prem14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.____)
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
A.C. MOORE ARTS & CRAFTS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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(1) |
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Title of each class of securities to which transaction applies: |
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Common Stock, no par value.
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Aggregate number of securities to which transaction applies: |
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(i) 25,428,753 shares of common stock, no par value, outstanding as of October 3, 2011; and (ii) 8,485 shares of common stock issuable upon exercise of outstanding stock appreciation rights as of October 3, 2011 with an exercise price of less than $1.60.
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(3) |
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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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Solely for purposes of calculating the registration fee, the maximum aggregate value of the transaction was calculated as the sum of (A) the product of 25,428,753 shares of common stock, no par value, that are proposed to be acquired in the merger multiplied by the merger consideration of $1.60 per share; plus (B) the product of 8,485 shares of common stock, no par value, issuable on account of outstanding stock appreciation rights, multiplied by the excess, if any, of the merger consideration of $1.60 over the per share exercise price of outstanding stock appreciation rights. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.0001146 by the maximum aggregate value of the transaction.
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Proposed maximum aggregate value of transaction: |
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$40,699,580.80.
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Total fee paid: |
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$4,664.17.
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Fee paid previously with preliminary materials. |
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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. |
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Amount Previously Paid: |
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$4,664.17. |
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(2) |
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Form, Schedule or Registration Statement No.: |
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Schedule TO. |
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(3) |
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Filing Party: |
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Nicole Crafts LLC, Sbars Acquisition Corporation, Adolfo
Piperno. |
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(4) |
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Date Filed: |
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October 18, 2011. |
PRELIMINARY PROXY MATERIAL SUBJECT TO COMPLETION
A.C. MOORE ARTS & CRAFTS, INC.
130 A.C. MOORE DRIVE
BERLIN, NEW JERSEY 08009
[], 2011
Dear Shareholder:
On behalf of the board of directors of A.C. Moore Arts & Crafts, Inc. (A.C. Moore), I
cordially invite you to attend a special meeting of shareholders of A.C. Moore, to be held on [],
2011 at [] a.m., Eastern Time, at [].
On October 3, 2011, A.C. Moore entered into a definitive Agreement and Plan of Merger, as
amended as of October 17, 2011 (the Merger Agreement), with Nicole Crafts LLC (Parent) and
Sbars Acquisition Corporation (Purchaser). Parent and Purchaser are affiliates of Sbars, Inc.
The Merger Agreement provides that Purchaser will merge with and into A.C. Moore and will cease to
exist, with A.C. Moore continuing as the surviving corporation and as a direct, wholly owned
subsidiary of Parent. If the merger contemplated by the Merger Agreement is completed, you will be
entitled to receive $1.60 in cash, without interest, less any applicable withholding taxes, for
each share of our common stock owned by you. In addition, if the merger is completed, A.C. Moores
shares of common stock will no longer be listed on The Nasdaq Stock Market, and A.C. Moore will
continue its operations as a privately held company controlled by Parent and its affiliates.
At the special meeting, you will be asked to consider and vote upon a proposal to adopt the
Merger Agreement and a proposal to adjourn the special meeting, if necessary or appropriate to,
among other reasons, solicit additional proxies. In addition, A.C. Moore will solicit shareholder
approval, on an advisory (non-binding) basis, of the existing compensatory arrangements between
A.C. Moore and its named executive officers providing for golden parachute compensation payable
in connection with the merger (which we refer to as the golden parachute compensation).
After careful consideration, and following the recommendation of the special committee of
independent and disinterested directors of A.C. Moores board of directors, A.C. Moores board of
directors has unanimously determined that the terms of the Merger Agreement, including the merger,
are fair to and in the best interests of A.C. Moores shareholders and approved the Merger
Agreement, the merger and the other transactions contemplated by the Merger Agreement.
Accordingly, A.C. Moores board of directors unanimously recommends that you vote FOR approval of
the proposal to adopt the Merger Agreement and FOR approval of the proposal to adjourn the
special meeting, if necessary or appropriate to, among other reasons, solicit additional proxies.
In addition, A.C. Moores board of directors recommends that you vote FOR the approval, on
an advisory (non-binding) basis, of the golden parachute compensation payable to A.C. Moores
named executive officers in connection with the merger. Adoption of the Merger Agreement and
approval of the golden parachute compensation are subject to separate votes by A.C. Moores
shareholders, and approval of the golden parachute compensation is not a condition to completion
of the merger.
The affirmative vote of a majority of the votes cast by all shareholders of A.C. Moore
entitled to vote thereon is required for the adoption of the proposal to adopt the Merger
Agreement. Approval of the separate proposals to adjourn the special meeting, if necessary or
appropriate to, among other reasons, solicit additional proxies and to approve, on an advisory
(non-binding) basis, the golden parachute compensation payable to A.C. Moores named executive
officers in connection with the merger also requires the affirmative vote of a majority of the
votes cast by all shareholders of A.C. Moore entitled to vote thereon.
Your vote is very important, regardless of the number of shares you own. Whether or not you
plan to attend the special meeting, please complete, date, sign and return, as promptly as
possible, the enclosed proxy card
in the accompanying prepaid reply envelope, or submit your proxy by telephone or the Internet
as provided in the accompanying proxy statement. Voting by proxy will ensure your representation
at the special meeting if you do not attend in person. Returning the proxy card does not deprive
you of your right to attend the special meeting and vote your shares in person. If you attend the
special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted.
If your shares of common stock are held in an account through a bank, brokerage firm or other
nominee, you should instruct your bank, brokerage firm or other nominee how to vote your shares by
following the instructions that your bank, brokerage firm or other nominee provides you along with
this proxy statement. If you do not provide voting instructions to your bank, brokerage firm or
other nominee, your shares will not be voted on any proposal on which your bank, brokerage firm or
other nominee does not have discretionary authority to vote. In these cases, the bank, brokerage
firm or other nominee will not be able to vote your shares on those matters for which specific
authorization is required. Banks, brokerage firms or other nominees do not have discretionary
authority to vote on the proposals to adopt the Merger Agreement, to adjourn the special meeting,
if necessary or appropriate to, among other reasons, solicit additional proxies or to approve, on
an advisory (non-binding) basis, the golden parachute compensation.
The accompanying proxy statement provides you with detailed information about the special
meeting, the Merger Agreement and the merger. Copies of the Merger Agreement and Amendment No. 1
to the Merger Agreement are attached as Annex A and Annex B to the proxy statement. We encourage
you to read the entire proxy statement and its annexes, including the Merger Agreement, as amended,
carefully. You may also obtain additional information about A.C. Moore from documents we have
filed with the Securities and Exchange Commission.
On behalf of the board of directors of A.C. Moore, we thank you for your support.
Sincerely,
Michael J. Joyce
Chairman of the Board
The proxy statement is dated [], 2011, and is first being mailed to our shareholders on or
about [], 2011.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE PROPOSED MERGER, OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRELIMINARY PROXY MATERIAL SUBJECT TO COMPLETION
A.C. MOORE ARTS & CRAFTS, INC.
130 A.C. MOORE DRIVE
BERLIN, NEW JERSEY 08009
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on [], 2011
A special meeting of shareholders of A.C. Moore Arts & Crafts, Inc., a Pennsylvania
corporation (A.C. Moore), will be held on [], 2011 at [] a.m., Eastern Time, at [].
The special meeting will be held for the following purposes:
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To consider and vote on a proposal to adopt the Agreement and Plan of Merger,
dated as of October 3, 2011, as amended as of October 17, 2011, and as it may be further
amended from time to time (the Merger Agreement), by and among A.C. Moore, Nicole
Crafts LLC, a Delaware limited liability company (Parent), and Sbars Acquisition
Corporation, a Pennsylvania corporation and a wholly owned subsidiary of Parent (the
Purchaser). Copies of the Merger Agreement and Amendment No. 1 to the Merger
Agreement are attached as Annex A and Annex B to the accompanying proxy statement; |
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To consider and vote on a proposal to adjourn the special meeting, if necessary
or appropriate to, among other reasons, solicit additional proxies if there are
insufficient votes at the time of the special meeting to approve the proposal to adopt
the Merger Agreement; |
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To consider and cast an advisory (non-binding) vote on a proposal to approve
certain agreements or understandings with and items of compensation payable to A.C.
Moores named executive officers that are based on or otherwise related to the merger
(the golden parachute compensation); and |
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To transact any other business that may properly come before the special meeting,
or any adjournment or postponement of the special meeting, by or at the direction of the
board of directors of A.C. Moore. |
The board of directors of A.C. Moore has fixed the close of business on [], 2011 as the
record date for determining shareholders entitled to notice of and to vote at the special meeting
or at any adjournments or postponements of the special meeting.
Your vote is very important, regardless of the number of shares of A.C. Moore common stock you
own. The merger cannot be completed unless the Merger Agreement is adopted by the affirmative vote
of a majority of the votes cast by all shareholders of A.C. Moore entitled to vote thereon. The
approval of the golden parachute compensation is advisory (non-binding) and also requires the
affirmative vote of a majority of the votes cast by all shareholders of A.C. Moore entitled to vote
thereon; however, approval of the golden parachute compensation is not a condition to completion
of the merger. In addition, the affirmative vote of a majority of the votes cast by all
shareholders of A.C. Moore entitled to vote thereon is required for the approval of the proposal to
adjourn the special meeting, if necessary or appropriate to, among other reasons, solicit
additional proxies.
Even if you plan to attend the special meeting in person, we request that you complete, sign,
date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply
envelope or submit your proxy by telephone or the Internet prior to the special meeting to ensure
that your shares of A.C. Moore common stock will be represented at the special meeting if you are
unable to attend. If you fail return your proxy card or fail to submit your
proxy by phone or the Internet, your shares of A.C. Moore common stock will not be counted for
purposes of determining whether a quorum is present at the special meeting.
After careful consideration, and following the recommendation of the special committee of
independent and disinterested directors of A.C. Moores board of directors, A.C. Moores board of
directors has unanimously determined that the terms of the Merger Agreement, including the merger,
are fair to and in the best interests of A.C. Moores shareholders, and approved the Merger
Agreement, the merger and the other transactions contemplated by the Merger Agreement.
Accordingly, A.C. Moores board of directors recommends that you vote FOR approval of the
proposal to adopt the Merger Agreement and FOR approval of the proposal to adjourn the special
meeting, if necessary or appropriate to, among other reasons, solicit additional proxies. In
addition, A.C. Moores board of directors recommends that you vote FOR approval, on an advisory
(non-binding) basis, of the golden parachute compensation payable to A.C. Moores named executive
officers in connection with the merger.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN,
AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE ACCOMPANYING PREPAID REPLY ENVELOPE, OR
SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. IF YOU ATTEND THE SPECIAL MEETING AND VOTE IN
PERSON, YOUR VOTE BY BALLOT WILL REVOKE ANY PROXY PREVIOUSLY SUBMITTED.
If the special meeting is adjourned for one or more periods aggregating at least 15 days
because of the absence of a quorum, those shareholders entitled to vote who attend the reconvened
special meeting, if less than a quorum as determined under applicable law, shall nevertheless
constitute a quorum for the purpose of acting upon any matter set forth in this Notice of Special
Meeting of Shareholders.
By Order of the Board of Directors,
Amy Rhoades
Senior Vice President, General Counsel
and Corporate Secretary
Berlin, New Jersey
[], 2011
TABLE OF CONTENTS
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Annex A |
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Agreement and Plan of Merger dated October 3, 2011, by and among
A.C. Moore Arts & Crafts, Inc., Nicole Crafts LLC and Sbars
Acquisition Corporation |
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Annex B |
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Amendment No. 1 to Agreement and Plan of Merger dated October 17,
2011, by and among A.C. Moore Arts & Crafts, Inc., Nicole Crafts
LLC and Sbars Acquisition Corporation |
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Annex C |
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Deposit Escrow Agreement dated October 3, 2011, by and among A.C.
Moore Arts & Crafts, Inc., Nicole Crafts LLC, Sbars Acquisition
Corporation and Wells Fargo Bank, National Association, as deposit
escrow agent |
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Annex D |
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Limited Guaranty dated October 3, 2011, issued by Sbars Inc. to
A.C. Moore Arts & Crafts, Inc. in favor of, and for the benefit
of, the Guaranteed Parties named therein |
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Annex E |
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Opinion of Janney Montgomery Scott LLC dated October 3, 2011 |
iv
This proxy statement and a proxy card are first being mailed on or about [], 2011 to
shareholders of A.C. Moore Arts & Crafts, Inc. who owned shares of common stock, no par value, of
A.C. Moore, or the Common Stock, as of the close of business on [], 2011.
SUMMARY
The following summary highlights selected information in this proxy statement and may not
contain all the information that may be important to you. Accordingly, we encourage you to read
carefully this entire proxy statement, its annexes and the documents referred to in this proxy
statement. Each item in this summary includes a page reference directing you to a more complete
description of that topic.
Parties to the Merger (Page [])
A.C. Moore Arts & Crafts, Inc., or A.C. Moore, the Company, we, our or us, a Pennsylvania
corporation, is a specialty retailer of arts, crafts and floral merchandise for a wide range of
customers. We currently serve customers through our 134 stores located in the Eastern United
States and nationally via our e-commerce site, www.acmoore.com.
Nicole Crafts LLC, a Delaware limited liability company, or Parent, was formed solely for the
purpose of acquiring A.C. Moore and has not engaged in any business except for activities related
to its formation, the Offer (as defined below) and the Merger (as defined below) and arranging the
related financing. Upon completion of the Merger, A.C. Moore will be a direct, wholly owned
subsidiary of Parent. Parent is an affiliate of Sbars, Inc., or Sbars, a New Jersey corporation
and a vendor of A.C. Moore. See the section entitled The MergerVendor Arrangement with Sbars
beginning on page [].
Sbars Acquisition Corporation, a Pennsylvania corporation, or Purchaser, is a wholly owned
subsidiary of Parent that was formed solely for the purpose of facilitating the acquisition of A.C.
Moore. To date, Purchaser has not carried on any activities other than those related to its
formation, the Offer and the Merger and arranging the related financing. Upon consummation of the
proposed Merger, Purchaser will merge with and into A.C. Moore and will cease to exist, with A.C.
Moore continuing as the surviving corporation, which we refer to as the surviving corporation.
In this proxy statement, we refer to the Agreement and Plan of Merger, dated October 3, 2011,
and as amended as of October 17, 2011, as it may be further amended from time to time, among A.C.
Moore, Parent and Purchaser, as the Merger Agreement, and the merger of Purchaser with and into
A.C. Moore as the Merger.
Tender Offer (Page [])
On October 18, 2011, Purchaser commenced a tender offer, which we refer to as the Offer, for
all of the outstanding shares of Common Stock, no par value, of A.C. Moore, or the Shares, at a
price of $1.60 per Share, which we refer to as the Offer Price, to the seller in cash without
interest and less any required withholding taxes. The Offer contemplated that, after completion of
the Offer and the satisfaction or waiver of all conditions, we would merge with Purchaser and all
outstanding Shares (other than Shares owned by Parent, Purchaser or any other wholly owned
subsidiary of Parent or held in the treasury of A.C. Moore or owned by any wholly owned subsidiary
of A.C. Moore immediately prior to the effective time of the Merger, which we refer to as the
Excluded Shares) would be automatically cancelled and converted into the right to receive cash
equal to the $1.60 per Share. The Offer was commenced pursuant to the Merger Agreement.
Under the terms of the Merger Agreement, the parties agreed to complete the Merger whether or
not the Offer is completed. If the Offer is not completed, the parties agreed that the Merger
could only be completed after the receipt of shareholder approval of the adoption of the Merger
Agreement at the special meeting. We are soliciting proxies for the special meeting to obtain
shareholder approval of the adoption of the Merger Agreement to be able to consummate the Merger
regardless of the outcome of the Offer.
We refer in this proxy statement to the Offer and to terms of the Merger Agreement applicable
to the Offer, however, the Offer is being made separately to the holders of Shares and is not
applicable to the special meeting.
1
The Special Meeting (Page [])
Time, Place and Purpose of the Special Meeting (Page [])
The special meeting will be held on [], 2011 at [] a.m., Eastern Time, at [].
At the special meeting, holders of Shares will be asked to approve the proposal to adopt the
Merger Agreement and to approve the proposal to adjourn the special meeting, if necessary or
appropriate for, among other reasons, soliciting additional proxies if there are insufficient votes
at the time of the special meeting to approve the proposal to adopt the Merger Agreement. In
addition, holders of Shares will be asked to approve, on an advisory (non-binding) basis, the
existing compensatory arrangements between A.C. Moore and its named executive officers providing
for golden parachute compensation payable in connection with the Merger.
Record Date and Quorum (Page [])
You are entitled to receive notice of, and to vote at, the special meeting if you owned Shares
at the close of business on [], 2011, which A.C. Moore has set as the record date for the special
meeting and which we refer to as the record date. You will have one vote for each Share that you
owned on the record date. As of the record date, there were [] Shares outstanding and entitled to
vote at the special meeting. The presence, in person or represented by proxy, of shareholders
entitled to cast at least a majority of the votes that all shareholders are entitled to cast as of
the record date on the matters to be acted upon at the special meeting will constitute a quorum for
the purposes of the special meeting.
Vote Required (Page [])
Approval of the Merger Agreement requires the affirmative vote of a majority of the votes cast
by all shareholders of A.C. Moore entitled to vote thereon.
Approval of the proposal to adjourn the special meeting, if necessary or appropriate for,
among other reasons, soliciting additional proxies requires the affirmative vote of a majority of
the votes cast by all shareholders of A.C. Moore entitled to vote thereon.
Approval of the separate proposal to approve, on an advisory (non-binding) basis, the golden
parachute compensation payable to A.C. Moores named executive officers in connection with the
Merger requires the affirmative vote of a majority of the votes cast by all shareholders of A.C.
Moore entitled to vote thereon; however, approval of the golden parachute compensation is not a
condition to completion of the Merger.
As of the record date, the directors and executive officers of A.C. Moore beneficially owned
and were entitled to vote, in the aggregate, [] Shares. The directors and executive officers have
informed A.C. Moore that they currently intend to vote all of their Shares FOR the proposal to
adopt the Merger Agreement, FOR the proposal to adjourn the special meeting, if necessary or
appropriate to, among other reasons, solicit additional proxies and FOR the proposal to approve
on an advisory (non-binding) basis the golden parachute compensation.
Proxies and Revocation (Page [])
Any shareholder of record entitled to vote at the special meeting may submit a proxy by
telephone, over the Internet, by returning the enclosed proxy card in the accompanying prepaid
reply envelope, or may vote in person by appearing at the special meeting. Abstentions will be
counted as Shares present and entitled to vote for the purpose of determining a quorum. If your
Shares are held in street name through a bank, brokerage firm or other nominee, you should
instruct your bank, brokerage firm or other nominee how to vote your Shares by using the
instructions provided by your bank, brokerage firm or other nominee. If you fail to submit a proxy
or to vote in person at the special meeting, or do not provide such voting instructions, as
applicable, your Shares will not be voted on the proposal to adopt the Merger Agreement and the
proposal to adjourn the special meeting, if necessary or appropriate. If you have not received
such voting instructions or require further information regarding such voting instructions, contact
your bank, brokerage firm or other nominee.
2
Your bank, brokerage firm or other nominee will not vote your Shares on the proposals to adopt
the Merger Agreement, to adjourn or postpone the special meeting to solicit additional proxies or
to approve, on an advisory (non-binding) basis, the golden parachute compensation payable to A.C. Moores named executive
officers in connection with the Merger without instruction from you. Broker non-votes will not be
counted for purposes of determining whether a quorum is present unless the Shares covered by the
broker non-votes are voted on a matter other than a procedural matter. Under the Pennsylvania
Business Corporation Law of 1988, as amended, which we refer to as the PBCL, abstentions and these
broker non-votes are not considered votes cast and therefore will have no effect on the vote and
will not be considered in determining whether the proposals have received the requisite shareholder
vote.
You may change your vote or revoke your proxy at any time before it is voted at the special
meeting by:
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submitting a new proxy by telephone or via the Internet after the date of the earlier
voted proxy; |
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signing another proxy card with a later date and returning it to us prior to the
special meeting; or |
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attending the special meeting and voting in person. |
If you hold your Shares in street name, you may submit new voting instructions by contacting
your bank, brokerage firm or other nominee. You may also vote in person at the special meeting if
you obtain a legal proxy from your bank, brokerage firm or other nominee.
The Merger (Page [])
The Merger Agreement provides that Purchaser will merge with and into A.C. Moore. A.C. Moore
will be the surviving corporation in the Merger and will continue to do business following the
Merger. As a result of the Merger, A.C. Moore will cease to be a publicly traded company. If the
Merger is completed, you will not own any shares of the capital stock of the surviving corporation.
Concurrently with the execution of the Merger Agreement, a Deposit Escrow Agreement, which we
refer to as the Deposit Escrow Agreement, was entered into by and among Parent, Purchaser, A.C.
Moore and Wells Fargo Bank, National Association, as deposit escrow agent. Pursuant to the terms
of the Deposit Escrow Agreement, Purchaser has deposited $20 million into an escrow account in
order to provide security for the obligations of Parent and Purchaser to consummate the
transactions contemplated by the Merger Agreement, which we refer to as the Transactions. A copy
of the Deposit Escrow Agreement is attached as Annex C to this proxy statement, which we encourage
you to read carefully in its entirety.
The Merger Agreement provides for customary indemnification by the surviving corporation in
favor of the indemnified parties as described in the Merger Agreement. Sbars agreed to guarantee
such indemnification obligations, subject to certain limitations, pursuant to the Limited Guaranty,
which we refer to as the Guaranty, made and delivered by Sbars to A.C. Moore, in favor of, and for
the benefit of, the guaranteed parties named in the Guaranty. A copy of the Guaranty is attached
as Annex D to this proxy statement, which we encourage you to read carefully in its entirety. We
refer to the Merger Agreement, the Deposit Escrow Agreement and the Guaranty together as the
Transaction Documents.
Merger Consideration (Page [])
At the effective time of the Merger, which we refer to as the Effective Time, each Share
outstanding immediately prior to the Effective Time, other than Excluded Shares, all of which will
be canceled, will be converted into the right to receive an amount in cash, without interest and
less any applicable withholding taxes, equal to $1.60 which, when payable in connection with the
Merger, we refer to as the Merger Consideration.
Reasons for Recommendation of the Special Committee and A.C. Moores Board of Directors (Page [])
At a meeting held on October 3, 2011, the special committee of the board of directors of A.C.
Moore, which we refer to as the Special Committee, acting with the advice and assistance of its
legal and financial advisors, unanimously determined (i) that the Transaction Documents and the
Transactions are fair to and in the best interests of A.C. Moores shareholders and (ii) to
recommend to the board of directors of A.C. Moore, or the Board, that the Transaction Documents and
the Transactions be adopted and approved in all respects.
3
After careful consideration, based on the unanimous recommendation of the Special Committee,
and the conduct of its own independent review and other relevant factors more fully described the
section entitled The MergerReasons
for Recommendation of the Special Committee and A.C. Moores Board, the Board unanimously
determined (i) to approve and adopt the Transaction Documents and to approve and authorize the
consummation of the Transactions; (ii) to authorize the execution and delivery of the Transaction
Documents in the name of A.C. Moore; (iii) that the Transaction Documents and the Transactions are
fair to and in the best interests of A.C. Moores shareholders; (iv) to recommend that the
shareholders of A.C. Moore accept the Offer and tender their Shares in the Offer and, to the extent
such a meeting is required under the PBCL, vote in favor of the approval of the Merger and the
approval and adoption of the Merger Agreement at any meeting of shareholders of A.C. Moore called
to consider the approval of the Merger and the Merger Agreement; and (v) to approve for all
purposes that the Merger Agreement and the Transactions be exempt from applicable anti-takeover
laws. We refer to the foregoing approvals and recommendations by the Board as the Board
Recommendation.
In considering the Board Recommendation with respect to the proposal to adopt the Merger
Agreement, you should be aware that our directors and executive officers may have interests in the
Merger that are different from, or in addition to, yours. See the section entitled The
MergerInterests of Certain Persons in the Merger beginning on page [] and Advisory Vote on
Golden Parachute Compensation beginning on page []. The Special Committee and the Board were
aware of and considered these interests, among other matters, in evaluating and negotiating the
Merger Agreement and the Merger, and in recommending that the Merger Agreement be adopted by the
shareholders of A.C. Moore.
The Board unanimously recommends that you vote FOR the proposal to adopt the Merger
Agreement and FOR the proposal to adjourn the special meeting, if necessary or appropriate to,
among other reasons, solicit additional proxies.
Opinion of A.C. Moores Financial Advisor (Page [])
A.C. Moore retained Janney Montgomery Scott LLC, or Janney, as its financial advisor in
connection with the Offer and the Merger. On October 3, 2011, during a meeting of the Board,
Janney, at the request of the Special Committee, rendered an oral opinion, which was confirmed by
delivery of a written opinion dated October 3, 2011, to the effect that, as of that date and based
upon and subject to the various considerations set forth in its opinion, the consideration of $1.60
per Share to be paid to holders of Shares pursuant to the Merger Agreement was fair, from a
financial point of view, to such holders (other than Parent or Purchaser).
The full text of the written opinion of Janney dated October 3, 2011 is attached as Annex E to
this proxy statement and is incorporated herein by reference. Janneys opinion sets forth, among
other things, the assumptions made, procedures followed, matters considered and limitations on the
scope of review undertaken by Janney in rendering its opinion. Janneys opinion does not address
the relative merits of the Transactions as compared to other business strategies or transactions
that might be available to A.C. Moore or A.C. Moores underlying business decision to effect the
Transactions. Janney was not asked to, nor does it, offer any opinion as to the terms, other than
the Merger Consideration to the extent expressly specified therein, of the Merger Agreement or the
form of the Transactions. The summary of the opinion of Janney set forth below under The
MergerOpinion of A.C. Moores Financial Advisor is qualified in its entirety by reference to the
full text of the opinion. Shareholders are encouraged to carefully read the full text of the
opinion of Janney in its entirety as well as the section The MergerOpinion of A.C. Moores
Financial Advisor below.
Financing of the Merger (Page [])
We anticipate that total funds of approximately $46 million will be needed to purchase all of
the issued and outstanding Shares, and to complete the Merger and to pay related fees and expenses,
and up to an additional $28.5 million to repay indebtedness of A.C. Moore at the closing of the
Merger.
Purchaser has placed $20 million in an escrow account at Wells Fargo Bank, National
Association, or Wells Fargo, to provide security for the obligations of Parent and Purchaser to
consummate the Transactions. In addition, Parent and Purchaser have received a financing
commitment, which we refer to as the Wells Fargo Commitment, from Wells Fargo to provide, through
December 31, 2011, an amount up to $77.5 million, which shall be used to satisfy the Merger
Consideration, provide sufficient funds to complete the Merger and pay related fees and expenses,
and to repay existing
indebtedness of A.C. Moore, which is owed to Wells Fargo pursuant to A.C. Moores existing
credit facility. The Wells Fargo Commitment is available to finance the Transactions, to pay fees
and expenses related thereto, to repay our existing indebtedness, as well as to finance general
corporate purposes and working capital of the surviving corporation and its subsidiaries. The
Wells Fargo Commitment is subject to certain conditions. If any portion of the required financing
becomes unavailable on the terms and conditions contemplated by the Wells Fargo Commitment, Parent
and Purchaser are obligated to use commercially reasonable efforts to arrange and obtain
alternative financing from alternative sources.
4
We believe the amount deposited pursuant to the Deposit Escrow Agreement and the amounts
committed under the Wells Fargo Commitment will be in the aggregate sufficient to pay the Offer
Price in respect of each Share validly tendered and accepted for payment in the Offer, the
aggregate Merger Consideration, all amounts required to be paid in respect of A.C. Moore stock
appreciation rights pursuant to the Merger Agreement and all fees and expenses, but we cannot
assure you of that. Those amounts might be insufficient if, among other things, Wells Fargo fails
to fund the committed amounts in breach of the Wells Fargo Commitment or if the conditions to such
commitment are not met. If any portion of such committed amounts become unavailable on the terms
and conditions contemplated by the Wells Fargo Commitment, Parent and Purchaser agreed to use
commercially reasonable efforts to arrange and obtain alternative financing from alternative
sources in an amount sufficient to consummate the Transactions. As of the date of this proxy
statement, no alternative financing arrangements or alternative financing plans have been made in
the event that the Wells Fargo Commitment described in this proxy statement is not available as
anticipated.
Interests of Certain Persons in the Merger (Page [])
When considering the Board Recommendation that you vote to approve the proposal to adopt the
Merger Agreement, you should be aware that our directors and executive officers may have interests
in the Merger that are different from, or in addition to, your interests as a shareholder. The
Board was aware of and considered these interests, among other matters, in evaluating and
negotiating the Merger Agreement and the Merger, and in recommending that the Merger Agreement be
adopted by the shareholders of A.C. Moore. These interests include, but are not limited to, the
following:
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Accelerated vesting of equity awards held by our directors and employees, including
executive officers, at the Effective Time and the settlement of such awards in exchange
for cash. With respect to options to purchase Shares and stock appreciation rights
granted under an equity compensation plan or arrangement of A.C. Moore, which we refer
to as A.C. Moore Options and A.C. Moore SARs, respectively, outstanding immediately
prior to the Effective Time, each A.C. Moore Option and A.C. Moore SAR, whether or not
exercisable or vested, would be canceled as of the Effective Time and A.C. Moores
employees would receive a cash payment equal to the product of (i) the excess of, if
any, of the Merger Consideration over the per Share exercise price of the A.C. Moore
Option or A.C. Moore SAR, and (ii) the number of Shares subject to the A.C. Moore Option
or A.C. Moore SAR; |
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The executive officers will receive severance payments and benefits under their
employment agreements upon certain types of termination of employment following the
Effective Time; and |
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Accelerated vesting of retention awards held by our executive officers at the
Effective Time. |
In addition, the Shares held by our directors and executive officers, including restricted
stock awards or performance accelerated restricted stock awards granted under any compensation plan
or arrangement of A.C. Moore, which we refer to as A.C. Moore Restricted Stock, will be treated in
the same manner as outstanding Shares held by other shareholders of A.C. Moore.
For further information, refer to the discussion under the heading The MergerInterests of
Certain Persons in the Merger beginning on page [] and Advisory Vote on Golden Parachute
Compensation beginning on page [].
5
Material United States Federal Income Tax Consequences (Page [])
The exchange of Shares for cash pursuant to the Merger will generally be a taxable transaction
to United States Holders for United States federal income tax purposes. In general, a United
States Holder whose Shares are converted into the right to receive cash in the Merger will
recognize gain or loss for United States federal income tax purposes in an
amount equal to the difference, if any, between the amount of cash received with respect to
such Shares and its adjusted tax basis in such Shares. Backup withholding may also apply to the
cash payments made pursuant to the Merger unless the United States Holder or other payee provides a
valid taxpayer identification number and complies with certain certification procedures (generally,
by providing a properly completed IRS Form W-9) or otherwise establishes an exemption from backup
withholding. Payments made to a non-United States Holder with respect to Shares exchanged for cash
pursuant to the Merger will generally be exempt from United States federal income tax. A
non-United States Holder may, however, be subject to backup withholding with respect to the cash
payments made pursuant to the Merger, unless the non-United States Holder certifies on an
appropriate IRS Form W-8 that such non-United States Holder is not a United States person or
otherwise establishes an exemption from backup withholding. You should read The MergerMaterial
United States Federal Income Tax Consequences beginning on page [] for definitions of United
States Holder and non-United States Holder, and for a more detailed discussion of the United
States federal income tax consequences of the Merger. You should also consult your tax advisor
with respect to the specific tax consequences to you in connection with the Merger in light of your
own particular circumstances, including federal estate, gift and other non-income tax consequences,
and tax consequences under state, local or foreign tax laws.
Regulatory Approvals and Notices (Page [])
Purchaser has made a notice filing with the Pennsylvania Securities Commission in connection
with the Offer and the Merger. No other regulatory approvals or notices are required in connection
with the Merger.
Litigation (Page [])
Shareholder Demand Letter
On October 6, 2011, the Board received a demand letter from a purported shareholder of A.C.
Moore alleging that the members of the Board breached their fiduciary duties to A.C. Moore and its
shareholders in connection with the transactions contemplated by the Merger Agreement. The
shareholder has demanded that the Board remedy the foregoing breaches of fiduciary duties. On
October 12, 2011, the Board appointed a special committee to consider the allegations set forth in
the demand letter.
Class Action Complaint
On October 11, 2011, a putative class action lawsuit captioned Provoncha v. A.C. Moore Arts &
Crafts, Inc., et al., was filed in the Superior Court of New Jersey, Chancery Division, Camden
County. The complaint names as defendants the members of the Board, as well as A.C. Moore, Parent
and Purchaser. The complaint seeks, among other things, injunctive relief, including enjoining the
Board, and anyone acting in concert with them, from proceeding with the transactions contemplated
by the Merger Agreement. The complaint was amended on October 21, 2011 to set forth additional
substantive allegations, including allegations that the Tender Offer Solicitation/Recommendation
Statement on Schedule 14D-9, or the Schedule 14D-9, which we filed with the SEC, contains
materially misleading statements and omits material information. We believe the plaintiffs
allegations lack merit and we intend to contest them vigorously; however, there can be no assurance
that we will be successful in our defense.
For further information, refer to the discussion under the heading The MergerLitigation
beginning on page [].
The Merger Agreement (Page [])
Treatment of Common Stock, A.C. Moore Options, A.C. Moore SARs and A.C. Moore Restricted Stock
(Page [])
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Common Stock. At the Effective Time, each Share issued and outstanding (other than
Excluded Shares) will convert into the right to receive the per Share Merger
Consideration of $1.60 in cash, without interest, less any applicable withholding taxes.
The treatment of Common Stock is further described under The Merger AgreementTerms
of the Merger Agreement and Certain Other AgreementsThe Merger beginning on page []. |
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A.C. Moore Options. At the Effective Time, each A.C. Moore Option, whether or not
exercisable or vested, will be cancelled in exchange for a payment, in cash, equal to
the product of (i) the excess, if any, of the per
Share Merger Consideration of $1.60 over the exercise price per Share subject to such the
A.C. Moore Option, and (ii) the number of Shares subject to the A.C. Moore Option, less
any amounts required to be withheld pursuant to applicable law. The treatment of A.C.
Moore Options is further described under The MergerInterests of Certain Persons in the
MergerTreatment of Equity Awards beginning on page [] and The Merger
AgreementTerms of the Merger Agreement and Certain Other AgreementsThe
MergerTreatment of A.C. Moore Options, A.C. Moore SARs and A.C. Moore Restricted Stock
beginning on page []. |
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A.C. Moore SARs. At the Effective Time, each A.C. Moore SAR, whether or not
exercisable or vested, will be canceled at the Effective Time, in exchange for a
payment, in cash, equal to the product of (i) the excess, if any, of the per Share
Merger Consideration of $1.60 over the per Share exercise price per Share of such A.C.
Moore SAR, and (ii) the number of Shares subject to A.C. Moore SAR, less any amounts
required to be withheld pursuant to applicable law. The treatment of A.C. Moore SARs is
further described under The MergerInterests of Certain Persons in the
MergerTreatment of Equity Awards beginning on page [] and The Merger
AgreementTerms of the Merger Agreement and Certain Other AgreementsThe
MergerTreatment of A.C. Moore Options, A.C. Moore SARs and A.C. Moore Restricted
Stock beginning on page []. |
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A.C. Moore Restricted Stock. At the Effective Time, each Share of A.C. Moore
Restricted Stock, whether or not vested, will be cancelled in exchange for the per Share
Merger Consideration of $1.60. The treatment of A.C. Moore Restricted Stock is further
described under The MergerInterests of Certain Persons in the MergerTreatment of
Equity Awards beginning on page [] and The Merger AgreementTerms of the Merger
Agreement and Certain Other AgreementsThe MergerTreatment of A.C. Moore Options,
A.C. Moore SARs and A.C. Moore Restricted Stock beginning on page []. |
Solicitation of Takeover Proposals (Page [])
From the date of the Merger Agreement until the earlier to occur of the termination of the
Merger Agreement and the Effective Time, we have agreed not to solicit or initiate any takeover
proposal by any third party or participate in discussions or negotiations regarding such a takeover
proposal. Notwithstanding these restrictions, under certain circumstances, at any time before the
consummation of the Offer (or, if the Offer is terminated, at any time prior to obtaining
shareholder approval), we may:
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furnish, pursuant to an acceptable confidentiality agreement, information (including
non-public information) and/or access with respect to us and our subsidiaries to the
third party which has made a takeover proposal or offer, whether in writing or
otherwise; and |
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engage in or otherwise participate in discussions and/or negotiations directly or
through our representatives with the third party making such takeover proposal or offer, |
in each case, so long as:
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the Board (or an authorized committee thereof) determines in good faith, after
consulting with outside legal and financial advisors, that any such takeover proposal or
offer constitutes, or would reasonably be expected to lead to, a superior proposal; and |
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the Board (or an authorized committee thereof) determines in good faith, after
consultation with outside legal counsel, that the failure to take such action would be
inconsistent with the best interests of our shareholders. |
At any time before the Merger Agreement is adopted by our shareholders or, in certain
circumstances, at any time prior to Purchasers acceptance of Shares tendered in the Offer, which
we refer to as the Acceptance Date, if A.C. Moores Board determines that a takeover proposal is a
superior proposal, we may terminate the Merger Agreement and enter into any acquisition, merger or
similar agreement with respect to such superior proposal, so long as we comply with certain terms
of the Merger Agreement, including paying a termination fee to Parent. See The Merger
AgreementTerms of the Merger Agreement and Certain Other AgreementsTermination Fee beginning
on page [].
7
Conditions to the Merger (Page [])
The respective obligations of A.C. Moore, Parent and Purchaser to consummate the Merger are
subject to the satisfaction or waiver of certain customary conditions, including the adoption of
the Merger Agreement by our shareholders, the accuracy of the representations and warranties of the
parties and compliance by the parties with their respective obligations under the Merger Agreement.
The obligation of Parent and Purchaser to consummate the Merger is also subject to the receipt of
financing, the absence of any change, circumstance, event or occurrence, from the date of the
Merger Agreement until the Effective Time, that has had or would reasonably be expected to have a
material adverse effect on A.C. Moore, as described under The Merger AgreementTerms of the
Merger Agreement and Certain Other AgreementsThe MergerRepresentations and Warranties
beginning on page [].
Termination (Page [])
The Merger Agreement may be terminated at any time prior to the Effective Time, whether before
or after the adoption of the Merger Agreement by our shareholders:
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by mutual written consent of Parent and A.C. Moore; |
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by either Parent or A.C. Moore, |
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if the Merger is not consummated on or before December 30, 2011; provided
that the right to terminate the Merger Agreement on such date shall not be
available to Parent or A.C. Moore if (i) the consummation of the Offer, which
we refer to as the Offer Closing, shall have occurred or (ii) the failure of
Parent or A.C. Moore, as applicable, to perform any of its obligations under
the Merger Agreement is a principal cause of the failure of the Merger to be
consummated on or before such date; |
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if any law, restraining order (preliminary, temporary or permanent),
executive order, decree, ruling, judgment or injunction or other order of a
court or governmental entity of competent jurisdiction is in effect enjoining,
restraining, preventing or prohibiting the consummation of the Offer or the
Merger and is final and non-appealable and has the effect of making
consummation of the Offer or the Merger illegal or otherwise restraining,
preventing or prohibiting consummation of the Offer or the Merger; or |
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if there has occurred a breach of or failure to perform any representation,
warranty, covenant or agreement on the part of A.C. Moore, which breach or
failure to perform would cause any conditions of the Offer or the Merger not
to be satisfied and (i) if such breach or failure to perform cannot be cured
by A.C. Moore, at least 20 business days elapse since the date of delivery of
notice of such breach or failure to perform to A.C. Moore from Parent and such
breach or failure to perform shall not have been cured in a manner such that
such breach or failure to perform no longer results in the applicable
condition not being satisfied or (ii) if such breach or failure to perform is
capable of being cured by A.C. Moore, A.C. Moore does not cure such breach or
failure to perform within 10 business days after the date of delivery of
notice of such breach or failure to perform to A.C. Moore, provided, that
Parent will not have the right to terminate the Merger Agreement in these
circumstances if A.C. Moores breach or failure to perform was primarily due
to the failure of Parent or Purchaser to perform any of their obligations
under the Merger Agreement; |
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the Board (or any authorized committee thereof) either (i) fails to make,
or withdraws or modifies the Board Recommendation in a manner adverse to
Parent; or (ii) approves, recommends, endorses or resolves to approve,
recommend or endorse a takeover proposal or recommends against the adoption of
the Merger Agreement by the shareholders of A.C. Moore. (we refer to the
either of the foregoing actions as a Board Recommendation Change); |
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A.C. Moore breaches its obligations with respect to solicitation of
takeover proposals resulting in the announcement, submission or making of a
takeover proposal; |
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if, after a tender offer or exchange offer is commenced that, if
successful, would result in any person or group (as defined under Section
13(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act)
becoming a beneficial owner of 20% or more of the outstanding Shares (other
than by Parent or Purchaser), the Board fails to recommend that A.C. Moores
holders not tender their Shares in such tender or exchange offer within 10
business days after commencement of such tender offer or exchange offer; |
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the Board fails to reconfirm the Board Recommendation promptly, and in any
event within five business days, following Parents reasonable request to do
so; or |
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if (i) in violation of the Merger Agreement, Parent or Purchaser terminates
the Offer without having accepted all of the Shares tendered for payment
thereunder, fails to timely accept for payment and purchase all Shares that
have been validly tendered and not withdrawn pursuant to the Offer if all
conditions to the Offer have been satisfied or waived as of the expiration of
the Offer (including any extensions thereof), or modified certain terms of the
Offer without the prior written consent or waiver of A.C. Moore; and (ii) A.C.
Moore does not breach any of its obligations under the Merger Agreement in any
manner that proximately causes or results in the failure of the Offer to be
consummated; |
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if Parent or Purchaser breach or fail to perform any of their respective
representations, warranties, covenants or other agreements contained in the
Merger Agreement, which breach or failure to perform (i) would cause any of
the conditions to the Offer or the Merger to not be satisfied, (ii) was
notified by A.C. Moore in a written notice delivered to Parent or Purchaser
and (iii) cannot be cured by December 30, 2011 or at least 30 days shall have
elapsed since the date of delivery of a written notice of such breach from
A.C. Moore to Parent or Purchaser and such breach is not cured in a manner
such that such breach no longer results in the applicable condition not being
satisfied; provided, however, that the right to terminate the Merger Agreement
in these circumstance would not be available to A.C. Moore if (A) Parents or
Purchasers breach or failure to perform any of their respective
representations, warranties, covenants or other agreements contained in the
Merger Agreement was primarily due to the failure of A.C. Moore to perform any
of its obligations under the Merger Agreement or (B) Parent waives the
applicable condition to the Offer; or |
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prior to the Acceptance Date or, in certain circumstances, prior to the
consummation of the Merger, in order to enter into a transaction that is a
superior proposal; provided, that such takeover proposal did not result from a
breach of A.C. Moores obligations with respect to solicitation of takeover
proposals. |
Termination Fee (Page [])
If the Merger Agreement is terminated in certain circumstances described under The Merger
AgreementTerms of the Merger Agreement and Certain Other AgreementsTermination Fee beginning
on page [], A.C. Moore will be required to pay a termination fee to Parent in the amount of $2
million, including, without limitation, in the following circumstances:
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the Merger Agreement is terminated by Parent as a result of a Board Recommendation
Change; |
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the Merger Agreement is terminated by A.C. Moore in order to accept a superior
proposal; or |
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(i) a bona fide takeover proposal is publicly disclosed and not withdrawn prior to
the termination of the Merger Agreement, and (ii) following such disclosure, the Merger
Agreement is terminated by A.C. Moore or
Parent because the Merger has not occurred prior to December 30, 2011 or by Parent as a
result of a Board Recommendation Change, and (iii) within 12 months of the date the
Merger Agreement is terminated, A.C. Moore enters into a definitive agreement with
respect to, or recommends to its shareholders, an alternative transaction or an
alternative transaction is consummated with a third party. |
9
Remedies (Page [])
The parties further agreed to waive any defense, in the event that any action for injunction,
specific performance or other equitable relief, that a remedy at law would be adequate and further
agreed that each party would be entitled to an injunction or injunctions to prevent breaches or
threatened breaches of the Merger Agreement and to enforce specifically the terms and provisions of
the Merger Agreement in addition to any and all other rights and remedies at law or in equity, and
all such rights and remedies are to be cumulative. In addition, to the extent permitted by law,
any requirements for the securing or posting of any bond with such remedy were waived by the
parties. In order to provide some security for the obligations of Parent and Purchaser under the
Merger Agreement, concurrently with the execution of the Merger Agreement, the parties entered into
the Deposit Escrow Agreement, as described under The Merger AgreementTerms of the Merger
Agreement and Certain Other AgreementsDeposit Escrow Agreement beginning on page []. A copy of
the Deposit Escrow Agreement is attached as Annex C to this proxy statement, which we encourage you
to read in its entirety.
Market Price of Common Stock (Page [])
The per Share Merger Consideration of $1.60 per Share:
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Represented a premium of 68.4% to the closing price of $0.95 per Share of Common
Stock on October 3, 2011, the last full trading day prior to the announcement of the
execution of the Merger Agreement. |
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Represented a premium of 53.8% to the one week prior closing price of $1.04 per Share
of Common Stock on September 26, 2011. |
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Represented premium of 21.2% to the one month prior closing price of $1.32 per Share
of Common Stock on September 6, 2011. |
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Represented a discount of 29.2% to the one year prior closing price of $2.26 per
Share of Common Stock on October 4, 2010. |
Dissenters Rights (Page [])
Dissenters rights are not available in connection with the Merger if there is a vote of
shareholders at the special meeting to adopt the Merger Agreement.
Delisting and Deregistration of Common Stock (Page [])
If the Merger is completed, our Common Stock will be delisted from Nasdaq, and deregistered
under the Exchange Act. As such, we would no longer file periodic reports or proxy statements with
the Securities and Exchange Commission, or the SEC, on account of our Common Stock.
10
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers are intended to address briefly some commonly asked
questions regarding the Merger, the Merger Agreement and the special meeting. These questions and
answers may not address all questions that may be important to you as a shareholder of A.C. Moore.
Please refer to the Summary and the more detailed information contained elsewhere in this proxy
statement, the annexes to this proxy statement and the documents referred to in this proxy
statement, which you should read carefully and in their entirety.
Q. Why am I receiving this proxy statement and proxy card or voting instruction form?
A: You are receiving this proxy statement and proxy card or voting instruction form because
you own Shares of A.C. Moore Common Stock. This proxy statement describes matters, including the
proposed Transactions, on which we urge you to vote and is intended to assist you in deciding how
to vote your Shares with respect to such matters.
Q. What is the proposed transaction and what effects will it have on A.C. Moore?
A. The proposed transaction is the acquisition of A.C. Moore by Parent, an affiliate of
Sbars, pursuant to the Merger Agreement. If the proposal to adopt the Merger Agreement is
approved by our shareholders and the other closing conditions under the Merger Agreement have been
satisfied or waived, Purchaser will merge with and into A.C. Moore. Upon completion of the Merger,
Purchaser will cease to exist and A.C. Moore will continue as the surviving corporation. As a
result of the Merger, A.C. Moore will become a subsidiary of Parent and will no longer be a
publicly held corporation, and you will no longer have any interest in our future earnings or
growth. In addition, our Common Stock will be delisted from Nasdaq and deregistered under the
Exchange Act, and we will no longer file periodic reports or proxy statements with the SEC on
account of our Common Stock.
Q: Did Purchaser commence a tender offer for Shares?
A: Yes. On October 18, 2011, Purchaser commenced the Offer for all of the outstanding Shares
at a price of $1.60 per Share to the seller in cash, without interest, and less any applicable
withholding taxes. The Offer was commenced pursuant to the Merger Agreement.
Under the terms of the Merger Agreement, the parties agreed to complete the Merger whether or
not the Offer is completed. If the Offer is not completed, the parties agreed that the Merger
could only be completed after the receipt of shareholder approval of the adoption of the Merger
Agreement.
We are soliciting proxies for the special meeting to obtain shareholder approval of the
adoption of the Merger Agreement to be able to consummate the Merger regardless of the outcome of
the Offer. Regardless of whether you tendered your Shares in the Offer, you may nevertheless vote
your Shares at the special meeting because you were a shareholder as of the record date of the
special meeting.
Q. What will I receive if the Merger is completed?
A. Upon completion of the Merger, you will be entitled to receive the per Share Merger
Consideration of $1.60 in cash, without interest, and less any applicable withholding taxes, for
each Share that you own. For example, if you own 100 Shares, you will receive $160 in cash in
exchange for your Shares, less any applicable withholding taxes. You will not own any shares of
the capital stock in the surviving corporation.
Q. What will happen to A.C. Moore stock options and stock appreciation rights in the Merger?
A. At the Effective Time, all options to purchase Shares (A.C. Moore Options) and stock
appreciation rights (A.C. Moore SARs) granted under an equity compensation plan or arrangement of
A.C. Moore outstanding immediately prior to the Effective Time, whether or not exercisable or
vested, will be canceled at the Effective Time, in exchange for a payment, in cash, equal to the
product of (i) the excess, if any, of the per Share Merger Consideration over the exercise price of
the A.C. Moore Option or A.C. Moore SAR, and (ii) the number of Shares subject to A.C. Moore Option
or A.C. Moore SAR, less any amounts required to be withheld pursuant to applicable law. The
treatment of A.C. Moore Options and A.C. Moore SARs is further described under The
MergerInterests of Certain Persons in the Merger Treatment of Equity Awards beginning on page
[] and The Merger AgreementTerms of the Merger Agreement and Certain
Other AgreementsThe MergerTreatment of A.C. Moore Options, A.C. Moore SARs and A.C. Moore
Restricted Stock beginning on page [].
11
Q. What will happen to shares of A.C. Moore Restricted Stock in the Merger?
A. At the Effective Time, each restricted stock award or performance accelerated restricted
stock award granted under any compensation plan or arrangement of A.C. Moore (A.C. Moore Restricted
Stock), whether or not vested, will be cancelled in exchange for the per Share Merger Consideration
payable in respect of such stock. The treatment of A.C. Moore Restricted Stock is further
described under The MergerInterests of Certain Persons in the Merger Treatment of Equity
Awards beginning on page [] and The Merger AgreementTerms of the Merger Agreement and Certain
Other AgreementsThe MergerTreatment of A.C. Moore Options, A.C. Moore SARs and A.C. Moore
Restricted Stock beginning on page [].
Q. Upon the consummation of the Merger, will A.C. Moore continue as a public company?
A. No. If the Merger is completed, our Common Stock will be delisted from Nasdaq and
deregistered under the Exchange Act. As such, we would cease to be publicly traded and would no
longer file periodic reports and proxy statements with the SEC on account of our Common Stock.
Q. When do you expect the Merger to be completed?
A. We are working towards completing the Merger as soon as possible. If the Merger is
approved at the special meeting of shareholders then, assuming timely satisfaction of the other
necessary closing conditions, we anticipate that the Merger will be completed promptly thereafter.
Q. What happens if the Merger is not completed?
A. If the Merger Agreement is not adopted by the shareholders of A.C. Moore or if the
Transactions are not completed for any other reason, the shareholders of A.C. Moore will not
receive any payment for their Shares. Instead, A.C. Moore will remain an independent public
company, and our Common Stock will continue to be listed and traded on Nasdaq. Under specified
circumstances, A.C. Moore may be required to pay to Parent a fee with respect to the termination of
the Merger Agreement, as described under The Merger AgreementTerms of the Merger Agreement and
Certain Other AgreementsTermination Fee beginning on page [].
Q. Is the Merger expected to be taxable to me?
A. Yes. The exchange of Shares for cash pursuant to the Merger will generally be a taxable
transaction to United States Holders for United States federal income tax purposes. In general, a
United States Holder whose Shares are converted into the right to receive cash in the Merger will
recognize gain or loss for United States federal income tax purposes in an amount equal to the
difference, if any, between the amount of cash received with respect to such Shares and its
adjusted tax basis in such Shares. Backup withholding may also apply to the cash payments made
pursuant to the Merger unless the United States Holder or other payee provides a valid taxpayer
identification number and complies with certain certification procedures (generally, by providing a
properly completed IRS Form W-9) or otherwise establishes an exemption from backup withholding.
Payments made to a non-United States Holder with respect to Shares exchanged for cash pursuant to
the Merger will generally be exempt from United States federal income tax. A non-United States
Holder may, however, be subject to backup withholding with respect to the cash payments made
pursuant to the Merger, unless the non-United States Holder certifies on an appropriate IRS Form
W-8 that such non-United States Holder is not a United States person or otherwise establishes an
exemption from backup withholding. You should read The MergerMaterial United States Federal
Income Tax Consequences beginning on page [] for definitions of United States Holder and
non-United States Holder, and for a more detailed discussion of the United States federal income
tax consequences of the Merger. You should also consult your tax advisor with respect to the
specific tax consequences to you in connection with the Merger in light of your own particular
circumstances, including federal estate, gift and other non-income tax consequences, and tax
consequences under state, local or foreign tax laws.
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Q: Do any of A.C. Moores directors or officers have interests in the Merger that may differ
from or be in addition to my interests as a shareholder?
A: Yes. In considering the Board Recommendation with respect to the proposal to adopt the
Merger Agreement, you should be aware that our directors and executive officers may have interests
in the Merger that are different from, or in addition to, the interests of our shareholders
generally. The Board was aware of and considered these interests, among other matters, in
evaluating and negotiating the Merger Agreement and the Merger, and in recommending that the Merger
Agreement be adopted by the shareholders of A.C. Moore. See The MergerInterests of Certain
Persons in the Merger beginning on page [] and Advisory Vote on Golden Parachute Compensation)
beginning on page [].
Q. When and where is the special meeting?
A. The special meeting of shareholders of A.C. Moore will be held on [], 2011 at [] a.m.
Eastern Time, at []. This proxy statement for the special meeting will be mailed to shareholders
on or about [], 2011.
Q. Who may attend the special meeting?
A. All shareholders of record at the close of business on [], 2011, or the record date, or
their duly appointed proxies, and our invited guests may attend the special meeting. Please be
prepared to present valid photo identification for admission to the special meeting.
If you hold Shares in street name (that is, in a bank, brokerage firm or other nominee) and
you plan to vote in person at the special meeting, you will need to bring a valid photo
identification and a copy of a brokerage account statement reflecting your Share ownership as of
the record date, or a legal proxy from your broker or nominee.
Shareholders of record will be verified against an official list available in the registration
area at the special meeting. We reserve the right to deny admittance to anyone who cannot
adequately show proof of Share ownership as of the record date.
Q. When will the shareholders list be available for examination?
A. A complete list of the shareholders of record as of the record date will be available for
examination by shareholders of record beginning on [], 2011 at A.C. Moores headquarters and will
continue to be available through and during the special meeting at [].
Q. Who may vote at the special meeting?
A. You may vote if you owned our Common Stock as of the close of business on the record date.
Each Share is entitled to one vote. As of the record date, there were [] Shares outstanding and
entitled to vote at the special meeting.
Q. What will I be voting on?
A. You will be voting on the following:
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The adoption of the Merger Agreement, which provides for the acquisition of
A.C. Moore by Parent, an affiliate of Sbars; |
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The approval to adjourn the special meeting, if necessary or appropriate to,
among other reasons, solicit additional proxies if there are insufficient votes
at the time of the special meeting to approve the proposal to adopt the Merger
Agreement; and |
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To cast an advisory (non-binding) vote on the golden parachute compensation
payable to A.C. Moores named executive officers in connection with the Merger. |
Q. What are the voting recommendations of the Board of A.C. Moore?
A. The Board unanimously recommends that you vote your Shares FOR the proposal to adopt the
Merger Agreement, FOR the proposal to adjourn the special meeting, if necessary or appropriate
to, among other reasons, solicit additional proxies and FOR the proposal to approve by an
advisory (non-binding) vote the golden parachute compensation.
13
Q. How do I submit a proxy or vote?
A. If you are a shareholder of record (that is, if your Shares are registered in your name
with Broadridge Corporate Issuer Solutions, Inc., our transfer agent) there are four ways to submit
your proxy or vote:
By Telephone: You may submit your proxy by calling the toll-free telephone number indicated
on your proxy card. Please follow the voice prompts that allow you to submit your proxy and
confirm that your voting instructions have been properly recorded.
Via the Internet: You may submit your proxy by logging on to the website indicated on your
proxy card. Please follow the website prompts that allow you to submit your proxy and confirm that
your voting instructions have been properly recorded.
By Mail: You may submit your proxy by completing, signing and returning the proxy card in the
postage-paid envelope provided with this proxy statement. The proxy holders will vote your Shares
according to your directions. If you sign and return your proxy card without specifying choices,
your Shares will be voted by the persons named in the proxy in accordance with the recommendations
of the Board as set forth in this proxy statement.
Vote at the Special Meeting: You may cast your vote in person at the special meeting.
Written ballots will be passed out to shareholders or legal proxies who want to vote in person at
the special meeting.
Submission of proxies by telephone and via the Internet for shareholders of record will be
available 24 hours a day and will close at 11:59 p.m., Eastern Time, on [], 2011. Submission of
proxies by telephone and via the Internet is convenient, provides postage and mailing cost savings
and is recorded immediately, minimizing the risk that postal delays may cause proxies to arrive
late and therefore not be counted.
Even if you plan to attend the special meeting, you are encouraged to submit a proxy. You may
still vote your Shares in person at the special meeting even if you have previously submitted a
proxy. If you are present at the special meeting and desire to vote in person, your previous proxy
will not be counted.
Q. How do I vote if I hold Shares through the A.C. Moore 401(k) Plan?
A. If you participate in the A.C. Moore 401(k) Plan, or the 401(k) Plan, and hold Shares in your 401(k) Plan account,
you may give voting instructions as to the number of Shares credited to your account as of the record date.
The Plan trustee, Frontier Trust Company, or the Trustee, will vote on your behalf according to your voting
instructions (or a change or revocation in voting instructions). Only the Trustee may vote your 401(k)
Plan Shares; you may not vote your 401(k) Plan Shares in person at the special meeting. Your voting
instructions (or change or revocation in voting instructions) must be
received before [] on [].
Q. What if I hold my Shares in street name?
A. You should follow the voting directions provided by your bank, brokerage firm or other
nominee. You may complete and mail a voting instruction card to your bank, brokerage firm or other
nominee or, in most cases, submit voting instructions by telephone or the Internet to your bank,
brokerage firm or other nominee. If you provide specific voting instructions by mail, telephone or
the Internet, your bank, brokerage firm or other nominee will vote your Shares as you have
directed. Please note that if you wish to vote in person at the special meeting, you must provide
a legal proxy from your bank, brokerage firm or other nominee at the special meeting.
If you have not received such voting instructions or require further information regarding
such voting instructions, contact your bank, brokerage firm or other nominee. Your bank, brokerage
firm or other nominee will not vote your Shares on the proposals to adopt the Merger Agreement, to
adjourn or postpone the special meeting to solicit additional proxies or to approve, on an advisory
(non-binding) basis, the golden parachute compensation payable to A.C. Moores named executive
officers in connection with the Merger without instruction from you. Under the PBCL, abstentions
and these broker non-votes are not considered votes cast and therefore will have no effect on the
vote and will not be considered in determining whether the proposals have received the requisite
shareholder vote.
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Q. Can I change my mind after I vote?
A. Yes. If you are a shareholder of record, you may revoke your proxy at any time before it
is voted at the special meeting by:
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submitting a new proxy by telephone or via the Internet after the date of the
earlier voted proxy; |
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signing another proxy card with a later date and returning it to us prior to
the special meeting; or |
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attending the special meeting and voting in person. |
If you hold your Shares in street name, you may submit new voting instructions by contacting
your bank, brokerage firm or other nominee. You may also vote in person at the special meeting if
you obtain a legal proxy from your bank, brokerage firm or other nominee.
Q. Who will count the votes?
A. [] will count the votes and will serve as the independent judge of elections.
Q. What does it mean if I receive more than one proxy card?
A. It means that you have multiple accounts with brokers or our transfer agent. To ensure
that all of your Shares are voted, please use all the proxy cards you receive to vote your Shares
and complete, sign, date and return a proxy card or vote by telephone or via the Internet for each
account. We encourage you to register all of your Shares in the same name and address. You may do
this by contacting your broker or our transfer agent. Our transfer agent may be reached at (877)
830-4936 or at the following address:
Broadridge Corporate Issuer Solutions, Inc.
1717 Arch Street, Suite 1300
Philadelphia PA 19103
Q. Will my Shares be voted if I do not submit my proxy?
A. If you are the shareholder of record and you do not vote in person at the special meeting
or submit a proxy, your Shares will not be voted.
If your Shares are held in street name, they may not be voted if you do not provide the bank,
brokerage firm or other nominee with voting instructions. Currently, banks, brokerage firms or
other nominees have the authority under the Nasdaq rules to vote Shares for which their customers
do not provide voting instructions on certain routine matters.
However, banks, brokerage firms or other nominees are precluded from exercising their voting
discretion with respect to approving non-routine matters, such as the proposal to adopt the Merger
Agreement, the proposal to approve the adjournment of the special meeting, if necessary or
appropriate, and the proposal to approve by an advisory (non-binding) vote the golden parachute
compensation, and, as a result, absent specific instructions from the beneficial owner of such
Shares, banks, brokerage firms or other nominees are not empowered to vote those Shares on
non-routine matters, which we refer to generally as broker non-votes.
Q. May shareholders ask questions?
A. Yes. Our representatives will answer shareholders questions of general interest following
the special meeting consistent with the rules distributed at the special meeting.
Q. How many votes must be present to hold the special meeting?
A. A quorum is the number of Shares of Common Stock that must be present, in person or
represented by proxy, in order to transact business at the special meeting. The presence, in
person or represented by proxy, of shareholders entitled to cast at least a majority of the votes
that all shareholders are entitled to cast as of the record date on the matters to be acted upon at
the special meeting will constitute a quorum for the purposes of the special meeting. Abstentions
will be counted as Shares present and entitled to vote for the purpose of determining a quorum.
Broker non-votes will not be counted for purposes of determining whether a quorum is present unless
the Shares covered by the broker non-votes are voted on a matter other than a procedural matter.
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If the special meeting is adjourned for one or more periods aggregating at least 15 days
because of the absence of a quorum, those shareholders entitled to vote who attend the reconvened
meeting, if less than a quorum as determined under applicable law, shall nevertheless constitute a
quorum for the purpose of acting upon any matter set forth in the Notice of Special Meeting of
Shareholders.
Q. What vote is required to approve each proposal?
A. The affirmative vote of a majority of the votes cast by all shareholders of A.C. Moore
entitled to vote thereon is required for the adoption of the Merger Agreement. Approval of the
proposal to approve, on an advisory (non-binding) basis, the golden parachute compensation
payable to A.C. Moores named executive officers in connection with the Merger and of the proposal
to adjourn the special meeting, if necessary or appropriate for, among other reasons, soliciting
additional proxies also require the affirmative vote of a majority of the votes cast by all
shareholders of A.C. Moore entitled to vote thereon. Abstentions and broker non-votes will have no
effect on these proposals.
Q. How are votes counted?
A. For the proposal to adopt the Merger Agreement, you may vote FOR, AGAINST or ABSTAIN.
Abstentions and broker non-votes will have no effect on this proposal.
For the advisory vote to approve the golden parachute compensation and for the proposal to
adjourn the special meeting, if necessary or appropriate for, among other reasons, soliciting
additional proxies, you may vote FOR, AGAINST or ABSTAIN. Abstentions and broker non-votes
will have no effect on these proposals.
The vote to approve the golden parachute compensation is advisory only, will not be binding
on A.C. Moore or Parent and is not a condition to completion of the Merger. If the Merger
Agreement is adopted by the shareholders and the Merger is completed, the golden parachute
compensation may be paid to A.C. Moores named executive officers in connection with the Merger
even if shareholders fail to approve the golden parachute proposal.
Q. Who will pay for this proxy solicitation?
A. We will bear the cost of preparing, assembling and mailing the proxy material and of
reimbursing brokers, nominees, fiduciaries and other custodians for out-of-pocket and clerical
expenses of transmitting copies of the proxy material to the beneficial owners of Shares.
We have retained [] to solicit proxies on the Boards behalf. We estimate that [] will
receive fees of approximately $[], plus reasonable out-of-pocket expenses incurred on our behalf,
to assist in the solicitation of proxies. [] has advised A.C. Moore that approximately [] of its
employees will be involved in the solicitation of proxies by it on our behalf. In addition, []
and certain related persons will be indemnified against certain liabilities arising out of or in
connection with the engagement. A few of our directors, officers and other employees may
participate in the solicitation of proxies without additional compensation.
Q. Will any other matters be voted on at the special meeting?
A. As of the date of this proxy statement, our management knows of no other matter that will
be presented for consideration at the special meeting other than those matters discussed in this
proxy statement. If any other matters properly come before the special meeting calling for a vote
of shareholders, proxies returned to us or voted by telephone or through the Internet will be voted
in the discretion of the proxy holders.
Q. What happens if the special meeting is adjourned?
A. If the shareholders approve the adjournment proposal, A.C. Moore could adjourn the special
meeting (and any reconvened session of the special meeting) and use the additional time to solicit
additional proxies, including the solicitation of proxies from shareholders that have previously
voted. Among other things, approval of the adjournment proposal could mean that, even if A.C.
Moore had received proxies representing a sufficient number of votes to defeat the proposal to
adopt the Merger Agreement, A.C. Moore could adjourn the special meeting without a vote on such
proposal and seek to convince its shareholders to change their votes in favor of the adoption of
the Merger Agreement.
16
If it is necessary to adjourn the special meeting to a later date or time, no notice of the
reconvened special meeting is required to be given to shareholders, other than an announcement at
the special meeting of the time and place to which the special meeting is adjourned, so long as no
new record date is fixed for the reconvened meeting or the PBCL requires notice of the business to
be transacted and such notice has not been previously given. If our Board fixes a new record date
for shareholders entitled to vote at the reconvened special meeting, it must fix a new record date
for notice of such reconvened special meeting.
Unless the polls have closed, your proxy will still be in effect and may be voted at any
reconvened special meeting. You will be able to change or revoke your proxy with respect to any
item until the polls have closed for voting on such item.
Q. What is A.C. Moores website address?
A. Our website address is www.acmoore.com. We make this proxy statement, our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available on our
website under About Us, SEC Filings as soon as reasonably practicable after electronically
filing such material with the SEC.
This information is also available free of charge at www.sec.gov, an Internet site maintained
by the SEC that contains reports, proxy and information statements, and other information regarding
issuers that is filed electronically with the SEC. Shareholders may also read and copy any
reports, statements and other information filed by us with the SEC at the SEC public reference room
at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 800-SEC-0330 or visit the
SECs website for further information on its public reference room. In addition, shareholders may
obtain free copies of the documents filed with the SEC from A.C. Moore by contacting David Stern,
Chief Financial and Administrative Officer, A.C. Moore Arts & Crafts, Inc., 130 A.C. Moore Drive,
Berlin, New Jersey 08009, (856) 768-4943.
The references to our website address and the SECs website address do not constitute
incorporation by reference of the information contained in these websites and should not be
considered part of this document. These website addresses are intended to be inactive textual
references only.
Our SEC filings are available in print to any shareholder who requests a copy at the phone
number or address listed above.
Q. What happens if I sell my Shares after the record date but before the special meeting?
A. The record date for shareholders entitled to vote at the special meeting is earlier than
both the date of the special meeting and the consummation of the Merger. If you transfer your
Shares after the record date but before the special meeting, unless special arrangements (such as
provision of a proxy) are made between you and the person to whom you transfer your Shares and each
of you notifies A.C. Moore in writing of such special arrangements, you will retain your right to
vote such Shares at the special meeting but will transfer the right to receive the per Share Merger
Consideration to the person to whom you transfer your Shares.
Q. What do I need to do now?
A. Even if you plan to attend the special meeting, after carefully reading and considering the
information contained in this proxy statement, please submit your proxy promptly to ensure that
your Shares are represented at the special meeting. If you hold your Shares in your own name as
the shareholder of record, please submit a proxy for your Shares by (i) completing, signing, dating
and returning the enclosed proxy card in the accompanying prepaid reply envelope, (ii) using the
telephone number printed on your proxy card or (iii) using the Internet proxy instructions printed
on your proxy card. If you decide to attend the special meeting and vote in person, your vote by
ballot will revoke any proxy previously submitted. If you are a beneficial owner, please refer to
the instructions provided by your bank, brokerage firm or other nominee to see which of the above
choices are available to you.
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Q. Should I send in my stock certificates now?
A. No. You will be sent a letter of transmittal promptly after the completion of the Merger,
describing how you may exchange your Shares for the per Share Merger Consideration. If your Shares
are held in street name by your bank, brokerage firm or other nominee, you will receive
instructions from your bank, brokerage firm or other nominee as to how to effect the surrender of
your street name Shares in exchange for the per Share Merger Consideration. Please do NOT return
your stock certificate(s) with your proxy.
Q. Am I entitled to exercise dissenters rights under the PBCL instead of receiving the per
Share Merger Consideration for my Shares?
A. Dissenters rights are not available in connection with the Merger if there is a vote of
shareholders at the special meeting to adopt the Merger Agreement.
Q. Why am I being asked to cast an advisory (non-binding) vote to approve golden parachute
compensation payable to certain of A.C. Moores named executive officers in connection with the
Merger?
A. The SEC has adopted new rules that require A.C. Moore to seek an advisory (non-binding)
vote with respect to certain payments that may be made to A.C. Moores named executive officers in
connection with the Merger.
Q. What is the golden parachute compensation?
A. The golden parachute compensation is certain compensation that is tied to or based on the
Merger and payable to A.C. Moores named executive officers. See Advisory Vote on Golden
Parachute Compensation beginning on page [].
Q. What will happen if shareholders do not approve the golden parachute compensation at the
special meeting?
A. Approval of the golden parachute compensation is not a condition to completion of the
Merger. The vote with respect to the golden parachute compensation is an advisory vote and will
not be binding on A.C. Moore or Parent. If the Merger Agreement is adopted by the shareholders and
completed, the golden parachute compensation may be paid to A.C. Moores named executive officers
in connection with the Merger even if shareholders fail to approve the golden parachute proposal.
Q. Who can help answer my other questions?
A. If you have additional questions about the Merger or the special meeting, need assistance
in submitting your proxy card or voting instruction card or voting your Shares, or need additional
copies of the proxy statement or the enclosed proxy card or voting instruction card, please call
[] at [].
YOUR VOTE IS IMPORTANT, REGARDLESS OF HOW MANY SHARES YOU OWN. WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD OR VOTING
INSTRUCTION CARD AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE TODAY OR VOTE BY INTERNET OR
TELEPHONE.
18
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This proxy statement contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be
identified by words such as anticipate, expect, believe, plan, intend, predict, will,
may and similar terms. Forward-looking statements in this proxy statement include, but are not
limited to, statements regarding the anticipated timing of filings relating to the transaction;
statements regarding the expected timing of the completion of the transaction; statements regarding
the ability to complete the transaction considering the various closing conditions; statements
regarding prospective performance and opportunities; any statements of expectation or belief; and
any statements of assumptions underlying any of the foregoing. The forward-looking statements
contained in this proxy statement related to future results and events are based on A.C. Moores
current expectations, beliefs and assumptions about its industry and its business. Forward-looking
statements, by their nature, involve risks and uncertainties and are not guarantees of future
performance. Actual results may differ materially from the results discussed in the
forward-looking statements due to a variety of risks, uncertainties and other factors, including,
but not limited to:
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uncertainties as to the timing of the Offer and the Merger; |
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uncertainties as to how many of A.C. Moores shareholders will tender their stock in
the Offer; |
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the risk that the transaction may not be approved by A.C. Moores shareholders were
the transaction to be consummated as a one-step Merger; |
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the risk that competing offers will be made; |
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the possibility that various closing conditions for the transaction may not be
satisfied or waived; |
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the occurrence of any event, change or other circumstances that could give rise to
the termination of the Merger Agreement, including a termination under circumstances
that could require A.C. Moore to pay a termination fee; |
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Parents failure to obtain the necessary financing or alternative financing to
consummate the Transactions or the failure of that financing to be sufficient to
complete the Transactions contemplated by the Merger Agreement; |
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the failure of the Merger to close for any reason; |
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the outcome of any legal proceedings that have been or may be instituted against A.C.
Moore and/or others relating to the Merger Agreement; |
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the amount of the costs, fees, expenses and charges related to the Merger; |
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the effects of disruption from the Transactions making it more difficult to maintain
relationships with employees, customers, vendors or other business partners; |
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other business effects, including, but not limited to, the effects of industry,
economic or political conditions outside of A.C. Moores control; |
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actual or contingent liabilities; and |
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other risks and uncertainties discussed in documents filed with the SEC by A.C.
Moore, including, but not limited to, this proxy statement and the
solicitation/recommendation statement filed by A.C. Moore.
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Investors and shareholders are cautioned not to place undue reliance on these forward-looking
statements. Readers are also urged to review carefully and consider the various disclosures in
A.C. Moores SEC periodic and interim reports, including but not limited to its Annual Report on
Form 10-K, as amended, for the fiscal year ended January 1, 2011, Quarterly Report on Form 10-Q for
the fiscal quarter ended April 2, 2011, Quarterly Report on Form 10-Q for the fiscal quarter ended
July 2, 2011 and Current Reports on Form 8-K filed from time to time by A.C. Moore.
A.C. Moore operates in a very competitive and rapidly changing environment. New risk factors
emerge from time to time and it is not possible for A.C. Moores management to predict all risk
factors, nor can it assess the impact of all risk factors on A.C. Moores business or the extent to
which any factor, or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements. Although A.C. Moore believes the expectations
reflected in the forward-looking statements are reasonable, it cannot guarantee future results,
level of activity, performance or achievements. All forward-looking statements are made only as of
the date they are made and you should not rely upon forward-looking statements as predictions of
future events. All forward-looking statements are qualified in their entirety by this cautionary
statement.
20
PARTIES TO THE MERGER
A.C. Moore
A.C. Moore Arts & Crafts, Inc.
130 A.C. Moore Drive
Berlin, New Jersey 08009
(856) 768-4930
A.C. Moore, a Pennsylvania corporation, is a specialty retailer of arts, crafts and floral
merchandise for a wide range of customers. We currently serve customers through our 134 stores
located in the Eastern United States and nationally via our e-commerce site, www.acmoore.com. Our
website address is provided as an inactive textual reference only. The information contained on
our website is not incorporated into, and does not form a part of, this proxy statement or any
other report or document on file with or furnished to the SEC. See also Where You Can Find More
Information beginning on page []. Our Common Stock is publicly traded on Nasdaq under the symbol
ACMR.
Parent
Nicole Crafts LLC
14 Sbar Blvd.
Moorestown, NJ 08057
(856) 234-8220
Nicole Crafts LLC, a Delaware limited liability company, or Parent, was formed solely for the
purpose of acquiring A.C. Moore and has not engaged in any business except for activities related
to its formation, the Offer and the Merger and arranging the related financing. Upon completion of
the Merger, A.C. Moore will be a direct, wholly owned subsidiary of Parent. Parent is an affiliate
of Sbars, a vendor to A.C. Moore. See the section entitled The MergerVendor Arrangement with
Sbars beginning on page [].
Purchaser
Sbars Acquisition Corporation
14 Sbar Blvd.
Moorestown, NJ 08057
(856) 234-8220
Sbars Acquisition Corporation, a Pennsylvania corporation, or Purchaser, is a wholly owned
subsidiary of Parent and was formed solely for the purpose of facilitating the acquisition of A.C.
Moore. To date, Purchaser has not carried on any activities other than those related to its
formation, the Offer and the Merger and arranging the related financing. Upon consummation of the
proposed Merger, Purchaser will merge with and into A.C. Moore and will cease to exist, with A.C.
Moore continuing as the surviving corporation.
21
THE SPECIAL MEETING
Time, Place and Purpose of the Special Meeting
This proxy statement is being furnished to our shareholders as part of the solicitation of
proxies by the Board for use at the special meeting to be held on [], 2011, starting at [] a.m.,
Eastern Time, at [], or at any postponement or adjournment thereof. At the special meeting,
holders of Shares will be asked to approve the proposal to adopt the Merger Agreement, to approve
the proposal to adjourn the special meeting, if necessary or appropriate for, among other reasons,
soliciting additional proxies if there are insufficient votes at the time of the special meeting to
approve the proposal to adopt the Merger Agreement and to cast an advisory (non-binding) vote to
approve golden parachute compensation payable under existing arrangements of A.C. Moores named
executive officers in connection with the Merger.
If the Offer is not completed, our shareholders must approve the proposal to adopt the Merger
Agreement in order for the Merger to occur. If our shareholders fail to approve the proposal to
adopt the Merger Agreement and the Offer is not completed, the Merger will not occur. Copies of
the Merger Agreement and Amendment No. 1 to the Merger Agreement are attached as Annex A and Annex
B to this proxy statement, which we encourage you to read carefully in their entirety.
Record Date and Quorum
We have fixed the close of business on [], 2011 as the record date for the special meeting,
and only holders of record of Common Stock on the record date are entitled to vote at the special
meeting. You are entitled to receive notice of, and to vote at, the special meeting if you owned
Shares at the close of business on the record date. On the record date, there were [] Shares
outstanding and entitled to vote. Each Share entitles its holder to one vote on all matters
properly coming before the special meeting.
The presence, in person or represented by proxy, of shareholders entitled to cast at least a
majority of the votes that all shareholders are entitled to cast as of the record date on the
matters to be acted upon at the special meeting will constitute a quorum for the purposes of the
special meeting. Shares represented at the special meeting but not voted, such as Shares for which
a shareholder directs an abstention from voting, will be counted as present for purposes of
establishing a quorum. Broker non-votes will not be counted for purposes of determining whether a
quorum is present unless the Shares covered by the broker non-votes are voted on a matter other
than a procedural matter. Once a Share is represented at the special meeting, it will be counted
for the purpose of determining a quorum at the special meeting and any adjournment of the special
meeting, unless a new record date is required to be established.
If the special meeting is adjourned for one or more periods aggregating at least 15 days
because of the absence of a quorum, those shareholders entitled to vote who attend the reconvened
special meeting, if less than a quorum as determined under applicable law, shall nevertheless
constitute a quorum for the purpose of acting upon any matter set forth in the Notice of Special
Meeting of Shareholders.
Attendance
Only shareholders of record or their duly authorized proxies have the right to attend the
special meeting. To gain admittance, you must present a valid photo identification, such as a
drivers license or passport. If your Shares are held through a bank, brokerage firm or other
nominee, please bring to the special meeting a copy of your brokerage statement evidencing your
beneficial ownership of Common Stock and a valid photo identification. If you are the
representative of a corporate or institutional shareholder, you must present valid photo
identification along with proof that you are the representative of such shareholder. Please note
that cameras, recording devices and other electronic devices will not be permitted at the special
meeting.
Vote Required
Approval of the proposal to adopt the Merger Agreement requires the affirmative vote of a
majority of the votes cast by all shareholders of A.C. Moore entitled to vote thereon. For the
proposal to adopt the Merger Agreement, you may vote FOR, AGAINST or ABSTAIN. Abstentions
will not be counted as votes cast in favor of or against the proposal to adopt the Merger Agreement
but they will count for the purpose of determining whether a quorum is present.
Under the PBCL, if you fail to submit a proxy, fail to vote in person at the special meeting,
or abstain, it will not be considered a vote cast and therefore will have no effect on the vote
and will not be considered in determining whether this proposal has received the requisite
shareholder vote.
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If your Shares are registered directly in your name with our transfer agent, Broadridge
Corporate Issuer Solutions, Inc., you are considered, with respect to those Shares, the
shareholder of record. This proxy statement and proxy card have been sent directly to you by
A.C. Moore.
If your Shares are held through a bank, brokerage firm or other nominee, you are considered
the beneficial owner of Shares held in street name. In that case, this proxy statement has been
forwarded to you by your bank, brokerage firm or other nominee who is considered, with respect to
those Shares, the shareholder of record. As the beneficial owner, you have the right to direct
your bank, brokerage firm or other nominee how to vote your Shares by following their instructions
for voting.
Banks, brokerage firms or other nominees who hold Shares in street name for customers have the
authority to vote on routine proposals when they have not received instructions from beneficial
owners. However, banks, brokerage firms or other nominees are precluded from exercising their
voting discretion with respect to approving non-routine matters, such as the proposal to adopt the
Merger Agreement; the proposal to adjourn the special meeting, if necessary or appropriate to,
among other reasons, solicit additional proxies; and the proposal to approve the golden parachute
compensation, and, as a result, absent specific instructions from the beneficial owner of such
Shares, banks, brokerage firms or other nominees are not empowered to vote those Shares on
non-routine matters, which we refer to generally as broker non-votes.
Broker non-votes will not be counted for purposes of determining whether a quorum is present
unless the Shares covered by the broker non-votes are voted on a matter other than a procedural
matter. Once a quorum for the special meeting has been established, broker non-votes will not be
counted in the voting results and will have no effect on the outcome of the proposals to adopt the
Merger Agreement, to approve the adjournment or postponement of the special meeting or to approve
the golden parachute compensation. Therefore, you should provide your bank, brokerage firm or
other nominee with instructions on how to vote your Shares, or arrange to attend the special
meeting and vote your Shares in person to avoid a broker non-vote.
The proposal to adjourn the special meeting, if necessary or appropriate to, among other
reasons, solicit additional proxies requires the affirmative vote of a majority of the votes cast
by all shareholders of A.C. Moore entitled to vote thereon. For the proposal to adjourn the
special meeting, if necessary or appropriate, you may vote FOR, AGAINST or ABSTAIN. For
purposes of this proposal, if your Shares are present at the special meeting but are not voted on
this proposal, or if you have given a proxy and abstained on this proposal, this will not be
considered a vote cast and will have no effect on the outcome of the vote. If you abstain, fail
to submit a proxy or vote in person at the special meeting, or if there are broker non-votes on the
proposal, as applicable, it will not be considered a vote cast and therefore will have no effect
on the vote and will not be considered in determining whether this proposal has received the
requisite shareholder vote.
The proposal to approve on an advisory (non-binding) basis the golden parachute compensation
requires the affirmative vote of a majority of the votes cast by all shareholders of A.C. Moore
entitled to vote thereon. For the proposal regarding the golden parachute compensation, you may
vote FOR, AGAINST or ABSTAIN. For purposes of this proposal, if your Shares are present at
the special meeting but are not voted on this proposal, or if you have given a proxy and abstained
on this proposal, this will not be considered a vote cast and will have no effect on the outcome
of the vote. If you abstain, fail to submit a proxy or vote in person at the special meeting or if
there are broker non-votes on the proposal, as applicable, it will not be considered a vote cast
and therefore will have no effect on the vote and will not be considered in determining whether
this proposal has received the requisite shareholder vote.
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If you are a shareholder of record, you may submit your proxy or vote your Shares on matters
presented at the special meeting in any of the following ways:
By Telephone: You may submit your proxy by calling the toll-free telephone number indicated
on your proxy card. Please follow the voice prompts that allow you to submit your proxy and
confirm that your instructions have been properly recorded.
Via the Internet: You may submit your proxy by logging on to the website indicated on your
proxy card. Please follow the website prompts that allow you to submit your proxy and confirm that
your instructions have been properly recorded.
By Mail: You may submit your proxy by completing, signing and returning the proxy card in the
postage-paid envelope provided with this proxy statement. The proxy holders will vote your Shares
according to your directions. If you sign and return your proxy card without specifying choices,
your Shares will be voted by the persons named in the proxy in accordance with the recommendations
of the Board as set forth in this proxy statement.
Vote at the Special Meeting: You may cast your vote in person at the special meeting.
Written ballots will be passed out to shareholders or legal proxies who want to vote in person at
the special meeting.
If you are a beneficial owner, you will receive instructions from your bank, brokerage firm or
other nominee that you must follow in order to have your Shares voted. Those instructions will
identify which of the above choices are available to you in order to have your Shares voted.
Please note that if you are a beneficial owner and wish to vote in person at the special
meeting, you must provide a legal proxy from your bank, brokerage firm or other nominee.
Please refer to the instructions on your proxy or voting instruction card to determine the
deadlines for submitting your proxy over the Internet or by telephone. If you choose to submit
your proxy by mailing a proxy card, your proxy card must be filed with our Secretary by the time
the special meeting begins. Please do not send in your stock certificates with your proxy card.
When the Merger is completed, a separate letter of transmittal will be mailed to you that will
enable you to receive the per Share Merger Consideration in exchange for your stock certificates.
If you submit your proxy, regardless of the method you choose, the individuals named on the
enclosed proxy card, and each of them, with full power of substitution, or your proxies, will vote
your Shares in the way that you indicate. When completing the Internet or telephone processes or
the proxy card, you may specify whether your Shares should be voted for or against or to abstain
from voting on all, some or none of the specific items of business to come before the special
meeting.
If you properly sign your proxy card but do not mark the boxes showing how your Shares should
be voted on a matter, the Shares represented by your properly signed proxy will be voted FOR the
proposal to adopt the Merger Agreement, FOR the proposal to adjourn the special meeting, if
necessary or appropriate to, among other reasons, solicit additional proxies and FOR the proposal
to approve on an advisory (non-binding) basis the golden parachute compensation.
If you have any questions or need assistance voting your Shares, please call [] toll-free at
[].
IT IS IMPORTANT THAT YOU SUBMIT A PROXY FOR YOUR SHARES OF COMMON STOCK PROMPTLY. WHETHER OR
NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS
POSSIBLE, THE ENCLOSED PROXY CARD IN THE ACCOMPANYING PREPAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY
BY TELEPHONE OR THE INTERNET. SHAREHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR PROXIES
BY VOTING IN PERSON.
As of [], 2011, the record date, the directors and executive officers of A.C. Moore
beneficially owned and were entitled to vote, in the aggregate, [] Shares (including A.C. Moore
Restricted Stock but excluding any Shares underlying A.C. Moore Options and A.C. Moore SARs),
representing []% of the outstanding Shares on the record date. The directors and executive
officers have informed A.C. Moore that they currently intend to vote all of their Shares FOR the
proposal to adopt the Merger Agreement, FOR the proposal to adjourn the special meeting, if
necessary or appropriate
to, among other reasons, solicit additional proxies, and FOR the proposal to approve on an
advisory (non-binding) basis the golden parachute compensation.
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Proxies and Revocation
Any shareholder of record entitled to vote at the special meeting may submit a proxy by
telephone, over the Internet, by returning the enclosed proxy card in the accompanying prepaid
reply envelope, or may vote in person at the special meeting. If your Shares are held in street
name by your bank, brokerage firm or other nominee, you should instruct your bank, brokerage firm
or other nominee on how to vote your Shares using the instructions provided by your bank, brokerage
firm or other nominee. If you fail to submit a proxy or vote in person at the special meeting, or
abstain, or do not provide your bank, brokerage firm or other nominee with voting instructions, as
applicable, your Shares will not be voted on the proposal to adopt the Merger Agreement, the
proposal to adjourn the special meeting, if necessary or appropriate to, among other reasons,
solicit additional proxies and the proposal to approve on an advisory (non-binding) basis the
golden parachute compensation. Only votes cast will have an effect on the outcome of the
proposals to adopt the Merger Agreement, to adjourn the special meeting, if necessary or
appropriate to, among other reasons, solicit additional proxies and to approve on an advisory
(non-binding) basis the golden parachute compensation.
If you are a shareholder of record, you have the right to revoke a proxy, whether delivered
over the Internet, by telephone or by mail, at any time before it is voted at the special meeting
by:
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submitting a new proxy by telephone or via the Internet after the date of the earlier
voted proxy; |
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signing another proxy card with a later date and returning it to us prior to the
special meeting; or |
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attending the special meeting and voting in person. |
If you hold your Shares in street name, you may submit new voting instructions by contacting
your bank, brokerage firm or other nominee. You may also vote in person at the special meeting if
you obtain a legal proxy from your bank, brokerage firm or other nominee.
Adjournments and Postponements
Although it is not currently expected, at the special meeting, we may ask our shareholders to
vote on a proposal to adjourn the special meeting for the purpose of soliciting additional proxies,
if there are insufficient votes at the time of the special meeting to approve the proposal to adopt
the Merger Agreement or if a quorum is not present at the special meeting. Accordingly, we have
included on the proxy card a proposal seeking shareholder approval for the adjournment of the
special meeting, if necessary or appropriate to, among other reasons, solicit additional proxies.
We may also postpone the special meeting under certain circumstances. Any adjournment or
postponement of the special meeting for the purpose of soliciting additional proxies will allow
A.C. Moores shareholders who have already sent in their proxies to revoke them at any time prior
to their use at the special meeting as adjourned or postponed.
Anticipated Date of Completion of the Merger
We are working towards completing the Merger as soon as possible. If the Merger Agreement is
adopted at the special meeting, then, assuming timely satisfaction of the other necessary closing
conditions, we anticipate that the Merger will be completed promptly thereafter.
Dissenters Rights
Holders of Shares will not be entitled to exercise dissenters rights under the PBCL in
connection with the Merger. If the Merger Agreement is adopted and the Merger is completed,
holders of Common Stock who voted against the adoption of the Merger Agreement will be treated the
same as holders who voted to adopt the Merger Agreement and their Shares will automatically be
converted into the right to receive the per Share Merger Consideration.
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Payment of Solicitation Expenses
A.C. Moore will bear the entire cost of soliciting proxies, including the costs of preparing,
assembling, printing and mailing this proxy statement and the proxy card and any additional
soliciting materials furnished to shareholders.
A.C. Moore may reimburse brokers, banks and other custodians, nominees and fiduciaries
representing beneficial owners of Shares for their expenses in forwarding soliciting materials to
beneficial owners of Common Stock and in obtaining voting instructions from those owners.
A.C. Moore retained [] to solicit proxies on the Boards behalf. We estimate that [] will
receive fees of approximately $[], plus reasonable out-of-pocket expenses incurred on our behalf,
to assist in the solicitation of proxies. [] has advised A.C. Moore that approximately [] of its
employees will be involved in the solicitation of proxies by it on our behalf. In addition, []
and certain related persons will be indemnified against certain liabilities arising out of or in
connection with the engagement. Our directors, officers and employees may also solicit proxies by
telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any
additional amounts for soliciting proxies.
Questions and Additional Information
If you have more questions about the Merger or how to submit your proxy card or voting
instruction card, or if you need additional copies of this proxy statement or the enclosed proxy
card or voting instructions, please call [] at [].
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THE MERGER
This discussion of the Merger is qualified in its entirety by reference to the Merger
Agreement and Amendment No. 1 to the Merger Agreement, which are attached to this proxy statement
as Annex A and Annex B. You should read the entire Merger Agreement, as amended, carefully as it
is the legal document that governs the Merger.
The Merger Agreement provides that Purchaser will merge with and into A.C. Moore. Following
the Effective Time, the separate corporate existence of Purchaser will cease and A.C. Moore will
continue as the surviving corporation and as a wholly owned subsidiary of Parent. As a result of
the Merger, A.C. Moore will cease to be a publicly traded company. You will not own any Shares of
the capital stock of the surviving corporation.
Merger Consideration
In the Merger, each issued and outstanding Share (other than Excluded Shares) will be
automatically converted into the right to receive the per Share Merger Consideration of $1.60 to
the holder in cash, without interest thereon and less any required withholding taxes.
Background of the Transactions
The following is a chronological description of the material contacts and events leading up to
or relating to the Transactions. For a more complete understanding of this description, we
encourage you to read this entire proxy statement, including, but not limited to, the Merger
Agreement and Amendment No. 1 to the Merger Agreement attached to this proxy statement as Annex A
and Annex B.
In connection with its normal business activities and planning, A.C. Moore regularly evaluates
market conditions and potential financial and strategic alternatives to enhance shareholder value
and/or provide A.C. Moore with greater financial flexibility. As a result, in late 2009, A.C.
Moores senior management, acting at the direction of the Board, began meeting with several
investment banks to explore possible strategic and financial alternatives for A.C. Moore. Over the
course of these discussions, the Board concluded that the factors adversely affecting its business
were unlikely to change in the short term, and potentially for a number of years. Among such
factors were the following:
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Declining Same Store SalesA.C. Moores same store sales had declined in each of the
preceding three fiscal years. A.C. Moores comparable store sales had declined 10.3% in
fiscal 2007, 8.7% in fiscal 2008, and 10.8% in fiscal 2009. |
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Significant Losses in 2008 and 2009A.C. Moore had experienced net losses in fiscal
2008 and fiscal 2009 of $26.6 million and $25.9 million, respectively. These losses were
primarily the result of declines in same store sales. |
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Effect of Future Losses on Cash and LiquidityA.C. Moores primary sources of
liquidity include available cash and cash equivalents, cash generated from operations
and borrowings under its credit facility with Wells Fargo. To the extent that A.C. Moore
continued to incur losses, in the absence of third-party financing, its liquidity could
be adversely affected. |
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Challenging Real Estate PortfolioA.C. Moore operates 134 stores located in the
Eastern United States. A.C. Moore leases its store locations for an average initial term
of 10 years, with three five-year renewal options and predetermined escalations in
future minimum annual rent. A number of these locations had become unprofitable. A.C.
Moores ability to lower its occupancy costs or terminate leases for underperforming
locations was limited as a result of, among other things, market conditions and lease
terms. |
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Lack of Financial FlexibilityBecause A.C. Moore had experienced net losses in
fiscal 2008 and fiscal 2009 primarily due to declining same-store sales, A.C. Moores
ability to react to changes in the business and the specialty retailing industry was
becoming limited. In addition, A.C. Moores ability to fund new business initiatives had
become much more limited compared to some of its major competitors and mass
merchandisers that have substantially greater financial resources. |
27
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Challenging Macroeconomic EnvironmentAmong other factors, A.C. Moores sales were
being adversely affected by a challenging macroeconomic environment that decreased
discretionary consumer spending. In addition, consumers seeking to conserve cash had
increased their promotional purchases. |
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Fixed Overhead ExpensesGiven A.C. Moores decline in revenue, A.C. Moore had a less
than optimal revenue base to leverage fixed overhead expenses. |
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Highly Competitive IndustryThe arts and crafts industry had become highly
competitive, with an expanded set of competitors in A.C. Moores market areas and
increased arts and crafts product offerings by mass merchandisers. Almost all of A.C.
Moores stores face aggressive competition in their market area from one or more of A.C.
Moores major competitors. Some of these competitors are backed by leading private
equity firms and, accordingly, have access to substantially greater financial resources
than A.C. Moore. |
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Lower Gross Margins Compared to CompetitorsDue to A.C. Moores limited
direct-source buying relationships, particularly overseas, lack of purchasing power
comparable to that of its larger competitors, and its dependence on promotional and
discounting activities, A.C. Moores gross margins generally lagged those of its
competitors. |
Taking the above factors into account, the Board concluded that maximizing value for A.C.
Moores shareholders might require A.C. Moore to engage in either (i) a transaction with a
financial sponsor or strategic buyer who would be better positioned to address A.C. Moores
operational and financial challenges and enhance A.C. Moores long-term business prospects, or (ii)
a financial transaction that would provide A.C. Moore with increased financial flexibility and
liquidity to continue its ongoing turnaround and provide additional time for A.C. Moores
management to implement its various revenue-enhancing and cost-cutting initiatives. Accordingly, on
December 5, 2009, A.C. Moore retained Janney to serve as its exclusive financial advisor in
connection with an analysis of strategic and financial alternatives that may be available for A.C.
Moore, including, but not limited to, a sale or other business combination transaction, a private
or public offering of debt or equity securities or a capital raise, whether from institutional,
retail or other investors or lenders or from the private placement of debt instruments or equity
securities. Following its retention by the Board, during the month of December 2009,
representatives of Janney conducted due diligence on A.C. Moore and worked with A.C. Moores
management to assess the drivers of A.C. Moores operating model and their impact on its liquidity
and earnings potential.
At various times between December 2009 and November 2010, the Board met, with representatives
of Janney and Blank Rome LLP, A.C. Moores legal counsel, or Blank Rome, present for a portion of
these meetings, to discuss the status of Janneys analysis of A.C. Moores financial and strategic
alternatives. At these meetings, Janney representatives also reported on current conditions in the
marketplace, including updates on capital markets and M&A activity generally and in the retail
sector. Janney also reviewed with the Board its approach to a process for evaluating strategic
alternatives and the key elements of such a process. While a variety of financial and strategic
alternatives were discussed, including an equity or equity-linked financing through either a
registered direct offering or a PIPE transaction, acquisitions of stand-alone stores or small
independent chains or a sale transaction, the Board, taking into account the execution and
operational risks associated with each potential alternative, and exercising its business judgment,
determined that a sale of A.C. Moore was likely to be the most effective way to maximize
shareholder value and provide A.C. Moore with the necessary financial flexibility and liquidity.
During this time, while Janney did not initiate a formal marketing and solicitation process, it
did, at the request of the Board, make inquiries of various financial sponsors with respect to
their general interest in acquiring companies in the specialty retail sector.
On March 23, 2010, A.C. Moores then President and Chief Executive Officer, Rick A. Lepley,
informed the Board of his intention to retire as President and Chief Executive Officer and a member
of the Board effective March 31, 2010.
On March 24, 2010, the Board appointed then Executive Vice President and Chief Operating
Officer Joseph A. Jeffries as Acting Chief Executive Officer, effective March 31, 2010, while
continuing to serve as A.C. Moores Executive Vice President and Chief Operating Officer.
On June 17, 2010, the Board appointed Mr. Jeffries as A.C. Moores Chief Executive Officer.
28
On August 25, 2010, Mr. Jeffries was appointed as a member of the Board.
On November 9, 2010, A.C. Moore announced results for the three and nine month periods ended
October 2, 2010. Included in those results was a decrease in comparable store sales of 7.0%
partially offset by the operation of two additional stores compared to the third quarter of the
prior year. Net loss for the quarter was $8.1 million, or $0.33 per Share, compared to a net loss
of $12.9 million, or $0.53 per Share, in the third quarter of the prior year. For the nine months
ended October 2, 2010, A.C. Moore reported that it experienced a 5.9% decrease in comparable store
sales partially offset by the operation of two additional stores compared to the same period of the
prior year. Net loss was $25.4 million, or $1.04 per Share, for the nine months ended October 2,
2010, compared to a net loss of $25.4 million, or $1.16 per Share for the comparable period of the
prior year.
At its November 11, 2010 meeting, the Board reviewed with Janney and Blank Rome, its financial
and legal advisors, respectively, the various strategies that could be used to market A.C. Moore in
connection with a change in control transaction, including, but not limited to, a preemptive sale,
a targeted solicitation, a controlled auction and a public auction. After discussion by the members
of the Board with its financial and legal advisors of the advantages, disadvantages and rationale
for each strategy, the Board determined to begin a more formal and intensive exploration of
potential strategic alternatives for A.C. Moore with Janney continuing its role as A.C. Moores
exclusive financial advisor. Accordingly, the Board authorized and directed Janney to begin to
investigate, and on a confidential basis confer with, entities that may have interest in becoming a
prospective acquirer of or a significant investor in A.C. Moore and to work with and assist the
executive officers of A.C. Moore in preparing presentations and due diligence materials, that in
Janneys experience, potential acquirers or investors would request in analyzing a possible
acquisition of or investment in A.C. Moore. In addition, the Board delegated to Michael J. Joyce,
the Chairman of the Board, the authority to negotiate and execute confidentiality agreements with
all entities that may have an interest in becoming a potential acquirer of or investor in A.C.
Moore.
On November 17, 2010, Bidder A, a financial sponsor, submitted an unsolicited non-binding
indication of interest to acquire 100% of the issued and outstanding shares of A.C. Moore at $4.00
per share in cash.
On November 18, 2010, A.C. Moores management had an initial meeting with representatives of
Bidder B, a financial sponsor.
On November 29, 2010, Mr. Jeffries met with representatives of Bidder C, a financial sponsor.
On December 3, 2010, A.C. Moore executed a confidentiality agreement with Bidder C.
On December 7, 2010, A.C. Moores management met with representatives of Bidder B.
On December 9, 2010, A.C. Moores management met with representatives of Bidder C.
On December 13, 2010, A.C. Moore entered into an exclusivity arrangement with Bidder C through
January 10, 2011.
On December 21, 2010, Bidder C engaged a third-party consultant to assist it in due diligence.
On December 29, 2010, A.C. Moores management, together with Janney representatives,
participated in a due diligence session with Bidder C.
On January 11, 2011, Bidder B submitted an unsolicited non-binding indication of interest to
acquire all of the issued and outstanding shares of A.C. Moore for $3.25 per Share.
On January 13, 2011, Bidder C requested that its exclusivity period be extended to February 7,
2011.
29
From January 18 to 19, 2011, the Board met, with representatives of Janney and Blank Rome
present for a portion of the meeting, to discuss the status of its analysis of A.C. Moores
financial and strategic alternatives and the various indications of interest that had been
submitted for the acquisition of A.C. Moore. Janneys representatives updated the Board on the
status of the discussions that Janney had with Bidder C who, after signing a confidentiality
agreement for the benefit of A.C. Moore, had been given access to certain operational and financial
data for due diligence and had received an in-person presentation from management. Janney noted
that Bidder C had initially indicated that it would provide a
non-binding preliminary indication of interest by January 10, but had requested additional
time to perform more due diligence and analysis. After discussion, the Board determined to permit
Bidder C additional time until February 7, 2011 before the Board would consider a public
announcement that it was initiating a formal review of strategic alternatives. Blank Romes
representative suggested that the Board consider forming a committee of independent non-employee
directors to oversee the strategic review process. After extensive discussion, the Board adopted
formal resolutions establishing the Special Committee of independent directors consisting of Mr.
Joyce as Chairman of the Special Committee, Thomas S. Rittenhouse, and Neil A. McLachlan. The Board
directed Janney and Blank Rome to report directly to the Special Committee in connection with the
consideration of the strategic and financial alternatives. The Special Committee was empowered to,
among other things, review and consider potential strategic business combination transactions,
monitor and oversee the strategic review process and any alternatives thereto, negotiate any
documentation related to a potential transaction and take any actions necessary or advisable with
respect to any potential transaction. While the Special Committee had been delegated the power and
authority described in the preceding sentence, the Board retained full authority to approve or
disapprove any potential transaction presented by the Special Committee because, at the time the
Special Committee was established, the Board had not determined to undertake the sale of A.C. Moore
as opposed to pursuing any of the other strategic alternatives available to A.C. Moore, including
continuing as a stand-alone public company. Once established, the Special Committee determined
whether meetings, or portions of meetings, should be limited to the Special Committee or should
include the full Board, including Mr. Jeffries. At numerous points throughout the strategic review
process, the Board directed management of A.C. Moore to not engage in discussions with a potential
acquirer regarding post-transaction employment with A.C. Moore or any compensation arrangements
until an agreement in principle was reached on all material terms of a definitive agreement with
respect to a transaction.
On January 28, 2011, the Special Committee met, with representatives from Janney and Blank
Rome present, to discuss the progress of the strategic review process and the status of discussions
with interested parties. The Janney representative reported to the Special Committee that
discussions were ongoing with three financial sponsors, two of whom had submitted, on a
non-solicited basis, a preliminary non-binding indication of interest to acquire A.C. Moore. Mr.
Jeffries reported to the Special Committee his discussion with Sbars, a privately-held company and
one of A.C. Moores largest suppliers, which, on its own initiative, had expressed to him its
interest in acquiring or investing in A.C. Moore, subject to performing operational and financial
due diligence and being able to obtain financing. The Special Committee directed Mr. Jeffries to
immediately report to the Special Committee if Sbars contacted Mr. Jeffries again concerning the
acquisition of A.C. Moore. Janneys representative described to the Special Committee a number of
other financial sponsors and potential strategic buyers that Janney could solicit. After further
discussion, the Special Committee authorized the Janney representative to solicit such potential
buyers.
On January 31, 2011, A.C. Moore executed a confidentiality agreement with Bidder A and granted
it access to an electronic data room containing operational, financial and other information with
respect to A.C. Moore.
On February 3, 2011, Bidder C informed Janney that it would not be submitting a preliminary
indication of interest to acquire A.C. Moore.
On February 7, 2011, the Special Committee met, with representatives from Janney and Blank
Rome present, to discuss the progress of the strategic review process and the status of discussions
with interested parties. The Janney representative reported to the Special Committee that Bidder C
had determined not to submit an indication of interest to acquire A.C. Moore but that Bidder A was
very active in conducting due diligence and a management presentation was in the process of being
scheduled for them. With respect to Bidder B, the Special Committee discussed its concerns with the
sincerity of Bidder Bs interest in acquiring A.C. Moore, taking into effect that no information
had been provided to the Special Committee demonstrating either its track record in completing
acquisitions or its ability to finance the proposed acquisition as well as Bidder Bs refusal to
agree to a customary confidentiality agreement. The Janney representative also reported to the
Special Committee Janneys preliminary discussions with Bidder F, a strategic buyer, and noted that
Bidder F had requested and been provided with a draft confidentiality agreement to review.
30
On February 10, 2011, the Special Committee met, with representatives from Janney and Blank
Rome present, to discuss the progress of the strategic review process and the status of discussions
with interested parties. The Janney representative reported to the Special Committee that Bidder A
continued to be very active in conducting its due diligence
and that a meeting with management, including a management presentation, had been scheduled
for February 28, 2011. The Janney representative also reported that a confidentiality agreement had
been negotiated with Bidder F and was expected to be signed at some point over the next several
days. The Special Committee then discussed with its legal and financial advisors the timing and
text of a press release to announce that A.C. Moore was exploring strategic alternatives. Among the
factors that persuaded the Special Committee to make such a public announcement was its view that,
after consultation with its financial and legal advisors, a public announcement could encourage any
potentially interested parties to come forward.
On February 13, 2011, Bidder F executed a confidentiality agreement with Janney, as agent on
behalf of A.C. Moore, but was not given access to any due diligence information in order to ensure
that the disclosure by A.C. Moore of any potentially competitively sensitive information would
proceed in compliance with all applicable antitrust laws.
On February 15, 2011, A.C. Moore publicly announced that the Board was exploring financial and
strategic alternatives to enhance shareholder value including, but not limited to, a potential sale
of A.C. Moore, corporate financing and capital raises. A.C. Moore also announced that it had
received unsolicited expressions of interest from third parties. In addition, A.C. Moore announced
at that time that it had engaged Janney to serve as its financial advisor in connection with A.C.
Moores review of financial and strategic alternatives. Subsequent to A.C. Moores public
announcement that it was exploring financial and strategic alternatives, Janney initiated a formal
process of communicating with parties that could be potential buyers of A.C. Moore.
On February 18, 2011, the Special Committee met, with representatives from Janney and Blank
Rome present, to discuss the progress of the strategic review process and the status of discussions
with interested parties. The Janney representative reported to the Special Committee that
management would be meeting with and making a presentation to Bidder A on February 28, 2011 and
that Bidder A continued to be very active in conducting its due diligence. The Janney
representative also reported that, through the afternoon of February 18, 2011, Janney had
communicated with 30 interested parties, of which eight interested parties had executed
confidentiality agreements. The Blank Rome representative updated the Special Committee on the
discussions with Bidder F and noted that, while a confidentiality agreement with Bidder F was
executed on February 13, 2011, Bidder F had not been given access to any due diligence information
in order to ensure that the disclosure by A.C. Moore of any potentially competitively sensitive
information would proceed in compliance with all applicable antitrust laws. Blank Romes
representative indicated that discussions were ongoing with Bidder Fs antitrust counsel to
negotiate an addendum to the confidentiality agreement to provide procedures for such disclosure.
Following discussion, the Special Committee directed the Janney and Blank Rome representatives to
ensure that the disclosure of competitively sensitive information not take place until after the
parties mutually agree that disclosure of the competitively sensitive information is necessary for
Bidder F to evaluate the possible acquisition of A.C. Moore and implement appropriate safeguards to
ensure compliance with all applicable antitrust laws.
On February 28, 2011, the Special Committee met, with representatives from Janney and Blank
Rome present, to discuss the progress of the strategic review process and the status of discussions
with interested parties. Janneys representative reported to the Special Committee that, through
the evening of February 27, 2011, Janney had communicated with 40 interested parties, of which 14
interested parties had executed confidentiality agreements and 11 of those interested parties had
been given access to the electronic data room. The Special Committee then reviewed with Janneys
representative the process that would be followed with interested parties that executed
confidentiality agreements. The Blank Rome representative updated the Special Committee on the
status of the discussions with Bidder F with respect to devising appropriate safeguards so that
providing them access to the electronic data room would be in compliance with all applicable
antitrust laws. The Blank Rome representative indicated that such discussions were ongoing but that
since a mutually satisfactory agreement had not been reached, Bidder F did not yet have access to
the electronic data room. Following discussion, the Special Committee directed the Blank Rome
representative to resolve the outstanding issues with Bidder F as expeditiously as possible while
remaining mindful of the need to ensure that no disclosure of competitively sensitive information
occurs until appropriate safeguards are implemented to ensure compliance with applicable antitrust
laws. Janneys representative then updated the Special Committee on discussions with Bidder A. In
response to the Special Committees concerns about Bidder As financial ability to consummate an
acquisition of A.C. Moore, the Janney representative noted that Bidder A had raised that year in
excess of approximately $150 million in capital commitments for its fund and was likely motivated
to consummate an acquisition.
31
Also on February 28, 2011, A.C. Moore, assisted by Janney representatives, provided Bidder A
with a management presentation.
On March 8, 2011, the Special Committee met, with representatives from Janney and Blank Rome
present, to discuss the progress of the strategic review process and receive an update on the
status of discussions with interested parties. Janneys representative reported that, since the
Special Committees last meeting on February 28, 2011, eight additional parties had executed
confidentiality agreements and a total of 21 interested parties had been given access to the
electronic data room. Janneys representative also reported to the Special Committee that Bidder F,
a strategic buyer, had decided to withdraw from the process because of potential antitrust
concerns. While Bidder F had executed a confidentiality agreement, it had not been given access to
the electronic data room. The Special Committee then discussed with Janneys representative the
deadlines that had been set with respect to the strategic review process and Janneys
representative noted that the process deadlines were flexible depending upon the interest of
credentialed parties and the actual bids proffered and that the dates could be extended and
additional parties could be invited into the process subsequent to the deadlines if such would
better enable the Special Committee to arrive at a transaction that maximized shareholder value.
During March 15 to 17, 2011, A.C. Moore hosted listen-only management presentations for 14
potential buyers, including 13 financial sponsors and 1 strategic buyer.
On March 17, 2011, Janney distributed a bid process letter to 15 potential buyers, and
requested that initial indications of interest for the acquisition of A.C. Moore be submitted no
later than March 31, 2011.
On March 22, 2011, Janney distributed a form of confidentiality agreement to EGL Investment
Management, Inc., or EGL, Sbars financial advisor, and requested that it have Sbars execute and
return it to Janney so that Sbars could be given access to materials in the electronic data room.
On March 24, 2011, the Special Committee met, with representatives of Janney and Blank Rome
present, to discuss the strategic review process and receive an update on the status of discussions
with interested parties. Janneys representative provided the Special Committee with a summary of
the key events to date with respect to the strategic review process and reported that Janney was
still in active dialogue with five potential buyers and that four potential buyers were reviewing
the confidentiality agreement. Janneys representative then updated the Special Committee on
Janneys discussions with Sbars, which had not gained any significant traction at this point, and
noted that Janney was still in the process of confirming Sbars financial ability to consummate the
acquisition of A.C. Moore.
On March 29, 2011, A.C. Moore publicly announced its fourth quarter and fiscal 2010 financial
results and reported a decrease in comparable store sales of 4.3% during the quarter and a decrease
in comparable store sales of 5.4% year over year. Net loss for the fourth quarter was $4.8 million,
or $0.20 per Share, compared to a net loss of $0.5 million, or $0.02 per Share, in the fourth
quarter of fiscal 2009. The net loss for fiscal 2010 was $30.2 million, or $1.23 per Share, versus
a net loss of $25.9 million, or $1.15 per Share, in fiscal 2009.
On March 31, 2011, Bidder D, a financial sponsor, submitted a non-binding indication of
interest proposing the acquisition of A.C. Moore for a purchase price in the range of $3.00 to
$4.00 per share, subject to due diligence but not subject to the receipt of financing.
On April 1, 2011, Bidder A informed Janney that it would not be submitting a final bid for the
acquisition of A.C. Moore.
Also on April 1, 2011, the Special Committee met, with representatives from Janney and Blank
Rome present, to discuss the strategic review process and receive an update on the status of
discussions with interested parties. Janneys representative reported to the Special Committee that
interested parties were required to deliver non-binding preliminary indications of interest by
March 31, 2011 and that, as of such date, the only indication of interest received was from Bidder
D. Janneys representative also reported that there were six additional interested parties in
various stages of the process who were still active, three of which were financial sponsors and
three of which were strategic buyers. Janneys representative noted that an on-site management
presentation would be scheduled for Bidder D within the next three weeks and that additional
financial due diligence information and auction draft of a merger agreement would be supplied
to Bidder D with a request to submit a final indication of interest. The Special Committee
discussed with Janneys representative its concerns as to whether the remaining six interested
parties had the financial ability to consummate the acquisition of A.C. Moore. Janneys
representative indicated that five of the six interested parties were credentialed and that, with
respect to Sbars, Janney was expecting to receive documentation supporting its financial ability.
32
On April 4, 2011, Sbars executed a confidentiality agreement with Janney, acting on behalf of
A.C. Moore, in order to begin its due diligence on A.C. Moore.
On April 8, 2011, the Special Committee met, with representatives from Janney and Blank Rome
present, to discuss the strategic review process and receive an update on the status of discussions
with interested parties. Janneys representative reported to the Special Committee that two
strategic buyers had declined to continue in the process following their review of the due
diligence materials in the electronic data room. Janneys representative reported to the Special
Committee that Sbars had executed a confidentiality agreement but, due to its status as one of
A.C. Moores largest suppliers, had been given access to a separate electronic data room that
excluded vendor financial data. The Special Committee discussed with the Janney and Blank Rome
representatives the reasons and risks with respect to pursuing a transaction with Sbars. In
addition, the Janney representative reported that Bidder D had engaged a third party expert to
conduct supplemental financial diligence and that an in-person management presentation had been
scheduled with Bidder D for April 22, 2011. After that meeting, Bidder D would be requested to
submit a reaffirmation of its earlier indication of interest accompanied by a mark-up of the draft
form of Merger Agreement. The Blank Rome representative reviewed with the Special Committee the
draft form of Merger Agreement that had been prepared for distribution to potential buyers and,
following discussion, the Special Committee authorized its distribution. The Janney representative
also reported to the Special Committee that two other interested parties which were financial
sponsors were active in the electronic data room and that one had requested an on-site meeting with
management. After discussion between the Special Committee and the Janney representative, it was
agreed that such party would not be given access to management until it first provided an
indication of interest. The Special Committee then discussed with the Janney and Blank Rome
representatives its concerns with respect to the two remaining bidders. The Special Committee
indicated that it was concerned with whether Bidder D, notwithstanding its proven track record in
consummating transactions in the specialty retail sector and its access to financing, would
eventually drop out of the process and whether Sbars, notwithstanding the lengthy history of its
relationship with A.C. Moore and its extensive knowledge of the arts and crafts industry, would be
able to secure financing sufficient to consummate the proposed transaction. The Special Committee
then discussed with the Janney and Blank Rome representatives strategic and financial alternatives
available to A.C. Moore other than the sale of A.C. Moore, as well as A.C. Moores prospects and
risks to its shareholders if it did not pursue a sale of A.C. Moore or another strategic
alternative and, instead, continued as a stand-alone public company.
On April 15, 2011, A.C. Moore, assisted by Janney representatives, hosted a management
presentation for Bidder E.
On April 22, 2011, A.C. Moore, assisted by Janney representatives, hosted a management
presentation for Bidder D.
On April 21, 2011, Bidder E informed Janney that it would not be submitting a final bid.
On April 25, 2011, Janney, on behalf of A.C. Moore, circulated a draft form of the Merger
Agreement, together with a final bid process letter, to Bidder D. The final bid process letter
requested that Bidder D submit its final indication of interest for the acquisition of A.C. Moore,
together with any proposed revisions to the form of Merger Agreement, no later than May 5, 2011.
On May 3, 2011, Sbars submitted to Janney its non-binding preliminary indication of interest
proposing that an affiliate of Sbars acquire A.C. Moore for approximately $80 million, or $3.15
per Share. Later that day, Janney, on behalf of A.C. Moore, distributed a draft form of the Merger
Agreement, together with a final bid process letter, to Sbars. The final bid process letter
requested that Sbars submit its final indication of interest for the acquisition of A.C. Moore,
together with any proposed revisions to the form of Merger Agreement, no later than May 5, 2011.
On May 5, 2011, Bidder D informed Janney that it would not be submitting a final bid.
33
On May 6, 2011, the Special Committee met, with representatives from Janney and Blank Rome
present, to discuss the progress of the strategic review process. Janneys representative informed
the Special Committee that Sbars remained as the only potential buyer participating in the process
and updated the Special Committee on the status of negotiations with Sbars.
Also on May 6, 2011, A.C. Moore, assisted by representatives of Janney, hosted a management
presentation for Sbars.
On May 10, 2011, A.C. Moore reported its results for the first quarter ended April 2, 2011
which included a decrease in comparable store sales of 2.6% and a net loss of $7.4 million, or
$0.30 per Share, compared to a net loss of $7.6 million, or $0.31 per Share in the first quarter of
the prior year.
On May 12, 2011, Sbars submitted to Janney its non-binding final indication of interest
proposing that an affiliate of Sbars acquire A.C. Moore for approximately $80 million, or $3.15
per Share, subject to confirmatory due diligence, obtaining necessary financing and the negotiation
of a mutually satisfactory definitive purchase agreement. The final indication of interest made
clear that such valuation was based on various assumptions and would be subject to various
enumerated offsets, some of which were likely to be a material reduction to the price. Sbars also
indicated in its indication of interest that it was seeking to obtain binding debt financing
commitments to fund a portion of the purchase price and had already begun discussions with Wells
Fargo regarding its financing of the acquisition of A.C. Moore by an affiliate of Sbars. Sbars
indication of interest was accompanied by a mark-up of the merger agreement previously prepared by
Blank Rome and provided to Sbars by Janney.
On May 13, 2011, the Special Committee met, with representatives from Janney and Blank Rome
present, to discuss the strategic review process and receive an update on the status of
discussions. Janneys representative reported to the Special Committee on the discussions with
Sbars, including that it had submitted its non-binding final indication of interest for an
affiliate of Sbars to acquire all of the issued and outstanding Common Stock of A.C. Moore for
approximately $80 million, or $3.15 per Share, subject to confirmatory due diligence, obtaining
necessary financing and the negotiation of a mutually satisfactory definitive purchase agreement.
The final indication of interest made clear that such valuation was based on various assumptions
and would be subject to various enumerated offsets, some of which were likely to be a material
reduction to the price. The Special Committee discussed with Janneys representative its concerns
as to whether Sbars had the financial ability to enable its affiliate to consummate the
acquisition of A.C. Moore. Janneys representative indicated that he had requested written evidence
of Sbars financial ability to enable its affiliate to consummate the acquisition. The Special
Committee instructed Janneys representative to continue the discussions with Sbars, but that
Sbars should be informed that the Special Committee would not entertain any exclusivity proposal
from Sbars without written evidence that Sbars has the financial ability to enable its affiliate
to consummate the acquisition of A.C. Moore.
On May 23, 2011, Sbars submitted to Janney a non-binding draft letter of intent reaffirming
its interest in acquiring A.C. Moore through a newly-formed entity affiliated with Sbars. While
Sbars indicated in its draft letter of intent that it would purchase 100 percent of the Shares of
A.C. Moore at approximately $80 million, the draft letter of intent made clear that such valuation
was based on various assumptions and would be subject to various enumerated offsets, some of which
were likely to be a material reduction to the valuation. In its draft letter of intent, Sbars
indicated that it was seeking a 30-day exclusivity period to conduct further due diligence and
asked to be reimbursed for its expenses incurred during the exclusivity period if at any time prior
to or after the end of the exclusivity period, A.C. Moore abandoned negotiations with Sbars with
respect to the proposed transaction.
From May 24, 2011 through May 31, 2011, the counsel for A.C. Moore and Sbars, Blank Rome and
Bryan Cave LLP, or Bryan Cave, respectively, exchanged various additional drafts of the letter of
intent and held a number of telephone conference calls to discuss and negotiate the provisions of
the letter of intent.
On June 10, 2011, EGL informed Janney that Sbars was unwilling to continue further in the
process because of its concerns with A.C. Moores deteriorating financial performance.
34
On June 13, 2011, the Special Committee met, with representatives from Janney and Blank Rome
present, to discuss the progress of the strategic review process and the status of discussions. The
Janney representative reported to the
Special Committee that, on June 10, 2011, Sbars financial advisor, EGL, had informed Janney
that Sbars was unwilling to continue further in the process because of its concerns with A.C.
Moores deteriorating financial performance. The Special Committee then invited Mr. Jeffries to
join the meeting and report on his recent discussions with Sbars. Mr. Jeffries reported to the
Special Committee on a proposal presented to him by Sbars that A.C. Moore outsource all or part of
its merchandising operations to Sbars. After discussion, the Special Committee concluded that Mr.
Jeffries should continue discussing such an outsourcing relationship with Sbars but was of the
view that Sbars would need to make a significant equity investment in A.C. Moore concurrently with
the execution of a definitive agreement for such an outsourcing relationship. Following the
meeting, Mr. Jeffries continued such discussions with Sbars. However, no agreement or
understanding was reached as to an outsourcing relationship.
On July 6, 2011, Sbars contacted Janney through its financial advisor and indicated that,
based on the due diligence it had performed to date and its concerns with A.C. Moores
deteriorating financial performance, it was revising its previous offer price for its affiliate to
acquire A.C. Moore downward to $2.00 per Share.
On July 13, 2011, EGL distributed to Janney a draft of an Exclusivity Agreement proposed to be
executed by A.C. Moore and Sbars, which we refer to as the Exclusivity Agreement. In addition to
providing Sbars with an exclusive negotiating period, the draft exclusivity agreement contemplated
that Sbars represent to A.C. Moore that Wells Fargo had provided Sbars with initial documentation
supporting the debt requirements for Sbars affiliates acquisition of A.C. Moore and that Wells
Fargo had advised Sbars that Wells Fargo would deliver to Sbars within the next 20 calendar days
a financing commitment letter for an amount equal to the entire consideration, costs and expenses
for the proposed acquisition, in excess of the equity financing to be provided by Sbars or an
affiliate thereof. The draft of the Exclusivity Agreement also contemplated that A.C. Moore would
have the right to terminate such agreement, in connection with an unsolicited tender or exchange
offer or business combination or other alternative transaction that the Board determined in good
faith, after consultation with its legal and financial advisors, would reasonably be expected to
result in a transaction more favorable to the shareholders of A.C. Moore than the transaction
proposed by Sbars. Janney forwarded the Exclusivity Agreement draft to Blank Rome and the Special
Committee.
On July 15, 2011, Janney and EGL held a telephone conference to discuss the terms of the
Exclusivity Agreement. EGL indicated that Sbars was seeking a 45-day exclusivity period to conduct
further due diligence and asked to be reimbursed for its expenses incurred during the exclusivity
period if at any time prior to the end of the exclusivity period, A.C. Moore abandoned negotiations
with Sbars with respect to the proposed transaction.
Also on July 15, 2011, the Special Committee met, with representatives from Janney and Blank
Rome present, to discuss the progress of the strategic review process, particularly the status of
the discussions with Sbars. Mr. Joyce, the Chairman of the Special Committee, updated the Special
Committee on the discussions that had taken place with Sbars over the preceding four weeks. Mr.
Joyce reported to the Special Committee that, as previously directed by the Special Committee, Mr.
Jeffries had begun negotiations to outsource all or a part of A.C. Moores merchandising functions
to Sbars with the condition that Sbars concurrently make a $10 million equity investment in A.C.
Moore. Instead of submitting a written proposal relating to the proposed merchandising
relationship, Sbars proposed acquiring all of the issued and outstanding Shares of A.C. Moores
Common Stock at a purchase price of $2.00 per Share. The Janney representative reported that Sbars
was requesting the exclusive right to negotiate a transaction with A.C. Moore through September 15,
2011 so that it could perform full legal and financial due diligence and negotiate the definitive
form of Merger Agreement with A.C. Moore.
At the same meeting, the Special Committee then discussed whether to proceed with a sale of
A.C. Moore to an affiliate of Sbars or to pursue other strategic or financial alternatives. The
Special Committee, taking into effect A.C. Moores recent performance and updated expectations for
near-term business prospects and A.C. Moores outlook in the absence of a sale, considered, with
the assistance of its legal and financial advisors, the potential risks and effects of not pursuing
the transaction proposed by Sbars. The Blank Rome representative then briefed the Special
Committee on the terms of the current draft of the Exclusivity Agreement including, but not limited
to, the ability of A.C. Moore thereunder to terminate the Exclusivity Agreement if presented with
an acquisition proposal that the Board determined, in consultation with its legal and financial
advisors, was superior, from a financial point of view, to the transaction proposed by Sbars. The
Blank Rome representative also briefed the Special Committee about the risks of agreeing to such a
lengthy exclusivity period with Sbars, including the possibility that, at the end of the
exclusivity period, Sbars could decide to terminate discussions with respect to the proposed
transaction. After considering, among other things, A.C. Moores lengthy strategic and financial
alternatives review process, the lack of other current bidders for A.C. Moore, particularly in
light of A.C. Moores public announcement that it was undertaking a strategic review process and
Sbars unwillingness to commit further resources to exploring a potential transaction with A.C.
Moore without an exclusivity period, the Special Committee unanimously agreed to offer Sbars a
45-day exclusivity period and authorized Mr. Joyce to negotiate and finalize the Exclusivity
Agreement, with the advice and assistance of counsel, and to execute it on behalf of the Special
Committee and A.C. Moore.
35
Between July 15, 2011 and July 28, 2011, EGL and Janney, with the assistance of Blank Rome,
exchanged additional drafts of the Exclusivity Agreement and held a number of calls to discuss and
negotiate the Exclusivity Agreement.
On July 28, 2011, A.C. Moore and Sbars executed the Exclusivity Agreement which provided for
exclusivity through the close of business, New York time, on September 15, 2011. Under the terms of
the Exclusivity Agreement, Sbars confirmed its affiliates interest in acquiring A.C. Moore
pursuant to an all-cash tender offer for all the issued and outstanding Shares of A.C. Moores
Common Stock at $2.00 per Share, followed by a back-end merger in which an affiliate of Sbars
would be merged with and into A.C. Moore. In addition, the Exclusivity Agreement provided that, if
at any time prior to September 15, 2011, A.C. Moore abandoned negotiations with Sbars with respect
to the proposed transaction, A.C. Moore would reimburse Sbars for (i) 100% of its reasonable third
party costs and expenses incurred since May 1, 2011 in connection with its due diligence and the
negotiation and drafting of documents related to the proposed transaction, or the Sbars
Transaction Expenses, up to $300,000, and (ii) 50% of Sbars Transaction Expenses above $300,000
and less than $400,000; plus $200,000 as reimbursement for the time and expense of the management
of Sbars.
On August 3, 2011, A.C. Moore announced results for the three and six month periods ended July
2, 2011. It reported, for the second quarter, a decrease in comparable store sales of 0.7% and a
net loss of $7.9 million, or $0.32 per share, compared to a net loss of $9.7 million, or $0.40 per
Share in the second quarter of the prior year. It also reported, for the six months ended July 2,
2011, a 1.7% decrease in comparable store sales and a net loss of $15.3 million, or $0.62 per
Share, compared to a net loss of $17.2 million, or $0.71 per Share for the comparable period in the
prior year.
On August 19, 2011, the Special Committee met, with representatives from Janney and Blank Rome
present, to discuss the progress of the discussions with Sbars. The Janney representative reported
to the Special Committee that, on July 28, 2011, A.C. Moore and Sbars had executed the Exclusivity
Agreement which provided for an exclusive negotiating period until September 15, 2011. The Janney
representative then updated the Special Committee on the status of Sbars efforts to secure
financing and reported that, based on discussions between the Janney representative and a Wells
Fargo representative, Sbars should be receiving a commitment letter from Wells Fargo on or about
August 29, 2011 and that the Wells Fargos representative believed the commitment thereunder should
be sufficient to fund the proposed transaction.
On August 24, 2011, EGL, Sbars financial advisor, informed Janney that Wells Fargo had told
Bryan Cave that it would not provide funding of the proposed transaction unless Parent and
Purchaser are eligible, almost immediately following the consummation of the Offer, to consummate
the back-end second-step merger pursuant to a short-form merger under Pennsylvania law. EGL noted
that, as a result of Wells Fargos position, Sbars would require that the minimum tender condition
in the Merger Agreement be revised upwards to 80.1%, inclusive of the top-up option granted in
connection with the Merger Agreement, or the Top-Up Option.
On August 31, 2011, the Special Committee met, with representatives from Janney and Blank Rome
present, to discuss the progress of the discussions with Sbars. The Janney representative reported
to the Special Committee that he understood from his conversations with Wells Fargo representatives
that Sbars would be receiving a commitment letter from Wells Fargo for a senior secured facility
within the next few days. Upon receipt of that commitment letter, it was expected that the
negotiation of the definitive documents for a transaction between the parties would accelerate. The
Blank Rome representative reported to the Special Committee that Sbars would be seeking a very
high minimum
condition for its tender offer in order to facilitate its ability to consummate the back-end
second step-merger as a short-form merger under Pennsylvania law.
36
On September 1, 2011, Sbars received a $77.5 million senior secured facility commitment
letter from Wells Fargo, which we refer to as the Wells Fargo Commitment Letter. Pursuant to the
terms of the Wells Fargo Commitment Letter, Wells Fargos commitments and undertakings would expire
on November 29, 2011.
On September 2, 2011, Bryan Cave distributed to Blank Rome a revised draft of the Merger
Agreement containing proposed revisions on behalf of Sbars.
On September 13, 2011, Mr. Joyce met with Adolph J. Piperno, the President and Chief Executive
Officer of Sbars, to discuss various issues relating to the proposed transaction. During the
course of their meeting, Mr. Piperno indicated to Mr. Joyce that he was committed to the proposed
transaction and that he would be communicating to his financial and legal advisors, EGL and Bryan
Cave, that they should push forward on negotiating the Merger Agreement with A.C. Moores financial
and legal advisors, Janney and Blank Rome.
Also, on September 13, 2011, representatives of Blank Rome and Bryan Cave discussed revising
the Merger Agreement to reflect a dual-track acquisition structure whereby Sbars or an affiliate
thereof would initiate a tender offer for all of the outstanding Shares of Common Stock while A.C.
Moore would soon thereafter file a proxy statement and prepare to hold a shareholders meeting to
approve the merger in the event the tender offer was unsuccessful.
On September 14, 2011, Bryan Cave distributed a revised draft of the Merger Agreement to Blank
Rome reflecting the dual-track acquisition structure the parties had previously discussed.
On September 15, 2011, the Special Committee met, with representatives from Janney and Blank
Rome present, to discuss the progress of the discussions with Sbars. Mr. Joyce updated the other
members of the Special Committee as to the discussions he had earlier in the week with Mr. Piperno.
The Janney representative updated the Special Committee on his discussions with representatives of
EGL with respect to the proposed transaction and the progress that Sbars had made in securing
financing for the proposed transaction from Wells Fargo. The Blank Rome representative described
for the Special Committee the dual-track acquisition structure that had been agreed to and the
changes that were being made to the Merger Agreement to reflect such a structure. The Blank Rome
representative indicated that the dual-track acquisition structure could allow the proposed
transaction to close sooner than a more typical one-step merger transaction, while also providing
a higher degree of closing certainty than a typical two-step tender offer structure. The Blank
Rome representative indicated that, with the transaction structure agreed to, the key outstanding
issues at this stage appeared to be deal certainty and the remedies available to A.C. Moore in the
event that all conditions to closing were satisfied and Sbars had available debt financing but
chose not to consummate the transaction. The Blank Rome representative also noted that Sbars had
requested that the exclusivity period provided for under the Exclusivity Agreement be extended
until the close of business on the business day after Sbars received a Phase I Environmental
Report on A.C. Moores real property in Berlin, New Jersey. After considering, among other things,
the progress that Sbars and A.C. Moore had made in arriving at a mutually satisfactory transaction
structure and in negotiating the terms of the Merger Agreement and securing access to financing,
and given Sbars unwillingness to commit further resources to exploring a potential transaction
with A.C. Moore without an extension to the exclusivity period, the Special Committee unanimously
agreed to extend the exclusivity period to September 23, 20011 and authorized the Blank Rome
representative to finalize the terms of an appropriate amendment to the Exclusivity Agreement.
On September 18, 2011, Janneys representative had a telephone conference call with
representatives of EGL. During the course of this call, Janneys representative was informed that,
due to A.C. Moores deteriorating financial results, Sbars financial advisor was recommending that
Sbars reduce its affiliates proposed purchase price for A.C. Moore to $1.60 per share.
37
On September 19, 2011, Mr. Joyce met with Mr. Piperno at the offices of Bryan Cave in Atlanta,
Georgia to discuss various open issues in the Merger Agreement. Messrs. Joyce and Piperno were each
accompanied by the respective legal and financial advisors for A.C. Moore and Sbars. The Blank
Rome and Janney representatives, acting on behalf of A.C. Moore, emphasized to the Bryan Cave and
EGL representatives, acting on behalf of Sbars, A.C. Moores need to maximize deal certainty and
requested that Parents and Purchasers obligations pursuant to the Merger
Agreement be guaranteed by Sbars so that A.C. Moore would have the ability to specifically
enforce Parents obligation to close the transaction, particularly in the event that all conditions
to closing were satisfied and Sbars had available debt financing. The Bryan Cave representatives
indicated that Sbars was unable to commit to a transaction with full recourse to Sbars.
Representatives of Blank Rome and Bryan Cave then discussed the feasibility of an escrow account
where Sbars would cause $20 million to be deposited in escrow to secure the obligations of Parent
and Purchaser to consummate the proposed transaction if all conditions to closing were met and
Sbars had available debt financing. In addition, while Sbars was unwilling to agree to a full
recourse guaranty, it indicated that it would be willing to consider a limited guarantee for the
obligations of the surviving corporation in the merger to assume A.C. Moores indemnification
arrangements with its directors and officers.
Later that day, the Special Committee met, with representatives from Janney and Blank Rome
present, to receive an update on the discussions held earlier that day with Sbars and its legal
and financial advisors. The Janney and Blank Rome representatives detailed for the Special
Committee the escrow that had been proposed by Sbars and explained to the Special Committee that,
in order to maximize deal certainty for the shareholders, the terms of the merger agreement and/or
an ancillary agreement thereto would need to provide for A.C. Moores ability to force or motivate
Sbars to close the transaction in the event all conditions to closing were satisfied and Sbars
had available debt financing. The Janney and Blank Rome representatives noted that the size of the
escrow amount needed to be of a size large enough to ensure that Sbars would be appropriately
motivated to consummate the transaction. The Blank Rome representative also noted for the Special
Committee that, while Sbars was unwilling to provide a full or limited guarantee for the
obligations of Parent and Purchaser to consummate the transactions contemplated by the Merger
Agreement, it was willing to provide a limited guaranty for the obligations of the surviving
corporation in the Merger to assume A.C. Moores indemnification arrangements with its directors
and officers. The Special Committee authorized Mr. Joyce to continue and finalize negotiations with
Sbars to reach an agreement in principle on all material terms of the definitive agreements.
On September 20, 2011, Bryan Cave distributed to Blank Rome a revised draft of the Merger
Agreement containing its proposed revisions as a result of the discussions held among the parties
the previous day.
On September 21, 2011, A.C. Moore distributed to Sbars and Janney updated financial
projections for the fiscal year ending December 31, 2011 that had been prepared by A.C. Moores
management. As A.C. Moores operations and prospects had declined since the preparation by A.C.
Moores management of earlier financial projections that had been provided to Sbars as part of its
due diligence review of A.C. Moore, the earlier projections were no longer reflective of the future
prospects of A.C. Moore and, accordingly, were superseded. The projections delivered on September
21, 2011, like those that it superseded, were not prepared with a view toward public disclosure but
had been prepared by management for internal planning purposes or in connection with the Offer and
the Merger and were subjective in many respects.
Also on September 21, 2011, Blank Rome distributed to Bryan Cave an initial draft of the
Deposit Escrow Agreement that had been discussed in principle earlier in the week among the
respective legal and financial advisors for A.C. Moore and Sbars.
On September 22, 2011, A.C. Moore delivered to Sbars a copy of the Phase I Environmental
Report on A.C. Moores Berlin, New Jersey real property.
On September 23, 2011, Bryan Cave distributed to Blank Rome an initial draft of the Guaranty
that had been discussed in principle earlier in the week among the respective legal and financial
advisors for A.C. Moore and Sbars. Bryan Cave also distributed to Blank Rome a revised draft of
the Deposit Escrow Agreement containing proposed revisions on behalf of Sbars.
Also, on September 23, 2011, Mr. Joyce discussed with the other members of the Special
Committee the progress of the discussions with Sbars. The Blank Rome representative reported that
Sbars had requested that the exclusivity period provided for under the Exclusivity Agreement be
extended until September 30, 2011. After considering, among other things, the progress that Sbars
and A.C. Moore had made in negotiating the terms of the Merger Agreement and related agreements and
Sbars unwillingness to commit further resources to exploring a potential transaction with A.C.
Moore without an extension to the exclusivity period, Mr. Joyce, with the agreement of the other
members of the Special
Committee, agreed to extend the exclusivity period to September 30, 2011 and authorized the
Blank Rome representative to finalize the terms of an appropriate amendment to the Exclusivity
Agreement.
38
On September 25, 2011, Blank Rome distributed to Bryan Cave a revised draft of the Merger
Agreement containing proposed revisions on behalf of A.C. Moore.
On September 26, 2011, Blank Rome distributed to Bryan Cave a revised draft of the Guaranty
containing proposed revisions on behalf of A.C. Moore.
On September 27, 2011, Bryan Cave distributed to Blank Rome a revised draft of the Guaranty
containing proposed revisions on behalf of Sbars.
On the evening of September 27, 2011, representatives of Blank Rome and Janney, acting on
behalf of A.C. Moore, held a telephone conference call with representatives of Bryan Cave and EGL,
on behalf of Sbars. During the course of the conference call, the parties discussed the various
issues relating to the Merger Agreement that remained open.
On September 28, 2011, Bryan Cave distributed to Blank Rome a revised draft of the Deposit
Escrow Agreement containing proposed revisions on behalf of Wells Fargo in its capacity as the
escrow agent.
From September 28, 2011 to September 30, 2011, Blank Rome and Bryan Cave exchanged various
drafts of the Merger Agreement, the Deposit Escrow Agreement and the Guaranty and held a number of
telephone conference calls to discuss and negotiate the provisions of these agreements.
On September 30, 2011, Mr. Joyce held a telephone discussion with Mr. Piperno to discuss
various open issues related to the Merger Agreement. Thereafter, Mr. Joyce updated the other
members of the Special Committee on his discussions with Mr. Piperno earlier that day and the
progress of the discussions and negotiations with Sbars. He reported that the Blank Rome
representative noted that Sbars had requested that the exclusivity period provided for under the
Exclusivity Agreement be extended until October 4, 2011. After considering, among other things, the
progress that Sbars and A.C. Moore had made in negotiating the terms of the Merger Agreement and
related agreements and Sbars unwillingness to commit further resources to exploring a potential
transaction with A.C. Moore without an extension to the exclusivity period, Mr. Joyce, with the
agreement of the other members of the Special Committee, agreed to extend the exclusivity period to
the earlier of October 4, 2011 or the signing of the Merger Agreement and authorized the Blank Rome
representative to finalize the terms of an appropriate amendment to the Exclusivity Agreement.
Also on September 30, 2011, Bryan Cave notified Blank Rome that Wells Fargo had agreed to
extend the expiration date of its commitments and undertakings pursuant to the Wells Fargo
Commitment Letter from November 29, 2011 to December 31, 2011. Sbars forwarded to A.C. Moore a
copy of the fully executed Wells Fargo Commitment Letter that same day.
On October 3, 2011 representatives of Blank Rome and Bryan Cave finalized the terms of the
Merger Agreement, the Guaranty and the Deposit Escrow Agreement.
Later in the day on October 3, 2011, an affiliate of Sbars deposited $20 million in escrow
with Wells Fargo and the appropriate parties executed the Deposit Escrow Agreement. The Deposit
Escrow Agreement provided that if a Merger Agreement was not signed by all parties by 11:59 p.m. on
October 4, 2011, the escrowed amount would be returned to Sbars affiliate.
39
On the evening of October 3, 2011, the Board held a meeting, joined by representatives of
Janney and Blank Rome. The meeting began with the Blank Rome representative providing a summary of
the key provisions of the Merger Agreement. Next, the Blank Rome representative reviewed with the
Board its fiduciary duties. The Janney representative then provided the Special Committee with an
overview of the process that had been undertaken to review the strategic and financial alternatives
available to A.C. Moore and reported that, in connection with the review of financial and strategic
alternatives, Janney communicated with 50 potential buyers, including seven strategic buyers and 43
financial sponsors, to solicit their interest in a potential acquisition of A.C. Moore, of which 29
parties executed confidentiality agreements and 27 parties were given access to an electronic data
room. Janneys representative discussed with the Special Committee the
feedback received from potential buyers that had either declined to participate in the process
or had initially participated but had subsequently dropped out of the process. Among the concerns
raised by such potential buyers were various issues related specifically to A.C. Moore, as well as
issues related to the macroeconomic environment, discretionary consumer spending and the specialty
retail sector, that created significant uncertainties as to A.C. Moores future and prospects.
These issues included, but were not limited to, concerns over A.C. Moores historical financial
performance, lack of confidence in A.C. Moores ability to forecast future financial results,
continuing declines in A.C. Moores same store sales, the impact of three years of consecutive
quarterly losses, the continuing depletion of cash reserves since 2008, the effect that future
losses could have on cash and liquidity requirements, various concerns with A.C. Moores real
estate portfolio such as the challenges A.C. Moore faced in dealing with underperforming stores,
the locations of existing stores, the terms of the store leases, and the extent of the contingent
liabilities relating to existing store leases, the extent to which arts and crafts specialty
retailing would be a new retail platform for many potential buyers, and the significant competition
facing A.C. Moore from industry leaders with strong financial backing from leading private equity
firms. Janneys representative then reviewed Janneys financial analyses of the proposed
transaction with the Special Committee and delivered its oral opinion, which was later confirmed in
writing, that, as of the date of the opinion, and based upon and subject to the various
limitations, qualifications and assumptions set forth in Janneys written opinion, the $1.60 per
Share of Common Stock in cash to be received by the holders of Shares (other than Parent, Purchaser
and their respective affiliates) of Common Stock in the Offer and the Merger was fair, from a
financial point of view, to such holders. The Special Committee then discussed the proposed
transaction, noting the significant gains that had been negotiated in the merger agreement in
recent days, particularly with respect to deal certainty, as well as the fact that A.C. Moore had
been exploring strategic alternatives since November 2010, in a process publicly known since
February 15, 2011, during which Janney representatives had communicated with 50 potential buyers, a
number of which, after executing confidentiality agreements with A.C. Moore, had conducted
extensive due diligence on A.C. Moore. The Special Committee also considered the positive and
negative factors and risks associated with the proposed transaction, as discussed in further detail
in the section entitled Reasons for Recommendation of the Special Committee and A.C. Moores
Board below.
After further deliberations, the Special Committee resolved, by unanimous vote, that the
Merger Agreement, the Deposit Escrow Agreement and the Guaranty and the other transactions
contemplated thereby were in the best interests of, and fair to, A.C. Moores shareholders. The
Special Committee recommended that the Board approve the Merger Agreement, the Deposit Escrow
Agreement and the Guaranty and submit the Merger Agreement to A.C. Moores shareholders for
adoption if required under applicable law. After further discussion the Board resolved, by
unanimous vote, that the terms of the Merger Agreement, including the Offer and the Merger, are
fair to and in the best interests of A.C. Moores shareholders, and the Board approved the Merger
Agreement, the Deposit Escrow Agreement, the Guaranty, the Offer and the Merger. The Board
recommended that the shareholders of A.C. Moore accept the Offer and tender their Shares of Common
Stock, and, if required by applicable law, adopt the Merger Agreement at a meeting of shareholders.
Immediately following the meeting of the Board, the parties executed the Merger Agreement and
the appropriate parties executed and delivered the Guaranty. On October 4, 2011 before the opening
of trading on Nasdaq, A.C. Moore issued a press release announcing the execution of the Merger
Agreement.
On October 17, 2011, the parties to the Merger Agreement entered into Amendment No. 1 to the
Merger Agreement, which, among other things, removed Parents right to designate directors to the
Board in certain circumstances.
On October 18, 2011, Parent and Purchaser commenced the Offer, which has an initial expiration
date of November 16, 2011.
40
Reasons for Recommendation of the Special Committee and A.C. Moores Board
Material Factors and Benefits
The Special Committee, acting with the advice and assistance of its legal and financial
advisors, evaluated the Merger Agreement, the Offer, the Merger and the Transactions. In
recommending to the Board that it approve and declare fair to and in the best interest of the
shareholders of A.C. Moore, the Transaction Documents, the performance by
A.C. Moore of its obligations thereunder and the consummation of the Transactions, including
the Offer and the Merger, upon the terms and conditions contained therein, and in recommending
that, if required by applicable law, the shareholders of A.C. Moore approve the Merger Agreement,
the performance by A.C. Moore of its obligations thereunder and the consummation of the
Transactions, including the Offer and the Merger, upon the terms and conditions contained therein,
the Special Committee considered the following material factors and benefits of the Merger
Agreement, the Offer, the Merger and the other transactions contemplated by the Merger Agreement:
Financial Terms; Form of Consideration; Certainty of Value
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Historical market prices, volatility and trading information with respect to our
Common Stock, including that the Offer Price represents: |
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A premium of 68.4% to the closing price of $0.95 per Share of Common Stock on
October 3, 2011, the last full trading day prior to the announcement of the
execution of the Merger Agreement. |
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A premium of 53.8% to the one week prior closing price of $1.04 per Share of
Common Stock on September 26, 2011. |
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A premium of 21.2% to the one month prior closing price of $1.32 per Share of
Common Stock on September 6, 2011. |
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The form of consideration to be paid in the transaction is cash, which provides
certainty of value and immediate liquidity to A.C. Moores shareholders while avoiding
potential long-term business risk and uncertainty (including the risk factors set
forth in A.C. Moores Annual Report on Form 10-K, as amended, for the fiscal year ended
January 1, 2011). |
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The availability of dissenters rights with respect to the Merger, which would give
shareholders who have not tendered their Shares in the Offer and properly exercised and
perfected their dissenters rights the ability to seek and be paid the fair value of
their Shares in connection with the Merger, provided that the Merger is (i) submitted to
shareholders for approval and the Shares are no longer listed on Nasdaq or another
securities exchange and the Shares are held beneficially or of record by 2,000 persons
or less or (ii) consummated in accordance with the requirements of the Pennsylvania
short-form merger statute. |
Business and Financial Condition and Prospects of A.C. Moore
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The current and historical financial condition, results of operations, competitive
position, strategic options and prospects of A.C. Moore, as well as the financial plan
and prospects if A.C. Moore were to remain an independent public company, and the
potential impact of those factors on the trading price of Common Stock (which cannot be
quantified numerically). |
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A.C. Moores prospects given (i) that A.C. Moores financial and operational
performance over the past three years, including that A.C. Moores same store sales had
declined in each of the preceding three fiscal years, (ii) that A.C. Moore had incurred
net losses in each of fiscal years 2008, 2009 and 2010 primarily due to declines in same
store sales, (iii) A.C. Moores lack of financial flexibility to fund its business
initiatives, (iv) the highly competitive nature of the arts and crafts specialty retail
industry, including that a number of A.C. Moores major competitors are backed by
leading private equity firms and, accordingly, have access to substantially greater
financial resources than A.C. Moore, and (v) the extent to which A.C. Moores sales were
being adversely affected by a challenging macroeconomic environment that was adversely
affecting discretionary consumer spending and was partly to blame for heavy promotional
and discounting activity in the arts and crafts specialty retail sector. |
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The prospective risks to A.C. Moore as a stand-alone public entity, including the
risk factors set forth in A.C. Moores Annual Report on Form 10-K, as amended, for the
fiscal year ended January 1, 2011. |
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The Special Committees belief that maximizing value for A.C. Moores shareholders
required A.C. Moore to engage in either (i) a transaction with a financial sponsor or
strategic buyer who would be better positioned to
address A.C. Moores operational and financial challenges and would appropriately value
A.C. Moores long-term business prospects, or (ii) a financial transaction that would
provide A.C. Moore with increased financial flexibility and liquidity to continue its
ongoing turnaround and provide additional time for A.C. Moores management to implement
its various revenue-enhancing and cost-cutting initiatives. |
41
Review of Financial and Strategic Alternatives
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The retention of Janney, a nationally recognized financial advisor, with significant
familiarity and experience in the specialty retail industry to assist A.C. Moore in its
review of financial and strategic alternatives. |
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The formation of the Special Committee, established to administer and maintain
flexibility in the process, while the Board retained authority with respect to key
transaction decisions and approvals. |
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In consultation with its financial and legal advisors, the Special Committee reviewed
the results of the process undertaken to review financial and strategic alternatives
conducted by A.C. Moore, which began on November 11, 2010, when Janney received a
mandate from the Board to formally commence a review of financial and strategic
alternatives available to A.C. Moore. That mandate was subsequently followed by a public
announcement by A.C. Moore on February 15, 2011 that it had hired Janney to pursue
financial and strategic alternatives. |
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In connection with the process to review financial and strategic alternatives, A.C.
Moores financial advisor, Janney, had communicated with 50 potential buyers (including
43 financial sponsors and seven strategic buyers) regarding their interest in a
transaction with A.C. Moore, of which 29 parties executed confidentiality agreements and
27 parties were given access to the electronic data room containing various non-public
information relating to A.C. Moore. |
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The discussions A.C Moore held during its strategic review process with a number of
third parties prior to the entry into exclusive negotiations with Sbars, including five
parties that had submitted preliminary indications of interest, but none of which, other
than Sbars, had indicated they would be in a position to make a binding proposal. |
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The discussions that the Special Committee had with A.C. Moores financial and legal
advisors at different times during the process with respect to the terms of the
proposals received in the process and whether parties other than Sbars would be willing
or capable of entering into or sponsoring a transaction with A.C. Moore that would
provide more value to A.C. Moores shareholders than the value to be paid pursuant to
the Offer and the Merger. |
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The feedback provided by Janney to the Special Committee as to why various
potentially interested parties declined to participate in the strategic review process
or, after being given access to various due diligence materials, elected not to submit
an acquisition proposal, including, but not limited to, various issues related
specifically to A.C. Moore, as well as issues related to the macroeconomic environment,
discretionary consumer spending and the specialty retail sector, that created
significant uncertainties as to A.C. Moores future and prospects. These issues
included, but were not limited to, concerns over A.C. Moores historical financial
performance, lack of confidence in A.C. Moores ability to forecast future financial
results, continuing declines in A.C. Moores same store sales, the impact of three years
of consecutive quarterly losses, the continuing depletion of cash reserves since 2008,
the effect that future losses could have on cash and liquidity requirements, various
concerns with A.C. Moores real estate portfolio such as the challenges A.C. Moore faced
in dealing with underperforming stores, the locations of existing stores, the terms of
the store leases, and the extent of the contingent liabilities relating to existing
store leases, the extent to which arts and crafts specialty retailing would be a new
retail platform for many potential buyers, and the significant competition facing A.C.
Moore from industry leaders with strong financial backing from leading private equity
firms. |
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The increasingly pressing need to bring A.C. Moores strategic review process to a
reasonably prompt conclusion, taking into effect the ongoing deterioration of the
financial performance of A.C. Moore, the
significant uncertainty regarding A.C. Moores future prospects and the possibility that
its short- and long-term prospects would continue to decline in the absence of a sale or
other transaction. |
42
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The Special Committee also considered the possibility of continuing as a standalone
company or an equity or equity-linked financing through either a registered direct
offering or a PIPE transaction, and the perceived risks of these alternatives, the range
of potential benefits to A.C. Moores shareholders of these alternatives and the timing
and execution risk of accomplishing the goals of such alternatives, as well as the
Special Committees assessment that no alternatives were reasonably likely to create
greater value for A.C. Moores shareholders than the Offer and the Merger, taking into
account risks of execution as well as business, financial, competitive, industry and
market risks. |
History of Negotiations with Sbars
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The history of the negotiations between A.C. Moore and Sbars which informed the
Special Committee to enable it to consider that the Offer Price was the highest price
per Share of Common Stock that Sbars was willing to pay and that the other terms of the
Merger Agreement were the most favorable terms to A.C. Moore to which Sbars was willing
to have its affiliates agree to. |
Opinion of Financial Advisor
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The financial analyses and opinion of Janney presented to the Special Committee on
October 3, 2011 to the effect that, as of the date of the opinion, and subject to the
various limitations, qualifications and assumptions set forth therein, the $1.60 per
Share of Common Stock in cash to be received by holders of Shares of Common Stock (other
than Parent, Purchaser and their respective affiliates) in the Offer and the Merger, was
fair, from a financial point of view, to such holders, as described under Opinion of
A.C. Moores Financial Advisor below. |
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The Special Committees discussions with Janney regarding its financial analyses of
the transactions contemplated by the Merger Agreement and its analyses of comparable
transactions and the valuations of comparable companies. |
Advantages of Structuring the Transaction as a Dual-Track Tender Offer and Merger
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The structure of the transaction as a tender offer for all Shares, which should allow
shareholders to receive the transaction consideration in a relatively short time frame,
followed by the Merger in which shareholders (other than those who exercise and perfect
their dissenters rights under the PBCL) will receive the same consideration as received
by shareholders who tender their Shares in the Offer. |
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Alternatively, the dual-track structure of the transaction is also allowing for a
Merger following shareholder approval, which will provide additional certainty that the
Merger would ultimately occur and that shareholders would receive the transaction
consideration. |
Speed and Likelihood of Consummation
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The structure of the transaction as a two-step transaction which potentially enables
the shareholders to receive the Offer Price pursuant to the Offer in a relatively short
time frame (and potentially reduces the uncertainty during the pendency of the
transaction), followed by the Merger in which shareholders that do not tender in the
Offer will receive the same cash price as is paid in the Offer. In addition, the
structure of the transaction permits the use of a one-step transaction in the event the
two-step transaction is unable to be effected. |
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The ability of Purchaser to exercise the Top-Up Option to purchase up to an
additional number of Shares of Common Stock sufficient to cause the Purchaser to own 80%
of the Shares of Common Stock outstanding after the Offer on a fully-diluted basis,
which would permit the Purchaser to close the Merger (as a short-form merger under
Pennsylvania law) more quickly than under alternative structures. |
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The additional certainty of consummation of the transaction due to the dual-track
structure, which results in a greater assurance that shareholders will receive the
transaction consideration. |
43
Purchasers Deposit of $20 Million into an Escrow Account to Secure Obligations of Parent and
Purchaser
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The agreement of Purchaser to deposit $20 million, or the Escrow Amount, into an
escrow account pursuant to the Deposit Escrow Agreement to provide some security for the
obligations of Parent and Purchaser to consummate the Transactions and that, pursuant to
the Deposit Escrow Agreement, if the closing of the Merger, or the Closing, does not
occur on or prior to December 30, 2011, and all conditions to the obligations of Parent
and Purchaser to consummate the Merger have been satisfied or waived, or all conditions
to the obligations of A.C. Moore to consummate the Merger have not been satisfied or
waived, then, subject to the Final Determination, as defined in the Deposit Escrow
Agreement, the Escrow Amount will be distributed to A.C. Moore. The Final Determination
will control the manner, amount and recipients in which the Escrow Amount is to be paid. |
Availability of Financing for Parent to Consummate the Offer and the Merger
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Parents and Purchasers representation in the Merger Agreement that they have, and
their obligation to obtain, sufficient funds available to them to consummate the Offer
and the Merger. |
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That, in addition to debt financing, Purchaser has indicated that it would be using
the $20 million placed in the escrow account as part of its financing of the Offer and
the Merger. |
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Purchasers execution of a debt financing Wells Fargo Commitment Letter, which also
serves as the lender under A.C. Moores credit facility, which, in the reasonable
judgment of the Special Committee, increases the likelihood of such financing being
completed. |
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That each of Parent and Purchaser has agreed in the Merger Agreement to use
commercially reasonable efforts to seek to enforce its rights under the debt financing
documents in the event of a material breach thereof by the financing sources thereunder
or to seek alternative financing. |
Lack of Regulatory Approvals
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That no antitrust, competition or other material regulatory filings are required to
consummate the Offer and the Merger. |
Termination Fee
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That the termination fee payable by A.C. Moore to Parent, if the Merger Agreement is
terminated for the reasons discussed in the Merger Agreement, even at the $2 million
amount requested by Parent, is not unreasonable, was comparable to termination fees in
transactions of a similar size, and would not be reasonably expected to deter competing
bids and would not likely be required to be paid unless A.C. Moore entered into or
intended to enter into a transaction that is more favorable to A.C. Moores shareholders
than the Transactions contemplated by the Merger Agreement. |
Terms and Conditions of the Merger Agreement
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The fact that the financial and other terms and conditions of the Transactions,
including, but not limited to, the number and nature of the conditions to Parents and
Purchasers obligations to consummate the Offer and the Merger, were the product of
arms-length negotiations among the parties and were designed to provide a reasonable
amount of comfort that the Offer and the Merger would ultimately be consummated on a
timely basis. |
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The definition of Company Material Adverse Effect in the Merger Agreement and the
various exceptions thereto and the effect thereof on the likelihood that the Offer and
the Merger would be consummated pursuant to the terms of the Merger Agreement. |
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The fact that neither the Offer nor the Merger is conditioned upon any member of A.C.
Moores management entering into any employment, equity contribution, or other
agreement, arrangement or understanding with
Parent, Purchaser or A.C. Moore and that, prior to the execution of the Merger Agreement,
no such agreement, arrangement or understanding had been negotiated or entered into. |
44
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The discussions that the Special Committee had with A.C. Moores legal advisor
regarding the terms and conditions of the Merger Agreement, including the Offer, the
Merger and the other Transactions, including the respective representations, warranties
and covenants and termination rights of the parties. |
Ability to Entertain Superior Proposals
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That the Merger Agreement has customary no solicitation, fiduciary-out, and
termination provisions which, in the view of the Special Committee, should not deter or
preclude third parties from making Superior Proposals (as defined in the Merger
Agreement). |
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The fact that, subject to compliance with the terms and conditions of the Merger
Agreement, prior to the earlier of the closing of the Offer or obtaining the approval of
the A.C. Moore shareholders of the Merger, A.C. Moore is permitted to furnish
information to, and participate in discussions and negotiations with, any third party
that makes an unsolicited, bona fide, written acquisition proposal that the Board (or
any authorized committee thereof) determines in good faith, after consulting with
outside legal and financial advisors, constitutes, or would reasonably be expected to
lead to, a Superior Proposal, or the Board (or any authorized committee thereof),
determines in good faith, after consultation with outside legal counsel, that the
failure to take such action would be inconsistent with the best interests of A.C.
Moores shareholders. |
Ability for the Board to Change its Recommendation
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The ability of the Board under certain circumstances, including the receipt of a
Superior Proposal, to withdraw, modify or change the Boards recommendation to
shareholders that they accept the Offer, tender their Shares of Common Stock to
Purchaser pursuant to the Offer and, if required, vote their Shares of Common Stock in
favor of the adoption of the Merger Agreement, and the right of the Board to terminate
the Merger Agreement if certain conditions are satisfied, subject to payment of a
termination fee to Parent, and the reasonableness of such provisions in light of, among
other things, the benefits of the Offer and the Merger to A.C. Moores shareholders and
the typical range and size of such fees in similar transactions. |
Risks and Other Factors
In the course of its deliberations, the Special Committee also considered a variety of risks,
uncertainties and potentially negative factors with respect to the Offer and the Merger, including:
Financial Terms
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While the Merger Consideration represents a premium of 68.4% to the closing price of
$0.95 per Share of Common Stock on October 3, 2011, the last full trading day prior to
the announcement of the execution of the Merger Agreement, it also represents a discount
of 29.2% to the one year prior closing price of $2.26 per Share on October 4, 2010. |
No-Shop; Termination Fee
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The restrictions that the Merger Agreement impose on A.C. Moores ability to solicit
or participate in discussions or negotiations regarding alternative business combination
transactions, subject to certain specified exceptions, and the insistence by Parent, as
a condition to executing the Merger Agreement, that A.C. Moore would be obligated to pay
a termination fee of $2 million under certain circumstances, and the potential effect of
such restrictive provisions and such termination fee in deterring other potential
acquirers from proposing alternative transactions. |
Minimum Tender Condition
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The risk that the minimum tender condition in the Offer may not be satisfied and that
such minimum tender condition is a higher threshold than the approval percentage that
would be required if the transaction was
structured as a one-step merger (i.e., a majority of the outstanding Shares). However,
this consideration was viewed in light of the provisions in the Merger Agreement that (i)
provide for the one-step merger (with a majority voting requirement) if the minimum
tender condition is not satisfied, and (ii) the early filing of a proxy statement so that
the one-step merger structure could be implemented without significant delay if the
minimum tender condition is not satisfied. |
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Conditions to Closing
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The conditions to Parents and Purchasers obligation to consummate the Offer and the
Merger, and that there are no assurances all such conditions will be satisfied,
including those that are not within A.C. Moores control. These conditions include, but
are not limited to, the availability of third-party financing to Parent and Purchaser
and that no Company Material Adverse has occurred, subject to certain specified
exceptions. |
Effect of a Failure to Close
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The fact that, if the Transactions, including the Offer and the Merger, are not
completed, A.C. Moores officers and other employees will have expended extensive time
and effort attempting to complete the Transactions and will have experienced significant
distractions from their work during the pendency of the Transactions. |
Potential Harm to Business if Merger is Not Completed
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The fact that, if the Transactions, including the Offer and the Merger, are not
completed, (i) the markets perception of A.C. Moore could potentially result in a loss
of customers, vendors and employees, and (ii) the fact that, during the course of the
due diligence process, A.C. Moore has provided Parent with very sensitive, confidential
information that could affect A.C. Moores ability to negotiate with Parents affiliates
if the Transactions were not to be completed. |
Public Announcement of the Merger Agreement
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The effect of a public announcement of the execution of the Merger Agreement,
including its effects on A.C. Moores sales, operating results and stock price, and A.C.
Moores ability to attract and retain key management and sales and marketing personnel. |
Pre-Closing Covenants
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The restrictions on the conduct of A.C. Moores business prior to the completion of
the Transactions, requiring A.C. Moore to conduct its business in the ordinary course of
business, to use its reasonable efforts, consistent with past practice and policies, to
preserve intact its business organization and material assets, to keep available the
services of its officers, directors and associates, to comply in all material respects
with all applicable laws and the requirements of its material contracts, to maintain
satisfactory relationships with business partners, and to seek the consent of Parent
prior to engaging in various activities, which may delay or prevent A.C. Moore from
undertaking business opportunities that may arise pending completion of the
Transactions, whether or not consummated. |
Lack of Assets and Operating History of Parent and Purchaser
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While Parent caused Purchaser to deposit $20 million in escrow in order to partially
secure Parents and Purchasers obligations under the Merger Agreement, including but
not limited to payment for the Shares, Parent and Purchaser are newly-formed entities
with limited capitalization and limited operating histories and A.C. Moores monetary
remedy in connection with a failure by Parent and Purchaser to consummate the
Transactions, even where such failure is in connection with a breach of the Merger
Agreement that is deliberate or willful, could, from a practical perspective, be limited
to the $20 million placed in escrow which may not be sufficient to compensate A.C. Moore
for losses suffered as a result of such a failure to consummate the Transactions by
Parent or Purchaser. |
46
Possible Inability to Obtain Financing
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The risk that Parent and Purchaser may not be able to obtain financing on acceptable
terms and in an amount of cash sufficient to consummate the Transactions. |
Definition of Company Material Adverse Effect
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The definition of a Company Material Adverse Effect contained in the Merger
Agreement and the risk, taking into effect the deteriorating nature of A.C. Moores
business, that Parent or Purchaser may assert the occurrence of a Company Material
Adverse Effect as justifying their refusal to consummate the Offer or the Merger. |
Improvement in A.C. Moores Prospects
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The risk that A.C. Moores prospects could change materially during the pendency of
the Transactions, including in ways beneficial to A.C. Moore, but in ways that may not
entitle the Board to change its recommendation to A.C. Moores shareholders, and the
price per Share of Common Stock offered under the Merger Agreement is fixed at $1.60 per
Share, regardless of such changes. |
Parent and Purchasers Ability to Terminate the Merger Agreement
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The fact that, subject to certain specified exceptions, if the Merger shall not have
occurred on or before December 30, 2011, the Offer and the Merger may be abandoned by
Parent. |
Tax Consequences
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The fact that the all-cash consideration to be received by the shareholders who are
U.S. persons in the Offer and the Merger would be taxable to such shareholders who have
a gain for U.S. federal income tax purposes. |
Interests of Certain Persons in the Offer and the Merger
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The fact that the executive officers and directors of A.C. Moore may have interests
in the Offer and the Merger that are different from, or in addition to, those of A.C.
Moores shareholders, including certain change of control payments, severance and
retention arrangements as described under Interests of Certain Persons in the Merger
below. |
The Special Committee believed that, overall, the potential benefits of the Offer and the
Merger to A.C. Moores shareholders outweighed the risks and uncertainties of the Offer and the
Merger.
In the course of reaching its determination and recommendation, the Board considered, among
other things, the same factors considered by the Special Committee in its deliberations, as
described above.
After evaluating the above factors, on October 3, 2011, based on the recommendation of the
Special Committee and the conduct of its own independent review and other relevant factors, the
Board unanimously determined (i) to approve and adopt the Transaction Documents and the
consummation of the Transactions; (ii) to authorize and direct certain officers of A.C. Moore to
execute and deliver the Transaction Documents in the name of A.C. Moore; (iii) to authorize such
officers to prepare, execute, deliver and file such further agreements, certificates, instruments
and documents and to take such actions as contemplated by the Transaction Documents or as such
officers deem necessary or appropriate; (iv) that the Transaction Documents and the Transactions
are fair to and in the best interests of A.C. Moores shareholders; (v) to approve for all
purposes, to the extent required under applicable law, the Purchaser, Parent and their affiliates,
the Merger Agreement and the Transactions to exempt such persons, agreements and transactions from
applicable anti-takeover laws; and (vi) to recommend that the shareholders of A.C. Moore accept the
Offer and tender their Shares in the Offer and, to the extent such a meeting is required under the
PBCL, vote in favor of the approval of the Merger and the approval and adoption of the Merger
Agreement at any meeting of shareholders of A.C. Moore called to consider approval of the Merger
and the Merger Agreement.
47
In considering the Offer and the Merger, the Board reviewed and considered the fairness
opinion sought and received from Janney by the Special Committee as to the fairness, as of the date
of such opinion, from a financial point of
view, of the consideration to be received in the Offer and the Merger by holders of
outstanding Shares of Common Stock, which opinion is described under Opinion of A.C. Moores
Financial Advisor below. The Board also consulted with representatives of Blank Rome regarding the
fiduciary duties of the members of the Board and the terms of the Merger Agreement.
The foregoing discussion of the information and factors considered by the Special Committee
and the Board is not intended to be exhaustive, but merely summarizes the material factors
considered. In light of the variety of factors considered, both positive and negative, in
connection with their evaluation of the Offer and the Merger and the complexity of these matters,
the Special Committee and the Board did not consider it practical, and did not attempt, to
quantify, rank or otherwise assign relative weights to the specific factors considered in reaching
their determinations and recommendations or determine that any factor was of particular importance.
The Special Committee and the Board made their decision based on the totality of information
presented to and considered by them. Moreover, each member of the Special Committee and the Board
applied his or her own personal business judgment to the process and may have given different
weights to different factors and may have viewed certain factors more positively or negatively than
others. In arriving at their recommendation, the members of the Special Committee and the Board
were aware of the interests of our executive officers, directors and affiliates as described in
Interests of Certain Persons in the Merger below.
The Board unanimously recommends that you vote FOR the proposal to adopt the Merger
Agreement and FOR the proposal to adjourn the special meeting, if necessary or appropriate to,
among other reasons, solicit additional proxies.
In considering the recommendation of the Board with respect to the proposal to adopt the
Merger Agreement, you should be aware that our directors and executive officers may have interests
in the Merger that are different from, or in addition to, yours. See the section entitled
Interests of Certain Persons in the Merger beginning on page [] and Advisory Vote on Golden
Parachute Compensation beginning on page []. The Special Committee and the Board were aware of
and considered these interests, among other matters, in evaluating and negotiating the Merger
Agreement and the Merger, and in recommending that the Merger Agreement be adopted by the
shareholders of A.C. Moore.
Opinion of A.C. Moores Financial Advisor
On October 3, 2011, during a meeting of the Board, Janney, at the request of the Special
Committee, rendered an oral opinion, which was confirmed by delivery of a written opinion dated
October 3, 2011, to the effect that, as of that date and based upon and subject to the various
considerations set forth in its opinion, the Merger Consideration of $1.60 per Share, or the the
Per Share Merger Consideration, to be paid to holders of Common Stock pursuant to the Merger
Agreement was fair, from a financial point of view, to such holders of Common Stock (other than
Parent or Purchaser).
The full text of the written opinion of Janney dated October 3, 2011 is attached as Annex E.
Janneys opinion sets forth, among other things, the assumptions made, procedures followed, matters
considered and limitations on the scope of review undertaken by Janney in rendering its opinion.
The summary of Janneys opinion set forth below is qualified in its entirety by reference to the
full text of the opinion. Shareholders are encouraged to carefully read the full text of Janneys
written opinion in its entirety.
In arriving at its opinion, Janney has made such reviews, analyses, and inquiries as Janney
deemed necessary and appropriate under the circumstances including, among other things, the
following: (i) reviewed a draft of the Merger Agreement dated October 3, 2011; (ii) reviewed the
historical financial performance, current financial position and general prospects of A.C. Moore;
(iii) considered the proposed financial terms of the Transactions; (iv) considered the results of
efforts to solicit indications of interest and definitive proposals from third parties with respect
to a possible acquisition of A.C. Moore; (v) reviewed the historical market price ranges and
trading activity performance of Common Stock; (vi) reviewed publicly-available information such as
annual reports, quarterly reports and other filings made by A.C. Moore with the SEC; (vii) to the
extent deemed relevant, analyzed information of certain other selected publicly traded companies
and compared A.C. Moore from a financial point of view to these other companies; (viii) to the
extent deemed relevant, analyzed information of certain other selected precedent merger and
acquisition transactions and compared the Transactions from a financial point of view to these
other transactions to the extent information concerning such transactions was publicly available;
(ix) discussed with certain members of senior management of A.C. Moore the
strategic aspects of the Transactions and A.C. Moores past and current business operations,
financial condition and prospects; and (x) reviewed such materials and performed such other
analyses and examinations as Janney deemed necessary.
48
In performing its review, Janney relied upon the accuracy and completeness of all of the
financial and other information that was available to it from public sources, that was provided to
it by A.C. Moore or its representatives or that was otherwise reviewed by it, and Janney assumed
such accuracy and completeness for purposes of rendering its opinion. Janney was not asked to and
did not undertake any independent verification of any of such information and Janney does not
assume any responsibility or liability for the accuracy or completeness thereof. Janney did not
make an independent evaluation or appraisal of specific assets, collateral securing assets, or
liabilities (contingent or otherwise) of A.C. Moore or any of its affiliates or subsidiaries.
Janney did not express any opinion as to any tax or other consequences that may result from the
transactions contemplated by the Merger Agreement, nor did its opinion address any legal, tax,
regulatory or accounting matters, as to which it understood A.C. Moore had received such advice as
it deemed necessary from qualified professionals.
With respect to A.C. Moores financial forecast for the fiscal year ending December 31, 2011,
as provided to Janney on September 21, 2011, A.C. Moores management has confirmed that it reflects
the best currently-available estimate and judgment of such management as to the financial
performance of A.C. Moore for fiscal year 2011, and Janney has assumed that such performance will
be achieved. Janney expresses no opinion as to such financial forecast or the assumptions on which
it is based. Janney has assumed, other than where indicated otherwise by A.C. Moores management,
that there has been no change in A.C. Moores assets, financial condition, results of operations,
business or prospects since the date of the most recent financial statements made available to
Janney that would be material to its analyses or its opinion. Janney has assumed in all respects
material to its analysis that A.C. Moore and Parent will remain as going concerns for all periods
relevant to Janneys analysis, and that all of the representations and warranties contained in the
Merger Agreement and all related agreements are true and correct.
Janneys opinion is directed to, and is for the use and benefit of, the Special Committee in
connection with its consideration of the Transactions. Janneys opinion should not be construed as
creating any fiduciary duty on the part of Janney to any party. Janneys opinion does not
constitute a recommendation to any shareholder of A.C. Moore as to (i) whether such shareholder
should tender such shareholders Common Stock in the Transactions or (ii) how such shareholder
should vote on the Transactions or any other matter. Janneys opinion is directed only to the
fairness, from a financial point of view, as of October 3, 2011 and based upon and subject to the
various considerations set forth in the opinion, of the Per Share Merger Consideration to be paid
to the holders of Common Stock (other than Parent and Purchaser) and does not address the fairness
of the Per Share Merger Consideration to any other constituencies of A.C. Moore other than the
holders of Common Stock. In addition, Janneys opinion does not address the fairness of the amount
or nature of any compensation to be paid or payable to any of the officers, directors or employees
of A.C. Moore, whether relative to the Per Share Merger Consideration or otherwise. Janney has not
expressed any opinion as to the impact of the Transactions on the solvency or viability of A.C.
Moore, or of any of the other parties to the Merger Agreement, or as to their ability to pay their
debts when they become due.
Janneys opinion does not address the relative merits of the Transactions as compared to other
business strategies or transactions that might be available to A.C. Moore or A.C. Moores
underlying business decision to effect the Transactions. Janney was not asked to, nor does it,
offer any opinion as to the terms, other than the Per Share Merger Consideration to the extent
expressly specified therein, of the Merger Agreement or the form of the Transactions. In rendering
its opinion, Janney assumed that (i) the final executed form of the Merger Agreement would not
differ in any material respect from the draft dated October 3, 2011 that it reviewed, (ii) all
parties to the Merger Agreement and all related agreements will comply with all material terms of
the agreements to which they are a party, and (iii) the Transactions will be consummated in
accordance with the terms of the Merger Agreement without any waiver or amendment of any material
term or condition thereof. Janney has also assumed that all governmental, regulatory or other
consents, including A.C. Moores internal consents and approvals necessary for the consummation of
the Transactions, will be obtained without any material adverse effect on A.C. Moore, Parent or
Purchaser or the Transactions.
49
Summary of Material Financial Analyses
The following is a summary of the material financial analyses performed by Janney and
discussed with the Special Committee and the Board in connection with rendering the opinion
described above. The following summary, however, does not purport to be a complete description of
the financial analyses performed by Janney, nor does the order of analyses described represent
relative importance or weight given to those analyses by Janney. Some of the summaries of the
financial analyses include information presented in tabular format. The tables must be read
together with the full text of each summary and are alone not a complete description of Janneys
financial analyses. Except as otherwise noted, the following quantitative information, to the
extent that it is based on market data, is based on market data as it existed on or before October
3, 2011 (the date on which Janney completed its analyses) and is not necessarily indicative of
current market conditions.
Janneys opinion is rendered on the basis of market, economic and other conditions prevailing
as of October 3, 2011 and on the conditions and prospects, financial and otherwise, of A.C. Moore,
as they existed and were known to Janney on October 3, 2011, and Janney assumes no responsibility
for updating, revising or reaffirming its opinion based on circumstances, developments or events
occurring after October 3, 2011. The issuance of Janneys opinion was approved by a fairness
committee of Janney.
Analysis of Implied Premia
Janney calculated the implied premium represented by the Per Share Merger Consideration to be
received by the holders of Shares of Common Stock in the Transactions over selected dates and
selected periods.
The Per Share Merger Consideration represented:
|
|
|
A premium of 68.4% to the closing price on October 3, 2011, the last trading day
prior to when the opinion was delivered. |
|
|
|
A premium of 53.8% to the one week prior closing price of $1.04 on September 26,
2011. |
|
|
|
A premium of 21.2% to the one month prior closing price of $1.32 on September 6,
2011. |
|
|
|
A discount of 29.2% to the one year prior closing price of $2.26 on October 4, 2010. |
Selected Publicly Traded Companies Analysis
Janney reviewed and compared certain financial information for A.C. Moore to corresponding
financial information, ratios and public market multiples for the following publicly traded
companies in the specialty retail industry, which, in the exercise of its professional judgment and
based on its knowledge of the industry, Janney determined to be relevant to its analysis. Although
none of the following companies is identical to A.C. Moore,
Janney selected these companies because they had publicly traded equity securities and were
deemed to be similar to A.C. Moore in one or more respects including the nature of their business,
size and financial performance.
Books-A-Million Inc.
Build-A-Bear Workshop Inc.
Big 5 Sporting Goods Corp.
Cost Plus Inc.
Duckwall-ALCO Stores Inc.
Golfsmith International Holdings Inc.
Hancock Fabrics Inc.
Hastings Entertainment Inc.
Kirklands Inc.
Sport Chalet Inc.
Tuesday Morning Corp.
50
For each of the companies, Janney calculated and compared financial information and various
financial market multiples and ratios based on SEC filings for historical information and utilized
third-party research estimates from other
investment firms for forecasted information. For A.C. Moore, Janney made calculations based
the financial forecasts prepared by A.C. Moores management and utilized SEC filings for historical
information. With respect to A.C. Moore and each of the selected companies, Janney reviewed
enterprise value as a multiple of net sales and EBITDA for the latest twelve month period and
estimated sales and EBITDA for fiscal year 2011; equity value as a multiple of earnings per Share
for the latest twelve month period and estimated earnings per Share for fiscal year 2011; and
equity value as a multiple of estimated book value for the third quarter of 2011. The results of
these analyses are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public Company |
|
|
|
|
|
|
Multiples(1) Range |
|
|
Implied Share Price Range |
|
EV/LTM Net Sales |
|
|
0.11 |
x |
|
|
0.30 |
x |
|
$ |
1.22 |
|
|
$ |
4.66 |
|
EV/FY11E Net Sales |
|
|
0.12 |
x |
|
|
0.30 |
x |
|
$ |
1.37 |
|
|
$ |
4.49 |
|
EV/LTM EBITDA |
|
|
2.3 |
x |
|
|
9.3 |
x |
|
|
N/M |
|
|
|
N/M |
|
EV/FY11E EBITDA |
|
|
2.1 |
x |
|
|
5.7 |
x |
|
|
N/M |
|
|
|
N/M |
|
P/LTM Earnings Per Share |
|
|
7.2 |
x |
|
|
57.9 |
x |
|
|
N/M |
|
|
|
N/M |
|
P/FY11E Earnings Per Share |
|
|
8.6 |
x |
|
|
38.3 |
x |
|
|
N/M |
|
|
|
N/M |
|
P/3Q11E Book Value |
|
|
0.23 |
x |
|
|
1.81 |
x |
|
$ |
0.93 |
|
|
$ |
7.40 |
|
|
|
|
(1) |
|
Key: |
|
|
|
LTM = Latest twelve month period as of June 30, 2011 |
|
|
|
P = Implied per Share consideration |
|
|
|
FY11E = Company estimated financial performance for fiscal year ending 2011 |
|
|
|
3Q11E = Company estimated financial performance for the third quarter ending September 30,
2011 |
|
|
|
N/M = Not a meaningful figure due to historical and estimated EBITDA and EPS losses |
Although the selected companies were used for comparison purposes, no business of any selected
company was either identical or directly comparable to A.C. Moores business. Accordingly, Janneys
comparison of selected companies to A.C. Moore and analysis of the results of such comparisons was
not purely mathematical, but instead necessarily involved complex considerations and judgments
concerning differences in financial and operating characteristics and other factors that could
affect the relative values of the selected companies and A.C. Moore. As a result, a significantly
larger or smaller company with substantially similar lines of business and business focus may have
been included while a similarly sized company with less similar lines of business and greater
diversification may have been excluded. Janney may not have included all companies that might be
deemed comparable to A.C. Moore.
Selected Transactions Analysis
Janney analyzed certain information relating to selected precedent transactions in the
specialty retail industries announced from April 2005 to December 2010 which, in the exercise of
its professional judgment, Janney determined to involve relevant public companies with operations
similar to A.C. Moore or transactions which have characteristics similar to that of the
Transactions. The selected transactions analyzed included the following:
|
|
|
|
|
Date Announced |
|
Target |
|
Acquirer |
December 2010
|
|
Jo-Ann Stores, Inc.
|
|
Leonard Green & Partners, L.P. |
July 2010
|
|
Paperchase Products Ltd.
|
|
Primary Capital Limited |
August 2009
|
|
Charlotte Russe Holding Inc.
|
|
Advent International Corp. |
June 2009
|
|
Tween Brands Inc.
|
|
Dress Barn Inc. |
June 2009
|
|
Filenes Basement Corp.
|
|
Syms Corp. |
November 2007
|
|
Restoration Hardware, Inc.
|
|
Catterton Partners |
November 2006
|
|
Golf Galaxy, Inc.
|
|
Dicks Sporting Goods Inc. |
July 2006
|
|
PETCO Animal Supplies, Inc
|
|
Private equity consortium |
June 2006
|
|
Michaels Stores Inc.
|
|
Private equity consortium |
January 2006
|
|
The Sports Authority, Inc.
|
|
Leonard Green & Partners, L.P. |
November 2005
|
|
Linens n Things, Inc.
|
|
Apollo Management, L.P. |
October 2005
|
|
ShopKo Stores, Inc.
|
|
Sun Capital Partners, Inc. |
September 2005
|
|
Party City Corporation
|
|
Private equity consortium |
April 2005
|
|
Electronics Boutique Hldgs. Corp.
|
|
GameStop Corp. |
April 2005
|
|
Brookstone Inc.
|
|
Private equity consortium |
51
No specific numeric or other similar criteria were used to select the selected transactions
and all criteria were evaluated in their entirety without application of definitive qualifications
or limitations to individual criteria. As a result, a transaction involving the acquisition of a
significantly larger or smaller company with substantially similar lines of businesses and business
focus may have been included while a transaction involving the acquisition of a similarly sized
company with less similar lines of business and greater diversification may have been excluded.
For each of the selected transactions, Janney calculated and compared the enterprise value as
a multiple of the latest twelve months of net sales and EBITDA, using publicly available
information at the time of the relevant transaction. The results of these analyses are summarized
in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Precedent Transaction |
|
|
|
|
|
|
Multiples(1) Range |
|
|
Implied Share Price Range |
|
EV/LTM Net Sales |
|
|
0.15 |
x |
|
|
1.46 |
x |
|
$ |
2.00 |
|
|
$ |
24.85 |
|
EV/LTM EBITDA |
|
|
2.9 |
x |
|
|
13.6 |
x |
|
|
N/M |
|
|
|
N/M |
|
|
|
|
(1) |
|
Key: |
|
|
|
LTM = Latest twelve month period as of June 30, 2011 |
|
|
|
N/M = Not a meaningful figure due to historical and estimated EBITDA and EPS losses |
Using the reference ranges set forth above, Janney determined implied enterprise values for
A.C. Moore and calculated implied equity values in the same manner as with respect to the
Comparable Public Company analysis described above.
Illustrative Premiums Paid Analysis
Janney analyzed the premiums paid in 100% cash acquisitions of publicly traded companies in
the United States across all industries (excluding entities in the financial, healthcare, materials
and utilities industries) from September 2008 to the present with transaction values of $25 million
to $250 million. For each of the transactions, based on publicly available information, Janney
calculated the premiums of the offer price in the transaction to the target companys closing stock
price one day, one week and one month prior to the announcement of the transaction. The results of
these analyses are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums Paid |
|
|
|
|
|
|
Percentages |
|
|
|
|
|
|
Range |
|
|
Implied Share Price Range |
|
Premiums Paid 1 Day |
|
|
0.1 |
% |
|
|
148.5 |
% |
|
$ |
0.95 |
|
|
$ |
2.36 |
|
Premiums Paid 1 Week |
|
|
3.7 |
% |
|
|
165.2 |
% |
|
$ |
1.08 |
|
|
$ |
2.76 |
|
Premiums Paid 1 Month |
|
|
2.6 |
% |
|
|
221.1 |
% |
|
$ |
1.35 |
|
|
$ |
4.24 |
|
52
General
The preparation of a fairness opinion is a complex process involving various quantitative and
qualitative judgments and determinations with respect to the financial, comparative and other
analytical methods employed and the adaptation and application of these methods to the unique facts
and circumstances presented. As a result, neither the fairness opinion nor its underlying analyses
are necessarily susceptible to partial analysis or summary description. Selecting portions of the
analyses without considering the analyses as a whole could create an incomplete view of the
processes underlying Janneys opinion. In arriving at its fairness determination, Janney
considered the results of all of its analyses and did not attribute any particular weight to any
factor or analysis considered by it. Rather, Janney made its determination as to fairness on the
basis of its experience and professional judgment after considering the results of all of its
analyses. Accordingly, Janney believes that its analyses and this summary must be considered as a
whole and that selecting portions of its analyses, methodologies and factors or focusing on
information presented in tabular format, without considering all analyses, methodologies and
factors or the narrative description of the analyses, could create a misleading or incomplete view
of the processes underlying Janneys analyses and opinion. Each analytical technique has inherent
strengths and weaknesses, and the nature of the available information may further affect the value
of particular techniques. Janney was advised by the management of A.C. Moore that the operations
and prospects of A.C. Moore had declined since the preparation by management of its five-year
financial forecast for the fiscal years 2011 to 2015, or the Long-Term Forecast, and, accordingly,
that the Long-Term Forecast was no longer reflective of managements best currently available
estimates and judgments as to the future financial results and condition of A.C. Moore and should
not be relied upon for purposes of Janneys analyses and opinion. In addition, Janney was advised
by the management of A.C. Moore that it had not prepared updated financial forecasts beyond fiscal
year 2011. Given the absence of a long-term forecast that the management of A.C. Moore believes was
reliable for purposes of Janneys analyses and opinion, Janney did not perform an analysis of the
estimated present value of the future cash flows of A.C. Moore.
In performing its analyses, Janney considered general business, economic, industry and market
conditions, financial and otherwise, and other matters as they existed on, and could be evaluated
as of, the date of the opinion. Janneys analyses involved judgments and assumptions with regard to
industry performance, general business, economic, regulatory, market and financial conditions and
other matters, many of which are beyond A.C. Moores control. Janneys analyses do not purport to
be appraisals nor do they necessarily reflect the prices at which businesses or securities actually
may be sold. Analyses based upon estimates of future results are not necessarily indicative of
actual future results, which may be significantly more or less favorable than suggested by these
analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of the parties or their respective advisors, none of A.C.
Moore, Parent, Janney or any other person assumes responsibility if future results are materially
different from the estimates used.
Janneys opinion and financial analyses in connection with their respective evaluation of the
Per Share Merger Consideration were among many factors considered by the Special Committee and the
Board in its evaluation of the Transactions and should not be viewed as determinative of the views
of the Special Committee, the Board or management with respect to the Transactions or the
consideration payable in the Transactions. Janney was not requested to, and it did not, recommend
the specific consideration payable in the Transactions. The decision to enter into the Merger
Agreement was solely that of the Board.
Janney, as part of its investment banking business, is engaged in the valuation of companies
and their securities in connection with mergers and acquisitions. Janney acted as exclusive
financial advisor to the Board in connection with the Transactions and has, to date, been
compensated on a monthly retainer basis for its services. Janney will also receive a fee for
rendering its opinion, which is not contingent upon the successful completion of the Transactions
or the conclusion contained in such opinion. In addition, a substantial portion of Janneys fees
are contingent upon the completion of the Transactions. Janney will not receive any other
significant payment or compensation with regard to the Transactions. The Company has agreed to
reimburse Janney for its reasonable expenses and to indemnify Janney and certain related parties
for certain liabilities arising out of Janneys services to A.C. Moore. Prior to Janneys
engagement in connection with the Transactions, in 2009 Janney provided limited financial advisory
services to A.C. Moore. In addition, in the ordinary course of Janneys business as a
broker-dealer, it may, from time to time, have a long or short position in, and buy or sell, debt
or equity securities of A.C. Moore for its own account or for the accounts of its customers.
53
Projections
In connection with the sale process, A.C. Moores management prepared certain non-public
financial information and projections about A.C. Moore, which A.C. Moore provided to Sbars in
connection with its due diligence review. This is information that had been prepared by management
for internal planning purposes or in connection with the Offer and the Merger and is subjective in
many respects. The projected financial information for the remainder of fiscal 2011
summarized below, or the Fiscal 2011 Projections, was provided to Sbars on September 21,
2011. The Fiscal 2011 Projections were also provided to A.C. Moores financial advisor in
connection with its opinion to the Special Committee, as described under Opinion of A.C. Moores
Financial Advisor above.
A.C. Moore Projected Financial InformationRemainder of 2011 Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except percentages, store count |
|
3rd Quarter 2011 |
|
|
4th Quarter 2011 |
|
|
Fiscal Year 2011 |
|
and earnings per share) |
|
Forecast |
|
|
Forecast |
|
|
Forecast |
|
Net sales |
|
$ |
97.9 |
|
|
$ |
139.0 |
|
|
$ |
438.6 |
|
Gross margin |
|
|
39.4 |
|
|
|
51.3 |
|
|
|
178.2 |
|
Percent of sales |
|
|
40.2 |
% |
|
|
36.9 |
% |
|
|
40.6 |
% |
Selling, general and administrative expenses |
|
|
52.8 |
|
|
|
55.3 |
|
|
|
209.9 |
|
Percent of sales |
|
|
54.0 |
% |
|
|
39.8 |
% |
|
|
47.8 |
% |
Store pre-opening and closing expenses |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
1.5 |
|
Operating profit (loss) |
|
|
(13.8 |
) |
|
|
(4.3 |
) |
|
|
(33.2 |
) |
Interest expense |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
1.0 |
|
Income (loss) before income taxes |
|
|
(14.0 |
) |
|
|
(4.6 |
) |
|
|
(34.2 |
) |
Provision for (benefit from) income taxes |
|
|
0.0 |
|
|
|
0.0 |
|
|
|
(0.2 |
) |
Net income (loss) |
|
$ |
(14.1 |
) |
|
$ |
(4.6 |
) |
|
$ |
(34.0 |
) |
Earnings (loss) per share |
|
$ |
(0.55 |
) |
|
$ |
(0.18 |
) |
|
$ |
(1.33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
Store count |
|
|
134 |
|
|
|
134 |
|
|
|
134 |
|
Capital expenditures |
|
$ |
6.9 |
|
|
$ |
8.0 |
|
|
$ |
8.0 |
|
Cash and cash equivalents |
|
$ |
7.1 |
|
|
$ |
20.1 |
|
|
$ |
20.1 |
|
Inventories |
|
$ |
118.7 |
|
|
$ |
97.9 |
|
|
$ |
97.9 |
|
Total assets |
|
$ |
205.9 |
|
|
$ |
195.2 |
|
|
$ |
195.2 |
|
Short-term debt |
|
$ |
24.0 |
|
|
$ |
19.0 |
|
|
$ |
19.0 |
|
Trade accounts payable |
|
$ |
35.6 |
|
|
$ |
35.2 |
|
|
$ |
35.2 |
|
Accrued expenses and other current liabilities |
|
$ |
25.8 |
|
|
$ |
24.9 |
|
|
$ |
24.9 |
|
Total liabilities |
|
$ |
102.2 |
|
|
$ |
95.6 |
|
|
$ |
95.6 |
|
Shareholders equity |
|
$ |
103.7 |
|
|
$ |
99.6 |
|
|
$ |
99.6 |
|
|
|
|
(1) |
|
Except for capital expenditures, which is presented year to date, all information is as of
the end of the period. |
Information contained above has generally been presented in rounded numbers. Certain of the
totals presented in this section may have been affected by the use of this rounded information.
A.C. Moore currently plans to make available its actual results of operations for the third
fiscal quarter ended October 1, 2011 in a Quarterly Report on Form 10-Q that is expected to be
filed with the SEC in November 2011. Shareholders should review this Quarterly Report on Form 10-Q
as soon as it becomes available. A.C. Moores filings with the SEC are available at www.acmoore.com
and www.sec.gov.
The financial information set forth in this section is included in this proxy statement only
because this information was provided to Sbars and A.C. Moores financial advisor in connection
with the contemplated sale of A.C. Moore as described in this proxy statement and it is not being
included to influence your decision whether to vote in favor of adopting the Merger Agreement. The
inclusion of this information should not be regarded as an indication to any shareholder that the
Board or any other recipient of this information considered, or now considers, that actual future
results will necessarily reflect the projections contained herein, and this information should not
be relied upon as such. This financial information reflects numerous estimates and assumptions with
respect to industry and specific third party performance, general business, economic, regulatory,
market and financial conditions, as well as matters specific to A.C. Moores business, all of which
are difficult to predict and many of which are beyond its control. As a result, there can be no
assurance that the projected results will be realized or that actual results will not be
significantly higher or lower than
such projections. Also, the economic and business environments can and do change quickly,
which adds a significant level of unpredictability, unreliability and execution risk. In addition,
the financial information set forth above does not reflect the effects of the Offer or the Merger.
54
This financial information should be evaluated, if at all, in conjunction with A.C. Moores
historical consolidated financial statements included in A.C. Moores periodic and other reports
filed with the SEC. In light of the factors described herein and the uncertainties inherent in the
projected financial information, and given that this information has been included in this proxy
statement only because A.C. Moore has made certain of such information available to Sbars and to
A.C. Moores financial advisor, shareholders are cautioned not to rely on such information as being
a guarantee of future operating results.
The financial information included in this section was prepared in connection with the Offer
and the Merger and is subjective in many respects. This financial information was not prepared with
a view toward public disclosure or toward complying with GAAP, the published guidelines of the SEC
regarding projections or pro forma financial information or the guidelines established by the
American Institute of Certified Public Accountants for preparation and presentation of prospective
or pro forma financial information. Neither our independent registered public accounting firm, nor
any independent accountants, have compiled, examined or performed any procedures with respect to
the financial information above, nor have they expressed any opinion or any other form of assurance
on such financial information or its achievability, and they assume no responsibility for, and
disclaim any association with, such financial information.
The Fiscal 2011 Projections reflect numerous estimates and assumptions made by A.C. Moore and
its management with respect to industry performance, general business, economic, regulatory, market
and financial conditions and other future events, as well as matters specific to A.C. Moores
business, all of which are uncertain and difficult to predict, and many of which are beyond its
control. The projected financial information was also based upon expectations of A.C. Moores
management at the time the projected financial information was prepared. As a result, such
information may prove not to be reflective of actual results. The Fiscal 2011 Projections are
subjective in many respects and thus are susceptible to multiple interpretations and periodic
revisions based on actual experience and business developments. As such, the Fiscal 2011
Projections constitute forward-looking information and are subject to risks and uncertainties that
could cause actual results to differ materially from the results forecasted in such projections,
including, but not limited to, A.C. Moores performance, industry performance, general business and
economic conditions, customer requirements, competition, adverse changes in applicable laws,
regulations or rules, and the various risks and uncertainties set forth in this proxy statement and
in A.C. Moores other reports filed with the SEC.
In addition, the projected financial information will be affected by A.C. Moores ability to
achieve strategic goals, objectives and targets over the applicable periods. The assumptions upon
which the projections were based necessarily involve judgments with respect to, among other things,
future economic, governmental, competitive and regulatory conditions and financial market
conditions, all of which are difficult or impossible to predict accurately and many of which are
beyond A.C. Moores control. The Fiscal 2011 Projections also reflect assumptions as to certain
business decisions that may be subject to change. Such projections cannot, therefore, be considered
a guarantee of future operating results, and this information should not be relied on as such. The
inclusion of the above projected financial information should not be regarded as an indication that
any of A.C. Moore, Parent, Purchaser or any of their respective affiliates or representatives
considered or consider that information to be necessarily predictive of actual future events, and
such information should not be relied upon as such.
The Fiscal 2011 Projections do not take into account any circumstances or events occurring
after the date they were prepared, including the announcement and pendency of the proposed Offer
and the Merger. There can be no assurance that the announcement of the Offer and the Merger will
not cause its vendors to delay or cancel their shipments pending the consummation of the Offer and
the Merger or the clarification of Parents intentions with respect to the conduct of A.C. Moores
business thereafter. Any such delay or cancellation of shipments is likely to adversely affect A.C.
Moores ability to achieve the results reflected in such financial projections. The projected
financial information does not take into account any changes in A.C. Moores operations, business,
financial condition or results of operations which may result from the Offer or the Merger,
including without limitation any cost savings or other benefits. Further, the Fiscal 2011
Projections do not take into account the effect of any failure to complete the Offer or the Merger.
The
inclusion of the Fiscal 2011 Projections herein should not be deemed an admission or
representation by A.C. Moore or any other person that they were viewed as material information with
respect to A.C. Moore, and in fact A.C. Moore and its management do not view the Fiscal 2011
Projections as material because of the inherent risks and uncertainties associated with such
projections.
55
There is no guarantee that any financial results reflected in the Fiscal 2011 Projections will
be realized, or that the assumptions on which they are based will prove to be correct. A.C. Moores
shareholders are cautioned not to place undue, if any, reliance on the Fiscal 2011 Projections
included in this proxy statement.
None of A.C. Moore or its affiliates, advisors, officers, directors, or representatives has
made or makes any representation to any shareholder or other person regarding the ultimate
performance of A.C. Moore compared to the information contained in the Fiscal 2011 Projections or
that the projected results will be achieved.
BY INCLUDING THE FOREGOING INFORMATION, NEITHER A.C. MOORE NOR ANY OF ITS OFFICERS, DIRECTORS,
EMPLOYEES AND OTHER AFFILIATES AND REPRESENTATIVES UNDERTAKE ANY OBLIGATION TO UPDATE, OR PUBLICLY
DISCLOSE ANY UPDATE TO, THIS INFORMATION TO REFLECT CIRCUMSTANCES OR EVENTS, INCLUDING
UNANTICIPATED EVENTS, THAT MAY HAVE OCCURRED OR THAT MAY OCCUR AFTER THE PREPARATION OF THIS
INFORMATION, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE FINANCIAL
INFORMATION ARE SHOWN TO BE IN ERROR OR TO HAVE CHANGED.
Financing of the Merger
We anticipate that total funds of approximately $46 million will be needed to purchase all of
the issued and outstanding Shares, and to complete the Merger and to pay related fees and expenses,
and up to an additional $28.5 million to repay indebtedness of A.C. Moore at the closing of the
Merger. Purchaser has placed $20 million in an escrow account pursuant to the Deposit Escrow
Agreement to provide security for the obligations of Parent and Purchaser to consummate the
Transactions. Pursuant to the Deposit Escrow Agreement, if the Closing does not occur on or prior
to December 30, 2011, and all conditions to the obligations of Parent and Purchaser to consummate
the Merger have been satisfied or waived, or all conditions to the obligations of A.C. Moore to
consummate the Merger have not been satisfied or waived, then, subject to the Final Determination,
as defined below, the Escrow Amount will be distributed to A.C. Moore. However, if the Closing does
not occur on or prior to December 30, 2011, and all conditions to the obligations of Parent and
Purchaser to consummate the Merger have not been satisfied or waived and all conditions to the
obligations of A.C. Moore to consummate the Merger have been satisfied or waived, then, subject to
the Final Determination, as defined below, the Escrow Amount will be returned to Purchaser.
The Final Determination means either (i) a written notice from Parent and A.C. Moore to the
Deposit Escrow Agent setting forth the manner in which the Escrow Amount is to be paid, or (ii) a
final court order or judgment or decision of an arbitration panel determining the rights of Parent,
Purchaser and A.C. Moore with respect to the Escrow Amount, together with a letter of counsel
confirming the final nature of such determination. The Final Determination will control the manner,
amount and recipients in which the Escrow Amount is to be paid.
In addition, Parent and Purchaser have received the Wells Fargo Commitment, pursuant to which
Wells Fargo has committed, through December 31, 2011, to provide to Purchaser a senior credit
facility in an amount of up to $77.5 million, which we refer to as the Facility. The Facility is
available to finance the Transactions, to pay fees and expenses related thereto, to repay our
existing indebtedness, as well as to finance general corporate purposes and working capital of the
surviving corporation and its subsidiaries. The documentation concerning the Facility has not been
finalized, and accordingly, the actual terms may differ from the description of such terms below.
Each of Parent and Purchaser will use its commercially reasonable efforts to obtain the financing
described above on the terms and conditions described in the Wells Fargo Commitment (or on terms no
less favorable to Parent and Purchaser with respect to the conditionality and amount (including the
amount of fees to be paid) thereof) and shall not permit any amendment or modification to be made
to, or any waiver of any provision or remedy under the Wells Fargo Commitment (other than to
increase the amount of the Facility), if such amendment, modification or waiver reduces the
aggregate amount of the Facility (including by changing
the amount of fees to be paid), amends the conditions precedent to the financing in a manner
that would reasonably be expected to delay or prevent the closing of the Offer or make the funding
of the financing less likely to occur.
56
If any portion of the required financing becomes unavailable on the terms and conditions
contemplated by the Wells Fargo Commitment, Parent and Purchaser are obligated to use commercially
reasonable efforts to arrange and obtain alternative financing from alternative sources. As of the
date hereof, no alternative financing arrangements or alternative financing plans have been made in
the event the financing described above is not available.
Interest Rate; Term. The Facility is expected to be a five year facility with interest rates
at LIBOR or, at Purchasers option, a base rate, plus a margin, ranging from 2.00% to 2.50% for
LIBOR-based loans and from 1.00% to 1.50% for base rate-based loans, depending upon the amount of
the Facility that is then outstanding. The Facility is expected to have a term of five years from
the Closing.
Fees. Purchaser has paid a commitment fee of $77,500 and expects to pay a closing fee of
$232,500 and an annual administration fee of $25,000, each to Wells Fargo. In addition, Purchaser
expects to pay an unused line fee of 0.375% or 0.50% depending on the amount of the Facility that
is then outstanding, on the unused portion of the Facility until the termination thereof.
Voluntary Prepayments. Purchaser will be permitted to make voluntary prepayments with respect
to the Facility at any time, without premium or penalty, subject to reimbursement of certain costs.
The commitments under the Facility may be irrevocably reduced or terminated by Purchaser at any
time without premium or penalty.
Conditions to Initial Funding. The initial borrowing under the Facility is conditioned on the
satisfaction of conditions customary in similar transactions, including, without limitation:
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The execution of final customary documentation. |
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|
The consummation of the Transactions in accordance with the terms of the Merger
Agreement. |
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|
No material changes to the Merger Agreement in any respect reasonably expected to be
materially adverse to Wells Fargo without its approval. |
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Compliance with certain financial covenants after giving effect to the Offer and the
Merger, including availability of at least $20 million following the first funding under
the Facility. |
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There not having been any event or circumstance, either individually or in the
aggregate, that has had or could reasonably be expected to have a material adverse
effect on the borrower. |
Guarantees and Security. All obligations of Purchaser under the Facility will be
unconditionally guaranteed by Parent and each existing and future direct and indirect subsidiaries
of the surviving corporation, except that the surviving corporation will be liable as a co-borrower
under the Facility. The Facility will also be secured by the capital stock of each subsidiary of
the Parent, all present and future intercompany debt, and all of the present and future personal
property assets of the Purchaser and its subsidiaries, including inventory and accounts receivable.
Representations, Warranties, Covenants and Events of Default. The Facility will contain
certain representations and warranties, certain affirmative covenants, certain negative covenants,
certain financial covenants, certain conditions and events of default that are customarily required
for similar financings.
We believe the amount deposited pursuant to the Deposit Escrow Agreement and the amounts
committed under the Wells Fargo Commitment will be in the aggregate sufficient to pay the Merger
Consideration in respect of each Share validly tendered and accepted for payment in the Offer, the
aggregate Merger Consideration, all amounts required to be paid in respect of A.C. Moore SARs
pursuant to the Merger Agreement and all fees and expenses, but we cannot assure you of that.
Those amounts might be insufficient if, among other things, Wells Fargo fails to fund the committed
amounts in breach of the Wells Fargo Commitment or if the conditions to such commitment are not
met. If any portion of such committed amounts become unavailable on the terms and conditions
contemplated by the Wells Fargo Commitment, Parent and Purchaser agreed to use commercially
reasonable efforts to arrange and obtain alternative financing from alternative sources in an
amount sufficient to consummate the transactions contemplated by the Merger Agreement. As of
the date of this proxy statement, no alternative financing arrangements or alternative
financing plans have been made in the event that the Wells Fargo Commitment described in this proxy
statement is not available as anticipated.
57
Closing and Effective Time of Merger
If the Merger Agreement is adopted at the special meeting then, assuming timely satisfaction
of the other necessary closing conditions, we anticipate that the Merger will be completed promptly
thereafter. The Effective Time will occur as soon as practicable following the closing of the
Merger upon the filing of Articles of Merger with the Secretary of State of the Commonwealth of
Pennsylvania (or at such later date as we and Parent may agree and specify in the Articles of
Merger).
Payment of Merger Consideration and Surrender of Stock Certificates
As promptly as reasonably practicable after the Effective Time, each record holder of Shares
(other than Excluded Shares) will be sent a letter of transmittal describing how such holder may
exchange its Shares for the per Share Merger Consideration.
You should not return your stock certificates with the enclosed proxy card, and you should not
forward your stock certificates to the paying agent without a letter of transmittal.
You will not be entitled to receive the per Share Merger Consideration until you deliver a
duly completed and executed letter of transmittal to the paying agent. If your Shares are
certificated, you must also surrender your stock certificate or certificates to the paying agent.
If ownership of your Shares is not registered in the transfer records of A.C. Moore, a check for
any cash to be delivered will only be issued if the applicable letter of transmittal is accompanied
by all documents reasonably required by A.C. Moore to evidence and effect such transfer and to
evidence that any applicable stock transfer taxes have been paid or are not applicable.
Interests of Certain Persons in the Merger
Overview
A.C. Moores executive officers and the members of the Board may be deemed to have interests
in the Transactions that may be different from or in addition to those of A.C. Moores shareholders
generally. The Board was aware of these interests and considered them, among other matters
described in Reasons for Recommendation of the Special Committee and A.C. Moores Board, in
reaching its decision to approve the Merger Agreement and the Transactions.
Additionally, in connection with the Transactions, no member of A.C. Moores management has
entered into an employment agreement or other agreement or commitment with respect to continuing
employment, nor has any member of A.C. Moores management entered into an equity rollover agreement
or other agreement or commitment with respect to a co-investment in A.C. Moore.
For further information with respect to the arrangements between A.C. Moore and its executive
officers, directors and affiliates described above, see Advisory Vote on Golden Parachute
Compensation below, which is incorporated herein by reference.
Cash Payable Pursuant to Merger
If the Merger is consummated, each of A.C. Moores executive officers and directors would
receive the same per Share cash consideration on the same terms and conditions as the other
shareholders of A.C. Moore. Additionally, pursuant to the terms of the Merger Agreement, any
outstanding Shares owned by the directors and executive officers and not tendered in the Offer will
be cancelled and converted at the Effective Time into the right to receive the Merger
Consideration.
As of October 17, 2011, A.C. Moores executive officers and directors beneficially owned an
aggregate of 1,007,452 Shares (including shares of A.C. Moore Restricted Stock but excluding shares
underlying A.C. Moore Options and A.C. Moore SARs). If the Merger is consummated, the executive
officers and directors would receive an aggregate of approximately $1,611,923 in cash in respect of
their Shares.
58
The tables below set forth information regarding the amount of cash consideration each
director and executive officer would receive pursuant to the Merger based on the number Shares
beneficially owned by each of A.C. Moores directors and executive officers (including shares of
A.C. Moore Restricted Stock, but excluding shares underlying A.C. Moore Options and A.C. Moore
SARs) as of October 17, 2011:
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Non-employee Directors |
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|
Merger |
|
Name |
|
Number of Shares Owned |
|
|
Consideration |
|
Michael J. Joyce |
|
|
84,824 |
|
|
$ |
135,718 |
|
Joseph F. Coradino |
|
|
69,824 |
|
|
$ |
111,718 |
|
Neil A. McLachlan |
|
|
70,824 |
|
|
$ |
113,318 |
|
Thomas S. Rittenhouse |
|
|
65,824 |
|
|
$ |
105,318 |
|
Lori J. Schafer |
|
|
64,824 |
|
|
$ |
103,718 |
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Executive Officers |
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|
|
|
|
|
|
Merger |
|
Name |
|
Number of Shares Owned |
|
|
Consideration |
|
Joseph A. Jeffries |
|
|
265,276 |
|
|
$ |
424,442 |
|
David Stern |
|
|
147,076 |
|
|
$ |
235,322 |
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David Abelman |
|
|
151,817 |
|
|
$ |
242,907 |
|
Amy Rhoades |
|
|
66,403 |
|
|
$ |
106,245 |
|
Rodney Schriver |
|
|
20,760 |
|
|
$ |
33,216 |
|
Treatment of Equity Awards
A.C. Moore Options. Under the Merger Agreement, upon the Closing, each A.C. Moore Option,
whether or not exercisable or vested, would be canceled as of the Effective Time in exchange for a
cash payment equal to the product of (i) the excess, if any, of the per Share Merger Consideration
over the per Share exercise price of the A.C. Moore Option, and (ii) the number of Shares subject
to the A.C. Moore Option, less any amounts required to be withheld pursuant to applicable law.
Because all of the A.C. Moore Options have exercise prices which are greater than the Offer Price,
such A.C. Moore Options will be cancelled and no payment will be due to the option holder.
A.C. Moore SARs. A.C. Moores non-employee directors do not hold any A.C. Moore SARs. As of
October 17, 2011, A.C. Moores executive officers held A.C. Moore SARs with respect to an aggregate
of 837,441 Shares of Common Stock, with exercise prices ranging from $1.48 to $6.82 per Share. Of
these A.C. Moore SARs, stock appreciation rights with respect to 41,603 Shares had exercise prices
that are less than the per Share Merger Consideration and stock appreciation rights with respect to
795,838 Shares had exercise prices that are equal to or greater than the per Share Merger
Consideration.
Under the Merger Agreement, upon the Closing, each outstanding A.C. Moore SAR, whether or not
exercisable or vested, would be canceled as of the Effective Time in exchange for a cash payment
equal to the product of (i) the excess, if any, of the per Share Merger Consideration over the per
Share exercise price of the A.C. Moore SAR, and (ii) the number of Shares subject to the A.C. Moore
SAR, less any amounts required to be withheld pursuant to applicable law.
59
The table below sets forth information regarding the aggregate amount of spread value in cash
that each executive officer would receive pursuant to the Merger based on the A.C. Moore SARs held
by each of them as of October 17, 2011:
|
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|
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|
Executive Officers |
|
|
|
Aggregate Spread |
|
Name |
|
Value |
|
Joseph A. Jeffries |
|
$ |
3,233 |
|
David Stern |
|
$ |
|
|
David Abelman |
|
$ |
|
|
Amy Rhoades |
|
$ |
1,056 |
|
Rodney Schriver |
|
$ |
704 |
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A.C. Moore Restricted Stock. Under the Merger Agreement, each outstanding restricted stock
award or performance accelerated restricted stock award which has been granted under A.C. Moores
equity compensation plans, whether or not vested, would be cancelled as of the Effective Time in
exchange for the per Share Merger Consideration payable in respect of such stock. The A.C. Moore
Restricted Stock held by directors and executive officers is included in the number of Shares
beneficially owned by these individuals reflected in the tables above.
Agreements with Executive Officers and Payments Upon a Change of Control
A.C. Moore has entered into employment agreements with its Chief Executive Officer, Joseph A.
Jeffries; its Executive Vice President and Chief Financial and Administrative Officer, David Stern;
its Executive Vice President and Chief Merchandising and Marketing Officer, David Abelman; its
Senior Vice President and General Counsel, Amy Rhoades; and its Vice President, Chief Accounting
Officer and Controller, Rodney Schriver. Each of these agreements provides for severance payments
and benefits upon certain terminations of employment. Pursuant to the Merger Agreement, from and
after the Effective Time, Parent is obligated to cause the surviving corporation to assume, and
agree to perform, the obligations of A.C. Moore, including without limitation, under the employment
agreements with Joseph A. Jeffries, David Abelman, David Stern and Amy Rhoades, including all
appendices and subsequent amendments thereto. A.C. Moore has also entered into retention award
agreements with Messrs. Jeffries, Stern and Abelman and Ms. Rhoades.
Agreement with Joseph A. Jeffries. On August 19, 2010, A.C. Moore entered into an amended and
restated employment letter with Mr. Jeffries in connection with his appointment as Chief Executive
Officer on June 17, 2010. Upon termination without cause (as defined below) prior to a change of
control (as defined below), Mr. Jeffries is entitled to receive: (i) 18 months of salary at his
then current rate, paid in 18 equal monthly installments; (ii) the sum of the actual incentive
bonus paid to him in the prior two fiscal years multiplied by .75, paid in 18 equal monthly
installments; and (iii) health insurance benefits, to the extent he received such benefits prior to
termination, for 18 months following termination. Upon termination without cause or resignation for
good reason (as defined below) during the 18-month period following a change in control, Mr.
Jeffries receives a lump sum cash payment consisting of the sum of: (a) Mr. Jeffries base salary
through the date of termination, to the extent not yet paid; (b) the product of (i) the target
annual bonus paid or payable as if the applicable target were achieved for the current fiscal year
as of the date of termination, and (ii) a fraction, the numerator of which is the number of days in
the current fiscal year through the date of termination, and the denominator of which is 365; (c)
any deferred compensation not previously paid to Mr. Jeffries, if any, paid in accordance with the
terms of the plan pursuant to which the deferral was made; (d) the sum of the actual incentive
bonus paid to him in the prior two fiscal years, multiplied by .75; and (e) Mr. Jeffries annual
base salary multiplied by 1.5. Mr. Jeffries will also receive insurance benefits for 18 months
following termination. If A.C. Moore terminates his employment for cause or Mr. Jeffries terminates
without good reason following a change of control, he is entitled to base salary and any other
benefits unpaid through the date of termination.
For purposes of Mr. Jeffries amended and restated employment letter:
(a) Cause means either (i) failure of Mr. Jeffries to perform substantially his duties to
A.C. Moore or its affiliates which is not cured within 60 days after a written demand for
performance is delivered by a member of the Board; or (ii) illegal conduct or gross misconduct by
Mr. Jeffries in violation of A.C. Moores code of conduct.
60
(b) Change of control means:
i. the acquisition by any person of beneficial ownership of more than 50% of either the
outstanding Shares of Common Stock or the voting power of the outstanding securities of A.C. Moore
entitled to vote in the election of directors, other than certain acquisitions by certain related
parties;
ii. the change in a majority of the Board from the date of the letter excluding certain newly
appointed directors subsequent to the date of letter;
iii. reorganizations, mergers, consolidations or sales of all or substantially all of the
assets of A.C. Moore unless: (x) the beneficial owners of Common Stock prior to such transaction
own at least 50% of the Common Stock and voting power in the resulting entity; (y) no person
beneficially owns more than 50% of the Common Stock or voting power in the resulting entity; and
(z) at least a majority of the board of directors of the resulting entity were members of the Board
prior to the transaction; or
iv. approval by the shareholders of A.C. Moore of a complete dissolution or liquidation
of A.C. Moore.
(c) Good reason means: (i) the assignment to Mr. Jeffries of duties that are inconsistent
with his position, authority, duties or responsibilities as set forth in the letter, other than an
action remedied by A.C. Moore upon notice from Mr. Jeffries; (ii) the failure of A.C. Moore to
comply with the compensation provisions of Mr. Jeffries letter, which failure remains uncured
after notice by Mr. Jeffries; (iii) A.C. Moore requiring Mr. Jeffries to be based at an office or
location 35 or more miles from his current location; or (iv) the failure of A.C. Moore to require
any successor to assume expressly and abide by the terms of the letter agreement.
Agreement with David Stern. On May 13, 2009, A.C. Moore entered into an employment letter with
David Stern to serve as A.C. Moores Executive Vice President and Chief Financial Officer. Upon
termination without cause prior to a change of control, Mr. Stern is entitled to receive base
salary and insurance benefits, to the extent he received such benefits prior to termination,
through the sixth-month anniversary of the termination date plus pro rata bonus (as defined in the
agreement). In the event Mr. Stern remains unemployed after six months from his termination date,
he will receive an additional month of severance and insurance benefits for each month he remains
unemployed, up to a maximum of six additional months. Mr. Stern is required to actively seek
employment after the termination date in order to receive the additional severance. Upon a
termination by A.C. Moore without cause, or resignation for good reason during the 12-month period
following a change of control, Mr. Stern is entitled to receive a lump sum cash payment consisting
of the sum of: (a) Mr. Sterns base salary through the date of termination, to the extent not yet
paid; (b) the product of (i) the target annual bonus paid or payable for the most recently
completed fiscal year, and (ii) a fraction, the numerator of which is the number of days in the
current fiscal year through the date of termination, and the denominator of which is 365; (c) any
deferred compensation not previously paid to Mr. Stern, if any, paid in accordance with the terms
of the plan pursuant to which the deferral was made; and (d) an amount equal to one years salary.
Mr. Stern will also receive insurance benefits for 12 months following termination. If A.C. Moore
terminates his employment for cause or Mr. Stern terminates without good reason following a change
of control, he is entitled to base salary through the date of termination. The definitions of
cause, change of control and good reason in Mr. Sterns employment letter are the same as
those in Mr. Jeffries employment letter, except that the definition of good reason in Mr.
Sterns employment letter also includes any purported termination by A.C. Moore of Mr. Sterns
employment following a change of control, other than as expressly provided in his employment
letter.
Agreement with David Abelman. On May 7, 2009, A.C. Moore entered into an employment letter
with David Abelman to serve as A.C. Moores Executive Vice President and Chief Marketing and
Merchandising Officer. Mr. Abelmans employment letter was amended on March 16, 2010 and March 28,
2011. The termination and change of control provisions in Mr. Abelmans agreement are identical to
those in Mr. Sterns agreement.
Agreement with Amy Rhoades. On July 24, 2006, A.C. Moore entered into an employment agreement
with Amy Rhoades to serve as Vice President and General Counsel. She was appointed Senior Vice
President and General Counsel on November 10, 2009. Ms. Rhoades agreement was amended on November
15, 2006, November 19, 2007 and March 28, 2011. Upon termination without cause or resignation for
good reason prior to a change of control, Ms. Rhoades is entitled to receive base salary through
the twelfth-month anniversary of the termination date, pro rata bonus through the date of
termination, health insurance benefits for 12 months from the termination date, to the extent Ms.
Rhoades received
such benefits prior to the termination, and vested and earned but unpaid amounts under A.C.
Moores incentive plans. Upon termination for cause or resignation without good reason prior to a
change of control, Ms. Rhoades is entitled to receive base salary through the termination date and
vested and earned but unpaid amounts under A.C. Moores health plans. The definition of cause,
change of control and good reason in Ms. Rhoades employment agreement are the same as those in
Messrs. Sterns and Abelmans employment letters. The change of control provisions in Ms. Rhoades
employment agreement are identical to those contained in the agreements of Messrs. Stern and
Abelman.
61
Agreement with Rodney Schriver. On December 6, 2010, A.C. Moore entered into an employment
letter with Rodney Schriver, Vice President, Chief Accounting Officer, Controller and Treasurer. If
A.C. Moore terminates his employment without cause prior to a change of control, Mr. Schriver is
entitled to receive base salary through the sixth-month anniversary of the termination date. In the
event Mr. Schriver remains unemployed after six months from his termination date, he will receive
an additional month of base salary for each month he remains unemployed, up to a maximum of six
additional months. Mr. Schriver is required to actively seek employment after the termination date
in order to receive the additional monthly severance. If he is terminated without cause in the
six-month period following a change of control, Mr. Schriver will receive a cash lump sum payment
equal to six months base salary at his then current rate. The definitions of cause and change
of control in Mr. Schrivers employment letter are the same as those in Messrs. Sterns and
Abelmans employment letters and Ms. Rhoades employment agreement.
The payment of all sums and the receipt of benefits upon termination without cause or
resignation for good reason following a change of control for each of the named executive officers
is contingent upon the execution and delivery by the executive officer of a release of any and all
claims against A.C. Moore and its subsidiaries and their present and former officers, directors,
employees and agents, or the Released Parties, and a covenant not to sue the Released Parties, or a
Release, and the expiration of any waiting or revocation period provided by law for the
effectiveness of the Release. In addition, Mr. Jeffries is required to tender his resignation from
the Board prior to any payments or benefits being provided.
Retention Award Agreements. On December 14, 2010, A.C. Moore approved retention awards for
Joseph A. Jeffries, David Abelman, David Stern and Amy Rhoades. The retention award for Mr.
Jeffries was an equity award. The retention awards for Mr. Abelman, Mr. Stern and Ms. Rhoades are
composed of a mix of cash and equity. Mr. Jeffries was granted 125,000 shares of performance
accelerated restricted stock, or A.C. Moore PARS, which vest in three equal annual installments
beginning on the first anniversary of the date of grant or upon A.C. Moores achievement of certain
financial performance targets. Mr. Abelman, Mr. Stern and Ms. Rhoades will each receive a cash
award on December 31, 2011 equal to 55% of current base salary, contingent on continuous full-time
employment with A.C. Moore and continuing to meet performance expectations. The amount of the award
for each of these officers is: Mr. Abelman$198,000; Mr. Stern$181,500; and Ms.
Rhoades$115,500. The award vests automatically and is payable earlier than December 31, 2011 upon
a change in control of A.C. Moore. Each of Mr. Abelman and Mr. Stern were granted 50,000 A.C. Moore
PARS and 75,000 stock-settled A.C. Moore SARs. Ms. Rhoades was granted 25,000 A.C. Moore PARS and
50,000 A.C. Moore SARs. All equity grants were made under A.C. Moores 2007 Stock Incentive Plan,
which provides for automatic vesting and exercisability upon a change in control, unless otherwise
provided in the applicable award agreement.
Arrangements with A.C. Moores Non-Employee Directors
Mr. Jeffries, A.C. Moores sole director that is an employee of A.C. Moore, receives no
additional compensation for serving on the Board. Non-employee members of the Board may receive a
combination of cash and equity-based compensation. Non-employee directors are entitled to receive
the following compensation:
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|
|
an annual cash retainer of $35,000; |
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|
|
an additional annual cash retainer of $50,000 for the Chairman of the Board; |
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|
|
an additional annual cash retainer of $15,000 for the chair of the Audit Committee
and $10,000 for each other member of the Audit Committee; |
62
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|
|
an additional annual cash retainer of $10,000 for the chair of the Compensation
Committee and $5,000 for each other member of the Compensation Committee; |
|
|
|
an additional annual cash retainer of $7,500 for the chair of the Nominating and
Corporate Governance Committee and $5,000 for each other member of the Nominating and
Corporate Governance Committee; and |
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|
|
an annual grant of restricted stock with a market value of approximately $50,000 on
the date of grant. |
On June 29, 2010 and June 13, 2011, the non-employee directors were granted restricted stock
with a market value of approximately $50,000 on the date of grant, or 22,422 and 20,161 shares,
respectively. The shares vest equally over three years from the date of grant.
Compensation to Members of the Special Committee
Directors serving on the Special Committee did not receive any additional compensation for
their service on the Special Committee.
Employment Matters
Pursuant to the Merger Agreement, as of the Effective Time and for a period equal to the
lesser of one year from the Effective Time or the date on which the applicable agreement providing
benefits expires, Parent agreed to provide or cause to be provided to employees of A.C. Moore or
any of its subsidiaries as of the closing of the Merger who are employed with A.C. Moore or any of
its subsidiaries immediately prior to the Effective Time, or a Continuing Employee, benefits at the
same levels in effect as of the date of the Merger Agreement under the A.C. Moore employee benefit
plans existing as of the date of the Merger Agreement.
With respect to any employee benefit plan maintained by Parent or any of its subsidiaries,
including the surviving corporation, in which any Continuing Employee becomes a participant, Parent
will use its commercially reasonable efforts to provide or cause to provide that such Continuing
Employee shall receive full credit for service with A.C. Moore or any of its subsidiaries for all
purposes, including eligibility to participate and vesting, to the same extent that such service
was recognized as of the closing date of the Merger, which we refer to as the Closing Date, under a
comparable plan of A.C. Moore and any of its subsidiaries in which the Continuing Employee
participated, except where the provision of such prior service credit would result in duplication
of benefits.
Parent will, and will use its commercially reasonable efforts to cause its third party
insurers to, (i) waive, or cause to be waived, any pre-existing condition limitations, exclusions,
actively-at-work requirements and waiting periods under any health or welfare benefit plan
maintained by Parent or any of its subsidiaries in which the Continuing Employees (and their
eligible dependents) will be eligible to participate from and after the Closing Date, except to the
extent that such pre-existing condition limitations, exclusions, actively-at-work requirements and
waiting periods were not satisfied or waived under the comparable plan of A.C. Moore and its
subsidiaries in which the Continuing Employee participated and (ii) if a Continuing Employee
commences participation in any health benefit plan of Parent or its subsidiaries after commencement
of a plan year, to the extent practicable, cause any health benefit plan of Parent or any of its
subsidiaries in which the Continuing Employee participates after the Closing Date of the Merger to
recognize the dollar amount of all co-payments, deductibles and similar expenses incurred by such
Continuing Employee (and his or her eligible dependents) under any A.C. Moore employee benefit plan
during such plan year for purposes of satisfying such plan years deductible and co-payment
limitations under the relevant welfare benefit plans in which such Continuing Employee (and
dependents) commences participation.
Indemnification of Directors and Officers
Sections 1741 through 1750 of Chapter 17, Subchapter D, of the PBCL contain provisions for
mandatory and discretionary indemnification of a corporations directors, officers and other
personnel, and related matters.
Under Section 1741, subject to certain limitations, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances against expenses (including
attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with a threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the right of the
corporation), to which
any of them is a party or is threatened to be made a party by reason of being a director or
officer of the corporation or serving at the request of the corporation as a representative of
another corporation, partnership, joint venture, trust or other enterprise, if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful.
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Section 1742 provides for indemnification in derivative actions except in respect of any
claim, issue or matter as to which the person has been adjudged to be liable to the corporation
unless and only to the extent that the proper court determines upon application that, despite the
adjudication of liability but in view of all the circumstances, the person is fairly and reasonably
entitled to indemnity for the expenses that the court deems proper.
Under Section 1743, indemnification under Sections 1741 and 1742 is mandatory to the extent
that the officer or director has been successful on the merits or otherwise in defense of any
action or proceeding.
Section 1744 provides that, unless ordered by a court, any indemnification under Section 1741
or 1742 shall be made by the corporation only as authorized in the specific case upon a
determination that the representative met the applicable standard of conduct, and such
determination will be made by the board of directors (i) by a majority vote of a quorum of
directors not parties to the action or proceeding; (ii) if such a quorum is not obtainable, or if
obtainable and a majority of a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion; or (iii) by the shareholders.
Section 1745 provides that expenses (including attorneys fees) incurred by an officer or
director in defending an action or proceeding may be paid by the corporation in advance of the
final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of
such person to repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation.
Section 1746 provides generally that, except in any case where the act or failure to act
giving rise to the claim for indemnification is determined by a court to have constituted willful
misconduct or recklessness, the indemnification and advancement of expenses provided by Subchapter
17D of the PBCL shall not be deemed exclusive of any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding that office.
Section 1747 grants to a corporation the power to purchase and maintain insurance on behalf of
any director or officer against any liability incurred by him or her in his or her capacity as
officer or director, whether or not the corporation would have the power to indemnify him or her
against the liability under Subchapter 17D of the PBCL.
Sections 1748 and 1749 extend the indemnification and advancement of expenses provisions
contained in Subchapter 17D of the PBCL to successor corporations in fundamental changes and to
representatives serving as fiduciaries of employee benefit plans.
Section 1750 provides that the indemnification and advancement of expenses provided by, or
granted pursuant to, Subchapter 17D of the PBCL, shall, unless otherwise provided when authorized
or ratified, continue to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs and personal representative of such person.
The Articles of Incorporation of A.C. Moore, as amended, or the Articles, provide that A.C.
Moores directors are not personally liable for monetary damages for any action taken, or any
failure to take action, unless they have breached or failed to perform the duties of their office,
and such breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.
Subject to certain limitations, A.C. Moores Amended and Restated Bylaws, or the Bylaws,
provide for indemnification of and advancement of expenses to its directors and officers to the
fullest extent permitted by applicable law. The Bylaws also provide that no indemnification or
advancement or reimbursement of expenses may be provided to any director or officer of A.C. Moore:
(a) with respect to expenses or the payment of profits arising from the purchase or sale of A.C.
Moores securities in violation of Section 16(b) of the Exchange Act; (b) if a final unappealable
judgment or
award establishes that such director or officer engaged in intentional misconduct or a
transaction from which he or she derived an improper personal benefit; and (c) for amounts paid in
settlement of any action, suit or proceeding without the written consent of A.C. Moore, which
consent shall not be unreasonably withheld.
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The Merger Agreement provides that from and after the Effective Time until the sixth
anniversary of the Effective Time, the surviving corporation will indemnify, defend and hold
harmless each person who at the Effective Time is, or was at any time prior to the Effective Time,
a director, officer, employee, fiduciary or agent of A.C. Moore or any subsidiary of A.C. Moore, or
the Indemnified Parties, to the extent such persons are indemnified or entitled to be indemnified
as of the date of the Merger Agreement, against all costs and expenses (including, but not limited
to, fees and expenses of attorneys, experts and litigation consultants as well as any appeal
bonds), judgments, fines, losses, claims, damages, liabilities and settlement amounts paid in
connection with any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, whenever asserted, based on or arising out of, in whole or in
part, (a) the fact that an Indemnified Party was, or was or is deemed to have status as, a director
or officer of A.C. Moore or a subsidiary of A.C. Moore or (b) acts or omissions by an Indemnified
Party in the Indemnified Partys capacity as a director, officer, employee, fiduciary or agent of
A.C. Moore or a subsidiary of A.C. Moore or taken at the request of A.C. Moore or a subsidiary of
A.C. Moore (including in connection with serving at the request of A.C. Moore or a subsidiary of
A.C. Moore as a director, officer, employee, agent, trustee or fiduciary of another person
(including any employee benefit plan)).
The Merger Agreement provides that all obligations of A.C. Moore or any subsidiary of A.C.
Moore to any Indemnified Party in respect of advancement, indemnification or exculpation from
liabilities for acts or omissions occurring at or prior to the Effective Time as provided in
applicable law or the Articles, the Bylaws or other organizational documents of A.C. Moore or any
subsidiary of A.C. Moore as in effect on the date of the Merger Agreement shall continue in full
force and effect in accordance with their respective terms, in each case, whether or not A.C.
Moores insurance covers all such costs. From and after the Effective Time, the surviving
corporation shall be liable to pay and perform in a timely manner such indemnification, advancement
and exculpation obligations.
To the extent an Indemnified Party has or may, in the future, have certain rights to
indemnification, advancement of expenses and/or insurance provided by other entities and/or
organizations not associated with Parent, A.C. Moore and their insurers, which we refer to as the
Other Indemnitors, Parent, Purchaser and A.C. Moore agreed that, with respect to any advancement or
indemnification obligation owed, at any time, to an Indemnified Party by Parent, Purchaser, A.C.
Moore, the surviving corporation or any Other Indemnitor, whether pursuant to any articles of
incorporation, by-laws, partnership agreement, operating agreement, indemnification agreement or
other document or agreement or pursuant to the Merger Agreement, each of which we refer to as an
Indemnification Agreement, (i) the surviving corporation will at all times be the indemnitor of
first resort (i.e., its obligations to Indemnified Party shall be primary and any obligation of the
Other Indemnitors to advance expenses or to provide indemnification for the same expenses or
liabilities incurred by an Indemnified Party shall be secondary), (ii) it will at all times be
required to advance the full amount of expenses incurred by an Indemnified Party and shall be
liable for the full amount of all reasonable expenses, judgments, penalties, fines and amounts paid
in settlement to the extent legally permitted and as required by the terms of any Indemnification
Agreement, without regard to any rights an Indemnified Party may have against the Other
Indemnitors, and (iii) it irrevocably waives, relinquishes and releases the Other Indemnitors from
any and all claims against the Other Indemnitors for contribution, subrogation, indemnification or
any other recovery of any kind in respect thereof. The Merger Agreement also provides that no
advancement, indemnification or other payment by the Other Indemnitors on behalf of an Indemnified
Party with respect to any claim for which an Indemnified Party has sought indemnification from A.C.
Moore or the surviving corporation will affect the foregoing, and the Other Indemnitors will have a
right of contribution and/or be subrogated to the extent of such advancement, indemnification or
other payment to all of the rights of recovery of an Indemnified Party against A.C. Moore or the
surviving corporation, and A.C. Moore and/or the surviving corporation will jointly and severally
indemnify, defend and hold harmless against such amounts actually paid by the Other Indemnitors to
or on behalf of an Indemnified Party.
The surviving corporation agreed that until the date that is six years from the Effective
Time, it will cause the articles of incorporation and by-laws of the surviving corporation to
contain provisions no less favorable to the Indemnified Parties with respect to limitation of
liabilities of directors and officers and advancement and indemnification
than are set forth as of the date of the Merger Agreement in the Articles and Bylaws, which
provisions shall not be amended, repealed or otherwise modified in a manner that would adversely
affect the rights thereunder of the Indemnified Parties.
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In addition, from and after the Effective Time, A.C. Moore or the surviving corporation will
pay any reasonable expenses (including, but not limited to, fees and expenses of legal counsel,
experts and litigation consultants, as well as any appeal bonds) of any Indemnified Party
(including in connection with enforcing the advancement, indemnity and other related obligations)
as incurred to the fullest extent permitted under applicable law; provided, that the person to whom
or for whose benefit expenses are advanced provides an undertaking to repay such advances to the
extent, and only to the extent, required by applicable law.
The Merger Agreement further provides that the surviving corporation will pay for and will
maintain for six years after the Effective Time, the policies of directors and officers liability
insurance maintained by A.C. Moore as of the date of the Merger Agreement with respect to acts or
omissions occurring at or prior to the Effective Time (including the Transactions) for the
individuals who were then covered, or prior to the Effective Time became covered, by A.C. Moores
directors and officers liability insurance policy on terms and scope with respect to such
coverage, and in amount, not less favorable than the policy in effect on the date of the Merger
Agreement. A.C. Moore may obtain a different policy provided that the policy limits, terms and
conditions are at least as favorable to the directors and officers as the limits, terms and
conditions in the existing policies of A.C. Moore. The surviving corporation will not be required
to pay an annual premium in excess of 300% of the last annual premium paid prior to the Effective
Time.
In the event that Parent, the surviving corporation or any of their successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or surviving person of
such consolidation or merger or (ii) transfers all or substantially all of its properties and
assets to any person, then, and in each such case, proper provision will be made so that the
successors and assigns of Parent and the surviving corporation assume the obligations set forth in
these provisions of the Merger Agreement.
Parent and Purchaser agreed that all rights to exculpation, indemnification and advancement of
expenses for acts or omissions occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, existing as of the date of the Merger Agreement
in favor of the current or former directors, officers or employees, as the case may be, of A.C.
Moore as provided in the Articles or Bylaws will survive the Merger and will continue in full force
and effect.
Sbars, Parents and Purchasers affiliate, agreed to guarantee, on a limited basis, the
obligations of the surviving corporation with respect to indemnification described above.
Vendor Arrangement with Sbars
Sbars is A.C. Moores largest arts and crafts merchandise vendor, supplying product across
many merchandise categories for retail sale in A.C. Moore store locations. Other than A.C. Moores
standard purchase order terms and conditions, which include, among other things, annual commitments
by vendors for advertising contributions, freight and payment terms, Sbars and A.C. Moore have not
entered into contractual arrangements relating to the purchase of merchandise. Based on total
dollar value, as of October 1, 2011, during fiscal 2011 A.C. Moore has purchased from Sbars
approximately $26.9 million of merchandise, or 17 percent of total merchandise purchases. In fiscal
2010, A.C. Moore purchased from Sbars approximately $36.5 million of merchandise, or 17 percent of
total merchandise purchases. In fiscal 2009, A.C. Moore purchased from Sbars approximately $44.6
million in merchandise, or 18 percent of total merchandise purchases.
Persons Retained, Employed, Compensated or Used
A.C. Moore retained Janney as its financial advisor in connection with the Offer and the
Merger and, in connection with such engagement, Janney provided the opinion described in Opinion
of A.C. Moores Financial Advisor above, which is filed as Annex E hereto and is incorporated
herein by reference. The Board selected Janney as A.C. Moores financial advisor because Janney
has substantial experience in similar transactions. Janney is regularly engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions, strategic
transactions, corporate restructurings, and valuations for corporate and other purposes, which
the board believed would assist it in successfully evaluating and negotiating the transactions
contemplated by the Merger Agreement.
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Pursuant to an engagement agreement, which we refer to as the Engagement Agreement, between
A.C. Moore and Janney dated December 5, 2009, as amended December 23, 2010, February 17, 2011, June
7, 2011 and October 3, 2011, A.C. Moore agreed to pay Janney: (i) a retainer fee of $50,000 in
2009; (ii) a retainer fee of $75,000 in 2010; (iii) a monthly retainer fee of $25,000 in 2011, with
$125,000 of the retainer fees credited against the advisory fee described in the next paragraph;
(iv) a financial advisory fee of $75,000 upon the delivery of a report by Janney of strategic
alternatives for A.C. Moore; and (v) $100,000 upon the mutual execution a letter of intent between
A.C. Moore and a counterparty in a Merger, Sale or Acquisition (as defined in the Engagement
Agreement).
A.C. Moore also agreed to pay Janney an advisory fee if A.C. Moore enters into a definitive
agreement with respect to, and closes or consummates a Merger, Sale or Acquisition (as defined in
the Engagement Agreement) involving A.C. Moore. In such event, Janney is entitled to (i) 1.50% of
the first $75 million of the Merger Consideration (as defined in the Engagement Agreement); (ii)
3.00% of the amount of Merger Consideration that exceeds $75 million; and (iii) $250,000 for the
delivery of a fairness opinion for such transaction.
A.C. Moore has also agreed to reimburse Janney for expenses incurred in connection with its
engagement by A.C. Moore. A.C. Moore also has agreed to indemnify Janney and certain related
persons against liabilities arising out of or in connection with the services rendered and to be
rendered by it under its engagement by A.C. Moore.
Janney and its affiliates may trade or hold securities of A.C. Moore and/or its affiliates for
its own account and for the accounts of its customers and, accordingly, may at any time hold long
or short positions in those securities. In addition, Janney may seek to, in the future, provide
financial advisory and financing services to A.C. Moore, Parent or entities that are affiliated
with A.C. Moore or Parent, for which it would expect to receive compensation. Additional
information pertaining to our retention of Janney is set forth under the heading Opinion of A.C.
Moores Financial Advisor above.
A.C. Moore has also retained [] to solicit proxies on the Boards behalf. A.C. Moore
estimates that [] will receive fees of approximately $[], plus reasonable out-of-pocket expenses
incurred on its behalf, to assist in the solicitation of proxies. [] has advised A.C. Moore that
approximately [] of its employees will be involved in the solicitation of proxies by it on A.C.
Moores behalf. In addition, A.C. Moore will indemnify [] and certain related persons indemnified
against certain liabilities arising out of or in connection with the engagement.
Except as described above, neither A.C. Moore nor any person acting on its behalf has
employed, retained or compensated any other person to make solicitations or recommendations to
shareholders on A.C. Moores behalf concerning the Offer or the Merger, except that such
solicitations or recommendations may be made by A.C. Moores directors or officers, for which
services no additional consideration will be paid.
Parent has hired Computershare Trust Company, N.A. and Computershare Inc. as depositary and
paying agent for the Offer, respectively, and D.F. King & Co., Inc. as information agent for the
Offer.
Accounting Treatment
The Merger will be accounted for as a purchase transaction for financial accounting
purposes.
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Material United States Federal Income Tax Consequences
The following is a summary of certain material United States federal income tax consequences
to beneficial owners of Shares upon the exchange of Shares for cash pursuant to the Merger. This
summary is general in nature and does not discuss all aspects of United States federal income
taxation that may be relevant to a holder of Shares in light of its particular circumstances. In
addition, this summary does not describe any tax consequences arising under the laws of any local,
state or foreign jurisdiction and does not consider any aspects of United States federal tax law
other than income taxation. This summary deals only with Shares held as capital assets within the
meaning of Section 1221 of the Code (generally, property held for investment), and does not address
tax considerations applicable to any holder of Shares that may be subject to special treatment
under the United States federal income tax laws, including:
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a bank, insurance company, or other financial institution; |
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a tax-exempt organization; |
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a retirement plan or other tax-deferred account; |
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a partnership, an S corporation or other pass-through entity (or an investor in a
partnership, S corporation or other pass-through entity); |
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a real estate investment trust; |
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a dealer or broker in stocks and securities, or currencies; |
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a trader in securities that elects mark-to-market treatment; |
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a holder of Shares subject to the alternative minimum tax provisions of the Code; |
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a holder of Shares that received the Shares through the exercise of an employee stock
option, through a tax qualified retirement plan or otherwise as compensation; |
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a United States Holder (as defined herein) that has a functional currency other
than the United States dollar; |
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controlled foreign corporations, passive foreign investment companies, or
corporations that accumulate earnings to avoid United States federal income tax; |
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a person that holds the Shares as part of a hedge, straddle, constructive sale,
conversion or other risk reduction strategy or integrated transaction; or |
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a United States expatriate. |
This summary is based on the Code, the Treasury regulations promulgated under the Code, and
rulings and judicial decisions, all as in effect as of the date hereof, and all of which are
subject to change or differing interpretations at any time, with possible retroactive effect. We
have not sought, and do not intend to seek, any ruling from the IRS with respect to the statements
made and the conclusions reached in the following summary, and no assurance can be given that the
IRS will agree with the views expressed herein, or that a court will not sustain any challenge by
the IRS in the event of litigation.
THE DISCUSSION SET OUT HEREIN IS INTENDED ONLY AS A SUMMARY OF THE MATERIAL UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES TO A HOLDER OF SHARES OF A.C. MOORE COMMON STOCK. WE URGE YOU TO
CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO YOU IN CONNECTION
WITH THE MERGER IN LIGHT OF YOUR OWN PARTICULAR CIRCUMSTANCES, INCLUDING FEDERAL ESTATE, GIFT AND
OTHER NON-INCOME TAX CONSEQUENCES, AND TAX CONSEQUENCES UNDER STATE, LOCAL OR FOREIGN TAX LAWS.
For purposes of this discussion, the term United States Holder means a beneficial owner of
Shares that is, for United States federal income tax purposes:
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a citizen or resident of the United States; |
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a corporation (or any other entity or arrangement treated as a corporation for United
States federal income tax purposes) organized in or under the laws of the United States
or any state thereof or the District of Columbia; |
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an estate, the income of which is subject to United States federal income taxation
regardless of its source; or |
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a trust if (i) a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States persons
have the authority to control all substantial decisions of the
trust or (ii) the trust has validly elected to be treated as a United States person
under applicable Treasury regulations. |
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A non-United States Holder is any beneficial owner of Shares that is not a United States
Holder or a partnership (or other entity treated as a partnership for United States federal income
tax purposes).
If a partnership (including any entity or arrangement treated as a partnership for United
States federal income tax purposes) holds Shares, the tax treatment of a holder that is a partner
in the partnership generally will depend upon the status of the partner and the activities of the
partner and the partnership. Such holder should consult its own tax advisor regarding the tax
consequences of exchanging the Shares pursuant to the Merger.
United States Holders
Payments with Respect to Shares
The exchange of Shares for cash pursuant to the Merger will be a taxable transaction for
United States federal income tax purposes, and a United States Holder who receives cash for Shares
pursuant to the Merger will recognize gain or loss, if any, equal to the difference between the
amount of cash received and the holders adjusted tax basis in the Shares exchanged therefor. Gain
or loss will be determined separately for each block of Shares (i.e., Shares acquired at the same
cost in a single transaction). Such gain or loss will be capital gain or loss, and will be
long-term capital gain or loss if such United States Holders holding period for the Shares is more
than one year at the time of the exchange. Long-term capital gain recognized by an individual
holder generally is subject to tax at a lower rate than short-term capital gain or ordinary income.
There are limitations on the deductibility of capital losses.
Information Reporting and Backup Withholding
A United States Holder generally will be subject to information reporting and backup
withholding at the applicable rate (currently, 28%) with respect to the proceeds from the
disposition of Shares pursuant to the Merger. A United States Holder can avoid backup withholding
if it provides a valid taxpayer identification number and complies with certain certification
procedures (generally, by providing a properly completed IRS Form W-9) or otherwise establishes an
exemption from backup withholding. Any amounts withheld under the backup withholding rules from a
payment to a United States Holder will be allowed as a credit against that holders United States
federal income tax liability and may entitle the holder to a refund, provided that the required
information is timely furnished to the IRS. Each United States Holder should complete and sign the
IRS Form W-9, which will be included with the Letter of Transmittal to be returned to the
Depositary, to provide the information and certification necessary to avoid backup withholding,
unless an exemption applies and is established in a manner satisfactory to the Depositary.
Non-United States Holders
Payments with Respect to Shares
Payments made to a non-United States Holder with respect to Shares exchanged for cash pursuant
to the Merger generally will be exempt from United States federal income tax unless:
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the non-United States Holder is an individual who was present in the United States
for 183 days or more during the taxable year of the exchange and certain other
conditions are met; |
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the gain is effectively connected with the non-United States Holders conduct of a
trade or business in the United States, and, if required by an applicable tax treaty,
attributable to a permanent establishment maintained by the holder in the United States;
or |
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A.C. Moore is or has been a United States real property holding corporation, or a
USRPHC, for United States federal income tax purposes at any time during the shorter of
the five-year period ending on the date of exchange of the Shares or the period that the
non-United States Holder held Shares. |
Gain described in the first bullet point above generally will be subject to tax at a flat rate
of 30% (or such lower rate as may be specified under an applicable income tax treaty) on any gain
from the exchange of the Shares, net of applicable United States-source losses from sales or
exchanges of other capital assets recognized by the holder during the
year. Unless a tax treaty provides otherwise, gain described in the second bullet point above
will be subject to United States federal income tax on a net income basis in the same manner as if
the non-United States Holder were a resident of the United States. Non-United States Holders that
are foreign corporations also may be subject to a 30% branch profits tax (or applicable lower
treaty rate). Non-United States Holders are urged to consult any applicable tax treaties that may
provide for different rules.
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With respect to the third bullet point above, the determination whether A.C. Moore is a USRPHC
depends on the fair market value of its United States real property interests relative to the fair
market value of its other trade or business assets and its foreign real property interests. The
Merger Agreement requires A.C. Moore to deliver a certificate to Parent stating that A.C. Moore has
not been a USRPHC for United States federal income tax purposes during the time period described
above. Moreover, since the Shares are regularly traded on an established securities market (within
the meaning of applicable Treasury regulations), even if A.C. Moore constitutes a USRPHC, any gain
realized on the receipt of cash for Shares pursuant to the Merger generally will be subject to
United States federal income tax only if the non-United States Holder owns (actually or
constructively) more than five percent of the Shares.
Information Reporting and Backup Withholding
A non-United States Holder may be subject to information reporting and backup withholding at
the applicable rate (currently, 28%) with respect to the proceeds from the exchange of Shares
pursuant to the Merger. A non-United States Holder can avoid backup withholding by certifying on an
appropriate IRS Form W-8 that such non-United States Holder is not a United States person, or by
otherwise establishing an exemption in a manner satisfactory to the Depositary. Non-United States
Holders should consult their tax advisors regarding the certification requirements for non-United
States persons.
Any amounts withheld under the backup withholding tax rules will be allowed as a refund or a
credit against the non-United States Holders United States federal income tax liability, provided
the required information is timely furnished to the IRS.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF UNITED STATES FEDERAL INCOME TAXATION
THAT MAY BE RELEVANT TO PARTICULAR HOLDERS OF SHARES OF A.C. MOORE COMMON STOCK. HOLDERS OF SHARES
OF A.C. MOORE COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF EXCHANGING THEIR SHARES OF A.C. MOORE COMMON STOCK FOR CASH IN THE MERGER
UNDER ANY FEDERAL, STATE, FOREIGN, LOCAL OR OTHER TAX LAWS.
Regulatory Approvals and Notices
The Pennsylvania Takeover Disclosure Law, or the Takeover Law, provides that it is unlawful
for any person (except for certain persons described in the Takeover Law) to make a takeover offer
(as defined in the Takeover Law) involving a target company or to acquire any equity securities of
the target company pursuant to the offer, unless at least 20 days prior thereto, the person making
the offer (i) files with the Pennsylvania Securities Commission a registration statement containing
certain information prescribed by the Takeover Law, (ii) sends a copy of the registration statement
by certified mail to the target company at its principal office and (iii) publicly discloses the
offering price of the proposed offer and the fact that a registration statement has been filed with
the Pennsylvania Securities Commission, unless the securities or the offer are exempt from such
requirements. An offer as to which the target company, acting through its board of directors,
recommends acceptance to its shareholders, if at the time such recommendation is first communicated
to the shareholders, the offeror has filed a notice with the Pennsylvania Securities Commission
containing certain information described in the Takeover Law, is exempt from such requirements.
A.C. Moores Board approved the Offer and purchase of tendered Shares by either Parent or Merger
Sub or their affiliates, and Parent filed a notice with the Pennsylvania Securities Commission as
required by the Takeover Law. Consequently, the provisions of the Takeover Law requiring the
filing of a registration statement with the commission do not apply to the Offer or the Merger.
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Shareholder Demand Letter
On October 6, 2011, the Board received a demand letter from a purported shareholder, referred
to as the Shareholder of A.C. Moore. The Shareholder alleges that the members of the Board breached
their fiduciary duties to A.C. Moore and its shareholders in connection with the Transactions. In
particular, the Shareholder alleges that A.C. Moore has suffered damages as a result of the Boards
actions because: (i) the per share consideration is allegedly inadequate and undervalues A.C.
Moore; and (ii) the Board allegedly agreed to provisions in the Merger Agreement which could
preclude other bidders from making successful competing offers for A.C. Moore. The Shareholder has
demanded that the Board remedy the foregoing breaches of fiduciary duties. On October 12, 2011, the
Board appointed a special committee to consider the allegations set forth in the Shareholder demand
letter.
Litigation
On October 11, 2011, a putative class action lawsuit captioned Provoncha v. A.C. Moore Arts &
Crafts, Inc., et al., Docket No. C 147-11, was filed in the Superior Court of New Jersey, Chancery
Division, Camden County. The complaint names as defendants the members of the Board, as well as
A.C. Moore, Parent and Purchaser. The complaint purports to be brought individually and on behalf
of similarly situated public shareholders of A.C. Moore and alleges, among other things, claims for
breaches of fiduciary duties of good faith, loyalty and due care against the Board in connection
with the Transactions and that Parent and Purchaser aided and abetted the purported breaches of
fiduciary duties. The complaint seeks, among other things, injunctive relief, including enjoining
the Board, and anyone acting in concert with them, from proceeding with the Transactions;
certification of the action as a class action; and an award of attorneys fees and other fees and
costs, in addition to other relief. The complaint was amended on October 21, 2011 to set forth
additional substantive allegations, including allegations that the Schedule 14D-9 contains
materially misleading statements and omits material information. A.C. Moore believes the
plaintiffs allegations lack merit and intends to contest them vigorously; however, there can be no
assurance that we will be successful in our defense.
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THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement and certain other
agreements related to the transactions contemplated by the Merger Agreement. The description in
this section and elsewhere in this proxy statement is qualified in its entirety by reference to the
complete text of the Merger Agreement and Amendment No. 1 to the Merger Agreement, copies of which
is attached as Annex A and Annex B and are incorporated by reference into this proxy statement.
This summary does not purport to be complete and may not contain all of the information about the
Merger Agreement that is important to you. We encourage you to read the Merger Agreement, as
amended, carefully and in its entirety. This section is not intended to provide you with any
factual information about us. Such information can be found elsewhere in this proxy statement and
in the public filings we make with the SEC, as described in the section entitled, Where You Can
Find More Information, beginning on page [].
Explanatory Note Regarding the Merger Agreement
The Merger Agreement has been provided solely to inform you of its terms. The Merger
Agreement contains customary representations and warranties the parties made to each other as of
specific dates. The assertions embodied in those representations and warranties were made solely
for purposes of the contracts among the parties and may be subject to important qualifications and
limitations agreed to by the parties in connection with the negotiated terms, including, but not
limited to, information in confidential disclosure schedules provided by A.C. Moore in connection
with the signing of the Merger Agreement. These disclosure schedules contain information that
modifies, qualifies and creates exceptions to the representations and warranties set forth in the
Merger Agreement. Moreover, some of those representations and warranties may not be accurate or
complete as of any specified date, may be subject to a contractual standard of materiality
different from those generally applicable to shareholders or may have been used for purposes of
allocating risk among the parties rather than establishing matters as facts. A.C. Moore
shareholders and other investors are not third-party beneficiaries under the Merger Agreement and
should not rely on the representations, warranties and covenants or any descriptions thereof as
characterizations of the actual state of facts or conditions of A.C. Moore, Parent, Purchaser or
any of their respective subsidiaries or affiliates.
Terms of the Merger Agreement and Certain Other Agreements
The Offer
On October 18, 2011, Purchaser commenced the Offer for all of the outstanding Shares at a
price of $1.60 per Share to the seller in cash, without interest, and less any applicable
withholding taxes. The Offer contemplated that, after completion of the Offer and the satisfaction
or waiver of all conditions, we will merge with Purchaser and all outstanding Shares, other than
Excluded Shares, will be converted into the right to receive the Merger Consideration. The Offer
was commenced pursuant to the Merger Agreement.
Under the terms of the Merger Agreement, the parties agreed to complete the Merger whether or
not the Offer is completed. If the Offer is not completed, the parties agreed that the Merger
could only be completed after the receipt of shareholder approval of the adoption of the Merger
Agreement at the special meeting. We are soliciting proxies for the special meeting to obtain
shareholder approval of the adoption of the Merger Agreement to be able to consummate the Merger
regardless of the outcome of the Offer, subject to the satisfaction of the conditions therein.
We refer in this proxy statement to the Offer and to terms of the Merger Agreement applicable
to the Offer, however, the Offer is being made separately to the holders of Shares and is not
applicable to the special meeting.
Short-Form Merger and Top-Up Option
If, following completion of the Offer, Purchaser owns at least 80% of the then outstanding
Shares on a fully-diluted basis (assuming the issuance of the Top-Up Option Shares as described
below), the parties agreed to take all necessary and appropriate action to complete the Merger
without a meeting of A.C. Moore shareholders pursuant to the short-form merger procedures
available under the PBCL. A.C. Moore granted to Purchaser an irrevocable option, referred to as
the Top-Up Option, which Purchaser may exercise on or prior to the second business day after the
acceptance for payment of Shares tendered in the Offer, if necessary, to purchase from A.C. Moore
the number of Shares that, when added to the Shares already owned by Parent or any of its
subsidiaries following consummation of the Offer,
constitutes one Share more than 80% of the Shares then outstanding on a fully-diluted basis
(assuming the issuance of the Top-Up Option Shares). In the event that Purchaser does not hold at
least 80% of the outstanding Shares following the consummation of the Offer, including through
exercise of the Top-Up Option, A.C. Moore must obtain the approval of its shareholders to
consummate the Merger. This proxy statement is being delivered to you in order to solicit such
approval in this circumstance.
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Conditions to the Offer
The Offer is conditioned upon, among other things, there being validly tendered and not
properly withdrawn prior to the expiration of the Offer a number of Shares, or the Shares, that
represents at least 70.7% of the outstanding Shares on a fully-diluted basis, which we refer to as
the Minimum Condition, and where fully-diluted basis means the number of Shares outstanding,
together with all Shares, if any, that A.C. Moore would be required to issue pursuant to the
exercise or conversion of any in the money options to purchase Common Stock, stock appreciation
rights and all warrants and other rights to acquire, or securities convertible into, or
exchangeable for Common Stock (other than Shares issuable upon exercise of the Top-Up Option
described below), that are outstanding and vested (or will be vested) immediately prior to the
purchase of tendered Shares by Purchaser.
Purchasers obligation to accept for payment and pay for all Shares that have been validly
tendered and not properly withdrawn in the Offer is subject to a number of conditions, including:
(i) satisfaction of the Minimum Condition, (ii) the receipt of financing, in an amount sufficient
to consummate the Offer and the Merger, by Parent or Purchaser or confirmation from the lenders
that such financing will be available at closing of the Merger, which we refer to as the Closing,
(iii) the absence of a Company Material Adverse Effect (as defined in the Merger Agreement) on A.C.
Moore and its subsidiaries, and (iv) other customary conditions. Pursuant to the Merger Agreement,
however, without the prior written consent of A.C. Moore, Purchaser cannot (i) decrease the Offer
Price or change the form of the consideration payable in the Offer, (ii) decrease the number of
Shares sought pursuant to the Offer, (iii) amend or waive the Minimum Condition, (iv) add to the
conditions to the Offer specified in the Merger Agreement, (v) amend or modify the conditions to
the Offer set forth in the Merger Agreement (other than to waive such conditions, except for the
Minimum Condition), (vi) make any change in the Offer that would require an extension or delay of
the then current expiration date, or (vii) make any other change in the terms or conditions of the
Offer that is materially adverse to the holders of Shares.
Extensions and Terminations of the Offer
The Offer must remain open until November 16, 2011. In addition, subject to the terms of the
Merger Agreement, including the termination rights of Parent, Purchaser and A.C. Moore: (i) if, at
any time as of which the Offer is scheduled to expire, any condition to the Offer has not been
satisfied or waived, Purchaser must extend the Offer for one or more periods of not more than five
business days each beyond the scheduled expiration date; and (ii) Purchaser must extend the Offer
at any time or from time to time for any period required by any rule, regulation, interpretation or
position of the SEC or the staff of the SEC or Nasdaq applicable to the Offer, including in
connection with an increase in the Offer Price.
Pursuant to the Merger Agreement, and except as otherwise provided therein, Purchaser will not
terminate or withdraw the Offer or extend the expiration date of the Offer unless at the expiration
date the conditions to the Offer have not been satisfied or earlier waived (except for the Minimum
Condition, which cannot be waived), or in the case of termination, such termination is in
connection with the termination of the Merger Agreement in accordance with its terms. If any
condition to the Offer is not satisfied at the then-scheduled expiration date of the Offer or, by
November 22, 2011, the SEC has confirmed that it does not have any further comments on the
preliminary proxy statement filed by A.C. Moore with the SEC in connection with the special meeting
of A.C. Moores shareholders, which we refer to as the Proxy Statement Clearance Date, even though
the Offer has been extended, then Purchaser will terminate the Offer and A.C. Moore will hold the
shareholders meeting to approve the Merger Agreement in order to consummate the Merger as set
forth below.
If at any scheduled expiration date of the Offer, (i) any condition to the Offer has not been
satisfied or waived and (ii) the Proxy Statement Clearance Date has occurred, then (A) Purchaser
may irrevocably and unconditionally terminate the Offer or (B) from and after the close of business
on November 22, 2011, A.C. Moore will have the right to cause Purchaser to terminate the Offer at
the next then-scheduled expiration date following receipt of notice from A.C. Moore.
Such termination is referred to as an Offer Termination. In the event of an Offer
Termination, A.C. Moore must proceed with and take all actions necessary to hold the special
meeting of shareholders to approve the Merger Agreement.
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Recommendation
The Board, at a meeting duly called and held prior to the execution of the Merger Agreement at
which all directors of A.C. Moore were present, unanimously determined (i) to approve and adopt the
Transaction Documents and to approve and authorize the consummation of the Transactions; (ii) to
authorize the execution and delivery of the Transaction Documents in the name of A.C. Moore; (iii)
that the Transaction Documents and the Transactions are fair to and in the best interests of A.C.
Moores shareholders; (iv) to recommend that the shareholders of A.C. Moore accept the Offer and
tender their Shares in the Offer and, to the extent such a meeting is required under the PBCL, vote
in favor of the approval of the Merger and the approval and adoption of the Merger Agreement at any
meeting of shareholders of A.C. Moore called to consider the approval of the Merger and the Merger
Agreement; and (v) to approve for all purposes that the Merger Agreement and the Transactions be
exempt from applicable anti-takeover laws.
Financing
Parent and Purchaser represented in the Merger Agreement that they will have available funds
(including the amounts deposited in escrow pursuant to the Deposit Escrow Agreement) and the Wells
Fargo Commitment to enable them to have sufficient funds, which we refer to as the Financing, to
permit Purchaser to perform all of its obligations under the Merger Agreement. Parent and
Purchaser agreed to use commercially reasonable efforts to obtain the Financing on the terms and
conditions described in the Wells Fargo Commitment. If any portion of the Financing becomes
unavailable on the terms and conditions contemplated by the Wells Fargo Commitment, Parent and
Purchaser agreed to use commercially reasonable efforts to arrange and obtain alternative financing
from alternative sources in an amount sufficient to consummate the transactions contemplated by the
Merger Agreement, which we refer to as an Alternative Financing. Wells Fargo also serves as the
deposit escrow agent under the Deposit Escrow Agreement and Wells Fargo Retail Finance, LLC is A.C.
Moores senior secured lender.
Deposit Escrow Agreement
Parent and Purchaser are newly-formed entities that were formed for the purpose of entering
into the Merger Agreement with A.C. Moore and acquiring A.C. Moore. As such, in order to provide
some security for the obligations of Parent and Purchaser to consummate the Transactions,
concurrently with the execution of the Merger Agreement, the Deposit Escrow Agreement was entered
into by and among Parent, Purchaser, A.C. Moore and Wells Fargo, as the Deposit Escrow Agent,
pursuant to which Purchaser deposited the $20 million Escrow Amount into an escrow account in order
to secure Parents and Purchasers obligations under the Merger Agreement. On the date that
Purchaser accepts for payment all Shares that have been validly tendered and not properly withdrawn
pursuant to the Offer, the Deposit Escrow Agent will pay the Escrow Amount to the paying agent for
the Offer, or the Paying Agent, in partial payment of the aggregate Offer Price in accordance with
written instructions to be provided by Parent and A.C. Moore. Except as provided in the following
paragraph, if the closing of the Offer does not occur, the Deposit Escrow Agent will pay the Escrow
Amount to the Paying Agent in partial payment of the aggregate Merger Consideration, in accordance
with written instructions to be provided by Parent and A.C. Moore.
Pursuant to the Deposit Escrow Agreement, if the Closing does not occur on or prior to
December 30, 2011, and all conditions to the obligations of Parent and Purchaser to consummate the
Merger have been satisfied or waived, or all conditions to the obligations of A.C. Moore to
consummate the Merger have not been satisfied or waived, then, subject to the Final Determination,
as defined below, the Escrow Amount will be distributed to A.C. Moore. However, if the Closing does
not occur on or prior to December 30, 2011, and all conditions to the obligations of Parent and
Purchaser to consummate the Merger have not been satisfied or waived and all conditions to the
obligations of A.C. Moore to consummate the Merger have been satisfied or waived, then, subject to
the Final Determination, as defined below, the Escrow Amount will be returned to Purchaser.
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A.C. Moores Board of Directors
The Merger Agreement initially provided Parent with the right to designate directors to the
Board of A.C. Moore in certain circumstances, however this right was removed pursuant to Amendment
No. 1 to the Merger Agreement. Parent has agreed to use its commercially reasonable efforts to
cause the Board to have, following the closing of the Offer and until the consummation of the
Merger, at least three directors who each were directors of A.C. Moore on the date the Merger
Agreement was entered into, which we refer to as the Continuing Directors. If any Continuing
Director is unable to serve due to resignation, death or disability or any other reason, the
remaining Continuing Directors are entitled to elect or designate another individual who is not an
employee of A.C. Moore or any of its subsidiaries to fill the vacancy and such director will be
deemed to be a Continuing Director. If no Continuing Director remains on the Board prior to the
Effective Time, a majority of the members of the Board on the date the Merger Agreement was entered
into will be entitled to designate three persons who are not employees of A.C. Moore, Parent,
Purchaser or any affiliates of Parent or Purchaser and are reasonably satisfactory to Parent to
fill the vacancies.
Following the consummation of the Offer and until the consummation of the Merger, the
affirmative vote of a majority of the Continuing Directors will be required to authorize any
contract between A.C. Moore and any of its subsidiaries, on the one hand, and Parent, Purchaser and
any of their affiliates, on the other hand, amend or terminate the Merger Agreement on behalf of
A.C. Moore, use or waive any of A.C. Moores rights or remedies under the Merger Agreement, extend
time for performance of A.C. Moores or Purchasers obligations under the Merger Agreement, amend
A.C. Moores Articles or Bylaws if such action would adversely affect A.C. Moores shareholders
(other than Parent or Purchaser) or the rights of the Indemnified Parties pursuant to the Merger
Agreement, take any action by A.C. Moore in connection with the Merger Agreement or the
Transactions which is required to be taken by the Board or take any other action that would
adversely affect the rights of A.C. Moore shareholders (other than Parent or Purchaser).
The Merger
The Merger Agreement provides that, following completion of the Offer, if applicable, and
subject to the terms and conditions of the Merger Agreement, and in accordance with the PBCL, at
the Effective Time:
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Purchaser will be merged with and into A.C. Moore and the separate corporate
existence of Purchaser will cease; |
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A.C. Moore will be the surviving corporation and will continue to be governed by the
laws of the Commonwealth of Pennsylvania and the separate corporate existence of A.C.
Moore will continue unaffected by the Merger; and |
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all of the property, rights, privileges, powers, immunities and franchises of
Purchaser and A.C. Moore will vest in the surviving corporation, and all debts,
liabilities, obligations and duties of Purchaser and A.C. Moore will become the debts,
liabilities, obligations and duties of the surviving corporation. |
In the event that the Minimum Condition is not met, and in certain other circumstances, the
parties have agreed to complete the Merger without the prior completion of the Offer, after the
receipt of shareholder approval at the special meeting.
Following the completion of the Merger, the Common Stock will be delisted from Nasdaq and
deregistered under the Exchange Act and will cease to be publicly traded.
Articles of Incorporation; Bylaws; Directors and Officers of the Surviving Corporation
At the Effective Time, A.C. Moores Articles and Bylaws as in effect immediately prior to the
Effective Time will be amended so as to read in their entirety as set forth in the applicable
exhibits to the Merger Agreement, and as so amended, will be the articles of incorporation and
bylaws of the surviving corporation. The directors of Purchaser will become the directors of the
surviving corporation. The officers of A.C. Moore at the Effective Time will become the initial
officers of the surviving corporation.
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Conditions to the Merger
The respective obligations of each party to effect the Merger are subject to the satisfaction
(or, to the extent permissible under applicable law, waiver by the party entitled to the benefit
thereof), at or prior to the Effective Time, of each of the following conditions:
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If and to the extent required by the PBCL and the Articles and Bylaws, the Merger
Agreement must be duly adopted by the affirmative vote of the shareholders of A.C. Moore
in accordance with applicable law. |
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No law, restraining order (preliminary, temporary or permanent), executive order,
decree, ruling, judgment or injunction or other order of a court or governmental entity
of competent jurisdiction, which we refer to as a Restraint, is in effect prohibiting
the consummation of the Merger or making the consummation of the Merger illegal. |
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Unless an Offer Termination has occurred, Purchaser must have accepted for purchase
all Shares validly tendered and not properly withdrawn pursuant to the Offer. |
Solely if the Offer Termination has occurred or the Offer closing has not occurred, the
obligations of Parent and Purchaser to effect the Merger are further subject to the satisfaction or
(to the extent permitted by law) waiver at or prior to the Effective Time of the following
conditions:
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The representations and warranties of A.C. Moore set forth in the Merger Agreement
regarding (i) capitalization, due authorization and takeover laws must be true and
correct in all material respects as of the Closing Date and (ii) regarding all other
matters must be true and correct as of the Closing Date, except (A) that the accuracy of
representations and warranties that by their terms speak as of the date of the Merger
Agreement or some other date will be determined as of such date and (B) where any such
failure of the representations and warranties in the aggregate to be true and correct
would not have a Company Material Adverse Effect (without giving effect to any
materiality or Company Material Adverse Effect qualifications contained therein). |
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A.C. Moore must have performed or complied in all material respects with its
obligations required to be performed or complied with by it under the Merger Agreement
at or prior to the Closing. |
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Since the date of the Merger Agreement, no change, event or occurrence must have
occurred that has had or would reasonably be expected to have a Company Material Adverse
Effect. |
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As of immediately prior to the Closing Date, A.C. Moore is Solvent, which is
defined to mean that, with respect to A.C. Moore and its subsidiaries, taken as a whole,
(i) the sum of its debt (including contingent liabilities) does not exceed the present
fair saleable value of its present assets; (ii) its capital is not unreasonably small in
relation to its business; and (iii) it does not have or intend to incur debts including
current obligations beyond its ability to pay such debt as they mature in the ordinary
course of business. |
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Parent or Purchaser must have received the proceeds of the Financing or the
Alternative Financing and/or the lenders party to the Wells Fargo Commitment or any
other commitment letters for the Alternative Financing must have definitely and
irrevocably confirmed to Parent or Purchaser that all of the Financing or any
Alternative Financing, which must be at least in an amount sufficient to consummate the
Offer and the Merger, will be available at the Closing on the terms and conditions set
forth in the Wells Fargo Commitment or any other commitment letters for the Alternative
Financing. |
If an Offer Termination has occurred or the Offer Closing has not occurred, then the
obligation of A.C. Moore to effect the Merger is further subject to the satisfaction or (to the
extent permitted by law) waiver at or prior to the Effective Time of the following conditions:
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The representations and warranties of Parent and Purchaser set forth in the Merger
Agreement must be true and correct as of the Closing Date (except to the extent such
representations and warranties expressly relate to an earlier date, in which case as of
such earlier date), except where the failure of such representations and
warranties to be so true and correct would not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect, as defined in the
Merger Agreement. |
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Parent and Purchaser must have performed or complied in all material respects with
its obligations required to be performed or complied with by it under the Merger
Agreement at or prior to the Closing Date.
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Merger Consideration
At the Effective Time, each Share issued and outstanding immediately prior to the Effective
Time, other than Excluded Shares, will automatically be converted into the right to receive the per
Share Merger Consideration, in cash, without interest and less any applicable withholding taxes.
All Shares converted into the right to receive the Merger Consideration will automatically be
canceled and cease to exist.
Payment for A.C. Moore Shares
Prior to the Effective Time, Parent will appoint a bank, trust company or transfer agent
reasonably acceptable to A.C. Moore to act as the Paying Agent under the Merger Agreement. Prior
to the Effective Time, Parent will deliver, by wire transfer of immediately available funds, to an
account designated in writing by the Paying Agent, in trust for the benefit of the holders of
Shares, an amount in cash equal to the Merger Consideration multiplied by the number of Shares to
be converted in the Merger, which we refer to as the Exchange Fund.
As promptly as practicable after the Effective Time, but in no event later than five business
days following the Effective Time, Parent will cause the Paying Agent to mail to each holder of
record of Common Stock a form of letter of transmittal with instructions for use in effecting the
surrender of certificates of Common Stock in exchange for the Merger Consideration, which we refer
to as the Letter of Transmittal. Upon (i) in the case of Shares represented by a certificate, the
surrender of such certificate for cancellation to the Paying Agent or (ii) in the case of Shares
held in book-entry form, the receipt of an agents message by the Paying Agent, in each case
together with the Letter of Transmittal, duly, completely and validly executed in accordance with
the instructions thereto, and such other documents as may reasonably be required by the Paying
Agent, the holder of such Shares will be entitled to receive (and the Paying Agent shall deliver)
an amount equal to the Merger Consideration multiplied by the number of Shares to be converted.
After one year following the Effective Time, Parent will be entitled to require the Paying
Agent to deliver to it any funds which had been made available to the Paying Agent and not
disbursed to holders of Shares (including, without limitation, all interest and other income
received by the Paying Agent in respect of all funds made available to it), and, thereafter, such
holders will be entitled to look to Parent (subject to abandoned property, escheat and other
similar laws) only as general creditors thereof with respect to any Merger Consideration, without
interest, that may be payable upon due surrender of the certificates (or evidence of Shares in
book-entry form) held by them.
If any certificate is lost, stolen or destroyed, then, upon the making of an affidavit of that
fact by the shareholder claiming such certificate to be lost, stolen or destroyed and, if required
by the Paying Agent, the posting of a bond, in such amount as Parent or the Paying Agent may
reasonably direct, as indemnity against any claim that may be made against it with respect to such
certificate, Parent will direct the Paying Agent to pay, in exchange for such lost, stolen or
destroyed certificate, the Merger Consideration to be paid in respect of the Shares represented by
such certificate.
Treatment of A.C. Moore Options, A.C. Moore SARs and A.C. Moore Restricted Stock
The Merger Agreement provides that each A.C. Moore Option, whether or not exercisable or
vested, will be canceled at the Effective Time, in exchange for a payment, in cash, equal to the
product of (i) the excess, if any, of the per Share Merger Consideration over the per Share
exercise price of the A.C. Moore Option, and (ii) the number of Shares subject to the A.C. Moore
Option, less any amounts required to be withheld pursuant to applicable law. Each A.C. Moore SAR,
whether or not exercisable or vested, will be canceled at the Effective Time, in exchange for a
payment, in cash, equal to the product of (i) the excess, if any, of the per Share Merger
Consideration over the per Share exercise price of the A.C. Moore SAR, and (ii) the number of
Shares subject to the A.C. Moore SAR, less any amounts required to be withheld pursuant to
applicable law. Each award of A.C. Moore Restricted Stock will be cancelled at the Effective Time
in exchange for the Merger Consideration payable in respect of such stock.
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Representations and Warranties
The Merger Agreement contains representations and warranties of A.C. Moore, Parent and
Purchaser.
Some of the representations and warranties in the Merger Agreement made by A.C. Moore are
qualified as to materiality or Company Material Adverse Effect. For purposes of the Merger
Agreement, Company Material Adverse Effect means any fact, circumstance, event, change, effect,
violation or occurrence that, individually or in the aggregate with all other facts, circumstances,
events, changes, effects, violations or occurrences, (a) has or would be reasonably expected to
have a material adverse effect on the financial condition, business, assets, liabilities or results
of operations of A.C. Moore and its subsidiaries, taken as a whole, or (b) prevents, impedes,
interferes with, hinders or delays in any material respect the ability of A.C. Moore to consummate
the Merger or the other transactions or perform its obligations, in each case as contemplated by
the Merger Agreement. In the case of clause (a) only, none of the following, and no effect arising
out of or resulting from the following, would be deemed to be a Company Material Adverse Effect and
would not be considered in determining whether there has occurred, or may, would or could occur, a
Company Material Adverse Effect with respect to clause (a):
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any changes, events, occurrences or conditions generally affecting the economy or
the credit, financial or capital markets in the United States or elsewhere in the world,
including changes in interest or exchange rates, |
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changes, events, occurrences or effects arising out of, resulting from or
attributable to acts of sabotage, terrorism, war (whether or not declared), |
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changes, events, occurrences or effects arising out of, resulting from or
attributable to any escalation or worsening of such acts of sabotage, terrorism or war
(whether or not declared) threatened or underway as of the date of the Merger Agreement, |
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changes, events, occurrences or effects arising out of, resulting from or
attributable to pandemics, earthquakes, hurricanes, tornados, tsunamis or other natural
disaster occurring in the United States or elsewhere in the world, |
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changes, events, occurrences or effects arising out of, resulting from or
attributable to changes in law, Generally Accepted Accounting Principles or other
accounting standards, regulations or principles or any changes in the interpretation or
enforcement of any of the foregoing, or changes in regulatory or political conditions, |
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changes as a result of any action or failure to take action, in each case
consented to or requested by Parent, |
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events attributable to the announcement or performance of the Merger Agreement
or the consummation of the transactions contemplated thereby or the pendency of the
Offer or the Merger (including the loss or departure of officers or other employees of
A.C. Moore or any of its subsidiaries, or the termination, reduction (or potential
reduction) or any other negative effect (or potential negative effect) on A.C. Moores
relationships or agreements with any of its customers, suppliers or other business
partners, |
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events attributable to the taking of any action by A.C. Moore or its subsidiaries if
that action is contemplated or required by, the Merger Agreement, or with Parents or
Purchasers consent, or the failure to take any action by A.C. Moore or its subsidiaries
if that action is prohibited by the Merger Agreement, or the consummation of the
transactions contemplated thereby, |
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a decline in the market price, or a change in the trading volume, of the Common
Stock (provided that any event, condition, change, occurrence or development of a state
of circumstances that may have caused or contributed to such change in market price or
trading volume shall not be excluded), |
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(x) |
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any change in A.C. Moores credit ratings, if any, |
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(xi) |
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any failure by A.C. Moore to meet any published estimates, projections,
predictions, or expectations of the Companys revenue, earnings or other financial
performance or results of operations for any period (other than those directly publicly
disseminated by A.C. Moore during fiscal year 2011, the effects ((excluding the effects
referred to in clause (xiv) below)) of the failure of which are reasonably expected to
result in material damages to A.C. Moore, and provided further that any event,
condition, change, occurrence or development of a state of circumstances that may have
caused or contributed to such failure to meet any published estimates, projections,
predictions, or expectations shall not be excluded), |
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(xii) |
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any failure by A.C. Moore to meet any internal budgets, plans or forecasts of
its revenues, earnings or other financial performance or results of operations including
any budgets, plans or forecasts previously made available to Parent, |
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(xiii) |
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effects arising out of or related to any matters disclosed on the disclosure schedules
accompanying the Merger Agreement, or |
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(xiv) |
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effects arising out of or related to any legal proceedings commenced by or
involving any of the current or former shareholders of A.C. Moore (on their own behalf
or on behalf of A.C. Moore) arising out of or related to any failure by A.C. Moore
referred to in clause (xi) above, the Merger Agreement or any of the transactions
contemplated thereby, which, based on the underlying merits of such legal proceedings,
are not reasonably expected to result in an award of material damages or injunctive
relief against A.C. Moore or its directors; |
Any fact, circumstance, event, change or occurrence referred to in clauses (i) through (v)
immediately above will be taken into account in determining whether a Company Material Adverse
Effect has occurred or is reasonably expected to occur to the extent that such fact, circumstance,
event, change, violation or occurrence has had, or would reasonably be expected to have, a
materially disproportionate impact on the financial condition, business, assets, liabilities or
results of operations of A.C. Moore and its subsidiaries, taken as a whole, relative to other
participants in the industries in which A.C. Moore and its subsidiaries are involved (in which
event the extent of such material adverse change may be taken into account in determining whether a
Company Material Adverse Effect has occurred).
In the Merger Agreement, A.C. Moore made customary representations and warranties to Parent
and Purchaser with respect to, among other things:
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corporate organization and qualification; |
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SEC filings, financial statements and controls; |
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absence of certain changes or events; |
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Offer documents and the proxy statement; |
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employee benefit plans; |
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environmental laws and regulations; |
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lack of undisclosed liabilities |
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certain business practices; |
In the Merger Agreement, Parent and Purchaser made customary representations and warranties to
A.C. Moore with respect to, among other things:
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corporate organization and qualification; |
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possession of sufficient funds and financing of the Transactions; |
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lack of ownership of Common Stock; |
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lack of contracts with A.C. Moore management and directors; |
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the Deposit Escrow Agreement; and |
None of the representations and warranties contained in the Merger Agreement survives the
consummation of the Merger.
Conduct of Business of A.C. Moore
The Merger Agreement provides that, until the earlier of the Effective Time and three business
days after the Offer Closing, except with the prior written consent of Parent, as required by
applicable law, as otherwise expressly contemplated or permitted by the Merger Agreement, (i) A.C.
Moore will, and will cause each of its subsidiaries to, conduct its operations in all material
respects according to its ordinary course of business consistent with past practice and (ii) A.C.
Moore will not and will cause its subsidiaries not to, take certain actions with respect to the
following, subject to the thresholds and exceptions specified in the Merger Agreement:
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issuing, delivering, selling, disposing of, pledging or otherwise encumbering A.C.
Moore securities; |
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redeeming, purchasing or otherwise acquiring A.C. Moore securities; |
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effecting a stock split, combination, subdivision or reclassification of Shares; |
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declaring, setting aside for payment or paying any dividend in respect of A.C. Moore
securities or otherwise making any payments to shareholders; |
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adopting a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of A.C. Moore or
its subsidiaries or alter through merger, liquidation, reorganization or restructuring
the corporate structure of A.C. Moore or its subsidiaries (other than the Merger); |
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amending the Articles or Bylaws; |
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entering into, adopting, amending, renewing or extending any employee benefit plan or
any other compensatory program, policy or arrangement with respect to any current or
former employee, officer, director or other consultant of A.C. Moore or any of its
subsidiaries or, except as in accordance with past practice, increasing the salaries or
wages of employees; |
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making any material change in financial accounting methods, principles or practices; |
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acquiring any equity interest in or business of any third party or division thereof
for a purchase price in excess of $500,000, or enter into any agreement, arrangement or
understanding with respect to any such acquisition; |
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other than sales of inventory in the ordinary course of business consistent with past
practice, selling, leasing (as lessor), licensing, or otherwise disposing of any
tangible properties or assets in excess of $250,000; |
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selling, leasing, mortgaging, or otherwise disposing of any real properties or any
interests therein; |
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making or changing any material tax election or settling or compromising any material
tax liability, claim or assessment or filing any material amended tax return; |
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incurring any (i) obligations for borrowed money, (ii) capitalized lease obligations
or (iii) guarantees and other arrangements, except for indebtedness incurred in the
ordinary course of business under A.C. Moores existing credit facility, provided that
the aggregate principal amount of indebtedness (net of repayments) outstanding under
such facility may not exceed $28.5 million on the Closing Date and that A.C. Moore may
incur letters of credit in the ordinary course of business in an amount not to exceed $5
million in the aggregate; |
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making capital expenditures; |
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settling, compromising, discharging or agreeing to settle any litigation,
investigation, arbitration or proceeding other than those that do not involve the
payment by A.C. Moore or any of its subsidiaries of monetary damages in excess of
$100,000 in any individual instance, or $250,000 in the aggregate, after taking into
account any applicable reserves and any applicable insurance coverage, and do not
involve any material injunctive or other non-monetary relief or impose material
restrictions on the business or operations of A.C. Moore or its subsidiaries; |
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modifying, extending, amending, terminating, canceling, renewing or supplementing
material contracts; and |
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authorizing of any of, or committing or agreeing to take any of, the foregoing
actions. |
No Solicitation
From the date of the Merger Agreement until the earlier of the Effective Time or the
termination of the Merger Agreement, A.C. Moore agreed that it will not, and will not knowingly
permit any officer, director or employee of, or any investment banker, attorney or other advisor or
representative of A.C. Moore, each of which we refer to as a Representative, to:
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solicit or initiate, or knowingly encourage or facilitate, directly or indirectly,
the submission of any Acquisition Proposal, as defined below, by a third party; |
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participate in discussions or negotiations regarding, or furnish to any third party
information with respect to, or knowingly facilitate the making of any proposal that
constitutes, or would reasonably be expected to lead to, an Acquisition Proposal; or |
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enter into any agreement with respect to any Acquisition Proposal with any third
party. |
Notwithstanding the restrictions described above, from the date of the Merger Agreement and
prior to the earlier to occur of the Offer Closing and obtaining approval by A.C. Moores
shareholders of the Merger Agreement, which we refer to as the Shareholder Approval, if A.C. Moore
or any Representative receives an Acquisition Proposal from a third party and the Board or a
committee thereof determines in good faith, after consulting with outside legal and financial
advisors, that any such Acquisition Proposal constitutes, or would reasonably be expected to lead
to, a Superior Proposal, as defined below, and the Board or such committee determines in good
faith, after consultation with outside legal counsel, that the failure to take such action would be
inconsistent with the best interests of A.C. Moores shareholders, then A.C. Moore and its
Representatives may:
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furnish, pursuant to an acceptable confidentiality agreement, information (including
non-public information) and/or access with respect to A.C. Moore and its subsidiaries to
the party making such Acquisition Proposal; and |
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engage in or otherwise participate in discussions and/or negotiations directly or
through its Representatives with the party making such Acquisition Proposal. |
At any time prior to the earlier to occur of the Offer Closing and obtaining the Shareholder
Approval, the Board or a committee thereof may (i) authorize A.C. Moore to terminate the Merger
Agreement and enter into an agreement, arrangement or understanding with respect to an Acquisition
Proposal and/or make a Board Recommendation Change following receipt of an Acquisition Proposal
that the Board or such committee determines in good faith, after consultation with its outside
financial and legal advisors, constitutes, or is reasonably likely to lead to, a Superior Proposal,
provided, that such Acquisition Proposal did not result, directly or indirectly, from a material
breach of A.C. Moores non-solicitation obligations, and that the Board or such committee has
determined in good faith, after consultation with outside legal counsel, that the failure to take
such action would be inconsistent with the best interests of A.C. Moores shareholders, or (ii)
make a Board Recommendation Change if the Board or such committee determines in good faith, after
consultation with outside legal counsel, that the failure to do so would be inconsistent with the
best interests of A.C. Moores shareholders.
A.C. Moore must promptly (but in no event later than forty-eight hours) advise Parent of any
Acquisition Proposal received by A.C. Moore and the material terms of such Acquisition Proposal and
must keep Parent reasonably informed on a reasonably current basis of the status of, and any
material changes to, the terms of any such Acquisition Proposal and the status of discussions and
negotiations with respect thereto. Neither the Board nor any committee thereof may terminate the
Merger Agreement and enter into an agreement, arrangement or understanding with respect to an
Acquisition Proposal or make a Board Recommendation Change unless A.C. Moore promptly notifies
Parent, in writing at least three business days before taking such action, of its intention to do
so, including the material terms and conditions of such Acquisition Proposal and the identity of
the third party making the Acquisition Proposal.
For purposes of this proxy statement and the Merger Agreement:
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an Acquisition Proposal means any proposal or offer from any third party to acquire
beneficial ownership (as determined under Rule 13d-3 of the Exchange Act) of all or more
than 20% of the assets of A.C. Moore and its subsidiaries, taken as a whole, or 20% or
more of any class of equity securities of A.C. Moore pursuant to a merger, consolidation
or other business combination, sale of Shares of stock, sale of assets, tender offer,
exchange offer or similar transaction or series of related transactions, which is
structured to permit such third party to acquire beneficial ownership of more than 20%
of the assets of A.C. Moore and its subsidiaries, taken as a whole, or 20% or more of
any class of equity securities of A.C. Moore. |
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a Superior Proposal means any bona fide written proposal not solicited or initiated
in material violation of A.C. Moores non-solicitation obligations that (i) relates to
an acquisition by a third party of either (A) more
than 50% of A.C. Moores outstanding securities pursuant to a tender offer, merger or
otherwise or (B) more than 50% of the assets used in the conduct of the business of A.C.
Moore and its subsidiaries, taken as a whole, and (ii) the Board determines in its good
faith judgment (after consultation with outside legal counsel and financial advisors)
would, if consummated, result in a transaction that is more favorable to A.C. Moores
shareholders from a financial point of view than the transactions contemplated by the
Merger Agreement and reasonably capable of being consummated on the terms proposed,
taking into account all legal, financial, regulatory, and other aspects of the proposal. |
The Recommendation of A.C. Moores Board
A.C. Moores Board resolved to recommend that the holders of Shares accept the Offer, tender
their Shares to Purchaser pursuant to the Offer and, if required, adopt the Merger Agreement at a
meeting of shareholders. A.C. Moores Board agreed to include the Board Recommendation in this
proxy statement and Schedule 14D-9 filed with the SEC and to permit Parent to include the Board
Recommendation in the other documents related to the Offer.
The Board may make a Board Recommendation Change in the circumstances described under No
Solicitation above. The Merger Agreement does not prevent A.C. Moore, the Board or a committee
thereof from (i) taking and disclosing to shareholders a position contemplated by Rule 14e-2(a),
Rule 14d-9 or Item 1012(a) of Regulation M-A promulgated under the Exchange Act, or other
applicable law, if the Board determines, after consultation with outside legal counsel, that
failure to so disclose such position could be inconsistent with applicable law, (ii) making any
disclosure to shareholders required by applicable law or by the rules and regulations of Nasdaq, or
(iii) otherwise making such disclosure to shareholders or otherwise that the Board (after
consultation with counsel) concludes in good faith that the failure to make such disclosure would
be inconsistent with applicable law. In addition, the parties to the Merger Agreement agreed that
a factually accurate public statement by A.C. Moore that describes receipt of an Acquisition
Proposal and the operation of the Merger Agreement with respect thereto, or any stop, look and
listen communication by the Board pursuant to Rule 14d-9(f) of the Exchange Act, or any similar
communication to shareholders, will not constitute a Board Recommendation Change or a withdrawal or
modification, or proposal by the Board to withdraw or modify, the recommendation of the Merger
Agreement or the Transactions, or an approval or recommendation with respect to any Acquisition
Proposal.
Financing Efforts
Each of Parent and Purchaser agreed to use commercially reasonable efforts to obtain the
Financing on the terms and conditions described in the Wells Fargo Commitment and agreed not to
permit any amendment or modification to be made to, or any waiver of any provision or remedy under
the Wells Fargo Commitment (other than to increase the amount of the Financing), if such amendment,
modification or waiver reduces the aggregate amount of the Financing, amends the conditions
precedent to the Financing in a manner that would reasonably be expected to delay or prevent the
Offer Closing or, if the Offer Termination has occurred, the Closing or make the funding of the
Financing less likely to occur.
Each of Parent and Purchaser agreed to use commercially reasonable efforts (i) to maintain in
effect the Wells Fargo Commitment and to negotiate and enter into definitive agreements with
respect to the Wells Fargo Commitment on the terms and conditions contained in the Wells Fargo
Commitment, (ii) to satisfy on a timely basis all conditions applicable to it in such definitive
agreements that are within its control, (iii) upon satisfaction of such conditions, to consummate
the Financing at or prior to the Offer Closing (with respect to amounts required to consummate the
Offer, if the Offer Termination has not occurred) and the Closing (with respect to amounts required
to consummate the Merger and make other payments due at such time in accordance with the terms
hereof) and (iv) to comply with its obligations under the Wells Fargo Commitment.
If any portion of the Financing becomes unavailable on the terms and conditions contemplated
by the Wells Fargo Commitment, (i) Parent and Purchaser agreed to promptly notify A.C. Moore and
(ii) Parent and Purchaser agreed to use commercially reasonable efforts to arrange and obtain an
Alternative Financing as promptly as practicable following the occurrence of such event. Parent
agreed to keep A.C. Moore reasonably informed of the status of its efforts to arrange the Financing
and provide to A.C. Moore copies of the material definitive documents for the Financing and will
give the Company prompt notice: (i) of any breach of any material provisions of any of the Wells
Fargo Commitment by any party
to the Wells Fargo Commitment of which it has actual knowledge; (ii) of the receipt of any
written notice or other written communication from a financing source for the Financing with
respect to any actual or potential breach, default, termination or repudiation by any party to the
Wells Fargo Commitment of any material provisions of the Wells Fargo Commitment; and (iii) of the
occurrence of an event or development that Parent or Purchaser expects to have a material and
adverse impact on the ability of Parent or Purchaser to obtain all or any portion of the Financing
contemplated by the Wells Fargo Commitment on the terms, in the manner or from the sources
contemplated by the Wells Fargo Commitment or the definitive documents related to the Financing.
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Prior to the Effective Time, A.C. Moore agreed to provide to Parent and Purchaser all
cooperation that is reasonably requested by Parent and that is customary in connection with the
arrangement of debt financing in acquisition transactions, provided that no such requested
cooperation may unreasonably interfere with the ongoing operations of A.C. Moore and its
subsidiaries, provided that they shall not be required to pay any commitment or other similar fee,
pay any expense (other than as provided in the Merger Agreement) or incur any other obligation or
liability in connection with the Financing prior to the Effective Time. In addition, A.C. Moore is
not required to take any action in connection with the Financing that would (i) cause any condition
to the Merger to fail to be satisfied or otherwise cause any breach of the Merger Agreement (unless
waived by Parent), (ii) require A.C. Moore or any of its subsidiaries to take any action that will
conflict with or violate A.C. Moores organizational documents or any laws or result in the
material contravention of, or that would reasonably be expected to result in a material violation
or breach of, or default under, any material contract to which A.C. Moore or any of its
subsidiaries is a party (in each case prior to the Effective Time) or (iii) result in any officer
or director of A.C. Moore or its subsidiaries incurring any personal liability with respect to any
matters relating to the Financing. Parent and Purchaser agreed to indemnify, defend and hold
harmless A.C. Moore, its affiliates and their respective Representatives for and against any and
all liabilities, losses, damages, claims, reasonable costs and expenses, interest, awards,
judgments and penalties suffered or incurred by them in connection with any certifications provided
by them and required to arrange the Financing (other than arising from (i) fraud, gross negligence,
willful misconduct or intentional misrepresentation or (ii) misstatements or omissions in written
historical information of the type prepared by A.C. Moore or any of its subsidiaries in the
ordinary course of business provided specifically for use in connection with the Financing) to the
fullest extent permitted by applicable law and with appropriate contribution to the extent such
indemnification is not available.
A.C. Moore agreed to keep Parent reasonably informed of the status of its existing credit
facility and will give Parent prompt notice: (i) of any breach of any material provisions of such
facility of which it has actual knowledge; (ii) of the receipt of any written notice or other
written communication with respect to any actual or potential breach, default, termination or
repudiation by any party to such facility; and (iii) of the occurrence of an event or development
that A.C. Moore expects to have a material and adverse impact on the ability of A.C. Moore to
obtain all or any portion of the financing contemplated by such facility on the terms, in the
manner or from the sources contemplated by the facility.
Obligations with Respect to the Shareholders Meeting and the Proxy Statement
The Merger Agreement provides that, as soon as practicable after the date of the Merger
Agreement (and in any event, but subject to Parents timely performance of its obligations
described below, on or prior to October 25, 2011), A.C. Moore would prepare and file this proxy
statement in preliminary form, or the Proxy Statement, with the SEC relating to the special meeting
of shareholders. A.C. Moore agreed to (i) use its commercially reasonable efforts to have the
Proxy Statement cleared by the SEC as soon as practicable; (iii) use its commercially reasonable
efforts to mail to the holders of Shares the Proxy Statement as promptly as practicable after
clearing comments received from the SEC or after being notified by the SEC that the Proxy Statement
will not be subject to review by the SEC, and (iii) otherwise comply in all material respects with
all legal requirements applicable to the shareholders meeting. Subject to applicable laws, A.C.
Moore and Parent (with respect to itself and Purchaser) shall each furnish the other with all
information as may be reasonably necessary or advisable in connection with the Proxy Statement and
otherwise cooperate with the other in the preparation of the Proxy Statement.
A.C. Moore agreed to notify Parent promptly of the receipt of any comments of the SEC or the
SEC staff with respect to the Proxy Statement and of any request by the SEC or the SEC Staff for
any amendment or supplement thereto or for additional information. Each of A.C. Moore, Parent and
Purchaser agreed to use commercially reasonable efforts,
after consultation with the other parties hereto, to respond promptly to all such comments of
and requests by the SEC or the SEC staff and to cause the Proxy Statement and all required
amendments and supplements thereto to be mailed to the holders of Shares entitled to vote at the
shareholders meeting at the earliest practicable time.
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If required by applicable law in order to consummate the Merger, then A.C. Moore will have the
right, at any time after the latest of (i) the expiration date of the Offer, (ii) three business
days after the Proxy Statement Clearance Date and (iii) November 22, 2011, to (and Parent and
Purchaser will have the right, at any time beginning three business days after the Proxy Statement
Clearance Date, to request in writing that A.C. Moore, and upon receipt of such written request,
the Company shall, as promptly as practicable and in any event within 10 business days), (A)
establish a record date (which record date shall be as soon as legally permissible) for and give
notice of a meeting of its shareholders, for the purpose of voting upon the adoption of the Merger
Agreement, and (B) mail to the holders of Shares as of the record date established for the
shareholders meeting the Proxy Statement.
A.C. Moore, acting through the Board, will, in accordance with applicable law and the
Articles, the Bylaws and Nasdaq rules, (i) duly call, give notice of, convene and hold an annual or
special meeting of its shareholders as promptly as reasonably practicable after the Proxy Statement
Clearance Date for the purpose of considering and taking action on the Merger Agreement and the
Transactions, (ii) include the Board Recommendation in the Proxy Statement and use its commercially
reasonable efforts to obtain the approval of A.C. Moore shareholders. Notwithstanding the
foregoing, in the event that Purchaser acquires at least 80% of the then outstanding Shares on a
fully-diluted basis pursuant to the Offer or the exercise, if any, of the Top-Up Option or
otherwise, the parties agreed to take all necessary and appropriate action to cause the Merger to
become effective, in accordance with Section 1924(b)(1)(ii) of the PBCL, as promptly as reasonably
practicable after such acquisition without a meeting of the shareholders of A.C. Moore.
Efforts to Close the Transaction
Upon the terms and subject to the conditions of the Merger Agreement, each of the parties
agreed to use commercially reasonable efforts to take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or advisable under applicable
laws to consummate the transactions contemplated by the Merger Agreement, including the Offer and
the Merger.
Takeover Laws
The parties agreed to use commercially reasonable efforts to ensure that no state takeover law
or similar law is or becomes applicable to the Merger Agreement or the Transactions, including the
Offer and the Merger. If any state takeover law or similar law becomes applicable to the Merger
Agreement or any of the Transactions, including the Offer and the Merger, the parties agreed to use
commercially reasonable efforts to ensure that the Merger and the other Transactions may be
consummated as promptly as practicable on the terms contemplated by the Merger Agreement and
otherwise to minimize the effect of such law on the Merger Agreement and the Transactions,
including the Merger.
Indemnification, Exculpation and Insurance
The Merger Agreement provides that all obligations of A.C. Moore or any subsidiary to any
individual who at the Effective Time is, or at any time prior to the Effective Time was, a
director, officer, employee, fiduciary or agent of A.C. Moore or any subsidiary, which we refer to
as the Indemnified Parties, in respect of advancement, indemnification or exculpation from
liabilities for acts or omissions occurring at or prior to the Effective Time as provided in
applicable law or the Articles, the Bylaws or other organizational documents of A.C. Moore or any
subsidiary in effect as of the date of the Merger Agreement will survive the Transactions and
continue in full force and effect in accordance with their respective terms, in each case, whether
or not A.C. Moores insurance covers all such costs. From and after the Effective Time, the
surviving corporation shall be liable to pay and perform in a timely manner such indemnification,
advancement and exculpation obligations. Without limiting the foregoing, for six years from the
Effective Time, the surviving corporation will cause its articles of incorporation and by-laws to
contain provisions no less favorable to the Indemnified Parties with respect to limitation of
liabilities of directors and officers and advancement and indemnification than are set forth as of
the date of the Merger Agreement in the Articles and Bylaws, which provisions will not be amended,
repealed or otherwise modified in a manner that would adversely affect the rights thereunder of the
Indemnified Parties.
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The Merger Agreement provides that, until the sixth anniversary of the Effective Time, the
surviving corporation will, to the extent to which such persons are indemnified, or entitled to be
indemnified as of the date of the Merger Agreement, indemnify, defend and hold harmless each
Indemnified Party against all costs and expenses (including, but not limited to, fees and expenses
of attorneys, experts and litigation consultants as well as any appeal bonds), judgments, fines,
losses, claims, damages, liabilities and settlement amounts paid in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, whenever asserted, based on or arising out of, in whole or in part, (i) the fact
that an Indemnified Party was, or was or is deemed to have status as, a director or officer of A.C.
Moore or such subsidiary or (ii) acts or omissions by an Indemnified Party in the Indemnified
Partys capacity as a director, officer, employee, fiduciary or agent of A.C. Moore or such
subsidiary or taken at the request of A.C. Moore or such subsidiary, at or at any time prior to the
Effective Time (including any claim, suit, action, proceeding or investigation relating in whole or
in part to the Transactions contemplated by the Merger Agreement).
The surviving corporation will bear the full cost of and maintain in effect, applicable on and
after the Effective Time, for a period equal to six years immediately following the Effective Time,
referred to as the D&O Tail Period, the current directors and officers liability insurance
policies (including, but not limited to, both primary and any and all excess policies) maintained
by A.C. Moore on the date of the Merger Agreement, which we refer to as the D&O Policies, on terms
and scope with respect to such coverage, and in amount, not less favorable to such individuals than
those of such policy in effect on the date of the Merger Agreement, provided that (i) in no event
will the surviving corporation be required to expend more than an amount per year of coverage equal
to 300% of current annual premiums paid by A.C. Moore for such insurance and (ii) in the event of
an expiration, termination or cancellation of such current policies, Parent or the surviving
corporation will be required to obtain as much coverage as is possible under substantially similar
policies for such maximum annual amount in aggregate annual premiums. Alternatively, A.C. Moore
may substitute one or more prepaid, fully-earned and non-cancellable tail policies with respect to
such directors and officers liability insurance with policy limits, terms and conditions at least
as favorable to the individuals and/or A.C. Moore covered under such insurance policy as the
limits, terms and conditions in the existing policies of A.C. Moore.
Parent, Purchaser and A.C. Moore agreed that, with respect to any advancement or
indemnification obligation owed to an Indemnified Party by Parent, Purchaser, A.C. Moore, the
surviving corporation to an Indemnified Party that has rights to indemnification, advancement of
expenses and/or insurance provided by Other Indemnitors pursuant to an Indemnification Agreement,
the surviving corporation (i) will, at all times, be the indemnitor of first resort, (ii) will, at
all times, be required to advance the full amount of expenses incurred by an Indemnified Party and
will be liable for the full amount of all reasonable expenses, judgments, penalties, fines and
amounts paid in settlement to the extent legally permitted and as required by the terms of any
Indemnification Agreement, without regard to any rights an Indemnified Party may have against the
Other Indemnitors, and (iii) irrevocably waives, relinquishes and releases the Other Indemnitors
from any and all claims against the Other Indemnitors for contribution, subrogation,
indemnification or any other recovery of any kind in respect thereof.
Sbars agreed to guarantee the surviving corporations indemnification obligations under the
Merger Agreement to A.C. Moores officers and directors, subject to certain limitations, pursuant
to the Limited Guaranty, dated as of October 3, 2011, made and delivered by Sbars to A.C. Moore,
in favor of, and for the benefit of, the Guaranteed Parties (as defined in the Guaranty).
Litigation, Actions and Other Proceedings
The parties agreed to cooperate and use commercially reasonable efforts to vigorously contest
and resist any action or proceeding, including administrative or judicial action or proceeding, and
to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order
(whether temporary, preliminary or permanent) that is in effect and that restricts, prevents or
prohibits consummation of the Transactions, including the Offer and the Merger, including, without
limitation, by vigorously pursuing all available avenues of administrative and judicial appeal,
unless Parent determines, in its reasonable discretion after consulting with A.C. Moore, that
litigation is not in its best interests or unless A.C. Moore determines, in its reasonable
discretion after consulting with Parent, that litigation is not in its best interests.
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Employee Matters
The Merger Agreement provides that, as of the Effective Time and for a period equal to the
lesser of one year following the Effective Time or the date on which the insurance or other
contract or agreement providing benefits under the applicable plan expires (or such shorter period
of time that such employee remains an employee of the surviving corporation following the Effective
Time), provide or cause to be provided to Continuing Employees benefits at the same levels in
effect on the date of the Merger Agreement under the currently existing employee benefit plans of
A.C. Moore.
Termination of the Merger Agreement
The Merger Agreement may be terminated at any time prior to the Effective Time, whether before
or after receipt of the shareholder approval:
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by mutual written consent of Parent and A.C. Moore; |
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by either Parent or A.C. Moore: |
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if the Merger is not consummated on or before December 30, 2011; provided
that the right to terminate the Merger Agreement on such date shall not be
available to Parent or A.C. Moore if (i) the Offer Closing has occurred or
(ii) the failure of Parent or A.C. Moore, as applicable, to perform any of its
obligations under the Merger Agreement has been a principal cause of the
failure of the Merger to be consummated on or before such date; |
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if any law, restraining order (preliminary, temporary or permanent),
executive order, decree, ruling, judgment or injunction or other order of a
court or governmental entity of competent jurisdiction is in effect enjoining,
restraining, preventing or prohibiting the consummation of the Offer or the
Merger and is final and non-appealable and has the effect of making
consummation of the Offer or the Merger illegal or otherwise restraining,
preventing or prohibiting consummation of the Offer or the Merger; or |
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if there has occurred a breach of or failure to perform any representation,
warranty, covenant or agreement on the part of A.C. Moore, which breach or
failure to perform would cause any conditions of the Offer or the Merger not
to be satisfied and (i) if such breach or failure to perform cannot be cured
by A.C. Moore, at least 20 business days elapse since the date of delivery of
notice of such breach or failure to perform to A.C. Moore from Parent and such
breach or failure to perform shall not have been cured in a manner such that
such breach or failure to perform no longer results in the applicable
condition not being satisfied or (ii) if such breach or failure to perform is
capable of being cured by A.C. Moore, A.C. Moore does not cure such breach or
failure to perform within 10 business days after the date of delivery of
notice of such breach or failure to perform to A.C. Moore, provided, that
Parent will not have the right to terminate the Merger Agreement in these
circumstances if A.C. Moores breach or failure to perform any of its
representations, warranties, covenants or other agreement under the Merger
Agreement was primarily due to the failure of Parent or Purchaser to perform
any of their obligations under the Merger Agreement; |
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if a Board Recommendation Change occurs; |
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A.C. Moore breaches its non-solicitation obligations resulting in the
announcement, submission or making of an Acquisition Proposal; |
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if, after a tender offer or exchange offer is commenced that, if
successful, would result in any person or group (as defined under Section
13(d) of the Exchange Act) becoming a beneficial owner of 20% or more of the
outstanding Shares (other than by Parent or Purchaser), the Board
fails to recommend that A.C. Moores holders not tender their Shares in such
tender or exchange offer within 10 business days after commencement of such
tender offer or exchange offer; |
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the Board fails to reconfirm the Board Recommendation promptly, and in any
event within five business days, following Parents reasonable request to do
so; or
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87
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if (i) in violation of the Merger Agreement, Parent or Purchaser terminates
the Offer without having accepted all of the Shares tendered for payment
thereunder, fails to timely accept for payment and purchase all Shares that
have been validly tendered and not withdrawn pursuant to the Offer if all
conditions to the Offer have been satisfied or waived as of the expiration of
the Offer (including any extensions thereof), or modified certain terms of the
Offer without the prior written consent or waiver of A.C. Moore; and (ii) A.C.
Moore does not breach any of its obligations under the Merger Agreement in any
manner that proximately causes or results in the failure of the Offer to be
consummated; |
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if Parent or Purchaser breaches or fails to perform any of their respective
representations, warranties, covenants or other agreements contained in the
Merger Agreement, which breach or failure to perform (i) would cause any of
the conditions to the Offer or the Merger to not be satisfied, (ii) was
notified by A.C. Moore in a written notice delivered to Parent or Purchaser
and (iii) cannot be cured by December 30, 2011 or at least 30 days shall have
elapsed since the date of delivery of a written notice of such breach from
A.C. Moore to Parent or Purchaser and such breach is not cured in a manner
such that such breach no longer results in the applicable condition not being
satisfied; provided, however, that the right to terminate the Merger Agreement
in these circumstance would not be available to A.C. Moore if (A) Parents or
Purchasers breach or failure to perform any of their respective
representations, warranties, covenants or other agreements contained in the
Merger Agreement was primarily due to the failure of A.C. Moore to perform any
of its obligations under the Merger Agreement or (B) Parent waives the
applicable condition to the Offer; or |
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prior to the Acceptance Date or, in certain circumstances, prior to the
consummation of the Merger, in order to enter into a transaction that is a
Superior Proposal; provided, that such takeover proposal did not result from a
breach of A.C. Moores obligations with respect to solicitation of takeover
proposals. |
Effect of Termination
If the Merger Agreement is terminated in accordance with its terms, the Merger Agreement will
become null and void and, subject to certain designated provisions of the Merger Agreement which
survive, including the termination, confidentiality and indemnification provisions, among others,
there will be no liability on the part of Parent, Purchaser or A.C. Moore. No party is relieved of
any liability for any willful and material breach of any of its representations, warranties,
covenants or agreements set forth in the Merger Agreement prior to such termination.
Termination Fee
A.C. Moore may be required to pay a termination fee to Parent in the amount of $2 million,
including, without limitation, in the following circumstances:
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the Merger Agreement is terminated by Parent as a result of a Board Recommendation
Change; |
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the Merger Agreement is terminated by A.C. Moore in order to accept a Superior
Proposal; or |
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(i) a bona fide Acquisition Proposal is publicly disclosed and not withdrawn prior to
the termination of the Merger Agreement, and (ii) following such disclosure, the Merger
Agreement is terminated by A.C. Moore or Parent because the Merger has not occurred
prior to December 30, 2011 or by Parent as a result of a Board
Recommendation Change, and (iii) within 12 months of the date the Merger Agreement is
terminated, A.C. Moore enters into a definitive agreement with respect to, or recommends
to its shareholders, an Alternative Transaction (as defined below) or an Alternative
Transaction is consummated with a third party. |
88
For the purposes of the third bullet above, the term Alternative Transaction means a
transaction of a type described in the definition of Acquisition Proposal except that the
references to 20% in the definition of Acquisition Proposal are be deemed to be references to
50%.
Specific Performance
The Merger Agreement provides the parties are entitled to an injunction or injunctions to
prevent breaches or threatened breaches of the Merger Agreement and to enforce specifically the
terms and provisions of the Merger Agreement in addition to any and all other rights and remedies
at law or in equity, and all such rights and remedies shall be cumulative. To the extent permitted
by law, any requirements for the securing or posting of any bond with such remedy are waived.
Fees and Expenses
Whether or not the Offer, the Merger or any other transactions contemplated by the Merger
Agreement are consummated, each party agreed to pay its own expenses incident to preparing for,
entering into and carrying out the Merger Agreement and the consummation of the transactions
contemplated thereby.
Amendment
At any time prior to the Effective Time, the parties may modify or amend the Merger Agreement
provided, however, that (i) after Purchaser purchases any Shares pursuant to the Offer, no
amendment will be made that decreases the Merger Consideration, and (ii) after receipt of
shareholder approval, no amendment may be made which by applicable law or any applicable rule or
regulation of any stock exchange requires further approval by A.C. Moores shareholders, without
the approval of such shareholders.
Governing Law
The Merger Agreement is governed by, and construed in accordance with, Delaware law,
regardless of the laws that might otherwise govern under applicable principles of conflicts of laws
(whether of the State of Delaware or any other jurisdiction) that would cause the application of
the laws of any state other than the State of Delaware, except to the extent that provisions of the
PBCL are applicable hereto.
Ancillary Agreements
Deposit Escrow Agreement
Concurrently with the execution of the Merger Agreement, Parent, Purchaser, A.C. Moore and
Wells Fargo Bank, National Association, as Deposit Escrow Agent entered into the Deposit Escrow
Agreement, pursuant to which Purchaser deposited the $20 million Escrow Amount into an escrow
account in order to secure Parents and Purchasers obligations under the Merger Agreement. On the
date that Purchaser accepts for payment all Shares that have been validly tendered and not properly
withdrawn pursuant to the Offer, the Deposit Escrow Agent will pay the Escrow Amount to the paying
agent in partial payment of the aggregate Offer Price in accordance with written instructions to be
provided by Parent and A.C. Moore. If the closing of the Offer does not occur, Deposit Escrow
Agent will pay the Escrow Amount to the paying agent in partial payment of the aggregate Merger
Consideration, in accordance with written instructions to be provided by Parent and A.C. Moore.
89
Pursuant to the Deposit Escrow Agreement, if the Closing does not occur on or prior to
December 30, 2011, upon the Final Determination:
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the Deposit Escrow Amount will be paid to A.C. Moore if Parents and Purchasers
conditions to the consummation of the Merger have been satisfied or waived, but A.C.
Moores conditions to the consummation of the Merger have not been satisfied or waived;
and |
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the Deposit Escrow Amount will be paid to Purchaser if Parents and Purchasers
conditions to the consummation of the Merger have not been satisfied or waived, but A.C.
Moores conditions to the consummation of the Merger have been satisfied or waived. |
In each case, the distribution of the Escrow Amount is contingent on the Final Determination
which shall control the manner, amount and recipients in and to which the Escrow Amount is to be
paid. The Final Determination means either (i) a written notice from Parent and A.C. Moore to
the Deposit Escrow Agent setting forth the manner in which the Escrow Amount is to be paid, or (ii)
a final court order or judgment or decision of an arbitration panel determining the rights of
Parent, Purchaser and A.C. Moore with respect to the Escrow Amount, together with a letter of
counsel confirming the final nature of such determination.
Limited Guaranty
Sbars agreed to guarantee the surviving corporations indemnification obligations under the
Merger Agreement to A.C. Moores officers and directors, subject to certain limitations, pursuant
to the Limited Guaranty, dated as of October 3, 2011, made and delivered by Sbars to A.C. Moore,
in favor of, and for the benefit of, the Guaranteed Parties (as defined in the Guaranty).
Vote Required and Board of Directors Recommendation
Approval of the proposal to adopt the Merger Agreement requires the affirmative vote of a
majority of the votes cast by all shareholders of A.C. Moore entitled to vote thereon.
THE A.C. MOORE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
PROPOSAL TO ADOPT THE MERGER AGREEMENT.
90
ADJOURNMENT OF THE SPECIAL MEETING
Adjournment of the Special Meeting
In the event that there are insufficient votes, in person or represented by proxy, at the time
of the special meeting to approve the proposal to adopt the Merger Agreement, A.C. Moore may move
to adjourn the special meeting, if necessary or appropriate, in order to, among other reasons,
enable the Board to solicit additional proxies in favor of the adoption of the Merger Agreement. In
that event, A.C. Moore will ask its shareholders to vote only upon the adjournment proposal and not
on the other proposals discussed in this proxy statement.
If the shareholders approve the adjournment proposal, A.C. Moore could adjourn the special
meeting (and any reconvened session of the special meeting) and use the additional time to solicit
additional proxies, including the solicitation of proxies from shareholders that have previously
voted. Among other things, approval of the adjournment proposal could mean that, even if A.C.
Moore had received proxies representing a sufficient number of votes to defeat the proposal to
adopt the Merger Agreement, A.C. Moore could adjourn the special meeting without a vote on such
proposal and seek to convince its shareholders to change their votes in favor of the adoption of
the Merger Agreement.
If the special meeting is adjourned, A.C. Moore is not required to give notice of the time and
place of the reconvened meeting, other than by announcement at the meeting at which the adjournment
is taken, unless the Board fixes a new record date for the adjourned meeting or the PBCL requires
notice of the business to be transacted and such notice has not been previously given.
Vote Required and Board of Directors Recommendation
Approval of the proposal to adjourn the special meeting, if necessary or appropriate for,
among other reasons, soliciting additional proxies requires the affirmative vote of a majority of
the votes cast by all shareholders of A.C. Moore entitled to vote thereon.
THE A.C. MOORE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
PROPOSAL TO ADJOURN THE SPECIAL MEETING, IF NECESSARY OR APPROPRIATE TO, AMONG OTHER REASONS,
SOLICIT ADDITIONAL PROXIES.
91
ADVISORY VOTE ON GOLDEN PARACHUTE COMPENSATION
Background
Joseph A. Jeffries, David Stern, David Abelman, Amy Rhoades and Rodney Schriver are the named
executive officers listed in A.C. Moores Annual Report on Form 10-K, as amended, filed with the
SEC on May 2, 2011. A.C. Moore has entered into agreements with Messrs. Jeffries, Stern, Abelman
and Schriver and Ms. Rhoades that provide for severance payments and benefits in the event of a
termination of the employee without cause or a termination by the employee for good reason
following a change in control. A.C. Moore also has other agreements that will provide compensation
to these persons in connection with the Transactions. These agreements are described in The
MergerInterests of Certain Persons in the Merger beginning on page [].
Aggregate Amounts of Potential Compensation
The following table sets forth, in the format prescribed by SEC rules and regulations, the
information regarding the aggregate dollar value of the various elements of compensation that would
be received by the persons listed in the table that is based on or otherwise relates to the
Transactions. In preparing the table, A.C. Moore made the following assumptions:
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the Closing occurred on October 17, 2011, the last practicable date prior to the
filing of this proxy statement; |
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all outstanding, unvested A.C. Moore SARs vest in connection with the Transactions,
and the holders thereof will receive an amount in cash equal to the product of (a) the
total number of Shares subject to such A.C. Moore SAR, multiplied by (b) the excess, if
any, of $1.60 over the exercise price per Share of such A.C. Moore SAR; |
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all outstanding, unvested A.C. Moore Restricted Stock vests in connection with the
Transactions, and the holders thereof will receive an amount in cash equal to $1.60 for
each such Share; |
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no Shares are withheld by A.C. Moore to cover the tax obligations of the persons
listed in the table upon the vesting of unvested A.C. Moore SARs and A.C. Moore
Restricted Stock; and |
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|
the persons listed in the table that were employed by A.C. Moore at the time of the
closing of the Merger were terminated by A.C. Moore without cause, or such persons
terminated their employment for good reason, immediately following a change in control
on October 17, 2011. |
In addition to the above assumptions, the costs of providing continued health or other
benefits are based on estimates. Any changes in these assumptions or estimates would affect the
amounts shown in the following table.
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Golden Parachute Compensation |
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Pension/ |
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Prerequisites |
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Tax |
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Cash |
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Equity |
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NQDC |
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/Benefits |
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Reimbursements |
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Other |
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Total |
|
Name |
|
($)(1) |
|
|
($)(2) |
|
|
($) |
|
|
($)(3) |
|
|
($) |
|
|
($) |
|
|
($) |
|
Joseph A. Jeffries |
|
$ |
938,938 |
|
|
$ |
323,860 |
|
|
$ |
|
|
|
$ |
20,340 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,283,138 |
|
David Stern |
|
$ |
511,500 |
|
|
$ |
165,437 |
|
|
$ |
|
|
|
$ |
12,648 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
689,585 |
|
David Abelman |
|
$ |
558,000 |
|
|
$ |
165,437 |
|
|
$ |
|
|
|
$ |
13,560 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
736,997 |
|
Amy Rhoades |
|
$ |
325,500 |
|
|
$ |
85,971 |
|
|
$ |
|
|
|
$ |
8,628 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
420,099 |
|
Rodney Schriver |
|
$ |
102,775 |
|
|
$ |
25,669 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
128,444 |
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(1) |
|
The amounts in this column for Messrs. Jeffries, Stern, Abelman, Schriver and Ms. Rhoades
represent: (i) for Mr. Jeffries, severance payments attributable to a double trigger arrangement
consisting of 18 months of base salary and $226,438 of pro rata bonus; (ii) for Mr. Stern, $330,000
of severance attributable to a double trigger arrangement and $181,500 of retention award
attributable to a single trigger arrangement; (iii) for Mr. Abelman, $360,000 of severance
attributable to a double trigger arrangement and $198,000 of retention award attributable to a
single trigger arrangement; (iv) for Ms. Rhoades, $210,000 of severance attributable to a double
trigger arrangement and $115,500 of retention award
attributable to a single trigger arrangement; and (v) for Mr. Schriver, severance payments
attributable to a double trigger arrangement consisting of six months of base salary. |
92
|
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(2) |
|
The amounts in this column represent the following payments of value for unvested A.C.
Moore Restricted Stock and unvested A.C. Moore SARs vesting upon the change of control (i.e.,
attributable to a single trigger arrangement): (i) for Mr. Jeffries, $322,782 in A.C. Moore
Restricted Stock and $1,078 in A.C. Moore SARs; (ii) for Messrs. Stern and Abelman, $165,437 in
A.C. Moore Restricted Stock; (iii) for Ms. Rhoades, $85,619 in A.C. Moore Restricted Stock and $352
in A.C. Moore SARs; and (iv) for Mr. Schriver, $25,434 in A.C. Moore Restricted Stock and $235 in
A.C. Moore SARs. |
|
(3) |
|
The amounts in this column represent health insurance benefits attributable to a double
trigger arrangement for Messrs. Jeffries (for a period of 18 months following termination) and
Messrs. Stern and Abelman and Ms. Rhoades (each for a period of 12 months following termination). |
Narrative to Golden Parachute Compensation Table
See The MergerInterests of Certain Persons in the Merger beginning on page [], which is
incorporated herein by reference.
Vote Required and Board of Directors Recommendation
The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and
Section 14A of the Exchange Act requires A.C. Moore to provide its shareholders with the
opportunity to cast an advisory (non-binding) vote on the compensation that may be payable to its
named executive officers in connection with the Merger, which we refer to in this proxy statement
as the golden parachute compensation. As required by those rules, A.C. Moore is asking its
shareholders to vote on the adoption of the following resolution:
RESOLVED, that the compensation that may be paid or become payable to A.C. Moore Arts &
Crafts, Inc.s named executive officers in connection with the Merger, as disclosed in
the table entitled Golden Parachute Compensation pursuant to Item 402(t) of Regulation
S-K including the associated narrative discussion, and the agreements or understandings
pursuant to which such compensation may be paid or become payable, are hereby APPROVED.
The vote on this proposal is a vote separate and apart from the vote on the proposal to adopt
the Merger Agreement. Accordingly, you may vote to approve this proposal on golden parachute
compensation and vote not to adopt the Merger Agreement and vice versa. Because the vote is
advisory in nature only, it will not be binding on either A.C. Moore or Purchaser if the Merger
Agreement is adopted. As A.C. Moore is contractually obligated to pay the compensation to named
executive officers disclosed in this proxy statement, such compensation will be paid, subject only
to the conditions applicable thereto, if the Merger Agreement is adopted by shareholders and
completed, regardless of the outcome of the advisory vote.
Approval of the proposal to approve, on an advisory basis, the golden parachute compensation
requires the affirmative vote of a majority of the votes cast by all shareholders of A.C. Moore
entitled to vote thereon.
THE A.C. MOORE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE, ON AN ADVISORY BASIS, THE GOLDEN PARACHUTE COMPENSATION TO BE RECEIVED BY
A.C. MOORES EXECUTIVE OFFICERS IN CONNECTION WITH THE MERGER AS PRESENTED IN THIS PROXY STATEMENT.
93
MARKET PRICE OF A.C. MOORE COMMON STOCK
The Common Stock is listed for trading on Nasdaq under the symbol ACMR. The table below
shows, for the periods indicated, the high and low sales prices for Common Stock, as reported on
Nasdaq.
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Common Stock |
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Price |
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High |
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|
Low |
|
Fiscal Year Ended January 2, 2010 |
|
|
|
|
|
|
|
|
First Quarter ended April 4, 2009 |
|
$ |
2.68 |
|
|
$ |
1.00 |
|
Second Quarter ended July 4, 2009 |
|
$ |
4.38 |
|
|
$ |
1.87 |
|
Third Quarter ended October 3, 2009 |
|
$ |
4.21 |
|
|
$ |
2.85 |
|
Fourth Quarter ended January 2, 2010 |
|
$ |
5.63 |
|
|
$ |
2.29 |
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended January 1, 2011 |
|
|
|
|
|
|
|
|
First Quarter ended April 3, 2010 |
|
$ |
3.62 |
|
|
$ |
2.41 |
|
Second Quarter ended July 3, 2010 |
|
$ |
4.20 |
|
|
$ |
2.06 |
|
Third Quarter ended October 2, 2010 |
|
$ |
2.69 |
|
|
$ |
1.71 |
|
Fourth Quarter ended January 1, 2011 |
|
$ |
2.90 |
|
|
$ |
1.82 |
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending December 31, 2011 |
|
|
|
|
|
|
|
|
First Quarter ended April 2, 2011 |
|
$ |
3.56 |
|
|
$ |
2.12 |
|
Second Quarter ended July 2, 2011 |
|
$ |
2.94 |
|
|
$ |
2.27 |
|
Third Quarter ended October 1, 2011 |
|
$ |
2.48 |
|
|
$ |
1.03 |
|
Fourth Quarter through [], 2011 |
|
$ |
[] |
|
|
$ |
[] |
|
The closing price of our Common Stock on Nasdaq on October 3, 2011, the last trading day prior
to the public announcement of the Merger Agreement, was $0.95 per Share. In addition, on February
14, 2011, the date immediately prior to the date on which A.C. Moore announced that it was pursuing
financial and strategic alternatives, the closing price of our Common Stock on Nasdaq was $2.44.
On [], 2011, the most recent practicable date before this proxy statement was mailed to our
shareholders, the closing price of our Common Stock on Nasdaq was $[] per Share. You are
encouraged to obtain current market quotations of our Common Stock in connection with voting your
Shares.
No cash dividends have been paid on our Common Stock to date. Under the terms of the Merger
Agreement, A.C. Moore is not permitted to declare or pay dividends in respect of Shares unless
approved in advance by Parent in writing.
94
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 19, 2011, certain information with respect to
the beneficial ownership of Common Stock by (i) each person who is known by A.C. Moore to be the
beneficial owner of more than 5% of Common Stock, (ii) each director of A.C. Moore, (iii) each
named executive officer of A.C. Moore and (iv) all directors and executive officers of A.C. Moore
as a group. The information about the beneficial owners contained in the table below is based on
information supplied by such persons or SEC filings. Except as otherwise indicated, to the
knowledge of A.C. Moore, the beneficial owners of Shares listed below have sole investment and
voting power with respect to such Shares.
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|
|
Shares Beneficially |
|
|
|
Owned(1) |
|
|
|
Amount and |
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|
|
|
|
|
Nature of |
|
|
|
|
|
|
Beneficial |
|
|
Percent |
|
Name of Beneficial Owner |
|
Ownership |
|
|
of Class |
|
Joseph A. Jeffries |
|
|
283,236 |
(2) |
|
|
1.1 |
|
David Stern |
|
|
147,076 |
(3) |
|
|
* |
|
David Abelman |
|
|
151,817 |
(4) |
|
|
* |
|
Amy Rhoades |
|
|
91,068 |
(5) |
|
|
* |
|
Rodney Schriver |
|
|
29,979 |
(6) |
|
|
* |
|
Rick A. Lepley |
|
|
143,710 |
(7) |
|
|
* |
|
Joseph F. Coradino |
|
|
79,824 |
(8) |
|
|
* |
|
Michael J. Joyce |
|
|
114,824 |
(9) |
|
|
* |
|
Neil A. McLachlan |
|
|
74,324 |
(10) |
|
|
* |
|
Thomas S. Rittenhouse |
|
|
69,324 |
(11) |
|
|
* |
|
Lori J. Schafer |
|
|
84,824 |
(12) |
|
|
* |
|
All executive officers and directors as a group (10 persons) |
|
|
1,126,296 |
(13) |
|
|
4.4 |
|
Dimensional Fund Advisors LP |
|
|
1,777,036 |
(14) |
|
|
7.0 |
|
Glenn J. Krevlin |
|
|
2,275,000 |
(15) |
|
|
10.7 |
|
Glenhill Advisors, LLC |
|
|
2,275,000 |
(15) |
|
|
10.7 |
|
Glenhill Capital Management, LLC |
|
|
2,275,000 |
(15) |
|
|
10.7 |
|
Glenhill Capital Overseas Master Fund, LP |
|
|
2,535,777 |
(15) |
|
|
10.0 |
|
T. Rowe Price Associates, Inc. |
|
|
1,804,967 |
(16) |
|
|
7.1 |
|
Paradigm Capital Management, Inc. |
|
|
1,370,220 |
(17) |
|
|
5.4 |
|
|
|
|
* |
|
Denotes less than 1%. |
|
(1) |
|
Beneficial ownership is determined in accordance with the rules of the SEC and includes
voting or investment power with respect to Common Stock. Shares issuable upon the exercise of
securities currently exercisable or exercisable within 60 days of October 19, 2011 are deemed
outstanding for computing the Share ownership and percentage ownership of the person holding
such securities, but are not deemed outstanding for computing the percentage of any other
person. The address for all current directors and executive officers is c/o A.C. Moore Arts &
Crafts, Inc., 130 A.C. Moore Drive, Berlin, New Jersey 08009. |
|
(2) |
|
Represents (i) 265,276 Shares held by Mr. Jeffries directly; and (ii) Shares that potentially
could be acquired upon the exercise of 17,960 SARS exercisable within 60 days of October 19,
2011. Excludes Shares that potentially could be acquired upon the exercise of 120,914 SARs
exercisable 60 days of October 19, 2011, which SARs were out-of-the-money as of October 19,
2011. |
|
(3) |
|
Represents 147,076 Shares held by Mr. Stern directly. Excludes Shares that potentially could
be acquired upon the exercise of 44,926 SARs exercisable within 60 days of October 19, 2011,
which SARs were out-of-the-money as of October 19, 2011. |
|
(4) |
|
Represents 151,817 Shares held by Mr. Abelman directly. Excludes Shares that potentially
could be acquired upon the exercise of 44,926 SARs exercisable within 60 days of October 19,
2011, which SARs were out-of-the-money as of October 19, 2011. |
95
|
|
|
(5) |
|
Represents (i) 66,403 Shares held by Ms. Rhoades directly; (ii) options to purchase 18,800
Shares exercisable within 60 days of October 19, 2011; and (iii) Shares that potentially could
be acquired upon the exercise of 5,865 SARs exercisable within 60 days of October 19, 2011.
Excludes Shares that potentially could be acquired upon the exercise of 25,976 SARs
exercisable within 60 days of October 19, 2011, which SARs were out-of-the-money as of October
19, 2011. |
|
(6) |
|
Represents (i) 20,969 Shares held by Mr. Schriver directly; (ii) options to purchase 5,100
Shares exercisable within 60 days of October 19, 2011; and (iii) Shares that potentially could
be acquired upon the exercise of 3,910 SARs exercisable within 60 days of October 19, 2011.
Excludes Shares that potentially could be acquired upon the exercise of 12,344 SARs
exercisable within 60 days of October 19, 2011, which SARs were out-of-the-money as of October
19, 2011. |
|
(7) |
|
Mr. Lepley retired from A.C. Moore effective March 31, 2010, and, to A.C. Moores knowledge,
as of July 2010, Mr. Lepleys ownership represents Shares held by Mr. Lepley directly. |
|
(8) |
|
Represents (i) 69,824 Shares held by Mr. Coradino directly; and (ii) options to purchase
10,000 Shares exercisable within 60 days of October 19, 2011. |
|
(9) |
|
Represents (i) 84,824 Shares held by Mr. Joyce directly; and (ii) options to purchase 30,000
Shares exercisable within 60 days of October 19, 2011. |
|
(10) |
|
Represents (i) 70,824 Shares held by Mr. McLachlan directly; and (ii) options to purchase
3,500 Shares exercisable within 60 days of October 19, 2011. |
|
(11) |
|
Represents (i) 65,824 Shares held by Mr. Rittenhouse directly; (ii) 1,000 Shares held jointly
by Mr. Rittenhouse and his spouse; and (iii) options to purchase 3,500 Shares exercisable
within 60 days of October 19, 2011. |
|
(12) |
|
Represents (i) 64,824 Shares held by Ms. Schafer directly; and (ii) options to purchase
20,000 Shares exercisable within 60 days of October 19, 2011. |
|
(13) |
|
Represents (i) options to purchase 90,900 Shares exercisable within 60 days of October 19,
2011; and (ii) Shares that potentially could be acquired upon the exercise of 27,735 SARs
exercisable within 60 days of October 19, 2011. Excludes Shares that potentially could be
acquired upon the exercise of 249,086 SARs exercisable within 60 days of October 19, 2011,
which SARs were out-of-the-money as of October 19, 2011. |
|
(14) |
|
Based solely on Schedule 13G/A filed with the SEC on February 11, 2011 by Dimensional Fund
Advisors LP, referred to as Dimensional. The filing indicates Dimensional has sole voting
power over 1,774,463 Shares and sole dispositive power over 1,777,036 Shares. These
securities are owned by various investment companies and certain commingled group trusts and
separate accounts, for which Dimensional serves as investment adviser. For purposes of the
reporting requirements of the Exchange Act, Dimensional is deemed to be a beneficial owner of
such securities; however, Dimensional expressly disclaims that it is, in fact, the beneficial
owner of such securities. The address of Dimensional is Palisades West, Building One, 6300 Bee
Cave Road, Austin, Texas 78746. |
|
(15) |
|
Based solely on a Schedule 13D/A filed with the SEC on October 10, 2011 by Glenhill Advisors,
LLC, referred to as GA; Glenn J. Krevlin, Glenhill Capital Management, LLC, referred to as
GCM; and Glenhill Capital Overseas Master Fund, LP, referred to as GMF. The filing indicates
GA and Mr. Krevlin have sole voting power and sole dispositive power over 2,275,000 Shares.
The filing also indicates GCM has shared voting power and shared dispositive power over
2,275,000 Shares and GMF has shared voting power and shared dispositive power over 3,737,422
Shares. Mr. Krevlin is the managing member and control person of GA, and is the sole
shareholder of Krevlin Management, Inc., the managing member of Glenhill Capital Advisors,
LLC, the investment manager of GMF. GA is the managing member of GCM. GCM is managing member
of Glenhill Concentrated Long Master Fund, LLC and sole shareholder of Glenhill Capital
Overseas GP, Ltd, referred to as GCO. GCO is general partner of GMF. The address of GA, Mr.
Krevlin, GCM and GMF is 156 West 56th Street, 17th Floor, New York, NY 10019. |
96
|
|
|
(16) |
|
Based solely on a Schedule 13G/A filed with the SEC on February 10, 2011 by T. Rowe Price
Associates, Inc., referred to as Price Associates. The filing indicates Price Associates has
sole voting power over 539,091 Shares and sole dispositive power over 1,804,967 Shares. These
securities are owned by various individual and institutional investors, for which Price
Associates serves as investment adviser. The address of Price Associates is 100 E. Pratt
Street, Baltimore, Maryland 21202. |
|
(17) |
|
Based solely on a Schedule 13G/A filed with the SEC on February 14, 2011 by Paradigm Capital
Management, Inc., referred to as Paradigm. The filing indicates Paradigm has sole voting
power and sole dispositive power over 1,370,200 Shares. The address of Paradigm is Nine Elk
Street, Albany, New York 12207. |
Change of Control
As a result of the Transactions contemplated by the Merger Agreement, A.C. Moore may at a
subsequent date undergo a change in control. For additional information, see The Merger
Agreement in this proxy statement, which is incorporated herein by reference.
97
NO DISSENTERS RIGHTS
Dissenters rights are not available in connection with the Merger if there is a vote of
shareholders at the special meeting to adopt the Merger Agreement.
DELISTING AND DEREGISTRATION OF A.C. MOORE COMMON STOCK
If the Merger is completed, our Common Stock will be delisted from the Nasdaq and deregistered
under the Exchange Act and we will no longer file periodic reports and proxy statements with the
SEC on account of Common Stock.
SHAREHOLDER PROPOSALS
Once the Merger is completed, there will be no public participation in any future meetings of
A.C. Moores shareholders. If the Merger is not completed, our public shareholders will continue
to be entitled to attend and participate in our shareholder meetings, and we would expect to hold
our 2011 annual meeting of shareholders prior to the end of 2011.
In order to be considered for inclusion in the proxy statement distributed to shareholders
prior to the annual meeting of shareholders in 2011, a shareholder proposal pursuant to Rule 14a-8
under the Exchange Act must have been received by us no later than January 3, 2011 and must comply
with the requirements of SEC Rule 14a-8; provided, however, because the annual meeting date will be
changed by more than 30 days from the anniversary of last years annual meeting, which took place
on June 17, 2010, the deadline for such proposals is a reasonable time before A.C. Moore begins to
print and send its annual meeting proxy materials, which would be disclosed in A.C. Moores reports
filed with the SEC. Written requests for inclusion of a shareholder proposal in our annual meeting
proxy statement should be sent by personal delivery, nationally-recognized express mail or U.S.
certified mail, return receipt requested, to A.C. Moore Arts & Crafts, Inc., 130 A.C. Moore Drive,
Berlin, New Jersey 08009, Attention: Amy Rhoades, Senior Vice President and General Counsel. In
addition, shareholders are notified that the deadline for providing A.C. Moore timely notice of any
shareholder proposal or nomination to be submitted outside of the Rule 14a-8 process for
consideration at A.C. Moores 2011 annual meeting of shareholders was January 3, 2011.
Because the annual meeting will not take place within 30 days from the anniversary of last
years annual meeting, which took place on June 17, 2010, the deadline for such proposal or
nomination will be a reasonable time before A.C. Moore begins to print and send its annual meeting
proxy materials, which would be disclosed in A.C. Moores reports filed with the SEC. Shareholders
are advised to review A.C. Moores bylaws for a complete discussion of the requirements that must
be complied with by shareholders intending to present a proposal or nomination at the 2011 annual
meeting, but not intending to have any such proposal included in A.C. Moores proxy statement.
OTHER MATTERS
As of the date of this proxy statement, our Board knows of no matters that will be presented
for consideration at the special meeting other than as described in this proxy statement. If any
other matters properly come before the shareholders at the special meeting, the persons named on
the enclosed proxy intend to vote the Shares of Common Stock they represent in accordance with
their best judgment.
HOUSEHOLDING
In order to reduce printing costs and postage fees, A.C. Moore has adopted the process called
householding for mailing its proxy statement to street name holders, which refers to
shareholders whose shares are held in a stock brokerage account or by a bank or other nominee. This
means that street name holders who share the same last name and address will receive only one copy
of A.C. Moores proxy statement, unless A.C. Moore receives contrary instructions from a street
name holder at that address. A.C. Moore will continue to mail a proxy card to each shareholder of
record.
If you prefer to receive multiple copies of A.C. Moores proxy statement and annual report at
the same address, you may obtain additional copies by writing to A.C. Moore Arts & Crafts, Inc.
Attention: Amy Rhoades, Senior Vice President and General Counsel, 130 A.C. Moore Drive, Berlin,
New Jersey 08009 or by calling (856) 768-4930. Eligible
shareholders of record receiving multiple copies of the proxy statement can request
householding by contacting A.C. Moore in the same manner.
98
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the
SEC. You may read and copy any document we file at the SEC public reference room located at 100 F
Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 800-SEC-0330 for further
information on the public reference room. Our SEC filings are also available to the public at the
SEC website at www.sec.gov. You also may obtain free copies of the documents we file with the SEC,
including this proxy statement, by going to our corporate website at www.acmoore.com under About
Us and SEC Filings. Our website address is provided as an inactive textual reference only. The
information provided on our website, other than copies of the documents listed below that have been
filed with the SEC, is not part of this proxy statement, and therefore is not incorporated herein
by reference. In addition, shareholders may obtain free copies of the documents filed with the SEC
from A.C. Moore by contacting David Stern, Chief Financial and Administrative Officer, A.C. Moore
Arts & Crafts, Inc., 130 A.C. Moore Drive, Berlin, New Jersey 08009, (856) 768-4943.
THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR
FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT
JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT TO VOTE
YOUR SHARES OF A.C. MOORE COMMON STOCK AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS
PROXY STATEMENT IS DATED [], 2011. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY
STATEMENT TO SHAREHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.
99
Annex A
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
by and among
NICOLE CRAFTS LLC,
SBARS ACQUISITION CORPORATION
and
A.C. MOORE ARTS & CRAFTS, INC.
dated as of October 3, 2011
TABLE OF CONTENTS
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Page |
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Article I DEFINITIONS |
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A - 2 |
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1.1 |
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Certain Definitions |
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A - 2 |
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Article II THE OFFER |
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A - 11 |
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2.1 |
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The Offer |
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A - 11 |
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2.2 |
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Company Action |
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A - 14 |
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2.3 |
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Top-Up Option |
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A - 15 |
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Article III THE MERGER |
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A - 17 |
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3.1 |
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The Merger |
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A - 17 |
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3.2 |
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Effects of the Merger |
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A - 17 |
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3.3 |
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Closing |
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A - 17 |
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3.4 |
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Effective Time |
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A - 17 |
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3.5 |
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Articles of Incorporation |
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A - 18 |
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3.6 |
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Bylaws |
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A - 18 |
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3.7 |
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Directors |
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A - 18 |
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3.8 |
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Officers |
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A - 18 |
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3.9 |
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Merger Without Meeting of Stockholders |
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A - 18 |
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Article IV MERGER CONSIDERATION; CONVERSION OR CANCELLATION OF SHARES IN THE MERGER |
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A - 19 |
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4.1 |
|
Merger Consideration; Conversion or Cancellation of Shares in the Merger |
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A - 19 |
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4.2 |
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Exchange of Stock Certificates |
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A - 20 |
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4.3 |
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Stock Options; Stock Appreciation Rights; Restricted Stock |
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A - 22 |
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4.4 |
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Withholding Rights |
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A - 23 |
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Article V REPRESENTATIONS AND WARRANTIES OF THE COMPANY |
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A - 23 |
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5.1 |
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Corporate Organization and Qualification |
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A - 23 |
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5.2 |
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Capitalization |
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A - 23 |
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5.3 |
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Authorization; Valid and Binding Agreement |
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A - 25 |
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5.4 |
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Consents and Approvals; No Violation |
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A - 25 |
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5.5 |
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SEC Reports; Financial Statements; Controls |
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A - 26 |
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5.6 |
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Absence of Certain Changes or Events |
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A - 28 |
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5.7 |
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Litigation |
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A - 28 |
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5.8 |
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Offer Documents; Schedule 14D-9; Proxy Statement |
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A - 29 |
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5.9 |
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Taxes |
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A - 29 |
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5.10 |
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Employee Benefit Plans |
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A - 31 |
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5.11 |
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Labor Matters |
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A - 33 |
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5.12 |
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Environmental Laws and Regulations |
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A - 34 |
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5.13 |
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Property and Assets |
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A - 35 |
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5.14 |
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No Undisclosed Liabilities |
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A - 35 |
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5.15 |
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Intellectual Property |
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A - 36 |
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5.16 |
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Compliance with Laws and Orders |
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A - 36 |
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5.17 |
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Company Contracts |
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A - 36 |
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5.18 |
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Permits |
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A - 38 |
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A - i
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Page |
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5.19 |
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Insurance |
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A - 38 |
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5.20 |
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Certain Transactions |
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A - 38 |
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5.21 |
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Brokers and Finders |
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A - 38 |
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5.22 |
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Opinion of Financial Advisor |
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A - 39 |
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5.23 |
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Takeover Provisions |
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A - 39 |
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5.24 |
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Major Suppliers |
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A - 39 |
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5.25 |
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Prohibited Payments |
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A - 39 |
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5.26 |
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No Other Representations or Warranties |
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A - 40 |
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Article VI REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB |
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A - 40 |
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6.1 |
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Corporate Organization and Qualification |
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A - 40 |
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6.2 |
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Authorization; Valid and Binding Agreement |
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A - 40 |
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6.3 |
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Consents and Approvals; No Violation |
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A - 41 |
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6.4 |
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Litigation |
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A - 41 |
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6.5 |
|
Offer Documents; Proxy Statement |
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A - 42 |
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6.6 |
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No Other Representations or Warranties |
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A - 42 |
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6.7 |
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Sufficient Funds; Financing |
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A - 42 |
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6.8 |
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Brokers and Finders |
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A - 43 |
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6.9 |
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Share Ownership; Interested Stockholder |
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A - 43 |
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6.10 |
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Solvency |
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A - 43 |
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6.11 |
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Certain Arrangements |
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A - 43 |
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6.12 |
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Escrow |
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A - 44 |
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6.13 |
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Guaranty |
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A - 44 |
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6.14 |
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No Other Representations or Warranties |
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A - 44 |
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Article VII COVENANTS AND AGREEMENTS |
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A - 44 |
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7.1 |
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Conduct of Business |
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A - 44 |
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7.2 |
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No Solicitation of Transactions |
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A - 47 |
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7.3 |
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Stockholders Meeting |
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A - 50 |
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7.4 |
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Proxy Statement |
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A - 52 |
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7.5 |
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Company Board Representation; Section 14(f) |
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A - 53 |
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7.6 |
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Efforts to Complete Transactions |
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A - 54 |
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7.7 |
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Access to Information; Confidentiality |
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A - 55 |
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7.8 |
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Publicity |
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A - 56 |
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7.9 |
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Indemnification of Directors and Officers |
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A - 57 |
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7.10 |
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Employee Matters |
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A - 60 |
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7.11 |
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Certain Notifications |
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A - 62 |
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7.12 |
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Further Assurances |
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A - 62 |
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7.13 |
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Takeover Laws |
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A - 62 |
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7.14 |
|
Section 16 Matters |
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A - 62 |
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7.15 |
|
Voting Shares |
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A - 62 |
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7.16 |
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Company Compensation Arrangements |
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A - 63 |
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7.17 |
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No Control of the Companys Business |
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A - 63 |
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7.18 |
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Financing |
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A - 63 |
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7.19 |
|
Financing Cooperation |
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A - 64 |
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A - ii
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Page |
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Article VIII CONDITIONS TO CONSUMMATION OF THE MERGER |
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|
A - 66 |
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8.1 |
|
Conditions to Each Partys Obligations to Effect the Merger |
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|
A - 66 |
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8.2 |
|
Conditions to Obligations of Parent and Merger Sub to Effect the Merger |
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A - 66 |
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8.3 |
|
Conditions to Obligation of the Company to Effect the Merger |
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A - 67 |
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8.4 |
|
Frustration of Closing Conditions |
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|
A - 68 |
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Article IX TERMINATION; WAIVER |
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A - 68 |
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9.1 |
|
Termination by Mutual Consent |
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A - 68 |
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9.2 |
|
Termination by Either Parent or the Company |
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A - 68 |
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9.3 |
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Termination by Parent |
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A - 68 |
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9.4 |
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Termination by the Company |
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A - 69 |
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9.5 |
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Effect of Termination |
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A - 70 |
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9.6 |
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Extension; Waiver |
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A - 72 |
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Article X MISCELLANEOUS |
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A - 72 |
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10.1 |
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Payment of Expenses |
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A - 72 |
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10.2 |
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Non-Survival of Representations, Warranties, Covenants and Agreements; Survival of Confidentiality |
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A - 72 |
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10.3 |
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Modification or Amendment |
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A - 72 |
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10.4 |
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Waiver |
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A - 73 |
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10.5 |
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Counterparts |
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A - 73 |
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10.6 |
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Governing Law |
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A - 73 |
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10.7 |
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Jurisdiction; Enforcement; Waiver of Jury Trial |
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A - 73 |
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10.8 |
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Notices |
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A - 74 |
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10.9 |
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Entire Agreement; Assignment |
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A - 75 |
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10.10 |
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Parties in Interest |
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A - 76 |
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10.11 |
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Severability |
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A - 76 |
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10.12 |
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Disclosure Schedules |
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A - 76 |
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10.13 |
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Parent Guarantee |
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A - 77 |
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10.14 |
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Certain Interpretations |
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A - 77 |
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Annex A: Conditions to the Offer |
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Exhibit A:
Articles of Incorporation of the Surviving Corporation |
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Exhibit B: Bylaws of the Surviving Corporation |
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Exhibit C:
Deposit Escrow Agreement |
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Exhibit D: Limited Guaranty |
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A - iii
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this Agreement), dated as of October 3, 2011, is
entered into by and among Nicole Crafts LLC, a Delaware limited liability company
(Parent), Sbars Acquisition Corporation, a Pennsylvania corporation and a wholly owned
Subsidiary of Parent (Merger Sub), and A.C. Moore Arts & Crafts, Inc., a Pennsylvania
corporation (the Company). Certain capitalized terms used in this Agreement are defined
in Section 1.1.
RECITALS
WHEREAS, Parent desires to acquire the Company on the terms and subject to the conditions set
forth in this Agreement;
WHEREAS, in furtherance of the acquisition of the Company by Parent, on the terms and subject
to the conditions set forth herein, it is proposed that Merger Sub commence (within the meaning of
Rule 14d-2 promulgated under the Exchange Act) a tender offer (the Offer) to purchase all
of the issued and outstanding shares of Company Common Stock, at a price of $1.60 per share, net
to the seller in cash, without interest (such price per share, or any higher price per share as may
be paid by Merger Sub pursuant to the terms of the Offer in accordance with this Agreement, the
Offer Price);
WHEREAS, regardless of whether the Offer Closing occurs, Merger Sub will merge with and into
the Company with the Company surviving as a wholly owned Subsidiary of Parent (the
Merger), and each share of Company Common Stock that is not tendered and accepted
pursuant to the Offer (other than shares held in the treasury of the Company or owned, directly or
indirectly, by Merger Sub, Parent or any Subsidiary of Parent or the Company or any Subsidiary of
the Company immediately prior to the Effective Time, and other than Dissenting Shares) will
thereupon be canceled and converted into the right to receive cash in an amount equal to the Offer
Price, on the terms and subject to the conditions set forth in this Agreement;
WHEREAS, the Board of Directors of the Company (the Company Board), at a meeting
duly called and held prior to the execution of this Agreement at which all directors of the Company
were present, has unanimously (i) determined that this Agreement and the transactions contemplated
hereby, including the Offer and the Merger, are advisable and fair to, and in the best interests
of, the Company and the Companys stockholders, (ii) adopted and approved this Agreement and the
transactions contemplated hereby, including the Offer and the Merger, (iii) directed that the
adoption of this Agreement be submitted to the Stockholders Meeting (unless the Merger is
consummated in accordance with Section 1924(b)(1)(ii) of the PBCL) and (iv) resolved to recommend
that the holders of shares of Company Common Stock accept the Offer and tender their shares of
Company Common Stock pursuant to the Offer, and that the holders of shares of Company Common Stock
adopt this Agreement to the extent required by applicable Law in connection with the Merger (the
Company Board Recommendation), which actions and resolutions have not, as of the date
hereof, been subsequently rescinded, modified or withdrawn in any way;
A-1
WHEREAS, the Board of Directors of Merger Sub has approved and declared it advisable for
Merger Sub to enter into this Agreement and consummate the transactions contemplated hereby,
including the Offer and the Merger, upon the terms and subject to the conditions set forth herein;
WHEREAS, the Managers of Parent have (i) approved and declared it advisable for Parent to
enter into this Agreement and consummate the transactions contemplated hereby, including the Offer
and the Merger, upon the terms and subject to the conditions set forth herein, and (ii) in
connection with Parents capacity as the sole stockholder of Merger Sub, voted in favor of the
adoption of this Agreement;
WHEREAS, concurrently with the execution and delivery of this Agreement, Parent has caused
Merger Sub to deliver to Wells Fargo Bank, National Association, as escrow agent (the Escrow
Agent) cash in the amount of $20,000,000.00 (the Escrow Amount) to be held pursuant
to the Deposit Escrow Agreement by and among Parent, Merger Sub, the Company and Escrow Agent, of
even date herewith, attached hereto as Exhibit C (the Escrow Agreement), which
amounts shall be used to satisfy the Purchase Price and otherwise support all obligations of Parent
and Merger Sub under this Agreement; and
WHEREAS, concurrently with the execution of this Agreement, Parent has delivered to the
Company a limited guaranty, attached hereto as Exhibit D (the Guaranty), duly
executed by Sbars, Inc., a New Jersey corporation (the Guarantor), with respect to
certain matters on the terms specified in the Guaranty.
NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties,
covenants and agreements set forth herein and intending to be legally bound hereby, Parent, Merger
Sub and the Company hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions.
(a) As used herein:
Affiliate has the meaning set forth in Rule 12b-2 promulgated under the Exchange
Act.
Board Recommendation Change means either of the following, as the context may
indicate: (i) any failure by the Company Board or any committee of the Company Board (a
Committee) to make, or any withdrawal or modification in a manner adverse to Parent of,
the Company Board Recommendation; or (ii) the Company Board or a Committee approving, recommending,
endorsing or resolving to approve, recommend or endorse an Acquisition Proposal or recommending
against the adoption of this Agreement by the stockholders of the Company.
A-2
Business Day means a day other than Saturday, Sunday or any other day on which
commercial banks in New York, New York are authorized or required by Law to close.
Code means the Internal Revenue Code of 1986, as amended, and, as the context
contemplates, all applicable rules and regulations promulgated thereunder.
Company Common Stock means the common stock, no par value per share, of the Company.
Company Credit Facility means Credit Agreement, dated as of January 15, 2009, among
A.C. Moore Incorporated, as the lead borrower, the borrowers now or hereafter party thereto, the
guarantors now or hereafter party thereto, each lender from time to time party thereto, and Wells
Fargo Retail Finance, LLC, as administrative agent, collateral agent and swing line lender, as
amended.
Company Material Adverse Effect shall mean any fact, circumstance, event, change,
effect, violation or occurrence that, individually or in the aggregate with all other facts,
circumstances, events, changes, effects, violations or occurrences, (a) has or would be reasonably
expected to have a material adverse effect on the financial condition, business, assets,
liabilities or results of operations of the Company and its Subsidiaries, taken as a whole, or (b)
prevents, impedes, interferes with, hinders or delays in any material respect the ability of the
Company to consummate the Merger or the other transactions or perform its obligations, in each case
as contemplated by this Agreement; provided, however, that in the case of clause
(a) only, none of the following, and no effect arising out of or resulting from the following,
shall be deemed to be a Company Material Adverse Effect with respect to clause (a) and shall not be
considered in determining whether there has occurred, or may, would or could occur, a Company
Material Adverse Effect with respect to clause (a): (i) any changes, events, occurrences or
conditions generally affecting the economy or the credit, financial or capital markets in the
United States or elsewhere in the world, including changes in interest or exchange rates, (ii)
changes, events, occurrences or effects arising out of, resulting from or attributable to acts of
sabotage, terrorism, war (whether or not declared), (iii) changes, events, occurrences or effects
arising out of, resulting from or attributable to any escalation or worsening of such acts of
sabotage, terrorism or war (whether or not declared) threatened or underway as of the date of this
Agreement, (iv) changes, events, occurrences or effects arising out of, resulting from or
attributable to pandemics, earthquakes, hurricanes, tornados, tsunamis or other natural disaster
occurring in the United States or elsewhere in the world, (v) changes, events, occurrences or
effects arising out of, resulting from or attributable to changes in Law, GAAP or other accounting
standards, regulations or principles or any changes in the interpretation or enforcement of any of
the foregoing, or changes in regulatory or political conditions, (vi) changes as a result of any
action or failure to take action, in each case consented to or requested by Parent, (vii) events
attributable to the announcement or performance of this Agreement or the consummation of the
transactions contemplated hereby or the pendency of the Offer or the Merger (including the loss or
departure of officers or other employees of the Company or any of its Subsidiaries, or the
termination, reduction (or potential reduction) or any other negative effect (or potential negative
effect) on the Companys relationships or agreements with any of its customers, suppliers or other
business partners, (viii) events attributable to the taking of any action by the Company or its
Subsidiaries if that action is contemplated or required by, this Agreement, or with Parents or
Merger Subs
A-3
consent, or the failure to take any action by the Company or its Subsidiaries if that action
is prohibited by this Agreement, or the consummation of the transactions contemplated hereby, (ix)
a decline in the market price, or a change in the trading volume, of the Company Common Stock
(provided that any event, condition, change, occurrence or development of a state of circumstances
that may have caused or contributed to such change in market price or trading volume shall not be
excluded under this proviso), (x) any change in the Companys credit ratings, if any, (xi) any
failure by the Company to meet any published estimates, projections, predictions, or expectations
of the Companys revenue, earnings or other financial performance or results of operations for any
period (other than those directly publicly disseminated by the Company during the Companys fiscal
year 2011, the effects ((excluding the effects referred to in clause (xiv) of this definition)) of
the failure of which are reasonably expected to result in material damages to the Company, and
provided further that any event, condition, change, occurrence or development of a state of
circumstances that may have caused or contributed to such failure to meet any published estimates,
projections, predictions, or expectations shall not be excluded under this provision), (xii) any
failure by the Company to meet any internal budgets, plans or forecasts of its revenues, earnings
or other financial performance or results of operations including any budgets, plans or forecasts
previously made available to Parent, (xiii) effects arising out of or related to any matters
disclosed on the Company Disclosure Schedule, or (xiv) effects arising out of or related to any
legal proceedings commenced by or involving any of the current or former stockholders of the
Company (on their own behalf or on behalf of the Company) arising out of or related to any failure
by the Company referred to in clause (xi) above, this Agreement or any of the transactions
contemplated hereby, which, based on the underlying merits of such legal proceedings, are not
reasonably expected to result in an award of material damages or injunctive relief against the
Company or its directors; provided, however, that, any fact, circumstance, event,
change or occurrence referred to in clauses (i) through (v) immediately above shall be taken into
account in determining whether a Company Material Adverse Effect has occurred or is reasonably
expected to occur to the extent that such fact, circumstance, event, change, violation or
occurrence has had, or would reasonably be expected to have, a materially disproportionate impact
on the financial condition, business, assets, liabilities or results of operations of the Company
and its Subsidiaries, taken as a whole, relative to other participants in the industries in which
the Company and its Subsidiaries are involved (in which event the extent of such material adverse
change may be taken into account in determining whether a Company Material Adverse Effect has
occurred).
Company Permitted Liens means (i) materialmens, mechanics, carriers, workmens,
warehousemens, repairmens, and other like Liens arising in the ordinary course of business, and
deposits to obtain the release of such Liens, (ii) Liens imposed by applicable Law for (A) Taxes
not yet due and payable or (B) Taxes that the Company or any of its Subsidiaries is contesting in
good faith through appropriate proceedings and for which adequate reserves, in accordance with
GAAP, have been established, (iii) Liens disclosed on the Company Balance Sheet or the notes
thereto, (iv) Liens under or in connection with building and zoning laws, codes, ordinances, and
state and federal regulations governing the use of land, (v) security interests granted pursuant to
the Company Credit Facility, and (vi) other Liens, if any, which do not materially impair the
continued use and operation of the assets to which they relate in the conduct of the business of
the Company and any Company Subsidiary as currently conducted.
A-4
Company Preferred Stock means the preferred stock, no par value per share, of the
Company.
Competition Laws means statutes, rules, regulations, orders, decrees, administrative
and judicial doctrines, and other laws that are designed or intended to prohibit, restrict or
regulate actions having the purpose or effect of monopolization, lessening of competition or
restraint of trade.
Contract shall mean any legally binding agreement, contract, subcontract, lease,
understanding, instrument, note, option, warranty, purchase order, license, sublicense, insurance
policy, benefit plan or other legally binding commitment or undertaking of any nature.
Employee Benefit Plan means (i) each employee benefit plan (as such term is
defined in Section 3(3) of ERISA) that the Company or any of its Subsidiaries or ERISA Affiliates
sponsors, participates in, is a party or contributes to, or with respect to which the Company or
any of its Subsidiaries or ERISA Affiliates could reasonably be expected to have any liability or
with respect to which the Company or its Subsidiaries or ERISA Affiliates had any liability during
the prior six (6) years; and (ii) each other employee benefit plan, program or arrangement, whether
written or unwritten, including without limitation, any stock option, stock purchase, stock
appreciation right or other stock or stock-based incentive plan, cash bonus or incentive
compensation arrangement, retirement or deferred compensation plan, profit sharing plan,
unemployment or severance compensation plan, or employment or consulting agreement, for any current
or former employee or director of, or other service provider to, the Company or any of its
Subsidiaries that does not constitute an employee benefit plan (as defined in Section 3(3) of
ERISA), that the Company or any of its Subsidiaries presently sponsors, participates in, is a party
or contributes to, or with respect to which the Company or any of its Subsidiaries could reasonably
be expected to have any liability.
ERISA means the Employee Retirement Income Security Act of 1974, as amended, and, as
the context contemplates, all applicable rules and regulations promulgated thereunder.
ERISA Affiliate means any Person that is a member of a controlled group of
corporations with, or is under common control with, or is a member of the same affiliated
service group with the Company, in each case, as defined in Sections 414(b), (c), (m) or (o) of
the Code.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Fully-Diluted Basis means as of any time, the number of shares of Company Common
Stock outstanding, together with all shares of Company Common Stock (if any) that the Company would
be required to issue pursuant to the exercise or conversion of any in the money Company Stock
Options, Company SARs and all warrants and other rights to acquire, or securities convertible into,
or exchangeable for, Company Common Stock, that are outstanding and that are vested (or that will
be vested) immediately prior to the Offer Closing other than the shares of Company Common Stock
subject to Top-Up Option.
GAAP means U.S. generally accepted accounting principles.
A-5
Governmental Entity means any governmental entity including any U.S. federal, state
or local, or government, or any legislature, or governmental subdivision, department, agency,
regulatory or administrative body (including a national securities exchange (including NASDAQ) or
other such regulatory body), board, commission, court, tribunal or other instrumentality.
Intellectual Property means all intellectual property rights of any kind or nature
throughout the world, including all (i) trademarks, service marks, brand names, certification
marks, logos, trade dress, trade names, and corporate names, Internet domain names, designs,
slogans, other indications of origin and general intangibles of like nature, including all
goodwill, common law rights, registrations and applications related to the foregoing, (ii)
copyrights and mask works, including, without limitation, all registrations and applications
related to the foregoing, (iii) patents, patent applications and industrial designs (and the
inventions embodied by the foregoing), including, without limitation, all continuations,
divisionals, continuations-in-part, renewals, reissues, re-examinations and applications related to
the foregoing, (iv) computer programs (whether in source code, object code, or other form),
algorithms, databases, compilations and data, technology supporting the foregoing, and all
documentation, including technical and functional specifications, user manuals and training and
support materials, related to any of the foregoing, (v) trade secrets, customer data, technology,
know-how, proprietary processes, formulas, algorithms, models and methodologies and (vi) any other
intellectual property rights of any kind or nature.
Knowledge of the Company shall mean the actual knowledge of those individuals set
forth on Section 1.1 of the Company Disclosure Schedule after reasonable inquiry by such
individuals of their direct reports.
Knowledge of Parent shall mean the actual knowledge of those individuals set forth
on Section 1.1 of the Parent Disclosure Schedule after reasonable inquiry by such
individuals of their direct reports.
NASDAQ means The NASDAQ Stock Market.
Parent Material Adverse Effect shall mean any change, effect, event, occurrence,
state of facts or development which individually or in the aggregate prevents or materially
impedes, interferes with, hinders or delays the consummation by Parent or Merger Sub of the Offer,
the Merger or the other transactions or performance of its obligations, in each case as
contemplated by this Agreement.
Person means an individual, corporation, partnership, limited liability company,
association, trust, unincorporated organization, Governmental Entity, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act).
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended.
A-6
Solvent means that, as of any date of determination and with respect to any Person:
(i) the sum of the debt (including contingent liabilities) of such Person and its
Subsidiaries, taken as a whole, does not exceed the present fair saleable value of the present
assets of such Person and its Subsidiaries, taken as a whole; (ii) the capital of such Person and
its Subsidiaries, taken as a whole, is not unreasonably small in relation to the business of such
Person and its Subsidiaries, taken as a whole; and (iii) such Person and its Subsidiaries, taken as
a whole, do not have or intend to incur debts including current obligations beyond their ability to
pay such debt as they mature in the ordinary course of business; provided, however, for the
purposes hereof, the amount of any contingent liability at any time shall be computed as the amount
that would be required by GAAP to be reflected or reserved on a consolidated balance sheet of such
Person and its Subsidiaries, taken as a whole.
Subsidiary means, with respect to any party, any Person of which (i) such party or
any Subsidiary of such party owns at least fifty percent (50%) of the outstanding equity or voting
securities or interests of such Person or (ii) such party or any Subsidiary of such party has the
right to elect at least a majority of the board of directors or others performing similar functions
with respect to such Person.
Tax means any and all federal, state, local, foreign or other taxes of any kind
(together with any and all interest, penalties, additions to tax and additional amounts imposed
with respect thereto whether disputed or not and including any obligations to indemnify or
otherwise assume or succeed to the Tax liabilities of any other Person) imposed by any Taxing
Authority, including taxes on or with respect to income, franchises, windfall or other profits,
gross receipts, occupation, property, transfer, sales, use, capital stock, severance, alternative
minimum, payroll, employment, unemployment, social security, workers compensation or net worth,
and taxes in the nature of excise, withholding, ad valorem or value added or other taxes, fees,
duties, levies, customs, tariffs, imposts, assessments, obligations and charges of the same or a
similar nature to any of the foregoing.
Taxing Authority means any federal, state, local or foreign government authority
responsible for the assessment, determination, collection or imposition of any Tax (including the
U.S. Internal Revenue Service).
Tax Return means any and all returns, reports or similar filings (including the
attached schedules) filed or required to be filed with respect to Taxes, including any information
return, claim for refund, amended return or declaration of estimated Taxes.
Triggering Event means if (i) the Company Board or any Committee shall make a Board
Recommendation Change, (ii) from the date of this Agreement until the earlier of the Effective Time
or the termination of this Agreement pursuant to Article IX, the Company Board or any
Committee thereof shall have failed to publicly affirm the Company Board Recommendation within five
(5) Business Days of a request in writing to do so by Parent or Merger Sub following the public
announcement or public disclosure of an Acquisition Proposal, (iii) the Company shall fail to
include the Company Board Recommendation in the Schedule 14D-9, or (iv) there is a willful breach
by the Company of its obligations under Section 7.2.
A-7
(b) Each of the following terms is defined in the Section set forth opposite such term:
|
|
|
Acceptable Confidentiality Agreement
|
|
7.2(b) |
Acceptance Date
|
|
2.1(c) |
Acquisition Proposal
|
|
7.2(g)(i) |
Agreement
|
|
Preamble |
Alternative Financing
|
|
7.9(f) |
Alternative Transaction
|
|
9.5(c) |
Articles of Merger
|
|
3.4 |
Available Company SEC Document
|
|
Article V |
Closing
|
|
3.3 |
Closing Date
|
|
3.3 |
Committee
|
|
1.1(a) |
Company
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|
Preamble |
Company Articles
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|
5.1 |
Company Balance Sheet
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|
5.13(a) |
Company Board
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|
Recitals |
Company Board Recommendation
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|
Recitals |
Company Bylaws
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|
5.1 |
Company Capital Stock
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5.2(a) |
Company Contracts
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5.17(a) |
Company Disclosure Schedule
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|
Article V |
Company Option
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4.3(a) |
Company Permits
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5.18 |
Company Real Property
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5.13(a) |
Company Real Property Leases
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5.13(c) |
Company Restricted Stock
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4.3(b) |
Company SAR
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4.3(a) |
Company SEC Documents
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5.5(a) |
Company Stockholder Approval
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5.4(b) |
Confidentiality Agreement
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7.7(d) |
Continuing Directors
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7.5(c) |
Continuing Employees
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7.10(a) |
Control Time
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7.1 |
D&O Policies
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7.9(c) |
D&O Tail Period
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7.9(c) |
Dissenting Shares
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4.1(d) |
Effective Time
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3.4 |
Employment Agreements
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7.10(d) |
Environmental Law
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5.12(f)(i) |
Environmental Permits
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5.12(f)(ii) |
Escrow Agent
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Recitals |
Escrow Agreement
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Recitals |
Escrow Amount
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Recitals |
Exchange Fund
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4.2(a) |
Excluded Shares
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4.1(b) |
Expiration Date
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2.1(b) |
Fairness Opinion
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5.22 |
A-8
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FCPA
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5.25 |
Financing
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6.7 |
Guarantor
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Recitals |
Guaranty
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Recitals |
Indebtedness
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7.1(l) |
Indemnification Agreement
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7.9(f) |
Indemnified Parties
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7.9(a) |
Law
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5.16 |
Letter of Transmittal
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4.2(b) |
Liens
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5.2(e) |
Merger
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Recitals |
Merger Consideration
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4.1(a) |
Merger Sub
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Preamble |
Minimum Condition
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Annex A |
Obligations
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7.7(d) |
Offer
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Recitals |
Offer Closing
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2.1(c) |
Offer Documents
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2.1(d) |
Offer Price
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Recitals |
Offer Termination
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2.1(f) |
Offer to Purchase
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2.1(d) |
Order
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5.16 |
Other Indemnitor
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7.9(f) |
Other Indemnitors
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7.9(f) |
Parent
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Preamble |
Parent Disclosure Schedule
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Article VI |
Parent Representatives
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7.7(a) |
Paying Agent
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4.2(a) |
Paying Agent Agreement
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4.2(a) |
PBCL
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3.2 |
Permits
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5.4(a)(ii) |
Proxy Date
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7.3(a) |
Proxy Statement
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5.8 |
Proxy Statement Clearance Date
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2.1(b) |
Representatives
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7.2(a) |
Restraint
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8.1(b) |
Schedule 14D-9
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2.2(a) |
Schedule TO
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2.1(d) |
SEC Staff
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2.1(b) |
Short-Form Merger
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3.99 |
Stockholders Meeting
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7.3(a) |
Superior Proposal
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7.2(g)(ii) |
Surviving Corporation
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3.1 |
Tender Offer Conditions
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2.1(a) |
Termination Date
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9.2(a) |
Termination Fee
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9.5(c) |
A-9
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Third Party
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7.2(a) |
Top-Up Option
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2.3(a) |
Top-Up Option Shares
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2.3(a) |
Wells Fargo Commitment
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6.7 |
A-10
ARTICLE II
THE OFFER
2.1 The Offer.
(a) Provided that this Agreement shall not have been terminated in accordance with
Article IX, Merger Sub shall, and Parent shall cause Merger Sub to, commence (within the
meaning of Rule 14d-2 under the Exchange Act) the Offer as promptly as practicable following the
date hereof and in any event within ten (10) Business Days after the date hereof. The obligation
of Merger Sub to, and of Parent to cause Merger Sub to, accept for payment shares of Company
Common Stock validly tendered pursuant to the Offer and to pay the Offer Price for each such
tendered and not subsequently withdrawn share shall be subject only to the satisfaction or waiver
by Parent or Merger Sub of the conditions set forth in Annex A (such conditions, as they
may be amended in accordance with this Agreement, the Tender Offer Conditions). Parent
on behalf of Merger Sub expressly reserves the right from time to time, subject to Section
2.1(b), to waive in whole or in part any such condition, to increase the Offer Price payable
in the Offer, and to make any other changes to the terms and conditions of the Offer;
provided, however, that without the prior written consent of the Company, Merger
Sub shall not (i) amend or waive satisfaction of the Minimum Condition (as defined in Annex
A), (ii) change the form of consideration to be paid pursuant to the Offer, (iii) decrease the
Offer Price payable in the Offer, (iv) decrease the number of shares of Company Common Stock
sought to be purchased in the Offer, (v) impose conditions to the Offer that are in addition to
those set forth in Annex A hereto, (vi) make any change in the Offer that would require an
extension or delay of the then current Expiration Date; provided, however, that this clause (vi)
shall not limit the ability of Parent or Merger Sub to extend the Expiration Date in accordance
with Section 2.1(b), (vii) amend or modify the Tender Offer Conditions (other than to
waive such Tender Offer Conditions, except for the Minimum Condition), or (viii) amend or modify
any other term of the Offer in any manner adverse to the holders of shares of Company Common Stock
in their capacities as holders of shares of Company Common Stock.
(b) The initial expiration date of the Offer shall be the twentieth (20th) Business Day after
the date that the Offer is commenced (determined pursuant to Rule 14d-1(g)(3) and Rule 14d-2 under
the Exchange Act) (such date, or such subsequent date to which the expiration of the Offer is
extended pursuant to and in accordance with the terms of this Agreement, the Expiration
Date). Merger Sub shall not terminate or withdraw the Offer other than in connection with
(x) the effective termination of this Agreement in accordance with Article IX hereof or
(y) an Offer Termination in accordance with Section 2.1(f). Notwithstanding the
foregoing, unless this Agreement is terminated in accordance with Article IX hereof,
Merger Sub shall, and Parent shall cause Merger Sub to, (i) extend the Expiration Date if, on any
then scheduled Expiration Date, any of the Tender Offer Conditions is not satisfied or waived by
Merger Sub, for such periods of up to five (5) Business Days at a time (or such other period as
shall be consented to in writing by the Company) as Merger Sub may deem reasonably necessary, but,
except as required by any applicable Law, rule, regulation, interpretation or position of NASDAQ,
the SEC or the staff of the SEC (the SEC Staff) applicable to the Offer (including in
connection with an increase in the Offer Price), in no event may the Expiration Date be extended
pursuant to this clause (i) to a date
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later than the Termination Date and (ii) extend the Expiration Date for any period required by any
applicable Law, rule, regulation, interpretation or position of NASDAQ, the SEC or the SEC Staff
applicable to the Offer, including in connection with an increase in the Offer Price;
provided, however, if the Proxy Statement Clearance Date has occurred, then no
such extension shall be required. Proxy Statement Clearance Date means the date on
which the SEC has, orally or in writing, confirmed that it has no further comments on the Proxy
Statement, including the first date following the tenth calendar day following the filing of the
preliminary Proxy Statement if the SEC has not informed the Company that it intends to review the
Proxy Statement. Except as expressly provided in this Section 2.1(b), Merger Sub shall
not extend the Offer if all of the Tender Offer Conditions are satisfied or waived and it is
permitted under applicable Law to accept for payment and pay for validly tendered shares of
Company Common Stock that are not validly withdrawn. Nothing in this Section 2.1(b) shall
affect any termination rights contained in Article IX hereof.
(c) Subject to the terms and conditions set forth in this Agreement and to the satisfaction
or waiver of the Tender Offer Conditions, Merger Sub shall, and Parent shall cause it to, (i)
promptly after the Expiration Date, accept for payment all shares of Company Common Stock that
have been validly tendered and not properly withdrawn pursuant to the Offer (the date of
acceptance for payment, the Acceptance Date), which acceptance shall be by written
notice to the Paying Agent, (ii) on the Acceptance Date, deposit or cause to be deposited with the
Paying Agent, cash in U.S. dollars sufficient to pay the aggregate Offer Price for such accepted
shares of Company Common Stock, and (iii) cause the Paying Agent to promptly pay for all shares of
Company Common Stock so accepted for payment. Parent shall provide or cause to be provided to
Merger Sub on a timely basis the consideration necessary to pay for any shares of Company Common
Stock that Merger Sub becomes obligated to accept for payment pursuant to the Offer and shall
cause Merger Sub to fulfill all of Merger Subs obligations under this Agreement. Acceptance for
payment of, and prompt payment for (after giving effect to any required withholding Tax pursuant
to Section 2.1(e)), shares of Company Common Stock pursuant to and subject to the Tender
Offer Conditions is referred to in this Agreement as the Offer Closing.
(d) On the date of commencement of the Offer, Parent and Merger Sub shall file with the SEC a
Tender Offer Statement on Schedule TO (together with all amendments and supplements thereto,
including the exhibits thereto, the Schedule TO) with respect to the Offer, which shall
contain or shall incorporate by reference an offer to purchase (the Offer to Purchase)
and forms of the related letter of transmittal and forms of notice of guaranteed delivery and any
related summary advertisement (the Schedule TO, the Offer to Purchase and such other documents,
together with all supplements and amendments thereto, being referred to herein collectively as the
Offer Documents), and cause the Offer Documents to be disseminated to holders of shares
of Company Common Stock as and to the extent required by applicable Law. The Offer Documents
shall comply in all material respects with the requirements under applicable Law. Each of Parent
and Merger Sub, on the one hand, and the Company, on the other hand, agrees to correct promptly
any information provided by it for use in the Offer Documents if and to the extent that it shall
have become false or misleading in any material respect, and Parent and Merger Sub further agree
to take all steps necessary to cause the Schedule TO, as so corrected, to be filed with the SEC,
and the other Offer Documents, as so corrected, to be disseminated to holders of shares of
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Company
Common Stock, in each case as and to the extent required by applicable Law. The Company shall promptly furnish to
Parent and Merger Sub all information concerning the Company that is required or reasonably
requested by Parent or Merger Sub in connection with the obligations relating to the Offer
Documents contained in this Section 2.1(d). Parent and Merger Sub shall give the Company
and its counsel a reasonable opportunity to review and comment on the Offer Documents prior to
such documents (or amendments or supplements thereto) being filed with the SEC or disseminated to
holders of shares of Company Common Stock. Parent and Merger Sub shall provide the Company and
its counsel with any comments or communications, whether written or oral, that Parent, Merger Sub
or their counsel may receive from the SEC or the SEC Staff with respect to the Offer Documents
promptly after the receipt of such comments or communications and shall provide the Company and
its counsel with a reasonable opportunity to participate in the response of Parent or Merger Sub
to such comments or communications. Parent and Merger Sub shall give reasonable and good faith
consideration to suggestions of the Company or its counsel in response to such comments or
communications. In the event that Parent or Merger Sub receives any comments from the SEC or the
SEC Staff with respect to the Offer Documents, each shall use commercially reasonable efforts to
respond promptly to such comments and take all other actions necessary to resolve the issues
raised therein.
(e) Parent, Merger Sub or the Paying Agent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to the Offer to any holder of shares of Company Common
Stock such amounts as Parent, Merger Sub or the Paying Agent is required to deduct and withhold
with respect to the making of such payment under the Code, or any provision of state, local or
foreign Tax law. To the extent that amounts are so withheld and paid over by Parent, Merger Sub
or the Paying Agent to the appropriate Taxing Authority, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the shares of Company
Common Stock in respect of which such deduction and withholding was made by Parent, Merger Sub or
the Paying Agent.
(f) If at any then-scheduled Expiration Date (i) any Tender Offer Condition shall not have
been satisfied or waived and (ii) the Proxy Statement Clearance Date has occurred, then (x) Merger
Sub may irrevocably and unconditionally terminate the Offer or (y) from and after the close of
business on November 22, 2011, the Company shall have the right, exercisable by delivering written
notice to Parent and Merger Sub to cause Merger Sub to, and upon receipt of such notice, Merger
Sub shall (and Parent shall cause Merger Sub to), irrevocably and unconditionally terminate the
Offer at the next then-scheduled Expiration Date following receipt of such notice from the Company
(delivered no less than two (2) Business Days prior to the then-scheduled Expiration Date). If
the Offer is terminated pursuant to this Section 2.1(f) (the Offer Termination),
the Company shall proceed with and take all actions necessary to hold the Stockholders Meeting in
accordance with the terms of this Agreement. If the Offer is terminated or withdrawn by Merger
Sub pursuant to this Section 2.1(f), the Parties hereto acknowledge and agree that such
termination shall not give rise to a right of termination of this Agreement unless to the extent
expressly provided for in Article IX and that, absent such termination of this Agreement,
the obligations of the Parties hereunder other than those related to the Offer shall continue to
remain in effect, including those obligations with respect to the Merger.
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2.2 Company Action.
(a) On the date of commencement of the Offer, the Company shall file with the SEC a Tender
Offer Solicitation/Recommendation Statement on Schedule 14D-9 (together with all amendments and
supplements thereto, including the exhibits thereto the Schedule 14D-9), containing,
subject to Section 7.2, the Company Board Recommendation, which shall include the Fairness
Opinion, and shall disseminate the Schedule 14D-9 as and to the extent required by Rule 14d-9
promulgated under the Exchange Act and any other applicable Law. The Schedule 14D-9 shall comply
in all material respects with the requirements under applicable Law. Each of the Company, Parent
and Merger Sub agrees to promptly correct any information provided by it for use in the Schedule
14D-9 if and to the extent that it shall have become false or misleading in any material respect,
and the Company further agrees to take all steps necessary to cause the Schedule 14D-9, as so
corrected, to be filed with the SEC and disseminated to holders of shares of Company Common Stock,
in each case as and to the extent required by applicable Law. The Company shall give Parent and
its counsel a reasonable opportunity to review and comment on the Schedule 14D-9 prior to such
document being filed with the SEC or disseminated to holders of shares of Company Common Stock.
The Company shall provide Parent and its counsel with any comments or communications, written or
oral, that the Company or its counsel may receive from the SEC or the SEC Staff with respect to
the Schedule 14D-9 promptly after the receipt of such comments or communications and shall provide
Parent and its counsel with a reasonable opportunity to participate in the response of the Company
to such comments. The Company shall give reasonable and good faith consideration to suggestions
of Parent or its counsel in response to such comments or communications. In the event that the
Company receives any comments from the SEC or the SEC Staff with respect to the Schedule 14D-9, it
shall use commercially reasonable efforts to respond promptly to such comments and take all other
actions necessary to resolve the issues raised therein.
(b) The Company shall instruct its transfer agent to furnish Parent and Merger Sub with
mailing labels containing the names and addresses of all record holders of shares of Company
Common Stock and with security position listings of shares held in stock depositories, each as of
a recent date, together with all other available listings and computer files containing names,
addresses and security position listings of record holders and beneficial owners of shares of
Company Common Stock. The Company shall instruct its transfer agent to furnish Parent and Merger
Sub with such additional available information, including, without limitation, updated listings
and computer files of stockholders, mailing labels and security position listings, and such other
assistance in disseminating the Offer Documents and any other documents necessary to consummate
the transactions contemplated by this Agreement to holders of shares of Company Common Stock, as
Parent or Merger Sub may reasonably request. Subject to the requirements of applicable Law, and
except for such steps as are necessary to disseminate the Offer Documents and any other documents
necessary to consummate the Offer or the Merger, such information and materials shall be deemed
Evaluation Material under the Confidentiality Agreement. The information contained in such
labels, listings and files shall be treated and held in confidence by Parent and Merger Sub in
accordance with the immediately preceding sentence and shall be used only in connection with the
transactions contemplated by this Agreement, and, if this Agreement shall be terminated in
accordance with Article IX, Parent and Merger Sub shall deliver to the Company all copies
of such information then in their possession.
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2.3 Top-Up Option.
(a) The Company hereby grants to Merger Sub an irrevocable option, for so long as this
Agreement has not been terminated pursuant to the provisions hereof (the Top-Up Option),
to purchase (for cash or a note payable), that number (but not less than that number) of shares of
Company Common Stock (the Top-Up Option Shares) equal to the lesser of (i) the lowest
number of shares that, when added to the number of shares owned by Parent or Merger Sub at the
time of such exercise, will constitute one share more than eighty percent (80%) of the total
shares of Company Common Stock then outstanding on a Fully-Diluted Basis (assuming the issuance of
the Top-Up Option Shares) at a price per share equal to the Offer Price, and (ii) the aggregate
number of shares held as treasury shares by the Company and the number of shares that the Company
is authorized to issue under its articles of incorporation but which (A) are not issued and
outstanding and (B) are not reserved for issuance for outstanding Company Options, Company SARs or
other obligations of the Company.
(b) The Top-Up Option shall be exercisable only once, in whole and not in part, on or prior
to the second (2nd) Business Day after the Acceptance Date and only if Merger Sub shall
beneficially own as of such time at least 70.7% of the total outstanding shares of Company Common
Stock on a Fully-Diluted Basis. Merger Sub will, concurrently with the exercise of the Top-Up
Option, give written notice to the Company that as promptly as practicable following such
exercise, Merger Sub intends to (and Merger Sub will, and Parent will cause Merger Sub to, as
promptly as practicable after such exercise) consummate the Merger in accordance with the PBCL as
contemplated by Section 3.9. The Top-Up Option shall not be exercisable, and the Company
shall not be obligated to deliver the Top-Up Option Shares, if (i) the exercise of the Top-Up
Option and the issuance and delivery of the Top-Up Option Shares are prohibited by any applicable
Law, (ii) any judgment, injunction, order or decree shall be in effect prohibiting the exercise of
the Top-Up Option or the delivery of the Top-Up Option Shares in respect of such exercise
(excluding any rule or regulation of NASDAQ), (iii) immediately upon exercise of the Top-Up Option
and the issuance of the Top-Up Option Shares, the number of shares of Company Common Stock owned,
directly or indirectly, by Parent and Merger Sub (excluding shares of Company Common Stock
tendered in the Offer pursuant to guaranteed delivery procedures as to which delivery has not been
completed as of the time of exercise of the Top-Up Option) does not constitute one share more than
eighty percent (80%) of the number of shares of Company Common Stock that will be outstanding on a
Fully-Diluted Basis immediately after the issuance of the Top-Up Option Shares, (iv) the issuance
of Top-Up Option Shares pursuant to the Top-Up Option would require approval by the Companys
stockholders under applicable Law (other than pursuant to the rules and regulations of NASDAQ) or
(v) Merger Sub has not accepted for payment all shares of Company Common Stock validly tendered in
the Offer and not properly withdrawn. The parties shall cooperate to ensure that the issuance of
the Top-Up Option Shares is accomplished consistent with all applicable Laws (other than pursuant
to the rules and regulations of NASDAQ), including compliance with an applicable exemption from
registration of the Top-Up Option Shares under the Securities Act. The Top-Up Option shall
terminate upon the earlier to occur of (i) the Effective Time and (ii) termination of this
Agreement in accordance with Article IX.
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(c) In the event that Merger Sub wishes to exercise the Top-Up Option in accordance with this
Section 2.3, Merger Sub shall give the Company prior written notice specifying in such
notice: (i) the number of Shares that Merger Sub intends to purchase pursuant to the Top-Up
Option; (ii) the manner in which Parent or Merger Sub intends to pay the applicable exercise
price; and (iii) the place and time at which the closing of the purchase of such Top-Up Option
Shares by Merger Sub is to take place, with the time for the closing being not more than five (5)
Business Days after the exercise of the Top-Up Option. The Company shall, as soon as practicable
following receipt of such notice, notify Merger Sub of the number of shares of Company Common
Stock then outstanding, the number of shares of Company Common Stock then outstanding on a
Fully-Diluted Basis and the number of Top-Up Option Shares. At the closing of the purchase of the
Top-Up Option Shares, Merger Sub shall pay the Company the aggregate purchase price payable for
the Top-Up Option Shares pursuant to this Section 2.3, and the Company shall cause to be
issued to Merger Sub a certificate (or evidence of shares in book-entry form) representing the
Top-Up Option Shares. The aggregate purchase price payable for the Top-Up Option Shares may be
paid either (i) entirely in cash or (ii) at the election of Merger Sub or Parent, by paying in
cash an amount equal to not less than $0.001 per Top-Up Option Share and by Merger Sub executing
and delivering to the Company an unsecured promissory note having a principal amount equal to the
balance of the aggregate purchase price for the Top-Up Option Shares. Any such promissory note
shall bear interest at the rate of five percent (5%) per annum, shall mature on the first (1st)
anniversary of the date of execution and delivery of such promissory note, shall be full recourse
to Parent and Merger Sub, may be prepaid at any time and from time to time, in whole or in part,
without premium or penalty, and shall have no other material terms. Merger Subs obligations
under any such promissory note shall be guaranteed by Parent. Without the prior written consent
of the Company, the right to exercise the Top-Up Option granted pursuant to this Agreement shall
not be assigned by Merger Sub except to any direct or indirect wholly owned Subsidiary of Parent.
Any attempted assignment in violation of this Section 2.3(c) shall be null and void.
(d) Each of Parent and Merger Sub acknowledges that the Top-Up Option Shares that Merger Sub
may acquire upon exercise of the Top-Up Option will not be registered under the Securities Act and
will be issued in reliance upon an exemption thereunder for transactions not involving a public
offering. Each of Parent and Merger Sub represents and warrants to the Company that Merger Sub
is, and will be upon the exercise of the Top-Up Option Shares, an accredited investor, as
defined in Rule 501 of Regulation D promulgated under the Securities Act. Each of Parent and
Merger Sub represents, warrants and agrees that the Top-Up Option and the Top-Up Option Shares to
be acquired upon exercise of the Top-Up Option are being and will be acquired by Merger Sub for
the purpose of investment and not with a view to, or for resale in connection with, any
distribution thereof (within the meaning of the Securities Act). Any certificates evidencing
Top-Up Option Shares shall include any legends required by applicable securities Laws.
(e) Any dilutive impact on the value of the shares of Company Common Stock as a result of the
issuance of the Top-Up Option Shares will not be taken into account in any determination of the
fair value of any Dissenting Shares pursuant to the PBCL as contemplated by Section
4.1(d).
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ARTICLE III
THE MERGER
3.1 The Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time, the Company and Merger Sub shall consummate the Merger pursuant to which (a) Merger
Sub shall be merged with and into the Company and the separate corporate existence of Merger Sub
shall thereupon cease, (b) the Company shall be the surviving corporation (the Surviving
Corporation) and shall continue to be governed by the Laws of the Commonwealth of Pennsylvania
and (c) the separate corporate existence of the Company shall continue unaffected by the Merger.
Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all
of the property, rights, privileges, powers, immunities and franchises of Merger Sub and the
Company shall vest in the Surviving Corporation, and all debts, liabilities, obligations and duties
of Merger Sub and the Company shall become the debts, liabilities, obligations and duties of the
Surviving Corporation.
3.2 Effects of the Merger. At the Effective Time, the effect of the Merger shall be
as provided in the applicable provisions of the Pennsylvania Business Corporation Law of 1988, as
amended (PBCL).
3.3 Closing. The closing of the Merger (the Closing) shall take place (a)
at the offices of Blank Rome LLP, One Logan Square, Philadelphia, PA 19103, on the third (3rd)
Business Day following the date on which the last of the conditions set forth in Article
VIII hereof shall be fulfilled or waived (to the extent permitted by applicable Law) in
accordance with this Agreement (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the satisfaction or waiver (to the extent permitted by
applicable Law) of those conditions) or (b) at such other place, time and date as Parent and the
Company may mutually agree in writing; provided, however, that if, as of or
immediately following the Acceptance Date or the purchase of the Top-Up Option Shares, Parent
determines, in consultation with the Company, that a Short-Form Merger is available pursuant to
Section 1924(b)(1)(ii) of the PBCL, the Closing shall, subject to the satisfaction or waiver (to
the extent permitted by applicable Law) of the conditions set forth in Article VIII, occur
no later than the second (2nd) Business Day immediately following the Acceptance Date or the
closing of the purchase of the Top-Up Option Shares, as applicable. The date on which the Closing
takes place is referred to herein as the Closing Date.
3.4 Effective Time. Subject to the provisions of this Agreement, as promptly as
practicable on the Closing Date, the Company and Merger Sub shall execute in the manner required by
the PBCL and file with the Department of State of the Commonwealth of Pennsylvania an articles of
merger (the Articles of Merger) in accordance with the PBCL. The parties hereto shall
take such other and further actions as may be required by applicable Law to make the Merger
effective. The Merger shall become effective upon the filing of the Articles of Merger or at such
date and time as Parent and the Company shall agree and shall specify in the Articles of Merger
(the date and time that the Merger becomes effective being hereinafter referred to as the
Effective Time).
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3.5 Articles of Incorporation. At the Effective Time, the articles of incorporation
of the Company as in effect immediately prior to the Effective Time shall be amended and restated
in its entirety in the Merger to read as set forth in Exhibit A hereto, and, as so amended,
shall be the articles of incorporation of the Surviving Corporation.
3.6 Bylaws. At the Effective Time, the bylaws of the Company as in effect immediately
prior to the Effective Time shall be amended and restated in its entirety in the Merger to read as
set forth in Exhibit B hereto, and, as so amended, shall be the bylaws of the Surviving
Corporation.
3.7 Directors. The directors of Merger Sub at the Effective Time shall, from and
after the Effective Time, be the initial directors of the Surviving Corporation until their
successors have been duly elected or appointed and qualified, or until their earlier death,
resignation or removal, in accordance with the articles of incorporation and bylaws of the
Surviving Corporation.
3.8 Officers. The officers of the Company at the Effective Time shall, from and after
the Effective Time, be the initial officers of the Surviving Corporation until their successors
have been duly elected or appointed and qualified, or until their earlier death, resignation or
removal, in accordance with the articles of incorporation and bylaws of the Surviving Corporation.
3.9 Merger Without Meeting of Stockholders. Notwithstanding anything in this
Agreement to the contrary, but subject to Article VIII, if, as of immediately following the
Acceptance Date, the purchase, if applicable, of the Top-Up Option Shares, and, if necessary, the
expiration of the period for guaranteed delivery of shares of Company Common Stock in the Offer,
Parent or any direct or indirect Subsidiary of Parent, taken together, shall own at least eighty
percent (80%) of the total outstanding shares of Company Common Stock on a Fully-Diluted Basis, the
parties shall, subject to Article VIII hereof, take all necessary and appropriate action to cause
the Merger to become effective as soon as practicable after the satisfaction of such threshold,
without a meeting of stockholders of the Company, in accordance with Section 1924(b)(1)(ii) of the
PBCL (such merger, a Short-Form Merger).
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ARTICLE IV
MERGER CONSIDERATION;
CONVERSION OR CANCELLATION OF SHARES IN THE MERGER
4.1 Merger Consideration; Conversion or Cancellation of Shares in the Merger.
(a) Conversion of Company Common Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Parent, Merger Sub, the Company or the holders of any
shares of Company Capital Stock or the holders of any capital stock of Merger Sub, each issued and
outstanding share of Company Common Stock (other than Excluded Shares and Dissenting Shares)
shall, by virtue of the Merger, be converted into the right to receive, pursuant to Section
4.2, upon the surrender of the certificates (or evidence of shares in book-entry form)
representing Company Common Stock, cash in an amount equal to the Offer Price (the Merger
Consideration), without interest thereon. As a result of the Merger, at the
Effective Time, all shares of Company Common Stock shall no longer be outstanding and shall
automatically be canceled and shall cease to exist, and each holder of shares of Company Common
Stock shall cease to have any rights with respect thereto, except an entitlement to receive the
Merger Consideration payable in respect of such shares, all to be paid, without interest, in
consideration therefor upon the surrender of such shares of Company Common Stock. Subject to
Section 7.1(c), if prior to the Effective Time the outstanding shares of Company Common
Stock shall have been changed into a different number of shares or a different class, by reason of
any stock dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares, and, in each such case, the record date for such transaction is between the
date of this Agreement and the Effective Time, then any number or amount contained herein
(including, without limitation, the Offer Price and the Merger Consideration) that is based upon
the number of shares of Company Common Stock will be appropriately adjusted to provide to Parent
and the holders of Company Common Stock the same economic effect as contemplated by this Agreement
prior to such event.
(b) Cancellation of Excluded Shares. At the Effective Time, each share of Company
Common Stock issued and outstanding and owned by Parent, Merger Sub or any other wholly owned
Subsidiary of Parent or held in the treasury of the Company or owned by any wholly owned
Subsidiary of the Company immediately prior to the Effective Time (collectively, the Excluded
Shares) shall cease to be outstanding, and shall be automatically cancelled and retired
without payment of any consideration therefor and shall cease to exist.
(c) Conversion of Merger Sub Capital Stock. At the Effective Time, each share of
Merger Sub capital stock outstanding immediately prior to the Effective Time shall be converted
into and become one (1) fully-paid and nonassessable share of common stock, par value $0.01 per
share, of the Surviving Corporation, which shall thereafter constitute the only issued and
outstanding shares of capital stock of the Surviving Corporation.
(d) Dissenting Shares. Notwithstanding anything in this Agreement to the contrary,
shares of Company Common Stock issued and outstanding immediately prior to the Effective Time and
held by a holder who has properly exercised and perfected his or her demand for dissenters rights
pursuant to the PBCL (the Dissenting Shares) shall not be converted into the right to
receive the Merger Consideration, but the holders of such Dissenting Shares shall be entitled to
receive such consideration as shall be determined pursuant to the PBCL; provided,
however, that if any such holder shall have failed to perfect or shall have effectively
waived, withdrawn or lost his or her right to appraisal and payment under the PBCL, such holders
shares of Company Common Stock shall thereupon be deemed to have been converted as of the
Effective Time into the right to receive, upon the surrender of the certificates (or evidence of
shares in book-entry form) representing such Company Common Stock, the Merger Consideration,
without any interest thereon, and such shares shall not be deemed to be Dissenting Shares. The
Company shall serve prompt written notice to Parent of any demands for appraisal, withdrawals of
such demands and any other instruments served pursuant to the PBCL received by the Company in
respect 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 the exercise of appraisal rights
pursuant to the PBCL. Prior to the Effective Time, the Company shall not, without the prior
written consent of Parent, make any payment with respect to, settle or offer to settle or waive
any failure to timely deliver a written
demand with respect to, any such exercise of appraisal rights, or agree to do any of the
foregoing.
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4.2 Exchange of Stock Certificates. Certificates (or evidence of shares in book-entry
form) representing shares of Company Common Stock shall be exchanged for the Merger Consideration
in accordance with the following procedures:
(a) Prior to the Effective Time, Parent shall appoint a bank, trust company or transfer agent
reasonably acceptable to the Company to act as paying agent under this Agreement (the Paying
Agent) who shall serve pursuant to an agreement between Parent and the Paying Agent (the
Paying Agent Agreement), a copy of which Paying Agent Agreement shall be provided to the
Company and its counsel for its review and comment prior to its execution by Parent and the Paying
Agent and which comments shall be given good faith consideration by Parent and its counsel. Prior
to the Effective Time, Parent shall deliver, by wire transfer of immediately available funds, to
an account designated in writing by the Paying Agent, in trust for the benefit of the holders of
Company Common Stock, an amount in cash equal to the Merger Consideration multiplied by the number
of shares of Company Common Stock to be converted in the Merger (the Exchange Fund).
(b) As promptly as practicable after the Effective Time, but in no event later than five (5)
Business Days following the Effective Time, Parent shall cause the Paying Agent to mail to each
holder of record of Company Common Stock a form of letter of transmittal (the 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 (including customary provisions with respect
to delivery of an agents message with respect to shares held in book-entry form) as Parent may
specify, subject to the Companys reasonable approval), together with instructions thereto. Upon
(i) in the case of shares of Company Common Stock represented by a certificate, the surrender of
such certificate for cancellation to the Paying Agent or (ii) in the case of shares of Company
Common Stock held in book-entry form, the receipt of an agents message by the Paying Agent, in
each case together with the Letter of Transmittal, duly, completely and validly executed in
accordance with the instructions thereto, and such other documents as may reasonably be required
by the Paying Agent, the holder of such shares of Company Common Stock shall be entitled to
receive (and the Paying Agent shall deliver) an amount equal to the Merger Consideration
multiplied by the number of shares of Company Common Stock to be converted.
(c) The payment of any transfer, documentary, sales, use, stamp, registration, value added
and other such Taxes and fees (including any penalties and interest) incurred by a holder of
Company Common Stock in connection with the Merger, and the filing of any related Tax Returns and
other documentation with respect to such Taxes and fees, shall be the sole responsibility of such
holder.
(d) In no event shall the holder of any surrendered certificates (or evidence of shares in
book-entry form) representing Company Common Stock be entitled to receive interest on any of the
Merger Consideration.
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(e) If the payment equal to the Merger Consideration is to be made to a Person other than the
Person in whose name the surrendered certificate (or evidence of shares in book-entry form)
formerly evidencing shares of Company Common Stock is registered on the stock transfer books of
the Company, it shall be a condition of payment that the certificate (or evidence of shares in
book-entry form) so surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the Person requesting such payment shall have paid all transfer and other taxes
required by reason of the payment of the Merger Consideration to a Person other than the
registered holder of the certificate (or evidence of shares in book-entry form) surrendered, or
shall have established to the satisfaction of the Paying Agent and Parent that such taxes either
have been paid or are not applicable.
(f) At any time following the twelfth (12th) month after the Effective Time, Parent shall be
entitled to require the Paying Agent to deliver to it any funds which had been made available to
the Paying Agent and not disbursed to holders of shares of Company Common Stock (including,
without limitation, all interest and other income received by the Paying Agent in respect of all
funds made available to it), and, thereafter, such holders shall be entitled to look to Parent
(subject to abandoned property, escheat and other similar laws) only as general creditors thereof
with respect to any Merger Consideration, without interest, that may be payable upon due surrender
of the certificates (or evidence of shares in book-entry form) held by them. Notwithstanding the
foregoing, neither Parent, Merger Sub nor the Paying Agent shall be liable to any holder of shares
of Company Common Stock for any Merger Consideration delivered in respect of such shares to a
public official pursuant to any abandoned property, escheat or other similar law.
(g) If any certificate shall have been lost, stolen or destroyed, then, upon the making of an
affidavit of that fact by the Person claiming such certificate to be lost, stolen or destroyed
and, if required by the Paying Agent, the posting by such Person of a bond, in such amount as
Parent or the Paying Agent may reasonably direct, as indemnity against any claim that may be made
against it with respect to such certificate, Parent shall direct the Paying Agent to pay, in
exchange for such lost, stolen or destroyed certificate, the Merger Consideration to be paid in
respect of the shares of Company Common Stock represented by such certificate, as contemplated by
this Article IV.
(h) The Paying Agent shall invest any of the funds deposited with the Paying Agent as
directed by Parent; provided, however, that (i) such investments shall be in short-term
obligations of or guaranteed by the United States of America or any agency or instrumentality
thereof and backed by the full faith and credit of the United States of America, in commercial
paper obligations rated A-1 or P-1 or better by Moodys Investors Service, Inc. or Standard &
Poors Corporation, respectively, or in certificates of deposit, bank repurchase agreements or
bankers acceptances of commercial banks with capital exceeding $1 billion (based on the most
recent financial statements of such bank that are then publicly available), and (ii) no such
investment shall have maturities that could prevent or delay payments to be made pursuant to this
Agreement. Any net profit resulting from, or interest or income produced by, such investments
shall be payable to the Parent or an affiliate of Parent as Parent directs; provided,
however, that any net loss resulting from such investments shall be promptly reimbursed by
Parent to the Exchange Fund upon demand by the Paying Agent. No investment of the Merger
Consideration funds shall relieve Parent, the Surviving Corporation or the Paying Agent from
making payments required by this Article IV. The Exchange Fund shall not be used for
any purpose other than as set forth in Section 4.2(a).
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(i) At the Effective Time, the stock transfer books of the Company shall be closed and
thereafter there shall be no further registration of transfers of shares of Company Common Stock
on the records of the Company. From and after the Effective Time, the holders of shares of
Company Common Stock outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares except as otherwise provided herein or by applicable Law.
4.3 Stock Options; Stock Appreciation Rights; Restricted Stock.
(a) Each option to purchase shares of Company Common Stock granted under any equity
compensation plan or arrangement of the Company and outstanding immediately prior to the Effective
Time (a Company Option), whether or not exercisable or vested, shall be canceled at the
Effective Time, in exchange for a payment, in cash, equal to the product of (i) the excess, if
any, of the Offer Price over the per share exercise price of the Company Option, and (ii) the
number of shares subject to the Company Option, less any amounts required to be withheld pursuant
to applicable law. Each stock appreciation right granted under an equity compensation plan or
arrangement of the Company and outstanding immediately prior to the Effective Time (a Company
SAR), whether or not exercisable or vested, shall be canceled at the Effective Time, in
exchange for a payment, in cash, equal to the product of (i) the excess, if any, of the Offer
Price over the per share exercise price of the Company SAR, and (ii) the number of shares subject
to the Company SAR, less any amounts required to be withheld pursuant to applicable law.
(b) Each restricted stock award or performance accelerated restricted stock award granted
under any compensation plan or arrangement of the Company and outstanding immediately prior to the
Effective Time (Company Restricted Stock), whether or not vested, shall be cancelled at
the Effective Time in exchange for the Merger Consideration payable in respect of such stock.
(c) Prior to the Effective Time, the Company shall take all actions reasonably necessary to
effect the measures contemplated by this Section 4.3, including but not limited to
adoption of any plan amendments, obtaining Company Board approval and/or obtaining any consents,
and to ensure that, on and after the Effective Time, no holder of a Company Option, Company SAR or
Company Restricted Stock has any further rights with respect thereto (other than to receive the
payments provided for in this Section 4.3). All payments with respect to Company Options
and Company SARs shall be made by the Paying Agent as promptly as reasonably practical after the
Effective Time from funds deposited by or at the direction of the Surviving Corporation.
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4.4 Withholding Rights. Notwithstanding any provision contained herein to the
contrary, each of the Paying Agent, the Surviving Corporation, Parent and their respective agents
shall be entitled to deduct and withhold from the Merger Consideration, or the amounts described in
Section 4.3, otherwise payable to any Person pursuant to this Agreement such amounts as it
is required to deduct and withhold with respect to the making of such payment
under any provision of any federal, state, local or foreign Tax Law. If the Paying Agent, the
Surviving Corporation, Parent or any of their respective agents, as the case may be, so withholds
amounts, and pays over such amounts to the appropriate Taxing Authority, such amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of the shares of
Company Common Stock in respect of which the Paying Agent, the Surviving Corporation, Parent or the
agent, as the case may be, made such deduction and withholding.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the last annual report on Form 10-K (and the amendment thereto) filed
by the Company with the SEC and in any Company SEC Reports filed subsequent to such annual report,
in the case of both such annual report and such other Company SEC Reports, filed prior to the date
of this Agreement, other than disclosures referred to in the Risk Factors section of such Company
SEC Documents (each, an Available Company SEC Document) or on the disclosure schedule
delivered by the Company to Parent immediately prior to the execution of this Agreement (the
Company Disclosure Schedule), the Company represents and warrants to Parent and Merger
Sub as follows:
5.1 Corporate Organization and Qualification. Each of the Company and its
Subsidiaries is a legal entity duly organized, validly existing and (to the extent applicable) in
good standing under the Laws of its respective jurisdiction of organization or incorporation and,
except as set forth on Section 5.1 of the Company Disclosure Schedule, is qualified and (to
the extent applicable) in good standing to do business in each jurisdiction where the properties
owned, leased or operated or the business conducted by it require such qualification, except where
a failure to so qualify or be in good standing would not have a Company Material Adverse Effect.
Each of the Company and its Subsidiaries has the requisite corporate power and authority to own,
lease or otherwise hold its properties and to conduct its business as it is now being conducted,
except where failure to have such power and authority would not have a Company Material Adverse
Effect. The Company has previously made available to Parent complete and correct copies of the
Companys articles of incorporation, as amended (the Company Articles), the Companys
amended and restated bylaws (the Company Bylaws) and the respective organizational
documents, as amended and restated, of the Companys Subsidiaries, and each of its Subsidiaries
articles, bylaws or other organizational documents, as applicable, are in full force and effect.
None of the Company or any Subsidiary is in violation of its respective organizational documents.
5.2 Capitalization.
(a) The authorized capital stock of the Company (the Company Capital Stock)
consists of 40,000,000 shares of Company Common Stock and 10,000,000 shares of Company Preferred
Stock. As of October 3, 2011, 25,428,753 shares of Company Common Stock were issued and
outstanding (including 816,460 shares of Company Restricted Stock for which the restrictions have
not yet lapsed) and no shares of Company Preferred stock were issued and outstanding. All
outstanding shares of Company Common Stock are, and all such shares that may be issued prior to
the Effective Time will be if and when issued against
payment therefor in accordance with the terms thereof, duly authorized, validly issued, fully
paid and nonassessable. No shares of Company Common Stock are held in the treasury of the Company
and no shares of Company Common Stock are held by Subsidiaries of the Company.
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(b) (i) As of October 3, 2011, 2,734,190 shares of Company Common Stock were reserved for
issuance upon the exercise of outstanding Company Options and Company SARs. Section
5.2(b)(i) of the Company Disclosure Schedule lists, as of the close of business on October 3,
2011, all outstanding Company Options and Company SARs, the number of shares of Company Common
Stock subject to each Company Option and Company SAR, the grant dates and exercise prices of each
Company Option and Company SAR, and the names of the holders thereof.
(ii) As of October 3, 2011, 816,460 shares of Company Restricted Stock were issued and
outstanding. Section 5.2(b)(ii) of the Company Disclosure Schedule lists, as of the close
of business on October 3, 2011, all outstanding shares of Company Restricted Stock, the grant dates
of each award of Company Restricted Stock, and the names of the holders thereof.
(c) Except as set forth in this Section 5.2 or on the Company Disclosure Schedule (or
as contemplated by Section 2.3 hereof), as of the date hereof, there are no outstanding
options, stock appreciation rights, warrants, convertible securities, calls, or any other rights
(including preemptive rights), commitments or any other agreements of any character to which the
Company or any of its Subsidiaries is a party, or by which it may be bound, requiring it to (i)
issue, transfer or sell, or (ii) purchase, redeem or acquire, any shares of Company Capital Stock
or any securities or rights convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of Company Capital Stock or any shares of the capital stock of any of
its Subsidiaries other than, in the case of clause (ii), pursuant to awards granted under the
Companys 1997 Employee, Director and Consultant Stock Option Plan, 2002 Stock Option Plan and
2007 Stock Incentive Plan.
(d) There are no voting trusts or other agreements or understandings to which the Company or
any of its Subsidiaries is a party with respect to the voting of the capital stock or other equity
interest of the Company.
(e) All outstanding shares of capital stock or other equity interests of the Companys
Subsidiaries are owned directly or indirectly by the Company, free and clear of all liens,
mortgages, security interests, charges, encumbrances, claims and options of any nature
(Liens), other than security interests granted under the Company Credit Facility.
(f) Section 5.2(f) of the Company Disclosure Schedule sets forth a complete and
accurate list of (i) each Subsidiary of the Company and any of its Subsidiaries and the record
ownership of all issued and outstanding shares thereof and (ii) the percentage and type of
ownership interest thereof held by the Company or its Subsidiaries.
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5.3 Authorization; Valid and Binding Agreement.
(a) The Company has the requisite corporate power and authority to execute and deliver this
Agreement and all other agreements and documents contemplated hereby to which it is a party and,
subject to obtaining Company Stockholder Approval (if and to the extent required by applicable
Law), to perform its obligations hereunder and to consummate, on the terms and subject to the
conditions of this Agreement, the transactions contemplated hereby. This Agreement and the
consummation by the Company of the transactions contemplated hereby have been duly authorized by
the Company Board and no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby (other than, with
respect to the Merger, the Company Stockholder Approval (if and to the extent required by
applicable Law), and the filing and recordation of the Articles of Merger and other documents as
required by the PBCL). This Agreement has been duly executed and delivered by the Company and,
assuming that this Agreement constitutes the valid and binding obligation of Parent and Merger Sub
enforceable against each of Parent and Merger Sub in accordance with its terms, this Agreement
constitutes the valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except that such enforceability may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating
to creditors rights generally, and (ii) general principles of equity.
(b) The Company Board, at a meeting duly called and held prior to the execution of this
Agreement at which all directors of the Company were present, unanimously (i) determined that this
Agreement and the transactions contemplated hereby, including the Offer and the Merger, are
advisable and fair to, and in the best interests of, the Company and the Companys stockholders,
(ii) adopted and approved this Agreement and the transactions contemplated hereby, including the
Offer and the Merger, (iii) directed that the adoption of this Agreement be submitted to the
Stockholders Meeting as promptly as practicable after the Offer Closing (unless the Merger is
consummated in accordance with Section 1924(b)(1)(ii) of the PBCL as contemplated pursuant to
Section 3.9), (iv) resolved to make the Company Board Recommendation to the stockholders
of the Company, and (v) authorized the Top-Up Option (including the consideration to be paid upon
exercise thereof) and the issuance of the Top-Up Shares thereunder; which actions and resolutions
have not, as of the date hereof, been subsequently rescinded, modified or withdrawn in any way.
5.4 Consents and Approvals; No Violation.
(a) Assuming the Company Stockholder Approval is obtained (if and to the extent required by
applicable Law), except as set forth on Section 5.4(a) of the Company Disclosure Schedule,
neither the execution and delivery of this Agreement, nor the consummation by the Company of the
transactions contemplated hereby, will:
(i) violate, breach or conflict with any provision of the Company Articles or Company Bylaws
or the respective organizational documents of any of the Companys Subsidiaries;
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(ii) require any consent, approval, authorization or permit of, or filing with or notification
to (Permits), any Governmental Entity, except (A) the filings and consents listed on
Section 5.4(a) of the Company Disclosure Schedule; (B) pursuant to the applicable
requirements of the Securities Act and the Exchange Act; (C) the filing of the Articles of Merger
with the Department of State of the Commonwealth of Pennsylvania pursuant to the PBCL and
appropriate documents with the relevant authorities of other states in which the Company or any of
its Subsidiaries is authorized to do business; (D) as may be required by any applicable state
securities or blue sky Laws or state takeover Laws; (E) pursuant to the rules and regulations of
NASDAQ; (F) the filing of an informational notice by Merger Sub with the Pennsylvania Securities
Commission in order to perfect an exemption from the registration requirements of the Pennsylvania
Takeover Disclosure Law, 70 P.S. §71., et seq., pursuant to 70 P.S. §78(a), or (G) such other
Permits, the failure of which to be obtained or made would not have a Company Material Adverse
Effect;
(iii) result in a violation or breach of, or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination, cancellation or acceleration
or Lien), or require any consent or notice under any of the terms, conditions or provisions of any
Company Contract, except for such violations, breaches and defaults (or rights of termination,
cancellation or acceleration or Liens) as to which requisite waivers or consents have been
obtained; or
(iv) assuming that the Permits referred to in this Section 5.4 are duly and timely
obtained or made, violate any Law, Order or Permit applicable to the Company or any of its
Subsidiaries, or to any of their respective assets;
except, in the cases of clauses (iii) and (iv) above, any such violation, default, breach or other
occurrence that would not have a Company Material Adverse Effect.
(b) Assuming the accuracy of the representations and warranties set forth in Article
VI, the affirmative vote of a majority of the votes cast by all holders of shares of Company
Common Stock entitled to vote on the adoption of this Agreement as of the record date of the
Stockholders Meeting (the Company Stockholder Approval) is the only vote of any class or
series of Company Capital Stock that may be required in connection with the consummation of the
Merger.
5.5 SEC Reports; Financial Statements; Controls.
(a) The Company has filed all forms, reports, schedules, registration statements and proxy
statements with the SEC required to be filed by the Company since January 4, 2009 and through the
date hereof under the Securities Act or the Exchange Act (as such reports and statements may have
been amended since the date of their filing, the Company SEC Documents). As of their
respective dates, or, if amended or restated, as of the date of the last such amendment or
restatement, the Company SEC Documents complied in all material respects with, to the extent in
effect at the time of filing, the applicable requirements of the Securities Act and the Exchange
Act, as the case may be, and the applicable rules and regulations promulgated thereunder, and none
of the Company SEC Documents contained when filed any untrue statement of a material fact or
omitted 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, except to the extent updated, amended,
restated or corrected by a subsequent Company SEC Document. None of the Companys Subsidiaries is
required to file any reports or forms with the SEC pursuant to the Exchange Act.
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(b) The consolidated financial statements (including all related notes and schedules) of the
Company included in the Company SEC Documents at the time filed with the SEC, or if amended,
updated, restated or corrected in a subsequent Company SEC Document prior to the date hereof, as
of the date of such amendment, update, restatement or correction, fairly present in all material
respects the consolidated financial position of the Company and its consolidated Subsidiaries, as
at the respective dates thereof, and the consolidated results of their operations and their
consolidated cash flows for the respective periods then ended (subject, in the case of the
unaudited statements, to normal year-end audit adjustments and to any other adjustments described
therein, including the notes thereto) and were prepared in conformity with GAAP (except, in the
case of the unaudited statements, as permitted by the SEC) applied on a consistent basis during
the periods involved (except as may be indicated therein or in the notes thereto).
(c) Except as disclosed in the Company SEC Documents or on Section 5.5(c) of the
Company Disclosure Schedule, (i) the Company has established and maintains disclosure controls and
procedures and internal control over financial reporting (as such terms are defined in paragraphs
(e) and (f), respectively, of Rule 13a-15 under the Exchange Act), as required by Rule 13a-15
under the Exchange Act, (ii) the Companys disclosure controls and procedures are reasonably
designed to ensure that all material information required to be disclosed by the Company in the
reports that it files under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the SEC, and that all such material
information is accumulated and communicated to the Companys management as appropriate to allow
timely decisions regarding required disclosure and to make the certifications required pursuant to
Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, (iii) the Companys system of internal
control over financial reporting is designed in all material respects to provide reasonable
assurance (1) that transactions are recorded as necessary to permit the preparation of financial
statements in accordance with GAAP, (2) that receipts and expenditures are being made only in
accordance with the authorization of management or Company Board, as applicable, and (3) regarding
prevention or timely detection of the unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the Companys financial statements. No
significant deficiency, material weakness or fraud, whether or not material, that involves
management or other employees was identified in managements assessment of internal controls since
January 4, 2009, (iv) with respect to each annual report on Form 10-K, each quarterly report on
Form 10-Q and each amendment of any such report included in the Company SEC Documents filed since
January 4, 2009, the principal executive officer and principal financial officer of the Company
(or each former principal executive officer and each former principal financial officer of the
Company) have made all certifications required by the Sarbanes-Oxley Act of 2002 and any related
rules and regulations promulgated by the SEC, and (v) the Companys management has completed an
assessment of the effectiveness of the Companys internal control over financial reporting in
compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 for the year
ended January 1, 2011, and such assessment was previously disclosed in the Company SEC Documents.
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(d) Since January 4, 2009, (i) neither the Company nor any Subsidiary nor, to the Knowledge
of the Company, any director, officer, employee, auditor, accountant or representative of the
Company or any Subsidiary has received any material complaint, allegation, assertion or claim,
whether written or oral, regarding the accounting or auditing practices, procedures, methodologies
or methods of the Company or any Subsidiary or their respective internal accounting controls,
including any material complaint, allegation, assertion or claim that the Company or any
Subsidiary has engaged in questionable accounting or auditing practices and (ii) no attorney
representing the Company or any Subsidiary, whether or not employed by the Company or any
Subsidiary, has reported evidence of a material violation of securities laws, breach of fiduciary
duty or similar violation by the Company or any of its officers, directors, employees or agents to
the Company Board or any committee thereof or to any non-employee director or the Chief Legal
Counsel or Chief Executive Officer of the Company pursuant to Section 307 of the Sarbanes-Oxley
Act of 2002.
(e) The Company is in compliance in all material respects with all current listing and
corporate governance requirements of NASDAQ.
5.6 Absence of Certain Changes or Events. Except as disclosed in the Available
Company SEC Documents, or as contemplated by this Agreement, since January 2, 2011, the Company has
not suffered any Company Material Adverse Effect.
5.7 Litigation.
(a) Except for claims made under applicable workers compensation laws, general liability
claims, claims reflected in audit letter responses (copies of which have been provided to
Purchaser) or claims set forth on Section 5.7(a) of the Company Disclosure Schedule, since
January 4, 2009, there have not been and currently there are no material actions, claims, suits,
proceedings or, to the Knowledge of the Company, investigations pending or, to the Knowledge of
the Company, threatened against the Company, any of its Subsidiaries or any of their respective
properties, before or by (or, in the case of threatened actions, claims, suits, proceedings or
investigations, that would be before or by) any Governmental Entity or arbitrator.
(b) Except for claims made under applicable workers compensation laws, general liability
claims, or claims reflected in audit letter responses (copies of which have been provided to
Purchaser), since January 4, 2009 there have not been and currently there are no Orders of any
Governmental Entity or any arbitrator applicable to the Company or any of its Subsidiaries (or
settlement effected in connection therewith).
(c) There is no pending action, dispute or claim by or on behalf of any director, officer,
employee fiduciary or agent of the Company or any Subsidiary of the Company in respect of
advancement, indemnification or exculpation from liabilities for acts or omissions as provided in
applicable Law or the Company Articles, the Company Bylaws or other organizational documents of
the Company or any Subsidiary of the Company as currently in effect.
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5.8 Offer Documents; Schedule 14D-9; Proxy Statement. None of the information
supplied by the Company for inclusion in the Offer Documents will, on the date the Offer Documents
or any amendments or supplements thereto are filed with the SEC or are first published, sent or
given to stockholders of the Company, as the case may be, 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 the light of the circumstances under which they were made, not
misleading. The Schedule 14D-9 and the proxy statement to be sent to the stockholders of the
Company in connection with the Stockholders Meeting (if and to the extent required by applicable
Law) (such proxy statement, as amended or supplemented, being referred to herein as the Proxy
Statement), will not, on the respective dates the Schedule 14D-9 and Proxy Statement are first
mailed to stockholders of the Company or at the time of the Stockholders Meeting, as applicable,
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 the light of the circumstances under
which they were made, not misleading. The Schedule 14D-9 and the Proxy Statement will comply in
all material respects with the requirements of the provisions of the applicable U.S. federal
securities laws and rules and regulations promulgated thereunder. Notwithstanding the foregoing,
the Company makes no representation or warranty whatsoever with respect to any statements made or
incorporated by reference in the Offer Documents, the Schedule 14D-9 or the Proxy Statement, or any
amendments or supplements thereto, based on information supplied by Parent, Merger Sub or any of
Parents or Merger Subs Representatives.
5.9 Taxes.
(a) The Company and its Subsidiaries (i) have timely filed, or have caused to be timely filed
on their behalf (in each case taking into account any extension of time within which to file), all
material Tax Returns required to have been filed by the Company and its Subsidiaries, (ii) with
respect to taxable periods ending on or before the Effective Time, have timely paid all material
Taxes due and owing by the Company or any of its Subsidiaries (whether or not shown on any Tax
Return) or have adequately reserved for such Taxes in accordance with GAAP, except for Taxes being
contested in good faith by the appropriate proceeding and (iii) have not received written notice
of any material deficiencies for any Tax from any Taxing Authority against the Company or any of
its Subsidiaries which has not been resolved or for which there are not adequate specific reserves
on the financial statements included in the Company SEC Documents.
(b) Except as set forth on Section 5.9(b) of the Company Disclosure Schedule, neither
the Company nor any of its Subsidiaries is the subject of any material currently pending tax audit
or other proceeding with respect to Taxes nor, to the Knowledge of the Company, has any Tax audit
or other proceeding with respect to material Taxes been proposed or threatened in writing against
any of them. There is no agreement or other document waiving or extending, or having the effect
of waiving or extending, the period of assessment or collection of any Taxes. There are no
material Liens for Taxes on any of the assets of the Company or any of its Subsidiaries other than
Company Permitted Liens.
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(c) Other than customary tax indemnification or other agreements contained in any credit or
other commercial agreements the primary purpose of which does not relate to
Taxes, neither the Company nor any of its Subsidiaries is (i) obligated by law or by any
written contract, agreement or other arrangement to indemnify any other person (other than the
Company and its Subsidiaries) with respect to any material Taxes or (ii) a party to or bound by
any written Tax allocation, indemnification or sharing agreement (other than an agreement with the
Company or its Subsidiaries). Neither the Company nor any of its Subsidiaries is liable under
Treasury Regulation Section 1.1502-6 (or any similar provision of the Tax Laws of any state, local
or foreign jurisdiction) for any Taxes of any Person other than the Company and its Subsidiaries.
(d) The Company and its Subsidiaries have withheld and paid all Taxes required to have been
withheld and paid and reported in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party, except to the extent that the
failure to make such withholdings and payments would not have a Company Material Adverse Effect.
(e) Neither the Company nor any of its Subsidiaries will be required to include any material
item of income, or exclude any material item of deduction from, taxable income for any taxable
period (or portion thereof) ending after the Closing Date as a result of any intercompany
transaction or excess loss account described in Treasury Regulation Section 1.1502 (or any
corresponding or similar provision of state, local, or foreign income Tax law).
(f) Neither the Company nor any of its Subsidiaries will be required to include any material
amount in income for any taxable period (or portion thereof) ending after the Closing Date in
accordance with the provisions of Code Section 481(a).
(g) The Company has made available to Parent or its legal or accounting representative copies
of all material federal and state Tax Returns for the Company and each of its Subsidiaries filed
for all periods including and after the period ended December 31, 2007.
(h) Neither the Company nor any of its Subsidiaries has constituted either a controlled
corporation or a distributing corporation in any distribution occurring during the two-year
period ending on the date of this Agreement that was purported or intended to be governed by
Section 355 of the Code (or any similar provision of state, local or foreign law).
(i) Neither the Company nor any of its Subsidiaries is a party to any agreement, contract,
arrangement, or plan that has resulted or would result in a payment that would not be fully
deductible as a result of the limitations set forth in Code Section 162(m) (or any similar
provision of state, local, or foreign law).
(j) Neither the Company nor any of its Subsidiaries has participated in any listed
transaction within the meaning of Treasury Regulation Section 1.6011-4(b).
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5.10 Employee Benefit Plans.
(a) With respect to each Employee Benefit Plan, the Company has made available to Parent
prior to the date hereof a true, correct and complete copy (in each case, if applicable) of each
(i) Employee Benefit Plan, including all amendments thereto; (ii) current summary plan description
and any summaries of material modifications; (iii) trust, insurance,
annuity or other funding Contract related thereto; (iv) the most recent determination,
advisory or opinion letter related thereto and any outstanding request for a determination letter;
(v) the most recent financial statements and actuarial or other valuation reports prepared with
respect thereto; (vi) the three (3) most recent annual reports on Form 5500 required to be filed
with the Internal Revenue Service with respect thereto with attached opinions of independent
accountants if required by Law; (vii) any written policies or procedures used in the
administration of each Employee Benefit Plan; (viii) current administrative service agreements
with third parties; and (ix) in the case of an Employee Benefit Plan that is a group health plan
as defined in Code Section 5000(b)(1), currently applicable form of general notification to
employees of their rights under Code Section 4980B and currently applicable form of letter(s)
distributed upon the occurrence of a qualifying event described in Code Section 4980B.
(b) Except as disclosed on Section 5.10(b) of the Company Disclosure Schedule, each
Employee Benefit Plan complies in form and has been administered in compliance with its terms and
applicable Laws, including ERISA and the Code, except where the failure to be in compliance,
individually or in the aggregate, would not have a Company Material Adverse Effect. Except as
disclosed on Section 5.10(b) of the Company Disclosure Schedule, to the Knowledge of the
Company, neither the design and administration of any Employee Benefit Plan, nor the failure to
maintain an employee benefit arrangement, would subject the Company or any Subsidiary to a tax
under Chapters 43 and 47 of Subtitle A of Title 26 of the Code. With respect to each Employee
Benefit Plan, to the Knowledge of the Company, no prohibited transactions (as defined in ERISA
Section 406 or Code Section 4975) have occurred; no violations of ERISA Section 407 have occurred
for which an applicable statutory or administrative exemption does not exist; and no circumstances
exist which could subject any Person to a civil penalty under Section 502(i) or Section 502(l) of
ERISA. Except as required by applicable Law and the terms of any Employee Benefit Plan, there are
no limitations or restrictions on the right of the Company or its Subsidiaries or, after the
consummation of the transactions contemplated hereby, Parent or its Subsidiaries, including the
Surviving Corporation, to merge, amend or terminate any Employee Benefit Plan and, in the case of
terminations, without further liability therefor, including, without limitation, any additional
benefit accruals from and after the effective date of termination and penalties, surrender
charges, market value adjustments or any other liability attributable to the termination.
(c) Except as set forth on Section 5.10(c) of the Company Disclosure Schedule, no
Employee Benefit Plan provides welfare benefits, including without limitation, death or medical
benefits (whether or not insured), beyond retirement or termination of service, other than
coverage mandated by applicable Law.
(d) With respect to each Employee Benefit Plan intended to be qualified within the meaning
of Section 401(a) of the Code, (i) each such Employee Benefit Plan and the trusts, if any,
maintained thereunder, are the subjects of a favorable determination or may rely on an opinion or
advisory letter from the Internal Revenue Service with respect to its qualification in form or
tax-exemption in form, as the case may be, and (ii) to the Knowledge of the Company, no event has
occurred that could reasonably be expected to result in disqualification or adversely affect such
exemption.
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(e) Neither the Company nor any of its ERISA Affiliates has, during the six (6) year period
ending on the date hereof, contributed to or had any obligation to contribute to: (i) a plan
subject to Title IV or Sections 302 or 303 of ERISA or Sections 412 or 430 of the Code; (ii) a
multiemployer plan (within the meaning of Section 3(37) of ERISA); (iii) a multiple employer
plan (within the meaning of Section 413(c) of the Code); (iv) any voluntary employees
beneficiary association (within the meaning of Section 501(c)(9) of the Code); or (v) any
multiple employer welfare arrangement (within the meaning of Section 3(40) of ERISA). Neither
the Company nor any of its ERISA Affiliates has incurred any withdrawal liability.
(f) There are no pending, or to the Knowledge of the Company, threatened actions, suits,
disputes or claims by or on behalf of any Employee Benefit Plan, by any employee or beneficiary
covered under any such Employee Benefit Plan or otherwise involving any such Employee Benefit Plan
(other than routine claims for benefits.
(g) Except as listed on Section 5.10(g) of the Company Disclosure Schedule, neither
the execution and delivery of this Agreement nor the consummation of the transactions contemplated
hereby will, either alone or in combination with another event, (i) entitle any current or former
employee, officer, director or other service provider of the Company or any of its Subsidiaries to
severance pay, unemployment compensation, a change of control payment or any other payment, or
(ii) accelerate the time of payment or vesting, or increase the amount of compensation due any
such employee, officer, director or other service provider. Except as listed on Section
5.10(g) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is
party to any contract or arrangement that could reasonably expect to result, separately or in the
aggregate, in the payment of any excess parachute payment for purposes of Section 280G or
Section 4999 of the Code.
(h) With respect to each Employee Benefit Plan that is a nonqualified deferred compensation
plan within the meaning of Section 409A(d)(1) of the Code and is subject to Section 409A of the
Code, (i) the written terms of such Employee Benefit Plan have at all times since January 4, 2009
been in compliance with, and (ii) such Employee Benefit Plan has, at all times while subject to
Section 409A of the Code, been operated in compliance with, Section 409A of the Code and all
applicable guidance thereunder.
(i) All contributions with respect to the Employee Benefit Plans having due dates falling on
or before the Closing Date will be made prior to the Closing Date by the Company and all members
of the controlled group. All contributions to the Employee Benefit Plans have been made on a
timely basis in accordance with ERISA and the Code. With regard to those Employee Benefit Plans
with respect to which benefits are funded, in whole or in part, through insurance, all insurance
premiums the due dates for which fall on or before the Closing Date have been paid in full,
subject only to normal retrospective adjustments in the ordinary course.
(j) All expenses and liabilities relating to all of the Employee Benefit Plans have been, and
will on the Closing Date be, fully and properly accrued on the books and records of the Company
and its Subsidiaries and the Companys consolidated financial
statements reflect all of such liabilities in a manner satisfying the requirements of
Financial Accounting Standards 87 and 88.
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5.11 Labor Matters.
(a) Section 5.11(a) of the Company Disclosure Schedule contains a complete and
accurate list of the following information for each employee at the level of manager or above of
the Company and its Subsidiaries, including each such employee on leave of absence or layoff
status: name, job title, current annual base salary, and accrued but unused vacation leave.
(b) Set forth in Section 5.11(b) of the Company Disclosure Schedule is a list of:
(i) all current directors of the Company and each Subsidiary, (ii) all current paid consultants to
the Company and each Subsidiary who have a contract for services of $50,000 or above, and (iii)
all former employees of the Company and its Subsidiaries for whom the Company or any Subsidiary
has any benefits responsibility or other continuing or contingent obligation, together with the
current rate of compensation and benefits (if any) payable to such person and any incentive or
bonus amounts earned but not paid.
(c) Except as set forth in Section 5.11(b) or (c) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary is indebted to any shareholder, director, officer
or employee of the Company, except for amounts due as director fees, normal salaries, wages,
employee benefits and bonuses, and in reimbursement of ordinary expenses on a current basis.
(d) All payments for services made to consultants, agents and third-party providers have been
legally made. The Company and its Subsidiaries have properly and accurately reflected on their
books and records: (i) all compensation paid to and perquisites provided to or on behalf of its
agents and employees; and (ii) all compensation and perquisites that are due and payable to such
persons, but which have not been paid or provided as of the Closing. Such compensation and
perquisites have been properly and accurately reflected in the Companys consolidated financial
statements.
(e) To the Knowledge of the Company, no current employee at the level of manager or above,
officer or director of the Company or any Subsidiary is a party to, or is otherwise bound by, any
agreement, including any confidentiality, non-competition or proprietary rights agreement, between
such employee, officer or director and any other Person that in any way adversely affected or
affects (i) the performance of his or her duties as an employee, officer or director of the
Company or a Subsidiary, or (ii) the ability of the Company or Parent to conduct the business of
the Company and its Subsidiaries. Except as set forth on Section 5.11(e) of the Company
Disclosure Schedule, to the Knowledge of the Company, no director, officer or employee at the
level of manager or above of the Company or any Subsidiary has provided notice of an intent to
terminate his or her employment with the Company or Subsidiary, as applicable.
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(f) Except as has not had and would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect, the Company and each
Subsidiary are in compliance with all applicable Laws respecting employment and employment
practices, including all Laws respecting terms and conditions of employment wages and hours,
health and safety, child labor, immigration, employment discrimination, disability rights or
benefits, equal opportunity, plant closures and layoffs, affirmative action, workers
compensation, labor relations, employee leave issues, and unemployment insurance, and are not
engaged in any unfair labor practice,
(g) Neither the Company nor any of its Subsidiaries is a party to any collective bargaining
agreement or similar labor agreement covering employees or former employees of the Company or any
of its Subsidiaries. There are no (i) labor strikes, slowdowns or stoppages currently pending or,
to the Knowledge of the Company, threatened against or affecting the Company or any of its
Subsidiaries, (ii) representation claims or petitions pending before any Governmental Entity or
any organizing efforts or challenges concerning representation with respect to the employees of
the Company or any of its Subsidiaries or (iii) grievances or pending arbitration proceedings
against the Company or any of its Subsidiaries that arose out of or under any collective
bargaining agreement, except, in each case, for such occurrences that have not had or would not
reasonably be expected to have, individually or in the aggregate, a Company Material Adverse
Effect.
5.12 Environmental Laws and Regulations.
(a) The Company and each of its Subsidiaries is, and has been, in compliance with all
applicable Environmental Laws, except where the failure to be in compliance would not have a
Company Material Adverse Effect.
(b) Except as would not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect, (i) there are no pending or, to the Knowledge of the Company,
threatened claims for liability under or noncompliance with any Environmental Laws against the
Company or any of its Subsidiaries, and (ii) neither the Company nor any of its Subsidiaries has
received written notice of, or, to the Knowledge of the Company, is the subject of, any pending
action, cause of action, claim, investigation, demand or notice by any Person alleging liability
under, or violation of, or noncompliance with, any Environmental Law.
(c) Except as would not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect, (i) the Company and its Subsidiaries have obtained and are in
compliance with all Environmental Permits required by the Company and its Subsidiaries for the
operation of their business; (ii) all such Environmental Permits are valid and in good standing.
(d) The Company has delivered or otherwise made available for inspection to Parent all
material assessments, reports, data, results of investigations or audits, and other information
that is in the possession of the Company regarding environmental matters pertaining to or the
environmental condition of the business of the Company and its Subsidiaries, or the compliance (or
noncompliance) by the Company or its Subsidiaries with any Environmental Laws.
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(e) The representations and warranties set forth in this Section 5.12 are the only
representations and warranties made by the Company with respect to the subject matter hereof.
(f) For purposes of this Agreement:
(i) Environmental Law shall mean all federal, state and local laws and regulations
relating to pollution or protection of human health or the environment.
(ii) Environmental Permits means Permits required pursuant to applicable
Environmental Laws.
5.13 Property and Assets.
(a) The Company or a Subsidiary of the Company has fee title to, or a leasehold interest in,
all the material real properties and assets which it purports to own or lease (real, tangible,
personal and mixed), including all the properties and assets reflected in the balance sheet
contained in the Companys Annual Report on Form 10-K for the fiscal year ended January 1, 2011
(the Company Balance Sheet) (except for personal property sold since the date of the
Company Balance Sheet in the ordinary course of business consistent with past practice). All
material real property owned, leased or subleased by the Company and its Subsidiaries as of the
date hereof (Company Real Property) is free and clear of all Liens, except for Company
Permitted Liens.
(b) The Company has provided or made available to Parent true and correct copies of all title
reports and title policies (including all exception documents referenced therein), surveys and
engineering reports in its possession or control regarding the Company Real Property which is
owned by the Company or its Subsidiaries.
(c) All of the material real property leases pursuant to which the Company or its
Subsidiaries leases, licenses or occupies any of the Company Real Property or which the Company or
its Subsidiaries are a landlord or sublandlord (collectively, the Company Real Property
Leases) are valid and enforceable, except where the failure to be valid or enforceable would
not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse
Effect. The Company has provided or made available to Parent true and correct copies of all such
Company Real Property Leases.
(d) There are no outstanding options, rights of first offer, rights of refusal or similar
preemptive rights granted to third parties to purchase or lease any of the Company Real Property
owned by the Company or any Subsidiary, or any portion thereof or interest therein.
5.14 No Undisclosed Liabilities. Except as reflected in the Company Balance Sheet,
the Company has no liabilities (absolute, accrued, contingent or otherwise) of a nature required to
be set forth on the Companys balance sheet under GAAP or the notes thereto, other than (i) any
liabilities and obligations incurred since the date of the Company Balance Sheet in the ordinary
course of business consistent with past practice, (ii) any liabilities and obligations incurred in
connection with the transactions contemplated by this Agreement and (iii) any liabilities and
obligations that would not have a Company Material Adverse Effect.
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5.15 Intellectual Property. Except as set forth on Section 5.15 of the
Company Disclosure Schedule or as would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect:
(a) The Company and/or its Subsidiaries own, or have a valid right to use in each case free
and clear of any material Liens (other than Company Permitted Liens and except as set forth in
Intellectual Property Contracts or standard license agreements for commercially available
off-the-shelf software), all material Intellectual Property necessary for their respective
businesses as currently conducted; and
(b) Neither the Company nor any of its Subsidiaries (nor any of their respective
predecessors) has received any written notice since three (3) years prior to the date of this
Agreement from any third Person, and none are pending, asserting or suggesting the infringement,
misappropriation or other violation of any Intellectual Property by the Company or any of its
Subsidiaries.
5.16 Compliance with Laws and Orders. Except with respect to the matters that are
excluded from Section 5.7 and Section 5.8, each of the Company and its
Subsidiaries, since January 4, 2009, has complied in all material respects with and is not in
violation of or in default under any law (including the common law), statute, ordinance, code,
rule, regulation, treaty or directive having the effect of law of any Governmental Entity
(collectively and individually, Law), or writ, judgment, decree, injunction or similar
order of any Governmental Entity, in each case, whether preliminary, temporary or final (an
Order), applicable and material to the Company or any of its Subsidiaries or any of their
respective assets and properties.
5.17 Company Contracts.
(a) As of the date hereof, except for this Agreement and agreements filed with or
incorporated by reference in the Company SEC Documents or listed on Section 5.17(a) of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party to or
bound by any contract constituting a material contract (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC) or:
(i) any Contract, other than for the supply of merchandise or for leased property, that
contemplates payments or the delivery of other consideration by or to the Company or any of its
Subsidiaries of (1) more than $50,000 during any 12-month period or (2) more than $250,000 over the
remaining term of such Contract (for purposes of this Section 5.17(a)(i), in calculating the amount
of payment or consideration in the future, the amount of payment or consideration over the last
twelve months may be assumed for all successive years unless, to the Knowledge of the Company, such
amounts are reasonably expected to increase by more than 20% for any future year);
(ii) any loan or credit agreement, Contract, note, debenture, bond, indenture, mortgage,
security agreement, pledge or other similar agreement pursuant to which any material Indebtedness
in excess of $250,000 of the Company or any of its Subsidiaries is outstanding or may be incurred;
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(iii) any Contract relating to guarantees or assumptions of other obligations of any third
Person or involving any performance bonds which agreements relate to obligations which do not
individually exceed $250,000, except for agreements entered into in the ordinary course of business
consistent with past practice;
(iv) any Contract that constitutes a collective bargaining or other arrangement with any labor
union, labor organization, workers association, works council or other collective group of
employees;
(v) any Contract granting a first refusal, first offer or similar preferential right to
purchase or acquire any of the Company Capital Stock or any material asset of the Company, other
than the Company Options or Company SARs;
(vi) any Contract containing covenants binding upon the Company or any of its Subsidiaries
that (A) materially restrict the ability of the Company or any of its Subsidiaries (or that,
following the consummation of the Merger, would materially restrict the ability of the Surviving
Corporation or its affiliates) to compete (1) in any business that is material to the Company and
its Subsidiaries, taken as a whole, as of the date of this Agreement (2) with any Person or (3) in
any geographic area; or (B) materially restrict the right of the Company to conduct its business as
it is presently conducted or which could require the disposition of any material assets or line of
business of the Company;
(vii) any Contract relating to the disposition or acquisition of a material business or, other
than in the ordinary course, any amount of material assets by the Company or any of its
Subsidiaries, with obligations remaining to be performed or liabilities continuing after the date
of this Agreement, including any earn-out or other contingent payments or obligations that
individually, could reasonably be expected to result in payments by the Company or any of its
Subsidiaries in excess of $1,000,000 individually or $2,500,000 in the aggregate for all such
agreements;
(viii) any material hedge, collar, option, forward purchasing, swap, derivative or similar
Contract, understanding or undertaking;
(ix) any Contract with any director, officer or affiliate of the Company or any Subsidiary
(other than any Employee Benefit Plan);
(x) any Contract that would prohibit or materially delay the consummation of the Offer, the
Merger or any of the other transactions contemplated by this Agreement;
(xi) any material Contract with any Governmental Entity;
(xii) any Contract relating to any joint venture, partnership or other arrangement (however
named) involving a sharing of the profits, losses, costs or liabilities of the Company or any
Subsidiary with any other Person;
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(xiii) any amendment, supplement or modification in respect of any of the foregoing Contracts
or any commitment or agreement to enter into any of the foregoing Contracts; or
(xiv) any other Contract, if breach of such a Contract or the termination of such Contract
would reasonably be expected to have a Company Material Adverse Effect.
All Contracts of the type described in this Section 5.17(a) to which the Company or a
Subsidiary is bound, including those Contracts filed with or incorporated by reference in the
Company SEC Documents and as listed on Section 5.17(a) of the Company Disclosure Schedule,
are hereinafter referred to as Company Contracts.
(b) All Company Contracts are valid and binding agreements of the Company or a Subsidiary of
the Company and are in full force and effect, except to the extent that they have previously
expired or terminated in accordance with their respective terms or where failure to be valid,
binding or in full force and effect would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect. Neither the Company nor any of its
Subsidiaries, nor, to the Knowledge of the Company, any counterparty to any Company Contract, is
in breach of, or in default under, any Company Contract except for such breaches or defaults that
would not have a Company Material Adverse Effect.
5.18 Permits. The Company and its Subsidiaries hold all Permits, variances,
exemptions, orders, registrations, certificates, security facility clearances and approvals of all
Governmental Entities that are required from such Governmental Entities in order for the Company
and its Subsidiaries to own, lease or operate their assets and to carry on their businesses as
presently conducted (the Company Permits), except where the failure to hold such Company
Permits would not reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
5.19 Insurance. Section 5.19 of the Company Disclosure Schedule sets forth a
list of all material policies of insurance maintained by the Company or any of its Subsidiaries.
Except as would not have a Company Material Adverse Effect, (i) such policies are in full force and
effect, (ii) all premiums due with respect to such policies have either been paid or adequate
provisions for the payment by the Company or one of its Subsidiaries thereof has been made and
(iii) none of the Company or any of its Subsidiaries have received a notice of termination or
cancellation with respect to any such policies, other than such notices which are received in the
ordinary course of business.
5.20 Certain Transactions. Except as set forth in Section 5.20 of the Company
Disclosure Schedule, since January 4, 2009, none of the current officers or directors of the
Company, nor any Affiliate of the Company, has been a participant in any transaction with the
Company or any Subsidiary of the Company (other than for services as an employee, officer or
director) of the type that would be required to be disclosed under Item 404 of Regulation S-K under
the Securities Act.
5.21 Brokers and Finders. Except for Janney Montgomery Scott LLC, no investment
banker, broker, finder, consultant or other intermediary is entitled to any investment banking,
brokerage, finders or similar fee or commission in connection with this Agreement or the
transactions contemplated hereby based upon arrangements made by and on behalf of the Company and
its Subsidiaries.
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5.22 Opinion of Financial Advisor. Prior to the execution of this Agreement, the
Company or the Company Board has received the opinion of Janney Montgomery Scott LLC, dated on or
about the date hereof (the Fairness Opinion), to the effect that, as of such date, and
subject to the various limitations and assumptions contained therein, the consideration to be
received by the stockholders of the Company (other than Parent, Merger Sub and their respective
Affiliates) in the Offer and the Merger pursuant to this Agreement is fair to such stockholders
from a financial point of view and a correct and complete copy of the Fairness Opinion will be
delivered to Parent and Merger Sub as soon as practicable after receipt by the Company. The Company
has been authorized by Janney Montgomery Scott LLC to permit the inclusion of the Fairness Opinion
in its entirety and a discussion of Janney Montgomery Scott LLCs analysis in preparing the
Fairness Opinion in the Schedule 14D-9 and the Proxy Statement.
5.23 Takeover Provisions. Assuming the accuracy of the representations set forth in
Section 6.9, the Company, acting through the Company Board, has taken all action necessary
to exempt the Offer, the Merger, this Agreement and the transactions contemplated hereby and
thereby from the provisions of Subchapters D, E, F, G, H, I and J of Chapter 25 of the PBCL to the
extent, if any, such Subchapters would otherwise be applicable, and such action is effective as of
the date hereof. No other takeover statute of the Commonwealth of Pennsylvania and, to the
Companys Knowledge, no other state takeover statute, including moratorium, control share
acquisition, business combination, fair price or other similar anti-takeover Law, applies to the
Offer, the Merger, this Agreement or the other transactions contemplated hereby or thereby.
5.24 Major Suppliers. Section 5.24 of the Company Disclosure Schedule sets
forth a list of the top ten suppliers of the Company and the Subsidiaries (determined on the basis
of the consolidated total dollar volume of purchases during such fiscal year) showing the dollar
amount of the purchases from each such supplier during such period. Section 5.24 of the
Company Disclosure Schedule also sets forth a list of any Contract that contemplates payments by
the Company or any of its Subsidiaries for the supply of merchandise of (1) more than $1,000,000
during any 12-month period or (2) more than $2,500,000 over the remaining term of such Contract.
Since January 2, 2011, to the date of this Agreement, there has been no termination, cancellation
or material curtailment of the business relationship of the Company or any Subsidiary with any such
supplier or group of affiliated suppliers nor has any such supplier or group of affiliated
suppliers provided notice (written or oral) that it will so terminate, cancel or materially curtail
its business relationship with the Company or any Subsidiary.
5.25 Prohibited Payments. Neither the Company, any Subsidiary, nor any director,
officer, agent, employee or other Person acting on behalf of the Company or any Subsidiary has (a)
used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; (b) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee or to foreign or domestic political parties or
campaigns from corporate funds; (c) violated any provision of the U.S. Foreign Corrupt Practices
Act of 1977, as amended (the FCPA) or any other federal, foreign or state anti-corruption
or anti-bribery Law or requirement applicable to the Company or any Subsidiary; or (d) made any
unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee. During the last three years, neither the
Company nor any Subsidiary has received any written communication that alleges that the Company or
any Subsidiary, or any director, officer, agent, employee or other Person acting on behalf of the
Company or any Subsidiary, is in violation of, or has any material liability under, the FCPA.
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5.26 No Other Representations or Warranties. Except for the representations and
warranties made by the Company in this Article V, neither the Company nor any other Person
acting on behalf of the Company makes any representation or warranty, express or implied, with
respect to the Company or its Subsidiaries or their respective business, operations, assets,
liabilities, condition (financial or otherwise) or prospects, notwithstanding the delivery or
disclosure to Parent or Merger Sub of any documentation, forecasts or other information with
respect to any one or more of the foregoing.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as disclosed in the disclosure schedule delivered by Parent to the Company immediately
prior to the execution of this Agreement (the Parent Disclosure Schedule), Parent and
Merger Sub jointly and severally represent and warrant to the Company as follows:
6.1 Corporate Organization and Qualification. Parent is a limited liability company
duly organized, validly existing and in good standing under the Laws of Delaware and Merger Sub is
a corporation duly organized, validly existing and in good standing under the Laws of the
Commonwealth of Pennsylvania. Parent is the legal and beneficial owner of all of the issued and
outstanding capital stock of Merger Sub. Merger Sub was formed at the direction of Parent solely
for the purposes of effecting the Offer, the Merger and any other transactions contemplated by this
Agreement and Merger Sub has not engaged in any business activities or conducted any operations,
other than in connection with the Offer, the Merger and any other transactions contemplated by this
Agreement.
6.2 Authorization; Valid and Binding Agreement. Each of Parent and Merger Sub has the
requisite corporate power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate, on the terms and subject to the conditions of this
Agreement, the transactions contemplated hereby. This Agreement and the consummation by Parent and
Merger Sub of the transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Parent and Merger Sub, and no other corporate proceedings
on the part of Parent or Merger Sub are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby (other than, with respect to the Merger, the filing and
recordation of the Articles of Merger and other documents as required by the PBCL). This Agreement
has been duly and validly executed and delivered by Parent and Merger Sub and, assuming that this
Agreement constitutes the valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, this Agreement constitutes the valid and binding obligation
of each of Parent and Merger
Sub, enforceable against each of Parent and Merger Sub in accordance with its terms, except
that such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium
or other similar Laws now or hereafter in effect relating to creditors rights generally, and (b)
general principles of equity (regardless of whether enforceability is considered in a proceeding in
equity or at law).
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6.3 Consents and Approvals; No Violation. Neither the execution and delivery of this
Agreement by Parent or Merger Sub nor the consummation by Parent and Merger Sub of the transactions
contemplated hereby will:
(a) conflict with or result in any breach of any provision of the certificate of formation or
articles of incorporation, as applicable, or operating agreement or bylaws, as applicable, of
Parent or Merger Sub or of any of Parents Subsidiaries, including Merger Sub;
(b) require any Permit from any Governmental Entity, except (i) the filings and consents
listed in Section 6.3(b) of the Parent Disclosure Schedule; (ii) pursuant to the
applicable requirements of the Securities Act and the Exchange Act; (iii) the filing of the
Articles of Merger with the Department of State of the Commonwealth of Pennsylvania pursuant to
the PBCL; (iv) as may be required by any applicable state securities or blue sky Laws or state
takeover Laws; (v) the filing of an informational notice by Merger Sub with the Pennsylvania
Securities Commission in order to perfect an exemption from the registration requirements of the
Pennsylvania Takeover Disclosure Law, 70 P.S. §71., et seq., pursuant to 70 P.S. §78(a), or (vi)
pursuant to the rules and regulations of NASDAQ;
(c) result in a material violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination, cancellation or
acceleration or Lien) or require any consent or notice under any of the terms, conditions or
provisions of any note, license, agreement or other instrument or obligation to which Parent or
any of its Subsidiaries may be bound, except for such violations, breaches and defaults (or rights
of termination, cancellation or acceleration or Liens) as to which requisite waivers or consents
have been obtained and except where a failure to obtain such waivers or consents would not
reasonably be expected to have a Parent Material Adverse Effect; or
(d) assuming that the Permits referred to in this Section 6.3 are duly and timely
obtained or made, materially violate any Law, Order or Permit applicable to Parent or any of its
Subsidiaries, or to any of their respective assets, except for those violations which would not
reasonably be expected to have a Parent Material Adverse Effect.
6.4 Litigation.
(a) As of the date of this Agreement, there are no actions, claims, suits, proceedings or
investigations pending or, to the Knowledge of Parent, threatened against Parent, any of its
Subsidiaries or any of their respective properties, or any present or former officer, director, or
employee of Parent or its Subsidiaries in their capacity as such, before (or, in the case of
threatened, that would be before) or by any Governmental Entity or arbitrator that, individually
or in the aggregate, would reasonably be expected to have a Parent Material Adverse Effect.
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(b) As of the date of this Agreement, there are no Orders of any Governmental Entity or any
arbitrator applicable to Parent or any of its Subsidiaries except for such that, individually or
in the aggregate, have not resulted in or would not be reasonably expected to result in a Parent
Material Adverse Effect.
6.5 Offer Documents; Proxy Statement. Neither the Offer Documents nor any information
supplied by Parent or Merger Sub for inclusion in the Schedule 14D-9 will, at the time the Offer
Documents, the Schedule 14D-9 or any amendments or supplements thereto are filed with the SEC or
are first published, sent or given to stockholders of the Company, as the case may be, 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 made therein, in light of the circumstances
under which they were made, not misleading. The information supplied by Parent or Merger Sub for
inclusion in the Proxy Statement will not, at the date the Proxy Statement is first mailed to
stockholders of the Company, at the time of the Stockholders Meeting or at the Effective Time,
contain any untrue statement of a material fact, or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of the circumstances
under which they were made, not false or misleading, or necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the Stockholders Meeting
which shall have become false or misleading. Notwithstanding the foregoing, Parent and Merger Sub
make no representation or warranty with respect to any information supplied by the Company or any
of its Representatives for inclusion in any of the foregoing documents. The Offer Documents will
comply in all material respects as to form with the requirements of the Exchange Act.
6.6 No Other Representations or Warranties. Except for the representations and
warranties of the Company expressly set forth in Article V, none of the Company or its Subsidiaries
nor any of their respective Representatives makes any representation or warranty (express or
implied) as to the accuracy or completeness of any of the information made available to Parent or
Merger Sub or any of their Representatives or any other matter whatsoever. Neither Parent nor
Merger Sub is relying, and has not relied, on any representations, warranties or other statement by
any Person on behalf of the Company or any of its Subsidiaries, other than the representations and
warranties of the Company expressly contained in Article V of this Agreement and all other
representations and warranties are specifically disclaimed. Without limiting the generality of the
foregoing, each of Pare