AGREEMENT AND PLAN OF MERGER BY AND AMONG CHICO’S FAS, INC. HARBOR DTC, INC. BOSTON PROPER, INC. AND MICHAEL W. TIERNAN and KENNETH C. FISCHER as the Shareholder Representatives Dated as of August 16, 2011
Exhibit 2.1
CONFIDENTIAL
EXECUTION VERSION
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CHICO’S FAS, INC.
HARBOR DTC, INC.
BOSTON PROPER, INC.
AND
XXXXXXX X. XXXXXXX
and
XXXXXXX X. XXXXXXX
XXXXXXX X. XXXXXXX
as the Shareholder Representatives
Dated as of August 16, 2011
TABLE OF CONTENTS
Page | ||
ARTICLE I THE MERGER |
2 | |
1.1 The Merger |
2 | |
1.2 Effective Time |
2 | |
1.3 Effect of the Merger |
3 | |
1.4 Formation Documents of Surviving Corporation |
3 | |
1.5 Management of Surviving Corporation |
3 | |
1.6 Effect of Merger on the Capital Stock of the Constituent Corporations |
3 | |
1.7 Closing Payments |
5 | |
1.8 Escrow; Shareholder Representative Fund; Withholdings |
7 | |
1.9 Paying Agent |
8 | |
1.10 Post-Closing Adjustments |
9 | |
1.11 Appraisal Rights |
11 | |
1.12 Transaction Expenses |
12 | |
1.13 Taking of Necessary Action; Further Action |
12 | |
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY |
12 | |
2.1 Organization of the Company |
12 | |
2.2 Company Capital Structure |
13 | |
2.3 Subsidiaries |
14 | |
2.4 Authority |
14 | |
2.5 No Conflict |
15 | |
2.6 Governmental Consents |
15 | |
2.7 Company Financial Statements |
15 | |
2.8 No Undisclosed Liabilities |
16 | |
2.9 Absence of Changes |
16 | |
2.10 Tax Matters |
16 | |
2.11 Title to Properties; Absence of Liens and Encumbrances |
17 | |
2.12 Intellectual Property |
18 | |
2.13 Information Technology Systems, Customer Information |
20 | |
2.14 Agreements, Contracts and Commitments |
21 | |
2.15 Interested Party Transactions |
23 | |
2.16 Governmental Authorization |
24 | |
2.17 Litigation |
24 | |
2.18 Environmental Matters |
24 | |
2.19 Brokers’ and Finders’ Fees |
25 | |
2.20 Employee Benefit Plans and Compensation |
25 | |
2.21 Insurance |
27 | |
2.22 Compliance with Laws |
28 | |
2.23 Products |
28 |
i
Page | ||
2.24 Suppliers |
28 | |
2.25 Ethical Practices |
28 | |
2.26 Bank Accounts |
29 | |
2.27 Inventory |
29 | |
2.28 Other Information |
29 | |
2.29 No Other Representations or Warranties |
29 | |
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB |
29 | |
3.1 Organization, Standing and Power |
29 | |
3.2 Authority |
30 | |
3.3 Consents |
30 | |
3.4 No Conflict |
30 | |
3.5 Litigation |
30 | |
3.6 Interim Operations of Merger Sub |
31 | |
3.7 Solvency; Ability to Perform Agreement |
31 | |
3.8 Investment Intent |
31 | |
3.9 Parent and Merger Sub Acknowledgement |
31 | |
3.10 Brokers’ and Finders’ Fees |
32 | |
3.11 Board Approval |
32 | |
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME |
32 | |
4.1 Conduct of Business of the Company |
32 | |
4.2 No Solicitation Nor Negotiations |
36 | |
4.3 Procedures for Requesting Parent Consent |
37 | |
ARTICLE V ADDITIONAL AGREEMENTS |
37 | |
5.1 Information Statement; Shareholder Approval |
37 | |
5.2 Access to Information |
38 | |
5.3 Confidentiality |
38 | |
5.4 Public Disclosure |
38 | |
5.5 Consents |
38 | |
5.6 Notification of Certain Matters |
39 | |
5.7 Additional Documents and Further Assurances; Commercially Reasonable
Efforts |
39 | |
5.8 Employee Matters |
40 | |
5.9 Officers’ and Directors’ Indemnification |
40 | |
5.10 Tax Matters |
40 | |
5.11 Cooperation on Tax Matters |
43 | |
5.12 Reasonable Efforts; HSR Act Matters |
44 | |
5.13 Release of Liens |
46 | |
5.14 Closing Date Actions |
46 | |
ARTICLE VI CONDITIONS TO THE MERGER |
46 |
ii
Page | ||
6.1 Conditions to Obligations of Each Party to Effect the Merger |
46 | |
6.2 Conditions to the Obligations of Parent and Merger Sub |
47 | |
6.3 Conditions to Obligations of the Company |
49 | |
6.4 Frustration of Closing Conditions |
50 | |
ARTICLE VII INDEMNIFICATION |
50 | |
7.1 Survival of Representations, Warranties and Covenants |
50 | |
7.2 Indemnification |
50 | |
7.3 Indemnification Claims |
51 | |
7.4 Maximum Payments; Remedy; Limitations on Indemnity |
53 | |
7.5 Remedies Exclusive |
55 | |
ARTICLE VIII TERMINATION |
55 | |
8.1 Termination |
55 | |
8.2 Effect of Termination |
56 | |
8.3 Termination Payment |
56 | |
ARTICLE IX GENERAL PROVISIONS |
57 | |
9.1 Definitions |
57 | |
9.2 Interpretation |
71 | |
9.3 Shareholder Representatives |
71 | |
9.4 Notices |
74 | |
9.5 Disclosure Schedule |
75 | |
9.6 Counterparts |
76 | |
9.7 Amendment |
76 | |
9.8 Extension; Waiver |
76 | |
9.9 Entire Agreement; Assignment; Beneficiaries |
76 | |
9.10 Severability |
76 | |
9.11 Other Remedies; Specific Performance |
76 | |
9.12 Governing Law; Jurisdiction |
77 | |
9.13 Waiver of Jury Trial |
77 | |
9.14 Rules of Construction |
77 |
iii
INDEX OF EXHIBITS
Exhibit | Description | |
Exhibit A
|
Form of Articles of Merger | |
Exhibit B
|
Form of Escrow Agreement | |
Exhibit C
|
Form of Option Termination Agreement |
iv
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the “Agreement”) is made and entered into as of August 16,
2011 by and among Chico’s FAS, Inc., a Florida corporation (“Parent”), Harbor DTC, Inc., a Florida
corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), Boston Proper, Inc., a Florida
corporation (the “Company”), and Xxxxxxx X. Xxxxxxx and Xxxxxxx X. Xxxxxxx who will serve as the
representatives of the Company’s shareholders and optionholders and each is a party to this
Agreement solely in such capacity (collectively, the “Shareholder Representatives”).
RECITALS
A. The boards of directors of each of Parent, Merger Sub and the Company believe it is in the
best interests of each corporation and its respective shareholders that Parent acquire the Company
through the statutory merger of Merger Sub with and into the Company, with the Company continuing
as the surviving entity (the “Merger”), and, in furtherance thereof, have approved this Agreement.
B. Pursuant to the Merger, among other things, and subject to the terms and conditions of this
Agreement, all of the issued and outstanding capital stock of the Company shall be converted into
the right to receive the consideration set forth herein.
C. A portion of the consideration payable in connection with the Merger shall be placed in
escrow as security for the indemnification and post-closing merger consideration adjustment
obligations set forth in this Agreement.
D. The Company, on the one hand, and Parent and Merger Sub, on the other hand, desire to make
certain representations, warranties, covenants and other agreements in connection with the Merger.
E. Certain capitalized terms used in this Agreement are defined in Section 9.1.
F. As an inducement to Parent and Merger Sub to enter into this Agreement, the
Family Shareholders and Metro Millennium International Limited, which in the aggregate own shares
of Company Capital Stock with voting power sufficient to approve the Merger in accordance with the
FBCA and the Charter Documents, concurrently with the execution and delivery of this Agreement,
have entered into an agreement with Parent pursuant to which the Family Shareholders and Metro
Millennium International Limited have agreed to vote (including acting by written consent) all of
their respective shares of Company Capital Stock in favor of this Agreement and the Merger and
against any transaction or other action that would interfere with this Agreement or any of the
transactions contemplated hereby (including the Merger) (the “Voting Agreement”).
G. As an inducement to Parent and Merger Sub to enter into this Agreement, Xxxxxxx X. Xxxxxxx,
concurrently with the execution and delivery of this Agreement, has entered into an agreement with
Parent pursuant to which Xxxxxxx X. Xxxxxxx has agreed to certain restrictive
1
covenants, including non-competition and non-solicitation of employees, and to maintain the
confidentiality of Company information (the “Non-Compete Agreement”).
H. As an inducement to Parent and Merger Sub to enter into this Agreement, Xxxxxx Xxxxx has
entered into a letter of employment with Parent, such employment to become effective as of the
Effective Time of the Merger.
I. As an inducement to Parent and Merger Sub to enter into this Agreement, Xxxx X. Xxxxx,
Grove Industries (F.E.) Limited and Metro Millennium International Limited have entered into an
agreement with Parent pursuant to which they have agreed to maintain the confidentiality of Company
information.
NOW, THEREFORE, in consideration of the mutual agreements, covenants and other promises set
forth herein, the mutual benefits to be gained by the performance thereof, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted,
the parties hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time and subject to and upon the terms and conditions of
this Agreement and the applicable provisions of the Florida Business Corporation Act (“FBCA”),
Merger Sub shall be merged with and into the Company, the separate corporate existence of Merger
Sub shall cease, and the Company shall continue as the surviving corporation and as a wholly-owned
subsidiary of Parent. The surviving corporation after the Merger is hereinafter referred to as the
“Surviving Corporation.”
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to Section 8.1, the
closing of the transactions contemplated by this Agreement (the “Closing”) will take place as
promptly as practicable following the execution and delivery hereof by the parties hereto,
conditioned upon the satisfaction or waiver of the conditions set forth in Article VI hereof, and
in any event within three (3) Business Days following the satisfaction or waiver of the conditions
set forth in Article VI hereof (other than the satisfaction or waiver of those conditions that by
their nature are to be satisfied on the Closing Date), at the offices of Holland & Knight LLP, 0000
Xxxxxx Xxxxxxxxx, Xxxxx 000, XxXxxx, XX 00000, unless another time or place is mutually agreed upon
in writing by Parent and the Company (and may take place by conference call and facsimile or email
transfer of signature pages and deliverables with exchange of original signatures by overnight
mail). The date upon which the Closing actually occurs shall be referred to herein as the “Closing
Date”. On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing
Articles of Merger in substantially the form attached hereto as Exhibit A, with the Florida
Department of State (the “Articles of Merger”), in accordance with the applicable provisions of the
FBCA (the time of the acceptance of such filing by the Florida Department of State, which shall be
the effective time of the Merger, shall be referred to herein as the “Effective Time”). To the
extent permitted by
applicable Law, the parties shall treat the Closing as being effective as of 11:59 p.m. (ET)
on the Closing Date.
2
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided
in the applicable provisions of FBCA. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, except as otherwise agreed to pursuant to the terms of this
Agreement, all of the rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all restrictions, disabilities and duties of the Company and
Merger Sub shall become the restrictions, disabilities and duties of the Surviving Corporation.
1.4 Formation Documents of Surviving Corporation.
(a) Articles
of Incorporation. The articles of incorporation of the Surviving Corporation
shall be amended and restated as of the Effective Time to be identical to the articles of
incorporation of Merger Sub as in effect immediately prior to the Effective Time, until thereafter
amended in accordance with the FBCA and as provided in such articles of incorporation; provided,
however, that at the Effective Time, Article I of the articles of incorporation of the Surviving
Corporation shall be amended and restated in its entirety to read as follows: “The name of the
corporation is Boston Proper, Inc.”
(b) Bylaws. Unless otherwise determined by Parent prior to the Effective Time, the bylaws of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the bylaws of the
Surviving Corporation at the Effective Time (other than any change to the name of the Surviving
Corporation that is set forth in the articles of incorporation of the Surviving Corporation) until
thereafter amended in accordance with the FBCA and as provided in the articles of incorporation of
the Surviving Corporation and such bylaws.
1.5 Management of Surviving Corporation.
(a) Directors of Company. The directors of Merger Sub immediately prior to the Effective Time
shall be the directors of the Surviving Corporation immediately after the Effective Time, each to
hold the office of a director of the Surviving Corporation in accordance with the provisions of the
FBCA and the articles of incorporation and bylaws of the Surviving Corporation until their
respective successors are duly elected and qualified.
(b) Officers of Company. The officers of Merger Sub immediately prior to the Effective Time
shall be the officers of the Surviving Corporation immediately after the Effective Time, each to
hold office in accordance with the provisions of the bylaws of the Surviving Corporation.
1.6 Effect of Merger on the Capital Stock of the Constituent Corporations.
(a) Effect on Company Capital Stock. At the Effective Time, by virtue of the Merger and
without any action on the part of Merger Sub, the Company, the
holders of any shares of Company Capital Stock (excluding, for the avoidance of doubt,
unexercised Company Options and treasury stock), or any other Person, upon the terms and subject to
the conditions set forth in this Agreement, the following shall occur:
(i) Each share of Series C
Preferred Stock issued and outstanding immediately prior to the Effective Time, will be cancelled
and extinguished and be converted
3
automatically into the right to receive, upon surrender of the certificate representing such shares
of Series C Preferred Stock in the manner provided in this Agreement, without interest, the sum of
(A) (i) the Final Per Share Consideration, multiplied by (ii) 1,333.33 (the conversion rate to
Company Common Stock of the Series C Preferred Stock) plus (B) the Series C Per Share Dividends.
(ii) Each share of Series B Preferred Stock issued and outstanding immediately prior to the
Effective Time, will be cancelled and extinguished and be converted automatically into the right to
receive, upon surrender of the certificate representing such shares of Series B Preferred Stock in
the manner provided in this Agreement, without interest, the product of (A) the Final Per Share
Consideration, multiplied by (B) 1,333.33 (the conversion rate to Company Common Stock of the
Series B Preferred Stock).
(iii) Each share of Company Common Stock issued and outstanding immediately prior to the
Effective Time, will be cancelled and extinguished and be converted automatically into the right to
receive, upon surrender of the certificate representing such shares of Company Common Stock in the
manner provided in this Agreement, without interest, the Final Per Share Consideration.
(b) Treasury Stock. Each outstanding share of Company Capital Stock, Series A Preferred Stock
and Undesignated Preferred Stock owned by the Company as treasury stock or authorized but currently
unissued stock immediately prior to the Effective Time will, by virtue of the Merger, and without
any action on the part of the holder thereof, no longer be outstanding, will be cancelled and
retired without payment of any consideration therefor and will cease to exist.
(c) Treatment of Company Options.
(i) No Company Option shall be assumed or otherwise replaced by Parent. The Company shall take
all actions necessary or appropriate to provide that immediately prior to the Effective Time, and
conditioned on the consummation of the Merger, each Company Option (whether vested or unvested and
regardless of the exercise price thereof) shall be cancelled and each holder of a Company Vested
Option (a “Vested Optionholder”) shall be entitled to the right to receive for each share of
Company Common Stock issuable upon the exercise of Company Vested Option(s) held by such Vested
Optionholder a cash payment, subject to the withholding provisions contained herein, in an amount
equal to (A) the Estimated Per Share Consideration, plus (B) the quotient of the Excess Amount (if
any) divided by the Company Common Stock Deemed Outstanding, minus (C) the exercise price for each
share of Company Common Stock issuable upon the exercise of the Company Option(s) (provided, that
if such exercise price is greater than (x) the Estimated Per Share Consideration plus (y) the
quotient of the Excess Amount (if any) divided by the Company Common Stock Deemed Outstanding, such
amount shall be zero dollars ($0)). Such cash payment to a Vested Optionholder by the Payment Agent
or Shareholder Representatives shall be reduced by any income or employment Tax withholding
required under the Code or any provision of state, local or foreign Tax Law and the payor
shall remit any such withholdings to the appropriate Taxing authorities. To the extent that
amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the applicable Vested Optionholder.
4
(ii) The Company shall take all actions necessary to provide that immediately prior to the
Effective Time and conditioned on the consummation of the Merger, (A) the Company Option Plans
shall be terminated, and (B) no holder of any Company Option will have any right to receive any
shares of capital stock of the Company or, if applicable, the Surviving Corporation, upon exercise
of any Company Option.
(d) Capital Stock of Merger Sub. Each share of common stock of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted into one validly issued,
fully paid and nonassessable share of common stock of the Surviving Corporation, and the shares of
the Surviving Corporation into which the shares of Merger Sub common stock are so converted shall
be the only shares of capital stock of the Surviving Corporation that are issued and outstanding
immediately after the Effective Time. Each stock certificate of Merger Sub evidencing ownership of
any such shares shall, after the Effective Time, evidence ownership of such shares of capital stock
of the Surviving Corporation.
1.7 Closing Payments.
(a) Closing Date Certificate. Not later than five (5) Business Days prior to the Closing Date,
the Company will prepare and deliver to Parent a certificate (the “Closing Date Certificate”)
signed by the Company certifying the Company’s good faith estimate of all payments required at
Closing pursuant to this Agreement, including or attaching:
(i) an estimated unaudited balance sheet of the Company, as of 11:59 p.m. (ET) on the Closing
Date (the “Closing Date Balance Sheet”), prepared in accordance with GAAP in a manner consistent
with the application of GAAP in the Year-End Financials (except that such balance sheet will not
contain footnotes and other presentation items that may be required by GAAP) and without giving
effect to the consummation of the Merger and the other transactions contemplated by this Agreement
(unless otherwise specified herein);
(ii) a statement setting forth the Company’s good faith estimate (based on reasonable
assumptions) of the Closing Net Working Capital (the “Estimated Net Working Capital”) and setting
forth the Company’s good faith estimate (based on reasonable assumptions) of the Estimated Net
Working Capital Differential;
(iii) a statement (the “Estimated Net Debt Statement”) setting forth (A) the Company’s good
faith estimate (based on reasonable assumptions) of the Closing Net Debt (the “Estimated Net Debt”)
and (B) a schedule of the estimated amounts of all Company Debt as of the Closing Date, including
information on each creditor to whom such amounts are payable, accompanied by a pay-off letter from
each such creditor, which pay-off letter shall provide for the release of all Liens associated
therewith upon payment of the sums specified therein, all in customary form or a form otherwise
reasonably satisfactory to Parent;
(iv) a statement (the “Estimated Outstanding Company Transaction and Other Expense Statement”)
setting forth a good faith estimate of any Outstanding Company Transaction and Other Expenses
immediately prior to the
Closing (“Estimated Outstanding Company Transaction and
Other Expenses”) (including the
amounts of all income and employment Taxes to be withheld on behalf of any recipient of an Employee
Bonus Payment
5
included on such statement), along with a list of all Persons to whom any such Estimated
Outstanding Company Transaction and Other Expenses are payable and the estimated amount owed to
each such Person;
(v) a statement setting forth (A) the calculation of the Estimated Adjusted Net Merger
Consideration and (B) the Estimated Per Share Consideration;
(vi) a calculation of the amounts of each Shareholder’s portion of the Estimated Adjusted Net
Merger Consideration, along with the portion of the foregoing to be paid by the Paying Agent to
each Shareholder after the Effective Time and the amounts to be deposited into the Escrow Account
and the Shareholder Representative Account on behalf of such Shareholder based on each
Shareholder’s Pro Rata Portion, and identifying the name of each Shareholder, Pro Rata Portion and
Ownership Percentage, and the number of shares of Company Capital Stock owned by such Shareholder;
and
(vii) a calculation of the amount of each Vested Optionholder’s portion of the Estimated
Adjusted Net Merger Consideration (i.e., the Estimated Per Share Consideration multiplied by the
number of shares of Company Common Stock issuable upon exercise of such Person’s Company Vested
Option(s) less the applicable aggregate exercise prices for such Company Vested Option(s)), along
with the portion of the foregoing to be paid by the Paying Agent to each Vested Optionholder on the
Closing Date (and the amounts of all income and employment Taxes to be withheld on behalf of such
Vested Optionholder), and identifying the name of each Vested Optionholder, the Ownership
Percentage, the number of shares of Company Common Stock otherwise issuable upon the exercise of
the Company Vested Option being terminated and the applicable per share exercise price.
(b) Closing Date Payments. At or prior to the Effective Time, Parent will make the following
payments by wire transfer of immediately available funds:
(i) an amount equal to Fifteen Million Dollars ($15,000,000) (the “Escrow Amount”) to XX
Xxxxxx Xxxxx, N.A. (the “Escrow Agent”), as escrow agent under the Escrow Agreement by and among
Parent, the Shareholder Representatives and the Escrow Agent, substantially in the form attached
hereto as Exhibit B (with such reasonable changes as the Escrow Agent may reasonably request) (the
“Escrow Agreement”), for deposit in the escrow account (the “Escrow Account”) to be established,
maintained and managed by the Escrow Agent pursuant to and in accordance with the terms of the
Escrow Agreement;
(ii) an amount equal to Five Hundred Thousand Dollars ($500,000) (the “Shareholder
Representative Amount”) to the Shareholder Representatives to hold (the “Shareholder Representative
Fund”) in accordance with Section 1.8(b);
(iii) the amount of any Company Debt listed on the Estimated Net Debt Statement to each
creditor identified therein;
(iv) the amount of any Outstanding Company Transaction and Other Expenses listed on the
Estimated Outstanding Company Transaction and Other Expense Statement to each Person that is
identified therein as being owed such Outstanding Company Transaction and Other Expenses; provided
that the aggregate amount of any Employee Bonus
6
Payments included on such statement will be paid to the Company for the Company to remit to the
applicable recipient (less required withholdings) and the amount of such withholdings will be paid
by the Company to the appropriate Taxing authorities;
(v) the amount of all income and the employee’s portion of employment Taxes to be withheld as shown
pursuant to the schedules referenced in Section 1.7(a)(vii) to the Company, which will be paid by
the Company to the appropriate Taxing authorities; and
(vi) the Estimated Adjusted Net Merger Consideration (less the amounts paid pursuant to Sections
1.7(b)(i), 1.7(b)(ii) and 1.7(b)(v) and less the Aggregate Option Exercise Amount) to the Paying
Agent for distribution to the Securityholders in accordance with the provisions of the Paying Agent
Agreement and Section 1.9 hereto.
1.8 Escrow; Shareholder Representative Fund; Withholdings.
(a) Escrow Funds. Pursuant to, and subject to the terms and conditions of, the Escrow
Agreement, the funds in the Escrow Account (the “Escrow Funds”) shall be used as security for the
indemnity obligations to the Parent Parties under Sections 5.10 and 7.2(a) and for any amounts owed
to Parent for any Shortfall Amount under Section 1.10. Escrow Funds in an amount equal to the
Escrow Amount shall be withheld from each Shareholder’s portion of the Estimated Adjusted Net
Merger Consideration based on each Shareholder’s Pro Rata Portion.
(b) Shareholder Representative Fund. The Shareholder Representative Fund shall be used to
reimburse the Shareholder Representatives for their out-of-pocket fees and expenses and to pay
other obligations to or of the Shareholder Representatives in connection with Section 9.3, or shall
(to the extent not previously distributed to the Shareholder Representatives as provided for or
subject to a claim by the Shareholder Representatives) be distributed to the Shareholders at such
time, and in such manner, as the Shareholder Representatives direct. The Shareholder
Representative Fund shall be withheld from each Shareholder’s portion of the Estimated Adjusted Net
Merger Consideration based on each Shareholder’s Pro Rata Portion. Upon the delivery of the
Shareholder Representative Amount to the Shareholder Representatives by Parent, the Shareholders,
without action by them, shall be treated as having received from Parent such cash in accordance
with their respective Pro Rata Portions of the Shareholder Representative Amount and then as having
deposited such cash into the Shareholder Representative Fund.
(c) Withholding Taxes. Notwithstanding any other provision in this Agreement, the Company,
the Shareholder Representatives, the Paying Agent and the Escrow Agent shall have the right to
deduct and withhold Taxes from any payments to be made hereunder if such withholding is required by
Law and to request and receive any necessary Tax forms, including Form W-9 or the appropriate
series of Form W-8, as applicable, or any similar information, from the Securityholders. To the
extent that any of the aforementioned amounts are so withheld and paid over to the appropriate
taxing authority, such withheld amounts shall be treated for all purposes of this Agreement as having
been delivered and paid to the Securityholder or other recipient of payments in respect of which
such deduction and withholding was made.
7
1.9 Paying Agent.
(a) Prior to the Effective Time, Parent shall engage a nationally-recognized financial
institution reasonably satisfactory to the Shareholder Representatives (the “Paying Agent”) to
serve as the paying agent for the Merger and the other transactions contemplated by this Agreement
pursuant to a Paying Agent Agreement, in a form reasonably acceptable to the Paying Agent, Parent,
the Company and the Shareholder Representatives, to be entered into by and among Parent, the
Shareholder Representatives and the Paying Agent (the “Paying Agent Agreement”).
(b) In order for a Shareholder to receive payment from the Paying Agent for such Shareholder’s
shares of Company Capital Stock, such Shareholder shall be required to provide the Paying Agent (i)
a duly executed letter of transmittal in the form as Parent, the Shareholder Representatives and
the Paying Agent shall specify (“Letter of Transmittal”), (ii) an executed Form W-9 or the
appropriate series of Form W-8, as applicable, and (iii) either the applicable stock certificate(s)
or an affidavit of lost stock certificate and indemnity agreement in the form attached to the
Letter of Transmittal.
(c) In order for a Vested Optionholder to receive payment in connection with such Vested
Optionholder’s Company Vested Options, such Vested Optionholder shall be required to provide the
Paying Agent, (i) an executed Option Termination Agreement in the form attached hereto as Exhibit C
and (ii) an executed Form W-9 or the appropriate series of Form W-8, as applicable (or other
applicable form).
(d) If the Paying Agent determines that any of the items referenced in Sections 1.9(b) or
1.9(c) do not appear to have been properly completed or executed, the Paying Agent will consult
with Parent and the Shareholder Representatives and follow, where possible, its regular procedures
to attempt to cause such irregularity to be corrected, provided that Parent and the Shareholder
Representatives will consider in good faith waiving any irregularity if there is no material risk
of Loss to the parties in connection therewith.
(e) If payment or delivery is to be made to a Person other than the Person in whose name a
Company stock certificate so surrendered is registered, it shall be a condition of payment that the
Company stock certificate so surrendered be properly endorsed or otherwise in proper form for
transfer, that the signatures on the Company stock certificate or any related stock power be
properly guaranteed and that the Person requesting such payment either pay any transfer or other
Taxes required by reason of the payment to a Person other than the registered holder of the Company
stock certificate so surrendered or establish to the satisfaction of the Surviving Corporation that
such Tax has been paid or is not applicable.
(f) After the Effective Time, there shall be no transfers of shares of Company Capital Stock
that were outstanding immediately prior to the Effective Time.
(g) Any portion of the amounts that have not been distributed by the Paying Agent upon
termination of the Paying Agent Agreement, if any, shall be released and remitted by the Paying
Agent to Parent, and any Shareholders or Vested Optionholders who have not theretofore complied
with the requirements hereunder and under the Paying Agent Agreement
8
will thereafter look only to Parent (subject to abandoned property, escheat and other similar legal
requirements) as a general creditor for payment of their claim for the same, with such sums to be
paid only upon compliance by such Person with the delivery requirements set forth in this Section
1.9 and in the Paying Agent Agreement.
1.10 Post-Closing Adjustments.
(a) Calculation of Final Adjusted Net Merger Consideration.
(i) Within sixty (60) calendar days following the Closing Date, Parent shall prepare (or cause
to be prepared) and deliver to the Shareholder Representatives a statement (the “Parent Closing
Statement”) setting forth Parent’s calculation of (A) the actual Closing Net Working Capital, (B)
the actual Closing Net Debt and (C) the actual Outstanding Company Transaction and Other Expenses
(each of clauses (A), (B) and (C), a “Merger Consideration Adjustment Component”), along with a
description in reasonable detail of each adjustment from the calculations of Estimated Net Working
Capital, Estimated Net Debt, and Estimated Outstanding Company Transaction and Other Expenses. The
Parent Closing Statement delivered by Parent shall also set forth any adjustment in the Net Merger
Consideration due to such adjustments.
(ii) The Shareholder Representatives may dispute any item or amount set forth in the Parent
Closing Statement, at any time within thirty (30) calendar days following receipt of the Parent
Closing Statement, by delivering to Parent a written notice of such dispute (a “Notice of Dispute”)
setting forth, in reasonable detail and to the extent practicable, (A) each item or amount so
disputed by the Shareholder Representatives, (B) the Shareholder Representatives’ calculation of
each such disputed item or amount, and (C) the Shareholder Representatives’ calculation of the
Merger Consideration Adjustment Components and the actual Net Merger Consideration after giving
effect to the Shareholder Representatives’ calculation of each such disputed item or amount. In the
event the Shareholder Representatives are not given reasonable access pursuant to Section
1.10(a)(iv) promptly following its request, then the foregoing thirty (30) calendar day period will
be increased by one day for each day that the Shareholder Representative and their representatives
are not given prompt and reasonable access. If the Shareholder Representatives do not deliver a
Notice of Dispute within the thirty (30) calendar day period (as such period may be increased
pursuant to the immediately preceding sentence), the Shareholder Representatives shall be deemed to
have agreed in all respects with the Parent Closing Statement and the amounts reflected therein
shall be final and binding.
(iii) If Parent shall receive a Notice of Dispute from the Shareholder Representatives
delivered pursuant to and in accordance with Section 1.10(a)(ii) within the time period set forth
therein, then Parent and the Shareholder Representatives shall use their respective commercially
reasonable efforts to resolve all disputed items and amounts set forth in the Notice of Dispute
pursuant to good faith
negotiations. In the event that Parent and the Shareholder Representatives are unable to
reach agreement, within thirty (30) calendar days following Parent’s receipt of a Notice of
Dispute, on all of the disputed items or amounts set forth in a Notice of Dispute, then:
9
A. Parent and the Shareholder Representatives shall execute a memorandum (the “Merger
Consideration Adjustment Memorandum”) setting forth (1) the resolved items or amounts, if any, and
(2) the items or amounts included in the Notice of Dispute that remain in dispute following such
good faith negotiations, with the position of each party with respect thereto (provided if they
cannot agree on the terms of a single memorandum, each shall prepare and execute a separate
memorandum which together shall be deemed the Merger Consideration Adjustment Memorandum);
B. Parent and the Shareholder Representatives shall submit all remaining disputed items and
amounts set forth in the Merger Consideration Adjustment Memorandum to the Independent Accounting
Firm for resolution in accordance with the terms and conditions hereof. The Independent Accounting
firm will be jointly engaged by Parent, on one hand, and the Shareholder Representatives, on the
other hand, pursuant to an engagement letter in customary form which Parent and the Shareholder
Representatives shall execute. Each of the parties to this Agreement shall, and shall cause their
respective Affiliates and representatives to, provide full cooperation to the Independent
Accounting Firm. The Independent Accounting Firm shall (1) act as an arbitrator, (2) consider only
those items and amounts identified in the Merger Consideration Adjustment Memorandum as being in
dispute between Parent and the Shareholder Representatives, (3) be instructed to reach its
conclusions regarding any such dispute consistent with the terms and conditions of this Agreement
and within thirty (30) calendar days after its appointment and provide a written explanation of its
decision, and (4) not (x) determine any liability claimed by the Shareholder Representatives or
asset claimed by Parent in an amount less than that claimed by such party, or (y) determine any
asset claimed by the Shareholder Representatives or liability claimed by Parent in an amount in
excess of the amount claimed by such party. All fees and expenses (including reasonable attorney’s
fees and expenses and fees and expenses of the Independent Accounting Firm) incurred in connection
with any such dispute will be borne by the parties based on the percentage which the portion of the
contested amount not awarded to such party bears to the amount actually contested by the parties
(e.g., if the total amount in dispute is $70,000 and the Independent Accounting Firm agrees with
the Shareholder Representatives with respect to $40,000 of such amount in dispute, then the
Shareholders will be responsible for three-sevenths
(3/7th) of the fees and expenses and Parent will be
responsible for four-sevenths (4/7th) of the fees and
expenses). The Independent Accounting Firm shall determine all disputed items and amounts and in
the absence of fraud or manifest error, its decision in respect thereof shall be final and binding
upon (and unappealable by) Parent, the Shareholder Representatives and the Securityholders; and
C. For all purposes of and under this Agreement, the term “Final Adjusted Net Merger
Consideration” shall mean the actual finally determined Net Merger Consideration, based upon (1)
all amounts agreed upon by Parent and the Shareholder Representatives, and (2) all other amounts
determined by the Independent Accounting Firm pursuant to Section 1.10(a)(iii)B. Upon the
determination of the Final Adjusted Net Merger Consideration, the Parent Closing Statement shall be
deemed to be adjusted to include the finally determined amounts.
(iv) During the period of time from and after the date of the delivery of the Parent Closing
Statement to the Shareholder Representatives until the Final Adjusted Net Merger Consideration has
been finally determined pursuant to and in accordance with this
10
Section 1.10(a), Parent shall provide the Shareholder Representatives and their accountants,
counsel and other consultants and experts retained by the Shareholder Representatives, as well as
the Independent Accounting Firm in connection with its engagement, if applicable, with reasonable
access during normal business hours to the books, records, accounts, files and employees of the
Company pertaining to the determination of the Merger Consideration Adjustment Components and the
working papers used by Parent or its accountants to prepare the Parent Closing Statement, and each
party shall use its commercially reasonable efforts to respond to the other’s reasonable inquiries
regarding the Parent Closing Statement and disputes in connection therewith.
(b) Post-Closing Payment Based on Final Adjusted Net Merger Consideration.
(i) If the Final Adjusted Net Merger Consideration is less than the Estimated Adjusted Net
Merger Consideration (such difference, the “Shortfall Amount”), then as soon as reasonably
practicable following the determination of the Final Adjusted Net Merger Consideration pursuant to
Section 1.10(a) (and in any event within five (5) Business Days thereafter), Parent and the
Shareholder Representatives shall jointly instruct the Escrow Agent to promptly release from the
Escrow Account and deliver to (A) Parent an amount in cash equal to the Shortfall Amount, which
amount paid to Parent shall be accounted for as having been paid by each Shareholder from the
Escrow Funds based on each Shareholder’s Pro Rata Portion, and (B) the Shareholder Representatives,
for distribution to the Shareholders based on each Shareholder’s Pro Rata Portion, the amount, if
any, by which Two Million Dollars ($2,000,000) exceeds the Shortfall Amount.
(ii) If the Final Adjusted Net Merger Consideration is greater than the Estimated Adjusted Net
Merger Consideration (such amount, the “Excess Amount”), then as soon as reasonably practicable
following the determination of the Final Adjusted Net Merger Consideration pursuant to Section
1.10(a) (and in any event within five (5) Business Days thereafter), (A) Parent and the Shareholder
Representatives shall jointly instruct the Escrow Agent to promptly release from the Escrow Account
and deliver to the Shareholder Representatives, for distribution to the Shareholders based on each
Shareholder’s Pro Rata Portion, an aggregate amount of Two Million Dollars ($2,000,000) and (B)
Parent shall pay the Excess Amount (less the amount of all income and employment Taxes to be
withheld on such payments as directed by the Shareholder Representatives prior to such payment due
date) to the Paying Agent and cause the Paying Agent to promptly pay to each Securityholder an
amount of cash (without interest) equal to their Ownership Percentage of the Excess Amount; and the
amount of such income and employment Taxes so withheld will be paid by Parent to the Company, and
which will be paid by the Company to the appropriate Taxing authorities.
1.11 Appraisal Rights. Each share of Company Capital Stock issued and outstanding immediately
prior to the Effective Time held by Shareholders who shall have properly exercised their appraisal
rights with respect thereto under Sections 607.1301- 607.1333 of the FBCA (such shares of Company
Capital Stock, the “Dissenting
Shares”), subject to the terms of any shareholder or similar agreements to which the
Shareholders are bound, shall not be converted into the right to receive the Final Per Share
Consideration pursuant to the Merger, but shall be entitled to receive payment of the appraised
value of such shares from the Surviving Corporation or Parent in accordance with the provisions of
Sections 607.1301- 607.1333 of the FBCA, except
11
that each Dissenting Share held by a Shareholder who shall thereafter withdraw its demand for
appraisal or shall fail to perfect its right to such payment as provided in such Sections 607.1301-
607.1333 of the FBCA shall be deemed to be converted, as of the Effective Time, into the right to
receive from the Surviving Corporation or Parent the Final Per Share Consideration in the form such
holder otherwise would have been entitled to receive as a result of the Merger. Any party hereto
shall provide the other parties with prompt notice of any demands for appraisal, withdrawals of
demands for appraisal and any other instruments served pursuant to Sections 607.1301 — 607.1333 of
the FBCA and received in connection with the Merger, and the Shareholder Representatives shall have
the opportunity to direct and settle all negotiations and proceedings with respect to such demands.
The Shareholder Representatives shall conduct, and Parent shall be entitled to participate in, all
such negotiations and proceedings in good faith, and shall endeavor to resolve all such demands as
promptly as practicable (and in any event prior to the termination of the Escrow Account pursuant
to the terms of the Escrow Agreement). The Shareholder Representatives will not, except with the
prior written consent of Parent (such consent not to be unreasonably withheld, delayed or
conditioned), make any payment with respect to, settle or offer to settle, any such demands.
1.12 Transaction Expenses. Except as provided in Section 5.12(d), whether or not the Merger is
consummated, all Third Party Transaction Expenses shall be the obligation of the respective party
incurring such fees and expenses, provided that, in the event the Merger is consummated, the
Outstanding Company Transaction and Other Expenses shall be paid as set forth in this Agreement.
1.13 Taking of Necessary Action; Further Action. If at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of the Company, Parent, Merger Sub, and the officers and
directors of the Surviving Corporation are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub, subject to such
exceptions as are disclosed in the disclosure schedule supplied by the Company to Parent (the
“Disclosure Schedule”) and dated as of the date hereof, that on the date hereof and as of the
Closing Date, as though made on the Closing Date and as of the Effective Time, as follows:
2.1 Organization of the Company. The Company is a corporation duly organized, validly existing
and in good standing under the FBCA. The Company has the corporate power and authority to own,
lease, operate or otherwise hold its properties and assets and
to carry on its business as currently conducted. The Company is duly qualified or licensed to
do business and is in good standing as a foreign corporation in each jurisdiction listed on Section
2.1(i) of the Disclosure Schedule which includes all jurisdictions in which such qualification or
licensure is required by Law, except for those jurisdictions where the failure to be so qualified
or licensed
12
and in good standing would not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect. The Company has made available to Parent a true and correct copy
of (i) its articles of incorporation and bylaws, each as amended to date and in full force and
effect on the date hereof (collectively, the “Charter Documents”), and (ii) except as set forth in
Section 2.1(ii) of the Disclosure Schedule, copies of the minutes of all meetings of the
shareholders, the board of directors and each committee of the board of directors of the Company
held since February 3, 2008 (redacted for portions relating to all aspects of the Company’s sale
transaction process). The Company is not, nor since February 3, 2008 has it been, in violation of
its Charter Documents in any material respect.
2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists of: (i) 36,000,000 shares of Company
Common Stock, of which 12,223,385 shares are issued and outstanding as of the date of this
Agreement, (ii) 338,648 shares of preferred stock of which (A) 327,765 shares are designated Series
A Preferred Stock, none of which are issued and outstanding as of the date of this Agreement, (B)
1,383 shares are designated Series B Preferred Stock, all of which are issued and outstanding as of
the date of this Agreement and which convert to Company Common Stock on a 1 to 1,333.33 basis, and
(C) 7,500 shares are designated Series C Preferred Stock, of which 7,000 have been purchased,
redeemed or otherwise acquired by the Company and therefore cancelled pursuant to the Series C
Articles of Amendment and of which 500 shares are issued and outstanding as of the date of this
Agreement and which convert to Company Common Stock on a 1 to 1,333.33 basis; and (D) 2,000 shares
are undesignated into a series or class (the “Undesignated Preferred Stock”), none of which have
been issued. As of the date of this Agreement, the Company Capital Stock is held beneficially and
of record by the Persons with the addresses on record with the Company and in the numbers of shares
as set forth in Section 2.2(a)(i) of the Disclosure Schedule. All outstanding shares of Company
Capital Stock (i) are duly authorized, validly issued, fully paid and non-assessable, (ii) were not
issued in violation of any preemptive or similar rights created by statute, the Charter Documents
as in effect from time to time, or any agreement to which the Company is (or was) a party or by
which it is (or was) bound and (iii) except as set forth in Section 2.2(a)(ii) of the Disclosure
Schedule, are not subject to preemptive rights created by statute, the Charter Documents, or any
agreement to which the Company is a party or by which it is bound, and together with all Company
Options, have been issued in compliance in all material respects with all applicable federal and
state securities Laws. As of the date hereof, there are no declared and unpaid dividends with
respect to any shares of Company Capital Stock.
(b) Section 2.2(b)(i) of the Disclosure Schedule sets forth for each holder of Company
Options, the name and address on record with the Company of such holder, the number of shares of
Company Common Stock issuable upon exercise of such Company Options held by such holder, the
vesting schedule and exercise price of such Company Options and the dates on which such Company
Options were granted and will expire. The Company has reserved a sufficient number of shares of
Company Common Stock for issuance to the holders of the currently outstanding and unexercised Company Options
upon the exercise of such Company Options. True, complete and correct copies of each form of
agreement pursuant to which any such Company Option has been issued, as amended to date, have been
made available to Parent. Except for the Company Options set forth in Section 2.2(b)(i) of the
Disclosure Schedule, there
13
are no outstanding options, warrants, calls, rights, commitments, convertible or exchangeable
securities or other agreements or obligations of any kind to which the Company is a party or by
which the Company is bound obligating the Company to grant, issue, deliver, sell, repurchase or
redeem, or cause to be granted, issued, delivered, sold, repurchased or redeemed, any shares of the
Company Common Stock or other securities of the Company or obligating the Company to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into any such option,
warrant, call, right, commitment or agreement. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar rights with respect to the
Company. Except as set forth in Section 2.2(b)(ii) of the Disclosure Schedule, (i) there are no
voting trusts, proxies, or other agreements or understandings with respect to the voting securities
of the Company and (ii) there are no agreements to which the Company or, to the Knowledge of the
Company, any of its Shareholders is a party relating to the registration, sale or transfer
(including agreements relating to rights of first refusal, co-sale rights or “drag-along” rights)
of any Company Common Stock or other securities of the Company.
2.3 Subsidiaries. The Company does not have any Subsidiaries and does not otherwise directly
or indirectly own any equity or similar interest in or any interest convertible, exchangeable or
exercisable for, any equity or similar interest in, any other corporation, limited liability
company, partnership, association or Person.
2.4 Authority. The Company has all requisite corporate power and authority to enter into this
Agreement and any Related Agreements to which it is a party, to perform its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and thereby. Subject to
obtaining the requisite approval of the Shareholders of this Agreement (the “Sufficient Shareholder
Vote”), the execution and delivery of this Agreement and any Related Agreements to which the
Company is a party, the performance of its obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company and no further action is required on the part
of the Company to authorize this Agreement and any Related Agreements to which it is a party and
the transactions contemplated hereby and thereby. This Agreement and any Related Agreements to
which the Company is a party have been approved by the Board of Directors of the Company and the
Board of Directors of the Company has determined that the transactions contemplated by this
Agreement are in the best interests of the Company and its Shareholders. This Agreement and each of
the Related Agreements to which the Company is a party has been duly executed and delivered by the
Company and assuming the due authorization, execution and delivery by the other parties hereto and
thereto, constitute the valid and binding obligations of the Company enforceable against it in
accordance with their respective terms, except as such enforceability may be subject to the Laws of
general application relating to bankruptcy, insolvency, reorganization and the relief of debtors
and rules of Law governing specific performance, injunctive relief, or other equitable remedies;
provided, however, that the Articles of Merger will not be effective until filed with and accepted
by the Florida Department of State. The affirmative vote of (i) a majority of the outstanding
shares of Company Common Stock, Series B Preferred Stock and Series C Preferred Stock, voting
together as a single class, (ii) at least sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares of Series B Preferred Stock, voting as a separate class, and (iii) at least
seventy-five percent (75%) of the outstanding shares of Series C Preferred Stock, voting as a
14
separate class, are the only votes of the Shareholders necessary to approve this Agreement, the
Merger and the other transactions contemplated hereby.
2.5 No Conflict.
(a) Except as set forth on Section 2.5(a) of the Disclosure Schedule, the execution and
delivery by the Company of this Agreement, the Related Agreements to which the Company is a party
and the Articles of Merger, the performance by the Company of its obligations hereunder and
thereunder and the consummation of the transactions contemplated hereby and thereby, will not
conflict with or result in any breach, violation of or default under (with or without notice or
lapse of time, or both) or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or loss of any right or benefit, or result in the creation of any
material Lien upon any of the Company’s properties or assets, under (any such event, a “Conflict”)
(i) any provision of the Charter Documents or the similar organizational documents of the Company,
(ii) any Material Contract or (iii) any material Law applicable to the Company and any of its
properties (whether tangible or intangible) or assets.
(b) Section 2.5(b) of the Disclosure Schedule sets forth a list of Material Contracts pursuant
to which consents, waivers and approvals of parties are required thereunder in connection with the
Merger.
2.6 Governmental Consents. No consent, notice, waiver, approval, order or authorization of,
or registration, declaration or filing with any Governmental Entity, is required to be obtained or
made by the Company in connection with the execution and delivery of this Agreement, the Related
Agreements to which it is a party and the Articles of Merger, the performance by the Company of its
obligations hereunder or thereunder or the consummation of the transactions contemplated hereby and
thereby, except for (a) any necessary approval, or the termination or expiration of any waiting
period, under the HSR Act and (b) the filing of the Articles of Merger with the Florida Department
of State.
2.7 Company Financial Statements. Section 2.7 of the Disclosure Schedule sets forth the (i)
audited balance sheets of the Company as of January 31, 2009, as of January 30, 2010 and as of
January 29, 2011, and the audited statements of income, cash flow and stockholders’ equity for the
fifty-two week periods ended January 31, 2009, January 30, 2010 and January 29, 2011, respectively
(the “Year-End Financials”), and (ii) an unaudited balance sheet of the Company as of July 30, 2011
(the “Balance Sheet Date”), and the related unaudited consolidated statement of income, cash flow
and stockholders’ equity for the six month period then ended (the “Interim Financials”). The
Year-End Financials and the Interim Financials (collectively referred to as the “Financials”) have
been prepared from the books and records of the Company and in accordance with GAAP applied on a
consistent basis throughout the periods indicated and consistent with each other (except that the
Interim Financials do not contain footnotes and other presentation items that may be required by
GAAP). The Financials fairly present in all material respects the financial condition of the
Company and the results of operations and cash
flows as of the dates and for the periods indicated therein, subject in the case of the
Interim Financials to normal year-end adjustments, which are not material in amount or significance
in any individual case or in the aggregate. The unaudited consolidated balance sheet
15
of the Company as of the Balance Sheet Date is referred to hereinafter as the “Current Balance
Sheet.”
2.8 No Undisclosed Liabilities. Except as set forth in Section 2.8 of the Disclosure Schedule, the
Company has no Liabilities required by GAAP to be reflected in the Financials other than (a)
liabilities that are accrued and reflected on, or otherwise disclosed in, the Financial Statements,
(b) liabilities that have arisen in the ordinary course of business since the Balance Sheet Date
which are not materially adverse to the Company, including liabilities for payroll, lease payments
and payments to suppliers, or (c) obligations to perform after the date hereof any Contracts which
have been disclosed on Sections 2.11(a), 2.14, 2.20(a)(i), and 2.20(a)(iii) of the Disclosure
Schedule, or which are not required to be disclosed on such sections of the Disclosure Schedule,
because such Contracts do not meet the applicable disclosure thresholds.
2.9 Absence of Changes. Except as provided in Section 2.9 of the Disclosure Schedule, since
January 29, 2011 through the date of this Agreement, (a) the Company has conducted its business
only in the ordinary course of business consistent with past practice, and (b) there has not
occurred a Company Material Adverse Effect.
2.10 Tax Matters. Except as set forth in Section 2.10 of the Disclosure Schedule, (a) the
Company has timely filed all material Tax Returns required to have been filed by it, (b) all such
Tax Returns are true and correct, accurate and complete in all material respects, (c) the Company
has paid or specifically accrued for all Taxes owed by it which were due and payable (whether or
not shown on any Tax Return), (d) the Company is not currently the beneficiary of any extension of
time within which to file any Tax Return, (e) there have been no claims against, or inquiries of,
the Company in writing by a Governmental Authority, including in a jurisdiction where the Company
does not file Tax Returns, that the Company is or may be subject to taxation by that jurisdiction,
(f) there are no Liens on any of the Company’s assets that arose in connection with any failure (or
alleged failure) to pay any Tax, (g) no unpaid Tax deficiency has been asserted in writing against
or with respect to the Company by any Governmental Entity which Tax remains unpaid, (h) the Company
has collected or withheld all Taxes currently required to be collected or withheld by it, and all
such Taxes have been paid to the appropriate Governmental Entities or, if not yet due and payable,
set aside in appropriate accounts for future payment when due, (i) the Company has not granted and
is not subject to, any waiver of the period of limitations for the assessment of Tax for any
currently open taxable period, (j) the Company is not required to include in income any amount for
(A) an adjustment pursuant to Section 481 of the Code or the regulations thereunder, (B) a closing
agreement as described in Section 7121 of the Code (or any corresponding or similar provision of
state, local or foreign Tax law) or (C) a prepaid amount received on or prior to the Closing Date,
(k) the Company is not a party to any Tax allocation or sharing agreement excluding, however, any
agreement or arrangement entered into in the ordinary course the primary purpose of which is not
the allocation or payment of Tax liability and in which such provisions regarding Taxes are typical
of such agreements or arrangements, (l) the Company neither (i) has been a member of an affiliated
group of corporations (within the meaning of Section 1504(a) of the Code) filing a consolidated
federal income Tax Return nor (ii) has any liability for the Taxes of any Person, under
Regulations Section 1.1502-6 or any similar provision of state, local or foreign Law, as a
transferee or successor, by contract or otherwise, (m) there are no audits, actions, suits,
proceedings, investigations, claims or administrative proceedings relating to Taxes or any Tax
16
Returns of the Company currently pending, and, to the Company’s Knowledge, no such audits are
threatened, proposed or contemplated; (n) the Company is not and has not been a real property
holding corporation within the meaning Section 897(c)(2) of the Code during the applicable periods
specified in such Section; (o) the Company has not engaged in any “reportable transaction” or
“listed transaction” identified pursuant to Treasury Regulation Section 1.6011-4 or any similar
provision of state, local, or foreign law; (p) since January 31, 2008, the Company has not
distributed stock of another corporation, or has had its stock distributed by another corporation,
in a transaction that was governed, or purported or intended to be governed, in whole or in part,
by Section 355 of the Code.
2.11 Title to Properties; Absence of Liens and Encumbrances.
(a) The Company does not currently own any real property. Section 2.11(a) of the Disclosure
Schedule sets forth a list of all real property currently leased, subleased or licensed by or from
the Company or otherwise used or occupied by the Company for the operation of its business (the
“Leased Real Property”) and each lease, sublease, license or other occupancy agreement relating to
the Leased Real Property to which the Company is a party or by which it is bound, the name of the
lessor, licensor, sublessor, master lessor, lessee or other party using or occupying the same, the
date and term of the lease, license, sublease or other occupancy right and each amendment thereto
(the “Lease Agreements”). The Company has made available to Parent a true, correct and complete
copy of each Lease Agreement and all amendments or modifications thereto. All Lease Agreements are
valid and effective and enforceable in accordance with their respective terms except as such
enforceability may be subject to the Laws of general application relating to bankruptcy,
insolvency, reorganization and the relief of debtors and rules of Law governing specific
performance, injunctive relief, or other equitable remedies. The Company has performed in all
material respects, and to the Company’s Knowledge each other party to any Lease Agreement has
performed in all material respects, all of its obligations under each Lease Agreement. With respect
to each Lease Agreement, there is not any existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a default) by the Company or, to the Company’s
Knowledge, any other party to any Lease Agreement, and no rentals are past due. The Company has
not sent or received any written notice of a default, alleged failure to perform, or any offset or
counterclaim with respect to any Lease Agreement, which has not been fully remedied and withdrawn.
(b) The Leased Real Property is in good operating condition and repair (subject to normal wear
and tear), and to the Company’s Knowledge, free from material structural, physical and mechanical
defects and is structurally sufficient and otherwise suitable for the conduct of the business as
presently conducted. Except as set forth in Section 2.11(b) of the Disclosure Schedule, neither the
operation of the Company on the Leased Real Property nor, to the Company’s Knowledge, such Leased
Real Property, including the improvements thereon, violate in any material respect any applicable
building code, zoning requirement or statute relating to such property or operations thereon, and
to the Knowledge of the Company, any such non-violation is not dependent on so-called
non-conforming use exceptions. The Company does not owe any brokerage
commissions or finders fees with respect to any Leased Real Property and would not owe any
such fees if any existing Lease Agreement were renewed pursuant to any renewal options contained in
such Lease Agreements.
17
(c) The Company has, and immediately after giving effect to the transactions contemplated by
this Agreement will have, good, marketable and valid title to, or, in the case of leased properties
and assets, valid leasehold interests in, all of its tangible properties, rights, interests and
assets, real, personal and mixed, used in, necessary for the conduct of or held for use in its
business, including all such properties or assets owned by the Company reflected in the Company’s
audited balance sheet for the fiscal year ended January 29, 2011 (except inventory and other assets
disposed of in the ordinary course of business since January 29, 2011, and accounts or notes
receivable paid since January 29, 2011 or as otherwise contemplated by this Agreement), free and
clear of any Liens, except (i) Liens in favor of carriers, warehousemen, mechanics, materialmen and
landlords granted in the ordinary course of business for amounts not overdue and for which adequate
reserves have been established in accordance with GAAP, (ii) Liens for Taxes not yet due and
payable, and (iii) common law or statutory Liens which do not materially detract from the value or
interfere with the present use of the property subject thereto or affected thereby (collectively,
“Permitted Liens”) and except as set forth in Section 2.11(c) of the Disclosure Schedule.
(d) All equipment owned or leased by the Company currently in use and necessary for the
conduct of its business as presently conducted is in good operating condition, regularly and
properly maintained, subject to normal wear and tear.
2.12 Intellectual Property.
(a) Section 2.12(a) of the Disclosure Schedule lists all Registered Intellectual Property
Rights and material unregistered Trademarks and Copyrights owned by, or filed in the name of, the
Company (the “Company Registered Intellectual Property Rights”), including where applicable the
jurisdiction in which each of the items of such Company Registered Intellectual Property Rights has
been applied for, filed, issued or registered (as well as the applicable application and
registration numbers, and whether owned by or licensed to the Company), and any proceedings or
actions (other than any nonmaterial ordinary course office actions by the PTO) before any court,
tribunal (including the PTO or equivalent authority anywhere in the world) or arbitrator related to
any of the Company Registered Intellectual Property Rights. Section 2.12(a) of the Disclosure
Schedule also lists all Intellectual Property Rights exclusively licensed to the Company.
(b) Except as set forth in Section 2.12(b) of the Disclosure Schedule, the Company is the sole
owner of the Company Registered Intellectual Property Rights, free and clear of any Liens (other
than Permitted Liens, non-exclusive licenses granted by the Company in the ordinary course of
business to third party contractors solely for purposes of providing services to the Company, and
those Liens set forth in Section 2.12(b) of the Disclosure Schedule). In all material respects, (i)
all registrations included in the Company Registered Intellectual Property Rights are in force, and
all applications for registration included in the Company Registered Intellectual Property Rights
are pending and have not been challenged, abandoned, cancelled or otherwise allowed to lapse, and
(ii) the Company has complied with all applicable Law, including the duty of candor and payment
when due of all fee and filing requirements, in connection with the
prosecution and maintenance of all Company Registered Intellectual Property Rights. Subject to
the qualifier set forth in first sentence of Section 2.12(c), and except as set forth in Section
2.12(b) of the Disclosure Schedule, the Company has (A) valid and
18
enforceable, and exclusive (for the avoidance of doubt, exclusive within the scope of rights
legally recognized for each item of Intellectual Property—e.g., the Company does not assert
trademark ownership rights for the use of “BOSTON PROPER” for uses outside the scope of activities
it undertakes in its business), ownership rights in, and has the right to use, sell, license,
transfer or assign, the Company Intellectual Property owned by the Company, and the Company has not
agreed to or created any restrictions on its ownership rights in or its right to use, sell, license
transfer or assign Company Intellectual Property owned by the Company, and (B) subject to the
qualifier set forth in first sentence of Section 2.12(c), has valid and enforceable rights in all
other material Intellectual Property Rights used in its business, subject to the terms and
conditions of the IP Licenses with respect to third party Intellectual Property Rights. All
material Company Intellectual Property is, to the Knowledge of the Company, valid and enforceable
in all material respects.
(c) Since three (3) years prior to the date hereof and except as set forth in Section 2.12(c)
of the Disclosure Schedule, the operation of the business of the Company, the Company Products and
the Company’s use of the Company Intellectual Property and Technology owned or used by the Company
have not infringed, misappropriated or otherwise violated in any material respect (i) to the
Knowledge of the Company, any issued Patents or (ii) with respect to Intellectual Property Rights
licensed to the Company by each third party, to the Knowledge of the Company, the Intellectual
Property Rights of any other third party; however, the Company is in compliance in all material
respects with such licenses, or (iii) any other Intellectual Property Rights, rights of publicity,
privacy or other similar rights, of any other Person. Since three (3) years prior to the date
hereof and except as set forth in Section 2.12(c) of the Disclosure Schedule, (A) to the Knowledge
of the Company there has been no claim or other assertion, and (B) the Company has not received
written notice or threat, in each case (A) and (B) from any Person claiming that such operation or
any Company Product, Company Intellectual Property, Technology owned or used by the Company in its
business infringes, misappropriates or otherwise violates any Intellectual Property Rights, rights
of publicity, privacy or other similar rights of any Person or otherwise challenging the ownership,
registrability (excluding office actions made by the applicable government agency), right to use,
sell, distribute, license or sublicense, validity or enforceability of any Company Intellectual
Property, Company Products or Technology owned or used by the Company in its business.
(d) To the Knowledge of the Company, no Person has infringed or misappropriated or otherwise
violated, or is infringing, misappropriating or otherwise violating, any material Company
Intellectual Property, and since three (3) years prior to the date hereof, there has been no
Intellectual Property Rights claim or other assertion made by the Company, and the Company has not
sent written notice or threat, to any Person claiming that the operation of such Person’s business
or any Intellectual Property Rights, product or Technology infringes, misappropriates or otherwise
violates any Intellectual Property Rights, rights of publicity, privacy or other similar rights
owned or controlled by the Company or otherwise challenging the ownership, right to use, sell,
distribute, license or sublicense, validity or enforceability of any Intellectual Property
Rights, products or Technology.
(e) Neither the Company, any Company Products nor any Intellectual Property Rights owned by
the Company, is subject to any outstanding judgments, governmental orders, consents,
indemnifications, forbearances to xxx, settlement agreements or other
19
arrangements in connection with the resolution of any claims, disputes or other assertions in all
cases that restrict the Company with respect to any material Intellectual Property Rights.
(f) Except as set forth in Section 2.12(f) of the Disclosure Schedule, each current or former
employee, officer, consultant or independent contractor of the Company that, in connection with
their respective relationships with the Company, has developed, contributed to or modified or
improved any Company Products, Intellectual Property Rights or Technology that is material,
individually or in the aggregate, to the business of the Company as currently conducted has
assigned all of his, her or its right, title and interest in and to such developments,
contributions, modifications or improvements to Company Products, Intellectual Property Rights and
Technology to the Company and has agreed to keep confidential any confidential information of the
Company.
(g) None of the Securityholders or their Affiliates (other than the Company) (i) owns, has an
interest in, or grants any rights to the Company with respect to any Company Products, Intellectual
Property Rights or Technology used or held for use by the Company other than the assignment of
rights to the Company made by any Securityholders who are employees; (ii) has possession of or any
license or other right, title or interest in or to any Company Products, Intellectual Property
Rights or Technology owned by the Company (other than the possession of and right to use and modify
such in connection with their duties to the Company); or (iii) has any license or other right,
title or interest in or to any third party Intellectual Property Rights or Technology from the
Company (other than the right to possess and use third party Intellectual Property Rights and
Technology in connection with their duties to the Company).
2.13 Information Technology Systems, Customer Information.
(a) Except as set forth in Section 2.13(a) of the Disclosure Schedule, no third party has any
license, escrow right, option or other right, title or interest in or to (including any right to
receive any royalty, honorarium or other payment) any, and has not had access to any material
Intellectual Property Rights or Technology the Intellectual Property Rights of which are owned by
the Company or any Customer Information (other than employees, third party contractors whose rights
therein and access and use thereof was limited to use in connection with providing services to the
Company, and who remain under confidentiality obligations, and the authorized access and use
provided to the Company’s Technology and information to the public via the Company’s website).
Except as set forth in Section 2.13(a) of the Disclosure Schedule, the Company possesses all source
code, compilers and other Intellectual Property Rights, Technology and documentation necessary to
compile and otherwise create fully operable executable versions of material software currently used
in its business in which the Intellectual Property Rights are owned by the Company. Except as set
forth in Section 2.13(a) of the Disclosure Schedule, no Intellectual Property Rights owned by the
Company or any of Company Subsidiaries and, to the Knowledge of the Company, no Technology owned by
the Company is subject to, any “open source,” “free” or similar licensing or distribution
terms and conditions.
(b) Except as set forth in Section 2.13(b) of the Disclosure Schedule: (i) the material
information systems and other material Technology owned or used by the Company operate and perform
in accordance with their documentation and functional specifications in the possession of the
Company in all material respects as required by the Company in connection
20
with its business as currently conducted; (ii) since three (3) years prior to the date hereof: (A)
the Company has taken commercially reasonable measures (including, without limitation, implementing
reasonable measures with respect to technical and physical security) with respect to the security
of its material information systems and other material information systems controlled by it, and
the confidentiality and security and integrity of all material confidential information and all
personal information within its control, including all Customer Information; (B) the Company has
maintained commercially reasonable back-up and disaster recovery capabilities for its material
information systems and data (including Customer Information) substantially consistent with
industry practices, and to the Knowledge of the Company there has been no loss of any material data
of the Business in the three (3) years prior to the date hereof; and (C) the Company has complied
in all material respects with (x) all applicable Laws relating to privacy, data protection and the
collection and use of personal information, including all Customer Information, (y) all rules,
policies and procedures applicable to the Company with respect to any Customer Information and
other personal information in its control relating to privacy, data protection and the collection
and use of personal information (copies of all of which have been provided to Parent), and (z) all
applicable credit card company and other financial institution, industry or other applicable
security standards and requirements, including the Payment Card Industry requirements to the extent
applicable; and (iii) to the Knowledge of the Company, there has been no material unauthorized
access to, unauthorized disclosure or unauthorized use of any personal information controlled by
the Company, including any Customer Information, or of any material confidential information of the
Company, and to Knowledge of the Company no unauthorized access to or unauthorized use of the
information systems and other Technology in the possession or control or used on behalf of the
Company. Since three (3) years prior to the date hereof, no claims or other assertions have been
made or threatened against the Company by any third party alleging a violation of such third
party’s privacy, personal or confidentiality rights or a violation of any of the foregoing Section
2.13(b).
(c) As of the Effective Time, the Company shall exclusively own the Customer Information
(subject to the rights of each individual with respect to such individual’s personal information,
and excluding independent gathering or collection (other than from or on behalf of the Company, and
without referencing the Customer Information) by a third party of any information (such as name,
address and email) included in the Customer Information) and (subject to the rights of each
individual with respect to such individual’s personal information) will have unrestricted rights to
disclose, sell, rent, send communications to individuals whose information is included in, and
otherwise to use such Customer Information without notification to, consent of, or payment of any
further consideration to, the Securityholders, any Affiliate of the Securityholders (other than the
Company) or any third party, in all such cases noted in this Section 2.13(c), subject to applicable
Law and the Company’s applicable privacy policies.
2.14 Agreements, Contracts and Commitments.
(a) Except as set forth in Section 2.14 of the Disclosure Schedule, the Company is not a party
to, nor is bound by any of or any commitment to enter into any of the following Contracts (each, a
“Material Contract”):
(i) any vendor or supply Contract involving expenditures of greater than $150,000 per year by
the Company for the purchase of goods or services;
21
(ii) any employment, contractor or consulting Contract with an employee or consultant,
contractor or salesperson that would reasonably be expected to result in payment in excess of
$150,000 in any year, whether or not such service provider is terminable by the Company at will and
without penalty;
(iii) any agreement or plan, including any stock option plan, stock appreciation rights plan
or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits
of which will be accelerated, by the occurrence of any of the transactions contemplated by this
Agreement (either alone or upon the occurrence of any additional subsequent events) or the value of
any of the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement (including any severance or change of control agreements);
(iv) (A) any lease of personal property or equipment requiring payments of greater than
$50,000 per year and (B) any real property lease;
(v) any Contract relating to capital expenditures and involving future payments in excess of
$20,000 individually or $50,000 in the aggregate;
(vi) any Contract relating to the disposition or acquisition of material assets or any
interest in any business enterprise outside the ordinary course of the business of the Company;
(vii) any mortgages, indentures, guaranties, loans or credit agreements, security agreements
or other agreements or instruments relating to the borrowing of money or extension of credit;
(viii) any Contract containing covenants or other obligations granting or containing any
current or future commitments regarding exclusive rights, non-competition, non-solicitation, “most
favored nations,” restriction on the operation or scope of its business or operations, or similar
terms;
(ix) any in-bound licenses, out-bound licenses and cross-licenses, and any other contracts
granting any other right, title or interest, with respect to material Intellectual Property Rights
(whether the Company is (1) grantor or (2) grantee), but excluding (A) non-disclosure agreements
that do not disclose any material confidential information and contain only ordinary course
confidentiality obligations, (B) standard non-exclusive end user licenses and other standard
non-exclusive customer agreements entered into by the Company in the ordinary course of business by
which the Company licenses generally commercially available, non-customized Shrink-Wrap Code having
a total acquisition cost, in the aggregate for all use by the Company of less than $100,000 for all
use thereof of the Company;
(x) any joint venture, partnership, stockholder, voting trust or similar Contracts (other than
the Voting Agreement);
(xi) any Contract containing change of control provisions relating to the Company;
22
(xii) any Contract requiring the Company to indemnify or hold harmless any person in respect
of which the potential obligation could be material to the Company;
(xiii) any Contract that would prevent, materially delay or materially impede the Company’s
ability to perform its obligations hereunder and to consummate the transactions contemplated by
this Agreement;
(xiv) any other Contract not identified in clauses (i) through
(xiii) above with any of its officers, directors, employees, Affiliates or stockholders (or
any Affiliates of any of the foregoing);
(xv) any other Contract not identified in clauses (i) through (xiv) above that involves
$150,000 or more and is not cancelable by the Company without penalty within ninety (90) days; or
(xvi) any other Contract not identified in clauses (i) through (xv) above with a duration or
term of one year or more and is not cancelable by the Company without penalty.
(b) The Company has made available to Parent true, correct and complete copies of all Material
Contracts, including each amendment, supplement or modification thereto, as in effect on the date
hereof. The Company is in compliance in all material respects with, and has not materially
breached, violated or defaulted under, or received written notice (or to the Company’s Knowledge,
other notice) that it has materially breached, violated or defaulted under, any of the terms or
conditions of any Material Contract, nor does the Company have any Knowledge of any event that
would constitute such a material breach, violation or default with the lapse of time, giving of
notice or both, nor to the Knowledge of the Company is any party obligated to the Company pursuant
to any such Material Contract subject to any default thereunder. None of the parties to any
Material Contract has terminated or given written notice (or to the Company’s Knowledge, other
notice) of termination to the Company of any such Material Contract or written notice of any such
party’s intention not to use the Company’s services or to provide services to the Company under any
of the Material Contracts. Each Material Contract is valid and binding and in full force and
effect except to the extent that the same may be subject to the Laws of general application
relating to bankruptcy, insolvency, reorganization and the relief of debtors and rules of Law
governing specific performance, injunctive relief, or other equitable remedies.
2.15 Interested Party Transactions. To the Knowledge of the Company, except as set forth in
Section 2.15 of the Disclosure Schedule, no officer, director, employee, or Shareholder of the
Company (nor, to the Knowledge of the Company, any ancestor, sibling, descendant or spouse of any
of such persons, or any trust, partnership or
corporation in which any of such persons has or has had an interest), has directly or
indirectly, (i) any interest in any entity that sells or furnishes to the Company, any goods or
services, or (ii) a beneficial interest in any Material Contract to which the Company is a party
(other than in such person’s capacity as a Shareholder, director, officer or employee of the
Company); provided, however, that ownership of no more than two percent (2%) of the outstanding
voting stock of a publicly traded corporation shall not be deemed to be an “interest in any entity”
for purposes of this Section 2.15.
23
No officer, director, employee, or stockholder has any loans outstanding from the Company except
for business expenses in the ordinary course of business, consistent with past practices, to
directors or employees of the Company.
2.16 Governmental Authorization. Except as set forth in Section 2.16(a) of the Disclosure
Schedule, each material consent, license, permit, certificate, franchise, exemption, grant or other
authorization of any Governmental Entity (i) pursuant to which the Company currently operates or
holds any interest in any of its properties, or (ii) which is required for the operation of the
business of the Company as currently conducted or the holding of any such interest (collectively,
“Company Authorizations”), has been issued or granted to the Company by such Governmental Entity.
The Company Authorizations are valid and in full force and effect and constitute all Company
Authorizations required to permit the Company to operate or conduct its business as presently
conducted or hold any interest in its properties or assets. All Company Authorizations are listed
on Section 2.16(a) of the Disclosure Schedule. The Company is in compliance in all material
respects with the terms of such Company Authorizations. The Company has not received written
notice from any Governmental Entity in the past three years of any violation in respect of any such
Company Authorizations.
2.17 Litigation. Except as set forth in Section 2.17 of the Disclosure Schedule, since January
1, 2009, there has been no action, suit, claim, proceeding, judgment, decree, settlement, rule or
order or, to the Company’s Knowledge, investigation of any nature pending, resolved, rendered, or,
to the Company’s Knowledge, threatened in writing against the Company or any of the Company’s
officers or directors in their capacity as such. There are no writs, injunctions, decrees,
arbitration decisions, unsatisfied judgments or similar orders currently outstanding against the
Company, its properties or assets or any of the Company’s officers or directors in their capacity
as such. There are no internal investigations or whistle-blower complaints pending or, to the
Company’s Knowledge, threatened against the Company. There is no action, suit, claim or proceeding
of any nature pending or, to the Company’s Knowledge, threatened that would prohibit, prevent or
materially delay consummation of the Merger or the other transactions contemplated hereby.
2.18 Environmental Matters. The Company has not: (i) received any written notice of any
alleged claim, investigation, request for information, violation of or Liability under any
Environmental Law which has not heretofore been cured or for which there is any remaining
liability; (ii) (A) disposed of, emitted, discharged, handled, stored, transported, used or
released any Hazardous Materials, (B) arranged for the disposal, discharge, storage or release of
any Hazardous Materials, or (C) exposed any employee or other individual to any Hazardous Materials
so as to give rise to any material liability or corrective or remedial obligation under any
Environmental Laws; or (iii) entered into any agreement that requires it to guarantee, reimburse,
pledge, defend, hold harmless or indemnify any other party with respect to liabilities arising out
of violations of Environmental Laws or activities of the Company, if any, related to Hazardous
Materials. The Company is and has been in material compliance with all applicable Environmental
Laws. The Company is not subject to any orders or decrees pursuant to any applicable
Environmental Law. The Company has made available to Parent all environmental audits and
environmental assessments of any facility owned or leased by the Company, if any. There are no
Hazardous Materials in, on, or under any properties owned or leased by the
24
Company such as could give rise to any material liability or corrective or remedial obligation of
the Company under any Environmental Laws.
2.19 Brokers’ and Finders’ Fees. Except as set forth in Section 2.19 of the Disclosure
Schedule or the investment banking fee owed to Xxxxxx Xxxxxxxxxx Xxxxx LLC by the Company, the
Company has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or
finders’ fees or agents’ commissions, fees related to investment banking or similar advisory
services or any similar charges in connection with the Agreement or any transaction contemplated
hereby.
2.20 Employee Benefit Plans and Compensation.
(a) Schedule. Section 2.20(a)(i) of the Disclosure Schedule contains an accurate and complete
list of each Company Employee Plan and each Employee Agreement (collectively, the “Company Benefit
Arrangements”). Section 2.20(a)(ii) of the Disclosure Schedule sets forth a table setting forth
for each employee of the Company, such employee’s name, hiring date, current annual salary, bonus
and vacation, sick and personal hours per year.
(b) With respect to each of the Company Benefit Arrangements, the Company has made available
to Parent complete copies of each of the following documents: (i) the Company Benefit Arrangement
(including all amendments thereto); (ii) the two most recent annual reports and actuarial reports,
if required under ERISA or the Code; (iii) the most recent Summary Plan Description, together with
each Summary of Material Modifications, if required under ERISA; (iv) if the Company Benefit
Arrangement is funded through a trust or any third party funding vehicle, the trust or other
funding agreement (including all amendments thereto) and the most recent financial statements
thereof; and (v) the most recent determination or opinion letter, as the case may be, received from
the IRS with respect to Company Benefit Arrangement that is intended to be qualified under Section
401(a) of the Code.
(c) Employee Plan Compliance. The Company has performed all material obligations required to
be performed by it under each Company Benefit Arrangement and the Company does not have Knowledge
of any material default or violation by any other party to any Company Benefit Arrangement. Each
Company Benefit Arrangement has been established and maintained in all material respects in
accordance with its terms and in compliance with all applicable Laws, including ERISA and the Code.
Any Company Benefit Arrangement intended to be qualified under Section 401(a) of the Code has
obtained a favorable determination letter (or opinion letter valid as to the Company, if
applicable) with respect to its qualified status under the Code and to the Knowledge of the Company
no events have occurred that could reasonably be expected to cause the loss of such qualification.
No “prohibited transaction,” within the meaning of Section 4975 of the Code or Sections 406 and 407
of ERISA, and not otherwise exempt under Section 4975 of the Code or Section 408 of ERISA, has
occurred with respect to any Company Benefit Arrangement. There are no actions, suits or claims
pending or, to the Knowledge of the Company, threatened (other than routine claims for
benefits) against any Company Benefit Arrangement or against the assets of any Company Benefit
Arrangement. Each Company Benefit Arrangement that is an “employee benefit plan” within the
meaning of Section 3(3) of ERISA can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without material liability to the Company (other than
ordinary
25
administration expenses). There are no audits, inquiries or proceedings pending or to the
Knowledge of the Company, threatened by the IRS, DOL, or any other Governmental Entity with respect
to any Company Benefit Arrangement. The Company is not subject to any material penalty or Tax with
respect to any Company Benefit Arrangement under Section 502(i) of ERISA or Sections 4975 through
4980 of the Code.
(d) No Pension Plans. Neither the Company nor any ERISA Affiliate has ever maintained,
established, sponsored, participated in, or contributed to, any Pension Plan subject to Title IV of
ERISA or Section 412 of the Code.
(e) Collectively Bargained, Multiemployer and Multiple Employer Plans. Neither the Company nor
any ERISA Affiliate has ever contributed to or been obligated to contribute to any “multiemployer
plan,” as defined in Section 3(37) of ERISA. Neither the Company nor any ERISA Affiliate has ever
maintained, established, sponsored, participated in or contributed to any multiple employer plan or
to any plan described in Section 413 of the Code.
(f) No Post-Employment Obligations. Except as set forth in Section 2.20(f) of the Disclosure
Schedule, no Company Benefit Arrangement provides, or reflects or represents any liability to
provide, retiree life insurance, retiree health or other material retiree employee welfare benefits
to any person for any reason, except as may be required by COBRA or other applicable statute.
(g) Effect of Transaction. Except as set forth in Section 2.20(g) of the Disclosure Schedule,
the execution of this Agreement and the consummation of the transactions contemplated hereby will
not (either alone or upon the occurrence of any additional or subsequent events) (x) constitute an
event under any Company Benefit Arrangement that will result in any payment (whether of severance
pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee, or (y) result in any “excess
parachute payments” within the meaning of Section 280G(b)(i) of the Code. Notwithstanding the
foregoing, the Company makes no representations hereunder with respect to amounts paid pursuant to
those certain agreements entered into between the Parent and any Employee subsequent to, or in
connection with, the Closing.
(h) No Company Benefit Arrangement that is subject to Section 409A of the Code has failed to
satisfy the documentary requirements of Section 409A of the Code or has been operated in a manner
that could give rise to a tax under Section 409A of the Code.
(i) Employment Matters. The Company is in compliance in all material respects with all
applicable Laws respecting employment, employment practices, labor, terms and conditions of
employment and wages and hours, including all civil rights and anti-discrimination laws, rules and
regulations, and in each case, with respect to Employees: (i) has withheld and reported all amounts
required by Law or by agreement to be withheld and reported with respect to wages, salaries and
other payments to Employees, (ii) is not liable for any arrears of wages, bonuses, benefits, severance pay or
any Taxes or any penalty for failure to comply with any of the foregoing, and (iii) is not liable
for any payment to any trust or other fund governed by or maintained by or on behalf of any
Governmental Entity, with respect to unemployment compensation benefits, social security or other
benefits or obligations for
26
Employees (other than routine payments to be made in the normal course of business and consistent
with past practice). The Company is not party to a conciliation agreement, consent decree, or other
agreement or order with any federal, state, or local agency or Governmental Entity with respect to
employment practices. Except as set forth in Section 2.20(i) of the Disclosure Schedule, the
services provided by the Company’s Employees are terminable at the will of the Company.
(j) To the Knowledge of the Company, the manufacturers, contractors and subcontractors engaged
in the manufacturing of products for the Company (“Manufacturers”) are in compliance with all
applicable Laws respecting employment and employment practices. To the Knowledge of the Company,
none of the Manufacturers utilize forced labor, prison labor, convict labor, indentured labor,
child labor, corporal punishment or similar forms of extreme mental or physical coercion in
connection with the manufacture of the products for the Company. To the Knowledge of the Company,
no complaint, claim, lawsuit or charge has been made against any Manufacturers that could result in
liability to the Company.
(k) Labor. No work stoppage or labor strike against the Company is pending, or to the
Knowledge of the Company, threatened in writing. To the Knowledge of the Company, there are no
activities or proceedings of any labor union to organize any Employees, nor have there been any
such activities or proceedings within the preceding three (3) years. There are no actions, suits,
claims, or administrative matters, labor disputes or grievances pending or, to the Knowledge of the
Company, threatened in writing, nor, to the Knowledge of the Company, any audits or investigations
pending or threatened in writing against the Company, relating to any labor matters, wages,
benefits, or discrimination matters involving any Employee, including claims of unfair labor
practices, discrimination, harassment or wrongful termination complaints. The Company is not
presently, nor has it been in the past, a party to, or bound by, any collective bargaining
agreement or union contract with respect to Employees and no collective bargaining agreement is
being negotiated by the Company. Except for the terms of any of the Lease Agreements, no Contract
to which the Company is a party restricts in any material respect the Company from relocating,
closing or terminating any of their operations or facilities or any portion thereof.
(l) WARN Act Compliance. During the last 90 days the Company has not effectuated a “plant
closing” (as defined in the Worker Adjustment and Retraining Act of 1988, as amended (the “WARN
Act”)) affecting any site of employment or one or more facilities or operating units within any
site of employment or facility of the Company or (ii) effectuated a “mass layoff” (as defined in
the WARN Act) affecting any site of employment or facility of the Company or (iii) terminated or
announced the termination of the employment of more than a total of 20 employees (other than
“seasonal workers,” as defined by the WARN Act, terminated in the ordinary course of business).
2.21 Insurance. Section 2.21 of the Disclosure Schedule lists all insurance policies and
fidelity bonds covering the assets, business, equipment, properties,
operations, employees, officers and directors of the Company, including the type of coverage,
the carrier, the amount of coverage, the term and the annual premiums of such policies. Such
policies and bonds are in full force and effect, all premiums due and payable have been paid, and
no notice of default, cancellation or termination, coverage limitation or reduction or material
premium increase with
27
respect to any such policy has been received by the Company with respect to any such policy. The
Company has complied in all material respects with the terms and provisions of such policies and
bonds. There is no material claim by the Company pending under any of such policies or bonds as to
which coverage has been denied or disputed by the underwriters of such policies or bonds. All
insurance policies maintained by the Company will remain in full force and effect following
consummation of the transactions contemplated by this Agreement.
2.22 Compliance with Laws. The Company has complied in all material respects with, is not in
violation of, and has not received any written notice of any violation with respect to, any
material Laws applicable to it, and no Person has asserted in writing or otherwise that any event
has occurred or circumstance exists that is reasonably likely to constitute a violation of, or
result in a failure to comply with, any material Laws applicable to it. Notwithstanding anything to
the contrary herein, no representation or warranty is made pursuant to this Section 2.22 with
respect to the Company’s compliance with Laws specifically covered by Sections 2.2(a), 2.10, 2.12,
2.13, 2.18, 2.20, 2.23 or 2.25, as to which the exclusive representations and warranties of the
Company as set forth in each such Section, as applicable.
2.23 Products. Since January 1, 2009, there has not been any, and there is no pending or, to
the Knowledge of the Company, threatened in writing (a) recall or investigation of, or with respect
to, any of the Company Products, or (b) claim against the Company under any Applicable Law
governing (i) manufacturers’ and distributors’ liabilities for the safety of such products or (ii)
manufacturers’ liabilities alleging the defectiveness of such products, other than claims of
customers in the ordinary course of business which, individually or in the aggregate, are not
material to the Company.
2.24 Suppliers. Section 2.24 of the Disclosure Schedule lists (a) the suppliers, for each of
(x) the six months ended July 30, 2011, and (y) the fiscal year ended January 29, 2011, who were
the ten (10) largest suppliers of goods and services to the Company, based on amounts paid by the
Company to such suppliers during such periods (each, a “Significant Supplier”) and (b) for each
Significant Supplier, the list of items on order (by classifications in units and dollars at cost)
with such Significant Supplier. The Company has no Knowledge that any Significant Supplier intends
to terminate any Contract between such Significant Supplier and the Company. The Company has not
within the past year been engaged in a material dispute with any Significant Supplier. The Company
has not received any written notice that any such Significant Supplier plans to sell supplies,
merchandise and other goods to the Company at any time after the Closing Date on terms and
conditions materially different from those used in its current sales to the Company, subject only
to general and customary price increases.
2.25 Ethical Practices. To the Knowledge of the Company, neither the Company nor any director,
officer, agent or employee of the Company has (a) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to political activity, (b) made any unlawful
payment or offered anything of value to foreign or domestic government officials or employees or to
foreign or domestic political parties or
campaigns, (c) made any other unlawful payment, or (d) violated any applicable money
laundering or anti-terrorism law or regulation, nor have any of them otherwise taken any action
which would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any Applicable Law of similar effect.
28
2.26 Bank Accounts. Section 2.26 of the Disclosure Schedule lists all bank accounts, lock
boxes and safe deposit boxes relating to the business and operations of the Company (including the
name of the bank or other institution where such account or box is located and the name of each
authorized signatory thereto).
2.27 Inventory. Subject to any reserve therefor in the Year-End Financials, at January 29,
2011, all Inventories (including Inventory ordered but not yet received) consisted of items of a
quality usable or saleable in the ordinary course of business consistent with past practices and
were in quantities reasonably sufficient for the normal operation of the business of the Company in
accordance with past practices. Since January 29, 2011, the Company has continued to replenish its
Inventory and to dispose of out-of-season and slow-moving Inventory in a normal and customary
manner consistent with past practices prevailing in the business of the Company.
2.28 Other Information. Subject to Section 3.9, to the Knowledge of the Company, all
forecasts, projections, models, budgets or estimates heretofore delivered to Parent by the Company
or a Company Representative have been prepared in good faith and without any intention to mislead,
on the basis of the information available at the time of their preparation and assumptions believed
by Company management to be reasonable at such time.
2.29 No Other Representations or Warranties. Except for the representations and warranties
contained in this Article II (as modified by the Disclosure Schedule), neither the Company nor its
Affiliates, nor any of their respective officers, directors, employees, equity holders, agents or
representatives (any of the foregoing, including the company, a “Company Representative”), nor any
other Person, makes or has made any other representation or warranty, express or implied, at law or
in equity, in respect of the Company or its Affiliates, their respective businesses, the
Securityholders, the Merger or any of the other transactions contemplated by this Agreement or the
Related Agreements, including, (i) any representation or warranty, express or implied, as to
condition, merchantability, suitability, or fitness for a particular purpose of any of the assets
of the Company or (iii) any representation or warranty, express or implied, as to the accuracy or
completeness of any information regarding the Company or its business.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Each of Parent and Merger Sub hereby represents and warrants to the Company that on the date
hereof and as of the Closing Date, as though made on the Closing Date and as of the Effective Time,
as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly organized, validly
existing and in good standing under the FBCA. Merger Sub is a corporation duly organized, validly
existing and in good standing under the FBCA. Each of Parent and Merger Sub has the corporate power
to own, lease, operate or otherwise hold its
properties and assets and to carry on its business as currently conducted and is duly
qualified or licensed to do business and is in good standing and as a foreign corporation in each
jurisdiction where such qualification
29
or licensure is required by Law, except for those jurisdictions where the failure to be so
qualified or licensed and in good standing would not reasonably be expected to have, individually
or in the aggregate, a Parent Material Adverse Effect.
3.2 Authority. Each of Parent and Merger Sub has all requisite corporate power and authority
to enter into this Agreement and any Related Agreements to which it is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and any Related Agreements to which it is a
party, the performance of its obligations hereunder and thereunder and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all necessary corporate
action on the part of Parent and Merger Sub and no further action is required on the part of Parent
or Merger Sub to authorize the Agreement and any Related Agreements to which it is a party and the
transactions contemplated hereby and thereby. This Agreement and any Related Agreements to which
Parent and Merger Sub are parties have been duly executed and delivered by Parent and Merger Sub
and, assuming the due authorization, execution and delivery by the other parties hereto and
thereto, constitute the valid and binding obligations of Parent and Merger Sub, enforceable against
each of Parent and Merger Sub in accordance with their terms, except as such enforceability may be
subject to the Laws of general application relating to bankruptcy, insolvency, reorganization and
the relief of debtors and rules of Law governing specific performance, injunctive relief, or other
equitable remedies. No vote or other action of the stockholders of Parent is required by applicable
Law, Parent’s certificate of incorporation or bylaws, or otherwise in order for Parent and Merger
Sub to consummate the transactions contemplated hereby.
3.3 Consents. No consent, notice, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required by or with respect
to Parent or Merger Sub in connection with the execution and delivery of this Agreement and any
Related Agreements to which Parent or Merger Sub is a party, the performance by Parent and Merger
Sub of their obligations hereunder and thereunder or the consummation of the transactions
contemplated hereby and thereby, except for (i) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings which, if not obtained or made, would not
have a Parent Material Adverse Effect, (ii) any necessary approval, or the termination or
expiration of any waiting period, under the HSR Act, and (iii) the filing of the Articles of Merger
with the Secretary of Florida Department of State.
3.4 No Conflict. The execution and delivery by Parent and Merger Sub of this Agreement and
any Related Agreement to which Parent or Merger Sub is a party, the performance by Parent and
Merger Sub of their obligations hereunder and thereunder and the consummation of the transactions
contemplated hereby and thereby, will not Conflict with (i) any provision of the
certificate/articles of incorporation, bylaws, or similar organizational documents of Parent or
Merger Sub, each as amended to date and in full force and effect on the date hereof, or (ii) any
material Laws applicable to Parent or Merger Sub or any of their respective properties (whether
tangible or intangible) or assets.
3.5 Litigation. There is no action, suit, claim or proceeding of any nature pending, or to the
Knowledge of Parent, threatened, against Parent or Merger Sub or any of their respective properties
or officers or directors in their capacity as such which, if adversely determined, would
30
reasonably be expected to prohibit or restrain the ability of Parent or Merger Sub to enter into
this Agreement or the Related Agreements, to perform their obligations hereunder and thereunder or
to consummate the Merger or the other transactions contemplated hereby or thereby.
3.6 | Interim Operations of Merger Sub. |
(a) Merger Sub was formed solely for the purpose of engaging in the transactions contemplated
by this Agreement and has engaged in no business activities other than as contemplated by this
Agreement.
(b) All of the issued and outstanding equity of Merger Sub is validly issued, fully paid and
non-assessable and is owned, beneficially and of record, by Parent free and clear of all Liens,
options, rights of first refusal, stockholder agreements, limitations on Parent’s voting rights,
charges and other encumbrances of any nature whatsoever.
(c) As of the date hereof and as of the Effective Time, except for (i) obligations or
liabilities incurred in connection with its incorporation and (ii) this Agreement and the Related
Agreements to which it is a party or in furtherance of the transactions contemplated hereby or
thereby, Merger Sub has not incurred, directly or indirectly, through any of its Subsidiaries or
Affiliates, any obligations or liabilities or engaged in any business activities of any type or
kind whatsoever or entered into any agreements or arrangements with any Person.
3.7 Solvency; Ability to Perform Agreement. Parent is now solvent and has immediately
available funds sufficient to consummate the transactions contemplated by this Agreement, including
the payment of all fees and expenses payable by Parent in connection with the transactions
contemplated by this Agreement. Parent will not become insolvent as a result of consummating the
transactions contemplated by this Agreement.
3.8 Investment Intent. Parent is acquiring the Company Capital Stock for its own account and
not with a view to its distribution within the meaning of the Securities Act of 1933, as amended,
and the rules and regulations issued pursuant thereto.
3.9 Parent and Merger Sub Acknowledgement. Each of Parent and Merger Sub acknowledges that
except as expressly set forth in this Agreement (as modified by the Disclosure Schedule), none of
the Company, any Securityholder, nor any other Person acting on behalf of the Company or any
Securityholder, nor any Affiliate of the Company or any Securityholder (a) has made any
representation or warranty, express or implied, regarding the Company or the Securityholders, and
the Related Agreements or (b) makes or will be deemed to have made hereunder any representations or
warranties, express or implied, at law or in equity, of any kind or nature whatsoever concerning or
as to the accuracy or completeness of any projections, budgets, forecasts or other forward-looking
financial information concerning the future revenue, income, profit or other financial results of
the Company. In addition, each of Parent and Merger Sub acknowledges that
there are uncertainties inherent in attempting to make any such projections, budgets,
forecasts or other forward-looking financial information and actual results of operations may
differ materially from any such projections, budgets, forecasts or other forward-looking financial
information. Parent and Merger Sub have conducted such
31
investigations of the Company as it deems necessary and appropriate in connection with the
execution and delivery of this Agreement and the consummation of the transactions contemplated by
this Agreement and has been provided access to the Company, its books and records, management and
employees, and facilities as was necessary to conduct such investigation.
3.10 Brokers’ and Finders’ Fees. Except as for the fees of Xxxxx X. Xxxxxxx & Co., which will
be paid by Parent, neither Parent nor Merger Sub has incurred, nor will they incur, directly or
indirectly, any liability for brokerage or finders’ fees or agents’ commissions, fees related to
investment banking or similar advisory services or any similar charges in connection with the
Agreement or any transaction contemplated hereby.
3.11 Board Approval. The board of directors of Parent and the sole shareholder and board of
directors of Merger Sub have adopted resolutions authorizing the execution and delivery of this
Agreement and the consummation of the transactions contemplated by this Agreement. Parent and
Merger Sub have provided the Company with true and correct copies of all such resolutions
authorizing this Agreement and the transactions contemplated hereby, which are in full force and
effect as of the date hereof and as of the Closing Date.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. Except for matters expressly contemplated by this
Agreement or expressly set forth in Section 4.1 of the Disclosure Schedule, during the period from
the date of this Agreement and continuing until the earlier of the termination of this Agreement
and the Effective Time, the Company agrees: (i) except to the extent that Parent shall otherwise
consent in writing (which consent shall not be unreasonably withheld, conditioned or delayed), to
conduct its business in the usual, regular and ordinary course consistent with past practice, and
in accordance with all applicable Laws; (ii) to pay the Liabilities of the Company in the ordinary
course of business consistent with past practice, (iii) to pay Taxes of the Company when due
(subject to Section 4.1(r) below); (iv) to pay or perform other obligations when due; (v) to
preserve intact the present business organization of the Company; (vi) to use its commercially
reasonable efforts to maintain all Company Authorizations; and (vii) to use commercially reasonable
efforts to keep available the services of the present officers and key employees of the Company and
to preserve the relationships of the Company with suppliers, distributors, contractors, licensors
and others having business dealings with it. In addition to the foregoing, except as expressly
contemplated by this Agreement or required by applicable Law, and except as expressly set forth in
Section 4.1 of the Disclosure Schedule, the Company shall not, without the prior consent of Parent
(which consent shall not be unreasonably withheld, conditioned or delayed), from and after the date
of this Agreement until the earlier of the termination date of this Agreement or the Effective
Time:
(a) (i) increase the compensation payable to or to become payable to any of its directors,
officers, contractors or Employees, except for payment of the Employee Bonus Payments (which the
Company will remit to the applicable recipients prior to or on the Closing
32
Date) and except for increases in salary or wages payable or to become payable to Employees (other
than members of senior management) in the ordinary course of business and consistent with past
practice, (ii) grant any severance or termination pay (other than pursuant to existing severance
arrangements or policies as in effect on the date of this Agreement) to, or enter into or modify
any employment or severance agreement with, any of its directors, officers or Employees, or (iii)
adopt or amend any Company Employee Plan, in each case except as may be required by applicable Law;
(b)
(i) redeem, repurchase or otherwise reacquire any shares of Company Capital Stock or
Options, (ii) effect any reorganization or recapitalization of the Company, or (iii) split, combine
or reclassify any of the Company Capital Stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of, or in substitution for, shares of Company Capital
Stock;
(c)
issue, pledge, deliver, award, grant or sell, or authorize or propose the issuance, pledge,
delivery, award, grant or sale (including the grant of any encumbrances) of, any shares of any
class of the Company Capital Stock (including shares held in treasury), or any Options or other
securities convertible into or exchangeable or exercisable for shares of any class of Company
Capital Stock;
(d)
(i) acquire or agree to acquire, merge or consolidate with, by purchasing an equity
interest in or a portion of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof, or otherwise acquire
or agree to acquire any assets of any other Person or (ii) make or commit to make any investments
other than short-term liquid investments in the ordinary course of business and consistent with
past practice;
(e) sell, lease, exchange, assign, mortgage, pledge, transfer or otherwise dispose, encumber
or allow to become subject to any additional Lien not in existence on the date hereof (other than
Permitted Liens) any of its properties, rights or assets, except for sales to consumers in the
ordinary course of business and consistent with past practice;
(f) propose or adopt any amendments to the Charter Documents;
(g) make any change in any of its methods, policies or practices of accounting (including
without limitation, any change in depreciation or amortization policies or rate or any change in
the methods, policies or practices pertaining to the recognition of accounts receivable or the
discharge of accounts payable or accounting for inventories) or make any material reclassification
of assets or liabilities, except as may be required by Law or GAAP;
(h) incur, assume or guarantee any obligation for borrowed money, whether or not evidenced by
a note, bond, debenture or similar instrument, or enter into any “keep well” or other agreement to
maintain the financial condition of another Person or make any loans, or advances of borrowed money
or capital contributions to, or equity investments in, any other Person or issue or sell any debt
securities, other than purchase money
indebtedness not to exceed $150,000 in aggregate incurred in the ordinary course of business
consistent with past practice under existing loan or trade credit agreements;
33
(i) sell, lease, transfer, assign or otherwise dispose of any personal information of any
Person, or any Customer Information, or disclose any such information, other than nonexclusively if
and as necessary to conduct ordinary course of business consistent with past practice and pursuant
to commercially reasonable confidentiality protection;
(j) grant or acquire (or agree to grant or acquire), or abandon, cancel or otherwise dispose
of or permit to lapse, any right, title or interest in or to , any Intellectual Property Rights
owned or controlled by the Company, or disclose to any third party (other than representatives of
Parent), any material confidential or propriety information, except in each case nonexclusively if
and as necessary to conduct ordinary course of business consistent with past practice and pursuant
to adequate confidentiality protection.
(k) create or incur any Liens (other than Permitted Liens) on the properties, rights or assets
of the Company or on the Company Capital Stock;
(l) enter into or amend any agreements pursuant to which any other party is granted exclusive
marketing or other exclusive rights of any type or scope with respect to any Company Products;
(m) enter into any operating lease with an aggregate value in excess of $50,000;
(n) make any capital expenditures, capital additions or capital improvements other than (i)
expenditures for routine or emergency maintenance and repair or (ii) expenditures in the ordinary
course of business and consistent with past practice;
(o) enter into, modify in any material respect, amend or breach in any material respect or
terminate (other than the expiration of Contracts in accordance with its terms) any Contract,
commitment, understanding or other arrangement that is or would be a Material Contract in each case
involving annual expenditures or liabilities in excess of $150,000 or which is not cancelable
within six months without penalty, or waive, release or assign any rights or claims, other than
such waivers, releases or assignments as are in the ordinary course of business consistent with
past practice and which, individually or in the aggregate, are not material to the Company;
(p) enter into any real property lease or amend, terminate or waive any rights with respect to
any Lease Agreement;
(q) enter into any collective bargaining agreement;
(r) make or change any Tax election, change any annual Tax accounting period, change any
method of Tax accounting, file an amended Tax Return, consent to an extension or waiver of the
statute of limitations, enter into any closing agreement with respect to any Tax, settle any Tax
claim or any assessment or surrender any right to claim a Tax refund;
(s) (i) pay, discharge or satisfy any material claims, Liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), except the payment, discharge or
satisfaction of (x) Liabilities or obligations in the ordinary course of business
34
consistent with past practice or in accordance with the terms thereof as in effect on the date
hereof or (y) claims settled or compromised to the extent permitted by Section 4.1(t), or (ii)
waive, release, grant or transfer any rights of material value other than in the ordinary course of
business consistent with past practice;
(t) settle or compromise, or take any material action with respect to, any material
litigation, action, claim, suit or proceeding or investigation; provided, that, subject to Sections
4.1(r) and 5.12(c), the Company may settle any litigation, action, claim, suit or proceeding in an
aggregate amount not in excess of $75,000 and that does not involve any material non-monetary
obligations on the part of the Company or any Affiliate of the Company (including, after the
Effective Time, Parent or an Affiliate of Parent);
(u) make any payment to an Affiliate, except (i) dividends or distributions to holders of
Company Capital Stock, (ii) in accordance with the terms of any Contract listed in Sections 2.14 or
2.15 of the Disclosure Schedule, (iii) compensation to Employees in the ordinary course of business
or (iv) in accordance with Section 4.1(a);
(v) enter into any agreement containing any provision or covenant limiting in any respect the
ability of the Company or its Affiliates (which from and after the Effective Time shall include
Parent) to (i) sell or buy any products or services to or from any other person, (ii) engage in any
line of business, or (iii) compete with any person;
(w) materially change its advertising, promotional, pricing, or purchasing policies;
(x) manage working capital other than in the ordinary course of business consistent with past
practice, including shortening or lengthening the customary payment cycles for any of its payables
or its receivables or failing to maintain and manage inventory levels consistent with past
practice;
(y) (i) increase its employee headcount, other than filling new positions that have been
approved by the Company as of the date of this Agreement or filling open positions, or (ii)
terminate the employment of any of its officers or key Employees without cause;
(z) take any action for its winding up, liquidation, dissolution or reorganization or for the
appointment of a receiver, administrator or administrative receiver, trustee or similar officer of
all or any of its respective assets or revenues;
(aa)
enter into any line of business not currently conducted by the Company; or
(bb) enter into any agreement or take or commit to take any action or omit to take any action which
would, if entered into, taken or omitted at or before the Effective Time, result in a breach of any
of the foregoing covenants contained in this Section 4.1, make any of the representations or
warranties of any of the Company contained in this Agreement untrue or incorrect as of the
Effective Time or prevent the Company from performing its covenants or obligations hereunder.
35
Parent acknowledges that any action taken with the written consent of Parent pursuant to this
Section 4.1, or that is disclosed in Section 4.1 of the Disclosure Schedule, in each case that
causes any representation and warranty set forth in Article II, as modified by the Disclosure
Schedule, to be inaccurate as of the Closing Date, shall be deemed to not be a breach of such
representation or warranty for all purposes of this Agreement.
Nothing contained in this Agreement will give Parent, directly or indirectly, the right to control
or direct the Company’s operations prior to the Effective Time. Prior to the Effective Time, the
Company will exercise, consistent with the terms and conditions of this Agreement, complete control
and supervision over its operations. Notwithstanding anything to the contrary set forth in this
Agreement, no consent of Parent shall be required with respect to any matter set forth in Section
4.1 or elsewhere in this Agreement to the extent that the requirement of such consent would, upon
advice of counsel, violate applicable Law.
4.2 No Solicitation Nor Negotiations. Until the earlier of (i) the Effective Time, or (ii) the
date of termination of this Agreement pursuant to the provisions of Article VIII, the Company shall
not, and the Company shall not authorize any of its officers, directors, Employees, stockholders,
agents, representatives or Affiliates to, directly or indirectly, take any of the following actions
with any party other than Parent and its designees: (a) solicit, knowingly encourage, seek,
entertain, assist, initiate or participate in any inquiry, negotiations or discussions, or enter
into any agreement, that constitutes, or would reasonably be expected to lead to, any Acquisition
Proposal, (b) disclose any information to any Person concerning the business, technologies or
properties of the Company, or afford to any Person access to its properties, technologies, books or
records, in either case in connection with any potential Acquisition Proposal, (c) assist or
cooperate with any Person to make any Acquisition Proposal, or (d) enter into any agreement with
any Person with respect to any Acquisition Proposal. The Company shall immediately cease and cause
to be terminated any such negotiations, discussions or agreements (other than with Parent) that are
the subject matter of clause (a), (b), (c) or (d) above. In the event that the Company or any of
the Company’s Affiliates shall receive, prior to the Effective Time or the termination of this
Agreement in accordance with of Article VIII, any offer, proposal, or request, directly or
indirectly, of the type referenced in clause (a), (c), or (d) above, or any request for disclosure
or access as referenced in clause (b) above, the Company shall immediately (x) suspend any
discussions with such offeror or party with regard to such offers, proposals, or requests and (y)
subject to any pre-existing confidentiality obligations enforceable against the Company or its
Affiliates, notify Parent thereof, including information as to the identity of the offeror or the
party making any such offer or proposal. If the Company is prohibited from disclosing any
information pursuant to this Agreement as a result of pre-existing confidentiality obligations, the
Company shall endeavor in good faith to disclose the maximum amount of information possible to
Parent as required under this Agreement without violating the terms of such pre-existing
confidentiality obligations and shall use reasonable commercial efforts to cause the Person making
such offer or proposal to waive such confidentiality obligation to the extent necessary to disclose
to Parent the information required by the preceding sentence. Notwithstanding anything to the
contrary contained herein, at any time prior to receipt of the Sufficient Shareholder Vote, if the
Company
receives a bona fide written Acquisition Proposal, that was unsolicited and did not otherwise
result from a breach of this Section 4.2, the Company may furnish non-public information with
respect to the Company to the Person who made such proposal and may participate in discussions
regarding such proposal if (x) the Board of Directors of the Company determines in good faith,
after receiving advice from outside legal counsel, that
36
failure to do so would constitute a violation of the fiduciary duties of the Company’s Board of
Directors to the Shareholders under Applicable Law and (y) the Board of Directors of the Company
determines in good faith, after receiving advice from its financial advisor and outside legal
counsel, that such proposal is reasonably likely to lead to a Superior Proposal. In addition, if
the Company’s Board of Directors determines in good faith, after receiving advice from its
financial advisor and outside legal counsel, that any such Acquisition Proposal is a Superior
Proposal, then the Company’s Board of Directors may make a Change in Recommendation, and subject to
the provisions of Section 8.1(g), terminate this Agreement.
4.3 Procedures for Requesting Parent Consent. If the Company desires to take an action which would
be prohibited pursuant to Section 4.1 of this Agreement without the written consent of Parent,
prior to taking such action the Company may request such written consent by sending an e-mail or
facsimile to the following individual:
Xxxx Xxxxxxxxxx,
Executive Vice President & Chief Operating Officer
Telephone: (000) 000-0000
E-mail address: xxxx.xxxxxxxxxx@xxxxxx.xxx
Executive Vice President & Chief Operating Officer
Telephone: (000) 000-0000
E-mail address: xxxx.xxxxxxxxxx@xxxxxx.xxx
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Information Statement; Shareholder Approval.
(a) As soon as practicable after the date hereof, the Company shall use its commercially
reasonable efforts to obtain the Sufficient Shareholder Vote pursuant to a written shareholder
consent in accordance with FBCA and the Charter Documents. In connection with such written
shareholder consent, the Company shall submit to the Shareholders the Soliciting Materials, which
shall (i) include a solicitation of the approval from the shareholders of this Agreement and the
Merger, (ii) include a summary and/or copy of this Agreement, and (iii) include a statement that
appraisal rights are available for the Company Capital Stock pursuant to Sections 607.1301-
607.1333 of the FBCA (subject to the terms of any shareholder or similar agreements to which the
Shareholders are bound) and a copy of Sections 607.1301- 607.1333 of the FBCA. Any materials to be
submitted to the Shareholders in connection with the solicitation of their approval of the Merger
and this Agreement (the “Soliciting Materials”) shall be subject to review and comment by Parent
prior to distribution, which comments the Company shall consider in good faith, and shall also
include the recommendation of the Board of Directors of the Company in favor of the Merger, this
Agreement, and the transactions contemplated hereby (unless the Company’s Board of Directors has
made a Change in Recommendation in accordance with the provisions of this Agreement).
(b) Promptly following receipt of written consents of its Shareholders constituting the
Sufficient Shareholder Vote, the Company shall deliver notice of the approval of this Agreement and
the Merger by written consent of the Company’s Shareholders, pursuant to the applicable provisions
of the FBCA and the Charter Documents (the “Shareholder Notice”),
37
to all Shareholders that did not execute such written consent informing them that this Agreement
and the Merger were adopted and approved by the Shareholders and that appraisal rights are
available for their Company Capital Stock pursuant to Sections 607.1301- 607.1333 of the FBCA
(which notice shall include a copy of Sections 607.1301- 607.1333 of the FBCA), subject to the
terms of any shareholder or similar agreements to which such Shareholders are bound. The
Shareholder Notice shall be subject to review and comment by Parent prior to distribution, which
comments the Company shall consider in good faith. The Company shall promptly inform Parent of the
date on which the Shareholder Notice was sent.
5.2 Access to Information. The Company shall afford Parent and its accountants, counsel and
other representatives, reasonable access during normal business hours during the period from the
date hereof and prior to the Effective Time to (i) all of the properties, books, contracts,
commitments and records of the Company, (ii) all other information concerning the business,
properties and personnel of the Company as Parent may reasonably request, and (iii) all employees
of the Company as identified by Parent (subject, in the case of clauses (i) and (ii), to
restrictions imposed by applicable Law and pre-existing confidentiality obligations enforceable
against the Company). All requests for access or other information pursuant to this Section 5.2
shall be submitted or directed by Parent exclusively to the Chief Executive Officer of the Company.
No information or knowledge obtained in any investigation pursuant to this Section 5.2 or otherwise
shall affect or be deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Merger in accordance with the terms
and provisions hereof.
5.3 Confidentiality. Each of the parties hereto hereby agrees that the information obtained
in any investigation pursuant to Section 5.2, or pursuant to the negotiation and execution of this
Agreement or the effectuation of the transactions contemplated hereby, shall be governed by the
terms of that certain Confidentiality Agreement by and between Parent and the Company, dated as of
October 29, 2010, as amended (the “Confidentiality Agreement”).
5.4 Public Disclosure. No party shall issue any statement or communication to any third party
(other than their respective agents that are bound by confidentiality restrictions, the
Shareholders in connection with the Soliciting Materials and the Shareholder Notice, and in
connection with the satisfaction of any conditions set forth in Article VI) regarding the subject
matter of this Agreement or the transactions contemplated hereby, including, if applicable, the
termination of this Agreement and the reasons therefor, without the consent of the other party
(which consent shall not be unreasonably withheld, delayed or conditioned), except that this
restriction shall be subject to Parent’s obligation to comply with applicable securities laws and
the rules of any securities exchange on which shares of Parent common stock may be listed. In the
event that any such statement or communication by Parent prior to the Effective Time is required
by, or advisable under, applicable securities laws or the rules of any securities exchange, Parent
shall notify the Company and the Shareholder Representatives prior to such disclosure and provide
the Company and the Shareholder Representatives with a
reasonable opportunity to comment on such statement or communication, which comments Parent
shall consider in good faith.
5.5 Consents. The Company shall use commercially reasonable efforts to obtain all necessary
consents, waivers and approvals of any parties to any Material Contract as are required
38
thereunder in connection with the Merger. In the event that, prior to the Effective Time, the
other parties to any Material Contract, including lessor or licensor of any Leased Real Property,
conditions its grant of a consent, waiver or approval (including by threatening to exercise a
“recapture” or other termination right) upon the payment of a consent fee, “profit sharing” payment
or other consideration, including increased rent payments or other payments under the Material
Contract, and the Company agrees to such condition in its sole discretion, then the Company shall
be responsible for making all payments required to obtain such consent, waiver or approval and such
amounts, if not paid prior to the Closing Date, shall be deemed Outstanding Company Transaction and
Other Expenses.
5.6 Notification of Certain Matters. Each of the Company, on the one hand, and Parent, on the
other hand, shall give prompt notice to the other of: (i) the occurrence or non-occurrence of any
event, the occurrence or non-occurrence of which is likely to cause any representation or warranty
of such party contained in this Agreement to be untrue or inaccurate at or prior to the Effective
Time such that if the Closing Date were to take place on the occurrence or non-occurrence of the
date of such event the condition in Sections 6.2(a) or 6.3(a), as applicable, could not be met, and
(ii) any failure of such party to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it hereunder such that if the Closing
Date were to take place on the occurrence or non-occurrence of the date of such failure the
condition in Sections 6.2(a) or 6.3(a), as applicable, could not be met; provided, however, that
the delivery of any notice pursuant to this Section 5.6 shall not (a) limit or otherwise affect any
remedies available to the party receiving such notice or (b) constitute an acknowledgment or
admission of a breach of this Agreement. Except as set forth in the next sentence, no disclosure by
a party pursuant to this Section 5.6 shall be deemed to amend or supplement the Disclosure Schedule
or prevent or cure any misrepresentations, breach of warranty or breach of covenant.
Notwithstanding anything to contrary set forth herein, if any representation or warranty made by
the Company herein would no longer be correct due to any matter, change, fact, circumstance,
occurrence, development or event occurring or arising during the period after the execution of this
Agreement but prior to the Effective Time, and such matter (i) constitutes a Company Material
Adverse Effect and (ii) after the Effective Time would directly or indirectly subject the
Shareholders to indemnification obligations (whether from the Escrow Account or otherwise) of an
amount in excess of $2,500,000, and the Shareholder Representatives so notify Parent in writing no
later than five (5) Business Days prior to the Closing Date, and Parent elects not to terminate
this Agreement, then the Indemnified Parties will not have any right to indemnification under this
Agreement solely with respect to the items that constitute such Company Material Adverse Effect.
5.7 Additional Documents and Further Assurances; Commercially Reasonable Efforts.
(a) Each party hereto, at the reasonable request of another party hereto, shall execute and
deliver such other instruments and do and perform such other
acts and things as may be necessary or desirable for effecting completely the consummation of
the Merger and the transactions contemplated hereby.
(b) Subject to the terms and conditions provided in this Agreement, each of the parties hereto
shall use commercially reasonable efforts to take promptly, or cause to be taken, all actions, and
to do promptly, or cause to be done, all things necessary, proper or
39
advisable under applicable Laws and regulations to consummate and make effective the transactions
contemplated hereby, to satisfy the conditions to the obligations to consummate the Merger, to
obtain all necessary waivers, consents and approvals and to effect all necessary registrations and
filings and to remove any injunctions or other impediments or delays, legal or otherwise, in order
to consummate and make effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement.
5.8 Employee Matters. Employees of the Company who continue to be employed by Parent, the
Company or any of its Affiliates following the Effective Time will be given full credit for their
years of service with the Company before the Effective Time for purposes of vesting and eligibility
to participate in employee benefit plans, leave and programs of Parent and its Affiliates that are
made available to such Employees after the Effective Time. Parent agrees to maintain levels of
employee benefits (other than equity-based benefits) that are, in the aggregate, no less favorable
to those provided by the Company prior to Effective Time until the end of Parent’s 2012 fiscal
year.
5.9 Officers’ and Directors’ Indemnification.
(a) Each of Parent and Merger Sub agree that all rights to indemnification or exculpation
existing in favor of, and all limitations on the personal liability of, each present and former
director, officer, Employee, fiduciary and agent of the Company (each, a “Company Indemnitee”)
provided for in Charter Documents shall continue in full force and effect for a period of six (6)
years from the Effective Time; provided, however, that all rights to indemnification in respect of
any claims asserted or made within such period shall continue until the disposition of such claim.
From and after the Effective Time, Parent and the Surviving Corporation also agree to indemnify and
hold harmless the present and former officers and directors of the Company in respect of acts or
omissions occurring prior to the Effective Time to the extent provided in any written
indemnification agreements between the Company and such officers and directors.
(b) The obligations under this Section 5.9 shall not be terminated or modified in such a
manner as to adversely affect any Company Indemnitee to whom this Section 5.9 applies without the
consent of such affected Company Indemnitee (it being expressly agreed that the Company Indemnitees
to whom this Section 5.9 applies shall be third party beneficiaries of this Section 5.9 and shall
be entitled to enforce the covenants contained herein).
5.10 Tax Matters.
(a) Periods Ending on or Before the Closing Date. The Company, at its cost and expense, will
prepare or cause to be prepared and timely file all Tax Returns required to be filed by or on
behalf of the Company after the Closing Date which apply to periods ending on or prior to the
Closing Date. No later than thirty (30) days prior to filing, the Company will deliver to the
Shareholder Representatives all such Tax Returns
and will permit the Shareholder Representatives to review and comment on each such Tax Return
and will make such revisions to such Tax Returns as are reasonably requested by the Shareholder
Representatives, if received at least fifteen (15) days prior to filing. Subject to the terms and
conditions of Sections 5.10(e)
40
and Article VII, solely and to the extent of available Escrow Funds, the Shareholders shall be
liable for any Taxes shown as due by the Company on the Tax Returns described in this Section
5.10(a) (except to the extent such Taxes were specifically included as a liability or reserved
against in the calculation of Closing Net Working Capital).
(b) Periods Beginning Before and Ending After the Closing Date. To the extent that any Tax
Returns of the Company relate to any Tax periods which begin before the Closing Date and end after
the Closing Date, the Company, at its cost and expense, will prepare or cause to be prepared in a
manner consistent with the prior Tax Returns of the Company and file or cause to be filed any such
Tax Returns. The Company will permit the Shareholder Representatives to review and comment on each
such Tax Return described in the preceding sentence at least thirty (30) days prior to filing such
Tax Returns and will make such revisions to such Tax Returns as are reasonably requested by the
Shareholder Representatives. Any Taxes of the Company with respect to the portion of such period
ending on the Closing Date, (i) to the extent such Taxes were specifically included as a liability
or reserved against in the calculation of Closing Net Working Capital, shall be paid by the Company
or (ii) to the extent such Taxes were not included as a liability or not reserved against in the
calculation of Closing Net Working Capital, subject to the terms and conditions of Section 5.10(e)
and Article VII, and solely and to the extent of available Escrow Funds, will be a liability of the
Shareholders. For purposes of this Section, in the case of any Taxes that are imposed on a periodic
basis and are payable for a taxable period that includes but does not end on the Closing Date, the
portion of such Tax which relates to the portion of such taxable period ending on the Closing Date
will (i) in the case of any Taxes other than Taxes based upon or related to income or receipts, be
deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction the
numerator of which is the number of days in the taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire taxable period, and (ii) in the case of
any Tax based upon or related to income or receipts be deemed equal to the amount which would be
payable if the relevant taxable period ended on the Closing Date (provided that any Taxes resulting
from transactions of the Company and caused by Parent or Merger Sub on the Closing Date not in the
ordinary course of business shall be treated as occurring in the post-closing period). Any credits
relating to a taxable period that begins before and ends after the Closing Date will be taken into
account as though the relevant taxable period ended on the Closing Date.
(c) If any Tax shown as due on any such Tax Return referred to in Section 5.10(a) or 5.10(b)
above is required to be borne by the Shareholders (taking into account indemnification obligations
hereunder and adjustments to the Base Merger Consideration), (i) such Tax Return will be prepared
in a manner consistent with the prior practice of the Company unless otherwise required by
applicable Tax Laws, (ii) a draft of each such Tax Return will be provided to the Shareholder
Representatives for review and approval not later than thirty (30) days prior to filing (or, if
required to be filed within thirty (30) days of the Closing, as soon as possible following the
Closing), and (iii) the Shareholder Representatives will have the right to review and approve such
Tax Return
prior to the filing of such Tax Return (which approval will not be unreasonably withheld,
delayed or conditioned).
(d) The Company and Parent will prepare or cause to be prepared all Tax Returns of the Company
for periods commencing after the Closing Date and will be responsible for paying any Taxes shown as
due on such Tax Returns (subject to the indemnification
41
provisions hereunder). For the avoidance of doubt, any refunds arising from losses in periods
commencing after the Closing Date shall be for the account of Parent.
(e) Tax Indemnification. The Parent Parties will be held harmless, solely from and to the extent
of the Escrow Funds, against all Losses incurred or sustained by such Persons, or any of them,
directly or indirectly, as a result of, or with respect to or in connection with:
(i) any liability for Taxes of the Company for any taxable period ending on or before the Closing Date and the
pre-Closing portion of any taxable year or period beginning on or before, and ending after, the
Closing Date (under the allocation method set forth in Section 5.10(b)) but only to the extent not
included as a specific liability or specifically reserved against in the calculation of Closing Net
Working Capital;
(ii) any liability for Taxes of any Person (other than the Company) imposed on the
Company as members of the “affiliated group” (within the meaning of Section 1504(a) of the Code)
that arises under Treasury Regulation Section 1.1502-6(a) or comparable provisions of foreign,
state or local law;
(iii) any and all Losses arising out of, based upon or relating or attributable
to any breach of or inaccuracy in any representation or warranty contained in Section 2.10 of this
Agreement; and
(iv) any and all Losses arising out of, based upon or relating or attributable to
the breach by the Company or the Shareholder Representatives or the failure by the Company or the
Shareholder Representatives to perform (or cause to have performed) any of the covenants made by
them or agreements entered into contained in this Section 5.10,
Section 5.11, Section 2.10 or Section 4.1(r).
(f) Satisfaction of Claims.
(i) Notwithstanding anything to the contrary in
this Agreement, this Section 5.10 and Section 5.11 shall govern the
procedures for all contests, defenses and indemnification obligations
related to or attributable to Taxes; provided, that the obligations
of the Parties set forth in this Section 5.10 shall be subject to the
restrictions and limitations expressly set forth in this Section 5.10
and in Article VII (though for the avoidance of doubt, the
limitations in Section 7.3 shall not apply to the indemnification for
Taxes in this Section 5.10).
(ii) Claims by the Parent Parties for Losses pursuant to Section 5.10 shall be satisfied
exclusively through the Escrow Account as provided under Section 7.4(a), including the limitation
for Specified Matters set forth therein.
(g) Transfer Taxes. The Shareholders solely from and to the extent of the Escrow Funds, on
the one hand, and Parent on the other hand, shall be responsible for the timely payment of, and
shall indemnify and hold harmless the other party from and against, half of all transfer,
documentary, sales, use, stamp, and registration Taxes and fees (including penalties and interest)
(collectively, “Transfer Taxes”), if any, arising out of or in connection with the transactions
contemplated by this Agreement. The Shareholder Representatives shall prepare
42
and file all necessary documentation and Tax Returns with respect to such Transfer Taxes; provided,
however, that each party shall cooperate with the other and take any action reasonably requested by
the other party which does not cause such other party to incur more than de minimus out of pocket
cost in order to minimize such Transfer Taxes.
(h) For purposes of Section 5.10(e)(i), any Tax Asset included as an asset in Closing Net
Working Capital shall not be taken into account in determining Parent’s indemnification right for
liability for pre-Closing Taxes under Section 5.10(e)(i).
5.11 Cooperation on Tax Matters.
(a) Parent, the Company and the Shareholder Representatives will cooperate fully, as and to
the extent reasonably requested by the other parties, in connection with the filing of all Tax
Returns and any audit, litigation or other proceeding with respect to Taxes; provided, that the
Shareholder Representatives shall not be obligated to incur (directly or indirectly, on behalf of
themselves or the Shareholders) more than de minimus out of pocket cost in doing so. Such
cooperation will include the retention and (upon the other parties’ request) the provision of
records and information that are reasonably relevant to any such audit, Tax Return, litigation or
other proceeding, making employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder and using commercially reasonable
efforts to mitigate Tax liabilities of the Company resulting from any claim or assertion by any
Governmental Entity, or any voluntary disclosure or other filing by Parent or the Company with any
Governmental Entity. Parent and the Company agree to retain all books and records with respect to
Tax matters pertinent to the Company relating to any taxable period beginning before the Closing
Date until the expiration of the statute of limitations of the relevant taxable periods (and any
extensions thereof), and to abide by all record retention agreements entered into with any
Governmental Entity.
(b) Except in connection with an audit resolved pursuant to Section 5.11(c) (including
consistent correlative adjustments for non-audited taxable periods), neither Parent, the Company
nor any Affiliate thereof may amend a Tax Return filed by the Company or file or amend any Tax
election of the Company, in each case, for a taxable period ending on or before the Closing Date
that would result in a Tax liability for which the Shareholders, directly or indirectly (including
through the Escrow Account), would be responsible under Section 5.10, without the consent of the
Shareholder Representatives, not to be unreasonably withheld, delayed or conditioned. Parent will,
upon request by the Shareholder Representatives, and at its sole expense, cooperate in the
preparation of and submission to the proper Governmental Entity of any such amended Tax Return
which is required to cause such Tax Return to be consistent with adjustments to the Tax Returns of
the Company for any other taxable period proposed by any Governmental Entity, or to give effect to
an allowable loss carryback or carryover from a taxable period of the Company ending on or before
the Closing Date.
(c) If the Company or Parent receives any notice of a pending or threatened Tax audit,
assessment, or adjustment relating to the Company which may give
rise to liability of the Shareholders hereunder, the Company or Parent, as applicable, will
promptly notify the Shareholder Representatives, within ten (10) Business Days of the receipt of
such notice. The parties each agree to consult with and to keep the other parties hereto informed
on a regular basis
43
regarding the status of any Tax audit or proceeding to the extent that such audit or proceeding
could affect a liability of such other parties or the Shareholders (including indemnity obligations
hereunder). The Shareholder Representatives will have the right to represent the Company’s
interests in any Tax audit or administrative or judicial proceeding and to employ counsel of the
Shareholder Representatives’ choice, but reasonably satisfactory to Parent, at Shareholders’
expense, but only to the extent such audit or other proceeding pertains to taxable periods ending
on or before the Closing Date and provided further, that the Shareholder Representatives must first
submit written confirmation to Parent of the Shareholders’ indemnification obligation for such
Taxes to the extent of the Escrow Funds. Parent will have the right to participate in such
proceeding at its own expense, and will be entitled to control the disposition of any issue
involved in such proceeding which does not affect a potential liability of the Shareholders. Parent
and the Shareholder Representatives will be entitled to represent their own interests (or with
respect to the Shareholder Representatives, the Shareholders’ interests) in light of their
responsibilities (including direct or indirect indemnity obligations) for the related Taxes, at
their own expense, in any audit or administrative or judicial proceedings involving a taxable
period that includes but does not end on the Closing Date. Notwithstanding the foregoing, the
Shareholder Representatives will not agree to any settlement for any taxable period that reasonably
could be expected to affect the Tax liabilities of Parent or the Company for any taxable period
beginning on or after the Closing Date without prior written consent of Parent, not to be
unreasonably withheld, delayed or conditioned. Neither Parent nor the Company shall make any
voluntary disclosure or similar filing on behalf of the Company to any Governmental Entity that
could reasonably be expected to result in a Tax liability or current payment obligation for which
the Shareholders, directly or indirectly (including through the Escrow Account), would be
responsible under Section 5.10 without first providing the Shareholder Representatives at least ten
(10) Business Days advance notice and an opportunity to consult with Parent and the Company
regarding such voluntary disclosure or filing.
(d) Parent covenants that it will not and will not cause or permit the Company or any
Affiliate of Parent to (i) take any action on the Closing Date other than in the ordinary course of
business, including, without limitation, the distribution of any dividend or the effectuation of
any redemption which would result in any Tax liability to the Shareholders, or (ii) make any
election or deemed election under Section 338 of the Code that will be applicable to the Merger or
amend any Tax Return filed by the Company for any period that includes or ends prior to the Closing
Date and that would result in a Tax liability for which the Shareholders, directly or indirectly
(including through the Escrow Account), would be responsible under Section 5.10, in each case,
unless Parent shall have received the prior written consent of the Shareholder Representatives,
which shall not be unreasonably withheld, delayed or conditioned.
5.12 Reasonable Efforts; HSR Act Matters.
(a) Each party agrees to use all commercially reasonable efforts promptly to take, or cause to
be taken, all actions and do or cause to be done all things
necessary, proper or advisable under applicable Laws to (i) obtain all consents, approvals or
actions of, make all filings with and give all notices to any Governmental Entity (including those
required by the HSR Act) or any other public or private third parties required to consummate the
transactions contemplated hereby, (ii) provide such other information and communications to such
Governmental Entities or other public or private Persons as the other party or such Governmental
44
Entities or other public or private Persons may reasonably request in connection therewith, (iii)
consummate and make effective the transactions contemplated by this Agreement including the
satisfaction of all conditions hereto; (iv) defend against any claims or actions challenging this
Agreement or the completion of the transactions contemplated hereby (including seeking to have
vacated or reversed any order issued by a Governmental Entity); and (v) execute and deliver such
additional instruments as may be necessary to complete the transactions contemplated by, and to
fully carry out the purposes of, this Agreement; provided, however, that nothing in this Section
5.12(a) will require any party hereto to take any action, or to refrain from taking any action,
pursuant to the HSR Act, the Xxxxxxx Antitrust Act of 1890, as amended, the Xxxxxxx Act of 1914, as
amended, the Federal Trade Commission Act, as amended, and any other United States federal or state
or foreign statutes, rules, regulations, orders, decrees, administrative or judicial doctrines or
other laws that are designed to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or restraint of trade (collectively, the “Antitrust Laws”) which is addressed in
the remainder of this Section 5.12.
(b) Each of Parent and the Company, as applicable, will (i) make or cause to be made the
filings required of such party to this Agreement under the HSR Act with respect to the transactions
contemplated by this Agreement as promptly as practicable after, and in any event within ten (10)
Business Days from the date of this Agreement, and request early termination of the waiting period
under the HSR Act with respect to the transactions contemplated by this Agreement, (ii) comply at
the earliest practicable date with any request under the HSR Act for additional information,
documents or other materials received by such party to this Agreement from the United States
Federal Trade Commission or the United States Department of Justice or any other Governmental
Entity in respect of such filings or such transactions, (iii) act in good faith and reasonably
cooperate with the other party in connection with any such filing (including, if requested by the
other party, to accept all reasonable additions, deletions or changes suggested by the other party
in connection therewith) and in connection with resolving any investigation or other inquiry of any
such agency or other Governmental Entity under the Antitrust Laws with respect to any such filing
or any such transaction and (iv) subject to Section 5.12(c), use its commercially reasonable
efforts to take such action as may be required to cause the expiration of the applicable waiting
periods under the HSR Act or other Antitrust Laws with respect to such transactions as promptly as
possible after the execution of this Agreement. To the extent not prohibited by Applicable Laws,
each party to this Agreement will use all commercially reasonable efforts to promptly furnish to
each other all information required for any application or other filing to be made pursuant to any
Applicable Laws in connection with the transactions contemplated by this Agreement.
(c) Notwithstanding the foregoing, nothing contained in this Agreement will require or
obligate Parent or its Affiliates (i) to initiate, pursue or defend any litigation (or threatened
litigation) to which any such Governmental Entity is a party; (ii) to agree or otherwise become
subject to any material limitations on (A) the right of Parent or its Affiliates effectively to
control or operate the business of the Company after
the Closing or the business or operations of Parent or any Affiliate of Parent, (B) the right
of Parent or its Affiliates to acquire or hold the Company or (C) the right of Parent to exercise
full rights of ownership of the Company; or (iii) to agree or otherwise be required to sell or
otherwise dispose of, hold separate (through the establishment of a trust or otherwise), divest
itself of or become subject to any restrictions or
45
conditions with respect to all or any portion of the business, assets or operations of Parent,
any Affiliate of Parent or the Company.
(d) Any filing fees incurred with respect to requests for consent or approval or other filings
or notifications required pursuant to the Antitrust Laws shall be borne by Parent.
5.13 Release of Liens. The Company agrees to use commercially reasonable efforts to take, or
cause to be taken, all actions and do or cause to be done all things necessary, proper or advisable
under applicable Laws prior to the Effective Time to secure evidence reasonably satisfactory to
Parent of the Company’s sole and exclusive ownership of the “BOSTON PROPER” Trademark registrations
(U.S. Reg. Nos. 1,201,644 and 1,750,625), and record ownership thereof in the name solely of the
Company, free and clear of all Liens.
5.14 Closing Date Actions. Parent covenants that it will not and will not cause or permit the
Company to (i) take any action on the Closing Date other than in the ordinary course of business
consistent with past practice of the Company prior to the Effective Time, (ii) on the Closing Date,
distribute Company Cash or any other assets of the Company, make dividends, incur Company Debt or
make cash payments to, incur Liabilities from or enter into transactions with, Parent or an
Affiliate of Parent or with any other Person that is not in the ordinary course of business
consistent with past practice of the Company prior to the Effective Time; or (iii) take or fail to
take any action that would result in a reduction of Company Cash, an increase in Closing Net Debt
or a decrease in Closing Net Working Capital on the Closing Date except for payments by the Company
in the ordinary course of business consistent with past practice of the Company prior to the
Effective Time or as expressly contemplated by this Agreement.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The respective obligations
of the Company and Parent to effect the Merger shall be subject to the satisfaction, at or prior to
the Effective Time, of the following conditions:
(a) No Order. No Governmental Entity shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the Merger.
(b) No Injunctions or Restraints; Illegality. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the Merger shall be in effect,
nor shall any proceeding brought by an administrative agency or commission or other Governmental
Entity or instrumentality, domestic or foreign, seeking any of the foregoing be threatened or
pending.
(c) Shareholder Approval. Shareholders constituting the Sufficient Shareholder Vote
shall have approved this Agreement.
46
(d) HSR Act Waiting Period. The waiting period, and any extensions thereof, applicable
to the Merger and the other transactions contemplated by this Agreement under the HSR Act shall
have expired or been terminated.
6.2 Conditions to the Obligations of Parent and Merger Sub. The obligations of Parent and
Merger Sub to consummate and effect this Agreement and the transactions contemplated hereby shall
be subject to the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Parent and Merger Sub in their sole
discretion:
(a) Representations, Warranties and Covenants. (i) The representations and warranties
of the Company in this Agreement (disregarding, for this purpose, all exceptions in those
representations and warranties relating to materiality, Company Material Adverse Effect or any
similar standard or qualification) shall be true and correct in all respects on and as of the date
of this Agreement and as of the Closing Date as though made on the Closing Date and as of the
Effective Time (except to the extent expressly made as of a specified date, in which case as of
such date), except where such failure to be so true and correct would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect, and (ii) the Company
shall have performed and complied in all material respects with all material covenants and
obligations under this Agreement required to be performed and complied with by it as of the
Effective Time on the Closing Date.
(b) Governmental Approval. Approvals from any Governmental Entity, instrumentality,
agency, or commission (if any) necessary for the consummation of the Merger and the other material
transactions contemplated hereby shall have been timely obtained.
(c) Company Board Approval. The approval of this Agreement, the Merger and the
transactions contemplated hereby by the Board of Directors of the Company shall not have been
modified or revoked.
(d) Third Party Consents. The Company shall have delivered to Parent all necessary
third-party consents, waivers and approvals of parties to any Material Contracts that are listed on
Schedule 6.2(d) to this Agreement, each in such form and substance that is reasonably acceptable to
Parent.
(e) Certificate of the Company. The Company shall deliver to Parent a true and correct
certificate, validly executed by an authorized officer of the Company for and on the Company’s
behalf, which represents that the conditions to the obligations of Parent and Merger Sub set forth
in Section 6.2(a) have been satisfied in full (unless otherwise waived in accordance with the terms
hereof).
(f) Certificate of Secretary of Company. Parent shall have received a certificate,
validly executed by the Secretary of the Company, certifying (i) as to the terms and effectiveness
of the Charter Documents, (ii) as to the valid adoption of resolutions of the Board of Directors of
the Company (whereby this Agreement was approved by the Board of Directors) and attaching the
applicable resolutions and (iii) that the Shareholders constituting the Sufficient
47
Shareholder Vote have approved this Agreement and attaching the applicable minutes or written
consents.
(g) Certificate of Status. Parent shall have received a certificate of status from the
Florida Department of State with respect to the Company, dated within a reasonable period prior to
the Closing Date.
(h) Other Deliverables. The Company shall have delivered to Parent:
(i) the Paying Agent Agreement executed by the Shareholder Representatives and the Paying
Agent;
(ii) the Escrow Agreement executed by the Shareholder Representatives and the Escrow Agent;
(iii) the deliverables required by Section 1.7(a);
(iv) the stock book, stock ledger, minute book and corporate seal of the Company;
(v) Option Termination Agreements, referenced in Section 1.9(c), duly executed by each Vested
Optionholder;
(vi) resignations of directors and officers of the Company as requested by Parent;
(vii) any Letters of Transmittal executed and delivered to the Company prior to the Closing
Date;
(viii) evidence reasonably satisfactory to Parent of the termination of the Company Option
Plans;
(ix) an executed certificate from the Company (the “FIRPTA Certificate”), certifying that
shares of the Company Capital Stock are not U.S. real property interests within the meaning of
section 897(c)(1) of the Code in the form and manner reasonably acceptable to Parent that complies
with sections 897 and 1445 of the Code and the Treasury Regulations promulgated thereunder.
Notwithstanding anything to the contrary contained herein, if the Company fails to deliver such a
FIRPTA Certificate prior to the Effective Time and Parent elects to proceed with the Merger, Parent
shall be entitled to withhold appropriate Taxes under Section 1.8(c); and
(x) an amendment to the Buying Agency Agreement, dated as of January 1, 2008, between the
Company and Grove Industries (F.E.) Limited, in form and substance reasonably acceptable to Parent
and containing such amendments described on Schedule 6.2(h)(x) hereto, duly executed by Grove
Industries (F.E.) Limited and the Company.
48
(i) No Material Adverse Effect. Since the date hereof, no event, occurrence, facts,
condition, change, development or effect shall have occurred that, individually or in the
aggregate, has had a Company Material Adverse Effect.
(j) Appraisal Rights. The number of Dissenting Shares as of the Effective Time shall not
comprise more than 3.75% of the Company Common Stock outstanding.
6.3 Conditions to Obligations of the Company. The obligations of the Company to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction
at or prior to the Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Shareholder Representatives:
(a) Representations, Warranties and Covenants. (i) The representations and warranties
of Parent and Merger Sub in this Agreement (disregarding for this purpose all exceptions in those
representations and warranties relating to materiality or Parent Material Adverse Effect or any
similar standard or qualification) shall be true and correct in all respects on and as of the date
of this Agreement and as of the Closing Date as though made on the Closing Date and as of the
Effective Time (except to the extent expressly made as of a specified date, in which case as of
such date), except where such failure to be so true and correct would not reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect, and (ii) each of Parent
and Merger Sub shall have performed and complied in all material respects with all covenants and
obligations under this Agreement required to be performed and complied with by such parties as of
the Effective Time on the Closing Date.
(b) Certificate of Parent. The Company shall have received a certificate, validly
executed on behalf of Parent by an authorized officer for and on its behalf to the effect that, as
of the Effective Time the conditions set forth in Section 6.3(a) have been satisfied.
(c) Certificate of Secretary of Parent and Merger Sub. The Company shall have received
a certificate, validly executed by the Secretary of Parent and Merger Sub, certifying (i) Parents’
and Merger Sub’s organizational or other constituent documents, as amended, (ii) as to the valid
adoption of resolutions of the board of directors of Parent and Merger Sub (whereby this Agreement
was approved by such boards) and attaching the applicable resolutions and (iii) as to the valid
adoption of resolutions of sole shareholder of Merger Sub (whereby this Agreement was approved by
such shareholder) and attaching the applicable resolutions.
(d) Other Deliverables. Parent shall have delivered to the Company:
(i) the Paying Agent Agreement executed by Parent and the Paying Agent;
(ii) the Escrow Agreement executed by Parent and the Escrow Agent; and
(iii) reasonable evidence of the payments required by Section 1.7(b).
49
6.4 Frustration of Closing Conditions. No party may rely on the failure of a condition set
forth in this Article VI if the failure of the condition was caused by the failure to comply with
any provision of this Agreement by the party intending to rely on failure of the condition.
ARTICLE VII
INDEMNIFICATION
7.1 Survival of Representations, Warranties and Covenants. The representations and warranties
of the Company, Parent and Merger Sub contained in this Agreement, or in any certificate or other
instrument delivered pursuant to this Agreement, and all unwaived covenants or agreements required
to be performed at or prior to the Closing, shall terminate on the eighteen (18) month anniversary
of the Closing Date, provided, however, that notwithstanding the foregoing, the indemnification
obligations with respect to (i) the representations and warranties of the Company set forth in
Section 2.20 (ERISA) and Section 2.10 (Tax Matters) and (ii) the covenants set forth in Sections
5.10 (Tax Matters) and 5.11 (Cooperation on Tax Matters) shall survive until third (3rd)
anniversary of the Closing Date (the expiration of such 18-month period or 3-year period, as
applicable, the “Survival Date”); provided, further, that if, at any time prior to 11:59 p.m. (ET)
on the Survival Date an Officer’s Certificate is delivered alleging Losses and a claim for recovery
under Sections 5.10 or 7.2, then the claim asserted in such notice shall survive the Survival Date
until such claim is fully and finally resolved. All covenants and agreements contained in this
Agreement which are to have effect or be performed after the Closing shall survive the Closing in
accordance with their terms.
7.2 Indemnification.
(a) Subject to the provisions of this Article VII, and subject to the provisions for
indemnification for Taxes in Sections 5.10 and 5.11, Parent and its officers, directors and
Affiliates, including the Surviving Company (the “Parent Parties”), will be held harmless, solely
from and to the extent of the Escrow Funds against all Losses incurred or sustained by such
Persons, or any of them, directly or indirectly, as a result of, or with respect to or in
connection with:
(i) any breach or inaccuracy of any representation or warranty of the Company contained in
this Agreement or in any certificate delivered by or on behalf of the Company pursuant to this
Agreement;
(ii) any failure by the Company to perform, fulfill or comply with any covenant or obligation
applicable to it contained in this Agreement;
(iii) any payments by the Surviving Corporation or Parent after the Effective Time for
Dissenting Shares in excess of the portion of the Final Adjusted Net Merger Consideration that
would have been otherwise payable to the holder(s) of such Dissenting Shares under Section 1.6; or
50
(iv) any Outstanding Company Transaction and Other Expenses to the extent that such amount is
not reflected in the calculation of Final Adjusted Net Merger Consideration.
(b) Subject to the provisions of this Article VII, Parent shall indemnify and hold the Company
and its officers, directors and, prior to the Effective Time, Affiliates and the Securityholders
(the “Company Parties”), harmless against all Losses incurred or sustained by such Persons, or any
of them, directly or indirectly, as a result of, or with respect to or in connection with:
(i) any breach or inaccuracy of any representation or warranty of Parent or Merger Sub
contained in this Agreement or in any certificate delivered by or on behalf of Parent or Merger Sub
pursuant to this Agreement; or
(ii) any failure by Parent or Merger Sub to perform, fulfill or comply with any covenant or
obligation applicable to it contained in this Agreement.
7.3 Indemnification Claims.
(a) Threshold Amount. Notwithstanding any provision of this Agreement to the contrary,
except as set forth in the second sentence of this Section 7.3(a), a Parent Party may not recover
any Losses under Section 7.2(a)(i) unless and until one or more Officer’s Certificates identifying
such Losses under Section 7.2(a)(i) in excess, in the aggregate, of One Million Dollars
($1,000,000) (the “Threshold Amount”) has or have been delivered to the Shareholder Representatives
and the Escrow Agent as provided in Section 7.3(b), in which case, subject to the provisions of
this Article VII, such Parent Party shall be entitled to recover all Losses so identified in excess
of the Threshold Amount. Notwithstanding the foregoing, a Parent Party shall be entitled to
recover for, and the Threshold Amount shall not apply as a threshold to, any and all claims or
payments made with respect to (A) all Losses incurred pursuant to clauses (ii), (iii) or (iv) of
Section 7.2(a), (B) Losses resulting from any breach of a representation or warranty contained in
Sections 2.2, 2.4 or 2.20(a) through 2.20(e) and (C) Losses related to Taxes pursuant to Sections
5.10.
(b) Claims for Indemnification. In order to seek indemnification under Section 7.2,
the party claiming indemnification (the “Indemnified Party”) shall deliver an Officer’s Certificate
to the party from whom the indemnification is sought (the “Indemnifying Party”) (which if the
Indemnified Party is a Parent Party, such Officer’s Certificate shall be sent to the Shareholder
Representatives and the Escrow Agent) at any time on or before 11:59 p.m. (ET) on the Survival
Date. If the Indemnified Party is a Parent Party, unless the Shareholder Representatives shall have
delivered an Objection Notice pursuant to Section 7.3(c) for any claim made against the Escrow
Account, the Escrow Agent shall, on the thirty-first (31st) day after its receipt of the Officer’s
Certificate (or, if prior to such time the Shareholder Representatives provide affirmative written
instructions to the Escrow Agent to release such funds, promptly after its receipt of such
instructions from the Shareholder Representatives), deliver to the Parent Party from the Escrow
Account an amount equal to the Loss set forth in such Officer’s Certificate. If the Indemnified
Party is a Company Party, unless Parent shall have delivered an Objection Notice pursuant to
Section 7.3(c) for any claim made against Parent, on
51
the thirty-first (31st) day after its receipt of the Officer’s Certificate, Parent shall be deemed
to have accepted the Officer’s Certificate and shall be obligated to promptly pay to the applicable
Company Party hereunder an amount equal to the Losses set forth in such Officer’s Certificate. Any
payment from the Escrow Account to Parent Parties shall be made in cash and shall be deemed to have
been made pro rata amongst the Shareholders based on their respective Pro Rata Portions of the
Escrow Amount. For the purposes hereof, “Officer’s Certificate” shall mean a certificate signed by
any officer of Parent, if the Indemnified Party, or the Shareholder Representatives, if a
Shareholder is the Indemnified Party (A) stating that an Indemnified Party has paid, sustained,
incurred, or properly accrued Losses, (B) specifying the amount of such Losses, and (C) specifying
in reasonable detail the individual items of Losses included in the amount so stated, the date each
such item was paid, sustained, incurred, or properly accrued, the nature of the misrepresentation,
breach of warranty or covenant to which such item is related, including whether or not it is a
Specified Matter.
(c) Objections to Claims for Indemnification. No payment shall be made under Section
7.3(b) if the Indemnifying Party shall object in a written statement to the claim made in the
Officer’s Certificate (an “Objection Notice”), and such Objection Notice shall have been delivered
to the Indemnified Party, and the Escrow Agent if the Indemnified Party is a Parent Party, prior to
11:59 p.m. (ET) on the thirtieth (30th) day after the Indemnifying Party’s receipt of the Officer’s
Certificate.
(d) Resolution of Conflicts.
(i) If the Indemnifying Party delivers an Objection Notice in accordance with Section 7.3(c),
the Shareholder Representatives and Parent shall attempt in good faith to agree upon the rights of
the respective parties with respect to each of such claims. If the Indemnified Party is a Parent
Party and if the Shareholder Representatives and Parent should so agree, joint written instructions
setting forth such agreement, including the amounts which the Shareholder Representatives and
Parent agree should be released from the Escrow Account, shall be prepared and signed by both
parties and furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such
joint written instructions and make distributions from the Escrow Account in accordance with the
terms thereof.
(ii) At any time following delivery of an Objection Notice pursuant to Section 7.3(c) or in
the event of any dispute arising pursuant to this Article VII, either Parent or the Shareholder
Representatives may pursue any and all legal or equitable remedies available to them under
applicable Law, and the Escrow Agent shall only distribute funds thereafter pursuant to joint
written instructions as described in Section 7.3(d)(i) or a final non-appealable court order from a
court of competent jurisdiction.
(e) Third-Party Claims. In the event any Indemnified Party becomes aware of a third
party claim (a “Third Party Claim”) which such Indemnified Party reasonably believes may result in
a demand for indemnification pursuant to this Article VII, such Indemnified Party shall promptly
provide written notification (a “Third Party Claim Notice”) to the Indemnifying Party (which if the
Indemnified Party is a Parent Party, such Third Party Claim Notice shall be sent to the Shareholder
Representatives and the Escrow Agent) of such claim after it becomes aware of such Third Party
Claim specifying the nature of such Third Party Claim and the amount
52
or estimated amount thereof, together with copies of all notices and documents (including court
papers) served on or received by such Indemnified Party, which notice must be identified as a
“Third Party Claim Notice”; provided, that the failure to promptly provide such notice shall not
affect the rights of such Indemnified Parties to indemnification pursuant to this Article VII
except to the extent that the Indemnifying Party shall have been materially prejudiced thereby. If
the Third Party Claim may result in a claim which Losses would be payable from the Escrow Funds,
the Shareholder Representatives shall have the right to assume the entire control of the defense,
compromise or settlement of such claim or demand (including the selection of counsel), subject to
the right of the Indemnified Party to participate (with counsel of its choice, but the fees and
expenses of such additional counsel shall solely be at the expense of the Indemnified Party). The
Indemnifying Party will not compromise or settle any such action, suit, proceeding, claim or demand
(other than, after consultation with Indemnified Party, an action, suit, proceeding, claim or
demand to be settled solely by the payment of money damages and/or the granting of releases,
provided that no such settlement or release shall acknowledge any liability by the Indemnified
Party) without the prior written consent of the Indemnified Party, which consent shall not be
unreasonably withheld, conditioned or delayed. If the Indemnifying Party does not assume the
defense within thirty (30) days after receipt of the Third Party Claim Notice (or ceases in good
faith to continue the defense), then the Indemnified Party shall have the right to the entire
control of the defense, compromise or settlement of such Third Party Claim (including the selection
of counsel), subject to the right of the Indemnifying Party to participate (with counsel of its
choice, but the fees and expenses of such additional counsel shall solely be at the expense of the
Indemnifying Party), and the Indemnified Party will not compromise or settle any such action, suit,
proceeding, claim or demand without the prior written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld, conditioned or delayed. The parties hereto that are not
conducting the defense shall provide the party conducting the defense and its counsel with
reasonable access during normal business hours to such parties’ records and personnel relating to
any Third Party Claim and shall otherwise reasonably cooperate with the party conducting the
defense in the defense or settlement thereof.
7.4 Maximum Payments; Remedy; Limitations on Indemnity.
(a) The maximum aggregate amount for which the Parent Parties may recover pursuant to Section
5.10, this Article VII and Section 1.10, in the aggregate, shall be limited to the amounts held in
the Escrow Account. Notwithstanding anything to the contrary contained in this Agreement, except as
set forth in Section 7.4(b), in no case may a Parent Party seek recourse directly against any
Securityholder for indemnification hereunder or for any amounts owed on behalf of the Shareholders
under Section 1.10. No indemnification shall be payable to an Indemnified Party with respect to
any claims asserted by such Indemnified Party after the Survival Date, provided, however, that if,
at any time prior to 11:59 p.m. (ET) on the Survival Date an Officer’s Certificate is delivered
alleging Losses and a claim for recovery under Sections 7.2 and 7.3(b), then the claim asserted in
such notice shall survive the Survival Date until such claim is fully and finally resolved.
Notwithstanding anything to the contrary in this Agreement, the maximum aggregate amount that the
Parent Parties may recover and for which the Shareholders shall be obligated to indemnify the
Parent Parties (including through the Escrow Account) pursuant to this Agreement with respect to
any or all of the Specified Matters shall be limited to $3,500,000.
53
(b) Notwithstanding anything to the contrary set forth in this Agreement, nothing in this
Agreement shall limit the liability of any party in respect of Losses arising out of any fraud on
the part of such party (it is agreed and understood that the Survival Date and the Threshold Amount
shall not apply in respect of any such Losses).
(c) If any Indemnified Party collects an amount in discharge of a claim in respect of a Loss
pursuant to this Article VII and such Indemnified Party (or an Affiliate thereof) subsequently
recovers (by payment of cash) from a third party a sum which is related to that claim in respect of
a Loss pursuant to this Article VII such that the Indemnified Party has received an amount in
connection therewith in excess of its related Losses (such excess recovery, the “Excess Recovery”),
such Indemnified Party shall (or, as appropriate, shall procure that such Affiliate shall)
forthwith repay to the Indemnifying Party or Parties (including, if applicable, by remitting such
amount to the Escrow Agent for inclusion in the Escrow Account) an amount equal to the Excess
Recovery less any costs or expenses incurred by the Indemnified Party in procuring the Excess
Recovery (but no more than the amount paid by the Indemnifying Party to the Indemnified Party
pursuant to this Article VII).
(d) In the event any Losses by a Parent Party are covered by insurance or any indemnity,
contribution or other similar right against a third party, each Parent Party agrees to use
commercially reasonable efforts to seek recovery under such insurance or indemnity, contribution or
similar right. The amount of Losses otherwise recoverable under Section 7.2(a) shall be limited to
the amount of any liability or damage that remains after deducting therefrom any insurance proceeds
and any indemnity, contribution or other similar cash payment actually received by the Indemnified
Parties from any third party with respect thereto.
(e) Upon making an indemnity payment pursuant to this Agreement, the Indemnifying Party will,
to the extent of such payment, be subrogated to all rights of the Indemnified Party against any
third party in respect of the Third Party Claims to which the payment related. Without limiting
the generality of any other provision hereof, each such Indemnified Party will duly execute upon
request all instruments reasonably necessary to evidence and perfect the above described
subrogation rights.
(f) The parties shall use commercially reasonable efforts to mitigate or resolve any claim or
liability under this Agreement or in connection with the transactions contemplated hereby,
including responding to such claims or liabilities in the same manner as the applicable party would
respond to such claims or liabilities in the absence of the indemnification provisions of this
Agreement.
(g) Any Losses for which any Indemnified Party is entitled to indemnification under this
Article VII shall be determined without duplication of recovery by reason of the state of facts
giving rise to such Losses constituting a breach of more than one representation, warranty,
covenant or agreement.
(h) The Parent Parties shall not be entitled to indemnification under this Article VII with
respect to any amount resulting in a claim to the extent that such amount is reflected in the
calculation of Final Adjusted Net Merger Consideration.
54
(i) Anything herein to the contrary notwithstanding, no breach of any representation,
warranty, covenant or agreement contained herein shall give rise to any right on the part of any
party hereto, after the consummation of the transactions contemplated hereby, to rescind this
Agreement or any of the transactions contemplated hereby.
(j) Unless otherwise required by Law, all indemnity payments pursuant to this Agreement shall
be treated as adjustments to the Merger Consideration for Tax purposes.
7.5 Remedies Exclusive. From and after the Effective Time, the rights of the Indemnified
Parties to indemnification relating to this Agreement or the transactions contemplated hereby shall
be strictly limited to those contained in Sections 5.10 and this Article VII, and such
indemnification rights shall be the exclusive remedies of the Indemnified Parties subsequent to the
Effective Time with respect to any matter in any way relating to this Agreement or arising in
connection herewith.
ARTICLE VIII
TERMINATION
8.1 Termination. Except as provided in this Section 8.1 and Section 8.2, this Agreement may
be terminated and the Merger abandoned at any time prior to the Effective Time:
(a) by unanimous agreement of the Company and Parent;
(b) by Parent or the Company if the Closing Date shall not have occurred by sixty days from
the date hereof, provided that if, as of such date, the waiting period, and any extension thereof,
applicable to the Merger and the other transactions contemplated hereby under the HSR Act shall not
have expired or been terminated, then either Parent or the Company may elect to extend such date
for an additional forty-five (45) days (such date, or as extended, the “Outside Date”); provided,
further, that the right to terminate this Agreement under this Section 8.1(b) shall not be
available to any party whose action or failure to act (directly or indirectly through Affiliates)
has been a principal cause of or resulted in the failure of the Merger to occur on or before such
date and such action or failure to act constitutes a breach of this Agreement;
(c) by Parent or the Company if: (i) there shall be a final non-appealable order of a federal
or state court in effect preventing consummation of the Merger, or (ii) there shall be any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to the Closing by any
Governmental Entity that would make consummation of the Closing illegal;
(d) by Parent if neither Parent nor Merger Sub is in material breach of their respective
obligations under this Agreement and there has been a breach of any representation, warranty,
covenant or agreement of the Company contained in this Agreement such that the conditions set forth
in Section 6.2(a) would not be satisfied by the Outside Date and such breach has not been cured
within fifteen (15) calendar days after written notice thereof to the Company and the Shareholder
Representatives; provided, however, that no cure period shall be required for a breach which by its
nature cannot be cured;
55
(e) by the Company if it is not in material breach of its obligations under this Agreement and
there has been a breach of any representation, warranty, covenant or agreement of Parent or Merger
Sub contained in this Agreement such that the conditions set forth in Section 6.3(a) would not be
satisfied by the Outside Date and such breach has not been cured within fifteen (15) calendar days
after written notice thereof to Parent; provided, however, that no cure period shall be required
for a breach which by its nature cannot be cured;
(f) by Parent, if the Company does not deliver written consents of the Shareholders
constituting the Sufficient Shareholder Vote by 11:59 p.m. (ET) on the tenth (10th) Business Day
subsequent to the date of this Agreement; or
(g) by the Company, if the Company’s Board of Directors has provided written notice to Parent
that it has determined to accept a Superior Proposal provided, that the Company may terminate under
this Section 8.1(g) only if (i) the Company is not then and has not been in breach of its
obligations under Section 4.2, (ii) (A) at least three (3) Business Days prior to terminating this
Agreement pursuant to this Section 8.1(g) the Company has provided Parent with written notice
advising Parent that the Company’s Board of Directors has received a Superior Proposal that it
intends to accept, specifying the material terms and conditions of such Superior Proposal and
identifying the person making such Superior Proposal and (B) the Company shall have caused its
financial and legal advisors to negotiate in good faith with Parent to make such adjustments to the
terms and conditions of this Agreement such that such Superior Proposal would no longer constitute
a Superior Proposal, and (iii) simultaneously with such termination the Company makes the payment
to Parent required by Section 8.3.
8.2 Effect of Termination. Any termination by the Company or Parent pursuant to Section 8.1
shall be pursuant to written notice given, respectively, to Parent or the Company. In the event of
termination of this Agreement as provided in Section 8.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Parent, the Company or the
Shareholders or Optionholders, or their respective officers, directors, stockholders or Affiliates,
if applicable; provided, however, that each party hereto shall remain liable for any willful
breaches of this Agreement prior to its termination; and provided further, however, that, the
provisions of Sections 1.12, 5.3, 5.4, and 8.3, Article IX and this Section 8.2 shall remain in
full force and effect and survive any termination of this Agreement pursuant to this Article VIII.
8.3 Termination Payment.
(a) If this Agreement is terminated by the Company pursuant to Section 8.1(g), then the
Company shall pay to Parent the Termination Fee, in cash by wire transfer of immediately available
funds to an account designated by Parent, contemporaneously with notice of termination thereunder.
Notwithstanding anything to the contrary in this Agreement, the parties hereto expressly
acknowledge and agree that, with respect to any termination of this Agreement in circumstances
where the Termination Fee is payable, the payment of the Termination Fee shall, in light of the
difficulty of accurately determining actual damages, constitute liquidated damages with respect to
any claim for damages or any other claim which Parent and Merger Sub would otherwise be entitled to
assert against the Company or any of its assets, or against any of its directors, officers,
employees and stockholders with respect to this
56
Agreement and the transactions contemplated hereby and shall constitute the sole and exclusive
remedy available to Parent and Merger Sub. Except for nonpayment of the Termination Fee, the
parties hereby agree that, upon termination of this Agreement in circumstances where the
Termination Fee is payable, in no event shall Parent or Merger Sub (i) seek to obtain any recovery
or judgment against the Company or any of its assets, or against any of its directors, officers,
employees or stockholders or (ii) be entitled to seek or obtain any other damages of any kind,
including, without limitation, consequential, indirect or punitive damages.
(b) If this Agreement is terminated either (i) by the Company pursuant to Section 8.1(e) or
(ii) (A) pursuant to Section 8.1(b) as a result of Parent and Merger Sub failing to effect the
Closing by the Outside Date and (B) the conditions described in Sections 6.1 and 6.2 have been
satisfied or are capable of being satisfied (unless the failure of such conditions to be satisfied
or to be capable of being satisfied is, substantially the result of a breach by Parent or Merger
Sub of any of their representations, warranties or covenants contained in this Agreement), then
Parent shall pay to the Company the Parent Termination Fee, in cash by wire transfer of immediately
available funds to an account designated by the Company, contemporaneously with notice of
termination thereunder, within five (5) Business Days of the date of termination of this Agreement.
Notwithstanding anything to the contrary in this Agreement, the parties hereto expressly
acknowledge and agree that, with respect to any termination of this Agreement in circumstances
where the Parent Termination Fee is payable, the payment of the Parent Termination Fee shall, in
light of the difficulty of accurately determining actual damages, constitute liquidated damages
with respect to any claim for damages or any other claim which the Company would otherwise be
entitled to assert against Parent and Merger Sub or any of their respective assets, or against any
of their respective directors, officers, employees and stockholders with respect to this Agreement
and the transactions contemplated hereby and shall constitute the sole and exclusive remedy
available to the Company. Except for nonpayment of the Parent Termination Fee, the parties hereby
agree that, upon termination of this Agreement in circumstances where the Parent Termination Fee is
payable, in no event shall the Company (i) seek to obtain any recovery or judgment against Parent
and Merger Sub or any of their respective assets, or against any of their respective directors,
officers, employees or stockholders or (ii) be entitled to seek or obtain any other damages of any
kind, including, without limitation, consequential, indirect or punitive damages.
ARTICLE IX
GENERAL PROVISIONS
9.1 Definitions. For all purposes of this Agreement, the following terms shall have the
following respective meanings:
“Acquisition Proposal” means any offer or proposal to acquire all or any material part of the
business, properties or technologies of the Company, or any amount of the Company Capital Stock
(whether or not outstanding), whether by merger, purchase of assets, tender offer, license or
otherwise, or effect any such transaction (other than the issuance of Company Common Stock pursuant
to the exercise of outstanding Company Options).
57
“Affiliate” means with respect to a specified Person any other Person that, directly or
indirectly, Controls, is Controlled by, or is under common Control with or of, such specified
Person. The term “Control” (including, with correlative meaning, the terms “Controlled by” and
“under common Control with”), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, as trustee or executor, by contract or
otherwise.
“Aggregate Option Exercise Amount” shall mean an amount equal to the aggregate exercise price
of all Vested Options outstanding as of the Effective Time.
“Agreement” has the meaning ascribed to it in the preamble hereto.
“Antitrust Laws” has the meaning ascribed to it in Section 5.12(a).
“Articles of Merger” has the meaning ascribed to it in Section 1.2.
“Balance Sheet Date” has the meaning ascribed to it in Section 2.7.
“Base Merger Consideration” shall mean an amount equal to Two Hundred Five Million Dollars
($205,000,000).
“Business Day(s)” shall mean each day that is not a Saturday, Sunday or holiday on
which banking institutions located in New York, New York are authorized or obligated by Law or
executive order to close.
“Change in Recommendation” means, following receipt of an Acquisition Proposal that
constitutes a Superior Proposal, (i) the Company’s Board of Directors withdraws or modifies (in a
manner adverse to Parent), or fails to make, the recommendation that the Shareholders approve the
Merger, or (ii) the Company’s Board of Directors recommends that the Shareholders approve the
Superior Proposal.
“Charter Documents” has the meaning ascribed to it in Section 2.1.
“Closing” has the meaning ascribed to it in Section 1.2.
“Closing Date” has the meaning ascribed to it in Section 1.2.
“Closing Date Balance Sheet” has the meaning ascribed to it in Section 1.7(a)(i).
“Closing Date Certificate” has the meaning ascribed to it in Section 1.7(a).
“Closing Net Debt” shall mean an amount equal to the following (with each of the amounts set
forth therein being calculated in accordance with GAAP as consistently applied by the Company in
the Year-End Financials and to the extent required to be reflected in financial statements in
accordance with GAAP): (i) the aggregate amount of all Company Debt as of 11:59 p.m. (ET) on the
Closing Date, less (ii) the aggregate amount of all Company Cash as of 11:59 p.m. (ET) on the
Closing Date, in each case prepared without giving effect to the
58
consummation of the Merger and the other transactions contemplated by this Agreement (unless
otherwise specified herein). If (i) Company Debt is greater than Company Cash, Closing Net Debt
shall be a positive number, (ii) Company Debt is less than Company Cash, Closing Net Debt shall be
a negative number and (iii) Company Debt is equal to Company Cash, Closing Net Debt shall be zero.
“Closing Net Working Capital” means the difference (whether positive or negative) of (a) the
Company’s current assets as of 11:59 p.m. (ET) on the Closing Date (including Tax Assets) and (b)
the Company’s current liabilities as of 11:59 p.m. (ET) on the Closing Date, in each case as
determined in accordance with GAAP as consistently applied by the Company (except as otherwise
provided herein); provided that: (i) current assets will exclude Company Cash and (ii) current
liabilities will exclude (A) any Company Debt to be paid pursuant to Section 1.7(b), (B) any
Outstanding Company Transaction and Other Expenses of the Company to be paid pursuant to Section
1.7(b), (C) the payments to be paid to the Vested Optionholders pursuant to Section 1.6 (including
any withholding taxes attributable to such payments), in each case prepared without giving effect
to the consummation of the Merger and the other transactions contemplated by this Agreement (unless
otherwise specified herein), and (D) accruals or reserves for sales and use Taxes other than for
the State of Florida.
“Closing Net Working Capital Differential” shall mean the difference between Closing Net
Working Capital and the Net Working Capital Target, which (i) will be a positive number if Closing
Net Working Capital is greater than the Net Working Capital Target, (ii) will be a negative number
if Closing Net Working Capital is less than the Net Working Capital Target and (iii) will be zero
if Closing Net Working Capital is equal to the Net Working Capital Target.
“COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
“Code” means the Internal Revenue code of 1986, as amended.
“Company” has the meaning ascribed to it in the preamble hereto.
“Company Authorizations” has the meaning ascribed to it in Section 2.16.
“Company Capital Stock” shall mean Company Common Stock and Company Preferred Stock, taken
together.
“Company Cash” shall mean cash and cash equivalents of the Company, including Master Card and
Visa credit card receivables.
“Company Common Stock” shall mean the Company’s common stock, par value $0.00166 per share.
“Company Common Stock Deemed Outstanding” shall mean the number of shares of Company Common
Stock outstanding immediately prior to the Effective Time, plus the number of shares of Company
Common Stock issuable upon exercise of the Company Vested Options, and plus the number of shares of
Company Common Stock issuable upon conversion of the shares of Preferred Stock issued and
outstanding immediately prior to the Effective Time.
59
“Company Debt” means the outstanding principal of, and accrued and unpaid interest on, and any
premiums, prepayment fees and penalties due upon prepayment and full satisfaction of, all bank or
other third party indebtedness for borrowed money of the Company as of the Closing Date, including
indebtedness under any bank credit agreement and any other related agreements but, for the
avoidance of doubt, excluding deferred rent.
“Company Employee Plan” shall mean any plan, program, policy, practice, contract, agreement or
other arrangement providing for compensation, severance, termination pay, deferred compensation,
retirement benefits, performance awards, stock or stock-related awards, fringe benefits or other
employee benefits or remuneration of any kind, whether written, unwritten or otherwise, funded or
unfunded, including each “employee benefit plan,” within the meaning of Section 3(3) of ERISA which
is maintained, contributed to, or required to be contributed to, by the Company or any ERISA
Affiliate for the benefit of any Employee, or with respect to which the Company or any ERISA
Affiliate has or may have any liability or obligation.
“Company Indemnitee” has the meaning ascribed to it in Section 5.9(a).
“Company Intellectual Property” means Technology and Intellectual Property Rights that are
owned by or exclusively licensed to the Company.
“Company Material Adverse Effect” shall mean any change, circumstance, occurrence, state of
facts, development, event or effect that individually or in the aggregate with all other changes,
circumstances, events or effects (a) is or is reasonably likely to be materially adverse to the
business, assets (whether tangible or intangible), properties, financial condition, operations or
capitalization of the Company, taken as a whole or (b) materially impairs the ability of the
Company to perform its obligations under this Agreement or to consummate the transactions
contemplated hereby; provided, however, that none of the following shall constitute a “Company
Material Adverse Effect”: (i) changes that are the result of factors generally affecting the
industries or markets in which the Company conduct business that do not disproportionately affect
the Company, as compared to other companies of similar size and scope that operate in the same
industry or business as the Company; (ii) changes in Laws or GAAP as applied on a consistent basis,
or the interpretation thereof, that do not disproportionately affect the Company, as compared to
other companies of similar size and scope that operate in the same industry or business as the
Company; (iii) changes that are the result of economic factors affecting the national economy or
acts of war or terrorism, in each case that do not disproportionately affect the Company, as
compared to other companies of similar size and scope that operate in the same industry or business
as the Company; (iv) changes that are the result of the announcement or pendency of the Merger and
the other transactions contemplated hereby, including the impact thereof on the relationships
(contractual or otherwise) of the Company with customers, suppliers, licensors, partners or
employees; and (v) changes that result from any action taken by the Company pursuant to this
Agreement or at the written request or with the written consent of Parent.
“Company Option Plans” shall mean the (a) Boston Proper, Inc. Incentive Stock Option Plan,
dated as of Xxxxx 00, 0000, (x) Boston Proper, Inc. Nonqualified Stock Option Plan, dated as of
March 15, 2006, and (c) the The Xxxx Group, Inc. Incentive Stock Option Plan, adopted as of
September 18, 1995, each as amended and in effect as of the date hereof.
60
“Company Options” shall mean all options (including commitments to grant options) to purchase
or otherwise acquire Company Common Stock (whether or not vested) held by any Person that are
issued and outstanding immediately prior to the Effective Time.
“Company Parties” has the meaning ascribed to it in Section 7.2(b).
“Company Products” shall mean all of the product offerings of the Company.
“Company Registered Intellectual Property Rights” has the meaning ascribed to it in Section
2.12(a).
“Company Representative” has the meaning ascribed to it in Section 2.29.
“Company Preferred Stock” shall mean Series B Preferred Stock and Series C Preferred Stock,
taken together.
“Company Vested Options” shall mean all Company Options that are vested (and have not been
exercised) immediately prior to the Effective Time (after giving effect to any vesting acceleration
provisions, including pursuant to an authorization by the Company’s Board of Directors).
“Confidentiality Agreement” has the meaning ascribed to it in Section 5.3.
“Conflict” has the meaning ascribed to it in Section 2.5(a).
“Contract” shall mean any written or binding oral agreement, contract, subcontract, lease,
binding understanding, instrument, note, bond, mortgage, indenture, option, warranty, purchase
order, license, sublicense, obligation, commitment or undertaking of any nature.
“Copyrights” shall mean all registered and unregistered works of authorship, mask works,
copyrights, (including where recognized by applicable Law “moral” rights and rights of attribution
and integrity with respect thereto), all applications and registrations therefor, and any renewals
or extensions of any of the foregoing.
“Current Balance Sheet” has the meaning ascribed to it in Section 2.7.
“Customer Information” shall mean all data and information gathered or held by the Company:
that identifies or describes an individual, other Person or group, or an individual’s, other
Person’s or group’s behavior, preferences, views or actions, including without limitation, name,
telephone number, postal address, phone number, email, date of birth, gender and any other
personally identifiable information, transaction information and history, preferences, purchasing
habits, attitudes, demographic information, lifestyle interests, ratings, reviews, opinions, and
other behavioral or characteristic information of customers, prospective customers, other Persons
or groups, and any composite or aggregate data developed by or for the Company using the foregoing.
“Disclosure Schedule” has the meaning ascribed to it in the lead-in of Article II.
61
“Dissenting Shares” has the meaning ascribed to it in Section 1.11.
“DOL” shall mean the United States Department of Labor.
“Effective Time” has the meaning ascribed to it in Section 1.2.
“Employee” shall mean any current or former employee of the Company.
“Employee Agreement” shall mean each management, employment, severance, separation,
settlement, consulting, contractor, relocation, change of control, retention, bonus, repatriation,
expatriation, loan, visa, work permit or other agreement, or contract between the Company or any
ERISA Affiliate and any Employee under which the Company or any ERISA Affiliate has any liability
or obligation.
“Employee Bonus Payments” means the employee bonus payments set forth on Schedule 9.1(1).
“Environmental Laws” shall mean all Laws relating to pollution or protection of the
environment or exposure of any individual to Hazardous Materials, including Laws relating to
emissions, discharges, releases or threatened releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, registration, distribution, labeling, recycling, use,
treatment, storage, disposal, transport or handling of Hazardous Materials and including any
Hazardous Materials related electronic waste, product content or product take-back requirements.
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.
“ERISA Affiliate” shall mean any Person under common control with the Company within the
meaning of Section 414(b), (c), (m) or (o) of the Code, and the regulations issued thereunder.
“Escrow Account” has the meaning ascribed to it in Section 1.7(b)(i).
“Escrow Agent” has the meaning ascribed to it in Section 1.7(b)(i).
“Escrow Agreement” has the meaning ascribed to it in Section 1.7(b)(i).
“Escrow Amount” has the meaning ascribed to it in Section 1.7(b)(i).
“Escrow Funds” has the meaning ascribed to it in Section 1.8(a).
“Estimated Adjusted Net Merger Consideration” shall mean an amount equal to (i) the Base
Merger Consideration, plus (ii) the Estimated Net Working Capital Differential, minus (iii) the
Estimated Net Debt, minus (iv) Estimated Outstanding Company Transaction and Other Expenses, plus
(v) the Aggregate Option Exercise Amount.
“Estimated Net Debt” has the meaning ascribed to it in Section 1.7(a)(iii).
“Estimated Net Debt Statement” has the meaning ascribed to it in Section 1.7(a)(iii).
62
“Estimated Net Working Capital” has the meaning ascribed to it in Section 1.7(a)(ii).
“Estimated Net Working Capital Differential” shall mean the difference between Estimated Net
Working Capital and the Net Working Capital Target, which (i) shall be a positive number if
Estimated Net Working Capital is greater than the Net Working Capital Target, (ii) shall be a
negative number if Estimated Net Working Capital is less than the Net Working Capital Target, and
(iii) shall be zero if Estimated Net Working Capital is equal to the Net Working Capital Target.
“Estimated Outstanding Company Transaction and Other Expense Statement” has the meaning
ascribed to it in Section 1.7(a)(iv).
“Estimated Outstanding Company Transaction and Other Expenses” has the meaning ascribed to it
in Section 1.7(a)(iv).
“Estimated Per Share Consideration” shall mean the quotient obtained by dividing (i) the
Estimated Adjusted Net Merger Consideration less the Series C Aggregate Dividends by (ii) the
Company Common Stock Deemed Outstanding.
“Excess Amount” has the meaning ascribed to it in Section 1.10(b)(ii).
“Excess Recovery” has the meaning ascribed to it in Section 7.4(c).
“Family Shareholders” shall mean Xxxxxxx X. Xxxxxxx, The Residuary Trust under the Will of J.
Xxxxxxx Xxxxxxx, Xxxxx Xxxxxxx and Xxxxxx Xxx.
“FBCA” has the meaning ascribed to it in Section 1.1.
“Final Adjusted Net Merger Consideration” has the meaning ascribed to it in Section
1.10(a)(iii)C.
“Final Per Share Consideration” shall mean the quotient obtained by dividing (i) the Final
Adjusted Net Merger Consideration less the Series C
Aggregate Dividends, by (ii) the Company Common
Stock Deemed Outstanding.
“Financials” has the meaning ascribed to it in Section 2.7.
“FIRPTA Certificate” has the meaning ascribed to it in Section 6.2.
“GAAP” shall mean United States generally accepted accounting principles consistently applied.
“Governmental Entity” shall mean any (i) nation, principality, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any nature; (ii) federal, state,
local, municipal, foreign or other government; (iii) governmental or quasi governmental authority
of any nature (including any governmental division, subdivision, department, agency, bureau,
branch, office, commission, council, board, instrumentality, officer, official, representative,
organization, unit, body or entity and any court or other tribunal); (iv)
63
multinational organization or body; or (v) individual, entity or body exercising, or entitled to
exercise, any executive, legislative, judicial, administrative, regulatory, police, military or
taxing authority or power of any nature.
“Hazardous Materials” shall mean chemicals, pollutants, contaminants, wastes, toxic
substances, radioactive and biological materials, asbestos-containing materials (ACM), hazardous
substances, petroleum and petroleum products or any fraction thereof.
“HSR Act” means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended.
“Indemnified Parties” has the meaning ascribed to it in Section 7.3(b).
“Indemnifying Party” has the meaning ascribed to it in Section 7.3(b).
“Independent Accounting Firm” shall mean such regionally or nationally recognized accounting
firm mutually agreed upon by Parent and Shareholder Representatives; provided, however, that the
Independent Accounting Firm may not have been paid more than $50,000 by either the Company or
Parent or their respective Affiliates within the prior two years.
“Informational Disclosures” has the meaning ascribed to it in Section 9.5.
“Intellectual Property Rights” means all the rights associated with (i) Patents, (ii)
Copyrights, (iii) Trade Secrets, (iv) Trademarks, (v) all rights of publicity and privacy provided
for under statutory and common law relating to the use of the names, likenesses, voices,
signatures, biographical information, persona and other recognizable aspects of real persons, (vi)
any other intellectual property rights of any kind in any jurisdiction, and (vii) the right to xxx
for past, present and future infringement, misappropriation or other violation of any of the
foregoing.
“Interim Financials” has the meaning ascribed to it in Section 2.7.
“Inventory” shall mean the inventories of raw materials, work-in-process (including
semi-finished goods) and finished goods or products (including in-transit inventory) used, useable
or otherwise saleable in the ordinary course of the business of the Company, calculated in
accordance with the lower of cost or market method, in accordance with GAAP.
“IP Licenses” means all written licenses, sublicenses and other written agreements and other
written permissions granting rights to use the Intellectual Property Rights of any Person other
than the Company.
“IRS” shall mean the United States Internal Revenue Service.
“Knowledge” means (a) in the case of a party who is an individual, such party’s actual
knowledge, (b) in the case of a party that is an entity (other than the Company), the actual
knowledge of any trustee, officer or director of such party, and (c) in the case of the Company,
the actual knowledge of the Company’s (i) Chairman, (ii) President and Chief Executive Officer,
(iii) Executive Vice President, Chief Operating Officer, (iv) Senior Vice President, Creative, (v)
Senior Vice President, Merchandising and General Merchandise Manager, and (vi) Senior Vice
64
President, Marketing, together with the knowledge each such Person reasonably would be expected to
have in the ordinary performance of his or her duties on behalf of the Company.
“Law” shall mean any foreign, federal, state or local law, statute, regulation, ordinance,
rule, order, injunction, judgment, doctrine, decree, ruling, writ, assessment, award or arbitration
award of a Governmental Entity, settlement, Contract or governmental requirement enacted,
promulgated, entered into, or imposed by, any Governmental Entity (including, for the sake of
clarity, common law).
“Lease Agreements” has the meaning ascribed to it in Section 2.11(a).
“Leased Real Property” has the meaning ascribed to it in Section 2.11(a).
“Letter of Transmittal” has the meaning ascribed to it in Section 1.9(b).
“Liabilities” shall mean all debts, liabilities and obligations, whether accrued or fixed,
absolute or contingent, matured or unmatured, determined or determinable, asserted or unasserted,
known or unknown, including those arising under any law, action or governmental order and those
arising under any Contract.
“Lien” shall mean any lien, pledge, charge, claim, mortgage, restriction, security interest or
other encumbrance of any sort.
“Loss” shall mean the amount of any damages, claims, liabilities, obligations, deficiencies,
losses, Taxes, expenditures, costs or expenses (including reasonable attorneys’ fees and
disbursements, interest and penalties); provided, that Losses shall only include punitive,
exemplary, special, incidental or consequential damages to the extent resulting from a Third Party
Claim.
“Manufacturers” has the meaning ascribed to it in Section 2.20.
“Material Contract” has the meaning ascribed to it in Section 2.14(a).
“Merger” has the meaning ascribed to it in the recitals hereto.
“Merger Consideration” shall mean an amount equal to the sum of (a) the Base Merger
Consideration, plus (b) the Closing Net Working Capital
Differential, minus (c) the Closing Net
Debt, and minus (d) Outstanding Company Transaction and Other Expenses.
“Merger Consideration Adjustment Component” has the meaning ascribed to it in Section
1.10(a)(i).
“Merger Consideration Adjustment Memorandum” has the meaning ascribed to it in Section
1.10(a)(iii)A.
“Merger Sub” has the meaning ascribed to it in the preamble hereto.
65
“Net Merger Consideration” shall mean an amount equal to the sum of (a) the Merger
Consideration plus (b) the Aggregate Option Exercise Amount.
“Net Working Capital Target” shall mean an amount equal to $2,250,000.
“Non-Compete Agreement” has the meaning ascribed to it in the recitals hereto.
“Notice of Dispute” has the meaning ascribed to it in Section 1.10(a)(ii).
“Objection Notice” has the meaning ascribed to it in Section 7.3(c).
“Officer’s Certificate” has the meaning ascribed to it in Section 7.3(b).
“Optionholder” shall mean any holder of outstanding Company Options immediately prior to the
Effective Time.
“Outside Date” has the meaning ascribed to it in Section 8.1(b).
“Outstanding Company Transaction and Other Expenses” shall mean (i) any outstanding unpaid
Third Party Transaction Expenses of the Company already incurred or expected to be incurred prior
to the Closing (including any amounts for out-of-pocket expenses that the Company is obligated by
Law or Contract to reimburse any of its Shareholders or Optionholders), plus (ii) any outstanding
unpaid Employee Bonus Payments.
“Ownership Percentage” shall mean with respect to each Securityholder, an amount equal to the
quotient (expressed as a percentage) obtained by dividing (a) the sum of (i) the number of shares
of Company Common Stock issued and outstanding immediately prior to the Effective Time and held by
such Securityholder plus (ii) without duplication, the number of shares of Company Common Stock
into which all Preferred Stock outstanding immediately prior to the Effective Time and held by such
Securityholder are convertible plus (iii) without duplication, the number of shares of Company
Common Stock into which all Company Vested Options outstanding immediately prior to the Effective
Time and held by such Securityholder are exercisable, divided
by (b) the Company Common Stock
Deemed Outstanding.
“Parent” has the meaning ascribed to it in the preamble hereto.
“Parent Closing Statement” has the meaning ascribed to it in Section 1.10(a)(i).
“Parent Material Adverse Effect” shall mean any change, event, occurrence, state of facts,
development or effect that materially impairs the ability of Parent or Merger Sub to perform their
respective obligations under this Agreement or to consummate the transactions contemplated hereby.
“Parent Parties” has the meaning ascribed to it in Section 7.2(a).
“Parent Termination Fee” means a fee equal to three percent (3.00%) of the Base Merger
Consideration.
66
“Patents” shall mean all patents and patent applications of any kind, including U.S. and
foreign utility, design and other patents and all applications therefor and all reissues,
divisions, re-examinations, renewals, extensions, provisionals, continuations and
continuations-in-part thereof, and equivalent or similar rights anywhere in the world in
inventions, industrial designs and discoveries and all patent and/or invention disclosures.
“Paying Agent” has the meaning ascribed to it in Section 1.9(a).
“Paying Agent Agreement” has the meaning ascribed to it in Section 1.9(a).
“Pension Plan” shall mean each Company Employee Plan that is an “employee pension benefit
plan,” within the meaning of Section 3(2) of ERISA.
“Permitted Liens” has the meaning ascribed to it in Section 2.11(c).
“Person” shall mean any natural person, company, corporation, limited liability company,
general or limited partnership, trust, proprietorship, joint venture, or other business entity,
unincorporated association, organization or enterprise, or any Governmental Entity.
“Primary Shareholder Representative” has the meaning ascribed to it in Section 9.3(a).
“Pro Rata Portion” shall mean, with respect to each Shareholder, an amount equal to the
quotient (expressed as a percentage) obtained by dividing (a) the total amount of consideration to
be received by such Shareholder pursuant to Section 1.6 by (b) the total amount of consideration to
be received by all Shareholders pursuant to Section 1.6.
“PTO” shall mean the United States Patent and Trademark Office.
“Registered Intellectual Property Rights” means Intellectual Property Rights that have been
registered, applied for, filed, certified or otherwise perfected, issued, or recorded with or by
any state, government or other public or quasi-public legal authority (excluding recordation of
Liens).
“Related Agreements” shall mean the Articles of Merger and each agreement, instrument or
document attached hereto as an Exhibit and the other agreements, certificates and instruments to be
executed by any of the parties hereto and required to be delivered on the Closing Date pursuant to
this Agreement.
“Secondary Shareholder Representative” has the meaning ascribed to it in Section 9.3(a).
“Securityholders” shall mean all Shareholders and all Vested Optionholders.
“Series A Preferred Stock” shall mean the Company’s Series A Preferred Stock, par value of
$1.00 per share.
“Series B Preferred Stock” shall mean the Company’s Series B Convertible Preferred Stock, par
value of $1.00 per share.
67
“Series C Aggregate Dividends” shall mean the product of (i) the Series C Per Share Dividends
multiplied by (ii) the aggregate number of shares of Series C Preferred Stock issued and
outstanding immediately prior to the Effective Time.
“Series C Articles of Amendment” shall mean the Series C Articles of Amendment to the
Company’s Articles of Incorporation, as amended and in effect immediately prior to the Effective
Time.
“Series C Per Share Dividends” shall mean all dividends accrued per share of Series C
Preferred Stock as set forth in Section 3 of the Series C Articles of Amendment.
“Series C Preferred Stock” shall mean the Company’s Series C Convertible Preferred Stock, par
value of $1.00 per share.
“Shareholder” shall mean any holder of any Company Capital Stock that is
issued and outstanding immediately prior to the Effective Time.
“Shareholder Notice” has the meaning ascribed to it in Section 5.1(b).
“Shareholder Representatives” has the meaning ascribed to it in the preamble hereto.
“Shareholder Representative Related Agreements” has the meaning ascribed to it in Section
9.3(a).
“Shareholder Representative Amount” has the meaning ascribed to it in Section 1.7(b)(ii).
“Shareholder Representative Expenses” has the meaning ascribed to it in Section 9.3(b).
“Shareholder Representative Fund” has the meaning ascribed to it in Section 1.7(b)(ii).
“Shortfall Amount” has the meaning ascribed to it in Section 1.10(b)(i).
“Shrink-Wrap Code” means software licensed under shrink-wrap and click-wrap licenses which
licenses are generally commercially available.
“Significant Supplier” has the meaning ascribed to it in Section 2.24.
“Soliciting Materials” has the meaning ascribed to it in Section 5.1(a).
“Specified Matters” shall mean the matters identified in Schedule 9.1(2).
“Subsidiary” shall mean, with respect to any Person, any corporation, partnership, association
or other business entity of which (i) if a corporation, a majority of the total voting power of
shares of stock generally entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a partnership, association or other business entity, a majority of
the partnership or other similar ownership interests thereof is at the time owned or controlled,
68
directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination
thereof. For purposes, a Person or Persons shall be deemed to have a majority ownership interest in
a partnership, association or other business entity if such Person or Persons shall be allocated a
majority of partnership, association or other business entity gains or losses or shall be or
control the managing director, managing member, general partner or other managing Person of such
partnership, association or other business entity. Unless the context requires otherwise, each
reference to a Subsidiary shall be deemed to be a reference to a Subsidiary of the Company.
“Sufficient Shareholder Vote” has the meaning ascribed to it in Section 2.4.
“Superior Proposal” shall mean an Acquisition Proposal which the Board of Directors of the
Company determines in its good faith judgment (after receiving advice from its financial advisor
and taking into account all of the terms and conditions of such proposal, including the
conditionality, certainty of financing and the timing and likelihood of consummation of such
proposal on the terms proposed) to be more favorable to the Shareholders from a financial point of
view than the Merger.
“Survival Date” has the meaning ascribed to it in Section 7.1.
“Surviving Corporation” has the meaning ascribed to it in Section 1.1.
“Tax” or “Taxes” means any and all taxes imposed by any foreign, federal, state, local or
other Governmental Entity, including, without limiting the generality of the foregoing, taxes
imposed on income, gains, gross receipts, sales, use, ad valorem, value-added, alternative minimum
estimated, intangible, unitary, transfer, franchise, license, payroll, employment, unemployment
insurance, social security, welfare, disability, estimated, excise, environmental, stamp,
commercial activity, occupation, premium, property, prohibited transactions, windfall or excess
profits, or other taxes of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto.
“Tax Assets” means any current tax benefit realized by the Company arising solely from payment
of the Employee Bonus Payments or the payments to the Vested Optionholders pursuant to Section 1.6,
but in each case, net of the Company’s liability for any payroll or other withholding Taxes
resulting from payments. Subject to the foregoing, “Tax Assets” specifically excludes (i) any
current or non-current net operating losses, net capital losses, investment Tax credit, foreign Tax
credit, charitable deduction or any other credit or Tax attributes, and (ii) any deferred taxes
relating to financial accounting timing differences.
“Tax Return” means any return (including any information return), report, statement, schedule,
notice, form, estimate or declaration of estimated tax, claim for refund, or other written
information relating to or required to be filed with any Governmental Entity in connection with the
determination, assessment, collection or payment of any Tax, including any attachments, amendments
and supplements thereto.
“Technology” means all tangible embodiments, whether in electronic, written or other media, of
all technology, including all inventions (whether or not patented or patentable), algorithms,
routines, computer software programs and software systems (including each of the following in
source code, object code, human readable or other form, firmware, middleware,
69
applications, compilers, compilations, development tools, higher level or “proprietary” languages,
macros, scripts, objects, routines, modules and other components), data, and documentation thereof,
works of authorship, databases, processes, prototypes, and devices. For clarity, “Technology”
specifically excludes any Intellectual Property Rights in or to any of the foregoing.
“Termination Fee” means a fee equal to three percent (3.00%) of the Base Merger Consideration.
“Third Party Claim” has the meaning ascribed to it in Section 7.3(e).
“Third Party Claim Notice” has the meaning ascribed to it in Section 7.3(e).
“Third Party Transaction Expenses” means all third-party fees and expenses incurred in
connection with the Merger and the other transactions contemplated by this Agreement, including all
legal, accounting, investment banking, broker, financial advisory, consulting, and all other fees
and expenses of third parties (including any costs incurred to obtain consents, waivers or
approvals as a result of the compliance with Section 5.5) incurred by a party in connection with
the negotiation and effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby.
“Threshold Amount” has the meaning ascribed to it in Section 7.3(a).
“Trademarks” shall mean all registered and unregistered trademarks, trade names and service
marks, trade dress, logos, designs, emblems, signs, insignia, slogans, social network and other
electronic communication services identifiers and corporate names, and doing business designations,
Internet domain names, URLs and other designations of source or origin, and all registrations,
reservations and applications for registration thereof, together with all of the goodwill
associated therewith throughout the world.
“Trade Secrets” shall mean all trade and industrial secrets and confidential information,
including confidential and proprietary: discoveries, ideas, formulas, compositions, inventions,
modifications, extensions, improvements (whether patentable or unpatentable and whether or not
reduced to practice), know-how, products, processes, procedures, programs or code, techniques,
technical information, methods, research and development information and results, drawings,
specifications, designs, plans, proposals, technical data, marketing plans and customer (including
email addresses and social network and other electronic communication services identifiers
therefore), prospect and supplier lists and information, pricing and cost information, forms and
types of financial, business, scientific, technical, economic, or engineering data, whether
tangible or intangible (whether or not patentable or subject to copyright, trademark, or trade
secret protection).
“Transfer Taxes” has the meaning ascribed to it in Section 5.10(g).
“Undesignated Preferred Stock” has the meaning ascribed to it in Section 2.2(a).
“Vested Optionholder” has the meaning ascribed to it in Section 1.6(c)(i).
“Voting Agreement” has the meaning ascribed to it in the recitals hereto.
70
“WARN Act” has the meaning ascribed to it in Section 2.20.
“Year-End Financials” has the meaning ascribed to it in Section 2.7.
9.2 Interpretation. The words “include,” “includes” and “including” when used herein shall be
deemed in each case to be followed by the words “without limitation.” The table of contents and
headings contained in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. All formulas in this Agreement (whether based
upon words or numbers) will be calculated in a manner consistent with mathematic rules and
constructs (e.g., multiplication and division performed before addition and subtraction unless
context indicates otherwise, an addition of a negative number is a subtraction, a subtraction of a
negative number is an addition, etc.). For all purposes of this Agreement, outstanding checks or
uncompleted electronic transfers of funds of the Company shall be treated as reductions in Company
Cash, provided that if Company Cash would thereafter be less than zero ($0), all amounts less then
zero dollars ($0) shall be treated as Company Debt. In this Agreement, unless the context otherwise
requires: (a) words of the masculine or neuter gender will include the masculine, neuter or
feminine gender, and words in the singular number or in the plural number will each include, as
applicable, the singular number or the plural number; (b) reference to any Person includes such
Person’s successors and assigns but, if applicable, only if such successors and assigns are
permitted by this Agreement, and reference to a Person in a particular capacity excludes such
Person in any other capacity; (c) any accounting term used and not otherwise defined in this
Agreement or any Related Agreement has the meaning assigned to such term in accordance with GAAP;
(d) reference to any Law means such Law as amended, modified codified or reenacted, in whole or in
part, and in effect from time to time, including rules and regulations promulgated thereunder; (e)
any agreement, instrument, insurance policy or Law defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement, instrument, insurance
policy or Law as from time to time amended, modified or supplemented, including (in the case of
agreements or instruments) by waiver or consent and (in the case of Laws) by succession of
comparable successor Laws and references to all attachments thereto and instruments incorporated
therein; (f) the term “or” means “and/or”; (g) the words “herein, “hereof” and “hereunder” and
other words of similar import refer to this Agreement as a whole and not to any particular Article,
Section or other subdivision, and (h) reference to any Article or Section means such Article or
Section hereof.
9.3 Shareholder Representatives.
(a) Xxxxxxx X. Xxxxxxx and Xxxxxxx X. Xxxxxxx shall jointly serve as the Shareholder
Representatives for and on behalf of the Securityholders, as their attorneys-in-fact and agents,
with full power of substitution to act in the name, place and stead of such Securityholder in
connection with this Agreement and the Related Agreements to which the Shareholder Representatives
are parties or express third-party beneficiaries (the “Shareholder Representative Related
Agreements”) and the transactions contemplated hereby and thereby, including to give and receive
notices and communications, obtain reimbursement as provided for herein for all out-of-pocket fees
and expenses and other obligations of or incurred by the Shareholder Representatives in connection
with this Agreement or any Shareholder Representative Related Agreement, to authorize payment to
any Indemnified Party from the Escrow Funds in satisfaction of claims by any Parent Party, to
object to such payments, to agree
71
to, negotiate, enter into settlements and compromises of, and comply with orders of courts
with respect to such claims, to assert, negotiate, enter into settlements and compromises of, and
comply with orders of courts with respect to, any other claim by any Parent Party against any
Securityholder or by any such Securityholder against any Parent Party or any dispute between any
Parent Party and any such Securityholder, in each case relating to this Agreement or any Related
Agreement to which the Shareholder Representatives are a party or the transactions contemplated
hereby or thereby, and to take all other actions that are either (i) necessary or appropriate in
the judgment of the Shareholder Representatives for the accomplishment of the foregoing or (ii)
specifically mandated by the terms of this Agreement or any Shareholder Representative Related
Agreement. Xxxxxxx X. Xxxxxxx shall serve as the “Primary Shareholder Representative” and Xxxxxxx
X. Xxxxxxx shall serve as the “Secondary Shareholder Representative”. Notwithstanding anything to
the contrary contained in this Agreement or any Shareholder Representative Related Agreement: (A)
any decision, determination, act, consent, instruction, notice or authorization of the Shareholder
Representatives under this Agreement or any Related Agreement to which the Shareholder
Representatives are parties shall require the Primary Shareholder Representative to authorize such
decision, determination, act, consent, instruction, notice or authorization, and upon such
authorization by the Primary Shareholder Representative, the Secondary Shareholder Representative
shall be singly authorized to make such decision or determination, take such action or provide such
consent, instruction, notice or authorization as authorized by the Primary Shareholder
Representative; and (B) the Primary Shareholder Representative shall be singly authorized to make
any decision or determination, take any action or provide any consent, instruction, notice or
authorization for the Shareholder Representatives (including to singly execute any agreement,
instrument, certificate or other document on behalf of the Shareholder Representatives) under this
Agreement or any Shareholder Representative Related Agreements or in connection with any
transaction contemplated hereby or thereby. The Shareholder Representatives may be changed by the
Securityholders from time to time upon not less than thirty (30) days prior written notice to
Parent; provided, however, that no Shareholder Representative may be removed unless Shareholders
with an aggregate Pro Rata Portion of at 66.67% agree to such removal and to the identity of the
substituted Shareholder Representative, who shall succeed in the same capacity, as either Primary
Shareholder Representative or Secondary Shareholder Representative, as the replaced Shareholder
Representative. A Shareholder Representative may resign as Shareholder Representative at any time
upon written notice to the other Shareholder Representative or to the Shareholders. A vacancy in
any position of Shareholder Representative may be filled by Shareholders with an aggregate Pro Rata
Portion of greater than 50%, and such replacement Shareholder Representative shall serve in the
same capacity, as either Primary Shareholder Representative or Secondary Shareholder
Representative, as the replaced Shareholder Representative as if they were the original Shareholder
Representative party hereto in lieu of such replaced Shareholder Representative. No bond shall be
required of the Shareholder Representatives, and the Shareholder Representatives shall not receive
any compensation for their services. Notices or communications to or from the Shareholder
Representatives shall constitute notice to or from the Securityholders.
(b) In connection with the performance of its rights and obligations hereunder, the
Shareholder Representatives shall have the right at any time and from time to time to select and
engage, at the cost and expense of the Shareholders, attorneys, accountants, investment bankers,
advisors, consultants and clerical personnel and obtain such other professional and
72
expert assistance, maintain such records and incur other out-of-pocket expenses, as the Shareholder
Representatives may deem necessary or desirable from time to time. No Shareholder Representative
shall be liable for any act done or omitted hereunder as a Shareholder Representative while acting
in good faith and in the exercise of reasonable judgment. The Shareholders shall indemnify the
Shareholder Representatives and hold the Shareholder Representatives harmless against any loss,
liability or expense incurred without gross negligence or bad faith on the part of the Shareholder
Representatives and arising out of or in connection with the acceptance or administration of the
Shareholder Representatives’ duties hereunder, including the reasonable fees and expenses of any
legal counsel retained by the Shareholder Representative (“Shareholder Representative Expenses”).
The Shareholder Representative Expenses, including the costs and expenses of enforcing this right
of indemnification, shall be paid first from the Shareholder Representative Fund, and after the
funds in the Shareholder Representative Fund are exhausted by the Shareholders allocated on the
basis of their Pro Rata Portion (including by retention of the Shareholder Representatives of funds
released under the Escrow Agreement for distribution to Shareholders). A decision, determination,
act, consent, instruction, notice or authorization of the Shareholder Representatives, including an
amendment, extension or waiver of this Agreement or any Shareholder Representative Related
Agreement, shall constitute a decision of the Securityholders and shall be final, binding and
conclusive upon the Securityholders; and Parent, Merger Sub, the Surviving Corporation, the Escrow
Agent and the Paying Agent may rely upon any such decision, act, consent or instruction of the
Shareholder Representatives as being the decision, act, consent or instruction of the
Securityholders. Parent, Merger Sub, the Surviving Corporation, the Escrow Agent and the Paying
Agent are hereby relieved from any liability to any Person for any decision, determination, act,
consent, instruction, notice or authorization of the Shareholder Representatives in accordance with
Section 9.3(a).
(c) The Shareholder Representatives may, in all questions arising under this Agreement, rely
on the advice of counsel. In no event shall any Shareholder Representative be liable hereunder or
in connection herewith for any indirect, punitive, exemplary, special, incidental or consequential
damages.
(d) The Shareholder Representatives shall have reasonable access to information reasonably
requested by the Shareholder Representatives and the reasonable assistance of the Surviving
Corporation’s officers and employees for purposes of performing the Shareholder Representatives’
duties under this Agreement and exercising their rights under this Agreement.
(e) In the performance of their duties hereunder, the Shareholder Representatives shall be
entitled to (i) rely upon any document or instrument reasonably believed to be genuine, accurate as
to content and signed by any Securityholder or any party hereunder and (ii) assume that any Person
purporting to give any notice in accordance with the provisions hereof has been duly authorized to
do so. All of the indemnities, immunities, releases and powers granted to the Shareholder
Representatives under this Agreement shall survive the Closing.
(f) The provisions of this Section 9.3 shall be binding upon the executors, heirs, legal
representatives, personal representatives and successors of each Shareholder (including any
assignee of a Shareholders’ rights under this Agreement or any Shareholder
73
Representative Related Agreement), and any references in of this Section 9.3 to a Shareholder shall
mean and include any and all successors to the rights of such Shareholder.
9.4 Notices. All notices and other communications hereunder shall be in writing and shall be
deemed given if delivered personally or by commercial messenger or overnight or same-day courier
service of national reputation (including U.S. Postal Service overnight delivery), or sent via
facsimile (with acknowledgment of complete transmission) to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice); provided, however,
that notices sent by mail will not be deemed given until received:
(a) if to Parent, Merger Sub or, after the Effective Time, the Surviving Corporation, to:
Chico’s FAS, Inc.
00000 Xxxxx Xxxxxxx
Xxxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: General Counsel
00000 Xxxxx Xxxxxxx
Xxxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
0000 Xxx Xxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attention: Xxxx X. Xxxxxx
Facsimile No.: (000) 000-0000
0000 Xxx Xxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attention: Xxxx X. Xxxxxx
Facsimile No.: (000) 000-0000
(b) if to the Company prior to the Effective Time, the Company, to:
Boston Proper, Inc.
0000 Xxxx xx Xxxxxxxx Xxxxxxxxx
Xxxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxx, President and Chief Executive Officer
0000 Xxxx xx Xxxxxxxx Xxxxxxxxx
Xxxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxx, President and Chief Executive Officer
and
Boston Proper, Inc.
0000 Xxxx xx Xxxxxxxx Xxxxxxxxx
Xxxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Executive Vice President and Chief
Operating Officer
0000 Xxxx xx Xxxxxxxx Xxxxxxxxx
Xxxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Executive Vice President and Chief
Operating Officer
with a copy to:
both of the Shareholder Representatives at the addresses set forth on
Schedule 9.4
Schedule 9.4
74
and
Holland & Knight LLP
0000 Xxxxxx Xxxx., Xxxxx 000
XxXxxx, XX 00000
Attention: Xxxxxxx Xxxxxx and Xxxxxx Xxxxxxxx
Facsimile No.: (000) 000-0000
0000 Xxxxxx Xxxx., Xxxxx 000
XxXxxx, XX 00000
Attention: Xxxxxxx Xxxxxx and Xxxxxx Xxxxxxxx
Facsimile No.: (000) 000-0000
(c) if to the Shareholder Representatives, to both of the Shareholder Representatives at the
addresses set forth on Schedule 9.4, with a copy to:
Holland & Knight LLP
0000 Xxxxxx Xxxx., Xxxxx 000
XxXxxx, XX 00000
Attention: Xxxxxxx Xxxxxx and Xxxxxx Xxxxxxxx
Facsimile No.: (000) 000-0000
0000 Xxxxxx Xxxx., Xxxxx 000
XxXxxx, XX 00000
Attention: Xxxxxxx Xxxxxx and Xxxxxx Xxxxxxxx
Facsimile No.: (000) 000-0000
9.5 Disclosure Schedule. The schedules, exhibits and the Disclosure Schedule to this Agreement
are a material part of this Agreement as if fully set forth in this Agreement and are intended only
to qualify and limit the representations, warranties and covenants contained in this Agreement, and
will not be deemed to expand in any way the scope or effect of any of such representations,
warranties or covenants. Each of Parent and Merger Sub hereby acknowledges and agrees that: (i)
certain agreements and other matters may be listed in the Disclosure Schedule for informational
purposes only, as they do not rise above applicable materiality thresholds, they are not outside of
the ordinary course of business or their disclosure is not otherwise required under the terms of
this Agreement (items that are not required to be disclosed but are disclosed, the “Informational
Disclosures”); (ii) in no event will the Informational Disclosures be deemed or interpreted to
broaden or otherwise amplify or influence the construction or interpretation of any of the
representations and warranties; (iii) disclosures made for the purpose of any section or sections
of the Disclosure Schedule will be deemed made for the purpose of all sections so long as
cross-references are made or the applicability to the other section(s) is reasonably apparent on
the face of such disclosure; (iv) headings in the Disclosure Schedule have been inserted for
reference only and will not be deemed to modify or influence the interpretation of the information
contained in the Disclosure Schedule or this Agreement; (v) no reference to or disclosure of any
item or other matter in the Disclosure Schedule will be construed as an admission or indication
that such item or other matter is material or outside of the ordinary course of business or that
such item or other matter is required to be referred to or disclosed in the Disclosure Schedule or
otherwise imply that any such item or matter creates a measure for materiality for the purposes of
this Agreement; (vi) no disclosure in the Disclosure Schedule relating to any possible breach or
violation of any agreement, law or regulation shall be construed as an admission or indication that
any such breach or violations exists or has actually occurred; (vii) the inclusion of any matter,
information or item in the Disclosure Schedule will not be deemed to constitute an admission of any
liability by Company to any third party; and (vii) summaries of or references to any written
document in the Disclosure Schedule do not purport to be complete and are qualified in their
entirety by the written documents themselves.
75
9.6 Counterparts. This Agreement may be executed in one or more counterparts (including by
facsimile or other electronic transmission), all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been signed by each of the
parties and delivered to the other party, it being understood that all parties need not sign the
same counterpart.
9.7 Amendment. Except as is otherwise required by applicable Law, this Agreement may be
amended by execution of an instrument in writing signed by Parent and the Company (if prior to the
Effective Time) or by Parent and Shareholder Representatives (if after the Effective Time).
9.8 Extension; Waiver. Parent and the Surviving Corporation (after the Effective Time), on
the one hand, and the Company (prior to the Effective Time) and the Shareholder Representatives, on
the other hand, may, to the extent legally allowed, (i) extend the time for the performance of any
of the obligations of the other party hereto, (ii) waive any inaccuracies in the representations
and warranties made to such party contained herein or in any document delivered pursuant hereto,
and (iii) waive compliance with any of the covenants, agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.
9.9 Entire Agreement; Assignment; Beneficiaries. This Agreement, the Exhibits hereto, the
Disclosure Schedule, the Confidentiality Agreement, and the documents and instruments and other
agreements among the parties hereto referenced herein: (i) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior agreements and
understandings both written and oral, among the parties with respect to the subject matter hereof,
(ii) are not intended to confer upon any other Person any rights or remedies hereunder, except as
set forth in Section 5.9, and (iii) shall not be assigned by operation of law or otherwise without
the consent of the parties hereto, other than (A) by Parent in connection with a Parent change of
control (provided that no partial assignment and delegation is permitted without consent of the
parties hereto) or (B) in connection with the replacement of a Shareholder Representative in
accordance with Section 9.3. This Agreement will be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns.
9.10 Severability. In the event that any provision of this Agreement or the application
thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or
unenforceable, the remainder of this Agreement will continue in full force and effect and the
application of such provision to other Persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of such void or
unenforceable provision.
9.11 Other Remedies; Specific Performance. Any and all remedies herein expressly conferred
upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy and nothing in this Agreement shall
76
be deemed a waiver by any party of any right to specific performance or injunctive relief. The
parties hereto agree that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to seek an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which they are entitled at Law or
in equity.
9.12 Governing Law; Jurisdiction. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Florida, regardless of the Laws that might otherwise
govern under applicable principles of conflicts of laws thereof. Each of the parties hereto
irrevocably consents to the exclusive jurisdiction and venue of any state or federal court located
in Palm Beach County or Xxx County, State of Florida, the United States District Court, Middle
District of Florida or the United States District Court, Southern District of Florida (or in any
court in which appeal from such courts may be taken) in connection with any matter based upon or
arising out of this Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the Laws of the State of Florida for such Persons and waives
and covenants not to assert or plead any objection which they might otherwise have to such
jurisdiction, venue and such process.
9.13 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT, OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF ANY PARTY HERETO IN
NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
9.14 Rules of Construction. The parties hereto agree that they have jointly participated in
the drafting and negotiation of this Agreement and been represented by counsel during the
negotiation and execution of this Agreement and, therefor, waive the application of any Law,
holding or rule of construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
77
IN WITNESS WHEREOF, Parent, Merger Sub, the Company and the Shareholder
Representatives have caused this Agreement and Plan of Merger to be signed, all as of the date
first written above.
Parent: CHICO’S FAS, INC. |
|||||
By: | /s/ Xxxxx X. Xxxx | ||||
Name: | Xxxxx X.Xxxx | ||||
Title: | President and CEO | ||||
Merger Sub: HARBOR DTC, INC. |
|||||
By: | /s/ Xxxx Xxxxxxxxxx | ||||
Name: | Xxxx Xxxxxxxxxx | ||||
Title: | President | ||||
Company: BOSTON PROPER, INC. |
|||||
By: | /s/ Xxxxxx Xxxxx | ||||
Name: | Xxxxxx Xxxxx | ||||
Title: | President and CEO | ||||
Shareholder Representatives: |
|||||
/s/ Xxxxxxx Xxxxxxx | |||||
Name: | Xxxxxxx Xxxxxxx, solely in
his capacity as Shareholder Represenitative hereunder |
||||
/s/ Xxx Xxxxxxx | |||||
Name: | Xxx Xxxxxxx, solely in his
capacity as Shareholder Representative hereunder |
||||
[Signature Page to Agreement and Plan of Merger]