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Exhibit (c)
AGREEMENT AND PLAN OF MERGER
DATED AS OF
FEBRUARY 1, 0000
XXXXX
XXXXX-XXXXXXX XX XXXXXXX, INC.
FCA ACQUISITION CORPORATION,
AND
HOUSE OF FABRICS, INC.
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TABLE OF CONTENTS
ARTICLE I THE TENDER OFFER AND MERGER...................................................1
SECTION 1.01. Tender Offer..................................................................1
SECTION 1.02. The Merger....................................................................4
SECTION 1.03. Conversion of Shares..........................................................5
SECTION 1.04. Surrender and Payment.........................................................6
SECTION 1.05. Company Options; Series B Warrants............................................7
SECTION 1.06. Shares of Dissenting Stockholders.............................................8
ARTICLE II THE SURVIVING CORPORATION; THE PARENT
DIRECTORS.....................................................................8
SECTION 2.01. Certificate of Incorporation..................................................8
SECTION 2.02. Bylaws........................................................................8
SECTION 2.03. Directors and Officers........................................................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.......................................................................9
SECTION 3.01. Corporate Existence and Power.................................................9
SECTION 3.02. Corporate Authorization.......................................................9
SECTION 3.03. Governmental Authorization....................................................9
SECTION 3.04. Certificate of Incorporation and Bylaws......................................10
SECTION 3.05. Non-Contravention............................................................10
SECTION 3.06. Capitalization...............................................................10
SECTION 3.07. Subsidiaries.................................................................11
SECTION 3.08. Company SEC Reports..........................................................12
SECTION 3.09. Financial Statements; No Undisclosed Liabilities.............................12
SECTION 3.10. Inventory....................................................................12
SECTION 3.11. Contracts and Commitments....................................................13
SECTION 3.12. Absence of Certain Changes...................................................14
SECTION 3.13. Litigation...................................................................15
SECTION 3.14. Permits; Compliance..........................................................15
SECTION 3.15. ERISA........................................................................16
SECTION 3.16. Labor........................................................................18
SECTION 3.17. Taxes........................................................................19
SECTION 3.18. Real Estate..................................................................22
SECTION 3.19. Personal Property............................................................23
SECTION 3.20. Intellectual Property Rights.................................................23
SECTION 3.21. Environmental Protection.....................................................24
SECTION 3.22. Insurance....................................................................25
SECTION 3.23. Indemnification..............................................................25
SECTION 3.24. Board Approval and Recommendation............................................26
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SECTION 3.25. Vote Required................................................................26
SECTION 3.26. Opinion of Financial Advisor.................................................26
SECTION 3.27. Finders and Investment Bankers...............................................26
SECTION 3.28. Takeover Statutes; No Shareholder Rights Plan................................26
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE PARENT AND MERGER SUB....................................................27
SECTION 4.01. Corporate Existence..........................................................27
SECTION 4.02. Corporate Authorization......................................................27
SECTION 4.03. Governmental Authorization...................................................27
SECTION 4.04. Non-Contravention............................................................28
SECTION 4.05. Parent SEC Reports...........................................................28
SECTION 4.06. Financial Statements; No Undisclosed Liabilities.............................29
SECTION 4.07. Litigation...................................................................29
SECTION 4.08. Vote Required................................................................29
SECTION 4.09. Availability of Funds........................................................30
SECTION 4.10. Fraudulent Conveyance........................................................30
SECTION 4.11. Finders and Investment Bankers...............................................30
ARTICLE V COVENANTS OF THE COMPANY.....................................................30
SECTION 5.01. Conduct of the Company.......................................................30
SECTION 5.02. Access to Information........................................................32
SECTION 5.03. Other Offers.................................................................32
SECTION 5.04. Notices of Certain Events....................................................34
SECTION 5.05. Merger Meeting; Proxy Statement..............................................34
ARTICLE VI COVENANTS OF THE PARENT AND MERGER SUB.......................................35
SECTION 6.01. Director and Officer Liability...............................................35
SECTION 6.02. Merger Meeting...............................................................37
SECTION 6.03. Employee Benefits............................................................37
ARTICLE VII COVENANTS OF THE PARENT, MERGER SUB, AND THE
COMPANY......................................................................38
SECTION 7.01. Reasonable Efforts...........................................................38
SECTION 7.02. Certain Filings and Consents.................................................38
SECTION 7.03. Public Announcements.........................................................39
ARTICLE VIII CONDITIONS TO THE MERGER.....................................................39
SECTION 8.01. Conditions to the Obligations of Each Party..................................39
SECTION 8.02. Conditions to the Obligations of the Parent and Merger Sub...................39
ARTICLE IX TERMINATION..................................................................40
SECTION 9.01. Termination..................................................................40
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SECTION 9.02. Effect of Termination........................................................41
ARTICLE X MISCELLANEOUS................................................................41
SECTION 10.01. Notices......................................................................41
SECTION 10.02. Survival.....................................................................42
SECTION 10.03. Amendments; No Waivers.......................................................43
SECTION 10.04. Fees and Expenses............................................................43
SECTION 10.05. "Knowledge" of the Company...................................................44
SECTION 10.06. Successors and Assigns.......................................................44
SECTION 10.07. Governing Law................................................................44
SECTION 10.08. Counterparts; Effectiveness..................................................45
SECTION 10.09. Entire Agreement.............................................................45
SECTION 10.10. Headings.....................................................................45
SECTION 10.11. Severability.................................................................45
SECTION 10.12. Specific Performance.........................................................45
INDEX OF DEFINED TERMS .............................................................................47
LIST OF SCHEDULES .............................................................................49
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of
February 1, 1998 (this "Agreement"), is among FABRI-CENTERS OF AMERICA, INC., an
Ohio corporation (the "Parent"), FCA ACQUISITION CORPORATION, a Delaware
corporation and wholly owned subsidiary of the Parent ("Merger Sub"), and HOUSE
OF FABRICS, INC., a Delaware corporation (the "Company").
In consideration of the respective representations,
warranties, and agreements set forth herein and in the Stock Option Agreement,
the parties agree as follows:
ARTICLE I
THE TENDER OFFER AND MERGER
SECTION 1.01. Tender Offer
(a) As promptly as practicable, but in no event later
than five business days after the public announcement of the execution of this
Agreement, Merger Sub will, and the Parent will cause Merger Sub to, offer to
purchase ( the "Offer") each outstanding share of the Common Stock, $0.01 par
value (the "Common Stock"), of the Company tendered pursuant to the Offer at a
price of $4.25 per share, net to the seller in cash, and to cause the Offer to
remain open until the close of business on the twentieth business day after the
commencement of the Offer (the "Expiration Date"). The obligations of Merger Sub
and the Parent to consummate the Offer and to accept for payment and purchase
the Common Stock tendered in the Offer will be subject only to the conditions
set forth in Schedule 1.01(a) (Offer Conditions) (the "Offer Conditions"). At
the Company's request, Merger Sub will, and the Parent will cause Merger Sub to,
extend the expiration date of the Offer from time to time for up to an aggregate
of ten business days following the Expiration Date if the condition set forth in
clause (1) of the first paragraph of the Offer Conditions is not fulfilled prior
to 12:00 p.m. on the Expiration Date. Merger Sub will not, and the Parent will
cause Merger Sub not to, decrease the price payable in the Offer, change the
form of consideration payable in the Offer, reduce the number of shares of
Common Stock subject to the Offer, change the Offer Conditions, impose
additional conditions to its obligation to consummate the Offer and to accept
for payment and purchase shares of Common Stock tendered in the Offer, or change
any other terms of the Offer in a manner adverse to the holders of the Common
Stock, except that Merger Sub may extend the Expiration Date to the extent
required by applicable law, if any of the Offer Conditions are not satisfied, or
if less than 90% of the outstanding shares of Common Stock have been validly
tendered and not withdrawn pursuant to the Offer. Subject to the terms and
conditions of the Offer and this Agreement, Merger Sub will, and the Parent will
cause Merger Sub to, accept for payment, and pay for, all shares of
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Common Stock validly tendered and not withdrawn pursuant to the Offer that
Merger Sub becomes obligated to accept for payment, and pay for, pursuant to the
Offer promptly after the expiration of the Offer; except that, without the prior
written consent of the Company, Merger Sub will not, and the Parent will cause
Merger Sub not to, accept for payment, or pay for, any shares of Common Stock so
tendered unless the Minimum Condition (as defined in the Offer Conditions) will
have been satisfied.
(b) On the date of the commencement of the Offer,
Merger Sub and the Parent will file with the Securities and Exchange Commission
(the "SEC") their Tender Offer Statement on Schedule 14D-1 (together with all
supplements or amendments thereto, and including all exhibits, the "Offer
Documents"). Merger Sub and the Parent will give the Company and its counsel a
reasonable opportunity to review and comment upon the Offer Documents prior to
their being filed with the SEC or disseminated to the Company's stockholders.
The Parent and Merger Sub agree that the Offer Documents will comply as to form
in all material respects with the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations promulgated thereunder, and
the Offer Documents, on the date first published, sent, or given to the
Company's stockholders, will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except that no representation or warranty is
made by the Parent or Merger Sub with respect to information supplied by the
Company in writing specifically for inclusion or incorporation by reference in
the Offer Documents. The Company agrees that any such information supplied by
the Company that is included in the Offer Documents will not, at the time such
information is furnished to the Parent, contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Each of the Parent, Merger Sub, and the
Company will promptly correct any information provided by it for use in the
Offer Documents if and to the extent that such information becomes false or
misleading in any material respect, and the Parent and Merger Sub will take all
steps necessary to cause the Offer Documents as so corrected to be filed with
the SEC and the other Offer Documents as so corrected to be disseminated to the
Company's stockholders, in each case as and to the extent required by the
Exchange Act. The Parent and Merger Sub will provide the Company and its counsel
any comments the Parent, Merger Sub, or their counsel may receive from the SEC
or its staff with respect to the Offer Documents promptly after the receipt of
such comments.
(c) As promptly as practicable, but in no event later
than the date on which the Parent notifies the Company that the Offer Documents
initially are to be filed with the SEC, the Company will file its Tender Offer
Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the
Offer (together with all supplements or amendments thereto, and including all
exhibits, the "Schedule 14D-9"), which will include a recommendation by the
Company's Board of Directors that the Company's stockholders
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accept the Offer and tender their Common Stock pursuant to the Offer. The
Company agrees that the Schedule 14D-9 will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
promulgated thereunder and, on the date filed with the SEC and on the date first
published, sent, or given to the Company's stockholders, will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that no representation or warranty is made by the Company with respect to
information supplied by the Parent or Merger Sub in writing specifically for
inclusion in the Schedule 14D-9. The Parent and Merger Sub agree that any such
information supplied by the Parent and Merger Sub that is included in the
Schedule 14D-9 will not, at the time such information is furnished to the
Company, contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Each of the Company, the Parent, and Merger Sub will promptly
correct any information provided by it for use in the Schedule 14D-9 if and to
the extent that such information becomes false or misleading in any material
respect, and the Company will take all steps necessary to amend or supplement
the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented
to be filed with the SEC and disseminated to the Company's stockholders, in each
case as and to the extent required by the Exchange Act. The Parent and its
counsel will be given reasonable opportunity to review and comment upon the
Schedule 14D-9 prior to its filing with the SEC or dissemination to stockholders
of the Company. The Company will provide the Parent and its counsel any comments
the Company or its counsel may receive from the SEC or its staff with respect to
the Schedule 14D-9 promptly after the receipt of such comments. The Company's
Board of Directors has resolved to recommend that the Company's stockholders
accept the Offer and tender their Common Stock pursuant to the Offer and has
received an opinion from Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities Corporation
("DLJ") that, as of the date of such opinion, the cash consideration to be
received by the stockholders of the Company pursuant to the Offer and the Merger
is fair to such stockholders from a financial point of view.
(d) If requested by the Parent or Merger Sub, the
Company will, promptly following the purchase by Merger Sub pursuant to the
Offer of that number of shares of Common Stock which, when aggregated with the
shares of Common Stock then owned by the Parent and any of its affiliates,
represents at least a majority of the shares of Common Stock then outstanding on
a fully diluted basis, take all actions necessary to cause persons designated by
Merger Sub to become directors of the Company so that the total number of
directors so designated equals the product, rounded up to the next whole number,
of (i) the total number of directors of the Company multiplied by (ii) the ratio
of the number of shares of Common Stock beneficially owned by Merger Sub or its
affiliates to the number of shares of Common Stock then outstanding. In
furtherance thereof, the Company will take whatever action is necessary,
including but not limited to amending the Company's bylaws, to increase the size
of its Board of Directors, or use reasonable efforts
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to secure the resignation of directors, or both, as is necessary to permit that
number of Merger Sub's designees to be elected to the Company's Board of
Directors; provided that, prior to the Effective Time, the Company's Board of
Directors will always have at least two members who are currently directors of
the Company, except to the extent that no such individuals wish to be directors
("Continuing Directors"). The Company's obligations to appoint designees to its
Board of Directors will be subject to Section 14(f) of the Exchange Act and Rule
14f-1 promulgated thereunder. The Parent and Merger Sub will supply to the
Company and will be solely responsible for any information with respect to
either of them and their nominees, officers, directors, and affiliates required
by Section 14(f) and Rule 14f-1. The Company will promptly take all actions
required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its
obligations under this Section 1.01 and (provided Merger Sub has furnished the
Company on a timely basis with all information required to be included in the
Information Statement with respect to Merger Sub's designees) will include in
the Schedule 14D-9 such information with respect to the Company and its officers
and directors as is required under Section 14(f) and Rule 14f-1.
(e) Following the election or appointment of Merger
Sub's designees pursuant to Section 1.01(d), any amendment to this Agreement,
any termination of this Agreement by the Company, any extension by the Company
of the time for the performance of any of the obligations of Merger Sub or the
Parent under this Agreement (except as expressly permitted hereunder), any
recommendation to stockholders or any modification or withdrawal of any such
recommendation, any retention of counsel and other advisors in connection with
the transactions contemplated hereby, or any waiver of any of the Company's
rights under this Agreement will require the concurrence of a majority of the
Continuing Directors, unless no individuals who are currently directors of the
Company wish to be directors. In addition, the Continuing Directors will have
the right to retain, at the expense of the Company, one separate firm of counsel
to represent them in connection with the transactions contemplated hereby.
(f) The parties will cooperate with each other,
including by furnishing any necessary information and making any filings
required by applicable law, to ensure that the matters contemplated by this
Section 1.01 are consummated as promptly as practicable.
SECTION 1.02. The Merger.
(a) Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time (as defined in Section 1.02(b)),
Merger Sub will be merged with and into the Company in accordance with the
Delaware General Corporation Law ("Delaware Law"). As a result of this merger
(the "Merger"), the separate existence of Merger Sub will cease and the Company
will be the surviving corporation (the "Surviving Corporation").
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(b) As soon as practicable after satisfaction or, to
the extent permitted hereunder, waiver of all conditions to the Merger set forth
in Article VIII, the parties will cause a certificate of merger in such form as
is required by, and executed in accordance with, Delaware Law to be duly filed
with the Secretary of State of the State of Delaware. The Merger will become
effective when the certificate of merger is so filed (the "Effective Time").
(c) From and after the Effective Time, the Merger
will have the effects specified in Delaware Law.
(d) The closing of the Merger (the "Closing") will
take place (i) at the offices of Xxxxxxxx Xxxx & Xxxxx LLP, 0000 Xxx Xxxxxx, 000
Xxxxxx Xxxxxx, Xxxxxxxxx, Xxxx 00000-0000, at 10:00 a.m. as soon as practicable
(and in no event later than the fifth business day) following the date on which
the last to be fulfilled or waived of the conditions set forth in Article VIII
(other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the fulfillment or waiver of those conditions at the
Closing) have been satisfied or waived in accordance with this Agreement or (ii)
at such other place and time as the parties may agree.
SECTION 1.03. Conversion of Shares.
At the Effective Time:
(a) Each share of Common Stock of Merger Sub (a share
of "Merger Sub Common Stock") issued and outstanding immediately prior to the
Effective Time will be converted into one share of Common Stock of the Surviving
Corporation.
(b) Each share of Common Stock issued and outstanding
immediately prior to the Effective Time will, except as otherwise provided in
Section 1.03(c), be converted, by virtue of the Merger and without any action on
the part of the holder thereof, into the right to receive, without interest, an
amount in cash equal to the price per share paid in the Offer (the "Merger
Consideration"). Subject to Section 1.06, from and after the Effective Time, all
shares of Common Stock, by virtue of the Merger and without any action on the
part of the holders thereof, will be canceled, and each holder of a certificate
representing any shares of Common Stock immediately prior to the Effective Time
(a "Stock Certificate") will thereafter cease to have any rights with respect
thereto except the right to receive (i) the Merger Consideration therefor upon
the surrender of the Stock Certificate in accordance with Section 1.04 or (ii)
payment from the Surviving Corporation of the "fair value" of such shares of
Common Stock as determined under Section 262 of the Delaware Law, subject to the
conditions set forth therein and in accordance with Section 1.06 of this
Agreement.
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(c) Each outstanding share of Common Stock held by
the Company as a treasury share or owned by the Parent, Merger Sub, or any other
Subsidiary of the Parent immediately prior to the Effective Time will be
canceled, and no payment will be made with respect thereto.
SECTION 1.04. Surrender and Payment.
(a) Prior to the Effective Time, the Parent will
appoint a bank or trust company reasonably acceptable to the Company (the
"Exchange Agent") for the purpose of exchanging Stock Certificates. The Parent
will make available to the Exchange Agent funds in amounts and at the times
necessary for the payment of the Merger Consideration in accordance with this
Section 1.04 (such cash is referred to as the "Exchange Fund").
(b) Promptly, but in no event more than five business
days, after the Effective Time, the Parent will send, or will cause the Exchange
Agent to send, to each holder of a Stock Certificate a letter of transmittal and
instructions for use in surrendering the Stock Certificates for payment in
accordance with this Section 1.04. The agreement with the Exchange Agent will
provide that, upon surrender to the Exchange Agent of such Stock Certificates,
together with the letter of transmittal, duly executed and completed in
accordance with the instructions thereto and such other documents as may be
reasonably required by the Exchange Agent, the Exchange Agent will promptly pay
to the persons entitled thereto, out of the Exchange Fund, a check in the amount
to which such persons are entitled pursuant to Section 1.03(b), after giving
effect to any required tax withholdings, and such Stock Certificate will
forthwith be canceled.
(c) If any cash is to be paid to a Person other than
the registered holder of the Stock Certificates surrendered in exchange
therefor, it will be a condition to such payment that the Stock Certificates so
surrendered be properly endorsed or otherwise in proper form for transfer and
that the Person requesting such payment pay to the Exchange Agent any transfer
or other taxes required as a result of such issuance or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. For purposes of this Agreement, "Person" means an individual, a
corporation, a partnership, a limited liability company, an association, a
trust, or any other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
(d) At and after the Effective Time, the stock
transfer books of the Company will be closed, and there will be no further
registration of transfers of shares of Common Stock outstanding prior to the
Effective Time. If, at or after the Effective Time, Stock Certificates are
presented to the Surviving Corporation, they will be canceled and exchanged in
accordance with this Article I.
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(e) Any cash in the Exchange Fund that remains
unclaimed by the holders of shares of Common Stock six months after the
Effective Time will be returned to the Parent, upon demand, and any such holder
who has not surrendered his shares of Common Stock in accordance with this
Section 1.04 prior to that time will thereafter look only to the Parent, as a
general creditor thereof, to pay the Merger Consideration to which such holder
is entitled. Notwithstanding the foregoing, the Parent will not be liable to any
holder of shares of Common Stock for any amount paid to a public official
pursuant to applicable abandoned property, escheat, or similar laws.
(f) If any Stock Certificate is lost, stolen, or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Stock Certificate to be lost, stolen, or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as the Parent may direct as indemnity against any claim that may be made
against it with respect to such Stock Certificate, the Exchange Agent will pay
the Merger Consideration payable in respect of such Stock Certificate pursuant
to this Agreement.
SECTION 1.05. Company Options; Series B Warrants.
(a) At the Effective Time, each outstanding option (a
"Company Option") to purchase shares of Common Stock granted to employees,
directors, or X.X. Xxxxxxx & Co. ("X.X. Xxxxxxx"), whether or not exercisable,
will be canceled, and in consideration of such cancellation, will be converted
into the right to receive, without interest, an amount in cash (the "Cash
Payment") equal to the product of (i) the number of shares of Company Stock
subject to the Company Option and (ii) the excess of (A) the Merger
Consideration over (B) the exercise price per share of the Company Option;
provided that, with respect to any Person subject to Section 16 of the Exchange
Act, any such amount will be paid, without interest, as soon as practicable
after the first date payment can be made without liability of such Person under
Section 16(b) of the Exchange Act. The Parent will be entitled to cause the
Surviving Corporation to withhold from amounts otherwise payable pursuant to
this Section 1.05 any amount required to be withheld under applicable tax laws.
(b) At the Effective Time, the Parent will cause the
Surviving Corporation to expressly assume the due and punctual performance and
observance of each and every covenant and condition of the Series B Warrant
Agreement (the "Series B Warrant Agreement") and the Series C Warrant Agreement
("Series C Warrant Agreement"), each executed by and between the Company and
American Stock Transfer & Trust Company, as the warrant agent (the "Warrant
Agent"), and dated as of July 31, 1996, that was to be performed by the Company
under each agreement, by supplemental agreement (the "Supplemental Warrant
Agreement") satisfactory in form to the Warrant Agent in the exercise of its
reasonable judgment and executed and delivered to the Warrant Agent. The
Supplemental Warrant Agreement shall further provide that each holder of a
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Series B Warrant shall have the right after the Effective Time (a) upon exercise
of each Series B Warrant and payment of the Exercise Price (as defined in the
Series B Warrant Agreement) in effect immediately prior to the Effective Time,
to receive the Merger Consideration and one Series C Warrant and (b) upon
exercise of each Series C Warrant and payment of the Exercise Price (as defined
in the Series C Warrant Agreement) in effect immediately prior to the Effective
Time, to receive the Merger Consideration.
SECTION 1.06. Shares of Dissenting Stockholders.
Notwithstanding anything in this Agreement to the
contrary, any outstanding shares of Common Stock held by a person (a "Dissenting
Stockholder") who objects to the Merger and complies with all the provisions of
Delaware Law concerning the right of holders of shares of Common Stock to
dissent from the Merger and require appraisal of their shares will not be
converted as described in Section 1.03(b), but will be converted into the right
to receive such consideration as may be determined to be due to such Dissenting
Stockholder pursuant to Delaware Law. If, after the Effective Time, such
Dissenting Stockholder withdraws his demand for appraisal, or fails to perfect
or otherwise loses his right to appraisal, in accordance with Delaware Law, his
shares of Common Stock will be deemed to have been converted as of the Effective
Time into the right to receive the Merger Consideration. The Company will give
the Parent (i) prompt notice of any demands for appraisal of shares of Common
Stock received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to any such demands. The Company will
not, without the prior written consent of the Parent, make any payment with
respect to, or settle, offer to settle, or otherwise negotiate, any such
demands.
ARTICLE II
THE SURVIVING CORPORATION; THE PARENT DIRECTORS
SECTION 2.01. Certificate of Incorporation.
Subject to Section 6.01(a), the certificate of
incorporation of Merger Sub in effect immediately prior to the Effective Time
will be the certificate of incorporation of the Surviving Corporation after the
consummation of the Merger until amended in accordance with applicable law.
SECTION 2.02. Bylaws.
Subject to Section 6.01(a), the bylaws of Merger Sub
in effect immediately prior to the Effective Time will be the bylaws of the
Surviving Corporation after the consummation of the Merger until amended in
accordance with applicable law.
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SECTION 2.03. Directors and Officers.
From and after the Effective Time, until successors
are duly elected or appointed and qualified in accordance with applicable law,
the directors and officers of Merger Sub immediately prior to the Effective Time
will be the directors and officers of the Surviving Corporation after the
consummation of the Merger.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent
that:
SECTION 3.01. Corporate Existence and Power.
The Company is a corporation duly incorporated,
validly existing, and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own, lease, and operate
its properties and to carry on its business as now conducted. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where it is required to be so qualified by reason of the
character of the property owned or leased by it or the nature of its activities,
except where the failure to be so qualified would not have a Company Material
Adverse Effect (as defined in the Offer Conditions).
SECTION 3.02. Corporate Authorization.
The execution and delivery by the Company of this
Agreement, the consummation by the Company of the Merger, and the performance by
the Company of its other obligations under this Agreement are within the
Company's corporate power and authority and, except for any required approval by
the Company's stockholders in connection with the consummation of the Merger,
have been duly authorized by all necessary corporate action on the part of the
Company. This Agreement has been duly executed and delivered by the Company and,
assuming the due authorization, execution, and delivery of this Agreement by the
Parent and Merger Sub, constitutes a legal, valid, and binding agreement of the
Company.
SECTION 3.03. Governmental Authorization.
The execution and delivery by the Company of this
Agreement, the consummation by the Company of the Merger, and the performance by
the Company of its other obligations under this Agreement do not require any
consent, approval, authorization, or permit of, other action by, or filing with,
any governmental body, agency, official, or authority by the Company other than
(i) as set forth on Section 3.03 of the Disclosure
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Schedule delivered by the Company to the Parent concurrently with the execution
and delivery of this Agreement (the "Company Disclosure Schedule"), (ii) the
filing of appropriate certificates of merger in accordance with Delaware Law,
(iii) the filing and delivery of the Schedule 14D-9, (iv) compliance with
applicable requirements of the Xxxx- Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended (the "HSR Act"), (v) the filing of the proxy materials referred
to in Section 5.05(b), and (vi) any such other action or filing where the
failure to take the action or to make the filing is not reasonably likely (A) to
prevent or materially to delay the consummation of the Offer or the Merger or
(B) to have, individually or in the aggregate, a Company Material Adverse
Effect.
SECTION 3.04. Certificate of Incorporation and Bylaws.
The Company has heretofore furnished to the Parent
and Merger Sub complete and correct copies of the certificate of incorporation
and the bylaws, in each case as amended or restated as of the date hereof, of
the Company.
SECTION 3.05. Non-Contravention.
The execution and delivery by the Company of this
Agreement, the consummation by the Company of the Merger, and the performance by
the Company of its other obligations under this Agreement do not and will not
(i) contravene or conflict with the certificate of incorporation or bylaws of
the Company, (ii) assuming compliance with the matters referred to in Section
3.03, contravene, conflict with, or constitute a violation of any provision of
any law, rule, regulation, judgment, injunction, order, or decree binding upon
or applicable to the Company, (iii) constitute a default, give rise to a right
of termination, cancellation, or acceleration of any right or obligation of the
Company, or give rise to a loss of any benefit to which the Company is entitled,
under any provision of any agreement or other instrument binding upon the
Company or under any license, franchise, permit, or other similar authorization
held by the Company, or (iv) result in the creation or imposition of any Lien on
any asset of the Company, except as set forth in Section 3.05 of the Company
Disclosure Schedule and except for any occurrences or results referred to in
clauses (ii), (iii), and (iv) that would not be reasonably likely (A) to prevent
or delay consummation of the Offer or the Merger or (B) to have, individually or
in the aggregate, a Company Material Adverse Effect. For purposes of this
Agreement, "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, encumbrance, or other right or interest of another to
or in, or adverse claim of any kind in respect of, such asset.
SECTION 3.06. Capitalization.
(a) The Company has 8,000,000 authorized shares,
consisting of 7,000,000 shares of Common Stock and 1,000,000 shares of Preferred
Stock, $.01 par value, of the Company ("Company Preferred Stock"). As of
February 2, 1998, (i)
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5,331,830 shares of Common Stock were issued and outstanding, (ii) 907,758
shares of Common Stock were reserved for future issuance upon exercise of
outstanding Company Options, and (iii) 376,158 shares of Common Stock were
reserved for future issuance upon exercise of Series B Warrants. As of February
2, 1998, no shares of Company Preferred Stock were issued or outstanding. Except
as described in this Section 3.06 or in Section 3.06 of the Company Disclosure
Schedule, as of the date of this Agreement, no shares of capital stock of the
Company are reserved for issuance for any other purpose. Each of the issued and
outstanding shares of Common Stock is duly authorized, validly issued, and fully
paid and nonassessable and has not been issued in violation of (nor are any of
the authorized shares of Common Stock or Company Preferred Stock subject to) any
preemptive or similar rights created by statute, the certificate of
incorporation or the bylaws of the Company, or any agreement to which the
Company is a party or is bound. Each of the outstanding Company Options and
Series B Warrants is duly authorized and validly issued.
(b) Except for the Company Options and the Series B
Warrants as set forth in paragraph (a) of this Section 3.06 or as set forth on
Section 3.06 of the Company Disclosure Schedule, there are no options, warrants,
or other rights (including registration rights and conversion rights),
agreements, arrangements, or commitments to which the Company is a party or
bound relating to the issued or unissued capital stock of the Company or
obligating the Company to grant, issue, or sell any shares of the capital stock
of the Company or other security of the Company. Except as set forth in Section
3.06 of the Company Disclosure Schedule, there are no obligations, contingent or
otherwise, of the Company to purchase, redeem, or otherwise acquire any shares
of Common Stock or other capital stock of the Company.
(c) Section 3.06 of the Company Disclosure Schedule
lists, as of the date indicated, the (i) number of shares of Common Stock
subject to, and the exercise price of, each outstanding Company Option and (ii)
the number of shares of Common Stock subject to, and the exercise price of, each
outstanding Series B Warrant. The Company has made available to the Parent and
Merger Sub complete and correct copies of the Company Option Plans, all forms of
Company Options, and all instruments governing the terms of the Series B
Warrants.
SECTION 3.07. Subsidiaries.
The Company has no Subsidiaries. For purposes of this
Agreement, "Subsidiary" of any Person means (i) any corporation or other entity
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are, directly or indirectly, owned by such Person, and (ii) any
partnership of which such Person is a general partner.
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SECTION 3.08. Company SEC Reports.
Since July 31, 1996, the Company has filed all
material forms, reports, statements, and other documents required to be filed by
it with the SEC, including without limitation (a) all Annual Reports on Form
10-K, (b) all Quarterly Reports on Form 10-Q, (c) all proxy statements relating
to meetings of stockholders (whether annual or special), (d) all Current Reports
on Form 8-K, and (e) all other reports, schedules, registration statements, and
other documents required to be filed with the SEC. (All of the documents filed
by the Company with the SEC during such period, including all exhibits contained
or incorporated by reference in such documents, are collectively referred to as
the "Company SEC Reports"). The Company SEC Reports, as amended to date, (i)
were prepared in all material respects in accordance with the requirements of
the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange
Act, as the case may be, and (ii) did not at the time they were filed contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
SECTION 3.09. Financial Statements; No Undisclosed Liabilities.
The audited financial statements and unaudited
interim financial statements (including the related notes and schedules) of the
Company included or incorporated by reference in the Company SEC Reports as of
dates and for periods after July 31, 1996 (the "Company Financial Statements")
were prepared in conformity with AICPA Statement of Position 90-7 and fairly
present the financial position of the Company as of the dates indicated and its
results of operations and cash flows for the periods then ended in conformity
with generally accepted accounting principles, subject, in the case of any
unaudited interim financial statements, to normal year-end adjustments, none of
which, except as set forth on Section 3.09 of the Company Disclosure Schedule,
would be reasonably likely to be, individually or in the aggregate, material in
amount. The Company does not have any liabilities, whether accrued, contingent,
or otherwise, other than (a) liabilities disclosed in the Company Disclosure
Schedule or the Company SEC Reports, (b) liabilities reflected in the balance
sheet as of October 31, 1997 included in the Company Financial Statements (the
"October 1997 Balance Sheet"), (c) liabilities, ordinary in nature and amount,
incurred since October 31, 1997, and (d) liabilities in an aggregate amount that
is not material to the Company.
SECTION 3.10. Inventory.
The procedures used for establishing the count and
value of inventory in all physical inventories taken after January 31, 1997,
were substantially the same as the procedures used in establishing the count and
value of inventory shown in the audited balance sheet of the Company as of
January 31, 1997. Between the date of this
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Agreement and the Effective Time, the Company will permit the Parent to take any
reasonable steps that it deems to be appropriate in order to test and confirm
the valuation of the inventory.
SECTION 3.11. Contracts and Commitments.
Except as set forth in Section 3.11 of the Company
Disclosure Schedule, the Company is not a party to or bound by any oral or
written contracts that cannot be terminated by Company on notice of 30 days or
less and that:
(a) Provides for the purchase of supplies or services
that (i) entails the expenditure in any fiscal year of more than
$50,000 in the case of supplies other than merchandise or $250,000 in
the case of merchandise, (ii) purports to be exclusive as pertains to
any product, type of product, or region, or (iii) has a term of more
than one year.
(b) Limits the right of the Company to compete, to
open a store in any territory, or to use any trade names, trademarks,
copyrights, logos, or other proprietary rights.
(c) Provides for payments to anyone based on the
operating results of the Company or any one or more of the stores
(other than percentage rents payable to landlords).
(d) Warrants goods or services by the Company in a
manner that differs materially from the warranty provided by the
manufacturer of the goods or the provider of the services.
(e) Commits for capital expenditures in excess of
$50,000 for any one project or $250,000 for any group of projects.
(f) Provides for the borrowing of money by the
Company or for the creation of any Lien on any of the assets of the
Company.
(g) Provides for the expenditure by the Company of an
aggregate of more than $50,000, other than contracts for the purchase
of supplies or merchandise covered by paragraph (a) and contracts for
capital expenditures covered by paragraph (e).
To the extent requested by the Parent, the Company has delivered or prior to the
Effective Time will deliver to the Parent copies of all written contracts and
commitments listed in Section 3.11 of the Company Disclosure Schedule, summaries
of all oral contracts and commitments listed in Section 3.11 of the Company
Disclosure Schedule, and all
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modifications and supplements thereto (collectively, the "Contracts"). Except as
disclosed in Section 3.11 of the Company Disclosure Schedule (i) each of the
Contracts is in full force and effect, (ii) the Company and, to the knowledge of
the Company, all other parties to the Contracts have, in all material respects,
performed their obligations and are not in default under the Contracts, (iii)
the Company has not given or received any notice of default under any of the
Contracts, (v) no event has occurred or condition exists that, with the giving
of notice, the passage of time, or both, would constitute a default by the
Company or, to the best knowledge of the Company, any other party under any of
the Contracts, and (v) neither the Company nor, to the best knowledge of the
Company, any other party has waived, or extended the time for the performance
of, any obligations under the Contracts. To the best knowledge of the Company,
none of the Contracts is subject to any impending cancellation.
SECTION 3.12. Absence of Certain Changes.
Except as disclosed in Section 3.12 of the Company
Disclosure Schedule, since October 31, 1997, (a) the Company has conducted its
business in all material respects in the ordinary course consistent with past
practices, (b) there has not been any change or development, or combination of
changes or developments, in the business, operations, or financial condition of
the Company that are reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect, other than as a result of changes
in conditions, including economic or political developments, that are applicable
to the retail business and do not have a disproportionate effect on the
Company's business relative to the effect of any such change on other entities
in the retail business, (c) there has not been any declaration, setting aside,
or payment of any dividend or other distribution with respect to the Common
Stock or any other capital stock of the Company, or any repurchase, redemption,
or other acquisition by the Company of any shares of Common Stock or other
capital stock of the Company, (d) there has not been any amendment of any term
of any outstanding security of the Company, (e) there has not been any
incurrence, assumption, or guarantee by the Company of any indebtedness for
borrowed money other than (i) borrowings and letters of credit in the ordinary
course of business under the CITBC Financing Agreement not in excess of the
amount available under the CITBC Financing Agreement and (ii) indebtedness
representing capital lease and installment purchase obligations incurred in
connection with the lease or purchase of equipment in the ordinary course of
business and in amounts and on terms consistent with past practices, (f) there
has not been any creation or assumption by the Company of any Lien on a material
amount of assets (including the sale, pledge, or assignment of a material amount
of receivables) other than Liens securing the Company's obligations under the
CITBC Financing Agreement and Liens securing capital lease and installment
purchase obligations incurred in connection with the lease or purchase of
equipment in the ordinary course of business, and (g) there has not been any
change in any method of accounting or accounting practice by the Company, except
for any such change required by reason of a concurrent change in generally
accepted accounting principles. Furthermore, except as
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disclosed in Section 3.12 of the Company Disclosure Schedule, or pursuant to
agreements, plans, or arrangements disclosed in the Company SEC Reports, since
October 31, 1997, there has not been any (i) grant of any severance or
termination pay or stay-in-place bonus to any director or officer of the
Company, (ii) entering into of any employment, deferred compensation, or other
similar agreement (or any amendment to any such existing agreement) with any
director or officer of the Company or any of its Subsidiaries, (iii) increase in
benefits payable under any existing severance or termination pay or stay-in-
place bonus policies or agreements with any director or officer of the Company,
or (iv) increase in compensation, bonus, or other benefits payable to directors
or officers of the Company, except for normal annual adjustments that are not
unusual in nature or amount.
SECTION 3.13. Litigation.
Except as disclosed in Section 3.13 of the Company
Disclosure Schedule, (i) there is no material action, suit, or proceeding
pending before, and, to the knowledge of the Company, there is no material
pending investigation by, any court or arbitrator or any governmental body,
agency, official, or authority against the Company or involving any of their
properties, (ii) to the knowledge of the Company, there is no threat of any such
material action, suit, or proceeding, and (iii) no judgment, decree, injunction,
rule, order, or similar action of any court or arbitrator or any governmental
body, agency, official or authority, domestic or foreign, is outstanding against
the Company that materially limits the conduct of the business of the Company as
currently conducted. For purposes of Section 3.13, an action, suit, proceeding,
investigation, judgment, decree, injunction, rule, order, or similar action will
be deemed to be "material" if it involves (a) a claim or potential claim of
liability in excess of $50,000 that is not covered by insurance or (b) a
significant limitation or potential limitation on the conduct of the business of
the Company as currently conducted.
SECTION 3.14. Permits; Compliance.
Except as is disclosed in Section 3.14 of the Company
Disclosure Schedule, the Company is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals, and orders necessary to own, lease, and operate its
properties and to carry on its business as now being conducted, other than (i)
those issued by or otherwise obtained from governmental authorities pursuant to
or in connection with any Environmental Law (as hereinafter defined) and (ii)
those of which the failure of the Company to be in possession is not,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect (collectively, the "Company Permits"). Except as set forth in
Section 3.14 of the Company Disclosure Schedule, the Company is not in conflict
with, or in default or violation of, (a) any federal, state, or foreign law
applicable to the Company or by which any of its properties are bound or subject
(other than any Environmental Law) or (b) any of the Company Permits, other than
conflicts, defaults, or violations that are not, individually
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or in the aggregate, reasonably likely to have a Company Material Adverse
Effect. Except as set forth in Section 3.14 of the Company Disclosure Schedule,
since July 31, 1996, the Company has not received any notification with respect
to possible material conflicts, defaults, or violations of any federal, state,
local, or foreign law applicable to the Company or by which any of its
properties are bound or subject (other than any Environmental Law) that have not
been cured without any further material liability or obligation.
SECTION 3.15. ERISA.
(a) As used in this Section 3.15, each of the
following terms has the indicated meaning:
(i) "Affiliate" of any Person means any other Person
that, together with such Person, would be treated as a single employer
under Section 414(b) or (c) of the Internal Revenue Code of 1986, as
amended (the "Code").
(ii) "Company Benefit Arrangement" means each
employment, severance, welfare, or other similar contract,
arrangement, or policy and each plan or arrangement (written or oral)
providing for compensation, benefit, bonus, profit-sharing, stock
option, or other stock related rights or other forms of incentive or
deferred compensation, that (A) is not a Company Employee Plan, (B) is
entered into, maintained, or contributed to, as the case may be, by
the Company or any of its Affiliates, and (C) covers any employee or
former employee or director or former director of the Company or any
such Affiliate.
(iii) "Company Employee Plans" means each "employee
benefit plan," as defined in Section 3(3) of ERISA that (A) is subject
to any provision of ERISA and (B) is maintained, administered, or
contributed to by the Company or any Affiliate, or under which the
Company or any Affiliate had an obligation to contribute during the
last five years, and covers any employee or former employee of the
Company or any such Affiliate or under which the Company or any such
Affiliate has any material liability.
(iv) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(b) The Company has heretofore made available to the
Parent, and agrees that it will as soon as practicable after the date of this
Agreement furnish the Parent with, copies of all Company Employee Plans (and, if
applicable, related trust agreements), all amendments thereto, the most recent
Forms 5500 required to be filed with
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respect thereto, Internal Revenue Service determination letters, summary plan
descriptions, actuarial reports, and contracts pursuant to which benefits are
provided, in each case to the extent applicable.
(c) Section 3.15 of the Company Disclosure Schedule
identifies each Company Employee Plan that constitutes a "defined benefit plan"
as defined in Section 3(35) of ERISA. Except as set forth on Section 3.15 of the
Company Disclosure Schedule, no Company Employee Plan constitutes a
"multiemployer plan," as defined in Section 3(37) of ERISA, and no Company
Employee Plan is maintained in connection with any trust described in Section
501(c)(9) of the Code. Except as set forth on Section 3.15 of the Company
Disclosure Schedule, no Company Employee Plan provides retiree medical or
retiree life insurance benefits or is subject to Title IV of ERISA. Neither the
Company nor any of its Affiliates has incurred any material liability under
Title IV of ERISA (excluding liability for premiums payable to the Pension
Benefit Guarantee Corporation), including, without limitation, arising in
connection with the termination of, or complete or partial withdrawal from, any
plan currently or previously covered by Title IV of ERISA, and the Pension
Benefit Guarantee Corporation has not instituted proceedings to terminate any
such plan nor, to the knowledge of the Company, do any conditions exist that
present a material risk of such occurrence. Nothing done or omitted to be done
by the Company or, to the knowledge of the Company, by any other Person, and no
transaction or holding of any asset under or in connection with any Company
Employee Plan by the Company or, to the knowledge of the Company, by any other
Person, has made or will make the Company or any officer or director of the
Company subject to any material liability under Section 406 of ERISA or for any
material tax pursuant to Section 4975 of the Code. With respect to each Company
Employee Plan subject to Title IV of ERISA, the Company has made available to
the Parent the most recent actuarial report showing the present value of accrued
benefits under such plan, based upon the actuarial assumptions used for funding
purposes with respect to such plan. No Company Employee Plan or any trust
established thereunder that is subject to Section 412 of the Code has incurred
any "accumulated funding deficiency" (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, as of the last day of the most
recent fiscal year of each such plan ended prior to the date hereof; and all
contributions required to be made with respect thereto (whether pursuant to the
terms of any Company Employee Plan or otherwise) on or prior to the date hereof
have been timely made.
(d) Each Company Employee Plan that is intended to be
qualified under Section 401(a) of the Code is so qualified and has been so
qualified during the period from its adoption to date, each trust forming a part
thereof is exempt from tax pursuant to Section 501(a) of the Code, as evidenced
by a determination letter issued by the Internal Revenue Service that has not
been revoked. Except as set forth in Section 3.15 of the Company Disclosure
Schedule, each Company Employee Plan has been maintained in compliance with its
terms and with the requirements of all applicable statutes, orders, rules,
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and regulations, except for matters of non-compliance that are not, in the
aggregate, reasonably likely to have a Company Material Adverse Effect.
(e) Section 3.15 of the Company Disclosure Schedule
lists each material Company Benefit Arrangement currently in effect provided to
any director, officer, or employee of the Company or any former director,
officer, or employee of the Company and sets forth each Company Benefit
Arrangement with respect to which benefits will be accelerated or paid as a
result of the transactions contemplated by this Agreement. Copies of all written
Company Benefit Arrangements and all amendments thereto have heretofore been
made available to the Parent, and will promptly be furnished to the Parent upon
the Parent's request after the date of this Agreement. Each Company Benefit
Arrangement has been maintained in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules, and regulations
that are applicable to such Company Benefit Arrangement, except for matters of
non-compliance that are not, in the aggregate, reasonably likely to have a
Company Material Adverse Effect.
(f) Section 3.15 of the Company Disclosure Schedule
sets forth the amount of incentive compensation, in the aggregate, that the
Company expects to be payable with respect to the fiscal year ended January 31,
1998 and with respect to the period from that date through the Effective Time
(assuming the Effective Time occurs six weeks after the date of this Agreement).
(g) Except as set forth in Section 3.15 of the
Company Disclosure Schedule, there are no pending, or, to the knowledge of the
Company, overtly threatened claims by or on behalf of any Company Employee Plan
or Company Benefit Arrangement, by any employee or beneficiary covered under any
such plan or arrangement, or otherwise involving any such plan or arrangement
(other than claims for benefits in the ordinary course), that are, in the
aggregate, reasonably likely to have a Company Material Adverse Effect.
SECTION 3.16. Labor.
Except as set forth on Section 3.16 of the Company
Disclosure Schedule, the Company is not a party to or bound by any collective
bargaining agreement respecting its employees, nor is there existing, or to the
knowledge of the Company any material threat of, any strike, organized walkout,
or other organized work stoppage or labor organizational effort by any employees
of the Company.
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SECTION 3.17. Taxes.
(a) Except as set forth in Section 3.17 of the
Company Disclosure Schedule or in the Company SEC Reports:
(i) Each member of the Group has timely filed all
material Tax Returns required to be filed by them with any taxing
authority with respect to Taxes for all periods heretofore ended, taking
into account any extension of time to file granted to or obtained on
behalf of the members of the Group, all such Tax Returns, in all
material respects, correctly reflected the information required to be
shown therein, and each member of the Group has disclosed on its federal
income Tax return all positions taken therein that could give rise to a
substantial understatement penalty under Section 6662 of the Code;
(ii) all material Taxes required to be paid prior to
the Effective Time by each member of the Group have been duly and timely
paid or will be duly and timely paid by the Effective Time, subject to
good faith challenge;
(iii) no material deficiency for any amount of Tax is
being asserted by a taxing authority against any member of the Group,
except for amounts for which the Company has made an adequate reserve as
reflected in the Company Financial Statements;
(iv) all liability for Taxes of members of the Group
that are or will become due or payable with respect to periods covered
by the Company Financial Statements have, in all material respects, been
paid or adequately reserved for in the Company Financial Statements to
the extent required by generally accepted accounting principles
consistently applied, and all prepaid Taxes and other Tax assets
reflected in the Company Financial Statements have been determined in
accordance with generally accepted accounting principles consistently
applied;
(v) each member of the Group has withheld and paid
over all material Taxes required to have been withheld and paid over,
and complied, in all material respects, with all information reporting
and backup withholding requirements (including maintenance of required
records) in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party;
(vi) no member of the Group is liable for any
material amount of Taxes arising out of membership or participation in
any
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consolidated, affiliated, combined, or unitary group in which they were
at any time members, other than the group of which the Company is the
common parent;
(vii) there are no material Liens for Taxes upon the
assets of the Company other than Liens for Taxes not yet due and
payable;
(viii) there are no outstanding waivers or comparable
consents extending the statute of limitations with respect to any
material Taxes or Tax Returns of any members of the Group, other than
with respect to the Refund Claim referred to in Section 3.17(c);
(ix) with respect to any Taxes: (A) no material
audits, claims, actions, suits, or proceedings are pending or, to the
knowledge of the Company, threatened (other than the Refund Claim
referred to in Section 3.17(c)), and (B) to the knowledge of the
Company, no material investigations are pending;
(x) all federal income Tax returns of members of the
Group filed with respect to Tax years ended on or before December 31,
1991 have been examined and closed (except with respect to the Refund
Claim) or are income Tax returns with respect to which the applicable
period for assessment, after giving effect to extensions or waivers, has
expired;
(xi) no member of the Group is or has been a United
States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code, and the Parent is not required to withhold
Tax on the purchase of the capital stock of the Company by reason of
Section 1445 of the Code (the Company will provide the Parent and Merger
Sub with a certificate, signed on the date of this Agreement and
satisfying the requirements of Treasury Regulations Section 1.897-2(h)
and 1.1445-2(c)(3), to the effect that each member of the Group was not
a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code at any time during the five-year period
preceding the date hereof);
(xii) no member of the Group has entered into any
compensatory agreements with respect to the performance of services the
payment under which would result in a nondeductible expense to the Group
pursuant to Section 280G of the Code or an excise tax to the recipient
of such payment pursuant to Section 4999 of the Code;
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(xiii) there are no requests for rulings or
determinations in respect of any Tax pending between any Group member
and any taxing authority;
(xiv) no member of the Group owns any interest in
real property in the State of New York or in any other jurisdiction in
which a Tax is imposed on the transfer of a controlling interest in an
entity that owns any interest in real property;
(xv) the Company is not a party to any material
agreement providing for the allocation or sharing of Taxes; and
(xvi) there has been no change in the method of
accounting utilized by the Company that would require a material
adjustment to taxable income under Section 481 of the Code.
For purposes of this Agreement, "Taxes" or "Tax" means all federal, state,
local, and foreign taxes, levies, and other assessments, including without
limitation, all income, excise, property, sales, use, value added, transfer,
franchise, profits, withholding, payroll, social security, medicare, or other
taxes, including any interest, additions to tax, and penalties applicable
thereto; "Tax Return" means any return, declaration, statement, report,
estimate, schedule, information return (including information returns or reports
with respect to backup withholding and other payments to third parties), and
other document (including any related or supporting information) with respect to
Taxes; and "Group" means (i) the Company and (ii) any individual, trust,
corporation, partnership, or any other entity as to which the Company is liable
for Taxes either as a transferee, pursuant to Treasury Regulations Section
1.1502-6, or pursuant to any other provision of federal, territorial, state,
local or foreign law or regulations.
(b) After the date of this Agreement, the Company
will furnish the Parent with copies of all federal and state income or franchise
Tax Returns of the Company requested by the Parent. No member of the Group does
business in or derives income from any state, local, territorial, or foreign
taxing jurisdiction other than those for which all Tax Returns have been
furnished to Parent.
(c) The Internal Revenue Service is currently
examining claims for refund filed by the Company with the Internal Revenue
Service as a result of carrybacks of certain net operating losses (the "Refund
Claim"). The Company received $22,502,000 in such refunds. The Company has
furnished the Parent with a chronology, prepared by Deloitte & Touche LLP,
identifying the principal events relating to the Refund Claim, including a
description of meetings and summaries of conversations with representatives of
the Internal Revenue Service. The Company has made available to the Parent all
notices and correspondence between the Internal Revenue Service and the Company
regarding the
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Refund Claim, and the Company will provide copies of any such notices and
correspondence received after the date hereof. The Company has not received any
comparable refund with respect to any state or local Taxes.
SECTION 3.18. Real Estate.
(a) Section 3.18 of the Company Disclosure Schedule
identifies each parcel of real property owned or leased by the Company (the
"Company Real Property"). The Company has good, marketable, and indefeasible fee
simple title to each property identified as owned by it free and clear of all
Liens other than (i) Liens that do not, individually or in the aggregate,
materially impair the conduct by the Company of its business thereon or
materially detract from the value thereof, (ii) Liens for taxes accrued but not
yet payable, and (iii) Liens that secure obligations of the Company under the
CITBC Financing Agreement and under the United States National Bank of Oregon
promissory note dated July 31, 1996 and related deed of trust ("Permitted
Encumbrances"). The Company holds a valid leasehold interest under a lease or
sublease covering each property identified as leased by it free and clear of all
Liens other than Permitted Encumbrances.
(b) Section 3.18 of the Company Disclosure Schedule
sets forth a tables that show, with respect to each of the store leases included
in the Company Real Property (the "Company Store Leases"), (i) base rent for
each fiscal year through 2002 and (ii) lease expiration, options, rent for the
current fiscal year, rent during the first option period, and percentage rent.
(c) After the execution and delivery of this
Agreement, the Company will make available to the Parent a complete, correct,
and current copy of each of the Company Store Leases, including any
modifications and supplements. Except as set forth in Section 3.18 of the
Company Disclosure Schedule, (i) all of the Company Store Leases are in full
force and effect, (ii) the Company and, to the knowledge of Company, all other
parties to the Company Store Leases have, in all material respects, duly and
timely performed their obligations and are not in default under the Company
Store Leases, and the Company is not currently withholding any rent due under
any of the Company Store Leases, (iii) the Company has not given or received any
notice of a material default under any of the Company Store Leases, (iv) no
event has occurred or condition exists that, with the giving of notice, the
passage of time, or both, would constitute a material default by the Company or,
to the knowledge of the Company, any other party under any of the Company Store
Leases, (v) neither the Company nor, to the knowledge of the Company, any other
party has waived, or extended the time for the performance of, any material
obligations under the Company Store Leases, and (vi) to the knowledge of the
Company, none of the Company Store Leases is subject to any impending
cancellation.
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(d) Except as set forth in Section 3.18 of the
Company Disclosure Schedule, no third parties have any rights to use or occupy
any of the Company Real Property, whether as tenants, subtenants, holders of
easements or licenses, or otherwise.
(e) The use of the Company Real Property by the
Company in its business as presently and ordinarily conducted conforms with
applicable zoning laws, regulations, and permits, except where the failure to
conform would not have a Company Material Adverse Effect. In addition, (i) no
zoning changes are pending or, to the knowledge of the Company, threatened that
would prohibit or make nonconforming the use of any of the Company Real Property
as presently and ordinarily used, (ii) no condemnation or eminent domain
proceedings are pending or, to the knowledge of the Company, threatened with
respect to any of the Company Real Property, and (iii) no landlord or public
authority is installing, or, to the knowledge of the Company, planning to
install, any material improvements the cost of which might, in full or in part,
be assessed against the Company.
SECTION 3.19. Personal Property.
Except as set forth in 3.19 of the Company Disclosure
Schedule, the Company has good and marketable title to all of the material
personal property reflected in the October 1997 Balance Sheet (other than
personal property sold since that date in the ordinary course of business) free
and clear of all Liens other than Permitted Encumbrances.
SECTION 3.20. Intellectual Property Rights.
(a) Section 3.20 of the Company Disclosure Schedule
identifies all Intellectual Property Rights (as defined in Section 3.20(b)) that
are owned or licensed by the Company or used in its business.
(b) The Company has registered the names "House of
Fabrics" and "So-Fro Fabrics." The Company's right to continue to use the names
"House of Fabrics," "Fabricland," "Fabric King," and "So-Fro Fabrics" as now
used in the Company's business is not subject to any pending, or, to the
knowledge of the Company, threatened challenge. To the knowledge of the Company,
the Company owns or licenses all other Intellectual Property Rights required to
conduct their business as presently and ordinarily conducted. Except for the
matters identified in Section 3.20 of the Company Disclosure Schedule, (i) the
Company has not been sued, charged in writing with, or named a defendant in, any
claim, suit, action, or proceeding involving a material claim of infringement of
any Intellectual Property Rights of others that has not been resolved without
the imposition of any restrictions on the right of the Company to engage in any
activities relating to its business, (ii) to the knowledge of the Company, there
is no threatened material claim of infringement by the Company of any
Intellectual Property Rights of others, and (iii) to the knowledge of the
Company, there is no material continuing
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infringement by others of the Intellectual Property Rights of the Company.
Except as set forth in Section 3.20 of the Company Disclosure Schedule, no
Intellectual Property Rights of the Company are subject to any outstanding
order, judgment, decree, stipulation, or agreement restricting the use thereof
by the Company. Except as set forth in Section 3.20 of the Company Disclosure
Schedule, the Company has not entered into any agreement to indemnify any other
individual or entity against any charge of infringement of any Intellectual
Property Right.
(b) For purposes of this Agreement, "Intellectual
Property Rights" means trade names, trademarks, service marks, and copyrights,
registrations thereof or applications therefor, the preferred customer mailing
list or lists maintained by the Company, and any other relevant proprietary
intellectual property rights.
SECTION 3.21. Environmental Protection.
(a) Except as set forth in Section 3.21 of the
Company Disclosure Schedule, (i) the Company has no material liability arising
out of the generation, use, transportation, treatment, storage, release, or
disposal of any Hazardous Material (as defined in Section 3.21(b)) in violation
of any Environmental Requirement (as defined in Section 3.21(c)), (ii) the
Company is in compliance with all applicable Environmental Requirements, except
where non-compliance would not result in a material liability to the Company,
(iii) no notice, order, decree, notice of violation, or other notice has been
received by the Company alleging that the Company is, in any material respect,
in violation of any Environmental Requirement, (iv) no notice has been received
by the Company of the existence or pendency of any investigation, claim,
lawsuit, proceeding, or similar action arising under any Environmental
Requirement, and (v) the Company has all material permits, licenses, and other
authorization required by applicable Environmental Requirements, and the Company
is, in all material respects, in compliance with the terms of those permits.
(b) For the purposes of this Agreement, a "Hazardous
Material" is any material or substance that is defined or listed in, or
otherwise classified pursuant to, any applicable Environmental Requirement as a
hazardous substance, hazardous material, hazardous waste, toxic substance or any
other formulation intended to define, list or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
radioactivity, carcinogenicity, reproductive toxicity, or "EP toxicity",
including, without limitation, asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, petroleum and drilling fluids, and produced waters
and other wastes associated with the exploration, development or production of
crude oil, natural gas, or geothermal energy.
(c) For the purposes of this Agreement, an
"Environmental Requirement" is any law, statute, code, act, ordinance, order,
judgment, decree, injunction, rule, regulation, permit, license, authorization,
direction, or requirement of any
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government, department, commission, board, court, authority, agency, official,
or officer relating to (i) the generation, use, storage, transportation, or
disposal of any Hazardous Material or (ii) the protection of the environment,
land use, or the safety, health, and welfare of human, animal, or plant life,
including, without limitation, the Clean Air Act, the Clean Water Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Hazardous Materials Transportation
Act and the Toxic Substances Control Act, each as amended or supplemented to
date, and any analogous local, state, or federal statute and any regulations
promulgated pursuant thereto.
SECTION 3.22. Insurance.
Section 3.22 of the Company Disclosure Schedule
lists, and the Company has made available to the Parent or its representatives
for review current and complete copies of, all insurance policies, binders, and
surety and fidelity bonds relating to the Company (including, without
limitation, all policies or binders of casualty, general liability, and workers'
compensation), all of which are currently in effect. All premiums and other
amounts due and payable under each such policy, binder, and bond have been paid.
The Company is not in default with respect to any material provision contained
in any such policy, binder, or bond and has not failed to give any notice of or
present any material claim thereunder as required under the terms thereof.
Except as set forth on Section 3.22 of the Company Disclosure Schedule, the
Company has not received any written notice of cancellation or non-renewal of
any such policy, binder, or bond. Except as set forth on Section 3.22 of the
Company Disclosure Schedule, the Company has not received any written notice
from any of its insurance carriers that any insurance premiums paid by it will
be materially increased in the future as a result of the claims experience of
the Company. Except as set forth on Section 3.22 of the Company Disclosure
Schedule, adequate reserves have been established for all claims under any such
policy, binder, and bond as to which the insurer has denied coverage.
SECTION 3.23. Indemnification.
Except as set forth in the certificate of
incorporation and bylaws of the Company or as disclosed in Section 3.23 of the
Company Disclosure Schedule, (a) the Company is not a party to any
indemnification agreement with any of its present or former directors, officers,
employees, agents, or other persons who serve in any similar capacity with the
Company or any other enterprise at the request of the Company, and (b) to the
knowledge of the Company, there are no material pending claims or material overt
threats of claims for which any such person would be entitled to indemnification
under Section 6.01 if such provisions were deemed to be in effect.
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SECTION 3.24. Board Approval and Recommendation.
Prior to the execution of this Agreement, the Board
of Directors of the Company, at a meeting duly called and held, unanimously (a)
determined that this Agreement and the transactions contemplated hereby,
including the Merger and the Offer, are fair to the stockholders of the Company,
(b) approved this Agreement and the transactions contemplated hereby, and (c)
recommended that the Company's stockholders tender their shares of Common Stock
pursuant to the Offer and, if applicable, approve this Agreement and the
transactions contemplated herein, including the Merger.
SECTION 3.25. Vote Required.
The only vote of the holders of any class or series
of capital stock of the Company necessary to approve the Merger is the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock. No provision of the Company's Certificate of Incorporation or
Bylaws, or of any other instrument binding on the Company, would required the
vote of the holders of any class or series of capital stock of the Company to
approve the Merger if, at the Effective Time, Merger Sub owns at least 90% of
the shares of Common Stock outstanding at the Effective Time. There is no vote
of the holders of any class or series of capital stock of the Company necessary
in order for Merger Sub to commence and consummate the Offer.
SECTION 3.26. Opinion of Financial Advisor.
The Company has received the opinion of DLJ to the
effect that, as of the date of such opinion, the consideration to be received by
the stockholders of the Company pursuant to the Offer and the Merger is fair to
such stockholders from a financial point of view.
SECTION 3.27. Finders and Investment Bankers.
Except for X.X. Xxxxxxx and DLJ, no investment
banker, broker, finder, or other similar intermediary has been retained by or is
authorized to act on behalf of the Company who might be entitled to any fee or
commission in connection with the transactions contemplated by this Agreement.
The Company has provided the Company with a copy of the engagement letters, as
amended to date, with each such intermediary. The fees of these intermediaries
will be paid by the Company.
SECTION 3.28. Takeover Statutes; No Shareholder Rights Plan.
The Board of Directors of the Company has expressly
approved the acquisition of shares of Common Stock by Merger Sub pursuant to the
Offer and the
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Merger for purposes of Section 203 of the Delaware Law. The Company does not
have a shareholder rights plan (or "poison pill").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE PARENT AND MERGER SUB
The Parent and Merger Sub jointly and severally
represent and warrant to the Company that:
SECTION 4.01. Corporate Existence.
The Parent and Merger Sub are corporations duly
incorporated, validly existing, and in good standing under the laws of the State
of Ohio and Delaware, respectively.
SECTION 4.02. Corporate Authorization.
The execution and delivery by the Parent and Merger
Sub of this Agreement, the purchase by Merger Sub of shares of Common Stock
pursuant to the Offer, the consummation of the Merger by the Parent and Merger
Sub, and the performance by the Parent and Merger Sub of their other obligations
under this Agreement are within their respective corporate powers and authority
and have been duly authorized by all necessary corporate action on the part of
the Parent and Merger Sub, respectively. This Agreement has been duly executed
and delivered by the Parent and Merger Sub and, assuming the due authorization,
execution, and delivery hereof by the Company, constitutes a legal, valid, and
binding agreement of the Parent and Merger Sub.
SECTION 4.03. Governmental Authorization.
The execution and delivery by the Parent and Merger
Sub of this Agreement, the purchase of shares of Common Stock by Merger Sub
pursuant to the Offer, and the consummation of the Merger, and the performance
by the Parent and Merger Sub of their other obligations under this Agreement do
not require any consent, approval, authorization, or permit of, other action by,
or filing with, any governmental body, agency, official, or authority other than
(i) as set forth on Section 4.03 of the Disclosure Schedule delivered by the
Parent to the Company concurrently with the execution and delivery of this
Agreement (the "Parent Disclosure Schedule"), (ii) the filing of appropriate
certificates of merger in accordance with Delaware Law, (iii) the filing and
delivery of the Offer Documents, (iv) compliance with applicable requirements of
the HSR Act, and (v) the filing of the proxy materials referred to in Section
5.05(b), except where the failure of any
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such action to be taken or filing to be made is not reasonably likely to prevent
or delay consummation of the Offer or the Merger.
SECTION 4.04. Non-Contravention.
The execution and delivery by the Parent and Merger
Sub of this Agreement, the purchase by Merger Sub of the shares of Common Stock
pursuant to the Offer, the consummation of the Merger, and the performance by
the Parent and Merger Sub of their other obligations under this Agreement do not
and will not (i) contravene or conflict with the articles of incorporation or
code of regulations of the Parent or the certificate of incorporation or bylaws
of Merger Sub, (ii) assuming compliance with the matters referred to in Section
4.03, contravene, conflict with, or constitute a violation of any provision of
any material law, rule, regulation, judgment, injunction, order, or decree
binding upon or applicable to the Parent, Merger Sub, or any of their
Subsidiaries, (iii) constitute a material default, give rise to a right of
termination, cancellation, or acceleration of any material right or obligation
of the Parent, Merger Sub, or any of their Subsidiaries, or give rise to a loss
of any material benefit to which the Parent, Merger Sub, or any of their
Subsidiaries is entitled, or is reasonably likely to prevent or delay
consummation of the Offer or the Merger, under any provision of any agreement or
other instrument binding upon the Parent, Merger Sub, or any of their
Subsidiaries or any license, franchise, permit, or other similar authorization
held by the Parent, Merger Sub, or any of their Subsidiaries, or (iv) result in
the creation or imposition of any material Lien on any asset of the Parent,
Merger Sub, or any of their Subsidiaries.
SECTION 4.05. Parent SEC Reports.
Since July 31, 1996, the Parent has, in all material
respects, filed all forms, reports, statements, and other documents required to
be filed by it with the SEC, including without limitation (a) all Annual Reports
on Form 10-K, (b) all Quarterly Reports on Form 10-Q, (c) all proxy statements
relating to meetings of stockholders (whether annual or special), (d) all
Current Reports on Form 8-K, and (e) all other reports, schedules, registration
statements, or other documents required to be filed with the SEC. (All of the
documents filed by the Parent with the SEC during such period, including all
exhibits contained or incorporated by reference in such documents, are
collectively referred to as the "Parent SEC Reports"). The Parent SEC Reports
(i) were prepared in all material respects in accordance with the requirements
of the Securities Act or the Exchange Act, as the case may be, and (ii) did not
at the time they were filed contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
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SECTION 4.06. Financial Statements; No Undisclosed Liabilities.
The audited consolidated financial statements and
unaudited consolidated interim financial statements (including the related notes
and schedules) of the Parent and its consolidated Subsidiaries included or
incorporated by reference in the Parent SEC Reports (the "Parent Financial
Statements") were prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods reflected therein
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of the Parent and its consolidated Subsidiaries
as of the dates thereof and their consolidated results of operations and cash
flows for the periods then ended, subject, in the case of any unaudited interim
financial statements, to normal year-end adjustments, none of which would be
reasonably likely to be, individually or in the aggregate, material in amount.
Neither the Parent, Merger Sub, nor any of their Subsidiaries has any
liabilities, whether accrued, contingent, or otherwise, other than (a)
liabilities disclosed in Section 4.06 of the Parent Disclosure Schedule or the
Parent SEC Reports, (b) liabilities for which the Parent has made adequate
reserves as reflected in the balance sheet as of November 1, 1997 included in
the Parent Financial Statements, (c) liabilities, ordinary in nature and amount,
incurred since November 1, 1997, and (d) liabilities in an aggregate amount that
is not material to the Parent, Merger Sub, and their Subsidiaries, taken as a
whole.
SECTION 4.07. Litigation.
There are no material actions, suits, or proceedings
pending before, or, to the knowledge of the Parent, any pending investigation
by, any court or arbitrator or any governmental body, agency, official, or
authority against the Parent or any of its Subsidiaries, or involving any of
their properties, that seek to restrain or prohibit the consummation of the
Offer or the Merger or is reasonably likely to result in a Parent Material
Adverse Effect. To the knowledge of the Parent, there is no material threat of
any such action, suit, or proceeding.
SECTION 4.08. Vote Required.
No vote of the holders of any class or series of
capital stock of the Parent is necessary to approve the purchase of shares of
Common Stock pursuant to the Offer or the consummation of the Merger. The Merger
has been approved by the affirmative vote of the holder of all of the
outstanding shares of Merger Sub Common Stock, and no other vote of the holders
of any class or series of capital stock of Merger Sub is necessary in order for
Merger Sub to commence and consummate the Offer and to consummate the Merger.
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SECTION 4.09. Availability of Funds.
The Parent and Merger Sub have available to them, and
will maintain the availability of, sufficient funds to enable them to consummate
the transactions contemplated by this Agreement.
SECTION 4.10. Fraudulent Conveyance.
Assuming the accuracy of the representations and
warranties of the Company in this Agreement, the Parent has no reason to believe
that the financing to be provided to the Parent to effect the Offer and the
Merger will cause (i) the fair salable value of the Surviving Corporation's
assets to be less than the total amount of its existing liabilities, (ii) the
fair salable value of the assets of the Surviving Corporation to be less than
the amount that will be required to pay its probable liabilities on its existing
debts as they mature, (iii) the Surviving Corporation not to be able to pay its
existing debts as they mature, or (iv) the Surviving Corporation to have an
unreasonably small capital with which to engage in its business.
SECTION 4.11. Finders and Investment Bankers.
Except for XxXxxxxx & Company Securities, Inc., no
investment banker, broker, finder, or other similar intermediary has been
retained by or is authorized to act on behalf of the Parent or Merger Sub who
might be entitled to any fee or commission in connection with the transactions
contemplated by this Agreement. The fees of XxXxxxxx & Company Securities, Inc.
will be paid by the Parent.
ARTICLE V
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 5.01. Conduct of the Company.
Except as expressly contemplated or permitted by this
Agreement or approved in writing by the Parent, from the date of this Agreement
until the time that the designees of Merger Sub have been appointed to the Board
of Directors of the Company in accordance with Section 1.01(d), the Company will
conduct its business in the ordinary course consistent with past practice.
Subject to the foregoing exceptions, from the date hereof until the time that
the designees of Merger Sub have been appointed to the Board of Directors of the
Company:
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(a) the Company will not adopt or approve any
amendment to its certificate of incorporation or bylaws;
(b) the Company will not merge, consolidate, or enter
into a share exchange with any other Person, acquire a material amount of
capital stock or assets of any other Person, or sell, lease, license, mortgage,
pledge, or otherwise dispose of a material amount of assets to any other Person,
except for the purchase or sale of merchandise inventory in the ordinary course
of business consistent with past practice;
(c) the Company will not declare, set aside, or pay
any dividends, make any distributions in respect of shares of Common Stock or
other capital stock of the Company, or redeem, repurchase, or otherwise acquire
any shares of Common Stock or other capital stock of the Company;
(d) the Company will not (i) issue, deliver, or sell,
or authorize the issuance, delivery, or sale of, any Common Stock or other
capital stock of the Company, other than the issuance of shares of Common Stock
upon the exercise of Company Options or Series B Warrants granted prior to the
date hereof, (ii) split, combine, or reclassify any shares of Common Stock, or
(iii) amend the terms of any outstanding voting securities;
(e) the Company will not, without the prior written
consent of the Parent, which consent will not be unreasonably withheld or
delayed, enter into any new store lease, extend the term of any existing store
lease, or make any commitment or enter into any contract or agreement that, if
it were in existence on the date hereof, would be required to be disclosed in
Section 3.11 of the Company Disclosure Schedule;
(f) except to the extent required by law or by
existing written agreements or plans disclosed in the Company SEC Reports or in
the Company Disclosure Schedule, the Company will not increase in any manner the
compensation or fringe benefits of any of its directors or officers (other than
annual increases, in the ordinary course of business consistent with past
practices, in the compensation or fringe benefits of any officers who are not
executive officers), pay any pension or retirement allowance to any such
directors or officers, become a party to, amend, or commit itself to any
pension, retirement, profit-sharing, welfare benefit plan, or employment
agreement with or for the benefit of any such director or officer, grant any
severance or termination pay or stay-in- place bonus to any such director or
officer, or increase the benefits payable under any existing severance or
termination pay or stay-in-place bonus policies;
(g) the Company will not make any material Tax
election or settle or compromise any material federal, state, local, or foreign
Tax liability (including the Refund Claim);
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(h) the Company will not change its accounting
procedures and practices in any material respects, including but not limited to
those relating to inventory valuation and reserves, except to the extent
required by changes in generally accepted accounting principles; and
(i) the Company will not agree to do any of the
foregoing.
SECTION 5.02. Access to Information.
From the date hereof until the Effective Time or
earlier termination of this Agreement, the Company will, upon reasonable notice,
give the Parent, its counsel, financial advisors, auditors, and other authorized
representatives reasonable access during regular business hours to the offices,
properties, books, and records of the Company, and will furnish to the Parent,
its counsel, financial advisors, auditors, and other authorized representatives
such financial and operating data and other information as they may reasonably
request, for the purpose of evaluating the financial condition, results of
operations, business, and properties of the Company, and will instruct the
Company's employees, counsel, and financial advisors to cooperate with the
Parent in its evaluation. All information provided to, or obtained by, the
Parent or Merger Sub in connection with the transactions contemplated hereby
will be "Evaluation Material" for purposes of the confidentiality agreement,
dated October 30, 1997, between the Parent and the Company (the "Confidentiality
Agreement").
SECTION 5.03. Other Offers.
(a) From the date hereof until the Effective Time or
the earlier termination of this Agreement, the Company will not, and will direct
and use all reasonable efforts to cause the directors, officers, employees, and
agents of the Company not to, directly or indirectly, (i) take any action to
solicit, to initiate, or knowingly to encourage any Company Acquisition Proposal
(as defined below), (ii) engage or participate in discussions or negotiations,
or enter into agreements, with any Person with respect to a Company Acquisition
Proposal, or (iii) in connection with a Company Acquisition Proposal, disclose
any nonpublic information relating to the Company or afford access to the
properties, books, or records of the Company to any Person, except that the
Company may take action described in clause (ii) or (iii) if (A) such action is
taken in connection with an unsolicited Company Acquisition Proposal, (B) in the
good faith judgment of the Board of Directors of the Company, after consultation
with outside counsel, the failure to take such action would not be consistent
with the fiduciary duties of the Board of Directors under applicable law, and
(C) in the case of the disclosure of nonpublic information relating to the
Company in connection with a Company Acquisition Proposal, such information is
covered by a confidentiality agreement that provides substantially the same
protection to the Company as is afforded by the Confidentiality Agreement. The
Company will promptly notify the Parent orally and in writing of any Company
Acquisition Proposal
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or any inquiries with respect thereto. Any such written notification will
include the identity of the Person making such inquiry or Company Acquisition
Proposal and a description of the material terms of such Company Acquisition
Proposal (or the nature of the inquiry) and will indicate whether the Company is
providing or intends to provide the person making the Company Acquisition
Proposal with access to nonpublic information relating to the Company or any of
its Subsidiaries. For purposes of this Agreement, "Company Acquisition Proposal"
means any good faith offer or proposal for (x) a merger or other business
combination involving the Company and any Person (other than the Parent, Merger
Sub, or any other Subsidiary of either the Parent or Merger Sub), (y) an
acquisition by any Person (other than the Parent, Merger Sub, or any other
Subsidiary of either the Parent or Merger Sub) of assets or earning power of the
Company, in one or more transactions, representing 15% or more of the
consolidated assets or earning power of the Company, or (z) an acquisition by
any Person (other than the Parent, Merger Sub, or any other Subsidiary of either
the Parent or Merger Sub) of securities representing 15% or more of the voting
power of the Company.
(b) Except as set forth in this Section 5.03(b),
neither the Board of Directors of the Company nor any committee thereof will (i)
withdraw or modify, or propose to withdraw or modify, in a manner adverse to the
Parent or Merger Sub, the approval or recommendation by such Board of Directors
or such committee of the Offer, the Merger, or this Agreement, (ii) approve or
recommend, or propose publicly to approve or recommend, any Company Acquisition
Proposal, or (iii) cause the Company to enter into any letter of intent,
agreement in principle, acquisition agreement, or other similar agreement (in
each case, an "Acquisition Agreement") related to any Company Acquisition
Proposal, except that, in any case set forth in clause (i), (ii), or (iii)
above, prior to the acceptance for payment of shares of Common Stock pursuant to
the Offer, the Board of Directors of the Company may, in response to an
unsolicited Company Acquisition Proposal, (A) withdraw or modify its approval or
recommendation of the Offer, the Merger, or this Agreement or (B) approve or
recommend any such Company Acquisition Proposal if, in the case of any action
described in clause (A) or (B), in the good faith judgment of the Board of
Directors of the Company, after consultation with outside counsel, the failure
to take such action would not be consistent with the fiduciary duties of the
Board of Directors under applicable law and, in the case of the actions
described in clause (B), concurrently with such approval or recommendation the
Company terminates this Agreement and promptly thereafter enters into an
Acquisition Agreement with respect to a Company Acquisition Proposal.
(c) Nothing contained in this Agreement will prohibit
the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14d-9 or Rule 14e-2(a) promulgated under the Exchange Act
or from making any disclosure to the Company's stockholders if, in the good
faith judgment of the Board of Directors of the Company, after consultation with
outside counsel, failure so to disclose would be inconsistent with applicable
law; provided that, neither the Company nor its
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Board of Directors nor any committee thereof will, except as permitted by
Section 5.03(b), withdraw or modify, or propose to withdraw or modify, its
position with respect to the Offer, the Merger, or this Agreement or approve or
recommend, or propose to approve or recommend, a Company Acquisition Proposal.
SECTION 5.04. Notices of Certain Events.
The Company will promptly notify the Parent of:
(i) any notice or other communication from any Person
alleging that the consent of any third party (other than consents listed in
Section 3.03, 3.05, or 3.18 of the Company Disclosure Schedule) is or may be
required in connection with the transactions contemplated by this Agreement;
(ii) any material notice or other communication from
any governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement;
(iii) any action, suit, claim, or proceeding
commenced against, or, to the knowledge of the Company, any material threat of
an action, suit, claim, or proceeding made against, or any pending investigation
of, the Company that, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 3.13 or that relate to the
transactions contemplated by this Agreement; and
(iv) the receipt by the Company subsequent to the
date of this Agreement of any notice of, or other communication relating to, a
material default, or an event that, with the giving of notice, the lapse of
time, or both would become a material default, under any Contract.
SECTION 5.05. Merger Meeting; Proxy Statement.
(a) If required by Delaware Law in order to
consummate the Merger, as soon as practicable following the purchase of shares
of Common Stock pursuant to the Offer, the Company will take all action
necessary in accordance with Delaware Law and with the Company's certificate of
incorporation and bylaws to convene a meeting of its stockholders to approve the
Merger and adopt this Agreement (the "Merger Meeting"). The Company's Board of
Directors will recommend that the Company's stockholders approve the Merger and
adopt this Agreement, and will cause the Company to use all reasonable efforts
to solicit from the stockholders proxies to vote therefor, unless (i) in the
good faith judgment of the Board of Directors of the Company, after consultation
with outside counsel, such recommendation would not be consistent with the
fiduciary duties of
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the Board of Directors under applicable law or (ii) this Agreement is terminated
in accordance with Article IX.
(b) The Company will, if required by law for the
consummation of the Merger, prepare and file with the SEC preliminary proxy
materials relating to the approval of the Merger and the adoption of this
Agreement by the Company's stockholders, and will file with the SEC revised
preliminary proxy materials, if appropriate, and definitive proxy materials in a
timely manner as required by the rules and regulations of the SEC. Subject to
the last sentence of Section 5.05(a), the proxy materials relating to the Merger
Meeting will include the recommendation of the Company's Board of Directors.
SECTION 5.06. Information Systems.
From the date hereof until the Effective Time, the
Company will provide the Parent with all information regarding the Company's
information systems (including hardware, operating systems, applications,
database layouts, and related source code and documentation) requested by the
Parent that is reasonably available to the Company. To the extent practicable,
without disrupting the operation of the Company's business, the Company will
permit the Parent to test the Company's information systems, including tests
relating to the conversion of the Company's operating systems, applications, and
databases to the Parent's information systems.
ARTICLE VI
COVENANTS OF THE PARENT AND MERGER SUB
The Parent and Merger Sub agree that:
SECTION 6.01. Director and Officer Liability.
(a) The certificate of incorporation and the bylaws
of the Surviving Corporation will contain the provisions with respect to
exculpation from liability and indemnification set forth in the certificate of
incorporation and bylaws of the Company as of the date hereof, which provisions
(together with all provisions regarding indemnification or exculpation from
liability contained in any agreements or commitments of the Company) will not be
amended, repealed, or otherwise modified in any manner that would adversely
affect the rights thereunder of individuals who at the Effective Time were
present or former directors, officers, employees, or agents of the Company,
unless such modification is required by law.
(b) From and after the Effective Time, the Parent and
the Surviving Corporation will, jointly and severally, indemnify, defend, and
hold harmless the present and former directors and officers of the Company
against all losses, claims,
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damages, and liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding, or investigation, whether civil, criminal,
administrative, or investigative, to which any of them was or is a party or is
threatened to be made a party by reason of the fact that he or she was or is a
director or officer of the Company in respect of acts or omissions occurring at
or prior to the Effective Time to the fullest extent that the Company would have
been permitted to indemnify such Person under applicable law and the certificate
of incorporation and bylaws of the Company or any other agreements or
commitments in effect on the date hereof. The Parent will use all reasonable
efforts to, without any lapse in coverage, either (i) for at least six years
after the Effective Time, provide officers' and directors' liability insurance
("D&O Insurance") in respect of acts or omissions occurring at or prior to the
Effective Time covering each such Person currently covered by the Company's D&O
Insurance policy on terms with respect to coverage and amount no less favorable
than those of such policy in effect on the date hereof; provided that, in no
event will the Parent be required to pay per annum more than 150% of the last
premium (annualized) paid by the Company for such policy prior to the date
hereof, (ii) purchase tail insurance in respect of the Company's existing D&O
Insurance for six years for a premium not to exceed the present value
(discounted at the rate of 10% per annum) of the maximum annual premiums payable
under clause (i) above, or (iii) if such D&O Insurance or tail insurance is only
available at premiums in excess of the maximum premiums set forth in clauses (i)
or (ii), as applicable, then purchase the highest level of D&O Insurance or tail
insurance available for such maximum premium.
(c) Any Person who is entitled to indemnification
under Section 6.01(b) (an "Indemnified Party") wishing to claim such
indemnification, upon learning of any such claim, action, suit, proceeding, or
investigation, will promptly notify the Parent thereof, but failure to notify
the Parent will not relieve the Parent of liability except to the extent the
Parent is materially and adversely affected thereby. In the event of any such
claim, action, suit, proceeding, or investigation (whether arising before or
after the Effective Time), (i) the Parent or the Surviving Corporation will have
the right to assume the defense, and the Parent will not be liable to any of the
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by them in connection with the defense, except
that, if the Parent or the Surviving Corporation elects not to assume the
defense or counsel for the Indemnified Parties advises that, in such counsel's
reasonable judgment, there are issues that constitute conflicts of interest
between the Parent or the Surviving Corporation and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and the Parent or
the Surviving Corporation will pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received; provided that, the Parent will be obligated pursuant to this paragraph
(c) to pay for only one firm of counsel for all Indemnified Parties in any
jurisdiction, (ii) the Indemnified Parties will cooperate in the defense of any
such matter, and (iii) the Parent will not be liable for any settlement effected
without its prior written consent; and provided further that, the Parent will
not have any obligation hereunder to any Indemnified Party when and if a court
of competent jurisdiction ultimately
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determines, and such determination becomes final and nonappealable, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable law.
(d) If the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other Person and
is not the continuing or surviving Person in the consolidation or merger or (ii)
transfers all or substantially all of its assets to any Person, then and in each
such case, proper provisions will be made so that the successors and assigns of
the Surviving Corporation will assume all of the obligations of the Surviving
Corporation under this Article VI.
(e) The provisions of this Article VI are intended to
be for the benefit of, and will be enforceable by, each of the present and
former directors, officers, employees, and agents, their heirs and their
representatives.
SECTION 6.02. Merger Meeting.
The Merger will be consummated as soon as practicable
(and in no event later than six months) after the purchase of shares of Common
Stock pursuant to the Offer. If Merger Sub is able to do so under Delaware Law,
it will consummate the Merger pursuant to the "short form" merger provisions of
Delaware Law. The Parent will vote, or cause to be voted, all shares of Common
Stock beneficially owned by it in favor of the Merger.
SECTION 6.03. Employee Benefits.
The Parent expects that it will provide the employees
of the Company with benefits which, in the aggregate, are substantially
comparable to the benefits provided from time to time by the Parent to other
employees of the Parent or its Subsidiaries in similar positions. The Parent
agrees that, during the period commencing at the Effective Time and ending on
the second anniversary thereof, the benefits provided to such employees will be
not less favorable, in the aggregate, than the benefits provided by the Company
on the date of this Agreement. The Parent will cause each employee benefit plan
of the Parent in which employees of the Company are eligible to participate to
take into account, for purposes of eligibility and vesting, the service of such
employees with the Company as if such service were with the Parent, to the same
extent that such service was credited under a comparable plan of the Company.
The Parent will, and will cause the Surviving Corporation to, honor in
accordance with their terms, (i) all employee benefit obligations to current and
former employees of the Company accrued and vested as of the Effective Time and
(ii) to the extent set forth in Section 3.15 of the Company Disclosure Schedule,
all employee severance plans in existence on the date hereof and all employment
or severance agreements entered into prior to the date hereof.
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ARTICLE VII
COVENANTS OF THE PARENT, MERGER SUB, AND THE COMPANY
The Parent, Merger Sub, and the Company agree that:
SECTION 7.01. Reasonable Efforts.
Subject to the terms and conditions of this
Agreement, each party will use its all reasonable efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary or
advisable under applicable laws and regulations to satisfy the conditions to
closing and consummate the transactions contemplated by this Agreement as
promptly as practicable.
SECTION 7.02. Certain Filings and Consents.
The Company and the Parent will cooperate with one
another (a) in determining whether any action by or in respect of, or filing
with, any governmental body, agency, official, or authority is required, or any
actions, consents, approvals, or waivers are required to be obtained from
parties to any Contracts ("Third Party Consents"), in connection with the
transactions contemplated by this Agreement and (b) in attempting to take all
such actions, to make all such filings, and to obtain all such consents,
approvals, and waivers. The Company and the Parent will each promptly file
Notification and Report Forms under the HSR Act and respond as promptly as
practicable to all requests for additional information or documentation received
from the Antitrust Division of the United States Department of Justice or the
Federal Trade Commission. Notwithstanding the foregoing, nothing contained in
this Agreement will require the Company, the Parent, or and of the Parent's
Subsidiaries (i) to initiate or defend any material pending or threatened
litigation to which any governmental or regulatory authority (including the
Antitrust Division of the Justice Department and the Federal Trade Commission)
is a party, (ii) to agree or otherwise become subject to any material
limitations on (A) the right of the Parent or the Company, as the Surviving
Corporation, effectively to control or operate the business, assets, or
operations of the Company following the Offer or the Merger, (B) the right of
the Parent or the Company, as the Surviving Corporation, to acquire or hold the
business, assets, or operations of the Company as a result of the Merger, (C)
the right of Merger Sub to exercise its rights of ownership of the Common Stock
purchased by it in the Offer, or the right of the Parent to exercise its rights
of ownership of the Common Stock of the Company, as the Surviving Corporation,
after consummation of the Merger, including but not limited to the right to vote
the Common Stock on all matters properly presented to the Company's
stockholders, or (iii) to agree or otherwise be required to sell or dispose of,
hold separate (through the establishment of a trust or otherwise), or divest
itself of twenty-five (25) stores or more (whether stores of the Company, the
Parent, or any of the Parent's Subsidiaries).
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SECTION 7.03. Public Announcements.
The Parent and the Company will consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated by it and, except as
may be required by applicable law or any listing agreement with the New York
Stock Exchange, Inc. or The NASDAQ Stock Market, Inc., will not issue any such
press release or make any such public statement prior to such consultation. The
Company will not issue any press release or make any public statement that might
constitute the commencement of the Offer without the prior written consent of
the Parent.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01. Conditions to the Obligations of Each Party.
The obligations of the Company, the Parent, and
Merger Sub to consummate the Merger are subject to the satisfaction of the
following conditions:
(a) if required by applicable law, the Merger has
been approved, and this Agreement has been adopted, by the requisite vote of the
Company's stockholders;
(b) Merger Sub has purchased all shares of Common
Stock that are validly tendered and not properly withdrawn in accordance with
the Offer; and
(c) no provision of any applicable domestic law or
regulation, and no judgment, injunction, order, or decree of a court or
governmental agency or authority of competent jurisdiction, that has the effect
of making the Offer or the Merger illegal or otherwise restrains or prohibits
the purchase of shares of Common Stock pursuant to the Offer or the consummation
of the Merger is in effect.
SECTION 8.02. Conditions to the Obligations of the Parent and
Merger Sub.
The obligations of the Parent and Merger Sub to
consummate the Merger are subject to the compliance by the Company with its
obligations under Section 1.01(d).
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ARTICLE IX
TERMINATION
SECTION 9.01. Termination.
This Agreement may be terminated, and the Offer and
the Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of the Merger and adoption of this Agreement by
the Company's stockholders):
(a) by mutual written consent of the Company, the
Parent, and Merger Sub;
(b) by the Company if Merger Sub has not purchased
shares of Common Stock pursuant to the Offer by May 31, 1998, or by either the
Company or the Parent if the Merger has not been consummated by October 31,
1998, provided that the right to terminate this Agreement under this clause (b)
will not be available to any party that, at the time of termination, is in
material breach of its obligations under this Agreement;
(c) by either the Company or the Parent if any
applicable domestic law, rule, or regulation makes consummation of the Offer or
the Merger illegal or if any judgment, injunction, order, or decree of a court
or governmental agency or authority of competent jurisdiction restrains or
prohibits the consummation of the Offer or the Merger, and such judgment,
injunction, order, or decree has become final and nonappealable;
(d) by either the Company or the Parent if the
stockholder approval referred to in Section 8.01(a) has not been obtained at the
Merger Meeting; provided that, the right to terminate this Agreement pursuant to
this Section 9.01(d) will not be available (i) to the Company if it has not
performed its obligations under Section 5.05 or (ii) to the Parent if it has not
performed its obligations under the last sentence of Section 6.02;
(e) by either the Company or the Parent if the Offer
terminates without the purchase of shares of Common Stock thereunder; provided
that, the right to terminate this Agreement pursuant to this Section 9.01(e)
will not be available (i) to the Parent, if Merger Sub has breached its
obligations under Section 1.01(a), or (ii) to any party whose willful failure to
perform any of its obligations under this Agreement results in the failure of
any of the Offer Conditions or if the failure of any such Offer Conditions
results from facts or circumstances that constitute a material breach of the
representations or warranties of such party under this Agreement;
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(f) prior to the purchase of shares of Common Stock
by Merger Sub pursuant to the Offer, by the Parent if (i) the Company violates
its obligations under Section 5.03 in any material respects and thereafter any
Person publicly makes a Company Acquisition Proposal or (ii) the Board of
Directors of the Company does not publicly recommend in the Schedule 14D-9 that
the Company's stockholders accept the Offer and tender their shares of Common
Stock pursuant to the Offer and approve the Merger and adopt the Agreement, or
if the Board of Directors of the Company withdraws, modifies, or changes such
recommendation in any manner materially adverse to the Parent; or
(g) by the Company if the Company receives an
unsolicited Company Acquisition Proposal that the Board of Directors of the
Company determines in good faith, after consultation with its legal and
financial advisors, is likely to lead to a merger, acquisition, consolidation,
or similar transaction that is more favorable to the stockholders of the Company
than the transactions contemplated by this Agreement; provided that the Company
has given the Parent at least five days notice of the material terms of such
Company Acquisition Proposal and such termination will not be effective until
the Company has paid the Termination Fee, if and to the extent required under
Section 10.04(b), to the Parent either by delivery of a certified or bank check
payable to the Parent or by wire transfer to an account designated in writing by
the Parent, at the Company's option.
SECTION 9.02. Effect of Termination.
If this Agreement is terminated and the Offer and the
Merger are abandoned pursuant to Section 9.01, no party to this Agreement (or
any of its directors, officers, employees, agents, or advisors) will have any
liability or further obligation to any other party except (a) that the
agreements contained in Section 10.04, in the last sentence of Section 5.02, and
in the Confidentiality Agreement will survive the termination hereof and (b)
that nothing herein will relieve any party from liability for any breach of the
covenants, representations, or warranties made by it in this Agreement.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices.
All notices, requests, and other communications to
any party hereunder will be in writing (including telecopy) and will be given,
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if to the Parent or Merger Sub, to:
Fabri-Centers of America, Inc.
0000 Xxxxxx Xxxx
Xxxxxx, XX 00000
Attention: Xx. Xxxxx X. Xxxxxx
Executive Vice President and Chief
Financial Officer
Fax: (000) 000-0000
with a copy to:
Xxxxxxxx Xxxx & Xxxxx LLP
0000 Xxx Xxxxx
000 Xxxxxx Xxxxxx
Xxxxxxxxx, XX 00000-0000
Attention: Xxxxx X. Xxxxxxx
Fax: (000) 000-0000
if to the Company, to:
House of Fabrics, Inc.
00000 Xxxxxxxxx Xxxxx
Xxxxxxx Xxxx, XX 00000-0000
Attention: Xx. Xxxxxx X. Xxxxxx
President and Chief Executive Officer
Fax: (000) 000-0000
with a copy to:
O'Melveny & Xxxxx LLP
000 Xxxxx Xxxx Xxxxxx
Xxx Xxxxxxx, XX 00000-0000
Attention: Xxxxxxx X Xxxxxxx, Esq.
Fax: (000) 000-0000
or to such other address or telecopy number as such party may hereafter specify
for the purpose by notice to the other parties. Each such notice, request, or
other communication will be effective upon receipt.
SECTION 10.02. Survival.
None of the representations and warranties,
agreements, and other provisions contained in this Agreement or in any
certificate or other writing delivered
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pursuant to this Agreement, other than Article I and Sections 6.01, 6.03, and
10.04, will survive the Effective Time.
SECTION 10.03. Amendments; No Waivers.
(a) Subject to the applicable provisions of Delaware
Law and Section 1.01(e) of this Agreement, any provision of this Agreement may
be amended or waived prior to the Effective Time if, and only if, such amendment
or waiver is in writing and duly executed and delivered, in the case of an
amendment, by the Company, the Parent, and Merger Sub or, in the case of a
waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising
any right, power, or privilege hereunder will operate as a waiver thereof, nor
will any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power, or privilege.
SECTION 10.04. Fees and Expenses.
(a) Subject to paragraph (b) of this Section, all
costs and expenses incurred in connection with this Agreement will be paid by
the party incurring the costs and expenses.
(b) If (i) any Person publicly makes a Company
Acquisition Proposal and thereafter this Agreement is terminated pursuant to
Section 9.01(d), (ii) any Person publicly makes a Company Acquisition Proposal
and thereafter this Agreement is terminated pursuant to Section 9.01(e) because
an insufficient number of shares of Common Stock are tendered in the Offer,
(iii) this Agreement is terminated by the Parent pursuant to Section 9.01(f), or
(iv) this Agreement is terminated by the Company pursuant to Section 9.01(g),
then the Company will reimburse the Parent and Merger Sub for all of their
reasonable documented out-of-pocket expenses and fees actually incurred by the
Parent in connection with the transactions contemplated by this Agreement prior
to the termination of this Agreement, including, without limitation, all
reasonable fees and expenses of counsel, financial advisors, accountants, and
environmental and other experts and consultants to the Parent and Merger Sub
("Transaction Costs"); except that, the Company will not be required to
reimburse the Parent or Merger Sub for Transaction Costs in excess of $750,000
in the aggregate.
Notwithstanding the preceding paragraph, if (i) any
Person publicly makes a Company Acquisition Proposal and thereafter this
Agreement is terminated pursuant to Section 9.01(d) and within 12 months after
termination the Company agrees to or consummates any Company Acquisition
Proposal, (ii) any Person publicly makes a Company Acquisition Proposal and
thereafter this Agreement is terminated pursuant to
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Section 9.01(e) because an insufficient number of shares of Common Stock are
tendered in the Offer and within 12 months after termination the Company agrees
to or consummates any Company Acquisition Proposal, (iii) this Agreement is
terminated by the Parent pursuant to Section 9.01(f), or (iv) this Agreement is
terminated by the Company pursuant to Section 9.01(g), then, in addition to
reimbursing the Parent and Merger Sub for their Transaction Costs, the Company
will pay to the Parent a fee of $750,000 ("Termination Fee"). The Termination
Fee will be payable by delivery of immediately available funds at the time of
termination, in the case of termination under clause (iii) or (iv) of the
preceding sentence, or immediately prior to the earlier of the agreement with
respect to, or the consummation of, the Company Acquisition Proposal, in the
case of termination under clause (i) or (ii). If the Parent is required to file
suit to seek the Termination Fee, and it ultimately succeeds on the merits, it
will be entitled to all expenses, including reasonable attorneys' fees, that it
has incurred in enforcing its rights under this Section 10.04.
(c) If the Parent receives a Termination Fee under
circumstances in which a Termination Fee is payable, neither the Parent, Merger
Sub, nor any of their affiliates will assert or pursue in any manner, directly
or indirectly, any claim or cause of action against the Company or any of its
directors, officers, employees, agents, or representatives based in whole or in
part upon its or their receipt, consideration, recommendation, or approval of a
Company Acquisition Proposal, including the Company's exercise of its right of
termination of this Agreement under Section 9.01(g).
SECTION 10.05. "Knowledge" of the Company.
For purposes of this Agreement, unless otherwise
expressly provided where the term is used, "knowledge" of the Company will be
deemed to mean the actual knowledge of any director or executive officer of the
Company.
SECTION 10.06. Successors and Assigns.
The provisions of this Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns, provided that no party may assign, delegate, or otherwise transfer
any of its rights or obligations under this Agreement without the written
consent of the other parties.
SECTION 10.07. Governing Law.
The interpretation, validity, and enforceability of
this Agreement will be governed by the law of the State of Ohio without regard
to principles of conflict of laws that would apply the laws of any other
jurisdiction.
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SECTION 10.08. Counterparts; Effectiveness.
This Agreement may be signed in any number of
counterparts, each of which will be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement will
become effective when each party has received counterparts hereof signed by all
of the other parties.
SECTION 10.09. Entire Agreement.
This Agreement, the Company Disclosure Schedule, the
Parent Disclosure Schedule, and the Confidentiality Agreement constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements, both written and oral, among the parties with
respect to the subject matter of this Agreement. No representation, warranty, or
inducement not set forth herein has been made or relied upon by any party.
Neither this Agreement nor any provision hereof is intended to confer upon any
Person other than the parties any rights or remedies, except that the provisions
of Article I are intended for the benefit of the Company's stockholders and
holders of Company Options and Series B Warrants, and the provisions of Section
6.01 and 6.03 are intended for the benefit of present and former directors,
officers, employees, and agents of the Company.
SECTION 10.10. Headings.
The headings contained in this Agreement are for
reference purposes only and will not in any way affect the meaning or
interpretation of this Agreement.
SECTION 10.11. Severability.
If any term or other provision of this Agreement is
invalid, illegal, or unenforceable, all other provisions of this Agreement will
remain in full force and effect so long as the economic and legal substance of
the transactions contemplated hereby is not affected.
SECTION 10.12. Specific Performance.
Except as set forth in Section 10.04(c), the parties
agree that irreparable damage would occur if any of the provisions of this
Agreement is not performed in accordance with the terms hereof and that the
parties will be entitled to specific performance of the terms hereof in addition
to any other remedies at law or in equity.
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IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
FABRI-CENTERS OF AMERICA, INC.
By: /s/ Xxxxx X. Xxxxxx
--------------------------------------------
Name: Xxxxx X. Xxxxxx
Title: Executive Vice President and
Chief Financial Officer
FCA ACQUISITION CORPORATION
By: /s/ Xxxxx X. Xxxxxx
--------------------------------------------
Name: Xxxxx X. Xxxxxx
Title: Executive Vice President and
Chief Financial Officer
HOUSE OF FABRICS, INC.
By: /s/ Xxxxxx X. Xxxxxx
-------------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: President and Chief Executive Officer
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INDEX OF DEFINED TERMS
Page No.
--------
Acquisition Agreement......................................................33
Affiliate..................................................................16
Agreement...................................................................1
Cash Payment................................................................7
Closing.....................................................................5
Code.......................................................................16
Common Stock................................................................1
Company.....................................................................1
Company Acquisition Proposal...............................................33
Company Benefit Arrangement................................................16
Company Disclosure Schedule................................................10
Company Employee Plans.....................................................16
Company Financial Statements...............................................12
Company Material Adverse Effect............................................50
Company Option..............................................................7
Company Permits............................................................15
Company Preferred Stock....................................................10
Company Real Property......................................................22
Company SEC Reports........................................................12
Company Store Leases.......................................................22
Confidentiality Agreement..................................................32
Continuing Directors........................................................4
Contracts..................................................................14
D&O Insurance..............................................................36
Delaware Law................................................................4
Dissenting Stockholder......................................................8
DLJ.........................................................................3
Effective Time..............................................................5
Environmental Requirement..................................................24
ERISA......................................................................16
Exchange Act................................................................2
Exchange Agent..............................................................6
Exchange Fund...............................................................6
Expiration Date.............................................................1
X.X. Xxxxxxx................................................................7
Hazardous Material.........................................................24
HSR Act....................................................................10
Indemnified Party..........................................................36
Intellectual Property Rights...............................................24
knowledge..................................................................44
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Lien.......................................................................10
Merger......................................................................4
Merger Consideration........................................................5
Merger Meeting.............................................................34
Merger Sub..................................................................1
Merger Sub Common Stock.....................................................5
Minimum Condition..........................................................50
October 1997 Balance Sheet.................................................12
Offer.......................................................................1
Offer Conditions............................................................1
Offer Documents.............................................................2
Parent......................................................................1
Parent Disclosure Schedule.................................................27
Parent Financial Statements................................................29
Parent Material Adverse Effect.............................................50
Parent SEC Reports.........................................................28
Permitted Encumbrances.....................................................22
Person......................................................................6
Refund Claim...............................................................21
Schedule 14D-9..............................................................2
SEC.........................................................................2
Securities Act.............................................................12
Series B Warrant Agreement..................................................7
Series C Warrant Agreement..................................................7
Stock Certificate...........................................................5
Subsidiary.................................................................11
Supplemental Warrant Agreement..............................................7
Surviving Corporation.......................................................4
Tax........................................................................21
Tax Return.................................................................21
Termination Fee............................................................44
Third Party Consents.......................................................38
Transaction Costs..........................................................43
Warrant Agent...............................................................7
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LIST OF SCHEDULES
Schedule Designation
-------- -----------
1.01(a) Offer Conditions
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SCHEDULE 1.01(a)
OFFER CONDITIONS
Merger Sub will not be required to accept for payment
or, subject to any applicable rules and regulations of the SEC, including Rule
14e-1(c) under the Exchange Act (relating to Merger Sub's obligation to pay for
or return tendered shares after the termination or withdrawal of the Offer), to
pay for any shares of Common Stock not theretofore accepted for payment or paid
for pursuant to the Offer, if (1) there are not validly tendered and not
properly withdrawn prior to the expiration of the Offer that number of shares of
Common Stock which, when aggregated with the shares of Common Stock then owned
by the Parent and any of its affiliates, represents at least a majority of the
shares of Common Stock then outstanding on a fully diluted basis (the "Minimum
Condition") or (2) at any time on or after the date of the Agreement and at or
before the time that any shares of Common Stock are accepted for payment any of
the following conditions exist:
(a) Any provision of any applicable domestic law or
regulation, or any judgment, injunction, order, or decree of a court or
governmental agency or authority of competent jurisdiction, is in effect that
makes the Offer or the Merger illegal or otherwise, directly or indirectly,
prohibits or materially restrains the making of the Offer, the acceptance for
payment of, payment for, or ownership, directly or indirectly, of some or all of
the shares of Common Stock by Merger Sub or the Parent, makes the foregoing
substantially more costly, or materially delays the Merger.
(b) Any consents, authorizations, orders, and
approvals of, or filings or registrations with, any governmental commission,
board, or other regulatory body required in connection with the execution,
delivery, and performance of the Agreement has not been obtained or made, except
(i) the filing of appropriate certificates of merger in accordance with Delaware
Law, and (ii) where the failure to obtain or make any such consent,
authorization, order, approval, filing, or registration is not reasonably likely
to have, individually or in the aggregate, a material adverse effect on the
financial condition, results of operations, or business of the Company (a
"Company Material Adverse Effect"), or on the financial condition, results of
operations, or business of the Parent and Merger Sub, taken as a whole (a
"Parent Material Adverse Effect"), and would not render the Offer or the Merger
illegal or provide a reasonable basis to conclude that the parties or their
affiliates or any of their respective directors or officers will be subject to
the risk of criminal liability.
(c) Any requirement that the Parent, Merger Sub, or
the Company (i) initiate or defend against any material pending or threatened
litigation to which any governmental or regulatory authority (including the
Antitrust Division of the Justice Department and the Federal Trade Commission)
is a party, (ii) agree or otherwise become
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subject to any prohibition or material limitations on (A) the right of the
Parent or the Company, as the Surviving Corporation, effectively to control or
operate the business, assets, or operations of the Company following the Offer
or the Merger, (B) the right of the Parent or the Company, as the Surviving
Corporation, to acquire or hold the business, assets, or operations of the
Company as a result of the Merger, (C) the right of Merger Sub to exercise its
rights of ownership of the Common Stock purchased by it in the Offer, or the
right of the Parent to exercise its rights of ownership of the Common Stock of
the Company, as the Surviving Corporation, after consummation of the Merger,
including but not limited to the right to vote the Common Stock on all matters
properly presented to the Company's stockholders, or (iii) agree or otherwise be
required requires the sale or disposition, the holding separate (through the
establishment of a trust or otherwise), or the divestiture of twenty-five (25)
stores or more (whether stores of the Company, the Parent, or any of the
Parent's Subsidiaries).
(d) Any Third Party Consents required for the
consummation of the Offer have not been obtained except where the failure to
obtain any such Third Party Consents is not reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect or a Parent
Material Adverse Effect.
(e) The Company has failed to perform the obligations
to be performed by it under the Agreement at or prior to such time or any
representations and warranties of the Company contained in the Agreement are not
true at such time as if made at and as of such time (unless the representation
or warranty is made as of a specified date, in which case such representation or
warranty will be true as of such date), except to the extent that the failure to
perform such obligations and the untruth of such representations and warranties
is not reasonably likely to have, individually or in the aggregate, a Company
Material Adverse Effect and the Parent has received a certificate signed by an
executive officer and by the chief financial officer of the Company to the
foregoing effect. For purposes of determining whether this condition has been
satisfied, all qualifications in the representations and warranties as to
materiality will be disregarded, and all qualifications as to the knowledge of
the Company will be deemed to mean the knowledge of the Company at the time such
certificate is signed.
(f) The Agreement has been terminated in accordance
with its terms.
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