SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
Only (as Permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
Applied Graphics Technologies, Inc.
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(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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:
$692.50
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(2) Form, Schedule or Registration Statement No.:
Schedule TO
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(3) Filing Party:
KAGT Acquisition Corp.
KAGT Holdings, Inc.
Kohlberg Investors IV, L.P.
Kohlberg TE Investors IV, L.P.
Kohlberg Offshore Investors IV, L.P.
Kohlberg Partners IV, L.P.
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(4) Date Filed:
June 20, 2003
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(APPLIED GRAPHICS TECHNOLOGIES LOGO)
450 WEST 33RD STREET
NEW YORK, NEW YORK 10001
September 11, 2003
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders,
which will be held at The American Stock Exchange, 86 Trinity Place, New York,
New York 10006 on October 10, 2003 at 10:00 a.m., local time.
As described in the enclosed Proxy Statement, at the Special Meeting you
will be asked to consider and vote upon the merger of KAGT Acquisition Corp., a
wholly-owned subsidiary of KAGT Holdings, Inc., with and into Applied Graphics
Technologies, Inc. (the "Company"), pursuant to an Agreement and Plan of Merger
dated as of June 12, 2003. Upon consummation of the merger, each outstanding
share of the Company's common stock (other than shares held by the Company and
its subsidiaries, KAGT Holdings, Inc. and its subsidiaries and dissenting
stockholders who perfect their appraisal rights) will be converted into the
right to receive $0.85 in cash, without interest, upon surrender of certificates
formerly representing such shares.
The merger is the final step in a series of transactions recapitalizing the
debt and equity of the Company pursuant to the Agreement and Plan of Merger
dated June 12, 2003. On August 4, 2003, as part of this recapitalization, the
Company discharged all of its outstanding senior debt under the Company's senior
credit facility, or approximately $176 million in outstanding indebtedness, for
approximately $98 million. Also on August 4, 2003, KAGT Acquisition Corp.
completed a tender offer for all of the outstanding shares of the Company's
common stock at a price of $0.85 per share. Pursuant to this tender offer, KAGT
Acquisition Corp. purchased 6,081,145 shares, or approximately 66% of the
outstanding shares of the Company's common stock. The Company also has redeemed
all of the Company's 10% Subordinated Notes due 2005 at a price of 25 pence per
L1 of principal plus accrued interest thereon and has redeemed all of the 8%
Cumulative Convertible Preference Shares of the Company's Wace Group Limited
subsidiary at a price of 19 pence per share rather than a liquidation preference
of L1 plus accrued dividends per share. The Company borrowed $44.2 million in
subordinated debt from KAGT Acquisition Corp. and entered into a new credit
agreement, the net proceeds of which were used to consummate the
recapitalization transactions described herein. Pursuant to the terms of the
merger agreement, KAGT Acquisition Corp. will, following the vote of the
stockholders to be taken at the special meeting, merge with and into the
Company, resulting in KAGT Holdings, Inc. owning all of the outstanding common
stock of the Company.
The affirmative vote of more than fifty percent of the shares of the
Company's common stock outstanding and entitled to vote at the Special Meeting
is necessary to approve and adopt the Agreement and Plan of Merger. KAGT
Acquisition Corp. owns a sufficient number of shares to assure approval of the
Agreement and Plan of Merger at the Special Meeting and will vote all of its
shares in favor of the adoption of the Agreement and Plan of Merger. As a
result, the affirmative vote of any other stockholder will not be required to
approve adoption of the Agreement and Plan of Merger.
ON JUNE 3, 2003, THE COMPANY'S BOARD OF DIRECTORS DETERMINED THAT THE TERMS
OF THE MERGER ARE FAIR, FROM A FINANCIAL POINT OF VIEW, TO THE COMPANY AND ITS
STOCKHOLDERS AND THAT THE RECAPITALIZATION TRANSACTIONS, INCLUDING THE MERGER,
ARE ADVISABLE. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDED THAT STOCKHOLDERS
OF THE COMPANY VOTE "FOR" ADOPTION OF THE AGREEMENT AND PLAN OF MERGER.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE READ THE
ATTACHED PROXY STATEMENT CAREFULLY.
Please do not send any certificates for your stock at this time. You will
receive instructions regarding the surrender of your stock certificates and
receipt of payment for your shares after the merger is effective.
/s/ Joseph D. Vecchiolla
JOSEPH D. VECCHIOLLA
President and Chief Operating Officer
THE MERGER HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES REGULATOR NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES REGULATOR PASSED UPON THE FAIRNESS OR MERITS
OF THE MERGER OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THE PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
This Proxy Statement is dated September 11, 2003, and is being mailed to Applied
Graphics Technologies, Inc. stockholders on September 11, 2003.
[APPLIED GRAPHICS TECHNOLOGIES LOGO]
450 WEST 33RD STREET
NEW YORK, NEW YORK 10001
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
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To the Stockholders of Applied Graphics Technologies, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Applied
Graphics Technologies, Inc. (the "Company") will be held at The American Stock
Exchange, 86 Trinity Place, New York, New York 10006 on October 10, 2003, at
10:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of June 12, 2003 among KAGT Holdings,
Inc., KAGT Acquisition Corp., a wholly-owned subsidiary of KAGT Holdings,
Inc., and the Company (the "Merger Agreement"). The Merger Agreement
provides, among other things, that in accordance with the relevant
provisions of the Delaware General Corporation Law, KAGT Acquisition Corp.
will be merged with and into the Company. Following the effective time of
the merger, the Company will continue as the surviving corporation and a
wholly-owned subsidiary of KAGT Holdings, Inc. and each share of the
Company's Common Stock, par value $.01 per share (other than shares held by
the Company and its subsidiaries, KAGT Holdings, Inc. and its subsidiaries
and dissenting stockholders who perfect their appraisal rights), will be
automatically converted into the right to receive an amount in cash equal
to $0.85, without interest, upon surrender of certificates formerly
representing such shares.
2. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The record date for the purpose of determining the stockholders who are
entitled to receive notice of and to vote at the Special Meeting is September 5,
2003. Only holders of the Company's common stock of record at the close of
business on that date will be entitled to notice of and to vote at the Special
Meeting or any adjournments or postponements thereof.
By order of the Board of Directors,
/s/ Martin D. Krall
MARTIN D. KRALL
Secretary
Dated: September 11, 2003
THE AFFIRMATIVE VOTE OF MORE THAN FIFTY PERCENT OF THE OUTSTANDING SHARES OF THE
COMPANY'S COMMON STOCK ENTITLED TO VOTE THEREON IS REQUIRED TO APPROVE AND ADOPT
THE MERGER AGREEMENT. PLEASE DATE, MARK AND SIGN THE ACCOMPANYING PROXY CARD AND
MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE DO NOT SEND ANY SHARE CERTIFICATES REPRESENTING YOUR SHARES AT THIS TIME.
The date of this Proxy Statement is September 11, 2003.
SUMMARY TERM SHEET
This summary term sheet highlights selected information from this Proxy
Statement and may not contain all the information that is important to you. If
you wish to understand the merger fully and you would like a more complete
description of the legal terms of the merger, you should carefully read this
entire Proxy Statement and the documents to which it refers. The merger
agreement is attached as Annex A to this Proxy Statement. It is the legal
document that governs the merger.
THE SPECIAL MEETING
DATE, PLACE AND TIME: The special meeting will be held at 10:00 a.m.,
local time, on October 10, 2003, at The
American Stock Exchange, 86 Trinity Place, New
York, New York 10006. See "The Special
Meeting -- General Information."
PURPOSE OF THE SPECIAL MEETING: The purpose of the special meeting is to
approve and adopt the Agreement and Plan of
Merger dated as of June 12, 2003 among KAGT
Holdings, Inc., KAGT Acquisition Corp., a
wholly-owned subsidiary of KAGT Holdings, Inc.,
and Applied Graphics Technologies, Inc. If the
merger is completed, Applied Graphics
Technologies, Inc. will become a wholly-owned
subsidiary of KAGT Holdings, Inc. and you will
be entitled to receive, subject to any
applicable appraisal rights, $0.85 in cash,
without interest, for each share of Applied
Graphics Technologies, Inc. common stock that
you own. See "The Special Meeting -- Purpose of
the Special Meeting."
RECORD DATE AND QUORUM
REQUIREMENTS: The close of business on September 5, 2003 is
the record date for determination of the
Applied Graphics Technologies, Inc.
stockholders entitled to notice of the special
meeting and entitled to vote at the special
meeting.
The presence, in person or by proxy, of a
majority of the outstanding shares of Applied
Graphics Technologies, Inc. common stock
entitled to vote will constitute a quorum for
the transaction of business. See "The Special
Meeting -- Record Date and Quorum
Requirements."
VOTE REQUIRED TO APPROVE THE
MERGER AGREEMENT: The holders of more than fifty percent of the
outstanding shares of Applied Graphics
Technologies, Inc. common stock must approve
the adoption of the merger agreement. You are
entitled to one vote for each share of Applied
Graphics Technologies, Inc. common stock that
you owned on the record date. KAGT Acquisition
Corp. owns a sufficient number of shares to
assure approval of the adoption of the merger
agreement at the special meeting and intends to
vote all of its shares in favor of the adoption
of the merger agreement. As a result, the
merger agreement will be adopted even if no
stockholders other than KAGT Acquisition Corp.
vote to approve it. See "The Special
Meeting -- Vote Required to Approve the Merger
Agreement."
i
REVOCATION OF PROXIES: You have the unconditional right to revoke your
proxy at any time prior to its use at the
meeting by:
- Delivering written notice that the proxy
is revoked to the Corporate Secretary of
Applied Graphics Technologies, Inc. prior
to the special meeting,
- Submitting a subsequently dated proxy to
the Corporate Secretary of Applied
Graphics Technologies, Inc. prior to the
special meeting or to the inspector of
elections at the special meeting, or
- Attending the special meeting, delivering
written notice that the proxy is revoked
to the inspector of election, and voting
(or abstaining) in person.
See "Special Meeting -- Voting Information;
Giving and Revoking Proxies."
THE PARTIES
APPLIED GRAPHICS TECHNOLOGIES,
INC.: Applied Graphics Technologies, Inc. is a
Delaware corporation engaged in digital media
asset management services. See "The Parties."
KAGT ACQUISITION CORP.: KAGT Acquisition Corp. is a Delaware
corporation and a wholly-owned subsidiary of
KAGT Holdings, Inc. KAGT Acquisition Corp. was
organized to effect the recapitalization of
Applied Graphics Technologies, Inc. and has not
conducted any unrelated activities since its
organization. At the time of the merger, the
separate corporate existence of KAGT
Acquisition Corp. will cease and Applied
Graphics Technologies will continue in
existence as the surviving corporation and a
wholly-owned subsidiary of KAGT Holdings, Inc.
See "The Parties."
KAGT HOLDINGS, INC.: KAGT Holdings, Inc., a Delaware corporation, is
a holding company and was formed solely for the
purpose of holding 100% of KAGT Acquisition
Corp., and, after the merger, the surviving
corporation. At the closing of the merger,
investment funds affiliated with Kohlberg
Management IV, L.L.C. will be the owners of the
majority of the outstanding stock of KAGT
Holdings, Inc. See "The Parties."
THE MERGER AND RELATED TRANSACTIONS
OVERVIEW: Pursuant to the merger agreement, KAGT
Acquisition Corp. will be merged with and into
Applied Graphics Technologies, Inc., with
Applied Graphics Technologies, Inc. continuing
as the surviving corporation.
As a result of the merger, Applied Graphics
Technologies, Inc. will become a wholly-owned
subsidiary of KAGT Holdings, Inc. and each
share of Applied Graphics Technologies, Inc.
common stock outstanding at the time of the
merger (other than shares held by Applied
Graphics Technologies, Inc. and its
subsidiaries, KAGT Holdings, Inc. and its
subsidiaries, and dissenting stockholders who
ii
perfect their appraisal rights) will by virtue
of the merger and without any further action on
the part of the holder of such share,
automatically be converted into the right to
receive $0.85 in cash, without interest.
After the consummation of the merger, you will
have no continuing equity interest in, and will
not share in future earnings, dividends or
growth, if any, of Applied Graphics
Technologies, Inc.
The merger is part of a recapitalization of the
debt and equity of Applied Graphics
Technologies, Inc. which also involves the
repurchase of the senior debt and subordinated
notes of Applied Graphics Technologies, Inc.
and the outstanding preferred shares of one of
its subsidiaries, each at a discount. All of
these recapitalization transactions, other than
the merger, have already taken place.
See "The Merger and Related
Transactions -- General."
RECOMMENDATION OF THE BOARD OF
DIRECTORS: After an evaluation of business, financial and
market factors and consultation with its legal
advisors, at a meeting of the Board of
Directors held on June 3, 2003, prior to the
commencement and consummation of the tender
offer by KAGT Acquisition Corp. and KAGT
Holdings, Inc., the Board of Directors of
Applied Graphics Technologies, Inc. (all of
whose members were unaffiliated with KAGT
Holdings Inc. and KAGT Acquisition Corp. on
that date) determined that the terms of the
merger were fair, from a financial point of
view, to Applied Graphics Technologies, Inc.
and that the merger is advisable, unanimously
approved the merger agreement and the
recapitalization transactions contemplated
thereby and unanimously voted to recommend that
Applied Graphics Technologies, Inc.
stockholders adopt the merger agreement. The
Applied Graphics Technologies, Inc. Board of
Directors considered a number of factors in its
determination to approve the adoption of the
merger agreement and the transactions
contemplated thereby. See "The Merger and
Related Transactions -- Recommendations of the
Board of Directors" and "The Merger and Related
Transactions -- Reasons for the Board of
Directors' Recommendations; Factors
Considered."
KAGT HOLDINGS, INC. OWNERSHIP
OF APPLIED GRAPHICS
TECHNOLOGIES,
INC. COMMON STOCK: After consummation of the tender offer by KAGT
Acquisition Corp. and KAGT Holdings, Inc., and
the cashing out of in-the-money employee stock
options by Applied Graphics Technologies, Inc.,
KAGT Acquisition Corp. owns 6,081,145 shares of
Applied Graphics Technologies, Inc. common
stock (or approximately 66% of the outstanding
shares of Applied Graphics Technologies, Inc.
common stock). KAGT Acquisition Corp. can
approve the adoption of the merger agreement
without the affirmative vote of any other
stockholder of Applied Graphics Technologies,
Inc. as a result of its ownership of Applied
Graphics Technologies, Inc. common stock, and
plans to vote all of its shares in favor of
adoption of the merger agreement.
APPRAISAL RIGHTS: Under Delaware law, stockholders who do not
vote in favor of the merger agreement will be
entitled to exercise appraisal rights in
connection with the merger. Stockholders
desiring to exercise such appraisal rights will
have the rights and duties and must follow the
iii
procedures set forth in Section 262 of the
Delaware General Corporation Law. The full text
of this section is attached to this Proxy
Statement as Annex B. Stockholders who wish to
exercise appraisal rights must carefully follow
the procedures described therein and are urged
to read Annex B in its entirety. See "Appraisal
Rights" and Annex B.
EFFECTIVE TIME: The merger will become effective as of the date
and time that the Certificate of Merger is
filed with the Secretary of State of the State
of Delaware in accordance with the Delaware
General Corporation Law, which is expected to
occur as soon as practicable after the special
meeting.
EXCHANGE OF CERTIFICATES: Pursuant to the merger agreement, KAGT
Acquisition Corp. will deposit with The Bank of
New York $0.85 per share in cash for each share
outstanding immediately prior to the effective
time of the merger (other than shares held by
Applied Graphics Technologies, Inc. and its
subsidiaries, KAGT Holdings, Inc. and its
subsidiaries, and dissenting stockholders who
perfect their appraisal rights). As soon as
reasonably practicable after the effective time
of the merger, The Bank of New York will send
to each stockholder of record, immediately
prior to the effective time of the Merger, a
letter of transmittal and detailed instructions
specifying the procedures to be followed in
surrendering certificates. SHARE CERTIFICATES
SHOULD NOT BE FORWARDED TO THE BANK OF NEW YORK
UNTIL RECEIPT OF THE LETTER OF TRANSMITTAL.
Upon the surrender of a share certificate, The
Bank of New York will issue to the surrendering
holder a check representing an amount of cash
equal to $0.85 per share of common stock
formerly represented by the share certificates
surrendered to The Bank of New York.
CONDITIONS TO THE MERGER: The consummation of the merger is subject only
to the following conditions:
- Applied Graphics Technologies, Inc.
stockholders will have approved the
adoption of the merger agreement by an
affirmative vote of the holders of more
than fifty percent of the outstanding
shares (such approval is assured as KAGT
Acquisition Corp. owns more than fifty
percent);
- any consents, approvals and filings under
any foreign antitrust law, the absence of
which would prohibit the consummation of
the merger, will have been obtained or
made (no such consent or approval is
known to be required); and
- no statute, rule, regulation, executive
order, decree, temporary restraining
order, preliminary or permanent
injunction or other order enacted,
entered, promulgated, enforced or issued
by any governmental authority or
instrumentality, court or competent
jurisdiction or other legal restraint or
prohibition preventing the consummation
of the merger will be in effect.
All other conditions to the merger have been
satisfied. See "The Merger and Related
Transactions -- Conditions to the Merger."
iv
TERMINATION AND AMENDMENT OF THE
MERGER AGREEMENT: The merger agreement may be terminated at any
time prior to the effective time of the merger
by, among other things, the mutual agreement of
the parties or, if a governmental entity takes
any action that prohibits the merger and such
action becomes final and nonappealable, by
either Applied Graphics Technologies, Inc. or
KAGT Holdings, Inc. acting independently. The
merger agreement may be amended by the parties
at any time, but after the merger agreement has
been approved by the stockholders, no amendment
may be made which by law requires further
approval of the stockholders without obtaining
such approval and no amendment or modification
can be made that reduces the amount or changes
the form of merger consideration or otherwise
materially and adversely affects the rights of
Applied Graphics Technologies, Inc.
stockholders without the further approval of
such stockholders. See "The Merger and Related
Transactions -- Termination of the Merger
Agreement."
U.S. FEDERAL INCOME TAX
CONSEQUENCES: If the merger is consummated, the exchange of
shares by a holder for cash pursuant to the
merger will be a taxable transaction under the
Internal Revenue Code of 1986, as amended. You
are advised to consult your own tax advisors
concerning the applicable Federal, state,
local, foreign and other income tax
consequences resulting from the merger. See
"Certain U.S. Federal Income Tax Consequences."
METHOD OF ACCOUNTING: The merger will be accounted for under the
purchase method of accounting. See "The Merger
and Related Transactions -- Method of
Accounting."
REGULATORY AND OTHER APPROVALS: There are no U.S. Federal or state regulatory
requirements which remain to be complied with
in order to consummate the merger (other than
the filing of the Certificate of Merger with
the Secretary of State of the State of
Delaware). See "The Merger and Related
Transactions -- Regulatory and Other
Approvals."
SOURCE AND AMOUNT OF FUNDS: Applied Graphics Technologies funded the
recapitalization transactions by borrowing
subordinated debt and entering into a new
credit agreement. The total amount of funds
required by KAGT Acquisition Corp. to purchase
all shares tendered pursuant to the tender
offer was approximately $5.2 million. The
amount of funds required by Applied Graphics
Technologies, Inc. to make all payments to
participants in Applied Graphics Technologies,
Inc. stock option plans pursuant to the merger
agreement was approximately $400,000. The total
amount of funds required by KAGT Acquisition
Corp. to consummate the merger is estimated to
be approximately $2.6 million. The total amount
of funds required to pay all related fees and
expenses in connection with the
Recapitalization Transactions is estimated to
be approximately $7.7 million. KAGT Acquisition
Corp. has available funds for payments required
to be made to stockholders pursuant to the
Merger. See "The Merger and Related
Transactions -- Source and Amount of Funds."
v
TABLE OF CONTENTS
PAGE
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Summary Term Sheet.......................................... i
The Special Meeting....................................... i
The Parties............................................... ii
The Merger and Related Transactions....................... ii
Introduction................................................ 1
Proxy Statement........................................... 1
Securities................................................ 1
Questions and Answers About the Merger...................... 1
Cautionary Statement Concerning Forward-Looking
Information............................................... 3
The Special Meeting......................................... 4
General Information....................................... 4
Purpose of the Special Meeting............................ 4
Record Date and Quorum Requirements....................... 4
Voting Information; Giving and Revoking Proxies........... 4
Vote Required to Approve the Merger Agreement............. 5
Postponement and Adjournment.............................. 5
Solicitation of Proxies................................... 6
Surrender of Share Certificates........................... 6
The Parties................................................. 7
Applied Graphics Technologies, Inc. ...................... 7
KAGT Acquisition Corp. ................................... 7
KAGT Holdings, Inc. ...................................... 7
The Merger and Related Transactions......................... 7
General................................................... 7
Conversion of Securities.................................. 8
Vote Required in the Merger............................... 8
Background of the Merger.................................. 8
Recommendations of the Board of Directors................. 11
Reasons for the Board of Directors' Recommendations;
Factors Considered..................................... 11
Certain Company Projections and Valuations................ 13
Change of Control......................................... 14
Conditions to the Merger.................................. 14
Termination of the Merger Agreement....................... 14
Takeover Proposals........................................ 15
Fees and Expenses......................................... 16
Board of Directors........................................ 17
Employee Benefits......................................... 18
Reasonable Efforts; Notification.......................... 18
Representations and Warranties............................ 19
Procedures for Termination, Amendment, Extension or
Waiver................................................. 19
The Confidentiality Agreement............................. 20
Certain U.S. Federal Income Tax Consequences.............. 20
vi
PAGE
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Method of Accounting...................................... 20
Regulatory and Other Approvals............................ 21
Source and Amount of Funds................................ 21
Plans for the Company After the Recapitalization
Transactions........................................... 21
Appraisal Rights............................................ 22
Stock Ownership of Certain Beneficial Owners and
Management................................................ 24
Interests of Certain Persons in the Merger.................. 25
Stock Options............................................. 25
Indemnification and Insurance............................. 25
Change of Control and Employment Termination Agreements... 26
Stockholder Agreement..................................... 28
Management Agreement...................................... 28
Parent Option Plan........................................ 28
Information About Applied Graphics Technologies, Inc. ...... 28
Selected Financial Data................................... 28
Price Range............................................... 29
Dividends................................................. 30
Miscellaneous............................................... 30
Other Matters............................................. 30
Stockholder Proposals for the 2004 Annual Meeting......... 30
Incorporation of Certain Documents by Reference........... 30
Available Information..................................... 31
Annexes
Annex A: Agreement and Plan of Merger..................... A-1
Annex B: Section 262 of the Delaware General Corporation
Law.................................................... B-1
vii
INTRODUCTION
PROXY STATEMENT
This Proxy Statement ("Proxy Statement") pursuant to Section 14(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), is being
furnished by Applied Graphics Technologies, Inc. (the "Company") to its
stockholders in connection with the proposed merger of KAGT Acquisition Corp.
(the "Purchaser"), a wholly-owned subsidiary of KAGT Holdings, Inc. ("Parent"),
with and into the Company (the "Merger") pursuant to the Agreement and Plan of
Merger dated as of June 12, 2003 (the "Merger Agreement"). Following the
effective time (the "Effective Time") of the Merger, the Company will continue
as the surviving corporation (the "Surviving Corporation") and will be a
wholly-owned subsidiary of Parent. A special meeting of the stockholders of the
Company (the "Special Meeting") is to be held on October 10, 2003, at which time
the stockholders of the Company will vote whether to approve the adoption of the
Merger Agreement.
The Merger is the final step in a series of transactions (the
"Recapitalization Transactions") recapitalizing the debt and equity of the
Company pursuant to the Merger Agreement. On August 4, 2003, as part of this
recapitalization, the Company discharged all of its outstanding senior debt
under the Company's senior credit facility (the "Company Credit Agreement"), or
approximately $176 million in outstanding indebtedness, for approximately $98
million. Also on August 4, 2003, Purchaser completed a tender offer for all of
the outstanding shares of the Company's common stock at a price of $0.85 per
share upon the terms and subject to the conditions set forth in the offer to
purchase dated June 20, 2003 (the "Offer to Purchase") and the related Letter of
Transmittal (together with the Offer to Purchase, the "Offer"). Pursuant to the
Offer, KAGT Acquisition Corp. purchased 6,081,145 shares, or approximately 66%
of the outstanding shares of the Company's common stock. The Company also has
redeemed all of the Company's 10% Subordinated Notes due 2005 (the "Subordinated
Notes") at a price of 25 pence per L1 of principal plus accrued interest thereon
and has redeemed all of the 8% Cumulative Convertible Preference Shares (the
"Preference Shares") of the Company's Wace Group Limited subsidiary ("Wace") at
a price of 19 pence per share rather than a liquidation preference of L1 plus
accrued dividends per share. The Company borrowed $44.2 million in subordinated
debt from Purchaser and entered into a new credit agreement, the net proceeds of
which were used to consummate the Recapitalization Transactions. Pursuant to the
terms of the Merger Agreement, Purchaser will, following the vote of the
stockholders to be taken at the Special Meeting, merge with and into the
Company, resulting in Parent owning all of the outstanding common stock of the
Company.
A copy of the Merger Agreement is attached hereto as Annex A and is
incorporated herein by reference.
SECURITIES
The title of the class of securities to which this Proxy Statement relates
is the common stock, par value $0.01 per share, of the Company ("Company Common
Stock"). As of September 5, 2003, there were 9,147,565 shares of Company Common
Stock ("Shares") outstanding, of which 6,081,145 were owned by the Purchaser.
QUESTIONS AND ANSWERS ABOUT THE MERGER
WHAT WILL HAPPEN IN THE MERGER?
Upon consummation of the Merger, the Purchaser will be merged with and into
the Company and stockholders who surrender their Share certificates, other than
the Company, Parent, the Purchaser and dissenting stockholders who perfect their
appraisal rights, will receive a cash payment of $0.85, without interest, for
each of their Shares.
1
WHO WILL OWN THE COMPANY AFTER THE MERGER?
After the Merger, Parent will own all of the outstanding shares of the
Surviving Corporation.
WHY HAS THE MERGER BEEN PROPOSED?
The Merger is the final step in the series of Recapitalization Transactions
pursuant to the Agreement and Plan of Merger dated June 12, 2003. On August 4,
2003, as part of the recapitalization, the Company discharged all of its
outstanding senior debt under the Company Credit Agreement, or approximately
$176 million in outstanding indebtedness, for approximately $98 million. Also on
August 4, 2003, Purchaser completed the Offer. Pursuant to the Offer, Purchaser
purchased 6,081,145 shares, or approximately 66% of the outstanding shares of
the Company's common stock. The Company also has redeemed all of the
Subordinated Notes at a price of 25 pence per L1 of principal plus accrued
interest thereon and has redeemed all of the Preference Shares at a price of 19
pence per share with a liquidation preference of L1 plus accrued dividends per
share. The Company borrowed $44.2 million in subordinated debt from Purchaser
and entered into a new credit agreement, the net proceeds of which were used to
consummate the Recapitalization Transactions. Pursuant to the terms of the
Merger Agreement, Purchaser will, following the vote of the stockholders to be
taken at the Special Meeting, merge with and into the Company, resulting in
Parent owning all of the outstanding common stock of the Surviving Corporation.
WHAT VOTE IS REQUIRED TO APPROVE THE MERGER AGREEMENT?
Approval of the adoption of the Merger Agreement requires the affirmative
vote of holders of more than fifty percent of the Shares outstanding and
entitled to vote at the Special Meeting. THE PURCHASER ALREADY OWNS A SUFFICIENT
NUMBER OF SHARES TO ASSURE APPROVAL OF THE MERGER AGREEMENT AND WILL VOTE ALL OF
ITS SHARES IN FAVOR OF THE ADOPTION OF THE MERGER AGREEMENT. AS A RESULT, NO
OTHER STOCKHOLDER WILL NEED TO VOTE "FOR" THE PROPOSAL FOR THE MERGER AGREEMENT
TO BE APPROVED.
WHAT WILL I RECEIVE IN THE MERGER?
As a stockholder of the Company, you will receive $0.85 in cash, without
interest, for each Share that you validly surrender for payment. This is the
"Merger Consideration." For example, if you own 100 Shares, upon consummation of
the Merger, you will receive $85.00 in cash.
ARE APPRAISAL RIGHTS AVAILABLE?
Yes. Under Delaware law, stockholders who file a written notice of
objection with the Company before the taking of the vote at the Special Meeting
and whose Shares are not voted in favor of the Merger Agreement will be entitled
to exercise appraisal rights in connection with the Merger. Stockholders
desiring to exercise such appraisal rights will have the rights and duties and
must follow the procedures set forth in Section 262 of the Delaware General
Corporation Law (the "DGCL"). The full text of this section of the DGCL is
attached to this Proxy Statement as Annex B. Stockholders who wish to exercise
appraisal rights must carefully follow the procedures described therein and are
urged to read Annex B in its entirety.
IF THE MERGER IS CONSUMMATED, WHEN CAN I EXPECT TO RECEIVE THE MERGER
CONSIDERATION FOR MY SHARES OF COMPANY COMMON STOCK?
As soon as reasonably practicable after the Merger is consummated, you will
receive detailed instructions regarding the surrender of your Share
certificates. You should not send your Share certificates to the Company or
anyone else until you receive these instructions. The Surviving Corporation will
send payment of the Merger Consideration to you as promptly as practicable
following receipt of your Share certificates and other required documents.
2
WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
We expect the Merger to be consummated as soon as reasonably practicable
after the date of the Special Meeting.
IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
Your broker will vote your Shares only if you provide instructions on how
to vote. You should follow the directions provided by your broker regarding how
to instruct your broker to vote your Shares.
WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
The receipt of cash in exchange for Shares in the Merger by you will be a
taxable transaction for U.S. Federal income tax purposes. To review the tax
consequences to you in greater detail, see "Certain U.S. Federal Income Tax
Consequences." As your tax consequences will depend on your personal situation,
you should consult your tax advisors for a full understanding of the tax
consequences of the Merger to you.
WHAT DO I NEED TO DO NOW?
This Proxy Statement contains important information regarding the Merger
and the Merger Agreement, as well as information about the Company, the
Purchaser and Parent. It also contains important information about what the
Board of Directors of the Company (the "Board of Directors") considered in
evaluating the Recapitalization Transactions, including the Offer and the
Merger. If you wish to understand the Merger fully, we urge you to read this
Proxy Statement carefully, including its Annexes. You may also want to review
the documents referenced under "Miscellaneous -- Incorporation of Documents by
Reference" and "Miscellaneous -- Available Information."
TO WHOM CAN I TALK IF I HAVE QUESTIONS?
If you would like additional copies of this document, or if you would like
to ask any additional questions about the Merger, you should contact:
MacKenzie Partners, Inc.
105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
or
Call Toll Free (800) 322-2885
Email: proxy@mackenziepartners.com
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This Proxy Statement, including through the incorporation by reference of
certain documents and other statements made from time to time by the Company,
Parent, the Purchaser, or their respective affiliates or representatives,
contains certain forward-looking statements. Those forward-looking statements
include the financial projections set forth under "The Merger and Related
Transactions -- Certain Company Projections" as well as statements regarding the
intent, belief or current expectations of the Company, Parent and the Purchaser
and members of their respective management teams, as well as the assumptions on
which such statements are based. Such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and actual
results may differ materially from those contemplated by such forward-looking
statements. Important factors currently known to management of the Company,
Parent and the Purchaser that could cause actual results to differ materially
from those contained in forward-looking statements include, but are not limited
to, the risks discussed herein and: the ability of the Company to retain
customers; the ability of the Company to maintain compliance with the covenant
requirements under its credit
3
facility; the impact of major customers ceasing to operate; the ability of the
Company to attract and retain management; the impact of technological
advancements on the ability of customers and competitors to provide services
comparable to those provided by the Company; the continued softness in the
advertising market; the impact of geopolitical events on the economy; the
success of the Company's restructuring plans and integration efforts; and the
adequacy of the Company's credit facility and cash flows to fund cash needs. The
Company, Parent and the Purchaser undertake no obligation to update or revise
forward-looking statements to reflect changes in assumptions, the occurrence of
unanticipated events, or changes in future operating results over time.
THE SPECIAL MEETING
GENERAL INFORMATION
This Proxy Statement is being provided by the Board of Directors of the
Company in connection with the Special Meeting of the holders of the Shares.
The Special Meeting is scheduled to be held as follows:
October 10, 2003
10:00 a.m., local time
The American Stock Exchange
86 Trinity Place
New York, New York 10006
PURPOSE OF THE SPECIAL MEETING
The Special Meeting is being held so that stockholders of the Company may
consider and vote upon a proposal to approve the adoption of the Merger
Agreement and to transact any other business that is properly brought before the
Special Meeting or any postponement or adjournment thereof. Approval of the
adoption of the Merger Agreement will constitute approval of the Merger and the
other transactions contemplated by the Merger Agreement.
If the Merger Agreement is adopted and the Merger becomes effective, the
Purchaser will merge with and into the Company, and the Company will become a
wholly-owned subsidiary of Parent. You will receive $0.85 in cash for each Share
that you own. The Merger Consideration will not be paid in exchange for Shares
that are held in the treasury of the Company, owned by Parent, its subsidiaries
or the Purchaser or held by dissenting stockholders who seek appraisal of the
fair value of their Shares and comply with all of the Delaware law procedures
set forth in Annex B.
RECORD DATE AND QUORUM REQUIREMENTS
The close of business on September 5, 2003 is the record date for
determination of stockholders of the Company entitled to notice of the Special
Meeting and entitled to vote at the Special Meeting. On the record date, there
were 9,147,565 Shares outstanding held by approximately 110 holders of record.
The presence at the Special Meeting, in person or by proxy, of stockholders
holding a majority of the voting power of the Company will constitute a quorum
for the transaction of business at the Special Meeting. Abstentions and broker
non-votes will be counted as Shares that are present for purposes of determining
the presence of a quorum.
VOTING INFORMATION; GIVING AND REVOKING PROXIES
Shares of Company Common Stock, represented by a properly executed proxy,
will be voted as indicated on the proxy. The form of proxy accompanying this
Proxy Statement and the persons named as proxies have
4
been approved by the Board of Directors. Any proxy given pursuant to this
solicitation is revocable at any time prior to the voting at the Special Meeting
by:
- delivering written notice that the proxy is revoked to the Corporate
Secretary of the Company prior to the Special Meeting,
- submitting a subsequently dated proxy to the Corporate Secretary of the
Company prior to the Special Meeting or to the inspector of elections at
the Special Meeting, or
- attending the Special Meeting, delivering written notice that the proxy
is revoked to the inspector of elections, and voting (or abstaining) in
person.
Any written notice of revocation should be delivered to Corporate
Secretary, Applied Graphics Technologies, Inc., 450 West 33rd Street, New York,
New York 10001. Subject to proper revocation, all shares of Company Common Stock
entitled to vote at the Special Meeting and represented at the Special Meeting
by properly executed proxies received by the Company will be voted in accordance
with the instructions contained in such proxies.
It is proposed that, at the Special Meeting, action will be taken on the
matter set forth in the accompanying notice of Special Meeting and described in
this Proxy Statement. The Board of Directors knows of no other matters at this
time that may properly be presented for action at the Special Meeting. If any
other matters do properly come before the Special Meeting, the persons named on
the enclosed proxy will have discretionary authority to vote thereon in
accordance with their best judgment.
When proxies in the form accompanying this Proxy Statement are returned
properly executed, the Shares represented thereby will be voted as indicated
thereon, and, where a choice has been specified by the stockholder on the proxy,
the Shares will be voted in accordance with the specification so made.
VOTE REQUIRED TO APPROVE THE MERGER AGREEMENT
Each holder of Company Common Stock as of the record date is entitled to
cast one vote per Share, in person or by proxy, upon each matter properly
submitted for the vote of the stockholders at the Special Meeting. Votes at the
Special Meeting will be tabulated by an inspector of elections appointed by the
Company. The holders of more than fifty percent of the outstanding Shares must
vote affirmatively to approve the Merger Agreement. A failure to vote, an
abstention from voting, or a broker non-vote will have the same legal effect as
a vote cast "against" approval of the adoption of the Merger Agreement. Executed
but unmarked proxies will be votes "FOR" adoption of the Merger Agreement.
Brokers, and in many cases nominees, will not have discretionary power to vote
on the proposals to be presented at the Special Meeting. Accordingly, beneficial
owners of shares must instruct their brokers or nominees how to vote their
Shares with respect to the merger proposal at the Special Meeting. Stockholders
are urged to read and carefully consider the information presented in this Proxy
Statement and to complete, date and sign the accompanying proxy card and return
it promptly to the Company in the enclosed postage-prepaid envelope. THE
PURCHASER OWNS A SUFFICIENT NUMBER OF SHARES TO ASSURE APPROVAL OF THE MERGER
AGREEMENT AT THE SPECIAL MEETING AND WILL VOTE ALL OF ITS SHARES IN FAVOR OF THE
MERGER AGREEMENT. AS A RESULT, THE MERGER AGREEMENT WILL BE APPROVED WITHOUT THE
AFFIRMATIVE VOTE OF ANY OTHER STOCKHOLDER.
POSTPONEMENT OR ADJOURNMENT
Although it is not expected, the Special Meeting may be postponed or
adjourned to a date not later than 30 days after the date of the Special Meeting
without fixing a new record date. Such postponement or adjournment may be made
by the Company's Board of Directors prior to the Special Meeting or by approval
of the holders of a majority of the shares of Company Common Stock present in
person or represented by proxy at the Special Meeting, whether or not a quorum
exists. The Company will announce the postponement of the Special Meeting by
press release if made prior to the Special Meeting and will announce any
adjournment at the Special Meeting. Additional notice of the time and place of
any such postponement or adjournment need not be given unless the meeting is
postponed or adjourned for more than 30 days, or a new
5
record date is set. Any postponement or adjournment of the Special Meeting will
allow Company stockholders who have already sent in their proxies to revoke them
at any time prior to their use.
SOLICITATION OF PROXIES
The Company will pay for the expense of printing and mailing this document
and the materials used in this solicitation of proxies. Proxies will be
solicited through the mail and directly by officers, directors and regular
employees of the Company, not specifically employed for such purpose, without
additional compensation. The Company will reimburse banks, brokerage houses and
other custodians, nominees and fiduciaries for their reasonably expenses in
forwarding these proxy materials to the principals. The Company has engaged
MacKenzie Partners, Inc. to represent it in connection with the solicitation of
proxies at a cost of approximately $4,500.
SURRENDER OF SHARE CERTIFICATES
The Bank of New York will act as paying agent for the benefit of holders of
shares of Company Common Stock in connection with the Merger. It is expected
that Parent will deposit with the paying agent funds sufficient to make the
payments to the Company stockholders required under the Merger Agreement.
Promptly after the date on which the transactions contemplated by the
Merger Agreement are consummated, the paying agent will send to each holder of
shares of Company Common Stock a letter of transmittal and instructions for use
in effecting the surrender of stock certificates. The letter of transmittal will
specify that the delivery will be effected, and risk of loss and title will
pass, only upon delivery of the stock certificates representing shares of
Company Common Stock to the paying agent. The paying agent will receive a
customary fee as compensation for its services, plus reimbursement of its
out-of-pocket expenses in connection with such services. The Company will also
agree to indemnify the paying agent against specified liabilities arising in
connection with its engagement.
Each holder of a Share that has been converted into the right to receive
the cash payment of $0.85 per share upon surrender to the paying agent of a
stock certificate or certificates representing such Shares, together with a
properly completed letter of transmittal covering such Shares, will receive a
cash payment of such consideration. Until surrendered in this manner, each such
stock certificate will, after the effective time of the Merger, represent for
all purposes only the right to receive the Merger Consideration. No interest
will be paid or will accrue on the cash payment.
If any portion of the cash payment is to be paid to a person other than the
registered holder of the stock certificate surrendered in exchange therefor, the
stock certificate being surrendered must be properly endorsed or otherwise be in
proper form for transfer. In addition, the person requesting such payment must
pay to the paying agent any transfer or other taxes required as a result of such
payment, or establish that such tax has been paid or is not applicable.
Beginning six months after the closing date, holders of Company Common Stock who
have not surrendered their stock certificates will be entitled to look to the
Surviving Corporation only as general creditors for payment of their claim for
cash. Any amounts remaining unclaimed by holders of Company Common Stock five
years after the effective time of the Merger, or earlier if such amounts would
otherwise escheat to or become the property of any governmental entity, will
become the property of the Surviving Corporation, to the extent permitted by
applicable law. Neither the paying agent nor any party to the Merger Agreement
will be liable to any holder of certificates formerly representing Shares for
any amount paid to a public official pursuant to any abandoned property, escheat
or similar laws.
At and after the Effective Time, there will be no further registration of
transfers of Company Common Stock on the records of Company or its transfer
agent. From and after the Effective Time, the holders of Company Common Stock
will cease to have any rights with respect to such Shares except as provided in
the Merger Agreement or under applicable law.
6
THE PARTIES
APPLIED GRAPHICS TECHNOLOGIES, INC.
The Company is a Delaware corporation with its principal offices at 450
West 33rd Street, New York, New York 10001, telephone number (212) 716-6600. The
Company and its subsidiaries primarily provide digital media asset management
services. Through its various divisions and significant operations, including
the Black Dot Group and Seven Worldwide, the Company offers content management
services, broadcast media distribution services, and an array of digital
services to retailers, magazine and book publishers, advertising agencies,
consumer goods companies, entertainment companies, and automobile manufacturers.
KAGT ACQUISITION CORP.
The Purchaser, a Delaware corporation that is a wholly-owned subsidiary of
Parent, was organized to merge with and into the Company. If the Merger
Agreement is approved and adopted, the separate corporate existence of the
Purchaser will cease and the Company will continue in existence as the Surviving
Corporation and a wholly-owned subsidiary of Parent. Purchaser has not conducted
any activities since its organization except in furtherance of the Merger and
the other Recapitalization Transactions. All outstanding shares of capital stock
of the Purchaser are owned by Parent.
The principal executive offices of the Purchaser are located at 111 Radio
Circle, Mt. Kisco, New York 10549. The telephone number is (914) 241-7430.
KAGT HOLDINGS, INC.
Parent is a Delaware corporation and is a holding company formed solely for
the purpose of holding 100% of the capital stock of Purchaser and, after the
Merger, the Surviving Corporation. Substantially all of Parent's outstanding
equity interests are beneficially owned in the aggregate by Kohlberg Investors
IV, L.P. ("Investors IV"), Kohlberg TE Investors IV, L.P. ("TE Investors IV"),
Kohlberg Offshore Investors IV, L.P. ("Offshore Investors IV"), Kohlberg
Partners IV, L.P. ("Partners IV" and, collectively with Investors IV, TE
Investors IV and Offshore Investors IV, "Kohlberg Fund IV"), Silver Point
Capital Fund, L.P. and Silver Point Capital Offshore Fund, Limited.
The principal executive offices of the Parent are located at 111 Radio
Circle, Mt. Kisco, New York 10549. The telephone number is (914) 241-7430.
THE MERGER AND RELATED TRANSACTIONS
GENERAL
The Merger is the final step in the series of Recapitalization Transactions
pursuant to the Agreement and Plan of Merger dated June 12, 2003. On August 4,
2003, as part of the recapitalization, the Company discharged all of its
outstanding senior debt under the Company Credit Agreement, or approximately
$176 million in outstanding indebtedness, for approximately $98 million. Also on
August 4, 2003, Purchaser completed the Offer. Pursuant to the Offer, Purchaser
purchased 6,081,145 shares, or approximately 66% of the outstanding shares of
the Company's common stock. The Company also redeemed all of the Subordinated
Notes at a price of 25 pence per L1 of principal plus accrued interest thereon
and redeemed all of the Preference Shares at a price of 19 pence per share
rather than a liquidation preference of L1 plus accrued dividends per share. The
Company borrowed $44.2 million in subordinated debt from Purchaser and entered
into a new credit agreement, the net proceeds of which were used to consummate
the Recapitalization Transactions. Pursuant to the terms of the Merger
Agreement, Purchaser will, following the vote of the stockholders to be taken at
the Special Meeting, merge with and into the Company, resulting in Parent owning
all of the outstanding common stock of the Surviving Corporation.
7
The following summary of the Merger Agreement is qualified in its entirety
by reference to the Merger Agreement, a copy of which is attached as Annex A
hereto. You should read the Merger Agreement in its entirety if you would like a
more complete description of the matters summarized below.
The Merger Agreement provides that, following the satisfaction or waiver of
the conditions described below under "Conditions to the Merger," the Purchaser
will be merged with and into the Company, with the Company continuing as the
Surviving Corporation.
CONVERSION OF SECURITIES
As of the Effective Time, without any further action on the part of the
Purchaser, the Company or holders of securities of the Purchaser or the Company:
- Each issued and outstanding share of common stock of the Purchaser will
be converted into one share of common stock of the Surviving Corporation
and all such shares together will constitute the only outstanding shares
of the Surviving Corporation;
- Each Share that is owned directly by the Company, Parent or the Purchaser
will be cancelled and no consideration will be delivered for any such
Share;
- Each other Share issued and outstanding prior to the Effective Time
(other than Shares as to which appraisal rights have been perfected) will
be converted into the right to receive $0.85 in cash, without interest.
These Shares will no longer be outstanding and will automatically be
cancelled and retired and each holder of a certificate formerly
representing any of these Shares shall cease to have any rights except
the right to receive the Merger Consideration, less any applicable
withholding taxes, upon surrender of the Share certificate that formerly
evidenced Shares; and
- Shares of Company Common Stock as to which appraisal rights have been
properly perfected will be converted into the right to receive from the
Surviving Corporation the fair value of such Shares in accordance with
Section 262 of the Delaware General Corporation Law. In no event will
dissenters be entitled to any on-going interest in the Surviving
Corporation.
As a result of the actions described above, at the Effective Time, the
Company will become a wholly-owned subsidiary of Parent.
VOTE REQUIRED IN THE MERGER
The Delaware General Corporation Law requires, among other things, that the
adoption of the Merger Agreement must be approved by the holders of more than
fifty percent of the Company's outstanding voting securities. On June 3, 2003,
the Board of Directors approved the Offer, the Merger and the Merger Agreement;
consequently, the only additional action of the Company necessary to effect the
Merger is approval of the adoption of the Merger Agreement by the Company's
stockholders. All Shares owned by Parent or the Purchaser will be voted in favor
of the approval of the adoption of the Merger Agreement. Because the Purchaser
acquired more than fifty percent of the outstanding Shares pursuant to the
Offer, it has sufficient voting power to approve and adopt the Merger Agreement
without the affirmative vote of any other stockholder of the Company.
BACKGROUND OF THE MERGER
In late February 2003, certain holders of the Subordinated Notes contacted
Kohlberg Fund IV to discuss the Company's need for a refinancing and a potential
infusion of capital or a recapitalization. Subsequently, in late February, 2003,
Christopher Lacovara of Kohlberg Fund IV contacted the Company to initiate
discussions of a possible recapitalization.
On March 4, 2003, Mr. Lacovara met with Fred Drasner, the Chairman of the
Board and Chief Executive Officer of the Company, and on March 11, 2003, with
Mr. Drasner, Joseph D. Vecchiolla, the President and Chief Operating Officer of
the Company, and Martin D. Krall, the Executive Vice President, Chief Legal
Officer, and Secretary of the Company, to discuss the Company's business,
capital structure, and
8
the goals of a potential recapitalization transaction. The parties had
additional discussions regarding a potential transaction over the following two
weeks.
On March 20, 2003, the Company and Kohlberg Fund IV entered into a
confidentiality agreement to facilitate Kohlberg Fund IV being furnished with
certain non-public information in connection with a possible transaction.
The Company and Kohlberg Management IV, L.L.C. entered into a non-binding
letter of intent on March 26, 2003. The letter of intent outlined the terms of a
recapitalization and the possible allocation of invested funds among the
Company's lenders and the holders of various securities of the Company. It also
provided for a period of exclusivity through April 30, 2003 to perform due
diligence and pursue more definitive agreements with the holders of various
securities of the Company. The letter of intent did not obligate either party to
ultimately enter into a transaction and provided for reimbursement to Kohlberg
Management IV, L.L.C. of up to $250,000 in expenses in the event the letter of
intent was terminated for any reason.
Over the following weeks, there were a number of meetings and conversations
between the management of the Company and representatives from Kohlberg Fund IV
regarding a possible transaction. During this period, representatives of
Kohlberg Fund IV conducted a due diligence investigation of the Company's
various business lines and discussed with Company representatives historical
trends in revenue and profit margins for the Company's various business
segments.
On April 3, 2003, Mr. Lacovara and Gordon Woodward of Kohlberg Fund IV met
with Ralph Palma, Senior Vice President of Fleet National Bank ("Fleet"), the
administrative agent and a lender under the Company Credit Agreement, Fleet's
counsel and Messrs. Drasner, Krall and Vecchiolla of the Company. The parties
discussed the potential recapitalization transactions, the structure of such
recapitalization, and the proceeds as they related to Fleet and the other
lenders under the Company Credit Agreement.
Throughout April 2003, representatives of Kohlberg Fund IV conducted
additional due diligence at the Company, including meetings and conference calls
with certain division managers and Mr. Vecchiolla. Representatives of Foothill
Capital Corporation ("Foothill"), as a potential source of debt financing for
the potential transaction, also attended certain of these meetings. During this
period, further negotiations also took place among Messrs. Drasner, Krall,
Vecchiolla and Mr. Lacovara concerning the structure and allocation of invested
funds across holders of various Company securities in a potential
recapitalization transaction.
During April, Kohlberg Fund IV held further discussions with Fleet and
representatives of the Company, as well as representatives of certain of the
holders of the Subordinated Notes and Preference Shares. During these
negotiations, potential terms of the recapitalization transactions were
discussed with each group and draft documents intended to secure provisional
approval of the recapitalization from the required holders of each of these
securities were discussed.
During April, representatives of the Company and Mr. Lacovara also
discussed terms of the potential recapitalization transactions with Foothill and
Silver Point Capital, L.P. ("Silver Point") to discuss the possibility of such
entities participating in the transactions to provide debt financing for the
recapitalization and serve as new lenders to the Company.
On May 6, 2003, representatives of Kohlberg Fund IV met with certain
independent members of the Company's Board of Directors to discuss the proposed
recapitalization on terms that would have paid holders of Company Common Stock
$0.75 per share. On May 8, the Board of Directors of the Company met with Mr.
Lacovara and Mr. Woodward to discuss the Offer and the recapitalization and the
possibility of an increase in the price in the Offer to $1.00 per Share. After
further negotiation, an increase in the price in the Offer to $0.85 per Share
was proposed by Mr. Lacovara. The Board of Directors directed the independent
directors negotiating with Kohlberg Fund IV to seek additional compensation to
be paid to the common stockholders of the Company.
On May 8, 2003, the Company and Kohlberg Fund IV entered into a revised
letter of intent, extending the period of exclusivity from April 30, 2003 to May
31, 2003. This extension letter provided for the amount
9
available for the reimbursement of certain expenses incurred in the due
diligence investigation by Kohlberg Fund IV to be increased to $500,000.
On May 13, 2003, David Parker, a Director of the Company, wrote Mr.
Lacovara on behalf of the Company, to communicate the Board of Directors' belief
that, given all of the circumstances, $1.00 per share would represent a fair
price to holders of the Common Stock and seeking an increase in the amount of
consideration to be offered by Kohlberg Fund IV to such holders.
During May 2003, representatives of the Company negotiated preliminary
terms of the Merger Agreement with Kohlberg Fund IV.
On May 20, 2003, Foothill, Silver Point and Kohlberg Management IV, L.L.C.
entered into a debt commitment letter with respect to the debt financing in
connection with the Offer.
On May 21, 2003, representatives of Kohlberg Fund IV contacted the Company
to state that based upon its arrangements with Foothill and Silver Point, the
negotiations with the Company's senior lenders and its due diligence
investigation, Kohlberg Fund IV would be willing to proceed with a transaction
at $0.85 per share. Between May 26, 2003 and June 12, 2003, representatives of
Kohlberg Fund IV and the Company and their respective counsel negotiated the
final terms of the Merger Agreement.
On June 2, 2003, Kohlberg Fund IV formed Parent, a wholly owned subsidiary
of Kohlberg Fund IV, and Purchaser, a wholly-owned subsidiary of Parent.
On June 3, 2003, the Board of Directors met to consider the tender offer,
Merger and related transactions. Messrs. Krall and Drasner updated the Board of
Directors on the course of negotiations regarding the transactions. A
representative of Weil, Gotshal & Manges LLP, the Company's outside law firm,
reviewed with the Board of Directors the terms of the proposed merger agreement
and tender agreements and the timetable and various approvals that would be
required to close the transaction and discussed various other aspects of the
proposed transaction with the Board of Directors and responded to questions
posed by directors. On that same day, the Board of Directors met and unanimously
authorized the Company's management to execute the Merger Agreement.
Between April 29, 2003 and June 9, 2003, the Company entered into
agreements with holders of approximately 59% of the outstanding Subordinated
Notes of the Company to repurchase, subject to the terms and conditions set
forth therein, the Subordinated Notes held by such holders through a tender
offer and/or redemption at a price equal to 25 pence per L1 of principal plus
accrued interest thereon.
On June 12, 2003, Parent entered into a lock-up agreement with the Company,
Fleet and the other lenders under the Company Credit Agreement containing
agreements, subject to the terms and conditions set forth therein, in connection
with purchase of all of the outstanding debt of the Company under the Company
Credit Agreement at a price of (a) either (i) 55% of the face value of the
outstanding debt under the Company Credit Agreement as of June 12, 2003 in cash
or (ii) 53% of the face value of the outstanding debt under the Company Credit
Agreement as of June 12, 2003 in cash and options to receive 2% of the fully
diluted common stock of Parent as of the closing date of the Recapitalization
Transactions; (b) accrued interest and 100% of the amounts borrowed after June
12, 2003; and (c) cash in the amount of 2% of the outstanding debt under the
Company Credit Agreement as of June 12, 2003 in the event that the Company's
Consolidated EBITDA (as defined in the Company Credit Agreement) exceeds
$48,000,000 for the 2004 fiscal year.
On June 12, 2003, the Company and Wace entered into agreements with holders
of approximately 88% of the outstanding Preference Shares to repurchase and/or
redeem, subject to the terms and conditions set forth therein, the outstanding
Preference Shares held by such holders (other than those held by Applied
Graphics Technologies (UK) Limited) and obligating such holders to vote in favor
of a proposal permitting Wace to make such redemption at a price of 19 pence per
share, rather than the stated liquidation of L1 preference per share plus
accrued dividends. Such holders of Preference Shares committed to reinvest a
portion of the proceeds received in the redemption in the Company in the form of
a subordinated note.
10
On June 12, 2003, the parties executed the Merger Agreement. On June 13,
2003, the Company issued a press release announcing the transaction.
On June 20, 2003, in accordance with the Merger Agreement, the Purchaser
commenced the Offer.
At 5:00 p.m., New York City time, on Friday, August 1, 2003, the Offer
expired. On Monday, August 4, 2003, the Purchaser accepted for payment all
Shares that were validly tendered and not withdrawn pursuant to the Offer. The
Purchaser was informed by The Bank of New York that a total of 6,081,145 Shares,
representing approximately 66% of the outstanding Shares, had been validly
tendered and not withdrawn. The Company entered into a Loan and Security
Agreement (the "Loan Agreement") with a new lender group led by entities
affiliated with Foothill and Silver Point and issued a note (the "KAGT Note") to
the Purchaser to allow the Company to finance the Recapitalization Transactions.
On the same date, the Company also repurchased its debt under the Company Credit
Agreement at a discount and all the conditions to the redemption of each of the
Subordinated Notes and the Preference Shares were satisfied.
On August 4, 2003, by written consent in lieu of a meeting of the Board of
Directors: (i) the Company accepted the resignations from the Board of Directors
of the following directors: Fred Drasner, John W. Dreyer, Philip Guarascio,
Martin D. Krall, Marne Obernauer, Jr., Joseph D. Vecchiolla, John R. Walter and
Mortimer B. Zuckerman; and (ii) the following four designees of Parent were
elected to the Board: Samuel P. Frieder, James A. Kohlberg, Christopher
Lacovara, and Gordon Woodward. Messrs. Drasner, Krall and Vecchiolla did not
resign as executive officers of the Company. Messrs. Harris, Parker and
Zuccotti, none of whom are officers of the Company, remained on the Board of
Directors.
On August 4, 2003, the Company entered into a Management Agreement (the
"Management Agreement") with Kohlberg & Company, L.L.C.
On August 12, 2003, the redemption of the Subordinated Notes was completed
and on August 14, 2003, the redemption of the Preference Shares was completed.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
At a meeting held on June 3, 2003, the Board of Directors, by a unanimous
vote of all of the Company's Directors, (a) approved the Merger Agreement and
the Recapitalization Transactions as contemplated by the Merger Agreement,
including the Merger, and declared that the Recapitalization Transactions were
advisable and (b) determined that the terms of the Offer and the Merger
Agreement are fair, from a financial point of view, to the Company and its
stockholders. The Board of Directors also unanimously recommended that the
stockholders of the Company accept the Offer and tender their Common Stock
pursuant to the Offer and that the stockholders of the Company adopt the Merger
Agreement.
REASONS FOR THE BOARD OF DIRECTORS' RECOMMENDATIONS; FACTORS CONSIDERED
On June 3, 2003, the Board of Directors (all of whose members were
unaffiliated with the Purchaser and Parent on that date) approved the Merger
Agreement and the Recapitalization Transactions as contemplated thereby,
including the Offer and the Merger, and recommended that all holders of Shares
accept the Offer and tender their Shares pursuant to the Offer, approve the
Merger and approve and adopt the Merger Agreement.
In approving the Merger Agreement and the Recapitalization Transactions as
contemplated thereby, including the Offer and the Merger, and making its
recommendation that all stockholders tender their Common Stock pursuant to the
Offer, approve the Merger and approve and adopt the Merger Agreement, if
required, the Board of Directors considered a number of factors, including, but
not limited to, the following material considerations, all of which supported
such approvals and recommendation by the Board of Directors:
A. The amount of consideration to be received by the holders of
shares of Common Stock pursuant to the Offer and the Merger;
B. The process leading to the Offer and the Merger and the possible
alternatives thereto, the range of possible benefits to the Company's
stockholders and other constituencies of such alternatives and the expected
timing and likelihood of accomplishing any of such alternatives;
11
C. Information with regard to the financial condition, results of
operations, business and prospects of the Company, the regulatory approvals
required to consummate the Offer and the Merger as well as current economic
and market conditions;
D. The historical and recent market prices of the Common Stock and
the fact that the Offer and the Merger would enable the holders of the
shares to realize an 89.9% premium over the $0.45 closing price of the
Common Stock on June 2, 2003, the last trading day prior to the meeting of
the Board of Directors to approve the Merger Agreement;
E. The likelihood that the Merger would be consummated, in light of
(1) the Tender Agreements pursuant to which Applied Printing Technologies,
L.P., Fred Drasner, Martin Krall, Joseph Vecchiolla, David Parker, Marne
Obernauer, Jr. and the lenders under the Company Credit Agreement (the
"Senior Lenders"), who beneficially owned approximately 33.9% of the
outstanding fully diluted shares of Common Stock (including in-the-money
options), agreed, among other things, to tender all of their Common Stock
in the Offer and vote all of their Common Stock in favor of the Merger, and
(2) the experience, reputation and financial capabilities of Kohlberg and
its affiliates; and
F. The Board of Directors' belief that consummation of the Offer
would present stockholders with the best opportunity to receive a premium
to current market prices for their shares of Common Stock. This belief was
based upon:
- The Board of Directors' belief that the Company would be unable to pay
when due the outstanding principal amount of its outstanding senior
indebtedness under the Company Credit Agreement ("Senior
Indebtedness"), which would also be a default under the Subordinated
Notes and could result in acceleration of such indebtedness;
- The necessity that the Company consummate a restructuring or
recapitalization on or before July 15, 2003 to avoid the automatic
acceleration of its Senior Indebtedness absent an agreement by the
lenders under the Company Credit Agreement (the "Senior Lenders") to
waive such default;
- The Company's inability, prior to the execution of the Merger
Agreement and related documents, to obtain agreements of its Senior
Lenders sufficient to effect any previously proposed restructuring or
recapitalization and sufficient to avoid the acceleration of the
Company's Senior Indebtedness;
- The Board of Directors' belief that the assets of the Company would
not be sufficient to repay the Company's indebtedness, all of which
had a claim superior to that of the Common Stock and, as a
consequence, its belief that no proceeds would be paid to holders of
Common Stock in the event of a bankruptcy or liquidation of the
Company;
- The Board of Directors' belief that the significant discounts that
holders of the Company's Senior Indebtedness, Subordinated Notes and
holders of the Preference Shares had committed to accept in exchange
for such instruments demonstrated that the Offer represents the most
favorable terms obtainable by the Company and the Stockholders;
- The Board of Directors' belief, after consultation with its legal
advisors, that the terms of the Merger Agreement, including amounts
payable to the Parent in the event of termination, did not preclude a
superior proposal to acquire the Company. In this regard, the Board of
Directors recognized that certain provisions of the Merger Agreement
relating to termination fees and non-solicitation of acquisition
proposals were insisted upon by Kohlberg Fund IV as a condition to
entering into the Merger Agreement. Although the Board of Directors
considered that these provisions could have the effect of deterring
third parties who might be interested in exploring an acquisition of
the Company, the Board of Directors concluded that the advantages of
entering into the Merger Agreement outweighed the possibility that
another company might be willing to pay a higher price for the
Company, but would be unwilling to present an unsolicited proposal
after the Merger Agreement was announced; and
12
- The efforts of the Company's management to solicit indications of
interest in acquiring the Company from other potential buyers, and the
fact that no other proposal that was both meaningful and acceptable to
the Company's Senior Lenders resulted from that process.
In view of these many considerations, the Board of Directors did not assign
relative weights to the above factors or determine that any factor was of
special importance. Rather, the Board of Directors viewed its position and
recommendations as being based on the totality of the information presented to
and considered by it, both positive and negative. In addition, it is possible
that different members of the Board of Directors assigned different weights to
the various factors described above. After weighing all of these considerations,
the Board of Directors was unanimous in approving the Offer, the Merger, the
Merger Agreement and the transactions contemplated thereby and recommending that
the stockholders of the Company tender their shares of Common Stock in the Offer
and vote to approve the adoption of the Merger Agreement.
CERTAIN COMPANY PROJECTIONS AND VALUATIONS
During the course of discussions between representatives of Parent and the
Company, the Company provided Parent or its representatives with certain
non-public business and financial information about the Company. This
information included the following projections of total revenues, gross profit,
operating income and earnings for the Company for the years ended December 31,
2003 through 2007.
2003 - 2007 CONSOLIDATED INCOME STATEMENTS -- HIGHLIGHTS
(IN THOUSANDS)
BUDGET FORECAST FORECAST FORECAST FORECAST
2003 2004 2005 2006 2007
-------- -------- -------- -------- --------
REVENUES................................ $425,252 $434,393 $454,391 $474,789 $490,531
GROSS PROFIT............................ 148,772 153,777 163,417 173,032 181,511
OPERATING INCOME (PRE-AMORTIZATION
EXPENSE).............................. 28,133 33,359 34,501 38,990 43,592
EBITDA.................................. 44,828 49,503 50,420 54,734 59,336
The Company has advised the Purchaser and Parent that it does not as a
matter of course make public any projections as to future performance or
earnings, and the projections set forth above are included in this Proxy
Statement only because this information was provided to Parent. Although Parent
and Purchaser were provided such projections, they did not base their analysis
of the Company on such projections. The projections were not prepared with a
view to public disclosure or compliance with the published guidelines of the
Commission or the guidelines established by the American Institute of Certified
Public Accountants regarding projections or forecasts. The projections do not
purport to present operations in accordance with generally accepted accounting
principles, and the Company's independent auditors have not examined or compiled
the projections and accordingly assume no responsibility for them. The Company
has advised the Purchaser and Parent that its internal financial forecasts (upon
which the projections provided to Parent and the Purchaser were based in part)
are, in general, prepared solely for internal use and capital budgeting and
other management decisions and are subjective in many respects and thus
susceptible to interpretations and periodic revision based on actual experience
and business developments. The projections also reflect numerous assumptions
made by management of the Company, including assumptions with respect to the
market for the Company's products and services, general business, economic,
market and financial conditions and other matters, including effective tax rates
consistent with historical levels for the Company and interest rates and the
anticipated amount of borrowings by the Company, all of which are difficult to
predict, many of which are beyond the Company's control, and none of which were
subject to approval by Parent or the Purchaser. Accordingly, there can be no
assurance that the assumptions made in preparing the projections will prove
accurate. It is expected that there will be differences between actual and
projected results, and actual results may be materially greater or less than
those contained in the projections. The inclusion of the projections herein
should not be regarded as an indication that any of Parent, the Purchaser, the
Company or their respective affiliates or representatives considered or consider
the projections to be a reliable prediction of
13
future events, and the projections should not be relied upon as such. None of
Parent, the Purchaser, the Company or any of their respective affiliates or
representatives has made or makes any representation to any person regarding the
ultimate performance of the Company compared to the information contained in the
projections, and none of them intends to update or otherwise revise the
projections to reflect circumstances existing after the date when made or to
reflect the occurrence of future events even in the event that any or all of the
assumptions underlying the projections are shown to be in error.
At the request of Parent, the Company received a letter dated July 11, 2003
from a valuation firm which stated that it was such firm's opinion that the
aggregate fair market value of the Company, on an enterprise value basis (before
long-term debt, subordinated debt or capital leases), as of June 11, 2003, was
$131.5 million. The opinion was requested to determine the extent to which the
Company was solvent or insolvent and to be used for certain tax reporting
purposes.
CHANGE OF CONTROL
At 5:00 p.m., New York City time, on Friday, August 1, 2003, the Offer
expired. On August 4, 2003, the Purchaser accepted for payment all Shares that
were validly tendered and not withdrawn pursuant to the Offer. On August 7,
2003, the Purchaser was informed by The Bank of New York that a total of
6,081,145 Shares had been validly tendered and not withdrawn. As a result, the
Purchaser owns approximately 66% of the outstanding Shares. See also "The Merger
and Related Transactions -- Background of the Merger", "The Merger and Related
Transactions -- Board of Directors", "The Merger and Related
Transactions -- Employee Benefits" and "Interests of Certain Persons in the
Merger -- Stock Options" and "The Merger and Related Transactions -- Source and
Amount of Funds".
CONDITIONS TO THE MERGER
Following the consummation of the Offer, the Merger Agreement provides that
the respective obligations of each party to effect the Merger are subject to the
satisfaction or waiver of certain remaining conditions, including the following:
(a) the Company's stockholders shall have approved the Merger by an affirmative
vote of the holders of more than fifty percent of the outstanding Shares (the
"Company Stockholder Approval") (such approval is assured as Purchaser owns more
than fifty percent of the Shares); (b) any consents, approvals and filings under
any foreign antitrust laws, the absence of which would prohibit the consummation
of the Merger, shall have been obtained or made (no such consent or approval is
known to be required); (c) no statute, rule, regulation, executive order,
decree, temporary restraining order, preliminary or permanent injunction or
other order enacted, entered, promulgated, enforced or issued by any
Governmental Entity (as defined below under "-- Termination of the Merger
Agreement"), court or competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect;
provided that each of the parties shall have used all reasonable efforts to
prevent the entry of any such injunction or other order and to appeal as
promptly as possible any such injunction or other order that may be entered. All
other conditions to the Merger other than those described above have been
satisfied.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after adoption of the Merger Agreement by the
stockholders of the Company:
(a) by mutual written consent of Parent, the Purchaser and the
Company; or
(b) by either Parent or the Company:
(i) if any Federal, state, local or foreign government or any court
of competent jurisdiction, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity"), shall have issued an order, decree or ruling or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the acceptance for payment of, or payment for, the Shares
pursuant to the Offer or the Merger and such order, decree, ruling or
other action shall have become final and nonappealable; or
14
(ii) if, upon a vote at a duly held meeting to obtain the Company
Stockholder Approval, the Company Stockholder Approval is not obtained;
provided that Parent may not terminate the Merger Agreement pursuant to
this termination provision if the Purchaser, Parent or any other
subsidiary of Parent shall not have voted its Shares in favor of
obtaining the Company Stockholder Approval.
A termination of the Merger Agreement, in order to be effective, requires
in the case of Parent, the Purchaser or the Company, action by its Board of
Directors or the duly authorized designee of its Board of Directors; provided,
that in the case of the Company, such action also requires action by a majority
of the Independent Directors (as defined in the Section "Merger and Related
Transactions -- Board of Directors" below).
TAKEOVER PROPOSALS
The Merger Agreement provides that the Company will not, nor will it
authorize or permit any of its subsidiaries to, nor will it authorize or permit
any director, officer or employee of, or any investment banker, attorney or
other advisor or representative ("Representatives") of, the Company or any of
its subsidiaries to (i) directly or indirectly solicit, initiate or encourage
the submission of any Takeover Proposal (as defined below), (ii) enter into any
agreement with respect to any Takeover Proposal or (iii) directly or indirectly
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Takeover Proposal; provided that prior to the first
acceptance of shares for payment of Company Common Stock pursuant to the Offer
(the "Acceptance Date"), the Board of Directors of the Company had the right, to
the extent necessary to act in a manner consistent with its fiduciary
obligations, as determined in good faith by it after consultation with outside
counsel, in response to a Takeover Proposal that the Board of Directors
determines, in good faith after consultation with outside counsel, is reasonably
likely to lead to a Superior Proposal (as defined below) that was not solicited
and that did not otherwise result from a breach or a deemed breach of this
provision of the Merger Agreement, and subject to compliance with the
notification obligations described below, (x) to furnish information with
respect to the Company to the person making such Takeover Proposal (and its
Representatives) pursuant to a customary confidentiality agreement; and (y) to
participate in discussions or negotiations with the person and its
Representatives making such Takeover Proposal regarding such Takeover Proposal;
and provided, further, that prior to the Acceptance Date, the Company had the
right, in connection with a Company Credit Agreement Refinancing (as defined
below) or otherwise pursuant to the Company Credit Agreement or the Company's
obligations thereunder, (I) to furnish information with respect to the Company
to the Senior Lenders (or their agent under the Company Credit Agreement) and
their respective Representatives and (II) to participate in discussions or
negotiations with such persons and their Representatives regarding the Company
Credit Agreement and or a Company Credit Agreement Refinancing. Without limiting
the foregoing sentence, it is agreed that any violation of the restrictions set
forth in the preceding sentence by any officer, director, investment banker,
attorney or other advisor or representative of the Company or any of the
Company's subsidiaries, whether or not such person is purporting to act on
behalf of the Company or any of the Company's subsidiaries or otherwise, shall
be deemed to be a breach of the Merger Agreement by the Company.
"Company Credit Agreement Refinancing" means an amendment, restatement or
other transaction whereby Fleet National Bank remained as agent under the
Company Credit Agreement and the Lenders continued to hold a majority in
interest of the loans thereunder, but which resulted in a change in the material
terms of the Company Credit Agreement (including, without limitation, any of the
loan amounts, financial covenants or ratios or maturity (other than a one-time
extension of the maturity by less than six months)), whether such transaction
was accomplished through a bankruptcy proceeding or otherwise.
"Takeover Proposal" means (i) any proposal or offer for a merger,
consolidation, dissolution, recapitalization or other business combination or
any refinancing (including without limitation, any Company Credit Agreement
Refinancing) or other equity or debt restructuring transaction involving the
Company or any significant subsidiary of the Company (as defined in Regulation
S-X of the Federal securities laws), (ii) any proposal for the issuance by the
Company of over 30% of its equity securities as consideration for the assets or
15
securities of another person or (iii) any proposal or offer to acquire in any
manner, directly or indirectly, over 30% of the equity securities or
consolidated total assets of the Company, in each case other than pursuant to
the Offer, the Merger and the other Recapitalization Transactions.
"Superior Proposal" means any proposal made by a third party to complete a
recapitalization of the Company by (I) acquiring substantially all the equity
securities or assets of the Company, pursuant to a tender or exchange offer, a
merger, a consolidation, a liquidation or dissolution, a recapitalization or a
sale of all or substantially all its assets or any combination of the foregoing,
(II) refinancing the Company Credit Agreement, (III) purchasing or causing the
redemption of the Subordinated Notes and/or (IV) purchasing or causing the
redemption of the Preference Shares, in the aggregate, (a) on terms which the
Board of Directors of the Company determines in good faith to be superior from a
financial point of view to the holders of Shares, the Lenders under the Company
Credit Agreement, the holders of the Subordinated Notes and the holders of
Preference Shares, as the case may be, than the Recapitalization Transactions,
taking into account all the terms and conditions of such proposal and the Merger
Agreement (including any proposal by Parent to amend the terms of the
Recapitalization Transactions), it being understood that such proposal does not
have to be superior to each such category of holders, but must, in the
aggregate, be superior from a financial point of view to the debt and equity
holders of the Company as a whole, and (b) that is reasonably capable of being
completed, taking into account all financial, regulatory, legal and other
aspects of such proposal.
The Merger Agreement further provides that, unless the Board of Directors,
after consultation with outside counsel, determines in its good faith judgment
that it is necessary to do so in order to fulfill its fiduciary obligations
under applicable law, neither the Board of Directors of the Company nor any
committee thereof may (i) withdraw or modify in a manner adverse to Parent or
the Purchaser, or publicly propose to withdraw or modify in a manner adverse to
Parent or the Purchaser, the approval or recommendation by such Board of
Directors or any such committee of the Merger Agreement, the Offer, the Merger
or the other Recapitalization Transactions, (ii) approve any letter of intent,
agreement in principle, acquisition agreement or similar agreement relating to
any Takeover Proposal, or (iii) approve or recommend, or publicly propose to
approve or recommend, any Takeover Proposal. Furthermore, the Company may not
take the actions set forth in clauses (ii) or (iii) of the preceding sentence
unless it has terminated or concurrently terminates the Merger Agreement.
In addition to the obligations of the Company described in the preceding
paragraphs, the Merger Agreement provides that the Company will promptly advise
Parent orally and, within two business days, in writing of any Takeover Proposal
or any inquiry with respect to, or that could reasonably be expected to lead to,
any Takeover Proposal, the material terms and conditions of such Takeover
Proposal and the identity of the person making any such Takeover Proposal or
inquiry. The Company shall (i) keep Parent fully informed of the status and
details (including any change to the terms thereof) of any such Takeover
Proposal and (ii) provide to Parent as soon as practicable after receipt or
delivery thereof with copies of all correspondence and other written material
sent or provided to the Company by any third party in connection with any
Takeover Proposal or sent or provided by the Company to any third party in
connection with any Takeover Proposal.
The Merger Agreement provides that the provisions described above will not
prohibit the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or making any
required disclosure to the Company's stockholders if, in the good faith judgment
of the Board of Directors of the Company, after consultation with outside
counsel, failure so to disclose would be inconsistent with applicable law.
The Company did not receive a Superior Proposal or any other Takeover
Proposal from a third party prior to consummation of the Offer.
FEES AND EXPENSES
The Merger Agreement provides that except as set forth below, all fees and
expenses incurred in connection with the Merger and the other Recapitalization
Transactions (including, without limitation, all
16
fees and expenses of counsel, accountants, investment bankers, experts and
consultants) shall be paid by the party incurring such fees or expenses, whether
or not the Recapitalization Transactions are consummated.
The Company will pay to Parent a non-refundable fee of $4,000,000 plus all
reasonable fees and expenses incurred by Parent, the Purchaser and their
affiliates with the Recapitalization Transactions, up to a maximum of $1,000,000
(not including up to $500,000 of expenses paid upon signing the Merger
Agreement) if: (x) the Merger Agreement is terminated for any reason, other than
(I) a termination by the Company due to a willful and material breach or failure
to perform by the Parent, which breach or failure cannot or has not been cured
within 15 days after giving written notice to Parent of such breach or failure
to perform (provided that the Company is not then in material breach of any
representation, warranty or covenant in the Merger Agreement), (II) failure to
consummate the financing contemplated by Purchaser's commitment letter with
Foothill and Silver Point, or (III) termination by Parent due to failure of the
Purchaser to accept payment for the Shares prior to the expiration of the Offer
as a result of an event or change that had a material adverse effect on the
business of the Company and its subsidiaries, and (y) within 12 months of such
termination the Company enters into a definitive agreement to consummate, or
consummates, a transaction that could constitute a Takeover Proposal other than
a Company Credit Agreement Refinancing. The Company will pay to Parent a
non-refundable fee equal to $2,500,000 plus all reasonable fees and expenses
incurred by Parent, the Purchaser and their affiliates in connection with the
Recapitalization Transactions, up to a maximum of $1,000,000 (not including up
to $500,000 of expenses paid upon signing the Merger Agreement) if (i) the
Merger Agreement is terminated for any reason other than those described in
clauses (x)(I), (x)(II), or (x)(III) above and (ii) within 12 months of such
termination the Company enters into a definitive agreement to consummate, or
consummates, a Company Credit Agreement Refinancing. Any fee due under the
provisions described above shall be paid by wire transfer of same-day funds on
the date of execution of such a definitive agreement or, if earlier,
consummation of such transactions.
Without duplicating any fee due pursuant to the preceding paragraph, if the
Merger Agreement is terminated for any reason other than a termination by the
Company due to a breach described in (x)(I) above, the Company agrees to
reimburse Parent for all reasonable fees and expenses incurred by Parent, the
Purchaser and their affiliates in connection with the Recapitalization
Transactions up to a maximum of $1,000,000 (not including up to $500,000 of
expenses paid upon signing the Merger Agreement), such payment to be made by
wire transfer of same day funds on the date of termination of this Agreement.
The obligations of the Company to pay any of the fees described in the
preceding two paragraphs is Parent's and the Purchaser's sole remedy with
respect to any breach of the Company's representations, warranties or
obligations to be performed prior to the consummation of the Offer under the
Merger Agreement and with respect to any such breach, Parent and the Purchaser
shall waive, to the fullest extent permitted by law, any and all rights, claims
and causes of action (other than claims of, or causes of action arising from,
fraud) it may have against the Company with respect to such breach.
BOARD OF DIRECTORS
The Merger Agreement provides that promptly upon the first acceptance for
payment of, and payment by the Purchaser for, any Shares pursuant to the Offer,
the Purchaser shall be entitled to designate such number of directors on the
Company's Board of Directors as will give the Purchaser, subject to compliance
with Section 14(f) of the Exchange Act, representation on the Company's Board of
Directors equal to at least that number of directors, rounded up to the next
whole number, which is the product of (a) the total number of directors on the
Company's Board of Directors (giving effect to the directors elected pursuant to
this sentence) multiplied by (b) the percentage that (i) such number of Shares
so accepted for payment and paid for by the Purchaser plus the number of Shares
otherwise owned by the Purchaser or any other subsidiary of Parent bears to (ii)
the number of such Shares outstanding, and the Company shall, at such time,
cause the Purchaser's designees to be so elected; provided that in the event
that the Purchaser's designees are appointed or elected to the Company's Board
of Directors, until the Effective Time the Company's Board of Directors shall
have at least three directors who are directors on the date of the Merger
Agreement and who are not officers of the Company (the "Independent Directors");
and provided further that, in such event, if the number of Independent Directors
is reduced below three for any reason whatsoever, any remaining
17
Independent Directors (or Independent Director, if there is only one remaining)
will be entitled to designate persons to fill such vacancies who will be deemed
to be Independent Directors for purposes of the Merger Agreement or, if no
Independent Directors then remain, the other directors will designate three
persons to fill such vacancies who are not officers, stockholders or affiliates
of the Company, Parent or the Purchaser, and such persons will be deemed to be
Independent Directors for purposes of the Merger Agreement. Subject to
applicable law, the Company was required under the Merger Agreement to take all
action requested by Parent necessary to effect any such election, including
mailing to its stockholders the Information Statement containing the information
required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder, and the Company made such mailing with the mailing of the Schedule
14D-9 on June 20, 2003. In connection with the foregoing, the Company is
required to promptly, at the option of the Purchaser, either increase the size
of the Board of Directors of the Company or obtain the resignation of such
number of its current directors as is necessary to enable the Purchaser's
designees to be elected or appointed to the Board of Directors of the Company as
provided above.
To effectuate these provisions, on August 4, 2003, by written consent in
lieu of a meeting of the Board of Directors: (i) the Company accepted the
resignations from the Board of Directors of the following directors: Fred
Drasner, John W. Dreyer, Philip Guarascio, Martin D. Krall, Marne Obernauer,
Jr., Joseph D. Vecchiolla, John R. Walter and Mortimer B. Zuckerman; and (ii)
the following four designees of Parent were elected to the Board: Samuel
Frieder, James Kohlberg, Christopher Lacovara, and Gordon Woodward. Messrs.
Drasner, Krall and Vecchiolla did not resign as executive officers of the
Company. Messrs. Harris, Parker and Zuccotti remained on the Board of Directors
as the Independent Directors.
EMPLOYEE BENEFITS
The Merger Agreement provides that Parent will cause the Surviving
Corporation, for a period of one year after the Effective Time to provide to
each current employee of the Company and its subsidiaries severance benefits
that are not less favorable than the severance benefits applicable immediately
prior to the execution of the Merger Agreement and other benefits (other than
equity-based plans) that are not materially less favorable in the aggregate to
such employees than those benefits in effect for such employees on June 12,
2003.
REASONABLE EFFORTS; NOTIFICATION
The Merger Agreement provides that each of the parties shall use all
commercially reasonable efforts to take, or cause to be taken, all reasonable
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things reasonably necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
Recapitalization Transactions, including (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and filings (including
filings with Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals or waivers from third parties, (iii) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging the Merger Agreement or the consummation of the Recapitalization
Transactions, including, when reasonable, seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity vacated or
reversed and (iv) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by the Merger Agreement
and to fully carry out the purposes of the Merger Agreement. In connection with
and without limiting the foregoing, the Company and the Board of Directors of
the Company have agreed to (i) take all action necessary to ensure that no state
takeover statute or similar statute or regulation is or becomes applicable to
the Merger Agreement and (ii) if any state takeover statute or similar statute
or regulation becomes applicable to the Merger Agreement, take all action
necessary to ensure that the Offer, the Merger and the other Recapitalization
Transactions may be consummated as promptly as practicable on the terms
contemplated by the Merger Agreement and otherwise to minimize the effect of
such statute or regulation on the Offer, the Merger and the other
Recapitalization Transactions. Nothing in the Merger Agreement is deemed to
require any party to
18
waive any substantial rights or agree to any substantial limitation on its
operations or to dispose of any significant asset or collection of assets.
The Company shall give prompt notice to Parent, and Parent or the Purchaser
shall give prompt notice to the Company, of (i) any representation or warranty
made by it contained in the Merger Agreement that is qualified as to materiality
becoming untrue or inaccurate in any respect or any such representation or
warranty that is not so qualified becoming untrue or inaccurate in any material
respect or (ii) the failure by it to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it under the Merger Agreement; provided, however, that no such notification
shall affect the representations, warranties, covenants or agreements of the
parties or the conditions to the obligations of the parties under the Merger
Agreement.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties, including representations relating to corporate existence and power;
capitalization; corporate authorizations; subsidiaries; absence of conflicts;
Commission filings; absence of certain changes; contracts; absence of
undisclosed liabilities; government authorizations; litigation; compliance with
laws; absence of changes in benefit plans; excess parachute payments; employment
agreements; taxes; intellectual property; accuracy of certain disclosures; and
brokers' and other fees.
Certain representations and warranties in the Merger Agreement provide
exceptions for items that are not "material" or that are not reasonably likely
to have a "Company Material Adverse Effect." For purposes of the Merger
Agreement and the Offer, a "Company Material Adverse Effect" means a material
adverse effect (with certain limited exceptions) on the Company and its
subsidiaries, taken as a whole, a material adverse effect on the ability of the
Company to perform its obligations under the Merger Agreement or a material
adverse affect on the ability of the Company to consummate the Offer, the Merger
and the other Recapitalization Transactions.
PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OF WAIVER
The Merger Agreement may be amended by the parties at any time, whether
before or after the Company Stockholder Approval has been obtained; provided
that, after the Company Stockholder Approval has been obtained, there shall be
made no amendment that by law requires further approval by the Company's
stockholders without the further approval of such stockholders and provided,
further, that after the Purchaser's purchase of Shares in the Offer, no such
amendment or modification shall be made that reduces the amount or changes the
form of merger consideration or otherwise materially and adversely affects the
rights of the Company's stockholders hereunder, without the further approval of
such stockholders. The Merger Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties thereto.
At any time prior to the Effective Time, the parties may (a) extend the
time for the performance of any of the obligations or other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties
contained in the Merger Agreement or in any document delivered pursuant thereto
or (c) waive compliance with any of the agreements or conditions contained
therein. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure by any party to the Merger Agreement to assert any of
its rights under the Merger Agreement or otherwise shall not constitute a waiver
of such rights.
A termination of the Merger Agreement, an amendment of the Merger Agreement
or an extension or waiver shall, in order to be effective, require in the case
of Parent, the Purchaser or the Company, action by its Board of Directors or the
duly authorized designee of its Board of Directors; provided, that in the case
of the Company, such action shall also require action by a majority of the
Independent Directors.
19
THE CONFIDENTIALITY AGREEMENT
Parent and the Company entered into a Confidentiality Agreement on March
20, 2003. Pursuant to the Confidentiality Agreement, the Company and Parent
agreed to keep confidential certain information provided by the Company or its
representatives. The Merger Agreement provides that certain information
exchanged pursuant to the Merger Agreement will be subject to the
Confidentiality Agreement.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash pursuant to the Merger will be a taxable transaction
for U.S. Federal income tax purposes under the Internal Revenue Code of 1986, as
amended (the "Code"), and may also be a taxable transaction under applicable
state, local or foreign income tax laws.
Generally, for U.S. Federal income tax purposes, a stockholder will
recognize gain or loss equal to the difference between the aggregate amount of
cash received by the stockholder pursuant to the Merger and the aggregate
adjusted tax basis in the Shares converted into cash in the Merger. Gain or loss
will be calculated separately for each block of Shares converted into cash in
the Merger. If Shares are held by a stockholder as capital assets, gain or loss
recognized by such stockholder will be capital gain or loss, which will be
long-term capital gain or loss if such stockholder's holding period for the
Shares exceeds one year at the Effective Time. In the case of an individual
stockholder, long-term capital gains will be eligible for a maximum U.S. Federal
income tax rate of 15%. In addition, the ability to use capital losses to offset
ordinary income is limited.
A stockholder (other than certain exempt stockholders including, among
others, all corporations, individual retirement accounts and certain foreign
individuals and entities) that surrenders Shares may be subject to a 28% backup
withholding tax, unless the stockholder provides its tax identification number
("TIN") certifies that such number is correct (or properly certifies that it is
awaiting a TIN) and certifies as to no loss of exemption from backup
withholding, certifies that such stockholder is a U.S. person (including a U.S.
resident alien) and otherwise complies with the applicable requirements of the
backup withholding rules. A stockholder that does not furnish a required TIN or
that does not otherwise establish a basis for an exemption from backup
withholding may also be subject to a penalty imposed by the IRS. Each U.S.
stockholder should complete and sign the Substitute Form W-9 included as part of
the Letter of Transmittal so as to provide the information and certification
necessary to avoid backup withholding. Non-U.S. stockholders should complete the
appropriate Form W-8.
If backup withholding applies to a stockholder, the paying agent is
required to withhold 28% from payments to such stockholder. Backup withholding
is not an additional tax. Rather, the amount of withheld can be credited against
the U.S. Federal income tax liability of the person subject to the backup
withholding, provided that the required information is given to the IRS. If
backup withholding results in an overpayment of tax, a refund can be obtained by
the stockholder by filing a U.S. Federal income tax return.
The foregoing discussion may not be applicable with respect to Shares
received pursuant to the exercise of employee stock options or otherwise as
compensation or with respect to holders of Shares who are subject to special tax
treatment under the Code -- such as non-U.S. persons, life insurance companies,
tax-exempt organizations and financial institutions -- and may not apply to a
holder of Shares in light of individual circumstances, such as holding Shares as
a hedge or as part of a straddle or a hedging, conversion, constructive sale,
integrated or other risk-reduction transaction. STOCKHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO
THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME
AND OTHER TAX LAWS) OF THE MERGER.
METHOD OF ACCOUNTING
The Merger will be accounted for under the purchase method of accounting.
20
REGULATORY AND OTHER APPROVALS
There are no U.S. Federal or state regulatory requirements which remain to
be complied with in order to consummate the Merger (other than the filing of a
certificate of merger with the Secretary of State of the State of Delaware).
SOURCE AND AMOUNT OF FUNDS
The Recapitalization Transactions are being funded with $52,000,000 from
Parent, of which approximately $44,200,000 will initially be subordinated debt
of the Company (under the KAGT Note) and all of which will be converted into
equity upon completion of the Merger, and approximately $72,500,000 of debt
under the Loan Agreement. Of the total funding, approximately $97,700,000 was
used to fully repay $176,097,000 of borrowings outstanding under the Company
Credit Agreement at the closing of the Offer, and approximately $7,800,000 will
be paid directly to holders of Company Common Stock by Purchaser, of which
approximately $5,200,000 was paid upon the closing of the Offer and
approximately $2,600,000 will be paid upon completion of the Merger. The
$5,200,000 that was paid upon the closing of the Offer was provided to Purchaser
as equity financing by Kohlberg Fund IV and other investors. In addition,
approximately $9,000,000 was paid to fully redeem the Subordinated Notes,
including accrued interest, and approximately $6,300,000 was paid to fully
redeem the outstanding Preference Shares, of which $1,800,000 is committed to be
reinvested in the Company by certain holders of the Preference Shares in the
form of a subordinated note. The remaining funding of $3,700,000 will be paid to
cover fees and expenses of the transaction, including bank fees. Additional fees
totaling approximately $4,000,000, including approximately $3,000,000 to be paid
to affiliates of Kohlberg Fund IV, were deferred at the time of the closing of
the Offer and will be paid from working capital or borrowings under the Loan
Agreement.
The Loan Agreement provides for two term loans totaling $22 million and $27
million ("Term Loan A" and "Term Loan B," respectively) and a revolving credit
line with a maximum availability of $58 million, subject to a borrowing base
limitation based on receivables. Borrowings under the Loan Agreement are secured
by all of the receivables, inventory, and real and personal property of the
Company and certain of its subsidiaries. The interest rates on funds borrowed
under the revolving credit line of the Loan Agreement is either LIBOR pus 3.00%
or the prime rate plus 1.5%. The interest rates on Term Loan A and Term Loan B
are the prime rate plus 2.00%, and 8.25%, respectively.
PLANS FOR THE COMPANY AFTER THE RECAPITALIZATION TRANSACTIONS
It is expected that, following the Recapitalization Transactions, the
operations and business of the Company will be conducted substantially as they
are currently conducted. None of the Company, Parent or Purchaser has any
present plans or proposals that relate to or would result in an extraordinary
corporate transaction involving the Company's corporate structure, business or
management, such as a merger, reorganization, liquidation, relocation of any
operations or sale or transfer of a material amount of assets. However, the
Company, Parent and Purchaser will continue to evaluate the Company's business
and operations after the Merger from time to time, and may develop new plans and
proposals which they consider to be in the best interest of the Company and its
stockholders.
21
APPRAISAL RIGHTS
If the Merger occurs, holders of Company Common Stock who follow the
procedures for asserting and perfecting appraisal rights specified in Section
262 of the DGCL will be entitled to receive the appraised "fair value" of their
Shares instead of the Merger Consideration. The "fair value" could be greater
than, less than or the same as the Merger Consideration. The following summary
is qualified in its entirety by Section 262, a copy of which is attached as
Annex B to this proxy statement and incorporated herein by this reference.
Stockholders should carefully review Section 262 as well as the information
discussed below.
A stockholder who wishes to exercise appraisal rights under Section 262
must do all of the following:
- The stockholder must deliver a written demand for appraisal to the
Company, which must reasonably inform the Company of the identity of the
stockholder and that the stockholder is demanding appraisal. The demand
must be delivered before the vote is taken at the Special Meeting and
must be in addition to and separate from any proxy or vote against
adopting the Merger Agreement. Neither voting against, abstaining from
voting nor failing to vote on the adoption of the Merger Agreement will
constitute a valid demand for appraisal within the meaning of Section
262.
- The stockholder must not vote in favor of adopting the Merger Agreement.
Failing to vote or abstaining from voting will satisfy this requirement.
However, voting for adoption of the Merger Agreement, whether by proxy or
in person, or returning a signed proxy that does not specify an
abstention or a vote against adoption of the Merger Agreement, will
constitute a vote in favor of the Merger Agreement, a waiver of appraisal
rights, and will nullify any written demand for appraisal.
- The stockholder must continuously hold the Shares of record until the
completion of the Merger.
All written demands for appraisal should be delivered to Applied Graphics
Technologies, Inc., 450 West 33rd Street, New York, New York 10001, Attention:
Corporate Secretary, before the vote is taken at the Special Meeting. The
written demand must be executed by or for the record holder of Shares as the
holder's name appears on the certificate(s) for the Shares. If the Shares are
owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, the demand must be executed by the fiduciary in that capacity, and if
the Shares are owned of record by more than one person, such as in a joint
tenancy or tenancy in common, the demand must be executed by or for all joint
owners. An authorized agent, including one of two or more joint owners, may
execute the demand for appraisal for a holder of record; however, the agent must
identify the record owner(s) and expressly disclose the fact that, in executing
the demand, the agent is acting as agent for the record owner(s).
A beneficial owner who desires appraisal of Shares held in "street name" by
a bank, broker or other nominee holder should take appropriate actions to ensure
that the nominee holder makes a timely and proper demand for appraisal. Shares
held through brokerage firms, banks and other financial institutions are
frequently deposited with and held of record in the name of a nominee of a
central security depository, such as Cede & Co. Beneficial owners who hold
Shares through a brokerage firm, bank or other nominee holder are responsible
for ensuring that the demand for appraisal is timely made by the record holder.
The beneficial holder of the Shares should instruct the nominee holder that the
demand for appraisal should be made by the record holder of the Shares (which
may be the nominee of a central security depository if the Shares have been so
deposited).
A record holder, such as a bank, broker, fiduciary, depository or other
nominee, who holds Shares as a nominee for others, may exercise appraisal rights
with respect to the Shares held for all or less than all beneficial owners of
the Shares as to which the person is the record owner. In that case, the written
demand must specify the number of Shares covered by the demand. If the number of
Shares is not expressly stated, the demand will be presumed to cover all Shares
outstanding in the name of the record owner.
Within ten days after the Merger, the Company will give written notice of
the date of the Merger to each stockholder who has properly demanded appraisal
and satisfied the requirements of Section 262. These people are referred to as
"dissenting stockholders." Within 120 days after the Merger, the Company or any
dissenting stockholder may file a petition in the Delaware Court of Chancery
demanding a determination of the fair value
22
of the shares held by all dissenting stockholders. The Company has no obligation
to, and does not presently intend, to file such a petition. Accordingly, it is
the obligation of the dissenting stockholders to initiate all necessary actions
to perfect appraisal rights within the time prescribed by Section 262.
If a petition for appraisal is timely filed, the court will determine which
stockholders are entitled to appraisal rights and will determine the fair value
of the Shares held by dissenting stockholders, exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, if any, to be paid on the fair value. In determining fair
value, the court will take into account all relevant factors. The Delaware
Supreme Court has stated, among other things, that "proof of value by any
techniques or methods which are generally acceptable in the financial community
and otherwise admissible in court" should be considered in an appraisal
proceeding. In addition, Delaware courts have decided that the statutory
appraisal remedy may or may not be the stockholder's exclusive remedy in
connection with transactions such as the Merger, depending on the factual
circumstances. The court may determine fair value to be more than, less than or
equal to the consideration that the dissenting stockholder would otherwise be
entitled to receive pursuant to the Merger Agreement. The costs of the appraisal
proceeding shall be determined by the court and taxed against the parties as the
court determines to be equitable under the circumstances. Upon application of a
stockholder, the court may order all or a portion of the expenses incurred in
connection with the appraisal proceeding, including reasonable attorneys' fees
and the fees and expenses of experts, to be charged pro rata against the value
of all shares subject to appraisal.
From and after the completion of the Merger, no dissenting stockholder
shall have any rights of a stockholder for any purpose, except the right to
receive payment of the fair value determined by the court and to receive payment
of dividends or other distributions on the holder's Shares, if any, payable to
stockholders of record as of a date which is prior to the Effective Time. If a
dissenting stockholder delivers a written withdrawal of the demand for an
appraisal within 60 days after the completion of the Merger or subsequently with
the written approval of the Surviving Corporation, or, if no petition for
appraisal is filed within 120 days after the completion of the merger, then the
right of that dissenting stockholder to an appraisal will cease and the
dissenting stockholder will be entitled to receive only the merger consideration
for his or her Shares. Once a petition for appraisal is filed with the Delaware
court, the appraisal proceeding may not be dismissed as to any stockholder
without the approval of the court.
IF YOU WISH TO EXERCISE YOUR APPRAISAL RIGHTS, YOU MUST NOT VOTE IN FAVOR
OF THE ADOPTION OF THE MERGER AGREEMENT AND MUST STRICTLY COMPLY WITH THE
PROCEDURES SET FORTH IN SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW. IF
YOU FAIL TO TAKE ANY REQUIRED STEP IN CONNECTION WITH THE EXERCISE OF APPRAISAL
RIGHTS, IT WILL RESULT IN THE TERMINATION OR WAIVER OF THESE RIGHTS.
23
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company Common Stock as of the date of this Proxy Statement by
(i) each person who is known by the Company to own beneficially more than five
percent (5%) of the outstanding Shares, (ii) each of the Company's directors,
(iii) the Chief Executive Officer and each of the four other most highly
compensated executive officers of the Company in fiscal year 2002 (the "Named
Executive Officers") and (iv) all directors and officers of the Company as a
group. Unless otherwise indicated, the mailing address of each of the persons
shown is c/o Applied Graphics Technologies, 450 West 33rd Street, New York, New
York 10001.
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER OWNED(1) OWNED(2)
---------------- ------------ ------------
KAGT Acquisition Corp.
KAGT Holdings, Inc.
111 Radio Circle
Mt. Kisco, NY 10549....................................... 6,081,145(3) 66.5%
David M. Knott.............................................. 470,000(4) 5.1
485 Underhill Boulevard, Suite 205
Syosset, NY 11791
Directors
Samuel Frieder............................................ 0(5) *
John Harris............................................... 0 *
James Kohlberg............................................ 0(5) *
Christopher Lacovara...................................... 0(5) *
David Parker.............................................. 0 *
Gordon Woodward........................................... 0(5) *
John Zuccotti............................................. 0 *
Named Executive Officers
Fred Drasner.............................................. 0 *
Joseph D. Vecchiolla...................................... 0 *
Martin D. Krall........................................... 0
Marne Obernauer, Jr....................................... 0 *
Kenneth G. Torosian....................................... 0 *
All Executive Officers and Directors as a Group (12
persons).................................................. 0(5) *
---------------
* Less than 1% of the outstanding Company Common Stock.
(1) Except as otherwise noted, the Company believes that the persons named in
the table have sole voting and investment power with respect to the Shares
set forth opposite such persons' name.
(2) Determined on the basis of 9,147,565 Shares outstanding as of July 31, 2003.
(3) As reported on a Schedule TO Tender Offer Statement dated August 8, 2003 as
filed by the Purchaser and Parent. KAGT Acquisition Corp. is the direct
beneficial owner of 6,081,145 Shares, and KAGT Holdings, Inc., as the sole
stockholder of KAGT Acquisition Corp., may be deemed to indirectly
beneficially own such shares.
(4) As reported on a Schedule 13G dated June 11, 2003 by David M. Knott.
(5) Does not include 6,081,145 Shares beneficially owned by the Purchaser, which
such Directors of the Company may be deemed to beneficially own by virtue of
their positions with Parent. Each of Samuel Frieder, James Kohlberg,
Christopher Lacovara and Gordon Woodward disclaim any such beneficial
ownership.
24
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the Merger, Company stockholders should be aware that the
executive officers and directors of the Company have interests in the Merger
that may be considered different from, or in addition to, the interests of
stockholders of the Company generally. These interests are discussed below.
STOCK OPTIONS
The Merger Agreement provides that the Board of Directors of the Company
(or, if appropriate, any committee administering the Company Stock Plans (as
defined below)) shall adopt such resolutions or take such other actions as are
required to provide notice to holders of Company stock options required under
the terms of any Company Stock Plans and to adjust the terms of all outstanding
Company stock options to provide that, after giving effect to the actions taken
by the Board of Directors of the Company under the Company Stock Plans, such
Company stock option will be exercisable at the time of the first acceptance for
payment of Shares pursuant to the Offer (the "Exercisable Options"), and to
further provide that each such Exercisable Option outstanding at the time of the
first acceptance for payment of Shares pursuant to the Offer shall be canceled
in exchange for a cash payment by the Company as soon as practicable following
the first acceptance for payment of Shares pursuant to the Offer of an amount
equal to (i) the excess, if any, of (x) $0.85 over (y) the exercise price per
Share subject to such Exercisable Option, multiplied by (ii) the number of
Shares for which such Exercisable Option shall not therefore have been
exercised. The Company will be responsible for any required reporting to
Federal, state or local tax authorities.
The Company has agreed to use its commercially reasonable efforts to obtain
all consents of the holders of Company stock options as shall be necessary to
effectuate the foregoing. At Parent's request, payment may be withheld in
respect of any Company stock option until all necessary consents with respect to
such Company stock option are obtained.
The Merger Agreement provides that the Company Stock Plans shall terminate
as of the Effective Time, and the provisions in any other Company benefit plan
providing for the issuance, transfer or grant of any capital stock of the
Company or any interest in respect of any capital stock of the Company shall be
deleted as of the Effective Time, and the Company shall ensure that following
the Effective Time no holder of a Company Stock Option or any participant in any
Company Stock Plan or other Company Benefit Plan shall have any right thereunder
to acquire any capital stock of the Company or the Surviving Corporation in the
Merger.
As used in the Merger Agreement, "Company Stock Plans" means the Applied
Graphics Technologies, Inc. 1996 Stock Option Plan, the Applied Graphics
Technologies, Inc. 1998 Incentive Compensation Plan, as amended and restated,
and the Applied Graphics Technologies, Inc. Non-Employee Directors Non-Qualified
Stock Option Plan and all agreements under which there are outstanding options
to purchase Shares granted to employees, consultants, or any other person.
INDEMNIFICATION AND INSURANCE
Parent and the Purchaser have agreed in the Merger Agreement that Parent
shall, to the fullest extent permitted by law, cause the Company (from and after
the date on which the directors of the Company designated by Parent or Purchaser
are elected and constitute a majority of the Board of Directors (the "Control
Date")) and the surviving corporation in the Merger (from and after the
Effective Time) to honor all the Company's obligations to indemnify, defend and
hold harmless the current and former directors and officers of the Company and
its subsidiaries for acts or omissions by any such directors and officers
occurring prior to the Effective Time to the maximum extent that such
obligations of the Company exist on the date of the Merger Agreement, whether
pursuant to the Company's charter, the Company's by-laws, the DGCL or otherwise,
and such obligations shall survive the Merger and shall continue in full force
and effect in accordance with the terms of the Company's charter, the Company's
by-laws and the DGCL from the Effective Time until the expiration of the
applicable statute of limitations with respect to any claims against such
directors or officers arising out of such acts or omissions. In the event a
current or former director or officer of the Company or any of its subsidiaries
is entitled to indemnification under the foregoing provision of
25
the Merger Agreement, such director or officer shall be entitled to
reimbursement from the Company or the Surviving Corporation (from and after the
Effective Time) for reasonable attorney fees and expenses incurred by such
director or officer in pursuing such indemnification, including payment of such
fees and expenses by the Surviving Corporation or the Company, as applicable, in
advance of the final disposition of such action upon receipt of an undertaking
by such current or former director or officer to repay such payment unless it
shall be adjudicated that such current or former director or officer was
entitled to such payment.
The Merger Agreement also provides that from and after the Control Date for
a period of six years after the Effective Time, Parent shall cause to be
maintained in effect the current policies of directors' and officers' liability
insurance maintained by the Company (provided that Parent may either (i)
substitute therefor policies with reputable and financially sound carriers or
(ii) maintain self insurance or similar arrangements through a financially sound
insurance affiliate of Parent, in each case of at least the same coverage and
amounts containing terms and conditions which are no less advantageous) with
respect to claims arising from or related to facts or events which occurred at
or before the Effective Time; provided, however, that during such six-year
period, Parent shall not be obligated to make aggregate premium payments for
such insurance to the extent such premiums exceed $1,300,000 (the "Maximum
Premium"). If such insurance coverage cannot be obtained at all, or can only be
obtained at an aggregate premium in excess of the Maximum Premium, Parent shall
maintain the most advantageous policies of directors' and officers' insurance
obtainable for an aggregate premium equal to the Maximum Premium.
The Company has agreed in the Merger Agreement to maintain, through the
Effective Time, the Company's existing directors' and officers' insurance in
full force and effect without reduction of coverage.
CHANGE OF CONTROL AND TERMINATION OF EMPLOYMENT AGREEMENTS
In January 2003, the Company entered into an employment agreement with Mr.
Drasner to serve as Chief Executive Officer. Pursuant to such employment
agreement, Mr. Drasner is to receive an annual base salary of $750,000. In
addition, Mr. Drasner is eligible to receive a bonus for each year during the
term of his employment agreement in accordance with the Company's Management
Incentive Plan and such other bonuses that may be approved by the Board of
Directors in its sole discretion. The term of the agreement is through January
30, 2005. Pursuant to the agreement, Mr. Drasner performs his duties on a
part-time basis, and is required to devote approximately the same portion of his
business efforts to the performance of his duties as he has devoted to his
duties to the Company since it became a public company in 1996. Mr. Drasner's
agreement contains a noncompete provision applicable during the term and extends
for a period of two years following termination of Mr. Drasner's employment,
except that such period shall be reduced to six months in the event the Company
terminates Mr. Drasner's employment other than for Cause or Mr. Drasner
terminates his employment for Good Reason (as such terms are defined in the
employment agreement). The agreement also contains a nonsolicitation provision
applicable during the term and for two years after termination of Mr. Drasner's
employment with the Company, except that such period shall be reduced to six
months in the event the Company terminates Mr. Drasner's employment other than
for Cause or Mr. Drasner terminates his employment for Good Reason. Pursuant to
Mr. Drasner's employment agreement, in the event the Company terminates his
employment, other than for Cause, or if Mr. Drasner terminates his employment
with the Company for Good Reason, the Company is required to pay Mr. Drasner the
sum of (i) his base salary for a period of two years following such termination
and (ii) the aggregate amount by which all then unvested stock options are in
the money on the date of termination (less the applicable exercise prices of the
stock options). The Board of Directors, as constituted since August 4, 2003, has
informed Mr. Drasner that a search for a new full-time Chief Executive Officer
to replace Mr. Drasner, who has been performing such duties on a part-time
basis, has been initiated, and he is no longer serving in that capacity.
However, the Board of Directors has discussed with Mr. Drasner continuing with
the Company as Chairman of the Board.
In January 2003, the Company entered into an employment agreement with Mr.
Vecchiolla to serve as President and Chief Operating Officer. Pursuant to such
employment agreement, Mr. Vecchiolla is to receive an annual base salary of
$560,000. In addition, Mr. Vecchiolla is eligible to receive a bonus for each
year during the term of his employment agreement in accordance with the
Company's Management Incentive
26
Plan. The term of the agreement is through January 15, 2005. Mr. Vecchiolla's
agreement contains a noncompete provision applicable during the term and extends
for a period of two years, except that such period shall be reduced to six
months in the event the Company terminates Mr. Vecchiolla's employment other
than for Cause or Mr. Vecchiolla terminates his employment for Good Reason (as
such terms are defined in the employment agreement). The agreement also contains
a nonsolicitation provision applicable during the term and for two years after
termination of Mr. Vecchiolla's employment with the Company, except that such
period shall be reduced to six months in the event the Company terminates Mr.
Vecchiolla's employment other than for Cause or Mr. Vecchiolla's terminates his
employment for Good Reason. Pursuant to Mr. Vecchiolla's employment agreement,
in the event the Company terminates his employment, other than for Cause, or if
Mr. Vecchiolla terminates his employment with the Company for Good Reason, the
Company is required to pay Mr. Vecchiolla the sum of (i) his base salary for a
period of 18 months following such termination and (ii) the aggregate amount by
which all then unvested stock options are in the money on the date of
termination (less the applicable exercise prices of the stock options).
In January 2003, the Company entered into an employment agreement with Mr.
Krall to serve as Executive Vice President and the Chief Legal Officer. Pursuant
to such employment agreement, Mr. Krall is to receive an annual base salary of
$375,000. In May, 2003, Mr. Krall's employment agreement was amended to increase
his annual base salary to $450,000. In addition, Mr. Krall is eligible to
receive a bonus for each year during the term of his employment agreement in
accordance with the Company's Management Incentive Plan and such other bonuses
that may be approved by the Board of Directors in its sole discretion. The term
of the agreement is through January 30, 2005. Pursuant to the agreement, Mr.
Krall performs his duties on a part-time basis, and is required to devote
approximately the same portion of his business efforts to the performance of his
duties as he has devoted to his duties to the Company since it became a public
company in 1996. Mr. Krall's agreement contains a noncompete provision
applicable during the term and extends for a period of two years, except that
such period shall be reduced to six months in the event the Company terminates
Mr. Krall's employment other than for Cause or Mr. Krall terminates his
employment for Good Reason (as such terms are defined in the employment
agreement). The agreement also contains a nonsolicitation provision applicable
during the term and for two years after termination of Mr. Krall's employment
with the Company, except that such period shall be reduced to six months in the
event the Company terminates Mr. Krall's employment other than for Cause or Mr.
Krall terminates his employment for Good Reason. Pursuant to Mr. Krall's
employment agreement, in the event the Company terminates his employment, other
than for Cause, or if Mr. Krall terminates his employment with the Company for
Good Reason, the Company is required to pay Mr. Krall (i) the sum of his base
salary for a period of two years following such termination and (ii) the
aggregate amount by which all then unvested stock options are in the money on
the date of termination (less the applicable exercise prices of the stock
options).
In January 2003, the Company entered into an employment agreement with
Kenneth Torosian to serve as the Chief Financial Officer and Senior Vice
President. Pursuant to such employment agreement, Mr. Torosian is to receive an
annual base salary of $300,000. In addition, Mr. Torosian is eligible to receive
a bonus for each year during the term of his employment agreement in accordance
with the Company's Management Incentive Plan. The term of the agreement is
through January 30, 2005. Mr. Torosian's agreement contains a noncompete
provision applicable during the term and extends for a period of twelve months,
except that such period shall be reduced to six months in the event the Company
terminates Mr. Torosian's employment other than for Cause or Mr. Torosian
terminates his employment for Good Reason (as such terms are defined in the
employment agreement). The agreement also contains a nonsolicitation provision
applicable during the term and for twelve months after termination of Mr.
Torosian's employment with the Company, except that such period shall be reduced
to six months in the event the Company terminates Mr. Torosian's employment
other than for Cause or Mr. Torosian terminates his employment for Good Reason.
Pursuant to Mr. Torosian's employment agreement, in the event the Company
terminates his employment, other than for Cause, or if Mr. Torosian terminates
his employment with the Company for Good Reason, the Company is required to pay
Mr. Torosian (i) the sum of his base salary for a period of one year following
such termination and (ii) the aggregate amount by which all then unvested stock
options are in the money on the date of termination (less the applicable
exercise prices of the stock options). On August 11, 2003, Mr. Torosian entered
into a Release and Covenant Not to Sue (the "Release Agreement") pursuant to
which Mr. Torosian will receive certain
27
severance payments in addition to those contemplated by his employment
agreement. Under the Release Agreement, Mr. Torosian received $50,000 upon his
termination on September 5, 2003 and, provided that he is making reasonable
efforts to secure employment, he will receive, for the six month period
beginning one year from his termination, the monthly amount by which the base
salary under his current employment agreement exceeds what he is then earning in
base salary, guaranteed bonus or other distributions or payments. As of August
15, 2003, Mr. Torosian ceased being the Chief Financial Officer and the Senior
Vice President of the Company.
STOCKHOLDER AGREEMENT
All of the shares of Parent outstanding since the closing of the Offer have
been and, immediately after the Merger will continue to be, subject to the terms
of a stockholder agreement (the "Stockholder Agreement") among Parent and all of
the holders of shares of common stock of Parent. The terms of the Stockholder
Agreement are described below:
- Restrictions on transfers of shares of Parent without the written consent
of other holders;
- If Kohlberg IV or any affiliate of Kohlberg IV who becomes a stockholder
of Parent ("Kohlberg Holders") determines to sell a portion of their
shares of Parent, other stockholders of Parent have the right to
participate in the sale by selling a percentage of their interest equal
to the percentage the Kohlberg Holders are selling;
- If any Kohlberg Holder determines to sell a portion of the shares of
Parent, then at the election of such Kohlberg Holder each of the other
stockholders of Parent will be required to sell the same proportion of
their stock as the initiating Kohlberg Holder on the same terms and
conditions;
- Parent may not issue any new shares to any Kohlberg Holder or any
affiliate of a Kohlberg Holder without offering each other Parent
stockholder the right to purchase a pro-rata share of such offering; and
- Parent stockholders will have registration rights with respect to their
shares subject to certain qualifying events and size requirements.
In the event that Parent shall merge with and into the Company, with the
Company being the surviving entity, the Stockholder Agreement will become the
Stockholder Agreement of the Company.
MANAGEMENT AGREEMENT
On August 4, 2003, the Company entered into a Management Agreement (the
"Management Agreement") with Kohlberg & Company, L.L.C. ("Kohlberg"), a limited
liability company affiliated with Messrs. Kohlberg, Frieder, Lacovara and
Woodward. Under the Management Agreement, Kohlberg provides such advisory and
management services to the Company as requested by the Board of Directors of the
Company. In consideration for these services, the Company pays Kohlberg an
annual management fee of $500,000 and reimburses Kohlberg for out-of-pocket
expenses.
PARENT OPTION PLAN
Parent has advised the Company of its intention to establish a stock option
plan for the grant to members of the management of the Surviving Corporation of
options to purchase common shares of Parent. The specific terms of such plan
have not been determined at this time.
INFORMATION ABOUT APPLIED GRAPHICS TECHNOLOGIES, INC.
SELECTED FINANCIAL DATA
Set forth below is certain selected financial information with respect to
the Company and its subsidiaries excerpted from the information contained in the
Company's annual reports on Form 10-K for the years ended
28
December 31, 2002 and 2001, and quarterly reports on Form 10-Q for the quarters
ended June 30, 2003 and 2002. More comprehensive financial information is
included in such reports and other documents filed by the Company with the
Commission, and the following summary is qualified in its entirety by reference
to such reports, other documents and all the financial information (including
any related notes) contained therein. Such reports and other documents should be
available for inspection and copies thereof should be obtainable in the manner
set forth below under "Available Information."
SIX MONTHS ENDED
YEAR ENDED AS OF DECEMBER 31, JUNE 30,
-------------------------------- ---------------------
2000 2001 2002 2002 2003
--------- -------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF
OPERATIONS:
Total revenues...................... $ 566,540 $468,288 $ 423,856 $ 204,454 $ 196,832
Income (loss) from continuing
operations before provision
(benefit) for income taxes and
minority interest................. 12,812 (58,846) (75,239) (6,135) (3,254)
Provision (benefit) for income
taxes............................. 12,454 (10,056) (643) (486) (1,139)
Net loss............................ (100,525) (50,000) (410,957) (340,560) (1,908)
Net loss per share.................. (11.12) (5.51) (45.02) (37.39) (0.21)
CONSOLIDATED BALANCE SHEET DATA:
Total current assets................ 210,964 175,820 133,402 136,590 132,477
Total assets........................ 722,233 656,483 203,582 287,317 189,624
Total current liabilities........... 128,289 123,384 121,108 286,038 215,643
Total liabilities................... 376,945 359,003 312,899 327,688 300,109
Total stockholders' equity
(deficit)......................... 308,704 258,704 (151,362) (80,682) (189,624)
PRICE RANGE
The Shares are listed on The American Stock Exchange (the "Exchange") under
the symbol "AGD". Prior to April 2001, the Shares were traded on the Nasdaq
National Market (NASDAQ symbol AGTX). The following table sets forth, for each
of the periods indicated, the high and low sales prices per Share.
HIGH LOW
----- -----
Year Ended December 31, 2001:
First Quarter............................................. $4.69 $2.94
Second Quarter............................................ 3.19 1.20
Third Quarter............................................. 1.80 0.51
Fourth Quarter............................................ 0.75 0.25
Year Ended December 31, 2002:
First Quarter............................................. $0.68 $0.42
Second Quarter............................................ 1.85 0.40
Third Quarter............................................. 0.69 0.37
Fourth Quarter............................................ 0.79 0.35
Year Ending December 31, 2003:
First Quarter............................................. $0.63 $0.42
Second Quarter............................................ 0.84 0.42
Third Quarter (through September 5, 2003)................. 0.80 1.09
On June 12, 2003, the last full trading day before the public announcement
of the execution of the Merger Agreement, the last reported sales price on the
Exchange of the Shares was $0.50 per Share. On September 5, 2003, the last
reported sales price on the Exchange of the Shares was $0.95 per Share.
29
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES.
The Company received notification from the Exchange in February 2003 that
the Company was not in compliance with certain listing standards of the Exchange
relating to stockholders' equity and net losses. In March 2003, the Company
submitted a plan to the Exchange setting forth the steps the Company intends to
take in order to regain compliance with the listing standards. In May 2003, the
Exchange notified the Company that it had accepted the Company's proposed plan
and granted the Company an extension to September 30, 2004, to regain compliance
with the Exchange's continued listing standards. During such period, the Company
Common Stock will continue to trade on the Exchange, but the Company will be
subject to periodic review by the Exchange staff and will be required to make
progress consistent with its plan.
DIVIDENDS
The Company has not declared or paid any dividends on the Shares since
April 17, 1996.
MISCELLANEOUS
OTHER MATTERS
Management knows of no other business to be presented at the Special
Meeting.
STOCKHOLDER PROPOSALS FOR THE 2004 ANNUAL MEETING
The Company will hold its 2004 annual meeting of its stockholders in
accordance with the rules of the Commission only if the Merger is not
consummated. In the event that the 2004 annual meeting is held, pursuant to the
rules of the Commission, in order for the stockholder proposals to be included
in the Company's proxy statement and proxy for the 2004 annual meeting of
stockholders, such proposals must be received by the Secretary of the Company at
the Company's principal office in New York City no later than December 31, 2003.
Any stockholder proposal not included in the proxy materials disseminated
by the management of the Company for the Company's 2004 annual meeting in
accordance with Rule 14a-8 under the Exchange Act will be considered untimely
for the purposes of Rules 14a-4 and 14a-5 under the Exchange Act if notice for
the proposal is received after March 15, 2004. Management proxies will be
authorized to exercise discretionary voting authority with respect to any
stockholder proposal not included in such proxy materials for the Company's
annual meeting unless (a) the Company receives notice of such proposal by the
date set forth above and (b) the conditions set forth in Rule
14a-4(c)(2)(i)-(iii) under the Exchange Act are met.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company (File No.
000-16937) with the Commission are incorporated by reference in this Proxy
Statement:
- The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002, previously filed with the Commission on April 15,
2003;
- The Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2003, previously filed with the Commission on May 15,
2003;
- The Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2003, previously filed with the Commission on August 14,
2003; and
- The Company's Current Reports on Form 8-K, previously filed with the
Commission on May 16, 2003, August 5, 2003 and August 20, 2003.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof and prior
to the date of the Special Meeting shall be deemed to be incorporated by
reference herein and shall be a part hereof from the date of filing of such
documents.
30
Any statements contained in a document incorporated by reference herein or
contained in this Proxy Statement 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 which also is incorporated by reference
herein) modified or superseded such statement. Any statement so modified or
superseded shall not be deemed to constitute a part hereof except as so modified
or superseded.
This Proxy Statement incorporates documents by reference that are not
presented in or delivered with this Proxy Statement. You can obtain any of the
documents incorporated by reference in this document from the Commission's web
site, as set forth below. These documents are also available, without charge,
excluding any exhibits to those documents unless the exhibit is specifically
incorporated by reference as an exhibit to this Proxy Statement, upon request
from Applied Graphics Technologies, Inc., 450 West 33rd Street, New York, New
York 10001, telephone number (212) 716-6600. In order to ensure timely delivery
before the meeting, any request should be made by September 30, 2003. Please be
sure to include your complete name and address in your request. If you request
any incorporated documents, we will mail them to you by first class mail or
another equally prompt means, within one business day after we receive your
request.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, is required to file reports and other
information with the Commission relating to its business, financial condition
and other matters. Certain information as of particular dates concerning the
Company's directors and officers, their remuneration, stock options and other
matters, the principal holders of the Company's securities and any material
interest of such persons in transactions with the Company is required to be
disclosed in the Company's proxy statements distributed to the Company's
stockholders and filed with the Commission. Such reports, proxy statements and
other information should be available for inspection at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, DC 20549.
Copies of such information should be obtainable, by mail, upon payment of the
Commission's customary charges, by writing to the Commission's principal office
at 450 Fifth Street, N.W., Washington, DC 20549. The Commission also maintains a
Web site on the Internet at http: //www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. Such information should also be on file at
The American Stock Exchange, 86 Trinity Place, New York, NY 10006.
31
ANNEX A
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
AMONG
KAGT HOLDINGS, INC.,
KAGT ACQUISITION CORP.
AND
APPLIED GRAPHICS TECHNOLOGIES, INC.
DATED AS OF JUNE 12, 2003
A-1
TABLE OF CONTENTS
ARTICLE I The Offer and the Merger.......................... A-8
SECTION 1.01. The Offer................................... A-8
SECTION 1.02. Company Actions............................. A-9
SECTION 1.03. The Merger.................................. A-10
SECTION 1.04. Closing..................................... A-10
SECTION 1.05. Effective Time.............................. A-10
SECTION 1.06. Effects..................................... A-10
SECTION 1.07. Certificate of Incorporation and By-laws.... A-10
SECTION 1.08. Directors................................... A-11
SECTION 1.09. Officers.................................... A-11
ARTICLE II Effect on the Capital Stock of the Constituent
Corporations; Exchange of Certificates.................... A-11
SECTION 2.01. Effect on Capital Stock..................... A-11
SECTION 2.02. Exchange of Certificates.................... A-12
ARTICLE III Representations and Warranties of the Company... A-13
SECTION 3.01. Organization, Standing and Power............ A-13
SECTION 3.02. Company Subsidiaries; Equity Interests...... A-13
SECTION 3.03. Capital Structure........................... A-14
SECTION 3.04. Authority; Execution and Delivery;
Enforceability......................................... A-15
SECTION 3.05. No Conflicts; Consents...................... A-15
SECTION 3.06. SEC Documents; Undisclosed Liabilities...... A-16
SECTION 3.07. Information Supplied........................ A-17
SECTION 3.08. Absence of Certain Changes or Events........ A-17
SECTION 3.09. Taxes....................................... A-18
SECTION 3.10. Absence of Changes in Benefit Plans......... A-19
SECTION 3.11. ERISA Compliance; Excess Parachute
Payments............................................... A-19
SECTION 3.12. Litigation.................................. A-21
SECTION 3.13. Compliance with Applicable Laws............. A-21
SECTION 3.14. Contracts................................... A-21
SECTION 3.15. Intellectual Property....................... A-22
SECTION 3.16. Certain Notes Receivable.................... A-23
SECTION 3.17. Environmental Matters....................... A-23
SECTION 3.18. Insurance................................... A-24
SECTION 3.19. Title to Properties; Absence of Liens and
Encumbrances........................................... A-24
SECTION 3.20. Transactions with Affiliates................ A-24
SECTION 3.21. Customers................................... A-24
SECTION 3.22. State Takeover Statutes; Company Rights
Agreement.............................................. A-25
SECTION 3.23. Brokers; Schedule of Fees and Expenses...... A-25
ARTICLE IV Representations and Warranties of Parent and
Sub....................................................... A-25
SECTION 4.01. Organization, Standing and Power............ A-25
SECTION 4.02. Sub......................................... A-25
SECTION 4.03. Authority; Execution and Delivery;
Enforceability......................................... A-25
SECTION 4.04. No Conflicts; Consents...................... A-26
SECTION 4.05. Information Supplied........................ A-26
A-2
SECTION 4.06. Brokers..................................... A-26
SECTION 4.07. Financing................................... A-27
ARTICLE V Covenants Relating to Conduct of Business......... A-27
SECTION 5.01. Conduct of Business......................... A-27
SECTION 5.02. No Solicitation............................. A-29
SECTION 5.03. Recapitalization Transactions............... A-30
ARTICLE VI Additional Agreements............................ A-31
SECTION 6.01. Preparation of Proxy Statement; Stockholders
Meeting................................................ A-31
SECTION 6.02. Access to Information; Confidentiality...... A-31
SECTION 6.03. Reasonable Efforts; Notification............ A-32
SECTION 6.04. Stock Options............................... A-32
SECTION 6.05. Indemnification............................. A-33
SECTION 6.06. Fees and Expenses........................... A-34
SECTION 6.07. Public Announcements........................ A-35
SECTION 6.08. Transfer Taxes.............................. A-35
SECTION 6.09. Directors................................... A-36
SECTION 6.10. Stockholder Litigation...................... A-36
SECTION 6.11. Benefit Plans............................... A-36
ARTICLE VII Conditions Precedent............................ A-36
SECTION 7.01. Conditions to Each Party's Obligation To
Effect The Merger...................................... A-36
ARTICLE VIII Termination, Amendment and Waiver.............. A-37
SECTION 8.01. Termination................................. A-37
SECTION 8.02. Effect of Termination....................... A-38
SECTION 8.03. Amendment................................... A-39
SECTION 8.04. Extension; Waiver........................... A-39
SECTION 8.05. Procedure for Termination, Amendment,
Extension or Waiver.................................... A-39
ARTICLE IX General Provisions............................... A-39
SECTION 9.01. Nonsurvival of Representations and
Warranties............................................. A-39
SECTION 9.02. Notices..................................... A-39
SECTION 9.03. Definitions................................. A-40
SECTION 9.04. Interpretation; Disclosure Letters.......... A-41
SECTION 9.05. Severability................................ A-41
SECTION 9.06. Counterparts................................ A-41
SECTION 9.07. Entire Agreement; Third-Party
Beneficiaries.......................................... A-41
SECTION 9.08. Governing Law............................... A-41
SECTION 9.09. Assignment.................................. A-41
SECTION 9.10. Enforcement................................. A-41
SECTION 9.11. Consents.................................... A-42
A-3
GLOSSARY OF DEFINED TERMS
DEFINED TERM LOCATION OF DEFINITION
------------ ----------------------
2002 Form 10-K.............................................. Section 3.06
2003 SEC Documents.......................................... Section 3.06
affiliate................................................... Section 9.03
Agent....................................................... Recitals
Appraisal Provisions........................................ Section 2.01(d)
Appraisal Shares............................................ Section 2.01(d)
Certificate of Merger....................................... Section 1.05
Certificates................................................ Section 2.02(b)
Closing..................................................... Section 1.04
Closing Date................................................ Section 1.04
Code........................................................ Section 3.11(c)
Commitment Letters.......................................... Section 4.07
Company..................................................... Preamble
Company Benefit Plans....................................... Section 3.10
Company Board............................................... Section 3.04(b)
Company By-laws............................................. Section 3.01
Company Capital Stock....................................... Section 3.03
Company Charter............................................. Section 3.01
Company Common Stock........................................ Recitals
Company Credit Agreement.................................... Recitals
Company Credit Agreement Refinancing........................ Section 5.02(e)
Company Disclosure Letter................................... Section 3.02
Company Material Adverse Effect............................. Section 3.01
Company Material Contracts.................................. Section 3.14
Company Multi-employer Plan................................. Section 3.11(d)
Company Pension Plans....................................... Section 3.11(a)
Company Permits............................................. Section 3.13(b)
Company SEC Documents....................................... Section 3.06
Company Stock Option........................................ Section 6.04(e)
Company Stock Plans......................................... Section 6.04(e)
Company Stockholders Approval............................... Section 3.04(c)
Company Stockholders Meeting................................ Section 6.01(b)
Company Subsidiaries........................................ Section 3.01
Company Takeover Proposal................................... Section 5.02(e)
Company Warrants............................................ Section 3.03
Company Welfare Benefit Plans............................... Section 3.11(a)
Confidentiality Agreement................................... Section 6.02
Consent..................................................... Section 3.05(b)
Contract.................................................... Section 3.05(a)
Control Date................................................ Section 5.01(a)
Covered Person.............................................. Section 3.10
Debt Commitment Letter...................................... Section 4.07
DGCL........................................................ Section 1.03
A-4
DEFINED TERM LOCATION OF DEFINITION
------------ ----------------------
Effective Time.............................................. Section 1.05
Environmental Laws.......................................... Section 3.17(b)
Environmental Permits....................................... Section 3.17(a)
ERISA....................................................... Section 3.11(a)
Exchange Act................................................ Section 1.01(a)
Exchange Fund............................................... Section 2.02(a)
Exercisable Options......................................... Section 6.04(a)
Filed Company SEC Documents................................. Section 3.08
Financing................................................... Section 4.07
First Quarter 2003 10-Q..................................... Section 3.06
Fully Diluted Shares........................................ Exhibit A
Funding Failure............................................. Section 6.06(b)
GAAP........................................................ Section 3.06
Governmental Entity......................................... Section 3.05(b)
Hazardous Substances........................................ Section 3.17(b)
HSR Act..................................................... Section 3.05(b)
Independent Directors....................................... Section 6.10
Information Statement....................................... Section 3.05(b)
Intellectual Property Rights................................ Section 3.15(a)
In-the-Money Company Stock Options.......................... Section 3.03
Judgment.................................................... Section 3.05(a)
key employee................................................ Section 9.03
Law......................................................... Section 3.05(a)
Lenders..................................................... Recitals
Licensed Intellectual Property Rights....................... Section 3.15(d)
Liens....................................................... Section 3.02
Lock-Up Agreement........................................... Recitals
MAC Termination............................................. Section 6.06(b)
material adverse effect..................................... Section 9.03
Maximum Premium............................................. Section 6.05(b)
Merger...................................................... Recitals
Merger Consideration........................................ Section 2.01(c)(ii)
Minimum Tender Condition.................................... Exhibit A
Offer....................................................... Recitals
Offer Documents............................................. Section 1.01(e)
Outside Date................................................ Section 8.01(b)(i)
Owned Intellectual Property Rights.......................... Section 3.15(b)
Parent...................................................... Preamble
Parent Breach............................................... Section 6.06(b)
Parent Material Adverse Effect.............................. Section 4.01
Paying Agent................................................ Section 2.02(a)
person...................................................... Section 9.03
Preference Shares........................................... Preamble
A-5
DEFINED TERM LOCATION OF DEFINITION
------------ ----------------------
Primary Company Executives.................................. Section 3.11(e)
Principal Shareholders...................................... Recitals
Proxy Statement............................................. Section 3.05(b)
Recapitalization Transactions............................... Recitals
Representatives............................................. Section 5.02(a)
Schedule 14D-9.............................................. Section 1.02(b)
SEC......................................................... Section 1.01(a)
Securities Act.............................................. Section 3.06
Sub......................................................... Preamble
Subordinated Notes.......................................... Preamble
subsidiary.................................................. Section 9.03
Superior Company Proposal................................... Section 5.02(e)
Surviving Corporation....................................... Section 1.03
Surviving Corporation Common Stock.......................... Section 2.01(a)
Tax Return.................................................. Section 3.09(h)
Taxes....................................................... Section 3.09(h)
Tender Agreements........................................... Recitals
to the knowledge............................................ Section 9.03
Transfer Taxes.............................................. Section 6.08
Voting Company Debt......................................... Section 3.03
A-6
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of June 12, 2003, among KAGT
HOLDINGS, INC., a Delaware corporation ("Parent"), KAGT ACQUISITION CORP., a
Delaware corporation ("Sub") and a wholly owned subsidiary of Parent, and
APPLIED GRAPHICS TECHNOLOGIES, INC., a Delaware corporation (the "Company").
WHEREAS the respective Boards of Directors of Parent, Sub and the Company
have approved the acquisition of the Company by Parent on the terms and subject
to the conditions set forth in this Agreement;
WHEREAS, in furtherance of such acquisition, Parent proposes to cause Sub
to make a tender offer (as it may be amended from time to time as permitted
under this Agreement, the "Offer") to purchase all the outstanding shares of
common stock, par value $0.01 per share, of the Company (the "Company Common
Stock"), at a price per share of Company Common Stock of $0.85, net to the
seller in cash, on the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, concurrently with the execution and delivery of this Agreement,
and as a condition and inducement to Parent entering into this Agreement, each
of Applied Printing Technologies, L.P., Fleet National Bank, Fred Drasner,
Martin Krall, Joseph Vecchiolla, David Parker and Marne Obernauer, Jr.
(collectively, the "Principal Shareholders") has entered into a tender and
voting agreement, dated as of the date hereof (collectively, the "Tender
Agreements"), pursuant to which, among other things, each of the Principal
Shareholders has agreed to tender its shares of Company Common Stock to Sub in
the Offer.
WHEREAS the respective Boards of Directors of Parent, Sub and the Company
have approved the merger (the "Merger") of Sub into the Company on the terms and
subject to the conditions set forth in this Agreement, whereby each issued share
of Company Common Stock not owned directly by Parent or the Company, other than
Appraisal Shares (as defined in Section 2.01(d)), shall be converted into the
right to receive the highest per share cash consideration paid pursuant to the
Offer;
WHEREAS, in addition to the Offer and the Merger, contemporaneously with
the closing of the Offer (or, in the case of the transactions described in (ii)
and (iii) below, in the period as soon as possible following the closing of the
Offer), the Company and certain Company Subsidiaries shall close transactions
which will result in a recapitalization of the Company (the transactions in (i),
(ii) and (iii) collectively with the Offer and the Merger, the "Recapitalization
Transactions"), including:
(i) Sub and the lenders under the Debt Commitment Letter (as defined
in Section 4.07) purchasing, or lending the Company the money for the
Company to repay, at an agreed upon amount, all of the outstanding debt
under the Company's Second Amended and Restated Credit Agreement dated as
of April 15, 2003 (the "Company Credit Agreement") by and among the
Company, as borrower, Fleet National Bank, as Administrative Agent (the
"Agent") and the lenders named therein (the "Lenders"), at a price and
otherwise in accordance with the terms of a Lock-Up Agreement entered into
between certain affiliates of Sub, the Agent and the Lenders (the "Lock-Up
Agreement"),
(ii) the Company with funds provided from Sub or Parent repurchasing
through a tender offer and/or redemption all outstanding 10% Subordinated
Notes due 2005 of the Company (the "Subordinated Notes") effective in the
period as soon as possible following the closing of the Offer (provided
that the vote of the holders of Subordinated Notes required to effect such
redemption shall be effective upon the closing of the Offer), at a price
and otherwise on the terms set forth in the Notice of Noteholders' Meeting
in the form previously approved by Parent to be sent to the holders of such
notes, and
(iii) the Company causing its Wace Group Limited subsidiary, with
funds provided from Sub or Parent, to repurchase and/or redeem all
outstanding 8% Cumulative Convertible Redeemable Preference Shares (the
"Preference Shares") issued by the Company's Wace Group Limited subsidiary
(other than those Preference Shares held by Applied Graphics Technologies
(UK) Limited) effective in the period as soon as possible following the
closing of the Offer (provided that the vote of the holders of Preference
Shares required to effect such redemption and/or repurchase shall be
effective upon the closing of the
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Offer), at a price and otherwise on the terms set forth in the Notice of
Meeting in the form previously approved by Parent to be sent to the holders
of such shares; and
WHEREAS Parent, Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Offer and the Merger
and also to prescribe various conditions to the Offer and the Merger.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
THE OFFER AND THE MERGER
SECTION 1.01. The Offer.
(a) Commencement and Expiration of the Offer. Subject to the conditions of
this Agreement, as promptly as practicable after the date of this Agreement, but
in no event later than 10 business days after the initial public announcement of
the execution of this Agreement (which initial public announcement shall occur
no later than the second business day following the execution and delivery of
this Agreement), Sub shall, and Parent shall cause Sub to, commence the Offer
within the meaning of the applicable rules and regulations of the Securities and
Exchange Commission (the "SEC"). The obligation of Sub to, and of Parent to
cause Sub to, commence the Offer and accept for payment, and pay for, any shares
of Company Common Stock tendered pursuant to the Offer shall be subject to the
conditions set forth in Exhibit A. The initial expiration date of the Offer
shall be the 20th business day following the commencement of the Offer
(determined using Rules 14d-1(g)(3) and 14d-2 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")). Sub expressly reserves
the right to waive any condition to the Offer or modify the terms of the Offer,
except that, without the consent of the Company, Sub shall not and Parent shall
not permit Sub to (i) reduce the number of shares of Company Common Stock
subject to the Offer, (ii) reduce the price per share of Company Common Stock to
be paid pursuant to the Offer, (iii) waive or change the Minimum Tender
Condition (as defined in Exhibit A), (iv) modify in any manner adverse to the
holders of Company Common Stock or add to the conditions set forth in Exhibit A,
(v) except as provided in Section 1.01(b), extend the Offer or (vi) change the
form of consideration payable in the Offer.
(b) Sub's Ability to Extend the Offer. Notwithstanding the provisions of
Section 1.01(a), Sub may, without the consent of the Company, (A) if at the
scheduled or any extended expiration date of the Offer (whether extended
pursuant to this clause (A) or otherwise) any of the conditions to Sub's
obligation to purchase shares of Company Common Stock are not satisfied or
waived, extend the Offer for a period of up to five business days or such longer
period as Parent, Sub and the Company shall agree, (B) extend the Offer for any
period required by any rule, regulation, interpretation or position of the SEC
or the staff thereof applicable to the Offer and (C) if at the scheduled or any
extended expiration date of the Offer all of the conditions set forth in Exhibit
A have been satisfied or waived, Sub may extend the Offer pursuant to an
amendment to the Offer providing for a "subsequent offering period" not to
exceed twenty (20) business days to the extent permitted under, and in
compliance with, Rule 14d-11 under the Exchange Act in which event, in
accordance with Rule 14d-11, Sub will immediately accept for payment and
promptly pay for all shares of Company Common Stock tendered and not withdrawn.
(c) Company's Ability to Extend the Offer. In the event that the Minimum
Tender Condition has not been satisfied or waived at the scheduled expiration
date of the Offer, at the request of the Company, Sub shall, and Parent shall
cause Sub to, extend the expiration date of the Offer in such increments as Sub
may determine until the earliest to occur of (x) the satisfaction or waiver of
such condition, and (y) the Outside Date (as defined in Section 8.01(b)(i)).
(d) Payment Acceptance. On the terms and subject to the conditions of the
Offer and this Agreement, Parent shall cause Sub to accept for payment and pay
for all shares of Company Common Stock validly tendered and not withdrawn
pursuant to the Offer that Sub becomes obligated to purchase pursuant to the
Offer as soon as practicable after the expiration of the Offer.
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(e) SEC Filings. On the date of commencement of the Offer, Parent and Sub
shall file with the SEC a Tender Offer Statement on Schedule TO with respect to
the Offer, which shall contain an offer to purchase and a related letter of
transmittal and summary advertisement (such Schedule TO and the documents
included therein pursuant to which the Offer will be made, together with any
supplements or amendments thereto, the "Offer Documents"). Each of Parent, Sub
and the Company shall promptly correct any information provided by it for use in
the Offer Documents if and to the extent that such information shall have become
false or misleading in any material respect, and each of Parent and Sub shall
take all steps necessary to amend or supplement the Offer Documents and to cause
the Offer Documents as so amended or supplemented to be filed with the SEC and
to be disseminated to the Company's stockholders, in each case as and to the
extent required by applicable Federal securities laws. Parent and Sub shall give
the Company and its counsel a reasonable opportunity to review and comment on
the Offer Documents prior to their being filed with the SEC or disseminated to
the stockholders of the Company. Parent and Sub shall provide the Company and
its counsel in writing with any comments Parent, Sub or their counsel may
receive from the SEC or its staff with respect to the Offer Documents promptly
after the receipt of such comments and shall provide the Company and its counsel
with a reasonable opportunity to participate in the response of Parent or Sub to
such comments and provide copies of all such responses to the Company.
(f) Funding Obligations.
(1) Prior to the expiration of the Offer, Parent shall provide or
cause to be provided to Sub on a timely basis the funds necessary to
purchase any shares of Company Common Stock that Sub becomes obligated to
purchase pursuant to the Offer.
(2) If all conditions to the Offer have been satisfied and/or waived
and no event or circumstance exists such that the Offer shall not close,
simultaneously with the closing of the Offer, (A) Parent shall or shall
cause Sub to loan to the Company the funds necessary to (i) repurchase or
redeem all outstanding Subordinated Notes, (ii) repurchase or redeem all
outstanding Preference Shares, and (iii) pay for options cancelled in
accordance with Section 6.04(a), and (B) unless there has otherwise been a
breach by the Lenders of their obligations under the Lock-Up Agreement,
Parent shall either arrange for the lenders under the Debt Commitment
Letter and Sub to purchase all outstanding indebtedness under the Company
Credit Agreement on the terms and subject to the conditions set forth in
the Lock-Up Agreement or make funds available to the Company to repay the
outstanding indebtedness under the Company Credit Agreement on the terms
and subject to the conditions set forth in the Lock-Up Agreement. The loan
referenced in clause (A) shall be made on terms mutually acceptable to
Parent and the Company, provided that subject to the last sentence of this
clause (2), such loan shall be in the form of a demand note which shall not
be callable prior to the earlier of the Effective Time or August 31, 2003).
If, following the time the loans are made in accordance with this clause
(2) the Offer is not consummated for any reason, the loan referenced in
clause (A) shall be callable upon demand.
SECTION 1.02. Company Actions.
(a) Subject to Section 5.02(b), the Company hereby approves of and consents
to the Offer, the Merger and the other Recapitalization Transactions.
(b) On the date the Offer Documents are filed with the SEC, the Company
shall file with the SEC a Solicitation/Recommendation Statement on Schedule
14D-9 with respect to the Offer, including an Information Statement (such
Schedule 14D-9, as amended and supplemented from time to time, the "Schedule
14D-9"), describing the recommendations referred to in Section 3.04(b), or any
permitted withdrawal or modification in accordance with Section 5.02(b), and
shall mail the Schedule 14D-9 to the holders of Company Common Stock. Each of
the Company, Parent and Sub shall promptly correct any information provided by
it for use in the Schedule 14D-9 if and to the extent that such information
shall have become false or misleading in any material respect, and the Company
shall take all steps necessary to amend or supplement the Schedule 14D-9 and to
cause the Schedule 14D-9 as so amended or supplemented to be filed with the SEC
and disseminated to the Company's stockholders, in each case as and to the
extent required by applicable Federal securities laws. The Company shall provide
Parent and its counsel in writing with any
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comments the Company or its counsel may receive from the SEC or its staff with
respect to the Schedule 14D-9 promptly after the receipt of such comments.
(c) In connection with the Offer, the Company shall cause its transfer
agent to promptly furnish Sub with mailing labels containing the names and
addresses of the record holders of Company Common Stock as of a recent date and
of those persons becoming record holders subsequent to such date, together with
copies of all lists of stockholders, security position listings and computer
files and all other information as Sub may reasonably request in the Company's
possession or control regarding the beneficial owners of Company Common Stock,
and shall furnish to Sub such information (including updated lists of
stockholders, security position listings and computer files) as Parent may
reasonably request in communicating the Offer to the Company's stockholders.
Subject to the requirements of applicable Law (as defined in Section 3.05), and
except for such steps as are necessary to disseminate the Offer Documents and
any other documents necessary to consummate the Recapitalization Transactions,
Parent and Sub shall hold in confidence pursuant to the Confidentiality
Agreement (as defined in Section 6.02) the information contained in any such
labels, listings and files, shall use such information only for the purpose of
communicating the Offer and disseminating any other documents necessary to
consummate the Offer, the Merger and the other Recapitalization Transactions
and, if this Agreement shall be terminated, shall, upon request, deliver to the
Company all copies of such information then in their control.
SECTION 1.03. The Merger. On the terms and subject to the satisfaction or
waiver of the conditions set forth in this Agreement, and in accordance with the
Delaware General Corporation Law (the "DGCL"), Sub shall be merged with and into
the Company at the Effective Time (as defined in Section 1.05). At the Effective
Time, the separate corporate existence of Sub shall cease and the Company shall
continue as the surviving corporation (the "Surviving Corporation"). The
Surviving Corporation shall possess all the rights, privileges, immunities,
powers and franchises of the Company and Sub, and the Surviving Corporation
shall by operation of law become liable for all of the debts, liabilities and
duties of the Company and Sub. The name of the Surviving Corporation shall be
Applied Graphics Technologies, Inc. and the purpose thereof shall be as set
forth in Section 2 of the Certificate of Incorporation of the Surviving
Corporation. At the election of Parent, any direct or indirect wholly owned
subsidiary of Parent may be substituted for Sub as a constituent corporation in
the Merger. In such event, the parties shall execute an appropriate amendment to
this Agreement in order to reflect the foregoing.
SECTION 1.04. Closing. The closing (the "Closing") of the Merger shall
take place at the offices of Ropes & Gray, 45 Rockefeller Plaza, New York, NY
10111 at 10:00 a.m. on the second business day following the satisfaction (or,
to the extent permitted by Law, requisite waiver) of the conditions set forth in
Article VII hereof, or at such other place, time and date as shall be agreed in
writing between Parent and the Company. The date on which the Closing occurs is
referred to in this Agreement as the "Closing Date".
SECTION 1.05. Effective Time. Prior to the Closing, Parent shall prepare
and give the Company and its counsel the opportunity to review, and on the
Closing Date or as soon as practicable thereafter Parent shall file with the
Secretary of State of the State of Delaware, a certificate of merger or other
appropriate documents (in any such case, the "Certificate of Merger") executed
in accordance with the relevant provisions of the DGCL and shall make all other
filings or recordings required under the DGCL. The Merger shall become effective
at such time as the Certificate of Merger is duly filed with such Secretary of
State, or at such other time as Parent and the Company shall agree and specify
in the Certificate of Merger (the time the Merger becomes effective being the
"Effective Time").
SECTION 1.06. Effects. The Merger shall have the effects set forth in
Section 259(a) of the DGCL.
SECTION 1.07. Certificate of Incorporation and By-laws.
(a) The Certificate of Incorporation of Sub as in effect immediately prior
to the Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable Law.
(b) The By-laws of Sub as in effect immediately prior to the Effective Time
shall be the By-laws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable Law.
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SECTION 1.08. Directors. At the Closing, Parent shall designate the
directors of the Surviving Corporation and such directors shall hold office
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
SECTION 1.09. Officers. At the Closing, Parent shall designate the
officers of the Surviving Corporation and such officers shall hold office until
the earlier of their resignation or removal or until their respective successors
are duly elected or appointed and qualified, as the case may be.
ARTICLE II
EFFECT ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
Company Common Stock or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of
capital stock of Sub shall be converted into and become one validly issued,
fully paid and non-assessable share of common stock, par value $0.01 per
share, of the Surviving Corporation ("Surviving Corporation Common Stock")
and all such shares together will constitute the only outstanding shares of
capital stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. Each share
of Company Common Stock that is owned by the Company, Parent or Sub shall
no longer be outstanding and shall automatically be cancelled and retired
and shall cease to exist, and no consideration shall be delivered or
deliverable in exchange therefor.
(c) Conversion of Company Common Stock.
(i) Subject to Sections 2.01(b) and 2.01(d), each issued share of
Company Common Stock shall be converted into the right to receive in
cash the highest price per share of Company Common Stock paid pursuant
to the Offer.
(ii) The cash payable upon the conversion of shares of Company
Common Stock pursuant to this Section 2.01(c) is referred to
collectively as the "Merger Consideration". As of the Effective Time,
all such shares of Company Common Stock shall no longer be outstanding
and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such shares of
Company Common Stock shall cease to have any rights with respect
thereto, except the right to receive Merger Consideration upon surrender
of such certificate in accordance with Section 2.02, without interest.
(d) Appraisal Rights. Notwithstanding anything in this Agreement to
the contrary, shares (the "Appraisal Shares") of Company Common Stock that
are outstanding immediately prior to the Effective Time and that are held
by any person who is entitled to demand and properly demands appraisal of
such Appraisal Shares pursuant to, and who complies in all respects with,
Section 262 of the DGCL (the "Appraisal Provisions") shall not be converted
into Merger Consideration as provided in Section 2.01(c), but rather the
holders of Appraisal Shares shall be entitled to payment of the fair value
of such Appraisal Shares in accordance with the Appraisal Provisions;
provided, however, that if any such holder shall fail to perfect or
otherwise shall waive, withdraw or lose the right to appraisal under the
Appraisal Provisions, then the right of such holder to be paid the fair
value of such holder's Appraisal Shares shall cease and such Appraisal
Shares shall be deemed to have been converted as of the Effective Time
into, and to have become exchangeable solely for the right to receive,
Merger Consideration as provided in Section 2.01(c). The Company shall
serve prompt notice to Parent of any demands received by the Company for
appraisal of any shares of Company Common Stock, and Parent shall have the
right to participate in and direct all negotiations and proceedings with
respect to such demands. Prior to the Effective Time, the
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Company shall not, without the prior written consent of Parent, make any
payment with respect to, or settle or offer to settle, any such demands, or
agree to do any of the foregoing.
SECTION 2.02. Exchange of Certificates.
(a) Paying Agent. Prior to the Effective Time, Parent shall select a bank
or trust company in the United States, reasonably acceptable to the Company, to
act, upon terms reasonably acceptable to the Company, as paying agent (the
"Paying Agent") for the payment of the Merger Consideration upon surrender of
certificates representing Company Common Stock. Parent shall take all steps
necessary to enable and cause the Surviving Corporation to provide to the Paying
Agent on a timely basis, as and when needed after the Effective Time, cash
necessary to pay for the shares of Company Common Stock converted into the right
to receive cash pursuant to Section 2.01(c) (such cash being hereinafter
referred to as the "Exchange Fund"). If for any reason (including losses) the
Exchange Fund is inadequate to pay the amounts to which holders of shares of
Company Common Stock shall be entitled under this Section 2.02(a), Parent shall
take all steps necessary to enable or cause the Surviving Corporation promptly
to deposit in trust additional cash with the Paying Agent sufficient to make all
payments required under this Agreement, and Parent and the Surviving Corporation
shall in any event be liable for payment thereof. The Exchange Fund shall not be
used for any purpose except as expressly provided in this Agreement.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, but in no event later than five business days thereafter, the
Surviving Corporation shall cause the Paying Agent to mail to each holder of
record of a certificate or certificates (the "Certificates") that immediately
prior to the Effective Time represented outstanding shares of Company Common
Stock whose shares were converted into the right to receive Merger Consideration
pursuant to Section 2.01, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Paying Agent and shall be in
such form and have such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for Merger Consideration. Upon surrender of a Certificate for
cancellation to the Paying Agent, together with such letter of transmittal, duly
executed, and such other documents as may reasonably be required by the Paying
Agent, the holder of such Certificate shall be entitled to receive in exchange
therefor the amount of cash into which the shares of Company Common Stock
theretofore represented by such Certificate shall have been converted pursuant
to Section 2.01, and the Certificate so surrendered shall forthwith be canceled.
In the event of a transfer of ownership of Company Common Stock that is not
registered in the transfer records of the Company, payment may be made to a
person other than the person in whose name the Certificate so surrendered is
registered, if such Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person other than
the registered holder of such Certificate or establish to the satisfaction of
Parent that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.02, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the amount of cash, without interest, into which the shares of Company
Common Stock theretofore represented by such Certificate have been converted
pursuant to Section 2.01. If any holder of shares of Company Common Stock shall
be unable to surrender such holder's Certificates because such Certificates have
been lost, mutilated or destroyed, such holder may deliver in lieu thereof an
affidavit and indemnity bond in form and substance and with surety reasonably
satisfactory to the Surviving Corporation. No interest shall be paid or accrue
on the cash payable upon surrender of any Certificate.
(c) No Further Ownership Rights in Company Common Stock. The Merger
Consideration paid in accordance with the terms of this Article II upon
conversion of any shares of Company Common Stock shall be deemed to have been
paid in full satisfaction of all rights pertaining to such shares of Company
Common Stock, and after the Effective Time there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of shares of Company Common Stock that were outstanding immediately
prior to the Effective Time. If, after the Effective Time, any certificates
formerly representing shares of Company Common Stock are presented to the
Surviving Corporation or the Paying Agent for any reason, they shall be
cancelled and exchanged as provided in this Article II.
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(d) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the holders of Company Common Stock for six months
after the Effective Time shall be delivered to Parent, upon demand, and any
holder of Company Common Stock who has not theretofore complied with this
Article II shall thereafter look only to Parent for payment of its claim for
Merger Consideration.
(e) No Liability. None of Parent, Sub, the Company or the Paying Agent
shall be liable to any person in respect of any cash from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar Law. If any Certificate has not been surrendered prior to
five years after the Effective Time (or immediately prior to such earlier date
on which Merger Consideration in respect of such Certificate would otherwise
escheat to or become the property of any Governmental Entity (as defined in
Section 3.05)), any such shares, cash, dividends or distributions in respect of
such Certificate shall, to the extent permitted by applicable Law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
(f) Investment of Exchange Fund. The Paying Agent shall invest any cash
included in the Exchange Fund, as directed by Parent, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Parent.
(g) Withholding Rights. Parent shall be entitled to deduct and withhold
from the consideration otherwise payable to any holder of Company Common Stock
pursuant to this Agreement such amounts as may be required to be deducted and
withheld with respect to the making of such payment under the Code (as defined
in Section 3.11(b)), or under any provision of state, local or foreign tax Law.
(h) Charges and Expenses. The Surviving Corporation shall pay all charges
and expenses, including those of the Paying Agent, in connection with the
exchange of cash for shares of Company Common Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
SECTION 3.01. Organization, Standing and Power. Each of the Company
and each of its subsidiaries (the "Company Subsidiaries") is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has all requisite corporate power
and authority and possesses all governmental franchises, licenses, permits,
authorizations and approvals, and has made all filings, registrations and
declarations, in each case whether domestic or foreign, necessary to enable
it to own, lease or otherwise hold its properties and assets and to conduct
its businesses as presently conducted, in each case other than such
franchises, licenses, permits, authorizations, approvals, filings,
registrations and declarations the lack of which, individually or in the
aggregate, has not had and would not reasonably be expected to have a
material adverse effect on the Company and the Company Subsidiaries, taken
as a whole, a material adverse effect on the ability of the Company to
perform its obligations under this Agreement or a material adverse effect
on the ability of the Company to consummate the Offer, the Merger and the
other Recapitalization Transactions (a "Company Material Adverse Effect").
The Company and each Company Subsidiary is duly qualified to do business in
each jurisdiction where the nature of its business or their ownership or
leasing of its properties makes such qualification necessary, except where
the failure to so qualify has not had and would not reasonably be expected
to have a Company Material Adverse Effect. The Company has made available
to Parent true and complete copies of the certificate of incorporation of
the Company, as amended to the date of this Agreement (as so amended, the
"Company Charter"), and the by-laws of the Company, as amended to the date
of this Agreement (as so amended, the "Company By-laws"), and the
comparable charter and organizational documents of each Company Subsidiary,
in each case as amended through the date of this Agreement.
SECTION 3.02. Company Subsidiaries; Equity Interests.
(a) The letter, dated as of the date of this Agreement, from the
Company to Parent and Sub (the "Company Disclosure Letter") lists each
Company Subsidiary and its jurisdiction of organization. All the
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outstanding shares of capital stock of each Company Subsidiary have been
validly issued and are fully paid and nonassessable and, except as set
forth in the Company Disclosure Letter, are wholly owned by the Company, by
another Company Subsidiary or by the Company and another Company
Subsidiary, free and clear of all pledges, liens, charges, mortgages,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens") other than Liens in favor of the Agent and the
Lenders pursuant to the Company Credit Agreement.
(b) Except for its interests in the Company Subsidiaries and except
for the ownership interests set forth in the Company Disclosure Letter, the
Company does not own, directly or indirectly, any capital stock, membership
interest, partnership interest, joint venture interest or other equity
interest in any person.
SECTION 3.03. Capital Structure. The authorized capital stock of the
Company consists of 150,000,000 shares of Company Common Stock, par value
$0.01 per share, and 10,000,000 shares of preferred stock, no par value per
share (together with the Company Common Stock, the "Company Capital
Stock"). At the close of business on May 31, 2003, (i) 9,147,565 shares of
Company Common Stock were issued and outstanding, (ii) no shares of Company
Common Stock were held by the Company in its treasury, (iii) 2,974,433
shares of Company Common Stock were subject to outstanding Company Stock
Options (as defined in Section 6.04) and 164,967 additional shares of
Company Common Stock were reserved for issuance pursuant to the Company
Stock Plans (as defined in Section 6.04), and (iv) 1,360,131 shares of
Company Common Stock were subject to outstanding warrants to purchase
shares of Company Common Stock (the "Company Warrants"). Except as set
forth above, at the close of business on May 31, 2003, no shares of capital
stock or other voting securities of the Company were issued, reserved for
issuance or outstanding. Assuming completion of the Offer and the Merger
prior to July 15, 2003, Company Stock Options to purchase not more than
923,000 shares of Company Common Stock will be exercisable, at an exercise
price less than $0.85 per share of Company Common Stock, in connection with
the Offer and the Merger (the "In-the-Money Company Stock Options"). There
are no outstanding stock appreciation rights linked to the price of Company
Common Stock and granted under any Company Stock Plan. All outstanding
shares of Company Capital Stock are, and all such shares that may be issued
prior to the Effective Time will be when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to or issued in
violation of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under any
provision of the DGCL, the Company Charter, the Company By-laws or any
Contract (as defined in Section 3.05) to which the Company is a party or
otherwise bound. There are not any bonds, debentures, notes or other
indebtedness of the Company having the right to vote (or convertible into,
or exchangeable for, securities having the right to vote) on any matters on
which holders of Company Common Stock may vote ("Voting Company Debt").
Except for the Preference Shares, as set forth in Section 3.03 of the
Company Disclosure Letter or as set forth above, as of the date of this
Agreement, there are not any options, warrants, rights (including, without
limitation, rights associated with any "stockholder rights" plan or any
similar anti-takeover plan or device), convertible or exchangeable
securities, "phantom" stock rights, stock appreciation rights, stock-based
performance units, commitments, Contracts, arrangements or undertakings of
any kind to which the Company or any Company Subsidiary is a party or by
which any of them is bound (i) obligating the Company or any Company
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other equity interests in, or
any security convertible or exercisable for or exchangeable into any
capital stock of or other equity interest in, the Company or of any Company
Subsidiary or any Voting Company Debt, (ii) obligating the Company or any
Company Subsidiary to issue, grant, extend or enter into any such option,
warrant, call, right, security, commitment, Contract, arrangement or
undertaking or (iii) that give any person the right to receive any economic
benefit or right similar to or derived from the economic benefits and
rights occurring to holders of Company Capital Stock. Except as
contemplated by the consummation of the Recapitalization Transactions, as
of the date of this Agreement, there are not any outstanding contractual
obligations of the Company or any Company Subsidiary to repurchase , redeem
or otherwise acquire any shares of capital stock of the Company or any
Company Subsidiary. The Company has provided Parent with a complete and
correct copy of all agreements, instruments and other
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documents relating to the Company Warrants. The Company Disclosure Letter
sets forth a true and complete list of the outstanding Company Stock
Options, the In-the-Money Company Stock Options and Company Warrants,
together with the number of shares of Company Common Stock subject thereto
and the exercise price thereof.
SECTION 3.04. Authority; Execution and Delivery; Enforceability.
(a) The Company has all requisite corporate power and authority to
execute and deliver this Agreement and, subject to the Company Stockholder
Approval (as defined in Section 3.04(c)) with respect to the Merger if
required by Law, to consummate the Recapitalization Transactions. The
execution and delivery by the Company of this Agreement and the
consummation by the Company of the Recapitalization Transactions have been
duly authorized by all necessary corporate action on the part of the
Company, subject, in the case of the Merger, to receipt of the Company
Stockholder Approval (if required by Law). The Company has duly executed
and delivered this Agreement, and this Agreement constitutes its legal,
valid and binding obligation (subject to the Company Stockholder Approval
with respect to the Merger if required by Law), enforceable against it in
accordance with its terms, except to the extent that enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other similar laws of general applicability relating to or
affecting the enforcement of creditors' rights and by the effect of the
principles of equity (regardless of whether enforceability is considered in
a proceeding in equity or at law).
(b) The Board of Directors of the Company (the "Company Board"), at a
meeting duly called and held, duly and unanimously adopted resolutions (i)
approving this Agreement, the Offer, the Merger and the other
Recapitalization Transactions, (ii) determining that the terms of the Offer
and the Merger are fair, from a financial point of view, to the Company and
its stockholders and that the Merger is advisable, (iii) recommending that
the holders of Company Common Stock accept the Offer and tender their
shares of Company Common Stock pursuant to the Offer and (iv) recommending
that the Company's stockholders approve this Agreement. Such resolutions
are sufficient to render inapplicable to Parent and Sub and this Agreement,
the Offer, the Merger and the other Recapitalization Transactions the
provisions of Section 203 of the DGCL. No state takeover statute or similar
statute or regulation applies or purports to apply to the Company with
respect to this Agreement, the Tender Agreements, the Offer, the Merger or
any other Transaction. The Company has been advised by each of its
directors and executive officers that, as of the date of this Agreement,
each such person intends to tender all shares of Company Common Stock owned
by such person pursuant to the Offer, except to the extent of any
restrictions created by Section 16(b) of the Exchange Act.
(c) The only vote of holders of any class or series of Company Capital
Stock necessary to approve and adopt this Agreement and the Merger is the
approval of this Agreement by the holders of a majority of the outstanding
Company Common Stock (the "Company Stockholder Approval"). The affirmative
vote of the holders of Company Capital Stock, or any of them, is not
necessary to consummate the Offer or any Transaction other than the Merger.
SECTION 3.05. No Conflicts; Consents.
(a) Except as set forth in the Company Disclosure Letter and, in the
case of clause (ii) below, except for the Company Credit Agreement, the
execution and delivery by the Company of this Agreement do not, and the
consummation of the Offer, the Merger and the other Recapitalization
Transactions and compliance with the terms hereof will not, result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration
of any obligation or to loss of a material benefit under, or to increased,
additional, accelerated or guaranteed rights or entitlements of any person
under, or result in the creation of any Lien upon any of the properties or
assets of the Company or any Company Subsidiary under, any provision of (i)
the Company Charter, the Company By-laws or the comparable charter or
organizational documents of any Company Subsidiary, (ii) any contract,
lease, license, indenture, note, bond, agreement, permit, concession,
franchise or other instrument (a "Contract") to which the Company or any
Company Subsidiary is a party or by which any of their respective
properties or assets is bound or (iii) subject to the
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filings and other matters referred to in Section 3.05(b), any judgment,
order, injunction or decree, domestic or foreign ("Judgment"), or statute,
law (including common law), legislation, interpretation, ordinance, rule or
regulation, domestic or foreign ("Law"), applicable to the Company or any
Company Subsidiary or their respective properties or assets.
(b) No consent, approval, license, permit, order or authorization
("Consent") of, or registration, declaration or filing with, any Federal,
state, local or foreign government or any court of competent jurisdiction,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign (a "Governmental Entity") is required
to be obtained or made by or with respect to the Company or any Company
Subsidiary in connection with the execution, delivery and performance of
this Agreement or the consummation of the Recapitalization Transactions,
other than (i) if required by Law, compliance with and filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing with the SEC of (A) the Schedule 14D-9, (B) if
required by Law, a proxy or information statement relating to the approval
of this Agreement by the Company's stockholders (the "Proxy Statement"),
(C) any information statement (the "Information Statement") required under
Rule 14f-1 in connection with the Offer and (D) such reports under Section
13 of the Exchange Act as may be required in connection with this
Agreement, the Offer, the Merger and the other Recapitalization
Transactions, (iii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and appropriate documents with
the relevant authorities of the other jurisdictions in which the Company is
qualified to do business, (iv) such filings as may be required in
connection with the taxes described in Section 6.08, (v) filings required
under, and compliance with other applicable requirements of, non-U.S. laws,
as set forth in Section 3.05(b) of the Company Disclosure Letter, and (vi)
such other items that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Company Material Adverse Effect.
SECTION 3.06. SEC Documents; Undisclosed Liabilities. The Company
has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company with the SEC since January 1, 2001 (the
"Company SEC Documents"). As of its respective date, each Company SEC
Document complied in all material respects with the requirements of the
Exchange Act or the Securities Act of 1933, as amended (the "Securities
Act"), as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Company SEC Document, and did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. Except to the extent that information contained in
the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2002 (filed on April 15, 2003) (the "2002 Form 10-K"), its definitive
Proxy Statement with respect to its 2003 Annual Meeting (filed on April 29,
2003), its Quarterly Reports on Form 10-Q for the quarters ended March 31,
2003 (filed on May 15, 2003) (the "First Quarter 2003 10-Q"), and its
Current Report on Form 8-K (filed on May 16, 2003) (collectively, the "2003
SEC Documents") has been revised or superseded by a later Filed Company SEC
Document (as defined in Section 3.08), none of the 2003 SEC Documents
contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The consolidated financial statements of the Company
included in the Company SEC Documents complied as of their respective
filing dates as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles ("GAAP") (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and present fairly in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of
the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in
the Filed Company SEC Documents (as defined in Section 3.08), neither the
Company nor any Company Subsidiary has any liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise) required by
GAAP to be set forth on a consolidated balance sheet of the
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Company and its consolidated subsidiaries or in the notes thereto except
those incurred in the ordinary course of business after such filings, under
this Agreement or otherwise in connection with the Recapitalization
Transactions. Except as set forth in the Company Disclosure Letter, neither
the Company nor any Company Subsidiary is a party to any contract,
arrangement or understanding with an affiliate of such party that is not
disclosed in the Filed Company SEC Documents.
SECTION 3.07. Information Supplied. None of the information supplied
or to be supplied by the Company for inclusion or incorporation by
reference in (i) the Offer Documents, the Schedule 14D-9 or the Information
Statement will, at the time such document is filed with the SEC, at any
time it is amended or supplemented or at the time it is first published,
sent or given to the Company's stockholders, contain, or will contain, any
untrue statement of a material fact or omit to state any 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,
or (ii) the Proxy Statement (if required by Law) will, at the date it is
first mailed to the Company's stockholders or at the time of the Company
Stockholders Meeting (as defined in Section 6.01), contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
Schedule 14D-9, the Information Statement and the Proxy Statement (if
required by Law) will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder,
except that no representation is made by the Company with respect to
statements made or incorporated by reference therein based on information
supplied by Parent or Sub for inclusion or incorporation by reference
therein.
SECTION 3.08. Absence of Certain Changes or Events. Except as
disclosed in the Company SEC Documents filed and publicly available prior
to the date of this Agreement (the "Filed Company SEC Documents") or in the
Company Disclosure Letter, from the date of the most recent audited
financial statements included in the Filed Company SEC Documents to the
date of this Agreement, the Company has conducted its business only in the
ordinary course, and during such period there has not been:
(1) any event, change, effect or development that, individually or
in the aggregate, has had or would reasonably be expected to have a
Company Material Adverse Effect;
(2) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to
any Company Capital Stock or any repurchase for value by the Company of
any Company Capital Stock;
(3) any split, combination or reclassification of any Company
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 Company Capital Stock;
(4) (A) any granting by the Company or any Company Subsidiary to
any current or former director, officer or key employee of the Company
or any Company Subsidiary of any increase in compensation, except to the
extent required under employment agreements in effect as of the date of
the most recent audited financial statements included in the Filed
Company SEC Documents, (B) any granting by the Company or any Company
Subsidiary to any such director, officer or key employee of any increase
in severance or termination pay, except as was required under any
employment, severance or termination policy, practice or agreements in
effect as of the date of the most recent audited financial statements
included in the Filed Company SEC Documents or (C) any entry by the
Company or any Company Subsidiary into, or any amendment of, any
employment, severance or termination agreement with any such director,
officer or employee, except for such agreements with employees (other
than directors, officers or key employees) that are entered into in the
ordinary course of business consistent with prior practice;
(5) any termination of employment or departure of any officer or
other key employee of the Company or any Company Subsidiary;
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(6) any change in accounting methods, principles or practices by
the Company or any Company Subsidiary materially affecting the
consolidated assets, liabilities or results of operations of the
Company, except insofar as may have been required by a change in GAAP,
the Code or the treasury regulations under the Code; or
(7) any material elections with respect to Taxes (as defined in
Section 3.09) by the Company or any Company Subsidiary or settlement or
compromise by the Company or any Company Subsidiary of any material Tax
liability or refund.
SECTION 3.09. Taxes. Except as set forth in Section 3.09 of the
Company Disclosure Letter:
(a) Each of the Company and each Company Subsidiary has timely
filed, or has caused to be timely filed on its behalf, all Tax Returns
required to be filed by it, and all such Tax Returns are true, complete
and accurate, except (i) as stated in clause (f) of this Section 3.09
and (ii) to the extent any failure to file or any inaccuracies in any
filed Tax Returns, individually or in the aggregate, has not had and
would not reasonably be expected to have a Company Material Adverse
Effect. Notwithstanding the foregoing, except to the extent of any
adjustment(s) to such basis by reason of an item of income, gain, loss
or deduction reflected on such Tax Return, no representation is made
with respect to the amount of the basis of the Company or any Company
Subsidiary in its assets. All Taxes shown to be due on such Tax Returns,
or otherwise owed (except Taxes being contested in good faith and which
have been disclosed in Section 3.09 of the Disclosure Letter), have been
timely paid, except to the extent that any failure to pay, individually
or in the aggregate, has not had and would not reasonably be expected to
have a Company Material Adverse Effect.
(b) The reserve for Taxes in the most recent financial statements
contained in the Filed Company SEC Documents is adequate in accordance
with GAAP for any unpaid liabilities of the Company and the Company
Subsidiaries (without regard to timing differences) through the date of
such financial statements. No deficiency with respect to any Taxes has
been proposed, asserted or assessed against the Company or any Company
Subsidiary, and no requests for waivers of the time to assess any such
Taxes are pending, except to the extent any such deficiency or request
for waiver, individually or in the aggregate, has not had and would not
reasonably be expected to have a Company Material Adverse Effect.
(c) The income Tax Returns of the Company or any Company Subsidiary
have never been examined by, or settled with, any Governmental Entity
(including the United States Internal Revenue Service). All material
assessments for Taxes due with respect to any completed and settled
examinations or any concluded litigation have been fully paid.
(d) There are no material Liens for Taxes (other than for current
Taxes not yet due and payable) on the assets of the Company or any
Company Subsidiary.
(e) No claim has been made in writing in the past five years by any
authority in a jurisdiction within which the Company or any Company
Subsidiary does not file Tax Returns that it is, or may be, subject to
taxation by that jurisdiction.
(f) The Company Disclosure letter (as qualified therein) sets forth
the following information with respect to, each of the Company and the
Company "affiliated group" (within the meaning of Section 1504(a) of the
Code), as of the end of the most recent taxable year of the Company and
of the Company "affiliated group": (A) the amount of any net operating
loss; (B) the amount of any minimum tax credits; and (C) the amount of
any capital loss carryovers.
(g) Neither the Company nor any Company Subsidiary (i) has been a
member of an "affiliated group," as defined in Section 1504(a) of the
Code, filing a consolidated federal income Tax Return (other than a
group the common parent of which is the Company), (ii) has any liability
for the Taxes of any Person (other than any member of the group the
common parent of which is the Company) (A) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local, or foreign
law), or (B) that would be reasonably expected to have a Company
Material Adverse
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Effect as a transferee or successor, by contract or otherwise or (iii)
has entered into any agreement with respect to Taxes that would be
reasonably expected to have a Company Material Adverse Effect.
(h) Neither the Company nor any Company Subsidiary is a United
States Real Property Holding Corporation within the meaning of Section
897(c)(1)(A)(ii).
(i) For purposes of this Agreement:
"Taxes" includes all forms of taxation imposed by any Federal,
state, local, foreign or other Governmental Entity, including income,
franchise, property, sales, use, excise, employment, unemployment,
payroll, social security, estimated, value added, ad valorem,
transfer, recapture, withholding and other Taxes of any kind,
including all interest, penalties and additions thereto.
"Tax Return" means all Federal, state, local, provincial and
foreign Tax returns, declarations, statements, reports, schedules,
forms and information returns and any amended Tax return relating to
Taxes (including, without limitation, consolidated, combined and
unitary Tax returns).
SECTION 3.10. Absence of Changes in Benefit Plans. Except as
disclosed in the Filed Company SEC Documents or in the Company Disclosure
Letter, from the date of the most recent audited financial statements
included in the Filed Company SEC Documents to the date of this Agreement,
there has not been any adoption or amendment in any material respect by the
Company or any Company Subsidiary of any collective bargaining agreement or
any bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit,
hospitalization, medical, fringe benefit or other similar plan, program or
arrangement, whether written or unwritten, with respect to any current or
former employee, independent contractor, officer or director (each a
"Covered Person") of the Company or any Company Subsidiary or any
beneficiary or dependent of any Covered Person, and as to which the Company
or any Company Subsidiary has any obligation or liability (whether or not
contingent) including any plan, policy, program or arrangement within or
outside of the United States (collectively, "Company Benefit Plans").
Except as disclosed in the Filed Company SEC Documents or in the Company
Disclosure Letter, as of the date of this Agreement there are not any
employment, consulting, indemnification, severance or termination
agreements or arrangements in effect between the Company or any Company
Subsidiary and any current or former employee, officer or director of the
Company or any Company Subsidiary, nor does the Company or any Company
Subsidiary have any general severance plan or policy. To the knowledge of
the Company, no executive, or key employee, has any plans to terminate
employment with the Company or the Company Subsidiaries.
SECTION 3.11. ERISA Compliance; Excess Parachute Payments.
(a) The Company Disclosure Letter contains a complete and accurate
list of all material "employee pension benefit plans" (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) (sometimes referred to herein as "Company Pension
Plans"), "employee welfare benefit plans" (as defined in Section 3(1) of
ERISA) (sometimes referred to herein as "Company Welfare Benefit Plans"),
all other Company Benefit Plans and employment agreements, which list is
broken down internally by each specific country with respect to which each
such Company Benefit Plan is established or maintained.
(b) With respect to each Company Benefit Plan (excluding any Company
Multi-employer Plan), the Company has made available to Parent true,
complete and correct copies of (i) each operative plan, trust document (in
the case of any unwritten Company Benefit Plan, a description thereof) and
employment agreement, (ii) the most recent periodic report, if any,
required to be filed with any governmental entity, (iii) the most recent
summary plan description for which such summary plan description is
required or other summary material provided to any Covered Person which
describes the benefits, (iv) the most recent actuarial valuation, if any,
(v) the most recent financial statements;
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(vi) the most recent IRS determination letter, if applicable, and (vii)
each trust agreement, custodial agreement, annuity contract or other
funding vehicle, if any.
(c) All Company Benefit Plans (excluding any Company Multi-employer
Plan) are in compliance in all material respects with applicable Law
(including, without limitation, the Code and ERISA and, with respect to any
Company Benefit Plan maintained outside of the United States, any
applicable non-U.S. law). All Company Pension Plans (excluding any Company
Multi-employer Plan) which are intended to be tax-qualified under Section
401(a) of the Code are so qualified and their related trusts are exempt
from Federal income taxes under Sections 401(a) and 501(a), respectively,
of the Internal Revenue Code of 1986, as amended (the "Code"), except for
failures to be so qualified which in the aggregate would not reasonably be
expected to have a Company Material Adverse Effect. Except as set forth in
Section 3.10 of the Company Disclosure Letter, each Company Benefit Plan
(excluding any Company Multi-employer Plan) has received a determination
letter on the Plan as currently in effect as to its qualified status and no
such determination letter has been revoked nor, to the knowledge of the
Company, has revocation been threatened. Except as set forth in the Company
Disclosure Letter, no Plan amendments since January 1, 2003 have the effect
of materially increasing costs.
(d) The Company does not participate in or make contributions to any
"multi-employer plan" (as such term is defined in Section 3(37) of ERISA),
except as specifically set forth in the Company Disclosure Letter (each, a
"Company Multi-employer Plan"). To the knowledge of the Company, (i) no
withdrawal liability (within the meaning of Section 4201 et seq. of ERISA)
would be imposed on the Company or any Company Subsidiary in the event that
a "complete withdrawal" or "partial withdrawal", as such terms are
respectively defined in sections 4203 and 4205 of ERISA, from a Company
Multi-Employer Plan were to occur at Closing, and (ii) neither the
execution of this Agreement nor any of the transactions contemplated
hereunder could cause a complete withdrawal or partial withdrawal from any
Company Multi-employer Plan.
(e) Except with respect to the Company Multi-Employer Plans that are
Company Pension Plans, neither the Company nor any Company Subsidiary has
any liability, contingent or otherwise, under Title IV of ERISA for any
"defined benefit plan" within the meaning of Section 3(35) of ERISA.
(f) None of the Company, any Company Subsidiary, any officer of the
Company or any Company Subsidiary or any of the Company Benefit Plans which
are subject to ERISA, including the Company Pension Plans (excluding any
Company Multi-employer Plan), any trusts created thereunder or any trustee
or administrator thereof, has engaged in a "prohibited transaction" (as
such term is defined in Section 406 of ERISA or Section 4975 of the Code)
that could subject the Company, any Company Subsidiary or any officer of
the Company or any Company Subsidiary to any material tax or penalty on
prohibited transactions imposed by Section 4975 or to any material
liability under Section 502(i) or 502(l) of ERISA. There are no existing
or, to the knowledge of the Company or any Company Subsidiary, threatened,
lawsuits, claims or other controversies relating to a Company Benefit Plan
(excluding any Company Multi-employer Plan), other than routine claims for
benefits in the normal course. To the knowledge of the Company and any
Company Subsidiary as of the date hereof, no Company Benefit Plan is under
any government investigation or audit.
(g) With respect to any Company Welfare Benefit Plan (excluding any
Company Multi-employer Plan), (i) each such Company Welfare Benefit Plan
that is a "group health plan" (as such term is defined in Section
5000(b)(1) of the Code), complies in all material respects with the
applicable requirements of Section 4980B(f) of the Code, and (ii) other
than as required under Section 601 et seq. of ERISA or as set forth in
Section 3.11(g)(ii) of the Company Disclosure Letter, no such Company
Welfare Benefit Plan provides health or life insurance coverage following
retirement or the last day of the calendar month in which any other
termination of employment occurs.
(h) Full payment has been made or will be made prior to Closing of all
amounts which the Company or any Company Subsidiary is required to pay on
or before the Closing Date under the terms of each of the Company Benefit
Plans and all amounts not payable prior to the Closing Date will be
properly accrued and recorded on the balance sheet of the Company and the
Company Subsidiaries in accordance
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with GAAP. Except as set forth in Section 3.11(h) of the Company Disclosure
Letter, none of the medical or dental insurance policies provide for a
retroactive rate adjustment or loss sharing arrangement. Except as set
forth in Section 3.11(h) of the Company Disclosure Letter, there is no
Company Benefit Plan that is a non-qualified deferred compensation
arrangement.
(i) Except as set forth in the Company Disclosure Letter, the
consummation of the transactions contemplated by this Agreement will not
result in (1) the payment of any severance, change in control, retention
bonus, or other payment to any Covered Person under any Company Benefit
Plan or any consulting or other agreement or arrangement, or (2) the
acceleration of the accrual or vesting of any payment or benefit under any
Company Benefit Plan.
SECTION 3.12. Litigation. Except as disclosed in the Filed Company
SEC Documents or in the Company Disclosure Letter, there is no suit, action
or proceeding pending or, to the knowledge of the Company, threatened
against or affecting the Company or any Company Subsidiary that,
individually or in the aggregate, has had or would reasonably be expected
to have a Company Material Adverse Effect, nor is there any Judgment
outstanding against the Company or any Company Subsidiary that,
individually or in the aggregate, has had or would reasonably be expected
to have a Company Material Adverse Effect.
SECTION 3.13. Compliance with Applicable Laws.
(a) Except as disclosed in the Filed Company SEC Documents or in the
Company Disclosure Letter, the Company and the Company Subsidiaries are in
compliance in all material respects with all applicable Laws, including
those relating to occupational health and safety and the environment.
Except as set forth in the Filed Company SEC Documents or in the Company
Disclosure Letter, neither the Company nor any Company Subsidiary has
received any written communication since January 1, 2002 from a
Governmental Entity that alleges that the Company or a Company Subsidiary
is not in compliance in any material respect with any applicable Law.
(b) Except as set forth in Section 3.13(b) of the Company Disclosure
Letter, the Company and the Company Subsidiaries hold all franchises,
grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any
Governmental Entity necessary for the Company or any Company Subsidiary to
own, lease and operate its properties or to carry on its business as it is
now being conducted (the "Company Permits"), other than such Company
Permits as, individually and in the aggregate, are not material to the
business of either the Company or any Company Subsidiary and the failure of
which to have such Company Permits would not reasonably be expected to,
individually or in the aggregate, result in a Company Material Adverse
Effect. Each of the Company and the Company Subsidiaries is in possession
of all Company Permits, and no suspension or cancellation of any of the
Company Permits is pending or, to the knowledge of the Company, threatened.
Neither the Company nor any Company Subsidiary has received any written
notices of violations with respect to any Company Permit that remains
uncured.
SECTION 3.14. Contracts. Section 3.14(a) of the Company Disclosure
Letter contains a list (organized by subsections corresponding to the
subsections identified below) of the following contracts, agreements and
arrangements (including all amendments thereto) to which the Company or a
Company Subsidiary is a party, other than those contracts, agreements and
arrangements listed as exhibits in the Company's 2002 Form 10-K or First
Quarter 2003 10-Q (such contracts, agreements and arrangements required to
be set forth in Section 3.14(a) of the Company Disclosure Letter or listed
as exhibits in the Company's 2002 Form 10-K or First Quarter 2003 10-Q
"Company Material Contracts"):
(a) each contract and agreement or groups of related agreements
which (A) is likely to involve consideration of more than $2,000,000 in
the aggregate, during the year ending December 31, 2003 or December 31,
2004, or (B) is likely to involve consideration of more than $5,000,000
in the aggregate over the remaining term of such contract;
(b) all employment, consulting, severance, termination or
indemnification agreements between the Company or any Company Subsidiary
and any director, officer or employee of the Company or
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any Company Subsidiary whose total annual compensation (including
incentive compensation), after giving effect to any increase after the
date of this Agreement, exceeds $100,000;
(c) all (A) management contracts (excluding contracts for
employment) and (B) contracts with consultants which involve
consideration of more than $250,000 per annum;
(d) all contracts, credit agreements, indentures and other
agreements evidencing indebtedness for borrowed money (including
capitalized leases) involving an amount greater than $250,000 over the
term thereof;
(e) all agreements under which the Company or any Company
Subsidiary has advanced or loaned funds in excess of $100,000;
(f) all guarantees of any obligations in excess of $1,000,000;
(g) all joint venture or other similar agreements;
(h) all lease agreements with annual lease payments in excess of
$500,000;
(i) agreements under which the Company has granted any person
registration rights (including demand and piggy-back registration
rights) or any other agreements with respect to the capital stock of the
Company or any Company Subsidiary;
(j) all contracts and agreements that limit the ability of the
Company or any Company Subsidiary to compete in any line of business or
with any person or entity or in any geographic area or during any period
of time with respect to any business currently conducted by the Company
or any Company Subsidiary;
(k) all contracts and other agreements with affiliates; and
(l) any other contracts or agreements that are material to the
business, assets, condition (financial or otherwise) or results of
operations of the Company and the Company Subsidiaries taken as a whole.
Except, in each case, as would not reasonably be expected,
individually or in the aggregate, to have a Company Material Adverse
Effect, each Company Material Contract is a legal, valid and binding
agreement of the Company or a Company Subsidiary, as applicable in full
force and effect in accordance with its terms and neither the Company nor
any Company Subsidiary is in violation or default, or has received written
notice that it is in violation or default, under any Company Material
Contract and to the Company's knowledge no other party is in default under
any Company Material Contract. The Company has provided or made available
to Parent all Company Material Contracts.
SECTION 3.15. Intellectual Property.
(a) The Company and the Company Subsidiaries own, or are validly
licensed or otherwise have the right to use, all inventions, processes,
methods, know-how, technology, trade secrets, domain names, works,
copyrights, data, databases, customer information, pricing and cost
information, computer programs, other proprietary intellectual property
rights, and, to the Company's knowledge, all patents, patent rights
(including patent licenses), trademarks, trademark rights, trade names,
trade name rights, service marks and service mark rights that are material
to the Company or the Company Subsidiaries taken as a whole (collectively,
"Intellectual Property Rights") which are used in the conduct of the
business of the Company or the Company Subsidiaries as currently conducted
and the consummation of the Recapitalization Transactions will not conflict
with, breach, adversely alter or impair in any material respect any such
Intellectual Property Rights.
(b) Except as set forth in the Company Disclosure Letter, no actions,
suits or proceedings to which the Company or any Company Subsidiary is a
party are pending or, to the knowledge of the Company, threatened that (i)
the Company or any of the Company Subsidiaries is misappropriating,
interfering with, infringing or otherwise adversely affecting the rights of
any person with regard to any Intellectual Property Right or (ii) assert
that any Intellectual Property Rights owned by the Company or any
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Company Subsidiary (the "Owned Intellectual Property Rights") are invalid
or unenforceable. To the knowledge of the Company, except as set forth in
the Company Disclosure Letter, no person is misappropriating, infringing or
otherwise violating any Owned Intellectual Property Right.
(c) To the knowledge of the Company, all Owned Intellectual Property
Rights are valid and in full force and effect. With respect to Intellectual
Property Rights other than Owned Intellectual Property Rights ("Licensed
Intellectual Property Rights") that are material to the Company or the
Company Subsidiaries, the Company is in compliance in all material respects
with any applicable license or similar agreement and each such license or
similar agreement is a legal, valid and binding obligation of the Company
or Company Subsidiary, as applicable, and to the knowledge of the Company,
in full force and effect.
(d) All Owned Intellectual Property Rights are free and clear of any
Liens (other than Liens in favor of the Agent and the Lenders under the
Company Credit Agreement) and may be freely transferred, assigned, licensed
or sublicensed except as set forth in the Company Disclosure Letter. The
Company's licenses with respect to all Licensed Intellectual Property
Rights are free and clear of any Liens (other than Liens in favor of the
Agent and the Lenders under the Company Credit Agreement) except as set
forth in the Company Disclosure Letter.
SECTION 3.16. Certain Notes Receivable. There are no notes
receivable of the Company or any Company Subsidiary owing by any director,
officer or key employee of the Company or any Company Subsidiary.
SECTION 3.17. Environmental Matters.
(a) Except as described in Section 3.17 of the Company Disclosure
Letter, as disclosed in the Phase I reports previously delivered or made
available to Sub or obtained by Parent prior to Closing, or as has not had
or would not reasonably be expected to have a Company Material Adverse
Effect: (i) the Company and the Company Subsidiaries have not been and are
not in violation of any applicable Environmental Law; (ii) none of the
properties currently or formerly owned, leased or operated by the Company
or the Company Subsidiaries are contaminated with any Hazardous Substance;
(iii) neither the Company nor any of the Company Subsidiaries are liable
for any contamination by Hazardous Substances at properties not owned or
operated by the Company or a Company Subsidiary; (iv) the Company and the
Company Subsidiaries have all material permits, licenses and other
authorizations required under any applicable Environmental Law
("Environmental Permits"); (v) the Company and the Company Subsidiaries are
in compliance in all material respects with their Environmental Permits;
and (vi) neither the execution of this Agreement nor the consummation of
the Recapitalization Transactions will require any investigation,
remediation or other action with respect to Hazardous Substances, or any
notice to or consent of Governmental Entities or third parties, pursuant to
any applicable Environmental Law or Environmental Permit. Except as
described in Section 3.17 of the Company Disclosure Letter, none of the
Company or the Company Subsidiaries has received written notice of a
violation of, or any Liability under, any Environmental Law (whether with
respect to properties presently or previously owned or used). The Company
and the Company Subsidiaries have made available to Parent all
environmental audits, reports and other material environmental documents
relating to their properties, facilities or operations which are in their
possession or control. Neither the Company nor any Company Subsidiary has
arranged for the disposal or treatment of any substance at any off-site
location that has been included in any published U.S. federal, state or
local "superfund" site list or any similar list of hazardous or toxic waste
sites published by any Governmental Entity.
(b) For purposes of this Section 3.17:
(1) "Environmental Laws" means any federal, state, local or foreign
Laws relating to (A) releases or threatened releases of Hazardous
Substances or materials containing Hazardous Substances; (B) the
manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Substances or materials containing Hazardous Substances; or
(C) otherwise relating to pollution or protection of the environment;
and
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(2) "Hazardous Substances" means (i) those substances defined in or
regulated as hazardous under the following federal statutes and their
state counterparts and all applicable regulations thereunder: the
Hazardous Materials Transportation Act, the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act, the Clean Water Act, the Safe Drinking Water Act, the
Federal Insecticide, Fungicide, and Rodenticide Act and the Clean Air
Act; (ii) petroleum and petroleum products, including crude oil and any
fractions thereof; (iii) natural gas, synthetic gas, and any mixtures
thereof; (iv) polychlorinated biphenyls, asbestos and radon; (v) any
other contaminant; and (vi) any substance, material or waste regulated
as hazardous by any federal, state, local or foreign Governmental Entity
pursuant to any Environmental Law.
SECTION 3.18. Insurance. Except as set forth in Section 3.18 of the
Company Disclosure Letter, neither the Company nor any Company Subsidiary
has received notice of any pending or threatened cancellation or material
premium increase (retroactive or otherwise) with respect to any insurance
policies in force naming the Company, any Company Subsidiary or employees
thereof as a loss payee or for which the Company or any Company Subsidiary
has paid or is obligated to pay all or part of the premiums, and each of
the Company and the Company Subsidiaries is in compliance with all material
conditions contained therein.
SECTION 3.19. Title to Properties; Absence of Liens and
Encumbrances. Each of the Company and the Company Subsidiaries has good
and valid title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its tangible personal properties and assets
owned, used or held for use in its business, free and clear of any Liens
except (i) for Liens imposed by Law for Taxes not yet due and payable or
which otherwise are owed to materialmen, workmen, carriers,
warehousepersons or laborers not in excess of $100,000 in the aggregate,
(ii) as reflected in the financial statements contained in the Filed
Company SEC Documents, (iii) Liens in favor of the Agent and the Lenders
under the Company Credit Agreement and (iv) such other imperfections or
irregularities of title or other Liens as individually or in the aggregate,
have not had and would not reasonably be expected to have a Company
Material Adverse Effect.
SECTION 3.20. Transactions with Affiliates. Except as set forth in
the Filed Company SEC Documents or in the Company Disclosure Letter, since
the date of the Company's last proxy statement filed with the SEC, no event
has occurred that would be required to be reported by the Company pursuant
to Item 404 of Regulation S-K promulgated by the SEC. Section 3.20 of the
Company Disclosure Letter identifies each person who is (or who may be
deemed to be) an affiliate of the Company or any Company Subsidiary.
Without limiting the generality of the foregoing, there are no amounts due
or payable by the Company or any Company Subsidiary to any of the Principal
Shareholders or any of their affiliates or associates in connection with
the Recapitalization Transactions or the Tender Agreements or otherwise,
other than payment of consideration for their securities of the Company
pursuant to the terms of this Agreement.
SECTION 3.21. Customers. Section 3.21 of the Company Disclosure
Letter sets forth a complete and accurate list of the twenty-five largest
customers of the Company and the Company Subsidiaries (measured by
aggregate billings) during the fiscal year ended on December 31, 2002,
indicating the existing Contracts with each such customer by product or
service provided. Except as set forth in Section 3.21 of the Company
Disclosure Letter, the relationships of the Company and the Company
Subsidiaries with the customers required to be listed on Section 3.21 of
the Company Disclosure Letter are good commercial working relationships and
none of such customers has cancelled, terminated or otherwise materially
altered (including any material reduction in the rate or amount of
purchases) or notified the Company or the Company Subsidiaries of any
intention to do any of the foregoing or otherwise threatened in writing to
cancel, terminate or materially alter its relationship with the Company or
the Company Subsidiaries.
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SECTION 3.22. State Takeover Statutes; Company Rights Agreement.
(a) The Company has taken such actions, if any, as it reasonably
determined necessary for the consummation of the Recapitalization
Transactions under Section 203 of the DGCL and to permit Parent, Sub, and
if requested by Parent, certain stockholders of the Company and their
respective spouses, associates, affiliates and subsidiaries, or any
combination thereof, to become "interested stockholders" (within the
meaning of Section 203 of the DGCL), in connection with developing
agreements, arrangements or understandings among themselves relating to the
participation of all or any of them in the Recapitalization Transactions
and by taking any and all actions relating to the consummation of, and by
consummating, the Recapitalization Transactions.
(b) Neither the Company nor any of the Company Subsidiaries is a party
to any "stockholder rights" plan or any similar anti-takeover plan or
device.
SECTION 3.23. Brokers; Schedule of Fees and Expenses. No broker,
investment banker, financial advisor or other person, other than Deutsche
Bank, pursuant to the agreement dated July 2, 2002 previously delivered to
Parent, the fees and expenses of which will be paid by the Company, is
entitled to any broker's, finder's, financial advisor's or other similar
fee or commission in connection with the Offer, the Merger and the other
Recapitalization Transactions based upon arrangements made by or on behalf
of the Company. The estimated fees and expenses incurred and to be incurred
by the Company in connection with the Offer, the Merger and the other
Recapitalization Transactions (including the fees of Deutsche Bank and the
fees of the Company's legal counsel) are set forth in the Company
Disclosure Letter.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub, jointly and severally, represent and warrant to the Company
as follows:
SECTION 4.01. Organization, Standing and Power. Each of Parent and
Sub is duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is organized and has all requisite
corporate power and authority and possesses all governmental franchises,
licenses, permits, authorizations and approvals in each case whether
domestic or foreign necessary to enable it to own, lease or otherwise hold
its properties and assets and to conduct its businesses as presently
conducted, other than such franchises, licenses, permits, authorizations
and approvals the lack of which, individually and in the aggregate, has not
had and would not reasonably be expected to have a material adverse effect
on the ability of Parent or Sub to perform its obligations under this
Agreement or a material adverse effect on the ability of Parent or Sub to
consummate the Offer, the Merger and the other Recapitalization
Transactions (a "Parent Material Adverse Effect").
SECTION 4.02. Sub.
(a) Since the date of its incorporation, Sub has not carried on any
business or conducted any operations other than the execution of this
Agreement, the performance of its obligations hereunder and matters
ancillary thereto. Sub was incorporated solely for the purpose of
consummating the Recapitalization Transactions.
(b) The authorized capital stock of Sub consists of 1,000 shares of
common stock, par value $0.01 per share, all of which have been validly
issued, are fully paid and nonassessable and are owned by Parent free and
clear of any Lien.
SECTION 4.03. Authority; Execution and Delivery;
Enforceability. Each of Parent and Sub has all requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
Recapitalization Transactions. The execution and delivery by each of Parent
and Sub of this Agreement and the consummation by it of the
Recapitalization Transactions have been duly authorized by all necessary
corporate action on the part of Parent and Sub. Parent, as sole stockholder
of Sub, has
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approved this Agreement. Each of Parent and Sub has duly executed and
delivered this Agreement, and this Agreement constitutes its legal, valid
and binding obligation, enforceable against it in accordance with its
terms, except to the extent that enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other similar laws of general applicability relating to or affecting the
enforcement of creditors' rights and by the effect of the principles of
equity (regardless of whether enforceability is considered in a proceeding
in equity or at law).
SECTION 4.04. No Conflicts; Consents.
(a) The execution and delivery by each of Parent and Sub of this
Agreement, do not, and the consummation of the Offer, the Merger and the
other Recapitalization Transactions and compliance with the terms hereof
will not, result in any violation of or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material
benefit under, or to increased, additional, accelerated or guaranteed
rights or entitlements of any person under, or result in the creation of
any Lien upon any of the properties or assets of Parent or any of its
subsidiaries under, any provision of (i) the charter, by-laws or other
organizational documents of Parent or any of its subsidiaries, (ii) any
Contract to which Parent or any of its subsidiaries is a party or by which
any of their respective properties or assets is bound or (iii) subject to
the filings and other matters referred to in Section 4.04(b), any Judgment
or Law applicable to Parent or any of its subsidiaries or their respective
properties or assets, other than, in the case of clauses (ii) and (iii)
above, any such items that, individually and in the aggregate, have not had
and would not reasonably be expected to have a Parent Material Adverse
Effect.
(b) No Consent of, or registration, declaration or filing with, any
Governmental Entity is required to be obtained or made by or with respect
to Parent or any of its subsidiaries in connection with the execution,
delivery and performance of this Agreement or the consummation of the
Recapitalization Transactions, other than (i) if required by Law,
compliance with and filings under the HSR Act, (ii) the filing with the SEC
of (A) the Offer Documents and (B) such reports under the Exchange Act as
may be required in connection with this Agreement, the Offer, the Merger
and the other Recapitalization Transactions, (iii) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware,
(iv) such filings as may be required in connection with the taxes described
in Section 6.08, (v) filings required under, and compliance with other
applicable requirements of, non-U.S. laws, as set forth in Section 3.05(b)
of the Company Disclosure Letter, and (vi) such other items that,
individually and in the aggregate, have not had and would not reasonably be
expected to have a Parent Material Adverse Effect.
SECTION 4.05. Information Supplied. None of the information supplied
or to be supplied by Parent or Sub for inclusion or incorporation by
reference in (i) the Offer Documents, the Schedule 14D-9 or the Information
Statement will, at the time such document is filed with the SEC, at any
time it is amended or supplemented or at the time it is first published,
sent or given to the Company's stockholders, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or (ii)
the Proxy Statement (if required by Law) will, at the date it is first
mailed to the Company's stockholders or at the time of the Company
Stockholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Offer Documents will comply
as to form in all material respects with the requirements of the Exchange
Act and the rules and regulations thereunder, except that no representation
is made by Parent or Sub with respect to statements made or incorporated by
reference therein based on information supplied by the Company for
inclusion or incorporation by reference therein.
SECTION 4.06. Brokers. No broker, investment banker, financial
advisor or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the Offer,
the Merger and the other Recapitalization Transactions based upon
arrangements made by or on behalf of Parent.
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SECTION 4.07. Financing. Parent has provided the Company with a
commitment letter from Foothill Capital Corporation and Silver Point
Capital, L.P., dated as of May 20, 2003, (the "Debt Commitment Letter") and
from Kohlberg Management IV, LLC, dated as of May 8, 2003, (collectively
with the Debt Commitment Letter, the "Commitment Letters" and the financing
to be provided thereunder, the "Financing"). To the knowledge of Parent,
the Commitment Letters have been duly executed by all parties thereto and
are in full force and effect as of the date hereof. All commitment and
other fees required to be paid under the Commitment Letters on or prior to
the date hereof have been paid.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.01. Conduct of Business.
(a) Conduct of Business by the Company. Except for matters set forth in
the Company Disclosure Letter, expressly agreed to in writing by Parent or
otherwise expressly permitted by this Agreement, from the date of this Agreement
to the earliest to occur of the date of the termination of this Agreement, the
date directors designated by Parent or Sub have been elected to and shall
constitute a majority of the Company Board (the "Control Date") or the Effective
Time, the Company shall, and shall cause each Company Subsidiary to, conduct the
business of the Company and the Company Subsidiaries taken as a whole in the
usual, regular and ordinary course in substantially the same manner as
previously conducted and use all commercially reasonable efforts to preserve
intact its current business organization, keep available the services of its
current officers and employees and keep its relationships with customers,
suppliers, licensors, licensees, distributors and others having business
dealings with them to the end that its goodwill and ongoing business shall be
unimpaired in all material respects at the Effective Time. In addition, and
without limiting the generality of the foregoing, except for matters set forth
in the Company Disclosure Letter, expressly agreed to in writing by Parent or
otherwise expressly permitted by this Agreement, from the date of this Agreement
to the earliest to occur of the date of the termination of this Agreement, the
Control Date or the Effective Time, the Company shall not, and shall not permit
any Company Subsidiary to, do any of the following without the prior written
consent of Parent:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by a direct or indirect wholly owned subsidiary of the
Company to its parent, (B) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock, or (C)
purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any Company Subsidiary or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell or grant (A) any shares of its capital
stock, (B) any Voting Company Debt or other voting securities, (C) any
securities convertible into or exchangeable for, or any options, warrants
or rights to acquire, any such shares, Voting Company Debt, voting
securities or convertible or exchangeable securities or (D) any "phantom"
stock, "phantom" stock rights, stock appreciation rights or stock-based
performance units, other than the issuance of Company Common Stock upon the
exercise of Company Stock Options and Company Warrants outstanding on the
date of this Agreement and in accordance with their present terms;
(iii) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents;
(iv) acquire or agree to acquire (A) by merging or consolidating with,
or by purchasing a substantial equity interest in or portion of the assets
of, or by any other manner, any business or any corporation, partnership,
joint venture, association or other business organization or division
thereof or (B) any assets that are material, individually or in the
aggregate, to the Company and the Company Subsidiaries taken as a whole;
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(v) (A) grant to any current or former director, officer or key
employee of the Company or any Company Subsidiary any increase in
compensation, except to the extent required under employment agreements in
effect as of the date of the most recent audited financial statements
included in the Filed Company SEC Documents or, with respect to employees
(other than directors, officers or key employees) in the ordinary course of
business consistent with prior practice, (B) grant to any current or former
key employee, officer or director of the Company or any Company Subsidiary
any increase in severance or termination pay, except to the extent required
under any agreement or policy in effect as of the date of the most recent
audited financial statements included in the Filed Company SEC Documents,
(C) enter into any employment, consulting, indemnification, severance or
termination agreement with any such key employee, officer or director, (D)
establish, adopt, enter into or amend in any material respect any
collective bargaining agreement or Company Benefit Plan or (E) take any
action to accelerate any rights or benefits, or make any material
determinations not in the ordinary course of business consistent with prior
practice, under any collective bargaining agreement or Company Benefit
Plan;
(vi) make any change in accounting methods, principles or practices
materially affecting the reported consolidated assets, liabilities or
results of operations of the Company, except insofar as may have been
required by a change in GAAP, the Code or the treasury regulations under
the Code;
(vii) sell, lease (as lessor), license or otherwise dispose of or
subject to any Lien any material properties or assets, except for
transactions in the ordinary course of business consistent with past
practice;
(viii) (A) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any Company Subsidiary, guarantee any debt securities of another person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another person (other than a wholly-owned Company
Subsidiary) or enter into any arrangement having the economic effect of any
of the foregoing, except for short-term borrowings from persons that are
not directors, officers or employees of the Company or any Company
Subsidiary incurred in the ordinary course of business consistent with past
practice (including under the Company's Credit Agreement, provided such
borrowings do not result in the aggregate principal amount of Term Loans
outstanding thereunder plus the aggregate principal amount of Revolving
Credit Advances thereunder exceeding by $3,000,000 or more, at any given
time, the aggregate principal amount of the Term Loans outstanding on the
date hereof plus the aggregate principal amount of Revolving Credit
Advances outstanding on the date hereof), or (B) make any loans, advances
or capital contributions to, or investments in, any other person, other
than to or in the Company or any direct or indirect wholly owned subsidiary
of the Company;
(ix) make or agree to make any new capital expenditure or expenditures
that are in excess of $100,000 individually or $1,500,000 in the aggregate;
(x) make or change any material Tax election or settle or compromise
any material Tax liability or refund;
(xi) (A) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise) in excess of $25,000 individually or $150,000 in the aggregate,
other than the payment, discharge or satisfaction, in the ordinary course
of business consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated by,
the most recent consolidated financial statements (or the notes thereto) of
the Company included in the Filed Company SEC Documents or incurred in the
ordinary course of business consistent with past practice, (B) cancel any
indebtedness for borrowed money in excess of $25,000 individually or
$150,000 in the aggregate or waive any claims or rights of substantial
value or (C) waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company or
any Company Subsidiary is a party;
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(xii) enter into, renew, extend, amend, modify or waive any material
provision of, or terminate any lease or similar commitment, in each case
providing for payments in excess of $100,000 over the term of such lease or
commitment (or until the date on which such lease or commitment may be
terminated by the Company without penalty) other than the renewals of
leases in the ordinary course of business with no material increase in
payments due thereunder; or
(xiii) authorize, or commit or agree to take, any of the foregoing
actions.
(b) Other Actions. The Company and Parent shall not, and shall not permit
any of their respective subsidiaries to, take any action that would, or that
would reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in this Agreement that is qualified as to
materiality becoming untrue, (ii) any of such representations and warranties
that is not so qualified becoming untrue in any material respect or (iii) any
condition to the Offer set forth in Exhibit A, or any condition to the Merger
set forth in Article VII, not being satisfied.
(c) Advice of Changes. The Company shall promptly advise Parent orally and
in writing of any change or event that has had or would reasonably be expected
to have a Company Material Adverse Effect.
SECTION 5.02. No Solicitation.
(a) The Company shall not, nor shall it authorize or permit any Company
Subsidiary to, nor shall it authorize or permit any officer, director or
employee of, or any investment banker, attorney or other advisor or
representative (collectively, "Representatives") of, the Company or any Company
Subsidiary to, (i) directly or indirectly solicit, initiate or encourage the
submission of, any Company Takeover Proposal (as defined in Section 5.02(e)),
(ii) enter into any agreement with respect to any Company Takeover Proposal or
(iii) directly or indirectly participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Company Takeover
Proposal; provided, however, that prior to the first acceptance for payment of
shares of Company Common Stock pursuant to the Offer the Company may, to the
extent necessary to act in a manner consistent with the fiduciary obligations of
the Company Board, as determined in good faith by it after consultation with
outside counsel, in response to a Company Takeover Proposal that the Company
Board determines, in good faith after consultation with outside counsel, is
reasonably likely to lead to a Superior Company Proposal (as defined in Section
5.02(e)), that was not solicited by the Company and that did not otherwise
result from a breach or a deemed breach of this Section 5.02(a), and subject to
compliance with Section 5.02(c), (x) furnish information with respect to the
Company to the person making such Company Takeover Proposal and its
Representatives pursuant to a customary confidentiality agreement and (y)
participate in discussions or negotiations with such person and its
Representatives regarding such Company Takeover Proposal; and provided, further,
that prior to the first acceptance for payment of shares of Company Common Stock
pursuant to the Offer the Company may, in connection with the Company Credit
Agreement Refinancing or otherwise pursuant to the Company Credit Agreement or
the Company's obligations thereunder, (I) furnish information with respect to
the Company to the Agent and the Lenders under the Company Credit Agreement and
their respective Representatives and (II) participate in discussions or
negotiations with such persons and their Representatives regarding the Company
Credit Agreement or a Company Credit Agreement Refinancing. Without limiting the
foregoing, it is agreed that any violation of the restrictions set forth in the
preceding sentence by any officer, director, investment banker, attorney or
other advisor or representative of the Company or any Company Subsidiary,
whether or not such person is purporting to act on behalf of the Company or any
Company Subsidiary or otherwise, shall be deemed to be a breach of this Section
5.02(a) by the Company.
(b) Unless the Company Board, after consultation with outside counsel,
determines in its good faith judgment that it is necessary to do so in order to
fulfill its fiduciary obligations under applicable Law, neither the Company
Board nor any committee thereof shall (i) withdraw or modify in a manner adverse
to Parent or Sub, or publicly propose to withdraw or modify in a manner adverse
to Parent or Sub, the approval or recommendation by the Company Board or any
such committee of this Agreement, the Offer, the Merger or the other
Recapitalization Transactions, (ii) approve any letter of intent, agreement in
principle, acquisition or similar agreement relating to any Company Takeover
Proposal or (iii) approve or recommend, or publicly
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propose to approve or recommend, any Company Takeover Proposal. The Company
shall not take the actions set forth in clauses (ii) or (iii) of the preceding
sentence unless it has terminated or concurrently terminates this Agreement
pursuant to Section 8.01(e).
(c) The Company promptly shall advise Parent orally and, within two
business days, in writing of any Company Takeover Proposal or any inquiry with
respect to, or that could reasonably be expected to lead to, any Company
Takeover Proposal, the material terms and conditions of any such Company
Takeover Proposal and the identity of the person making any such Company
Takeover Proposal or inquiry. The Company shall (i) keep Parent fully informed
of the status and details (including any change to the terms thereof) of any
such Company Takeover Proposal and (ii) provide to Parent as soon as practicable
after receipt or delivery thereof with copies of all correspondence and other
written material sent or provided to the Company by any third party in
connection with any Company Takeover Proposal or sent or provided by the Company
to any third party in connection with any Company Takeover Proposal.
(d) Nothing contained in this Section 5.02 shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any required
disclosure to the Company's stockholders if, in the good faith judgment of the
Company Board, after consultation with outside counsel, failure so to disclose
would be inconsistent with its obligations under applicable law.
(e) For purposes of this Agreement:
"Company Credit Agreement Refinancing" means an amendment, restatement
or other transaction whereby Fleet National Bank remains as Agent under the
Credit Agreement and the Lenders continue to hold a majority in interest of
the loans thereunder, but which results in a change in the material terms
of the Company Credit Agreement (including without limitation, any of the
loan amounts, financial covenants or ratios or maturity (other than a
one-time extension of the maturity by less than 6 months)), whether such
transaction is accomplished through a bankruptcy proceeding or otherwise).
"Company Takeover Proposal" means (i) any proposal or offer for a
merger, consolidation, dissolution, recapitalization, other business
combination or any refinancing (including, without limitation, any Company
Credit Agreement Refinancing) or other equity or debt restructuring
transaction involving the Company or any significant subsidiary of the
Company (as defined in Regulation S-X of the Federal securities laws), (ii)
any proposal for the issuance by the Company of over 30% of its equity
securities as consideration for the assets or securities of another person
or (iii) any proposal or offer to acquire in any manner, directly or
indirectly, over 30% of the equity securities or consolidated total assets
of the Company, in each case other than pursuant to the Recapitalization
Transactions.
"Superior Company Proposal" means any proposal made by a third party
to complete a recapitalization of the Company by (I) acquiring
substantially all of the equity securities or assets of the Company,
pursuant to a tender or exchange offer, a merger, a consolidation, a
liquidation or dissolution, a recapitalization or a sale of all or
substantially all its assets or any combination of the foregoing, (II)
refinancing the Company Credit Agreement, (III) purchasing or causing the
redemption of the Subordinated Notes and/or, (IV) purchasing or causing the
redemption of the Preference Shares, in the aggregate (a) on terms which
the Company Board determines in good faith to be superior from a financial
point of view to the holders of the Company Common Stock, the Lenders under
the Company Credit Agreement, the holders of the Subordinated Notes and the
holders of the Preference Shares, as the case may be, than the
Recapitalization Transactions, taking into account all the terms and
conditions of such proposal and this Agreement (including any proposal by
Parent to amend the terms of the Recapitalization Transactions), it being
understood that such proposal does not have to be superior to each such
category of holders, but must, in the aggregate, be superior from a
financial point of view to the debt and equity holders of the Company taken
as a whole, and (b) that is reasonably capable of being completed, taking
into account all financial, regulatory, legal and other aspects of such
proposal.
SECTION 5.03. Recapitalization Transactions. From and after the date
hereof, without the consent of Parent, the Company shall not take any action to
amend the material or financial terms and conditions set
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forth in the Notice of Noteholders' Meeting sent to the holders of the
Subordinated Notes or the Notice of Meeting sent to the holders of Preference
Shares or to otherwise change the terms and conditions of any of the
Recapitalization Transactions. From and after the date hereof, the Company shall
use all commercially reasonable efforts to effect the Recapitalization
Transactions in accordance with their terms.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Preparation of Proxy Statement; Stockholders Meeting.
(a) Subject to the last sentence of Section 6.01(b), the Company shall, as
soon as practicable following the expiration of the Offer and the purchase of
the shares of Company Common Stock pursuant thereto, prepare and file with the
SEC the Proxy Statement in preliminary form, and each of the Company, Parent and
Sub shall use their best efforts to respond as promptly as practicable to any
comments of the SEC with respect thereto. The Company shall notify Parent
promptly of the receipt of any comments from the SEC or its staff and of any
request by the SEC or its staff for amendments or supplements to the Proxy
Statement or for additional information and shall supply Parent with copies of
all correspondence between the Company or any of its representatives, on the one
hand, and the SEC or its staff, on the other hand, with respect to the Proxy
Statement. If at any time prior to receipt of the Company Stockholder Approval
there shall occur any event that should be set forth in an amendment or
supplement to the Proxy Statement, the Company shall promptly prepare and mail
to its stockholders such an amendment or supplement. The Company shall not mail
any Proxy Statement, or any amendment or supplement thereto, to which Parent
reasonably objects. The Company shall use its best efforts to cause the Proxy
Statement to be mailed to the Company's stockholders as promptly as practicable
after filing with the SEC.
(b) The Company shall, as soon as practicable following the expiration of
the Offer and the purchase of the shares of Company Common Stock pursuant
thereto, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Company Stockholders Meeting") for the purpose of seeking the
Company Stockholder Approval. Subject to Section 5.02(b)(i), the Company shall,
through the Company Board, recommend to its stockholders that they give the
Company Stockholder Approval. Without limiting the generality of the foregoing,
the Company agrees that its obligations pursuant to the first sentence of this
Section 6.01(b) shall not be affected by the commencement, public proposal,
public disclosure or communication to the Company of any Company Takeover
Proposal. Notwithstanding the foregoing, if Sub or any other subsidiary of
Parent shall acquire at least 90% of the outstanding shares of each series of
Company Capital Stock, the parties shall, at the request of Parent, take all
necessary and appropriate action to cause the Merger to become effective as soon
as practicable after the expiration of the Offer without a stockholders meeting
in accordance with Section 253 of the DGCL.
(c) Parent shall cause all shares of Company Common Stock purchased
pursuant to the Offer and all other shares of Company Common Stock owned by
Parent, Sub or any other subsidiary of Parent to be voted in favor of the
approval of this Agreement.
SECTION 6.02. Access to Information; Confidentiality. The Company shall,
and shall cause each of its subsidiaries to, afford to Parent, and to Parent's
officers, employees, accountants, counsel, financial advisors and other
representatives, upon reasonable notice, reasonable access during normal
business hours during the period prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records and,
during such period, the Company shall, and shall cause each of its subsidiaries
to, furnish promptly to Parent (a) a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to the
requirements of Federal or state securities laws and (b) all other information
concerning its business, properties and personnel as Parent may reasonably
request; provided, however, that the Company may withhold the documents and
information described in the Company Disclosure Letter to the extent required to
comply with the terms of a confidentiality agreement with a third party in
effect on the date of this Agreement; provided further, that the Company shall
use all commercially reasonable efforts to obtain, as promptly as practicable,
any consent from such third party required to permit
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the Company to furnish such documents and information to Parent. Subject to
Section 6.07, all information exchanged pursuant to this Section 6.02 shall be
subject to the confidentiality agreement dated as of March 20, 2003 between the
Company and Parent (the "Confidentiality Agreement").
SECTION 6.03. Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties hereto shall use all commercially reasonable
efforts to take, or cause to be taken, all reasonable actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things reasonably necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Offer, the Merger and
the other Recapitalization Transactions, including (i) the obtaining of all
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities, if any) and the taking of all
reasonable steps as may be necessary to obtain an approval or waiver from, or to
avoid an action or proceeding by, any Governmental Entity, (ii) the obtaining of
all necessary consents, approvals or waivers from third parties, (iii) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
Recapitalization Transactions, including, when reasonable, seeking to have any
stay or temporary restraining order entered by any court or other Governmental
Entity vacated or reversed and (iv) the execution and delivery of any additional
instruments necessary to consummate the Recapitalization Transactions and to
fully carry out the purposes of this Agreement. In connection with and without
limiting the foregoing, the Company and the Company Board shall (i) take all
action necessary to ensure that no state takeover statute or similar statute or
regulation is or becomes applicable to any Transaction, this Agreement or the
Tender Agreements and (ii) if any state takeover statute or similar statute or
regulation becomes applicable to this Agreement or the Tender Agreements, take
all action necessary to ensure that the Offer, the Merger and the other
Recapitalization Transactions 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 Offer, the Merger and the other
Recapitalization Transactions. Nothing in this Agreement shall be deemed to
require any party to waive any substantial rights or agree to any substantial
limitation on its operations or to dispose of any significant asset or
collection of assets.
(b) The Company shall give prompt notice to Parent, and Parent or Sub shall
give prompt notice to the Company, of (i) any representation or warranty made by
it contained in this Agreement that is qualified as to materiality becoming
untrue or inaccurate in any respect or any such representation or warranty that
is not so qualified becoming untrue or inaccurate in any material respect or
(ii) the failure by it to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
SECTION 6.04. Stock Options.
(a) As soon as practicable following the date of this Agreement, the
Company Board (or, if appropriate, any committee administering the Company Stock
Plans) shall adopt such resolutions or take such other actions as are required
to provide notice to holders of Company Stock Options required under the terms
of the Company Stock Plans and to adjust the terms of all outstanding Company
Stock Options heretofore granted under any Company Stock Plan to provide that,
after giving effect to the actions taken by the Company Board under the Company
Stock Plans, such Company Stock Options will be exercisable at the time of the
first acceptance for payment of shares of Company Common Stock pursuant to the
Offer (the "Exercisable Options"), and further to provide that each such
Exercisable Option outstanding at the time of the first acceptance for payment
of shares of Company Common Stock pursuant to the Offer shall be canceled in
exchange for a cash payment by the Company as soon as practicable following the
first acceptance for payment of shares of Company Common Stock pursuant to the
Offer of an amount equal to (i) the excess, if any, of (x) the highest price per
share of Company Common Stock to be paid pursuant to the Offer over (y) the
exercise price per share of Company Common Stock subject to such Exercisable
Option, multiplied by (ii) the number of shares of Company Common Stock for
which such Exercisable Option shall not
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theretofore have been exercised. The Company will be responsible for any
required reporting to Federal, state or local tax authorities.
(b) All amounts payable pursuant to Section 6.04(a) shall be subject to any
required withholding of Taxes or proof of eligibility of exemption therefrom and
shall be paid without interest by the Company as soon as practicable following
the first acceptance for payment of shares of Company Common Stock pursuant to
the Offer. The Company shall use its commercially reasonable efforts to obtain
all consents of the holders of Company Stock Options as shall be necessary to
effectuate the foregoing. Notwithstanding anything to the contrary contained in
this Agreement, payment shall, at Parent's request, be withheld in respect of
the holder of any particular Company Stock Option until any necessary consent
from such holder with respect to such Company Stock Option is obtained.
(c) The Company Stock Plans shall terminate as of the Effective Time, and
the provisions in any other Company Benefit Plan providing for the issuance,
transfer or grant of any capital stock of the Company or any interest in respect
of any capital stock of the Company shall be deleted as of the Effective Time,
and the Company shall ensure that following the Effective Time no holder of a
Company Stock Option or any participant in any Company Stock Plan, or other
Company Benefit Plan shall have any right thereunder to acquire any capital
stock of the Company or the Surviving Corporation.
(d) The Company shall use its commercially reasonable efforts to obtain all
necessary consents, waivers or releases from holders of Company Stock Options
and shall take such action as may be reasonably necessary to give effect to, and
accomplish, the transactions contemplated by this Section 6.04; provided,
however, that in no event shall this Section 6.04(d) require the Company to pay
any consideration to the holders of the Company Stock Options to obtain such
consents, waivers or releases.
(e) In this Agreement:
"Company Stock Option" means any option to purchase Company Common
Stock granted under any Company Stock Plan.
"Company Stock Plans" means the Applied Graphics Technologies, Inc.
1996 Stock Option Plan, the Applied Graphics Technologies, Inc. 1998
Incentive Compensation Plan, as amended and restated, and the Applied
Graphics Technologies, Inc. Non-Employee Directors Non-Qualified Stock
Option Plan and all agreements under which there are outstanding options to
purchase Company Common Stock granted to employees, consultants or any
other person.
SECTION 6.05. Indemnification.
(a) Parent shall, to the fullest extent permitted by Law, cause the Company
(from and after the Control Date) and the Surviving Corporation (from and after
the Effective Time) to honor all the Company's obligations to indemnify, defend
and hold harmless the current and former directors and officers of the Company
and its subsidiaries for acts or omissions by any such directors and officers
occurring prior to the Effective Time to the maximum extent that such
obligations of the Company exist on the date of this Agreement, whether pursuant
to the Company Charter, the Company By-laws, the DGCL, or otherwise, and such
obligations shall survive the Merger and shall continue in full force and effect
in accordance with the terms of the Company Charter, the Company By-laws and the
DGCL from the Effective Time until the expiration of the applicable statute of
limitations with respect to any claims against such directors or officers
arising out of such acts or omissions. In the event a current or former director
or officer of the Company or any of its subsidiaries is entitled to
indemnification under this Section 6.05(a), such director or officer shall be
entitled to reimbursement from the Company or the Surviving Corporation (from
and after the Effective Time) for reasonable attorney fees and expenses incurred
by such director or officer in pursuing such indemnification, including payment
of such fees and expenses by the Surviving Corporation or the Company, as
applicable, in advance of the final disposition of such action upon receipt of
an undertaking by such current or former director or officer to repay such
payment unless it shall be adjudicated that such current or former director or
officer was entitled to such payment.
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(b) From and after the Control Date and for a period of six years after the
Effective Time, Parent shall cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by the
Company (provided that Parent may either (i) substitute therefor policies with
reputable and financially sound carriers or (ii) maintain self insurance or
similar arrangements through a financially sound insurance affiliate of Parent,
in each case of at least the same coverage and amounts containing terms and
conditions which are no less advantageous) with respect to claims arising from
or related to facts or events which occurred at or before the Effective Time;
provided, however, that Parent shall not be obligated to make premium payments
over such six year period for such insurance to the extent such aggregate
premiums exceed $1,300,000 (the "Maximum Premium"). If such insurance coverage
cannot be obtained at all, or can only be obtained at an aggregate premium in
excess of the Maximum Premium, Parent shall maintain the most advantageous
policies of directors' and officers' insurance obtainable for an aggregate
premium equal to the Maximum Premium.
SECTION 6.06. Fees and Expenses.
(a) Except as provided below, all fees and expenses incurred in connection
with the Merger and the other Recapitalization Transactions (including, without
limitation, all fees and expenses of counsel, accountants, investment bankers,
experts and consultants to a party hereto and its affiliates) shall be paid by
the party incurring such fees or expenses, whether or not the Recapitalization
Transactions are consummated.
(b) The Company agrees to pay Parent:
(1) a non-refundable fee equal to $4,000,000 plus all reasonable fees
and expenses incurred by Parent, Sub and their affiliates in connection
with the Recapitalization Transactions, up to a maximum of $1,000,000
(exclusive of any fees and expenses paid in accordance with clause (c)
hereof) if :
(i)(x) this Agreement is terminated for any reason, other than: (I)
a termination by the Company due to a Parent Breach (as defined below),
(II) a Funding Failure (as defined below), or (III) a termination by
Parent in accordance with Section 8.01(b)(iii) as a result of the
failure of the Offer to close solely as a result of the failure to meet
the condition set forth in clause (c) of Exhibit A (a "MAC
Termination"), and
(y) within 12 months of such termination the Company enters into a
definitive agreement to consummate, or consummates, a transaction that
could constitute a Company Takeover Proposal other than a Company Credit
Agreement Refinancing.
For purposes of this clause (i):
(A) a "Parent Breach" shall mean Parent willfully and materially
(x) breaches or (y) fails to perform, any of its representations,
warranties or covenants contained in this Agreement, which breach or
failure to perform cannot be or has not been cured within 15 days
after the giving of written notice to Parent of such breach or
failure to perform (provided that the Company is not then in material
breach of any representation, warranty or covenant contained in this
Agreement).
(B) a "Funding Failure" shall mean that the financing
contemplated by the Commitment Letters shall not have been
consummated in accordance with the terms thereof.
(ii) the Company terminates this Agreement pursuant to Section
8.01(e); or
(iii) Parent terminates this Agreement pursuant to Section 8.01(d).
(2) a non-refundable fee equal to $2,500,000 plus all reasonable fees
and expenses incurred by Parent, Sub and their affiliates in connection
with the Recapitalization Transactions, up to a maximum of $1,000,000
(exclusive of any fees and expenses paid in accordance with clause (c)
hereof) if (i) this Agreement is terminated for any reason, other than (A)
a termination by the Company due to a Parent Breach, (B) a Funding Failure
or (C) a MAC Termination and (ii) within 12 months of such termination the
Company enters into a definitive agreement to consummate, or consummates, a
Company Credit Agreement Refinancing.
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Any fee due under this Section 6.06(b) shall be paid by wire transfer of
same-day funds on the date of termination of this Agreement (except that in the
case of clause (1)(i) or (2) above such payment shall be made on the date of
execution of such definitive agreement or, if earlier, consummation of such
transaction).
(c) Immediately upon execution of this Agreement, the Company agrees to
reimburse Parent for all reasonable fees and expenses incurred by Parent, Sub
and their affiliates in connection with the Recapitalization Transactions prior
to the date hereof, up to a maximum of $500,000, such payment to be made by wire
transfer of same day funds.
(d) Without duplication of any payment required by Section 6.06(b) or (c),
if this Agreement is terminated for any reason other than a termination by the
Company due to a Parent Breach, the Company agrees to reimburse Parent for all
reasonable fees and expenses incurred by Parent, Sub and their affiliates in
connection with the Recapitalization Transactions up to a maximum of $1,000,000
(exclusive of any fees and expenses paid in accordance with clause (c) hereof),
such payment to be made by wire transfer of same day funds on the date of
termination of this Agreement.
(e) The Company acknowledges that the agreements contained in this Section
6.06 are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, Parent would not enter into this Agreement;
accordingly, if the Company fails to pay the amounts due pursuant to this
Section 6.06, and, in order to obtain any such payment, Parent and/or Sub
commences a legal proceeding which results in a judgment against the Company for
the amounts set forth in this Section 6.06, the Company shall pay to Parent and
Sub their reasonable costs and expenses (including attorneys' fees) in
connection with such proceeding, together with interest on the amounts set forth
in this Section 6.06 at the prime rate of Citibank N.A. in effect on the date
any such payment was required to be made and Parent agrees that if such legal
proceeding results in a judgment against Parent and/or Sub, as applicable, then
Parent and/or Sub, as applicable shall pay the Company its reasonable costs and
expenses (including attorneys' fees) in connection with such proceeding.
(f) The obligations of the Company set forth in this Section 6.06 shall be
Parent's and Sub's sole remedy with respect to any breach of the Company's
representations, warranties or obligations to be performed prior to the
consummation of the Offer under this Agreement and with respect to any such
breach, Parent and Sub shall waive, to the fullest extent permitted by Law, any
and all rights, claims and causes of action (other than claims of, or causes of
action arising from, fraud) they may have against the Company with respect to
such breach.
SECTION 6.07. Public Announcements. Parent and Sub, on the one hand, and
the Company, on the other hand, shall consult with each other before issuing,
and provide each other the opportunity to review and comment upon, any press
release or other public statements (including any filings with any federal or
state governmental or regulatory agency or with the American Stock Exchange)
with respect to the Recapitalization Transactions and shall not issue any such
press release or make any such public statement prior to such consultation,
except as may be required by applicable Law (including foreign regulations
relating to competition), court process or by obligations pursuant to any
listing agreement with any national securities exchange. Notwithstanding
anything to the contrary herein or in the Confidentiality Agreement, any party
to this Agreement (and each employee, representative, or other agent of such
party) may disclose to any and all persons, without limitation of any kind, the
tax treatment and tax structure of the Recapitalization Transactions and all
materials of any kind (including opinions or other tax analyses) that are
provided to it relating to such tax treatment and tax structure; provided,
however, that this sentence shall not permit any disclosure that otherwise is
prohibited by this Agreement if such disclosure would result in a violation of
applicable federal or state securities Laws.
SECTION 6.08. Transfer Taxes. All stock transfer, real estate transfer,
documentary, stamp, recording and other similar Taxes (including interest,
penalties and additions to any such Taxes) ("Transfer Taxes") incurred in
connection with the Recapitalization Transactions shall be paid by the party
upon whom the primary burden for payment is placed by the applicable Law. Each
party shall cooperate with the other in preparing, executing and filing any Tax
Returns with respect to such Transfer Taxes and shall use
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commercially reasonable efforts to avail itself of any available exemptions from
such Transfer Taxes, and shall cooperate in providing any information and
documentation that may be necessary to obtain such exemptions.
SECTION 6.09. Directors. Promptly upon the first acceptance for payment
of, and payment by Sub for, any shares of Company Common Stock pursuant to the
Offer, Sub shall be entitled to designate such number of directors on the
Company Board as will give Sub, subject to compliance with Section 14(f) of the
Exchange Act, representation on the Company Board equal to at least that number
of directors, rounded up to the next whole number, which is the product of (a)
the total number of directors on the Company Board (giving effect to the
directors elected pursuant to this sentence) multiplied by (b) the percentage
that (i) such number of shares of Company Common Stock so accepted for payment
and paid for by Sub plus the number of shares of Company Common Stock otherwise
owned by Sub or any other subsidiary of Parent bears to (ii) the number of such
shares outstanding, and the Company shall, at such time, cause Sub's designees
to be so elected; provided, however, that in the event that Sub's designees are
appointed or elected to the Company Board, until the Effective Time the Company
Board shall have at least three directors who are directors on the date of this
Agreement and who are not officers of the Company (the "Independent Directors");
and provided further that, in such event, if the number of Independent Directors
shall be reduced below three for any reason whatsoever, any remaining
Independent Directors (or Independent Director, if there shall be only one
remaining) shall be entitled to designate persons to fill such vacancies who
shall be deemed to be Independent Directors for purposes of this Agreement or,
if no Independent Directors then remain, the other directors shall designate
three persons to fill such vacancies who are not officers, stockholders or
affiliates of the Company, Parent or Sub, and such persons shall be deemed to be
Independent Directors for purposes of this Agreement. Subject to applicable Law,
the Company shall take all action requested by Parent necessary to effect any
such election, including mailing to its stockholders the Information Statement
containing the information required by Section 14(f) of the Exchange Act and
Rule 14f-1 promulgated thereunder, and the Company shall make such mailing with
the mailing of the Schedule 14D-9 (provided that Sub shall have provided to the
Company on a timely basis all information required to be included in the
Information Statement with respect to Sub's designees). In connection with the
foregoing, the Company shall promptly, at the option of Sub, either increase the
size of the Company Board or obtain the resignation of such number of its
current directors as is necessary to enable Sub's designees to be elected or
appointed to the Company Board as provided above.
SECTION 6.10. Stockholder Litigation. The Company shall give Parent the
opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and its directors relating to any
Recapitalization Transaction; provided, however, that the Company shall not
enter into any such settlement without Parent's consent, which consent shall not
be unreasonably withheld.
SECTION 6.11. Benefit Plans. Except as set forth in Section 6.04, Parent
agrees to cause the Surviving Corporation, for a period of 12 months immediately
following the Effective Time, to provide to each current employee of the Company
and its subsidiaries severance benefits that are not less favorable than the
severance benefits applicable immediately prior to the date hereof and other
benefits (other than equity-based plans) that are not materially less favorable
in the aggregate to such employees than those benefits in effect for such
employees on the date of this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01. Conditions to Each Party's Obligation To Effect The
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The Company shall have obtained the Company
Stockholder Approval, if required.
(b) Antitrust. If required by Law, the waiting period (and any
extension thereof) applicable to the Merger under the HSR Act shall have
been terminated or shall have expired. Any consents, approvals
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and filings under any other foreign antitrust Law the absence of which
would prohibit the consummation of Merger, shall have been obtained or
made.
(c) No Injunctions or Restraints. No statute, rule, regulation,
executive order, decree, temporary restraining order, preliminary or
permanent injunction or other order enacted, entered, promulgated, enforced
or issued by any Governmental Entity, court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the
Merger or the other Recapitalization Transactions shall be in effect;
provided, however, that prior to asserting this condition each of the
parties shall have used all commercially reasonable efforts to prevent the
entry of any such injunction or other order and to appeal as promptly as
possible any such injunction or other order that may be entered.
(d) Acceptance of Shares Pursuant to the Offer. Sub shall have
accepted shares of Company Common Stock for payment pursuant to the Offer
and shall have delivered to the Paying Agent or other appropriate party
arranging for payment for such shares, all funds necessary to pay for such
shares accepted; provided, that the obligation of a party to effect the
Merger shall not be conditioned on the fulfillment of the condition set
forth in this clause (d) if the failure of Sub to accept shares of Company
Common Stock for payment pursuant to the Offer or provide the funds
necessary to pay for such shares shall have constituted or resulted from a
material breach of the Offer or this Agreement by such party.
(e) Closing of the Other Recapitalization Transactions. Each of the
Recapitalization Transactions other than the Merger shall have closed
immediately prior to or contemporaneously with the Offer.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after receipt of Company
Stockholder Approval:
(a) by mutual written consent of Parent, Sub and the Company;
(b) by either Parent or the Company:
(i) if the Offer is not consummated on or before July 31, 2003 (the
"Outside Date"), unless the failure to consummate the Offer is the
result of a willful and material breach of this Agreement by the party
seeking to terminate this Agreement;
(ii) if any Governmental Entity issues an order, decree or ruling
or takes any other action permanently enjoining, restraining or
otherwise prohibiting the acceptance for payment of, or payment for,
shares of Company Common Stock pursuant to the Offer or the Merger and
such order, decree, ruling or other action shall have become final and
nonappealable, provided that such right of termination under this clause
(ii) shall not be available to such party if such order, decree or
ruling was primarily issued due to the failure of such party to comply
in any material respect with its obligations hereunder; or
(iii) if as the result of the failure of any of the conditions set
forth in Exhibit A to this Agreement, the Offer shall have terminated or
expired in accordance with its terms without Sub having accepted shares
of Company Common Stock for payment pursuant to the Offer; provided,
however, that the right to terminate this Agreement pursuant to this
clause (iii) shall not be available to any party whose failure to
fulfill any of its obligations under this Agreement results in the
failure of any such condition or if the failure of such condition
results from facts or circumstances that constitute a willful breach of
any representation or warranty under this Agreement by such party; or
(iv) if Sub fails to commence the Offer as provided in Section
1.01(a) on or before June 26, 2003 due to the failure of the condition
set forth in paragraph (a) of Exhibit A; provided, however, that the
right to terminate this Agreement pursuant to this clause (iv) shall not
be available to the Company if its failure to fulfill any of its
obligations under this Agreement results in the failure of
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the condition described in paragraph (a) of Exhibit A or if the failure
of the condition described in paragraph (a) of Exhibit A results from
facts or circumstances that constitute a willful breach of any
representation or warranty under this Agreement by the Company; or
(c) by Parent, if the Company breaches or fails to perform in any
material respect any of its representations, warranties or covenants
contained in this Agreement, which breach or failure to perform (i) would
give rise to the failure of a condition set forth in Exhibit A, and (ii)
cannot be or has not been cured within 15 days after the giving of written
notice to the Company of such breach (provided that Parent is not then in
material breach of any representation, warranty or covenant contained in
this Agreement); provided, however, that there shall be no notice and right
of cure regarding the obligations of the Company under Section 5.02 or 5.03
hereof; or
(d) by Parent prior to the first acceptance of shares of Company
Common Stock for payment pursuant to the Offer:
(i) if the Company Board or any committee thereof withdraws or
modifies in a manner adverse to Parent or Sub, or publicly proposes to
withdraw or modify in a manner adverse to Parent or Sub, its approval or
recommendation of this Agreement, the Offer or the Merger, fails to
recommend to the Company's stockholders that they accept the Offer and
give the Company Stockholder Approval or publicly approves or
recommends, or publicly proposes to approve or recommend, any Company
Takeover Proposal; or
(ii) if the Company or any of its officers, directors,
representatives or agents takes any of the actions that would be
proscribed by Section 5.02 but for the exceptions therein allowing
certain actions to be taken pursuant to the proviso in the first
sentence of Section 5.02(a); or
(e) by the Company prior to the first acceptance of shares of Company
Common Stock for payment pursuant to the Offer only if (i) the Company
Board has received a Superior Company Proposal, (ii) in light of such
Superior Company Proposal the Company Board shall have determined in good
faith, after consultation with outside counsel, that it is necessary for
the Company Board to withdraw or modify its approval or recommendation of
this Agreement, the Offer or the Merger in order to comply with its
fiduciary duty under applicable Law, (iii) the Company has notified Parent
in writing of the determinations described in clause (ii) above, (iv) at
least three business days following receipt by Parent of the notice
referred to in clause (iii) above, and taking into account any revised
proposal made by Parent since receipt of the notice referred to in clause
(iii) above, such Superior Company Proposal remains a Superior Company
Proposal and the Company Board has again made the determinations referred
to in clause (ii) above, (v) the Company is in compliance with Section
5.02, (vi) the Company has previously paid the fee due under Section 6.06,
and (vii) the Company Board concurrently approves, and the Company
concurrently enters into, a definitive agreement providing for the
implementation of such Superior Company Proposal;
(f) by the Company prior to the first acceptance of shares of Company
Common Stock for payment pursuant to the Offer, if Parent breaches or fails
to perform in any material respect any of its representations, warranties
or covenants contained in this Agreement, which breach or failure to
perform cannot be or has not been cured within 15 days after the giving of
written notice to Parent of such breach (provided that the Company is not
then in material breach of any representation, warranty or covenant
contained in this Agreement); provided, however, that there shall be no
notice and right of cure regarding the obligation of Parent and Sub to
commence the Offer in accordance with the terms of Section 1.01(a) or to
their funding obligations in clause 1.01(f).
(g) by Parent prior to the first acceptance of shares of Company
Common Stock for payment pursuant to the Offer, if any of the
Recapitalizations Transactions are not capable of being consummated
contemporaneously with the consummation of the Offer.
SECTION 8.02. Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 8.01, this
Agreement shall forthwith become void and have no effect. Such termination shall
be without any liability or obligation on the part of Parent, Sub or the
Company,
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other than Section 3.23 (Brokers; Schedule of Fees and Expenses), Section 4.06
(Brokers), the last sentence of Section 6.02 (Access to Information;
Confidentiality), Section 6.06 (Fees and Expenses), this Section 8.02 and
Article IX (General Provisions), which provisions shall survive such
termination, and except to the extent that such termination results from the
willful and material breach by a party of any representation, warranty or
covenant set forth in this Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the parties at
any time before or after receipt of the Company Stockholder Approval; provided,
however, that after receipt of the Company Stockholder Approval, there shall be
made no amendment that by Law requires further approval by the stockholders of
the Company without the further approval of such stockholders; and provided,
further, that after Sub's purchase of shares in the Offer, no such amendment or
modification shall be made that reduces the amount or changes the form of Merger
Consideration or otherwise materially and adversely affects the rights of the
Company's stockholders hereunder, without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
SECTION 8.04. Extension; Waiver. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 8.03, waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
SECTION 8.05. Procedure for Termination, Amendment, Extension or
Waiver. A termination of this Agreement pursuant to Section 8.01, an amendment
of this Agreement pursuant to Section 8.03 or an extension or waiver pursuant to
Section 8.04 shall, in order to be effective, require in the case of Parent, Sub
or the Company, action by its Board of Directors or the duly authorized designee
of its Board of Directors; provided, that in the case of the Company and in the
event the Offer has been consummated and the shares of Company Common Stock have
been purchased pursuant thereto, such action shall also require action by a
majority of the Independent Directors.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 9.01
(including any rights arising out of any breach of such representations and
warranties) shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
SECTION 9.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given (i) seven days after mailing by certified mail, (ii) when delivered by
hand, (iii) upon confirmation of receipt by telecopy or (iv) one business day
after
A-39
sending by overnight delivery service, to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
KAGT Holdings, INC.
111 Radio Circle
Mount Kisco, New York 10549
Attention: Mr. Christopher Lacovara
Facsimile: 914-244-0689
with a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Daniel S. Evans, Esq.
Facsimile: 617-951-7050
(b) if to the Company, to
Applied Graphics Technologies, Inc.
450 West 33rd Street
New York, NY 10001
Attention: Martin D. Krall, Esq.
General Counsel
Facsimile: 212 210-2312
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Ted S. Waksman, Esq.
Facsimile: 212-310-8007
SECTION 9.03. Definitions. For purposes of this Agreement:
An "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person.
A "key employee" means an employee of the Company or any Company
Subsidiary whose total annual compensation (including incentive
compensation), after giving effect to any increase after the date of this
Agreement, exceeds $200,000.
A "material adverse effect" solely for purposes of defining Company
Material Adverse Effect and Parent Material Adverse Effect shall mean a
material adverse effect on the business, assets, condition (financial or
otherwise), or results of operations of such party and its subsidiaries,
taken as a whole, other than, in the case of the Company and the Company
Subsidiaries, effects solely arising out of or resulting from changes in
general legal, regulatory, political, economic or business conditions or
changes in GAAP that, in each case generally affect industries in which the
Company or the Company Subsidiaries conduct business.
A "person" means any individual, firm, corporation, partnership,
company, limited liability company, trust, joint venture, association,
Governmental Entity or other entity.
A "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests
of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person.
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"to the knowledge" of any specified corporation means to the actual
knowledge of any director or officer of such corporation, after reasonable
inquiry.
SECTION 9.04. Interpretation; Disclosure Letters. When a reference is
made in this Agreement to a Section, such reference shall be to a Section of
this Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". Any matter disclosed in
any section of the Company Disclosure Letter shall be deemed disclosed only for
the purposes of the specific Section to which it relates.
SECTION 9.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule or law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 9.06. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 9.07. Entire Agreement; Third-Party Beneficiaries. This
Agreement, taken together with the Company Disclosure Letter and the
Confidentiality Agreement, (a) constitute the entire agreement, and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the matters contained herein and (b) except for the
provisions of Article II, Section 6.04 and Section 6.05, are not intended to
confer upon any person other than the parties any rights or remedies.
SECTION 9.08. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 9.09. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, except that Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Parent or to any direct or indirect wholly owned subsidiary of
Parent, but no such assignment shall relieve Sub of any of its obligations under
this Agreement. Any purported assignment without such consent shall be void.
Subject to the preceding sentences, this Agreement will be binding upon, inure
to the benefit of, and be enforceable by, the parties and their respective
successors and assigns.
SECTION 9.10. Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Delaware state court or any
Federal court located in the State of Delaware, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal jurisdiction
of any Delaware state court or any Federal court located in the State of
Delaware in the event any dispute arises out of this Agreement or any
Transaction, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, (c)
agrees that it will not bring any action relating to this Agreement or any
Transaction in any court other than any Delaware state court or any Federal
court sitting in the State of Delaware and (d) waives any right to trial by jury
with respect to any action related to or arising out of this Agreement or any
Transaction.
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SECTION 9.11. Consents. Whenever this Agreement requires or permits
consent by or on behalf of any party hereto, such consent shall be given in
writing in a manner consistent with the requirements for a waiver of compliance
as set forth in Sections 8.04 and 8.05. Sub hereby agrees that any consent or
waiver of compliance given by Parent hereunder shall be conclusively binding
upon it, whether given expressly on its behalf or not.
[The remainder of this page is intentionally left blank.]
A-42
IN WITNESS WHEREOF, Parent, Sub and the Company have duly executed this
Agreement, all as of the date first written above.
KAGT HOLDINGS, INC.
By: /s/ CHRISTOPHER LACOVARA
------------------------------------
Name: Christopher Lacovara
Title: President
KAGT ACQUISITION CORP.
By: /s/ CHRISTOPHER LACOVARA
------------------------------------
Name: Christopher Lacovara
Title: President
APPLIED GRAPHICS TECHNOLOGIES, INC.
By: /s/ FRED DRASNER
------------------------------------
Name: Fred Drasner
Title: Chairman of the Board
Chief Executive Officer
A-43
EXHIBIT A
CONDITIONS OF THE OFFER
Notwithstanding any other term or provision of the Offer or this Agreement,
Sub shall not be required to accept for payment or, subject to any applicable
rules and regulations of the SEC, including Rule 14e-l(c) under the Exchange Act
(relating to Sub's obligation to pay for or return tendered shares of Company
Common Stock promptly after the termination or withdrawal of the Offer), to pay
for any shares of Company Common Stock tendered pursuant to the Offer unless (i)
there shall have been validly tendered and not withdrawn prior to the expiration
of the Offer that number of shares of Company Common Stock which, together with
that number of shares of Company Common Stock owned by Parent, Sub and Parent's
other subsidiaries, would represent more than fifty percent (50%) of the Fully
Diluted Shares (the "Minimum Tender Condition") and (ii) any waiting period
under the HSR Act, if applicable to the purchase of shares of Company Common
Stock pursuant to the Offer, shall have expired or been terminated. The term
"Fully Diluted Shares" means all outstanding securities entitled generally to
vote in the election of directors of the Company on a fully diluted basis, after
giving effect to the exercise or conversion of all In-the-Money Company Stock
Options and any other options, rights and securities exercisable or convertible
into such voting securities in connection with the consummation of the Offer
(other than the warrants held by the Lenders on the date hereof). Furthermore,
notwithstanding any other term of the Offer or this Agreement, Sub shall not be
required to accept for payment or, subject as aforesaid, to pay for any shares
of Company Common Stock not theretofore accepted for payment or paid for, and
may terminate or amend the Offer, (A) with the consent of the Company or (B)
without the consent of the Company, if immediately prior to the expiration of
the Offer and before the first acceptance of such shares for payment or the
payment therefor any of the following conditions exists:
(a) there shall be pending any suit, action or proceeding (other than
(i) by Parent or Sub, or a stockholder of Parent (that is not also a
stockholder of the Company) or Sub, (ii) by a stockholder of the Company
either on his, her or its own behalf, on the behalf of a class, or on the
behalf of the Company, in any case, challenging the Recapitalization
Transactions, or (iii) by a holder of Preference Shares or Subordinated
Notes, in either case, challenging the Recapitalization Transactions)
which, in the reasonable judgment of Parent, has a reasonable likelihood of
success or would require the expenditure of funds that are material in
relation to the Company and its subsidiaries taken as a whole to defend (i)
challenging the acquisition by Parent or Sub of any Company Common Stock,
seeking to restrain or prohibit the making or consummation of the Offer or
the Merger or any other Recapitalization Transactions, or seeking to obtain
from the Company, Parent or Sub any damages that are material in relation
to the Company and its subsidiaries taken as a whole, (ii) seeking to
prohibit or limit the ownership or operation by the Company, Parent or any
of their respective subsidiaries of any material portion of the business or
assets of the Company and its subsidiaries taken as whole or Parent and its
subsidiaries taken as a whole, or to compel the Company, Parent or any of
their respective subsidiaries to dispose of or hold separate any material
portion of the business or assets of the Company and its subsidiaries taken
as whole or Parent and its subsidiaries taken as a whole, as a result of
the Offer or the Merger or any other Recapitalization Transactions, (iii)
seeking to impose limitations on the ability of Parent or Sub to acquire or
hold, or exercise full rights of ownership of, any shares of Company Common
Stock, including the right to vote the Company Common Stock acquired by it
on all matters properly presented to the stockholders of the Company, (iv)
seeking to prohibit Parent or any of its subsidiaries from effectively
controlling in any material respect the business or operations of the
Company and the Company Subsidiaries, or (v) that otherwise would
reasonably be expected to have a material adverse effect on the business,
assets, condition (financial or otherwise), or results of operations of the
Company and the Company Subsidiaries, taken as a whole;
(b) any Law or Judgment enacted, entered, enforced, promulgated,
amended or issued with respect to, or deemed applicable to, or any required
consent or approval withheld with respect to, (i) Parent, the Company or
any of their respective subsidiaries or (ii) the Offer, the Merger or any
other Recapitaliza-
A-44
tion Transaction, by any Governmental Entity that is reasonably likely to
result, directly or indirectly, in any of the consequences referred to in
paragraph (a) above;
(c) since the date of this Agreement there shall have occurred any
event, change, effect or development that, individually or in the
aggregate, has had or would reasonably be expected to have, a material
adverse effect on the business, assets, condition (financial or otherwise),
or results of operations of the Company and the Company Subsidiaries, taken
as a whole;
(d) the Company Board or any committee thereof shall have withdrawn or
modified in a manner adverse to Parent or Sub, or publicly proposed to
withdraw or modify in a manner adverse to Parent or Sub, its approval or
recommendation of this Agreement, the Offer or the Merger, failed to
recommend to the Company's stockholders that they accept the Offer or
approved or recommended, or publicly proposed to approve or recommend, any
Company Takeover Proposal;
(e) all of the conditions to closing each of the Recapitalization
Transactions (other than the Offer and the Merger) shall not have been met
or waived, resulting in the failure of such Recapitalizations Transactions
either to have been consummated or to be capable of being consummated
contemporaneously with the consummation of the Offer (or, in the case of
the Recapitalization Transactions concerning the Subordinated Notes and the
Preference Shares, in the period as soon as possible following the
consummation of the Offer, after all actions of the holders of Subordinated
Notes and Preference Shares, as the case may be, required to consummate
such Recapitalization Transactions have been taken and are effective
contemporaneously with the consummation of the Offer);
(f) any of the representations and warranties of the Company contained
in the Agreement (as each such representation or warranty would read as if
all qualifications as to materiality were deleted therefrom) shall not be
true and correct when made or at any time prior to the consummation of the
Offer as if made at and as of such time except where the failure to be so
true and correct, individually or in the aggregate, has not had and would
not reasonably be expected to have, a Company Material Adverse Effect;
(g) the Company shall have failed to perform in any material respect
any obligation or to comply in any material respect with any agreement or
covenant of the Company to be performed or complied with by it under this
Agreement, which failure to perform or comply cannot be or has not been
cured within five business days after the giving of written notice to the
Company of such breach;
(h) this Agreement shall have been terminated in accordance with its
terms or amended in accordance with its terms to provide for such
termination or amendment to the Offer;
(i) the Company has failed to obtain the consent of Sears Roebuck and
Co. and McGraw-Hill Companies, Inc., as necessary to consummate the
Recapitalization; or
(j) the financing contemplated in the Debt Commitment Letter shall not
have been consummated in accordance with the terms thereof.
which, in the sole and good faith judgment of Sub or Parent, in any such case,
and regardless of the circumstances giving rise to any such condition (including
any action or inaction by Parent or any of its affiliates, but excluding a
circumstance resulting solely from a willful and material breach by Parent or
Sub), makes it inadvisable to proceed with such acceptance for payment or
payment.
The foregoing conditions are for the sole benefit of Sub and Parent and,
subject to Section 1.01(a), may be asserted by Sub or Parent regardless of the
circumstances giving rise to such condition or may be waived by Sub and Parent
in whole or in part at any time and from time to time in their sole discretion
(subject to the terms of this Agreement). The failure by Parent, Sub or any
other affiliate of Parent at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right, the waiver of any such right
with respect to particular facts and circumstances shall not be deemed a waiver
with respect to any other facts and circumstances and each such right shall be
deemed an ongoing right that may be asserted at any time and from time to time.
A-45
ANNEX B
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
RIGHTS OF APPRAISAL
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b., and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
B-1
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, then either a constituent corporation
before the effective date of the merger or consolidation or the surviving
or resulting corporation within 10 days thereafter shall notify each of the
holders of any class or series of stock of such constituent corporation who
are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section. Such notice may, and, if
given on or after the effective date of the merger or consolidation, shall,
also notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise
B-2
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
B-3
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
B-4
APPLIED GRAPHICS TECHNOLOGIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD OCTOBER 10, 2003.
The undersigned hereby appoints Chris Lacovara and Gordon Woodward, and
each of them, attorneys and proxies, with power of substitution and revocation,
to vote, as designated below, all shares of Common Stock that the undersigned is
entitled to vote, with all powers that the undersigned would possess if
personally present at the Special Meeting (including all adjournments thereof)
of Stockholders of Applied Graphics Technologies, Inc. to be held on October 10,
2003, at 10:00 a.m. local time, at The American Stock Exchange, 86 Trinity
Place, New York, New York 10006.
EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED HEREON.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED IN FAVOR OF THE PROPOSAL AND
IN ACCORDANCE WITH THE PROXIES' JUDGMENT UPON OTHER MATTERS PROPERLY COMING
BEFORE THE MEETING AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
For participants in the Applied Graphics Technologies, Inc. 401(k) Plan: As
to those shares of Common Stock of Applied Graphics Technologies, Inc. that are
held for me in the aforementioned plan, by signing this card, I instruct the
Trustee of such Plan to sign a proxy for me in substantially the form set forth
on the reverse side. Where I do not specify a choice, by signing this card, I
instruct the Trustee to mark the proxy as the Board of Directors recommends.
PLEASE VOTE, DATE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED
ENVELOPE.
(Continued and to be dated and signed on the reverse side.)
DETACH PROXY CARD HERE
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MARK, SIGN, DATE AND RETURN
[ ] THE PROXY CARD PROMPTLY [X]
USING THE ENCLOSED ENVELOPE. VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ADOPTION OF THE
AGREEMENT AND PLAN OF MERGER BY AND AMONG APPLIED GRAPHICS TECHNOLOGIES, INC.,
KAGT HOLDINGS, INC. AND KAGT ACQUISITION CORP.
1. Approval and adoption of the Agreement and Plan of Merger, dated as of June
12, 2003, by and among Applied Graphics Technologies, Inc., KAGT Holdings,
Inc. and KAGT Acquisition Corp., and the merger contemplated thereby.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion the proxies are authorized to vote upon such other matters
as may properly come before the special meeting.
FOR YOUR VOTE TO COUNT YOUR PROXY CARD MUST BE RECEIVED PRIOR TO THE SPECIAL
MEETING ON OCTOBER 10, 2003. REGARDLESS OF THE NUMBER OF SHARES YOU OWN OR
WHETHER YOU PLAN TO ATTEND THE MEETING, IT IS IMPORTANT THAT YOUR SHARES BE
REPRESENTED AND VOTED. PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY CARD.
RETURNING THIS PROXY CARD DOES NOT DEPRIVE YOU OR YOUR RIGHT TO ATTEND THE
MEETING AND TO VOTE YOUR SHARES IN PERSON. IF YOU FAIL TO RETURN THE PROXY
CARD OR VOTE IN PERSON AGAINST THE PROPOSAL AT THE SPECIAL MEETING, IT WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER.
To change your address, please mark this box. [ ]
To include any comments, please mark this box. [ ]
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S C A N L I N E
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NOTED: Please sign as name appears hereon. Joint owners EACH must sign. When
signing as attorney, trustee, executor, administrator or guardian, please give
your FULL title. If a corporation, please provide the full name of the
corporation and the signature of the authorized officer signing on its behalf.
If a partnership, please sign in partnership name by an authorized person.
Date Share Owner sign here Co-Owner sign here
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