ACIA, the Company and
the Escrow Agent. ACIA is entitled to have the Deposit returned to ACIA only
in the event that te Merger Agreement is terminated (i) because the parties
have not consummated the Merger by August 15, 1998, provided that ACIA is not
in breach of its obligations under the Agreement; (ii) because the Aloette
shareholders do not approve the Merger; or (iii) by Aloette in connection with
the Company's receipt of a Superior Proposal. The Deposit is not intended to
be construed as liquidated damages or to limit any rights or remedies of
Aloette with respect to ACIA or any obligations of ACIA to Aloette.
Conditions to the Merger. The obligations of Aloette and ACIA to
complete the Merger are subject to the fulfillment of the following
conditions, any one or more of which may be waived by any such party, to the
extent permitted by applicable law: (i) the Merger shall have been approved by
the shareholders of Aloette; and (ii) no order or law shall have been enacted,
entered, promulgated, enforced or issued by any court of competent
jurisdiction or other governmental entity or other legal restraint or
prohibition preventing the consummation of the Merger;
The obligation of ACIA to complete the Merger is further subject to
the fulfillment of the following conditions, any one or more of which may be
waived by ACIA: (i) Aloette shall have performed in all material respects, all
obligations required to be performed by it under the Merger Agreement; and
Aloette shall provide a certificate signed on behalf of the Company by the
chief executive officer and the chief financial officer of the Company to such
effect; (ii) retail sales by the Company's franchises of Aloette's products
for the period April 1, 1998 to the end of the month preceding the Closing
shall not have declined more than 20% for the comparable period in 1997 based
upon the reports of such franchises' sales delivered to the Company from the
franchises; (iii) other than a decline in the Company's financial position as
a result of operations related to a decline in revenues, there shall not have
been any occurrence outside the ordinary course of business that has resulted,
or is reasonably likely to result, in an expenditure of greater than $600,000
after the receipt of any applicable proceeds from insurance or other sources;
and (iv) the representations and warranties of Aloette set forth in the Merger
Agreement shall have been true and correct in all material respects on the
date of the Merger Agreement.
The obligation of Aloette to complete the Merger is further subject
to the fulfillment of the following conditions, any one or more of which may
be waived by Aloette: (i) ACIA shall have performed in all material respects
all obligations required to be performed by it under the Merger Agreement; and
Aloette shall provide a certificate signed on behalf of the Company by the
chief executive officer and the chief financial officer of ACIA to such
effect; (ii) ACIA shall have deposited into the Exchange Fund with the Paying
Agent funds sufficient to purchase all of the shares of Aloette Common Stock
outstanding on a fully diluted basis, and to pay all fees and expenses related
to the transactions contemplated by the Merger Agreement; and (iii) the
representations and warranties of ACIA set forth in the Merger Agreement shall
have been true and correct in all material respects on the date of the Merger
Agreement.
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Termination of Merger Agreement and Termination Fees. Except as
provided below, if any party terminates the Merger Agreement pursuant to the
terms of the Merger Agreement, all rights and obligations shall terminate
without any liability of any party to any other party.
The Merger Agreement may be terminated in the event of any of the
following:
(i) by mutual written consent of Aloette and ACIA;
(ii) by either party if the Merger is not consummated by August
15, 1998, unless the terminating party has caused the
failure to meet the applicable closing conditions by
wrongful action or a failure to act;
(iii) by either party if the shareholders of Aloette do not approve
the Merger;
(iv) by either party if a law or court order prohibits the Merger;
(v) by Aloette in the event that, prior to the Effective Time,
the Board determines in good faith, after Aloette has
received a Superior Proposal and after consultation with its
financial adviser and outside counsel, that it is necessary
to do so in order to comply with its fiduciary duties to the
Company's shareholders under applicable laws.
Expenses. All expenses incurred in connection with the Merger
Agreement and the transactions contemplated in the Merger Agreement will be
paid by the party incurring such expenses.
Amendment. The Merger Agreement may be amended by the parties at any
time before or after the Company obtains shareholder approval; provided,
however, that after any such approval, there may not be made any amendment
that decreases the Merger Consideration or adversely affects the rights of the
Company's shareholders without the further approval of such shareholders.
Guaranty Agreement
Because ACIA is a newly formed non-operating company with no material
assets except cash on hand, simultaneously with the execution of the Merger
Agreement, the shareholders of ACIA entered into a Guaranty Agreement with
Aloette whereby the ACIA shareholders unconditionally and irrevocably
guaranteed the performance of the ACIA obligations (including the payment of
any indebtedness or liability of ACIA to Aloette) under the Merger Agreement.
The aggregate liability of the ACIA shareholders is limited under the Guaranty
Agreement to $1,170,000. The ACIA shareholders also agreed to cause ACIA to
perform all covenants and agreements under the Merger Agreement, subject to
the aforesaid limit of liability. Further, the ACIA shareholders agreed to
indemnify Aloette and hold it harmless from all expenses incurred in the
enforcement of the Guaranty Agreement. The obligations of the ACIA
shareholders under the Guaranty Agreement are joint and several.
Accounting Treatment
The Merger will be accounted for under the purchase method of
accounting. A final determination of required purchase accounting adjustments
of the fair value of the assets and liabilities of Aloette has not yet been
made.
Certain Effects of the Merger
Upon consummation of the Merger, ACIA will be merged into Aloette,
the separate corporate existence of ACIA will cease, and Aloette will continue
as the Surviving Entity. ACIA's shareholders will own directly or indirectly
all of the outstanding shares of common stock of the Surviving Entity and will
be entitled to all of the benefits and detriments resulting from that
interest, including all income or losses generated by the Surviving Entity's
operations and any future increase or decrease in the Surviving Entity's value.
After the Effective Time, the present
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holders of the Aloette Common Stock will no longer have any equity interest in
Aloette, will not share in the future earnings or growth of the Surviving
Entity and will no longer have rights to vote on corporate matters.
Aloette is currently subject to the information filing requirements
of the Exchange Act, and in accordance therewith, is required to file reports
and other information with the Commission relating to its business, financial
statements and other matters. As a result of the Merger, there will cease to
be any public market for the Aloette Common Stock, and, after the Effective
Time, the Aloette Common Stock will be delisted from the Nasdaq Stock Market.
Upon such event, the Surviving Entity will apply to the Commission for the
deregistration of the Aloette Common Stock under the Exchange Act. The
termination of the registration of the Aloette Common Stock under the Exchange
Act would make certain provisions of the Exchange Act (including the proxy
solicitation provisions of Section 14(a), and the short swing trading
provisions of Section 16(b)), no longer applicable to the Surviving Entity.
Federal Income Tax Consequences
Upon consummation of the Merger, each outstanding share of Aloette
Common Stock (except for those with respect to which statutory appraisal
rights are exercised) will be converted into the right to receive the Merger
Consideration.
The following discussion is a summary of the principal federal income
tax consequences of the Merger. The discussion applies only to shareholders of
Aloette that are not also shareholders of ACIA and in whose hands shares of
Aloette Common Stock are capital assets, and may not apply to shares of
Aloette Common Stock received pursuant to the exercise of employee stock
options or otherwise as compensation or to shareholders who are not citizens
or residents of the United States.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR
GENERAL INFORMATIONAL PURPOSES ONLY AND ARE BASED UPON PRESENT LAW. BECAUSE
INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH SHAREHOLDER IS URGED TO CONSULT SUCH
SHAREHOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE RULES
DISCUSSED BELOW TO SUCH SHAREHOLDER AND THE PARTICULAR TAX EFFECTS OF THE
MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER TAX
LAWS.
The receipt of cash pursuant to the Merger will be a taxable
transaction for federal income tax purposes under the Internal Revenue Code of
1986, as amended (the "Code"). In general, for federal income tax purposes, a
shareholder will recognize gain or loss equal to the difference between the
cash received by the shareholder pursuant to the Merger Agreement and the
shareholder's adjusted tax basis in the shares of Aloette Common Stock
surrendered pursuant to the Merger Agreement. Such gain or loss will be
capital gain or loss and will be long-term gain or loss if, at the Effective
Time, the shares of Aloette Common Stock were held for more than one year.
Long-term capital gain recognized by an individual shareholder will be taxed
at the lowest rates applicable to capital gains if the shareholder has held
the shares of Aloette Common Stock for more than 18 months. Certain
limitations apply with respect to the deductibility of capital losses.
Payments in connection with the Merger may be subject to "backup
withholding" at a 31% rate. Backup withholding generally applies if the
shareholder fails to furnish such shareholder's social security number or
other taxpayer identification number ("TIN"), or furnishes an incorrect TIN.
Backup withholding is not an additional tax but merely a creditable advance
payment, which may be refunded to the extent it results in an overpayment of
tax. Certain persons generally are exempt from backup withholding, including
corporations and financial institutions. Certain penalties apply for failure
to furnish correct information and for failure to include reportable payments
in income. Shareholders should consult with their own tax advisors as to the
qualifications and procedures for exemption from backup withholding.
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Regulatory Compliance
Articles of Merger must be filed on behalf of Aloette with the
Secretary of State of the Commonwealth of Pennsylvania and ACIA with the
Secretary of State of the State of Georgia in order to effect the Merger.
Aloette is not aware of any licenses or regulatory permits that are material
to its business that might be adversely affected by the Merger or of any
approval or other action by any governmental, administrative or regulatory
agency or authority which would be required prior to the Effective Time.
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APPRAISAL RIGHTS
If the Merger is consummated, shareholders who do not wish to accept
the Merger Consideration and who fully comply with the statutory procedures
for exercising appraisal rights set forth in the PBCL will be entitled to
receive cash for the fair value of their Aloette Common Stock as determined
pursuant to the procedures prescribed by the PBCL. Merely voting against the
Merger Agreement will not perfect a shareholder's appraisal rights.
Shareholders are urged to review carefully the dissenting shareholders' rights
provisions of the PBCL, a description of which is provided below and the full
text of which is attached to this Proxy Statement as Appendix D and
incorporated herein by reference. SHAREHOLDERS WHO FAIL TO COMPLY STRICTLY
WITH THE APPLICABLE PROCEDURES WILL FORFEIT THEIR APPRAISAL RIGHTS IN
CONNECTION WITH THE MERGER.
Sections 1571-80 of the PBCL ("Subchapter D") and 1930(a) of the
PBCL, copies of which are attached to this Proxy Statement as Appendix D,
entitle any holder of record of Aloette Common Stock who objects to the
Merger, in lieu of receiving the consideration for such Aloette Common Stock
provided under the Merger Agreement, to demand in writing that he be paid in
cash the fair value of his Aloette Common Stock. Section 1572 of the PBCL
defines "fair value" as: "The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects, taking
into account all relevant factors, but excluding any appreciation or
depreciation in anticipation of the corporate action."
Any shareholder contemplating making demand for fair value is urged
to review carefully the provisions of Subchapter D, particularly the
procedural steps required to perfect his appraisal rights thereunder.
APPRAISAL RIGHTS WILL BE LOST IF THE PROCEDURAL REQUIREMENTS OF SUBCHAPTER D
ARE NOT FULLY AND PRECISELY SATISFIED. The following summary does not purport
to be a complete statement of the provisions of Subchapter D of the PBCL and
is qualified in its entirety by reference to Appendix D and the PBCL.
Filing Notice of Intention to Demand Fair Value. If you wish to
exercise your appraisal right or to preserve the right to do so, before the
vote of the shareholders is taken on the Merger you must deliver to Aloette a
written notice of intention to demand that you be paid the fair value of your
Aloette Common Stock if the Merger is effected. Such written notice must be
sent to Jean M. Lewis, Secretary of Aloette, at Aloette Cosmetics, Inc., 1301
Wright's Lane East, West Chester, PA 19380. A vote against the Merger is not
sufficient to satisfy the requirement of delivering a written notice to
Aloette. In addition, you must continuously hold your Aloette Common Stock
from the date of filing the notice with Aloette through the consummation of
the Merger, and you must not vote your Aloette Common Stock in favor of the
Merger. Your failure to comply with any of the foregoing will result in the
forfeiture of any right to payment of fair value for your Aloette Common
Stock. Once the demand has been properly made, the determination of "fair
value" will be made pursuant to the provisions of Pennsylvania law, including
an ultimate court determination if applicable.
Notice to Demand Payment. If the Merger is approved by the
shareholders, Aloette will mail you a further notice if you gave due notice of
your intention to exercise your statutory appraisal right and you refrained
from voting in favor of the Merger. This notice will provide you with certain
instructions for demanding payment and will notify you of a date by which such
right must be exercised.
Record Owners and Beneficial Owners. If you are a record holder of
Aloette Common Stock held in whole or in part for the benefit of another
person, you may assert appraisal rights as to fewer than all of the Aloette
Common Stock registered in your name only if you dissent with respect to all
the Aloette Common Stock beneficially owned by such person and disclose the
name and address of the person or persons on whose behalf you dissent. If you
are a beneficial owner of Aloette Common Stock and are not the record holder,
you may assert appraisal rights with respect to Aloette Common Stock held on
your behalf if you submit to Aloette the written consent of the record holder
not later than the time of assertion of appraisal rights. If you are a
beneficial owner, you may not dissent with respect to fewer than all of your
shares of Aloette Common Stock, whether or not such Aloette Common Stock is
registered in your name.
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INFORMATION REGARDING ALOETTE
General. Aloette Cosmetics, Inc. was incorporated in 1977 under the
laws of the Commonwealth of Pennsylvania and is primarily engaged in the
distribution of aloe vera-based skin care products, cosmetics and other
personal care products. As used herein, "the Company" includes the operations
of Aloette Cosmetics, Inc. and its wholly-owned subsidiaries. The Company
markets its products through its domestic and foreign franchises, and
distributors. As of March 31, 1998, 79 franchises were located in the United
States and Canada.
During the period from January 1990 through June 1995, the Company
also manufactured products for sale to its franchises as well as other health
and beauty aid products for sale to third parties. On June 15, 1995 the
Company consummated the sale of substantially all of the assets of its
manufacturing operations in Texas for cash of approximately $2.1 million. The
sale included the facility, inventory and equipment. In connection with the
sale, the Company entered into a five-year supply agreement with the buyer to
purchase inventory at prices competitive in the industry. As a result of the
sale of the manufacturing operations, the Company recorded a pre-tax charge of
$3.8 million in 1995. Sales from the manufacturing operations were
approximately $1.2 million through the date of sale in 1995. The net loss from
normal operations for the corresponding period was $478,000.
Products. The majority of the Company's revenues are derived from
sales to its franchises of approximately 120 aloe vera-based skin care
products, makeup, fragrance and cosmetic accessory products marketed
exclusively under the trade name "Aloette". A common ingredient in the Aloette
skin care line is the gel from the plant popularly known as aloe vera. The
Company's Aloette skin care items are grouped according to individual skin
type and are designed to be used in a daily regimen. Aloette's glamour
products include liquid foundations, pressed powders, powder blushes, powder
eye shadows, eye pencils, mascaras, lipsticks, hair care items and sun-care
products. Fragrance items include a Caribe line, a bath set and men's and
women's colognes. The Company also sells promotional and support items to its
franchises, including business supplies, product samples and sales and
recruiting materials.
Marketing. Products marketed under the Aloette name are not sold in
retail stores and are primarily available through Aloette's domestic and
foreign franchises who recruit and train Beauty Consultants who utilize sales
techniques developed by the Company. Beauty Consultants are not required to
purchase, maintain inventories of or deliver products; instead, the Company
sells its products to franchises who maintain inventories at levels sufficient
to meet anticipated orders from customers.
Beauty Consultants hold Shows principally in the homes of a host or
hostess where they present the Company's products, instruct guests concerning
the use of such products as part of a daily beauty program and obtain product
orders. Franchises are responsible for shipping the products that are ordered
to hostesses, who in turn arrange for guests to receive their orders. Beauty
Consultants also obtain reorders from customers and sell Aloette products
through individual consultations. Non-show orders are shipped by franchises
directly to customers.
Franchising. In North America, the Company presently markets its
Aloette products primarily through a franchise system. In order to become a
franchisee, an applicant must enter into a franchise agreement with the
Company and pay a franchise fee. The fee is $20,000 payable upon execution,
however financing of the fee is available on approved credit. The franchise
agreement requires that a franchise make an initial inventory purchase of
approximately $6,000 to $7,500 and that the franchisee have an adequate amount
of working capital at the start of its operations.
Under the franchise agreement, the Company grants specific rights and
a license to operate a franchise in a specific territory, which generally
contains approximately 750,000 people in the U.S. and 500,000 people in
Canada. Sales generated outside the franchise's territory may be subject to
certain unrestricted fees. In addition, the right to market in a specified
territory can be rescinded in the event the franchise fails to achieve sales
quotas at various anniversary dates of the agreement. This is relatively
consistent with the Company's original franchise philosophy prior to 1993,
when the Company developed certain Territorial Subdivision, Multi-Unit
Development and Master
24
<PAGE>
Franchise strategies. Under these strategies, franchises were established with
approximately 100,000 or more in population.
At March 31, 1998, the Company had a total of 48 franchises in the
United States which were located in the following geographic regions: 10 in
the Northeast; 19 in the South; 11 in the Midwest; and 8 in the West. At March
31, 1998, the Company had a total of 31 Canadian franchises which were located
in the following provinces: 18 in Ontario; 2 in Quebec; 3 in Alberta; 3 in
British Columbia and 5 in other Canadian provinces.
In countries other than the United States and Canada, the Company
grants Distributorship and License Agreements which provide for either the
exclusive or non-exclusive distribution rights for Aloette products within a
particular foreign country or market, including the right to sublicense in
accordance with the Aloette franchise system. The purchase fees charged by the
Company for the agreements are negotiated and depend, in part, upon the size
of the potential market. Net product sales to non-affiliate international
franchises and distributors are less than 1% of the Company's total net
product sales.
Suppliers. The Company currently purchases raw materials, consisting
chiefly of essential oils, chemicals, containers and packaging components from
various domestic and international suppliers. In addition, gel from the aloe
vera plant is an important ingredient in the Company's skin care products and
is purchased by its suppliers from several sources. The Company believes that
its suppliers can obtain sufficient aloe vera to manufacture and supply its
products.
The Company continually engages in research and development
activities to improve its existing products and to develop new products. Such
activities have not required material expenditures.
Distribution. The Company's products are shipped directly from the
manufacturers to Company-owned warehouse facilities. As of March 31, 1998, the
Company's warehouses were located in: West Chester, Pennsylvania; and Concord,
Ontario, Canada.
Aloette products are shipped by the Company from its distribution
centers to franchises who are obligated to pay for such products within thirty
days of the invoice date. Franchises either ship products directly to the
customer or, in the case of a Show, to the hostess or host two weeks from the
date of the Show. All shipments made directly to hostesses, hosts or customers
must be paid for in full either prior to, or upon delivery. Products are also
shipped by the Company from its distribution centers to international
distributors that are obligated to prepay or pay for such products by letter
of credit.
Competition. The cosmetics industry is a highly competitive market
which is subject to changing consumer preferences and demands. There are many
companies which sell cosmetics by means of Shows, on a door-to-door basis, by
direct response (i.e., mail order, telephone, television, etc.) or in retail
stores. All of these companies compete with the Company. Many of these
competitors are substantially larger than the Company in terms of sales and
distributors and have substantially greater financial resources and
experience.
The Company's competition arises from both domestic and foreign
sources. Two of the better known direct marketing cosmetics companies which
compete with the Company's Aloette products are Mary Kay Cosmetics, Inc.,
which sells cosmetics directly to its beauty consultants who, subsequently,
market them to customers and Avon Products, Inc., which historically has
primarily utilized the door-to-door selling technique. Both of these companies
are substantially larger than the Company. The market in which the Company
participates is highly competitive in price, service and quality. The Company
believes that its continued success will depend on its ability to remain
competitive in these areas.
In the marketing of Aloette products, price is a significant
competitive factor. Due to the Company's direct sales and franchise marketing
methods, the Company has been able to price its products at levels which are
substantially lower than those for products which the Company believes to be
of comparable quality.
25
<PAGE>
Regulation. The Company is subject to regulation by the Food and Drug
Administration ("FDA") and the Alcohol and Tax Unit of the Treasury
Department. The Company's franchise sales practices, franchise agreements and
advertising and general sales practices are subject to regulation by the
Federal Trade Commission. In addition, the Company's operations are subject to
numerous federal, state and local laws related to the sale of franchises and
the labeling, content and packaging of its products.
Each of the foreign jurisdictions in which the Company markets its
products imposes regulatory requirements on the labeling and content of such
products, as well as the sale of franchises. The Company believes that its
products, franchise practices and methods of distribution are in compliance
with all such foreign and domestic laws and regulations.
Certain of the Company's suppliers are also subject to regulation by
the FDA. The Company has no reason to believe that such suppliers are not in
compliance with requirements set by the FDA.
Trademarks and Patents. The Company's trademark "Aloette," issued in
May 1988, has a twenty-year life and is subject to renewal. In addition, the
Company has registered or is in the process of registration the trademarks or
service marks, "Aloespa," "Prime Complexion," "Caribe," "Ransom," and the
design of the Aloette Lark, its logo, in the United States Patent and
Trademark Office and certain foreign countries. Although the marks may not be
registered with any states, the company claims common law rights to the marks
based on adoption and use. To the Company's knowledge, there are no pending
interference, opposition or cancellation proceedings, or litigation,
threatened or claimed, with respect to the marks in any jurisdiction.
Employees. As of March 31, 1998, the Company employed 27 people who
were involved with the Company's franchise and distribution business at the
corporate offices and 6 people at the Company owned franchises.
The Aloette franchisees are independent business owners and not
employees of the Company. Similarly, the Beauty Consultants are independent
contractors of the franchisees and are neither employees nor involved in a
contractual relationship with the Company.
None of the Company's employees are represented by a labor
organization and the Company is not a party to any collective bargaining
agreement. The Company has never been subject to an employee strike or work
stoppage and considers its employee relations to be good.
Insurance. The Company presently maintains product liability
insurance at a level which management believes is sufficient. However, because
of the risks inherent in selling cosmetics, it is possible that the Company
could be held liable in future litigation for amounts in excess of its product
liability insurance coverage. A judgment against the Company for an amount
exceeding its liability insurance coverage could have a material adverse
effect upon the Company. If a product liability claim were asserted and the
product in question was acquired from an independent supplier, the Company
might be able to proceed against such supplier. However, the success of any
such proceeding could be affected by product alterations by the Company, the
insolvency of such supplier or other uncertainties.
Property. The 25,000 square foot corporate headquarters located in
West Chester, Pennsylvania is owned by the Company. Approximately 10,000
square feet is used for office space and 15,000 square feet is used for
warehousing and shipping.
The Company's Canadian office is located in Concord, Ontario where
the Company owns a 17,500 square foot building. Approximately 7,500 square
feet is used for office space and 10,000 square feet is used for warehousing
and shipping.
Legal Proceedings. From time to time, the Company is a defendant in
litigation arising in the normal course of business. Management is not aware
of any litigation which would have a material adverse effect on the Company's
consolidated financial position or results of operations.
26
<PAGE>
INFORMATION REGARDING ACIA
ACI Acquisition Partners, Inc. is a closely held corporation recently
organized for the purpose of effecting the Merger. It has no material assets
(except for cash on hand) and is not engaged in any material activities,
except in connection with the Merger and the transactions contemplated
thereby.
The executive offices of ACIA, are located at 1640 Powers Ferry Road,
Building 4, Marietta, Georgia 30067, and their telephone number is (770)
989-0333.
ACIA will finance the payment of the aggregate Merger Consideration
from its existing cash reserves or proceeds from potential bank financing.
MARKET PRICE FOR THE ALOETTE COMMON STOCK
The Aloette Common Stock is listed on the Nasdaq Stock Market under
the symbol "ALET." On April 13, 1998, the last trading day preceding the
public announcement of the Merger Agreement, the high and low sales prices for
the Aloette Common Stock as reported by the Nasdaq Stock Market were $4 3/8
and $4, respectively. On April 23, 1998, the closing sale price of the Aloette
Common Stock was $4 29/32. Set forth below is the range of the high and the
low sales prices for the Aloette Common Stock as reported by the Nasdaq Stock
Market for the current period and during each fiscal quarter within the two
most recent fiscal years:
Quarter Ended High Low
- ------------- ---- ---
April 1, 1998 through April 13, 1998 $ 4 3/8 $ 3 1/4
March 31, 1998 $ 4 3/4 $ 3
December 31, 1997 $ 3 1/4 $ 2 1/2
September 30, 1997 $ 3 1/4 $ 2 9/16
June 30, 1997 $ 3 1/4 $ 2 5/8
March 31, 1997 $ 3 1/4 $ 2 7/8
December 31, 1996 $ 4 1/8 $ 2 3/4
September 30, 1996 $ 4 5/8 $ 3 5/8
June 30, 1996 $ 5 1/8 $ 3 3/4
March 31, 1996 $ 5 1/2 $ 2 1/4
Aloette currently intends to retain future earnings, if any, for use
in its business and, therefore, does not anticipate paying any cash dividends
in the foreseeable future.
27
<PAGE>
PRINCIPAL SHAREHOLDERS AND HOLDINGS OF OFFICERS AND DIRECTORS
The following table sets forth the number and percentage of shares of
Aloette Common Stock which, according to information supplied to Aloette, are
beneficially owned by: (i) each of the members of the Aloette Board of
Directors, individually; (ii) Aloette's executive officers and (iii) all
directors and executive officers of Aloette as a group. Under rules of the
Commission, a person is deemed to be the beneficial owner of Aloette Common
Stock with respect to which such person has or shares voting power or
investment power. A person is also deemed to be the beneficial owner of shares
of Aloette Common Stock as of a given date with respect to which such person
has the right to obtain voting or investment power within 60 days of such
given date, such as upon the exercise of options or warrants. Unless otherwise
indicated, the information in the following table is as of April 23, 1998. The
address of each person identified in the table is c/o Aloette Cosmetics, Inc.,
1301 Wright's Lane East, West Chester, PA 19380.
<TABLE>
<CAPTION>
Amount and Nature of Percentage of Shares
Name of Beneficial Owner Beneficial Ownership (1) Outstanding(2)
------------------------ ------------------------ --------------
<S> <C> <C>
Patricia J. Defibaugh 904,769(3) 40.1%
Robert B. Throm 31,658(4) 1.5%
John E. Defibaugh 45,000(5) 2.1%
Mark J. DeNino 19,000(5)(6) *
William J. Albertus, Sr. 3,294(5) *
Jean M. Lewis 87,955(7) 4.0%
All officers and directors as a group (6 persons) 1,091,676(8) 46.3%
</TABLE>
(1) Unless otherwise indicated, each Director and executive officer has
sole voting and investment power with respect to the shares indicated
as beneficially owned by such Director or executive officers.
(2) All percentages are rounded to the nearest tenth of a percent.
(3) Includes 150,000 options, which are immediately exercisable, and
7,287 shares of Common Stock granted pursuant to, and vested under
the Company's Employee Stock Ownership Plan.
(4) Includes 5,000 immediately exercisable Warrants issued pursuant to
the Company's Directors' Warrant Plan.
(5) Includes 2,000 immediately exercisable Warrants issued pursuant to
the Company's Directors' Warrant Plan.
(6) Includes 16,000 options, which are immediately exercisable.
(7) Includes 75,000 options, which are immediately exercisable, and
11,755 shares of Common Stock granted pursuant to, and vested under,
the Company's Employee Stock Ownership Plan.
(8) Includes 252,000 options and warrants, which are immediately
exercisable.
* Less than 1%
The following table sets forth information concerning, as of April
23, 1998, each person, other than Patricia J. Defibaugh, whose beneficial
ownership is noted above, known to the Company to be the beneficial owner of
more than 5% of the Company's Common Stock as determined in accordance with
Rule 13d-3 under the Exchange Act. The information set forth below is derived,
without independent investigation on the part of the Company, from filings
made by such beneficial owners pursuant to Rule 13d-3.
<TABLE>
<CAPTION>
Name and Business Number of Shares Owned Percent of Class
Address of Beneficial Owner ---------------------- ----------------
- ---------------------------
<S> <C> <C>
Dimensional Fund Advisors, Inc. 127,000 5.9%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Pure World, Inc. 118,998 5.7%
376 Main Street
Bedminster, NJ 07921
</TABLE>
28
<PAGE>
INDEPENDENT ACCOUNTANTS
Representatives of Coopers & Lybrand, L.L.P., Aloette's present
independent accountants, are expected to be present at the Meeting, where they
will be available to respond to appropriate questions and have the opportunity
to make a statement if they so desire.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
As required by law, Aloette files reports, proxy statements and other
information with the Commission. These reports, proxy statements and other
information contain additional information about Aloette. You can inspect and
copy these materials at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the following Regional Offices of the Commission: 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
Suite 1300, New York, New York 10048. For further information concerning the
Commission's public reference rooms, you may call the Commission at
1-800-SEC-0330. Some of this information may also be accessed on the World
Wide Web through the Commission's Internet address at "http://www.sec.gov."
The Commission allows Aloette to "incorporate by reference"
information into this Proxy Statement, which means that Aloette can disclose
important information by referring you to another document filed separately
with the Commission, copies of which are being furnished herewith. Information
incorporated by reference is considered part of this Proxy Statement, except
to the extent that the information is superseded by information in this Proxy
Statement. This Proxy Statement incorporates by reference the information
contained in the following documents previously filed by Aloette with the
Commission (Commission file number 0-15414), copies of which are being
furnished herewith:
(a) Aloette's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997 and amendment No. 1 thereto;
(b) Aloette's Current Report on Form 8-K filed May 5, 1998; and
(c) Aloette's Quarterly Report on Form 10-QSB for the period ended
March 31, 1998.
If you are a shareholder of Aloette and would like to receive a copy
of any of the exhibits to the above-described documents, you should call or
write to Jean M. Lewis, Chief Financial Officer, Aloette Cosmetics, Inc., 1301
Wright's Lane East, West Chester, PA 19380, telephone no. (610) 692-0600. In
order to ensure timely delivery of the documents you request, you should make
your request by June 9, 1998.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN (OR INCORPORATED
BY REFERENCE INTO) THIS PROXY STATEMENT. ALOETTE HAS NOT AUTHORIZED ANYONE TO
GIVE ANY INFORMATION DIFFERENT FROM THE INFORMATION CONTAINED IN (OR
INCORPORATED BY REFERENCE INTO) THIS PROXY STATEMENT. THIS PROXY STATEMENT IS
DATED MAY 22, 1998. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN
THIS PROXY STATEMENT IS ACCURATE AS OF ANY LATER DATE, AND THE MAILING OF THIS
PROXY STATEMENT TO SHAREHOLDERS SHALL NOT CREATE ANY IMPLICATION TO THE
CONTRARY.
OTHER BUSINESS
Aloette knows of no other matter to be presented at the Meeting.
However, if other matters should properly come before the Meeting, it is the
intention of the persons named in the enclosed proxy to vote the proxy with
respect to such matters in accordance with their best judgment.
ALOETTE COSMETICS, INC.
West Chester, Pennsylvania
May 22, 1998
29
<PAGE>
Aloette Cosmetics, Inc.
Proxy Solicited on Behalf of the Board of Directors of
Aloette Cosmetics, Inc. for a Special Meeting
of Shareholders to be held on June 23, 1998.
The undersigned Shareholder of Aloette Cosmetics, Inc. ("Aloette")
hereby appoints Jean M. Lewis and Johanne R. Toner, and either of them, the
lawful attorneys and proxy or proxies of the undersigned, with several powers of
substitution, to vote all shares of Common Stock, no par value per share, of
Aloette (the "Aloette Common Stock") which the undersigned is entitled to vote
at the Special Meeting of Shareholders to be held on June 23, 1998, and any
adjournments thereof:
1. Approval of the Agreement and Plan of Merger, dated as of April
10, 1998 (the "Merger Agreement"), by and between Aloette and ACI Acquisition
Partners, Inc., a Georgia corporation ("ACIA"), and the transactions
contemplated thereby (including, without limitation, the Merger (as defined
below)), pursuant to which, among other things, (i) ACIA will be merged with
and into Aloette with Aloette being the surviving corporation (the "Merger"),
and (ii) each outstanding share of Aloette Common Stock (other than shares of
Aloette Common Stock held as treasury shares by Aloette immediately prior to
the Effective Time (as defined in the Merger Agreement)) will be converted
into the right to receive $5.25 in cash.
FOR ___ AGAINST ___ ABSTAIN ___
2. The proxies are authorized to transact and vote such other
business as may properly come before the meeting or any adjournment or
postponement thereof.
The Board of Directors recommends that the Shareholders of Aloette
vote FOR the approval and adoption of the Merger Agreement and the
transactions contemplated thereby. In the absence of specific instructions,
proxies will be voted for approval of the Merger Agreement and the Merger and
in the discretion of the proxy holders as to any other matters.
Note: Please sign exactly as name appears on your share
certificate(s). Joint owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
If signer is a corporation, please have the full corporate name signed by an
authorized officer who should then sign his name and title below his
signature.
Signature:____________________________ Date:___________________
Signature:____________________________ Date:__________________
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of April 10, 1998, is
between ACI Acquisition Partners, Inc., a Georgia corporation ("ACIA") and
Aloette Cosmetics, Inc., a Pennsylvania corporation (the "Company").
RECITALS
A. The Boards of Directors of ACIA and the Company have
determined that it is in the best interests of their respective shareholders
that ACIA acquire all of the outstanding capital stock of the Company on the
terms and subject to the conditions set forth herein (the "Transaction").
B. The respective Boards of Directors of ACIA and the
Company have approved the merger of ACIA with and into the Company in
accordance with the Business Corporation Law of the Commonwealth of
Pennsylvania, as amended ("Pennsylvania Law") and the Georgia Business
Corporation Code ("Georgia Law" and together with Pennsylvania Law,
"Applicable Law"), wherein each issued and outstanding share of Common Stock,
no par value of the Company (the "Shares") will be converted into the right to
receive the Merger Consideration (as hereinafter defined), on the terms and
subject to the conditions of this Agreement (the "Merger").
C. The Company is entering into this Agreement in reliance
upon the ACIA Shareholders (as defined herein) entering into and delivering
that certain Guaranty Agreement of even date herewith.
D. The parties desire to make certain representations,
warranties and covenants in connection with the Merger and also to prescribe
various conditions to the Merger.
NOW, THEREFORE, in consideration of the representations,
warranties and covenants contained in this Agreement, and intending to be
legally bound hereby, ACIA and the Company hereby agree as follows:
I. THE MERGER
1.1. The Merger. On the terms and subject to the conditions
set forth in this Agreement, including, but not limited to, Section 6.1 with
respect to the time of the effectiveness of this Agreement, and in accordance
with Applicable Law, ACIA will be merged with and into the Company at the
Effective Time of the Merger. Following the Effective Time, the Company will
be the surviving entity in the Merger (the "Surviving Entity") and will
succeed to and assume all the rights and obligations of ACIA in accordance
with Applicable Law.
1.2. Closing. The closing of the Merger (the "Closing") will
take place at 10:00 a.m. at the offices of Pepper Hamilton LLP, 1235 Westlakes
Drive, Berwyn, PA 19312-2401 on a
A-1
<PAGE>
date to be specified by the parties (the "Closing Date"), which (subject to
satisfaction or waiver of the conditions set forth in Article VII) will be no
later than the second business day after satisfaction or waiver of the
conditions set forth in Article VII, (other than those conditions that by
their nature are to be satisfied at the Closing, but subject to the
fulfillment or waiver of those conditions) unless another date, time or place
is agreed to in writing by the parties hereto.
1.3. Effective Time. Subject to the provisions of this
Agreement, as soon as practicable on or after the Closing Date, the parties
will file certificates and/or articles of merger or other appropriate
documents (the "Certificates of Merger") executed in accordance with the
relevant provisions of Applicable Law and will make all other filings or
recordings required under Applicable Law in order to effect the Merger. The
Merger will become effective at such time as the Certificates of Merger for
the Merger have been duly filed with the Secretaries of State for the
Commonwealth of Pennsylvania and the State of Georgia or at such subsequent
date or time as ACIA and the Company agree and specify in the Certificates of
Merger (the time the Merger becomes effective being hereinafter referred to as
the "Effective Time").
1.4. Effects of the Merger. The Merger will have the effects
set forth in Section 1929 of Pennsylvania Law and Section 14-2-1106 of Georgia
Law.
1.5. Articles of Incorporation and Bylaws. (a) The Articles
of Incorporation of the Company will be the Articles of Incorporation of the
Surviving Entity, until thereafter changed or amended as provided therein or
by Law (as hereinafter defined).
(b) The bylaws of the Company will be the bylaws of the
Surviving Entity until thereafter changed or amended as provided therein or by
applicable Law.
1.6. Company Actions. The Company hereby consents to the
Merger and represents that the Board of Directors of the Company (the "Company
Board") (at a meeting duly called and held on April 10, 1998) has (a) approved
this Agreement and the transactions contemplated hereby, including the Merger,
and such approval constitutes approval of this Agreement and the transactions
contemplated hereby, including the Merger, which satisfies in full the
requirements of Pennsylvania Law and the Company's Articles of Incorporation,
and (b) resolved to recommend that the shareholders of the Company approve and
adopt this Agreement and the Merger; provided, that such recommendation may be
withdrawn, modified or amended only in accordance with Section 4.2(b). The
Company represents that Berwind Financial, L.P. ("Berwind") has delivered to
the Company Board the Fairness Opinion as described in Section 3.1(t). The
Company represents that the actions set forth in this Section 1.6 and all
other actions it has taken in connection therewith, including without
limitation, the adoption of opt-out bylaw provisions by the Company Board on
July 24, 1990, are sufficient to render the relevant provisions of Sections
2535 through 2588 of Pennsylvania Law inapplicable to the Merger.
1.7. Boards, Committees and Officers. The Board of
Directors, committees of the Board of Directors, composition of such
committees (including chairmen thereof) and officers of ACIA as of the
Effective Time will serve in such capacities as the directors and officers of
A-2
<PAGE>
the Surviving Entity until the earlier of the resignation or removal of any such
individual or until their respective successors are duly elected and
qualified, as the case may be.
II. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT ENTITIES; EXCHANGE OF CERTIFICATES
2.1. Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
Shares:
(a) Cancellation of Treasury Stock and Sub-Owned Stock. Each
Share that is owned by the Company or by any wholly-owned Subsidiary of the
Company will automatically be canceled and retired and will cease to exist,
and no consideration will be delivered in exchange therefor.
(b) Conversion of Company Shares. Each issued and
outstanding Share (other than (i) Shares to be canceled in accordance with
Section 2.1(a), and (ii) any Shares which are held by shareholders exercising
appraisal rights pursuant to Sections 1571, et seq. and 1930 of Pennsylvania
Law ("Dissenting Shareholders") will be converted into the right to receive
five dollars and twenty-five cents ($5.25) per Share, payable to the holder
thereof, without interest (the "Merger Consideration"). As of the Effective
Time, all such Shares will no longer be outstanding and will automatically be
canceled and retired and will cease to exist, and each holder of a certificate
representing any such Shares (a "Certificate") will cease to have any rights
with respect thereto, except the right to receive the Merger Consideration to
be paid in consideration therefor upon surrender of such Certificate in
accordance with Section 2.2, without interest, or the right, if any, to
receive payment from the Surviving Corporation of the "fair value" of such
Shares as determined in accordance with Sections 1571-1580 of Pennsylvania
Law.
(c) Conversion of ACIA Shares. At the Effective Time, each
share of common stock of ACIA issued and outstanding immediately prior to the
Effective Time will be converted into one share of common stock in the
Surviving Entity.
2.2. Exchange of Certificates. (a) Paying Agent. As of the
Effective Time, ACIA will designate a bank or trust company to act as agent
for the holders of the Shares in connection with the Merger (the "Paying
Agent") to receive the funds to which holders of the Shares will become
entitled pursuant to Section 2.1 (the "Exchange Fund").
(b) Exchange Procedures. As soon as reasonably practicable
after the Effective Time, the Paying Agent will mail to each holder of record
of a Certificate, which immediately prior to the Effective Time represented
outstanding Shares, whose Shares were converted into the right to receive the
Merger Consideration pursuant to Section 2.1 (i) a letter of transmittal
(which will specify that delivery will be effected, and risk of loss and title
to the Certificates will pass, only upon delivery of the Certificates to the
Paying Agent and will be in such form and have such other provisions as ACIA
may specify consistent with this Agreement) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender
A-3
<PAGE>
of a Certificate for cancellation (or affidavits of loss in lieu thereof) to
the Paying Agent or to such other agent or agents as may be appointed by ACIA,
together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Paying Agent, the holder of
such Certificate will be entitled to receive in exchange therefor the Merger
Consideration for each Share formerly represented by such Certificate, and the
Certificate so surrendered will forthwith be canceled. If payment of the
Merger Consideration is to be made to a Person (as hereinafter defined) other
than the Person in whose name the Certificate so surrendered is registered, it
shall be a condition of payment that the Certificate so surrendered be
properly endorsed or otherwise in proper form for transfer and that the Person
requesting such payment shall have paid any transfer or other taxes required
by reason of the payment of the Merger Consideration to a Person other than
the registered holder of such Certificate surrendered or shall have
established to the satisfaction of ACIA that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 2.2, each
Certificate will be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration in
cash, which the holder thereof has the right to receive in respect of such
Certificate pursuant to the provisions of this Article II. No interest will be
paid or will accrue on any cash payable to holders of Certificates pursuant to
the provisions of this Article II.
(c) Transfer Books; No Further Ownership Rights in the
Shares. Payment in full of the Merger Consideration payable in respect of
Shares upon the surrender of Certificates representing such Shares in
accordance with the terms of this Article II will be deemed full satisfaction
of all rights pertaining to the Shares theretofore represented by such
Certificates, and there will be no further registration of transfers on the
stock transfer books of the Surviving Entity of previously outstanding Shares.
If, after the Effective Time, Certificates are presented to the Surviving
Entity or the Paying Agent for any reason, they will be canceled and exchanged
as provided in this Article II.
(d) Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the holders of the Certificates
for twenty-four (24) months after the Effective Time will be delivered to the
Surviving Entity, upon demand, and any holders of the Certificates who have
not theretofore complied with this Article II will thereafter look only to the
Surviving Entity for payment of their claim for Merger Consideration.
(e) No Liability. None of ACIA, the Company or the Paying
Agent will be liable to any Person in respect of any cash from the Exchange
Fund properly delivered to a public official pursuant to any applicable
abandoned property, escheat or similar Law. If any Certificate has not been
surrendered prior to three years after the Effective Time (or immediately
prior to such earlier date on which any Merger Consideration payable to the
holder of such Certificate representing Shares pursuant to this Article II
would otherwise escheat to or become the property of any Governmental Entity
(as hereinafter defined), any such Merger Consideration in respect of such
Certificate will become the property of the Surviving Entity, free and clear
of all claims or interest of any Person previously entitled thereto.
(f) Investment of Exchange Fund. The Paying Agent will
invest the cash
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included in the Exchange Fund, as directed by ACIA, on a daily basis. Any
interest and other income resulting from such investments will be paid to
ACIA.
(g) Lost Certificates. If any Certificate is lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Entity, the posting by such Person of a bond in such reasonable
amount as the Surviving Entity may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the Paying Agent will
issue in exchange for such lost, stolen or destroyed Certificate, the Merger
Consideration pursuant to this Agreement.
(h) Dissenters' Rights. The Company shall give ACIA notice
of any notices or demands for payment by Dissenting Shareholders pursuant to
Section 1571 et seq. of Pennsylvania Law and ACIA shall have the right to
participate in all negotiations and proceedings with respect to any such
demands. Neither the Company nor the Surviving Entity shall, except with the
prior written consent of ACIA, voluntarily make any payment with respect to,
or settle or offer to settle, any such demand for payment. 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 Shareholder shall
thereupon be treated as though such Shares had been converted into the Merger
Consideration pursuant to Section 2.1.
(i) Transfer of Shares After the Effective Time. No transfer
of Shares shall be made on the stock transfer books of the Surviving Entity at
or after the Effective Time.
(j) Options, Warrants and Company Plans. (i) ACIA and the
Company shall, effective as of the Effective Time, (A) cause each outstanding
stock option or warrants to purchase Shares (the "Options" or "Warrants" as
the case may be) granted, whether or not then exercisable or vested, to become
fully exercisable and vested, (B) cause each Option and Warrant that is then
outstanding to be canceled, and (C) in consideration of such cancellation, and
except to the extent that ACIA and the holder of any such Option and Warrant
otherwise agree, cause the Company (or, at ACIA's option, ACIA) to pay to such
holders of Options and Warrants an amount in respect thereof equal to the
product of (I) the excess, if any, of the Merger Consideration over the
exercise price of each such Option and Warrant and (II) the number of Shares
previously subject to the Option and Warrant immediately prior to its
cancellation (such payment to be net of withholding taxes).
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(ii) Except as may be otherwise agreed to by ACIA
and the Company, the Company's Director's Stock Warrant Plan and its Incentive
Stock Option Plan, as amended (collectively, the "Option Plans") shall
terminate as of the Effective Time and the provisions in any other plan,
program or arrangement providing for the issuance or grant of any other
interest in respect of the capital stock of the Company or any of its
Subsidiaries shall be deleted as of the Effective Time and no holder of
Options or any participant in the Option Plans or any other plans, programs or
arrangements shall have any right thereunder to acquire any equity securities
of ACIA, the Company, the Surviving Entity or any Subsidiary thereof.
2.3. Shareholders' Meeting. (a) If required by applicable
law in order to consummate the Merger, the Company, acting through the Company
Board, shall, in accordance with applicable Law:
(i) duly call, give notice of, convene and hold a
special meeting of its shareholders (the "Company
Shareholders Meeting") as promptly as practicable following
the execution of this Agreement for the purpose of
considering and taking action upon the approval of the
Merger and the adoption of this Agreement;
(ii) prepare and file with the Securities and
Exchange Commission (the "SEC") a preliminary proxy or
information statement relating to the Merger and this
Agreement and use its best efforts (a) to obtain and furnish
the information required to be included by the SEC in the
Proxy Statement(as hereinafter defined) and, after
consultation with ACIA, to respond promptly to any comments
made by the SEC with respect to the preliminary proxy or
information statement and cause a definitive proxy or
information 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 ACIA and its counsel and (b) to obtain the
necessary approvals of the Merger and this Agreement by its
shareholders; and
(iii) subject to the fiduciary obligations of the
Company Board under Applicable Law as advised by independent
counsel and subject to the provisions of Section 4.2(b),
include in the Proxy Statement the recommendation of the
Company Board that shareholders of the Company vote in favor
of the approval of the Merger and the adoption of this
Agreement.
(b) ACIA shall vote, or cause to be voted, all of the Shares
then owned, if any, by it in favor of the approval of the Merger and the
adoption of this Agreement.
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III. REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Company. Except
as disclosed in the Company SEC Documents (as hereinafter defined) (with
respect to subsections (e), (g) and (h) below) or as set forth on the
schedules attached hereto (the "Company Disclosure Schedules"), the Company
represents and warrants to ACIA as follows:
(a) Organization, Standing and Corporate Power. Except as
set forth on Schedule 3.1(a), the Company and each of its Subsidiaries (as
hereinafter defined) is a corporation or other legal entity duly organized,
validly existing and in good standing (with respect to jurisdictions which
recognize such concept) under the Laws of the jurisdiction in which it is
organized and has the requisite corporate or other power, as the case may be,
and authority to carry on its business as now being conducted. The Company and
each of its Subsidiaries is duly qualified or licensed to do business and is
in good standing (with respect to jurisdictions which recognize such concept)
in each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
other than in such jurisdictions in which the failure to be so qualified or
licensed or to be in good standing individually or in the aggregate could not
be reasonably expected to have a material adverse effect on the business,
financial condition or results of operations of the Company and each of its
Subsidiaries, taken as a whole, or on the ability of the Company to perform
any of its obligations under this Agreement (any such effect, a "Company
MAE"). The Company has delivered to Parent prior to the execution of this
Agreement complete and correct copies of its articles of incorporation and
bylaws and has made available to ACIA the certificate or articles of
incorporation and bylaws (or comparable organizational documents) of each of
its Subsidiaries, in each case as amended to date.
(b) Subsidiaries. Except as set forth on Schedule 3.1(b),
Exhibit 21 to the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997 includes all subsidiaries of the Company (each a
"Subsidiary", and collectively, the "Subsidiaries"). All the outstanding
shares of capital stock of, or other equity interests in, each such Subsidiary
have been validly issued and are fully paid and non-assessable and are owned
directly or indirectly by the Company, free and clear of all pledges, claims,
liens, charges, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens"). There are no minority interests, equity
investments or joint ventures with any other party.
(c) Capital Structure. The authorized capital stock of the
Company consists of twenty million (20,000,000) shares of common stock. At the
close of business on the last business day immediately preceding the date
hereof (the "Measurement Date"), (i) two million one hundred four thousand two
hundred fifty-three (2,104,253) shares were issued and outstanding, (ii) eight
hundred fifty-eight thousand eight hundred eighty-one (858,881) shares were
held by the Company in its treasury, (iii) nine hundred thousand (900,000)
shares were reserved for issuance upon exercise of then outstanding Options,
and (iv) one hundred thousand (100,000) shares reserved for issuance under
outstanding Warrants. A full and complete list of all material terms of the
Options and Warrants are attached hereto as Schedule 3.1(c). Except as set
forth in the preceding sentences, at the close of business on the Measurement
Date, no shares of capital stock or other voting
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securities of the Company or any Subsidiary were issued, reserved for issuance
or outstanding. Except as set forth above, at the close of business on the
Measurement Date, there were no shares of capital stock underlying outstanding
stock options, stock appreciation rights or rights to receive Shares on a
deferred basis. All outstanding shares of capital stock of the Company are,
and all shares which may be issued will be, when issued, duly authorized,
validly issued, fully paid and non-assessable and not subject to preemptive
rights. As of the close of business on the Measurement Date, there were no
bonds, debentures, notes, other indebtedness or securities of the Company
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which shareholders of the Company
may vote. Except as set forth above, as of the close of business on the
Measurement Date, there were no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any
kind to which the Company or any of its Subsidiaries is a party or by which
any of them is bound obligating the Company or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of the Company or of any of
its Subsidiaries or obligating the Company or any of its Subsidiaries to
issue, grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. As of the close of
business on the Measurement Date, there were no outstanding contractual
obligations of the Company or any of its Subsidiaries to issue, repurchase,
redeem, exchange or otherwise acquire any shares of capital stock of the
Company or any of its Subsidiaries. As of the close of business on the
Measurement Date, there were no outstanding contractual obligations of the
Company to vote or to dispose of any shares of the capital stock of any of its
Subsidiaries.
(d) Authority; Noncontravention. The Company has all
requisite corporate power and authority to enter into this Agreement, and,
subject to the Company Shareholder Approval (as hereinafter defined), to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to Company Shareholder
Approval. This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms. The execution
and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof
will not, conflict with, breach or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or loss
of a material benefit under, or result in the creation of any Lien upon any of
the properties or assets of the Company or any of its Subsidiaries under, (i)
the articles of incorporation or bylaws of the Company or the comparable
organizational documents of any of its Subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to the Company
or any of its Subsidiaries or their respective properties or assets, except
those set forth on Schedule 3.1(d) hereto, or (iii) subject to the
governmental filings and other matters referred to in the following sentence,
any judgment, order or decree ("Order"), or statute, law, ordinance, rule or
regulation ("Law") applicable to the Company or any of its Subsidiaries or
their respective properties or assets, other than, in the case of clauses (ii)
and (iii), any such conflicts, breaches, violations, defaults, rights, losses
or Liens that individually or in the aggregate could not
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be reasonably expected to have a Company MAE. No Order, consent, approval or
authorization of, or registration, declaration or filing with, any federal,
state, local or foreign government or any court, administrative or regulatory
agency or commission or other governmental authority, agency or
instrumentality (a "Governmental Entity") is required by or with respect to
the Company or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by the Company or the consummation by the Company
of the transactions contemplated hereby except for (1) the filing with the SEC
of the Proxy Statement and the receipt of a "no review" or "no further
comments" communication from the staff of the SEC with respect to the Proxy
Statement, and the filing of such reports, forms and notices (including
certification and notice of termination of registration on Form 15 or a
successor form) under the Exchange Act as may be required in connection with
this Agreement and the transactions contemplated hereby; (2) the filing of the
Certificates of Merger with the Pennsylvania and Georgia Secretaries of State
and appropriate documents with the relevant authorities of other states in
which the Company is qualified to do business and such filings with
Governmental Entities to satisfy the applicable requirements of state
franchise, securities or "blue sky" laws; and (3) the filing with Nasdaq of
any required notifications and other forms with respect to the delisting of
the Shares from the Nasdaq National Market.
(e) SEC Documents; Undisclosed Liabilities. The Company has
filed all required reports, schedules, forms, statements and other documents
with the SEC since December 31, 1995 (the "Company SEC Documents"). As of
their respective dates, the Company SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Company SEC Documents, and none of
the Company SEC Documents when filed contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except to the extent
that information contained in any Company SEC Document has been revised or
superseded by a later Company Filed SEC Document, none of the Company SEC
Documents contains any untrue statement of a material fact or omits 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 were
made, not misleading. The financial statements of the Company included in the
Company SEC Documents comply as to form, as of their respective dates of
filing with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal recurring year-end audit adjustments).
Except (i) as reflected in such financial statements or in the notes thereto,
(ii) for liabilities incurred in connection with this Agreement or the
transactions contemplated hereby, and (iii) for liabilities and obligations
incurred since March 31, 1998 in the ordinary course of business consistent
with past practice, neither the Company nor any of its
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Subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise), including, to the Company's
knowledge, liabilities arising under any Laws relating to the protection of
health, safety or the environment ("Environmental Laws"), required by
generally accepted accounting principles to be reflected in a consolidated
balance sheet of the Company and its consolidated Subsidiaries and which,
individually or in the aggregate, could reasonably be expected to have a
Company MAE.
(f) Information Supplied. None of the information supplied
or to be supplied by the Company specifically for inclusion or incorporation
by reference in the Proxy Statement, at the date it is first mailed to the
Company's shareholders or at the time of the Company Shareholders Meeting will
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. The Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations thereunder, except that no representation or warranty is made by
the Company with respect to statements made or incorporated by reference
therein based on information supplied by Parent or Sub specifically for
inclusion or incorporation by reference in the Proxy Statement or contained in
any ACIA SEC Documents (as hereinafter defined) incorporated by reference in
the Proxy Statement.
(g) Absence of Certain Changes or Events. Except (i) as
disclosed in the Company SEC Documents filed and publicly available prior to
the date of this Agreement, (ii) for the transactions provided for herein or
permitted by Section 4.1(a), and (iii) for liabilities incurred in connection
with or as a result of this Agreement, since March 31, 1998, the Company has
conducted its business only in the ordinary course, and there has not been (1)
any material adverse change in the business, financial condition, or results
of operations of the Company and each of its Subsidiaries, taken as a whole,
other than such material adverse changes resulting, directly or indirectly,
from a continuing decline in the Company's revenues on a consolidated basis,
(2) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of the
Company capital stock, (3) any split, combination or reclassification of any
of the Company's capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of the Company's capital stock, (4) any granting by the Company or
any of its Subsidiaries to any director, executive officer or other key
employee of the Company of any increase in compensation, (5) any granting by
the Company or any of its Subsidiaries to any such director, executive officer
or key employee of any increase in severance or termination pay, (6) any entry
by the Company or any of its Subsidiaries into any employment, severance or
termination agreement with any such director, executive officer or key
employee, (7) except insofar as may be required by a change in generally
accepted accounting principles, any change in accounting methods, principles
or practices by the Company, or (8) any action taken which is proscribed by
Section 4.1. For purposes of this Agreement, "key employee" means any employee
whose current salary and targeted bonus exceeds fifty thousand dollars
($50,000) per annum or who would exceed fifty thousand dollars ($50,000) per
annum based upon any increase in salary or bonus.
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(h) Litigation. Except as set forth on Schedule 3.1(h),
there are no suits, actions or proceedings pending or, to the Knowledge (as
hereinafter defined) of the Company, threatened against or affecting the
Company or any of its Subsidiaries that individually or in the aggregate could
reasonably be expected to have a Company MAE, nor are there any Orders of any
Governmental Entity or arbitrator outstanding against the Company or any of
its Subsidiaries having, or which could reasonably be expected to have,
individually or in the aggregate, a Company MAE.
(i) Taxes. The Company and its Subsidiaries have (i) duly
filed with the appropriate taxing authorities all material Tax Returns (or,
with respect to its Tax Returns for its year-ended December 31, 1997,
extensions therefor) required to be filed by or with respect to the Company,
and all such duly filed Tax Returns are true, correct and complete in all
material respects, and (ii) paid in full or made adequate provisions for on
its balance sheet (in accordance with U.S. GAAP) all Taxes shown to be due on
such Tax Returns. There are no liens for Taxes upon the assets of the Company
or any Subsidiary, except for statutory liens for current Taxes not yet due
and payable or that may thereafter be paid without penalty or are being
contested in good faith. Except as set forth on Schedule 3.1(i), the Company
and its Subsidiaries have not received any notice of audit, are not undergoing
any audit of its Tax Returns, and have not received any notice of deficiency
or assessment from any taxing authority with respect to liability for Taxes of
the Company or any Subsidiary, which has not been fully paid or finally
settled. There have been no waivers of statutes of limitations by the Company
and its Subsidiaries with respect to any Tax Returns that relate to the
Company or any Subsidiary. The Company has not filed a request with the
Internal Revenue Service for changes in accounting methods within the last two
years, which change would affect the accounting for tax purposes, directly or
indirectly, of the Company. As used in this Section 3.1(i), (i) the term
"Taxes" shall mean all taxes, charges, fees, levies or other assessments,
including, without limitation, income, gross receipts, excise, property,
sales, license, payroll and franchise taxes, imposed by the United States, or
any state, local or foreign government or subdivision or agency thereof
whether computed on a unitary, combined or any other basis; and such term
shall include any interest and penalties or additions to tax; and (ii) the
term "Tax Return" shall mean any report, return or other information required
to be filed with, supplied to or otherwise made available to a taxing
authority in connection with Taxes.
(j) Employee Matters. (i) Listed on Schedule 3.1(j) is a
true, accurate and complete list of all pension, retirement, profit-sharing,
deferred compensation, bonus, stock option or other incentive plan, or other
employee benefit program, arrangement, agreement or understanding, or medical,
vision, dental or other health plan, or life insurance or disability plan, or
any other employee benefit plan as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (whether or not
any such employee benefit plans are otherwise exempt from the provisions of
ERISA, whether or not legally binding), adopted, established, maintained or
contributed to by the Company or under which it would otherwise be a party or
have liability and under which employees or former employees (whether or not
retired employees) of the Company and its Subsidiaries (or their
beneficiaries) are eligible to participate or derive a benefit (collectively,
the "Employee Benefit Plans"). There shall be included within the meaning of
the Company, solely for this purpose and for the purpose of the
representations in this Section 3.1(j), all
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"affiliates," whether or not incorporated, within the meaning of Section
407(d)(7) of ERISA.
(ii) Full payment has been made of all material amounts that
the Company is required, under applicable law or under any Employee Benefit
Plan or any agreement relating to any Employee Benefit Plan to which it is a
party, to have paid as contributions to or benefits under any Employee Benefit
Plan as of the last day of the most recent fiscal year of such Employee
Benefit Plan ended prior to the date hereof or the Company has made adequate
provision therefor. The Company has made adequate provisions in accordance
with GAAP for liabilities to meet current contributions or benefit payments.
(iii) Except as provided in Schedule 3.1(j), a favorable
determination letter has been issued by the Internal Revenue Service (the
"Service") with respect to the qualified status of each of the Employee
Benefit Plans intended or required to be qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and with respect to
the tax exempt status under Section 501(a) of the Code of (A) any trust
through which such Employee Benefit Plans are funded and (B) any trust or
other entity established with respect to an Employee Benefit Plan and intended
to be qualified as a tax exempt organization under Section 501(c) of the Code.
Since the date of the most recent determination letter, each such qualified
Employee Benefit Plan has been, or can be (within 120 days of the date
hereof), filed with the Service within the time required to preserve the
rights of the Company to adopt such amendment as may be required by the
Service in order to issue a favorable determination letter with respect to
each such Plan's continued tax-qualified and/or exempt status. To the
Company's Knowledge, no act or omission has occurred since the date of the
last favorable determination letter issued with respect to an Employee Benefit
Plan that resulted or is likely to result in the revocation of the Plan's
tax-qualified or exempt status.
(iv) The Company has performed all material obligations
required to be performed by it under the Employee Benefit Plans. The Company
has not engaged in any transaction with respect to the Employee Benefit Plans
that would subject it or the Buyer to a tax, penalty or liability for a
prohibited transaction under Sections 406, 407 or 502(i) of ERISA or Section
4975 of the Code, nor have its directors, officers, employees or agents, to
the extent they or any of them are fiduciaries under Title I of ERISA. The
Company and any "administrator(s)" (as described in Section 3(16)(A) of ERISA)
of the Employee Benefit Plans have complied in all material respects with the
applicable requirements of ERISA, the Code and all other statutes, orders,
rules or regulations, specifically including, without limitation, material
compliance with all reporting and disclosure requirements of Part 1 of Title 1
of ERISA and of the Code in a timely and accurate manner, and no penalties
have been or can reasonably be expected to be imposed, nor is the Company or
any administrator liable for any penalties imposed, under ERISA, the Code or
otherwise with respect to the Employee Benefit Plans or any related trusts.
The Company is not delinquent in the payment of any federal, state or local
taxes with respect to the Employee Benefit Plans. There is no pending
litigation, arbitration, or disputed claim, settlement adjudication or
proceeding with respect to the Employee Benefit Plans, and neither the
Company, nor any administrator knows of any threatened litigation, arbitration
or disputed claim, adjudication proceeding, or any governmental or other
proceeding, or investigation with respect to the Employee Benefit Plans or
with respect to any fiduciary or administrator thereof (in their capacities as
such), or
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any party-in-interest thereto (with respect to their relationship as such).
There is no multiemployer plan to which the Company has been a party or has
been required to make any contributions at any time during the 10-year period
prior to the date hereof. Except as set forth on Schedule 3.1(j), since
September 30, 1997, the Company has not terminated any Employee Benefit Plan.
(v) The Company has delivered or caused to be delivered to
the Buyer, true and complete copies of (A) all Employee Benefit Plans and any
related trust agreements, custodial agreements, investment management
agreements, insurance contracts or policies, and administrative service
contracts, all as in effect, together with all amendments thereto which will
become effective at a later date; (B) the latest Summary Plan Description and
any modifications thereto for each Employee Benefit Plan requiring same under
ERISA; (C) the latest Service determination letter obtained with respect to
any such Employee Benefit Plan qualified under Section 401 or 501 of the Code;
(D) the Summary Annual Report for 1996 and 1995 for each Employee Benefit Plan
requiring same under ERISA; and (E) except as set forth on Schedule 3.1(j),
each Form 5500 and/or Form 990 series filing (including required schedules and
financial statements) for 1996 and 1995 for each Employee Benefit Plan
required to file such form. Neither the Company nor any officer, and, to the
Company's Knowledge no employee representative or agent thereof, has made any
written or oral representations or statements to any current or former
employees, dependents, participants or beneficiaries or other persons that are
inconsistent in any material manner with the provisions of these documents.
(vi) With respect to any of the Company's employee welfare
plans (as defined in Section 3(1) of ERISA and including those Employee
Benefits Plans which qualify as such) that are "group health plans" under
Section 162(k) or Section 4980B of the Code and Section 607(1) of ERISA and
related regulations (relating to the benefit continuation rights imposed by
COBRA), there has been timely compliance in all material respects with all
requirements imposed thereunder, as and when applicable to such plans, so that
the Company has no (or will not incur any) material loss, assessment, penalty,
loss of federal income tax deduction or other sanction, arising on account of
or in respect of any failure to comply with any COBRA benefit continuation
requirement, that is capable of being assessed or asserted directly or
indirectly against the Buyer or any of its subsidiaries or other member of the
Buyer's corporate control group, with respect to any such plan.
(vii) Schedule 3.1(j) identifies by name all written
employment agreements and severance agreements and arrangements with employees
of the Company and its Subsidiaries in effect or committed to be put into
effect as of the date hereof (an "Employee Agreement") and provides the 1998
compensation rate for each employee that is a party to an Employee Agreement.
No changes have been made to any Employee Agreement on or after January 1,
1998.
(k) Labor Matters. Except as set forth on Schedule 3.1(k),
neither the Company nor any Subsidiary is a party to any collective bargaining
agreement or other labor contract applicable to persons employed by the
Company or any Subsidiary. The Company has not received any notice from any
labor union or group of employees that such union or group represents or
believes or claims it represents or intends to represent any of the employees
of the Company or any Subsidiary; no strike or work interruption by any of its
employees is planned, under consideration,
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threatened or imminent; and neither the Company, any Subsidiary nor any
officer or director thereof has made any loan or given anything of value,
directly or indirectly, to any officer, official, agent or representative of
any labor union or group of employees. At no time during the past five years
has the Company or any Subsidiary experienced any threats of strikes, work
stoppages or demands for collective bargaining by any union or labor
organization or any other group or other organization of employees, any
grievances, disputes or controversies with any union or any other group or
other organization of employees, or any pending or threatened court of
arbitration proceedings involving an employment grievance, dispute or
controversy. The Company and its Subsidiaries are not delinquent in payments
to any of its employees for any wages, salaries, commissions, bonuses or other
direct compensation for any services performed by them to the date hereof or
amounts required to be reimbursed to such employees. Except as may be required
by Canadian law or as set forth on Schedule 3.1(j), in the event of
termination of the employment of any Company employees, neither the Company
nor any Subsidiary will by reason of anything done prior to the Closing be
liable to any of said employees for so-called "severance pay" or any other
payments. The Company and each Subsidiary is in compliance with all federal,
state and local laws and regulations respecting labor, employment and
employment practices, terms and conditions of employment and wages and hours
and there is no unfair labor practice complaint against the Company pending
before the National Labor Relations Board or any comparable state or local
agency such that there will not be a Company MAE.
(l) Environmental Matters. (i) The Company and its
Subsidiaries are not the subject of, or to the Company's Knowledge, being
threatened to be the subject of (A) any enforcement proceeding, or (B) any
investigation, brought in either case under any federal, state or local
environmental law, rule, regulation, or ordinance at any time in effect or (C)
any third party claim relating to environmental conditions on or off the
properties of the Company. Neither the Company nor any Subsidiary has been
notified that it must obtain any permits and licenses or file documents for
the operation of its business under federal, state and local laws relating to
pollution protection of the environment. To the Company's Knowledge, no
conditions exist on or off the properties of the Company or its Subsidiaries
that will give rise to any material liabilities under any federal, state or
local environmental law, rule, regulation or ordinance, or as the result of
any claim of any third party. For the purposes of this Section 3.1(l), an
investigation shall include, without limitation, any written notice received
by the Company that relates to the onsite or offsite disposal, release,
discharge or spill of any waste, waste water, pollutant or contaminants.
(ii) To the Company's Knowledge and except as set forth in
the reports identified on Schedule 3.1(l), there are no toxic wastes or other
toxic or hazardous substances or materials, pollutants or contaminants that
the Company (or, to the Company's Knowledge, any previous occupant of the
Company's facilities) has used, stored or otherwise held in or on any of the
facilities of the Company or its Subsidiaries, which are present at or have
migrated from such facilities, whether contained in ambient air, surface
water, groundwater, land surface or subsurface strata. During its ownership
and possession of its facilities, the facilities have been maintained by the
Company in material compliance with all environmental protection,
occupational, health and safety or similar laws, ordinances, restrictions,
licenses, and regulations such that there will not be a Company MAE. The
Company has not disposed of or arranged (by contract, agreement or
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otherwise) for the disposal of any material or substance that was generated or
used by the Company at any off-site location that has been or is listed or
proposed for inclusion on any list promulgated by any Governmental Authority
for the purpose of identifying sites that pose a danger to health and safety.
Except as set forth on Schedule 3.1(l), there have been no environmental
studies, reports and analyses made or prepared in the last five years relating
to the facilities of the Company or its Subsidiaries. Neither the Company nor
any Subsidiary has installed any underground storage tanks in any of its
facilities and, to the Company's Knowledge, none of such facilities contain
any underground storage tanks.
(m) Compliance with Laws. Except as set forth on Schedule
3.1(m), neither the Company nor any Subsidiary is in violation of, or has
violated, any law, statute, ordinance, rule, regulation, arbitral
determination, order, writ, decree or injunction that is applicable to or
binding upon the Company, any Subsidiary or any of their respective properties
that individually or in the aggregate could reasonably be expected to have a
Company MAE.
(n) Insurance. Schedule 3.1(n) sets forth a list and brief
description of all existing insurance policies maintained by the Company and
its Subsidiaries pertaining to their respective business properties, personnel
or assets. Neither the Company nor any Subsidiary is in default with respect
to any provision contained in any insurance policy, or has failed to give any
notice or present any claim under any insurance policy in due and timely
fashion. All such policies shall have been delivered to the Parent prior to
the Closing and at all times prior to the Closing shall be in full force and
effect. All payments with respect to such policies are current and the Company
has not received any notice threatening a suspension, revocation, modification
or cancellation of any such policy.
(o) Trademarks, Patents and Copyrights. (i) For purposes of
this Agreement, the term "Company Rights" shall mean to the Company's
Knowledge all worldwide industrial and intellectual property rights,
including, without limitation, each patent, patent rights, license, patent
application, trade name, trademark, trade name and trademark registration,
copyright, copyright registration, copyright application, service mark, brand
mark and brand name, trade secret relating to or arising from any proprietary
process, formula, source or object code, owned or possessed by the Company or
any if its Subsidiaries necessary for the conduct of the Company's business.
Except as set forth on Schedule 3.1(o), to the Company's Knowledge, the
Company or its Subsidiaries own or has the right to use, sell or license all
Company Rights and such Company Rights are sufficient for the conduct of the
Company's businesses as being conducted as of the date hereof. Schedule 3.1(o)
hereto lists each patent, patent right, patent application, tradename
registration, trademark registration, copyright registration, copyright
application, source and object code owned or possessed by the Company.
(ii) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will
not constitute a breach of any instrument or agreement governing any Company
Rights, will not cause the forfeiture or termination or give rise to a right
of forfeiture or termination of any Company Rights or impair the right of the
Company to use, sell or license any Company Rights or any portion thereof,
except for breaches, forfeitures, terminations, rights of forfeiture or
termination, or impairments that would not have a Company MAE.
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(iii) To the Knowledge of the Company, neither the
manufacture, marketing, license, sale or intended use of any product currently
licensed or sold by the Company or any Subsidiary or currently under
development by the Company or and Subsidiary violates any license or agreement
between the Company or any Subsidiary and any third party relating to such
product or infringes any intellectual property right of any other Person, and
there is no pending or, to the Knowledge of the Company, threatened claim or
litigation contesting the validity, ownership or right to use, sell, license
or dispose of any Company Right nor, to the Knowledge of the Company is there
any basis for any such claim, nor has the Company received any notice
asserting that any Company Right or the proposed use, sale, license or
disposition thereof conflicts or will conflict with the rights of any other
party, nor, to the Knowledge of the Company, is there any basis for any such
assertion, except for such violations, infringements, threatened claims or
litigations or conflicts that would not have a Company MAE.
(iv) To the Knowledge of the Company, no current or prior
officers, employees or consultants of the Company or any Subsidiary claim an
ownership interest in any Company Rights as a result of having been involved
in the development of such property while employed by or consulting to the
Company or otherwise.
(p) Material Contracts. Schedule 3.1(p) sets forth a
complete and accurate list as of the Closing Date of all contracts or
agreements to which the Company is a party involving aggregate consideration
payable to or by the Company of thirty thousand dollars ($30,000) or more in a
twelve (12) month period or otherwise material to the business, operations,
condition (financial or otherwise), performance or properties of the Company
("Material Contracts"). Each of such Material Contracts is valid and binding,
in full force and effect and enforceable against the parties thereto in
accordance with their respective provisions. The Company has not assigned,
mortgaged, pledged, encumbered, or otherwise hypothecated any of its right,
title or interest under any of the Material Contracts. Neither the Company
nor, to the Knowledge of the Company any other party thereto is in violation
of, in default in respect of, nor has there occurred an event or condition
which, with the passage of time or giving of notice (or both), would
constitute a violation or a default of or under the Material Contracts. Except
as set forth on Schedule 3.1(p), no written or oral notice has been received
by the Company claiming any default by the Company or indicating the desire or
intention of any other party thereto to amend, modify, rescind or terminate
any Material Contract.
(q) Voting Requirements. The affirmative vote of a majority
of the votes cast by all shareholders entitled to vote, voting as a single
class, at the Company Shareholders Meeting (the "Company Shareholder
Approval") to adopt this Agreement is the only vote of the holders of any
class or series of the Company's capital stock necessary to approve and adopt
this Agreement and the transactions contemplated hereby.
(r) Board Approval. The Company Board has approved this
Agreement and the consummation of the Merger and the other transactions
contemplated hereby. Such approval constitutes the appropriate approval by the
Company Board of the Merger and the other transactions
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contemplated hereby under the provisions of Section 1924(a) of the
Pennsylvania Law.
(s) Brokers. No broker, investment banker, financial advisor
or other Person, other than Berwind, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. The fees of Berwind are two hundred ninety thousand
dollars ($290,000) (of which ten thousand dollars ($10,000) has been paid) and
the expenses of Berwind are not to exceed five thousand dollars ($5,000).
The Company will pay the fees and expenses of Berwind.
(t) Opinion of Financial Advisor. The Company has received
the opinion of Berwind (the "Fairness Opinion") to the effect that, as of the
date thereof, the Merger Consideration to be received by the Company's
shareholders pursuant to this Agreement is fair to the Company's shareholders
from a financial point of view, a signed copy of which opinion has been
delivered to ACIA.
3.2. Representations and Warranties of ACIA. Except as
disclosed in the disclosure schedule delivered by ACIA to the Company prior to
the execution of this Agreement (the "ACIA Disclosure Schedule"), ACIA
represents and warrants to the Company as follows:
(a) Organization, Standing and Corporate Power. ACIA is a
corporation duly organized, validly existing and in good standing (with
respect to jurisdictions which recognize such concept) under the Laws of the
jurisdiction in which it is organized and has the requisite power and
authority to carry on its business as now being conducted. ACIA is duly
qualified or licensed to do business and is in good standing (with respect to
jurisdictions which recognize such concept) in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions in
which the failure to be so qualified or licensed or to be in good standing
individually or in the aggregate could not be reasonably expected to have a
material adverse effect on the business, financial condition or results of
operations of ACIA and each of its Subsidiaries, taken as a whole, or on the
ability of ACIA to perform its obligations under this Agreement (any such
effect, an "ACIA MAE"). ACIA has delivered to the Company prior to the
execution of this Agreement complete and correct copies of its Articles of
Incorporation and bylaws, in each case as amended to date (the "ACIA Charter
Documents").
(b) Authority; Noncontravention. ACIA has all requisite
power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of
this Agreement by ACIA and the consummation by ACIA of the transactions
contemplated by this Agreement have been duly authorized by all necessary
action on the part of ACIA. This Agreement has been duly executed and
delivered by ACIA and constitutes valid and binding obligations of ACIA,
enforceable against ACIA in accordance with its terms. The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not,
conflict with, breach, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give
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rise to a right of termination, cancellation or acceleration of any obligation
or loss of a material benefit under, or result in the creation of any Lien
upon any of the properties or assets of ACIA under, (i) the charter documents,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license directly
or indirectly applicable to ACIA, or (iii) subject to the governmental filings
and other matters referred to in the following sentence, any Order or Law
directly or indirectly applicable to ACIA other than, in the case of clauses
(ii) and (iii), any such conflicts, breaches, violations, defaults, rights,
losses or Liens that individually or in the aggregate could not be reasonably
expected to have an ACIA MAE. No consent, approval, Order or authorization of,
or registration, declaration or filing with, any Governmental Entity is
required by or with respect to ACIA or any of its Subsidiaries in connection
with the execution and delivery of this Agreement by ACIA or the consummation
by ACIA of the transactions contemplated hereby, except for (1) such reports
under the Exchange Act as may be required in connection with this Agreement
and the transactions contemplated hereby; (2) the filing of the Certificates
of Merger with the Pennsylvania and Georgia Secretaries of State and
appropriate documents with the relevant authorities of other states in which
ACIA is qualified to do business and such filings with Governmental Entities
to satisfy the applicable requirements of state franchise, securities or "blue
sky" laws; (3) such other filings and consents as may be required under any
Environmental Law pertaining to any notification, disclosure or required
approval necessitated by the Merger or the transactions contemplated by this
Agreement; and (4) such consents, approvals, Orders or authorizations the
failure of which to be made or obtained could not reasonably be expected,
individually or in the aggregate, to have an ACIA MAE.
(c) Voting Requirements. The affirmative vote of a majority
of all the votes entitled to be cast on this Agreement by all shares entitled
to vote on the Agreement, voting as a single voting group, is the only vote of
the holders of any stock in ACIA necessary to approve and adopt this Agreement
and the transactions contemplated hereby.
(d) Brokers. No broker, investment banker, financial advisor
or other Person, the fees and expenses of which will be paid by ACIA or, if
the Merger occurs, the Surviving Entity, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of ACIA.
(e) Ownership of Shares. Neither ACIA nor any of its
Affiliates, (i) beneficially owns (as such term is defined in Rule 13d-3 under
the Exchange Act, as amended), directly or indirectly, or (ii) is a party to
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of, in each case, shares of capital stock of
Company.
(f) Due Diligence. ACIA has made such due diligence review
of the Company as it deems necessary to enter into this Agreement.
(g) Shareholders of ACIA. A complete list of the
shareholders of ACIA (the "ACIA Shareholders") and their respective holdings
in ACIA is set forth on Schedule 3.2(g).
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(f) Financing. ACIA will have sufficient funds available at
the Closing (through cash on hand and existing credit arrangements or
otherwise) to purchase all of the Shares outstanding on a fully diluted basis,
and to pay all fees and expenses related to the transactions contemplated by
this Agreement. ACIA and the ACIA Shareholders have furnished to the Company
true and complete records regarding the assets of ACIA and the ACIA
Shareholders as requested by the Company, including the personal bank records
and financial statements of the ACIA Shareholders, which records show
sufficient funds available in accordance with the preceding sentence.
(h) Information Supplied. The information supplied or to be
supplied by ACIA for inclusion in the Company's Proxy Statement or any
amendment or supplement thereto will not, at the time the Company's Proxy
Statement is first mailed to shareholders of the Company, at the time such
shareholders vote on the approval and adoption of this Agreement and at the
Effective Time contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
IV. COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1. Conduct of Business. (a) Conduct of Business by the
Company. During the period from the date of this Agreement to the Effective
Time, the Company will, and will cause its Subsidiaries to, carry on their
respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and in compliance in all
material respects with all applicable Laws and, to the extent consistent
therewith, use reasonable efforts to preserve intact their current business
organizations. Without limiting the generality or effect of the foregoing,
during the period from the date of this Agreement to the Effective Time, the
Company will not, and will not permit any of its Subsidiaries to, without the
prior consent of ACIA:
(i) other than dividends and distributions
(including liquidating distributions) by a direct or indirect
wholly-owned Subsidiary of the Company to its parent, or by a
Subsidiary that is partially owned by the Company or any of its
Subsidiaries, provided that the Company or any such Subsidiary
receives or is to receive its proportionate share thereof (based upon
equity ownership), (A) declare, set aside or pay any dividends on, or
make any other distributions in respect of, any of its capital stock,
(B) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, or (C)
purchase, redeem or otherwise acquire any shares of capital stock of
the Company or any of its Subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares
or other securities;
(ii) issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock, any other voting securities
or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible
securities;
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(iii) amend its articles of incorporation, bylaws
or other comparable organizational documents;
(iv) acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, limited liability company,
partnership, joint venture, association or other business
organization or division thereof;
(v) sell, lease, license, mortgage or otherwise
encumber or subject to any Lien or otherwise dispose of any of its
properties or assets, other than (A) in the ordinary course of
business consistent with past practice and (B) sales of assets, the
net book value of which does not individually or in the aggregate
exceed twenty-five thousand dollars ($25,000);
(vi)(A) incur any indebtedness for borrowed money
or guarantee any such indebtedness of another Person, issue or sell
any debt securities or warrants or other rights to acquire any debt
securities of the Company or any of its Subsidiaries, guarantee any
debt securities of another Person, enter into any "keep well" or
other agreement to maintain any financial statement condition of
another Person or enter into any arrangement having the economic
effect of any of the foregoing, except for short-term debt not to
exceed one hundred thousand dollars ($100,000) pursuant to existing
credit facilities incurred in the ordinary course of business
consistent with past practice, or (B) make any loans, advances or
capital contributions to, or investments in, any other Person, other
than to the Company or any Subsidiary of the Company or to officers
and employees of the Company or any of its Subsidiaries for travel,
business or relocation expenses in the ordinary course of business;
(vii) make or agree to make any capital expenditure
or capital expenditures other than capital expenditures set forth in
the operating budget of the Company previously furnished to ACIA, the
relevant portions of which are set forth in Schedule 4.1(a)(vii);
(viii) make any change to its accounting methods,
principles or practices, except as may be required by generally
accepted accounting principles;
(ix) except as required by Law or contemplated
hereby, enter into, adopt or amend in any material respect or
terminate any benefit plans maintained or contributed to by the
Company or any of its Subsidiaries or any other agreement, plan or
policy involving the Company or any of its Subsidiaries and one or
more of their directors, officers or employees, or materially change
any actuarial or other assumption used to calculate funding
obligations with respect to any Company pension plans, or change the
manner in which contributions to any Company pension plans are made
or the basis on which such contributions are determined;
(x) increase the compensation of any director,
executive officer or other
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key employee of the Company or pay any benefit or amount not required
by a plan or arrangement as in effect on the date of this Agreement
to any such Person;
(xi) enter into any contract or agreement, written
or oral, with any affiliate, associate or relative of the Company, or
make any payment to or for the benefit of, directly or indirectly,
any of the foregoing;
(xii) authorize, or commit or agree to take, any of
the foregoing actions.
(b) Other Actions. Except as required by Law (including
fiduciary duties applicable to the Company Board consistent with their
obligations under this Agreement), neither the Company, on the one hand, nor
ACIA, on the other hand, will, and will not permit any of their respective
Subsidiaries to, voluntarily take any action that would, or that could
reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect, or (iii)
any of the conditions to the Merger set forth in Article VII not being
satisfied.
(c) Advice of Changes. The Company and ACIA will promptly
advise the other party orally and in writing of (i) any representation or
warranty made by them contained in this Agreement that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by them to comply in any
material respect with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement, or (iii) any change or event having, or which, insofar as can
reasonably be foreseen, could reasonably be expected to have, a material
adverse effect on such party or on the truth of their respective
representations and warranties or the ability of the conditions set forth in
Article VII to be satisfied.
4.2. No Solicitation by the Company. (a) The Company shall
immediately cease all activities or negotiations with other parties pertaining
to any extraordinary corporate transaction which were conducted prior to the
execution of this Agreement. The Company will not, nor will it permit any of
its Subsidiaries to, nor will it authorize or permit any of its officers,
directors or employees or any investment banker, financial advisor, attorney,
accountant or other representative retained by it or any of its Subsidiaries
to, directly or indirectly through another Person, (i) solicit, initiate or
encourage (including by way of furnishing information), or take any other
action designed to facilitate, any inquiries or the making of any proposal
which constitutes any Company Takeover Proposal (as hereinafter defined) or
(ii) participate in any discussions or negotiations regarding any Company
Takeover Proposal; provided, however, that if, at any time prior to the
Effective Time, the Company Board determines in good faith, after consultation
with its financial advisor and outside counsel, that such action is necessary
for the Company Board to comply with its fiduciary duties to the Company's
shareholders under applicable Law, the Company may, in response to a bona fide
written Company Takeover Proposal which was not solicited by it or which did
not otherwise result from a breach of this Section 4.2(a) and which is a
superior transaction to the Merger and which is
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not subject to financing (a "Superior Proposal"): (A) furnish information with
respect to the Company and each of its Subsidiaries to any Person pursuant to
a customary confidentiality agreement (as determined by the Company after
consultation with its outside counsel), (B) participate in negotiations
regarding such Company Takeover Proposal, (C) provide access to employees,
franchisees, accountants, lawyers, financial advisors and other advisors to
the Company, and (D) conduct meetings with Company management regarding such
Company Takeover Proposal. For purposes of this Agreement, "Company Takeover
Proposal" means any inquiry, proposal or offer from any Person relating to any
direct or indirect acquisition or purchase of fifteen percent (15%) or more of
the assets of the Company and its Subsidiaries or fifteen percent (15%) or
more of any class of equity securities of the Company or any of its
Subsidiaries, any tender offer or exchange offer that if consummated would
result in any Person beneficially owning fifteen percent (15%) or more of any
class of equity securities of the Company or any of its Subsidiaries, or any
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Company or any of its
Subsidiaries, other than the transactions contemplated by this Agreement.
(b) Except as expressly permitted by this Section 4.2(b),
neither the Company Board nor any committee thereof may (i) withdraw or
modify, or propose publicly to withdraw or modify, the approval or
recommendation by the Company Board or such committee of the Merger or this
Agreement, (ii) approve or recommend, or propose publicly to approve or
recommend, any Company Takeover Proposal, or (iii) cause the Company to enter
into any letter of intent, agreement in principle, acquisition agreement or
other similar agreement related to any Company Takeover Proposal (each, a
"Company Acquisition Agreement"). Notwithstanding the foregoing, in the event
that prior to the Effective Time the Company Board determines in good faith,
after the Company has received a Superior Proposal and after consultation with
its financial adviser and outside counsel, that it is necessary to do so in
order to comply with its fiduciary duties to the Company's shareholders under
applicable Law, the Company Board may withdraw or modify its approval or
recommendation of the Merger or this Agreement, approve or recommend a
Superior Proposal or terminate this Agreement.
(c) In addition to the obligations of the Company set forth
in paragraphs (a) and (b) of this Section 4.2, the Company will (i)
immediately advise ACIA orally and in writing of any request for information
or of any Company Takeover Proposal and the material terms and conditions of
such request or Company Takeover Proposal and (ii) keep ACIA reasonably
informed of the status and details (including amendments or proposed
amendments) of any such request or Company Takeover Proposal, provided,
however, that the Company will not be required to provide to ACIA any
information if and to the extent that the Company Board determines in good
faith, following consultation with outside counsel, that it is necessary to
refrain from doing so in order to comply with its fiduciary duties to the
Company's shareholders under applicable Law.
(d) Nothing contained in this Section 4.2 will prohibit the
Company from taking and disclosing to its shareholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Company's shareholders if, in the good faith judgment of the
Company Board, after consultation with outside counsel, the failure so to
disclose
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would violate applicable Law; provided, however, that neither the
Company nor the Company Board nor any committee thereof may, except as
expressly permitted by Section 4.2(b), withdraw or modify, or propose publicly
to withdraw or modify, its position with respect to this Agreement or the
Merger or approve or recommend, or propose publicly to approve or recommend, a
Company Takeover Proposal.
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V. ADDITIONAL COVENANTS
5.1. Reasonable Efforts. (a) Upon the terms and subject to
the conditions set forth in this Agreement, each of the parties will use
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective,
the Merger and the other transactions contemplated by this Agreement,
including without limitation, (i) obtaining of all necessary actions or
nonactions, waivers, consents and approvals from Governmental Entities and
making of all necessary registrations and filings (including filings with
Governmental Entities) and taking of such reasonable steps as may be necessary
to obtain an approval or waiver from, or to avoid an action or proceeding by,
any Governmental Entity, (ii) obtaining of all necessary consents, approvals
or waivers from third parties, (iii) defending of any lawsuits or other legal
proceedings by any third party, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions
contemplated hereby, including seeking to have any adverse Order entered by
any court or other Governmental Entity vacated or reversed, and (iv) execution
and delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. Nothing set forth in this Section 5.1(a) will limit or affect
actions permitted to be taken pursuant to Section 4.2.
(b) In connection with and without limiting the foregoing,
the Company and ACIA will (i) take all reasonable action necessary to ensure
that no state takeover statute or similar statute or regulation is or becomes
applicable to the Merger or any of the other transactions contemplated hereby,
and (ii) if any state takeover statute or similar statute or regulation
becomes applicable thereto, take all reasonable action necessary to ensure
that the Merger and such other transactions may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise to minimize the
effect of such statute or regulation thereon.
5.2. Employment Contracts. Following the Effective Time,
ACIA will cause the Surviving Entity to honor in accordance with their terms
all Employment Agreements.
5.3. Fees and Expenses. (a) All fees and expenses incurred
in connection with the Merger and this Agreement and the transactions
contemplated thereby will be paid by the party incurring such fees or
expenses, whether or not the Merger is consummated.
(b) In the event that this Agreement is terminated pursuant
to Sections 8.1(b)(i), provided that ACIA is not in breach of its obligations
under the Agreement, 8.1(b)(ii) or 8.1(c), then the Company will, within
thirty (30) days after the termination date, pay ACIA a fee equal to one
hundred twenty-five thousand dollars ($125,000).
5.4. Public Announcements. ACIA and the Company will consult
with each other before issuing, and provide each other the opportunity to
review, comment upon and concur with, any press release or other public
statements with respect to the transactions contemplated
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by this Agreement, and will not issue any such press release or make any such
public statement prior to such consultation, except as either party may
determine is required by applicable Law, court process or by obligations
pursuant to any listing agreement with any national securities exchange or
NASDAQ. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement will be in the form
heretofore agreed to by the parties.
5.5. Indemnification, Exculpation and Insurance. All rights
to indemnification and exculpation from liabilities to the fullest extent
possible for acts or omissions occurring at or prior to the Effective Time
(including, without limitation, acts in connection with the transactions
contemplated by this Agreement) existing in favor of the current or former
directors or officers of the Company or each of its Subsidiaries as permitted
under Pennsylvania Law as in effect on the date hereof and as provided in
their respective articles or certificates of incorporation or bylaws (or
comparable organizational documents) will be assumed by ACIA and ACIA will be
directly responsible for such indemnification (including the advancement by
ACIA of expenses as incurred by an Indemnified Person to the fullest extent
permitted under Pennsylvania Law), without further action, as of the Effective
Time and such indemnification will continue indefinitely in full force and
effect. In addition, from and after the Effective Time, directors and officers
of the Company who become or remain directors or officers of ACIA will be
entitled to the same indemnity rights and protections (including those
provided by directors' and officers' liability insurance) as are afforded to
other directors and officers of ACIA. If the ACIA (i) shall consolidate with
or merge into any other corporation or entity and shall not be the continuing
or surviving corporation or entity of such consolidation or merger or (ii)
shall transfer all or substantially all of its properties and assets to any
individual, corporation or other entity then in each such case, proper
provisions shall be made so that the successors and assignees of ACIA shall
assume all of the obligations set forth in this Section 5.5. Notwithstanding
any other provision hereof, the provisions of this Section 5.5 (i) are
intended to be for the benefit of, and will be enforceable by, each
indemnified party, his or her heirs and his or her representatives and (ii)
are in addition to, and not in substitution for, any other rights to
indemnification or contribution that any such person may have by contract or
otherwise.
VI. DEPOSIT
6.1. ACIA Deposit. Simultaneous with the execution of this
Agreement by the parties, ACIA shall pay to PNC Bank, National Association
(the "Escrow Agent") the amount of one million one hundred seventy thousand
dollars ($1,170,000) (the "Deposit"), which shall be held by the Escrow Agent
in accordance with the terms of the Escrow Agreement among ACIA, the Company
and the Escrow Agent in the form attached hereto as Exhibit A. This Agreement
shall not be effective until ACIA has paid the Deposit to the Escrow Agent.
ACIA shall be entitled to have the Deposit returned to ACIA only in the event
that this Agreement is terminated pursuant to Sections 8.1(b)(i), provided
that ACIA is not in breach of its obligations under the Agreement, 8.1(b)(ii)
or 8.1(c). The Deposit shall not be construed as liquidated damages and shall
in no way limit any rights or remedies of the Company with respect to ACIA or
any obligations of ACIA to the Company.
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VII. CONDITIONS PRECEDENT
7.1. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Shareholder Approvals. The Company Shareholder Approval
shall have been obtained; and
(b) No Injunctions or Restraints. No Order or Law enacted,
entered, promulgated, enforced or issued by any court of competent
jurisdiction or other Governmental Entity or other legal restraint or
prohibition (collectively, "Restraints") preventing the consummation of the
Merger shall be in effect.
7.2. Conditions to Obligations of ACIA. The obligation of
ACIA to effect the Merger is further subject to satisfaction or waiver on or
prior to the Closing Date of the following conditions:
(a) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required to be
performed by it under this Agreement on or before the Closing Date; and ACIA
shall have received a certificate signed on behalf of the Company by the chief
executive officer and the chief financial officer of the Company to such
effect; and
(b) Decline in Retail Sales. Retail sales by the Company's
franchisees of the Company's products for the period April 1, 1998 to the end
of the month preceding the Closing shall not have declined more than twenty
percent (20%) from the comparable period in 1997 based upon the reports of
such franchisees' sales delivered to the Company from the franchisees.
(c) Extraordinary Occurrences. Other than a decline in the
Company's financial position as a result of operations, which circumstance is
covered by Section 7.2(b), there shall not have been any occurrence, or series
of related occurrences, outside the ordinary course of business that has
resulted, or is reasonably likely to result, in an expenditure, loss or damage
to the Company of greater than six hundred thousand dollars ($600,000) after
the receipt of any applicable proceeds from insurance or other sources.
(d) Representations and Warranties. The representations and
warranties of the Company contained in Section 3.1 shall have been true and
correct on the date of the Agreement.
7.3. Conditions to Obligation of the Company. The obligation
of the Company to effect the Merger is further subject to satisfaction or
waiver on or prior to the Closing Date of the following conditions:
(a) Performance of Obligations of ACIA. ACIA shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to
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the Closing Date, and the Company shall have received a certificate signed on
behalf of ACIA by the chief executive officer and the chief financial officer
of ACIA to such effect.
(b) Deposit. ACIA shall have deposited into the Exchange
Fund with the Paying Agent funds sufficient to purchase all of the Shares
outstanding on a fully diluted basis, and to pay all fees and expenses related
to the transactions contemplated by this Agreement.
(c) Representations and Warranties. The representations and
warranties of ACIA contained in Section 3.2 shall have been true and correct
on the date of the Agreement.
7.4. Frustration of Closing Conditions. Neither ACIA nor the
Company may rely on the failure of any condition set forth in Section 7.1, 7.2
or 7.3, as the case may be, to be satisfied if such failure was caused by such
party's failure to use reasonable efforts to consummate the Merger and the
other transactions contemplated by this Agreement, as required by and subject
to Section 5.1.
VIII. TERMINATION, AMENDMENT AND WAIVER
8.1. Termination. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after Company Shareholder
Approval:
(a) by mutual written consent of ACIA and the Company;
(b) by either ACIA or the Company:
(i) if the Merger has not been consummated by
August 15, 1998; provided, however, that the right to
terminate this Agreement pursuant to this Section 8.1(b)(i)
will not be available to any party whose failure to perform
any of its obligations under this Agreement results in the
failure of the Merger to be consummated by such time;
(ii) if the Company Shareholder Approval shall not
have been obtained at a Company Shareholders' Meeting duly
convened therefor or at any adjournment or postponement
thereof, subject to the provisions of Section 2.3;
(iii) if any Governmental Entity shall have issued
a Restraint or taken any other action permanently enjoining,
restraining or otherwise prohibiting the consummation of the
Merger or any of the other transactions contemplated by this
Agreement and such Restraint or other action shall have
become final and nonappealable;
(c) by the Company pursuant to the terms of Section 4.2(b).
8.2. Effect of Termination. In the event of termination of
this Agreement by
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either the Company or ACIA as provided in Section 8.1, this Agreement, other
than the provisions of Section 5.3(b), this Section 8.2 and Article IX, will
forthwith become void and have no effect, without any liability or obligation
on the part of ACIA or the Company, except to the extent that such termination
results from the material breach by a party of any of its covenants and
agreements set forth in this Agreement.
8.3. Amendment. This Agreement may be amended by the parties
at any time before or after the Company Shareholder Approval; provided,
however, that after any such approval, there may not be made any amendment
that decreases the Merger Consideration or adversely affects the rights of the
Company's shareholders without the further approval of such shareholders. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties.
8.4. Extension; Waiver. At any time prior to the Effective
Time, a party may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, or (b) subject to the proviso
of Section 8.3, waive compliance by the other party with any of the agreements
or conditions contained in this Agreement. Any agreement on the part of a
party to any such extension or waiver will be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this Agreement or
otherwise will not constitute a waiver of such rights.
8.5. Procedure for Termination, Amendment, Extension or
Waiver. A termination of this Agreement pursuant to Section 8.1, an amendment
of this Agreement pursuant to Section 8.3 or an extension or waiver pursuant
to Section 8.4 will, in order to be effective, require, in the case of ACIA or
the Company, action by its Board of Directors or, with respect to any
amendment to this Agreement, the duly authorized committee of its Board of
Directors or officer.
IX. GENERAL PROVISIONS
9.1. Nonsurvival of Representations and Warranties. None of
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement will survive the Effective Time. This
Section 9.1 will not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
9.2. Notices. All notices, requests, claims, demands and
other communications under this Agreement will be in writing and will be
deemed given if delivered personally, telecopied (which is confirmed) or sent
by overnight courier (providing proof of delivery) to the parties at the
following addresses (or at such other address for a party as specified by like
notice):
(a) if to the ACIA, to
ACI Acquisition Partners
1640 Powers Ferry Road
Building 4
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Marietta, Georgia 30067
Attention: Robert K. Cohen
with a copy to:
Kilpatrick Stockton LLP
Suite 2800
1100 Peachtree Street
Atlanta, Georgia 30309
Attention: David A. Stockton, Esq.
(b) if to the Company, to
Aloette Cosmetics, Inc.
1301 Wright's Lane East
West Chester, PA 19380
Attention: Patricia J. Defibaugh,
Chief Executive Officer
with a copy to:
Pepper Hamilton LLP
Suite 400
1235 Westlakes Drive
Berwyn, PA 19312-2401
Attention: Jeffrey P. Libson, Esq.
9.3. Certain Definitions. For purposes of this Agreement:
(a) An "Affiliate" of any Person means another Person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first Person;
(b) a "Subsidiary" of any Person means another Person, an
amount of the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting interests,
fifty percent (50%) or more of the equity interests of which) is owned
directly or indirectly by such first Person. A "Significant Subsidiary" means
any subsidiary of the Company or ACIA, as the case may be, that would
constitute a "significant subsidiary" of such party within the meaning of Rule
1-02 of Regulation S-X of the SEC;
(c) "Person" means an individual, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity; and
(d) "Knowledge" of any Person which is not an individual
means the knowledge
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<PAGE>
of any of such Person's executive officers after reasonable inquiry.
9.4. Interpretation. When a reference is made in this
Agreement to an Article, Section, Annex or Exhibit, such reference will be to
an Article or Section of, or an Annex or Exhibit to, this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they will be deemed to
be followed by the words "without limitation." The words "hereof," "herein"
and "hereunder" and words of similar import when used in this Agreement will
refer to this Agreement as a whole and not to any particular provision of this
Agreement. All terms used herein with initial capital letters have the
meanings ascribed to them herein and all terms defined in this Agreement will
have such defined meanings when used in any certificate or other document made
or delivered pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the
plural forms of such terms and to the masculine as well as to the feminine and
neuter genders of such term. Any agreement, instrument or statute defined or
referred to herein or in any agreement or instrument that is referred to
herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession
of comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a Person are also to its
permitted successors and assigns.
9.5. Counterparts. This Agreement may be executed in one or
more counterparts, all of which will be considered one and the same agreement
and will become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
9.6. Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein),
together with the Escrow Agreement, (a) constitutes the entire agreement, and
supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter of this Agreement,
including, but not limited to, the letter agreement dated April 9, 1998
executed by Robert K. Cohen and the Company, and (b) is not intended to confer
upon any Person other than the parties hereto any rights or remedies.
9.7. Governing Law. This Agreement will be governed by, and
construed in accordance with, the Laws of the Commonwealth of Pennsylvania,
regardless of the Laws that might otherwise govern under applicable principles
of conflict of Laws thereof.
9.8. Assignment. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement may be assigned, in
whole or in part, by operation of Law or otherwise by either of the parties
hereto without the prior written consent of the other party. Any assignment in
violation of the preceding sentence will be void. 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.
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<PAGE>
9.9. Enforcement. Each of the parties hereto (a) consents to
submit itself to the personal jurisdiction of any federal court located in the
Commonwealth of Pennsylvania or any Pennsylvania state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated
by this Agreement, (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such
court, and (c) agrees that it will not bring any action relating to this
Agreement or any of the transactions contemplated by this Agreement in any
court other than a federal court sitting in the Commonwealth of Pennsylvania
or a Pennsylvania state court.
[SIGNATURES ON FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, ACIA and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
ALOETTE COSMETICS, INC.
By: /s/ Patricia J. Defibaugh
----------------------------------
Name: Patricia J.Defibaugh
Title: Chief Executive Officer
ACI ACQUISITION PARTNERS, INC.
By: /s/ Robert K. Cohen
----------------------------------
Name: Robert K. Cohen
Title: Chief Operating Officer
A-32
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[Letterhead of Berwind Financial, L.P.]
[Philadelphia, PA.]
APPENDIX B
May 21, 1998
Board of Directors
Aloette Cosmetics, Inc.
1301 Wright's Lane East
West Chester, Pennsylvania
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the shareholders of Aloette Cosmetics, Inc. ("Aloette") of
the financial terms of the proposed merger by and between Aloette and ACI
Acquisition Partners, LLC ("ACI"). The terms of the proposed merger by and
between Aloette and ACI (the "Proposed Merger") are set forth in the Agreement
and Plan of Merger dated April 10, 1998 (the "Merger Agreement"), and provide
that each outstanding share of common stock of Aloette, no par value, will be
converted into the right to receive from ACI cash in an amount equal to $5.25.
Berwind Financial, L.P., as part of its investment banking business,
regularly is engaged in the valuation of assets, securities and companies in
connection with various types of asset and security transactions, including
mergers, acquisitions, private placements and valuations for various other
purposes, and in the determination of adequate consideration in such
transactions.
In arriving at our opinion, we have, among other things: (i) reviewed
the historical financial performance, current financial position and general
prospects of Aloette, (ii) reviewed the Merger Agreement, (iii) reviewed the
Proxy Statement, (iv) studied and analyzed the stock market trading history of
Aloette, (v) considered the terms and conditions of the Proposed Merger
between Aloette and ACI as compared with the terms and conditions of
comparable transactions, (vi) met with certain members of Aloette's senior
management to discuss its respective operations, historical financial
statements and future prospects, and (vii) conducted such other financial
analyses, studies and investigations as we deemed appropriate.
B-1
<PAGE>
Our opinion is given in reliance on information and representations
made or given by Aloette and ACI, and their respective officers, directors,
auditors, counsel and other agents, and on filings, releases and other
information issued by Aloette and ACI including financial statements,
financial projections and stock price data as well as certain information from
recognized independent sources. We have not independently verified the
information concerning Aloette or ACI nor other data which we have considered
in our review and, for purposes of the opinion set forth below, we have
assumed and relied upon the accuracy and completeness of all such information
and data. Additionally, we assume that the Proposed Merger is, in all
respects, lawful under applicable law.
With regard to financial and other information relating to the
general prospects of Aloette and ACI, we have assumed that such information
has been reasonably prepared and reflects the best currently available
estimates and judgments of the managements of Aloette and ACI as to Aloette's
and ACI's most likely future performance. In rendering our opinion, we have
assumed that in the course of obtaining necessary regulatory approvals for the
Proposed Merger, no conditions will be imposed that will have a material
adverse effect on the contemplated benefits of the Proposed Merger to Aloette.
Our opinion is based upon information provided to us by the
management of Aloette and ACI, as well as market, economic, financial and
other conditions as they exist and can be evaluated only as of the date hereof
and speaks to no other period. Our opinion pertains only to the financial
consideration of the Proposed Merger and does not constitute a recommendation
to the Board of Aloette and does not constitute a recommendation to Aloette's
shareholders as to how such shareholders should vote on the Proposed Merger.
Based on the foregoing, it is our opinion that, as of the date
hereof, the financial terms of the Proposed Merger by and between Aloette and
ACI are fair, from a financial point of view, to the shareholders of Aloette.
Sincerely,
BERWIND FINANCIAL, L.P.
B-2
<PAGE>
APPENDIX C
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT (the "Guaranty") is entered into on April 10,
1998, by and among Robert K. Cohen, Christie Cohen, Mark Hawn, and Connie Hawn
(jointly and severally, the "Guarantors") and Aloette Cosmetics, Inc., a
Pennsylvania corporation (the "Company").
BACKGROUND
The Company and ACI Acquisition Partners, Inc., a Georgia corporation
("ACIA") have entered into that certain Merger Agreement of even date herewith
(the "Merger Agreement"), providing for the merger of the Company with and
into ACIA. All terms used but not otherwise defined herein shall have the same
meanings as set forth in the Merger Agreement.
ACIA is an Affiliate of the Guarantors and the Guarantors will
benefit from the transactions described in the Merger Agreement;
The Company is entering into the Merger Agreement in reliance upon
the Guarantors' entering into and delivering this Guaranty.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, receipt of which is hereby acknowledged, and in order
to induce the Company to consummate the transactions described in the Merger
Agreement, the Guarantors do hereby covenant and agree with the Company as
follows:
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<PAGE>
1. GUARANTY.
1.1. Absolute and Unconditional Guaranty. The Guarantors
hereby irrevocably, absolutely and unconditionally guarantee and promise to
promptly and punctually pay and completely and timely perform when due any
obligation, indebtedness and/or other liability of ACIA to the Company arising
out of or under the Merger Agreement (the "Guaranteed Obligations"); provided,
however, that the aggregate amount of the Guarantors' liability to the Company
hereunder, exclusive of the costs and expenses of the enforcement by the
Company of its rights hereunder, including, without limitation, attorneys'
fees and costs, shall be limited to one million one hundred seventy thousand
dollars ($1,170,000). Subject to the proviso of the preceding sentence, the
Guarantors also hereby guarantee and agree to or to cause ACIA to promptly,
fully, completely and timely pay and perform all of the obligations,
covenants, agreements, liabilities and indebtedness of ACIA under the Merger
Agreement and the Guaranteed Obligations. Notwithstanding anything to the
contrary in this Section 1.1, in addition to Guarantors' other obligations
hereunder, the Guarantors hereby agree to pay to the Company, indemnify the
Company and hold the Company harmless from, all cost or expense, including
attorneys' fees and expenses, which may be incurred by the Company in the
enforcement of this Guaranty. The Guarantors agree that the foregoing
obligations and liabilities of the Guarantors pursuant to this Section 1.1 and
the guaranty set forth herein shall be irrevocable, absolute and
unconditional, and the rights and remedies of the Company under this Guaranty
shall not be impaired and shall remain in full force and effect until ACIA or
the Guarantors, or any combination thereof, shall have fully, completely and
satisfactorily performed, paid, discharged or satisfied all obligations,
indebtedness and/or other liabilities of ACIA and the Guarantors to the
Company subject to the proviso in the first sentence of this Section 1.1,
regardless of:
(a) the genuineness, validity, enforceability, assignment or
purported assignment of all or any part of the Merger Agreement, the
Guaranteed Obligations or this Guaranty;
(b) any amendment, extension, modification, release, waiver,
discharge, settlement or compromise of or with respect to the obligations,
indebtedness and/or other liabilities of ACIA to the Company, under the Merger
Agreement, the Guaranteed Obligations or otherwise, whether (i) granted to
ACIA by the Company or (ii) by operation of law or (iii) under any bankruptcy,
reorganization, liquidation, dissolution or similar proceedings;
(c) any delay, failure, neglect, commission or omission by
or on behalf of the Company to enforce, assert or exercise any of its rights,
powers or remedies under the Merger Agreement, Guaranteed Obligations or this
Guaranty, which shall in no event be construed as a waiver of any such rights,
powers or remedies;
(d) the liquidation, sale or marshaling of all, or
substantially all, of the assets of ACIA or the Guarantors, any receivership,
insolvency, bankruptcy, reorganization, arrangement, composition, readjustment
or other similar proceeding or action involving ACIA or the Guarantors or an
assignment for the benefit of the creditors of ACIA or the Guarantors; or
(e) the addition or release of any or all other guarantors,
obligors and other persons liable for the indebtedness of ACIA under the
Merger Agreement, the Guaranteed Obligations and performance of the
obligations of ACIA thereunder; all whether or not the Guarantors shall have
had notice or knowledge of any act or omission referred to in the foregoing
clauses (a) through (d) of this Section 1.1. The Guarantors shall remain
liable hereunder notwithstanding any fact, act, event or occurrence which
might otherwise operate as a legal or equitable discharge of a guarantor.
1.2. Direct Guaranty. The Guarantors agree that the
obligations and liability to the Company under the guaranty described in
Section 1.1 above constitute an immediate and direct payment and performance
guaranty, and not a guaranty of collection, such that the Company may, after
ACIA's failure to pay or perform the Guaranteed Obligations as and when due
(after the expiration of applicable notice and cure periods), in its sole
option and discretion, proceed directly against the Guarantors, under this
Guaranty without proceeding against or exercising or exhausting any of their
rights or remedies against ACIA or any other party.
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<PAGE>
1.3. Continuing Guaranty. This Guaranty shall be a
continuing guaranty. Without limiting the foregoing, it is specifically
understood that any amendment, modification, limitation or discharge of ACIA's
obligations arising out of or by virtue of any occurrence including, without
limitation, bankruptcy, reorganization or similar proceeding for relief of
debtors under federal or state law shall not affect, modify, limit or
discharge the liability of the Guarantors in any manner whatsoever and this
Guaranty shall remain and continue in full force and effect and shall be
enforceable against the Guarantors to the same extent and with the same force
and effect as if any such proceedings had not been instituted; and it is the
intent and purpose of this Guaranty that the Guarantors shall and do hereby
waive all rights and benefits which might accrue to the Guarantors by reason
of any such proceeding and that the Guarantors shall be liable for payment of
all amounts and performance of all obligations guaranteed hereunder.
1.4. Reinstatement of Guaranty. The Guarantors hereby agree
that, to the extent the Company receives or applies any payments to the
obligations, liabilities or indebtedness of ACIA to the Company under the
Merger Agreement or Guaranteed Obligations which are subsequently set aside
for being wholly or partially invalid, fraudulent or preferential or which are
required to be repaid to ACIA, or to any estate, trustee, receiver or any
other party, whether under any state or federal bankruptcy, insolvency,
fraudulent conveyance, preference or similar law affecting creditors' rights
generally or otherwise, then, to such extent, the guaranty, liabilities and
obligations of the Guarantors hereunder shall be reinstated as though such
payments had not been so received or applied.
1.5. Modification by the Company. The Guarantors hereby
consent and agree, without affecting the liability of the Guarantors to the
Company hereunder, that the Company may, without notice to or consent of the
Guarantors, upon such terms as they may deem advisable: (a) extend or modify,
in whole or in part, the time of payment of any indebtedness or other
liability owing by ACIA to the Company; (b) release, surrender, exchange,
modify, impair, or extend the period of duration, or the time for performance
or payment, of any collateral, securing any obligation of ACIA to the Company;
and (c) release, settle or compromise any claim of the Company against ACIA or
against any other person, firm or corporation whose obligations may at any
time be held by the Company as collateral for any obligations of ACIA to the
Company. The Guarantors hereby ratify and affirm any such extension, release,
surrender, exchange, modification, impairment, settlement or compromise.
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<PAGE>
2. WAIVER.
The Guarantors hereby waive, to the fullest extent permitted
by all applicable Laws, any defense arising by reason of any disability of
ACIA, and all diligence in seeking performance of the obligations or in the
collection or realization upon the obligations or indebtedness of ACIA to the
Company or any security therefor and all notices whatsoever under the Merger
Agreement or the Guaranteed Obligations with respect to such obligations or
indebtedness of ACIA to the Company including, without limitation:
(a) notice of acceptance by the Company of this Guaranty;
(b) notice of the existence, creation, payment or
non-payment, performance or non-performance, or of
any default or breach of any obligations or
indebtedness of ACIA to the Company;
(c) notice of any presentment, demand for payment,
non-payment or protest with respect to any of the
indebtedness or obligation of ACIA to the Company;
(d) notice of any extension, modification, amendment,
discharge, waiver or release granted by the Company
to ACIA under the Merger Agreement or Guaranteed
Obligations or with respect to the obligations or
indebtedness of ACIA to the Company;
(e) notice of any and all favorable or unfavorable
information, financial or otherwise, concerning
ACIA learned, acquired or received by the Company,
and notice of any facts the Company may now or
hereafter know about ACIA, the Merger Agreement or
the Guaranteed Obligations or the transactions and
relationships contemplated thereby, it being
understood and agreed that the Company shall have
no duty so to inform, and that the Guarantors are
fully responsible for being and remaining informed
by ACIA of all circumstances bearing on the
existence or creation of the obligations of ACIA
under the Merger Agreement or the Guaranteed
Obligations and/or the risk of non-payment or
non-performance by ACIA under the Merger Agreement
or the Guaranteed Obligations; and
(f) any other demands or notices required by all
applicable Laws.
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3. SUBROGATION AND REIMBURSEMENT.
Until ACIA or the Guarantors, or any combination thereof,
shall have fully, completely and satisfactorily performed, paid, discharged or
satisfied all obligations, indebtedness and/or other liabilities of ACIA and
the Guarantors to the Company, the Guarantors agree (a) not to exercise any
rights of subrogation against ACIA, now or hereafter arising, whether arising
hereunder, by operation of law or contract or otherwise, and (b) not to seek
any reimbursement, restitution, or collection from, or enforce any right or
remedy of whatsoever kind or nature in favor of the Guarantors against ACIA or
any of its assets or properties.
4. MISCELLANEOUS.
4.1. Consent to Jurisdiction and Waiver. The Company and the
Guarantors hereby consent to the jurisdiction of any local, state or federal
court located within or covering Chester County, Pennsylvania, in any action,
suit or proceeding commenced therein in connection with or with respect to
this Guaranty or any indebtedness, obligations or liabilities of the
Guarantors to the Company hereunder, and waive any objection to venue in
connection therewith. Notwithstanding the foregoing, the Company shall have
the right to institute proceedings to enforce its rights in any other court
with subject matter and personal jurisdiction over the Guarantors.
4.2. Choice of Law. This Guaranty shall be deemed to be a
contract made under and governed by the Laws of the Commonwealth of
Pennsylvania and for all purposes shall be construed in accordance with the
Laws of said State without regard to principles of conflict of law. Any
provision of this Guaranty which is prohibited or unenforceable in such
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction; whenever possible, each provision of this
Guaranty shall be interpreted in such manner as to be effective and valid
under applicable Law.
4.3. Nature of Obligations and Binding Effect. The
obligations of the Guarantors to the Company under this Guaranty shall be
joint and several. This Guaranty shall be binding upon the Guarantors and any
successors and assigns and shall inure to the benefit of the Company and its
successors and assigns. The Guarantors shall not assign this Guaranty or any
of their rights or obligations hereunder without the prior written consent of
the Company.
4.4. Time of Essence. Time is of the essence in performance
of this Guaranty by the Guarantors.
4.5. Copies of Guaranteed Obligations. The Guarantors
acknowledge that executed copies of the Merger Agreement and the Guaranteed
Obligations have been made available to them and that each of them is familiar
with the contents thereof.
4.6. Entire Agreement; Amendments. This writing is intended
by the parties as a final expression of this Guaranty, and is intended to
constitute a complete and exclusive statement of the terms of the agreements
by the Guarantors with respect to the subject matter hereof. There are no
promises or conditions, expressed or implied, unless contained in this
writing. No course of dealing, course of performance or trade usage, and no
parol evidence of any nature, shall be used to supplement or modify the terms
of this Guaranty. No amendment, modifications, termination, consent or waiver
of any provision of this Guaranty, shall in any event be effective unless the
same shall be in writing and signed by the Company, and then any such consent
or waiver shall be effective only in the specific instance and for the
specific purpose for which given.
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<PAGE>
4.7. Drafting. No provision of this Guaranty shall be
interpreted for or construed against any party on the basis that such party
was the draftsman of such provision, all parties having participated equally
in the drafting hereof, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Guaranty.
4.8. Notice. Any notice required or permitted by this
Guaranty shall be effective if given in accordance with Section 9.2 of the
Merger Agreement.
[Executions are set forth on page 7 hereof]
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<PAGE>
IN WITNESS WHEREOF, the Guarantors and the Company have caused this
Guaranty to be duly executed as of the date first above written.
ALOETTE COSMETICS, INC.
By: /s/ Patricia J. Defibaugh
-------------------------
Name: Patricia J. Defibaugh
Title: Chief Executive Officer
/s/ Robert K. Cohen
--------------------
Robert K. Cohen
/s/ Christie Cohen
-------------------
Christie Cohen
/s/ Mark Hawn
-------------------
Mark Hawn
/s/ Connie Hawn
-------------------
Connie Hawn
C - 7
<PAGE>
APPENDIX D
Pennsylvania Business Corporation Law
Subchapter D. Dissenters Rights
1571 APPLICATION AND EFFECT OF SUBCHAPTER.
(a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from,
and to obtain payment of the fair value of his shares in the event of, any
corporate action, or to otherwise obtain fair value for his shares, where this
part expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special
treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.
(1) Except as otherwise provided in paragraph (2), the
holders of the shares of any class or series of shares that, at the
record date fixed to determine the shareholders entitled to notice of
and to vote at the meeting at which a plan specified in any of
section 1930, 1931(d), 1932(c) or 1952(d) is to be voted on, are
either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any
such shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights
shall be available without regard to the exception provided in that
paragraph in the case of:
(i) Shares converted by a plan if the shares are
not converted solely into shares of the acquiring,
surviving, new or other corporation or solely into such
shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class
unless the articles, the plan or the terms of the
transaction entitle all shareholders of the class to vote
thereon and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of a
majority of the votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under
section 1906(c) (relating to dissenters rights upon special
treatment).
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(3) The shareholders of a corporation that acquires by
purchase, lease, exchange or other disposition all or substantially
all of the shares, property or assets of another corporation by the
issuance of shares, obligations or otherwise, with or without
assuming the liabilities of the other corporation and with or without
the intervention of another corporation or other person, shall not be
entitled to the rights and remedies of dissenting shareholders
provided in this subchapter regardless of the fact, if it be the
case, that the acquisition was accomplished by the issuance of voting
shares of the corporation to be outstanding immediately after the
acquisition sufficient to elect a majority or more of the directors
of the corporation.
(c) Grant of optional dissenters rights. The bylaws or a resolution
of the board of directors may direct that all or a part of the shareholders
shall have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholder to dissenters
rights.
(d) Notice of dissenters rights. Unless otherwise provided by
statute, if a proposed corporate action that would give rise to dissenters
rights under this subpart is submitted to a vote at a meeting of shareholders,
there shall be included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that
the shareholders have a right to dissent and obtain payment of the
fair value of their shares by complying with the terms of this
subchapter; and
(2) a copy of this subchapter.
(e) Other statutes. The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part
that makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain provisions of articles ineffective. This subchapter may
not be relaxed by any provision of the articles.
(g) Cross references. See section 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
1572 DEFINITIONS.
The following words and phrases when used in this subchapter shall
have the meanings given to them in this section unless the context clearly
indicates otherwise:
"Corporation." The issuer of the shares held or owned by the
dissenter before the corporate action or the successor by merger,
consolidation, division, conversion or otherwise of that issuer. A plan of
division may designate which of the resulting corporations is the successor
corporation for the purposes of this subchapter. The successor corporation in
a division shall have sole responsibility for payments to dissenters and other
liabilities under this subchapter except as otherwise provided in the plan of
division.
"Dissenter." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed
every act required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects taking
into account all relevant factors, but excluding any appreciation or
depreciation in anticipation of the corporate action.
"Interest." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors including the average
rate currently paid by the corporation on its principal bank loans.
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1573 RECORD AND BENEFICIAL HOLDERS AND OWNERS.
(a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of
the same class or series beneficially owned by any one person and discloses
the name and address of the person or persons on whose behalf he dissents. In
that event, his rights shall be determined as if the shares as to which he has
dissented and his other shares were registered in the names of different
shareholders.
(b) Beneficial owners of shares. A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the
corporation not later than the time of the assertion of dissenters rights a
written consent of the record holder. A beneficial owner may not dissent with
respect to some but less than all shares of the same class or series owned by
the owner, whether or not the shares so owned by him are registered in his
name.
1574 NOTICE OF INTENTION TO DISSENT.
If the proposed corporate action is submitted to a vote at a meeting
of shareholders of a business corporation, any person who wishes to dissent
and obtain payment of the fair value of his shares must file with the
corporation, prior to the vote, a written notice of intention to demand that
he be paid the fair value for his shares if the proposed action is
effectuated, must effect no change in the beneficial ownership of his shares
from the date of such filing continuously through the effective date of the
proposed action and must refrain from voting his shares in approval of such
action. A dissenter who fails in any respect shall not acquire any right to
payment of the fair value of his shares under this subchapter. Neither a proxy
nor a vote against the proposed corporate action shall constitute the written
notice required by this section.
1575 NOTICE TO DEMAND PAYMENT.
(a) General rule. If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice
of intention to demand payment of the fair value of their shares and who
refrained from voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders, the
corporation shall send to all shareholders who are entitled to dissent and
demand payment of the fair value of their shares a notice of the adoption of
the plan or other corporation action. In either case, the notice shall:
(1) State where and when a demand for payment must be sent
and certificates for certificated shares must be deposited in order
to obtain payment.
(2) Inform holders of uncertificated shares to what extent
transfer of shares will be restricted from the time that demand for
payment is received.
(3) Supply a form for demanding payment that includes a
request for certification of the date on which the shareholder, or
the person on whose behalf the shareholder dissents, acquired
beneficial ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment. The time set for receipt
of the demand and deposit of certificated shares shall be not less than 30
days from the mailing of the notice.
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1576 FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.
(a) Effect of failure of shareholder to act. A shareholder who fails
to timely demand payment, or fails (in the case of certificated shares) to
timely deposit certificates, as required by a notice pursuant to section 1575
(relating to notice to demand payment) shall not have any right under this
subchapter to receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares. If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms
of section 1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder. The dissenter shall retain all
other rights of a shareholder until those rights are modified by effectuation
of the proposed corporate action.
1577 RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES.
(a) Failure to effectuate corporation action. Within 60 days after
the date set for demanding payment and depositing certificates, if the
business corporation has not effectuated the proposed corporate action, it
shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment.
(b) Renewal of notice to demand payment. When uncertificated shares
have been released from transfer restrictions and deposited certificates have
been returned, the corporation may at any later time send a new notice
conforming to the requirements of section 1575 (relating to notice to demand
payment), with like effect.
(c) Payment of fair value of shares. Promptly after effectuation of
the proposed corporate action, or upon timely receipt of demand for payment if
the corporate action has already been effectuated, the corporation shall
either remit to dissenters who have made demand and (if their shares are
certificated) have deposited their certificates the amount that the
corporation estimates to be the fair value of the shares, or give written
notice that no remittance under this section will be made. The remittance or
notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the
issuer of the shares held or owned by the dissenter for a fiscal year
ending not more than 16 months before the date of remittance or
notice together with the latest available interim financial
statements.
(2) A statement of the corporation's estimate of the fair
value of the shares.
(3) A notice of the right of the dissenter to demand payment
or supplemental payment, as the case may be, accompanied by a copy of
this subchapter.
(d) Failure to make payment. If the corporation does not remit the
amount of its estimate of the fair value of the shares as provided by
subsection (c), it shall return any certificates that have been deposited and
release uncertificated shares from any transfer restrictions imposed by reason
of the demand for payment. The corporation may make a notation on any such
certificate or on the records of the corporation relating to any such
uncertificated shares that such demand has been made. If shares with respect
to which notation has been so made shall be transferred, each new certificate
issued therefor or the records relating to any transferred uncertificated
shares shall bear a similar notation, together with the name of the original
dissenting holder or owner of such shares. A transferee of such shares shall
not acquire by such transfer any rights in the corporation other than those
that the original dissenter had after making demand for payment of their fair
value.
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1578 ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES.
(a) General rule. If the business corporation gives notice of its
estimate of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's shares as
permitted by section 1577(c) (relating to payment of fair value of shares) and
the dissenter believes that the amount stated or remitted is less than the
fair value of his shares, he may send to the corporation his own estimate of
the fair value of the shares, which shall be deemed a demand for payment of
the amount or the deficiency.
(b) Effect of failure to file estimate. Where the dissenter does not
file his own estimate under subsection (a) within 30 days after the mailing by
the corporation of its remittance or notice, the dissenter shall be entitled
to no more than the amount stated in the notice or remitted to him by the
corporation.
1579 VALUATION PROCEEDINGS GENERALLY.
(a) General rule. Within 60 days after the latest of:
(1) Effectuation of the proposed corporate action;
(2) Timely receipt of any demands for payment under section
1575 (relating to notice to demand payment); or
(3) Timely receipt of any estimates pursuant to section 1578
(relating to estimate by dissenter of fair value of shares);
If any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the
shares be determined by the court.
(b) Mandatory joinder of dissenters. All dissenters, wherever
residing, whose demands have not been settled shall be made parties to the
proceeding as in an action against their shares. A copy of the application
shall be served on each such dissenter. If a dissenter is a nonresident, the
copy may be served on him in the manner provided or prescribed by or pursuant
to 42 Pa.C.S. Ch. 53 (relating to bases of jurisdiction and interstate and
international procedure).
(c) Jurisdiction of the court. The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery. Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found
to exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application. If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file
an application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not
previously remitted.
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1580 COSTS AND EXPENSES OF VALUATION PROCEEDINGS.
(a) General rule. The costs and expenses of any proceeding under
section 1579 (relating to valuation proceedings generally), including the
reasonable compensation and expenses of the appraiser appointed by the court,
shall be determined by the court and assessed against the business corporation
except that any part of the costs and expenses may be apportioned and assessed
as the court deems appropriate against all or some of the dissenters who are
parties and whose action in demanding supplemental payment under section 1578
(relating to estimate by dissenter of fair value of shares) the court finds to
be dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good
faith appears. Fees and expenses of counsel and of experts for the respective
parties may be assessed as the court deems appropriate against the corporation
and in favor of any or all dissenters if the corporation failed to comply
substantially with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any other party, if
the court finds that the party against whom the fees and expenses are assessed
acted in bad faith or in a dilatory, obdurate, arbitrary or vexatious manner
in respect to the rights provided by this subchapter.
(c) Award of fees for benefits to other dissenters. If the court
finds that the services of counsel for any dissenter were of substantial
benefit to other dissenters similarly situated and should not be assessed
against the corporation, it may award to those counsel reasonable fees to be
paid out of the amounts awarded to the dissenters who were benefited.
1930 DISSENTERS RIGHTS.
(a) General rule. If any shareholder of a domestic business
corporation that is to be a party to a merger or consolidation pursuant to a
plan of merger or consolidation objects to the plan of merger or consolidation
and complies with the provisions of Subchapter D of Chapter 15 (relating to
dissenters rights), the shareholder shall be entitled to the rights and
remedies of dissenting shareholders therein provided, if any. See also section
1906(c) (relating to dissenters rights upon special treatment).
(b) Plans adopted by directors only. Except as otherwise provided
pursuant to section 1571(c) (relating to grant of optional dissenters rights),
Subchapter D of Chapter 15 shall not apply to any of the shares of a
corporation that is a party to a merger or consolidation pursuant to section
1924(b)(1)(i) (relating to adoption by board of directors).
(c) Cross references. See sections 1571(b) (relating to exceptions)
and 1904 (relating to de facto transaction doctrine abolished).
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