<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only
(as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
NORWOOD PROMOTIONAL PRODUCTS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, No Par Value Per Share
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
4,099,306
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$20.70
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$84,855,634
- --------------------------------------------------------------------------------
(5) Total fee paid:
$16,971
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$16,971
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Schedule 13E-3
- --------------------------------------------------------------------------------
(3) Filing Party:
Norwood Promotional Products, Inc.
- --------------------------------------------------------------------------------
(4) Date Filed:
April 29, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
NORWOOD PROMOTIONAL PRODUCTS, INC.
106 E. SIXTH STREET
SUITE 300
AUSTIN, TEXAS 78701
, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
(including any adjournments or postponements thereof, the "Meeting") of Norwood
Promotional Products, Inc. (the "Company") to be held on , 1998
at :00 a.m., local time, in the [San Jacinto Room] at The Four Seasons Hotel,
98 San Jacinto Boulevard, Austin, Texas.
At the Meeting, you will be asked to consider and vote upon proposals to
(1) adopt an amendment to the articles of incorporation of the Company (the
"Charter Amendment") that would change the shares of the common stock of the
Company (the "Common Stock") from shares without par value into shares with a
par value of $.01 per share and authorize the Board of Directors of the Company
(the "Board") to establish and issue one or more series of serial preferred
stock, and (2) approve the merger (the "Merger") of a wholly-owned subsidiary
("Newco") of FPK, LLC ("LLC") with and into the Company, with the Company
continuing as the surviving corporation (the "Surviving Corporation"), pursuant
to an Agreement and Plan of Merger dated as of March 15, 1998, as amended (the
"Merger Agreement"), by and between the Company and LLC, and the other terms of
the Merger Agreement. The adoption of the Charter Amendment is a condition to
the consummation of the Merger under the Merger Agreement. A copy of the Merger
Agreement is attached to the accompanying Proxy Statement as Appendix A.
Subject to the terms and conditions of the Merger Agreement, at the
effective time of the Merger (the "Effective Time"), each share of Common Stock
outstanding immediately prior to the Effective Time (other than shares held by
the Company or any of its subsidiaries as treasury stock, shares held by the
Buyout Group (as defined below) and shares held by dissenting shareholders who
have validly exercised and perfected their rights under Texas law) will be
converted into the right to receive $20.70 in cash (the "Merger Consideration").
Frank P. Krasovec is the Chairman, President and Chief Executive Officer of
the Company and is a member of the Buyout Group. Mr. Krasovec beneficially owns
all the interests in LLC. All of the capital stock of Newco, when formed, will
be beneficially owned by LLC. John H. Josephson, a director of the Company, is
also a member of the Buyout Group. As of , 1998 (the "Record Date"),
Mr. Krasovec and the other shareholders of the Company who will continue to own
shares of common stock in the Surviving Corporation (the "Buyout Group")
beneficially owned 660,917 and 468,542 shares of Common Stock, respectively
(representing approximately 13.0% and 9.0%, respectively, of the outstanding
Common Stock).
Pursuant to the Texas Business Corporation Act, the affirmative vote of
holders of at least two-thirds of the shares of Common Stock outstanding as of
the Record Date is required to adopt the Charter Amendment and approve the
Merger Agreement. It is anticipated that the members of the Buyout Group will
vote the 981,445 shares of Common Stock held of record by them, representing
approximately 19.3% of the outstanding Common Stock, in favor of the adoption of
the Charter Amendment and the approval of the Merger Agreement. In addition, it
is anticipated that the members of the Board who are not members or affiliates
of members of the Buyout Group will vote the 25,010 shares of Common Stock held
of record by them in favor of the Charter Amendment and the Merger Agreement.
At the Effective Time, in order to fund a portion of the costs of the
Merger, the Surviving Corporation will issue (i) shares of its common stock to
purchasers (which purchasers may include members of the Buyout Group) (the
"Additional Common Shareholders") for an aggregate of approximately $4 million,
and (ii) units of its preferred stock and common stock to purchasers for an
aggregate of $20 million (collectively, with the Additional Common Shareholders,
the "New Shareholders"). Newco will be formed by LLC in order to enable members
of the Buyout Group and the New Shareholders to acquire, through the Merger, all
<PAGE> 3
of the outstanding Common Stock not already owned by the members of the Buyout
Group. At the Effective Time, the members of the Buyout Group will continue to
own an aggregate of 981,445 shares of Common Stock that they held of record
immediately prior to the Effective Time. If the Merger is consummated, (i) the
members of the Buyout Group, along with the New Shareholders, will hold all of
the outstanding capital stock of the Surviving Corporation, and (ii) except as
described in the Proxy Statement, the holders of options, warrants and
convertible debt instruments entitling them to purchase or acquire shares of
Common Stock, including members of the Buyout Group, who do not exercise or
convert such options, warrants or convertible debt instruments prior to the
Effective Time will continue to hold such securities entitling them to purchase
or acquire common stock of the Surviving Corporation. The Company expects all
directors who are not members of the Buyout Group to exercise their warrants to
purchase shares of Common Stock prior to the Effective Time.
Due to the inherent conflicts of interest related to the Merger, the Board
appointed a Special Committee of the Board (the "Special Committee") comprised
of two of the directors of the Company, Robert L. Seibert and John H. Wilson
III, who are neither officers of the Company nor members of the Buyout Group, to
review, evaluate and negotiate the terms of the proposed Merger and to make a
recommendation to the Board concerning the fairness of the proposed Merger. The
Special Committee retained J.C. Bradford & Co., L.L.C. ("J.C. Bradford") to act
as its financial advisor. J.C. Bradford has delivered its written opinion to the
Special Committee to the effect that, as of the date hereof, the Merger
Consideration of $20.70 in cash per share of Common Stock to be received in the
Merger by the Company's shareholders other than members of the Buyout Group (the
"Public Shareholders") is fair to the Public Shareholders from a financial point
of view. A copy of J.C. Bradford's written opinion is attached as Appendix B to
the accompanying Proxy Statement.
For the reasons set forth in the attached Proxy Statement, upon the
recommendation of the Special Committee, the Board (with two interested
directors abstaining) has unanimously determined that the proposed Merger is in
the best interests of the Company and the Public Shareholders, approved the
terms of Merger Agreement and recommended that the Merger Agreement be approved
and adopted by the shareholders of the Company. Consummation of the Merger is
dependent upon adoption of the Charter Amendment. THE BOARD RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" ADOPTION OF THE CHARTER AMENDMENT AND APPROVAL OF THE
MERGER AGREEMENT.
Attached is a Notice of Special Meeting of Shareholders and a Proxy
Statement containing a description of the Charter Amendment and a discussion of
the background of, reasons for and terms of the Merger. You are urged to read
this material carefully. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE
ASKED TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. FAILURE TO
VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE CHARTER AMENDMENT AND THE
MERGER AGREEMENT. If you attend the Meeting, your proxy may be revoked if you
elect to vote in person. Your prompt cooperation will be greatly appreciated.
Very truly yours,
/s/ JAMES P. GUNNING, JR.
------------------------------------
James P. Gunning, Jr.,
Secretary
<PAGE> 4
NORWOOD PROMOTIONAL PRODUCTS, INC.
106 E. SIXTH STREET
SUITE 300
AUSTIN, TEXAS 78701
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of Norwood Promotional Products, Inc. (the "Company") will be held on
, 1998 at :00 a.m., local time, in the [San Jacinto Room] at The
Four Seasons Hotel, 98 San Jacinto Boulevard, Austin, Texas, for the following
purposes:
(1) To consider and vote upon a proposal to adopt an amendment to the
Company's articles of incorporation (the "Charter Amendment") to (a) change
the shares of the Company's common stock (the "Common Stock") from shares
without par value to shares with a par value of $.01 per share and (b)
authorize the Board of Directors of the Company (the "Board of Directors")
to establish and issue up to 1,000,000 shares in one or more series of
serial preferred stock;
(2) To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of March 15, 1998, as amended (the
"Merger Agreement"), between the Company and FPK, LLC ("LLC"), and the
merger of a wholly-owned subsidiary of LLC with and into the Company (the
"Merger") as contemplated by the Merger Agreement; and
(3) To transact such other business as may properly come before the
Meeting or any postponements or adjournments thereof.
Please read carefully the accompanying Proxy Statement. A copy of the
Merger Agreement is attached as Appendix A thereto and a copy of the proposed
Charter Amendment is attached as Appendix C thereto. The Proxy Statement and
Appendices thereto form a part of this Notice.
Only shareholders of record on the books of the Company at the close of
business on , 1998, the record date fixed by the Board of Directors,
are entitled to notice of, and to vote at, the Meeting and any postponements or
adjournments thereof. A list of the shareholders entitled to vote at the Meeting
will be kept on file at the offices of the Company located at 106 E. Sixth
Street, Suite 300, Austin, Texas 78701 for a period of at least 10 days prior to
the Meeting and will also be available at the Meeting subject to inspection by
any shareholder as required by law.
In connection with the Merger, holders of Common Stock who comply with
certain requirements and procedures set forth in Articles 5.12 and 5.13 of the
Texas Business Corporation Act may be entitled to assert certain dissenters'
rights. A copy of Articles 5.12 and 5.13 of the Texas Business Corporation Act
is attached as Appendix D to the accompanying Proxy Statement.
You are cordially invited to attend the Meeting. WHETHER OR NOT YOU EXPECT
TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO MARK, SIGN, DATE AND MAIL THE
ENCLOSED PROXY CARD PROMPTLY SO THAT YOUR SHARES OF COMMON STOCK MAY BE
REPRESENTED AND VOTED IN ACCORDANCE WITH YOUR WISHES. Proxies should be mailed
promptly, but not later than , 1998. If you attend the Meeting, you
may revoke your proxy and vote in person.
<PAGE> 5
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. UPON APPROVAL OF
THE MERGER, YOU WILL BE SENT INSTRUCTIONS REGARDING THE PROCEDURES TO EXCHANGE
YOUR EXISTING CERTIFICATES EVIDENCING COMMON STOCK OF THE COMPANY FOR THE MERGER
CONSIDERATION.
By Order of the Board of Directors
/s/ JAMES P. GUNNING, JR.
------------------------------------
James P. Gunning, Jr.,
Secretary
Austin, Texas
, 1998
<PAGE> 6
NORWOOD PROMOTIONAL PRODUCTS, INC.
106 E. SIXTH STREET
SUITE 300
AUSTIN, TEXAS 78701
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1998
The accompanying proxy is solicited by and on behalf of the Board of
Directors (the "Board of Directors" or "Board") of Norwood Promotional Products,
Inc. (the "Company") for use at a Special Meeting of Shareholders to be held on
, 1998, at :00 a.m., local time, in the [San Jacinto Room] at The
Four Seasons Hotel, 98 San Jacinto Boulevard, Austin, Texas, and any
postponements or adjournments thereof (the "Meeting"). The matters to be
considered and acted upon at the Meeting are described in the foregoing Notice
of Special Meeting of Shareholders and this Proxy Statement (as defined below).
This Proxy Statement and the related form of proxy are first being mailed on or
about , 1998 to all shareholders of record as of , 1998
(the "Record Date"). Shares of the Company's common stock, no par value (the
"Common Stock"), represented by proxies, will be voted as hereinafter described
or as otherwise specified in the proxy by the shareholder. Any proxy given by a
shareholder may be revoked by the shareholder at any time, prior to the voting
of the proxy, by delivering a written notice to the Secretary of the Company, by
executing and delivering a later-dated proxy or by attending the Meeting and
voting in person.
At the Meeting, holders of the Common Stock as of the Record Date will
consider and vote upon proposals to (1) adopt an amendment to the articles of
incorporation of the Company (the "Charter Amendment") that would change the
shares of the Common Stock from shares without par value into shares with a par
value of $.01 per share and authorize the Board of Directors to establish and
issue up to 1,000,000 shares in one or more series of serial preferred stock
("Serial Preferred Stock"), and (2) approve and adopt the merger (the "Merger")
of a wholly-owned subsidiary of FPK, LLC ("LLC") with and into the Company, with
the Company continuing as the surviving corporation (the "Surviving
Corporation") pursuant to an Agreement and Plan of Merger dated as of March 15,
1998, as amended (the "Merger Agreement"), by and between the Company and LLC,
and approve the other terms of the Merger Agreement. The Merger Agreement
provides, subject to the approval of two-thirds of the shareholders of the
Company at the Meeting and subject to the satisfaction or waiver of certain
other conditions, that: (a) a newly-formed, wholly-owned, corporate subsidiary
of LLC ("Newco") will be merged with and into the Company, with the Company
continuing as the Surviving Corporation; (b) each share of Common Stock that is
outstanding at the Effective Time (as hereinafter defined) of the Merger,
excluding shares of Common Stock held by the Company or any of its subsidiaries
as treasury stock, shares held by members of the Buyout Group (as hereinafter
defined), and shares held by dissenting shareholders who have validly exercised
and perfected their rights under Texas law (the "Dissenting Shareholders"), will
be converted into the right to receive $20.70 per share in cash, without
interest, subject to any applicable back-up withholding of taxes (the "Merger
Consideration"); and (c) except as provided herein, each existing option,
warrant and convertible debt instrument (each a "Company Stock Derivative")
relating to shares of Common Stock that is not exercised or converted prior to
the Effective Time shall continue to be outstanding on the same terms and
conditions as existed immediately prior to the Effective Time (except that the
term of all Company Stock Derivatives (other than convertible debt and employee
incentive stock options) will be extended for three years after the date of
their current expiration), except that upon exercise or conversion of each
Company Stock Derivative, the holder will receive common stock of the Surviving
Corporation rather than the Common Stock.
Frank P. Krasovec ("Krasovec") is the Chairman, President and Chief
Executive Officer of the Company and is a member of the Buyout Group. Krasovec
beneficially owns all the interests in LLC. All of the capital stock of Newco,
when formed, will be beneficially owned by LLC. John H. Josephson ("Josephson"),
a director of the Company, is also a member of the Buyout Group. As of the
Record Date,
<PAGE> 7
Krasovec and the other shareholders of the Company who will continue to own
shares of common stock in the Surviving Corporation (the "Buyout Group")
beneficially owned 660,917 and 468,542 shares of Common Stock, respectively
(representing approximately 13.0% and 9.0%, respectively, of the outstanding
Common Stock).
At the Effective Time, in order to fund a portion of the costs of the
Merger, the Surviving Corporation will issue (i) shares of its common stock to
purchasers (which purchasers may include members of the Buyout Group) (the
"Additional Common Shareholders") for an aggregate of approximately $4 million,
and (ii) units of its preferred stock and common stock to purchasers (the
"Preferred Shareholders") for an aggregate of $20 million (collectively, with
the Additional Common Shareholders, the "New Shareholders"). Newco will be
formed by LLC in order to enable members of the Buyout Group and the New
Shareholders to acquire, through the Merger, all of the outstanding Common Stock
not already owned by the members of the Buyout Group (the "Public Stock"). At
the Effective Time, the members of the Buyout Group will continue to own an
aggregate of 981,445 shares of Common Stock that they held of record immediately
prior to the Effective Time.
Pursuant to the Texas Business Corporation Act (the "TBCA"), the
affirmative vote of holders of at least two-thirds of the outstanding shares of
Common Stock is required to adopt the Charter Amendment and approve the Merger
Agreement. It is anticipated that the members of the Buyout Group will vote the
981,445 shares of Common Stock held of record by them, representing
approximately 19.3% of the outstanding Common Stock, in favor of the adoption of
the Charter Amendment and the approval of the Merger Agreement. In addition, it
is anticipated that the members of the Board who are not members of the Buyout
Group will vote the 25,010 shares of Common Stock held of record by them in
favor of the adoption of the Charter Amendment and the approval of the Merger
Agreement. The Company expects all directors who are not members of the Buyout
Group to exercise their warrants to purchase shares of Common Stock prior to the
Effective Time.
The Board of Directors appointed a Special Committee of the Board (the
"Special Committee") to review, evaluate and negotiate the terms of the Merger
Agreement and to make a recommendation to the Board of Directors concerning the
fairness of the Merger. The Special Committee is comprised of two of the
directors, Robert L. Seibert and John H. Wilson III, who are neither officers of
the Company nor members of the Buyout Group (but who will receive cash in
exchange for their shares of Common Stock, including shares of Common Stock
issued to them upon exercise of their Company Stock Derivatives prior to the
Effective Time, upon consummation of the Merger). Based upon the unanimous
recommendation of the Special Committee, the Board of Directors (with Krasovec
and Josephson abstaining due to inherent conflicts of interest) unanimously
determined that the Merger is in the best interests of the Company and holders
of the Public Stock (the "Public Shareholders"), approved the terms of the
Merger Agreement and recommended that the Merger Agreement be approved by the
shareholders of the Company. The Board of Directors (with Krasovec and Josephson
abstaining due to inherent conflicts of interest) also unanimously approved the
Charter Amendment. Under the terms of the Merger Agreement, consummation of the
Merger is dependent upon adoption of the Charter Amendment.
All shares of Common Stock represented by properly executed proxies
received prior to or at the Meeting and not revoked will be voted in accordance
with the instructions indicated in such proxies. IF NO INSTRUCTIONS ARE
INDICATED, SUCH PROXIES WILL BE VOTED FOR THE ADOPTION OF THE CHARTER AMENDMENT
AND THE APPROVAL OF THE MERGER AGREEMENT AND IN THE DISCRETION OF THE PERSONS
NAMED IN THE PROXY WITH RESPECT TO SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING. A shareholder may revoke his or her proxy at any time before
it is voted at the meeting by (i) executing and delivering to the Secretary of
the Company a proxy bearing a later date, (ii) filing written notice of such
revocation with the Secretary of the Company stating that the proxy is revoked
or (iii) attending the Meeting and voting in person.
In addition to the solicitation of proxies by use of the mails, directors,
officers and employees of the Company, without receiving additional
compensation, may solicit proxies by telephone, telecopier or personal
interview. The Company also will request brokerage houses and other custodians,
nominees and fiduciaries to
ii
<PAGE> 8
forward soliciting material to the beneficial owners of Common Stock held of
record by such custodians and will reimburse such custodians for their expenses
in forwarding soliciting materials.
If the Merger is not consummated, any proposals of shareholders of the
Company intended to be presented at the Annual Meeting of Shareholders of the
Company to be held in 1998 must be received by the Company, addressed to the
Secretary of the Company, by no later than , 1998 to be considered
for inclusion in the Company's proxy statement and form of proxy relating to
that meeting. Any such proposal has to comply with the requirements of Rule
14a-8 promulgated pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------
The Board of Directors knows of no additional matters that will be
presented for consideration at the Meeting. Execution of the accompanying proxy,
however, confers on the designated proxy holders discretionary authority to vote
the shares of Common Stock covered thereby in accordance with their best
judgment on such other business, if any, that may properly come before, and all
matters incident to the conduct of, the Meeting or any adjournments or
postponements thereof.
The date of this Proxy Statement is , 1998.
iii
<PAGE> 9
AVAILABLE INFORMATION
The Company, LLC and Krasovec have filed with the Securities and Exchange
Commission (the "SEC" or "Commission") a Rule 13E-3 Transaction Statement on
Schedule 13E-3 (including any amendments thereto, the "Schedule 13E-3") under
the Exchange Act with respect to the Merger. This Proxy Statement does not
contain all of the information set forth in the Schedule 13E-3 and the exhibits
thereto, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. The Company is subject to the informational requirements
of the Exchange Act and, in accordance therewith, files reports, proxy
statements and other information with the SEC.
The Schedule 13E-3 and the exhibits thereto, as well as such reports, proxy
statements and other information filed by the Company, can be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices at Suite 1300, Seven World Trade Center, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.
Copies of such materials also can be obtained at prescribed rates from the
Public Reference Section of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC maintains an Internet site on the World Wide Web
at "http://www.sec.gov," which contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC.
This Proxy Statement incorporates by reference documents that are not
presented herein or delivered herewith. The Company will provide these
documents, other than exhibits to such documents, without charge, by first class
mail or other equally prompt means within one business day of receipt of
request, to any person to whom this Proxy Statement is delivered, on written or
oral request to the Company at its offices located at 106 E. Sixth Street, Suite
300, Austin, Texas 78701, Attention: Corporate Secretary (telephone number (512)
476-7100).
Except as otherwise indicated herein, all information appearing in this
Proxy Statement concerning the Company has been supplied by the Company, and all
information appearing in this Proxy Statement concerning LLC, Newco and the
members of the Buyout Group has been supplied by LLC or the members of the
Buyout Group or is based upon publicly available documents on file with the SEC
and other public records. The Company assumes no responsibility for the accuracy
or completeness of the information furnished by LLC or the members of the Buyout
Group or contained in such documents and records other than those filed by the
Company or for any failure of LLC or the members of the Buyout Group to disclose
events that may have occurred and may affect the significance or accuracy of
such information and that are unknown to the Company. Likewise, LLC and the
members of the Buyout Group assume no responsibility for the accuracy or
completeness of the information furnished by the Company or contained in such
documents and records other than those provided by LLC or the members of the
Buyout Group or for any failure by the Company to disclose events that may have
occurred and that may affect the significance or accuracy of such information
and that are unknown to the Company.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OTHER PERSON.
iv
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.......................................
Table of Contents...........................................
Summary.....................................................
Selected Financial Data.....................................
The Parties.................................................
The Company...............................................
LLC.......................................................
Newco.....................................................
The Meeting.................................................
Time, Date and Place......................................
Voting Rights.............................................
Required Vote.............................................
Proposal One -- Amendment to the Articles of
Incorporation.............................................
Overview..................................................
Conversion of Par Value...................................
Authorization of Serial Preferred Stock...................
Proposal Two -- The Merger and Related Matters..............
Special Factors...........................................
Background of the Merger...............................
Purpose of and Reasons for the Merger; Certain Effects
of the Merger.........................................
Determination of Fairness of the Merger by the Special
Committee and the Board of Directors..................
Opinion of Special Committee's Financial Advisor.......
Position of Krasovec as to Fairness....................
Material Prepared by Krasovec's Advisor................
Interests of Certain Persons in the Merger.............
Future Plans of the Company............................
Rights of Dissenting Shareholders......................
Estimated Fees and Expenses; Sources of Funds..........
Expenses...............................................
The Merger Agreement......................................
The Merger.............................................
Effective Time.........................................
Articles of Incorporation and Bylaws of the Surviving
Corporation...........................................
Directors and Officers of the Surviving Corporation....
Conversion of Securities in the Merger; Treatment of
Derivatives...........................................
Payment For and Surrender of Company Common Shares.....
Closing of Stock Transfer Records......................
Representations and Warranties.........................
Acquisition Proposals..................................
Interim Operations of the Company......................
Certain Filings and Other Actions......................
Access to Information..................................
Insurance; Indemnity...................................
Employee Benefits......................................
Financing..............................................
Conditions.............................................
Termination............................................
Amendment..............................................
Certain U.S. Federal Income Tax Consequences of the
Merger................................................
Accounting Treatment of the Merger.....................
</TABLE>
v
<PAGE> 11
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Regulatory Approvals...................................
Pending Litigation.....................................
Market Information..........................................
Security Ownership of Certain Beneficial Owners and
Management................................................
Purchases of Common Stock by and Other Transactions with
Certain Persons...........................................
Transaction of Other Business...............................
Independent Auditors........................................
Incorporation of Certain Documents by Reference.............
Appendices:
Appendix A -- Agreement and Plan of Merger, as amended.... A-1
Appendix B -- Opinion of J.C. Bradford & Co., L.L.C....... B-1
Appendix C -- Proposed Charter Amendment.................. C-1
Appendix D -- Articles 5.12 and 5.13 of the Texas Business
Corporation Act........................................ D-1
Appendix E -- Form of Proxy Card.......................... E-1
</TABLE>
vi
<PAGE> 12
SUMMARY
The following summary is subject to and qualified in its entirety by
reference to the more detailed information contained elsewhere in this Proxy
Statement, including in the Appendices attached hereto and in the documents
incorporated by reference herein (the "Proxy Statement"). Unless defined herein,
capitalized terms used in this Proxy Statement have the meanings ascribed to
them in the Merger Agreement.
Certain information contained in this Proxy Statement contains forward
looking statements within the meaning of Section 21E of the Exchange Act,
including without limitation, statements as to the Company's financial
condition, results of operations and liquidity and capital resources and
statements as to management's beliefs, expectations or options. Such forward
looking statements are subject to risks and uncertainties and may be affected by
various factors that may cause actual results to differ materially from those in
the forward looking statements. Certain of these risks, uncertainties and other
factors, as and when applicable, are discussed in the Company's filings with the
Commission.
Shareholders are urged to read carefully the Proxy Statement in its
entirety.
Time, Date and Place.......... The Meeting will be held on , 1998
at :00 a.m., local time, in the [San Jacinto
Room] at The Four Seasons Hotel, 98 San Jacinto
Boulevard, Austin, Texas.
Purposes of the Meeting....... To consider and vote upon (i) the adoption of
the Charter Amendment (attached hereto as
Appendix C), (ii) the approval of the Merger
Agreement (attached as Appendix A hereto), and
(iii) such other matters as may properly come
before the Meeting or any postponements or
adjournments thereof.
Voting Rights................. The close of business on , 1998 has
been fixed as the Record Date for determining
holders of Common Stock entitled to notice of
and to vote at the Meeting. Each share of
Common Stock outstanding on the Record Date is
entitled to one vote at the Meeting. As of the
Record Date, [5,080,751] shares of Common Stock
were outstanding. The presence, in person or by
proxy, of the holders of a majority of the
shares of Common Stock entitled to vote at the
Meeting is necessary to constitute a quorum for
the transaction of business of the Meeting.
Any proxy given by a shareholder may be revoked
by the shareholder at any time prior to the
voting of the proxy by delivering a written
notice of revocation to the Secretary of the
Company, by executing and delivering a
later-dated proxy or by attending the meeting
and voting in person. UNLESS CONTRARY
INSTRUCTIONS ARE INDICATED ON THE PROXY, ALL
SHARES OF COMMON STOCK REPRESENTED BY VALID
PROXIES WILL BE VOTED FOR ADOPTION OF THE
CHARTER AMENDMENT AND APPROVAL OF THE MERGER
AGREEMENT.
Required Vote................. The affirmative vote of holders of at least
two-thirds of all of the outstanding shares of
Common Stock is required to adopt the Charter
Amendment and to approve the Merger Agreement,
which vote will constitute a majority of
outstanding shares of Common Stock held by
unaffiliated shareholders. It is anticipated
that the members of the Buyout Group will vote
the 981,445 shares of Common Stock held of
record by them (representing approximately
19.3% of the outstanding Common Stock) in favor
of the matters to be voted upon. In addition,
it is anticipated that the members of the Board
who are not members of the Buyout Group will
vote the 25,010 shares of Common Stock held of
record by
1
<PAGE> 13
them in favor of the Charter Amendment and the
Merger Agreement.
Effective Time of the
Merger........................ The Merger is expected to become effective as
of the date and time (the "Effective Time") of
the filing of appropriate Articles of Merger
with the Secretary of State of the State of
Texas, which is anticipated to occur
approximately two business days after the
approval of the Merger Agreement by the
Company's shareholders and the satisfaction or
waiver of the other conditions to the Merger
stated in the Merger Agreement.
Recommendation of the Board of
Directors................... Based upon, among other things, the
recommendation of the Special Committee and the
opinion of J.C. Bradford & Co., L.L.C. ("J.C.
Bradford") referred to below, the Board of
Directors (with Krasovec and Josephson
abstaining due to inherent conflicts of
interest) has determined that the Merger is in
the best interests of the Company and the
Public Shareholders and unanimously recommends
that the shareholders vote FOR adoption of the
Charter Amendment and approval of the Merger
Agreement.
Opinion of Special Committee's
Financial Advisor........... The Special Committee retained J.C. Bradford to
act as its financial advisor in connection with
the Merger. J.C. Bradford has delivered its
written opinion to the Special Committee, dated
the date hereof, to the effect that, as of such
date and subject to the qualifications and
assumptions set forth therein, the Merger
Consideration of $20.70 in cash per share of
Common Stock to be received by the Public
Shareholders in the Merger is fair to such
shareholders from a financial point of view. A
copy of J.C. Bradford's written opinion, which
sets forth the assumptions made, matters
considered and limitations on the review
undertaken in connection with the opinion, is
attached hereto as Appendix B and is
incorporated herein by reference. PUBLIC
SHAREHOLDERS SHOULD READ SUCH OPINION CAREFULLY
IN ITS ENTIRETY.
Interests of Certain Persons
in the Merger................. In considering the recommendation of the Board
with respect to the Merger, Public Shareholders
should be aware that, upon consummation of the
Merger, (i) the members of the Buyout Group
(including Krasovec and James P. Gunning, Jr.,
the executive officers of the Company, and
Josephson, a director of the Company), along
with the New Shareholders, will be the sole
shareholders of the Surviving Corporation; (ii)
Josephson, in addition to being a member of the
Buyout Group, is affiliated with Allen &
Company Incorporated ("Allen"), which has acted
as a financial advisor to Krasovec in
connection with the Merger and which will
continue to own warrants to purchase shares of
the Surviving Corporation's common stock after
the Effective Time; (iii) as holders of Company
Stock Derivatives, all of the members of the
Buyout Group will continue to hold such Company
Stock Derivatives on the same terms and
conditions as existed immediately prior to the
Effective Time of the Merger (except as set
forth herein), as will all other holders of
such Company Stock Deriva-
2
<PAGE> 14
tives; and (iv) each director of the Company
(other than Krasovec and Josephson) will
receive $20.70 per share upon payment of the
Merger Consideration for the shares of Common
Stock that they own and the shares of Common
Stock they will receive upon the anticipated
exercise of their Company Stock Derivatives.
Accordingly, the members of the Buyout Group
and the above-mentioned directors of the
Company have a direct economic interest in the
Merger. In light of these inherent conflicts of
interest, the Board of Directors of the Company
appointed the Special Committee comprised of
two of the directors who are not officers of
the Company or members of the Buyout Group to
review, evaluate and negotiate the terms of the
Merger Agreement and to make a recommendation
to the Board concerning the fairness of the
Merger.
Certain Effects of the
Merger........................ Following the Merger, the Buyout Group and the
New Shareholders will own 100% of the
outstanding capital stock of the Surviving
Corporation. Except as set forth herein, all
Company Stock Derivatives outstanding
immediately prior to the Effective Time shall
remain outstanding and shall be exercisable or
convertible into the common stock of the
Surviving Corporation. The members of the
Buyout Group and the New Shareholders will be
the sole beneficiaries of any future earnings
and growth of the Surviving Corporation (until
shares of the Surviving Corporation, if any,
are issued to others pursuant to the exercise
or conversion of Company Stock Derivatives or
otherwise), and the Public Shareholders will no
longer benefit from any increases in the value
of the Company or any payment of dividends on
the shares of Common Stock and will no longer
bear the risk of any decreases in value of the
Company. As a result of the Merger, (i) the
Surviving Corporation will be privately held,
(ii) there will be no public market for the
Common Stock and (iii) the Common Stock will
cease to be quoted on The Nasdaq Stock Market's
National Market ("Nasdaq"). Except as described
herein, all employee benefit and compensation
plans of the Surviving Corporation will be
substantially the same as the Company's present
benefit plans for a period of at least one
year, but the Surviving Corporation may
determine to amend present benefit plans or to
initiate additional employee benefit plans in
the future.
Future Plans for the
Company....................... It is expected that, immediately following the
Merger, the business and operations of the
Company will be continued by the Company, as
the Surviving Corporation in the Merger,
substantially as they are currently being
conducted. However, the members of the Buyout
Group and the management of the Surviving
Corporation will continue to evaluate the
Company's business and operations after the
consummation of the Merger and make such
changes as are deemed appropriate.
Merger Agreement.............. The Company and LLC have entered into the
Merger Agreement, providing for the merger of
Newco with and into the Company, with the
Company being the Surviving Corporation. A copy
of the Merger Agreement is attached hereto as
Appendix A. Under the terms of the Merger
Agreement, each share of the Common Stock
outstanding immediately prior to the Effective
Time (other than
3
<PAGE> 15
shares of Common Stock held by members of the
Buyout Group, held by the Company or any of its
subsidiaries as treasury stock and held by
Dissenting Shareholders) will be converted into
the right to receive $20.70 in cash, without
interest. At the Effective Time, the members of
the Buyout Group will continue to hold their
respective shares of the Common Stock and, upon
consummation of the Merger, the shares of the
Common Stock held by the members of the Buyout
Group will become outstanding common stock of
the Surviving Corporation. Thus, as a result of
the Merger, the Surviving Corporation will
become wholly-owned by the members of the
Buyout Group and the New Shareholders
(excluding any rights of any holder of Company
Stock Derivatives to exercise such derivatives
for common stock of the Surviving Corporation).
The Company has agreed not to participate or
engage in any discussions with anyone other
than LLC and the Buyout Group regarding any
Acquisition Proposal (as defined herein)
involving the Company, except with respect to
unsolicited written proposals or offers if the
Board reasonably believes that there is a
substantial risk that a failure to consider
such unsolicited written proposal or offer
would violate its fiduciary duties.
Dissenters' Rights............ If the Merger is consummated, Dissenting
Shareholders will be entitled to demand payment
of the fair value of their shares of Common
Stock in accordance with the procedures set
forth in Articles 5.12 and 5.13 of the TBCA.
Shareholders wishing to exercise dissenters'
rights must (i) not vote in favor of approval
of the Merger Agreement (which would include
submitting a signed proxy without voting
instructions); (ii) deliver to the Company,
prior to the Meeting, written notice of their
objection to the Merger stating that they will
exercise their right to dissent under the TBCA
if the Merger is effected; and (iii) strictly
comply with the other requirements of the TBCA.
Failure to follow the procedures required by
Articles 5.12 and 5.13 of the TBCA may result
in the loss of dissenters' rights (in which
event a shareholder will be entitled to receive
the Merger Consideration with respect to such
shareholder's shares of Common Stock in
accordance with the Merger Agreement).
Certain U.S. Federal Income
Tax
Consequences of the
Merger...................... The receipt of cash for Public Stock pursuant
to the Merger will be a taxable transaction to
the Public Shareholders for U.S. federal income
tax purposes under the Internal Revenue Code of
1986, as amended (the "Code"), and may be a
taxable transaction for foreign, state and
local income tax purposes as well. Public
Shareholders should consult their own tax
advisors regarding the U.S. federal income tax
consequences of the Merger, as well as any tax
consequences under state, local or foreign
laws.
Accounting Treatment of the
Merger........................ The Merger will be accounted for as a
"recapitalization," as such term is used under
generally accepted accounting principles, for
accounting and financial reporting purposes.
Estimated Fees and Expenses,
Sources of Funds.............. The total financing for the Merger Agreement
and related costs and expenses will be
approximately $179.3 million, of which
4
<PAGE> 16
approximately $85 million will be required to
pay the Merger Consideration to the Public
Shareholders and approximately $94.3 million
will have been incurred to refinance certain of
the Company's current indebtedness, fund the
Surviving Corporation's working capital needs
after the Merger and to pay all expenses of the
Company, LLC, Newco and the members of the
Buyout Group in connection with the Merger
Agreement and the transactions contemplated
thereby. Such funds will be furnished from (i)
equity financing of approximately $44.3 million
(the "Equity Financing"), consisting of (A)
approximately $24.3 million to be provided by
the Buyout Group and the Additional Common
Shareholders and (B) $20 million from the
issuance by the Surviving Corporation to the
Preferred Shareholders of units of its
pay-in-kind preferred stock and common stock,
which will be provided pursuant to a commitment
letter from Ares Leveraged Investment Fund,
L.P., an affiliate of Ares Management, L.P.
("Ares"), (ii) a $50 million senior secured
credit facility to be provided to the Surviving
Corporation pursuant to a commitment letter
from Merrill Lynch Capital Corporation
("Merrill Lynch"), NationsBank, N.A.
("NationsBank") and NationsBanc Montgomery
Securities, LLC ("NMS"), consisting of (A) a
$25 million senior secured term loan which will
be fully drawn at the Effective Time and (B) a
$25 million senior secured revolving credit
facility, of which no more than $10 million
will be drawn at the Effective Time (together,
the "Credit Facilities"), and (iii) up to $100
million from the issuance by the Surviving
Corporation of unsecured senior subordinated
notes due 2008, which notes will be sold or
placed pursuant to a highly confident letter by
Merrill Lynch, Pierce, Fenner & Smith
Incorporated and its affiliates and will be
issued at the Effective Time (the "Senior
Subordinated Notes").
5
<PAGE> 17
SELECTED FINANCIAL DATA
The following selected financial data for the five years ended August 30,
1997 are derived from the audited consolidated financial statements of the
Company. The financial data for the six month periods ended March 1, 1997 and
February 28, 1998 are derived from unaudited financial statements. The unaudited
financial statements include all adjustments, consisting of normal recurring
accruals, that the Company considers necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the six months ended February 28, 1998 are not necessarily
indicative of the results that may be expected for the entire year ending August
29, 1998.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(A) SIX MONTHS ENDED
------------------------------------------------------------------ -----------------------
AUGUST 28, SEPTEMBER 3, SEPTEMBER 2, AUGUST 31, AUGUST 30, MARCH 1, FEBRUARY 28,
1993 1994 1995 1996(C) 1997 1997(J) 1998
---------- ------------ ------------ ---------- ---------- -------- ------------
AUDITED, IN THOUSANDS AUDITED, IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA(b):
Sales........................... $49,300 $62,385 $103,860 $144,048 $175,835 $75,086 $ 86,953
Cost of Sales................... 33,860 43,207 70,963 100,245 125,732 52,850 63,501
------- ------- -------- -------- -------- -------- --------
Gross Profit.................. 15,440 19,178 32,897 43,803 50,103 22,236 23,452
Operating expenses:
Sales and marketing........... 5,678 6,886 11,290 16,441 18,119 8,705 8,480
General and administrative.... 4,266 5,065 9,037 12,171 13,125 6,145 7,181
Amortization expense............ 724 889 2,119 3,538 3,885 1,904 2,034
Restructuring and unusual
charges..................... -- -- -- 1,640 1,816 -- --
------- ------- -------- -------- -------- -------- --------
Total operating expenses........ 10,668 12,840 22,446 33,790 36,945 16,754 17,695
------- ------- -------- -------- -------- -------- --------
Operating income................ 4,772 6,338 10,451 10,013 13,158 5,482 5,757
Interest expense................ 1,982 1,030 3,619 3,246 3,002 1,313 1,902
------- ------- -------- -------- -------- -------- --------
Income before income taxes...... 2,790 5,308 6,832 6,767 10,156 4,169 3,855
Provision for income taxes...... 1,032 1,979 2,800 2,705 4,091 1,645 1,581
------- ------- -------- -------- -------- -------- --------
Income from continuing
operations before
extraordinary loss............ 1,758 3,329 4,032 4,062 6,065 2,524 2,274
Net income...................... $ 1,183(d) $ 3,329 $ 4,032 $ 4,155(f) $ 1,004(f) $ 1,605(l) $ 2,274
======= ======= ======== ======== ======== ======== ========
Net income available to common
shareholders.................. $ 1,116(e) $ 3,329 $ 4,032 $ 4,155 $ 1,004 $ 1,605 $ 2,274
Earnings per common share(k):
Basic......................... $ 0.65 $ 0.94 $ 1.14 $ 0.85 $ 0.19 $ 0.29 $ 0.45
Diluted....................... $ 0.62 $ 0.93 $ 1.11 $ 0.82 $ 0.18 $ 0.28 $ 0.43
Weighted average number of
common shares outstanding(k):
Basic......................... 1,718 3,539 3,539 4,898 5,388 5,620 5,075
Diluted....................... 1,803 3,576 3,636 5,090 5,500 5,775 5,200
BALANCE SHEET DATA:
(AT END OF PERIOD)
Working capital............... $12,246 $18,668 $ 31,083 $ 35,248 $ 37,876 $35,463 $ 43,770
Total assets.................. 25,941 55,702 94,859 121,376 135,194 127,965 127,527
Total debt:
Bank credit facility........ 6,146 27,100 50,500 33,725 46,990 38,735 45,990
Other debt and capital
leases.................... 1,828 5,097 12,410 13,953 14,432 15,975 13,532
Total shareholders' equity...... 13,546 16,871 21,034 57,380 51,276 59,071 53,712
OTHER DATA:
EBITDA(g)(h).................. $ 6,597 $ 8,526 $ 14,476 $ 16,686 $ 21,313 $ 9,306 $ 9,688
Depreciation expense.......... 1,101 1,299 1,906 3,135 4,270 1,920 1,897
Amortization expense.......... 724 889 2,119 3,538 3,885 1,904 2,034
Capital expenditures.......... 1,199 1,426 2,073 4,919 4,863 2,487 2,106
Dividends(i).................. 132 -- -- -- -- -- --
</TABLE>
- ---------------
(a) The Company's fiscal year is a 52- or 53-week period ending on the Saturday
closest to August 31. All references to fiscal 1993, 1994, 1995, 1996 and
1997 are to the fiscal years ended August 28, 1993, September 3, 1994,
September 2, 1995, August 31, 1996 and August 30, 1997, respectively.
(b) The Company's results of operations for the periods presented were
significantly affected by acquisitions in fiscal 1994, 1995, 1996 and 1997
and by the public offerings of Common Stock in June 1993 and December 1995.
These factors affect the comparability of sales and results of operations
from period to period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" incorporated herein by
reference to such information included in the Company's reports on Form
10-K and Form 10-Q.
(c) The fiscal 1996 amounts have been restated to reflect the activity for the
five months of ownership of the Alpha Products retail division as
discontinued operations.
(d) After deducting a one-time charge to earnings of $575,000, net of taxes,
related to the write-off of unamortized debt costs and the termination of a
product financing arrangement in connection with the Company's initial
public offering of Common Stock in June 1993, which resulted in a reduction
in basic and diluted earnings per share of $0.33 and $0.32, respectively.
6
<PAGE> 18
(e) Reflects the deduction of dividends on outstanding Junior Preferred Stock
which was redeemed in fiscal 1993.
(f) After deducting gain (loss) on discontinued operations, net of tax, of
$93,000 and ($1.96) million in fiscal 1996 and fiscal 1997, respectively,
and estimated loss of $2.86 million on disposal of discontinued operations,
net of tax, in fiscal 1997. Additionally, an extraordinary loss from debt
extinguishment of $241,000, net of tax, was recognized in fiscal 1997.
(g) EBITDA is defined as income from continuing operations before extraordinary
loss, income taxes, interest expense, depreciation and amortization. The
Company believes that the presentation of EBITDA facilitates an investor's
understanding of the effects on the Company's operations of amortization of
goodwill and other intangibles and increased interest expense under
indebtedness incurred in connection with various acquisitions which
substantially impacted net income, net income per common share and cash
flows. EBITDA should not be considered by an investor as an alternative to
net income as an indicator of the Company's operating performance or to
cash flows as a measure of liquidity. EBITDA is not used in the
presentation of financial statements prepared in accordance with generally
accepted accounting principles.
(h) Excluding the restructuring and unusual charges of $1.6 million in fiscal
1996 and $1.8 in fiscal 1997, EBITDA in fiscal 1996 and fiscal 1997 was
$18.3 million and $23.1 million, respectively.
(i) The Company paid dividends to holders of its preferred stock between fiscal
1990 and fiscal 1993. None of the preferred stock is currently outstanding.
(j) Restated for discontinued operations reported in the fourth quarter 1997.
(k) The fiscal 1993, 1994, 1995, 1996, 1997 and Six Months Ended March 1, 1997
amounts have been restated to conform with the provisions of Statement of
Financial Accounting Standards No. 128, Earnings Per Share.
(l) After deducting loss on discontinued operations, net of tax, of $919,000
for the Six Months Ended March 1, 1997.
7
<PAGE> 19
THE PARTIES
THE COMPANY
The Company is a Texas corporation. Its principal executive offices are
located at 106 E. Sixth Street, Suite 300, Austin, Texas 78701, and its
telephone number is (512) 476-7100. For a further discussion of the Company, its
business and its current financial condition, see the Company's Annual Report on
Form 10-K for the fiscal year ended August 30, 1997, as amended, and the
Company's Quarterly Report on Form 10-Q for the six months ended February 28,
1998, both of which are incorporated herein by reference.
LLC
LLC is a Delaware limited liability company. Its principal offices are
located at 106 E. Sixth Street, Suite 300, Austin, Texas 78701, and its
telephone number is (512) 476-7100. Krasovec is the sole member and manager of
LLC. LLC conducts no business activities and its only asset will be the capital
stock of Newco when Newco is formed, and such capital stock will be canceled at
the Effective Time.
NEWCO
Newco will be a Texas corporation, wholly owned by LLC and organized solely
for the purpose of effecting the Merger. Newco will have no material assets.
Newco will not engage in any activities except in connection with the Merger and
will cease to exist upon the consummation of the Merger. Newco's principal
offices will be located at 106 E. Sixth Street, Suite 300, Austin, Texas 78701,
and its telephone number will be (512) 476-7100.
THE MEETING
TIME, DATE AND PLACE
The Meeting will be held on , 1998 at :00 a.m., local time,
in the [San Jacinto Room] at The Four Seasons Hotel, 98 San Jacinto Boulevard,
Austin, Texas.
VOTING RIGHTS
Only holders of shares of Common Stock of record at the close of business
on the Record Date will be entitled to notice of and vote at the Meeting. At the
close of business on the Record Date, the Company had [5,080,751] outstanding
shares of Common Stock, each such share entitling the holder thereof to one vote
on each matter that may properly come before the Meeting. The presence at the
Meeting, in person or by proxy, of the holders of a majority of the shares of
Common Stock entitled to vote shall constitute a quorum at the Meeting.
Abstentions and broker non-votes (shares held by brokers and other nominees or
fiduciaries that are present at the Meeting but not voted on a particular
matter) will be counted as present at the Meeting for purposes of determining
the presence or absence of a quorum, but since they are not votes "for" a
particular matter, they will have the same effect as votes "against" a
particular matter. Any proxy given by a shareholder may be revoked by the
shareholder at any time, prior to the voting of the proxy, by delivering a
written notice of such revocation to the Secretary of the Company, by executing
and delivering a later-dated proxy or by attending the Meeting and voting in
person.
If a shareholder gives specific voting instructions by checking the boxes
on the proxy, the shares of Common Stock will be voted in accordance with such
instructions. UNLESS CONTRARY INSTRUCTIONS ARE INDICATED ON THE PROXY, ALL
SHARES OF COMMON STOCK REPRESENTED BY VALID PROXIES WILL BE VOTED FOR EACH
PROPOSAL SET FORTH IN SUCH PROXY AND WILL BE VOTED AT THE DISCRETION OF THE
PROXIES IN RESPECT OF SUCH OTHER BUSINESS, IF ANY, AS MAY PROPERLY BE BROUGHT
BEFORE THE MEETING. As of the date hereof, the Board of Directors knows of no
other business that will be presented for consideration at the Meeting other
than the matters referred to herein. If, however, other matters are properly
brought before the Meeting, it is the intention of the persons
8
<PAGE> 20
named in the accompanying proxy to vote the shares represented thereby in
accordance with their best judgment and discretionary authority to do so is
included in the proxy.
In addition to the solicitation of proxies by mail, the directors, officers
and employees of the Company, without receiving additional compensation, may
solicit proxies by telephone, telecopier, personal interview or otherwise. The
Company also will request brokerage houses and other custodians, nominees and
fiduciaries to forward soliciting material to the beneficial owners of Common
Stock held of record by such custodians and will reimburse such custodians for
their reasonable out-of-pocket expenses incurred by them in forwarding
soliciting materials.
REQUIRED VOTE
Pursuant to the TBCA, the affirmative vote of the holders of two-thirds of
the outstanding shares of Common Stock is required to adopt the Charter
Amendment and approve the Merger Agreement, which vote will constitute a
majority of outstanding shares of Common Stock held by unaffiliated
shareholders. It is anticipated that the members of the Buyout Group will vote
the 981,445 shares of Common Stock held of record by them (representing
approximately 19.3% of the outstanding Common Stock) in favor of the matters to
be voted upon. It is also anticipated that the members of the Board who are not
members of the Buyout Group will vote the 25,010 shares of Common Stock held of
record by them in favor of the Charter Amendment and the Merger Agreement.
PROPOSAL ONE
AMENDMENT TO THE ARTICLES OF INCORPORATION
OVERVIEW
The Board of Directors has adopted a resolution setting forth a proposed
amendment to Article Four of the Company's articles of incorporation, and
directed that the proposed amendment be submitted to a vote of the shareholders
at the Meeting. The proposed amendment would (i) change the shares of Common
Stock from shares without par value into shares with a par value of $.01 per
share, and (ii) authorize the Board of Directors to establish and issue up to
1,000,000 shares of Serial Preferred Stock. The text of the proposed Charter
Amendment is set forth in Appendix C to this Proxy Statement and should be read
in its entirety by the shareholders. The adoption of the Charter Amendment is a
condition to the consummation of the Merger.
The affirmative vote of the holders of at least two-thirds of the
outstanding Common Stock present in person or by proxy is required for adoption
of the proposed Charter Amendment. If the proposed Charter Amendment is adopted
by the shareholders, the Company will file the Charter Amendment with the
Secretary of State of the State of Texas. The Charter Amendment will become
effective upon the issuance by the Secretary of State of the State of Texas of a
certificate of amendment with a copy of the Charter Amendment attached. The
approval of the Merger Agreement is not a condition to the adoption of the
Charter Amendment. If the Charter Amendment is adopted by the shareholders, it
will be filed and will become effective whether or not the Merger Agreement is
approved or the Merger is consummated.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" ADOPTION OF
THE CHARTER AMENDMENT (PROPOSAL ONE).
CONVERSION OF PAR VALUE
If the Charter Amendment is adopted and becomes effective, the Common Stock
will be automatically converted from shares without par value into shares with a
par value of $.01 per share. As a result, pursuant to the TBCA, the "stated
capital" of the Company will be reduced by $22,967,556, from $23,024,128 to
$56,572 (the product of $.01 multiplied by the number of shares of Common Stock
issued), and the "surplus" of the Company will be increased in an equal amount.
Under the TBCA, a Texas corporation may not make any distribution to its
shareholders, including a dividend, a redemption or other acquisition of shares
or a payment in liquidation of its assets, if the corporation would be insolvent
as a result of such distribution or if such
9
<PAGE> 21
distribution exceeds such corporation's surplus. Therefore, the increase in the
Company's surplus resulting from the Charter Amendment would be available for
distributions by the Company, including the payment of the Merger Consideration
for the Public Stock pursuant to the Merger.
AUTHORIZATION OF SERIAL PREFERRED STOCK
The Charter Amendment would expressly vest in the Board the authority to
establish and issue up to 1,000,000 shares of Serial Preferred Stock in one or
more series to be designated by the Board. Such provisions are often referred to
as "blank check" provisions because they give the Board of Directors the
flexibility, at any time or from time to time, without further shareholder
approval, to create one or more series of Serial Preferred Stock and to
determine the designations, preferences and limitations of each such series,
including, but not limited to, (i) the number of shares, (ii) dividend rights,
(iii) voting rights, (iv) conversion privileges, (v) redemption provisions, (vi)
sinking fund provisions, (vii) rights upon liquidation, dissolution or winding
up of the Company and (viii) other relative rights, preferences and limitations
of such series.
The Board of Directors believes that amending the Articles of Incorporation
to authorize the Board to issue up to 1,000,000 shares of Serial Preferred Stock
provides the Company with the flexibility to address its potential future
financing needs, including in connection with the Merger, by creating one or
more series of Serial Preferred Stock customized to meet the needs of any
particular transaction and to market conditions. The Company also could issue
Serial Preferred Stock for other corporate purposes, such as to implement joint
ventures or to make acquisitions.
LLC has agreed in principle with Ares to cause the Surviving Corporation to
issue to the Preferred Shareholders, at the Effective Time, a new series of
20,000 shares of Serial Preferred Stock with a liquidation preference of $1,000
per share, in connection with the financing of the Merger. The new series of
Serial Preferred Stock, to be designated "Senior Redeemable Exchangeable
Preferred Stock" (the "Preferred Stock"), will be issued in units, each
consisting of one share of Preferred Stock and an undetermined number of shares
of common stock of the Surviving Corporation representing approximately 15% of
its common stock in the aggregate, on a fully diluted basis. Total proceeds from
the issuance of such units is expected to be $20 million, which will be used by
the Surviving Corporation to pay a portion of the expenses incurred in
connection with the Merger, including the payment of Merger Consideration for
the Public Stock. The Preferred Stock will have no voting rights, other than as
required by law, and will be senior in liquidation and payment of dividends to
all other classes of capital stock of the Surviving Corporation outstanding at
the Effective Time or issued thereafter. The Preferred Stock will accrue
dividends at a rate equal to the greater of (i) 12.25% and (ii) the yield to
maturity on the Senior Subordinated Notes plus 250 basis points. For the first
five years after issuance, dividends on the Preferred Stock will be payable, at
the Surviving Corporation's option, in additional shares of Preferred Stock or
cash. Thereafter, dividends on the Preferred Stock will be payable in cash only.
The Preferred Stock will be redeemable, in whole or in part, at the option
of the Surviving Corporation at any time after the fifth anniversary of the
issuance thereof, at various premiums to the liquidation preference thereof and
may be redeemed prior to the fifth anniversary of issuance in certain instances.
The Surviving Corporation will also have the option at any time to exchange the
Preferred Stock for subordinated notes with substantially the same terms as the
Preferred Stock.
If the Merger is not consummated, the Preferred Stock will not be issued.
Although the Company is not currently considering the issuance of Serial
Preferred Stock for any other financing or transactional purposes and has no
present intention to issue any series of Serial Preferred Stock other than the
Preferred Stock, the Board and management of the Company believe that, in the
future, the Board should have the flexibility to issue Serial Preferred Stock
consistent with its ability to issue debt or additional shares of Common Stock.
If the Merger is not consummated, and if any future series of Serial
Preferred Stock issued by the Board provides for dividends, such dividends may
be cumulative and may have a preference as to the payment over the Common Stock.
In addition, if any series of Serial Preferred Stock authorized by the Board so
provides, in the event of any dissolution, liquidation or winding up of the
Company, whether voluntary or involuntary, the holders of each such series of
the then outstanding Serial Preferred Stock may be entitled to receive, prior to
the distribution of any assets or funds to the holders of Common Stock, a
liquidation preference established by
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the Board of Directors, together with all accumulated and unpaid dividends.
Depending upon the consideration paid for Serial Preferred Stock, the
liquidation preference of Serial Preferred Stock and other matters, the issuance
of Serial Preferred Stock could therefore result in a reduction in the assets
available for distribution to the holders of Common Stock in the event of
liquidation of the Company. Holders of Common Stock do not have any preemptive
rights to acquire Serial Preferred Stock or any other securities of the Company.
The Company's authorized capital stock currently consists of 24,000,700
shares, consisting of 4,000,000 shares of cumulative convertible preferred
stock, no par value ("Senior Preferred Stock"), 700 shares of cumulative
preferred stock, no par value ("Junior Preferred Stock"), and 20,000,000 shares
of Common Stock. As of the Record Date, [5,080,751] shares of Common Stock were
outstanding and no shares of Senior Preferred Stock or Junior Preferred Stock
were outstanding. The Charter Amendment would eliminate the Senior Preferred
Stock and the Junior Preferred Stock. The proposed amendment to authorize the
Serial Preferred Stock is not designed to deter or to prevent a change in
control; however, if the Merger is not consummated, under certain circumstances,
the Company could use the Serial Preferred Stock to create voting impediments or
to frustrate persons seeking to effect a takeover or otherwise gain control of
the Company and thereby to protect the continuity of the Company's management.
In addition, the issuance of additional Common Stock or Serial Preferred Stock
at below market rates would dilute the value of the outstanding securities of
the Company. The Company could also privately place such shares with purchasers
who might favor the Board of Directors in opposing a hostile takeover bid.
PROPOSAL TWO
THE MERGER AND RELATED MATTERS
SPECIAL FACTORS
BACKGROUND OF THE MERGER
Since June 1993, the Company has experienced significant growth. This
growth has resulted from internal growth and from selective acquisitions of
other businesses. As the Company expanded, its management became more
decentralized and it relied primarily on the operating companies to implement
systems designed to integrate the operations of acquired businesses.
During fiscal years 1996 and 1997, the Company encountered difficulties in
integrating the operations of certain acquired businesses. In the fourth quarter
of fiscal 1996, the Company recorded restructuring and non-recurring charges of
approximately $1.6 million ($984,000 net of tax) based on its decision to
consolidate certain facilities, terminate certain employees and write-off
capitalized acquisition costs. In the fourth quarter of fiscal 1997, the Company
decided to discontinue the operations of its Alpha Products retail division,
acquired in fiscal 1996, and relocate the promotional products division of Alpha
Products to other Company facilities. The Company announced that it anticipated
the loss from discontinued operations of the Alpha Products retail division
would be approximately $8.0 million ($4.8 million net of tax). The Company also
undertook a substantial restructuring in August 1997 that included significant
changes in management personnel and the realignment of operating companies into
two principal operating groups. As a result of these changes, the Company
recorded restructuring and non-recurring charges of approximately $1.8 million
($1.1 million net of tax).
Management of the Company believes that the inconsistent operating results
reported by the Company as a result of difficulties encountered in implementing
its acquisition strategy and the resulting restructuring and consolidation
charges, combined with the Company's small market capitalization and the limited
trading activity in the Company's Common Stock, have depressed the market price
of the Common Stock.
In light of these conditions, Krasovec met with Merrill Lynch in November
1997 and again in December 1997 to discuss the possibility of a buyout of the
Public Shareholders. Krasovec selected Merrill Lynch because of its
long-standing relationship with the Company beginning with its initial
investment in the Company in 1989 and continuing today in its role as the
arranger and administrative agent of the Company's current senior credit
facility.
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On January 8, 1998, representatives of Merrill Lynch made a presentation to
Krasovec regarding the feasibility of a leveraged buyout and recapitalization of
the Company. The presentation included an analysis of the sources and uses of
funds necessary to recapitalize the Company and certain timing and due diligence
issues.
On January 9, 1998, a special meeting of the Board of Directors was held
during which Krasovec informed the Board of Directors that he was evaluating
whether to make a proposal involving the acquisition of the outstanding Common
Stock of the Company through a merger or other leveraged buyout transaction.
Krasovec informed the Board that any such proposal might involve other members
of management of the Company or other persons.
With Krasovec excused from the meeting, the Board of Directors appointed
Messrs. Robert L. Seibert and John H. Wilson III, two of the directors of the
Company who are neither officers of the Company nor members of the Buyout Group,
to serve on the Special Committee created to receive, review, evaluate and
negotiate any proposed transaction and to make recommendations in respect
thereof to the Board. The Board authorized the Special Committee to engage its
own financial and legal advisors for the transaction at the Company's expense.
Between January 9, 1998 and March 6, 1998, several telephone meetings
occurred between the members of the Special Committee. Between January 9, 1998
and February 12, 1998, the Special Committee contacted a number of investment
banking firms regarding acting as the financial adviser to the Special
Committee. On January 20, 1998, the Special Committee engaged Fulbright &
Jaworski, L.L.P. as its special legal counsel.
As of January 12, 1998, Krasovec formally engaged Merrill Lynch and Allen
as his financial advisors to assist him in analyzing, structuring, negotiating
and effecting a proposed transaction with the Company. On January 19, 1998,
Krasovec and other members of management made a presentation to representatives
of NationsBank and Merrill Lynch on the Company's business and operations.
On February 5, 1998, the Special Committee received a written proposal
letter from Krasovec suggesting a cash price of $19.50 for each share of
outstanding Common Stock of the Company. In the proposal letter, Krasovec stated
that he expected the acquisition would be effected by means of a merger of the
Company with a company to be formed by Krasovec and that he would solicit other
investors, including other members of senior management of the Company, to
invest in such newly formed company. The proposal letter also stated that
Krasovec was arranging with Merrill Lynch and NationsBank to provide the funds
necessary to finance the acquisition and that the financing sources would
deliver commitment letters and a "highly confident" letter in the aggregate
amount of the required financing at the time of the execution of a binding,
definitive merger agreement.
On February 12, 1998, the Special Committee engaged J.C. Bradford as
special financial advisor to the Special Committee and the Board. Subject to
written confirmation in a formal engagement letter, the Special Committee
authorized J.C. Bradford to commence an examination of the Company and explore
appropriate valuation methodologies for the purpose of rendering an opinion
regarding whether the consideration to be paid in any transaction would be fair
to the Public Shareholders from a financial point of view. J.C. Bradford
thereafter undertook a review of the Company's business, operations and
prospects with a view toward advising the Special Committee as to the fairness,
from a financial point of view, of the consideration to be proposed by Krasovec.
The scope and nature of that examination is discussed in "-- Opinion of Special
Committee's Financial Advisor." J.C. Bradford reviewed for the Special Committee
its preliminary examination of the Company and discussed various valuation
methodologies that would be used in determining the fairness, from a financial
point of view, of the price to be paid to the Public Shareholders. After
considering the information provided by J.C. Bradford and based on their own
knowledge and experience in commercial transactions, the members of the Special
Committee concluded that the proposed price of $19.50 per share should be
increased.
On February 27, 1998, John H. Wilson III, a member of the Special
Committee, contacted Krasovec to inform him that the cash price of $19.50 per
share was inadequate. On March 2, 1998, Krasovec met with Mr. Wilson to inform
him that he would increase the consideration to $20.70 per share, provided the
other
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<PAGE> 24
terms of a merger agreement could be agreed upon. On March 4, 1998, an initial
draft of the Merger Agreement was delivered to the members of the Special
Committee and to counsel to the Special Committee and counsel to the Company.
On March 7, 1998, a special meeting of the Board of Directors was held to
discuss the terms of the revised proposal submitted by Krasovec. J.C. Bradford
reviewed for the Board of Directors its financial analyses and indicated that,
based upon the various considerations and assumptions described below under
"-- Opinion of Special Committee's Financial Advisor," J.C. Bradford was
prepared to orally advise the Board of Directors that the $20.70 per share in
cash to be received by the Public Shareholders in connection with the proposed
Merger was fair from a financial point of view to the Public Shareholders. See
"-- Opinion of Special Committee's Financial Advisor."
During the next several days, Krasovec, members of the Special Committee
and counsel to Krasovec, the Special Committee and the Company engaged in
numerous telephone conversations to discuss and negotiate the terms of the
Merger Agreement.
On March 11, 1998, a substantially complete form of the Merger Agreement
was delivered to the directors of the Company. On March 13, 1998, substantially
complete forms of the commitment and "highly confident" letter regarding the
financing of the Merger were delivered to the directors of the Company. On March
13, 1998, Krasovec formed FPK, LLC by filing a certificate of formation with the
Secretary of State of the State of Delaware.
On March 15, 1998, a special meeting of the Board of Directors was held by
telephone conference. A presentation was made by counsel to the Special
Committee as to the revisions to the Merger Agreement. J.C. Bradford then
delivered its oral opinion that, as of March 15, 1998, the $20.70 per share cash
consideration to be received by the Public Shareholders in the Merger was fair
to such shareholders from a financial point of view. The Special Committee then
recommended to the Board the approval of the Merger Agreement and the
transactions contemplated thereby. The Board of Directors (with Krasovec and
Josephson abstaining due to inherent conflicts of interest) unanimously adopted
a resolution approving the Merger Agreement and recommending that the
shareholders of the Company approve the Merger Agreement. See "-- Interests of
Certain Persons in the Merger."
Later on March 15, 1998, the parties executed and delivered the Merger
Agreement. On the morning of March 16, 1998, the execution of the Merger
Agreement was publicly announced through a press release issued by the Company.
Following the execution of the Merger Agreement, Krasovec solicited certain
members of the Company's management to become members of the Buyout Group. It is
anticipated that the members of the Buyout Group, along with the New
Shareholders, will enter into a shareholders' agreement that will provide
certain rights and responsibilities among the shareholders of the Surviving
Corporation. The terms of the shareholders' agreement have not yet been
determined.
PURPOSE OF AND REASONS FOR THE MERGER; CERTAIN EFFECTS OF THE MERGER
The principal purposes for the Merger are: (a) for the members of the
Buyout Group, along with the New Shareholders, to acquire all of the equity
interest in the Company represented by the Public Stock; (b) to give the Public
Shareholders the opportunity to dispose of their shares of Common Stock at a
fair value; and (c) to eliminate the potential volatility in the value of the
Common Stock occasioned by the lack of an active trading market for the Common
Stock. Other than as set forth herein, the members of the Buyout Group have no
reason for proposing the Merger at this particular time (as opposed to any other
time) and are not aware of any material development affecting the future value
of the Common Stock that is not described in this Proxy Statement. See
"-- Future Plans of the Company."
The Merger has been structured so as to enable the Buyout Group, along with
the New Shareholders, to acquire all of the equity interest in the Company while
maximizing shareholder value for the Public Shareholders. The Merger will
terminate all equity interests in the Company of the Company's current
shareholders, other than the members of the Buyout Group. Accordingly, the
Public Shareholders will share
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<PAGE> 25
in neither future earnings and growth of the Company nor the risks associated
with achieving such earnings and growth following the Merger. The Merger will
enable the Public Shareholders to receive a cash payment of $20.70 per share of
Common Stock pursuant to a transaction which has been determined by the Special
Committee and the Board of Directors of the Company and by Krasovec, as
discussed under "-- Determination of Fairness of the Merger by the Special
Committee and the Board of Directors" and "-- Position of Krasovec as to
Fairness," to be fair to such Public Shareholders, or to seek dissenters' rights
as described under "-- Rights of Dissenting Shareholders." The Merger
Consideration was the result of arm's-length negotiations between
representatives of Krasovec and the members of the Special Committee and their
respective advisors following the receipt of the proposal by Krasovec. Following
the Merger, the members of the Buyout Group and the New Shareholders, along with
holders of other Company Stock Derivatives upon their exercise or conversion,
will be the sole beneficiaries of any future earnings and growth of the Company
and will have the ability to benefit from any divestitures, strategic
acquisitions or other corporate opportunities that may be pursued by the Company
in the future.
The assumption by the Company of the status of a private company will allow
the Company to eliminate the time devoted by its management and certain other
employees to matters that relate exclusively to the Company being a public
company. Additionally, the Company will be able to reduce certain other costs
that relate to being a public company, including the following: the cost of
preparing, printing and mailing certain corporate reports and proxy statements,
the expense of a transfer agent and the cost of investor relations activities.
As a result of the Merger, the Surviving Corporation will be privately held and
there will be no public market for its common stock. Upon consummation of the
Merger, the Common Stock will cease to be quoted on Nasdaq.
In connection with the Merger and the discussions relating thereto, the
members of the Buyout Group have advised the Company that, relating to the
structure of the Merger, they did not consider any alternative that would have
allowed the Public Shareholders to maintain an equity interest in the Company.
The members of the Buyout Group considered, but ultimately rejected, a
redemption, including an issuer self tender of the Public Stock.
The Company believes that the Merger will be treated for federal income tax
purposes as a redemption by the Company of the Public Stock and, therefore, will
not give rise to gain, loss or other income to the Company, to LLC or to Newco.
The Merger will be a taxable transaction to the holders of the Common Stock who
receive Merger Consideration or cash pursuant to the exercise of dissenters'
rights for federal income tax purposes and may be taxable for state, local,
foreign and other tax purposes. See "The Merger Agreement -- Certain U.S.
Federal Income Tax Consequences of the Merger."
Other than the Company's Second Amended and Restated Employee Stock
Purchase Plan, which is expected to be terminated at the Effective Time, all
employee benefit and compensation plans of the Surviving Corporation will be
substantially the same as the Company's present benefit plans for a period of at
least one year. The Surviving Corporation may determine to amend present benefit
plans or to initiate additional employee benefit plans in the future to
compensate and motivate key employees. See "The Merger Agreement -- Employee
Benefits."
DETERMINATION OF FAIRNESS OF THE MERGER BY THE SPECIAL COMMITTEE AND THE BOARD
OF DIRECTORS
On March 15, 1998, the Board of Directors (with Krasovec and Josephson
abstaining due to inherent conflicts of interest), after receiving the
recommendation of the Special Committee, unanimously determined that the Merger
is in the best interests of the Company and the Public Shareholders, approved
the Merger Agreement and recommended to the Public Shareholders that they
approve the Merger Agreement. See "-- Interests of Certain Persons in the
Merger."
In making its determination with respect to the fairness, from a financial
point of view, of the Merger, including the Merger Consideration, and in
determining to recommend approval of the Merger Agreement to the Board of
Directors, the Special Committee considered a number of factors. In making its
determination with respect to the fairness of the Merger from a financial point
of view, including the Merger Consideration, and in approving the Merger
Agreement, the Board of Directors (except for the interested directors)
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<PAGE> 26
considered the same factors. The material factors so considered by the Special
Committee and the Board of Directors included, without limitation those set
forth below. In analyzing the proposed Merger, the Special Committee met on
numerous separate occasions, consulted with its financial and legal advisors and
had numerous other discussions with Krasovec and his representatives and between
the members of the Special Committee.
(i) The Special Committee and the Board considered the historical
market prices and recent trading activity of the Common Stock and the fact
that the Merger Consideration would enable the Public Shareholders to
realize a premium over the prices at which the Common Stock has traded in
the last year (including the ten business day average of reported closing
prices for the Common Stock ending with the day prior to the date of the
Company's press release reporting the Merger (the "Public Announcement
Date") which was $17.375); and the Merger Consideration represents a 19%
premium over the ten business day average price and a 30% premium over the
average of the closing prices during the 120 business days prior to the
Public Announcement Date. The historical market prices of the Common Stock
for the past year were deemed relevant because they indicate the
arm's-length trading prices of the Common Stock for that period as
determined in the open market. In the judgment of the Special Committee and
the Board, the fact that the Merger Consideration represents a premium over
such prices is a significant factor in the determination of fairness.
(ii) The Special Committee and the Board considered the oral opinion
of J.C. Bradford to the effect that, as of March 15, 1998, the Merger
Consideration of $20.70 in cash per share of Common Stock to be received by
the Public Shareholders in the Merger was fair to such shareholders from a
financial point of view and also considered the analyses underlying such
opinion. See "-- Opinion of Special Committee's Financial Advisor." A copy
of the written J.C. Bradford opinion, dated the date hereof, setting forth
the assumptions made, matters considered and limitations on the review
undertaken in connection with such opinion, is attached as Appendix B to
this Proxy Statement and should be carefully read in its entirety.
(iii) The Special Committee and the Board considered information with
respect to the financial condition, results of operations, business and
prospects of the Company, as well as the risks involved in achieving such
prospects, the current state of the promotional products industry,
including the Special Committee's views regarding the economic and market
conditions affecting the Company and such industry.
(iv) The Special Committee and the Board also evaluated the Merger
Consideration in light of the following factors: price, the ability of LLC
to consummate the proposed transaction, the percentage of Common Stock
owned by the members of the Buyout Group, the proposed structure of the
transaction and anticipated closing date, and the fiduciary obligations of
the Special Committee and the Board to the Public Shareholders.
(v) The Special Committee considered the risks to the Company and the
Public Shareholders of entering into the Merger Agreement with LLC,
including (a) LLC being a newly-formed company without any significant
assets prior to consummation of the Merger, (b) LLC's ability to consummate
the Merger being dependent upon its ability to close on the financing and
(c) the provisions of the Merger Agreement requiring the Company in certain
circumstances to reimburse LLC for its reasonable and customary
out-of-pocket expenses in the event that the Merger is not consummated.
(vi) The Special Committee also considered the fact that consummation
of the Merger would preclude the Public Shareholders from having the
opportunity to participate in the future growth prospects of the Surviving
Corporation. Accordingly, in reaching its conclusion to approve the Merger
Agreement, the Special Committee considered management's projections of
future sales and earnings of the Company and determined that the future
prospects of the Company are adequately reflected in the Merger
Consideration. In addition, the Special Committee recognized that the
members of the Buyout Group will have the opportunity to benefit from any
increases in the value of the Surviving Corporation following the Merger.
See "-- Interests of Certain Persons in the Merger," "-- Future Plans of
the Company" and "-- Purpose of and Reasons for the Merger; Certain Effects
of the Merger."
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(vii) The Special Committee also considered the fact that the Merger
would afford the Public Shareholders an opportunity to dispose of their
Common Stock at fair value without the possible diminution of value
resulting from the lack of an active trading market and without payment of
brokerage fees.
In view of the various factors considered by the Special Committee in
connection with its evaluation of the Merger and the Merger Consideration, the
Special Committee did not find it necessary to quantify or otherwise attempt to
assign relative importance to the specific factors considered in making its
determination, nor did it evaluate whether such factors were of equal
importance. However, based upon these factors, the evaluation of all the
relevant information provided to them by J.C. Bradford and taking into account
the existing trading ranges for the Common Stock, the Special Committee
determined that the Merger, including the Merger Consideration, was fair from a
financial point of view, to the Public Shareholders. The Special Committee and
the other members of the Board of Directors believe that the Merger was
considered in a manner that was procedurally fair to the Public Shareholders and
that the directors properly discharged their responsibilities and duties.
Krasovec and Josephson are the only members of the Board of Directors who
are members of the Buyout Group. Accordingly, Krasovec and Josephson did not
participate on the Special Committee and abstained from voting on the Merger due
to inherent conflicts of interest. See "-- Interests of Certain Persons in the
Merger."
The Company believes that the manner in which the Merger is to be
implemented is procedurally fair to the Public Shareholders based on the
following factors: (i) the Special Committee was formed to promote and protect
the interests of the Public Shareholders; (ii) the Special Committee was
comprised solely of members of the Board of Directors who are neither members of
the Buyout Group nor officers of the Company (but who will receive cash in
exchange for their Common Stock, including shares of Common Stock to be issued
upon the anticipated exercise of their warrants, upon consummation of the
Merger); (iii) the Special Committee retained an independent financial advisor,
J.C. Bradford, and independent legal counsel, Fulbright & Jaworski L.L.P.; and
(iv) the negotiations between Krasovec and the Special Committee and their
respective counsel of the terms of the Merger Agreement were conducted on an
arm's-length basis.
OPINION OF SPECIAL COMMITTEE'S FINANCIAL ADVISOR
J.C. Bradford was retained by the Special Committee to assist the Special
Committee and the Board of Directors in evaluating the proposed Merger and to
render its opinion as to the fairness from a financial point of view of the
consideration to be received by the Public Shareholders in the Merger. J.C.
Bradford is a nationally recognized investment banking firm that engages in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for estate, corporate, and other purposes. J.C. Bradford was selected
as the Special Committee's financial advisor based upon such expertise.
On March 15, 1998, J.C. Bradford delivered its oral opinion to the Special
Committee to the effect that, as of such date, the Merger Consideration was fair
to the Public Shareholders from a financial point of view. J.C. Bradford
subsequently confirmed its oral opinion by delivery of its written opinion dated
as of the date of this Proxy Statement. J.C. Bradford's opinion is directed only
to the fairness from a financial point of view of the Merger Consideration to be
received by the Public Shareholders in the Merger and does not constitute a
recommendation to any shareholder as to whether such shareholder should vote in
favor of the Merger. J.C. Bradford conducted valuation analyses of the Common
Stock and evaluated the Merger Consideration, but was not asked to and did not
recommend a specific per share price to be issued pursuant to the Merger. J.C.
Bradford's opinion does not address the likely tax consequences of the Merger to
any Public Shareholder. In addition, J.C. Bradford was not asked to consider and
its opinion does not address the relative merits of the proposed Merger as
compared to any alternative business strategies that might exist for the Company
or the effect of any other transactions in which the Company might engage. J.C.
Bradford did not make an independent evaluation or appraisal of the assets and
liabilities of the Company or any of its subsidiaries or affiliates and has not
been provided with any such evaluation or appraisal. The full text of J.C.
Bradford's
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<PAGE> 28
written opinion, which sets forth the assumptions made, procedures followed,
matters considered, and limits of its review undertaken in connection with the
opinion, is included as Appendix B and is incorporated by reference herein. The
Public Shareholders are urged to and should read such opinion in its entirety.
In conducting its analysis and delivering its opinions, J.C. Bradford
considered such financial and other factors as it deemed appropriate and
feasible under the circumstances including, among other things, (i) the Merger
Agreement; (ii) the historical and current financial position and results of
operations of the Company; (iii) certain internal financial analyses and
forecasts of the Company for the fiscal years beginning September 1, 1997 and
ending August 31, 2003, prepared for the Company by its senior management; (iv)
certain financial and securities data of certain other companies, the securities
of which are publicly traded and that J.C. Bradford believed to be generally
comparable to the Company; (v) prices and premiums paid in certain other
acquisitions and transactions that J.C. Bradford believed to be relevant; (vi)
historical and current price and trading activity for the Common Stock; and
(vii) such other financial studies, analyses and investigations as J.C. Bradford
deemed appropriate for purposes of its opinion. J.C. Bradford also held
discussions with members of the senior management of the Company regarding the
past and current business operations, financial condition and future prospects
of the Company. With the permission of the Special Committee, J.C. Bradford
assumed that financing for the Merger had been irrevocably obtained on the terms
set forth in commitment letters and highly confident letters from financing
sources previously reviewed by J.C. Bradford, and that the Merger Agreement had
been executed and delivered by the parties thereto on terms substantially
similar to those contained in the most recent draft thereof supplied to and
reviewed by J.C. Bradford as of the date of its opinion. In addition, J.C.
Bradford took into account its assessment of general economic, market and
financial conditions and its experience in other transactions as well as its
experience in securities valuation and its knowledge of the promotional products
industry generally.
J.C. Bradford's opinion is necessarily based upon general economic, market,
financial and other conditions as they existed on the date thereof and the
information made available to J.C. Bradford through such date. For purposes of
the opinion, J.C. Bradford relied upon and assumed the accuracy and completeness
of the financial and other information made available to it and did not assume
responsibility for independent verification of such information. J.C. Bradford
has assumed, and the management of the Company has represented, that the
information provided by the Company had a reasonable basis and reflected the
best currently available estimates and judgments of the Company's management as
to the recent and likely future performance of the Company. J.C. Bradford also
relied upon the representations of the Company's management that they were not
aware of any information or fact that would make the information provided to
J.C. Bradford incomplete or misleading, J.C. Bradford was not authorized by the
Special Committee or the Company to solicit, and did not solicit, other entities
for purposes of a possible business combination. No limitations were imposed by
the Special Committee or the Company on the scope of J.C. Bradford's
investigation or the procedures to be followed in rendering its opinion. The
opinion was based upon the information available to J.C. Bradford and the facts
and circumstances as they existed and were subject to evaluation on the date of
the opinion. Events occurring after such date could materially affect the
assumptions used in preparing the opinion and J.C. Bradford has no duty or
obligation to update or amend its opinion or otherwise advise the Special
Committee, the Board of Directors or any other party or person of the occurrence
of any such events.
In preparing its report to the Special Committee, J.C. Bradford performed a
variety of financial and comparative analyses and considered a variety of
factors, including (i) comparable company analysis; (ii) discounted cash flow
analysis; (iii) leveraged buyout analysis; (iv) premium analysis; and (v) stock
trading analysis. The summary of J.C Bradford's analyses set forth below does
not purport to be a complete description of the analyses underlying J.C.
Bradford's opinion. The preparation of a fairness opinion is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analysis or summary description. In arriving at its opinion, J.C. Bradford did
not attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, J.C. Bradford believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
the factors considered by it, without considering all analyses and factors,
could create a misleading or incomplete view of the processes underlying such
analyses
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<PAGE> 29
and its opinion. With respect to the comparable company analysis summarized
below, no company utilized as a comparison is identical to the Company and such
analysis necessarily involves complex considerations and judgments concerning
the differences in financial and operating characteristics of the companies and
other factors that could affect the acquisition or public trading values of the
companies concerned. In performing its analyses, J.C. Bradford made numerous
assumptions with respect to industry performance, general business, economic,
market and financial conditions, and other matters. The analyses performed by
J.C. Bradford are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses. Because such analyses are inherently subject to uncertainty, being
based upon numerous factors or events beyond the control of the parties or their
respective advisors, none of the Company, J.C. Bradford or any other person
assumes responsibility if future results are materially different from those
forecast.
The following is a summary of the report presented by J.C. Bradford to the
Special Committee on March 7, 1998:
(a) Comparable Company Analysis. Using publicly available information,
J.C. Bradford reviewed certain financial and operating data for several
publicly traded companies engaged in businesses with characteristics
similar to the Company's (the "Comparable Company Group"). J.C. Bradford
calculated the current market price of each company as a multiple of
estimated 1998 earnings ("1998 P/E"), which ranged from 11.3x to 25.6x with
an adjusted average multiple of 13.1x; current market price as a multiple
of estimated 1999 earnings ("1999 P/E"), which ranged from 9.3x to 22.2x
with an adjusted average multiple of 11.2x; current market price as a
multiple of book value ("Book Value Multiple"), which ranged from 1.2x to
2.6x with an adjusted average multiple of 1.7x; total firm value (defined
as equity market value plus net debt) as a multiple of last twelve months
("LTM") revenues ("Revenue Multiple"), which ranged from 0.6x to 2.1x with
an adjusted average multiple of 0.9x; and total firm value as a multiple of
LTM earnings and earnings before interest, taxes, depreciation and
amortization ("EBITDA") (the "EBITDA Multiple"), which ranged from 5.7x to
9.0x with an adjusted average multiple of 7.4x. J.C. Bradford compared the
Comparable Company Group multiples to the corresponding multiples in the
Merger, including 12.6x 1998 P/E, 10.3x 1999 P/E, 2.1x Book Value Multiple,
0.9x Revenue Multiple and 7.2x EBITDA Multiple.
(b) Discounted Cash Flow Analysis. Using discounted cash flow
analysis, based on information obtained from the senior management of the
Company, J.C. Bradford discounted to present value the future cash flows
that the Company is projected to generate through 2003, under various
circumstances, assuming the Company performed in accordance with the
earnings forecast of management. J.C. Bradford calculated terminal values
for the Company (i.e., the values at the 2003 fiscal year end) by applying
multiples of EBITDA and earnings in the year 2003. The cash flow streams
and terminal values were then discounted to present values using different
discount rates chosen to reflect different assumptions regarding the
Company's cost of capital. J.C. Bradford also calculated various implied
future stock prices of the Company based on its projected net earnings in
fiscal year 2003 and discounted those prices to present values using
different discount rates chosen to reflect different assumptions regarding
the Company's cost of capital. Based on the above described analysis, the
implied value per share ranged from $18.16 to $23.17 as compared to the
closing stock price of the Common Stock on March 3, 1998 of $17.38 and the
offer price of $20.70.
(c) Leveraged Buyout Analysis. J.C. Bradford utilized the projections
provided by senior management to analyze the value of the Company as a
stand-alone entity in a leveraged transaction. Based on the structure of
the proposed recapitalization and the proposed offer of $20.70 per share of
Common Stock in the Merger, J.C. Bradford calculated the five-year internal
rates of return ("IRRs") to the convertible preferred equity holders and
the equity investors, and analyzed the total indebtedness to be incurred as
a result of the transaction. J.C. Bradford calculated terminal values for
the Company (i.e., the values at the 2003 fiscal-year end) by applying
multiples of EBITDA in the year 2003. J.C. Bradford noted that, based on
the foregoing, the convertible preferred equity holders are projected to
achieve an IRR of between 22.9% and 25.0% over the five-year period, and
that the equity investors are projected to achieve an IRR of between 31.1%
and 36.9% over the five-year period. J.C. Bradford also noted that upon
completion of
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<PAGE> 30
the transaction, the Company's total indebtedness to LTM EBITDA ratio will
be approximately 4.8x. Based upon its experience in leveraged transactions,
J.C. Bradford noted that these return levels are consistent with those
required in such transactions.
(d) Premium Analysis. J.C. Bradford prepared an analysis of the
premiums paid in 386 completed cash acquisitions of public companies since
January 1995 in which 100% of the target's shares were controlled by the
acquirer following the acquisition. J.C. Bradford considered, among other
factors, the type of consideration used in the acquisition and the premiums
paid based on the closing price of the target's shares at one day, one week
and four weeks prior to the announcement. For all cash acquisitions where
100% of the target's shares were controlled by the acquirer following the
acquisition, J.C. Bradford calculated median premiums of 24.0%, 27.5% and
33.6% at one day, one week, and four weeks prior to the announcement,
respectively. These premiums, based upon the announcement date of March 16,
1998, imply per share equity values for the Company of $21.55, $22.15 and
$22.38, respectively. These premiums, when applied to the 30-day average
stock price as of March 7, 1998, imply per share equity values for the
Company of $19.98, $20.55 and $21.54, respectively.
(e) Stock Trading Analysis. J.C. Bradford reviewed and analyzed the
historical trading volume and prices at which the Common Stock has traded
since January 1, 1996. J.C. Bradford noted that trading activity was
limited and that the trading market was relatively illiquid. J.C. Bradford
also noted that the highest traded price was $24.00, which occurred in
April 1996, and the lowest traded price was $9.25, which occurred in May
1994.
Pursuant to the terms of an engagement letter dated February 12, 1998, the
Company agreed to pay J.C. Bradford for acting as financial advisor to the
Special Committee in connection with the Merger a fee as follows: (i) $50,000
upon execution of the engagement letter, (ii) $75,000 at the time J.C. Bradford
notified the Special Committee that it was prepared to render its opinion
concerning the Merger, and (iii) $100,000 upon delivery of the opinion by J.C.
Bradford. The fees paid to J.C. Bradford were not contingent upon the
consummation of the Merger. In addition, the Company has agreed to reimburse
J.C. Bradford for its reasonable out-of-pocket expenses, including the fees and
disbursements of its counsel, and to indemnify J.C. Bradford and certain related
persons against certain liabilities relating to or arising out of its
engagement, including certain liabilities under the federal securities laws. In
the ordinary course of its business, J.C. Bradford has traded, and may in the
future trade, securities 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.
J.C. Bradford was engaged by the Special Committee to render its opinion as
to the fairness from a financial point of view of the consideration to be
received by the Public Shareholders in the Merger in connection with the Special
Committee's discharge of its fiduciary obligations. J.C. Bradford has advised
the Board of Directors and the Special Committee that it does not believe that
any person (including any shareholder of the Company) other than the Board of
Directors and the Special Committee has the legal right to rely upon J.C.
Bradford's opinion for any claim arising under state law and that, should any
such claim be brought against J.C. Bradford, this assertion will be raised as a
defense. In the absence of governing authority, this assertion will be resolved
by the final adjudication of such issue by a court of competent jurisdiction.
Resolution of this matter under state law, however, will have no effect on the
rights and responsibilities of any person under the federal securities laws or
on the rights and responsibilities of the Company's Board of Directors and the
Special Committee under applicable state law.
POSITION OF KRASOVEC AS TO FAIRNESS
Krasovec has concluded that the Merger and the Merger Consideration are
fair to the Public Shareholders and recommends that the Public Shareholders vote
in favor of the Merger based upon the following factors: (i) the conclusions and
recommendations of the Special Committee and the Company's Board of Directors;
(ii) the fact that the Merger Consideration and the other terms and conditions
of the Merger Agreement were the result of arm's-length good faith negotiations
between the Special Committee and its advisor and Krasovec and his advisors;
(iii) the advice of Merrill Lynch and Allen and (iv) the other factors referred
to above as having been taken into account by the Special Committee and the
Board of
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<PAGE> 31
Directors. See "-- Determination of Fairness of the Merger by the Special
Committee and the Board of Directors," "-- Opinion of the Special Committee's
Financial Advisor" and "-- Material Prepared by Krasovec's Advisor."
In view of the variety of factors considered in connection with his
evaluation of the Merger and the Merger Consideration, Krasovec did not find it
practicable to assign relative weights to the factors considered in reaching his
decision and, therefore, Krasovec did not quantify or otherwise attach relative
weights to the specific factors considered by the Special Committee, the
Company's Board of Directors and Krasovec.
Krasovec engaged Merrill Lynch and Allen to provide advice regarding, and
to assist in negotiating, the Merger Agreement. Krasovec also engaged Merrill
Lynch to assist in obtaining the financing necessary to consummate the
transactions contemplated by the Merger Agreement. Neither Merrill Lynch nor
Allen were engaged to, nor did either of them render, any opinion as to the
fairness of the Merger Consideration. If the Merger is consummated, Allen will
be paid a fee of $700,000 for providing advice and assistance with respect to
negotiating the Merger Agreement and Merrill Lynch will be paid fees in the
aggregate of $5,025,000 for (i) providing advice and assistance with respect to
negotiating the Merger Agreement, (ii) acting as co-arranger in connection with
the $50 million senior secured credit facility to be provided to the Surviving
Corporation pursuant to that certain commitment letter, dated March 15, 1998
from Merrill Lynch, NationsBank and NMS, (iii) acting as an initial purchaser in
connection with the issuance by the Surviving Corporation of up to $100 million
principal amount of Senior Subordinated Notes pursuant to that certain highly
confident letter, dated March 15, 1998, from Merrill Lynch, Pierce, Fenner &
Smith Incorporated, (iv) issuance of the highly confident letter relating to the
Senior Subordinated Notes and (v) acting in connection with the placement of
units of Preferred Stock and common stock of the Surviving Corporation for which
Ares will also obtain a fee). Regardless of whether the Merger is consummated,
Merrill Lynch and Allen will be reimbursed for all out-of-pocket expenses. All
amounts owed to Merrill Lynch and Allen will be paid by the Surviving
Corporation pursuant to its agreement to pay all expenses of the transaction.
See "-- Expenses" and "The Merger Agreement -- Termination."
MATERIAL PREPARED BY KRASOVEC'S ADVISOR
Merrill Lynch was retained by Krasovec to act as his financial advisor. On
November 19, 1997 and again on December 5, 1997, Merrill Lynch met with Krasovec
and provided him with a feasibility study of a leveraged recapitalization for
the Company (the "Feasibility Study"). The Feasibility Study was preliminary and
was never updated or finalized after December 5, 1997. Merrill Lynch was not
requested to, and did not, render any opinion or advice as to the fairness of
the consideration to be received by the Public Shareholders, or any other party,
in the Merger nor did Krasovec or the Buyout Group obtain any opinion as to the
fairness of the Merger to the Public Shareholders.
Merrill Lynch prepared the Feasibility Study based on its review of (i) the
Company's publicly available business and historical financial information, (ii)
the historical market prices and trading volume of the Common Stock, (iii)
certain financial forecasts relating to the business, earnings, cash flow,
assets, liabilities and prospects of the Company prepared and furnished by the
Company's management, (iv) publicly available business and historical financial
information of companies it deemed comparable to the Company, (v) the historical
market prices of the common stock of the companies referred to in clause (iv),
(vi) business trends in the industry in which the Company operates, and (vii)
such other information, financial studies, analyses and investigations and
financial, economic and market criteria as it deemed relevant. Merrill Lynch
assumed and relied on the accuracy and completeness of all information supplied
or otherwise made available to it and did not assume any responsibility for
independently verifying such information or undertake an independent evaluation
or appraisal of any of the assets or liabilities of the Company, nor was Merrill
Lynch furnished with any such evaluation or appraisal.
As part of the Feasibility Study, Merrill Lynch performed discounted cash
flow, comparable company and comparable transactions analyses with respect to
the Company to identify enterprise value ranges for the Company. Based upon
these value ranges, Merrill Lynch estimated a pre-tax value range for the Common
Stock of between $14.50 and $28.00 per share on a fully diluted basis. In
addition, Merrill Lynch computed
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<PAGE> 32
the multiples of 1997 sales, 1997 earnings before interest, taxes, depreciation
and amortization, 1997 earnings before interest, taxes and depreciation and
forecasted 1998 net income implied by the value ranges described above. The cash
flow forecast used for the purpose of its estimate of value ranges included
certain adjustments to the Company's cash flow forecast, in order to reflect
differences between the Company's historical rate of revenue growth and
operating margins and the significantly higher rate of revenue growth and
operating margins assumed in the Company's forecast as well as the past
performance of the Company relative to previous financial projections of the
Company. However, unadjusted, the Company's cash flow forecasts resulted in
discounted cash flow values per share substantially higher than as set forth
above. As noted above, the Company's unadjusted cash flow forecast included
revenue growth and operating margin assumptions which were substantially more
favorable than the Company's historical revenue growth rates and operating
margins. During recent years, the Company has failed to meet its financial
forecasts, and neither Merrill Lynch nor the Special Committee's special
financial advisor used the Company's unadjusted financial forecast in preparing
its respective discounted cash flow analysis of the Company.
The Feasibility Study will be made available for inspection and copying at
the principal executive offices of LLC during its regular business hours by any
interested holder of shares of Common Stock or by any representative of such a
holder designated as such in writing.
Merrill Lynch provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of the Company for its own account and for the account of customers.
Merrill Lynch is acting as financial advisor in connection with the Merger
based upon Merrill Lynch's qualifications, expertise and reputation, including
the fact that Merrill Lynch, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bidding, secondary distributions of listed and unlisted securities, private
placements and valuation for corporate and other purposes. Pursuant to an
engagement letter between Krasovec and Merrill Lynch, dated as of January 12,
1998, Krasovec has agreed to pay Merrill Lynch a fee of $1,500,000 payable in
cash upon the closing of the Merger. Krasovec has also agreed to pay, upon
request, Merrill Lynch's reasonable out-of-pocket expenses incurred in
connection with its activities under the engagement letter and to indemnify it
against certain liabilities, including under the federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Company's Board of Directors, the
Company's shareholders should be aware that certain members of the Company's
management and the Board of Directors have interests in the Merger beyond the
interests of the Public Shareholders that may create potential conflicts of
interest.
Krasovec is the Chairman, Chief Executive Officer and President of the
Company and a member of the Buyout Group. Josephson, a director of the company,
is also a member of the Buyout Group. In addition, Josephson is an affiliate of
Allen, which is one of the financial advisors retained by Krasovec to provide
financial advice in connection with the proposed Merger. Allen and Josephson
will continue to own warrants to acquire common stock of the Surviving
Corporation. Due to their conflicts of interest, Krasovec and Josephson did not
participate on the Special Committee and abstained from evaluating and voting on
the Merger.
As of the Record Date, Krasovec and the other members of the Buyout Group
beneficially owned 660,917 and 468,542 shares of Common Stock, respectively
(representing approximately 13.0% and 9.0%, respectively, of the Common Stock
then outstanding). In the Merger, Krasovec's ownership position in the Company
will be converted into approximately [47]% of the total outstanding common stock
of the Surviving Corporation immediately after the Merger, and the ownership
position in the Company of the rest of the members of the Buyout Group will be
converted into approximately [24]% of the total outstanding common stock of the
Surviving Corporation immediately after the Merger.
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<PAGE> 33
Following the Merger, the members of the Buyout Group and the New
Shareholders will own, in the aggregate, 100% of the Surviving Corporation's
common stock outstanding immediately after the Merger. Accordingly, the members
of the Buyout Group have a direct economic interest in the Merger. See
"-- Future Plans of the Company."
Additionally, substantially all of the members of the Buyout Group hold
Company Stock Derivatives to purchase shares of Common Stock. As set forth in
the Merger Agreement, all such derivatives (whether or not exercisable) will
continue to be outstanding after the Effective Time and shall entitle the
holders of such derivatives to purchase common stock of the Surviving
Corporation under the same terms and conditions as existed immediately prior to
the Effective Time, except that the term of all Company Stock Derivatives (other
than convertible debt and employee incentive stock options) shall be extended
for three years from the date of their current expiration. See "The Merger
Agreement -- Conversion of Securities in the Merger; Treatment of Derivatives."
The opportunity to obtain an equity interest in the Surviving Corporation
may have presented the members of the Buyout Group with actual or potential
conflicts of interest in connection with the Merger. In light of these inherent
conflicts of interest, the Board of Directors of the Company appointed the
Special Committee comprised solely of Board members who are not members of the
Buyout Group and are not officers of the Company (but who will receive cash in
exchange for their shares of Common Stock, including shares of Common Stock to
be issued upon their anticipated exercise of their warrants, upon consummation
of the Merger).
In making its determination with respect to the Merger in accordance with
its fiduciary duties to the Public Shareholders, the Special Committee and the
Board of Directors considered the actual and potential conflicts of interest of
the members of the Buyout Group and certain of the Board's members, along with
the other matters described under "-- Determination of Fairness of the Merger by
the Special Committee and the Board of Directors."
FUTURE PLANS OF THE COMPANY
It is expected that, following the Merger, the business and operations of
the Company will be continued by the Company, as the Surviving Corporation in
the Merger, substantially as they are currently being conducted. However, the
members of the Buyout Group and the management of the Surviving Corporation will
continue to evaluate the Company's business and operations after the
consummation of the Merger and make such changes as are deemed appropriate. The
Company's executive and corporate headquarters is expected to remain at its
current location in Austin, Texas.
Except as otherwise indicated in this Proxy Statement, the members of the
Buyout Group do not have any present plans or proposals subsequent to the Merger
that relate to or would result in an extraordinary corporate transaction, such
as a merger, reorganization or liquidation, involving the Company, a sale or
transfer of a material amount of assets of the Company or any material change in
the Company's corporate structure. However, the Company regularly reviews
various strategic acquisition opportunities and periodically engages in
discussions regarding such possible acquisitions. Currently, the Company is not
a party to any agreements, understandings, arrangements or negotiations
regarding any material acquisitions; however, as the result of the Company's
process of regularly reviewing acquisition prospects, negotiations may occur
from time to time if appropriate opportunities arise. See "-- Estimated Fees and
Expenses; Sources of Funds."
The Merger Agreement provides that the directors and officers of Newco
immediately prior to the Effective Time shall become, from and after the
Effective Time, the directors and officers of the Surviving Corporation. Such
persons will continue as directors or officers, as the case may be, of the
Surviving Corporation until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the articles of incorporation and by-laws of the Surviving Corporation. It
is anticipated that the sole director of Newco will be Krasovec, with an
additional director who will be designated by the New Shareholders. It is also
anticipated that the officers of Newco will be the current officers of the
Company.
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<PAGE> 34
RIGHTS OF DISSENTING SHAREHOLDERS
If the Merger Agreement is approved by the required vote of the Company's
shareholders and is not abandoned or terminated, shareholders of the Company who
did not vote in favor of the Merger may, by complying with Articles 5.12 and
5.13 of the TBCA, be entitled to dissenters' rights as described therein. If a
shareholder of the Company has a beneficial interest in shares of Common Stock
that are held of record in the name of another person, such as a broker or
nominee, and such shareholder desires to perfect whatever dissenters' rights
such beneficial shareholder may have, such beneficial shareholder must act
promptly to cause the holder of record timely and properly to follow the steps
summarized below.
A VOTE IN FAVOR OF THE MERGER BY A SHAREHOLDER OF THE COMPANY WILL RESULT
IN A WAIVER OF THE SHAREHOLDER'S DISSENTERS' RIGHTS.
The Company's shareholders will have the right to dissent from the Merger
and to obtain an appraisal of the fair value of their shares of Common Stock in
the event that the Merger Agreement is approved and is not abandoned or
terminated. Fair value will be determined as of the day immediately preceding
the Meeting.
The summary set forth below does not purport to be a complete statement of
the provisions of Texas law relating to shareholders' rights to dissent and to
obtain an appraisal of Common Stock in connection with the Merger and is
qualified in its entirety by reference to Articles 5.12 and 5.13 of the TBCA,
which are attached hereto as Appendix D, and the other relevant provisions of
the TBCA. The TBCA contains provisions that, in the case of the merger of a
corporation organized under the laws of Texas, grant Dissenting Shareholders who
comply with the procedures set forth in Articles 5.12 and 5.13 the right to
receive payment in cash equal to the fair value of their shares. The principal
provisions of Articles 5.12 and 5.13 as they apply to the Merger are summarized
below.
To claim dissenters' rights, a shareholder must (i) prior to the
shareholder vote on the Merger, file a written objection to the Merger stating
that such shareholder intends to demand payment for such shareholder's Common
Stock if the Merger is consummated and giving such shareholder's address to
which notice of the Merger shall be mailed in the event it occurs; (ii) not vote
such shareholder's Common Stock in favor of approval of the Merger; (iii) if the
Merger is approved by the Company's shareholders and consummated, demand, in
writing, payment of the fair value of such shareholder's shares of Common Stock
from the Surviving Corporation (stating therein the number and class of shares
of Common Stock owned by such shareholder and an estimate of the fair market
value of such shares) within ten days after the date the notice that the Merger
has become effective is delivered or mailed to the shareholder, which notice
must be provided to all shareholders who complied with (i) and (ii) above within
ten days after the Effective Time of the Merger; and (iv) within twenty days of
filing such written demand for payment, submit to the Surviving Corporation the
certificate or certificates representing such shareholder's shares of Common
Stock for the purpose of having a notation placed thereon to the effect that a
demand for payment with respect thereto has been made.
Neither an abstention from voting on the Merger proposal nor a vote against
the Merger will be deemed to satisfy the requirement that a written objection be
filed with the Company before the vote on the Merger. However, a shareholder who
has filed a written objection to the Merger as provided above will not be deemed
to have waived such shareholder's dissenter's rights by abstaining from voting
on the Merger proposal or otherwise not voting; however, such a shareholder will
be deemed to have waived such shareholder's dissenters' rights if such
shareholder votes in favor of the Merger. A shareholder who fails to make the
written demand within the ten-day period described above will be bound by the
Merger as if such shareholder had voted in favor thereof. If a shareholder fails
to submit such shareholder's certificates within the twenty-day period described
above, such shareholder's rights to receive payment pursuant to dissenters'
rights shall terminate unless a court for good and sufficient cause determines
otherwise.
In the event that the Merger is approved by the Company's shareholders and
a shareholder elects to exercise such shareholder's dissenters' rights, the
Surviving Corporation shall, within twenty days of the date it receives such
shareholder's written demand for payment, deliver or mail to such shareholder a
written notice that either: (i) provides that the Surviving Corporation accepts
the amount claimed by the Dissenting
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<PAGE> 35
Shareholder as the fair value of such shareholder's shares and that the
Surviving Corporation agrees to pay such amount within ninety days after the
Effective Time of the Merger and upon surrender of the certificates for such
shareholder's shares duly endorsed; or (ii) contains an estimate by the
Surviving Corporation of the fair value of the shares and an offer to pay such
amount within ninety days after the effective date of the Merger, but only if
the Surviving Corporation receives from the shareholder, within sixty days after
such date, a notice from the shareholder that such shareholder agrees to accept
such amount upon surrender of such shareholder's share certificate or
certificates duly endorsed.
If the Dissenting Shareholder and the Surviving Corporation fail to agree
on a value within sixty days after the Effective Time of the Merger, either the
shareholder or the Surviving Corporation may, within sixty days after the
expiration of such sixty day period, file a petition in any court of competent
jurisdiction in Travis County, Texas for the purpose of obtaining a
determination of the value of the shares of the Dissenting Shareholder. Then, if
the court determines that the shareholder has complied with the requirements for
a Dissenting Shareholder under Articles 5.12 and 5.13 of the TBCA, the court
will appoint one or more appraisers to determine the value of the shareholder's
shares. All Dissenting Shareholders who do not reach agreement with the
Surviving Corporation as to the value of their shares within sixty days of the
effective date of the Merger will receive notice of such court proceeding, and
those who are found to have complied with Articles 5.12 and 5.13 of the TBCA
will be bound by the final judgment of the court as to the value of their
shares.
A Dissenting Shareholder who makes a written demand for payment of such
shareholder's shares will not thereafter be entitled to vote or to exercise any
other rights of a shareholder, except the right to receive payment for such
shareholder's shares pursuant to the TBCA.
A Dissenting Shareholder may withdraw such shareholder's demand for payment
for such shareholder's shares at any time before such payment is made. The
demand may not be withdrawn after payment by the Surviving Corporation has been
made nor may the demand be withdrawn after a petition has been filed with a
court for such payment unless the Surviving Corporation consents to the
withdrawal of the demand.
In the absence of fraud in the transaction, the remedy provided by Article
5.12 of the TBCA is the exclusive remedy for the recovery of the value of shares
or money damages by a Dissenting Shareholder. If the Surviving Corporation
complies but a Dissenting Shareholder fails to comply with the requirements of
Articles 5.12 and 5.13 of the TBCA, such shareholder is not entitled to bring an
action for the recovery of the value of such shareholder's shares or for money
damages.
ANY SHAREHOLDER CONTEMPLATING THE EXERCISE OF THE RIGHTS SUMMARIZED ABOVE
IN CONNECTION WITH THE MERGER IS URGED TO CONSULT SUCH SHAREHOLDER'S OWN
COUNSEL. THE FAILURE BY A SHAREHOLDER TO FOLLOW PRECISELY ALL OF THE STEPS
REQUIRED BY ARTICLES 5.12 AND 5.13 OF THE TBCA WILL RESULT IN THE LOSS OF THOSE
RIGHTS.
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<PAGE> 36
ESTIMATED FEES AND EXPENSES; SOURCES OF FUNDS
Estimated fees and expenses incurred or to be incurred by the Company, LLC,
Newco and the members of the Buyout Group in connection with the Merger
Agreement and the transactions contemplated thereby are approximately as
follows:
<TABLE>
<S> <C>
Payment of Merger Consideration(1).......................... $85,000,000
Financial advisory fees, financing commitment fees and
expenses(2)............................................... 7,175,000
Legal fees and expenses(3).................................. 1,475,000
Accounting and appraisal fees and expenses.................. 150,000
SEC filing fees............................................. 16,800
Printing and mailing expenses............................... 75,000
Paying Agent fees and expenses.............................. 1,500
Miscellaneous expenses...................................... 106,700
TOTAL............................................. $94,000,000
</TABLE>
- ---------------
(1) Includes payment for all outstanding shares of Common Stock other than those
owned by members of the Buyout Group.
(2) Includes the fees and estimated expenses of J.C. Bradford, Merrill Lynch and
Allen See "-- Opinion of Special Committee's Financial Advisor" and
"-- Position of Krasovec as to Fairness."
(3) Includes the estimated fees and expenses of legal counsel for the Special
Committee, for the Company, for J.C. Bradford, for Krasovec and the members
of the Buyout Group, for Merrill Lynch and for Ares.
The total funds required to pay the Merger Consideration of $20.70 per
share to all Public Shareholders, consummate the other transactions contemplated
by the Merger Agreement, refinance certain of the Company's current
indebtedness, fund the Surviving Corporation's working capital needs after the
Merger, and pay all related fees, costs and expenses is estimated to be
approximately $179.3 million, which amount will be obtained by means of certain
equity contributions and borrowings as described below. Except as otherwise
stated below, all of such equity contributions will become effective at the
Effective Time, and all of such borrowings will become available immediately
subsequent to the Effective Time upon satisfaction of the conditions in the loan
documents. None of the equity contributions or borrowings will become effective
or available if the Merger is not consummated for any reason. The terms of and
the documentation for the intended borrowings have not yet been finalized and
are still being negotiated. Accordingly, the description below of such
borrowings is preliminary and not necessarily complete. In any event, the final
documentation for such borrowings might contain terms and conditions that are
more or less restrictive than currently contemplated.
The total financing for the Merger Agreement and related costs and expenses
will be approximately $179.3 million, of which approximately $85 million will be
required to pay the Merger Consideration to the Public Shareholders and
approximately $94.3 million will have been incurred to refinance certain of the
Company's current indebtedness, fund the Surviving Corporation's working capital
needs after the Merger and to pay all expenses of the Company, LLC, Newco and
the members of the Buyout Group in connection with the Merger Agreement and the
transactions contemplated thereby. Such funds will be furnished from (i) the
Equity Financing of approximately $44.3 million, consisting of (A) approximately
$24.3 million to be provided by the Buyout Group and the Additional Common
Shareholders and (B) $20 million from the issuance to the Preferred Shareholders
by the Surviving Corporation of units of Preferred Stock and common stock of the
Surviving Corporation, which will be provided pursuant to a commitment letter
from Ares, (ii) the $50 million Credit Facilities to be provided to the
Surviving Corporation pursuant to a commitment letter from Merrill Lynch,
NationsBank and NMS, consisting of (A) a $25 million senior secured term loan
which will be fully drawn at the Effective Time and (B) a $25 million senior
secured revolving credit facility, of which no more than $10 million will be
drawn at the Effective Time, and (iii) up to $100 million from the issuance by
the Surviving Corporation of the Senior Subordinated Notes at the Effective
Time.
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<PAGE> 37
Equity Financing. At the Effective Time, the Equity Financing, in the
amount of approximately $4.3 million, will consist of (A) approximately $24.3
million to be provided by the Buyout Group and the Additional Common
Shareholders, as described below, and (B) $20 million from the issuance by the
Surviving Corporation of units of Preferred Stock and common stock of the
Surviving Corporation, which will be provided pursuant to a commitment letter
from Ares, as described below:
Additional Common Shareholders. Of the $24.3 million of Equity Financing,
approximately $20.3 million will be provided by the members of the Buyout Group,
by converting their Common Stock (valued at the Merger Consideration of $20.70
per share) into common stock of the Surviving Corporation, and approximately $4
million will be provided through the issuance of new shares of common stock by
the Surviving Corporation at the Effective Time to the Additional Common
Shareholders, which shareholders may include members of the Buyout Group.
Preferred Shareholders. At the Effective Time, the Surviving Corporation
will issue to the Preferred Shareholders 20,000 units ("Units"), each consisting
of (i) one share of the Surviving Corporation's Preferred Stock with a
liquidation preference ("Liquidation Preference") of $1,000 per share, and (ii)
an undetermined number of shares of common stock. The total number of shares of
common stock to be issued to the Preferred Shareholders will represent 15% of
the fully diluted common equity of the Surviving Corporation. The Preferred
Stock will have no voting rights, other than as required by law, and will be
ranked senior in liquidation and payment of dividends to all other classes of
capital stock of the Surviving Corporation, now outstanding or hereafter issued.
The annual dividend rate (the "Dividend Rate") of the Preferred Stock will be
the greater of (i) 12.25% and (ii) the yield to maturity on the Senior
Subordinated Notes plus 250 basis points. For the first five years after
issuance, dividends will be payable, at the Surviving Corporation's option, in
additional shares of Preferred Stock or cash. Thereafter, dividends will be
payable in cash. All dividends will accumulate and will be payable (whether in
cash or Preferred Stock) quarterly, in arrears. Dividends will accumulate on all
unpaid dividends at the applicable annual Dividend Rate.
The Preferred Stock will be redeemable, in whole or in part, at the option
of the Surviving Corporation at any time on or after the dividend payment date
that is closest to the fifth anniversary of issuance. The Preferred Stock will
also be redeemable at the option of the Surviving Corporation any time on or
prior to the fifth anniversary of issuance in certain instances. The Surviving
Corporation will have the option to exchange the Preferred Stock at any time for
subordinated notes that will have substantially the same terms as the Preferred
Stock.
Credit Facilities. At the Effective Time, Merrill Lynch, NationsBank and
certain other lenders (collectively, the "Lenders") will make available to the
Surviving Corporation senior secured credit facilities in an aggregate principal
amount of $50 million, such Credit Facilities comprising:
Term Loan Facility. The Lenders will make available a term loan facility in
an aggregate principal amount of $25 million (the "Term Loan Facility"). The
Term Loan Facility will mature on the fifth anniversary of the Effective Time.
Amounts outstanding under the Term Loan Facility will amortize, beginning with
the last business day of the first full fiscal quarter after the Effective Time,
on a quarterly basis during each year as set forth below:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -----------
<S> <C>
1998............................................ $ 3,000,000
1999............................................ 4,000,000
2000............................................ 5,000,000
2001............................................ 6,500,000
2002............................................ 6,500,000
-----------
$25,000,000
</TABLE>
The Term Loan Facility will be available solely on the Effective Time in a
single draw. Amounts borrowed under the Term Loan Facility that are repaid or
prepaid may not be reborrowed. Borrowings under the Term Loan Facility may be
prepaid at any time in whole or in part at the option of the Surviving
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<PAGE> 38
Corporation, in a minimum principal amount and in multiples to be agreed upon,
without premium or penalty (except, in the case of LIBOR borrowings, prepayments
not made on the last day of the relevant interest period). Voluntary prepayments
under the Term Loan Facility will be applied pro rata against the remaining
scheduled amortization payments under the Term Loan Facility.
Revolving Facility. The Lenders will make available a revolving credit
facility in an aggregate principal amount of $25 million (the "Revolving
Facility"). The Revolving Facility will mature on the fifth anniversary of the
Effective Time (the "Revolving Facility Maturity Date"). The Revolving Facility
will be available for working capital and general corporate purposes in the form
of revolving loans and letters of credit ("Letters of Credit") on and after the
Effective Time until 30 business days prior to the Revolving Facility Maturity
Date. Amounts repaid under the Revolving Facility may be reborrowed to the
extent of the commitments then in effect. At the Effective Time, not more than
$10 million shall be drawn under the Revolving Facility to consummate the
Merger. The unutilized portion of the commitments under the Revolving Facility
may be reduced and Revolving Loans may be repaid at any time, in each case, at
the option of the Surviving Corporation, in a minimum principal amount and in
multiples to be agreed upon, without premium or penalty (except, in the case of
LIBOR borrowings, prepayments not made on the last day of the relevant interest
period).
The Credit Facilities will be secured by (i) a perfected first priority
lien on, and pledge of, all the capital stock and intercompany debt of each of
the direct and indirect subsidiaries of the Surviving Corporation existing at
the Effective Time or thereafter created or acquired (except that to the extent
that the pledge thereof would cause material adverse tax consequences, such
pledge with respect to foreign subsidiaries shall be limited to 65% of the
capital stock of "first tier" foreign subsidiaries), and (ii) a perfected first
priority lien on, and security interest in, all of the tangible and intangible
properties and assets (including all real property) of the Surviving Corporation
and its direct and indirect domestic subsidiaries existing at the Effective Time
or thereafter created or acquired, except for those properties and assets which
Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Syndication Agent, shall
determine in its sole discretion that the costs of obtaining such security
interest are excessive in relation to the value of the security to be afforded
thereby (it being understood that none of the foregoing shall be subject to any
other liens or security interests, except for certain customary exceptions to be
agreed upon) (all of such collateral, the "Collateral").
The Surviving Corporation will be entitled to make borrowings at either
LIBOR or ABR, plus (A) with respect to LIBOR Loans, (i) in the case of loans
under the Revolving Facility, 2.50% per annum; (ii) in the case of loans under
the Term Loan Facility, 2.50% per annum; and (B) with respect to ABR Loans, (i)
in the case of loans under the Revolving Facility, 1.50% per annum; and (ii) in
the case of loans under the Term Loan Facility, 1.50% per annum. A pricing grid
governing such rates showing stepups/stepdowns in such rates beginning 12 months
after the Effective Time shall be negotiated based upon improved credit
measures.
The Credit Facilities will be subject to a 0.50% per annum commitment fee
on the undrawn amount of the commitment, commencing at the Effective Time. The
Company intends to repay all indebtedness and terminate all commitments to make
extensions of credit under its existing $125 million credit facility arranged by
Merrill Lynch (the "Old Credit Facility"). Other than as described herein, the
Company has no present plans or arrangements to refinance or repay the Credit
Facilities.
Senior Subordinated Notes. At the Effective Time, the Surviving Corporation
will issue up to $100 million principal amount of unsecured senior subordinated
notes due 2008, which notes will be sold or placed pursuant to a highly
confident letter, dated March 15, 1998, by Merrill Lynch, Pierce, Fenner & Smith
Incorporated and its affiliates.
EXPENSES
Except with regard to the expense payments described under the caption "The
Merger Agreement -- Termination," the Merger Agreement provides that in the
event the Merger is not consummated, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated by the
Merger Agreement will be paid by the party incurring such expenses. In the event
the Merger is consummated, all
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<PAGE> 39
costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby (including those incurred by LLC and Newco)
will be paid by the Surviving Corporation.
THE MERGER AGREEMENT
The following discussion is a summary of the material provisions of the
Merger Agreement. This summary and all other discussions of the terms and
conditions of the Merger and the Merger Agreement included elsewhere in this
Proxy Statement are qualified in their entirety by reference to the Merger
Agreement, a copy of which is attached as Appendix A to this Proxy Statement and
incorporated by reference herein. Capitalized terms used but not defined herein
have the meanings ascribed to such terms in the Merger Agreement.
THE MERGER
On the terms and subject to the conditions of the Merger Agreement, at the
Effective Time, Newco will be merged with and into the Company in accordance
with the applicable provisions of the TBCA, and the separate corporate existence
of Newco will thereupon cease. The Company will be the surviving corporation
under the corporate name it possesses immediately prior to the Effective Time.
The Merger will have the effects specified in the TBCA and in the Merger
Agreement.
EFFECTIVE TIME
Within two business days following the date on which the last of the
conditions (excluding conditions that by their terms cannot be satisfied until
the date of the Merger) set forth in the Merger Agreement is satisfied or waived
or at such other time or date as the parties may agree, Newco and the Company
will cause articles of merger to be filed with the Secretary of State of the
State of Texas as provided in the TBCA. Upon completion of such filing and the
issuance of a certificate of merger by the Secretary of State of the State of
Texas, the Merger will become effective in accordance with the TBCA.
ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION
The Merger Agreement provides that the articles of incorporation of the
Company, as in effect immediately prior to the Effective Time, as amended to
reflect the Charter Amendment, and the by-laws of the Company, as in effect
immediately prior to the Effective Time, shall become, from and after the
Effective Time, the articles of incorporation and by-laws of the Surviving
Corporation until amended in accordance with their terms and the TBCA.
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
The Merger Agreement provides that the directors and officers of Newco
immediately prior to the Effective Time shall become, from and after the
Effective Time, the directors and officers of the Surviving Corporation. Such
persons will continue as directors or officers, as the case may be, of the
Surviving Corporation until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the articles of incorporation and by-laws of the Surviving Corporation. It
is anticipated that the sole director of Newco will be Krasovec, with an
additional director who will be designated by the New Shareholders. It is also
anticipated that the officers of Newco will be the current officers of the
Company.
CONVERSION OF SECURITIES IN THE MERGER; TREATMENT OF DERIVATIVES
The Merger Agreement provides that, at the Effective Time, (i) each share
of Common Stock (collectively, the "Company Common Shares") issued and
outstanding immediately prior to the Effective Time, other than the Non-Merger
Consideration Shares (as defined below) and other than Company Common Shares
owned by Dissenting Shareholders, will, by virtue of the Merger and without any
action on the part of the holders thereof, be converted solely and exclusively
into the right to receive the Merger Consideration and any dividends payable as
described below; (ii) all Company Common Shares to be
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<PAGE> 40
converted into the right to receive the Merger Consideration pursuant to clause
(i) will, by virtue of the Merger and without any action on the part of the
holders thereof, cease to be outstanding, be canceled and retired and cease to
exist, and each holder of Company Common Shares will thereafter cease to have
any rights with respect to such Company Common Shares (other than the right to
receive any dividends payable as described below), except the right to receive
the Merger Consideration for each of the Company Common Shares, upon the
surrender of such holder's certificate(s) in accordance with the terms of the
Merger Agreement, without any interest thereon, as provided in the Merger
Agreement, or the rights under Articles 5.11, 5.12 and 5.13 of the TBCA; (iii)
each Company Common Share issued and outstanding that is owned by any member of
the Buyout Group immediately prior to the Effective Time (the "Buyout Shares"),
by virtue of the Merger and without any action on the part of the holder
thereof, will be converted into one fully paid and nonassessable share of common
stock, $.01 par value, of the Surviving Corporation; (iv) each Company Common
Share issued and outstanding that is owned by the Company as treasury stock or
any of the Company's Subsidiaries (as defined below) immediately prior to the
Effective Time (together with the Buyout Shares and the Company Common Shares
held by Dissenting Shareholders, the "Non-Merger Consideration Shares") will, by
virtue of the Merger and without any action on the part of the holder thereof,
cease to be outstanding, be canceled and retired and cease to exist without
payment of any Merger Consideration therefor; (v) each share of capital stock of
Newco issued and outstanding immediately prior to the Effective Time will, by
virtue of the Merger and without any action on the part of Newco or the holder
thereof, cease to be outstanding, be canceled and retired and cease to exist
without payment of any Consideration therefor; and (vi) all notes and other debt
instruments of the Company that are outstanding immediately prior to the
Effective Time shall continue to be outstanding subsequent to the Effective Time
as debt instruments of the Surviving Corporation, subject to their respective
terms and provisions. The word "Subsidiary," when used in the Merger Agreement
with respect to any party, means any corporation or other organization, whether
incorporated or unincorporated, of which such party directly or indirectly owns
or controls at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the board of directors
or others performing similar functions.
Each Company Stock Derivative to purchase Company Common Shares outstanding
immediately prior to the Effective Time shall continue to be outstanding
subsequent to the Effective Time as options, warrants and convertible debt of
the Surviving Corporation, subject to all expiration, lapse and other terms and
conditions thereof, except that the term of all Company Stock Derivatives (other
than convertible debt and employee incentive stock options) shall be extended
for three years from the date of their current expiration. It is anticipated
that all warrants held by directors of the Company (other than Krasovec and
Josephson) will be exercised prior to the Effective Time.
PAYMENT FOR AND SURRENDER OF COMPANY COMMON SHARES
From time to time as needed by the Paying Agent (as defined below), the
Surviving Corporation will deposit with such bank or trust company designated by
LLC and reasonably acceptable to the Company (the "Paying Agent"), for the
benefit of the holders of Company Common Shares, cash, cash equivalents or a
combination thereof in an aggregate amount equal to the product of (i) the
number of Company Common Shares issued and outstanding at the Effective Time
(other than the Non-Merger Consideration Shares) multiplied by (ii) the Merger
Consideration (being hereinafter referred to as the "Payment Fund"). The Paying
Agent will, pursuant to irrevocable instructions from the Surviving Corporation,
deliver the Merger Consideration out of the Payment Fund, and, except as
described herein, the Payment Fund will not be used for any other purpose. The
Company will act as paying agent with respect to payments to holders of Company
Stock Derivatives described in the preceding paragraph.
Promptly after the Effective Time, the Paying Agent will mail to each
holder of record (other than the Company, members of the Buyout Group, any of
the Company's Subsidiaries or any Dissenting Shareholders) of a certificate or
certificates that immediately prior to the Effective Time represented
outstanding Company Common Shares (the "Certificates") (i) a form of letter of
transmittal (which will specify that delivery will be effected, and risk of loss
and title to the Certificates will pass, only upon proper delivery of the
Certificates to the Paying Agent) and (ii) instructions for use in effecting the
surrender of the Certificates for payment
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<PAGE> 41
therefor. Upon surrender of Certificates for cancellation to the Paying Agent,
together with such letter of transmittal duly executed and any other required
documents, the holder of such Certificates will be entitled to receive for each
of the Company Common Shares represented by such Certificates the Merger
Consideration, and the Certificates so surrendered will promptly be canceled.
Until so surrendered, Certificates will represent solely the right to receive
the Merger Consideration plus any declared but unpaid dividends. No interest
will be paid or accrued on the cash payable upon the surrender of the
Certificates. No dividends or other distributions, if any, that are declared
prior to the Effective Time and are payable after the Effective Time to holders
of record of Certificates will be paid to persons entitled by reason of the
Merger to receive the Merger Consideration until such persons surrender their
Certificates. Upon such surrender, there will be paid to the registered holders
of surrendered Certificates such declared but unpaid dividends or other
distributions, if any, on the appropriate payment date.
In no event will the persons entitled to receive such dividends or other
distributions be entitled to receive interest on such dividends or other
distributions. If any Merger Consideration is to be paid to a person whose name
is a name other than that in which the surrendered Certificate in exchange
therefor is registered, it will be a condition of such exchange that the
Certificate so surrendered be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange pay to the Paying Agent
any transfer or other taxes required by reason of the payment of such Merger
Consideration in a name other than that of the registered holder of the
surrendered Certificate, or establish to the satisfaction of the Paying Agent
that such tax has been paid or is not applicable. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Certificate to be lost, stolen or
destroyed, the Paying Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Merger Consideration deliverable in respect thereof as
determined in accordance with the Merger Agreement, provided that the person to
whom the Merger Consideration is paid shall, as a condition precedent to the
payment thereof if required by the Surviving Corporation, give the Surviving
Corporation a bond in such sum as it may direct or otherwise indemnify the
Surviving Corporation in a manner satisfactory to it against any claim that may
be made against the Surviving Corporation with respect to the Certificate
claimed to have been lost, stolen or destroyed.
Any portion of the Payment Fund that remains unclaimed by the former
shareholders of the Company for 180 days after the Effective Time will be
delivered to the Surviving Corporation, and any former shareholders of the
Company will thereafter look only to the Surviving Corporation for payment of
their claim for the Merger Consideration for the Company Common Shares.
Neither LLC, Newco, the Surviving Corporation nor the Paying Agent shall be
liable to any holder of Company Common Shares for such shares (or dividends or
distributions with respect thereto) or cash from the Payment Fund (or from the
Surviving Corporation after the Payment Fund has terminated) delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. Immediately prior to the time as any amounts remaining unclaimed by
holders of any such shares would otherwise escheat to or become property of any
governmental or regulatory authority, domestic or foreign ("Governmental
Entity"), such amounts shall, to the extent permitted by applicable law, become
the property of the Surviving Corporation free and clear of any claims or
interest of any such holders or their successors, assigns or personal
representatives previously entitled thereto.
CLOSING OF STOCK TRANSFER RECORDS
At the Effective Time, the stock transfer books of the Company, other than
with respect to Buyout Shares, will be closed, and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties. These include representations and warranties by the Company with
respect to corporate existence, good standing, corporate authority,
authorization, validity and effect of the Merger Agreement, capitalization,
Subsidiaries, conflicts,
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<PAGE> 42
required filings and consents, finders' fees and brokerage commissions, receipt
of J.C. Bradford's opinion, SEC filings, financial statements, undisclosed
liabilities and absence of certain changes or events. LLC has also made certain
representations and warranties on behalf of itself and Newco, where appropriate,
with respect to limited liability company or corporate existence, good standing,
corporate and limited liability company authority, authorization, validity and
effect of the Merger Agreement, Subsidiaries, conflicts, required filings and
consents, finders' fees and brokerage commissions, financing and certain
regulatory matters.
ACQUISITION PROPOSALS
Under the Merger Agreement, the Company has agreed to cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted theretofore with respect to any Acquisition Proposal (as defined
below). The Company has agreed that, prior to the Effective Time, neither it nor
any of its Subsidiaries will, nor will it or any of its Subsidiaries permit
their respective officers, directors, employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) to, initiate, solicit, participate in
or encourage, directly or indirectly, any Acquisition Proposal or, except as set
forth below, engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal. An "Acquisition Proposal" means, other than
the transactions among the Company and LLC contemplated by the Merger Agreement
or that LLC consents to in writing in advance, any of the following involving
the Company or any of its Subsidiaries: (i) any merger, consolidation, share
exchange, recapitalization, business combination, or similar transaction; (ii)
any sale, lease, exchange, mortgage, pledge, transfer or other disposition of
all or substantially all of the assets of the Company and its Subsidiaries,
taken as a whole, in a single transaction or series of transactions; (iii) any
tender offer or exchange offer for all or substantially all of the outstanding
shares of capital stock of the Company or the filing of a registration statement
under the Securities Act of 1933, as amended, in connection therewith; or (iv)
any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing. Notwithstanding
the foregoing, in the event the Company receives an unsolicited written proposal
or unsolicited written offer (in either case subject to due diligence) with
respect to an Acquisition Proposal, the Special Committee or the Board of
Directors of the Company shall be entitled to review and participate in
negotiations concerning such proposal and furnish confidential information and
data concerning the Company and its Subsidiaries to the offeror if the Board of
Directors reasonably believes, after consultation with its counsel and its
financial advisor, that there is a substantial risk that a failure to do so
would violate its fiduciary duties to the shareholders of the Company; provided
that (A) the Company shall have furnished, or concurrently with the provision of
such information to such offeror shall furnish, LLC with all such information
provided to such offeror and (B) the offeror executes a confidentiality
agreement with the Company. The Company shall notify the Special Committee and
LLC immediately of any such unsolicited Acquisition Proposal, or any inquiry or
contact with any person with respect thereto. In addition, in the event (i) the
Company enters into negotiations with respect to an unsolicited Acquisition
Proposal or (ii) the Company's Board of Directors (upon recommendation of the
Special Committee) shall withdraw its approval of the Merger Agreement and the
transactions contemplated thereby or its recommendation to the shareholders of
the Company to approve the same, then the Company shall immediately deliver an
additional notice of such events to LLC. Nothing in the Merger Agreement will
(x) permit the Company to terminate the Merger Agreement except as provided
therein, (y) permit the Company to enter into any agreement to consummate an
Acquisition Proposal for as long as the Merger Agreement remains in effect (it
being agreed that for as long as the Merger Agreement remains in effect, the
Company will not enter into any agreement with any person that provides for, or
in any way facilitates, an Acquisition Proposal except as otherwise permitted in
the Merger Agreement), or (z) affect any other obligation of the Company under
the Merger Agreement. Under the Merger Agreement, LLC shall cause the members of
the Buyout Group to notify the Special Committee immediately in the event a
member of the Buyout Group receives an unsolicited written proposal or
unsolicited written offer with respect to an Acquisition Proposal or any inquiry
or contact with any person with respect thereto.
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<PAGE> 43
INTERIM OPERATIONS OF THE COMPANY
Pursuant to the Merger Agreement, the Company has agreed that, prior to the
Effective Time, except as contemplated by any other provision of the Merger
Agreement, unless LLC has previously consented in writing thereto or unless the
Chief Executive Officer of the Company has previously authorized thereto, the
Company: (i) will, and will cause each of its Subsidiaries to, conduct its
operations in the ordinary and normal course, consistent with past practice;
(ii) will use its reasonable best efforts, and will cause each of its
Subsidiaries to use its reasonable best efforts, to preserve intact their
business organizations and goodwill, keep available the services of their
respective officers and employees, and maintain satisfactory relationships with
those persons having business relationships with them; (iii) will not amend its
articles of incorporation or bylaws or comparable governing instruments; (iv)
will, upon the occurrence of any event or change in circumstances as a result of
which any representation or warranty of the Company contained in the Merger
Agreement would be untrue or incorrect in any material respect if such
representation or warranty were made immediately following the occurrence of
such event or change in circumstance, promptly (and in any event within two
business days of an executive officer of the Company obtaining knowledge
thereof) notify LLC thereof; (v) will promptly deliver to LLC true and correct
copies of any report, statement, application or schedule (including exhibits
thereto) filed by the Company with the SEC subsequent to the date of the Merger
Agreement; (vi) will not (a) issue any shares of its capital stock, other than
the issuance of Common Stock issuable upon exercise of Company Stock Derivatives
outstanding on the date of the Merger Agreement (in accordance with the present
terms thereof), effect any stock split, or otherwise change its capitalization
as it existed on the date of the Merger Agreement, (b) grant, confer or award
any option, warrant, conversion right or other equity rights not existing on the
date of the Merger Agreement to acquire any shares of its capital stock, (c)
grant, confer or award any bonuses or other forms of incentive compensation to
any officer, director or employee, except for cash bonuses or incentives
consistent with past practice or under any existing agreement or automatically
under any of the Company's stock option plans, (d) increase any compensation
under any employment agreement with any of its present or future officers,
directors or employees, except for normal increases for officers and employees
consistent with past practice or the terms of such employment agreement, (e)
grant any severance or termination pay to, or enter into any employment,
severance or termination agreement with any officer, director, or employee or
amend any such agreement in any material respect other than severance
arrangements consistent with past practice with respect to officers and
employees terminated by the Company, or (f) adopt any new employee benefit plan
or program (including any stock option, stock benefit or stock purchase plan) or
amend any existing employee benefit plan or program in any material respect;
(vii) will not (a) declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of its capital stock or other
ownership interests or (b) directly or indirectly redeem, purchase or otherwise
acquire any shares of its capital stock or capital stock of any of its
Subsidiaries, or make any commitment for any such action; (viii) will not, and
will not permit any of its Subsidiaries to, sell, lease or otherwise dispose of
any of its assets (including capital stock of Subsidiaries) or acquire any
business or assets, except for (a) any purchase or sale of inventory in the
ordinary course of business, or (b) any sale, lease or other disposition of
assets in the ordinary course of business; (ix) will not incur any material
amount of indebtedness for borrowed money or make any loans, advances or capital
contributions to, or investments (other than non-controlling investments in the
ordinary course of business) in, any other person other than a wholly owned
Subsidiary of the Company, or issue or sell any debt securities, other than
borrowings under existing lines of credit in the ordinary course of business;
(x) will not, except pursuant to and in accordance with the capital budget
disclosed to LLC prior to the date of the Merger Agreement, authorize, commit
to, or make capital expenditures; (xi) will not mortgage or otherwise encumber
or subject to any lien any properties or assets except for such of the foregoing
as are in the ordinary course of business and would not be reasonably likely to
have, individually or in the aggregate, a material adverse effect on the
business, operations, properties, financial condition, assets or liabilities of
the Company and its Subsidiaries taken as a whole (a "Material Adverse Effect");
(xii) will not enter into or agree to enter into any contract without the prior
written consent of LLC unless such contract is entered into by the Company for
(a) any purchase or sale of inventory undertaken in the ordinary course of
business, (b) the sale of accounts receivable that are more than 180 days past
due, or (c) any other contract in the ordinary course of business; (xiii) will
maintain insurance consistent with past practices for its businesses and
properties; (xiv) will not make any change in its accounting
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<PAGE> 44
(including tax accounting) methods, principles or practices, except as may be
required by generally accepted accounting principles and except, in the case of
tax accounting methods, principles or practices, in the ordinary course of
business of the Company or any of its Subsidiaries; and (xv) will not take or
agree in writing or otherwise to take any action that would make any of the
representations or warranties of the Company contained in the Merger Agreement
untrue or incorrect or prevent the Company from performing or cause the Company
not to perform its covenants contained in the Merger Agreement.
CERTAIN FILINGS AND OTHER ACTIONS
The Company and LLC have agreed, subject to the terms and conditions
provided in the Merger Agreement, that they will (i) use all reasonable efforts
to cooperate with one another in (a) determining which filings are required to
be made prior to the Effective Time with, and which consents, approvals, permits
or authorizations are required to be obtained prior to the Effective Time from
Governmental Entities, in connection with the execution and delivery of the
Merger Agreement and the consummation of the transactions contemplated thereby
and (b) timely making all such filings and timely seeking all such consents,
approvals, permits or authorizations, including this Proxy Statement and
information required by Schedule 13E-3 and Schedule 14A; and (ii) use all
reasonable efforts to take, or cause to be taken, all other action and do, or
cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by the Merger
Agreement. If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purpose of the Merger Agreement, the
proper officers and directors of the parties will take all such necessary
action.
ACCESS TO INFORMATION
The Company has agreed that, from the date of the Merger Agreement to the
Effective Time, it will, and will cause its Subsidiaries to, subject to the
execution of reasonable confidentiality agreements that the Company may elect to
require, (a) allow all designated officers, attorneys, accountants and other
representatives of LLC reasonable access at all reasonable times upon reasonable
notice to the offices, records and files, correspondence, audits and properties,
as well as to all information relating to commitments, contracts, titles and
financial position, or otherwise pertaining to the business and affairs, of the
Company and its Subsidiaries, as the case may be, (b) furnish to LLC, LLC's
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information as such persons may
reasonably request, (c) instruct the employees, counsel and financial advisors
of the Company to cooperate with the other in the other's investigation of the
business of it and its Subsidiaries and (d) keep LLC fully appraised and
informed of all material developments with respect to the assets, business
activities, financial condition, earnings and prospects of the Company and its
Subsidiaries. LLC will be permitted to make extracts from or to make copies of
such books and records as may be reasonably necessary.
INSURANCE; INDEMNITY
The Merger Agreement provides that, from and after the Effective Time, the
Surviving Corporation will indemnify, defend and hold harmless, to the fullest
extent that the Company would be required under its presently existing articles
of incorporation and presently existing by-laws and applicable law, each person
who is now or was prior to the date of the Merger Agreement an officer or
director of the Company or any of its Subsidiaries (individually, an
"Indemnified Party" and collectively, the "Indemnified Parties"), against all
losses, claims, damages, liabilities, costs or expenses (including attorneys'
fees), judgments, fines, penalties and amounts paid in settlement in connection
with any claim, action, suit, proceeding or investigation arising out of or
pertaining to acts or omissions, or alleged acts or omissions, by them in their
capacities as such occurring at or prior to the Effective Time. In the event of
any such claim, action, suit, proceeding or investigation (an "Action"), any
Indemnified Party wishing to claim indemnification will promptly notify the
Surviving Corporation thereof (provided that failure to so notify the Surviving
Corporation will not affect the obligations of the Surviving Corporation to
provide indemnification except to the extent that the Surviving Corporation
shall have been prejudiced as a result of such failure). With respect to any
Action for which indemnification is requested, the Surviving Corporation will be
entitled to participate therein at its own
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<PAGE> 45
expense and, except as otherwise provided below, to the extent that it may wish,
the Surviving Corporation may assume the defense thereof, with counsel
reasonably satisfactory to the Indemnified Party. After notice from the
Surviving Corporation to the Indemnified Party of its election to assume the
defense of an Action, the Surviving Corporation will not be liable to the
Indemnified Party for any legal or other expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof, other than as provided
below. The Surviving Corporation will not settle any Actions without the consent
of the Indemnified Party where such settlement includes an admission of civil or
criminal liability on behalf of an officer or director or requires any payment
to be made by the Indemnified Party. The Indemnified Party will have the right
to employ counsel in any Action, but the fees and expenses of such counsel
incurred after notice from the Surviving Corporation of its assumption of the
defense thereof will be at the expense of the Indemnified Party, unless (i) the
employment of counsel by the Indemnified Party has been authorized by the
Surviving Corporation in writing, (ii) the Indemnified Party will have
reasonably concluded upon the advice of counsel that there may be a conflict of
interest between the Indemnified Party and the Surviving Corporation in the
conduct of the defense of an Action, or (iii) the Surviving Corporation shall
not in fact have employed counsel to assume the defense of an Action, in each of
which cases the reasonable fees and expenses of counsel selected by the
Indemnified Party will be at the expense of the Surviving Corporation.
Notwithstanding the foregoing, the Surviving Corporation will not be liable for
any settlement effected without its written consent, which will not be
unreasonably withheld, conditioned or delayed, and the Surviving Corporation
will not be obligated pursuant to the Merger Agreement to pay the fees and
disbursements of more than one counsel (including local counsel) for all
Indemnified Parties in any single Action, except to the extent two or more of
such Indemnified Parties have conflicting interests in the outcome of such
action.
For a period of six years after the Effective Time, the Surviving
Corporation will maintain officers' and directors' liability insurance covering
the Indemnified Parties who are currently covered, in their capacities as
officers and directors, by the Company's existing officers' and directors'
liability insurance policies on terms substantially no less advantageous to the
Indemnified Parties than such existing insurance; provided, however, that the
Surviving Corporation will not be required in order to maintain or procure such
coverage to pay premiums on an annualized basis in excess of 200% of the current
annual premium paid by the Company for its existing coverage (the "Cap") (which
current annual premium is approximately $100,000); and provided, further, that
if equivalent coverage cannot be obtained, or can be obtained only by paying an
annual premium in excess of the Cap, the Surviving Corporation will only be
required to obtain as much coverage as can be obtained by paying premiums on an
annualized basis equal to the Cap.
EMPLOYEE BENEFITS
The Merger Agreement provides that from and after the Effective Time the
Surviving Corporation will have sole discretion over the hiring, promotion,
retention and firing of employees of the Surviving Corporation. Notwithstanding
the immediately preceding sentence, the Surviving Corporation will (i) satisfy
all obligations of the Company or any of its Subsidiaries under any existing
severance agreement between the Company or any of its Subsidiaries and any of
their officers or employees and (ii) until the expiration of at least one year
after the Effective Time, satisfy all obligations of the Company or any of its
Subsidiaries under their current respective severance policies. The Surviving
Corporation will provide for the benefit of employees of the Surviving
Corporation who were employees of the Company immediately prior to the Effective
Time "employee benefit plans" within the meaning of Section 3(3) of ERISA (a)
for a period of at least one year after the Effective Time, that are, in the
aggregate, substantially comparable to the "employee benefit plans" provided to
such individuals by the Company or any Subsidiary on the date of the Merger
Agreement, and (b) thereafter that are, at the election of the Surviving
Corporation, either (i) in the aggregate, substantially comparable to the
"employee benefit plans" provided to such individuals by the Company or any
Subsidiary on the date of the Merger Agreement or (ii) in the aggregate,
substantially comparable to the "employee benefit plans" provided to similarly
situated employees of the Surviving Corporation or its Subsidiaries who were not
employees of the Company or any Subsidiary immediately prior to the Effective
Time; provided, however, that notwithstanding the foregoing (A) nothing in the
Merger Agreement will be deemed to require the Surviving Corporation to modify
the benefit formulas under any pension, profit sharing or savings plan of the
Company or any Subsidiary in a manner that increases the aggregate expenses
thereof as of the date of the
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<PAGE> 46
Merger Agreement in order to comply with the requirements of ERISA or the Code,
(B) multiemployer pension plans with the meaning of 3(37) of ERISA, employee
stock ownership, stock bonus, stock option and similar equity-based plans,
programs and arrangements of the Company or any of its Subsidiaries are not
encompassed within the meaning of the term "employee benefit plans," and (C)
nothing in the Merger Agreement will obligate the Surviving Corporation to
continue any particular "employee benefit plan" for any period after the
Effective Time.
FINANCING
Upon the terms and subject to the conditions of the Merger Agreement, the
Company is required to use commercially reasonable efforts to take, or cause to
be taken, all action, and to do or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, as promptly as
practicable, proper or advisable to secure the Financing on terms substantially
as outlined in the Financing Letters.
CONDITIONS
Conditions to Each Party's Obligation To Effect the Merger. Under the
Merger Agreement, the respective obligations of each party to effect the Merger
are subject to the fulfillment of the following conditions: (i) the Merger
Agreement and the transactions contemplated thereby (including the Charter
Amendment) shall have been approved in the manner required by applicable law by
the holders of the issued and outstanding shares of capital stock of the
Company; (ii) the aggregate number of Company Common Shares owned by those
Company shareholders, if any, other than members of the Buyout Group, who shall
have exercised, or given notice of their intent to exercise, the rights of
Dissenting Shareholders under the TBCA shall be less than ten percent (10%) of
the total number of outstanding Company Common Shares; (iii) neither of the
parties thereto shall be subject to any order or injunction of a court of
competent jurisdiction that prohibits the consummation of the transactions
contemplated by the Merger Agreement or the effective operation of the business
of the Company and its Subsidiaries after the Effective Time; (iv) the Company
shall have received the Financing on terms substantially as outlined in the
Financing Letters and shall have sufficient financing thereunder to consummate
the Merger; and (v) all consents, authorizations, orders and approvals of (or
filings or registrations with) any Governmental Entity required in connection
with the execution, delivery and performance of the Merger Agreement shall have
been obtained or made, except for filings in connection with the Merger and any
other documents required to be filed after the Effective Time and except where
the failure to have obtained or made any such consent, authorization, order,
approval, filing or registration would not have a material adverse effect on the
business, financial condition or results of operations of the Surviving
Corporation following the Effective Time.
Conditions to Obligation of the Company To Effect the Merger. Under the
Merger Agreement, the obligation of the Company to effect the Merger is subject
to the fulfillment of the following additional conditions: (i) (a) the
representations and warranties of LLC contained in the Merger Agreement shall
have been true and correct in all material respects as of the date of the Merger
Agreement and (b) the representations and warranties of LLC and Newco contained
in the Merger Agreement and in any document delivered in connection therewith
shall be true and correct in all material respects (but without regard to any
materiality qualifications or references to material adverse effect contained in
any specific representation or warranty) as of the Closing Date, except (I) for
changes specifically permitted by the Merger Agreement and (II) that those
representations and warranties that address matters only as of a particular date
shall remain true and correct in all material respects as of such date; (ii) LLC
shall have performed or complied with all agreements and conditions contained in
the Merger Agreement required to be performed or complied with by it on or prior
to the Effective Time; (iii) LLC shall have delivered to the Company a
certificate, dated the Closing Date, signed by the President of LLC, certifying
as to the fulfillment of the conditions specified in clauses (i) and (ii) above;
(iv) LLC shall have delivered to the Company a certificate, dated the Closing
Date, signed by the President of LLC, certifying that, to its knowledge, certain
conditions have been fulfilled (unless the Company is unable to deliver a
specified officer's certificate); and (v) LLC shall have obtained all material
consents, waivers, approvals, authorizations or orders and made all filings
required in connection with
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<PAGE> 47
the authorization, execution and delivery of the Merger Agreement by LLC and the
consummation by it of the transactions contemplated by the Merger Agreement, and
all applicable notice periods shall have expired.
Conditions to Obligation of LLC and Newco to Effect the Merger. Under the
Merger Agreement, the obligations of LLC and Newco to effect the Merger are
subject to the fulfillment of the following additional conditions: (i) (a) the
representations and warranties of the Company contained in the Merger Agreement
shall have been true and correct in all material respects as of the date of the
Merger Agreement and (b) the representations and warranties of the Company
contained in the Merger Agreement and in any document delivered in connection
therewith shall be true and correct in all material respects (but without regard
to any materiality qualifications or references to material adverse effect
contained in any specific representation or warranty) as of the Closing Date,
except (I) for changes specifically permitted by the Merger Agreement and (II)
that those representations and warranties that address matters only as of a
particular date shall remain true and correct in all material respects as of
such date; (ii) the Company shall have performed or complied with all agreements
and conditions contained in the Merger Agreement required to be performed or
complied with by it on or prior to the Closing Date, unless such failure to
perform or comply is due to any act by, or omission of LLC or any members of the
Buyout Group; (iii) the Company shall have delivered to LLC a certificate, dated
the Closing Date, signed by the Chief Executive Officer of the Company,
certifying as to the fulfillment of the conditions specified in clauses (i) and
(ii) above; (iv) from the date of the Merger Agreement through the Effective
Time, there shall not have been any condition, event or occurrence that,
individually or in the aggregate, has resulted in a Material Adverse Effect; (v)
the Company shall have obtained all material consents, waivers, approvals,
authorizations or orders and made all filings required in connection with the
authorization, execution and delivery of the Merger Agreement by the Company and
the consummation by it of the transactions contemplated thereby, and all
applicable notice periods shall have expired; (vi) the Company or the Board of
Directors of the Company shall have taken any action needed to be taken to
provide that Company Stock Derivatives will be treated as described under the
caption "-- Conversion of Securities in the Merger; Treatment of Derivatives";
(vii) LLC shall have received a valuation of the assets of the Company from a
reputable third party, and such other assurances it deems reasonable, that the
payment of the Merger Consideration is in compliance with Article 2.38 of the
TBCA; and (viii) the provisions of Article 13.03 of the TBCA shall not apply to
the Merger, the Merger Agreement and the transactions contemplated thereby.
TERMINATION
Termination by Mutual Consent. The Merger Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Merger
by the shareholders of the Company or the member of LLC, by the mutual written
consent of the Manager of LLC and the Special Committee or Board of Directors of
the Company.
Termination by Either the Company or LLC. The Merger Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the shareholders of the Company or by the member of LLC, (i)
by either the Company or LLC if (a) any Governmental Entity shall have issued
any injunction or taken any other action permanently restraining, enjoining or
otherwise prohibiting the consummation of the Merger or such injunction or other
action shall have become final and nonappealable, or (b) any required approval
of the shareholders of the Company shall not have been obtained by reason of the
failure to obtain the required vote upon a vote held at a duly held meeting of
shareholders or at any adjournments or postponements thereof or (ii) by either
the Company or LLC, so long as such party has not breached its obligations under
the Merger Agreement, if the Merger shall not have been consummated on or before
September 30, 1998; provided, that the right to terminate the Merger Agreement
under this clause (ii) shall not be available to any party to the Merger
Agreement whose failure to fulfill any obligation under the Merger Agreement has
been the cause of or resulted in the failure of the Merger to occur on or before
such date.
Termination by the Company. The Merger Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after approval of the matters presented in connection with the Merger by the
shareholders of the Company or by the member of LLC, by the
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<PAGE> 48
Company (i) if there has been a material breach of the Merger Agreement on the
part of LLC of its covenants or any of its representations or warranties
contained therein shall be materially inaccurate and such breach or inaccuracy
has not been cured within 10 business days after written notice thereof from the
Company or (ii) if the Company receives an Acquisition Proposal in writing from
any person or group (a) that the Company's Board determines in its good faith
judgment is more favorable to the Company's shareholders than the Merger and (b)
as a result of which, the Company's Board reasonably believes, after
consultation with its counsel and its financial advisor, that there is a
substantial risk that a failure to terminate the Merger Agreement would violate
its fiduciary duties to the shareholders of the Company.
Termination by LLC. The Merger Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or
after the approval of the matters presented in connection with the Merger by the
shareholders of the Company or by the member of LLC, by LLC if (i) there has
been a material breach of the Merger Agreement on the part of the Company of its
covenants or any of its representations or warranties contained therein shall be
materially inaccurate and such breach or inaccuracy has not been cured within 10
business days after written notice thereof from LLC; or (ii) the Board of
Directors of the Company, without the consent of LLC (a) shall have withdrawn or
modified, in any manner that is adverse to LLC, its recommendation or approval
of the Merger or the Merger Agreement or shall have resolved to do so or (b)
shall have recommended to the shareholders of the Company any Acquisition
Proposal or any transaction described in the definition of Acquisition Proposal,
or shall have resolved to do so.
Effect of Termination and Abandonment. In the event of termination of the
Merger Agreement by either the Company or LLC pursuant to the terms described
above, the Merger Agreement shall become void, and there shall be no liability
or obligation on the part of LLC or the Company or their respective affiliates,
officers, directors or shareholders (except (i) with respect to certain
obligations of the parties to the Merger Agreement, including those with respect
to expenses, insurance, indemnity and employee benefits, and (ii) to the extent
that such termination results from the willful breach by a party to the Merger
Agreement of any of its representations or warranties, or any of the covenants
and agreements contained in the Merger Agreement). If the Merger Agreement is
terminated in certain circumstances, and such termination was not due to any act
by, or omission of, LLC or any member of the Buyout Group (not including the act
of termination), then the Company shall pay (or reimburse) to LLC all reasonable
and customary out-of-pocket fees, costs and expenses (including reasonable and
customary out-of-pocket fees, costs and expenses of accountants, attorneys and
financing sources (as described in the commitment letters and highly confident
letter described in "Special Factors -- Estimated Expenses and Fees; Sources of
Funds")) incurred by or on behalf of LLC in connection with the Merger, the
Merger Agreement and the transactions contemplated thereby.
Sole Remedy. The rights and remedies set forth above are the sole and
exclusive rights and remedies of the parties to the Merger Agreement with
respect to the inaccuracy of a representation or warranty or the breach of a
covenant by the Company (with respect to the compliance with a covenant that was
under the control of a member of the Buyout Group as an officer of the Company).
AMENDMENT
The Merger Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties to the Merger Agreement. The parties to
the Merger Agreement may agree to any amendment or supplement to the Merger
Agreement or a waiver of any provision of the Merger Agreement, either before or
after the approval of the Company's shareholders (and without seeking further
shareholder approval), so long as such amendment, supplement or waiver does not
have a material adverse effect on the Company's shareholders which determination
will be made by the Board of Directors of the Company (with interested directors
abstaining due to conflicts of interest) and will be binding on the Company's
shareholders.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes certain United States federal income
tax consequences of the Merger to shareholders of the Company other than the
members of the Buyout Group. It is based upon laws, regulations (whether final,
temporary, or proposed), rulings and judicial decisions now in effect, all of
which are subject to change, possibly with retroactive effect. It does not
address all aspects of federal income taxation that may be relevant to a
particular shareholder in light of that shareholder's personal circumstances,
nor does it address federal income tax consequences to types of taxpayers
subject to special treatment under the federal income tax laws (e.g., life
insurance companies, tax exempt organizations, foreign taxpayers, securities
dealers and persons who have entered into hedging transactions with respect to
the Common Stock or who hold the Common Stock as part of a conversion
transaction or straddle), nor does it address any aspect of state, local,
foreign, federal estate and gift or other tax laws. It is assumed that the
shares of Common Stock are held as capital assets by a United States person
(i.e., a citizen or resident of the United States or a domestic corporation).
The Company has not requested, and does not anticipate requesting, any ruling
from the Internal Revenue Service with respect to the Merger.
The receipt of cash for Common Stock pursuant to the Merger will be a
taxable transaction to the Public Shareholders for federal income tax purposes
under the Code and also may be a taxable transaction under applicable state,
local, foreign and other tax laws. The Merger will be treated for federal income
tax purposes as a redemption by the Company of the Public Stock. Any Public
Shareholder that is not related to a member of the Buyout Group or to a
purchaser of units of common stock and preferred stock of the Company in a way
that would result in constructive ownership of such other person's stock under
applicable provisions of the Code will be treated as having sold such
shareholder's Common Stock for the cash received by such shareholder in the
Merger. In general, for federal income tax purposes, a shareholder will
recognize gain (or loss) equal to the amount by which the cash received in
exchange for the Common Stock exceeds (or is exceeded by) the tax basis for such
Common Stock. Assuming that the Common Stock is held as a capital asset, such
gain or loss will be capital gain or loss. In the case of individuals and other
noncorporate taxpayers, such gain will be subject to maximum federal income tax
rates of 20% for Common Stock held for more than 18 months and 28% for Common
Stock held for more than one year but for not more than 18 months. The same
maximum rates apply for purposes of the alternative minimum tax.
Shareholders who hold Common Stock issued to them by the Company after
August 10, 1993 and prior to December 31, 1994 may qualify for a full or partial
deferral of any gain from the sale or exchange of such Common Stock in the
Merger if such shareholders purchase other stock in an original issuance
satisfying the requirements for "Qualified Small Business Stock" within the
meaning of Section 1202 of the Code within 60 days after the Effective Time
("Replacement Small Business Stock"). Qualified Small Business Stock generally
consists of stock in a C corporation the aggregate gross assets of which do not
exceed $50 million on or immediately after the date of issuance and which
satisfies certain active business requirements. The amount of gain realized in
the Merger will not be recognized to the extent of the cost of the Replacement
Small Business Stock that is not already used to offset gains on the sale or
exchange of other Qualified Small Business Stock. Any such deferred gain instead
will be applied to reduce the shareholder's basis in the Replacement Small
Business Stock. Shareholders will continue to be taxed as described above on the
excess, if any, of the amount received in the Merger over the cost of the
Replacement Small Business Stock. If the combined holding periods of the Common
Stock and the Replacement Small Business Stock exceed five years, a shareholder
may also qualify for a 50% exclusion of any gain from the subsequent sale or
exchange of the Replacement Small Business Stock.
The foregoing discussion may not be applicable to shareholders who acquired
their Common Stock pursuant to the exercise of options or other compensation
arrangements, or who are not citizens or residents of the United States, or who
are otherwise subject to special tax treatment under the Code or who are treated
under the Code as constructively owning Common Stock by reason of being related
to a member of the Buyout Group.
Cash payments to shareholders pursuant to the Merger may be subject to
backup withholding tax at a rate of 31% on the gross amount of the Merger
Consideration unless the shareholder has complied with certain
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<PAGE> 50
reporting and/or certification procedures. The Letter of Transmittal, which will
be sent to the former shareholders of the Company following the Effective Time
if the Merger is consummated, will include a substitute Form W-9 on which
shareholders can provide the information required to avoid backup withholding.
Any amount withheld from a shareholder under the backup withholding rules will
be allowed as a credit against such shareholder's federal income tax liability
and may entitle the shareholder to a refund, provided that the required
information is timely furnished to the Internal Revenue Service. Shareholders
should consult their tax advisors regarding the application of information
reporting and backup withholding in their particular circumstances and the
availability of an exemption therefrom if the shareholders cannot or do not make
the certifications required by the substitute Form W-9.
THE FOREGOING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER IS INCLUDED FOR GENERAL INFORMATION ONLY. EACH SHAREHOLDER IS URGED
TO CONSULT SUCH SHAREHOLDER'S OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES TO SUCH SHAREHOLDER OF THE MERGER IN VIEW OF THE SHAREHOLDER'S OWN
PARTICULAR CIRCUMSTANCES.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for as a "recapitalization," as that term is
used under generally accepted accounting principles, for accounting and
financial reporting purposes.
REGULATORY APPROVALS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), provides that certain transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the Federal Trade
Commission (the "FTC") and certain waiting period requirements have been
satisfied. The consummation of the Merger is subject to such requirements. The
regulations promulgated by the FTC under the HSR Act required Notification and
Report Forms (the "Forms") to be filed by Krasovec and the Company with the
Antitrust Division and the FTC with respect to the Merger and prevent such
Merger from being consummated until thirty days after receipt of the Forms by
the Antitrust Division and the FTC, unless such thirty-day waiting period is
earlier terminated by the FTC or the Antitrust Division. No other federal or
state regulatory approvals are required to be obtained, nor are any other
regulatory requirements required to be complied with, in connection with
consummation of the Merger by any party to the Merger Agreement.
LITIGATION
On March 16, 1998, Harbor Finance Partners, an alleged shareholder of the
Company, filed a lawsuit against the Company seeking to enjoin the Merger. The
plaintiff alleged that the Merger is unfair to the Company's shareholders. The
lawsuit also named the Company's directors individually and, as alternative
relief, sought unspecified damages for an alleged breach of their fiduciary
duties. The suit was filed in the 250th District Court of Travis County, Texas
and was styled Harbor Finance Partners v. Frank P. Krasovec, et al. The
plaintiff sought certification as a class action on behalf of all shareholders
of the Company, except the individual defendants and their affiliates.
The Company believes that the allegations made in the lawsuit are without
merit and intends to contest them vigorously. On April 10, 1998, the Company
filed special exceptions asserting that the plaintiff was not entitled to the
requested relief as a matter of law. At a hearing on April 16, 1998, the Court
sustained the Company's special exceptions and ordered the plaintiff to amend
its pleadings to state a proper claim for relief by April 27, 1998. On April 24,
1998, the plaintiff filed a non-suit, dismissing the lawsuit.
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MARKET INFORMATION
The Company's Common Stock is listed for quotation on Nasdaq under the
symbol "NPPI". The following table sets forth the high and low closing sales
prices for the Common Stock for the fiscal periods indicated, as reported by
Nasdaq.
<TABLE>
<CAPTION>
FISCAL 1996 HIGH LOW
- ----------- ------ ------
<S> <C> <C>
First Quarter (ended December 2, 1995).................... 19.00 15.50
Second Quarter (ended March 2, 1996)...................... 20.50 16.25
Third Quarter (ended June 1, 1996)........................ 24.00 17.00
Fourth Quarter (ended August 31, 1996).................... 22.75 12.75
FISCAL 1997
First Quarter (ended November 30, 1996)................... 18.25 14.00
Second Quarter (ended March 1, 1997)...................... 21.50 15.25
Third Quarter (ended May 31, 1997)........................ 17.50 12.50
Fourth Quarter (ended August 30, 1997).................... 16.25 12.00
FISCAL 1998
First Quarter (ended November 29, 1997)................... 17.00 13.875
Second Quarter (ended February 28, 1998).................. 17.063 14.75
Third Quarter (through April 15, 1998).................... 19.938 19.75
</TABLE>
These quotations reflect inter-dealer prices, without retail markups,
markdowns or commissions and may not necessarily reflect actual transactions.
On March 13, 1998, the last full trading day on which shares of stock
traded prior to the Public Announcement Date, the last reported sales price
quoted by Nasdaq was $17.375 per share of Common Stock. On , the most
recent date on which shares of stock traded prior to the printing of this Proxy
Statement, the last reported sales price quoted by Nasdaq was $ per
share of Common Stock. As of the Record Date, there were holders of record of
Common Stock of the Company. The Company's shareholders are urged to obtain a
current market quotation for the Common Stock.
The Merger Consideration represents a 19% premium over the closing sale
price on March 13, 1998, the last full trading day on which the Common Stock
traded prior to the Public Announcement Date.
Except for payments to shareholders in connection with a restructuring of
the Company in October 1989, which were treated as dividends for accounting
purposes, the Company has never paid any cash dividends or distributions on its
Common Stock and intends to retain earnings for use in its business expansion.
The Company paid dividends to holders of its preferred stock between fiscal 1990
and fiscal 1993. None of the preferred stock is currently outstanding. The Old
Credit Facility limits the payment of cash dividends on the Company's capital
stock and, in any event, the Company does not anticipate paying any cash
dividends in the foreseeable future.
On December 20, 1995, the Company sold 2,015,481 shares of Common Stock in
an underwritten public offering at an offering price of $17.00 per share for an
aggregate of $34,263,177 (before deducting underwriting discounts and
commissions of $2,186,797 and expenses of $1,090,000).
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date for (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each member of the Buyout Group, (iv) all of the members of the Buyout Group and
(v) all of the directors and officers of the Company as a group. Except pursuant
to applicable community property laws and except as
40
<PAGE> 52
otherwise indicated, each shareholder identified in the table possess sole
voting and investment power with respect to its or his shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(A) BENEFICIAL OWNERSHIP(B) CLASS (B)
--------------------------------------- ----------------------- ----------
<S> <C> <C>
Frank P. Krasovec (c)....................................... 660,917 13.0%
FIVE PERCENT SHAREHOLDERS OTHER THAN KRASOVEC:
Newberger & Berman, L.L.C.(d)(e)............................ 833,700 16.4%
Heartland Advisors, Inc.(d)(f).............................. 486,000 9.6%
Tweedy, Browne Company LLC(d)(g)............................ 267,500 5.3%
Thomas Horstmann & Bryant, Inc.(d)(h)....................... 460,000 9.1%
DIRECTORS OTHER THAN KRASOVEC:
Robert L. Seibert(i)........................................ 14,587 *
John H. Wilson III(j)....................................... 39,151 *
John H. Josephson(k)........................................ 29,228 *
Harold Holland(l)........................................... 12,000 *
Roy D. Terracina(m)......................................... 15,000 *
NAMED MEMBERS OF THE BUYOUT GROUP OTHER THAN KRASOVEC AND
JOSEPHSON:
James P. Gunning, Jr........................................ 500 *
J. Max Waits(n)............................................. 13,100 *
John Finnell(o)............................................. 206,553 4.1%
Michael Linderman(p)........................................ 57,253 1.1%
James Preston............................................... 1,000 *
Paul W. Larson(q)........................................... 62,298 1.2%
Russell A. Devereau(r)...................................... 2,500 *
George Bell Strob(s)........................................ 53,193 1.0%
Brian P. Miller............................................. 17,142 *
David Kagel(t).............................................. 23,776 *
All members of the Buyout Group (12 persons)(u)............. 1,127,460 21.6%
All directors and named executive officers as a group (7
persons)(v)............................................... 770,883 14.9%
Company Employee 401(k) Plan................................ 8,888 *
</TABLE>
- ---------------
* Less than 1%
(a) Except as otherwise shown, the address of each person listed above is care
of Norwood Promotional Products, Inc., 106 E. Sixth Street, Suite 300,
Austin, Texas 78701.
(b) Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to the shares of Common Stock
shown as beneficially owned by them. Beneficial ownership as reported in
the above table has been determined in accordance with Rule 13d-3 of the
Exchange Act. The percentages are based upon [5,080,751] shares outstanding
as of the Record Date.
(c) Includes 7,000 shares of Common Stock issuable upon exercise of options
granted to Krasovec, which are exercisable within 60 days. Includes 1,000
shares of Common Stock held of record by Krasovec's wife.
(d) Information regarding beneficial ownership has been obtained from reports
on SEC Schedule 13F and 13G or from Nasdaq. This information has not been
verified by the Company.
(e) The business address of Newberger & Berman, L.L.C. is 605 Third Avenue, New
York, New York 10158-3698.
(f) The business address for Heartland Advisors, Inc. is 790 N. Milwaukee
Street, Milwaukee, Wisconsin 53202-3712.
(g) The business address of Tweedy, Browne Company LLC is 52 Vanderbilt Avenue,
New York, New York 10017.
41
<PAGE> 53
(h) The business address of Thomson Horstmann & Bryant, Inc. is Park 80
West/Plaza Two, Saddle Brook, New Jersey 07663.
(i) Includes 6,000 shares of Common Stock issuable upon exercise of warrants
granted to Mr. Seibert, which are exercisable within 60 days.
(j) Includes 27,728 shares of Common Stock issuable upon exercise of warrants
granted to Mr. Wilson, which are exercisable within 60 days.
(k) Includes 27,728 shares of Common Stock issuable upon exercise of warrants
granted to Josephson, which are exercisable within 60 days. Excludes
150,000 shares of Common Stock issuable upon exercise of warrants held by
Allen. Josephson, a director of Allen, disclaims beneficial ownership of
these shares.
(l) Includes 12,000 shares of Common Stock issuable upon exercise of warrants
granted to Mr. Holland, which are exercisable within 60 days.
(m) Includes 10,500 shares of Common Stock issuable upon exercise of warrants
granted to Mr. Terracina, which are exercisable within 60 days.
(n) Includes 7,862 shares of Common Stock issuable upon exercise of options
granted to Mr. Waits, which are exercisable within 60 days.
(o) Includes 9,728 shares of Common Stock issuable upon exercise of options
granted to Mr. Finnell, which are exercisable within 60 days.
(p) Includes 21,000 shares of Common Stock issuable upon exercise of options
and warrants granted to Mr. Linderman, which are exercisable within 60
days. Includes 35,294 shares of Common Stock issuable upon the conversion
of convertible debt issued to Mr. Linderman. Includes 710 shares held of
record by Mr. Linderman's wife.
(q) Includes 3,867 shares of Common Stock issuable upon exercise of options
granted to Mr. Larson, which are exercisable within 60 days.
(r) Includes 2,000 shares of Common Stock issuable upon exercise of options
granted to Mr. Devereau, which are exercisable within 60 days.
(s) Includes 14,008 shares of Common Stock issuable upon exercise of options
granted to Mr. Strob, which are exercisable within 60 days. Mr. Strob holds
all of his shares of Common Stock jointly with his wife, Debra Ann Strob.
Accordingly, Mrs. Strob may be deemed to share in the power to vote or
direct the vote of Mr. Strob's shares.
(t) Includes 16,318 shares of Common Stock issuable upon exercise of options
granted to Mr. Kagel, which are exercisable within 60 days.
(u) Includes 111,010 shares of Common Stock issuable upon exercise of options
or warrants that are exercisable within 60 days. Includes 1,000 shares of
Common Stock held of record by Krasovec's wife and 710 shares of Common
Stock held of record by Mr. Linderman's wife. Includes 35,294 shares of
Common Stock issuable upon the conversion of convertible debt issued to Mr.
Linderman. Includes 53,193 shares of Common Stock held jointly by Mr. Strob
and his wife, Debra Ann Strob.
(v) Includes 89,956 shares of Common Stock issuable upon exercise of options or
warrants that are exercisable within 60 days. Includes 1,000 shares of
Common Stock held of record by Krasovec's wife.
42
<PAGE> 54
PURCHASES OF COMMON STOCK BY AND OTHER
TRANSACTIONS WITH CERTAIN PERSONS
Neither the Company, the members of the Buyout Group, any affiliate thereof
nor, to the Company's knowledge, any of the executive officers or directors of
the Company have purchased Common Stock within sixty days of the date of this
Proxy Statement.
The following table sets forth certain information concerning purchases of
Common Stock since September 3, 1995 by the Company, Krasovec and LLC.
<TABLE>
<CAPTION>
NUMBER OF
SHARES RANGE OF PRICES AVERAGE PURCHASE
FISCAL QUARTER NAME PURCHASED PAID PER SHARE PRICE PER SHARE
- -------------- --------- --------- ----------------- ----------------
<S> <C> <C> <C> <C>
Quarter ended May 31, 1997....... Company 575,100 $12.625 - $13.125 $12.839
Quarter ended August 31, 1996.... Krasovec 10,000 $13.500 - $15.000 $14.250
Quarter ended May 31, 1997....... Krasovec 13,000 $13.375 - $15.250 $14.534
Quarter ended November 29,
1997........................... Krasovec 5,000 $16.375 - $16.750 $16.525
</TABLE>
TRANSACTION OF OTHER BUSINESS
The Board of Directors knows of no other matters which may be presented at
the Meeting, but if other matters do properly come before the Meeting, it is
intended that the persons named in the Proxy will vote, pursuant to their
discretionary authority, according to their best judgment in the interest of the
Company.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company as of August 30, 1997
and for the year then ended included in the Company's Annual Report on Form 10-K
for the fiscal year ended August 30, 1997, as amended, and incorporated by
reference herein, have been audited by Ernst & Young LLP, independent auditors,
as stated in their report appearing therein.
It is expected that representatives of Ernst & Young LLP, will be present
at the Meeting, and will have an opportunity to respond to appropriate questions
of shareholders and to make a statement if they so desire.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission pursuant to
the Exchange Act are incorporated herein by reference and shall be deemed a part
hereof:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
August 30, 1997, as amended.
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
November 29, 1997.
3. The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
February 28, 1998.
4. The Company's Current Report on Form 8-K filed on September 10, 1997.
5. The Company's Current Report on Form 8-K filed on March 20, 1998.
In addition, all documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy Statement
and prior to the date of the Meeting shall be deemed to be incorporated by
reference into this Proxy Statement and to be a part hereof from the date of
filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any statement
so modified shall not be deemed to constitute a part hereof except as so
modified or superseded.
43
<PAGE> 55
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
NORWOOD PROMOTIONAL PRODUCTS, INC.
AND
FPK, LLC,
AS AMENDED
A-1
<PAGE> 56
================================================================================
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
FPK, LLC
AND
NORWOOD PROMOTIONAL PRODUCTS, INC.
DATED AS OF MARCH 15, 1998
================================================================================
<PAGE> 57
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. THE MERGER.............................................................................1
1.1 The Merger....................................................................1
1.2 The Closing...................................................................2
1.3 Effective Time................................................................2
1.4 Company Actions...............................................................2
2. ARTICLES OF INCORPORATION, BY-LAWS, DIRECTORS AND
OFFICERS OF THE SURVIVING CORPORATION..................................................3
2.1 Articles of Incorporation and By-laws of Surviving Corporation................3
2.2 Directors and Officers of Surviving Corporation...............................3
3. CONVERSION OF SECURITIES...............................................................3
3.1 Conversion of Securities......................................................3
3.2 Dissenting Shareholders.......................................................4
3.3 Payment for and Surrender of Company Common Shares............................5
3.4 Stock Transfer Books..........................................................6
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................7
4.1 Organization and Qualification................................................7
4.2 Authorization, Validity and Effect of Agreement...............................7
4.3 Capitalization................................................................7
4.4 Subsidiaries..................................................................8
4.5 No Conflict; Required Filings and Consents....................................9
4.6 No Brokers...................................................................10
4.7 Opinion of Financial Advisor.................................................10
4.8 SEC Filings; Financial Statements; Undisclosed Liabilities...................10
4.9 Absence of Certain Changes or Events.........................................11
5. REPRESENTATIONS AND WARRANTIES OF LLC.................................................11
5.1 Organization.................................................................11
5.2 Authorization, Validity and Effect of Agreement..............................11
5.3 Subsidiaries.................................................................12
5.4 No Conflict; Required Filings and Consents...................................12
5.5 No Brokers...................................................................13
5.6 Financing....................................................................13
5.7 WARN Act.....................................................................13
6. COVENANTS.............................................................................13
6.1 Acquisition Proposals........................................................13
6.2 Conduct of Business by the Company...........................................15
6.3 Meeting of Shareholders......................................................17
6.4 Filings, Other Action........................................................17
</TABLE>
-i-
<PAGE> 58
<TABLE>
<S> <C> <C>
6.5 Access to Information; Confidentiality.......................................17
6.6 Publicity....................................................................18
6.7 Reasonable Efforts; Additional Actions.......................................18
6.8 Expenses.....................................................................19
6.9 Insurance; Indemnity.........................................................20
6.10 Employee Benefits............................................................21
6.11 Conveyance Taxes.............................................................21
6.12 Financing....................................................................22
6.13 Newco........................................................................22
7. CONDITIONS............................................................................22
7.1 Conditions to Each Party's Obligation to Effect the Merger...................22
7.2 Conditions to Obligation of Company to Effect the Merger.....................23
7.3 Conditions to Obligation of LLC and Newco To Effect the Merger...............23
8. TERMINATION...........................................................................24
8.1 Termination..................................................................24
8.2 Effect of Termination........................................................26
8.3 Extension; Waiver............................................................26
8.4 Sole Remedy..................................................................26
9. GENERAL PROVISIONS....................................................................27
9.1 Nonsurvival of Representations, Warranties and Agreements....................27
9.2 Notices......................................................................27
9.3 Assignment; Binding Effect...................................................28
9.4 Entire Agreement.............................................................28
9.5 Amendment....................................................................28
9.6 Governing Law................................................................28
9.7 Counterparts.................................................................28
9.8 Headings.....................................................................29
9.9 Interpretation...............................................................29
9.10 Waivers......................................................................29
9.11 Incorporation of Schedules...................................................29
9.12 Severability.................................................................29
9.13 Enforcement of Agreement.....................................................29
</TABLE>
LIST OF SCHEDULES
Schedule 4.3 Company Stock Derivatives
Schedule 4.4 Company Subsidiaries
Schedule 4.5 Consents
Schedule 4.8 SEC Filings; Financial Statements; Undisclosed Liabilities
Schedule 4.9 Absence of Certain Changes or Events
-ii-
<PAGE> 59
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Action .............................................................................................. 20
Agreement ................................................................................................1
Blue Sky Laws ................................................................................................9
Cap ...............................................................................................21
Certificate of Merger.............................................................................................2
Certificates ................................................................................................5
Closing ................................................................................................2
Closing Date ................................................................................................2
Code ................................................................................................9
Company ................................................................................................1
Company Common Share..............................................................................................3
Company Stock Derivative..........................................................................................4
Company Stock Plan................................................................................................8
Consideration ................................................................................................3
Effective Time ................................................................................................2
Exchange Act ................................................................................................2
Financing ...............................................................................................13
Financing Letters ................................................................................................1
Governmental Entity...............................................................................................9
HSR Act ................................................................................................9
Indemnified Party ...............................................................................................20
J.C. Bradford ................................................................................................2
LLC ................................................................................................1
Merger ................................................................................................1
Newco ................................................................................................1
Parent Material Adverse Effect...................................................................................12
Paying Agent ................................................................................................5
Payment Fund ................................................................................................5
Proxy Statement ................................................................................................2
SEC ................................................................................................2
Securities Act ................................................................................................8
Special Committee ...............................................................................................25
Stockholders' Meeting............................................................................................17
Subsidiary ................................................................................................8
Surviving Corporation.............................................................................................2
TBCA ................................................................................................1
WARN Act ...............................................................................................13
</TABLE>
-iii-
<PAGE> 60
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger (this "Agreement"), dated as of March 15,
1998, by and between FPK, LLC, a Delaware limited liability company ("LLC"), and
NORWOOD PROMOTIONAL PRODUCTS, INC., a Texas corporation (the "Company").
BACKGROUND
A. LLC was formed by the filing of a Certificate of Formation with the
Secretary of State of the State of Delaware on March 13, 1998.
B. The Board of Directors of the Company (based upon the recommendation
of a special committee of its independent directors (the "Special Committee"))
and the Manager of LLC have each determined that a business combination between
the Company and a wholly-owned subsidiary corporation of LLC to be formed under
the laws of Texas prior to the Effective Time (as defined in Section 1.3)
("Newco") is in the best interests of their respective companies and
shareholders/member, whereby Newco will merge with and into the Company (the
"Merger"), with the Company being the surviving corporation, all upon the terms
and subject to the conditions of this Agreement.
C. Certain executive officers and employees of the Company and certain
other holders of Company Common Shares (as defined in Section 3.1 ) desire to
remain shareholders of the Surviving Corporation (as defined in Section 1.1)
(collectively, each being a member of the "Buyout Group"), whose members will be
set forth on a list which LLC will deliver to the Company at least three days
prior to the mailing of the definitive Proxy Statement (as defined in 1.4).
D. LLC has arranged for the debt and equity financing necessary to
complete the Merger to be provided to the Company simultaneous with the
completion of the Merger in accordance with the terms and conditions of certain
commitment letters, highly confident letters and term sheets (the "Financing
Letters").
E. Each of the Company and LLC desires to provide for the consummation
of the Merger and certain other transactions relating thereto, on the terms and
subject to the conditions set forth herein.
NOW THEREFORE, intending to be legally bound, and in consideration of
the mutual agreements and covenants set forth below the parties agree as
follows:
1. THE MERGER.
1.1 The Merger.
(a) On the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined in Section 1.3), Newco will be
merged with and into the Company in accordance with the applicable provisions of
the Texas Business Corporation Act (the "TBCA"), and the separate corporate
existence of Newco will thereupon cease. The Company will be the surviving
<PAGE> 61
corporation in the Merger (as such, the "Surviving Corporation") under the
corporate name it possesses immediately prior to the Effective Time.
(b) At and after the Effective Time, the corporate existence
of the Company with all its rights, privileges, powers and franchises will
continue unaffected and unimpaired by the Merger. The Merger will have the
effects specified in the relevant provisions of the TBCA and in this Agreement.
1.2 The Closing. Unless this Agreement shall have been terminated
pursuant to the provisions of Article 8, the closing of the transactions
contemplated by this Agreement (the "Closing") will take place at the offices of
Fulbright & Jaworski L.L.P., 2200 Ross Avenue, Suite 2800, Dallas, Texas 75201,
at 10:00 a.m., local time, within two business days following the date on which
the last of the conditions (excluding conditions that by their terms cannot be
satisfied until the Closing Date (as defined below)) set forth in Article 7 is
satisfied or waived in accordance herewith, or at such other place, time or date
as the parties may agree. The date on which the Closing occurs is hereinafter
referred to as the "Closing Date".
1.3 Effective Time. On the Closing Date, LLC, Newco and the
Company will cause articles of merger with respect to the Merger (the "Articles
of Merger"), executed in accordance with the relevant provisions of the TBCA, to
be filed with the Secretary of State of the State of Texas as provided in
Article 5.04 of the TBCA. Upon completion of such filing and the issuance of a
certificate of merger by the Secretary of State of the State of Texas as
provided in Article 5.04(c) of the TBCA, the Merger will become effective in
accordance with the TBCA. The time and date on which the Merger becomes
effective is herein referred to as the "Effective Time."
1.4 Company Actions. The Company hereby represents that (a) its
Board of Directors (at a meeting duly held on March 15, 1998), based upon the
recommendation of the Special Committee, has adopted resolutions by the
unanimous vote of the directors (with all interested directors of the Company
abstaining upon advice of counsel) recommending that the holders of Company
Common Shares (as defined in Section 3.1) approve and adopt this Agreement and
the transactions contemplated hereby, including (i) the conversion of the par
value of the Company Common Shares from no par value to $.01 par value (the "Par
Value Conversion") and (ii) the Merger, and (b) J.C. Bradford & Company, L.L.C.
("J.C. Bradford") has provided to the Special Committee its opinion that the
Consideration (as defined in Section 3.1) to be received by the holders of
Company Common Shares (other than the Buyout Group) pursuant to the Merger is
fair to such holders from a financial point of view. The Company shall file as
soon as practicable after the date hereof with the Securities and Exchange
Commission (the "SEC"), a preliminary and final definitive proxy statement
(including certain information described in Schedule 13E-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and required to be set
forth in such proxy statement (such preliminary and final definitive proxy
statement, and any amendments or supplements thereto, collectively, the "Proxy
Statement") pursuant to Rule 13e-3(e)(1) and Rule 14a- 3 under the Exchange Act)
and shall cause the Proxy Statement to be mailed to the holders of the Company
Common Shares. The Company agrees to provide LLC and its counsel with any
written or oral comments the Company or its counsel may receive from the SEC
with respect to such Proxy Statement promptly after the receipt of such
comments. The Company shall also provide LLC and
2
<PAGE> 62
its counsel a reasonable opportunity to review each of the filings relating to
the Proxy Statement prior to its filing with the SEC or dissemination to the
holders of the Company Common Shares and to participate, including by way of
discussions with the SEC, in the response of the Company to such comments.
2. ARTICLES OF INCORPORATION, BY-LAWS, DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION.
2.1 Articles of Incorporation and By-laws of Surviving
Corporation.
(a) The articles of incorporation of the Company, as in
effect immediately prior to the Effective Time, as amended to reflect the Par
Value Conversion and to include the terms of the preferred stock as described in
the Financing Letters, shall become, from and after the Effective Time, the
articles of incorporation of the Surviving Corporation until amended in
accordance with its terms and the TBCA.
(b) The by-laws of the Company, as in effect immediately
prior to the Effective Time, shall become, from and after the Effective Time,
the by-laws of the Surviving Corporation until amended in accordance with their
terms and the TBCA.
2.2 Directors and Officers of Surviving Corporation. The directors
and officers of Newco immediately prior to the Effective Time shall become, from
and after the Effective Time, the directors and officers of the Surviving
Corporation and shall serve in accordance with the articles of incorporation and
by-laws of the Surviving Corporation until his/her successor has been duly
elected or appointed and qualified or until his/her earlier death, resignation
or removal in accordance with the articles of incorporation and the by-laws of
the Surviving Corporation.
3. CONVERSION OF SECURITIES.
3.1 Conversion of Securities.
(a) At the Effective Time, each share of Common Stock, (which
immediately prior to the Merger will be converted from no par value to $.01 par
value), of the Company (each a "Company Common Share" and collectively, the
"Company Common Shares") issued and outstanding immediately prior to the
Effective Time, other than as described in Sections 3.1(c), 3.1(d) and 3.2
hereof, by virtue of the Merger and without any action on the part of the
holders thereof, will be converted solely and exclusively into the right to
receive $20.70 per share in cash (the "Consideration") and any dividends payable
in accordance with Section 3.3(b).
(b) At the Effective Time, all Company Common Shares to be
converted into the right to receive the Consideration pursuant to this Section
3.1, by virtue of the Merger and without any action on the part of the holders
thereof, will cease to be outstanding, be canceled and retired and cease to
exist, and each holder of Company Common Shares will thereafter cease to have
any rights with respect to such Company Common Shares (other than the right to
receive any dividends payable in accordance with Section 3.3(b)), except the
right to receive the Consideration
3
<PAGE> 63
for each of the Company Common Shares, upon the surrender of such certificate in
accordance with Section 3.3, without any interest thereon, as provided in this
Agreement or the rights under Article 5.11 of the TBCA.
(c) At the Effective Time, each Company Common Share issued
and outstanding that is owned by any member of the Buyout Group immediately
prior to the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof, will be converted into one fully paid and
nonassessable share of common stock, $.01 par value, of the Surviving
Corporation.
(d) At the Effective Time, each Company Common Share issued
and outstanding that is owned by the Company or any of its Subsidiaries (as
defined in Section 4.4) as treasury stock, by virtue of the Merger and without
any action on the part of the holder thereof, will cease to be outstanding, be
canceled and retired and cease to exist without payment of any Consideration
therefor.
(e) At the Effective Time, each share of the capital stock of
Newco issued and outstanding immediately prior to the Effective Time, by virtue
of the Merger and without any action on the part of Newco or the holder thereof,
will cease to be outstanding, be canceled and retired and cease to exist without
payment of any Consideration therefor.
(f) All notes and other debt instruments of the Company which
are outstanding immediately prior to the Effective Time shall continue to be
outstanding subsequent to the Effective Time as debt instruments of the
Surviving Corporation, subject to their respective terms and provisions.
(g) All options and warrants to purchase Company Common
Shares and debt which is convertible into Company Common Shares which are
outstanding immediately prior to the Effective Time (each, a "Company Stock
Derivative") shall continue to be outstanding subsequent to the Effective Time
as options, warrants and convertible debt of the Surviving Corporation, subject
to all expiration, lapse and other terms and conditions thereof, except that the
term of all Company Stock Derivatives (other than convertible debt and employee
incentive stock options) shall be extended for three years from the date of
their current expiration.
3.2 Dissenting Shareholders. Notwithstanding anything in this
Agreement to the contrary, holders of Company Common Shares that have, as of the
Effective Time, complied with all procedures necessary to assert dissenter's
rights in accordance with the TBCA, if applicable, (collectively, the
"Dissenting Shareholders") shall have such rights, if any, as they may have
pursuant to Articles 5.11, 5.12 and 5.13 of the TBCA and such Company Common
Shares shall not be converted or be exchangeable as provided in Section 3.1, but
such holders shall be entitled to receive such payment as may be determined to
be due to such holders pursuant to the TBCA; provided, however, that if any such
holder shall have failed to perfect or shall have effectively withdrawn his
right to appraisal and payment under the TBCA, or if pursuant to Article 5.13.B
of the TBCA, the Company shall have terminated such holder's rights under
Article 5.12 of the TBCA, such holder shall be conclusively presumed to have
approved and ratified the Merger and such holder's Company
4
<PAGE> 64
Common Shares shall thereupon be deemed to have been converted and to have
become exchangeable, as of the Effective Time, into the right to receive, the
Consideration, without interest thereon, upon surrender of the Certificate or
Certificates (as defined in Section 3.3) in the manner provided in Section 3.3.
The Company shall give LLC prompt notice of any demand for dissenter's rights
received by the Company (and shall also give LLC prompt notice of any
withdrawals of such demands for dissenter's rights) and LLC shall have the
opportunity and right to participate in and direct all negotiations with respect
to such demands. The Company shall not, except with the prior written consent of
LLC (which consent shall not be unreasonably withheld, conditioned or delayed),
settle or otherwise negotiate or offer to settle any such demand for dissenter's
rights.
3.3 Payment for and Surrender of Company Common Shares.
(a) From time to time as needed by such bank or trust company
designated by LLC and reasonably acceptable to the Company (the "Paying Agent"),
the Surviving Corporation will deposit with the Paying Agent, for the benefit of
the holders of Company Common Shares, cash, cash equivalents or a combination
thereof in an aggregate amount equal to the product of (i) the number of Company
Common Shares issued and outstanding at the Effective Time (other than the
Company Common Shares referred to in Sections 3.1(c) and (d) and 3.2),
multiplied by (ii) the Consideration referred to in Section 3.1 (being
hereinafter referred to as the "Payment Fund"). The Paying Agent will, pursuant
to irrevocable instructions from the Surviving Corporation, deliver the
Consideration contemplated by Section 3.1 out of the Payment Fund, and, except
as provided in this Section 3.3, the Payment Fund will not be used for any other
purpose. The Company will act as paying agent with respect to payments to
holders of Options pursuant to Section 3.1(g). The Paying Agent shall invest any
cash included in the Payment Fund, as directed by the Surviving Corporation, on
a daily basis. Any interest and other income resulting from such investments
shall be paid to the Surviving Corporation.
(b) Promptly after the Effective Time, the Paying Agent will
mail to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding Company Common Shares that
were converted to the right to receive the Consideration pursuant to Section 3.1
(the "Certificates") (i) a form of letter of transmittal (which will specify
that delivery will be effected, and risk of loss and title to the Certificates
will pass, only upon proper delivery of the Certificates to the Paying Agent)
and (ii) instructions for use in effecting the surrender of the Certificates for
payment therefor. Upon surrender of Certificates for cancellation to the Paying
Agent, together with such letter of transmittal duly executed and any other
required documents, the holder of such Certificates will be entitled to receive
the Consideration for each of the Company Common Shares represented by such
Certificates, and the Certificates so surrendered will promptly be canceled.
Until so surrendered, Certificates will represent solely the right to receive
the Consideration plus any declared but unpaid dividends. No interest will be
paid or accrued on the cash payable upon the surrender of the Certificates. No
dividends or other distributions, if any, that are declared prior to the
Effective Time and are payable after the Effective Time to holders of record of
Certificates will be paid to persons entitled by reason of the Merger to receive
the Consideration until such persons surrender their Certificates. Upon such
surrender, there will be paid to the registered holders of surrendered
Certificates such declared but unpaid dividends or other distributions, if any,
on the appropriate payment date. In no event will the persons entitled to
receive
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such dividends or other distributions be entitled to receive interest on such
dividends or other distributions. If any Consideration is to be paid to a person
whose name is a name other than that in which the surrendered Certificate in
exchange therefor is registered, it will be a condition of such exchange that
the Certificate so surrendered be properly endorsed and otherwise in proper form
for transfer and that the person requesting such exchange pay to the Paying
Agent any transfer or other taxes required by reason of the payment of such
Consideration in a name other than that of the registered holder of the
Certificate surrendered, or establish to the satisfaction of the Paying Agent
that such tax has been paid or is not applicable. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Certificate to be lost, stolen or
destroyed, the Paying Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Consideration deliverable in respect thereof as
determined in accordance with this Agreement, provided that the person to whom
the Consideration is paid shall, as a condition precedent to the payment thereof
if required by the Surviving Corporation, give the Surviving Corporation a bond
in such sum as it may direct or otherwise indemnify the Surviving Corporation in
a manner satisfactory to it against any claim that may be made against the
Surviving Corporation with respect to the Certificate claimed to have been lost,
stolen or destroyed.
(c) Any portion of the Payment Fund which remains unclaimed
by the former shareholders of the Company for 180 days after the Effective Time
will be delivered to the Surviving Corporation and any former shareholders of
the Company will thereafter look only to the Surviving Corporation for payment
of their claim for the Consideration for the Company Common Shares.
(d) Neither LLC, Newco, the Surviving Corporation nor the
Paying Agent shall be liable to any holder of Company Common Shares for such
shares (or dividends or distributions with respect thereto) or cash from the
Payment Fund (or from the Surviving Corporation after the Payment Fund has
terminated) delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. Immediately prior to the time as any amounts
remaining unclaimed by holders of any such shares would otherwise escheat to or
become property of any Governmental Entity (as defined below), such amounts
shall, to the extent permitted by applicable law, become the property of the
Surviving Corporation free and clear of any claims or interest of any such
holders or their successors, assigns or personal representatives previously
entitled thereto.
3.4 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company, other than with respect to Company Common Shares
held by the Buyout Group, will be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to LLC as follows:
4.1 Organization and Qualification. The Company and each of its
Subsidiaries (as defined in Section 4.4) is a corporation or organization duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has the requisite power
and authority and all necessary governmental approvals to own, lease and operate
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its properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals would not, individually or in
the aggregate, have a Company Material Adverse Effect (as defined below). The
Company and each of its Subsidiaries is duly qualified or licensed as a foreign
corporation or organization to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in good
standing that would not, individually or in the aggregate, have a Company
Material Adverse Effect. The term "Company Material Adverse Effect" means any
change or effect that is or is reasonably likely to be materially adverse to the
business, operations, properties, financial condition, assets or liabilities of
the Company and its Subsidiaries taken as a whole. The Company has previously
delivered to LLC correct and complete copies of the articles of incorporation
and by-laws (or equivalent governing instruments), as currently in effect, of
the Company and each of its Subsidiaries.
4.2 Authorization, Validity and Effect of Agreement. The Company
has the requisite corporate power and authority to execute and deliver this
Agreement and all agreements and documents contemplated hereby to be executed
and delivered by it, and, subject to receipt of necessary shareholder approval,
to consummate the transactions contemplated hereby. Subject only to the approval
of this Agreement, the Merger and the transactions contemplated hereby by the
holders of at least two-thirds of the outstanding Company Common Shares, this
Agreement, the Merger and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all requisite
corporate action, and no other corporate action on the part of the Company is
necessary to authorize this Agreement or the Merger or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and constitutes, and all agreements and
documents contemplated hereby to be executed and delivered by the Company (when
executed and delivered pursuant hereto) will constitute, the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to creditors' rights
generally and (ii) the availability of injunctive relief and other equitable
remedies.
4.3 Capitalization. The authorized capital stock of the Company
consists of 20,000,000 Company Common Shares, 4,000,000 shares of cumulative
convertible preferred stock, no par value (the "Company Preferred Shares") and
700 shares of cumulative preferred stock, no par value (the "Company Junior
Preferred Shares"). As of the close of business on the date hereof, (a)
5,078,028 Company Common Shares were issued and outstanding, all of which were
validly issued, fully paid and nonassessable and 576,530 shares were held in the
Company's treasury, (b) no Company Preferred Shares or Company Junior Preferred
Shares were outstanding or held in the Company's treasury, (c) no Company Common
Shares, Company Preferred Shares or Company Junior Preferred Shares were held by
Subsidiaries of the Company, (d) a total of 410,536 Company Common Shares were
reserved for future issuance pursuant to outstanding Company Stock Derivatives
whether or not granted under the Company's Amended and Restated 1989 Incentive
Stock Option Plan, Amended and Restated 1994 Incentive Stock Compensation Plan,
1993 Non-Qualified Stock Option Plan, 1993 Non-Employee Director Stock Purchase
Plan and Second Amended and Restated Employee Stock Purchase Plan (collectively,
the "Company Stock Option
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Plans") and 219,464 shares were reserved for future grants whether or not under
such plans, and (e) Schedule 4.3 is a true and complete list, as of the date
hereof, of the holders of all Company Stock Derivatives, the number of Company
Common Shares subject to each such option, warrant or convertible debt
instrument and the exercise prices thereof. Except as set forth on Schedule 4.3,
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character issued or authorized by the Company relating to the
issued or unissued capital stock of the Company or any of its Subsidiaries or
obligating the Company or any of its Subsidiaries to issue or sell any shares of
capital stock of, or other equity interests in, the Company or any of its
Subsidiaries. All Company Common Shares subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, will be duly authorized, validly issued, fully paid and
nonassessable. Except as set forth on Schedule 4.3, there are no outstanding
contractual obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any Company Common Shares or any capital stock of
any its Subsidiaries or to provide funds to, or make any investment (in the form
of a loan, capital contribution or otherwise) in, any person. Except as set
forth on Schedule 4.3, there are no persons with registration or other similar
rights to have any securities (debt or equity) of the Company registered by the
Company under the Securities Act of 1933, as amended (the "Securities Act").
4.4 Subsidiaries. Schedule 4.4 sets forth a complete and
accurate list of the Subsidiaries of the Company and indicates for each such
Subsidiary the jurisdiction of incorporation or organization. Except as set
forth on Schedule 4.4, each of the Company's Subsidiaries is wholly owned by the
Company or a Subsidiary of the Company. Each outstanding share of capital stock
of each of the Company's Subsidiaries is duly authorized, validly issued, fully
paid and nonassessable and, other than the security interests held by Merrill
Lynch & Co., or any of its affiliates ("Merrill Lynch") as the administrative
agent under the Company's current credit facility, each such share owned by the
Company or another of its Subsidiaries is free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on the Company's or such other Subsidiary's voting rights, charges
and other encumbrances of any nature whatsoever. As used in this Agreement, the
word "Subsidiary" when used with respect to any party means any corporation or
other organization, whether incorporated or unincorporated, of which such party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions.
4.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the
Company do not, and the consummation by the Company of the transactions
contemplated hereby will not, (i) conflict with or violate the articles of
incorporation or by-laws or equivalent organizational documents of the Company
or any of its Subsidiaries, (ii) subject to making the filings and obtaining the
approvals identified in this Section 4.5, conflict with or violate any law,
rule, regulation, order, judgment or decree (whether United States or foreign)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected, or (iii)
except as set forth on Schedule 4.5, result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, result in the loss of a material
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benefit under, or give to others any right of termination, amendment,
acceleration, increased payments or cancellation of, or result in the creation
of a lien or other encumbrance on any property or asset of the Company pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company is a
party or by which the Company or any property or asset of the Company is bound
or affected, except in the case of clauses (ii) and (iii), for any such
conflicts, violations, breaches, defaults or other occurrences which would not
prevent or delay consummation of any of the transactions contemplated hereby in
any material respect, or otherwise prevent the Company from performing its
obligations under this Agreement in any material respect, and would not,
individually or in the aggregate, have a Company Material Adverse Effect.
(b) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement and the consummation by
the Company of the transactions contemplated hereby will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign (each a
"Governmental Entity") by either the Company or any of its Subsidiaries, except
(i) for (A) applicable requirements, if any, of the Exchange Act, the Securities
Act, and state securities or "blue sky" laws ("Blue Sky Laws"), (B) the filing
of the Articles of Merger and related requirements pursuant to the TBCA, (C)
filings and approvals as may be required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), (D) filings and consents as may be
required under any environmental, health or safety law or regulation pertaining
to any notification, disclosure or required approval, triggered by the Merger or
the other transactions contemplated by this Agreement as set forth on Schedule
4.5, and (E) applicable requirements, if any, of the Internal Revenue Code of
1986, as amended (the "Code"), and state, local and foreign tax laws, and (ii)
where failure to obtain such consents, approvals, authorizations or permits, or
to make such filings or notifications, would not delay consummation of any of
the transactions contemplated hereby in any material respect or prevent the
Company from performing its obligations under this Agreement in any material
respect, and would not, individually or in the aggregate, have a Company
Material Adverse Effect.
(c) The affirmative vote of the holders of at least
two-thirds of the outstanding Company Common Shares is the only vote of the
holders of any class or series of capital stock of the Company necessary to
approve this Agreement, the Merger and the transactions contemplated hereby on
behalf of the Company.
4.6 No Brokers. Neither the Company nor any of its officers or
directors has employed any investment banker, business consultant, financial
advisor, broker or finder to act on behalf of the Company in connection with the
transactions contemplated by this Agreement, except for J.C. Bradford (the fees
of which will be paid by the Company), or incurred any liability for any
investment banking, business consultancy, financial advisory, brokerage or
finders' fees or commissions in connection with the transactions contemplated
hereby, except for fees payable to J.C. Bradford. The Company has provided LLC
with a true and correct copy of the engagement letter between the Company and
J.C. Bradford.
4.7 Opinion of Financial Advisor. J.C. Bradford has provided its
opinion to the Company to the effect that, as of the date hereof, the
Consideration to be received by the holders of
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Company Common Shares (other than the Buyout Group) in the Merger is fair to
such holders from a financial point of view, and a complete and correct signed
written copy of such opinion, promptly upon receipt thereof, will be delivered
to LLC.
4.8 SEC Filings; Financial Statements; Undisclosed Liabilities.
Except as set forth on Schedule 4.8, The Company has made all filings required
to be made under the Exchange Act and the Securities Act with the SEC since
December 31, 1995 (the "SEC Filings"). As of their respective dates, the SEC
Filings complied as to form in all material respects with the requirements of
the Securities Act, or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such SEC Filings,
and the SEC Filings did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Except as set forth on Schedule 4.8, the financial
statements set forth in the SEC Filings comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC promulgated under the Securities Act or the Exchange Act,
as the case may be, and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes to such financial statements) and
fairly present in all material respects the consolidated financial position of
the Company and its Subsidiaries at the respective dates thereof and the
consolidated results of operations and cash flows for the respective periods
then ended (subject, in the case of unaudited interim financial statements, to
exceptions permitted by Form 10-Q under the Exchange Act and to normal year-end
adjustments). As of August 30, 1997, neither the Company nor any of its
Subsidiaries had, and since such date neither the Company nor any of its
Subsidiaries has incurred, any liabilities of any nature, whether accrued,
absolute, contingent or otherwise, whether due or to become due that are
required to be recorded or reflected on a consolidated balance sheet of the
Company under generally accepted accounting principles, except (i) liabilities
that have arisen since August 31, 1997 in the ordinary course of business, (ii)
liabilities that are reflected or reserved against or disclosed in the financial
statements of the Company included in the SEC Filings, (iii) liabilities that
would not, individually or in the aggregate, have a Company Material Adverse
Effect or (iv) as otherwise disclosed to LLC in writing on or prior to the date
hereof.
4.9 Absence of Certain Changes or Events. Except as disclosed in
the SEC Filings filed and publicly available prior to the date hereof, since
August 30, 1997, the Company and its Subsidiaries have conducted their
respective businesses in the ordinary course consistent with past practice and
as of the date hereof there has not been (i) any condition, event or occurrence
that, individually or in the aggregate, has resulted in a Company Material
Adverse Effect, (ii) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect to any
of the Company's capital stock, (iii) any split, combination or reclassification
of any of its capital stock or any issuance or the authorization of any issuance
of any other securities in respect of, in lieu of or in substitution for shares
of its capital stock, (iv) except as reflected in Schedule 4.3 and except as set
forth on Schedule 4.9, (x) any granting by the Company or any of its
Subsidiaries to any executive officer or other key employee of the Company or
any of its Subsidiaries of any increase in compensation, except for normal
increases in the ordinary course of business consistent with past practice, (y)
any granting by the Company or any of its Subsidiaries to any such executive
officer of any increase in severance or termination pay, except as was required
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under any employment, severance or termination agreements in effect as of August
30, 1997 or (z) any entry by the Company or any of its Subsidiaries into any
employment, severance or termination agreement with any such executive officer
except in the ordinary course of business consistent with past practice, (v) any
damage, destruction or loss, whether or not covered by insurance, that has had
or will have a Company Material Adverse Effect or (vi) except as required by a
change in generally accepted accounting principles, any change in accounting
methods, principles or practices except as required by generally accepted
accounting principles.
5. REPRESENTATIONS AND WARRANTIES OF LLC. LLC represents and warrants
to the Company as follows:
5.1 Organization. LLC is a limited liability company duly
organized, validly existing and in good standing under the laws of Delaware.
Newco, when formed and at the Effective Time, will be a wholly owned subsidiary
corporation of LLC duly incorporated, validly existing and in good standing
under the laws of Texas formed solely for the purpose of engaging in the
transactions contemplated hereby. Except for obligations or liabilities incurred
in connection with its incorporation or organization and the transactions
contemplated hereby, Newco will not incur any obligations or liabilities or
engage in any business or activities of any type or kind whatsoever or enter
into any agreements or arrangements with any person or entity. LLC has
previously delivered to the Company correct and complete copies of the
organizational documents, as currently in effect, of LLC, and will deliver to
the Company prior to the Effective Time correct and complete copies of the
articles of incorporation and by-laws of Newco.
5.2 Authorization, Validity and Effect of Agreement. LLC has the
requisite limited liability company power and authority to execute and deliver
this Agreement and all agreements and documents contemplated hereby to be
executed and delivered by it and to consummate the transactions contemplated
hereby and thereby. Newco, when formed and at the Effective Time, will have the
requisite corporate power and authority to execute and deliver all agreements
and documents contemplated hereby to be executed and delivered by it and to
consummate the transactions contemplated hereby and thereby. This Agreement, the
Merger and the consummation by LLC and Newco of the transactions contemplated
hereby have been duly and validly authorized by the Manager and member of LLC
and will be duly and validly authorized by the Board of Directors and
shareholders of Newco, and no other limited liability company action on the part
of LLC is necessary, or other corporate action on the part of Newco will be
necessary, to authorize this Agreement or the Merger or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed by LLC and constitutes, and all agreements and documents contemplated
hereby to be executed and delivered by LLC and Newco (when executed and
delivered pursuant hereto) will constitute, the valid and binding obligations of
LLC and Newco enforceable against each of them in accordance with their
respective terms, subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to creditors' rights
generally and (ii) the availability of injunctive relief and other equitable
remedies.
5.3 Subsidiaries. As of the date hereof, LLC does not own any
Subsidiaries. Prior to the Effective Time, LLC will not own any Subsidiaries
other than Newco.
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5.4 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by LLC do
not, and the consummation by LLC and Newco of the transactions contemplated
hereby will not, (i) conflict with or violate the organizational documents of
LLC or the articles of incorporation or by-laws of Newco, (ii) conflict with or
violate any law, rule, regulation, order, judgment or decree (whether United
States or foreign) applicable to LLC or Newco or by which any property or asset
of LLC or Newco is bound or affected, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, result in the loss of a material benefit under,
or give to others any right of termination, amendment, acceleration, increased
payments or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of LLC or Newco pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which LLC or Newco is a party or
by which LLC or Newco or any property or asset of LLC or Newco is bound or
affected, except in the case of clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which would not prevent or
delay consummation of any of the transactions contemplated hereby in any
material respect, or otherwise prevent LLC or Newco from performing its
obligations under this Agreement in any material respect, and would not,
individually or in the aggregate, have an LLC/Newco Material Adverse Effect. The
term "LLC/Newco Material Adverse Effect" means any change of effect that is or
is reasonably likely to be materially adverse to the business, operations,
properties, financial condition, assets or liabilities of LLC or Newco.
(b) The execution and delivery of this Agreement by LLC do
not, and the performance of this Agreement and the consummation of the
transactions contemplated hereby by LLC and Newco will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except (i) for (A) applicable requirements, if any, of the
Exchange Act, the Securities Act and Blue Sky Laws, (B) the filing of the
Articles of Merger and related requirements pursuant to the TBCA, (C) filings
and approvals as may be required under the HSR Act, (D) such filings and
consents as may be required under any environmental, health or safety law or
regulation pertaining to any notification, disclosure or required approval
triggered by the Merger or the transactions contemplated by this Agreement, and
(E) applicable requirements, if any, of the Code and state, local and foreign
tax laws, and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of any of the transactions contemplated hereby in
any material respect, or otherwise prevent LLC or Newco from performing its
obligations under this Agreement in any material respect, and would not,
individually or in the aggregate, have an LLC/Newco Material Adverse Effect.
5.5 No Brokers. Neither LLC nor its Manager has employed, nor
Newco nor any of its directors or officers will employ, any investment banker,
business consultant, financial advisor, broker or finder in connection with the
transactions contemplated by this Agreement, except for Merrill Lynch and Allen
& Company Incorporated ("Allen & Co.") (the fees of which will be paid by LLC),
or incurred any liability for any investment banking, business consultancy,
financial advisory, brokerage or finders' fees or commissions in connection with
the transactions contemplated hereby, except for fees payable to Merrill Lynch
and Allen & Co.
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5.6 Financing. LLC has furnished to the Company complete and
correct copies of the Financing Letters which LLC believes, subject to terms and
the conditions set forth therein, will provide (together with the roll-over of
Buyout Group's equity) all of the financing required in order to consummate the
Merger (the "Financing"). LLC has no reason to believe that any conditions to
the Financing will not be satisfied or that the Financing will not be available
at and after the Closing.
5.7 WARN Act. LLC does not intend to implement a "plant closing"
or a "mass layoff", as those terms are defined in the Worker Adjustment and
Retraining Notification Act (29 U.S.C. ss. 2101 et seq.) as amended (the "WARN
Act"), in respect of the Company or any of its Subsidiaries within 90 days after
the Closing Date. The Surviving Corporation shall be solely responsible for
giving any and all notices required by the WARN Act or any similar state law or
regulation because of any action taken by LLC or the Surviving Corporation with
respect to the Company or any of its Subsidiaries occurring on or after the
Closing Date. The parties hereby designate the Closing Date as the "effective
date" for purposes of the WARN Act.
6. COVENANTS.
6.1 Acquisition Proposals.
(a) Upon execution of this Agreement, the Company will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any Acquisition Proposal (as defined below). Prior to the Effective Time, the
Company agrees that neither it nor any of its Subsidiaries will, nor will it or
any of its Subsidiaries permit their respective officers, directors, employees,
agents and representatives (including, without limitation, any investment
banker, attorney or accountant retained by it or any of its Subsidiaries) to,
initiate, solicit, participate in or encourage, directly or indirectly, any
Acquisition Proposal or, except as set forth below, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal.
Notwithstanding the foregoing, in the event the Company receives an unsolicited
written proposal or unsolicited written offer (in either case subject to due
diligence) with respect to an Acquisition Proposal, the Special Committee or the
Board of Directors of the Company shall be entitled to review and participate in
negotiations concerning such proposal and furnish confidential information and
data concerning the Company and its Subsidiaries to the offeror if it reasonably
believes, after consultation with its counsel and its financial advisor, that
there is a substantial risk that a failure to do so would violate its fiduciary
duties to the shareholders of the Company; provided that (A) the Company shall
have furnished, or concurrently with the provision of such information to such
offeror shall furnish, LLC with all such information provided to such offeror
and (B) the offeror executes a confidentiality agreement with the Company. The
Company shall notify the Special Committee and LLC immediately of any such
unsolicited Acquisition Proposal, or any inquiry or contact with any person with
respect thereto, and shall in such notice indicate in reasonable detail the
identity of the offeror and the terms and conditions of such proposal and,
subject to the fiduciary duties of the Special Committee under applicable law,
shall keep LLC
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promptly advised of all developments which could be reasonably expected to
culminate in the Special Committee withdrawing, modifying or amending its
recommendation of the Merger and the other transactions contemplated by this
Agreement. In addition, in the event (i) the Company enters into negotiations
with respect to an unsolicited Acquisition Proposal or (ii) the Company's Board
of Directors (upon recommendation of the Special Committee) shall withdraw its
approval of this Agreement and the transactions contemplated hereby or its
recommendation to the shareholders of the Company to approve the same, then the
Company shall immediately deliver an additional notice of such events to LLC.
Nothing in this Section 6.1 will (x) permit the Company to terminate this
Agreement except as provided in Section 8.1(f), (y) permit the Company to enter
into any agreement to consummate an Acquisition Proposal for as long as this
Agreement remains in effect (it being agreed that for as long as this Agreement
remains in effect, the Company will not enter into any agreement with any person
that provides for, or in any way facilitates, an Acquisition Proposal except as
otherwise permitted herein), or (z) affect any other obligation of the Company
under this Agreement.
(b) For purposes of this Agreement, an "Acquisition Proposal"
shall mean any of the following (other than the transactions among the Company
and LLC contemplated hereunder or which LLC consents to in writing in advance)
involving the Company or any of its Subsidiaries: (i) any merger, consolidation,
share exchange, recapitalization, business combination, or other similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of all or substantially all of the assets of the Company and its
Subsidiaries, taken as a whole, in a single transaction or series of
transactions; (iii) any tender offer or exchange offer for all or substantially
all of the outstanding shares of capital stock of the Company or the filing of a
registration statement under the Securities Act in connection therewith; or (iv)
any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
(c) LLC shall cause the members of the Buyout Group to notify
the Special Committee immediately in the event a member of the Buyout Group
receives an unsolicited written proposal or unsolicited written offer with
respect to an Acquisition Proposal or any inquiry or contact with any person
with respect thereto.
6.2 Conduct of Business by the Company. Prior to the Effective
Time, except as contemplated by any other provision of this Agreement, unless
LLC has previously consented in writing thereto or unless the Chief Executive
Officer of the Company has previously authorized thereto, the Company:
(a) will, and will cause each of its Subsidiaries to, conduct
its operations in the ordinary and normal course, consistent with past practice;
(b) will use its reasonable best efforts, and will cause each
of its Subsidiaries to use its reasonable best efforts, to preserve intact their
business organizations and goodwill, keep available the services of their
respective officers and employees and maintain satisfactory relationships with
those persons having business relationships with them;
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(c) will not amend its articles of incorporation or by-laws
or comparable governing instruments;
(d) will, upon the occurrence of any event or change in
circumstances as a result of which any representation or warranty of the Company
contained in Article 4 would be untrue or incorrect in any material respect if
such representation or warranty were made immediately following the occurrence
of such event or change in circumstance, promptly (and in any event within two
business days of an executive officer of the Company obtaining knowledge
thereof) notify LLC thereof;
(e) will promptly deliver to LLC true and correct copies of
any report, statement, application or schedule (including any exhibits thereto)
filed with the SEC subsequent to the date of this Agreement;
(f) will not (i) issue any shares of its capital stock other
than the issuance of Company Common Shares issuable upon exercise of Company
Stock Derivatives outstanding on the date of this Agreement (in accordance with
the present terms thereof), effect any stock split or otherwise change its
capitalization as it existed on the date hereof, (ii) grant, confer or award any
option, warrant, conversion right or other equity rights not existing on the
date hereof to acquire any shares of its capital stock, (iii) grant, confer or
award any bonuses or other forms of incentive compensation to any officer,
director or employee, except for cash bonuses or incentives consistent with past
practice or under any existing agreement or automatically under any of the
Company Stock Option Plans, (iv) increase any compensation under any employment
agreement with any of its present or future officers, directors or employees,
except for normal increases for officers and employees consistent with past
practice or the terms of such employment agreement, (v) grant any severance or
termination pay to, or enter into any employment, severance or termination
agreement with any officer, director or employee or amend any such agreement in
any material respect, except for severance arrangements consistent with past
practice with respect to officers and employees terminated by the Company, or
(vi) adopt any new employee benefit plan or program (including any stock option,
stock benefit or stock purchase plan) or amend any existing employee benefit
plan or program in any material respect;
(g) will not (i) declare, set aside or pay any dividend or
make any other distribution or payment with respect to any shares of its capital
stock or other ownership interests or (ii) directly or indirectly redeem,
purchase or otherwise acquire any shares of its capital stock or capital stock
of any of its Subsidiaries, or make any commitment for any such action;
(h) will not, and will not permit any of its Subsidiaries to,
sell, lease or otherwise dispose of any of its assets (including capital stock
of Subsidiaries) or to acquire any business or assets, except for (i) any
purchase or sale of inventory undertaken in the ordinary course of business, or
(ii) any sale, lease or other disposition of assets in the ordinary course of
business;
(i) will not incur any material amount of indebtedness for
borrowed money or make any loans, advances or capital contributions to, or
investments (other than non-controlling investments in the ordinary course of
business) in, any other person other than a wholly owned
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Subsidiary of the Company, or issue or sell any debt securities, other than
borrowings under existing lines of credit in the ordinary course of business;
(j) will not, except pursuant to and in accordance with the
capital budget previously disclosed in writing to LLC, authorize, commit to or
make capital expenditures;
(k) will not mortgage or otherwise encumber or subject to any
lien any properties or assets except for such of the foregoing as are in the
ordinary course of business and would not be reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect;
(l) will not enter into or agree to enter into any contract
without the prior written consent of LLC unless such contract is entered into by
the Company for (i) any purchase or sale of inventory undertaken in the ordinary
course of business, (ii) the sale of accounts receivable that are more than 180
days past due; or (iii) any other contract in the ordinary course of business;
(m) will maintain insurance consistent with past practices
for its businesses and properties;
(n) will not make any change in its accounting (including tax
accounting) methods, principles or practices, except as may be required by
generally accepted accounting principles and except, in the case of tax
accounting methods, principles or practices, in the ordinary course of business
of the Company or any of its Subsidiaries; and
(o) will not take or agree in writing or otherwise to take
any action which would make any of the representations or warranties of the
Company contained in this Agreement untrue or incorrect or prevent the Company
from performing or cause the Company not to perform its covenants hereunder.
6.3 Meeting of Shareholders. The Company will take all action
necessary in accordance with applicable law and its articles of incorporation
and by-laws to convene a meeting of its shareholders (the "Shareholders'
Meeting") as promptly as practicable after the date hereof to consider and vote
upon the adoption and approval of the Par Value Conversion, this Agreement and
the Merger, the other transactions contemplated hereby and such other related
matters as it deems appropriate. The Board of Directors of the Company (upon the
recommendation of the Special Committee) will recommend such adoption and
approval, and the Company and the Board (and the Special Committee) will each
take all lawful action to solicit such approval, including, without limitation,
the timely mailing of the Proxy Statement; provided, however, that the Board of
Directors of the Company may withdraw, modify or change such recommendation if
the Company receives an Acquisition Proposal and the Board or the Special
Committee reasonably believes, after consultation with its counsel and its
financial advisor, that there is a substantial risk that a failure to do so
would violate its fiduciary duties to the shareholders of the Company. At the
Shareholders' Meeting, LLC shall use its reasonable efforts to cause all Company
Common Shares owned by any members of the Buyout Group to be voted in favor of
the adoption and approval of this Agreement, the Merger and the transactions
contemplated hereby.
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6.4 Filings, Other Action. Subject to the terms and conditions
herein provided, the parties will: (a) use all reasonable efforts to cooperate
with one another in (i) determining which filings are required to be made prior
to the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from
Governmental Entities in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and (ii)
timely making all such filings and timely seeking all such consents, approvals,
permits or authorizations, including the Proxy Statement and the information
required by Schedule 13E-3 and Schedule 14A; and (b) use all reasonable efforts
to take, or cause to be taken, all other action and do, or cause to be done, all
other things necessary, proper or appropriate to consummate and make effective
the transactions contemplated by this Agreement. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purpose of this Agreement, the proper officers and directors of the parties will
take all such necessary action.
6.5 Access to Information; Confidentiality. From the date
hereof to the Effective Time, the Company shall, and shall cause its
Subsidiaries to, subject to the execution of reasonable confidentiality
agreements which the Company may elect to require, (a) allow all designated
officers, attorneys, accountants and other representatives of LLC reasonable
access at all reasonable times upon reasonable notice to the offices, records
and files, correspondence, audits and properties, as well as to all information
relating to commitments, contracts, titles and financial position, or otherwise
pertaining to the business and affairs, of the Company and its Subsidiaries, as
the case may be, (b) furnish to LLC, LLC's counsel, financial advisors, auditors
and other authorized representatives such financial and operating data and other
information as such persons may reasonably request, (c) instruct the employees,
counsel and financial advisors of the Company to cooperate with each other in
the other's investigation of the business of it and its Subsidiaries and (d)
keep LLC fully appraised and informed of all material developments with respect
to the assets, business activities, financial condition, earnings and prospects
of the Company and its Subsidiaries. LLC will be permitted to make extracts from
or to make copies of such books and records as may be reasonably necessary. LLC
shall keep such information confidential, subject to the requirements of any
governmental or other authorities, except with respect to information that is
ascertainable from public or published information or trade sources.
6.6 Publicity. Each of the parties agrees that it shall not,
nor shall any of their respective affiliates, issue or cause the publication of
any press release or other public announcement with respect to the Merger, this
Agreement or the transactions contemplated hereby without the prior approval of
the other party, except such disclosure as may be required by law or by any
listing agreement with a national securities exchange or NASDAQ; provided, if
such disclosure is required by law or any such listing agreement, such
disclosure may not be made without prior consultation of the other parties.
6.7 Reasonable Efforts; Additional Actions.
(a) Upon the terms and subject to the conditions of this
Agreement, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action, and to
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do or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by, and in
connection with, this Agreement, including using all reasonable efforts to (i)
obtain all consents, amendments to or waivers under the terms of any of the
Company's contractual arrangements required by the transactions contemplated by
this Agreement (other than consents, amendments or waivers the failure of which
to obtain will not, individually or in the aggregate, (x) have a Company
Material Adverse Effect, (y) impair the ability of the Company to perform its
obligations under this Agreement in any material respect or (z) delay in any
material respect or prevent the consummation of any of the transactions
contemplated by this Agreement), (ii) effect promptly all necessary or
appropriate registrations and filings with Governmental Entities, including,
without limitation, filings and submissions pursuant to the HSR Act, the
Exchange Act and the TBCA, (iii) defend any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated hereby, (iv) fulfill or cause the
fulfillment of the conditions to Closing set forth in Article 7 and (v) ensure
that the payment of the Consideration is in compliance with Article 2.38.B of
the TBCA. In connection with and without limiting the foregoing, the Company
shall (x) use all reasonable efforts to ensure that no state takeover statute or
similar statute or regulation (including, without limitation, Article 13.03 of
the TBCA) is or becomes applicable to the Merger, this Agreement or any of the
other transactions contemplated by this Agreement and (y) if any state takeover
statute or similar statute or regulation becomes applicable to the Merger, this
Agreement or any other transaction contemplated by this Agreement, use all
reasonable efforts to ensure that the Merger and the other transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated by this Agreement and otherwise to minimize the effect of
such statute or regulation on the Merger, this Agreement and the other
transactions contemplated by this Agreement. Notwithstanding the foregoing, the
Board of Directors of the Company shall not be prohibited from taking any action
permitted by the terms of this Agreement.
(b) If, at any time after the Effective Time, the Surviving
Corporation shall determine or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation the right, title or interest in, to or under any of the rights,
properties or assets of the Company or Newco acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger or
otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of each of the Company and Newco or otherwise, all such deeds,
bills of sale, assignments and assurances and to take and do, in the name and on
behalf of each of the Company and Newco or otherwise, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties or assets in
the Surviving Corporation or otherwise to carry out this Agreement.
(c) In furtherance of and without limiting the above
provisions, each of the Company and LLC shall as promptly as practicable
following the execution and delivery of this Agreement, but not later than
thirty days from the date hereof, file with the United States Federal Trade
Commission (the "FTC") and the United States Department of Justice ("DOJ") the
notification and report form, if any, required for the transactions contemplated
hereby and any supplemental
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information requested in connection therewith pursuant to the HSR Act. Any such
notification and report form and supplemental information shall be in
substantial compliance with the requirements of the HSR Act. Each of the Company
and LLC shall furnish to the other such necessary information and reasonable
assistance as the other may request in connection with its preparation of any
filing or submission which is necessary under the HSR Act. The Company and LLC
shall keep each other apprised of the status of any communications with, and any
inquiries or requests for additional information from, the FTC and the DOJ and
shall comply promptly with any such inquiry or request. Each of LLC and the
Company shall use all reasonable efforts to obtain any clearance required under
the HSR Act for, and to provide assistance to the other in any antitrust
proceedings related to, the consummation of the transactions contemplated by
this Agreement.
6.8 Expenses. Except as provided in Article 8, in the event the
Merger is not consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby will be paid by the
party incurring such expenses. In the event the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including those incurred by LLC and Newco) will be paid by
the Surviving Corporation.
6.9 Insurance; Indemnity.
(a) From and after the Effective Time, the Surviving
Corporation will indemnify, defend and hold harmless, to the fullest extent that
the Company would be required under its presently existing Articles of
incorporation, presently existing by-laws and applicable law, each person who is
now or was prior to the date hereof an officer or director of the Company or any
of its Subsidiaries (individually, an "Indemnified Party" and collectively, the
"Indemnified Parties"), against all losses, claims, damages, liabilities, costs
or expenses (including attorneys' fees), judgments, fines, penalties and amounts
paid in settlement in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to acts or omissions, or alleged acts
or omissions, by them in their capacities as such occurring at or prior to the
Effective Time. In the event of any such claim, action, suit, proceeding or
investigation (an "Action"), any Indemnified Party wishing to claim
indemnification will promptly notify the Surviving Corporation thereof (provided
that failure to so notify the Surviving Corporation will not affect the
obligations of the Surviving Corporation to provide indemnification except to
the extent that the Surviving Corporation shall have been prejudiced as a result
of such failure). With respect to any Action for which indemnification is
requested, the Surviving Corporation will be entitled to participate therein at
its own expense and, except as otherwise provided below, to the extent that it
may wish, the Surviving Corporation may assume the defense thereof, with counsel
reasonably satisfactory to the Indemnified Party. After notice from the
Surviving Corporation to the Indemnified Party of its election to assume the
defense of an Action, the Surviving Corporation will not be liable to the
Indemnified Party for any legal or other expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof, other than as provided
below. The Surviving Corporation will not settle any Actions without the consent
of the Indemnified Party where such settlement includes an admission of civil or
criminal liability on behalf of an officer or director or requires any payment
to be made by the Indemnified Party. The Indemnified Party will have the right
to employ counsel in any Action, but the fees and expenses of such counsel
incurred after notice from the Surviving Corporation of its assumption of
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the defense thereof will be at the expense of the Indemnified Party, unless (i)
the employment of counsel by the Indemnified Party has been authorized by the
Surviving Corporation in writing, (ii) the Indemnified Party will have
reasonably concluded upon the advice of counsel that there may be a conflict of
interest between the Indemnified Party and the Surviving Corporation in the
conduct of the defense of an Action, or (iii) the Surviving Corporation shall
not in fact have employed counsel to assume the defense of an Action, in each of
which cases the reasonable fees and expenses of counsel selected by the
Indemnified Party will be at the expense of the Surviving Corporation.
Notwithstanding the foregoing, the Surviving Corporation will not be liable for
any settlement effected without its written consent, which will not be
unreasonably withheld, conditioned or delayed, and the Surviving Corporation
will not be obligated pursuant to this Section 6.9(a) to pay the fees and
disbursements of more than one counsel (including local counsel) for all
Indemnified Parties in any single Action, except to the extent two or more of
such Indemnified Parties have conflicting interests in the outcome of such
action.
(b) For a period of six years after the Effective Time, the
Surviving Corporation will maintain officers' and directors' liability insurance
covering the Indemnified Parties who are currently covered, in their capacities
as officers and directors, by the Company's existing officers' and directors'
liability insurance policies on terms substantially no less advantageous to the
Indemnified Parties than such existing insurance; provided, however, that the
Surviving Corporation will not be required in order to maintain or procure such
coverage to pay premiums on an annualized basis in excess of 200% of the current
annual premium paid by the Company for its existing coverage (the "Cap") (which
current annual premium the Company represents and warrants to be approximately
$100,000); and provided, further, that if equivalent coverage cannot be
obtained, or can be obtained only by paying an annual premium in excess of the
Cap, the Surviving Corporation will only be required to obtain as much coverage
as can be obtained by paying premiums on an annualized basis equal to the Cap.
(c) The provisions of this Section 6.9 will survive the
consummation of the Merger and expressly are intended to benefit each of the
Indemnified Parties covered by such Section.
6.10 Employee Benefits. Notwithstanding anything to the contrary
contained herein, from and after the Effective Time, the Surviving Corporation
will have sole discretion over the hiring, promotion, retention and firing of
employees of the Surviving Corporation. Notwithstanding the immediately
preceding sentence, the Surviving Corporation will (i) satisfy all obligations
of the Company or any of its Subsidiaries under any existing severance agreement
between the Company or any of its Subsidiaries and any of their officers or
employees and (ii) until the expiration of at least one year after the Effective
Time, satisfy all obligations of the Company or any of its Subsidiaries under
their current respective severance policies. The Surviving Corporation will
provide for the benefit of employees of the Surviving Corporation who were
employees of the Company immediately prior to the Effective Time "employee
benefit
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plans" within the meaning of Section 3(3) of ERISA (a) for a period of at least
one year after the Effective Time, that are, in the aggregate, substantially
comparable to the "employee benefit plans" provided to such individuals by the
Company or any Subsidiary on the date hereof, and (b) thereafter that are, at
the election of the Surviving Corporation, either (i) in the aggregate,
substantially comparable to the "employee benefit plans" provided to such
individuals by the Company or any Subsidiary on the date hereof or (ii) in the
aggregate, substantially comparable to the "employee benefit plans" provided to
similarly situated employees of the Surviving Corporation or its Subsidiaries
who were not employees of the Company or any Subsidiary immediately prior to the
Effective Time; provided, however, that notwithstanding the foregoing (A)
nothing herein will be deemed to require the Surviving Corporation to modify the
benefit formulas under any pension, profit sharing or savings plan of the
Company or any Subsidiary in a manner that increases the aggregate expenses
thereof as of the date hereof in order to comply with the requirements of ERISA
or the Code, (B) multiemployer pension plans within the meaning of 3(37) of
ERISA, employee stock ownership, stock bonus, stock option and similar
equity-based plans, programs and arrangements of the Company or any of its
Subsidiaries are not encompassed within the meaning of the term "employee
benefit plans" hereunder, and (C) nothing herein will obligate the Surviving
Corporation to continue any particular "employee benefit plan" for any period
after the Effective Time.
6.11 Conveyance Taxes. The Company and LLC will cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time and each party
will pay any such tax or fee which becomes payable by it on or before the
Effective Time.
6.12 Financing. Upon the terms and subject to the conditions of
this Agreement, the Company shall use its commercially reasonable efforts to
take, or cause to be taken, all action, and to do or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary, as
promptly as practicable, proper or advisable to secure the Financing on terms
substantially as outlined in the Financing Letters.
6.13 Newco. Prior to the Effective Time, LLC shall form Newco as
a wholly owned subsidiary incorporated under the laws of Texas.
7. CONDITIONS.
7.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger will be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) This Agreement and the transactions contemplated hereby
(including the Par Value Conversion) shall have been approved in the manner
required by applicable law by the shareholders of the Company.
(b) The aggregate number of Company Common Shares owned by
those Company shareholders, if any, other than members of the Buyout Group, who
shall have exercised, or given notice of their intent to exercise, the rights of
dissenting shareholders under the TBCA shall be less than ten percent (10%) of
the total number of outstanding Company Common Shares.
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(c) Neither of the parties hereto shall be subject to any
order or injunction of a court of competent jurisdiction which prohibits the
consummation of the transactions contemplated by this Agreement or the effective
operation of the business of the Company and its Subsidiaries after the
Effective Time. In the event any such order or injunction shall have been
issued, each party agrees to use its reasonable best efforts to have any such
injunction lifted.
(d) The Company shall have received the Financing on terms
substantially as outlined in the Financing Letters and shall have sufficient
financing thereunder to consummate the Merger.
(e) All consents, authorizations, orders and approvals of (or
filings or registrations with) any Governmental Entity required in connection
with the execution, delivery and performance of this Agreement shall have been
obtained or made, except for filings in connection with the Merger and any other
documents required to be filed after the Effective Time and except where the
failure to have obtained or made any such consent, authorization, order,
approval, filing or registration would not have a material adverse effect on the
business, financial condition or results of operations of the Surviving
Corporation following the Effective Time.
7.2 Conditions to Obligation of Company to Effect the Merger.
The obligation of the Company to effect the Merger will be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) (i) The representations and warranties of LLC contained
in this Agreement shall have been true and correct in all material respects as
of the date hereof and (ii) the representations and warranties of LLC and Newco
contained in this Agreement and in any document delivered in connection herewith
shall be true and correct in all material respects (but without regard to any
materiality qualifications or references to material adverse effect contained in
any specific representation or warranty) as of the Closing Date, except (A) for
changes specifically permitted by this Agreement and (B) that those
representations and warranties which address matters only as of a particular
date shall remain true and correct in all material respects as of such date.
(b) LLC shall have performed or complied with all agreements
and conditions contained in this Agreement required to be performed or complied
with by it on or prior to the Effective Time.
(c) LLC shall have delivered to the Company a certificate,
dated the Closing Date, signed by the President of LLC, certifying as to the
fulfillment of the conditions specified in Section 7.2(a) and (b).
(d) LLC shall have delivered to the Company a certificate,
dated the Closing Date, signed by the President of LLC, certifying that, to its
knowledge, the conditions specified in Section 7.3(a) have been fulfilled;
provided, however, that if the Company is unable to deliver to LLC its
certificate required by Section 7.3(c) as to the fulfillment of the conditions
specified in Section 7.3(a), then the Company shall not be able to fail to
effect the Merger because LLC has failed to deliver the certificate required by
this Section 7.2(d).
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(e) LLC shall have obtained all material consents, waivers,
approvals, authorizations or orders and made all filings required in connection
with the authorization, execution and delivery of this Agreement by LLC and the
consummation by it of the transactions contemplated hereby, and all applicable
notice periods shall have expired.
7.3 Conditions to Obligation of LLC and Newco To Effect the
Merger. The obligation of LLC and Newco to effect the Merger will be subject to
the fulfillment at or prior to the Effective Time (or such other date as may be
specified below) of the following additional conditions:
(a) (i) The representations and warranties of the Company
contained in this Agreement shall have been true and correct in all material
respects as of the date hereof and (ii) the representations and warranties of
the Company contained in this Agreement and in any document delivered in
connection herewith shall be true and correct in all material respects (but
without regard to any materiality qualifications or references to material
adverse effect contained in any specific representation or warranty) as of the
Closing Date, except (A) for changes specifically permitted by this Agreement
and (B) that those representations and warranties which address matters only as
of a particular date shall remain true and correct in all material respects as
of such date.
(b) The Company shall have performed or complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it on or prior to the Effective Time, unless such failure to
perform or comply is due to any act by, or omission of, LLC or any member of the
Buyout Group.
(c) The Company shall have delivered to LLC a certificate,
dated the Closing Date, signed by the Chief Executive Officer of the Company,
certifying as to the fulfillment of the conditions specified in Section 7.3(a)
and (b).
(d) From the date of this Agreement through the Effective
Time, there shall not have been any condition, event or occurrence that,
individually or in the aggregate, has resulted in a Company Material Adverse
Effect.
(e) The Company shall have obtained all material consents,
waivers, approvals, authorizations or orders and made all filings required in
connection with the authorization, execution and delivery of this Agreement by
the Company and the consummation by it of the transactions contemplated hereby,
and all applicable notice periods shall have expired.
(f) The Company or the Board of Directors of the Company
shall have taken any action needed to be taken to provide that Company Stock
Derivatives will be treated as provided in Section 3.1(g) hereof.
(g) LLC shall have received a valuation of the assets of the
Company from a reputable third party, and such other assurances it deems
reasonable, that the payment of the Consideration is in compliance with Article
2.38 of the TBCA.
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(h) The provisions of Article 13.03 of the TBCA shall not
apply to the Merger, this Agreement and the transactions contemplated hereby.
8. TERMINATION.
8.1 Termination. Notwithstanding the provisions of Article 7,
this Agreement may be terminated and the Merger may be abandoned at any time
prior to the Effective Time, whether before or after approval of the matters
presented in connection with the Merger by the shareholders of the Company or by
the member of LLC:
(a) by mutual written consent duly authorized by the Manager
of LLC and the Special Committee or the Board of Directors of the Company on
behalf of the Company;
(b) by either LLC or the Company if (i) any Governmental
Entity shall have issued any injunction or taken any other action permanently
restraining, enjoining or otherwise prohibiting the consummation of the Merger
or such injunction or other action shall have become final and nonappealable, or
(ii) any required approval of the shareholders of the Company shall not have
been obtained by reason of the failure to obtain the required vote upon a vote
held at a duly held meeting of shareholders or at any adjournment thereof;
(c) by either LLC or the Company, so long as such party has
not breached its obligations hereunder, if the Merger shall not have been
consummated on or before September 30, 1998; provided, that the right to
terminate this Agreement under this Section 8.1(c) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before such
date;
(d) by the Company if there has been a material breach of
this Agreement on the part of LLC of its covenants or any of its representations
or warranties contained herein shall be materially inaccurate and such breach or
inaccuracy has not been cured within 10 business days after written notice
thereof from the Company;
(e) by LLC if there has been a material breach of this
Agreement on the part of the Company of its covenants or any of its
representations or warranties contained herein shall be materially inaccurate
and such breach or inaccuracy has not been cured within 10 business days after
written notice thereof from LLC;
(f) by the Company if the Company receives an Acquisition
Proposal in writing from any person or group (i) that the Company's Board
determines in its good faith judgment is more favorable to the Company's
shareholders than the Merger and (ii) as a result of which, the Company's Board
reasonably believes, after consultation with its counsel and its financial
advisor, that there is a substantial risk that a failure to terminate this
Agreement would violate its fiduciary duties to the shareholders of the Company;
provided, that such termination pursuant to this clause (f) shall not be
effective unless the Company has made payment of the full fee and expense
reimbursement required by Section 8.2(b) within the earlier of (i) 20 days from
the date of termination or (ii) the closing date of the Acquisition Proposal;
notwithstanding the foregoing, nothing in this
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Agreement shall prohibit the Company from entering into an agreement with
respect to an Acquisition Proposal prior to the payment of the aforementioned
fee and expense reimbursement.
(g) by LLC if the Company (without the consent of LLC) (i)
shall have withdrawn or modified, in any manner which is adverse to LLC, its
recommendation or approval of the Merger or this Agreement or shall have
resolved to do so or (ii) shall have recommended to the shareholders of the
Company any Acquisition Proposal or any transaction described in the definition
of Acquisition Proposal, or shall have resolved to do so.
25
<PAGE> 85
8.2 Effect of Termination.
(a) In the event of termination of this Agreement by either
the Company or LLC as provided in Section 8.1, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of LLC or
the Company or their respective affiliates, officers, directors or shareholders
except (i) with respect to this Section 8.2 and Sections 6.8, 6.9 and 6.10 and
except for the provisions of Sections 9.3, 9.4, 9.6, 9.8, 9.9, 9.11, 9.12, and
9.13 and (ii) to the extent that such termination results from the willful
breach by a party hereto of any of its representations or warranties, or of any
of its covenants or agreements, in each case, as set forth in this Agreement.
(b) If this Agreement is terminated pursuant to Sections
8.1(b)(ii) (provided that the Company Common Shares owned by the members of the
Buyout Group are voted in favor of the transactions contemplated hereby), (e)
(as a result of a willful and material breach of a covenant in Article 6 by the
Company), (f) or (g), and such termination (or the breach giving rise thereto)
was not due to any act by, or omission of, LLC or any member of the Buyout Group
(not including the act of termination), then the Company shall pay (or
reimburse) (not later than one business day after submission of statements
therefor) to LLC all reasonable and customary out-of-pocket fees, costs and
expenses (including reasonable and customary out-of-pocket fees, costs and
expenses of accountants, attorneys, financing sources (as described in the
Financing Letters) incurred by or on behalf of LLC in connection with the
Merger, this Agreement and the transactions contemplated thereby and hereby.
(c) The parties agree that the agreements contained in this
Section 8.2 are an integral part of the transactions contemplated by this
Agreement and constitute reasonable liquidated damages and not a penalty. If the
Company fails to promptly pay to LLC any fee due under Section 8.2(b), in
addition to any amounts paid or payable pursuant to such section, the Company
shall pay the costs and expenses (including reasonable legal fees and expenses)
in connection with any action, including the filing of any lawsuit or other
legal action, taken to collect payment, together with interest on the amount of
any unpaid fee at the prime rate as published in the Wall Street Journal from
time to time, from the date such fee was required to be paid.
8.3 Extension; Waiver. At any time prior to the Effective Time,
and subject to applicable law, the parties hereto, by action taken or authorized
by the Company's Board of Directors and the LLC's Manager, may, to the extent
legally allowed: (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto; (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto; and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party. The failure of any party
hereto to assert any of its rights hereunder shall not constitute a waiver of
such rights.
8.4 Sole Remedy. The rights and remedies set forth in Section
8.2 shall be the sole and exclusive rights and remedies of the parties hereto
with respect to the inaccuracy of a
26
<PAGE> 86
representation or warranty contained in Articles 4 and 5 or the breach of a
covenant contained in Article 6 by the Company (with respect to the compliance
with a covenant in Article 6 that was under the control of a member of the
Buyout Group as an officer of the Company).
9. GENERAL PROVISIONS.
9.1 Nonsurvival of Representations, Warranties and Agreements.
All representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement will not survive the Merger,
provided, however, that the agreements contained in Article 3, Sections 6.8 and
6.9 and this Article 9 will survive the Merger indefinitely.
9.2 Notices. Any notice, request, claim, demand or other
communication required to be given hereunder will be sufficient if in writing,
and sent by facsimile transmission or by courier service (with proof of
service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
If to the Company:
Norwood Promotional Products, Inc.
106 East Sixth Street, Suite 300
Austin, Texas 78701
Attention: Chief Financial Officer
Fax No.: (512) 477-8603
with copies to:
Fulbright & Jaworski L.L.P.
2200 Ross Avenue, Suite 2800
Dallas, Texas 75201
Attention: Linton Barbee, Esquire
Fax No.: (214) 855-8200
If to LLC:
FPK, LLC
106 East Sixth Street, Suite 300
Austin, Texas 78701
Attention: President
Fax No.: (512) 477-8603
27
<PAGE> 87
with copies to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103-6998
Attention: G. Michael Stakias, Esquire
Fax No.: 215-569-5555
or to such other address as any party will specify by written notice so given,
and such notice will be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
9.3 Assignment; Binding Effect. Neither this Agreement nor any
of the rights, interests or obligations hereunder will 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 LLC may assign and/or delegate any
or all of its rights and obligations hereunder to Newco or any other party
controlled by LLC. Subject to the preceding sentence, this Agreement will be
binding upon and will inure to the benefit of the parties hereto and their
respective successors and assigns. Notwithstanding anything contained in this
Agreement to the contrary, except for the provisions of Section 6.9, nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
9.4 Entire Agreement. This Agreement, the Exhibits, the
Schedules and any documents delivered by the parties in connection herewith
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior or contemporaneous agreements, written or
oral, and understandings between the parties with respect thereto. No addition
to or modification of any provision of this Agreement will be binding upon any
party hereto unless made in writing and signed by all parties hereto.
9.5 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. The
parties hereto may agree to any amendment or supplement to this Agreement or a
waiver of any provision of this Agreement, either before or after the approval
of the Company's shareholders (and without seeking further shareholder
approval), so long as such amendment, supplement or waiver does not have a
material adverse effect on the Company's shareholders which determination will
be made by the Board of Directors of the Company and will be binding on the
Company's shareholders.
9.6 Governing Law. This Agreement will be governed by and
construed in accordance with the laws of the State of Texas without regard to
its rules of conflict of laws.
9.7 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
will be an original, but all such counterparts will together constitute one and
the same instrument.
28
<PAGE> 88
9.8 Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and will be given no
substantive or interpretive effect whatsoever.
9.9 Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number will include the plural
and vice versa, and words denoting any gender will include all genders and words
denoting natural persons will include corporations and partnerships and vice
versa.
9.10 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, will be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder will not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
9.11 Incorporation of Schedules. The Schedules attached hereto and
referred to herein are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.
9.12 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction will, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision will be interpreted
to be only so broad as is enforceable.
9.13 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties will be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any Texas Court, this
being in addition to any other remedy to which they are entitled at law or in
equity.
******
29
<PAGE> 89
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
NORWOOD PROMOTIONAL PRODUCTS, INC.
By: /s/ Frank P. Krasovec
-----------------------------------
Name: Frank P. Krasovec
Title: Chief Executive Officer
By: /s/ James P. Gunning, Jr.
-----------------------------------
Name: James P. Gunning, Jr.
Title: Chief Financial Officer
FPK, LLC
By: /s/ Frank P. Krasovec
-----------------------------------
Name: Frank P. Krasovec
Title: President
30
<PAGE> 90
LIST OF SCHEDULES TO MERGER AGREEMENT
Schedule 4.3 Company Stock Derivatives
Schedule 4.4 Company Subsidiaries
Schedule 4.5 Consents
Schedule 4.8 SEC Filings; Financial Statements; Undisclosed Liabilities
Schedule 4.9 Absence of Certain Changes or Events
The Schedules to this Agreement are omitted pursuant to Rule 601(b)(2) of
Regulation S-K. The Registrant agrees to furnish supplementally a copy of any
omitted Schedule to the Securities and Exchange Commission upon request.
31
<PAGE> 91
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "Amendment")
is entered into as of April 14, 1998, by and between FPK, LLC, a Delaware
limited liability company ("LLC"), and Norwood Promotional Products, Inc., a
Texas corporation (the "Company").
BACKGROUND
A. LLC and the Company entered into an Agreement and Plan of Merger
(the "Agreement") on March 15, 1998. All capitalized terms used herein have the
same meanings given to them in the Agreement.
B. Each of LLC and the Company desires to amend the Agreement by
entering into this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Section 6.7(c) of the Agreement is hereby amended to read in its
entirety as follows:
"(c) In furtherance of and without limiting the above
provisions, each of the Company and LLC shall as promptly as
practicable following the execution and delivery of this Agreement, but
not later than sixty days from the date hereof, file with the United
States Federal Trade Commission (the "FTC") and the United States
Department of Justice ("DOJ") the notification and report form, if any,
required for the transactions contemplated hereby and any supplemental
information requested in connection therewith pursuant to the HSR Act.
Any such notification and report form and supplemental information
shall be in substantial compliance with the requirements of the HSR
Act. Each of the Company and LLC shall furnish to the other such
necessary information and reasonable assistance as the other may
request in connection with its preparation of any filing or submission
which is necessary under the HSR Act. The Company and LLC shall keep
each other apprised of the status of any communications with, and any
inquiries or requests for additional information from, the FTC and the
DOJ and shall comply promptly with any such inquiry or request. Each of
LLC and the Company shall use all reasonable efforts to obtain any
clearance required under the HSR Act for, and to provide assistance to
the other in any antitrust proceedings related to, the consummation of
the transactions contemplated by this Agreement."
<PAGE> 92
2. Except as and to the extent expressly amended by this Amendment, the
Agreement remains in full force and effect in accordance with its terms.
3. This Amendment may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered will be an original,
but all such counterparts will together constitute one and the same instrument.
[The remainder of this page intentionally has been left blank.]
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<PAGE> 93
IN WITNESS WHEREOF, the parties have executed this Amendment and caused
the same to be duly delivered on their behalf on the day and year first written
above.
NORWOOD PROMOTIONAL PRODUCTS, INC.
By: /s/ FRANK P. KRASOVEC
-------------------------------
Name: Frank P. Krasovec
Title: Chief Executive Officer
By: /s/ JAMES P. GUNNING, JR.
-------------------------------
Name: James P. Gunning, Jr.
Title: Chief Financial Officer
FPK, LLC
By: /s/ FRANK P. KRASOVEC
-------------------------------
Name: Frank P. Krasovec
Title: President
3
<PAGE> 94
APPENDIX B
[LETTERHEAD OF J.C. BRADFORD]
April , 1998
Special Committee of the Board of Directors
Norwood Promotional Products, Inc.
106 E. Sixth Street, Suite 300
Austin, TX 78701
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of Norwood Promotional Products, Inc. (the
"Company"), other than Frank P. Krasovec and the other shareholders of the
Company who will continue to own shares of common stock in the surviving
corporation following the merger (as defined below) (the "Krasovec Group") (such
shareholders are collectively referred to herein as the "Unaffiliated
Shareholders") of the consideration to be received by such Unaffiliated
Shareholders in connection with the proposed merger (the "Merger") of
Acquisition Corporation, a Texas corporation ("Merger Sub"), with and into the
Company pursuant to the Agreement and Plan of Merger (the "Merger Agreement"),
dated as of March 15, 1998, among the Company, FPK, LLC, a Delaware limited
liability company ("Parent") and Merger Sub. The terms and conditions of the
Merger are more fully set forth in the Merger Agreement. Capitalized terms used
herein, if not otherwise defined herein, shall have the respective meanings set
forth in the Merger Agreement.
J.C. Bradford & Co., L.L.C., as part of its investment banking business,
engages in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements, and valuations for estate,
corporate, and other purposes. We have acted as financial advisor to the Special
Committee of the Board of Directors of the Company in connection with the
proposed Merger and will receive a fee from the Company for our services.
In conducting our analysis and arriving at our opinion, we have considered
such financial and other information as we deemed appropriate and feasible
including, among other things, the following: (i) the Merger Agreement; (ii) the
historical and current financial position and results of operations of the
Company; (iii) certain internal financial analyses and forecasts of the Company
for the fiscal years beginning September 1, 1997 and ending August 31, 2003,
prepared for the Company by its senior management; (iv) certain financial and
securities data of certain other companies, the securities of which are publicly
traded, that we believed to be generally comparable to the Company; (v) prices
and premiums paid in certain other acquisitions and transactions that we
believed to be relevant; (vi) historical and current price and trading activity
for the Common Stock; and (vii) such other financial studies, analyses, and
investigations as we deemed appropriate for purposes of our opinion. We also
have held discussions with members of the senior management of the Company
regarding the past and current business operations, financial condition, and
future prospects of the Company. With your permission, we have assumed that
financing for the Merger has been irrevocably obtained on terms previously
reviewed by us in commitment letters and "highly confident" letters from
financing sources, and that the Merger Agreement has been executed and delivered
by the parties thereto on terms substantially similar to those contained in the
most recent draft of the Merger Agreement supplied to and reviewed by us.
We have taken into account our assessment of general economic, market, and
financial and other conditions and our experience in other transactions, as well
as our experience in securities valuation and our knowledge of the promotional
products industry generally. Our opinion is necessarily based upon the
information made available to us and conditions as they currently exist and can
be evaluated as of the date hereof. We have relied upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of our opinion and have not assumed any responsibility for, nor
undertaken an
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<PAGE> 95
independent verification of, such information. With respect to the internal
operating data and financial analyses and forecasts supplied to us, we have
assumed that such data, analyses, and forecasts were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's senior management as to the recent and likely future performance of
the Company. Accordingly, we express no opinion with respect to such analyses or
forecasts or the assumptions on which they are based.
We were not asked to consider and our opinion does not address the relative
merits of the proposed Merger as compared to any alternative business strategies
that might exist for the Company or the effect of any other transactions in
which the Company might engage. Furthermore, we were not asked to propose, nor
did we propose, the consideration to be received by the Unaffiliated
Shareholders in the Merger. We have not made an independent evaluation or
appraisal of the assets and liabilities of the Company or any of its
subsidiaries or affiliates and have not been provided with any such evaluation
or appraisal.
Based upon and subject to the foregoing, and based upon such other matters
as we consider relevant, it is our opinion that, as of the date hereof, the
Merger Consideration to be received by the Unaffiliated Shareholders in the
Merger is fair to the Unaffiliated Shareholders from a financial point of view.
Very truly yours,
J.C. BRADFORD & CO., L.L.C.
By:
----------------------------------
David Jones
Senior Vice President
B-2
<PAGE> 96
APPENDIX C
PROPOSED CHARTER AMENDMENT
NORWOOD PROMOTIONAL PRODUCTS, INC.
ARTICLES OF AMENDMENT
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporations Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
ARTICLE I
The name of the corporation is Norwood Promotional Products, Inc.
ARTICLE II
The following amendment to the Articles of Incorporation was adopted by the
shareholders of the corporation at a special meeting held on , 1998.
Article Four of the Articles of Incorporation, as amended, of the
Corporation is hereby amended to be and read in its entirety as follows:
"ARTICLE FOUR
(a) The total number of shares of stock which the Corporation shall
have authority to issue is 21,000,000, consisting of 20,000,000 shares of
Common Stock, $0.01 par value, and 1,000,000 shares of Preferred Stock,
$0.01 par value.
(b) The Preferred Stock may be issued from time to time in one or more
series. The board of directors of the Corporation is hereby authorized, at
any time and from time to time, to adopt resolutions to issue the shares,
to fix the number of shares, to divide the authorized and unissued shares
of Preferred Stock into one or more series and to establish and alter the
voting powers, designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or
restrictions of any such series of Preferred Stock, in each case without
the approval of the Shareholders. The number of shares of Preferred Stock
of any such series may be increased (but not above the total number of
authorized shares of Preferred Stock) or decreased (but not below the
number of shares thereof then outstanding) by the board of directors. In
case the number of shares shall be decreased, the number of shares
constituting such decrease shall resume the status which they had prior to
the adoption of the resolution originally fixing the number of shares of
such series.
(c) Each holder of shares of Common Stock shall be entitled to one
vote for each share of Common Stock held of record on all matters on which
the holders of shares of Common Stock are entitled to vote. Subject to the
express provisions of the Texas Business Corporation Act and of any
certificate of designation providing for the issuance of any series of
Preferred Stock, the holders of outstanding shares of Common Stock shall
have and possess the exclusive right to notice of shareholders' meetings
and the exclusive power to vote."
ARTICLE III
Each such amendment made by the Articles of Amendment to the Articles of
Incorporation of the Corporation has been effected in conformity with the
provisions of the Texas Business Corporation Act. The number of shares of the
Corporation outstanding and entitled to vote at the time of such adoption was
[5,080,751] shares of Common Stock. Shareholders holding shares of Common
Stock (representing in excess of two-thirds of the outstanding shares of Common
Stock) voted in favor such amendment to the
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Articles of Incorporation; and shareholders holding shares of Common Stock
voted against such amendment.
ARTICLE IV
Upon the adoption of such amendment by the shareholders of the Corporation
and due execution and filing of the Articles of Amendment with the Secretary of
State of the State of Texas, the [5,657,281] shares of the Corporation's Common
Stock, no par value per share, which are issued as of the effective date of such
amendment, shall be automatically converted into, and deemed for all purposes to
be an equal number of shares of the Corporation's Common Stock, $0.01 par value
per share. The conversion of all shares of Common Stock outstanding immediately
prior to the conversion shall occur automatically without any further action on
the part of the holder of such shares and whether or not certificates
representing such shares are surrendered to the Corporation. Written notice of
such conversion shall be given by the secretary of the Corporation, in person or
at their latest addresses reflected on the records of the Corporation, together
with notice of the procedures specified by law for exchange or replacement of
the certificates representing the Corporation's new Common Stock.
ARTICLE V
The foregoing amendment and the method of exchange of shares of the
Corporation's capital stock (as effected by this amendment), effects a decrease
in the amount of stated capital of the Corporation from $[23,024,128] to
$[56,572].
EXECUTED as of , 1998.
Norwood Promotional Products, Inc.
By:
------------------------------------
Frank P. Krasovec
Chairman, President and
Chief Executive Officer
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<PAGE> 98
APPENDIX D
ARTICLES 5.12 AND 5.13 OF THE
TEXAS BUSINESS CORPORATION ACT
Art. 5.12 Procedure for Dissent by Shareholders as to Said Corporate
Actions
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1) (a) With respect to proposed corporate action that is submitted to
a vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action,
setting out that the shareholder's right to dissent will be exercised if
the action is effective and giving the shareholder's address, to which
notice thereof shall be delivered or mailed in that event. If the action is
effected and the shareholder shall not have voted in favor of the action,
the corporation, in the case of action other than a merger, or the
surviving or new corporation (foreign or domestic) or other entity that is
liable to discharge the shareholder's right of dissent, in the case of a
merger, shall, within ten (10) days after the action is effected, deliver
or mail to the shareholder written notice that the action has been
effected, and the shareholder may, within ten (10) days from the delivery
or mailing of the notice, make written demand on the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the
shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved
pursuant to Section A of Article 9.10 of this Act, the corporation, in the
case of action other than a merger, and the surviving or new corporation
(foreign or domestic) or other entity that is liable to discharge the
shareholder's right of dissent, in the case of a merger, shall, within ten
(10) days after the date the action is effected, mail to each shareholder
of record as of the effective date of the action notice of the fact and
date of the action and that the shareholder may exercise the shareholder's
right to dissent from the action. The notice shall be accompanied by a copy
of this Article and any articles or documents filed by the corporation with
the Secretary of State to effect the action. If the shareholder shall not
have consented to the taking of the action, the shareholder may, within
twenty (20) days after the mailing of the notice, make written demand on
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was
delivered to the corporation pursuant to Section A of Article 9.10 of this
Act, excluding any appreciation or depreciation in anticipation of the
action. The demand shall state the number and class of shares owned by the
dissenting shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the twenty (20)
day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, of a demand for payment made by a dissenting shareholder in accordance
with Subsection (1) of this Section, the corporation (foreign or domestic)
or other entity shall deliver or mail to the shareholder a written notice
that shall either set out that the corporation (foreign or domestic) or
other entity accepts the amount claimed in the demand and agrees to pay
that amount within ninety (90) days after the date on which the action was
effected, and, in the case of shares represented by certificates, upon the
surrender of the certificates duly endorsed, or shall contain an estimate
by the corporation (foreign or domestic) or other entity of the fair value
of the shares, together with an offer to pay the amount of that estimate
within ninety (90) days after the date on which the action was effected,
upon receipt of notice within sixty (60) days after that date from the
shareholder that the shareholder agrees to accept that amount and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed.
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(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall
be made within ninety (90) days after the date on which the action was
effected and, in the case of shares represented by certificates, upon
surrender of the certificates duly endorsed. Upon payment of the agreed
value, the shareholder shall cease to have any interest in the shares or in
the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
shares of which they are charged with the duty of valuing, and they shall make a
determination of the fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the value of
the shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
Shares acquired by the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be
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<PAGE> 100
treated as provided in the plan of merger and, in all other cases, may be held
and disposed of by the corporation as in the case of other treasury shares.
The provisions of this Article shall not apply to a merger if, on the date
of the filing of the articles of merger, the surviving corporation is the owner
of all the outstanding shares of the other corporations, domestic or foreign,
that are parties to the merger.
In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
Art. 5.13 Provisions Affecting Remedies of Dissenting Shareholders
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to
vote or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act, as
the case may be, or if after the hearing of a petition filed pursuant to Article
5.12 or 5.16, the court shall determine that such shareholder is not entitled to
the relief provided by those articles, then, in any such case, such shareholder
and all persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
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<PAGE> 101
NORWOOD PROMOTIONAL PRODUCTS, INC.
106 E. SIXTH STREET
SUITE 300
AUSTIN, TEXAS 78701
, 1998
Dear Norwood Promotional Products, Inc. Shareholder:
You are cordially invited and encouraged to attend the Special Meeting of
Shareholders of Norwood Promotional Products, Inc. The meeting will be held on
, 1998 at :00 a.m., local time, in the [SAN JACINTO ROOM] at The
Four Seasons Hotel, 98 San Jacinto Boulevard, Austin, Texas.
If you cannot personally attend the meeting, please vote your preference on
the proxy card attached below and return it promptly. Your participation in
Norwood Promotional Products, Inc.'s business, whether in person or by proxy, is
an important part of the Company's governance.
I look forward to and appreciate your participation in Norwood Promotional
Products, Inc.'s Special Meeting of Shareholders.
Sincerely,
Frank P. Krasovec
Chairman, President and Chief Executive Officer
Detach Proxy Form Here
-------------------------------------------------------------------------------
ITEM 2. ADOPTION OF MERGER AND APPROVAL OF MERGER AGREEMENT (AS DEFINED IN PROXY
STATEMENT).
--------- FOR
--------- AGAINST
--------- ABSTAIN
In their sole discretion, the Proxies are authorized to vote upon such other
business as may properly come before the special meeting or any adjournment
thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED IN THE SPACES PROVIDED THEREFORE, OR, IF
NO SUCH SPECIFICATION IS MADE, IT WILL BE VOTED FOR ITEMS 1 AND 2.
The matters in Items 1 and 2 are proposed by the Company.
The adoption of the Charter Amendment (Item 1) is a condition to the
consummation of the Merger under the Merger Agreement (Item 2).
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
NORWOOD PROMOTIONAL PRODUCTS, INC.
SIGN HERE
------------------------------------
(Please sign exactly as name
appears hereon)
SIGN HERE
------------------------------------
(Executors, administrators,
trustees, etc.
should so indicate when
signing)
DATED
------------------------------------
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<PAGE> 102
Detach Proxy Form Here
- --------------------------------------------------------------------------------
PROXY NORWOOD PROMOTIONAL PRODUCTS, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS -- , 1998
The undersigned, revoking all previous proxies, hereby appoints James P.
Gunning, Jr. and Michael Linderman, or either of them, as Proxy or Proxies of
the undersigned, each with the power to appoint his substitute, to vote, as
designated below, all of the shares of Common Stock of Norwood Promotional
Products, Inc. (the "Company") held of record by the undersigned on
, 1998, at the special meeting of shareholders to be held at :00 a.m., local
time, on , 1998, in the [San Jacinto Room] at The Four Seasons Hotel, 98
San Jacinto Blvd., Austin, Texas, and at any adjournment or postponement
thereof.
ITEM 1. ADOPTION OF CHARTER AMENDMENT (AS DEFINED IN PROXY STATEMENT).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED, AND TO BE SIGNED ON THE OTHER SIDE.)
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