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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
AMERICAN STUDIOS, INC.
(Name of Subject Company)
AMERICAN STUDIOS, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class of Securities)
030102 10 7
(CUSIP Number of Class of Securities)
J. ROBERT WREN, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN STUDIOS, INC.
11001 PARK CHARLOTTE BOULEVARD
CHARLOTTE, NORTH CAROLINA 28273
(704) 588-4351
(Name, Address and Telephone Number of Person Authorized to Receive Notice and
Communications on Behalf of the Person(s) Filing Statement)
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WITH A COPY TO:
E. LYNWOOD MALLARD
PETREE STOCKTON, L.L.P.
3500 ONE FIRST UNION CENTER
301 SOUTH COLLEGE STREET
CHARLOTTE, NORTH CAROLINA 28202-6001
(704) 338-5000
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is American Studios, Inc., a North Carolina
corporation (the "Company"), which has its principal executive offices at 11001
Park Charlotte Boulevard, Charlotte, North Carolina 28273. The title of the
class of equity securities to which this Solicitation/Recommendation Statement
on Schedule 14D-9 ("Schedule 14D-9") relates is the common stock, par value
$.001 per share, of the Company (the "Common Stock"). Unless the context
requires otherwise, as used herein, the term "Shares" shall mean the outstanding
shares of the Common Stock.
ITEM 2. TENDER OFFER OF THE BIDDER
This Schedule 14D-9 relates to the tender offer (the "Offer") disclosed in
a Tender Offer Statement on Schedule 14D-1, dated December 20, 1996 (the
"Schedule 14D-1") by ASI Acquisition Corp., a North Carolina corporation (the
"Purchaser") and a wholly owned subsidiary of PCA International, Inc., a North
Carolina corporation (the "Parent") (the Purchaser and the Parent referred to
collectively as "PCA"), to purchase all of the Shares, at a price of $2.50 per
Share (the "Offer Price"), net to the seller in cash, upon the terms and
conditions set forth in the Offer to Purchase dated December 20, 1996, as
amended or supplemented (the "Offer to Purchase"), and the related Letter of
Transmittal (which together with the Offer to Purchase constitute the "Offer
Documents").
The Offer is being made pursuant to an Agreement and Plan of Merger dated
as of December 17, 1996, by and among the Company, the Purchaser and Parent (the
"Merger Agreement"). The Merger Agreement provides, among other things, that,
promptly following completion of the Offer and subject to the terms and
conditions of the Merger Agreement, the Purchaser will be merged with and into
the Company (the "Merger"), with the Company being the surviving corporation
(the "Surviving Corporation"). At the time the Merger is effective (the
"Effective Time"), each Share then outstanding (other than Shares held by the
Purchaser, Parent, the Company or any of their respective subsidiaries and other
than Shares held by shareholders who have exercised their right to demand and to
receive the fair value of such Shares under North Carolina law) will be
cancelled and converted into the right to receive from the Surviving Corporation
$2.50 in cash. A copy of the Merger Agreement is filed herewith as Exhibit 1 and
is incorporated herein by reference.
According to the Schedule 14D-1, the principal executive office of PCA is
815 Matthews -- Mint Hill Road, Matthews, North Carolina 27102.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this Schedule 14D-9, are set forth in Item 1 above.
(b) Each material contract, agreement, arrangement or understanding, and
each actual or potential conflict of interest, between the Company or its
affiliates and either (1) the Company, its executive officers, directors, or
affiliates or (2) PCA, its executive officers, directors, or affiliates is
described in Annex I attached to this Schedule 14D-9 and incorporated herein by
reference or is set forth below.
EMPLOYMENT AND NONCOMPETE AGREEMENTS WITH PARENT
Parent has executed an employment agreement with each of J. Robert Wren,
Jr., R. Kent Smith, Randy J. Bates, James O. Mattox, Shawn W. Poole and Ed J.
Tepera (together, the "Employment Agreements"). All of the foregoing persons
except Mr. Bates and Mr. Smith are executive officers of the Company and Mr.
Bates, Mr. Wren and Mr. Smith are directors of the Company. The Employment
Agreements, executed by Parent, have been placed in escrow, pursuant to an
escrow agreement between Parent and the Company dated December 17, 1996 (the
"Escrow Agreement"), a summary of certain terms of which is set forth in this
Schedule 14D-9. Such summary is not a complete description of the terms and
conditions thereof and is qualified in its entirety by reference to the Escrow
Agreement, a copy of which is filed herewith as Exhibit 2 and is incorporated
herein by reference. Pursuant to the Escrow Agreement, among other things, the
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Employment Agreements will become effective one day following the consummation
of the Offer. The following is a summary of the material terms of the Employment
Agreements. This summary is not a complete description of the terms and
conditions thereof and is qualified in its entirety by reference to the
Employment Agreements, copies of which are together filed herewith as Exhibit 3
and are incorporated herein by reference.
Pursuant to his Employment Agreement, Mr. Wren will serve as Executive Vice
President, General Counsel and Assistant to the Chief Executive Officer of
Parent. Mr. Wren's base annual compensation will be $250,000 and he will be
eligible to participate in bonus programs available to other executive vice
presidents of Parent. Mr. Wren's term of employment is three years. If he is
terminated by Parent without cause during such three year term or if he
voluntarily terminates following one year of employment, he will receive a
severance payment the amount of which will depend upon the time of termination
but which will be not less than one year's base compensation nor more than his
aggregate base annual compensation for the remaining term of employment.
Pursuant to Mr. Wren's Employment Agreement, Parent has agreed to grant Mr. Wren
an option to purchase 150,000 shares of the common stock of Parent ("Parent
Stock") pursuant to Parent's 1996 Omnibus Long-Term Compensation Plan (the
"Plan") at an exercise price equal to the trading price of the Parent Stock on
the effective date of the grant as defined in the Plan. Such option will become
exercisable in three equal annual increments, or immediately upon the
termination of such agreement by Mr. Wren or by the Parent without cause, and
terminates 10 years from the date of grant without regard to a termination of
employment other than a termination for cause.
Mr. Smith and Mr. Bates each will serve as a special advisor to Parent for
a four month period pursuant to their Employment Agreements. Mr. Smith will
receive monthly compensation of $12,833, and Mr. Bates will receive monthly
compensation of $13,750. After such four month period, Mr. Smith and Mr. Bates
each will be prohibited by non-compete covenants under such agreements from
competition with Parent for a period of five years and eight months in
consideration of the same monthly payments through the end of such period.
Pursuant to the Employment Agreements of Mr. Smith and Mr. Bates, Parent has
agreed to grant each such person an option to purchase 100,000 shares of Parent
Stock pursuant to the Plan at an exercise price equal to the trading price of
the Parent Stock on the effective date of the grant as defined in the Plan. Such
options become exercisable on the date of grant and terminate five years from
such date.
Pursuant to his Employment Agreement, Mr. Mattox will serve as a Senior
Vice President of Parent for a term of one year at a base annual compensation of
$125,000. Under such agreement, if Mr. Mattox is terminated by Parent without
cause during or after such one year term, or if he voluntarily terminates his
employment after such one year term, he will receive a severance payment of
$195,000. If he voluntarily terminates prior to the end of his one year term,
his severance payment will be $70,000. Mr. Mattox will be eligible to
participate in bonus programs made available to other senior vice presidents of
Parent. Pursuant to Mr. Mattox's Employment Agreement, Parent has agreed to
grant Mr. Mattox an option to purchase 25,000 shares of Parent Stock pursuant to
the Plan at an exercise price equal to the trading price of the Parent Stock on
the effective date of the grant as defined in the Plan. Such option will become
exercisable in five annual equal increments and terminates 10 years following
the date of the grant or three months after the termination of Mr. Mattox's
employment with Parent, whichever is earlier.
Pursuant to his Employment Agreement, Mr. Poole will be employed by Parent
for a period of four months under the supervision of the Chief Financial Officer
of Parent. Mr. Poole will receive monthly compensation of $15,624. Under such
agreement, if Mr. Poole is terminated by Parent without cause during or after
such four month term, or if he voluntarily terminates such employment following
such four month term, he will receive a severance payment of $31,248.
Pursuant to his Employment Agreement, Mr. Tepera will serve as a Senior
Vice President -- Manufacturing of Parent for a term of one year at a base
annual compensation of $115,000. Under such agreement, if Mr. Tepera is
terminated by Parent without cause during or after such one year term, he will
receive a severance payment of 50% of his base annual compensation. Mr. Tepera
will be eligible to participate in bonus programs available to other senior vice
presidents of Parent. Pursuant to Mr. Tepera's Employment Agreement, Parent has
agreed to grant Mr. Tepera an option to purchase 20,000 shares of Parent Stock
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pursuant to the Plan at an exercise price equal to the trading price of the
Parent Stock on the effective date of the grant as defined in the Plan. Such
option will become exercisable in five annual equal increments and terminates 10
years following the date of the grant or three months after the termination of
Mr. Tepera's employment with Parent, whichever is earlier.
The foregoing Employment Agreements of Mr. Wren, Mr. Mattox and Mr. Tepera
contain certain noncompetition covenants of varying duration pursuant to which
each such officer is prohibited from providing portrait photography services to
certain persons and entities within certain geographic areas following the
expiration of the terms of such agreements (without regard to the termination of
employment prior to the expiration of the terms of such agreements).
STOCK OPTIONS
Pursuant to the Merger Agreement, the Company has agreed to cause, as of
the earlier of the Effective Time or the expiration of the Offer (if at such
time the Shares tendered and not withdrawn pursuant to the Offer equal 80% or
more of the Shares) (such earlier date the "Acceleration Time"), all outstanding
options to purchase shares of the Common Stock (the "Options") outstanding under
the Company's 1992 Stock Option Plan, Equity Compensation Plan or Non-Employee
Directors' Plan to become exercisable in full. The Company has obtained or will
obtain the agreement of all holders of Options to the cancellation of the
Options as of the Acceleration Time in consideration for which, at the
Acceleration Time, Parent will cause the Company (or the Purchaser as provided
in the Merger Agreement) to pay each such holder of an Option the product of the
excess, if any, of the Offer Price over the exercise price of such Option and
the number of shares of Common Stock subject to such Option at the Acceleration
Time or, with regard to certain holders of Options having an exercise price
equal to or greater than the Offer Price, not more than $100 per optionee. As a
result of the foregoing, each non-employee director of the Company (Mr. Bolger,
Mr. Cost, Mr. Ferrell, and Mr. Shaw) will receive $6,250 in respect of
outstanding Options held by him, and Mr. Wren, Mr. Smith, Mr. Mattox, Mr. Poole
and Mr. Tepera will receive $168,750, $112,500, $112,500, $112,500 and $56,250,
respectively, in respect of outstanding Options held by them.
SEVERANCE AND RELATED MATTERS
In May 1996, in connection with his initial employment by the Company, Mr.
Poole entered into an employment agreement with the Company providing for, among
other things, a payment to Mr. Poole in the event of a change in control of the
Company, as defined in such agreement, followed by a termination of Mr. Poole's
employment by the Company, in an amount equal to two times his then base annual
salary, payable in a lump sum. In September 1996, the employment agreements
between the Company and each of Mr. Wren, Mr. Mattox and Mr. Tepera, as well as
certain other officers of the Company, were amended to provide for similar
payments to each such person. Pursuant to their employment agreements with the
Company, as so amended, each of Mr. Wren and Mr. Mattox will receive payments
equal to two times his then base annual salary, payable in a lump sum, and Mr.
Tepera will receive a payment in an amount equal to one and one-half times his
then base annual salary, also payable in a lump sum, in each case, upon a change
in control of the Company, as defined in such agreements, followed by a
termination of employment.
In addition, pursuant to the terms of their employment agreements with the
Company, upon a termination without cause, each of Mr. Bates and Mr. Smith will
receive 100% of his then base annual salary for a period of 12 months and,
thereafter, 50% of such salary for a period of 24 months.
Pursuant to the Escrow Agreement, the Company has agreed, at Parent's
request, to terminate the employment of Mr. Wren, Mr. Mattox, Mr. Poole, Mr.
Tepera, Mr. Bates and Mr. Smith on the day following the consummation of the
Offer (at which time such persons will become employees of Parent pursuant to
the Employment Agreements as discussed above) and to pay the amounts to which
such persons are entitled under their employment agreements with the Company as
a result of such terminations (except as otherwise agreed) in a lump sum and
Parent has agreed to provide funds to the Company necessary for the Company to
pay such amounts. As a result of the foregoing, upon the consummation of the
Offer and a termination of
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employment by the Company, Mr. Wren, Mr. Bates, Mr. Smith, Mr. Mattox, Mr. Poole
and Mr. Tepera will receive lump sum payments of $539,000, $550,000, $423,971,
$180,000, $250,000 and $172,500 respectively.
STOCK AGREEMENTS
Parent and the Purchaser have entered into stock agreements, dated December
17, 1996 (the "Stock Agreements"), with each of Merrill Lynch Capital
Corporation (the owner of 5,950,177 Shares); Randy J. Bates (a founder and
director of the Company), his spouse, irrevocable trusts for the benefit of each
of his three children, a non-profit corporation of which Mr. Bates serves as an
officer and a director and another unrelated non-profit corporation (the owners
of an aggregate of 2,438,345 Shares); R. Kent Smith (a founder and director of
the Company) and irrevocable trusts for the benefit of each of his two children
(the owners of an aggregate of 1,205,567 Shares); J. Robert Wren, Jr. (an
executive officer and director of the Company) and a non-profit corporation of
which he serves as an officer and director (the owners of an aggregate of
343,785 Shares); Tom E. DuPree (the owner of 1,455,000 Shares); Alan P. Shaw (a
director of the Company and the owner of 347,600 Shares); and Norman V. Swenson,
Jr., (a founder and director of the Company) and irrevocable trusts for the
benefit of each of his three children (the owners of an aggregate of 795,157
Shares) (each referred to herein as a "Designated Shareholder" or collectively
as the "Designated Shareholders") with respect to an aggregate of 12,535,631
Shares owned by them representing approximately 58% of the Shares. The following
is a summary of the material terms of the Stock Agreements. This summary is not
a complete description of the terms and conditions thereof and is qualified in
its entirety by reference to the Stock Agreements, the forms of which are
together filed herewith as Exhibit 4 and are incorporated herein by reference.
The Stock Agreements between Parent and Purchaser and each of Mr. DuPree, Mr.
Shaw, Mr. Swenson and the irrevocable trusts for the benefit of Mr. Swenson's
children do not contain the provision relating to the granting to Parent of an
irrevocable option to purchase their Shares under certain circumstances as
described below. It is anticipated that Parent and the Purchaser will enter into
agreements similar to the Stock Agreements of the persons identified in the
preceding sentence with certain family members of Mr. Shaw with respect to an
aggregate of approximately 50,000 Shares owned by them.
Tender of Shares. Upon the terms and subject to the conditions of the
Stock Agreements, the Designated Shareholders have agreed to validly tender (and
not withdraw) pursuant to and in accordance with the terms of the Offer, not
later than the fifth (or, in the case of Merrill Lynch Capital Corporation, the
tenth) business day after commencement of the Offer, the number of Shares owned
beneficially by the Designated Shareholders, an aggregate of 12,535,631 Shares,
representing approximately 58% of the Shares (or approximately 54% of the Shares
calculated on a fully diluted basis).
Stock Option. Certain of the Designated Shareholders who beneficially own
an aggregate of 9,937,874 Shares, representing approximately 46% of the Shares
(or approximately 43% of the Shares calculated on a fully diluted basis), have
each granted to Parent an irrevocable option (a "Stock Option") to purchase such
Designated Shareholder's Shares (the "Option Shares") at a purchase price per
Share equal to the Offer Price. Pursuant to the Stock Agreement of each such
Designated Shareholder, if (i) the Offer is terminated, abandoned or withdrawn
by Parent or the Purchaser, or (ii) the Merger Agreement is terminated in
accordance with its terms, the Stock Option will, in any such case (but provided
neither Parent nor the Purchaser is in material breach of the Merger Agreement),
become exercisable, in whole or in part, upon the first to occur of any such
event and remain exercisable, in whole or in part, until the date which is
forty-five days after the date of the occurrence of such event (the "45 Day
Period"), so long as: (i) all waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), required for the
purchase of the Option Shares upon such exercise shall have expired or been
waived, and (ii) there shall not be in effect any preliminary or final
injunction or other order issued by any court or governmental, administrative or
regulatory agency or authority or legislative body or commission prohibiting the
exercise of the Stock Option pursuant to such Stock Agreement. Each such Stock
Agreement provides that if all HSR Act waiting periods have not expired or been
waived, or there shall be in effect any such injunction or order, in each case
on the expiration of the 45 Day Period, the 45 Day Period shall be extended
until five business days after the later of (A) the date of expiration or waiver
of all HSR Act waiting periods and (B) the date of removal or lifting of such
injunction or order but in no event shall the 45 Day Period be extended beyond
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June 30, 1997. Pursuant to the Stock Agreements of such Designated Shareholders,
Parent has agreed that in the event it exercises the Stock Options and purchases
the Option Shares (i) prior to the commencement of the Offer and (ii) in the
absence of an Acquisition Proposal (as defined in the Stock Agreements) for the
Company providing consideration greater than the Offer Price, Parent will, to
the extent permitted by law, seek to purchase all of the remaining shares of
Common Stock of the Company outstanding at the Offer Price pursuant to the
Merger Agreement and/or the Offer.
Provisions Concerning the Shares. Each Designated Shareholder has agreed
that during the period commencing on the date of the Stock Agreements and
continuing until the first to occur of the Effective Time or termination of the
Merger Agreement in accordance with its terms, at any meeting of the Company's
shareholders or in connection with any written consent of the Company's
shareholders, the Designated Shareholders will vote (or cause to be voted) the
Shares then held of record or beneficially owned by such Designated Shareholder,
(i) in favor of the Merger, the execution and delivery by the Company of the
Merger Agreement and the approval of the terms thereof and each of the other
actions contemplated by the Merger Agreement and the Stock Agreements and any
actions required in furtherance thereof; (ii) against any action or agreement
that would result in a breach in any respect of any covenant, representation or
warranty or any other obligation or agreement of the Company under the Merger
Agreement or the Stock Agreements and (iii) except as otherwise agreed to in
writing in advance by Parent, against the following actions (other than the
Merger and the transaction contemplated by the Merger Agreement): (A) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company or its subsidiaries; (B) a sale,
lease or transfer of a material amount of assets of the Company or its
subsidiaries, or a reorganization, recapitalization, dissolution or liquidation
of the Company or its subsidiaries and (C) (1) any change in a majority of the
persons who constitute the Board; (2) any change in the present capitalization
of the Company or any amendment of the Company's Articles of Incorporation or
Bylaws (3) any other material change in the Company's corporate structure or
business or (4) any other action which, in the case of each of the matters
referred to in clauses (C)(1), (2) or (3), is intended, or could reasonably be
expected, to impede, interfere with, delay, postpone, or materially adversely
affect the Merger and the transactions contemplated by the Stock Agreements and
the Merger Agreement. Each Designated Shareholder has further agreed not to
enter into any agreement or understanding with any person or entity the effect
of which would be inconsistent or violative of the provisions and agreements
described above.
Other Covenants, Representations, Warranties. In connection with each
Stock Agreement, each Designated Shareholder made certain customary
representations, warranties and covenants, including with respect to (i)
ownership of the Shares, (ii) the Designated Shareholder's authority to enter
into and perform obligations under the Stock Agreement, (iii) the receipt of
requisite governmental consents and approvals, (iv) the absence of liens and
encumbrances on and in respect of the Designated Shareholder's Shares, and (vi)
the solicitation of Acquisition Proposals (except that no Designated Shareholder
will be prevented from exercising any fiduciary duty that he may have in his
capacity as a directory or officer of the Company, if any) and (vii) the waiver
of the Designated Shareholder's appraisal rights. Parent and the Purchaser have
made certain representations and warranties with respect to Parent and the
Purchaser's authority to enter into each Stock Agreement and the receipt of
requisite governmental consents and approvals.
Pursuant to the Stock Agreements, Parent has agreed to indemnify the
Designated Shareholders in certain circumstances.
ADDITIONAL CONFLICTS
Historically, the Company has not paid directors' fees for attendance at
telephonic meetings of the Board and has not paid for attendance at telephonic
or in person meetings of committees of the Board. Given the numerous meetings of
the Board and the Stock Option/Compensation Committee of the Board, most of
which were required to be held by telephone, relating to the Merger Agreement
and the transactions contemplated thereby, the Company determined to pay its
non-employee directors (Mr. Bolger, Mr. Cost, Mr. Ferrell, Mr. Shaw and Mr.
Swenson) the regular per meeting fee of $1,500 for each meeting (in person or
telephonic) of the Board or the Stock Option/Compensation Committee attended by
any such director with regard to the Merger Agreement or the transactions
contemplated thereby, not to exceed $20,000 per director.
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In connection with a verbal agreement with Mr. Swenson relating to the
termination of his consulting agreement with the Company in November 1995, the
Company has determined to pay Mr. Swenson $56,000 (the amount that would have
been payable during the remainder of the term of his consulting agreement had it
not been terminated). Such agreement was terminated by the Company at such time
in connection with the modification of the Company's credit facility. At the
time of such termination, the Company verbally agreed with Mr. Swenson that it
would resume its consulting agreement with him at such time as it was
permissible to do so under the credit facility.
The Company and Parent have had discussions concerning the possible payment
of discretionary cash bonuses to certain employees of the Company. The amount
and other conditions of any such bonuses have not been determined. If any such
bonuses are paid, the recipients may include executive officers of the Company
and the amounts thereof may be material.
THE MERGER AGREEMENT
The following is a summary of certain material terms of the Merger
Agreement. This summary is not a complete description of the terms and
conditions thereof and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is filed herewith as Exhibit 1 and is hereby
incorporated herein by reference.
The Offer. The Merger Agreement provides that the Purchaser will commence
the Offer and that upon the terms and subject to prior satisfaction or waiver of
the conditions of the Offer, the Purchaser will purchase all Shares validly
tendered pursuant to the Offer. The Merger Agreement provides that, without the
written consent of the Company, the Purchaser will not decrease the Offer Price,
decrease the number of Shares sought in the Offer, amend or waive the condition
that there shall be validly tendered and not withdrawn prior to the expiration
of the Offer at least a majority of the Shares on a fully diluted basis (the
"Minimum Condition"), change the form of consideration payable in the Offer or
modify or change any condition of the Offer, except that if on the initial
scheduled expiration date all conditions to the Offer shall not have been
satisfied or waived, the Purchaser may extend from time to time for a period of
not greater than twenty business days following the initially scheduled
Expiration Date; provided that the expiration date may not be extended beyond
March 31, 1997. The Merger Agreement provides that the Purchaser shall, on the
terms and subject to the prior satisfaction or waiver of the conditions of the
Offer, accept for payment and pay for Shares tendered as soon as it is legally
permitted to do so under applicable law; provided, however, that if, immediately
prior to the expiration date of the Offer, as it may be extended, the Shares
tendered and not withdrawn pursuant to the Offer equal less than 90% of the
Shares outstanding, the Purchaser may extend, but not beyond March 31, 1997, the
Offer for a period not to exceed twenty business days. In addition, the Merger
Agreement provides that, without the consent of the Company, the Offer Price may
be increased and the Offer may be extended, but not beyond March 31, 1997, to
the extent required by law in connection with such an increase in the Offer
Price.
The Merger. Following consummation of the Offer, the Merger Agreement
provides that, subject to the terms and conditions thereof, and in accordance
with North Carolina law, at the Effective Time, the Purchaser shall be merged
with and into the Company. As a result of the Merger, the separate corporate
existence of the Purchaser will cease and the Company will continue as the
surviving corporation (the "Surviving Corporation").
The respective obligations of Parent and the Purchaser, on the one hand,
and the Company, on the other hand, to effect the Merger are subject to the
satisfaction on or prior to the Closing Date (as defined in the Merger
Agreement) of each of the following conditions, any and all of which may be
waived in whole or in part, to the extent permitted by applicable law: (i) the
Merger Agreement shall have been approved and adopted by the requisite vote of
the holders of Shares, if required by applicable law and the Articles of
Incorporation, in order to consummate the Merger; (ii) no statute, rule, order,
decree or regulation shall have been enacted or promulgated by any government or
any governmental agency or authority of competent jurisdiction which prohibits
the consummation of the Merger and all governmental consents, orders and
approvals required for the consummation of the Merger and the transactions
contemplated by the Merger
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Agreement will have been obtained and shall be in effect at the Effective Time;
(iii) there shall be no order or injunction of a court or other governmental
authority of competent jurisdiction in effect precluding, restraining, enjoining
or prohibiting consummation of the Merger; (iv) Parent, the Purchaser or their
affiliates shall have purchased Shares pursuant to the Offer; and (v) the
applicable waiting period under the HSR Act shall have expired or been
terminated.
At the Effective Time of the Merger (i) each issued and outstanding Share
(other than Shares that are owned by the Company as treasury stock, any Shares
owned by Parent, the Purchaser or any other wholly-owned subsidiary of Parent,
or any Shares which are held by shareholders exercising appraisal rights under
North Carolina law) shall be converted into the right to receive the Offer Price
and (ii) each issued and outstanding share of the Purchaser shall be converted
into one share of common stock of the Surviving Corporation.
The Company's Board of Directors. The Merger Agreement provides that
promptly after the purchase by Parent of at least a majority of the Shares (on a
fully diluted basis) pursuant to the Merger Agreement, Parent shall be entitled
to designate such number of directors, rounded up to the next whole number, on
the Board as is equal to the product of the total number of directors on the
Board multiplied by the percentage that the number of Shares so accepted for
payment bears to the total number of Shares then outstanding. The Company will,
upon request of the Purchaser, use its best efforts promptly to either increase
the size of its Board of Directors or secure the resignations of such number of
its incumbent directors as is necessary to enable Parent's designees to be
elected to the Board. Until the Effective Time, the Company shall use all
reasonable efforts to retain as members of the Board at least two directors who
are neither officers of Parent, or designees, shareholders or affiliates of
Parent. The Company's obligation to appoint Parent's designees to the Board is
subject to Section 14(f) of the Securities Exchange Act of 1934, as amended, and
Rule 14f-1 thereunder.
Shareholders' Meeting. Pursuant to the Merger Agreement, the Company will,
if required by applicable law in order to consummate the Merger, duly call, give
notice of, convene and hold a special meeting of its shareholders (the "Special
Meeting") as soon as practicable following the acceptance for payment and
purchase of Shares by the Purchaser pursuant to the Offer for the purpose of
considering and taking action upon the Merger Agreement. The Merger Agreement
provides that the Company will, if required by applicable law in order to
consummate the Merger, prepare and file with the Securities and Exchange
Commission (the "Commission") a preliminary proxy or information statement
relating to the Merger and the Merger Agreement and use its best efforts (i) to
obtain and furnish the information required to be included by the Commission in
the Proxy Statement (as defined herein) and, after consultation with Parent, to
respond promptly to any comments made by the Commission with respect to the
preliminary proxy or information statement and cause a definitive proxy or
information statement (the "Proxy Statement") to be mailed to its shareholders
and (ii) to obtain the necessary approvals of the Merger and the Merger
Agreement by its shareholders. If the Purchaser acquires at least a majority of
the Shares, the Purchaser will have sufficient voting power to approve the
Merger, even if no other shareholder votes in favor of the Merger. Pursuant to
the Stock Agreements, shareholders owning approximately 58% of the Shares have
agreed to tender such Shares, and therefore the Purchaser will acquire at least
a majority of the Shares. The Company has agreed, subject to the fiduciary
obligations of the Board under applicable law as advised by independent counsel,
to include in the Proxy Statement the recommendation of the Board that
shareholders of the Company vote in favor of the approval of the Merger and the
adoption of the Merger Agreement. Parent has agreed that it will vote, or cause
to be voted, all of the Shares then owned by it, the Purchaser or any of its
other subsidiaries and affiliates in favor of the approval of the Merger and the
adoption of the Merger Agreement.
The Merger Agreement provides that in the event that Parent, the Purchaser
or any other subsidiary of Parent acquires at least 90% of the outstanding
Shares, pursuant to the Offer or otherwise, Parent, the Purchaser and the
Company will, at the request of Parent and subject to the terms of the Merger
Agreement, take all necessary and appropriate action to cause the Merger to
become effective as soon as practicable after such acquisition, without a
meeting of shareholders of the Company, in accordance with North Carolina law.
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Options. Pursuant to the Merger Agreement, effective as of the earlier of
(i) Effective Time or (ii) the expiration date of the Offer (if at such time the
Shares tendered and not withdrawn pursuant to the Offer equal 80% or more of the
Shares) (such earlier date the "Acceleration Time"), the Company shall cause
each outstanding employee stock option to purchase Shares (the "Employee
Options") granted under the Company's 1992 Stock Option Plan and the Company's
Equity Compensation Plan (collectively, the "Employee Option Plans") and each
outstanding non-employee director option to purchase Shares ("Director Options"
and collectively with Employee Options, the "Options") granted under the
Company's Stock Option Plan for Non-Employee Directors (together with the
Employee Option Plans, the "Option Plans"), whether or not then exercisable or
vested, to become fully exercisable and vested. The Company has obtained the
agreement of each optionee under the Option Plans to the cancellation of all
outstanding Options as of the Acceleration Time, in consideration for which
(except to the extent that Parent or the Purchaser and the holder of any such
Option otherwise agree), at the Acceleration Time Parent will cause the Company
(or, at Parent's option, the Purchaser and, in the event the Company is unable
to do so, the Purchaser (which obligation of the Purchaser Parent agrees to fund
on a timely basis)) to pay to such holders of Options an amount equal the
product of (i) the excess, if any, of the Offer Price over the exercise price of
each such Option and (ii) the number of Shares previously subject to the Option
immediately prior to its cancellation. Cancellation of Options having an
exercise price equal to or in excess of the Offer Price shall be not in excess
of $100 per optionee. The Merger Agreement also provides that notwithstanding
the provisions of this paragraph, the Company shall reasonably cooperate with
Parent and the Purchaser in structuring transactions described in this paragraph
with respect to Options so as to optimize the tax treatment of Parent or the
Purchaser in connection therewith.
Interim Operations. Pursuant to the Merger Agreement, the Company has
agreed that, except as expressly contemplated or provided by the Merger
Agreement or agreed to in writing by Parent, prior to the time the designees of
Parent constitute a majority of the Board of the Company pursuant to the terms
of the Merger Agreement (the "Appointment Time"), the business of the Company
and its subsidiaries shall be conducted only in the ordinary and usual course
and, to the extent consistent therewith, each of the Company and its
subsidiaries shall use its commercially reasonable best efforts to preserve its
business organization intact and maintain its existing relations with customers,
suppliers, employees, creditors and business partners, and the Company and its
subsidiaries will not, directly or indirectly, except as permitted by Parent (i)
sell, transfer or pledge, or agree to sell, transfer or pledge, any Shares,
preferred stock or capital stock of any of its subsidiaries beneficially owned
by it; (ii) amend its Articles of Incorporation or Bylaws or similar
organizational documents; (iii) split, combine or reclassify the outstanding
Shares or any outstanding capital stock of any of the subsidiaries of the
Company; (iv) declare, set aside or pay any dividend or other distribution
payable in cash, stock or property with respect to its capital stock; (v) issue,
sell, pledge, dispose of or encumber any additional shares of, or securities
convertible into or exchangeable for, or options, warrants, calls, commitments
or rights of any kind to acquire any shares of, capital stock of any class of
the Company or its subsidiaries, other than shares reserved for issuance on
December 17, 1996 pursuant to the exercise of the Options outstanding on
December 17, 1996; (vi) transfer, lease, license, sell, mortgage, pledge,
dispose of, or encumber any material assets other than in the ordinary and usual
course of business and consistent with past practice, or incur or modify any
material indebtedness or other liability; (vii) redeem, purchase or otherwise
acquire directly or indirectly any of its capital stock; (viii) grant any
increase in the compensation payable or to become payable by the Company or any
of its subsidiaries to any of its employees, or adopt any new or amend or
otherwise increase or accelerate the payment or vesting of the amounts payable
or to become payable under any existing bonus, incentive compensation, deferred
compensation, severance, profit sharing, stock option, stock purchase,
insurance, pension, retirement or other employee benefit plan, agreement or
arrangement; (ix) enter into any employment or severance agreement with, or,
except in accordance with the existing written policies of the Company, grant
any severance or termination pay to any officer, director or employee of the
Company or any of its subsidiaries; (x) modify, amend or terminate any of its
material contracts or waive, release or assign any material rights or claims
thereunder; (xi) permit any material insurance policy naming it as a beneficiary
or a loss payable payee to be canceled or terminated without notice to Parent;
(xii) incur or assume any long-term debt or assume any short-term indebtedness;
(xiii) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for
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<PAGE> 10
the obligations of any other person, except in the ordinary course of business
and consistent with past practice; (xiv) make any loans, advances or capital
contributions to, or investments in, any other person (other than to wholly
owned subsidiaries of the Company or customary loans or advances to employees in
accordance with past practice); (xv) enter into any material commitment or
transaction (including, but not limited to, any borrowing, capital expenditure
or purchase, sale or lease of assets or real estate; (xvi) change any of the
accounting principles used by it unless required by generally accepted
accounting principles; (xvii) pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction of
any such claims, liabilities or obligations reflected or reserved against in, or
contemplated by, the consolidated financial statements (or the notes thereto of
the Company and its consolidated subsidiaries, (xviii) adopt a plan of complete
or partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company or any of its
subsidiaries (other than the Merger); (xix) take, or agree to commit to take,
any action that would make any representation or warranty of the Company
contained in the Merger Agreement, in the case of any representation or warranty
not qualified by materiality, materially inaccurate or, in the case of any
representation or warranty, inaccurate in any respect at, or as of any time
prior to, the Effective Time; or (xx) enter into an agreement, contract,
commitment or arrangement to do any of the foregoing, or to authorize,
recommend, propose or announce an intention to do any of the foregoing.
No Solicitation. In the Merger Agreement, the Company has agreed that
neither the Company nor any of its subsidiaries or affiliates shall (and the
Company shall use its best efforts to cause its officers, directors, employees,
representatives and agents not to), directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
(other than Parent, or any of its affiliates or representatives) concerning any
merger, tender offer, exchange offer, sale of assets, sale of shares of capital
stock or debt securities or similar transactions involving the Company or any
subsidiary, division or operating or principal business unit of the Company (an
"Acquisition Proposal"). The Company also agreed to immediately cease any
existing activities, discussions or negotiations with any parties conducted
prior to the date of the Merger Agreement with respect to any of the foregoing.
The Merger Agreement provides that the Company may furnish information
concerning its business, properties or assets to any corporation, partnership,
person or other entity or group pursuant to appropriate confidentiality
agreements, and may negotiate and participate in discussions and negotiations
with such entity or group concerning an Acquisition Proposal if (1) such entity
or group has submitted a bona fide written proposal on an unsolicited basis to
the Board of the Company relating to such transaction which the Board determines
represents a superior transaction to the Offer and the Merger and (2) if, the
Board determines, only after receipt of advice from independent legal counsel,
the failure to provide such information or access or to engage in such
discussions or negotiations could cause the Board to violate its fiduciary
duties to the Company's shareholders under applicable law. The Company will
immediately communicate to Parent the terms of any proposal, discussion,
negotiation or inquiry (and will disclose any written materials in connection
therewith), and the identity of the party making such proposal or inquiry which
it may receive in respect of any such transaction.
Indemnification and Insurance. Pursuant to the Merger Agreement, after the
earlier of (1) the Effective Time or (2) the consummation of the Offer, Parent
shall and shall cause the Surviving Corporation (or any successor to the
Surviving Corporation) to indemnify, defend and hold harmless the present and
former officers and directors of the Company and its subsidiaries with respect
to matters occurring at or prior to the Effective Time to the full extent
permitted under North Carolina law. The Merger Agreement also provides that
Parent or the Surviving Corporation shall maintain the Company's existing
officers' and directors' liability insurance ("D&O Insurance") for a period of
not less than three years after the Effective Time, provided that Parent may
substitute therefor policies of substantially similar coverage and amounts
containing terms no less favorable to such former directors or officers. Parent
has also agreed that if the existing D&O Insurance expires, is terminated or
canceled during such period, Parent or the Surviving Corporation will use all
reasonable efforts to obtain substantially similar D&O Insurance, but in no
event shall it be required to pay aggregate annual premiums for such insurance
in excess of 150% of the aggregate annual premiums paid in 1996 and, in the
event that the annual premium for insurance required to be obtained under
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<PAGE> 11
the Merger Agreement exceeds such amount, Parent shall maintain as much of such
insurance as may be maintained for such amount.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and the Purchaser with
respect to, among other things, its organization, capitalization, financial
statements, public filings, conduct of business, employee benefit plans,
insurance, compliance with laws, intellectual property, licenses, contracts,
related party transactions, litigation, tax matters, real property, consent and
approvals, vote required to approve the Merger Agreement, undisclosed
liabilities and the absence of any material adverse changes in the Company since
December 31, 1995.
Termination; Fees. The Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time, whether before or after
approval of the shareholders of the Company, (a) by mutual consent of the Board
of Directors of Parent or Purchaser and the Board of Directors of the Company,
(b) by either the Board of Directors of the Company (in accordance with the
terms of the Merger Agreement) or the Board of Directors of Parent or the
Purchaser (i) if the Offer shall have expired without any Shares being purchased
therein, provided that such right to terminate shall not be available to any
party whose failure to fulfill any material obligation under the Merger
Agreement was the cause of, or resulted in, the failure of Parent or the
Purchaser, as the case may be, to purchase the Shares pursuant to the Offer on
or before such date; or (ii) if any Governmental Entity (as defined therein)
shall have issued an order, decree or ruling or taken any other action (which
order, decree, ruling or other action the parties shall use their reasonable
efforts to lift), in each case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by the Merger Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable, (c) by the Board of Directors of the Company (in accordance with
the terms of the Merger Agreement) (i) if, prior to the purchase of Shares
pursuant to the Offer, the Board of Directors of the Company shall have (A)
withdrawn, or modified or changed in a manner adverse to Parent or the Purchaser
its approval or recommendation of the Offer, the Merger Agreement or the Merger
in order to permit the Company to execute an agreement in principle or a
definitive agreement providing for the acquisition of the Company by merger,
consolidation or otherwise, on terms (including the per share consideration)
determined by the Board of Directors of the Company, to be superior to the
shareholders of the Company as compared to the terms of the acquisition of the
Company contemplated by the Merger Agreement, and (B) determined, only after
receipt of advice from independent legal counsel to the Company, that the
failure to take such action as set forth in the preceding clause (A) could cause
the Board of Directors to violate its fiduciary duties to the Company's
shareholders under applicable law; or (ii) if, prior to the purchase of Shares
pursuant to the Offer, Parent or the Purchaser breaches or fails in any material
respect to perform or comply with any of its material covenants and agreements
contained in the Merger Agreement or breaches its representations and warranties
in any material respect; or (iii) if Parent or the Purchaser shall have
terminated the Offer, or the Offer shall have expired, without Parent or the
Purchaser, as the case may be, purchasing any Shares pursuant thereto; provided,
that the Company may not terminate the Merger Agreement pursuant to this clause
(iii) if such termination or expiration without purchase is the result of the
Company being in material breach of the Merger Agreement; or (iv) if Parent, the
Purchaser or any of their affiliates shall have failed to commence the Offer on
or prior to five business days following the initial public announcement of the
Offer; provided, that the Company may not terminate the Merger Agreement
pursuant to this clause (iv) if such termination or failure is the result of the
Company being in material breach of the Merger Agreement, (d) by the Board of
Directors of Parent or the Purchaser (i) if prior to the purchase of Shares
pursuant to the Offer, the Board of Directors of the Company shall have
withdrawn or modified or changed in a manner adverse to Parent or the Purchaser
its approval or recommendation of the Offer, the Merger Agreement or the Merger
or shall have recommended an Acquisition Proposal or offer, or shall have
executed an agreement in principle (or similar agreement) or definitive
agreement providing for a tender offer or exchange offer for any shares of
capital stock of the Company, or a merger, consolidation or other business
combination with a person or entity other than Parent, the Purchaser or their
affiliates (or the Board of Directors of the Company resolves to do any of the
foregoing); or (ii) if Parent or the Purchaser shall have terminated the Offer,
or the Offer shall have expired without Parent or the Purchaser purchasing any
Shares thereunder, provided that Parent or the Purchaser may not terminate the
Merger Agreement pursuant to this clause (ii) if Parent or the Purchaser has
failed to purchase Shares in the Offer in violation of the material
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terms thereof; or (iii) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of the
conditions set forth in Annex A to the Merger Agreement, Parent, the Purchaser
or any of their affiliates shall have failed to commence the Offer on or prior
to five business days following the date of the initial public announcement of
the Offer.
In accordance with the Merger Agreement, if (1) the Board terminates the
Merger Agreement pursuant to clause (c)(i) of the immediately preceding
paragraph, (2) the Board of Directors of Parent or the Purchaser terminates the
Merger Agreement pursuant to clause (d)(i) of the immediately preceding
paragraph, (3) the Board of Directors of Parent or the Purchaser terminates the
Merger Agreement pursuant to clause (d)(ii) or (d)(iii) of the immediately
preceding paragraph and the event set forth in paragraph (e) of Annex A to the
Merger Agreement shall have occurred, (4) the Board of Directors of Parent or
the Purchaser terminates the Merger Agreement pursuant to clause (d)(ii) or
(d)(iii) of the immediately preceding paragraph as a result of any event set
forth in paragraph (d) of Annex A to the Merger Agreement shall have occurred or
(5) the Board of Directors of Parent or the Purchaser terminates the Merger
Agreement pursuant to clause (d)(ii) or (d)(iii) of the immediately preceding
paragraph as a result of any representation or warranty of the Company in the
Merger Agreement being untrue when made or breach or failure to perform or
comply with any material obligation, agreement or covenant by the Company set
forth in paragraph (c) of Annex A to the Merger Agreement having occurred, then
the Company will pay Parent an amount equal to $1.5 million and shall assume and
pay, or reimburse Parent for, all reasonable out-of-pocket fees and expenses
incurred, or to be incurred, by Parent or the Purchaser and their affiliates, in
connection with the Offer, the Merger and the consummation of the transactions
contemplated by the Merger Agreement.
CONFIDENTIALITY AGREEMENT
Parent and the Company entered into the confidentiality agreement, dated
November 22, 1996 (the "Confidentiality Agreement"), a copy of which is filed
herewith as Exhibit 5 and incorporated herein by reference. Pursuant to the
Confidentiality Agreement, Parent agreed, among other things, that it would keep
confidential certain information ("Evaluation Material") furnished to it by the
Company and to use the Evaluation Material solely for the purpose of evaluating
a business transaction between Parent and the Company.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation of the Board of Directors. The Board has unanimously
approved the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, and has determined that each of the Merger
Agreement, the Offer and the Merger are fair to and in the best interests of the
shareholders of the Company and recommends that all shareholders of the Company
accept the Offer and tender all their Shares pursuant to the Offer. This
recommendation is based in part upon opinions received by the Company from The
Robinson-Humphrey Company, Inc. ("Robinson-Humphrey") and Croft & Bender LLC
("Croft & Bender") that the consideration to be received by the Company's
shareholders in the Offer and the Merger is fair to the shareholders from a
financial point of view. Copies of the fairness opinions received by the Company
from its financial advisors are filed together herewith as Exhibit 6 and are
also attached hereto as Annex II and incorporated herein by reference.
Shareholders are urged to read such opinions in their entirety.
As set forth in the Offer Documents, the Purchaser will purchase Shares
tendered prior to the close of the Offer if the Minimum Condition has been
satisfied by that time and if all other conditions to the Offer have been
satisfied (or waived). Shareholders considering not tendering their Shares in
order to wait for the Merger should note that if the Minimum Condition is not
satisfied or any of the other conditions to the Offer are not satisfied, the
Purchaser is not obligated to purchase any Shares, and can terminate the Offer
and the Merger Agreement and not proceed with the Merger. Under North Carolina
law, the approval of the Board and the affirmative vote of the holders of a
majority of the outstanding Shares are required to approve the Merger.
Accordingly, if the Minimum Condition is satisfied, and the Purchaser
consummates the Offer, the Purchaser will have sufficient voting power to cause
the approval of the Merger without the affirmative vote of any other
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shareholder of the Company. Parent and the Purchaser have entered into the Stock
Agreements with the Designated Shareholders pursuant to which persons owning an
aggregate of approximately 58% of the Shares (or approximately 54% of the Shares
calculated on a fully diluted basis) have agreed to tender their Shares pursuant
to the Offer.
The Offer is scheduled to expire at 12:00 Midnight, New York City time, on
January 22, 1997, unless and until the Purchaser, in its sole discretion, elects
to extend the period of time for which the Offer is open. A copy of the press
release issued jointly by the Company and Parent on December 18, 1996 announcing
the Merger and the Offer is filed herewith as Exhibit 7 and is incorporated
herein by reference.
(b) Background; Reasons for Recommendation of the Board of
Directors. During the fiscal year ended December 31, 1995 the Company
experienced a pretax loss of approximately $9.5 million, due principally to
manufacturing and resulting operational difficulties and a new product program,
and, to a lesser extent, competitive pressures and a generally weak retail
market. The trading price for the Shares decreased from an average of
approximately $2.80 during January 1995 to an average of approximately $1.20
during December 1995. The Company responded by implementing a turnaround program
at the beginning of 1996 including cost-cutting measures, restructuring its
manufacturing operations and retaining a management consulting firm. The Company
also engaged Robinson-Humphrey in February 1996 as its financial advisor,
principally to explore equity and debt financing alternatives for the Company.
This engagement was later modified to include Croft & Bender.
As a result of the Company's turnaround program, the Company experienced
decreasing losses during the first three quarters of 1996. While the pretax loss
in the first quarter of 1996 was approximately $3.9 million, the total pretax
loss for the first three quarters of 1996 was $5.1 million as opposed to $10.3
million for the first three quarters of 1995. The Company's business is highly
seasonal, with the fourth quarter historically accounting for approximately 35%
of the Company's net sales and being the quarter in which the Company earns the
majority of its profits. Therefore, management and the Board believed that the
Company's performance during the fourth quarter of 1996 would significantly
impact its 1996 results. Notwithstanding the Company's improvements through its
third quarter of 1996, the average trading price for the Shares in November 1996
(prior to the November 22, 1996 public announcement that the Company and Parent
had entered into a non-binding letter of intent (the "Letter of Intent")
providing for the acquisition of the Company by Parent), remained at
approximately $1.20 per Share.
Merrill Lynch Capital Corporation ("Merrill Lynch"), which owns
approximately 27.8% of the Shares, indicated to management in August 1996 its
willingness to sell all of its Shares.
On September 4, 1996, J. Robert Wren, Chief Executive Officer of the
Company, R. Kent Smith, President of the Company, and John Grosso, President of
Parent, met at the request of Mr. Grosso to discuss Parent's opening of
permanent studios in certain Wal-Mart stores, which stores had previously been
served by the Company. In light of the physical proximity of the Company and
Parent in Charlotte, North Carolina and similarities in their respective
businesses, the Company and Parent have been familiar with each other's business
and operations. During the meeting, Mr. Grosso orally expressed Parent's
interest in acquiring the Company. Mr. Grosso did not make an offer or identify
any price or terms. Management of the Company informed the Board and contacted
Wal-Mart Stores, Inc. ("Wal-Mart") to determine Wal-Mart's view of a potential
acquisition of the Company by Parent. All of the Company's revenues are
generated from its operations in Wal-Mart stores. A representative of Wal-Mart
advised management that Wal-Mart could give no assurances regarding Parent's
continuation of the Company's operations in Wal-Mart stores following any
acquisition of the Company. During a September 27, 1996 meeting held at Mr.
Grosso's request, Mr. Grosso stated to Mr. Wren that Parent was considering an
all-cash offer of $1.75 per Share for the Shares.
At a special meeting of the Board held on October 1, 1996, Mr. Wren and Mr.
Smith reviewed with the other members of the Board the discussions that had
taken place with Parent. Although Parent had not presented a formal offer to the
Company, after full discussion and consideration of the information provided to
the Board, it was the consensus of the Board that a price of $1.75 per Share
would not be adequate financially. Due to the adverse effect further discussions
could have on the Company's fourth quarter operations, the Board instructed
management to inform Parent that no further discussions would be had at that
time in order
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<PAGE> 14
to allow the Company to complete its fourth quarter and further evaluate the
results of its turnaround program and to allow the market to respond to the
Company's operating results. On October 2, 1996, Mr. Wren advised Mr. Grosso of
the Board's determination and discussions between the Company and Parent ceased.
On November 14, 1996, Mr. Grosso called Mr. Wren to request a meeting with
Mr. Wren, Mr. Smith and Randy J. Bates, Chairman of the Board. On November 15,
1996, Mr. Wren, Mr. Smith and Mr. Bates met with Mr. Grosso. Mr. Grosso
delivered to Mr. Wren, Mr. Smith and Mr. Bates a letter in which Parent offered
to acquire all of the Shares at a price of $2.25 per Share in cash. Mr. Grosso
also stated that Parent would contact Merrill Lynch about the possible
acquisition by Parent of the Company and, in the event an agreement could not be
reached promptly between the parties, Parent would consider commencing a tender
offer for the Shares. Mr. Wren, Mr. Smith and Mr. Bates informed Mr. Grosso that
they would deliver Parent's statement of its position and the written offer to
the Board.
At a special meeting of the Board held on November 18, 1996, the Board
reviewed the proposed transaction with Parent, including but not limited to the
written offer from Parent and Parent's statement of its position concerning
approaching Merrill Lynch about the possible acquisition of the Company and
commencement of a tender offer for the Shares. The Board and management
expressed concern regarding engaging in negotiations during the Company's fourth
quarter. After considering various factors, including but not limited to
Parent's anticipated approach to Merrill Lynch, it was the consensus of the
Board that management continue discussions with Parent to determine the
structure and terms of Parent's offer and to negotiate the price per Share. The
Board emphasized that these discussions were solely to determine Parent's level
of interest in the Company, and did not reflect a decision by the Board that a
sale of the Company for such negotiated amount would be in the best interests of
the Company and its shareholders.
On November 19, 1996, the Company notified Robinson-Humphrey and Croft &
Bender, which were at the time engaged by the Company principally to explore
financing alternatives, that the Company desired to engage them to assist in the
evaluation of the proposal made by Parent and, in connection therewith, to make
certain revisions to their then existing engagement letter, or enter into a new
engagement letter, and to act as the Company's financial advisors in connection
with the possible sale of the Company.
On November 19, 1996, Mr. Bates met with Mr. Grosso principally to discuss
the price per Share of Parent's offer and certain related matters. Mr. Bates
reiterated the Company's desire to delay substantive negotiations until after
the fourth quarter. Mr. Grosso stated that, although Parent had offered $2.25
per Share, Parent would consider offering up to $2.50 per Share in cash for all
of the Shares in a negotiated transaction with the Company. The Company
understood any offer by Parent to be subject to the satisfactory completion of
due diligence, receipt of necessary approvals of the boards of directors of each
party, and the preparation, negotiation and execution of mutually satisfactory
documentation. Mr. Grosso also stated that in the event the Company and Parent
failed to reach an agreement regarding Parent's acquisition of the Company,
Parent intended to proceed promptly to seek to acquire the Shares held by
Merrill Lynch and to commence a tender offer for the remaining Shares at a price
per Share below the price offered for a negotiated acquisition. Subsequently, on
November 19, 1996, Mr. Grosso and Mr. Bates spoke by telephone, principally to
continue their discussions as to the price per Share of Parent's offer.
On November 20, 1996 the Company's financial advisors discussed the terms
of the proposed acquisition with Parent's financial advisors. Parent's financial
advisors stated that Parent would offer $2.50 per Share in cash for all of the
Shares, conditioned upon, among other things, the grant to Parent and the
Purchaser, by certain shareholders owning a majority of the Shares, of
agreements to sell their Shares to Parent at such price per Share. In addition,
the Parent's financial advisors stated again Parent's intention to seek to
acquire Merrill Lynch's Shares and to commence a tender offer for the remaining
Shares at a price per Share below the price offered for a negotiated transaction
in the event the Company and Parent failed to reach an agreement regarding
Parent's acquisition of the Company.
On November 20, 1996, the Company engaged the law firm of Morris, Nichols,
Arsht & Tunnell to act as its special counsel in connection with Parent's
actions. On November 20, 21 and 22, 1996, the Board held special meetings to
review the proposed transaction with Parent and the status of discussions with
Parent. At these meetings, the Board discussed with the Company's special
counsel the Board's alternatives in light of
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<PAGE> 15
Parent's actions. During this time, discussions regarding the possibility of an
acquisition of the Company by Parent and the terms thereof continued. In
addition, during this time, representatives of the parties discussed Parent's
retention of certain key employees of the Company, including certain of the
Company's officers, in connection with an acquisition of the Company. The
parties also negotiated the terms of a letter of intent. On November 20, 1996,
Merrill Lynch advised representatives of the Company that Merrill Lynch was
prepared to accept an all cash offer of $2.50 per Share for the Shares owned by
Merrill Lynch and Wal-Mart indicated to management that Wal-Mart would allow
Parent to continue the Company's operations in Wal-Mart stores subsequent to an
acquisition of the Company by Parent. On November 22, 1996, the Company and
Parent entered into the Confidentiality Agreement and Parent subsequently
commenced its due diligence review of the Company.
The Board held a special meeting on November 23, 1996 to review the status
of the proposed acquisition. After full discussion and review of the information
presented to the Board, including but not limited to the explanation by special
counsel to the Company regarding the advantages of signing the Letter of Intent,
such as the fact that it would give any potential competing bidder an
opportunity to come forward prior to the Company's entering into a definitive
merger agreement, the Board approved the execution of the Letter of Intent. The
Board expressly did not approve the acquisition of the Company by Parent or the
terms of the proposed acquisition, including but not limited to price, set forth
in the Letter of Intent. The Company and Parent also decided to continue working
on all aspects of the transaction immediately so that, if agreement could be
reached, the agreement could be completed as soon as possible and the necessary
documents filed with the Securities and Exchange Commission (the "Commission")
promptly thereafter. Accordingly, representatives of the Company and Parent
participated in due diligence and discussions as to the Merger Agreement on
November 23, 1996 and thereafter.
On November 24, 1996, representatives of the Company and Parent executed
the Letter of Intent. In a special meeting of the Board on November 24, 1996,
the Board reviewed a commitment letter (the "Commitment Letter") delivered by
NationsBank, N.A. ("NationsBank") and NationsBanc Capital Markets, Inc. ("NCMI")
dated November 21, 1996 among NationsBank, NCMI and Parent regarding certain
debt financing in connection with the Offer and Merger, subject to the terms and
conditions set forth therein. The Board also reviewed the executed Letter of
Intent and a press release regarding the Letter of Intent.
On November 25, 1996, the Company publicly announced that the Company had
entered into the Letter of Intent providing for the acquisition of the Company
by Parent for $2.50 per Share in cash, subject to the approval by the boards of
directors of both the Company and Parent and the negotiation of a definitive
merger agreement.
During the period from November 22, 1996 to December 17, 1996,
representatives of the Company and Parent met numerous times with their
respective legal counsel and financial advisors, to negotiate the transaction
and a definitive Merger Agreement. From November 20, 1996 to December 17, 1996,
certain members of the Company's senior management met with senior management of
Parent to negotiate the terms of the Employment Agreements and the termination
of their employment agreements with the Company. Parent conducted a due
diligence review of the Company. During the week of November 25th, Tom E.
DuPree's financial advisor informed the Company's financial advisors that Mr.
DuPree (who owns approximately 6.8% of the Shares) was prepared to accept an all
cash offer of $2.50 per Share for his Shares.
The Board held special meetings on November 25th and November 27th to
review the status of the proposed transaction. Prior to the November 27, 1996
meeting, the Board received preliminary written materials from Robinson Humphrey
and Croft & Bender with regard to the fairness of the Merger and preliminary
drafts of the Merger Agreement. At the November 27th meeting, the Company's
financial advisors reviewed their written materials in a summary fashion in
order to give the directors an overview and opportunity to study the materials
more closely prior to a scheduled December 2, 1996 meeting. During the November
27th meeting, certain directors requested that in preparation for the
presentation of the financial advisors at the December 2nd meeting, the
financial advisors perform additional analyses. The Board also asked questions
regarding certain assumptions underlying the written materials. The Board also
received an
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<PAGE> 16
update from the Company's Chief Financial Officer regarding the status of
negotiations relating to the Company's current credit facility.
On December 2, 1996, the Board met for approximately seven hours to review
the status of the proposed transaction with Parent. At that meeting, management
delivered an oral report on the progress of the turnaround program implemented
at the beginning of the year and discussed management's plans for the future,
including the risks and uncertainties inherent in such plans. Robinson-Humphrey
and Croft & Bender delivered their oral report to the Board that an all cash
price per Share of $2.50 for the Shares would be fair from a financial point of
view to the shareholders of the Company. In addition, the financial advisors
stated their view that the Company should proceed with the Merger given all the
facts and circumstances. Counsel for the Company then described the terms of the
Merger Agreement, including certain provisions still under negotiation. In
addition, the members of the Board who were not members of management met
separately with the Company's counsel to discuss the terms of the management
severance arrangements and employment agreements to be entered into by members
of management. It was reported by Mr. Wren that, following the public
announcement that the Company had entered into the Letter of Intent, no party
had contacted the Company or its executive officers or financial advisors
expressing any interest in acquiring the Company.
On December 16, 1996 NationsBank and NCMI delivered a revised Commitment
Letter, dated December 16, 1996 and Parent provided a copy thereof to the
Company.
The Board met again on December 17, 1996. Robinson-Humphrey and Croft &
Bender delivered their written fairness opinions. After full discussion and
consideration of the information provided to them, review of the transactions
contemplated by the Merger Agreement with its legal and financial advisors and
consideration of the report of its financial advisors, the Board unanimously
approved the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, and determined that each of the Merger
Agreement, the Offer and the Merger are fair to and in the best interests of the
Company's shareholders.
The Merger Agreement was then executed on December 17, 1996 and was
publicly announced on December 18, 1996. Concurrently with the execution of the
Merger Agreement, Parent executed the Employment Agreements and delivered them
into escrow. In addition, on or about December 17, 1996, the Designated
Shareholders executed and delivered the Stock Agreements. A joint press release
announcing the Merger Agreement and the transactions contemplated thereby is
filed herewith as Exhibit 7 and incorporated hereby by reference. On December
20, 1996 the Purchaser commenced the Offer.
Prior to approving the Merger Agreement and the transactions contemplated
thereby, the Board received presentations and reviewed the terms and conditions
of the Offer and the Merger with the Company's management, legal counsel and
financial advisors. In reaching its conclusions described in paragraph (a)
above, the Board considered a number of factors, including, but not limited to,
the following:
(i) the financial and other terms and conditions of the Offer and the
Merger Agreement;
(ii) information with respect to the Company's business, financial
condition, results of operations, assets, liabilities and business
strategy, on both a historical and a prospective basis, various
uncertainties and risks associated with the operation of Company's
business, particularly as such factors would affect shareholder value in
the future, historical market prices, price to earnings multiples and
trading patterns of the Shares, market prices and financial data relating
to the Company's principal competitors, and the Board's determination, on
the basis of such information, that the price to be paid in the Offer and
the Merger fairly reflects the Company's prospects and risks and
uncertainties;
(iii) the presentations of Robinson-Humphrey and Croft & Bender to the
Board as to various financial and other matters deemed relevant to the
Board's consideration; including, among other things (a) a review of the
Company's historical and projected operating performance, (b) a review of
various financial forecasts and other data provided to Robinson-Humphrey
and Croft & Bender relating to the Company's business, operations and
prospects, (c) a review of the historical market prices and trading
activity for the Shares and comparisons with those of certain similar
publicly traded companies, including Parent, (d) a review and analysis of
selected mergers and acquisitions in the retail industry, (e) a review
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<PAGE> 17
and analysis of merger and acquisition premiums of comparably sized
transactions involving companies in various industries, (f) a discounted
cash flow valuation of the Company taking into consideration that such
valuation was based on assumptions subject to a number of risks and
uncertainties, and (g) an analysis of the Offer Price as a multiple of
various measures of the Company's operating performance;
(iv) the written opinions of Robinson-Humphrey and Croft & Bender,
each dated December 17, 1996, that, as of such date and subject to certain
matters stated therein, the cash consideration to be received by the
holders of the Shares pursuant to the Offer and the Merger is fair to such
holders from a financial point of view (a copy of the written opinions of
Robinson-Humphrey and Croft & Bender are attached to this Schedule 14D-9
together as Annex II and are incorporated herein by reference and should be
read in their entirety for a description of the procedures followed,
assumptions and qualifications made, matters considered and limitations of
the review undertaken by Robinson-Humphrey and Croft & Bender);
(v) the fact that the $2.50 per Share price to be received by the
holders of the Shares in both the Offer and the Merger represents a premium
of 90% over the last sale price of the Common Stock of $1.3125 per Share on
November 22, 1996, the last full trading day prior to the public
announcement that Parent and the Company had entered into the Letter of
Intent, premiums of 109% and 176% over the average of the last sale prices
of the Common Stock for the 30-day period and the 60-day period,
respectively, preceding November 22, 1996 and a premium of 25% over the
highest last sale price of the Common Stock during the 12 months preceding
November 22, 1996; and that such price would be payable in cash, thus
eliminating any uncertainties in valuing the consideration to be received
by the holders of the Shares;
(vi) the fact that the Offer and the Merger are not subject to
Purchaser obtaining financing to consummate the Offer and the Merger and
that the Company received, prior to executing the Merger Agreement,
evidence that Parent has a signed commitment from a commercial bank to
finance the Offer and the Merger and that Parent has agreed that the funds
necessary to consummate the Offer will be provided to Purchaser;
(vii) the fact that the structure of the acquisition of the Company by
Parent as provided for in the Merger Agreement involves a cash tender offer
for all Shares to be commenced within five business days of the public
announcement of the Merger Agreement to be followed promptly by a merger
for the same consideration, thereby enabling the holders of the Shares to
obtain cash for their Shares at the earliest possible time;
(viii) the fact that since the public announcement on November 22,
1996 that the Company and Parent had entered into the Letter of Intent, no
other potential acquiror had contacted the Company or any of its officers
or financial advisors expressing any interest in the Company and no
acquisition proposals had been received;
(ix) the fact that the Designated Shareholders, owners of
approximately 58% of the Shares, were willing to enter into the Stock
Agreements with Parent pursuant to which they agreed, among other things,
to tender all of their Shares pursuant to the Offer and vote their Shares
in favor of the Merger;
(x) management's belief, based on discussions between management and
representatives of Wal-Mart, that Parent's acquisition of the Company is
acceptable to Wal-Mart;
(xi) the fact that during the third and fourth quarters of 1996, the
Company had discussions with several potential lenders and additional
financing on terms and conditions acceptable to the Company was not
available from such sources;
(xii) the fact that the Company had worked with its financial advisors
since February 1996 to develop strategies as to financing alternatives;
(xiii) the potential adverse effect on the Company's business of a
tender offer other than pursuant to a negotiated transaction; and
16
<PAGE> 18
(xiv) the advice of the financial advisors that the Company should
proceed with the Merger given all the facts and circumstances.
THE COMPANY'S SHAREHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE
OPINIONS OF ROBINSON-HUMPHREY AND CROFT & BENDER IN THEIR ENTIRETY.
The foregoing discussion of the information and factors considered and
given weight by the Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Merger
Agreement and the Offer, the Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Board may
have given different weights to different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED, OR TO BE COMPENSATED
Neither the Company nor any person acting on its behalf has employed,
retained, or compensated any person to make solicitations or recommendations to
shareholders with respect to the Offer. Robinson-Humphrey and Croft & Bender
have been retained by the Company to act as the Company's financial advisors
with respect to the Offer and the Merger. Pursuant to its engagement letter with
Robinson-Humphrey and Croft & Bender, the Company has agreed to pay
Robinson-Humphrey and Croft & Bender for such services, including fairness
opinions, an aggregate fee of $600,000 (payable to each firm on an equal (50/50)
basis), an aggregate of $300,000 of which is payable upon delivery of the
fairness opinions and the remaining $300,000 of which is payable at, and
conditioned on, the consummation of the Offer. The Company has also agreed to
reimburse Robinson-Humphrey and Croft & Bender their reasonable out-of-pocket
expenses, including reasonable fees and disbursements of counsel, and to
indemnify Robinson-Humphrey and Croft & Bender and certain related parties
against certain liabilities, including liabilities under the federal securities
laws arising out of their engagement. Robinson-Humphrey has provided investment
banking services to the Company in the past and has received customary fees for
such services. In the ordinary course of business, Robinson-Humphrey actively
trades in the Common Stock for its own account and the accounts of its customers
and, accordingly, may at any time hold a long or short position in such
securities.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) During the sixty (60) days preceding the date of this Schedule 14D-9 no
transactions have been effected in the Shares by the Company, or, to the best
knowledge of the Company, any executive officer, director or affiliate of the
Company, except as follows:
(i) On December 5, 1996, Mr. Wren's spouse transferred 281,685 Shares
to Mr. Wren and 40,000 Shares to a nonprofit corporation of which Mr. Wren
is an officer and a director.
(ii) On December 5, 1996, Mr. Bates transferred 50,000 Shares to a
nonprofit corporation of which Mr. Bates is an officer and a director and
300,000 Shares to another nonprofit corporation.
(iii) The Designated Shareholders entered into the Stock Agreements.
(b) To the best knowledge of the Company, (i) all of its executive officers
and directors, have agreed to or presently intend to tender the Shares owned by
them to the Purchaser pursuant to the Offer (other than Shares which if tendered
could cause any such person to incur liability under Section 16(b) of the
Securities Exchange Act of 1934, as amended) and (ii) none of its executive
officers and directors presently intends to otherwise sell any Shares which are
owned beneficially or held of record by such persons; provided that pursuant to
the Stock Agreements, a Designated Shareholder may transfer Shares to a family
member of such shareholder or a charitable organization provided any such
transferee agrees to be bound by the Stock Agreement. As noted above, the
Designated Shareholders have executed the Stock Agreements pursuant to which,
among other things, they have agreed to tender their Shares pursuant to the
Offer.
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<PAGE> 19
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any other negotiation in response to the Offer which relates to or would
result in (i) an extraordinary transaction such as a merger or reorganization,
involving the Company or any subsidiary of the Company; (ii) a purchase, sale,
or transfer of a material amount of assets by the Company or any subsidiary of
the Company; (iii) a tender offer for or other acquisition of securities by or
of the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as set forth in this Schedule 14D-9, there are no transactions,
resolutions of the Board, agreements in principle, or signed contracts in
response to the Offer, which relate or would result in one or more of the
matters referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
PARENT'S RIGHT TO DESIGNATE DIRECTORS. The information statement attached
to this Schedule 14D-9 as Annex I is being furnished in connection with the
possible designation by Parent, pursuant to the Merger Agreement, of certain
persons to be appointed to the Board other than at a meeting of the Company's
shareholders.
NORTH CAROLINA TENDER OFFER DISCLOSURE ACT. The North Carolina Tender
Offer Disclosure Act (the "Tender Offer Disclosure Act") applies to tender
offers for equity securities of a North Carolina corporation. The Tender Offer
Disclosure Act requires the purchaser to file a statement with the North
Carolina Secretary of State relating to the Offer and contains prohibitions
against deceptive practices in connection with making a tender offer. In Eure v.
Grand Metropolitan Limited, a North Carolina superior court held that the Tender
Offer Disclosure Act's 30 day notice period prior to the commencement of a
tender offer is unenforceable and preempted by the Exchange Act.
ANTITRUST. Under the provisions of the HSR Act applicable to the Offer,
the purchase of Shares under the Offer may be consummated following the
expiration of a 15 calendar day waiting period following the filing by Parent of
a Notification and Report Form with respect to the Offer, unless either the
Antitrust Division of the Department of Justice (the "Antitrust Division") or
the Federal Trade Commission (the "FTC") requests additional information or
documentary material or unless early termination of the waiting period is
granted. The Company expects to file a Notification and Report Form with respect
to the Offer no later than 10 calendar days following the filing by Parent. If,
within the initial 15 day waiting period, either the Antitrust Division or the
FTC requests additional information or documentary material from the Company
concerning the Offer, the waiting period will be extended and would expire at
11:59 p.m., New York City time, the tenth calendar day after the date of
substantial compliance by the Company with such request. Only one extension of
the waiting period pursuant to a request for additional information is
authorized by the HSR Act. Thereafter, such waiting period may be extended only
by court order or with the consent of the Company. In practice, complying with a
request for additional information and documentary material can take a
significant amount of time. In addition, if the Antitrust Division or the FTC
raises substantive issues in connection with a proposed transaction, the parties
frequently engage in negotiations with the relevant governmental agency
concerning possible means of addressing those issues and may agree to delay
consummation of the transaction while such negotiations continue.
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<PAGE> 20
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit 1 -- Agreement and Plan of Merger dated as of December 17, 1996 among Parent, the
Purchaser and the Company.
Exhibit 2 -- Escrow Agreement dated December 17, 1996 between Parent and the Company.
Exhibit 3.1 -- Employment Agreement between Parent and Randy J. Bates.
Exhibit 3.2 -- Employment Agreement between Parent and James O. Mattox.
Exhibit 3.3 -- Employment Agreement between Parent and Shawn W. Poole.
Exhibit 3.4 -- Employment Agreement between Parent and R. Kent Smith.
Exhibit 3.5 -- Employment Agreement between Parent and J. Robert Wren, Jr.
Exhibit 3.6 -- Employment Agreement between Parent and Ed J. Tepera.
Exhibit 4 -- Forms of Stock Agreement dated December 17, 1996 among Parent, the Purchaser
and the Designated Shareholders (as defined in Section 3(b) of this Schedule
14D-9).
Exhibit 5 -- Confidentiality Agreement dated November 22, 1996 between Parent and the
Company.
Exhibit 6* -- Opinions of Croft & Bender LLC and The Robinson-Humphrey Company, Inc., each
dated December 17, 1996.
Exhibit 7 -- Joint Press Release of Parent and the Company issued on December 18, 1996.
Exhibit 8* -- Letter dated December 23, 1996 to the Company's shareholders from its Chief
Executive Officer.
</TABLE>
- ---------------
* Included in the materials sent to the shareholders of the Company
SIGNATURE
After reasonable inquiry and to the best of his knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete, and correct.
AMERICAN STUDIOS, INC.
By: /s/ J. ROBERT WREN, JR.
------------------------------------
Name: J. Robert Wren, Jr.
Title: Chief Executive Officer
Date: December 23, 1996
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<PAGE> 21
ANNEX I
AMERICAN STUDIOS
11001 PARK CHARLOTTE BOULEVARD
CHARLOTTE, NORTH CAROLINA 28273
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about December 23, 1996,
as part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of American Studios, Inc. (the "Company"). You are receiving
this Information Statement in connection with the possible election of persons
designated by Parent to a majority of the seats on the Board of Directors of the
Company (the "Board") pursuant to the Merger Agreement. The Merger Agreement
requires the Company, at the request of the Purchaser, to take all actions
available to the Company to cause the Parent Designees (as defined below) to be
elected to the Board under the circumstances described therein.
This Information Statement is required by Section 14(f) of the Exchange Act
and Rule 14f-1 thereunder. You are urged to read this Information Statement
carefully. You are not, however, required to take any action. Capitalized terms
used and not otherwise defined herein shall have the meaning set forth in the
Schedule 14D-9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
December 20, 1996. The Offer is scheduled to expire at 12:00 midnight on January
22, 1997, unless extended, at which time, upon the expiration of the Offer, if
all conditions of the Offer have been satisfied or waived, the Purchaser has
agreed with the Company that it will purchase all Shares validly tendered
pursuant to the Offer and not withdrawn.
The information contained in this Information Statement concerning Parent
and the Purchaser has been furnished to the Company by Parent and the Purchaser,
and the Company assumes no responsibility for the accuracy or completeness of
such information.
GENERAL INFORMATION REGARDING THE COMPANY AND THE BOARD
The Common Stock is the only class of voting securities of the Company
outstanding. As of December 19, 1996, 21,433,163 shares of Common Stock, having
one vote each, were issued and outstanding. As of such date, an additional
1,637,200 shares of Common Stock were subject to outstanding options.
The number of directors of the Company is presently fixed at eight. The
Company's Bylaws provide that the number of directors of the Company shall be
not less than three or more than twenty-one, as determined by the Board or the
shareholders. The Company's Bylaws provide that in the event the Company has
seven or more directors, at least a majority of the directors shall be persons
other than officers or employees of the Company. Four of the eight individuals
presently serving as directors of the Company, Mr. Bolger, Mr. Cost, Mr. Ferrell
and Mr. Shaw, have never been officers or employees of the Company and Mr.
Swenson is not presently an officer or employee of the Company.
RIGHT TO DESIGNATE DIRECTORS; PARENT DESIGNEES
The Merger Agreement provides that promptly after the purchase by Parent
(or any of its subsidiaries), of at least a majority of the Shares (on a fully
diluted basis) pursuant to the Merger Agreement, Parent shall be entitled to
designate such number of directors, rounded up to the next highest whole
director, on the Board as is equal to the product of the total number of
directors on the Board multiplied by the percentage that the aggregate number of
Shares so accepted for payment bears to the number of Shares. Such individuals
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<PAGE> 22
designated by Parent are referred to herein as the "Parent Designees." The
Company has agreed, pursuant to the Merger Agreement upon request of the
Purchaser, to use its best efforts promptly to either increase the size of the
Board or secure the resignations of such number of its incumbent directors as is
necessary to enable the Parent Designees to be elected to the Board.
Notwithstanding the foregoing, the Merger Agreement provides that until the
Effective Time, the Company shall use all reasonable efforts to retain as
members of the Board at least two directors who are neither officers of Parent
nor designees, shareholders or affiliates of Parent and that Parent and
Purchaser will not prevent or inhibit the foregoing. The Merger Agreement
further provides that, following the election or appointment of the Parent
Designees and prior to the Effective Time, any amendment of the Merger Agreement
by the Company will require the affirmative vote of a majority of directors of
the Company that have not been designated by Parent.
Parent has advised the Company that it will choose the Parent Designees
from the directors and executive officers listed on Schedule I to the Offer to
Purchase, a copy of which is being mailed to the Company's shareholders together
with this Information Statement. Parent has informed the Company that each of
the directors and executive officers listed in Schedule I to the Offer to
Purchase has consented to act as a director, if so designated. The information
on such Schedule I is incorporated herein by reference.
It is expected that the Parent Designees may assume office at any time
following the purchase by Parent (or any of its subsidiaries) of at least a
majority of the outstanding Shares on a fully diluted basis pursuant to the
Offer, which purchase cannot be earlier than January 22, 1997.
CURRENT DIRECTORS AND OFFICERS OF THE COMPANY
To the extent the Board will consist of persons who are not the Parent
Designees, the Board is expected to continue to consist of those persons who are
currently directors of the Company who do not resign. Set forth below are the
names and certain other information concerning the current directors, as well as
the current executive officers, of the Company.
J. Robert Wren, Jr......... Mr. Wren, 49, has served as Chief Executive Officer
of the Company since July 1995 and as President
since December 1996. Mr. Wren served as Executive
Vice President and Chief Operating Officer from
February 1995 to July 1995 and as Executive Vice
President, General Counsel and Assistant to the
Chief Executive Officer of the Company from
January 1993 to February 1995. From July 1986 to
December 1992, Mr. Wren was a partner in the law
firm of Garland & Wren, P.A., Gastonia, North
Carolina. Mr. Wren has been a director of the
Company since May 1995 and also served as a
director of the Company from 1982 to 1988, and
from March 1992 to May 1992.
Randy J. Bates............. Mr. Bates, 46, a founder of the Company, has served
as Special Advisor to the Chief Executive Officer
and the Board of Directors since July 1995. From
April 1988 to June 1995, Mr. Bates served as
Chief Executive Officer of the Company and from
April 1986 to April 1988, Mr. Bates served as
Executive Vice President of the Company. Mr.
Bates has been a director of the Company since
1982 and has been Chairman of the Board of
Directors since December 1991. Prior to founding
the Company, Mr. Bates was employed for 11 years
by PCA International, Inc. ("PCA"), a provider of
portrait photography services through permanent
and traveling studios. While at PCA, Mr. Bates
served in various capacities, including as Vice
President -- Operations, and as such was
responsible for PCA's southeastern and
southwestern divisions.
R. Kent Smith.............. Mr. Smith, 47, a founder of the Company, has served
as Special Advisor to the Chief Executive Officer
and the Board of Directors since December 1996.
From November 1982 to November 1996, Mr. Smith
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<PAGE> 23
served as President of the Company. Prior to
founding the Company, Mr. Smith was employed for
12 years by PCA and served in various capacities,
including as Director of National Accounts, and
as such was responsible for account relations
between PCA and its retail accounts. Mr. Smith
has been a director of the Company since 1982.
James O. Mattox............ Mr. Mattox, 43, has served as Executive Vice
President -- Operations of the Company since
October 1995 and as Chief Operating Officer since
December 1996. Mr. Mattox joined the Company in
March 1993 and served as Vice
President -- Operations of the Company from July
1993 to October 1995. Prior to joining the
Company, Mr. Mattox was employed for 15 years by
PCA and served in various capacities, including
as Senior Vice President -- Operations from
February 1992 to February 1993 and as Vice
President -- Operations from 1986 to February
1992.
Shawn W. Poole............. Mr. Poole, 37, has served as Executive Vice
President, Secretary, Treasurer and Chief
Financial Officer of the Company since May 1996.
Prior to joining the Company, he served as Vice
President and Chief Financial Officer of Worldway
Corporation (formerly Carolina Freight
Corporation) from January 1990 to November 1995.
Ed J. Tepera............... Mr. Tepera, 46, has served as Senior Vice
President -- Manufacturing and Technology of the
Company since October 1995 and served as a Vice
President of the Company from January 1995 to
October 1995. Prior to joining the Company, from
March 1987 to December 1994, Mr. Tepera was
employed by, and served as President of, CVS,
Inc., a company engaged principally in services
in the photography aftermarket. The Company
acquired substantially all of the assets of CVS,
Inc. in January 1995. Mr. Tepera was employed by
PCA for 13 years from 1974 to 1987 and held
various positions in equipment manufacturing and
research and development, including Director of
Equipment Manufacturing from March 1985 to
February 1987.
Joseph P. Bolger........... Mr. Bolger, 66, has been self-employed as a
certified public accountant since December 1994
and was also self-employed as a certified public
accountant from June 1991 to October 1992. From
November 1992 to November 1994, Mr. Bolger was a
registered representative of the Equitable Life
Assurance Society. Mr. Bolger served as Vice
President and Controller of JCP Realty, Inc., a
real estate investment company, from April 1987
to May 1991. Mr. Bolger has been a director of
the Company since 1992 and is a member of the
Audit Committee and the Stock Option/Compensation
Committee.
Bradley P. Cost............ Mr. Cost, 43, has been a partner in the law firm of
Haythe & Curley, New York, New York, since 1988.
Mr. Cost has been a director of the Company since
1992 and is a member of the Audit Committee and
the Stock Option/Compensation Committee.
John D. Ferrell............ Mr. Ferrell, 52, has been a private investor since
January 1993. He served as a Senior Vice
President of Merrill Lynch Interfunding Inc. (now
Merrill Lynch Capital Corporation) for
approximately 10 years prior to January 1993. Mr.
Ferrell has been a director of the Company since
December 1992 and is a member of the Audit
Committee and the Stock Option/Compensation
Committee. Mr. Ferrell also served as a director
of the Company from July 1988 to August 1992.
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<PAGE> 24
Alan P. Shaw............... Mr. Shaw, 53, has served as Chief Executive Officer
and Chairman of the Board of Frame Warehouse,
Inc., a manufacturer, wholesaler and retailer of
picture frames and framing services, since 1982.
He was one of the three founders of PCA and
served as its President and Chief Executive
Officer from 1979 to 1981. Mr. Shaw served as a
consultant to the Company from December 1988 to
July 1993. Mr. Shaw has been a director of the
Company since 1983 and is a member of the Audit
Committee and the Stock Option/Compensation
Committee.
Norman V. Swenson, Jr...... Mr. Swenson, 49, has been a private investor since
September 1995. He served as Chief Executive
Officer of Southern Wholesale Company, a
wholesale distributor of various beer brands,
from August 1994 to September 1995. He served as
Executive Vice President -- Marketing and
Corporate Support of the Company from December
1991 to December 1994 and as Executive Vice
President of the Company from November 1982 to
December 1991. Prior to founding the Company, Mr.
Swenson was employed by PCA for 12 years and
served in various capacities, including as Vice
President -- Operations and Vice
President -- Administration, and as such was
responsible for PCA's northwestern division and
for customer service and other support functions,
respectively. Mr. Swenson has been a director of
the Company since 1982.
Each executive officer of the Company serves pursuant to an employment
agreement between such officer and the Company. There are no family
relationships among any executive officers of the Company.
BOARD MEETINGS AND COMMITTEES
In 1995, the Board of Directors held nine meetings, five of which were
telephonic meetings, and took action by unanimous written consent six times.
Each director attended all meetings of the Board of Directors, except that Mr.
Swenson did not attend two telephonic meetings and Mr. Bolger did not attend one
such meeting.
The Board of Directors presently has a Stock Option/Compensation Committee,
an Audit Committee and a Nominating Committee. The Stock Option/Compensation
Committee is responsible for reviewing, determining and establishing the
salaries, bonuses and other compensation of the Company's executive officers and
administering the Company's equity-based compensation plans including, to the
extent applicable or allowable with regard to a plan or an award thereunder, the
designation of persons to whom options or other equity-based awards may be
granted, the type and terms of an award and the number of shares of Common Stock
subject to any such award. The Audit Committee is responsible for recommending
the independent auditors, reviewing with the independent auditors the scope and
results of the audit engagement, establishing and monitoring the Company's
financial policies and control procedures, reviewing and monitoring the
provision of non-audit services by the Company's independent auditors and
reviewing all potential conflict of interest situations. The Nominating
Committee is responsible for interviewing and nominating the nominees for
election as directors at the Company's Annual Meetings of Shareholders. The
Stock Option/Compensation Committee and the Audit Committee are each presently
composed of Mr. Bolger, Mr. Cost, Mr. Ferrell and Mr. Shaw, none of whom has
ever been an officer or employee of the Company. Pursuant to a resolution
adopted by the Board of Directors, at least a majority of the members of each of
these committees must be persons who are not officers or employees of the
Company. Mr. Shaw is the Chairman of the Stock Option/Compensation Committee and
Mr. Bolger is the Chairman of the Audit Committee. The Nominating Committee is
composed of Mr. Bates, Mr. Cost and Mr. Wren. In 1995, the Stock
Option/Compensation Committee held three meetings and took action by unanimous
written consent two times and the Audit Committee held one meeting and took
action by unanimous written consent one time. Each director attended all
meetings of the committees of which he is a member. The Nominating Committee was
created in May 1996.
I-4
<PAGE> 25
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of December 15, 1996 by (i) each director of
the Company and each nominee for election as a director, (ii) each person that
is known by the Company to beneficially own more than 5% of the outstanding
shares of Common Stock, (iii) each executive officer named in the Summary
Compensation Table who was employed by the Company as of December 15, 1996 and
(iv) all current directors and executive officers of the Company as a group. The
shareholders named below have sole voting and dispositive power with respect to
the Shares shown as beneficially owned by them, except as expressly disclosed to
the contrary. The information set forth in the following table is based
principally on information provided to the Company by such beneficial owners.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
BENEFICIALLY SHARES
NAME OWNED OUTSTANDING
- --------------------------------------------------------------- ---------------- -----------
<S> <C> <C>
Merrill Lynch Capital Corporation (formerly Merrill Lynch
Interfunding Inc.)........................................... 5,950,177(1) 27.8
Tom E. DuPree, Jr.............................................. 1,455,000 6.8
Randy J. Bates................................................. 2,058,094(2) 9.6
R. Kent Smith.................................................. 1,395,567(3) 6.5
J. Robert Wren, Jr............................................. 541,785(4) 2.5
Ed J. Tepera................................................... 28,750(5) *
Joseph P. Bolger............................................... 9,500(6) *
Bradley P. Cost................................................ 10,500(6) *
John D. Ferrell................................................ 36,000(7) *
Alan P. Shaw................................................... 356,600(6) 1.7
Norman V. Swenson, Jr.......................................... 810,157(8) 3.8
All executive officers and directors as a group (11 persons)... 5,311,387 24.2
</TABLE>
- ---------------
(1) In a Schedule 13G, dated February 7, 1994, filed with the Securities and
Exchange Commission, Merrill Lynch Interfunding Inc. ("MLIF") (which has
changed its name to Merrill Lynch Capital Corporation), direct beneficial
owner of such shares, ML IBK Positions, Inc. ("MLIBK"), the owner of 100%
of the outstanding stock of MLIF, Merrill Lynch Group, Inc. ("MLG"), the
owner of 100% of the outstanding capital stock of MLIBK and Merrill Lynch &
Co., Inc., the owner of 100% of the outstanding capital stock of MLG,
reported ownership as a group of, and shared voting and dispositive power
with respect to, such shares.
(2) Includes (i) 127,005 shares of Common Stock owned by Mr. Bates' spouse, (ii)
an aggregate of 160,502 shares of Common Stock held for the benefit of Mr.
Bates' children in irrevocable trusts and (iii) 114,400 shares of Common
Stock owned by the Bates Family Foundation, a nonprofit corporation of
which Mr. Bates is an officer and director, as to which shares Mr. Bates
disclaims beneficial ownership.
(3) Includes an aggregate of 166,702 shares of Common Stock held for the benefit
of Mr. Smith's children in irrevocable trusts and an aggregate of 190,000
shares of Common Stock subject to presently exercisable options.
(4) Includes (i) 10,000 shares of Common Stock owned by Mr. Wren's spouse, (ii)
an aggregate of 198,000 shares of Common Stock subject to presently
exercisable options and (iii) 49,100 shares of Common Stock by the Wren
Family Foundation, a nonprofit foundation of which Mr. Wren is an officer
and director, as to which shares Mr. Wren disclaims beneficial ownership.
(5) Represents shares of Common Stock subject to presently exercisable options.
(6) Includes for each of Mr. Bolger, Mr. Cost and Mr. Shaw 9,000 shares of
Common Stock subject to presently exercisable options.
(7) Represents 7,000 shares of Common Stock owned by a limited partnership of
which Mr. Ferrell is the sole general partner and 29,000 shares of Common
Stock subject to presently exercisable options.
(8) Includes an aggregate of 230,997 shares of Common Stock held for the benefit
of Mr. Swenson's children in irrevocable trusts and 15,000 shares of Common
Stock subject to a presently exercisable option.
I-5
<PAGE> 26
The addresses of the persons named in the preceding table who beneficially
own 5% or more of the outstanding Common Stock are as follows: Merrill Lynch
Capital Corporation, North Tower, World Financial Center, New York, New York
10281-1327, Mr. DuPree, Hancock at Washington, Madison, Georgia 30650, and Mr.
Bates and Mr. Smith, 11001 Park Charlotte Boulevard, Charlotte, North Carolina
28273.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Summary Compensation Table
The following table sets forth certain compensation information for the
years indicated for each person who served as the Company's Chief Executive
Officer during 1995 and for the Company's four additional most highly
compensated executive officers for 1995 who were serving as executive officers
at December 31, 1995 and whose total salary and bonus for 1995 exceeded $100,000
(the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL SECURITIES
COMPENSATION UNDERLYING ALL
------------------ OPTIONS/ OTHER
NAME & SALARY BONUS SARS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) (#)(1) ($)(2)
- -------------------------------------------------------------- ---- ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Randy J. Bates,............................................... 1995 316,832 0 150,000/0 400
Chief Executive Officer until July 17, 1995 and 1994 339,157 0 0/0 167
Chairman of the Board and Special Assistant to the Chief 1993 328,149 0 0/0 0
Executive Officer and the Board of Directors after such
date(3)
J. Robert Wren, Jr.,.......................................... 1995 256,202 24,500 150,000/0 400
Executive Vice President and Chief Operating Officer until 1994 222,500 0 120,000/0 167
July 17, 1995 and Chief Executive Officer after such 1993 194,615 0 188,000/0 0
date(3)(4)
R. Kent Smith,................................................ 1995 195,679 0 31,000/0 400
President(3) 1994 209,462 0 0/0 167
1993 209,667 0 0/0 0
Ed J. Tepera,................................................. 1995 97,804 5,100 115,000/0 400
Senior Vice President(5) 1994 -- -- -- --
1993 -- -- -- --
Robert J. Consoli,............................................ 1995 89,981 25,000 75,000/0 400
Senior Vice President and Chief Administrative Officer until 1994 70,673 0 50,000/0 167
October 18, 1995 and Chief Financial Officer after such 1993 -- -- -- --
date(6)
John A. Ingraham,............................................. 1995 98,750 11,700 0/0 400
Senior Vice President(7) 1994 90,000 0 32,500/0 167
1993 75,288 0 0/0 0
</TABLE>
- ---------------
(1) In November 1995, Mr. Bates and the Company agreed to the cancellation for
no value of an option to purchase 150,000 shares of Common Stock granted to
Mr. Bates in 1995. The option awarded in 1994 to Mr. Wren was granted in
replacement of an option granted in 1993 which was surrendered and
terminated as a condition to such replacement. The number of shares of
Common Stock subject to such replacement option is equal to the number of
shares of Common Stock subject to the previously granted option that it
replaced. In addition, in 1994, Mr. Wren surrendered and terminated an
option to purchase 68,000 shares of Common Stock granted in 1993 that was
not replaced.
(2) Represents the Company's contribution to the account of the Named Executive
Officer under the Company's 401(k) Profit Sharing Plan.
(3) In November 1995, in an effort to reduce the Company's salary costs and in
connection with obtaining a new credit facility from its commercial bank
lender, (i) the Company and each of Mr. Bates and Mr. Smith agreed that
neither Mr. Bates nor Mr. Smith would receive any base salary (but would
continue to receive certain perquisites) and (ii) Mr. Wren and the Company
agreed that his base salary
I-6
<PAGE> 27
would be reduced by 16% from $269,500 to $225,000, with all of the
foregoing salary changes to commence December 1995 and to continue until
the maturity date of such credit facility (January 1997). The salary for
1995 for Mr. Bates, Mr. Wren and Mr. Smith reflects such changes. In
addition, although Mr. Bates resigned as Chief Executive Officer of the
Company in July 1995, he continued thereafter as a full-time employee of
the Company, with no change in salary, other than as discussed in the
preceding sentence, for the remainder of 1995.
(4) Mr. Wren was hired by the Company in January 1993 and the base salary shown
for 1993 represents the amount paid to him subsequent to such date.
(5) Mr. Tepera was hired by the Company in January 1995 and the base salary
shown for 1995 represents the amount paid to him subsequent to such date.
Mr. Tepera became an executive officer of the Company in October 1995.
(6) Mr. Consoli was hired by the Company in January 1994 and the base salary
shown for 1994 represents the amount paid to him subsequent to such date.
Mr. Consoli became an executive officer of the Company in February 1995. He
resigned from the Company in February 1996 and, as a result, (i) he became
entitled to receive $77,404 from the Company pursuant to the terms of his
employment agreement with the Company and (ii) his unexercisable options
terminated prior to becoming exercisable and his exercisable options
terminated in May 1996.
(7) Mr. Ingraham resigned from the Company in February 1996 and, as a result,
(i) he became entitled to receive $67,308 from the Company pursuant to the
terms of his employment agreement with the Company and (ii) his
unexercisable options terminated and his exercisable options terminated in
May 1996.
Option Tables
The following table sets forth certain information with respect to options
granted to the Named Executive Officers in 1995 under the Company's Equity
Compensation Plan (the "Equity Compensation Plan").
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
PERCENT OF ANNUAL RATES
NUMBER OF TOTAL OF STOCK
SECURITIES OPINIONS/ PRICE
UNDERLYING SARS/ APPRECIATION
OPTIONS/ GRANTED TO EXERCISE FOR
SARS EMPLOYEES OR BASE OPTION TERM
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#)(1) YEAR(2) ($/SH) DATE 5%($) 10%($)
- --------------------------------- ----------- ---------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Randy J. Bates(3)................ 150,000 18.5 2.50 05/10/05 N/A N/A
J. Robert Wren, Jr............... 150,000 18.5 1.38 11/01/05 129,710 328,709
R. Kent Smith.................... 31,000 3.8 1.38 11/01/05 26,807 67,933
Ed J. Tepera..................... 65,000 8.0 2.50 05/10/05 102,195 258,983
50,000 6.2 1.38 11/01/05 43,237 109,570
Robert J. Consoli(4)............. 75,000 9.2 1.38 11/01/05 64,855 164,355
John A. Ingraham................. 0 N/A N/A N/A N/A N/A
</TABLE>
- ---------------
(1) The exercise price of all options granted under the Equity Compensation Plan
in 1995 was the fair market value on the date of grant. The options granted
(i) become exercisable in annual increments of 25% on each of the first
through fourth anniversaries of the respective option grant dates so long
as employment with the Company continues except for the options granted to
Mr. Wren and Mr. Smith which became exercisable in February 1996 and (ii)
terminate within a limited period following a termination of employment as
specified in the related award agreement, except for the options granted to
Mr. Wren and Mr. Smith which terminate 10 years from the option grant date
regardless of a termination of employment. The option grant date for the
options granted to the Named Executive Officers was November 1, 1995 except
for the option granted to Mr. Bates and an option to purchase 65,000 shares
of
I-7
<PAGE> 28
Common Stock granted to Mr. Tepera, each of which had an option grant date
of May 10, 1995. The options granted are not intended to qualify as
incentive stock options under Section 422 of Internal Revenue Code of 1986,
as amended. Pursuant to the Equity Compensation Plan, the Stock
Option/Compensation Committee of the Board of Directors may, in its
discretion and in accordance with the terms thereof, (i) in the event of a
change of control as defined therein, accelerate the exercisability of, and
authorize cash settlement payments in respect of, outstanding options under
the Plan and (ii) allow payment of the exercise price of an option to be
made in Common Stock.
(2) Options to purchase an aggregate of 812,150 shares of Common Stock were
granted to employees of the Company in 1995, including an option to
purchase 150,000 shares of Common Stock granted to Mr. Bates in May 1995
which was cancelled for no value in November 1995 pursuant to the agreement
of Mr. Bates and the Company.
(3) This option was cancelled for no value in November 1995 pursuant to the
agreement of Mr. Bates and the Company.
(4) This option terminated prior to becoming exercisable as a result of Mr.
Consoli's resignation from the Company in February 1996.
The following table sets forth certain information with respect to the
value of unexercised options to purchase shares of Common Stock held by the
Named Executive Officers as of December 31, 1995. No options were exercised by
these individuals during 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT FISCAL IN-THE-MONEY OPTIONS/SARS
YEAR-END (#)(1) AT FISCAL YEAR-END ($)(2)
------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ----------------------------------------------- ------------------------- -------------------------
<S> <C> <C>
Randy J. Bates................................. None Not Applicable
J. Robert Wren, Jr............................. 24,000/246,000 0/0
R. Kent Smith.................................. 90,000/31,000 0/0
Ed J. Tepera................................... 0/115,000 0/0
Robert J. Consoli.............................. 12,500/112,500 0/0
John A. Ingraham............................... 7,000/25,500 0/0
</TABLE>
- ---------------
(1) The unexercisable options held by Mr. Ingraham terminated in February 1996,
the unexercisable options held by Mr. Consoli terminated in February 1996
or terminated prior to becoming exercisable and the exercisable options
held by Mr. Ingraham and Mr. Consoli terminated in May 1996. All such
option terminations occurred as a result of the resignations of the holders
thereof from the Company.
(2) With regard to all options held by the Named Executive Officers as of
December 31, 1995, the exercise price of such options exceeded the fair
market value of the Common Stock on such date.
Compensation of Directors
Pursuant to a resolution of the Board, each director who is not an officer
or employee of the Company receives an annual fee of $8,000 and $1,500 for each
meeting of the Board that he attends. Pursuant to this arrangement, Mr. Bolger,
Mr. Cost, Mr. Ferrell, Mr. Shaw and Mr. Swenson each earned $14,000 for 1995. In
addition, the Company reimburses each director who is not an officer or employee
of the Company for out-of-pocket expenses incurred in connection with attending
meetings of the Board of Directors.
Historically, the Company has not paid directors' fees for attendance at
telephonic meetings of the Board and has not paid for attendance at telephonic
or in person meetings of the committees of the Board. Given the numerous
meetings of the Board and the Stock Option/Compensation Committee of the Board,
most of which were required to be held by telephone, relating to the Merger
Agreement and the transactions contemplated thereby, the Company determined to
pay its non-employee directors (Mr. Bolger, Mr. Cost, Mr. Ferrell, Mr. Shaw and
Mr. Swenson) the regular per meeting fee of $1,500 for each meeting (in person
or
I-8
<PAGE> 29
telephonic) of the Board or the Stock Option/Compensation Committee attended by
any such director with regard to the Merger Agreement or the transactions
contemplated thereby, not to exceed $20,000 per director.
Effective December 31, 1994, Mr. Swenson, a founder of the Company,
resigned as an employee and executive officer of the Company (he was then
serving as an Executive Vice President of the Company) and, effective January 1,
1995, became a consultant of the Company. In connection with such resignation
and consulting arrangement, Mr. Swenson entered into a consulting agreement with
the Company. This agreement extended to June 30, 1996 and provided for an annual
consulting fee of $96,000 and for Mr. Swenson to provide consulting services to
the Company of an average of 40 hours each month. In November 1995, in
connection with obtaining a new credit facility from its commercial bank lender,
Mr. Swenson and the Company agreed to the termination of Mr. Swenson's
consulting agreement, effective December 1995. Prior to such termination, Mr.
Swenson was paid $88,000 pursuant to the terms of such agreement for 1995.
Under the Company's Stock Option Plan for Non-Employee Directors (the
"Directors' Plan"), each non-employee director of the Company, as defined in the
Directors' Plan, is automatically granted a nonqualified stock option to
purchase 5,000 shares of the Common Stock on June 1st of each year, beginning
June 1, 1995. Such options become exercisable in full one year from the date of
grant if the non-employee director remains a non-employee director on such date.
The exercise price for all options granted under the Directors' Plan is the fair
market value on the date of grant. Such options are treated as nonqualified
stock options for federal income tax purposes. Under the Directors' Plan, on
each of June 1, 1995 and June 1, 1996, Mr. Bolger, Mr. Cost, Mr. Ferrell and Mr.
Shaw were each granted an option to purchase 5,000 shares of Common Stock having
an exercise price of $2.625 and $1.25 per share, respectively.
Employment Agreements and Termination of Employment Arrangements
Each executive officer of the Company is a party to an employment agreement
with the Company.
Mr. Bates resigned as Chief Executive Officer of the Company in July 1995,
but continued thereafter as an employee of the Company in the position of
Special Advisor to the Chief Executive Officer and the Board of Directors. In
connection with his new position with the Company, the Company and Mr. Bates
amended his employment agreement in July 1995. Such agreement as then amended
extended to December 31, 2000. Pursuant to such agreement as then amended, Mr.
Bates' employment was on a full-time basis for the remainder of 1995 and is on a
part-time basis thereafter as follows: 1,000 hours for 1996, 750 hours for each
of 1997 and 1998 and 500 hours for each of 1999 and 2000. The annual base salary
to be paid to Mr. Bates pursuant to his employment agreement as then amended
remained at $343,236 for the remainder of 1995 and decreases thereafter as
follows: $275,000 for 1996, $250,000 for each of 1997 and 1998 and $225,000 for
each of 1999 and 2000. The employment agreement between the Company and Mr.
Bates was further amended in November 1995 as discussed below.
In November 1995, in an effort to reduce the Company's salary costs and in
connection with the Company obtaining a new credit facility from its commercial
bank lender, (i) the Company and each of Mr. Bates and Mr. Smith agreed that
neither Mr. Bates nor Mr. Smith would receive any base salary pursuant to his
employment agreement, but would continue to receive certain perquisites,
commencing December 1995 and continuing until the maturity date of such facility
(January 1997) and to extend the term of each such employee's employment
agreement (to December 31, 2001 for Mr. Bates and to January 31, 2000 for Mr.
Smith) and (ii) the company and Mr. Wren agreed that Mr. Wren's base annual
salary would be reduced by 16% for the period commencing December 1995 and
continuing through such maturity date, to extend the term of his employment
agreement to January 31, 1999 and to increase to the amount discussed below the
payment to him in the event of a termination of employment other than for cause.
The Company and Mr. Bates further agreed that his required time commitments to
the Company and the Company's obligation to pay him a base salary under his
employment agreement, would commence on the maturity date of such facility. The
annual base salary paid to Mr. Smith pursuant to his employment agreement prior
to December 1995, and which the Company has agreed to pay him commencing upon
the maturity date of its credit facility, is $211,986. The annual salary paid to
Mr. Wren pursuant to his employment agreement prior to December 1995, and which
the Company has agreed to pay him commencing on such maturity date, is
I-9
<PAGE> 30
$269,500 and the annual salary payable to Mr. Wren from December 1995 to such
maturity date is $225,000. The Company and each of Mr. Bates, Mr. Smith and Mr.
Wren amended his employment agreement to reflect the foregoing modifications to
his employment agreement. If the employment of Mr. Bates or Mr. Smith is
terminated other than for cause, the Company will pay such individual 100% of
his annual base salary at the time of such termination for a period of 12 months
and, thereafter, 50% of his annual base salary for a period of 24 months. If the
employment of Mr. Wren is terminated other than for cause or if the Company does
not renew Mr. Wren's employment agreement at the time of expiration of the term
thereof, the Company will pay him the greater of $314,000 or his base annual
salary at the time of such termination or failure to renew for a period of 12
months. In addition, pursuant to Mr. Wren's employment agreement as amended in
September 1996, in the event of a change in control of the Company, as defined
in such agreement, followed by a termination of his employment by the Company,
Mr. Wren will receive a payment equal to two times his then base annual salary
payable in a lump sum.
The employment agreements between the Company and James O. Mattox,
Executive Vice President -- Operations, and Mr. Tepera extend to July 1998 and
January 1997, respectively, unless terminated sooner in accordance with the
provisions thereof. The current annual base salaries paid to Mr. Mattox and Mr.
Tepera pursuant to the terms of their agreements are $125,000 and $115,000,
respectively. If the employment of Mr. Mattox or Mr. Tepera are terminated other
than for cause, the Company will pay Mr. Mattox his base annual salary for a
period of three months and will pay Mr. Tepera his base annual salary for a
period of two months. In addition, pursuant to their employment agreements as
amended in September 1996, in the event of a change in control of the Company,
as defined in such agreements, followed by a termination of employment, Mr.
Mattox will receive a payment equal to two times his then base annual salary and
Mr. Tepera will receive a payment equal to one and one-half times his then base
annual salary, in each case, payable in a lump sum.
Mr. Consoli and Mr. Ingraham each resigned as an employee and executive
officer of the Company in February 1996. Pursuant to the terms of their
employment agreements with the Company, Mr. Consoli and Mr. Ingraham became
entitled to receive $77,400 and $67,310, respectively, from the Company as a
result of such resignations.
The foregoing employment agreements contain certain noncompetition
covenants pursuant to which each officer is prohibited from providing portrait
photography services to certain persons and entities within certain geographic
areas following the expiration of the terms of such agreements (without regard
to the termination of employment prior to the expiration of the terms of the
agreements). The duration of the noncompetition covenants is for five years
following the expiration of the terms of the Company's employment agreements
with each of Mr. Bates and Mr. Smith and for two years following the expiration
of the terms of the Company's employment agreements with its other executive
officers, including the Named Executive Officers. The foregoing employment
agreements entitle the Company to specific performance and liquidated damages of
$3.0 million each if Mr. Bates or Mr. Smith breaches his noncompetition covenant
with the Company.
Pursuant to the Company's Equity Compensation Plan, the Stock
Option/Compensation Committee of the Board of Directors (which administers such
plan) may, in its discretion and in accordance with the terms thereof, in the
event of a change of control as defined therein, accelerate the exercisability
of, and authorize cash settlement payments in respect of, outstanding awards,
including options, under the Plan.
Report of the Stock Option/Compensation Committee of the Board of Directors on
Executive Compensation
The Company's compensation program for its executive officers is
administered by the Stock Option/ Compensation Committee of the Board of
Directors (the "Committee"). The present members of the committee are Mr.
Bolger, Mr. Cost, Mr. Ferrell and Mr. Shaw, none of whom has ever been an
officer or employee of the Company. The Committee is responsible for determining
the compensation of the Company's executive officers and administering the
Company's equity-based compensation plans.
I-10
<PAGE> 31
Compensation Policy
The Committee's present policy regarding executive officer compensation is
designed principally to (i) attract and retain experienced and capable
management, an increasingly challenging goal given the increasing complexities
and challenges of the Company's business as well as the relatively small number
of companies operating in the Company's industry, (ii) motivate and reward
exceptional individual performances by the Company's executive officers and
(iii) motivate the Company's executive officers to improve shareholder return on
the Common Stock. The Committee believes that exceptional individual
performances by the Company's executive officers will positively impact the
performance of the respective areas of the Company's operations for which such
officers are responsible which will, in turn, positively impact the Company's
results of operations. The Committee further believes that improvements in
shareholder return on the Common Stock will occur principally as a result of
improvements in the Company's results of operations.
The Company's executive officer compensation for 1995 consisted of base
annual salary, stock option grants under the Equity Compensation Plan and, with
regard to certain executive officers, discretionary cash bonuses. The Company
presently has no short-term or long-term incentive program for its executive
officers other than the Company's 1992 Stock Option Plan and the Equity
Compensation Plan. The Committee's determinations as to exceptional performance
by an executive officer and the impact of such performance on the areas of the
company's operations for which such offer is responsible, as well as the further
impact, if any, of such performance on the company's results, are made
principally on a subjective basis. The determination as to exception individual
performance is based principally on a subjective assessment of the executive
officer's job performance against his job responsibilities. Such determination
is also based, to a lesser extent, on the adherence to cost budgets established
by the Company's finance department for the areas of the Company's operations
for which such executive officer is responsible. To the extent that the
exceptional performance by an executive officer, as determined on the foregoing
basis, results in a promotion or other increases in responsibilities, the
Committee typically rewards such performance with an increase in base annual
salary. To the extent that the Committee determines, on the foregoing basis,
that such exceptional performance has had a positive impact on the area of the
Company's operations for which such executive officer is responsible, which, in
turn, has had a positive impact on the Company's results of operations, the
Committee typically rewards such officer with a discretionary cash bonus and/or
an increase in base annual salary.
As discussed below, the Committee increased the base salaries of all
executive officers, other than Mr. Bates and Mr. Smith, effective April 1995.
Also as discussed below, the Committee awarded, during April and May 1995, cash
bonuses to several executive officers based upon individual performance or a
previously existing contractual arrangement to pay a bonus. In addition, during
October 1995, the Committee increased the salaries of Mr. Tepera, Mr. Consoli
and James O. Mattox, Executive Vice President-Operations, and granted stock
options to such executive officers, as well as to Mr. Wren and Mr. Smith, in
recognition of the promotions and increased responsibilities of these three
individuals in connection with the Company's restructuring of certain areas of
its senior management and to provide incentives to the key members of the
Company's restructured management in dealing with the challenges of restoring
the Company to profitability by cutting the costs and increasing sales. In
November 1995, in an effort to reduce salaries and in connection with the
Company's obtaining a new credit facility from its commercial bank lender, the
Company and each of Mr. Wren and Mr. Smith (as well as Mr. Bates) agreed to
certain salary reductions as discussed below.
The Compensation Committee has reviewed its compensation policies with
respect to the Company's executive officers and determined that Section 162(m)
of the Internal Revenue Code of 1986, as amended, should have no impact on such
policies in 1996, since no executive officer is expected to receive compensation
in 1996 in excess of the $1.0 million threshold. Section 162(m) does not
prohibit a company from paying annual compensation in excess of $1.0 million but
may limit a company's ability to deduct such excess amounts for income tax
purposes.
Base Salaries
Effective April 1995, based on the recommendations of Mr. Bates, the
Company's then Chief Executive Officer, the Committee increased the base
salaries of Mr. Wren, Mr. Consoli and Mr. Ingraham and the
I-11
<PAGE> 32
Company's then Chief Financial Officer. With regard to Mr. Wren and Mr. Consoli,
such increases were due to promotions and increased responsibilities. The amount
of the increase for each such executive officer was based on the level of
responsibility of each such officer in comparison to that of other executive
officers and the internal equity of executive officer salaries based on such
responsibility levels. Mr. Ingraham's salary increase was due to the change in
his job responsibilities in the first quarter of 1995 and was based on the
salary of another officer of the Company with similar job responsibilities. The
then Chief Financial Officer's salary increase was due to the significant amount
by which the 1994 salaries of the chief financial officers of each of the two
companies in the Peer Group Index in the Comparative Performance Graph exceeded
his 1994 salary.
In October 1995, the Committee increased the base salaries of Mr. Tepera,
Mr. Consoli and Mr. Mattox in recognition of their promotions (to executive
officers in the case of Mr. Tepera and Mr. Mattox) and resulting increased
responsibilities in connection with the Company's restructuring of certain areas
of its senior management and to provide incentives to the key members of the
Company's restructured senior management in dealing with the challenges of
restoring the Company to profitability by cutting costs and increasing sales.
In November 1995, in an effort to reduce its salary costs and in connection
with obtaining a new credit facility from its commercial bank lender, (i) the
Company and each of Mr. Bates and Mr. Smith agreed that neither Mr. Bates and
Mr. Smith would receive a salary (but would continue to receive certain
perquisites) and (ii) Mr. Wren and the Company agreed that his salary would be
reduced by 16% from $269,500 to $225,000, with all of the foregoing salary
changes to commence December 1995 and to continue until the maturity date of
such credit facility (January 1997).
In reviewing base salaries of executive officers, the Committee reviews the
available compensation information of the two companies in the Peer Group Index
in the Comparative Performance Graph. However, this information does not
typically affect the decisions of the Committee with regard to setting executive
officer compensation.
Short Term Incentive Opportunities -- Discretionary Cash Bonuses
The Committee determined that several of the Company's executive officers
performed exceptionally during 1994 and that such performances positively
impacted the respective areas of the Company's operations for which they were
responsible as well as the Company's results of operations for 1994. Therefore,
based upon the recommendation of Mr. Bates, cash bonuses were awarded to Mr.
Wren and Mr. Ingraham in April 1995 in amounts of approximately 10.7% and 12.3%,
respectively, of their respective base salaries. The Committee also awarded Mr.
Consoli a cash bonus in April 1995, based upon a contractual obligation to do
so, in an amount equal to approximately 33% of his base salary.
Long Term Incentive Opportunities -- 1992 Stock Option Plan and Equity
Compensation Plan
For many years, the Company has provided equity awards as a key element of
its program for motivating and rewarding its associates, including its executive
officers. Prior to its initial public offering, the Company made restricted
equity awards to its associates, and, in connection with its initial public
offering, the Company adopted the 1992 Stock Option Plan. In February 1995, the
Company established the Equity Compensation Plan, which could be used to grant
stock options or other forms of equity-based compensation, and in connection
therewith, ended the Company's ability to grant stock options under the 1992
Stock Option Plan. In May 1995, the Committee awarded an option to Mr. Bates in
recognition of his contribution to the Company since it was founded in 1982 and
to help insure his continued interest and involvement in the improvement of
shareholder return on the Common Stock following his resignation as Chief
Executive Officer. The Company and Mr. Bates agreed to the cancellation of the
option awarded Mr. Bates for no value in November 1995 in recognition of the
need for the availability of additional shares of Common Stock for awards under
the Plan to other executive officers and employees of the Company. In November
1995, the Committee awarded stock options to Mr. Smith, Mr. Wren, Mr. Consoli,
Mr. Tepera and Mr. Mattox for the reasons discussed above, and, to a lesser
extent, as to Mr. Wren and Mr. Smith, in recognition of their cooperation in
reducing their base salaries in connection with the Company's efforts to reduce
salaries and its obtaining of a new credit facility from its commercial bank
lender. The number of options awarded to each
I-12
<PAGE> 33
such executive officer was based on internal equity with regard to the number of
options held by and the level of responsibility of, in each instance, each such
officer as compared to that of other executive officers.
The Committee believes that options awarded under the Equity Compensation
Plan motivate executive officers to improve the Company's performance in the
respective areas for which they are responsible and encourage them to remain
employed by the Company. The Committee does not have a specific time during the
year when it awards options.
Chief Executive Officer
In May 1995, the Committee awarded stock options to Mr. Bates which were
subsequently cancelled for no value as discussed above. In July 1995, Mr. Bates
resigned as Chief Executive Officer of the Company but continued thereafter in
the position of Special Advisor to the Chief Executive Officer and the Board of
Directors. In connection with his new position with the Company, the Committee
and Mr. Bates amended his employment agreement with the Company as discussed
above. Also as discussed above, the Company and Mr. Bates further amended his
employment agreement in November 1995 in an effort to reduce the Company's
salary costs and in connection with the Company obtaining a new credit facility.
On July 17, 1996, Mr. Bates resigned as the Chief Executive Officer of the
Company and Mr. Wren was appointed to such position. In November, 1995, the
Committee awarded certain stock options to Mr. Wren and the Company, with the
agreement of Mr. Wren, reduced Mr. Wren's base salary all as discussed above.
STOCK OPTION/COMPENSATION COMMITTEE
Joseph P. Bolger
Bradley P. Cost
John D. Ferrell
Alan P. Shaw, Chairman
Stock Option/Compensation Committee Interlocks And Insider Participation
Bradley P. Cost is a partner in the law firm of Haythe & Curley, New York,
New York, which provides legal services to the Company from time to time.
I-13
<PAGE> 34
Comparative Performance Graph
The graph set forth below compares cumulative total shareholder return on
the Company's Common Stock with the cumulative total return of the companies
listed on The NASDAQ Stock Market (U.S. Companies) ("NASDAQ Market Index") and a
peer group consisting of PCA International, Inc. and CPI Corp., two
publicly-traded companies in the Company's line of business (the "Peer Group
Index"), for the period from September 17, 1992 (the date of the Company's
initial public offering) to December 31, 1995. The comparison assumes the
investment of $100 in the Common Stock, the NASDAQ Market Index and the Peer
Group Index on September 17, 1992 and the reinvestment of all dividends. The
shareholder return of each of the companies in the Peer Group Index has been
weighted according to market capitalization at the beginning of each measurement
period. With regard to the Peer Group Index, although CPI Corp.'s principal line
of business is the provision of portrait photography services, it also engages
in certain other lines of business, principally retail photo processing.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG AMERICAN STUDIOS, INC.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
SEPTEMBER 17, 1992 TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
MEASUREMENT PERIOD AMERICAN NASDAQ MARKET PEER GROUP
(FISCAL YEAR COVERED) STUDIOS, INC. INDEX INDEX
<S> <C> <C> <C>
9/17/92 100 100 100
12/31/92 235 109 119
12/31/93 52 130 96
12/31/94 24 137 101
12/31/95 12 177 97
</TABLE>
CERTAIN TRANSACTIONS
The spouse of J. Robert Wren, Jr., Chief Executive Officer of the Company,
is a partner in the law firm of Petree Stockton, L.L.P., Charlotte, North
Carolina, the Company's general counsel.
In connection with a verbal agreement relating to the termination of his
consulting agreement with the Company in November 1995, the Company has
determined to pay Mr. Swenson $56,000 (the amount that would have been payable
during the remainder of the term of his consulting agreement had it not been
I-14
<PAGE> 35
terminated). Such agreement was terminated by the Company at such time in
connection with the modification of the Company's credit facility. At the time
of such termination, the Company verbally agreed with Mr. Swenson that it would
renew its consulting agreement with him as soon as it was permissible to do so
under the credit facility.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, requires that the
Company's directors, executive officers and persons who own more than 10% of the
outstanding shares of the Common Stock file with the Securities and Exchange
Commission certain reports relating to their ownership of Common Stock and
changes in such ownership. The Company is required to identify herein any person
subject to this requirement who failed to file any such report on a timely
basis. Based on its review of the copies of such reports furnished to the
Company and written representations that no other reports were required during
1995, the Company believes that during 1995 applicable Section 16(a) reporting
requirements were met except that Ed. J. Tepera and James O. Mattox each filed
late his initial Form 3 and Mr. Mattox filed late a Form 4 reporting his
purchase of shares of Common Stock.
I-15
<PAGE> 36
ANNEX II
[Croft & Bender Letterhead]
December 17, 1996
Board of Directors
American Studios, Inc.
11001 Park Charlotte Boulevard
Charlotte, North Carolina 28273
To the Members of the Board:
We understand that American Studios, Inc. (the "Company"), PCA
International, Inc. (the "Acquiror") and PCA Acquisition Corp. (the
"Purchaser"), a wholly-owned subsidiary of the Acquiror, propose to enter into
an Agreement and Plan of Merger (the "Agreement") pursuant to which the
Purchaser will make a tender offer (the "Offer") for all shares of the Company's
common stock, par value $.001 per share (the "Shares"), at $2.50 per Share, net
to the seller in cash. The Offer is expected to commence not later than five
business days after the public announcement of the execution of the Agreement.
The Agreement also provides that, following consummation of the Offer, the
Purchaser will be merged with and into the Company in a transaction (the
"Merger") in which each remaining Share will be converted into the right to
receive $2.50 in cash.
You have asked us whether, in our opinion, the proposed cash consideration
to be received by the holders of the Shares in the Offer and the Merger is fair
to such shareholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed publicly available information concerning the Company
which we believe to be relevant to our analysis;
(2) Reviewed certain information, including financial and operating
information with respect to the business, operations and prospects of the
Company, furnished to us by the Company;
(3) Conducted discussions with members of senior management of the
Company concerning its business, operations and prospects;
II-1
<PAGE> 37
(4) Reviewed the historical market prices and trading activity for the
Shares and compared them with those of certain publicly-traded companies
which we deemed to be reasonably similar to the Company;
(5) Compared the results of operations and present financial condition
of the Company with those of certain publicly-traded companies which we
deemed to be reasonably similar to the Company;
(6) Compared the proposed financial terms of the transactions
contemplated by the Agreement with the financial terms of certain other
mergers and acquisitions which we deemed to be relevant;
(7) Performed certain financial analyses with respect to the Company's
projected future operating performance, including a discounted cash flow
analysis;
(8) Reviewed the final execution draft of the Agreement; and
(9) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company,
and, although we have discussed such information with management, we have not
independently verified such information. With respect to the financial forecasts
for the years 1997 through 2000 furnished by the Company, we have assumed that
they have been reasonably prepared and reflect the best currently available
estimates and judgment of the Company's management as to the expected future
financial performance of the Company. We have not conducted a physical
inspection of the properties and facilities of the Company, and we have not made
nor obtained any evaluations or appraisals of the assets or liabilities of the
Company. In addition, you have not authorized us to solicit, and we have not
solicited, any indications of interest from any third party with respect to the
purchase of all or a part of the Company's business. Our opinion is necessarily
based upon market, economic and other conditions as they exist and can be
evaluated as of the date of this letter.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent. We hereby consent to the inclusion of this letter in the
regulatory filings required in connection with the Offer and the Merger,
including Schedule 14D-9 and the proxy statement to be filed in connection with
the Board's recommendation regarding the Offer and the Merger. This opinion is
not intended to be and shall not constitute a recommendation to any shareholder
of the Company as to whether to tender Shares pursuant to the Offer.
We have acted as financial advisor to the Company in connection with the
proposed transaction and will receive a fee for our services which is in part
contingent upon the consummation of the proposed transaction. In addition, the
Company has agreed to indemnify us for certain liabilities arising out of the
rendering of this opinion.
II-2
<PAGE> 38
On the basis of, and subject to the foregoing, we are of the opinion as of
the date hereof that the proposed cash consideration to be received by the
holders of the Shares pursuant to the Offer and the Merger is fair to such
shareholders from a financial point of view.
Very truly yours,
/s/ CROFT & BENDER LLC
CROFT & BENDER LLC
II-3
<PAGE> 39
[The Robinson-Humphrey Company, Inc. Letterhead]
December 17, 1996
Board of Directors
American Studios, Inc.
11001 Park Charlotte Boulevard
Charlotte, North Carolina 28273
To the Members of the Board:
We understand that American Studios, Inc. (the "Company"), PCA
International, Inc. (the "Acquiror") and PCA Acquisition Corp. (the
"Purchaser"), a wholly owned subsidiary of the Acquiror, propose to enter into
an Agreement and Plan of Merger (the "Agreement") pursuant to which the
Purchaser will make a tender offer (the "Offer") for all shares of the Company's
common stock, par value $.001 per share (the "Shares"), at $2.50 per Share, net
to the seller in cash. The Offer is expected to commence not later than five
business days after the public announcement of the execution of the Agreement.
The Agreement also provides that, following consummation of the Offer, the
Purchaser will be merged with and into the Company in a transaction (the
"Merger") in which each remaining Share will be converted into the right to
receive $2.50 in cash.
You have asked us whether, in our opinion, the proposed cash consideration
to be received by the holders of the Shares in the Offer and the Merger is fair
to such shareholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed publicly available information concerning the Company
which we believe to be relevant to our analysis;
(2) Reviewed certain information, including financial and operating
information with respect to the business, operations and prospects of the
Company, furnished to us by the Company;
(3) Conducted discussions with members of senior management of the
Company concerning its business, operations and prospects;
(4) Reviewed the historical market prices and trading activity for the
Shares and compared them with those of certain publicly traded companies
which we deemed to be reasonably similar to the Company;
II-4
<PAGE> 40
(5) Compared the results of operations and present financial condition
of the Company with those of certain publicly traded companies which we
deemed to be reasonably similar to the Company;
(6) Compared the proposed financial terms of the transactions
contemplated by the Agreement with the financial terms of certain other
mergers and acquisitions which we deemed to be relevant;
(7) Performed certain financial analyses with respect to the Company's
projected future operating performance, including a discounted cash flow
analysis;
(8) Reviewed the final execution draft of the Agreement; and
(9) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company,
and, although we have discussed such information with management, we have not
independently verified such information. With respect to the financial forecasts
for the years 1997 through 2000 furnished by the Company, we have assumed that
they have been reasonably prepared and reflect the best currently available
estimates and judgment of the Company's management as to the expected future
financial performance of the Company. We have not conducted a physical
inspection of the properties and facilities of the Company, and we have not made
nor obtained any evaluations or appraisals of the assets or liabilities of the
Company. In addition, you have not authorized us to solicit, and we have not
solicited, any indications of interest from any third party with respect to the
purchase of all or a part of the Company's business. Our opinion is necessarily
based upon market, economic and other conditions as they exist and can be
evaluated as of the date of this letter.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent. We hereby consent to the inclusion of this letter in the
regulatory filings required in connection with the Offer and the Merger,
including Schedule 14D-9 and the proxy statement to be filed in connection with
the Board's recommendation regarding the Offer and the Merger. This opinion is
not intended to be and shall not constitute a recommendation to any shareholder
of the Company as to whether to tender Shares pursuant to the Offer.
We have acted as financial advisor to the Company in connection with the
proposed transaction and will receive a fee for our services which is in part
contingent upon the consummation of the proposed transaction. In addition, the
Company has agreed to indemnify us for certain liabilities arising out of the
rendering of this opinion. The Robinson-Humphrey Company, Inc. has provided
investment banking services for the Company in the past and has received
customary fees for these services. In the ordinary course of business, The
Robinson-Humphrey Company, Inc. actively trades in the common stock of the
Company for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
II-5
<PAGE> 41
On the basis of, and subject to the foregoing, we are of the opinion as of
the date hereof that the proposed cash consideration to be received by the
holders of the Shares pursuant to the Offer and the Merger is fair to such
shareholders from a financial point of view.
Very truly yours,
/s/ THE ROBINSON-HUMPHREY COMPANY, INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
II-6
<PAGE> 1
EXHIBIT 1
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
by and among
PCA INTERNATIONAL, INC.,
ASI ACQUISITION CORP.,
AND
AMERICAN STUDIOS, INC.
dated as of
December 17, 1996
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C>
ARTICLE I.....................................................................1
THE OFFER AND MERGER.........................................................1
Section 1.1 The Offer....................................................1
Section 1.2 Company Actions..............................................3
Section 1.3 Directors....................................................4
Section 1.4 The Merger...................................................5
Section 1.5 Effective Time...............................................5
Section 1.6 Closing......................................................6
Section 1.7 Directors and Officers of the Surviving Corporation..........6
Section 1.8 Shareholders' Meeting........................................6
Section 1.9 Merger Without Meeting of Shareholders.......................7
ARTICLE II....................................................................7
CONVERSION OF SECURITIES.....................................................7
Section 2.1 Conversion of Capital Stock..................................7
Section 2.2 Exchange of Certificates.....................................7
Section 2.3 Dissenters' Rights...........................................9
Section 2.4 Transfer of Shares After the Effective Time..................9
Section 2.5 Company Plans................................................9
ARTICLE III..................................................................10
REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............................10
Section 3.1 Organization................................................10
Section 3.2 Capitalization..............................................11
Section 3.3 Authorization; Validity of Agreement; Company Action........12
Section 3.4 Consents and Approvals; No Violations.......................12
Section 3.5 SEC Reports and Financial Statements........................13
Section 3.6 Absence of Certain Changes..................................13
Section 3.7 No Undisclosed Liabilities..................................14
Section 3.8 Litigation..................................................14
Section 3.9 Employee Benefit Plans; ERISA...............................14
Section 3.10 Information in Proxy Statement..............................15
Section 3.11 No Default; Compliance with Applicable Laws.................16
Section 3.12 Licenses; Intellectual Property.............................16
Section 3.13 Taxes.......................................................17
Section 3.14 Insurance...................................................19
Section 3.15 Contracts...................................................19
Section 3.16 Related Party Transactions..................................19
Section 3.17 Real Property...............................................20
Section 3.18 Vote Required...............................................20
ARTICLE IV...................................................................20
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER..................20
Section 4.1 Organization................................................20
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 4.2 Authorization; Validity of Agreement; Necessary Action.......21
Section 4.3 Consents and Approvals; No Violations........................21
Section 4.4 Information in Proxy Statement...............................21
Section 4.5 Litigation...................................................22
Section 4.6 Financing Commitment.........................................22
Section 4.7 Fraudulent Conveyance........................................22
ARTICLE V.....................................................................22
COVENANTS....................................................................22
Section 5.1 Interim Operations of the Company............................22
Section 5.2 Access; Confidentiality......................................24
Section 5.3 Consents and Approvals.......................................24
Section 5.4 No Solicitation..............................................25
Section 5.5 Brokers or Finders...........................................25
Section 5.6 Additional Agreements........................................26
Section 5.7 Publicity....................................................26
Section 5.8 Notification of Certain Matters..............................26
Section 5.9 Directors' and Officers' Insurance and Indemnification.......26
Section 5.10 Consummation of Merger.......................................28
Section 5.11 Employee Benefit Plans.......................................28
ARTICLE VI....................................................................28
CONDITIONS...................................................................28
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger...28
Section 6.2 Conditions to Parent's and the Purchaser's Obligations to
Effect the Merger............................................29
ARTICLE VII.................................................................. 29
TERMINATION................................................................. 29
Section 7.1 Termination..................................................29
Section 7.2 Effect of Termination........................................31
ARTICLE VIII..................................................................31
MISCELLANEOUS................................................................31
Section 8.1 Fees and Expenses............................................31
Section 8.2 Amendment and Modification...................................32
Section 8.3 Nonsurvival of Representations and Warranties................32
Section 8.4 Notices......................................................32
Section 8.5 Interpretation...............................................33
Section 8.6 Counterparts.................................................34
Section 8.7 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership...................................................34
Section 8.8 Severability.................................................34
Section 8.9 Governing Law................................................34
Section 8.10 Assignment...................................................34
CERTAIN CONDITIONS OF THE OFFER..........................................Annex A
</TABLE>
<PAGE> 4
Index of Defined Terms
<TABLE>
Defined Term Section No.
- ------------ -----------
<S> <C>
Agreement ................................................ Recitals
Agreements ............................................... 3.4
Acceleration Time ........................................ 2.5
Acquisition Proposal ..................................... 5.4
Appointment Date. ........................................ 5.1
Articles of Incorporation ................................ 1.3(b)
Benefit Plans ............................................ 3.9(a)
Bylaws ................................................... 1.3(b)
Certificates ............................................. 2.2(b)
Closing .................................................. 1.6
Closing Date ............................................. 1.6
Code ..................................................... 3.9(b)
Company .................................................. Recitals
Company SEC Documents .................................... 3.5
Confidentiality Agreement................................. 5.2
Director Options ......................................... 2.5(a)
Dissenting Shareholders .................................. 2.1(c)
D&O Insurance ............................................ 5.10(b)
Effective Time ........................................... 1.5
Employee Option .......................................... 2.5(a)
Employee Option Plans .................................... 2.5(a)
ERISA .................................................... 3.9(a)
ERISA Affiliate .......................................... 3.9(a)
Exchange Act ............................................. 1.1(a)
GAAP ..................................................... 3.5
Governmental Entity ...................................... 3.4
HSR Act .................................................. 3.4
Indemnified Party ........................................ 5.9(a)
Intellectual Property .................................... 3.12
Licenses ................................................. 3.12
Merger ................................................... 1.4
Merger Consideration ..................................... 2.1(c)
Minimum Condition ........................................ 1.1(a)
1995 Financial Statements ................................ 3.5
1995 10-K ................................................ 3.5
NCBCA .................................................... 1.2(a)
Offer .................................................... 1.1(a)
Offer Documents .......................................... 1.1(b)
Offer Price .............................................. 1.1(a)
Offer to Purchase ........................................ 1.1(a)
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Option Plans .............................................. 2.5(a)
Options ................................................... 2.5(a)
Parent .................................................... Recitals
Paying Agent .............................................. 2.2(a)
Preferred Stock ........................................... 3.2(a)
Proxy Statement ........................................... 1.8(a)
Purchaser ................................................. Recitals
Purchaser Common Stock .................................... 2.1
Schedule 14D-1 ............................................ 1.1(b)
Schedule 14D-9 ............................................ 1.2(b)
SEC ....................................................... 1.1(b)
SEC Documents ............................................. 3.5
Secretary of State ........................................ 1.5
Securities Act ............................................ 3.5
September 1996 10-Q ....................................... 3.5
Service ................................................... 3.9(b)
Shares .................................................... 1.1(a)
Special Meeting ........................................... 1.8(a)
Stock Agreements .......................................... Recitals
Subsidiary ................................................ 3.1
Surviving Corporation ..................................... 1.4
Taxes ..................................................... 3.13(c)
Tax Return ................................................ 3.13(c)
Trade Secrets ............................................. 3.12
Transactions .............................................. 1.2(a)
Voting Debt ............................................... 3.2(a)
</TABLE>
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of December 17,
1996, by and among PCA International, Inc., a North Carolina corporation
("Parent"), ASI Acquisition Corp., a North Carolina corporation and a wholly
owned subsidiary of Parent (the "Purchaser"), and American Studios, Inc., a
North Carolina corporation (the "Company").
WHEREAS, the Board of Directors of each of Parent, the Purchaser and the
Company has approved, and deems it advisable and in the best interests of its
respective shareholders to consummate, the acquisition of the Company by Parent
upon the terms and subject to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein the
parties hereto agree as follows:
ARTICLE I
THE OFFER AND MERGER
Section 1.1 The Offer. (a) As promptly as practicable (but in no event
later than five business days after the public announcement of the execution
hereof), the Purchaser shall commence (within the meaning of Rule 14d-2 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) a tender
offer (the "Offer") for all of the outstanding shares of Common Stock, par
value $.001 per share (the "Shares"), of the Company at a price of $2.50 per
Share, net to the seller in cash (such price, or such higher price per Share as
may be paid in the Offer, being referred to herein as the "Offer Price"),
subject to there being validly tendered and not withdrawn prior to the
expiration of the Offer, that number of Shares which represents at least a
majority of the Shares outstanding on a fully diluted basis (the "Minimum
Condition") and to the other conditions set forth in Annex A hereto. The
obligations of the Purchaser to commence the Offer and to accept for payment
and to pay for any Shares validly tendered on or prior to the expiration of the
Offer and not withdrawn shall be subject only to the Minimum Condition and the
other conditions set forth in Annex A hereto. The Offer shall be made by means
of an offer to purchase (the "Offer to Purchase") containing the terms set
forth in this Agreement, the Minimum Condition and the other conditions set
forth in Annex A hereto. The Purchaser shall not amend or waive the Minimum
Condition and shall not decrease the Offer Price or decrease the number of
Shares sought, change the form of consideration payable in the Offer, or modify
or change any of the conditions set forth in Annex A hereto without the written
consent of the Company (such consent to be authorized by the Board of Directors
of the Company or a duly authorized committee thereof), provided, however, that
if on the initial
<PAGE> 7
scheduled expiration date of the Offer, which shall be 20 business days after
the date the Offer is commenced, or on any later scheduled expiration date, all
conditions to the Offer shall not have been satisfied or waived, the Purchaser
may, in its sole discretion, extend the expiration date for a period of not
greater than 20 business days, provided further that the expiration date shall
not be extended beyond March 31, 1997 without the consent of the Company (such
consent to be authorized by the Board of Directors of the Company or a duly
authorized committee thereof). In addition, the Offer Price may be increased,
and the Offer may be extended, but not beyond March 31, 1997, but only to the
extent required by law in connection with such increase in each case without
the consent of the Company. The Purchaser shall, on the terms and subject to
the prior satisfaction or waiver of the Minimum Condition and the other
conditions set forth in Annex A hereto, as the same may be amended in
compliance with the terms hereof, accept for payment and pay for Shares
tendered as soon as it is legally permitted to do so under applicable law on
any scheduled expiration date; provided, however, that if, immediately prior to
such expiration date of the Offer, the Shares tendered and not withdrawn
pursuant to the Offer equal less than 90% of the outstanding Shares, the
Purchaser may extend, but not beyond March 31, 1997, the Offer for a period not
to exceed twenty business days, notwithstanding that all conditions to the
Offer are satisfied as of such expiration date of the Offer.
(b) As soon as practicable on the date the Offer is commenced, Parent and
the Purchaser shall file with the United States Securities and Exchange
Commission (the "SEC") a Tender Offer Statement on Schedule 14D-1 with respect
to the Offer (together with all amendments and supplements thereto and
including the exhibits thereto, the "Schedule 14D-1"). The Schedule 14D-1 will
include, as exhibits, the Offer to Purchase and a form of letter of transmittal
and summary advertisement (collectively, together with any amendments and
supplements thereto, the "Offer Documents"). The Offer Documents will comply
in all material respects with the provisions of applicable federal securities
laws and, on the date filed with the SEC and on the date first published, sent
or given to the Company's shareholders, shall not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by Parent or the Purchaser with respect to information
furnished by the Company for inclusion in the Offer Documents. The information
supplied by the Company for inclusion in the Offer Documents and by Parent or
the Purchaser for inclusion in the Schedule 14D-9 (as hereinafter defined) will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Each of Parent and the Purchaser will take all steps necessary
to cause the Offer Documents to be filed with the SEC and to be disseminated to
holders of the Shares, in each case as and to the extent required by applicable
federal securities laws. Each of Parent and the Purchaser, on the one hand,
and the Company, on the other hand, will promptly correct any information
provided by it for use in the Offer Documents if and to the extent that it
shall have become false and misleading in any material respect and the
Purchaser will take all steps necessary to cause the Offer Documents as so
corrected to be filed with the SEC and to be disseminated to holders of the
Shares, in each case as and to the extent required by applicable federal
securities laws. The Company and its counsel shall be given the opportunity to
review the Schedule 14D-1 within a reasonable time before it is
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filed with the SEC and Purchaser shall reasonably consider any comments
received by it from the Company or its counsel within a reasonable time prior
to filing the Schedule 14D-1 with the SEC. In addition, Parent and the
Purchaser will provide the Company and its counsel in writing with any
comments, whether written or oral, Parent, the Purchaser or their counsel may
receive from time to time from the SEC or its staff with respect to the Offer
Documents promptly after the receipt of such comments.
(c) Parent shall provide or cause to be provided to the Purchaser on a
timely basis the funds necessary to accept for payment and to pay for any
Shares for which the Purchaser becomes obligated to pay pursuant to the Offer.
Section 1.2 Company Actions.
(a) The Company hereby approves of and consents to the Offer and
represents that the Board of Directors, at a meeting duly called and held, has
unanimously (i) determined that each of the Agreement, the Offer and the Merger
(as defined in Section 1.4) are fair to and in the best interests of the
shareholders of the Company, (ii) approved this Agreement and the transactions
contemplated hereby, including the Offer and the Merger (collectively, the
"Transactions"), and (iii) resolved to recommend that the shareholders of the
Company accept the Offer, tender their Shares thereunder to the Purchaser and
approve and adopt this Agreement and the Merger; provided, that such
recommendation may be withdrawn, modified or amended if the Board of Directors
determines, only after receipt of advice from independent legal counsel,
failure to withdraw, modify or amend such recommendation could result in the
Board of Directors violating its fiduciary duties to the Company's shareholders
under applicable law. The Company represents that Chapters 55-9 and 55-9A of
the North Carolina Business Corporation Act (the "NCBCA") are inapplicable to
the Company, the Offer, the Merger and the Stock Agreements.
(b) Concurrently with the commencement of the Offer, the Company shall
file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9
(together with all amendments and supplements thereto and including the
exhibits thereto, the "Schedule 14D-9") which shall, subject to the fiduciary
duties of the Company's directors under applicable law and to the provisions of
this Agreement, contain the recommendation referred to in clause (iii) of
Section 1.2(a) hereof. The Schedule 14D-9 will comply in all material respects
with the provisions of applicable federal securities laws and, on the date
filed with the SEC and on the date first published, sent or given to the
Company's shareholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information furnished by
Parent or the Purchaser for inclusion in the Schedule 14D-9. The Company
further agrees to take all steps necessary to cause the Schedule 14D-9 to be
disseminated to holders of the Shares, as and to the extent required by
applicable federal securities laws. Each of the Company, on the one hand, and
Parent and the Purchaser, on the other hand, agrees promptly to correct any
information provided by it for use in the Schedule 14D-9 if and to the extent
that it shall have become false and misleading in any material respect
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<PAGE> 9
and the Company further agrees to take all steps necessary to cause the
Schedule 14D-9 as so corrected to be filed with the SEC and to be disseminated
to holders of the Shares, in each case as and to the extent required by
applicable federal securities laws. Parent and its counsel shall be given the
opportunity to review the Schedule 14D-9 within a reasonable time before it is
filed with the SEC and the Company shall reasonably consider any comments
received by it from Parent or its counsel within a reasonable time prior to
filing the Schedule 14D-9 with the SEC. In addition, the Company agrees to
provide Parent, the Purchaser and their counsel with any comments, whether
written or oral, that the Company or its counsel may receive from time to time
from the SEC or its staff with respect to the Schedule 14D-9 promptly after the
receipt of such comments or other communications.
(c) In connection with the Offer, the Company will promptly furnish or
cause to be furnished to the Purchaser mailing labels, security position
listings and any available listing or computer file containing the names and
addresses of all recordholders of the Shares as of a recent date, and shall
furnish the Purchaser with such additional information (including, but not
limited to, updated lists of holders of the Shares and their addresses, mailing
labels and lists of security positions) and assistance as the Purchaser or its
agents may reasonably request in communicating the Offer to the record and
beneficial holders of the Shares.
Section 1.3 Directors.
(a) Promptly upon the purchase of and payment for any Shares pursuant to
this Agreement by Parent or any of its subsidiaries which represents at least a
majority of the outstanding Shares (on a fully diluted basis), Parent shall be
entitled to designate such number of directors, rounded up to the next whole
number, on the Board of Directors of the Company as is equal to the product of
the total number of directors on such Board (giving effect to the directors
designated by Parent pursuant to this sentence) multiplied by the percentage
that the number of Shares so accepted for payment bears to the total number of
Shares then outstanding. In furtherance thereof, the Company shall, upon
request of the Purchaser, use its best efforts promptly either to increase the
size of its Board of Directors or secure the resignations of such number of its
incumbent directors, or both, as is necessary to enable Parent's designees to
be so elected to the Company's Board, and shall take all actions available to
the Company to cause Parent's designees to be so elected. At such time, the
Company shall also cause persons designated by Parent to constitute at least
the same percentage (rounded up to the next whole number) as is on the
Company's Board of Directors of (i) each committee of the Company's Board of
Directors, (ii) each board of directors (or similar body) of each Subsidiary
(as defined in Section 3.1) of the Company and (iii) each committee (or similar
body) of each such board. Notwithstanding the foregoing, after such purchase
and payment until the Effective Time (as defined in Section 1.5 hereof), the
Company shall use all reasonable efforts to have at least two members of the
Board of Directors who are neither officers of Parent nor designees,
shareholders or affiliates of Parent and Parent and Purchaser shall take no
action to prevent or inhibit the foregoing. The Company shall promptly take
all actions required pursuant to Section 14(f) of the Exchange Act and Rule
14f-1 promulgated thereunder in order to fulfill its obligations under this
Section 1.3(a), including mailing to shareholders the information required by
such Section 14(f) and Rule 14f-1 as is necessary to enable Parent's designees
to be elected to the Company's Board
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of Directors. Parent or the Purchaser will supply the Company any information
with respect to either of them and their nominees, officers, directors and
affiliates required by such Section 14(f) and Rule 14f-1. The provisions of
this Section 1.3(a) are in addition to and shall not limit any rights which the
Purchaser, Parent or any of their affiliates may have as a holder or beneficial
owner of Shares as a matter of law with respect to the election of directors or
otherwise.
(b) From and after the time, if any, that Parent's designees constitute a
majority of the Company's Board of Directors, any amendment of the Restated
Articles of Incorporation of the Company (the "Articles of Incorporation") or
the Amended and Restated Bylaws of the Company (the "Bylaws"), any amendment of
this Agreement, any termination of this Agreement by the Company, any extension
of time for performance of any of the obligations of Parent or the Purchaser
hereunder, any waiver of any condition for the benefit of the Company, any
waiver of any of the Company's rights hereunder or other action by the Company
with respect to the transactions contemplated by this Agreement which
materially adversely affects the interests of the shareholders of the Company
may not be effected without the action of a majority of the directors of the
Company then in office who were not officers of Parent or designees,
shareholders or affiliates of Parent; provided, that if there shall be no such
directors, such actions may be effected by majority vote of the entire Board of
Directors of the Company.
Section 1.4 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.5 hereof), the
Company and the Purchaser shall consummate a merger (the "Merger") pursuant to
which (a) the Purchaser shall be merged with and into the Company and the
separate corporate existence of the Purchaser shall thereupon cease, (b) the
Company shall be the successor or surviving corporation in the Merger
(sometimes hereinafter referred to as the "Surviving Corporation") and shall
continue to be governed by the laws of the State of North Carolina, and (c) the
separate corporate existence of the Company with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger,
except as set forth in this Section 1.4. Pursuant to the Merger, (x) the
Articles of Incorporation, as in effect immediately prior to the Effective
Time, shall be the articles of incorporation of the Surviving Corporation until
thereafter amended as provided by law and such Articles of Incorporation, and
(y) the Bylaws, as in effect immediately prior to the Effective Time, shall be
the Bylaws of the Surviving Corporation until thereafter amended as provided by
law, such Articles of Incorporation and such Bylaws. The Merger shall have the
effects specified in the NCBCA.
Section 1.5 Effective Time. Parent, the Purchaser and the Company will
cause Articles of Merger to be executed and filed on the date of the Closing
(as defined in Section 1.6) (or on such other date as Parent and the Company
may agree) with the Secretary of State of North Carolina (the "Secretary of
State") as provided in the NCBCA. The Merger shall become effective on the
date on which the Articles of Merger have been duly filed with the Secretary of
State or such time as is agreed upon by the parties and specified in the
Articles of Merger, and such time is hereinafter referred to as the "Effective
Time."
Section 1.6 Closing. The closing of the Merger (the "Closing") shall take
place at 10:00 a.m. on a date to be specified by the parties, which shall be no
later than the
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second business day after satisfaction or waiver of all of the conditions set
forth in Article VI hereof (the "Closing Date"), at the offices of Robinson
Bradshaw & Hinson, P.A., One Independence Center, 101 Street, North Tryon
Street, Suite 1900, Charlotte, North Carolina 28246-1900, unless another date
or place is agreed to in writing by the parties hereto.
Section 1.7 Directors and Officers of the Surviving Corporation. The
directors and officers of the Purchaser at the Effective Time shall, from and
after the Effective Time, be the directors and officers, respectively, of the
Surviving Corporation until their successors shall have been duly elected or
appointed or qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation and
Bylaws.
Section 1.8 Shareholders' Meeting.
(a) If required by applicable law in order to consummate the Merger,
the Company, acting through its Board of Directors, shall, in accordance with
applicable law:
(i) duly call, give notice of, convene and hold a special
meeting of its shareholders (the "Special Meeting") as promptly as
practicable following the acceptance for payment and purchase of Shares
by the Purchaser pursuant to the Offer for the purpose of considering
and taking action upon the approval of the Merger and the adoption of
this Agreement;
(ii) prepare and, after consultation with Parent, file with
the SEC a preliminary proxy or information statement relating to the
Merger and this Agreement and use its best efforts (x) to obtain and
furnish the information required to be included by the SEC in the Proxy
Statement (as hereinafter defined) and, after consultation with Parent,
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 Parent and its counsel and (y) to
obtain the necessary approvals of the Merger and this Agreement by
its shareholders; and
(iii) subject to the fiduciary obligations of the Board of
Directors under applicable law as advised by independent counsel,
include in the Proxy Statement the recommendation of the Board that
shareholders of the Company vote in favor of the approval of the Merger
and the adoption of this Agreement.
(b) Parent shall vote, or cause to be voted, all of the Shares
then owned by it, the Purchaser or any of its other subsidiaries and affiliates
in favor of the approval of the Merger and the adoption of this Agreement.
Section 1.9 Merger Without Meeting of Shareholders. Notwithstanding
Section 1.8 hereof, in the event that Parent, the Purchaser or any other
subsidiary of Parent shall acquire at least 90% of the outstanding shares of
each class of capital stock of the Company
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pursuant to the Offer or otherwise the parties hereto shall, subject to Article
VI hereof, take all necessary and appropriate action to cause the Merger to
become effective as soon as practicable after such acquisition, without a
meeting of shareholders of the Company, in accordance with Chapter 55-11-04 of
the NCBCA.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
Shares or holders of common stock, par value $.01 per share, of the Purchaser
(the "Purchaser Common Stock"):
(a) Purchaser Common Stock. Each issued and outstanding share of the
Purchaser Common Stock shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All Shares
that are owned by the Company as treasury stock and any Shares owned by Parent,
the Purchaser or any other wholly owned Subsidiary (as defined in Section 3.1
hereof) of Parent shall be cancelled and retired and shall cease to exist and
no consideration shall be delivered in exchange therefor.
(c) Exchange of Shares. Each issued and outstanding Share (other than
Shares to be cancelled in accordance with Section 2.1(b) and any Shares which
are held by shareholders exercising appraisal rights pursuant to Chapter 55-13
of the NCBCA ("Dissenting Shareholders")) shall be converted into the right to
receive the Offer Price, payable to the holder thereof, without interest (the
"Merger Consideration"), upon surrender of the certificate formerly
representing such Share in the manner provided in Section 2.2. All such
Shares, when so converted, shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
holder of a certificate representing any such Shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration therefor upon the 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 Chapter 55-13 of the NCBCA.
Section 2.2 Exchange of Certificates.
(a) Paying Agent. Parent shall 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 shall
become entitled pursuant to Section 2.1(c). Such funds shall be invested by
the Paying Agent as directed by Parent or the Surviving Corporation in direct
obligations of the United States, obligations for which the full faith and
credit of the United States is pledged to provide for the payments of principal
and interest, commercial paper rated of the highest quality by Moody's Investor
Services or Standard & Poors Rating Group or certificates of deposit, issued by
a commercial bank having at least $1 billion in assets.
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(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates, which immediately prior to the Effective Time
represented outstanding Shares (the "Certificates"), whose Shares were
converted pursuant to Section 2.1 into the right to receive the Merger
Consideration (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Paying Agent and shall be in such
form and have such other provisions as Parent and the Company may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for payment of the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Paying Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration for each Share
formerly represented by such Certificate and the Certificate so surrendered
shall forthwith be cancelled. If payment of the Merger Consideration is to be
made to a person other than the person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the person requesting such payment shall have
paid any transfer and other taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder of the
Certificate surrendered or shall have established to the satisfaction of the
Surviving Corporation that such tax either has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.2, each Certificate shall
be deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration in cash as contemplated by this Section 2.2.
(c) Transfer Books; No Further Ownership Rights in the Shares. At the
Effective Time, the stock transfer books of the Company shall be closed and
thereafter there shall be no further registration of transfers of the Shares on
the records of the Company. From and after the Effective Time, the holders of
Certificates evidencing ownership of the Shares outstanding immediately prior
to the Effective Time shall cease to have any rights with respect to such
Shares, except as otherwise provided for herein or by applicable law. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be cancelled and exchanged as provided
in this Article II.
(d) Termination of Fund; No Liability. At any time following one year
after the Effective Time, the Surviving Corporation shall be entitled to
require the Paying Agent to deliver to it any funds (including any interest
received with respect thereto) which had been made available to the Paying
Agent and which have not been disbursed to holders of Certificates, and
thereafter such holders shall be entitled to look to the Surviving Corporation
(subject to abandoned property, escheat or other similar laws) with respect to
the Merger Consideration payable upon due surrender of their Certificates,
without any interest thereon. Notwithstanding the foregoing, neither the
Surviving Corporation nor the Paying Agent shall be liable to any holder of a
Certificate for Merger Consideration delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
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Section 2.3 Dissenters' Rights. If any Dissenting Stockholder shall be
entitled to be paid the "fair value" of such holder's Shares, as provided in
Chapter 55-13 of the NCBCA, the Company shall give the Purchaser notice thereof
and the Purchaser shall have the right to participate in all negotiations and
proceedings with respect to any such demands. Neither the Company nor the
Surviving Corporation shall, except with the prior written consent of the
Purchaser, voluntarily make any payment with respect to, or settle or offer to
settle, any such demand for payment. If any Dissenting Stockholder shall fail
to perfect or shall have effectively withdrawn or lost the right to dissent,
the Shares held by such Dissenting Stockholder shall thereupon be treated as
though such Shares had been converted into the Merger Consideration pursuant to
Section 2.1.
Section 2.4 Transfer of Shares After the Effective Time. No transfer of
Shares shall be made on the stock transfer books of the Surviving Corporation
at or after the Effective Time.
Section 2.5 Company Plans.
(a) The Company shall, effective as of the earlier of (i) Effective Time
or (ii) the expiration date of the Offer (if at such time the Shares tendered
and not withdrawn pursuant to the Offer equal 80% or more) (such earlier date
referred to herein as the "Acceleration Time") cause each outstanding employee
stock option to purchase Shares (an "Employee Option") granted under the
Company's 1992 Stock Option Plan and the Company's Equity Compensation Plan
(the "Employee Option Plans") and each outstanding non-employee director option
to purchase Shares ("Director Options" and, collectively with Employee Options,
"Options") granted under the Company's Stock Option Plan for Non-Employee
Directors (together with the Employee Option Plans, the "Option Plans"),
whether or not then exercisable or vested, to become fully exercisable and
vested. Concurrently with the execution hereof, the Company has evidenced to
the Purchaser the agreement of each optionee under the Option Plans to the
cancellation of all outstanding Options as of the Acceleration Time, in
consideration for which (except to the extent that Parent or the Purchaser and
the holder of any such Option otherwise agree), at the Acceleration Time,
Parent will cause the Company (or, at Parent's option, the Purchaser and, in
the event the Company is unable to do so, the Purchaser (which obligation of
the Purchaser Parent agrees to fund on a timely basis)) to pay to such holders
of Options an amount in respect thereof equal to the product of (A) the excess,
if any, of the Offer Price over the exercise price of each such Option and (B)
the number of Shares previously subject to the Option immediately prior to its
cancellation (such payment to be net of withholding taxes). Cancellation of
Options having an exercise price equal to or in excess of the Offer Price shall
be for a consideration not in excess of $100 per optionee.
(b) Except as may be otherwise agreed to by Parent or the Purchaser and
the Company, the Option Plans shall terminate as of the Acceleration 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 Acceleration Time
and no holder of options or any participant in the Option Plans or any other
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<PAGE> 15
plans, programs or arrangements shall have any right thereunder to acquire any
equity securities of the Company, the Surviving Corporation or any subsidiary
thereof.
(c) Notwithstanding the above, between the date of this Agreement and the
Effective Time, the Company shall reasonably cooperate with the Parent and the
Purchaser in structuring transactions (including those described in Section
2.5(b) above) with respect to Options so as to optimize the tax treatment of
the Parent or the Purchaser in connection therewith.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and the Purchaser as
follows:
Section 3.1 Organization. Except as set forth in Section 3.1 of the
Company's Disclosure Schedule, each of the Company and its Subsidiaries (as
defined below) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite corporate power and authority and all
necessary governmental approvals to own, lease and operate its properties and
to carry on its business as now being conducted, except where the failure to be
so organized, existing and in good standing or to have such power, authority,
and governmental approvals would not have a material adverse effect on the
Company and its Subsidiaries, taken as a whole. As used in this Agreement, the
term "Subsidiary" shall mean all corporations or other entities in which the
Company or the Parent, as the case may be, owns a majority of the issued and
outstanding capital stock or similar interests. As used in this Agreement, any
reference to any event, change or effect being material or having a material
adverse effect on or with respect to any entity (or group of entities taken as
a whole) means such event, change or effect is materially adverse to the
consolidated financial condition, businesses or results of operations of such
entity (or, if used with respect thereto, of such group of entities taken as a
whole). The Company and each of its Subsidiaries is duly qualified or licensed
to do business and in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing would not in the aggregate
have a material adverse effect on the Company and its Subsidiaries, taken as a
whole. The Company does not own (i) any equity interest in any corporation or
other entity other than the Subsidiaries or (ii) marketable securities where
the Company's equity interest in any entity exceeds five percent of the
outstanding equity of such entity on the date hereof. Exhibit 21 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995 sets forth a complete list of the Company's Subsidiaries.
Section 3.2 Capitalization. (a) The authorized capital stock of the
Company consists of 70,000,000 Shares and 1,000,000 shares of preferred stock,
par value $1.00 per share (the "Preferred Stock"). As of the date hereof, (i)
21,433,163 Shares are issued and outstanding, (ii) no Shares are issued and
held in the treasury of the Company, (iii) no shares of Preferred are
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<PAGE> 16
issued or outstanding and (iv) 1,647,950 Shares are reserved for issuance upon
exercise of outstanding Options granted under the Option Plans. Section 3.2 of
the Company's Disclosure Statement sets forth the exercise price for all
outstanding Options. All the outstanding shares of the Company's capital stock
are, and all Shares which may be issued pursuant to the exercise of outstanding
options will be, when issued in accordance with the respective terms thereof,
duly authorized, validly issued, fully paid and non-assessable. There are no
bonds, debentures, notes or other indebtedness having general voting rights (or
convertible into securities having such rights) ("Voting Debt") of the Company
or any of its Subsidiaries issued and outstanding. Except as set forth above
and except for the transactions contemplated by this Agreement, as of the date
hereof, (i) there are no shares of capital stock of the Company authorized,
issued or outstanding, (ii) there are no existing options, warrants, calls,
preemptive rights, subscriptions or other rights, agreements, arrangements or
commitments of any character, relating to the issued or unissued capital stock
of the Company or any of its Subsidiaries, obligating the Company or any of its
Subsidiaries to issue, transfer or sell or cause to be issued, transferred or
sold any shares of capital stock or Voting Debt of, or other equity interest
in, the Company or any of its Subsidiaries or securities convertible into or
exchangeable for such shares or equity interests, or obligating the Company or
any of its Subsidiaries to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement, arrangement or
commitment, and (iii) there are no outstanding contractual obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any Shares, or the capital stock of the Company, or any subsidiary or affiliate
of the Company or to provide funds to make any investment (in the form of a
loan, capital contribution or otherwise) in any Subsidiary or any other entity.
(b) Except as set forth in Section 3.2 of the Company's Disclosure
Schedule, all of the outstanding shares of capital stock of each of the
Subsidiaries are beneficially owned by the Company, directly or indirectly, and
all such shares have been validly issued and are fully paid and nonassessable
and are owned by either the Company or one of its Subsidiaries free and clear
of all liens, charges, claims or encumbrances.
(c) There are no voting trusts or other agreements or understandings to
which the Company or any of its Subsidiaries is a party with respect to the
voting of the capital stock of the Company or any of the Subsidiaries.
(d) None of the Company or its Subsidiaries is required to redeem,
repurchase or otherwise acquire shares of capital stock of the Company, or any
of its Subsidiaries, respectively, as a result of the transactions contemplated
by this Agreement.
Section 3.3 Authorization; Validity of Agreement; Company Action. The
Company has full corporate power and authority to execute and deliver this
Agreement and, subject to any required shareholder approval, to consummate the
transactions contemplated hereby. The execution, delivery and performance by
the Company of this Agreement, and the consummation by it of the transactions
contemplated hereby, have been duly authorized by its Board of Directors and,
except for obtaining the approval of its shareholders as contemplated by
Section 1.8 hereof, no other corporate action on the part of the Company is
necessary to authorize the execution and delivery by the Company of this
Agreement and the consummation
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by it of the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Company and, assuming due and valid
authorization, execution and delivery hereof by Parent and the Purchaser, is a
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms.
Section 3.4 Consents and Approvals; No Violations. Except for the filings
set forth on Section 3.4 of the Company's Disclosure Schedule and the filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), state
securities or blue sky laws, and the NCBCA, neither the execution, delivery or
performance of this Agreement by the Company nor the consummation by the
Company of the transactions contemplated hereby nor compliance by the Company
with any of the provisions hereof will (i) conflict with or result in any
breach of any provision of the Articles of Incorporation or the Bylaws of the
Company or of any of its Subsidiaries, (ii) require any filing with, or permit,
authorization, consent or approval of, any court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency (a "Governmental Entity"), (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both)
a default (or give rise to any right of payment, termination, amendment,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which the Company or any of its Subsidiaries
is a party or by which any of them or any of their properties or assets may be
bound (the "Agreements") or (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company, any of its Subsidiaries
or any of their properties or assets, excluding from the foregoing clause (iii)
such violations, breaches or defaults which would not, individually or in the
aggregate, have a material adverse effect on the Company and its Subsidiaries,
taken as a whole and which will not materially impair the ability of the
Company to consummate the transactions contemplated hereby. Section 3.4 of the
Company's Disclosure Schedule sets forth a list of any consents required to be
obtained in connection with the Agreements prior to the consummation of the
transactions contemplated by this Agreement. Except as set forth in Section
3.4 of the Company's Disclosure Schedule, neither the Company nor any of its
Subsidiaries is a party to or otherwise bound by any contract or agreement
(whether written or oral) providing for any severance or other payment upon or
following a change of control of the Company. Section 3.4 describes in
reasonable detail the nature and amount of any such severance or other
payments.
Section 3.5 SEC Reports and Financial Statements. The Company has filed
with the SEC, and has heretofore made available to Parent true and complete
copies of, all forms, reports, schedules, statements and other documents
required to be filed by it under the Exchange Act or the Securities Act of
1933, as amended (the "Securities Act") (as such documents have been amended
since the time of their filing, collectively, the "Company SEC Documents"). As
of their respective dates or, if amended, as of the date of the last such
amendment, the Company SEC Documents, including, without limitation, any
financial statements or schedules included therein (a) did not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading and (b)
complied in all material
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respects with the applicable requirements of the Exchange Act and the
Securities Act, as the case may be, and the applicable rules and regulations of
the SEC thereunder. None of the Subsidiaries is required to file any forms,
reports or other documents with the SEC. The financial statements of the
Company (the "1995 Financial Statements") included in the Company's Annual
Report on Form 10K for the fiscal year ended December 31, 1995 (the "1995
10-K") and the financial statements of the Company included in the Company's
Quarterly Report on Form 10-Q for the quarter ended September 29, 1996 (the
"September 1996 10-Q") have been prepared from, and are in accordance with, the
books and records of the Company and its consolidated subsidiaries, comply in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present in all
material respects the consolidated financial position and the consolidated
results of operations and cash flows (and changes in financial position, if
any) of the Company and its consolidated subsidiaries at the dates and for the
periods covered thereby (subject, in the case of the financial statements in
the September 1996 10-Q, to normal year-end audit adjustments which would not
be material in amount or effect).
Section 3.6 Absence of Certain Changes. Except as disclosed in Section
3.6 of the Company's Disclosure Schedule, since December 31, 1995, the Company
and its Subsidiaries have conducted their respective businesses only in the
ordinary and usual course and there has not occurred (i) any events or changes
(including the incurrence of any liabilities of any nature, whether or not
accrued, contingent or otherwise) having, individually or in the aggregate, a
material adverse effect on the Company and its Subsidiaries, taken as a whole;
(ii) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to the equity
interests of the Company or of any of its Subsidiaries; or (iii) any change by
the Company or any of its Subsidiaries in accounting principles or methods,
except insofar as may be required by a change in GAAP.
Section 3.7 No Undisclosed Liabilities. Except (a) as disclosed in the
Company SEC Documents and (b) for liabilities and obligations as set forth in
Section 3.7 of the Company Disclosure Schedule, since December 31, 1995,
neither the Company nor any of its Subsidiaries has incurred any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise,
that have, or would be reasonably likely to have, a material adverse effect on
the Company and its Subsidiaries, taken as a whole, or, subject to the
foregoing exceptions or for liabilities or obligations incurred in the ordinary
course of business and consistent with past practice, would be required by GAAP
to be reflected on a consolidated balance sheet of the Company and its
Subsidiaries (including the notes thereto).
Section 3.8 Litigation. Except as set forth in Section 3.8 of the
Company's Disclosure Schedule, neither the Company nor any of its Subsidiaries
is subject to any claim or pending litigation or outstanding order, writ,
injunction or decree which, insofar as can be reasonably foreseen after due
inquiry, in the future would have, individually or in the aggregate, a material
adverse effect on the Company and its Subsidiaries, taken as a whole, or a
material
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adverse effect on the ability of the Company to consummate the transactions
contemplated hereby.
Section 3.9 Employee Benefit Plans; ERISA
(a) Section 3.9 of the Company's Disclosure Schedule sets forth a list of
all material employee benefit plans, arrangements, contracts or agreements
(including employment agreements and severance agreements) of any type
(including but not limited to plans described in section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), maintained by
the Company, any of its Subsidiaries or any trade or business, whether or not
incorporated (an "ERISA Affiliate"), which together with the Company would be
under "common control" within the meaning of section 4001(a)(14) of ERISA
("Benefit Plans"). Neither the Company nor any ERISA Affiliate has any formal
plan or commitment, whether legally binding or not, to create any additional
Benefit Plan or modify or change any existing Benefit Plan that would affect
any employee or terminated employee of the Company or any Subsidiary.
(b) With respect to each Benefit Plan: (i) if intended to qualify under
section 401(a), 401(k) or 403(a) of the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder (the "Code"), the
United States Internal Revenue Service (the "Service") has issued a favorable
letter of determination on such qualified status and on the exempt status under
section 501(a) of the Code and since such letter of determination no event has
occurred that would disqualify such plan; (ii) such plan has been administered
in all material respects in accordance with its terms and applicable law; (iii)
no breaches of fiduciary duty have occurred which might reasonably be expected
to give rise to material liability on the part of the Company; (iv) no disputes
are pending, or, to the knowledge of the Company, threatened that might
reasonably be expected to give rise to material liability on the part of the
Company; (v) no prohibited transaction (within the meaning of Section 406 of
ERISA) has occurred that might reasonably be expected to give rise to material
liability on the part of the Company; (vi) all contributions and premiums due
as of the date hereof (taking into account any extensions for such
contributions and premiums) have been made in full; and (vii) all reports
required to be filed with respect to such Benefit Plan have been properly,
accurately and timely filed.
(c) Neither the Company nor any ERISA Affiliate (a) has incurred an
accumulated funding deficiency, as defined in the Code and ERISA or (b) has any
material liability under Title IV of ERISA with respect to any Benefit Plan
that is subject to Title IV of ERISA.
(d) With respect to each Benefit Plan that is a "welfare plan" (as defined
in section 3(l) of ERISA), no such plan provides medical or death benefits with
respect to current or former employees of the Company or any of its
Subsidiaries beyond their termination of employment, other than on an
employee-pay-all basis.
(e) Except as contemplated by Section 2.5, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any individual
to severance pay or accelerate the time of payment or vesting, or increase the
amount, of compensation or benefits
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due to any individual (other than as disclosed in writing), (ii) constitute or
result in a prohibited transaction under section 4975 of the Code or section
406 or 407 of ERISA or (iii) subject the Company, any of its Subsidiaries, any
ERISA Affiliate, any of the Benefit Plans, any related trust, any trustee or
administrator of any thereof, or any party dealing with the Benefit Plans or
any such trust to either a civil penalty assessed pursuant to section 409 or
502(i) of ERISA or a tax imposed pursuant to section 4976 or 4980B of the Code.
(f) Neither the Company nor any ERISA Affiliate has at any time within the
preceding six years been obligated to contribute to any Benefit Plan that is a
"multiemployer plan," as such term is defined in section 3(37) of ERISA.
(g) With respect to each Benefit Plan, the Company has made available to
Parent or its representatives accurate and complete copies of all plan texts,
summary plan descriptions, summary of material modifications, trust agreements
and other related agreements including all amendments to the foregoing; the
most recent annual report; the most recent annual and periodic accounting of
plan assets; the most recent determination letter received from the Service;
and the most recent actuarial valuation, to the extent any of the foregoing may
be applicable to a particular Benefit Plan.
Section 3.10 Information in Proxy Statement. Prior to consummation of the
Offer, the Company shall prepare and furnish to Parent such portions of the
Proxy Statement as Parent shall specify. Such material when delivered to
Parent, and (as incorporated in the Proxy Statement) on the date mailed to
Company shareholders and at the time of the meeting of Company shareholders to
be held in connection with the Merger, will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
Section 3.11 No Default; Compliance with Applicable Laws. The business of
the Company and each of its Subsidiaries is not being conducted in default or
violation of any term, condition or provision of (i) its respective Articles of
Incorporation or Bylaws, or (ii) to the Company's best knowledge, any federal,
state, local or foreign statute, law, ordinance, rule, regulation, judgment,
decree, order, concession, grant, franchise, permit or license or other
governmental authorization or approval applicable to the Company or any of its
Subsidiaries, excluding from the foregoing clause (ii), defaults or violations
which would not, individually or in the aggregate, have a material adverse
effect on the Company and its Subsidiaries, taken as a whole. Except as
disclosed in Section 3.11 of the Company's Disclosure Schedule, as of the date
of this Agreement, no claim or, to the best knowledge of the Company,
investigation or review by any Governmental Entity or other entity with respect
to the Company or any of its Subsidiaries is pending or, to the best knowledge
of the Company, threatened, nor to the best knowledge of the Company has any
Governmental Entity or other entity indicated an intention to assert or conduct
the same, other than, in each case, those the outcome of which, as far as
reasonably can be foreseen after due inquiry, in the future will not,
individually or in the aggregate have a material adverse effect on the Company
and its Subsidiaries, taken as a whole.
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Section 3.12 Licenses; Intellectual Property. Section 3.12 of the
Company's Disclosure Schedule sets forth a list of all registered and material
unregistered Intellectual Property (as defined below) owned by the Company and
used in the conduct of its Business and all agreements granting any right to
use or practice any right relating to the Intellectual Property (as defined
below) currently used in the conduct of the Company's business (the
"Licenses"). Except as set forth in Section 3.12 of the Company's Disclosure
Schedule, (i) to the Company's best knowledge, the Company or its Subsidiaries
is the sole owner of all of its rights under the Licenses free and clear of any
liens, claims, encumbrances or interests; (ii) to the Company's best knowledge,
the Company or its Subsidiaries is the sole owner of, or has a valid right to
use pursuant to a License, all patents and patent applications; registered and
unregistered trademarks, service marks, trade names, trade dress, logos,
company names and other source or business identifiers, including all goodwill
associated therewith; the names, likenesses and other attributes of
individuals; registered and unregistered copyrights, computer programs and
databases; trade secrets, proprietary technology, know-how, industrial designs
and other confidential information ("Trade Secrets"); any pending applications
for any of the foregoing (collectively, the "Intellectual Property") currently
used in the conduct of the Company's business, free and clear of any liens,
claims, encumbrances or interests; (iii) to the Company's best knowledge the
present or past operations of the Company or the Subsidiaries does not infringe
upon, violate, interfere or conflict with the rights of others with respect to
any Intellectual Property and no claim is pending or, to the Company's best
knowledge, threatened, to this effect; (iv) to the Company's best knowledge,
none of the Intellectual Property is invalid or unenforceable, or has not been
used or enforced or has failed to be used or enforced in a manner that would
result in the abandonment, cancellation or unenforceability of any of the
Intellectual Property and no claim is pending or, to the Company's best
knowledge, threatened, to this effect; (v) no License provision or any other
contract, agreement or understanding to which the Company is a party would
prevent the continued use by the Company or the Subsidiaries (as currently used
by the Company or its Subsidiaries) of any Intellectual Property following the
consummation of the transactions contemplated hereby; (vi) to the Company's
best knowledge, no person is infringing upon or otherwise violating any
Intellectual Property or License; (vii) there are no claims pending or, to the
Company's best knowledge, threatened in connection with any License; and (viii)
to the Company's best knowledge, no Trade Secret has been disclosed by the
Company or its Subsidiaries to any third party except subject to an appropriate
confidentiality agreement or as required by a governmental authority.
Section 3.13 Taxes. (a) Except as set forth in Section 3.13 of the
Company's Disclosure Schedule:
(i) the Company and its Subsidiaries have (x) duly filed (or
there have been filed on their behalf) with the appropriate governmental
authorities all Tax Returns (as hereinafter defined) required to be filed
by them on or prior to the date hereof, other than any filings which the
failure to make in a timely manner would not have a material adverse
effect on the Company and the Subsidiaries taken as a whole, it being
understood that the failure to file a federal income Tax Return would have
a material adverse effect on the Company and its Subsidiaries taken as a
whole, and such Tax Returns are true, correct and complete in all material
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respects, and (y) duly paid in full or made provision in accordance
with GAAP (or there has been paid or provision has been made on
their behalf) for the payment of all Taxes (as hereinafter defined)
for all periods ending through the date hereof;
(ii) there are no liens for Taxes upon any property or assets
of the Company or any Subsidiary thereof, except for liens for
Taxes not yet due;
(iii) neither the Company nor any of its Subsidiaries has made
any change in accounting methods, received a ruling from any taxing
authority or signed an agreement likely to have a material adverse
effect on the Company and its Subsidiaries, taken as a whole;
(iv) the Company and its Subsidiaries have complied in all
respects with all applicable laws, rules and regulations relating
to the payment and withholding of Taxes (including, without
limitation, withholding of Taxes pursuant to Sections 1441 and 1442
of the Code or similar provisions under any foreign laws) and have,
within the time and the manner prescribed by law, withheld from
employee wages and paid over to the proper governmental authorities
all amounts required to be so withheld and paid over under
applicable laws;
(v) no federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently
pending with regard to any Taxes or Tax Returns of the Company or
its Subsidiaries and neither the Company nor its subsidiaries has
received a written notice of any pending audits or proceedings;
(vi) the federal income Tax Returns of the Company and its
Subsidiaries have been examined by the Service (or the applicable
statutes of limitation for the assessment of federal income Taxes
for such periods have expired) for all periods through and
including December 31, 1990, and no material deficiencies were
asserted as a result of such examinations which have not been
resolved and fully paid;
(vii) there are no outstanding requests, agreements, consents
or waivers to extend the statutory period of limitations applicable
to the assessment of any Taxes or deficiencies against the Company
or any of its Subsidiaries, and no power of attorney granted by
either the Company or any of its Subsidiaries with respect to any
Taxes is currently in force;
(viii) neither the Company nor any of its Subsidiaries is a
party to any agreement providing for the allocation or sharing of
Taxes;
(ix) neither the Company nor its Subsidiaries is a party to
any agreement, contract or arrangement (other than the employment
contracts referenced in Section 3.4 of the Company's Disclosure
Schedule) that could result, separately or in the aggregate, in the
payment of any "excess parachute payments"
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within the meaning of Section 280G of the Code, and none of the
actions contemplated or permitted by this Agreement will result in
any such payments;
(x) neither the Company nor any of its Subsidiaries has, with
regard to any assets or property held, acquired or to be acquired
by any of them, filed a consent to the application of Section
341(f) of the Code, or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by the Company or
any of its Subsidiaries;
(xi) the deductibility of compensation paid by the Company
and/or its Subsidiaries will not be limited by Section 162(m) of
the Code; and
(xii) all transactions that could give rise to an
understatement of the federal income tax liability of the Company
or any of its Subsidiaries within the meaning of Section 6662(d) of
the Code are adequately disclosed on Tax Returns in accordance with
Section 6662(d)(2)(B) of the Code if there is or was no substantial
authority for the treatment giving rise to such understatement.
(b) The net operating loss carryovers available to the Company
and its Subsidiaries are set forth in Section 3.13 of the Company's Disclosure
Schedule. Except as set forth in Section 3.13 of the Company's Disclosure
Schedule, as of the date of this Agreement, the net loss carryovers are not
subject to limitations imposed by Sections 382, 383 or 384 of the Code (or any
predecessor thereto) or otherwise.
(c) "Taxes" shall mean any and all taxes, charges, fees, levies
or other assessments, including, without limitation, income, gross receipts,
excise, real or personal property, sales, withholding, social security,
occupation, use, service, service use, license, net worth, payroll, franchise,
transfer and recording taxes, fees and charges, imposed by the Service or any
taxing authority (whether domestic or foreign including, without limitation,
any state, county, local or foreign government or any subdivision or taxing
agency thereof (including a United States possession)), whether computed on a
separate, consolidated, unitary, combined or any other basis; and such term
shall include any interest whether paid or received, fines, penalties or
additional amounts attributable to, or imposed upon, or with respect to, any
such taxes, charges, fees, levies or other assessments. "Tax Return" shall
mean any report, return, document, declaration or other information or filing
required to be supplied to any taxing authority or Jurisdiction (foreign or
domestic) with respect to Taxes, including, without limitation, information
returns, any documents with respect to or accompanying payments of estimated
Taxes, or with respect to or accompanying requests for the extension of time in
which to file any such report, return, document, declaration or other
information.
Section 3.14 Insurance. As of the date hereof, the Company and each
of its Subsidiaries are insured by insurers, reasonably believed by the Company
to be of recognized financial responsibility and solvency, against such losses
and risks and in such amounts as are customary in the businesses in which they
are engaged. All material policies of insurance and fidelity or surety bonds
insuring the Company or any of its Subsidiaries or their respective
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businesses, assets, employees, officers and directors have previously been made
available for inspection by Parent and are in full force and effect. Section
3.14 of the Company's Disclosure Schedule describes all self-insurance
arrangements affecting the Company or any Subsidiary and the aggregate amount
of all claims made under such arrangements since January 1, 1994. As of the
date hereof, there are no material claims by the Company or any Subsidiary
under any such policy or instrument as to which any insurance company is
denying liability or defending under a reservation of rights clause. To the
Company's best knowledge, all necessary notifications of claims have been made
to insurance carriers other than those which will not have a material adverse
effect on the Company and its Subsidiaries, taken as a whole.
Section 3.15 Contracts. Each Agreement (as defined in Section 3.4) is
legally valid and binding against the Company or its Subsidiaries and, to the
Company's best knowledge, each other party thereto and in full force and
effect, except where failure to be legally valid and binding and in full force
and effect would not, individually or in the aggregate, have a material adverse
effect on the Company and its Subsidiaries, taken as a whole, and there are no
defaults thereunder by the Company or its Subsidiaries and, to the Company's
best knowledge, any other party thereto, except those defaults that would not
have a material adverse effect on the Company and its Subsidiaries, taken as a
whole. The Company has previously made available for inspection by Parent or
the Purchaser or their representatives all material Agreements.
Section 3.16 Related Party Transactions. Except as set forth in Section
3.16 of the Company's Disclosure Schedule or in the Company SEC Reports, no
director, officer, partner, employee, "affiliate" or "associate" (as such terms
are defined in Rule 12b-2 under the Exchange Act) of the Company or any of its
Subsidiaries (i) has borrowed money from or has outstanding any indebtedness or
other similar obligations to the Company or any of its Subsidiaries; (ii) to
the best knowledge of the Company, owns any direct or indirect interest of any
kind in, or is a director, officer, employee, party, affiliate or associate of,
or consultant or lender to, or borrower from, or has the right to participate
in the management, operations or profits of, any person or entity which is (x)
a competitor, supplier, customer, distributor, lessor, tenant, creditor or
debtor of the Company or any of its Subsidiaries, (y) engaged in a business
related to the business of the Company or any of its Subsidiaries or (z)
participating in any transaction to which the Company or any of its
Subsidiaries is a party or (iii) is otherwise a party to any contract,
arrangement or understanding with the Company or any of its Subsidiaries.
Section 3.17 Real Property. The Company and the Subsidiaries, as the case
may be, have sufficient title or leaseholds to real property to conduct their
respective businesses as currently conducted with only such exceptions as
individually or in the aggregate would not have a material adverse effect on
the Company and the Subsidiaries, taken as a whole.
Section 3.18 Vote Required. The affirmative vote of the holders of a
majority of the outstanding Shares is the only vote of the holders of any class
or series of the Company's capital stock necessary to approve this Agreement
and the transactions contemplated hereby.
ARTICLE IV
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REPRESENTATIONS AND WARRANTIES OF
PARENT AND THE PURCHASER
Parent and the Purchaser represent and warrant to the Company as follows:
Section 4.1 Organization. Each of Parent and the Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of North Carolina and has all requisite corporate or other power and
authority and all necessary governmental approvals to own, lease and operate
its properties and to carry on its business as now being conducted, except
where the failure to be so organized, existing and in good standing or to have
such power, authority, and governmental approvals would not have a material
adverse effect on Parent and its Subsidiaries, taken as a whole. Parent and
each of its Subsidiaries is duly qualified or licensed to do business and in
good standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not, in the aggregate, have a
material adverse effect on Parent and its Subsidiaries, taken as a whole.
Section 4.2 Authorization; Validity of Agreement; Necessary Action. Each
of Parent and the Purchaser has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Parent and the Purchaser of
this Agreement, and the consummation of the Merger and of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
Parent and the Purchaser and by Parent as the sole stockholder of the Purchaser
and no other corporate action on the part of Parent and the Purchaser is
necessary to authorize the execution and delivery by Parent and the Purchaser
of this Agreement and the consummation of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by Parent and the
Purchaser, as the case may be, and, assuming due and valid authorization,
execution and delivery hereof by the Company, is a valid and binding obligation
of each of Parent and the Purchaser, as the case may be, enforceable against
each of them in accordance with its respective terms.
Section 4.3 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the HSR Act, state
securities or blue sky laws and the NCBCA, neither the execution, delivery or
performance of this Agreement by Parent or the Purchaser nor the consummation
by Parent or the Purchaser of the transactions contemplated hereby nor
compliance by Parent or the Purchaser with any of the provisions hereof will
(i) conflict with or result in any breach of any provision of the respective
certificate of incorporation or by-laws of Parent or the Purchaser, (ii)
require any filing with, or permit, authorization, consent or approval of, any
Governmental Entity, (iii) except as set forth on Schedule 4.3, result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Parent, or any of its Subsidiaries or the
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Purchaser is a party or by which any of them or any of their respective
properties or assets may be bound or (iv) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Parent, any of its
Subsidiaries or any of their properties or assets, excluding from the foregoing
clause (iii) such violations, breaches or defaults which would not,
individually or in the aggregate, have a material adverse effect on Parent, its
Subsidiaries or the Purchaser taken as a whole and will not materially impair
the ability of Parent or the Purchaser to consummate the transactions
contemplated hereby.
Section 4.4 Information in Proxy Statement. None of the information
supplied by Parent or the Purchaser specifically for inclusion or incorporation
by reference in the Proxy Statement will, at the date mailed to shareholders
and at the time of the meeting of shareholders to be held in connection with
the Merger, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading.
Section 4.5 Litigation. Neither Parent nor any of its Subsidiaries is
subject to any outstanding order, writ, injunction or decree which, insofar as
can be reasonably foreseen after due inquiry, would have a material adverse
effect on the ability of Parent or the Purchaser to consummate the transactions
contemplated hereby.
Section 4.6 Financing Commitment. Parent has received from NationsBank a
commitment letter dated December 16, 1996 (a copy of which has been heretofore
furnished to the Company) to provide funds necessary for the consummation of
the Offer and the Merger which letter has not been revoked. Parent has
accepted such commitment pursuant to its terms and has paid all fees due
thereunder as of the date hereof.
Section 4.7 Fraudulent Conveyance. Assuming the accuracy of the
representations and warranties of the Company in this Agreement, Parent has no
reason to believe that the financing to be provided to Parent to effect the
Offer and the Merger will cause (i) the fair salable value of the Surviving
Corporation's assets to be less than the total amount of its existing
liabilities, (ii) the fair salable value of the assets of the Surviving
Corporation to be less than the amount that will be required to pay its
probable liabilities on its existing debts as they mature, (iii) the Surviving
Corporation not to be able to pay its existing debts as they mature or (iv) the
Surviving Corporation to have an unreasonably small capital with which to
engage in its business.
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company. The Company covenants and
agrees that, except (i) as expressly contemplated by this Agreement, (ii) as
set forth in Section 5.1 of the Company's Disclosure Schedule or (iii) as
agreed in writing by Parent, after the date hereof, and prior to the time the
designees of the Purchaser have been elected to, and shall
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constitute a majority of, the Board of Directors of the Company pursuant to
Section 1.3 (the "Appointment Date"):
(a) the business of the Company and its Subsidiaries shall be conducted
only in the ordinary and usual course and, to the extent consistent therewith,
each of the Company and its Subsidiaries shall use its commercially reasonable
best efforts to preserve its business organization intact and maintain its
existing relations with customers, suppliers, employees, creditors and business
partners;
(b) the Company will not, directly or indirectly, (i) sell, transfer or
pledge or agree to sell, transfer or pledge any of the Shares, Preferred Stock
or capital stock of any of its Subsidiaries beneficially owned by it; (ii)
amend its Articles of Incorporation or Bylaws or similar organizational
documents; or (iii) split, combine or reclassify the outstanding Shares or
Preferred Stock or any outstanding capital stock of any of the Subsidiaries of
the Company;
(c) neither the Company nor any of its Subsidiaries shall: (i) declare,
set aside or pay any dividend or other distribution payable in cash, stock or
property with respect to its capital stock; (ii) issue, sell, pledge, dispose
of or encumber any additional shares of, or securities convertible into or
exchangeable for, or options, warrants, calls, commitments or rights of any
kind to acquire any shares of, capital stock of any class of the Company or its
Subsidiaries, other than shares reserved for issuance on the date hereof
pursuant to the exercise of Options outstanding on the date hereof; (iii)
transfer, lease, license, sell, mortgage, pledge, dispose of, or encumber any
material assets other than in the ordinary and usual course of business and
consistent with past practice, or incur or modify any material indebtedness or
other liability; or (iv) redeem, purchase or otherwise acquire directly or
indirectly any of its capital stock;
(d) neither the Company nor any of its Subsidiaries shall: (i) grant any
increase in the compensation payable or to become payable by the Company or any
of its Subsidiaries to any of its employees; (ii) (A) adopt any new, or (B)
amend or otherwise increase, or accelerate the payment or vesting of the
amounts payable or to become payable under any existing, bonus, incentive
compensation, deferred compensation, severance, profit sharing, stock option,
stock purchase, insurance, pension, retirement or other employee benefit plan
agreement or arrangement; or (iii) enter into any employment or severance
agreement with or, except in accordance with the existing written policies of
the Company, grant any severance or termination pay to any officer, director or
employee of the Company or any its Subsidiaries;
(e) neither the Company nor any of its Subsidiaries shall modify, amend or
terminate any of its material contracts or waive, release or assign any
material rights or claims thereunder;
(f) neither the Company nor any of its Subsidiaries shall permit any
material insurance policy naming it as a beneficiary or a loss payable payee to
be cancelled or terminated without notice to Parent;
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(g) neither the Company nor any of its Subsidiaries shall: (i) incur or
assume any long-term debt or any short-term indebtedness; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person, except in
the ordinary course of business and consistent with past practice; (iii) make
any loans, advances or capital contributions to, or investments in, any other
person (other than to wholly owned Subsidiaries of the Company or customary
loans or advances to employees in accordance with past practice); or (iv) enter
into any material commitment or transaction (including, but not limited to, any
borrowing, capital expenditure or purchase, sale or lease of assets or real
estate);
(h) neither the Company nor any of its Subsidiaries shall change any of
the accounting methods used by it unless required by GAAP;
(i) neither the Company nor any of its Subsidiaries shall pay, discharge
or satisfy any claims, liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction of any such claims, liabilities or obligations reflected or
reserved against in, or contemplated by, the consolidated financial statements
(or the notes thereto) of the Company and its consolidated Subsidiaries;
(j) neither the Company nor any of its Subsidiaries will adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or any
of its Subsidiaries (other than the Merger);
(k) neither the Company nor any of its Subsidiaries will take, or agree to
commit to take, any action that would make any representation or warranty of
the Company contained herein, in the case of any representation or warranty not
qualified by materiality, materially inaccurate or, in the case of any other
representation or warranty, inaccurate in any respect at, or as of any time
prior to, the Effective Time; and
(l) neither the Company nor any of its Subsidiaries will enter into an
agreement, contract, commitment or arrangement to do any of the foregoing, or
to authorize, recommend, propose or announce an intention to do any of the
foregoing.
Section 5.2 Access; Confidentiality. Upon reasonable notice, the Company
shall (and shall cause each of its Subsidiaries to) afford to the officers,
employees, accountants, counsel, financing sources and other representatives of
Parent, access, during normal business hours during the period prior to the
Appointment Date, to all its properties, books, contracts, commitments and
records and, during such period, the Company shall (and shall cause each of its
Subsidiaries to) furnish promptly to the Parent (a) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of federal securities laws and
(b) all other information concerning its business, properties and personnel as
Parent may reasonably request. After the Appointment Date the Company shall
provide Parent and such persons as Parent shall designate with all such
information, at such time as Parent shall request. Unless otherwise required
by law and until the Appointment Date, Parent will hold and will cause any
Representative, as defined in the Confidentiality Agreement, dated November 22,
1996 between the Company and Parent to hold
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any such information which is nonpublic in confidence pursuant to the terms of
such Confidentiality Agreement.
Section 5.3 Consents and Approvals. (a) Each of the Company, Parent and
the Purchaser will take all reasonable actions necessary to comply promptly
with all legal requirements which may be imposed on it with respect to this
Agreement and the transactions contemplated hereby (which actions shall
include, without limitation, furnishing all information required under the HSR
Act and in connection with approvals of or filings with any other Governmental
Entity) and will promptly cooperate with and furnish information to each other
in connection with any such requirements imposed upon any of them or any of
their Subsidiaries in connection with this Agreement and the transactions
contemplated hereby. Each of the Company, Parent and the Purchaser will, and
will cause its Subsidiaries to, take all reasonable actions necessary to obtain
(and will cooperate with each other in obtaining) any consent, authorization,
order or approval of, or any exemption by, any Governmental Entity or other
public or private third party required to be obtained or made by Parent, the
Purchaser, the Company or any of their Subsidiaries in connection with the
Merger or the taking of any action contemplated thereby or by this Agreement
and the Company shall, prior to consummation of the Offer have (i) used its
reasonable best efforts to obtain the consents under the agreements indicated
by one asterisk in Section 3.4 of the Company's Disclosure Schedule, and (ii)
obtained the consents under the agreements indicated by two asterisks in
Section 3.4 of the Company's Disclosure Schedule. Parent and the Purchaser
shall reasonably cooperate in the obtaining of such consents.
(b) The Company and Parent shall take all reasonable actions necessary to
file as soon as practicable notifications under the HSR Act and to respond as
promptly as practicable to any inquiries received from the Federal Trade
Commission and the Antitrust Division of the Department of Justice for
additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other Governmental Entity in connection with antitrust matters.
Section 5.4 No Solicitation. Neither the Company nor any of its
Subsidiaries or affiliates shall (and the Company shall use its best efforts to
cause its officers, directors, employees, representatives and agents,
including, but not limited to, investment bankers, attorneys and accountants,
not to), directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Parent,
any of its affiliates or representatives) concerning any merger, tender offer,
exchange offer, sale of assets, sale of shares of capital stock or debt
securities or similar transactions involving the Company or any Subsidiary,
division or operating or principal business unit of the Company (an
"Acquisition Proposal"). The Company will immediately cease any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing. Notwithstanding the foregoing, the
Company may furnish information concerning its business, properties or assets
to any corporation, partnership, person or other entity or group pursuant to
appropriate confidentiality agreements, and may negotiate and participate in
discussions and negotiations with such entity or group concerning an
Acquisition Proposal (x) if such entity or
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group has on an unsolicited basis submitted a bona fide written proposal to the
Board of Directors of the Company relating to any such transaction which the
Board determines represents a superior transaction to the Offer and the Merger
and (y) if the Board of Directors of the Company determines, only after receipt
of advice from independent legal counsel to the Company, that the failure to
provide such information or access or to engage in such discussions or
negotiations could cause the Board of Directors to violate its fiduciary duties
to the Company's shareholders under applicable law. The Company will
immediately communicate to Parent the terms of any proposal, discussion,
negotiation or inquiry (and will disclose any written materials received by the
Company in connection with such proposal, discussion negotiation, or inquiry)
and the identity of the party making such proposal or inquiry which it may
receive in respect of any such transaction.
Section 5.5 Brokers or Finders. The Company represents, as to itself, its
Subsidiaries and its affiliates, that, except as set forth in Section 5.5 of
the Company's Disclosure Schedule, no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any brokers
or finder's fee or any other commission or similar fee in connection with any
of the transactions contemplated by this Agreement and the Company agrees to
indemnify and hold Parent harmless from and against any and all claims,
liabilities or obligations with respect to any other fees, commissions or
expenses asserted by any person on the basis of any act or statement alleged to
have been made by the Company or its affiliates. The expenses of the Company
in connection with the transactions contemplated by this Agreement, including
the fees and expenses of attorneys, accountants, investment bankers, financial
advisors or similar agents or reasonable estimates thereof, are set forth in
Section 5.5 of the Company's Disclosure Schedule.
Section 5.6 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto shall use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations, or
to remove any injunctions or other impediments or delays, legal or otherwise,
to consummate and make effective the Merger and the other transactions
contemplated by this Agreement. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of the Company and Parent shall
use all reasonable efforts to take, or cause to be taken, all such necessary
actions.
Section 5.7 Publicity. The initial press release with respect to the
execution of this Agreement shall be a joint press release acceptable to Parent
and the Company. Thereafter, so long as this Agreement is in effect, neither
the Company, Parent nor any of their respective affiliates shall issue or cause
the publication of any press release or other announcement with respect to the
Merger, this Agreement or the other transactions contemplated hereby without
the prior consultation of the other party, except as may be required by law or
by any listing agreement with a national securities exchange or trading market.
Section 5.8 Notification of Certain Matters. The Company shall give
prompt notice to Parent and Parent shall give prompt notice to the Company, of
(i) the occurrence or
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non-occurrence of any event the occurrence or non-occurrence of which would
cause any representation or warranty contained in this Agreement to be untrue
or inaccurate in any material respect at or prior to the Effective Time and
(ii) any material failure of the Company or Parent, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 5.8 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
Section 5.9 Directors' and Officers' Insurance and Indemnification. (a)
After the earlier of (1) the Effective Time or (2) the consummation of the
Offer, Parent shall and shall cause the Surviving Corporation (or any successor
to the Surviving Corporation) to indemnify, defend and hold harmless the
present and former officers and directors of the Company and its Subsidiaries
(each an "Indemnified Party") against all losses, claims, damages, liabilities,
fees and expenses (including reasonable fees and disbursements of counsel and
judgments, fines, losses, claims, liabilities and amounts paid in settlement
(provided that any such settlement is effected with the written consent of the
Parent or the Surviving Corporation, such consent not to be unreasonably
withheld)) arising out of actions or omissions occurring at or prior to the
Effective Time to the full extent permitted under North Carolina law, such
right to include advancement of expenses incurred in the defense of any action
or suit; provided that any determination required to be made with respect to
whether such Indemnified Party is entitled to indemnity hereunder (including
without limitation whether, with respect to the indemnification of such
Indemnified Party by the Surviving Corporation, an Indemnified Party's conduct
complies with the standards set forth under the NCBCA), shall be made at
Parent's expense by independent counsel mutually acceptable to Parent and the
Indemnified Party and; provided further, that nothing herein shall impair any
rights or obligations of any present or former directors or officers of the
Company.
(b) Parent or the Surviving Corporation shall maintain the Company's
existing officers' and directors' liability insurance, including coverage with
respect to claims arising from facts or events which occurred before the
Effective Time ("D&O Insurance") for a period of not less than three years
after the Effective Date; provided, that the Parent may substitute therefor
policies of substantially similar coverage and amounts containing terms no less
favorable to such former directors or officers; provided, further, if the
existing D&O Insurance expires, is terminated or cancelled during such period,
Parent or the Surviving Corporation will obtain substantially similar D&O
Insurance; provided further, however, that in no event shall the Company be
required to pay aggregate annual premiums for insurance under this Section in
excess of 150% of the aggregate annual premiums paid by the Company in 1996 on
an annualized basis for such purpose and, in the event that the annual premium
for insurance required to be obtained hereunder shall exceed such amount,
Parent shall maintain as much of such insurance as may be maintained for such
amount.
(c) To the extent permitted by applicable law, the articles of
incorporation and the bylaws of the Surviving Corporation for so long as it
continues to exist shall contain the provisions with respect to advancement of
expenses, indemnification and exculpation from liability set forth in the
Company's Articles of Incorporation and Bylaws on the date of this
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Agreement, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who on or prior to
the Effective Time were directors or officers of the Company, unless such
modification is required by law.
(d) In the event the Company or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity in
such consolidation or merger or (ii) transfers all or substantially all its
properties and assets to any person, then, and in each case, proper provision
shall be made so that the successors and assigns of the Company or the
Surviving Corporation, as the case may be, honor the indemnification
obligations set forth in this Section 5.9.
(e) The obligations of the Company, the Surviving Corporation and Parent
under this Section 5.9 shall not be terminated, modified or assigned in such a
manner as to adversely affect any director or officer to whom this Section 5.9
applies without the consent of such affected director or officer (it being
expressly agreed that the directors and officers to whom this Section 5.9
applies shall be third-party beneficiaries of this Section 5.9).
Section 5.10 Consummation of Merger. Parent shall, promptly following the
consummation of the Offer, take all reasonable action within its control,
including, if necessary, causing the Company to take the actions set forth in
Section 1.8 hereof and the voting of Shares held by it, to cause the
consummation of the Merger.
Section 5.11 Employee Benefit Plans. (a) With respect to any individual
who becomes an employee of Parent following termination of such individual's
employment with the Company or any affiliate, Parent shall (i) recognize all
accumulated service of such individual with the Company or any affiliate for
purposes of eligibility and vesting under all benefit plans, programs and
arrangements maintained, sponsored or contributed to by Parent (collectively,
the "Parent Plans"); (ii) to the extent commercially reasonable, waive or cause
any insurance carriers providing benefits under the Parent Plans, to waive, any
preexisting condition requirements under the Parent Plans with respect to such
individual; and (iii) to the extent that such individual satisfies the
eligibility requirements of the Parent Plans after taking into account the
requirements of (i) above, allow such individual to participate in the Parent
Plans effective as of the date on which the individual becomes a Parent
employee.
(b) Parent and the Company shall reasonably cooperate with one another to
ensure that the employee benefit plans and programs maintained by such entities
satisfy any and all nondiscrimination requirements applicable to such plans and
programs on and after the date on which Parent and the Company become part of
the same controlled group within the meaning of Section 414(b) and/or (c) of
the Internal Revenue Code of 1986, as amended.
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ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject
to the satisfaction on or prior to the Closing Date of each of the following
conditions, any and all of which may be waived in whole or in part by the
Company, Parent or the Purchaser, as the case may be, to the extent permitted
by applicable law:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted by the requisite vote of the holders of the Shares, if required by
applicable law and the Articles of Incorporation, in order to consummate the
Merger;
(b) Statutes; Consents. No statute, rule, order, decree or regulation
shall have been enacted or promulgated by any government or any governmental
agency or authority of competent jurisdiction which prohibits the consummation
of the Merger and all governmental consents, orders and approvals required for
the consummation of the Merger and the transactions contemplated hereby shall
have been obtained and shall be in effect at the Effective Time;
(c) Injunctions. There shall be no order or injunction of a court or
other governmental authority of competent jurisdiction in effect precluding,
restraining, enjoining or prohibiting consummation of the Merger;
(d) Purchase of Shares in Offer. Parent, the Purchaser or their
affiliates shall have purchased Shares pursuant to the Offer; and
(e) HSR Approval. The applicable waiting period under the HSR Act shall
have expired or been terminated.
Section 6.2 Conditions to Parent's and the Purchaser's Obligations to
Effect the Merger. The obligations of Parent and the Purchaser to consummate
the Merger are further subject to the fulfillment of the following condition,
which may be waived in whole or in part by Parent and the Purchaser:
(a) Company Plans. All actions contemplated by Section 2.5 hereof shall
have been taken.
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ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Time,
whether before or after stockholder approval thereof:
(a) By the mutual consent of the Board of Directors of Parent or the
Purchaser and the Board of Directors of the Company.
(b) By either of the Board of Directors of the Company (subject to the
requirements, if any, of Section 1.3(b) hereof) or the Board of Directors of
Parent or the Purchaser:
(i) if the Offer shall have expired without any Shares being
purchased therein; provided, however, that the right to terminate this
Agreement under this Section 7.1(b)(i) shall not be available to any party
whose failure to fulfill any material obligation under this Agreement has
been the cause of, or resulted in, the failure of Parent or the Purchaser,
as the case may be, to purchase the Shares pursuant to the Offer on or
prior to such date; or
(ii) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action (which order, decree, ruling or
other action the parties hereto shall use their reasonable efforts to
lift), in each case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable.
(c) By the Board of Directors of the Company (subject to the requirements,
if any, of Section 1.3(b) hereof):
(i) if, prior to the purchase of the Shares pursuant to the
Offer, the Board of Directors of the Company shall have (A) withdrawn, or
modified or changed in a manner adverse to Parent or the Purchaser its
approval or recommendation of the Offer, this Agreement or the Merger in
order to permit the Company to execute an agreement in principle or a
definitive agreement providing for the acquisition of the Company by
merger, consolidation or otherwise, on terms (including the per share
consideration) determined by the Board of Directors of the Company, to be
superior to the shareholders of the Company as compared to the terms of
the acquisition of the Company contemplated by this Agreement, and (B)
determined, only after receipt of advice from independent legal counsel to
the Company, that the failure to take such action as set forth in the
preceding clause (A) could cause the Board of Directors to violate its
fiduciary duties to the Company's shareholders under applicable law; or
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(ii) if, prior to the purchase of the Shares pursuant to the
Offer, Parent or the Purchaser breaches or fails in any material
respect to perform or comply with any of its material covenants and
agreements contained herein or breaches its representations and
warranties in any material respect; or
(iii) if Parent or the Purchaser shall have terminated the
Offer, or the Offer shall have expired, without Parent or the
Purchaser, as the case may be, purchasing any Shares pursuant
thereto; provided that the Company may not terminate this Agreement
pursuant to this Section 7.1(c)(iii) if such termination or
expiration without purchase is the result of the Company being in
material breach of this Agreement; or
(iv) if Parent, the Purchaser or any of their affiliates shall
have failed to commence the Offer on or prior to five business days
following the date of the initial public announcement of the Offer;
provided, that the Company may not terminate this Agreement
pursuant to this Section 7.1(c)(iv) if such termination or failure
is the result of the Company being in material breach of this
Agreement.
(d) By the Board of Directors of Parent or the Purchaser:
(i) if prior to the purchase of the Shares pursuant to the
Offer, the Board of Directors of the Company shall have withdrawn,
or modified or changed in a manner adverse to Parent or the
Purchaser its approval or recommendation of the Offer, this
Agreement or the Merger or shall have recommended an Acquisition
Proposal or offer, or shall have executed an agreement in principle
(or similar agreement) or definitive agreement providing for a
tender offer or exchange offer for any shares of capital stock of
the Company, or a merger, consolidation or other business
combination with a person or entity other than Parent, the
Purchaser or their affiliates (or the Board of Directors of the
Company resolves to do any of the foregoing); or
(ii) if Parent or the Purchaser shall have terminated the
Offer, or the Offer shall have expired, without Parent or the
Purchaser purchasing any Shares thereunder, provided that Parent or
the Purchaser may not terminate this Agreement pursuant to this
Section 7.1(d)(ii) if Parent or the Purchaser has failed to
purchase the Shares in the Offer in violation of the material terms
thereof; or
(iii) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any
of the conditions set forth in Annex A hereto, Parent, the
Purchaser, or any of their affiliates shall have failed to commence
the Offer on or prior to five business days following the date of
the initial public announcement of the Offer.
Section 7.2 Effect of Termination. In the event of the termination
of this Agreement as provided in Section 7.1, written notice thereof shall
forthwith be given to the other party or parties specifying the provision
hereof pursuant to which such termination is made, and
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this Agreement, except for the last sentence of Section 5.2 and, if such
termination occurs after the Appointment Date, Section 5.9 hereof shall
forthwith become null and void, and there shall be no liability on the part of
the Parent or the Company except (A) for fraud or for material breach of this
Agreement and (B) as set forth in this Section 7.2 and Section 8.1.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses. (a) Except as otherwise contemplated by
this Agreement, including Section 8.1(b) hereof, all costs and expenses
incurred in connection with this Agreement and the consummation of the
transactions contemplated hereby shall be paid by the party incurring such
expenses.
(b) If (v) the Board of Directors of the Company shall terminate this
Agreement pursuant to Section 7.1(c)(i) hereof, (w) the Board of Directors of
Parent or the Purchaser shall terminate this Agreement pursuant to Section
7.1(d)(i) hereof, (x) the Board of Directors of Parent or the Purchaser shall
terminate this Agreement pursuant to Section 7.1(d)(ii) or 7.1(d)(iii) hereof,
and the event set forth in paragraph (e) of Annex A shall have occurred, or (y)
the Board of Directors of Parent or the Purchaser shall terminate this
Agreement pursuant to Section 7.1(d)(ii) or 7.1(d)(iii) hereof as a result of
the occurrence of any event set forth in paragraph (d) of Annex A hereto, or
(z) the Board of Directors of Parent or Purchaser shall terminate this
Agreement pursuant to Section 7.1(d)(ii) or 7.1(d)(iii) hereof as a result of
any representation or warranty being untrue when made or breach or failure to
perform or comply with any material obligation, agreement, or covenant by the
Company set forth in paragraph (c) of Annex A hereto, the Company shall pay to
Parent (not later than two business days after termination of this Agreement)
an amount equal to $1,500,000 and shall promptly assume and pay, or reimburse
Parent for, all reasonable out-of-pocket fees and expenses incurred, or to be
incurred, by Parent, the Purchaser and their affiliates (including the fees and
expenses of legal counsel, accountants, financial advisors, other consultants,
financial printers and financing sources) in connection with the Offer, the
Merger and the consummation of the transactions contemplated by this Agreement.
In the event of any breach or failure set forth in (z) above, such $1,500,000
amount shall be paid by the Company to Parent as liquidated damages and not as
a penalty. In any such event, recovery of such liquidated damages shall be the
sole right of Parent or the Purchaser and payment of such amount shall be the
sole liability of the Company. Such amount is being fixed as liquidated
damages in any such event by reason of the fact that the actual damages to be
suffered by Parent or the Purchaser are by their nature uncertain and
unascertainable with exactness. In any such event, neither Parent nor the
Purchaser shall seek any money or other judgment against the Company, or any
officer, director or shareholder of the Company or against the assets of the
Company, and the sole recourse of Parent and the Purchaser shall be to recover
liquidated damages in the foregoing amount.
Section 8.2 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the shareholders of the Company
contemplated hereby, by written agreement
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of the parties hereto, by action taken by their respective Boards of Directors
(which in the case of the Company shall include approvals as contemplated in
Section 1.3(b)), at any time prior to the Closing Date with respect to any of
the terms contained herein; provided, however, that after the approval of this
Agreement by the shareholders of the Company, no such amendment, modification
or supplement shall reduce the amount or change the form of the Merger
Consideration.
Section 8.3 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time.
Section 8.4 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or sent by an overnight courier service, such as Federal
Express, to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Parent or the Purchaser, to:
PCA International, Inc.
815 Matthews-Mint Hill Road
Matthews, North Carolina 27102
Attention: John Grosso
Telephone No.: (704) 847-8011
Telecopy No.: (704) 847-8010
with a copy to:
Marc Weingarten, Esq.
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Telephone No.: (212) 756-2000
Telecopy No.: (212) 593-5955
and
(b) if to the Company, to:
American Studios, Inc.
11001 Park Charlotte Boulevard
Charlotte, North Carolina 28273
Attention:
Telephone No.: (314) 231-1575
Telecopy No.: (314)
with a copy to:
E. Lynwood Mallard, Esq.
32
<PAGE> 38
Petree Stockton, L.L.P.
3500 One First Union Center
301 South College Street
Charlotte, North Carolina 28202-6001
Telephone No.: (704) 338-5000
Telecopy No.: (704) 338-5125
Section 8.5 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or "including"
are used in this Agreement they shall be deemed to be followed by the words
"without limitation". As used in this Agreement, the term "affiliate(s)" shall
have the meaning set forth in Rule 12b-2 of the Exchange Act.
Section 8.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties.
Section 8.7 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement, and the Confidentiality Agreement (including the
documents and the instruments referred to herein and therein): (a) constitute
the entire agreement and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, and (b) except as provided in Section 5.9 is not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder.
Section 8.8 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 8.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina without
giving effect to the principles of conflicts of law thereof.
Section 8.10 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that the Purchaser may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly owned Subsidiary of Parent. 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.
33
<PAGE> 39
IN WITNESS WHEREOF, Parent, the Purchaser and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
as of the date first written above.
PCA INTERNATIONAL, INC.
By:
---------------------------------
Name: John Grosso
Title: President
ASI ACQUISITION CORP.
By:
---------------------------------
Name: John Grosso
Title: President
AMERICAN STUDIOS, INC.
By:
---------------------------------
Name:
Title:
34
<PAGE> 40
ANNEX A
Certain Conditions of the Offer. Notwithstanding any other provisions of
the Offer, and in addition to (and not in limitation of) the Purchaser's rights
to extend and amend the Offer at any time in its sole discretion (subject to
the provisions of the Merger Agreement), the Purchaser shall not be required to
accept for payment or, subject to any applicable rules and regulations of the
SEC, including Rule 14e-l(c) under the Exchange Act (relating to the
Purchaser's obligation to pay for or return tendered Shares promptly after
termination or withdrawal of the Offer), pay for, and may delay the acceptance
for payment of or, subject to the restriction referred to above, the payment
for, any tendered Shares, and, in the case of an event described in the
following clause (ii) or (iii), may terminate or amend the Offer as to any
Shares not then paid for, if (i) any applicable waiting period under the HSR
Act has not expired or terminated, (ii) the Minimum Condition has not been
satisfied, or (iii) at any time on or after the date of the Merger Agreement
and before the time of payment for any such Shares, any of the following events
shall occur; provided, that if the occurrence of any event in clause (c) below
is curable by the Company through the exercise of its reasonable best efforts
and for so long as the Company continues to exercise such reasonable best
efforts, Purchaser may not terminate the Offer prior to the next scheduled
expiration date:
(a) there shall have been any action taken, or any statute, rule,
regulation, judgment, order or injunction promulgated, entered, enforced,
enacted, issued or deemed applicable to the Offer or the Merger by any domestic
or foreign federal or state governmental regulatory or administrative agency or
authority or court or legislative body or commission which directly or
indirectly (1) prohibits, or imposes any material limitations on, Parent's or
the Purchaser's ownership or operation (or that of any of their respective
Subsidiaries or affiliates) of all or a material portion of their or the
Company's businesses or assets, or compels Parent or the Purchaser or their
respective Subsidiaries and affiliates to dispose of or hold separate any
material portion of the business or assets of the Company or Parent and their
respective Subsidiaries, in each case taken as a whole, (2) prohibits, or makes
illegal, the acceptance for payment, payment for or purchase of Shares or the
consummation of the Offer, the Merger or the other transactions contemplated by
the Merger Agreement, (3) results in a material delay in or restricts the
ability of the Purchaser, or renders the Purchaser unable, to accept for
payment, pay for or purchase some or all of the Shares, (4) imposes material
limitations on the ability of the Purchaser or Parent effectively to exercise
full rights of ownership of the Shares, including, without limitation, the
right to vote the Shares purchased by it on all matters properly presented to
the Company's shareholders, or (5) otherwise materially adversely affects the
consolidated financial condition, businesses or results of operations of the
Company and its Subsidiaries, taken as a whole; provided that Parent shall have
used all reasonable efforts to cause any such judgment, order or injunction to
be vacated or lifted;
(b) there shall have occurred (1) any general suspension of trading in, or
limitation on prices for, securities on the New York Stock Exchange or in the
NASDAQ National Market System, (2) a declaration of a banking moratorium or any
suspension of payments in
1
<PAGE> 41
respect of banks in the United States (whether or not mandatory), (3) a
commencement of a war, major armed hostilities or other international or
national calamity directly or indirectly involving the United States, (4) any
material limitation by any foreign or United States governmental authority on
the extension of credit by banks or other financial institutions, (5) a change
in general financial bank or capital market conditions which materially and
adversely affects the ability of financial institutions in the United States to
extend credit or syndicate loans or (6) in the case of any of the foregoing
existing at the time of the commencement of the Offer, a material acceleration
or worsening thereof;
(c) any of the representations and warranties of the Company set forth in
the Merger Agreement that are qualified as to materiality shall not be true, or
any of the representations and warranties of the Company set forth in the
Merger Agreement that are not so qualified shall not be true in any material
respect, in either case when made or immediately prior to the expiration date
of the Offer as though made on or as of such date or the Company shall have
breached or failed in any material respect to perform or comply with any
material obligation, agreement or covenant required by the Merger Agreement to
be performed or complied with by it; or any event not set forth in Section 3.6
of the Company Disclosure Schedule shall have occurred having a material
adverse effect on the business, financial condition or results of operations of
the Company and its Subsidiaries, taken as a whole;
(d) any person or group shall have entered into a definitive agreement or
agreement in principle with the Company with respect to a merger, consolidation
or other business combination with the Company; or
(e) the Company's Board of Directors shall have withdrawn, or modified or
changed in a manner adverse to Parent or the Purchaser (including by amendment
of the Schedule 14D-9) its recommendation of the Offer, the Merger Agreement,
or the Merger, or recommended another acquisition proposal, or the Board of
Directors of the Company, upon the reasonable request of the Purchaser, shall
fail within 10 days to reaffirm such approval or recommendation or shall have
resolved to do any of the foregoing; which in the reasonable judgment of
Parent, in any such case, and regardless of the circumstances giving rise to
such condition, makes it inadvisable to proceed with the Offer and/or with such
acceptance for payment of or payments for Shares.
The foregoing conditions are for the sole benefit of Parent and the
Purchaser may be waived by Parent or the Purchaser, in whole or in part at any
time and from time to time in the sole discretion of Parent or the Purchaser.
The failure by Parent or the Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
2
<PAGE> 1
EXHIBIT 2
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is entered into as of December 17, 1996 by and among
AMERICAN STUDIOS, INC., a North Carolina corporation ("ASI"), and PCA
INTERNATIONAL, INC., a North Carolina corporation ("PCA").
BACKGROUND STATEMENT
The employees of ASI listed on Schedule A to this agreement (herein
referred to individually as "Employee" and collectively as "Employees") are
parties to the employment agreements with ASI described opposite their names on
Schedule A (herein referred to individually as "Existing Employment Agreement"
and collectively as "Existing Employment Agreements"). ASI, PCA and ASI
Acquisition Corp., a North Carolina corporation ("Purchaser"), have this day
entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant
to which Purchaser will make a tender offer (the "Offer") to purchase the common
stock of ASI (the "Shares"). PCA has requested and ASI has agreed that, upon the
day (the "Effective Date") immediately following the consummation of the Offer,
ASI will terminate the employment of Employees under the Existing Employment
Agreements. PCA has agreed to provide the funding of certain payments to
Employees which will be payable as a result of such termination of the Existing
Employment Agreements. On the Effective Date, PCA and each Employee will enter
into an employment agreement dated as of the Effective Date (the "PCA Employment
Agreement"). PCA has executed and delivered to THOMAS B. HENSON, attorney of
Robinson, Bradshaw & Hinson, P.A., as Escrow Agent, two (2) counterparts of the
PCA Employment Agreement for each Employee.
AGREEMENT
In consideration of the premises and the mutual covenants contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which is acknowledged, the parties hereto, intending to be legally bound, agree
for themselves, their successors and assigns, as follows:
1. PCA Employment Agreement. Two (2) counterparts of the PCA Employment
Agreement executed by PCA for each Employee will be held by the Escrow Agent
until the Effective Date at which time Escrow Agent will date each agreement as
of the Effective Date, cause it to be executed by the appropriate Employee and
deliver an executed counterpart of such agreement to such Employee and to PCA,
free of escrow.
2. Termination of Existing Agreement. PCA hereby confirms its request that
ASI terminate the Existing Employment Agreements as of the Effective Date. ASI
hereby terminates each existing Employment Agreement as of the Effective Date,
such termination being conditioned upon the consummation of the Offer.
3. Termination Payment. PCA agrees to provide funds to ASI to pay the
termination payments due the Employees under the Existing Employment Agreements
in the amounts set forth on Schedule A.
1 of 2
<PAGE> 2
4. Third Party Beneficiary. ASI and PCA intend that each Employee be a
third party beneficiary of this Agreement.
5. Notwithstanding anything herein to the contrary, PCA's obligations
hereunder as to J. Robert Wren, Jr., Randy J. Bates and Robert Kent Smith is
expressly conditioned upon the tender pursuant to the Offer of 230,997 Shares
beneficially owned by the children of Norman Swenson and 30,684 Shares owned by
the children of Alan Shaw.
IN WITNESS WHEREOF, the parties have executed this agreement effective as
of the date above written.
AMERICAN STUDIOS, INC.
By: JAMES ROBERT WREN, JR.
-------------------------------------
James Robert Wren
CEO
PCA INTERNATIONAL, INC.
By: JOHN GROSSO
-------------------------------------
John Grosso
THOMAS B. HENSON executes this agreement to acknowledge his receipt of the
PCA Employment Agreements executed by PCA and his agreement to comply with
paragraph 1 of this agreement.
By: THOMAS B. HENSON
-------------------------------------
Thomas B. Henson
2 of 2
<PAGE> 3
SCHEDULE A
<TABLE>
<CAPTION>
EXISTING TERMINATION
ASI EMPLOYEE EMPLOYMENT AGREEMENT PAYMENTS
- ------------ -------------------- -----------
<S> <C> <C>
J. Robert Wren, Jr......... Employment and Noncompete Agreement $ 539,000
dated January 20, 1993, as amended
through and including the Second
Amendment to Employment and Noncompete
Agreement dated September 14, 1996.
Randy J. Bates............. Employment and Noncompete Agreement $ 550,000
dated July 15, 1988 as amended through
and including the Fifth Amendment to
Employment and Noncompete Agreement
dated November 1, 1995.
Robert Kent Smith.......... Employment and Noncompete Agreement $ 423,971
dated July 15, 1988 as amended through
and including the Fourth Amendment to
Employment and Noncompete Agreement
dated November 1, 1995.
William A. Adams........... Employment and Noncompete Agreement $ 70,700
dated September 14, 1996.
Ed J. Tepera............... Employment and Noncompete Agreement $ 172,500
dated September 14, 1996.
George A. Fazzola.......... Employment and Noncompete Agreement $ 84,000
dated September 14, 1996.
Gary W. Ingle.............. Employment and Noncompete Agreement $ 150,000
dated September 14, 1996.
James O. Mattox............ Employment and Noncompete Agreement $ 180,000
dated September 14, 1996.
K. Michael Plummer......... Employment and Noncompete Agreement $ 84,400
dated September 14, 1996.
Barry L. Chaney............ Employment and Noncompete Agreement $ 84,500
dated September 14, 1996.
Shawn W. Poole............. Employment and Noncompete Agreement $ 250,000
dated May 16, 1996.
</TABLE>
<PAGE> 1
EXHIBIT 3.1
EMPLOYMENT AND NONCOMPETE AGREEMENT
THIS EMPLOYMENT AND NONCOMPETE AGREEMENT ("Agreement"), made and
entered into as of the _____ day of January, 1997, by and between RANDY J.
BATES, an individual resident of Lake Wylie, South Carolina ("Bates"), and PCA
INTERNATIONAL, INC., a North Carolina corporation with its principal executive
offices located in Matthews, North Carolina (the "Company").
IN CONSIDERATION of the promises and the mutual covenants contained
herein, the parties hereto agree as follows:
1. Employment. Subject to the terms and conditions stated herein,
and in consideration of Bates' obligations and covenants, including without
limitation, those obligations and covenants set forth in Section 5 hereof, the
Company agrees to employ Bates, and Bates accepts such employment, as a Special
Advisor to the President and CEO, subject to the order, supervision and
direction of the Chief Executive Officer of the Company (the "CEO").
2. Duties. Bates shall serve the Company as Special Advisor and
shall devote to the business of the Company in the performance of his duties as
Special Advisor his best efforts and such time as may be reasonably requested by
the CEO.
In no event, during the Term of Employment, shall Bates be required to
report other than to the President and CEO of the Company. The President and
CEO shall deal with Bates in good faith and shall not require that he relocate
his residence, require unreasonable travel, or require him to perform tasks
which would be demeaning or degrading to one in his position.
As Special Advisor, Bates shall perform such duties as the President
and CEO may prescribe.
3. Term of Employment. The term of Bates' employment by the
Company hereunder shall commence as of the date hereof and shall continue for a
period of four (4) months after such commencement date (the "Term of
Employment").
4. Compensation. The base monthly compensation rate to be paid
to Bates for the services to be rendered hereunder ("Monthly Base Rate")
throughout the Term of Employment shall be Thirteen
<PAGE> 2
Thousand Seven Hundred Fifty and No/100 Dollars ($13,750.00), payable in
accordance with the Company's normal payroll practices, subject to applicable
federal and state income and social security tax withholding requirements. In
the event any of the monthly payments due hereunder shall become more than
three (3) months past due, Employee shall have the option to accelerate the
remaining payments due hereunder so that they shall be due and payable in full.
5. Noncompetition, Secrecy and Inventions.
(a) Bates specifically acknowledges and agrees that his
employment with the Company will bring him in personal contact with accounts and
customers of the Company, and will enable him to acquire valuable information as
to the nature and character of the business of the Company and the requirements
of the accounts and customers of the Company. Bates acknowledges and agrees
that in the event he were to become employed by some other employer or enter the
same or similar business as the Company on his own or in conjunction with others
in competition with the Company, such personal contacts with the customers and
accounts of the Company and the knowledge of such valuable information would
give to Bates an unfair competitive advantage.
Throughout the Term of Employment and for a period of five (5) years
and eight (8) months thereafter (Bates' Term of Employment and the period
thereafter, together, the "Term of the Covenants"), Bates shall not, directly
or indirectly, as principal, agent, manager, employee, partner, shareholder,
director, officer, consultant or otherwise, participate in or engage in the
Lines of Business, as hereinafter defined; provided, however, that Bates may
own up to one percent (1%) of the outstanding securities of any corporation
which is engaged in the Lines of Business (except the Company) so long as such
securities are traded on a national securities exchange or are included in the
National Association of Securities Dealers Quotation System. "Lines of
Business" for purposes of this Section 5 shall mean the provision of portrait
photography services through itinerant or traveling operations or permanent
studios or any other portrait photography service, the processing or developing
of photographic film in connection with such provision and any other lines of
business in which the Company may engage during the Term of Employment.
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<PAGE> 3
(b) In performing the covenants set forth in this Section
5 (all of the covenants of Bates set forth in this Section 5, together, the
"Covenants Not to Compete"), Bates shall not, without limitation, during the
Term of the Covenants engage in the Lines of Business with any of the
following:
1. any client, account or customer of the Company, or
any subsidiary or affiliate of the Company, that has
done business with the Company or such affiliate or
subsidiary within two (2) years of the date of any
alleged competitive act by Employee;
2. any client, account or customer of the Company, or
any subsidiary or any affiliate of the Company, that
has transacted any business with the Company within
the twelve months preceding the date of this
Agreement;
3. Wal-Mart Stores, Inc. or any subsidiary thereof
("Wal-Mart");
4. any affiliate of Wal-Mart, including without
limitation Sam's Wholesale Club, HYPERMART*USA and
Wal-Mart SuperCenters (a "Wal-Mart Affiliate");
5. KMart Corporation or any subsidiary thereof ("KMart");
6. any affiliate of KMart, including without limitation
KMart SuperCenters (a "KMart Affiliate");
7. PETsMART, Inc. or any subsidiary thereof ("PETsMART");
8. any affiliate of PETsMART (a "PETsMART Affiliate");
9. any current or prospective institutional customer
("Institutional Customer");
10. CPI Corp.;
11. Lifetouch National School Studios, Inc.;
-3-
<PAGE> 4
12. any Wal-Mart store that does business with the
Company during the Term of the Covenants;
13. any Wal-Mart Affiliate store that does business with
the Company during the Term of the Covenants;
14. any Wal-Mart store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors reasonably expects to do
business during the Term of the Covenants;
15. any Wal-Mart Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
16. any PETsMART store that does business with the
Company during the Term of the Covenants;
17. any PETsMART Affiliate store that does business with
the Company during the Term of the Covenants;
18. any PETsMART store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors reasonably expects to do
business during the Term of the Covenants;
19. any PETsMART Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
20. any Institutional Customer with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
21. any KMart store that does business with the Company
during the Term of the Covenants;
-4-
<PAGE> 5
22. any KMart store that does business with the Company
during the Term of the Covenants;
23. any KMart store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors reasonably expects to do
business during the Term of the Covenants;
24. any KMart Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
25. Cifra, S.A. de C.V.;
26. Aurrera, S.A. de C.V., a subsidiary of Cifra, S.A. de
C.V.;
27. any other subsidiary of Cifra, S.A. de C.V.;
28. Olan Mills;
29. Expressly Portraits;
30. any employee or former employee of the Company, whose
employment with the Company terminated less than two
(2) years prior to Employee's association with such
employee or former employee, within a ten-mile radius
of any Wal-Mart store or any store in which the
Company has engaged in the Lines of Business within
six (6) months prior to Employee's engaging in the
Lines of Business; or
31. any person or entity in the geographic areas listed
in paragraph 10(c) hereinbelow.
(c) In performing the Covenants Not to Compete, Bates
shall not, without limitation, during the Term of the Covenants engage in the
Lines of Business in any of the following geographic areas:
1. The United States of America;
-5-
<PAGE> 6
2. The State of Alabama;
3. The State of Arizona;
4. The State of Arkansas;
5. The State of California;
6. The State of Colorado;
7. The State of Connecticut;
8. The State of Delaware;
9. The District of Columbia;
10. The State of Florida;
11. The State of Georgia;
12. The State of Idaho
13. The State of Illinois;
14. The State of Indiana;
15. The State of Iowa;
16. The State of Kansas;
17. The State of Kentucky;
18. The State of Louisiana;
19. The State of Maine;
20. The State of Maryland;
21. The State of Massachusetts;
22. The State of Michigan;
23. The State of Minnesota;
-6-
<PAGE> 7
24. The State of Mississippi;
25. The State of Missouri;
26. The State of Montana
27. The State of Nebraska;
28. The State of Nevada
29. The State of New Hampshire;
30. The State of New Jersey;
31. The State of New Mexico
32. The State of New York;
33. The State of North Carolina;
34. The State of North Dakota;
35. The State of Ohio;
36. The State of Oklahoma;
37. The State of Oregon;
38. The State of Pennsylvania;
39. The Commonwealth of Puerto Rico;
40. The State of Rhode Island;
41. The State of South Carolina;
42. The State of South Dakota;
43. The State of Tennessee;
44. The State of Texas;
45. The State of Utah
-7-
<PAGE> 8
46. The State of Vermont;
47. The State of Virginia;
48. The State of Washington;
49. The State of West Virginia;
50. The State of Wisconsin;
51. The State of Wyoming;
52. Mexico;
53. Canada;
54. Puerto Rico;
55. South America;
56. Latin America;
57. Asia;
58. China; and
59. Counties in each State of the United States where the
Company has customers.
(d) As applied to the categories of persons, firms and
entities and geographic areas covered by the Covenants Not to Compete, the
provisions of paragraphs 5(b) and 5(c), respectively, shall be completely
severable and independent, and any invalidity or unenforceability thereof as
applied to any of such persons, firms or entities or geographic areas shall not
affect the validity or enforceability thereof as applied to any one or more of
the other persons, firms or entities or geographic areas.
(e) Throughout the Term of the Covenants, Bates shall not
directly or indirectly cause or attempt to cause any supplier or customer of
the Company, or any of its subsidiaries or affiliates, or any governmental body
or public agency, not to do business with the Company or such subsidiary or
affiliate or to transfer all or part of its business from the Company, or
such
-8-
<PAGE> 9
subsidiary or affiliate, or otherwise interfere or attempt to interfere with
any business relationship between the Company, or any of its subsidiaries or
affiliates, and any of such suppliers, customers, government bodies or public
agencies, unless directed by the Board of Directors of the Company to so do.
(f) Bates acknowledges that irreparable injury will
result to the Company from any breach of the Covenants Not to Compete and there
is no adequate remedy at law to redress a breach or threatened breach of the
Covenants Not to Compete As a result of the foregoing, Bates agrees that the
parties seeking to enforce any of such provisions shall be entitled to an
injunction or other equitable relief against Bates to restrain him from such
breach, and Bates waives any claim or defense that the Company has an adequate
remedy at law for any such breach; provided, however, that nothing contained
herein shall prohibit the Company, or any subsidiary or affiliate of the
Company, from pursuing any other remedy it may have, including without limiting
the generality of the foregoing the recovery of damages.
(g) If any court determines that any provision of this
Section 5, or any part thereof, is invalid or unenforceable, the remainder of
this Section 5 shall not thereby be affected and shall be given full effect,
without regard to the invalid portions. If any court determines that any
provision of this Section 5, or any part thereof, is unenforceable because of
the duration or geographic scope of such provision, the parties agree that such
court shall have the power to reduce the duration or scope of such provision,
as the case may be, and the parties agree to request the court to exercise such
power, and, in its reduced form, such provision shall then be enforceable and
shall be enforced. The provisions of this Section 5 shall survive the
termination of this Agreement, for whatever reason.
(h) At all times, both during and after the termination
of his employment, Bates shall keep and retain in confidence and shall not,
without the prior written consent of the Company, disclose to any persons, firm
or corporation or otherwise use for his own benefit or the benefit of another
any of the proprietary, confidential or secret information or trade secrets of
the Company. Further, Bates and the Company agree to keep confidential the
terms and conditions of this Agreement except for such disclosure as may be
required (i) in the event of a breach of this Agreement, (ii)
-9-
<PAGE> 10
compulsion by law or court order, or (iii) as may be required by any applicable
provision of law.
(i) In consideration of employment, and the compensation
paid to Bates as an employee of the Company, Bates hereby recognizes as the
exclusive property of, and assigns, transfers and conveys to, the Company
without further consideration each invention, discovery or improvement
(hereinafter collectively refer@ed to as "inventions") made, conceived,
developed or first reduced to practice by Bates (whether alone or jointly with
others) during the Term of Employment or within one (1) year thereafter which
relates in any way to Bates' work at the Company or any of its subsidiaries or
affiliates. Employee will communicate to the Company current written records
of all such inventions, which records shall be and remain the property of the
Company. Upon request by the Company, Bates will at any time execute documents
assigning to the Company, or its designees, any such invention or any patent
application or patent granted therefor, and will execute any papers relating
thereto. Bates also will give all reasonable assistance to the Company, or its
designee, regarding any litigation or controversy in connection with his
inventions, patent applications, or patents, all expenses incident thereto to
be assumed by the Company.
(j) As additional consideration payable hereunder and specifically
as payment for the Covenants Not to Compete, the Company shall pay to Bates the
Monthly Base Amount beginning at the end of the Term of Employment throughout
the Term of the Covenants. Such payments shall be made monthly in arrears. In
the event any of the monthly payments due hereunder shall become more than
three (3) months past due, Employee shall have the option to accelerate the
remaining payments due hereunder so that they shall be due and payable in full.
(k) Notwithstanding anything herein to the contrary, any
participation in or engagement in the Lines of Business by Interactive
Solutions, Inc., a North Carolina corporation, or any successor thereto, or by
Grant Holcomb, a resident of North Carolina, shall be a breech of this Section
5 by Employee.
6. Governing Law. This Agreement shall be construed and governed
under the laws of the State of North Carolina.
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<PAGE> 11
7. Binding Nature. Except as expressly provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, successors and assigns. The obligations and
covenants of Bates are personal in nature and, as such, are not assignable by
him.
8. Entire Agreement; Prior Oral Agreement; Amendment. This
Agreement contains the entire agreement of the parties with respect to the
matters set forth herein and supersedes all prior written and prior or
contemporaneous oral agreements or understandings of the parties hereto. This
Agreement confirms and sets forth the prior oral agreement of the parties as to
the terms and conditions of Bates' employment by the Company stated herein,
including without limitation, the obligations and covenants of Bates set forth
in Section 5 hereof, and Bates' agreement to enter into a written employment
agreement with the Company, as of the date his employment by the Company
commenced, stating such terms and conditions. This Agreement may be changed or
amended only by an agreement in writing signed by both parties hereto.
9. Severability, Invalidity or Unenforceability. The
severability, invalidity or unenforceability of any paragraph or part of any
paragraph herein shall not in any way affect the validity or enforceability of
any other paragraph or any part of any other paragraph.
10. Prior Agreements and Covenants of Bates. Bates hereby
warrants and represents that he is not a party to any agreement or binding
obligation, oral or written, that would prevent his employment by the Company,
and Bates' execution of this Agreement and his fulfillment of his duties and
obligations hereunder do not and will not violate the provisions of any
agreement, contract, loan document or other binding written or oral obligation.
11. Notices. Any notice, offer, acceptance or other document
required or permitted to be given pursuant to any provisions of this Agreement
shall be in writing, signed by or on behalf of the person giving the same, and
(as elected by the person giving such notice) delivered by hand or mailed to
the parties at the following addresses by registered or certified mail, postage
prepaid, return receipt requested, or by a third party company or governmental
entity providing delivery services in the ordinary course of business, which
guarantees delivery on a specified date:
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<PAGE> 12
If to Bates: Randy J. Bates
____________________
____________________
If to the Company: PCA International, Inc.
815 Matthews-Mint Hill Road Matthews,
North Carolina 28105
Attention: John Grosso
With copies to: Thomas B. Henson
ROBINSON, BRADSHAW & HINSON, P.A. One
Independence Center 101 North
Tryon Street, Suite 1900
Charlotte, North Carolina
28246-1900 (704) 377-2536
or to such other address as any party hereto may designate by complying with
the provisions of this Section 15.
Such notice shall be deemed given (i) as of the date of written
acknowledgment by Bates or an officer of the Company if delivered by hand, (ii)
seventy-two (72) hours after deposit in United States mail if sent by
registered or certified mail or (iii) on the delivery date guaranteed by the
third party delivery service if sent by such service.
Rejection or other refusal to accept or inability to deliver because
of changed address of which no notice has been received shall not affect the
date upon which the notice is deemed to have been given pursuant hereto.
Notwithstanding the foregoing, no notice of change of address shall be
effective until the date of receipt hereof.
16. Stock Option Grant. Bates will be granted an option to
purchase 100,000 shares of the Company's common stock on the date hereof,
having an exercise price equal to 100% of the closing price at which a share of
Common Stock trades on the date of the grant's Effective Date, all as defined
in the PCA International, Inc. 1996 Omnibus Long-Term Compensation Plan (the
"Plan"). Such option shall be treated as a nonqualified stock option for
federal income tax purposes. Such option shall terminate on a date that is
five (5) years following the date of grant and shall not terminate for any
reason prior to such date, including without limitation, the
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<PAGE> 13
termination of Bates' employment hereunder. Upon the death of Bates within
such 5 year period, the options granted hereunder will be transferred to his
estate or as directed in his will. Such options shall be exercisable in full
on the grant's Effective Date.
IN WITNESS WHEREOF, Randy J. Bates has set his hand and seal hereto
and PCA International, Inc. has caused this Agreement to be executed and sealed
in its name by its duly authorized officials as of the day and year first above
written.
BATES:
______________________________(SEAL)
RANDY J. BATES
COMPANY:
PCA INTERNATIONAL, INC.
By:
------------------------------
John Grosso
President and CEO
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<PAGE> 1
EXHIBIT 3.2
EMPLOYMENT AND NONCOMPETE AGREEMENT
THIS EMPLOYMENT AND NONCOMPETE AGREEMENT ("Agreement"), made and
entered into as of the _____ day of January, 1997, by and between JAMES O.
MATTOX, an individual resident of Charlotte, North Carolina ("Employee") , and
PCA INTERNATIONAL, INC., a North Carolina corporation with its principal
executive offices located in Matthews, North Carolina (the "Company").
IN CONSIDERATION, of the promises and the mutual covenants contained
herein, the parties hereto agree as follows:
1. Employment. Subject to the terms and conditions stated
herein, and in consideration of Employee's obligations and covenants, including
without limitation, those obligations and covenants set forth in Section 9
hereof, the Company agrees to employ Employee on an active and full-time basis,
and Employee accepts such employment, as a Senior Vice President, subject to
the order, supervision and direction of the Chief Operating Officer of the
Company (the "COO"), or another officer of the Company as determined by the
Chief Executive Officer (the "CEO").
2. Duties. Employee shall serve the Company as a Senior Vice
President and shall devote his full business time, skill and best efforts to
the business of the Company and faithfully perform such executive,
administrative and supervisory duties as may be prescribed by the COO.
Employee shall act at all times in compliance, in all material respects, with
all policies, rules and decisions adopted from time to time by the Board of
Directors of which Employee shall have received written notice. The COO shall
deal with the Employee in good faith and shall not require that Employee be
required to relocate his residence, travel to the extent that he must spend
more nights away from home than are reasonably required to further the
Company's business, or perform tasks which would be demeaning or degrading to,
one in his position.
3. Term of Employment. The term of Employee's employment by the
Company hereunder shall commence as of the date hereof and shall continue for a
period of one (1) year after such commencement date (the "Term of Employment").
<PAGE> 2
4. Base Compensation. The base annual compensation rate to be
paid to Employee for the services to be rendered hereunder ("Base Rate")
throughout the Term of Employment, except to the extent adjusted as provided
below, shall be One Hundred and Twenty-Five Thousand Dollars ($125,000.00),
payable in accordance with the Company's normal payroll practices, subject to
applicable federal and state income and social security tax withholding
requirements. Employee's Base Rate may be reviewed from time to time by the
COO and CEO and adjusted upward as Employee's performance, the performance of
the Company and other pertinent factors warrant.
5. Termination Without Cause.
(a) The Board of Directors or the CEO may terminate
Employee's employment at any time, without cause. In the event of a
termination during, at the end of, or after the Term of Employment, other than
a Termination for Cause, as hereinafter defined, the Company will pay to
Employee as severance One Hundred Ninety Five Thousand and No/100 Dollars
($195,000.00) $70,000.00 of which shall be payable within 15 days following
termination and $125,000.00 of which shall be payable in twelve (12) equal
consecutive monthly installments beginning with the month following the month
of termination. Such payments shall be made in accordance with the Company's
normal payroll practices, subject to applicable federal and state income and
social security tax withholding requirements.
(b) Employee understands and agrees that this Agreement
will not be renewed at the end of the Term of Employment. In the event the
Company does not offer employment to Employee at the end of the Term of
Employment or at any time thereafter upon the same or better terms and
conditions as set forth herein, such event shall be deemed a termination other
than a Termination for Cause and Employee shall be paid the severance set forth
in subparagraph (a) above.
(c) In the event Employee decides to terminate his employment with
the Company during the Term of Employment the Company will pay Employee
$70,000.00 within 15 days following such termination.
(d) In the event Employee decides to terminate his Employment with
the Company at any time after the Term of Employment, the Company will pay
Employee $70,000.00 within 15 days following such Termination and $125,000 in
twelve (12) equal consecutive monthly
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<PAGE> 3
installments beginning with the month following the month of termination. Such
payments shall be made in accordance with the Company's normal payroll
practices, subject to applicable federal and state income and social security
tax withholding requirements.
(e) The provisions of subparagraphs (b) and (d) shall survive the
end of the Term of Employment.
(f) In the event any of the monthly payments due hereunder shall
become more than three (3) months past due, Employee shall have the option to
accelerate the remaining payments due hereunder so that they shall be due and
payable in full.
6. Termination for Cause.
(a) The Board of Directors or the CEO shall have the
right at any time, without advance notice, to terminate Employee's employment
for cause, as hereinafter defined ("Termination for Cause").
(b) Termination for Cause shall mean termination because
of Employee's death, inability to perform his duties hereunder due to an
insured disability, theft from the Company, embezzlement of the Company's
funds, falsification of the Company's records, fraud committed against the
Company, commission of a felonious criminal act involving the Company or while
engaged in conduct of the Company's business, incompetence due to the use of or
reporting to work under the influence of alcohol, narcotics, other unlawful
drugs or controlled substances, legal incapacity, insanity, act or acts
involving dishonesty or misconduct which have or may reasonably be expected to
have a material adverse effect on the business or reputation of the Company,
breach of fiduciary duty to the Company, willful and substantial failure to
perform stated duties or lawful directives of the Board of Directors subject to
the provisions of Section 2 hereof, the CEO or other officer of the Company
designated by the CEO, or material breach of any provision of this Agreement,
including without limitation voluntary termination of this Agreement during the
Term of Employment.
(c) In the event of a Termination for Cause, Employee
shall have no right thereafter to receive any compensation or other benefits
from the Company, except for COBRA, rights under vested stock option grants and
the payment to Employee of $70,000.00 within 15 days following such Termination
for Cause. The
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<PAGE> 4
provisions of this subparagraphs (c) shall survive the end of the Term of
Employment.
(d) The provisions of Section 9 hereof shall continue to
be binding on the parties hereto notwithstanding the termination without cause
or Termination for Cause of Employee.
7. Fringe Benefits, Bonus and Tenure. Employee shall be entitled
to receive such fringe benefits, including vacation and employee benefit plans,
if any, as are set forth on Exhibit A hereto. Employee shall have the right to
fully participate in any bonus program to the same extent as that provided to
other Senior Vice Presidents or other similarly situated executives. For all
purposes related to Employee's tenure as an employee, his tenure at American
Studios, Inc. shall be added to his tenure at the Company.
8. Expenses. The Company shall reimburse Employee for those
expenses that are incurred by him in connection with the performance of his
duties under this Agreement that are consistent with Company policies and
practices, are reasonably related to the business of the Company and have been
approved, generally or specifically, verbally or in writing, by the COO or the
CEO.
9. Noncompetition, Secrecy and Inventions.
(a) Employee specifically acknowledges and agrees that
his employment with the Company will bring him in personal contact with
accounts and customers of the Company, and will enable him to acquire valuable
information as to the nature and character of the business of the Company and
the requirements of the accounts and customers of the Company. Employee
acknowledges and agrees that in the event he were to become employed by some
other employer or enter the same or similar business as the Company on his own
or in conjunction with others in competition with the Company, such personal
contacts with the customers and accounts of the Company and the knowledge of
such valuable information would give to Employee an unfair competitive
advantage.
Throughout the Term of Employment and for a period of two (2) years
thereafter (Employee's Term of Employment and the two-year period thereafter,
together, the "Term of the Covenants"), Employee shall not, directly or
indirectly, as principal, agent, manager, employee, partner, shareholder,
director, officer, consultant or otherwise, participate in or engage in the
Lines of Business, as
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<PAGE> 5
hereinafter defined; provided, however, that Employee may own up to one percent
(1%) of the outstanding securities of any corporation which is engaged in the
Lines of Business, so long as such securities are traded on a national
securities exchange or are included in the National Association of Securities
Dealers Quotation System. "Lines of Business" for purposes of this Section 9
shall mean the provision of portrait photography services through itinerant or
traveling operations or permanent studios or any other portrait photography
service, the processing or developing of photographic film in connection with
such provision and any other lines of business in which the Company may engage
during the Term of Employment.
(b) In performing the covenants set forth in this Section
9 (all of the covenants of Employee set forth in this Section 9, together, the
"Covenants Not to Compete"), Employee shall not, without limitation, during the
Term of the Covenants engage in the Lines of Business with any of the
following:
1. any client, account or customer of the Company, or
any subsidiary or affiliate of the Company, that has
done business with the Company or such affiliate or
subsidiary within two (2) years of the date of any
alleged competitive act by Employee;
2. any client, account or customer of the Company, or
any subsidiary or any affiliate of the Company, that
has transacted any business with the Company within
the twelve months preceding the date of this
Agreement;
3. Wal-Mart Stores, Inc. or any subsidiary thereof
("Wal-Mart");
4. any affiliate of Wal-Mart, including without
limitation Sam's Wholesale Club, HYPERMART*USA and
Wal-Mart SuperCenters (a "Wal-Mart Affiliate");
5. KMart Corporation or any subsidiary thereof
("KMart");
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<PAGE> 6
6. any affiliate of KMart, including without limitation
KMart SuperCenters (a "KMart Affiliate");
7. PETsMART, Inc. or any subsidiary thereof
("PETsMART");
8. any affiliate of PETsMART (a "PETsMART Affiliate");
9. any current or prospective institutional customer
("Institutional Customer");
10. CPI Corp.;
11. Lifetouch National School Studios, Inc.;
12. any Wal-Mart store that does business with the
Company during the Term of the Covenants;
13. any Wal-Mart Affiliate store that does business with
the Company during the Term of the Covenants;
14. any Wal-Mart store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors reasonably expects to do
business during the Term of the Covenants;
15. any Wal-Mart Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
16. any PETsMART store that does business with the
Company during the Term of the Covenants;
17. any PETsMART Affiliate store that does business with
the Company during the Term of the Covenants;
18. any PETsMART store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors
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<PAGE> 7
reasonably expects to do business during the Term of
the Covenants;
19. any PETsMART Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
20. any Institutional Customer with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
21. any KMart store that does business with the Company
during the Term of the Covenants;
22. any KMart store that does business with the Company
during the Term of the Covenants;
23. any KMart store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors reasonably expects to do
business during the Term of the Covenants;
24. any KMart Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
25. Cifra, S.A. de C.V.;
26. Aurrera, S.A. de C.V., a subsidiary of Cifra, S.A. de
C.V.;
27. any other subsidiary of Cifra, S.A. de C.V.;
28. Olan Mills;
29. Expressly Portraits;
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<PAGE> 8
30. any employee or former employee of the Company, whose
employment with the Company terminated less than two
(2) years prior to Employee's association with such
employee or former employee, within a ten-mile radius
of any Wal-Mart store or any store in which the
Company has engaged in the Lines of Business within
six (6) months prior to Employee's engaging in the
Lines of Business; or
31. any person or entity in the geographic areas listed
in paragraph 10(c) hereinbelow.
(c) In performing the Covenants Not to Compete, Employee
shall not, without limitation, during the Term of the Covenants engage in the
Lines of Business in any of the following geographic areas:
1. The United States of America;
2. The State of Alabama;
3. The State of Arizona;
4. The State of Arkansas;
5. The State of California;
6. The State of Colorado;
7. The State of Connecticut;
8. The State of Delaware;
9. The District of Columbia;
10. The State of Florida;
11. The State of Georgia;
12. The State of Idaho
13. The State of Illinois;
14. The State of Indiana;
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<PAGE> 9
15. The State of Iowa;
16. The State of Kansas;
17. The State of Kentucky;
18. The State of Louisiana;
19. The State of Maine;
20. The State of Maryland;
21. The State of Massachusetts;
22. The State of Michigan;
23. The State of Minnesota;
24. The State of Mississippi;
25. The State of Missouri;
26. The State of Montana
27. The State of Nebraska;
28. The State of Nevada
29. The State of New Hampshire;
30. The State of New Jersey;
31. The State of New Mexico
32. The State of New York;
33. The State of North Carolina;
34. The State of North Dakota;
35. The State of Ohio;
36. The State of Oklahoma;
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<PAGE> 10
37. The State of Oregon;
38. The State of Pennsylvania;
39. The Commonwealth of Puerto Rico;
40. The State of Rhode Island;
41. The State of South Carolina;
42. The State of South Dakota;
43. The State of Tennessee;
44. The State of Texas;
45. The State of Utah
46. The State of Vermont;
47. The State of Virginia;
48. The State of Washington;
49. The State of West Virginia;
50. The State of Wisconsin;
51. The State of Wyoming;
52. Mexico;
53. Canada;
54. Puerto Rico;
55. South America;
56. Latin America;
57. Asia;
58. China; and
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<PAGE> 11
59. Counties in each State of the United States where the
Company has customers.
(d) As applied to the categories of persons, firms and
entities and geographic areas covered by the Covenants Not to Compete, the
provisions of paragraphs 9(b) and 9(c), respectively, shall be completely
severable and independent, and any invalidity or unenforceability thereof as
applied to any of such persons, firms or entities or geographic areas shall not
affect the validity or enforceability thereof as applied to any one or more of
the other persons, firms or entities or geographic areas.
(e) Throughout the Term of the Covenants, Employee shall
not directly or indirectly cause or attempt to cause any supplier or customer
of the Company, or any of its subsidiaries or affiliates, or any governmental
body or public agency, not to do business with the Company or such subsidiary
or affiliate or to transfer all or part of its business from the Company, or
such subsidiary or affiliate, or otherwise interfere or attempt to interfere
with any business relationship between the Company, or any of its subsidiaries
or affiliates, and any of such suppliers, customers, government bodies or
public agencies.
(f) Employee acknowledges that irreparable injury will
result to the Company from any breach of the Covenants Not to Compete and there
is no adequate remedy at law to redress a breach or threatened breach of the
Covenants Not to Compete As a result of the foregoing, Employee agrees that
the parties seeking to enforce any of such provisions shall be entitled to an
injunction or other equitable relief against Employee to restrain him from such
breach, and Employee waives any claim or defense that the Company has an
adequate remedy at law for any such breach; provided, however, that nothing
contained herein shall prohibit the Company, or any subsidiary or affiliate of
the Company, from pursuing any other remedy it may have, including without
limiting the generality of the foregoing the recovery of damages.
(g) If any court determines that any provision of this
Section 9, or any part thereof, is invalid or unenforceable, the remainder of
this Section 9 shall not thereby be affected and shall be given full effect,
without regard to the invalid portions. If any court determines that any
provision of this Section 9, or any part thereof, is unenforceable because of
the duration or geographic scope of such provision, the parties agree that such
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<PAGE> 12
court shall have the power to reduce the duration or scope of such provision,
as the case may be, and the parties agree to request the court to exercise such
power, and, in its reduced form, such provision shall then be enforceable and
shall be enforced. The provisions of this Section 9 shall survive the
termination of this Agreement, for whatever reason.
(h) At all times, both during and after the termination
of his employment, Employee shall keep and retain in confidence and shall not,
without the prior written consent of the Company, disclose to any persons, firm
or corporation or otherwise use for his own benefit or the benefit of another
any of the proprietary, confidential or secret information or trade secrets of
the Company. Further, Employee and the Company agree to keep confidential the
terms and conditions of this Agreement except for such disclosure as may be
required (i) in the event of a breach of this Agreement, (ii) compulsion by law
or court order, or (iii) as may be required by any applicable provision of law.
(i) In consideration of employment, and the compensation
paid to Employee as an employee of the Company, Employee hereby recognizes as
the exclusive property of, and assigns, transfers and conveys to, the Company
without further consideration each invention, discovery or improvement
(hereinafter collectively refer@ed to as "inventions") made, conceived,
developed or first reduced to practice by Employee (whether alone or jointly
with others) during the Term of Employment or within one (1) year thereafter
which relates in any way to Employee's work at the Company or any of its
subsidiaries or affiliates. Employee will communicate to the Company current
written records of all such inventions, which records shall be and remain the
property of the Company. Upon request by the Company, Employee will at any
time execute documents assigning to the Company, or its designees, any such
invention or any patent application or patent granted therefor, and will
execute any papers relating thereto. Employee also will give all reasonable
assistance to the Company, or its designee, regarding any litigation or
controversy in connection with his inventions, patent applications, or patents,
all expenses incident thereto to be assumed by the Company.
10. Governing Law. This Agreement shall be construed and
governed under the laws of the State of North Carolina.
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<PAGE> 13
11. Binding Nature. Except as expressly provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, successors and assigns. The obligations and
covenants of Employee are personal in nature and, as such, are not assignable
by him.
12. Entire Agreement; Prior Oral Agreement; Amendment. This
Agreement contains the entire agreement of the parties with respect to the
matters set forth herein and supersedes all prior written and prior or
contemporaneous oral agreements or understandings of the parties hereto. This
Agreement confirms and sets forth the prior oral agreement of the parties as to
the terms and conditions of Employee's employment by the Company stated herein,
including without limitation, the obligations and covenants of Employee set
forth in Section 9 hereof, and Employee's agreement to enter into a written
employment agreement with the Company, as of the date his employment by the
Company commenced, stating such terms and conditions. This Agreement may be
changed or amended only by an agreement in writing signed by both parties
hereto.
13. Severability, Invalidity or Unenforceability. The
severability, invalidity or unenforceability of any paragraph or part of any
paragraph herein shall not in any way affect the validity or enforceability of
any other paragraph or any part of any other paragraph.
14. Prior Agreements and Covenants of Employee. Employee hereby
warrants and represents that he is not a party to any agreement or binding
obligation, oral or written, that would prevent his employment by the Company,
and Employee's execution of this Agreement and his fulfillment of his duties
and obligations hereunder do not and will not violate the provisions of any
agreement, contract, loan document or other binding written or oral obligation.
15. Notices. Any notice, offer, acceptance or other document
required or permitted to be given pursuant to any provisions of this Agreement
shall be in writing, signed by or on behalf of the person giving the same, and
(as elected by the person giving such notice) delivered by hand or mailed to
the parties at the following addresses by registered or certified mail, postage
prepaid, return receipt requested, or by a third party company or governmental
entity providing delivery services in the ordinary course of business, which
guarantees delivery on a specified date:
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<PAGE> 14
If to Employee: James O. Mattox
2200 Trapper Court
Charlotte, NC 28270
If to the Company: PCA International, Inc.
815 Matthews-Mint Hill Road
Matthews, North Carolina 28105
Attention: John Grosso
With copies to: Thomas B. Henson
ROBINSON, BRADSHAW & HINSON, P.A.
One Independence Center
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246-1900
(704) 377-2536
or to such other address as any party hereto may designate by complying with
the provisions of this Section 15.
Such notice shall be deemed given (i) as of the date of written
acknowledgment by Employee or an officer of the Company if delivered by hand,
(ii) seventy-two (72) hours after deposit in United States mail if sent by
registered or certified mail or (iii) on the delivery date guaranteed by the
third party delivery service if sent by such service.
Rejection or other refusal to accept or inability to deliver because
of changed address of which no notice has been received shall not affect the
date upon which the notice is deemed to have been given pursuant hereto.
Notwithstanding the foregoing, no notice of change of address shall be
effective until the date of receipt hereof.
16. Stock Option Grant. Employee will be granted an option to
purchase 25,000 shares of the Company's common stock on the date hereof, having
an exercise price equal to 100% of the closing price at which a share of Common
Stock trades on the date of the grant's Effective Date, all as defined in the
PCA International, Inc. 1996 Omnibus Long Term Compensation Plan (the "Plan"),
a copy of which is attached hereto as Exhibit B. Such option shall be treated
as a nonqualified stock option for federal income tax purposes. Such option
shall terminate on a date that is ten (10) years following the date of grant;
provided, however, that if Employee's employment
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<PAGE> 15
with the Company is terminated prior to such date such option shall terminate
three (3) months following such termination, unless such termination occurs as
a result of employee's death or disability in which event such options shall
terminate twelve (12) months following such termination. Such options shall
become exercisable in five (5) equal annual increments on each of the first,
second, third, fourth and fifth anniversaries of the date of grant.
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<PAGE> 16
IN WITNESS WHEREOF, James O. Mattox has set his hand and seal hereto
and PCA International, Inc. has caused this Agreement to be executed and sealed
in its name by its duly authorized officials as of the day and year first above
written.
EMPLOYEE:
______________________________(SEAL)
JAMES O. MATTOX
COMPANY:
PCA INTERNATIONAL, INC.
By:
______________________________
John Grosso
President and CEO
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<PAGE> 17
EXHIBIT A
FRINGE BENEFITS
1. Employee shall be entitled to twenty (20) days paid vacation
during the first year of employment and twenty (20) days paid vacation each
year of employment thereafter. Vacation time is not cumulative.
2. Employee shall be entitled to sick leave in accordance with
the plans and procedures established by the Board of Directors.
3. Employee shall be entitled to such life insurance and
disability insurance or other disability benefits, if any, as are provided by
the Company to its employees from time to time.
4. Employee shall be entitled to receive benefits as are afforded
to other similarly situated employees.
<PAGE> 1
EXHIBIT 3.3
SHORT TERM EMPLOYMENT AGREEMENT
THIS SHORT TERM EMPLOYMENT ("Agreement"), made and entered into as of
the _____ day of January, 1997, by and between SHAWN W. POOLE, an individual
resident of Lincolnton, North Carolina ("Employee") , and PCA INTERNATIONAL,
INC., a North Carolina corporation with its principal executive offices located
in Matthews, North Carolina (the "Company").
IN CONSIDERATION of the promises and the mutual covenants contained
herein, the parties hereto agree as follows:
1. Employment. Subject to the terms and conditions stated
herein, and in consideration of Employee's obligations and covenants, the
Company agrees to employ Employee on an active and full-time basis, and Employee
accepts such employment, subject to the order, supervision and direction of the
Chief Financial Officer of the Company (the "CFO"), or another officer of the
Company as determined by the Chief Executive Officer (the "CEO").
2. Duties. Employee shall serve the Company and shall devote his
full business time, skill and best efforts to the business of the Company and
faithfully perform such executive, administrative and supervisory duties as may
be prescribed by the CFO. Employee shall act at all times in compliance, in
all material respects, with all policies, rules and decisions adopted from time
to time by the Board of Directors of which Employee shall have received written
notice. The CFO shall deal with the Employee in good faith and shall not
require that Employee be required to relocate his residence, travel to the
extent that he must spend more nights away from home than are reasonably
required to further the Company's business, or perform tasks which would be
demeaning or degrading to, one in his position.
3. Term of Employment. The term of Employee's employment by the
Company hereunder shall commence as of the date hereof and shall continue for a
period of four (4) months after such commencement date, as such period may be
extended from time to time by the Company (the "Term of Employment").
<PAGE> 2
4. Compensation. The monthly compensation rate to be paid to
Employee for the services to be rendered hereunder (the "Monthly Base Rate")
throughout the Term of Employment shall be Fifteen Thousand Six Hundred
Twenty-Four Dollars ($15,624.00), payable in accordance with the Company's
normal payroll practices, subject to applicable federal and state income and
social security tax withholding requirements.
5. Termination Without Cause.
(a) The Board of Directors or the CEO may terminate
Employee's employment at any time, without cause. In the event of a
termination during, at the end of or after the Term of Employment other than a
Termination for Cause, as hereinafter defined, the Company will pay to Employee
in a lump sum within ten (10) days after termination $31,248.00 as severance.
(b) In the event Employee decides to terminate his
employment with the Company at the end of or at any time after the first four
(4) months hereof, the Company will pay Employee the severance set forth in
subparagraph (a) above. The provisions of this subparagraph (b) shall survive
the end of the Term of Employment.
6. Termination for Cause.
(a) The Board of Directors or the CEO shall have the
right at any time, without advance notice, to terminate Employee's employment
for cause, as hereinafter defined ("Termination for Cause").
(b) Termination for Cause shall mean termination because
of Employee's death, inability to perform his duties hereunder, theft from the
Company, embezzlement of the Company's funds, falsification of the Company's
records, fraud committed against the Company, commission of a felonious
criminal act involving the Company or while engaged in conduct of the Company's
business, incompetence due to the use of or reporting to work under the
influence of alcohol, narcotics, other unlawful drugs or controlled substances,
legal incapacity, insanity, act or acts involving dishonesty or misconduct
which have or may reasonably be expected to have a material adverse effect on
the business or reputation of the Company, breach of fiduciary duty to the
Company, willful and
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<PAGE> 3
substantial failure to perform stated duties or lawful directives of the Board
of Directors subject to the provisions of Section 2 hereof, the CEO or other
officer of the Company designated by the CEO, or material breach of any
provision of this Agreement, including without limitation voluntary termination
of this Agreement during the first 4 months hereof.
(c) In the event of a Termination for Cause, Employee
shall have no right thereafter to receive any compensation or other benefits
from the Company, except for COBRA.
7. Expenses. The Company shall reimburse Employee for those
expenses that are incurred by him in connection with the performance of his
duties under this Agreement that are consistent with Company policies and
practices, are reasonably related to the business of the Company and have been
approved, generally or specifically, verbally or in writing, by the CFO or the
CEO.
8. Governing Law. This Agreement shall be construed and
governed under the laws of the State of North Carolina.
9. Binding Nature. Except as expressly provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, successors and assigns. The obligations and
covenants of Employee are personal in nature and, as such, are not assignable
by him.
10. Entire Agreement; Prior Oral Agreement; Amendment. This
Agreement contains the entire agreement of the parties with respect to the
matters set forth herein and supersedes all prior written and prior or
contemporaneous oral agreements or understandings of the parties hereto. This
Agreement confirms and sets forth the prior oral agreement of the parties as to
the terms and conditions of Employee's employment by the Company stated herein
and Employee's agreement to enter into a written employment agreement with the
Company, as of the date his employment by the Company commenced, stating such
terms and conditions. This Agreement may be changed or amended only by an
agreement in writing signed by both parties hereto.
11. Severability, Invalidity or Unenforceability. The
severability, invalidity or unenforceability of any paragraph or part of any
paragraph herein shall not in any way affect the validity or
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<PAGE> 4
enforceability of any other paragraph or any part of any other paragraph.
12. Prior Agreements and Covenants of Employee. Employee hereby
warrants and represents that he is not a party to any agreement or binding
obligation, oral or written, that would prevent his employment by the Company,
and Employee's execution of this Agreement and his fulfillment of his duties
and obligations hereunder do not and will not violate the provisions of any
agreement, contract, loan document or other binding written or oral obligation.
13. Notices. Any notice, offer, acceptance or other document
required or permitted to be given pursuant to any provisions of this Agreement
shall be in writing, signed by or on behalf of the person giving the same, and
(as elected by the person giving such notice) delivered by hand or mailed to
the parties at the following addresses by registered or certified mail, postage
prepaid, return receipt requested, or by a third party company or governmental
entity providing delivery services in the ordinary course of business, which
guarantees delivery on a specified date:
If to Employee: Shawn W. Poole
811 N. Oak Street
Lincolnton, NC 28092
If to the Company: PCA International, Inc.
815 Matthews-Mint Hill Road
Matthews, North Carolina 28105
Attention: John Grosso
With copies to: Thomas B. Henson
ROBINSON, BRADSHAW & HINSON, P.A.
One Independence Center
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246-1900
(704) 377-2536
or to such other address as any party hereto may designate by complying with
the provisions of this Section 15.
Such notice shall be deemed given (i) as of the date of written
acknowledgment by Employee or an officer of the Company if
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<PAGE> 5
delivered by hand, (ii) seventy-two (72) hours after deposit in United States
mail if sent by registered or certified mail or (iii) on the delivery date
guaranteed by the third party delivery service if sent by such service.
Rejection or other refusal to accept or inability to deliver because
of changed address of which no notice has been received shall not affect the
date upon which the notice is deemed to have been given pursuant hereto.
Notwithstanding the foregoing, no notice of change of address shall be
effective until the date of receipt hereof.
IN WITNESS WHEREOF, Shawn W. Poole has set his hand and seal hereto
and PCA International, Inc. has caused this Agreement to be executed and sealed
in its name by its duly authorized officials as of the day and year first above
written.
EMPLOYEE:
______________________________(SEAL)
SHAWN W. POOLE
COMPANY:
PCA INTERNATIONAL, INC.
By:
______________________________
John Grosso
President and CEO
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<PAGE> 1
EXHIBIT 3.4
EMPLOYMENT AND NONCOMPETE AGREEMENT
THIS EMPLOYMENT AND NONCOMPETE AGREEMENT ("Agreement"), made and
entered into as of the _____ day of January, 1997, by and between ROBERT KENT
SMITH, an individual resident of Charlotte, North Carolina ("Smith"), and PCA
INTERNATIONAL, INC., a North Carolina corporation with its principal executive
offices located in Matthews, North Carolina (the "Company").
IN CONSIDERATION of the promises and the mutual covenants contained
herein, the parties hereto agree as follows:
1. Employment. Subject to the terms and conditions stated herein,
and in consideration of Smith's obligations and covenants, including without
limitation, those obligations and covenants set forth in Section 5 hereof, the
Company agrees to employ Smith, and Smith accepts such employment, as a Special
Advisor to the President and CEO, subject to the order, supervision and
direction of the Chief Executive Officer of the Company (the "CEO").
2. Duties. Smith shall serve the Company as Special Advisor and
shall devote to the business of the Company in the performance of his duties as
Special Advisor his best efforts and such time as may be reasonably requested
by the CEO.
In no event, during the Term of Employment, shall Smith be required to
report other than to the President and CEO of the Company. The President and
CEO shall deal with Smith in good faith and shall not require that he relocate
his residence, require unreasonable travel, or require him to perform tasks
which would be demeaning or degrading to one in his position.
As Special Advisor, Smith shall perform such duties as the President
and CEO may prescribe.
3. Term of Employment. The term of Smith's employment by the
Company hereunder shall commence as of the date hereof and shall continue for a
period of four (4) months after such commencement date (the "Term of
Employment").
4. Compensation. The base monthly compensation rate to be paid
to Smith for the services to be rendered hereunder ("Monthly Base Rate")
throughout the Term of Employment shall be Twelve
<PAGE> 2
Thousand Eight Hundred Thirty-Three and No/100 Dollars ($12,833.00), payable in
accordance with the Company's normal payroll practices, subject to applicable
federal and state income and social security tax withholding requirements. In
the event any of the monthly payments due hereunder shall become more than
three (3) months past due, Employee shall have the option to accelerate the
remaining payments due hereunder so that they shall be due and payable in full.
5. Noncompetition, Secrecy and Inventions.
(a) Smith specifically acknowledges and agrees that his
employment with the Company will bring him in personal contact with accounts
and customers of the Company, and will enable him to acquire valuable
information as to the nature and character of the business of the Company and
the requirements of the accounts and customers of the Company. Smith
acknowledges and agrees that in the event he were to become employed by some
other employer or enter the same or similar business as the Company on his own
or in conjunction with others in competition with the Company, such personal
contacts with the customers and accounts of the Company and the knowledge of
such valuable information would give to Smith an unfair competitive advantage.
Throughout the Term of Employment and for a period of five (5) years
and eight (8) months thereafter (Smith's Term of Employment and the period
thereafter, together, the "Term of the Covenants"), Smith shall not, directly
or indirectly, as principal, agent, manager, employee, partner, shareholder,
director, officer, consultant or otherwise, participate in or engage in the
Lines of Business, as hereinafter defined; provided, however, that Smith may
own up to one percent (1%) of the outstanding securities of any corporation
which is engaged in the Lines of Business (except the Company) so long as such
securities are traded on a national securities exchange or are included in the
National Association of Securities Dealers Quotation System. "Lines of
Business" for purposes of this Section 5 shall mean the provision of portrait
photography services through itinerant or traveling operations or permanent
studios or any other portrait photography service, the processing or developing
of photographic film in connection with such provision and any other lines of
business in which the Company may engage during the Term of Employment.
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<PAGE> 3
(b) In performing the covenants set forth in this Section
5 (all of the covenants of Smith set forth in this Section 5, together, the
"Covenants Not to Compete"), Smith shall not, without limitation, during the
Term of the Covenants engage in the Lines of Business with any of the
following:
1. any client, account or customer of the Company, or
any subsidiary or affiliate of the Company, that has
done business with the Company or such affiliate or
subsidiary within two (2) years of the date of any
alleged competitive act by Employee;
2. any client, account or customer of the Company, or
any subsidiary or any affiliate of the Company, that
has transacted any business with the Company within
the twelve months preceding the date of this
Agreement;
3. Wal-Mart Stores, Inc. or any subsidiary thereof
("Wal-Mart");
4. any affiliate of Wal-Mart, including without
limitation Sam's Wholesale Club, HYPERMART*USA and
Wal-Mart SuperCenters (a "Wal-Mart Affiliate");
5. KMart Corporation or any subsidiary thereof
("KMart");
6. any affiliate of KMart, including without limitation
KMart SuperCenters (a "KMart Affiliate");
7. PETsMART, Inc. or any subsidiary thereof
("PETsMART");
8. any affiliate of PETsMART (a "PETsMART Affiliate");
9. any current or prospective institutional customer
("Institutional Customer");
10. CPI Corp.;
11. Lifetouch National School Studios, Inc.;
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<PAGE> 4
12. any Wal-Mart store that does business with the
Company during the Term of the Covenants;
13. any Wal-Mart Affiliate store that does business with
the Company during the Term of the Covenants;
14. any Wal-Mart store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors reasonably expects to do
business during the Term of the Covenants;
15. any Wal-Mart Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
16. any PETsMART store that does business with the
Company during the Term of the Covenants;
17. any PETsMART Affiliate store that does business with
the Company during the Term of the Covenants;
18. any PETsMART store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors reasonably expects to do
business during the Term of the Covenants;
19. any PETsMART Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
20. any Institutional Customer with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
21. any KMart store that does business with the Company
during the Term of the Covenants;
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<PAGE> 5
22. any KMart store that does business with the Company
during the Term of the Covenants;
23. any KMart store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors reasonably expects to do
business during the Term of the Covenants;
24. any KMart Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
25. Cifra, S.A. de C.V.;
26. Aurrera, S.A. de C.V., a subsidiary of Cifra, S.A. de
C.V.;
27. any other subsidiary of Cifra, S.A. de C.V.;
28. Olan Mills;
29. Expressly Portraits;
30. any employee or former employee of the Company, whose
employment with the Company terminated less than two
(2) years prior to Employee's association with such
employee or former employee, within a ten-mile radius
of any Wal-Mart store or any store in which the
Company has engaged in the Lines of Business within
six (6) months prior to Employee's engaging in the
Lines of Business; or
31. any person or entity in the geographic areas listed
in paragraph 10(c) hereinbelow.
(c) In performing the Covenants Not to Compete, Smith
shall not, without limitation, during the Term of the Covenants engage in the
Lines of Business in any of the following geographic areas:
1. The United States of America;
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<PAGE> 6
2. The State of Alabama;
3. The State of Arizona;
4. The State of Arkansas;
5. The State of California;
6. The State of Colorado;
7. The State of Connecticut;
8. The State of Delaware;
9. The District of Columbia;
10. The State of Florida;
11. The State of Georgia;
12. The State of Idaho
13. The State of Illinois;
14. The State of Indiana;
15. The State of Iowa;
16. The State of Kansas;
17. The State of Kentucky;
18. The State of Louisiana;
19. The State of Maine;
20. The State of Maryland;
21. The State of Massachusetts;
22. The State of Michigan;
23. The State of Minnesota;
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<PAGE> 7
24. The State of Mississippi;
25. The State of Missouri;
26. The State of Montana
27. The State of Nebraska;
28. The State of Nevada
29. The State of New Hampshire;
30. The State of New Jersey;
31. The State of New Mexico
32. The State of New York;
33. The State of North Carolina;
34. The State of North Dakota;
35. The State of Ohio;
36. The State of Oklahoma;
37. The State of Oregon;
38. The State of Pennsylvania;
39. The Commonwealth of Puerto Rico;
40. The State of Rhode Island;
41. The State of South Carolina;
42. The State of South Dakota;
43. The State of Tennessee;
44. The State of Texas;
45. The State of Utah
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<PAGE> 8
46. The State of Vermont;
47. The State of Virginia;
48. The State of Washington;
49. The State of West Virginia;
50. The State of Wisconsin;
51. The State of Wyoming;
52. Mexico;
53. Canada;
54. Puerto Rico;
55. South America;
56. Latin America;
57. Asia;
58. China; and
56. Counties in each State of the United States where the
Company has customers.
(d) As applied to the categories of persons, firms and
entities and geographic areas covered by the Covenants Not to Compete, the
provisions of paragraphs 5(b) and 5(c), respectively, shall be completely
severable and independent, and any invalidity or unenforceability thereof as
applied to any of such persons, firms or entities or geographic areas shall not
affect the validity or enforceability thereof as applied to any one or more of
the other persons, firms or entities or geographic areas.
(e) Throughout the Term of the Covenants, Smith shall not
directly or indirectly cause or attempt to cause any supplier or customer of
the Company, or any of its subsidiaries or affiliates, or any governmental body
or public agency, not to do business with the Company or such subsidiary or
affiliate or to transfer all or part of its business from the Company, or such
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<PAGE> 9
subsidiary or affiliate, or otherwise interfere or attempt to interfere with
any business relationship between the Company, or any of its subsidiaries or
affiliates, and any of such suppliers, customers, government bodies or public
agencies, unless directed by the Board of Directors of the Company to so do.
(f) Smith acknowledges that irreparable injury will
result to the Company from any breach of the Covenants Not to Compete and there
is no adequate remedy at law to redress a breach or threatened breach of the
Covenants Not to Compete As a result of the foregoing, Smith agrees that the
parties seeking to enforce any of such provisions shall be entitled to an
injunction or other equitable relief against Smith to restrain him from such
breach, and Smith waives any claim or defense that the Company has an adequate
remedy at law for any such breach; provided, however, that nothing contained
herein shall prohibit the Company, or any subsidiary or affiliate of the
Company, from pursuing any other remedy it may have, including without limiting
the generality of the foregoing the recovery of damages.
(g) If any court determines that any provision of this
Section 5, or any part thereof, is invalid or unenforceable, the remainder of
this Section 5 shall not thereby be affected and shall be given full effect,
without regard to the invalid portions. If any court determines that any
provision of this Section 5, or any part thereof, is unenforceable because of
the duration or geographic scope of such provision, the parties agree that such
court shall have the power to reduce the duration or scope of such provision,
as the case may be, and the parties agree to request the court to exercise such
power, and, in its reduced form, such provision shall then be enforceable and
shall be enforced. The provisions of this Section 5 shall survive the
termination of this Agreement, for whatever reason.
(h) At all times, both during and after the termination
of his employment, Smith shall keep and retain in confidence and shall not,
without the prior written consent of the Company, disclose to any persons, firm
or corporation or otherwise use for his own benefit or the benefit of another
any of the proprietary, confidential or secret information or trade secrets of
the Company. Further, Smith and the Company agree to keep confidential the
terms and conditions of this Agreement except for such disclosure as may be
required (i) in the event of a breach of this Agreement, (ii)
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<PAGE> 10
compulsion by law or court order, or (iii) as may be required by any applicable
provision of law.
(i) In consideration of employment, and the compensation
paid to Smith as an employee of the Company, Smith hereby recognizes as the
exclusive property of, and assigns, transfers and conveys to, the Company
without further consideration each invention, discovery or improvement
(hereinafter collectively refer@ed to as "inventions") made, conceived,
developed or first reduced to practice by Smith (whether alone or jointly with
others) during the Term of Employment or within one (1) year thereafter which
relates in any way to Smith's work at the Company or any of its subsidiaries or
affiliates. Employee will communicate to the Company current written records
of all such inventions, which records shall be and remain the property of the
Company. Upon request by the Company, Smith will at any time execute documents
assigning to the Company, or its designees, any such invention or any patent
application or patent granted therefor, and will execute any papers relating
thereto. Smith also will give all reasonable assistance to the Company, or its
designee, regarding any litigation or controversy in connection with his
inventions, patent applications, or patents, all expenses incident thereto to
be assumed by the Company.
(j) As additional consideration payable hereunder and specifically
as payment for the Covenants Not to Compete, the Company shall pay to Smith the
Monthly Base Amount beginning at the end of the Term of Employment throughout
the Term of the Covenants. Such payments shall be made monthly in arrears. In
the event any of the monthly payments due hereunder shall become more than
three (3) months past due, Employee shall have the option to accelerate the
remaining payments due hereunder so that they shall be due and payable in full.
(k) Notwithstanding anything herein to the contrary, any
participation in or engagement in the Lines of Business by Interactive
Solutions, Inc., a North Carolina corporation, or any successor thereto, or by
Grant Holcomb, a resident of North Carolina, shall be a breech of this Section
5 by Employee.
6. Governing Law. This Agreement shall be construed and
governed under the laws of the State of North Carolina.
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<PAGE> 11
7. Binding Nature. Except as expressly provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, successors and assigns. The obligations and
covenants of Smith are personal in nature and, as such, are not assignable by
him.
8. Entire Agreement; Prior Oral Agreement; Amendment. This
Agreement contains the entire agreement of the parties with respect to the
matters set forth herein and supersedes all prior written and prior or
contemporaneous oral agreements or understandings of the parties hereto. This
Agreement confirms and sets forth the prior oral agreement of the parties as to
the terms and conditions of Smith's employment by the Company stated herein,
including without limitation, the obligations and covenants of Smith set forth
in Section 5 hereof, and Smith's agreement to enter into a written employment
agreement with the Company, as of the date his employment by the Company
commenced, stating such terms and conditions. This Agreement may be changed or
amended only by an agreement in writing signed by both parties hereto.
9. Severability, Invalidity or Unenforceability. The
severability, invalidity or unenforceability of any paragraph or part of any
paragraph herein shall not in any way affect the validity or enforceability of
any other paragraph or any part of any other paragraph.
10. Prior Agreements and Covenants of Smith. Smith hereby
warrants and represents that he is not a party to any agreement or binding
obligation, oral or written, that would prevent his employment by the Company,
and Smith's execution of this Agreement and his fulfillment of his duties and
obligations hereunder do not and will not violate the provisions of any
agreement, contract, loan document or other binding written or oral obligation.
11. Notices. Any notice, offer, acceptance or other document
required or permitted to be given pursuant to any provisions of this Agreement
shall be in writing, signed by or on behalf of the person giving the same, and
(as elected by the person giving such notice) delivered by hand or mailed to
the parties at the following addresses by registered or certified mail, postage
prepaid, return receipt requested, or by a third party company or governmental
entity providing delivery services in the ordinary course of business, which
guarantees delivery on a specified date:
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<PAGE> 12
If to Smith: Robert Kent Smith
____________________
____________________
If to the Company: PCA International, Inc.
815 Matthews-Mint Hill Road
Matthews, North Carolina 28105
Attention: John Grosso
With copies to: Thomas B. Henson
ROBINSON, BRADSHAW & HINSON, P.A.
One Independence Center
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246-1900
(704) 377-2536
or to such other address as any party hereto may designate by complying with
the provisions of this Section 15.
Such notice shall be deemed given (i) as of the date of written
acknowledgment by Smith or an officer of the Company if delivered by hand, (ii)
seventy-two (72) hours after deposit in United States mail if sent by
registered or certified mail or (iii) on the delivery date guaranteed by the
third party delivery service if sent by such service.
Rejection or other refusal to accept or inability to deliver because
of changed address of which no notice has been received shall not affect the
date upon which the notice is deemed to have been given pursuant hereto.
Notwithstanding the foregoing, no notice of change of address shall be
effective until the date of receipt hereof.
16. Stock Option Grant. Smith will be granted an option to
purchase 100,000 shares of the Company's common stock on the date hereof,
having an exercise price equal to 100% of the closing price at which a share of
Common Stock trades on the date of the grant's Effective Date, all as defined
in the PCA International, Inc. 1996 Omnibus Long-Term Compensation Plan (the
"Plan"). Such option shall be treated as a nonqualified stock option for
federal income tax purposes. Such option shall terminate on a date that is
five (5) years following the date of grant and shall not terminate for any
reason prior to such date, including without limitation, the
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<PAGE> 13
termination of Smith's employment hereunder. Upon the death of Smith within
such 5 year period, the options granted hereunder will be transferred to his
estate or as directed in his will. Such options shall be exercisable in full
on the grant's Effective Date.
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<PAGE> 14
IN WITNESS WHEREOF, Robert Kent Smith has set his hand and seal hereto
and PCA International, Inc. has caused this Agreement to be executed and sealed
in its name by its duly authorized officials as of the day and year first above
written.
SMITH:
______________________________(SEAL)
ROBERT KENT SMITH
COMPANY:
PCA INTERNATIONAL, INC.
By:
______________________________
John Grosso
President and CEO
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<PAGE> 1
EXHIBIT 3.5
EMPLOYMENT AND NONCOMPETE AGREEMENT
THIS EMPLOYMENT AND NONCOMPETE AGREEMENT ("Agreement"), made and
entered into as of the _____ day of January, 1997, by and between J. ROBERT
WREN, JR., an individual resident of Gastonia, North Carolina ("Employee") ,
and PCA INTERNATIONAL, INC., a North Carolina corporation with its principal
executive offices located in Matthews, North Carolina (the "Company").
IN CONSIDERATION of the promises and the mutual covenants contained
herein, the parties hereto agree as follows:
1. Employment. Subject to the terms and conditions stated
herein, and in consideration of Employee's obligations and covenants, including
without limitation, those obligations and covenants set forth in Section 9
hereof, the Company agrees to employ Employee on an active and full-time basis,
and Employee accepts such employment, as an Executive Vice President, General
Counsel and Assistant to the Chief Executive Officer, subject to the order,
supervision and direction of the Chief Executive Officer of the Company (the
"CEO") (the "CEO").
2. Duties. Employee shall serve the Company as an Executive Vice
President, General Counsel and Assistant to the Chief Executive Officer and
shall devote his full business time, skill and best efforts to the business of
the Company and faithfully perform such executive, administrative and
supervisory duties as may be prescribed by the CEO. Employee shall act at all
times in compliance, in all material respects, with all policies, rules and
decisions adopted from time to time by the Board of Directors of which Employee
shall have received written notice. The CEO shall deal with the Employee in
good faith and shall not require that Employee be required to relocate his
residence, travel to the extent that he must spend more nights away from home
than are reasonably required to further the Company's business, or perform
tasks which would be demeaning or degrading to, one in his position.
3. Term of Employment. The term of Employee's employment by the
Company hereunder shall commence as of the date hereof and shall continue for a
period of three (3) years after such commencement date (the "Term of
Employment").
<PAGE> 2
4. Base Compensation. The base annual compensation rate to be
paid to Employee for the services to be rendered hereunder ("Base Rate")
throughout the Term of Employment, except to the extent adjusted as provided
below, shall be Two Hundred and Fifty Thousand Dollars ($250,000.00), payable
in accordance with the Company's normal payroll practices, subject to
applicable federal and state income and social security tax withholding
requirements. Employee's Base Rate may be reviewed from time to time by the
CEO and adjusted upward as Employee's performance, the performance of the
Company and other pertinent factors warrant.
5. Termination Without Cause. (a) The Board of Directors or the
CEO may terminate Employee's employment at any time, without cause. However, in
the event of a termination during, at the end of or after the Term of
Employment, other than a Termination for Cause, as hereinafter defined, the
Company will pay in equal monthly installments the following severance:
(i) if such termination occurs during the first 12 months hereof,
the Base Rate for the balance of the term of this Employment Agreement;
(ii) if such termination occurs after the first 12 months hereof, but
prior to the end of the Term of Employment, 200% of the Base Rate. Such
payments shall be made in accordance with the Company's normal payroll
practices, subject to applicable federal and state income and social security
tax withholding requirements.
(b) Employee understands and agrees that this Agreement will not
be renewed at the end of the Term of Employment. In the event the Company does
not offer employment to Employee at the end of the Term of Employment or
thereafter upon the same or better terms and conditions as set forth herein,
such event shall be deemed a termination other than a Termination for Cause and
Employee shall be paid in a lump sum within 10 days of such termination
severance equal to the Base Rate.
(c) Notwithstanding anything herein to the contrary, Employee may
terminate this Employment Agreement at any time after the first 12 months
hereof and receive the following severance:
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(i) if such termination occurs during the second 12 months hereof,
200% of the Base Rate payable in equal monthly installments;
(ii) if such termination occurs during the third 12 months hereof,
100% of the Base Rate payable in equal monthly installments; or
(iii) if such termination occurs at any time after the first 36
months hereof, 100% of the Base Rate payable in equal monthly installments.
(d) The provisions of sub-paragraph (b) and (c)(iii), above, shall
survive the end of the Term of Employment.
(e) In the event any of the monthly payments due hereunder shall
become more than three (3) months past due, Employee shall have the option to
accelerate the remaining payments due hereunder so that they shall be due and
payable in full.
6. Termination for Cause.
(a) The Board of Directors or the CEO shall have the
right at any time, without advance notice, to terminate Employee's employment
for cause, as hereinafter defined ("Termination for Cause").
(b) Termination for Cause shall mean termination because
of Employee's death, inability to perform his duties hereunder due to an
insured disability, theft from the Company, embezzlement of the Company's
funds, falsification of the Company's records, fraud committed against the
Company, commission of a felonious criminal act involving the Company or while
engaged in conduct of the Company's business, incompetence due to the use of or
reporting to work under the influence of alcohol, narcotics, other unlawful
drugs or controlled substances, legal incapacity, insanity, act or acts
involving dishonesty or misconduct which have or may reasonably be expected to
have a material adverse effect on the business or reputation of the Company,
breach of fiduciary duty to the Company, willful and substantial failure to
perform stated duties or lawful directives of the Board of Directors subject to
the provisions of Section 2 hereof, the CEO or other officer of the Company
designated by the CEO, or material breach of any provision
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<PAGE> 4
of this Agreement, including without limitation voluntary termination of this
Agreement during the first 12 months of this Employment Agreement.
(c) In the event of a Termination for Cause, Employee
shall have no right thereafter to receive any compensation or other benefits
from the Company, except for COBRA and rights under vested stock option grants.
(d) The provisions of Section 9 hereof shall continue to
be binding on the parties hereto notwithstanding the termination without cause
or Termination for Cause of Employee.
7. Fringe Benefits, Bonus and Tenure. Employee shall be entitled
to receive such fringe benefits, including vacation and employee benefit plans,
if any, as are set forth on Exhibit A hereto. Employee shall have the right to
fully participate in any bonus program to the same extent as that provided to
other Executive Vice Presidents or other similarly situated executives. For
all purposes related to Employee's tenure as an employee, his tenure at
American Studios, Inc. shall be added to his tenure at the Company.
8. Expenses. The Company shall reimburse Employee for those
expenses that are incurred by him in connection with the performance of his
duties under this Agreement that are consistent with Company policies and
practices, are reasonably related to the business of the Company and have been
approved, generally or specifically, verbally or in writing, by the CEO.
9. Noncompetition, Secrecy and Inventions.
(a) Employee specifically acknowledges and agrees that
his employment with the Company will bring him in personal contact with
accounts and customers of the Company, and will enable him to acquire valuable
information as to the nature and character of the business of the Company and
the requirements of the accounts and customers of the Company. Employee
acknowledges and agrees that in the event he were to become employed by some
other employer or enter the same or similar business as the Company on his own
or in conjunction with others in competition with the Company, such personal
contacts with the customers and accounts of the Company
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<PAGE> 5
and the knowledge of such valuable information would give to Employee an unfair
competitive advantage.
Throughout the Term of Employment and for a period of two (2) years
thereafter (Employee's Term of Employment and the two-year period thereafter,
together, the "Term of the Covenants"), Employee shall not, directly or
indirectly, as principal, agent, manager, employee, partner, shareholder,
director, officer, consultant or otherwise, participate in or engage in the
Lines of Business, as hereinafter defined; provided, however, that Employee may
own up to one percent (1%) of the outstanding securities of any corporation
which is engaged in the Lines of Business, so long as such securities are traded
on a national securities exchange or are included in the National Association of
Securities Dealers Quotation System. "Lines of Business" for purposes of this
Section 9 shall mean the provision of portrait photography services through
itinerant or traveling operations or permanent studios or any other portrait
photography service, the processing or developing of photographic film in
connection with such provision and any other lines of business in which the
Company may engage during the Term of Employment.
(b) In performing the covenants set forth in this Section
9 (all of the covenants of Employee set forth in this Section 9, together, the
"Covenants Not to Compete"), Employee shall not, without limitation, during the
Term of the Covenants engage in the Lines of Business with any of the following:
1. any client, account or customer of the Company, or
any subsidiary or affiliate of the Company, that has
done business with the Company or such affiliate or
subsidiary within two (2) years of the date of any
alleged competitive act by Employee;
2. any client, account or customer of the Company, or
any subsidiary or any affiliate of the Company, that
has transacted any business with the Company within
the twelve months preceding the date of this
Agreement;
3. Wal-Mart Stores, Inc. or any subsidiary thereof
("Wal-Mart");
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4. any affiliate of Wal-Mart, including without
limitation Sam's Wholesale Club, HYPERMART*USA and
Wal-Mart SuperCenters (a "Wal-Mart Affiliate");
5. KMart Corporation or any subsidiary thereof
("KMart");
6. any affiliate of KMart, including without limitation
KMart SuperCenters (a "KMart Affiliate");
7. PETsMART, Inc. or any subsidiary thereof
("PETsMART");
8. any affiliate of PETsMART (a "PETsMART Affiliate");
9. any current or prospective institutional customer
("Institutional Customer");
10. CPI Corp.;
11. Lifetouch National School Studios, Inc.;
12. any Wal-Mart store that does business with the
Company during the Term of the Covenants;
13. any Wal-Mart Affiliate store that does business with
the Company during the Term of the Covenants;
14. any Wal-Mart store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors reasonably expects to do
business during the Term of the Covenants;
15. any Wal-Mart Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
16. any PETsMART store that does business with the
Company during the Term of the Covenants;
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<PAGE> 7
17. any PETsMART Affiliate store that does business with
the Company during the Term of the Covenants;
18. any PETsMART store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors reasonably expects to do
business during the Term of the Covenants;
19. any PETsMART Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
20. any Institutional Customer with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
21. any KMart store that does business with the Company
during the Term of the Covenants;
22. any KMart store that does business with the Company
during the Term of the Covenants;
23. any KMart store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors reasonably expects to do
business during the Term of the Covenants;
24. any KMart Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
25. Cifra, S.A. de C.V.;
26. Aurrera, S.A. de C.V., a subsidiary of Cifra, S.A. de
C.V.;
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27. any other subsidiary of Cifra, S.A. de C.V.;
28. Olan Mills;
29. Expressly Portraits;
30. any employee or former employee of the Company, whose
employment with the Company terminated less than two
(2) years prior to Employee's association with such
employee or former employee, within a ten-mile radius
of any Wal-Mart store or any store in which the
Company has engaged in the Lines of Business within
six (6) months prior to Employee's engaging in the
Lines of Business; or
31. any person or entity in the geographic areas listed
in paragraph 10(c) hereinbelow.
(c) In performing the Covenants Not to Compete, Employee
shall not, without limitation, during the Term of the Covenants engage in the
Lines of Business in any of the following geographic areas:
1. The United States of America;
2. The State of Alabama;
3. The State of Arizona;
4. The State of Arkansas;
5. The State of California;
6. The State of Colorado;
7. The State of Connecticut;
8. The State of Delaware;
9. The District of Columbia;
10. The State of Florida;
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<PAGE> 9
11. The State of Georgia;
12. The State of Idaho
13. The State of Illinois;
14. The State of Indiana;
15. The State of Iowa;
16. The State of Kansas;
17. The State of Kentucky;
18. The State of Louisiana;
19. The State of Maine;
20. The State of Maryland;
21. The State of Massachusetts;
22. The State of Michigan;
23. The State of Minnesota;
24. The State of Mississippi;
25. The State of Missouri;
26. The State of Montana
27. The State of Nebraska;
28. The State of Nevada
29. The State of New Hampshire;
30. The State of New Jersey;
31. The State of New Mexico
32. The State of New York;
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<PAGE> 10
33. The State of North Carolina;
34. The State of North Dakota;
35. The State of Ohio;
36. The State of Oklahoma;
37. The State of Oregon;
38. The State of Pennsylvania;
39. The Commonwealth of Puerto Rico;
40. The State of Rhode Island;
41. The State of South Carolina;
42. The State of South Dakota;
43. The State of Tennessee;
44. The State of Texas;
45. The State of Utah
46. The State of Vermont;
47. The State of Virginia;
48. The State of Washington;
49. The State of West Virginia;
50. The State of Wisconsin;
51. The State of Wyoming;
52. Mexico;
53. Canada;
54. Puerto Rico;
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<PAGE> 11
55. South America;
56. Latin America;
57. Asia;
58. China; and
59. Counties in each State of the United States where the
Company has customers.
(d) As applied to the categories of persons, firms and
entities and geographic areas covered by the Covenants Not to Compete, the
provisions of paragraphs 9(b) and 9(c), respectively, shall be completely
severable and independent, and any invalidity or unenforceability thereof as
applied to any of such persons, firms or entities or geographic areas shall not
affect the validity or enforceability thereof as applied to any one or more of
the other persons, firms or entities or geographic areas.
(e) Throughout the Term of the Covenants, Employee shall
not directly or indirectly cause or attempt to cause any supplier or customer
of the Company, or any of its subsidiaries or affiliates, or any governmental
body or public agency, not to do business with the Company or such subsidiary
or affiliate or to transfer all or part of its business from the Company, or
such subsidiary or affiliate, or otherwise interfere or attempt to interfere
with any business relationship between the Company, or any of its subsidiaries
or affiliates, and any of such suppliers, customers, government bodies or
public agencies.
(f) Employee acknowledges that irreparable injury will
result to the Company from any breach of the Covenants Not to Compete and there
is no adequate remedy at law to redress a breach or threatened breach of the
Covenants Not to Compete As a result of the foregoing, Employee agrees that
the parties seeking to enforce any of such provisions shall be entitled to an
injunction or other equitable relief against Employee to restrain him from such
breach, and Employee waives any claim or defense that the Company has an
adequate remedy at law for any such breach; provided, however, that nothing
contained herein shall prohibit the Company, or any subsidiary or affiliate of
the Company, from
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<PAGE> 12
pursuing any other remedy it may have, including without limiting the
generality of the foregoing the recovery of damages.
(g) If any court determines that any provision of this
Section 9, or any part thereof, is invalid or unenforceable, the remainder of
this Section 9 shall not thereby be affected and shall be given full effect,
without regard to the invalid portions. If any court determines that any
provision of this Section 9, or any part thereof, is unenforceable because of
the duration or geographic scope of such provision, the parties agree that such
court shall have the power to reduce the duration or scope of such provision,
as the case may be, and the parties agree to request the court to exercise such
power, and, in its reduced form, such provision shall then be enforceable and
shall be enforced. The provisions of this Section 9 shall survive the
termination of this Agreement, for whatever reason.
(h) At all times, both during and after the termination
of his employment, Employee shall keep and retain in confidence and shall not,
without the prior written consent of the Company, disclose to any persons, firm
or corporation or otherwise use for his own benefit or the benefit of another
any of the proprietary, confidential or secret information or trade secrets of
the Company. Further, Employee and the Company agree to keep confidential the
terms and conditions of this Agreement except for such disclosure as may be
required (i) in the event of a breach of this Agreement, (ii) compulsion by law
or court order, or (iii) as may be required by any applicable provision of law.
(i) In consideration of employment, and the compensation
paid to Employee as an employee of the Company, Employee hereby recognizes as
the exclusive property of, and assigns, transfers and conveys to, the Company
without further consideration each invention, discovery or improvement
(hereinafter collectively referred to as "inventions") made, conceived,
developed or first reduced to practice by Employee (whether alone or jointly
with others) during the Term of Employment or within one (1) year thereafter
which relates in any way to Employee's work at the Company or any of its
subsidiaries or affiliates. Employee will communicate to the Company current
written records of all such inventions, which records shall be and remain the
property of the Company. Upon request by the Company, Employee will at any
time execute documents assigning to the Company, or its designees, any
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<PAGE> 13
such invention or any patent application or patent granted therefor, and will
execute any papers relating thereto. Employee also will give all reasonable
assistance to the Company, or its designee, regarding any litigation or
controversy in connection with his inventions, patent applications, or patents,
all expenses incident thereto to be assumed by the Company.
(j) Notwithstanding anything herein to the contrary, any
participation in or engagement in the Lines of Business by Interactive
Solutions, Inc., a North Carolina corporation, or any successor thereto, or by
Grant Holcomb, a resident of North Carolina, shall be a breech of this Section
9 by Employee.
10. Governing Law. This Agreement shall be construed and
governed under the laws of the State of North Carolina.
11. Binding Nature. Except as expressly provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, successors and assigns. The obligations and
covenants of Employee are personal in nature and, as such, are not assignable
by him.
12. Entire Agreement; Prior Oral Agreement; Amendment. This
Agreement contains the entire agreement of the parties with respect to the
matters set forth herein and supersedes all prior written and prior or
contemporaneous oral agreements or understandings of the parties hereto. This
Agreement confirms and sets forth the prior oral agreement of the parties as to
the terms and conditions of Employee's employment by the Company stated herein,
including without limitation, the obligations and covenants of Employee set
forth in Section 9 hereof, and Employee's agreement to enter into a written
employment agreement with the Company, as of the date his employment by the
Company commenced, stating such terms and conditions. This Agreement may be
changed or amended only by an agreement in writing signed by both parties
hereto.
13. Severability, Invalidity or Unenforceability. The
severability, invalidity or unenforceability of any paragraph or part of any
paragraph herein shall not in any way affect the validity or enforceability of
any other paragraph or any part of any other paragraph.
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<PAGE> 14
14. Prior Agreements and Covenants of Employee. Employee hereby
warrants and represents that he is not a party to any agreement or binding
obligation, oral or written, that would prevent his employment by the Company,
and Employee's execution of this Agreement and his fulfillment of his duties
and obligations hereunder do not and will not violate the provisions of any
agreement, contract, loan document or other binding written or oral obligation.
15. Notices. Any notice, offer, acceptance or other document
required or permitted to be given pursuant to any provisions of this Agreement
shall be in writing, signed by or on behalf of the person giving the same, and
(as elected by the person giving such notice) delivered by hand or mailed to
the parties at the following addresses by registered or certified mail, postage
prepaid, return receipt requested, or by a third party company or governmental
entity providing delivery services in the ordinary course of business, which
guarantees delivery on a specified date:
If to Employee: J. Robert Wren, Jr.
3644 Brentwood Drive
Gastonia, NC 28056
If to the Company: PCA International, Inc.
815 Matthews-Mint Hill Road
Matthews, North Carolina 28105
Attention: John Grosso
With copies to: Thomas B. Henson
ROBINSON, BRADSHAW & HINSON, P.A.
One Independence Center
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246-1900
(704) 377-2536
or to such other address as any party hereto may designate by complying with
the provisions of this Section 15.
Such notice shall be deemed given (i) as of the date of written
acknowledgment by Employee or an officer of the Company if
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<PAGE> 15
delivered by hand, (ii) seventy-two (72) hours after deposit in United States
mail if sent by registered or certified mail or (iii) on the delivery date
guaranteed by the third party delivery service if sent by such service.
Rejection or other refusal to accept or inability to deliver because
of changed address of which no notice has been received shall not affect the
date upon which the notice is deemed to have been given pursuant hereto.
Notwithstanding the foregoing, no notice of change of address shall be
effective until the date of receipt hereof.
16. Stock Option Grant. Employee will be granted an option to
purchase 150,000 shares of the Company's common stock on the date hereof,
having an exercise price equal to 100% of the closing price at which a share of
Common Stock trades on the date of the grant's Effective Date, all as defined
in the PCA International, Inc. 1996 Omnibus Long Term Compensation Plan (the
"Plan"). Such option shall be treated as a nonqualified stock option for
federal income tax purposes. Such option shall terminate on a date that is ten
(10) years following the date of grant. Such options shall become exercisable
on the earlier of (i) the termination of this Employment Agreement by Employee,
(ii) the termination by the Company without Cause of this Employment Agreement
or (iii) in three (3) equal annual increments on each of the first, second, and
third anniversaries of the date of grant. Upon the death of Employee during
such 10-year period, the options granted hereunder shall be transferred to his
estate or as directed by his will.
IN WITNESS WHEREOF, J. Robert Wren, Jr. has set his hand and seal
hereto and PCA International, Inc. has caused this Agreement to be executed and
sealed in its name by its duly authorized officials as of the day and year
first above written.
EMPLOYEE:
______________________________(SEAL)
J. ROBERT WREN, JR.
COMPANY:
PCA INTERNATIONAL, INC.
By: ______________________________
John Grosso
President and CEO
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EXHIBIT A
FRINGE BENEFITS
1. Employee shall be entitled to twenty (20) days paid vacation
during the first year of employment and twenty (20) days paid vacation each
year of employment thereafter. Vacation time is not cumulative.
2. Employee shall be entitled to sick leave in accordance with
the plans and procedures established by the Board of Directors.
3. Employee shall be entitled to such life insurance and
disability insurance or other disability benefits, if any, as are provided by
the Company to its employees from time to time.
4. Employee shall be entitled to receive benefits as are afforded
to other Executive Vice Presidents or similarly situated executives.
<PAGE> 1
EXHIBIT 3.6
EMPLOYMENT AND NONCOMPETE AGREEMENT
THIS EMPLOYMENT AND NONCOMPETE AGREEMENT ("Agreement"), made and
entered into as of the _____ day of January, 1997, by and between ED J. TEPERA,
an individual resident of Monroe, North Carolina ("Employee"), and PCA
INTERNATIONAL, INC., a North Carolina corporation with its principal executive
offices located in Matthews, North Carolina (the "Company").
IN CONSIDERATION of the promises and the mutual covenants contained
herein, the parties hereto agree as follows:
1. Employment. Subject to the terms and conditions stated
herein, and in consideration of Employee's obligations and covenants, including
without limitation, those obligations and covenants set forth in Section 9
hereof, the Company agrees to employ Employee on an active and full-time basis,
and Employee accepts such employment, as a Senior Vice President-Manufacturing,
subject to the order, supervision and direction of the Chief Technical Officer
of the Company (the "CTO"), or another officer of the Company as determined by
the Chief Executive Officer (the "CEO").
2. Duties. Employee shall serve the Company as a Senior Vice
President-Manufacturing and shall devote his full business time, skill and best
efforts to the business of the Company and faithfully perform such executive,
administrative and supervisory duties as may be prescribed by the CTO.
Employee shall act at all times in compliance, in all material respects, with
all policies, rules and decisions adopted from time to time by the Board of
Directors of which Employee shall have received written notice. The CTO shall
deal with the Employee in good faith and shall not require that Employee be
required to relocate his residence, travel to the extent that he must spend
more nights away from home than are reasonably required to further the
Company's business, or perform tasks which would be demeaning or degrading to,
one in his position.
3. Term of Employment. The term of Employee's employment by the
Company hereunder shall commence as of the date hereof and shall continue for a
period of one (1) year after such commencement date (the "Term of Employment").
<PAGE> 2
4. Base Compensation. The base annual compensation rate to be
paid to Employee for the services to be rendered hereunder ("Base Rate")
throughout the Term of Employment, except to the extent adjusted as provided
below, shall be One Hundred and Fifteen Thousand Dollars ($115,000.00), payable
in accordance with the Company's normal payroll practices, subject to
applicable federal and state income and social security tax withholding
requirements. Employee's Base Rate may be reviewed from time to time by the
CTO and CEO and adjusted upward as Employee's performance, the performance of
the Company and other pertinent factors warrant.
5. Termination Without Cause.
(a) The Board of Directors or the CEO may terminate
Employee's employment at any time, without cause. In the event of a
termination during, at the end of, or after the Term of Employment, other than
a Termination for Cause, as hereinafter defined, the Company will pay to
Employee in six (6) equal monthly installments Fifty Percent (50%) of the Base
Rate as severance. Such payments shall be made in accordance with the
Company's normal payroll practices, subject to applicable federal and state
income and social security tax withholding requirements.
(b) Employee understands and agrees that this Agreement
will not be renewed at the end of the Term of Employment. In the event the
Company does not offer employment to Employee at the end of the Term of
Employment or at any time thereafter upon the same or better terms and
conditions as set forth herein, such event shall be deemed a termination other
than a Termination for Cause and Employee shall be paid the severance set forth
in subparagraph (a) above. The provisions of this subparagraph (b) shall
survive the end of the Term of Employment.
6. Termination for Cause.
(a) The Board of Directors or the CEO shall have the
right at any time, without advance notice, to terminate Employee's employment
for cause, as hereinafter defined ("Termination for Cause").
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<PAGE> 3
(b) Termination for Cause shall mean termination because
of Employee's death, inability to perform his duties hereunder, theft from the
Company, embezzlement of the Company's funds, falsification of the Company's
records, fraud committed against the Company, commission of a felonious
criminal act involving the Company or while engaged in conduct of the Company's
business, incompetence due to the use of or reporting to work under the
influence of alcohol, narcotics, other unlawful drugs or controlled substances,
legal incapacity, insanity, act or acts involving dishonesty or misconduct
which have or may reasonably be expected to have a material adverse effect on
the business or reputation of the Company, breach of fiduciary duty to the
Company, willful and substantial failure to perform stated duties or lawful
directives of the Board of Directors, the CEO or other officer of the Company
designated by the CEO, or material breach of any provision of this Agreement,
including without limitation voluntary termination of this Agreement.
(c) In the event of a Termination for Cause, Employee
shall have no right thereafter to receive any compensation or other benefits
from the Company, except for COBRA and rights under vested stock option grants.
(d) The provisions of Section 9 hereof shall continue to
be binding on the parties hereto notwithstanding the termination without cause
or Termination for Cause of Employee.
7. Fringe Benefits. Employee shall be entitled to receive such
fringe benefits, including vacation and employee benefit plans, if any, as are
set forth on Exhibit A hereto. Employee shall have the right to fully
participate in any bonus program to the same extent as that provided to other
Senior Vice Presidents or other similarly situated executives. For all
purposes related to Employee's tenure as an employee, his tenure at American
Studios, Inc. shall be added to his tenure at the Company.
8. Expenses. The Company shall reimburse Employee for those
expenses that are incurred by him in connection with the performance of his
duties under this Agreement that are consistent with Company policies and
practices, are reasonably related to the
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business of the Company and have been approved, generally or specifically,
verbally or in writing, by the CTO or CEO.
9. Noncompetition, Secrecy and Inventions.
(a) Employee specifically acknowledges and agrees that
his employment with the Company will bring him in personal contact with
accounts and customers of the Company, and will enable him to acquire valuable
information as to the nature and character of the business of the Company and
the requirements of the accounts and customers of the Company. Employee
acknowledges and agrees that in the event he were to become employed by some
other employer or enter the same or similar business as the Company on his own
or in conjunction with others in competition with the Company, such personal
contacts with the customers and accounts of the Company and the knowledge of
such valuable information would give to Employee an unfair competitive
advantage.
Throughout the Term of Employment and for a period of two (2) years
thereafter (Employee's Term of Employment and the two-year period thereafter,
together, the "Term of the Covenants"), Employee shall not, directly or
indirectly, as principal, agent, manager, employee, partner, shareholder,
director, officer, consultant or otherwise, participate in or engage in the
Lines of Business, as hereinafter defined; provided, however, that Employee may
own up to one percent (1%) of the outstanding securities of any corporation
which is engaged in the Lines of Business, so long as such securities are
traded on a national securities exchange or are included in the National
Association of Securities Dealers Quotation System. "Lines of Business" for
purposes of this Section 9 shall mean the provision of portrait photography
services through itinerant or traveling operations or permanent studios or any
other portrait photography service, the processing or developing of
photographic film in connection with such provision and any other lines of
business in which the Company may engage during the Term of Employment.
(b) In performing the covenants set forth in this Section
9 (all of the covenants of Employee set forth in this Section 9, together, the
"Covenants Not to Compete"), Employee shall not, without limitation, during the
Term of the Covenants engage in the Lines of Business with any of the
following:
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1. any client, account or customer of the Company, or
any subsidiary or affiliate of the Company, that has
done business with the Company or such affiliate or
subsidiary within two (2) years of the date of any
alleged competitive act by Employee;
2. any client, account or customer of the Company, or
any subsidiary or any affiliate of the Company, that
has transacted any business with the Company within
the twelve months preceding the date of this
Agreement;
3. Wal-Mart Stores, Inc. or any subsidiary thereof
("Wal-Mart");
4. any affiliate of Wal-Mart, including without
limitation Sam's Wholesale Club, HYPERMART*USA and
Wal-Mart SuperCenters (a "Wal-Mart Affiliate");
5. KMart Corporation or any subsidiary thereof
("KMart");
6. any affiliate of KMart, including without limitation
KMart SuperCenters (a "KMart Affiliate");
7. PETsMART, Inc. or any subsidiary thereof
("PETsMART");
8. any affiliate of PETsMART (a "PETsMART Affiliate");
9. any current or prospective institutional customer
("Institutional Customer");
10. CPI Corp.;
11. Lifetouch National School Studios, Inc.;
12. any Wal-Mart store that does business with the
Company during the Term of the Covenants;
13. any Wal-Mart Affiliate store that does business with
the Company during the Term of the Covenants;
-5-
<PAGE> 6
14. any Wal-Mart store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors reasonably expects to do
business during the Term of the Covenants;
15. any Wal-Mart Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
16. any PETsMART store that does business with the
Company during the Term of the Covenants;
17. any PETsMART Affiliate store that does business with
the Company during the Term of the Covenants;
18. any PETsMART store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors reasonably expects to do
business during the Term of the Covenants;
19. any PETsMART Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
20. any Institutional Customer with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
21. any KMart store that does business with the Company
during the Term of the Covenants;
22. any KMart store that does business with the Company
during the Term of the Covenants;
-6-
<PAGE> 7
23. any KMart store with which the Company previously
conducted business but no longer conducts business or
the Board of Directors reasonably expects to do
business during the Term of the Covenants;
24. any KMart Affiliate store with which the Company
previously conducted business but no longer conducts
business or the Board of Directors reasonably expects
to do business during the Term of the Covenants;
25. Cifra, S.A. de C.V.;
26. Aurrera, S.A. de C.V., a subsidiary of Cifra, S.A. de
C.V.;
27. any other subsidiary of Cifra, S.A. de C.V.;
28. Olan Mills;
29. Expressly Portraits;
30. any employee or former employee of the Company, whose
employment with the Company terminated less than two
(2) years prior to Employee's association with such
employee or former employee, within a ten-mile radius
of any Wal-Mart store or any store in which the
Company has engaged in the Lines of Business within
six (6) months prior to Employee's engaging in the
Lines of Business; or
31. any person or entity in the geographic areas listed
in paragraph 10(c) hereinbelow.
(c) In performing the Covenants Not to Compete, Employee
shall not, without limitation, during the Term of the Covenants engage in the
Lines of Business in any of the following geographic areas:
1. The United States of America;
2. The State of Alabama;
-7-
<PAGE> 8
3. The State of Arizona;
4. The State of Arkansas;
5. The State of California;
6. The State of Colorado;
7. The State of Connecticut;
8. The State of Delaware;
9. The District of Columbia;
10. The State of Florida;
11. The State of Georgia;
12. The State of Idaho
13. The State of Illinois;
14. The State of Indiana;
15. The State of Iowa;
16. The State of Kansas;
17. The State of Kentucky;
18. The State of Louisiana;
19. The State of Maine;
20. The State of Maryland;
21. The State of Massachusetts;
22. The State of Michigan;
23. The State of Minnesota;
24. The State of Mississippi;
-8-
<PAGE> 9
25. The State of Missouri;
26. The State of Montana
27. The State of Nebraska;
28. The State of Nevada
29. The State of New Hampshire;
30. The State of New Jersey;
31. The State of New Mexico
32. The State of New York;
33. The State of North Carolina;
34. The State of North Dakota;
35. The State of Ohio;
36. The State of Oklahoma;
37. The State of Oregon;
38. The State of Pennsylvania;
39. The Commonwealth of Puerto Rico;
40. The State of Rhode Island;
41. The State of South Carolina;
42. The State of South Dakota;
43. The State of Tennessee;
44. The State of Texas;
45. The State of Utah
46. The State of Vermont;
-9-
<PAGE> 10
47. The State of Virginia;
48. The State of Washington;
49. The State of West Virginia;
50. The State of Wisconsin;
51. The State of Wyoming;
52. Mexico;
53. Canada;
54. Puerto Rico;
55. South America;
56. Latin America;
57. Asia;
58. China; and
59. Counties in each State of the United States where the
Company has customers.
(d) As applied to the categories of persons, firms and
entities and geographic areas covered by the Covenants Not to Compete, the
provisions of paragraphs 9(b) and 9(c), respectively, shall be completely
severable and independent, and any invalidity or unenforceability thereof as
applied to any of such persons, firms or entities or geographic areas shall not
affect the validity or enforceability thereof as applied to any one or more of
the other persons, firms or entities or geographic areas.
(e) Throughout the Term of the Covenants, Employee shall
not directly or indirectly cause or attempt to cause any supplier or customer
of the Company, or any of its subsidiaries or affiliates, or any governmental
body or public agency, not to do business with the Company or such subsidiary
or affiliate or to transfer all or part of its business from the Company, or
such subsidiary or affiliate, or otherwise interfere or attempt to
-10-
<PAGE> 11
interfere with any business relationship between the Company, or any of its
subsidiaries or affiliates, and any of such suppliers, customers, government
bodies or public agencies, unless directed by the Board of Directors of the
Company to so do.
(f) Employee acknowledges that irreparable injury will
result to the Company from any breach of the Covenants Not to Compete and there
is no adequate remedy at law to redress a breach or threatened breach of the
Covenants Not to Compete As a result of the foregoing, Employee agrees that
the parties seeking to enforce any of such provisions shall be entitled to an
injunction or other equitable relief against Employee to restrain him from such
breach, and Employee waives any claim or defense that the Company has an
adequate remedy at law for any such breach; provided, however, that nothing
contained herein shall prohibit the Company, or any subsidiary or affiliate of
the Company, from pursuing any other remedy it may have, including without
limiting the generality of the foregoing the recovery of damages.
(g) If any court determines that any provision of this
Section 9, or any part thereof, is invalid or unenforceable, the remainder of
this Section 9 shall not thereby be affected and shall be given full effect,
without regard to the invalid portions. If any court determines that any
provision of this Section 9, or any part thereof, is unenforceable because of
the duration or geographic scope of such provision, the parties agree that such
court shall have the power to reduce the duration or scope of such provision,
as the case may be, and the parties agree to request the court to exercise such
power, and, in its reduced form, such provision shall then be enforceable and
shall be enforced. The provisions of this Section 9 shall survive the
termination of this Agreement, for whatever reason.
(h) At all times, both during and after the termination
of his employment, Employee shall keep and retain in confidence and shall not,
without the prior written consent of the Company, disclose to any persons, firm
or corporation or otherwise use for his own benefit or the benefit of another
any of the proprietary, confidential or secret information or trade secrets of
the Company. Further, Employee and the Company agree to keep confidential the
terms and conditions of this Agreement except for such disclosure as may be
required (i) in the event of a breach of this Agreement,
-11-
<PAGE> 12
(ii) compulsion by law or court order, or (iii) as may be required by any
applicable provision of law.
(i) In consideration of employment, and the compensation
paid to Employee as an employee of the Company, Employee hereby recognizes as
the exclusive property of, and assigns, transfers and conveys to, the Company
without further consideration each invention, discovery or improvement
(hereinafter collectively refer@ed to as "inventions") made, conceived,
developed or first reduced to practice by Employee (whether alone or jointly
with others) during the Term of Employment or within one (1) year thereafter
which relates in any way to Employee's work at the Company or any of its
subsidiaries or affiliates. Employee will communicate to the Company current
written records of all such inventions, which records shall be and remain the
property of the Company. Upon request by the Company, Employee will at any
time execute documents assigning to the Company, or its designees, any such
invention or any patent application or patent granted therefor, and will
execute any papers relating thereto. Employee also will give all reasonable
assistance to the Company, or its designee, regarding any litigation or
controversy in connection with his inventions, patent applications, or patents,
all expenses incident thereto to be assumed by the Company.
10. Governing Law. This Agreement shall be construed and
governed under the laws of the State of North Carolina.
11. Binding Nature. Except as expressly provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, successors and assigns. The obligations and
covenants of Employee are personal in nature and, as such, are not assignable
by him.
12. Entire Agreement; Prior Oral Agreement; Amendment. This
Agreement contains the entire agreement of the parties with respect to the
matters set forth herein and supersedes all prior written and prior or
contemporaneous oral agreements or understandings of the parties hereto. This
Agreement confirms and sets forth the prior oral agreement of the parties as to
the terms and conditions of Employee's employment by the Company stated herein,
including without limitation, the obligations and covenants of Employee set
forth in Section 9 hereof, and Employee's agreement to enter into
-12-
<PAGE> 13
a written employment agreement with the Company, as of the date his employment
by the Company commenced, stating such terms and conditions. This Agreement
may be changed or amended only by an agreement in writing signed by both
parties hereto.
13. Severability, Invalidity or Unenforceability. The
severability, invalidity or unenforceability of any paragraph or part of any
paragraph herein shall not in any way affect the validity or enforceability of
any other paragraph or any part of any other paragraph.
14. Prior Agreements and Covenants of Employee. Employee hereby
warrants and represents that he is not a party to any agreement or binding
obligation, oral or written, that would prevent his employment by the Company,
and Employee's execution of this Agreement and his fulfillment of his duties
and obligations hereunder do not and will not violate the provisions of any
agreement, contract, loan document or other binding written or oral obligation.
15. Notices. Any notice, offer, acceptance or other document
required or permitted to be given pursuant to any provisions of this Agreement
shall be in writing, signed by or on behalf of the person giving the same, and
(as elected by the person giving such notice) delivered by hand or mailed to
the parties at the following addresses by registered or certified mail, postage
prepaid, return receipt requested, or by a third party company or governmental
entity providing delivery services in the ordinary course of business, which
guarantees delivery on a specified date:
If to Employee: Ed J. Tepera
528 Heather Place
Monroe, NC 28112
If to the Company: PCA International, Inc.
815 Matthews-Mint Hill Road
Matthews, North Carolina 28105
Attention: John Grosso
With copies to: Thomas B. Henson
ROBINSON, BRADSHAW & HINSON, P.A.
One Independence Center
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246-1900
(704) 377-2536
-13-
<PAGE> 14
or to such other address as any party hereto may designate by complying with
the provisions of this Section 15.
Such notice shall be deemed given (i) as of the date of written
acknowledgment by Employee or an officer of the Company if delivered by hand,
(ii) seventy-two (72) hours after deposit in United States mail if sent by
registered or certified mail or (iii) on the delivery date guaranteed by the
third party delivery service if sent by such service.
Rejection or other refusal to accept or inability to deliver because
of changed address of which no notice has been received shall not affect the
date upon which the notice is deemed to have been given pursuant hereto.
Notwithstanding the foregoing, no notice of change of address shall be
effective until the date of receipt hereof.
16. Stock Option Grant. Employee will be granted an option to
purchase 20,000 shares of the Company's common stock on the date hereof, having
an exercise price equal to 100% of the closing price at which a share of Common
Stock trades on the date of the grant's Effective Date, all as defined in the
PCA International, Inc. 1996 Omnibus Long- Term Compensation Plan (the "Plan").
Such option shall be treated as a nonqualified stock option for federal income
tax purposes. Such option shall terminate on a date that is ten (10) years
following the date of grant; provided, however, that if Employee's employment
with the Company is terminated prior to such date such option shall terminate
three (3) months following such termination, unless such termination occurs as
a result of employee's death or disability in which event such options shall
terminate twelve (12) months following such termination. Such options shall
become exercisable in five (5) equal annual increments on each of the first,
second, third, fourth and fifth anniversaries of the date of grant.
IN WITNESS WHEREOF, Ed J. Tepera has set his hand and seal hereto and
PCA International, Inc. has caused this Agreement to be
-14-
<PAGE> 15
executed and sealed in its name by its duly authorized officials as of the day
and year first above written.
EMPLOYEE:
______________________________(SEAL)
ED J. TEPERA
COMPANY:
PCA INTERNATIONAL, INC.
By:
______________________________
John Grosso
President and CEO
-15-
<PAGE> 16
EXHIBIT A
FRINGE BENEFITS
1. Employee shall be entitled to twenty (20) days paid vacation
during the first year of employment and twenty (20) days paid vacation each
year of employment thereafter. Vacation time is not cumulative.
2. Employee shall be entitled to sick leave in accordance with
the plans and procedures established by the Board of Directors.
3. Employee shall be entitled to such life insurance and
disability insurance or other disability benefits, if any, as are provided by
the Company to its employees from time to time.
4. Employee shall be entitled to receive benefits as are afforded
to other similarly situated employees.
<PAGE> 1
EXHIBIT 4
<TABLE>
<CAPTION>
Number
Shareholders Party to Stock Agreement with Purchase Option of Shares
- ---------------------------------------------------------- ---------
<S> <C>
Merrill Lynch Capital Corporation 5,950,177
Randy J. Bates 1,656,187
Kathy D. Bates 127,005
James Robert Wren, Jr. Ttee Michelle Leigh Taylor
Randy J. Bates Irrevocable Trust
dtd 12/28/88 FBO Michelle Leigh Taylor 80,251
James Robert Wren, Jr. Ttee Monica Leigh Bates
Randy J. Bates Irrevocable Trust
dtd 12/28/88 FBO Monica Leigh Bates 80,251
James Robert Wren, Jr. Ttee Randy J. Bates II
Randy J. Bates Irrevocable Trust
dtd 12/28/88 FBO Randy J. Bates II 80,251
The Bates Family Foundation 114,400
The Southeastern Baptist Theological Seminary 300,000
R. Kent Smith 1,038,865
Kenneth Hester Ttee Jennifer Diane Smith
R. Kent Smith Irrevocable Trust
dtd 12/28/88 FBO Jennifer Diane Smith 83,351
Kenneth Hester Ttee Andrew Kent Smith
R. Kent Smith Irrevocable Trust
dtd 12/28/88 FBO Andrew Kent Smith 83,351
J. Robert Wren Jr. 294,685
The Wren Family Foundation 49,100
Shareholders Party to Stock Agreement without Purchase Option
- -------------------------------------------------------------
Alan P. Shaw 347,600
Norman V. Swenson 564,160
Swenson Children 230,997
Tom E. DuPree, Jr. 1,455,000
</TABLE>
<PAGE> 2
EXHIBIT 4
FORM OF STOCK AGREEMENT WITH PURCHASE OPTION
STOCK AGREEMENT, dated as of December __, 1996, among PCA International,
Inc., a North Carolina corporation ("Parent"), ASI Acquisition Corp., a North
Carolina corporation and a direct wholly owned subsidiary of Parent (the
"Purchaser"), and ___________________ (the "Shareholder").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this Agreement,
Parent, the Purchaser and American Studios, Inc., a North Carolina corporation
(the "Company"), have entered into an Agreement and Plan of Merger (as such
agreement may hereafter be amended from time to time, the "Merger Agreement"),
pursuant to which the Purchaser will be merged with and into the Company (the
"Merger") (capitalized terms used and not defined herein have the respective
meanings ascribed to them in the Merger Agreement);
WHEREAS, in furtherance of the Merger, as soon as practicable (and not
later than five business days) after the execution and delivery of the Merger
Agreement, Purchaser shall commence a cash tender offer (the "Offer") to
purchase at a price of $2.50 per share all outstanding shares of Company Common
Stock (as defined in Section 1 hereof) including all of the Shares (as defined
in Section 2 hereof) beneficially owned by the Shareholder; and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent has required that the Shareholder agree, and the Shareholder
has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
1. Definitions. For purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing. Without duplicative counting of
the same securities by the same holder, securities Beneficially Owned by a
Person shall include securities Beneficially Owned by all other Persons with
whom such Person would constitute a "group" as within the meaning of Section
13(d)(3) of the Exchange Act.
(b) "Company Common Stock" shall mean at any time the common stock, $.00l
par value, of the Company.
<PAGE> 3
(c) "Person" shall mean an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
2. Tender of Shares.
(a) In order to induce Parent and the Purchaser to enter into the Merger
Agreement, the Shareholder hereby agrees to validly tender (or cause the record
owner of such shares to validly tender), and not to withdraw, pursuant to and
in accordance with the terms of the Offer, not later than the fifth business
day after commencement of the Offer pursuant to Section 1.1 of the Merger
Agreement and Rule 14d-2 under the Exchange Act, the number of shares of
Company Common Stock set forth opposite such Shareholder's name on Schedule I
hereto (the "Existing Shares", and together with any shares acquired by the
Shareholder in any capacity after the date hereof and prior to the termination
of this Agreement whether upon the exercise of options, warrants or rights, the
conversion or exchange of convertible or exchangeable securities, or by means
of purchase, dividend, distribution or otherwise, the "Shares"), all of which
are Beneficially Owned by the Shareholder. The Shareholder hereby acknowledges
and agrees that Parent's and the Purchaser's obligation to accept for payment
and pay for Shares in the Offer, including the Shares Beneficially Owned by
such Shareholder, is subject to the terms and conditions of the Offer.
(b) The transfer by the Shareholder of the Shares to the Purchaser in the
Offer shall pass to and unconditionally vest in the Purchaser good and valid
title to the Shares, free and clear of all claims, liens, restrictions,
security interests, pledges, limitations and encumbrances whatsoever.
(c) The Shareholder hereby permits Parent and the Purchaser to publish and
disclose in the Offer Documents and, if approval of the Company's shareholders
is required under applicable law, the Proxy Statement (including all documents
and schedules filed with the SEC) its identity and ownership of the Company
Common Stock and the nature of its commitments, arrangements and understandings
under this Agreement.
3. Option. In order to induce Parent and the Purchaser to enter into the
Merger Agreement, the Shareholder hereby grants to Parent an irrevocable option
(a "Stock Option") to purchase the Shares from the Shareholder (the "Option
Shares") at an amount (the "Purchase Price") equal to the Offer Price. If (i)
the Offer is terminated, abandoned or withdrawn by Parent or the Purchaser, or
(ii) the Merger Agreement is terminated in accordance with its terms, the Stock
Option shall, in any such case (but provided neither Parent nor the Purchaser
has materially breached the Merger Agreement), become exercisable, in whole or
in part, upon the first to occur of any such event and remain exercisable in
whole or in part until the date which is 45 days after the date of the
occurrence of such event (the "45 Day Period"), so long as: (i) all waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), required for the purchase of the Option Shares upon
such exercise shall have expired or been waived, and (ii) there shall not be in
effect any preliminary or final injunction or other order issued by any court
or governmental, administrative or regulatory agency or authority or
legislative body or commission prohibiting the exercise of the Stock Option
pursuant to this
<PAGE> 4
Agreement; provided that if all HSR Act waiting periods shall not have expired
or been waived or there shall be in effect any such injunction or order, in
each case on the expiration of the 45 Day Period, the 45 Day Period shall be
extended until 5 business days after the later of (A) the date of expiration or
waiver of all HSR Act waiting periods and (B) the date of removal or lifting of
such injunction or order; provided further that in no event shall the 45 Day
Period be extended beyond June 30, 1997. In the event that Parent wishes to
exercise the Stock Option, Parent shall send a written notice (the "Notice") to
the Shareholder identifying the place and date (not less than two nor more than
10 business days from the date of the Notice) for the closing of such purchase.
In the event that Parent has terminated the Offer due to the occurrence of any
event set forth in clauses (a)-(c) of Annex A to the Merger Agreement and
Parent exercises the Stock Option and purchases the Option Shares, Parent
shall, to the extent permitted by law, seek to purchase all of the remaining
shares of Company Common Stock outstanding at the Purchase Price pursuant to a
merger and/or tender offer.
4. Provisions Concerning the Company Common Stock. During the period
commencing on the date hereof and continuing until the first to occur of the
Effective Time or termination of the Merger Agreement in accordance with its
terms, the Shareholder shall, at any meeting of the holders of Company Common
Stock, however called, or in connection with any written consent of the holders
of Company Common Stock, vote (or cause to be voted) the Shares (if any) then
held of record or Beneficially Owned by the Shareholder, (i) in favor of the
Merger, the execution and delivery by the Company of the Merger Agreement and
the approval of the terms thereof and each of the other actions contemplated by
the Merger Agreement and this Agreement and any actions required in furtherance
thereof and hereof; (ii) against any action or agreement that would result in a
breach in any respect of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement; and (iii)
except as otherwise agreed to in writing in advance by Parent, against the
following actions (other than the Merger and the transactions contemplated by
the Merger Agreement): (A) any extraordinary corporate transaction, such as a
merger, consolidation or other business combination involving the Company or
its Subsidiaries; (B) a sale, lease or transfer of a material amount of assets
of the Company or its Subsidiaries, or a reorganization, recapitalization,
dissolution or liquidation of the Company or its Subsidiaries; (C)(1) any
change in a majority of the persons who constitute the board of directors of
the Company; (2) any change in the present capitalization of the Company or any
amendment of the Company's Articles of Incorporation or Bylaws; (3) any other
material change in the Company's corporate structure or business; or (4) any
other action which, in the case of each of the matters referred to in clauses
(iii)(C)(1), (2) or (3) of this Section 4, is intended, or could reasonably be
expected, to impede, interfere with, delay, postpone, or materially adversely
affect the Merger and the actions and transactions contemplated by this
Agreement and the Merger Agreement. The Shareholder shall not enter into any
agreement or understanding with any person or entity the effect of which would
be inconsistent or violative of the provisions and agreements contained in this
Section 4.
5. Covenants, Representations and Warranties of the Shareholder. The
Shareholder hereby represents and warrants to Parent as follows:
<PAGE> 5
(a) Ownership of Shares. The Shareholder is the Beneficial Owner of the
Shares, as set forth on Schedule 1. On the date hereof, the Existing Shares
constitute all of the outstanding Shares owned of record or Beneficially Owned
by the Shareholder. The Shareholder has sole voting power and sole power to
issue instructions with respect to the matters set forth in Sections 2 and 4
hereof, sole power of disposition, sole power to demand appraisal rights and
sole power to agree to all of the matters set forth in this Agreement, in each
case with respect to all of the Existing Shares with no limitations,
qualifications or restrictions on such rights, subject to applicable securities
laws and the terms of this Agreement.
(b) Power; Binding Agreement. The Shareholder has the legal capacity,
power and authority to enter into and perform all of his obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Shareholder will not violate any other agreement to which the Shareholder is a
party including, without limitation, any voting agreement, proxy arrangement,
pledge agreement, shareholders agreement or voting trust. This Agreement has
been duly and validly executed and delivered by the Shareholder and constitutes
a valid and binding agreement of the Shareholder, enforceable against the
Shareholder in accordance with its terms. There is no beneficiary or holder of
a voting trust certificate or other interest of any trust of which the
Shareholder is a trustee whose consent is required for the execution and
delivery of this Agreement or the consummation by such Shareholder of the
transactions contemplated hereby.
(c) No Conflicts. Except for (i) filings under the HSR Act and the
Exchange Act, (A) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by the Shareholder and the consummation by the
Shareholder of the transactions contemplated hereby and (B) none of the
execution and delivery of this Agreement by the Shareholder, the consummation
by the Shareholder of the transactions contemplated hereby or compliance by the
Shareholder with any of the provisions hereof shall (1) conflict with or result
in any breach of any applicable organizational documents applicable to the
Shareholder, (2) result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give rise to any third
party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note,
loan agreement, bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or obligation of any
kind to which the Shareholder is a party or by which the Shareholder or any of
its properties or assets may be bound, or (3) violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation applicable to
the Shareholder or any of its properties or assets.
(d) No Encumbrances. Except as permitted by this Agreement, the Shares
and the certificates representing such Shares are now, and at all times during
the term hereof will be, held by the Shareholder, or by a nominee or custodian
for the benefit of such Shareholder, free and clear of all liens, claims,
security interests, proxies, voting trusts or agreements, understandings or
arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder.
<PAGE> 6
(e) No Finder's Fees. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of the
Shareholder.
(f) No Solicitation. The Shareholder shall not, in the capacity as a
shareholder or otherwise, directly or indirectly, solicit (including by way of
furnishing information) or negotiate in response to any inquiries or the making
of any proposal by any person or entity (other than Parent or any affiliate of
Parent) concerning any merger, tender offer, exchange offer, sale of assets,
sale of shares of capital stock or debt securities or similar transactions
involving the Company or any Subsidiary, division or operating or principal
business unit of the Company. If the Shareholder receives any such inquiry or
proposal, then the Shareholder shall promptly inform Parent of the existence
thereof. The Shareholder will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. Notwithstanding the
foregoing, nothing herein shall prevent the Shareholder from complying with any
fiduciary duties it may have in its capacity as an officer and/or director of
the Company.
(g) Restriction on Transfer, Proxies and Non-Interference. The
Shareholder shall not, directly or indirectly: (i) except as applicable in
connection with the transactions contemplated by Section 2 hereof, offer for
sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of,
or enter into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, any or all of the Shares or
any interest therein (any such transaction, a "Transfer"), except that
Shareholder may transfer Shares to a family member of such Shareholder or a
charitable organization provided such transferee agrees to be bound by the
provisions of this Agreement; (ii) except as contemplated by this Agreement,
grant any proxies or powers of attorney, deposit the Shares into a voting trust
or enter into a voting agreement with respect to the Shares; or (iii) take any
action that would make any representation or warranty of the Shareholder
contained herein untrue or incorrect or have the effect of preventing or
disabling the Shareholder from performing its obligations under this Agreement.
(h) Reliance by Parent. The Shareholder understands and acknowledges that
Parent is entering into, and causing Purchaser to enter into, the Merger
Agreement in reliance upon the Shareholder's execution and delivery of this
Agreement.
(i) Waiver of Appraisal Rights. The Stock holder hereby waives any rights
of appraisal or rights to dissent from the Merger that such Shareholder may
have.
(j) Access to Information. The Shareholder represents and warrants that,
in connection with the execution and delivery of this Agreement, the
Shareholder has been afforded the full opportunity to ask questions and receive
information regarding the Offer and the terms of the Merger Agreement and the
transactions contemplated thereby and the interests of any affected party.
<PAGE> 7
6. Covenants, Representations and Warranties of Parent and the Purchaser.
Each of Parent and the Purchaser hereby represents and warrants to the
Shareholder as follows:
(a) Power; Binding Agreement. Parent and the Purchaser each has the
corporate power and authority to enter into and perform all of its obligations
under this Agreement. The execution, delivery and performance of this
Agreement by the each of the Parent and the Purchaser will not violate any
other agreement to which either of them is a party. This Agreement has been
duly and validly executed and delivered by each of the Parent and the Purchaser
and constitutes a valid and binding agreement of each of the Parent and the
Purchaser, enforceable against each of the Parent and the Purchaser in
accordance with its terms.
(b) No Conflicts. Except for (i) filings under the HSR Act and the
Exchange Act, (A) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by each of the Parent and the Purchaser and the
consummation by each of the Parent and the Purchaser of the transactions
contemplated hereby and (B) none of the execution and delivery of this
Agreement by each of the Parent and the Purchaser, the consummation by each of
the Parent and the Purchaser of the transactions contemplated hereby or
compliance by each of the Parent and the Purchaser with any of the provisions
hereof shall (1) conflict with or result in any breach of any applicable
organizational documents applicable to either of the Parent or the Purchaser,
(2) result in a violation or breach of, or constitute (with or without notice
or lapse of time or both) a default (or give rise to any third party right of
termination, cancellation, material modification or acceleration) under any of
the terms, conditions or provisions of any note, loan agreement, bond,
mortgage, indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which either of the
Parent or the Purchaser is a party or by which either of the Parent or the
Purchaser or any of their properties or assets may be bound, or (3) violate any
order, writ, injunction, decree, judgment, order, statute, rule or regulation
applicable to either of the Parent or the Purchaser or any of their properties
or assets.
(c) No Finder's Fees. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of either of
the Parent or the Purchaser.
7. Further Assurances. From time to time, at the other party's request
and without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further lawful action as may be
necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this
Agreement.
8. Stop Transfer. The Shareholder shall not request that the Company
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Shares, unless such transfer is
made in compliance with this Agreement. In the event of a stock dividend or
distribution, or any change in the Company Common Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or
<PAGE> 8
the like, the term "Shares" shall refer to and include the Shares as well as
all such stock dividends and distributions and any shares into which or for
which any or all of the Shares may be changed or exchanged.
9. Termination. Except for Section 10 hereof, and except as otherwise
provided herein, including, but not limited to, Section 3 hereof, the covenants
and agreements contained herein shall terminate upon the termination of the
Merger Agreement in accordance with its terms.
10. Indemnification. Parent shall indemnify, defend and hold harmless the
Shareholder from and against any and all losses, damages, liabilities and
expenses (including, without limitation but subject to the next sentence,
reasonable fees and expenses of outside counsel) resulting from any claim or
litigation arising out of the execution, delivery and performance by the
Shareholder of this Stock Agreement. The Shareholder shall give prompt written
notice to Parent upon the Shareholder becoming aware of any claim or action in
respect of which the Shareholder intends to seek indemnity hereunder, and
Parent shall by prompt written notice to the Shareholder be entitled to assume
the defense of such claim or action with counsel selected by the Parent and
reasonably acceptable to the Shareholder.
Notwithstanding the foregoing, if the undersigned is an officer and/or
director of the Company and the claim or litigation relates to the
undersigned's status or conduct as an officer and/or director as well as the
undersigned's execution, delivery and performance of this Stock Agreement as a
Shareholder, the undersigned shall first seek recourse under any other
indemnity or insurance coverage to which the undersigned may be entitled in
such other capacities prior to being entitled to any indemnity hereunder.
11. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all other prior agreements and understandings, both written and oral, between
the parties with respect to the subject matter hereof.
(b) Binding Agreement. This Agreement and the obligations hereunder shall
attach to the Shares and shall be binding upon any person or entity to which
legal or beneficial ownership of such Shares shall pass, whether by operation
of law or otherwise. Notwithstanding any voluntary transfer of Shares, the
transferor shall remain liable for the performance of all obligations under
this Agreement of the transferor.
(c) Assignment. This Agreement shall not be assigned by operation of law
or otherwise without the prior written consent of the other parties, provided
that Parent may assign, in its sole discretion, its rights and obligations
hereunder to any direct or indirect wholly owned subsidiary of Parent, but no
such assignment shall relieve Parent of its obligations hereunder if such
assignee does not perform such obligations.
<PAGE> 9
(d) Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated, except upon the
execution and delivery of a written agreement executed by the parties hereto.
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if given) by hand delivery or telecopy (with
a confirmation copy sent for next day delivery via courier service, such as
Federal Express), or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to Shareholder:
Telephone No.:
Telecopy No.:
If to Parent or PCA International, Inc.
the Purchaser: 815 Matthews - Mint Hill Road
Matthews, North Carolina 27102
Attention: John Grosso
Telephone No.: (704) 874-8011
Telecopy No.: (704) 847-8010
copy to: Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Marc Weingarten, Esq.
Telephone No.: (212) 756-2000
Telecopy No.: (212) 593-5955
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and
<PAGE> 10
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore in the
event of any such breach the aggrieved party shall be entitled to the remedy of
specific performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be entitled,
at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by any
party shall not preclude the simultaneous or later exercise of any other such
right, power or remedy by such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by
such party of its right to exercise any such or other right, power or remedy or
to demand such compliance.
(j) No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity who
or which is not a party hereto.
(k) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of North Carolina, without giving effect
to the principles of conflicts of law thereof.
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
<PAGE> 11
IN WITNESS WHEREOF, Parent, the Purchaser and the Shareholder have caused
this Agreement to be duly executed as of the day and year first above written.
PCA INTERNATIONAL, INC.
By:
-------------------------------
Name:
Title:
ASI ACQUISITION CORP.
By:
-------------------------------
Name:
Title:
-----------------------------------
<PAGE> 12
SCHEDULE I
Shareholder Number of Shares
- ----------- ----------------
<PAGE> 13
FORM OF STOCK AGREEMENT WITHOUT PURCHASE OPTION
STOCK AGREEMENT, dated as of December __, 1996, among PCA International,
Inc., a North Carolina corporation ("Parent"), ASI Acquisition Corp., a North
Carolina corporation and a direct wholly owned subsidiary of Parent (the
"Purchaser"), and __________________ (the "Shareholder").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this Agreement,
Parent, the Purchaser and American Studios, Inc., a North Carolina corporation
(the "Company"), have entered into an Agreement and Plan of Merger (as such
agreement may hereafter be amended from time to time, the "Merger Agreement"),
pursuant to which the Purchaser will be merged with and into the Company (the
"Merger") (capitalized terms used and not defined herein have the respective
meanings ascribed to them in the Merger Agreement);
WHEREAS, in furtherance of the Merger, as soon as practicable (and not
later than five business days) after the execution and delivery of the Merger
Agreement, Purchaser shall commence a cash tender offer (the "Offer") to
purchase at a price of $2.50 per share all outstanding shares of Company Common
Stock (as defined in Section 1 hereof) including all of the Shares (as defined
in Section 2 hereof) beneficially owned by the Shareholder; and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent has required that the Shareholder agree, and the Shareholder
has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
1. Definitions. For purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing. Without duplicative counting of
the same securities by the same holder, securities Beneficially Owned by a
Person shall include securities Beneficially Owned by all other Persons with
whom such Person would constitute a "group" as within the meaning of Section
13(d)(3) of the Exchange Act.
(b) "Company Common Stock" shall mean at any time the common stock, $.00l
par value, of the Company.
<PAGE> 14
(c) "Person" shall mean an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
2. Tender of Shares.
(a) In order to induce Parent and the Purchaser to enter into the Merger
Agreement, the Shareholder hereby agrees to validly tender (or cause the record
owner of such shares to validly tender), and not to withdraw, pursuant to and
in accordance with the terms of the Offer, not later than the fifth business
day after commencement of the Offer pursuant to Section 1.1 of the Merger
Agreement and Rule 14d-2 under the Exchange Act, the number of shares of
Company Common Stock set forth opposite such Shareholder's name on Schedule I
hereto (the "Existing Shares", and together with any shares acquired by the
Shareholder in any capacity after the date hereof and prior to the termination
of this Agreement whether upon the exercise of options, warrants or rights, the
conversion or exchange of convertible or exchangeable securities, or by means
of purchase, dividend, distribution or otherwise, the "Shares"), all of which
are Beneficially Owned by the Shareholder. The Shareholder hereby acknowledges
and agrees that Parent's and the Purchaser's obligation to accept for payment
and pay for Shares in the Offer, including the Shares Beneficially Owned by
such Shareholder, is subject to the terms and conditions of the Offer.
(b) The transfer by the Shareholder of the Shares to the Purchaser in the
Offer shall pass to and unconditionally vest in the Purchaser good and valid
title to the Shares, free and clear of all claims, liens, restrictions,
security interests, pledges, limitations and encumbrances whatsoever.
(c) The Shareholder hereby permits Parent and the Purchaser to publish and
disclose in the Offer Documents and, if approval of the Company's shareholders
is required under applicable law, the Proxy Statement (including all documents
and schedules filed with the SEC) its identity and ownership of the Company
Common Stock and the nature of its commitments, arrangements and understandings
under this Agreement.
3. Provisions Concerning the Company Common Stock. During the period
commencing on the date hereof and continuing until the first to occur of the
Effective Time or termination of the Merger Agreement in accordance with its
terms, the Shareholder shall, at any meeting of the holders of Company Common
Stock, however called, or in connection with any written consent of the holders
of Company Common Stock, vote (or cause to be voted) the Shares (if any) then
held of record or Beneficially Owned by the Shareholder, (i) in favor of the
Merger, the execution and delivery by the Company of the Merger Agreement and
the approval of the terms thereof and each of the other actions contemplated by
the Merger Agreement and this Agreement and any actions required in furtherance
thereof and hereof; (ii) against any action or agreement that would result in a
breach in any respect of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement; and (iii)
except as otherwise agreed to in writing in advance by Parent, against the
following actions (other than the Merger and the transactions contemplated by
the Merger Agreement): (A) any extraordinary corporate transaction, such as a
merger, consolidation or other business
-2-
<PAGE> 15
combination involving the Company or its Subsidiaries; (B) a sale, lease or
transfer of a material amount of assets of the Company or its Subsidiaries, or
a reorganization, recapitalization, dissolution or liquidation of the Company
or its Subsidiaries; (C)(1) any change in a majority of the persons who
constitute the board of directors of the Company; (2) any change in the present
capitalization of the Company or any amendment of the Company's Articles of
Incorporation or Bylaws; (3) any other material change in the Company's
corporate structure or business; or (4) any other action which, in the case of
each of the matters referred to in clauses (iii)(C)(1), (2) or (3) of this
Section 4, is intended, or could reasonably be expected, to impede, interfere
with, delay, postpone, or materially adversely affect the Merger and the
actions and transactions contemplated by this Agreement and the Merger
Agreement. The Shareholder shall not enter into any agreement or understanding
with any person or entity the effect of which would be inconsistent or
violative of the provisions and agreements contained in this Section 4.
4. Covenants, Representations and Warranties of the Shareholder. The
Shareholder hereby represents and warrants to Parent as follows:
(a) Ownership of Shares. The Shareholder is the Beneficial Owner of the
Shares, as set forth on Schedule 1. On the date hereof, the Existing Shares
constitute all of the outstanding Shares owned of record or Beneficially Owned
by the Shareholder. The Shareholder has sole voting power and sole power to
issue instructions with respect to the matters set forth in Sections 2 and 4
hereof, sole power of disposition, sole power to demand appraisal rights and
sole power to agree to all of the matters set forth in this Agreement, in each
case with respect to all of the Existing Shares with no limitations,
qualifications or restrictions on such rights, subject to applicable securities
laws and the terms of this Agreement.
(b) Power; Binding Agreement. The Shareholder has the legal capacity,
power and authority to enter into and perform all of his obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Shareholder will not violate any other agreement to which the Shareholder is a
party including, without limitation, any voting agreement, proxy arrangement,
pledge agreement, shareholders agreement or voting trust. This Agreement has
been duly and validly executed and delivered by the Shareholder and constitutes
a valid and binding agreement of the Shareholder, enforceable against the
Shareholder in accordance with its terms. There is no beneficiary or holder of
a voting trust certificate or other interest of any trust of which the
Shareholder is a trustee whose consent is required for the execution and
delivery of this Agreement or the consummation by such Shareholder of the
transactions contemplated hereby.
(c) No Conflicts. Except for (i) filings under the HSR Act and the
Exchange Act, (A) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by the Shareholder and the consummation by the
Shareholder of the transactions contemplated hereby and (B) none of the
execution and delivery of this Agreement by the Shareholder, the consummation
by the Shareholder of the transactions contemplated hereby or compliance by the
Shareholder with any of the provisions hereof shall (1) conflict with or result
in any breach of any applicable organizational documents applicable to the
Shareholder, (2) result in a violation or breach of, or
-3-
<PAGE> 16
constitute (with or without notice or lapse of time or both) a default (or give
rise to any third party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or provisions
of any note, loan agreement, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which the Shareholder is a party or by which the
Shareholder or any of its properties or assets may be bound, or (3) violate any
order, writ, injunction, decree, judgment, order, statute, rule or regulation
applicable to the Shareholder or any of its properties or assets.
(d) No Encumbrances. Except as permitted by this Agreement, the Shares
and the certificates representing such Shares are now, and at all times during
the term hereof will be, held by the Shareholder, or by a nominee or custodian
for the benefit of such Shareholder, free and clear of all liens, claims,
security interests, proxies, voting trusts or agreements, understandings or
arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder.
(e) No Finder's Fees. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of the
Shareholder.
(f) No Solicitation. The Shareholder shall not, in the capacity as a
shareholder or otherwise, directly or indirectly, solicit (including by way of
furnishing information) or negotiate in response to any inquiries or the making
of any proposal by any person or entity (other than Parent or any affiliate of
Parent) concerning any merger, tender offer, exchange offer, sale of assets,
sale of shares of capital stock or debt securities or similar transactions
involving the Company or any Subsidiary, division or operating or principal
business unit of the Company. If the Shareholder receives any such inquiry or
proposal, then the Shareholder shall promptly inform Parent of the existence
thereof. The Shareholder will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. Notwithstanding the
foregoing, nothing herein shall prevent the Shareholder from complying with any
fiduciary duties it may have in its capacity as an officer and/or director of
the Company.
(g) Restriction on Transfer, Proxies and Non-Interference. The
Shareholder shall not, directly or indirectly: (i) except as applicable in
connection with the transactions contemplated by Section 2 hereof, offer for
sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of,
or enter into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, any or all of the Shares or
any interest therein (any such transaction, a "Transfer"), except that
Shareholder may transfer Shares to a family member of such Shareholder or a
charitable organization provided such transferee agrees to be bound by the
provisions of this Agreement; (ii) except as contemplated by this Agreement,
grant any proxies or powers of attorney, deposit the Shares into a voting trust
or enter into a voting agreement with respect to the Shares; or (iii) take any
action that would make any representation or warranty of
-4-
<PAGE> 17
the Shareholder contained herein untrue or incorrect or have the effect of
preventing or disabling the Shareholder from performing its obligations under
this Agreement.
(h) Reliance by Parent. The Shareholder understands and acknowledges that
Parent is entering into, and causing Purchaser to enter into, the Merger
Agreement in reliance upon the Shareholder's execution and delivery of this
Agreement.
(i) Waiver of Appraisal Rights. The Stock holder hereby waives any rights
of appraisal or rights to dissent from the Merger that such Shareholder may
have.
(j) Access to Information. The Shareholder represents and warrants that,
in connection with the execution and delivery of this Agreement, the
Shareholder has been afforded the full opportunity to ask questions and receive
information regarding the Offer and the terms of the Merger Agreement and the
transactions contemplated thereby and the interests of any affected party.
5. Covenants, Representations and Warranties of Parent and the Purchaser.
Each of Parent and the Purchaser hereby represents and warrants to the
Shareholder as follows:
(a) Power; Binding Agreement. Parent and the Purchaser each has the
corporate power and authority to enter into and perform all of its obligations
under this Agreement. The execution, delivery and performance of this
Agreement by the each of the Parent and the Purchaser will not violate any
other agreement to which either of them is a party. This Agreement has been
duly and validly executed and delivered by each of the Parent and the Purchaser
and constitutes a valid and binding agreement of each of the Parent and the
Purchaser, enforceable against each of the Parent and the Purchaser in
accordance with its terms.
(b) No Conflicts. Except for (i) filings under the HSR Act and the
Exchange Act, (A) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by each of the Parent and the Purchaser and the
consummation by each of the Parent and the Purchaser of the transactions
contemplated hereby and (B) none of the execution and delivery of this
Agreement by each of the Parent and the Purchaser, the consummation by each of
the Parent and the Purchaser of the transactions contemplated hereby or
compliance by each of the Parent and the Purchaser with any of the provisions
hereof shall (1) conflict with or result in any breach of any applicable
organizational documents applicable to either of the Parent or the Purchaser,
(2) result in a violation or breach of, or constitute (with or without notice
or lapse of time or both) a default (or give rise to any third party right of
termination, cancellation, material modification or acceleration) under any of
the terms, conditions or provisions of any note, loan agreement, bond,
mortgage, indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which either of the
Parent or the Purchaser is a party or by which either of the Parent or the
Purchaser or any of their properties or assets may be bound, or (3) violate any
order, writ, injunction, decree, judgment, order, statute, rule or regulation
applicable to either of the Parent or the Purchaser or any of their properties
or assets.
-5-
<PAGE> 18
(c) No Finder's Fees. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of either of
the Parent or the Purchaser.
6. Further Assurances. From time to time, at the other party's request
and without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further lawful action as may be
necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this
Agreement.
7. Stop Transfer. The Shareholder shall not request that the Company
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Shares, unless such transfer is
made in compliance with this Agreement. In the event of a stock dividend or
distribution, or any change in the Company Common Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" shall refer to and include the Shares as well as all
such stock dividends and distributions and any shares into which or for which
any or all of the Shares may be changed or exchanged.
8. Termination. Except for Section 10 hereof, and except as otherwise
provided herein, the covenants and agreements contained herein shall terminate
upon the termination of the Merger Agreement in accordance with its terms.
9. Indemnification. Parent shall indemnify, defend and hold harmless the
Shareholder from and against any and all losses, damages, liabilities and
expenses (including, without limitation but subject to the next sentence,
reasonable fees and expenses of outside counsel) resulting from any claim or
litigation arising out of the execution, delivery and performance by the
Shareholder of this Stock Agreement. The Shareholder shall give prompt written
notice to Parent upon the Shareholder becoming aware of any claim or action in
respect of which the Shareholder intends to seek indemnity hereunder, and
Parent shall by prompt written notice to the Shareholder be entitled to assume
the defense of such claim or action with counsel selected by the Parent and
reasonably acceptable to the Shareholder.
Notwithstanding the foregoing, if the undersigned is an officer and/or
director of the Company and the claim or litigation relates to the
undersigned's status or conduct as an officer and/or director as well as the
undersigned's execution, delivery and performance of this Stock Agreement as a
Shareholder, the undersigned shall first seek recourse under any other
indemnity or insurance coverage to which the undersigned may be entitled in
such other capacities prior to being entitled to any indemnity hereunder.
10. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all other prior
-6-
<PAGE> 19
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
(b) Binding Agreement. This Agreement and the obligations hereunder shall
attach to the Shares and shall be binding upon any person or entity to which
legal or beneficial ownership of such Shares shall pass, whether by operation
of law or otherwise. Notwithstanding any voluntary transfer of Shares, the
transferor shall remain liable for the performance of all obligations under
this Agreement of the transferor.
(c) Assignment. This Agreement shall not be assigned by operation of law
or otherwise without the prior written consent of the other parties, provided
that Parent may assign, in its sole discretion, its rights and obligations
hereunder to any direct or indirect wholly owned subsidiary of Parent, but no
such assignment shall relieve Parent of its obligations hereunder if such
assignee does not perform such obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated, except upon the
execution and delivery of a written agreement executed by the parties hereto.
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if given) by hand delivery or telecopy (with
a confirmation copy sent for next day delivery via courier service, such as
Federal Express), or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to Shareholder:
Telephone No.:
Telecopy No.:
If to Parent or PCA International, Inc.
the Purchaser: 815 Matthews - Mint Hill Road
Matthews, North Carolina 27102
Attention: John Grosso
Telephone No.: (704) 874-8011
Telecopy No.: (704) 847-8010
-7-
<PAGE> 20
copy to: Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Marc Weingarten, Esq.
Telephone No.: (212) 756-2000
Telecopy No.: (212) 593-5955
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore in the
event of any such breach the aggrieved party shall be entitled to the remedy of
specific performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be entitled,
at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by any
party shall not preclude the simultaneous or later exercise of any other such
right, power or remedy by such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by
such party of its right to exercise any such or other right, power or remedy or
to demand such compliance.
(j) No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity who
or which is not a party hereto.
(k) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of North Carolina, without giving effect
to the principles of conflicts of law thereof.
-8-
<PAGE> 21
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
-9-
<PAGE> 22
IN WITNESS WHEREOF, Parent, the Purchaser and the Shareholder have caused
this Agreement to be duly executed as of the day and year first above written.
PCA INTERNATIONAL, INC.
By:
---------------------------------
Name:
Title:
ASI ACQUISITION CORP.
By:
---------------------------------
Name:
Title:
-------------------------------------
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<PAGE> 23
SCHEDULE I
Shareholder Number of Shares
- ----------- ----------------
-11-
<PAGE> 1
EXHIBIT 5
AMERICAN STUDIOS, INC.
11001 Park Charlotte Boulevard
Charlotte, North Carolina 28273
November 22, 1996
PCA International, Inc.
815 Matthews-Mint Hill Road
Matthews, North Carolina 28105
Attention: Mr. John Grosso
Gentlemen:
You have requested information in connection with your
consideration of a possible transaction (the "Transaction") involving American
Studios, Inc. (the "Company"). As a condition to the Company furnishing such
information to you, the Company requires that you agree, as set forth below,
that you and your Representatives (as defined below) will treat confidentially
and in accordance with the terms of this Letter Agreement such information and
any other information that the Company or the Company's Representatives furnish
to you in connection with a Transaction. All such information, including
without limitation any oral and written information and all notes, analyses,
compilations, forecasts, studies or other documents prepared by you or your
Representatives in connection with your or their review of, or your interest
in, the Transaction which contain or reflect any such information, is
hereinafter referred to as the "Evaluation Material", whether furnished before
or after the date of this letter.
The term "Evaluation Material" does not include information
which (i) becomes generally available to the public other than as a result of a
disclosure by you or your Representatives, (ii) was available to you on a non-
confidential basis prior to its disclosure to you by the Company or its
Representatives, or (iii) becomes available to you on a non-confidential basis
from a source other than the Company or its Representatives, provided that such
source is not known to you to be bound by a confidentiality agreement with the
Company.
The term "Representatives" as used in this letter with respect
to any person shall mean the directors, officers, employees, affiliates,
representatives (including but not limited to financial advisors, attorneys and
accountants), agents or potential sources of financing of such person. The
term "person" as used in this letter shall be broadly interpreted to include
without limitation any corporation, company, partnership, group, individual or
other entity.
You agree that you and your Representatives will use the
Evaluation Material solely for the purpose of evaluating the Transaction. You
agree that the Evaluation Material will be kept confidential by you and your
Representatives; provided, however, that (i) any of such
<PAGE> 2
Mr. John Grosso
November 22, 1996
Page 2
information may be disclosed to such of your Representatives who need to know
such information for the purpose of evaluating the Transaction (it being
understood that such Representatives shall be informed by you of the
confidential nature of such information and will agree to be bound by the terms
of this Agreement and you agree to be responsible for any breach of this
Agreement by such Representatives), and (ii) any disclosure of such information
may be made if the Company shall consent thereto in writing prior to such
disclosure; provided further, however, that neither the foregoing nor any other
provision of this letter shall be deemed to prevent you from pursuing the
Transaction in such manner as you may deem appropriate and making such public
disclosure as may be required should negotiations for the Transaction terminate.
Without the prior written consent of the other party, or
except as required by applicable law, no party hereto will disclose to any
person (other than its Representatives who are evaluating the Transaction)
either the fact that discussions or negotiations are taking place concerning
the Transaction or any of the terms, conditions or other facts with respect to
the Transaction, including the status thereof, nor that the Evaluation Material
has been made available to you.
In the event that you or any of your Representatives are
requested or required, by interrogatories, requests for information or
documents, subpoena, civil investigative demand or similar process, to disclose
any Evaluation Material, you will promptly notify the Company of such request
or requirement so that the Company may seek an appropriate protective order or
waive your or your Representative's compliance with the provisions of this
Agreement. If, in the absence of a protective order or other remedy or the
receipt of a waiver by the Company, you or any of your Representatives are
nonetheless, in the opinion of counsel, legally compelled to disclose
Evaluation Material, you or your Representative may, without liability
hereunder, furnish only that portion of the Evaluation Material which you are
advised by counsel is legally required to be disclosed.
As soon as possible upon written request from the Company or
upon the termination of your evaluation, you will return to the Company all
Evaluation Material which has been provided to you or your Representatives or,
at your option, destroy all copies of the Evaluation Material in your or your
Representatives' possession, subject to any regulatory requirement as to record
retention which may be applicable to any potential financing source in
connection with the Transaction. Such return or destruction will be confirmed
in writing at the Company's request. Notwithstanding the return or destruction
of the Evaluation Material, you and your Representatives will continue to be
bound by your obligations of confidentiality and other obligations hereunder.
You understand and acknowledge that neither the Company nor
any of its Representatives make any representation or warranty as to the
accuracy or completeness of the Evaluation Material, and that only those
representations and warranties that are made in a
<PAGE> 3
Mr. John Grosso
November 22, 1996
Page 3
definitive agreement with you when, as, and if it is executed, and subject to
such limitations and restrictions as may be specified in such agreement, will
have any legal effect.
The parties agree that unless and until a definitive agreement
with respect to the Transaction has been executed and delivered, neither party
will be under any legal obligation of any kind whatsoever with respect to the
Transaction by virtue of this or any written or oral expression with respect to
the Transaction, except, in the case of this letter agreement, for the matters
specifically agreed to herein.
It is understood and agreed that no failure or delay by either
party hereto in exercising any right, power or privilege hereunder shall
operate as a waiver hereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any right,
power or privilege hereunder.
This letter agreement shall inure to the benefit of, and be
binding upon, the parties and their respective successors and assigns;
provided, however, that neither this agreement nor your or your
Representatives' obligations hereunder may be assigned by you or your
Representatives without the express written consent of the Company and any
purported assignment in violation hereof shall be null and void.
This letter agreement shall be governed and construed in
accordance with the laws of the State of North Carolina applicable to contracts
made and to be performed entirely in such State. This letter agreement
contains the entire agreement between you and the Company concerning the
confidentiality of the Evaluation Material, and no modification of this letter
agreement or waiver of the terms and conditions hereof will be binding upon you
or the Company, unless approved in writing by each of you and the Company.
<PAGE> 4
Mr. John Grosso
November 22, 1996
Page 4
If you are in agreement with the foregoing, please sign and
return one copy of this letter to the undersigned, which will constitute our
agreement with respect to the subject matter of this letter.
Very truly yours,
AMERICAN STUDIOS, INC.
By:
-------------------------------------
Name:
Title:
Agreed to and accepted as of
the date first above written:
PCA INTERNATIONAL, INC.
- -----------------------------------
By: John Grosso
Title: President
<PAGE> 1
ANNEX II
[Croft & Bender Letterhead]
December 17, 1996
Board of Directors
American Studios, Inc.
11001 Park Charlotte Boulevard
Charlotte, North Carolina 28273
To the Members of the Board:
We understand that American Studios, Inc. (the "Company"), PCA
International, Inc. (the "Acquiror") and PCA Acquisition Corp. (the
"Purchaser"), a wholly-owned subsidiary of the Acquiror, propose to enter into
an Agreement and Plan of Merger (the "Agreement") pursuant to which the
Purchaser will make a tender offer (the "Offer") for all shares of the Company's
common stock, par value $.001 per share (the "Shares"), at $2.50 per Share, net
to the seller in cash. The Offer is expected to commence not later than five
business days after the public announcement of the execution of the Agreement.
The Agreement also provides that, following consummation of the Offer, the
Purchaser will be merged with and into the Company in a transaction (the
"Merger") in which each remaining Share will be converted into the right to
receive $2.50 in cash.
You have asked us whether, in our opinion, the proposed cash consideration
to be received by the holders of the Shares in the Offer and the Merger is fair
to such shareholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed publicly available information concerning the Company
which we believe to be relevant to our analysis;
(2) Reviewed certain information, including financial and operating
information with respect to the business, operations and prospects of the
Company, furnished to us by the Company;
(3) Conducted discussions with members of senior management of the
Company concerning its business, operations and prospects;
II-1
<PAGE> 2
(4) Reviewed the historical market prices and trading activity for the
Shares and compared them with those of certain publicly-traded companies
which we deemed to be reasonably similar to the Company;
(5) Compared the results of operations and present financial condition
of the Company with those of certain publicly-traded companies which we
deemed to be reasonably similar to the Company;
(6) Compared the proposed financial terms of the transactions
contemplated by the Agreement with the financial terms of certain other
mergers and acquisitions which we deemed to be relevant;
(7) Performed certain financial analyses with respect to the Company's
projected future operating performance, including a discounted cash flow
analysis;
(8) Reviewed the final execution draft of the Agreement; and
(9) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company,
and, although we have discussed such information with management, we have not
independently verified such information. With respect to the financial forecasts
for the years 1997 through 2000 furnished by the Company, we have assumed that
they have been reasonably prepared and reflect the best currently available
estimates and judgment of the Company's management as to the expected future
financial performance of the Company. We have not conducted a physical
inspection of the properties and facilities of the Company, and we have not made
nor obtained any evaluations or appraisals of the assets or liabilities of the
Company. In addition, you have not authorized us to solicit, and we have not
solicited, any indications of interest from any third party with respect to the
purchase of all or a part of the Company's business. Our opinion is necessarily
based upon market, economic and other conditions as they exist and can be
evaluated as of the date of this letter.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent. We hereby consent to the inclusion of this letter in the
regulatory filings required in connection with the Offer and the Merger,
including Schedule 14D-9 and the proxy statement to be filed in connection with
the Board's recommendation regarding the Offer and the Merger. This opinion is
not intended to be and shall not constitute a recommendation to any shareholder
of the Company as to whether to tender Shares pursuant to the Offer.
We have acted as financial advisor to the Company in connection with the
proposed transaction and will receive a fee for our services which is in part
contingent upon the consummation of the proposed transaction. In addition, the
Company has agreed to indemnify us for certain liabilities arising out of the
rendering of this opinion.
II-2
<PAGE> 3
On the basis of, and subject to the foregoing, we are of the opinion as of
the date hereof that the proposed cash consideration to be received by the
holders of the Shares pursuant to the Offer and the Merger is fair to such
shareholders from a financial point of view.
Very truly yours,
/s/ CROFT & BENDER LLC
CROFT & BENDER LLC
II-3
<PAGE> 4
[The Robinson-Humphrey Company, Inc. Letterhead]
December 17, 1996
Board of Directors
American Studios, Inc.
11001 Park Charlotte Boulevard
Charlotte, North Carolina 28273
To the Members of the Board:
We understand that American Studios, Inc. (the "Company"), PCA
International, Inc. (the "Acquiror") and PCA Acquisition Corp. (the
"Purchaser"), a wholly owned subsidiary of the Acquiror, propose to enter into
an Agreement and Plan of Merger (the "Agreement") pursuant to which the
Purchaser will make a tender offer (the "Offer") for all shares of the Company's
common stock, par value $.001 per share (the "Shares"), at $2.50 per Share, net
to the seller in cash. The Offer is expected to commence not later than five
business days after the public announcement of the execution of the Agreement.
The Agreement also provides that, following consummation of the Offer, the
Purchaser will be merged with and into the Company in a transaction (the
"Merger") in which each remaining Share will be converted into the right to
receive $2.50 in cash.
You have asked us whether, in our opinion, the proposed cash consideration
to be received by the holders of the Shares in the Offer and the Merger is fair
to such shareholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed publicly available information concerning the Company
which we believe to be relevant to our analysis;
(2) Reviewed certain information, including financial and operating
information with respect to the business, operations and prospects of the
Company, furnished to us by the Company;
(3) Conducted discussions with members of senior management of the
Company concerning its business, operations and prospects;
(4) Reviewed the historical market prices and trading activity for the
Shares and compared them with those of certain publicly traded companies
which we deemed to be reasonably similar to the Company;
II-4
<PAGE> 5
(5) Compared the results of operations and present financial condition
of the Company with those of certain publicly traded companies which we
deemed to be reasonably similar to the Company;
(6) Compared the proposed financial terms of the transactions
contemplated by the Agreement with the financial terms of certain other
mergers and acquisitions which we deemed to be relevant;
(7) Performed certain financial analyses with respect to the Company's
projected future operating performance, including a discounted cash flow
analysis;
(8) Reviewed the final execution draft of the Agreement; and
(9) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company,
and, although we have discussed such information with management, we have not
independently verified such information. With respect to the financial forecasts
for the years 1997 through 2000 furnished by the Company, we have assumed that
they have been reasonably prepared and reflect the best currently available
estimates and judgment of the Company's management as to the expected future
financial performance of the Company. We have not conducted a physical
inspection of the properties and facilities of the Company, and we have not made
nor obtained any evaluations or appraisals of the assets or liabilities of the
Company. In addition, you have not authorized us to solicit, and we have not
solicited, any indications of interest from any third party with respect to the
purchase of all or a part of the Company's business. Our opinion is necessarily
based upon market, economic and other conditions as they exist and can be
evaluated as of the date of this letter.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent. We hereby consent to the inclusion of this letter in the
regulatory filings required in connection with the Offer and the Merger,
including Schedule 14D-9 and the proxy statement to be filed in connection with
the Board's recommendation regarding the Offer and the Merger. This opinion is
not intended to be and shall not constitute a recommendation to any shareholder
of the Company as to whether to tender Shares pursuant to the Offer.
We have acted as financial advisor to the Company in connection with the
proposed transaction and will receive a fee for our services which is in part
contingent upon the consummation of the proposed transaction. In addition, the
Company has agreed to indemnify us for certain liabilities arising out of the
rendering of this opinion. The Robinson-Humphrey Company, Inc. has provided
investment banking services for the Company in the past and has received
customary fees for these services. In the ordinary course of business, The
Robinson-Humphrey Company, Inc. actively trades in the common stock of the
Company for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
II-5
<PAGE> 6
On the basis of, and subject to the foregoing, we are of the opinion as of
the date hereof that the proposed cash consideration to be received by the
holders of the Shares pursuant to the Offer and the Merger is fair to such
shareholders from a financial point of view.
Very truly yours,
/s/ THE ROBINSON-HUMPHREY COMPANY, INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
II-6
<PAGE> 1
EXHIBIT 7
FOR IMMEDIATE RELEASE
December 18, 1996
PCA INTERNATIONAL, INC. AND AMERICAN STUDIOS, INC.
EXECUTE DEFINITIVE AGREEMENT FOR PCA TO ACQUIRE ASI AT $2.50 PER SHARE
Matthews, North Carolina, December 18, 1996 - PCA International, Inc. (NASDAQ:
PCAI) and American Studios, Inc. (NASDAQ: AMST) announced today that they have
entered into a definitive agreement on December 17, 1996 under which PCA will
acquire American Studios for $2.50 per share in cash. The total purchase price
offered by PCA for the approximately 21.4 million shares of American Studios
outstanding, plus assumption of debt and capital lease obligations, is
approximately $66 million.
The transaction has been unanimously approved by the Boards of Directors of
both companies. Under the agreement, a subsidiary of PCA will commence a cash
tender offer for all American Studios shares at $2.50 per share. Consummation
of the tender offer will be subject to, among other things, the tender of a
majority of the outstanding shares on a fully diluted basis and the expiration
or termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. The tender offer is to be followed by a merger
pursuant to which each remaining share will be converted into the right to
receive the cash price per share paid in the offer.
PCA also stated that it has entered into agreements with certain members of
management and other stockholders of American Studios pursuant to which such
persons owning an aggregate of approximately 57% of the current outstanding
shares have agreed to tender their shares into PCA's offer. Included in such
amount, such persons owning an aggregate of approximately 46% of the current
outstanding shares have granted PCA an option to purchase such shares under
certain circumstances. In addition, certain members of management of American
Studios have entered into non-complete and employment agreements with PCA to
become effective upon closing of the offer.
NationsBank, N.A., and NationsBanc Capital Markets, Inc., have delivered to PCA
a commitment letter providing for the arrangement and syndication of credit
facilities in an aggregate principal amount of up to $100 million. The credit
facilities will be available to finance the tender offer and merger and to
provide for working capital and general corporate purposes.
The tender offer will be made only pursuant to definitive offering documents,
which will be filed with the Securities and Exchange Commission and mailed to
stockholders of American Studios promptly.
American Studios provides portrait photography services in approximately 2,000
Wal-Mart stores in the United States and Mexico. American Studios operates
approximately 850 permanent studios with traveling portrait promotions
conducted periodically in the remaining
<PAGE> 2
Wal-Mart stores it services. The company also provides traveling fashion
photography services in selected Wal-Mart stores.
PCA International, Inc., provides professional portrait services in 1,577
permanent studios in the United States, Canada, and Puerto Rico. PCA presently
operates 1,376 studios in Kmart stores in the United States and Puerto Rico; 87
studios in Wal-Mart stores in the United States, Canada, and Puerto Rico; and
114 studios in PETsMART stores in the United States and Canada.
CONTACTS:
Bruce A. Fisher Shawn W. Poole
Senior Vice President Executive Vice President
Chief Financial Officer Chief Financial Officer
PCA International, Inc. American Studios, Inc.
(704) 847-8011, Ext 2404 (704) 588-4351, Ext 5310
<PAGE> 1
American Studios Inc. logo
December 23, 1996
Dear Shareholder:
We are pleased to report that on December 17, 1996, American Studios, Inc.
entered into an Agreement and Plan of Merger with PCA International, Inc. and
one of its subsidiaries, ASI Acquisition Corp., which provides for the
acquisition of American Studios common stock at a price of $2.50 per share in
cash. Under the terms of the agreement, ASI Acquisition will commence a tender
offer for all outstanding shares of American Studios common stock at $2.50 per
share. Subject to successful completion of the tender offer, and satisfaction of
certain conditions in the agreement, ASI Acquisition will be merged into
American Studios and all shares not purchased in the tender offer (other than
shares held by PCA, ASI Acquisition, or ASI, or any of their respective
subsidiaries, or dissenting shareholders) will be converted into the right to
receive $2.50 per share in cash in the merger.
Your Board of Directors has unanimously approved the offer and determined
that the terms of the offer and the merger are fair to and in the best interests
of ASI shareholders. Accordingly, the Board of Directors unanimously recommends
that all ASI shareholders accept the offer and tender their shares.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors. These factors included the opinions of
Croft & Bender LLC and The Robinson-Humphrey Company, Inc., investment bankers
and financial advisors to American Studios, that the consideration of $2.50 per
share to be received by shareholders pursuant to the offer and the merger is
fair to shareholders from a financial point of view.
Accompanying this letter is a copy of the Company's
Solicitation/Recommendation Statement on Schedule 14D-9. Also enclosed is ASI
Acquisition's Offer to Purchase and related materials, including a Letter of
Transmittal for use in tendering shares. We urge you to read the enclosed
materials carefully.
The management and directors of American Studios thank you for the support
you have given the Company.
On behalf of the Board of Directors,
Sincerely,
/s/ J. Robert Wren Jr.
J. Robert Wren, Jr.
Chief Executive Officer and President
11001 PARK CHARLOTTE BLVD., POST OFFICE BOX 410609, CHARLOTTE, NC 28241 (704)
588-4351
